<PAGE> 1
AS FILED WITH THE SECURITIES AND EXCHANGE COMMISSION ON JUNE 21, 2000
REGISTRATION NO. 333-
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SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
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FORM F-1
REGISTRATION STATEMENT UNDER THE
SECURITIES ACT OF 1933
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WESTLINKS RESOURCES LTD.
(Exact name of Registrant as specified in charter)
<TABLE>
<S> <C> <C>
ALBERTA, CANADA 1311 NONE
(State or other jurisdiction of (Primary Standard Industrial (I.R.S. Employer Identification
incorporation or organization) Classification Code Number) No.)
</TABLE>
SUITE 370, 800 - 6TH AVENUE S.W., CALGARY, ALBERTA, CANADA T2P 3G3 TEL: (403)
261-2686
(Address, including zipcode, and telephone number, including area code,
of Registrant's principal executive offices)
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CARTER, LEDYARD & MILBURN, 2 WALL STREET, NEW YORK CITY, NEW YORK 10005 TEL:
(212) 732-3200
(Name, address and telephone number of agent for service)
Copies of all communications to:
<TABLE>
<S> <C>
MARCIA L. JOHNSTON GARY A. AGRON
GOWLING, STRATHY & HENDERSON LAW OFFICE OF GARY A. AGRON
SUITE 1200, 800 - 2ND STREET S.W. 5445 DTC PARKWAY, SUITE 520
CALGARY, ALBERTA, CANADA T2P 4V5 ENGLEWOOD, COLORADO 80111
(403) 298-1000 (303) 770-7254
</TABLE>
APPROXIMATE DATE OF COMMENCEMENT OF PROPOSED SALE TO THE PUBLIC: AS SOON AS
PRACTICABLE AFTER THIS REGISTRATION STATEMENT BECOMES EFFECTIVE.
If any of the securities being registered on this Form are to be offered on a
delayed or continuous basis pursuant to Rule 415 under the Securities Act check
the following box: [X]
If this Form is filed to register additional securities for an offering pursuant
to Rule 462(b) under the Securities Act, please check the following box and list
the Securities Act registration statement number of the earlier effective
registration statement for the same offering. [ ]
---------------
If this Form is a post-effective amendment filed pursuant to Rule 462(c) under
the Securities Act, check the following box and list the Securities Act
registration statement number of the earlier effective registration statement
for the same offering. [ ]
---------------
If this Form is a post-effective amendment filed pursuant to rule 462(d) under
the Securities Act, check the following box and list the Securities Act
registration statement number of the earlier effective registration statement
for the same offering. [ ]
---------------
If delivery of the prospectus is expected to be made pursuant to Rule 434,
please check the following box. [ ]
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CALCULATION OF REGISTRATION FEE
<TABLE>
<CAPTION>
---------------------------------------------------------------------------------------------------------------------------------
PROPOSED MAXIMUM PROPOSED MAXIMUM
TITLE OF EACH CLASS OF AMOUNT TO BE OFFERING PRICE AGGREGATE AMOUNT OF
SECURITIES TO BE REGISTERED REGISTERED PER UNIT(1) OFFERING PRICE(1) REGISTRATION FEE
---------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Common Stock(2).......................... 1,150,000 Shares $5.00 $5,750,000 $1,518.00
Warrants(3).............................. 1,150,000 Warrants $0.25 $287,500 $75.90
Common Stock(4).......................... 1,150,000 Shares $5.25 $6,037,500 $1,593.90
Underwriter's Warrants(5)................ 100,000 Warrants $.001 $100 $0.03
Common Stock(6).......................... 100,000 Shares $6.30 $630,000 $166.32
Common Stock(7)(8) offered on behalf of
Selling Stockholders................... 150,000 Shares $5.00 $750,000 $198.00
---------------------------------------------------------------------------------------------------------------------------------
Total $3,552.15
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</TABLE>
(1) Estimated pursuant to Rule 457 solely for the purpose of calculating the
registration fee.
(2) Includes 150,000 shares of Common Stock subject to the Underwriter's
over-allotment option.
(3) Includes 150,000 Warrants subject to the Underwriter's over-allotment
option.
(4) Represents Common Stock issuable upon exercise of the Warrants at the
exercise price of US$5.25, including shares underlying the Warrants included
in the Underwriter's over-allotment option.
(5) Represents warrants to purchase 100,000 shares of Common Stock granted to
the Underwriters (the "Underwriter's Warrants").
(6) Represents Common Stock issuable upon the exercise of the Underwriter's
Warrants.
(7) Represents Common Stock issuable upon exercise of warrants currently held by
the Selling Stockholders.
(8) Based upon the closing price of the shares of Common Stock on the Canadian
Venture Exchange on June 15, 2000, converted to U.S. dollars on the basis of
C$1.00 = US$0.6773, and rounded up to the next whole dollar amount.
There are also registered hereunder an additional indeterminate number of Shares
of common stock which may become issuable pursuant to the anti-dilution
provisions of the Common Stock Purchase Warrants and the Underwriter's Warrants.
THE REGISTRANT HEREBY AMENDS THIS REGISTRATION STATEMENT ON SUCH DATE OR DATES
AS MAY BE NECESSARY TO DELAY ITS EFFECTIVE DATE UNTIL THE REGISTRANT SHALL FILE
A FURTHER AMENDMENT WHICH SPECIFICALLY STATES THAT THIS REGISTRATION STATEMENT
SHALL THEREAFTER BECOME EFFECTIVE IN ACCORDANCE WITH SECTION 8(A) OF THE
SECURITIES ACT OF 1933, OR UNTIL THE REGISTRATION STATEMENT SHALL BECOME
EFFECTIVE ON SUCH DATE AS THE COMMISSION, ACTING PURSUANT TO SAID SECTION 8(A)
MAY DETERMINE.
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--------------------------------------------------------------------------------
<PAGE> 2
PRELIMINARY PROSPECTUS DATED JUNE 21, 2000 SUBJECT TO COMPLETION
The information in this preliminary prospectus is not complete and may be
changed. We may not sell these securities until the Registration Statement filed
with the Securities and Exchange Commission is effective. This preliminary
prospectus is not an offer to sell these securities and it is not soliciting an
offer to buy these securities in any state where the offer or sale is not
permitted or in any province or territory of Canada.
WESTLINKS RESOURCES LTD.
1,000,000 SHARES OF COMMON STOCK
AND
1,000,000 COMMON STOCK PURCHASE WARRANTS
Westlinks Resources Ltd. is offering 1,000,000 shares of common stock and
1,000,000 common stock purchase warrants, to be sold in units consisting of one
share of common stock and one warrant. Each warrant allows its holder to
purchase for a period of six months from the date of this prospectus one share
of common stock for US$ -- per share. The shares and warrants will trade
separately after issuance.
We have applied to list our common stock and warrants on the Nasdaq
SmallCap Market under the symbols "WLKSF" and "WLKSFW" respectively. At the
present time we do not meet all of the listing requirements of the Nasdaq
SmallCap Market, including share price. Our common stock is currently listed on
the Canadian Venture Exchange under the symbol "WLX", and is quoted in the
National Quotation Bureau's pink sheets under the symbol "WLKSF". The last
reported sale of our common stock on the Canadian Venture Exchange on June 15,
2000 was C$6.35 per share, and the closing price of our common stock on the
National Quotation Bureau's pink sheets on June 15, 2000 was US$4.13 per share.
By a separate prospectus concurrent with this offering, six security
holders are offering from time to time in open market transactions up to 150,000
shares of common stock underlying warrants held by them. We will not receive any
proceeds from the sale of these shares.
INVESTING IN OUR SECURITIES INVOLVES A HIGH DEGREE OF RISK. SEE "RISK
FACTORS" BEGINNING ON PAGE 7.
NEITHER THE SECURITIES AND EXCHANGE COMMISSION NOR ANY STATE SECURITIES
COMMISSION NOR ANY PROVINCIAL SECURITIES COMMISSION IN CANADA HAS APPROVED OR
DISAPPROVED OF THESE SECURITIES OR DETERMINED IF THIS PRELIMINARY PROSPECTUS IS
TRUTHFUL OR COMPLETE. ANY REPRESENTATION TO THE CONTRARY IS A CRIMINAL OFFENSE.
We have granted the underwriter a 45-day option to purchase an additional
150,000 shares of common stock and 150,000 warrants at the public offering price
less the underwriting discounts, solely to cover over-allotments, if any.
<TABLE>
<CAPTION>
TOTAL WITHOUT TOTAL WITH
PER SHARE PER WARRANT OVER-ALLOTMENT OVER-ALLOTMENT
---------------- ---------------- ---------------- ----------------
<S> <C> <C> <C> <C>
Public offering price......... US$ -- US$ 0.-- US$ -- US$ --
Underwriting discounts and
commissions................. US$ -- US$ 0.-- US$ -- US$ --
Proceeds to Westlinks......... US$ -- US$ 0.-- US$ -- US$ --
</TABLE>
The underwriter is offering the shares of common stock and warrants on a
firm commitment basis and expects to deliver the securities against payment in
Englewood, Colorado within three business days from the date of this prospectus.
SPENCER EDWARDS, INC.
Prospectus dated -- , 2000
<PAGE> 3
TABLE OF CONTENTS
<TABLE>
<S> <C>
Cautionary Statement Concerning Forward-Looking
Statements................................................ 2
Exchange Rate Information................................... 2
Enforceability of Civil Liabilities against Foreign
Persons................................................... 3
Prospectus Summary.......................................... 4
Risk Factors................................................ 7
Dilution.................................................... 10
Use of Proceeds............................................. 11
Price Range of Common Stock................................. 12
Dividend Policy............................................. 12
Capitalization.............................................. 13
Selected Financial Data..................................... 14
Management's Discussion and Analysis of Financial Condition
and Results of Operations................................. 15
Business.................................................... 21
Management.................................................. 31
Executive Compensation...................................... 33
Interest of Management and Others in Certain Transactions... 35
Principal Stockholders...................................... 37
Description of Securities................................... 38
Shares Eligible for Future Sale............................. 39
Legal Proceedings........................................... 40
Underwriting................................................ 40
Effect of Canadian Tax Laws on United States Stockholders... 41
Legal Matters............................................... 42
Experts..................................................... 42
Where You Can Find Additional Information................... 43
Index to Consolidated Financial Statements.................. F-1
</TABLE>
<PAGE> 4
CAUTIONARY STATEMENT CONCERNING FORWARD-LOOKING STATEMENTS
We have made forward-looking statements in this prospectus that are subject
to risks and uncertainties. Forward-looking statements include information in
this document regarding:
<TABLE>
<S> <C>
- capital spending - efficiencies
- oil and natural gas production - cost savings
- oil and natural gas reserves - future earnings
</TABLE>
The sections of this prospectus which contain forward-looking statements
include:
- "Prospectus Summary"
- "Risk Factors"
- "Management's Discussion and Analysis of Financial Condition and Results
of Operations"
- "Business"
Our forward-looking statements are also identified generally by the use of
the future tense and by words such as "believes", "expects", "anticipates",
"intends", "estimates" or similar expressions. Statements and calculations
concerning oil and gas reserves and their present value also may be deemed to be
forward-looking statements in that they reflect the determination, based on
estimates and assumptions, that oil and gas resources may be profitably
exploited in the future.
All of these statements are based on our current expectations and on a
number of assumptions. They are subject to risks and uncertainties discussed in
detail elsewhere in this prospectus. Actual results could vary materially from
those anticipated.
For all these statements, we claim the protection of the safe harbor for
forward-looking statements contained in the Private Securities Litigation Reform
Act of 1995, as amended.
EXCHANGE RATE INFORMATION
We publish our consolidated financial statements in Canadian dollars. In
this prospectus, except where otherwise indicated, all dollar amounts are stated
in Canadian dollars. References to "$" or "C$" are to Canadian dollars and
references to "US$" are to U.S. dollars. The following table sets forth for each
period indicated the period end exchange rates for conversion of U.S. dollars to
Canadian dollars, the average exchange rates on the last day of each month
during such period and the high and low exchange rates during such period. These
rates are based on the noon buying rate in New York City, expressed in U.S.
dollars, for cable transfers in Canadian dollars as certified for customs
purposes by the Federal Reserve Bank of New York.
EXCHANGE RATES FOR U.S. DOLLARS: C$1.00 =
<TABLE>
<CAPTION>
THREE MONTHS YEAR ENDED
ENDED MARCH 31, DECEMBER 31,
---------------- --------------------------
2000 1999 1999 1998 1997
------ ------ ------ ------ ------
<S> <C> <C> <C> <C> <C>
End of the period........................... 0.6879 0.6626 0.6918 0.6538 0.6996
Average for the period(1)................... 0.6880 0.6616 0.6691 0.6693 0.7207
High during the period...................... 0.6969 0.6724 0.6935 0.7124 0.7497
Low during the period....................... 0.6790 0.6535 0.6464 0.6311 0.6938
</TABLE>
---------------
(1) The average for the period is the average of the conversion rates on the
last day of each month in the period.
2
<PAGE> 5
On June 12, 2000 the noon buying rate in New York City for cable transfers
of Canadian dollars as certified for customs purposes by the Federal Reserve
Bank of New York, was C$1.00 = US$0.6773. This rate is used for conversion
purposes in this prospectus.
ENFORCEABILITY OF CIVIL LIABILITIES AGAINST FOREIGN PERSONS
We are a corporation organized under the laws of the Province of Alberta,
in Canada, all of our directors and officers, as well as the experts named in
this prospectus, reside in Canada and all of our assets and most of the assets
of these persons are located outside the United States. As a result, it may not
be possible for you to effect service of process within the United States upon
us or those persons, or to enforce against us or them in the United States
judgments obtained in U.S. courts based upon the civil liability provisions of
the U.S. federal securities laws or other laws of the United States. We have
been advised by Gowling, Strathy & Henderson, our Canadian counsel, that there
is doubt as to the enforceability in Canada of the civil liability provisions of
U.S. federal securities laws, or of judgments of U.S. courts predicated solely
upon U.S. federal securities laws.
3
<PAGE> 6
PROSPECTUS SUMMARY
To understand this offering fully, you should carefully read the entire
prospectus, including the risk factors and the consolidated financial
statements. This summary highlights selected information set out elsewhere in
this prospectus.
BUSINESS
Westlinks Resources Ltd. is engaged in the drilling and operation of oil
and gas wells in western Canada, primarily in the provinces of Alberta and
Saskatchewan. Since our amalgamation in 1998, we have assembled an experienced
management team which includes executive officers with oil and gas exploration
experience, as well as experience in resources acquisitions, petroleum
engineering, oil and gas drilling operations, debt and equity financings and
financial accounting.
STRATEGY
Our management team has developed what we consider to be a highly focused
approach to the exploitation and development of oil and gas properties. This
approach includes the following elements:
- the concentration on low-risk, development prospects that offer higher
probabilities of success, often among multiple oil and gas zones;
- the consolidation of adjacent or close-proximity prospects in order to
reduce drilling and operating costs;
- the acquisition of oil and gas producing properties at prices which we
believe are recoverable within a reasonable time frame;
- the emphasis on development drilling in our currently producing core
areas in order to minimize drilling risk;
- the use of either seismic analysis, including three dimensional seismic,
when it is cost effective, or information from adjacent wells, to
further minimize drilling risk; and
- the selection of producing oil and gas properties we can operate and
which we believe offer us the opportunity to reduce operating costs and
maximize economies of scale, thereby improving operating profitability.
OPPORTUNITY
The consolidation of the oil and gas industry in Canada has resulted in the
emergence of larger companies which are being forced to explore and develop
larger prospects in order to support their growth. We believe that this
consolidation offers smaller oil and gas companies the opportunity to
economically purchase producing properties which do not meet the economic
requirements of larger companies. We further believe that we can leverage our
management team's experience and the economies of scale generated from
consolidating adjacent properties in our core areas, to improve our
profitability.
ACQUISITION HISTORY
In the two years since our amalgamation, we have grown significantly
through a series of asset acquisitions. We have made four acquisitions of oil
and gas assets in our current four core areas in Alberta, acquiring our Bigoray
area assets and our Sylvan Lake area assets in August, 1999, our Mitsue area
assets in February, 2000 and our Sounding Lake area assets in May, 2000.
As of May 31, 2000, we have working interests in 64 oil wells, producing
approximately 1,340 barrels of oil equivalent per day, and hold oil and gas
leases on net acreage of approximately 20,000 acres, in the four core areas in
which we are the operator plus a portion of the Sounding Lake, Alberta area and
the Weyburn, Saskatchewan area in which we are not the operator.
4
<PAGE> 7
Our executive offices are located at Suite 370, 800 - 6th Avenue S.W.,
Calgary, Alberta, Canada T2P 3G3, our telephone number is (403) 261-2686 and our
fax number is (403) 261-2704. Our email address for general information and
correspondence is mailto:[email protected] and our Web site
address is www.westlinks-resources.com. Information contained on our Web site
does not constitute part of this prospectus.
THE OFFERING
Information in this prospectus assumes an offering price of US$5.00 per
share and US$0.25 per warrant. Except where noted otherwise, all information in
this prospectus, including share and per share information, assumes no exercise
of the underwriter's over-allotment option.
SECURITIES OFFERED: 1,000,000 shares of common stock and 1,000,000
warrants. The securities are offered in units
consisting of one share and one warrant. The common
stock and the warrants will trade separately
immediately after the offering.
WARRANT ATTRIBUTES: Each warrant entitles the holder to purchase one
share of common stock for US$ -- until
-- , 2001.
COMMON STOCK TO BE
OUTSTANDING AFTER THE
OFFERING: 5,432,639 shares.
USE OF PROCEEDS: We estimate that we will receive net proceeds of
about US$4,295,000. We expect to use the net
proceeds for repayment of debt; for acquisitions
and/or development of additional reserves, and for
working capital.
PROPOSED NASDAQ SMALLCAP
MARKET SYMBOLS: Common stock: WLKSF Warrants: WLKSFW
CANADIAN VENTURE EXCHANGE
SYMBOL: Common stock: WLX
PINK SHEET SYMBOL: Common stock: WLKSF
In addition to the common stock outstanding after the offering, we may
issue up to 1,000,000 shares of common stock on exercise of the warrants offered
hereby and up to 693,000 shares of common stock on exercise of currently
outstanding options and warrants.
Concurrent with this offering security holders who are not officers or
directors are offering to sell up to 150,000 shares of our common stock
underlying warrants they currently hold. We will not receive any proceeds from
the sale of these shares, but we will receive the exercise price upon the
exercise of the warrants. Each such warrant may be exercised to purchase one
share of common stock through March 5, 2001 at US$4.00 per share. These warrants
were issued in connection with a loan to Westlinks.
5
<PAGE> 8
SUMMARY CONSOLIDATED FINANCIAL DATA
The following table presents selected historical financial data for
Westlinks derived from our financial statements. The data should be read with
"Management's Discussion and Analysis of Financial Condition and Results of
Operations" and our financial statements and notes included elsewhere in this
prospectus. The monetary amounts in the table are expressed in Canadian dollars,
except for two columns which show the U.S. dollar equivalency for the periods
ended March 31, 2000 and December 31, 1999. The U.S. dollar equivalent amounts
are calculated on the basis of C$1.00 equals US$0.6773.
CONSOLIDATED STATEMENTS OF OPERATIONS DATA:
<TABLE>
<CAPTION>
UNAUDITED
THREE MONTHS ENDED MARCH 31, YEAR ENDED DECEMBER 31,
----------------------------- -----------------------------------------
2000 2000 1999 1999 1999 1998 1997
------- ------- ------- -------- ------- ------- -------
(IN THOUSANDS, EXCEPT PER SHARE DATA)
<S> <C> <C> <C> <C> <C> <C> <C>
Net revenue........................... US$ 918 C$1,355 C$ 317 US$1,405 C$2,075 C$1,697 C$1,055
Gross profit.......................... 643 950 160 875 1,292 848 617
Operating expenses.................... 275 405 157 530 782 849 439
Exploration expenses.................. -- -- 9 100 148 4 35
General and administrative expenses... 145 214 121 487 719 427 176
Interest.............................. 44 64 16 89 132 185 74
Depreciation and depletion............ 239 353 148 570 842 805 352
Gain (loss) from operations........... 215 318 (134) (371) (548) (572) (21)
Net income (loss)..................... US$ 116 C$ 172 C$ (77) US$ (34) C$ (50) C$ 254 C$ 215
======= ======= ======= ======== ======= ======= =======
Net income (loss) per share........... US$0.03 C$ 0.04 C$(0.03) US$(0.01) C$(0.02) C$ 0.11 C$ 0.16
======= ======= ======= ======== ======= ======= =======
</TABLE>
The following table indicates a summary of our balance sheets as of
December 31, 1999 and March 31, 2000. The "As Adjusted" column below reflects
our receipt of estimated net proceeds of US$4,295,000 from the sale of 1,000,000
shares and warrants at an assumed public offering price of US$5.25, after
deducting underwriting discounts and estimated expenses of US$955,000, converted
to C$6,341,355 on the basis of C$1.00 = US$0.6773. The monetary amounts in the
table are expressed in Canadian dollars, except for the column showing the U.S.
dollar equivalency as of March 31, 2000. The U.S. dollar equivalent amounts are
calculated on the basis of C$1.00 equals US$0.6773.
CONSOLIDATED BALANCE SHEET DATA:
<TABLE>
<CAPTION>
DECEMBER 31, UNAUDITED
1999 MARCH 31, 2000
------------ -----------------------------------
ACTUAL ACTUAL ACTUAL AS ADJUSTED
------------ -------- -------- -----------
(IN THOUSANDS)
<S> <C> <C> <C> <C>
Cash and cash equivalents................... C$ 42 US$ 6 C$ 8 C$4,061
Accounts receivable......................... 685 851 1,256 1,256
Capital assets.............................. 7,017 6,803 10,044 20,468
Total assets................................ 7,744 7,659 11,308 25,786
Long-term debt.............................. 1,525 1,727 4,400 12,536
Total stockholders' equity.................. 3,978 3,066 4,527 10,869
</TABLE>
6
<PAGE> 9
RISK FACTORS
WESTLINKS HAD A WORKING CAPITAL DEFICIENCY AT MARCH 31, 2000.
At March 31, 2000 we had a working capital deficiency of C$2,331,578, which
means our current liabilities exceeded our current assets by that amount. We
require the proceeds of this offering to fund most of our year 2000 drilling
budget.
OUR ASSETS ARE HIGHLY LEVERAGED AND WE ARE IN TECHNICAL DEFAULT WITH RESPECT TO
OUR CREDIT FACILITY, WHICH COULD CAUSE OUR BANK TO CALL OUR LOAN FOR REPAYMENT.
In order to complete our recent acquisition in the Sounding Lake, Alberta
area, we incurred a high amount of debt relative to our assets. A decrease in
the amount of our production or the price we receive for it could make it
difficult for us to service our loan or may cause the bank that issued our loan
to determine that our assets are insufficient security for our bank debt. In
fact, we are technically in default under the covenants in our credit facility
which require that our debt to equity ratio not exceed two to one. Our current
ratio of debt to equity exceeds three to one. If our bank elects to do so, it
could call our loan for repayment, requiring us to sell substantially all of our
assets, or lose those assets to the bank.
THERE IS UNCERTAINTY ABOUT ESTIMATES USED IN THIS PROSPECTUS AND THEY MAY PROVE
TO BE INACCURATE, RESULTING IN A REDUCTION OF OUR WORKING CAPITAL.
This prospectus contains estimates of future net cash flows from our oil
and gas reserves, prepared by independent engineers, which are based upon the
estimates of oil and gas reserves in the ground and the percentage of those
reserves which can be recovered and produced with current technology. These
estimates include assumptions as to the prices received for the sale of oil and
gas. Any one or all of those estimates may be inaccurate, which could materially
effect our estimate of future net cash flows. In addition, the cost of capital
and operating expenses could be higher than estimated, resulting in a reduction
in working capital and the need to raise additional capital.
WESTLINKS' OPERATIONS SUBJECT IT TO RISKS AND HAZARDS ASSOCIATED WITH OIL AND
GAS.
Our operations are subject to risks and hazards incident to drilling for,
producing and transporting oil and gas, including:
- blowouts, fires, pollution and equipment failures that may result in
damage to or destruction of wells, producing formations, production
facilities and equipment;
- personal injuries;
- engineering and construction delays;
- hazards resulting from unusual or unexpected geological or environmental
conditions;
- human error; and
- leakage of toxic or hazardous materials, such as petroleum liquids or
drilling fluids, into the environment.
WESTLINKS MAY NOT BE ABLE TO OBTAIN COMMERCIALLY VIABLE ADDITIONAL RESERVES OF
OIL AND GAS.
There is no assurance that any oil or gas in commercial quantities will be
discovered or acquired by Westlinks.
7
<PAGE> 10
THE VALUE OF WESTLINKS' OIL AND GAS RESERVES ARE SUBJECT TO FACTORS BEYOND OUR
CONTROL AND MAY BE SIGNIFICANTLY REDUCED.
The value of our oil and gas reserves may be significantly reduced due to
numerous factors beyond our control, including:
- fluctuations in markets and world prices;
- the proximity and capacity of pipelines to our reserves;
- our ability to finance drilling operations; and
- the availability of rigs and drilling equipment.
OUR INSURANCE MAY BE INADEQUATE FOR ALL BUSINESS RISKS, CAUSING US ANTICIPATED
LOSSES.
Westlinks insurance may be inadequate. We do not insure fully against all
business risks because either the insurance is not available or the premiums are
prohibitively expensive. We believe that we carry the amount of insurance
standard in the Canadian oil and gas industry. However, a loss not fully covered
by insurance could have a materially adverse effect on our financial position
and results of operations.
OUR REVENUE IS SUBJECT TO VOLATILE OIL AND GAS PRICES WHICH COULD REDUCE OUR
REVENUE AND PROFITABILITY.
The price Westlinks receives for its oil and gas production is subject to
significant volatility. Our revenue, cash flow and profitability are
substantially dependent on prevailing prices for oil and gas. Historically oil
and gas prices and markets have been volatile and they are likely to continue to
be volatile in the future. Some factors which contribute to volatility include:
- political conditions in the Middle East, the former Soviet Union and
other regions;
- domestic and foreign supplies of oil and gas;
- the level of consumer demand;
- weather conditions;
- domestic and foreign government regulations;
- the availability and prices of alternative fuels; and
- overall economic conditions.
AS A CANADIAN OIL AND GAS COMPANY, WE MAY BE ADVERSELY AFFECTED BY CHANGES IN
THE EXCHANGE RATE BETWEEN U.S. AND CANADIAN DOLLARS.
The price Westlinks receives for its oil and gas production is expressed in
U.S. dollars, which is the standard for the oil and gas industry world-wide.
However, Westlinks pays its operating expenses, drilling expenses and general
overhead expenses in Canadian dollars. Changes to the exchange rate between U.S.
and Canadian dollars can adversely affect us. When the value of the U.S. dollar
increases, we receive higher revenue and when the value of the U.S. dollar
declines, we receive lower revenue on the same amount of production sold at the
same prices.
WESTLINKS DEPENDS ON ITS KEY PERSONNEL FOR CRITICAL MANAGEMENT DECISIONS AND
INDUSTRY CONTACTS BUT HAS NO EMPLOYMENT CONTRACTS NOR KEY PERSON INSURANCE.
We are dependent upon the continued service of Peter R. Sekera, President
and CEO; Thomas J. Jacobsen, Executive Vice-President, Operations, and Edward C.
McFeely, Executive Vice-President, Engineering. We do not have employment
contracts with any of these executives and do not carry key person insurance on
their lives. The loss of the services of these individuals, through incapacity
or otherwise, would have a material adverse effect on our business and would
require us to seek and retain other qualified personnel.
8
<PAGE> 11
WESTLINKS HAS NOT PAID DIVIDENDS AND DOES NOT INTEND TO PAY DIVIDENDS IN THE
FORESEEABLE FUTURE.
We have not paid any cash dividends on our common stock and do not expect
to pay any cash or other dividends in the foreseeable future. The terms of our
current banking credit facility prohibit us from declaring and paying dividends
except from assets which are in excess of the required amount of security under
our credit facility, and Alberta corporate law prohibits the payment of
dividends unless stated solvency tests are met.
ISSUANCE OF OUR AUTHORIZED PREFERRED STOCK COULD DISCOURAGE A CHANGE IN CONTROL,
REDUCE THE MARKET PRICE OF OUR COMMON STOCK AND RESULT IN THE HOLDERS HAVING
VOTING RIGHTS SUPERIOR TO THE HOLDERS OF COMMON STOCK.
We are authorized to issue preferred stock without obtaining the consent or
approval of our stockholders. The issuance of preferred stock could have the
effect of delaying, deferring or preventing a change in control. The board has
the right to grant equal or superior voting rights to the holders of preferred
stock. Any issuance of preferred stock could materially and adversely affect the
market price of the common stock and the voting rights of the holders of common
stock. The issuance of preferred stock may also result in the loss of voting
control of the common stockholders.
INVESTORS IN THIS OFFERING WILL EXPERIENCE DILUTION IN THE BOOK VALUE OF SHARES
PURCHASED.
At March 31, 2000, our unaudited net tangible book value was C$4,527,368,
or C$1.02 (US$0.69) per share. After giving effect to our sale of 1,000,000
shares of common stock, based on an assumed offering price of US$5.00 per share
and 1,000,000 warrants based on an offering price of US$0.25 per warrant, our
adjusted net tangible book value at March 31, 2000 would have been C$2.00
(US$1.36) per share, resulting in dilution of C$5.75 (US$3.89) per share or 74%
to investors in the offering. Moreover, current shareholders purchased their
shares at prices per share below the price of the shares being offered.
A LARGE NUMBER OF OUR SHARES OF COMMON STOCK ARE ELIGIBLE FOR FUTURE SALE WHICH
COULD LOWER OUR MARKET PRICE.
Sales of our common stock after the offering, or even the potential for
these sales, could lower the market price of our common stock. In addition,
these sales may negatively affect our ability to raise needed capital through
the sale of common stock. We have 4,432,639 shares of common stock outstanding,
of which 3,117,639 are freely tradeable. The balance of 1,315,000 shares may be
resold immediately if Canadian regulations are met and will become freely
tradeable in the United States and Canada at various dates commencing in July,
2000.
OUR STOCK IS THINLY TRADED AND IS SUBJECT TO PRICE VOLATILITY.
Trading volume in our common stock has historically been limited.
Accordingly, the trading price of our common stock could be subject to wide
fluctuations in response to quarterly variations in operating results, changes
in financial estimates by securities analysts, an imbalance of purchasers and
sellers, or other factors.
9
<PAGE> 12
DILUTION
At March 31, 2000, our unaudited net tangible book value was C$4,527,368,
or $1.02 per share (US$0.69 per share). Net tangible book value per share
represents our net tangible assets less liabilities divided by the number of
outstanding shares of common stock.
After giving effect to our sale of 1,000,000 shares of common stock and
1,000,000 warrants and our receipt of an estimated C$6,341,355 (US$4,295,000) of
net proceeds from the offering, based on an assumed offering price of US$5.25
per unit, adjusted net tangible book value at March 31, 2000 would have been
C$2.00 (US$1.36) per share. This amount represents an immediate increase in net
tangible book value of C$0.98 (US$0.67) per share to existing stockholders and
an immediate dilution of C$5.75 (US$3.89) or 74% of the per share offering price
of common stock to new investors purchasing shares in the offering. The
following table, expressed in Canadian dollars, illustrates per share dilution:
<TABLE>
<S> <C>
Assumed public offering price (US$5.25)..................... C$7.75
======
Net tangible book value prior to the offering............... C$1.02
Increase attributable to new investors...................... C$0.98
------
Adjusted net tangible book value after the offering......... C$2.00
======
Dilution per share to new investors in this offering........ C$5.75
======
</TABLE>
On the basis of C$1.00 = US$0.6773, the dilution per share to new investors
in this offering is US$3.89.
The following table sets forth as of March 31, 2000, the number of shares
of common stock purchased from Westlinks, the total consideration paid to
Westlinks and the average price per share paid to Westlinks, expressed in
Canadian dollars, by the current officers, directors, promoters and affiliated
persons, and new investors purchasing securities in this offering, before
deducting underwriting discounts and estimated offering expenses:
<TABLE>
<CAPTION>
SHARES PURCHASED TOTAL CONSIDERATION
-------------------- --------------------- AVERAGE PRICE
NUMBER PERCENT AMOUNT PERCENT PER SHARE
--------- ------- ---------- ------- -------------
<S> <C> <C> <C> <C> <C>
Officers, directors, and affiliated
persons........................... 1,632,900(1) 62% $1,550,755 19.6% $0.95
New Investors....................... 1,000,000 38% 6,341,355(2) 80.4% $7.75(2)
--------- ---- ---------- ------
Total............................... 2,632,900 100% $7,892,110 100.0%
========= ==== ========== ======
</TABLE>
---------------
Notes:
(1) This number is not necessarily the same as the number currently held by the
directors, officers and their affiliates, because it consists only of shares
purchased from Westlinks, some of which may have subsequently been resold,
and does not include market purchases.
(2) US$5,250,000, being US$5.00 per share of common stock and US$0.25 per
warrant, less the underwriter's discounts, commissions and expense allowance
and estimated costs of the offering, of US$955,000, converted on the basis
of C$1.00 = US$0.6773.
The above table excludes shares issuable upon exercise of outstanding
options and warrants, the underwriter's warrants and the underwriter's
over-allotment option. To the extent that currently outstanding options or
warrants are exercised at prices below US$5.00, there will be further dilution
to new investors.
10
<PAGE> 13
USE OF PROCEEDS
The net proceeds from the sale of the 1,000,000 shares and 1,000,000
warrants sold in this offering will be approximately US$4,295,000 after payment
of the underwriter's discounts and commissions, and the estimated costs of the
offering. In Canadian dollars, we expect the net proceeds to be approximately
$6,341,355.
We intend to use the net proceeds over the next twelve months approximately
as indicated in the following table, which is expressed in Canadian dollars:
<TABLE>
<CAPTION>
APPLICATION AMOUNT %
----------- ---------- ---
<S> <C> <C>
Repayment of loans.......................................... $2,288,575 36
Acquisitions and/or development of additional reserves...... 3,552,780 56
Working capital............................................. 500,000 8
---------- ---
$6,341,355 100
========== ===
</TABLE>
If the over-allotment option is exercised in full, the additional net
proceeds of $1,011,553 (US$685,125) will be used for general corporate purposes,
including working capital.
In May, 2000 we purchased oil and gas assets in the Sounding Lake area of
Alberta for $11,917,104. To complete this purchase, we borrowed US$1,550,000
from six non-affiliated lenders. The loans are repayable on or before February
5, 2001 and bear interest of 12% per annum. We also agreed to pay a set-up fee
of US$50,000 and to issue 150,000 warrants to the lenders. Each of the warrants
can be exercised to purchase one share of common stock through March 5, 2001 at
an exercise price of US$4.00 per share. We plan to repay these loans from the
proceeds of this offering.
The description above represents our best estimate of the uses of the net
proceeds to be received in this offering, based on current planning and business
conditions. The precise allocation of funds among these uses will depend on:
- the amount of cash generated by our operations;
- the success of our drilling program; and
- the emergence of future opportunities.
We believe that our existing revenue, capital resources and the net
proceeds of this offering will be sufficient to maintain our current and planned
operations for a period of at least 12 months from the date of this prospectus.
11
<PAGE> 14
PRICE RANGE OF COMMON STOCK
Our shares of common stock trade on the Canadian Venture Exchange under the
symbol "WLX". The following table sets forth the high, low and closing sale
prices, in Canadian dollars, and volume of trading of our common stock, as
reported by the Exchange, for the periods shown.
<TABLE>
<CAPTION>
PERIOD HIGH LOW CLOSE VOLUME
------ ---- ---- ----- -------
$ $ $ #
<S> <C> <C> <C> <C>
1998
Quarter ended September 30.................................. 0.50 0.26 0.42 48,600
Quarter ended December 31................................... 0.65 0.21 0.64 207,700
1999
Quarter ended March 31...................................... 1.50 0.50 1.45 587,800
Quarter ended June 30....................................... 1.70 0.70 0.41 209,100
Quarter ended September 30.................................. 1.18 0.41 1.00 232,800
Quarter ended December 31................................... 1.05 0.58 0.67 122,900
2000
Quarter ended March 31...................................... 4.50 4.45 4.60 729,180
Month ended April 30........................................ 5.25 4.45 5.25 456,400
Month ended May 31.......................................... 6.25 5.50 6.15 80,800
June 1 through 15........................................... 6.35 6.25 6.35 37,900
</TABLE>
Our shares of common stock have traded on the National Quotation Bureau's
pink sheets under the symbol "WLKSF" since April 26, 2000. The following table
sets forth the bid prices, in U.S. dollars, as reported on the pink sheets, for
the periods shown.
<TABLE>
<CAPTION>
PERIOD HIGH LOW CLOSE
------ ----- ----- -----
<S> <C> <C> <C>
April 26 through 31, 2000................................... $3.50 $3.41 $ 3.47
May 1 through 31, 2000...................................... $4.15 $3.65 $ 3.90
June 1 through 15, 2000..................................... $4.28 $4.03 $ 4.28
</TABLE>
Such over-the-counter market quotations reflect inter-dealer prices,
without retail mark-up, mark-down or commission and may not necessarily
represent actual transactions.
At June 12, 2000 there were 4,432,639 issued and outstanding shares of
common stock held of record by 73 stockholders.
DIVIDEND POLICY
We plan to retain all of our earnings, if any, to finance the expansion of
our business and for general corporate purposes. We have not paid any cash
dividends on our common stock and do not expect to declare to pay any cash or
other dividends in the foreseeable future. In addition, the terms of our current
banking credit facility prohibits us from declaring and paying dividends except
from assets which are in excess of the required amount of security, and Alberta
corporate law prohibits the payment of dividends unless stated solvency tests
are met.
12
<PAGE> 15
CAPITALIZATION
The following table sets forth Westlinks' consolidated capitalization as at
March 31, and May 31, 2000 and as adjusted to give effect to the Sounding Lake
asset acquisition and to the sale of 1,000,000 shares of common stock and
1,000,000 warrants in this offering. All monetary amounts are in Canadian
dollars.
<TABLE>
<CAPTION>
OUTSTANDING AS AT AS ADJUSTED AT
OUTSTANDING AS AT MAY 31, 2000 MAY 31, 2000
AUTHORIZED MARCH 31, 2000 (1)(2)(3) (1)(2)(3)
----------- ----------------- ----------------- --------------
<S> <C> <C> <C> <C>
Long-term debt(4)................ $12,500,000(4) $ 4,400,000 $14,824,715 $12,536,140
----------- ----------- -----------
Common stock..................... unlimited 3,890,958 3,890,958 10,232,313
Common stock issued.............. (4,432,639) (4,432,639) (5,432,639)
Additional paid-in capital....... 150,500 150,500 150,500
Accumulative earnings............ 485,910 485,910 485,910
----------- ----------- -----------
Total stock-holders' equity.... 4,527,368 4,527,368 10,868,723
----------- ----------- -----------
Total capitalization............. $ 8,927,368 $19,352,083 $23,404,863
=========== =========== ===========
</TABLE>
---------------
(1) As at June 20, 2000, a total of 443,000 shares of common stock are reserved
for issuance pursuant to outstanding director and employee stock options, of
which 53,000 are exercisable at $2.00 per share and 390,000 are exercisable
at $6.15 per share, and a total of 150,000 shares of common stock are
reserved for issuance pursuant to 150,000 common stock purchase warrants,
which are exercisable at US$4.00 per share.
(2) Up to 1,000,000 shares of common stock are reserved for issuance pursuant to
outstanding common stock purchase warrants to be issued pursuant to this
offering, exercisable at US$ -- per share, and 100,000 underwriter's
warrants are exercisable at US$ -- per share.
(3) Net of expenses from the issue of the shares of common stock and warrants,
estimated to be $1,410,058.
(4) In May, 2000, Westlinks negotiated a new revolving credit facility which
requires monthly interest payments, subject to the bank's right of demand.
The loan bears interest at the bank's prime rate plus 0.25% per annum. The
loan is secured by a general assignment of accounts receivable and a first
fixed and floating charge debenture in the amount of $25,000,000 over all
assets. Westlinks' revolving credit facilities in effect at March 31, 2000
had a limit of $5,350,000.
13
<PAGE> 16
SELECTED FINANCIAL DATA
The following tables present selected historical financial data for
Westlinks derived from our financial statements. The data should be read with
"Management's Discussion and Analysis of Financial Condition and Results of
Operations" and our financial statements and notes included elsewhere in this
prospectus. All monetary amounts are expressed in Canadian dollars. On June 12,
2000 the exchange rate, being the noon buying rate in New York City for cable
transfers of Canadian dollars as certified for customs purposes by the Federal
Reserve Bank of New York, was C$1.00 = US$0.6773.
CONSOLIDATED STATEMENTS OF OPERATIONS DATA:
<TABLE>
<CAPTION>
UNAUDITED
THREE MONTHS ENDED YEAR ENDED
MARCH 31, DECEMBER 31,
------------------- --------------------------
2000 1999 1999 1998 1997
-------- ------- ------ ------ ------
(IN THOUSANDS, EXCEPT PER SHARE DATA)
<S> <C> <C> <C> <C> <C>
Net revenue.................................... $1,355 $ 317 $2,075 $1,697 $1,055
Gross profit................................... 950 160 1,292 848 617
Operating expenses............................. 405 157 782 849 438
Exploration expenses........................... -- 9 148 4 35
General and administrative expenses............ 214 121 719 427 176
Interest....................................... 64 16 132 185 74
Depreciation and depletion..................... 353 148 842 805 352
Gain (loss) from operations.................... 318 (134) (548) (572) (21)
------ ----- ------ ------ ------
Net income (loss).............................. $ 172 $ (77) $ (50) $ 254 $ 215
====== ===== ====== ====== ======
Net income (loss) per share.................... $ 0.04 $0.03 $(0.02) $ 0.11 $ 0.16
====== ===== ====== ====== ======
</TABLE>
The following table is a summary of our balance sheets as of December 31,
1999 and March 31, 2000. The column labelled "As Adjusted" reflects our receipt
of estimated net proceeds from the sale of 1,000,000 shares of common stock and
1,000,000 warrants at an assumed public offering price of US$5.00 per share and
US$0.25 per warrant (converted to C$7.75 on the basis of C$1.00 = US$0.6773),
after deducting underwriting discounts, commissions and estimated expenses.
CONSOLIDATED BALANCE SHEET DATA:
<TABLE>
<CAPTION>
UNAUDITED
MARCH 31, 2000
DECEMBER 31, ----------------------
1999 ACTUAL AS ADJUSTED
------------ ------- -----------
(IN THOUSANDS)
<S> <C> <C> <C>
Cash and cash equivalents................................. $ 42 $ 8 $4,061
Accounts receivable....................................... 685 1,256 1,256
Capital assets............................................ 7,017 10,044 20,468
Total assets.............................................. 7,744 11,308 25,785
Total stockholders' equity................................ 3,978 4,527 10,869
</TABLE>
14
<PAGE> 17
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF
OPERATIONS
The following discussion is to inform you about our financial condition,
liquidity and capital resources as of March 31, 2000, March 31, 1999, December
31, 1999 and December 31, 1998 and the results of operations for the three
months ended March 31, 2000 and March 31, 1999 and for the years ended December
31, 1999 and 1998 and for the period from commencement of operations, April 1,
1997, through December 31, 1997. The information is expressed in Canadian
dollars.
THREE MONTHS ENDED MARCH 31, 2000 COMPARED TO THREE MONTHS ENDED MARCH 31, 1999
FINANCIAL CONDITION, LIQUIDITY AND CAPITAL RESOURCES
Cash flows provided from operating activities were $1,158,863 for the first
quarter of 2000 compared to an outflow of $70,054 for the first quarter of 1999.
The increase was largely due to higher income and an increase in working capital
requirements.
FINANCING ACTIVITIES
Westlinks increased total debt by $1.8 million in the first quarter of 2000
and by $250,000 in the first quarter of 1999. In both quarters, the funds were
used to acquire capital assets. At March 31, 2000, Westlinks had drawn $4.4
million of its $5.35 million revolving operating facilities.
During the first quarter of 2000, $378,128 was raised from the exercise of
common stock options to assist in the funding of asset acquisitions and drilling
activities.
INVESTING ACTIVITIES
Investing activities for the first quarter of 2000 amounted to $3,489,069
compared to $240,480 in the first quarter of 1999. The increase in the first
quarter of 2000 was due to the Mitsue acquisition and the drilling of three
wells in Bigoray.
During the first quarters of 2000 and 1999 several non-core properties were
disposed of for proceeds of $118,200 and $9,449, respectively.
RESULTS OF OPERATIONS
Gross revenue from oil and gas production was $1,740,985 in the first
quarter of 2000 compared to $352,491 in the first quarter of 1999 which
represents an increase of 394%. The increase was due to the Sylvan Lake and
Bigoray acquisitions made late in 1999, the Mitsue acquisition during the first
quarter of 2000 and receipt of higher prices for oil and gas in 2000.
Oil revenues before royalties increased 443% in the first quarter of 2000
to $1,695,519 from $312,351 in the first quarter of 1999. This was due to
increased volumes and higher oil prices. Oil production increased 141% from
20,165 barrels in the first quarter of 1999 to 48,513 barrels in the first
quarter of 2000. During the first quarter of 2000 Westlinks' average price
realized was $34.95 per barrel of oil compared to $15.49 per barrel of oil
during the first quarter of 1999.
Gas revenues before royalties increased 13% in the first quarter of 2000 to
$45,466 from $40,140 in the corresponding quarter of 1999. The increase was due
to higher gas prices. Total volumes decreased from 20,016 mcf in the first
quarter of 1999 to 10,895 during the first quarter of 2000 as a result of sales
of non-core properties. The average price realized during the first quarter of
2000 was $4.17 per mcf compared to $2.00 in the first quarter of 1999.
Total royalties for the first quarter of 2000 and 1999 were $385,860 and
$35,557 respectively. As a percentage of oil and gas revenues, royalties were
22% during the first quarter of 2000 compared to 10% during the first quarter of
1999. The increase was mainly due to Westlinks' purchase of producing properties
that are not eligible to receive Alberta Royalty Tax Credits. This credit
significantly reduces the impact of provincial Crown royalties.
15
<PAGE> 18
In the Province of Alberta, a producer of oil or natural gas is entitled to
a credit against the royalties payable to the province by virtue of the Alberta
royalty tax credit, or ARTC, program. The ARTC rate is based on a
price-sensitive formula and the ARTC rate varies between 75% at prices at and
below $100 per thousand cubic metres and 25% at prices at and above $210 per
thousand cubic metres. The ARTC rate is applied to a maximum of $2,000,000 of
Alberta provincial royalties payable for each producer or associated group of
producers. Provincial royalties on production from producing properties acquired
from a corporation claiming maximum entitlement to ARTC will generally not be
eligible for ARTC. The rate will be established quarterly based on the average
"par price" as determined by the Alberta Department of Energy for the previous
quarterly period.
Operating expenses increased 158% from $157,134 in the first quarter of
1999 to $405,464 in the first quarter of 2000. On a barrel of oil equivalent
basis, operating costs for the first quarters of 2000 and 1999 were $8.17 and
$7.09 respectively. The increases were due to the recent acquisitions.
Total exploration costs during the first quarter of 1999 were $9,114; no
exploration costs were incurred during the first quarter of 2000. Westlinks
follows the "successful efforts" method of accounting for its oil and gas
exploration and development costs, which requires any capital expenditures
incurred that do not result in economical reserves to be charged to exploration
expense.
General and administrative expenses increased 77% from $121,129 during the
first quarter of 1999 to $214,175 in the first quarter of 2000. On a barrel of
oil equivalent basis, administrative costs decreased from $5.46 in the first
quarter of 1999 to $4.32 for the corresponding quarter in 2000. The increase in
administrative costs was a result of hiring additional staff and recent property
acquisitions. The decrease in administrative costs on a barrel of oil equivalent
basis resulted from increased volumes and Westlinks' efforts to maintain the
infrastructure while increasing production.
Interest expense for the first quarter of 2000 was $64,356 compared to
$16,393 in the first quarter of 1999. The increase was a result of increased
debt outstanding. At the end of the first quarter of 2000 total debt outstanding
was $4.4 million as compared to $1.0 million at the end of the first quarter of
1999.
Depletion and depreciation for the first quarter of 2000 and 1999 was
$352,928 and $147,657, respectively. On a barrel of oil equivalent basis,
depletion and depreciation were $7.12 and $6.66 respectively. The increase
reflects a higher cost base in Westlinks' capital assets.
During the first quarter of 1999 Westlinks disposed of a non-core oil and
gas property which resulted in a gain of $8,377. There were no disposals in the
first quarter of 2000.
Future income taxes expense amounted to $146,596 in the first quarter of
2000 compared to a recovery of $48,955 in 1999. The expense was a result of the
timing of deductions for accounting purposes and the imposition of taxes on oil
and gas assets. The recovery in 1999 was attributable to loss carry-forwards not
previously recognized.
Net income for the first quarter of 2000 was $171,606 as compared to a loss
of $77,131 for the first quarter of 1999.
SUBSEQUENT EVENTS
Subsequent to March 31, 2000 Westlinks negotiated a new credit facility
with a Canadian bank. The new loan consists of a revolving production loan
facility totalling $12.5 million. The revolving production loan facility was
capped at $7.5 million until the Sounding Lake acquisition was closed and bears
interest at prime plus one quarter of one percent. The facility is subject to
review annually with only interest payable monthly.
Subsequent to March 31, 2000, Westlinks purchased a producing property for
approximately $1.7 million. In addition Westlinks disposed of various non-core
producing properties totalling approximately $1.2 million.
On April 6, 2000 Westlinks signed a purchase and sale agreement with
another company to purchase Sounding Lake, a petroleum and natural gas property,
for approximately $11.9 million, which closed on May 16, 2000. Westlinks
financed the purchase using working capital of $1.5 million, bank financing of
$8.1 million and the private financing of $2.3 million described below.
16
<PAGE> 19
On June 5, 2000, Westlinks borrowed US$1,550,000, being C$2,288,575, from
six non-affiliated lenders. The loans accrue interest at the rate of 12% per
annum and are repayable on or before February 5, 2001. Prepayments can be made
without interest penalty and Westlinks intends to repay the financing from the
net proceeds of this offering. The lenders were granted a set-up fee in the
amount of US$50,000 and 150,000 warrants. Each warrant may be exercised to
purchase one share of common stock at an exercise price of US$4.00 per share
through March 5, 2001.
YEAR ENDED DECEMBER 31, 1999 COMPARED TO YEAR ENDED DECEMBER 31, 1998 AND PERIOD
FROM APRIL 1, 1997 THROUGH DECEMBER 31, 1997
FINANCIAL CONDITION, LIQUIDITY AND CAPITAL RESOURCES
Westlinks' working capital was a deficit of $1,034,967 at December 31, 1999
compared to a deficit of $17,473 at December 31, 1998. Under U.S. GAAP the
deficit would be $2,559,967 due to the reclassification of the long-term debt to
current liabilities. The increase in the deficit between December 31, 1998 and
December 31, 1999 was largely due to the increase in the current portion of the
long-term debt from $100,000 to $1,075,000. At December 31, 1999 and 1998
Westlinks had a revolving reducing credit facility with a Canadian bank. The
current portion of the loan reflects the required reduction in the facility.
Annually, the facility is reviewed and, due to acquisitions and successful
drilling results, the facility has been increased and no loan reductions have
been required. The reduction in the deficit between December 31, 1997 and
December 31, 1998 was due to the replacement of short term debt in the amount of
$1,680,538 with long-term debt.
Cash flows provided from operating activities were $304,710 in 1999,
$681,219 in 1998 and ($100,252) in 1997. The 1999 decrease can be primarily
attributed to increases in working capital requirements. The increase in 1998
from 1997 was due to an increase in net income and a decrease in working capital
requirements.
FINANCING ACTIVITIES
Westlinks' ability to maintain and grow its operating income and cash flow
is dependent upon continued capital spending to replace depleting assets.
Westlinks believes its future cash flow from operations, borrowing capacity and
future equity issues should be sufficient to fund capital expenditures and to
service debt. However, our ability to raise additional funds at all, or to do so
on acceptable terms, depends largely on factors beyond our control, such as
world prices for oil and gas, prevailing interest rates, general economic
conditions and the matters discussed above under the caption "Risk Factors".
Westlinks increased total debt by $1.8 million in 1999 and by $800,000 in
1998. The 1999 and 1998 increases were used for capital expenditures. Westlinks
had no long term debt in 1997 but did have an agreement payable of $3.8 million
with respect to the acquisition of IG Resources Ltd. In 1998 the agreement
payable was partially paid and the balance was replaced with bank debt.
In 1999 Westlinks raised $1,237,278 from the issue of shares through
private placements and the exercise of stock options. In 1998 no shares were
issued for cash. In 1997 $906,552 was raised by way of private placements and
the exercise of stock options.
INVESTING ACTIVITIES
The timing of most of Westlinks' capital expenditures is discretionary.
Westlinks has no material long-term commitments associated with its capital
expenditure plans or operating agreements. Consequently, Westlinks has a
significant degree of flexibility to adjust the level of such expenditures as
circumstances warrant. The level of capital expenditures will vary in future
periods depending on the success we experience on planned infill drilling
activities, oil and gas price conditions and other related economic factors.
Financing for budgeted expenditures will be accomplished by the use of
internally generated funds, existing credit lines, proceeds from the selective
sale of non-core assets and new equity financing.
Capital expenditures amounted to $3,768,926, $277,021 and $583,509 in 1999,
1998 and 1997, respectively. The increase in 1999 from 1998 was due to the
purchase of two producing properties,
17
<PAGE> 20
Sylvan Lake and Bigoray, in the fourth quarter, for approximately $3.6 million.
Capital expenditures decreased in 1998 compared to 1997 as a result of the
acquisition of the assets of IG Resources' assets for approximately $3.9 million
late in the third quarter of 1997. In addition, late in 1997, Westlinks
purchased all the issued and outstanding shares of Rainee Resources Ltd. for
approximately $428,000.
In 1999 Westlinks purchased all the issued and outstanding shares of a
separate subsidiary for $400,000. This purchase resulted in Westlinks having the
right to acquire the Bigoray property.
The proceeds on disposal of capital assets for 1999, 1998 and 1997 were
$796,800, $2,027,700 and $40,000, respectively. These proceeds were from the
sale of non-core, non-operated oil and gas properties.
RESULTS OF OPERATIONS
Year Ended December 31, 1999 Compared to Year Ended December 31, 1998
Total oil and gas revenue net of royalties was $2,073,121 in 1999 compared
to $1,689,935 in 1998 which represents a 23% increase. The revenue increased due
to higher commodity prices, especially crude oil in the last half of 1999, and
increased volumes.
Oil sales revenue before royalties increased 62% from $1,465,292 in 1998 to
$2,379,417 in 1999. This increase was primarily due to a 57% increase in the
realized prices. In 1999, Westlinks' average per barrel crude oil price realized
was $25.45 compared to $16.94 in 1998. The revenue for 1999 has been adjusted to
reflect the cost of Westlinks' hedging program, which totalled $72,882 in 1999.
In addition, oil production increased from 86,511 barrels to 93,487 barrels
representing an increase of approximately 8%. The increase in production was due
to acquisitions made in the fourth quarter of 1999.
During the fourth quarter of 1999, Westlinks made two significant producing
oil property acquisitions at Bigoray and Sylvan Lake. The increase in production
from these properties on a daily basis was 175 barrels per day and 80 barrels
per day, respectively. Actual production during the month of December was 440
barrels of oil equivalent per day compared to the 1999 yearly average of 279
barrels of oil equivalent per day.
Gas revenue before royalties decreased 58% from $320,880 in 1998 to
$136,039 in 1999 as a result of the sale of several non-core properties during
the year. Overall gas production volumes were down 72% from 220,400 mcf in 1998
to 61,068 mcf in 1999. Actual gas prices realized increased from $1.46 per mcf
in 1998 to $2.23 per mcf in 1999.
Total royalties for 1999 and 1998 were $442,335 and $96,237 respectively.
As a percentage of oil and gas revenue, royalties were 18% in 1999 and 5% in
1998. The increase is largely due to Westlinks' purchase of producing properties
that are not eligible to receive Alberta Royalty Tax Credits, which
significantly reduce the impact of Crown royalties, and the settlement of a
gross overriding royalty dispute. During 1998, due to a dispute on the
calculation of gross overriding royalties, Westlinks stopped paying the
royalties. The dispute was resolved in 1999 and the gross overriding royalties
pertaining to 1998 were paid and recorded in 1999. In addition, Crown royalties
are calculated on a sliding scale basis and were impacted by rising commodity
prices.
Operating costs were $782,281 in 1999 which were 8% lower than the 1998
operating costs of $849,107. On a barrel of oil equivalent basis, operating
costs were $7.85 in 1999 compared to $7.82 in 1998. The overall decrease was the
result of the sale of non-core properties with higher operating costs.
Because Westlinks follows the "successful efforts" method of accounting,
capital expenditures that are incurred which do not result in economical
recoverable reserves are charged to exploration expenses. Exploration expenses
were $148,125 in 1999 compared to $3,570 in 1998. The majority of this increase
was due to the costs incurred in an unsuccessful attempt to acquire various
interests in independent oil and gas companies.
General and administrative expenses increased 68% from $426,895 in 1998 to
$718,569 in 1999. On a barrel of oil equivalent basis administrative expenses
increased from $3.93 to $7.21. The increase was largely due to a one-time
management restructuring charge of approximately $190,000 and the addition of
staff
18
<PAGE> 21
during the last quarter as a result of the property acquisitions. Administrative
costs for the fourth quarter of 1999 decreased to $5.04 per barrel of oil
equivalent as a result of the fourth quarter acquisitions.
Interest expense decreased 29% from $185,153 in 1998 to $131,872 in 1999.
The decrease was due to lower debt outstanding for the first three quarters of
1999 as compared to 1998. Due to the acquisitions in the fourth quarter, long
term debt increased to $2.6 million by year end.
Depletion and depreciation for 1999 and 1998 were $841,580 and $804,943
respectively. On a barrel of oil equivalent basis, depletion and depreciation
were $8.45 and $7.42 respectively. The increase reflects a higher cost basis in
Westlinks' capital assets.
During 1999 Westlinks sold several non-core oil and gas properties, which
resulted in a gain of $91,402. In addition, an investment in a private company
was sold which resulted in a gain of $160,000. During 1998, non-core properties
were sold which resulted in a gain of $946,738.
During the years ended December 31, 1999 and December 31, 1998 Westlinks
had interest income of $1,493 and $7,373 respectively. The decrease was due to
lower average cash balances for the 1999 period as compared to the 1998 period.
Net income before taxes for 1999 and 1998 was $(296,411) and $374,378,
respectively.
Westlinks accounts for income taxes using the liability method of income
tax allocation. Under this method, income tax assets and liabilities are
recorded to recognize future income tax inflows and outflows arising from the
settlement or recovery of assets and liabilities at the carrying values. Income
tax assets are also recognized for the benefits from tax losses and deductions
that cannot be identified with particular assets or liabilities. The future
income taxes assets and liabilities are determined based on the tax laws and
rates that are anticipated to apply in the period of realization. In 1999,
Westlinks had a future income tax recovery of $246,884 compared to future income
taxes of $120,297 in 1998. The recovery was largely due to loss carryforwards
not previously recognized.
As at December 31, 1999, Westlinks has not paid any income taxes. Westlinks
currently has approximately $485,000 of tax loss carryforwards and $5.3 million
of tax pools, which can be used to reduce future taxes payable.
In 1999, Westlinks reported a net loss of $49,527 compared to net income in
1998 of $254,081.
Year Ended December, 1998 Compared to Period From April 1, 1997 through December
31, 1997
Total oil and gas revenue net of royalties increased 61% from $1,052,358 in
1997 to $1,689,935 in 1998. This overall increase was due to a full year of
production in 1998. Westlinks began operations on April 1, 1997 with four
producing properties. On September 1, 1997 Westlinks acquired IG Resources Ltd.
which added another ten producing properties and in late December 1997, Rainee
Resources Ltd., an oil and gas producing company, was purchased although no
revenue was attributed to it for 1997.
Oil revenue before royalties in 1998 was $1,465,292 compared to $843,118 in
1997, which represents a 74% increase. The increase was due to increased volumes
offset by lower prices. Oil production increased 144% from 35,386 barrels in
1997 to 86,511 barrels in 1998. The increase was a result of a full year's
production in 1998 as compared to a partial year of production in 1997. In 1998
Westlinks' average crude oil price realized was $16.94 per barrel compared to
$23.83 per barrel in 1997.
Gas revenue before royalties decreased 9% in 1998 to $320,880 as compared
to $353,795 in 1997. The decrease was due to lower prices offset in part by
higher volumes. Actual gas prices realized were $1.46 per mcf in 1998 and $1.98
per mcf in 1997. Total volumes increased from 178,570 mcf in 1997 to 220,400 mcf
in 1998.
Total royalties for 1998 and 1997 were $96,237 and $144,555, respectively.
As a percentage of oil and gas revenue royalties were 5% in 1998 and 12% in
1997. The decrease in 1998 was the result of a dispute between Westlinks and the
operating partner of one of the producing properties. As a result, Westlinks
stopped paying the gross overriding royalties. The dispute was resolved
subsequent to 1998 and the royalties were paid and recorded at that time.
19
<PAGE> 22
Operating expenses increased 94% from $438,594 in 1997 to $849,107 in 1998.
On a barrel of oil equivalent basis, operating costs were $8.24 in 1997 and
$7.82 in 1998. The overall increase from 1997 to 1998 reflects a full year of
operating costs. Costs decreased on a per barrel basis due to higher production
volumes and Westlinks' continuing efforts to reduce costs.
The "successful efforts" method of accounting requires that capital
expenditures incurred that do not result in economical recoverable reserves must
be charged to exploration expense. Total exploration expenses for 1998 and 1997
were $3,570 and $35,000, respectively.
General and administrative expenses increased 143% from $175,965 in 1997 to
$426,895 in 1998. On a barrel of oil equivalent basis, administrative costs
increased from $3.30 to $3.93 which reflects the hiring of additional staff.
Interest expense increased 150% from $74,128 in 1997 to $185,153 in 1998.
The increase was a result of bank debt being outstanding for most of 1998
compared to four months in 1997. Interest expense in 1997 covered only for the
period from September, 1997, when the assets of IG Resources Ltd. were acquired
for $3.9 million, to the end of the year. During 1998, the amount was
outstanding during a portion of the fourth quarter.
Depletion and depreciation for 1998 was $804,943 compared to $352,400 in
1997. On a barrel of oil equivalent basis depletion and depreciation was $7.42
and $6.62. The increase reflects a higher cost base in Westlinks' capital
assets.
In 1997 and 1998, Westlinks sold non-core oil and gas properties which
resulted in gains of $280,000 and $946,738, respectively. In addition, in 1997
an investment was sold which resulted in a gain of $13,437. No investments were
sold in 1998. Interest income in 1998 was $7,373 compared to $3,006 in 1997. The
increase was due to a higher average cash balance during 1998 as compared to
1997.
Net income before taxes was $374,378 in 1998 and $272,714 in 1997.
Westlinks accounts for income taxes using the liability method. Future
income taxes in 1998 were $120,297 as compared to $57,464 in 1997. This increase
was due to the difference in the timing of deductions for accounting and tax of
oil and natural gas properties.
RISK MANAGEMENT
Periodically, Westlinks will enter into fixed price crude oil sales
contracts in an attempt to set future cash flows. Westlinks has currently
entered into two separate crude oil sale contracts, which require the daily
delivery of 100 barrels at $29.70 per barrel and 100 barrels at $32.00 per
barrel. Both crude oil sale contracts expire in August 2000.
OTHER MATTERS
The current increase in commodity prices, combined with a strengthening
economy, has contributed to a slightly stronger Canadian dollar. The pace of
economic recovery in the U. S. has put pressure on the Bank of Canada to raise
short term lending rates, which has pushed Canadian prime lending rates to 7.0%
percent, increasing Westlinks' cost to borrow money.
Accessing capital when required and at competitive rates is highly
dependent on market conditions. Westlinks has utilized various financing
vehicles to fund its capital programs, including private placements of common
shares and asset sales. Westlinks continuously monitors its capital mix, paying
particular attention to its debt levels, as market conditions remain volatile.
There can be no assurance that Westlinks can continue to raise funds to finance
its capital programs.
There are numerous uncertainties inherent in estimating quantities of
reserves and the cash flows that would result from these reserves, many of which
are beyond our control.
Our future reserves, production and cash flows are dependent on our success
in developing our current reserve base and acquiring additional property for
development. Without the addition of reserves, our existing reserves and
production are subject to continued decline.
20
<PAGE> 23
BUSINESS
HISTORY
Westlinks was organized on June 30, 1998 by the amalgamation of Temba
Resources Ltd. and PTR Resources Ltd. under the laws of the Province of Alberta,
Canada. Our predecessor, Temba Resources Ltd., was incorporated in Alberta on
July 31, 1996 and at the time of the amalgamation had acquired oil and gas
production of approximately 106 thousand cubic feet of gas per day and 27
barrels of oil per day from 19 oil wells and one gas well. Immediately prior to
the amalgamation which created Westlinks, Temba Resources amalgamated with its
wholly owned subsidiary, Rainee Resources Ltd. Our predecessor, PTR Resources,
was incorporated in Alberta on September 18, 1992 as 542275 Alberta Ltd.;
changed its name to Ablevest Holdings Ltd. on January 14, 1993, and to PTR
Resources on December 1, 1997. PTR Resources originally held a 2.5% working
interest in mineral leases on 8.5 sections of land in Alberta.
OUR BUSINESS
We are an operating oil and gas company that drills, operates and exploits
development crude oil and natural gas wells in our core areas in western Canada.
Our capital budget for 2000 of approximately $5.3 million, which is subject to
available funds, includes amounts for drilling eight development wells in our
core areas. The 2000 drilling is currently anticipated to be wells drilled in
the Sylvan Lake area, but each specific site and area is subject to the results
of our analysis of seismic studies and the results of our previous drilling, and
the development of new opportunities as the year progresses.
BUSINESS STRATEGY
We have an experienced management team that attempts to apply as many as
possible of the following strategies to the search for oil and gas:
Low Risk Development Projects
We concentrate our efforts on oil and gas properties that offer
opportunities for low risk development. Typical types of low risk developments
are the drilling of infield and step-out wells, the installation of central
facilities to handle higher production volumes and the completion of other
productive zones within wells.
Consolidation of Adjacent Assets
We seek property acquisitions and development opportunities on lands that
are in close proximity to our producing fields. These close-in acquisitions
create the ability to reduce operating costs by consolidating facilities.
Moreover, drilling costs are lower when wells are drilled as part of a
multi-well program, due to reduced rig moving costs and other efficiencies.
Cost Effective Acquisitions
We seek acquisition of oil and gas producing properties at prices that
allow the base production for the property to pay the acquisition cost within a
reasonable time frame. We attempt to avoid paying for unproven or probable
production in the purchase price.
Emphasis on Development Drilling
We concentrate our drilling activities on low risk development wells
located in or near our established core production areas. This strategy helps to
reduce risk and costs, and enables new wells to be put on production more
quickly. We generally do not engage in high-risk exploratory or "wildcat"
drilling.
21
<PAGE> 24
Use of Seismic and Other Data in Site Selection
We use the analysis of seismic data, including three dimensional seismic,
whenever its use is appropriate for the geology and is cost effective, to
further minimize drilling risk. We also use information from adjacent wells,
including petrophysical data, production records and completion data to help
reduce our risk and costs.
Selection of Properties
We select properties for acquisition and development where we believe we
can become the operator and that we believe offer us the opportunity to reduce
operating costs and maximize economies of scale, thereby improving operating
profitability. We have used this strategy in development of our core areas in
central Alberta, an area of moderate drilling costs, multi-zone potential, year
round accessibility and good gas plant and pipeline infrastructure.
SUMMARY OF OIL AND GAS OPERATIONS
Capitalized costs at December 31, 1997, 1998 and 1999 relating to
Westlinks' oil and gas activities, expressed in Canadian dollars, are summarized
as follows:
<TABLE>
<CAPTION>
1997(1) 1998 1999
------- ---- ------
<S> <C> <C> <C>
Property acquisition........................................ $ 3,410 $294 $2,659
======= ==== ======
Exploration................................................. $ -- $ -- $ --
======= ==== ======
Development................................................. $ 50 $ 27 $ 341
======= ==== ======
</TABLE>
---------------
(1) From commencement of activities on April 1, 1997.
PROPERTIES
Westlinks' current oil and gas operations and activities are focused in
four core areas, plus some minor properties in a non-core area, described below.
In accordance with the standard practice in the Canadian oil and gas industry,
the working interests described below are the percentage ownership of the oil
and gas production before payment of royalties.
Bigoray Area, Alberta
The Bigoray property, consisting of an 89% working interest in 1,280 acres
of land, including one producing oil well, one water injection well, and five
suspended oil wells, was acquired by Westlinks in September, 1999. We are the
operator of this property. The Bigoray property is located in central Alberta,
about 70 miles west of the city of Edmonton, in a forested area on government
owned lands. Light crude oil is produced from reservoirs within the Cretaceous
Cardium Formation, at a depth of about 4,700 feet, which is up to 45 feet thick,
along with shallower Belly River Formation reservoirs, which are up to 25 feet
thick. The Cardium oil pool was deposited as an off-shore marine bar and
consists of course-grained sandstones and conglomerates. It has been under
waterflood to increase the recovery of oil since 1982. Cumulative production of
oil from the property from the Cardium formation has been about 2.2 million
barrels. The crude is light at 32 degree API, API being an indication of
specific gravity of crude oil measured on the American Petroleum Institute
gravity scale, and sweet, meaning low in sulphur, and is transported via
pipeline to Edmonton. Good infrastructure is in place, including roads,
electricity, pipelines, and producing facilities.
At the time of purchase, the property was producing about 100 barrels per
day of oil from one well. In November, 1999 Westlinks re-completed a suspended
well as a Belly River oil well which increased the total operated Bigoray
production to about 150 barrels per day of oil. The Belly River formation
consists of fine to medium grained well-sorted sandstones, deposited in
coarsening-upward shoreline sequences, which pass laterally and upward into
marine shales. Commencing in February, 2000, Westlinks drilled three Cardium
22
<PAGE> 25
development wells of which two were successfully completed as oil wells. Current
production from the field is about 275 barrels of oil per day. Westlinks plans
to drill two additional wells on the property.
Mitsue Area, Alberta
The Mitsue property, consisting of a 94% working interest in 9,920 acres of
land, including three producing oil wells, was acquired by Westlinks in
February, 2000. We are the operator of this property. The Mitsue property is
located in Northern Alberta, about 125 miles northwest of the city of Edmonton.
The property is located in a forested area on Government owned lands. Light, 43
degree API, sweet crude oil is produced from the Devonian Gilwood sand formation
at a depth of about 5,600 feet, which is up to 30 feet thick. The Gilwood
sandstone is a braided fluvial deposit derived from erosion of the granitic
Peace River Arch land mass to the west. Oil production has averaged
approximately 90 barrels of oil per day.
The property is adjacent to a large Gilwood sand unit that is operated by a
major oil company. Westlinks' oil is produced through flow lines to facilities
operated by the unit, and then pipelined to Edmonton. Westlinks acquisition in
Mitsue was for the Gilwood sand formation only and the vendor retains the rights
to other formations. There are a number of suspended wells on the Mitsue
property, which we can elect to retain or return to the vendor. Wells we elect
to keep can be re-worked, but Westlinks will be responsible for the costs of
abandoning the wells it elects to keep. The property also has a large inventory
of good quality oilfield equipment which Westlinks has the right to salvage for
sale or use in development at Mitsue or elsewhere. Westlinks has identified two
suspended Gilwood sand oil wells that can be re-equipped for production. A
reservoir study is being undertaken to help plan development for the area.
Development options include the re-activation of shut in wells, waterflood
modifications and the drilling of additional wells.
Sounding Lake Area, Alberta
The Sounding Lake area is located in east central Alberta. Oil production
from the Sounding Lake area is taken from Cretaceous aged sandstone reservoirs
known as the Dina, Cummings and the General Petroleum encountered at depths of
about 2,800 feet or less. In 1998 we acquired a non-operated working interest
averaging about 20% in a Dina sand pool with oil pay thickness of up to 20 feet
at Sounding Lake consisting of 1,270 acres and about 35 producing wells. In May,
2000, Westlinks acquired, effective January 1, 2000, working interests of about
36% in this pool as well as working interests averaging about 91% in 21
producing oil wells. We are the operator of the newly acquired assets in
Sounding Lake. The oil gravity averages about 30 degrees API. The area is
primarily farm land and there is well developed infrastructure in place.
Westlinks' current oil production from the area is over 950 barrels per day and
gross land interests total about 6,400 acres. Potential development for the area
consists of the consolidation of facilities, the implementation of a waterflood,
and the drilling of additional wells.
The portion of the Sounding Lake assets purchased in 2000 had a purchase
price of $11.9 million, which was financed by loans from a group of unaffiliated
investors, plus some bank financing and working capital. Net proceeds from this
offering will be used to repay the investor loans. The Sounding Lake acquisition
was effective January 1, 2000. Following our financial statements in this
prospectus is a pro forma balance sheet at March 31, 2000 which shows the effect
of this acquisition.
Sylvan Lake Area, Alberta
The Sylvan Lake property is located in central Alberta, about 15 miles west
of the City of Red Deer. Westlinks has a working interest of 94% in three
producing oil wells and a saltwater disposal well on about 2,080 acres. The
property is located in an area of mixed farming and can be accessed year-round.
Heavy crude oil of 16 degree API is produced from the Mississippian Pekisko
formation. The producing zone is up to 120 feet thick and the oil resource in
place is calculated at up to one million barrels per 40 acres. Good
infrastructure is in place, including roads, electricity, and producing
facilities. Westlinks acquired the Sylvan Lake property in September 1999.
23
<PAGE> 26
Since acquiring the property we have modified the facilities and
streamlined the operations to prepare for additional development. Westlinks has
negotiated a farmin and option agreement on another 640 acres of land adjacent
to its holdings. A farmin is an agreement to drill mineral rights owned or
leased by another party, in which interests are earned by the party drilling the
wells. Westlinks is currently finalizing interpretation of a three dimensional
seismic survey that was recently shot over its land. Westlinks spudded a
development well in early May 2000 that is a 200 metre offset of an existing
well that production tested over 200 barrels of oil per day from the Pekisko but
was completed as natural gas well in a shallower formation. Westlinks has
identified several additional drilling locations on its lands in Sylvan Lake,
including the other seven proposed wells to be drilled in 2000.
Weyburn Area, Saskatchewan
The Weyburn Property is a non-operated property consisting of 960 gross
acres located about ten miles southeast of the town of Weyburn, Saskatchewan.
Oil is produced from the Mississippian Midale formation at a depth of about
4,800 feet. Westlinks owns working interests of 6.8% and 8.25% in about ten
producing wells that currently produce a total net oil volume, before royalty,
of about 20 barrels per day.
RESERVES AND PRESENT VALUE SUMMARY
The estimated oil and natural gas reserves of Westlinks and the associated
estimated present value of estimated future net cash flows have been evaluated
in a report as of April 1, 2000 prepared by Grant Trimble Engineering Ltd.,
independent engineers of Calgary, Alberta. As requested by Westlinks, the Grant
Trimble report adopted certain information and findings from two recent reports
prepared by another engineering firm, without further review. This permitted a
consolidation of reserves and present value for all of Westlinks' holdings at
April 1, 2000, including acquisitions in the Mitsue and Sounding Lake areas
which closed in May, 2000 and were effective January 1, 2000. Accordingly,
various references were made to the reports of the other engineering firm for
Sylvan Lake dated September 1, 1999 and Bigoray dated July 1, 1999.
The following table is based on the Grant Trimble report and shows the
estimated share of the remaining oil, natural gas and natural gas liquids
attributable to Westlinks and the estimated present value of estimated future
net cash flows for these reserves, using constant prices and costs. All
estimates of present value of future net cash flows are stated after provision
for capital expenditures required to generate such revenues but prior to
provision for indirect costs such as general and administrative overhead, income
or production taxes, interest expense or abandonment liabilities, and prior to
income tax. It should not be assumed that the estimated present values of future
net cash flows are representative of the fair market value of the reserves.
These recovery and reserve estimates of Westlinks' interests in the described
properties are estimates only; the actual reserves in the properties in which we
have an interest may be more or less than those calculated. Assumptions and
qualifications relating to costs, prices and other matters are summarized in the
notes to the following table. The extent and character of the material
information supplied by Westlinks including, but not limited to, ownership, well
data, production, price, revenues, operating costs and contracts were relied
upon by Grant Trimble Engineering Ltd. in preparing the report. In the absence
of such information, Grant Trimble Engineering Ltd. relied upon, with the
approval of Westlinks, their opinion of reasonable practice in the industry. The
Grant Trimble report may be examined at the office of Westlinks located at Suite
370, 800 - 6th Avenue S.W., Calgary, Alberta during normal business hours. All
monetary amounts are expressed in Canadian dollars.
24
<PAGE> 27
ESTIMATED PETROLEUM AND NATURAL GAS RESERVES AND PRESENT WORTH AS AT APRIL 1,
2000(1)
<TABLE>
<CAPTION>
RESERVES PRESENT WORTH -- BEFORE INCOME TAX
----------------- -------------------------------------------
CATEGORY PRODUCT GROSS NET UNDISC. 10% 12% 15% 20%
-------- ------- ------- ------- ------- ------ ------ ------ ------
M$
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Proved Producing Crude Oil (Mbbl) 2,617.7 2,203.5 57,424 38,682 36,431 33,569 29,813
Sales Gas (Mmcf) 97.0 69.3 -- -- -- -- --
C5 (Mbbl) 10.8 7.3 -- -- -- -- --
C3 (Mbbl) 14.7 10.3 -- -- -- -- --
ARTC 636 481 460 432 393
------ ------ ------ ------ ------
TOTAL Proved Producing with ARTC 58,060 39,163 36,891 34,001 30,206
====== ====== ====== ====== ======
Total Proved Crude Oil (Mbbl) 3,132.9 2,679.7 66,200 43,293 40,531 37,018 32,408
Sales Gas (Mmcf) 795.2 623.3 -- -- -- -- --
C5 (Mbbl) 16.4 11.0 -- -- -- -- --
C3 (Mbbl) 14.7 10.3 -- -- -- -- --
ARTC 1,032 802 769 726 665
------ ------ ------ ------ ------
TOTAL Proved with ARTC 67,232 44,095 41,300 37,744 33,072
====== ====== ====== ====== ======
</TABLE>
---------------
Notes:
(1) Definitions:
"ARTC" means the Alberta Royalty Tax Credit.
"C3" means propane.
"C5" means condensate.
"Gross" means the total of Westlinks' working interest share of reserves
before deduction of Royalties.
"Mbbl" means thousands of barrels.
"Mmcf" means millions of cubic feet.
"Net" means gross reserves after deduction of Royalties. In order to
estimate reserves after giving effect to the deduction of provincial
royalties, certain assumptions must be made including forecasts of future
prices and production. The net reserves are based on forecasts by Grant
Trimble Engineering Ltd. of these and other factors necessary to estimate
provincial and other royalties.
"Oil" means crude oil.
"Proved oil and gas reserves" are the estimated quantities of crude oil,
natural gas, and natural gas liquids which geological and engineering data
demonstrate with reasonable certainty to be recoverable in future years from
known reservoirs under existing economic and operating conditions, i.e.,
prices and costs as of the date the estimate is made. Prices include
consideration of changes in existing prices provided only by contractual
arrangements, but not on escalations based upon future conditions.
"Proved developed oil and gas reserves" are reserves that can be expected
to be recovered through existing wells with existing equipment and
operating methods. Additional oil and gas expected to be obtained through
the application of fluid injection or other improved recovery techniques
for supplementing the natural forces and mechanisms of primary recovery are
included. Only after testing by a pilot project or after the operation of
an installed program has confirmed through production response that
increased recovery will be achieved.
"Proved non-producing oil and gas reserves" are those proved reserves that
are not currently producing either due to lack of facilities and/or
markets.
"Royalties" means royalties paid to others. The royalties deducted from the
reserves are based on the percentage royalties calculated by applying the
applicable royalty rate or formula. In the case of Crown (the federal or
provincial governments in Canada) sliding scale royalties which are
dependent on selling price, the price forecasts for the individual
properties in question have been employed.
"Sales Gas" means natural gas which is produced for commercial sale.
25
<PAGE> 28
(2) Price Forecast
The following table sets out product price forecast utilized in the Grant
Trimble Report.
PRODUCT PRICE FORECAST BASED ON ALBERTA MARKET PRODUCT PRICES(9)
EFFECTIVE DECEMBER 31, 1999
<TABLE>
<CAPTION>
GAS(2)
OIL(1) ------- NATURAL GAS LIQUIDS (NGL'S)(1)
--------------------- ALBERTA ----------------------------------------
EDMONTON BOW RIVER AECO EDMONTON EDMONTON EDMONTON
LIGHT(3) MEDIUM(4) SPOT(5) CONDENSATE(6) PROPANE(7) BUTANE(8)
YEAR $/BBL $/BBL $/MCF $/BBL $/BBL $/BBL
---- -------- --------- ------- ------------- ---------- ---------
<S> <C> <C> <C> <C> <C> <C>
2000 forward......... 38.46 32.74 2.83 38.46 19.07 26.70
</TABLE>
Prices held constant to all future time.
--------------------
Notes:
(1) Oil and byproducts subject to quality differentials and transportation
adjustments.
(2) Gas subject to heating value and transportation adjustments and
specific contract restrictions.
(3) Light oil prices for 40.0 degree API, 0.3% sulphur at Edmonton --
Source = Nickles Daily Oil Bulletin, January 3, 2000 for close on
December 31, 1999.
(4) Medium oil prices for 25.0 degree API crude into Imperial Bow River
system -- Source = Nickles Daily Oil Bulletin, January 3, 2000 for
close on December 31, 1999.
(5) Alberta AECO spot price -- Source = Nickles Daily Oil Bulletin, January
3, 2000 for close on December 31, 1999.
(6) Condensate price estimated to be equal to posted Par Price for Edmonton
light crude -- Source = Nickles Daily Oil Bulletin, January 3, 2000 for
close on December 31, 1999.
(7) Propane price is from Shell Canada Limited posted Edmonton propane
price for December 18, 1999 through January 14, 2000.
(8) Butane price is from Shell Canada Limited posted Edmonton butane price
for December 10, 1999 through January 12, 2000.
(9) December 31, 1999 market prices used, as indicated in SEC Division of
Corporate Finance Staff Interpretation regarding Oil and Gas Prices in
Standardized Measure Disclosures.
HISTORICAL RESERVES
The following table sets out Westlinks' proved oil and gas reserves at
December 31, 1999, 1998 and 1997 respectively and the present value at December
31, 1999. The amounts for December 31, 1999 are based upon a report prepared for
Westlinks by Grant Trimble Engineering Ltd. at December 31, 1999. Abbreviations
and price forecasts are as set out above for the April 1, 2000 report. The
monetary amounts are expressed in Canadian dollars. The reserve numbers for
December 31, 1998 and 1997 were prepared internally by Westlinks, based upon
reserve reports prepared at various dates by independent engineering firms and
adjusted for actual production. Present value amounts are not available as it is
not feasible to redo such calculations after the fact.
<TABLE>
<CAPTION>
DECEMBER 31,
------------------------
1999 1998 1997
------- ----- ----
<S> <C> <C> <C>
Proved Producing Reserves
Oil (thousands of barrels)................................ 1,034.6 560 88
Gas (millions of cubic feet).............................. 106.0 2,956 16
Proved Reserves
Oil (thousands of barrels)................................ 1,519.8 560 88
Gas (millions of cubic feet).............................. 615.8 5,873 16
</TABLE>
26
<PAGE> 29
LAND HOLDINGS
Westlinks does not have any lands that are not associated with the
producing properties described above.
PRODUCTION
The following table summarizes Westlinks' working interest production
during the periods indicated.
<TABLE>
<CAPTION>
YEARS ENDED
THREE MONTHS DECEMBER 31
ENDED --------------------
MARCH 31, 2000 1999 1998 1997
-------------- ---- ---- ----
<S> <C> <C> <C> <C>
Oil and NGL's (MBbls).................................... 42 96 88 79
Gas (MMcf)............................................... 11 55 220 58
Total (MBOE)............................................. 43 102 110 85
Average Production in BOEPD.............................. 475 279 302 233
</TABLE>
Definitions:
"BOEPD" means barrels of oil equivalent produced per day.
"MBOE" means thousands of barrels of oil equivalent, meaning one barrel of
oil or one barrel of natural gas liquids or ten mcf of natural gas.
"MBbls" means thousands of barrels, with respect to production of crude oil
or natural gas liquids.
"MMcf" means millions of cubic feet, with respect to production of natural
gas.
"NGL's" means natural gas liquids, being those hydrocarbon components
recovered from raw natural gas as liquids by processing through extraction
plants or recovered from field separators, scrubbers or other gathering
facilities. These liquids include the hydrocarbon components ethane, propane,
butanes and pentanes plus, or a combination thereof.
DRILLING
For the periods indicated, Westlinks has drilled or participated in the
drilling and/or re-entry of four gross wells (2.8 net wells) as follows:
<TABLE>
<CAPTION>
PERIOD ENDED YEARS ENDED DECEMBER 31,
MAY 31, -----------------------------------------------
2000 1999 1998 1997
------------- ------------- ------------- -------------
GROSS NET GROSS NET GROSS NET GROSS NET
----- ---- ----- ---- ----- ---- ----- ----
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Oil............................. 2 1.78 0 0.00 0 0.00 0 0.00
Natural Gas..................... 0 0.00 0 0.00 0 0.00 0 0.00
Abandoned....................... 1 0.89 0 0.00 1 0.13 0 0.00
-- ---- -- ---- -- ---- -- ----
Total........................... 3 2.67 0 0.00 1 0.13 0 0.00
== ==== == ==== == ==== == ====
</TABLE>
---------------
Notes:
(1) "Gross" wells means the number of whole wells.
(2) "Net" wells means Westlinks' working interest in the gross wells.
27
<PAGE> 30
CAPITAL EXPENDITURES
The following table summarizes the capital expenditures made by Westlinks
during the periods indicated, expressed in Canadian dollars:
<TABLE>
<CAPTION>
THREE MONTHS YEARS ENDED DECEMBER 31,
ENDED MARCH 31, -------------------------
2000 1999 1998 1997
--------------- ------ ----- ------
(IN THOUSANDS)
<S> <C> <C> <C> <C>
Land................................................ 1,418 2,659 294 3,410
Drilling (exploration and development).............. 1,399 341 27 50
Seismic............................................. 165 17 -- --
Facilities.......................................... 865 728 4 1,022
Miscellaneous....................................... 2 24 2 34
----- ----- --- -----
Total............................................... 3,849 3,769 327 4,516
===== ===== === =====
</TABLE>
OIL AND GAS WELLS
The following table summarizes Westlinks' interest in producing and
non-producing oil and gas wells as at May 31, 2000:
<TABLE>
<CAPTION>
NON-PRODUCING
OIL AND GAS WELLS
PRODUCING PRODUCING CAPABLE OF
OIL WELLS GAS WELLS PRODUCTION
------------- ------------ ------------------
ALBERTA GROSS NET GROSS NET GROSS NET
------- ----- ---- ----- --- ---------- ----
<S> <C> <C> <C> <C> <C> <C>
Bigoray....................................... 5 4.4 0 0 2 1.3
Mitsue........................................ 3 2.7 0 0 3 2.7
Sounding Lake East............................ 8 7.9 0 0 0 0.0
Sounding Lake West............................ 26 12.4 0 0 0 0.0
Sounding Lake North........................... 10 8.5 0 0 0 0.0
Sylvan Lake................................... 3 2.8 0 0 0 0.0
Weyburn....................................... 9 0.7 0 0 0 0.0
-- ---- -- -- -- ---
TOTAL WELLS................................... 64 39.4 0 0 5 4.0
== ==== == == == ===
</TABLE>
EMPLOYEES
At June 1, 2000 we employed seven people in our head office, being six
employees and one consultant, and six field operators, being five employees and
one consultant.
COMPETITION
The petroleum industry is highly competitive. Westlinks competes with
numerous other participants in the acquisition of oil and gas leases and
properties, and the recruitment of employees. Any company can make acquisitions
and bid on provincial leases in Alberta. Competitors include oil companies which
have greater financial resources, staff and facilities than those of Westlinks.
Our ability to increase reserves in the future will depend not only on our
ability to develop existing properties, but also on our ability to select and
acquire suitable additional producing properties or prospects for drilling. We
also compete with numerous other companies in the marketing of oil. Competitive
factors in the distribution and marketing of oil include price and methods and
reliability of delivery.
OFFICE FACILITIES
Westlinks currently leases 2,241 square feet of office space at Suite 370,
800 - 6th Avenue S.W. in Calgary, Alberta. The annual rental is $7.50 per square
foot plus annual operating costs which are currently $6.00 per square foot,
until October 31, 2000, when the lease expires.
28
<PAGE> 31
GOVERNMENT REGULATION IN CANADA
The oil and natural gas industry is subject to extensive controls and
regulations governing its operations, including land tenure, exploration,
development, production, refining, transportation and marketing, imposed by
legislation enacted by various levels of government and with respect to pricing
and taxation of oil and natural gas by agreements among the governments of
Canada, Alberta, Saskatchewan and British Columbia, all of which should be
carefully considered by investors in the Canadian oil and gas industry. It is
not expected that any of these controls or regulations will affect the
operations of Westlinks in a manner materially different from how they would
affect other oil and gas companies of similar size operating in Western Canada.
All current legislation is a matter of public record and Westlinks is unable to
predict what additional legislation or amendments may be enacted. Outlined below
are some of the principal aspects of legislation, regulations and agreements
governing the oil and gas industry.
Pricing and Marketing -- Oil and Natural Gas
The producers of oil are entitled to negotiate sales contracts directly
with oil purchasers, with the result that the market determines the price of
oil. Such price depends in part on oil quality, prices of competing oils,
distance to market, the value of refined products and the supply/demand balance.
Oil exporters are also entitled to enter into export contracts with terms not
exceeding one year in the case of light crude oil and two years in the case of
heavy crude oil, provided that an order approving such export has been obtained
from the National Energy Board of Canada, or NEB. Any oil export to be made
pursuant to a contract of longer duration, to a maximum of 25 years, requires an
exporter to obtain an export licence from the NEB and the issuance of such
licence requires the approval of the Governor in Council.
The price of natural gas is determined by negotiation between buyers and
sellers. Natural gas exported from Canada is subject to regulation by the NEB
and the Government of Canada. Exporters are free to negotiate prices with
purchasers, provided that the export contracts must continue to meet certain
other criteria prescribed by the NEB and the Government of Canada. Natural gas
exports for a term of less than two years or for a term of two to twenty years,
in quantities of not more than 30,000 m(3)/day, must be made pursuant to an NEB
order. Any natural gas export to be made pursuant to a contract of longer
duration, up to a maximum of 25 years, or a larger quantity, requires an
exporter to obtain an export licence from the NEB and the issuance of such
licence requires the approval of the Governor in Council.
The governments of British Columbia, Alberta and Saskatchewan also regulate
the volume of natural gas which may be removed from those provinces for
consumption elsewhere based on such factors as reserve ability, transportation
arrangements and market considerations.
The lack of firm pipeline capacity continues to limit the ability to
produce and market natural gas production although pipeline expansions are
ongoing. In addition, the prorationing of capacity on the interprovincial
pipeline systems continues to limit oil exports.
The North American Free Trade Agreement
The North American Free Trade Agreement, or NAFTA, entered into among the
governments of Canada, United States of America and Mexico became effective on
January 1, 1994. NAFTA carries forward most of the material energy terms that
are contained in the Canada - United States Free Trade Agreement. Canada
continues to remain free to determine whether exports of energy resources to the
United States or Mexico will be allowed, provided that any export restrictions
do not:
- reduce the proportion of energy resources exported relative to domestic
use (based upon the proportion prevailing in the most recent 36 month
period);
- impose an export price higher than the domestic price; or
- disrupt normal channels of supply.
All three countries are prohibited from imposing minimum export or import
price requirements.
29
<PAGE> 32
NAFTA contemplates the reduction of Mexican restrictive trade practices in
the energy sector and prohibits discriminatory border restrictions and export
taxes. The agreement also contemplates clearer disciplines on regulators to
ensure fair implementation of any regulatory changes and to minimize disruption
of contractual arrangements, which is important for Canadian natural gas
exports.
Provincial Royalties and Incentives
In addition to federal regulation, each province has legislation and
regulations which govern land tenure, royalties, production rates, environmental
protection and other matters. The royalty regime is a significant factor in the
profitability of crude oil, natural gas liquids, sulphur and natural gas
production. Royalties payable on production from lands other than Crown lands
are determined by negotiations between the mineral owner and the lessee,
although production from such lands is subject to certain provincial taxes and
royalties. Crown royalties are determined by governmental regulation and are
generally calculated as a percentage of the value of the gross production. The
rate of royalties payable generally depends in part on prescribed reference
prices, well productivity, geographical location, field discovery date and the
type or quality of the petroleum product produced.
From time to time the governments of the western Canadian provinces create
incentive programs for exploration and development. Such programs often provide
for royalty rate reductions, royalty holidays and tax credits, and are generally
introduced when commodity prices are low. The programs are designed to encourage
exploration and development activity by improving earnings and cash flow within
the industry.
In the Province of Alberta, a producer of oil or natural gas is entitled to
a credit against the royalties payable to the Crown by virtue of the Alberta
royalty tax credit or, ARTC program. The ARTC rate is based on a price sensitive
formula and the ARTC rate varies between 75% at prices at and below $100 per
thousand cubic metres and 25% at prices at and above $210 per thousand cubic
metres. The ARTC rate is applied to a maximum of $2,000,000 of Alberta Crown
royalties payable for each producer or associated group of producers. Crown
royalties on production from producing properties acquired from a corporation
claiming maximum entitlement to ARTC will generally not be eligible for ARTC.
The rate will be established quarterly based on the average "par price", as
determined by the Alberta Department of Energy for the previous quarterly
period.
On December 22, 1997, the Alberta government announced that it was
conducting a review of the ARTC program with the objective of setting out better
targeted objectives for a smaller program and to deal with administrative
difficulties. On August 30, 1999, the Alberta government announced that it would
not be reducing the size of the program but that it would introduce new rules to
reduce the number of persons who qualify for the program. The new rules will
preclude companies that pay less than $10,000 in royalties per year and
non-corporate entities from qualifying for the program. Such rules will not
presently preclude Westlinks from being eligible for the ARTC program.
Crude oil and natural gas royalty holidays for specific wells and royalty
reductions reduce the amount of Crown royalties paid by Westlinks to the
provincial governments. In general, the ARTC program provides a rebate on
Alberta Crown royalties paid in respect of eligible producing properties.
Land Tenure
Crude oil and natural gas located in the western provinces is owned
predominantly by the respective provincial governments. Provincial governments
grant rights to explore for and produce oil and natural gas pursuant to leases,
licences and permits for varying terms from two years and on conditions set
forth in provincial legislation including requirements to perform specific work
or make payments. Oil and natural gas located in such provinces can also be
privately owned and rights to explore for and produce such oil and natural gas
are granted by lease on such terms and conditions as may be negotiated.
30
<PAGE> 33
Environmental Regulation
The oil and natural gas industry is currently subject to environmental
regulations pursuant to a variety of provincial and federal legislation. Such
legislation provides for restrictions and prohibitions on the release or
emission of various substances produced in association with certain oil and gas
industry operations. In addition, such legislation requires that well and
facility sites be abandoned and reclaimed to the satisfaction of provincial
authorities. Compliance with such legislation can require significant
expenditures and a breach of such requirements may result in suspension or
revocation of necessary licenses and authorizations, civil liability for
pollution damage and the imposition of material fines and penalties.
Environmental legislation in the Province of Alberta has been consolidated
into the Environmental Protection and Enhancement Act, or EPEA, which came into
force on September 1, 1993. The EPEA imposes stricter environmental standards,
requires more stringent compliance, reporting and monitoring obligations and
significantly increases penalties. Westlinks is committed to meeting its
responsibilities to protect the environment wherever it operates and anticipates
making increased expenditures of both a capital and expense nature as a result
of the increasingly stringent laws relating to the protection of the environment
and will be taking such steps as required to ensure compliance with the EPEA and
similar legislation in other jurisdictions in which it operates. Westlinks
believes that it is in material compliance with applicable environmental laws
and regulations. Westlinks also believes that it is reasonably likely that the
trend towards stricter standards in environmental legislation and regulation
will continue.
MANAGEMENT
DIRECTORS AND EXECUTIVE OFFICERS
The directors, director nominees and executive officers of Westlinks are:
<TABLE>
<CAPTION>
NAME AGE POSITION WITH WESTLINKS
---- --- -----------------------
<S> <C> <C>
Peter R. Sekera 45 Director, President and Chief Executive Officer
Thomas J. Jacobsen 65 Director and Executive Vice-President of Operations
Edward C. McFeely 45 Director and Executive Vice-President of Engineering
H.S. (Scobey) Hartley 68 Director
Norman J. MacKenzie 55 Director
Norman W.G. Wallace 62 Director
Lynn W. Thurlow 46 Vice-President, Finance and Chief Financial Officer
Marcia L. Johnston 52 Secretary
</TABLE>
Peter R. Sekera. Mr. Sekera has been our Chief Executive Officer and a
director since Westlinks' amalgamation on June 30, 1998 and was also Chief
Executive Officer and a director of Westlinks' predecessor, Temba Resources
Ltd., from its incorporation in July, 1996. During that time he has also held
the offices of either Chairman or President, and has been President since
October, 1999. Prior to joining Westlinks, Mr. Sekera was a reservoir
engineering and financial consultant to the oil industry from July, 1994 through
June, 1996, and served as Manager, Planning and Development, of Wascana Energy
Inc. from September, 1991 to July, 1994, and the Manager of Corporate Finance at
the Toronto-Dominion Bank from September, 1981 to September, 1991. He earned a
Bachelor of Science degree from the University of Waterloo in 1976, and received
his certification under the Directors and Officers section of the Canadian
Securities Institute. His 24 years of experience in the Canadian oil and gas
industry encompasses reservoir engineering, oil and gas reserve evaluation and
financial planning.
Thomas J. Jacobsen. Mr. Jacobsen joined Westlinks as a director in
February, 1999, and was appointed Executive Vice-President of Operations in
October, 1999. His more than 40 years of experience in the oil and gas industry
in Alberta and Saskatchewan includes serving as the President and CEO of Niaski
Environmental Inc. from November, 1996 to February, 1999; President and CEO of
International Pedco Energy Corporation from September, 1993 to February, 1996,
and President of International Colin Energy Corporation from October, 1987 to
June, 1993. Mr. Jacobsen currently serves as a director of Niaski Environmental
Inc., a
31
<PAGE> 34
company listed on the Canadian Venture Exchange. Niaski has made a proposal to
its creditors under the Bankruptcy and Insolvency Act (Canada). The proposal has
been approved by the creditors but has not yet been funded and completed.
Edward C. McFeely. Mr. McFeely has been a director of Westlinks since its
amalgamation in June, 1998. He served as Vice-President, Engineering from
October, 1998 to May, 1999 and was appointed to his current position of
Executive Vice-President of Engineering in October, 1999. Mr. McFeely was an
independent engineering consultant from July, 1996 to October, 1998, and his
previous experience includes President and CEO of Prize Energy Inc. from
December, 1993 to June, 1996. He received a Bachelor of Science degree in
Petroleum Engineering from the University of Alberta in 1980 and is a
Professional Engineer with a membership in the Association of Professional
Engineers, Geologists and Geophysicists of Alberta.
H.S. (Scobey) Hartley. Mr. Hartley was appointed a director of Westlinks
in May, 2000. He has been Chairman of Prism Petroleum Ltd. since January, 1997
and was formerly the President of Prism Petroleum Ltd. and a predecessor company
from December, 1990 through December, 1996. Mr. Hartley has also served as the
President of Faster Oilfield Services since June, 1995, and was the President of
Cayenne Energy Corp. from 1990 through 1996. He received a Bachelor of Science
degree in Geology from Texas Tech University in 1956.
Norman J. MacKenzie. Mr. MacKenzie was elected a director of Westlinks in
May, 2000. He has been Chairman of Raptor Capital Corporation since January,
1998 and was the President from December, 1996 until January, 1998. He has also
been President of Normac Investments Inc. since 1989. Mr. MacKenzie has over 25
years experience in the domestic and international energy industry, including
President of Sunningdale Oil (Abu Dhabi) Ltd.; President of Scarboro Resources
Limited; Chairman of Braco Resources Ltd., and Co-Chairman of Scimitar
Hydrocarbons Corp. He received a Bachelor of Arts degree in Politics and Law
from the University of Cape Town in 1992.
Norman W.G. Wallace. Mr. Wallace was elected a director of Westlinks in
May, 2000. He has been the owner of Wallace Construction Specialties Ltd. since
1972. Mr. Wallace received a Bachelor of Commerce degree from the University of
Saskatchewan in 1968.
Lynn W. Thurlow. Mr. Thurlow joined Westlinks as Vice-President, Finance
and Chief Financial Officer in November, 1999, after being retained as a
financial consultant to Westlinks in October, 1999. Previously he served as
Vice-President, Finance and CFO of Telebackup Systems Inc. from March, 1996 to
June, 1999; Vice-President, Finance and CFO of International Pedco Energy
Corporation from 1993 to February, 1996, and Controller of International Colin
Energy Corporation from 1990 to 1993. Mr. Thurlow received a Bachelor of
Commerce degree from the University of Alberta in 1979. He articled with Coopers
and Lybrand Chartered Accountants and obtained his Chartered Accountant
designation in 1983.
Marcia L. Johnston. Ms. Johnston was appointed Secretary of Westlinks in
September, 1999 and has served as our corporate counsel since February, 1999.
She has been a partner in the Calgary office of the national Canadian law firm
of Gowling, Strathy & Henderson since April 2000 and previously was a partner of
Johnston Robinson Clark Anderson and predecessor firms since 1986. She was
admitted to the practice of law in the Province of Alberta in 1985 and in the
State of Kansas in 1974. She earned a Bachelor of Arts degree in 1971 and Juris
Doctor degree in 1973 from Washburn University. Ms. Johnston is also Secretary
of Niaski Environmental Inc., a company listed on the Canadian Venture Exchange.
Niaski Environmental Inc. has made a proposal to its creditors under the
Bankruptcy and Insolvency Act (Canada). The proposal has been approved by the
creditors but has not yet been funded and completed.
BOARD OF DIRECTORS
Westlinks is authorized to have a board of at least three directors and no
more than ten. We currently have six directors. Our directors are elected for a
term of about one year, from annual meeting to annual meeting, or until an
earlier resignation, death or removal. Each officer serves at the discretion of
the board or until an earlier resignation or death. There are no family
relationships among any of our directors or officers.
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<PAGE> 35
Alberta corporate law requires that we have at least two independent outside
directors who are not officers or employees of Westlinks.
Currently our directors do not receive any fees or remuneration for being
directors of Westlinks, but we will reimburse actual and reasonable out of
pocket expenses incurred for attending board and committee meetings. Directors
are eligible to receive stock options granted by our board.
COMMITTEES OF THE BOARD OF DIRECTORS
Westlinks' Board of Directors currently has an audit committee, a
compensation committee and an environmental and safety committee.
Audit Committee. Our audit committee consists of Mr. MacKenzie, Mr.
Hartley and Mr. Sekera, two of whom are independent. The audit committee reviews
in detail and recommends approval of the full board of our annual and quarterly
financial statements; recommends approval of the remuneration of our auditors to
the full board; reviews the scope of the audit procedures and the final audit
report with the auditors, and reviews our overall accounting practices and
procedures and internal controls with the auditors.
Compensation Committee. Our compensation committee consists of Mr.
Hartley, Mr. Wallace and Mr. Sekera. The compensation committee recommends
approval to the full board of the compensation of the Chief Executive Officer,
the annual compensation budget for all other employees, bonuses, grants of stock
options and any changes to our benefit plans.
Environmental and Safety Committee. Our environmental and safety committee
consists of Mr. Wallace, Mr. MacKenzie and Mr. McFeely. The environmental and
safety committee determines the scope and frequency of periodic reports to the
board concerning environmental and safety issues in our operations.
EXECUTIVE COMPENSATION
The following table sets forth the remuneration of our Chief Executive
Officer for the years indicated. All monetary amounts are in Canadian dollars.
COMPENSATION SUMMARY
<TABLE>
<CAPTION>
LONG-TERM COMPENSATION
AWARDS PAYOUTS
SECURITIES
UNDER RESTRICTED
OPTIONS/ SHARES OR
SARS RESTRICTED LTIP ALL OTHER
NAME AND PRINCIPAL SALARY BONUS GRANTED SHARE PAYOUTS COMPENSATION
POSITION ($) ($) SEVERANCE (#) UNITS (%) ($) ($)
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Peter R. Sekera...... 1999 $74,000 $50,000 -- 100,000 0% $nil $732
Chairman (now 1998 $72,000 -- -- 160,000 0% $nil $732
President) and CEO 1997 $18,000 $50,000 -- 35,000 0% $nil --
Thomas S. Bamford.... 1999 $60,000 -- $72,787 -- 0% $nil $460
President 1998 $72,000 10,000 -- 154,000 0% $nil $460
1997 $18,000 $ -- 35,000 0% $nil --
50,000
$
</TABLE>
Management Contracts
Westlinks has no management or employment contracts with its officers.
33
<PAGE> 36
Stock Options
Westlinks grants stock options from time to time to its directors,
officers, key employees, and consultants. The terms and conditions of the
options, in accordance with resolutions of our board of directors and the
policies of the Canadian Venture Exchange, will not exceed a term of five years.
The option price may be at a discount to market price, which discount will not,
in any event, exceed that permitted by any stock exchange on which our shares
are listed for trading.
Ten percent of Westlinks shares of issued and outstanding common stock from
time to time are reserved for issuance pursuant to stock options. The aggregate
number of shares reserved for issuance under option grants, together with any
other employee stock option plans, options for services and employee stock
purchase plans, will not exceed ten percent of the issued and outstanding shares
of common stock. In addition, the aggregate number of shares so reserved for
issuance to any one person shall not exceed five percent of the issued and
outstanding shares of common stock.
If an optionee ceases to be eligible due to the loss of corporate office or
employment for any reason other than death, the option terminates not later than
90 days after the loss of such corporate office; provided that in the event of
termination of employment for cause, the board of directors may resolve that the
option shall terminate on the date of such termination. Option agreements also
provide that estates of deceased participants can exercise their options for a
period not exceeding one year following death.
Stock Options Granted During the Most Recently Completed Financial Year
The following table discloses the grants of options to purchase or acquire
shares of common stock to our executive officers during the fiscal year ended
December 31, 1999. All monetary amounts are in Canadian dollars.
OPTION GRANTS DURING FISCAL YEAR ENDED DECEMBER 31, 1999
<TABLE>
<CAPTION>
NUMBER
OF % OF TOTAL
SECURITIES OPTIONS UNEXERCISED
UNDER GRANTED TO OPTIONS AT
OPTIONS EMPLOYEES IN EXERCISE DECEMBER 31,
GRANTED FY ENDED PRICE 1999 EXPIRATION
NAME (#) DEC. 31, 1999 ($/SHARE) (#) DATE
<S> <C> <C> <C> <C> <C>
Peter R. Sekera............ 100,000 38.4% $1.00 100,000 November 1, 2004
Edward C. McFeely.......... 80,000 30.8% $1.00 80,000 November 1, 2004
Thomas J. Jacobsen......... 80,000 30.8% $1.00 80,000 November 1, 2004
</TABLE>
A total of 260,000 options were granted to employees by Westlinks during
the fiscal year ended December 31, 1999.
34
<PAGE> 37
Aggregated Option Exercises During the Most Recently Completed Financial Year
and Financial Year End Option Values
The following table sets forth the aggregate of options exercised by our
executive officers during the year ended December 31, 1999 and the financial
1999 year-end values for options granted to the executive officers. All monetary
amounts are in Canadian dollars.
<TABLE>
<CAPTION>
VALUE OF
UNEXERCISED
IN-THE-MONEY OPTIONS
UNEXERCISED AT FY-END
OPTIONS AT FY-END EXERCISABLE/
SECURITIES AGGREGATE VALUE EXERCISABLE/ UNEXERCISABLE ($)
NAME EXERCISED (#) REALIZED ($) UNEXERCISABLE (#) (1)
<S> <C> <C> <C> <C>
Peter R. Sekera.............. 80,000 $32,000 100,000 $0/0
Edward C. McFeely............ 20,000 $ 8,000 80,000 $0/0
Thomas S. Bamford............ 77,000 $30,800 -- --
Cheryl L. McCaughlan......... 20,000 $ 8,000 -- --
</TABLE>
(1) The closing price of our shares of common stock on the Canadian Venture
Exchange on the last trading day in December, 1999 was $1.00.
INTEREST OF MANAGEMENT AND OTHERS IN CERTAIN TRANSACTIONS
None of Westlinks' directors or executive officers, nor any person who
beneficially owns directly or indirectly or exercises control or direction over
securities carrying more than 5% of the voting rights attaching to our shares of
common stock, nor any known associate or affiliate of these persons had any
material interest, direct or indirect in any transaction since the January 1,
1997 which has materially affected Westlinks, or in any proposed transaction
which will materially affect Westlinks, except as follows:
ACQUISITION OF 759795 ALBERTA LTD.
In August, 1999, Westlinks acquired 759795 Alberta Ltd. from Wells Gray
Resort & Resources Ltd. for cash consideration of $400,000. Wells Gray Resort &
Resources Ltd. is wholly owned by Thomas J. Jacobsen. At the time of the
acquisition, Mr. Jacobsen was an outside independent director of Westlinks.
759795 Alberta held all of the oil and gas interests and expertise of Wells Gray
Resort & Resources Ltd., including the experience of Thomas J. Jacobsen. 759795
Alberta also had the option to acquire any oil and gas acquisition offer made
through Wells Gray Resort & Resources Ltd. At the time of the acquisition by
Westlinks, there were several such outstanding offers, including the accepted
offer for the Bigoray acquisition discussed above.
PRIVATE PLACEMENT
Between September 27 and December 16, 1999 we sold an aggregate of
1,175,000 shares of common stock at $1.00 per share as a private placement
available to residents of Alberta, Canada. Our directors and officers and their
spouses purchased 665,000 shares of common stock, being 57% of the private
placement.
35
<PAGE> 38
LOANS TO OFFICERS AND DIRECTORS
At February 16, 2000, Westlinks had loaned an aggregate of $390,000 to its
officers and directors to exercise outstanding stock options at $1.00 per share.
The loans were without interest, payable in full on or before December 31, 2000
and secured by the stock purchased with the proceeds. The loans have all been
repaid. The following table sets out the names and positions with Westlinks of
the borrowers, the amount of the loans and the number of shares purchased with
the proceeds.
<TABLE>
<CAPTION>
LOAN AMOUNT FINANCIALLY ASSISTED
NAME AND PRINCIPAL POSITION ($) SECURITIES PURCHASED
<S> <C> <C>
Peter R. Sekera..................................... 100,000 100,000 common shares
President and CEO and Director
Edward C. McFeely................................... 80,000 80,000 common shares
Executive V-P, Engineering and Director
Thomas J. Jacobsen.................................. 80,000 80,000 common shares
Executive V-P, Operations and Director
Dale N. Fisher...................................... 20,000 20,000 common shares
Director
Thomas S. Bamford................................... 20,000 20,000 common shares
Director
Lynn W. Thurlow..................................... 50,000 50,000 common shares
V-P Finance
Marcia L. Johnston.................................. 40,000 40,000 common shares
Secretary
</TABLE>
PRIVATE STOCK OPTIONS
John P. McGrain, holder of over 5% of our outstanding common stock, was
granted options by Westlinks' officers and directors to purchase an aggregate of
500,000 shares of common stock at a price of US $1.50 per share. The options
were granted March 15, 2000 and expire October 31, 2000. For administrative
convenience, the shares were transferred by the directors and officers into a
holding company, 855710 Alberta Ltd., which granted the options to Mr. McGrain.
At June 12, 2000, Mr. McGrain had exercised options to purchase 175,000 shares
of common stock, of which he retains 82,300 shares. Upon successful completion
of this offering, Westlinks directors and officers have verbally agreed to grant
Mr. McGrain options to purchase an additional 500,000 shares of common stock, at
an exercise price equal to the price of the warrants issued under this
prospectus.
PRIVATE LOAN
On June 5, 2000, Westlinks borrowed US$1,550,000 from six private
investors, including US$925,000 from Patrick Williams Advisors, a partnership,
in which John P. McGrain is a 50% partner. The lenders receive interest at the
rate of 12% per annum. Westlinks also granted the lenders a set-up fee of
US$50,000, of which Patrick Williams Advisors will receive US$30,833. Westlinks
issued a total of 150,000 warrants to the lenders, including 92,500 warrants to
Patrick Williams Advisors. Each warrant may be exercised for the purchase of one
share of common stock for US$4.00 per share through March 5, 2001.
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<PAGE> 39
PRINCIPAL STOCKHOLDERS
The following table sets forth information regarding beneficial ownership
of our common stock as of the date of this prospectus, by:
- each person who is known by Westlinks to beneficially own more than 5%
of our outstanding common stock;
- each of our executive officers and directors; and
- all executive officers and directors as a group.
Shares of common stock not outstanding but deemed beneficially owned
because an individual has the right to acquire the shares of common stock within
60 days are treated as outstanding when determining the amount and percentage of
common stock owned by that individual and by all directors and executive
officers as a group.
<TABLE>
<CAPTION>
PERCENTAGE OF
NUMBER OF SHARES OUTSTANDING
SHARES --------------------
BENEFICIALLY BEFORE AFTER
OWNED OFFERING OFFERING
------------ -------- --------
<S> <C> <C> <C>
Peter R. Sekera(1).......................................... 672,100 14.02 11.60
Edward C. McFeely(1)(2)..................................... 758,680 15.83 13.10
Thomas J. Jacobsen(1)(2).................................... 435,000 9.08 7.51
H.S. (Scobey) Hartley(1).................................... 21,500 0.45 0.37
Norman J. MacKenzie(1)...................................... 20,000 0.42 0.35
Norman W.G. Wallace(1)...................................... 20,000 0.42 0.35
Lynn W. Thurlow(1)(2)....................................... 60,000 1.25 1.04
Marcia L. Johnston(1)(2).................................... 21,000 0.47 0.39
All directors and executive officers as a group (eight
persons).................................................. 2,008,280 41.90 34.67
John P. McGrain(1)(3)(4).................................... 407,300 9.19 7.50
Thomas S. Bamford(1)........................................ 347,300 7.25 6.00
</TABLE>
---------------
Notes:
(1) The address of each officer and director is Suite 370, 800 - 6th Avenue
S.W., Calgary, Alberta, Canada T2P 3G3. The address of Mr. McGrain is 1000
East Cordova, Pasadena, California 91106. The address of Mr. Bamford is
#907, 727 - 6th Avenue S.W., Calgary, Alberta T2P 0V1.
(2) In the foregoing table, the common stock beneficially owned by:
- Mr. McFeely includes 102,500 shares held by his wife and 100,000 shares
held by Cormorant Resources Ltd.
- Mr. Jacobsen includes 60,000 shares held by his wife and children, as to
which he disclaims beneficial ownership or control, and the balance of
290,000 shares are held by Wells Gray Resort & Resources Ltd.
- Mr. Thurlow includes 10,000 shares held by his wife, as to which he
disclaims beneficial ownership or control.
- Ms. Johnston consists of 21,000 shares held by her husband, as to which
she disclaims beneficial ownership or control.
(3) In addition, Mr. McGrain is a 50% partner of Patrick Williams Advisors, a
partnership which holds warrants to purchase 92,500 shares of our common
stock at an exercise price of US$4.00 per share through March 5, 2001.
(4) The directors and officers have verbally agreed upon successful completion
at this offering to privately grant Mr. McGrain options to purchase from
them an additional 500,000 shares of common stock at an exercise price equal
to the exercise price of the warrants issued in the offering.
37
<PAGE> 40
DESCRIPTION OF SECURITIES
The authorized capital stock of Westlinks consists of an unlimited number
of shares of common stock and an unlimited number of preferred stock without
nominal or par value. The preferred stock may be issued in one or more series as
determined by the board of directors.
COMMON STOCK
Each holder of record of common stock is entitled to one vote for each
share held on all matters properly submitted to the stockholders for their vote,
except matters which are required to be voted on as a particular class or series
of stock. Cumulative voting for directors is not permitted.
Holders of outstanding shares of common stock are entitled to those
dividends declared by the board of directors out of legally available funds. In
the event of liquidation, dissolution or winding up of the affairs of Westlinks,
holders of common stock are entitled to receive, pro rata, the net assets of
Westlinks available after provision has been made for the preferential rights of
the holders of preferred shares. Holders of outstanding common stock have no
preemptive, conversion or redemption rights. All of the issued and outstanding
shares of common stock are, and all unissued shares of common stock, when
offered and sold will be, duly authorized, validly issued, fully paid and
non-assessable. To the extent that additional shares of common stock may be
issued in the future, the relative interests of the then existing stockholders
may be diluted.
NORMAL COURSE ISSUER BID
In December, 1999, Westlinks filed a notice to purchase up to 195,782 of
its shares of common stock through the facilities of the Canadian Venture
Exchange and in accordance with the by-laws and rules of the Canadian Venture
Exchange. Through May 31, 2000 no shares were purchased by Westlinks and no
shares will be purchased until at least 90 days after the effective date of this
prospectus. No proceeds from this offering will be used to purchase shares.
PREFERRED STOCK
Our board of directors is authorized to issue from time to time, without
stockholder authorization, in one or more designated series, unissued shares of
preferred stock with such dividends, redemption, conversion and exchange
provisions as may be provided by the board of directors with regard to such
particular series. Any series of preferred stock may possess voting, dividend,
liquidation and redemption rights superior to those of the common stock.
The rights of the holders of common stock will be subject to and may be
adversely affected by the rights of the holders of any preferred stock that we
may issue in the future. Our issuance of a new series of preferred stock could
make it more difficult for a third party to acquire, or discourage a third party
from acquiring, the outstanding shares of common stock of Westlinks and make
removal of the board of directors more difficult. No shares of preferred stock
are currently issued and outstanding and Westlinks has no current plans to issue
any shares of preferred stock.
WARRANTS
We currently have outstanding 150,000 warrants to purchase common stock
which were issued to six lenders. Each warrant entitles the holder to purchase
one share of common stock at an exercise price of US$4.00 through March 5, 2001.
Each of the 1,000,000 warrants being offered hereunder entitles the holder
to purchase one share of common stock at an exercise price of US$ -- for a
period of six months from the date of this prospectus. The warrants will be
issued under the terms of a warrant trust indenture between Westlinks and
Montreal Trust Company of Canada, as trustee for the warrant holders. Westlinks
has authorized and reserved for issuance the shares of common stock issuable on
exercise of the warrants. If the underwriter's over-allotment option relating to
the warrants is exercised, the warrants are exercisable to purchase a total of
1,150,000 shares of common stock.
38
<PAGE> 41
The warrant exercise price and the number of shares of common stock that
may be purchased upon exercise of the warrants are subject to adjustment in the
event of:
- a stock dividend on the common stock;
- a subdivision of the common stock;
- a split of the common stock;
- a reorganization of the common stock; or
- a merger of Westlinks with or into another corporation.
We may obtain up to US$5,250,000 from exercise of warrants, or US$6,037,500
if the over-allotment option is exercised. The proceeds from any exercise of the
warrants will be added to our general working capital. Our management will have
broad discretion in the application of the proceeds and you will not have the
opportunity, as part of your investment decision, to assess whether the proceeds
are being used appropriately.
Westlinks must have on file a current registration statement with the SEC
pertaining to the common stock underlying the warrants for a holder to exercise
the warrants. The shares of common stock underlying the warrants must also be
registered or qualified for sale under the securities laws of the states in
which the warrant holders reside. We intend to use our best efforts to keep the
registration statement incorporating this prospectus current. We can give no
assurance that the registration statement, or any other registration statement
we may file covering shares of common stock underlying the warrants can be kept
current. If the registration statement covering the underlying common stock is
not kept current, or if the common stock underlying the warrants is not
registered or qualified for sale in the state in which a warrantholder resides,
the warrants may not be exercised.
The warrants do not confer upon the warrant holder any voting or other
rights of a stockholder of Westlinks.
SHARES ELIGIBLE FOR FUTURE SALE
Upon completion of this offering there will be issued and outstanding
5,432,639 shares of our common stock, all of which are freely tradable under
Canadian securities laws, except 1,315,000 shares which may be resold
immediately if Canadian regulations are met and which will become freely
tradeable in the United States and Canada on the first anniversary of their
issue dates, being various dates commencing in July, 2000. Sales of such shares
by affiliates of Westlinks in the United States are subject to the volume
limitations of Rule 144 under the Securities Act of 1933, as amended, and in
Canada are subject to the conditions set forth under Regulation S under such
Act. In addition to the restrictions on resale imposed by United States and
Canadian securities laws, 1,354,780 shares of Westlinks common stock, including
some of such 1,315,000 shares, are subject to restrictions imposed by a lock-up
agreement. Under the lock-up agreement, all officers, directors and holders of
more than 10% of our outstanding common stock may not sell any of their shares
for a period of six months from the date of this prospectus, except with the
permission of the underwriter.
In addition, upon the completion of this offering there will be outstanding
warrants, including the warrants offered by this prospectus, to purchase an
aggregate of 1,150,000 shares of Westlinks common stock and options to purchase
an additional 443,000 common shares. The 1,593,000 shares of Westlinks common
stock reserved for issuance upon the exercise of such warrants and options are
issuable at various dates through May 28, 2005. Westlinks expects that all of
such shares of common stock will be eligible for resale in the United States
without restriction immediately after issuance, by persons who are not
affiliates because such shares either will have been registered under the
Securities Act or will be resold in transactions exempt from such registration.
Westlinks expects that all of such shares of common stock will be eligible for
resale in Canada without restriction immediately after issuance, as long as the
exercise of such warrants and options
39
<PAGE> 42
occurs after various periods of time between four months and one year from the
issue date of such warrants and options.
LEGAL PROCEEDINGS
There is no material litigation pending against Westlinks.
UNDERWRITING
Subject to the terms and conditions of the underwriting agreement, Spencer
Edwards, Inc. has agreed to purchase 1,000,000 shares of common stock and
1,000,000 warrants from Westlinks. The underwriter will purchase these
securities at the price to public less underwriting discounts set forth on the
cover page of this prospectus.
If any shares and warrants are purchased, the underwriter is committed to
purchase all of the 1,000,000 shares and 1,000,000 warrants offered by this
prospectus, but not the 150,000 shares and 150,000 warrants subject to the
over-allotment option.
Once the underwriter has purchased the shares and warrants at the public
offering price of US$ -- per share and US$0. -- per warrant less the 10%
underwriting discount, it will offer the shares and warrants in units consisting
of one share and one warrant at the public offering prices and to other
broker-dealers who are members of the selling group at that price minus a
concession of US$0. -- per share and US$0. -- per warrant. The underwriter
and selling group members may allow a discount of US$0. -- per share and
US$0. -- per warrant on sales to other broker-dealers. After the public
offering of the shares and warrants, the public offering price, the concession
to selling group members and the discount to other broker-dealers may be changed
by the underwriter.
Westlinks has granted the underwriter an option, until 45 days after the
date of this prospectus, to purchase up to 150,000 additional shares and 150,000
warrants on the same terms as apply to the sale of the shares and warrants set
forth above. The underwriter may exercise the option solely to cover
over-allotments incurred in the sale of the shares and warrants.
The underwriter has informed us that it does not expect to sell any of the
shares or warrants to accounts over which it has discretionary authority. All
investors must purchase an equal number of shares and warrants.
The following table summarizes the discounts and estimated expenses that we
will pay to the underwriter, expressed in U.S. dollars:
<TABLE>
<CAPTION>
TOTAL
--------------------------------
PER PER WITH WITHOUT
SHARE WARRANT OVER-ALLOTMENT OVER-ALLOTMENT
----- ------- -------------- --------------
<S> <C> <C> <C> <C>
Public offering price......................... $5.00 $ 0.25 $6,037,500 $5,250,000
Underwriting discounts and commissions........ $0.50 $ 0.025 $ 603,750 $ 525,000
Non-accountable expense allowance (3% of the
offering price)............................. $0.15 $0.0075 $ 181,125 $ 157,500
Proceeds, before expenses, to Westlinks....... $4.35 $0.2175 $5,252,625 $4,567,500
</TABLE>
The expenses of the Offering, not including the underwriting discounts and
commissions and non-accountable expense allowance, are estimated at US$272,500
and are payable by Westlinks.
We have also agreed to issue to the underwriter warrants to purchase up to
100,000 shares at an exercise price of US$ -- per share. The underwriter's
warrants may not be exercised for one year and will be restricted from sale,
transfer, assignment or hypothecation, except to officers or partners (not
directors) of the underwriter and members of the selling group and/or their
officers or partners. The underwriter's warrants are not redeemable by us. We
have agreed to maintain an effective registration statement with respect to the
issuance of the securities underlying the underwriter's warrants, if necessary,
to allow their public resale
40
<PAGE> 43
without restriction, at all times during the period in which the underwriter's
warrants are exercisable, beginning one year after the date of this prospectus.
Such securities are being registered in the registration statement of which this
prospectus is a part.
The underwriting agreement provides for indemnification between us and the
underwriter against liabilities under the Securities Act of 1933 and for
contribution by us and the underwriter to payments that may be required to be
made in respect of those liabilities. Insofar as indemnification for liabilities
under the Securities Act may be permitted to our directors, officers and
controlling persons under the agreement between us and the underwriter, or
otherwise, we have been advised that in the opinion of the SEC this
indemnification is against public policy as expressed in the Securities Act and
is, therefore, unenforceable in the United States.
We have agreed that, for a period of one year following the completion of
this offering, we generally will not offer, sell, contract to sell, grant any
option for the sale or otherwise dispose of any of our common stock without the
consent of the underwriter. Our officers, directors and each holder of 10% or
more of our outstanding stock, aggregating 1,354,780 shares, have agreed that
for a period of six months following the date of this prospectus, they will not
offer, sell, contract to sell, grant any option for the sale or otherwise
dispose of any of our common stock other than intra-family transfers or
transfers to trusts for estate planning purposes, without the consent of the
underwriter.
The underwriter may engage in over-allotment, stabilizing transactions and
syndicate covering transactions and penalty bids in accordance with Regulation M
under the Securities Exchange Act of 1934.
- Over-allotment involves syndicate sales in excess of the offering size,
which create a syndicate short position.
- Stabilizing transactions permit bids to purchase the underlying security
so long as the stabilizing bids do not exceed a specified maximum.
- Syndicate covering transactions involve purchases of the common stock
and warrants in the open market after the distribution has been
completed in order to cover syndicate short positions.
- Penalty bids permit the underwriter to reclaim a selling concession from
a syndicate member when the shares and warrants originally sold the
syndicate member are purchased in a syndicate covering transaction to
cover syndicate short positions.
These stabilizing transactions, syndicate covering transactions and penalty
bids may cause the price of the common stock or warrants to be higher than they
would otherwise be in the absence of these transactions. These transactions, if
commenced, may be discontinued at any time.
EFFECT OF CANADIAN TAX LAWS ON UNITED STATES STOCKHOLDERS
The following is a summary of certain Canadian federal income tax
considerations generally applicable to a person who acquires shares of common
stock and warrants pursuant to this prospectus and who, for the purposes of the
Income Tax Act (Canada), or the Tax Act, is not resident in Canada at any time
while holding common stock or warrants to acquire common stock of Westlinks,
does not carry on an insurance business in Canada, holds the common stock and
warrants as capital property and who does not use or hold and is not deemed
under the Tax Act to use or hold the common stock and warrants in or in the
course of carrying on a business in Canada.
This summary is based upon the current provisions of the Tax Act, the
regulations thereunder, all proposed amendments thereto publicly released by the
Department of Finance prior to the date hereof ("Proposed Amendments") and the
current published administrative and assessing practices of the Canada Customs
and Revenue Agency. This summary does not take into account tax legislation or
considerations of any province or territory of Canada or any jurisdiction other
than Canada and, except for the Proposed Amendments, this summary does not take
into account or anticipate any changes in law or administrative or assessing
practices, whether by legislative, governmental or judicial action.
41
<PAGE> 44
THIS SUMMARY IS OF A GENERAL NATURE ONLY AND IS NOT INTENDED TO BE LEGAL OR
TAX ADVICE TO ANY PARTICULAR PERSON. STOCKHOLDERS SHOULD THEREFORE CONSULT THEIR
OWN TAX ADVISORS TO DETERMINE THE CANADIAN TAX CONSEQUENCES TO THEM OF
ACQUIRING, HOLDING AND DISPOSING OF UNITS.
U.S. stockholders will only be subject to Canadian tax in respect of the
disposition of their common stock (other than on a disposition to Westlinks) or
their warrants of Westlinks to the extent such shares or warrants constitute
"taxable Canadian property" (as defined in the Tax Act) to the stockholder.
Generally speaking, the common stock and warrants to acquire common stock of
Westlinks will be taxable Canadian property to a holder if (i) the common stock
of Westlinks is not listed on a prescribed stock exchange under the Tax Act
(both the Canadian Venture Exchange and the Nasdaq are proposed to be listed as
prescribed stock exchanges for this purpose) or (ii) the common stock of
Westlinks is listed on a prescribed stock exchange and at any time during the
five year period immediately preceding the disposition the stockholder, either
alone or together with persons with whom the stockholder did not deal at arm's
length, owned (or had rights, warrants or options to acquire) 25% or more of the
issued shares of any class or series in the capital stock of Westlinks.
Stockholders whose common stock or warrants to acquire common stock of Westlinks
constitute taxable Canadian property will be liable to pay tax under the Tax Act
on three-quarters (two-thirds, pursuant to the Proposed Amendments) of the
amount of any capital gain realized on a disposition of the common stock or
warrants.
No Canadian tax, including on capital gains, will be payable in respect of
the exercise of the warrants.
Dividends paid, credited or deemed to have been paid to credited under the
Tax Act on the common stock of Westlinks to U.S. stockholders will be subject to
Canadian withholding tax at a rate of 25% of the gross amount of such dividend.
Under the Canada-United States Income Tax Convention, the rate of withholding
tax on dividends generally applicable to U.S. stockholders who beneficially own
the dividends is reduced to 15%. In the case of U.S. stockholders that are
corporations that beneficially own at least 10% of the voting stock of
Westlinks, the rate of withholding tax on dividends is reduced to 5%.
Canada does not impose any estate taxes or succession duties. However, on
death, there will generally be a deemed disposition under the Tax Act of any
common stock or warrants of Westlinks held at that time for proceeds of
disposition equal to the fair market value of such securities immediately before
the death. Capital gains, if any, realized on the deemed disposition will have
the income tax consequences described above.
LEGAL MATTERS
The validity of the securities offered hereby will be passed on for
Westlinks by Gowling, Strathy & Henderson of Calgary, Alberta. Members of
Gowling, Strathy & Henderson own 21,480 shares of common stock of Westlinks.
Legal matters in connection with this offering will be passed on for Spencer
Edwards, Inc. by the Law Office of Gary A. Agron of Englewood, Colorado.
EXPERTS
Collins Barrow, Chartered Accountants, of Calgary, Alberta are the auditors
of Westlinks, and have audited the consolidated financial statements of
Westlinks for the years ending December 31, 1997, 1998 and 1999, as set forth in
their report, which is included in this prospectus. These annual consolidated
financial statements are included in this prospectus in reliance on their
report, given on their authority as experts in accounting and auditing.
Grant Trimble Engineering Ltd., independent engineers of Calgary, Alberta
have given Westlinks a report on our established oil and gas reserves and the
present worth thereof, which report is summarized in this prospectus.
42
<PAGE> 45
WHERE YOU CAN FIND ADDITIONAL INFORMATION
Westlinks has filed with the Securities and Exchange Commission ("SEC"),
450 Fifth Street N.W., Washington, D.C. 20549, a registration statement on Form
F-1 under the Securities Act with respect to the securities offered. As
permitted by SEC rules, this prospectus does not contain all of the information
set forth in the registration statement. For further information concerning
Westlinks and the securities offered, we refer you to the registration statement
and the exhibits and schedules filed as a part of the registration statement.
Statements contained in this prospectus concerning the contents of any
contract or any other document are not necessarily complete. In each instance
where a copy of that contract or document has been filed as an exhibit to the
registration statement, we refer you to the copy of the contract or document
that has been filed. Each statement is qualified in all respects by reference to
that exhibit. The registration statement, including its exhibits and schedules,
may be inspected without charge at the SEC's Public Reference Room at 450 Fifth
Street, N.W., Room 1024 in Washington, D.C. 20549, and at the SEC's regional
offices at Citicorp Center, 500 West Madison Street, Suite 1400, Chicago,
Illinois 60661-2511 and 7 World Trade Center, New York City, New York 10048.
Copies of all or any part of those documents may be obtained from the SEC's
Public Reference Section at 450 Fifth Street NW, Washington, D.C. 20549 at the
SEC's prescribed rates. You may call the SEC at 1-800-SEC-0330 for further
information on the operation of the SEC's public reference rooms. The SEC
maintains a Web site at http://www.sec.gov that contains reports, proxy and
information statements and other information regarding companies that file
electronically with the SEC.
The electronic filing system for public companies in Canada has a Web site
at http://www.sedar.com that contains Westlinks' proxy statements, news
releases, material change reports, financial statements and other information
that public companies in Canada are required to file. In addition, filed
documents and trading information of the shares of common stock of Westlinks may
be found on the Web site of the Canadian Venture Exchange at http://www.cdnx.ca.
We intend to provide our stockholders with annual reports containing
consolidated financial statements audited by an independent chartered accounting
firm and will make available to stockholders quarterly reports containing
unaudited consolidated financial data for the first three quarters of each year.
As a result of this offering we will become subject to the information and
reporting requirements of the Securities and Exchange Act of 1934 and will file
periodic reports, proxy statements and other information with the SEC. However,
we will be exempt from the rules under the Exchange Act prescribing the
furnishing and content of proxy statements, and our officers, directors and
principal stockholders will be exempt from the reporting and short-swing profit
recovery provisions contained in Section 16 of the Exchange Act. Under the
Exchange Act, we are not required to publish financial statements as frequently
or as promptly as U.S. companies. Any information filed with the SEC can be
inspected and copied at the public reference facilities maintained by the SEC at
Room 1024, 450 Fifth Street, N.W., Washington, D.C. 20549, and at the SEC's
following regional offices: Citicorp Center, 500 West Madison Street, Suite
1400, Chicago, Illinois 60661-2511 and 7 World Trade Center, New York City, New
York 10048. Copies of such material can also be obtained from the SEC at
prescribed rates through its Public Reference Section at 450 Fifth Street, N.W.,
Washington, D.C. 20549.
43
<PAGE> 46
INDEX TO CONSOLIDATED FINANCIAL STATEMENTS
<TABLE>
<CAPTION>
PAGE
----
<S> <C>
Report of Collins Barrow, Chartered Accountants............. F-2
Consolidated balance sheets as of March 31, 2000 (unaudited)
and December 31, 1999 and 1998............................ F-3
Consolidated statements of income (loss) and retained
earnings for the 3 months ended March 31, 2000 and 1999
(unaudited) and the years ending December 31, 1999, 1998
and 1997.................................................. F-4
Consolidated statements of cash flow for the 3 months ended
March 31, 2000 and 1999 (unaudited) and the years ending
December 31, 1999, 1998 and 1997.......................... F-5
Notes to consolidated financial statements.................. F-6
INDEX TO PRO FORMA FINANCIAL STATEMENTS
Compilation Report of Collins Barrow, Chartered
Accountants............................................... F-22
Pro forma consolidated balance sheet at March 31, 2000...... F-23
Notes to pro forma consolidated balance sheet............... F-24
</TABLE>
F-1
<PAGE> 47
AUDITORS' REPORT
To the Directors
Westlinks Resources Ltd.
We have audited the consolidated balance sheets of Westlinks Resources Ltd.
as at December 31, 1999 and 1998 and the consolidated statements of income
(loss) and retained earnings and cash flow for the years ended December 31, 1999
and 1998 and for the period from commencement of operations, April 1, 1997 to
December 31, 1997. These financial statements are the responsibility of the
company's management. Our responsibility is to express an opinion on these
financial statements based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards in Canada. Those standards require that we plan and perform an audit
to obtain reasonable assurance whether the financial statements are free of
material misstatement. An audit includes examining, on a test basis, evidence
supporting the amounts and disclosures in the financial statements. An audit
also includes assessing the accounting principles used and significant estimates
made by management, as well as evaluating the overall financial statement
presentation.
In our opinion, these consolidated financial statements present fairly, in
all material respects, the financial position of the company as at December 31,
1999 and 1998 and the results of its operations and its cash flow for the years
ended December 31, 1999 and 1998 and for the period ended December 31, 1997 in
accordance with generally accepted accounting principles in Canada.
(signed) COLLINS BARROW
Chartered Accountants
Calgary, Alberta
March 31, 2000
(except for notes 14 and 16 which
are dated June 21, 2000)
F-2
<PAGE> 48
WESTLINKS RESOURCES LTD.
CONSOLIDATED BALANCE SHEETS
EXPRESSED IN CANADIAN DOLLARS
<TABLE>
<CAPTION>
MARCH 31, DECEMBER 31, DECEMBER 31,
2000 1999 1998
----------- ------------ -----------------
(RESTATED --
(UNAUDITED) NOTE 9)
<S> <C> <C> <C>
ASSETS
Current assets
Cash and short-term investments................ $ 8,410 $ 42,288 $ 73,839
Accounts receivable............................ 1,256,233 684,787 231,388
----------- ---------- ----------
1,264,643 727,075 305,227
Capital assets (note 4).......................... 10,043,556 7,016,726 3,622,447
Investments (note 5)............................. -- -- 240,000
----------- ---------- ----------
$11,308,199 $7,743,801 $4,167,674
=========== ========== ==========
LIABILITIES
Current liabilities
Accounts payable and accrued liabilities....... $ 1,746,221 $ 687,042 $ 222,700
Current portion of long-term debt.............. 1,850,000 1,075,000 100,000
----------- ---------- ----------
3,596,221 1,762,042 322,700
Long-term debt (note 6).......................... 2,550,000 1,525,000 700,000
Future income taxes (note 7)..................... 444,389 297,793 240,476
Provision for future site restoration............ 190,221 181,332 132,696
----------- ---------- ----------
6,780,831 3,766,167 1,395,872
----------- ---------- ----------
SHAREHOLDERS' EQUITY
Share capital (note 8)........................... 3,890,958 3,663,330 2,407,971
Contributed surplus.............................. 150,500 -- --
Retained earnings................................ 485,910 314,304 363,831
----------- ---------- ----------
4,527,368 3,977,634 2,771,802
----------- ---------- ----------
$11,308,199 $7,743,801 $4,167,674
=========== ========== ==========
</TABLE>
Contingency (note 13)
Approved by the Board,
<TABLE>
<S> <C>
(signed) PETER R. SEKERA, (signed) EDWARD C. MCFEELY,
Director Director
</TABLE>
F-3
<PAGE> 49
WESTLINKS RESOURCES LTD.
CONSOLIDATED STATEMENTS OF INCOME (LOSS) AND RETAINED EARNINGS
EXPRESSED IN CANADIAN DOLLARS
<TABLE>
<CAPTION>
THREE MONTHS ENDED PERIOD FROM
MARCH 31, YEARS ENDED DECEMBER 31, APRIL 1, 1997 TO
-------------------------- ------------------------- DECEMBER 31,
2000 1999 1999 1998 1997
----------- ------------ ---------- ------------ -----------------
(RESTATED --
NOTE 9) (RESTATED -- (RESTATED --
(UNAUDITED) (UNAUDITED) NOTE 9) NOTE 9)
<S> <C> <C> <C> <C> <C>
Revenue
Oil and gas................ $1,740,985 $ 352,491 $2,515,456 $1,786,172 $1,196,913
Less: royalties, net of
Alberta Royalty Tax
Credits................. (385,860) (35,557) (442,335) (96,237) (144,555)
Interest................... -- 30 1,493 7,373 3,006
---------- --------- ---------- ---------- ----------
1,355,125 316,964 2,074,614 1,697,308 1,055,364
---------- --------- ---------- ---------- ----------
Expenses
Operating.................. 405,464 157,134 782,281 849,107 438,594
Exploration................ -- 9,114 148,125 3,570 35,000
General and
administrative.......... 214,175 121,129 718,569 426,895 175,965
Interest................... 64,356 16,393 131,872 185,153 74,128
Depletion and
depreciation............ 352,928 147,657 841,580 804,943 352,400
---------- --------- ---------- ---------- ----------
1,036,923 451,427 2,622,427 2,269,668 1,076,087
---------- --------- ---------- ---------- ----------
Income (loss) before the
following.................. 318,202 (134,463) (547,813) (572,360) (20,723)
Gain on sale of capital
assets..................... -- 8,377 91,402 946,738 280,000
Gain on sale of
investments................ -- -- 160,000 -- 13,437
---------- --------- ---------- ---------- ----------
Income (loss) before taxes... 318,202 (126,086) (296,411) 374,378 272,714
Future income taxes
(recovery) (note 7)........ 146,596 (48,955) (246,884) 120,297 57,464
---------- --------- ---------- ---------- ----------
Net income (loss)............ 171,606 (77,131) (49,527) 254,081 215,250
Retained earnings, beginning
of period.................. 314,304 363,831 363,831 109,750 --
---------- --------- ---------- ---------- ----------
485,910 286,700 314,304 363,831 215,250
Dividends.................... -- -- -- -- 105,500
---------- --------- ---------- ---------- ----------
Retained earnings, end of
period..................... $ 485,910 $ 286,700 $ 314,304 $ 363,831 $ 109,750
========== ========= ========== ========== ==========
Net income (loss) per share
(note 8[g])................ $ 0.04 $ (0.03) $ (0.02) $ 0.11 $ 0.16
========== ========= ========== ========== ==========
</TABLE>
F-4
<PAGE> 50
WESTLINKS RESOURCES LTD.
CONSOLIDATED STATEMENTS OF CASH FLOW
EXPRESSED IN CANADIAN DOLLARS
<TABLE>
<CAPTION>
THREE MONTHS ENDED PERIOD FROM
MARCH 31, YEARS ENDED DECEMBER 31, APRIL 1, 1997 TO
-------------------------- --------------------------- DECEMBER 31,
2000 1999 1999 1998 1997
----------- ----------- ----------- ------------ -----------------
(RESTATED (RESTATED -- (RESTATED --
-- NOTE 9) NOTE 9)
NOTE 9)
(UNAUDITED) (UNAUDITED)
<S> <C> <C> <C> <C> <C>
Operating activities
Net income (loss).................... $ 171,606 $ (77,131) $ (49,527) $ 254,081 $ 215,250
Add (deduct) non-cash items
Depletion and depreciation......... 352,928 147,657 841,580 804,943 352,400
Gain on sale of capital assets..... -- (8,377) (91,402) (946,738) (280,000)
Gain on sale of investments........ -- -- (160,000) -- (13,437)
Future income taxes (recovery)..... 146,596 (48,955) (246,884) 120,297 57,464
----------- --------- ----------- ----------- -----------
Funds provided from operations....... 671,130 13,194 293,767 232,583 331,677
Change in non-cash working capital
balances
(Increase) decrease in accounts
receivable....................... (571,446) (29,975) (453,399) 689,780 (773,718)
Increase (decrease) in accounts
payable and accrued
liabilities...................... 1,059,179 (53,273) 464,342 (241,144) 341,789
----------- --------- ----------- ----------- -----------
Cash provided from (used in)
operations......................... 1,158,863 (70,054) 304,710 681,219 (100,252)
----------- --------- ----------- ----------- -----------
Financing activities
Agreement payable.................... -- -- -- (3,830,538) 3,830,538
Note payable......................... -- -- -- (500,000) 500,000
Shareholder loan..................... -- -- -- (250,164) 250,164
Due to related company............... -- -- -- (40,139) (188,392)
Long-term debt....................... 1,800,000 250,000 1,800,000 800,000 --
Issuance of common shares, net of
costs.............................. 378,128 (6,424) 1,237,278 (29,524) 906,552
Issuance of warrants................. -- -- -- 500 --
----------- --------- ----------- ----------- -----------
Cash provided from (used in)
financing activities............... 2,178,128 243,576 3,037,278 (3,849,865) 5,298,862
----------- --------- ----------- ----------- -----------
Investing activities
Proceeds from sale of investments.... -- -- -- -- 35,833
Acquisition of investments........... -- -- -- -- (54,000)
Acquisition of subsidiaries, net of
cash (note 2[a], [c], [d])......... -- -- (400,000) -- (3,931,342)
Cash acquired on amalgamation (note
2[b]).............................. -- -- -- 23,563 --
Purchase of capital assets........... (3,489,069) (240,480) (3,768,926) (277,021) (583,509)
Proceeds on disposal of capital
assets............................. 118,200 9,449 796,800 2,027,700 40,000
Due from related parties............. -- -- -- 22,509 (22,509)
Notes receivable..................... -- -- -- 523,697 --
Abandonment costs.................... -- -- (1,413) (11,792) (295)
----------- --------- ----------- ----------- -----------
Cash provided from (used in)
investing activities............... (3,370,869) (231,031) (3,373,539) 2,308,656 (4,515,822)
----------- --------- ----------- ----------- -----------
Increase (decrease) in cash............ (33,878) (57,509) (31,551) (859,990) 682,788
Cash and short-term investments,
beginning of period.................. 42,288 73,839 73,839 933,829 251,041
----------- --------- ----------- ----------- -----------
Cash and short-term investments, end of
period............................... $ 8,410 $ 16,330 $ 42,288 $ 73,839 $ 933,829
=========== ========= =========== =========== ===========
Funds provided from operations per
share (note 8[g]).................... $ 0.16 $ 0.01 $ 0.10 $ 0.10 $ 0.25
=========== ========= =========== =========== ===========
Interest paid during the period........ $ 64,356 $ 16,393 $ 131,872 $ 185,153 $ 74,128
=========== ========= =========== =========== ===========
</TABLE>
F-5
<PAGE> 51
WESTLINKS RESOURCES LTD.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(INFORMATION AS AT MARCH 31, 2000 AND FOR THE THREE-MONTH PERIODS
ENDED MARCH 31, 2000 AND MARCH 31, 1999 ARE UNAUDITED)
1. COMPANY ACTIVITIES
The company's activities are the exploration for and development of oil and
gas properties in Western Canada.
2. BUSINESS COMBINATIONS
(a) Effective August 12, 1999, the company acquired all of the issued and
outstanding shares of 759795 Alberta Ltd. ("759795"), a related party by
virtue of a common director for cash consideration of $400,000. The
transaction has been accounted for using the purchase method of
accounting for a business combination at the exchange amount as there
was a substantive change in ownership and the amount is supported by
independent evidence. The results of operations of 759795 are included
in the consolidated financial statements from the date the company
acquired control, being August 12, 1999.
<TABLE>
<S> <C>
The purchase price was allocated as follows:
Capital assets............................................ $ 722,282
Future income taxes....................................... (322,282)
---------
$ 400,000
=========
</TABLE>
(b) Effective June 30, 1998, the company was amalgamated with PTR
Resources Ltd. ("PTR"), a related party by virtue of common
shareholders, director and officer. The transaction was accounted for
using the purchase method of accounting for a business combination at
the carrying amount. The results of operations from PTR are included in
the consolidated financial statements from the effective date of the
transaction, being June 30, 1998.
<TABLE>
<S> <C>
The net assets acquired were as follows:
Cash........................................................ $ 23,563
Accounts receivable......................................... 132
Future income tax asset..................................... 7,327
Notes receivable............................................ 523,697
Due to related parties...................................... (10,139)
Accounts payable and accrued liabilities.................... (29,541)
Share issuance costs........................................ 19,960
--------
534,999
Less: Investment previously acquired at cost................ (76,104)
--------
$458,895
========
The consideration for the purchase price was as follows:
Shares issued -- 647,837 common (note 8[b])................. $534,999
Shares eliminated on amalgamation (note 8[b], [c]).......... (76,104)
--------
$458,895
========
</TABLE>
(c) Effective September 1, 1997, the company acquired substantially all of
the assets of I.G. Resources Inc. ("I.G.") a company engaged in the
exploration, development and production of oil and gas assets in Western
Canada. The transaction has been accounted for using the purchase method
of accounting for a business combination. The results of operations from
the I.G. assets are
F-6
<PAGE> 52
WESTLINKS RESOURCES LTD.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
(INFORMATION AS AT MARCH 31, 2000 AND FOR THE THREE-MONTH PERIODS
ENDED MARCH 31, 2000 AND MARCH 31, 1999 ARE UNAUDITED)
included in the consolidated financial statements from the effective
date of the acquisition, being September 1, 1997.
The assets acquired and consideration given are as follows:
<TABLE>
<S> <C>
Petroleum and natural gas properties and equipment
thereon................................................... $4,032,897
==========
Cash........................................................ $3,932,897
Issuance of 200,000 warrants (note 8[e]).................... 100,000
----------
Total purchase price........................................ $4,032,897
==========
</TABLE>
The income statement of the company for the year ended December 31, 1997
includes interest expense in the amount of $73,068 payable to I.G. as a
result of a difference in the effective versus closing date of the
transaction.
In accordance with the terms of the asset purchase agreement, additional
consideration consisting of 100,000 common share purchase warrants of
the company at a deemed value of $50,000 was provided on June 30, 1998
(note 8[e]).
(d) On December 24, 1997, the company acquired all of the issued and
outstanding shares of Rainee Resources Ltd. ("Rainee") a company engaged
in the exploration, development and production of oil and gas. The
transaction has been accounted for by the purchase method with the
results of Rainee included in the consolidated financial statements from
December 24, 1997.
The net assets acquired were as follows:
<TABLE>
<S> <C>
Cash........................................................ $ 23,315
Non-cash working capital.................................... 86,127
Capital assets.............................................. 616,560
Future income taxes......................................... (55,850)
Due to Temba Resources Ltd.................................. (218,392)
---------
Total purchase price........................................ $ 451,760
=========
</TABLE>
On June 30, 1998, the company amalgamated with Rainee.
The consideration for the purchase price was as follows:
<TABLE>
<S> <C>
1,000,000 common shares..................................... $400,000
Accounts payable and accrued liabilities.................... 30,000
Transaction costs........................................... 21,760
--------
Total purchase price........................................ $451,760
========
</TABLE>
F-7
<PAGE> 53
WESTLINKS RESOURCES LTD.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
(INFORMATION AS AT MARCH 31, 2000 AND FOR THE THREE-MONTH PERIODS
ENDED MARCH 31, 2000 AND MARCH 31, 1999 ARE UNAUDITED)
3. SIGNIFICANT ACCOUNTING POLICIES
These financial statements have been prepared using accounting principles
generally accepted in Canada which include:
(a) Principles of consolidation
The consolidated financial statements include the accounts of the
company and its wholly-owned subsidiary, 759795 Alberta Ltd.
(b) Cash and cash equivalents
Cash and cash equivalents consist of balances with banks and short-term
investments with maturities not exceeding 90 days.
(c) Investments
The company records its investments using the cost method of accounting
whereby the investments are initially recorded at cost. Earnings are
recognized only to the extent received or receivable. Where there has
been a permanent decline in value, the investment is stated at estimated
net realizable value.
(d) Exploration and development costs
The company follows the successful efforts method of accounting for its
oil and gas exploration and development costs. The initial acquisition
costs of oil and gas properties and the costs of drilling and equipping
development wells and successful exploratory wells are capitalized. The
costs of exploration wells classified as unsuccessful are charged to
expense. All other exploration expenditures, including geological and
geophysical costs and annual rentals on exploratory acreage, are charged
to expense as incurred.
Capitalized costs of producing properties and equipment are depleted and
depreciated using the unit of production method based on estimated
proven reserves determined by independent and company engineers. Costs
subject to depletion also include estimated future capital associated
with proven properties. For the purposes of the calculation, natural gas
reserves and production are converted to equivalent volumes of crude oil
based on their approximate relative energy content.
All property and equipment is periodically evaluated and if conditions
warrant, an impairment provision is provided.
(e) Future site restoration costs
Estimated site restoration costs are provided over the life of the
proven reserves on a unit-of-production basis. Costs which include the
cost of production equipment removal and environmental clean up are
estimated each year by management based on current regulations, costs,
technology and industry standards. The annual charge is included in the
provision for depletion and depreciation and the actual restoration
expenditures are charged to the accumulated provision account as
incurred.
(f) Measurement uncertainty
The amounts recorded for depletion and depreciation of exploration and
development costs, the provision for future site restoration and the
impairment test on exploration and development costs are based on
estimated proven reserves, production rates, current oil and natural gas
prices and
F-8
<PAGE> 54
WESTLINKS RESOURCES LTD.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
(INFORMATION AS AT MARCH 31, 2000 AND FOR THE THREE-MONTH PERIODS
ENDED MARCH 31, 2000 AND MARCH 31, 1999 ARE UNAUDITED)
future costs. By their nature, these estimates are subject to
measurement uncertainty and the effect of changes in such estimates in
future periods could be significant.
(g) Joint venture accounting
Substantially all of the company's exploration and production activities
are conducted jointly with others, and accordingly these financial
statements reflect only the company's proportionate interest in such
activities.
(h) Depreciation
Office equipment and other is depreciated using the declining balance
method at rates ranging from 20% to 30% per annum.
(i) Income taxes
Income taxes are accounted for using the liability method of income tax
allocation. Under the liability method, income tax assets and
liabilities are recorded to recognize future income tax inflows and
outflows arising from the settlement or recovery of assets and
liabilities at the carrying values. Income tax assets are also
recognized for the benefits from tax losses and deductions that cannot
be identified with particular assets or liabilities, provided those
benefits are more likely than not to be realized. Future income tax
assets and liabilities are determined based on the tax laws and rates
that are anticipated to apply in the period of realization.
(j) Stock options
The company has a stock option plan as described in note 8(d). No
compensation expense is recognized when stock options are issued to
officers, directors and employees. Any consideration received by the
company on exercise of stock options is credited to share capital.
(k) Flow-through shares
The company, from time to time, issues flow-through shares to finance a
portion of its capital expenditure program. Pursuant to the terms of the
flow-through share agreements, the tax deductions associated with the
expenditures are renounced to the subscribers. Accordingly, share
capital is reduced and a future tax liability is recorded equal to the
estimated amount of future income taxes payable by the company as a
result of the renunciations, when the expenditures are made.
(l) Risk management
The company purchases forward contracts to hedge its exposure to the
risks associated with fluctuating oil prices. Gains and losses
associated with risk management activities are recognized as adjustments
to oil and gas revenue at the time the related production is sold.
F-9
<PAGE> 55
WESTLINKS RESOURCES LTD.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
(INFORMATION AS AT MARCH 31, 2000 AND FOR THE THREE-MONTH PERIODS
ENDED MARCH 31, 2000 AND MARCH 31, 1999 ARE UNAUDITED)
4. CAPITAL ASSETS
<TABLE>
<CAPTION>
DECEMBER 31,
MARCH 31, --------------------------
2000 1999 1998
----------- ---------- ------------
(RESTATED --
NOTE 9)
<S> <C> <C> <C>
Petroleum and natural gas properties and equipment
thereon......................................... $11,461,230 $8,120,552 $4,430,715
Office equipment and other........................ 69,037 66,887 42,159
----------- ---------- ----------
11,530,267 8,187,439 4,472,874
Accumulated depletion and depreciation............ (1,486,711) (1,170,713) (850,427)
----------- ---------- ----------
$10,043,556 $7,016,726 $3,622,447
=========== ========== ==========
</TABLE>
During the year ended December 31, 1999, the estimated future cash flows
from the reserves were less than the capitalized costs of the assets in
several areas where the company participates. As a result, the company
wrote down petroleum and natural gas properties by $65,652 (December 31,
1998 -- $NIL). This amount is included in depletion and depreciation
expense.
Future capital at March 31, 2000 included in the calculation of depletion
and depreciation includes the cost to develop proven undeveloped reserves
of $4,457,000 (December 31, 1999 -- $4,148,000; December 31, 1998 --
$71,000) less the recovery of future salvage values of $1,361,694 (December
31, 1999 -- $281,694; December 31, 1998 -- $200,000).
Costs of unproven petroleum and natural gas properties at March 31, 2000
amounting to $Nil (December 31, 1999 -- $18,654; December 31, 1998 -- $Nil)
have been excluded from the depletion calculation.
The estimated future site restoration costs to be accrued over the
remaining life of the proved reserves are approximately $712,377 (December
31, 1999 -- $540,634; December 31, 1998 -- $379,000).
5. INVESTMENTS
<TABLE>
<CAPTION>
DECEMBER 31,
MARCH 31, ----------------
2000 1999 1998
--------- ---- --------
<S> <C> <C> <C>
Alsask Energy Services Ltd. ("Alsask"), a private company,
240,000 common voting shares at cost, representing 27% of
the issued and outstanding common shares.................. $-- $-- $240,000
</TABLE>
During the year ended December 31, 1999, the shares of Alsask were sold for
$400,000 of capital assets for a gain of $160,000.
F-10
<PAGE> 56
WESTLINKS RESOURCES LTD.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
(INFORMATION AS AT MARCH 31, 2000 AND FOR THE THREE-MONTH PERIODS
ENDED MARCH 31, 2000 AND MARCH 31, 1999 ARE UNAUDITED)
6. LONG-TERM DEBT
(a) At March 31, 2000, the company had a $4,350,000 (December 31, 1999 --
$3,025,000; December 31, 1998 -- $1,300,000) revolving reducing credit
facility at a Canadian chartered bank of which $4,400,000 (December 31,
1999 -- $2,600,000; December 31, 1998 -- $800,000) was drawn. The
interest rate on the facility is prime plus 1.5% per annum. The required
reduction in the facility and the bank loan is:
<TABLE>
<CAPTION>
CREDIT
BANK LOAN FACILITY
---------- ----------
<S> <C> <C>
2000..................................................... $1,850,000 $1,800,000
2001..................................................... 1,800,000 1,800,000
2002..................................................... 750,000 750,000
---------- ----------
$4,400,000 $4,350,000
========== ==========
</TABLE>
The bank has indicated that it has no intention of demanding current
repayment of the facility. As a result, the portion of the facility not
reducing in the next fiscal year has been classified as long-term.
(b) At March 31, 2000, the company had a $1,000,000 non-revolving
acquisition demand loan at a Canadian chartered bank to assist in
financing acquisitions of producing petroleum reserves, which had not
been drawn upon. The interest rate on this facility is prime plus 1.75%
per annum. Monthly repayments must be made over the lesser of the half
life of the reserves acquired, or 48 months and commence the month
following drawdown of the facility.
(c) At March 31, 2000, the company had a $500,000 treasury risk line for
interest rate and foreign exchange risk management, which had not been
drawn upon. The facility allows for various risk management products,
including swaps and forwards, with a maximum term of 36 months.
The above facilities are secured by a $10,000,000 floating charge debenture
over all the assets of the company and a fixed charge against certain major
producing oil and gas properties.
The principal repayments are subject to annual review. During the period
ended March 31, 2000, the company negotiated an increase in the amount
available under its revolving reducing credit facility (note 6[a]) from
$3,025,000 to $4,500,000 with reductions to the available credit of
$150,000 per month commencing March 1, 2000.
In addition, the company negotiated a $1,000,000 non-revolving reducing
demand loan to assist in financing the company's drilling program. The
interest rate is prime plus 1.75% per annum, and will be due in full upon
the earlier of the sale of equipment and December 31, 2000.
On April 18, 2000, the company negotiated new credit facilities to replace
all existing facilities (note 14[c]).
F-11
<PAGE> 57
WESTLINKS RESOURCES LTD.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
(INFORMATION AS AT MARCH 31, 2000 AND FOR THE THREE-MONTH PERIODS
ENDED MARCH 31, 2000 AND MARCH 31, 1999 ARE UNAUDITED)
7. INCOME TAXES
Income tax expense differs from that which would be expected from applying
the effective Canadian federal and provincial income tax rates of 44.62% to
income (loss) before taxes as follows:
<TABLE>
<CAPTION>
THREE MONTHS ENDED YEARS ENDED
MARCH 31, DECEMBER 31, PERIOD FROM
----------------------- ------------------------ APRIL 1, 1997 TO
2000 1999 1999 1998 DECEMBER 31, 1997
-------- ------------ --------- ------------ -----------------
(RESTATED -- (RESTATED -- (RESTATED --
NOTE 9) NOTE 9) NOTE 9)
<S> <C> <C> <C> <C> <C>
Expected tax expense
(recovery)................ $141,982 $(56,260) $(132,259) $167,047 $121,685
Increase (decrease)
resulting from
Non-deductible crown
payments, net of
Alberta Royalty Tax
Credits................ 128,903 8,942 74,796 16,744 17,361
Resource allowance........ (124,886) (2,332) (72,470) (49,753) (45,821)
Capital loss carryforward
not previously
recognized............. -- -- (100,395) -- --
Non-taxable portion of
capital gain........... -- -- (17,848) -- (19,722)
Other..................... 597 695 1,292 (13,741) (16,039)
-------- -------- --------- -------- --------
Future income taxes
(recovery)................ $146,596 $(48,955) $(246,884) $120,297 $ 57,464
======== ======== ========= ======== ========
</TABLE>
The components of the future income tax liability at March 31, 2000,
December 31, 1999 and 1998 are as follows:
<TABLE>
<CAPTION>
DECEMBER 31,
MARCH 31, ------------------------
2000 1999 1998
--------- -------- ------------
(RESTATED --
NOTE 9)
<S> <C> <C> <C>
Temporary differences related to capital assets....... $742,711 $672,269 $644,901
Investments........................................... -- -- 46,851
Future site restoration............................... (84,877) (80,910) (59,209)
Share issuance costs.................................. (38,681) (42,585) (40,119)
Tax loss carryforward................................. (133,028) (216,113) (338,294)
Attributed Royalty Income carryforward................ (41,736) (34,868) (13,654)
-------- -------- --------
$444,389 $297,793 $240,476
======== ======== ========
</TABLE>
F-12
<PAGE> 58
WESTLINKS RESOURCES LTD.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
(INFORMATION AS AT MARCH 31, 2000 AND FOR THE THREE-MONTH PERIODS
ENDED MARCH 31, 2000 AND MARCH 31, 1999 ARE UNAUDITED)
8. SHARE CAPITAL
(a) Authorized
Unlimited number of common voting shares
Unlimited number of preferred shares
issuable in one or more series
(b) Issued
<TABLE>
<CAPTION>
DECEMBER 31,
--------------------------------------------------
MARCH 31, 2000 1999 1998
---------------------- ---------------------- -------------------------
STATED STATED STATED
COMMON SHARES NUMBER VALUE NUMBER VALUE NUMBER VALUE
------------- --------- ---------- --------- ---------- ------------ ----------
(RESTATED --
NOTE 8[C]
AND 9)
<S> <C> <C> <C> <C> <C> <C>
Balance, beginning of period..... 4,042,639 $3,638,407 2,610,639 $2,360,607 2,072,700 $1,924,875
Issued for PTR shares (notes
2[b], 8[c]).................... -- -- -- -- 647,837 534,999
Shares eliminated on amalgamation
(notes 2[b], 8[c])............. -- -- -- -- (109,898) (76,104)
Issued for cash pursuant to
private placement.............. -- -- 1,175,000 1,175,000 -- --
Issued upon exercise of options
(note 8[d]).................... 390,000 390,000 257,000 102,800 -- --
Tax cost of flow-through share
renouncement................... -- -- -- -- -- (23,163)
--------- ---------- --------- ---------- --------- ----------
Balance, end of period........... 4,432,639 4,028,407 4,042,639 3,638,407 2,610,639 2,360,607
========= ========= =========
Issue costs, net of income tax
benefit, $49,402 (December 31,
1999 -- $49,402; December 31,
1998 -- $31,321)............... (137,449) (125,577) (103,136)
---------- ---------- ----------
3,890,958 3,512,830 2,257,471
---------- ---------- ----------
Warrants
Balance, beginning of period..... 302,000 150,500 302,000 150,500 -- --
Issued pursuant to business
combination (note 8[e])........ -- -- -- -- 300,000 150,000
Issued pursuant to bank
financing...................... -- -- -- -- 2,000 500
Expired (note 8[e]).............. (302,000) (150,500) -- -- -- --
--------- ---------- --------- ---------- --------- ----------
Balance, end of period........... -- -- 302,000 150,500 302,000 150,500
========= ---------- ========= ---------- ========= ----------
$3,890,958 $3,663,330 $2,407,971
========== ========== ==========
</TABLE>
(c) Temba Resources Ltd. ("Temba") acquired and amalgamated with PTR to
continue as Westlinks Resources Ltd. ("Westlinks") effective June 30,
1998. Under the terms of the amalgamation, the holders of the issued and
outstanding shares of Temba received one (1) common share of the
amalgamated corporation, Westlinks, for every five (5) common shares of
Temba. The holders of the issued and outstanding shares of PTR received
one (1) common share of the amalgamated corporation for every thirty-one
and one quarter (31.25) common shares of PTR. In addition, any common
shares of Temba held by PTR and any common shares of PTR held by Temba
were cancelled upon amalgamation.
F-13
<PAGE> 59
WESTLINKS RESOURCES LTD.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
(INFORMATION AS AT MARCH 31, 2000 AND FOR THE THREE-MONTH PERIODS
ENDED MARCH 31, 2000 AND MARCH 31, 1999 ARE UNAUDITED)
(d) Employee fixed stock option plan
Under the employee fixed stock option plan, the company may grant
options to its officers, directors and employees for up to 10% of the
issued common shares. Options granted under the plan have a term of five
years and vest when granted. The exercise price of each option equals
the market price of the company's shares at the grant date of the
options. As at March 31, 2000, 53,000 stock options were outstanding
under the plan at an exercise price of $2.00 per share expiring on
February 24, 2004.
A summary of the status of the company's fixed stock option plan as of
March 31, 2000, December 31, 1999 and December 31, 1998, and changes
during the periods then ending is as follows:
<TABLE>
<CAPTION>
DECEMBER 31,
MARCH 31, -------------------------------------------
2000 1999 1998
-------------------- -------------------- --------------------
WEIGHTED WEIGHTED WEIGHTED
AVERAGE AVERAGE AVERAGE
NUMBER OF EXERCISE NUMBER OF EXERCISE NUMBER OF EXERCISE
OPTIONS PRICE OPTIONS PRICE OPTIONS PRICE
--------- -------- --------- -------- --------- --------
<S> <C> <C> <C> <C> <C> <C>
Outstanding, beginning of
period.......................... 260,000 $1.00 262,000 $0.40 -- $ --
Granted........................... 183,000 1.29 260,000 1.00 262,000 0.40
Exercised......................... (390,000) 1.00 (257,000) 0.40 -- --
Cancelled......................... -- -- (5,000) 0.40 -- --
-------- ----- -------- ----- ------- -----
Outstanding and exercisable, end
of period....................... 53,000 $2.00 260,000 $1.00 262,000 $0.40
======== ===== ======== ===== ======= =====
</TABLE>
(e) Warrants
Included in the consideration given to I.G. in 1997 pursuant to a
business combination were 300,000 common share purchase warrants with an
agreed aggregate value of $150,000. Each warrant entitled I.G. to
acquire one common share at a price of $2.50 until January 8, 2000. The
warrants expired unexercised.
The warrants issued pursuant to the bank financing expired unexercised
during the period ended March 31, 2000.
(f) At March 31, 2000, 133,334 (December 31, 1999 -- 133,334; December 31,
1998 -- 266,667) of the common shares of the company are to be held in
escrow. The remaining shares were released April 1, 2000.
(g) Net income (loss) per share and funds provided from operations per
share are calculated based on the weighted average number of common
shares outstanding during the period of 4,235,496 (March 31, 1999 --
2,610,639; December 31, 1999 -- 2,928,975; December 31, 1998 --
2,350,174; December 31, 1997 -- 1,349,717). The exercise of options and
warrants would not be materially dilutive.
F-14
<PAGE> 60
WESTLINKS RESOURCES LTD.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
(INFORMATION AS AT MARCH 31, 2000 AND FOR THE THREE-MONTH PERIODS
ENDED MARCH 31, 2000 AND MARCH 31, 1999 ARE UNAUDITED)
9. CHANGE IN ACCOUNTING POLICY
At December 31, 1999, the company changed its method of accounting for
income taxes from the deferral method to the liability method. This policy
has been adopted retroactively with restatement of 1998 and 1997 results.
The impact of these changes on the March 31, 1999 and December 31, 1999,
1998 and 1997 consolidated financial statements are as follows:
<TABLE>
<CAPTION>
BEFORE
CHANGE AFTER CHANGE
IN ACCOUNTING IN ACCOUNTING
POLICY ADJUSTMENT POLICY
------------- ---------- -------------
<S> <C> <C> <C>
MARCH 31, 1999
Depletion and depreciation.................... $ 146,100 $ 1,557 $ 147,657
Future income taxes (recovery)................ -- (48,955) (48,955)
Deferred tax (recovery)....................... (52,000) 52,000 --
Net income (loss)............................. (72,529) (4,602) (77,131)
DECEMBER 31, 1999
Capital assets................................ $6,714,444 $ 302,282 $7,016,726
Future income taxes........................... -- 297,793 297,793
Share capital................................. 3,697,440 (34,110) 3,663,330
Retained earnings............................. 275,705 38,599 314,304
Depletion and depreciation.................... 819,119 22,461 841,580
Gain on sale of capital assets................ 129,925 (38,523) 91,402
Future income taxes (recovery)................ -- (246,884) (246,884)
Deferred tax (recovery)....................... (69,000) 69,000 --
Net income (loss)............................. (166,427) 116,900 (49,527)
Net income (loss) per share................... (0.06) 0.04 (0.02)
DECEMBER 31, 1998
Capital assets................................ $3,581,464 $ 40,983 $3,622,447
Deferred income taxes......................... 69,000 (69,000) --
Future income taxes........................... -- 240,476 240,476
Share capital................................. 2,460,163 (52,192) 2,407,971
Retained earnings............................. 442,132 (78,301) 363,831
Depletion and depreciation.................... 797,403 7,540 804,943
Future income taxes........................... -- 120,297 120,297
Net income (loss)............................. 381,918 (127,837) 254,081
Net income (loss) per share................... 0.16 (0.05) 0.11
DECEMBER 31, 1997
Deferred income taxes......................... $ 107,000 $(107,000) --
Future income taxes........................... -- 57,464 57,464
Net income.................................... 165,714 49,536 215,250
Net income per share.......................... 0.02 0.01 0.03
</TABLE>
F-15
<PAGE> 61
WESTLINKS RESOURCES LTD.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
(INFORMATION AS AT MARCH 31, 2000 AND FOR THE THREE-MONTH PERIODS
ENDED MARCH 31, 2000 AND MARCH 31, 1999 ARE UNAUDITED)
10. COMMITMENTS
(a) The company is committed under leases on their office premises and
vehicles for future minimum lease payments as follows:
<TABLE>
<S> <C>
April 1 - December 31, 2000................................. $ 81,569
January 1 - December 31, 2001............................... 99,613
January 1 - December 31, 2002............................... 81,802
January 1 - December 31, 2003............................... 39,825
January 1 - December 31, 2004............................... 8,716
--------
$311,525
========
</TABLE>
(b) The company has entered into a fixed price contract. Under the terms
of the contract, the company is required to deliver a physical
quantity of 100 bpd of oil at a price of $29.70/bbl expiring August
31, 2000 and 100 bpd of oil at a price of $32.00/bbl from February 1,
2000 to August 31, 2000, at various Alberta delivery points.
11. TERMINATION BENEFITS
During the year ended December 31, 1999, the company terminated certain
employees and officers of the company. Included in general and
administrative expense is $128,803 of severance and related costs of the
termination.
12. FINANCIAL INSTRUMENTS
Fair values
The fair value of all financial instruments approximate their carrying
value.
13. CONTINGENCY
On March 4, 1998, claims totalling $22,500 were filed against the company.
The company made a counterclaim of $800,000 on March 26, 1998. The company
believes that the original claims are without merit. The outcomes of the
claims and counterclaim are not determinable at this time.
14. SUBSEQUENT EVENTS
(a) Public offering
The company entered into an agreement with Spencer Edwards, Inc. (as
representative of the several underwriters) to offer to the public one
million units at $ -- U.S. per unit. In addition, the company has granted
the underwriter the option to purchase an additional 150,000 units to
cover any over-allotments. Each unit will consist of one common share and
one common share purchase warrant. Each warrant entitles the holder to
purchase one common share for $ -- U.S. for six months after the date of
the final prospectus. The costs of arranging the issue, including the
underwriter's commission are estimated to be US$955,000. In addition to a
commission of 10% of the gross proceeds of the issue, the underwriter
will be granted non-transferable warrants to acquire 100,000 common
shares at $ -- U.S. per share. The warrants may not be exercised for one
year from the date of the offering.
F-16
<PAGE> 62
WESTLINKS RESOURCES LTD.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
(INFORMATION AS AT MARCH 31, 2000 AND FOR THE THREE-MONTH PERIODS
ENDED MARCH 31, 2000 AND MARCH 31, 1999 ARE UNAUDITED)
(b) Acquisitions and dispositions of petroleum and natural gas assets
On May 29, 2000, the company purchased petroleum and natural gas assets
for $11,917,104 pursuant to a purchase and sale agreement with another
company dated April 17, 2000. A non-refundable deposit of $1,191,710 was
paid and applied against the purchase price. The financing for the
purchase was provided from the new credit facilities (note 14[c]).
Subsequent to the year ended December 31, 1999, the company has acquired
$1,655,000 and disposed of $1,237,855 of petroleum and natural gas assets
through various purchase and sale agreements.
(c) Credit facilities
On April 18, 2000, the company negotiated new credit facilities to
replace their existing long-term debt. The new facilities include a
revolving production loan to a maximum of $12,500,000 which bears
interest at a chartered bank's prime rate plus 0.25% per annum payable
monthly, due on demand and a bridge loan to a maximum of $3,800,000 which
bears interest at prime rate plus 2% per annum. The bridge loan will not
be advanced until the company has arranged equity funding in excess of
$3.8 million on an unconditional basis, and the production loan was
capped at $7,500,000 until the closing of the acquisition described in
note 14(b). The facilities are secured by a $25,000,000 floating charge
debenture over all the assets of the company, a general security
agreement over all present and after acquired property and assignment of
long-term gas contracts exceeding 13 months. The bridge loan was not
drawn on to finance the purchase of the petroleum and natural gas assets
described in note 14(b) as the equity financing was not arranged on an
unconditional basis by the closing date of the acquisition.
On June 5, 2000, the company negotiated with six individuals bridge loans
in the amount of $1,550,000 U.S. The loans bear interest at 12% per
annum, repayable within 8 months and are unsecured. The bridge loans will
be repaid with the proceeds of the equity issue described in note 14(a).
The company also issued 150,000 warrants to the lenders. Each warrant
entitles the lenders to acquire one common share at a price of $4.00 U.S.
per share until March 5, 2001.
(d) Pursuant to a directors' resolution dated May 29, 2000, the company
granted 390,000 options to certain officers, directors, employees and
consultants of the company. The options have an exercise price of
$6.15 per share, expire May 29, 2005 and vested when granted.
15. RELATED PARTY TRANSACTIONS
Included in accounts receivable at March 31, 2000 is $390,000 due from
officers and directors of the company advanced to exercise stock options.
The amounts due from officers and directors are secured by the common
shares, are non-interest bearing and are repayable by December 31, 2000.
F-17
<PAGE> 63
WESTLINKS RESOURCES LTD.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
(INFORMATION AS AT MARCH 31, 2000 AND FOR THE THREE-MONTH PERIODS
ENDED MARCH 31, 2000 AND MARCH 31, 1999 ARE UNAUDITED)
16. UNITED STATES ACCOUNTING PRINCIPLES AND REPORTING
The company's consolidated financial statements have been prepared in
Canadian dollars and in accordance with generally accepted accounting
principles in Canada ("Canadian GAAP"). These principles, as they pertain to
the company's financial statements, differ from United States generally
accepted accounting principles ("U.S. GAAP") as follows:
(a) Ceiling test
In accordance with the U.S. GAAP, the discounted future net cash flows
from proven reserves, discounted at 10% over the remaining productive
life, plus the lower of cost or estimated fair market value of unproved
properties, net of future taxes, must exceed the net book value of such
properties, net of future taxes and estimated site restoration, or a
write down is required. The company calculates the ceiling test using
discounted cash flows consistent with U.S. GAAP and, therefore, no
adjustments are necessary.
(b) Income taxes
U.S. GAAP, specifically the statement of Financial Accounting Standards
No. 109 ("FAS 109") "Accounting for Income Taxes", requires the
recognition of future 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, FAS 109 generally considers all expected events including
enacted changes in laws or rates.
Canadian GAAP previously required the company provide for potential
future taxes using the deferral method, however, the Canadian Institute
of Chartered Accountants has issued a new accounting standard which is
similar to U.S. GAAP. The new standard is mandatory for fiscal years
commencing on or after January 1, 2000 but it may be adopted earlier.
The company has adopted the new Canadian standard for the year ended
December 31, 1999 and adopted this policy retroactively with restatement
(note 9). The Canadian standard differs from U.S. GAAP in the accounting
for the taxation effect of flow-through shares, where the tax deduction
associated with certain expenditures are renounced to subscribers (note
3[k]). Under Canadian GAAP, share capital is reduced and a future tax
liability is recorded equal to the estimated amount of future taxes
payable due to the renunciations, whereas under U.S. GAAP, the tax
effect is a charge against income, instead of a reduction of share
capital.
(c) Net income (loss) per share
Contrary to Canadian GAAP, U.S. GAAP requires the inclusion of stock
options, warrants and certain convertible securities in the calculation
of diluted earnings per share using the treasury stock method. The
treasury stock method requires the inclusion of the options as if they
were exercised at the later of the beginning of the year or the date
granted and as if the funds were used to purchase the corporation's own
stock.
The conversion from Canadian to U.S. GAAP had no effect on the diluted
net income (loss) per share.
(d) Stock based compensation
Contrary to Canadian GAAP, U.S. GAAP requires a company to disclose the
cost of stock compensation awards, at their fair value, at the date the
award is granted. The fair value of the
F-18
<PAGE> 64
WESTLINKS RESOURCES LTD.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
(INFORMATION AS AT MARCH 31, 2000 AND FOR THE THREE-MONTH PERIODS
ENDED MARCH 31, 2000 AND MARCH 31, 1999 ARE UNAUDITED)
company's options was estimated using the Black-Scholes model with
assumptions of a 274 day expected term, 189% volatility and an interest
rate of 6.5% (March 31, 1999 -- 6.5%; December 31, 1999 -- 6.5%;
December 31, 1998 -- 6.5%; December 31, 1997 -- 5.0%). Under U.S. GAAP,
the cost of stock compensation for the period ended March 31, 2000 would
be $14,265 (March 31, 1999 -- $40,583; December 31, 1999 -- $86,076;
December 31, 1998 -- $40,583; December 31, 1997 -- $12,736). The
resulting pro forma net income (loss) and net income (loss) per share
for the period ended March 31, 2000 would be $157,341 and $0.04,
respectively (March 31, 1999 -- $(117,714); December 31, 1999 --
$(135,603) and $(0.05); December 31, 1998 -- $213,498 and $0.09;
December 31, 1997 -- $202,514 and $0.15).
(e) Investments
Canadian GAAP requires investments that the company does not have a
significant influence in to be recorded using the cost method of
accounting whereby the investments are initially recorded at cost. Where
there has been a permanent decline in value, the investments are stated
at estimated net realizable value.
Under U.S. GAAP, the company's investments would be classified as
"Available-For-Sale" using the cost method of accounting and require
that the securities be recorded at fair market value. As the difference
between cost and fair market value has not been realized, any unrealized
holding gains or losses would be reported as other comprehensive income
(i.e. as a separate component of shareholders' equity) until realized.
(f) Long-term debt
U.S. GAAP requires that all demand loans be classified as current unless
the company intends to refinance on a long-term basis and the intent is
supported by the ability to refinance. As the company's loan does not
clearly permit refinancing on a long-term basis under U.S. GAAP, it
would be classified as a current liability.
(g) Financial instruments
In June 1998, the Financial Accounting Standards Board issued FAS No.
133 and 137 "Accounting for Derivative Instruments and Hedging
Activities" which will be effective for the company's 2001 fiscal year.
Under the new standard, companies will be required to record derivatives
on the balance sheet as assets or liabilities measured at fair value.
For those derivatives representing effective hedges of risks and
exposures, unrealized gains or losses resulting from changes in the fair
values will be presented as a component of comprehensive income as
defined by FAS No. 130. To the extent certain derivatives do not
represent effective hedges, unrealized gains or losses will be included
in the income statement for U.S. GAAP purposes. The company is currently
reviewing the standard but has not yet fully determined the impact it
will have on its reported U.S. GAAP financial information.
F-19
<PAGE> 65
WESTLINKS RESOURCES LTD.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
(INFORMATION AS AT MARCH 31, 2000 AND FOR THE THREE-MONTH PERIODS
ENDED MARCH 31, 2000 AND MARCH 31, 1999 ARE UNAUDITED)
(h) Balance sheets
The adjustments using U.S. GAAP would result in the following changes to
the consolidated balance sheets of the company:
<TABLE>
<CAPTION>
AS AT AS AT
MARCH 31, 2000 DECEMBER 31, 1999 DECEMBER 31, 1998
------------------------- ----------------------- -----------------------
CANADIAN CANADIAN CANADIAN
GAAP U.S. GAAP GAAP U.S. GAAP GAAP U.S. GAAP
----------- ----------- ---------- ---------- ---------- ----------
<S> <C> <C> <C> <C> <C> <C>
Assets
Current assets............. $ 1,264,643 $ 1,264,643 $ 727,075 $ 727,075 $ 305,227 $ 305,227
Capital assets............. 10,043,556 10,043,556 7,016,726 7,016,726 3,622,447 3,622,447
Investments................ -- -- -- -- 240,000 360,000
----------- ----------- ---------- ---------- ---------- ----------
$11,308,199 $11,308,199 $7,743,801 $7,743,801 $4,167,674 $4,287,674
=========== =========== ========== ========== ========== ==========
Liabilities
Current liabilities........ $ 3,596,221 $ 6,146,221 $1,762,042 $3,287,042 $ 322,700 $1,022,700
Long-term debt............. 2,550,000 -- 1,525,000 -- 700,000 --
Future income taxes........ 444,389 444,389 297,793 297,793 240,476 280,634
Provision for future site
restoration.............. 190,221 190,221 181,332 181,332 132,696 132,696
----------- ----------- ---------- ---------- ---------- ----------
6,780,831 6,780,831 3,766,167 3,766,167 1,395,872 1,436,030
----------- ----------- ---------- ---------- ---------- ----------
Shareholders' equity
Share capital.............. 3,890,958 3,936,471 3,663,330 3,708,843 2,407,971 2,453,484
Contributed surplus........ 150,500 150,500 -- -- -- --
Comprehensive income....... -- -- -- -- -- 79,842
Retained earnings.......... 485,910 440,397 314,304 268,791 363,831 318,318
----------- ----------- ---------- ---------- ---------- ----------
4,527,368 4,527,368 3,977,634 3,977,634 2,771,802 2,851,644
----------- ----------- ---------- ---------- ---------- ----------
$11,308,199 $11,308,199 $7,743,801 $7,743,801 $4,167,674 $4,287,674
=========== =========== ========== ========== ========== ==========
</TABLE>
F-20
<PAGE> 66
WESTLINKS RESOURCES LTD.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
(INFORMATION AS AT MARCH 31, 2000 AND FOR THE THREE-MONTH PERIODS
ENDED MARCH 31, 2000 AND MARCH 31, 1999 ARE UNAUDITED)
(i) Income statements
The adjustments using U.S. GAAP would result in the following changes to
the consolidated income statements of the company:
<TABLE>
<CAPTION>
THREE MONTHS ENDED YEARS ENDED PERIOD FROM
MARCH 31, DECEMBER 31, APRIL 1, 1997 TO
--------------------- ---------------------- DECEMBER 31,
2000 1999 1999 1998 1997
-------- -------- --------- -------- ----------------
<S> <C> <C> <C> <C> <C>
Net income (loss) using
Canadian GAAP.............. $171,606 $(77,131) $ (49,527) $254,081 $215,250
U.S. GAAP adjustment Income
taxes -- FAS 109........... -- -- -- 23,163 22,350
-------- -------- --------- -------- --------
Net income (loss) using U.S.
GAAP....................... 171,606 (77,131) (49,527) 230,918 192,900
Other comprehensive income
Unrealized holding gains on
investments arising
(reversing) during the
period, net of tax
effect of $40,158 (1998
-- $40,158)............. -- -- (79,842) 79,842 --
-------- -------- --------- -------- --------
Comprehensive income
(loss)..................... $171,606 $(77,131) $(129,369) $310,760 $192,900
======== ======== ========= ======== ========
Comprehensive income (loss)
per share.................. $ 0.04 $ (0.08) $ (0.04) $ 0.13 $ 0.03
======== ======== ========= ======== ========
</TABLE>
17. COMPARATIVE FIGURES
The presentation of certain figures of the previous periods have been
changed to conform with the presentation adopted for the current period.
F-21
<PAGE> 67
COMPILATION REPORT
To the Directors
Westlinks Resources Ltd.
We have reviewed, as to compilation only, the accompanying pro-forma
consolidated balance sheet of Westlinks Resources Ltd. as at March 31, 2000
which has been prepared for inclusion in the prospectus relating to the offering
of 1,000,000 units. Each unit consists of one common share and one common share
purchase warrant. In our opinion, the pro-forma consolidated balance sheet has
been properly compiled to give effect to the proposed transactions and the
assumptions described in note 2 thereto.
(signed) COLLINS BARROW
Chartered Accountants
Calgary, Alberta
June 21, 2000
F-22
<PAGE> 68
WESTLINKS RESOURCES LTD.
PRO-FORMA CONSOLIDATED BALANCE SHEET
MARCH 31, 2000 (UNAUDITED)
Expressed in Canadian Dollars
<TABLE>
<CAPTION>
PURCHASE OF ISSUE OF
UNADJUSTED OIL AND GAS COMMON PRO-FORMA
AT MARCH 31, PROPERTY SHARES MARCH 31,
2000 (NOTE 2(A)) (NOTE 2(B)) 2000
------------ ----------- ----------- -----------
(UNAUDITED)
<S> <C> <C> <C> <C>
ASSETS
Current assets
Cash and short-term investments...... $ 8,410 $ -- $ 4,052,780 $ 4,061,190
Accounts receivable.................. 1,256,233 -- -- 1,256,233
----------- ----------- ----------- -----------
1,264,643 -- 4,052,780 5,317,423
Capital assets......................... 10,043,556 10,424,715 -- 20,468,271
Investments............................
----------- ----------- ----------- -----------
$11,308,199 $10,424,715 $ 4,052,780 $25,785,694
=========== =========== =========== ===========
LIABILITIES
Current Liabilities
Accounts payable and accrued
liabilities....................... $ 1,746,221 -- -- $ 1,746,221
Current portion of long term debt.... 1,850,000 $(1,850,000) -- --
----------- ----------- ----------- -----------
3,596,221 (1,850,000) -- 1,746,221
Long-term debt......................... 2,550,000 12,274,715 (2,288,575) 12,536,140
Future income taxes.................... 444,389 -- -- 444,389
Provision for future site
restoration.......................... 190,221 -- -- 190,221
----------- ----------- ----------- -----------
6,780,831 10,424,715 (2,288,575) 14,916,971
=========== =========== =========== ===========
SHAREHOLDERS' EQUITY
Share capital.......................... 3,890,958 -- 6,341,355 10,232,313
Contributed surplus.................... 150,500 -- -- 150,500
Retained earnings...................... 485,910 -- -- 485,910
----------- ----------- ----------- -----------
4,527,368 -- 6,341,355 10,868,723
----------- ----------- ----------- -----------
$11,308,199 $10,424,715 $ 4,052,780 $25,785,694
=========== =========== =========== ===========
</TABLE>
F-23
<PAGE> 69
WESTLINKS RESOURCES LTD.
NOTES TO PRO-FORMA CONSOLIDATED BALANCE SHEET
MARCH 31, 2000 (UNAUDITED)
Expressed in Canadian Dollars
1. BASIS OF PRESENTATION
The accompanying pro-forma consolidated balance sheet of Westlinks
Resources Ltd. has been prepared by management to give effect to the issue
of common shares, the new credit facility and the closing of the purchase
of the Sounding Lake, Alberta area petroleum and natural gas assets
described in a registration statement dated June 19, 2000.
The pro-forma consolidated balance sheet has been prepared from the
unaudited consolidated balance sheet as at March 31, 2000. In the opinion
of the management of Westlinks, the pro forma consolidated balance sheet as
at March 31, 2000 includes all adjustments necessary for a fair
presentation of the above mentioned occurrence of events.
The pro-forma consolidated balance sheet as at March 31, 2000 should be
read in conjunction with the audited and unaudited consolidated financial
statements of Westlinks included elsewhere in the prospectus.
2. PRO-FORMA ASSUMPTIONS AND ADJUSTMENTS
Accounting policies used in the preparation of the pro-forma consolidated
balance sheet are in accordance with those disclosed in Westlinks' audited
consolidated financial statements for the year ended December 31, 1999.
The pro-forma consolidated balance sheet gives effect to the following:
(a) The acquisition of an oil and gas property in Alberta for $11,917,104
on May 29, 2000. The acquisition is summarized as follows:
<TABLE>
<S> <C>
Purchase price.............................................. $11,917,104
Purchase price adjustment -- net income received from the
effective date, January 1, 2000, to March 31, 2000........ (1,492,389)
-----------
Total purchase price........................................ $10,424,715
===========
</TABLE>
Westlinks negotiated a new credit facility to finance the acquisition.
The new facility included a revolving production loan to a maximum of
$12,500,000 which bears interest at a chartered bank's prime rate plus
0.25% per annum payable monthly, due on demand.
(b) The issuance of 1,000,000 units of common stock pursuant to the
offering under the prospectus. The issuance is summarized as follows:
<TABLE>
<S> <C>
Issuance proceeds (net)..................................... $7,751,366
Issuance costs.............................................. 1,410,011
----------
Issuance proceeds (net)..................................... $6,341,355
==========
</TABLE>
F-24
<PAGE> 70
--------------------------------------------------------------------------------
--------------------------------------------------------------------------------
WESTLINKS RESOURCES LTD.
1,000,000 SHARES OF COMMON STOCK
AND
1,000,000 COMMON STOCK PURCHASE WARRANTS
SPENCER EDWARDS, INC.
-- , 2000
You may rely only on the information contained in the prospectus. We have
not authorized anyone to provide information different from that contained in
this prospectus. Neither the delivery of this prospectus nor sale of units means
that information contained in this prospectus is correct after the date of this
prospectus. This prospectus is not an offer to sell or solicitation of an offer
to buy these securities in any circumstances under which the offer or
solicitation is unlawful.
Until -- , 2000 (90 days after the date of this prospectus), all
dealers in the United States effecting transactions in the common stock and
warrants, whether or not participating in this offering, may be required to
deliver a prospectus. This is in addition to the obligations of dealers to
deliver a prospectus when acting as underwriters and with respect to their
unsold allotments or subscriptions.
--------------------------------------------------------------------------------
--------------------------------------------------------------------------------
<PAGE> 71
ALTERNATE PAGE
PROSPECTUS SUMMARY
THE OFFERING
Information in this prospectus assumes an offering price of US$5.00 per
shares and US$0.25 per warrant. Except where noted otherwise, all information in
this prospectus, including share and per share information, assumes no exercise
of the underwriter's over-allotment option.
SECURITIES OFFERED BY THE
SELLING SECURITY HOLDERS: 150,000 shares of common stock issuable upon the
exercise of warrants held by the selling security
holders.
COMMON STOCK TO BE
OUTSTANDING AFTER THE
OFFERING: 5,432,639 shares.
USE OF PROCEEDS: We will not receive any proceeds from the sale of
these shares, but we will receive the exercise
price upon the exercise of the warrants. The shares
of common stock will be issued upon the exercise by
the selling security holders of 150,000 warrants,
each of which may be exercised for one share of
common stock until March 5, 2001 at US $4.00 per
share. These warrants were issued in connection
with a bridge loan to Westlinks. The proceeds from
the exercise of the warrants will be applied to our
working capital.
PROPOSED NASDAQ SMALLCAP
MARKET SYMBOLS: Common stock: WLKSF Warrants: WLKSFW
CANADIAN VENTURE EXCHANGE
SYMBOL: Common stock: WLX
PINK SHEET SYMBOL: Common stock: WLKSF
A-1
<PAGE> 72
ALTERNATE PAGE
USE OF PROCEEDS
Westlinks will not receive any proceeds from the sale of shares of common
stock by the selling security holders, but we will receive the exercise price
upon the exercise of the warrants. The shares of common stock will be issued
upon the exercise by the selling security holders of 150,000 warrants, each of
which may be exercised for one share of common stock until March 5, 2001 at
US$4.00 per share. These warrants were issued in connection with a loan to
Westlinks. The proceeds from the exercise of the warrants will be applied to our
working capital. NASD members participating in Westlinks' public offering or the
selling security holder offering shall not receive compensation arising from the
exercise of such warrants. There can be no assurance that any of the warrants
will be exercised.
A-2
<PAGE> 73
ALTERNATE PAGE
RESALE BY SELLING SECURITY HOLDERS
This prospectus relates to the proposed resale by the selling security
holders of up to 150,000 shares of common stock issuable upon the exercise of
warrants held by the selling security holders. The following table sets forth as
of the date of this prospectus certain information concerning the persons for
whom Westlinks is registering the shares for resale to the public. Westlinks
will not receive any of the proceeds from the sale of the shares, but will
receive a maximum of US$600,000 if the warrants listed below are exercised. None
of the selling security holders are officers, directors or 5% or greater
stockholders of Westlinks.
<TABLE>
<CAPTION>
SHARES OF TOTAL SHARES OF
COMMON STOCK UPON COMMON STOCK SHARES OFFERED
SELLING SECURITY HOLDER EXERCISE OF WARRANTS OWNED(1) FOR RESALE
----------------------- -------------------- --------------- --------------
<S> <C> <C> <C>
Patrick Williams Advisor...................... 92,500 280,500 92,500
Glenn Russell................................. 20,000 35,500 20,000
F. Jack Wright................................ 15,000 25,000 15,000
William J. Gordica............................ 7,500 12,500 7,500
Lawrence W. Underwood......................... 7,500 38,300 7,500
Sapphire Capital Inc.......................... 7,500 7,500 7,500
</TABLE>
---------------
(1) Includes the shares of common stock to be issued upon the exercise of the
warrants.
The selling security holders may effect the sale of their shares from time
to time in transactions, which may include block transactions, in the open
market, in negotiated transactions, through the writing of options on the common
stock, or a combination of such methods of sale, at fixed prices which may be
changed, at market prices prevailing at the time of sale, or at negotiated
prices.
Westlinks is not aware of any agreements, undertakings or arrangements with
any underwriters or broker-dealers regarding the resale of its securities. The
selling security holders may effect such transactions by selling the shares, as
applicable, directly to purchasers or to or through broker-dealers who may act
as agents or principals. Such broker-dealers may receive compensation in the
form of discounts, concessions or commissions from the selling security holders,
and/or the purchasers of their shares, as applicable, for which such
broker-dealers may act as agents or to whom they sell as principal, or both,
which compensation as to a particular broker-dealer might be in excess of
customary commissions. The selling security holders and any broker-dealers that
act in connection with the sale of their shares might be deemed to be
"underwriters" within the meaning of section 2(11) of the Securities Act.
Westlinks has notified the selling security holders of the prospectus
delivery requirements for sales made by this prospectus and that, if there are
material changes to the stated plan of distribution, a post-effective amendment
with current information would need to be filed before offers are made and no
sales could occur until such amendment is declared effective.
A-3
<PAGE> 74
ALTERNATE PAGE
PLAN OF DISTRIBUTION
150,000 shares of common stock underlying warrants will be offered by the
selling security holders from time to time in market transactions at prevailing
prices on the [Nasdaq SmallCap Market], the Canadian Venture Exchange or a
similar market. Westlinks will not receive any proceeds from possible resale by
the selling securities holders of their respective shares of Westlinks' common
stock. Westlinks will receive gross proceeds of US$600,000 if all outstanding
warrants are exercised. NASD members participating in Westlinks' public offering
or the selling security holder offering, shall not receive compensation arising
from the exercise of such warrants. There can be no assurance that any warrants
will be exercised. The selling security holders may effect such transactions by
selling their shares of common stock to or through broker-dealers, and such
broker-dealers may receive compensation in the form of discounts, concessions or
commissions from the selling security holders and/or the purchasers of such
shares of common stock for whom such broker-dealer may act as agents or to whom
they may sell as principals, or both. Any broker-dealer selling securities
offered by this Prospectus cannot receive compensation (calculated as the
difference between the purchase and resale price of the securities) in excess of
8% on principal transactions or in excess of normal and ordinary brokerage
commissions, which, in any event may not exceed 5% of the sale price, for any
agency transactions. Westlinks has agreed to bear all expenses estimated at
approximately $10,000 in connection with the registration of the shares of
common stock to which this prospectus relates.
A-4
<PAGE> 75
PART II
INFORMATION NOT REQUIRED IN PROSPECTUS
ITEM 13. OTHER EXPENSES OF ISSUANCE AND DISTRIBUTION.
Estimates of fees and expenses incurred or to be incurred by Westlinks in
connection with the issuance and distribution of securities being registered,
other than underwriting discounts and commissions, are as follows:
<TABLE>
<S> <C>
Securities and Exchange Commission registration fee....... $ 3,552
National Association of Securities Dealers filing fee..... 13,955
Canadian Venture Exchange Listing Application fee(1)...... 1,635
NASDAQ Listing Application fee............................ 10,000
State Securities Laws (Blue Sky) fees and expenses,
including legal fees.................................... 26,000
Transfer Agent's fees(1).................................. 3,400
Printing costs and fees(1)................................ 50,000
Legal fees and disbursements(1)........................... 100,000
Accounting fees and disbursements(1)...................... 24,000
Underwriter's expense allowance........................... 157,500
Miscellaneous expenses(1)................................. 39,958
--------
TOTAL..................................................... $430,000
========
</TABLE>
---------------
(1) Expenses to be paid in Canadian dollars have been estimated in U.S. dollars
on the basis of Canadian $1.00 = US$0.6773.
ITEM 14. INDEMNIFICATION OF DIRECTORS AND OFFICERS
The By-laws of Westlinks contain provisions whereby Westlinks has the
power, to the maximum extent permitted by the Business Corporations Act
(Alberta) ("ABCA"), to indemnify its officers and directors, former officers and
directors, or persons who act or acted at Westlinks' request as a director or
officer of a company of which Westlinks is a shareholder or creditor, and their
heirs and legal representatives, and to purchase and maintain insurance for the
benefit of any officers or directors, against any liability incurred in their
capacity as officers or directors of Westlinks, or as a director or officer of
such other company, as the case may be. The Company may also indemnify such
persons in such other circumstances as the ABCA permits.
The ABCA permits a corporation to indemnify its officers and directors,
former officers and directors, or persons who act or acted at Westlinks' request
as a director or officer of a company of which Westlinks is a shareholder or
creditor, and their heirs and legal representatives for their honest actions
taken in good faith and in the best interests of the corporation and, in the
case of criminal proceedings, such director or officer or other person had
reasonable grounds for believing that his conduct was lawful. The ABCA entitles
such persons to indemnification if the person seeking indemnity was
substantially successful on the merits of his defence of a legal proceeding,
acted honestly and in good faith with a view to the best interests of the
company, had reasonable grounds that his conduct was lawful and is fairly and
reasonably entitled to indemnity.
II-1
<PAGE> 76
ITEM 15. RECENT SALES OF UNREGISTERED SECURITIES
The Company is an Alberta, Canada corporation amalgamated in 1998, and has
issued an aggregate of 4,432,639 shares of common stock as follows:
(a) Effective at June 30, 1998, upon its amalgamation Westlinks issued
2,610,639 shares of common stock in exchange for the shares of the two
amalgamating companies, Temba Resources Ltd. and PTR Resources Ltd.. The stated
value of these shares was US$1,673,527 (CN$2,470,880), being the stated capital
of the amalgamating companies. Westlinks also issued share purchase warrants to
purchase 310,000 Shares of common stock on its amalgamation. These warrants were
not exercised and terminated on January 8, 2000(1).
(b) From November 1, 1998 through February 23, 2000, employee stock options
to purchase an aggregate total of 705,000 shares of common stock were granted to
directors, officers and employees of Westlinks, all residents of Alberta,
Canada(1).
(c) From March 22, 1999 through February 16, 2000, an aggregate total of
647,000 shares of common stock were issued upon the exercise of stock options
for aggregate proceeds of US$333,773 (CN$492,800)(1)(2).
(d) From September 27 through December 16, 1999, 1,175,000 shares of common
stock were issued under a private placement sold to residents of Alberta, Canada
at a subscription price of US$0.68 (CN$1.00) per share for proceeds of
US$795,828 (CN$1,175,000)(1)(2).
---------------
Notes:
(1) None of these securities was registered under the Securities Act of 1933, as
amended (the "Securities Act") , having been issued in Canada in reliance
upon Regulation S under the Securities Act.
(2) All proceeds for the sale of securities, net of the expenses of the sales,
were used for general working capital.
(e) On June 5, 2000 warrants to purchase 150,000 shares of common stock
were issued in consideration for a loan to Westlinks by five residents of the
United States, who are accredited investors, in reliance upon Regulation D under
the Securities Act, and one resident of Alberta, Canada, in reliance upon
Regulation S under the Securities Act, as well as section 107(1)(d) of the
Securities Act of Alberta. Each warrant may be exercised for one share of common
stock at an exercise price of US$4.00 through March 5, 2001. No warrants have as
yet been exercised. The resale of the common stock underlying the warrants is
being registered hereunder. Following are the six lenders and the number of
warrants issued to each:
<TABLE>
<CAPTION>
NO. OF
NAMES OF LENDERS WARRANTS
---------------- --------
<S> <C>
Patrick Williams Advisors(1)................................ 92,500
Glenn Russell............................................... 20,000
F. Jack Wright.............................................. 15,000
Lawrence W. Underwood....................................... 7,500
Sapphire Capital Inc........................................ 7,500
William J. Gordica.......................................... 7,500
</TABLE>
---------------
(1) Patrick Williams Advisors is a general partnership owned as to 50% each by
John P. McGrain and Georgette Pagano.
(2) Sapphire Capital Inc. is owned by Lawrence W. Underwood.
II-2
<PAGE> 77
ITEM 16. EXHIBITS AND FINANCIAL STATEMENT SCHEDULES
(A) EXHIBITS
<TABLE>
<CAPTION>
EXHIBIT NO. DESCRIPTION
----------- -----------
<C> <S>
1.1 Form of Underwriting Agreement.
1.2 Form of Agreement among Underwriters.
2.1 Amalgamation Agreement dated May 27, 1998 between Temba
Resources Ltd. and PTR Resources Ltd. pursuant to which the
Registrant was amalgamated under the Business Corporations
Act (Alberta) on June 30, 1998.
2.2 Letter Agreement dated August 12, 1999 pursuant to which the
Registrant acquired all of the issued and outstanding shares
of 759795 Alberta Ltd.
2.3 Notice of Intention to File a Normal Course Issuer Bid.
3.1 Certificate of Amalgamation and attached Articles of
Amalgamation of the Registrant dated and filed June 30,
1998.
3.2 By-laws of the Registrant.
*4.1 Form of Purchase Warrant Trust Indenture dated June -- ,
2000 between the Registrant and Montreal Trust Company of
Canada providing for the issuance of the Warrants.
4.2 Form of Warrant Agreement dated -- , 2000 between the
Registrant and Spencer Edwards, Inc. providing for the
issuance of the Underwriter's Warrants.
5.1 Opinion of Gowling, Strathy & Henderson.
10.1 Credit Facility Letter Agreement between the Alberta
Treasury Branches and the Registrant as Borrower dated April
19, 2000.
10.2 Promissory Notes dated June 5, 2000 granted by Westlinks to
each of Glenn Russell, Patrick Williams Advisors, William J.
Gordica, F. Jack Wright, Lawrence W. Underwood and Sapphire
Capital Inc.
10.3 Purchase and Sale Agreement dated April 6, 2000 between
Cabre Exploration Ltd. and the Registrant.
13.1 Audited Financial Statements of the Registrant for the
fiscal year ended December 31, 1999.
13.2 Financial Statements of the Registrant for the first quarter
ended March 31, 2000.
21.1 List of Subsidiaries of the Registrant.
23.1 Consent of Gowling, Strathy & Henderson (included in Exhibit
5).
23.2 Consent of Collins Barrow.
23.3 Consent of Grant Trimble Engineering Ltd.
24.1 Powers of Attorney (included on signature page).
</TABLE>
---------------
* To be filed by Amendment.
II-3
<PAGE> 78
ITEM 17. UNDERTAKINGS
The undersigned Registrant hereby undertakes as follows:
(1) To provide to the underwriters at the closing specified in the underwriting
agreement certificates in such denominations and registered in such names as
required by the underwriters to permit prompt delivery to each purchaser.
(2) Insofar as indemnification for liabilities arising under the Securities Act
of 1933, as amended (the "Act"), may be permitted to directors, officers and
controlling persons of the Registrant pursuant to the provisions described
in Item 14, or otherwise, the Registrant has been advised that in the
opinion of the Securities and Exchange Commission, such indemnification is
against public policy as expressed in the Act and is, therefore,
unenforceable. In the event that a claim for indemnification against such
liabilities (other than the payment by the Registrant of expenses incurred
or paid by a director, officer or controlling person of Registrant in the
successful defence of any action, suit or proceeding) is asserted by such
director, officer or controlling person in connection with the securities
being registered, the Registrant will, unless in the opinion of its counsel
the matter has been settled by controlling precedent, submit to a court of
appropriate jurisdiction the question whether such indemnification by it is
against public policy as expressed in the Act and will be governed by the
final adjudication of such issue.
(3) For purposes of determining any liability under the Act, the information
omitted from the form of prospectus filed as part of this Registration
Statement in reliance upon Rule 430A and contained in a form of prospectus
filed by the Registrant pursuant to Rule 424(b)(1) or (4) or 497(h) under
the Act shall be deemed to be part of this Registration Statement as of the
time it was declared effective.
(4) For the purpose of determining any liability under the Act, each
post-effective amendment that contains a form of prospectus shall be deemed
to be a new Registration Statement relating to the securities offered
therein, and the offering of such securities at that time shall be deemed to
be the initial bona fide offering thereof.
(5) (a) To file, during any period in which offers or sales are being made, a
post-effective amendment to this Registration Statement:
(i) to include any prospectus required by section 10(a)(3) of the Act,
unless the information required to be included in such
post-effective amendment is contained in periodic reports filed by
the Registrant pursuant to Section 13 or 15(d) of the Securities
Exchange Act of 1934 that are incorporated herein by reference;
(ii) to reflect in the prospectus any facts or events arising after the
effective date of this Registration Statement (or the most recent
post-effective amendment thereof) which, individually or together,
represent a fundamental change in the information set forth in
this Registration Statement. Notwithstanding the foregoing, any
increase or decrease in volume of securities offered hereby (if
the total value of securities offered would not exceed that which
was registered) and any deviation from the low or high end of the
estimated maximum offering range may be reflected in the form of
prospectus filed with the Commission pursuant to rule 424(b) if,
in the aggregate, the changes in volume and price represent no
more than a 20% change in the maximum aggregate offering price set
forth in the "Calculation of Registration Fee" table in the
effective registration statement;
(iii) to include any material information with respect to the plan of
distribution not previously disclosed in this Registration
Statement or any material change to such information in this
Registration Statement.
(b) For the purpose of determining any liability under the Act, each such
post-effective amendment shall be deemed to be a new Registration
Statement relating the securities offered herein, and the offering of
such securities at that time shall be deemed to be the initial bona
fide offering thereof.
II-4
<PAGE> 79
(c) To remove from registration by means of a post-effective amendment any
of the securities that remain unsold at the termination of the
offering.
(d) To file a post-effective amendment to this Registration Statement to
include any financial statements required by Rule 3-19 of Regulation
S-X at the start of any delayed offering or throughout a continuous
offering. The financial statements and information otherwise required
by Section 10(a)(3) of the Act need not be furnished, provided that
the Registrant includes in the prospectus, by means of a
post-effective amendment, financial statements required pursuant to
this paragraph (d) and other information necessary to ensure that all
other information in the prospectus is at least as current as the date
of these financial statements.
II-5
<PAGE> 80
SIGNATURES
In accordance with the requirements of the Securities Act of 1933, the
Registrant certifies that it has reasonable grounds to believe that it meets all
of the requirements for filing on Form F-1 and has authorized this Registration
Statement to be signed on its behalf by the undersigned, in the City of Calgary,
Province of Alberta, Canada, on June 21, 2000.
WESTLINKS RESOURCES LTD.
/s/
By: -------------------
Peter R.
Sekera
President
and Chief Executive Officer
POWER OF ATTORNEY
KNOW ALL MEN BY THESE PRESENTS, that each officer or director of Westlinks
Resources Ltd. whose signature appears below constitutes and appoints each of
Peter R. Sekera, Lynn W. Thurlow and Marcia L. Johnston his true and lawful
attorney-in-fact and agent, with full and several power of substitution, for him
and in his name, place and stead, in any and all capacities, to sign any or all
amendments, including post-effective amendments, and supplements to this
Registration Statement, and any subsequent registration statement filed by the
Registrant pursuant to Rule 462(b) under the Securities Act of 1933, as amended,
and to file the same, with all exhibits thereto and other documents in
connection therewith, with the United States Securities and Exchange Commission,
granting unto each said attorney-in-fact and agent full power and authority to
do and perform each and every act and thing requisite and necessary to be done
in and about the premises, as fully to all intents and purposes as he might or
could do in person, hereby ratifying and confirming all that said
attorney-in-fact and agent or his or their substitute or substitutes may
lawfully do or cause to be done by virtue hereof.
Dated June 19, 2000
<TABLE>
<CAPTION>
NAME CAPACITY
---- --------
<C> <S>
/s/ President and Chief Executive Officer, and Director
------------------------------------------ (Principal Executive Officer)
Peter R. Sekera
/s/ Vice-President, Finance
------------------------------------------ (Principal Financial Officer and Principal Accounting
Lynn W. Thurlow Officer)
/s/ Executive Vice-President, Engineering, and Director
------------------------------------------
Edward C. McFeely
/s/ Executive Vice-President, Operations, and Director
------------------------------------------
Thomas J. Jacobsen
/s/ Director
------------------------------------------
H.S. (Scobey) Hartley
</TABLE>
II-6
<PAGE> 81
<TABLE>
<CAPTION>
NAME CAPACITY
---- --------
<C> <S>
/s/ Director
------------------------------------------
Norman J. MacKenzie
/s/ Director
------------------------------------------
Norman W.G. Wallace
/s/ Authorized Representative in the United States
------------------------------------------
Thomas N. Dirks
</TABLE>
II-7
<PAGE> 82
<TABLE>
<CAPTION>
EXHIBIT NO. EXHIBIT INDEX
----------- -------------
<C> <S>
1.1 Form of Underwriting Agreement.
1.2 Form of Agreement among Underwriters.
2.1 Amalgamation Agreement dated May 27, 1998 between Temba
Resources Ltd. and PTR Resources Ltd. pursuant to which the
Registrant was amalgamated under the Business Corporations
Act (Alberta) on June 30, 1998.
2.2 Letter Agreement dated August 12, 1999 pursuant to which the
Registrant acquired all of the issued and outstanding shares
of 759795 Alberta Ltd.
2.3 Notice of Intention to File a Normal Course Issuer Bid.
3.1 Certificate of Amalgamation and attached Articles of
Amalgamation of the Registrant dated and filed June 30,
1998.
3.2 By-laws of the Registrant.
*4.1 Form of Purchase Warrant Trust Indenture dated June -- ,
2000 between the Registrant and Montreal Trust Company of
Canada providing for the issuance of the Warrants.
4.2 Form of Warrant Agreement dated -- , 2000 between the
Registrant and Spencer Edwards, Inc. providing for the
issuance of the Underwriter's Warrants.
5.1 Opinion of Gowling, Strathy & Henderson.
10.1 Credit Facility Letter Agreement between the Alberta
Treasury Branches and the Registrant as Borrower dated April
19, 2000.
10.2 Promissory Notes dated June 5, 2000 granted by Westlinks to
each of Glenn Russell, Patrick Williams Advisors, William J.
Gordica, F. Jack Wright, Lawrence W. Underwood and Sapphire
Capital Inc.
13.1 Annual Report of the Registrant for the fiscal year ended
December 31, 1999.
13.2 Interim Report of the Registrant for the first quarter ended
March 31, 2000.
21.1 List of Subsidiaries of the Registrant.
23.1 Consent of Gowling, Strathy & Henderson (included in Exhibit
5.1).
23.2 Consent of Collins Barrow.
23.3 Consent of Grant Trimble Engineering Ltd.
24.1 Powers of Attorney (included on signature page).
</TABLE>
---------------
* To be filed by Amendment.
