U.S. SECURITIES AND EXCHANGE COMMISSION
450 Fifth Street, N.W.
Washington, D.C. 20549
FORM 10-KSB
[X] Annual Report pursuant to section 13 or 15(d) of the securities exchange act
of 1934 (Fee Required) For the fiscal year ended September 30, 1999
OR
[ ] Transition Report pursuant to section 13 or 15(d) of the securities exchange
act of 1934 (No Fee Required)
AMG Oil Ltd.
(Name of Small Business Issuer in its charter)
STATE OF NEVADA N.A.
(State or other jurisdiction (I.R.S. Employer Identification No.)
of incorporation)
Suite 700, 700 - 6th Avenue,
Calgary, AB, T2P-0T8
(Address of and Zip code of Principal Executive Offices)
(403) 531-9718
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)
Indicate by check mark whether the registrant (1) has filed all reports required
to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during
the preceding 12 months (or for such shorter period that the registrant was
required to file such reports), and (2) has been subject to such filing
requirements for the past 90 days. [X] YES [ ] NO
Indicate by check mark if disclosure of delinquent filers pursuant to Item 405
of Regulation S-B is not contained herein, and will not be contained, to the
best of registrant's knowledge, in definitive proxy or information statements
incorporated by reference in Part III of this Form 10-KSB or any amendment to
this Form 10-KSB. [ ] YES [X] NO
As of December 18, 2000, the aggregate market value of the voting stock held by
non-affiliates of the registrant was $1,035,375 based upon a $0.15 per share
trading price on that date. The registrant's revenues for its most recent fiscal
year were $14,131.
Indicate the number of shares outstanding of each of the registrant's classes of
common stock, as of the latest practicable date: Class A Common Stock 19,600,000
Shares Outstanding $.00001 par value
Documents Incorporated By Reference
Certain Exhibits indicated in response to ITEM 13
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PART 1
ITEM 1. DESCRIPTION OF BUSINESS
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:
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.
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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.
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
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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 liquefaction
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.
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.
(a) Business Development
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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 Registrant's operations are conducted through its NZ Subsidiary and an
exploration office in Wellington, New Zealand maintained by Indo-Pacific Energy
Ltd., the operator of the Permit. 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 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 15, 2000, 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
19,600,000 common shares were outstanding (undiluted).
(b) Business of the Issuer
AMG Oil Ltd. ("the Registrant") and its wholly-owned subsidiary, AMG Oil (NZ)
Limited ("the NZ Subsidiary"), is a Calgary, Alberta, Canadian based oil and gas
exploration company with a participating interest in Petroleum Exploration
Permit 38256 ("PEP 38256"or the "Permit"), a hydrocarbon exploration permit
located on the South Island of New Zealand. Petroleum Exploration Permit 38256
is now divided into two areas: (a) the North Area which contains the Arcadia
Prospect and (b) the South Area which contains the Ealing Prospect (collectively
"PEP 38256" or the "Permit") (See PART I ITEM 2 - DESCRIPTION OF PROPERTY). The
permit ownership interests of the Registrant and its joint venture partners in
these two areas is the following:
Company South Area North Area
------- ---------- ----------
AMG Oil Ltd. 58% 50%
Indo-Pacific Energy Ltd. 20% 20%
Magellan Petroleum Australia Limited 12%
Durum Cons. Energy Corp. 20%
Orion Exploration Ltd. 10% 10%
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 properties adjacent to, or, depending on circumstances, in the area
of the Registrant's properties. 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.
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The Registrant has received no revenue from oil & gas operations to date, is in
a start-up phase with its existing assets and has no significant assets,
tangible or intangible, other than the opportunities for its interest in PEP
38256 disclosed herein. Following the drilling of the Ealing-1 and Arcadia-1
wells, the Registrant has no significant future obligations with respect to
PEP 38256. However, the Registrant expects to need to place additional
securities with investors in registered offerings or exempt transactions in
order to raise the capital required for its future activities until such time
as the Registrant can generate revenues from operations. None of the
Registrant's current officers are employed directly by the Registrant and devote
less than 20% of their time to the Registrant's business. All of the
Registrant's officers and directors devote a significant amount of their time to
other interests or competing businesses, which may be in conflict with the
operations and business of the Registrant.
There is no assurance that the Registrant will earn revenue, operate profitably
or provide a return on investment to its security holders. The Registrant's
Activities to date have consisted primarily of efforts to raise funds, acquire
an interest in PEP 38256, currently its sole exploration permit, conduct
preliminary seismic and geological studies over the Permit and participate in
drilling the Ealing-1 and Arcadia -1 exploration wells which occurred in the
fall of 2000. Neither of these exploration wells discovered hydrocarbons. As
currently structured, the Registrant proposes to derive all of its revenue from
a discovery of commercial quantities of hydrocarbons in PEP 38256. By drilling
the two exploration wells the Registrant and its joint venture partners have met
all the work obligations under which the Permit was granted by the government of
New Zealand. The Registrant and its joint venture partners are now in the
process of evaluating the information gained from drilling the Arcadia-1 and
Ealing-1 exploration wells in order to determine what if any future exploration
programs should be conducted on the Permit. Should the Registrant and its joint
venture partners decide that future exploration is warranted, a critical part of
the Registrant's business plan will require it to fund its share of future
seismic and drilling exploratory costs. There can be no assurance that the
Registrant will be able to successfully raise the capital required, when
required, to meet its proportionate costs, or that it will successful in
discovering commercial quantities of hydrocarbons, or that it will have access
to capital to develop a successful discovery without significant dilution or
cost to the Registrant's stockholders.
New Zealand Petroleum Exploration Permits
Under the Crown Minerals Act of 1991 ("CMA"), the exploration permit grants the
right to explore for hydrocarbons 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 Economic Development considers appropriate. If the Registrant and its permit
partners (collectively referred to as the "Holder") discover a deposit or
occurrence of petroleum, and satisfies the Minister that the results of
exploration justify granting a production permit, the Holder may, on application
before the expiry of the exploration permit, obtain a production 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, provided the Holder is in substantial compliance with the
conditions of the Permit. The Holder is presently in compliance with the permit
conditions.
PEP 38256 was originally granted on August 25, 1997. The exploration permit was
issued for a term of five years. The Holder is required to relinquish at least
50% of the permit area at the end of three years or by August 25, 2000. This
relinquishment has been made and approved by the Minister of Economic
Development.
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The Holder is required to complete a work program disclosed herein to maintain
the permit in good standing.
The Permit terms consist of three schedules, which define the permit area, work
program and milestones, and the royalties payable to the New Zealand government
upon commercial discovery. PEP 38256 encompasses an area of 11,183 square
kilometers on the western coast of the South Island of New Zealand. The
activities under the work program must be completed prior to the dates specified
in the second schedule in order to maintain the Permit in good standing.
The second schedule specifies that within 15 months of the commencement date of
the Permit, the Holder must:
1. locate and analyze petroleum sweeps within the permit area;
2. model existing gravity data and acquire new gravity data as required to
provide proper control on density models derived from gravity modeling;
3. acquire, model and interpret a minimum of 10 new magnetotelluric
stations;
4. scan and process existing seismic data;
5. complete surface geological work on source and other sequences as
appropriate;
6. integrate reprocessed onshore and existing offshore seismic data with
wells and new seismic data acquired.
Within 24 months and 30 months respectively from the commencement date of the
Permit, the Holder must additionally acquire, process and interpret 80
kilometers and 120 kilometers of new seismic data. The Holder is also required
to drill one exploration well within 36 months of the commencement date to the
lesser of 1200 meters, or the proposed target depth, unless geological or
engineering constraints encountered during drilling render completion
impractical. Concurrent with the drilling of the exploration well, the Holder
must submit a work program satisfactory to the Minister of Economic Development
for the remainder of the Permit term.
Non-compliance with any of the above noted requirements may result in revocation
of the Permit at the sole option of the Minister of Economic Development. The
Minister of Economic Development must first issue a notice of default to the
Holder and the Holder has 60 days to cure the default. The Registrant its permit
partners have satisfied all of the obligations of the permit by drilling the
Ealing-1 and Arcadia-1 exploration wells and are, therefore, recognized by the
Minister of Economic Development as being in good standing until August 25,
2002. Thereafter the Registrant and its partners have rights to retain 50% of
the remaining area of the permit for a further 5 year term, under a work program
yet to be defined.
A holder may also apply for an extension of time with respect to any of the
second schedule requirements but the Minister of Economic Development will
generally only consider delays related to local government environmental reviews
and insurmountable logistics problems such as the non-availability of a suitable
rig to drill at the required time.
The Permit's third schedule specifies royalties payable to the New Zealand
government under the Crown Minerals Program for Petroleum of 1995. When an
exploration permit is exchanged for a production permit upon a commercial
discovery, the Holder is obligated to pay royalties at the higher of 5% of net
sales revenues or 20% of accounting profits. The 5% royalty on net sales is
payable within 30 days of the calendar quarter end. Net sales are calculated as
gross sales plus hydrocarbons produced but not yet sold, less transportation,
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storage costs and certain other adjustments to sales. The comparison of the 5%
royalty to the 20% accounting profits is calculated on an annual basis and
payable 90 days subsequent to the end of the calendar year. Accounting profits
is defined as the excess of net sales revenues over the total of allowable
deductions. Allowable deductions are the sum of the following costs incurred in
the current year less any capital proceeds received during the year;
1. Production costs
2. Capital costs (exploration and development costs, permit acquisition
costs and feasibility costs)
3. Indirect costs
4. Abandonment costs
5. Operating and capital overhead allowances
6. Operating losses and capital costs carried forward to future reporting
periods
7. Abandonment costs carried back to prior reporting periods
New Zealand Environmental Regulation
The Registrant's interest in PEP38256 is governed under the Resource Management
Act of 1991; ("RMA") which includes lands and waters within twelve miles of
coastal areas. The RMA controls users of natural and physical resources, with a
view to managing resource usage in ways that will not compromise future
utilization. The RMA places the emphasis on the assessment of the proposed
activities' impact on the environment and sustainable management of the
environment.
Under the RMA, regional and district councils govern resource management.
Regional and district councils have each established their own rules and
standards for environmental assessments and required degrees of consultation.
These rules may limit industries to designated areas or stipulate terms related
to land use or development of a natural resource, depending on the environmental
or social effects. Applications, such as the Registrants application to drill
within PEP38256, may 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.
Risk Factors
The common shares of the Registrant must be considered a speculative purchase
due to a number of factors. Readers should carefully consider the risks
described below before deciding whether to purchase the Registrant's common
stock within the trading market. 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
shareholder that it will successfully address these risks.
1. Limited History of Operations, Reliance on Expertise of Certain Persons
and Substantial Other Interests
The Registrant has a limited history of operations and the management of
the Registrant and the growth of the Registrant's business depends on
the continued involvement of Mr. Bennett and Mr. Cameron Fink who may
not be easily replaced if either of them should leave the Registrant.
The Registrant does not have employment agreements in place with Mr.
Bennett or Mr. Fink nor does the Registrant carry key-person insurance
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for Mr. Bennett or Mr. Fink. Mr. Bennett has other business interests
which results in him devoting, approximately 85% of his time to such
other interests (See PART III ITEM 9-DIRECTORS, EXECUTIVE OFFICERS,
PROMOTERS AND CONTROL PERSONS and PART III ITEM 12-CERTAIN RELATIONSHIPS
AND RELATED TRANSACTIONS) while the remaining 15% of his time is devoted
to the business of the Registrant. Mr. Fink has other business interests
which results in him devoting, approximately 90% of his time to such
other interests while the remaining 10% of his time is devoted to the
business of the Registrant (See PART III ITEM 9-DIRECTORS, EXECUTIVE
OFFICERS, PROMOTERS AND CONTROL PERSONS).
2. Limited Financial Resources
The Registrant has limited financial resources and will have to raise
additional funds to sustain, continue and expand its business. At the end
of the Registrant's last completed fiscal year, dated September 30, 2000,
the Registrant had $818,958 in working capital. After paying for its share
of the recent drilling costs associated with the Elaing-1 and Arcadia-1
wells, the Registrant has approximately $325,000 in working capital. The
Registrant's required future expenditures for the period up to December 31,
2001 are approximately $135,000 and relate to the evaluation of the permit
area following the drilling of the Ealing-1 and Arcadia-1 wells plus
accounting, legal and administrative costs. The Registrant and its permit
partners have recently satisfied the five year obligations under which the
permit was granted by completing the Ealing-1 and Arcadia-1 explorations
wells. The Registrant and its permit partners will now review and remap
the permit in light of the information gained from drilling the exploration
wells. After the expiry of the first term of the permit on August 25, 2002
the Registrant and its partners will have the option to retain 50% of the
permit area under a new work program which had yet to be identified. As
the work program has yet to be negotiated with the Government of New
Zealand, the capital necessary to carry out the work program cannot be
determined at this time. However, the Registrant considers it probable that
any such work program will require an amount of capital that exceeds the
Registrant's current working capital. It is therefore likely that the
Registrant currently does not have sufficient capital to satisfy the
expected expenditures, has no revenues and will rely principally on the
issuance of common shares to raise funds to finance the expenditures that
are expected to be incurred beyond December 31, 2001. There is no
assurance that market conditions will continue to permit the Registrant to
raise funds when required, and any additional equity financing could be
dilutive to existing shareholders of the Registrant (See Risk Factor #14-
Dilution and Low Priced Shares Eligible for Future Sales). Should the
Registrant fail to raise additional capital the Registrant will be unable
to carry out its plan of operations and will be forced to abandon PEP
38256, after August 25, 2002, which is currently the Registrant's sole
property.
3. Consequences of Failure to Satisfy Prescribed Permit or License Terms and
Conditions
Varying circumstances, including an inadequacy in the financial resources
available to the Registrant to pay for the work required by the permit
terms and conditions as outlined above or, the inability of the Registrant
to secure the required equipment such as a drilling rig at the time
required, and or circumstances beyond the control or influence of the
Registrant may result in the failure to satisfy the terms and conditions of
the permit and could therefore result in the complete loss or surrender of
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the interest in the permit or license without compensation to the
Registrant. Permit 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 the 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.
While the Registrant and its permit partners are have met all the permit
conditions up to August 25, 2002, if they decide to renew their permit over
PEP 38256 a new work program will be attached to the permit. If The
Registrant does not have sufficient working capital to satisfy the future
work conditions of PEP 38256, the Registrant will have to raise additional
working capital to fund its portion the future exploration costs.
Alternatively the Registrant can reduce its costs to fund the exploration
by farming out part of its interest to a third party in exchange for the
third party contributing to the costs of exploration. If the permit
obligations are not satisfied by the specified due dates the Registrant and
its partners would be in non-compliance with the PEP 38256 permit terms.
Non-compliance may result in revocation of the permit at the sole option of
the Minister of Economic Development. The Minister of Economic Development
must first issue a notice of default to the Holder and the Holder has 60
days to cure the default. As the interest in PEP 38256 is the sole
property held by the Registrant the revocation or loss of the permit would
be extremely detrimental to the Registrant's business.
4. No Assurance of Earnings and Accumulated Losses
The Registrant currently has no oil or gas producing properties nor has the
Registrant ever generated any revenue from oil or gas sales. The
Registrant has no history of earnings and there is no assurance that the
business of the Registrant will be profitable. As at the end of the
Registrant's fiscal year dated September 30, 2000, the Registrant has an
accumulated deficit of $1,369,891 and the Registrant is expected to
continue incurring operating losses and accumulating deficits in future
periods. This will happen because there are expenses associated with the
research and exploration of PEP 38256. The Registrant cannot guarantee
that it will be successful in generating revenues in the future. A failure
to generate revenues will likely cause the Registrant to go out of
business.
5. No Intention to Pay Dividends
The Registrant has not paid any dividends to its shareholders since
inception and, due to its lack of earnings, is not in a position to declare
a dividend to its shareholders and even if the Registrant's business is
profitable there is no assurance that the board of directors will declare
dividends on the Registrant's common shares.
6. No Known Petroleum Reserves
The Registrant has no known hydrocarbon reserves. If the Registrant does
not find a hydrocarbon reserve containing oil or gas or if the Registrant
cannot develop the reserve, either because the Registrant does not have
sufficient capital to do it or because it will not be economically feasible
to do it, the Registrant will have to cease operations and anyone who has
purchased the Registrant's shares would lose their investment.
7. Competition with Other Companies
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Other companies with greater financial resources 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.
8. 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. The sole property owned by the Registrant is 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.
9. Oil & Gas Price Fluctuations
In the past few years, the price of oil & gas has been volatile. At the
present time the price of oil is significantly above the long run average
price; while the price of natural gas is also high. There can be no
assurance that in the future prices for oil & gas production will stabilize
at current rates. A general downturn in the prices of oil & gas would
likely lead the Registrant to reduce its exploration efforts on PEP 38256
which in turn could lead to an abandonment of PEP 38256.
10. Governmental Laws and Local Conditions
Claims of aboriginal peoples in New Zealand may adversely affect the rights
or operations of the Registrant. Currently the Registrant has no knowledge
of any actual or potential claims with Aboriginal peoples in New Zealand
with respect to PEP 38256 nor has there been any such claims initiated
against the Registrant or PEP 38256 in the past. The Registrant is subject
to numerous foreign governmental regulations that relate directly and
indirectly to its operations (See PART I ITEM 1- New Zealand Petroleum
Exploration Permits and PART I ITEM 1- New Zealand Environmental
Regulation). These government regulations may impact the Registrant's
operations by denying the Registrant certain permits and land use licenses
that are necessary for the Registrant to continue its work program on PEP
38256. 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.
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While conducting seismic exploration and exploration drilling activities,
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.
Subsequent to drilling a specific site, the Registrant will be required to
conduct and pay for reclamation activities to return the site to its
natural state as much as possible should the results of drilling not
warrant further development of the site. 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. To date
the costs incurred by the Registrant to comply with these laws and
regulations have not been of a material amount.
11. 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.
12. Marketing of Petroleum Products
The ability of the Registrant to sell any future oil or gas production may
be restricted or rendered unavailable due to factors beyond the control of
the Registrant, such as a change in laws which regulate petroleum licensing
and permitting within New Zealand or governmental confiscation without
compensation. The Registrant's profitability will largely depend on its
ability to market any commercial quantities of oil & gas that may be found
within PEP 38256. Therefore, any restriction on the Registrant's ability
to market its production would have a detrimental effect on the
Registrant's ability to generate revenues and ultimately its ability to
continue operating.
13. Currency Fluctuation Risk
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 a significant proportion of its
expenses in New Zealand denominated dollars. Although over the past year
the New Zealand dollar has weakened, as the table below shows, against the
US dollar, an increase in value of the New Zealand dollar versus the US
dollar would have a detrimental effect to the Registrant as the
<PAGE>
Page 13
Registrant's expenses incurred would, in turn, increase in US dollars.
While certain fluctuation can be expected to continue into the future there
can be no assurance that in the future the exchange rate will stabilize at
current rates.
Fluctuations on a monthly basis in the Zealand dollar versus the U.S.
dollar during the last year are as follows:
-----------------------------------------------------
Date Exchange Ratio
-----------------------------------------------------
Sep 1999 0.5224
-----------------------------------------------------
Oct 1999 0.5148
-----------------------------------------------------
Nov 1999 0.5124
-----------------------------------------------------
Dec 1999 0.5085
-----------------------------------------------------
Jan 2000 0.5141
-----------------------------------------------------
Feb 2000 0.4914
-----------------------------------------------------
Mar 2000 0.4908
-----------------------------------------------------
Apr 2000 0.4969
-----------------------------------------------------
May 2000 0.4712
-----------------------------------------------------
Jun 2000 0.4699
-----------------------------------------------------
Jul 2000 0.4609
-----------------------------------------------------
Aug 2000 0.4464
-----------------------------------------------------
Sep 2000 0.4188
-----------------------------------------------------
14. Inadequacy of Public Market and Removal from 1934 Exchange Act Reporting
Status
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
only approached one market maker directly while a limited number of other
securities brokers have on their own volition become market makers. The
Registrant has only 48 shareholders of record as at December 14, 2000, and
therefore no real market for the trading of its common shares. 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 on the OTCBB 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.
Management has determined that the excess costs to the Registrant to
maintain its reporting status under the 34 Act are not warranted at this
early stage in the Registrant's development as the capital otherwise
expended on legal and accounting costs associated with being a reporting
issuer could be spent on further exploration. As a result, it is expected
that the Registrant's common shares will continue to trade on the Pink
Sheets and will not be listed on the OTCBB in the near future. After
removing itself as a reporting issuer, the Registrant will no longer be
filing an annual Form 10KSB or a quarterly Form 10QSB, nor will the
directors, officers and affiliates of the Registrant be required to file a
<PAGE>
Page 14
Form 3 or a Form 4 to disclose their shareholdings and trades. Other than
information provided by the Registrant directly in the way of press
releases, little or no information regarding the Registrant, its financial
status and its business will be available to the public after the
Registrant removes itself from the reporting requirements of the 34 Act.
15. Dilution and Low Priced Shares Eligible for Future Sales
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.
The Registrant has adopted a stock option plan authorizing the purchase of
up to 3,000,000 shares and has issued options to acquire up to 217,500
common shares exercisable at $1.50 per share. The Registrant has
additional options issued and outstanding to purchase up to 800,000 shares
exercisable at a price of US$0.50 per share. The Registrant has 5,000,000
warrants outstanding exercisable at a price $1.00 per common and a further
400,000 warrants exercisable at $2.25 per share. The existence below-
market priced options, warrants or common share issuances 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.
Approximately 5,000,000 common shares of restricted common stock will
become eligible for sale under Rule 144 on approximately April 10, 2001 and
additional common shares will become eligible for resale into the market if
the Registrant issues more equity and there is no assurance or agreement
that these holders will not sell any of their shares. 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 would likely be
adversely affected.
16. No Title Insurance
Although the Registrant has done a review of titles to PEP 38256 it has not
obtained title insurance with respect to the property and there is no
guarantee of title. Although the Registrant is not aware of any, the area
which is covered by PEP 38256 may be subject to prior unregistered
agreements or transfers or native land claims, and title may be affected by
undetected defects.
17. Penny Stock Regulation and Difficulties in Selling Shares
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
<PAGE>
Page 15
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.
18. Concentration of Ownership and Ineffective Voting Powers
The directors, officers and other affiliates of the Registrant beneficially
own a sufficient number of the outstanding common shares of the Registrant
to be in control with respect to matter which may require a majority vote
of the Registrant's shareholders, such as the election members of the board
of directors or the sale of all or substantially all of the Registrant's
assets. Should the directors, officers and affiliates vote their shares in
a like manner on a matter requiring a majority vote of the Registrant's
shareholders, it is most likely that their position on the matter would
control the outcome of the vote. Additionally, because the directors,
officers and affiliates control the Registrant through their significant
shareholdings, the value attributable to the right to vote is essentially
gone. This could result in a reduction in the market value to the shares
owned by a shareholder because of the ineffective voting power.
19. Conflicts of Interest Among Other Companies with Common Directors and
Common Controlling Shareholder.
Mr. David Bennett is also a director of Indo-Pacific Energy Ltd. a company
who is currently the operator of and a partner in PEP 38256 pursuant to the
terms of the PEP 38256 joint venture operating agreement. Additionally,
Mr. Guidi is a controlling shareholder of both the Registrant and Indo-
Pacific Energy Ltd. and is also director of Indo-Pacific Energy Ltd. Due
to their roles in both the management of the Registrant and the management
of Indo-Pacific Energy Ltd. a conflict of interest could conceivable arise
between the best interests of the Registrant and the best interests of Indo
-Pacific Energy Ltd. In a situation where a conflict of interest exists
between the best interests of the Registrant and Indo-Pacific Energy Ltd.
any decision by Mr. Guidi or Mr. David Bennett which furthers the best
interests of Indo-Pacific Energy Ltd. may be harmful to the business
conducted by the Registrant.
Mr. David Bennett, Mr. Michael Hart and Mr. Alex Guidi are also a directors
of Trans-Orient Petroleum Ltd. Mr. Guidi is also an executive officer and
the controlling shareholder of Trans-Orient Petroleum Ltd., while Mr.
<PAGE>
Page 16
Bennett also owns common shares and options in Trans-Orient Petroleum Ltd.
Trans-Orient Petroleum Ltd. is an affiliate and a controlling shareholder
of the Registrant. Due to their roles in both the management of the
Registrant and the management of Trans-Orient Petroleum Ltd. a conflict of
interest could conceivable arise between the best interests of the
Registrant and the best interests of Trans-Orient Petroleum Ltd. In a
situation where a conflict of interest exists between the best interests of
the Registrant and Trans-Orient Petroleum Ltd. any decision by these
persons which furthers the best interests of Trans-Orient Petroleum Ltd.
may be harmful to the business conducted by the Registrant.
Employees and Consultants
The Registrant is in the start up stage and none of the Registrant's executive
officers have employment agreements with the Registrant. Mr. Cameron Fink
(President) and Mr. David Bennett (Vice-President of Exploration) devote less
than 20% of their time to the Registrants business. The Registrant does not
have any employees, as the operator, Indo-Pacific Energy Ltd., of which Mr.
Bennett is the President and CEO, conducts exploration activities on PEP 38256
on behalf of the joint venture. As the operator incurs expenses on the permit,
the operator submits cash calls on a periodic 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. All of the
Registrant's geological, exploration and technical services are provided
consultants who bill their services to the joint venture. The Registrant also
receives corporate services from DLJ Management Corp., a subsidiary of Trans-
Orient Petroleum Corp. The services consist of shareholder relations and
communications, administrative and accounting support. DLJ Management Corp.
provides their services on a hourly basis and has devoted less than 20% of their
time to matters related to the Registrant. DLJ Management Corp. bills monthly
for its services on the basis of a cost recovery basis for labor and rent,
office costs, and employee benefits.
ITEM 2. DESCRIPTION OF PROPERTY
The Registrant maintains a 120 square foot head office space on a rent free
basis 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 operator conducts business on behalf of the Registrant directly
related to PEP38256 in a 4000 square foot operations office in Wellington, New
Zealand. This office space is shared with the operator of PEP 38256,
Indo-Pacific Energy Ltd. and two other exploration companies and the operator
bills the Registrant monthly for the facility on the basis of actual hours
worked in a given month for activities directly related to the Permit.
The Registrant currently has no oil or gas producing properties and at present,
no known deposits of oil or gas. Currently, the sole asset owned by the
Registrant is its 58% and 50% interests in the South Area and North Area,
respectively, of PEP 38256. Indo-Pacific Energy Ltd. is the operator on PEP
38256 and is carrying out the required exploration programs on behalf of the
joint venture pursuant to an operating agreement dated June 25, 1998 and under
which the Registrant's initial interest in the Permit was acquired. Under the
terms of the operating agreement, each participant in the Permit is entitled to
a specified equity share or percentage in the Permit provided each participant
pays for its pro rata share of expenditures or cash calls related to the
development of the Permit. The level of expenditures and the work program are
determined by agreement between the members of the joint venture, who vote pro
rata with respect to their equity share with respect to expenditure proposals.
The Registrant holds a veto vote over expenditure proposals, and other than work
<PAGE>
Page 17
which is obligatory under the conditions of the Permit, cannot be forced into
any expenditure it does not approve. If any participant, including the operator,
does meet its required obligations or pay its portion of the cash calls, that
participant will automatically relinquish its interest to the other participants
in the Permit.
On June 25, 1998, Indo-Pacific Energy Ltd. and Trans-Orient Petroleum Ltd.
granted two options to the Registrant. The first option was for the Registrant
to acquire a 30% 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% interest on payment of any additional required seismic and for the
cost of drilling up to two exploratory wells.
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.
On March 31, 2000, Indo-Pacific Energy Ltd. and Trans-Orient Petroleum Ltd.
concluded a transaction under which all of the oil and gas assets of
Trans-Orient Petroleum Ltd. were sold to Indo including Trans-Orient Petroleum
Ltd.'s interest in PEP 38256. After the transaction was concluded the interest
holders in PP 38256 was the Registrant (30%) and Indo-Pacific Energy Ltd. (70%).
On June 8, 2000 Indo-Pacific Energy Ltd., the operator of PEP38256, and the
Registrant completed the processing and interpretation of the third stage of the
planned seismic to further detail drilling locations for the Arcadia and Ealing
prospects. The Arcadia prospect is situated in the North Area of the permit
area, adjacent to the Rangiora Trough, where sedimentary rocks covering an area
of approximately 25,000 acres are buried at sufficient depth to provide a
potential hydrocarbon charge. The Ealing prospect is located in the South Area
of the permit and has been mapped as a potential hydrocarbon trap over
approximately 15,000 acres. The target is adjacent to the main fault that bounds
the Ealing structure.
On June 28, 2000 the Registrant exercised its option to acquire an additional
50% participating interest PEP38256 from Indo-Pacific Energy Ltd. Under the
terms of the option agreement, the Registrant would earn the interest by funding
the entire costs of drilling and testing two exploration wells. The planned
depth for each of the Ealing-1 and Arcadia-1 wells was 6000 feet to reach the
potential targets, with several targets both above and below the Homebush
Sandstones that reside as a geological formation at 6000 feet. The anticipated
costs to drill the two wells including mobilization cost of the drilling rig was
$1,013,000 for the Ealing-1 and $791,000 for the Arcadia-1.
In order to fund the costs of drilling the Ealing-1 and Arcadia-1 wells, the
Registrant entered into three farm out agreements with third parties under which
the Registrant assigned a portion of its 80% interest in exchange for each of
the third parties paying a portion of the drilling costs on the two wells.
The first farm out agreement was entered into Orion Exploration Limited "Orion",
a subsidiary of the Orion Group, on October 9, 2000. Pursuant to the agreement
Orion earned a 10% interest in both the South Area and North Area of PEP 38256
by reimbursing the Company for a portion of past exploration costs, and by
contributing 20% to the cost of drilling both the Ealing-1 and Arcadia-1 wells.
<PAGE>
Page 18
The Registrant previously reported this transaction through the filing of a Form
8K which included a copy of the farmout agreement as an exhibit all of which was
filed on October 24, 2000, the contents of which are incorporated by reference
herein.
The second farm out agreement was entered into with Magellan Petroleum Australia
Limited "Magellan" on October 23, 2000. Pursuant to the agreement the Registrant
granted Magellan a twenty percent (20%) beneficial interest in the South Area of
PEP 38256, which includes the site of the Ealing- 1 well. In consideration for
the interest, Magellan reimbursed the Company for a portion of past exploration
costs, and by contributing 34% to the cost of drilling the Ealing-1 well. The
agreement also provided Magellan with the opportunity to acquire up to a 20%
interest in the North Area, including the Arcadia-1 well, after the results of
the Ealing-1 well were determined, and in exchange Magellan would be required to
pay the Registrant for a portion of past exploration costs, and contribute 40%
to the cost of drilling the Arcadia-1 well
Based upon the unsuccessful results from drilling the Ealing-1 well, Magellan
chose not to exercise their option to acquire an interest in the North Area; and
pursuant to the terms of the farmin agreement, Magellan chose to reduce its
beneficial interest in the South Area to a twelve percent (12%). The Registrant
previously reported this transaction through the filing of a Form 8K which
included a copy of the farmout agreement as an exhibit all of which was filed on
November 7, 2000, the contents of which are incorporated by reference herein.
The third farm out agreement occurred on November 20, 2000 when the Registrant's
board of directors ratified a letter agreement earlier entered into with Durum
Cons. Energy Corp. "Durum". Pursuant to the agreement the Registrant granted
Durum a twenty percent (20%) beneficial interest in the North Area of PEP 38256,
which includes the site of the Arcadia-1 well, with effect from the date on
which the Arcadia-1 well spudded. Pursuant to the agreement Durum earned a 20%
interest in the North Area of PEP 38256 by reimbursing the Registrant for a
portion of past exploration costs, and by contributing 40% to the cost of
drilling the Arcadia-1 well. (See PART III, ITEM 12 "CERTAIN RELATIONSHIPS AND
RELATED TRANSACTIONS" for a description of the relationship between Durum Cons.
Energy Corp. and the Registrant).
After giving effect to these farmouts, the interests in PEP 38256 are the
following:
Company South Area North Area
------- ---------- ----------
AMG Oil Ltd. 58% 50%
Indo-Pacific Energy Ltd. 20% 20%
Magellan Petroleum Australia Limited 12%
Durum Cons. Energy Corp. 20%
Orion Exploration Ltd. 10% 10%
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-Pacific Energy Ltd. and Trans-Orient Petroleum Ltd. The permit area is
<PAGE>
Page 19
situated in the onshore area surrounding Christchurch and encompasses 2,760,120
acres or (11,183 square kilometers). The permit term is five years, but a
minimum of 50% must be relinquished within three years. On August 25, 2000 the
participants in PEP 38256 relinquished back to the government of New Zealand 50%
of the PEP 38256 permit area that was considered to be of lesser prospectivity.
After the relinquishment the PEP 38256 permit covers an area of approximately
1.3 million acres which contains all the prospects and exploration leads so far
identified by the Company and its joint venture partner in the permit. 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. (See PART I ITEM 1- New Zealand
Petroleum Exploration Permits).
Prior to the Registrant acquiring its interest, five exploration wells had 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. Neither of the gas-condensate discoveries proved to
be economic. 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.
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 also
acquired in April 2000, a further 100 miles of seismic in order to define a
suitable drilling location.
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. The seismic acquired in
April 2000 focused on the Ealing and Arcadia Prospects with goal of determining
suitable drilling locations. In June/July 2000 the drilling locations had been
determined on the Ealing and Arcadia Prospects. On October 19, 2000 the Ealing-1
exploration well was spudded. The main objective sandstones were encountered
near the predicted depth and are well developed, but there is no evidence for
commercial hydrocarbons. The well was plugged and abandoned. After competing the
Ealing-1 well, the Drilling rig moved to the Arcadia Prospect and on November
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Page 20
12, 2000 the Arcadia-1 well was spudded. On November 20, 2000 it was announced
that the Arcadia-1 reached its TD of 1479m ( 4852 feet ). While reservoir
quality sandstones were encountered, no effective top seal to these was present,
and there was no evidence for commercial hydrocarbons. The Arcadia-1 well was
plugged and abandoned.
ITEM 3 LEGAL PROCEEDINGS
There are no material legal proceedings to which the Registrant is subject to or
which are anticipated or threatened.
ITEM 4 SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
There were no matters submitted to a vote of the Registrant's shareholders in
the fourth quarter of the Registrant's fiscal year.
PART II
ITEM 5 MARKET FOR COMMON EQUITY AND RELATED 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 2000 and 1999 fiscal years are
as follows:
Fiscal Quarter High Low Volume
-------------- ---- --- ------
Bid(1)(2) Bid(1)(2)
-------------- -------------
2000
First Quarter .625 .25 43,700
Second Quarter 1.50 .25 1,383,600
Third Quarter 3.35 .625 1,346,700
Fourth Quarter 3.60 2.70 2,443,900
1999
First Quarter 3.00 1.50 459,000
Second Quarter 1.563 1.125 176,200
Third Quarter 1.50 .75 148,300
Fourth Quarter .938 .063 52,200
Note:
(1) These quotations reflect inter-dealer prices, without retail mark-up,
mark-down or commission and may not represent actual transactions.
(2) Prior to June 1999 the source of the high/low bids was the OTCBB. After
June 30, 1999 until present the source of the information has been
Bloomberg.
At December 14, 2000 there were 19,600,000 common shares of the Registrant
issued and outstanding.
<PAGE>
Page 21
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.
As of December 14, 2000 there were 48 holders of record and the Registrant
closing share price on that date was $ 00.12.
During the 2000 fiscal year the Registrant issued 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 S, Rules 901-905 of the 1933 Securities Act.
Date Type of Security Number Proceeds Exemption
---- ---------------- ------ -------- ---------
10/04/00 Units 5,000,000 $250,000 Reg. S(901)(1)(2)
28/08/00 Units 400,000 $900,000 Reg. S(901)(3)(4)
(1) The Common Shares were issued to Trans-Orient Petroleum Ltd. (see PART I
ITEM 7 - CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS) at a price of
$0.05 per share for total proceeds of $250,000. In relying on the
exemption claimed, the Registrant relied on the following facts (1) at
the time of the issuance, the Registrant was not a reporting company
subject to section 13 or 15d of the 1934 Exchange Act (2) the Common
Shares were fully paid for and (3) the company which received the Common
Shares was not resident in the United States of America.
(2) Each Unit consists of one share of common stock and one warrant to
purchase an additional common share at any time until April 10, 2005 at a
price of $1.00 per share.
(3) The Common Shares were issued to Carerra Investments Ltd. at a price of
$2.25 per share for total proceeds of $900,000. In relying on the
exemption claimed, the Registrant relied on the following facts (1) at
the time of the issuance, the Registrant was a reporting company subject
to section 13 or 15d of the 1934 Exchange Act (2) the Common Shares were
fully paid for and (3) the company which received the Common Shares was
not resident in the United States of America.
(4) Each Unit consists of one share of common stock and one warrant to
purchase an additional common share at any time until August 28, 2002 at
a price of $2.25 per share.
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.
On June 20, 2000 the Registrant's board of directors granted options to acquire
up to 217,500 common shares at an exercise price of $1.50 per share to
directors, officers and individuals providing services to the Registrant and the
<PAGE>
Page 22
PEP 38256 joint venture. Additionally, on October 31, 2000 the Registrant's
Board of Directors granted options to acquire up to 15,000 common shares at an
exercise price of $2.00 per share to Arthur Evans. The options granted are
subject to a vesting schedule whereby 1/6 of the total granted vests every six
months from the date of granting. Additionally the options carry restrictions on
resale whereby a maximum of 25% of the amount vested can be resold in any 30 day
period. The directors and officers who were granted options are the following:
Name Title Total Amount First Vesting Date
Cameron Fink President 20,000 December 20, 2000(1)
David Bennett Director 50,000 December 20, 2000(2)
Arthur Evans Director 15,000 May 1, 2000(3)
Michael Hart Director 15,000 December 20, 2000(4)
Mark Katsumata Officer 10,000 December 20, 2000(5)
(1) On December 20, 2000 of the total amount under option, 3,3334 common
shares may be acquired under the vesting schedule.
(2) On December 20, 2000 of the total amount under option, 8,3334 common
shares may be acquired under the vesting schedule. An option to acquire
up to 10,000 common shares was granted to Mr. David Bennett's spouse Jenni
Lean. Both Mr. Bennett's options and Jenni Lean'soptions are held within
a family trust of which Mr. Bennett and Jenni Lean are beneficiaries.
(3) On May 1, 2000 of the total amount under option, 2,500 common shares may
be acquired under the vesting schedule.
(4) On December 20, 2000 of the total amount under option, 2,500 common shares
may be acquired under the vesting schedule.
(5) On December 20, 2000 of the total amount under option, 1,667 common shares
may be acquired under the vesting schedule.
ITEM 6. 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. As
of the date of the Registrant's last completed fiscal period ending September
30, 2000 a total of $ 1,332,543 was spent by the Registrant on the Permit. The
Registrant currently has no oil or gas producing properties nor any known
deposits of oil or gas. The Registrant and its permit partners have recently
satisfied the five year obligations under which the permit was granted by
completing the Ealing-1 and Arcadia-1 explorations wells. The Registrant and its
joint venture partners are required or plan to carry out the following work
during the calendar year 2001:
Review seismic, drilling and geological data in PEP 38256 in light of the
results of Arcadia-1 and Ealing-1 wells.
In more detail, this will consist of :
a) Geochemical and petrological review of cuttings from the wells, to
determine petroleum source potential and reservoir quality
b) Petrophysical analysis of electric logs and integration with well
lithology
<PAGE>
Page 23
c) Completion of a data trade with the permit holder of the adjacent
offshore area, in order to construct regional synthesis of stratigraphic
and lithologic correlations and to better identify petroleum source and
migration parameters
d) Reinterpretation of permit seismic data in light of the wells, in order to
identify and rank other exploration prospects and leads within PEP 38256
Total cost of this work is budgetted at US$50,000, of which the Registrant's
share is US$25,000. After paying for its share of the recent drilling costs
associated with the Ealing-1 and Arcadia-1 wells, the Registrant has
approximately $325,000 in working capital. The Registrant's required future
expenditures for the period up to December 31, 2001 are approximately $135,000
and relate to the evaluation of the permit area following the drilling of the
Ealing-1 and Arcadia-1 wells and accounting, legal and administrative expense.
After the expiry of the first term of the permit on August 25, 2002 the
Registrant and its partners will have the option to retain 50% of the permit
area under a new work program which had yet to be identified. As the work
program has yet to be negotiated with the Government of New Zealand, the capital
necessary to carry out the work program cannot be determined at this time.
However, the Registrant considers it probable that any such work program will
require an amount of capital that exceeds the Registrant's current working
capital. It is therefore likely that the Registrant currently does not have
sufficient capital to satisfy the expected expenditures, has no revenues and
will rely principally on the issuance of common shares to raise funds to finance
the expenditures that are expected to be incurred beyond December 31, 2001.
Failure to raise additional funds would result in the relinquishment of the
Registrants interest in the permit, currently the Registrants sole asset. The
Registrant has relied principally on the issuance of common shares by private
placements to individuals known to officers and directors of the Registrant,
Trans-Orient Petroleum Ltd. and Indo-Pacific Energy Ltd., companies which are
related through a common controlling shareholder and participants in PEP38256,
(See PART III ITEM 12- CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS) to raise
funds to support the business. There can be no assurance that the Registrant
will be successful in raising additional funds through the issuance of
additional equity nor that the parties that provided funds in the past will
continue to do so.
The Registrant does not expect any significant purchases of plant & equipment
nor any increase in the number of employees in the near future.
ITEM 7 FINANCIAL STATEMENTS
<PAGE>
Page 24
TELFORD SADOVNICK, P.L.L.C.
CERTIFIED PUBLIC ACCOUNTANTS
--------------------------------------------------------------------------------
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, 2000 and 1999 and the related consolidated statements of
operations, changes in stockholders' equity and cash flows for the years ended
September 30, 2000, 1999 and 1998 and for the period from inception on February
20, 1997 to September 30, 2000. 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, 2000 and 1999 and the results of its operations and its cash flows
for the years ended September 30, 2000, 1999 and 1998 and for the period from
inception on February 20, 1997 to September 30, 2000 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
November 24, 2000
--------------------------------------------------------------------------------
114 West Magnolia Street, Suite 423, Bellingham, Washington 98225
Telephone: (360) 392-2886 Facsimile: (360) 392-2887
<PAGE>
Page 25
AMG OIL LTD. (Formerly Trans New Zealand Oil Company)
(A Development Stage Enterprise)
Consolidated Balance Sheets
--------------------------------------------------------------------------------
As at September 30, 2000 1999
--------------------------------------------------------------------------------
Assets
Current
Cash $ 850,808 $ 258,129
Accounts receivable 163 92
Prepaid expenses 6,403 -
--------------------------------------------------------------------------------
857,374 258,221
Investments (Note 3) 31,041 52,876
Property and equipment (Note 4) 5,378 -
Oil and gas interest (Note 5) 497,987 962,554
--------------------------------------------------------------------------------
Total Assets $ 1,391,780 $ 1,273,651
--------------------------------------------------------------------------------
Liabilities
Current
Accounts payable and accrued liabilities $ 15,012 $ 6,072
Due to related party (Note 6) 23,404 -
--------------------------------------------------------------------------------
Total Liabilities 38,416 6,072
--------------------------------------------------------------------------------
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,
2000: 19,600,000 shares
1999: 14,200,000 shares 196 142
Additional paid-in capital 2,723,059 1,530,858
Deficit accumulated during the development stage (1,369,891) (263,421)
--------------------------------------------------------------------------------
Total Stockholders' Equity 1,353,364 1,267,579
--------------------------------------------------------------------------------
Total Liabilities and Stockholders' Equity $ 1,391,780 $ 1,273,651
--------------------------------------------------------------------------------
See accompanying notes to the consolidated financial statements
<PAGE>
Page 26
AMG OIL LTD. (Formerly Trans New Zealand Oil Company)
(A Development Stage Enterprise)
Consolidated Statements of Operations
--------------------------------------------------------------------------------
<TABLE>
<CAPTION>
Cumulative
from Inception
on February 20,
Year Ended Year Ended Year Ended 1997 to
September 30, September 30, September 30, September 30,
2000 1999 1998 2000
--------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Expenses
General and administrative $ 264,370 $ 43,786 $ 21,931 $ 354,269
Loss on sale of investment - 16,135 - 16,135
Write-down of investment 21,835 48,551 144,346 214,732
Write-down of oil and gas interest 834,396 160 - 834,556
--------------------------------------------------------------------------------------------------------------------
1,120,601 108,632 166,277 1,419,692
--------------------------------------------------------------------------------------------------------------------
Other Income
Interest income 14,131 11,467 14,970 42,862
Gain on sale of oil and gas interest - - 6,939 6,939
--------------------------------------------------------------------------------------------------------------------
14,131 11,467 21,909 49,801
Net loss for the period $(1,106,470) $ (97,165) $ (144,368) $(1,369,891)
--------------------------------------------------------------------------------------------------------------------
Basic and diluted loss per
share (Note 9) $ (0.07) $ (0.01) $ (0.01) $ (0.07)
--------------------------------------------------------------------------------------------------------------------
</TABLE>
See accompanying notes to the consolidated financial statements
<PAGE>
Page 27
AMG OIL LTD. (Formerly Trans New Zealand Oil Company)
(A Development Stage Enterprise)
Consolidated Statements of Cash Flows
--------------------------------------------------------------------------------
<TABLE>
<CAPTION>
Cumulative
from Inception
on February 20,
Year Ended Year Ended Year Ended 1997 to
September 30, September 30, September 30, September 30,
2000 1999 1998 2000
--------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Operating Activities
Net loss for the period $(1,106,470) $ (97,165) $ (144,368) $(1,369,891)
Adjustments to reconcile net loss to
cash applied to operating activities:
Depreciation 410 - - 410
Compensation expense from stock
options 42,255 - - 42,255
Loss on sale of investments - 16,135 - 16,135
Write-down of investments 21,835 48,551 144,346 214,732
Write-down of oil and gas interest 834,396 160 - 834,556
Gain on sale of oil and gas interest - - (6,939) (6,939)
Changes in non-cash working capital:
Accounts receivable (71) 825 (917) (163)
Accounts payable and accrued liabilities 8,940 334 4,238 15,012
Due to related party 23,404 - - 23,404
Prepaid expenses (6,403) - - (6,403)
--------------------------------------------------------------------------------------------------------------------
Net cash used in operating activities (181,704) (31,160) (3,640) (236,892)
--------------------------------------------------------------------------------------------------------------------
Financing Activities
Common shares issued for cash 1,150,000 600,000 600,000 2,681,000
--------------------------------------------------------------------------------------------------------------------
Net cash provided by financing activities 1,150,000 600,000 600,000 2,681,000
--------------------------------------------------------------------------------------------------------------------
Investing Activities
Purchase of investments - - (324,856) (324,856)
Proceeds from sale of investments - 72,948 - 72,948
Oil and gas exploration expenditures (369,829) (539,407) (426,368) (1,335,604)
Purchase of property and equipment (5,788) - - (5,788)
--------------------------------------------------------------------------------------------------------------------
Net cash used in investing activities (375,617) (466,459) (751,224) (1,593,300)
--------------------------------------------------------------------------------------------------------------------
Net increase (decrease) in cash
during the period 592,679 102,381 (154,864) 850,808
Cash position - Beginning of period 258,129 155,748 310,612 -
--------------------------------------------------------------------------------------------------------------------
Cash position - End of period $ 850,808 $ 258,129 $ 155,748 $ 850,808
--------------------------------------------------------------------------------------------------------------------
Supplemental disclosure of non-cash
investing activities:
Purchase of investments $ - $ - $ (10,000) $ (10,000)
--------------------------------------------------------------------------------------------------------------------
</TABLE>
See accompanying notes to the consolidated financial statements
<PAGE>
Page 28
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, 2000, 1999 and 1998
--------------------------------------------------------------------------------
<TABLE>
<CAPTION>
Deficit
Accumulated
Additional during the Total
Common Stock Paid-in Development Stockholders'
-----------------------
Shares Amount Capital Stage Equity
--------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
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
Common stock issued for
Cash at $0.05 per share 5,000,000 50 249,950 250,000
Common stock issued for
Cash at $2.25 per share 400,000 4 899,996 900,000
Net compensation expense
from stock options 42,255 42,255
Net loss during the period (1,106,470) (1,106,470)
--------------------------------------------------------------------------------
Balance at September 30,
<S> <C> <C> <C> <C> <C>
2000 19,600,000 $ 196 $ 2,723,059 $(1,369,891) $ 1,353,364
--------------------------------------------------------------------------------
</TABLE>
See accompanying notes to the consolidated financial statements
<PAGE>
Page 29
--------------------------------------------------------------------------------
AMG OIL LTD. (Formerly Trans New Zealand Oil Company)
(A Development Stage Enterprise)
Notes to the Consolidated Financial Statements
--------------------------------------------------------------------------------
For the Years Ended September 30, 2000 and 1999
--------------------------------------------------------------------------------
NOTE 1 - NATURE OF OPERATIONS AND CONTINGENCIES
The Company was 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 business of the Company is the
acquisition and exploration of oil and gas interests.
The Company is a development stage enterprise and is required to identify that
these consolidated financial statements are those of a development stage
enterprise in accordance with paragraph 12 of Statement of Financial Accounting
Standards No. 7. However, the Company is primarily engaged in the exploration
of PEP 38256, its only oil and gas interest, and is not engaged in the
development of PEP 38256, as that term is defined in the oil and gas industry.
The Company has yet to determine whether PEP 38256 contains oil and gas reserves
that are economically recoverable. Further, there can be no assurance that the
Company will ever discover commercial quantities of oil and gas or obtain proved
reserves. 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 activities and has therefore relied principally upon the
issuance of securities for financing. Additionally, the Company may reduce its
exposure in its oil and gas interest by farming out to other participants. The
Company intends to continue relying upon these measures to finance its
operations and exploration activities to the extent such measures are available
and obtainable under terms acceptable to the Company. These conditions raise
substantial doubt regarding the Company's ability to continue as a going
concern.
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 Holdings Ltd., 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 functional currency of the Company's
foreign subsidiaries is the United States dollar.
<PAGE>
Page 30
--------------------------------------------------------------------------------
AMG OIL LTD. (Formerly Trans New Zealand Oil Company)
(A Development Stage Enterprise)
Notes to the Consolidated Financial Statements
--------------------------------------------------------------------------------
For the Years Ended September 30, 2000 and 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
Cash, accounts receivable, accounts payable and accrued liabilities and due
to related parties are carried at cost which approximates fair value due to
the short-term nature of these instruments. Investments are carried at
fair value.
e) Accounting Pronouncements Recently Issued
The FASB issued Statement of Financial Accounting Standards ("SFAS") No.
133: Accounting for Derivative Instruments and Hedging Activities,
originally effective for fiscal periods beginning after June 15, 1999 but
extended one year to June 15, 2000 as revised by SFAS No. 137. SFAS No.
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 oil and gas activities are conducted jointly with other
companies and accordingly, these financial statements reflect only the
Company's proportionate interest in these activities.
Refer to Note 5
g) Investments
Investments are classified as available-for-sale securities and reported at
fair value, based on quoted market prices, with any unrealized losses from
temporary declines or unrealized gains reported as a component of
"Cumulative Comprehensive Adjustment" in stockholders' equity. An other-
than-temporary impairment requires the cost basis of the individual
security to be written down to the fair value with the amount of the write-
down accounted for as a realized loss and included in earnings.
Refer to Note 6
h) Property and equipment
Property and equipment consist of furniture, leasehold improvements and
office equipment and are recorded at cost and depreciated over their
estimated useful lives on a declining balance basis at annual rates of 20%
to 30%.
Refer to Note 4
<PAGE>
Page 31
--------------------------------------------------------------------------------
AMG OIL LTD. (Formerly Trans New Zealand Oil Company)
(A Development Stage Enterprise)
Notes to the Consolidated Financial Statements
--------------------------------------------------------------------------------
For the Years Ended September 30, 2000 and 1999
--------------------------------------------------------------------------------
NOTE 2 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (continued)
i) Oil and Gas Interest
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 interests 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.
The Company is primarily engaged in the exploration of PEP 38256, an
unproved oil and gas interest, and has yet to determine whether PEP 38256
contains oil and gas reserves that are economically recoverable. The
Company does not have any other oil and gas interests. PEP 38256 is
assessed for impairment on an annual basis by applying factors that rely on
historical experience. In general, the Company may write-off all, or a
portion of, PEP 38256 under one or more of the following conditions:
i) there are no firm plans for further drilling on the unproved interest;
ii) negative results were obtained from studies of the unproved interest;
iii) negative results were obtained from studies conducted in the vicinity
of the unproved interest; or
iv) the remaining term of the unproved interest does not allow sufficient
time for further studies or drilling.
Calculations for depletion and the ceiling test are required under the full
cost method. Although these calculations are summarized below, they do not
apply to the Company and may never apply to the Company unless proved
reserves are discovered or acquired, which may never happen.
Depletion is calculated for producing interests 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 interests are accounted for as adjustments to 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
interests are accounted for as adjustments to 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 interests net of impairment, and less the effects of income taxes.
Any excess capitalized costs are written off to expense.
j) 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.
<PAGE>
Page 32
--------------------------------------------------------------------------------
AMG OIL LTD. (Formerly Trans New Zealand Oil Company)
(A Development Stage Enterprise)
Notes to the Consolidated Financial Statements
--------------------------------------------------------------------------------
For the Years Ended September 30, 2000 and 1999
--------------------------------------------------------------------------------
NOTE 3 - INVESTMENTS
Investments comprise of 79,400 common shares (September 30, 1999: 79,400 shares)
of Trans-Orient Petroleum Ltd. ("Trans-Orient") acquired at a cost of $235,773
(September 30, 1998: $235,773) and having a fair value of $21,041 (September 30,
1999: $42,876) and 600,000 common shares (September 30, 1999: 600,000) of
Gondwana Energy, Ltd. ("Gondwana") acquired at a deemed cost of $10,000 and
having a fair value of $10,000 (September 30, 1999: $10,000). During the 2000
fiscal year, the Company recorded a write-down of investments of $21,835 (1999
fiscal year: $ 48,551 and 1998 fiscal year: $144,346) resulting from an
other-than-temporary impairment in the fair value of Trans-Orient. The amount
of the write-down was accounted for as a realized loss and included in earnings.
At September 30, 2000 and 1999, gross unrealized holdings gains/(losses) are
Nil.
The Company has the right to a further 600,000 common shares of Gondwana if a
commercial discovery is located in Petroleum Exploration Permit 38723.
Refer to Note 6
NOTE 4 - PROPERTY AND EQUIPMENT
Property and equipment are comprised as follows:
2000 1999
----------- -----------
Furniture and office equipment $ 4,760 $ -
Leasehold improvements 1,028 -
----------- -----------
5,788 -
Accumulated depreciation (410) -
----------- -----------
$ 5,378 $ -
----------- -----------
NOTE 5 - OIL AND GAS INTEREST
As at September 30, 2000, the Company has a 30% participating interest in
Petroleum Exploration Permit 38256 ("PEP 38256"), which was granted on August
25, 1997. PEP 38256 is located in New Zealand and provides for the exclusive
right to explore for petroleum for an initial term of five years, renewable for
an additional five years. One-half of the original area was relinquished on
August 25, 2000, and a further one half of the remaining area is required to be
relinquished upon renewal of PEP 38256, by August 25, 2002. The other
participant in PEP 38256 is Indo-Pacific Energy Ltd. ("Indo-Pacific") (70%), as
the operator.
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 and Trans-Orient
Petroleum Ltd. ("Trans-Orient"). In December 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 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.
<PAGE>
Page 33
--------------------------------------------------------------------------------
AMG OIL LTD. (Formerly Trans New Zealand Oil Company)
(A Development Stage Enterprise)
Notes to the Consolidated Financial Statements
--------------------------------------------------------------------------------
For the Years Ended September 30, 2000 and 1999
--------------------------------------------------------------------------------
NOTE 5 - OIL AND GAS INTEREST (continued)
By agreements dated December 3, 1998, October 26, 1999 and February 23, 2000,
this right was extended to June 15, 2000, and 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.
By notice dated June 15, 2000, the Company committed to earn a further 50%
participating interest in PEP 38256 by funding all of the costs of drilling two
exploration wells in 2000.
The Company and the other participant have completed the work program required
for the first two and a half years. PEP 38256 originally required the
participants to complete the remaining work program that included drilling one
exploration well prior to August 25, 2000, or surrender the permit. This
requirement has been amended, requiring the participants to drill one well by
October 31, 2000 and a second well by December 31, 2000.
At September 30, 2000, PEP 38256 is in good standing with respect to its work
commitments. The Company's share of the committed work program for the 2001
fiscal year requires an estimated $622,000 of exploration expenditures to be
incurred.
Refer to Notes 6 and 7
NOTE 6 - RELATED PARTY TRANSACTIONS
Certain transactions of the Company involve publicly traded companies having
directors, officers and/or principal shareholders in common with the Company.
These companies are Indo-Pacific Energy Ltd. ("Indo-Pacific"), Trans-Orient
Petroleum Ltd. ("Trans-Orient") and Gondwana Energy, Ltd. ("Gondwana").
a) Investments
Investments consist of common shares of Trans-Orient and Gondwana. During
the 1998 fiscal year, the Company sold its 20% participating interest in
Petroleum Exploration Permit 38723 ("PEP 38723") to Gondwana in exchange
for 600,000 common shares of Gondwana at a deemed value of $0.01667 per
share. If a commercial discovery is located in PEP 38723 before October
30, 2002, an additional 600,000 common shares of Gondwana will be issued to
the Company.
Refer to Note 3
<PAGE>
Page 34
--------------------------------------------------------------------------------
AMG OIL LTD. (Formerly Trans New Zealand Oil Company)
(A Development Stage Enterprise)
Notes to the Consolidated Financial Statements
--------------------------------------------------------------------------------
For the Years Ended September 30, 2000 and 1999
--------------------------------------------------------------------------------
NOTE 6 - RELATED PARTY TRANSACTIONS (continued)
b) Oil and Gas Interest
During the 1998 fiscal year, Indo-Pacific granted the Company a right to
earn up to an 80% participating interest in Petroleum Exploration Permit
38256.
Refer to Note 5
c) 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.
During the 2000 fiscal year, the Company issued 5,000,000 shares at a price
of $0.05 per share to Trans-Orient, pursuant to a private placement
agreement for total proceeds of $250,000. Additionally, each share
purchased included one warrant to purchase an additional share of common
stock exercisable at a price of $1.00 per share expiring on April 10, 2005.
Refer to Note 8
d) Consulting Agreements
During the 2000 fiscal year, the Company paid $7,175 (1999 fiscal year:
$4,483 and 1998 fiscal period: $4,295) in consulting fees to directors of
the Company. During the 2000 fiscal year, the Company incurred $ 51,868
(1999 fiscal year: $18,288 and 1998 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 in consulting fees to
private companies wholly-owned by various shareholders of the Company.
e) Management Agreement
During the 1998 fiscal year, the Company paid $5,921 in management fees to
a subsidiary of Source Rock.
f) Due to Related Party
At September 30, 2000 the Company owed Indo-Pacific $23,404 (September 30,
1999: Nil). This amount is non-interest bearing and has no fixed terms of
repayment.
<PAGE>
Page 35
--------------------------------------------------------------------------------
AMG OIL LTD. (Formerly Trans New Zealand Oil Company)
(A Development Stage Enterprise)
Notes to the Consolidated Financial Statements
--------------------------------------------------------------------------------
For the Years Ended September 30, 2000 and 1999
--------------------------------------------------------------------------------
NOTE 6 - RELATED PARTY TRANSACTIONS (continued)
g) Other
During the year the Company incurred $56,100 of mainly general and
administrative costs through DLJ Management Corp., ("DLJ"), a wholly owned
subsidiary of Trans-Orient. This amount represents costs incurred by DLJ on
behalf of the Company. At September 30, 2000 the Company has a retainer
balance of $2,395 paid to DLJ.
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
$622,000
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, 2000, there
were 19,600,000 shares (September 30, 1999: 14,200,000 shares) issued and
outstanding.
b) Share Issuances
During the 2000 fiscal year, the Company issued 5,400,000 shares pursuant
to private placements for total cash proceeds of $1,150,000.
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.
During the 1998 fiscal year, the Company issued 4,000,000 shares pursuant
to private placements 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 ("APB 25") 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.
<PAGE>
Page 36
--------------------------------------------------------------------------------
AMG OIL LTD. (Formerly Trans New Zealand Oil Company)
(A Development Stage Enterprise)
Notes to the Consolidated Financial Statements
--------------------------------------------------------------------------------
For the Years Ended September 30, 2000 and 1999
--------------------------------------------------------------------------------
NOTE 8 - COMMON STOCK (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, 1999 and 1998 fiscal periods:
2000 1999 1998
-----------------------------------------------------------------
Weighted Weighted Weighted
Average Average Average
Number Exercise Number Exercise Number Exercise
Fixed Options of Shares Price of Shares Price of Shares Price
-----------------------------------------------------------------
Balance at
beginning
of period 800,000 $ 0.50 2,000,000 $ 0.50 - $ -
Granted 217,500 $ 1.50 - - 2,000,000 0.50
Exercised - - (1,200,000) 0.50 - -
--------- ---------- ---------
Outstanding
and
exercisable
at end of
period 1,017,500 $ 0.71 800,000 $ 0.50 2,000,000 $ 0.50
--------- ---------- ---------
Weighted-
average fair
value of
options
granted
during the
period $ 2.08 $ - $ -
------ ------ ------
During the 2000 fiscal year, the Company granted stock options to purchase a
total of 217,500 shares exercisable at a price of $1.50 per share. The weighted
average fair value of the options granted was estimated at the date of grant or
amendment using a Black-Scholes option pricing model with the following
weighted-average assumptions: risk free interest rate of 6.23%; volatility
factors of the expected market price of the Company's common stock of 1.49;
option lives of 5 years; and no expected dividends. Additionally, stock options
to purchase 800,000 shares at a price of $0.50 until July 31, 2000 were amended
to establish a new expiry date of December 31, 2000. No stock options were
granted during the 1999 fiscal year 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 not 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
and 1998 fiscal periods.
<PAGE>
Page 37
--------------------------------------------------------------------------------
AMG OIL LTD. (Formerly Trans New Zealand Oil Company)
(A Development Stage Enterprise)
Notes to the Consolidated Financial Statements
--------------------------------------------------------------------------------
For the Years Ended September 30, 2000 and 1999
--------------------------------------------------------------------------------
NOTE 8 - COMMON STOCK (continued)
The following is a summary of the Company's net loss and basic and diluted loss
per share as reported and pro forma as if the fair value based method of
accounting defined in SFAS 123 had been applied for the 2000, 1999 and 1998
fiscal years:
<TABLE>
<CAPTION>
2000 1999 1998
------------------------------ ------------------------------ ------------------------------
As Pro As Pro As Pro
Reported Forma Reported Forma Reported Forma
------------------------------ ------------------------------ ------------------------------
<S> <C> <C> <C> <C> <C> <C>
Net loss for the year $(1,106,470) $(1,093,048) $ (97,165) $ (97,165) $ (144,368) $ (144,368)
------------------------------ ------------------------------ ------------------------------
Basic and diluted
loss per share $ (0.06) $ (0.07) $ (0.01) $ (0.01) $ (0.01) $ (0.01)
------------------------------ ------------------------------ ------------------------------
</TABLE>
The following stock options are outstanding at September 30, 2000:
Number Price Expiry
of Shares per Share Date
--------------- --------------- ---------------
800,000 $0.50 December 31, 2000
217,500 $1.50 June 20, 2005
---------------
1,017,500
---------------
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.
Stock options outstanding are not included in the computation of diluted loss
per share as such inclusion would be antidilutive due to net losses incurred for
the 2000, 1999 and 1998 fiscal periods. A reconciliation of the numerators and
denominators of the basic and diluted loss per share calculations are as
follows:
<PAGE>
Page 38
--------------------------------------------------------------------------------
AMG OIL LTD. (Formerly Trans New Zealand Oil Company)
(A Development Stage Enterprise)
Notes to the Consolidated Financial Statements
--------------------------------------------------------------------------------
For the Years Ended September 30, 2000 and 1999
--------------------------------------------------------------------------------
NOTE 9 - LOSS PER SHARE (continued)
2000 1999 1998
--------------- --------------- ---------------
Numerator, net loss for
the period $ (1,106,470) $ (97,165) $ (144,368)
--------------- --------------- ---------------
Denominator:
Weighted-average number
of shares Outstanding 16,624,110 13,650,959 10,941,096
--------------- --------------- ---------------
Basic and diluted loss
per share $ (0.07) $ (0.01) $ (0.01)
--------------- --------------- ---------------
NOTE 10 - INCOME TAXES
Statement of Financial Accounting Standards No. 109: Accounting for Income Taxes
("SFAS 109") requires that deferred taxes reflect the tax consequences on future
years of differences between the tax bases of assets and liabilities and their
financial reporting amounts. The adoption of SFAS 109 had no material effect on
the Company's financial statements. Pursuant to SFAS 109, the potential benefit
of net operating loss carry forwards has not been recognized in the financial
statements since the Company cannot be assured that it is more likely than not
that such benefit will be utilized in future years. The components of the net
deferred tax asset, the statutory tax rate, the effective tax rate and the
elected amount of the valuation allowance are as follows:
2000 1999 1998
--------------- --------------- ---------------
Net operating loss
carryforwards $ (535,171) $ (288,869) $ (199,898)
--------------- --------------- ---------------
Statutory tax rate $113,900 + 34% $22,500 + 39% $22,500 + 39%
in excess of in excess of in excess of
$335,000 $100,000 $100,000
Effective tax rate - - -
Deferred tax asset $ 181,958 $ 96,159 $ 61,460
Valuation allowance (181,958) (96,159) (61,460)
--------------- --------------- ---------------
Net deferred tax asset $ - $ - $ -
--------------- --------------- ---------------
The Company's net operating loss carryforward expires at various dates from the
year 2007 to 2020.
The Company's subsidiary in New Zealand has tax losses of NZ$2,591,539 to offset
future years taxable income in New Zealand. The realization of these tax loss
benefits is dependent on generating sufficient taxable income and satisfying
shareholder continuity requirements in accordance with New Zealand tax law.
<PAGE>
Page 39
--------------------------------------------------------------------------------
AMG OIL LTD. (Formerly Trans New Zealand Oil Company)
(A Development Stage Enterprise)
Notes to the Consolidated Financial Statements
--------------------------------------------------------------------------------
For the Years Ended September 30, 2000 and 1999
--------------------------------------------------------------------------------
NOTE 11 - COMPARATIVE FIGURES
Certain comparative figures have been restated to conform to the presentation of
the 2000 fiscal year.
NOTE 12 - SUBSEQUENT EVENTS
a) Oil and gas interest
By a farmout agreement dated October 9, 2000, the Company assigned a 10%
participating interest in PEP 38256 to Orion Exploration Limited ("Orion")
in return for funding 20% of the costs of drilling the Ealing-1 and
Arcadia-1 exploration wells.
By a farmout agreement dated October 23, 2000, the Company assigned a 20%
participating interest in the South Area of PEP 38256 to Magellan Petroleum
Australia Limited ("Magellan") in return for funding 34% of the costs of
drilling the Ealing-1 and Arcadia-1 exploration wells.
By a farmout agreement dated November 10, 2000, the Company assigned a 20%
participating interest in the North Area of PEP 38256 to Durum Cons.
Energy Corp. ("Durum") in return for funding 40% of the costs of drilling
the Arcadia-1 exploration well
During October and November 2000, the Ealing-1 exploration well in the
South Area and the Arcadia-1 exploration well in the North Area were
drilled to target depths without encountering any significant amounts of
hydrocarbons. Accordingly, both exploration wells were plugged and
abandoned.
Pursuant to the farmout agreements, the participants of PEP 38256 are the
Company (50% of the North Area and 58% of the South Area), Indo-Pacific
Energy Ltd. (20%), Durum Cons. Energy Corp. (20% of the North Area only),
Magellan Petroleum Australia Limited (12% of the South Area only) and Orion
Exploration Limited. (10%).
b) Stock option
By a resolution dated October 31, 2000, the Company agreed to grant a
director of the Company an option to purchase 15,000 common shares at an
exercise price of $2.00 per share, vesting over three years.
<PAGE>
Page 40
ITEM 8 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.
<PAGE>
Page 41
PART III
ITEM 9 DIRECTORS, EXECUTIVE OFFICERS, PROMOTERS AND CONTROL PERSONS;
COMPLIANCE WITH SECTION 16(A) OF THE EXCHANGE ACT
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
Mr. David Bennett(1) 54 Director & Vice-President of Exploration
Karori, Wellington
New Zealand
Alex Guidi(1) 41 Director (2)
Vancouver, British Columbia
Canada
Arthur Evans 69 Director(2)
Vancouver, British Columbia
Canada
Michael Hart(1) 52 Director (2)
Vancouver, British Columbia
Canada
Mark Katsumata 34 Secretary, Treasurer and Chief Financial
Vancouver, British Columbia Officer(2)
Canada
Notes:
(1) Member of audit committee.
(2) On August 11, 2000 Mr. Mark Katsumata resigned as corporate secretary and
chief financial officer. Mr. Michael Hart replaced Mr. Katsumata as
corporate secretary. On September 21, 2000 the Registrant appointed Mr.
Arthur Evans to its Board of Directors to replace Mr. Alex Guidi. Mr.
Guidi resigned as a director of the Registrant.
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.
<PAGE>
Page 42
Mr. Cameron Fink has been a member of the board of directors since December
1999. On February 28, 2000 Mr. Fink also became the President of the Registrant.
Mr. Fink received a B.Sc. in Geophysics at the University of Alberta, graduating
in 1993 with First Class Honours. After a brief summer assignment with Chevron
Canada Ltd. in Calgary, Cameron returned to do a post graduate degree at the
University of Victoria. In June of 1995, he graduated with a M.Sc. in Geophysics
with First Class standing and in August of 1995, Mr. Fink joined Amoco Canada
Petroleum Company as an interpretation geophysicist in the exploration
department, 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
intra-company expatriate assignment in New Orleans, Louisiana working Amoco's
offshore shelf properties in the Gulf of Mexico as an exploration/exploitation
geophysicist. In September 1999 Mr. Fink left the newly merged BP Amoco group
and took a position with Dominion Energy Canada Limited as a Senior
Geophysicist. Mr. Fink continues to be employed with Dominion Energy Canada
Limited in Calgary, Alberta, Canada.
Mr. David Bennett has been a member of the board of directors since June 1998.
Mr. 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, Mr. 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, Mr. Bennett was a post-doctoral fellow and lecturer at the University
of Wellington, New Zealand. From 1977 to 1982, Mr. 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. Mr. Bennett was an independent
consultant from 1994 to 1996 when he joined Indo-Pacific Energy Ltd. Mr. 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 also been the president and a director of Trans-Orient Petroleum Ltd. In
March 2000 Mr. Bennett stepped down as president of Trans-Orient Petroleum Ltd.
but continues to be a director. In April 1997 Mr. Bennett also became a member
of the board of directors and president of Durum Cons. Energy Corp. In September
1999 Mr. Bennett stepped down as president of Durum Cons. Energy Corp. but
continues to be a director. Durum Cons. Energy Corp is a participating member of
a joint venture that is conducting petroleum exploration within Papua New
Guinea. Durum Cons. Energy Corp. currently has no full time employees.
Mr. Alex Guidi has been a member of the board of directors and promoter of the
Registrant since August 1997. Between February 9, 2000 to February 28, 2000, Mr.
Guidi also held the position of President of the Registrant. 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. In April 2000, Mr. Guidi stepped down as
Chairman of Indo-Pacific Energy Ltd., but continues to be a member of the board
of directors. From July 1988 to December 1995, Mr. Guidi was a member of the
board of directors of Trans-Orient Petroleum Ltd. and was reelected 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. On
September 21, 2000 the Registrant appointed Mr. Arthur Evans to its Board of
Directors to replace Mr. Alex Guidi. Mr. Guidi resigned as a director of the
Registrant.
<PAGE>
Page 43
Mr. Arthur Lynden Evans has been a member of the board of directors since
September 2000. In 1979, Mr. Evans joined Ranger Oil Limited as Manager of
International Exploration. Mr. Evans directed the ongoing activities in China,
Australia and Guyana and worked on evaluating many other projects in Norway,
Botswana, Indonesia and New Zealand. In 1985, Mr. Evans accepted a position with
Petro-Canada Inc. as Vice-President of International Exploration. Mr. Evans was
responsible for on-going international projects and for initiating new ventures
in selected areas such as Colombia and Indonesia. In September 1986, Mr. Evans
left Petro-Canada Inc. and started Evans International Consulting Ltd. As
President of the Company, Mr. Evans continued to develop business deals in the
natural resource industries, primarily focusing on the Pacific Rim and promoting
petroleum exploration in British Columbia.
Mr. Hart became a director of the Registrant on December 15, 1999. Between
September 1995 to April 1996, Mr. Hart was an employee of Balcomp Developments
Ltd., a company located in Edmonton, Alberta, which provided road construction
services to the pulp and paper industry. While at Balcomp Developments Ltd., Mr.
Hart worked within research and development for the purpose of aiding the
company to develop a new division which would provide a marketplace for the
buying and selling of used construction equipment. In October of 1996, Mr. Hart
went to work for, CanAfrica Mining Co. Ltd., a private mining company whose
business consisted of gemstone and precious metals exploration within Kenya,
South Africa and Mozambique. My Hart's function at Can Africa Mining Co. Ltd.
was as an assistant to the Managing Director. Mr. Hart's position with CanAfrica
Mining Co. Ltd. continued until September 1997. Between September 1997 until
early 1998, Mr. Hart joined Scimtar Hydrocarbon's Corp. as an investor relations
officer. During the period in which Mr. Hart was employed, Scimtar Hydrocarbons
Corp. was an Alberta Stock Exchange listed company whose business was oil and
gas exploration primarily in the Middle East. Between March 1998 to March 1999,
Mr. Hart was a partner in M. Nigro Consulting Ltd. a partnership formed for the
purpose of providing investor relations services to public companies trading on
the Alberta Stock Exchange. From April 1999 until present Mr. Hart has held the
position of president of Hart-Byrne Enterprises Ltd. Hart-Byrne Enterprises Ltd.
is a private company formed by Mr. Hart and other investors which is developing
specialized products for the music industry. Mr. Hart is also president of On
The Wing Productions Inc., a private company which is also developing products
for the music industry. On August 11, 2000 Mr. Mark Katsumata resigned as
corporate secretary and chief financial officer. Mr. Michael Hart replaced Mr.
Katsumata as corporate secretary.
Mr. Katsumata was appointed secretary-treasurer on June 25, 1998. Mr. Mark
Katsumata was a director of the Registrant from February, 1997 to August 1997
and secretary from February 20, 1997 to August 6, 1997 Mr. Katsumata is a
certified general accountant who was in public practice from 1990 to 1994 with
the firm DeVisser & Company in Vancouver, B.C. From October 1994 until present,
Mr. Katsumata has been the secretary and controller of Indo-Pacific Energy Ltd.
Between December 1995 until April 1997 Mr. Katsumata was also a director of
Trans-Orient Petroleum Ltd. and also was Trans-Orient Petroleum Ltd.'s secretary
and chief financial officer from March 1995 until December 1995. In December
1997 and July 1997, respectively, Mr. Katsumata was reelected as chief financial
officer and secretary of Trans-Orient Petroleum Ltd. and continued to fulfil
these two positions until stepping down from both in September 2000. Between
December 1997 and September 2000, Mr. Katsumata was secretary and chief
financial officer of Durum Energy Cons. Ltd. Between January 1998 and April 2000
Mr. Katsumata was the chief financial officer of Verida Internet Corp. and
between January 1998 and July 2000 Mr. Katsumata was also the corporate
secretary. Mr. Katsumata has been employed as a certified general accountant for
by DLJ Management Corp. since January 2000. Mr. Katsumata spends approximately
<PAGE>
Page 44
15% of his time on the business of the Registrant while the remainder of his
time is spent on other companies. On August 11, 2000 Mr. Mark Katsumata resigned
as corporate secretary and chief financial officer. Mr. Michael Hart replaced
Mr. Katsumata as corporate secretary.
None of the individuals listed above are subject to any anticipated or
threatened legal proceedings of a material nature nor have they been subject to
such proceedings within the last five years.
Compliance with Section 16(a) of the Securities Exchange Act of 1934.
Section 16(a) of the Securities and Exchange Act of 1934 requires officers,
directors and persons who own more than ten percent of a registered class of a
company's equity securities to file initial reports of beneficial ownership and
to report changes in ownership of those securities with the Securities and
Exchange Commission. They are also required to furnish the Company with copies
of all Section 16(a) forms they file. To the Company's knowledge, based solely
on review of the copies of Forms 3, 4 and 5 furnished to the Company we have
determined the following:
(1) Mr. Cameron Fink was approximately 2 days late in the filing his July 2000
Form 4 which was required to report the initial granting of his options. (2) Mr.
David Bennett was approximately 2 days late in the filing his July 2000 Form 4
which was required to report the initial granting of his options. (3) Mr.
Michael Hart was approximately 2 days late in the filing his July 2000 Form 4
which was required to report the initial granting of his options. (4) Mr. Mark
Katsumata was approximately 2 days late in the filing his July 2000 Form 4 which
was required to report the initial granting of his options.
ITEM 10 EXECUTIVE COMPENSATION
Directors and Officers of our company have received the following compensation
for the fiscal year ending September 30, 2000:
<TABLE>
<CAPTION>
----------------------------------------------------------------------------------------------------------------------------
Annual Compensation Long-Term Compensation
----------------------------------------
Awards Payouts
-----------------------------------------------------------------------------------------
(a) (b) (c) (d) (e) (f) (g) (h) (i)
Other Securities All
Annual Restricted Under Other
Compen- Stock Options/ LTIP Compen-
Name and Salary Bonus sation Award(s) SARs Payouts sation
Principal Position Year ($) ($) ($) ($) (#) ($) ($)
----------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
David Bennett 2000 - - 7,175 - 60,000(1) - -
Vice-President of 1999 - - 4,483 - - - -
Exploration & Director 1998 - - 4,295 - - - -
Cameron Fink
President & Director 2000 - - - - 20,000 - -
1999 - - - - - - -
1998 - - - - - - -
Arthur Evans 2000 - - - - 15,000 - -
----------------------------------------------------------------------------------------------------------------------------
</TABLE>
<PAGE>
Page 45
<TABLE>
<CAPTION>
----------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Director (2) 1999 - - - - - - -
1998 - - - - - - -
Michael Hart 2000 - - - - 15,000 - -
Director(2) 1999 - - - - - - -
1998 - - - - - - -
Alex Guidi 2000 - - - - - - -
Director (2) 1999 - - - - - - -
1998 - - 18,000 - - - -
Mark Katsumata 2000 - - - - 10,000 - -
Secretary, 1999 - - - - - - -
Treasurer & Chief 1998 - - - - - - -
Financial Officer (2)
----------------------------------------------------------------------------------------------------------------------------
</TABLE>
(1) Of the 60,000 shares reported to be held under option, 10,000 are
attributable to Mr. David Bennett's spouse Jenni Lean. The options are
held within a family trust of which Mr. Bennett and Jenni Lean are
beneficiaries.
(2) On August 11, 2000 Mr. Mark Katsumata resigned as corporate secretary and
chief financial officer. Mr. Michael Hart replaced Mr. Katsumata as
corporate secretary. On September 21, 2000 the Registrant appointed Mr.
Arthur Evans to its Board of Directors to replace Mr. Alex Guidi. Mr.
Guidi resigned as a director of the Registrant.
The Registrant does not have any long-term incentive plans to the Named
Executive Officers during the 2000 fiscal year.
There are no standard or other arrangements pursuant to which the Registrant's
directors were compensated in their capacity as such during the 2000 fiscal
year, 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 the below 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.
The Registrant does not have a compensation committee of the board of directors
established.
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.
<PAGE>
Page 46
Option/Sar Grants In The Last Fiscal Year
--------------------------------------------------------------------------------
Percentage
Number of of Options
Securities granted to Exercise Market
Underlying Employees or Base Price on
Options in the Price Date of Expiration
Name Granted (#) Fiscal Year ($/Sh) Grant Date
--------------------------------------------------------------------------------
Cameron 20,000(1) 8.6% 1.50 2.35 June 20, 2005
Fink
--------------------------------------------------------------------------------
Mr. David 60,000(1) 25.81% 1.50 2.35 June 20, 2005
Bennett
--------------------------------------------------------------------------------
Arthur 15,000(1) 6.45% 2.00 2.00 October 31, 2005
Evans
--------------------------------------------------------------------------------
Michael 15,000(1) 6.45% 1.50 2.35 June 20, 2005
Hart
--------------------------------------------------------------------------------
Mark 10,000(1) 4.3% 1.50 2.35 June 20, 2005
Katsumata
--------------------------------------------------------------------------------
(1) The options granted are subject to a vesting schedule whereby 1/6 of the
total granted vests every six months from the date of granting.
Additionally the options carry restrictions on resale whereby a maximum of
25% of the amount vested can be resold in any 30 day period.
Aggregate Option Exercises in the Last Fiscal Year and Fiscal Year- End Option
Values
No stock options were exercised by any named executive officer during the 2000
fiscal year.
--------------------------------------------------------------------------------
Number of
securities
underlying Value of
unexercised unexercised
options as of in-the-money
December 20, options December
2000(#) 20, 2000(1)($)
--------------------------------------------------------------------------------
Shares Acquired Value Exercisable/ Exercisable/
Name on exercise(#) Realized($) unexercisable unexercisable
--------------------------------------------------------------------------------
Cameron Fink nil nil 3,334/16,666 nil/nil
--------------------------------------------------------------------------------
Mr. David Bennett nil nil 10,001/49,999(2) nil/nil
--------------------------------------------------------------------------------
<PAGE>
Page 47
--------------------------------------------------------------------------------
Number of
securities
underlying Value of
unexercised unexercised
options as of in-the-money
December 20, options December
2000(#) 20, 2000(1)($)
--------------------------------------------------------------------------------
Shares Acquired Value Exercisable/ Exercisable/
Name on exercise(#) Realized($) unexercisable unexercisable
--------------------------------------------------------------------------------
Arthur Evans nil nil 2,500/12,500 nil/nil
--------------------------------------------------------------------------------
Michael Hart nil nil 2,500/12,500 nil/nil
--------------------------------------------------------------------------------
Mark Katsumata nil nil 1,667/8,334 nil/nil
--------------------------------------------------------------------------------
(1) Based on a December 20, 2000 closing price of $0.15 per share.
(2) Of the 10,001 shares excercisable, 8,334 shares are attributable to the
option granted to Mr. David Bennett while 1,667 are attributable to an
option granted to his spouse Jennie Lean.
ITEM 11. 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 December 20, 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
19,600,000 shares were issued and outstanding.
The following table sets forth, as of December 20, 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.
================================================================================
Amount and
Name and Nature
Address Owner Beneficial Percent
of Beneficial Ownership Position of Class
--------------------------------------------------------------------------------
Cameron Fink 3,334(1) President and 0.02%
#30, 4810-40th Ave, SW Director
Calgary, Alberta,
T3E 1E5
--------------------------------------------------------------------------------
<PAGE>
Page 48
================================================================================
Amount and
Name and Nature
Address Owner Beneficial Percent
of Beneficial Ownership Position of Class
--------------------------------------------------------------------------------
Michael Hart 2,500(2) Director 0.01%
3331 Beach Avenue
Roberts Creek, BC
V0N 2W0
--------------------------------------------------------------------------------
Alex Guidi 4,477,500 Director(3) 22.84%
1408-1050 Burrard St shares
Vancouver, BC
V6Z 2S3
--------------------------------------------------------------------------------
Arthur Evans 2,500(4) Director 0.01%
Suite 403
2008 Fullerton Ave.
Vancouver, BC
V7P 3G7
--------------------------------------------------------------------------------
David Bennett 30,000 Director 0.15%
736 Makara Rd, shares (5)
PO Box 17-217
Karori,
Wellington, NZ
--------------------------------------------------------------------------------
Mark Katsumata 9,667 Secretary, Treasurer and 0.05%
15755 92B Avenue shares (6) Chief Financial Officer(7)
Surrey, BC
V4N 3B2
--------------------------------------------------------------------------------
All officers and 4,525,501(8) 23.08%(8)
directors as a
group
--------------------------------------------------------------------------------
Trans-Orient 14,000,000 56%
Petroleum Ltd. shares (9)
1200
1090 West Pender Street,
Vancouver, British Columbia
V6E 2N7
--------------------------------------------------------------------------------
Brad Holland 1,173,500 5.99%
Brad Holland shares
P.O. Box 2314
Dhahran,
Saudi Arabia
31311
================================================================================
(1) These shares represent common shares that may be acquired within the next
60 days under a stock option held by the individual.
(2) These shares represent common shares that may be acquired within the next
60 days under a stock option held by the individual.
(3) On September 21, 2000 the Registrant appointed Mr. Arthur Evans to its
Board of Directors to replace Mr. Alex Guidi. Mr. Guidi resigned as a
director of the Registrant but remains an affiliate due to his ownership
of greater than 10% of the Registrant's outstanding common shares.
<PAGE>
Page 49
(4) These shares represent common shares that may be acquired within the next
60 days under a stock option held by the individual.
(5) Of the shares reported to be owned, 10,000 represent common shares that
may be acquired within the next 60 days under a stock option held by the
individual and his spouse.
(6) Of the shares reported to be owned, 1,667 represent common shares that may
be acquired within the next 60 days under a stock option held by the
individual.
(7) On August 11, 2000 Mr. Mark Katsumata resigned as corporate secretary and
chief financial officer. Mr. Michael Hart replaced Mr. Katsumata as
corporate secretary. Subsequent to August 11, 2000 Mr. Katsumata is no
longer an officer of the Registrant.
(8) The number of shares owned by management as a group includes Mr. Alex
Guidi's and Mr. Mark Katsumata's ownership interests as both served in the
management of the Registrant for almost the entire fiscal 2000 year.
However, for fiscal 2001 their interests will not be considered in
calculating the number of shares owned by management assuming neither
return to their positions within the management of the Registrant. As a
result the shares reported to be owned by management is expected to
significantly decrease in the next reporting document.
(9) Of the 14,000,000 common shares reported, 800,000 is attributable to fully
vested stock options excisable within 60 days that are held by a wholly
owned subsidiary of Trans-Orient Petroleum Ltd.; while a further 5,000,000
reported is attributable to common shares issuable under warrants within
the next 60 days. Trans-Orient Petroleum Ltd. is a publicly owned company
with a registered office in Vancouver, British Columbia. Mr. Alex Guidi,
is the President, a member of the board of directors and the largest
shareholder of Trans-Orient Petroleum Ltd.
Changes in Control of the Registrant
As at December 20, 2000, Trans-Orient Petroleum Ltd. owns 8,200,000,
approximately 42% of the outstanding common shares outright and has the right to
acquire a further 5,800,000 common shares of the Registrant through the exercise
of fully vested options and warrants. Upon full exercise of these options and
warrants and assuming no other issuances by the Registrant to other parties,
Trans-Orient Petroleum Ltd. can increase there ownership to 55.11% of the
Registrant and thereby effectively control the Registrant. Trans-Orient
Petroleum Ltd. is a Yukon incorporated, publicly traded company with its head
office located in Vancouver, BC, Canada
ITEM 12. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
Related Party Transactions
--------------------------
The following transactions are reported as transactions between the Registrant
and a related party for the last two years prior:
(a) On November 20, 2000 the Registrant's board of directors ratified, with Mr.
David Bennett and Mr. Michael Hart declaring an interest and abstaining
from voting, a farmout agreement earlier entered into with Durum Cons.
Energy Corp. "Durum". Pursuant to the agreement the Registrant granted
Durum a twenty percent (20%) beneficial interest in the North Area of PEP
38256, which includes the site of the Arcadia-1 well, with effect from the
date on which the Arcadia-1 well spudded; In exchange for the interest
Durum must, among other things, contribute 40% of the costs to drill the
<PAGE>
Page 50
Arcadia-1 well and thereafter pay 20% of the costs associated with the
North Area of the Permit. Additionally, Durum must pay 20% of the past
costs incurred by the Registrant to up to the point of drilling the Arcadia
-1 well. Two of the Registrant's directors, Mr. David Bennett and Mr.
Michael Hart are also directors of Durum, but neither own any common shares
in Durum. Mr. Alex Guidi, a former director of the Registrant, and a major
shareholder in the Registrant, owns 200,000 common shares of Durum.
(b) During the fiscal year the Registrant incurred $56,100 of mainly general
and administrative costs through DLJ Management Corp., ("DLJ"), a wholly
owned subsidiary of Trans-Orient. This amount represents costs incurred by
DLJ on behalf of the Company for administrative and accounting services.
The transaction constitutes a related party transaction because Trans-
Orient Petroleum Ltd. is an affiliate of the Registrant through its
beneficial ownership of 8,200,000 common shares (representing 26.67% of the
Registrant's outstanding common shares) which consisted of and unexercised
warrants and options to acquire up to 5,800,000 more common shares.
Additionally, Mr. David Bennett is a member of the board of directors of
Trans-Orient Petroleum Ltd. and beneficially owns 400,000 common shares and
an option to acquire 1,025,000 common shares of Trans-Orient Petroleum Ltd.
Additionally, Mr. Alex Guidi an affiliate of the Registrant and is also the
President and a member of the board of directors of Trans-Orient Petroleum
Ltd. Mr. Guidi was a controlling shareholder of the Registrant (see PART
III ITEM 11 - SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND
MANAGEMENT) and was also a controlling shareholder of Trans-Orient
Petroleum Ltd. owning 15,001,400 common shares of Trans-Orient Petroleum
Ltd. and further options/warrants to acquire 6,000,000 common shares.
(c) During the fiscal year the Registrant paid Triad Creative Inc. a total of
$51,868 for web design and corporate materials design. Triad Creative Inc.
is a marketing and design company which is a wholly subsidiary of Verida
Internet Corp. The transaction constitutes a related party transaction
because Mr. Alex Guidi, an affiliate of the Registrant is also affiliated
to Verida through his ownership of 3,026,000 common shares of Verida.
(d) On April 10, 2000 the Registrant issued 5,000,000 units in a non-brokered
private placement to Trans-Orient Petroleum Ltd. for total proceeds of
$250,000. Each Unit consists of one share of common stock and one warrant
to purchase an additional common share at any time until April 10, 2005 at
a price of $1.00 per share. Trans-Orient Petroleum Ltd. is a Yukon
incorporated company public company with a registered office in British
Columbia. The transaction constitutes a related party transaction because
at the date of the issuance Trans-Orient Petroleum Ltd. was an affiliate of
the Registrant through its beneficial ownership of 4,000,000 common shares
(representing 26.67% of the Registrant's outstanding common shares) which
consisted of 3,200,000 common shares and unexercised warrants to acquire up
to 800,000 more common shares. Additionally, Mr. David Bennett was at the
date of the transaction a member of the board of directors of Trans-Orient
Petroleum Ltd. and beneficially owned 400,000 common shares and an option
to acquire 1,025,000 common shares of Trans-Orient Petroleum Ltd.
Additionally, Mr. Alex Guidi at the date of the transaction was a member of
the board of directors of the Registrant and is also a member of the board
of directors of Trans-Orient Petroleum Ltd. Mr. Guidi was a controlling
shareholder of the Registrant (see PART I ITEM 4 - SECURITY OWNERSHIP OF
CERTAIN BENEFICIAL OWNERS AND MANAGEMENT) and was also a controlling
shareholder of Trans-Orient Petroleum Ltd. owning 15,001,400 common shares
<PAGE>
Page 51
of Trans-Orient Petroleum Ltd. and further options/warrants to acquire
6,000,000 common shares.
(e) By an agreement dated June 25, 1998, the Registrant was granted an option
to earn a 30% participating interest (15% from each of Indo-Pacific Energy
Ltd. and Trans-Orient Petroleum Ltd.) 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-Pacific Energy Ltd. and Trans-Orient Petroleum Ltd.) by paying for
any additional seismic to define two drilling prospects and the costs of
drilling two exploration wells (the "Drilling Option"). On June 28, 2000
the Registrant exercised the Drilling Option to earn a further 50%
interest. The transaction constitutes a related party transaction as, in
addition to being a senior officer and a director of the Registrant, Mr.
David Bennett is also the president, chief executive officer and member of
the board of directors of Indo-Pacific Energy Ltd. and was at the date of
the transaction the president and a member of the board of directors of
Trans-Orient Petroleum Ltd. Additionally Mr. Bennett beneficially owned
20,000 common shares of the Registrant and also beneficially owned 3,000
common shares and an option to acquire a further 250,000 common shares in
Indo Pacific Energy Ltd. Additionally, Mr. Bennett beneficially owned
200,000 common shares and options/warrants to acquire a further 1,200,000
common shares in Trans-Orient Petroleum Ltd. At the date of the
transaction, Mr. Alex Guidi was a director and controlling shareholder of
the Registrant and was also the Chairman, member of the board of directors
and controlling shareholder of Indo-Pacific Energy Ltd. Mr. Guidi was also
the Chairman and a member of the board of directors of Trans-Orient
Petroleum Ltd. Mr. Guidi held 3,195,000 common shares in the Registrant and
6,560,194 common shares and options/warrants to acquire 994,000 common
shares of Indo-Pacific Energy Ltd. Mr. Guidi also owned 10,021,400 common
shares of Trans-Orient Petroleum Ltd. and a further options/warrants to
acquire 6,800,000 common shares in Trans-Orient Petroleum Ltd.
(f) 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 above mentioned Drilling Option have been amended accordingly. (See
paragraphs (d) and (e) above for a description of the relation ship between
the parties).
(g) 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 wholly
owned subsidiary of Indo-Pacific Energy Ltd., at a price of US$0.25 per
share and 1,000,000 shares to Reservoir Rock Holdings Ltd. ("Reservoir
Rock"), a wholly owned subsidiary of Trans-Orient Petroleum Ltd., for US
$0.25 per share. (See paragraphs (d) and (e) above for a description of
the relation ship between the parties).
(h) 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
<PAGE>
Page 52
payment of $200,000. (See paragraphs (d) and (e) above for a description of
the relation ship between the parties).
Control By Parent
-----------------
As at December 20, 2000 Trans-Orient Petroleum Ltd. owns 8,200,000,
approximately 42% of the outstanding common shares outright and has the right to
acquire a further 5,800,000 common shares of the Registrant through the exercise
of fully vested options and warrants. Upon full exercise of these options and
warrants and assuming no other issuances by the Registrant to other parties,
Trans-Orient Petroleum Ltd. can increase there ownership to 56% of the
Registrant. Trans-Orient Petroleum Ltd. is a Yukon incorporated, publicly traded
company with its head office located in Vancouver, BC, Canada. (See disclosure
under Related Party Transactions of this ITEM 7)
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 13. INDEX TO EXHIBITS AND REPORTS ON FORM 8-K
During the fiscal year ending September 30, 2000 the Registrant filed the
following material change reports on Form 8-K:
Date Description
---- -----------
July 5, 2000 Announcement of the Registrant's exercise of a drilling option
on its sole property PEP 38256.
Subsequent to the Registrant's fiscal year end dated September 30, 2000 and up
to December 20, 2000 the Registrant filed material change reports on Form 8-K:
Date Description
---- -----------
October 18, 2000 Change in permit conditions and Relinquishment of part of
the Permit Area.
October 24, 2000 Farmout Agreement with third party.
November 7, 2000 Farmout Agreement with third party.
December 5, 2000 Farmout Agreement with third party.
The following exhibits required by Item 601 of Regulation S-B are filed
herewith:
<PAGE>
Page 53
Exhibit Number Description
-------------- -----------
3.1 Initial Articles of Incorporation, as filed February 20, 1997 (1)
3.2 Bylaws(1)
3.3 Articles of Amendment to the Articles of Incorporation, as filed on July
27, 1998(1)
16 Change of Accountant Letter
27 Financial Data Schedule
99.1 PEP 38256 Option Agreement dated June 25, 1998(1)
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.(1)
99.3 PEP 38256 Joint Operating Agreement(1)
99.4 AMG Oil Ltd. 2000 Stock Option Plan(1)
99.5 Amended Permit Terms to PEP 38256(2)
99.6 Farmout Agreement with Orion Exploration Limited(3)
99.7 Farmout Agreement with Magellan Petroleum Australia Ltd.(4)
99.8 Farmout Agreement with Durum Cons. Energy Ltd.(5)
(1) Herein incorporated by reference as previously included in the
Registrant's Registration Statement on Form 10-SB filed on March 24,
2000 and amendments filed May 26, 2000.
(2) Herein incorporated by reference as previously included in the
Registrant's Form 8-K filed on October 18, 2000.
(3) Herein incorporated by reference as previously included in the
Registrant's Form 8-K filed on October 24, 2000.
(4) Herein incorporated by reference as previously included in the
Registrant's Form 8-K filed on November 7, 2000.
(5) Herein incorporated by reference as previously included in the
Registrant's Form 8-K filed on December 5, 2000.
<PAGE>
Exhibit 16
KPMG
KPMG LLP
Chartered Accountants
Box 10428 777 Dunsmuir Street Telephone (604) 691-3000
Vancouver BC V7Y 1K3 Telefax (604) 691-3031
Canada www.kpmg.ca
United States Securities and Exchange Commission
December 21, 2000
Dear Sirs:
AMG Oil Ltd. (the "Company") - Change of Auditor
We have reviewed Item 3, Changes in and Disagreements with Accountants, of
Amendment No. 2 to Form 10SB dated December 21, 2000 prepared by the Company and
we agree with the information contained therein, based upon our understanding
at this date.
/s/ KPMG LLP
Chartered Accountants
N.J/ (Norm) Mayr
Partner
(604) 691-3060
NJM:cec
<PAGE>
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 December 21, 2000
/s/Michael Hart
-------------------------------
Michael Hart Director & Corporate December 21, 2000
Secretary
/s/David Bennett
-------------------------------
David Bennett Director December 21, 2000
<PAGE>
