CAMFLO INTERNATIONAL INC.
Pro Forma Consolidated Financial Statements
June 30, 2004
(Unaudited)
COMPILATON REPORT
To the Directors of
Camflo International Inc.
We have read the accompanying unaudited pro forma consolidated balance sheet of Camflo International Inc. (the “Company”) as at June 30, 2004 and unaudited pro forma consolidated statements of operations for the year ended December 31, 2003 and six months ended June 30, 2004, and have performed the following procedures.
1.
Compared the figures in the columns captioned “Camflo International Inc.” to the audited financial statements of the Company as at December 31, 2003 and the unaudited interim financial statements as at June 30, 2004 and found them to be in agreement.
2.
Compared the figures in the columns captioned “Spearhead Resources Inc.” to the audited financial statements of the Company as at December 31, 2003 and the unaudited interim financial statements as at June 30, 2004 and found them to be in agreement.
3.
Made enquiries of certain officials of the Company who have responsibility for financial and accounting matters about:
(a)
the basis to us for determination of the pro forma adjustments; and
(b)
whether the pro forma consolidated financial statements comply as to form in all material respects with the Securities Act of British Columbia and Alberta (the “Acts”) and the related regulations.
The officials:
(a)
described to us the basis for determination of the pro forma adjustments; and
(b)
stated that the pro forma consolidated statements comply as to form in all material respects with the Acts and related regulations.
1.
Read the notes to the pro forma consolidated statements, and found them to be consistent with the basis described to us for determination of the pro forma adjustments.
2.
Recalculated the application of the pro forma adjustments to the aggregate of the amounts in the columns captioned “Camflo International Inc.” and “Spearhead Resources Inc.” as at June 30, 2004 and for the year ended December 31, 2003 and six months ended June 30, 2004 and found the amounts in the column captioned “Pro forma consolidated” to be arithmetically correct.
A pro forma financial statement is based on management assumptions and adjustments which are inherently subjective. The foregoing procedures are substantially less than either an audit or a review, the objective of which is the expression of assurance with respect to management’s assumptions, the pro forma adjustments and the application of the adjustments to the historical financial information. Accordingly, we express no such assurance. The foregoing procedures would not necessarily reveal matters of significance to the pro forma financial statements and we therefore make no representation about the sufficiency of the procedures for the purposes of a reader of such statements.
Vancouver, Canada | “Amisano Hanson” |
August 23, 2004 | Chartered Accountants |
CAMFLO INTERNATIONAL INC.
PRO FORMA CONSOLIDATED BALANCE SHEET
June 30, 2004
(Unaudited)
Camflo | (Note 2) | ||||
International | Spearhead | Pro Forma | Pro Forma | ||
Inc | Resources Inc. | Adjustments | Consolidated | ||
ASSETS | |||||
Current | |||||
Cash | $ 36,469 | $ 57,927 | (a) | $ 62,250 | $ - |
(b) | 5,757,379 | ||||
(c) | ( 5,000,000) | ||||
(d) | ( 31,000) | 883,025 | |||
Tax credits receivable | 8,569 | - | - | 8,569 | |
Accounts receivable | - | 3,043,282 | (c) | ( 1,500,000) | 1,543,282 |
Prepaid and deposits | 3,332 | 187,282 | - | 190,614 | |
48,370 | 3,288,491 | ( 711,371) | 2,625,490 | ||
Resource properties and capital assets | 3,126,052 | 2,942,943 | (e) | 14,419,721 | 20,488,716 |
$ 3,174,422 | $ 6,231,434 | $ 13,708,350 | $ 23,114,206 | ||
LIABILITIES | |||||
Current | |||||
Accounts payable and accrued liabilities | 1,333,376 | 3,051,313 | (c) | ( 1,500,000) | 2,884,689 |
Loan Payable | 111,006 | - | - | 111,006 | |
Due related parties | 8,000 | 1,021,000 | (d) | ( 1,021,000) | 8,000 |
Promissory notes payable | 249,299 | - | - | 249,299 | |
Convertible debt | - | 9,034,000 | (c) | ( 5,000,000) | 4,034,000 |
1,701,681 | 13,106,313 | ( 7,521,000) | 7,286,994 | ||
Convertible debt | 139,497 | - | - | 139,497 | |
Asset retirement obligations | 125,500 | 322,000 | - | 447,500 | |
1,966,678 | 13,428,313 | ( 7,521,000) | 7,873,991 | ||
SHAREHOLDERS’ EQUITY (DEFICIENCY) | |||||
Share capital | 3,684,234 | 2,280,535 | (a) | 62,250 | |
(b) | 5,757,379 | ||||
(e) | 8,212,842 | ||||
(d) | 990,000 | ||||
(e) | ( 3,270,535) | 17,716,705 | |||
Contributed surplus | 87,113 | 48,734 | (e) | ( 48,734) | 87,113 |
Deficit | ( 2,563,603) | ( 9,526,148) | (e) | 9,526,148 | ( 2,563,603) |
1,207,744 | ( 7,196,879) | 21,229,350 | 15,240,215 | ||
$ 3,174,422 | $ 6,231,434 | $ 13,708,350 | $ 23,114,206 | ||
INTERNATIONAL CAMFLO INC.
PRO FORMA CONSOLIDATED STATEMENT OF OPERATIONS
For the six months ended June 30, 2004
(Unaudited)
Six months | |||||
Six months ended June 30, 2004 | ended | ||||
Camflo | (Note 2) | June 30, 2004 | |||
International | Spearhead | Pro Forma | Pro Forma | ||
Inc | Resources Inc. | Adjustments | Consolidated | ||
Revenues | |||||
Oil and gas sales | $ 76,197 | $ 498,368 | $ - | $ 574,565 | |
Interest | - | 5,618 | - | 5,618 | |
76,197 | 503,986 | - | 580,183 | ||
Expenses | - | ||||
Operating | 27,695 | 152,174 | - | 179,869 | |
General and administration | 315,814 | 1,220,824 | - | 1,536,638 | |
Interest on convertible debt | 16,295 | 385,725 | (f) | ( 220,000) | 182,020 |
Depletion and depreciation | 36,511 | 137,253 | - | 173,764 | |
396,315 | 1,895,976 | ( 220,000) | 2,072,291 | ||
Net loss for the period | $ ( 320,118) | $ ( 1,391,990) | $ 220,000 | $ ( 1,492,108) | |
Pro forma loss per share | $ (0.04) | ||||
INTERNATIONAL CAMFLO INC.
PRO FORMA CONSOLIDATED STATEMENT OF OPERATIONS
For the year ended December 31, 2003
(Unaudited)
Year ended | Year ended | ||||
December 31, 2003 | December 31, | ||||
Camflo | (Note 2) | 2003 | |||
International | Spearhead | Pro Forma | Pro Forma | ||
Inc | Resources Inc. | Adjustments | Consolidated | ||
Revenues | |||||
Oil and gas sales | $ 38,484 | $ 339,792 | $ - | $ 378,276 | |
Interest | - | 5,484 | - | 5,484 | |
38,484 | 345,276 | - | 383,760 | ||
Expenses | |||||
Operating | 16,880 | 139,715 | - | 156,595 | |
General and administration | 277,827 | 585,797 | - | 863,624 | |
Interest on convertible debt | 70,906 | 635,400 | (f) | ( 440,000) | 266,306 |
Depletion and depreciation | 284,663 | 175,028 | - | 459,691 | |
650,276 | 1,535,940 | ( 440,000) | 1,746,216 | ||
Net loss for the period | $ ( 611,792) | $ ( 1,190,664) | $ 440,000 | $ 1,362,456 | |
Pro forma loss per share | $ (0.04) | ||||
CAMFLO INTERNATIONAL INC.
Notes to Pro Forma Consolidated Financial Statements
(Unaudited)
Note 1
Basis of Presentation
The accompanying unaudited pro forma consolidated balance sheet and unaudited pro forma statements of operations have been prepared in accordance with Canadian generally accepted accounting principles. The combined pro forma balance sheet for Camflo International Inc. (“Camflo”) is at June 30, 2004 and has been compiled from information derived from the audited financial statements of Camflo at December 31, 2003 and the year then ended, the unaudited interim financial statements of Camflo at June 30, 2004 and the six months then ended, the audited financial statements of Spearhead Resources Inc. (“Spearhead”) at December 31, 2003 and for the year then ended, the unaudited interim financial statements of Spearhead at June 30, 2004 and for the six months then ended and other information available to the companies.
The pro forma consolidated balance sheet and pro forma statements of operations are not necessarily indicative of the financial position of the Company on the date of the completion of the proposed acquisitions of Spearhead Resources Inc. or the actual operations had the transaction been completed at January 1, 2003.
In preparing the pro forma consolidated balance sheet and pro forma statements of operations, no adjustments have been made to reflect the additional costs or savings that could result from combining the operations of the Company and Spearhead.
The pro forma consolidated financial statements should be read in conjunction with the financial statements and the notes thereto of both the Company and Spearhead included in the Information Circular.
Note 2
Pro Forma Assumptions and Adjustments
The pro forma consolidated balance sheet gives effect to the proposed acquisition of Spearhead by Camflo and has been prepared as if the transactions described below occurred on June 30, 2004. The pro forma consolidated statements of operations gives effect to the acquisitions as if they had occurred on January 1, 2003.
The pro forma consolidated financial statements reflect the following assumptions and adjustments:
a)
Subsequent to June 30, 2004 Camflo issued 200,000 shares at $0.30 each and 5,000 shares at $0.45 each on the exercise of warrants outstanding at June 30, 2004.
b)
Subsequent to June 30, 2004, Camflo issued, pursuant to a brokered private placement, 9,000,000 shares at $0.50 each and 3,185,273 flow through shares at $0.55 each for net proceeds of $5,757,379.
Camflo International Inc.
Notes to Pro Forma Consolidated Financial Statements
(Unaudited) – Page 2
Note 2
Pro Forma Assumptions and Adjustments – (cont’d)
c)
Subsequent to June 30, 2004, Camflo purchased from Spearhead a 32% working interest in the Joffre oil and gas property for $3,500,000. In conjunction with the payment, Camflo also paid an additional $1,500,000 for previous amounts owed to Spearhead for property expenditures incurred to June 30, 2004. Spearhead used the funds received to reduce the outstanding convertible debt by $5,000,000.
d)
Subsequent to June 30, 2004, Spearhead will pay $1,021,000 owed to related parties at June 30, 2004. These parties will be assigned 3,300,000 share purchase warrants previously held by a debenture holder. The warrants will be exercised resulting in the issue of 3,300,000 shares of Spearhead at $0.30 each.
e)
The shareholders of Camflo and Spearhead will exchange all of their issued and outstanding shares held in exchange for shares of a new company, Arctos Petroleum Corp. (“Arctos”) to be formed on amalgamation of the two companies. The share exchange will be on a one for one basis for shares of Spearhead, and on a 3 for 4 basis for shareholders of Camflo. The Camflo shareholders will receive 19,795,751 shares of Arctos and the Spearhead shareholders will receive 20,532,105 shares of Arctos. The outstanding share purchase options and share purchase warrants will be exchanged for share purchase options and warrants of Arctos on the same basis. The new board of directors will consist of three former Camflo directors and two former Spearhead directors. As a result of this share exchange and the composition of the new board of directors the shareholders of Camflo will acqu ire control of Arctos and consequently, for accounting purposes, Camflo will be deemed to be the acquirer. The acquisition has been accounted for using the purchase method of accounting. The fair value of the net assets of Spearhead acquired are as follows:
Cash | $ 57,927 |
Other current assets | 1,730,564 |
Resource properties | 13,831,664 |
Less liabilities | ( 7,407,313) |
$ 8,212,842 | |
f)
As a result of the debt reduction as disclosed in Note 2(c) above, interest expenses on convertible debentures would be reduced by $220,000 for the six months ended June 30, 2004 and by $440,000 for the year ended December 31, 2003.
Camflo International Inc.
Notes to Pro Forma Consolidated Financial Statements
(Unaudited) – Page 3
Note 3
Share Capital
Authorized:
Unlimited number of no par value common shares
Unlimited number of no par value preferred shares
Number | ||
Pro forma Common Shares Issued: | of Shares | Amount |
Camflo shares outstanding at June 30, 2004 | 14,004,062 | $ 3,684,234 |
Issued on exercise of warrants-Note 2(a) | 205,000 | 62,250 |
Issued for private placement-Note 2(b) | 12,185,273 | 5,757,379 |
Share consolidation on amalgamation: 3 for 4 basis-Note 2(e) | ( 6,598,584) | - |
Spearhead shares prior to acquisition-Notes 2(d) and 2(e) | 20,532,105 | 8,212,842 |
Balance, June 30, 2004 | 40,327,856 | $ 17,716,705 |
