-----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, TWmANBo4ywFrem51jfaPhaAu5LKQxnpDEaMw6Edy3lZyDcYFRQqNFP/kdOXRYYBF jnBzXwPjc0tBiVsPDXf6Xg== 0000930661-01-501440.txt : 20010807 0000930661-01-501440.hdr.sgml : 20010807 ACCESSION NUMBER: 0000930661-01-501440 CONFORMED SUBMISSION TYPE: 8-K/A PUBLIC DOCUMENT COUNT: 2 CONFORMED PERIOD OF REPORT: 20010522 ITEM INFORMATION: Financial statements and exhibits FILED AS OF DATE: 20010806 FILER: COMPANY DATA: COMPANY CONFORMED NAME: WISER OIL CO CENTRAL INDEX KEY: 0000107874 STANDARD INDUSTRIAL CLASSIFICATION: CRUDE PETROLEUM & NATURAL GAS [1311] IRS NUMBER: 550522128 STATE OF INCORPORATION: DE FISCAL YEAR END: 1231 FILING VALUES: FORM TYPE: 8-K/A SEC ACT: 1934 Act SEC FILE NUMBER: 001-12640 FILM NUMBER: 1699125 BUSINESS ADDRESS: STREET 1: 8115 PRESTON RD STE 400 CITY: DALLAS STATE: TX ZIP: 75225 BUSINESS PHONE: 2142650080 MAIL ADDRESS: STREET 1: 8115 PRESTON ROAD STREET 2: SUITE 400 CITY: DALLAS STATE: TX ZIP: 75225 8-K/A 1 d8ka.txt FORM 8-K/A ================================================================================ UNITED STATES SECURITIES AND EXCHANGE COMMISSION Washington, D.C. 20549 FORM 8-K/A CURRENT REPORT Pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934 Date of Report (Date of earliest event reported): May 22, 2001 THE WISER OIL COMPANY (Exact name of registrant as specified in is charter) Delaware 0-5426 55-0522128 (State or other jurisdiction (Commission (IRS Employer of incorporation) File Number) Identification No.) 8115 Preston Road, Suite 400 Dallas, Texas 75225 (Address, including zip code, of principal executive offices) Registrant's telephone number, including area code: (214) 265-0080 Not Applicable (Former Name or Former Address, if Changed Since Last Report) ================================================================================ THE WISER OIL COMPANY FORM 8-K CURRENT REPORT Pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934 ================================================================================ Table of Contents
Page Item 7. Financial Statements, Pro Forma Financial Information and Exhibits........ 3 Financial Statements of Business Acquired............................. 3 Pro Forma Financial Information....................................... 3 Unaudited Pro Forma Combined Financial Statements, Unaudited Pro Forma Combined Balance Sheet for The Wiser Oil Company as of March 31, 2001................................. 5 Unaudited Pro Forma Combined Statement of Income for The Wiser Oil Company for the three months ended March 31, 2001........ 6 Unaudited Pro Forma Combined Statement of Income for The Wiser Oil Company for the year ended December 31, 2000............. 7 Unaudited Pro Forma Combined Balance Sheet for Invasion Energy Inc. as of March 31, 2001............................. 8 Unaudited Pro Forma Combined Statement of Income for Invasion Energy Inc.for the three months ended March 31, 2001......... 9 Unaudited Pro Forma Combined Statement of Income for Invasion Energy Inc.for the year ended December 31, 2000.............. 9 Notes to Unaudited Pro Forma Combined Financial Statements...... 10 Exhibits........................................................ 12 Signatures......................................................................... 12
-2- This Current Report on Form 8-K/A constitutes an amendment to the Current Report on Form 8-K filed on June 6, 2001, and amends and restates Item 7 (a) and (b) in their entirety. Item 7. Financial Statements, Pro Forma Financial Information and Exhibits. (a) Financial statements of business acquired. The unaudited financial statements of Invasion Energy, Inc. for the year ended August 31, 2000 are included hereto as Exhibit 99.1. (b) Pro forma financial information. The unaudited pro forma combined balance sheet of the Company as of March 31, 2001, has been prepared to give effect to the acquisition of the common shares of Invasion Energy Inc. (the "Acquisition") as if such transaction had occurred on March 31, -3- 2001, and was accounted for as a purchase in accordance with the provisions of Accounting Principles Board Opinion No. 16, "Business Combinations." The unaudited pro forma combined statements of income of the Company for the three months ended March 31, 2001 and for the year ended December 31, 2000, have been prepared to give effect to the Acquisition and certain events described below with respect to Invasion as if the Acquisition and such events had occurred on January 1, 2000. The unaudited pro forma combined balance sheet and statements of income of Invasion have been prepared to give effect to the following events affecting Invasion: (i) the conversion to United States generally accepted accounting principles and (ii) the recording of exploration expense in accordance with the successful efforts method of accounting for Invasion's oil and gas properties. The unaudited pro forma combined financial statements included herein are not necessarily indicative of the results that might have occurred had the transaction and other events taken place at the beginning of the period specified and are not intended to be a projection of future results. In addition, future results may vary significantly from the results reflected in the accompanying unaudited pro forma combined financial statements because of normal production declines, changes in product prices, future acquisitions and divestitures, future development and exploration activities, and other factors beyond the control of the Company. The following unaudited pro forma combined financial statements should be read in conjunction with (i) the Consolidated Financial Statements (and related notes) of the Company in its Quarterly Report on Form 10-Q for the three months ended March 31, 2001 and Annual Report on Form 10-K for the year ended December 31, 2000, and (ii) the Financial Statements (and related notes) of Invasion for the year ended August 31, 2000. The following is a description of the individual columns included in these unaudited pro forma combined financial statements: Historical Wiser Oil - Represents the consolidated balance sheet of the Company as of March 31, 2001, and the consolidated statement of income of the Company for the three months ended March 31, 2001 and for the year ended December 31, 2000, as included in the Company's Quarterly Report on Form 10-Q and Annual Report on Form 10-K. Historical Invasion - Represents the consolidated balance sheet of Invasion as of March 31, 2001, and the consolidated statement of income of Invasion for the three months ended March 31, 2001 and for the year ended December 31, 2000 converted to United States generally accepted accounting principles and United States dollars. -4- THE WISER OIL COMPANY UNAUDITED PRO FORMA COMBINED BALANCE SHEET As of March 31, 2001 (000's)
Pro Forma Historical Pro Forma Combined Pro Forma Wiser Oil Invasion Adjustments Combined ----------- ---------- ------------ ---------- Assets Current Assets: Cash and cash equivalents............................. $ 37,511 $ 658 (22,620) (a) 15,549 Restricted cash....................................... 3,974 -- 3,974 Accounts receivable................................... 13,250 3,633 (19) (a) 16,864 Inventories........................................... 417 125 542 Fair value of derivatives............................. 617 -- 195 (a) 812 Prepaid expenses...................................... 1,978 472 2,450 --------- ------- --------- Total current assets................................ 57,747 4,888 40,191 --------- ------- --------- Property and Equipment, at cost: Oil and gas properties (successful efforts method).... 287,370 30,025 17,927 (a) 335,322 Other properties...................................... 3,933 -- 3,933 --------- ------- --------- 291,303 30,025 339,255 Accumulated depreciation, depletion and amortization.. (132,757) (6,578) 6,578 (a) (132,757) --------- ------- --------- Net property and equipment............................ 158,546 23,447 206,498 Deferred Income Taxes................................... -- 193 (193) (a) -- Other Assets............................................ 3,185 347 (347) (a) 3,185 --------- ------- --------- $ 219,478 $28,875 $ 249,874 ========= ======= ========= Liabilities and Stockholders' Equity Current Liabilities: Accounts payable...................................... $ 8,207 $ 2,989 (252) (a) $ 10,944 Current portion of long-term debt..................... 500 7,398 (7,398) (a) 500 Dividends payable..................................... -- -- -- Fair value of derivatives............................. 430 -- 430 Accrued liabilities................................... 4,891 1,185 6,076 --------- ------- --------- Total current liabilities............................ 14,028 11,572 17,950 --------- ------- --------- Deferred Income Taxes................................... -- -- 11,546 (a) 11,546 Long-term Debt.......................................... 124,618 7,397 7,531 (a) 139,546 Stockholders' Equity: Preferred stock....................................... 6,000 -- 6,000 Common stock.......................................... 93 -- 93 Paid-in capital....................................... 39,117 9,020 (9,020) (a) 39,117 Retained earnings..................................... 37,558 248 (248) (a) 37,558 Accumulated other comprehensive income................ 793 638 (638) (a) 793 Treasury stock, at cost............................... (2,729) -- (2,729) --------- ------- --------- Total stockholders' equity........................... 80,832 9,906 80,832 --------- ------- --------- $ 219,478 $28,875 $ 249,874 ========= ======= =========
-5- THE WISER OIL COMPANY UNAUDITED PRO FORMA COMBINED STATEMENT OF INCOME For the three months ended March 31, 2001 (000's)
Pro Forma Historical Pro Forma Combined Pro Forma Wiser Oil Invasion Adjustments Combined ----------- --------- ------------ ---------- Revenues: Oil and gas sales.......................... $23,829 $6,511 $30,340 Interest income............................ 540 27 567 Other...................................... 130 27 157 ------- ------ --------- 24,499 6,565 31,064 ------- ------ --------- Costs and Expenses: Production and operating................... 6,890 1,597 8,487 Depreciation, depletion and amortization... 4,191 877 476 (b) 5,544 Exploration................................ 2,246 9 2,255 General and administrative................. 1,918 403 2,321 Interest expense........................... 3,158 348 (25) (c) 3,481 ------- ------ --------- 18,403 3,234 22,088 ------- ------ --------- Earnings (Loss) Before Income Taxes.......... 6,096 3,331 8,976 Income Tax Expense (Benefit)................. -- 1,466 (198) (d) 1,268 ------- ------ --------- Net Income (Loss)............................ 6,096 1,865 7,708 Preferred Stock Dividends.................... (259) -- (259) ------- ------ --------- Net Income (Loss) Available to Common Stock.. $ 5,837 $1,865 $ 7,449 ======= ====== ========= Weighted Average Outstanding Shares: Basic...................................... 9,081 9,081 ======= ========= Diluted.................................... 12,753 12,753 ======= ========= Earnings (Loss) Per Share: Basic...................................... $0.64 $0.82 ======= ========= Diluted.................................... $0.48 $0.60 ======= =========
-6- THE WISER OIL COMPANY UNAUDITED PRO FORMA COMBINED STATEMENT OF INCOME For the year ended December 31, 2000 (000's)
Pro Forma Historical Pro Forma Combined Pro Forma Wiser Oil Invasion Adjustments Combined ----------- ---------- ------------ ---------- Revenues: Oil and gas sales.......................... $67,016 $10,487 $77,503 Interest income............................ 1,794 32 1,826 Gain on sales of properties................ 74 -- 74 Other...................................... 849 88 937 ------- ------- --------- 69,733 10,607 80,340 ------- ------- --------- Costs and Expenses: Production and operating................... 24,125 4,790 28,915 Depreciation, depletion and amortization... 15,637 5,532 5,472 (b) 26,641 Property impairments....................... 680 -- 680 Exploration................................ 3,792 574 4,366 General and administrative................. 8,720 1,925 10,645 Interest expense........................... 12,659 1,548 (167) (c) 14,040 ------- ------- --------- 65,613 14,369 85,287 ------- ------- --------- Earnings (Loss) Before Income Taxes.......... 4,120 (3,762) (4,947) Income Tax Expense (Benefit)................. -- (1,655) (2,334) (d) (3,989) ------- ------- --------- Net Income (Loss)............................ 4,120 (2,107) (958) Preferred Stock Dividends.................... (633) -- (633) ------- ------- --------- Net Income (Loss) Available to Common Stock.. $ 3,487 $(2,107) $(1,591) ======= ======= ========= Weighted Average Outstanding Shares: Basic...................................... 8,963 8,963 ======= ========= Diluted.................................... 11,090 11,090 ======= ========= Earnings (Loss) Per Share: Basic...................................... $0.39 $(0.18) ======= ========= Diluted.................................... $0.37 $(0.18) ======= =========
-7- INVASION ENERGY INC. UNAUDITED PRO FORMA BALANCE SHEET As of March 31, 2001 (000's)
Historical Pro Forma Pro Forma Invasion Adjustments Invasion ----------- ------------ ---------- Assets Current Assets: Cash and cash equivalents............................. $ 658 $ 658 Accounts receivable................................... 3,633 3,633 Inventories........................................... 125 125 Prepaid expenses...................................... 472 472 ------- --------- Total current assets................................ 4,888 4,888 ------- --------- Property and Equipment, at cost: Oil and gas properties................................ 31,012 (987) (e) 30,025 Accumulated depreciation, depletion and amortization.. (6,881) 303 (e) (6,578) ------- --------- Net property and equipment............................ 24,131 23,447 Deferred Income Taxes................................... 60 133 (i) 193 Other Assets............................................ 347 347 ------- --------- $29,426 $28,875 ======= ========= Liabilities and Stockholders' Equity Current Liabilities: Accounts payable...................................... $ 2,989 $ 2,989 Current portion of long-term debt..................... 7,398 7,398 Accrued liabilities................................... 1,185 1,185 ------- --------- Total current liabilities............................ 11,572 11,572 ------- --------- Long-term Debt.......................................... 7,397 7,397 Stockholders' Equity: Paid-in capital....................................... 9,020 9,020 Retained earnings..................................... 799 (551) (f) 248 Accumulated other comprehensive income................ 638 638 ------- --------- Total stockholders' equity........................... 10,457 9,906 ------- --------- $29,426 $28,875 ======= =========
-8- INVASION ENERGY INC. UNAUDITED PRO FORMA STATEMENT OF INCOME For the three months ended March 31, 2001 (000's)
Historical Pro Forma Pro Forma Invasion Adjustments Invasion ---------- ------------ --------- Revenues: Oil and gas sales.......................... $6,511 $6,511 Interest income............................ 27 27 Other...................................... 27 27 ------ --------- 6,565 6,565 ------ --------- Costs and Expenses: Production and operating................... 1,597 1,597 Depreciation, depletion and amortization... 920 (43)(g) 877 Exploration................................ -- 9 (h) 9 General and administrative................. 403 403 Interest expense........................... 348 348 ------ --------- 3,268 3,234 ------ --------- Earnings (Loss) Before Income Taxes.......... 3,297 3,331 Income Tax Expense (Benefit)................. 1,460 6 (d) 1,466 ------ --------- Net Income (Loss) Available to Common Stock.. $1,837 $1,865 ====== =========
INVASION ENERGY INC. UNAUDITED PRO FORMA STATEMENT OF INCOME For the year ended December 31, 2000 (000's)
Historical Pro Forma Pro Forma Invasion Adjustments Invasion ----------- ------------ ---------- Revenues: Oil and gas sales.......................... $10,487 $10,487 Interest income............................ 32 32 Other...................................... 88 88 ------- --------- 10,607 10,607 ------- --------- Costs and Expenses: Production and operating................... 4,790 4,790 Depreciation, depletion and amortization... 5,792 (260)(g) 5,532 Exploration................................ -- 574 (h) 574 General and administrative................. 1,925 1,925 Interest expense........................... 1,548 1,548 ------- --------- 14,055 14,369 ------- --------- Earnings (Loss) Before Income Taxes.......... (3,448) (3,762) Income Tax Expense (Benefit)................. (1,517) (138)(d) (1,655) ------- --------- Net Income (Loss) Available to Common Stock.. $(1,931) $(2,107) ======= =========
-9- The Wiser Oil Company Notes to Unaudited Pro Forma Combined Financial Statements 1. Acquisition of Invasion The aggregate purchase price is computed as follows (000's):
Aggregate Purchase Price -------------- Aggregate purchase price for 100% of Invasion Common Stock................ $21,419 Nonrecurring cash transaction costs... 1,201 ------- Aggregate purchase price.............. $22,620 =======
The following table represents the preliminary allocation of the total purchase price of Invasion to the acquired assets and liabilities of Invasion. The allocation represents the fair values that would have been assigned to each of the significant assets acquired and liabilities assumed as if the Acquisition had occurred on March 31, 2001. Any future adjustments to the allocation of the purchase price are not anticipated to be material to the unaudited pro forma combined financial statements.
Allocation of Aggregate Purchase Price -------------- Net working capital....... $ 1,142 Property and equipment.... 47,952 Long-term debt............ (14,928) Deferred income taxes..... (11,546) -------- Aggregate purchase price.. $ 22,620 ========
2. Pro Forma Entries The following items are included in the preparation of the pro forma financial statements: (a) To record the acquisition of Invasion using the purchase method of accounting. The allocation of the purchase price to the acquired assets and liabilities is preliminary and, therefore, subject to change. Any future adjustments to the allocation of the purchase price are not anticipated to be material to the Company's financial statements. (b) To increase depreciation, depletion and amortization expense for the additional basis allocated to the oil and gas properties acquired and accounted for using the successful efforts method of accounting. (c) To reduce interest expense resulting from the borrowing of the funds necessary to consummate the Acquisition. The Company's incremental borrowing interest rates of 9.25% for the year 2000, and 8.63% for the three months ended March 31, 2001 were utilized to determine the additional pro forma interest expense. -10- (d) To adjust income tax expense for pro forma adjustments by tax jurisdiction. (e) To reduce property and equipment for Invasion's conversion from the full cost method of accounting to the successful efforts method of accounting for Invasion's oil and gas properties. (f) To reduce retained earnings for Invasion's conversion from the full cost method of accounting to the successful efforts method of accounting for Invasion's oil and gas properties, net of income taxes. (g) To reduce depreciation, depletion and amortization expense for conversion from the full cost method of accounting to the successful efforts method of accounting for Invasion's oil and gas properties. (h) To record exploration expense for Invasion's conversion to the successful efforts method of accounting. (i) To adjust deferred income taxes for pro forma adjustments by tax jurisdiction. The Company will prepare separate tax calculations for each tax jurisdiction in which the Company will be subject to income taxes. 3. Pro Forma Oil and Gas Reserve Data The following table reflects the pro forma estimated quantities of proved and proved developed oil and gas reserves as included in the Company's 2000 Annual Report on Form 10-K. The Company considers such estimates to be reasonable; however, there are numerous uncertainties inherent in estimated quantities of proved reserves, including many factors beyond the control of the Company. Reserve engineering is a subjective process which is dependent on the quality of available data and on engineering and geological interpretation and judgment. Such reserve estimates are subject to change over time, as additional information becomes available. Quantities of natural gas are expressed in terms of million cubic feet ("MMcf"). Oil and natural gas liquids ("NGL's") are quantified in terms of thousands of barrels ("MBbl"). One Bbl of oil or natural gas liquids is the energy equivalent of six Mcf of natural gas ("BOE"). Pro Forma Combined Reserves and Production For the year ended December 31, 2000 (MBOE)
The Wiser Oil Invasion Company Energy Inc. Combined -------------- ------------ --------- Proved reserves, end of year 37,176 3,875 41,051 ------ ----- ------ Proved developed reserves, end of year 35,662 3,543 39,205 ------ ----- ------ 2000 pro forma production (3,209) (671) (3,880) ------ ----- ------
-11- Pro Forma Combined Reserves and Production by Product For the year ended December 31, 2000
Oil & NGL's Gas (MBBL) (MMCF) ------ -------- Proved reserves, end of year 24,499 99,310 ------ ------- Proved developed reserves, end of year 23,604 93,656 ------ ------- 2000 pro forma production (1,719) (12,965) ------ -------
(c) Exhibits Item Exhibits ---- -------- 99.1* Unaudited Financial Statements of Invasion Energy Inc. - -------------------------------------------------------------------------------- *filed herewith SIGNATURE Pursuant to the requirements of the Securities Exchange Act of 1934, the Registrant has duly caused this report to be signed on its behalf by the undersigned thereunto duly authorized. THE WISER OIL COMPANY Date: August 6, 2001 By: /s/ George K. Hickox, Jr. ------------------------------------------ George K. Hickox, Jr. Chairman and Chief Executive Officer -12- EX-99.1 3 dex991.txt UNAUDITED FINANCIAL STATEMENTS OF INVASION ENERGY Exhibit 99.1 Unaudited Financial Statements of INVASION ENERGY INC. Year ended August 31, 2000 (Amounts in Canadian Dollars) INVASION ENERGY INC. Unaudited Balance Sheet August 31, 2000 ASSETS - ------ Current assets: Cash $ 375,742 Accounts receivable 2,425,299 Due from a related party 120,985 Inventory 35,844 Prepaid expenses and deposits 344,079 ----------- Total current assets 3,301,949 Deferred charges (note 3) 1,164,329 Property, plant and equipment (note 4) 29,044,820 ----------- $ 33,511,098 =========== LIABILITIES AND SHAREHOLDERS' EQUITY - ------------------------------------ Current liabilities: Accounts payable and accrued liabilities $ 2,898,287 Current portion of loan (note 5) 13,246,332 Income taxes payable 47,920 ----------- Total current liabilities 16,192,539 Loan (note 5) 10,295,000 Provision for site restoration 284,050 Shareholders' equity: Share capital (note 6) 12,404,017 Deficit (5,664,508) ----------- 6,739,509 ----------- Commitments (note 9) $ 33,511,098 ========== See accompanying notes to financial statements. INVASION ENERGY INC. Unaudited Statement of Operations and Deficit Year ended August 31, 2000 Revenues: Petroleum and natural gas, net of royalties $12,575,489 Interest income 59,298 ----------- 12,634,787 Expenses: Operating 6,591,666 Management fees (note 8) 800,000 General and administrative 535,700 Interest (note 8) 2,149,508 Depletion and depreciation 6,726,122 Site restoration 284,050 Amortization of deferred financing costs (note 3) 1,164,329 ----------- 18,251,375 ----------- Loss before income taxes 5,616,588 Income taxes: Large Corporations tax 47,920 ----------- Net loss for the year being deficit, end of year $ 5,664,508 =========== Loss per Class B share: Basic $ 0.53 =========== See accompanying notes to financial statements. INVASION ENERGY INC. Unaudited Statement of Cash Flows Year ended August 31, 2000 Cash provided by (used in): Operations Net loss $ (5,664,508) Items not involving cash: Depletion 6,726,122 Provision for site restoration 284,050 Amortization deferred financing expense 1,164,329 ------------ Funds flow from operations 2,509,993 Change in non-cash operating working capital items: Accounts receivable (2,425,299) Prepaid expenses and deposits (344,079) Inventory (35,844) Accounts payable and accrued liabilities 2,898,287 Income taxes payable 47,920 ------------ 2,650,978 Investments: Additions to property, plant and equipment (36,971,498) Proceeds on disposal of property, plant and equipment 2,023,034 Advances to related parties (120,985) ------------ (35,069,449) Financing: Operating loan 25,732,712 Issuance of common shares, net of share issue costs 10,860,159 Deferred financing costs (2,328,658) Redemption of common shares (1,470,000) ------------ 32,794,213 Increase in cash for the year being cash, end of year $ 375,742 ============ Funds provided by operations per Class B share: Basic $ 0.24 ============ See accompanying notes to financial statements. INVASION ENERGY INC. Notes to Unaudited Financial Statements Year ended August 31, 2000 The Company was incorporated as 832715 Alberta Ltd. Under the laws of Alberta on May 28,1999. The Company changed its name to Invasion Energy Inc. and commenced operations September 1, 1999. On September 21, 1999, the Company acquired two producing gas properties. The Company is principally involved in the exploration, development and production of natural gas in Alberta. 1. Basis of presentation: These financial statements have been prepared on the going concern basis, which assumes realization of assets and liquidation of liabilities in the normal course of business. The application of the going concern concept is dependent on the Company's ability to generate future profitable operations and receive continued financial support in the form of loans and guarantees from its shareholders or obtain external financing. Management is of the opinion that sufficient working capital will be obtained from operations, external financing and/or the sale of interests in certain assets to meet the Company's liabilities and commitments as they become payable. If the going concern assumption were not appropriate, adjustment would be required to certain assets, liabilities, revenue and expenses. 2. Significant accounting policies: The financial statements of the Company have been prepared by management in accordance with generally accepted accounting principles in Canada. The preparation of financial statements in conformity with generally accepted accounting principles requires management to make estimates and assumptions that affect the amounts reported in the financial statements and accompanying notes: Actual results could differ from those estimates. The financial statements have, in management's opinion, been properly prepared using careful judgment with reasonable limits of materiality and within the framework of the significant policies summarized below: (a) Property, plant and equipment: The Company follows the full cost method of accounting for oil and gas operations, whereby all costs of exploring for and developing oil and gas properties and related reserves are capitalized. Such costs include land acquisition costs, cost of drilling both productive and non-productive wells, and geological and geophysical expenses and related overhead. INVASION ENERGY INC. Notes to Unaudited Financial Statements Year ended August 31, 2000 2. Significant accounting policies (continued): (a) Property, plant and equipment (continued): Capitalized costs, excluding costs relating to unproven properties, are depleted using the unit-of production method based on estimated proven reserves of oil and gas before royalties as determined by independent petroleum engineers. For purposes of the depletion calculation, oil and natural gas reserves and production are converted to equivalent volumes based on relative energy content. The costs of acquiring and evaluating unproved properties are initially excluded from depletion calculations. These properties are assessed periodically to ascertain whether impairment has occurred. When proved reserves are assigned or the property is considered to be impaired, the cost of the property or the amount of impairment is added to costs subject to depletion. The Company applies a "ceiling test" to ensure that capitalized costs (net of accumulated depletion) do not exceed the estimated future net revenues from production of proven reserves, at year end prices and costs, less estimated future administrative, site restoration, financing and income taxes. Substantially all of the Company's oil and gas exploration and development activities are conducted jointly with others and, accordingly, the financial statements reflect only the Company's proportionate interest in such activities. (b) Future site restoration and abandonment costs: Site restoration and abandonment costs are provided for over the life of the estimated proven reserves on a unit-of production basis. Costs are estimated each year by management in consultation with the Company's engineers based on current regulations, costs, technology and industry standards. The period charge is expensed and actual site restoration and abandonment expenditures are charged to the accumulated provision account as incurred. (c) Financial instruments The Company periodically enters into derivative instrument contracts to manage exposure related to petroleum and natural gas prices and foreign currency exchange rates. Settlement amounts on commodity and foreign currency hedge contracts are recognized in earnings as the related production revenues are recorded. The carrying value of current assets and current liabilities approximate their fair value due to the relatively short period to maturity of the instruments. INVASION ENERGY INC. Notes to Unaudited Financial Statements Year ended August 31, 2000 2. Significant accounting policies (continued): (d) Income taxes: The Company follows the tax allocation method of accounting for income taxes. Under this method, deferred income taxes are recorded to the extent that taxable income otherwise determined is adjusted by timing differences. (e) Earnings and cash flow per share: Per share amounts are calculated using the weighted average number of shares outstanding during the year. (f) Flow-through shares: The resource expenditure deductions for income tax purposes related to exploratory and development activities funded by flow-through share arrangements are renounced to investors in accordance with tax legislation. Petroleum and natural gas properties and share capital are reduced by the estimated value of the renounced tax deductions when the expenditures are incurred. (g) Inventory: Inventory is valued at the lower of cost and net realizable value. Cost is determined on a first-in, first-out basis. (h) Measurement uncertainty: The amounts recorded for depletion and depreciation and the provision for future site restoration costs are based on estimates. The ceiling test calculation is based on such factors as estimates of proved reserves, production rates, petroleum and natural gas prices and future costs. By their nature, these estimates are subject to measurement uncertainty and may impact the financial statements in future years. INVASION ENERGY INC. Notes to Unaudited Financial Statements Year ended August 31, 2000 3. Deferred charges: Debt issue expense $ 2,328,658 Amortization (1,164,329) ---------- $ 1,164,329 =========== Deferred charges relating to debt issue are amortized over the life of the loan, being two years. 4. Property, plant and equipment: Accumulated Depletion Net book Cost and depreciation value ---- ---------------- ----- Petroleum and natural gas properties $35,770,942 $6,726,122 $29,044,820 =========== ========== =========== Unproven properties in the amount of $541,875 have been excluded from petroleum and natural gas properties for purposes of calculating depletion. The Company has financed a portion of its exploration and development activities with the proceeds of flow-through share issues. As a result, petroleum and natural gas properties with a carrying value of $570,000 have no cost basis for income tax purposes. At August 31, 2000 the estimated total future site restoration costs to be accrued over the remaining proven reserves were approximately $1,600,000. 5. Loan: The Company entered into a $25,452,000 loan agreement with a shareholder of the Company, to fund the acquisition of certain gas properties. The loan bears interest at 9.44% per annum and matures on September 21, 2001. Annual principal repayments are made quarterly utilizing all Available Cash Flows of the Company, defined by formula in the loan agreement. Management has estimated Available Cash Flows for the year ended August 31, 2001 to be $13,246,332 and accordingly, this amount has been included in current liabilities. The loan is secured by a fixed and floating charge debenture in the amount of $40,000,000 and a general security agreement over all present and future assets (see note 8). INVASION ENERGY INC. Notes to Unaudited Financial Statements Year ended August 31, 2000 6. Share capital: (a) Authorized: Unlimited number of Class A common shares Unlimited number of Class B common shares Unlimited number of Class C non-voting common shares (b) Issued: Number of Shares Amount ------ ------ Class A common shares: Issued for property acquisition 1,430,000 $ 1,430,000 Issued for cash 40,000 40,000 Redeemed for cash (1,470,000) (1,470,000) $ - - Class B common shares: Issued for cash 9,562,788 $ 9,562,788 Issued for reduction of loan 2,191,380 2,191,380 Flow-through shares issued for cash 1,227,318 1,350,050 Tax effect of flow-through share expenditures - (607,522) Share issue costs - (92,979) ----------- ----------- 12,981,486 $12,403,717 ============ =========== Weighted average number of Class B common shares outstanding at August 31, 2000 was 10,528,355. Number of Shares Amount ------ ------ Class C non-voting common shares: Issues for cash 300 $ 300 Pursuant to a Shareholders' Agreement, upon sale of the Company, proceeds of disposition will be allocated to Class B and C shareholders pursuant to a formula contained in the Agreement. INVASION ENERGY INC. Notes to Unaudited Financial Statements Year ended August 31, 2000 7. Income taxes: The provision for income taxes differs from the amount obtained by applying the combined Federal and Provincial income tax rate of 44.6% to income before income taxes. The difference relates to the following items: Loss before income taxes $ (5,664,508) Statutory income tax rate 44.6% Expected tax provision (2,526,371) Increase (decrease) resulting from: Non-deductible crown charges 1,010,019 Federal resource allowance (663,518) Non-deductible depletion 76,796 Other 2,441 Unrecognized benefit of losses 2,100,633 ----------- $ - =========== As of August 31, 2000 the Company has, subject to confirmation by income tax authorities, approximately $3,800,000 of non-capital losses, resource pools and undepreciated capital costs in excess of the net book value of property, plant and equipment available to reduce future years income for tax purposes. The potential tax benefit relating to these amounts have not been recognized in the financial statements. 8. Related party transactions: During the year, the Company: (a) was charged $800,000 of management fees by a company controlled by an officer and a director, pursuant to the terms of a Management Services Agreement; (b) was charged $170,000 of consulting fees by a company controlled by a director; (c) was charged $205,000 of consulting fees by a shareholder; (d) was charged $252,000 of loan fees by a shareholder; (e) borrowed $25,452,000 under a loan facility from a shareholder; INVASION ENERGY INC. Notes to Unaudited Financial Statements Year ended August 31, 2000 8. Related party transactions (continued): (f) was charged $2,149,508 interest expense by a shareholder; (g) was charged a $500,000 acquisition fee by a company controlled by an officer and director of the Company; and (h) issued 1,430,000 Class A common shares to company controlled by shareholders of the Company in connection with a property acquisition. At August 31, 2000, there is $1,669,627 due from a shareholder and $477,557 due to that shareholder. Substantially all the Company's petroleum and natural gas production is sold to a shareholder. 9. Commitments: Pursuant to a Management Service Agreement, the Company is committed at August 31, 2000 to pay management fees in an amount calculated on a cost-recovery basis of expenses incurred by a company controlled by an officer and a director of the Company until August 31, 2001. (a) to supply 16,000 gigajoules (GJ) of natural gas per day until November 1, 2000. The Company receives the AECO "C" Monthly Index less NOVA transportation costs and $0.10/GJ. (b) to purchase 4,000GJ of natural gas per day until November 1, 2000. The Company will pay the AECO "C" Monthly Index less NOVA transportation costs and $0.015/GJ. In addition, the Company has the following contracts outstanding at year end: (a) put option of 5,000GJ of natural gas per day from November 1, 2000 until March 31, 2001 at a strike price of $6.50GJ. (b) put option of 2,000GJ of natural gas per day from December 1, 2000 until March 31, 2001 at a strike price of $6.50/GJ. -----END PRIVACY-ENHANCED MESSAGE-----