Securities and Exchange Commission
Washington, DC 20549
FORM 10-SB
AMENDMENT NO. 2
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)
(IRS Employer Identification No) 91-1780941
3760 North US 31 South,
Traverse City, Michigan 49684
(address of principal executive offices)(Zip
Code)
Issuer's telephone number:(616) 941-0073
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.
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 proven reserves. However,
production has begun in the East 23, Timm, Devil
River, and Paxton Quarry Antrim Shale projects
in Michigan, and the Corydon New Albany Shale
wells in Indiana. The Company also owns small
purchased interests in two productive
properties: The Lodgepole Stadium Field in
North Dakota, and the Merrick Estate #1 in
Louisiana.
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
Company's common stock. John Miller, Thomas W.
Tucker and William W. Deneau were each issued
1,858,400 shares of the Company's common stock
(83% of the Company's outstanding shares).
(NOTE: the interest acquired by the Company
equates to 100% of Messrs. Miller, Tucker and
Deneau's 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 13 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.
In April of 1998, the Company began leasing
approximately 13,000 acres in a Trenton gas
project in northwest Ohio known as the
Crossroads Project. The Company has secured
financing for all phases of development. Nine
wells are in development. Upon completion of
the first nine wells, the first six months of
production will be a period of evaluation to
confirm and refine reserve estimates. (See
page 13 for a description of the Crossroads
project.)
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 (now known as National City 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, licenses,
franchises or concessions. These are not needed
for the Company's successful operation. On
December 29, 1998, the Company was granted a
service mark registration for its logo,
registration number 2,214,144 from the U.S.
Patent and Trademark Office.
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 was initially 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 initially given a
five-year option to purchase 300,000 shares of
the Company's common stock at a price of $.05
per share. On March 19, 1999, this agreement
was amended to reduce the number of shares under
option to 16,000. 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. (now known as National City
Bank), 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 December 31, 1998, $610,000 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 will continue its
focus in the Midwest. However, it will not
restrict its activity to this area.
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
produce a profit while covering 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 wells in the various drilling
units in Michigan to continue in production and
begin to produce positive cash flows.
The Paxton Quarry Project began commercial
production in 1998. Management expects that it
will begin to generate revenue from production
in 1999.
Management expects the Crossroads Projects'
initial nine-well pilot unit to begin production
in 1999. There are 80 existing well bores that
can be re-entered for further production. The
Company currently owns leases on 39 existing
well bores that are candidates for production.
The Company will continue to take steps to
reduce the overhead of the Corydon Project
operations. The Company began operating the
Corydon Project for Jet/LaVanway Exploration,
L.L.C. in November, 1998. Three re-entry wells
were drilled and completed in 1998. The
gathering system and processing facility are
under construction.
In the Dumada Project, a 10-well production unit
is planned for development. The Company does
not currently have funding to develop this
initial 10-well unit. If funding is not
obtained, this project will have to be deferred.
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 begin producing
the oil and associated natural gas in 1999.
During the next 12 months, in addition to
completing and bringing into production current
projects under development, the Company will
pursue income producing properties, either
royalty or working interest, that would enhance
the Company's cash flows and profitability.
Management also expects to continue to pursue
new oil and gas exploration and development
opportunities while retaining enough flexibility
to accommodate the changes of focus necessitated
by industry developments.
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 is currently exploring several
options, including the possibility of selling
additional shares of the Company's common stock
in an exempt private placement offering.
Management may also acquire capital by selling
off portions of projects with proven reserves
now owned by the Company.
Management also hopes to acquire productive
properties using recourse loan financing. This
may place the Company in a position of
substantial leverage. 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.
YEAR 2000 DISCLOSURES:
BACKGROUND
The Year 2000 Issue is a result of computer
programs being written to recognize two digits
instead of four to identify the applicable year.
Date sensitive computer programs may then
interpret dates using "00" as the year 1900
rather than the year 2000. This could cause
system failures, miscalculations or other system
disruptions, which might temporarily interrupt
the Company's ability to engage in normal
business activities.
PLAN AND STATE OF READINESS
The Company has addressed the most direct
problems associated with the Year 2000 Issue.
Aurora Energy has obtained written assurances
from the appropriate vendors and manufacturers
that 100% of the Company's computer hardware,
and that 100% of all date sensitive software
currently in use by the Company, are Year 2000
compliant. Consequently, the Company
anticipates no expenditures will be required to
bring administrative software and hardware in
compliance with Year 2000 requirements.
The Company has only just begun communicating
with third parties and examining non-
information-technology systems to determine
their state of readiness. The Company
anticipates that by mid-1999 our survey of
material vendors and partners and the inspection
of non-information-technology systems will be
complete. The Company has only a few non-
information-technology systems and does not
expect the costs of remediation to be material.
Aurora Energy estimates that the survey of non-
information-technology systems and third parties
whose lack of readiness for the Year 2000 could
materially affect the Company's ability to
conduct normal day-to-day operations is 5%
complete.
The costs to the Company for a lack of readiness
on the part of vendors, customers and partners
are limited to whatever the temporary
interruption of business functions would total.
The major risks would be interruptions in
communications, banking, and cash flows if the
pipelines and final purchasers of the Company's
gas and oil production were not in compliance.
Cash flow could also be impacted if industry
partners who operate oil and gas properties in
which the Company is invested suffer business
interruptions due to their own lack of
readiness, or due to third party vendors' and/or
customers' lack of readiness for the Year 2000
problem.
CONTINGENCY PLANS
Temporary interruptions in the Company's cash
flows due to Year 2000 Issue problems affecting
purchasers of the Company's oil and gas
production are not expected to present material
difficulties. If, for the same reasons, more
protracted cash flow interruptions are
encountered, the Company plans to access unused
lines of credit and/or borrowing from affiliated
entities to cover the most necessary
disbursements until such time as the normal
order of business is restored
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 test
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 CROSSROADS PROJECT
The Company has leased approximately 13,000
acres in a Trenton gas project in northwest Ohio
known as the Crossroads Project. The Company
currently owns a 50% working interest in the
Crossroads Project, and retains the right to be
project operator. The Company is working on a
nine-well project that it hopes to put into
production in 1999.
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. The Company owns a 29% interest
in this project. Currently 13 wells have been
drilled. Ten wells have been completed and are
producing. Two wells have been plugged. 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. The
initial ten-well phase of this project was
completed with facility and flow lines in
October 1998. Production revenue is expected to
begin in 1999, after division orders and
unitization agreements have been executed.
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 November 1998, the Devil
River project had 10 wells drilled, completed
and in production. The East 23 project has six
wells in production. The Timm project has 21
wells in production. 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. Distributable production revenue is
expected to start in 1999.
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 sold its interest in this project
for $39,000. In connection with the sale, the
Company retained rights to 10% of the working
interest, will be carried 10% in the first test
well, and holds an overriding royalty interest
in the leases.
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. Production is
expected to start in 1999.
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. The
Company acquired an additional 48.5% working
interest in this well in November 1998, when
most of the co-owners relinquished their
interests in order to avoid making further
contributions towards expenses. 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 is
discussing environmental remediation with the
State of Michigan. Should the State not allow
the Company to re-establish production, the
Company will abandon the project rather than
assume any environmental liability.
CHURCH LAKE AND CHIMNEY LAKE PROJECTS
In September of 1998, the Company acquired
interests in approximately 16,000 acres in
Michigan known as the Church Lake Project and
the Chimney Lake Project, targeting the
Richfield and Dundee formations. Each project
is trying to develop oil as well as gas
reserves. These projects may be developed
providing partners can be located which will
drill the wells and cover the Company's share of
expenses. The Company will not develop these
projects without the backing of a qualified
partner(s).
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 Tucker's 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. A&L
is in the process of seeking financing for 100
wells to be drilled in Floyd and Clark Counties,
Indiana.
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 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 December 31, 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, the Merrick Estate #1
in Louisiana, and the wells in the Blue Spruce,
Angel, East 23, Timm, Devil River, and Paxton
Quarry projects in Michigan, and the Corydon
wells in Indiana, are the only interests owned
by the Company that are currently in production.
As of December 31, 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 128.00
Net productive wells 11.72
Gross developed acreage 14,025.00
Net developed acreage 1,971.00
As of December 31, 1998, the Company has leased
mineral rights on gross and net undeveloped
acreage as follows:
Undeveloped gross acreage 196,090
Undeveloped net acreage 29,061
Lease terms are generally five years. The
Company in its present form has been involved in
oil and gas exploration and leasing less than
two years. 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 December 31, 1998,
the Company has participated in the drilling of
productive and dry wells as follows:
Net productive exploratory wells drilled 15.03
Net dry exploratory wells drilled .63
The Company has not drilled any development
wells as of December 31, 1998.
As of December 31, 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 December 31, 1998, the Company had no
contractual commitments to deliver or provide
any fixed and determinable quantities of gas or
oil. The Company had 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. This agreement has
been allowed to expire.
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 Amount and Nature Percent of
of Class of Beneficial Owner of Beneficial Owner Class
<S> <C> <C> <C>
Common Britannia Holdings
Limited*
P. O. Box 615
Kings House
The Grange
St. Peter Port
Guernsey, GY1 2QJ,
Channel Islands 700,000 8.05%
Common The William & Patricia
Deneau Revocable Living
Trust, DTD 10/12/95
3832 Perimeter Drive
Traverse City, MI 49684 1,828,400 21.04%
Common Roger J. Dubuc, Trustee
Roger J. Dubuc Trust
DTD 1/21/87
18677 Foxhollow Court
Northville, MI 48167 500,000 5.75%
Common John V. &
Michelle R. Miller, Trustees
Miller Family Living Trust
DTD 6/25/97
5922 Deertrail Drive
Traverse City, MI 49684 1,787,400 20.56%
Common Thomas W. Tucker
& Sandra L. Tucker
11607 N. Long Lake Road
Traverse City, MI 49684 1,798,400 20.69%
</TABLE>
*Britannia Holdings Limited is an investment and
financing company. None of the officers,
directors or principal shareholders of the
Company are affiliated with Britannia Holdings
Limited.
The security ownership of management is outlined
in the following chart:
<TABLE>
<CAPTION>
Title of Class Name and Address Amount Owned Before Percent
of Owner the 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>
Name of Title & Amount of Exercise Date of
Holder Securities Called Price Exercise
For by Options
<S> <C> <C> <C>
Gary Myles Option to purchase
10,000 shares of
common stock* $.50 per share Expires
July 31,
2002
* 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>
<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 of Exploration
and Production June 26, 1997
to present
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>
Name of Individual Capacity in Which Aggregate
Remuneration Was Received Remuneration<FN>
<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>
<FN1> 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. The Company used
these loan proceeds for working capital. 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
Company used these loan proceeds for working
capital. 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). The Company's current
management has been informed by prior management
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. All three investors
were accredited investors at the time they
acquired the Company's stock.
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, who were
sophisticated and had a prior history of
investment in the oil and gas industry. They
were each individually afforded access to the
information that they requested.
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. The number
of shares under option was reduced to 16,000 on
March 19, 1999. (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. Britannia is an
off-shore accredited investor that is in the
business of providing financing to businesses.
Britannia engaged in a thorough due diligence
process.
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.
A private placement memorandum containing the
information described in Regulation Section
230.502(b) was provided to all investors. 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. There were 35 accredited
investors, and two investors who were
sophisticated and had prior experience in oil
and gas investments.
On December 18, 1997, the Company sold .25% of
working interest in the Dumada project to a
Michigan industry investor[FN] for the sum of
$22,500. The Company relied on Section 4(2) of
the Securities Act of 1933 for an exemption from
registration. The investor was provided all
technical information and copies of all
contracts related to the Dumada project.
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[FN] 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. The investors were provided
all technical information and copies of all
contracts related to the Crossroads Project.
<FN2> A Michigan industry investor is a
sophisticated investor who qualifies under
Michigan Administrative Rule 451.803.5 for the
intra-industry exemption for persons engaged in
the oil and gas business because the person is
engaged full time, and has been for at least
three years in the oil and gas business
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)
TO DECEMBER 31, 1997
<PAGE>
AURORA ENERGY, LTD.
(a development stage company)
TABLE OF CONTENTS
<TABLE>
<CAPTION>
PAGE
<S> <S> <C>
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
</TABLE>
<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> <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>
<CAPTION>
LIABILITIES AND STOCKHOLDERS' EQUITY
<S> <C> <C> <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> <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
December 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> <C> <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>
1. 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
<TABLE>
NON-CASH FINANCING AND INVESTING ACTIVITIES:
<S> <C>
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
</TABLE>
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:
<TABLE>
<S> <C>
Interest $ 19,730
Income taxes none
</TABLE>
<PAGE>
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>
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>
<PAGE>
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 16,000
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
options. On August 1, 1997, the Company issued an
option to purchase 10,000 shares of common stock
at an option price of $.50 per share to a director.
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 26,000 $.22
Exercised -- --
Forfeited -- --
Outstanding at end of year 26,000 $.22
Available for exercise currently 26,000
</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 16,000 4.3 yrs $ .05
$ .50 10,000 4.6 yrs $ .50
26,000
</TABLE>
<PAGE>
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> <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>
<CAPTION>
LIABILITIES AND STOCKHOLDERS' EQUITY 1998
<S> <C> <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
March 31,
1998 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> <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
<TABLE>
<CAPTION>
Page
<S> <C> <C> <C> <C>
(3)(i) Articles of Incorporation 56
(3)(ii) Bylaws 60
(4) Instruments defining rights of
security holders See Ex.(3)(i)
-Articles
(9) Voting Trust Agreement None
(10) Material Contracts
1997 Stock Option Plan 68
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
Amendment to Business Consulting Agreement 77
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 78
(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
P Three State of Indiana Drilling and
Operating Permits
P Trademark Registration
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.
Date: May 11, 1999
By: /William W. Deneau, President/
<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:
</TABLE>
<TABLE>
<CAPTION>
Name Post Office Address
<S> <C>
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>
BY-LAWS
OF
AURORA ENERGY, LTD.
(A corporation whose domicile is the State of
Nevada)
ARTICLE I - OFFICES
Section 1. The registered office of the
Corporation in the State of Nevada shall be at
2533 N. Carson Street, Carson City, Nevada
89706.
The registered agent in charge thereof shall be:
LAUGHLIN & ASSOCIATES OF CARSON CITY, NEVADA.
Section 2. The Corporation may also have
offices at such other places as the Board of
Directors may from time to time appoint or the
business of the Corporation may require.
ARTICLE II - SEAL
Section 1. The Corporate Seal shall have
inscribed thereon the name of the Corporation,
the year of its organization and the words
"Corporate Seal", NEVADA. However, a Corporate
Seal shall not be a requirement.
ARTICLE III - STOCKHOLDERS' MEETING
Section 1. The meetings of stockholders shall
be held at the registered office of the
Corporation in the State of Michigan or such
place, either within or without this State, as
may be selected from time to time by the Board
of Directors.
Section 2. ANNUAL MEETINGS: The annual meeting
of the stockholders shall be held on May 15 of
each year if not a Saturday, Sunday or legal
holiday, and if a Saturday, Sunday or legal
holiday, then on the next secular day following,
at the time and place designated by the Board.
At the annual meeting, the stockholders shall
elect Directors and transact such other business
as may properly be brought before the meeting.
Section 3. ELECTION OF DIRECTORS: Elections of
the Directors of the Corporation may be by
written ballot.
Section 4. SPECIAL MEETINGS; Special meetings
of the stockholders may be called at any time by
the President, or the Board of Directors, or
stockholders entitled to cast at least Twenty-
five percent of the votes which all stockholders
are entitled to cast at the particular meeting.
At any time, upon written request of any person
or persons who have duly called a special
meeting, it shall be the duty of the Secretary
to fix the date of the meeting, to be held not
more than sixty days after receipt of the
request, and to give due notice thereof. If the
Secretary shall neglect or refuse to fix the
date of the meeting and give notice thereof, the
person or persons calling the meeting may do so.
Business transacted at all special meetings
shall be confined to the objects stated in the
call and matters germane thereto, unless all
stockholders entitled to vote are present and
consent, or such shareholders as control a
majority of votes of all outstanding shares.
Written notice of a special meeting of
stockholders stating the time and place and
object thereof, shall be given to each
stockholder entitled to vote thereat at least
ten days before such meeting, unless a greater
period of notice is required by statute in a
particular case.
Section 5. QUORUM: A majority of the
outstanding shares of the Corporation entitled
to vote, represented in person or by proxy,
shall constitute a quorum at a meeting of
stockholders. At the meeting at which a quorum
shall be present or represented, any business
may be transacted which might have been
transacted at the meeting as originally noticed.
If less than a majority of the outstanding
shares entitled to vote is represented at a
meeting, a majority of the shares so represented
may adjourn the meeting without further notice.
The stockholders present at a duly organized
meeting may continue to transact business until
adjournment, notwithstanding the withdrawal of
enough stockholders to leave less than a quorum.
Section 6. PROXIES: Each Stockholder entitled
to vote at a meeting of stockholders or to
express consent or dissent to Corporate action
in writing without a meeting may authorize
another person or persons to act for him by
proxy, but no such proxy shall be voted or acted
upon after three years from its date, unless the
proxy provides for a longer period.
A duly executed proxy shall be irrevocable if it
states that it is irrevocable and if, and only
as long as, it is coupled with interest
sufficient to law to support an irrevocable
power. A proxy may be made irrevocable
regardless of whether the interest with which it
is coupled is an interest in the stock itself or
an interest in the Corporation generally. All
proxies shall be filed with the Secretary of the
meeting before being voted upon.
Section 7. NOTICE OF MEETINGS: Whenever
stockholders are required or permitted to take
any action at a meeting, a written notice of the
meeting shall be given which shall state the
place, date and hour of the meeting and in the
case of a special meeting, the purpose or
purposes for which the meeting is called.
Unless otherwise provided by law, written notice
of any meeting shall be given not less than ten
nor more than sixty days before the date of the
meeting to each stockholder entitled to vote at
such meeting.
Section 8. CONSENT IN LIEU OF MEETINGS: Any
action required to be taken at any annual or
special meeting of stockholders of the
Corporation, or any action which may be taken at
any annual or special meeting of such
stockholders, may be taken without a meeting,
without prior notice and without a vote, if a
consent in writing, setting forth the action so
taken, shall be signed by the holders of
outstanding stock having not less than a
majority of the number of votes that would be
necessary to authorize or take such action at a
meeting at which all shares entitled to vote
thereon were present and voted. Prompt notice
of the taking of the Corporate action without a
meeting by less than unanimous written consent
shall be given to those stockholders who have
not consented in writing.
Section 9. LIST OF STOCKHOLDERS: The officer
who has charge of the stock ledger of the
Corporation shall prepare and make, at least ten
days before every meeting of stockholders, a
complete list of stockholders entitled to vote
at the meeting, arranged in alphabetical order,
and showing the address of each stockholder and
the number of shares registered in the name of
each stockholder. No share of stock upon which
any installment is due and unpaid shall be voted
at any meeting. The list shall be open to the
examination of any stockholder, for any purpose
germane to the meeting, during ordinary business
hours for a period of at least ten days prior to
the meeting, which place shall be specified in
the notice of the meeting. The list shall also
be produced and kept at the time and place of
the meeting during the whole time thereof, and
be inspected by any stockholder who is present.
In event the Corporation has become a publicly
held entity whose shares are currently trading
in the public market place, a certified current
list of the Corporation's shareholders in
alphabetical order, shall be acquired from the
Corporation's Transfer Agent, and the Officer or
Agent in charge at the meeting shall determine
that no share of stock upon which any
installment is due and unpaid shall be voted at
any meeting. In all events the list of
shareholders shall be open to the examination of
any shareholders, for any reason germane to the
meeting.
ARTICLE IV - DIRECTORS
Section 1. The business and affairs of this
Corporation shall be managed by its Board of
Directors, number three or more. The Directors
need not be residents of this State or
shareholders in the Corporation. They shall be
elected by the stockholders at the annual
meeting of stockholders of the Corporation, and
each Director shall be elected for a term of:
until his successor shall be elected and shall
qualify or until his earlier resignation or
removal. The Board may also increase its own
number of members and a chairman and vice-
chairman. In event of all Board positions being
vacated, a majority vote of the shareholders
shall elect a new Board of Directors.
Section 2. REGULAR MEETINGS: Regular meetings
of the Board shall be held without notice at the
Registered Office of the Corporation, or at such
other time and place as shall be determined by
the Board.
Section 3. SPECIAL MEETINGS: Special meetings
of the Board may be called by the President at
any time, with each Director, either personally,
by telephone, or by facsimile transmission, or
by mail, or by telegram. Special meetings shall
be called by the President or Secretary in like
manner and on like notice on the written request
of a majority of the Directors in office.
Section 4. QUORUM: A majority of the total
number of Directors shall constitute a quorum
for the transaction of business.
Section 5. CONSENT IN LIEU OF MEETING: Any
action required or permitted to be taken at any
meeting of the Board of Directors, or of any
committee thereof, may be taken without a
meeting if all members of the Board or
committee, as the case may be, consent thereto
in writing, and the writing or writings are
filed with the minutes of proceedings of the
Board or committee. The Board of Directors may
hold its meetings, and have an office or
offices, outside of this State.
Section 6. CONFERENCE TELEPHONE: One or more
Directors may participate in a meeting of the
Board, of a committee of the Board or of the
stockholders, by means of conference telephone
or similar communications equipment by means of
which all persons participating in the meeting
can hear each other; participation in this
manner shall constitute presence in person at
such meeting.
Section 7. COMPENSATION: Directors shall not
receive any stated salary for their services;
however by resolution of the Board, a fixed sum
for attendance and expenses, if any, may be
allowed for attendance at each regular or
special meeting of the Board. Additionally,
options for non-employee directors as provided
in a stock option plan is provided for herein.
Nothing herein contained shall be construed to
preclude any director from serving the
Corporation in any other capacity and receiving
compensation thereof.
Section 8. REMOVAL: Any Director or the entire
Board of Directors may be removed, with or
without cause, by holders of a majority of the
shares then entitled to vote at an election of
Directors.
ARTICLE V - OFFICERS
Section 1. The executive officers of the
Corporation shall be chosen by the Directors and
in event of a vacancy on the Board the remaining
Directors may appoint a replacement.
The Board of Directors may also choose a
President, one or more Vice Presidents and such
other officers as it shall deem necessary. Any
number of offices may be held by the same
person.
Section 2. SALARIES: Salaries of all officers
and agents of the Corporation shall be fixed by
the Board of Directors.
Section 3. TERM OF OFFICE: The officers of the
Corporation shall hold office until their
successors are chosen and have qualified. Any
officer or agent elected or, appointed by the
Board may be removed by the Board of Directors
whenever in its judgment the best interest of
the Corporation will be served thereby.
Section 4. PRESIDENT: The President shall be
the Chief Executive Officer of the Corporation;
he shall preside at all meetings of the
stockholders and directors; he shall have
general and active management of the business of
the Corporation, shall see that all orders and
resolutions of the Board are carried into
effect, subject, however, to the right of the
directors to delegate any specific powers,
except such as may be by statute exclusively
conferred on the President, to any other officer
or officers of the Corporation. He shall
execute bonds, mortgages and other contracts
requiring a seal, under the seal of the
Corporation. He shall be EX-OFFICIO a member of
all committees, and shall have the general power
and duties of supervision and management usually
vested in the office of President of a
Corporation.
Section 5. SECRETARY: The Secretary shall
attend all sessions of the Board and all
meetings of the stockholders and act as clerk
thereof, and record all the votes of the
Corporation and the minutes of all its
transactions in a book to be kept for that
purpose, and shall perform like duties for all
committees of the Board of Directors when
required. He shall give, or cause to be given,
notice of all meetings of the stockholders and
of the Board of Directors, and shall perform
such other duties as may be prescribed by the
Board of Directors or President, and under whose
supervision he shall be. He shall keep in safe
custody the Corporate Seal of the Corporation,
and when authorized by the Board or President,
affix the same to any instrument requiring it.
Section 6. TREASURER: The Treasurer shall have
custody of the Corporate funds and securities
and shall keep full and accurate accounts of
receipts and disbursements in books belonging to
the Corporation, and shall keep the moneys of
the Corporation in a separate account to the
credit of the Corporation. He shall disburse
the funds of the Corporation as may be ordered
by the Board, taking proper vouchers for such
disbursements, and shall render to the President
and Directors, at regular meetings of the Board,
or whenever they may require it, an account of
all his transactions as Treasurer and of the
financial condition of the Corporation.
ARTICLE VI - VACANCIES
Section 1. Any vacancies occurring in any
office of the Corporation by death, resignation,
removal or otherwise, shall be filled by the
Board of Directors. Vacancies and newly created
Directorships resulting from any increase in the
authorized number of Directors may be filled by
a majority of the Directors then in office,
although less than a quorum, or by a sole
remaining Director. If at any time, by reason
of death or resignation or other cause, the
Corporation should have no Directors in office,
then any officer or stockholder or an executor,
administrator, trustee or guardian of a
stockholder, or other fiduciary entrusted with
the responsibility for the person or estate of a
stockholder, may call a special meeting of
stockholders in accordance with the provisions
of these By-Laws.
Section 2. RESIGNATIONS EFFECTIVE AT FUTURE
DATE: When one or more Directors shall resign
from the Board, effective at a future date, a
majority of the Directors then in office,
including those who so have resigned, shall have
power to fill such vacancy or vacancies, the
vote thereon to take effect when such
resignation or resignations shall become
effective.
ARTICLE VII - CORPORATE RECORDS
Section 1. Any stockholder of record, in person
or by attorney or other agent, shall, upon
written demand under oath stating the purpose
thereof, have the right during the usual hours
for business and with such advance notice to the
Corporation as may be set by the State of Nevada
to inspect for any proper purpose the
Corporation's list of its stockholders, and its
other books and records, and to make copies or
extract therefrom. A proper purpose shall mean
a purpose reasonably related to such person's
interest as a stockholder. In every instance
where attorney or other agent shall be the
person who seeks the rights to inspection, the
demand under oath shall be accompanied by a
Power of Attorney or such other writing which
authorizes the attorney or other agent to so act
on behalf of the stockholders. The demand under
oath shall be directed to the Corporation at its
registered office in this State or at its
principal place of business.
ARTICLE VIII - STOCK CERTIFICATES, DIVIDENDS,
ETC.
Section 1. The stock certificates of the
Corporation shall be numbered and registered,
the transfer books of the Corporation as they
are issued, or by the Corporation's Registrar.
They shall bear the Corporate Seal and shall be
signed by the Corporate transfer agent.
Section 2. TRANSFERS: Transfers of shares
shall be made on the books of the Corporation by
the Registrar in behalf of the Corporation only
upon surrender of the certificates therefore,
endorsed by the person named in the certificate
or by attorney, lawfully constituted in writing.
No transfer shall be made which is inconsistent
with law. A "Do Not Transfer" demand may be
made by the Corporation to its Registrar if for
lawful reasons.
Section 3. LOST CERTIFICATES: The Corporation
may issue a new certificate of stock in the
place of any certificates theretofore signed by
it, alleged to have been lost, stolen or
destroyed, and the Corporation may require the
owner of the lost, stolen or destroyed
certificate, or his legal representative to give
the Corporation a bond sufficient to indemnify
it against any claim that may be made against it
on account of the alleged loss, theft or
destruction of any such certificates or the
issuance of such new certificates.
Section 4. RECORD DATE: In order that the
Corporation may determine the stockholders
entitled to notice of or to vote at any meeting
of stockholders or any adjournment thereof, or
to express consent to Corporate action in
writing without a meeting, or entitled to
receive payment of any dividend or other
distribution or allotment of any rights, or
entitled to exercise any rights in respect of
any change, conversion or exchange of stock or
for the purpose of any other lawful action, the
Board of Directors may fix, in advance, a record
date, which shall not be more than sixty nor
less than ten days before the date of such
meeting, nor more than sixty days prior to any
other action.
If no record date is fixed:
(a) The record date for determining
stockholders entitled to notice or to vote a
meeting of stockholders shall be at the close of
business on the day next preceding the day on
which notice is given, or, if notice is waived,
at the close of business on the day next
preceding the day on which the meeting is held.
(b) The record date for determining
stockholders entitled to express consent to
Corporate action in writing without a meeting,
when no prior action by the Board of Directors
is necessary, shall be the day which the first
written consent is expressed.
(c) The record date for determining
stockholders for any other purpose shall be at
the close of business on the day on which the
Board of Directors adopts the resolution
relating thereto.
(d) A determination of stockholders of record
entitled to notice of or to vote at a meeting of
stockholders shall apply to any adjournment of
the meeting; provided, however, that the Board
of Directors may fix a new record date for
adjourned meeting.
Section 5. DIVIDENDS: The Board of Directors
may declare and pay dividends upon the
outstanding shares of the Corporation from time
to time and to such extent as they deem
advisable, in the manner and upon the terms and
conditions provided by statute and Certificate
of Incorporation.
Section 6. RESERVES: Before payment of any
dividends there may be set aside out of the net
profits of the Corporation such sum or sums as
the Directors, from time to time, in their
absolute discretion, think proper as a reserve
fund to meet contingencies, or for repairing or
maintaining any property of the Corporation, or
for such other purposes as the Directors think
conducive to the interests of the Corporation,
and the Directors may abolish any such reserve
in the manner in which it was created.
ARTICLE IX - MISCELLANEOUS PROVISIONS
Section 1. FISCAL YEAR: The fiscal year shall
begin on the first day of the calendar annually.
Section 2. CHECKS: All checks or demands for
money and notes of the Corporation shall be
signed by such officer or officers as the Board
of Directors may from time to time designate.
Section 3. NOTICE: Whenever written notice is
required to be given to any person, it may be
given to such person, either personally or by
sending a copy thereof through the mail, or by
telegram, charges prepaid, to this address
appearing on the books of the Corporation, or
supplied by him to the Corporation for the
purpose of notice. If the notice is sent by
mail or by telegraph, it shall be deemed to have
been given to the person entitled thereto when
deposited in the United States mail or with a
telegraph office for transmission to such
person. Such notice shall specify meeting of
stockholders, the general nature of the business
to be transacted.
Section 4. WAIVER OF NOTICE: Whenever any
written notice is required by statute, or by the
Certificate or the By-Laws of this Corporation a
waiver thereof in writing, signed by the person
or persons entitled to such notice, whether
before or after the time stated therein, shall
be deemed equivalent to the giving of such
notice. Except in the case of a special meeting
of stockholders, neither the business to be
transacted at, nor the purpose of the meeting
need be specified in the waiver of notice or
such meeting. Attendance of a person either in
person or by proxy, at any meeting shall
constitute a waiver of notice of such a meeting,
except where a person attends a meeting for the
express purpose of objecting to the transaction
of any business because the meeting was not
lawfully called or convened.
Section 5. RESIGNATIONS: Any Director or
other Officer may resign at any time, such
resignation to be in writing, and to take effect
from the time of its receipt by the Corporation,
unless some time be fixed in the resignation and
then from that date. The acceptance of a
resignation shall not be required to make it
effective.
Section 6. GENDER NEUTRAL: Wherever from the
context it appears appropriate, each term stated
in the singular or the plural shall include the
singular and the plural, and pronouns stated in
either the masculine, the feminine or the neuter
gender shall include the masculine, feminine and
neuter.
ARTICLE X - ANNUAL STATEMENT
Section 1. The President and Board of Directors
shall present at each annual meeting a full and
complete statement of the business and affairs
of the Corporation for the preceding year. Such
statement shall be prepared and presented in
whatever manner the Board of Directors shall
deem advisable and need not be verified by a
certified public accountant.
ARTICLE XI - AMENDMENTS
Section 1. These Bylaws may be amended or
repealed, or new bylaws may be adopted, by vote
of a majority of the directors then in office or
by the affirmative vote of a majority of the
shares entitled to vote at any regular or
special meeting of the stockholders. The
stockholders may specify particular provisions
of these Bylaws which shall not be altered or
repealed by the Board of Directors.
__________________________________
Secretary
<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>
James C. Czirr
6070 Baldy Mountain Road
Sandpoint, ID 83864
RE: Amendment to Business Consulting Agreement
Dear Mr. Czirr:
It is the intent of this letter that it be
attached to, and become an addendum to and
revision of the Business Consulting Agreement
dated May 1, 1997 between Aurora Energy, Ltd.
("Aurora") an James C. Czirr ("Czirr").
Aurora and Czirr hereby agree that clause 3.3(a)
of the aforementioned agreement be revised as
follows:
The Company agrees to grant to CONSULTANT, upon
execution of this Agreement, an option to
purchase Sixteen Thousand (16,000) shares of the
Company's common Stock, $.001 par value ("Common
Stock") at an initial exercise price of Five
Cents ($.05) per share, with a term of five (5)
years, pursuant to the terms of an Option
Agreement in the form attached hereto as Exhibit
"A".
Please sign below and return to Aurora if you
agree to the above and it fairly represents your
understanding of the amendment to the Business
Consulting Agreement discussed and agreed on by
the parties to the above-referenced agreement.
Sincerely,
//William W. Deneau//
President
The above letter is accepted and it is agreed to
make it a part of the Business Consulting
Agreement dated May 1, 1997 between Aurora
Energy, Ltd. and James C. Czirr.
//James C. Czirr// 3/19/99
Date
<PAGE>
Exhibit 27 - Financial Data Schedule
Article 5 of Regulation S-X
</TABLE>
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<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
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<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 205,952
<EPS-PRIMARY> .037
<EPS-DILUTED> .037
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