-----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, AYarK2FenzESzUBviQSmRqvy3dme6XqGE+mexXKCWaunGeNrFpJNkCSbgN8LZSK2 K+c8Is0cTwP5GMN9dJdrpw== 0001005150-03-001436.txt : 20030902 0001005150-03-001436.hdr.sgml : 20030901 20030902164033 ACCESSION NUMBER: 0001005150-03-001436 CONFORMED SUBMISSION TYPE: 10QSB PUBLIC DOCUMENT COUNT: 5 CONFORMED PERIOD OF REPORT: 20030630 FILED AS OF DATE: 20030902 FILER: COMPANY DATA: COMPANY CONFORMED NAME: AMERICAN NATURAL ENERGY CORP CENTRAL INDEX KEY: 0000870732 STANDARD INDUSTRIAL CLASSIFICATION: OIL AND GAS FIELD EXPLORATION SERVICES [1382] IRS NUMBER: 731605215 STATE OF INCORPORATION: OK FISCAL YEAR END: 1231 FILING VALUES: FORM TYPE: 10QSB SEC ACT: 1934 Act SEC FILE NUMBER: 000-18956 FILM NUMBER: 03876711 BUSINESS ADDRESS: STREET 1: 7030 SOUTH YALE STREET 2: SUITE 404 CITY: TULSA STATE: OK ZIP: 74136 BUSINESS PHONE: 9184811440 MAIL ADDRESS: STREET 1: 7030 SOUTH YALE STREET 2: SUITE 404 CITY: TULSA STATE: OK ZIP: 74136 FORMER COMPANY: FORMER CONFORMED NAME: ALN RESOURCES CORPORATION DATE OF NAME CHANGE: 19600201 10QSB 1 form10qsb.txt UNITED STATES SECURITIES AND EXCHANGE COMMISSION WASHINGTON, D.C. 20549 FORM 10-QSB (Mark One) X Quarterly Report pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934 for the quarterly period ended June 30, 2003; 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 0-18596 AMERICAN NATURAL ENERGY CORPORATION - -------------------------------------------------------------------------------- (Exact name of small business issuer as specified in its charter) OKLAHOMA 73-1605215 - -------------------------------------------------------------------------------- (State or other jurisdiction of (I.R.S employer incorporation of organization) identification no.) 7030 SOUTH YALE, SUITE 404, TULSA, OKLAHOMA 74136 ------------------------------------------------- (Address of principal executive offices, zip code) (918) 481-1440 ------------------------------------------------- (Issuer's Telephone Number, Including Area Code) Check 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 issuer 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 whether the registrant is an accelerated filer (as defined in Rule 12b-2 of the Exchange Act). Yes |_| No |X| APPLICABLE ONLY TO CORPORATE ISSUERS: As of August 25, 2003, 26,054,546 shares of the Registrant's Common Stock, $0.01 par value, were outstanding. AMERICAN NATURAL ENERGY CORPORATION QUARTERLY REPORT ON FORM 10-QSB INDEX PART I - FINANCIAL INFORMATION Page ---- Item 1. Financial Statements (unaudited) Condensed Consolidated Balance Sheets - June 30, 2003 3 and December 31, 2002 Condensed Consolidated Statements of Operations - 4 Three Months and Six Months Ended June 30, 2003 and June 30, 2002 Condensed Consolidated Statements of Cash Flows - 5-6 Three Months and Six Months Ended June 30, 2003 and June 30, 2002 Notes to Condensed Consolidated Financial Statements 7 Item 2. Management's Discussion and Analysis or Plan of 14 Operations Item 3. Controls and Procedures 21 PART II - OTHER INFORMATION Item 6. Exhibits and Reports on Form 8-K 21 2 PART I - FINANCIAL INFORMATION ITEM 1. FINANCIAL STATEMENTS AMERICAN NATURAL ENERGY CORPORATION CONDENSED CONSOLIDATED BALANCE SHEETS (UNAUDITED)
JUNE 30, 2003 DECEMBER 31, 2002 $ $ ------------- ----------------- ASSETS Current assets: Cash and cash equivalents 56,319 86,295 Accounts receivable - net 1,204,762 357,127 Prepaid expenses 130,958 28,291 Marketable securities -- 192,947 Oil inventory 23,155 53,228 ----------- ----------- Total current assets 1,415,194 717,888 Proved oil and natural gas properties, net of accumulated depletion, depreciation, amortization and impairment of $7,453,488 and $6,960,678 2,828,421 1,089,200 Unproved oil and natural gas properties 3,210,307 2,710,994 Equipment and other fixed assets, net of accumulated depreciation of $139,942 and $76,706 694,245 742,672 Deferred expenses 11,035 -- ----------- ----------- Total assets 8,159,202 5,260,754 ----------- ----------- LIABILITIES AND STOCKHOLDERS' DEFICIT Current liabilities: Accounts payable and accrued liabilities 4,269,598 1,894,267 Accrued interest 56,407 314,275 Notes payable 4,558,192 500,000 Current portion of long-term debt -- 3,961,887 ----------- ----------- Total current liabilities 8,884,197 6,670,429 Production payments (Note 7) 1,290,847 -- Asset retirement obligation (Note 5) 1,362,000 -- ----------- ----------- 2,652,847 -- ----------- ----------- Total liabilities 11,537,044 6,670,429 ----------- ----------- Stockholders' deficit: Common stock Authorized - 100,000,000 shares with par value of $0.01 Issued - 26,054,546 (2002 - 25,199,846) 260,545 251,998 Additional paid-in capital 7,758,331 7,427,503 Accumulated deficit, since January 1, 2002 (in conjunction with the quasi- Reorganization stated capital was reduced by an accumulated deficit of $2,015,495) (12,215,516) (8,730,517) Accumulated other comprehensive income (loss) 818,798 (358,659) ----------- ----------- Total stockholders' (deficit) (3,377,842) (1,409,675) ----------- ----------- Total liabilities and stockholders' (deficit) 8,159,202 5,260,754 ----------- -----------
The accompanying notes are an integral part of these condensed consolidated financial statements. 3 AMERICAN NATURAL ENERGY CORPORATION CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS (Unaudited) For the three-month and six-month periods ended June 30, 2003 and June 30, 2002
THREE MONTHS ENDED JUNE 30, SIX MONTHS ENDED JUNE 30, --------------------------- ------------------------- 2003 2002 2003 2002 $ $ $ $ ---- ---- ---- ---- Revenues: Oil and gas sales 476,617 2,831 713,944 2,831 Operations income 6,542 -- 9,351 -- Interest and other income 1,408 3,231 1,408 166,593 ----------- ----------- ----------- ----------- 484,567 6,062 724,703 169,424 ----------- ----------- ----------- ----------- Expenses: Lease operating expense 169,203 24,941 316,356 34,181 Production taxes 18,795 -- 27,883 -- Depletion, depreciation and amortization 278,995 5,905 507,643 8,905 General and administrative 555,839 356,939 864,650 731,920 Foreign exchange loss 789,773 377,595 1,339,521 281,224 Interest 102,950 3,008 168,913 3,008 Impairment of oil and gas properties -- -- 152,064 -- Gain on sale of marketable securities -- -- (172,788) (284,018) Loss on sale of fixed assets -- 3,280 -- 3,280 ----------- ----------- ----------- ----------- Total expenses 1,915,555 771,668 3,204,242 778,500 ----------- ----------- ----------- ----------- Loss before cumulative effect of accounting change (1,430,988) (765,606) (2,479,539) (609,076) ----------- ----------- ----------- ----------- Cumulative effect of accounting change (Note 5) -- -- (1,005,460) -- ----------- ----------- ----------- ----------- Net loss (1,430,988) (765,606) (3,484,999) (609,076) ----------- ----------- ----------- ----------- Other comprehensive income (loss) - net of tax: Unrealized gain (loss) on marketable securities -- 162,864 13,870 (261,321) Foreign exchange translation 789,189 378,895 1,336,375 242,490 Reclassification adjustment for gain on sale of marketable securities included in net income -- -- (172,788) (212,933) ----------- ----------- ----------- ----------- Other comprehensive income (loss) 789,189 541,759 1,177,457 (231,764) Comprehensive loss (641,799) (223,847) (2,307,542) (840,840) ----------- ----------- ----------- ----------- Basic and diluted loss per share before cumulative effect of accounting change (0.05) (0.03) (0.10) (0.02) ----------- ----------- ----------- ----------- Cumulative effect of accounting change -- -- (0.04) -- ----------- ----------- ----------- ----------- Net loss per share (0.05) (0.03) (0.14) (0.02) ----------- ----------- ----------- ----------- Weighted average number of shares outstanding - basic and diluted 26,054,546 25,199,846 25,690,007 25,187,552 ----------- ----------- ----------- -----------
The accompanying notes are an integral part of these condensed consolidated financial statements. 4 AMERICAN NATURAL ENERGY CORPORATION CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS (UNAUDITED) For the three-month and six-month periods ended June 30, 2003 and June 30, 2002
THREE MONTHS ENDED JUNE 30, SIX MONTH ENDED JUNE 30, --------------------------- ------------------------ 2003 2002 2003 2002 $ $ $ $ ---- ---- ---- ---- Cash flows from operating activities: Income (loss) for the period (1,430,988) (765,606) (3,484,999) (609,076) Non cash items: Depreciation, depletion and amortization 278,995 5,905 507,643 8,905 Foreign exchange (gain) loss 789,773 377,595 1,339,521 281,224 Gain on sale of marketable securities -- -- (172,788) (284,018) Loss on sale of fixed asset -- 3,280 -- 3,280 Impairment of oil and gas properties -- -- 152,064 -- Cumulative effect of accounting change -- -- 1,005,460 -- Non cash compensation expense 9,844 23,625 39,375 23,625 Changes in assets and liabilities: Accounts receivables 182,303 (7,410) (847,635) 205,067 Oil inventory 4,505 -- (1,737) -- Prepaid expenses and other assets 26,918 (56,816) 47,044 (32,285) Accounts payable, accrued liabilities and interest 627,487 588,270 2,431,820 1,168,237 ---------- ---------- ---------- ---------- Net cash provided by (used in) operating activities 488,837 168,843 1,015,768 764,959 ---------- ---------- ---------- ---------- Cash flows from investing activities: Proceeds from sale of marketable securities -- -- 208,051 2,439,905 Proceeds from the sale of oil and gas properties 261,544 -- 461,544 -- Purchase of marketable securities -- -- -- (163,600) Purchase and development of oil and gas properties (1,610,543) (1,579,699) (2,735,910) (3,823,766) Purchase of fixed assets (1,889) (91,092) (14,809) (167,924) ---------- ---------- ---------- ---------- Net cash provided by (used in) investing activities (1,350,888) (1,670,791) (2,081,124) (1,715,385) ---------- ---------- ---------- ---------- Cash flows from financing activities: Issuance of notes payable -- -- 2,500,000 -- Payments of notes payable (82,244) -- (2,832,244) -- Production payments issued 771,460 -- 1,538,456 -- Production payments (166,452) -- (166,452) -- Issuance of capital stock -- -- -- 11,719 ---------- ---------- ---------- ---------- Cash provided by financing activities 522,764 -- 1,039,760 11,719 Effect of exchange rate changes on cash (584) (3,717) (4,380) (47,603) ---------- ---------- ---------- ---------- Increase (decrease) in cash and cash equivalents (339,871) (1,505,665) (29,976) (986,310) Cash beginning of period 396,190 1,636,650 86,295 1,117,295 ---------- ---------- ---------- ---------- Cash end of period 56,319 130,985 56,319 130,985 ---------- ---------- ---------- ----------
The accompanying notes are an integral part of these condensed consolidated financial statements. 5 AMERICAN NATURAL ENERGY CORPORATION CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS (UNAUDITED) (CONTINUED) For the three-month and six-month periods ended June 30, 2003 and June 30, 2002
THREE MONTHS ENDED JUNE 30, SIX MONTH ENDED JUNE 30, --------------------------- ------------------------ 2003 2002 2003 2002 $ $ $ $ ---- ---- ---- ---- Supplemental disclosures: Interest paid 132,896 -- 141,396 -- Non cash operating activities Capitalized interest included in unproved properties 89,444 68,170 172,289 134,477 Non cash financing activities Common shares issued in conjunction with issuance of notes payable -- -- 300,000 -- Accounts payable refinanced as notes payable 203,823 -- 203,823 -- Prepaid expenses financed 160,746 -- 160,746 -- Accrued interest refinanced upon modification of debt -- -- 331,728 --
The accompanying notes are an integral part of these condensed consolidated financial statements. 6 AMERICAN NATURAL ENERGY CORPORATION Notes to Consolidated Financial Statements (Unaudited) June 30, 2003 and 2002 - ------------------------------------------------------------------------------- 1 SIGNIFICANT ACCOUNTING POLICIES The accounting policies and methods followed in preparing these unaudited condensed consolidated financial statements are those used by American Natural Energy Corporation (the "Company") as described in Note 1 of the notes to consolidated financial statements included in the Annual Report on Form 10-KSB. However, the unaudited consolidated financial statements for the three-month and six-month periods ended June 30, 2003 and 2002 do not conform in all respects to the disclosure and information that is required for annual consolidated financial statements. These interim consolidated financial statements should be read in conjunction with the most recent annual consolidated financial statements of the Company. In the opinion of management, all adjustments considered necessary for fair statement have been included in these interim condensed consolidated financial statements. Operating results for the three-month and six-month periods ended June 30, 2003 are not indicative of the results that may be expected for the full year ending December 31, 2003. The Company has elected to follow APB No. 25, "Accounting for Stock Issued to Employees" and related interpretations in accounting for its employee stock options. Under APB No. 25, compensation expense is recognized for the difference if any, on the date of the grant, between the estimated fair value of the Company's stock and the amount the employee must pay to acquire the stock. Compensation expense is recognized immediately for past services and rateably for future services over the option-vesting period. Compensation expense has been recognized for any grants to individuals who do not meet the definition of employee. The Company accounts for equity instruments issued in exchange for the receipt of goods or services from other than employees in accordance with SFAS No. 123 and the conclusions reached by the Emerging Issues Task Force in Issue No. 96-18, "Accounting for Equity Instruments That Are Issued to Other Than Employees for Acquiring or in Conjunction with Selling, Goods or Services" (EITF 96-18). Costs are measured at the estimated fair market value of the consideration received or the estimated fair value of the equity instruments issued, whichever is more reliably measurable. The value of equity instruments issued for consideration other than employee services is determined on the earlier of a performance commitment or completion of performance by the provider of goods or services as defined by EITF 96-18. The following table illustrates the effect on net income and earnings per share as if the Company had applied the fair value recognition provisions of FASB Statement No. 123, "Accounting for Stock-Based Compensation," to stock-based employee compensation. 7 AMERICAN NATURAL ENERGY CORPORATION Notes to Consolidated Financial Statements (Unaudited) June 30, 2003 and 2002 - -------------------------------------------------------------------------------
Three Months Ended, June 30 Six Months Ended, June 30 --------------------------- ------------------------- 2003 2002 2003 2002 $ $ $ $ ---- ---- ---- ---- Net loss as reported (1,430,988) (765,606) (3,484,999) (609,076) Pro forma compensation expense, net of tax (17,173) (78,138) (34,346) (142,390) ---------- ---------- ---------- ---------- Pro forma net loss (1,448,161) (843,744) (3,519,345) (751,466) ---------- ---------- ---------- ---------- Basic and diluted loss per share As reported (0.05) (0.03) (0.14) (0.02) Compensation expense, net of tax -- -- -- -- ---------- ---------- ---------- ---------- Pro forma (0.05) (0.03) (0.14) (0.02) ---------- ---------- ---------- ----------
For purposes of the pro forma disclosures, the estimated fair value of the options is amortized to expense over the options' vesting period, which is two years. Because our stock options vest over two years and additional awards may be made each year, the above pro forma disclosures may not be representative of the effects on pro forma net income for future quarters. 2 EARNINGS (LOSS) PER SHARE Basic earnings (loss) per share is computed by dividing net income or loss (the numerator) by the weighted average number of shares outstanding during the period (the denominator). The computation of diluted earnings per share is the same as for basic earnings per share except the denominator is increased to include the weighted average additional number of shares that would have been outstanding if previously granted stock options had been exercised, unless they are anti-dilutive. The numerators and denominators used in calculating basic and diluted earnings per share were as follows:
THREE MONTHS ENDED SIX MONTHS ENDED JUNE 30, JUNE 30, ------------------ ---------------- 2003 (1) 2002 (1) 2003 (2) 2002 (2) $ $ $ $ -------- -------- -------- -------- Numerator - net income (loss) before cumulative effect of accounting change Basic and diluted (1,430,988) (765,606) (2,479,539) (609,076) Cumulative effect of accounting change -- -- (1,005,460) --
8 AMERICAN NATURAL ENERGY CORPORATION Notes to Consolidated Financial Statements (Unaudited) June 30, 2003 and 2002 - ------------------------------------------------------------------------------- Net income (loss) - basic and diluted (1,430,988) (765,606) (3,484,999) (609,076) Denominator - weighted average number of shares outstanding Basic and diluted 26,054,546 25,199,846 25,690,007 25,187,552
------------------- (1) The denominator excludes the effect of 1,750,000 outstanding potentially dilutive options and warrants at a weighted average price of $0.33 per share due to the net loss. (2) The denominator excludes the effect of 1,950,000 outstanding potentially dilutive options and warrants at a weighted average price of $0.33 per share due to the net loss. 3 REORGANIZATION On January 18, 2002, the shareholders of Gothic Resources, Inc. (Gothic) approved an arrangement under Section 192 of the Canada Business Corporation Act with its subsidiary, American Natural Energy Corporation (ANEC), whereby all of the Gothic shareholders exchanged their shares of common stock for shares of common stock of ANEC and Gothic became a subsidiary of ANEC. On that date, the shareholders also approved the reduction of the stated capital of Gothic by the amount of the accumulated deficit of $2,015,495. This transaction has been accounted for as a quasi-reorganization. Gothic may be deemed a predecessor of the Company. 4 RECENT ACCOUNTING PRONOUNCEMENTS Statement of Financial Accounting Standards No. 141, Business Combinations (FAS 141) and Statement of Financial Accounting Standards, No. 142, Goodwill and Intangible Assets (FAS 142) were issued by the Financial Accounting Standards Board (FASB) in June 2001 and became effective for us on July 1, 2001 and January 1, 2002, respectively. FAS 141 requires all business combinations initiated after June 30, 2001 to be accounted for using the purchase method. Additionally, FAS 141 requires companies to disaggregate and report separately from goodwill certain intangible assets. FAS 142 establishes new guidelines for accounting for goodwill and other intangible assets. Under FAS 142, goodwill and certain other intangible assets are not amortized, but rather are reviewed annually for impairment. The FASB, the Securities and Exchange Commission (SEC) and others continue to discuss the appropriate application of FAS 141 and 142 to oil and gas mineral rights held under lease and other contractual arrangements representing the right to extract such reserves. Depending on the outcome of such discussions, these oil and gas mineral rights held under lease and other contractual arrangements representing the right to extract such reserves for both undeveloped and developed leaseholds may be classified separately from oil and gas properties, as intangible assets on our balance sheets. In addition, the disclosures required by FAS 141 and 142 relative to intangibles would be included in the notes to financial statements. Historically, we, like many 9 AMERICAN NATURAL ENERGY CORPORATION Notes to Consolidated Financial Statements (Unaudited) June 30, 2003 and 2002 - ------------------------------------------------------------------------------- other oil and gas companies, have included these oil and gas mineral rights held under lease and other contractual arrangements representing the right to extract such reserves as part of the oil and gas properties, even after FAS 141 and 142 became effective. As applied to companies like us that have adopted full cost accounting for oil and gas activities, we understand that this interpretation of FAS 141 and 142 would only affect our balance sheet classification of proved oil and gas leaseholds acquired after June 30, 2001 and our unproved oil and gas leaseholds. Our results of operations and cash flows would not be affected, since these oil and gas mineral rights held under lease and other contractual arrangements representing the right to extract such reserves would continue to be amortized in accordance with full cost accounting rules. At June 30, 2003 and December 31, 2002, we had undeveloped leaseholds of approximately $3.2 million and $2.7 million, respectively, that would be classified on our balance sheet as "intangible undeveloped leasehold" and developed leaseholds of an estimated net book value of $1.6 million and $830,000 at June 30, 2003 and December 31, 2002, respectively, that would be classified as "intangible developed leaseholds", if we applied the interpretation currently being discussed. We will continue to classify our oil and gas mineral rights held under lease and other contractual rights representing the right to extract such reserves as tangible oil and gas properties until further guidance is provided. In July 2002, the FASB issued SFAS No. 146, "Accounting for Costs Associated with Exit or Disposal Activities". SFAS 146 is effective for exit or disposal activities initiated after December 31, 2002. We do not expect the adoption of this standard to have any impact on our financial position or results of operations. In April 2003, the FASB issued Statement of Financial Accounting Standards No. 149, "Amendment of Statement 133 on Derivative Instruments and Hedging Activities" (FAS 149). FAS 149 amends and clarifies financial accounting and reporting for derivative instruments, including certain derivative instruments embedded in other contracts (collectively referred to as derivatives) and for hedging activities under FAS No. 133, "Accounting for Derivative Instruments and Hedging Activities". This pronouncement is effective for contracts entered into or modified after June 30, 2003, and for hedging relationships designated after that date. The Company currently has no derivatives or hedging activities, therefore, we do not expect the implementation of FAS 149 will have any effect on our financial opposition, results of operations, or cash flows. In May 2003, the FASB issued Statement on Financial Accounting Standards No. 150, Accounting for Certain Financial Instruments with Characteristics of both Liabilities and Equity ("SFAS 150"). SFAS 150 establishes standards regarding the classification and measurement of certain financial instruments with characteristics of both liabilities and equity. It requires that an issuer classify a financial instrument that is within its scope as a liability (or an asset in some circumstances). Many of those instruments were previously classified as equity. SFAS 150 will be effective for us starting in the quarter ended September 30, 2003. We do not expect the application of SFAS 150 to have a material effect on our financial position, results of operations or cash flow. 10 AMERICAN NATURAL ENERGY CORPORATION Notes to Consolidated Financial Statements (Unaudited) June 30, 2003 and 2002 - ------------------------------------------------------------------------------- 5 ASSET RETIREMENT OBLIGATIONS Effective January 1, 2003, the Company adopted SFAS No. 143, Accounting for Asset Retirement Obligations. This statement applies to obligations associated with the retirement of tangible long-lived assets that result from the acquisition, construction and development of the assets. SFAS 143 requires that the fair value of a liability for a retirement obligation be recognized in the period in which the liability is incurred. For oil and gas properties, this is the period in which an oil or gas well is acquired or drilled. The asset retirement obligation is capitalized as part of the carrying amount of the asset at its discounted fair value. The liability is then accreted each period until the liability is settled or the asset is sold, at which time the liability is reversed and any gain or loss resulting from the settlement of the obligation is recorded. We identified and estimated all of our asset retirement obligations for tangible, long-lived assets as of January 1, 2003. These obligations were for plugging and abandonment costs for depleted oil and gas wells. Prior to the adoption of SFAS 143, we included an estimate of our asset retirement obligations related to our oil and gas properties in our calculation of oil and gas depreciation, depletion and amortization expense. Upon adoption of SFAS 143, we recorded the discounted fair value of our expected future obligations of $1.4 million and recorded an increase in unproved properties of $0.4 million. The cumulative effect of the change in accounting principles was a $1.0 million loss which was recorded in the condensed consolidated statement of operations for the quarter ended March 31, 2003. Had SFAS 143 been adopted as of January 1, 2002, the Company's net income for the six-month and three-month periods ended June 30, 2002 would have decreased by $69,586 and $35,249 and there would have been no effect on the reported earnings per share. The effect of SFAS 143 for the six-month and three month periods ended June 30, 2003 was an increase in the net loss before cumulative effect of accounting change of $71,851 and $35,119, respectively. The components of the change in our asset retirement obligations are shown below. Information for the quarters ended March 31, 2002 and June 30, 2002 is shown on a pro forma basis. For the Quarters Ended ---------------------- 2003 2002 $ $ ---- ---- Asset retirement obligations, January 1 1,435,460 1,292,538 Additions and revisions 9,385 -- Settlements and disposals (157,082) -- Accretion expense 36,732 34,337 ---------- ---------- Asset retirement obligations, March 31 1,324,495 1,326,875 Additions and revisions 2,386 -- Settlements and disposals -- -- Accretion expense 35,119 35,249 ---------- ----------- Asset retirement obligations, June 30 1,362,000 1,362,124 ---------- ----------- 11 AMERICAN NATURAL ENERGY CORPORATION Notes to Consolidated Financial Statements (Unaudited) June 30, 2003 and 2002 - ------------------------------------------------------------------------------- 6 NOTES PAYABLE The Company borrowed $2,500,000 from Quest Capital Corporation, as successor to Quest Investment Corporation (collectively "Quest") in the form of a note payable due October 31, 2003. Interest is payable monthly at an annual rate of 12% (effective rate 22.0%). The note is collateralized by a mortgage on all oil and gas properties of the Company. The Company also issued 688,000 shares of its stock to Quest as additional consideration. A director of the Company is also a director of Quest. On March 12, 2003 the Company also entered into a refinancing transaction with Bank One whereby Bank One was paid $2,250,000 and the Company received a partial release of collateral held by Bank One resulting from the ANEC/Couba Reorganization Plan. Additionally, the Company entered into a note payable with Bank One for the remaining balances due pursuant to the Plan in the amount of $1,715,134. The note is due December 31, 2003 and bears interest at the Bank One prime rate plus 2%, currently 6.25%, payable quarterly. The note is collateralized by oil and gas assets of the Company and is subordinated to the Quest financing and net profits production payments owed to TransAtlantic Petroleum (USA) Corp (See Note 7). 7 PRODUCTION PAYMENT FINANCING On March 12, 2003, we entered into a funding arrangement with TransAtlantic Petroleum (USA) Corp. ("TransAtlantic") whereby TransAtlantic agreed to advance to us up to $2.0 million, of which up to $1.8 million is to be used to fund our share of the drilling and completion costs for the four initial wells we drill in St. Charles Parish, Louisiana ("Subject Wells"). In exchange, TransAtlantic received a production payment payable out of 75% of the net revenues from the Subject Wells, and, upon repayment, a 10% working interest in such wells. In addition, TransAtlantic received a 10% interest in our Bayou Couba lease and our lease with the State of Louisiana ("Subject Leases"). Further, TransAtlantic has the right to acquire a 10% participation in any additional interests we acquire in the 23.138 square mile Bayou Couba salt dome development area, including any interests acquired through our area of mutual interest joint development agreement with ExxonMobil Corp. Our obligations to TransAtlantic are collateralized by a lien against our interest in the Subject Wells and their hydrocarbon production. At June 30, 2003 we had drawn a total of $2,000,000, including the $200,000 not specifically identified with the drilling of the Subject Wells. Imputed interest on the $2,000,000 drawn amounted to $461,544, which was recorded as a discount on the production payments liability, with a corresponding reduction in the value of proved and unproved oil and natural gas properties, representing the sale of the 10% working interest in the Subject Leases and Subject Wells. The discount is accreted to interest expense, using the units of production method. As of June 30, 2003 the outstanding balance of the production payment loan was $1,451,745, of which $160,898 attributable to produced volumes is included in accounts payable and accrued liabilities. A current director and a former director of the Company are current directors of TransAtlantic. Therefore, this transaction represents a related party transaction. 12 AMERICAN NATURAL ENERGY CORPORATION Notes to Consolidated Financial Statements (Unaudited) June 30, 2003 and 2002 - ------------------------------------------------------------------------------- 8 LIQUIDITY AND CAPITAL RESOURCES The Company has no current borrowing capacity with any lender. The Company has sustained substantial losses in the first two quarters of 2003 and for the year 2002, totaling approximately $3.5 million and $8.6 million, has a stockholders' deficit of $3.4 million and $1.4 million at June 30, 2003 and December 31, 2002, a working capital deficiency of approximately $7.5 million including current amounts due under borrowings of approximately $4.7 million all of which lead to questions concerning the ability of the Company to meet its obligations as they come due. The Company also has a need for substantial funds to develop its oil and gas properties. The accompanying financial statements have been prepared on a going concern basis which contemplates continuity of operations, realization of assets and liquidation of liabilities in the ordinary course of business. As a result of the losses incurred and current negative working capital, there is no assurance that the carrying amounts of assets will be realized or that liabilities will be liquidated or settled for the amounts recorded. The ability of the Company to continue as a going concern is dependent upon adequate sources of capital and the ability to sustain positive results of operations and cash flows sufficient to continue to explore for and develop its oil and gas reserves. In the ordinary course of business, the Company makes substantial capital expenditures for the exploration and development of oil and natural gas reserves. Historically, the Company has financed its capital expenditures, debt service and working capital requirements with the proceeds of debt and private offering of its securities. Cash flow from operations is sensitive to the prices the Company receives for its oil and natural gas. A reduction in planned capital spending or an extended decline in oil and gas prices could result in less than anticipated cash flow from operations and an inability to sell more of its common stock or refinance its debt with current lenders or new lenders, which would likely have a further material adverse effect on the Company. Management's plan is to raise additional capital through the private sale of its common stock, however, it currently has no firm commitment from any potential investors. Management anticipates using the proceeds to repay its debt and fund its exploration plan, including potential exploration in the ExxonMobil joint development area. 13 ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OR PLAN OF OPERATION GENERAL We are engaged in the acquisition, development, exploitation and production of oil and natural gas. Our revenues and profitability can be expected to be dependent, to a significant extent, upon prevailing spot market prices for oil and natural gas. Additionally, our revenues and profitability can be expected to be dependent upon the quantities of oil and natural gas produced and sold. Prices for oil and natural gas are subject to wide fluctuations in response to changes in supply of and demand for oil and natural gas, market uncertainty and a variety of additional factors that are beyond our control. Such factors include political conditions, weather conditions, government regulations, the price and availability of alternative fuels and overall economic conditions. Prior to December 31, 2001, our principal activities, including those of our predecessor, Gothic Resources, Inc., involved very limited oil and natural gas exploration in the southern United States. We also invested in shares of other public oil and gas exploration companies resulting in material capital gains. Since December 31, 2001, we have engaged in several transactions which we believe will enhance our oil and natural gas development, exploitation and production activities and our ability to finance further activities. On December 31, 2001, we acquired the assets and capital stock of Couba Operating Company ("Couba"). Couba, organized in 1993, was primarily engaged in the production of oil from properties located in St. Charles Parish, Louisiana. Couba's principal acreage is the subject of a lease (the "Bayou Couba Lease") under which Couba owned a 72% working interest in 1,319.991 gross acres. There are 58 well bores of varying depths located on the property. In addition, the assets include a gathering system covering approximately 25 miles located on the Bayou Couba Lease and various production facilities, geological data, well logs and production information. The information includes 3-D seismic information completed in 1997. The seismic information relates to an area of approximately 23.5 square miles that includes the Bayou Couba lease, among other acreage. Production from the wells commenced in 1941 and only oil and non-commercial quantities of natural gas were produced. Natural gas has never been produced in commercial quantities, and all gas production wells from the original development of the property were plugged. On January 22, 2002, we completed a corporate reorganization which resulted in our domestication as a corporation into the U.S. from Canada. In February 2002, we leased 1,729 acres from the State of Louisiana giving us in excess of 3,000 acres under lease, all within the boundaries of the 3-D seismic data acquired as a part of the Couba transaction described above. In November 2002, we entered into a four-year joint development agreement with ExxonMobil Corp. relating to both our Couba properties and additional properties owned by ExxonMobil Corp. The agreement creates an area of mutual interest ("AMI") covering approximately 8,400 acres, all within the 23.5 square mile 3-D seismic area and calls for both 14 parties to make available for development, leases and/or mineral interests each owns within the AMI. Both parties may propose wells for drilling and the non-proposing party may elect whether or not to participate, with that election affecting only the proposed location. If both parties elect to participate in the proposed well, the interest in the well will be shared equally. Each party is responsible for its share of costs to develop the acreage within the AMI. Operations of the wells are at the election of the ExxonMobil Corp. but we anticipate that we will drill and operate most wells within the AMI. In March 2003, we assigned a 10% participation right in this AMI to Trans-Atlantic Petroleum Corp. in partial consideration for a $2.0 million financing. This transaction is further described below under the caption, "How We Have Financed Our Activities." In February 2003, we commenced drilling of the first of four planned well locations on the Couba properties. Drilling of the third well on the property commenced in April, 2003 and on the fourth well in May 2003. The third and fourth wells were completed in June, 2003. At June 30, 2003, cumulative production from all four (2.06 net ) wells was approximately 950 (315 net) barrels per day. Our financial statements have been prepared on a going concern basis which contemplates continuity of operations, realization of assets and liquidation of liabilities in the ordinary course of business. We have no current borrowing capacity with any lender. We had a loss of $3.5 million during the six months ended June 30, 2003 and had a working capital deficiency of $7.5 million, and a shareholder deficit of $3.4 million as of that date. We have sustained substantial losses during the years ended December 31, 2002 and 2001, totaling approximately $8.7 million and $1.0 million, respectively, a shareholders' deficit of $1.4 million at December 31, 2002, a working capital deficiency of approximately $6.0 million including current amounts due under borrowings of approximately $4.5 million, and negative cash flow from operations in each of 2002 and 2001, all of which lead to questions concerning our ability to meet our obligations as they come due. We also have a need for substantial funds to develop our oil and gas properties. As a result of the losses incurred and current negative working capital and other matters described above, there is no assurance that the carrying amounts of our assets will be realized or that liabilities will be liquidated or settled for the amounts recorded. Our ability to continue as a going concern is dependent upon adequate sources of capital and the ability to sustain positive results of operations and cash flows sufficient to continue to explore for and develop our oil and gas reserves. The independent accountants' report on our financial statements as of and for the year ended December 31, 2002 includes an explanatory paragraph which states that we have sustained substantial losses, a shareholders' deficit, a working capital deficiency and negative cash flow from operations in each of 2002 and 2001 that raise substantial doubt about our ability to continue as a going concern. In the ordinary course of business, we have made and expect to continue to make substantial capital expenditures for the exploration and development of oil and natural gas reserves. In the past, we have financed our capital expenditures, debt service and working capital requirements with the proceeds of debt and private offerings of our securities. Our cash flow from operations is sensitive to the prices we receive for our oil and natural gas. A reduction in planned capital spending or an extended decline in oil and gas prices could result in less than 15 anticipated cash flow from operations and a lessened ability to sell more of our common stock or refinance our debt with current lenders or new lenders, which would likely have a further material adverse effect on us. A COMPARISON OF OPERATING RESULTS FOR THE SIX MONTHS ENDED JUNE 30, 2003 AND JUNE 30, 2002 We incurred a net loss of $3,484,999 in the six months ended June 30, 2003 compared to a net loss of $609,076 for the same period in 2002. During the six months ended June 30, 2003, our revenues were comprised of oil and gas sales and operations income totaling $723,295. We had interest and other income in 2003 of $1,408 compared with interest and other income of $166,593 in 2002. We had no oil and gas sales in the six months ended June 30, 2002. Other income in 2002 of $166,593 principally represents the recovery of accounts receivable written off in prior periods. Our total expenses were $3,204,242 for the six months ended June 30, 2003 as compared to $778,500 for the six months ended June 30, 2002. Our general and administrative expenses in 2003 were $864,650 compared to $731,920 in 2002. Lease operating expenses of $316,356, production taxes of $27,883 and depletion, depreciation and amortization of $507,643 in 2003 increased from $34,181, $0, and $8,905, respectively in 2002 reflecting the increase in operating activity. In 2003, we had a gain on the sale of marketable securities of $172,788 and a foreign exchange loss of $1,339,521. In 2002, we had a gain on the sale of marketable securities of $284,018 and a foreign exchange loss of $281,224. We also had a charge for the cumulative effect of an accounting change resulting from the application of Statement of Financial Accounting Standards No. 143, Accounting for Asset Retirement Obligations, in the amount of $1,005,460. We had no comparable charge in 2002. LIQUIDITY AND CAPITAL RESOURCES A COMPARISON OF CASH FLOW FOR THE SIX MONTHS ENDED JUNE 30, 2003 AND JUNE 30, 2002 Our net cash provided by operations was $1,015,768 for the six months ended June 30, 2003 as compared to net cash provided by operations of $764,959 for 2002. Cash provided by operating activities was impacted in 2003 by a gain of $172,788 on the sale of marketable securities and a foreign currency exchange loss of $1,339,521, which did not affect our cash position. Depletion, depreciation and amortization was $507,643 in 2003, resulting from commenced oil and gas operations, compared to $8,905 in 2002. Accounts receivable, accounts payable and accrued liabilities increased significantly in 2003 over 2002 because of the expanded scope of our activities. We also incurred a non cash impairment of our oil and gas properties in the amount of $152,064, resulting from ceiling test write-down, in 2003 and no comparable amount in 2002. 16 We used $2,081,124 of net cash in investing activities during the six months ended June 30, 2003 compared to net cash used of $1,715,385 in 2002. The 2003 cash used in investing activities includes $2,735,910 for the purchase and development of oil and gas properties compared to $3,823,766 in 2002. Proceeds from the sale of marketable securities, net of cash expended on purchases of marketable securities, were $208,051 in 2003 compared to approximately $2,276,000 in 2002. Our net cash provided by financing activities for the six months ended June 30, 2003 was $1,039,760 compared to $11,719 provided in 2002. Current six month activity was the result of new financing from Quest Investment Corporation and TransAtlantic Petroleum (USA) Corp. and repayments to a private investor and Bank One. CRITICAL ACCOUNTING POLICIES We consider accounting policies related to stock options, oil and gas properties, and income taxes to be critical accounting policies. These policies are summarized in Management's Discussion and Analysis or Plan of Operations in our Annual Report on Form 10-KSB for the year ended December 31, 2002, except for our accounting policy related to stock options which is summarized in Note 1 to the notes to the consolidated financial statements included in our Annual Report on Form 10-KSB. HOW WE HAVE FINANCED OUR ACTIVITIES On August 2, 2002, we borrowed $500,000 from a private investor. The borrowing had a stated interest rate of 12% (effective rate of 22.0%) and was due on December 6, 2002 , or out of the proceeds of a financing or sale or change of control of the company if occurring earlier. It was secured by a pledge of the shares of First Calgary Petroleum Ltd. that we owned. On February 14, 2003, we issued to the lender 166,700 shares of our common stock as additional consideration for making the loan. The loan was repaid on March 12, 2003 out of the proceeds of our sale of the remaining shares of First Calgary Petroleum Ltd. that we owned. On March 12, 2003, we entered into a funding arrangement with TransAtlantic Petroleum (USA) Corp., whereby TransAtlantic agreed to advance to us up to $2.0 million, of which up to $1.8 million was to be used to fund our share of the drilling and completion costs for the four initial wells we drilled in St. Charles Parish, Louisiana. In exchange, TransAtlantic received a $2.0 million production payment payable out of 75% of the net revenues from the initial four wells and, upon payment of the $2.0 million, it is to receive a 10% working interest in those four wells and a 10% working interest in our Bayou Couba lease and our lease with the State of Louisiana. Further, TransAtlantic was granted the right to acquire a 10% participation in any additional interests we acquire in the 23.138 square mile Bayou Couba salt dome development area, including any interests acquired through our area of mutual interest joint development agreement with ExxonMobil Corp. Our obligations to TransAtlantic are collateralized by a lien 17 against our interest in our four initial wells and their hydrocarbon production. At June 30, 2003, we had drawn a total of $2,000,000, including $1,800,000 used to fund our share of the drilling and completion costs. Imputed interest on the $2,000,000 drawn amounted to $461,544, which was recorded as a discount on the production payment liability, with a corresponding reduction in the value of proved and unproved oil and natural gas properties, representing the sale, upon payout of the production payment, of the 10% working interest in our four initial wells and in the Bayou Couba and State of Louisiana leases. The discount is accreted to interest expense, using the units of production method. As of June 30, 2003, the outstanding balance of the production payment was $1,451,745, of which $160,898 attributable to produced volumes is included in accounts payable and accrued liabilities. At June 30, 2003, all available funds had been advanced for development of our four initial wells. Brian Bayley, a Director of our company, is also a Director of TransAtlantic. We also completed, in March 2003, a $2.5 million borrowing for working capital and repayment of secured debt. The $2.5 million is due to be repaid on October 31, 2003 and bears interest at 12% per annum, (effective rate 22.0%) calculated monthly. The loan is secured by a senior lien against all our oil and gas properties and undeveloped leaseholds. The lender also received 688,000 shares of our common stock as additional consideration for the loan. The lender is Quest Investment Corporation. Brian Bayley, one of our Directors, is a Director and the Chief Executive Officer of Quest Investment Corporation. We agreed to register the 688,000 shares under the Securities Act of 1933, as amended, by July 22, 2003 to enable the resale of such shares. We have requested an extension of the date by which the sale of such shares is to be registered. Also in March 2003, we refinanced our indebtedness owing to Bank One Michigan, NA. ("Bank One"). Bank One was repaid $2.25 million and received our junior secured note in the principal amount of approximately $1.7 million. Bank One subordinated its lien against substantially all our assets to the loan of Quest Investment Corporation described above. The loan bears interest at Bank One's prime rate plus 2%, payable quarterly. The note matures on December 31, 2003. FUTURE CAPITAL REQUIREMENTS AND RESOURCES Our capital requirements relate to the acquisition, exploration, enhancement, development and operation of oil and natural gas properties. In general, because our oil and natural gas reserves will be depleted by production over time, the success of our business strategy is dependent upon a continuous acquisition, exploitation, enhancement, and development program. In order to achieve profitability and generate cash flow, we are dependent upon acquiring or developing additional oil and natural gas properties or entering into joint oil and natural gas well development arrangements. We currently expect that available cash and, subject to the success of management's plans to raise additional capital not currently available to us, the proceeds from the private or public sale of debt or equity securities, will be sufficient to fund debt service requirements and planned capital expenditures for our existing properties through 2003. However, we may need to 18 raise additional capital to fund capital expenditures and development of our oil and natural gas assets, which capital may not be available to us in the future. In order to acquire and develop additional oil and gas reserves, we will require additional capital which is currently not available to us. Our business strategy requires us to obtain additional financing and our failure to do so can be expected to adversely affect our ability to grow our revenues, oil and gas reserves and achieve and maintain a significant level of revenues and profitability. There can be no assurance we will obtain this additional funding. Such funding may be obtained through the sale of equity securities or by incurring additional indebtedness. Although we are currently actively seeking to raise additional equity or debt capital, we currently have no specific plans or agreements with investors regarding raising this additional capital. Without such funding, our revenues will continue to be limited and it can be expected that our operations will not be profitable. In addition, any additional equity funding that we obtain may result in material dilution to the current holders of our common stock. We intend, as opportunities arise, to evaluate the acquisition and development of additional leasehold interests. We are unable at this time to state whether or where any such additional properties may be acquired, to estimate the purchase price for any properties we may acquire or to state the terms on which financing for these purposes can be obtained. Under the terms of our loan agreement with Quest Investment Corporation, we owe $2.5 million maturing on October 31, 2003 and under the terms of our loan agreement with Bank One, we owe approximately $1.7 million maturing on December 31, 2003. We are currently seeking to arrange for a sale of shares of our common stock in a private offering of securities, a portion of the proceeds from which sale are intended to be used to repay this indebtedness. There can be no assurance that we will be successful in raising this additional capital on terms acceptable to us or that the terms of such transaction may not result in material dilution to our existing stockholders. ACCOUNTING MATTERS Statement of Financial Accounting Standards No. 141, Business Combinations (FAS 141) and Statement of Financial Accounting Standards, No. 142, Goodwill and Intangible Assets (FAS 142) were issued by the Financial Accounting Standards Board (FASB) in June 2001 and became effective for us on July 1, 2001 and January 1, 2002, respectively. FAS 141 requires all business combinations initiated after June 30, 2001 to be accounted for using the purchase method. Additionally, FAS 141 requires companies to disaggregate and report separately from goodwill certain intangible assets. FAS 142 establishes new guidelines for accounting for goodwill and other intangible assets. Under FAS 142, goodwill and certain other intangible assets are not amortized, but rather are reviewed annually for impairment. The FASB, the Securities and Exchange Commission (SEC) and others continue to discuss the appropriate application of FAS 141 and 142 to oil and gas mineral rights held under lease and other contractual arrangements representing the right to extract such reserves. Depending on the outcome of such discussions, these oil and gas mineral rights held under lease and other contractual arrangements representing the right to extract such reserves for both undeveloped and developed leaseholds may be classified separately from oil and gas properties, as intangible 19 assets on our balance sheets. In addition, the disclosures required by FAS 141 and 142 relative to intangibles would be included in the notes to financial statements. Historically, we, like many other oil and gas companies, have included these oil and gas mineral rights held under lease and other contractual arrangements representing the right to extract such reserves as part of the oil and gas properties, even after FAS 141 and 142 became effective. As applied to companies like us that have adopted full cost accounting for oil and gas activities, we understand that this interpretation of FAS 141 and 142 would only affect our balance sheet classification of proved oil and gas leaseholds acquired after June 30, 2001 and our unproved oil and gas leaseholds. Our results of operations and cash flows would not be affected, since these oil and gas mineral rights held under lease and other contractual arrangements representing the right to extract such reserves would continue to be amortized in accordance with full cost accounting rules. At June 30, 2003 and December 31, 2002, we had undeveloped leaseholds of approximately $ 3.2 million and $2.7 million, respectively, that would be classified on our condensed consolidated balance sheets as "intangible undeveloped leasehold" and developed leaseholds of an estimated net book value of $1.6 million and $830,000 at June 30, 2003 and December 31, 2002, respectively, that would be classified as "intangible developed leaseholds" if we applied the interpretation currently being discussed. We will continue to classify our oil and gas mineral rights held under lease and other contractual rights representing the right to extract such reserves as tangible oil and gas properties until further guidance is provided. CAUTIONARY STATEMENT FOR PURPOSES OF THE "SAFE HARBOR" PROVISIONS OF THE PRIVATE SECURITIES LITIGATION REFORM ACT OF 1995 With the exception of historical matters, the matters we discussed below and elsewhere in this Report are "forward-looking statements" as defined under the Securities Exchange Act of 1934, as amended, that involve risks and uncertainties. The forward-looking statements appear in various places including under the headings Item 1. Financial Information and Item 2. Management's Discussion and Analysis or Plan of Operation. These risks and uncertainties relate to our capital requirements, business strategy, ability to raise capital and fund our oil and gas well drilling and development plans, our ability to fund the repayment of our outstanding indebtedness, our ability to attain and maintain profitability and cash flow and continue as a going concern, our ability to increase our reserves of oil and gas through drilling activities and acquisitions, our ability to enhance and maintain production from existing wells and successfully develop additional producing wells, our access to debt and equity capital and the availability of joint venture development arrangements, our ability to remain in compliance with the terms of any agreements pursuant to which we borrow money and to repay the principal and interest when due, our estimates as to our needs for additional capital and the times at which additional capital will be required, our expectations as to our sources for this capital and funds, our ability to successfully implement our business strategy, our ability to identify and integrate successfully any additional producing oil and gas properties we acquire and operate such properties profitably, our ability to maintain compliance with covenants of our loan documents and other 20 agreements pursuant to which we issue securities or borrow funds and to obtain waivers and amendments when and as required, our ability to borrow funds or maintain levels of borrowing availability under our borrowing arrangements, our ability to meet our budgeted capital expenditures, our statements and estimates about quantities of production of oil and gas as it implies continuing production rates at those levels, proved reserves or borrowing availability based on proved reserves and our future net cash flows and their present value. Readers are cautioned that the risk factors described in our registration statement on Form 10-SB and other reports filed with the Commission, as well as those described elsewhere in this Report, in some cases have affected, and in the future could affect, our business plans and actual results of operations and could cause our actual consolidated results during 2003 and beyond, to differ materially from those expressed in any forward-looking statements made by or on our behalf. Our common shares have no trading market in the United States, and there can be no assurance as to the liquidity of any markets that may develop for our common shares, the ability of the holders of common shares to sell their common shares in the United States or the price at which holders would be able to sell their common shares. Any future trading prices of the common shares will depend on many factors, including, among others, our operating results and the market for similar securities. ITEM 3. CONTROLS AND PROCEDURES Under the supervision and with the participation of our management, including Michael K. Paulk, our President, and Steven P. Ensz, our Vice President, Finance, we have evaluated our disclosure controls and procedures as of the end of the period covered by this report, and, based on their evaluation, Mr. Paulk and Mr. Ensz have concluded that these controls and procedures are effective. There were no significant changes in our internal controls or in other factors that could significantly affect these controls subsequent to the date of their evaluation. Disclosure controls and procedures are our controls and other procedures that are designed to ensure that information required to be disclosed by us in the reports that we file or submit under the Exchange Act is recorded, processed, summarized and reported, within the time periods specified in the Securities and Exchange Commission's rules and forms. Disclosure controls and procedures include, without limitation, controls and procedures designed to ensure that information required to be disclosed by us in the reports that we file or submit under the Exchange Act is accumulated and communicated to our management, including Mr. Paulk and Mr. Ensz, as appropriate to allow timely decisions regarding required disclosure. PART II - OTHER INFORMATION ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K (a) Exhibits 21 2.0 Second Amended Joint Plan of Reorganization Proposed by Couba Operating Company, American Natural Energy Corporation and Gothic Resources Inc. filed in the United States Bankruptcy Court, Western District of Oklahoma. Case No. 00-11837-W (Chapter 11)(1). 2.1 Order Confirming Plan, filed November 16, 2001 with U.S. Bankruptcy Court, Western District of Oklahoma(2) 3.1 Certificate of Incorporation of American Natural Energy Corporation, formerly named Dayton Energy Corporation(1) 3.2 Certificate of Amendment filed March 23, 2001(2) 3.3 Certificate of Amendment filed December 20, 2001(2) 10.2 Loan Agreement dated August 2, 2002 between Middlemarch Partners Limited and the Registrant(2) 10.3 Leasehold Acquisition and Development Agreement with The Wiser Oil Company(2) 10.4 Assignment of Oil, Gas and Mineral Lease dated as of February 18, 2002 relating to State Lease Number 17353(2) 10.5 Loan Agreement effective as of March 12, 2003 between Registrant and Bank One, N.A.(2) 10.6 Loan Agreement dated March 12, 2003 between Registrant and Quest Investment Corporation(2) 10.7.1 Production Payment Purchase and Sale Agreement between Registrant and TransAtlantic Petroleum (USA) Corp. dated March 10, 2003(2) 10.7.2 Production Payment Conveyance from Registrant to TransAtlantic Petroleum (USA) Corp. dated March 10, 2003(2) 10.7.3 Purchase and Exploration Agreement between Registrant and TransAtlantic Petroleum (USA) Corp. dated March 10, 2003(2) 21.0 Subsidiaries of the Registrant NAME JURISDICTION OF ORGANIZATION ---- ---------------------------- Gothic Resources Inc. Canada Business Corporations Act Couba Operating Company Oklahoma 31.1 Certification of President and Chief Executive Officer Pursuant to Rule 13a-14(a)(3) 31.2 Certification of Chief Financial Officer Pursuant to Rule 13a- 14(a)(3) 32.1 Certification of President and Chief Executive Officer Pursuant to Section 1350 (furnished, not filed)(3) 32.2 Certification of Chief Financial Officer Pursuant to Section 1350 (furnished, not filed)(3) - ---------------------------- (1) Filed as an exhibit to registration statement on Form 10-SB filed August 12, 2002. (2) Filed as an exhibit to Amendment No. 1 to registration statement on Form S-B. (3) Filed or furnished herewith. 22 (b) Reports on Form 8-K We filed the following Current Reports on Form 8-K in response to the Items named: Report Date Item ----------- ---- April 30, 2003 Item 7. Financial Statements and Exhibit (Press Release dated April 30, 2003) 23 SIGNATURES 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. AMERICAN NATURAL ENERGY CORPORATION ----------------------------------- (Registrant) Date: September 2, 2003 /S/ Michael K. Paulk ------------------------------------------ Michael K. Paulk President and Chief Executive Officer /S/ Steven P. Ensz ------------------------------------------ Steven P. Ensz Principal Financial and Accounting Officer 24 EX-31.1 3 ex31-1.txt EXHIBIT 31.1 CERTIFICATIONS CHIEF EXECUTIVE OFFICER'S CERTIFICATION PURSUANT TO RULE 13a-14(a) ------------------------------------------------------------------ I, Michael K. Paulk, certify that: 1. I have reviewed this quarterly report on Form 10-QSB of American Natural Energy Corporation; 2. Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this report; 3. Based on my knowledge, the financial statements, and other financial information included in this report, fairly present in all material respects the financial condition, results of operations and cash flows of the small business issuer as of, and for, the periods presented in this report; 4. The small business issuer's other certifying officer(s) and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) for the small business issuer and have: (a) Designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, to ensure that material information relating to the small business issuer, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this report is being prepared; (b) Evaluated the effectiveness of the small business issuer's disclosure controls and procedures and presented in this report our conclusions about the effectiveness of the disclosure controls and procedures, as of the end of the period covered by this report based on such evaluation; and (c) Disclosed in this report any change in the small business issuer's internal control over financial reporting that occurred during the small business issuer's most recent fiscal quarter (the small business issuer's fourth fiscal quarter in the case of an annual report) that has materially affected, or is reasonably likely to materially affect, the small business issuer's internal control over financial reporting; and 5. The small business issuer's other certifying officer(s) and I have disclosed, based on our most recent evaluation of internal control over financial reporting, to the small business issuer's auditors and the audit committee of the small business issuer's board of directors (or persons performing the equivalent functions): (a) All significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are reasonably likely to adversely affect the small business issuer's ability to record, process, summarize and report financial information; and (b) Any fraud, whether or not material, that involves management or other employees who have a significant role in the small business issuer's internal control over financial reporting. Date: September 2, 2003 /s/ Michael K. Paulk -------------------- Michael K. Paulk President EX-31.2 4 ex31-2.txt EXHIBIT 31.2 CHIEF FINANCIAL OFFICER'S CERTIFICATION PURSUANT TO RULE 13a-14(a) ------------------------------------------------------------------ I, Steven P. Ensz, certify that: 1. I have reviewed this quarterly report on Form 10-QSB of American Natural Energy Corporation; 2. Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this report; 3. Based on my knowledge, the financial statements, and other financial information included in this report, fairly present in all material respects the financial condition, results of operations and cash flows of the small business issuer as of, and for, the periods presented in this report; 4. The small business issuer's other certifying officer(s) and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) for the small business issuer and have: (a) Designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, to ensure that material information relating to the small business issuer, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this report is being prepared; (b) Evaluated the effectiveness of the small business issuer's disclosure controls and procedures and presented in this report our conclusions about the effectiveness of the disclosure controls and procedures, as of the end of the period covered by this report based on such evaluation; and (c) Disclosed in this report any change in the small business issuer's internal control over financial reporting that occurred during the small business issuer's most recent fiscal quarter (the small business issuer's fourth fiscal quarter in the case of an annual report) that has materially affected, or is reasonably likely to materially affect, the small business issuer's internal control over financial reporting; and 5. The small business issuer's other certifying officer(s) and I have disclosed, based on our most recent evaluation of internal control over financial reporting, to the small business issuer's auditors and the audit committee of the small business issuer's board of directors (or persons performing the equivalent functions): (a) All significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are reasonably likely to adversely affect the small business issuer's ability to record, process, summarize and report financial information; and (b) Any fraud, whether or not material, that involves management or other employees who have a significant role in the small business issuer's internal control over financial reporting. Date: September 2, 2003 /s/ Steven P. Ensz --------------------------- Steven P. Ensz Vice President, Finance EX-32.1 5 ex32-1.txt EXHIBIT 32.1 PRINCIPAL EXECUTIVE OFFICER'S CERTIFICATION PURSUANT TO SECTION 1350 (FURNISHED, BUT NOT FILED) In connection with the Quarterly Report of American Natural Energy Corporation (the Company) on Form 10-QSB for the period ending June 30, 2003 as filed with the Securities and Exchange Commission on the date hereof (the Report), I, Michael K. Paulk, Chief Executive Officer of the Company, certify, pursuant to 18 U.S.C. ss.1350, as adopted pursuant to ss.906 of the Sarbanes-Oxley Act of 2002, that: 1) The Report fully complies with the requirements of Section 13(a) or 15(d) of the Securities Exchange Act of 1934; and 2) The information contained in the Report fairly presents, in all material respects, the financial condition and results of operations of the Company. /s/ Michael K. Paulk - -------------------- Michael K. Paulk Chief Executive Officer September 2, 2003 A signed original of this written statement required by Section 906 has been provided to American Natural Energy Corporation and will be retained by American Natural Energy Corporation and furnished to the Securities and Exchange Commission or its staff upon request. EX-32.2 6 ex32-2.txt EXHIBIT 32.2 PRINCIPAL EXECUTIVE OFFICER'S CERTIFICATION PURSUANT TO SECTION 1350 (FURNISHED, BUT NOT FILED) In connection with the Quarterly Report of American Natural Energy Corporation (the Company) on Form 10-QSB for the period ending June 30, 2003 as filed with the Securities and Exchange Commission on the date hereof (the Report), I, Steven P. Ensz, Chief Financial Officer of the Company, certify, pursuant to 18 U.S.C. ss.1350, as adopted pursuant to ss.906 of the Sarbanes-Oxley Act of 2002, that: 1) The Report fully complies with the requirements of Section 13(a) or 15(d) of the Securities Exchange Act of 1934; and 2) The information contained in the Report fairly presents, in all material respects, the financial condition and results of operations of the Company. /s/ Steven P. Ensz - --------------------------- Steven P. Ensz Chief Financial Officer September 2, 2003 A signed original of this written statement required by Section 906 has been provided to American Natural Energy Corporation and will be retained by American Natural Energy Corporation and furnished to the Securities and Exchange Commission or its staff upon request. -----END PRIVACY-ENHANCED MESSAGE-----