AS FILED WITH THE SECURITIES AND EXCHANGE COMMISSION ON AUGUST 31, 1998

COMMISSION FILE NO. 0-24027
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SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549

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FORM 10/A

AMENDMENT NO. 1

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GENERAL FORM FOR REGISTRATION OF SECURITIES
PURSUANT TO SECTION 12(b) OR 12(g) OF
THE SECURITIES EXCHANGE ACT OF 1934

PINNACLE OIL INTERNATIONAL, INC.
(EXACT NAME OF REGISTRANT AS SPECIFIED IN ITS CHARTER)

NEVADA 61-1126904
(STATE OR OTHER JURISDICTION OF (I.R.S. EMPLOYER
INCORPORATION OR ORGANIZATION) IDENTIFICATION NO.)

SUITE 750, PHOENIX PLACE, 840-7TH AVENUE S.W., CALGARY, ALBERTA, CANADA T2P 3G2
(ADDRESS OF PRINCIPAL EXECUTIVE OFFICES) (ZIP CODE)

REGISTRANT'S TELEPHONE NUMBER, INCLUDING AREA CODE: (403) 264-7020

SECURITIES TO BE REGISTERED PURSUANT TO SECTION 12(b) OF THE ACT:

TITLE OF EACH CLASS NAME OF EACH EXCHANGE ON WHICH
TO BE SO REGISTERED EACH CLASS IS TO BE REGISTERED
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NONE N/A

SECURITIES TO BE REGISTERED PURSUANT TO SECTION 12(g) OF THE ACT:

COMMON STOCK
PAR VALUE $0.001 PER SHARE
(TITLE OF CLASS)

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PINNACLE OIL INTERNATIONAL, INC.

FORM 10 REGISTRATION STATEMENT

TABLE OF CONTENTS

PAGE
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Item 1 Description of Business......................................... 1
Item 2 Financial Information........................................... 44
Item 3 Properties...................................................... 51
Item 4 Security Ownership of Certain Beneficial Owners and Management.. 51
Item 5 Directors and Executive Officers................................ 52
Item 6 Executive Compensation.......................................... 54
Item 7 Certain Relationships and Related Transactions.................. 57
Item 8 Legal Proceedings............................................... 59
Item 9 Market Price of and Dividends on the Registrant's Common Equity
and
Related Stockholder Matters..................................... 59
Item 10 Recent Sales of Unregistered Securities......................... 60
Item 11 Description of Registrant's Securities to Be Registered......... 62
Item 12 Indemnification of Directors and Officers....................... 64
Item 13 Financial Statements and Supplementary Data..................... 65
Item 14 Changes in and Disagreements with Accountants on Accounting and
Financial Disclosure............................................ 66
Item 15 Financial Statements and Exhibits............................... 67

GLOSSARY OF TERMS

The following terms are commonly used within the context of the Company's
business and technology:

"SFD Anomaly" means a wave form which varies from the norm and may be
associated with hydrocarbon deposits.

"SFD Data" means certain proprietary information provided exclusively to the
Company for petroleum and natural gas exploration purposes by Momentum
Resources Corporation.

"SFD Prospects" or "Prospects" means commercially viable hydrocarbon deposits
identified through the analysis of SFD Data.

"SFD Survey System" means the electronic system composed of the Stress Field
Detector and the Company's proprietary electronic data acquisition and global
positioning systems.

"SFD Technology" refers to the Stress Field Detector and its underlying
scientific theories.

"Signature wave form" means the unique wave form associated with or exhibited
by a particular type of stress-influenced subsurface condition.

"Stress field" means above ground, non-electromagnetic energy patterns caused
by subsurface mechanical stresses in rocks and pressure differentials in
fluids.

"Stress Field Detector" or "SFD" means Momentum's proprietary electronic
device, whose primary component is the "SFD Sensor," a passive transducer
which captures or recognizes stress fields through the interaction of their
energy patterns against the quantum field generated by the SFD Sensor.

"Wave form" means the digitized electronic data signal registered by the
Stress Field System in recognition of a stress field.

The following terms are commonly used within the context of the Company's
industry:

"Anticline" refers to the arching up of the strata caused by a salt dome
thrusting up from below, or compression from earth movements that wrinkle the
ground and produce an uplift to counterbalance the subsidence

"Barrel" or "BBL" means 42 U.S. gallons.

"Cretaceous" refers to a geologic period from about 135 million B.C. to 63
million B.C.

"Devonian" refers to a geologic period from about 405 million B.C. to 345
million B.C.

"Dome" refers to a plug forced upward through strata because of differences in
density.

"Dry hole" means a well that fails to hit oil or gas in commercial volumes.

"Fault" means a fracture in the earth where the rock on one side moves.

"Folds" means a buckling of the earth's strata caused by movement.

"Geologic deformities" refers to abrupt variations in subsurface geology, such
as anticlines, faults, fractures and unconformities, such as reefs and dome
structures.

"Hydrocarbons" refers to a mixture of compounds of which the principal
chemicals are carbon and hydrogen, crude oil, condensate or natural gas.

iii

"Mesozoic" refers to a geologic period from about 230 million B.C. to 63
million B.C.

"Migration" refers to the movement of hydrocarbons in the ground; primary
migration is from source bed or rock to permeable rock.

"Natural gas" means a gaseous form of petroleum.

"Logging" means the lowering of various types of instruments into a well and
gathering and recording data on porosity, permeability, types of fluids, fluid
content, and lithography.

"Permeability" refers to the factor of a reservoir that determines how hard or
how easy it is for oil to flow through the formation.

"Porosity" refers to the capacity of rock to hold liquid in its pores.

"Reservoir" means a rock formation or trap holding an accumulation of
petroleum.

"Seismic Technology" or "Seismology" refers to hydrocarbon survey methods
based on creating an explosion or artificial sound wave at the surface,
observing how that sound wave moves through various subsurface layers, and
recording how each layer of rock reflects the created wave.

"Shale" means rock composed of clay and fine-grain sediments.

"Spudding" means to begin a new well.

"Strata" means a layer, as of rock.

"Stratigraphic Trap" is a trap where a reservoir bed is sealed by another bed,
or by a change in porosity and permeability within the reservoir itself.

"Structural Trap" is a trap caused by a deformation in the rock layer than
contains the hydrocarbons, such as anticlines and fault traps.

"Trap" means a geologic deformity or structure which halts movement of a
petroleum accumulation.

"Viscosity" is a term used to describe the ability, or lack of ability, of a
fluid to flow.

ADVISEMENT

CERTAIN STATEMENTS CONTAINED IN THIS REGISTRATION STATEMENT CONSTITUTE
"FORWARD-LOOKING STATEMENTS" WITHIN THE MEANING OF THE PRIVATE SECURITIES
LITIGATION REFORM ACT OF 1995 (THE "REFORM ACT"), WHICH REFLECT THE COMPANY'S
CURRENT EXPECTATIONS REGARDING THE FUTURE RESULTS OF OPERATIONS, PERFORMANCE
AND ACHIEVEMENTS OF THE COMPANY, OR INDUSTRY RESULTS. THE COMPANY HAS TRIED,
WHEREVER POSSIBLE, TO IDENTIFY THESE FORWARD LOOKING STATEMENTS BY, AMONG
OTHER THINGS, USING WORDS SUCH AS "ANTICIPATE," "BELIEVE," "ESTIMATE,"
"EXPECT" AND SIMILAR EXPRESSIONS. THESE STATEMENTS REFLECT THE CURRENT BELIEFS
OF MANAGEMENT OF THE COMPANY, AND ARE BASED ON CURRENTLY AVAILABLE
INFORMATION. ACCORDINGLY, THESE STATEMENTS ARE SUBJECT TO KNOWN AND UNKNOWN
RISKS, UNCERTAINTIES AND OTHER FACTORS WHICH COULD CAUSE THE ACTUAL RESULTS,
PERFORMANCE OR ACHIEVEMENTS OF THE COMPANY TO DIFFER MATERIALLY FROM THOSE
EXPRESSED IN, OR IMPLIED BY, THESE STATEMENTS. (SEE, IN GENERAL, "DESCRIPTION
OF BUSINESS--UNCERTAINTIES AND RISK FACTORS" BELOW). THE COMPANY IS NOT
OBLIGATED TO UPDATE OR REVISE THESE "FORWARD-LOOKING" STATEMENTS TO REFLECT
NEW EVENTS OR CIRCUMSTANCES.

ITEM 1. DESCRIPTION OF BUSINESS

OVERVIEW

The Company and its subsidiaries identify commercially viable hydrocarbon
deposits ("SFD Prospects") through the analysis of certain information ("SFD
Data") provided exclusively to the Company for petroleum and natural gas
exploration purposes by Momentum Resources Corporation ("Momentum") pursuant
to the terms of a Restated Technology Agreement (the "License"). The SFD Data
is generated by Momentum's proprietary Stress Field Detector or "SFD" used in
conjunction with the Company's proprietary electronic data acquisition and
global positioning systems (collectively, the "SFD Survey System"). The SFD
Survey System operates on the theory that subsurface mechanical stresses in
rocks and pressure differentials in fluids produce above ground, non-
electromagnetic energy patterns (which the Company refers to as a "stress
field"), which patterns can be recognized and translated by the Stress Field
Detector in the form of a digitized electronic signal (which the Company
refers to as a "wave form"). Each type of stress-influenced subsurface
condition exhibits a unique or "signature" wave form.

In field operation, the SFD Survey System is flown over a pre-selected survey
area in an airplane, and continuously records the changing wave forms from the
underlying area, together with the corresponding global coordinates associated
with each such waveform. The waveforms from the survey are subsequently
interpreted, analyzed and compared against the signatures of known viable oil
and gas pools, which allows the Company to ascertain the character and scope
of the oil and gas accumulations indicated by the wave form being examined.
The Company uses the term "SFD Anomaly" to indicate a wave form which varies
from the norm and may be associated with hydrocarbon deposits. The Stress
Field Detector and its underlying scientific theories are referred to as the
"SFD Technology."

The Company's present strategy is to exploit SFD Prospects by entering into
joint venture, working participation, royalty and other arrangements with a
small and select number of experienced, well-capitalized strategic partners.
These strategic arrangements will ultimately target both domestic (United
States and Canada) and international prospects, as well as off-shore
prospects. As of the date of this Registration Statement, the Company has
entered into joint ventures or other arrangements with three strategic
partners, Encal Energy Ltd. ("Encal") in December of 1996, February of 1997
and September of 1997 for the exploration and exploitation of prospects in
Western Canada; Renaissance Energy Ltd. ("Renaissance") in February of 1998
for the exploration of prospects in Western Canada; and CamWest Limited
Partnership ("CamWest") in April 1998 for the exploration and exploitation of
prospects in the United States and foreign countries other than Canada.

The Company completed the last of the field evaluations designed by its
strategic partners to evaluate and test the SFD Technology in early 1998, and
the Company is now actively engaged in commercial efforts to identify
commercially viable SFD Prospects on behalf of each of its three strategic
partners. The SFD Prospects which the Company is pursuing are "original"
prospects in the sense they constitute previously unknown potential
hydrocarbon deposits originally located and identified by the Company, as
opposed to prospects previously identified by the strategic partner for field
evaluation or for which the partner sought validation. These original SFD
Prospects, if successfully drilled and found to be commercially viable, are
expected to generate royalty income or, in the case of CamWest and Encal, a
working interest income should the Company elect to participate in drilling
the original prospect. The current status of the Company's SFD survey
activities with respect to each of its three strategic partners as of the date
of this Registration Statement are as follows:

. Renaissance--The Company has completed its SFD survey activities under
its two short-term Survey Agreements with Renaissance, and has tendered
five SFD Prospects to Renaissance for further evaluation. Renaissance has
informed the Company that it has completed its seismic evaluation of
these five prospects with positive results, and has advised the Company
that it anticipates drilling activities with respect to three of such
prospects will commence in the last quarter of 1998. In the interim, the
Company will conduct additional airborne SFD surveys in September 1998
over certain of these prospects for the purpose of further delineating
the scope of the SFD Anomalies to assist Renaissance in developing its
drilling program.

Insofar as the Company has fully performed its obligations in tendering
SFD Prospects to Renaissance under its Survey Agreement, the Company and
Renaissance anticipate they will enter into negotiations shortly with
respect to entering into a longer term exploration agreement similar to
those the Company has entered into with its other strategic partners.

. CamWest--The Company has conducted a number of airborne SFD surveys for
CamWest, and has tendered six SFD Prospects to CamWest for further
evaluation. The Company and CamWest are also scheduling additional
airborne SFD surveys to be conducted within the next two months over
certain previously flown areas for the purpose of identifying additional
SFD Prospects and/or delineating the scope of previously identified SFD
Prospects within such areas, and are also in the process of scheduling
airborne SFD flights over new targets selected by CamWest.

CamWest is currently evaluating seismic data with respect to the six SFD
Prospects tendered to it by the Company, and at this time plans to
immediately pursue each of such prospects which contain SFD Anomalies
indicative of structural traps, since these types of formations can be
confirmed by seismic data. CamWest will evaluate SFD Prospects tendered to
it containing SFD Anomalies consistent with other trapping mechanisms not
readily identifiable with seismic data, such as stratigraphic traps, at a
later date. CamWest anticipates that it will conduct further seismic
testing with respect to structural trap based SFD Prospects (including any
additional such prospects tendered to it in the next two months) in the
fourth quarter of 1998, with the objective of acquiring property rights
(where not previously held by CamWest) and commencing drilling activities
by the end of 1998.

. Encal--The Company has recently completed its airborne SFD surveys over
the exploration area designated by Encal, and is currently in the process
of evaluating over twenty potential SFD Anomalies indicated by the SFD
Data from these flights (a tendered SFD Anomaly under the Company's
agreement with Encal is analogous to a tendered SFD Prospect under the
Company's agreements with Renaissance and CamWest). The Company has
tendered three SFD Anomalies to Encal for further evaluation, and
anticipates that it will tender additional SFD Anomalies over the next
several weeks as it completes its analysis of SFD Data. Encal has 90 days
to evaluate any factors it considers relevant with respect to tendered
SFD Anomalies, which may include seismic data and its ability to obtain
property rights. Encal is currently conducting seismic evaluation with
respect to the first of the tendered SFD Anomalies. Encal has not yet
commenced seismic evaluation with respect to the last two tendered SFD
Anomalies. Encal has informed the Company that its objective is to
complete seismic evaluation and complete drilling (if warranted) by the
end of the 1998-1999 winter period, since the exploration area is located
in a northern climate where drilling is conducted during winter months
only.

No assurance can be given that the SFD Prospects or SFD Anomalies described
above, if potential hydrocarbon deposits appear to be indicated by the
Company's strategic partners using seismic or other methodologies, will be
drilled at all or by projected drilling dates due to, among other things,
factors such as the perceived economics of drilling at such time, the ability
of the strategic partner to obtain property rights (where necessary) on
favorable terms or at all, and the ability of the strategic partner to timely
schedule a drilling rig and other drilling services. Even if an SFD Prospect
is drilled, no assurance can be given that the well will produce commercially
viable quantities of hydrocarbons. See "Risk Factors--Risks Relating to the
Company and its Business," generally, and "--Reliance on Joint Venture
Partners--Non-Operator Status" and "--Risk of Exploratory Drilling Activities"
particularly.

The principal executive offices of the Company and each of its subsidiaries
are located at Suite 750, Phoenix Place, 840-7th Avenue S.W., Calgary,
Alberta, Canada T2P 3G2, and its telephone number is (403) 264-7020. Unless
the context otherwise requires, all references herein to the Company include
the Company and its subsidiaries.

The information set forth in this Registration Statement is current as of
August 28, 1998, unless an earlier or later date is indicated, and references
to the "date of this Registration Statement" shall be deemed to refer to such
date.

DEVELOPMENT OF THE COMPANY

The Company was initially incorporated in Nevada on September 27, 1994 under
the name "Auric Mining Corporation" ("Auric"). Auric was formed by Mega-Mart,
Inc. ("Mega-Mart"), a Delaware corporation formed on January 28, 1987, for the
purpose of facilitating the change of Mega-Mart's corporate domicile from
Delaware to Nevada. On September 28, 1994, Auric and Mega-Mart entered into a
Plan Of Reorganization pursuant to which the shareholders of Mega-Mart
received 1,096,500 shares of the common stock of Auric, constituting 100% of
its outstanding capital stock, in exchange for 100% of their outstanding
shares of common stock in Mega-Mart. The Plan of Reorganization also
contemplated a subsequent merger of Mega-Mart into Auric, however, the parties
subsequently determined not to merge the companies, thereby retaining Mega-
Mart as a wholly-owned subsidiary of Auric. Auric subsequently determined that
its investment in Mega-Mart was without value, and abandoned this investment.

On March 21, 1995, the Company (as Auric) entered into a Plan Of
Reorganization with Fiero Mining Corporation, a Nevada corporation ("Fiero"),
whereby Auric agreed to issue 3,833,357 shares of common stock (constituting
approximately 16.8% of its outstanding shares of common stock) in exchange for
100% of the outstanding shares of the common stock of Fiero. Fiero was
retained as a wholly-owned subsidiary of Auric until December 16, 1995, at
which time Fiero was spun-off to the shareholders of Auric on a one share for
one share basis.

On December 12, 1995, Pinnacle Oil and the Company (as Auric) entered into a
letter of intent under which: (i) the Company agreed to issue 10,090,675
shares of the Common Stock, par value $0.001 (the "Common Stock") of the
Company (constituting approximately 92% of its outstanding shares of Common
Stock) to the shareholders of Pinnacle Oil, in exchange for all of the
outstanding shares of Common Stock of Pinnacle Oil; (ii) the Company agreed to
solicit shareholder consent to a 6:1 reverse stock split immediately prior to
the share exchange; and (iii) the Company agreed to change its name to
"Pinnacle Oil International, Inc." upon consummation of the reorganization.

Pinnacle Oil was a Nevada corporation formed on October 20, 1995, by Mr.
George Liszicasz, the inventor of the Stress Field Technology (and presently
the Chief Executive Officer, Chairman and a significant stockholder of the
Company), and Mr. R. Dirk Stinson (presently the President and a director and
significant stockholder of the Company), together with five other investors,
for the purpose of engaging in hydrocarbon exploration utilizing SFD Data
generated by the SFD Technology. Messrs. Liszicasz and Stinson formed Pinnacle
Oil pursuant to a partnership agreement amongst themselves (the "Liszicasz-
Stinson Agreement") to exploit the SFD Technology. On January 1, 1996,
pursuant to his obligations under the Liszicasz-Stinson Agreement,
Mr. Liszicasz and Pinnacle Oil entered into a license agreement (the "Original
Technology Agreement,"

subsequently superceded in August 1996 by the License) whereby Pinnacle Oil
obtained its original license to utilize the data generated by the SFD
Technology. For a description of the Liszicasz-Stinson Agreement, the Original
Technology Agreement, and related transactions amongst Messrs. Liszicasz,
Stinson and Pinnacle Oil, see "Item 7--Certain Relationships and Related
Transactions." For a description of the License, see "Momentum License
Agreement" below.

On January 12, 1996, the shareholders and directors of the Company approved
the transactions contemplated by the letter of intent, and consented to a 6:1
reverse stock split. A formal Plan of Reorganization and Acquisition was
executed and effective as of January 20, 1996, and the change in the Company's
name to "Pinnacle Oil International, Inc." was effective on February 23, 1996.

Since the date of its formation and through the date of consummation of the
noted transactions with Pinnacle Oil, the Company (as Auric) was a holding
company and never (with the exception of Auric's subsidiary, Fiero) conducted
an active business. Auric's predecessor, Mega-Mart, was also a holding company
which conducted no active business from its date of formation through its date
of abandonment by Auric. Prior to its spin-off in December 1995, Fiero engaged
in limited gold exploration activities.

The founder of Mega-Mart was Mr. Claude Smith, and the founders of Fiero were
Messrs. Kurt James, Arnold Wyncoop and George White. Messrs. James, Wyncoop
and White were also the persons who, on behalf of Auric, founded Auric. None
of the officers, directors or stockholders of Pinnacle Oil or Momentum,
including Messrs. Liszicasz and Stinson, were directly or indirectly
affiliated with Auric or any of its founders, officers, directors or
stockholders during the course of the transactions contemplated by the Plan of
Reorganization and Acquisition, and such transactions were made on an arms'
length negotiated basis. With the exception of Mr. Terrence Dunne, the
secretary and a director and nominal shareholder of Auric, the officers and
directors of Auric were replaced with officers and directors designated by
Pinnacle Oil, including Messrs. Liszicasz (as Chief Executive Officer and
Chairman) and Stinson (as President and a director), immediately following the
consummation of the noted transactions.

As a result of the noted transactions, Pinnacle Oil became a wholly owned
subsidiary of the Company, and will conduct the Company's operations in the
United States. The Company formed Pinnacle Canada, a federal Canadian
corporation, on April 1, 1997 to conduct the Company's operations in Canada.

On August 1, 1996, the Company, Pinnacle Oil, Mr. Liszicasz, Mr. Stinson and
Momentum Resources Corporation ("Momentum"), a Bahamas corporation indirectly
owned and controlled by Messrs. Liszicasz and Stinson, entered into the
License. Under the License, Momentum, as the owner of the SFD Technology,
granted to the Company use of the Stress Field Detector and SFD Technology for
the identification of hydrocarbons, through Momentum's agreement to survey
designated areas with the SFD Technology, and to provide the SFD Data
generated thereby exclusively to the Company. The initial term of the License
is ten years, with automatic renewals for one year periods absent either (i)
an election by the Company to terminate the License; or (ii) a termination by
Momentum based upon a default by the Company, or certain other events,
including a "Change in Control" of the Company (as defined in the License).
During the term of the License, Momentum is prohibited from engaging in the
identification and/or exploitation of hydrocarbons, and from granting to any
third party any license or sublicense of the SFD Technology, the Stress Field
Detector or the SFD Data for the identification and/or exploitation of
hydrocarbons.

Under the terms of the License (as amended), the Company will pay Momentum a
fee equal to 1% of "Prospect Profits" (as such term is defined in the License)
received by the Company and its subsidiaries on or before December 31, 2000,
and 5% of Prospect Profits received by the Company and its subsidiaries after
December 31, 2000. Prospect Profits is defined as the aggregate of all gross
revenues actually received by the Company with respect to the commercial
exploitation of all SFD Prospects, less all project expenses actually paid by
the Company with respect to the commercial exploitation of such SFD Prospects.
In addition, the License provides for the grant of "Performance Options" on
the Company's Common Stock for each month in which production from prospects
identified through the SFD Technology exceeds 20,000 barrels (See "Momentum
License Agreement" below).

BUSINESS OVERVIEW

Management believes, based upon its firsthand observations and the results of
third party field evaluations, that by utilizing the SFD Survey System, it has
a substantial competitive advantage over other oil and gas companies in
discovering new, highly productive oil fields. The SFD Survey System is most
effective when utilized as a "wide area exploration" tool, because the SFD
Survey System is able to identify large oil and gas deposits while moving at
speeds in excess of 150 mph in an airplane. The SFD Survey System thus affords
a capability to carry out "wide-area exploration" far more rapidly than
traditional methods, and at a fraction of the cost of those methods. To the
Company's knowledge, there are no published studies or articles which address
the scientific basis or principles underlying the SFD Technology, or its
competitive advantages in the industry. See "Third Party Evaluations of the
SFD Survey System" below.

The Company's central strategy is to engage in hydrocarbon exploration
utilizing the SFD Survey System for the dual purpose of (i) validating the
technology's efficacy in identifying SFD Prospects; and (ii) establishing
joint ventures, working participations and/or royalty agreements with
experienced, well capitalized venture partners for the development,
exploitation and operation of such SFD Prospects. The Company anticipates
joint venture arrangements which will provide an election to the Company to
receive either a participating working interest or a royalty interest on SFD
Prospects which are identified by the Company. As of the date of this
Registration Statement, the Company has entered into (i) an Exploration Joint
Venture Agreement with Encal; (ii) SFD Survey and Royalty Agreements with
Renaissance; and (iii) a Joint Exploration and Development Agreement with
CamWest.

THE ENCAL EXPLORATION JOINT VENTURE

During 1996 and 1997, the Company and Pinnacle Canada entered into several
agreements with Encal, an intermediate oil and gas exploration and production
company based in Calgary, Alberta, Canada. Encal is publicly traded on the
Toronto and New York Stock Exchanges. For the three months ended March 31,
1997, Encal averaged 8,405 barrels of oil and equivalent natural gas
production per day. At December 31, 1997, Encal had 40.9 million barrels of
proven and probable oil and natural gas liquids reserves, and 605 billion
cubic feet of proven and probable natural gas reserves.

The Company's relationship with Encal began in December, 1996, when the
Company and Encal entered into their initial agreement to field test the SFD
Survey System. Under the initial agreement, the Company agreed to perform
vehicle-based surveys utilizing the SFD Survey System over specific lands
owned by Encal in southern Alberta. The initial agreement provided to the
Company the right to acquire and assume a 5% interest in any well which Encal
elected to drill on an SFD Anomaly identified by the Company, subject to
certain capital payments by the Company.

During the spring and summer of 1997, the Company enhanced the SFD Survey
System (i) to operate airborne, as opposed to in a ground-based vehicle, and
(ii) to fully incorporate a global positioning system into the data
acquisition system. In light of these enhancements and Encal's ongoing field
evaluations, the Company and Encal agreed to amend and supersede all prior
agreements, by executing an Exploration Joint Venture Agreement on September
15, 1997 (the "Encal Agreement"). The Encal Agreement currently governs the
parties' relationship, is for a term of three (3) years, and may be extended
by mutual agreement. Under the terms of the Encal Agreement:

(i) The size of each potential exploration area was expanded to 2,400
square miles.

(ii) The Company agreed to provide and maintain a minimum inventory of 18
"Exploratory Prospects" (as defined in the agreement) during the term.

(iii) The Company was granted the right to elect to either: (A)
participate at a working interest ranging from 40% to 45% of Encal's
interest (depending on underlying property rights); or (B) receive a
sliding scale gross overriding royalty from all wells on a prospect,
ranging from 5% to 8%, based on Encal's share of production.

(iv) The Company granted to Encal certain preferential rights with
respect to the SFD Survey System, including but not limited to an exclusive
right to the utilization of the system in the province of British Columbia,
and in a minimum of 50% selected regions of the province of Alberta. (For a
detailed description of the Encal Agreement, see "Joint Venture and Royalty
Agreements--The Encal Exploration Joint Venture Agreement" below).

Company management believes that the terms of the Encal Agreement reflect
Encal's recognition of the viability and value of the SFD Survey System. More
importantly, management views the venture with Encal as an opportunity to
combine the revolutionary aspects of the SFD Survey System with the expertise
and experience of an established oil and gas company. For a detailed
description of the Encal Agreement, see "Joint Venture and Royalty
Agreements--The Encal Exploration Joint Venture Agreement."

CAMWEST JOINT EXPLORATION AGREEMENT

On April 3, 1998, the Company entered into a Joint Exploration and Development
Agreement (the "CamWest Agreement") with CamWest, an Arkansas limited
partnership. CamWest is a privately held oil and gas exploration company, and
an affiliate of SFD Investment LLC, which became a major investor in the
Company concurrently with CamWest entering into the CamWest Agreement. (See
"Item 10--Recent Sales of Unregistered Securities" below).

The CamWest Agreement has a term of four (4) years commencing on the date upon
which the parties first identify five mutually acceptable exploratory
prospects, and may be extended thereafter by mutual agreement. Under the
CamWest Agreement, the Company has granted to CamWest the exclusive rights to
SFD surveys in certain "exclusive areas" to be identified by CamWest;
provided, however, that such areas (i) must not be within Canada; (ii) must be
identified in segments of not more than 2,400 square miles in size; and (iii)
cannot exceed an aggregate of 1,000,000 square miles within the United States,
and an additional 1,000,000 square miles outside of the United States and
Canada.

Once a prospect identified by the SFD has been accepted by CamWest as an
exploratory prospect, the Company will have an initial working interest
participation in the prospect of 45%. However, under the Camwest Agreement,
the Company may elect (i) to retain its entire 45% working interest in the
prospect; (ii) to participate at a percentage level ranging from 1% up to 45%
(the "Participation Percentage"); or (iii) to convert the interest to a gross
overriding royalty interest. If the Company does nothing, or makes an election
to participate at less than 45%, the Company will bear 45%, or the
Participation Percentage, of all land acquisition costs, and CamWest will bear
the remainder of such costs. If the Company elects to receive a sliding scale
gross overriding royalty from all wells on the exploratory prospect, the
royalty percentage will be from 5% (if production is less than 1,000 barrels
per month of crude oil) or 8% (if production is more than 1,000 barrels per
month) of CamWest's net revenue interest.

If the Company retains or elects to participate through a working interest on
an exploratory prospect, it must pay the Participation Percentage of the
acquisition costs of the petroleum or natural gas rights, as well as the same
percentage of the costs of drilling all wells and other development costs, and
CamWest will pay the balance of such costs. Where the Company has elected the
working interest, the Company will receive the Participation Percentage of
revenues from the production of petroleum substances from the applicable
exploratory prospect, and CamWest will receive the remainder of such revenues.
For a detailed description of the CamWest Agreement, see "Joint Venture and
Royalty Agreements--The Camwest Joint Exploration Agreement".

THE RENAISSANCE SURVEY AND ROYALTY AGREEMENTS

The Company's wholly-owned subsidiary, Pinnacle Canada, has entered into two
short term SFD Survey Agreements, each dated February 1, 1998 (the
"Renaissance Agreements") with Renaissance. Reuters Financial Service has
called Renaissance "Canada's busiest oil and gas driller." Renaissance is
engaged in seismic analysis, exploratory and development drilling, and
petroleum production and marketing. For the nine months

ended September 30, 1997, Renaissance reported Cdn. $697,000,000 in gross
revenues, oil production of 22,154,000 barrels and natural gas production of
115,046 million cubic feet. For the same period, Renaissance reported 1,253
wells drilled, with an average working interest of 98%.

Under the terms of the Renaissance Agreements, Pinnacle Canada will conduct
airborne surveys utilizing the SFD Survey System over a total of 360,000 acres
in the Province of Alberta in which Renaissance holds petroleum and natural
gas rights (the "Prospect Lands"). Pinnacle Canada has agreed to conduct such
surveys during the period February 23, 1998 to March 31, 1998, and to submit
to Renaissance any "SFD Anomalies" (as defined in the agreements) identified
by the surveys by the end of such period. The Renaissance Agreements further
provide that if Renaissance, in its sole discretion (i) drills a test well on
an identified SFD Anomaly presented by Pinnacle Canada; (ii) such well is
drilled to a depth below the base of the Mississippian Formation; and
(iii) such well is spudded on or before December 31, 1998, Renaissance will
grant to Pinnacle Canada a 5% gross overriding royalty on all petroleum
substances produced from the wells drilled below the base of the Mississippian
Formation on the SFD Anomaly.

Each Renaissance Agreement also provides that Renaissance shall reimburse
Pinnacle Canada 100% of all charter airplane costs and expenses actually
incurred by Pinnacle Canada in conducting the SFD surveys under the applicable
agreement, up to a maximum of Cdn. $25,000 under each agreement, or Cdn.
$50,000 in the aggregate. The Renaissance Agreements also contain
confidentiality provisions prohibiting either party from releasing certain
information without the prior written consent of the other party, which
consent may not be unreasonably withheld. (See "Joint Venture and Royalty
Agreements--The Renaissance Survey and Royalty Agreements" below).

Insofar as the Company has fully performed its obligations in tendering SFD
Prospects to Renaissance under the Renaissance Agreements, the Company and
Renaissance anticipate they will enter into negotiations shortly with respect
to entering into a longer term exploration agreement similar to those the
Company has entered into with its other strategic partners.

THE SFD SURVEY SYSTEM

The SFD Survey System is an integrated modular electronic system comprised of
(i) Momentum's proprietary Stress Field Detector, and (ii) various electronic
subsystems proprietary to the Company, including a data acquisition system
incorporating a global positioning system ("GPS"). The SFD Survey System
operates on the theory that subsurface mechanical stresses in rocks and
pressure differentials in fluids produce above ground, non-electromagnetic
energy patterns (which the Company refers to as a "stress field"), which
patterns can be recognized by the Stress Field Detector in the form of a
digitized electronic signal (which the Company refers to as a "wave form").
Each type of stress-influenced subsurface condition exhibits a unique or
"signature" wave form. The primary component of the Stress Field Detector is
the "SFD Sensor," a passive transducer which captures or recognizes these
energy patterns.

In field operation, the SFD Survey System is flown over a pre-selected survey
area (either land or water) in an airplane. During each traverse, the
Company's data acquisition system continuously records the changing wave forms
from the underlying area captured by the Stress Field Sensor, and the
corresponding GPS coordinates associated with each such wave form.
Simultaneously, all relevant information including original and processed
signal wave forms ("SFD Profiles") are displayed on a monitor in "real time."
In addition, the SFD Survey System maintains a database of wave forms
collected in a given area, as well as creating a "library" of signatures wave
forms of known subsurface conditions for reference purposes. The waveforms
from the SFD Profiles are subsequently interpreted, analyzed and compared
against the signatures of known viable oil and gas pools, which allows the
Company to ascertain the character and scope of the oil and gas accumulations
indicated by the wave form being examined. The Company uses the term "SFD
Anomaly" to indicate a wave form which varies from the norm and may be
associated with hydrocarbon deposits. The Stress Field Detector and its
underlying scientific theories are referred to as the "SFD Technology."

As noted above, the Company has an exclusive License for the worldwide
utilization of the SFD Data for hydrocarbon exploration. Under the terms of
the License, Company personnel review and analyze the SFD Profiles for what
are termed "SFD Anomalies." SFD Anomalies are deviations and irregularities in
the SFD Profile which indicate a subsurface geological deformity, the
structural beginning of a subsurface field and/or a hydrocarbon accumulation.
If the first traverse of a location generates an SFD Anomaly, second and third
traverses of the same location are undertaken, with a different orientation or
direction on the subsequent flight or trip. Often these sequential traverses
of the site will be perpendicular to, or in the opposite direction from, the
original line of travel. In this way multiple SFD Profiles of the same site
are generated, from which a Company analyst can (i) verify the original
anomaly, (ii) further delineate the edges of the identified deformity, and
(iii) evaluate the viability of the prospect.

THEORETICAL BASIS

Momentum does not possess any patents or other registered intellectual
property rights with respect to the SFD Technology, and Momentum does not
anticipate that if it were to apply for and receive patent protection, that
such patent protection would necessarily protect Momentum and the Company from
actual or potential competition. In addition, patent counsel has advised
Momentum and the Company (i) that a patent application would inhere
unwarranted disclosure risks; and (ii) that the Company's present practices
afford common law trade secret protection. For these and other reasons,
Momentum will not disclose a comprehensive explanation of the SFD Technology.
However, a brief description of the theoretical basis and reasoning which
support the technology are set forth below.

Abrupt variations in subsurface geology (called "geological deformities")
cause stresses to develop in the surrounding rock materials. It is generally
known by geologists that when certain materials in the earth's crust (such as
single crystals) rupture due to stress, they generate electromotive force as a
release mechanism. A premise of the SFD Technology is the theory that prior to
such a rupture and the release of electromotive force, there are constant sub-
atomic interactions that release non-electromagnetic energy. The SFD
Technology is based on the theory that: (i) both mechanical stress in rocks
and the pressure differentials in fluids produce non-electromagnetic energy
patterns; (ii) that the energy patterns reflect subsurface conditions which
are geological and may be hydraulic; and (iii) that the SFD Sensor, a passive
transducer which generates a quantum field, captures the interaction of these
energy patterns against the field. This interaction is registered by the SFD
Sensor as it is moved over major hydrocarbon accumulations, and these energy
patterns are converted into electrical signals that are forwarded to the data
acquisition system.

Several observations support the theory that hydrocarbon accumulations produce
the observed energy patterns:

1. THE DETECTED ENERGY PATTERNS ARE NON-ELECTROMAGNETIC. Field tests were
conducted with the SFD Sensor both (i) while shielded from electromagnetic
forces, and (ii) without such shields. In both cases the SFD Sensor registered
no change. When the sensor was subjected to high voltage static, alternating
current and/or strong magnetic fields, it did not indicate any changes in
operation. In addition, the amplitude of the signal captured by the SFD Sensor
decreased as the speed of traverse of the sensor was increased. This is
essentially the opposite of what would occur while measuring electromagnetic
energy with a conventional magnetometer.

2. THE DETECTED ENERGY PATTERNS ARE BOTH DYNAMIC AND DIRECTIONAL. In field
tests over known major faults the SFD Sensor captured energy patterns which
were dynamic while the sensor was stationary. In addition, the "radiation"
field vectors of the energy patterns showed different magnitudes during the
traverse of a known deposit.

3. THE DETECTED ENERGY PATTERNS REFLECTED KNOWN HYDROCARBON ACCUMULATIONS
WHERE TECTONIC OR MECHANICAL STRESS SHOULD NOT BE A MAJOR FACTOR. In field
tests the SFD Sensor was shown to react to the following known geological and
hydraulic phenomenon:

. Mechanical forces due to tectonic activity in areas prone to earthquakes;

. Sediment loading resulting in faulting and dewatering of sediments; and

. Pressure differentials in the subsurface that are caused by different
fluid densities.

SFD Sensor reactions were observed over faults caused by both tectonic and
sedimentary loading, in areas including the Texas and Louisiana Gulf Coast,
the San Andreas fault in California, the lower mainland of British Columbia,
and the foothills of Alberta. These observations tend to indicate that the SFD
Sensor reacts to mechanical stress in the subsurface. However, in field
observations the SFD Sensor was shown to react to known, significant
accumulations of hydrocarbons in the subsurface where mechanical and tectonic
stress would not be a major factor. In these instances it appears that the SFD
Technology reacts to energy patterns caused by pressure differentials in the
hydrocarbon accumulations themselves.

Experts who have reviewed the SFD Technology have suggested that a possible
explanation for these reactions over significant hydrocarbon pools can be
obtained by examining the effect a column of gas or oil has on the pressure
within a reservoir, and the resulting stress on the surrounding shales. The
pressure vs. elevation graph below indicates the effect changes in the
relative density of subsurface fluids can have on the pressure within a
reservoir at any given depth.

LOGO

These pressure changes are due to buoyancy forces that develop whenever a
fluid of lower density (i.e., oil or gas) is emerged in a fluid of higher
density (water.) As the column of oil or gas becomes higher, representing a
thicker pay zone, the pressure differential caused by the buoyancy forces of
the hydrocarbons vs. the normal hydrostatic pressure of the formation waters
will increase. This increase in pressure should cause a corresponding increase
in the stress exerted on the rock that contains and confines an oil or gas
accumulation, because immediately outside the boundaries of the oil or gas
pool, the pressure with the reservoir will be consistent with the normal
hydrostatic pressure for the reservoir. This known effect of buoyancy forces
that develop due to hydrocarbon columns lends strong support to the theory
that pressure differentials in hydrocarbon accumulations produce stress energy
patterns which are detected by the SFD Sensor.

Based on field evaluations by both Company personnel and third parties,
management of the Company believes that the SFD Technology can reliably:

. Detect from an altitude of 1,000 feet major oil and gas accumulations,
sandstone or limestone/dolomite deposits at depths from 1,000 to at least
12,600 feet.

. Detect and discriminate between a wide variety of subsurface geological
deformities, including anticlines, faults, fractures, unconformities
including reefs, dome structures. Major known faults have been detected
at an altitude of 10,000 feet.

. Detect structures, faults and hydrocarbon accumulations in shallow waters
up to 100 feet in depth. Tests have not yet been conducted over deeper
waters.

. Determine whether an identified geological trap contains gas, oil, water
or no fluid at all.

. Indicate whether a basin is shallow or deep.

. Indicate the lateral extent and horizon of a reservoir, pool or reef.

. Detect and identify large underground water beds, coal deposits and hard
rock mineral deposits.

. Indicate whether an identified hydrocarbon accumulation has sufficient
porosity and permeability to be exploitable.

To appreciate the significance of these attributes of the technology, one must
first understand certain aspects of geology and traditional oil and gas
exploration.

GEOLOGY AND TRADITIONAL EXPLORATION

GEOLOGY AND OIL ORIGINATION

Scientists generally support the "organic theory" of oil origination--that
decaying plant and animal remains, when subjected to heat, pressure and a lack
of oxygen for long periods of time, become natural gas or oil. Under the
organic theory hydrocarbons originate in decomposed prehistoric plant and
animal life. Decomposition takes place in an oxygen-free environment within
layers of mud and silt. Due to the extreme pressure of overlying beds, buried
sediments consolidate to form rock layers. Petroleum is squeezed out of source
beds and is accepted by a receiver bed in a process called "primary
migration." Once within a receiver bed, petroleum travels upward and laterally
within the receiver bed in "secondary migration" until either a suitable
"geological deformity" or "trap" is reached, or until the petroleum can find
an exit from the receiver bed. In extreme cases the petroleum may exit the
receiver bed at the earth's surface, resulting in oil or gas seepage at rock
outcrops that reach the surface. Thus oil creation occurs in three primary
phases: (i) decomposition and compaction; (ii) primary migration; and (iii)
secondary migration and accumulation.

DECOMPOSITION AND COMPACTION

Sedimentary rocks are formed by incremental particle deposition in an aqueous
or watery environment such as rivers, lakes, and oceans. Water is almost
always intimately associated with petroleum deposits. As millennium of years
pass, the sediments become thicker and thicker; or if the depositional
environment changes, one type of sediment may be replaced by the deposition of
another type of sediment. This type of activity, coupled with the eons of time
available for the process, yields sequential layers, or strata of depositional
sediments. When sediments have been buried by enough other sediments, they
become compacted rock layers or strata that contain the microscopic remains of
plants and animals.

Experts generally believe that most organic source beds are shales and
limestones. However, of all commercial petroleum deposits discovered to date,
about 60% have been located within sandstones and 40% have been found in rocks
such as limestone and dolomite. Because such a high percentage of petroleum
has been found in sandstone-type rocks, scientists believe that petroleum has
migrated, or moved, from the original shale and limestone source beds into new
receiver beds of sandstone, limestone, and dolomite. The process by which
petroleum is expelled, or squeezed out, from source beds and received by other
beds is called "primary migration."

Primary migration is dependent on porosity and permeability of surrounding
rock. Contrary to popular belief, oil and gas deposits do not exist as
underground pools or lakes. Oil and gas deposits actually occupy the
infinitesimal void spaces, or pores, between the individual grains of a rock.
Porosity is the amount of void space within a rock, expressed as a percent of
the bulk volume occupied by the rock. With respect to a reservoir, it is the
volume of the non-solid or fluid portion of the reservoir, divided by the
volume, expressed as a percentage. As the rock's porosity increases, its
capacity to contain fluids (including petroleum) increases. Hence high
relative porosity is a requirement for a commercial petroleum deposit to
exist. Permeability is the factor within a reservoir that determines how
difficult (or easy) it is for oil to flow through the rock formation. The
permeability will be based on several factors--the property of the fluid
itself, or its viscosity; the size and shape of the formation; the pressure,
and the resulting flow.

GEOLOGICAL DEFORMITIES

As noted above, geologists believe that petroleum originates in source rock
(shale and limestone), and then moves to receiver beds of sandstone, limestone
and dolomite in primary migration. Such migration is caused by the relative
porosity and permeability of the source bed as compared to the porosity and
permeability of the receiver bed. Because oil and gas are lighter than water,
they tend to migrate upward and follow the line of least resistance, until
they either escape to the surface or are trapped by a geological deformity or
trap.

One basic assumption of geological studies is that all sedimentary beds were
originally deposited horizontally. If sedimentary rocks remained horizontal
throughout geologic time, younger rock layers or strata would always be on top
of older rock layers. However, the tectonic forces that alter the crust of the
earth-- volcanoes, earthquakes, floods--also deform its interior. These forces
shift, twist and crack rock layers that were previously neat and horizontal.
Consequently, clean-cut horizontal rock layers seldom exist. More typically, a
cross section of the earth will appear wavy, erratic and deformed. Because of
tectonic forces, no rock layers in nature are ever perfectly horizontal. When
rock layers are not horizontal, they are said to be dipping. The severity of
dip, or angle, is expressed as degrees of deviation from a horizontal plane.
Petroleum, migrating through receiver beds, can become trapped inside the
geological deformities created by tectonic forces and dipping.

SECONDARY MIGRATION AND ACCUMULATION

As noted above, primary migration from a source bed to a receiver bed occurs
when the receiver bed is more permeable than a source bed. Once petroleum has
entered a receiver bed, it will migrate straight through until it is stopped
by an overlying impermeable layer. Then, because rock layers dip, the
petroleum will have to migrate laterally (secondary migration), following the
general upward incline of the rock layers. This lateral movement will continue
until the oil and gas reaches the highest point possible and begins to
accumulate. Geological deformities that become the points of accumulation are
called "traps." Some typical traps are anticlines, faults and unconformities.

By far the most common structural traps are anticlines, in which approximately
80% of the world's oil and gas has been discovered. An anticline is an arching
up of the strata caused by a salt dome thrusting up from below, or compression
from earth movements that wrinkle the ground and produce an uplift to
counterbalance the subsidence. Anticlines often (though not always) have
surface manifestations like hills, knobs or ridges. Ideally, an anticline will
form a dome or roof of impermeable strata above a permeable oil-bearing
stratum. Oil in secondary migration will move upward through various permeable
strata, and eventually become trapped under the roof. Typically such a trap
will have gas in the space directly under the impermeable rock, a layer of
oil, and beneath that salt water.

Another important structure to oil exploration is a fault trap. A fault is a
break in the continuity of stratified rocks. Forces on either side of the
fault move in different directions or at different magnitudes. Eventually, the
force becomes greater than the rock's resistance, and the rock breaks. The
opposite faces of the break slip against one another, and the related layers
of the strata are displaced from their original positions. To the petroleum
geologist faults are significant for two reasons. On the negative side, faults
break open other types of traps and

prevent oil accumulations. However, by moving an impervious stratum across an
open-ended permeable one, a fault can form a trap for oil and prevent further
migration. An anticline nose can become an effective reservoir if a fault
blocks it before oil can escape.

The size of a given petroleum accumulation depends on the amount of petroleum
available from the source beds and the size of the trap. Thus in almost all
petroleum accumulations: (i) the source bed is different from the receiver bed
in porosity and permeability; (ii) the receiver bed is overlain by an
impermeable bed called a cap or cap rock; and (iii) a geological deformity is
necessary to form a trap for petroleum accumulation.

The accumulation of petroleum within geologic deformities or traps is the
target of exploration activities of the petroleum industry, because a
reasonably large accumulation is necessary for a commercial deposit to exist.
Therefore, a geological deformity or trap becomes a requirement for commercial
production.

REQUIREMENTS FOR A COMMERCIAL PETROLEUM DEPOSIT

Any oil and gas exploration company tries to locate and produce commercial
petroleum deposits. That is, it tries to locate deposits that exist in
sufficient quantity and quality to yield revenues from petroleum sales in
excess of investment costs, operating costs and overhead expenses.

For a viable commercial hydrocarbon accumulation, all of the following must
occur simultaneously:

1. Petroleum is contained within the pore spaces and cracks of a rock, so
the rock must have enough porosity to hold a commercial quantity of oil or
gas.

2. The permeability of a rock must be high enough to let the petroleum flow
from one pore space to another, and then to a well, at a commercial rate.

3. A sufficiently large petroleum accumulation must exist within a
geological deformity or trap.

4. A reservoir must have enough stored energy or pressure, either naturally
or artificially induced, to force the petroleum through the pore spaces and
into a well where it may be raised to the surface.

The absence of one or more of these four requirements is responsible for every
dry hole, duster, or noncommercial well ever drilled. As a result, most oil
and gas exploration activity is focused on identifying geological deformities,
and determining the porosity and permeability within the deformity.

TRADITIONAL OIL AND GAS EXPLORATION

Traditional oil exploration may be divided very roughly into two risk
categories: "wildcatting" (extremely high risk) and developmental exploration
(low to moderate risk). While there are no specific definitions of these two
categories, wildcatting generally means prospecting in a new area many miles
distant from existing deposits. Developmental exploration means prospecting in
locations that are adjacent or relatively close to existing known deposits.

True wildcat exploration activity is without question the highest-risk venture
within the petroleum industry. Historically, only 1 well drilled out of 8-15
finds enough petroleum to pay for drilling the well. Only 1 well out of 50-66
drilled yields enough petroleum to economically justify drilling an adjacent
well. And only 1 well out of 700 will discover enough petroleum to justify
developing a field extensively.

It is generally recognized that geological deformities within the earth are
necessary for commercial accumulations of petroleum to exist. Hence most
exploratory techniques have been geared toward locating these geological
deformities. Techniques that obtain subsurface geological information by
physical measurements taken at the earth's surface are called geophysical
techniques. Since the 1920s, geophysicists have used several different surface
methods to locate subsurface traps. These methods have included aerial and
satellite surveys, gravimeter and torsion balance readings, and magnetometer
surveys.

TWO DIMENSIONAL AND THREE DIMENSIONAL SEISMIC TECHNOLOGY

Although the noted geophysical methods are still used, seismic technology and
surveys have become the preferred method for wide area exploration. Most
productive or potentially productive regions in the United States and Canada
have been or are being surveyed by seismic methods. Refractive and reflective
seismic techniques are based on creating an explosion or artificial sound wave
at the surface, observing how that sound wave moves through various subsurface
layers, and recording how each layer of rock reflects the created wave.

The seismic method is simple in concept. The subsurface is composed of layers
which vary in density and thickness. As the wave of the sound or vibration
strikes each of the layers, part of it is reflected back to the surface, where
it is detected and recorded by the seismograph. The process is comparable to a
child bouncing a rubber ball--if the ball strikes a concrete sidewalk it
reacts quite differently than it would if it landed in a pile of sand.
Seismology is really very similar. A small charge of dynamite is exploded,
usually in a shallow gully. The resulting waves spread out through the ground
encountering different strata and formations. As with the bouncing ball, each
formation reflects the energy waves according to its own "bounce"
characteristics. The waves deflect upwards to the surface where they are
picked up by geophones, sensitive detection devices embedded in the ground at
predetermined locations. The geophones are attached to cables which carry
their signals to a seismic recording truck. There they are amplified and
translated onto permanent tapes, which are used to produce maps of the
subsurface. The data is gathered over a horizontal distance and compiled to
create a vertical cross section of the earth. By careful examination of
seismic surveys, the geophysicist is able to ascertain the possibility of the
presence of oil and gas.

In the past, the traditional land-based seismic crew consisted of a party
chief in overall charge of the crew; the geologists or geophysicists who
decided where the shot would be made, plotted the locations of the various
pieces of equipment, and decided on the "pattern" to be used; the surveyors
who marked the shot hole and geophone locations in the pattern desired; the
drillers who drilled the shot holes; the loaders who made up and loaded the
explosive charges; the shooters who connected the charges and fired them on
command from the geologist; and finally, the jug hustlers who pulled the
cables from the cable truck, arranged them in the desired patterns, and
attached the geophones. After the shot was fired, the crew had to pick
everything up and quickly transport it to the next location to repeat the
process.

In the past 20 years, the use of high explosives by land-based seismic crews
has decreased greatly. While some soil and surface conditions still call for
the use of dynamite to get accurate data, today much information is garnered
by the use of vibrating or weight-dropping machines. Non-explosive seismic is
basically another method of creating man-made vibrations or waves for those
caused by an explosion. Specially designed equipment built into either wheeled
or tracked vehicles makes contact with the earth, and creates shock waves by
either dropping a heavy weight or using a vibrating device to create waves.
These penetrate the surface, strike underground formations, and are reflected
back to the seismograph in exactly the same manner as explosion-generated
waves.

One of the biggest breakthroughs in oil and gas exploration has been the
evolution from two-dimensional ("2-D") to three-dimensional ("3-D") seismic
technology. 3-D seismic surveys were first proposed commercially in 1972.
Phillips Petroleum was one of the first exploration companies to use 3-D
seismic imaging, the most advanced--and expensive--of the new techniques. This
involves recording seismic data from several thousand locations, as compared
with several hundred with traditional 2-D methods. The 3-D process compiles
the data and feeds it into a super computer (in Phillips' case a Cray 1M 2800)
which is capable of millions of computations per second. In the most advanced
systems, the computer converts the data into a cube-like picture of the
underground area under study, in place of the older seismic strip charts.

By the mid-1980s, computer aided trace interpretation systems were starting to
appear that provided electronic storage and retrieval of seismic sections.
These interpretation systems included the ability to (i) auto-track horizons
in a data set, and (ii) display the resulting maps using color schemes to
represent the height and depth of a horizon.

However, despite the 3-D nature of seismic data, interpretation was often
performed in an essentially multi-2-D manner on sequential sections through
the data set. The resulting subsurface model was then built based on surfaces
(auto-tracked horizons, hand-picked faults and unconformities). Although this
type of model may be sufficient for a structural understanding, it is only a
skeleton of the possible 3-D seismic image. The multi-level 2-D model was
lacking in "muscle" and "sinew"--the seismo-stratigraphic and reservoir
character information and complex faulting that was available from the base
data, yet seldom used. This was due to the huge manual efforts required to
interpret and extract this information from the 3-D data by hand.

A number of technological developments contributed significantly to the wide
acceptance of 3-D seismic data during the past decade, including:

. Workstation technology

. Multi-streamer, multi-source, multi-vessel 3-D marine technology

. Onboard and real-time processing of navigation and seismic data

. Depth imaging (now utilized principally in the Gulf of Mexico)

The main contribution of these developments has been to make the 3-D product
much more available (through price and time) and impactive (through full three
dimensional visualization). With acceptance and use of 3-D technology growing,
the challenge has become computational as the industry advances beyond
conventional, but already data-intensive, 3-D processing into more
comprehensive techniques, such as depth imaging. Parallel seismic computing
has been crucial to this progress. It is parallel computer technology that has
made 3-D prestack depth imaging possible as an exploration and production
tool.

However, the processing of seismic data has significant limitations. As World
Oil has reported, industry participants have stated that "The biggest blessing
of 3-D is that you have a large volume of data that ties geology to seismic
signature. The biggest curse of 3-D is that you have a large volume of data,
and the time and money required to gather and process it is enormous."

According to World Oil, these enormous costs have resulted in projected
worldwide seismic spending (acquisition and processing) of $3,500,000,000 for
1997, and that amount is expected to reach almost $4,800,000,000 by 1999. 3-D
costs include the expense associated with using more sophisticated equipment
and computers, and covering a greater land surface area during the sweep,
which usually means increased expenses in arranging permission to use the land
with the property owners. Moreover, protracted timeframes are required for
survey design, set-up and execution, and computer processing. A seismographic
crew, covering only 25 to 50 square miles in a month, may cost $1,000,000 in
salaries, equipment and computer and geological analysis. At current prices,
3-D surveys cost $50,000-$100,000 per square mile. In water of approximately
100 feet in depth, 3-D surveys cost approximately $250,000 per square mile to
complete.

ADVANTAGES OF THE SFD TECHNOLOGY

Company management believes that SFD Technology offers significant cost and
practical advantages over traditional seismic methods.

To date the Company has focused its exploration activities in the provinces of
British Columbia and Alberta. In the relatively new exploration areas of
northern British Columbia and northern Alberta, single-line seismic surveys
cost up to $10,000 per mile (including both acquisition and processing costs).
In comparison, surveys conducted with the SFD Technology in the same areas
cost approximately $5,000 per day for 400 miles of survey work, or
approximately $12.50 per mile.

Moreover, Company management believes the SFD Technology offers the following
strategic advantages over traditional seismic:

. The SFD Technology can be operated airborne, avoiding the accessibility
and environmental concerns that limit seismic exploration.

. The SFD Technology can detect hydrocarbons and discriminate them from
other fluids, though seismic cannot. This capability could greatly reduce
drilling risks and accompanying costs.

. The SFD Profiles are captured and initially interpreted in real time.
Even with multiple traverses and several SFD Profiles, the signals are
analyzed and interpreted in a period of days. In comparison, the same
amount of seismic data would take months to analyze and interpret.

THIRD PARTY FIELD EVALUATIONS OF THE SFD SURVEY SYSTEM

As noted above, Company management believes that the SFD Survey System offers
a unique and revolutionary alternative to traditional seismic exploration, at
a fraction of the time and cost. That belief is predicated on extensive first-
hand observation of the SFD Technology, and on the following third party field
evaluations:

. Field Evaluation by Rod Morris, Geologist, Association of Professional
Engineers, Geologists and Geophysicists of Alberta

. Field Evaluations by Encal Energy Ltd.

. Report of Field Evaluation by CamWest Limited Partnership

. Report of Gilbert Laustsen Jung Associates Ltd., independent professional
engineers

A summary of each of the noted evaluations is provided below. The following
summaries are neither complete nor exact, and each summary is therefore
qualified in its entirety for reference to the complete report included as an
exhibit to this Registration Statement from which such summary is derived.
Each report is also subject to the qualifications and limitations contained
therein. The field evaluations summarized by the noted reports were prepared
for the purpose of comparing SFD survey predictions with known reserves or
drilling or testing results. The field evaluations do not address or evaluate
the scientific basis or principles of the underlying SFD Technology, and none
of the noted third parties are experts in the SFD Technology or its scientific
basis or principles.

FIELD EVALUATION BY ROD MORRIS, GEOLOGIST

In September 1996 the Company retained Mr. Rod Morris, an independent
geologist, to design and conduct a field evaluation of the SFD Technology. Mr.
Morris is a geologist with over 15 years of multidisciplinary experience in
hydrocarbon exploration in western Canada. His experience includes oil and gas
exploration and development, as well as seismic data acquisition,
interpretation and research. Apart from his retention as a consultant, Mr.
Morris had no affiliation with the Company at the time of the evaluation or at
any time thereafter. Although principals of the Company were present and
cooperated during the actual field tests, the design and planning of trip
routes, and the selection of sites to be evaluated, the conclusions summarized
below were entirely those of Mr. Morris. The principals of the Company had no
input in, or prior knowledge of, the areas to be traversed, the known
accumulations therein, or the trap types which would be included. Mr. Morris'
full report, from which the following summary is derived, is included as an
exhibit to this Registration Statement.

Mr. Morris' field evaluation of the SFD Technology was conducted in the
southern portion of the province of Alberta, Canada. The evaluation involved
over 1,000 miles covered by vehicle over a period of 7 days, and 27 hours of
recordings of SFD Data. In his evaluation report, Mr. Morris indicated that he
designed the trip routes and pool targets to:

1. Assess the reliability of the SFD Technology in detecting significant oil
and gas accumulations;

2. Determine, on a "blind test" basis, whether the SFD Technology would
detect 20 previously known oil and gas pools; and

3. Test the technology's ability to detect accumulations in a variety of
hydrocarbon trap types and reservoirs.

The field tests were directed at Devonian Leduc, Nisku and Wabamun formations;
and Mississippian Pekisko and Elkton formations. Oil pools evaluated ranged in
size from 6.6 million to 88 million barrels, in place, and from 0.25 to 6
square miles in aerial extent, at depths ranging from 5,200 to 7,300 feet. Gas
pools evaluated ranged in size from 25 billion to 1.9 trillion cubic feet of
natural gas in place, and from 2 to 112 square miles in aerial extent, at
depths ranging from 5,000 to 11,700 feet.

Specifically, the field tests were designed to profile six primary trap types,
as described below.

. FIGURE 1. illustrates a subcrop or
erosional edge trap and is
representative of typical Elkton and [GRAPHIC APPEARS HERE]
Pekisko reservoirs evaluated in central
Alberta. These traps are profiled by
SFD traverses of the Chestermere Elkton
oil pool; and the Carstairs and
Crossfiled Elkton gas pools.

. FIGURE 2. is typical of Nisku pools
that develop behind the Leduc reef
margins in Alberta. These traps are a [GRAPHIC APPEARS HERE]
combination of structural highs and
facie changes. SFD traverses of the
Wayne-Rosedale and Drumheller Nisku "B"
oil pools were included.

. FIGURE 3. represents a typical pinnacle
reef development in the Leduc and Nisku
Formations. SFD traverses of Nisku [GRAPHIC APPEARS HERE]
patch reefs at Mikwan; and Leduc
pinnacles at Fenn West are illustrated.
At Fenn West the drape of the Nisku
formation over the underlying Leduc
Pinnacles creates multi-zone pools.

. FIGURE 4. depicts a porosity pinch out
and is the type of trap that contains
oil in the Nisku Formation at Joffre, [GRAPHIC APPEARS HERE]
and gas in the giant Wabamun pools
found in the Crossfield area of
Alberta. A traverse of the Crossfield
East pool is illustrated.

. FIGURE 5. illustrates a typical large
Devonian atoll in which hydrocarbons
are trapped along the updip margins of [GRAPHIC APPEARS HERE]
the reef complex, or in overlying
formations that drape over the reef
margins creating a structural high. SFD
Profiles of the Wimborne Leduc and
Nisku oil pools; and West Drumheller
Nisku "A" are representative of this
type of trap.

. FIGURE 6. is a simplified diagram of
thrust faulted structural traps that
develop along the foothills of the [GRAPHIC APPEARS HERE]
Rocky Mountains. These traps are very
complex but can contain significant
hydrocarbon accumulations in
Mississippian and Devonian reservoirs.
A traverse of the Jumping Pound west
pool is illustrated.

The twelve SFD Profiles included in Mr. Morris' report are summarized in the
table below.

AVG. PAY, NUMBER,
OIL/ DEPTH POROSITY, PROVEN DIRECTION OF
SFD PROFILE # POOL NAME GAS FEET AREA (SQ. MI.) RESERVES(1) TRAVERSE SFD ANOMALY
- ----------------------- ---- ------ -------------- ----------- ------------ -----------

1. CHESTEMERE ELKTON... Oil Unknown new pool 2, E to W Excellent,
and W to E repeatable
oil signature
2. WAYNE ROSEDALE D2 Oil 5,800 Up to 65 feet, new pool 2, E to W Excellent,
"A".................... 12% > 3.5 and W to E repeatable
oil signature
3. DRUMHELLER NISKU B.. Oil 5,430 31 feet, 36 MMBbls(2) 2, S to N Excellent
7.6%, 4.7 and N to S repeatable
oil signature
4. DRUMHELLER W NISKU Oil 5,500 46 feet, 63 MMBbls(2) 1, N to S Excellent
A...................... 7%, 6.7 oil signature
5. CARSTAIRS ELKTON.... Gas 7,600 Unknown Est.50 BCF(3)+ 1, N to S Good gas signature
NGLs(4)
6. CROSSFIELD EAST, Gas 8,526 31 feet, 1.3 TCF(5) 1, E to W Strong repeatable
WABAMUN................ 7%, 112 3, N to S gas signature
7. CROSSFIELD EAST, Gas 7,520 34 feet, 70 BCF(3) 3, N to S Excellent,
ELKTON................. 6%, 3.7 & 6.6 MMBbls(2) repeatable
gas signature
8. MIKWAN NISKU D2-1... Oil 7,000 Area <0.25 9 pools up to 1, N to S Distinctive SFD
9 MMBbls(2) signature
9. FENN WEST NISKU & Oil 5,800 Area < 0.25 9 pools up to 1, N to S SFD profile
LEDUC.................. 9 MMBbls(2) questionable, requires
further field work
10. WIMBOME NISKU B Oil 7,300 26, 5%, 6 & 620 BCF(3) 1, W to E Excellent gas and
LEDUC.................. 60, 8%, 24 & 88 MMBbls(2) oil signatures
Total
11. JUMPING POUND AREA, Gas 9,400- 180 feet, 874 BCF(3) & 1, E to W Strong, repeatable
RUNDLE................. 11,240 8% 7 & 2.76 TCF(5) signature
120 feet,
6%, 30
12. GADSBY CRETACEOUS... Gas 3,700 24 feet, 15 BCF(2) 1, N to S Excellent gas
20-25%, signature
<1.5

- -------
(1) Reserve data derived from Alberta Energy and Utilities Board 1992 Report.

(2) MMBbls. One thousand barrels of crude oil or other liquid hydrocarbons.

(3) BCF. One billion cubic feet.

(4) NGL. Natural gas liquid.

(5) TCF. One trillion cubic feet of natural gas.

SUMMARY OF FINDINGS

The SFD field evaluations were made during three separate trips on September
18, 22 and 28, 1996. The trips were conducted on primary and secondary roads
covering a total of 1,000 miles and 27 hours of traverses throughout central
Alberta. In his report, Mr. Morris made the following observations:

. The SFD Technology produced a 95% success rate in identifying known oil
and gas accumulations in carbonate reservoirs.

. Definite anomalous SFD responses were recorded over 19 of the 20 targeted
known pools, representing all of the six trap types surveyed.

. The SFD appears to become more definitive in proportion to the size and
quality of the hydrocarbon accumulation.

. Pools within the boundaries of larger regional hydrocarbon reservoirs
were detected, substantiating the ability of the SFD to detect multiple
horizon oil and gas accumulations.

. Oil versus gas accumulations were successfully differentiated as
experience was gained in an area.

. Existing boundaries of fully developed pools were delineated with
accuracies approaching several hundred meters.

. Signal saturation appeared to be cumulative, with decreasing instrument
sensitivity during extended use. Multiple traverses from opposing
directions must be conducted to minimize this effect.

Brief summaries of Mr. Morris' detailed discussion of each of the twelve SFD
Profiles in the report are set forth below.

DISCUSSION OF SFD PROFILES

Each of the 20 pools traversed were selected and profiled for specific
reasons, as described in each profile. The traverses were designed to test the
response, reliability and repeatability of the SFD Technology to various trap
types, pool sizes, reservoir fluids and reservoir quality. In the Crossfield
area natural gas is produced from wells that have encountered multiple
carbonate horizons. This area was profiled to test for the ability of the SFD
Technology to detect smaller pools either above or below a regionally
extensive gas bearing carbonate reservoir.

Twelve of the 20 pools traversed in the field evaluation were summarized by
Mr. Morris.

SFD PROFILE 1. CHESTERMERE ELKTON

The Chestermere Elkton pool is a recent discovery that produces 36% oil from
an Elkton Formation, erosional subcrop edge or outlier. This trap type is
shown in Figure 1, and is typical of the majority of Elkton reservoirs that
produce oil or gas in southern Alberta.

The Chestermere traverse clearly demonstrated that an erosional edge filled
with oil could be detected by the SFD Sensor. The SFD Profile and Mr.
Liszicasz' immediate interpretation of a strong oil signature established
strong credibility for the SFD Technology. This particular oil pool was
traversed twice and was successfully identified in both directions.

SFD PROFILE 2. WAYNE/ROSEDALE NISKU OIL

The Wayne/Rosedale oil pool was selected as the second pool to be traversed
for three reasons. First, the pool is a recent discovery that is being
developed with directionally drilled wells from central pads. Second, the pool
does not appear to be draped over a Leduc reef margin like other surrounding
Nisku pools. The third reason was that the Nisku Formation is a blanket
carbonate that extends over hundreds of square miles in this area, and is
approximately 100 kilometers from the Chestermere Elkton pool discussed above.
There are no known hydrocarbon accumulations in carbonate pools along the
route that was taken between these two pools. Furthermore, the route was
designed to remain on the continuous Leduc and Nisku Formation carbonate
complex. The purpose was to observe how the SFD Sensor reacted in an area
which has not produced any known carbonate pools, but has numerous shallow gas
pools and fields. In this situation many weak signals and changes in the SFD
recording were observed, but there were no violent or drastic changes similar
to the Chestermere Elkton profile.

Due to the nature of the development of the Wayne/Rosedale Nisku Pool, the
pool boundaries would not be obvious to the casual observer. Most of the
surface equipment is located at central pads with directional wells

that are deviated up to 0.5 miles laterally. Although the terrain is open
prairie, the rolling land also obscures any vision of the limited surface
equipment as the pool is approached.

There was no prior warming to the operators of the SFD that a significant oil
pool was being approached. At the south western margin of the pool the SFD
Sensor produced a strong anomalous reading, which continued until 300 meters
past the most northeastern wells in the pool. Dramatic variations in the
amplitude of the signal were also observed, which appeared to indicate changes
in the reservoir quality, pay thickness or continuity.

The Wayne/Rosedale Nisku oil pool was profiled on two separate traverses from
opposing directions. Both traverses recorded powerful SFD signatures, and
support the ability of the SFD Sensor to detect localized hydrocarbon
accumulations within regionally extensive carbonate banks.

SFD PROFILE 3. DRUMHELLER NISKU "B" POOL

The Drumheller Nisku "B" oil pool is approximately 7 miles north of the
Wayne/Rosedale Nisku pool, and was discovered in 1961. It is important to note
that 34 years elapsed before the next major Nisku oil pool was discovered,
although the second oil pool is only 7 miles to the south of the original
pool.

The Drumheller Nisku "B" pool is formed by a combination of drape along the
underlying Leduc carbonate bank margin, structural highs and patch reef
development. This is similar to the trap shown in Figure 2, but with elements
of the traps shown in Figure 5. This pool is thought to be very similar to the
Wayne/Rosedale pool described above.

A traverse across this pool was done to observe how the SFD Sensor would
profile a very complex reservoir. The Drumheller Nisku "B" pool is well known
for being heterogeneous in geographic as well as reservoir development.
Especially along its eastern flank, oil wells that produce hundreds of
thousands of barrels of oil can be offset by 200 meters and encounter water
filled reservoir.

The SFD Profile of this pool was very abrupt with sharp boundaries. The full
meaning of this signature would require detailed waveform analysis and
comprehensive study of future surveys. However, there is no doubt that the SFD
Sensor reacted very dramatically when traversing this pool.

SFD PROFILE 4. WEST DRUMHELLER NISKU "A"

The West Drumheller Nisku "A" pool is located 5 kilometers west of the
Drumheller Nisku "B" pool discussed above. This pool is typical of the trap
type illustrated in Figure 5. The trap was created by drape over the
underlying margin of the Leduc carbonate complex. In portions of the pool,
both the Leduc and Nisku Formations contain oil. This pool was traversed in
order to compare its SFD Profile with that of the more irregularly shaped and
heterogeneous Drumheller Nisku "B" pool discussed immediately above. The SFD
Profiles of the two pools displayed dramatically different SFD signatures,
even though they produce from the same formation and are only 5 kilometers
apart. However, the SFD Sensor produced strong anomalous readings over both
pools.

SFD PROFILE 5. CARSTAIRS ELKTON

The Carstairs Elkton Gas pool was discovered in September of 1995. The pool is
typical of the trap type illustrated in Figure 1, and is essentially the same
type as the Chestermere pool, except Carstairs is a gas and natural gas
liquids pool.

The Carstairs pool was originally discovered using a combination of 2-D
seismic and subsurface geological information from surrounding well bores. The
original 2-D seismic interpretation indicated that there was a potential
erosional remnant of the Elkton formation that had not been previously
drilled. The Elkton Formation to the west of Carstairs had been producing
natural gas for over 35 years. The seismic over the prospect was tied to the
older Elkton "A" gas pool and surrounding wells that had not encountered the
Elkton reservoir.

Subsequent reprocessing of a key seismic line over the prospect indicated that
the proposed exploration well would not encounter any Elkton Formation, and
would likely result in a dry hole. The reprocessed seismic data was ultimately
ignored and the prospect was drilled based upon the original interpretation.
The well is currently producing 20-25 MMCF and 1000 Bbls of NGL per day.

The key lesson in the above history is that seismic does not provide a unique
interpretation of the subsurface. After fifty plus years of development, the
geophysical industry is still learning how to acquire, process and interpret
seismic data. Furthermore, only in very specific circumstances can seismic
make any indication of the type of reservoir fluids.

The purpose of the SFD traverse was three-fold: (i) to compare the signature
with that of the Chestermere oil discovery (SFD Profile 1); (ii) to determine
if the SFD could detect relatively small carbonate gas pools; and (iii) to
examine the potential size of the Carstairs discovery. The SFD Profile of the
Carstairs Elkton pool clearly produced a strong anomalous reading. North and
south boundaries of the pool were well defined by the SFD. The profile was
similar in character to that of Chestermere Elkton (SFD Profile 1), except the
profile was much "tighter", indicating gas as opposed to oil.

SFD PROFILE 6. CROSSFIELD EAST WABAMUN

Crossfield in Alberta is famous for the giant Wabamun and Elkton formation gas
pools that have been producing in this area since the later 1950s. The Wabamun
Crossfield member reservoir is a porous dolomite, sandwiched between tight
limestone and sealed up dip by anhydrite and salts. The trap type is
illustrated in Figure 4.

The traverse of this reservoir was designed to determine if the SFD Technology
could detect pools that did not have a significant structural component, or a
major change in reservoir thickness that controlled the development of the
reservoir. The blanket-like nature of the Crossfield reservoir, and the
tremendous aerial extent, would also indicate to what degree "saturation" (or
extended use) of the SFD can become a factor in the effectiveness of the
device. Finally, the Crossfield east pool has several overlying Elkton pools
that are completely enclosed within the boundaries of the Wabamun pool. This
would allow an opportunity to observe SFD signatures over multi-formation
carbonate pools.

The SFD Profile for this reservoir reflected the following:

1. Elevated base level of the overall SFD Profile;

2. Sharp increases in amplitude across known Elkton accumulations;

3. Oil (as opposed to gas) signals observed across shallower Cretaceous oil
pools; and

4. Significant drops in the SFD signal amplitude in areas where the
Crossfield member of the Wabamun is known to be tight and non-productive.

The results of three traverses of the Crossfiled area all showed SFD
Anomalies, verifying the repeatability of an SFD Anomaly signature. They also
substantiated the ability of the SFD Technology to detect multiple zone pools
and their boundaries with a high degree of accuracy and repeatability, in
areas where regionally extensive hydrocarbon reservoirs are known to exist.

SFD PROFILE 7. CROSSFIELD EAST ELKTON "A"

The Crossfield East Elkton "A" profile was a part of the Crossfiled East
Wabamun (SFD Profile 6). The Crossfield SFD Profile was included to examine
the type of SFD signature that would be obtained from a pool within a pool.
The pool is an Elkton formation outlier that is typical of the trap type shown
in Figure 1.

The Elkton "A" pool traverse is important because it demonstrates the ability
of the SFD Sensor to detect smaller pools within the boundaries of larger
pools. The SFD Sensor recorded an abrupt increase in readings on

entering the Elkton "A" pool, despite the elevated background levels of the
underlying Wabamun reservoir. The change in signal strength closely matched
the proven limits of the pool. This ability to detect the Elkton "A" pool was
demonstrated on three separate field excursions. These observations indicate
that the SFD Technology could be used to detect "sweet spots" within regional
reservoirs, by matching SFD signal characteristics with detailed mapping of
known reservoir production information.

SFD PROFILE 8. MIKWAN NISKU

The Mikwan Nisku D2-1 pool was traversed to determine whether small patch
reefs could be detected with the SFD Technology. The reservoir trap type is
illustrated in Figure 3. The Mikwan Nisku D2-1 is a single well pool with less
than 160 acres of aerial extent. The patch reefs are encased in a tight
anhydrite off reef facies that provides the lateral and vertical seals.
Although these pools are small, they are very prolific producers.
Historically, these pools have been very difficult to detect, even with 3-D
seismic technology.

SFD Profile 8 illustrated an SFD signature that was recorded approximately 300
feet west of the producing well on a north to south traverse. The SFD
signature showed an abrupt increase in amplitude and activity at that
location.

SFD PROFILE 9. FEN WEST NISKU AND LEDUC

The Fen West area has several prolific Leduc pinnacle reefs that were
discovered in the early 1980s. After the initial discovery the area was the
target of intense exploration efforts by the oil and gas industry. However,
the reefs proved to be a difficult and expensive target. This was primarily
due to the small aerial size of the pools. Figure 3 is a diagram typical of
pinnacle reef traps.

The reefs are usually less than 320 acres (approximately 0.5 square miles) in
size, and several are believed to be less than 35 acres in size. Despite the
small aerial extent, such pools can hold significant oil reserves with larger
reefs capable of producing several million barrels of oil.

Historically, locating reefs without having to shoot large grids of closely
spaced 2-D or 3-D seismic surveys has not been possible. Therefore, the
purpose of the traverses in the Fenn West area were to determine whether the
SFD could detect these small target reefs.

Several producing Leduc reefs were traversed during the field evaluations. The
results were mixed and further work would be required before a conclusion
could be reached as to the validity of SFD sampling for this type of trap.

SFD Profile 9 did not record any signals across an area that has three known
Leduc pinnacles within 1.5 square miles. However, closer inspection revealed
that three wells were directionally drilled virtually directly under the road
that was used to traverse the area. Two of these wells were dry holes and the
third did not produce enough oil to justify the cost of drilling.

This profile raised many questions, especially after the success encountered
in detecting equally small Nisku patch reefs in the Mikwan (SFD Profile 8). It
should be noted that this was the only planned SFD traverse of a known
hydrocarbon pool that did not record an SFD Anomaly.

SFD PROFILE 10. WIMBOME LEDUC AND NISKU

The Wimborne Leduc and Nisku pools were selected to test the lateral
resolution of the SFD signals. These two pools represent the trap type
illustrated in Figure 5. They are situated along the updip margin of the Leduc
reef complex, which covers several hundred square miles. These pools are
different in fluid composition, in that the Leduc reservoir has a substantial
associated gas column (45 feet) above a relatively thinner oil column
(15 feet); while the Nisku D2-A pool does not have an associated gas column.

During the traverse of the Nisku pool the SFD Sensor correctly identified the
Niksu as an oil pool, and the limits of the pool were very precisely defined
in the profile. As the Leduc pool was traversed Mr. Liszicasz correctly
identified the limits of the pool, and also made remarks regarding the signal
that indicated a much more "gassy" reservoir. These remarks were made without
any prior knowledge of either the producing zone or the fluid type. The
results of this traverse indicate that SFD profiling can identify separate
hydrocarbons within a given reservoir.

SFD PROFILE 11. JUMPING POUND WEST RUNDLE

The Jumping Pound and Jumping Pound West pools are giant gas reservoirs found
along the eastern margin of the Rocky Mountains. The pools are contained in
traps similar to Figure 6, although this is an extremely simplified
representation of these complex traps.

The geology of these pools is very complex due to the thrust faulting that
created the traps. The reservoir and surrounding formations are often inclined
at steep angles, or tightly folded, which makes seismic imaging of these
reservoirs extremely difficult. Thrust faulting creates fractures and fault
planes that can enhance the productivity of the reservoir, but which also
scatter seismic reflections.

These pools were selected for two reasons. First, to evaluate the ability of
the SFD Sensor to detect hydrocarbons in purely structural traps. Second, to
evaluate the horizontal resolution of the SFD in heavily structured areas. The
later would provide clues as to whether the SFD Sensor would detect the pools
at the surface expression of the thrust faults, or actually above the
underlying pool.

For this test the SFD Sensor was calibrated to acquire only high energy
signals. This was due to the SFD Sensor's propensity to react to strong
faulting in the region. During the traverse recorded the SFD recorded strong
anomalous signatures directly above the Jumping Pound and Jumping Pound West
pools. Both of the SFD signatures were comparable in character, but the larger
Jumping Pound West anomaly was stronger and wider than the signature of the
smaller Jumping Pound pool.

These pools were traversed on three separate road trips with anomalous
signatures recorded each time. These signatures indicated that the SFD not
only detects hydrocarbon reservoirs, but inferences can indicate the relative
size of two adjacent anomalies. These findings indicate that examination of
the magnitude of two proximate SFD signatures could allow geologists to place
a relative ranking on the size of separate prospects.

SFD PROFILE 12. GADSBY CRETACEOUS GAS.

Although the field evaluations of the SFD were targeted at carbonate
reservoirs in central Alberta, many Cretaceous age oil and gas pools were
traversed during the miles of surveys. Most of these pools were shallow gas
pools (at less than 1,500-2,000 feet). However, several significant SFD
Anomalies were encountered and clearly recorded over Cretaceous age clastic
reservoirs. These reservoirs had one common characteristic--they have all
produced abnormally high volumes of gas in comparison to surrounding wells.

Although the SFD Technology recorded anomalies over these reservoirs, more in-
depth study would be required before any detailed conclusions could be drawn
regarding the technology's effectiveness in analyzing classic reservoirs.

FIELD EVALUATION BY ENCAL ENERGY LTD.

As discussed below, Encal conducted certain field evaluations of the SFD
Survey System for the purpose of comparing SFD survey predictions with known
reserves, drilling or testing results. Encal's observations from these field
evaluations are summarized by the Company below. Encal's full report and
qualifications, from which the following summary is derived, is included as an
exhibit to this Registration Statement.

BACKGROUND

As noted above, Encal is an intermediate oil and gas exploration and
production company based in Calgary, Alberta, Canada. The Company's
relationship with Encal began on December 13, 1996, when the Company and

Encal entered into their initial joint venture agreement. The primary purpose
of the initial agreement was to field test the SFD Technology. In September of
1997 the Company and Encal entered into the Encal Agreement, which provides
for the worldwide exploration, development and subsequent production of
petroleum substances through the utilization of the SFD Technology by the
Company and Encal. (See "Joint Venture and Royalty Agreements--The Encal
Exploration Joint Venture Agreement" below).

Under the initial agreement, in December 1996 the Company acquired several
hundred miles of SFD Data in Southern Alberta. Encal personnel were not
present during the recording of this data. After interpretation by the
Company, the SFD Data was shown to the Encal staff with the location of SFD
Anomalies marked on topographic maps.

By July 1997, the Company redesigned the SFD Survey System for airborne
surveying by, among other things, incorporating a global positioning system
into the data acquisition system. Between August and October of 1997,
approximately 8,300 miles of airborne SFD Data was acquired by the Company for
Encal during 22 flights throughout Alberta and British Columbia. An Encal
geologist was present on the aircraft and witnessed the recording of SFD Data
for most of these flights.

GENERAL OBSERVATIONS

Encal geologists made the following observations concerning SFD output and
interpretation:

. Man made electromagnetic conductors such as power lines, pipelines,
railroads or well casings generally do not correlate with SFD Anomalies.

. Known geologic faults, major stratigraphic changes and known oil and gas
pools each generally had an SFD Anomaly associated with them.

. The type of SFD Anomalies observed over gas fields appears to be
different than the anomalies observed over oil fields.

. Larger oil and gas pools have more obvious SFD Anomalies associated with
them than smaller oil and gas pools.

. By carefully examining the SFD Profiles within an oil or gas field, the
Company personnel could, in some cases, accurately predict the location
of the better wells within that field.

Observations by Encal geologists were made in three contexts:

1. Pool Identification by the SFD Technology;

2. Seismic Evaluations of SFD Anomalies; and

3. Well Predictions by the SFD Technology

POOL IDENTIFICATION BY THE SFD TECHNOLOGY

Encal designed a series of SFD survey flights for the purpose of evaluating
the response of the SFD Sensor to existing oil and gas pools. The following
statistics reflect preliminary interpretations that the Company provided for
nine SFD survey flights conducted over Central Alberta during August of 1997.

. A total of 192 "pool crossings" were tabulated from the 9 test flights. A
"pool crossing" occurs when a flight line passes within 500 meters of a
producing well or group of wells in the same pool. Pool designations were
provided by the Alberta Energy Utilities Board (AEUB).

. 129 of the pool crossings included in the SFD surveys were analyzed and
interpreted by Company personnel.

. SFD Anomalies were identified by the Company on 67% of the 129 single
line pool crossings.

. 23 pools had more than one crossing. In these multiple crossing cases,
the Company identified SFD Anomalies consistent with the crossings 75% of
the time.

. The AEUB pool reserve data was reviewed for 64 different pools for which
the Company had interpreted the SFD flyovers. This analysis showed that
larger reserve pools were more likely to produce SFD Anomalies than
smaller reserve pools. Within this segment, 91% of pools with more than 5
million barrels or 50 BCF in-place produced SFD Anomalies, and 63% of
pools with less than 5 million barrels or 50 BCF in-place produced SFD
Anomalies.

SEISMIC CONFIRMATIONS OF SFD ANOMALIES

Encal acquired, reviewed and completed the interpretation of seismic data for
the purpose of evaluating 9 different undrilled SFD Anomalies. For 8 of these
9 SFD Anomalies, the location of changes in seismic amplitude or time
structure corresponded to the geographic location of the SFD Anomalies. For
the remaining SFD Anomaly, no seismic anomaly was mapped, however, the Company
also classified this SFD Anomaly as being weak. It should be noted that the
occurrence of a seismic amplitude or time structure anomaly does not
necessarily confirm or imply the presence of commercial hydrocarbons in the
subsurface.

WELL PREDICTIONS BY THE SFD TECHNOLOGY

During the late summer of 1997, Encal drilled and evaluated three wells over
which the Company had previously conducted airborne SFD surveys, and
interpreted the results of such surveys. All three wells were located in the
Western Canadian Sedimentary Basin, and all three well locations were selected
for drilling independently by Encal's technical staff based on conventional
geological and geophysical data and interpretations. These wells were selected
for drilling prior to any SFD surveys being conducted. Prior to the time that
each well reached its primary target, the Company's predictions regarding the
outcome of these three wells were communicated verbally by Mr. George
Liszicasz to Encal, and in writing to Gilbert Laustsen Jung Associates Ltd.,
an independent engineering firm hired to review the process.

The three wells, the Company's outcome predictions, and the actual drilling
results were as follows:

1. WELL #1 WEST CENTRAL ALBERTA was drilled between August 24 and September
15, 1997, to 2,978 meters in the Devonian Beaverhill Lake Formation. This well
was targeting a seismically defined Leduc Formation pinnacle reef buildup, and
was expected to discover light conventional crude within this interval. SFD
survey data was acquired over the location on five separate flights flown
between August 2 and August 22, 1997. Based on interpretations of the SFD
surveys, Mr. Liszicasz predicted that "no structures and no economic
hydrocarbons would be encountered in this well".

THE WELL RESULTS CONFIRM THIS PREDICTION. A Leduc reef buildup was not
found, and no other potentially commercial hydrocarbon zones were identified
from borehole information. No drillstem or production testing was performed on
this well, and the well was declared dry and abandoned.

2. WELL #2 WEST CENTRAL ALBERTA was drilled between August 26 and September
27, 1997, to 3,375 meters in the Devonian Winterburn Formation. This well was
targeting a seismically defined Wabamun stratigraphic porosity development,
and was expected to discover natural gas within this porosity interval. SFD
survey data was acquired over the location on three separate flights flown
between August 19 and August 23, 1997. Based on interpretations of the SFD
surveys, Mr. Liszicasz predicted that "the Wabamun interval would be dry, but
that a shallower zone would produce hydrocarbons at a gross rate not exceeding
2 million cubic feet per day".

THE WELL RESULTS CONFIRM THIS PREDICTION. The well failed to encounter any
significant porosity development within the Wabmun Formation, and the lower
portion of this wellbore was declared dry and abandoned. However, the well did
encounter a significant hydrocarbon show in the Cardium Formation, at an
approximate drilling depth of 1,925 meters. This zone was subsequently
completed, fractured and production tested to yield conventional light oil at
an initial rate of 75 barrels per day. During December of 1997, the well
produced clean oil at a gross average rate of 30 barrels per day. No other
zones in this well are considered capable of commercial hydrocarbon
production.

3. WELL #3 WEST CENTRAL ALBERTA was drilled between September 11 and
September 27, 1997, to 1,965 meters in the Lea Park Formation. This well was
targeting a basal Belly River Formation sandstone reservoir, and was expected
to discover natural gas within this interval. SFD survey data was acquired
over the location on two separate flights on September 20, 1997. Mr. Liszicasz
predicted that "this well would not be a commercially viable new hydrocarbon
discovery".

THE WELL RESULTS CONFIRM THIS PREDICTION. The basal Belly River sand was not
well developed, and therefore did not warrant completion or testing. However,
the well did encounter a well-developed upper Belly River sand. This sand was
perforated, but produced only water on production tests. Therefore, the Belly
River interval was declared non-commercial, and the well was suspended. No
other zones in this well are considered capable of commercial hydrocarbon
production.

The observations of Encal personnel were confirmed to the Company in writing
in May of 1998.

FIELD EVALUATION BY CAMWEST LIMITED PARTNERSHIP

In December of 1998, CamWest conducted "blind" airborne tests of the SFD
Technology over 14 oil and gas fields in southeastern Alberta and the adjacent
portion of northwestern Montana. The fields traversed, and their respective
reservoir types, trap types, approximate sizes and SFD responses are
summarized below. CamWest's full report, from which the following summary is
derived, is included as an exhibit to this Registration Statement.

OIL GAS
# FIELD RESERVOIR SYSTEM TRAP TYPE OIL/GAS RESERVES(1) RESERVES(2) SFD RESPONSE(3)
- ----- ---------------- --------- ------- ----------- ----------- ---------------

1 A Cretaceous Stratigraphic Oil/Gas 1.1 MMBO(4) 59.7 BCF(4) Offset, Anomaly
2 B Devonian Structural Oil/Gas 3.1 MMBO(4) 35.2 BCF(4) Offset, Anomaly
3 C Devonian Structural Oil 5.7 MMBO(4) Offset, Anomaly
4 D Devonian Structural Oil 9.6 MMBO(4) Offset, Fault, Anomaly
5 E Cretaceous Stratigraphic Oil/Gas <1 MMBO(4) 6.2 BCF(4) Offset, Anomaly
6 F Cretaceous Stratigraphic Oil <1 MMBO(4) Offset, Anomaly
7 G Cretaceous Stratigraphic Oil 3.9 MMBO(4) None (while turning)
8 H Cretaceous Stratigraphic Oil/Gas 3.9 MMBO(4) 1.8 BCF(4) Offset Anomaly?
9 I Mississippian/Cretaceous Structural Oil Subpart of J None
10 J Mississippian/Cretaceous Combined Oil 167.6 MMBO(5) Offset, Anomaly
K Cretaceous Stratigraphic Oil Subpart of J Anomaly
P Cretaceous Stratigraphic Oil crossing of J Offset, Anomaly
11 L Mississippian Structural Oil 27.3 MMBO(5) Offset, Anomaly
12 M Cretaceous Structural Oil <1 MMBO(5) Offset, Anomaly
13 N Devonian Stratigraphic Oil/Gas <1 MMBO(5) Offset, Anomaly
14 O Mississippian Structural Oil/Gas 80.8 MMBO(5) Offset, Anomaly

- --------

(1) MMBO. One million barrels of crude oil or other liquid hydrocarbons.
(2) BCF. One billion cubic feet of gas hydrocarbons
(3) The term "offset" means that the SFD Technology successfully identified
the structural beginning of a field.
(4) Reserve data derived from the Alberta Energy and Utilities Board 1996
Report.
(5) Reserve data derived from the Montana Oil and Gas Conservation Division
1996 Report.

CamWest concluded (i) that the SFD Technology had accurately identified 85% of
the known oil and gas fields traversed; and (ii) that the remaining 15% of the
known fields not detected by the SFD Technology involved fields with reserves
of less than four million barrels. Based on the field evaluations and
subsequent meetings with the principals of the Company, CamWest entered a
Joint Exploration and Development Agreement with the Company in April of 1998.

REVIEW BY GILBERT LAUSTSEN JUNG ASSOCIATES LTD.

In June, 1997, the Company engaged Gilbert Laustsen Jung Associates Ltd.
("Gilbert Laustsen"), a petroleum consulting firm located in Calgary, Alberta,
to provide independent observation and documentation of certain exploration
and evaluation activities conducted by the Company on behalf of Renaissance
and Encal utilizing

the SFD Survey System. Renaissance's full report, from which the following
summary is derived, is included as an exhibit to this Registration Statement.

Renaissance's activities were conducted with respect to (i) a general survey
conducted for Renaissance over a large area of Southwest Saskatchewan, and
(ii) specific surveys of several exploration well locations in Alberta
previously identified by Encal and Renaissance utilizing conventional methods.
Gilbert Laustsen's two areas of focus as set forth in its report were (1) to
observe and document the process involved in survey design, collection of
data, analysis of data and identification and ranking of SFD Anomalies, and
(2) to observe and document the Company's pre-drill predictions and subsequent
post-drill results. Of the SFD Prospects evaluated by the Company, Renaissance
and Encal selected 12 prospects for drilling. After completion of drilling,
Gilbert Laustsen concluded in its report that "The drill results of the twelve
wells are consistent with the predictions resulting from SFD surveys in the
primary zone of interest."

Renaissance's observations with respect to the noted activities are as
follows:

SASKATCHEWAN SURVEY CONDUCTED FOR RENAISSANCE

From April to May, 1997, the Company conducted a ground-based survey in
Southwest Saskatchewan pursuant to which the Company identified 38 SFD
Anomalies on lands selected by Renaissance for evaluation and drilling. These
SFD surveys were conducted from the Company's vehicle and were therefore
restricted to roadways. Renaissance selected five of these SFD Prospects as
drilling sites.

Following the development of the Company's airborne SFD survey capability,
which permitted the actual well location to be directly surveyed and provide a
better definition of the areal extent and quality of an SFD anomaly, the
Company resurveyed the five selected drilling sites (Wells #1 through #5) in
August and September 1997, and ranked these locations as marginal with low
probability of commercial viability. Upon conclusion of its drilling,
Renaissance disclosed that four of the five wells were dry, and that while the
fifth well tested some heavy oil, it was suspended as not being capable of
commercial production.

The Company's specific observations with respect to Wells #1 through #5 based
upon its airborne surveys, and Renaissance's specific drilling results with
respect to these prospects, are set forth below. Note that the Company rates
SFD Anomalies on a scale of 1 through 10, which represents the sum of an "A"
rating of between 1 and 5 indicating the structural size and strength of an
SFD Anomaly, and a "CV" rating of between 1 and 5 indicating the commercial
viability of an SFD Prospect. The Company states that if an A or CV rating of
an SFD Anomaly is below 2, neither the existence of a hydrocarbon-bearing
structure nor the type of hydrocarbon can be reliably determined. The Company
further states that it will not participate in any well which has a combined
rating of less than 7 out of 10, or an A rating below 3.5, or a CV rating
below 3.5.

1. COMPANY PREDICTION FOR RENAISSANCE WELLS #1 AND #2 (SASKATCHEWAN): Two
SFD survey flights flown over Well #1 and Well #2 on August 30, 1997 indicated
an SFD anomaly at these locations, however, the Company indicated that the
best part of the anomaly was east of Well #1. Two additional flights flown on
September 11, 1997 were designed to cross the location of Well #2 and a road
anomaly. The results of these two flights were similar, with the SFD data
indicating a structural change at the well location and under the road. The
SFD signal did not indicate a hydrocarbon accumulation in commercial
quantities. The Company rated the Well #1 location a 4.5 out of 10 (A=2.5,
CV=2.0), and the Well #2 location 3.5 out of 10 (A=2.0, CV=1.5).

RESULTS FOR WELL #1: After testing heavy oil in the target Basal Mannville
channel sand, the well was suspended by Renaissance on the basis of not being
capable of commercial production.

RESULTS FOR WELL #2: This well was declared dry and abandoned by
Renaissance. The target Basal Mannville sand was developed, but tight.

2. COMPANY PREDICTION FOR RENAISSANCE WELL #3 (SASKATCHEWAN): Only the
Company's second SFD survey flight on September 11, 1997 over the Well #3
location provided meaningful SFD data. The SFD survey

indicated that there definitely was an anomaly at the location. The SFD
indicated a fault to the southeast of the location, and that the road anomaly
appeared to be part of the fault. Fault related anomalies were identified
continuously to an offsetting dryhole to the northwest. The Company believed
the structure looked like a channel. Low quality hydrocarbon signals were
indicated at the anomalies. The Company rated the Well #3 location 3 out of 10
(A=2, CV=1).

RESULTS FOR WELL #3: The well was drilled to the Devonian Birdbear Formation
and was found by Renaissance to be dry and abandoned. The target Basal
Mannville channel and the Birdbear Formations were interpreted to be wet on
logs. No tests were run in the well.

4. COMPANY PREDICTION FOR RENAISSANCE WELL #4 (SASKATCHEWAN): Two flights
were made over the Well #4 location and a road defined anomaly on September
11, 1997. No anomaly was detected on the first flight. The SFD data indicated
a structural change at the location; however, the SFD signal indicating the
presence of a reservoir had poor response at the location. The Company
therefore determined that the anomaly at the drill site would not be
commercially viable. The Company believed the original SFD signals at the road
anomaly to be related to faulting. The Company's rating for this location was
3.5 out of 10 (A=2.5, CV=1.0).

RESULTS FOR WELL #4: Well #4 was found by Renaissance to be dry and
abandoned. The target Basal Mannville channel sand was developed at this
location, but was interpreted from well log data to be wet. No tests were run
in the well.

5. COMPANY PREDICTION FOR RENAISSANCE WELL #5 (SASKATCHEWAN): Two flights
were made over the Well #5 location on August 30, 1997. SFD signals at the
location did not provide a good hydrocarbon response; however, the signals did
confirm the existence of a structural anomaly. Two additional flights made
over the location September 11, 1997 confirmed the presence of a structural
anomaly with poor hydrocarbon signals at the location. The Company stated that
the commercial viability of this location was low, and interpreted the road
anomaly to be a better hydrocarbon anomaly than the well location. A stronger
hydrocarbon anomaly was also identified a half mile to the northeast of the
drill location. The Company's rating for this location was 3.75 out of 10
(A=2.25, CV=1.5).

WELL RESULTS FOR WELL #5: This location was drilled to test the Devonian
Birdbear Formation. The well was found by Renaissance to be dry and abandoned.
The Birdbear was found wet based on well log interpretation and the uphole
section appeared to be tight or wet on logs. No tests were run in the well.

ALBERTA SURVEYS CONDUCTED FOR ENCAL AND RENAISSANCE

As part of Encal's and Renaissance's evaluation of the SFD Technology, the
Company was requested by Encal and Renaissance to make predictions from SFD
surveys with respect to 7 well locations, 3 for Encal and 4 for Renaissance.
The well locations were all located in the Western Canada Sedimentary Basin
and were selected by Encal or Renaissance technical staff based on
conventional geological and geophysical data and interpretations. The 3 Encal
wells were the same wells discussed in Encal's report previously discussed
(see "Field Evaluation by the Company and Encal Energy Ltd." above). All test
flight lines were designed and witnessed during flights by Encal or
Renaissance personnel. The Company's SFD analysis indicated that none of the 7
locations were likely to be commercially viable in the zone of primary
interest. Drilling results confirmed the Company's predictions, and the
primary zone of interest in each well was abandoned. Certain of the wells are
producing from a secondary target.

The Company's specific observations with respect to the seven locations based
upon its airborne surveys, and Encal's and Renaissance's specific drilling
results with respect to these prospects, are set forth below.

1. COMPANY PREDICTION FOR ENCAL WELL #1 (WEST CENTRAL ALBERTA): Encal Well
#1 was drilled between August 24 and September 15, 1997 to a depth of 2,978
meters in the Devonian age Beaverhill Lake Group. The well selection was based
on local geology and seismic interpretation and targeted a Leduc pinnacle reef
buildup off the main Leduc reef in the area. The zone was expected by Encal to
contain light conventional crude oil. The

Company conducted three ground surveys and crossed the location five times on
four separate flights. The Company used two locations as templates in
evaluating the location (one was a good Leduc pinnacle pool and the other a
poor Leduc pinnacle pool). Only one survey had a slight SFD signal at the
Encal #1 location, which showed no structural buildup or hydrocarbon signal.
Therefore the Company concluded this well would not be successful.

RESULTS FOR WELL #1: Drill results indicated a Leduc reef was not developed
at this location, and no other potentially commercial hydrocarbon zones were
identified from borehole information. No tests were performed on the well, and
Encal declared the well dry and abandoned the location.

2. COMPANY PREDICTION FOR ENCAL WELL #2 (WEST CENTRAL ALBERTA): Encal Well
#2 was drilled between August 26 and September 27, 1997 to a depth of 3,375
meters in the Devonian Winterburn Formation. The well was targeting a Wabamun
stratigraphic porosity development that was evaluated by seismic. The well was
expected to discover gas within the porous interval. The Company conducted
airborne surveys over this location in early August 1997, both before the well
was spudded and also while it was being drilled. The Company interpreted the
well to be in a flank position, and concluded that the well would not be
economic in the target zone. The Company did identify the possibility of a
small shallower pool, capable of production but not in large quantities.

RESULTS FOR WELL #2: The well did not encounter any significant porosity
development in the Wabamun and the deeper portion of the well was abandoned. A
significant hydrocarbon show was encountered in the Cardium Formation in this
well. The Cardium was completed, fractured and production tested at an initial
production rate of 75 barrels of oil per day. During December 1997, the zone
produced at an average rate of 330 barrels of oil per day. No other zones in
the well are considered capable of commercial production. Cardium reserves
appear to be relatively low and the well is not considered to have resulted in
a commercial discovery.

3. COMPANY PREDICTION FOR ENCAL WELL #3 (WEST CENTRAL ALBERTA): Encal Well
#3 was drilled between September 11 and September 27, 1997 to a depth of 1,965
meters in the Lea Park Formation based on seismic. The well was targeting
natural gas in the Basal Belly River sandstone. The location has an offsetting
well which was interpreted to have by-passed pay in the target zone. A single
airborne survey was conducted over this location on September 20, 1997. The
Company reported SFD data from this flight was poor, but suggested the well
would not be commercially viable.

RESULTS FOR WELL #3: The Basal Belly River sandstone was not well developed,
and therefore was not tested or completed. The well encountered a developed
upper Belly River sandstone which was perforated but produced only water on
production testing. The well has been suspended by Encal and no other zones in
the well are considered capable of commercial production.

4. COMPANY PREDICTION FOR RENAISSANCE WELL #1 (EAST CENTRAL
ALBERTA): Renaissance Well #1 was drilled as a development well between July 9
and July 20, 1997 to a depth of 1,950 meters. The well targeted a Devonian age
Nisku Formation pinnacle reed buildup. The Company surveyed this location from
a vehicle while the well was being drilled. Ratings assigned to this location
by the Company were based upon SFD signals acquired on the road (not at the
wellsite) and two traverses of the well location itself. At this time the
Company did not have airborne survey capability, therefore the exact drilling
location was not surveyed. The Company stated that two anomalies are present,
one structure upon the other. The Company also reported that the SFD survey
indicated hydrocarbons at the well, but not in commercial quantities. The
anomaly at the wellsite appeared tighter in the target zone and with a less
intense hydrocarbon signal than possible locations to the south and west. The
Company rated the location 5.5 out of 10 (A=3, CV=2.5).

RESULTS FOR WELL #1: The Nisku was developed at the location but appears
tight on logs. No tests were performed over the target zone and the deeper
portion of the well was abandoned. The well did encounter a gas-bearing
Mannville sand. Renaissance indicated that it has been unable to fully test
the zone, but believes it to be capable of producing at commercial rates. The
well is currently classified by Renaissance as standing.

5. COMPANY PREDICTION FOR RENAISSANCE WELL #2 (NORTHWEST
ALBERTA): Renaissance Well #2 was spudded February 14, 1997 and drilled to a
depth of 2,275 meters into the Devonian Muskeg Formation. The well targeted
the Devonian age Slave Point Formation, and is adjacent to a known Slave Point
pool. Airborne surveys of this location were conducted on September 24 and
September 25, 1997, however, the well was still confidential at that time. The
Company's SFD survey indicated that the well was structurally separate from
the Slave Point A Pool, and that the SFD porosity signal recorded at the well
site was from a new zone. The Company indicated that any production from this
new zone would be minimal. The Company rated this well 4 out of 10 (A=2,
CV=2).

RESULTS FOR WELL #2: The well did not encounter any porosity development in
the Slave Point. No tests were reported for Slave Point or in any uphole
horizons.

6. COMPANY PREDICTION FOR RENAISSANCE WELL #3 (NORTHWEST
ALBERTA): Renaissance Well #3 was drilled between February 21 and March 22,
1997 to a depth of 2,607 meters as a Slave Point gas test. Airborne surveys of
this location were conducted on September 24 and September 25, 1997, however,
the well was still confidential at that time. The Company's SFD survey
indicated a small structural anomaly and the Company stated that the well
would not be commercially viable. The Company rated this well 3 out of 10
(A=2, CV=1).

RESULTS FOR WELL #3: No porosity was encountered in the Slave Point
Formation, and no other potential commercial hydrocarbon zones were identified
from borehole information. No tests were performed on the well and the well
was plugged and abandoned.

7. COMPANY PREDICTION FOR RENAISSANCE WELL #4 (NORTHWEST
ALBERTA): Renaissance Well #4 was spudded in August 1994. This well targeted
the Devonian Slave Point Formation. The Company surveyed this location on
September 24 and September 25, 1997. When asked to comment on this location,
the Company stated that there may be a small structure at the location, but
that the SFD did not indicate the presence of hydrocarbons in the Slave Point
Formation. The Company's review for this location was not considered a full
detailed review and no rating was assigned.

RESULTS FOR WELL #4: Renaissance stated that the well did not encounter any
significant porosity development in the primary target (Slave Point). The well
did encounter gas in a secondary zone, the Mississippian age Debolt Formation.
Renaissance has indicated that an initial production test flowed at the rate
of 65,000 m/3//d, and that the well is expected to be placed on production in
the near future.

JOINT VENTURE AND ROYALTY AGREEMENTS

THE ENCAL EXPLORATION JOINT VENTURE AGREEMENT

During 1996 and 1997, the Company entered into several agreements with Encal,
an oil and gas exploration and production company, based in Calgary, Alberta,
Canada. (See "Business Overview" above). In September of 1997 the Company and
Encal entered into the Encal Agreement, in order to (i) amend and supersede
all prior agreements; and (ii) provide an agreement for the worldwide
exploration, development and production of petroleum substances through the
utilization of the SFD Technology by the Company and Encal.

The Encal Agreement runs for a term of three (3) years beginning on September
15, 1997, and may be extended thereafter by mutual agreement. Under the Encal
Agreement the Company has agreed to conduct airborne surveys utilizing the SFD
Technology over certain exploration areas chosen by Encal. If the SFD Data
obtained from such surveys indicates that SFD anomalies are present, the
parties may then attempt to obtain and jointly develop such areas pursuant to
the terms of the Agreement.

The Encal Agreement provides that Encal will periodically advise the Company
of one or more areas which it has selected for exploration (the "Exploration
Area(s)"). The Exploration Areas may be up to a maximum size of 2,400 square
miles. The Company has the right to reject an Exploration Area selected by
Encal for any bona fide reason, including safety or technical concerns. Once
an Exploration Area has been identified, the Company will

survey the area using the SFD Technology, and present Encal with the flight
lines, visual SFD Profiles and the location of any SFD Anomalies, as well as
written interpretation and recommendations with respect to SFD anomalies which
are of particular significance. Encal must chose to either accept or reject
each SFD anomaly presented by the Company. Upon acceptance of an SFD anomaly
by Encal, such anomaly will become an exploratory prospect under the Encal
Agreement (the "Exploratory Prospect(s)").

The Encal Agreement provides that Encal will reimburse the Company for 50% of
all costs of daily aircraft rental, pilot salary, food and accommodations
incurred by the Company in conducting the SFD surveys. Encal is required to
use its best efforts to cause further conventional oil and gas evaluation work
to be done on each Exploratory Prospect, as such work is prioritized by the
agreement of the parties. Such work is to be for the purpose of confirming
whether or not a location will be selected, and whether or not a test well
will be drilled on each Exploratory Prospect. All seismic and conventional
geological costs for the evaluation of each Exploratory Prospect are to be
borne solely by Encal during the term of the agreement.

Upon Encal having conducted conventional oil and gas industry analysis of an
Exploratory Prospect, the parties are to meet and consult on whether the
petroleum and natural gas rights for the prospect will be acquired. The
Company will have the right to elect either (i) participate through a working
interest in each Exploratory Prospect; or (ii) to receive a sliding scale
gross overriding royalty from all wells on the Exploratory Prospect. If the
Company elects the royalty, the royalty percentage will be (i) a minimum of 5%
and a maximum 8% for crude oil; and (ii) 8% for all other petroleum
substances. The royalty for crude oil will vary from a 5% minimum to an 8%
maximum depending on the productivity of each well and which royalty is based
and payable on Encal's interest from time to time.

Once the petroleum and natural gas rights for an Exploratory Prospect have
been acquired and prior to the drilling of a first test well on an Exploratory
Prospect, the Company will be given a second election (if it initially elected
a working interest) to either (i) retain its working interest in the prospect;
or (ii) convert the same to a gross overriding royalty interest. In addition,
should Encal advise of its intention to drill a well on an Exploratory
Prospect, and the Company elects a working participation, the Company will be
required to pay 45% of Encal's share of any unpaid land costs with respect to
such Prospect.

If the Company elects to participate through a working interest on an
Exploratory Prospect, it must pay a 45% participating interest share of the
acquisition costs of the petroleum or natural gas rights, as well as the same
percentage of the costs of drilling all wells and other development costs, and
Encal will pay the 55% balance of such costs. Where the Company has elected
the working interest, revenues from the production of petroleum substances
from the applicable Exploratory Prospects will be shared 45% by the Company
and 55% by Encal.

However, the Encal Agreement provides an interim limit on the amount which the
Company must spend for the costs of the acquisition of petroleum and natural
gas rights (the "Land Costs"). The Company is required to pay 45% of Land
Costs until it has expended a total of Cdn. $2,250,000 (the "Interim Limit").
After the Company has spent an amount equal to the Interim Limit for its share
of Land Costs, the Company is to be "carried" by Encal for 50% of the
Company's share of Land Costs in excess of the Limit Amount, until the later
of (i) March 15, 1999; or (ii) the time at which Encal has drilled three (3)
wells pursuant to the Encal Agreement. Upon the expiration of such period, the
Company will be required to repay the amounts which were previously "carried"
and paid by Encal, and to again pay its full 45% share of all costs
thereafter.

The terms of the Encal Agreement vary in those instances where a third party
owns the petroleum and natural gas rights for the Exploratory Prospect. In
these cases, Encal and the applicable third party will enter into what is
termed a "farm-in agreement". Under this type of transaction, the owner of the
petroleum and natural gas rights will grant an interest in the underlying
lease, or the prospect profits, to a party that performs development, seismic
or drilling activity on the prospect, at no or reduced cost to the owner.
Under the Encal Agreement, if it is necessary for Encal to farm-in on
petroleum or natural gas rights held by third parties with respect to an
Exploratory Prospect, the Company may elect to either participate in the farm-
in, or to receive a gross overriding royalty with respect to Encal's "after
payout" earned interest under the farm-in agreement (i.e., subject to

Encal's recovery of costs under the farm-in agreement). If the Company elects
to participate in the farm-in, then the parties' participating interests in
both the payment obligations and revenues earned under the farm-in agreement
will be 60% to Encal, and 40% to the Company.

The Company has agreed under the Encal Agreement to conduct SFD surveys
throughout the term to ensure that there will be a minimum number of
Exploratory Prospects for Encal at any point in time during the term (the
"Prospect Inventory"). An Exploratory Prospect will be deleted from the
pending Prospect Inventory under each of the following circumstances:

1. If Encal is unable to obtain petroleum and natural gas rights for the
Exploratory Prospect;

2. If a test well is drilled on the Exploratory Prospect; or

3. If the Exploratory Prospect is rejected by Encal.

If at any time during the term of the Encal Agreement the number of
Exploratory Prospects in the Prospect Inventory is less than fifteen, the
Company is required to commence and continue SFD surveying until there are
again eighteen Exploratory Prospects in the Prospect Inventory. In addition,
the Company has agreed to dedicate a minimum of 50% of its worldwide SFD
survey capacity to Encal at any time when the number of Exploratory Prospects
in the Prospect Inventory is below the minimum requirement.

Under the Encal Agreement, the Company has also granted Encal the following
preferential rights:

. The Company has agreed to have no more than two additional joint venture
partners in Canada (although there are no restrictions on the number of
joint venture partners the Company may utilize outside of Canada);

. Until October 31, 1998, Encal has a right to include under the Encal
Agreement any SFD Anomalies identified in Canada by the Company for the
Company's own account;

. The Company has agreed that it will not grant larger or more numerous
exploration areas to any other joint venture partners than those granted
to Encal under the Encal Agreement;

. The Company has granted Encal exclusive rights to SFD survey in the
Province of British Columbia and has agreed to ensure that Encal will
have at least up to 50% of the aggregate area in selected regions of the
Province of Alberta available to it for SFD surveys pursuant to the Encal
Agreement; and

. The Company has agreed to offer to Encal a first opportunity to
participate in any transaction utilizing SFD Technology to explore for
petroleum substances outside of Canada, where, in the Company's sole
judgment, there is an opportunity for Encal to participate as operator or
a participant if (i) such role is available; and (ii) the Company
believes it is appropriate for Encal to perform such role.

The Encal Agreement also establishes areas of mutual interest ("AMIs") which
are defined as any petroleum and natural gas rights which are laterally or
diagonally within one mile of the spacing unit of an Exploratory Prospect. Any
lands acquired within the AMI by either of the parties are agreed to be
subject to the terms of Encal Agreement.

The parties will attempt to agree on a procedure for dealing with SFD
Prospects rejected by Encal. If they cannot agree, the Encal Agreement
provides that rejected SFD Prospects are the exclusive property of the Company
and may be dealt with by the Company as it decides, subject to a two year
confidentiality restriction on SFD Prospects located on certain Encal lands.

Under the Encal Agreement, Encal will be the operator, and will make all
decisions relating to management and control for all prospects developed by
the joint venture. In this regard, Encal is responsible for (i) conventional
oil and gas exploration, operation, development and management of the joint
venture and any of its oil and gas properties; and (ii) the production and
marketing of any petroleum substances which are produced from the joint

venture. With respect to any production facilities utilized by the joint
venture that Encal does not own, the Company will be charged its participant's
portion of the actual costs for services performed. With respect to production
facilities owned by Encal, the Company will be charged a reasonable
proportional fee for the services utilized. The Encal Agreement provides that
if either of the parties wishes to construct new facilities to treat, process
or transport petroleum substances produced from the joint venture, such party
will allow the other party the opportunity to participate in such project.

CAMWEST JOINT EXPLORATION AGREEMENT

On April 3, 1998, the Company entered into a Joint Exploration and Development
Agreement (the "CamWest Agreement") with CamWest Limited Partnership, an
Arkansas limited partnership ("CamWest"). (See "Business Overview" above).

The CamWest Agreement has a term of four (4) years commencing on the date upon
which the parties first identify five mutually acceptable exploratory
prospects, and may be extended thereafter by mutual agreement. Under the
CamWest Agreement the Company has agreed to conduct airborne surveys utilizing
the SFD Technology over certain areas in the United States chosen by CamWest.
If the SFD Data obtained from such surveys indicates that petroleum substances
are likely to be present, the parties may then attempt to obtain and jointly
develop such areas pursuant to the terms of their agreement.

The CamWest Agreement provides that CamWest will periodically advise the
Company of one or more areas which it has selected for exploration (the
"CamWest Area(s)"). The Exploration Areas may be up to a maximum size of 2,400
square miles. The Company has the right to reject a CamWest Area selected by
CamWest for any bona fide reason, including safety or technical concerns. Once
a CamWest Area has been identified, the Company will survey the area using the
SFD Technology, and present CamWest with the flight lines, visual SFD Profiles
and the location of any SFD Anomalies, as well as written interpretation and
recommendations with respect to SFD anomalies which are of particular
significance. CamWest must chose to either accept or reject each of the SFD
Prospects presented by the Company. Upon acceptance of an SFD Prospect by
CamWest, such anomaly will become an exploratory prospect under the CamWest
Agreement (the "CamWest Prospect(s)").

Once a prospect has been accepted as a CamWest Prospect, the Company will have
an initial working interest participation in the prospect of 45%. However, for
the period from the identification of a CamWest Prospect until 15 days after
Cam West notifies the Company that it intends to drill (or 48 hours after such
notice if a drilling rig is located on the test well site), the Company will
have an election as to how it will participate in the prospect from land
acquisition through full development (the "Election"). Under the Election, the
Company may elect (i) to retain its entire 45% working interest in the
prospect; (ii) to participate at a percentage level ranging from 1% up to 45%
(the "Participation Percentage"); or (iii) to convert the interest to a gross
overriding royalty interest. If the Company does nothing, or makes an Election
to participate, the Company will bear 45%, or the Participation Percentage, of
all land acquisition costs, and CamWest will bear the remainder of such costs.
If the Company elects to receive a sliding scale gross overriding royalty from
all wells on the CamWest Prospect, the royalty percentage will be from 5% (if
production is less than 1,000 barrels per month of crude oil) or 8%
(if production is more than 1,000 barrels per month) of CamWest's net revenue
interest. If the Company retains or elects to participate through a working
interest on a CamWest Prospect, it must pay 45%, or the Participation
Percentage, of the acquisition costs of the petroleum or natural gas rights,
as well as the same percentage of the costs of drilling all wells and other
development costs, and CamWest will pay the balance of such costs. Where the
Company has elected the working interest, the Company will receive 45%, or the
Participation Percentage, of revenues from the production of petroleum
substances from the applicable CamWest Prospect, and CamWest will receive the
remainder of such revenues.

The CamWest Agreement provides that CamWest will reimburse the Company for all
costs of daily aircraft rental, pilot salary, food and accommodations incurred
by the Company in conducting the SFD surveys. CamWest is required to use its
best efforts to cause further conventional oil and gas evaluation work to be
done on each CamWest Prospect, as such work is prioritized by the agreement of
the parties. Such work is to be for

the purpose of confirming whether or not a location will be selected, and
whether or not a test well will be drilled on each CamWest Prospect. All
seismic and conventional geological costs for the evaluation of each CamWest
Prospect are to be borne solely by CamWest during the term of the agreement.

The Company has agreed under the CamWest Agreement to conduct SFD surveys
throughout the term to ensure that there will be a minimum "CamWest Inventory"
for CamWest at any point in time during the term. If at any time during the
term of the CamWest Agreement the number of CamWest Prospects in the CamWest
Inventory is 30 or less, the Company is required to commence and continue SFD
surveying until there are again 36 CamWest Prospects in the CamWest Inventory.
In addition, the Company has agreed that when the number of CamWest Prospects
in the CamWest Inventory is below the minimum requirement, the Company will
(i) dedicate a minimum of 50% of its worldwide SFD survey capacity to CamWest,
until such time as the Company has three other joint venture agreements; and
(ii) dedicate a minimum of 25% of its worldwide SFD survey capacity to CamWest
at any such time thereafter.

Under the CamWest Agreement, the Company has granted to CamWest the exclusive
rights to SFD surveys in certain "exclusive areas" to be identified by
CamWest; provided, however, that such areas (i) must not be within Canada;
(ii) must be identified in segments of 2,400 square miles in size; and (ii)
cannot exceed an aggregate of 1,000,000 square miles within the United States,
and an additional 1,000,000 square miles outside of the United States and
Canada. The CamWest Agreement also establishes "areas of mutual interest",
which are defined as any petroleum and natural gas rights which are laterally
or diagonally within one mile of the land encompassing any CamWest Prospect.
Any lands acquired within such areas by either of the parties are agreed to be
subject to the terms of CamWest Agreement.

Under the CamWest Agreement, CamWest will be the operator, and will make all
decisions relating to management and control for all prospects developed by
the joint venture. In this regard, CamWest is responsible for (i) conventional
oil and gas exploration, operation, development and management of the joint
venture and any of its oil and gas properties; and (ii) the production and
marketing of any petroleum substances which are produced from the joint
venture. With respect to any production facilities utilized by the joint
venture that CamWest does not own, the Company will be charged it's
participant's portion of the actual costs for services performed. With respect
to production facilities owned by CamWest, the Company will be charged a
reasonable proportional fee for the services utilized. The CamWest Agreement
provides that if either of the parties wishes to construct new facilities to
treat, process or transport petroleum substances produced from the joint
venture, such party will allow the other party the opportunity to participate
in such project.

Under the CamWest Agreement, if an SFD Prospect is not accepted as a CamWest
Prospect by CamWest, such anomaly will become a "Rejected Anomaly". The rights
associated with all Rejected Anomalies, including all applicable SFD
information, will be contributed by both parties to a Colorado limited
liability company (the "Colorado LLC"), which will be managed by CamWest, and
in which each of CamWest and the Company will own a 50% membership interest.
Under the CamWest Agreement, the Colorado LLC will be responsible for all
marketing of the property and rights contributed to or acquired by the
Colorado LLC. Any petroleum and natural gas rights assigned to or acquired by
the Colorado LLC will be free and clear of any royalty interest or other
rights created under the CamWest Agreement.

THE RENAISSANCE AGREEMENTS

The Company's wholly-owned subsidiary, Pinnacle Canada, has entered into two
short term SFD Survey Agreements, each dated February 1, 1998 (the
"Renaissance Agreements") with Renaissance Energy Ltd. ("Renaissance"). The
Renaissance Agreements provide that if Renaissance, in its sole discretion (i)
drills a test well on an identified SFD Anomaly presented by Pinnacle Canada;
(ii) such well is drilled to a depth below the base of the Mississippian
Formation; and (iii) such well is spudded on or before August 31, 1998,
Renaissance will grant to Pinnacle Canada a 5% gross overriding royalty on all
petroleum substances produced from the wells drilled on the SFD Anomaly at
certain depths. In August 1998, Renaissance extended the noted spudding date
to December 31, 1998. (See "The Renaissance Survey and Royalty Agreements"
above).

MOMENTUM LICENSE AGREEMENT

The rights of the Company to the exclusive use for petroleum and natural gas
exploration purposes of SFD Data generated by the SFD Technology are governed
by a Restated Technology Agreement (the "License") entered into on August 1,
1996, between the Company, Pinnacle Oil, Mr. Liszicasz, Mr. Stinson and
Momentum, a Bahamas corporation indirectly owned and controlled by Messrs.
Liszicasz and Stinson. This agreement reflected and restated the relationships
and rights of the parties under certain prior agreements relating to the SFD
Technology, namely, the Liszicasz-Stinson Agreement, the Original Technology
Agreement and the Momentum Transfer Agreement. For a detailed discussion of
these prior agreements see "Item 7--Certain Relationships and Related
Transactions."

Under the License, Momentum, as the owner of the SFD Technology, granted to
the Company exclusive use of the SFD Technology for the identification of
hydrocarbons, through Momentum's agreement to survey designated areas with the
SFD Technology, and to provide the information and analyses generated (the
"SFD Data"), exclusively to the Company. The initial term of the License is
ten years, with automatic renewals for one year periods absent either (i) an
election by the Company to terminate the License, or (ii) a termination by
Momentum based upon a default by the Company, or certain other events,
including a "Change in Control" of the Company (as defined in the License).
During the term of the License, Momentum is prohibited from engaging in the
identification and/or exploitation of hydrocarbons, and from granting to any
third party any license or sublicense of the SFD Technology, the Stress Field
Detector or the SFD Data for the identification and/or exploitation of
hydrocarbons.

The initial term of the License expires on December 31, 2005, but will renew
automatically for additional one year terms, unless (i) the Company gives
written notice to Momentum, no later than 60 days prior to the expiration of
the pending term, of its election not to automatically renew the License, or
(ii) the License is terminated earlier in accordance with the provisions of
the License. Momentum has the right to terminate the License if: (1) the
Company fails to make any payment required under the License; (2) the Company
and its Subsidiaries collectively abandon or discontinue the conduct of the
oil and gas exploration business; (3) the Company dissolves or liquidates; (4)
the Company makes an assignment for the benefit of creditors, or files
bankruptcy, or if any receiver is appointed for the Company's business or
property; (5) the Company fails to perform any other material covenant,
agreement or term of the License; or (6) there is a "Change in Control" of the
Company (as defined in the License).

Under the License, a "Change in Control" is defined as: (i) an acquisition
whereby immediately after the acquisition, a person holds beneficial ownership
of more than 50% of the total combined voting power of the Company's then
outstanding voting securities; or (ii) if in any period of three consecutive
years after the date of the License, the incumbent board at the beginning of
such period ceases to constitute a majority of the Board of Directors for
reasons other than (A) voluntary resignation, (B) refusal by one or more Board
members to stand for election, or (C) removal of one or more Board members for
good cause, provided that: (1) if the nomination or election of any new
director was approved by a vote of at least a majority of the incumbent board,
then such new director shall be deemed a member of the incumbent board, and
(2) no individual shall be considered a member of the incumbent board if such
individual initially assumed office as a result of either an actual or
threatened "election contest" (as described in Rule 14a-11 promulgated under
the Securities Exchange Act of 1934); or (iii) the Board of Directors or the
shareholders of the Company approve (A) a merger, consolidation or
reorganization; (B) a complete liquidation or dissolution of the Company; or
(C) the agreement for the sale or other disposition of all or substantially
all of the assets of the Company. However, the License provides that a Change
in Control shall not be deemed to occur because of: (i) a redemption of stock
by the Company; or (ii) a "non-control transaction" in which the stockholders
of the Company immediately before a transaction, directly

or indirectly own immediately following such transaction at least a majority
of the total combined voting power of the outstanding voting securities of the
surviving corporation, in substantially the same proportion as such
stockholders' ownership of the Company's voting securities immediately before
such transaction.

Under the License, Momentum and Mr. Liszicasz are obligated to provide SFD
Data to the Company for its exclusive use, and to provide 500 man-hours per
year to generate such data. In addition, the License provides that Mr.
Liszicasz will interpret and analyze all raw SFD Data provided to the Company
by Momentum. The License obligates the Company to pay for all capital costs
incurred in order to facilitate the identification of prospective drilling
sites.

Pursuant to the License, within 180 days after designation by the Company of a
"Prospect" (as defined in the License), the Company has agreed to use its best
efforts to commercially and economically exploit the Prospect for its
hydrocarbon potential, subject to certain exceptions as stated in the License.
However, it is in the Company's discretion to pursue and determine the
commercial viability of the Prospect. The License was amended by the parties
thereto on April 3, 1998 (the "Amendment"). The sole purpose of the Amendment
was to change contingent payments to Momentum to be calculated as a percentage
of project profits, less actual project expenses incurred, rather than gross
revenues. Under the License and Amendment, the Company shall pay Momentum
certain sums contingent on the commercial exploitation of the Prospects,
including 1% of the "Prospect Profits" (as defined in the Amendment) actually
received by the Company on or before December 31, 2000, and 5% of the
"Prospect Profits" actually received after December 31, 2000. Under the
Amendment, "Prospect Prospects" means "Prospect Revenues" (defined as the
aggregate of all gross revenues received by the Company and/or its
subsidiaries with respect to the commercial exploitation of all Prospects
under the License, whether through cash flows of a joint venture, sale of
"leads" for Prospects, or revenues from the Company's direct ownership and
sale of hydrocarbons from Prospects), less "Prospect Expenses" (defined as all
project expenses actually paid by the Company and/or its subsidiaries with
respect to the commercial exploitation of all SFD Prospects).

In addition to the noted payments, commencing on January 1, 2001 the License
provides that the Company shall grant Momentum certain "Performance Options"
(as defined in the License). In general, for each month in which the
Prospects' production exceeds twenty thousand (20,000) barrels of
hydrocarbons, Momentum shall be granted Performance Options to purchase 16,000
shares of the Company's Common Stock, subject to certain limitations. The
exercise price for the Performance Options will be the "fair market value" of
the Company's Common Stock on the last business day of the quarter of the
calculation. Under the License, "fair market value" is determined by reference
to the closing price, last reported price, or mean price for the shares,
depending on where the Common Stock is then trading.

INTERCOMPANY AGREEMENTS

On April 1, 1997 the Company and Pinnacle Canada entered into an agreement
regarding the utilization of the SFD Technology by both the Company and
Pinnacle Canada (the "Canadian License"). Under the Canadian License, the
Company granted to Pinnacle Canada an exclusive license to a supply of SFD
Data generated in Canada. Under the Canadian License, the Company will use its
best efforts to select sufficient surveys in Canadian territory to ensure
Pinnacle Canada a supply of Canadian SFD Data sufficient to enable Pinnacle
Canada to carry on a commercially viable business. Under the Canadian License,
within 180 days after Pinnacle Canada has interpreted the Canadian SFD Data
and identified a Canadian prospect, Pinnacle Canada shall use its best efforts
to commercially and economically exploit the Canadian prospect. Under the
Canadian License, Pinnacle Canada shall pay the Company a license fee equal to
50% of all "Gross Revenues" (as defined in the Canadian License) actually
received by Pinnacle Canada with respect to the Canadian prospects.

On April 1, 1997 the Company and Pinnacle Canada entered into an agreement
which allocates certain costs between the Company and Pinnacle Canada (the
"Cost Agreement"). Under the terms of the Cost Agreement, the Company will
make its data acquisition equipment available to Pinnacle Canada for
sufficient periods to enable Pinnacle Canada to fulfil its obligations under
the Cost Agreement and its obligations under all third party agreements. In
consideration for such use, Pinnacle Canada will make lease payments to the
Company in an

amount to be determined by the parties from time to time, based on the per day
cost to provide the data acquisition equipment, with the intent that the
Company recover all of its actual costs of the equipment, plus a reasonable
competitive market return on capital. Pinnacle Canada will supply management
services to the Company in connection with the world-wide activities of the
Company, for an annual fee equal to the actual employment costs of all
personnel engaged by Pinnacle Canada to supply such services, plus an annual
fee of US $20,000.

In each of April, September and November, 1997, the Company and Pinnacle
Canada entered into assignment agreements (the "Assignment Agreements")
whereby the Company assigned all of its right, title and interest pertaining
to operations in Canada to Pinnacle Canada regarding: (i) the Exploration
Joint Venture Agreement dated September 15, 1997 with Encal Energy Ltd.; (ii)
the Exploration Joint Venture Agreement dated February 19, 1997 with Encal
Energy; and (iii) the SFD Survey Agreement dated November 1, 1997 with
Renaissance Energy Ltd.

RISK FACTORS

IN ADDITION TO THE OTHER INFORMATION AND FINANCIAL DATA SET FORTH ELSEWHERE IN
THIS REGISTRATION STATEMENT, THE FOLLOWING RISK FACTORS SHOULD BE CONSIDERED
CAREFULLY IN EVALUATING THE COMPANY AND ITS BUSINESS.

RISKS RELATING TO THE COMPANY AND ITS BUSINESS

CONTINUING OPERATING LOSSES; GOING CONCERN OPINION. The Company has not
generated operating revenues to date, and should be considered a development
stage entity. As reflected in the financial statements for the period ending
December 31, 1997, the Company had a deficit of $1,442,595, and working
capital of $680,820, prior to a private placement of securities in April,
1998. (See "Item 2--Financial Information" and "Item 15--Financial Statements
and Exhibits"). The Company's ability to increase revenues and generate
profits in the longer term, will depend primarily upon the successful
implementation of the Company's business plan. It is anticipated that such
implementation will depend upon (i) one or more of the Company's joint
ventures successfully identifying, financing, developing, producing and
marketing commercially viable quantities of natural gas or petroleum, and (ii)
cash distributions from the joint venture(s) to its venture partners,
including the Company. No assurance can be given that the Company will be
successful in implementing its business plan, or that the revenues of the
Company will increase, or that the Company will be able to achieve or maintain
profitable operations. The extremely limited operating history of the Company
makes the prediction of future results of operations difficult or impossible.

LIMITED OPERATING HISTORY. The Company has a limited operating history upon
which any evaluation of the Company and its long-term prospects might be
based. The Company did not commence its business plan for the exploitation of
the SFD Technology until December of 1995. The Company is subject to the risks
inherent in a new business enterprise, as well as the more general risks
inherent to the operation of an established business. The Company and its
prospects must be considered in light of the risks, expenses and difficulties
encountered by all companies engaged in the extremely volatile and competitive
oil and gas markets. Any future success that the Company might achieve will
depend upon many factors, including factors which will be beyond its control
or which cannot be predicted at this time. These factors may include changes
in hydrocarbon and exploration technologies, price and product competition,
developments and changes in the international oil and gas market, changes in
the Company's strategy, changes in expenses, the timing of research and
development expenditures, the level of the Company's international revenues,
fluctuations in foreign currency exchange rates, general economic conditions,
both in the United States and Canada, and economic and regulatory conditions
specific to the areas in which the Company competes, among others. (See
"Canadian Government Regulation and Industry Conditions"). To address these
risks, the Company must, among other things, continue to respond to
competitive developments; attract, retain and motivate qualified personnel;
implement and successfully execute its business plan; obtain additional and
viable joint venture partners; negotiate additional working interests and
participations; and upgrade and perfect the SFD Technology. There can be no
assurance that the Company will be successful in addressing these risks.

UNCERTAIN DISCOVERY OF VIABLE COMMERCIAL PROSPECTS. The Company's future
success is dependent upon its ability, through utilization of the SFD
Technology, to economically locate commercially viable hydrocarbon deposits.
Based on the Company's business plan, the Company will be dependent on both
(i) the efficacy of the SFD Technology in locating prospects; and (ii) the
cooperation and capital of joint venture partners in exploiting such
prospects. Although the results of the SFD Technology have been satisfactorily
tested by the Company's strategic partners, the Company can make no
representations, warranties or guaranties that the SFD Technology will be able
to consistently locate hydrocarbons or oil and gas prospects, or that such
prospects will be commercially exploitable. There can be no assurance that the
Company will be able to discover commercial quantities of oil and gas, or that
the Company's joint venture partners will have success in acquiring properties
at low finding costs and in drilling productive wells. Because the Company's
revenues will be solely from its joint venture participations with respect to
prospects identified by the SFD Technology, an inability of the Company to
identify and exploit commercially viable hydrocarbon deposits would have a
material and adverse effect on the Company's business and financial position.

UNCERTAIN MARKET ACCEPTANCE OF THE SFD TECHNOLOGY AND JOINT VENTURE
PARTICIPATION. The market for the Company's SFD Technology is undeveloped, and
such technology must compete with established geological and geophysical
technologies which have already achieved market acceptance. As is typical in
the case of any new technology, demand and market acceptance for new services
are subject to a high level of uncertainty and risk. Because the market for
the Company's exploration services is new and evolving, it is difficult to
predict the future growth rate, and the size of the potential market. There
can be no assurance that a market for the Company's services will develop, or
be sustainable. If the market fails to develop, or if the Company's services
do not achieve or sustain market acceptance, the Company's business, results
of operations and financial condition would be materially and adversely
affected.

RELIANCE ON JOINT VENTURE PARTNERS--NON-OPERATOR STATUS. The Company has and
will rely upon its joint venture partners for opportunities to participate in
exploration prospects, through equity participations, carried interests or
royalties. The Company focuses exclusively on exploration and the review and
identification of viable prospects through the SFD Technology, and relies upon
joint venture partners to provide and complete all other project operations
and responsibilities, including land acquisition, drilling, marketing and
project administration. As a result, the Company has only a limited ability to
exercise control over the selection of prospects for development, drilling or
production operations, or the associated costs of such operations. The success
of each project will be dependent upon a number of factors which are outside
the Company's control, or controlled by the Company's joint venture partner(s)
as the operators of the project(s), in accordance with the applicable joint
venture agreement. Such factors include: (i) the selection and approval of
prospects for lease/ acquisition and exploratory drilling; (ii) obtaining
favorable leases and required permitting for projects; (iii) the availability
of capital resources of the joint venture partner for land acquisition and
drilling expenditures; (iv) the timing of drilling activity, and the economic
conditions at such time, including then prevailing prices for oil and gas; and
(iv) the timing and amount of distributions from the joint venture. The
Company's reliance on joint venture partners, and its limited ability to
directly control project operations, costs and distributions, could have a
material adverse effect on the realization of return from the Company's
interest in projects, and on the Company's overall financial condition.

RISK OF EXPLORATORY DRILLING ACTIVITIES. Pursuant to the Company's business
plan, the Company's revenues and cash flow will be principally dependent upon
the success of drilling and production from prospects in which the Company
participates through joint ventures, in the form of a royalty, working
interest or other participation. The success of such prospects will be
determined by the economical location, development and production of
commercial quantities of hydrocarbons. Exploratory drilling is subject to
numerous risks, including the risk that no commercially productive oil and gas
reservoirs will be encountered. The cost to the applicable joint venture of
drilling, completing and operating wells is often uncertain, and drilling
operations may be curtailed, delayed or canceled as a result of a variety of
factors including unexpected formation and drilling conditions, pressure or
other irregularities in formations, equipment failures or accidents, as well
as weather conditions, compliance with governmental requirements and shortages
or delays in the delivery of equipment. In addition, the Company's reliance
upon the SFD Technology may require greater seismic and pre-drilling
expenditures than alternative exploration strategies. The inability to
successfully locate and drill wells that will economically produce commercial
quantities of oil and gas would have a material adverse effect on the
Company's business, financial position and results of operations.

VOLATILITY OF OIL AND NATURAL GAS PRICES. Although the Company's primary
efforts are focused on locating commercially viable prospects and obtaining
joint venture participations, the Company's ultimate profitability, cash flow
and future growth will be affected by changes in prevailing oil and gas
prices. Oil and gas prices have been subject to wide fluctuations in recent
years in response to relatively minor changes in the supply and demand for oil
and natural gas, to market uncertainty and a variety of additional factors
that are beyond the control of the Company, including economic, political and
regulatory developments, and competition from other sources of energy. It is
impossible to predict future oil and natural gas price movements with any
certainty. The Company does not engage in hedging activities. As a result, the
Company may be more adversely affected by fluctuations in oil and gas prices
than other industry participants that do engage in such activities. No
assurances

can be given as to the future level of activity in the oil and gas exploration
and development industry, or as to the future demand for the technology
offered by the Company. An extended or substantial decline in oil and gas
prices would have a material adverse effect on (i) the ability of the Company
to negotiate favorable joint ventures with viable industry participants; (ii)
the volume of oil and gas that could be economically produced by the joint
ventures in which the Company participates; (iii) the Company's access to
capital; and (iv) the Company's financial position and results of operations.

COMPETITION. The Company competes directly with independent, technology-driven
exploration and service companies, and indirectly (through its joint ventures
and participations) with major and independent oil and gas companies in its
exploration for and development of desirable oil and gas properties. With
respect to the SFD Technology, the Company has experienced and expects to
continue to experience competition from numerous hydrocarbon exploration
competitors, which offer a wide variety of geological and geophysical
services. Many of such competitors have substantially greater financial,
technical, sales, marketing and other resources, as well as greater historical
market acceptance than the Company. Accordingly, such competitors or future
competitors may be able to respond more quickly to changes in customer
requirements, or to devote greater resources to the development, promotion and
sales of their services than the Company. There can be no assurance that the
Company's competitors will not develop exploration services that are superior
to those of the Company, or that such technologies will not achieve greater
market acceptance than the Company's SFD Technology. Increased competition
could impair the Company's ability to attract viable industry participants,
and to negotiate favorable participations and joint ventures with such
parties, which could materially and adversely affect the Company's business,
operating results and financial condition.

The Company's joint ventures will engage in the exploration for and production
of oil and gas, industries which are highly competitive. Many companies and
individuals are engaged in the business of acquiring interests in and
developing onshore oil and gas properties in the United States and Canada, and
the industry is not dominated by any single competitor or a small number of
competitors. The Company's joint ventures will compete with numerous industry
participants for the acquisition of land and rights to prospects, and for the
equipment and labor required to operate and develop such prospects. Many of
these competitors have financial, technical and other resources substantially
in excess of those available to the Company. Such competitive disadvantages
could adversely affect the Company's ability to participate in projects with
favorable rates of return.

TECHNOLOGICAL CHANGES. The oil and gas industry is characterized by rapid
technological advancements and the frequent introduction of new products,
services and technologies. As new technologies develop, the Company may be
placed at a competitive disadvantage, and competitive pressures may force the
Company to improve or complement the SFD Technology, or to implement
additional technologies at substantial cost. In addition, other oil and gas
exploration companies may implement new technologies before the Company, and
such companies may be able to provide enhanced capabilities and superior
quality compared with those of the Company. There can be no assurance that the
Company will be able to respond to such competitive pressures and implement or
enhance its technology on a timely basis, or at an acceptable cost. One or
more of the technologies currently utilized by the Company or implemented in
the future may become obsolete. In such case, the Company's business,
financial condition and results of operations could be materially adversely
affected.

OPERATING HAZARDS. The exploration and development projects in which the
Company will participate through joint ventures will be subject to the usual
hazards incident to the drilling of oil and gas wells, such as explosions,
uncontrollable flows of oil, gas or well fluids, fires, pollution and other
environmental risks. These hazards can cause personal injury and loss of life,
severe damage to and destruction of property and equipment, environmental
damage and suspension of operations. Company management that the applicable
joint venture operator will, in accordance with prevailing industry practice,
maintain insurance against some, but not all, of these risks. The occurrence
of an uninsured casualty or claim would have an adverse impact on the affected
joint venture, and indirectly on the financial condition of the Company.

VARIABILITY OF OPERATING RESULTS. The Company's operating results may in the
future fluctuate significantly depending upon a number of factors including
industry conditions, prices of oil and gas, rate of drilling success, rates of
production from completed wells and the timing of capital expenditures. Such
variability could have a material adverse effect on the Company's business,
financial condition and results of operations. In addition, any failure or
delay in the realization of expected cash flows from initial operating
activities could limit the Company's future ability to continue exploration
and to participate in economically attractive projects. (See "Item 2--
Financial Information".)

DEPENDENCE ON KEY PERSONNEL. The Company's success depends to a significant
extent on the continued efforts of its senior management team, which currently
is composed of a small number of individuals, including Mr. George Liszicasz,
the Chief Executive Officer and a director of the Company, who is responsible
for the development of the SFD Technology and the interpretation of SFD Data,
and Mr. Dirk Stinson, the President and a director of the Company, who is
responsible for the overall management of, and strategic planning for, the
Company. The Company has entered into employment agreements with each of these
executive officers, although they are not obligated, (and as a result of their
relationships with Momentum may in the future be unable), to devote their
entire undivided time and effort to or for the benefit of the Company. The
Company does not currently carry key person life insurance on either of these
executive officers, although it is in the process of procuring a 10-year
keyman term insurance policy in the amount Cdn. $7 million on the life of
Mr. Liszicasz. The loss of the services of either of Messrs. Liszicasz or
Stinson could have a material adverse effect on the business, results of
operations and financial condition of the Company. The services of Mr.
Liszicasz would be particularly difficult to replace since he is the inventor
of, and has intimate knowledge of, the theoretical basis of the SFD Technology
and the SFD Sensor, and has also developed the methodologies used to interpret
the SFD Data. The Company is presently training personnel to operate the SFD
Technology and to interpret the SFD Data; however, no assurance can be given
that these personnel could fully replace Mr. Liszicasz with respect to these
functions, at least in the short-term. Moreover, the Company does not know if
it would be able to successfully replicate the SFD Technology and, in
particular, the SFD Sensor, in the event of the loss of Mr. Liszicasz. The
Company's ability to implement its growth strategies also depends upon its
continuing ability to attract and retain highly qualified engineering,
managerial, sales and marketing and administrative personnel. Competition for
such personnel is intense and there can be no assurance that the Company will
be able to retain its key managerial and/or technical employees, or that it
will be able to attract and retain additional highly qualified managerial
and/or technical personnel in the future. The inability to attract and retain
the necessary personnel could impede the growth of the Company. (See
"Management of Growth" below).

MANAGEMENT OF GROWTH. The success of the Company will depend upon the rapid
expansion of its business. Such expansion will place a significant strain on
the Company's financial, management and other resources and will require the
Company to: (i) change, expand and improve its operating, managerial and
financial systems and controls; (ii) improve coordination between corporate
functions; and (iii) hire additional geophysical, geological, professional,
administrative and managerial personnel. There can be no assurance that the
Company will be successful in hiring or retaining these personnel to the
extent required, or that it will be able to manage the expansion of its
operations effectively. If the Company were unable to effectively manage
growth, or if new personnel were unable to achieve anticipated performance
levels, the Company's business, financial position and results of operations
will be materially and adversely affected.

IMPORTANCE OF TRADEMARKS AND PROPRIETARY RIGHTS. The business of the Company
is to interpret and utilize SFD Data to identify commercially viable petroleum
and natural gas deposits. The Company has the exclusive right to utilize the
SFD Data for hydrocarbon exploration, pursuant to a Restated Technology
Agreement with Momentum Resources Corporation, a Bahamas corporation
("Momentum"). Momentum claims common law ownership of the SFD Technology.
However, Momentum has not obtained patent or trademark protection for either
(i) the technology, or (ii) the names "Stress Field Detector," "SFD" or "SFD
Technology." Based in part on an opinion of patent counsel, management of
Momentum and the Company believe that the disclosure risks inherent in patent
or trademark registration far outweigh any legal protections which might be
afforded by patent or trademark protection. In the absence of trademark
protection, the Company may be unable to take

advantage of potential brand name recognition for the technology. In the
absence of significant patent or copyright protection, the Company may be
vulnerable to competitors who attempt to imitate the SFD Technology, or to
develop functionally similar technologies. Although the Company believes that
it has all rights necessary to market its services without infringing upon any
patents, copyrights or trademarks held by others, there can be no assurance
that conflicting patent, copyright or trademark rights do not exist. The
Company relies upon trade secret protection and confidentiality and/or license
agreements with its employees, consultants, customers, venture partners and
others to protect its proprietary rights. Furthermore, management of the
Company does not believe that if Momentum were to apply for and receive patent
protection, that such patent protection would necessarily protect Momentum or
the Company from competition. Momentum and the Company therefore anticipate
continued reliance upon contractual rights and on common law validating trade
secrets. The steps taken by Momentum and the Company to protect their
respective rights may not be adequate to deter misappropriation, or to
preclude an independent third party from developing functionally similar
technology. There can be no assurance that others will not independently
develop substantially equivalent proprietary information and techniques, or
otherwise gain access to the Momentum's or the Company's trade secrets, or
otherwise disclose aspects of the technology, or that the Company can
meaningfully protect its trade secrets. Litigation to enforce and/or defend
intellectual property rights is costly, and either Momentum or the Company may
not have sufficient resources to pursue such litigation.

CANADIAN GOVERNMENT REGULATION AND INDUSTRY CONDITIONS

COMPLIANCE WITH GOVERNMENTAL REGULATIONS. The oil and natural gas industry is
subject to extensive controls and regulations imposed by various levels of the
federal and provincial governments in Canada. It is not expected that any of
these controls or regulations will affect the operations of the Company in a
manner materially different than they would affect other oil and gas companies
of similar size. All current legislation is a matter of public record and the
Company is unable to accurately predict what additional legislation or
amendments may be enacted. All of the governmental regulations noted below may
be changed from time to time in response to economic or political conditions.
Company management believes that the trend of more expansive and stricter
environmental laws and regulations will continue. The implementation of new or
the modified environmental laws or regulations could have a material adverse
impact on the Company.

PRICING AND MARKETING OF OIL AND NATURAL GAS. In Canada, producers of oil
negotiate sales contracts directly with oil purchasers, with the result that
the market determines the price of oil. The price depends in part on oil
quality, prices of competing fuels, distance to market, the value of refined
products and the supply/demand balance. Oil exports may be made pursuant to
export contracts with terms not exceeding one year in the case of light crude,
and not exceeding two years in the case of heavy crude, provided that an order
approving any such export is obtained from the National Energy Board ("NEB").
Any oil export to be made pursuant to a contract of longer duration (to a
maximum of 25 years) requires an exporter to obtain an export license from the
NEB and the issue of such a license requires the approval of the Governor in
Council.

In Canada the price of natural gas sold in inter-provincial and international
trade is determined by negotiation between buyers and sellers. Natural gas
exported from Canada is subject to regulation by the NEB and the federal
government of Canada. Exporters are free to negotiate prices and other terms
with purchasers, provided that the export contracts must continue to meet
certain criteria prescribed by the NEB and the government of Canada. Natural
gas exports for a term of less than two years or for a term of two to 20 years
(in quantities of not more than 30,000 m/3//day), must be made pursuant to an
NEB order. Any natural gas export to be made pursuant to a contract of longer
duration (to a maximum of 25 years) or a larger quantity requires an exporter
to obtain an export license from the NEB and the issue of such a license
requires the approval of the Governor in Council.

THE NORTH AMERICAN FREE TRADE AGREEMENT. On January 1, 1994 the North American
Free Trade Agreement ("NAFTA") among the governments of Canada, the United
States and Mexico became effective. The NAFTA carries forward most of the
material energy terms contained in the Canada-United States Free Trade
Agreement. In the context of energy resources, Canada continues to remain free
to determine whether exports to the United States or Mexico will be allowed,
provided that any export restrictions do not: (i) reduce the proportion of
energy

resource exported relative to domestic use (based upon the proportion
prevailing in the most recent 36 month period); (ii) impose an export price
higher than the domestic price; and (iii) disrupt normal channels of supply.
All three countries are prohibited from imposing minimum export or import
price requirements. The NAFTA contemplates the reduction of Mexican
restrictive trade practices in the energy sector and prohibits discriminatory
border restrictions and export taxes. The agreement also contemplates clearer
disciplines on regulators to ensure fair implementation of any regulatory
changes and to minimize disruption of contractual arrangements, which is
important for Canadian natural gas exports.

PROVINCIAL REGULATION--ROYALTIES AND INCENTIVES. In addition to federal
regulation, each province has legislation and regulations which govern land
tenure, royalties, production rates, extra-provincial export, environmental
protection and other matters. The royalty regime is a significant factor in
the profitability of oil and natural gas production. Royalties payable on
production from lands other than Crown lands are determined by negotiations
between the mineral owner and the lessee. Crown royalties are determined by
government regulation and are generally calculated as a percentage of the
value of the gross production, and the rate of royalties payable generally
depends in part on prescribed reference prices, well productivity,
geographical location, field discovery date and the type or quality of the
petroleum product produced. From time to time the governments of Canada,
Alberta, British Columbia and Saskatchewan have established incentive programs
which have included royalty rate reductions, royalty holidays and tax credits
for the purpose of encouraging oil and natural gas exploration or enhanced
planning projects.

CANADIAN ENVIRONMENTAL REGULATION. The oil and natural gas industry is
currently subject to environmental regulation pursuant to provincial and
federal legislation. Environmental legislation provides for restrictions and
prohibitions on releases or emissions of various substances produced or
utilized in association with certain oil and gas industry operations. In
addition, legislation requires that well and facility sites be abandoned and
reclaimed to the satisfaction of provincial authorities. A breach of such
legislation may result in the imposition of fines and penalties. In Alberta,
environmental compliance has been governed by the Alberta Environmental
Protection and Enhancement Act ("AEPEA") since September 1, 1993. In addition
to replacing a variety of older statutes which related to environmental
matters, AEPEA also imposes certain new environmental responsibilities on oil
and natural gas operators in Alberta and in certain instances also imposes
greater penalties for violations. British Columbia's Environmental Assessment
Act became effective June 30, 1995. This legislation rolls the previous
processes for the review of major energy projects into a single environmental
assessment process which contemplates public participation in the
environmental review.

The Company is committed to meeting its responsibilities to protect the
environment wherever it operates and anticipates making increased, although
not material, expenditures of both a capital and expense nature as a result of
the increasingly stringent laws relating to the protection of the environment.

RISKS RELATING TO THE COMPANY'S COMMON STOCK

POSSIBLE VOLATILITY OF STOCK PRICE. The market price for the Company's Common
Stock may be volatile and subject to significant fluctuations in response to a
variety of internal and external factors, including the liquidity of the
market for the Common Stock, variations in the Company's quarterly operating
results, regulatory or other changes in the oil and gas industry generally,
announcements of business developments by the Company or its competitors,
changes in operating costs and variations in general market conditions.
Because the Company is a development stage entity with a limited operating
history and no prior revenues, the market price for the Company's Common Stock
may be more volatile than that of a seasoned issuer. Changes in the market
price of the Company's securities may have no connection with the Company's
operating results. No predictions or projections can be made as to what the
prevailing market price for the Company's Common Stock will be at any time.

LIMITED PUBLIC TRADING MARKET; RESTRICTIONS ON TRANSFERABILITY. There is only
a limited public market on the NASD Electronic Bulletin Board for the Common
Stock, and no assurance can be given that a broad and/or active public trading
market for such securities will develop or be sustained. The Company is under
no obligation

to take any action to improve the public market for such securities, including
without limitation filing an application to list of the Common Stock on any
stock exchange. Investors in the Common Stock will not be able to sell,
transfer or otherwise dispose of such securities unless and until such
securities are registered and/or qualified with the Securities and Exchange
Commission and any applicable state, territorial or provincial securities
regulatory agencies under applicable blue sky laws, and such investors furnish
the Company a satisfactory opinion from their legal counsel, at their own
expense, in form and substance satisfactory to the Company and its counsel,
that such sale, transfer or disposition is otherwise exempt from registration
or qualification under the Securities Act of 1933 (the "Securities Act") and
any applicable blue sky laws. There can be no assurance that any exemption(s)
from such registration or qualification will be available. Even if an
exemption from registration and/or qualification were available, Common Stock
would nevertheless have limited marketability due to the following factors,
each of which could impair the timing, value and market for such securities:
(i) the Company's limited operating history, lack of profits, need for
additional capital, and the other factors discussed in this Risk Factors
section; (ii) the limited public market for such securities; (iii) the lack of
qualification of such securities under applicable blue sky laws; (iv) the
applicability of certain resale requirements or under the Securities Act and
applicable blue sky laws; and (v) the fact that such securities will, in the
aggregate, constitute a nominal minority interest in the Company.

NO LIKELIHOOD OF DIVIDENDS. The Company plans to retain all available funds
for use in its business, and therefore does not plan to pay any cash dividends
with respect to its securities in the foreseeable future. Hence any investors
in the Common Stock could not expect to receive any distribution of cash
dividends with respect to such securities.

NO ASSURANCE OF LIQUIDATION DISTRIBUTION. If the Company were to be liquidated
or dissolved, holders of shares of its capital stock would be entitled to
share ratably in its assets only after satisfaction of the Company's
liabilities. After satisfaction of those liabilities and satisfaction of any
liquidation preference with respect to any then outstanding senior securities
of the Company (if any), the holders of the Common Stock would share ratably
in the remaining assets of the Company. If such liquidation or dissolution
were attributable to the failure or inability of the Company to profitably
operate its business, then it is likely that the Company would have material
liabilities at the time of such liquidation or dissolution. Accordingly, no
assurance can be given that sufficient assets would remain available after the
payment of creditors in the liquidation or dissolution of the Company to
enable the holders of the Company's capital stock to recover their investment
or any portion thereof. (See "Item 11--Description of the Registrant's
Securities" below).

CONTROL BY MANAGEMENT. All decisions with respect to the management of the
Company will be made by the Board of Directors and officers of the Company,
who beneficially own approximately 70% of the Common Stock. The present
stockholders of the Company have the power to elect the Board of Directors who
shall, in turn, have the power to appoint the officers of the Company and to
determine, in accordance with their fiduciary duties and the business judgment
rule, the direction, objectives and policies of the Company, including without
limitation the purchase of businesses or assets; the sale of all or a
substantial portion of the assets of the Company; the merger or consolidation
of the Company with another corporation; raising additional capital through
financing and/or equity sources; the retention of cash reserves; the expansion
of the Company's business and/or acquisitions; the filing of a registration
statement with the Securities and Exchange Commission for an initial public
offering of the Company's capital stock; transactions which may cause or
prevent a change in control of the Company; or the winding up and dissolution
of the Company. (See "Item 4--Security Ownership of Certain Beneficial Owners
and Management").

CONFLICTS OF INTEREST. Mr. George Liszicasz (the Chief Executive Officer and a
director and principal stockholder of the Company) and Mr. Dirk Stinson (the
President and a director and principal stockholder of the Company) indirectly
own and control Momentum. Momentum owns the SFD Technology, and provides raw
SFD Data to the Company for its exclusive use in identifying petroleum and
natural gas prospects under the License. However, Momentum reserves the
exclusive right under the License to use SFD Technology and the SFD Data for
purposes other than petroleum and natural gas exploration. Additionally,
although Messrs. Liszicasz and

Stinson have entered into employment agreements with the Company, they are not
obligated, (and as a result of their relationships with Momentum may in the
future be unable), to devote their entire undivided time and effort to or for
the benefit of the Company. As a result of the foregoing relationships amongst
the Company, Momentum and Messrs. Liszicasz and Stinson, certain conflicts of
interests between the Company and one or more of Momentum and Messrs.
Liszicasz and Stinson may directly or indirectly arise including, among
others: (i) the inability of Messrs. Liszicasz and Stinson to devote their
undivided time and attention to the affairs of the Company; and (ii) the
proper exercise by Messrs. Liszicasz and Stinson of their fiduciary duties on
behalf of the Company in connection with any matters concerning Momentum such
as, by way of example and not limitation, disputes regarding the validity,
scope or duration of the License; the exploitation of corporate opportunities;
rights to proprietary property and information; maintenance of confidential
information as between entities; and potential competition between the Company
and Momentum. The Company and Messrs. Liszicasz and Stinson have executed
disclosures and consents with respect to these conflicts. Nevertheless, such
disclosures and consents will not remediate any such conflicts, but will
merely release Messrs. Liszicasz and Stinson from liability as a result of
such conflicts so long as they use reasonable efforts to minimize the
conflicts. In the event any of the conflicts prove to be irreconcilable,
Messrs. Liszicasz and Stinson may be forced to resign their positions with the
Company. (See "Item 7--Certain Relationships and Related Transactions").

POTENTIAL ISSUANCE OF ADDITIONAL STOCK. As of the date of this Registration
Statement, the Company has granted options to certain directors of the Company
and its subsidiaries to purchase up to 210,000 shares of Common Stock. The
Company has also approved a stock option plan wherein the Company is
authorized to issue up to one million shares of Common Stock, pursuant to
options to purchase Common Stock, or outright grants of Common Stock, to the
employees, directors and/or consultants of the Company. As of the date of this
Registration Statement, the Company has granted options under this plan to
certain employees to purchase 180,000 shares of Common Stock. In addition, as
of the date of this Registration Statement, the Company has issued 800,000
shares of Series A Convertible Preferred Stock (the "Preferred Shares") and
200,000 warrants for Common Stock of the Company (the "Warrants"). The
Preferred Shares are convertible to Common Stock, and the Warrants are
exercisable from April 3, 1998 to April 3, 2000. The issuance of additional
shares of Common Stock could adversely reduce the proportionate ownership and
voting rights and powers of the present holders of the Common Stock, and could
also result in dilution in the net tangible book value per share of Common
Stock. There can be no assurance that the Company will not, under certain
circumstances, issue additional shares of its Common Stock. (See "Item 11--
Description of Registrant's Securities" below).

ITEM 2. FINANCIAL INFORMATION

SELECTED FINANCIAL DATA

The following table sets forth selected consolidated financial data of the
Company and its subsidiaries for (i) the Company's initial 72-day fiscal
period commencing October 20, 1995 (the date of inception for financial
accounting purposes of the Company's subsidiary, Pinnacle Oil) and ended
December 31, 1995, and the Company's subsequent twelve-month fiscal periods
ended December 31, 1996 and December 31, 1997, and (ii) the three-month
interim periods ended March 31, 1997 and 1998.

The selected consolidated statement of loss data set forth below for the
fiscal period ended December 31, 1997, and the selected consolidated balance
sheet data set forth below at December 31, 1997, are derived from the
consolidated financial statements of the Company which have been audited by
Deloitte & Touche, independent chartered accountants, as indicated in its
report which is included elsewhere in this Registration Statement. The
selected consolidated statement of loss data set forth below for each of the
two fiscal periods ended December 31, 1995 and December 31, 1996, and the
selected consolidated balance sheet data set forth below at December 31, 1995
and December 31, 1996, are derived from the consolidated financial statements
of the Company which have been audited by BDO Dunwoody, independent chartered
accountants, as indicated in its report which is included elsewhere in this
Registration Statement.

The selected consolidated statement of loss data set forth below for the
three-month interim periods ended March 31, 1997 and 1998, and the selected
consolidated balance sheet data set forth below as of March 31, 1998, have
been derived from the unaudited consolidated interim statements of loss
included as part of the unaudited consolidated financial statements of the
Company included elsewhere in this Registration Statement. In the opinion of
management, the unaudited consolidated three-month interim financial
statements for the Company have been prepared on the same basis as the audited
consolidated financial statements, and include all adjustments, consisting
only of normally recurring adjustments, necessary for a fair presentation of
the results of operations for such periods. The results of operations for the
Company for the three-month interim period ended March 31, 1998 are not
necessarily indicative of results to be expected for the Company for the full
fiscal year ended December 31, 1998.

The selected consolidated financial data should be read in conjunction with
the consolidated financial statements of the Company and the notes thereto
included elsewhere in this Registration Statement, and "Management's
Discussion and Analysis of Financial Condition and Results of Operations,"
below.

3-MONTH FISCAL PERIOD
FISCAL PERIOD ENDED DECEMBER 31, ENDED MARCH 31,
---------------------------------- -----------------------
1995 1996 1997 1997 1998
---------- ---------- ---------- ---------- -----------
(AUDITED) (UNAUDITED)

CONSOLIDATED STATEMENT
OF LOSS DATA:
Revenues................ $ -- $ -- $ -- $ -- $ --
Operating expenses:
Administrative......... 53,024 355,391 742,438 116,247 258,345
Amortization........... 672 24,435 25,474 7,459 7,612
Exploration
expenditures, net of
exploration costs
reimbursed by joint
venture partners...... -- 101,010 120,666 6,646 22,678
Survey system
development........... -- -- 103,001 -- 10,633
Write-down of
automotive............ -- -- 17,074 -- --
---------- ---------- ---------- ---------- ----------
Total operating
expenses............ 53,696 480,836 1,008,653 130,352 299,268
Operating loss.......... (53,696) (480,836) (1,008,653) (130,352) (299,268)
Other income (expenses):
Interest cost on
promissory notes...... -- -- (110,000) (20,000) (10,000)
Interest income........ -- 5,258 47,832 9,358 6,988
Settlement of damages.. -- -- 157,500 -- --
---------- ---------- ---------- ---------- ----------
Total other income
(expenses).......... -- 5,258 95,332 (10,642) (3,012)
---------- ---------- ---------- ---------- ----------
Net loss................ $ (53,696) $ (475,578) $ (913,321) $ (140,994) $ (302,280)
========== ========== ========== ========== ==========
Basic and diluted loss
per share.............. $ (0.01) $ (0.04) $ (0.08) $ (0.01) $ (0.02)
Weighted average number
of shares outstanding.. 10,090,675 11,472,992 11,979,385 11,943,281 12,285,153

FISCAL YEAR ENDED DECEMBER 31,
----------------------------------
3-MONTH
FISCAL
PERIOD
ENDED MARCH
1995 1996 1997 31, 1998
---------- ---------- ---------- -----------
(AUDITED) (UNAUDITED)

CONSOLIDATED BALANCE
SHEET DATA:
Working capital.................... $ (87,208) $ 339,118 $ 680,820 $ 189,399
Current assets..................... 49,517 534,150 969,957 556,112
Total assets....................... 88,029 639,508 1,179,861 965,157
Total liabilities.................. 0 195,032 1,482,165 449,741
Shareholders' equity (deficit)..... 48,696 444,476 (302,304) 515,416

MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF
OPERATIONS

GENERAL

The following discussion of the consolidated financial condition and results
of operations of the Company should be read in conjunction with the
consolidated financial statements of the Company and the notes thereto
included elsewhere in this Registration Statement.

OVERVIEW

The Company and its subsidiaries, Pinnacle Oil and Pinnacle Oil Canada, are
engaged in the exploration, discovery and development of commercially viable
hydrocarbon (oil and gas) deposits. The Company identifies prospects through
the use of SFD Data provided exclusively to the Company for petroleum and
natural gas exploration purposes by Momentum pursuant to the terms of the
License.

The Company's present strategy is to exploit SFD prospects by entering into
joint venture, working participation, royalty and other arrangements with a
small and select number of experienced, well-capitalized strategic partners.
These strategic arrangements will ultimately target both domestic (United
States and Canada) and international prospects, as well as off-shore
prospects. As of the date of this Registration Statement, the Company has
entered into joint ventures or other arrangements with three strategic
partners, Encal (December of 1996, February of 1997 and September of 1997) for
the exploration and exploitation of prospects in Western Canada; Renaissance
(February of 1998) for the exploration of prospects in Western Canada; and
CamWest (April 1998) for the exploration and exploitation of prospects in the
United States and foreign countries other than Canada.

Pursuant to its agreements with Encal and Renaissance, the Company identified
SFD prospects for these strategic partners in early 1998, and anticipates that
these strategic partners will commence drilling activities with respect to
identified prospects in mid-to-late summer 1998. Due to the recent date of its
joint venture agreement with CamWest, the Company has just commenced the
identification of SFD prospects in the United States under this agreement and
anticipates that drilling will commence before year end.

The Stress Field Detector and its underlying technology, upon which the
Company is dependent for SFD Data, is a recently developed proprietary
technology owned by Momentum. Working with Momentum the Company has applied a
significant portion of its working capital toward: (i) developing and refining
the data acquisition systems used with the SFD Survey System, including
adopting it for airborne surveys and incorporating a global positioning
system; (ii) conducting initial exploratory activities using the SFD Survey
System to develop and refine the data acquisition system; and (iii) conducting
additional exploratory activities to confirm the efficacy of the Stress Field
Detector for the Company's strategic partners to date. Although the Company
entered into joint venture or other arrangements with three strategic
partners, activities under such arrangements to identify prospects have only
recently commenced, and no revenues have been generated to date. Pursuant to
the terms of the Restated Technology Agreement, the Company will pay Momentum
a fee equal to 1% of "Prospect Profits" (as such term is defined in the
amended License) received by the Company and its subsidiaries on or before
December 31, 2000, and 5% of Prospect Profits received by the Company and its
subsidiaries after December 31, 2000.

Since the Company has not generated operating revenues to date, it should be
considered a development stage entity. As of December 31, 1997, the Company
had a shareholders' deficit of $302,304 and working capital of $680,820. In
addition, the Company has incurred operating losses since its inception. The
Company converted $1,120,000 of debt in February of 1998, which eliminated its
shareholders' deficit, and raised $6 million in April 1998 through a private
placement of convertible preferred stock and warrants. These transactions
eliminated the Company's shareholders' deficit and provided it with
substantial working capital. Although the Company, as a result of the April
1998 private placement, has sufficient working capital as of the date of this
Registration Statement to fund operations for several years, the Company's
ability to continue as a going concern in the longer term will nevertheless be
dependent upon any joint venture or other arrangement in which the Company

participates successfully identifying, financing, developing, extracting and
marketing petroleum and natural gas deposits for a profit, and making
distributions of distributable cash flow from such profits to its
participants, including the Company. The Company expects it will continue to
incur further losses until such time as such joint ventures and/or other
arrangements make such distributions in meaningful amounts. (See "Outlook and
Prospective Capital Requirements" and "Item 10--Recent Sales of Unregistered
Securities" below).

ACQUISITION OF PINNACLE OIL, INC.; ACCOUNTING PRINCIPLES

On January 20, 1996, the Company (while Auric) consummated a Plan of
Reorganization with Pinnacle Oil and its shareholders in which the Company
agreed to issue 10,090,675 shares of the Common Stock of the Company,
constituting approximately 92% of the outstanding shares of Common Stock, to
the shareholders of Pinnacle Oil in exchange for all of the outstanding shares
of common stock of Pinnacle Oil. The Company's acquisition of Pinnacle Oil is
accounted for as a "reverse acquisition" in accordance with United States
Generally Accepted Accounting Principles. As a result of the application of
these accounting principles, Pinnacle Oil (and not Auric) is treated as the
"acquiring" or "continuing" entity for financial accounting purposes,
notwithstanding that the Company, as successor to Auric (and not Pinnacle Oil)
is the continuing entity for legal purposes. Accordingly, the consolidated
statements of loss of the Company for the fiscal period ended December 1996
are deemed to be a continuation of Pinnacle Oil's financial statements, and
therefore reflect (i) the operations of Pinnacle Oil since October 20, 1995
(the date of Pinnacle Oil's formation) through the date of the Plan of
Reorganization (January 20, 1996); and (ii) the operations of the Company
after January 20, 1996.

RESULTS OF OPERATIONS OF THE COMPANY (INCLUDING PREDECESSOR, PINNACLE OIL)

The Company had no revenues for its three fiscal periods ended December 31,
1997, or its three-month interim fiscal periods ended March 31, 1998 and 1997.

The Company incurred operating expenses of $299,268 for its three-month
interim fiscal period ended March 31, 1998, as compared to $130,352 for its
corresponding three-month interim fiscal period ended March 31, 1997. The
Company incurred operating expenses of $1,008,653 for its twelve-month fiscal
period ended December 31, 1997, as compared to $480,836 for its twelve-month
fiscal period ended December 31, 1996 and $53,696 for its 72-day fiscal period
ended December 31, 1995.

The increase in operating expense for the Company's three-month interim fiscal
period ended March 31, 1998 was primarily attributable to: (i) an increase in
administrative expense to $258,345, as compared to $116,247 for the prior
corresponding interim fiscal period; (ii) survey system development expenses
of $10,633, as compared to $0 for the prior fiscal period; and (iii) an
increase in exploration expenditures $22,678, as compared to $6,646 for the
prior corresponding interim fiscal period. The increase in administrative
expense was primarily attributable to: (i) greater legal fees incurred to
support the Company's increased level of business activities in the first
fiscal quarter of 1998, including negotiating and entering into various
agreements (including those with certain of the Company's strategic partners),
raising capital and preparing securities filings; and (ii) increases in wages
and benefits. The survey system development costs were attributable to the
further development and refinement of the data acquisition systems used with
the SFD Survey System, including adopting it for airborne surveys and
incorporating a global positioning system. The increase in exploration
expenses resulted from the shift in exploratory activities from the Company's
vehicle to leased airplanes, which expenditures were partially offset by
reimbursements to the Company by its strategic partners.

The increase in operating expense for the Company's twelve-month fiscal period
ended December 31, 1997 was primarily attributable to: (i) an increase in
administrative expense to $742,438, as compared to $355,391 for the prior
fiscal period; (ii) survey system development expenses of $103,001, as
compared to $0 for the prior fiscal period; and (iii) an increase in
exploration expenditures (net of reimbursements by strategic partners in the
amount of $57,795) to $120,666, as compared to $101,010 for the prior fiscal
period. The increase in administrative expense was primarily attributable to:
(i) greater legal fees incurred to support the Company's increased level of
business activities in 1997, including properly setting up the affairs of the
Company,

negotiating and entering into various agreements (including those with the
Company's strategic partners), and preparing securities filings; and (ii)
increases in wages and benefits. The survey system development costs were
attributable to the further development and refinement of the data acquisition
systems used with the SFD Survey System, including adopting it for airborne
surveys and incorporating a global positioning system. The increase in
exploration expenses resulted from the shift in exploratory activities from
the Company's vehicle to leased airplanes, which expenditures were partially
offset by reimbursements to the Company by its strategic partners.

The increase in operating expenses for the Company's twelve-month fiscal
period ended December 31, 1996 was primarily attributable to: (i) an increase
in administrative expenses to $355,391, as compared to $53,024 for the prior
fiscal period; (ii) an increase in exploration expenditures to $101,010, as
compared to $0 for the prior fiscal period; and (iii) amortization expenses of
$24,435, as compared to $672 for the prior fiscal period. The increase in
administrative expenses was primarily attributable to: (i) greater legal fees
incurred to support the Company's increased level of business activities in
1996 following the share exchange with Auric in January of 1996, raising
capital in February of 1996, and negotiating and entering into various
agreements (including those with the Company's strategic partners); and (ii)
increases in wages and benefits. The increase in exploration expenses was
attributable to the Company's initial exploratory activities using the SFD
Survey System.

The Company incurred $10,000 in interest expense for its three-month interim
fiscal period ended March 31, 1998, as compared to $20,000 for its three-month
interim fiscal period ended March 31, 1997. The Company incurred $110,000 in
interest expense for its twelve-month fiscal period ended December 31, 1997,
as compared to $0 for its twelve-month fiscal period ended December 31, 1996
and its 72-day fiscal period ended December 31, 1995. The noted expense
represented interest accrued on $1 million in loans made to the Company in
January of 1997 by Messrs. R. Dirk Stinson and George Liszicasz. Interest
expense for the three-month interim fiscal period ended March 31, 1998 was
lower than the amount incurred for the corresponding prior interim fiscal
period insofar as the loan balances were carried for only one month for the
former interim fiscal period, as compared to two months for the latter interim
fiscal period.

The Company earned $6,988 in interest income for its three-month interim
fiscal period ended March 31, 1998, as compared to $9,358 for its three-month
interim fiscal period ended March 31, 1997. The decrease in interest income
was attributable to lower cash balances in the Company's accounts for the
three-month interim fiscal period ended March 31, 1998 as compared to the
corresponding prior interim fiscal period. For the reasons just noted, net
loss for the Company's three-month interim fiscal period ended March 31, 1998
increased to $302,280 (or $0.02 per share), as compared to a net loss of
$140,994 (or $0.01 per share) for the Company's three-month interim fiscal
period ended March 31, 1997. The Company earned $47,832 in interest income for
its twelve-month fiscal period ended December 31, 1997, as compared to $5,258
for its twelve-month fiscal period ended December 31, 1996, and $0 for its 72-
day fiscal period ended December 31, 1995. The increase in interest income was
attributable to the maintenance of the Company's cash funds in higher
interest-bearing accounts.

The Company had earnings of $157,500 in settlement damages in the twelve-month
fiscal period ended December 31, 1997, attributable to cash proceeds received
in settlement of breach of contract litigation.

As a result of the increase in expenses, net loss for the Company increased to
$913,321 (or $0.08 per share) for its fiscal period ended December 31, 1997,
as compared to a net loss of $475,578 (or $0.04 per share) for its fiscal
period ended December 31, 1996, and a net loss of $53,696 (or $0.01 per share)
for its 72-day fiscal period ended December 31, 1995.

LIQUIDITY AND CAPITAL RESOURCES

The Company's cash flow requirements from the inception of Pinnacle Oil
(October 20, 1995) through March 31, 1998 were funded principally from sales
of the Company's Common Stock in the amount of $975,000 in February 1996,
loans to the Company by Messrs. Liszicasz and Stinson in the amount of
$1,000,000 in January 1997, and payment for services to consultants in Common
Stock. In April of 1998, the Company raised $6 million through a private
placement of convertible preferred stock and warrants. (See "Item 10--Recent
Sales of Unregistered Securities").

As of December 31, 1997, the Company was indebted to Messrs. George Liszicasz
and Dirk Stinson in the amounts of $555,000 each, pursuant to two unsecured
loans, each in the original principal amount of $500,000 made to the Company
by each of these affiliates on January 31, 1997. These loans bore interest at
the rate of 12% per annum, and were repayable on January 31, 1998. The
promissory notes provided that Messrs. Liszicasz and Stinson could elect to
convert the outstanding principal and interest under the loans into the
Company's Common Stock at the rate of $4.07 per share, and that the Company
could elect to convert the outstanding principal and interest under the loans
into the Company's Common Stock at the rate of $2.72 per share. These loans
were each converted by the Company into 205,882 shares of Common Stock on
February 1, 1998, due to the Company's inability to repay such notes on their
respective due dates. (See "Item 7--Certain Relationships and Related
Transactions").

The Company's cash position as of March 31, 1998 and March 31, 1997 was
$385,180 and $1,399,911, respectively, as compared to $848,339 and $519,621 as
of the beginning of each such interim period, respectively. The Company's cash
position as of December 31, 1997 was $848,339, as compared to $519,621 as of
December 31, 1996, and $145 as of December 31, 1995.

The $463,159 decrease in the Company's cash position for the three-month
interim fiscal period ended March 31, 1998 was attributable to $236,870 in
cash used in operating activities and $226,289 in cash used in investing
activities. The $880,290 increase in the Company's cash position for the
corresponding prior interim fiscal period ended March 31, 1997 was
attributable to $1,000,000 in cash provided by financing activities, partially
offset by $118,134 in cash used in operating activities and $1,576 in cash
used in investing activities.

The $328,718 increase in the Company's cash position for the twelve-month
fiscal period ended December 31, 1997 was attributable to $1,000,000 in cash
provided by financing activities, partially offset by $659,705 in cash used in
operating activities and $11,577 in cash used in investing activities. The
$519,476 increase in the Company's cash position for the twelve-month fiscal
period ended December 31, 1996 was attributable to $868,750 in cash provided
by financing activities, partially offset by $257,993 in cash used in
operating activities and $91,281 in cash used in investing activities.

The Company's operating activities required cash in the amount of $659,705 for
the three-month fiscal period ended March 31, 1998, as compared to cash
requirements of $118,134 for the corresponding prior three-month fiscal period
ended March 31, 1997. The $659,705 in cash used in operating activities for
the three-month interim fiscal period ended March 31, 1998 reflected the
Company's net loss of $302,280 for such period, as decreased for non-cash
deductions (interest accrued of $10,000 and amortization of $7,612), and a net
decrease in non-cash working capital balances ($47,798). The $118,134 in cash
used in operating activities for the three-month interim fiscal period ended
March 31, 1997 reflected the Company's net loss of $140,994 for such period,
as decreased for non-cash deductions (interest accrued of $20,000 and
amortization of $7,459), and a net increase in non-cash working capital
balances ($4,599).

The Company's operating activities required cash in the amount of $826,246 for
the twelve-month fiscal period ended December 31, 1997, as compared to cash
requirements of $257,993 for the prior twelve-month fiscal period ended
December 31, 1996. The $826,246 in cash used in operating activities for the
twelve-month fiscal period ended December 31, 1997 reflected the Company's net
loss of $913,321 for such period, as decreased for non-cash deductions
(interest accrued of $110,000, amortization of $25,475, costs settled by the
issuance of Common Stock of $166,541, and write-down of property and equipment
of $28,077), and a net increase in non-cash working capital balances
($76,476). The $257,993 in cash used in operating activities for the twelve-
month fiscal period ended December 31, 1996 reflected the Company's net loss
of $475,578 for such period, as decreased for non-cash deductions
(amortization of $24,435) and a net decrease in non-cash working capital
balances ($193,150).

The Company generated cash of $0 from financing activities for the three-month
fiscal period ended March 31, 1998, as compared to generating cash of
$1,000,000 from financing activities for the corresponding prior three-month
fiscal period ended March 31, 1997. Cash of $1,000,000 was generated by the
Company's financing activities for the twelve-month fiscal period ended
December 31, 1997, as compared to cash of $868,750

generated by financing activities for the prior twelve-month fiscal period
ended December 31, 1996. The $1,000,000 in cash generated by financing
activities for the three-month fiscal period ended March 31, 1997 was
comprised of the proceeds of loans made to the Company by Messrs. Liszicasz
and Stinson.

The $1,000,000 in cash generated by financing activities for the twelve-month
fiscal period ended December 31, 1997 was comprised of $1,000,000 in loans
made to the Company by Messrs. Liszicasz and Stinson. The $868,750 in cash
generated by financing activities for the twelve-month fiscal period ended
December 31, 1996 was comprised of $975,000 from the sale of Common Stock,
partially offset by $100,000 for the repayment of loans, and $6,250 in Common
Stock issuance costs.

The Company used cash in the amount of $226,289 for investing activities for
the three-month fiscal period ended March 31, 1998, as compared to cash of
$1,576 used for investing activities for the corresponding prior three-month
fiscal period ended March 31, 1997. Cash of $11,577 was used for the Company's
investing activities for the twelve-month fiscal period ended December 31,
1997, as compared to cash of $91,281 for investing activities for the twelve-
month fiscal period ended December 31, 1996. The principal use of cash in
investing activities was to acquire property and equipment.

OUTLOOK AND PROSPECTIVE CAPITAL REQUIREMENTS

The Company's ability to begin earning revenues and profits is dependent upon
joint ventures or other arrangements in which the Company participates
successfully identifying, financing, developing, extracting and marketing
petroleum and natural gas deposits for a profit, and making distributions of
distributable cash flow from such profits to the parties to such ventures,
including to the Company. As of the date of this Registration Statement, the
Company has commenced identifying and tendering what it considers to be
commercially viable SFD Prospects to each of its three strategic partners, and
anticipates, based upon discussions with each of its strategic partners, that
such strategic partners will commence drilling activities with respect to SFD
Prospects confirmed with seismic data by the end of 1998. The Company does not
anticipate it will receive meaningful revenues until 1999.

No assurance can be given that the SFD Prospects described above, if confirmed
by the Company's strategic partners using seismic or other methodologies, will
be drilled at all or by projected drilling dates due to, among other things,
factors such as the perceived economics of drilling at such time, the ability
of the strategic partner to obtain property rights (where necessary) on
favorable terms or at all, and the ability of the strategic partner to timely
schedule a drilling rig and other drilling services. Even if an SFD Prospect
is drilled, no assurance can be given that the well will produce commercially
viable quantities of oil or gas. See "Risk Factors--Risks Relating to the
Company and its Business," generally, and "--Reliance on Joint Venture
Partners--Non-Operator Status" and "--Risk of Exploratory Drilling Activities"
particularly.

The Company expects it will continue to incur further losses until such time
as any joint venture or other arrangement makes distributions in meaningful
amounts. The Company estimates it will incur operating costs of approximately
$1.5 million over the twelve-month period ended June 30, 1999. In April of
1998, the Company raised $6 million through a private placement of convertible
preferred stock and warrants, which will enable the Company to fund its
operations for at least the next twelve months following the date of this
Registration Statement. (See "Item 10--Recent Sales of Unregistered
Securities" below).

FOREIGN EXCHANGE

The Company's business to date is principally conducted in Canada and the
United States, in transactions denominated in Canadian and United States
dollars, respectively. The Company maintains its cash and investments in
United States denominated funds, and only converts such funds into Canadian
dollars at such time as necessary to pay Canadian expenses. Management does
not believe that the fluctuation in the value of the United States dollar in
relation to the Canadian dollar in the last three fiscal periods has adversely
affected the Company's operating results. No assurance can be given, however,
that adverse currency exchange rate fluctuations will not occur in the future,
which would affect the Company's operating results.

EFFECT OF INFLATION

In the Company's view, at no time during any of the last three fiscal periods
have inflation or changing prices had a material impact on the Company.

YEAR 2000 COMPLIANCE

Management has reviewed the Company's internal computer systems and software
products for Year 2000 problems, and believes they are generally Year 2000
compliant. In the event Year 2000 considerations do arise, management does not
believe such considerations will materially impact the Company's internal
operations or future financial or operating results or future financial
condition. Management also does not believe that the Company's internal
operations or future financial or operating results or future financial
condition will be materially affected by any Year 2000 considerations which
may effect the Company's strategic partners.

ITEM 3. PROPERTIES

The Company's executive offices consist of 6,237 square feet, and are located
at Suite 750, Phoenix Place, 840-7th Avenue S.W., Calgary, Alberta, T2P 3G2.
The offices are leased for a five year term extending through January 31,
2003. The annual base lease payments are Cdn. $68,604, payable in monthly
installments of Cdn. $5,717. At the expiration of the five year term, the
Company has the option to renew the lease if there have been no defaults by
the Company under the lease.

The principal executive offices for the Company's subsidiaries, Pinnacle Oil
and Pinnacle Canada, are located in the same office suite located at the same
address as for the Company. Management of the Company believes that such
facilities are adequate for its needs for the foreseeable future, and expects
no difficulties in renewing the noted lease.

ITEM 4. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT

The following table sets forth as of August 25, 1998, certain information with
respect to the amount and nature of beneficial ownership of the common stock
held by: (i) each person known to management of the Company to be a beneficial
owner of more than 5% of the Company's outstanding common stock as of the date
of this Registration Statement; (ii) each person who is a director or an
executive officer of the Company as of the date of this Registration
Statement; and (iii) all directors and executive officers of the Company as a
group. The term "executive officer" is defined as the President, Secretary,
Treasurer, or any Vice President in charge of a principal business function
(such as sales, administration or finance), or any other person who performs a
similar policy making function for the Company.

AMOUNT AND
NATURE OF
BENEFICIAL
OWNERSHIP
OF COMMON
NAME(1) IDENTITY STOCK(2)(3) PERCENTAGE(2)(3)
- ------- -------- ----------- ----------------

George Liszicasz........ Director, Chairman of the Board, 5,209,732(4) 42.1%(4)
and Chief Executive Officer
R. Dirk Stinson......... Director and President 3,437,261(4)(5) 27.8%(4)(5)
John M. Woodbury, Jr. .. Secretary and Interim Chief 10,409(6) * (6)
Financial Officer
Lorne W. Carson......... Director 19,500(7) * (7)
Jon E.M. Jacoby......... Director 78,834(8) * (8)
K. Rick Turner.......... Director 11,893(9) * (9)
SFD Investment LLC...... Investor 1,000,000(10) 7.9%(10)
Directors and Executive
Officers as a group
(7 persons)............ 8,827,629(11) 70.5%(11)

- --------
* Less than 1%.

(1) The business address of each person named is c/o Pinnacle Oil
International, Inc., Suite 750 Phoenix Place, 840-7th Avenue S.W.,
Calgary, Alberta, Canada, T2P-3G2.

(2) Based on 12,426,983 shares of Common Stock outstanding on the transfer
records as of August 25, 1998.

(3) Calculated pursuant to Rule 13d-3(d)(1) of the Securities Exchange Act of
1934. Under Rule 13d-3(d), shares not outstanding which are subject to
options, warrants, rights or conversion privileges exercisable within 60
days are deemed outstanding for the purpose of calculating the number and
percentage owned by a person, but not deemed outstanding for the purpose
of calculating the percentage owned by each other person listed. The
Company believes that each individual or entity named has sole investment
and voting power with respect to the shares of Common Stock indicated as
beneficially owned by them (subject to community property laws where
applicable) and except where otherwise noted.

(4) Includes 30,000 shares issuable upon exercise of exercisable director's
options. (See "Item 6--Executive Compensation").

(5) Includes 1,000 shares of Common Stock held by RRSP.

(6) Includes (i) 10,025 shares held in 401(k) and IRA retirement accounts, and
(ii) 384 shares held in spouse's IRA account.

(7) Includes 15,000 shares issuable upon exercise of exercisable director's
options. (See "Item 6--Executive Compensation").

(8) Includes 62,667 shares of Series A Preferred Stock convertible to 62,667
shares of Common Stock and 16,167 warrants convertible to 16,167 shares of
Common Stock attributed to Mr. Jacoby by reason of an 8.83% membership
interest in SFD Investment LLC held by Mr. Jacoby and certain entities
controlled by Mr. Jacoby.

(9) Includes 9,066 shares of Series A Preferred Stock convertible to 9,066
shares of Common Stock and 2,267 warrants convertible to 2,267 shares of
Common Stock attributed to Mr. Turner by reason of his 1.133% membership
interest in SFD Investment LLC.

(10) Includes 800,000 Series A Preferred Stock presently convertible into
800,000 shares of Common Stock and 200,000 shares of Common Stock
issuable upon exercise of 200,000 Warrants (See "Item 10--Recent Sales of
Unregistered Securities").

(11) Includes (i) 105,000 shares of Common Stock issuable upon exercise of
105,000 exercisable directors options, (ii) 111,733 shares of Common
Stock issuable upon conversion of 111,733 shares of Series A Preferred
Stock, and (iii) 28,434 shares of Common Stock issuable upon exercise of
28,434 warrants convertible to Common Stock.

To the knowledge of management of the Company, as of the date of this
Registration Statement there are no existing arrangements the operation of
which may, at a subsequent date, result in a change in control of the Company.

ITEM 5. DIRECTORS AND EXECUTIVE OFFICERS

The following table sets forth the names of all current directors and
executive officers of the Company as of the date of this Registration
Statement, with each position and office held by them in the Company, and the
date of election or appointment.

DATE FIRST
ELECTED AS
DIRECTOR OR
APPOINTED AS
POSITION WITH THE OFFICER OF
COMPANY THE COMPANY
AND/OR ITS AND/OR ITS
NAME AGE SUBSIDIARIES SUBSIDIARIES
---- --- ----------------- -------------

George Liszicasz............ 44 Director and Chief Executive February 1996
Officer of Pinnacle Oil
International, Pinnacle Oil
and Pinnacle Canada
R. Dirk Stinson............. 45 Director and President of February 1996
Pinnacle Oil International,
Pinnacle Oil and Pinnacle
Canada
John M. Woodbury, Jr. ...... 43 Secretary and Interim Chief July 1998
Financial Officer of
Pinnacle Oil International
Lorne W. Carson............. 45 Director of Pinnacle Oil March 1998
International
Jon E.M. Jacoby............. 60 Director of Pinnacle Oil April 1998
International
K. Rick Turner.............. 40 Director of Pinnacle Oil April 1998
International

In April 1998, the Board of Directors amended the Bylaws to expand the Board
from five to seven members. The incumbent Board filled the two vacancies by
electing Mr. Jon Jacoby and Mr. Rick Turner to the Board of Directors. Mr.
Terrance Dunne resigned as Secretary, Chief Financial Officer and as a
director in July 1998, reducing the number of serving directors to six. Mr.
Andrew F. Pollet recently resigned as a director further reducing the number
of serving directors to five. The other directors have served in their
respective capacities since their election or appointment, and will serve
until the next annual meeting, or until a successor is duly elected, unless
the office is vacated in accordance with the Articles or Bylaws of the
Company. The executive officers are appointed by the Board of Directors to
serve until the earlier of their resignation or removal with or without cause
by the Board of Directors.

There are no family relationships between any two or more directors or
executive officers. There are no arrangements or understandings between any
two or more directors or executive officers.

Mr. George Liszicasz is the Chief Executive Officer and a director of the
Company, Pinnacle Oil, and Pinnacle Canada. Mr. Liszicasz has been the CEO and
a director of the Company since February 23, 1996. Over the past five years
Mr. Liszicasz has concentrated his efforts on the development and testing of
various geophysical technologies. During the course of this development work
he as acquired a working knowledge of the oil exploration and drilling
business. Mr. Liszicasz studied electronics and general sciences in Hungary
and at the University of British Columbia. In 1983, he worked on several
innovations in the design of high power laser systems and a root-canal laser
treatment system in the field of dentistry. In addition, Mr. Liszicasz has
participated in the invention of numerous products, including electronic
monitoring devices, geophysical instruments, and a new pyroelectric material.
His interest in "unconventional energy phenomena" and Quantum Mechanics lead
to the development of the Stress Field Detector. From 1987 to 1995, Mr.
Liszicasz was President of Owl Industries Ltd., a developer of electronic
controlling devices, where he had both engineering and business
responsibilities.

Mr. R. Dirk Stinson has been the President and a director of the Company since
February 23, 1996. Mr. Stinson also holds these positions with Pinnacle Oil
and with Pinnacle Oil Canada. During the past 20 years Mr. Stinson has worked
as a business management consultant and entrepreneur. Mr. Stinson spent 10
years in Hawaii, building and managing a number of businesses, including
Commercial Energy Systems, Inc., an alternative energy business that was
acquired by Pacific Resources, Inc. Mr. Stinson remained with Pacific
Resources under a two-year contract as manager of the Industrial and
Commercial division of PRI Energy Systems. From 1985 through 1990 Mr. Stinson
continued to exclusively represent Wartsila Diesel Inc. in Hawaii, one of the
world's largest manufacturers of medium speed diesels. Before leaving Hawaii
he worked for several years as Director of Marketing for Pacific Marine, a
private shipyard company with diversified subsidiaries in hazardous waste
management, asbestos abatement, ultra-high pressure water jetting, and
specialty concrete finishing. Mr. Stinson moved to British Columbia, Canada in
1990. Mr. Stinson worked in the automobile industry primarily in the fleet and
lease sales, and as fleet and lease manager for a Nissan dealership. From 1992
to 1994, Mr. Stinson worked as a sales executive for Premier Plastics Ltd. and
Century Plastics Ltd. and in 1995, Mr. Stinson became the President of EIC-
Energy Interface Corporation in Vancouver, British Columbia, Canada, a wholly-
owned subsidiary of International Parkside Products, Inc., a public company
trading on the Vancouver Stock Exchange. Mr. Stinson studied Communication
Arts at the Southern Alberta Institute of Technology.

Mr. Woodbury has served as Secretary and interim Chief Financial Officer of
the Company since July 1998. From September 1992 to May 1998, Mr. Woodbury was
a principal, and from February 1986 until August 1992, an associate, of Pollet
& Woodbury and its predecessor law firms located in Los Angeles, California.
Mr. Woodbury holds a Juris Doctor degree from Southwestern University School
of Law, a Masters of Law degree in Taxation from the University of Florida,
and a Bachelor of Science degree in Accounting from California State
University at Northridge.

Mr. Carson has been retained as Canadian counsel for the Company and its
predecessors since November of 1995, and has served as a director of the
Company since March of 1998. Mr. Carson is currently a partner at Bennett
Jones Verchere, a law firm whose head office is located in Calgary, Alberta,
and has been employed there since 1980. His area of specialty is natural
resource and energy law, with particular focus on oil and gas ventures and
energy financing. Mr. Carson is a member of the Association of Professional
Engineers of British Columbia and the Law Society of Alberta. In addition to
the Company, Mr. Carson serves as a director of Hunting Chase, Inc. and
Hunting Oilfield Services Canada Holdings Inc., subsidiaries of Hunting Group,
an international oilfield service company. Mr. Carson received a Bachelor of
Science in Mining and Engineering from Queens University in 1975 and an LL.B.
from the University of Victoria in 1980.

Mr. Jon E.M. Jacoby has been a director of the Company since April of 1998.
Mr. Jacoby is a director and an Executive Vice President of Stephens Group,
Inc., a private company headquartered in Little Rock, Arkansas, which invests
primarily in media, telecommunications, energy and investment banking
companies. Mr. Jacoby is a Senior Executive Vice President of Stephens Inc.,
an investment banking firm also located in Little Rock, Arkansas, and an
affiliate of Stephens Group, Inc., where he has been employed since 1963. He
received his Bachelor of Science degree from the University of Notre Dame and
his Master in Business Administration from Harvard Business School. He is a
director of Delta & Pine Land Company, Medicus Systems, Inc., Beverly
Enterprises Inc., and Power One Inc.

Mr. Turner has been Vice President since 1993, and from 1990 to 1993 Assistant
to the Chairman, of Stephens Group, Inc., a private company headquartered in
Little Rock, Arkansas, which invests primarily in media, telecommunications,
energy and investment banking companies. Since his original employment with
Stephens Group, Inc. in 1983, Mr. Turner has also been an officer of various
affiliates of Stephens Group, Inc. Mr. Turner received his Bachelor of Science
degree from the University of Arkansas and is a Certified Public Accountant.

ITEM 6. EXECUTIVE COMPENSATION

The following table shows the compensation paid over the past three fiscal
years to the Company's Chief Executive Officer and the two other most highly
compensated executive officers serving at the end of the last fiscal year (the
"Named Executive Officers"). As of the date of this Registration Statement,
there were only three executive officers of the Company, namely, Mr. George
Liszicasz, the Chief Executive Officer and the Chairman of the Board of the
Company, Mr. R. Dirk Stinson, the President and a director of the Company, and
Mr. John M. Woodbury, Jr., the Secretary and interim Chief Financial Officer
of the Company.

OTHER ANNUAL
NAME AND PRINCIPAL POSITION YEAR SALARY COMPENSATION($)(1)
--------------------------- ---- ------- ------------------

George Liszicasz...................... 1997 $76,250 $ --
Chief Executive Officer 1996 47,536(/2/) 9,000(/3/)
and Director 1995 -- 18,000(/3/)
R. Dirk Stinson....................... 1997 76,250 --
President and Director 1996 47,536(/4/) 9,000(/5/)
1995 -- 18,000(/5/)
Terrence J. Dunne..................... 1997 -- --
Secretary, Treasurer 1996 -- 50,000(/7/)
and Director(6) 1995 -- 2,273(/8/)

- --------
(1) None of the Named Executive Officers listed received perquisites or other
personal benefits that exceeded the lesser of $50,000 or 10% of the salary
and bonus for such officer.

(2) George Liszicasz received Cdn. $65,034 from the Company as salary for the
period March 1, 1996 to December 31, 1996.

(3) George Liszicasz received $27,000 from Pinnacle Oil as consulting fees for
the period September 1, 1995 to February 29, 1996, pursuant to a
Promissory Note with the subsidiary. (See "Item 7--Certain Relationships
and Related Transactions").

(4) Dirk Stinson received Cdn. $65,034 from the Company as salary for the
period March 1, 1996 to December 31, 1996.

(5) Dirk Stinson received $27,000 from Pinnacle Oil as consulting fees for the
period September 1, 1995 to February 29, 1996, pursuant to a Promissory
Note with the subsidiary. (See "Item 7--Certain Relationships and Related
Transactions").

(6) Mr. Dunne resigned his positions on July 16, 1998, and was replaced by Mr.
Woodbury as Secretary and interim Chief Financial Officer.

(7) Mr. Dunne received 20,000 shares of Company Common Stock on July 1, 1997
as compensation for services rendered under a Consulting Agreement dated
September 15, 1996.

(8) Mr. Dunne received 75,000 shares of common stock of Auric Mining
Corporation on September 1, 1995. Auric Mining Corporation was the
Company's predecessor.

The aggregate amount of compensation paid by the Company during the last
fiscal year to all directors and Named Executive Officers as a group was
$152,640.

EMPLOYMENT CONTRACTS AND "CHANGE IN CONTROL" ARRANGEMENTS

In April, 1997, the Company entered into employment agreements with each of
Messrs. Liszicasz and Stinson. The economic terms of the employment agreements
are substantially identical, although Mr. Liszicasz serves as Chief Executive
Officer and Mr. Stinson serves as President of the Company. Under the
agreements, Messrs. Liszicasz and Stinson perform responsibilities for the
Company and its subsidiaries, as determined by the Company's Board of
Directors.

Under their employment agreements, each of Messrs. Liszicasz and Stinson will
receive (i) a 1998 base salary of US $10,000 per month, subject to annual
increases of 5%; (ii) an annual bonus equal to 5% of the "net income" of the
Company (as defined in the agreements); and (iii) an annual performance bonus,
in the sole discretion of the Board of Directors. In addition to the noted
compensation, the employment agreements provide that each of Messrs. Liszicasz
and Stinson will receive certain perquisites, including but not limited to an
automobile allowance, cellular telephone, relocation allowance, expense
reimbursements, vacation and health insurance.

The initial term of each employment agreement will expire on December 3, 2002,
subject to earlier termination in accordance with the terms of the agreements.
After the initial term, each of the employment agreements will renew
automatically for successive one year terms, unless (A) either party elects by
a written, 60-day notice not to renew; or (B) the agreement is terminated
earlier in accordance with its terms.

In July, 1998, the Company entered into an employment agreement with Mr. John
M. Woodbury, Jr., in his capacity as Treasurer and Secretary of the Company.
Under his employment agreement, Mr. Woodbury will receive (i) a base salary of
Cdn. $16,667 per month, subject to annual increases of 5% commencing July
1999, and (ii) an annual performance bonus, in the sole discretion of the
Board of Directors. The employment agreement also provided for certain
perquisites, such as expense reimbursements, vacation and health insurance.

Mr. Woodbury's employment agreement also makes provision for a loan to finance
10% of the purchase price of a residence in Calgary, with such loan to be
repaid in five years, and with interest thereon to be repaid periodically in
the interim at a fixed rate of interest to be determined. Payment of the loan
would be accelerated to ninety days should the Company terminate Mr. Woodbury
for "Cause" (as such term is defined below) or should Mr. Woodbury terminate
his employment without "Good Reason" (as such term is defined below).

The initial term of Mr. Woodbury's employment will expire on July 8, 2000,
subject to earlier termination in accordance with the terms of the agreement.
After the initial term, the agreement will renew automatically for successive
one year terms, unless (i) either party elects by a written, 60-day notice not
to renew; or (ii) the agreement is terminated earlier in accordance with its
terms.

The Company also agreed to grant to Mr. Woodbury in connection with his
prospective employment, incentive options under the 1997 Pinnacle Oil
International, Inc. Stock Plan to purchase 70,000 shares of Common Stock.

The exercise price for these options was subsequently fixed at $8.25 per
share, which price was equal to the trading price of the Common Stock on the
date of approval of the grant by the Compensation Committee. These options
vest 10,000 shares upon the first and second anniversary dates, respectively,
of the commencement of Mr. Woodbury's employment (July 9, 1998), and 16,667,
16,666 and 16,667 shares upon the third through fifth anniversary dates,
respectively. All of the options lapse five years following the date of
vesting.

Each of the employment agreements for Messrs. Liszicasz, Stinson and Woodbury
provides for early termination in the case of (i) death or disability; (ii) a
"Change in Control" of the Company (as defined in the agreements); (iii)
termination by the Company for "Cause" (as defined in the agreements); and
(iv) termination by the Executive for "Good Reason" (as defined in the
agreements). In general, where a termination is for death, disability, "Cause"
or by the Executive without "Good Reason," the Executive's compensation
allowances and benefits will accrue only through the effective date of the
termination. However, and again in general, where a termination is due to a
"Change in Control," without "Cause," or by the Executive for "Good Reason,"
the employment agreements provide that the Company will pay compensation and
certain allowances and benefits to the Executive through the end of the then
applicable term.

Under the employment agreements a "Change in Control" means (i) an acquisition
whereby immediately after such acquisition, a person holds beneficial
ownership of more than 50% of the total combined voting power of the Company's
then outstanding voting securities; (ii) if in any period of three consecutive
years after the date of the employment agreements, the then incumbent board,
ceases to constitute a majority of the Board for reasons other than voluntary
resignation, refusal by one or more Board members to stand for election, or
removal of one or more Board member for good cause; or (iii) the Board of
Directors or the stockholders of the Company approve (A) a merger,
consolidation or reorganization; (B) a complete liquidation or dissolution of
the Company; or (C) the agreement for the sale or other disposition of all or
substantially all of the assets of the Company (a "Sale").

As noted above, if termination is attributable to a Change in Control, the
employment agreements provide that the Company will pay compensation and
certain allowances and benefits through the end of the then applicable term.
In addition, in the case of Messrs. Liszicasz and Stinson, if both (i) the
termination is directly or indirectly attributable to a Sale, and (ii) the
Sale is approved by a "disinterested" majority of the Board of Directors (as
defined in the Nevada Revised Statutes), then the Company will pay to each
such executive 2% of the total consideration received by the Company in
connection with the Sale.

The foregoing summaries are intended as general descriptions of the terms of
the employment agreements, and are limited in their entirety by the actual
language of the employment agreements, which are included as Exhibits to this
Registration Statement.

For the fiscal year 1997, Messrs. Liszicasz, Pollet, Stinson and Dunne
comprised the Board of Directors. Although Mr. Liszicasz and Mr. Stinson were
present during deliberations concerning their executive officer compensation,
they abstained from voting thereon, and Mr. Dunne approved the executive
compensation paid to each of Mr. Liszicasz and Mr. Stinson.

DIRECTORS' COMPENSATION

During the fiscal year ended December 31, 1997, none of the Company's
directors received monetary compensation for their services as directors.
However, during the same fiscal year, a disinterested majority of the Board of
Directors granted: (i) 45,000 options to buy shares of Common Stock at an
exercise price of $5.81 per share, to Mr. Andrew Pollet, a director of the
Company at such time; and (ii) 30,000 of such options at the same exercise
price to Mr. Clive Boulton, a director of Pinnacle Oil Canada Inc. Each of
Messrs. Liszicasz and Stinson (each a director of the Company) were granted
45,000 options to buy shares of Common Stock at an exercise price of $5.25 in
fiscal year 1997. On March 10, 1998, Mr. Lorne Carson, a director of the
Company, was granted 45,000 options to buy shares of Common Stock at an
exercise price of $8.31 per share.

All of the options granted to directors in 1997 and 1998 were (i) at an
exercise price equal to the trading price of the Common Stock on the date of
grant; and (ii) subject to vesting conditions, under which one-third of the
granted options vested on the date of grant, and one-third of the granted
options will vest on each of the first anniversary and the second anniversary
of the date of grant. All of the options lapse five years following the date
of vesting.

1997 PINNACLE OIL INTERNATIONAL, INC. STOCK PLAN

In June of 1997, the Board of Directors adopted the 1997 Pinnacle Oil
International, Inc. Stock Plan (the "1997 Stock Plan"). The 1997 Stock Plan
permits the Company to issue up to 1,000,000 shares of its Common Stock to
directors, officers, employees and consultants as stock awards or as stock
options.

The 1997 Stock Plan is administered by the Board of Directors of the Company
or, at the Board's discretion, the Compensation Committee of the Board or any
other committee selected by the Board, or the Chief Executive Officer of the
Company or his or her designee. Options granted under the 1997 Stock Plan may
be either non-qualified or incentive stock options; cannot have an exercise
price of less than 85% of the fair market value of the Common Stock as of the
date of grant (and not less than 100% of fair market value in the case of
incentive stock options); and may not have a term which exceeds ten years from
date of grant. Certain additional restrictions apply in the case of grants of
incentive stock options to persons who are 10% stockholders of the Company.
Options granted under the 1997 Stock Plan are generally not transferable, may
be subject to vesting conditions as selected by the Board of Directors, and
also may be subject to certain repurchase rights in favor of the Company, all
as governed by applicable securities laws. An optionee must generally pay
consideration for the exercise of the option in cash. However, the Company may
permit the optionee to pay consideration for shares in Common Stock and/or
other property, including a promissory note.

As of the date of this Registration Statement, the Company has granted
incentive options under the 1997 Stock Plan to purchase 230,000 shares of
Common Stock, none of which are vested. The exercise price for the noted
options were fixed at or above the fair market value on the date of the grant,
as determined by the Board.

ITEM 7. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS

During the last three fiscal years, and through the date of this Registration
Statement, the Company and its subsidiaries have entered into several
transactions with directors, executive officers and security holders
identified in "Item 4--Security Ownership of Certain Beneficial Owners and
Management."

In September of 1995, Messrs. Liszicasz and Stinson entered into a partnership
agreement relating to the ownership and use of the Stress Field Detector and
the SFD Technology for hydrocarbon exploration (the "Liszicasz-Stinson
Agreement") wherein, among other things, they agreed: (i) that the Stress
Field Detector and the SFD Technology would be owned by Mr. Liszicasz for a
period and, upon the occurrence of certain events, would subsequently be owned
and exploited by a corporation to be formed (later named "Momentum Resources
Corporation") which would be owned jointly by Messrs. Liszicasz and Stinson;
(ii) that Mr. Liszicasz, and eventually Momentum, would provide raw SFD data
to third parties in return for the payment of a fee; and (iii) that such third
parties would include the Company, which would be organized for the specific
business purpose of identifying and commercially exploiting petroleum and
natural gas deposits, and which would be managed, and owned in part, by
Messrs. Liszicasz and Stinson.

In satisfaction of the terms of the Liszicasz-Stinson Agreement, Mr. Liszicasz
entered into an agreement with the Pinnacle Oil on January 1, 1996 (the
"Original Technology Agreement"), in which Mr. Liszicasz agreed that from the
date of the Original Technology Agreement through the period ended December
31, 2000, Mr. Liszicasz would survey selected properties using the Stress
Field Detector and the SFD Technology, and provide raw SFD data generated from
such activities to Pinnacle Oil for its exclusive use, to identify petroleum
and natural gas deposits on such properties, and to commercially exploit such
prospects.

On June 18, 1996, Messrs. Liszicasz and Stinson, on one hand, and Momentum, on
the other hand, entered into an agreement (the "Momentum Transfer Agreement").
The Momentum Transfer Agreement transferred the legal and beneficial ownership
in the SFD Technology from Messrs. Liszicasz and Stinson and from their
partnership, to Momentum. Momentum is a Bahamas corporation whose beneficial
owners are Messrs. Liszicasz and Stinson.

On August 1, 1996, the Company, Pinnacle Oil, Momentum, Mr. Liszicasz and Mr.
Stinson entered into a Restated Technology Agreement (the "License"), which
reflected and restated the relationships and rights of the parities to the
Liszicasz-Stinson Agreement, the Original Technology Agreement and the
Momentum Transfer Agreement. Under the License, Momentum, as the owner of the
SFD Technology, granted to the Company exclusive use of the SFD Technology for
the identification of hydrocarbons, through Momentum's agreement to survey
designated areas with the SFD Technology, and to provide the information and
analyses generated (the "SFD Data"), exclusively to the Company. The initial
term of the License is ten years, with automatic renewals for one year periods
absent either (i) an election by the Company to terminate the License, or (ii)
a termination by Momentum based upon a default by the Company, or certain
other events, including a "Change in Control" of the Company (as defined in
the License). During the term of the License, Momentum is prohibited from
engaging in the identification and/or exploitation of hydrocarbons, and from
granting to any third party any license or sublicense of the SFD Technology,
the Stress Field Detector or the SFD Data for the identification and/or
exploitation of hydrocarbons.

In addition to the noted payments, commencing on January 1, 2001 the License
provides that the Company shall grant Momentum certain "Performance Options"
(as defined in the License). In general, for each month in which the
Prospects' production exceeds twenty thousand (20,000) barrels of
hydrocarbons, Momentum shall be granted Performance Options to purchase
16,000 shares of the Company's Common Stock, subject to certain limitations.
The exercise price for the Performance Options will be the "fair market value"
of the Company's Common Stock on the last business day of the quarter of the
calculation. Under the License, "fair market value" is determined by reference
to the closing price, last reported price, or mean price for the shares,
depending on where the Common Stock is then trading.

For a detailed description of the terms of the License, see "Item 1--
Description of Business--Momentum License Agreement."

On October 21, 1995 each of Messrs. Liszicasz and Stinson entered into a
promissory note with Pinnacle Oil under which Pinnacle Oil promised to pay
each of Messrs. Liszicasz and Stinson US $4,500 per month for consulting
services performed between September 1, 1995 and April 30, 1996. The notes
were payable by Pinnacle Oil on or before March 1, 1996. Total compensation
paid to each of Messrs. Liszicasz and Stinson under the promissory notes was
US $18,000 in 1995, and US $9,000 in 1996.

In a separate promissory note dated as of October 21, 1995, Mr. Liszicasz
loaned Pinnacle Oil US $100,000 for working capital advances to the Company.
The note did not provide for any interest, and was payable on or before March
1, 1996.

On January 31, 1997, each of Messrs. Liszicasz and Stinson loaned the Company
US $500,000, pursuant to the terms of unsecured convertible promissory notes
(the "Convertible Notes"). In accordance with the terms of the

Convertible Notes, the Company elected to exercise a conversion of the
indebtedness thereunder at a conversion rate of one share of Common Stock for
each $2.72 of indebtedness. As a result, each of Messrs. Liszicasz and Stinson
received 205,882 shares of Common Stock in full satisfaction of his
Convertible Note.

In April of 1998, concurrently and in connection with the Company entering
into a Joint Exploration and Development Agreement with CamWest, the Company
sold to CamWest's affiliate, SFD Investment LLC, 800,000 shares of the
Company's Series A Preferred Stock and 200,000 warrants to purchase the
Company's Common Stock. For a more detailed description of these transactions
see "Item 1--Description of Business--CamWest Joint Exploration Agreement" and
"Item 10--Recent Sales of Unregistered Securities." Company management
believes that the terms and conditions of the CamWest Agreement are at least
as favorable to the Company as comparable provisions in its joint venture
agreements with unrelated third parties.

Mr. Lorne Carson, a director of the Company, is a member of a law firm which
rendered legal services to the Company during fiscal year 1997 (Bennett Jones
Verchere). Legal fees paid by the Company to Bennett Jones Verchere did not
exceed 5% of such firm's gross revenues.

ITEM 8. LEGAL PROCEEDINGS

As of the date of this Registration Statement, there are no material pending
legal proceedings or, to the knowledge of the Company, contemplated or
threatened legal proceedings, to which the Company or its subsidiaries are or
may become a party, or with respect to properties of the Company or of its
subsidiaries. As of the date of this Registration Statement, there are, to the
knowledge of the Company, no material proceedings to which any director,
officer of affiliate of the Company is a party adverse to the Company or its
subsidiaries or has a material interest adverse to the Company or its
subsidiary.

ITEM 9. MARKET PRICE OF AND DIVIDENDS ON THE REGISTRANT'S COMMON EQUITY AND
RELATED STOCKHOLDER MATTERS

The Common Stock of the Company is listed on the NASD Bulletin Board, under
the trading symbol "PSFD."

The following table lists, by calendar quarter, the volume of trading, and the
high and low sales prices on the NASD Bulletin Board for the Company's Common
Stock for the most recent fiscal quarters and the two most recent fiscal
years.

PERIOD VOLUME HIGH LOW
------ ------ ---- ---

1998:
Second Quarter.................................. 2,236,472 $15.250 $9.125
First Quarter................................... 4,770,148 $14.375 $7.375
1997:
Fourth Quarter.................................. 4,667,954 $13.250 $6.500
Third Quarter................................... 4,155,507 $15.000 $7.688
Second Quarter.................................. 3,155,612 $ 9.375 $4.375
First Quarter................................... 3,896,838 $ 7.438 $3.813
1996:
Fourth Quarter.................................. 3,822,467 $ 4.938 $2.375
Third Quarter................................... 3,351,135 $ 2.375 $0.344
Second Quarter.................................. 1,839,843 $ 3.125 $1.250
First Quarter................................... 313,348 $ 2.625 $1.250

The closing price for the Company's Common Stock as of August 25, 1998 was
$8.75.

As of August 25, 1998, there were options and/or warrants outstanding to
purchase 640,000 shares of Common Stock, including 210,000 non-qualified
options granted to directors, 230,000 incentive options granted to

employees, and 200,000 warrants granted to investors (see "Item 5--Executive
Compensation" and "Item 10--Recent Sales of Unregistered Securities"). As of
the date of this Registration Statement, the Company has granted only limited
registration rights to holders of the Preferred Stock (see "Item 10--Recent
Sales of Unregistered Securities").

On August 25, 1998, the shareholders' list provided by Jersey Transfer and
Trust Company for the Company's Common Stock showed 50 registered shareholders
and 12,426,983 shares outstanding. The Company estimates, based upon
information provided by Jersey Transfer and Trust Company, that there are
approximately 1,350 beneficial holders of the Company's Common Stock.

The Company also has outstanding 800,000 shares of Series A convertible
preferred stock, for which no trading market presently exists. For a more
detailed description of these securities see "Item 11--Description of
Registrants Securities to be Registered."

DIVIDEND POLICY

The Company has not declared or paid any cash dividends on its Common Stock
since its formation, and does not presently anticipate paying any cash
dividends on its Common Stock in the foreseeable future. The Company currently
intends to retain any future earnings to finance the expansion development of
its business. The future payment of cash dividends on the Common Stock will be
within the sole discretion of the Company's Board of Directors and will depend
on the earnings, capital requirements and financial position of the Company,
applicable requirements of the Nevada corporate law, general economic
conditions and other factors considered relevant by the Company's Board of
Directors.

ITEM 10. RECENT SALES OF UNREGISTERED SECURITIES

During the three fiscal years preceding the date of this Registration
Statement, the Company issued Common Shares in several transactions which were
not registered under the Securities Act.

In March 1995, pursuant to a Plan of Reorganization with Fiero, the Company
(while Auric) agreed to issue 3,833,357 shares of Common Stock, with an
aggregate value of $32,698 or $0.0084 per share, to the shareholders of Fiero
in exchange for all of their shares of common stock of Fiero. (See Item 1--
Description of Business--Development of the Company"). The exchange of
securities was made pursuant to Sections 3(b) and 4(2) of the Securities Act
and Regulation D promulgated thereunder.

In 1995, the Company (while Auric) agreed to issue (i) 2,948,000 shares of
Common Stock, with an aggregate value of $32,698 or $0.0043 per share, as
consideration for services; (ii) 660,000 shares, with an aggregate value of
$12,799 or $0.0043 per share, as loan consideration; and (iii) 350,000 shares
of Common Stock, with an aggregate value of $1,516 or $0.0043 per share, as a
land payment. The issuance of securities was made pursuant to Sections 3(b)
and 4(2) of the Securities Act and Regulation D promulgated thereunder.

Each of the issuances noted above were made before the 6:1 reverse stock split
effectuated January 21, 1996.

In January of 1996 the Company entered a Plan of Reorganization under which
shareholders of the Company (then Auric) acquired all of the shares and assets
of Pinnacle Oil in exchange for 10,090,675 shares of the Company's Common
Stock. The 10,090,675 shares of the Company represented 92% of the outstanding
shares of the Company. The 10,090,675 shares were valued at $.001 per share or
$10,091 in the aggregate, and were later subject to a 6-1 reverse stock split.
(See "Item 2--Management's Discussion and Analysis of Financial Condition and
Results of Operations" above). The exchange of the securities was made
pursuant to Section 4(2) of the Securities Act and Regulation D promulgated
thereunder.

In February of 1996 the Company conducted a private placement of 975,000
shares of its Common Stock at a price of US $1.00 per share. As a result of
the private placement, the Company raised $975,000 to be used for working
capital, development of the SFD Technology and survey work. Sales of these
securities were made pursuant to Section 4(2) of the Securities Act and
Regulation D promulgated thereunder.

Between March and December of 1996, the Company agreed to issue 71,938 shares
of the Company's Common Stock in ten separate private transactions to
consultants of the Company, in exchange for various services rendered by such
consultants pursuant to Section 3(b) of the Securities Act and Rule 701
promulgated thereunder.

In February of 1998, the Company issued 511,764 shares of Common Stock to
Messrs. George Liszicasz and Dirk Stinson in satisfaction of $1,000,000 in
convertible promissory notes and $120,000 in accrued interest. The conversion
rate was $2.72 of indebtedness per share in accordance with the terms of the
notes. The issuance of these shares was made pursuant to Section 4(2) of the
Securities Act. For a more detailed description of this transaction see "Item
7--Certain Relationships and Related Transactions."

In April of 1998 the Company completed a private placement of its securities
(the "Placement") with SFD Investment LLC, an Arkansas limited liability
company (the "Investor"). The Placement included the issuance of 800,000
shares of Series A Preferred Stock, and the issuance of 200,000 warrants to
purchase Common Stock of the Company, in consideration of US $6,000,000
received by the Company.

The Placement was made in accordance with the requirements of Rules 506 and
509 of Regulation D, as promulgated by the Commission under Section 4(2) of
the Securities Act. The Placement was closed on April 3, 1998, through the
execution and delivery of certain documents, including a Certificate of
Amendment to the Articles of Incorporation of the Company (as amended, the
"Articles"); a Warrant Agreement and Certificate (the "Warrant Agreement");
and a Registration and Participation Rights Agreement (the "Rights
Agreement"). Although certain provisions of the noted agreements are
summarized below, such summaries are limited in their entirety by reference to
the actual agreements, copies of which are included as Exhibits to this
Registration Statement.

The Articles provide that the Board may issue up to 800,000 shares of
convertible preferred stock, par value $0.001 (the "Preferred Shares"). All of
the authorized Preferred Shares were issued to the Investor in the Placement.
Each Preferred Share (i) is convertible into one share of the Company's Common
Stock; (ii) subject to the holder's conversion rights, may be redeemed by the
Company at $7.50 per share commencing two years following the date of
issuance; and (iii) has a $7.50 liquidation preference. The Preferred Shares
do not have a dividend preference, although such shares, under certain
circumstances, participate in dividends on the same basis as if they had been
converted into Common Stock. Subject to certain conditions, the Articles
provide that the Preferred Shares (i) may elect one-sixth of the Company's
Board of Directors; and (ii) must consent by a majority vote of the class to
certain material corporate events (See "Item 11--Description of Securities to
Be Registered" below).

The Warrant Agreement grants to the Investor the right to purchase 200,000
shares of the Company's Common Stock (the "Warrants"), at an exercise price of
$7.50 per share (subject to certain adjustments), from the date of issuance of
the Warrants until two years after such date.

The Rights Agreement provides that the Investor may, under certain conditions,
demand that the Company effect the registration of "Registrable Securities"
(generally defined in the Rights Agreement as Common Stock of the Company
issuable upon conversion of the Preferred Shares or exercise of the Warrants).
The noted demand registration rights are subject to certain conditions,
including but not limited to: (i) the demand registration rights do not arise
until one year after the original issuance of the Preferred Shares and the
Warrants; (ii) at the time of the demand, the Investor must own at least 1% of
the outstanding shares of Common Stock of the Company; (iii) the demand
registration must include at least one-half of the Registrable Securities; and
(iv) the Company shall not be required to effect more than two registrations
pursuant to the demand registration rights.

The Rights Agreement also provides certain "piggyback" registration rights to
the Investor at any time the Company proposes to register any of its
securities under the Securities Act. The noted "piggyback" registration rights
provide that the Company will use its best efforts to include all of the
Registrable Securities in the prospective offering, subject to requirements of
the underwriter, and to the Investor's compliance with certain terms imposed
by the underwriter (including but not limited to the execution and delivery of
any required

underwriting or "lock-up" agreements). The Rights Agreement provides, with
respect to both the demand and the "piggyback" registration rights, that
underwriting discounts and commissions will be borne by the Company and the
Investor pro rata based on number of shares, and that the remainder of
registration expenses (including registration, printing, blue sky and
accounting fees and expenses) will be borne by the Company.

In addition, the Rights Agreement provides to the Investor certain preemptive
rights with respect to any prospective private offering by the Company (the
"Participation Rights"). The Participation Rights grant to the Investor the
right to purchase a portion of the prospective offering in the same ratio as
the number of shares of Common Stock then held by the Investor bears to the
number of shares of the Company's Common Stock then outstanding, on terms and
conditions fixed by the Board of the Company. The noted Participation Rights
expire on the earlier of (i) the second anniversary of the date of issuance of
the Preferred Shares and the Warrants; or (ii) the date on which all of the
Preferred Shares have been redeemed or converted in full.

Simultaneously and in connection with the closing of the Placement, the
Company entered into the CamWest Agreement with CamWest (See "Item 1--
Description of Business--CamWest Joint Exploration Agreement").
Stephens Group, Inc. is an affiliate of CamWest, and is also an affiliate of
the limited liability company which is the Investor. Company management
believes that the terms and conditions of the CamWest Agreement are at least
as favorable to the Company as comparable provisions in its joint venture
agreements with unrelated third parties.

ITEM 11. DESCRIPTION OF REGISTRANT'S SECURITIES TO BE REGISTERED

GENERAL

The Company was incorporated as "Auric Mining Corporation" in the State of
Nevada, pursuant to Articles of Incorporation filed on September 27, 1994, and
amended in April of 1998 (as amended, the "Articles"). The authorized capital
stock of the Company consists of 50,000,000 shares of Common Stock, par value
$0.001 per share, and 800,000 shares of Series A Preferred Stock, which is
convertible into Common Stock, par value $0.001 per share ("Preferred Stock").
At the close of business on August 25, 1998, the Company had outstanding
12,426,983 shares of Common Stock and 800,000 shares of Preferred Stock all of
which are fully paid and nonassessable.

Information concerning the Common Stock, which class of securities is being
registered pursuant to this Registration Statement, and information concerning
the Preferred Stock, which class of securities is not being registered
pursuant to this Registration Statement, is set forth below.

COMMON STOCK

Each holder of Common Stock is entitled to one vote for each share owned of
record on matters voted upon by stockholders. Under the Nevada Revised
Statutes Chapter 78 (the "Nevada Code") a majority vote is required for all
action to be taken by stockholders, except that, subject to certain limited
exceptions, any director may be removed from office by the vote of
stockholders representing not less than two-thirds of the voting power of the
issued and outstanding Common Stock. In the event of a liquidation,
dissolution or winding-up of the Company, the holders of Common Stock are
entitled to share equally and ratably in the assets of the Company, if any,
remaining after the payment of all debts and liabilities of the Company, and
payment of the liquidation preference of any outstanding preferred stock. The
Common Stock has no preemptive rights, no cumulative voting rights and no
redemption, sinking fund or conversion provisions.

Holders of Common Stock are entitled to receive dividends if, as, and when
declared by the Board of Directors out of funds legally available therefor,
subject to the dividend and liquidation rights of any preferred stock that may
be issued, and subject to any dividend restrictions that may be contained in
future credit facilities. Under Nevada law, no dividend or other distribution
(including redemptions or repurchases of shares of capital stock) may be made
if, after giving effect to such distribution, the Company would not be able to
pay its debts as they

become due in the usual course of business, or the Company's total assets
would be less than the sum of its total liabilities plus the amount that would
be needed, if the Company were to be dissolved at the time of distribution, to
satisfy the preferential rights upon dissolution of stockholders whose
preferential rights are superior to those receiving the distribution. The
Company does not currently intend to pay dividends on shares of Common Stock.
(See "Item 9--Market Price of and Dividends on the Registrant's Common
Equity--Dividend Policy" above).

The Nevada Code contains provisions restricting the ability of a Nevada
corporation to engage in business combinations with an interested stockholder.
Under the Nevada Code, except under certain circumstances, business
combinations with interested stockholders are not permitted for a period of
three years following the date such stockholder becomes an interested
stockholder. Generally, the Nevada Code defines an interested stockholder as a
person who is the beneficial owner, directly or indirectly, of 10% of the
outstanding shares of a Nevada corporation. In addition, the Nevada Code
generally disallows the exercise of voting rights with respect to "control
shares" of an "issuing corporation" held by an "acquiring person," unless such
voting rights are conferred by a majority vote of the disinterested
stockholders. "Control shares" are those outstanding voting shares of an
issuing corporation which an acquiring person, and those persons acting in
association with an acquiring person, (i) acquire or offer to acquire in the
acquisition of a controlling interest, and (ii) acquire within 90 days
immediately preceding the date when the acquiring person became an acquiring
person. An "issuing corporation" is a corporation organized in Nevada which
has two hundred or more stockholders, at least one hundred of whom are
stockholders of record and residents of Nevada, and which does business in
Nevada directly or through an affiliated corporation. The Nevada Code also
permits directors to resist a change or potential change in control of the
corporation if the directors determine that the change or potential change is
opposed to or not in the best interest of the corporation. As a result, the
Company's Board of Directors may have considerable discretion in considering
and responding to unsolicited offers to purchase a controlling interest in the
Company.

The Common Stock is traded on the NASD bulletin board under the symbol "PSFD".
The transfer agent and registrar for the Common Stock is Jersey Transfer and
Trust Co.

PREFERRED STOCK

In April of 1998, the Board of Directors and shareholders of the Company
approved an amendment to the Articles of Incorporation (as amended, the
"Articles") of the Company providing for a new class of shares denominated
"Series A Preferred Stock."

Under the Articles, the Company is authorized to issue up to 800,000 shares of
Preferred Stock. Holders of the Preferred Stock are not entitled to vote
except that they may elect members to the Board of Directors equal to one-
sixth of all directors of the Company (or such minimum whole number in excess
of one-sixth in the event the number of directors on the Board is not a
multiple of six) provided that in the event the number of shares of Preferred
Stock then outstanding is less than 400,000 shares, such right shall be
eliminated.

The Articles provide that certain actions may not be taken without the
affirmative vote or consent of a majority of the then outstanding Preferred
Shares. The Company may not, without such consent:

1. Change, amend, or repeal any of the provisions of the Articles applicable
to the Preferred Stock which would adversely affect the rights, preferences,
privileges, and restrictions of the Preferred Stock;

2. Increase or decrease the presently authorized number of shares of
Preferred Stock;

3. Effect an exchange, reclassification, or cancellation of all or part of
the Preferred Stock or effect an exchange, or create a right of exchange, of
all or part of the shares of any other class into the Preferred Stock;

4. Create any new class of shares (or any security convertible into such
shares) ranking on a parity with or having rights, preferences, or privileges,
as to assets, senior to the Preferred Stock;

5. Create any new class of shares (or any security convertible into such
shares) ranking on a parity with or having rights, preferences, or privileges,
as to assets, junior to the Preferred Stock but senior to the Common Stock;

6. Declare, pay or make a distribution with respect to any shares of the
capital stock of the Company ranking junior to the Preferred Stock upon
liquidation or distribution (except in shares of, or warrants or rights to
subscribe for or purchase shares of the Company which are junior to the
Preferred Stock as to assets), if after giving effect to that distribution
there is an accrued but unpaid "Series A Liquidation Preference" (as defined
in the Articles);

7. Merge or consolidate the Company (other than a short-form merger which
does not require the vote of the stockholders of the Company) with or into
another corporation or corporations;

8. Sell or convey all or substantially all of the assets or business of the
Company, except to a wholly owned subsidiary;

9. Dissolve, liquidate or wind-up the Company; or

10. Make an assignment for the benefit of creditors, or file a petition
under any federal, state or provincial bankruptcy law or statute, which
petition is not vacated within ninety (90) days.

Dividends are payable on the Preferred Stock as and when declared by the
Board. The Articles provide that in the event of a voluntary or involuntary
liquidation, dissolution, or winding up of the Company, the holders of
Preferred Stock will be entitled to receive, out of the assets of the Company,
whether those assets are capital or surplus of any nature, an amount equal to
$7.50 per share of Preferred Stock, before any payment will be made or any
assets distributed to the holders of Common Stock or any other junior equity
security.

The Articles provide further that each share of the Preferred Stock is
convertible into Common Stock at the option of the holder of the Preferred
Stock, at any time, at $7.50 divided by the "Conversion Price" (as defined in
the Articles). The Articles provide that the initial Conversion Price will be
$7.50, subject to adjustment in the event the Company issues additional Common
Stock. Generally, the Conversion Price will be adjusted and reduced in
proportion to (i) the number of shares of Common Stock issued after the
initial issuance of Preferred Stock; and (ii) the consideration received by
the Company for such Common Stock (subject to certain exceptions described in
the Articles).

The Company may redeem the Preferred Stock (subject to the noted conversion
rights): (i) two years after the initial issuance of the Preferred Stock; (ii)
in the event the holders of the Preferred Stock vote not to approve certain
transactions as described in the Articles (provided that only shares which did
not vote in favor of the transaction may be redeemed); or (iii) in the event
an initial holder of Preferred Stock sells, assigns or otherwise transfers any
interest in the Preferred Stock, the Company may redeem any or all of the
Preferred Stock sold, assigned or transferred. If the Company elects to redeem
shares of Preferred Stock, it must pay $7.50 for each redeemed share.

ITEM 12. INDEMNIFICATION OF DIRECTORS AND OFFICERS

The Company's Bylaws provide that the Company will indemnify officers and
directors to the fullest extent permitted under applicable Nevada statutes and
caselaw. In accordance with such provisions and appropriate resolutions of the
Company's Board of Directors, the Company has entered into an Indemnity
Agreement with each of its officers and directors. A summary of the
circumstances in which such indemnification is provided is set forth below,
but that description is qualified in its entirety by reference to the Bylaws,
Nevada law and the applicable Indemnity Agreements included as exhibits to
this Registration Statement.

In accordance with the Bylaws, the Indemnity Agreements and Nevada Revised
Statutes 78.7502 and 78.751, the Company has agreed to indemnify officers and
directors as follows:

1. The Company has agreed to indemnify each officer and director for all
actions in his official capacity, or in another capacity while holding office,
except for instances where a final adjudication establishes that his acts or
omissions involved intentional misconduct, fraud or a knowing violation of the
law.

2. In addition, the Company has agreed to indemnify any officer or director
against expenses, including attorneys' fees, fines, settlements or judgments,
which were actually and reasonably incurred by such person in connection with
a threatened, pending or completed action, suit or proceeding, other than one
brought by or on the behalf of the Company, if (i) he actually was or was
threatened to be made a party by reason of the fact that he is or was an
officer or director; (ii) he acted in good faith and in a manner he believed
to be in, or not opposed to, the best interests of the Company; and (iii) with
respect to any criminal action or proceeding, he had no reasonable cause to
believe his conduct was unlawful.

3. If the action or suit is brought by or on behalf of the Company, (i) the
person to be indemnified must have acted in good faith and in a manner he
reasonably believed to be in or not opposed to the Company's best interest;
(ii) criminal penalties, judgments, and fines are not indemnified; and (iii)
no indemnification will be made with respect to any claim, issue or matter as
to which such person shall have been adjudged by a court of competent
jurisdiction, after exhaustion of all appeals, to be liable to the Company;
unless, and only to the extent that, a court of competent jurisdiction
determines upon application that in view of all the circumstances of the case,
the person is fairly and reasonably entitled to indemnity for such expenses.

4. Notwithstanding the provisions of paragraphs 2 and 3, the Company has
agreed to pay expenses, including attorneys' fees, actually and reasonably
incurred by an officer or director in defense of an action, suit or proceeding
covered thereunder, to the extent he has been successful on the merits or
otherwise in defense of such action, suit or proceeding.

5. Any indemnification under paragraphs 2 and 3 above, unless ordered by a
court or advanced as provided in paragraph 6 below, may be made by the Company
only as authorized in the specific case upon a determination that
indemnification of the director or officer is proper in the circumstances. The
determination must be made by: (i) the stockholders; (ii) the Board of
Directors by a majority vote of a quorum consisting of directors who were not
parties to the act, suit or proceeding; (iii) if a majority vote of a quorum
of directors who were not parties to the act, suit or proceeding so orders,
then by independent legal counsel in a written opinion; or (iv) if such a
quorum cannot be obtained, by independent legal counsel in a written opinion.

6. The Company has agreed to pay to an officer or director the expenses of
defending a civil or criminal action, suit or proceeding as they are incurred,
and in advance of the final disposition of the action, suit or proceeding,
upon receipt of an undertaking by the director or officer to repay such
amounts if it is ultimately determined by a court of competent jurisdiction
that he is not entitled to be indemnified by the Company.

The Company has also purchased insurance for its directors and officers for
certain losses arising from claims or charges made against them in their
capacities as directors and officers of the Company.

ITEM 13. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA

See Financial Statements included elsewhere in this Registration Statement.

ITEM 14. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND
FINANCIAL DISCLOSURE

BDO Dunwoody, which audited the financial statements of the Company for the
fiscal period ended December 31, 1995 through December 31, 1996, was dismissed
by the Board of Directors of the Company as the Company's independent auditors
in November and replaced by Deloitte & Touche by the Board of Directors
immediately thereafter. The immediate cause of the dismissal was the lateral
transfer of the individual manager handling the Company's accounts from BDO
Dunwoody to Deloitte & Touche, and the Company's desire that such manager
continue to handle the account of the Company. Such individual manager later
transferred back to BDO Dunwoody, however, the Company decided to continue to
use the services of Deloitte & Touche on the basis of its broader name
recognition in the investment community.

The report of BDO Dunwoody accompanying the audit for the fiscal period ended
December 31, 1996 was not qualified or modified as to audit scope or
accounting principles, and did not contain any adverse opinion or disclaimer
of opinion with the exception of a standard going concern qualification.

During the fiscal periods ended December 31, 1996 and December 31, 1997, and
the subsequent interim period through the date of dismissal, there were no
disagreements between the Company and BDO Dunwoody on any matter of accounting
principles or practices, financial statement disclosure, or auditing scope or
procedure.

During the fiscal period ended December 31, 1996, and the subsequent interim
period through the date of dismissal, there were no reportable events as such
term is defined in Regulation 229.304(a)(1)(v).

During the fiscal period ended December 31, 1996, and the subsequent interim
period through the date of dismissal of BDO Dunwoody, the Company did not
consult with Deloitte & Touche or any other accounting firm regarding the
application of accounting principles to a specified transaction, either
completed or proposed, or the type of opinion that might be rendered regarding
the Company's financial statements, nor did the Company consult with Deloitte
& Touche with respect to any accounting disagreement or any reportable event
at any time prior to the appointment of such firm.

ITEM 15. FINANCIAL STATEMENTS AND EXHIBITS

(a) Financial Statements:

PAGE
----

Report of Independent Auditors (BDO Dunwoody)............................ F-2
Report of Independent Auditors (Deloitte & Touche)....................... F-3
Consolidated Balance Sheets at March 31, 1998, December 31, 1997 and
1996.................................................................... F-4
Consolidated Statements of Loss for the three-month periods ended March
31, 1998 and 1997 and the twelve-month periods ended December 31, 1997,
1996 and 1995........................................................... F-5
Consolidated Statements of Stockholders' Equity (deficit) from inception
(October 20, 1995) through December 31, 1997............................ F-6
Consolidated Statements of Cash Flows for the three-month periods ended
March 31, 1998 and 1997 and the twelve-month periods ended December 31,
1997, 1996 and 1995..................................................... F-7
Notes to Consolidated Financial Statements............................... F-8

(b) Exhibits

2.1* Reorganization Plan dated September 28, 1994 between Mega-Mart, Inc.
and Auric Mining Corporation
2.2* Reorganization Plan dated December 31, 1995 between Auric Mining
Corporation and Fiero Mining Corporation
2.3* Reorganization Plan dated January 20, 1996 between Auric Mining
Corporation and Pinnacle Oil Inc.
3.1* Articles of Incorporation for Auric Mining Corporation
3.2* Amended Bylaws for Pinnacle Oil International, Inc.
3.3* Certificate of Amendment of Articles of Incorporation of Pinnacle Oil
International, Inc.
4.1* Specimen Common Stock certificate
4.2* Specimen Series A Preferred Stock certificate
4.3* Form of Non-Qualified Stock Option Agreement for grants to directors
4.4* Warrant certificate for 200,000 Common Shares issued to SFD Investment
LLC
9.1* Stockholder Agreement dated April 3, 1998 among Pinnacle Oil
International, Inc., R. Dirk Stinson, George Liszicasz and SFD
Investment LLC
10.1* Partnership Agreement of Messrs. Liszicasz and Stinson dated September
1, 1995
10.2* Agreement between Pinnacle Oil Inc. and Mr. Liszicasz dated January 1,
1996
10.3* Momentum Transfer Agreement dated June 18, 1996
10.4* Restated Technology Agreement dated August 1, 1996
10.5* Amendment to Restated Technology Agreement dated April 3, 1998
10.6* Letter Agreement with Encal Energy Ltd. dated December 13, 1996
10.7* Exploration Joint Venture Agreement with Encal Energy Ltd. dated
February 19, 1997
10.8* Exploration Joint Venture Agreement with Encal Energy Ltd. dated
September 15, 1997
10.9* Letter Agreement with Renaissance Energy Ltd. dated April 16, 1997
10.10* SFD Survey Agreement with Renaissance Energy Ltd. dated November 1,
1997
10.11* SFD Survey Agreement with Renaissance Energy Ltd. dated February 1,
1998 (Prospect Lands #1)
10.12* SFD Survey Agreement with Renaissance Energy Ltd. dated February 1,
1998 (Prospect Lands #2)
10.13* Joint Exploration and Development Agreement with CamWest Limited
Partnership dated April 3, 1998
10.14* Canadian Data License Agreement with Pinnacle Oil Canada Inc. dated
April 1, 1997
10.15* American Data License Agreement with Pinnacle Oil Inc. dated April 1,
1997
10.16* Cost Recovery Agreement with Pinnacle Oil Canada Inc. dated April 1,
1997
10.17* Assignment Agreement with Pinnacle Oil Canada Inc. dated September 15,
1997
10.18* Assignment Agreement with Pinnacle Oil Canada Inc. dated April 1, 1997
10.19* Assignment Agreement with Pinnacle Oil Canada Inc. dated November 1,
1997
10.20* Employment Agreement dated April 1, 1997 with Mr. Dirk Stinson
10.21* Employment Agreement dated April 1, 1997 with Mr. George Liszicasz
10.22* Unsecured Convertible Promissory Note ($500,000) in favor of Mr.
Liszicasz
10.23* Unsecured Convertible Promissory Note ($500,000) in favor of Mr.
Stinson
10.24* 1997 Pinnacle Oil International, Inc. Stock Plan

10.25* Promissory Notes of Pinnacle Oil Inc. in favor of Messrs. Liszicasz and
Stinson dated October 21, 1995
10.26* Registration and Participation Rights Agreement dated April 3, 1998
between Pinnacle Oil International, Inc. and SFD Investment LLC
10.27* Form of Indemnification Agreement between Pinnacle Oil International,
Inc. and each Director
10.28* Lease Agreement between Phoenix Place Ltd. and Pinnacle Oil
International, Inc. dated November 25, 1997
10.29 Employment Agreement dated July 9, 1998 with John M. Woodbury, Jr.
16* Letter from BDO Dunwoody
18* Consent letter from Gilbert, Lausten and Jung Associates, Ltd.
23.1 Consent of Independent Auditors--Deloitte & Touche
23.2 Consent of Independent Auditors--BDO Dunwoody
99.1* Report captioned "Evaluation of Stress Field Detector Technology--
Implications for Oil and Gas Exploration in Western Canada" dated
September 30, 1996 prepared by Rod Morris, P. geologist, A.P.E.G.G.A.
99.2* Report regarding "Stress Field Detector Technology" dated May 22, 1998
prepared by Encal Energy Ltd.
99.3 Report captioned "SFD Data Summary" dated August 26, 1998 prepared by
CamWest, Inc.
99.4* Report captioned "Pinnacle Oil International Inc.--Stress Field
Detector Documentation of Certain Exploration and Evaluation
Activities" dated February 27, 1998 prepared by Gilbert Laustsen Jung
Associates Ltd.

- --------

* Previously filed by Registrant as part of Registration Statement on Form 10
filed on June 29, 1998 (SEC File No. 0-24027)

SIGNATURES

Pursuant to the requirements of Section 12 of the Securities Act of 1934, the
Registrant certifies that it meets all of the requirements for filing on Form
10 and has duly caused this Amendment No. 1 to Registration Statement to be
signed on its behalf by the undersigned, thereunto authorized.

Dated at Calgary, Alberta Canada this 28th day of August, 1998.

PINNACLE OIL INTERNATIONAL, INC.

/s/ Dirk Stinson
By: _________________________________
R. Dirk Stinson

Consolidated Financial Statements of

PINNACLE OIL INTERNATIONAL, INC.
(A DEVELOPMENT STAGE ENTERPRISE)

F-1

REPORT OF INDEPENDENT AUDITORS

To the Shareholders
Pinnacle Oil International, Inc.
(formerly Auric Mining Corporation)

We have audited the Consolidated Balance Sheets of Pinnacle Oil
International, Inc. (formerly Auric Mining Corporation) (a development stage
enterprise) as at 31 December 1996 and 1995 and the Consolidated Statements of
Loss, Shareholders' Equity (Deficit) and Cash Flow for the year ended 31
December 1996 and the period from 20 October 1995 (inception) to 31 December
1995. We have also audited the Consolidated Statements of Loss, Shareholders'
Equity (Deficit) and Cash Flow for the period from 20 October 1995 (inception)
to 31 December 1996 (cumulative). 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 the United States. 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. We believe that our audits provide a
reasonable basis for our opinion.

In our opinion, these consolidated financial statements present fairly, in
all material respects, the financial position of the Company as at 31 December
1996 and 1995 and the results of its operations and cash flows for the year
ended 31 December 1996, the period from 20 October 1995 (inception) to 31
December 1995 and the period from 20 October 1995 (inception) to 31 December
1996 (cumulative) in accordance with generally accepted accounting principles
in the United States.

The accompanying financial statements have been prepared assuming that the
Company will continue as a going concern. As described in Note 1 to the
financial statements, the Company has incurred recurring losses, has an
accumulated deficit and is a development stage Company which raises
substantial doubt about its ability to continue as a going concern.
Management's plans in regard to these matters are also described in Note 1.
The financial statements do not include any adjustments that might result from
the outcome of this uncertainty.

/s/ BDO Dunwoody

Chartered Accountants
(Internationally BDO Binder)
Vancouver, British Columbia
15 March 1997

F-2

REPORT OF INDEPENDENT AUDITORS

To the Board of Directors and Shareholders of
Pinnacle Oil International, Inc.

We have audited the accompanying consolidated balance sheet of Pinnacle Oil
International, Inc. (a development stage enterprise) as at December 31, 1997
and the related consolidated statements of loss and deficit, shareholders'
equity (deficit) and cash flows for the year ended December 31, 1997. 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 audit.

We conducted our audit in accordance with generally accepted auditing
standards in the United States. Those standards required 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. We believe that our audit provides a
reasonable basis for our opinion.

In our opinion, these consolidated financial statements present fairly, in
all material respects, the financial position of the Company as at December
31, 1997 and the consolidated results of its operations and its cash flows for
the year ended December 31, 1997 in conformity with accounting principles
generally accepted in the United States.

The consolidated financial statements for the period ended December 31, 1995
and the year ended December 31, 1996 were audited by another firm of auditors.
Their audit report dated March 15, 1997 contained no reservations or
qualifications other than the reference to the going concern presumption.

/s/ Deloitte & Touche

Chartered Accountants
Vancouver, British Columbia

April 3, 1998 (except for Note 13, for which the date is August 24, 1998)

F-3

PINNACLE OIL INTERNATIONAL, INC.
(A DEVELOPMENT STAGE ENTERPRISE)

CONSOLIDATED BALANCE SHEETS
(EXPRESSED IN U.S. DOLLARS)

AT DECEMBER 31,
AT MARCH 31 ----------------------
1998 1997 1996
----------- ----------- ---------
(UNAUDITED)

ASSETS
------
CURRENT
Cash.................................... $ 385,180 $ 848,339 $ 519,621
Accounts receivable..................... 139,506 88,104 12,892
Prepaid costs and other................. 31,426 33,514 1,637
----------- ----------- ---------
556,112 969,957 534,150
DEFERRED COSTS (Note 4)................... 139,635 154,287 --
PROPERTY AND EQUIPMENT (Note 5)........... 269,410 55,617 105,358
----------- ----------- ---------
$ 965,157 $ 1,179,861 $ 639,508
=========== =========== =========
LIABILITIES
-----------
CURRENT
Accounts payable........................ $ 322,757 $ 225,645 $ 195,032
Current portion of long-term liability
(Note 6)............................... 43,956 63,492 --
----------- ----------- ---------
366,713 289,137 195,032
PROMISSORY NOTE PAYABLE (Note 7).......... -- 1,110,000 --
LONG-TERM LIABILITY (Note 6).............. 83,028 83,028 --
----------- ----------- ---------
449,741 1,482,165 195,032
----------- ----------- ---------
SHAREHOLDERS' EQUITY (DEFICIT)
------------------------------
Share capital (Note 8).................... 12,427 12,015 11,943
Authorized 50,000,000 common shares with
a par value of $0.001 per share
Issued 12,426,983 common shares (1997--
12,015,219;
1996 --11,943,281)
Additional paid-in capital................ 2,247,864 1,128,276 961,807
Accumulated deficit during the development
stage.................................... (1,744,875) (1,442,595) (529,274)
----------- ----------- ---------
515,416 (302,304) 444,476
----------- ----------- ---------
$ 965,157 $ 1,179,861 $ 639,508
=========== =========== =========

F-4

PINNACLE OIL INTERNATIONAL, INC.
(A DEVELOPMENT STAGE ENTERPRISE)

CONSOLIDATED STATEMENTS OF LOSS
(EXPRESSED IN U.S. DOLLARS)

OCTOBER 20,
OCTOBER 20, 1995
1995 (INCEPTION) TO
THREE MONTHS ENDED MARCH 31 (INCEPTION) TO YEARS ENDED DECEMBER 31, DECEMBER 31,
--------------------------- MARCH 31, 1998 ---------------------------------- 1997
1998 1997 (CUMULATIVE) 1997 1996 1995 (CUMULATIVE)
-------------- ------------- -------------- ---------- ---------- ---------- --------------
(UNAUDITED) (UNAUDITED) (UNAUDITED)

OPERATING EXPENSES
Administrative......... $ 258,345 $ 116,247 $ 1,409,198 $ 742,438 $ 355,391 $ 53,024 $ 1,150,853
Amortization........... 7,612 7,459 58,193 25,474 24,435 672 50,581
Exploration
expenditures, net of
exploration costs
reimbursed by Joint
Venture partners...... 22,678 6,646 244,354 120,666 101,010 -- 221,676
Survey system
development........... 10,633 -- 113,634 103,001 -- -- 103,001
Write-down of
automotive............ -- -- 17,074 17,074 -- -- 17,074
------------- ------------- ----------- ---------- ---------- ---------- -----------
OPERATING LOSS.......... (299,268) (130,352) (1,842,453) (1,008,653) (480,836) (53,696) (1,543,185)
------------- ------------- ----------- ---------- ---------- ---------- -----------
OTHER INCOME (EXPENSES)
Interest cost on
promissory notes...... (10,000) (20,000) (120,000) (110,000) -- -- (110,000)
Interest income........ 6,988 9,358 60,078 47,832 5,258 -- 53,090
Settlement of damages.. -- -- 157,500 157,500 -- -- 157,500
------------- ------------- ----------- ---------- ---------- ---------- -----------
(3,012) (10,642) 97,578 95,332 5,258 -- 100,590
------------- ------------- ----------- ---------- ---------- ---------- -----------
NET LOSS FOR FOR THE
PERIOD................. $ (302,280) $ (140,994) $(1,744,875) $ (913,321) $ (475,578) $ (53,696) $(1,442,595)
============= ============= =========== ========== ========== ========== ===========
Basic and diluted loss
per share.............. $ (0.02) $ (0.01) $ (0.08) $ (0.04) $ (0.01)
============= ============= ========== ========== ==========
Weighted average shares
outstanding............ 12,285,153 11,943,281 11,979,385 11,472,992 10,090,675
============= ============= ========== ========== ==========

F-5

PINNACLE OIL INTERNATIONAL, INC.
(A DEVELOPMENT STAGE ENTERPRISE)

CONSOLIDATED STATEMENTS OF SHAREHOLDERS' EQUITY (DEFICIT)
(EXPRESSED IN U.S. DOLLARS)

DEFICIT
ACCUMULATED
COMMON SHARES ADDITIONAL DURING THE
------------------ PAID-IN DEVELOPMENT
SHARES AMOUNT CAPITAL STAGE
---------- ------- ---------- -----------

Balance, October 20, 1995
(inception)....................... 5,000,000 $ 5,000 $ -- $ --
Net loss........................... -- -- -- (53,696)
---------- ------- ---------- -----------
Balance December 31, 1995.......... 5,000,000 5,000 -- (53,696)
Reverse acquisition--January 30,
1996.............................. 5,968,281 5,968 (5,968) --
Shares issued for cash--May 29,
1996.............................. 975,000 975 967,775 --
Net loss........................... -- -- -- (475,578)
---------- ------- ---------- -----------
Balance, December 31, 1996......... 11,943,281 11,943 961,807 (529,274)
Shares issued for service--July 1,
1997.............................. 71,938 72 166,469 --
Net loss........................... -- -- -- (913,321)
---------- ------- ---------- -----------
Balance, December 31, 1997......... 12,015,219 $12,015 $1,128,276 $(1,442,595)
Shares issued on conversion of
promissory note--February 1, 1998. 411,764 412 1,119,588 --
Net loss........................... -- -- -- (302,280)
---------- ------- ---------- -----------
Balance, March 31, 1998
(Unaudited)....................... 12,426,983 $12,427 2,247,864 (1,744,875)
========== ======= ========== ===========

F-6

PINNACLE OIL INTERNATIONAL, INC.
(A DEVELOPMENT STAGE ENTERPRISE)

CONSOLIDATED STATEMENTS OF CASH FLOW
(EXPRESSED IN U.S. DOLLARS)

OCTOBER 20,
OCTOBER 20, 1995
1995 (INCEPTION) TO
THREE MONTHS ENDED MARCH 31 (INCEPTION) TO YEARS ENDED DECEMBER 31, DECEMBER 31,
------------------------------ MARCH 31, 1998 ------------------------------- 1997
1998 1997 (CUMULATIVE) 1997 1996 1995 (CUMULATIVE)
------------- -------------- -------------- ---------- --------- -------- --------------
(UNAUDITED) (UNAUDITED) (UNAUDITED)

OPERATING ACTIVITIES
Net loss for the
period................ $ (302,280) $ (140,994) $(1,744,875) $ (913,321) $(475,578) $(53,696) $(1,442,595)
Adjustments to
reconcile net loss to
net cash provided by
operating activities
Amortization......... 7,612 7,459 58,007 25,474 24,435 486 50,395
Write-down of
property and
equipment........... -- -- 28,077 28,077 -- -- 28,077
------------- -------------- ----------- ---------- --------- -------- -----------
Accrued interest on
promissory notes...... 10,000 20,000 120,000 110,000 -- -- 110,000
Costs settled by
issuance of common
stock................. -- -- 166,541 166,541 -- -- 166,541
Accounts receivable.... (51,402) (7,980) (134,674) (75,212) (8,060) -- (83,272)
Prepaid expenses and
other................. 2,088 -- (31,426) (31,877) (1,637) -- (33,514)
Due from/to officers... -- -- (4,832) -- 44,540 (49,372) (4,832)
Accounts payable....... 97,112 3,381 322,757 30,613 158,307 36,725 225,645
------------- -------------- ----------- ---------- --------- -------- -----------
Net cash used in
operating activities... (236,870) (118,134) (1,220,425) (659,705) (257,993) (65,857) (983,555)
------------- -------------- ----------- ---------- --------- -------- -----------
FINANCING ACTIVITIES
Proceeds of promissory
notes................. -- 1,000,000 1,100,000 1,000,000 -- 100,000 1,100,000
Repayment of
promissory notes...... -- -- (100,000) -- (100,000) -- (100,000)
Issuance of common
shares................ -- -- 980,000 -- 975,000 5,000 980,000
Share issue costs...... -- -- (6,250) -- (6,250) -- (6,250)
------------- -------------- ----------- ---------- --------- -------- -----------
Net cash generated by
financing activities... -- 1,000,000 1,973,750 1,000,000 868,750 105,000 1,973,750
------------- -------------- ----------- ---------- --------- -------- -----------
INVESTING ACTIVITIES
Deferred financing..... (4,884) -- (12,650) (7,766) -- -- (7,766)
Acquisition of
property and
equipment............. (221,405) (1,576) (355,495) (3,811) (91,281) (38,998) (134,090)
------------- -------------- ----------- ---------- --------- -------- -----------
Net cash used in
investing activities... (226,289) (1,576) (368,145) (11,577) (91,281) (38,998) (141,856)
------------- -------------- ----------- ---------- --------- -------- -----------
NET CASH (OUTFLOW)
INFLOW................. (463,159) 880,290 385,180 328,718 519,476 145 848,339
CASH POSITION, BEGINNING
OF PERIOD.............. 848,339 519,621 -- 519,621 145 -- --
------------- -------------- ----------- ---------- --------- -------- -----------
CASH POSITION, END OF
PERIOD................. $ 385,180 $ 1,399,911 $ 385,180 $ 848,339 $ 519,621 $ 145 $ 848,339
============= ============== =========== ========== ========= ======== ===========

SUPPLEMENT OF DISCLOSURE OF NON-CASH INVESTING AND FINANCING ACTIVITIES

During the three month period ended March 31, 1998, the Company issued
411,764 common shares on conversion of promissory notes with a face value of
$1,000,000 and accrued interest of $120,000.

During the year ended December 31, 1995, the Company issued 10,090,675
common shares to acquire 100% of the common shares of Pinnacle Oil Inc. The
business combination has been accounted for as a reverse acquisition.

F-7

PINNACLE OIL INTERNATIONAL, INC.
(A DEVELOPMENT STAGE ENTERPRISE)

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS

(EXPRESSED IN U.S. DOLLARS)
(INFORMATION AS OF MARCH 31, 1998 AND FOR THE THREE MONTHS ENDED
MARCH 31, 1998 AND 1997 IS UNAUDITED)

1. NATURE OF BUSINESS

Pinnacle Oil International, Inc. (the "Company"), and its wholly-owned
subsidiaries, Pinnacle Oil Inc. ("Pinnacle Oil") and Pinnacle Oil Canada Inc.,
("Pinnacle Canada"), are engaged in the exploration, discovery and development
of hydrocarbon (oil and gas) deposits. The Company and its subsidiaries
identify commercially viable hydrocarbon deposits ("SFD Prospects") through
the analysis of certain information ("SFD Data") provided exclusively to the
Company for petroleum and natural gas exploration purposes by Momentum
Resources Corporation ("Momentum"), which is indirectly owned by certain
officers, directors and significant shareholders of the Company, pursuant to
the terms of a Restated Technology Agreement (the "License"). The SFD Data is
generated by Momentum's proprietary Stress Field Detector or "SFD" used in
conjunction with the Company's proprietary electronic data acquisition and
global positioning systems (collectively, the "SFD Survey System").

On December 12, 1995, Pinnacle Oil and the Company (as Auric) entered into a
letter of intent under which: (i) the Company agreed to issue 10,090,675
shares of its common stock, constituting approximately 92% of its outstanding
shares of common stock, to the shareholders of Pinnacle Oil in exchange for
all of the outstanding shares of common stock of Pinnacle Oil; (ii) the
Company agreed to solicit shareholder consent to a 6:1 reverse stock split
immediately prior to the share exchange; and (iii) the Company agreed to
changes its name to "Pinnacle Oil International, Inc." upon consummation of
the reorganization. Pinnacle Oil was a Nevada corporation formed on October
20, 1995 for the purpose of engaging in hydrocarbon exploration utilizing SFD
Data generated by the SFD Technology. On January 12, 1996, the shareholders
and directors of the Company approved the transactions contemplated by the
letter of intent, and consented to a 6:1 reverse stock split. A formal Plan of
Reorganization and Acquisition was executed and effective as of January 20,
1996, and the change in the Company's name to "Pinnacle Oil International,
Inc." was effective on February 23, 1996.

As a result of the noted transactions, Pinnacle Oil became a wholly-owned
subsidiary of the Company, and will conduct the Company's operations in the
United States. The Company formed Pinnacle Canada, a federal Canadian
corporation, on April 1, 1997 to conduct the Company's operations in Canada.

The Company's current business strategy is to enter joint venture working
participation, royalty and other arrangements with experienced, well financed
petroleum and natural gas exploration companies whereby the Company will
identify prospects using the SFD Data, and the strategic partner will have
primary responsibility to finance the acquisition and development of the
prospect. These strategic arrangements will ultimately target

F-8

PINNACLE OIL INTERNATIONAL, INC.
(A DEVELOPMENT STAGE ENTERPRISE)

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)

both domestic (United States and Canada) and international prospects, as well
as offshore prospects. Management for the Company is engaged in on-going
discussions with oil and gas exploratory companies to exploit the SFD Data on
a joint venture basis. As of March 31, 1998, the Company has entered into one
Joint Venture agreement with a strategic partner and a SFD Survey Agreement
with a second strategic partner. As of March 31, 1998, activities under such
agreements to identify prospects have only recently commenced, and no revenues
have been generated.

2. SIGNIFICANT ACCOUNTING POLICIES

These financial statements have been prepared in accordance with generally
accepted accounting principles in the United States and reflect the following
significant accounting policies.

(a) Basis of presentation

These consolidated financial statements include the accounts of the Company
and its wholly-owned subsidiaries, Pinnacle Oil and Pinnacle Canada. All
significant intercompany balances and transactions have been eliminated on
consolidation.

(b) Property and equipment

Property and equipment are stated at cost. Depreciation is provided by the
declining balance method over the estimated service lives of the respective
assets as follows:

Furniture and fixtures................................................. 20%
Vehicles............................................................... 30%
Computer equipment..................................................... 30%
Computer software...................................................... 100%
Equipment.............................................................. 20%

Management periodically reviews the carrying value of property and equipment
to ensure that any permanent impairment in value is recognized and reflected
in the results from operations.

The Company continues to incur expenses to improve the performance of the
SFD Survey System and to establish its effectiveness with potential business
partners. Costs incurred in survey system development and other research and
development activities are expensed as incurred.

Costs incurred in demonstrating the SFD survey system to joint venture
partners, including exploration costs (comprising aircraft operating costs and
travel) net of costs reimbursed are expensed as period costs until a specific
area of interest is identified.

Upon the identification of an area of interest, the Company will follow the
full cost method of accounting for its exploration and development activities.
Under this method, all costs associated with the exploration for and
development of oil and gas reserves are capitalized by area of interest.

Upon the commencement of commercial production, costs will be amortized on
the unit of production method based on estimated proven developed reserves.
Currently, the Company has no estimated proven developed reserves and has not
capitalized any costs.

F-9

PINNACLE OIL INTERNATIONAL, INC.
(A DEVELOPMENT STAGE ENTERPRISE)

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)

(d) Foreign currency translation

The Company's current activities result in transactions denominated in both
US and Canadian dollars. Management considered the following in the process to
determine the Company's functional currency:

a) Financings, both of equity and debt, have been denominated in US funds;

b) In excess of 50% of the Company's operating expenditures are paid or
denominated in US funds;

c) 90% of the Company's total assets throughout 1997 were denominated in US
funds. Further, the Company maintains its cash and short term investments
in US dollars, only converting to Canadian dollars to the extent necessary
to pay Canadian denominated liabilities;

d) The business environment in which the Company operates is significantly
impacted by the price of oil, which is denominated in US dollars.

Management considers that future revenues, business activities and debt
financings will be conducted in the United States. Based on these factors the
Company has determined that the United States dollar is the appropriate
functional currency for measurement and reporting purposes.

Assets and liabilities denominated in Canadian dollars are translated at the
rate of exchange in effect at the balance sheet date. Transaction gains and
losses relating to the conversion of year end balances denominated in Canadian
dollars and revenue and expenses denominated in Canadian dollars are included
within operating results.

The exchange rates between the Canadian and U.S. dollar were:

BALANCE SHEET DATE AVERAGE
------------------ -------

March 31, 1998.................................... 1.44 1.43
December 31, 1997................................. 1.43 1.38
December 31, 1996................................. 1.37 1.36
December 31, 1995................................. 1.37 1.35

(e) Estimates and assumptions

The preparation of financial statements in conformity with generally
accepted accounting principles requires management to make estimates and
assumptions that affect the reported amounts of assets and liabilities and
disclosure of contingent assets and liabilities at the date of the financial
statements and the reported amount of revenues and expenses during the
reporting period. Actual results could differ from those estimates.

F-10

PINNACLE OIL INTERNATIONAL, INC.
(A DEVELOPMENT STAGE ENTERPRISE)

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)

(f) Earnings (loss) per common share

In February 1997, the Financial Accounting Standards Board issued Statement
No. 128, Earnings Per Share (SFAS 128), which established new standards for
computing and presenting earnings per share effective for fiscal years ending
after December 15, 1997. With SFAS 128, Primary earnings per share is replaced
by basic earnings per share, which is computed by dividing income available to
common shareholders by the weighted average number of shares outstanding for
the period. In addition, SFAS 128 requires the presentation of diluted
earnings per share, which includes the potential dilution that could occur if
dilutive securities were exercised or converted into common stock. The
completion of diluted EPS does not assume the conversion or exercise of
securities if their effect is anti-dilutive. Common equivalent shares consist
of the common shares issuable upon the conversion of the convertible loan
notes and special warrants (using the if-converted method) and incremental
shares issuable upon the exercise of stock options and share purchase warrants
(using the treasury stock method).

(g) Derivatives

From time to time the Company may attempt to hedge its position with respect
to currency fluctuations on specific contracts. This is generally accomplished
by entering into forward contracts. Related costs are realized as the forward
contracts are settled. The Company is not engaged in any forward contracts at
March 31, 1998 and December 31, 1997.

(h) Stock-based compensation

The Company accounts for stock-based compensation using the intrinsic value
based method whereby compensation cost is recorded for the excess, if any, of
the quoted market price of the common share over the exercise price at the
date granted for all common stock options. As at December 31, 1997, no
compensation cost has been recorded for any period under this method.

The following pro forma financial information presents the net loss for the
period and loss per common share had the Company adopted Statement of
Financial Accounting Standard No. 123 (SFAS 123) Accounting for Stock-based
Compensation.

MARCH 31, DECEMBER 31,
1998 1997
--------- ------------

Net loss for the period $(327,280) $(981,321)
========= =========
Diluted loss per common shares $ (0.03) $ (0.08)
========= =========

Using the fair value method for stock-based compensation, additional
compensation costs of approximately $68,000 and $25,000 would have been
recorded for the year ended December 31, 1997 and the three month period ended
March 31, 1998, respectively. These amounts are determined using an option
pricing model assuming no dividends are to be paid, an average vesting period
of three years, a weighted average annualized volatility of the Company's
share price of 43% and a weighted average annualized risk free interest rate
at 5.9%. There would be no impact for the three month period ended March 31,
1997 and for the years ended December 31, 1995 or 1996.

(i) Recent pronouncements

In June 1997, the Financial Accounting Standards Board issued Statement No.
130 (SFAS 130), Reporting Comprehensive Income, which is required to be
adopted for fiscal years beginning on or after December 15, 1997. SFAS 130
establishes standards for the reporting and display of comprehensive income
and its components in a full set of general purpose financial statements.
Reclassification of financial statements for earlier periods presented is
required. The impact of SFAS 130 on the Company's financial statements is not
expected to be material.

F-11

PINNACLE OIL INTERNATIONAL, INC.
(A DEVELOPMENT STAGE ENTERPRISE)

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)

In June 1997, the Financial Accounting Standards Board issued Statement No.
131 (SFAS 131), Disclosures About Segments of an Enterprise and Related
Information, which is required to be adopted for fiscal years beginning on or
after December 15, 1997. SFAS 131 establishes new standards for the reporting
of segmented information in annual financial statements and requires the
reporting of certain selected segmented information on interim reports to
shareholders. The impact of SFAS 131 on the Company's financial statements is
not expected to be material.

(j) Cash and cash equivalents

Cash and cash equivalents consist of cash on hand, deposits in banks and
highly liquid investments with an original maturity of three months or less.

(k) Reclassifications

Certain of the prior years' amounts have been reclassified to conform to the
current year's presentation.

3. ACQUISITION OF SUBSIDIARY

The Company acquired Pinnacle Oil in a transaction accounted as a "Reverse
Acquisition" in accordance with United States Generally Accepted Accounting
Principles. The business combination has been accounted for as an issuance of
stock by the accounting acquirer (Pinnacle Oil) in exchange for the tangible
net assets of the acquired (Auric), valued at the historical costs which
approximate fair value. As a result of the application of these accounting
principles, Pinnacle Oil (and not the Company) is treated as the "acquiring"
or "continuing" entity for financial accounting purposes. Accordingly, the
consolidated statements of loss and deficit of the Company for the years ended
December 31, 1997, 1996 and 1995 are deemed to be a continuation of Pinnacle
Oil's financial statements, and therefore reflect (i) the operations of
Pinnacle Oil since October 20, 1995, the date of Pinnacle Oil's formation,
through to the date the Plan of Reorganization and acquisition was executed
(January 20, 1996), and (ii) the operations of the Company after January 20,
1996. The acquisition was effected by the issuance of 10,090,675 common shares
of the Company, constituting approximately 92% of its outstanding shares, in
exchange for all of the outstanding shares of Pinnacle Oil.

4. DEFERRED COSTS

The Company purchased insurance on November 20, 1997 to facilitate
operations for the next three years.

5. PROPERTY AND EQUIPMENT

DECEMBER 31
MARCH 31 -----------------
1998 1997 1996
----------- -------- --------
(UNAUDITED)

Furniture and fixtures........................ $124,503 $ 24,379 $ 21,325
Vehicle....................................... 66,184 66,184 83,257
Computer equipment............................ 30,514 10,486 18,800
Computer software............................. 4,886 1,447 1,447
Equipment..................................... 2,929 1,672 5,454
Leasehold improvements........................ 85,019 -- --
Technology upgrade............................ 11,538 -- --
325,573 104,168 130,283
Less accumulated depreciation................. 56,163 48,551 24,925
-------- -------- --------
Net property equipment........................ $269,410 $ 55,617 $105,358
======== ======== ========

F-12

PINNACLE OIL INTERNATIONAL, INC.
(A DEVELOPMENT STAGE ENTERPRISE)

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)

6. LONG-TERM LIABILITY

During the year ended December 31, 1997, the Company entered into a loan
agreement in the amount of $150,000 bearing interest at 6.44% per annum. The
Company is obligated to monthly payments of principal and interest in the
amount of $4,884 to the maturity date of May 22, 1999. The estimated current
portion at March 31, 1998 and December 31, 1997 is $63,492.

7. PROMISSORY NOTE PAYABLE

During the year ended December 31, 1997, two officers of the Company loaned
the Company $1,000,000 pursuant to unsecured, convertible promissory notes.
The promissory notes bear interest at the rate of 12% per annum, and are
payable on or before January 31, 1998. The officers have the right to convert
the notes based upon a ratio of one share per $4.07 in converted principal and
interest, and the Company has the right to convert the notes based upon a
ratio of one share per $2.72 in converted principal and interest.

During the period ended March 31, 1998, the Company issued 411,764 common
shares of the Company in settlement of the unsecured convertible promissory
notes in the amount of $1,000,000 plus interest of $120,000.

8. SHARE CAPITAL AND STOCK OPTIONS

During the year ended December 31, 1997 the Company issued 71,938 common
shares in settlement of shares for service agreements from the previous year
in the amount of $145,120 and for agreements for the current year valued in
the amount of $21,421. The shares bear a one year hold from the date of July
1, 1997.

The Company has granted non-qualified stock options to certain directors of
the Company and one of its subsidiaries and incentive stock options to an
employee of one of the Company's subsidiaries to purchase common shares as
follows:

NUMBER
EFFECTIVE DATE EXERCISE PRICE OF OPTIONS
----------------- -------------- ----------

Directors........................ May 12, 1997 $5.81 75,000
Directors........................ May 20, 1997 $5.25 90,000
Directors........................ March 10, 1998 $8.31 45,000
Employee......................... November 24, 1997 $9.50 50,000

The Director options vest in one-third increments beginning on the date of
grant and each annual anniversary of the date thereafter. Further vesting of
the options are subject only to re-election of each such director at each
annual meeting of the Company and of the subsidiary. The Employee options vest
annually in one-fifth increments beginning on the first anniversary of the
date of grant, subject to vesting based upon continued performance of
services. As at March 31, 1998, 70,000 (December 31, 1997--55,000) director
share options and no employee share options are vested.

F-13

PINNACLE OIL INTERNATIONAL, INC.
(A DEVELOPMENT STAGE ENTERPRISE)

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)

9. INCOME TAXES

(a) As at December 31, 1997, the Company had net operating loss
carryforwards available to reduce taxable income in future years as follows:

EXPIRATION
COUNTRY AMOUNT DATES
------- ---------- ----------

United States.......................................... $1,128,000 2010-2012
Canada................................................. $ 286,000 2002-2004

(b) Deferred tax assets, December 31, 1997

STATUTORY TAX
AMOUNT TAX RATE BENEFIT
--------- --------- ---------

Tax asset related to depreciation........... $ 8,500 $0.34 $ 2,900
Tax benefit of loss carryforward............ 1,414,000 0.34 480,700
Valuation reserve........................... (483,600)
--------- ----- ---------
$ --
========= ===== =========

Deferred tax assets (liabilities), December 31, 1996

STATUTORY TAX
AMOUNT TAX RATE BENEFIT
--------- --------- ---------

Tax liability related to depreciation....... $ (8,571) $0.34 $ (2,914)
Tax benefit of loss carryforward............ 537,835 0.34 182,864
Valuation reserve........................... (179,950)
--------- ----- ---------
$ --
========= ===== =========

10. LITIGATION

During the year ended December 31, 1997 the Company received $157,500 in
cash on the settlement of a lawsuit pertaining to a breach of contract action.

11. RELATED PARTY TRANSACTIONS

Related party transactions and balances not disclosed elsewhere in these
financial statements include:

THREE MONTHS ENDED
MARCH 31 YEARS ENDED DECEMBER 31
----------------------- -----------------------
1998 1997 1997 1996 1995
----------- ----------- -------- ------- ------
(UNAUDITED) (UNAUDITED)

Legal fees paid to two law
firms with partners and
directors in common........... $98,502 $19,983 $322,769 $ -- $ --
Wages and benefits paid to
three directors of the company
acting in their capacity as
officers and managers of the
Company....................... 64,200 26,501 165,101 163,072 36,000
Accounts payable due to
officers...................... 297 911 12,167 -- --
Accounts receivable due from
officers...................... -- -- -- 4,832 --

The Company is obligated under the Restated Technology Agreement to pay to a
Bahama corporation, which is indirectly owned and controlled by certain
officers, directors and significant shareholders of the Company, a fee of 1%
of all "Prospect Revenue" from oil and gas production received on or before
December 31, 2000, and 5% of all such revenues thereafter. No revenue has been
generated to date.

F-14

PINNACLE OIL INTERNATIONAL, INC.
(A DEVELOPMENT STAGE ENTERPRISE)

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)

12. FINANCIAL INSTRUMENTS

The Company's financial instruments consist of cash, accounts receivable,
accounts payable and long-term liability. The fair value of these financial
instruments approximates carrying values due to the short-term to maturity of
the financial instruments and similarity to current market rates. The Company
estimates the fair value of the promissory notes payable using discounted cash
flows assuming a borrowing rate equal to the US prime plus 8%.

THREE MONTHS ENDED YEARS ENDED DECEMBER 31
----------------------- -----------------------------------------
MARCH 31, 1998 1997 1996
----------------------- --------------------- -------------------
(UNAUDITED) (UNAUDITED)
CARRYING CARRYING CARRYING
AMOUNT FAIR VALUE AMOUNT FAIR VALUE AMOUNT FAIR VALUE
----------- ----------- ---------- ---------- -------- ----------

Promissory note payable. $-- $-- $1,110,000 $1,088,000 $-- $--
==== ==== ========== ========== ==== ====

It is management's opinion that the Company is not exposed to significant
interest, currency or credit risks arising from these financial instruments.

13. COMMITMENTS

During the period ended March 31, 1998, the Company entered into a five year
non-cancellable operating lease for office space. Future annual minimum lease
payments in Canadian dollars are as follows:

1998........................................... $62,887
1999........................................... 68,604
2000........................................... 68,604
2001........................................... 68,604
2002........................................... 68,604
2003........................................... 5,717

14. SUBSEQUENT EVENTS

Subsequent to March 31, 1998 and December 31, 1997, the Company:

(a) entered into a private placement on April 3, 1998 for proceeds of
$6,000,000 on the issue of: (i) 800,000 shares of preferred stock, par value
$0.001 (which preferred stock was authorized by the Company on April 1, 1998);
and (ii) two-year warrants to purchase 200,000 shares of the Company's common
stock at $7.50 per share. Each share of preferred stock (i) is convertible
into one share of the Company's common stock, and (ii) may be redeemed by the
Company at $7.50 per share commencing two years following the date of
issuance, and (iii) has a $7.50 liquidation preference. The preferred stock is
not entitled to payment of any dividends, although it may, at the election of
the Board of Directors, participate in dividends on the same basis as if it
had been converted into common stock. Simultaneous with such transaction, the
Company (i) entered into a Joint Exploration and Development Agreement with an
oil and gas exploratory company affiliated with the aforesaid investor in the
Company's securities, and (ii) agreed to amend the Restated Technology
Agreement to provide that fees would be calculated on "Prospect Profits" as
opposed to "Prospect Revenues";

(b) has entered into a month to month engagement letter for the services of
investor relations in the amount of $4,000 per month.

F-15

PINNACLE OIL INTERNATIONAL, INC.

(A DEVELOPMENT STAGE ENTERPRISE)

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)

(c) granted incentive stock options to each of two employees of the
Company's subsidiary to purchase 15,000 shares of common stock at a price of
$8.25, based upon the stock trading price as of the date of approval of such
grant by the Compensation Committee (August 24, 1998). These options vest
5,000 shares per employee on the first through third anniversary dates of the
effective date of grant (May 12, 1998), and lapse five years after the vesting
date.

(d) granted incentive stock options to an employee of the Company's
subsidiary to purchase 30,000 shares of common stock at a price of $8.25,
based upon the stock trading price as of the date of approval of such grant by
the Compensation Committee (August 24, 1998). These options vest 5,000 shares
each on the first through third anniversary dates of the effective date of
grant, respectively (May 12, 1998), and vest 7,500 shares on the fourth and
fifth anniversary dates of the effective date of grant, respectively. These
options lapse five years after the vesting date.

(e) granted incentive stock options to an employee of the Company in
connection with his employment to purchase 70,000 shares of common stock at a
price of $8.25, based upon the stock trading price as of the date of approval
of such grant by the Compensation Committee (August 24, 1998). These options
vest 10,000 shares each on the first and second anniversary dates of the date
of employment, respectively (July 9, 1998), and vest 16,667, 16,666 and 16,667
shares on the third through fifth anniversary dates of the date of employment,
respectively. These options lapse five years after the vesting date.

(f) granted incentive options to an employee of the Company's subsidiary to
purchase 50,000 shares of common stock at a price of $8.25, based upon the
stock trading price as of such date. These options vest 7,500 shares on the
first through third anniversary dates of grant (August 24, 1998),
respectively, and 13,750 shares on the fourth through fifth anniversary dates
of grant, respectively. These options lapse five years after the vesting date.

F-16