-----BEGIN PRIVACY-ENHANCED MESSAGE----- Proc-Type: 2001,MIC-CLEAR Originator-Name: webmaster@www.sec.gov Originator-Key-Asymmetric: MFgwCgYEVQgBAQICAf8DSgAwRwJAW2sNKK9AVtBzYZmr6aGjlWyK3XmZv3dTINen TWSM7vrzLADbmYQaionwg5sDW3P6oaM5D3tdezXMm7z1T+B+twIDAQAB MIC-Info: RSA-MD5,RSA, TI4cOIwBBQYutV8YeCfF7OW94UIr+wB78xD9n5l/Mu6eBbUYXRqm0PWX8KoWUHM+ i+BtZD3nn9AYheOrKbvScw== 0001000096-99-000663.txt : 19991208 0001000096-99-000663.hdr.sgml : 19991208 ACCESSION NUMBER: 0001000096-99-000663 CONFORMED SUBMISSION TYPE: 10KSB PUBLIC DOCUMENT COUNT: 3 CONFORMED PERIOD OF REPORT: 19990831 FILED AS OF DATE: 19991207 FILER: COMPANY DATA: COMPANY CONFORMED NAME: PYR ENERGY CORP CENTRAL INDEX KEY: 0001016289 STANDARD INDUSTRIAL CLASSIFICATION: CRUDE PETROLEUM & NATURAL GAS [1311] IRS NUMBER: 954580642 STATE OF INCORPORATION: DE FISCAL YEAR END: 0831 FILING VALUES: FORM TYPE: 10KSB SEC ACT: SEC FILE NUMBER: 000-20879 FILM NUMBER: 99769703 BUSINESS ADDRESS: STREET 1: 1675 BROADWAY STREET 2: STE 1150 CITY: DENVER STATE: CO ZIP: 80202 BUSINESS PHONE: 3038253748 MAIL ADDRESS: STREET 1: 17337 VENTURA BOULEVARD STREET 2: SUITE 224 CITY: ENCINO STATE: CA ZIP: 91316 FORMER COMPANY: FORMER CONFORMED NAME: MAR VENTURES INC DATE OF NAME CHANGE: 19960606 10KSB 1 FORM 10-KSB U.S. Securities And Exchange Commission Washington, D.C. 20549 FORM 10-KSB [X] ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 For the fiscal year ended August 31, 1999 [ ] TRANSITION REPORT UNDER SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 [No Fee Required] For the transition period from to --------------- ------------------ Commission File No. 0-20879 PYR ENERGY CORPORATION -------------------------------------------- (Name of small business issuer in its charter) Delaware 95-4580642 ----------------------------- ------------------ (State or jurisdiction of (I.R.S. Employer incorporation or organization) Identification No.) 1675 Broadway, Suite 1150, Denver, CO 80202 ------------------------------------- -------- (Address of principal executive offices) (Zip Code) Issuer's telephone number, including area code (303) 825-3748 Securities registered pursuant to Section 12(b) of the Act: Title of each class Name of each exchange on which registered None None ---- ---- Securities registered pursuant to Section 12(g) of the Act: $.001 Par Value Common Stock ---------------------------- (Title of Class) Check whether the issuer (1) filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes X No ----- ----- Check if there is no disclosure of delinquent filers in response to Item 405 of Regulation S-B contained herein, and no disclosure will be contained, to the best of registrant's knowledge, in definitive proxy or information statements incorporated by reference in Part III of this Form 10-KSB or any amendment to this Form 10-KSB. [X] Issuer's revenues for the fiscal year ended August 31, 1999 were $ 116,713 The aggregate market value of the voting stock held by non-affiliates computed based on the last sale price of such stock as of December 3, 1999, was $41,046,194.* (APPLICABLE ONLY TO CORPORATE REGISTRANTS) The number of shares outstanding of each of the issuer's classes of common equity as of December 3, 1999 is as follows: $.001 Par Value Common Stock 14,579,580 * Without asserting that any of the issuer's directors or executive officers, or the entity that owns convertible preferred stock that may be converted into 1,666,667 shares of common stock and 93,750 warrants, or the entity that owns convertible preferred stock that may be converted into 833,333 shares of common stock, or the person and entities that own 943,750 shares and 94,375 warrants, is an affiliate, the shares of which they are beneficial owners have been deemed to be owned by affiliates solely for this calculation. PART I ITEMS 1 AND 2. DESCRIPTION OF BUSINESS AND PROPERTIES Overview PYR Energy Corporation (the "Company" and "PYR") is a development stage independent oil and gas exploration company whose strategic focus is the application of advanced seismic imaging and computer-aided exploration technologies in the systematic search for commercial hydrocarbon reserves, primarily in the onshore western United States. The Company attempts to leverage its technical experience and expertise with seismic data to identify exploration and exploitation projects with significant potential economic return. The Company currently intends to participate in exploration projects as a non-operating, working interest owner, sharing both risk and rewards with its joint venture partners. The Company has and will continue to pursue exploration opportunities in regions where the Company believes significant opportunity for discovery of oil and gas exists. By reducing drilling risk through seismic technology, the Company seeks to improve the expected return on investment in its oil and gas exploration projects. The Company was founded in 1996 by two geoscientists with extensive seismic and geological experience in the western United States. The Company has extensive experience in exploration, exploitation and the application of advanced geophysical technologies. Its business plan involves the following strategy: Focus on high impact exploration plays in the western United States * Under-exploited or under-explored mature basins * Gain access to large, non or under-performing acreage positions * Focus on play concepts that are expandable within a basin or region. Use advanced seismic imaging, processing and visualization to reduce drilling risk * Seismic captures resolution of trapping geometry Leverage technical expertise with outside capital resources * Retain control of the pre-drill exploration process * Retain sizable working interest in each prospect * Use industry partners for local operating expertise The Company was incorporated in March 1996 in the state of Delaware under the name Mar Ventures Inc. Effective as of August 6, 1997, the Company purchased all the ownership interests of PYR Energy, LLC, an oil and gas exploration company. Also on that date, the Company issued units of its common stock and common stock purchase warrants for approximately $1,700,000 net of fees and commissions. The warrants subsequently expired without exercise. Effective as of November 12, 1997, the Company changed its name to PYR Energy Corporation. The Company's offices are located at 1675 Broadway, Suite 1150, Denver, Colorado 80202. The telephone number is (303) 825-3748, telefax number is (303) 825-3768 and the Company's web site is www.pyrenergy.com. 1 Developments During Fiscal 1999 In May of 1997, the Company and other working interest owners commenced drilling on the Company's first exploration well - the Bellevue #1-17 on the Company's East Lost Hills prospect. On November 23, 1998, the Bellevue #1-17 prospect well blew out and ignited after having reached a depth of approximately 17,600 feet out of targeted total depth of 19,000 feet. A relief well, the Bellevue #1-17R, began drilling on December 18, 1998. On May 29, 1999 the relief well successfully killed, and the operator plugged and abandoned, the original well bore. The Bellevue #1-17R was then used to successfully sidetrack a replacement well back into the target reservoir. Concurrent with commencing completion operations, Berkley Petroleum, Inc. (a wholly owned subsidiary of Berkley Petroleum Corporation (TSE-"BKP") ("Berkley")) of Calgary has taken over as operator. Berkley is in the process of preparing the 1-17R replacement well for production testing. In August of 1999, the Company and other working interest owners commenced drilling a second well approximately two miles northwest of the #1-17R well. This well targets the same resevoir formation encountered with the #1-17 and #1-17R wells. See " - Southern San Joaquin Basin, California". In October and November 1998, the Company issued $2.5 million of Convertible Promissory Notes in a private placement to a limited group of investors. In accordance with the private placement agreement, these notes have been converted into the Company's convertible preferred stock which are now convertible into the Company's common stock. See "Item 12. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS - Private Placement of Notes". In April 1999, the Company purchased working interests, ranging from 3.0% to 3.75% in three additional deep Temblor exploration projects in the San Joaquin Basin of California. These projects are called Cal Canal, Lucky Dog and Pyramid Power. The Company's interest will be carried (non-cost bearing) "through the tanks" in the initial test well in each of the three separate exploration prospects. The first exploration well in the program (Cal Canal) began drilling on June 15, 1999 and is operated by Berkley. See "Southern San Joaquin Basin, California". On May 14, 1999, the Company completed a private placement resulting in receipt of $7,000,000 (less commissions, fees and related expenses of approximately $100,000) of funding through the sale of 4,375,000 shares of the Company's Common Stock and 437,500 5-year warrants to purchase an additional share of the Company's Common Stock at a price of $2.50. The warrants are immediately exercisable, and all warrants expire on May 14, 2004. The Company may, upon 30-days notice, repurchase any remaining outstanding warrants for $.01 per warrant at any time after the weighted average trading price of the Company's Common Stock has been at least $6.00 for a 45 day period. Disclosure Regarding Forward-Looking Statements And Cautionary Statements Forward-Looking Statements - -------------------------- This Annual Report on Form 10-KSB includes "forward-looking" statements within the meaning of Section 21E of the Securities Exchange Act of 1934, as amended (the "Exchange Act"). All statements other than statements of historical facts included in this Annual Report, including without limitation statements under "ITEMS 1 AND 2. DESCRIPTION OF BUSINESS AND PROPERTIES" and "ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATION", regarding the Company's financial position, business strategy, and plans and objectives of management of the Company for future operations and capital expenditures, are forward-looking statements. Although the Company 2 believes that the expectations reflected in the forward-looking statements and the assumptions upon which the forward-looking statements are based are reasonable, it can give no assurance that such expectations and assumptions will prove to have been correct. Additional statements concerning important factors that could cause actual results to differ materially from the Company's expectation ("Cautionary Statements") are disclosed below in the "-Cautionary Statements" section and elsewhere in this Annual Report. All written and oral forward-looking statements attributable to the Company or persons acting on its behalf subsequent to the date of this Annual Report are expressly qualified in their entirety by the Cautionary Statements. Cautionary Statements - --------------------- In addition to the other information contained in this Annual Report, the following Cautionary Statements should be considered when evaluating the forward-looking statements contained in this Annual Report. Start-Up Nature Of The Company's Oil And Gas Business; Absence Of Profits The Company was formed in 1996, and does not have a history of sustained profit from operations. The development of the Company's business will continue to require substantial expenditures. The Company's future financial results will depend primarily on its ability to locate hydrocarbons economically in commercial quantities, to provide drilling site and target depth recommendations resulting in profitable productive wells and on the market prices for oil and natural gas. There can be no assurance that the Company will achieve or sustain profitability or positive cash flows from operating activities in the near future. Oil And Gas Prices; Marketability Of Production Even if the Company is able to discover or acquire oil and gas production, of which there is no assurance, the Company's revenues, profitability and liquidity will be highly dependent upon prevailing prices for oil and natural gas. Oil and gas prices can be extremely volatile and in recent years have been depressed by excess total domestic and imported supplies. There can be no assurance that current price levels can be sustained. Prices also are affected by actions of state and local agencies, the United States and foreign governments, and international cartels. These external factors and the volatile nature of the energy markets make it difficult to estimate future prices of oil and natural gas. Any substantial or extended decline in the price of oil and/or natural gas would have a material adverse effect on the Company's financial condition and results of operations, including reduced cash flow and borrowing capacity. All of these factors are beyond the control of the Company. Sales of oil and natural gas are seasonal in nature, leading to substantial differences in cash flow at various times throughout the year. The marketability of the Company's gas production, if any, will depend in part upon the availability, proximity and capacity of gas gathering systems, pipelines and processing facilities. Federal and state regulation of oil and gas production and transportation, general economic conditions, changes in supply and changes in demand all could adversely affect the Compan s ability to produce and market oil and natural gas. If market factors were to change dramatically, the financial impact on the Company could be substantial. The availability of markets and the volatility of product prices are beyond the control of the Company and thus represent a significant risk. 3 Reliance On Industry Participants The Company attempts to limit financial exposure on a project by project basis by forming industry alliances where the Company's technical expertise can be complemented with the financial resources and operating expertise of established companies. If the Company were not able to form these industry alliances, this could limit the Company's ability to fully implement its business plan and could have a material adverse effect on the Company's business, financial condition and results of operations Non-Operator Status The Company focuses primarily on providing seismic imaging and analysis and relies upon other project partners to provide and complete all other project operations and responsibilities including operating, drilling, marketing and project administration. As a result, the Company has only a limited ability to exercise control over a significant number of a project's operations or the associated costs of such operations. The success of a project is dependent upon a number of factors which are outside of the Company's area of expertise and project responsibilities. Such factors include: (i) the availability of favorable term leases and required permitting for projects, (ii) the availability of future capital resources by the Company and the other participants to the purchasing of leases and the drilling of wells, (iii) the approval of other participants to the purchasing of leases and the drilling of wells on the projects and (iv) the economic conditions at the time of drilling, including the prevailing and anticipated prices for oil and gas. The Company's reliance on other project partners and its limited ability to directly control certain project costs could have a material adverse effect on the realization of expected rates of return on the Company's investment in certain projects. Ability To Discover Reserves The Company's future success is dependent upon its ability to economically locate oil and gas reserves in commercial quantities. Except to the extent that the Company acquires properties containing proved reserves or conducts successful exploration and development activities, or both, the proved reserves of the Company, if any, will decline as reserves are produced. The Company's ability to conduct successful exploration and development activities is dependent upon a number of factors, including its participation in multiple exploration projects and its technological capability to locate oil and gas in commercial quantities. Because the Company may rely upon other industry participants to develop the Company's exploration projects, no assurances can be given that the Company will have the opportunity to participate in projects which economically produce commercial quantities of hydrocarbons in amounts necessary to meet its business plan or that the projects in which it elects to participate will be successful. There can be no assurance that the Company's planned projects will result in significant reserves or that the Company will have future success in drilling productive wells at low reserve replacement costs. The Company has not yet established any oil and gas production, nor has it booked any proved reserves. Substantial Capital Requirements And Liquidity In order to continue its oil and gas exploration plans fully, the Company anticipates that it will need additional funding. In October and November 1998, the Company closed a private placement resulting in a capital infusion of $2,500,000. In May 1999, the Company completed an additional Private Placement resulting in a capital infusion of $7,000,000. See "Item 12. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS--Private Placement Of Notes" and "Private 4 Placement of Common Shares". The Company anticipates that these funds will be used entirely for existing projects. The Company does not have a steady source of revenue to provide funding to sustain operations. There is no assurance that the Company will be able to obtain a reliable source of revenue to sustain its operations. Risk Of Exploratory Drilling Activities Exploration for oil and natural gas is a speculative business involving a high degree of risk, including the risk that no commercially productive oil and gas reservoirs will be encountered. The cost of drilling, completing and operating wells is often uncertain and drilling operations may be curtailed, delayed or canceled as a result of a variety of factors including unexpected formation and drilling conditions, pressure or other irregularities in formations, equipment failures or accidents, as well as weather conditions, compliance with governmental requirement and shortages or delays in the delivery of equipment. There is no assurance that the expenditures made by the Company on its oil and natural gas properties will result in discoveries of oil or natural gas in commercial quantities. Some test wells, as a consequence, may not ultimately be developed into producing wells and may be abandoned. Competition The Company competes in the areas of oil and gas exploration with other companies, many of which may have substantially larger financial and other resources. From time to time, there may be competition for, and shortage of, exploration, drilling and production equipment and these shortages could lead to an increase in costs and to delays in operations that could have a material adverse effect on the Company. The Company may therefore not be able to acquire desirable properties or equipment required to develop its properties. Problems of this nature also could prevent the Company from producing any oil and natural gas it discovers at the rate it desires to do so. General Risks Of Oil And Gas Operations The nature of the oil and gas business involves a variety of risks, including the risks of operating hazards such as fires, explosions, cratering, blowouts, such as the blowout at the exploratory well in which the Company has an interest in East Lost Hills, and encountering formations with abnormal pressures, the occurrence of any of which could result in losses to the Company. The Company will maintain insurance against some, but not all, of these risks in amounts that management believes to be reasonable in accordance with customary industry practices. The occurrence of a significant event, however, that is not fully insured could have a material adverse effect on the Company's financial position. See "--Significant Properties--Southern San Joaquin Basin, California" concerning the blowout at the East Lost Hills exploratory well. Technology Changes The oil and gas industry is characterized by rapid and significant technological advancements and introductions of new products and services utilizing new technologies. As new technologies develop, the Company may be placed at a competitive disadvantage, and competitive pressures may force the Company to implement such new technologies at substantial cost. In addition, other oil and gas finding companies may implement new technologies before the Company, and consequently such companies may be able to provide enhanced capabilities and superior quality compared with that which the Company is able to provide. There can be no assurance that the Company will be able to respond 5 to such competitive pressures and implement such technologies on a timely basis or at an acceptable cost. One or more of the technologies currently utilized by the Company or implemented in the future may become obsolete. In such case, the Company's business, financial condition and results of operations could be materially adversely affected. If the Company is unable to utilize the most advanced commercially available technology, the Company's business, financial condition and results of operations could be materially and adversely affected. Government Regulations And Environmental Risks The production and sale of oil and gas are subject to a variety of federal, state and local government regulations including regulation concerning the prevention of waste, the discharge of materials into the environment, the conservation of oil and natural gas, pollution, permits for drilling operations, drilling bonds, reports concerning operations, the spacing of wells, the unitization and pooling of properties, and various other matters including taxes. Many jurisdictions have at various times imposed limitations on the production of oil and gas by restricting the rate of flow for oil and gas wells below their actual capacity to produce. During the past few years there has been a significant amount of discussion by legislators and the presidential administration concerning a variety of energy tax proposals. There can be no certainty that any such measure will be passed or what its effect will be on oil and natural gas prices if it is passed. In addition, many states have raised state taxes on energy sources and additional increases may occur, although there can be no certainty of the effect that increases in state energy taxes would have on oil and natural gas prices. Although the Company intends to be in substantial compliance with applicable environmental and other government laws and regulations, there can be no assurance that significant costs for compliance will not be incurred in the future. The blowout of the East Lost Hills exploratory well in which the Company has an interest raises a number of these risks. Although a majority of the costs associated with the blow out have been covered by insurance policies in effect when the blow out occurred, a portion of the claims have not yet been reimbursed through one of the insurance policies. The Company has advanced approximately $410,000 for its proportionate share of the claims in order that these claims be paid directly to the claimants. The Company believes that most, if not all, of these claims will ultimately be reimbursed through insurance proceeds. The Company currently carries the advanced funds as Reimbursable Property Costs on its August 31, 1999 Balance Sheet. Variability Of Operating Results The Company's operating results, as a start up company in the oil and gas industry, may vary significantly during any financial period. These variations may be caused by significant periods of time between each of the Company's discoveries and developments, if any, of oil or natural gas properties in commercial quantities. These variations may also be caused by the volatility associated with oil and gas prices. See "Oil And Gas Prices; Marketability Of Production". Risks Associated With Management Of Growth Because of its small size, the Company desires to grow extremely rapidly in order to achieve certain economies of scale. Although there is no assurance that this rapid growth will occur, to the extent that it does occur it will place a significant strain on the Company's financial, technical, operational and administrative resources. As the Company increases its services and enlarges the number of projects it is evaluating or in which it is participating, there will be additional demands on the Company's financial, technical and administrative resources. The failure to continue to upgrade the Company's technical, 6 administrative, operating and financial control systems or the occurrence of unexpected expansion difficulties, including the recruitment and retention of geoscientists and engineers, could have a material adverse effect on the Company's business, financial condition and results of operations. Dependence On Key Personnel The Company will be highly dependent on the services of D. Scott Singdahlsen and its other geological and geophysical staff members. The loss of the services of any of them could have a material adverse effect on the Company. The Company does not have an employment contract with Mr. Singdahlsen or any other employee. Concentration Of Risks; Lack Of Diverse Business Operations The Company is currently pursuing only the oil and gas exploration business. Although the Company is involved in other oil and gas projects, it is concentrating the majority of its initial oil and gas exploration efforts on approximately 100,000 gross and 45,000 net exploratory acres in the San Joaquin basin. Although the Company is involved in eight separate and distinct projects in the San Joaquin basin, the Company's exploration efforts are concentrated in this same general area and this lack of diverse business operations subjects the Company to a certain degree of concentration of risks. The future success of the Company may be dependent upon its success in discovering and developing oil and gas in commercial quantities on its San Joaquin properties and upon the general economic success of the oil and gas industry. Certain Definitions Unless otherwise indicated in this Annual Report, natural gas volumes are stated at the legal pressure base of the state or area in which the reserves are located at 60(degree)Fahrenheit. Oil equivalents are determined using the ratio of 6 Mcf of natural gas to one barrel of crude oil, condensate or natural gas liquids so that 6 Mcf of natural gas are referred to as one barrel of oil equivalent or "BOE". As used in this Annual Report, the following terms have the following specific meanings: "Mcf" means thousand cubic feet, "Bcf" means billion cubic feet, "Bbl" means barrel, "MBbl" means thousand barrels, "MMBoe" means million barrels of oil equivalent, "MMBbl" means million barrels, "MMBO" means million barrels of oil, "BBO" means billion barrels of oil and "Tcf" means trillion cubic feet. With respect to information concerning the Company's working interests in wells or drilling locations, "gross" gas and oil wells or "gross" acres is the number of wells or acres in which the Company has an interest, and "net" gas and oil wells or "net" acres are determined by multiplying "gross" wells or acres by the Company's working interest in those wells or acres. A "working interest" in an oil and gas lease is an interest that gives the owner the right to drill, produce, and conduct operating activities on the property and to receive a share of production of any hydrocarbons covered by the lease. A working interest in an oil and gas lease also entitles its owner to a proportionate interest in any well located on the lands covered by the lease, subject to all royalties, overriding royalties and other burdens, to all costs and expenses of exploration, development and operation of any well located on the lease, and to all risks in connection therewith. 7 A "development well" is a well drilled as an additional well to the same horizon or horizons as other producing wells on a prospect, or a well drilled on a spacing unit adjacent to a spacing unit with an existing well capable of commercial production and which is intended to extend the proven limits of a prospect. The latter type of development well drilling is known as "step-out drilling". An "exploratory well" is a well drilled to find commercially productive hydrocarbons in an unproved area, or to extend significantly a known prospect. "Reserves" means natural gas and crude oil, condensate and natural gas liquids on a net revenue interest basis, found to be commercially recoverable. "Proved developed reserves" includes proved developed producing reserves and proved developed behind-pipe reserves. "Proved developed producing reserves" includes only those reserves expected to be recovered from existing completion intervals in casing of existing wells when the cost of making such reserves available for production is relatively small compared to the cost of a new well. "Proved undeveloped reserves" includes those reserves expected to be recovered from new wells on proved undrilled acreage or from existing wells where a relatively major expenditure is required for recompletion. "Infill drilling" means drilling of an additional well or additional wells in order to more adequately drain a reservoir. "Stratigraphic trap" means a barrier that impedes the migration of hydrocarbons caused by either a nonporous formation sealing off the top edge of a reservoir bed or by a change of porosity and permeability within the reservoir bed itself. "Strategraphic play" means a prospect targeted to test a strategraphic trap. "API" means a measure of gravity based on standards set by the American Petroleum Institute. "Carried through the tanks" means the Company will not incur any capital cost for this portion of its working interest until commercial quantities of hydrocarbons are being produced and are generating revenues. At this point, the Company will become responsible for paying any additional capital costs and lease operating expenses as well as receiving its share of revenues from sales. "Cretaceous D-Sand and J-Sand reservoirs" means sandstone reservoirs that contain hydrocarbons of Cretaceous age that are found in the Denver basin of Colorado, Wyoming and Nebraska. "Cretaceous incised valley-filled reservoirs" means sandstone reservoirs of Cretaceous age that were deposited in valleys carved into underlying strata during a period of falling sea level. "Cretaceous reservoirs" means rock reservoirs most commonly comprised of sandstone that were deposited during the Cretaceous Period. The Cretaceous Period occurred between 66 and 144 million years before present. "Down-spaced drilling" means a method of development drilling whereby well density in a given area is increased by drilling between existing wells. "Palynology analysis" means an analysis of a rock sequence through examination of contained spores and/or pollen. A method of age dating strata. "Reserve capture" means the quantification of hydrocarbon reserves as a result of drilling and testing a reservoir. "Steam floods" means a secondary recovery technique whereby steam is injected into a hydrocarbon reservoir in an effort to mobilize heavy (tarry) oil. 8 "Subthrust structure" means a fold of strata which is found beneath a thrust fault. "Swept reservoir pods" means distinct sandstone units that have been depleted of hydrocarbons through the secondary recovery method of waterflooding. "Thrusted anticlinal feature" means a fold of geologic strata that is bounded by a thrust fault, which is a fault that results in older strata overlying younger strata. "Turbidite" means a stratigraphic sequence deposited by turbidity currents, commonly associated with submarine canyons. (Intentionally Left Blank) 9 Strategy The Company's business strategy is to continue to enhance shareholder value by leveraging its technical experience and expertise with seismic technology to identify exploration and exploitation projects with significant potential reserves and economic results based on the application of appropriate technology and suitable project risk management. The Company's ongoing goal is to increase its reserve base through a focus on mature hydrocarbon basins where it believes that the historical under- utilization of seismic technology creates tremendous opportunities. It is the Company's view point that the systematic application of advanced seismic imaging and visualization to exploration can significantly reduce drilling risk and enhance financial results. The Company's strategy is to focus on applying seismic technology to explore properties that lie within these mature basins and that offer oil and gas reserves that would be materially significant to the Company. The Company has a three-pronged corporate approach for the application of exploration technology in these mature basins. The three components of this strategy are set forth below: o Internal generation of exploration and exploitation prospects with special emphasis on seismic application to structural and stratigraphic play concepts. o Identification and exploitation of non-performing and under-utilized existing seismic surveys and acreage positions in which the application of technical expertise and advanced interpretation and visualization methodologies could significantly impact drilling results. o Development of alliances with exploration and production companies that lack advanced technical resources and expertise. Exploration and Operating Approach The Company focuses its technical resources on obtaining the highest quality subsurface image through advanced geological and geophysical methods, which it believes are more likely to result in the cost effective identification of oil and gas reserves that are materially significant. The Company is committed to providing its technical team with access to the required tools and support necessary to retain a competitive advantage in today's exploration environment. The Company strives to provide its geoscientists with the most advanced imaging and analytical technology available and provides employee incentives to utilize for the recruitment and motivation of these technical experts. The Company adheres to a disciplined approach to selective project participation. The Company participates only in those projects that it believes are likely to maximize the return on its capital investment, have significant reserve growth potential, and benefit from the application of advanced seismic technology. The Company believes that these factors result in a positive impact to the finding-cost and production economics. The Company actively and continually manages its portfolio of exploration and exploitation projects. The aggressive portfolio management enables the Company to maximize the investment of available capital in a limited number of high impact geologic plays and projects. The Company generates many of its exploration and exploitation projects internally, and therefore is not dependent on outside parties for project flow. The Company strives to control all the pre-drill exploration phases, including the acreage position and the application of seismic technology. With the 10 resulting project control, the Company is in the position to fully manage the exploration process and determine, subject to its financial resources, the appropriate level of working interest that it retains in the drilling of any associated wells. The Company aggressively leverages its project control and technical expertise to potential industry partners thereby maximizing return on investment while controlling capital exposure. The Company does not intend to operate the drilling of project wells, but intends to retain the flexibility to maintain a sufficient working interest in projects to enhance leverage of its technical resources and influence operator actions. Significant Projects The Company's exploration activities are primarily focused on the southern San Joaquin basin of California. The Company also has projects in selective Rocky Mountain areas. Advanced seismic imaging of the structural and stratigraphic complexities common to these regions provides the Company with enhanced ability to identify significant hydrocarbon potential. A number of these projects, especially in the San Joaquin basin, offer multiple drilling opportunities with individual wells having the potential capability of encountering multiple reservoirs. The following provides a summary and status of the Company's exploration areas and significant projects. While actively pursuing specific exploration activities in each of the following areas, the Company is continually reviewing additional opportunities in these core areas and in other areas that meet certain exploration and exploitation criteria. There is no assurance that drilling opportunities will continue to be identified in the current project portfolio or that they will be successful if drilled. Southern San Joaquin Basin, California The San Joaquin basin of California has proven to be one of the most productive hydrocarbon producing basins in the continental United States. To date, the approximately 14,000 square mile basin has produced in excess of 13 billion barrels of oil equivalent, and contains 25 fields classified as giant, with cumulative production of more than 100 MMBoe. The San Joaquin basin contains six of the 25 largest oil fields in the U.S. All six of these fields were discovered between 1890 and 1911, a full decade prior to the discovery of the first giant Texas oil field. The basin accounts for 34 percent of California's actively producing fields, yet produces more than 75 percent of the state's total oil and gas production. Most of the production within the basin is located along the western and southern end of Kern County. San Joaquin basin production totals for 1998 reported by the California Department of Oil and Gas for all producers in the aggregate indicate total production of 254.62 MMBoe. Of this figure, Kern County accounts for over 90 percent of the oil production from the San Joaquin Basin. Exploration Opportunity. For the 100 plus years of its productive life, the San Joaquin basin has been dominated by major oil companies and large fee acreage holdings. As a result of these conditions, the basin has generally been under-explored by independent exploration and production companies, groups that usually bring advanced technologies to their exploration efforts. The large fields in the basin were all discovered on surface anticlines and produce mostly heavy oil from depths of less than 5,000 feet. As a consequence, basin operators have employed only those advanced engineering technologies related to enhanced production practices including steam floods and most recently, horizontal drilling. 11 The basin as a whole has suffered from a lack of applied exploration technology and deep drilling. Approximately one percent of the total basin wells have been drilled to a depth greater than 12,000 feet. Additional 1998 statistics indicate that the average well depth drilled during the year was just slightly more than 1,800 feet. With limited exploration in the San Joaquin basin since the "boom" days of the early 1980s, the Company believes that multiple exploration opportunities are available. Deep basin targets, both structural and stratigraphic in nature, remain largely untested with modern seismic technology and the drill bit. In addition, retrenchment of the majors in the basin has caused many of them to rethink their policies regarding their large fee acreage positions. For the first time in history, many of these companies have opened up these fee acreage positions to outside exploration by aggressive independent companies. East Lost Hills. During 1997, the Company identified and undertook technical analysis of a deep, large untested structure in the footwall of the Lost Hills thrust. This prospect lies directly east of and structurally below the existing Lost Hills field, which has produced in excess of 350 MMBoe from shallow pay zones in a large thrusted anticlinal feature. This unconventional deep prospect had significant structural and reservoir risk, but the potential for large reserves made it an attractive play. In a joint effort with Denver based Armstrong Resources LLC ("Armstrong"), the Company has analyzed and interpreted over 350 miles of high-resolution 2-D seismic data to help refine the structural mapping of the prospect. Advanced pre-stack depth migration and interpretation clearly defines a deep sub-thrust structure. Two wells drilled to the east of the prospect, in the mid-1970s, proved the productivity potential of free oil (42 degree API) and gas at depths below 17,000 feet. Ongoing source rock and maturation modeling suggests that the oil generation window exists at depths between 15,000 and 17,000 feet, and that early migration of hydrocarbons should preserve reservoir quality at East Lost Hills. In early 1998, the Company and Armstrong entered into an exploration agreement with a number of established Canadian joint interest partners to participate in the drilling of an initial exploratory well to fully evaluate the feature. PYR received cash consideration for its share of acreage in this play and a carried 6.475% working interest through the tanks in the initial exploration well. PYR owns an additional 4.1% working interest for a total working interest of 10.575%. On May 15, 1998, an initial exploration well, the Bellevue Resources et al. #1-17 East Lost Hills well, located in SE1/4. Sec 17, T26S, R21E, Kern County, California, commenced drilling. The well was designed to test prospective Miocene sandstone reservoirs in the Temblor Formation below 17,000 feet. During September 1998, the well was sidetracked in an attempt to gain better structural position and delineate potential uphole pay. On November 23, 1998, the well was drilling at 17,600 feet toward a total depth of 19,000 feet when it blew out and ignited. No personal injuries resulted, and an expert well control team was engaged to contain the fire. Surface containment facilities were installed and liquid and gas production were contained and were transported to processing and disposal facilities. A snubbing unit was deployed to attempt a surface control kill of the Bellevue #1-17, but, after eight kill attempts, was not successful. A majority of the costs associated with the blow out have been covered by insurance policies in effect when the blow out occurred. A portion of the claims have not yet been reimbursed through one of the insurance policies. The Company has advanced approximately $410,000 for its proportionate share of the claims in order that these claims be paid directly to the claimants. The Company believes 12 that most, if not all of these claims will ultimately be reimbursed through insurance proceeds. The Company currently carries the advanced funds as Reimbursable Property Costs on its August 31, 1999 Balance Sheet. On December 18, 1998, a relief well, the Bellevue #1-17R, began drilling. This well was initially expected to intersect the wellbore of the Bellevue #1-17 at a depth of about 13,500 feet. However, as drilling continued and the characteristics of the blowout were examined, it was determined that it would be necessary to intersect the wellbore below 16,000 feet. The relief well was drilled to 16,668 feet, where it intersected the original well bore. On May 29, 1999, the Bellevue #1-17 well was killed by pumping heavy mud and cement into the well bore. This well bore has been plugged and abandoned and the relief well has been successfully used to sidetrack a replacement well into the targeted Temblor Zone. The operator of the well is currently in the process of completing this replacement well for production testing. On August 26, 1999, the participants in this prospect commenced drilling a second well at East Lost Hills to further explore the Temblor Formation. This well is approximately two miles to the northwest of the original well. The target depth for this well is 19,000 feet. In order to have a better chance to reach total depth, a drilling rig capable of drilling to 30,000 feet was brought in to drill this well. This well is expected to be at total depth early in the first quarter of calendar year 2000. At the present time, the participants may drill one or more additional wells in this prospect during calendar year 2000. Deep Temblor Exploration Program - Cal Canal, Lucky Dog and Pyramid Power. In April 1999, the Company purchased a working interest in three additional deep exploration projects in the San Joaquin basin of California. These three projects are in addition to the exploration program initiated by the recent deep drilling at East Lost Hills, and all three lay outside the East Lost Hills joint venture area. Pursuant to the agreement, the Company purchased working interests, ranging from 3.00% to 3.75%, in each of the three exploration prospect areas. The Company's interest will be carried (non-cost bearing) "through the tanks" in the initial test well in each of the three separate exploration prospects. The first exploration well in the program (Cal Canal) began drilling on June 15, 1999 and is operated by Berkley. The ultimate results of this well are not likely to be determined until drilling operations have been finalized, logs have been run and, if appropriate, completion for production testing has occurred. The three exploration prospects in this program, targeting the Temblor Formation at depths ranging from 15,000 to 19,000 feet, are expected to be drilled in sequence with the same rig. Berkley will operate the other exploration projects in the Deep Temblor Exploration Program as well as the future operations at East Lost Hills. Wedge Prospect and Bull Dog Prospect. PYR has created these exploration opportunities and is in the process of presenting these prospects to potential industry partners. These prospects will target the Temblor Formation in the San Joaquin basin, similar to the East Lost Hills and Deep Temblor Exploration Program. PYR currently controls 100% of the gross acreage in these areas and intends to sell a portion of its interest to industry partners for a cash consideration while retaining a working interest in the exploration wells and adjoining acreage. PYR controls approximately 21,000 acres in these prospects and expects to drill 1 or 2 exploration wells during calendar 2000. 13 Rectang Force Prospect. PYR owns 30% of approximately 3,800 acres in this San Joaquin basin prospect. This is another prospect that targets the Temblor Formation. PYR may elect to participate in the drilling of an initial exploration well here at the current 30% ownership, or may elect to sell down its interest for cash and/or a carried working interest in the initial well. This prospect is still in the development stage and no drilling plans are currently in place. Southeast Maricopa. PYR holds a 100% working interest in this acreage. During 1998, PYR acquired new 3-D seismic data over approximately 56 square miles using Western Geophysical Company as the seismic contractor. PYR is currently presenting this prospect to potential industry participants and intends to generate an up front cash consideration and a carried working interest in an initial exploration well here. Through lease and option, PYR has a 100% working interest in approximately 14,000 gross acres in this project. School Road Prospect. On June 1, 1998, the Company executed a participation agreement with Houston based Seneca Resources, Inc. for the Company's School road acreage. The drill to earn agreement provided PYR with a cash consideration and a "carried through the tanks" working interest in an initial exploration well. This well commenced drilling on July 28, 1998 and, after drilling to a total depth of 12,508 feet, was plugged and abandoned. The Company charged $15,000 as a dry hole impairment in fiscal 1998. After further evaluation of the prospect, the Company has determined that it is unlikely that the Company will pursue additional drilling on this acreage. Accordingly, the Company has recorded an impairment of approximately $285,000 against its basis in this project. Rocky Mountain Areas. The Company is in the process of developing exploration plays in three separate high potential prospect areas. PYR intends to replicate the approach taken with the California projects by controlling the pre-drill exploration phase including developing the geological background, identifying potential oil and/or gas reservoirs via seismic imaging, and controlling the land position. After these tasks are complete, the Company intends to take each prospect to potential industry partners in order to generate up front cash and drilling activity. The Company currently controls, through lease or option, approximately 104,000 gross and 52,000 net acres in these projects. The Company expects these projects will be ready for presentation around mid-year of calendar year 2000. Geological and Geophysical Expertise The Company's oil and gas finding capabilities are dependent upon the effective application of seismic imaging technologies. The Company has assembled a technically experienced staff of in-house geologists and geophysicists with extensive experience involving the utilization of advanced seismic data imaging and analysis, who have collectively participated in more than 100 3-D seismic projects in diverse geological trends. The Company also has access, both in-house and through consultants, to state-of-the-art exploration hardware and software applications. The Company owns a computer aided exploration workstation running the full suite of GeoGraphix geologic mapping and analysis software. Additionally, the Company owns one geophysical workstation employing SeisX 2-D and 3-D seismic interpretation and analysis software. Through a strategic alliance with a Denver-based 3-D seismic consulting firm (Interactive Earth Sciences Corporation), the Company has full access to multiple UNIX-based seismic interpretation workstations running the complete Schlumberger/GeoQuest seismic 14 analysis software package. Through this relationship, the Company also has full access to GMA seismic modeling software as well as Paradigm Geophysical's GeoDepth pre-stack depth migration software package. Drilling Activities During 1999, the Company participated in the drilling of the initial exploration well at Cal Canal in its Deep Temblor exploration project. The Company owns a 3.75% working interest in this prospect and because of its ownership interest being carried through the tanks, the Company has no capital cost commitment on this initial well until the well has been completed and is producing. However, there is no assurance this well will ever be commercially productive. The Company is also participating in a step-out well at its East Lost Hills Project that commenced drilling on August 26, 1999. PYR owns a 10.575% working interest in this well and the surrounding acreage and is paying its full 10.575% of the drilling costs. Although there is no assurance that any additional exploration wells will be drilled, the Company anticipates the drilling of from two to five additional exploratory wells during 2000, depending on ongoing exploration efforts in California and in the Rocky Mountains. Production The Company currently does not own any oil or gas production. The Company has no immediate plans to acquire or purchase any production. The Company also has no booked reserves at the current time and any near-term reserve additions would result solely from successful exploration efforts and any successful development thereof. Acreage The Company currently controls, through lease, farmout, and option, the following approximate acreage position as detailed below: State Gross Acres Net Acres ----- ----------- --------- California 100,000 45,000 Rocky Mountain Areas 104,000 52,000 -------------------- ------- ------ TOTAL 204,000 97,000 Competitive Advantage The Company believes that the cumulative experience of its technical and management team, with past exposure to more than 100 seismic projects covering approximately 1,500 square miles in diverse geologic trends throughout the world, results in a strong competitive advantage relative to current competition in these focus areas. The Company currently has four full-time geoscientists and a landman who are specialists in a variety of technical exploration aspects and have extensive experience and expertise in numerous geologic regions. The Company's expertise in the application of advanced seismic interpretation methods includes many of the "cutting-edge" technologies necessary in today's competitive exploration environment. These advanced techniques include seismic visualization, attribute analysis, geostatistical modeling, pre-stack depth migration, and the integration of geological and engineering data in support of reservoir characterization. These advanced seismic interpretation methods allow the Company to leverage its seismic experience and expertise with significant exploration and exploitation opportunities. 15 The Company generates the majority of its exploration and exploitation projects internally, and therefore is not dependent on third parties for project flow. This results in full control of all pre-drill exploration phases including the acreage position and application of seismic technology. ITEM 3. LEGAL PROCEEDINGS The Company is not a party to any current or pending legal proceeding (nor are any of the Company's properties subject to a pending legal proceeding). ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS. Not applicable. PART II ITEM 5. MARKET FOR COMMON EQUITY AND RELATED STOCKHOLDER MATTERS The Company's Common Stock is traded in the over-the-counter market and has been quoted on the OTC Bulletin Board since November 1996. Effective as of November 12, 1997, the Company's trading symbol was changed from "MRVI" to "PYRX". The table below presents the range of high and low sales prices for the Company's Common Stock during each of the quarters indicated as reported by the OTC Bulletin Board. Sales Prices ------------ Quarter Ended High Low ------------- ---- --- November 30, 1996 .125 .12 February 28, 1997 .0625 .0625 May 31, 1997 .1875 .1875 August 31, 1997 1.6875 .25 November 30, 1997 2.00 1.4375 February 28, 1998 1.875 .6875 May 31, 1998 1.4375 .70 August 31, 1998 1.1875 .41 November 30, 1998 3.5625 .4375 February 28, 1999 5.00 1.375 May 31, 1999 3.00 1.75 August 31, 1999 5.125 2.125 On December 3, 1999, the closing sales price for the Company's Common Stock was $4.3125 per share. 16 Number Of Stockholders Of Record On December 3, 1999, the number of stockholders of record of the Company was approximately 1,475. Dividend Policy The Company has not declared or paid any cash dividends on its Common Stock since its formation and does not presently anticipate paying any cash dividends on its Common Stock in the foreseeable future. The Company currently intends to retain any future earnings to finance the expansion and continued development of its business. ITEM 6. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS The following is a discussion and comparison of the financial condition and results of operations of the Company as of and for the twelve months ended August 31, 1999 ("1999"), and as of and for the twelve months ended August 31, 1998 ("1998"). This discussion should be read in conjunction with the Company's Financial Statements, the notes related thereto, and the other financial data included elsewhere in this Annual Report on Form 10-KSB. Overview The Company is a developoment stage independent oil and gas exploration company whose strategic focus is the application of advanced seismic imaging and computer aided exploration technologies in the systematic search for commercial hydrocarbon reserves, primarily in the onshore western United States. The Company attempts to leverage its technical experience and expertise with seismic data to identify exploration and exploitation projects with significant potential economic return. The Company intends to participate in selected exploration projects as a non-operating, working interest owner, sharing both risk and rewards with its partners. The Company has pursued, and will continue to pursue, exploration opportunities in regions where the Company believes significant opportunity for discovery of oil and gas exists. By attempting to reduce drilling risk through seismic technology, the Company seeks to improve the expected return on investment in its oil and gas exploration projects. During 1999, the Company incurred approximately $876,000 for costs related to continued leasing and optioning of acreage, $1,094,000 for positions in additional exploration projects in California, $313,000 for costs relating to seismic and $480,000 in drilling costs associated with deep exploratory drilling at the Company's East Lost Hills project. The Company had no revenues from oil and gas production during 1999. During 1998, the Company incurred approximately $439,000 for acquisition of acreage, $2,046,000 for costs relating to 3-D seismic acquisition and $118,000 in drilling costs at East Lost Hills. The Company currently anticipates that it will participate in the drilling of at least two exploratory wells during its fiscal year ending August 31, 2000 ("2000"), although the number of wells may increase as additional projects are 17 added to the Company's portfolio. However, there can be no assurance that any such wells will be drilled and if drilled that any of these wells will be successful. See "ITEMS 1 AND 2. DESCRIPTION OF BUSINESS AND PROPERTIES-Start-Up Nature Of The Company's Oil And Gas Business; Absence Of Profits." The Company's future financial results continue to depend primarily on (i) the Company's ability to discover commercial quantities of hydrocarbons; (ii) the market price for oil and gas; (iii) the Company's ability to continue to source and screen potential projects; and (iv) the Company's ability to fully implement its exploration and development program. There can be no assurance that the Company will be successful in any of these respects or that the prices of oil and gas prevailing at the time of production will be at a level allowing for profitable production. See "ITEMS 1 AND 2. DESCRIPTION OF BUSINESS AND PROPERTIES-Start-Up Nature of The Company's Oil And Gas Business; Absence Of Profits," "- Substantial Capital Requirements And Liquidity" and "- Risks Of Exploratory Drilling Activities." Results of Operations The twelve months ended August 31, 1999 ("1999") compared with the twelve months ended August 31, 1998 ("1998") Oil and Gas Revenues and Expenses. At August 31, 1999, the Company did not own any producing or proved oil and gas properties, and no oil and gas production revenues or expenses had been recorded by the Company. The Company recorded an impairment against its "School Road" Project of $285,000 in 1999 and recorded a dry hole impairment of $15,000 associated with its unsuccessful exploration well drilled in 1998 on its "School Road" acreage. Consulting Fee Revenue. The Company generated $10,000 from consulting fees in 1998. These revenues are considered to be ancillary to the Company's focus of generating revenues from oil and gas production. These revenues have ceased completely and are not expected to occur at any time in the future. General and Administrative Expense. The Company incurred $743,000 and $675,000 in general and administrative expenses during 1999 and 1998, respectively. The increase results from incurring costs associated with the hiring of additional technical and administrative personnel in pursuit of the development of the Company's exploration and exploitation plan. Dry Hole, Impairment and Abandonments. During 1998, the Company recorded a dry hole impairment of $15,000 associated with the drilling of an unsuccessful exploration well on its School Road Acreage. In 1999, the Company re-evaluated School Road and recorded an impairment of approximately $285,000 against its basis in this project. Also in 1999, the Company has abandoned projects and has recorded an abandonment cost of approximately $21,000 associated with these projects. Interest Expense. The Company recorded $183,000 in interest expense during 1999, predominately associated with the 10% Convertible Debentures that were outstanding from October 26, 1998 through April 16, 1999. Per the Convertible Debenture agreement, the Company elected to pay this interest by issuing 53,326 shares of the Company's common stock. The Company had nominal interest expense during 1998. Depreciation, Depletion and Amortization. The Company recorded no depletion expense from oil and gas properties in 1999 or 1998. At August 31, 1999 and 1998, the Company did not own any proved reserves and had no oil or gas 18 production. The Company recorded $24,000 and $22,000 in depreciation expense associated with capitalized office furniture and equipment during 1999 and 1998, respectively. The Company also recorded nominal amortization expense associated with organization costs during 1999 and 1998. Gain On Sale of Oil and Gas Properties. During 1998, the Company sold a portion of its East Lost Hills project to industry partners for a total of $850,000, resulting in a net gain to the Company of $556,000. The Company has retained a working interest in this property of 10.575%. During the fiscal year ended August 31, 1999, the Company's carrying costs for undeveloped oil and gas properties increased by a net amount of approximately $2,560,000. This net increase is comprised of expenditures on undeveloped oil and gas prospects of approximately $2,889,000, and property abandonments and impairments of approximately $330,000. During 1998, the Company sold interests in two of its prospects, School Road and East Lost Hills. Proceeds of $200,000 from the sale of a partial interest in the School Road prospect were charged against the full cost pool as this sale did not materially alter the Company's full cost pool as of the date of sale. Proceeds of $850,000 were received from the sale of part of the Company's interest in its East Lost Hills project. As the sale of this interest in East Lost Hills was greater than 25% of the Company's undeveloped oil and gas prospects as of the date of sale, gain was recognized in the financial statements for the year ended August 31, 1998 in the amount of $556,000 and the Company's carrying cost of undeveloped oil and gas prospects was reduced by the basis in the interest sold of $294,000. Liquidity and Capital Resources At August 31, 1999, the Company had a working capital amount of $5,021,000. In May of 1999, the Company issued 4,375,000 shares of its common stock in exchange for $7,000,000 in cash. As part of this transaction, the Company also issued 437,500 warrants to purchase one common share for each warrant issued at a price of $2.50 per share. In November of 1998, the Company had issued a total of $2,500,000 in 10% convertible notes. These notes automatically converted to 10% convertible preferred stock when the Company's stockholders approved authorization of the preferred stock at the Company's stockholders meeting held on April 16, 1999. The Company incurred costs of approximately $82,000 in connection with this issuance of the notes and recorded costs attributable to the issuance of warrants of approximately $57,000. To date, the Company has funded its oil and gas exploration activities principally through cash provided by the sale of its securities. Cash used in investing activities during 1999 totaled $9,037,000. Of this amount, $3,523,000 was used in conjunction with the Company's oil and gas exploration and exploitation plan, $5,091,000 was used to invest in government backed securities, $410,000 was used to advance payments to claimants related to the blow out at the Company's East Lost Hills Prospect and $13,000 was used for office furniture and equipment. The Company had no outstanding long-term debt at August 31, 1999 other than a capital lease obligation and has not entered into any commodity swap arrangements or hedging transactions. Although it has no current plans to do so, it may enter into commodity swap and/or hedging transactions in the future in conjunction with oil and gas production. Nevertheless, there can be no assurance that the Company will ever have oil and gas production. 19 It is anticipated that the future development of the Company's business will require additional (and possibly substantial) capital expenditures. Depending upon the extent of success of the Company's ability to sell additional prospects for cash, the level of industry participation in the Company's exploration projects, the continuing results at East Lost Hills and the Deep Temblor exploration program, the Company may require from $2,000,000 to over $10,000,000 for capital expenditures relating to exploration and potential development of its projects during the 12 month period ending August 31, 2000. See "ITEMS 1 AND 2. DESCRIPTION OF BUSINESS AND PROPERTIES-Substantial Capital Requirements And Liquidity". The Company intends to attempt to limit capital expenditures by forming industry alliances and exchanging an appropriate portion of its interest for cash and/or a carried interest in its exploration projects. Although currently there are no commitments for additional funding, the Company may need to raise additional funds to cover capital expenditures. See "ITEMS 1 AND 2. DESCRIPTION OF BUSINESS AND PROPERTIES-- Disclosure Regarding Forward-Looking Statements And Cautionary Statements--Cautionary Statements" and "--Significant Properties--Southern San Joaquin Basin, California". Year 2000 Compliance Year 2000 compliance is the ability of computer hardware and software to respond to the problems posed by the fact that computer programs traditionally have used two digits rather than four digits to define an applicable year. As a consequence, any of the Company's computer programs that have date-sensitive software may recognize a date using "00" as the year 1900 rather than the year 2000. This could result in a system failure or miscalculations causing interruption of operations, including temporary inability to perform seismic analysis and to perform accounting functions and delays in the receipt of payments from purchasers of oil and gas production, if any. The Company currently has reviewed the Company's computers and software as well as other material equipment that utilizes imbedded computer chips, such as facsimile machines and telephone systems, and has not found any information suggesting that the Company is vulnerable to potential Year 2000 failures in these areas. The Company has confirmed with the maker of its accounting software that it is Year 2000 compliant. In addition, the Company has confirmed with the vendors that it believes are its most significant vendors, and does not feel there is significant risk for the Company associated with Year 2000 failures. The Company's contingency plans include doing business with other vendors in the event that a vendor is disrupted by Year 2000 failures. The Company has identified other potential vendors for this purpose. 20 ITEM 7. FINANCIAL STATEMENTS The Financial Statements that constitute Item 7 are attached at the end of this Annual Report on Form 10-KSB. An index to these Financial Statements is set forth below: Page ---- Independent Auditor's Report F-2 Balance Sheet August 31, 1999 F-3 Statements of Operations Years ended August 31, 1998 and 1999 And cumulative amounts from Inception To August 31, 1999. F-4 Statements of Members'/Stockholders' Equity Period from Inception (May 31, 1996) to December 31, 1996, Eight Months Ended August 31, 1997 and Years Ended August 31, 1998 and 1999. F-5, F-6 Statements of Cash Flows Years ended August 31, 1998 and 1999 And cumulative amounts from Inception To August 31, 1999. F-7 - F-8 Notes To Financial Statements F-9 - F-19 All other schedules are omitted because they are inapplicable, not required, or the information is included in the financial statements or notes thereto. ITEM 8. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND FINANCIAL DISCLOSURE. Not applicable. 21 PART III ITEM 9. DIRECTORS AND EXECUTIVE OFFICERS OF REGISTRANT The directors and executive officers of the Company, their respective positions and ages, and the year in which each director was first elected, are set forth in the following table. Each director has been elected to hold office until the next annual meeting of stockholders and thereafter until his successor is elected and has qualified. Additional information concerning each of these individuals follows the table.
Name Age Position with the Company Director Since ---- --- ------------------------- -------------- D. Scott Singdahlsen 41 Chief Executive Officer, 1997 President, and Chairman Of the Board Robert B. Suydam 61 Vice President--Geology and Director 1998 Andrew P. Calerich 35 Chief Financial Officer and Secretary --- Keith F. Carney 43 Director 1997 S. L. Hutchison 66 Director 1999 Bryce W. Rhodes 46 Director 1999 Kenneth R. Berry, Jr. 47 Vice President-Land 1999
D. Scott Singdahlsen has served as President, Chief Executive Officer, and Chairman of the Board of the Company since August 1997. Mr. Singdahlsen co-founded PYR Energy, LLC in 1996, and served as General Manager and Exploration Coordinator. In 1992, Mr. Singdahlsen co-founded Interactive Earth Sciences Corporation, a 3-D seismic management and interpretation consulting firm in Denver, where he served as vice president and president and lead seismic interpretation specialist from 1992 to 1996. Prior to forming Interactive Earth Sciences Corporation, Mr. Singdahlsen was employed as a Development Geologist for Chevron USA in the Rocky Mountain region. At Chevron, Mr. Singdahlsen was involved in 3-D seismic reservoir characterization projects and geostatistical analysis. Mr. Singdahlsen started his career at UNOCAL as an Exploration Geologist in Midland, Texas. Mr. Singdahlsen earned a B.A. in Geology from Hamilton College and a M.S. in Structural Geology from Montana State University. Robert B. Suydam has served as a Director of the Company since October 1998. Mr. Suydam has served as Vice-President - Geology of the Company since August 1997 and was Secretary of the Company from August 1997 until May 1998. Mr. Suydam co-founded PYR Energy, LLC in 1996 and served as Chief Geologist. From 1985 until 1996, Mr. Suydam served as exploration coordinator for Snyder Oil, Gerrity Oil, and Energy Minerals in Denver. Prior to this employment, Mr. Suydam served as Vice President of Exploration for National Oil Company, and as Exploration Manager for Hamilton Brothers Oil Company in Denver and Calgary. Mr. Suydam started his career as an exploration geologist at Texaco in Denver, Calgary, and New Orleans. Mr. Suydam earned a B.S. and M.S. in Geology from the University of Wyoming. 22 Andrew P. Calerich has served as Chief Financial Officer of the Company since August 1997, as Secretary of the Company since May 1998 and as Vice President since August of 1999. From 1993 to 1997, Mr. Calerich was a business consultant specializing in accounting for private oil and gas producers in Denver. From 1990 to 1993, Mr. Calerich was employed as corporate Controller at a public oil and gas company in Denver. Mr. Calerich began his professional career in public accounting in the tax department at Arthur Andersen & Company. Mr. Calerich is a Certified Public Accountant and earned B.S. degrees in both Accounting and Business Administration at Regis College. Keith F. Carney has served as a Director of the Company since August 1997. Since October 1997, Mr. Carney has been Executive Vice-President of Cheniere Energy, Inc., a Houston based public oil and gas exploration company. From July 1997 until October 1997, Mr. Carney served as Chief Financial Officer of Cheniere Energy. After earning his M.B.A. degree from the University of Denver in 1992, Mr. Carney was employed as a Securities Analyst in the oil and gas exploration/production sector with Smith Barney, Inc. Mr. Carney began his career as an exploration Geologist at Shell Oil after earning B.S. and M.S. degrees in Geology from Lehigh University. S. L. Hutchison has been a Director of the Company since April 1999, when he was nominated and elected to the Board in connection with the sale by the Company of convertible promissory notes issued in a private placement transaction in October and November 1998. Since 1979, Mr. Hutchison has served as Vice President and Chief Financial Officer of Victory Oil Company, an oil and gas production company based in California, and other companies in the Victory Group of Companies. Also during that period, Mr. Hutchison has served as Vice-President and Chief Financial Officer and a Director of Crail Capital, a real estate investment company that is owned by Victory Oil Company, and Victex, Inc., a real estate and oil and gas company. Mr. Hutchison also serves as Chief Financial Officer and a director of each of the Crail Johnson Foundation and the Independent Oil Producers Agency, and is the Treasurer and a director of the Los Angeles Maritime Institute. Mr. Hutchison received a Bachelor's degree in accounting from the University of Washington in 1954. Bryce W. Rhodes has been a Director of the Company since April 1999, when he was nominated and elected to the Board in connection with the sale by the Company of convertible promissory notes issued in a private placement transaction in October and November 1998. Since 1996, Mr. Rhodes has served as Vice President of Whittier Energy Company ("WEC"), an oil and gas investment company. Mr. Rhodes served as Investment Manager of WEC from 1990 until 1996. Mr. Rhodes received B.A. degrees in Geology and Biology from the University of California, Santa Cruz, in 1976 and an MBA degree from Stanford University in 1979. Kenneth R. Berry, Jr. has served as Vice President of land since August, 1999 and as land manager for the Company since October 1997. Mr. Berry is responsible for the management of all land issues including leasing and permitting. Mr. Berry has 23 years of experience as an independent landman. Prior to joining the Company, Mr. Berry served as the managing land consultant for Swift Energy Company in the Rocky Mountain region. Mr. Berry began his career in the land department with Tenneco Oil Company after earning a B.A. degree in Petroleum Land Management at the University of Texas - Austin. 23 Board And Committee Meetings The Board of Directors met nine times during the fiscal year ended August 31, 1999 and, except for one meeting, all directors were present at each of those meetings. The Board of Directors currently has a Compensation Committee which met three times during the fiscal year ended August 31, 1999 and all members of the Compensation Committee participated in those meetings. The Compensation Committee has the authority to establish policies concerning compensation and employee benefits for employees of the Company. The Compensation Committee reviews and makes recommendations concerning the Company's compensation policies and the implementation of those policies and determines compensation and benefits for executive officers. The Compensation Committee currently consists of Messrs. Carney, (Chairman), Hutchison and Rhodes, each of whom is an outside director. The Board of Directors currently has an audit committee consisting of Messrs. Hutchison (Chairman), Carney and Rhodes. The audit committee did not meet formally during the fiscal year ending August 31, 1999. Section 16(a) Beneficial Ownership Reporting Compliance Section 16(a) of the Securities Exchange Act of 1934, as amended (the "Exchange Act"), requires the Company's directors, executive officers and holders of more than 10% of the Company's common stock to file with the Securities and Exchange Commission initial reports of ownership and reports of changes in ownership of common stock and other equity securities of the Company. The Company believes that during the year ended August 31, 1999, its officers, directors and holders of more than 10% of the Company's common stock complied with all Section 16(a) filing requirements. In making these statements, the Company has relied upon the written representations of its directors and officers and the Company's review of the monthly statements of changes filed with the Company by its officers and directors. ITEM 10. EXECUTIVE COMPENSATION Summary Compensation Table The following table sets forth in summary form the compensation received during each of the Company's last three successive completed fiscal years by D. Scott Singdahlsen, the Chief Executive Officer, President and Chairman Of The Board of the Company. No executive officer of the Company, including the Chief Executive Officer and the Chairman Of The Board, received total salary and bonus exceeding $100,000 during any of the last three fiscal years. 24
Summary Compensation Table -------------------------- Long Term Compensation ---------------------- Annual Compensation Awards Payouts ------------------- ---------------------------------- Restricted Other Annual Stock LTIP All other Name and Fiscal Salary Bonus Compensation Awards ($) Options Payouts Compensation Principal Position Year ($)(1) ($)(2) ($)(3) (#) ($)(4) ($)(5) - ------------------------------------------------------------------------------------------------------------------------- D. Scott Singdahlsen 1999 $77,917 -0- -0- -0- -0- -0- -0- Chief Executive Officer, President and Chairman 1998 $75,000 -0- -0- -0- -0- -0- -0- Of the Board 1997 $10,250 -0- -0- -0- -0- -0- -0-
- ---------- (1) The dollar value of base salary (cash and non-cash) received during the year indicated. Includes $4,000 paid as consulting fees to Mr. Singdahlsen by PYR Energy, LLC during the period from January 1, 1997 through August 6, 1997. (2) The dollar value of bonus (cash and non-cash) received during the year indicated. (3) During the period covered by the Summary Compensation Table, the Company did not pay any other annual compensation not properly categorized as salary or bonus, including perquisites and other personal benefits, securities or property. (4) The Company does not have in effect any plan that is intended to serve as incentive for performance to occur over a period longer than one fiscal year except for the Company's 1997 Stock Option Plan. (5) All other compensation received that the Company could not properly report in any other column of the Summary Compensation Table including annual Company contributions or other allocations to vested and unvested defined contribution plans, and the dollar value of any insurance premiums paid by, or on behalf of, the Company with respect to term life insurance for the benefit of the named executive officer, and, the full dollar value of the remainder of the premiums paid by, or on behalf of, the Company. 25 1997 Stock Option Plan In August 1997, the Company's 1997 Stock Option Plan (the "1997 Plan") was adopted by the Board of Directors of the Company and subsequently approved by the Company's stockholders. Pursuant to the 1997 Plan, the Company may grant options to purchase an aggregate of 1,000,000 shares of the Company's Common Stock to key employees, directors, and other persons who have contributed or are contributing to the success of the Company. The options granted pursuant to the 1997 Plan may be either incentive options qualifying for beneficial tax treatment for the recipient or nonqualified options. The 1997 Plan may be administered by the Board of Directors or by an option committee. Administration of the 1997 Plan includes determination of the terms of options granted under the 1997 Plan. At August 31, 1998, options to purchase 246,000 shares were outstanding under the 1997 Plan. During fiscal year ended August 31, 1999, options to purchase 585,000 additional shares were granted and options to purchase 10,000 shares terminated so that, as of August 31, 1999, options to purchase 821,000 shares were outstanding and 179,000 shares may be granted pursuant to the 1997 Plan. Compensation Of Outside Directors Currently, Directors are not compensated for serving as a director. Directors are reimbursed for direct expenses incurred in attending meetings and for other expenses incurred on behalf of the Company. Employment Contracts And Termination of Employment And Change-In-Control Arrangements The Company does not have any written employment contracts with respect to any of its officers or other employees. The Company has no compensatory plan or arrangement that results or will result from the resignation, retirement, or any other termination of an executive officer's employment with the Company or from a change-in-control of the Company or a change in an executive officer's responsibilities following a change-in-control, except that the 1997 Plan provides for vesting of all outstanding options in the event of the occurrence of a change-in-control. ITEM 11. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT As of December 3, 1999, there were 14,579,580 shares of the Company's $.001 par value common stock (the "Common Stock") outstanding. The following table sets forth certain information as of December 3, 1999, with respect to the beneficial ownership of the Company's Common Stock by each director, by all executive officers and directors as a group, and by each other person known by the Company to be the beneficial owner of more than five percent of the Company's Common Stock: 26
Name and Address of Number of Shares Percentage of Beneficial Owner Beneficially Owned (1) Shares Outstanding - ---------------- ---------------------- ------------------ D. Scott Singdahlsen 1,950,000 13.3% 1675 Broadway, Suite 1150 Denver, Colorado 80202 Robert B. Suydam 1,300,000 (2) 8.9% 1675 Broadway, Suite 1150 Denver, Colorado 80202 Keith F. Carney 141,400 (3) 1.0% 915 Bay Oaks Road Houston, Texas 77008 S.L. Hutchison 3,032,083 (4) 18.3% c/o Victory Oil Company 222 West Sixth Street, Suite 1010 San Pedro, California 90731 Bryce W. Rhodes 246,292 (5) 1.7% c/o Whittier Energy Company 1600 Huntington Drive South Pasadena, California 91030 All Executive Officers and 6,833,375 (2)(3)(4)(5)(6) 41.2% Directors as a group (six persons) PinOak, Inc. 1,300,000 (2) 8.9% 287 West Morrison Court Grand Junction, Colorado 81503 Victory Oil Company 2,904,583 (7) 17.7% 222 West Sixth Street, Suite 1010 San Pedro, California 90731 Whittier Trust Company 833,333 (8) 5.4% 1600 Huntington Drive South Pasadena, California 91030 Thomas E. Claugus 1,038,125 (9) 7.0% 2100 RiverEdge Parkway, Suite 840 Atlanta, Georgia 30328
- ---------- (1) "Beneficial ownership" is defined in the regulations promulgated by the U.S. Securities and Exchange Commission as having or sharing, directly or indirectly (i) voting power, which includes the power to vote or to direct the voting, or (ii) investment power, which includes the power to dispose or to direct the disposition, of shares of the common stock of an issuer. Unless otherwise indicated, the beneficial owner has sole voting and investment power. 27 (2) The shares shown for Mr. Suydam are owned of record by PinOak Inc. ("PinOak"). These shares are included twice in the table. They are listed as being held beneficially by both PinOak and by Mr. Suydam. PinOak is owned by Mr. Suydam's wife and Mr. Suydam is the President of PinOak. (3) Includes options to purchase 10,000 shares at $1.28 per share until May 26, 2001 that currently are exercisable or that will become exercisable within the next 60 days. Also includes common stock purchase warrants enabling this shareholder/director to purchase an additional 2,400 shares (4) Includes 100,000 shares of Common Stock that may be issued upon the conversion of Series A Preferred Stock held by Mr. Hutchison. Also includes currently exercisable warrants to purchase 2,500 shares at $2.50 per share until May 14, 2004. Also includes the shares shown as beneficially owned by Victory Oil Company as described in note (7) below. Mr. Hutchison is the Vice President and Chief Financial Officer of Victory Oil Company. Mr. Hutchison disclaims beneficial ownership of the shares beneficially owned by Victory Oil Company. (5) Includes 66,667 shares of Common Stock that may be issued upon the conversion of Series A Preferred Stock held by a company owned by Mr. Rhodes. Also includes 158,750 shares and currently exercisable warrants to purchase 7,845 shares for $2.50 per share until May 14, 2004 that are held by Whittier Energy Company. Mr. Rhodes is a Vice President of Whittier Energy Company. (6) Includes 2,500 shares of Common Stock and options to purchase 122,500 shares of Common Stock that currently are exercisable or that will become exercisable within the next 60 days that are held by Andrew P. Calerich, the Chief Financial Officer and Secretary of the Company, and 31,000 shares and currently exercisable warrants to purchase 1,600 shares for $2.50 per share until May 14, 2004 held by Mr. Calerich's wife's individual retirement account. (7) Includes 1,666,667 shares of Common Stock that may be issued upon the conversion of Series A Preferred Stock held by Victory Oil Company. Also includes 100,000 shares owned by Crail Fund, a partnership that is owned by the shareholders of Victory Oil Company. See "TRANSACTIONS BETWEEN THE COMPANY AND RELATED PARTIES-- 1998 Private Placement Of Notes". Also includes currently exercisable warrants to purchase 93,750 shares for $2.50 per share until May 14, 2004. (8) This beneficial ownership was reported in the Schedule 13D filed by Victory Oil Company, Whittier Trust Company and other filing parties on November 5, 1998. These shares consist of shares of Common Stock that may be issued upon the conversion of Series A Preferred Stock held by various holders for whom Whittier Trust Company serves as trustee and/or agent. See "TRANSACTIONS BETWEEN THE COMPANY AND RELATED PARTIES-- 1998 Private Placement Of Notes". (9) This beneficial ownership was reported in the Schedule 13D filed on May 28, 1999 by Thomas E. Claugus, GMT, Inc., Bay Resource Partners Offshore Fund, Ltd., and Bay Resource Partners, L.P. (collectively, the "Claugus Group"). Includes an aggregate of 943,750 shares and currently exercisable warrants to purchase 94,375 shares for $2.50 per share until May 14, 2004 that are held by the Claugus Group. 28 ITEM 12. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS 1998 Private Placement Of Notes - ------------------------------- In November 1998, the Company completed the sale of convertible promissory notes (the "Notes") in the total amount of $2,500,000 in a private placement transaction pursuant to exemptions from federal and state registration requirements. Victory Oil Company ("Victory") purchased $1.0 million of Notes, and parties related to Whittier Energy Company ("WEC") purchased $500,000 of Notes. The remaining $1.0 million of Notes were sold to other investors. For a description of the Notes and the Series A Preferred stock into which the Notes may be converted, see below, "DESCRIPTION OF SECURITIES". In connection with the sale of the Notes, the Company agreed to add, and the stockholders of the Company subsequently approved the election of, S.L. Hutchison and Bryce W. Rhodes to the Board of Directors. Mr. Hutchison is the Chief Financial Officer of Victory and Mr. Rhodes is a Vice President of WEC. As a condition to the sale of the Notes, D. Scott Singdahlsen and Robert B. Suydam, who are directors and officers of the Company, entered into a voting agreement (the "Voting Agreement") with the purchasers of the Notes. Pursuant to the Voting Agreement, Mr. Singdahlsen and Mr. Suydam each agreed, respectively, that he will vote all the shares of Common Stock of the Company owned by him in favor of the election of two nominees of the investors to serve on the Board of Directors of the Company and for the re-election of those nominees or other nominees at any time that the aggregate percentage ownership of common equity of the Company underlying the Notes or Series A Preferred owned by the investors is 20 percent or more of the outstanding Common Stock. At the annual meeting of stockholders held on April 16, 1999, all of Mr. Singdahlsen's and Mr. Suydam's shares were voted in favor of the two nominees. Mr. Singdahlsen and Mr. Suydam are required to vote for only one nominee at any time after the aggregate percentage ownership of common equity of the Company owned by the investors is less than 20 percent and greater than or equal to 10 percent of the outstanding Common Stock. The obligation of Mr. Singdahlsen and Mr. Suydam to vote for any nominees of the investors terminates at any time after the percentage ownership of common equity of the Company owned by the investors is less than 10 percent of the outstanding Common Stock. Mr. Singdahlsen and Mr. Suydam are not required to vote for the designated board members at any time that the holders of the Series A Preferred have the right voting separately as a class to elect those designated board members. May 1999 Private Placement Of Units - ----------------------------------- In May 1999, the Company completed a private placement of $7,000,000 of Units at $16 per Unit, with each Unit consisting of 10 shares of Common Stock and a warrant to purchase one share of Common Stock at an exercise price of $2.50 per share until May 14, 2004. The private placement was made pursuant to exemptions from federal and state registration requirements. 93,750 Units for $1,500,000 and 7,875 Units for $126,000 were purchased by Victory and WEC, respectively. 29 Except as described above, during the fiscal year ended August 31, 1998, there were no transactions between the Company and its directors, executive officers or known holders of greater than five percent of the Company's Common Stock in which the amount involved exceeded $60,000 and in which any of the foregoing persons had or will have a material interest. DESCRIPTION OF SECURITIES The Company's authorized capital consists of 30,000,000 shares of $.001 par value Common Stock and 1,000,000 shares of $.001 par value preferred stock. The Company had 14,579,580 shares of Common Stock issued and outstanding as of December 3, 1999, and these outstanding shares were held by approximately 1,475 stockholders. The Company also had outstanding 22,979 shares of Series A Preferred Stock held by 55 holders. There also are outstanding warrants to purchase 175,000 shares of Common Stock that are held by two holders and additional warrants to purchase 434,375 shares of Common Stock held by 51 holders. The following is a description of the Company's securities. Common Stock Each share of the Common Stock is entitled to share equally with each other shares of Common Stock in dividends from sources legally available therefore, when, as, and if declared by the Board of Directors and, upon liquidation or dissolution of the Company, whether voluntary or involuntary, to share equally in the assets of the Company that are available for distribution to the holders of the Common Stock. Each holder of Common Stock of the Company is entitled to one vote per share for all purposes, except that in the election of directors, each holder shall have the right to vote such number of shares for as many persons as there are directors to be elected. Cumulative voting shall not be allowed in the election of directors or for any other purpose, and the holders of Common Stock have no preemptive rights, redemption rights or rights of conversion with respect to the Common Stock. All outstanding shares of Common Stock and all shares underlying the Warrants when issued will be fully paid and nonassessable by the Company. The Board of Directors is authorized to issue additional shares of Common Stock within the limits authorized by the Company's Certificate Of Incorporation and without stockholder action. All shares of Common Stock have equal voting rights and voting rights are not cumulative. The holders of more than 50 percent of the shares of Common Stock of the Company could, therefore, if they chose to do so and unless subject to a voting agreement to the contrary, elect all the directors of the Company. The Company has not paid any cash dividends since its inception. The Company has reserved a sufficient number of shares of Common Stock for issuance upon the exercise of options under the Company's 1997 Stock Option Plan. Notes In November 1998, the Company completed the sale of convertible promissory notes (the "Notes") in the total amount of $2,500,000 in a private placement transaction pursuant to exemptions from federal and state registration requirements. 30 The Notes were automatically converted into shares of Series A Preferred Stock (the "Series A Preferred") at the rate of one share for each $100 principal amount of Notes upon approval by the stockholders of the Series A Preferred on April 16, 1999. As a result, no Notes currently are outstanding. For a description of the Series A Preferred, see below "- Series A Preferred Stock". Upon conversion of the Notes into Series A Preferred, the Company paid accrued interest on the Notes with Common Stock at a rate based on the weighted average trading price of the Common Stock for 45 days prior to the interest payment date. The aggregate number of shares issued as payment of accrued interest on the Notes was 53,326. Series A Preferred Stock The following is a summary of the rights of the Series A Preferred: o Each share of Series A Preferred has a face value of $100 per share. o An annual dividend of 10% is payable on the Series A Preferred semi-annually. The payment will be made either in cash or in Common Stock, at the option of the Company. If paid with Common Stock, the Common Stock will be issued at a rate based on a 45 day weighted average trading price of the Common Stock. o The Series A Preferred is convertible, in whole or in part, into Common Stock at the rate of one share of Common Stock for each $.60 of face value of Series A Preferred (or 166.67 shares of Common Stock for each $100 face amount share of Series A Preferred). The conversion right may be exercised at any time and from time to time. o The Company has the right to require holders to convert their Series A Preferred into Common Stock in the following circumstances: o The Company has the right to require that one-third of the outstanding Series A Preferred be redeemed or converted at any time after October 26, 1999, provided that the market value of the Company's Common Stock is at least $2.40 per share, based on a 45-day weighted average trading price. At October 26, 1999 the Company had exceeded the $2.40 per share requirement and has initiated the redemption/conversion process. o The Company has the right to require that two-thirds of the outstanding Series A Preferred be redeemed or converted at any time after October 26, 2000, provided that the market value of the Common Stock is at least $3.60 per share. o The Company has the right to require all of the outstanding Series A Preferred be redeemed or converted beginning at any time after October 26, 2000, provided that the market value of the Common Stock is at least $4.80 per share. 31 o The Company shall have the right, beginning October 26, 2000, to require that all the outstanding Series A Preferred be redeemed or converted if the Corporation has accumulated retained earnings equal to or greater than $3,750,000. o In a vote of stockholders, other than for the election of directors of the Company, the holders of the Series A Preferred are entitled to vote the number of votes equal to the number of shares into which the Series A Preferred may be converted, or 167 votes for each share of Series A Preferred. o The holders of the Series A Preferred, as a separate class, have the right to elect two members of the Board of Directors of the Company when 10,000 or more shares of Series A Preferred are outstanding. If the Board of Directors is increased to a number greater than six, the holders of the Series A Preferred may elect one-third of the total number of directors when 10,000 or more shares are outstanding. When more than 5,000 shares but less than 10,000 shares of Series A Preferred are outstanding, the holders of Series A Preferred have the right to elect one member of the Board of Directors. If the Board of Directors is increased to a number greater than six, the holders of the Series A Preferred may elect one-sixth of the total number of directors when more than 5,000 shares but less an 10,000 shares are outstanding. Warrants In connection with the sale of the Notes, the Company issued warrants to purchase up to 175,000 shares of the Company's Common Stock at an at an exercise price of $.75 per share. All of the warrants currently are exercisable and all of them expire on October 26, 2003. The Company has the right to repurchase some or all of the warrants before that time, depending on whether the trading price of the Company's Common Stock meets or exceeds certain goals. At October 26, 1999, the Company had met certain goals that enable the Company to repurchase 58,333 warrants. The warrant holders have been notified and have elected to exercise this component of their warrants. The Company is in the process of completing this transaction. See also, "TRANSACTIONS BETWEEN THE COMPANY AND RELATED PARTIES - 1998 Private Placement Of Notes". The Company also has outstanding warrants to purchase up to an aggregate of 434,375 shares of Common Stock that were issued in the May 1999 private placement. The warrants are exercisable at $2.50 per share until May 14, 2004. PART IV ITEM 13. EXHIBITS AND REPORTS ON FORM 8-K (a)(1) and (a)(2) Financial Statements And Financial Statement Schedules See "ITEM 7. FINANCIAL STATEMENTS". (a)(3) Exhibits. --------- 32 Exhibit Index Number Description - ------ ----------- 3.1 Certificate Of Incorporation filed with the Delaware Secretary Of State on March 27, 1996 (1) 3.2 Certificate Of Amendment to the Certificate Of Incorporation effective as of November 12, 1997 filed with the Delaware Secretary Of State. (5) 3.3 Bylaws 10.1 Asset Transfer, Assignment and Assumption Agreement dated April 16, 1996 between the Registrant and Bexy Communications, Inc. (2) 10.2 Form of Purchase And Sale Agreement dated as of July 31, 1997 between the Registrant and a member of PYR Energy, LLC (4) 10.3 Purchase And Sale Agreement effective as of August 6, 1997 between the Registrant and Buddy Young (4) 10.4 1997 Stock Option Plan (3) 10.5 Convertible Note Purchase Agreement dated October 26, 1998 between the Registrant and various investors (6) 27.1 Financial Data Schedule - -------------------- (1) Incorporated by reference from the Registrant's Registration Statement on Form 10-SB filed with the Securities And Exchange Commission ("SEC") on June 18, 1996, File No. 0-20879. (2) Incorporated by reference from the Registrant's Amendment No. 1 to Registration Statement on Form 10-SB filed with the SEC on July 3, 1996, File No. 0-20879. (3) Incorporated by reference from the Registrant's Preliminary Information Statement filed with the SEC on October 8, 1997. (4) Incorporated by reference from the Registrant's Registration Statement on Form SB-2 filed with the SEC on October 24, 1997, File No. 333-38665. (5) Incorporated by reference from the Registrant's Form 10-KSB/A1 for the year ended August 31, 1997. (6) Incorporated by reference from Exhibit 2 to the Schedule 13D filed by Victory Oil Company and other filing parties on November 5, 1998. (b) Reports On Form 8-K. During the fourth quarter of the fiscal year ended August 31, 1998, the Registrant filed three Current Reports on Form 8-K reporting events that occurred on June 1, 1999, June 21, 1999 and July 16, 1999. These events consisted of the dissemination of press releases by the Company and were reported under "ITEM 5. OTHER EVENTS". Subsequent to August 31, 1999 and prior to filing this Annual Report on Form 10-KSB, the Registrant has not filed any Current Reports on Form 8-K. 33 PYR ENERGY CORPORATION (A Development Stage Company) INDEX Independent Auditor's Report F-2 Balance Sheet August 31, 1999 F-3 Statements of Operations Years Ended August 31, 1998 and 1999 and Cumulative Amounts from Inception to August 31, 1999 F-4 Statements of Members'/Stockholders' Equity Period from Inception (May 31, 1996) to December 31, 1996, Eight Months Ended August 31, 1997 and Years Ended August 31, 1998 and 1999 F-5 - F-6 Statements of Cash Flows Years Ended August 31, 1998 and 1999 and Cumulative Amounts from Inception to August 31, 1999 F-7 - F-8 Notes to Financial Statements F-9 - F-19 F - 1 INDEPENDENT AUDITOR'S REPORT To The Board of Directors and Stockholders PYR ENERGY CORPORATION We have audited the accompanying balance sheet of PYR Energy Corporation (a development stage company) as of August 31, 1999, the related statements of operations, members'/stockholders' equity and cash flows for the two years then ended, and cumulative amounts from inception to August 31, 1999. These financial statements are the responsibility of the Company's management. Our responsibility is to express an opinion on these financial statements based on our audits. We conducted our audits in accordance with generally accepted auditing standards. Those standards require that we plan and perform the audits to obtain reasonable assurance about whether the financial statements are free of material misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements. An audit also includes assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall financial statement presentation. We believe that our audits provide a reasonable basis for our opinion. In our opinion, the financial statements referred to above present fairly, in all material respects, the financial position of PYR Energy Corporation as of August 31, 1999, and the results of its operations and its cash flows for the two years then ended and cumulative amounts from inception to August 31, 1999 in conformity with generally accepted accounting principles. /s/ Wheeler Wasoff, PC. Denver, Colorado October 8, 1999 F - 2 PYR ENERGY CORPORATION (A Development Stage Company) BALANCE SHEET AUGUST 31, 1999 ASSETS CURRENT ASSETS Cash $ 117,905 Marketable securities 5,111,062 Accounts receivable 3,082 Prepaid expenses 10,347 ------------ Total Current Assets 5,242,396 ------------ PROPERTY AND EQUIPMENT 5,106,847 ------------ OTHER ASSETS Reimbursable property costs 410,000 Deposit 3,278 ------------ 413,278 ------------ $ 10,762,521 ============ LIABILITIES AND STOCKHOLDERS' EQUITY CURRENT LIABILITIES Accounts payable and accrued liabilities $ 179,839 Current portion of capital lease obligation 1,600 ------------ Total Current Liabilities 181,439 ------------ CAPITAL LEASE OBLIGATION 1,062 ------------ COMMITMENTS AND CONTINGENCIES (Notes 4 and 9) STOCKHOLDERS' EQUITY Preferred stock, $.001 par value; Authorized 1,000,000 shares Series A - Authorized 25,000 shares; Issued and outstanding 22,979 shares 23 Common stock, $.001 par value; Authorized 30,000,000 shares Issued and outstanding 14,408,620 shares 14,409 Capital in excess of par value 11,925,537 Deficit accumulated during the development stage (1,359,949) ------------ 10,580,020 ------------ $ 10,762,521 ============ The accompanying notes are an integral part of the financial statements. F - 3
PYR ENERGY CORPORATION (A Development Stage Company) STATEMENTS OF OPERATIONS Cumulative from Years Ended Inception to August 31, August 31, 1998 1999 1999 ----------------------------------- ------------ REVENUES Consulting fees $ 10,000 $ -- $ 127,528 Interest 36,145 116,713 158,454 ------------ ------------ ------------ 46,145 116,713 285,982 ------------ ------------ ------------ OPERATING EXPENSES General and administrative 675,245 743,115 1,562,039 Dry hole, impairment and abandonments 15,000 306,369 321,369 Interest 488 183,256 184,095 Depreciation and amortization 22,416 24,380 47,847 ------------ ------------ ------------ 713,149 1,257,120 2,115,350 ------------ ------------ ------------ OTHER INCOME Gain on sale of oil and gas prospects 556,197 -- 556,197 ------------ ------------ ------------ (110,807) (1,140,407) (1,273,171) INCOME APPLICABLE TO PREDECESSOR LLC (Note 1) -- -- (35,868) ------------ ------------ ------------ NET (LOSS) $ (110,807) $ (1,140,407) $ (1,309,039) ============ ============ ============ NET (LOSS) PER COMMON SHARE - BASIC AND DILUTED (Note 2) $ (.012) $ (.105) $ (.167) ============ ============ ============ WEIGHTED AVERAGE NUMBER OF COMMON SHARES OUTSTANDING (Note 2) 9,154,804 10,823,645 7,817,851 ============ ============ ============ The accompanying notes are an integral part of the financial statements. F - 4 PYR ENERGY CORPORATION (A Development Stage Company) STATEMENTS OF MEMBERS'/STOCKHOLDERS' EQUITY PERIOD FROM INCEPTION (MAY 31, 1996) TO DECEMBER 31, 1996, EIGHT MONTHS ENDED AUGUST 31, 1997 AND YEARS ENDED AUGUST 31, 1998 AND 1999 Deficit Preferred Stock Common Stock Accumulated --------------- ------------ Capital in During the Members' Excess of Development Equity Shares Amount Shares Amount Par Value Stage - ----------------------------------------------------------------------------------------------------------------------------------- Inception, May 31, 1996 $ -- -- $ -- -- $ -- $ -- $ -- Initial member contributions - cash 5,000 -- -- -- -- -- -- Member contribution- services 12,000 -- -- -- -- -- -- Distributions to members (24,000) -- -- -- -- -- -- Net income 18,963 -- -- -- -- -- -- --------- -------- --------- ----------- ----------- ----------- ----------- Balance, December 31, 1996 11,963 -- -- -- -- -- -- Member contributions - cash 23,000 -- -- -- -- -- -- Member contribution - services 24,000 -- -- -- -- -- -- Distributions to members (42,000) -- -- -- -- -- -- Net income - January 1, 1997 to August 5, 1997 16,905 -- -- -- -- -- -- Issuance of common stock to members of PYR Energy, LLC upon merger ($.008 per share) (33,868) -- -- 4,000,000 4,000 29,868 -- Recapitalization of shares issued by Mar prior to merger -- -- -- 1,059,804 1,060 (724) -- Sales of common stock pursuant to private placement at $.25 per share -- -- -- 2,095,000 2,095 521,655 -- Sale of common stock pursuant to private placement at $.75 per share -- -- -- 2,000,000 2,000 1,498,000 -- Costs of private placements offerings -- -- -- -- -- (280,711) -- Net (loss) August 6, 1997 to August 31, 1997 -- -- -- -- -- -- (57,825) --------- ------ ---------- ----------- ----------- ----------- ----------- Balance, August 31, 1997 -- -- -- 9,154,804 9,155 1,768,088 (57,825) Net (loss) -- -- -- -- -- -- (110,807) --------- ------ ---------- ----------- ----------- ----------- ----------- Balance, August 31, 1998 $ -- -- -- 9,154,804 $ 9,155 $ 1,768,088 $ (168,632) The accompanying notes are an integral part of the financial statements F - 5 PYR ENERGY CORPORATION (A Development Stage Company) STATEMENTS OF MEMBERS'/STOCKHOLDERS' EQUITY (continued) PERIOD FROM INCEPTION (MAY 31, 1996) TO DECEMBER 31, 1996, EIGHT MONTHS ENDED AUGUST 31, 1997 AND YEARS ENDED AUGUST 31, 1998 AND 1999 Deficit Preferred Stock Common Stock Accumulated --------------- ------------ Capital in During the Members' Excess of Development Equity Shares Amount Shares Amount Par Value Stage - ----------------------------------------------------------------------------------------------------------------------------------- Balance Forward $ -- -- $ -- 9,154,804 $ 9,155 $ 1,768,088 $ (168,632) Issuance of preferred stock for convertible notes -- 25,000 25 -- -- 2,499,976 -- Unamortized convertible note financing costs -- -- -- -- -- (73,319) -- Issuance of common stock for interest on convertible debt, at $2.19 per share -- -- -- 53,326 53 116,769 -- Issuance of common stock warrants for financing costs -- -- -- -- -- 56,833 -- Conversion of preferred stock to common stock at $.60 per share -- (2,021) (2) (336,833) 337 (335) -- Sale of common stock pursuant to private placement for cash of $1.60 per share -- -- -- 4,375,000 4,375 6,995,625 -- Costs of private placement -- -- -- -- -- (83,155) -- Exercise of private placement warrants for cash of $2.50 per share -- -- -- 3,125 3 7,809 -- Issuance of common stock for property valued at $.75 per share -- -- -- 266,666 267 199,733 -- Issuance of common stock for property at valued $2.00 per share -- -- -- 218,866 219 437,513 -- Preferred dividends paid -- -- -- (50,910) Net (loss) -- -- -- -- -- -- (1,140,407) ------ --------- ------------ ------------ ------------ ------------ ------------ Balance August 31, 1999 $ -- 22,979 $ 23 14,408,620 $ 14,409 $ 11,925,537 $ (1,359,949) ====== ========= ============ ============ ============ ============ ============ The accompanyinotes are an integral part of the financial statements. F - 6 PYR ENERGY CORPORATION (A Development Stage Company) STATEMENTS OF CASH FLOWS Years Ended Cumulative August 31 Amounts from 1998 1999 Inception ---------------------------------- ------------ CASH FLOWS FROM OPERATING ACTIVITIES Net (loss) $ (110,807) $ (1,140,407) $ (1,273,171) Adjustments to reconcile net (loss) to net cash provided by operating activities Depreciation and amortization 22,416 24,380 47,847 Contributed services -- -- 36,000 Gain on sale of oil and gas prospects (556,197) -- (556,197) Dry hole, impairment and abandonments 15,000 306,369 321,369 Common stock issued for interest on debt -- 116,822 116,822 Amortization of financing costs -- 26,939 26,939 Amortization of marketable securities -- (20,263) (20,263) Changes in assets and liabilities Decrease (increase) in accounts receivable 10,000 (3,082) (3,082) (Increase) in prepaids (12,700) (3,451) (18,742) (Decrease) increase in accounts payable (25,858) 135,450 165,405 Other -- 10,000 6,249 ------------ ------------ ------------ Net cash (used) by operating activities (658,146) (547,243) (1,150,824) ------------ ------------ ------------ CASH FLOWS FROM INVESTING ACTIVITIES Cash paid for furniture and equipment (43,407) (13,067) (85,955) Cash paid for undeveloped oil and gas properties (1,406,613) (3,522,969) (5,227,760) Proceeds from sale of oil and gas properties 1,050,078 -- 1,050,078 Cash paid for marketable securities -- (5,090,799) (5,090,799) Cash paid for reimbursable property costs -- (410,000) (410,000) ------------ ------------ ------------ Net cash (used) in investing activities (399,942) (9,036,835) (9,764,436) ------------ ------------ ------------ CASH FLOWS FROM FINANCING ACTIVITIES Members capital contributions -- -- 28,000 Distributions to members -- -- (66,000) Cash from short-term borrowings -- -- 285,000 Repayment of short-term borrowings -- -- (285,000) Proceeds from sale of common stock -- 7,000,000 9,023,750 Proceeds from sale of convertible debt -- 2,500,001 2,500,001 Proceeds from exercise of warrants -- 7,812 7,812 Cash paid for offering costs -- (126,580) (407,291) Cash received upon recapitalization and merger -- -- 336 Payments on capital lease (1,093) (1,440) (2,533) Preferred dividends paid -- (50,910) (50,910) ------------ ------------ ------------ Net cash (used) provided by financing activities (1,093) 9,328,883 11,033,165 ------------ ------------ ------------ NET (DECREASE) INCREASE IN CASH (1,059,181) (255,195) 117,905 CASH, BEGINNING OF PERIODS 1,432,281 373,100 -- ------------ ------------ ------------ CASH, END OF PERIODS $ 373,100 $ 117,905 $ 117,905 ============ ============ ============ The accompanying notes are an integral part of the financial statements. F - 7
PYR ENERGY CORPORATION (A Development Stage Company) STATEMENTS OF CASH FLOWS (CONTINUED) YEARS ENDED AUGUST 31, 1998 AND 1999 AND PERIOD FROM INCEPTION TO AUGUST 31, 1999 SUPPLEMENTAL DISCLOSURE OF CASH FLOW INFORMATION During the years ended August 31, 1998 and 1999, the Company paid cash for interest of $488 and $371, respectively, on a capital lease. SUPPLEMENTAL SCHEDULE OF NON-CASH INVESTING AND FINANCING ACTIVITIES In August 1997, 4,000,000 shares of common stock were issued to the members of PYR Energy, LLC ("PYR LLC") in exchange for 100 percent of the ownership interests in PYR LLC, for which the net members' equity in PYR LLC was $33,868. These shares were issued pursuant to a plan of reorganization and merger effective August 6, 1997 (Notes 1 and 3). During 1996 and 1997 the President of the Company performed services for PYR LLC valued at $12,000 and $24,000, respectively. The value of these services was charged to members' equity as a non-cash capital contribution. During the year ended August 31, 1998, the Company entered into a capital lease obligation of $5,195 for office equipment. During the year ended August 31, 1999, the Company issued common stock, valued at $637,732, as partial consideration for oil and properties; issued common stock, valued at $116,822 for interest on convertible debt; and issued warrants, valued at $56,833, as partial consideration for commission on the sale of convertible debt. The accompanying notes are an integral part of the financial statements. F - 8 PYR ENERGY CORPORATION (A Development Stage Company) Notes to Financial Statements NOTE 1 - ORGANIZATION AND BUSINESS COMBINATION PYR Energy Corporation (the "Company"), is an independent energy company engaged in the exploration and acquisition of crude oil and natural gas reserves in the Western United States, primarily California, and is considered a development stage company as defined by Statement of Financial Accounting Standards (SFAS) No. 7. The Company's predecessor, Mar Ventures Inc. ("Mar"), was incorporated under the laws of the State of Delaware on March 27, 1996 for the purpose of producing and marketing traditional television programming and marketing its film library. Mar was a public company which had no significant operations as of July 31, 1997. On August 6, 1997 Mar acquired all the interests in PYR Energy LLC ("PYR LLC") (a Colorado Limited Liability Company organized on May 31, 1996), a development stage company as defined by SFAS No. 7. PYR LLC, an independent exploration company, was engaged in the acquisition of oil and gas properties for exploration and exploitation in the Rocky Mountain region and California. Effective August 6, 1997, Mar transferred to its former president substantially all its assets and liabilities that were related to its film library operations. The net assets of Mar exchanged pursuant to the transaction with PYR LLC are as follows: Cash $ 336 Assets 1,605 Liabilities (1,605) ------- $ 336 ======= Upon completion of the acquisition of PYR LLC by Mar, PYR LLC ceased to exist as a separate entity. Mar remained as the legal surviving entity and, effective November 12, 1997, Mar changed its name to PYR Energy Corporation. For financial reporting purposes, the business combination was accounted for as an additional capitalization of Mar (a reverse acquisition with PYR LLC as the acquirer). The operations of PYR LLC are the only continuing operations of the Company. Prior to the business combination, Mar loaned $275,000 to PYR LLC for amounts owed by PYR LLC with respect to its oil and gas operations. The loan was eliminated in conjunction with the successful completion of the combination of PYR LLC and Mar. The Company is an exploration stage oil and gas company and as of August 31, 1999, has not earned any production revenue nor recognized proved reserves on any of its properties. The Company's efforts, since August 1997, have been in financing activities and the acquisition of unproven properties and related seismic data. The Company has entered into participation and farm-in agreements with industry partners on certain of its properties pursuant to which these partners have acquired, for cash, interests in the Company's properties. During the year ended August 31, 1998, drilling of two test wells was commenced, with one well being plugged and abandoned and the other suffering a blowout. During the year ended August 31, 1999 the Company continued its acquisition of unproven properties and related seismic data with industry partners, and is participating in exploration of the properties, including the drilling of exploratory wells. F - 9 PYR ENERGY CORPORATION (A Development Stage Company) Notes to Financial Statements NOTE 2 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES PROPERTY AND EQUIPMENT Furniture and equipment is recorded at cost. Depreciation and amortization of assets under capital lease is provided by use of the straight-line method over the estimated useful lives of the related assets of three to five years. Expenditures for replacements, renewals, and betterments are capitalized. Maintenance and repairs are charged to operations as incurred. OIL AND GAS PROPERTIES The Company follows the full cost method to account for its oil and gas exploration and development activities. Under the full cost method, all costs incurred which are directly related to oil and gas exploration and development are capitalized and subjected to depreciation and depletion. Depletable costs also include estimates of future development costs of proved reserves. Costs related to undeveloped oil and gas properties may be excluded from depletable costs until such properties are evaluated as either proved or unproved. The net capitalized costs are subject to a ceiling limitation. Gains or losses upon disposition of oil and gas properties are treated as adjustments to capitalized costs, unless the disposition represents a significant portion of the Company's proved reserves. A separate cost center is maintained for expenditures applicable to each country in which the Company conducts exploration and/ or production activities. Undeveloped oil and gas prospects consist of leases and acreage acquired by the Company for its exploration and development activities, including the cost of seismic data acquisition and evaluation, and drilling costs for exploration wells. The cost of these non-producing leases is recorded at the lower of cost or fair market value. The Company has adopted SFAS No. 121 "Accounting for the Impairment of Long-Lived Assets and for Long-Lived Assets to Be Disposed of" which requires that long-lived assets to be held and used be reviewed for impairment whenever events or changes in circumstances indicate that the carrying amount of an asset may not be recoverable. Oil and gas properties accounted for using the full cost method of accounting, a method utilized by the Company, are excluded from this requirement, but will continue to be subject to the ceiling test limitations. At August 31, 1999 the Company has determined that an impairment loss of $285,229 on unproved oil and gas properties be recognized. F - 10 PYR ENERGY CORPORATION (A Development Stage Company) Notes to Financial Statements NOTE 2 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED) MARKETABLE SECURITIES All investments are accounted for under SFAS No. 115, "Accounting for Certain Investments in Debt and Equity Securities." The Company determines the appropriate classification at time of purchase. Securities are classified as held-to-maturity when the Company has the positive intent and ability to hold the securities to maturity. Held-to-maturity securities are stated at cost, adjusted for amortization of premiums and discounts to maturity. Marketable securities not classified as held-to- maturity are classified as available-for-sale. Available-for-sale securities are carried at fair value, which is based on quoted prices. Unrealized gains and losses, net of tax, are reported as a separate component of shareholders' equity. The cost of securities available-for-sale is adjusted for amortization of premiums and discounts to maturity. Interest and amortization of premiums and discounts for all securities are included in interest income. Realized gains and losses are included in other income. Cost of securities sold is determined on a specific identification basis. FINANCING COSTS Financing costs include expenses incurred in conjunction with the Company's private placement of convertible notes. These costs were amortized over the term of the notes and charged to interest expense up to the date of conversion to preferred stock. At conversion, unamortized financing costs were charged to capital in excess of par value. ORGANIZATION COSTS Costs related to the organization of the Company have been capitalized and are being amortized over a period of five years. INCOME TAXES The Company has adopted the provisions of SFAS No. 109, "Accounting for Income Taxes". SFAS 109 requires recognition of deferred tax liabilities and assets for the expected future tax consequences of events that have been included in the financial statements or tax returns. Under this method, deferred tax liabilities and assets are determined based on the difference between the financial statement and tax basis of assets and liabilities using enacted tax rates in effect for the year in which the differences are expected to reverse. PYR LLC was taxed as a Limited Liability Company until August 6, 1997, and was not subject to federal and state income tax. Earnings and losses through that date were included in the personal tax returns of its members, and PYR LLC did not record an income tax provision. At August 31, 1999, the Company had a net operating loss carryforward of approximately $1,800,000 that may be offset against future taxable income through 2019. The Company has fully reserved the $351,000 tax benefit of operating loss carryforwards, by a valuation allowance of the same amount, because the likelihood of realization of the tax benefit cannot be determined. Of the total tax benefit, $327,000 is attributable to 1999. F - 11 PYR ENERGY CORPORATION (A Development Stage Company) Notes to Financial Statements NOTE 2 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED) Temporary differences between the time of reporting certain items for financial and tax reporting purposes consist primarily of exploration costs on oil and gas properties, and impairment pursuant to SFAS No. 121. 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 reported amounts of revenues and expenses during the reporting period. Actual results could differ from those estimates. The oil and gas industry is subject, by its nature, to environmental hazards and clean-up costs. At this time, management knows of no substantial costs from environmental accidents or events for which it may be currently liable; except for the Company's liabilities related to the blowout of November 23, 1998. The Company has advanced what management believes to be the total remaining costs to claimants. (See Note 4) In addition, the Company's oil and gas business makes it vulnerable to changes in wellhead prices of crude oil and natural gas. Such prices have been volatile in the past and can be expected to be volatile in the future. By definition, proved reserves are based on current oil and gas prices and estimated reserves. Price declines reduce the estimated quantity of proved reserves and increase annual amortization expense (which is based on proved reserves). (LOSS) PER SHARE (Loss) per common share is computed based on the weighted average number of common shares outstanding during each period. Common shares issued to the members of PYR LLC upon completion of Mar's merger with PYR LLC (Note 1) are considered outstanding for all periods presented. Convertible equity instruments, such as stock options and warrants, are not considered in the calculation of net loss per share as their inclusion would be antidilutive. SHARE BASED COMPENSATION In October 1995, SFAS No. 123 "Accounting for Stock-Based Compensation" was issued. This standard defines a fair value based method of accounting for an employee stock option or similar equity instrument. This statement gives entities a choice of recognizing related compensation expense by adopting the new fair value method or to continue to measure compensation using the intrinsic value approach under Accounting Principles Board (APB) Opinion No. 25. The Company has elected to utilize APB No. 25 for measurement; and will, pursuant to SFAS No. 123, disclose supplementally the pro forma effects on net income and earnings per share of using the new measurement criteria. CASH EQUIVALENTS For purposes of reporting cash flows, the Company considers as cash equivalents all highly liquid investments with a maturity of three months or less at the time of purchase. On occasion, the Company has cash in banks in excess of federally insured amounts. F - 12 PYR ENERGY CORPORATION (A Development Stage Company) Notes to Financial Statements NOTE 2 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED) NEW TECHNICAL PRONOUNCEMENTS In June 1998 SFAS No. 133 "Accounting for Derivative Instruments and Hedging Activities: was issued for fiscal years beginning after June 15, 1999, Adoption of SFAS No. 133 is not expected to have an inpact on the Company's financial statements. In October 1998 SFAS No. 134 "Accounting for Mortgage Broker Securities: was issued for fiscal years beginning after December 15, 1998. Adoption of SFAS No. 134 is not expected to have an impact on the Company's financial statements. In February 1999 SFAS No. 135 "Rescission of FASB Statement No. 75 and Technical Corrections" was issued for fiscal years beginning after February 15, 1999. Adoption of SFAS No. 135 is not expected to have an impact on the Company's financial statements. In June 1999 SFAS No. 136 "Transfers of Assets to a Not-For-Profit Organization or Charitable Trust that Raises or Holds Contributions for Others" was issued for fiscal years beginning after December 15, 1999. Adoption of SFAS No. 136 is not expected to have an impact on the Company's financial statements. In June 1999 SFAS No. 137 "Accounting for Derivative Instruments and Hedging Activities - Deferral of the Effective Date of FASB Statements No. 133" was issued. Adoption of SFAS No. 137 is not expected to have an impact on the Company's financial statements. NOTE 3 - MARKETABLE SECURITIES At August 31, 1999, the Company held investments in marketable securities which were classified as held-to-maturity. Securities classified as held-to-maturity at August 31, 1999 consisted of securities with a maturity date within one year, and are classified as Marketable Securities as a part of Current Assets. These securities are stated at amortized cost. The held-to-maturity securities at August 31, 1999 include the following: Amortized Fair Cost Value ---------- ---------- U.S. Government backed discount notes, face value of $5,255,000 $5,111,062 $5,106,000 F - 13 PYR ENERGY CORPORATION (A Development Stage Company) Notes to Financial Statements NOTE 4 - PROPERTY AND EQUIPMENT Property and equipment at August 31, 1999 consists of the following: Furniture and equipment $ 85,955 Asset under capital lease 5,195 ------------ 91,150 Less accumulated depreciation and amortization (47,373) ------------ 43,777 ------------ Undeveloped oil and gas prospects 5,348,299 Less impairment (285,229) ------------ 5,063,070 ------------ $ 5,106,847 ============ Information relating to the Company's costs incurred in its oil and gas operations during the year ended August 31, 1999 is summarized as follows: Property acquisition - Unproved properties $ 2,085,584 Exploration costs 792,616 ------------ $ 2,878,200 ============ Property acquisition costs include costs incurred to purchase, lease, or otherwise acquire a property. Exploration costs include the costs of geological and geophysical activity, and drilling and equipping exploratory wells. During the year ended August 31, 1998, the Company charged $15,000 to operations as an allocation of its cost basis in a dry hole in which it had a carried working interest. This allocation was based on the Company's estimate that this drill location had no future value. The Company reviews and determines the cost basis of drilling prospects on a drilling location basis. During the year ended August 31, 1999 the Company abandoned properties with a carrying cost of $21,140 and, in addition, recorded an impairment loss on undeveloped oil and gas properties in the amount of $285,229. Depreciation expense for the years ended August 31, 1998 and 1999 was $22,321 and $24,111, respectively. On November 23, 1998, the Company's test well being drilled on its East Lost Hills prospect suffered a blowout. A majority of the costs associated with the blowout have been covered by insurance policies in effect when the blowout occurred. A portion of the claims has not yet been received from one of the insurance policies. The Company has paid $410,000 for its proportionate share of the claims. The Company believes that most, if not all of these claims will ultimately be reimbursed through insurance proceeds. The accompanying financial statements reflect the costs advanced as Reimbursable Property Costs at August 31,1999. Any amounts not reimbursed will be capitalized as oil and gas property costs. F - 14 PYR ENERGY CORPORATION (A Development Stage Company) Notes to Financial Statements NOTE 5 - CAPITAL LEASE OBLIGATION Capitalized lease obligation at August 31, 1999 consists of a lease for office equipment, repayable in monthly installments of $150 with interest at 10.5%. Maturity of this obligation is as follows: year ending August 31, 2000 - $1,600; 2001 - $1,062. Future minimum payments on capitalized leases are as follows: Year ending August 31, 2000 $1,803 2001 1,080 ------ 2,883 Less amount representing interest 221 ------ Present value of net minimum lease payments 2,662 Less current maturity 1,600 ------ Long-term portion $1,062 ====== NOTE 6 - CONVERTIBLE NOTES PAYABLE In November 1998 the Company completed the sale of $2,500,000, 10% convertible notes, due October 1999. The notes were convertible into an aggregate 25,000 shares of a newly designed Series A Preferred Stock of the Company. The Company obtained shareholder approval for authorization of the Series A Preferred Stock and, in April 1999, all notes were converted to Series A Preferred Stock. Accrued interest due as of the date of conversion of $116,822 was paid by the issuance of 53,326 shares of common stock, valued at $2.19 per share. In conjunction with the sale of $1,500,000 of the notes, the Company paid a finder's fee consisting of $45,000 and warrants to purchase 175,000 shares of the Company's common stock at an exercise price of $.75 per share for a period of five years. The warrants were valued at $56,833. NOTE 7 - STOCKHOLDERS' EQUITY PREFERRED STOCK In April 1999 the shareholders of the Company approved an amendment to the Certificate of Incorporation wherein the Company was authorized to issue 1,000,000 shares of preferred stock, with a par value of $.001 per share. The Board of Directors authorized the designation of a "Series A Preferred Stock," consisting of 25,000 shares, face value of $100 per share, 10% cumulative dividend payable in cash or shares of common stock on January 1 and July 1 of each year. Holders of Series A Preferred Stock receive preference in the event of any liquidation, dissolution or winding up of the Company. The shares of Series A Preferred Stock are convertible into shares of common stock of the Company at an initial conversion price of $.60 per share. In April 1999 the holders of convertible notes (Note 6) converted the notes to 25,000 shares of Series A Preferred Stock. As of August 31, 1999, 2,021 shares of Series A Preferred Stock were converted to 336,833 shares of common stock at a conversion price of $.60 per share. At August 31, 1999 accrued, undeclared dividends on Series A Preferred Stock was $39,814. F - 15 PYR ENERGY CORPORATION (A Development Stage Company) Notes to Financial Statements NOTE 7 - STOCKHOLDERS' EQUITY (CONTINUED) COMMON STOCK Effective August 6, 1997 Mar completed a merger with PYR LLC (Note 1). In conjunction with the merger, the members of PYR LLC received 4,000,000 shares of common stock of Mar. These shares were recorded at the net member equity of PYR LLC as of that date of $33,868. The 1,059,804 Mar shares outstanding as of the date of merger were recapitalized to the net assets of Mar of $336. For financial statement reporting purposes, this transaction was treated as a reverse acquisition whereby PYR LLC was considered the surviving and reporting entity. For legal purposes, however, Mar remained as the surviving entity, therefore the capital structure of the Company was accordingly restated. In July 1997, the Company completed the sale of common stock and warrants pursuant to a private placement as follows: * 2,095,000 units, at a price of $.25 per unit, consisting of 2,095,000 shares of common stock, warrants to purchase 1,047,500 shares of common stock at an exercise price of $1.25 per share before October 31, 1997, and warrants to purchase 1,047,500 shares of common stock at an exercise price of $1.75 per share before January 31, 1998. Subsequent to the offering, each of the warrant expiration dates was extended one or more times, and all the warrants ultimately expired without having been exercised. In August 1997, the Company completed the sale of common stock and warrants pursuant to a private placement as follows: * 2,000,000 units, at a price of $.75 per unit, consisting of 2,000,000 shares of common stock, warrants to purchase 1,000,000 shares of common stock at an exercise price of $1.25 per share before October 31, 1997, and warrants to purchase 1,000,000 shares of common stock at an exercise price of $1.75 per share before January 31, 1998. Subsequent to the offering, each of the warrant expiration dates was extended one or more times, and all the warrants ultimately expired without having been exercised. Proceeds from these offerings were $523,750 and $1,500,000, respectively, before costs of the offerings of $280,711. In May 1999 the Company completed the sale of 437,500 units of common stock and warrants pursuant to a private placement at a price of $16 per unit. Each unit consisted of 10 shares of common stock and one warrant to purchase one share of common stock at an exercise price of $2.50 per share for a period of five years. The Company may repurchase the warrants for $.001 per warrant at any time after the weighted average trading price of the Company's common stock has been at least $6.00 per share for a 45-day period. Proceeds from the offering were $7,000,000, before costs of the offering of $83,155. As of August 31, 1999 warrant holders had exercised 3,125 warrants. During the year ended August 31, 1999 the Company issued shares of common stock valued at the non-discounted trading market price as of the date of the transaction, in conjunction with the assignment to the Company of certain undeveloped oil and gas prospects located in California as follows: * 266,666 shares, valued at $.75 per share, as full consideration for property received * 218,866 shares, valued at $2.00 per share, as partial consideration for property received. F - 16 PYR ENERGY CORPORATION (A Development Stage Company) Notes to Financial Statements NOTE 7 - STOCKHOLDERS' EQUITY (CONTINUED) WARRANTS In 1999, the Company issued warrants to purchase 175,000 shares of common stock at an exercise price of $.75 per share through October 26, 2003 as partial consideration for a commission in conjunction with the private placement of convertible notes. The warrants are valued at $56,833, using the Black-Scholes option pricing model. In May 1999, in conjunction with the sale of 437,500 Units of common stock and warrants as described above, the Company issued warrants to purchase 437,500 shares of common stock at an exercise price of $2.50 through May 14, 2004. At August 31, 1999 the status of outstanding warrants is as follows: Issue Shares Exercise Expiration Date Exercisable Price Date --------------------------------------------------------------------------- October 26, 1998 175,000 $ .75 October 26, 2003 May 14, 1999 434,375 $ 2.50 May 14, 2004 At August 31, 1999 the per share weighted average exercise price of outstanding warrants was $2.00 per share. NOTE 8 - STOCK OPTION PLAN In August 1997, the Board of Directors approved the 1997 Stock Option Plan (the "1997 Plan"). Pursuant to the 1997 Plan, the Company may grant options to purchase 1,000,000 shares of the Company's common stock to key employees and other persons who have or are contributing to the success of the Company. The options granted pursuant to the 1997 Plan may be either incentive options qualifying for beneficial tax treatment for the recipient or non-qualified options. The 1997 Plan will be administered by the Option Committee, which may consist of either (i) the Company's Board of Directors, or (ii) a Committee, appointed by the Board of Directors, of two or more non-employee directors. No option may be exercisable more than ten years after the granting of the option, and no options may be granted under the 1997 Plan after August 13, 2007. The exercise price of incentive options granted can not be less than the fair market value of the underlying common stock on the date the options are granted. The status of outstanding options granted pursuant to the 1997 Plan is as follows:
Number Weighted Avg. Weighted Avg. of Shares Exercise Price Fair Value --------- -------------- ---------- Options Outstanding - July 1, 1997 171,000 $1.50 $ -- (None exercisable) Expired (60,000) Granted 135,000 $1.40 $ .31 ------- Options Outstanding - August 31, 1998 246,000 $1.46 $ .26 (37,000 exercisable) Expired (10,000) Granted 585,000 $1.10 $ .92 -------- Options Outstanding - August 31, 1999 821,000 $1.20 $ .74 ======== (139,000 exercisable)
F - 17 PYR ENERGY CORPORATION (A Development Stage Company) Notes to Financial Statements NOTE 8 - STOCK OPTION PLAN (CONTINUED) The Company has adopted the disclosure-only provisions of SFAS No. 123. Had compensation cost for the Company's stock option plan been determined based on the fair value at the grant date consistent with the provisions of SFAS No. 123, the Company's net loss and loss per share for 1999 would have been increased to the pro forma amounts indicated below: Net (loss) applicable to common stockholders - as reported $ (1,140,407) ============ Net (loss) applicable to common stockholders - pro forma $ (1,187,322) ============ (Loss) per share - as reported $ (.105) ============ (Loss) per share - pro forma $ (.110) ============ Weighted average fair value of options granted in 1999 $ .92 ============ The fair value of each option grant is estimated on the date of grant using the Black-Scholes option-pricing model with the following weighted-average assumptions used for grants: dividend yield of 0%; expected volatility of 25% to 161%; discount rate of 5.50%; and expected lives of 3 to 5 years. At August 31, 1999 the number of options exercisable was 139,000, the weighted average exercise price of these options was $1.44, the weighted average contractual life of the options was 5 years and the exercise price was $1.28 to $1.50 per share. NOTE 9 - COMMITMENTS AND CONTINGENCIES The Company has entered into a non-cancelable lease, as amended, for office facilities. Minimum payments due under this lease are as follows: Years ending August 31, 2000 $ 41,105 2001 41,105 Rent expense was $35,539 and $40,816 for the years ended August 31, 1998 and 1999, respectively. In conjunction with the Company's working interests in undeveloped oil and gas prospects, the Company must pay approximately $700,000 in delay rentals and other costs during fiscal year ended August 31, 2000 to maintain the right to explore these prospects. The Company may be subject to various possible contingencies which are derived primarily from interpretations of federal and state laws and regulations affecting the oil and gas industry. Although management believes it has complied with the various laws and regulations, new rulings and interpretations may require the Company to make adjustments. NOTE 10 - RELATED PARTY TRANSACTIONS In 1998 the Company paid $43,530 for services provided to the Company by an entity controlled by a former director of the Company. F - 18 PYR ENERGY CORPORATION (A Development Stage Company) Notes to Financial Statements NOTE 11 - FINANCIAL INSTRUMENTS FAIR VALUE The carrying amount reported in the balance sheet for cash, prepaid expenses, accounts payable and accrued liabilities approximates fair value because of the immediate or short-term maturity of these financial instruments. Fair value of marketable securities approximates amortized cost due to the short-term period to maturity. CONCENTRATION OF CREDIT RISK Financial instruments which potentially subject the Company to concentrations of credit risk consist of cash and marketable securities. The Company maintains cash accounts at one financial institution. The Company periodically evaluates the credit worthiness of financial institutions, and maintains cash accounts only in large high quality financial institutions, thereby minimizing exposure for deposits in excess of federally insured amounts. Marketable securities consist of U.S. Government backed discount notes. The Company believes that credit risk associated with these investments is remote. NOTE 12 - SEGMENT REPORTING In June 1997, SFAS No. 131, "Disclosure about Segments of an Enterprise and Related Information" was issued, which amends the requirements for a public enterprise to report financial and descriptive information about its reportable operating segments. Operating segments, as defined in the pronouncement, are components of an enterprise about which separate financial information is available that is evaluated regularly by the Company in deciding how to allocate resources and in assessing performance. The financial information is required to be reported on the basis that is used internally for evaluating segment performance and deciding how to allocate resources to segments. The Company has adopted SFAS No. 131 for the year ended August 31, 1999. The Company has one reportable segment, oil and gas producing activities. The Company has concentrated its oil and gas acquisition and exploration activities in the western United States, primarily in California and the Rocky Mountain region. All significant activities in this segment have been with industry partners. The Company has not earned any revenue from its oil and gas activities nor recorded proved reserves at August 31, 1999. NOTE 13 - COMPREHENSIVE INCOME There are no adjustments necessary to net (loss) as presented in the accompanying statements of operations to derive comprehensive income in accordance with SFAS No. 130, "Reporting Comprehensive Income." F - 19 SIGNATURES In accordance with Section 13 or 15(d) of the Exchange Act, the registrant has caused this report to be signed on its behalf by the undersigned, thereunto duly authorized. PYR ENERGY CORPORATION Date: December 6, 1999 By: /s/ D. Scott Singdahlsen ------------------------------------------ D. Scott Singdahlsen, Chief Executive Officer In accordance with the requirements of the Exchange Act, this report has been signed below by the following persons on behalf of the registrant and in the capacities and on the dates indicated.
Signatures Title Date ---------- ----- ---- /s/ D. Scott Singdahlsen Chief Executive Officer, President December 6, 1999 - ------------------------------------- and Chairman Of The Board D. Scott Singdahlsen /s/ Keith F. Carney Director December 6, 1999 - ------------------------------------- Keith F. Carney /s/ Robert B. Suydam Vice President-Geology and Director December 6, 1999 - ------------------------------------- Robert B. Suydam /s/ S. L. Hutchison Director December 6, 1999 - ------------------------------------- S. L. Hutchison /s/ Bryce W. Rhodes Director December 6, 1999 - ------------------------------------- Bryce W. Rhodes /s/ Andrew P. Calerich Chief Financial Officer and Secretary December 6, 1999 - ------------------------------------- Andrew P. Calerich
EX-3.3 2 BYLAWS AMENDED AND RESTATED BYLAWS OF PYR ENERGY CORPORATION (As approved by the Board Of Directors on October 22, 1999.) AMENDED AND RESTATED BYLAWS OF PYR ENERGY CORPORATION ARTICLE I. Offices ------- The registered office of the corporation shall be in the City of Wilmington, County of New Castle, State of Delaware or such other city and county as the board of directors shall determine. The corporation may also have offices at such other places both within and without the State of Delaware as the board of directors may from time to time determine or the business of the corporation may require. ARTICLE II. Stockholders ------------ Section 1. Annual Meeting. The annual meeting of the stockholders shall be held at a time and date fixed by the board of directors for the purpose of electing directors and for the transaction of such other business as may come before the meeting. If the election of directors shall not be held at the annual meeting of the stockholders, or at any adjournment thereof, the board of directors shall cause the election to be held at a special meeting of the stockholders as soon thereafter as conveniently may be. Section 2. Special Meetings. Special meetings of the stockholders, for any purpose, unless otherwise prescribed by statute, may be called by the president or by the board of directors. Section 3. Place Of Meeting. The person or persons authorized to call any annual or special meeting may designate any place, either within or outside Delaware, as the place for the meeting. If no designation is made, the place of meeting shall be the principal corporate offices of the corporation. Section 4. Fixing Date For Determination Of Stockholders Of Record. For the purpose of determining stockholders entitled to notice of or to vote at any meeting of stockholders or any adjournment thereof, or entitled 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 1 entitled to exercise any rights in respect of any change, conversion or exchange of stock or for any other lawful action, the board of directors may fix, in advance, a date as the record date for any such determination of stockholders, which date shall not be more than 60 nor less than ten days before the date of such meeting, nor more than 60 days prior to any other action. If no record date is fixed then the record date shall be as follows: (a) for determining stockholders entitled to notice of or to vote at the meeting of stockholders, the close of business on the day next preceding the day on which the meeting is held; (b) 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, the day on which the first written consent is expressed, and (c) for determining stockholders for any other purpose, the close of business on the day on which the board of directors adopts the resolution relating thereto. 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 the adjourned meeting. Section 5. Notice Of Meeting. Written notice stating the place, day and hour of the meeting, and, in the case of a special meeting, the purpose or purposes for which the meeting is called, shall be delivered not less than ten nor more than 60 days before the date of the meeting, unless otherwise required by statute, either personally or by mail, to each stockholder of record entitled to vote at such meeting. If mailed, such notice shall be deemed to be delivered when deposited in the United States mail, addressed to the stockholder at his address as it appears on the stock books of the corporation, with postage thereon prepaid. When a meeting is adjourned to another time or place, notice need not be given of the adjourned meeting if the time and place thereof are announced at the meeting at which the adjournment is taken. At the adjourned meeting the corporation may transact any business which might have been transacted at the original meeting. Section 6. Organization. The president or any vice president shall call meetings of stockholders to order and act as chairman of such meetings. In the absence of said officers, any stockholder entitled to vote at that meeting, or any proxy of any such stockholder, may call the meeting to order and a chairman shall be elected by a majority of the stockholders entitled to vote at that meeting. In the absence of the secretary or any assistant secretary of the corporation, any person appointed by the chairman shall act as secretary of such meetings. Section 7. Agenda And Procedure. The board of directors shall have the responsibility of establishing an agenda for each meeting of stockholders, subject to the rights of stockholders to raise matters for consideration which may otherwise properly be brought before the meeting although not included within the agenda. The chairman shall be charged with the orderly conduct of all meetings; provided however, that in the event of any difference in opinion with respect to the proper cause of action which cannot be resolved by reference to statute, or to the articles of incorporation or these bylaws, Robert's Rules Of Order (as last revised) shall govern the disposition of the matter. Section 8. Voting Lists. The officer who has charge of the stock books of the corporation shall prepare and make, at least ten days before every meeting of stockholders, a complete list of the stockholders entitled to vote at the 2 meeting, arranged in alphabetical order, and showing the address of each stockholder and the number of shares registered in the name of each stockholder. Such list shall be open to the examination of each stockholder, for any purpose germane to the meeting, during ordinary business hours, for a period of at least ten days prior to the meeting, either at a place within the city where the meeting is to be held, which place shall be specified in the notice of the meeting, or if not so specified, at the place where the meeting is to be held. The list shall also be produced and kept at the time and place of the meeting during the whole time thereof, and may be inspected by any stockholder who is present. Section 9. 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 for the transaction of business except as otherwise provided by statute or by the certificate of incorporation. If fewer than a majority of the outstanding shares are represented at a meeting, a majority of the shares so represented may adjourn the meeting from time to time in accordance with Section 5 of this Article, until a quorum shall be present or represented. Section 10. Manner Of Acting. When a quorum is present at any meeting, the affirmative vote of a majority of the shares represented at the meeting and entitled to vote on the subject matter shall be the act of the stockholders, unless a different vote is required by law or the certificate of incorporation, in which case such express provision shall govern. Section 11. Informal Action By Stockholders. Unless otherwise provided in the certificate of incorporation, any action required or permitted to be taken at any meeting of the stockholders may be taken without a meeting, without prior notice and without a vote, provided that a consent in writing, setting forth the action so taken, shall be signed by the holders of outstanding stock having not less than the minimum 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. In the event that the action which is consented to is such as would require the filing of a certificate with the Secretary of State of Delaware under the General Corporation Law of the State of Delaware if such action had been voted on by stockholders at a meeting thereof, the certificate filed shall state, in lieu of any statement required under law concerning any vote of stockholders, that written consent has been given in accordance with the provision of law and that written notice has been given as provided by law. Section 12. 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 any other 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. Section 13. Voting Of Shares. Unless otherwise provided in the certificate of incorporation and subject to the provisions of Section 4 of this Article, each stockholder shall be entitled to one vote for each share of capital stock held by such stockholder. In the election of directors, each record holder of 3 stock entitled to vote at such election shall have the right to vote the number of shares owned by him for as many persons as there are directors to be elected, and for whose election he has the right to vote. Cumulative voting shall not be allowed. Section 14. Voting Of Shares By Certain Holders. Persons holding stock in a fiduciary capacity shall be entitled to vote the shares so held. Persons whose stock is pledged shall be entitled to vote, unless in the transfer by the pledgor on the books of the corporation the pledgor has expressly empowered the pledgee to vote thereon, in which case only the pledgee or his proxy may represent such shares and vote thereon. If shares stand of record in the names of two or more persons, whether fiduciaries, members of a partnership, joint tenants, tenants in common, tenants by the entirety or otherwise, or if two or more persons have the same fiduciary relationship respecting the same shares, unless the secretary of the corporation is given written notice to the contrary and if furnished with a copy of the instrument or order appointing them or creating the relationship wherein it is so provided, their acts with respect to voting shall be as set forth in the General Corporation Law of the State of Delaware. Section 15. Inspectors. The chairman of the meeting may at any time appoint one or more inspectors to serve at a meeting of the stockholders. Such inspector(s) shall decide upon the qualifications of voters, including the validity of proxies, accept and count the votes for and against the questions presented, report the results of such votes, and subscribe and deliver to the secretary of the meeting a certificate stating the number of shares of stock issued and outstanding and entitled to vote thereon and the number of shares voted for and against the questions presented. The inspector(s) does not need to be a stockholder of the corporation, and any director or officer of the corporation may be an inspector on any question other than a vote for or against his election to any position with the corporation or on any other question in which he may be directly interested. ARTICLE III. Board Of Directors ------------------ Section 1. General Powers. The business and affairs of the corporation shall be managed by or under the direction of its board of directors, except as otherwise provided in the General Corporation Law of the State of Delaware or the certificate of incorporation. Section 2. Number, Tenure And Qualification. The number of directors of the corporation shall be as determined by the board of directors and shall be not less than three nor more than nine. Directors shall be elected at each annual meeting of stockholders except as otherwise provided in Section 3 of this Article. Each director shall hold office until his successor shall have been elected and qualified or until the earliest of his death, resignation or removal. Directors need not be residents of Delaware or stockholders of the corporation. Section 3. Vacancies. Any director may resign at any time by giving written notice to the corporation. Such resignation shall take effect at the time specified therein; and unless otherwise specified therein, the acceptance of such resignation shall not be necessary to make it effective. Any vacancy or 4 newly created directorship resulting from an increase in the authorized number of directors may be filled by the affirmative vote of the majority of directors then in office, although less than a quorum, or by a sole remaining director, and a director so chosen shall hold office until the next annual election and until his successor is duly elected and qualified, unless sooner displaced. If at any time, by reason of death, resignation or other cause, the corporation should have no directors in office, then an election of directors may be held in the manner provided by law. 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 have so resigned, shall have the power to fill any vacancy or vacancies, with the vote thereon to take effect when such resignation or resignations shall become effective, and each director so chosen shall hold office until the next annual election and until his successor is duly elected and has qualified. Section 4. Regular Meetings. Unless otherwise approved by the board of directors, a regular meeting of the board of directors shall be held without other notice than this bylaw immediately after and at the same place as the annual meeting of stockholders. The board of directors may provide by resolution the time and place, either within or outside Delaware, for the holding of additional regular meetings without other notice than such resolution. Section 5. Special Meetings. Special meetings of the board of directors may be called by or at the request of the president or any two directors. The person or persons authorized to call special meetings of the board of directors may fix any place, either within or outside Delaware, as the place for holding any special meeting of the board of directors called by them. Section 6. Notice. Notice of any special meeting shall be given at least 24 hours previous thereto by written notice delivered personally, or at least one business day (and not less than 24 hours) previous thereto if sent by facsimile or electronic mail to the business address of the director, or at least five days previous thereto if mailed to a director at his business address, or by notice given at least two days previous thereto by telegraph. If sent by facsimile or electronic mail, such notice shall be deemed delivered when the electronic transmission has been completed and the person giving the notice should use all reasonable efforts to notify the recipient by telephone, voicemail message or other telephonic message of the delivery of the notice. If mailed, such notice shall be deemed to be delivered when deposited in the United States mail so addressed, with postage thereon prepaid. If notice be given by telegram, such notice shall be deemed to be delivered when the telegram is delivered to the telegraph company. Neither the business to be transacted at, nor the purpose of, any regular or special meeting of the board of directors need be specified in the notice or waiver of notice of such meeting. Section 7. Quorum. A majority of the number of directors then in office shall constitute a quorum for the transaction of business at any meeting of the board of directors, but if less than such majority is present at a meeting, a majority of the directors present may adjourn the meeting from time to time, without notice other than announcement at the meeting, until a quorum shall be present. 5 If a meeting of the board of directors at which a quorum is present is adjourned for more than 24 hours, notice of the time and place of reconvention of the adjourned meeting shall be given, to those directors who were not present at the adjournment of the meeting, in accordance with the provisions of Section 6 of this Article. Section 8. Manner Of Acting. The vote of the majority of the directors present at a meeting at which a quorum is present shall be the act of the board of directors, except as may be otherwise specifically provided by law or the certificate of incorporation. Section 9. Removal. Unless otherwise restricted by law, any director or the entire board of directors may be removed, with or without cause, by the holders of a majority of shares then entitled to vote at a meeting of stockholders. Section 10. Committees. The board of directors may, by resolution passed by a majority of the whole board, designate one or more committees, each committee to consist of one or more of the directors of the corporation. The board may designate one or more directors as alternate members of any committee, who may replace any absent or disqualified member at any meeting of the committee. In the absence or disqualification of a member of a committee, the member or members thereof present at any meeting and not disqualified from voting, whether or not they constitute a quorum, may unanimously appoint another member of the board of directors to act at the meeting in the place of such absent or disqualified member. Any such committee, to the extent provided in the resolution of the board of directors and except as prohibited below in this paragraph, shall have and may exercise all the powers and authority of the board of directors in the management of the business and affairs of the corporation, and may authorize the seal of the corporation to be affixed to all papers which may require it; but no such committee shall have the power or authority in reference to amend the certificate of incorporation, to adopt an agreement of merger or consolidation, to recommend to the stockholders the sale, lease or exchange of all or substantially all of the corporation's property and assets, to recommend to the stockholders a dissolution of the corporation or a revocation of a dissolution, or to amend the bylaws of the corporation; and, unless the resolution expressly so provides, no such committee shall have the power or authority to declare a dividend or to authorize the issuance of stock. Each committee shall keep regular minutes of its meetings and report the same to the board of directors when required. Section 11. Compensation. Unless otherwise restricted by the certificate of incorporation or these bylaws, the board of directors shall have the authority to fix the compensation of directors. The directors may be paid their expenses, if any, of attendance at such meeting of the board of directors and may be paid a fixed sum for attendance at each meeting of the board of directors or a stated salary as director. No such payment shall preclude any director from serving the corporation in any other capacity and receiving compensation therefor. Members of any committee of the board may be allowed like compensation for attending committee meetings. Section 12. Action By Written Consent Of Directors. Unless otherwise restricted by the certificate of incorporation or these bylaws, any action required or permitted to be taken at any meeting of the board of directors or 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 the proceedings of the board or committee. 6 Section 13. Meetings By Telephone. Unless otherwise restricted by the certificate of incorporation or these bylaws, members of the board of directors, or any committee designated by the board of directors, may participate in a meeting of the board of directors, or any committee thereof, by means of conference telephone or similar communications equipment by means of which all persons participating in the meeting can hear each other, and such participation in a meeting in such manner shall constitute presence in person at the meeting. ARTICLE IV. Officers And Agents ------------------- Section 1. General. The officers of the corporation shall be a president, a secretary and a Treasurer and/or Chief Financial Officer. The board of directors may appoint such other officers, assistant officers, and agents, a chairman or vice-chairmen of the board, assistant secretaries and assistant Treasurers, as they may consider necessary, who shall be chosen in such manner and hold their offices for such terms and have such authority and duties as from time to time may be determined by the board of directors. The salaries of all the officers of the corporation shall be fixed by the board of directors. Any number of offices may be held by the same person with the exception of the office of president and secretary being held simultaneously by the same person, or as otherwise provided in the certificate of incorporation or these bylaws. Section 2. Election And Term Of Office. The officers of the corporation shall be elected by the board of directors annually at the first meeting of the board held after each annual meeting of the stockholders. If the election of officers shall not be held at such meeting, such election shall be held as soon thereafter as conveniently may be. Each officer shall hold office until his successor shall have been duly elected and qualified or until the earliest to occur of his death, resignation or removal. Section 3. Removal. Any officer or agent elected or appointed by the board of directors may be removed at any time by the board whenever in its judgment the best interests of the corporation will be served thereby. Section 4. Vacancies. Any officer may resign at any time upon written notice to the corporation. Such resignation shall take effect at the time stated therein; and unless otherwise specified therein, the acceptance of such resignation shall not be necessary to make it effective. Any vacancy occurring in any office by death, resignation, removal or otherwise shall be filled by the board of directors for the unexpired portion of the term. If any officer shall be absent or unable for any reason to perform his duties, the board of 7 directors, to the extent not otherwise inconsistent with these bylaws or law, may direct that the duties of such officer during such absence or inability shall be performed by such other officer or assistant officer as seems advisable to the board. Section 5. Authority And Duties Of Officers. The officers of the corporation shall have the authority and shall exercise the powers and perform the duties specified below, and as may be otherwise specified by the board of directors or by these bylaws, except that in any event each officer shall exercise such powers and perform such duties as may be required by law, and in cases where the duties of any officer or agent are not prescribed by these bylaws or by the board of directors, such officer or agent shall follow the orders and instructions of each of the following in the following order of priority: (a) the chief executive officer, (b) the president and (c) if a chairman of the board is elected, then the chairman of the board. (a) Chief Executive Officer. The chief executive officer, subject to the direction and supervision of the board of directors, shall have the following responsibilities: (i) have general and active control of the corporation's affairs, business and property and general supervision of its officers, agents and employees; (ii) preside at all meetings of the stockholders; (iii) see that all orders and resolutions of the board of directors are carried into effect; and (iv) sign or countersign all certificates, contracts and other instruments of the corporation, except where required or permitted by law to be otherwise signed and executed and except where the signing and execution thereof shall be expressly delegated by the board of directors to some other officer or agent of the corporation. In addition, the chief executive officer shall, unless otherwise directed by the board of directors, attend in person or by substitute appointed by them, or by written instruments appointing proxy or proxies to represent the corporation, all meetings of the stockholders of any corporation in which the corporation shall hold any stock and may, on behalf of the corporation, in person or by substitute or proxy, execute written waivers of notice and consents with respect to such meetings. At all such meetings, and otherwise, the chief executive officer, in person or by substitute or proxy as aforesaid, may vote the stock so held by the corporation and may execute written consent and other instruments with respect to such stock and may exercise any and all rights and powers incident to the ownership of said stock, subject however to the instructions, if any, of the board of directors. Subject to the directions of the board of directors, the chief executive officer shall exercise all other powers and perform all other duties normally incident to the office of chief executive officer of a corporation and shall exercise such other powers and perform such other duties as from time to time may be assigned to him by the board. (b) President. The president shall be the chief operating officer of the corporation and shall report to and be subject to the direction and supervision of the chief executive officer. At any time that there is no one who has been elected and is then serving as chief executive officer, the president shall have the powers and perform the duties of the chief executive officer. (c) Chairman Of The Board. If a chairman of the board has been elected, the chairman of the board shall preside at all meetings of the board of directors. The chairman of the board shall not have the authority to act on behalf of the corporation, or otherwise commit or bind the corporation, unless specifically authorized by the board of directors in specific instances. 8 (d) Vice Presidents. The vice presidents, if so directed, shall assist the chief executive officer and shall perform such duties as may be assigned to them by the chief executive officer or by the board of directors. In the absence of the president, the vice president designated by the board of directors or (if there be no such designation) the vice president senior in rank as fixed by the board of directors or (if there be no designation or ranking by the board of directors) the vice president designated in writing by the president shall have the powers and perform the duties of the president. If no such designation or ranking shall be made all vice presidents may exercise such powers and perform such duties. (e) Secretary. The secretary shall perform the following functions: (i) record or cause to be recorded the proceedings of the meetings of the stockholders, the board of directors and any committees of the board of directors in a book to be kept for that purpose; (ii) see that all notices are duly given in accordance with the provisions of these bylaws or as required by law; (iii) be custodian of the corporate records and of the seal of the corporation; (iv) keep at the corporation's registered office or principal place of business within or outside Delaware a record containing the names and addresses of all stockholders and the number and class of shares held by each, unless such a record shall be kept at the office of the corporation's transfer agent or registrar; (v) have general charge of the stock books of the corporation, unless the corporation has a transfer agent; and (vi) in general, perform all other duties as from time to time may be assigned to him by the chief executive officer, or by the board of directors. Assistant secretaries, if any, shall have the same duties and powers, subject to supervision by the secretary. (f) The Treasurer and/or Chief Financial Officer. The Treasurer and/or Chief Financial Officer, if one shall be elected, shall perform the following functions: (i) be the principal financial officer of the corporation and have the care and custody of all funds, securities, evidences of indebtedness and other personal property of the corporation and deposit the same in accounts insured by the United States government and in instruments backed by the full faith and credit of the United States government and otherwise in accordance with the instructions of the board of directors; (ii) receive and give receipts and acquittances for monies paid in on account of the corporation, and pay out of the funds on hand all bills, payrolls and other just debts of the corporation of whatever nature upon maturity; (iii) be the principal accounting officer of the corporation and as such prescribe and maintain the methods and systems of accounting to be followed, keep complete books and records of account, prepare and file all local, state and federal tax returns, prescribe and maintain an adequate system of internal audit, and prepare and furnish to the chief executive officer and the board of directors statements of account showing the financial position of the corporation and the results of its operations; and (iv) perform all other duties incident to the office of Treasurer and/or Chief Financial Officer and such other duties as from time to time may be assigned to the Treasurer and/or Chief Financial Officer by the chief executive officer or the board of directors. Assistant Treasurers, if any, shall have the same powers and duties, subject to the supervision of the Treasurer and/or Chief Financial Officer. The Treasurer and/or Chief Financial Officer may also be designated as and/or have the title of the Chief Financial Officer. 9 Section 6. Surety Bonds. The board of directors may require any officer or agent of the corporation to execute to the corporation a bond in such sums and with such sureties as shall be satisfactory to the board, conditioned upon the faithful performance of his duties and for the restoration to the corporation of all books, papers, vouchers, money and other property of whatever kind in his possession or under his control belonging to the corporation. Section 7. Salaries. Officers of the corporation shall be entitled to such salaries, emoluments, compensation or reimbursement as shall be fixed or allowed from time to time by the board of directors ARTICLE V. Stock ----- Section 1. Certificates. Each holder of stock in the corporation shall be entitled to have a certificate signed in the name of the corporation by the chief executive officer, president or a vice-president, and by the Treasurer and or Chief Financial Officer or an assistant Treasurer, or the secretary or an assistant secretary of the corporation. Any of or all the signatures on the certificate may be facsimile. In case any officer, transfer agent or registrar who has signed or whose facsimile signature has been placed upon a certificate shall have ceased to be such officer, transfer agent or registrar before such certificate is issued, it may be issued by the corporation with the same effect as if he were such officer, transfer agent or registrar at the date of issue. Certificates of stock shall be consecutively numbered and shall be in such form consistent with law as shall be prescribed by the board of directors. Section 2. Record. A record shall be kept of the name of each person or other entity holding the stock represented by each certificate for shares of the corporation issued, the number of shares represented by each such certificate, the date thereof and, in the case of cancellation, the date of cancellation. The person or other entity in whose name shares of stock stand on the books of the corporation shall be deemed the owner thereof, and thus a holder of record of such shares of stock, for all purposes as regards the corporation. Section 3. Consideration For Shares. Shares shall be issued for such consideration (but not less than the par value thereof) as shall be determined from time to time by the board of directors. Treasury shares shall be disposed of for such consideration as may be determined from time to time by the board. Such consideration may consist, in whole or in part, of cash, personal property, real property, leases of real property, services rendered, or promissory notes, and shall be paid in such form, in such manner and at such times as the directors may require. Section 4. Issuance Of Stock. The capital stock issued by the corporation shall be deemed to be fully paid and nonassessable stock, if: (a) the entire amount of the consideration has been received by the corporation in the form or 10 forms set forth in Section 3 of this Article V and if any part of the consideration is in the form of a promissory note or other obligation, such note or obligation has been satisfied in full; or (b) not less than the amount of the consideration determined to be capital pursuant to statute has been received by the corporation in the form or forms set forth in Section 3 of this Article V and the corporation has received a binding obligation of the subscriber or purchaser to pay the balance of the subscription or purchase price; provided, however, nothing contained herein shall prevent the board of directors from issuing partly paid shares as described herein. The corporation may issue the whole or any part of its shares as partly paid and subject to call for the remainder of the consideration to be paid therefor. Upon the face or back of each stock certificate issued to represent any such partly paid shares the total amount of the consideration to be paid therefor and the amount paid thereon shall be stated. Upon the declaration of any dividend upon partly paid shares, the corporation shall declare a dividend upon partly paid shares of the same class, but only upon the basis of the percentage of the consideration actually paid thereon. The directors may from time to time demand payment, in respect of each share of stock not fully paid, of such sum of money as the necessities of the business may, in the judgment of the board of directors, require, not exceeding in the whole, the balance remaining unpaid on said stock, and such sum so demanded shall be paid to the corporation at such times and by such installments as the directors shall direct. The directors shall give written notice of the time and place of such payments, which notice shall be mailed to each holder or subscriber to his last known post office address at least thirty days before the time for such payment for stock which is not fully paid. The corporation may, but shall not be required to, issue fractions of a share. If it does not issue fractions of a share, it shall: (a) arrange for the disposition of fractional interests by those entitled thereto; (b) pay in cash the fair value of fractions of a share as of the time when those entitled to receive such fractions are determined; or (c) issue scrip or warrants in registered or bearer form which shall entitle the holder to receive a certificate for a full share upon the surrender of such scrip or warrants aggregating a full share. A certificate for a fractional share shall, but scrip or warrants shall not unless provided therein, entitle the holder to exercise voting rights, to receive dividends thereon, and to participate in any of the assets of the corporation in the event of liquidation. The board of directors may cause scrip or warrants to be issued subject to the conditions that they shall become void if not exchanged for certificates representing full shares before a specified date, or subject to the conditions that the shares for which scrip or warrants are exchangeable may be sold by the corporation and the proceeds thereof distributed to the holders of scrip or warrants, or subject to any other conditions which the board of directors may impose. The board of directors may, at any time and from time to time, if all of the shares of capital stock which the corporation is authorized by its certificate of incorporation to issue have not been issued, subscribed for, or otherwise committed to be issued, issue or take subscriptions for additional shares of its capital stock up to the amount authorized in its certificate of incorporation. 11 Section 5. Lost Certificates. In case of the alleged loss, destruction or mutilation of a certificate of stock, the board of directors may direct the issuance of a new certificate in lieu thereof upon such terms and conditions in conformity with law as it may prescribe. The board of directors may in its discretion require a bond in such form and amount and with such surety as it may determine, before issuing a new certificate. The Chief Executive Officer, President, Treasurer and/or Chief Financial Officer may, in lieu of requiring a bond before issuing a new certificate, agree that the corporation shall indemnify the corporation's stock transfer agent from losses resulting from lost certificates representing less than 100 shares of common stock. Section 6. Transfer Of Shares. Upon surrender to the corporation or to a transfer agent of the corporation of a certificate of stock duly endorsed or accompanied by proper evidence of succession, assignment or authority to transfer, it shall be the duty of the corporation to issue a new certificate to the person entitled thereto, cancel the old certificate, and record the transaction in the stock books; provided however, that the corporation shall not be required to effect the requested transfer if the corporation believes the requested transfer would be in violation of any applicable law, regulation, court order or other restriction of any nature. Section 7. Registered Stockholders. The corporation shall be entitled to recognize the exclusive right of a person registered on its books as the owner of shares to receive dividends, and to vote as such owner, and the corporation shall be entitled to hold liable for calls and assessments a person registered on its books as the owner of shares, and the corporation shall not be bound to recognize any equitable or other claim to or interest in such share or shares on the part of any other person, whether or not it shall have express or other notice thereof except as otherwise provided by the laws of Delaware. Section 8. Transfer Agents, Registrars And Paying Agents. The board may at its discretion appoint one or more transfer agents, registrars and agents for making payment upon any class of stock, bond, debenture or other security of the corporation. Such agents and registrars may be located either within or outside Delaware. They shall have such rights and duties and shall be entitled to such compensation as may be agreed. ARTICLE VI. Indemnification Of Officers And Directors ----------------------------------------- Section 1. Indemnification Of Directors, Officers, And Others. Any person who was or is a party or is threatened to be made a party to any threatened, pending or completed action, suit or proceeding, whether civil, criminal, administrative or investigative, by reason of the fact that he is or was at any time since the inception of the corporation a director, officer or employee of the corporation, or is or was at any time since the inception of the corporation serving at the request of the corporation as a director, officer, employee or agent of another corporation, partnership, joint venture, trust or other enterprise, including serving as trustee, plan administrator or other fiduciary 12 of any employee benefit plan, shall be indemnified by the corporation to the full extent permitted by the General Corporation Law of the State of Delaware (or any similar provision or provisions of applicable law at the time in effect). Section 2. Indemnification Of Officers, Directors And Employees Pursuant To The Common Law Or Statutory Provisions Other Than The General Corporation Law Of The State Of Delaware. Any person who was or is a party or is threatened to be made a party to any threatened, pending or completed action, suit or proceeding, whether civil, criminal, administrative or investigative, by reason of the fact that he is or was at any time since the inception of the corporation a director, officer or employee of the corporation, or is or was at any time since the inception of the corporation serving at the request of the corporation as a director, officer, or employee of another corporation, partnership, joint venture, trust or other enterprise, including serving as trustee, plan administrator or other fiduciary of any employee benefit plan, shall be indemnified by the corporation to the full extent permitted by the common law and by any statutory provision other than the General Corporation Law of the State of Delaware. Section 3. Mandatory Advance Of Expenses. Reasonable expenses incurred in defending any action, suit or proceeding described in Section 1 or 2 of this Article VI shall be paid by the corporation in advance of the final disposition of such action, suit or proceeding upon receipt of an undertaking by or on behalf of such director, officer or employee to repay such amount to the corporation if it shall ultimately be determined that he is not entitled to be indemnified by the corporation as authorized in this Article. Section 4. Payment Of Indemnified Claims. Reasonable amounts required to be paid in settlement or as a judgment in any action, suit or proceeding described in Section 1 or 2 of this Article VI shall be paid by the corporation within 90 days of the receipt of an undertaking by or on behalf of such director, officer or employee to repay such amount to the corporation if it shall ultimately be determined that he is not entitled to be indemnified by the corporation as authorized in this Article; provided however, that the corporation shall not be required to pay such amounts if a majority of the members of the board of directors vote to deny the request for indemnification within the 90 day period set forth in this Section 4 if such amounts previously have not been paid by the corporation in accordance with this Section 4. Section 5. Rights Of Appeal. In the event that the corporation advances funds for indemnification pursuant to this Article, and, subsequently, indemnification pursuant to this Article is declared unenforceable by a court, or the corporation determines that the director, officer or employee on whose behalf the funds were advanced is not entitled to indemnification pursuant to this Article, then such director, officer or employee shall have the right to retain the indemnification payments until all appeals of the court's or the corporation's decision have been exhausted. Section 6. Additional Indemnification. Without limiting the indemnification otherwise provided by this Article VI, any person who was or is a party or is threatened to be made a party to any threatened, pending or completed action, suit or proceeding, whether civil, criminal, administrative or investigative, by 13 reason of the fact that he is or was at any time since the inception of the corporation a director, officer or employee of the corporation or a wholly owned subsidiary of the corporation, or is or was at any time since the inception of the corporation a trustee, plan administrator or other fiduciary of any employee benefit plan of the corporation or a wholly owned subsidiary of the corporation, shall be indemnified by the corporation against all expenses, including attorneys' fees, judgments, fines and amounts paid in settlement, actually and reasonably incurred by him in connection with such action, suit or proceeding, including an action or suit by or in the right of the corporation to procure a judgment in its favor, if he acted in good faith and in a manner he reasonably believed to be in or not opposed to the best interests of the corporation, and, with respect to any criminal action or proceeding, he had no reasonable cause to believe his conduct was unlawful. The termination of any action, suit or proceeding by judgment, order, settlement, conviction, or upon a plea of nolo contendre or its equivalent, shall not, of itself, create a presumption that the person did not act in good faith and in a manner which he reasonably believed to be in or not opposed to the best interests of the corporation, and with respect to any criminal action or proceeding, had reasonable cause to believe that his conduct was unlawful. Section 7. Indemnification Not Exclusive. The indemnification provided in this Article shall not be deemed exclusive of any other rights to which any person seeking indemnification may be entitled under any agreement, vote of stockholders or disinterested directors or otherwise, both as to action in his official capacity and as to action in another capacity while holding such office. Section 8. Insurance. By action of the board of directors, notwithstanding any interest of the directors in such action, the corporation may purchase and maintain insurance, in such amounts as the board may deem appropriate, on behalf of any person who is or was a director, officer or employee of the corporation or is or was serving at the request of the corporation as a director, officer, employee or agent of another corporation, partnership, joint venture, trust or other enterprise against any liability asserted against him and incurred by him in any such capacity, or arising out of his status as such, regardless of whether the corporation would have the power to indemnify him against such liability under applicable provisions of laws. Section 9. Applicability; Effect. Any indemnification and advancement of expenses provided by or granted pursuant to this Article VI shall be applicable to acts or omissions that occurred prior to the adoption of this Article VI, shall continue as to any persons who ceased to be a director, officer, or employee of the corporation or a wholly owned subsidiary of the corporation, or was serving as or has since ceased to be a trustee, plan administrator or other fiduciary of any employee benefit plan of the corporation or a wholly owned subsidiary of the corporation, and shall inure to the benefit of the heirs, executors, and administrators of such person. The repeal or amendment of this Article VI or any Section or provision hereof which would have the effect of limiting, qualifying or restricting any of the powers or rights of indemnification provided or permitted in this Article VI shall not, solely by reason of such repeal or amendment, eliminate, restrict or otherwise affect the right or power of the corporation to indemnify any person, or affect any right 14 of indemnification of such person, with respect to any acts or omissions which occurred prior to such repeal or amendment. All rights under this Article VI shall be deemed to be provided by a contract between the corporation and each person covered hereby. Section 10. Savings Clause. If this Article VI or any Section or provision hereof shall be invalidated by any court on any ground, then the corporation shall nevertheless indemnify each party otherwise entitled to indemnification hereunder to the fullest extent permitted by law or any applicable provision of this Article VI that shall not have been invalidated. ARTICLE VII. Execution Of Instruments; Loans; Checks And Endorsements; Deposits; Proxies ----------------------------------- Section 1. Execution Of Instruments. The president or any vice president shall have the power to execute and deliver on behalf of and in the name of the corporation any instrument requiring the signature of an officer of the corporation, except as otherwise provided in these bylaws or where the execution and delivery thereof shall be expressly delegated by the board of directors to some other officer or agent of the corporation. Unless authorized to do so by these bylaws or by the board of directors, no officer, agent or employee shall have any power or authority to bind the corporation in any way, to pledge its credit or to render it liable pecuniarily for any purpose or in any amount. Section 2. Loans To Directors, Officers And Employees. The corporation may lend money to, guarantee the obligations of and otherwise assist directors, officers and employees of the corporation, or directors of another corporation of which the corporation owns a majority of the voting stock, only upon compliance with the requirements of the General Corporation Law of the State of Delaware. Section 3. Checks And Endorsements. All checks, drafts or other orders for the payment of money, obligations, notes or other evidences of indebtedness, bills of lading, warehouse receipts, trade acceptances and other such instruments shall be signed or endorsed by such officers or agents of the corporation as shall from time to time be determined by resolution of the board of directors, which resolution may provide for the use of facsimile signatures. Section 4. Deposits. All funds of the corporation not otherwise employed shall be deposited from time to time to the corporation's credit in such banks or other depositories as shall from time to time be determined by resolution of the board of directors, which resolution may specify the officers or agents of the corporation who shall have the power, and the manner in which such powers shall be exercised, to make such deposits and to endorse, assign and deliver for collection and deposit checks, drafts and other orders for the payment of money payable to the corporation or its order. 15 Section 5. Proxies. Unless otherwise provided by resolution adopted by the board of directors, the president or any vice president may from time to time appoint one or more agents or attorneys-in-fact of the corporation, in the name and on behalf of the corporation, to cast the votes which the corporation may be entitled to cast as the holder of stock or other securities in any other corporation, association or other entity any of whose stock or other securities may be held by the corp ration, at meetings of the holders of the stock or other securities of such other corporation, association or other entity or to consent in writing, in the name of the corporation as such other entity, and may instruct the person or persons so appointed as to the manner of casting such votes or giving such consent, and may execute or cause to be executed in the name and on behalf of the corporation and under its corporate seal, or otherwise, all such written proxies or other instruments as he may deem necessary or proper in the premises. ARTICLE VIII. Miscellaneous ------------- Section 1. Waivers Of Notice. Whenever notice is required to be given by law, by the certificate of incorporation or by these bylaws, a written waiver thereof, signed by the person entitled to said notice, whether before or after the time stated therein, shall be deemed equivalent to notice. Attendance of a person at a meeting or (in the case of a stockholder) by proxy shall constitute a waiver of notice of such meeting, except when the person attends a meeting for the express purpose of objecting, at the beginning of the meeting, to the transaction of any business because the meeting was not lawfully called or convened. Neither the business to be transacted at, nor the purpose of, any regular or special meeting of the stockholders, directors, or members of a committee of directors need to be specified in any written waiver or notice unless so required by the certificate of incorporation or these bylaws. Section 2. Presumption Of Assent. A director or stockholder of the corporation who is present at a meeting of the board of directors or stockholders at which action on any corporate matter is taken shall be presumed to have assented to the action taken unless his dissent shall be entered in the minutes of the meeting or unless he shall file his written dissent to such action with the person acting as the secretary of the meeting before the adjournment thereof or shall forward such dissent by registered mail to the secretary of the corporation immediately after the adjournment of the meeting. Such right to dissent shall not apply to a director or stockholder who voted in favor of such action. Section 3. Seal. The corporate seal of the corporation shall be circular in form and shall contain the name of the corporation and the words "Seal, Delaware." The custodian of the seal shall be the secretary, who along with the president or other officer authorized by the board of directors, may affix the seal to documents of the corporation. Section 4. Amendments. These bylaws may be altered, amended or repealed or new bylaws may be adopted by the board of directors at any meeting of the directors or by the stockholders at any meeting of the stockholders if in the case of a stockholders' meeting notice of such alteration, amendment, repeal or adoption is contained in the notice of such stockholders' meeting. 16 Section 5. Emergency Bylaws. Subject to repeal or change by action of the stockholders, the board of directors may adopt emergency bylaws in accordance with and pursuant to the provisions of the General Corporation Law of the State of Delaware. * * * * * 17 EX-27 3 FINANCIAL DATA SCHEDULE
5 THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM FORM 10-KSB AND IS QUALIFIED IN ITS ENTIRETY BY REFERENCT TO SUCH FINANCIAL STATEMENTS. 12-MOS 12-MOS AUG-31-1999 AUG-31-1998 AUG-31-1999 AUG-31-1998 117,905 373,100 5,111,062 0 3,082 0 0 0 0 0 5,242,396 389,997 5,106,847 2,546,059 0 0 10,762,521 2,939,602 221,253 1,328,330 0 0 0 0 23 0 14,409 9,155 10,525,774 1,599,456 10,762,521 2,939,602 0 0 116,713 46,145 0 0 0 0 1,073,864 712,661 0 0 183,256 488 (1,140,407) (110,807) 0 0 (1,140,407) (110,807) 0 0 0 0 0 0 (1,140,407) (110,807) (.105) (.012) (.105) (.012)
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