EXHIBIT 99.5
AUDITED FINANCIAL STATEMENTS OF
PANNONIAN ENERGY, INC.
FOR THE YEAR ENDED DECEMBER 31, 2000
PANNONIAN ENERGY INC. AND SUBSIDIARIES
(A DEVELOPMENT STAGE COMPANY)
INDEX
Independent Auditor's Report F-2
Consolidated Balance Sheet
December 31, 2000 F-3
Consolidated Statements of Operations
Year Ended December 31, 2000 and
Cumulative Amounts from Inception to December 31, 2000 F-4
Consolidated Statements of Stockholders' Equity
Period from Inception to December 31, 1998, and
Years Ended December 31, 1999, and 2000 F-5
Consolidated Statements of Cash Flows
Year Ended December 31, 2000 and
Cumulative Amounts from Inception to December 31, 2000 F-6 - F-7
Notes to Consolidated Financial Statements F-8 - F-16
F-1
INDEPENDENT AUDITOR'S REPORT
To The Board of Directors and Stockholders
PANNONIAN ENERGY INC.
We have audited the accompanying balance sheet of Pannonian Energy Inc. and
subsidiaries (a development stage company) as of December 31, 2000, the related
consolidated statements of operations, stockholders' equity and cash flows for
the year then ended, and cumulative amounts from inception to December 31, 2000.
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. The consolidated financial statements of the Company as of
December 31, 1998 and 1999 were audited by other auditors whose report dated
December 4, 2000 included an explanatory paragraph describing conditions which
raise substantial doubt about the Company's ability to continue as a going
concern.
We conducted our audit in accordance with auditing standards generally accepted
in the United States of America. Those standards require that we plan and
perform the audit to obtain reasonable assurance about 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, the consolidated financial statements referred to above present
fairly, in all material respects, the consolidated financial position of
Pannonian Energy Inc. and its subsidiaries as of December 31, 2000, and the
results of their operations and their cash flows for the year then ended and
cumulative amounts from inception to December 31, 2000 in conformity with
accounting principals generally accepted in the United States of America.
/s/ WHEELER WASOFF, P.C.
Denver, Colorado
September 20, 2001
F-2
PANNONIAN ENERGY INC. AND SUBSIDIARIES
(A DEVELOPMENT STAGE COMPANY)
CONSOLIDATED BALANCE SHEET
DECEMBER 31, 2000
ASSETS
CURRENT ASSETS
Cash $ 881,041
Prepaid expenses and other 13,923
Due from joint interest partners 113,020
---------------
Total Current Assets 1,007,984
---------------
PROPERTY AND EQUIPMENT 1,999,275
---------------
$ 3,007,259
===============
LIABILITIES AND STOCKHOLDERS' EQUITY
CURRENT LIABILITIES
Accounts payable and accrued expenses $ 221,972
Accrued bonus' payable 423,000
Notes payable- related 544,280
Notes payable- other 239,102
---------------
Total Current Liabilities 1,428,354
---------------
COMMITMENTS AND CONTINGENCIES (NOTES 2 AND 7)
STOCKHOLDERS' EQUITY
Preferred stock, $.001 par value; authorized 5,000,000 shares
Issued and outstanding- none
Common stock, $.001 par value; authorized 25,000,000 shares
Issued and outstanding -7,925,000 shares 7,925
Capital in excess of par value 3,157,075
Deficit accumulated during the development stage (1,586,095)
---------------
1,578,905
---------------
$ 3,007,259
===============
The accompanying notes are an integral part of these consolidated
financial statements.
F-3
PANNONIAN ENERGY INC. AND SUBSIDIARIES
(A DEVELOPMENT STAGE COMPANY)
CONSOLIDATED STATEMENTS OF OPERATIONS
CUMULATIVE
AMOUNTS FROM
YEAR ENDED INCEPTION TO
DECEMBER 31, DECEMBER 31,
2000 2000
REVENUES $ - $ -
------------ ------------
OPERATING EXPENSES
General and administrative 951,734 1,695,350
Property abandonments 15,300 15,300
Interest 61,776 75,123
Depreciation 1,047 1,584
------------ ------------
1,029,857 1,787,357
------------ ------------
OTHER INCOME (EXPENSE)
Gain on sale of permit 200,000 200,000
Other (13,404) 1,262
------------ ------------
186,596 201,262
------------ ------------
NET (LOSS) $ (843,261) $(1,586,095)
============ ============
NET (LOSS) PER COMMON SHARE
BASIC AND DILUTED $ (.11) $ (.21)
============ ============
WEIGHTED AVERAGE NUMBER OF
COMMON SHARES OUTSTANDING
BASIC AND DILUTED 7,925,000 7,630,217
============ ============
The accompanying notes are an integral part of these consolidated
financial statements.
F-4
PANNONIAN ENERGY INC. AND SUBSIDAIRIES
(A DEVELOPMENT STAGE COMPANY)
CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY
PERIOD FROM INCEPTION (MAY 21, 1998) TO DECEMBER 31, 1998 AND
YEARS ENDED DECEMBER 31, 1999 AND 2000
DEFICIT
ACCUMULATED
ADDITIONAL DURING THE
COMMON STOCK PAID- IN DEVELOPMENT
CAPITAL STAGE
SHARES AMOUNT
BALANCE, MAY 21, 1998 (INCEPTION) - $ - $ - $ -
Net loss - - - (6,000)
------------ --------- ----------- -------------
BALANCE, DECEMBER 31, 1998 - - - (6,000)
Common stock issued for services
at $0.05 per share 1,000,000 1,000 49,000 -
Common stock issued for cash at an
average price of $0.31 per share 4,925,000 4,925 1,510,075 -
Common stock issued for property at
$0.60 per share 1,000,000 1,000 599,000 -
Common stock issued for debt at $1.00
per share 1,000,000 1,000 999,000 -
Net loss - - (736,834)
------------ --------- ----------- -------------
BALANCE, DECEMBER 31, 1999 7,925,000 7,925 3,157,075 (742,834)
Net loss - (843,261)
------------ --------- ----------- -------------
BALANCE, DECEMBER 31, 2000 7,925,000 $ 7,925 $ 3,157,075 $ (1,586,095)
============ ========= =========== =============
The accompanying notes are an integral part of these consolidated
financial statements.
F-5
PANNONIAN ENERGY INC. AND SUBSIDIARIES
(A DEVELOPMENT STAGE COMPANY)
CONSOLIDATED STATEMENTS OF CASH FLOWS
CUMULATIVE
AMOUNTS FROM
YEAR ENDED INCEPTION TO
DECEMBER 31, DECEMBER 31,
2000 2000
CASH FLOWS FROM OPERATING ACTIVITIES
Net (loss) $ (843,261) $ (1,586,095)
Adjustments to reconcile net (loss) to
net cash provided by operating activities
Depreciation 1,047 1,584
Debt for legal fees 198,193 198,193
Debt for interest 15,638 15,638
Abandonments 15,300 15,300
Gain on sale of permit (200,000) (200,000)
Common stock issued for services 50,000
-
Changes in assets and liabilities
Decrease (increase) in prepaids and other 23,449 (13,923)
Increase in accounts payable and accrued expenses 609,249 635,331
------------ -------------
Net cash provided (used) by operating activities (180,385) (883,972)
------------ -------------
CASH FLOWS FROM INVESTING ACTIVITIES
Cash paid for fixed assets - (3,582)
Cash paid for undeveloped oil and gas properties (566,204) (1,451,123)
Proceeds from sale of oil and gas interests 1,194,797 1,194,797
Proceeds from sale of permit 200,000 200,000
------------ -------------
Net cash provided (used) by investing activities 828,593 (59,908)
------------ -------------
CASH FLOWS FROM FINANCING ACTIVITIES
Proceeds from borrowings- related 190,934 507,925
Repayment of borrowings- related (63,000) (139,413)
Proceeds from sale of common stock - 1,515,000
Proceeds from borrowings- other 61,937 61,937
Repayment of borrowings- other (120,528) (120,528)
------------ -------------
Net cash provided by financing activities 69,343 1,824,921
------------ -------------
NET INCREASE IN CASH 717,551 881,041
CASH, BEGINNING OF PERIODS 163,490 -
------------ -------------
CASH, END OF PERIODS $ 881,041 $ 881,041
============ =============
The accompanying notes are an integral part of these consolidated
financial statements.
F-6
PANNONIAN ENERGY INC. AND SUBSIDIARIES
(A DEVELOPMENT STAGE COMPANY)
CONSOLIDATED STATEMENTS OF CASH FLOWS (CONTINUED)
SUPPLEMENTAL DISCLOSURE OF CASH FLOW INFORMATION
During the years ended December 31, 1999 and 2000, the Company paid
cash for interest of $11,072 and $23,293, respectively, on borrowings.
SUPPLEMENTAL SCHEDULE OF NON-CASH INVESTING AND FINANCING ACTIVITIES
During 2000 certain individuals paid legal fees on behalf of the
Company for which they were issued promissory notes in the aggregate
amount of $198,193, including $160,130 to the Company's President; and
an officer/director converted $15,638 of interest on indebtedness to a
note payable.
During 2000 the Company entered into notes for the acquisition of oil
and gas properties in the aggregate amount of $781,917. These loans
were assumed by the participants of an unincorporated joint venture,
including the Company. The Company's 18.75% interest in the notes was
$143,609.
The accompanying notes are an integral part of these consolidated
financial statements.
F-7
PANNONIAN ENERGY INC. AND SUBSIDIARIES
(A DEVELOPMENT STAGE COMPANY)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
NOTE 1 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
ORGANIZATION
Pannonian Energy Inc. (the "Company") was incorporated under the laws
of the State of Delaware on May 21, 1998. The Company is an independent
energy company engaged in the exploration and acquisition of crude oil
and natural gas reserves in the Western United States, and is
considered a development stage company as defined by Statement of
Financial Accounting Standards (SFAS) No. 7 from inception (May 21,
1998).
The Company is an exploration stage oil and gas company and as of
December 31, 2000, has not earned any production revenue nor recognized
significant reserves on any of its properties. The Company's efforts,
since inception, have consisted of financing activities and the
acquisition of unproven properties. The Company has entered into
participation and farm-in agreements with industry partners on certain
of its properties pursuant to which these partners have acquired, for
cash, interests in the Company's properties.
In January 2000, the Company organized Pannonian International, LTD.
(PIL), a Colorado Corporation, to hold international assets in Germany
and Romania.
PRINCIPLES OF CONSOLIDATION
The accompanying consolidated financial statements include the
consolidated operations of the Company and its wholly owned
subsidiaries. All significant intercompany accounts and transactions
have been eliminated in consolidation.
JOINT INTEREST
The consolidated financial statements include the Company's
proportionate share of the assets, liabilities, revenues and expenses
of its oil and gas joint interest operations.
PROPERTY AND EQUIPMENT
Furniture and equipment is recorded at cost. Depreciation is provided
by use of the straight-line method over the estimated useful lives of
the related assets of five to eight years. Expenditures for
replacements, renewals, and betterments are capitalized. Maintenance
and repairs are charged to operations as incurred.
OIL AND GAS PROPERTIES
The Company follows the full cost method to account for its oil and gas
exploration and development activities. Under the full cost method, all
costs incurred which are directly related to oil and gas exploration
and development are capitalized and subjected to depreciation and
depletion. Depletable costs also include estimates of future
development costs of proved reserves. Costs related to undeveloped oil
and gas properties may be excluded from depletable costs until such
properties are evaluated as either proved or unproved. The net
capitalized costs are subject to a ceiling limitation. Gains or losses
upon disposition of oil and gas properties are treated as adjustments
to capitalized costs, unless the disposition represents a significant
portion of the Company's proved reserves. A separate cost center is
maintained for expenditures applicable to each country in which the
Company conducts exploration and/ or production activities.
F-8
PANNONIAN ENERGY INC. AND SUBSIDIARIES
(A DEVELOPMENT STAGE COMPANY)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
NOTE 1 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
Undeveloped oil and gas prospects consist of leases and acreage
acquired by the Company for its exploration and development activities,
including the cost of seismic data acquisition and evaluation, and
drilling costs for exploration wells. The cost of these non-producing
leases is recorded at the lower of cost or fair market value.
The Company has adopted SFAS No. 121 "Accounting for the Impairment of
Long-Lived Assets and for Long-Lived Assets to Be Disposed of" which
requires that long-lived assets to be held and used be reviewed for
impairment whenever events or changes in circumstances indicate that
the carrying amount of an asset may not be recoverable. Oil and gas
properties accounted for using the full cost method of accounting, a
method utilized by the Company, are excluded from this requirement, but
will continue to be subject to the ceiling test limitations.
INCOME TAXES
The Company has adopted the provisions of SFAS No. 109, "Accounting for
Income Taxes". SFAS 109 requires recognition of deferred tax
liabilities and assets for the expected future tax consequences of
events that have been included in the financial statements or tax
returns. Under this method, deferred tax liabilities and assets are
determined based on the difference between the financial statement and
tax basis of assets and liabilities using enacted tax rates in effect
for the year in which the differences are expected to reserve.
USE OF ESTIMATES
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 reported amounts of revenues and
expenses during the reporting period. Actual results could differ from
those estimates.
The oil and gas industry is subject, by its nature, to environmental
hazards and clean-up costs. At this time, management knows of no
substantial costs from environmental accidents or events for which it
may be currently liable. The Company's oil and gas business makes it
vulnerable to changes in wellhead prices of crude oil and natural gas.
Such prices have been volatile in the past and can be expected to be
volatile in the future. By definition, proved reserves are based on
current oil and gas prices and estimated reserves. Price declines
reduce the estimated quantity of proved reserves and increase annual
amortization expense (which is based on proved reserves).
FOREIGN CURRENCY TRANSLATION
Results of operations for foreign subsidiaries, whose functional
currency is other than the U.S. dollar, are translated using the
average exchange rates during the period, while assets and liabilities
are translated into U.S. dollars using current rates.
F-9
PANNONIAN ENERGY INC. AND SUBSIDIARIES
(A DEVELOPMENT STAGE COMPANY)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
NOTE 1 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
Resulting translation adjustments are recorded in currency translation
adjustments in stockholders' equity. For foreign subsidiaries whose
functional currency is the U.S. dollar, currency gains and losses
resulting from translation and transactions are determined using a
combination of current and historical rates and are included in the
results of operations.
(LOSS) PER SHARE
(Loss) per common share is computed based on the weighted average
number of common shares outstanding during the period. Convertible
equity instruments, such as stock warrants, are not considered in the
calculation of net loss per share as their inclusion would be
antidilutive.
SHARE BASED COMPENSATION
In October 1995, SFAS No. 123 "Accounting for Stock-Based Compensation"
was issued. This standard defines a fair value based method of
accounting for an employee stock option or similar equity instrument.
This statement gives entities a choice of recognizing related
compensation expense by adopting the fair value method or to continue
to measure compensation using the intrinsic value approach under
Accounting Principles Board (APB) Opinion No. 25. The Company has
elected to utilize APB No. 25 for measurement; and will, pursuant to
SFAS No. 123, disclose on a supplemental basis the pro forma effects on
net income and earnings per share of using the fair value measurement
criteria.
CASH EQUIVALENTS
For purposes of reporting cash flows, the Company considers as cash
equivalents all highly liquid investments with a maturity of three
months or less at the time of purchase. On occasion, the Company has
cash in banks in excess of federally insured amounts.
NEW TECHNICAL PRONOUNCEMENTS
In September 2000, SFAS No. 140 "Accounting for Transfers and Servicing
of Financial Assets and Extinguishment of Liabilities" was issued. SFAS
140 is not expected to have an impact on the Company's financial
statements.
In June 2001, SFAS No. 141 "Business Combinations" and SFAS No. 142
"Goodwill and Other Intangible Assets" were issued. Adoption of these
pronouncements is not excepted to have an impact on the Company's
financial statements.
RECLASSIFICATION
Certain reclassifications have been made to cumulative amounts from
inception to conform to the 2000 presentation.
F-10
PANNONIAN ENERGY INC. AND SUBSIDIARIES
(A DEVELOPMENT STAGE COMPANY)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
NOTE 2 - PROPERTY AND EQUIPMENT
Property and equipment at December 31, 2000 consists of the following:
Furniture and equipment $ 9,569
Less accumulated depreciation (1,584)
------------
7,985
------------
Undeveloped oil and gas properties
United States 1,878,788
Germany 80,878
Romania 31,624
------------
1,991,290
------------
$ 1,999,275
============
Information relating to the Company's costs incurred in its oil and gas
operations during the year ended December 31, 2000 is summarized as
follows:
Property acquisition $ 425,797
Exploration costs 297,865
------------
$ 723,652
============
Property acquisition costs include costs incurred to purchase, lease,
or otherwise acquire a property. Exploration costs include the costs of
geological and geophysical activity, and drilling and equipping
exploratory wells.
The Company reviews and determines the cost basis of drilling prospects
on a drilling location basis. During the year ended December 31, 2000
the Company abandoned properties with a carrying cost of $15,300
Depreciation expense for the year ended December 31 2000 was $1,047.
In February 2000, the Company entered into agreements with Belport Oil
and Gas ("Belport") by acquiring a 75% interest in 12 wellbores plus
approximately 5,000 acres of coalbed methane lease rights. In exchange
for the interest in the rights, the Company assumed a $300,000 mortgage
note on the properties and issued a note to Belport in the amount of
$481,917. The President of the Company ("Erickson") agreed to assume
the above obligations should the Company not be able to perform
pursuant to the Agreement. Subsequent to this agreement, a joint
venture including the Company, Belport, Erickson and other unrelated
parties was formed to explore, develop and operate the underlying
properties. The Company holds an 18.75% interest in the joint venture.
By agreement between the joint venture participants and the Company,
the participants agreed to assume an 81.25% pro rata share of the
notes. As of December 31, 2000, the $300,000 mortgage note was paid in
full and the note to Belport had an outstanding balance of $139,012, of
which $113,020 was due from all joint venture participants, including
related parties, having an aggregate 81.25% interest.
F-11
PANNONIAN ENERGY INC. AND SUBSIDIARIES
(A DEVELOPMENT STAGE COMPANY)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
NOTE 2 - PROPERTY AND EQUIPMENT (CONTINUED)
On May 1, 2000, the Company entered a Farmout Agreement with Medallion
Exploration ("Medallion") for two blocks of land containing three
federal oil and gas leases in Uinta County, Utah. The Company paid
$50,000 for a right to earn a 75% interest in the leases. The initial
well was drilled in March 2001.
On September 12, 2000, the Company entered into a Farmout Agreement
with Shenandoah Operating Company, LLC ("SOC") and Pendragon Energy
Partners ("PEP"). SOC and PEP own certain undivided working interests
in several oil and gas leases located on approximately 25,000 acres in
Uinta County, Utah. The Company has agreed to earn a 75% working
interest in these leases by exploring for oil and gas, and agreed to
commence, or cause to be commenced, the actual drilling of a test well
located on these lands on or before March 31, 2001. In 2001 SOC and PEP
were paid a total a $250,000 and granted the Company the rights through
December 2001 to commence drilling of the test well.
On December 18, 2000, the Company entered into an Acquisition Agreement
with Phillips Petroleum Company ("Phillips"). Phillips paid the Company
$1,000,000 for the exclusive right to earn by drilling and completing
until an accumulated expenditure of $8,000,000 is reached, 80% of the
Company's interest in the existing leases and contracts entered into
with Medallion, SOC and PEP and two additional proposed Farmout
Agreements, limited to specific rights, those being zones below the
base of the Wasatch on pre-existing leasehold. The Company retained its
pre-existing Wasatch rights. Once Phillips has met the $8,000,000
expenditure requirement, it has an option to acquire 80% of the
Company's deep rights in exchange for an assignment of approximately
1,700 net acres of Watasch rights to the Company.
NOTE 3 - NOTES PAYABLE
Notes payable at December 31, 2000 consists of the following:
Related parties
Note payable to director, unsecured, due July 1, 1999
interest at 5% (default interest at 12%) $ 34,096
Notes payable to director, unsecured, due December 31, 2000
interest at 6.75% (default interest at 12%); (repaid in 2001) 181,482
due December 31, 2001, interest at 6.75% (repaid in 2001) 41,684
Note payable to officer/ director, unsecured, due January 1, 2001
interest at 10% (repaid in 2001) 272,018
Note payable to entity owned by a director, unsecured, due
December 15, 2000, interest at 10% (default interest at 12%) 15,000
-----------
$ 544,280
===========
Other
Note payable, unsecured, due July 2002 to November 2002,
interest at 6% $ 100,000
Note payable - Belport, due February 5, 2001, interest at 12%
(See Note 2) 139,102
-----------
$ 239,102
===========
F-12
PANNONIAN ENERGY INC. AND SUBSIDIARIES
(A DEVELOPMENT STAGE COMPANY)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
NOTE 3 - NOTES PAYABLE (CONTINUED)
Subsequent to December 31, 2000 related party notes in the aggregate
amount of $495,184 were repaid and the Belport note was repaid in full.
NOTE 4 - COMMON STOCK WARRANTS
In conjunction with the sale of the Company's common stock in 1999,
pursuant to private placements, the Company issued warrants to purchase
shares of common stock. (See Note 11).
The following is a schedule of outstanding warrants as of December 31,
2000:
Date of Expiration Exercise Warrants Warrants
Issue Date Price Issued Outstanding
February 1999 February 2001 $ 1.00 4,200,000 4,200,000
June 1999 June 2001 2.00 125,000 125,000
July 1999 July 2001 2.00 250,000 250,000
August 1999 August 2001 2.00 350,000 350,000
--------- ---------
4,925,000 4,925,000
========= =========
Each warrant was issued at an exercise price above the cash price of
the stock on the date of issuance.
NOTE 5 - INCOME TAXES
At December 31, 2000, the Company had a net operating loss carryforward
of approximately $1,300,000 that may be offset against future taxable
income through 2020. These carryforwards are subject to review by the
Internal Revenue Service.
The Company has fully reserved the $192,000 tax benefit of operating
loss carryforwards, by a valuation allowance of the same amount,
because the likelihood of realization of the tax benefit cannot be
determined.
Temporary differences between the time of reporting certain items for
financial and tax reporting purposes consists primarily of exploration
costs on oil and gas properties.
There is no current or deferred tax expense for the year ended December
31, 2000. The Company, in 2000, utilized net operating loss
carryforwards to offset taxable income, and, in 1999 had no taxable
income. The benefits of timing differences have not previously been
recorded.
Income tax expense (benefit) for the year ended December 31, 2000
consists of the following components:
Current $ 32,000
Tax benefit of net operating loss
carryforwards (32,000)
----------
Total tax expense (benefit) $ -
==========
F-13
PANNONIAN ENERGY INC. AND SUBSIDIARIES
(A DEVELOPMENT STAGE COMPANY)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
NOTE 5 - INCOME TAXES (CONTINUED)
A reconciliation between the statutory federal income tax rate (34%)
and the effective rate of income tax expense for 2000 is as follows:
Statutory federal income tax rate 31%
Increase (decrease) in taxes resulting from:
State tax, net of federal benefit 3
Utilization of net operating loss carryforwards (34)
------
Effective Rate -%
======
NOTE 6 - RELATED PARTY TRANSACTIONS
During 2000 the Company incurred debt to related parties in the
aggregate amount of $366,657 for cash loans, expenses paid on behalf of
the Company and conversion of interest to debt. Repayments made during
the year aggregated $63,000.
The Board of Directors approved the payment of bonus' and directors
fees for 2000 to officers and directors of the Company in the aggregate
amount of $455,000, of which $32,000 was paid as of December 31, 2000.
The President of the Company personally guaranteed certain property
loans incurred by the Company (Note 2) which were subsequently assumed
by joint venture partners.
During 2000 the Company paid consulting and professional fees to
officers, directors and related parties of $ 96,000.
NOTE 7 - COMMITMENTS AND CONTINGENCIES
During 2000, the Company leased office facilities under a one year
lease agreement. Rent expense was $52,573 for the year ended December
31, 2000.
In February 2001, the Company entered into a non-cancelable lease for
office facilities in Denver, Colorado. Minimum payments due under this
lease are as follows:
Year ending
December 31,
2001 $ 31,515
2002 34,775
2003 35,900
2004 24,500
In conjunction with the Company's working interests in undeveloped oil
and gas prospects, the Company must pay approximately $35,000 in delay
rentals and other costs during fiscal year ended December 31, 2001 to
maintain the right to explore these prospects.
The Company may be subject to various possible contingencies which are
derived primarily from interpretations of federal and state laws and
regulations affecting the oil and gas industry. Although management
believes it has complied with the various laws and regulations, new
rulings and interpretations may require the Company to make
adjustments.
F-14
PANNONIAN ENERGY INC. AND SUBSIDIARIES
(A DEVELOPMENT STAGE COMPANY)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
NOTE 8 - FINANCIAL INSTRUMENTS
FAIR VALUE
The carrying amount reported in the balance sheet for cash, prepaid
expenses, accounts payable and accrued liabilities approximates fair
value because of the immediate or short-term maturity of these
financial instruments.
CONCENTRATION OF CREDIT RISK
Financial instruments which potentially subject the Company to
concentrations of credit risk consist of cash. The Company maintains
cash accounts at one financial institution. The Company periodically
evaluates the credit worthiness of financial institutions, and
maintains cash accounts only in large high quality financial
institutions, thereby minimizing exposure for deposits in excess of
federally insured amounts. The Company believes that credit risk
associated with cash is remote. At December 31, 2000 cash in excess of
federally insured amounts was $770,000.
NOTE 9 - SEGMENT REPORTING
In June 1997, SFAS No. 131, "Disclosure about Segments of an Enterprise
and Related Information" was issued, which amends the requirements for
a public enterprise to report financial and descriptive information
about its reportable operating segments. Operating segments, as defined
in the pronouncement, are components of an enterprise about which
separate financial information is available and that are evaluated
regularly by the Company in deciding how to allocate resources and in
assessing performance. The financial information is required to be
reported on the basis that is used internally for evaluating segment
performance and deciding how to allocate resources to segments.
The Company has one reportable segment, oil and gas producing
activities. The Company has concentrated substantially all of its oil
and gas acquisition and exploration activities in the western United
States. All significant activities in this segment have been with
industry partners.
The Company has not earned any revenue from its oil and gas activities
nor recorded significant proved reserves at December 31, 2000. During
the year ended December 31, 2000, the Company recorded $200,000 income
from the sale of oil and gas permits associated with its European
operations.
NOTE 10 - COMPREHENSIVE INCOME
There are no adjustments necessary to net (loss) as presented in the
accompanying statements of operations to derive comprehensive income in
accordance with SFAS No. 130, "Reporting Comprehensive Income."
F-15
PANNONIAN ENERGY INC. AND SUBSIDIARIES
(A DEVELOPMENT STAGE COMPANY)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
NOTE 11 - SUBSEQUENT EVENTS
On January 31, 2001, the Company entered into an agreement and Plan of
Reorganization (the Agreement) with San Joaquin Resources Inc. (San
Joaquin), a public Company incorporated under the Laws of the State of
Nevada, whereby the shareholders of the Company received 14,000,000
shares of San Joaquin common stock for all of the outstanding shares
and common stock warrants of the Company.
On completion of the transaction, the Company became a wholly-owned
subsidiary of San Joaquin. However, since this transaction resulted in
the existing shareholders of the Company acquiring control of San
Joaquin, for financial reporting purposes the business combination will
be accounted for as an additional capitalization of San Joaquin (a
reverse acquisition with the Company as the accounting acquirer).
In March 2001, San Joaquin changed its name to Gasco Energy, Inc.
The Agreement required the Company, prior to closing of the merger
transaction on March 30, 2001, to divest itself of all assets not
associated with its " Riverbend" area of interest (the non-Riverbend
assets).
The transfer of the non-Riverbend assets in the United States was
comprised as follows:
Oil and gas properties $ 1,465,768
Cash 1,000,000
Liabilities assumed (555,185)
---------------
$ 1,910,583
===============
The Company held, through PIL, non-United States oil and gas
properties. In accordance with the Agreement, the Company distributed,
as a dividend in kind, all of the outstanding shares of PIL to the
shareholders of the Company. The book value of the PIL shares as of the
date of distribution was approximately $197,000.
F-16