Securities and Exchange Commission
Washington, DC 20549
FORM 10-SB
AMENDMENT NO. 1
GENERAL FORM FOR REGISTRATION OF SECURITIES
OF SMALL BUSINESS ISSUERS
Under Section 12(b) or (g) of the Securities Exchange Act of
1934
AURORA ENERGY, LTD.
(Name of Small Business Issuer in its charter)
Nevada
(State of organization)
91-1780941
(IRS Employer Identification No)
3760 North US 31 South, Traverse City, Michigan
(address of principal executive offices)
49684
(Zip Code)
(616) 941-0073
Issuer's telephone number:
Securities to be registered under Section 12(b) of the Act:
Title of each class to be so registered
None
Name of each exchange on which each class is to be
registered
None
Securities to be registered pursuant to Section 12(g) of the Act:
Common Stock
The Company is filing this Form 10-SB on a voluntary basis
in order to facilitate the Company's becoming eligible for
trading on the NASD OTC Bulletin Board. If the Company's
obligation to file periodic reports is suspended under the
Act, the Company will voluntarily continue to file periodic
reports.
<PAGE>
PART I
ITEM 1. DESCRIPTION OF BUSINESS
Aurora Energy, Ltd. ("the Company") is involved in the
exploration, development and production of natural gas and
oil reserves in North America. Management's goal is to
produce gas from lower risk black shales, tight sands and
coal beds, targeting projects where large acreage blocks can
be easily evaluated with a series of low cost test wells
prior to development investments. At this point in time,
the Company has no proved reserves or production.
DEVELOPMENT
The Company was originally incorporated on August 12, 1991
as a Nevada corporation under the name Mentor Group
International Corporation. It was originally a wholly owned
subsidiary of Premier Allied Consultants Corporation. It
was subsequently "spun-off" with the shareholders of Premier
Allied Consultants Corporation receiving shares in the
Company in a Rule 504 exempt transaction. On November 24,
1995, Superior Lubricants, Inc. was merged into the
Company. At the time of this merger, the Company changed
its name to Superior Lubricants International, Inc. The
business plan of Superior Lubricants International, Inc. did
not go as planned, and on June 24, 1996, the Company changed
its name back to Mentor Group International Corporation.
From its inception until April, 1997, the Company was not
successful in achieving any material operations.
On March 12, 1997, the Company's name was changed to Aurora
Energy, Ltd. On April 22, 1997, the Company acquired a 50%
membership interest in Jet/LaVanway Exploration, L.L.C. in
exchange for a controlling interest in the Companys common
stock. John Miller, Thomas W. Tucker and William W. Deneau
were each issued 1,858,400 shares of the Companys common
stock (83% of the Companys outstanding shares). (NOTE: the
interest acquired by the Company equates to 100% of Messrs.
Miller, Tucker and Deneaus collective 50% interest in
Jet/LaVanway Exploration, L.L.C.) The membership interest
the Company received in return gives the Company an interest
in the following oil and gas interests:
THE CORYDON AREA OF MUTUAL INTEREST consisting of
approximately 16,000 net mineral acres in Harrison County,
Indiana. The Company's share acquired was 5% working
interest before payout and 13.015% working interest after
payout of investors at an 0.80 net revenue interest. The
Company has subsequently acquired an additional 4% working
interest before payout and additional 3.20% working interest
after payout. The Company's total interest in the Corydon
area is currently 9% before payout and 16.215 % after
payout.
THE MILLTOWN AREA OF MUTUAL INTEREST consisting of
approximately 5,500 net mineral acres in Crawford County,
Indiana - the Company's share is 9.555% working interest
after payout of investors at an 0.80 net revenue interest.
THE NORTH HARRISON AREA OF MUTUAL INTEREST consisting of
approximately 40,000 net mineral acres in Harrison County,
Indiana - The Company's share is 9.625% working interest
after payout of investors at an 0.80 net revenue interest.
THE ORGAN CREEK AREA OF MUTUAL INTEREST consisting of
approximately 11,000 net mineral acres in Washington County,
Indiana - The Company's share is 9.625% working interest
after payout of investors at an 0.80 net revenue interest.
These interests collectively constitute 50% of the interests
in these properties that are owned by Jet/LaVanway
Exploration, L.L.C., a Michigan limited liability company,
formerly known as Jet/Hunting Exploration, L.L.C., whose
principal address is 215 Bridge Street, Charlevoix, Michigan
49720.
At the time of the assignments, Messrs. Tucker, Deneau and
Miller agreed to accept responsibility for managing these
properties on the Company's behalf. On June 25, 1997, they
became directors of the Company and assumed full
responsibility for management.
On May 5, 1997, Jet Exploration 1995-1, L.L.C. entered into
a Joint Development Agreement for the Dumada Area of Mutual
Interest with Colony Petroleum, L.L.C., Cumulus Two Limited
Consolidated Exploration, L.L.C., and Deka Exploration,
L.L.C. Jet Exploration 1995-1, L.L.C. initially received a
25% working interest at an 80% net revenue interest in the
Project. A Joint Operating Agreement was signed which
designated Jet Exploration 1995-1, L.L.C. as the Operator
for drilling purposes, with Deka Exploration, L.L.C. to
assume the duties of Operator for each well upon
commencement of production operations. Jet Exploration
1995-1, L.L.C. subsequently sold off a substantial amount of
its working interest, retaining a 4.8% working interest
before payout, and a 10.4675% revenue interest after payout.
As a result of agreements with Colony Petroleum, L.L.C. and
Cumulus Two Limited Consolidated Exploration, L.L.C., Jet
received an overriding royalty equal to 1% (both before and
after payout).
On July 28, 1997, the Company entered into an agreement with
Jet Exploration 1995-1, L.L.C. to acquire Jet Exploration
1995-1, L.L.C.'s working interest in the Dumada Project on
an actual cost basis. The Company paid $126,451 as a
reimbursement of direct costs to acquire this 4.8% working
interest at an 80% net revenue interest. From July 28,
1997, the Company was responsible for its allocated costs
associated with the development of the Dumada Project. The
July 28, 1997 agreement also allowed the Company to acquire
the balance of Jet Exploration 1995-1, L.L.C.'s interest in
the Dumada Project, specifically its interest as an
operator, at a price of $60,000. This payment was intended
to reimburse Jet Exploration 1995-1, L.L.C. for its indirect
costs incurred in the creation and marketing of the Dumada
Project, including allocated salaries, travel costs,
reproduction costs, telephone expense, rent and utilities
over the 15-month period of time required to put the Dumada
Project together. The Company exercised this option, and
has paid the full $186,451 to Jet Exploration 1995-1, L.L.C.
(See page 12 for a description of the Dumada Project.) On
December 18, 1997, the Company sold .25% of its working
interest in the Dumada Project. The Company currently has
financial responsibility for 4.55% of the Dumada Project,
and is entitled to 5.55% of net revenues before payout and
10.4675% of net revenues after payout.
EMPLOYEES
The Company's strategy is to outsource most of its needed
services and manpower. It will maintain only the essential
personnel to accomplish its mission. The Company currently
has six full time employees. In addition to the officers
described under "Management and Key Consultants" below,
the Company employs an accountant and a secretary.
Consultants are hired as needed on an independent contractor
basis. (See page 23 for a description of the Key
Consultants.)
STRATEGIES
The Company will focus significant resources towards lower
risk long-term gas development of unconventional gas
reservoirs. This strategy generally requires large capital
expenditures, which require either equity or source funding.
The Company will use Company funds to acquire properties
when possible, and will attempt to finance the development
of reserves and production using third party financing or
joint venture partners. Management believes that the
Company is able to engage in nearly any reasonable size
operation or scope of exploration activity depending on the
circumstances and merits of each proposed operation.
Conventional oil and gas exploration will be given
consideration when opportunities are available which could
yield significant upside reserves. Quite often this will be
prospects generated as a result of data gained from drilling
wells in unconventional reservoirs. Accordingly, the Board
of Directors has not limited the size of operation or scope
of project to be considered in achieving the Company's
business plan.
Management has chosen to conduct the Company's first
projects in the black shales of Michigan and Indiana for the
following reasons:
1. There are proven fractured areas based on the
production history from Indiana's oldest New Albany Shale
field (Harrison and Martin Counties) where commercial wells
had been established for over 50 years and Michigan's Antrim
Shale play where over 5,000 commercial wells have been
drilled in the last 20 years.
2. In management's opinion, the market for gas in
Indiana and Michigan is excellent, with a web of major
transmission pipelines already in place. Gas being sold in
Indiana and Michigan will sell locally for a price above the
New York Mercantile Exchange price at the Louisiana gas hub.
3. Throughout the prospective area in Indiana for
the New Albany Shale, there are multiple geological zones of
production, which have been proven to contain large
reservoirs of oil and gas. These reservoirs will be tested
each time a New Albany Shale well is drilled, adding
significantly to the potential for reserves.
4. Improved production techniques utilized in
unconventional reservoirs around the world have improved
rates of producing gas. This proven technology will be
utilized in the development of the black shales of Michigan
and Indiana.
COMPETITION AND OTHER OPERATIONAL ISSUES
The oil and gas industry is very competitive. There is a
high degree of competition to obtain favorable oil and gas
leases suitable for drilling, development and production.
In the areas of the Company's strategic focus of gas
production from tight sands, shales and coalbed methane,
management expects that there is sufficient opportunity that
the Company will be able to procure suitable leases in these
formations.
There is also competition for desirable contracts to supply
energy companies with gas and oil. While management expects
to line up suitable gas and oil purchasers at profitable
prices, the industry is subject to fluctuations in demand
and price that may limit the Company's profit potential.
Other variables that may affect the Company's profitability
include weather conditions that may affect the Company's
access to properties or increase drilling and completion
costs, and equipment availability, that may result in
production delays. The industry has recently experienced
shortages of skilled labor that may slow down production.
Management does not anticipate the need for expenditures on
environmental control facilities. However, state and
federal environmental regulations do increase the costs of
doing business. Permits are always required for the
operations of drilling and producing oil and natural gas.
Compliance with environmental regulations is required by the
permits. State inspectors generally review compliance.
Each state in which the Company conducts oil and gas
operations has a set of regulations and ordinances that
apply. Each state issues booklets of instructions to be
followed. The Company must obtain a permit for each well to
be drilled. As required by the State of Michigan, the
Company has provided a $100,000 letter of credit through its
line of credit with First of America Bank. Thus far, the
Company's industry partner has obtained the required
drilling permits in the State of Michigan. The Company is
in the process of having two Michigan well permits
transferred into its name. As required by the State of
Kentucky, the Company has provided a $2,500 letter of credit
from Empire National Bank. As required by the State of
Indiana, the Company has provided a Blanket Surety Bond in
the amount of $30,000 from Redland Insurance Company. To
date, the Company has three drilling permits from the State
of Indiana. As required by the State of Ohio, the Company
has provided a $50,000 surety bond from Underwriter's
Indemnity Company. The Company has received a letter from
the State of Ohio Department of Natural Resources assigning
the Company an owner number. To date, the Company has three
drilling permits from the State of Ohio. The Company does
not anticipate any difficulties in obtaining drilling
permits as needed.
The Company does not own any patents, trademarks, licenses,
franchises or concessions. These are not needed for the
Company's successful operation. On August 6, 1997, the
Company filed an application to register the Companys logo
and name as a trademark with the U.S. Patent and Trademark
Office. The application, Serial No. 75/336640, is pending.
FINANCIAL CONSULTING
On May 1, 1997, the Company entered into a three-year
Business Consultant Agreement with James C. Czirr of
Sandpoint, Idaho. Mr. Czirr has agreed to advise the
Company on financial and financing matters, including the
development and implementation of a plan to make the Company
a public stock company. As compensation, Mr. Czirr is
entitled to receive 3,500 shares of the Company's common
stock at the beginning of each of the 36 months of the
Agreement. These shares are required to be registered with
the SEC on Form S-8 as shares issued pursuant to employee
benefit plans. Until the Company is able to issue these
shares, the shares are being accrued but not issued. By
letter agreement dated October 28, 1998, Mr. Czirr agreed to
waive the monthly share compensation for the first 18 months
of the agreement. Mr. Czirr was also given a five-year
option to purchase 300,000 shares of the Company's common
stock at a price of $.05 per share. Mr. Czirr has been
active in the oil and gas industry for 16 years. He founded
Extol Energy Corporation in 1982. As president of Extol
Energy Corporation, he has experience in managing several
oil and gas projects. He is currently a director of two
public companies, Metalline Mines and Maco Industries, both
of which trade on the OTC Bulletin Board.
BANK FINANCING
Effective April 10, 1998, the Company entered into a
Business Loan Agreement with First of America Bank, N.A.,
Northern Region of Traverse City, Michigan. The Company
received a $750,000 line of credit reflected in a note dated
April 14, 1998 bearing interest at one percentage point over
the New York consensus index rate with an initial rate of
9.5% per year. The note matures on April 10, 1999.
Interest is payable monthly. The Company granted an all
assets security interest as collateral on the loan,
including a mortgage on its oil and gas well production
units. Messrs. Deneau, Miller and Tucker each provided
personal guarantees for repayment of the loan. As of
September 15, 1998, $490,000 had been drawn on the line, and
another $100,000 was allocated to an open letter of credit
issued to the State of Michigan Department of Environmental
Quality to obtain drilling permits for wells to be drilled
in Michigan.
OIL AND GAS TERMINOLOGY
AMI: Area of mutual interest in which all parties who have
joined together in an area agree to share opportunities and
obligations with the area.
Bioturbated: The churning and stirring of a sediment by
organisms.
Brine Water Disposal Well: A well into which salt water and
other liquid substances are pumped for disposal purposes.
De-watering: The system whereby brine water is removed from
the well in order to allow the gas/oil to be released.
Pumping mechanisms are usually used for this process. New
wells may have great amounts of water which must first be
removed. As water is removed, gas/oil production usually
increases.
Exploratory Well: A well drilled in an unproved area,
either to find a new oil or gas reservoir or to extend a
known reservoir. Sometimes referred to as a wildcat.
Farmed-in: One of the most common forms of cooperation
between producers in developing oil and gas properties. The
owner of the working interest in a lease assigns the working
interest to another operator for development of the
property, retaining an economic interest, usually in the
form of an overriding royalty.
Fault System: The earth's crust is subject to stresses from
movement, heat and other environmental factors. When the
crust breaks under the strain, a fracture is created. When
several fractures occur and they are significant in size,
they are referred to as faults. A series of faults is
called a "fault system."
Field: A geographical area under which one or more oil or
gas reservoirs lie.
Formation: An identifiable layer of rocks named after its
geographical location and dominant rock type.
Fracturing: A perforating gun is lowered into the well bore
and at the proper depth, the gun is fired and perforations
are made through the casing and into the formation, making
for additional fractures in the formation allowing
hydrocarbons to flow into the well bore so that they can be
transported to the surface. To assist in the process of
releasing the hydrocarbons trapped in the rock itself, sand,
water, and/or acid are pumped into the well bore under great
pressure to fracture the rock near the well bore.
Gross Acres: The total number of acres in which one owns a
working interest.
Lease: A legal contract that specifies the terms of the
business relationship between an energy company and a
landowner or mineral rights holder on a particular tract of
land.
Leasehold: Mineral rights leased in a certain area to form
a project area.
Net Acres: Gross acres multiplied by one's fractional
working interest in the property.
Niagaran Trend: The Niagaran rock formation in Northern and
Southern Michigan has demonstrated great oil and gas
reserves. The buried reefs seem to line up and form a
trend, hence "Niagaran trend."
NRI: Net Revenue Interest.
Overriding Royalty Interest: Is similar to basic royalty
interest except that it is created out of the working
interest. For example, an operator possesses a standard
lease providing for a basic royalty to the lessor or mineral
rights owner of 1/8 of 8/8. This then entitles the operator
to retain 7/8 of the total oil and gas produced. The 7/8 in
this case is the 100% working interest the operator owns.
This operator may assign his working interest to another
operator subject to a retained 1/8 overriding royalty. This
would then result in a basic royalty of 1/8, an overriding
royalty of 1/8 and a working interest of 3/4. Overriding
royalty interest owners have no obligation or responsibility
for developing and operating the property. The only
expenses borne by the overriding royalty owner is a share of
the production or severance taxes and sometimes costs
incurred to make the oil or gas salable.
Pay Zone: The geologic formation where the gas/oil is
located.
Plugged: Equipment in the well bore is salvaged and a
cement plug is placed into the well, thereby plugging off
the rock exposed in the well.
Production: Natural resources, such as oil or gas, taken
out of the ground.
Prospect: An idea that oil and/or gas may be found in a
certain location is known as a prospect.
Proved Reserves: Estimates of oil, gas, and gas liquids
quantities thought to be recoverable from known reservoirs
under existing economic and operating conditions.
Reservoir: A rock formation or trap containing oil and/or
natural gas.
Shale: A clastic (gr. klastos, "broken") rock composed of
predominantly clay-size particles consisting of clay
minerals, quartz and other minerals. Often found as thin
layered organic rock rich in hydrocarbon deposits.
Shut-in: A well that has been capped (having the valves
locked shut) for an undetermined amount of time. This could
be for additional testing, could be to wait for pipeline or
processing facility, or a number of other reasons.
Silurian Reef: A reef similar to a reef in the ocean which
was developed in Silurian geological time and is now buried
beneath the surface and may contain hydrocarbons if trapped
within the reef rock.
3-D Seismic: Technology to create three-dimensional images
by bouncing sound waves off of underground rock formations.
Used to look for underground accumulations of oil and gas.
Sweet Oil: Natural occurring oil that does not contain
hydrogen sulfide.
Test Well: A well drilled in an unproven geographical area,
charting new ground.
Undeveloped Acreage: Leased acreage on which wells have not
been drilled or completed to a point that would permit the
production of commercial quantities of oil or gas.
Unit: A contiguous parcel of land deemed to cover one or
more common reservoirs for oil or natural gas, as determined
by state or federal regulations. Unit interest owners
generally share in costs and revenues according to their
proportion of ownership in the unit.
Well Bore: The hole of the well starting at the surface of
the earth and descending downward to the bottom of the hole.
Working Interest: The cost-bearing ownership share of an
oil or gas lease.
Volume Acronyms:
bbl: A standard oil measurement that equals one barrel (42
US gallons)
Bcfg: Billion cubic feet of gas
cfg: Cubic feet of gas
mcf: Thousand cubic feet of gas, a standard measurement
unit for volumes of natural gas that equals one
thousand cubic feet
Tcfg: Trillion cubic feet of gas
/d: Per day
ITEM 2. PLAN OF OPERATION
The Company is in the development stage. Since its
inception, the Company has primarily been involved in
planning, obtaining financing, acquiring oil and gas leases,
and exploration of certain oil and gas properties in
Michigan, Indiana and Ohio.
The Company seeks to maximize stock price and shareholder
value through exploration in low risk shale natural gas
plays and through the acquisition of properties with proven
production and positive cash flow. The Company's short term
goal (the next 12 months) is to acquire or to find through
exploration and bring on line enough production and positive
cash flows to cover its general and administrative expenses.
The Company's long term goals include continued building of
reserves and cash flows from production to allow for further
development of existing properties, mortgaging proved
developed reserves to finance continued exploration and
growth in value through development of untapped Antrim
Shale, New Albany Shale or other formations.
During the next 12 months, management expects that the
existing 16 producing wells in the Corydon Project will
continue in production. Steps will be taken to reduce the
overhead to the operation of the project. At this time, the
Corydon Project is not generating positive cash flows and
needs cost reductions to allow it to be successful. No
further wells will be drilled until the Project demonstrates
its ability to support further development in a profitable
way.
In the Dumada Project, a pilot project will be completed
with an additional six wells being drilled and the pipeline
run to the SIGECO pipeline. Testing was completed on four
wells in the North Loogootee area during the first four
months of 1998 to evaluate the natural gas production, water
production and pressures. The testing was supervised by the
consulting engineers, S. A. Holditch & Associates, Inc.,
who concluded that there is sufficient gas in place for the
Dumada Project to be commercially attractive, provided
reasonable recovery of the in-place gas can be achieved.
Also in the Dumada Project, the Company entered into an
agreement with Southeastern Oil & Gas, Inc. of Sarasota,
Florida under which Southeastern Oil & Gas ran 30 miles of
seismic tests within the Area of Mutual Interest of Dumada.
After analysis, if the seismic tests provide leads for
drilling, the Company will have its interest proportionate
to the other investors in Dumada for both a 10% carried
working interest and an option to participate in any
drilling at cost up to 20% of the drilling prospect.
Because the general area has many other zones of production
of natural gas and oil, management believes the opportunity
for additional discovery within the leased area is good.
Management is optimistic on the development of the Michigan
Antrim Shale as a stable source of long term future revenue.
Currently the Company is finishing its development program
known as the Paxton Quarry Project in the Antrim Shale in
northern Michigan. Twelve wells were drilled. Eleven wells
are being finished and put into production. One well will
be plugged. Petroleum Development Corporation is 70% owner
and the Company is 30% owner of Paxton Quarry.
In January, 1998, the Company acquired a 10.65% interest in
a newly discovered Niagaran reef, referred to as the
Beregsasi 1-5 Project, which tested over 200 barrels of oil
per day in Macomb County, Michigan. The operator, West Bay
Exploration, is working to get the well into production. It
is currently working on laying the pipeline. It is expected
to be producing the oil and associated natural gas by
December, 1998.
The Company is also participating in another Antrim project
with Petroleum Development Corporation in Alcona County,
Michigan. The Company's interest is very small because it
came into the projects at a late date. The Company is
putting together additional acreage in Antrim areas for
prospective development within the next two years, subject
to available financing. The Company also organized and sold
an Antrim project known as the Avery Smith Project at a
gross profit, net of direct expenses, of $300,000. The
Company may undertake similar activities in the future.
The Company developed, with the assistance of consulting
geologists, a known structure in Breckinridge County,
Kentucky The prospect has potential for discovering
additional zones below the previous producing formation
which was drilled in the Jackson Sandstone at a depth of
approximately 450 feet. It is anticipated that a well will
be drilled to 2,000 feet, for purposes of evaluating the New
Albany Shale. The prospect consists of approximately 1,390
leased acres. There is no schedule set for drilling this
prospect.
The Company is also pursuing the purchase of income
producing properties, either royalty or working interest.
It has reviewed five projects for possible acquisition with
available financing and hopes to be able to find some
production which will be profitable for the Company during
the next 12 months. The Company has acquired royalty
interests of less than 1.0% interest in currently producing
wells in Louisiana and North Dakota. The Company has
restricted itself to acquisitions within the United States.
Management expects to pursue testing of other areas within
the Michigan and Illinois basin with other working interest
partners during the next 12 months. How many and where will
be determined by partner interests and the availability of
project lands. It is uncertain at this time just how much
testing will occur. Due to the uncertain results of oil and
gas exploration, the Company must maintain flexibility at
all times for changes in direction and deviations from
plans.
In connection with the Company's search for new oil and gas
properties, the Company will not pay finders fees or other
acquisition related compensation to its officers, directors,
promoters or their affiliates or associates. The Company
has agreed to pay a finder's fee to its consulting
geologist, Karl M. Schroeder. (See Item 5 - Key
Consultants, page 23.)
In addition to the $750,000 line of credit the Company
currently has with First of America Bank, the Company will
need additional financing in order to achieve its desired
rate of growth. Management has engaged in preliminary
discussions with several financial institutions regarding
additional loan financing. No preliminary agreements or
understandings have been reached. If additional financing
is not obtained, the Company will have to obtain new oil and
gas properties at a slower pace than desired, and may also
have to slow down the rate of development of the properties
it currently owns.
Management's plans for the near term focus on additional
loan financing, rather than soliciting additional equity
investors. There are certain risks associated with
substantial leverage. If substantially leveraged, the
Company's cash flows will be largely devoted to debt
service, leaving only a small portion of those cash flows
available to offset general and administrative expenses, or
for other investments or distribution to shareholders. If
the Company is unable to generate the cash required for debt
service through its operations, the Company may be forced to
sell off its assets. All of its assets will be tied up as
collateral on its debt financing. The Company expects to
limit its procurement of additional debt to debt obtained
for the purpose of purchasing proved properties that are
already generating sufficient cash flow to service the
associated debt. However, there will be a risk of cash flow
reductions caused by drops in the price of oil and/or gas,
or faster than anticipated depletion of oil or gas in the
property.
This section contains forward looking statements. It is
impossible to accurately predict exactly what will occur in
the next 12 months. Unexpected drilling results, delays in
testing and drilling, difficulties in acquiring leases,
difficulties in finding financial partners, or new
opportunities that cause management to change the focus of
its activities could all cause actual results to differ
materially from those results described as anticipated
during the next 12 months.
ITEM 3. DESCRIPTION OF PROPERTY
THE CORYDON PROJECT
The Corydon Project is located northwest of Corydon, Indiana
in Harrison County. This site is northwest of an old
producing New Albany Shale field that produced in the early
1900s. Jet/LaVanway Exploration, L.L.C. (50% owned by the
Company) is party to an Area of Mutual Interest (AMI)
agreement of approximately 42 square miles (26,880 acres)
with MCNIC Oil & Gas Company (f/k/a MCN Energy Group, Inc.),
a Detroit based corporation. Within the AMI, there are
currently 16,244 acres leased for oil and gas development.
Additional leases acquired in this area by the Company or
MCNIC will be added to the joint venture.
Currently, there are 22 test and production wells, one State
approved brine water disposal well, and one central
production facility within the project area. All leases are
in their first five-year term and all have an extension
provision to extend the lease for another five years if
needed. Once production is established on a lease, the
lease stays in effect as long as the well is produceable.
Corydon Unit #1 (drilled in 1996 and expanded in 1998) went
into production in July of 1997, back hauling its gas
through a small local utility's pipeline to the Texas Gas
Transmission pipeline in Kentucky. Production from this
unit is less than 500,000 cubit feet of gas daily. Current
overhead for operations, including the back haul system
contract obligations, exceeds income. Steps taken to reduce
overhead have been insufficient thus far to allow a profit
to be made. Continued operations and expansion of this unit
depend upon commercial viability of the current producing
wells. The area of the Corydon Project contains
approximately 16,000 leased acres.
THE DUMADA PROJECT
The Dumada Project consists of approximately 104,000 net
mineral acres in western Indiana. In addition to the 4.8%
working interest that the Company first acquired in the
Dumada Project in July 1997, the Company acquired an
additional 1% working interest from Jet Exploration 1995-1,
L.L.C. before payout and will own a 10.68% working interest
after payout as defined in the agreements with the existing
investors in Dumada. An evaluation of the reservoir by S.
A. Holditch & Associates, Inc., an engineering firm familiar
with shale production, demonstrates the viability of the
project. To date, the Company and its industry partners have
drilled 30 wells in the leasehold area. In addition to the
10% carried working interest, the Company and its industry
partners will receive a 20% option to participate at cost in
any prospective projects. Excluded from the agreement is
the New Albany Shale and the coal bed methane.
THE PAXTON QUARRY PROJECT
The Paxton Quarry project is located in Alpena County,
Michigan, and consists of over 4,000 acres of prime
development land for Antrim Shale gas production. Currently
11 prospective wells have been drilled, logged and
completed. One well was drilled that had no Antrim Shale
present in the rock layers and will be plugged. Flow lines
are being constructed between the wells and the production
facility. One Salt Water Disposal Well has been completed.
This well will be used for disposal of produced fluids into
a deeper formation than the Antrim Shale from which the
fluids are produced.
It is anticipated that after de-watering, the Paxton Quarry
will yield approximately 175 mcf/d, based on an analysis
prepared by S.A. Holditch & Associates, Inc. It is expected
that one year of production may be required before the
project meets its anticipated production levels. Production
should extend for at least five years before much decline
begins. Ultimately, the project should have a production
life of approximately 30 years.
ALCONA COUNTY ANTRIM WELLS
The Company acquired at no up front cost to the Company from
Jet Exploration, Inc. small interests in Antrim shale wells
in three projects located in Alcona County, Michigan. The
Company is required to pay its proportionate costs of
development. Total development costs for all owners are
expected to be approximately $250,000 per well. The Company
has a 2.3% working interest before pay out and 3.68% after
payout in the Devil River Project; a 2.3% working interest
before payout and 3.68% working interest after payout in the
East 23 Project; and a 1.8% working interest before payout
and 3.18% after payout in the Timm Project. The majority
interest owner and ultimate operator of the project is
Petroleum Development Corporation of West Virginia. As of
September 7, 1998, the Devil River project had 10 wells
drilled and completed. Flow lines are being laid to connect
the wells with the production facility. The East 23 project
has six wells producing an average of 449 barrels of water
per well with some gas. As the wells continue to de-water,
the gas volume showed increase. The Timm project has 17
wells producing an average of 344 barrels of water per well
and 22 mcf/d of as per well. Due to the new development of
the area, it is expected that de-watering of the area may
take one year to get production levels up to expected
production rates.
THE BEECH FORK PROJECT (FORMERLY KNOWN AS THE
BALLTOWN PROJECT)
The Beech Fork project, located in Breckinridge County,
Kentucky, consists of approximately 1,500 acres above a
known oil producing Jackson Sand structure. The prospect,
no longer producing oil, contains multiple pay zones below
the Jackson Sand which have never been tested. The Company
anticipates that two test wells will be drilled to evaluate
the structure down to a depth of 2,000 feet, penetrating the
Siluran rocks, as recommended in a report prepared by Bryant
Geological Consulting, Inc. No date is set for drilling to
occur. Drilling is subject to the Company's ability to
obtain appropriate financial backing. Additional pay
potential exists in St. Genevieve, St. Louis, Salem and Ft.
Payne limestone as well as the Devonian lime and New Albany
Shale. A major 30 inch gas transmission line runs through
the project area.
BEREGSASI 1-5 NIAGARAN WELL
The Beregsasi 1-5 in Macomb County, Michigan was discovered
in December 1997 by West Bay Exploration of Traverse City,
Michigan. Jet Exploration, Inc. owned a carried working
interest of 10.625% in the well. The Company purchased the
interest from Jet Exploration, Inc., by agreeing to pay to
complete and equip the well, which was expected to equal
approximately $60,000, and to provide Jet Exploration, Inc.
a 10% net profit interest once the well is producing. The
well tested 200 barrels of sweet oil per day and is expected
to produce the maximum allowed by the state, which is 200
barrels of oil per day. The project is in the process of
laying pipeline.
BLUE LAKE 1-4
The Company purchased 50% of the interest and operations in
a shut-in Niagaran well in the northern Michigan Niagaran
trend from Trinity Exploration Corporation on March 27,
1998. The Company paid $5,000 plus an agreement to pay
Trinity Exploration Corporation 20% of the Company's net
profits on the well after the Company achieves payout. For
purposes of this agreement, direct expenses are deducted
from revenues, but indirect expenses are not. According to
Trinity Exploration Corporation, when the well shut-in, it
was producing steadily 25 barrels of sweet oil per day. The
well was shut-in by the State Department of Environmental
Quality due to an oil spill which occurred while being
operated by a previous operator. The Company did not assume
liability for past acts or omissions. Trinity Exploration
Corporation and its principal gave the Company an
indemnification agreement for all acts or omissions for
which they may be held liable. The Company will work with
the State to get the well back into production and assist in
the clean-up of the well site. Should the State not allow
the Company to re-establish production, the Company will
abandon the project rather than assume any environmental
liability.
INDIANA NEW ALBANY SHALE QUALITIES
The Corydon and Dumada Projects are located in the Indiana
New Albany Shale play. Large-scale exploration is underway
in southern Indiana, where the New Albany Shale play has re-
ignited after nearly 50 years of dormancy. According to the
"Final Report: Gas Potential of the New Albany Shale
(Devonian and Mississippian) in the Illinois Basin,"
published by the Gas Research Institute in 1994 ("GRI
Publication"), activity in the area targeting the New
Albany Shale has demonstrated what was proven in the late
1800s and early 1900s in Indiana: that the New Albany Shale
is an excellent commercial reservoir for natural gas.
Management believes that the New Albany Shale of Indiana is
a very similar reservoir to the Antrim Shale of Michigan,
where over 5,000 shale gas wells have been successfully
drilled. Wells typically begin producing high volumes of
water and low volumes of gas when first beginning to produce
in a new area. As more and more wells are drilled in an
area, the formation becomes dewatered and the initial gas
production rate in each well begins to increase. In
Indiana, significant gas from the New Albany Shale was
produced in several areas of Harrison, Martin and Daviess
Counties from 1875 through the 1930s, and some through the
1950s. In Kentucky, numerous fields exist including the
prolific Shrewsbury Field, as described in a 1994 Reserve
Study Report prepared by Paul Dubois, professional
geologist, for the Equitable Life Assurance Society. Harold
Sorgenfrei, Jr. wrote an excellent analysis of the New
Albany Shale in 1952. He detailed the history of this
production, demonstrating that commercial gas reserves were
stored in the shale.
According to the GRI Publication, water production by the
wells was a significant issue in the production histories of
this period. New Albany Shale wells had both gas and water
production. Excellent gas production was recorded in these
early New Albany shale wells with individual wells initially
producing up to 2,000 mcfg/day while the field average per
well was 187 mcfg/day. Management believes that the strong
water production caused many production problems throughout
the life of the wells. Until 25 years ago, there were no
effective methods for producing water without impacting the
flow of the gas. Prior to the 1970s, water inhibited
production and was a big reason why developers could not get
very excited about drilling for New Albany Shale gas.
In management's opinion, the existence of water in a shale
gas formation has been proven helpful in the Michigan Antrim
Shale play today. Natural fractures are the conduit for gas
and water to move through the shale and into a well's
wellbore. A high level of water is an indication of
excellent natural fracturing which gives management
confidence that as the Company dewaters the shale, the rate
of gas production will increase. In the past, a well bore
full of water would put pressure on the reservoir and
prevent the gas from coming out of the well. Today,
technology exists to produce much water from the shale
formation and still keep pressure on the reservoir low,
allowing for the production of natural gas at commercial
rates, even while dewatering the formation.
The Company is prepared to establish gas reserves in the New
Albany Shale play in Indiana, based on experience gained
from the development of the Antrim Shale formation in
Michigan, and the historical evidence of New Albany Shale
gas fields, that produced for over 50 years in the early
1900s.
According to the GRI Publication, major fault systems exist
in southern Indiana and western Kentucky, which have a very
positive impact on the natural fracturing throughout the New
Albany Shale area. Most prominent of these are the
following:
ROUGH CREEK FAULT SYSTEM: A major group of faults trending
East-West in western Kentucky just south of the Indiana-
Kentucky border.
PENNYRYLE FAULT SYSTEM: A major fault system paralleling
the Rough Creek Fault to the south.
WABASH VALLEY FAULT SYSTEM: A northeast-southwest trending
high angle normal fault complex, which extends from southern
Indiana to intersect the Rough Creek Fault System.
MOORMAN SYNCLINE. The area in Kentucky between the
Pennyryle Fault and the Rough Creek Fault, which was a deep
Graben occurring during the New Albany Shale deposition.
The New Albany Shale gas pay zones are three times as thick
in this area as elsewhere in the Illinois Basin.
MOUNT CARMEL FAULT SYSTEM. A North-South trending high
angle normal fault system-penetrating basement rocks in
southern Indiana.
In an article published by John B. Droste and Robert H.
Shaver in the University of Chicago "Journal of Geology,"
Vol. 88, 1980, entitled "Recognition of Buried Silurian
Reefs in Southwestern Indiana: Application to the Terre
Haute Bank," the authors indicate that in the geological
structural feature presented in southern Indiana and western
Kentucky are numerous Silurian reefs. These reefs are found
beneath the New Albany Shale and exist on a geologic shelf
that trends northwest-southeast through our targeted New
Albany Shale development area. Some of these reefs are
pinnacle Silurian reefs up to 800 feet thick. The reefs are
beneath the shale and provide bumps (drape structures) which
the shale drapes over. The presence of these type of reef
features enhance natural fracturing in the New Albany Shale
in addition to structural highs in the geological zones
between the top of the reef and the surface that can trap
oil or gas at depths shallower than the shale.
According to the GRI Publication, numerous shallow
productive zones as well as the underlying Devonian and
Silurian formations are present throughout the targeted New
Albany Shale drilling area. These other potential
reservoirs are highly prospective, and additional new
discoveries are expected in the process of drilling New
Albany Shale wells. Additionally the Devonian Limestone and
Trenton formations below the shale are proven reservoirs
which have been used in the past for gas storage.
Also according to the GRI Publication, the New Albany Shale
in southern Indiana and western Kentucky has been classified
into several recognized geological units. These units are
described below. From the top of the shale to the base of
the shale, the thickness varies in the targeted area from
100 feet thick to 140 feet thick, except in the Moorman
Syncline which is a targeted area with over 200 feet of
shale.
CLEGG CREEK MEMBER: This is the upper-most member of the
New Albany Shale. It is generally recognized as the most
prolific producing zone in the shale. The total organic
carbon content per core analyses averages 12.6% across
southern Indiana. The Clegg Creek is believed to be less
saturated in water and will often produce excellent volumes
of gas in a well prior to dewatering the shale.
CAMP RUN MEMBER: A bioturbated greenish-gray shale
interbedded with organic rich pyritic black shale. It is
located just below the Clegg Creek member.
MORGAN TRAIL MEMBER: A brownish-black shale, which is
closely associated with the overlying Camp Run member.
SELMIER MEMBER: A predominately greenish-gray shale with
thin beds of dolomite and sandstone. In the targeted area,
the Selmier is a dark olive gray, and closely associated
with the upper Blocher member. As you move further south,
the Selmier becomes thinner and is eventually absent.
BLOCHER MEMBER: A very organically rich, black, thinly
laminated shale with laminae of dolomite and limestone. It
is the lowest member of the shale. Below the Blocher member
is the Devonian Limestone.
Based on their prior experience, management believes that
the capacity for gas reserves in the New Albany Shale is
substantial. Gas is stored in fractures as free gas, but
also is stored by absorption on the clay and kerogen
surfaces of the shale. As the free gas and water is
produced, the absorbed gas begins to release into the shale
fracture network through a process called desorption,
providing a steady, long term flow of gas to the wellbore.
Almost every well drilled at favorable depths (300 feet to
2,500 feet deep) will produce natural gas. The amount of
daily gas produced depends on how much natural fracturing
exists in the shale. A de-watered shale well should remain
at a peak production level for many years and then begin a
very slow decline over several decades.
JET/LAVANWAY EXPLORATION, L.L.C.
The Company owns a 50% membership interest in Jet/LaVanway
Exploration, L.L.C. The other 50% interest is owned by
LaVanway Capital & Trade Corporation. Jet/LaVanway
Exploration, L.L.C. was formed in June 1995, to develop the
Corydon Project in Harrison County, Indiana. This was a
joint venture between Jet Exploration, Inc. which agreed to
provide field operations, and LaVanway Capital & Trade
Corporation, which agreed to provide the accounting for the
project. MCNIC Oil & Gas Company (the parent corporation of
Michigan Consolidated Gas, a Michigan utility) was involved
as an investor. Jet/LaVanway Exploration, L.L.C. has now
acquired mineral leases on over 83,500 acres in Harrison,
Crawford, Washington and Floyd Counties in Indiana.
Development to date has included over 40 test wells into the
New Albany Shale formation over the entire leased area.
Jet Oil Corporation was started by Thomas W. Tucker and his
father, Wilbert, in 1983, to access the activity of oil and
gas exploration in the northern Niagran Reef trend in
Michigan. After Wilbert Tuckers death in 1987, Thomas
Tucker founded Jet Exploration, Inc., which continued the
same activities. On January 1, 1995, William W. Deneau
acquired 49% of Jet Exploration, Inc.
On February, 8, 1995, Jet Exploration 1995-1, L.L.C. was
created to begin more extensive development of Shale gas
around the country. Jet Exploration 1995-1, L.L.C., was
owned by William W. Deneau (35%), Thomas W. Tucker (35%),
and John V. Miller, Jr. (30%). On June 1, 1995, Jet
Exploration, Inc. and Hunting Exploration Company formed Jet
Hunting Exploration, L.L.C., whose name was subsequently
changed to Jet/LaVanway Exploration, L.L.C. On October 21,
1995, John V. Miller, Jr., exercised his option to acquire
9.26% of Jet Exploration, Inc., thereby reducing Thomas W.
Tucker's interest to 46.3% and William W. Deneau's interest
to 44.44%.
AURORA & LAVANWAY, L.L.C.
In April 1998, the Company formed a new entity, Aurora &
LaVanway, L.L.C. ("A&L") with LaVanway Capital & Trade
Corporation. The Company is the managing member and owns a
50% membership interest in A&L. LaVanway Capital and Trade
Corporation owns the remaining 50% membership interest in
A&L. A&L was formed to pursue business opportunities that
might arise in conjunction with other projects and pursuits
of the founding entities. The initial membership
contribution of each member was $2,000. To date, A&L has
had no significant business activity.
OFFICES
The Company's main office is a 1,600 square foot facility
located at 3760 North US 31 South, Traverse City, Michigan.
This office is being sublet from Prudential Insurance. The
Company entered into a sublease agreement on September 18,
1997 providing a monthly rental rate of $1,899.50. The
Company is also responsible for an allocated portion of tax
increases and operating expenses for which the sublessor is
otherwise responsible under the prime lease. The initial
term of the sublease is October 15, 1997 through October 14,
1998, with a one-year renewable term. The Company has
exercised its renewal option. The Company also rents
approximately 700 square feet from the building next door at
3766 North US 31 South, on a month-to-month arrangement.
The rental rate is $550 per month. The Company also rents
400 square feet of storage space from South 31, L.L.C. for
$150 per month. The storage space houses well logs,
cuttings, and other documents that the Company needs to
retain. Management does not anticipate needing additional
space at any time in the foreseeable future.
SUMMARY OIL AND GAS OPERATIONS DISCLOSURE
All of the Company's oil and gas operations are in the
United States. As of September 15, 1998, the Company has no
proved, developed reserves and has reported no reserves to
any government agencies.
The Corydon Unit began production late in 1997, but revenues
have been withheld by the operator as costs are currently
exceeding the revenue generated. Steps are being taken to
reduce overhead in the Corydon project and as useful data
becomes available will be included in subsequent filings
under this heading. The Lodgepole in North Dakota and the
Merrick Estate #1 in Louisiana are the only interests owned
by the Company that are currently in production. Management
anticipates that several projects will begin production by
the end of 1998, but is unable to quantify the anticipated
profitability of these projects at this time. As of
September 15, 1998, the Company owns the following gross and
net productive wells and gross and net developed acreage as
follows:
Oil
Gross productive wells 3.0
Net productive wells .11
Gross developed acreage 1,040.00
Net developed acreage 6.45
Gas
Gross productive wells 105.00
Net productive wells 11.26
Gross developed acreage 13,905.00
Net developed acreage 1,878.00
As of September 15, 1998, the Company has leased mineral
rights on gross and net undeveloped acreage as follows:
Undeveloped gross acreage 204,034.00
Undeveloped net acreage 33,195.00
Lease terms are generally five years. The Company in its
present form has been involved in oil and gas exploration
and leasing less than one year. Consequently, in general,
lease terms have the majority of their terms yet to run.
Lease agreements provide for extensions as necessary.
From March 15, 1997, through September 15, 1998, the Company
has participated in the drilling of productive and dry wells
as follows:
Net productive exploratory wells drilled 13.75
Net dry exploratory wells drilled .63
The Company has not drilled any development wells as of
September 15, 1998.
As of September 15, 1998, the Company is not currently
drilling any wells. All current projects are either in the
completion phase with production facilities and flow lines
under development, or in the drilling-planning stages. See
"Plan of Operation" describing the individual projects.
As of September 15, 1998, the Company had no contractual
commitments to deliver or provide any fixed and determinable
quantities of gas or oil. The Company does have an
agreement with Southern Indiana Gas and Electric (SIGECO)
which provides for the sale to SIGECO of all the natural gas
generated by the Dumada project at the New York Mercantile
Exchange monthly contract settlement price plus $0.05 per
MMBtu. The contract is good for three years from March 1,
1998, with an automatic series of three month extensions
which can be terminated by either party.
ITEM 4: SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND
MANAGEMENT
Beneficial owners of more than 5% of the Company's common
stock are set forth below.
<TABLE>
<CAPTION>
Title Name and Address of Amount and Nature Percent
Class Beneficial Owner of Beneficial Owner of Class
<S> <C> <C> <C>
Common Britannia Holdings Limited* 700,000 8.05%
P. O. Box 615 Kings House
The Grange St. Peter Port
Guernsey, GY1 2QJ, Channel Islands
Common The William & Patricia Deneau
Revocable Living Trust, DTD 1,828,400 21.04%
10/12/95
3832 Perimeter Drive
Traverse City, MI 49684
Common Roger J. Dubuc, Trustee
Roger J. Dubuc Trust DTD 500,000 5.75%
1/21/87
18677 Foxhollow Court
Northville, MI 48167
Common John V. & Michelle R. Miller,
Trustees 1,787,400 20.56%
Miller Family Living Trust
DTD 6/25/97
5922 Deertrail Drive
Traverse City, MI 49684
Common Thomas W. Tucker &
Sandra L. Tucker 1,798,400 20.69%
11607 N. Long Lake Road
Traverse City, MI 49684
* Britannia Holdings Limited is an investment and financing company.
</TABLE>
The security ownership of management is outlined in the
following chart:
<TABLE>
<CAPTION>
Amount Owned
Title Name and Address Before the Percent
of Class of Owner Offering of Class
<S> <C> <C> <C>
Common William W. Deneau
in the name of:
The William & Patricia Deneau
Revocable Living Trust,
DTD 10/12/95
3832 Perimeter Drive
Traverse City, MI 49684 1,828,400 21.04%
Common John V. Miller
in the name of:
John V. & Michelle R. Miller
TTEE Miller Family Living
Trust, DTD 6/25/97
5922 Deertrail Drive
Traverse City, MI 49684 1,787,400 20.56%
Common Thomas W. Tucker
in the name of:
Thomas W. & Sandra L. Tucker
11607 N. Long Lake Road
Traverse City, MI 49684 1,798,400 20.69%
Common Officers and Directors
as a Group 5,444,200 62.63%
</TABLE>
Options held by officers and directors are reflected in the
chart below.
<TABLE>
<CAPTION>
Title & Amount of Securities Exercise Date of
Name of Holder Called for By Options Price Exercise
<S> <C> <C> <C>
Gary Myles Option to purchase 10,000 $.50 Expires:
shares of common stock* per share July 31,
2002
</TABLE>
* This option was issued to Mr. Myles on August 1, 1997 as
compensation for his service as a director of the Company.
He is not currently receiving any other compensation for his
services.
ITEM 5. DIRECTORS, EXECUTIVE OFFICERS, PROMOTERS AND CONTROL
PERSONS
The following table sets forth information about each of the
officers and directors of the Company:
<TABLE>
<CAPTION>
Name Age Position Term of Office
<S> <C> <C> <C>
William W. Deneau 53 Director; June 25, 1997 to present
President July 17, 1997 to present
John V. Miller, Jr. 39 Director June 26, 1997 to present
Vice President July 17, 1997 to present
of Exploration
and Production
Thomas W. Tucker 55 Director June 25, 1997 to present
Vice President of
Land and Development/
Treasurer June 25, 1997 to present
Barbara J. Johnson 44 Secretary July 17, 1997 to present
Gary J. Myles 52 Director June 25, 1997 to present
</TABLE>
There are no family relationships between any of the
foregoing individuals.
WILLIAM W. DENEAU became employed by the Company at the time
he sold his interest in Jet/LaVanway Exploration, L.L.C. to
the Company in exchange for the Company's stock on April 22,
1997. He is a full time employee. Since that time, Mr.
Deneau has been responsible for managing the Company's
affairs. He officially became president on July 17, 1997.
Since 1987, Mr. Deneau has been the president, a director,
and the sole stockholder of White Pine Land Services, Inc.
of Traverse City, Michigan. Prior to March 1, 1997, White
Pine Land Services, Inc. was a 35-member company engaged in
the business of providing real estate services to oil and
gas companies. On March 1, 1997, White Pine Land Services,
Inc. sold its business to a newly formed corporation, White
Pine Land Company. White Pine Land Services, Inc. continues
to exist for the purpose of managing its investments.
JOHN V. MILLER, JR. became employed by the Company at the
time he sold his interest in Jet/LaVanway Exploration L.L.C.
to the Company in exchange for the Company's stock on April
22, 1997. He is a full time employee. Since that time, he
has been responsible for overseeing exploration and
development activities. He officially became Vice President
of Exploration and Production on July 17, 1997. In 1994,
Mr. Miller joined Jet Exploration, Inc. of Traverse City,
Michigan as a vice president with responsibility for getting
Jet Exploration, Inc. into the shale gas play in Michigan
and Indiana. He was the driving force behind the
establishment of Jet/LaVanway Exploration, L.L.C. and its
effort in southern Indiana. Mr. Miller left the position
with Jet Exploration, Inc. to join the Company. From 1988
to 1994, Mr. Miller worked for White Pine Land Services,
Inc. of Traverse City, Michigan, as a land manager.
THOMAS W. TUCKER is a full time employee of the Company. He
has been employed by the Company since he sold his interest
in Jet/LaVanway Exploration, L.L.C. to the Company in
exchange for the Company's stock on April 22, 1997. Since
that time, he has been responsible for overseeing land
development activities. He officially became Vice President
of Land and Development on July 17, 1997. Mr. Tucker
founded Jet Oil Corporation with his father in 1982. After
his father's death, Mr. Tucker founded Jet Exploration, Inc.
in 1987. Mr. Tucker has been the president of Jet
Exploration, Inc. since its inception. Prospectively, Jet
Exploration, Inc. will not take on any new projects, and its
existing projects will be allowed to run out their course.
Jet Exploration, Inc. currently has other projects with
which the Company is not involved.
GARY J. MYLES was elected to serve as an outside director of
the Company on July 17, 1997. Mr. Myles is currently Vice
President of the northern Michigan region of Old Kent
Mortgage Company, a wholly owned subsidiary of Old Kent
Financial Corporation (a $12 billion bank holding company).
He is the Regional Manager for the northern region of
Michigan, and is based in Traverse City, Michigan. Mr.
Myles has been with Old Kent Mortgage Company since July
1988.
BARBARA J. JOHNSON became employed by the Company on June 1,
1997. She is the Administrative Assistant to the President.
She became the corporate secretary on July 17, 1997. From
August 30, 1993 to June 1, 1997, Ms. Johnson worked for
White Pine Land Services, Inc. of Traverse City, Michigan,
as a Lease Records Manager. Prior to that, Ms. Johnson was
employed in Frankfort, Michigan, for A&W Restaurant, as a
server.
None of the Company's officers or directors have been
involved in legal proceedings of the type that are required
to be disclosed. The officers, directors, their affiliates
and associates, are not eligible to receive finders' fees or
other compensation related to the acquisition of new oil and
gas prospects.
KEY CONSULTANTS
The Company hires consultants on an as-needed basis to
obtain technical expertise. The consultants described below
currently provide the Company its primary technical
assistance.
KARL M. SCHROEDER, has a B.S. degree in geology from Central
Michigan University and began working in the Michigan oil
industry in 1976. He first served Shell Oil in their
Niagaran Reef exploration program and then accepted a
position with Amoco. With Amoco, Mr. Schroeder was an
operations geologist and provided formation evaluation and
wellsite operations coordination. Since 1980, Mr. Schroeder
has served as an independent consulting geologist providing
prospect generation, wellsite evaluation, hydrocarbon
logging, and operations oversite. He has worked with Amoco,
MCN, PPG, Sun, Dart, Jet Exploration and others. He has
worked extensively in the Michigan, Illinois and Appalachian
Basins. Mr. Schroeder is paid $200 per day plus expenses.
For any prospect Mr. Schroeder brings to the Company which
the Company invests in, Mr. Schroeder will receive a 2%
overriding royalty interest for all leases taken in the AMI,
plus a fee of $5,000 for one well, a fee of $2,500 per well
for two to five wells, a fee of $1,000 per well for six to
25 wells, and a fee of $500 per well for 26 or more wells.
STEVEN P. KOHLER, received a B.S. in Petroleum & Natural Gas
Engineering from Pennsylvania State University in 1977. He
worked with Amoco as a production engineer in the Michigan,
Illinois and Appalachian Basins. He also has worked in West
Texas on secondary reservoir issues. Lately, Mr. Kohler has
been an independent consultant specializing in Shale
production. He has provided assistance to independents,
including Jet Exploration, Inc. and Jet/LaVanway
Exploration, L.L.C. in Traverse City, Michigan.
ITEM 6. EXECUTIVE COMPENSATION MANAGEMENT REMUNERATION
The remuneration of the Company's three most highly
compensated employees is set forth in the chart below:
<TABLE>
<CAPTION>
Capacity in Which Aggregate
Name of Individual Remuneration Was Received Remuneration(1)
<S> <C> <C>
William W. Deneau President $40,000
John V. Miller, Jr. Vice President of Exploration
and Production $40,000
Thomas W. Tucker Vice President of Land and
Development $40,000
</TABLE>
(1) This information is reported on an annualized
basis. Fiscal 1997 was not a full year. The
actual amount paid to each individual was $20,000.
These three officers also receive family health coverage.
The Company adopted a 1997 Stock Option Plan effective
October 1, 1997. The Stock Option Plan has 1,000,000 shares
of common stock available. To date, the officers listed
above have not yet been granted options under this Plan.
ITEM 7. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
The 50% membership interest in Jet/LaVanway Exploration,
L.L.C. was originally owned by Jet Exploration, Inc., which
is owned one-third by William W. Deneau, one-third by
Thomas W. Tucker, and one-third by John V. Miller, Jr., who
are directors and executive officers of the Company. Jet
Exploration, Inc. sold the membership interest in
Jet/LaVanway Exploration, L.L.C., to its three owners at
fair market value. The membership interests subsequently
were conveyed by Messrs. Deneau, Tucker and Miller to Mentor
Group International, Inc. (the Company's prior name) for
common stock (see Item 1, Description of Business -
Development).
The office facilities leased by the Company are owned by
South 31, L.L.C., which is owned one-third by William W.
Deneau, and one-third by the wife of Thomas W. Tucker.
However, the potential for an unfavorable rental arrangement
is ameliorated to some extent by the fact that the
properties are leased to unrelated third parties who have in
turn subleased a portion of the space to the Company. The
storage facilities that the Company leases from South 31,
L.L.C. are in a storage building that contains four other
storage units that are leased to unrelated third parties at
the same rates that the Company pays.
Messrs. Deneau, Tucker and Miller are all involved as equity
owners in numerous corporations and limited liability
companies that are active in the oil and gas business. It
is probable that on occasion, the Company will find it
necessary or appropriate to deal with these Companies. A
specific instance that has already occurred is the purchase
by the Company of the Dumada Project interest from Jet
Exploration 1995-1, L.L.C., and grant of an option to the
Company by Jet Exploration 1995-1 to purchase the remainder
of its Dumada Project interest as described at "Business -
The Dumada Project." Messrs. Deneau, Miller and Tucker
each own one-third of Jet Exploration 1995-1, L.L.C. Actual
direct costs to Jet Exploration 1995-1, L.L.C. were
$126,451. Indirect costs were estimated at $60,000.
Indirect costs refer to costs incurred in the creation and
marketing of the entire Dumada Project, including allocated
salaries, travel costs, reproduction costs, telephone
expense, rent and utilities over the 15-month period of time
required to put the Dumada Project together. The amount
paid by the Company to Jet Exploration 1995-1, L.L.C. for
the Dumada Project interest was $186,451.
From time to time, the Company will hire White Pine Land
Company to perform real estate services for the Company.
Patricia Deneau, wife of William W. Deneau, is employed
part-time by White Pine Land Company, and owns 35% of the
outstanding stock of White Pine Land Company. She does not
participate in management of the White Pine Land Company.
On July 14, 1997, the Company borrowed $500,000 from
Britannia Holdings Limited ("Britannia") a commercial
lending institution located in Guernsey, Channel Islands.
As partial consideration for the loan, Britannia received
200,000 shares of the Company's common stock. Britannia
also had a option to accept the Company's common stock at a
price of $1 per share in lieu of receiving repayment of the
$500,000 loan. On December 24, 1997, Britannia accepted
500,000 shares of the Company's common stock, bringing its
total ownership position to 700,000 shares. Interest
expense accrued for the period July 14, 1997 to December 24,
1997 on the loan amounted to $15,462 and was paid by the
Company in cash.
William W. Deneau is the sole shareholder of White Pine Land
Services, Inc. On August 26, 1997, White Pine Land
Services, Inc. loaned the Company $125,000. On October 14,
1997, White Pine Land Services, Inc. loaned the Company
$50,000. Both loans carried interest at the annual rate of
6%, compounded monthly. The $50,000 loan was repaid in full
on December 15, 1997, together with $509.59 in interest.
The $125,000 loan was repaid in full on December 31, 1997,
together with $2,609.59 in interest. Management does not
currently expect to borrow any further funds from White Pine
Land Services, Inc.
ITEM 8. DESCRIPTION OF SECURITIES
The securities being registered under Section 12(g) of the
Act are common stock, par value $.001 per share. All shares
are entitled to one vote, and have equal dividend and
liquidation rights. There are no preemptive rights or
redemption rights. The common stock is nonassessable.
Shareholders are not personally responsible for the debts or
obligations of the Company.
The Company has 500,000,000 shares of common stock
authorized. As of September 15, 1998 there were 8,691,697
shares outstanding. The Company has never paid a cash
dividend on its common stock and does not expect to pay a
cash dividend in the foreseeable future. The Company
intends to devote all of its funds to the operation of its
business.
<PAGE>
PART II
ITEM 1. MARKET PRICE OF AND DIVIDENDS ON THE REGISTRANT'S
COMMON EQUITY AND OTHER SHAREHOLDER MATTERS
The Company's common stock is not currently traded on a
public trading market. The Company has engaged the services
of Public Securities, Inc. to assist the Company in becoming
eligible for trading on the NASD OTC Bulletin Board. There
is no written agreement concerning this engagement. The
Company reserves the right to discontinue the process at any
time, or to work with an alternative underwriter. There is
no assurance when or if the Company's stock will become
eligible for trading. Management is committed to continue
to pursue this goal.
There are currently 8,691,697 shares of common stock
outstanding. Another 320,000 shares are currently being
reserved to satisfy outstanding option agreements. Of the
currently outstanding shares, 7,986,700 shares are subject
to trading restrictions under Rule 144; and 704,997 shares
could be freely traded pursuant to Rule 144. There are no
registration agreements outstanding, nor has the Company
proposed to register its shares at any time in the
foreseeable future.
The Company has not paid dividends on its common stock and
does not expect to do so in the foreseeable future. There
are no contractual or other formal limitations on the
payments of dividends. However, the Company expects to use
all funds for investment in wells and expansion, at least
for the foreseeable future.
The Company's currently outstanding stock meets the
definition of penny stock set forth at Section 3(a)(51)(A)
of the Act. As a result, subject to limited exemptions, any
broker/dealer trading in the Company's stock is required to
provide its customers, prior to effecting a transaction in
the Company's stock, a risk disclosure document prepared by
the Securities and Exchange Commission, describing: The
nature and level of risk in the market for penny stocks; the
broker/dealer's duties to the customer; the rights and
remedies available to the customer for violations of
broker/dealer duties or the Federal securities laws; a
narrative description of the dealer market, including "bid"
and "ask" prices for penny stocks, and the significance of
the spread between bid and ask prices; a toll free number
for inquiries in disciplinary actions against broker/dealers
and their sales representatives; and other descriptive
information regarding penny stock trading. The
broker/dealer is also required to provide to any customer
effecting transactions in penny stocks, specific information
about the bid and ask prices, the number of shares trading,
and the broker/dealer's compensation. Broker/dealers are
required to preapprove customer accounts for penny stock
trading, based upon suitability requirements.
ITEM 2. LEGAL PROCEEDINGS
There are no pending legal proceedings.
ITEM 3. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS
The Company has not experienced a change in who serves as
its principal accountants.
ITEM 4. RECENT SALES OF UNREGISTERED SECURITIES
Prior to current management taking over the management of
the Company certain securities were issued, including
580,000 shares of common stock that were issued between
January and June of 1996 at a price of $.025 per share
(total cash proceeds of $14,500). Management believes that
Rule 504 of Regulation D was relied on to establish an
exemption from registration. The Company's current
management does not have information about underwriters,
commissions or the class of persons to whom the 1996
offering was made.
On April 22, 1997, Messrs. Miller, Tucker and Deneau each
received 1,848,400 shares of the Company's common stock in
return for the contribution of a 50% membership interest in
Jet/LaVanway Exploration, L.L.C., 16.667% each. This
membership interest had a fair market value of $143,000,
based on an estimation of the values of the projects owned
by Jet/LaVanway Exploration, L.L.C. at the time of the
transfer. This valuation was reached by agreement between
Messrs. Miller, Tucker and Deneau, and Tom LaVanway, the
other principal in Jet/LaVanway Exploration, L.L.C. An
outside independent appraisal was not obtained. The Company
relied upon the exemption from registration found at Rule
506 of Regulation D. No commission was paid on this
transaction.
In May, 1997, the Company engaged in a private placement
pursuant to which it sold 50,000 shares of common stock at a
price of $1 per share. The Company relied on Section 4(2)
of the Securities Act of 1933 for an exemption from
registration. No underwriter was used and no commission was
paid. Sales were limited to investors with whom the
officers of the Company were personally acquainted.
On May 1, 1997, the Company issued to Jim Czirr an option to
purchase 300,000 shares of common stock at a price of $0.05
per share, expiring May 1, 2002. This option was issued as
consideration under a consulting agreement under which Mr.
Czirr agreed to assist the Company in financial and
financing matters, including the development and
implementation of a plan to make the Company a public stock
company. (See Item 1. Description of Business - Financial
Consulting.)
On July 14, 1997, the Company borrowed $500,000 from
Britannia Holdings Limited ("Britannia"), and as partial
consideration issued 200,000 shares of the Company's common
stock to Britannia. The Company also issued a $500,000 note
to Britannia that was convertible into the Company's common
stock. The Company relied upon Section 4(2) of the
Securities Act of 1933 for an exemption from registration.
On August 1, 1997, the Company issued to Gary Myles an
option to purchase 10,000 shares of the Company's common
stock at a price of $0.50 per share expiring July 31, 2002.
This option was issued in consideration of Mr. Myles'
agreement to serve as a director of the Company.
From October 13, 1997 through February 17, 1998, the Company
engaged in a private offering of securities pursuant to
which it sold 1,671,000 shares of common stock at a price of
$1 per share. The Company also received a 4% working
interest in the Corydon Project in exchange for 80,000
shares of its common stock under this offering. The Company
relied upon Rule 506 of Regulation D for an exemption from
registration. Five hundred thousand of these shares were
issued to Britannia Holdings in exchange for its $500,000
note as described above. The Company retained VESTAX
Securities Corporation on a best efforts basis to assist in
the sale of the balance of this offering. VESTAX
participated in the sale of 1,191,500 shares of common stock
and received a commission equal to $119,150. Except for the
exchange for the Corydon Project working interest, this
offering was limited to accredited investors.
On December 18, 1997, the Company sold .25% of working
interest in the Dumada project to a Michigan industry
investor for the sum of $22,500. The Company relied on
Section 4(2) of the Securities Act of 1933 for an exemption
from registration.
On February 5, 1998, the Company issued to John M. Lohman
(the Company's Controller) an option to purchase 10,000
shares of the Company's common stock at a price of $1 per
share expiring July 31, 2002. This option was issued in
consideration of employment services pursuant to an employee
stock option plan.
In May and June of 1998, the Company sold 33% of its net
revenue interests in the Crossroads Project, located in
Henry County, Ohio, to four Michigan industry investors for
a total of $320,000 in order to pay for three test wells,
transportation, and production facility costs. The Company
relied on Rule 504 and Section 4(2) of the Securities Act of
1933 for an exemption from registration.
ITEM 5. INDEMNIFICATION OF DIRECTORS AND OFFICERS
Article XVI of the Company's Articles of Incorporation
states as follows:
A director or officer is not liable for damages
for breach of fiduciary duty as a director or
officer except for: (a) acts or omissions which
involve intentional misconduct, fraud or a
knowing violation of the law; or (b) the payment
of a distribution in violation of NRC 78.300.
This provision is authorized by Nevada's corporations laws.
In addition, NRC (Nevada Revised Code) 78.751 allows the
Company to indemnify a director, officer, employee or agent
who is party to a threatened, pending or completed action,
suit or proceeding because of this person's position with
the Company, if the person acted in good faith and in a
manner which the person reasonably believed to be in or not
opposed to the best interests of the Company and with
respect to any criminal action had no reasonable cause to
believe the conduct was unlawful. If the director, officer,
employee or agent prevails in the litigation,
indemnification of the defense costs is mandatory.
<PAGE>
PART F/S
AURORA ENERGY, LTD.
(a development stage company)
FINANCIAL STATEMENTS
FOR THE PERIOD FROM MARCH 12, 1997 (INCEPTION)
TODECEMBER 31, 1997
AURORA ENERGY, LTD.
(a development stage company)
TABLE OF CONTENTS PAGE
Independent Auditors' Report 1
Financial Statements for the period from
March 12, 1997 (inception)to December 31, 1997
Statement of Financial Position 2
Statement of Operations 3
Statement of Changes in Stockholders' Equity 4
Statement of Cash Flows 5
Notes to Financial Statements 6-13
<PAGE>
INDEPENDENT AUDITORS' REPORT
February 4, 1998
Stockholders and Board of Directors
Aurora Energy, Ltd. (a development stage company)
We have audited the accompanying statement of financial
position of Aurora Energy, Ltd. (a development stage
company) as of December 31, 1997, and the related statements
of operations, changes in stockholders' equity and cash
flows for the period from March 12, 1997 (inception) 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 audit.
We conducted our audit in accordance with generally accepted
auditing standards. Those standards require that we plan
and perform the audit to obtain reasonable assurance about
whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis,
evidence supporting the amounts and disclosures in the
financial statements. An audit also includes assessing the
accounting principles used and significant estimates made by
management, as well as evaluating the overall financial
statement presentation. We believe our audit provides a
reasonable basis for our opinion.
In our opinion, the financial statements referred to above
present fairly, in all material respects, the financial
position of Aurora Energy, Ltd. (a development stage
company) as of December 31, 1997, and the results of its
operations and cash flows for the period from March 12, 1997
(inception) to December 31, 1997 in conformity with
generally accepted accounting principles.
//Rehmann Robson, P.C.//
Traverse City, Michigan
<PAGE>
AURORA ENERGY, LTD.
(a development stage company)
STATEMENT OF FINANCIAL POSITION
DECEMBER 31, 1997
<TABLE>
<CAPTION>
ASSETS
<S> <C> <C>
Current assets
Cash and cash equivalents $ 518,408
Accounts receivable: (Note 3)
Billed 182,970
Unbilled 121,200
Total accounts receivable 304,170
Prepaid expenses 4,950
Total current assets 827,528
Oil and gas properties, not subject
to amortization, using full cost
accounting (Notes 2, 4, 5 and 6) 700,850
Investment in oil and gas partnership
(Note 4) 99,314
Property and equipment, net
(Note 7) 62,304
Total assets $1,689,996
</TABLE>
See accompanying notes.
<PAGE>
<TABLE>
LIABILITIES AND STOCKHOLDERS' EQUITY
<S> <C>
Current liabilities
Accounts payable $ 186,151
Current portion of capital
lease obligations 14,739
Advances from investors
(Note 10) 89,000
Accrued expenses 23,303
Total current liabilities 313,193
Capital lease obligations, net of
current portion (Note 8) 28,332
Total liabilities 341,525
Stockholders' equity (Note 12)
Common stock, $.001 par value;
500,000,000 shares authorized;
8,391,197 shares issued
and outstanding 8,391
Additional paid-in capital 1,590,924
Deficit accumulated during the
development stage (250,844)
Total stockholders' equity 1,348,471
Total liabilities and stockholders'
equity $ 1,689,996
</TABLE>
<PAGE>
AURORA ENERGY, LTD.
(a development stage company)
STATEMENT OF OPERATIONS
FOR THE PERIOD FROM MARCH 12, 1997 (INCEPTION)
THROUGH DECEMBER 31, 1997
<TABLE>
<S> <C>
Operating revenues $ 40,375
General and administrative expenses 229,262
Operating loss (188,887)
Other income (expense)
Equity in loss of investee partnership (43,686)
Interest income 1,459
Interest expense (19,730)
Other expense, net (61,957)
Net loss $ (250,844)
Net loss per basic and diluted common share $( .06)
</TABLE>
See accompanying notes.
<PAGE>
AURORA ENERGY, LTD.
(a development stage company)
STATEMENT OF CHANGES IN STOCKHOLDERS' EQUITY
FOR THE PERIOD FROM MARCH 12, 1997 (INCEPTION)
THROUGH DECEMBER 31, 1997
<TABLE>
<CAPTION>
Deficit
Accumulated
Additional During the
Common Stock Paid in Developmental
Shares Amount Capital Stage Totals
<S> <C> <C> <C> <C> <C>
Common stock
issued for cash
at $.001 per
share (Note 1) 514,997 $ 515 $ -- $ -- $ 515
Common stock
issued for cash
at $.025 per
share 580,000 580 13,920 -- 14,500
Common stock
issued in exchange
for interest in oil
and gas partnership
(Note 4) 5,575,200 5,575 137,425 -- 143,000
Common stock issued
for cash at $1.00
per share 50,000 50 49,950 -- 50,000
Common stock issued
in exchange for
cancellation of
loan at $.7142857
per share
(Note 11) 700,000 700 499,300 -- 500,000
Common stock issued
for cash at $.90
per share 971,000 971 872,929 -- 873,900
Common stock
options issued to
consultant and
non-employee
director
(Note 12) -- -- 17,400 -- 17,400
Net loss -- -- -- (250,844) (250,844)
Balance at
Dec. 31, 1997 8,391,197 $ 8,391 $1,590,924 $(250,844) $1,348,471
</TABLE>
See accompanying notes.
<PAGE>
AURORA ENERGY, LTD.
(a development stage company)
STATEMENT OF CASH FLOWS
FOR THE PERIOD FROM MARCH 12, 1997 (INCEPTION)
THROUGH DECEMBER 31, 1997
<TABLE>
Cash flows from operating activities:
<S> <C>
Net loss $(250,844)
Adjustments to reconcile net loss to net cash
used in operating activities:
Depreciation and amortization 733
Equity in loss of investee partnership 43,686
Services received in exchange for stock options 17,400
Changes in operating assets and liabilities which
provided (used) cash:
Accounts receivable (304,170)
Prepaid expenses (4,950)
Accounts payable 186,152
Accrued expense 23,302
Net cash used in operating activities (288,691)
Cash flows from investing activities
Capital expenditures for oil and gas properties (700,850)
Capital expenditures for property and equipment (15,668)
Net cash used in investing activities (716,518)
Cash flows from financing activities
Proceeds from the sale of common stock 938,915
Proceeds of loan from financial institution 500,000
Advances from affiliate 175,000
Repayment of advancement from affiliate (175,000)
Advances from investors 89,000
Payments made to reduce capital lease obligations (4,298)
Net cash provided by financing activities 1,523,617
Net increase in cash and cash equivalents 518,408
Cash and cash equivalents, beginning of period --
Cash and cash equivalents, end of period $ 518,408
</TABLE>
<PAGE>
BUSINESS AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
NATURE OF OPERATIONS
Aurora Energy, Ltd. (the "Company") is engaged primarily
in the acquisition, development, production, exploration
for, and the sale of, oil, gas and natural gas liquids. The
Company intends to sell its oil and gas products primarily
to domestic pipelines and refineries. Since revenues, as
reported in the Statement of Operations, are not considered
by management to represent the Company's planned principal
operations, the financial statements are prepared under the
accounting assumption that the Company is operating as a
development stage enterprise.
The Company was originally incorporated in the State of
Nevada as Mentor Group International Corporation on August
12, 1991. The Company had no material operations from
inception to February, 1997, when the Board of Directors and
shareholders reverse split the outstanding common stock on a
one for twenty basis. On March 12, 1997, a certificate of
name change was filed with the Secretary of State in Nevada
in order to change the corporate name to Aurora Energy, Ltd.
The Company has not generated revenue from planned principal
operations. The Company is in the development stage and,
since inception, has primarily been involved in planning,
obtaining financing, acquiring oil and gas leases, and
exploration of certain oil and gas properties in Michigan
and Indiana. As of December 31, 1997 the Company did not
have any proved properties. However, the Company is
expected to explore or purchase proved properties during
1998.
USE OF ESTIMATES
The preparation of financial statements in conformity with
generally accepted accounting principles requires management
to make estimates and assumptions that affect the reported
amounts of assets and liabilities and disclosure of
contingent assets and liabilities at the date of the
financial statements and the reported amounts of revenues
and expenses during the reporting period. Actual results
could differ from those estimates.
LOSS PER SHARE
Loss per share is computed using the weighted average number
of common shares outstanding during the period (4,305,843)
determined pursuant to Statement of Financial Accounting
Standards (SFAS) No. 128., "Earnings Per Share." This
Statement requires a dual presentation and reconciliation of
"basic" and "diluted" per share amounts. Diluted
reflects the potential dilution of all common stock
equivalents. Since the assumed exercise of common stock
options would be antidilutive, such exercise is not assumed
for purposes of determining diluted loss per share.
Accordingly, diluted and basic per share amounts are equal.
<PAGE>
1. BUSINESS AND SUMMARY OF SIGNIFICANT ACCOUNTING
POLICIES
OIL AND GAS PROPERTIES
The Company follows the full cost method of accounting
for oil and gas properties. Accordingly, all costs
associated with acquisition, exploration, and
development of oil and gas reserves, including
directly related overhead costs, are capitalized.
All capitalized costs of oil and gas properties,
including the estimated future costs to develop proved
reserves, are amortized on the unit-of-production
method using estimates of proved reserves.
Investments in unproved properties and major
development projects are not amortized until proved
reserves associated with the projects can be
determined or until impairment occurs. Unproved
properties shall be assessed periodically and a loss
shall be recognized if those properties are impaired.
In addition, the capitalized costs are subject to a
"ceiling test," which basically limits such costs to
the aggregate of the "estimated present value,"
discounted at a 10 percent interest rate of future net
revenues from proved reserves, based on current
economic and operating conditions, plus the lower of
cost or fair market value of unproved properties.
Sales of proved and unproved properties are accounted
for as adjustments of capitalized costs with no gain
or loss recognized, unless such adjustments would
significantly alter the relationship between
capitalized costs and proved reserves of oil and gas,
in which case the gain or loss is recognized in
income.
When unproved property is surrendered, abandoned, or
otherwise deemed worthless, capitalized acquisition
costs relating thereto shall be charged against the
related allowance for impairment to the extent an
allowance has been provided; if the allowance
previously provided is inadequate, a loss shall be
recognized.
CASH AND CASH EQUIVALENTS
Cash and cash equivalents consist of demand deposits
in banks and deposits in an escrow trust account. The
company has deposits in financial institutions in
excess of federally insured limits; management
believes interest rates or other financial risks
associated with these deposits are not significant.
REVENUE RECOGNITION
Oil and gas revenues are generally recognized at the
time of extraction of product or performance of
services. Revenues from service contracts are
recognized ratably over the term of the contract.
<PAGE>
1. BUSINESS AND SUMMARY OF SIGNIFICANT ACCOUNTING
POLICIES
PROPERTY AND EQUIPMENT
Property and equipment are stated at cost. Major
improvements and renewals are capitalized while
ordinary maintenance and repairs are expensed.
Management annually reviews these assets to determine
whether carrying values have been impaired.
INVESTMENT IN AFFILIATES
The Company owns a 50% interest in Jet/LaVanway
Exploration, L.L.C., a Michigan limited liability
company. Ownership is accounted for at the end of the
Company's calendar year using the equity method,
whereby the investment is stated at cost, adjusted for
the Company's equity in undistributed earnings or loss
since acquisition.
DEPRECIATION
Depreciation, which includes amortization of assets
recorded as capital leases, is computed using the
straight-line method over the estimated useful lives
of the related assets, which range from 5 to 40 years.
INCOME TAXES
Deferred income tax assets and liabilities are
computed annually for differences between the
financial statement and federal income tax bases of
assets and liabilities that will result in taxable or
deductible amounts in the future, based on enacted tax
laws and rates applicable to the periods in which the
differences are expected to affect taxable income.
Deferred income taxes arise from temporary basis
differences principally related to oil and gas
properties, depreciation, and non-deductible expenses.
Valuation allowances are established when necessary to
reduce deferred tax assets to the amount expected to
be realized. Income tax expense is the tax payable or
refundable for the year plus or minus the change
during the year in deferred tax assets and
liabilities.
2. SUPPLEMENTAL CASH FLOW INFORMATION
Non-Cash Financing and Investing Activities:
Common stock issued for oil and gas investment $ 143,000
Common stock issued in satisfaction of loan from
financial institution $ 500,000
Capital lease obligations assumed for the purchase
of non oil and gas property plant and equipment $ 47,369
2. SUPPLEMENTAL CASH FLOW INFORMATION
OTHER CASH FLOW INFORMATION
Cash paid for interest and income taxes during the
period from inception (March 12, 1997) to December 31,
1997, amounted to the following:
Interest $ 19,730
Income taxes none
3. ACCOUNTS RECEIVABLE
Billed accounts receivable, amounting to $182,970 at
December 31, 1997 consist of joint interest billings
to investors who have invested with the Company on
specific oil and gas projects.
Unbilled accounts receivable consist of joint interest
billings which have been received by the Company but
have not yet been billed to the investor. These
receivables amounted to $121,200 at December 31, 1997.
4. INVESTMENT IN OIL AND GAS PARTNERSHIP
On April 21, 1997, three individuals, who are
shareholder/directors of Aurora Energy, Ltd.,
transferred their 50% ownership interest in
Jet/LaVanway Exploration, L.L.C., a Michigan LLC (the
"Partnership") to the Company in exchange for
5,575,200 shares of common stock. The Company
recorded the transaction at $143,000 which represented
the estimated fair market value of the 50% interest in
the Partnership at the date of transfer; such value
was considered to be more clearly determinable than
the value of the Company's common stock. The
Partnership holds an approximate 9% interest in the
Jet/LaVanway New Albany Shale area located in
Harrison, Crawford, Washington, Floyd and Clark
Counties, State of Indiana, which covers approximately
80,656 acres.
The following table presents condensed balance sheet
data of Jet/LaVanway as of December 31, 1997 and
results of its operations for the year then ended:
<TABLE>
<CAPTION>
Balance Sheet December 31, 1997
<S> <C>
Current assets $ 618,757
Other assets 247,348
Total assets $ 866,105
Current liabilities $ 511,094
Other liabilities 156,383
Equity 198,628
Total liabilities and equity $ 866,105
</TABLE>
4. INVESTMENT IN OIL AND GAS PARTNERSHIP
<TABLE>
<CAPTION>
Year Ended
Income Statement December 31, 1997
<S> <C>
Net sales $ 26,657
Operating expenses 114,029
Net loss $ (87,372)
</TABLE>
The Company is contingently liable as guarantor for
the repayment of certain loans made to Jet/LaVanway.
At December 31, 1997, the outstanding balance of these
loans, which are secured by the Partnership's oil and
gas properties, is $96,000.
5. SALE OF INTERESTS IN OIL AND GAS PROPERTIES
In December 1997, the Company sold a partial interest
in the Dumada project, an unproved property, for
$22,500 which was credited to the full cost pool.
6. OIL AND GAS PROPERTIES NOT SUBJECT TO AMORTIZATION
The Company is currently participating in oil and gas
exploration and development activities on blocks of
acreage in the States of Indiana and Michigan. At
December 31, 1997, a determination cannot be made
about the extent of additional oil reserves that
should be classified as proved reserves as a result of
these projects. Consequently, the associated property
costs and exploration costs have been excluded in
computing amortization of the full cost pool. The
Company will begin to amortize these costs when the
projects are evaluated, which is currently estimated
to be in 1998.
Costs excluded from amortization consist of
exploration costs in the amount of $700,850 at
December 31, 1997. All of these expenditures were
incurred during 1997.
7. PROPERTY AND EQUIPMENT
Property and equipment at December 31, 1997 consist of
the following amounts:
<TABLE>
<S> <C>
Furniture and fixtures $ 35,515
Computer equipment 15,655
Software 376
Leasehold improvements 11,490
Sub-total 63,036
Accumulated depreciation 732
Property and equipment, net $ 62,304
</TABLE>
8. LEASES
The Company conducts a portion of its operations with
leased equipment, which meet the capitalization
criteria specified by generally accepted accounting
principles.
Equipment held under capitalized leases and included
in property and equipment, in the Statement of
Financial Position at December 31, 1997 are as
follows:
<TABLE>
<S> <C>
Furniture and fixtures $ 33,335
Computer equipment 14,034
Total 47,369
Less accumulated amortization 582
Net book value $ 46,787
</TABLE>
The following is a schedule of annual future minimum
lease payments required under capitalized leases as of
December 31, 1997:
<TABLE>
<S> <C>
1998 $ 14,739
1999 14,739
2000 13,796
2001 9,080
2002 7,567
Total minimum payments due 59,921
Less amounts representing interest at rates
ranging from 13.34% to 13.51% 16,850
Present value of net minimum lease payments $ 43,071
</TABLE>
Net rental expense on operating leases was $12,449 for
the period ended December 31, 1997.
The Company leases office space under an operating
lease. This lease, which expires on October 15, 1998,
contains a renewal clause which may be exercised at
the option of both parties. The leased office space
is owned by an entity which is owned one-third by one
of the Company's principal shareholders and one-third
by the spouse of another of the Company's principal
shareholders. Such facilities are subleased by the
Company from an unrelated third party. In addition,
the Company also leases two offices in an adjacent
building on a month to month basis.
9. INCOME TAXES
At December 31, 1997, net operating loss carry-forwards
of approximately $391,100 are available to offset
future federal taxable income, if any, through 2012.
At December 31, 1997 the Company has a deferred tax
asset attributed primarily to a net operating loss
carry forward (calculated using a 34% tax rate) of
approximately $133,000. This asset has been offset in
full by a valuation allowance in the same amount.
10. ADVANCES FROM INVESTORS
Advances from investors at December 31, 1997 consist of
investments made by investors who, under terms of their
leasing program agreement, will receive their
investment plus an override when the Company's oil and
gas holdings begin producing revenues. Since none of
these holdings are currently producing, no royalty or
working interest accruals have been made.
11. RELATED PARTY TRANSACTIONS
The Company issued a total of 700,000 shares of common
stock to a foreign commercial lending institution in
exchange for cancellation of a $500,000 loan advanced
by the institution. Interest expense of $15,462
incurred on the loan was paid in cash.
A corporation owned and controlled by one of the
Company's principal shareholders advanced a total of
$175,000 in short-term loans to the Company. Interest
incurred on these loans, which were repaid in full
during the period, amounted to $3,119.
Included in oil and gas properties on the accompanying
balance sheet is a working interest in a natural gas
lease in connection with the development of a mineral
acres property in western Indiana known as the "Dumada
Project". The Company acquired for $186,451 in cash
its initial interest in the Project in July, 1997 from
Jet Exploration 1995-1, L.L.C., which is owned one-
third each by the Company's three principal executive
officers and shareholders.
The Company incurred expenses of $158,188 to a local
real estate concern which is owned one-third by one of
the Company's principal shareholders and owned another
one-third by the spouse of another of the Company's
principal shareholders.
12. COMMON STOCK OPTION PLAN
On October 1, 1997, the Company adopted an incentive
qualified stock option plan which authorized the
issuance of up to 1,000,000 shares of the Company's
common stock at an option price which may not be less
than 100% of fair market value on the date of grant.
The maximum term of options granted is 10 years. The
plan was created in an effort to retain key employees,
attract new employees, obtain the services of
consultants, encourage the sense of proprietorship of
such persons in the Company, and to stimulate the
active interest of such persons in the development and
financial success of the Company.
On May 1, 1997, the Company issued to a consultant who
renders certain advisory services to the Company an
option to purchase 300,000 shares of common stock at an
option price of $.05 per share. The option expires May
1, 2002. The Company recorded $15,000 in consulting
expense in connection with the issuance of the options
based upon the fair value of the services rendered.
Such value is considered more clearly determinable than
the fair value of the options. On August 1, 1997, the
Company issued to a director an option to purchase
10,000 shares of common stock at an option price of
$.50 per share. The option expires July 31, 2002. The
Company recorded $2,400 in expense in connection with
the issuance of the options based upon the fair value
of the services rendered. Such value is considered
more clearly determinable than the fair value of the
options. No options have been exercised.
A summary of the status of the Company's common stock
option plan as of December 31, 1997 and changes during
the year then ended is presented below:
<TABLE>
<CAPTION>
Weighted
Average
Common Exercise
No. of Options Shares Price
<S> <C> <C>
Outstanding at beginning of year - -
Granted 310,000 $ .065
Exercised - -
Forfeited - -
Outstanding at end of year 310,000 $ .065
Available for exercise currently 310,000
</TABLE>
Information about common stock options outstanding at
December 31, 1997 is as follows:
<TABLE>
<CAPTION>
Weighted
# of Shares Average Weighted
Range of Outstanding Remaining Average
Exercise and Contractual Exercise
Prices Exercisable Life Price
<S> <C> <C> <C>
$ .05 300,000 4.3 yrs. $ .05
$ .50 10,000 4.6 yrs. $ .50
310,000
</TABLE>
On February 5, 1998, the Company issued to its
controller an option to purchase 10,000 shares of
common stock at an option price of $1 per share. The
option expires on July 31, 2002.
In 1997, the Company adopted the disclosure aspects of
Statement of Financial Accounting Standards (SFAS) No.
123, "Accounting for Stock-Based Compensation." The
Company applies Accounting Principles Board (APB)
Opinion No. 25 in accounting for its stock option plan
and, accordingly, no compensation cost will be
recognized in the financial statements for outstanding
stock options to be issued to employees. Companies that
do not adopt a fair value method contemplated in SFAS
No. 123 are required to make pro-forma disclosures of
net loss and loss per share as if they had adopted the
fair value accounting method.
<PAGE>
Unaudited Financial Statements for the three months ended
March 31, 1998
AURORA ENERGY, LTD.
(a development stage company)
STATEMENT OF FINANCIAL POSITION
MARCH 31, 1998
(UNAUDITED)
<TABLE>
<CAPTION>
ASSETS 1998
<S> <C>
Current assets
Cash and cash equivalents $ 514,017
Accounts receivable 466,485
Prepaid expenses 1,284
Total current assets 981,786
Oil and gas properties, not subject to
amortization, using full cost accounting 818,206
Investment in oil and gas partnerships 135,903
Property and equipment, net 65,468
Total assets $2,001,363
</TABLE>
See accompanying notes.
<PAGE>
<TABLE>
LIABILITIES AND STOCKHOLDERS' EQUITY 1998
<S> <C>
Current liabilities
Accounts payable $ 318,443
Current portion of capital lease obligations 5,225
Advances from investors 184,600
Accrued expenses 23,457
Total current liabilities 531,725
Capital lease obligations, net of current portion 35,564
Total liabilities 567,289
Stockholders' equity
Common stock, $.001 par value;
500,000,000 shares authorized;
8,691,697 shares issued and outstanding 8,692
Additional paid-in capital 1,869,073
Deficit accumulated during the
development stage (443,691)
Total stockholders' equity 1,434,074
Total liabilities and stockholders' equity $2,001,363
</TABLE>
See accompanying notes
<PAGE>
AURORA ENERGY, LTD.
(a development stage company)
STATEMENT OF OPERATIONS
FOR THE PERIOD FROM MARCH 12, 1997 (INCEPTION)
THROUGH MARCH 31, 1997 AND FOR THE THREE MONTHS ENDED
MARCH 31, 1998
(UNAUDITED)
<TABLE>
<CAPTION>
For the period
March 12, 1997
Three months ended March 31 (Inception)through
1998 1997 March 31, 1998
<S> <C> <C> <C>
Revenues $ (2,792) $ -- $ 37,583
General and
administrative
expenses 151,915 835 381,176
Operating loss (154,707) (835) (343,593)
Other income (expense)
Equity in loss of
investee
partnership (44,184) -- (87,870)
Interest income 7,542 -- 9,001
Interest expense (1,498) -- (21,229)
Other expense, net (38,140) (100,098)
Net loss $(192,847) $ (835) (443,691)
Net loss per basic
and diluted common
share $ (0.02) $ (NIL) $( .08)
</TABLE>
See accompanying notes.
<PAGE>
AURORA ENERGY, LTD.
(a development stage company)
STATEMENT OF CHANGES IN STOCKHOLDERS' EQUITY
FOR THE PERIOD MARCH 12, 1997 (INCEPTION) THROUGH MARCH 31,
1998
<TABLE>
<CAPTION>
Deficit
Accumulated
Additional During the
Common Stock Paid in Developmental
Shares Amount Capital Stage Totals
<S> <C> <C> <C> <C> <C>
Common stock
issued for
cash at $.001
per share 514,997 $ 515 $ -- $ $ 515
Common stock
issued for
cash at $.025
per share 580,000 580 13,920 14,500
Common stock
issued in
exchange for
interest in
oil and gas
partnership 5,575,200 5,575 137,425 143,000
Common stock
issued for
cash at $1.00
per share 50,000 50 49,950 50,000
Common stock
issued in
exchange for
cancellation
of loan
at $.7142857
per share 700,000 700 499,300 500,000
Common stock
issued for
cash at $.90
per share 1,191,500 1,192 1,071,158 1,072,350
Common stock
issued in
exchange
for working
interests in
the Corydon
Project 80,000 80 79,920 80,000
Common stock
options issued
to consultant
and non-employee
director -- -- 17,400 17,400
Net Loss (443,691) (443,691)
Balance at
3/31/98 8,691,697 $ 8,692 $1,869,073 $(443,691) $1,434,074
</TABLE>
See accompanying notes.
<PAGE>
AURORA ENERGY, LTD.
(a development stage company)
STATEMENT OF CASH FLOWS
FOR THE PERIOD FROM MARCH 12, 1997 (INCEPTION)
THROUGH DECEMBER 31, 1997 AND THE QUARTER ENDED
MARCH 31, 1998 (UNAUDITED)
<TABLE>
<CAPTION>
For the period
March 12, 1997
(Inception) to
March 31, 1998
(Cumulative)
(Unaudited) 1998 1997
<S> <C> <C> <C>
Cash flows from operating activities:
Net loss $(443,691) $ (192,847) $ (250,844)
Adjustments to reconcile net loss
to net cash used in operating
activities:
Depreciation and amortization 2,929 2,196 733
Equity in loss of investee
partnership 87,870 44,184 43,686
Services received in exchange
for stock options 17,400 0 17,400
Changes in operating assets
and liabilities which provided
(used) cash:
Accounts receivable (466,485) (162,315) (304,170)
Prepaid expenses (1,284) 3,666 (4,950)
Accounts payable 318,443 132,291 186,152
Accrued expense 23,737 435 23,302
Net cash used in operating activities (461,081) (172,390) (288,691)
Cash flows from investing activities
Capital expenditures for investee
partnership (80,773) (80,773) 0
Capital expenditures for oil and
gas properties (738,206) (37,356) (700,850)
Capital expenditures for property
and equipment (21,028) (5,360) (15,668)
Net cash used in investing activities (840,007) (123,489) (716,518)
Cash flows from financing activities
Proceeds from the sale of common stock 1,137,085 198,170 938,915
Proceeds of loan from financial
institution 500,000 0 500,000
Advances from affiliate 175,000 0 175,000
Repayment of advancement from
affiliate (175,000) 0 (175,000)
Advances from investors 184,600 95,600 89,000
Payments made to reduce capital
lease obligations (6,580) (2,282) (4,298)
Net cash provided by financing activities 1,815,105 291,488 1,523,617
Net increase in cash and cash equivalents 514,017 (4,391) 518,408
Cash and cash equivalents,
beginning of period -- 518,408 --
Cash and cash equivalents, end
of period $ 514,017 $ 514,017 $ 518,408
</TABLE>
See accompanying notes.
<PAGE>
AURORA ENERGY, LTD.
(A DEVELOPMENT STAGE COMPANY)
NOTES TO FINANCIAL STATEMENTS
(UNAUDITED)
NOTE 1 BASIS OF PRESENTATION
The accompanying unaudited condensed financial statements
have been prepared in accordance with generally accepted
accounting principles for interim financial information and
with the instructions to form 10-QSB and Article 10 of
Regulation S-X. Accordingly, they do not include all of the
information and footnotes required by generally accepted
accounting principles for complete financial statements. In
the opinion of management, all adjustments (consisting only
of normal recurring accruals and recognition of equity in
the results of operations of affiliates) considered
necessary for a fair presentation have been included.
Operating results for the three month period ended March 31,
1998 are not necessarily indicative of the results that may
be expected for the year ended December 31, 1998. For
further information, refer to the financial statements and
footnotes thereto included in the Company's annual report
for the period March 12, 1997 (inception) through December
31, 1997.
NOTE 2 COMPUTATION LOSS PER SHARE
Loss per share is computed for the three months ended March
31, 1998 and for the period March 12, 1997 to March 31, 1997
using the weighted average number of common shares
outstanding during the period (8,579,842 and 4,635,130
respectively) determined pursuant to Statement of Financial
Accounting Standards (SFAS) No. 128, "Earnings Per Share".
This Statement requires a dual presentation and
reconciliation of "basic" and "diluted" per share
amounts. Diluted reflects the potential dilution of all
common stock equivalents. Since the assumed exercise of
common stock options would be antidilutive for all periods
presented, such exercise is not assumed for purposes of
determining diluted loss per share. Accordingly, diluted
and basic per share amounts are equal.
<PAGE>
PART III
ITEM 1. INDEX TO EXHIBITS
Page
(3)(i) Articles of Incorporation 56
(3)(ii) P Bylaws
(4) Instruments defining rights of
security holders See Exhibit (3)(i) - Articles
(9) Voting Trust Agreement None
(10) Material Contracts 60
1997 Stock Option Plan
P Stock Option Agreement with Gary Myles
P Stock Option Agreement with John M. Lohman
P Business Consultant Agreement with James C. Czirr
P Stock Option Agreement with James C. Czirr
P Amendment to Stock Option Agreement with James C. Czirr
P Rental Agreement
P First of America Loan Documents
P Dumada Project Development Agreement
P Amendment to Dumada Project Development Agreement
P Letter Agreement for acquisition of Dumada Project
P St. Blue Lake 1-4 Letter Agreement
P Beregsasi 1-5 Letter Agreement
P Sublease Agreement for office
P Renewal of Lease letter
P Letter Agreement with Karl Schroeder
(27) Financial Data Schedule 69
(99) Additional Exhibits
P Reserve and Economic Evaluation of Dumada Project
prepared by S.A. Holditch & Associates, Inc.
P Analysis of Avery, Paxton, Quarry, Black River,
Maxwell, Fairview and Alpena Projects, prepared
by S.A. Holditch & Associates, Inc.
P Reserve and Economic Evaluation of Paxton,
Quarry, Antrim Shale Project prepared by S.A.
Holditch & Associates, Inc.
P State Blue Lake 1-4 reserve estimate prepared by
Theresa Sloan, Consultant
P First of America Irrevocable Letter of Credit to
State of Michigan
P Empire National Bank letter of credit to State
of Kentucky
P Blanket Surety Bond to State of Indiana
P State of Ohio Owner Number notification
P Blanket Surety Bond to State of Ohio
P Three Ohio Oil and Gas Well Drilling Permits
Three State of Indiana Drilling and Operating
Permits
SIGNATURES
In accordance with Section 12 of the Securities
Exchange Act of 1934, the registrant caused this amended
registration statement to be signed on its behalf by the
undersigned, thereunto duly authorized.
AURORA ENERGY, LTD.
By://William W. Deneau, President//
Date: December 11, 1998
<PAGE>
RESTATED ARTICLES OF INCORPORATION
OF
AURORA ENERGY, LTD.
KNOW ALL MEN BY THESE PRESENTS:
That we the undersigned, having this day associated
ourselves together for the purpose of forming a corporation
under and by virtue of the laws of the State of Nevada,
hereby adopt the following Articles of Incorporation:
ARTICLE I
The name of the corporation is Aurora Energy, Ltd.
ARTICLE II
The principal place of business of the corporation located
within the State of Nevada shall be 825 N. Lamb, No. 77, Las
Vegas, Nevada. Corporate mail to be directed to: P. O. Box
70011, Las Vegas, Nevada 89170-0011, in Clark County. The
Board of Directors may establish from time to time other
offices within and without the State of Nevada.
ARTICLE III
The nature of the business or purposes proposed to be
transacted or carried on by the corporation shall be to
engage in any lawful activity.
ARTICLE IV
The total authorized capital stock of the corporation is the
amount of Five Hundred Million shares of common stock having
a par value of $.001 per share.
ARTICLE V
The names and post office addresses of the Board of
Directors of Aurora Energy, Ltd. are as follows:
William W. Deneau
President and Director
2533 N. Carson Street
Carson City, NV 89706
Barbara J. Johnson
Secretary
2533 N. Carson Street
Carson City, NV 89706
Thomas W. Tucker
Treasurer and Director
2533 N. Carson Street
Carson City, NV 89706
John V. Miller
Director and Vice President
2533 N. Carson Street
Carson City, NV 89706
Gary J. Myles
Director
2533 N. Carson Street
Carson City, NV 89706
The business and affairs of the Corporation shall be
conducted by a board of directors of such number as the By-
laws may provide: but the directors may not be less than
three. A governing board of directors may elect to increase
the number of directors by a vote of the board.
ARTICLE VI
Consideration for issuance of shares may be paid in whole or
in part, in money, labor, property, or other things of value
to the Corporation. When payment of the consideration for
which said shares are to be issued shall have been received
by the Corporation, such shares shall be deemed to be fully
paid and non-assessable. In absence of fraud in the
transaction, the judgment of the Board of Directors as to
the value of the consideration for shares shall be
conclusive.
ARTICLE VII
The Board of Directors shall have the power to authorize
from time to time, other classifications of stock, such as
preferred, special, or additional common, and to designate
the number of said shares and shall fix and determine the
designations, rights, preferences or other variations of
each class or series of stock. The Board of Directors shall
also have the power to authorize the issuance of bonds, and
variations of same for any purpose determined by the Board,
to be in the best interests of the Corporation, and its
shareholders.
ARTICLE VIII
The Corporation shall have perpetual existence.
ARTICLE IX
Any one or more of the directors may be removed, with or
without cause, at any time by a vote or written consent of
the stockholders representing a majority of the issued and
outstanding capital stock of the Corporation entitled to
voting power.
ARTICLE X
The Board of Directors shall elect or appoint officers:
president, secretary, treasurer, etc., a resident agent, and
such other officers, agents, advisors or others for the
administration of the business of the Corporation as it
shall from time to time determine. Officers of the
Corporation need not be members of the Board of Directors.
ARTICLE XI
In furtherance and not in limitation of the powers vested by
law, the Board of Directors is expressly authorized:
A. To hold meetings within or without the State of Nevada.
B. If the By-laws so provide, to designate two or more of
its number to constitute an Executive Committee, which
Committee shall have and exercise any or all of the powers
of the Board of Directors in the management of the business
and affairs of the Corporation.
C. Subject to the Bylaws: to make, alter, amend or change
the By-laws of the Corporation.
D. Subject to the By-laws, to appoint a resident agent of
the state of domicile; to dismiss the registrant agent and
file an appointment of another resident agent, for any valid
reason what-so-ever.
ARTICLE XII
To the extent permitted by law, the private property of each
and every stockholder, officer and director of the
Corporation, real or personal, tangible or intangible, now
owned or hereafter acquired by any of them, is and shall be
forever exempt from all debts and obligations of the
Corporation, of any type what-so-ever.
ARTICLE XIII
The Corporation shall indemnify all of its officers and
directors, present and future, against any and all expenses
incurred by them, and each of them including, but not
limited to, legal fees, judgments, and penalties which may
be incurred, rendered, or levied in any legal action brought
against any or all of them for or on account of any act or
omission alleged to have been committed while acting within
the scope of their duties as officers or directors of this
Corporation.
ARTICLE XIV
The names and post office addresses of the incorporators are
as follows:
Name Post Office Address
H. Eugene Gerke P.O. Box 70011, Las Vegas, NV 89170
Nicky R. Vaughn P.O. Box 390, Brisbane, CA 94005
Harold D. Blethen P. O. Box 6175, San Jose, CA 95150
ARTICLE XV
The Corporation's shareholders do not have a preemptive
right to acquire the Corporation's unissued shares.
ARTICLE XVI
A director or officer is not liable for damages for breach
of fiduciary duty as a director or officer except for: (a)
acts or omissions which involve intentional misconduct,
fraud or a knowing violation of the law; or (b) the payment
of a distribution in violation of NRC 78.300.
<PAGE>
AURORA ENERGY, LTD.
1997 STOCK OPTION PLAN
1. PURPOSE
The Aurora Energy, Ltd. 1997 Stock Option Plan (the "Plan")
is intended as an incentive to employees (whether or not
officers) of Aurora Energy, Ltd. and its subsidiaries
(collectively, the "Company"), and to certain consultants
and advisors who perform substantial services for the
Company, by enabling them to acquire or increase their
proprietary interest in the Company through ownership of the
Company's common stock, $0.001 par value ("Common Stock").
The purposes of the Plan are to provide an equity and
financial incentive to enable the Company to retain valuable
employees, to attract new employees, to obtain the services
of consultants, to encourage the sense of proprietorship of
such persons in the Company, and to stimulate the active
interest of such persons in the development and financial
success of the Company.
2. STATUS OF OPTIONS
Options granted under the Plan shall constitute either
incentive stock options ("Incentive Stock Options") within
the meaning of Section 422 of the Internal Revenue Code, as
amended (the "Code"), or options which are not incentive
stock options ("Non-Incentive Stock Options"). The
Incentive Stock Options and the Non-Incentive Stock Options
which may be granted under the Plan are referred to herein
collectively as "Options".
3. ADMINISTRATION
The Plan shall be administered by a committee (the
"Committee") of the Board of Directors of Aurora Energy,
Ltd. (the "Board of Directors"). The Committee shall not
consist of less than two members of the Board of Directors.
The Board of Directors may from time to time remove members
from, or add members to, the Committee. Vacancies on the
Committee, howsoever caused, shall be filled by the Board of
Directors from the Board of Directors. The Committee shall
select one of its members as chairman, and shall hold
meetings at such times and places as it shall select. Acts
approved by a majority of the Committee in attendance at
meetings at which a majority of the entire Committee is
present, or acts reduced to and approved in writing by all
of the members of the Committee, shall be the valid acts of
the Committee. The Committee shall have full and complete
power and authority, with further approval by the Board of
Directors, to designate those persons who shall receive
Options pursuant to the Plan; to grant Options pursuant to
the Plan; to determine whether Options granted pursuant to
the Plan shall be Incentive Stock Options or Non-Incentive
Stock Options; to establish the dates upon which Options
granted pursuant to the Plan shall be exercisable, the
purchase price of the common stock subject to Options
granted pursuant to the Plan and all other terms and
conditions concerning the Options or their exercise; to
interpret the provisions and supervise the administration of
the Plan; and to otherwise further the purposes of the Plan.
The interpretation and construction by the Committee of any
provision of the Plan, or of any Option granted under it,
shall be final, conclusive and binding upon the Company and
all persons who are granted Options under the Plan. No
member of the Board of Directors or the Committee shall be
liable for any action or determination made in good faith
with respect to the Plan, or any Option granted hereunder.
4. ELIGIBILITY
4.1. Incentive Stock Options
The persons who shall be eligible to receive Incentive Stock
Options under the Plan shall be such full or part time
employees (including officers, whether or not they are
directors) of the Company, or of its subsidiaries as in
Section 424(f) of the Code, as the Committee shall select
from time to time. Except as otherwise specifically
provided herein, no employee shall be eligible to receive
Incentive Stock Options under the Plan if, at the date such
options are granted, such employee owns stock possessing
more than 10 percent of the total combined voting power of
all classes of stock of the Company, or of any parent or
subsidiary Company, including stock attributable to the
employee pursuant to Section 424(d) of the Code; provided,
however, that any employee who would have been otherwise
eligible to receive Incentive Stock Options under the Plan,
but for the fact that such employee owns stock possessing
more than 10 percent of the total combined voting power of
all classes of stock, as provided above, shall be eligible
to receive Incentive Stock Options under the Plan if, at the
time such Incentive Stock Options are granted, the purchase
price for the Common Stock subject to such Options is at
least 110 percent of the fair market value of the Common
Stock, and if the Incentive Stock Options granted to such
employee are not exercisable after the expiration of five
years from the date such options are granted.
4.2 Non-Incentive Stock Options
The Persons who shall be eligible to receive Non-Incentive
Stock Options under the Plan shall be employees of the
Company or consultants or advisors to the Company, as
defined in the instructions to Securities and Exchange
Commission Form S-8, or such successor form, who perform
substantial services for or on behalf of the Company or any
of its affiliates or any entity in which the Company has an
interest, all as the Committee shall select from time to
time.
5. COMMON SHARES SUBJECT TO THE PLAN
The shares which shall be subject to Options granted
pursuant to the Plan shall be the Company's authorized but
unissued or reacquired Common Stock. The aggregate number
of Common Stock which may be issued pursuant to Options
granted under the Plan shall not exceed 1,000,000 shares
(the "Shares"). The limitations established by each of the
preceding sentences shall be subject to adjustment as
provided in Section 8 hereof. In the event that any
outstanding Option under the Plan for any reason expires or
is terminated, the Shares allocable to the unexercised
portion of such Option may again be made the subject of an
Option under the Plan.
6. TERMS AND CONDITIONS OF INCENTIVE STOCK OPTIONS
Incentive Stock Options granted pursuant to the Plan shall
be authorized by the Committee and shall be evidenced by
Option agreements or certificates which shall be in such
form and which shall contain such provisions consistent with
the Plan as the Committee shall deem necessary and
appropriate, including the terms of the Option grant and any
applicable vesting schedule. Each Incentive Stock Option
granted pursuant to the Plan shall comply with and be
subject to the following terms and conditions:
6.1. Employment Arrangement
The granting, of an Incentive Stock Option to any employee,
shall not impose upon the Company any obligation to retain
the employee in its employ for any period.
6.2. Number of Shares
Each Incentive Stock Option shall state the number of Shares
to which it pertains.
6.3. Option Price
Each Incentive Stock Option shall state the purchase price
of the Shares subject to such Option, which shall not be
less than 100 percent of the Fair Market Value of the Shares
on the date of the granting of the Incentive Stock Option.
The Fair Market Value of the Shares shall be the last
reported sale price of the Common Stock on the day of grant,
as reported on the open market, or on any stock exchange
that the Common Stock may be listed from time to time; or,
if there was no such sale price on the day of grant on the
day next preceding the day of grant on which there was such
a sale. The purchase price of Shares subject to Incentive
Stock Options granted to any employee who owns stock
possessing more than 10 percent of the total combined voting
power of all classes of stock of the Company shall be
determined in accordance with Paragraph 4.1 hereof.
6.4. Medium and Time of Payment
The share purchase price of Incentive Stock Options shall be
payable upon the exercise of the Option and may be paid by
cash, or by the delivery to the Company of such other form
of consideration as determined by the Committee and as
permitted by applicable law, including, but not limited to,
shares underlying the Option being exercised, provided that
no type of consideration which would disqualify the Option
as an Incentive Stock Option under Section 422 of the Code
shall be approved by the Committee. An Incentive Stock
Option shall be exercised by written notice to the Company
at its principal office. Such notice shall state the
optionee's election to exercise the Option, shall state the
exact number of Shares as to which exercise is being made
and shall be accompanied by payment of the full purchase
price of such Shares. The Incentive Stock Option shall be
deemed exercised upon the date the Company actually receives
the notice and payment required by this Paragraph 6.4. The
Company shall deliver to the person exercising the Incentive
Stock Option a certificate or certificates representing the
Shares covered by such Option as soon as practical after the
required notice and payment have been received by the
Company. However, the Company shall not be obligated to
issue any Shares unless and until, in the opinion of the
Company's legal counsel, all laws and regulations have been
satisfied.
6.5. Expiration of Incentive Stock Option
No Incentive Stock Option granted pursuant to the Plan shall
be exercisable in whole or in part, at any time after the
expiration of 10 years from the date such Option is granted
(or five years, as provided in Paragraph 4.1 above).
6.6. Terms and Exercise
Each Incentive Stock Option granted pursuant to the Plan may
be exercised only as provided in the agreement executed by
the Company and the employee, which shall contain such
provisions as to a vesting schedule and other terms or
conditions for exercise of the Incentive Stock Options as
the Committee may, in its sole discretion, determine and
approve. Unless otherwise provided in the Plan or the
agreement between the employee and the Company, any portion
of the Incentive Stock Option not in fact exercised in the
year in which it vests shall not lapse and may be exercised
at any time during the remaining term of the Incentive Stock
Option. No Incentive Stock Option or installment thereof
shall be exercisable except as to whole Shares, and
fractional Share interests shall be disregarded.
6.7. Nontransferability
No Incentive Stock Option shall be assignable or
transferable by the employee, other than by will or the laws
of descent and distribution, as provided in Paragraph 6.9
hereof. During the lifetime of the employee, consultant, or
advisor, the Non-Incentive Stock Option shall be exercisable
only by such employee.
6.8. Termination of Employment Except Disability or Death
If the employee shall cease to be employed by the Company
for any reason except disability, death, or termination for
cause, Incentive Stock Options granted to such employee, to
the extent vested upon the date such employee's employment
terminates and to the extent not theretofore exercised,
shall be exercisable at any time within three months after
such cessation of employment. The transfer of the employee
from the employ of Aurora Energy, Ltd. to a subsidiary, or
vice versa, or from one subsidiary to another, shall not be
deemed a cessation of employment; provided however, that no
Incentive Stock Option shall be exercisable, under any
condition, after the expiration of 10 years from the date of
its grant (or five years as provided in Paragraph 4.1
above.) Whether authorized leave of absence or absence for
military or governmental service shall constitute
termination of employment, for the purposes of the Plan,
shall be determined by the Committee, which determination
shall be final and conclusive. If an employee's employment
is terminated for cause, as determined by the Company, all
rights under any and all Options shall expire concurrent
with said termination.
6.9. Death or Disability of Optionee
If the employee shall die or become disabled while in the
employ of the Company and shall not have theretofore fully
exercised Incentive Stock Options granted under the Plan,
such Incentive Stock Options may be exercised, to the extent
that the employee's right to exercise such Incentive Stock
Options had accrued and become vested upon the date of the
employee's death or disability, at any time within two years
after the employees' death or disability by the employee or
the employee's legal representative, in the case of
disability, or by the personal representatives, executors or
administrators of the employee's estate, in the case of
death, or by any person or persons who shall have acquired
the Incentive Stock Option directly from the employee by
bequest or inheritance, provided, that under no
circumstances may an Incentive Stock Option granted under
the Plan be exercisable after the expiration of 10 years
from the date upon which such Option was granted (or five
years as provided in Paragraph 4.1 above).
6.10. Value of Shares Issued Upon Exercise
Notwithstanding anything to the contrary provided herein,
the aggregate fair market value, as determined at the time
an Incentive Stock Option is granted, of the Shares with
respect to which Incentive Stock Options granted under the
Plan are exercisable for the first time by the optionee
during any calendar year (under all incentive stock option
plans of the Company) shall not exceed $100,000.
7. TERMS AND CONDITIONS OF NON-INCENTIVE STOCK OPTIONS
Non-Incentive Stock Options granted pursuant to the Plan
shall be authorized by the Committee and shall be evidenced
by agreements which shall be in such form and which shall
contain such provisions consistent with the Plan as the
Committee shall deem necessary and appropriate. Each Non-
Incentive Stock Option granted pursuant to the Plan shall
comply with and be subject to the following terms and
conditions:
7.1. Employment or Association Arrangement
The granting of a Non-Incentive Stock Option to any
employee, consultant or advisor shall not impose upon the
Company any obligation to retain the employee in its employ
or maintain the association with a consultant or advisor for
any period.
7.2. Number of Shares
Each Non-Incentive Stock Option shall state the number of
Shares to which it pertains.
7.3. Option Price
Each Non-Incentive Stock Option shall state the purchase
price for the Shares covered by such Option, which shall not
be less than the Fair Market Value (as provided in Paragraph
6.3) of the Shares.
7.4. Medium and Time of Payment
The option purchase price of Non-Incentive Stock Options
shall be payable upon the exercise of the Option and may be
paid by cash or by delivery to the Company of such other
form of consideration as determined by the Committee and as
permitted by applicable law, including but not limited to,
Shares underlying the Option being exercised. The Non-
Incentive Stock Option shall be exercised by written notice
to the Company at its principal office. Such notice shall
state the optionee's election to exercise the Non-Incentive
Stock Option, shall state the exact number of Shares as to
which exercise is being made and shall be accompanied by
payment of the full option purchase price of such Shares.
The Non-Incentive Stock Option shall be deemed exercised
upon the date the Company actually receives the notice and
payment required by this Paragraph 7.4. The Company shall
deliver to the person exercising the Non-Incentive Stock
Option a certificate or certificates representing the Shares
covered by such Options as soon as practical after the
required notice and payment have been received by the
Company. However, the Company shall not be obligated to
issue any Shares unless and until, in the opinion of the
Company's legal counsel, all laws and regulations have been
satisfied.
7.5. Expiration of Non-Incentive Stock Option
No Non-Incentive Stock Option granted pursuant to the Plan
shall be exercisable by the optionee, in whole or in part,
at any time after the expiration of 10 years from the date
such Option is granted.
7.6. Terms and Exercise
Each Non-Incentive Stock Option granted pursuant to the Plan
may be exercised only as provided in the agreement executed
by the Company and the optionee, which shall contain such
provisions as to a vesting schedule and other terms or
conditions for exercise of the Non-Incentive Stock Option as
the Committee may, in its sole discretion, determine and
approve. Unless otherwise provided in the Plan or in the
agreement between the optionee and the Company, any portion
of a Non-Incentive Stock Option not in fact exercised in the
year in which it vests shall not lapse and may be exercised
at any time during the remaining term of such Non-Incentive
Stock Option. No Non-Incentive Stock Option or installment
thereof shall be exercisable except as to whole Shares, and
fractional Share interests shall be disregarded.
7.7. Nontransferability
No Non-Incentive Stock Option shall be assignable or
transferable by the employee, consultant or advisor, other
than by will or the laws of descent and distribution, as
provided in Paragraph 7.9 hereof. During the lifetime of
the employee, the Non-Incentive Stock Option shall be
exercisable only by such employee, consultant or advisor.
7.8. Termination of Employment Except Disability or Death
If an optionee shall cease to be employed by, or a
consultant or advisor shall cease to be associated with the
Company for any reason except disability, death or
termination for cause, Non-Incentive Stock Options granted
to such optionee, to the extent vested upon the date such
optionee's employment or association with the Company
terminates, and to the extent not theretofore exercised,
shall be exercisable at any time with three months after
such termination of employment or association. The transfer
of the optionee from the employ of Aurora Energy, Ltd. to a
subsidiary, or vice versa, or from one subsidiary to
another, shall not be deemed a cessation of employment;
provided, however, that no Non-Incentive Stock Option shall
be exercisable, under any condition, after expiration of 10
years from the date of its grant. Whether authorized leave
of absence or absence for military or governmental service
shall constitute termination of employment, for the purposes
of the Plan, shall be determined by the Committee, which
determination shall be final and conclusive. If an
optionee's employment, or a consultant or advisor's
association with the Company, is terminated for cause, as
determined by the Committee, all rights under any and all
Options shall expire concurrent with said termination.
7.9. Death or Disability of Optionee
If the optionee shall die or become disabled while employed
by or associated with the Company and shall not have
theretofore fully exercised Non-Incentive Stock Options
granted under the Plan, such Non-Incentive Stock Options may
be exercised, to the extent that the optionee's right to
exercise such Non-Incentive Stock Options had accrued and
become vested upon the date of the optionee's death or
disability, at any time within two years after the
optionee's death or disability by the optionee or the
optionee's legal representative, in the case of disability,
or by the personal representatives, executors or
administrators of the optionee's estate, in the case of
death, or by any person or persons who shall have acquired
the Non-Incentive Stock Option directly from the optionee by
bequest or inheritance, provided, that under no
circumstances may a Non-Incentive Stock Option granted under
the Plan be exercisable after the expiration of 10 years
from the date upon which such Option was granted.
8. CAPITAL ADJUSTMENTS
The number and purchase price of shares of Common Stock
covered by each Option and the total number of shares that
may be granted under the Plan shall be proportionally
adjusted to reflect, subject to any required action by the
stockholders, any stock dividend or split, recapitalization,
merger, consolidation, spin-off, reorganization, combination
or exchange of shares or other similar change in the capital
structure of the Company.
9. APPROVALS
The issuance of options and shares pursuant to this Plan is
expressly conditioned upon obtaining all necessary approvals
from all regulatory agencies from which approval is
required, and upon obtaining stockholder ratification of the
Plan.
10. EFFECTIVE DATE OF PLAN
The effective date of the Plan is October 1, 1997.
11. TERM AND AMENDMENT OF PLAN
This Plan shall expire on September 30, 2007 (except to
Options outstanding on that date), subject to the Board's
power to terminate the Plan at any time.
The Board of Directors may from time to time, insofar as
permitted by law, suspend or discontinue the Plan or revise
or amend it in any respect whatsoever with respect to any
Shares not subject to Options at the time of such action;
provided, however, that without approval of the stockholders
of the Company, such revision or amendment shall not change
the number of shares subject to the Plan, change the
designation of the class of persons eligible to receive
Options, decrease the price at which Options may be granted,
or remove the administration of the Plan from the Committee.
12. WITHHOLDING TAXES
The Company shall have the right to deduct withholding taxes
from any payments made pursuant to the Plan or to make such
other provisions as it deems necessary or appropriate to
satisfy its obligations to withhold federal, state, or local
income or other taxes incurred by reason of payments or the
issuance of shares of Common Stock under the Plan. Whenever
under the Plan, shares of Common Stock are to be delivered
upon exercise of an option, the Committee shall be entitled
to require as a condition of delivery that the optionee
remit an amount sufficient to satisfy all federal, state and
other government withholding tax requirements related
thereto.
13. PLAN NOT A TRUST
Nothing contained in the Plan and no action taken pursuant
to the Plan shall create or be construed to create a trust
of any kind, or a fiduciary relationship, between the
Company and any optionee, the executor, administrator or
other personal representative, or designated beneficiary or
such optionee, or any other persons. If and to the extent
that any optionee or such optionee's executor, adminstrator
or other personal representative, as the case may be,
acquires a right to receive any payment from the Company
pursuant to the Plan, such right shall be no greater than
the right of an unsecured general creditor of the Company.
14. NOTICES
Each optionee shall be responsible for furnishing the
Committee with the current and proper address for the
mailing of notices and delivery of agreements, Common Stock
and cash pursuant to the Plan. Any notices required or
permitted to be given shall be deemed given if directed to
the person to whom addressed at such address and mailed by
regular United States mail, first-class and prepaid. If any
item mailed to such address is returned as undeliverable to
the addressee, mailing will be suspended until the optionee
furnishes the proper address. This provision shall not be
construed as requiring the mailing of any notice or
notification if such notice is not required under the terms
of the Plan or any applicable law.
15. SEVERABILITY OF PROVISIONS
If any provision of this Plan shall be held invalid or
unenforceable, such invalidity or unenforceability shall not
affect any other provisions hereof, and this Plan shall be
construed and enforced as if such provision had not been
included. It is the intent of the Board of Directors that
Incentive Stock Options shall qualify for treatment under
Section 422 of the Code as incentive stock options. To that
end, should any provision of the Plan be determined to
invalidate such treatment, such provision shall not be a
part of the Plan, and shall be severable from and shall not
affect the remaining provisions of the Plan.
16. PAYMENT TO MINORS, ETC.
Any benefit payable to or for the benefit of a minor, an
incompetent person or other person incapable of receipting
therefore shall be deemed paid when paid to such person's
guardian or to the party providing or reasonably appearing
to provide for the care of such person, and such payment
shall fully discharge the Committee, the Company and other
parties with respect thereto.
17. HEADINGS AND CAPTIONS
The headings and captions herein are provided for reference
and convenience only, shall not be considered part of the
Plan, and shall not be employed in the construction of the
Plan.
18. CONTROLLING LAW
This Plan shall be construed and enforced according to the
laws of the State of Michigan to the extent not preempted by
federal law, which shall otherwise control.
<PAGE>
Exhibit 27 - Financial Data Schedule
Article 5 of Regulation S-X
<TABLE> <S> <C>
<ARTICLE> 5
<MULTIPLIER> 1
<S> <C>
<PERIOD-TYPE> 9-MOS
<FISCAL-YEAR-END> DEC-31-1998
<PERIOD-END> SEP-30-1998
<CASH> 404,665
<SECURITIES> 0
<RECEIVABLES> 229,451
<ALLOWANCES> 0
<INVENTORY> 0
<CURRENT-ASSETS> 640,310
<PP&E> 69,986
<DEPRECIATION> 7,011
<TOTAL-ASSETS> 2,827,780
<CURRENT-LIABILITIES> 1,273,927
<BONDS> 26,068
0
0
<COMMON> 8,692
<OTHER-SE> 1,869,073
<TOTAL-LIABILITY-AND-EQUITY> 2,827,780
<SALES> 0
<TOTAL-REVENUES> 16,964
<CGS> 0
<TOTAL-COSTS> 3,533
<OTHER-EXPENSES> 102,570
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 8,448
<INCOME-PRETAX> (205,952)
<INCOME-TAX> 0
<INCOME-CONTINUING> 0
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 205,952
<EPS-PRIMARY> .037
<EPS-DILUTED> .037
</TABLE>
