20-F/A 1 amd1-f20f.txt FORM 20-F/A AMENDMENT NO. 1 FORM 20-F/A AMENDMENT NO. 1 [ ] Registration Statement Pursuant to Section 12(b) or (g) of the Securities Exchange Act of 1934 or [X] Annual Report Pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934 FOR THE FISCAL YEAR ENDED AUGUST 31, 2001 or [ ] Transition Report Pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934 For the transition period from _________ to _________ Commission file number: 000-30196 TRIMARK ENERGY LTD. (formerly Trimark Oil & Gas Ltd.) (Exact name of Registrant as specified in its charter) TRIMARK ENERGY LTD. (formerly Trimark Oil & Gas Ltd.) (Translation of Registrant's name into English) YUKON TERRITORY, CANADA (Jurisdiction of incorporation or organization) 1305 - 1090 WEST GEORGIA STREET, VANCOUVER, BRITISH COLUMBIA, V6E 3V7 (Address of principal executive offices) Securities registered or to be registered pursuant to Section 12(b) of the Act. NONE Securities registered or to be registered pursuant to Section 12(g) of the Act. COMMON STOCK, NO PAR VALUE (Title of Class) Securities for which there is a reporting obligation pursuant to Section 15(d) of the Act. NOT APPLICABLE (Title of Class) Indicate the number of outstanding shares of each of the issuer's classes of capital or common stock as of the close of the period covered by the annual report. 20,488,016 COMMON SHARES AS OF AUGUST 31, 2001 Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes X No ----------- --------- Indicate by check mark which financial statement item the registrant has elected to follow. Item 17 X Item 18 Page 1 of 31 --------- ----------- -1- This amendment is being filed for the purpose of updating the Auditor's Report on the financial statements contained herein, and contains only those items relating to such statements. This amendment also includes Exhibit 8.1 List of Subsidiaries. ITEM 8. FINANCIAL INFORMATION. -------------------------------------------------------------------------------- Description Page ----------- ---- Audited Consolidated Financial Statements for the Years Ended August 31, 2001, 2000 and 1999 F-1 Significant Changes Not applicable. -2- PART III ITEM 17. FINANCIAL STATEMENTS. -------------------------------------------------------------------------------- See pages F-1 through F-21 ITEM 18. FINANCIAL STATEMENTS. -------------------------------------------------------------------------------- Not applicable. ITEM 19. EXHIBITS. --------------------------------------------------------------------------------
Exhibit Number Description Page -------------- ----------- ---- 1.1 Roll Over Articles of Golden Chance Resources Inc. and amendments N/A thereto.(1) 1.2 Certificate of Continuance and Articles of Continuance for Trimark Resources N/A Ltd. and amendments thereto.(1) 1.3 Bylaws of Trimark Resources Ltd.(1) N/A 1.4 Articles of Amendment 27 3.1 Letter of Intent dated February 25, 1999, between Hilton Petroleum, Inc., STB N/A Energy Inc. and Berkley Petroleum Corp.(1) 3.2 Letter of Intent dated February 26, 1999, between Trimark Resources, Inc., N/A Hilton Petroleum, Inc. and STB Energy, Inc.(1) 3.3 Letter Agreement dated March 8, 1999, between Trimark Resources, Inc., N/A Hilton Petroleum, Inc. and STB Energy, Inc.(1) 3.4 Purchase and Sale Agreement dated June 15, 1999, between Hilton Petroleum, N/A Inc. and Trimark Resources, Inc.(1) 3.5 Letter of Intent dated April 12, 1999, between Trimark Oil & Gas Ltd. and N/A Philip Zaccaria and amendment dated May 14, 1999. (1) 3.6 Agreement dated April 11, 1997, between E.J. Helsley, Trimark Resources, N/A Inc. and International Trimark Resources Ltd.(1) 3.7 Agreement dated September 10, 1997, between Trimark Resources, Inc., N/A Trimark Oil & Gas Ltd. and Rainbow Oil & Gas, Inc.(1) 3.8 Agreement dated September 12, 1997, between Trimark Resources, Inc., N/A Trimark Oil & Gas Ltd. and STB Energy Inc.(1) 3.9 Agreement dated September 1, 1993, between Trimark Resources Inc. and N/A DWB Management Ltd.(1) 3.10 Participation Agreement dated October 8, 1997, between Trimark Resources, N/A Inc. and Texstar Petroleum, Inc. (2) 3.11 Mutual Settlement and Release Agreement dated December 15, 1999 (3) N/A
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Exhibit Number Description Page -------------- ----------- ---- 3.12 Form of Loan Agreement Between Donald W. Busby and Trimark Oil & Gas N/A Ltd. dated November 19, 1999(4) 3.13 Oil and Gas Prospect Exploration and Development Agreement dated February N/A 26, 2000(4) 8.1 List of Subsidiaries 30
(1) Previously filed as an exhibit to the Company's Registration Statement on Form 20-F, filed with the Commission on July 29, 1999. File number 0-30196. (2) Previously filed as an exhibit to the Company's Amended Registration Statement on Form 20-F/A Amendment No. 1, filed with the Commission on October 29, 1999. File number 0-30196. (3) Previously filed as an exhibit to the Company's Amended Registration Statement on Form 20-F/A Amendment No. 3, filed with the Commission on January 18, 2000. File number 0-30196. (4) Previously filed as an exhibit to the Company's Annual Report on Form 20-F, filed with the Commission on February 28, 2001. File number 0-30196. -4- SIGNATURES The registrant hereby certifies that it meets all of the requirements for filing on Form 20-F and that it has duly caused and authorized the undersigned to sign this annual report on its behalf. TRIMARK ENERGY LTD. Dated: April 4, 2002 /s/ Harvey Lim --------------------------- ------------------------------------ Harvey Lim, Secretary -5- -------------------------------------------------------------------------------- TRIMARK OIL & GAS LTD. CONSOLIDATED FINANCIAL STATEMENTS FOR THE YEARS ENDED AUGUST 31, 2001, 2000 AND 1999 (Expressed in Canadian Dollars) -------------------------------------------------------------------------------- F-1 6 AUDITORS' REPORT To the Shareholders of Trimark Oil and Gas Ltd. We have audited the consolidated balance sheets of Trimark Oil and Gas Ltd. as at August 31, 2001 and 2000 and the consolidated statements of loss and deficit and cash flow for the years ended August 31, 2001, 2000 and 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 Canadian and United States generally accepted auditing standards. Those standards require that we plan and perform an audit to obtain reasonable assurance whether the financial statements are free of material misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements. An audit also includes assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall financial statement presentation. In our opinion, these consolidated financial statements present fairly, in all material respects, the financial position of the Company as at August 31, 2001 and 2000 and the results of its operations and its cash flow for the years ended August 31, 2001, 2000 and 1999 in accordance with Canadian generally accepted accounting principles. Canadian generally accepted accounting principles vary in certain significant respects from accounting principles generally accepted in the United States. Application of accounting principles generally accepted in the United States would have affected assets and shareholders' equity as at August 31, 2001 and 2000 and results of operations for the year ended August 31, 2001, 2000 and 1999 to the extent summarized in Note 11 to the consolidated financial statements. Vancouver, B.C. /s/ D&H Group November 27, 2001, except for Note 13 which is as of December 31, 2001 Chartered Accountants (D&H Group was formerly known as Dyke & Howard) D & H Group A Partnership of Corporations A Member of BHD Association with affiliated offices across Canada and Internationally 10th Floor, 1333 West Broadway, Vancouver, BC V6H 4C2 www.dhgroup.ca F 604-731-9923 T 604-731-5881 F-2 7 TRIMARK OIL & GAS LTD. CONSOLIDATED BALANCE SHEETS AS AT AUGUST 31, 2001 AND 2000 (Expressed in Canadian Dollars) 2001 2000 $ $ A S S E T S CURRENT ASSETS Cash 214,390 1,306,708 Amounts receivable 48,942 261,634 Inventory 70,050 - Current portion of other assets (Note 4) 193,463 - ------------ ----------- 526,845 1,568,342 PETROLEUM AND NATURAL GAS INTERESTS (Note 3) 7,022,246 7,795,380 OTHER ASSETS (Note 4) 619,080 772,905 ------------ ----------- 8,168,171 10,136,627 ============ =========== L I A B I L I T I E S CURRENT LIABILITIES Accounts payable and accrued liabilities (Note 8(b)) 520,629 306,565 Advances (Note 5) 553,200 - ------------ ----------- 1,073,829 306,565 ------------ ----------- S H A R E H O L D E R S ' E Q U I T Y SHARE CAPITAL (Note 6) 19,537,102 17,141,542 SHARE SUBSCRIPTIONS RECEIVED (Note 6(a)) - 83,000 DEFICIT (12,442,760) (7,394,480) ------------ ----------- 7,094,342 9,830,062 ------------ ----------- 8,168,171 10,136,627 ============ =========== OPERATIONS (Note 1) APPROVED BY THE BOARD /s/ Donald W. Busby , Director ------------------- /s/ Nick DeMare , Director ------------------- The accompanying notes are an integral part of these consolidated financial statements. F-3 8 TRIMARK OIL & GAS LTD. CONSOLIDATED STATEMENTS OF LOSS AND DEFICIT FOR THE YEARS ENDED AUGUST 31, 2001, 2000 AND 1999 (Expressed in Canadian Dollars)
2001 2000 1999 $ $ $ REVENUES Oil and gas sales 521,322 202,714 135,865 Interest and other 114,098 195,735 7,464 ------------ ----------- ----------- 635,420 398,449 143,329 ------------ ----------- ----------- EXPENSES Production 185,037 154,529 132,176 General and administrative 330,245 462,429 349,844 Depreciation, depletion and impairment 5,168,418 78,340 1,703,500 ------------ ----------- ----------- 5,683,700 695,298 2,185,520 ------------ ----------- ----------- NET LOSS FOR THE YEAR (5,048,280) (296,849) (2,042,191) DEFICIT - BEGINNING OF YEAR (7,394,480) (7,097,631) (5,055,440) ------------ ----------- ----------- DEFICIT - END OF YEAR (12,442,760) (7,394,480) (7,097,631) ============ =========== =========== LOSS PER COMMON SHARE $(0.29) $(0.02) $(0.40) ============ =========== =========== WEIGHTED AVERAGE NUMBER OF COMMON SHARES OUTSTANDING 17,361,325 14,770,945 5,057,787 ============ =========== ===========
The accompanying notes are an integral part of these consolidated financial statements. F-4 9 TRIMARK OIL & GAS LTD. CONSOLIDATED STATEMENTS OF CASH FLOW FOR THE YEARS ENDED AUGUST 31, 2001, 2000 AND 1999 (Expressed in Canadian Dollars)
2001 2000 1999 $ $ $ CASH PROVIDED FROM (USED FOR) OPERATING ACTIVITIES Net loss for the year (5,048,280) (296,849) (2,042,191) Items not involving cash Depreciation, depletion and impairment 5,168,418 78,340 1,703,500 Unrealized foreign exchange (39,638) - - ----------- ----------- ----------- 80,500 (218,509) (338,691) Decrease (increase) in amounts receivable 212,692 (233,245) 3,337 Increase in inventory (70,050) - - Increase in accounts payable and accrued liabilities 214,064 42,450 (197,772) ----------- ----------- ----------- 437,206 (409,304) (533,126) ----------- ----------- ----------- FINANCING ACTIVITIES Issuance of common shares 2,312,560 3,933,801 493,990 Issuance of special warrants - - 4,400,200 Issuance costs - (323,770) (276,404) Share subscriptions received - 83,000 1,116,570 Advances received (repayment of) 553,200 - (65,220) ----------- ----------- ----------- 2,865,760 3,693,031 5,669,136 ----------- ----------- ----------- INVESTING ACTIVITIES Petroleum and natural gas interests expenditures (4,415,135) (2,817,323) (4,625,161) Proceeds from sale of petroleum and natural gas interests 19,851 39,728 1,038,380 Additions to other assets - (772,905) - ----------- ----------- ----------- (4,395,284) (3,550,500) (3,586,781) ----------- ----------- ----------- DECREASE IN CASH FOR THE YEAR (1,092,318) (266,773) 1,549,229 CASH - BEGINNING OF YEAR 1,306,708 1,573,481 24,252 ----------- ----------- ----------- CASH - END OF YEAR 214,390 1,306,708 1,573,481 =========== =========== ===========
The accompanying notes are an integral part of these consolidated financial statements. F-5 10 TRIMARK OIL & GAS LTD. NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS FOR THE YEARS ENDED AUGUST 31, 2001, 2000 AND 1999 (Expressed in Canadian Dollars) 1. OPERATIONS Trimark Oil & Gas Ltd. (the "Company") is an independent energy company engaged in the acquisition, exploration and development of crude oil and natural gas properties in the United States. As at August 31, 2001, the Company has a working capital deficiency of $546,984 and for the year ended August 31, 2001, the Company incurred a net loss of $5,048,280. The future viability of the Company is dependent upon the continued financial support of the Company's creditors, the ability to obtain additional financing to satisfy future working capital requirements and, in the longer term, the generation of profit and positive cash flow from business operations. 2. ACCOUNTING POLICIES Basis of Presentation These consolidated financial statements have been prepared in accordance with Canadian generally accepted accounting principles ("Canadian GAAP"). The significant differences between these principles and those that would be accepted under United States generally accepted accounting principles ("US GAAP") are disclosed in Note 11. The preparation of financial statements in conformity with Canadian GAAP requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the financial statements and the reported amounts of revenues and expenses during the reporting period. Actual results could differ from those estimates. The consolidated financial statements include the accounts of the Company and its wholly-owned subsidiaries, Trimark Resources Inc. and Safari Petroleum, LLC. Intercompany balances and transactions are eliminated on consolidation. Petroleum and Natural Gas Interests The Company follows the full cost method of accounting for petroleum and natural gas operations. Under this method all costs related to the exploration for and development of petroleum and natural gas reserves are capitalized on a country-by-country basis. Costs include lease acquisition costs, geological and geophysical expenses, overhead directly related to exploration and development activities and costs of drilling both productive and non-productive wells. Proceeds from the sale of properties are applied against capitalized costs, without any gain or loss being recognized, unless such a sale would significantly alter the rate of depletion and depreciation. F-6 11 TRIMARK OIL & GAS LTD. NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS FOR THE YEARS ENDED AUGUST 31, 2001, 2000 AND 1999 (Expressed in Canadian Dollars) 2. ACCOUNTING POLICIES (continued) Depletion of exploration and development costs and depreciation of production equipment is provided using the unit-of-production method based upon estimated proven petroleum and natural gas reserves. The costs of significant unevaluated properties are excluded from costs subject to depletion. For depletion and depreciation purposes, relative volumes of petroleum and natural gas production and reserves are converted into equivalent units based upon relative energy content. Depreciation of the gathering facility is charged to earnings over an estimated useful life of 10 years on a straight-line basis. In applying the full cost method, the Company performs a ceiling test whereby the carrying value of petroleum and natural gas properties and production equipment, net of recorded future income taxes and the accumulated provision for site restoration and abandonment costs, is compared annually to an estimate of future net cash flow from the production of proven reserves. Net cash flow is estimated using year end prices, less estimated future general and administrative expenses, financing costs and income taxes. Should this comparison indicate an excess carrying value, the excess is charged against earnings. Substantially all of the Company's oil and gas exploration, development and production activities are conducted jointly with others and, accordingly, these consolidated financial statements reflect the Company's proportionate interest in such activities. Revenue Recognition The Company recognizes petroleum and natural gas revenues from its interests in producing wells as oil and gas is produced and sold from these wells. The Company has no gas balancing arrangements in place. Oil and gas sold is not significantly different from the Company's product entitlement. Cash Equivalents Cash includes cash and short-term deposits maturing within 90 days of the original date of acquisition. Inventory Inventory consists of materials inventory. The materials inventory balance include equipment held for future use and is accounted for based on the lower of moving average cost method or market. F-7 12 TRIMARK OIL & GAS LTD. NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS FOR THE YEARS ENDED AUGUST 31, 2001, 2000 AND 1999 (Expressed in Canadian Dollars) 2. ACCOUNTING POLICIES (continued) Foreign Currency Translation Monetary assets and liabilities are translated into Canadian dollars at the balance sheet date rate of exchange and non-monetary assets and liabilities at historical rates. Revenues and expenses are translated at appropriate transaction date rates except for amortization, depreciation and depletion, which are translated at historical rates. Gains and losses on translation are included in income. Income Taxes Income tax liabilities and assets are recognized for the estimated tax consequences attributable to differences between the amounts reported in the consolidated financial statements and their respective tax bases, using enacted income tax rates. The effect of a change in income tax rates on future income tax liabilities and assets is recognized in income in the period that the change occurs. Share Option Plan The Company grants share options in accordance with the policies of the Canadian Venture Exchange (the "CDNX") as described in Note 6(c). No compensation expense is recognized for this plan when shares or share options are issued pursuant to the plan. Consideration paid for the shares on exercise of the share options is credited to share capital. Earnings (Loss) Per Share Earnings (loss) per common share amounts have been calculated and presented in accordance with the new recommendations of the Canadian Institute of Chartered Accountants. Basic earnings per share is computed by dividing income available to common shareholders by the weighted average number of common shares outstanding during the period. The weighted average number of common shares calculated excludes contingently returnable common shares. The computation of diluted earnings per share assumes the conversion, exercise or contingent issuance of securities only when such conversion, exercise or issuance would have a dilutive effect on earnings per share. The dilutive effect of outstanding options and warrants and their equivalents is reflected in diluted earnings per share by application of the treasury stock method. The new standard has been applied on a retroactive basis and had no impact on the amounts previously presented. F-8 13 TRIMARK OIL & GAS LTD. NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS FOR THE YEARS ENDED AUGUST 31, 2001, 2000 AND 1999 (Expressed in Canadian Dollars) 3. PETROLEUM AND NATURAL GAS INTERESTS
2001 2000 $ $ Evaluated Properties Acquisitions and leasehold costs 5,829,076 3,102,658 Exploration and development costs 4,185,331 751,038 Gathering facility 146,242 - ----------- ----------- 10,160,649 3,853,696 ----------- ----------- Unevaluated Properties Acquisitions and leasehold costs 2,680,558 6,057,733 Exploration costs 3,044,687 1,579,181 ----------- ----------- 5,725,245 7,636,914 ----------- ----------- 15,885,894 11,490,610 Less: accumulated depreciation, depletion and impairment (8,863,648) (3,695,230) ----------- ----------- 7,022,246 7,795,380 =========== ===========
Property acquisition costs include costs incurred to purchase, lease, or otherwise acquire a property. Exploration costs include the costs of geological and geophysical activity, dry holes and drilling and equipping exploratory wells. Development costs include costs incurred to gain access to prepare development well locations for drilling and to drill and equip development wells. During the year ended August 31, 2001, the Company wrote down the carrying value of its petroleum and natural gas interests by $4,790,379 from the ceiling test performed effective August 31, 2001. No write- down was required during the year ended August 31, 2000 from the ceiling test performed effective August 31, 2000. During the year ended August 31, 1999, the Company wrote down the carrying value of its petroleum and natural gas interests by $1,649,518 from the ceiling test performed effective August 31, 1999. The ceiling test is a cost-recovery test and is not intended to result in an estimate of fair market value. 4. OTHER ASSETS 2001 2000 $ $ Convertible note (a) 619,080 588,880 Loan to officer (b) 193,463 184,025 -------- -------- 812,543 772,905 Less current portion 193,463 - -------- -------- 619,080 772,905 ======== ======== F-9 14 TRIMARK OIL & GAS LTD. NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS FOR THE YEARS ENDED AUGUST 31, 2001, 2000 AND 1999 (Expressed in Canadian Dollars) 4. OTHER ASSETS (continued) (a) The Company holds a US$400,000 unsecured convertible note (the "ALPNET Note") issued by ALPNET, Inc. ("ALPNET"), a public Utah company trading on the facilities of the National Association of Securities Dealers. The ALPNET Note has a variable interest rate of US prime plus 2%, payable on a quarterly basis. The principal is repayable in three equal annual instalments commencing June 2, 2003. The Company has the right to convert all or any portion of the outstanding principal into common stock of ALPNET, on the basis of US$2.22 per share. ALPNET has the right to pay the full amount, or any portion, of the ALPNET Note prior to its maturity. In connection with the ALPNET Note, ALPNET granted the Company a warrant to purchase up to 90,090 common shares of ALPNET, at an exercise price of US$3.33 per share, on or before June 2, 2002. (b) During the year ended August 31, 2000, the Company provided a US$125,000 relocation loan to the President of the Company. The loan bears interest at 5% per annum, compounded monthly, and matures on March 27, 2002. During the year ended August 31, 2001, interest income of $9,968 (2000 - $4,018) was received. 5. ADVANCES During the year ended August 31, 2001, the Company received $553,200 pursuant to a proposed $1 million convertible debenture financing. The terms initially proposed was that the debentures bear interest at 10% per annum with interest for the first year to be prepaid on closing in common shares of the Company at $0.35 per share. Interest thereafter would be paid quarterly in cash or shares at the holder's option. The debentures were proposed to have a three year term and be convertible into shares at $0.35 per share in year one, at $0.40 per share in year two and at $0.45 per share in year three. In light of the current market conditions the Company and the subscribers are negotiating a revision to the terms and features. The Company has recorded $4,904 of interest expense, based on a rate of 10% per annum. The amount has been included in accounts payable and accrued liabilities. Hilton Petroleum Ltd. ("Hilton"), a public company which is a shareholder of the Company and in which certain of its officers and directors are also officers and directors of the Company, advanced $153,200. F-10 15 TRIMARK OIL & GAS LTD. NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS FOR THE YEARS ENDED AUGUST 31, 2001, 2000 AND 1999 (Expressed in Canadian Dollars) 6. SHARE CAPITAL Authorized - unlimited common shares without par value
Issued and outstanding - 2001 2000 1999 ------------------------- -------------------------- -------------------------- Number $ Number $ Number $ Balance, beginning of year 16,005,446 17,141,542 11,625,360 12,414,941 3,306,710 5,854,294 ------------ ------------ ------------ ------------- ------------ ------------- Issued during the year Private placements 4,482,570 2,395,560 3,699,279 4,399,261 - - Exercise of options - - 200,000 228,000 620,300 493,990 Exercise of special warrants - - - - 6,538,350 5,385,100 Exercise of warrants - - 325,000 286,000 - - Exercise of agents warrants - - 155,807 137,110 - - Acquisition of petroleum interest - - - - 1,160,000 1,044,000 ------------ ------------ ------------ ------------- ------------ ------------- 4,482,570 2,395,560 4,380,086 5,050,371 8,318,650 6,923,090 Issuance costs - - - (323,770) - (362,443) ------------ ------------ ------------ ------------- ------------ ------------- 4,482,570 2,395,560 4,380,086 4,726,601 8,318,650 6,560,647 ------------ ------------ ------------ ------------- ------------ ------------- Balance, end of year 20,488,016 19,537,102 16,005,446 17,141,542 11,625,360 12,414,941 ============ ============ ============ ============= ============ =============
(a) During the year ended August 31, 2001, the Company completed the following private placements: (i) 118,570 units at $0.70 per unit for proceeds of $83,000. Each unit is comprised of one common share and one share purchase warrant entitling the holder to purchase an additional share at $0.84 per share on or before June 19, 2002. The $83,000 gross proceeds were received at August 31, 2000 and recorded as share subscriptions received. As at August 31, 2001, the warrants remain outstanding; and (ii) 2,200,000 units, at $0.52 per unit, for proceeds of $1,144,000. Each unit is comprised of one common share and one share purchase warrant entitling the holder to purchase an additional share at $0.52 per share for a period of two years. The purchasers of the private placement are a private company owned by the President of the Company and Hilton. At August 31, 2001, the warrants remained outstanding; and F-11 16 TRIMARK OIL & GAS LTD. NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS FOR THE YEARS ENDED AUGUST 31, 2001, 2000 AND 1999 (Expressed in Canadian Dollars) 6. SHARE CAPITAL (continued) (iii) 2,164,000 units at $0.54 per unit for proceeds of $1,168,560, with officers, directors and insiders of the Company. Each unit is comprised of one common share and one share purchase warrant. Two warrants entitles the holder to purchase an additional share at an exercise price of $0.62 per share on or before August 15, 2003. The Company also granted warrants to its agents (the "Agents' Warrants") to purchase 400,000 common shares of the Company at an exercise price of $0.62 per share on or before August 15, 2002. At August 31, 2001, the warrants and Agents' Warrants remained outstanding. (b) During the year ended August 31, 2000, the Company completed a number of private placement financings, as follows: (i) 2,513,564 units, at $1.42 per unit, for proceeds of $3,245,491, net of finders fees and issue costs of $323,770. Each unit consisted of one common share and one share purchase warrant. Two warrants entitled the holder to purchase an additional share for a period of two years, at a price of $1.56 per share on or before September 24, 2000 and thereafter, at $1.73 per share on or before September 24, 2001. Subsequent to August 31, 2001, the warrants expired without exercise. Directors, officers and a company controlled by the President of the Company purchased 202,079 units. (ii) 1,185,715 units at $0.70 per unit, for proceeds of $830,000. Each unit consisted of one common share and one share purchase warrant. Each warrant entitles the holder to purchase an additional share for a period of two years, at a price of $0.84 per share on or before April 11, 2002. The Chairman, private corporations controlled by the President of the Company and a director of the Company purchased all of the units. As of August 31, 2001, the warrants remained unexercised. (c) The Company grants share options in accordance with the policies of the CDNX. Under the general guidelines of the CDNX the Company may reserve up to 10% of its issued and outstanding shares to its employees, directors or consultants to purchase common shares of the Company. Stock options to directors and employees of the Company and consultants to acquire shares were granted and outstanding as at August 31, 2001. These options are exercisable on varying dates expiring from fiscal 2002 to fiscal 2004 at prices ranging from $0.60 to $1.90 per share. F-12 17 TRIMARK OIL & GAS LTD. NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS FOR THE YEARS ENDED AUGUST 31, 2001, 2000 AND 1999 (Expressed in Canadian Dollars) 6. SHARE CAPITAL (continued) Details of options outstanding are as follows:
2001 2000 ------------------------------- ------------------------------- 2001 Weighted 2000 Weighted Number Average Number Average of Options Exercise Price of Options Exercise Price $ $ Balance, beginning of year 837,000 1.28 902,000 1.13 Granted 850,000 0.61 150,000 1.90 Exercised - - (200,000) 1.14 Cancelled/expired (100,000) 1.33 (15,000) 0.70 --------- --------- Balance, end of year 1,587,000 0.92 837,000 1.28 ========= =========
See also Note 13. (d) As at August 31, 2001, 10,417 common shares are held in escrow, the release of which is subject to the determination and direction of the regulatory authorities. 7. INCOME TAXES Future income tax assets and liabilities of the Company as at August 31, 2001 and 2000 are as follows: 2001 2000 $ $ Future income tax assets (liabilities) Losses carried forward 2,490,000 1,467,000 Other 152,000 214,000 Petroleum and natural gas interests 1,960,000 (227,000) ---------- ---------- 4,602,000 1,454,000 Valuation allowance (4,602,000) (1,454,000) ---------- ---------- Net future income tax asset - - ========== ========== F-13 18 TRIMARK OIL & GAS LTD. NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS FOR THE YEARS ENDED AUGUST 31, 2001, 2000 AND 1999 (Expressed in Canadian Dollars) 7. INCOME TAXES (continued)
2001 2000 $ $ Income tax rate reconciliation Combined federal and provincial income tax rate 44% 44% =========== ========= Expected income tax recovery 2,271,000 133,500 Foreign income tax rate differences (332,000) (79,000) Non-deductible depreciation and depletion (1,809,000) (27,000) Deductible petroleum and natural gas interest expenditures 643,000 275,000 Non-taxable unrealized foreign exchange gains 284,000 81,000 Other 62,000 62,000 Unrecognized benefit of income tax losses (1,119,000) (445,500) ----------- --------- Actual income tax recovery - - =========== =========
As at August 31, 2001, the Company has accumulated non-capital losses for Canadian income tax purposes of approximately $1,200,000, expiring from 2002 to 2008, and for United States income tax purposes of approximately US$3,600,000, expiring from 2008 to 2021, which are available for application against future taxable income, the related benefits of which have not been recognized in these financial statements. 8. RELATED PARTY TRANSACTIONS (a) During the year ended August 31, 2001, the Company was charged $157,239 (2000 - $120,264; 1999 - $144,232) for management, professional, accounting and administrative fees and professional fees provided by directors of the Company or companies controlled by directors of the Company. (b) As at August 31, 2001, accounts payable and accrued liabilities include $101,158 (2000 - $98,268) due to Hilton. (c) During the year ended August 31, 1999, the Company and Hilton entered into a number of agreements whereby the Company purchased, from Hilton, certain leasehold interests in unproved petroleum properties for US$3,450,000 and sold, to Hilton, certain leasehold interests for US$700,000. The net consideration of US$2,750,000 consisted of US$2,050,000 cash and US$700,000 paid by the issuance of 1,160,000 common shares of the Company. (d) See also Notes 4(b), 5 and 6. F-14 19 TRIMARK OIL & GAS LTD. NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS FOR THE YEARS ENDED AUGUST 31, 2001, 2000 AND 1999 (Expressed in Canadian Dollars) 9. SEGMENTED INFORMATION As at August 31, 2001, the Company and its subsidiaries operated in one industry segment, the exploration for, and the development and production of crude oil and natural gas. The Company's current petroleum interests are located in the United States and its corporate assets are located in Canada. Identifiable assets, revenues and net loss in each of these geographic areas are as follows: 2001 ----------------------------------------------------- Identifiable Net Assets Revenues Income (Loss) $ $ $ United States 7,349,920 536,864 (5,533,636) Canada 818,251 98,556 485,356 ---------- ---------- ----------- 8,168,171 635,420 (5,048,280) ========== ========== =========== 2000 ----------------------------------------------------- Identifiable Net Assets Revenues Income (Loss) $ $ $ United States 8,223,111 260,952 (54,324) Canada 1,913,516 137,497 (242,525) ---------- ---------- ----------- 10,136,627 398,449 (296,849) ========== ========== =========== 1999 ----------------------------------------------------- Identifiable Net Assets Revenues Income (Loss) $ $ $ United States 5,410,650 135,865 (1,645,195) Canada 1,287,345 7,464 (396,996) ---------- ---------- ----------- 6,697,995 143,329 (2,042,191) ========== ========== =========== F-15 20 TRIMARK OIL & GAS LTD. NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS FOR THE YEARS ENDED AUGUST 31, 2001, 2000 AND 1999 (Expressed in Canadian Dollars) 10. FINANCIAL INSTRUMENTS (a) Fair Values The fair values of financial instruments at August 31, 2001 and 2000, were estimated based on relevant market information and the nature and terms of financial instruments. Management is not aware of any factors which would significantly affect the estimated fair market amounts, however, such amounts have not been comprehensively revalued for purposes of these financial statements. Disclosure subsequent to the balance sheet dates and estimates of fair value at dates subsequent to August 31, 2001 and 2000 may differ significantly from that presented. Fair value approximates the amounts reflected in the financial statements for cash, accounts receivable and accounts payable and accrued liabilities and advances. The fair value of other assets at August 31, 2001, is estimated to be approximately $780,250. (b) Credit Risk Management The accounts receivable are from various companies operating in the oil and gas industry in the United States and are subject to normal industry credit risks. 11. DIFFERENCES BETWEEN CANADIAN AND UNITED STATES GENERALLY ACCEPTED ACCOUNTING PRINCIPLES (a) The consolidated financial statements of the Company have been prepared in accordance to Canadian GAAP which differ in certain material respects from US GAAP. Material differences between Canadian and US GAAP and their effect on the Company's consolidated financial statements are summarized in the tables below. Consolidated Statement of Loss
2001 2000 1999 $ $ $ Net loss as reported under Canadian GAAP (5,048,280) (296,849) (2,042,191) Adjustments for related party transactions (ii) 815,793 - 450,084 Stock-based compensation (iv) (316,069) (98,126) (735,393) Other compensation expense (vii) (172,720) (134,742) (31,600) ----------- ----------- ----------- Net loss under US GAAP (4,721,276) (529,717) (2,359,100) =========== =========== =========== Weighted average number of common shares outstanding (i) 17,361,325 15,012,218 5,296,479 =========== =========== =========== Loss per share under US GAAP (0.27) (0.04) (0.45) =========== =========== ===========
F-16 21 TRIMARK OIL & GAS LTD. NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS FOR THE YEARS ENDED AUGUST 31, 2001, 2000 AND 1999 (Expressed in Canadian Dollars) 11. DIFFERENCES BETWEEN CANADIAN AND UNITED STATES GENERALLY ACCEPTED ACCOUNTING PRINCIPLES (continued) Consolidated Balance Sheet
2001 2000 $ $ Total assets under Canadian GAAP 8,168,171 10,136,627 Adjustments for related party transactions (ii) (1,928,229) (2,744,022) Deferred tax asset (v) 2,490,000 1,651,821 Less: Valuation allowance (v) (2,490,000) (1,651,821) ----------- ----------- Total assets under US GAAP 6,239,942 7,392,605 =========== =========== Total liabilities under Canadian GAAP 1,073,829 306,565 ----------- ----------- Total liabilities under US GAAP 1,073,829 306,565 =========== =========== Total shareholders' equity under Canadian GAAP 7,094,342 9,830,062 Adjustments for related party transactions (ii) (1,928,229) (2,744,022) ----------- ----------- Total shareholders' equity under US GAAP 5,166,113 7,086,040 =========== ===========
(i) Earnings per Share Under US GAAP outstanding special warrants are included in the calculation of loss per share. (ii) Capital Contributions with Respect to Related Party Transactions As described in Note 8(c), during the year ended August 31, 1999, the Company acquired and disposed of certain petroleum interests with Hilton Inc. for a combination of monetary and non-monetary consideration. US GAAP requires that certain transfers of non-monetary assets to a company by its promoters or shareholders, in exchange for stock, should generally be recorded at the transferor's historical cost basis, whereas under Canadian GAAP, transfers of non- monetary assets may be recorded based on the fair value of either the stock issued or the assets acquired under certain circumstances. Under Canadian GAAP these transactions were recorded at their fair values. The transactions have been adjusted to reflect the transactions based on the historical cost basis. The net loss under US GAAP has also been adjusted for the subsequent amortization and impairment charges of a portion of these petroleum interest acquisitions costs. F-17 22 TRIMARK OIL & GAS LTD. NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS FOR THE YEARS ENDED AUGUST 31, 2001, 2000 AND 1999 (Expressed in Canadian Dollars) 11. DIFFERENCES BETWEEN CANADIAN AND UNITED STATES GENERALLY ACCEPTED ACCOUNTING PRINCIPLES (continued) (iii) Ceiling test on petroleum interests US GAAP requires that the net book value of proved petroleum interests not exceed the sum of the present value of estimated future net revenues (determined using current prices of petroleum production less estimated future expenditures to be incurred in developing and producing the proved reserves, discounted at ten percent). This ceiling test was performed effective August 31, 2001 and it was determined that no additional write-down of proved petroleum interests was necessary. (iv) The Company grants stock options which reserves common shares for issuance to employees and directors. Under Canadian GAAP, the issuance of stock options is not recognized for accounting purposes. Under US GAAP, the issuance of stock options requires an assessment to determine stock based compensation. Accordingly, the Company has applied the provisions of Financial Account Standards ("SFAS") 123 Accounting for Stock-Based Compensation to calculate stock-based compensation under US GAAP using the fair value method. The fair value of each option grant is estimated on the date of grant using the Black- Scholes option pricing model with the following assumptions used for grants in 2001, 2000 and 1999:
2001 2000 1999 ------------------ ----------------- ----------------- Risk-free interest rate 4.81% - 6.47% 5.63% - 5.79% 6.25% - 7.5% Expected volatility 124% 87% 89% Expected lives 3 years 2 - 3 years 3 years
(v) Income Tax Under Canadian GAAP, deferred tax assets relating to the potential benefit of income tax loss carryforwards are not recognized unless there is virtual certainty of realization of the benefit. US GAAP provides similar treatment, but requires the benefit be recognized and a valuation allowance be recognized to fully offset the deferred tax asset. As at August 31, 2001, the Company has fully reserved the $2,490,000 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, $838,179 is attributable to the year ended August 31, 2001. F-18 23 TRIMARK OIL & GAS LTD. NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS FOR THE YEARS ENDED AUGUST 31, 2001, 2000 AND 1999 (Expressed in Canadian Dollars) 11. DIFFERENCES BETWEEN CANADIAN AND UNITED STATES GENERALLY ACCEPTED ACCOUNTING PRINCIPLES (continued) (vi) Private Placements of Common Stock and Special Warrants with Related Parties US GAAP requires disclosure of private placements conducted by the Company where directors and officers of the Company are participants. During the year ended August 31, 2001, directors, officers and companies controlled by the directors or officers acquired 2,284,000 shares or special warrants (2000 - 1,387,794; 1999 - 1,580,000) of the Company, pursuant to private placements conducted by the Company, for cash proceeds of $1,223,360 (2000 - $1,116,952; 1999 - $1,264,000). (vii) Private Placements of Common Stock The Company conducts the majority of its equity financings pursuant to private placements. Under the policies of the Canadian Venture Exchange, on which the Company's common stock is listed, the Company may provide a discount off the market price of the Company's common stock. US GAAP does not permit a discount from the market price. US GAAP requires the recognition of the market value of the Company's common stock as a credit to share capital, with a charge to operations for the portion of the discount relating to equity financings conducted with officers and directors of the Company and a charge to shareholders' equity, as a capital distribution, for the discount relating to the remaining portion of the equity financings. Under US GAAP, loss and capital distributions for the year ended August 31, 2001 would increase by $172,720 (2000 - $134,742; 1999 - $31,600) and $140,700 (2000 - $184,919; 1999 - $37,805), respectively, and share capital, as at August 31, 2001 would increase by $961,402 (2000 - $647,982). There is no net change to shareholders' equity. (b) The Company's consolidated statements of cash flow comply with US GAAP. (c) New Technical Pronouncements In September 2000, SFAS No. 140 "Accounting for Transfers and Servicing of Financial Assets and Extinguishments of Liabilities - A Replacement of FASB Statement No. 125" was issued. Adoption of SFAS No. 140 is not expected to have an impact on the Company's financial statements. F-19 24 TRIMARK OIL & GAS LTD. NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS FOR THE YEARS ENDED AUGUST 31, 2001, 2000 AND 1999 (Expressed in Canadian Dollars) 11. DIFFERENCES BETWEEN CANADIAN AND UNITED STATES GENERALLY ACCEPTED ACCOUNTING PRINCIPLES (continued) In June 2001, the Financial Accounting Standards Board ("FASB") issued SFAS 141 "Business Combinations" and SFAS 142 "Goodwill and Other Intangible Assets". SFAS 141 requires all business combinations initiated after June 30, 2001 to be accounted for under the purchase method. For all business combinations for which the date of acquisition is after June 30, 2001, SFAS 141 also establishes specific criteria for the recognization of intangible assets separately from goodwill and requires unallocated negative goodwill to be written off immediately as an extraordinary gain rather than deferred and amortized. SFAS 142 changes the accounting for goodwill and other intangible assets after an acquisition. The most significant changes made by SFAS 142 are: 1) goodwill and intangible assets with indefinite lives will no longer be amortized; 2) goodwill and intangible assets with indefinite lives must be tested for impairment at least annually; and 3) the amortization period for intangible assets with finite lives will no longer be limited to forty years. The Company does not believe that the adoption of these statements will have a material effect on its financial position, results of operations, or cash flows. In June 2001, the FASB also approved for issuance SFAS 143, "Asset Retirement Obligations." SFAS 143 establishes accounting requirements for retirement obligations associated with tangible long-lived assets, including (1) the timing of the liability recognition, (2) initial measurement of the liability, (3) allocation of assets retirement cost to expense, (4) subsequent measurement of the liability, and (5) financial statement disclosure. SFAS 143 requires that an asset retirement cost should be capitalized as part of the cost of the related long-lived asset and subsequently allocated to expense using a systematic and rational method. The adoption of SFAS 143 is not expected to have a material effect on the Company's financial position, results of operations, or cash flows. 12. SUPPLEMENTARY CASH FLOW INFORMATION Non-cash investing and financing activities were conducted by the Company as follows:
2001 2000 1999 $ $ $ Investing activities Acquisition of petroleum interests with issuance of shares - - (1,044,000) ========== ========== ========== Financing activities Issuance of shares for petroleum interests - - 1,044,000 Issuance of shares for special warrants exercised - - 5,385,100 Special warrants exercised - - (5,385,100) ---------- ---------- ---------- - - 1,044,000 ========== ========== ==========
F-20 25 TRIMARK OIL & GAS LTD. NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS FOR THE YEARS ENDED AUGUST 31, 2001, 2000 AND 1999 (Expressed in Canadian Dollars) 12. SUPPLEMENTARY CASH FLOW INFORMATION (continued) Other supplementary cash flow information: 2001 2000 1999 $ $ $ Interest paid in cash - 12,649 - ========== ========== ========== Income taxes paid in cash - - - ========== ========== ========== 13. SUBSEQUENT EVENT Subsequent to August 31, 2001, employee and director stock options to purchase 200,000 common shares of the Company expired. The Company has repriced the remaining stock options to purchase 1,387,000 shares to $0.15 per share and granted an option to an employee to acquire 50,000 shares at a price of $0.15 per share for a period of three years. F-21 26