UNITED STATES SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 20-F
ANNUAL REPORT
Fiscal 2003 Ended December 31, 2003
[ ] REGISTRATION STATEMENT PURSUANT TO SECTION 12(b) OR (g)
OF THE SECURITIES EXCHANGE ACT OF 1934
OR
[X] ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF
THE SECURITIES EXCHANGE ACT OF 1934
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 number0-30026
CAMFLO INTERNATIONAL INC.
(Exact name of Registrant as specified in its charter)
_____________Yukon Territory, Canada_____________
(Jurisdiction of incorporation or organization)
789 West Pender Street, #1205, Vancouver, British Columbia V6Z 1H2
(Address of principal executive offices)
Securities to be registered pursuant to Section 12(b) of the Act:
None
Securities to be registered pursuant to Section 12(g) of the Act:
Common Shares, without par value
(Title of Class)
Securities for which there is a reporting obligation pursuant to Section 15(d) of the Act: None
Indicate the number of outstanding shares of each of the issuer's classes of capital or common stock as of the close of the period covered by the annual report. 6,630,066
Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 12 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past ninety days. Yesxxx No ___
Indicate by check mark which financial statement item the registrant has elected to follow: Item 17xxx Item 18 ___
Index to Exhibits on Page 43
CAMFLO INTERNATIONAL INC.
FORM 20-F ANNUAL REPORT
FISCAL YEAR ENDED DECEMBER 31, 2003
TABLE OF CONTENTS
Introduction............................................................... 3
Recent Developments 4
PART I
Item 1. Identity of Directors, Senior Management and Advisors.............. 5
Item 2. Offer Statistics and Expected Timetable........................... 5
Item 3. Key Information................................................... 5
Item 4. Information on the Company........................................ 14
Item 5. Operating and Financial Review and Reports....................... 22
Item 6. Directors, Senior Management and Employees....................... 27
Item 7. Major Shareholders and Related Party Transactions................ 34
Item 8. Financial Information............................................ 36
Item 9. The Offer and Listing............................................ 37
Item 10. Additional Information........................................... 38
Item 11. Quantitative and Qualitative Disclosures About Market Risk....... 40
Item 12. Description of Securities Other Than Equity Securities........... 40
PART II
Item 13. Default, Dividend Arrearages and Delinquencies................... 41
Item 14. Material Modifications to the Rights of Security Holders and
Use of Proceeds.................................................. 41
Item 15. Controls and Procedures.......................................... 41
Item 16. Reserved......................................................... 41
Item 16A. Audit Committee Financial Expert............................... 41
Item 16B. Code of Ethics................................................. 41
Item 16C. Principal Accountant Fees and Services......................... 42
Item 16D. Exemptions from the Listing Standards for Audit Committees..... 42
ITEM 16E Purchases of Equity Securities by
the Issuer and Affiliated Purchasers.......................... 42
PART III
Item 17. Financial Statements.............................................. 43
Item 18. Financial Statements.............................................. 43
Item 19. Exhibits.......................................................... 43
INTRODUCTION
Camflo International Inc. is organized under the laws of the Yukon Territory, Canada. In this Annual Report, the "Company", "we," "our" and "us" refer to Camflo International Inc. and its subsidiaries (unless the context otherwise requires). Summary discussions of documents referred to in this Annual Report may not be complete and we refer you to the actual documents for more complete information. Our principal corporate offices are located at 789 West Pender Street, Suite #1205, Vancouver, British Columbia, Canada V6Z 1H2. Our telephone number is 604-685-9181.
BUSINESS OF CAMFLO INTERNATIONAL INC.
The Company is in the business of acquiring, exploring, and developing (when appropriate) oil/gas properties. The principle properties are all located in Alberta, Canada: Rainbow Lake, Black Creek Prospect; Snipe Lake Prospect; Prairie River Prospect; Goose River Prospect; and Alexander Prospect.
FINANCIAL AND OTHER INFORMATION
In this Annual Report, unless otherwise specified, all dollar amounts are expressed in Canadian Dollars (“CDN$” or “$”). The Government of Canada permits a floating exchange rate to determine the value of the Canadian Dollar against the U.S. Dollar (US$).
FORWARD-LOOKING STATEMENTS
This Registration Statement on Form 20-F contains forward-looking statements within the meaning of the Private Securities Litigation Reform Act of 1995, principally in ITEM #4, “Information on the Company” and ITEM #5, “Management’s Discussion and Analysis of Financial Condition and Results of Operations”. These statements may be identified by the use of words like “plan,” “expect,” “aim,” “believe,” “project,” “anticipate,” “intend,” “estimate,” “will,” “should,” “could” and similar expressions in connection with any discussion, expectation, or projection of future operating or financial performance, events or trends. In particular, these include statements about the Company’s strategy for growth, property exploration, mineral prices, future performance or results of current or anticipated mineral production, interest rates, foreign exchange rates, and the outcome of contingencies, such as acquisitions and/or legal proceedings.
Forward-looking statements are based on certain assumptions and expectations of future events that are subject to risks and uncertainties. Actual future results and trends may differ materially from historical results or those projected in any such forward-looking statements depending on a variety of factors, including, among other things, the factors discussed in this Registration Statement under ITEM #3, “Key Information, Risk Factors” and factors described in documents that we may furnish from time to time to the Securities and Exchange Commission. We undertake no obligation to update publicly or revise any forward-looking statements because of new information, future events or otherwise.
RECENT DEVELOPMENTS
Proposed Private Placement
Effective 6/28/2004, the Company entered into an agency agreement with Dominick and Dominick (“Dominick”) of Toronto, Ontario for a private placement for a minimum of $6 million by way of a combination of flow-through common shares and non-flow-through common shares. The non-flow-through shares will be priced at $0.50 per share and the flow-through shares at $0.55 per share. Dominick will be paid a cash commission of 7% of gross proceeds raised and will receive 10% broker warrants, in the amount of the shares subscribed for.
Proposed Property Acquisition
The proceeds will be used to purchase a 32% working interest in the Joffre property from Spearhead Resources Ltd. (“Spearhead”) for $3.5 million cash. An additional $1.5 million will be advanced by Camflo to Spearhead pursuant to outstanding joint venture billings and approved future expenditures. The remaining funds raised will be used for further development and exploration drilling, building production facilities, and working capital requirements.
The Joffre property produced 245 BOEPD last month under allowable from a D-3 reef. Spearhead’s interest is a gross over-riding royalty until payout (convertible to a 32% working interest), payout is expected to occur during the summer. Good Production Practice has been applied for and when approved it is expected that the well production will be raised substantially. There is the potential for future drilling on this prospect.
Proposed Amalgamation
Camflo has also been in discussions to amalgamate with Spearhead, a public oil and gas company listed on the TSX Venture Exchange. This amalgamation will be subject to shareholder approval and the TSX Venture Exchange approval. The amalgamation will create a new oil and gas company yet to be named (“Amalco”) which will hold all of the assets of Camflo and Spearhead and will consolidate the interests of the companies in several projects in Alberta, which they have been working on together over the past twelve months. Subject to shareholder approval, the terms of the amalgamation are as follows: Spearhead shareholders will receive one share of Amalco for each share of Spearhead and Camflo shareholders will receive three shares of Amalco for each four shares of Camflo.
Common Stock Trading Halted
Further to a TSX Venture Exchange bulletin dated 6/16/2004, trading in the Company’s common shares were halted pending the aforementioned announcement made on 6/25/2004. Further to a TSX Venture Exchange bulletin dated 6/29/2004, trading will remain halted pending the completion of the aforementioned proposed financing and the acquisition of the Joffre Property.
Shareholder Approvals at 6/29/2004 Annual General Meeting of Shareholders
a) Re-elected Gregory Burnett, Alan Crawford, Thomas Doyle, and John McManus
as Directors.
b) Amisano Hanson, Chartered Accountants, were re-appointed as auditors of
the Company for the ensuing year.
c) The Stock Option Plan was amended to comply with new TSX Venture Exchange
regulations.
d) Pursuant to a Special Resolution voted to discontinue from the Yukon
incorporation and to apply to the Registrar of Companies under the Alberta
CorporationsActfor an instrument of continuation continuing the Company
as if it had been incorporated under the Alberta Corporations Act.
PART I
ITEM 1. IDENTITY OF DIRECTORS, SENIOR MANAGEMENT AND ADVISORS.
--- No Disclosure Necessary ---
ITEM 2. OFFER STATISTICS AND EXPECTED TIMETABLE.
--- No Disclosure Necessary ---
ITEM 3. KEY INFORMATION.
3.A.1. Selected Financial Data
3.A.2. Selected Financial Data
The Company's financial statements are stated in Canadian Dollars (CDN$) and are prepared in accordance with Canadian Generally Accepted Accounting Principles (GAAP), the application of which, in the case of the Company, conforms in all material respects for the periods presented with US GAAP, except as discussed in footnotes to the financial statements.
The selected financial data of the Company for Fiscal 2003, Fiscal 2002 and Fiscal 2001 ended December 31st was derived from the financial statements of the Company which have been audited by Amisano Hanson, Chartered Accountants, as indicated in their audit report which are included elsewhere in this Annual Report. The selected financial data set forth for Fiscal 2000 and Fiscal 1999 ended December 31st are derived from the Company's audited financial statements, not included herein.
The selected financial data should be read in conjunction with the financial statements and other financial information included elsewhere in the Annual Report.
The Company has not declared any dividends since incorporation and does not anticipate that it will do so in the foreseeable future. The present policy of the Company is to retain future earnings for use in its operations and the expansion of its business.
Table No. 1 is derived from the financial statements of the Company, which have been prepared in accordance with Canadian Generally Accepted Accounting Principles (GAAP), the application of which, in the case of the Company, conforms in all material respects for the periods presented with US GAAP, except as disclosed in footnotes to the financial statements.
All per-share figures and number of shares are adjusted for the one-for-nine stock consolidation effective 11/22/2001.
Table No. 1
Selected Financial Data
(CDN$ in 000, except per share data)
________________________________________________________________________________
________________________________________________________________________________
Year Year Year Year Year
Ended Ended Ended Ended Ended
12/31/2003 12/31/2002 12/31/2001 12/31/2000 12/31/1999
Canadian GAAP
Revenue From Operations $52 $ 0 $ 0 $ 0 $ 0
Operating Income (Loss) ($7) ($269) ($207) ($195) ($392)
Net Income (Loss) ($612) ($269) ($412) ($408) ($433)
(Loss) per Share ($0.14) ($0.12) ($0.37) ($0.37) ($0.40)
Dividends Per Share $0.00 $0.00 $0.00 $0.00 $0.00
Wtg. Avg. Shares (000) 4320 2322 1107 1104 1071
Period-end Shares O/S 6630 3537 1107 1107 1101
--------------------------------------------------------------------------------
Working Capital ($540) $95 ($143) ($181) $10
Long-Term Obligations 825 760 244 0 0
Capital Stock 2002 1169 925 925 925
Shareholders’ Equity 15 (407) (382) 20 438
Total Assets 1444 376 93 252 501
--------------------------------------------------------------------------------
US GAAP
Net Loss (Loss) ($612) ($269) ($258)
US GAAP Loss Per Share ($0.14) ($0.12) ($0.23)
US GAAP Wtg Avg Shares 4320 2322 1107
--------------------------------------------------------------------------------
(1) Cumulative Net Loss since incorporation under US GAAP to 12/31/2003 has
been ($2,187,972).
(2) Under US GAAP, the calculation of weighted average number of shares used
in the calculation of Loss Per Share for Fiscal 2000 would not have
included 148,148 escrowed, contingently cancelable common shares.
(3) Under SEC application of US GAAP, the Company would have expensed all
costs associated with its exploration-stage natural resource properties
during the period incurred. Accordingly, there is a reversal of a Fiscal
2000 $212,267 write-down of exploration costs and a reversal of a Fiscal
2001 $205,000 mineral property write-off.
(4) Under US GAAP, the value of the assignment agreement to acquire the
mineral property is expensed rateably over the life of the agreement.
Therefore an expense of $Nil (2001: $51,250; 2000: $51,250) is required
under US GAAP.
(5) Under US GAAP, options issued to non-employees for services are recorded
as a compensation expense. Under Financial Accounting Standards No. 123,
the fair value of each option issued is estimated on the date of issue
using the Black-Scholes option pricing model. Therefore an expense of
$14,300 is required for Fiscal 2000 under US GAAP.
________________________________________________________________________________
________________________________________________________________________________
3.A.3. Exchange Rates
In this Annual Report Statement, unless otherwise specified, all dollar amounts are expressed in Canadian Dollars (CDN$). The Government of Canada permits a floating exchange rate to determine the value of the Canadian Dollar against the U.S. Dollar (US$).
Table No. 2 sets forth the rate of exchange for the Canadian Dollar at the end of the five most recent fiscal periods ended December 31st, the average rates for the period, and the range of high and low rates for the period. The data for each month during the previous six months is also provided.
For purposes of this table, the rate of exchange means the noon buying rate in New York City for cable transfers in foreign currencies as certified for customs purposes by the Federal Reserve Bank of New York. The table sets forth the number of Canadian Dollars required under that formula to buy one U.S. Dollar. The average rate means the average of the exchange rates on the last day of each month during the period.
Table No. 2
U.S. Dollar/Canadian Dollar
______________________________________________________________________________
______________________________________________________________________________
Average High Low Close
May 2004 1.40 1.36 1.37
April 2004 1.37 1.31 1.37
March 2004 1.35 1.31 1.31
February 2004 1.34 1.30 1.34
January 2004 1.33 1.27 1.33
December 2003 1.34 1.29 1.29
------------------------------------------------------------------------------
Fiscal Year Ended 12/31/2003 1.38 1.57 1.29 1.29
Fiscal Year Ended 12/31/2002 1.57 1.61 1.51 1.58
Fiscal Year Ended 12/31/2001 1.55 1.60 1.49 1.59
Fiscal Year Ended 12/31/2000 1.50 1.56 1.44 1.50
Fiscal Year Ended 12/31/1999 1.49 1.53 1.44 1.44
______________________________________________________________________________
______________________________________________________________________________
3.B. Capitalization and Indebtedness No Disclosure Necessary ---
3.C. Reasons For The Offer And Use Of Proceeds No Disclosure Necessary ---
3.D. Risk Factors
The Company is subject to a number of risks and uncertainties, including those described below. If any of the these or other risks actually occur, our business, financial condition and operating results, as well as the trading price or value of our securities could be materially and adversely affected.
Competition
Oil and gas exploration is intensely competitive and involves a high degree of risk. There can be no assurance that commercial production of hydrocarbons can be obtained from any of the Company’s properties, nor are there any assurances that production, if obtained, will be in sufficient quantities to be profitable. In its efforts to acquire properties, the Company competes with other companies that have significantly greater resources. Many of these companies not only explore for and produce oil and gas, but also conduct refining and petroleum marketing operations on a worldwide basis. Competition for producing properties will be affected by the amount of funds available to the Company, information available to the Company and any standards established by the Company for the minimum projected return on investment. Competition may also be presented by alternative fuel sources.
Risks Associated with Oil and Gas Exploration
There can be no assurance that the Company will recover commercial quantities of hydrocarbons in the future. The marketability of any oil and gas acquired or discovered will be affected by numerous factors beyond the control of the Company. These factors include market fluctuations, proximity and capacity of oil and gas pipelines and processing equipment and government regulations (including regulations relating to royalties, allowable production, importing and exporting of oil and gas, and environmental protection). In addition, hazards such as unusual or unexpected formations, pressures or other conditions are involved in drilling and operating wells.
The business of exploration and development of resource properties involves a high degree of risk. Fires, power outages, labor disruptions, unusual or unexpected geological formations, and the inability to obtain suitable or adequate machinery, equipment or labor are some of the risks involved in the operation of resource properties. The Company may become subject to liabilities, such as environmental protection, and negligence or incompetence of employees of outside contractors, against which it cannot insure or against which it may elect not to insure. The payment of such liabilities may have a material, adverse effect on the Company's financial position.
The economics of developing resource properties are affected by many factors, including the cost of operations, variations in the production, fluctuations in commodity markets, costs of processing equipment and such other factors as government regulations, including regulations relating to royalties, allowable production and environmental protection. Depending on the price of commodities produced, the Company may determine that it is not economically feasible to commence or continue production. There is no certainty that the expenditures made and to be made by the Company in the exploration of any of its properties as described herein will result in any discoveries of commercial quantities.
Moreover reserve estimates are necessarily inherently imprecise and depend to some extent on statistical inferences drawn from limited drilling, which may prove unreliable. No assurances can be given that any indicated level of recovery of any resources will be realized. Short-term operating factors relating to the reserves, such as the need for orderly development of the resources may cause the Company to be unprofitable in any particular accounting period.
The operations of the Company require licenses and permits from various governmental authorities. After completion of the proposed operation, the site would be restored as best as possible. There can be no assurance that the Company will be able to obtain all necessary licenses and permits that may be required to carry out exploration, development and operations at its projects.
The Company may become subject to liability for pollution, flooding, explosions, landslides and cave-ins or hazards against which it cannot insure or against which it may elect not to insure. The Company presently has no policies of insurance for hazards or pollution liability. The payment of such liabilities may have a material adverse effect on the Company's financial position. In addition, substantial expenditures are required to establish ore reserves through drilling to develop metallurgical processes to extract the metal from the ore and, in the case of newly acquired properties, to develop the infrastructure necessary to conduct exploration and, if warranted, development activities. No assurance can be given that any minerals discovered on the Company's properties will be found in sufficient quantities to justify the substantial expenditures required to develop them.
Limited Operating History and History of Losses
The Company has historically incurred losses from operations. There can be no assurance that the Company will achieve profitability in the future. In addition, should the Company be unable to continue as a going concern, realization of assets and settlement of liabilities in other than the normal course of business may be at amounts significantly different from those in the financial statements.
Financial Risks
In the past, we have relied on the proceeds of financings to fund our operations. If we are unable to raise such financings, we will be forced to limit or curtail of operations
Although we do not believe that we have an immediate need for capital, we have yet to generate sufficient revenues to cover our operating expenses. Accordingly, if we are unable to generate positive cash flow from operations or continue to raise funds, we may be required to limit or curtail operations. In the event that we curtail operations, shareholders could lose their entire investment.
If we need additional financing and such financing is not available, we may be forced to limit or curtail operations.
We may need additional capital if we are unable to generate sufficient financing or debt to cover operations, or if we determine to expand our business, or if we encounter unanticipated expenses.
To date we have been able to raise funding. If market conditions are conducive, we may be able to raise capital through the sale of equity or debt securities in private or public offerings.
Traditional bank financing may be another alternative. If requisite funding on acceptable terms cannot be attracted in a timely fashion, we may be forced to delay activities and, possibly, lose market opportunities to competitors. Similarly, delayed financing could force reductions in planned marketing and product development expenditures, resulting in delays in meeting our business objectives.
Our financial statements have been prepared on the basis of accounting principles applicable to a going concern. As of 12/31/2003, we had an accumulated deficit of $2,187,972 and we continue to incur operating losses in each of our three most recent fiscal years. Our ability to continue as a going concern and the recoverability of the amounts shown for mineral properties are dependent on our ability to obtain sufficient financing to complete our drilling programs and cover our ongoing administration costs and overheads.
Failure to continue as a going concern would require a restatement of assets and liabilities on a liquidation basis, which would differ materially from the going concern basis on which our financial statements were prepared.
Under US reporting standards, the auditor’s report on the consolidated financial statements would contain an explanatory paragraph concerning our ability to continue as a going concern. Such an explanatory paragraph is not permitted under Canadian reporting standards when the uncertainty is adequately disclosed in the notes to the consolidated financial statements.
We believe, but cannot assure, that we will be able to continue to raise equity financing.
Currency Fluctuations
The Company incurs costs and expenses in Canadian dollars. The Company expects that any future production revenues will be denominated in Canadian dollars; however, oil and gas prices are generally quoted in United States dollars. If the Canadian dollar goes down in value against the United States dollar while other factors remain constant, the Company will see a relative increase in production revenues and, conversely, if the United States dollar goes down in value against the Canadian dollar while other factors remain constant, the Company will see a relative decrease in production revenues. The Company does not presently hedge against currency fluctuations; as such, fluctuations will have a minimal effect on its operations until the Company has sustained production revenues.
Absence of Dividends
The Company has never paid cash dividends and does not intend to do so in the foreseeable future. There can be no assurance that the Company’s directors will ever declare cash dividends, which action is completely within their discretion.
Dependence on Key Personnel
The Company is heavily dependent upon the expertise of certain of its key officers and directors, including its President, Thomas Doyle, and the loss of one or more of these individuals could have a material adverse effect on the Company. None of these individuals have entered into employment agreements with the Company and the Company does not maintain key-person insurance policies on any of its executive officers.
Conflicts of Interest
Certain of the Company's directors and officers serve as directors or officers of, and/or own securities of, other resource companies, whereby such persons may have a conflict of interest in allocating their time and resources among the Company and such other companies; and to the extent that such other companies may participate in ventures in which the Company may participate, the directors of the Company may have a conflict of interest.
Expiration of Licenses and Leases
The Company’s properties are held in the form of licenses, leases, and working interests in licenses and leases. If the Company or the holder of the license or lease fails to meet the specific requirement of a license or lease, the license or lease may terminate or expire. There can be no assurance that any of the obligations required to maintain each license or lease will be met. The termination or expiration of the Company’s licenses or leases or the working interests relating to a license or lease may have a material adverse effect on the Company’s results of operation and business.
Environmental Regulation
Hazards incident to the exploration and development of oil and gas properties such as accidental spills or leakage of petroleum liquids and other unforeseen conditions may be encountered by the Company. The Company may be subject to liability for pollution and other damages due to hazards that cannot be insured against due to prohibitive premium costs or for other reasons. Governmental regulations relating to environmental matters could also increase the cost of doing business or require alteration or cessation of operations in certain areas.
Existing and possible future environmental legislation, regulations and actions could give rise to additional expense, capital expenditures, restrictions and delays in the activities of the Company, the extent of which cannot be predicted. Regulatory requirements and environmental standards are subject to constant evaluation and may be significantly increased, which could materially and adversely affect the business of the Company or its ability to develop its properties on an economically feasible basis. Before development and production can commence on any properties, the Company must obtain regulatory and environmental approvals. There is no assurance that such approvals will be obtained on a timely basis or at all. The cost of compliance with changes in governmental regulations has the potential to reduce the profitability of operations or preclude entirely the economic development of a property.
Fluctuation in Oil and Gas Prices
As with most other companies involved in resource exploration, the Company may be adversely affected by future increases in the costs of conducting exploration, development and resource extraction that may not be fully offset by increases in the price received on sale of the petroleum or natural gas.
Volatility of Oil and Gas Prices
The Company’s revenues, profitability and future growth and the carrying value of its oil and gas properties are substantially dependent on prevailing prices of oil and gas. The Company’s ability to borrow and to obtain additional capital on attractive terms is also substantially dependent upon oil and gas prices. Prices for oil and gas are subject to large fluctuations in response to relatively minor changes in the supply of and demand for oil and gas, market uncertainty and a variety of additional factors beyond the control of the Company. These factors include economic conditions in the United States and Canada, the actions of the Organization of Petroleum Exporting Countries, governmental regulation, and political stability in the Middle East and elsewhere, the foreign supply of oil and gas, the price of foreign imports and the availability of alternative fuel sources.
Any substantial and extended decline in the price of oil and gas would have an adverse effect on the Company’s carrying value of its proved reserves, borrowing capacity, revenues, profitability and cash flows from operations.
Volatile oil and gas prices make it difficult to estimate the value of producing properties for acquisition and often cause disruption in the market for oil and gas producing properties, as buyers and sellers have difficulty agreeing on such value. Price volatility also makes it difficult to budget for and project the return on acquisitions and development and exploitation projects.
Title to Properties
It is the practice of the Company in acquiring oil and gas leases or interests in oil and gas leases not to undergo the expense of retaining lawyers to fully examine the title to the interest to be placed under lease or already placed under the lease. Rather, the Company relies upon the judgment of oil and gas lease brokers or landsmen who actually do the field work in examining records in the appropriate governmental office before attempting to place under lease a specific interest. The Company believes that this practice is widely followed in the oil and gas industry.
Prior to the drilling of a well for oil and gas, it is the normal practice of the oil and gas industry for the person or company acting as the operator of the well to hire a lawyer to examine the title to the spacing unit within which the proposed oil and gas well is to be drilled. Frequently, because of such examination, certain curative work must be done to correct deficiencies in the marketability of the title, and the curative work entails expense. The work might include obtaining affidavits of heirship or causing an estate to be administered. From time to time, the examination made by the title lawyers reveals that the oil and gas lease or leases are worthless, having been purchased in error from a person who is not the owner of the mineral interest desired. In such instances, the amount paid for such oil and gas lease or leases may be lost.
There may be title defects that affect lands comprising a portion of the Company’s Properties.
Broker-Dealers May Be Discouraged From Effecting Transactions In Our Common Shares Because They Are Considered Penny Stocks And Are Subject To The Penny Stock Rules
Rules 15g-1 through 15g-9 promulgated under the Securities Exchange Act of 1934, as amended, impose sales practice and disclosure requirements on NASD broker-dealers who make a market in "a penny stock". A penny stock generally includes any non-NASDAQ equity security that has a market price of less than US$5.00 per share. Our shares are quoted on the TSX Venture Exchange and the price of our shares ranged from CDN$0.10 (low) to CDN$0.65 (high) during the period from 1/1/2003 to 12/31/2003, closing at CDN$0.45. The closing price of our shares on 5/31/2004 was CDN$0.50. The additional sales practice and disclosure requirements imposed upon broker-dealers may discourage broker-dealers from effecting transactions in our shares, which could severely limit the market liquidity of the shares and impede the sale of our shares in the secondary market.
Under the penny stock regulations, a broker-dealer selling penny stock to anyone other than an established customer or "accredited investor" (generally, an individual with net worth in excess of US$1,000,000 or an annual income exceeding US$200,000, or US$300,000 together with his or her spouse) must make a special suitability determination for the purchaser and must receive the purchaser's written consent to the transaction prior to sale, unless the broker-dealer or the transaction is otherwise exempt.
In addition, the penny stock regulations require the broker-dealer to deliver, prior to any transaction involving a penny stock, a disclosure schedule prepared by the US Securities and Exchange Commission relating to the penny stock market, unless the broker-dealer or the transaction is otherwise exempt. A broker-dealer is also required to disclose commissions payable to the broker-dealer and the registered representative and current quotations for the securities. Finally, a broker-dealer is required to send monthly statements disclosing recent price information with respect to the penny stock held in a customer's account and information with respect to the limited market in penny stocks.
There Is Uncertainty As To Our Shareholders’ Ability To Enforce Civil Liabilities In Canada
The preponderance of our assets are located outside the United States and are held through companies incorporated under the laws of Canada. In addition, a majority of our directors and officers are nationals and/or residents of countries other than the United States. All or a substantial portion of the assets of these persons are located outside the United States. As a result, it may be difficult for shareholders to effect service of process within the United States upon these persons. In addition, there is uncertainty as to whether the courts of Canada, would recognize or enforce judgments of United States courts obtained against us or such persons predicated upon the civil liability provisions of the securities laws of the United States or any state thereof, or be competent to hear original actions brought in Canada or Ireland against us or such persons predicated upon the securities laws of the United States or any state thereof.
As a "foreign private issuer, the Company is exempt from the Section 14 proxy rules and Section 16 of the 1934 Securities Act: The submission of proxy and annual meeting of shareholder information (prepared to Canadian standards) on Form 6-K may result is shareholders having less complete and timely data. The exemption from Section 16 rules regarding sales of common shares by insiders may result in shareholders having less data.
ITEM 4. INFORMATION ON THE COMPANY
4.A. History and Development of the Company
Introduction
Camflo International Inc. (hereinafter, together with its subsidiaries, is also referred to as the "Company") in engaged in the exploration for oil/gas.
The Company’s executive office is located at:
789 West Pender Street, #1205, Vancouver, British Columbia, Canada V6Z 1H2
Telephone: 604-685-9181; and
Facsimile: 604-685-9182.
Website: http://www.camflo.com/s/Home.asp
The Company’s registered office is located at:
3081 Third Avenue, Whitehorse, Yukon Territory Y1A 4Z7
Telephone: 867-668-4405; and
Facsimile: 867-668-3710.
The contact person is: Thomas Doyle, President/CEO/Director.
The Company's fiscal year ends December 31st.
The Company's common shares trade on the TSX Venture Exchange in Canada under the symbol "CFF.V”.
The Company has an unlimited number of no-par common shares authorized and an unlimited number of no-par preferred shares authorized. At 12/31/2003, the end of the Company's most recent fiscal year, there were 6,630,066 common shares issued and outstanding. At 5/31/2004, there were 13,904,062 common shares issued and outstanding.
The Company's financial statements are stated in Canadian Dollars (CDN$) and are prepared in accordance with Canadian Generally Accepted Accounting Principles (GAAP); nevertheless, the financial statements conform in all material respects with US GAAP, except as disclosed in footnotes to the financial statements.
Herein, all references to "$" and "CDN$" refer to Canadian Dollars and all references to "US$" refer to United States Dollars. All references to common shares refer to the Company's Common Shares without Par Value unless otherwise indicated.
The information contained in this Annual Report is current as at5/31/2004, except where a different date is specified.
Incorporation/Name Changes
Camflo International Inc. (the "Company") was incorporated by registration of its Memorandum and Articles under the laws of the Province of Alberta on 3/21/1997 and was registered as an extra-provincial company under the Province of British Columbia Company Act on 5/28/1997. On 7/4/2001, the Company was continued as a Yukon incorporated company. On 11/19/2001, pursuant to a special resolution passed by shareholders at a Special Annual General Meeting held on 9/27/2001, the Company consolidated its capital on a one new for nine old basis and changed its name from Camflo Resources Ltd. to Camflo International Inc.
Stock Consolidations
The Company consolidated its common shares on a 1-for-9 basis effective 11/22/2001. All references to number of shares and to per share data reflect post-consolidation basis unless otherwise indicated.
1998-1999 Mineral Property Exploration
Effective 7/20/1998, upon approval of the Alberta Stock Exchange, upon completion of its "qualifying transaction", the acquisition of the Montbray Property in November 1997, a base-metal exploration project in Quebec. The Montbray Property was acquired for cash and securities valued at $205,000. Through Fiscal 1999, the Company has expended $212,267 on exploration, which was written-off in Fiscal 2000. During Fiscal 2001, the Company abandoned the property and wrote off its acquisition cost.
Acquisition of eteeoff.com
By an agreement dated 5/6/1999, the Company acquired 100% of the issued share capital ofeteeoff.com Inc., a Canadian company that was attempting to develop a comprehensive golf site on the Internet that was to provide users with a universal tee-off system. During Fiscal 1999, the Company abandoned the development of the golf site on the Internet, expensed $130705 of website development costs, and wrote-off deferred acquisition costs of $51,418.
Oil/Gas Property Acquisition/Exploration
In February 2002, the Company acquired a 20% working interest and a 16% net interest in the Wimberley No. 5 gas prospect located in Texas; the well commenced production but production rapidly declined to a point that a refrac was proposed to attempt to revive production; the Company received a cash call for the refrac and upon discussions and consultation, the Company decided not to proceed with further investment and the investment was written down in 2003.
In January 2003, the Company acquired a 10% working interest of oil/ghts in the Snipe Lake Prospect, located in central Alberta. Additional adjoining acreage was purchased in February 2004. The Company has completed a successful gas well and is awaiting a pipeline connection to commence production.
In March 2003, the Company acquired a 35% net working interest of oil/gas rights in the Alexander Prospect in central Alberta.
In March 2003, the Company acquired a 21.5% working interest in Prairie River Prospect in central Alberta. In November 2003, the Company completed a successful gas well and produced $51,805 in revenue during 2003; increased production is anticipated in 2004.
In October 2003, the Company acquired a 68% working interest in Rainbow Lake Project in northern Alberta.
In March 2004, the Company acquired a 30% working interest in oil/gas leases in the Goose River Prospect in central Alberta.
Financings
The Company has financed its operations through funds raised in public/private placements of common shares and loans.
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Number of Capital
Date Nature of Share Issuance Shares Raised
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Fiscal 1999 Acquisition of eteeoff.com 60,000 Shares $1
Fiscal 2000 Acquisition of eteeoff.com 50,000 Shares $nil
2/18/2002 Acquisition of Property 150,000 Shares $ 15,000
2/18/2002 Property Finder's Fee 80,000 Shares $ 8,000
4/ 1/2002 Private Placement 1,000,000 Units $100,000
8/20/2002 Loan Bonus 150,000 Shares $ 15,000
11/06/2002 Stock for Debt Settlement 1,050,000 Shares $126,000
8/22/2003 Private Placement 1,000,000 Units $300,000
10/14/2003 Private Placement 1,667,667 Units $500,000
10/14/2003 Exercise of Options 26,733 Shares $ 3,475
11/12/2003 Conversion of Debentures 400,000 Units $ 40,000
1/30/2004 Private Placement 400,000 Units $200,000
1/30/2004 Private Placement 2,200,000 Units $990,000
2/12/2004 Conversion of Debentures 3,600,000 Units $360,000
1/15/2004 Exercise of Warrants 1,000,000 Shares $140,000
4/01/2004 Exercise of Warrants 68,000 Shares $ 30,600
4/05/2004 Exercise of Warrants 12,000 Shares $ 5,400
5/20/2004 Exercise of Warrants 100,000 Shares $ 30,000
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4.B. BUSINESS OVERVIEW
Business of the Company. The Company has acquired oil and gas exploration/ development prospects in Alberta, Canada and Texas, USA. It is the Company’s objective to further finance these prospects to the production stage and expects to receive positive cash flow. It is also the Company’s objective to raise further finance to acquire additional oil and gas prospects.
Wimberley No. 5 Gas Prospect. The Company acquired its 20% working interest (16% net revenue interest) in this prospect in February 2002 for cash and common shares valued at $177,566; associated with the acquisition were $16,324 in legal expenses and $8,000 in finder's fees. Since that time, the Company has expended $14,357 on related capital assets. The Wimberley #5 well was brought on-stream in late 2002, but developed a production problem related to the lack of suitable pressure in the well bore to maintain suitably economic production rates. An additional pump was purchased and installed The Wimberley #5 well was brought back on-stream in early 2003 and production is starting to build. A refrac was proposed to attempt to revive production; the Company received a cash call for the refrac and upon discussions and consultation, the Company decided not to proceed with further investment and the $212,778 ca pitalized investment was written down in 2003.
Snipe Lake Prospect. The Company acquired its 10% working interest in late March 2003 in this property by agreeing to fund its share of costs of a test well. The test well was drilled and economic gas production was achieved based on the initial drill stem testing. A production decision was made by the operator and a road construction permit was requested. Once received it is the intention to complete the construction of a road and hook up the well to the nearby pipeline and commence production. To date the Company has funded $93,550 of the test well and has committed to fund its portion of the road construction and pipeline hook-up which is estimated to be approximately $240,000.
Alexander Prospect. On 6/18/2003, the Company announced it planned to acquire a 35% net working interest of petroleum and natural gas rights in four sections of land with potential for multiple oil & gas formations in the Alexander Prospect near Edmonton, Central Alberta. The agreement calls for the Company to pay 70% of the cost of drilling/completion of two re-entry oil wells and two new gas wells for a 70% working interest before payout, subject to a convertible overriding royalty of 15%. After payout to the Company on these four wells, the convertible overriding royalty will convert to a 35% working interest, leaving the Company retaining a 35% net working interest. By drilling these wells, the Company earns an option to participate in additional wells on these four sections on a straight-up basis (35% of costs for a 35% working interest) as well as an additional three contiguous sections (Area of Mutual Inter est- AMI) also on a straight-up basis (35% of costs for a 35% working interest). The Company has completed the first phase purchase of a 35% net working interest of completed gas well 3-7 (Belly River Shallow Gas Well) for $42,000.
Prairie River
The Company entered into an agreement to acquire a 21.5% net working interest in a gas well re -completion, known as the 15-16 well, in one section of land in the Prairie River area of Alberta. The agreement calls for the company to pay 35% of the costs, approximately $56,420, of re-completion for a 21.5% working interest of petroleum and natural gas rights. In addition, the Company took an option on three sections of adjoining lands by paying 40% of a subsequent seismic program and drilling an additional well at 100% working interest before payout and 49.5% working interest after payout at the Company's election.
On October 15, the 15-16 well was placed in production at Prairie River. The well came on stream at an initial rate of approximately 800,000 cubic feet of gas per day with the rate declining slightly since commencement of production. The Company has 21.5% net working interest in this well. Camflo and its partners have shot and reviewed seismic off-setting its 15-16 well. The seismic identified an offset location to this well at 16-17-69-16 W5. The new location has been built and the well is expected to be drilled during the summer as there was not sufficient time prior to breakup. Camflo renegotiated its previous option agreement and has agreed to participate as to a 51.25% working interest before payout reverting to a 31% working interest after payout in the new well and will have earned this interest in the three sections of petroleum & natural gas leases originally optioned. With facilities in place the 16-17 well, if successful, could be placed on production immediately
Goose River
During the quarter, the Company entered into an agreement to acquire a 30% working interest in four sections of petroleum and natural gas leases in the Goose River area of Alberta. The agreement calls for Camflo to pay 30% of the cost of drilling and completing a test well which has been technically defined by seismic data. Camflo will have a 30% working interest before payout, reverting to an 18% working interest after payout in the test well and will earn an 18% net working interest in all four sections of land. This multi-zone test well, at 6-3- 69-17-W5, has been drilled and cased in expectation for production of commercial quantities of oil and gas. In addition, Camflo has the right to participate on the same terms, by way of an option, on eight sections of adjoining lands with similar geological objectives. These twelve sections of land are contiguous to Camflo’s acreage in the Snipe Lake and Prairie River areas in Northern Alberta. &nbs p;Camflo acquired an additional 8% working interest in the Goose River test well as a result of a partner not participating in this well. All remaining partners picked up their proportionate working interests. The additional interest has a 500% penalty payment associated against the non participating party. Once 500% of the total costs of this operation have been recovered the non-participating party will reacquire the 8% working interest from Camflo.
Rainbow Lake Project - Black Creek, Northern Alberta
The Company has entered into an agreement to acquire a 68% working interest in three sections of land in the Rainbow area of Alberta near Black Creek. The agreement calls for Camflo to pay 68% of the costs of drilling and completion of a well to test the Keg River reef as defined by 3-D seismic. Camflo will have a 68% working interest before payout, reverting to a 34% working interest after payout, in the petroleum and natural gas rights.
In addition, Camflo has the right to participate, by way of an option, on three sections of adjoining lands with a similar anomaly. Camflo and its partners have drilled and cased the well, 3-18-110-09-W6, at Rainbow Lake. The service rig started its test on this multi-zone well, but due to warm weather and earlier than usual breakup, the test was suspended and will resume as soon as conditions allow. The Muskeg and Jean Marie formations will be tested for potential oil production and the Sulphur Point formation will be tested for the potential of natural gas production. On a successful completion, this well has set up two more drillable locations.
United States vs. Foreign Sales/Assets
During 2003, the Company generated $51,805 in revenue from oil/gas production. During 2002 and 2001, the Company generated no revenue from operations. At 12/31/2003 all assets were located in Canada; at 12/31/2002 $201,890 of the Company’s assets were located in the United States, principally the Wimberley No 5 Gas Prospect.
Plan Of Operations
Source of Funds for Fiscal 2004
The Company’s primary source of funds since incorporation has been through the issuance of common stock and loans. The Company had modest revenue from oil/gas operations during Fiscal 2003 ($51,805) and anticipates significant oil/gas operation revenues in Fiscal 2004.
The Company had working capital deficit of ($539,578) at 12/31/2003. During 2004-to-date, the Company has completed several private placements, converted debentures into common shares/warrants, and issued shares upon exercise of warrants and stock options, raising $2,470,000. At 5/31/2004, the Company had 736,933 outstanding stock options with exercise prices ranging from $0.13 to $0.50. At 5/31/2003, the Company had8,198,667 outstanding share purchase warrants with exercise prices ranging from $0.10 to $0.60.
The Company has had discussions with third parties about additional equity offering; but the talks as of 5/31/2004 were preliminary.
Use of Funds for Fiscal 2004
During Fiscal 2004, the Company estimates that total general/administrative costs will be approximately $500,000. During Fiscal 2004, the Company estimates that it will expend $2 million on property acquisition/exploration.
Anticipated Changes to Facilities/Employees
Since the signing of the property acquisition agreements, the Company added no additional personnel to assist in the seismic programs or for administrative/general activities. There are no plans to add additional personnel to assist with the seismic/drilling programs; rather, the Company is relying on the property operators to provide all technical staff.
4.C. Organization Structure
The Company currently has no subsidiaries.
4.D. Property, Plant and Equipment
Executive Offices
The Company's executive offices are located inshared, rented premises of approximately 1,000 square feet at 789 West Pender Street, Suite 1205, Vancouver, British Columbia V6C 1H2. Rent is $1500 per month. The Company began occupying this facility in April 2003 and considers the facility adequate for current needs.
Figure No. 1
![[camflointernationalincfor002.jpg]](https://capedge.com/proxy/20-F/0001175710-04-000116/camflointernationalincfor002.jpg)
Rainbow Lake – Black Creek Prospect
The property is accessible year round approximately fifteen hours north of Edmonton, Alberta, Canada. All required approval permits are in place.
Camflo and its partners have drilled and cased a well, 3-18-110-09-W6, at Rainbow Lake. The Muskeg and Jean Marie formations will be tested for potential oil production and the Sulphur Point formation is expected to produce commercial quantities of natural gas. On a successful completion, this well has set up two more drillable locations. Camflo has a 68% WI BPO (before pay out), reverting to a 34% APO (after pay out) on this well.
a) Acquired 68% W.I. BPO (before payout) and 34% APO (after payout).
Earned rights in Twp 110 Range 9 W6M: Sections 7,18,19.
b) Drilled well as defined by 3D seismic this winter.
c) Multi Zone Flow test to commence March 2004.
d) Testing the Muskeg and Jean Marie Formations for Oil.
e) Testing the Sulphur Point Formation For Gas.
f) Seismic indicates 2 additional drill locations.
g) Camflo has the right to participate, by way of an option, on 3 sections of
adjoining lands with a similar anomaly. Twp 110 Rge 10: Sections 12,13,24.
Snipe Lake Prospect
Acquisition Details
Camflo International Inc. (“the Company”) has acquired a 10% working interest of petroleum and natural gas rights in four sections north of Swan Hills, Alberta. The 10% working interest is based on paying 10% of the costs of drilling, completion and pipeline tie-in of the test well before payout subject to a convertible overriding royalty of 15%. After payout, the convertible overriding royalty will convert to a 5% working interest. By drilling this well, the Company earns an option to participate in further exploration in an additional three contiguous sections at the same terms and conditions.
Property Description
The property consists of four sections of land of 640 acres per section, with additional participation in an adjacent 11 sections. Seismic data has identified a potential undeveloped Swan Hill Reef (Devonian) build up at the South end of the Snipe Lake Swan Hills pool. Seismic and drilling could confirm potential reef reservoir with significant recoverable oil reserves. The operator Innova Energy of Calgary, Alberta has recently drilled a test well and is currently evaluating the results.
Accessibility/Climate/Local Resources/Infrastructure/Physiography
Snipe Lake has year round access for development wells and winter access only for exploratory wells. The property is accessible by paved road approximately five hours north of Edmonton, Alberta, Canada and then by secondary unpaved but passable secondary roads. All required approval permits are in place.
Work Done by Former Owners
The previous owner completed approximately 5 kilometers of 2D seismic data and expects to shoot a comprehensive 3D program during the following 12 months.
Prairie River Prospect
The property is accessible by paved road approximately five hours north of Edmonton, Alberta, Canada and then by secondary unpaved but passable secondary roads. All required approval permits are in place.
Camflo and its partners have a producing well, 15-16-69-16-W5. This well is flowing at a stabilized rate of 800 mcf/d. Seismic indicates an off-set location to this well at 16-17-69-16-W5. The new location has been built and is expected to be drilled this summer. This development well is expected to produce at rates in excess of 2 mmcf/d and will be tied in immediately after completion. Camflo has a 21.5% net interest in the 15-16 well and a 51.25% WI BPO reverting to a 31% WI APO in the 16-17 well. A further location has been identified by seismic. Camflo participates in four sections of land at Prairie River.
a) Camflo paid 35% W.I. to re-complete the 15-16, T69 R16 W5M well in the
Gething formation to earn net 21.5%.
b) The 15-16 well is flowing at a stabilized rate of 800 MCF per day.
c) The 15-16 well is on production, Camflo's interest is 21.5%.
d) Drilling of offset well, 16-17 51.25 WI BPO 31% APO commencing March 2004.
e) Immediate tie in and production of 16-17 on a successful well
f) By re-completion of the 15-16 well, Camflo earns three sections of option
land in Sections 9, 17 and 18 T69 R16 W5M with a seismic program
g) Using the results of the seismic program, the Company has a rolling option
to drill on the option lands
h) The Company will drill a development well at 16-17 with a larger working
interest.
i) The Company will earn the 3 sections of option lands by drilling 16-17.
Goose River Prospect
The property is accessible by paved road approximately four hours north of Edmonton, Alberta, Canada and then by secondary unpaved but passable secondary roads. All required approval permits are in place.
Camflo and its partners drilled and cased a multi-zone test well, 6-3-69-17-W5, which was technically defined by seismic data. Camflo will have 30% working interest before payout, reverting to an 18% working interest after payout in the test well and will earn an 18% net working interest in all four sections of land. In addition, Camflo has the right to participate on the same terms, by way of an option, on eight sections of adjoining lands with similar geological objectives.
a) Acquired 30% W.I. BPO (before payout) and 18% APO (after payout) in Test
Well, 6-3-69-17-W5.Will earn rights in Twp 69 Range 17 W5M: Sections 3,4,
and Twp 68 Range 17 W5M: Sections 33, 34.
b) Drilling of 6-3-69-17-W5 March 17, 2004.
c) Test well, 6-3, has been technically defined by seismic.
d) Camflo has the right to participate, by way of an option, on 8 sections of
adjoining lands with a similar geological objectives. Twp 68 Rge 17:
Sections 21,22,27,28,35,36 and Twp 69 Rge 17: Sections 1,2.
Alexander Prospect
The property is accessible by paved road approximately one hour north of Edmonton, Alberta, Canada and then by secondary unpaved but passable secondary roads. All required approval permits are in place.
Camflo and its partners have four sections of land in the Alexander area that includes an existing Belly River gas well. Camflo has participated for a 35% WI in the 12-7-57-1-W5, and the 6-7-57-1-W5 wells. These wells were drilled and cased. Camflo has also committed for a 30% WI 5-8-57-1-W5, a Belly River well. These wells will be put on production in June 2004.
a) Re-activated 3-7 T57 R1 W5M Wabamum well to utilize for future water
disposal
b) Re-entered 12-7 T57 R1 W5M well and confirmed Ostracod formation
c) Drill 6-7 T57 R1 W5M to establish Ostracod and Wabamum oil production
d) Drill 5-8 T57 R1 W5M well to establish Belly River gas production and one
additional Belly River well
e) Drill 16-4 T57 R1 W5M well to establish Basal Quartz gas production
f) Drill future wells after tank battery & water disposal facilities in place
at 3-7 Wabamum well location.
ITEM 5. OPERATING AND FINANCIAL REVIEW AND PROSPECTS
The following discussion for the fiscal years ended 12/31/2003, 12/31/2002, and 12/31/2001 should be read in conjunction with the Company’s consolidated financial statements and notes thereto.
The following discussion contains forward-looking statements that are subject to significant risks and uncertainties. Readers should carefully review the risk factors described herein and in other documents the Company files from time to time with applicable securities commissions.
All per-share figures and number of shares are adjusted for the one-for-nine stock consolidation effective 11/22/2001.
Overview
We commenced our operations in 1998 and made a corporate decision to explore opportunities for the acquisition/exploration of mineral properties. We acquired an option for a mineral property in Quebec, Canada; relatively unsuccessful in our exploration efforts, we wrote-off our exploration expenses in 2000 and abandoned the property in 2001. During 1999 attempted to acquire eteeoff.com, which was developing an on-line golf tee-time reservations system; at the end of 1999, management concluded that this alliance and business was not capable of being financed and website development expenses and deferred development costs were written off. In February 2002, the Company acquired a 20% working interest and a 16% net interest in the Wimberley No. 5 gas prospect located in Texas; the well commenced production but production rapidly declined to a point that a refrac was proposed to attempt to revive production; the Company received a cas h call for the refrac and upon discussions and consultation, the Company decided not to proceed with further investment and the investment was written down in 2003.
In March 2003, the Company acquired a 10% working interest of oil/ghts in the Snipe Lake Prospect, located in central Alberta. Additional adjoining acreage was purchased in February 2004. The Company has completed a successful gas well and is awaiting a pipeline connection to commence production.
In March 2003, the Company acquired a 35% net working interest of oil/gas rights in the Alexander Prospect in central Alberta.
In March 2003, the Company acquired a 21.5% working interest in Prairie River Prospect in central Alberta. In November 2003, the Company completed a successful gas well and produced $51,805 in revenue during 2003; increased production is anticipated in 2004.
In October 2003, the Company acquired a 68% working interest in Rainbow Lake Project in northern Alberta.
In March 2004, the Company acquired a 30% working interest in oil/gas leases in the Goose River Prospect in central Alberta.
The year 2003 saw a substantial increase in market prices for both oil and natural gas. The large amount of unbudgeted cash flow accruing to oil and natural gas producers due to these high prices alone has put substantial pressure on industry to find ways to employ this capital. Strong cash positions of conventional producers and competition for on-line production by Income Trust Funds have together pushed the demand for new drilling prospects to an all time high. The Company has been successful in developing new high quality prospects that will be drill-ready in 2004.
It is expected that commodity pricing will continue to be the main factor influencing industry decisions in the near future. Oil prices at 12/31/2003 was US$32.78 per barrel for West Texas Intermediate (WTI); natural gas was CDN$6.38 per thousand cubic feet (mcf). Both oil and gas prices increased early in 2004; oil peaked near US$42 per barrel before settling near $38 per barrel; natural gas prices are near CDN$7.00/mcf.
The Middle East situation obviously influences commodity prices however the demand in the Far East is also an influence, one that is difficult to measure on overall world market prices. The net effect of prolonged higher prices is the increase of the longer-term benchmark prices used by industry for WTI from US$25.00/barrel upwards to over US$30.00. The Company believes this would influence, and move forward, investment in long-term projects such as oil sands plants and the Mackenzie Valley natural gas pipeline. Current high prices have identifiably increased competition for, and the cost of, short and mid-term projects including the amounts being paid for on-line production. The resource industry in which the Company is engaged is, in general, highly competitive. Competitors include well-capitalized resource companies, independent resource companies and other companies having financial and other resources far greater than those of the Company. Thus, a degree of competition exists between those engaged in the resource industry to acquire the most valuable properties. Due to the competitive pressures, the Company continues to seek medium-risk plays that are less sought after.
Three of the Company’s properties (Goose River, Rainbow Lake, and Alexander) are in the exploration stage and management has not yet determined whether they contain any reserves that are economically recoverable. The recoverability is dependent upon the discovery of commercially recoverable reserves, the ability of the Company to obtain the necessary financing to develop the properties, and upon future profitable production or proceeds from the sale thereof.
Despite recent limited gas production from the Prairie River Prospect, the Company has no history of production, operations, revenue, or earnings. Investors rely on the knowledge and expertise of the directors and officers of the Company. If the Company’s exploration programs are successful, additional funds will be required for the development of commercial oil/gas operations. There is no assurance that any such funds will be available to the Company and the only sources of future funds presently available to the Company are the sale of equity capital, or the offering by the Company of an interest in its properties to be earned by another party or parties carrying out exploration or development thereof. Failure to obtain additional future financing on a timely basis could cause the Company to forfeit its interest in its properties and reduce or terminate its operations.
Operating Results
Fiscal 2003 Ended December 31, 2003 versus Fiscal 2002
Modest revenue of $51,905 was generated by gas production at the Prairie River Prospect; after cost of sales the Company reported ($7,350) in Gross Loss. Administrative expenses increased 29% 348,733 during Fiscal 2003 as expected due to the Company’s increased financing and property acquisition activity. Management fee of $102,000 ($60,000 in 2002) were paid indirectly ($60,000) to the Chief Financial Officer and $42,000 to the new President of the Company. Interest on the $400,000 of 15% Convertible Debentures issued February 2002 was $70,906 versus $52,296. Consulting Fees were $24,696 versus $nil as a result of increased acquisition and dur diligence activities. Finance fees were $nil versus $15,000; and interest on promissory notes were $13,002 versus $31,418. This year there was a ($37,931) write-down of resource properties and a ($217,778) write-off of abandoned resource properties (Wimberley No. 5 Ga s Prospect). Net Loss for Fiscal 2003 was ($356,083) versus a ($269,021) loss last year. Net Loss Per Share was ($0.14). Weighted average number of shares was 4,319,622 versus 2,321,666 last year.
Fiscal 2002 Ended December 31, 2002 versus Fiscal 2001
Administrative expenses increased 30% during Fiscal 2002 as expected due to the Company’s increased financing and property acquisition activity. Administration expenses were $269,021 compared to $207,184 last year. Management fee of $60,000 (unchanged) were paid indirectly to the President of the Company. Interest on the $400,000 of 15% Convertible Debentures issued February 2002 was $52,296. The only other expenses category that consumed more than 10% was $31,418 (2001 = $31,167) interest on promissory notes; these notes were retired on 11/5/2002 with a stock-for-debt settlement.
Net Loss for Fiscal 2002 was ($269,021). Net Loss Per Share was ($0.12). Weighted average number of shares was 2,321,666 versus 1,106,666 last year.
Fiscal 2001 Ended December 31, 2001 versus Fiscal 2000
Administrative expenses increased during Fiscal 2001 as expected due to the Company’s increased borrowing costs. Administration expenses rose 6% to $207,872 compared to $196,768 last year. Expenses were much reduced in Fiscal 2000 without the large website development/promotional/marketing costs incurred in Fiscal 1999. Alan Crawford, the President of the Company, was paid and/or accrued management fees of $60,000 for Fiscal 2001 compared to $60,000 last year. The total management fees paid was reduced from $75,000 the year previously due to the resignation of another director who received management fees for part of the year. Consulting fees were $44,000, up from $34,000 last year; these fees were paid to one of the directors in lie of management fees for work done on the Company’s mining projects.
The Company incurred $31, 167 interest on the 15% promissory notes undertaken during Fiscal 2001 to fund corporate operations. Professional fees were $26,597, down from $35,106 last year; these fees were paid to a geological company for services provided for in connection with the Company’s resource properties.
Net Loss for Fiscal 2001 was ($412,184) including the ($205,000) write-off of acquisition costs for the Montbray Property; Net Loss Per Share was ($0.37).
Liquidity and Capital Resources
The Company has funded its business opportunities from private placement of common shares, loans, and from services provided by the officers of the Company.
During 2001, the Company completed a one-for-nine stock consolidation. During 2001, the Company incurred $244,200 in promissory notes; the promissory notes payable are unsecured, bear interest at 15% per annum and are due on 12/30/2004. Also during 2001, the Company incurred a loan payable of $75,000 to Dunross Capital Limited; this loan payable was unsecured, bears interest at 18% per annum and is due on 3/1/2002; the loan was extended to 1/15/2004; the Company paid a finder’s fee of $7,500 and in August 2002 issued 150,000 loan bonus shares valued at $0.10 per share with respect to this loan.
In February 2002, the Company issued 150,000 common shares at a deemed value of $0.10 per share as part of the $205,000 acquisition cost of the Wimberley No. 5 Gas Prospect. In February 2002, the Company issued 80,000 common shares at a deemed value of $0.10 per share as a finder's fee related to the acquisition of the Wimberley No. 5 Gas Prospect.
In February 2002, the Company issued $400,000 of Convertible Debentures. The convertible debentures bear interest at 15% per annum and mature 2/28/2007. The debentures and accrued interest are convertible into units consisting of one common share and one share purchase warrant at $0.10 per unit in years one and two, at $0.15 per unit in year three, at $0.20 per unit in year four and at $0.25 per unit in year five. The share purchase warrants entitle the holders the right to purchase one common share for each warrant held at $0.10 per share for two years from the conversion date for conversions in the first two years, at $0.15 per share for one year for conversions in the third year, at $0.20 per share for one year for conversions in the fourth year and at $0.25 per share for one year for conversions in the fifth year. A total finders fee of $27,600 was paid with respect to this private placement. As at 12/31/2002, $52, 296 of interest had been accrued on these debentures.
In April 2002, the Company completed a 1,000,000 unit private placement at $0.10 per unit, with each unit consisting of one common share and a share purchase warrant entitling the holder to acquire an additional common share at $0.14 per share until 4/1/2004.
In November 2002, the Company issued 1,050,000 common shares to current/former Officers/Director to settle $126,000 of debt.
In August 2003, the Company completed a $300,000 private placement of 1,000,000 units of common shares and warrants at $0.30; each unit consisted of one common share and one share purchase warrant exercisable into an additional common share at a price of $0.30 per share for two years.
In October 2003, the Company completed a $500,000 private placement of 1,666,667 units of common shares and warrants at $0.30; each unit consisted of one common share and one share purchase warrant exercisable into an additional common share at a price of $0.30 per share for one years.
In October 2003, 26,733 common shares were issued pursuant to the exercise of stock options, raising $3,475.
In November 2003, 400,000 common units were issued pursuant to the conversion of debentures; each unit consisted of one common share and one share purchase warrant exercisable into an additional common share at a price of $0.10 for two years.
In January 2004, the Company completed a $200,000 private placement of 400,000 units of common shares and warrants at $0.50; each unit consisted of one common share and one share purchase warrant exercisable into an additional common share at a price of $0.60 per share until 1/30/2005; the cash proceeds of which were received prior to 12/31/2003. 6,000 common shares were issued as a finder’s fee.
In January 2004, the Company completed a $990,000 private placement of 2,200,000 units of common shares and warrants at $0.45; each unit consisted of one common share and one share purchase warrant exercisable into an additional common share at a price of $0.60 per share until 1/30/2006.
In February 2004, 3,600,000 common units were issued pursuant to the conversion of remaining 8% convertible debentures; each unit consisted of one common share and one share purchase warrant exercisable into an additional common share at a price of $0.10 for two years.
In 2004, 68,000 common shares were issued pursuant to the exercise of warrants, raising $30,600.
In April 2004, the Company completed a $720,000 private placement of 1,200,000 units of common shares and warrants at $0.60; each unit consisted of one common share and one share purchase warrant exercisable into an additional common share at a price of $0.75 per share for one year.
In 2004, 100,000 common shares were issued pursuant to the exercise of warrants, raising $30,000.
In 2004, 12,000 common shares were issued pursuant to the exercise of warrants, raising $5,400.
Fiscal 2003
Working Capital was a negative ($539,078) at 12/31/2003.
Cash Provided by Fiscal 2003 Operating Activities totaled $272,778, including the ($611,792) Net Loss. Material adjustments included $28,954 in depletion, $13,875, ($255,709) in write-down and write-off of resource properties, and $586,032 increase in non-cash working capital (primarily reduced accounts payable. Cash Used in Fiscal 2003 Investing Activities totaled ($1,419,878), primarily for acquisition/exploration of resource properties. Cash Provided by Fiscal 2003 Financing Activities totaled $1,090,883, primarily from the aforementioned share issuances and loans. The significant majority of the accounts payable of $604,511 was due to the Company’s joint venture partner, Spearhead Resources, as part of ongoing work in progress of ongoing drilling and exploration activities in the Alexander, Rainbow, and Prairie River projects.
Fiscal 2002
Working Capital was $90,028 at 12/31/2002.
Working Capital was a negative ($142,570) at 12/31/2001.
Cash Used in Fiscal 2002 Operating Activities totaled ($249,891), including the ($269,021) Net Loss. Material adjustments included $8,758 in amortization, $15,000 in financing fees, and ($4,628) decrease in non-cash working capital. Cash Used in Fiscal 2002 Investing Activities totaled ($193,247), for the Wimberley No. 5 Gas Prospect, excluding the non-cash deemed value ($23,000) of the 150,000 common shares issued for the property and 80,000 common shares issued as a finder's fee for the property. Cash Provided by Fiscal 2002 Financing Activities totaled $475,773 from the aforementioned share issuances and loans.
Research and Development, Patents and Licenses, Etc.
No Disclosure Necessary
ITEM 6. DIRECTORS, SENIOR MANAGEMENT, AND EMPLOYEES
6.A. Directors and Senior Management
Table No. 6
Directors and Senior Management
June 29, 2004
___________________________________________________________________________
___________________________________________________________________________
Date of First
Election or
Name Position Age Appointment
---------------------------------------------------------------------------
Gregory C. Burnett (1)(2) Director 42 May 1998
Alan G. Crawford (1) (2)(3) CFO/Director 49 April 1997
Thomas A. Doyle (2)(4) President/CEO/Director 42 June 2003
John G. (Jack) McManus (1) Director 67 September 2003
Andrea D. Regnier (2)(5) Corporate Secretary 45 June 2003
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(1) Member of Audit Committee.
(2) Resident/Citizen of British Columbia, Canada.
Business address: c/o Camflo International Inc.
989 West Pender Street, #1205
Vancouver, British Columbia V6C 1H2
(3) He spends about about half of his time on the affairs of the Company.
(4) He spends full time on the affairs of the Company.
(5) She spends about 15% of her time on the affairs of the Company.
_____________________________________________________________________________
_____________________________________________________________________________
Gregory C. Burnett, Director of the Company, brings 17 years experience in corporate management. Since 1989, he has been President of Carob Management Ltd., a private management consulting company, specializing in providing due diligence services, developing business plans, and structuring/ managing various venture capital projects, primarily in the public market area. Mr. Burnett is the President/CEO of Tri-Lateral Venture Corporation, a gold-exploration company publicly traded on the Canadian Unlisted Board. Mr. Burnett serves on the board of directors and is a consultant to the following public companies: Garibaldi Granite Corp., Orko Gold Corp., and Prefco Enterprises Inc., all listed on the TSX Venture Exchange. Mr. Burnett obtained a Master of Business Administration degree (1986) and a Bachelor of Applied Sciences Degree in Civil Engineering (1984) from the University of British Columbia.
Alan Crawford, Chief Financial Officer/Director of the Company, brings over 20 years of international finance and investment experience. Mr. Crawford was President of the Company from August 1997 to August 2004. Mr. Crawford founded a corporate-finance consulting firm, TechVen Finance Group, and was a Registered Representative of Canaccord Capital Corp. and Nesbitt Burns. He is a director of various publicly-listed companies: including Northern Hemisphere Developments Ltd., Northern Continental Resources Ltd., Zena Capital Corp., Ona International Inc., Aberdeen International Inc. Mr. Crawford is President of Aberdeen International Inc. Mr. Crawford obtained his MBA degree from University of Edinburgh in Scotland.
Thomas Doyle, President/CEO/Director of the Company, has over twenty years experience in the securities industry. Tom Doyle joined Camflo International as President and Chief Executive Officer in June 2003. Prior to taking the leadership of Camflo International, Mr. Doyle held a variety of senior positions across numerous aspects of the financial industry including Canaccord Capital between August 1992 and July 2000 and LOM Securities between February 2001 and May 2003. Through these enterprises, Mr. Doyle developed extensive expertise in domestic and foreign financial markets, management, business plan development, and capital formation for a variety of industries but primarily within the oil and gas industry. His experience in oil and gas has exposed him to projects across North and South America, and parts of Asia. These experiences have familiarized Mr. Doyle with numerous types of investment strategies being offer ed in oil and gas exploration and production and he has developed an understanding of how investors' interests in this field can be best served. These are the strategies Mr. Doyle has and will continue to use in developing Camflo International.
As a result of his hands on management style Mr. Doyle has developed extensive expertise in the comprehensive evaluation of oil and gas projects including: geological assessment, evaluation of infrastructure and production feasibility, organizing and structure of acquisitions, and capital formation to acquire assets. His experience includes assessment of both onshore and offshore properties. His particular expertise is in evaluating the costs and risks associated with exploration and producing properties, and raising the venture capital necessary to acquire those which will become profitable assets. Mr. Doyle has a successful record of working with junior oil and gas companies in building their assets to warrant substantial increases in their market capitalization and preparing others to be acquired by larger entities because of the added value Mr. Doyle helped develop in these companies.
John G. (Jack) McManus, Director of the Company, is a geological engineer with over forty years Canadian oil/gas industry experience, including field work and senior management positions with public companies. Since retiring in 1991, as President/Director of Tuscany Resources Ltd., he has worked as a private consultant to the oil/gas industry.
Andrea D. Regnier, Corporate Secretary of the Company, is the founder and Director of Dawn Pacific Management Corporation, a private Canadian company providing accounting and regulatory maintenance services for public companies.
The Directors have served in their respective capacities since their election and/or appointment and will serve until the next Annual General Meeting or until a successor is duly elected, unless the office is vacated in accordance with the Articles/By-Laws of the Company.
The Senior Management serves at the pleasure of the Board of Directors with management service contracts but without term of office, except as disclosed in ITEM #6B below.
Despite the Company’s Executive Officers spending material portions of their time on businesses other than the Company, the Company believes that they devote sufficient time to the Company to property carry out their duties.
No Director and/or Executive Officer has been the subject of any order, judgment, or decree of any governmental agency or administrator or of any court or competent jurisdiction, revoking or suspending for cause any license, permit or other authority of such person or of any corporation of which he is a Director and/or Executive Officer, to engage in the securities business or in the sale of a particular security or temporarily or permanently restraining or enjoining any such person or any corporation of which he is an officer or director from engaging in or continuing any conduct, practice, or employment in connection with the purchase or sale of securities, or convicting such person of any felony or misdemeanor involving a security or any aspect of the securities business or of theft or of any felony.
There are no arrangements or understandings between any two or more Directors or Executive Officers, pursuant to which he was selected as a Director or Executive Officer. There are no family relationships between any two or more Directors or Executive Officers.
6.B. Compensation
Director Compensation. The Company has no formal plan for compensating its Directors for their service in their capacity as Directors. Directors are entitled to reimbursement for reasonable travel and other out-of-pocket expenses incurred in connection with attendance at meetings of the Board of Directors. The Board of Directors may award special remuneration to any Director undertaking any special services on behalf of the Company other than services ordinarily required of a Director. Other than indicated below no Director received any compensation for his services as a Director, including committee participation and/or special assignments.
Senior Management Compensation. Total compensation accrued and/or paid (directly and/or indirectly) to all Senior Management/Directors during Fiscal 2003 ended 12/31/2003 was $102,000, including: $60,000 paid/accrued to Alan Crawford, Chief Financial Officer of the Company; and $42,000 paid/accrued to Thomas Doyle, President/CEO or the Company. There were no stock option exercises by Senior Management and all stock options granted were at “fair market value”. There was no other compensation.
Options/SARs Granted/Exercised During The Most Recently Completed Fiscal Year
During the most recently completed fiscal year, the following incentive stock options were granted to Senior Management, Directors and employees. No SARs (stock appreciation rights) were granted during this period. All options granted were vested upon granting.
Table No. 7
Stock Option Grants in Fiscal 2003 Ended 12/31/2003
___________________________________________________________________________
___________________________________________________________________________
Percentage Market Value of Securities
Number of Exer. Underlying Options
of Total Price on Date
Options Options Per Grant Exp’r of Grant
Name Granted Granted Share Date Date Per Share
------------------------------------------------------------------------------
Thomas Doyle 130,000 56.5% $0.30 9/08/2003 9/08/2008 $0.30
Jack McManus 100,000 43.5% $0.30 9/03/2003 9/03/2008 $0.30
Mgmt/Directors 230,000 100.0%
___________________________________________________________________________
___________________________________________________________________________
The Company grants stock options to Directors, Senior Management and employees; refer to ITEM #6.E., "Share Ownership, Stock Options”.
The Company has no direct written employment contract with any Executive Officer or Directors.
No funds were set aside/accrued by the Company during Fiscal 2003 to provide pension, retirement or similar benefits for Directors or Executive Officers.
The Company has no plans or arrangements in respect of remuneration received or that may be received by Executive Officers of the Company in Fiscal 2004 to compensate such officers in the event of termination of employment (as a result of resignation, retirement, change of control) or a change of responsibilities following a change of control, where the value of such compensation exceeds US$60,000 per Executive Officer.
Except for the stock option program discussed in ITEM #6.E., "Share Ownership, Stock Options”, the Company has no material bonus or profit sharing plans pursuant to which cash or non-cash compensation is or may be paid to the Company's Directors or Executive Officers.
6.C. Board Practices
Pursuant to the Yukon Company Act, or the Act, a majority of the Company’s Board of Directors must be resident Canadians and at least one member of the Board of Directors must ordinarily be resident in the Province of British Columbia, Canada. All directors hold office until the next meeting of the shareholders of the Company unless they resign or are removed in accordance with the Company’s Articles. Officers are appointed to serve at the discretion of the Board of Directors. The Board of Directors and Committees of the Board schedule regular meetings over the course of the year.
The fundamental objective of the Board is to ensure that it operates in a fashion that maximizes shareholder value over the long term. The Board’s duties and responsibilities are all carried out in a manner consistent with that fundamental objective. The principal duty and responsibility of the Board is to oversee the management and operations of the Company, with the day-to-day management of the business and affairs of the Company delegated by the Board to the CEO and other Senior Management.
The Board’s responsibilities include overseeing the conduct of the Company’s business, providing leadership and direction to its management, and setting policies. Strategic direction for the Company is developed through the Board’s annual planning process. Through this process, the Board adopts the operating plan for the coming year, and monitors management’s progress relative to that plan through a regular reporting and review process.
The Board has delegated to the CEO and Senior Management responsibility for the day-to-day management of the business of the Company. Matters of policy and issues outside the normal course of business are brought before the Board for its review and approval, along with all matters dictated by statute and legislation requiring Board review and approval. The CEO and Senior Management review the Company’s progress in relation to the current operating plan at in-person Board meetings. The Board meets on a regular basis with and without management present. Financial, operational and strategic issues facing the Company are reviewed, monitored and approved at the Board meetings.
6.C.1. Terms of Office. Refer to ITEM 6.A.1.
6.C.2. Directors’ Service Contracts. - No Disclosure Necessary -
6.C.3. Board of Director Committees.
The Company only has an Audit Committee, which recommends to the Board of Directors the engagement of the independent auditors of the Company and reviews with the independent auditors the scope and results of the Company’s audits, the Company’s internal accounting controls, and the professional services furnished by the independent auditors to the Company. The Audit Committee met twice in Fiscal 2003 and has met once during Fiscal 2004-to-date. The current members of the Audit Committee are: Gregory Burnett, Alan Crawford, and Jack McManus.
6.D. Employees
As of 5/31/2004, the Company had four active employees, including the Senior Management. As of 12/31/2003, 12/31/2002, and 12/31/2001, there were three, three, and three employees (including the Senior Management), respectively. None of the Company's employees are covered by collective bargaining agreements.
6.E. Share Ownership
Table No. 7 lists, as of 6/10/2004, Directors and Executive Officers who beneficially own the Company's voting securities and the amount of the Company's voting securities owned by the Directors and Executive Officers as a group. Table No. 7 also includes all persons/companies (Dunross Capital Limited and Trident Plus Inc) where the Company is aware that they have 5% or greater beneficial interest in the Company’s securities.
Table No. 7
Shareholdings of Directors and Executive Officers
Shareholdings of 5% or Greater Shareholders
_____________________________________________________________________________
___________________________________________________________________________
Title Amount and Nature Percent
of of Beneficial of
Class Name of Beneficial Owner Ownership Class #
Common Thomas Doyle (1) 2,230,002 14.7%
Common Greg Burnett (2) 1,500,666 10.8%
Common Alan Crawford (3) 1,400,969 9.8%
Common John G. (Jack) McManus (4) 200,000 0.1%
Common Andrea Regnier 0 0.0%
Total Directors/Officers 5,331,637 35.4%
Common Dunross Capital Limited 1,200,000 8.6%
Common Trident Plus Inc. 1,200,000 8.6%
Total Directors/Officers/5% Owners 6,731,637 54.8%
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(1) 1,000,001 represent currently exercisable warrants
230,000 represent currently exercisable stock options.
(2) 140,100 represent currently exercisable stock options.
Excludes shares held by Mr. Crawford's family where he disavows
beneficial interest and does not have voting or disposition control
(3) 400,000 represent currently exercisable warrants
166,833 represent currently exercisable stock options.
(4) 200,000 represent currently exercisable stock options.
---------------------------------------------------------------------------
# Based on 14,004,062 shares outstanding as of 6/10/2004 and share purchase warrants and stock options held by each beneficial holder exercisable within sixty days.
____________________________________________________________________________
___________________________________________________________________________
Stock Options. The terms of incentive options grantable by the Company are done in accordance with the rules and policies of the TSX Venture Exchange and the British Columbia Securities Commission, including the number of common shares under option, the exercise price and expiry date of such options, and any amendments thereto. The Company adopted a formal written stock option plan (the Stock Option Plan") on 6/19/2004.
The principal purposes of the Company’s stock option program are to (a) promote a proprietary interest in the Company among the officers, directors and employees of the Company and its affiliates, (b) retain and attract the qualified officers, directors and employees the Company requires, (c) provide a long-term incentive element in overall compensation, and (d) promote the long-term profitability of the Company.
The Stock Option Plan provides that stock options may be granted to directors, senior officers, employees and consultants of the Company and management company employees. For the purposes of the Stock Option Plan, the terms “employees”, “consultants” and “management company employees” have the meanings set out in TSX Venture Exchange Policy 4.4. In addition, the term “director” is defined in TSX Venture Exchange Policy 4.4 to include directors, senior officers and management company employees.
Under the Stock Option Plan, the Company’s board of directors (the “Board”) may, from time to time, designate a director or other senior officer or employee of the Company as administrator (the “Administrator”) for the purposes of administering the Plan. Currently, the Administrator is the Corporate Secretary of the Company.
The Plan provides for the issuance of stock options to acquire at any time up to a maximum of 10% of the issued and outstanding common shares of the Company (subject to standard anti-dilution adjustments). If a stock option expires or otherwise terminates for any reason without having been exercised in full, the number of common shares reserved for issuance under that expired or terminated stock option shall again be available for the purposes of the Plan. Any stock option outstanding when the Plan is terminated will remain in effect until it is exercised or it expires. The Plan provides that it is solely within the discretion of the Board to determine who should receive stock options and in what amounts, subject to the following conditions:
(a) options will be non-assignable and non-transferable except that they will
be exercisable by the personal representative of the option holder in the
event of the option holder’s death;
(b) options may be exercisable for a maximum of five years from grant date;
(c) options to acquire no more than 5% of the issued shares of the Company may
be granted to any one individual in any 12 month period;
(d) options to acquire no more than 2% of the issued shares of the Company may
be granted to any one consultant in any 12 month period;
(e) options to acquire no more than an aggregate of 2% of the issued shares of
the Company may be granted to an employee conducting investor relations
activities (as defined in TSX Venture Exchange Policy 1.1), in any 12
month period;
(f) options held by an option holder who is a director, employee, consultant
or management company employee must expire within 90 days after the option
holder ceases to be a director/employee/consultant or management company
employee;
(g) options held by an option holder who is engaged in investor relations
activities must expire within 30 days after the option holder ceases to be
employed by the Company to provide investor relations activities; and
(h) in the event of an option holder’s death, the option holder’s personal
representative may exercise any portion of the option holder’s vested
outstanding options for a period of one year following the option holder’s
death.
The Stock Option Plan provides that other terms and conditions may be attached to a particular stock option, such terms and conditions to be referred to in a schedule attached to the option certificate. Stock options granted to directors, senior officers, employees or consultants will vest when granted unless otherwise determined by the Board on a case by case basis, other than stock options granted to consultants performing investor relations activities, which will vest in stages over 12 months with no more than one-fourth of the options vesting in any three month period.
In addition, under the Stock Option Plan a stock option will expire immediately in the event a director or senior officer ceases to be a director or senior officer of the Company as a result of (i) ceasing to meet the qualifications under theCompany Act(British Columbia), (ii) the passing of a special resolution by the shareholders or (iii) an order made by a regulatory authority. A stock option will also expire immediately in the event an employee ceases to be an employee as a result of termination for cause or an employee or consultant ceases to be an employee or consultant as a result of an order made by a regulatory authority.
The price at which an option holder may purchase a common share upon the exercise of a stock option will be as set forth in the option certificate issued in respect of such option and in any event will not be less than the discounted market price of the Company’s common shares as of the date of the grant of the stock option (the “Award Date”). The market price of the Company’s common shares for a particular Award Date will typically be the closing trading price of the Company’s common shares on the day immediately preceding the Award Date, or otherwise in accordance with the terms of the Stock Option Plan. Discounted market price means the market price less a discount of up to 25% if the market price is $0.50 or less; up to 20% if the market price is between $2.00 and $0.51; and up to 15% if the market price is greater than $2.00.
In no case will a stock option be exercisable at a price less than the minimum prescribed by each of the organized trading facilities or the applicable regulatory authorities that would apply to the award of the stock option in question.
The Stock Option Plan also provides that (a) disinterested shareholder approval will be obtained for any reduction in the exercise price of an option held by an insider of the Company and (b) options cannot be granted to employees, consultants or management company employees that are not bona fide employees, consultants or management company employees, as the case may be.
Common shares will not be issued pursuant to stock options granted under the Stock Option Plan until they have been fully paid for by the option holder. The Company will not provide financial assistance to option holders to assist them in exercising their stock options.
The names and titles of the Directors/Executive Officers of the Company to whom outstanding stock options have been granted and the number of common shares subject to such options are set forth in Table No. 8 as of 5/31/2004, as well as the number of options granted to Directors and all employees as a group
Table No. 8
Stock Options Outstanding
___________________________________________________________________________
___________________________________________________________________________
Number of Shares of CDN$
Common Exer. Grant Expir’n
Name Stock Price Date Date
Thomas Doyle 130,000 $0.30 9/08/2003 9/08/2008
Thomas Doyle 100,000 0.50 2/23/2004 2/23/2009
John G. (Jack) McManus 100,000 0.30 9/03/2003 9/08/2008
John G. (Jack) McManus 100,000 0.50 2/23/2004 2/23/2009
Alan Crawford 66,833 0.13 2/18/2002 2/18/2007
Alan Crawford 100,000 0.50 2/23/2004 2/23/2009
Greg Burnett 40,100 0.13 2/18/2002 2/18/2007
Greg Burnett 100,000 0.50 2/23/2004 2/23/2009
Total Officers/Directors 736,933
Total Employees/Consultants _ 0
Total Officers/Directors/Etc. 736,933
___________________________________________________________________________
___________________________________________________________________________
ITEM 7. MAJOR SHAREHOLDERS AND RELATED PARTY TRANSACTIONS
7.A. Major Shareholders
7.A.1.a. Holdings By Major Shareholders
Refer to ITEM #6.E. and Table No. 7.
7.A.1.b. Significant Changes in Major Shareholders’ Holdings
The participation in private placements of equity by the Company and exercise of stock options/share purchase warrants has lead over the last several year to some significant changes in the holdings of major shareholders (5% or greater); table reflects direct/indirect holdings of common shares, refer to Table No. 7 for additional information.
___________________________________________________________________________
___________________________________________________________________________
Shares Shares Shares
Owned Owned Owned
12/31/2003 12/31/2002 12/31/2001
Thomas Doyle 1,000,001 0 0
Alan Crawford 434,136 434,136 134,136
Gregory Burnett 333,333
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Richard Hearnden 460,000 230,000 0
India Minerals Inc. 460,000 230,000 0
Alice Crawford 460,000 230,000 0
Jordan Macnab 460,000 230,000 0
3,607,460 1,354,136 134,198
______________________________________________________________________________________________________________________________________________________
7.A.1.c. Different Voting Rights. The Company’s major shareholders do not have different voting rights.
7.A.2. Canadian Share Ownership. On 5/19/2004, the Company’s shareholders’ list showed 13,904,062 common shares outstanding and 95 registered shareholders. The Company has researched the indirect holding by depository institutions and other financial institutions estimates that there are registered shareholders resident as described below:
78 resident in Canada, holding 10,467,054 common shares;
10 resident in the USA, holding 250,897 common shares; and
7 resident in other countries, holding 3,186,111 common shares.
The Company has researched the indirect holding by depository institutions and other financial institutions; based on this research and other research into the indirect holdings of other institutions, the Company believes that it has in excess of 450 beneficial owners of its common shares.
7.A.3. Control of Company. The Company is a publicly-owned Canadian corporation, the shares of which are owned by U.S. residents, Canadian residents and other foreign residents. The Company is not controlled by any foreign government or other person(s) except as described in ITEM #4.A., “History and Development of the Company”, and ITEM #6.E., “Share Ownership”.
7.A.4. Change of Control of Company Arrangements.
--– No Disclosure Necessary –--
7.B. Related Party Transactions
During Fiscal 2003/2002/2201/2000, the Company accrued to Alan Crawford fees and other expenses of $60,000, $60,000, $60,000, and $60,000, respectively. During Fiscal 2003, the Company accrued to Thomas Doyle fees and other expenses of $42,000.
The Company incurred the following charges by directors or companies with common directors:
___________________________________________________________________________
2003 2002 2001
--------------------------------------------------------------------------
Consulting fees $23,020 $0 $ 30,000
Interest – convertible debentures 14,338 10,459 0
Interest – promissory notes 10,525 23,616 28,751
Management fees 102,000 60,000 60,000
Office and miscellaneous 1,050 3,900 2,100
Office rent 1,200 4,800 7,500
Professional fees 3,500 0 0
$155,633 $102,775 $128,351
___________________________________________________________________________
These charges were measured by the exchange amount, which is the amount agreed upon by the transacting parties.
Included in accounts payable is $7,702 (2002: $Nil) owing to directors of the Company relating to unpaid expense reimbursements.
Due to related parties at 12/31/2003 of $Nil (2002: $123,079) consists of amounts owing to Directors of the Company or companies with common directors. These amounts are unsecured, non-interest bearing and have no specific terms of repayment.
Included in promissory notes payable is $214,011 (2002: $72,764) owing to Directors of the Company or companies with a common directors.
Included in convertible debentures payable is $104,798 (2002: $90,459) owing to Directors of the Company.
Other than as disclosed above and in prior Annual Reports on Form 20-F, there have been no transactions since 12/31/2000, or proposed transactions, which have materially affected or will materially affect the Company in which any director, executive officer, or beneficial holder of more than 10% of the outstanding common stock, or any of their respective relatives, spouses, associates or affiliates has had or will have any direct or material indirect interest. Management believes the transactions referenced above were on terms at least as favorable to the Company as the Company could have obtained from unaffiliated parties.
7.C. Interests of Experts and Counsel -- No Disclosure Necessary
ITEM 8. FINANCIAL INFORMATION
8.A. Consolidated Statements and Other Financial Information
The Company's financial statements are stated in Canadian Dollars (CDN$) and are prepared in accordance with Canadian Generally Accepted Accounting Principles (GAAP), the application of which, in the case of the Company, conforms in all material respects for the periods presented with United States GAAP, except as discussed in footnotes to the financial statements.
The financial statements as required under ITEM #17 are attached hereto and found immediately following the text of this Annual Report. The audit reports of Amisano Hansom, Chartered Accountants, are included herein immediately preceding the financial statements and schedules.
Audited Financial Statements
for Fiscal 2003, Fiscal 2002 and Fiscal 2001
8.A.7. Legal/Arbitration Proceedings
In Fiscal 2001, the Company (Plantiff) filed a Statement of Claim in the Supreme Court of British Columbia against eFoundry Corporation (Defendant) to recover $216,000 in advances and costs associated with the Letter Agreement entered into with eFoundry and later terminated by eFoundry. The Company has not proceeded further with such claim as it has been determined that eFoundry has little or no assets to collect on.
Other than discussed above, the Directors and the management of the Company know of no material, active or pending, legal proceedings against them; nor is the Company involved as a plaintiff in any material proceeding or pending litigation.
Other than discussed above, the Directors and the management of the Company know of no active or pending proceedings against anyone that might materially adversely affect an interest of the Company.
8.B. Significant Changes
No undisclosed significant change has occurred since the date of the annual financial statements, and/or since the date of the most recent interim financial statement.
ITEM 9. THE OFFER AND LISTING
9.A.4. Common Share Trading Information
The Company's common shares trade on the TSX Venture Exchange in Toronto, Ontario, under the symbol "CFF.V". The initial public offering was effective on the Vancouver Stock Exchange under the auspices of the British Columbia Securities Commission in April 1997 under a former name, "Camflo Resources Ltd.".
Table No. 9 lists the volume of trading and high, low and closing sales prices on the TSX Venture Exchange (Canadian Venture Exchange prior to 8/2/1002 and the Vancouver Stock Exchange prior to November 1999) for actual trades of common shares of the Company for the last six months, last eight fiscal quarters, and last five fiscal years, adjusted for the one-for-nine stock consolidation on 11/22/2001.
Table No. 9
TSX Venture Exchange
Common Shares Trading Activity
___________________________________________________________________________
___________________________________________________________________________
- Sales -
Period Canadian Dollars
Ended Volume High Low Closing
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Monthly
5/31/2004 182,885 $0.65 $0.45 $0.50
4/30/2004 762,144 0.72 0.55 0.64
3/31/2004 411,960 0.75 0.52 0.61
2/28/2004 41,220 0.65 0.55 0.60
1/31/2004 363,399 0.72 0.45 0.65
12/31/2003 42,254 0.50 0.45 0.45
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Quarterly
12/31/2003 126,308 $0.60 $0.45 $0.45
9/30/2003 368,111 0.42 0.275 0.40
6/30/2003 55,632 0.35 0.25 0.35
3/31/2003 8,465 0.28 0.18 0.28
12/31/2002 10,852 0.22 0.15 0.17
9/30/2002 18,053 0.25 0.20 0.22
6/30/2002 36,610 0.30 0.20 0.25
3/31/2002 69,911 0.25 0.12 0.25
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Yearly
12/31/2003 558,516 $0.60 $0.18 $0.45
12/31/2002 135,426 $0.30 $0.15 $0.17
12/31/2001 1,053,863 $0.20 $0.02 $0.20
12/31/2000 541,454 $0.46 $0.07 $0.09
12/31/1999 2,963,690 $0.88 $0.20 $0.40
___________________________________________________________________________
___________________________________________________________________________
The Company’s common shares began trading on the NASD OTC Bulletin Board in 12/17/1999 under the symbol CFLJF.OB. The common shares were de-listed on 08/07/2001 for failure to file required reports with the NASD, even though they had been filed with the Securities and Exchange Commission. The last trade was on 8/2/2001 at US$0.025.
The TSX Venture Exchange
The TSX Venture Exchange is a result of the acquisition by the Toronto Stock Exchange of the Canadian Venture Exchange (“CDNX”) from its member firms on 8/1/2001. The CDNX resulted from the merger between the Vancouver Stock Exchange and the Alberta Stock Exchange that took place on 11/29/1999, to form the CDNX. The TSX Venture Exchange currently operates as a complementary but independent exchange from its parent, the Toronto Stock Exchange.
The initial roster of the CDNX was made up of venture companies previously listed on the Vancouver Stock Exchange or the Alberta Stock Exchange and later incorporated junior listings from the Montreal Stock Exchange, the Winnipeg Stock Exchange, and the CDN Over-The-Counter Market. The TSX Venture Exchange is a venture market as compared to the Toronto Stock Exchange that is Canada’s senior market and the Montreal Exchange that is Canada’s market for derivatives products.
The TSX Venture Exchange currently has five service centers: Calgary, Toronto, Vancouver, Winnipeg and Montreal. These service centers provide corporate finance, surveillance and marketing expertise. The corporate office for the TSX Venture Exchange is located in Calgary and the operations office is located in Vancouver.
The TSX Venture Exchange is a self-regulating organization owned and operated by the Toronto Stock Exchange, which in turn is owned by its member brokerage firms. It is governed by representatives of member firms and the public.
Organizationally, the TSX Venture Exchange is comprised of seven business areas: Corporate Finance Services, Trading Services and Market Information Services, Compliance, Marketing, Technology, Corporate Affairs and Human Resources.
The TSX Venture Exchange acts as a business link between TSX members, listed companies and investors. TSX Venture Exchange policies and procedures are designed to accommodate companies still in their formative stages and recognize those that are more established. Listings are predominately small and medium sized companies.
Investors in Canada are protected by the Canadian Investor Protection Fund (“CIPF”). The CIPF is a private trust fund established to protect customers in the event of the insolvency of a member of any of the following self-regulatory organizations: the TSX Venture Exchange; the Montreal Exchange; the Toronto Stock Exchange; the Toronto Futures Exchange; and the Investment Dealers Association of Canada.
Post-trade monitoring of market activity occurs in the market surveillance department. Sophisticated software analyses trade data from TRADETSX to detect possible market improprieties. A variety of surveillance and investigative tools allow the TSX Venture Exchange to perform electronic market monitoring and trade reviews.
The surveillance department is also responsible for monitoring and reviewing listed company activities and detecting breaches of the listing policies or the listing agreement. Market surveillance and listed company surveillance activities are closely coordinated.
9.C. Markets Identified
The common shares trade on the TSX Venture Exchange in Canada.
Refer to ITEM #9.A.4.
ITEM 10. ADDITIONAL INFORMATION
10.A. Share Capital: --- No Disclosure Necessary ---
10.B. Memorandum and Articles of Association
Refer to discussion in Fiscal 2001 Annual Report on Form 20-F.
10.C. Material Contracts --- No Disclosure Necessary ---
10.D. Exchange Controls
Canada has no system of exchange controls. There are no Canadian restrictions on the repatriation of capital or earnings of a Canadian public company to non-resident investors. There are no laws in Canada or exchange restrictions affecting the remittance of dividends, profits, interest, royalties and other payments to non-resident holders of the Company's securities, except as discussed in ITEM 10, ”Taxation" below.
Restrictions on Share Ownership by Non-Canadians
There are no limitations under the laws of Canada or in the organizing documents of the Company on the right of foreigners to hold or vote securities of the Company, except that the Investment Canada Act may require review and approval by the Minister of Industry (Canada) of certain acquisitions of "control" of the Company by a "non-Canadian". The threshold for acquisitions of control is generally defined as being one-third or more of the voting shares of the Company. "Non-Canadian" generally means an individual who is not a Canadian citizen, or a corporation, partnership, trust or joint venture that is ultimately controlled by non-Canadians.
10.E Taxation
The following is a brief summary of some of the principal Canadian federal income tax consequences to a holder of common shares of the Company (a "U.S. Holder") who deals at arm's length with the Company, holds the shares as capital property and who, for the purposes of theIncome Tax Act (Canada) (the "Act") and theCanada – United States Income Tax Convention (the "Treaty"), is at all relevant times resident in the United States, is not and is not deemed to be resident in Canada and does not use or hold and is not deemed to use or hold the shares in carrying on a business in Canada. Special rules, which are not discussed below, may apply to a U.S. Holder that is an insurer that carries on business in Canada and elsewhere.
This summary is of a general nature only and is not, and should not be interpreted as, legal or tax advice to any particular U.S. Holder and no representation is made with respect to the Canadian income tax consequences to any particular person. Accordingly, U.S. Holders are urged to consult their own tax advisors with respect to their particular circumstances.
Under the Act and the Treaty, a U.S. Holder of common shares will generally be subject to a 15% withholding tax on dividends paid or credited or deemed by the Act to have been paid or credited on such shares. The withholding tax rate is 5% where the U.S. Holder is a corporation that beneficially owns at least 10% of the voting shares of the Company and the dividends may be exempt from such withholding in the case of some U.S. Holders such as qualifying pension funds and charities.
In general, a U.S. Holder will not be subject to Canadian income tax on capital gains arising on the disposition of shares of the Company unless (i) at any time in the five-year period immediately preceding the disposition, 25% or more of the shares of any class or series of the capital stock of the Company was owned by (or was under option of or subject to an interest of) the U.S. holder or persons with whom the U.S. holder did not deal at arm's length, and (ii) the value of the common shares of the Company at the time of the disposition derives principally from real property (as defined in the Treaty) situated in Canada. For this purpose, the Treaty defines real property situated in Canada to include rights to explore for or exploit mineral deposits and other natural resources situated in Canada, rights to amounts computed by reference to the amount or value of production from such resources, certain other rights in respect of natural resou rces situated in Canada and shares of a corporation the value of whose shares is derived principally from real property situated in Canada.
The US Internal Revenue Code provides special anti-deferral rules regarding certain distributions received by US persons with respect to, and sales and other dispositions (including pledges) of stock of, a passive foreign investment company. A foreign corporation, such as the Company, will be treated as a passive foreign investment company if 75% or more of its gross income is passive income for a taxable year or if the average percentage of its assets (by value) that produce, or are held for the production of, passive income is at least 50% for a taxable year. The Company believes that it was not a passive foreign investment company for the taxable year ended 12/31/2002 and, furthermore, expects to conduct its affairs in such a manner so that it will not meet the criteria to be considered passive foreign investment company in the foreseeable future.
10.F. Dividends and Paying Agents --- No Disclosure Necessary ---
10.G. Statement by Experts --- No Disclosure Necessary ---
10.H. Documents on Display --- No Disclosure Necessary ---
10.I. Subsidiary Information
The Company has one wholly-owned subsidiary, eteeoff.com, incorporated in Canada on 5/14/1996 and acquired on 5/14/1996. This subsidiary is inactive.
ITEM 11. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
--- No Disclosure Necessary ---
ITEM 12. DESCRIPTION OF SECURITIES OTHER THAN EQUITY SECURITIES
12.A. Debt Securities --- No Disclosure Necessary --
12.B. Warrants and Rights --- No Disclosure Necessary --
12.C. Other Securities --- No Disclosure Necessary --
12.D. American Depository Shares --- No Disclosure Necessary --
PART II
ITEM 13. DEFAULTS, DIVIDEND ARREARAGES AND DELINQUENCIES
--- No Disclosure Necessary ---
ITEM 14. MATERIAL MODIFICATIONS TO THE RIGHTS OF SECURITY
HOLDERS AND USE OF PROCEEDS - No Disclosure Necessary –
ITEM 15. CONTROLS AND PROCEDURES
The Company carried out an evaluation, under the supervision and with the participation of the Company’s management, including the Company’s President and Chief Financial Officer, of the effectiveness of the design and operation of the Company’s “disclosure controls and procedures” [as defined in the Exchange Act Rule 13a-15(e)] as of the end of the period covered by this report. Based upon that evaluation, the President and Chief Financial Officer concluded that the Company’s disclosure controls and procedures are effective in timely alerting them to material information relating to the Company (including its consolidated subsidiaries) required to be included in the Company’s periodic SEC filings, and that information is recorded, processed, summarized and reported as and when required.
There are inherent limitations to the effectiveness of any system of disclosure controls and procedures, including the possibility of human error and the circumvention or overriding of the controls and procedures. Accordingly, even effective disclosure controls and procedures can only provide reasonable assurance of achieving their control objectives.
There was no significant change in the Company’s internal control over financial reporting that occurred during the Company’s most recently completed fiscal year ended 12/31/2003 that has materially affected, or is reasonably likely to materially affect, the Company’s internal control over financial reporting. Nor were there any significant deficiencies or material weaknesses in the Company's internal controls requiring corrective actions.
ITEM 16. RESERVED
ITEM 16A. AUDIT COMMITTEE FINANCIAL EXPERT
The Company does not have an "audit committee financial expert" serving on its audit committee. The Company’s Audit Committee consists of two unrelated directors and the President of the Company, all of whom are both financially literate and very knowledgeable about the Company’s affairs. Because the Company’s structure and operations are straightforward, the Company does not find it necessary to augment its Board with a financial expert.
ITEM 16B. CODE OF ETHICS
The Company has not adopted a written ”code of ethics” that meets the new United States' Sarbanes-Oxley standards; the Board of Directors believes that existing Canadian standards and procedures is adequate for its purposes. The Company has not seen any need to adopt a written code of ethics on the basis that its corporate culture effectively deters wrongdoing and promotes honest and ethical conduct, full, fair and accurate, timely, and understandable disclosure in reports and documents, the compliance with applicable governmental laws, rules and regulations; the prompt internal reporting of violations of the code; and accountability for adherence to the code.
Item 16C. PRINCIPAL ACCOUNTIING FEES AND SERVICES
The audit committee is directly responsible for the appointment, compensation and oversight of auditors; the audit committee has in place procedures for receiving complaints and concerns about accounting and auditing matters; and has the authority and the funding to engage independent counsel and other outside advisors.
The Audit Committee may delegate to one or more designated members of the Audit Committee the authority to grant pre-approvals required by this policy / procedure. The decisions of any Audit Committee member to whom authority is delegated to pre-approve a service shall be presented to the full Audit Committee at its next scheduled meeting.
In accordance with the requirements of the US Sarbanes-Oxley Act of 2002 and rules issued by the Securities and Exchange Commission, we introduced a procedure for the review and pre-approval of any services performed by Amisano Hanson, including audit services, audit related services, tax services and other services. The procedure requires that all proposed engagements of Amisano Hanson for audit and permitted non-audit services are submitted to the finance and audit committee for approval prior to the beginning of any such services.
Fees, including reimbursements for expenses, for professional services rendered by Amisano Hanson to the Company are detailed below.
___________________________________________________________________________
Fiscal Year ended December 31, 2003 and 2002 Fiscal Year Fiscal Year
Principal Accountant Fees and Services 2003 2002
---------------------------------------------------------------------------
Audit Fees $16,800 $ 6,700
Audit Related Fees (1) 0 0
Tax Fees (2) 0 0
All Other Fees (3) 0 0
Total $16,800 $ 6,700
___________________________________________________________________________
ITEM 16D. EXEMPTIONS FROM THE LISTING STANDARDS FOR AUDIT COMMITTEES
--- No Disclosure Necessary ---
ITEM 16E. PURCHASES OF EQUITY SECURITIES BY THE ISSUER AND AFFILIATED PURCHASERS
--- No Disclosure Necessary ---
PART III
ITEM 17. FINANCIAL STATEMENTS
The Company's financial statements are stated in Canadian Dollars (CDN$) and are prepared in accordance with Canadian Generally Accepted Accounting Principles (GAAP), the application of which, in the case of the Company, conforms in all material respects for the periods presented with United States GAAP, except as discussed in footnotes to the financial statements.
The financial statements as required under ITEM #17 are attached hereto and found immediately following the text of this Annual Report. The audit reports of Davidson & Company, Chartered Accountants, are included herein immediately preceding the financial statements and schedules.
Audited Financial Statements
Auditor's Report, dated 4/23/2004,
except for Notes 6, 8 and 13 which are as of 5/17/2004
Consolidated Balance Sheets at 12/31/2003 and 12/31/2002
Consolidated Statements of Operations and Deficit
for the years ended 12/31/2003, 12/31/2002 and 12/31/2001
Consolidated Statements of Cash Flows
for the years ended 12/31/2003, 12/31/2002, 12/31/2001
Consolidated Statements of Shareholders’ Equity (Deficiency)
for the years ended 12/31/2003, 12/31/2002, and 12/31/2001
Notes to Financial Statements
ITEM 18. FINANCIAL STATEMENTS
The Company has elected to provide financial statements pursuant to ITEM #17.
ITEM 19. EXHIBITS
1. Certificates of Incorporation and Name Changes, By-Laws/Articles
--- Incorporated by reference to the Registration Statement as amended;
Annual Reports on Form 20-F, and Form 6-K’s ---
2. Instruments defining the rights of holders of equity or debt securities
being registered. --- Refer to Exhibit No. 1 ---
3. Voting Trust Agreements: No Disclosure Necessary
4. Material Contracts:
--- Incorporated by reference to the Registration Statement as amended;
Annual Reports on Form 20-F, and Form 6-K’s ---
5. Foreign Patents: No Disclosure Necessary
6. Earnings Per Share Calculation: No Disclosure Necessary
7. Ratio of Earnings To Fixed Charges: No Disclosure Necessary
8. List of Subsidiaries: No Disclosure Necessary
9. Statement Regarding Date of Financial Statements:No Disclosure Necessary
10. Notice Required by Rul3e 104 of Regulation BTR: No Disclosure Necessary
11. Code of Ethics as required by ITEM No. 16: No Disclosure Necessary
12. The certifications required by Rule 13a-14(a) or Rule 15d-14(a)........
13. The certifications required by Rule 13a-14(b) or Rule 15d-14(b) and
Section 1350 of Chapter 63 of Title 18 of the United States Code
14. Additional Exhibits:
--- Incorporated by reference to the Registration Statement as amended;
Annual Reports on Form 20-F, and Form 6-K’s ---
CAMFLO INTERNATIONAL INC.
(An Exploration Stage Company)
REPORT AND FINANCIAL STATEMENTS
December 31, 2003 and 2002
(Stated in Canadian Dollars)
AUDITORS' REPORT
To the Shareholders,
Camflo International Inc.
We have audited the balance sheets of Camflo International Inc. as at December 31, 2003 and 2002 and the statements of operations and deficit, cash flows and shareholders’ equity (deficiency) for each of the years in the three year period ended December 31, 2003. These financial statements are the responsibility of the Company's management. Our responsibility is to express an opinion on these financial statements based on our audits.
We conducted our audits in accordance with generally accepted auditing standards in Canada and the United States of America. Those standards require that we plan and perform an audit to obtain reasonable assurance whether the financial statements are free of material misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements. An audit also includes assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall financial statement presentation.
In our opinion, these financial statements present fairly, in all material respects, the financial position of the Company as at December 31, 2003 and 2002 and the results of its operations and its cash flows for each of the years in the three year period ended December 31, 2003 in accordance with generally accepted accounting principles in Canada applied on a consistent basis.
Vancouver, Canada | /s/ Amisano Hanson |
April 23, 2004, except for Notes 6, 8 and 13 which are as of May 17, 2004 | Chartered Accountants |
COMMENTS BY AUDITOR FOR US READERS ON CANADA - US REPORTING CONFLICT
In the United States of America, reporting standards for auditors require the addition of an explanatory paragraph (following the opinion paragraph) when there is substantial doubt about a company’s ability to continue as a going concern. The accompanying financial statements have been prepared on the basis of accounting principles applicable to a going concern which assumes the realization of assets and discharge of liabilities in the normal course of business. As discussed in Note 1 to the accompanying financial statements, the Company has a working capital deficiency, incurred substantial losses from operations and is in the process of exploring its oil and gas properties and has not yet determined whether these properties contain reserves that are economically recoverable, all of which raises substantial doubt about the Company’s ability to continue as a going concern. The accompanying financial st atements do not include any adjustments that might result from the outcome of this uncertainty.
Our report to the shareholders dated April 23, 2004 is expressed in accordance with Canadian reporting standards which do not permit a reference to such uncertainty in the auditors’ report when the uncertainty is adequately disclosed in the financial statements.
Vancouver, Canada | /s/ Amisano Hanson |
April 23, 2004, except for Notes 6, 8 and 13 which are as of May 17, 2004 | Chartered Accountants |
CAMFLO INTERNATIONAL INC.
(An Exploration Stage Company)
BALANCE SHEETS
December 31, 2003 and 2002
(Stated in Canadian Dollars)
ASSETS | 2003 | 2002 | |
Current | |||
Cash – Note 10 | $ 51,868 | $ 108,085 | |
GST receivable | 7,681 | 10,505 | |
Corporation taxes receivable | 3,377 | - | |
Prepaid expenses | 2,007 | - | |
|
| ||
64,933 | 118,590 | ||
Deferred charges – Note 3 | 26,188 | 38,286 | |
Resources properties – Notes 4 and 13 and Schedule 1 | 1,343,504 | 216,247 | |
Capital assets – Note 5 | 9,759 | 3,578 | |
|
| ||
$ 1,444,384 | $ 376,701 | ||
|
| ||
LIABILITIES | |||
Current | |||
Accounts payable – Note 7 | $ 604,511 | $ 23,562 | |
Loan payable – Note 6 | 104,256 | 90,756 | |
Due to related parties – Note 7 | - | 123,079 | |
Promissory notes payable – Notes 7 and 8 | 237,896 | 94,172 | |
Convertible debentures payable – Notes 7 and 9 | 483,202 | 452,296 | |
|
| ||
1,429,865 | 783,865 | ||
|
| ||
SHAREHOLDERS’ EQUITY (DEFICIENCY) | |||
Share capital – Notes 10 and 13 | 2,002,491 | 1,169,016 | |
Share subscriptions – Note 10 | 200,000 | - | |
Deficit accumulated during the exploration stage | (2,187,972) | (1,576,180) | |
|
| ||
14,519 | ( 407,164) | ||
|
| ||
$ 1,444,384 | $ 376,701 | ||
|
| ||
Nature and Continuance of Operations – Note 1
Commitments – Notes 4, 9 and 10
Subsequent Events – Notes 9, 10 and 13
APPROVED BY THE DIRECTORS: | ||
/s/Alan Crawford | /s/Greg Burnett | |
Director | Director | |
SEE ACCOMPANYING NOTES
CAMFLO INTERNATIONAL INC.
(An Exploration Stage Company)
STATEMENTS OF OPERATIONS AND DEFICIT
for the years ended December 31, 2003, 2002 and 2001
(Stated in Canadian Dollars)
2003 | 2002 | 2001 | |
Oil and gas sales | $ 51,805 | $ - | $ - |
|
|
| |
Cost of sales | |||
Depletion | 28,954 | - | - |
Field expenses | 16,880 | - | - |
Royalties | 13,321 | - | - |
|
|
| |
59,155 | - | - | |
|
|
| |
Gross loss | ( 7,350) | - | - |
|
|
| |
General and administrative expenses | |||
Amortization – capital assets | 1,777 | 1,101 | 1,466 |
Amortization – deferred charges | 12,098 | 7,657 | - |
Consulting fees – Note 7 | 24,696 | - | 44,750 |
Filing and transfer agent fees | 25,431 | 18,514 | 10,135 |
Finance fees | - | 15,000 | - |
Interest–convertible debentures – Note 7 | 70,906 | 52,296 | - |
Interest–loan payable | 13,500 | 13,500 | 2,256 |
Interest–promissory notes – Note 7 | 13,002 | 31,418 | 31,167 |
Management fees – Note 7 | 102,000 | 60,000 | 60,000 |
Office and miscellaneous – Note 7 | 16,348 | 18,980 | 9,736 |
Office rent – Note 7 | 16,762 | 4,800 | 7,500 |
Professional fees – Note 7 | 17,686 | 18,292 | 28,864 |
Promotion | 2,967 | 8,664 | 6,336 |
Telephone | 7,984 | 2,775 | 1,800 |
Travel | 23,576 | 16,024 | 3,174 |
|
|
| |
348,733 | 269,021 | 207,184 | |
|
|
| |
Loss before other item | (356,083) | (269,021) | (207,184) |
Other item | |||
Write-down of resource properties – Note 4 and Schedule 1 | ( 37,931) | - | - |
Write-off of abandoned resource properties – Note 4 and Schedule 1 | (217,778) | - | (205,000) |
|
|
| |
Net loss for the year | (611,792) | (269,021) | (412,184) |
Deficit, beginning of the year | (1,576,180) | (1,307,159) | (894,975) |
|
|
| |
Deficit, end of the year | $ (2,187,972) | $ (1,576,180) | $(1,307,159) |
|
|
| |
Basic and diluted loss per share | $ ( 0.14) | $ ( 0.12) | $ ( 0.37) |
|
|
| |
Weighted average number of shares outstanding | 4,319,622 | 2,321,666 | 1,106,666 |
|
|
|
SEE ACCOMPANYING NOTES
CAMFLO INTERNATIONAL INC.
(An Exploration Stage Company)
STATEMENTS OF CASH FLOWS
for the years ended December 31, 2003, 2002 and 2001
(Stated in Canadian Dollars)
2003 | 2002 | 2001 | |
Operating Activities | |||
Net loss for the year | $ (611,792) | $ (269,021) | $ (412,184) |
Add items not requiring cash: | |||
Depletion | 28,954 | - | - |
Amortization – capital assets | 1,777 | 1,101 | 1,466 |
Amortization – deferred charges | 12,098 | 7,657 | - |
Finance fees | - | 15,000 | |
Write-down of resource properties | 37,931 | - | - |
Write-off of abandoned resource properties | 217,778 | - | 205,000 |
Changes in non-cash working capital balances: | |||
GST receivable | 2,824 | 2,641 | 5,077 |
Corporation taxes receivable | ( 3,377) | - | - |
Prepaid expenses | ( 2,007) | - | 1,000 |
Accounts payable | 580,949 | ( 7,624) | 5,976 |
Due to related parties | 7,643 | 355 | ( 74,280) |
|
|
| |
272,778 | (249,891) | (267,945) | |
|
|
| |
Financing Activities | |||
Shares issued for cash | 793,475 | 79,948 | - |
Share subscriptions | 200,000 | - | - |
Convertible debentures payable | 70,906 | 452,296 | - |
Deferred charges | - | ( 45,943) | - |
Loan payable | 13,500 | 13,500 | 77,256 |
Promissory notes payable | 13,002 | ( 24,028) | 244,200 |
|
|
| |
1,090,883 | 475,773 | 321,456 | |
|
|
| |
Investing Activities | |||
Resource properties | (1,411,920) | (193,247) | - |
Acquisition of capital assets | ( 7,958) | - | - |
|
|
| |
(1,419,878) | (193,247) | - | |
|
|
| |
Increase (decrease) in cash during the year | ( 56,217) | 32,635 | 53,511 |
Cash, beginning of the year | 108,085 | 75,450 | 21,939 |
|
|
| |
Cash, end of the year | $ 51,868 | $ 108,085 | $ 75,450 |
|
|
| |
Supplemental disclosure of cash flow information: | |||
Cash paid for: | |||
Interest | $ - | $ 8,736 | $ - |
|
|
| |
Income taxes | $ - | $ - | $ - |
|
|
|
Non-cash Transactions – Note 12
SEE ACCOMPANYING NOTES
CAMFLO INTERNATIONAL INC.
(An Exploration Stage Company)
STATEMENT OF SHAREHOLDERS EQUITY (DEFICIENCY)
for the years ended December 31, 2003, 2002 and 2001
(Stated in Canadian Dollars)
Deficit | |||||
Accumulated | |||||
Common Shares | During the | ||||
Issued | Share | Exploration | |||
Shares | Amount | Subscriptions | Stage | Total | |
Balance, December 31, 2000 | 9,960,000 | $ 925,068 | $ - | $ (894,975) | $ 30,093 |
1 for 9 share consolidation | (8,853,334) | - | - | - | - |
Net loss for the year ended December 31, 2001 | - | - | - | (412,184) | (412,184) |
Balance, December 31, 2001 | 1,106,666 | 925,068 | - | (1,307,159) | (382,091) |
Issue of shares for cash pursuant to a private placement – at $0.10 | 1,000,000 | 100,000 | - | - | 100,000 |
Less: share issue costs | - | (20,052) | - | - | (20,052) |
Issue of shares for acquisition of resource property – at $0.10 | 150,000 | 15,000 | - | - | 15,000 |
Issue of shares for finders fee with respect to acquisition of resource property – at $0.10 | 80,000 | 8,000 | - | - | 8,000 |
Issue of shares for loan bonus – at $0.10 | 150,000 | 15,000 | - | - | 15,000 |
Issue of shares for settlement of debts – at $0.12 | 1,050,000 | 126,000 | - | - | 126,000 |
Net loss for the year ended December 31, 2002 | - | - | - | (269,021) | ( 269,021) |
|
|
|
|
| |
Balance, December 31, 2002 | 3,536,666 | 1,169,016 | - | (1,576,180) | (407,164) |
Issue of shares for cash pursuant to private placements – at $0.30 | 2,666,667 | 800,000 | - | - | 800,000 |
Less: share issue costs | - | (10,000) | - | - | (10,000) |
Issue of shares for cash pursuant to the exercise of share purchase options – at $0.13 | 26,733 | 3,475 | - | - | 3,475 |
Issue of shares on conversion of debentures – at $0.10 | 400,000 | 40,000 | - | - | 40,000 |
Share subscriptions | - | - | 200,000 | - | 200,000 |
Net loss for the year ended December 31, 2003 | - | - | - | (611,792) | (611,792) |
|
|
|
|
| |
Balance, December 31, 2003 | 6,630,066 | $ 2,002,491 | $ 200,000 | $(2,187,972) | $ 14,519 |
|
|
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|
| |
SEE ACCOMPANYING NOTES
CAMFLO INTERNATIONAL INC.
Schedule 1
(An Exploration Stage Company)
SCHEDULE OF RESOURCE PROPERTIES
for the years ended December 31, 2003 and 2002
Alberta, Canada | |||||||||||
Snipe | Prairie | Black | Wimberly, | ||||||||
Lake | Alexander | River | Creek | Texas, USA | 2003 | 2002 | |||||
Balance, beginning of the year | $ - | $ - | $ - | $ - | $ 216,247 | $ 216,247 | $ - | ||||
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|
|
|
|
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| |||||
Property Acquisition Costs | |||||||||||
Cash | 7,993 | 42,000 | - | - | - | 49,993 | 178,890 | ||||
Common shares | - | - | - | - | - | - | 23,000 | ||||
|
|
|
|
|
|
| |||||
7,993 | 42,000 | - | - | - | 49,993 | 201,890 | |||||
|
|
|
|
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|
| |||||
Deferred Exploration Costs | |||||||||||
Casing and accessories | 14,910 | 46,450 | - | 132,171 | - | 193,531 | - | ||||
Drilling | 28,450 | 78,292 | 2,567 | 175,451 | - | 284,760 | - | ||||
Engineering and site supervision | 5,320 | 33,738 | 20,035 | 57,696 | - | 116,789 | - | ||||
Equipment rental | 3,100 | 55,410 | 21,536 | 36,163 | - | 116,209 | 14,357 | ||||
Field costs and supplies | 14,711 | 33,804 | 15,559 | 35,695 | 1,531 | 101,300 | - | ||||
Land lease | 80,640 | 14,593 | 1,488 | 28,850 | - | 125,571 | - | ||||
Road construction | 120,894 | 12,346 | 14,626 | - | - | 147,866 | - | ||||
Testing and analysis | 850 | 8,253 | 22,390 | 142 | - | 31,635 | - | ||||
Transportation and trucking | 12,400 | 118,878 | 33,408 | 79,580 | - | 244,266 | - | ||||
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|
| |||||
281,275 | 401,764 | 131,609 | 545,748 | 1,531 | 1,361,927 | 14,357 | |||||
|
|
|
|
|
|
| |||||
289,268 | 443,764 | 131,609 | 545,748 | 217,778 | 1,628,167 | 216,247 | |||||
Less: | |||||||||||
Depletion of producing resource properties | - | - | ( 28,954) | - | - | ( 28,954) | - | ||||
Write-down of resource properties | - | - | ( 37,931) | - | - | ( 37,931) | - | ||||
Write-off of abandoned resource properties | - | - | - | - | (217,778) | (217,778) | - | ||||
|
|
|
|
|
|
| |||||
Balance, end of the year | $ 289,268 | $ 443,764 | $ 64,724 | $ 545,748 | $ - | $ 1,343,504 | $ 216,247 | ||||
|
|
|
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| |||||
SEE ACCOMPANYING NOTES
CAMFLO INTERNATIONAL INC.
(An Exploration Stage Company)
NOTES TO THE FINANCIAL STATEMENTS
December 31, 2003 and 2002
(Stated in Canadian Dollars)
Note 1
Nature and Continuance of Operations – Note 4
The Company is in the exploration stage and is in the process of exploring and developing its oil and gas properties in Alberta, Canada. During the year ended December 31, 2003, the Company abandoned its interest in an oil and gas property in Texas, USA.
These financial statements have been prepared in accordance with generally accepted accounting principles applicable to a going concern which presume the realization of assets and discharge of obligations in the normal course of business for the foreseeable future.
The ultimate recoverability of amounts shown for resource properties is dependent upon the existence and discovery of economically recoverable oil and gas reserves, the ability of the Company to obtain the necessary financing to develop the reserves and upon the ability of the Company to attain future profitable production or proceeds from the sale the resource properties.
The Company’s ability to continue as a going concern is uncertain. The Company has accumulated losses of $2,187,972 since incorporation and has a working capital deficiency of $539,578 at December 31, 2003. These financial statements do not include any adjustments to the amounts and classifications of assets and liabilities that might be necessary should the Company be unable to continue as a going concern.
The Company’s shares are publicly traded on the TSX Venture Exchange.
Note 2
Significant Accounting Policies
These financial statements have been prepared in accordance with generally accepted accounting principles in Canada and are stated in Canadian dollars. Differences with respect to accounting principles generally accepted in the United States of America are described in Note 15. Because a precise determination of many assets and liabilities is dependent upon future events, the preparation of financial statements for a period necessarily involves the use of estimates which have been made using careful judgement. Actual results may differ from these estimates.
The financial statements have, in management’s opinion, been properly prepared within reasonable limits of materiality and within the framework of the significant accounting policies summarized below:
Organization
The Company was incorporated under the Business Corporations Act of Alberta on March 21, 1997 and was classified as a Junior Capital Pool Corporation as defined by Alberta Securities Commission policy. On July 4, 2001, the Company moved jurisdiction to the Yukon Territory. The Company changed its name to Camflo International Inc. on September 27, 2001.
Principles of Consolidation
The financial statements for the years ended December 31, 2002 and 2001 include the accounts of the Company and the accounts of its inactive wholly-owned subsidiary, eteeoff.com Inc. (“eteeoff”). Upon consolidation, all inter-company balances and transactions have been eliminated. During the year ended December 31, 2003, the Company disposed of its 100% interest in eteeoff. As a result of this disposal, the financial statements for the year ended December 31, 2003 are prepared on a non-consolidated basis.
Exchange Act Guide 7
The Securities and Exchange Commission’s Exchange Act Guide 7 “Description of property by issuers engaged or to be engaged in significant mining operations” requires that mining companies in the exploration stage should not refer to themselves as development stage companies in the financial statements, even though such companies should comply with Financial Accounting Standard Board Statement No. 7, if applicable. Accordingly, the Company has not been referred to as being a development stage company.
Oil and Gas Properties and Depletion
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 reserves are initially capitalized. Such costs include land acquisition costs, geological and geophysical expenses, carrying charges on non-producing properties, costs of drilling and overhead charges directly related to acquisition and exploration activities.
Costs capitalized, together with the costs of production equipment, are depleted and amortized on the unit-of-production method based on the estimated gross proved reserves as determined by independent petroleum engineers. Petroleum products and reserves are converted to a common unit of measure, using 6 MCF of natural gas to one barrel of oil.
Costs of acquiring and evaluating unproved properties are initially excluded from depletion calculations. These unevaluated 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 the impairment is added to costs subject to depletion calculations.
Proceeds from a sale of petroleum and natural gas properties are applied against capitalized costs, with no gain or loss recognized, unless such a sale would alter the rate of depletion by more than 20%. Royalties paid net of any tax credits received are included in oil and gas sales cost of sales.
In applying the full cost method, the Company performs a ceiling test on properties which restricts the capitalized costs less accumulated depletion from exceeding an amount equal to the estimated undiscounted value of future net revenues from proved oil and gas reserves, as determined by independent engineers, based on sales prices achievable under existing contracts and posted, average reference prices in effect at the end of the year and current costs, and after deducting estimated future general and administrative expenses, production related expenses, financing costs, future site restoration costs and income taxes.
Mineral Properties
Acquisitions of mineral properties are initially recorded at cost. Direct exploration and developments costs are deferred. When production is attained, these costs will be amortized using the unit-of-production method based on estimated reserves. Costs relating to properties abandoned are written-off when the decision to abandon a site is made, or earlier if a determination is made that the property does not have economically recoverable reserves. On a quarterly basis, senior management reviews the carrying values of mineral properties and deferred exploration costs with a view to assess whether there has been any impairment in value. In the event that reserves are determined to be insufficient to recover the carrying value of any property, the carrying value will be written-down or written off as appropriate.
Environmental Costs
Environmental expenditures that relate to current operations are expensed or capitalized as appropriate. Expenditures that relate to an existing condition caused by past operations, and which do not contribute to current or future revenue generation, are expensed. Liabilities are recorded when environmental assessments and/or remedial efforts are probable, and the cost can be reasonably estimated. Generally, the timing of these accruals coincides with the earlier of completion of a feasibility study or the Company’s commitments to plan of action based on the then known facts.
Capital Assets and Amortization
Capital assets are recorded at historical cost. Amortization is calculated at the following annual rates:
Computer equipment
- 30% declining balance
Office equipment
- 20% declining balance
Amortization is calculated at one-half rates in the year of acquisition.
Deferred Charges
Deferred charges are recorded at cost and represent costs incurred with respect to issuing the convertible debentures. These costs are amortized over the term of the debentures.
Foreign Currency Translation
Transactions denominated in foreign currencies are translated into Canadian dollar equivalents based at the exchange rate in effect at the time of the transaction. Monetary assets and liabilities denominated in foreign currencies are translated into Canadian dollar equivalents based on the year-end exchange rate. Exchange gains and losses are included in operations.
Basic and Diluted Loss Per Share
Basic loss per share is computed by dividing the loss for the year by the weighted average number of common shares outstanding during the year. Diluted loss per share reflects the potential dilution that could occur if potentially dilutive securities were exercised or converted to common shares. The dilutive effect of options, warrants and their equivalent is computed by application of the treasury stock method and the dilutive effect of convertible securities by the “if converted” method. Fully diluted amounts are not presented when the effect of the computations are anti-dilutive due to the losses incurred. Accordingly, there is no difference in the amounts presented for basic and diluted loss per share.
Financial Instruments
The carrying values of cash and accounts payable approximate their fair values because of the short maturity of those instruments. The fair values of loan payable, due to related parties, promissory notes payable and convertible debentures payable are also assumed to approximate their carrying amounts. Unless otherwise noted, it is management’s opinion that the Company is not exposed to significant interest, currency or credit risks arising from these financial instruments.
Stock-based Compensation
The Company has a stock-based compensation plan as disclosed in Note 10, whereby stock options are granted in accordance with the policies of regulatory authorities. The Company applies the “settlement method” of accounting for stock-based compensation awards. No compensation expense is recognized for those options when issued to employees and directors. Any consideration paid by employees and directors upon exercise of stock options is credited to share capital.
Effective January 1, 2002, the Company adopted the new recommendations of the Canadian Institute of Chartered Accountants regarding accounting for Canadian Stock-based Compensation. These new requirements require that all stock based payments to non-employees and direct awards of stock to employees be accounted for using a fair value based method of accounting. However, the new standard permits the Company to continue its existing policy of not recording compensation expense on stock options granted to employees and directors, as long as the Company discloses the pro forma effect of accounting for these awards as if the fair value method had been used.
Income Taxes
The Company follows the asset and liability method of accounting for income taxes. Under this method, current income taxes are recognized for the estimated income taxes payable for the current year. Future income tax assets and liabilities are recognized in the current year for temporary differences between the tax and accounting basis of assets and liabilities as well as for the benefit of losses available to be carried forward to future years for tax purposes only if it is more likely than not that they will be realized. Future income tax assets and liabilities are measured using tax rates and laws expected to apply in the years in which those temporary differences are expected to be recovered or settled. The effect of a change in tax rates on future income tax assets and liabilities is recognized in operations in the year of the change.
Note 3
Deferred Charges
2003 | 2002 | |
Finders fees | $ 27,600 | $ 27,600 |
Legal fees | 18,343 | 18,343 |
|
| |
45,943 | 45,943 | |
Less: accumulated amortization | ( 19,755) | ( 7,657) |
|
| |
$ 26,188 | $ 38,286 | |
|
|
Note 4
Resource Properties
Snipe Lake
By a Farmout and a Transfer Agreement dated March 18, 2003, the Company acquired a 10% working interest in four sections of land located in Alberta, Canada. The Company agreed to pay 10% of the costs of drilling and completing test wells. The interest is subject to a convertible overriding royalty of 15%, which after payout, will convert to a 5% working interest on one of the four sections of land. By drilling this well, the Company earns an option to participate in the remaining three sections on the same terms and conditions as the March 18, 2003 agreement. As a result of grouping an adjacent license (the “Taurus Lands”) with this well, the Company earned a 3.75% interest in seven additional sections of land.
On July 23, 2003, the Company acquired a 5% working interest in two sections of land in the Snipe Lake area from Crown land sales for $5,278 and on August 6, 2003 the Company acquired a 3.75% working interest in an additional section adjacent to the Taurus Lands for $2,715.
Alexander
By a Farmout Agreement dated March 15, 2003, the Company acquired a 35% working interest in four sections of land in Alberta, Canada for $42,000. The Company has agreed to pay 70% of the costs of drilling and completing four test wells on the property. The agreement is subject to a convertible overriding royalty of 15% which after pay out will convert to a 35% working interest and the Company retaining a 35% net working interest. The Company was granted the option to participate in additional wells on the property by paying 35% of well costs. In addition, the Company was granted the option to participate in an additional three contiguous sections by paying 35% of well costs.
By a Farmout and Option Agreement dated December 1, 2003, the Company acquired a 27.5% working interest in one section of land in Alberta, Canada. The Company has agreed to pay 50% of the costs of drilling and completing a test well.
Prairie River
By a Farmout Agreement dated March 1, 2003, the Company acquired a 21.5% working interest in one section of land located in Alberta, Canada. The company is required to pay 35% of the costs of drilling and completing a test well to earn its 21.5% working interest. The Company was granted an option on three sections of adjoining lands by paying 40% of a seismic program and drilling an additional well at 100% working interest before payout and 49.5 % working interest after payout. The Company renegotiated this option agreement and has agreed to participate as to a 51.25% working interest before payout reverting to a 31% working interest after payout.
At December 31, 2003, the Company performed a ceiling test on its Prairie River property and determined that a write-down of $37,931 was necessary to reflect the net realizable value of the property.
Black Creek
By a Participation Agreement dated October 28, 2003, the Company acquired a 68% working interest in three sections of land located in Alberta, Canada. The Company has agreed to pay 68% of the costs of drilling and completing a test well. The Company’s share of the estimated costs is $790,024. To December 31, 2003, the Company had incurred costs totalling $545,748 in respect to the Black Creek prospect. The Company’s interest reverts to a 34% working interest after payout. The Company has the option to participate in three additional sections of adjoining lands.
Wimberly
By an agreement effective February 14, 2002, the Company acquired a 20% working interest and a 16% net revenue interest in the Wimberly prospect located in Jack County, Texas for consideration of $162,566 (US$100,000) and 150,000 common shares valued at of $0.10 per share. The Company issued an additional 80,000 common shares valued at $0.10 per share as a finders fee for the Wimberly prospect. During the year ended December 31, 2003, the Company abandoned its interest in the Wimberly prospect resulting in a write-off totalling $217,778.
Val d’ Or
The Company had the option to earn a 51% interest in 130 mining claims located in the Val d’Or region of Quebec. During the year ended December 31, 2000, deferred development costs of $212,267 were written-off by management. During the year ended December 31, 2001, the Company abandoned the property and wrote-off acquisition costs totalling $205,000.
Note 5
Capital Assets
2003 | 2002 | ||||
Accumulated | |||||
Cost | Amortization | Net | Net | ||
Computer equipment | $ 5,776 | $ 2,420 | $ 3,356 | $ 1,158 | |
Office equipment | 10,214 | 3,811 | 6,403 | 2,420 | |
|
|
|
| ||
$ 15,990 | $ 6,231 | $ 9,759 | $ 3,578 | ||
|
|
|
|
Note 6
Loan Payable
The loan payable is unsecured, bears interest at 18% per annum and is due on May 1, 2005.
Note 7
Related Party Transactions
The Company incurred the following charges by directors or companies with common directors:
2003 | 2002 | 2001 | |
Consulting fees | $ 23,020 | $ - | $ 30,000 |
Interest – convertible debentures | 14,338 | 10,459 | - |
Interest – promissory notes | 10,525 | 23,616 | 28,751 |
Management fees | 102,000 | 60,000 | 60,000 |
Office and miscellaneous | 1,050 | 3,900 | 2,100 |
Office rent | 1,200 | 4,800 | 7,500 |
Professional fees | 3,500 | - | - |
|
|
| |
$ 155,633 | $ 102,775 | $ 128,351 | |
|
|
|
These charges were measured by the exchange amount, which is the amount agreed upon by the transacting parties.
Included in accounts payable is $7,702 (2002: $Nil) owing to directors of the Company relating to unpaid expense reimbursements.
Due to related parties at December 31, 2003 of $Nil (2002: $123,079) consists of amounts owing to directors of the Company or companies with common directors. These amounts are unsecured, non-interest bearing and have no specific terms of repayment.
Included in promissory notes payable is $214,011 (2002: 72,764) owing to directors of the Company or companies with a common directors.
Included in convertible debentures payable is $104,798 (2002: $90,459) owing to directors of the Company.
Note 8
Promissory Notes Payable – Note 7
The promissory notes payable are unsecured, bear interest at rates from 7.5% per annum to 15% per annum and are due on May 1, 2005.
Note 9
Convertible Debentures Payable – Note 7
The convertible debentures bear interest at 15% per annum and mature February 28, 2007. The debentures and accrued interest are convertible into units consisting of one common share and one share purchase warrant at $0.10 per unit in years one and two, at $0.15 per unit in year three, at $0.20 per unit in year four or at $0.25 per unit in year five. The share purchase warrants entitle the holders the right to purchase one common share for each warrant held at $0.10 per share for two years from the conversion date for conversions in the first two years, at $0.15 per share for one year for conversions in the third year, at $0.20 per share for one year for conversions in the fourth year or at $0.25 per share for one year for conversions in the fifth year. A finders fee of $27,600 was paid with respect to this private placement. Included in convertible debentures payable is $123,202 (2002: $52,296) of accrued interest .
The Company may force conversion of these debentures up to and including the close of business on February 28, 2005, by redeeming the debentures if the Company’s shares trade in excess of $0.50 per share for a minimum of 90 days, at a redemption price equal to the principal amount being redeemed together with accrued and unpaid interest on the principal amount to the date fixed for redemption and all other moneys owing under this debenture and a penalty of six months interest payments.
On November 10, 2003, a $40,000 debenture was converted into 400,000 units at $0.10 per unit. Each unit consists of one common share and one share purchase warrant entitling the holder thereof the right to purchase an additional common share at $0.10 until November 10, 2005.
On February 12, 2004, $360,000 of debentures were converted into 3,600,000 units at $0.10 per unit. Each unit consists of one common share and one share purchase warrant entitling the holder thereof the right to purchase an additional common share at $0.10 until February 12, 2006.
Note 10
Share Capital – Notes 9 and 13
i)
Authorized:
Unlimited number of common shares without par value
Unlimited number of preferred shares without par value
ii)
Commitments:
Stock-based Compensation Plan
The Company has granted directors common share purchase options. These options are granted with an exercise price equal to the market price of the Company’s stock on the date of the grant.
A summary of the stock option plan as of December 31, 2003 and 2002 and the changes during the years then ended is presented below:
2003 | 2002 | |||
Weighted | Weighted | |||
Average | Average | |||
Number of | Exercise | Number of | Exercise | |
Shares | Price | Shares | Price | |
Options outstanding and exercisable, beginning of the year | 133,666 | $0.13 | - | - |
Granted | 230,000 | $0.30 | 133,666 | $0.13 |
Exercised | (26,733) | $0.13 | - | - |
|
|
|
| |
Options outstanding and exercisable, end of the year | 336,933 | $0.25 | 133,666 | $0.13 |
|
|
|
| |
At December 31, 2003, there were 336,933 share purchase options outstanding entitling the holders thereof the right to purchase one common share for each option held as follows:
Number | Exercise Price | Expiry Date |
106,933 | $0.13 | February 18, 2007 |
230,000 | $0.30 | September 3, 2008 |
| ||
336,933 | ||
|
As disclosed in Note 2, the Company does not record compensation expense on the granting of share purchase options to directors and employees. Disclosure of pro forma loss and loss per share figures had the Company elected to follow the fair value method using the Black-Scholes option pricing model are as follows:
Years ended December 31, | ||||
2003 | 2002 | 2001 | ||
Net loss for the year as reported | $(611,792) | $(269,021) | $(412,184) | |
Stock-based compensation | ( 36,800) | ( 18,713) | - | |
|
|
| ||
Pro forma loss for the year | $(648,592) | $(287,734) | $(412,184) | |
|
|
| ||
Pro forma basic and diluted loss per share | $( 0.15) | $( 0.12) | $( 0.37) | |
|
|
| ||
The following assumptions were used for the Black-Scholes model:
2003 | 2002 | 2001 | |
Risk free rate | 3.0% | 3.0% | - |
Dividend yield | 0% | 0% | - |
Expected volatility | 56% | 196% | - |
Weighted average expected option life | 5 years | 5 years | - |
The weighted average fair value at the date of grant of the director stock options granted were as follows:
2003 | 2002 | 2001 | |
Weighted average fair value | $ 0.30 | $ 0.14 | $ - |
Total options granted | 230,000 | 133,666 | - |
Total fair value of options granted | $ 36,800 | $ 18,713 | $ - |
At December 31, 2003, there were 4,066,667 share purchase warrants outstanding entitling the holders thereof the right to purchase one common share for each warrant held as follows:
Number | Exercise Price | Expiry Date |
1,000,000 | $0.14 | April 1, 2004 |
1,666,667 | $0.30 | October 7, 2004 |
1,000,000 | $0.30 | August 22, 2005 |
400,000 | $0.10 | November 10, 2005 |
| ||
4,066,667 | ||
|
Share Subscriptions
At December 31, 2003, the Company had received share subscriptions totalling $200,000 in respect to a flow through private placement of 400,000 units at $0.50 per unit. Each unit consists of one flow-through common share and a one share purchase warrant entitling the holders thereof the right to purchase one non-flow-through common share for each two warrants held at $0.60 per share to January 30, 2005. The units were issued on January 30, 2004. The Company issued an additional 6,000 common shares as a finders fee with respect to the private placement.
At December 31, 2003, the Company had incurred exploration expenditures of $200,000 and has renounced this amount to the flow through shareholders effective December 31, 2003. This amount will not be available to the Company for future deduction from taxable income. At December 31, 2003, cash included $25,000 of flow through funds which was subsequently paid to a creditor.
Convertible Debentures
Note 9.
Note 11
Income Taxes
At December 31, 2003, the Company has accumulated non-capital losses totalling $1,223,695 which may be deducted from future years’ taxable income. These losses expire as follows:
December 31, 2004 | $ 1,287 | ||
2005 | 53,765 | ||
2006 | 186,097 | ||
2007 | 185,705 | ||
2008 | 202,551 | ||
2009 | 269,130 | ||
2010 | 325,160 | ||
| |||
$1,223,695 | |||
|
At December 31, 2003, the Company has accumulated capital losses of $225,357 which may be deducted from future years’ taxable capital gains.
At December 31, 2003, the Company has accumulated Canadian exploration and development expenses of $417,227, Canadian oil and gas expenses of $1,210,389 and foreign exploration and development expenses of $225,993 which may be deducted from future years’ taxable income.
The significant components of the Company’s future income tax assets are as follows:
2003 | 2002 | |
Non-capital losses | $ 460,354 | $ 422,808 |
Capital losses | 42,390 | 42,390 |
Canadian and foreign exploration and development and oil and gas expenses | 697,328 | 241,403 |
|
| |
1,200,072 | 706,601 | |
Less: valuation allowance | (1,200,072) | (706,601) |
|
| |
$ - | $ - | |
|
|
The Company has recorded a valuation allowance against its future income tax assets based on the extent to which it is unlikely that sufficient taxable income will be realized during the carry-forward periods to utilize all the future tax assets.
Note 12
Non-cash Transactions
Investing and financing activities that do not have a direct impact on current cash flows are excluded from the statement of cash flows. The following transactions were excluded from the statements of cash flows:
Year ended December 31, 2003:
–
the Company issued 400,000 common shares at $0.10 per share in respect to the conversion of a $40,000 debenture.
–
the Company reclassified $130,722 from amounts owing to related parties to promissory notes payable.
Year ended December 31, 2002:
–
the Company issued 150,000 common shares at $0.10 per share in respect to the acquisition of a resource property.
–
the Company issued 80,000 common shares at $0.10 per share in respect to finders fee on the acquisition of a resource property.
–
the Company issued 150,000 common shares at $0.10 per share in respect to bonus shares relating to a loan payable.
–
the Company issued 1,050,000 common shares at $0.12 per share in respect to debt settlement agreements.
Note 13
Subsequent Events – Notes 9 and 10
Subsequent to December 31, 2003, the Company:
a)
issued 2,200,000 units at $0.45 per unit for gross proceeds of $990,000 pursuant to a private placement. Each unit consists of one common share and one share purchase warrant entitling the holders thereof the right to purchase one common share for each warrant held at $0.45 per share until January 30, 2006. The Company paid a finders fee of $68,857 with respect to this private placement.
b)
issued 1,000,000 common shares at $0.14 per share pursuant to the exercise of 1,000,000 share purchase warrants for proceeds of $140,000.
c)
issued 68,000 common shares at $0.45 per share pursuant to the exercise of 68,000 share purchase warrants for proceeds of $30,600.
d)
granted 400,000 share purchase options entitling the holders thereof the right to purchase one common share for each option held at $0.50 per share until February 23, 2009.
e)
entered into a Farmout and Option Agreement dated March 10, 2004, in which the Company acquired a 30% working interest in four sections of land in the Goose River area of Alberta, Canada. The Company has agreed to pay 30% of the costs of drilling and completing a test well. The Company’s interest reverts to a 18% working interest after payout. The Company has the option to participate in eight additional sections of adjoining lands on the same terms as the March 10, 2004 agreement.
The Company acquired an additional 8% working interest in the Goose River test well as a result of a partner not participating in this well. The additional interest has a 500% penalty payment associated against the non-participating party. Once 500% of the total costs of this operation have been recovered the non-participating party will reacquire the 8% working interest from the Company.
f)
announced a proposed private placement of 1,200,000 units at $0.60 per unit for proceeds totalling $720,000. Each unit consists of one common share and one share purchase warrant entitling the holders thereof the right to purchase one common share for each warrant held at $0.75 for one year. A finders fee is payable in connection with a portion of the private placement. This private placement is subject to regulatory approval.
g)
acquired a 20% working interest in seven sections of land in the Snipe Lake area of Alberta, Canada for $156,728.
h)
issued 100,000 common shares at $0.30 per share pursuant to the exercise of 100,000 share purchase warrants for proceeds of $30,000.
Note 14
Comparative Figures
Certain comparative figures as at December 31, 2002 and for the years ended December 31, 2002 and 2001 have been restated in order to comply with the financial statement presentation adopted for the year ended December 31, 2003.
Note 15
Differences Between Canadian and United States of America Accounting Principles
The financial statements have been prepared in accordance with accounting principles generally accepted in Canada which differ in certain respects with those principles and practices that the Company would have followed had its financial statements been prepared in accordance with accounting principles and practices generally accepted in the United States of America.
The Company’s accounting principles generally accepted in Canada differ from accounting principles generally accepted in the United States of America as follows:
a)
Mineral Properties and Deferred Exploration Costs
Under accounting principles generally accepted in Canada (“Canadian GAAP”) exploration costs may be deferred and amortized to the extent they meet certain criteria. Under accounting principles generally accepted in the US (“US GAAP”) exploration costs must be expensed as incurred. Therefore an additional exploration expense is required under US GAAP.
Under Canadian GAAP, mineral properties are recorded at cost. Where the reserves are insufficient to cover the carrying value of the mineral property, the carrying value will be written-down or written-off as appropriate. Under US GAAP, a write-down to fair value is required. Accordingly, no adjustment is required on the mineral property for US GAAP purposes.
b)
Mineral Property Assignment Agreement
Under Canadian GAAP, the value of the assignment agreement is not expensed rateably over the life of the assignment agreement. Under US GAAP, the value of the assignment agreement to acquire the mineral property is expensed rateably over the life of the agreement. Therefore an expense of $Nil (2002: $Nil; 2001: $51,250) is required under US GAAP.
c)
The impact of the above on the financial statements is as follows:
2003 | 2002 | 2001 | |
Net loss for the year per Canadian GAAP | $(611,792) | $(269,021) | $(412,184) |
Deferred exploration costs | - | - | - |
Mineral property written off | - | - | 205,000 |
Mineral property assignment agreement expense | - | - | ( 51,250) |
|
|
| |
Net loss for the year per US GAAP | $ (611,792) | $ (269,021) | $ (258,434) |
|
|
| |
Basic loss per share US GAAP | $ ( 0.14) | $ ( 0.12) | $ ( 0.23) |
|
|
| |
Weighted average number of shares outstanding per US GAAP | 4,319,622 | 2,321,666 | 1,106,666 |
|
|
|
1
SIGNATURE PAGE
Pursuant to the requirements of Section 12g of the Securities Exchange Act of 1934, the Registrant certifies that it meets all of the requirements for filing on Form 20-F and has duly caused this Annual Report to be signed on its behalf by the undersigned, thereunto duly authorized.
Camflo International Inc. SEC # 0-30026
Registrant
June 29, 2004 By /s/Alan Crawford
Date Alan Crawford, Chief Financial Officer/Director
June 29, 2004 By /s/Thomas Doyle
Date Thomas Doyle, President/CEO/Director
2
