FORM 20-F/A
AMENDMENT NO. 1
[ ] Registration Statement Pursuant to Section 12(b) or (g) of the Securities
Exchange Act of 1934
or
[X] Annual Report Pursuant to Section 13 or 15(d) of the Securities Exchange Act
of 1934
FOR THE FISCAL YEAR ENDED AUGUST 31, 2001
or
[ ] Transition Report Pursuant to Section 13 or 15(d) of the Securities Exchange
Act of 1934
For the transition period from _________ to _________
Commission file number: 000-30196
TRIMARK ENERGY LTD.
(formerly Trimark Oil & Gas Ltd.)
(Exact name of Registrant as specified in its charter)
TRIMARK ENERGY LTD.
(formerly Trimark Oil & Gas Ltd.)
(Translation of Registrant's name into English)
YUKON TERRITORY, CANADA
(Jurisdiction of incorporation or organization)
1305 - 1090 WEST GEORGIA STREET, VANCOUVER, BRITISH COLUMBIA, V6E 3V7
(Address of principal executive offices)
Securities registered or to be registered pursuant to Section 12(b) of the Act.
NONE
Securities registered or to be registered pursuant to Section 12(g) of the Act.
COMMON STOCK, NO PAR VALUE
(Title of Class)
Securities for which there is a reporting obligation pursuant to Section 15(d)
of the Act.
NOT APPLICABLE
(Title of Class)
Indicate the number of outstanding shares of each of the issuer's classes of
capital or common stock as of the close of the period covered by the annual
report.
20,488,016 COMMON SHARES AS OF AUGUST 31, 2001
Indicate by check mark whether the registrant (1) has filed all reports required
to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during
the preceding 12 months (or for such shorter period that the registrant was
required to file such reports), and (2) has been subject to such filing
requirements for the past 90 days.
Yes X No
----------- ---------
Indicate by check mark which financial statement item the registrant has elected
to follow.
Item 17 X Item 18 Page 1 of 31
--------- -----------
-1-
This amendment is being filed for the purpose of updating the Auditor's Report
on the financial statements contained herein, and contains only those items
relating to such statements. This amendment also includes Exhibit 8.1 List of
Subsidiaries.
ITEM 8. FINANCIAL INFORMATION.
- --------------------------------------------------------------------------------
Description Page
- ----------- ----
Audited Consolidated Financial Statements for the
Years Ended August 31, 2001, 2000 and 1999 F-1
Significant Changes
Not applicable.
-2-
PART III
ITEM 17. FINANCIAL STATEMENTS.
- --------------------------------------------------------------------------------
See pages F-1 through F-21
ITEM 18. FINANCIAL STATEMENTS.
- --------------------------------------------------------------------------------
Not applicable.
ITEM 19. EXHIBITS.
- --------------------------------------------------------------------------------
Exhibit Number Description Page
- -------------- ----------- ----
1.1 Roll Over Articles of Golden Chance Resources Inc. and amendments N/A
thereto.(1)
1.2 Certificate of Continuance and Articles of Continuance for Trimark Resources N/A
Ltd. and amendments thereto.(1)
1.3 Bylaws of Trimark Resources Ltd.(1) N/A
1.4 Articles of Amendment 27
3.1 Letter of Intent dated February 25, 1999, between Hilton Petroleum, Inc., STB N/A
Energy Inc. and Berkley Petroleum Corp.(1)
3.2 Letter of Intent dated February 26, 1999, between Trimark Resources, Inc., N/A
Hilton Petroleum, Inc. and STB Energy, Inc.(1)
3.3 Letter Agreement dated March 8, 1999, between Trimark Resources, Inc., N/A
Hilton Petroleum, Inc. and STB Energy, Inc.(1)
3.4 Purchase and Sale Agreement dated June 15, 1999, between Hilton Petroleum, N/A
Inc. and Trimark Resources, Inc.(1)
3.5 Letter of Intent dated April 12, 1999, between Trimark Oil & Gas Ltd. and N/A
Philip Zaccaria and amendment dated May 14, 1999. (1)
3.6 Agreement dated April 11, 1997, between E.J. Helsley, Trimark Resources, N/A
Inc. and International Trimark Resources Ltd.(1)
3.7 Agreement dated September 10, 1997, between Trimark Resources, Inc., N/A
Trimark Oil & Gas Ltd. and Rainbow Oil & Gas, Inc.(1)
3.8 Agreement dated September 12, 1997, between Trimark Resources, Inc., N/A
Trimark Oil & Gas Ltd. and STB Energy Inc.(1)
3.9 Agreement dated September 1, 1993, between Trimark Resources Inc. and N/A
DWB Management Ltd.(1)
3.10 Participation Agreement dated October 8, 1997, between Trimark Resources, N/A
Inc. and Texstar Petroleum, Inc. (2)
3.11 Mutual Settlement and Release Agreement dated December 15, 1999 (3) N/A
-3-
Exhibit Number Description Page
- -------------- ----------- ----
3.12 Form of Loan Agreement Between Donald W. Busby and Trimark Oil & Gas N/A
Ltd. dated November 19, 1999(4)
3.13 Oil and Gas Prospect Exploration and Development Agreement dated February N/A
26, 2000(4)
8.1 List of Subsidiaries 30
(1) Previously filed as an exhibit to the Company's Registration Statement on
Form 20-F, filed with the Commission on July 29, 1999. File number 0-30196.
(2) Previously filed as an exhibit to the Company's Amended Registration
Statement on Form 20-F/A Amendment No. 1, filed with the Commission on
October 29, 1999. File number 0-30196.
(3) Previously filed as an exhibit to the Company's Amended Registration
Statement on Form 20-F/A Amendment No. 3, filed with the Commission on
January 18, 2000. File number 0-30196.
(4) Previously filed as an exhibit to the Company's Annual Report on Form 20-F,
filed with the Commission on February 28, 2001. File number 0-30196.
-4-
SIGNATURES
The registrant hereby certifies that it meets all of the requirements for filing
on Form 20-F and that it has duly caused and authorized the undersigned to sign
this annual report on its behalf.
TRIMARK ENERGY LTD.
Dated: April 4, 2002 /s/ Harvey Lim
--------------------------- ------------------------------------
Harvey Lim, Secretary
-5-
- --------------------------------------------------------------------------------
TRIMARK OIL & GAS LTD.
CONSOLIDATED FINANCIAL STATEMENTS
FOR THE YEARS ENDED
AUGUST 31, 2001, 2000 AND 1999
(Expressed in Canadian Dollars)
- --------------------------------------------------------------------------------
F-1
6
AUDITORS' REPORT
To the Shareholders of
Trimark Oil and Gas Ltd.
We have audited the consolidated balance sheets of Trimark Oil and Gas Ltd. as
at August 31, 2001 and 2000 and the consolidated statements of loss and deficit
and cash flow for the years ended August 31, 2001, 2000 and 1999. 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 Canadian and United States generally
accepted auditing standards. Those standards require that we plan and perform an
audit to obtain reasonable assurance whether the financial statements are free
of material misstatement. An audit includes examining, on a test basis, evidence
supporting the amounts and disclosures in the financial statements. An audit
also includes assessing the accounting principles used and significant estimates
made by management, as well as evaluating the overall financial statement
presentation.
In our opinion, these consolidated financial statements present fairly, in all
material respects, the financial position of the Company as at August 31, 2001
and 2000 and the results of its operations and its cash flow for the years ended
August 31, 2001, 2000 and 1999 in accordance with Canadian generally accepted
accounting principles.
Canadian generally accepted accounting principles vary in certain significant
respects from accounting principles generally accepted in the United States.
Application of accounting principles generally accepted in the United States
would have affected assets and shareholders' equity as at August 31, 2001 and
2000 and results of operations for the year ended August 31, 2001, 2000 and 1999
to the extent summarized in Note 11 to the consolidated financial statements.
Vancouver, B.C. /s/ D&H Group
November 27, 2001, except for Note 13
which is as of December 31, 2001 Chartered Accountants
(D&H Group was formerly known as Dyke & Howard)
D & H Group
A Partnership of Corporations
A Member of BHD Association with affiliated offices
across Canada and Internationally
10th Floor, 1333 West Broadway, Vancouver, BC V6H 4C2
www.dhgroup.ca F 604-731-9923 T 604-731-5881
F-2
7
TRIMARK OIL & GAS LTD.
CONSOLIDATED BALANCE SHEETS
AS AT AUGUST 31, 2001 AND 2000
(Expressed in Canadian Dollars)
2001 2000
$ $
A S S E T S
CURRENT ASSETS
Cash 214,390 1,306,708
Amounts receivable 48,942 261,634
Inventory 70,050 -
Current portion of other assets (Note 4) 193,463 -
------------ -----------
526,845 1,568,342
PETROLEUM AND NATURAL GAS INTERESTS (Note 3) 7,022,246 7,795,380
OTHER ASSETS (Note 4) 619,080 772,905
------------ -----------
8,168,171 10,136,627
============ ===========
L I A B I L I T I E S
CURRENT LIABILITIES
Accounts payable and accrued liabilities (Note 8(b)) 520,629 306,565
Advances (Note 5) 553,200 -
------------ -----------
1,073,829 306,565
------------ -----------
S H A R E H O L D E R S ' E Q U I T Y
SHARE CAPITAL (Note 6) 19,537,102 17,141,542
SHARE SUBSCRIPTIONS RECEIVED (Note 6(a)) - 83,000
DEFICIT (12,442,760) (7,394,480)
------------ -----------
7,094,342 9,830,062
------------ -----------
8,168,171 10,136,627
============ ===========
OPERATIONS (Note 1)
APPROVED BY THE BOARD
/s/ Donald W. Busby , Director
- -------------------
/s/ Nick DeMare , Director
- -------------------
The accompanying notes are an integral part of these
consolidated financial statements.
F-3
8
TRIMARK OIL & GAS LTD.
CONSOLIDATED STATEMENTS OF LOSS AND DEFICIT
FOR THE YEARS ENDED AUGUST 31, 2001, 2000 AND 1999
(Expressed in Canadian Dollars)
2001 2000 1999
$ $ $
REVENUES
Oil and gas sales 521,322 202,714 135,865
Interest and other 114,098 195,735 7,464
------------ ----------- -----------
635,420 398,449 143,329
------------ ----------- -----------
EXPENSES
Production 185,037 154,529 132,176
General and administrative 330,245 462,429 349,844
Depreciation, depletion and impairment 5,168,418 78,340 1,703,500
------------ ----------- -----------
5,683,700 695,298 2,185,520
------------ ----------- -----------
NET LOSS FOR THE YEAR (5,048,280) (296,849) (2,042,191)
DEFICIT - BEGINNING OF YEAR (7,394,480) (7,097,631) (5,055,440)
------------ ----------- -----------
DEFICIT - END OF YEAR (12,442,760) (7,394,480) (7,097,631)
============ =========== ===========
LOSS PER COMMON SHARE $(0.29) $(0.02) $(0.40)
============ =========== ===========
WEIGHTED AVERAGE NUMBER OF
COMMON SHARES OUTSTANDING 17,361,325 14,770,945 5,057,787
============ =========== ===========
The accompanying notes are an integral part of these
consolidated financial statements.
F-4
9
TRIMARK OIL & GAS LTD.
CONSOLIDATED STATEMENTS OF CASH FLOW
FOR THE YEARS ENDED AUGUST 31, 2001, 2000 AND 1999
(Expressed in Canadian Dollars)
2001 2000 1999
$ $ $
CASH PROVIDED FROM (USED FOR)
OPERATING ACTIVITIES
Net loss for the year (5,048,280) (296,849) (2,042,191)
Items not involving cash
Depreciation, depletion and impairment 5,168,418 78,340 1,703,500
Unrealized foreign exchange (39,638) - -
----------- ----------- -----------
80,500 (218,509) (338,691)
Decrease (increase) in amounts receivable 212,692 (233,245) 3,337
Increase in inventory (70,050) - -
Increase in accounts payable and accrued liabilities 214,064 42,450 (197,772)
----------- ----------- -----------
437,206 (409,304) (533,126)
----------- ----------- -----------
FINANCING ACTIVITIES
Issuance of common shares 2,312,560 3,933,801 493,990
Issuance of special warrants - - 4,400,200
Issuance costs - (323,770) (276,404)
Share subscriptions received - 83,000 1,116,570
Advances received (repayment of) 553,200 - (65,220)
----------- ----------- -----------
2,865,760 3,693,031 5,669,136
----------- ----------- -----------
INVESTING ACTIVITIES
Petroleum and natural gas interests expenditures (4,415,135) (2,817,323) (4,625,161)
Proceeds from sale of petroleum and natural gas interests 19,851 39,728 1,038,380
Additions to other assets - (772,905) -
----------- ----------- -----------
(4,395,284) (3,550,500) (3,586,781)
----------- ----------- -----------
DECREASE IN CASH FOR THE YEAR (1,092,318) (266,773) 1,549,229
CASH - BEGINNING OF YEAR 1,306,708 1,573,481 24,252
----------- ----------- -----------
CASH - END OF YEAR 214,390 1,306,708 1,573,481
=========== =========== ===========
The accompanying notes are an integral part of these
consolidated financial statements.
F-5
10
TRIMARK OIL & GAS LTD.
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
FOR THE YEARS ENDED AUGUST 31, 2001, 2000 AND 1999
(Expressed in Canadian Dollars)
1. OPERATIONS
Trimark Oil & Gas Ltd. (the "Company") is an independent energy company
engaged in the acquisition, exploration and development of crude oil and
natural gas properties in the United States.
As at August 31, 2001, the Company has a working capital deficiency of
$546,984 and for the year ended August 31, 2001, the Company incurred a net
loss of $5,048,280. The future viability of the Company is dependent upon
the continued financial support of the Company's creditors, the ability to
obtain additional financing to satisfy future working capital requirements
and, in the longer term, the generation of profit and positive cash flow
from business operations.
2. ACCOUNTING POLICIES
Basis of Presentation
These consolidated financial statements have been prepared in accordance
with Canadian generally accepted accounting principles ("Canadian GAAP").
The significant differences between these principles and those that would
be accepted under United States generally accepted accounting principles
("US GAAP") are disclosed in Note 11.
The preparation of financial statements in conformity with Canadian GAAP
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 amounts of revenues and expenses during the reporting period.
Actual results could differ from those estimates.
The consolidated financial statements include the accounts of the Company
and its wholly-owned subsidiaries, Trimark Resources Inc. and Safari
Petroleum, LLC. Intercompany balances and transactions are eliminated on
consolidation.
Petroleum and Natural Gas Interests
The Company follows the full cost method of accounting for petroleum and
natural gas operations. Under this method all costs related to the
exploration for and development of petroleum and natural gas reserves are
capitalized on a country-by-country basis. Costs include lease acquisition
costs, geological and geophysical expenses, overhead directly related to
exploration and development activities and costs of drilling both
productive and non-productive wells. Proceeds from the sale of properties
are applied against capitalized costs, without any gain or loss being
recognized, unless such a sale would significantly alter the rate of
depletion and depreciation.
F-6
11
TRIMARK OIL & GAS LTD.
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
FOR THE YEARS ENDED AUGUST 31, 2001, 2000 AND 1999
(Expressed in Canadian Dollars)
2. ACCOUNTING POLICIES (continued)
Depletion of exploration and development costs and depreciation of
production equipment is provided using the unit-of-production method based
upon estimated proven petroleum and natural gas reserves. The costs of
significant unevaluated properties are excluded from costs subject to
depletion. For depletion and depreciation purposes, relative volumes of
petroleum and natural gas production and reserves are converted into
equivalent units based upon relative energy content. Depreciation of the
gathering facility is charged to earnings over an estimated useful life of
10 years on a straight-line basis.
In applying the full cost method, the Company performs a ceiling test
whereby the carrying value of petroleum and natural gas properties and
production equipment, net of recorded future income taxes and the
accumulated provision for site restoration and abandonment costs, is
compared annually to an estimate of future net cash flow from the
production of proven reserves. Net cash flow is estimated using year end
prices, less estimated future general and administrative expenses,
financing costs and income taxes. Should this comparison indicate an excess
carrying value, the excess is charged against earnings.
Substantially all of the Company's oil and gas exploration, development and
production activities are conducted jointly with others and, accordingly,
these consolidated financial statements reflect the Company's proportionate
interest in such activities.
Revenue Recognition
The Company recognizes petroleum and natural gas revenues from its
interests in producing wells as oil and gas is produced and sold from these
wells. The Company has no gas balancing arrangements in place. Oil and gas
sold is not significantly different from the Company's product entitlement.
Cash Equivalents
Cash includes cash and short-term deposits maturing within 90 days of the
original date of acquisition.
Inventory
Inventory consists of materials inventory. The materials inventory balance
include equipment held for future use and is accounted for based on the
lower of moving average cost method or market.
F-7
12
TRIMARK OIL & GAS LTD.
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
FOR THE YEARS ENDED AUGUST 31, 2001, 2000 AND 1999
(Expressed in Canadian Dollars)
2. ACCOUNTING POLICIES (continued)
Foreign Currency Translation
Monetary assets and liabilities are translated into Canadian dollars at the
balance sheet date rate of exchange and non-monetary assets and liabilities
at historical rates. Revenues and expenses are translated at appropriate
transaction date rates except for amortization, depreciation and depletion,
which are translated at historical rates. Gains and losses on translation
are included in income.
Income Taxes
Income tax liabilities and assets are recognized for the estimated tax
consequences attributable to differences between the amounts reported in
the consolidated financial statements and their respective tax bases, using
enacted income tax rates. The effect of a change in income tax rates on
future income tax liabilities and assets is recognized in income in the
period that the change occurs.
Share Option Plan
The Company grants share options in accordance with the policies of the
Canadian Venture Exchange (the "CDNX") as described in Note 6(c). No
compensation expense is recognized for this plan when shares or share
options are issued pursuant to the plan. Consideration paid for the shares
on exercise of the share options is credited to share capital.
Earnings (Loss) Per Share
Earnings (loss) per common share amounts have been calculated and presented
in accordance with the new recommendations of the Canadian Institute of
Chartered Accountants.
Basic earnings per share is computed by dividing income available to common
shareholders by the weighted average number of common shares outstanding
during the period. The weighted average number of common shares calculated
excludes contingently returnable common shares. The computation of diluted
earnings per share assumes the conversion, exercise or contingent issuance
of securities only when such conversion, exercise or issuance would have a
dilutive effect on earnings per share. The dilutive effect of outstanding
options and warrants and their equivalents is reflected in diluted earnings
per share by application of the treasury stock method.
The new standard has been applied on a retroactive basis and had no impact
on the amounts previously presented.
F-8
13
TRIMARK OIL & GAS LTD.
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
FOR THE YEARS ENDED AUGUST 31, 2001, 2000 AND 1999
(Expressed in Canadian Dollars)
3. PETROLEUM AND NATURAL GAS INTERESTS
2001 2000
$ $
Evaluated Properties
Acquisitions and leasehold costs 5,829,076 3,102,658
Exploration and development costs 4,185,331 751,038
Gathering facility 146,242 -
----------- -----------
10,160,649 3,853,696
----------- -----------
Unevaluated Properties
Acquisitions and leasehold costs 2,680,558 6,057,733
Exploration costs 3,044,687 1,579,181
----------- -----------
5,725,245 7,636,914
----------- -----------
15,885,894 11,490,610
Less: accumulated depreciation, depletion and impairment (8,863,648) (3,695,230)
----------- -----------
7,022,246 7,795,380
=========== ===========
Property acquisition costs include costs incurred to purchase, lease, or
otherwise acquire a property. Exploration costs include the costs of
geological and geophysical activity, dry holes and drilling and equipping
exploratory wells. Development costs include costs incurred to gain access
to prepare development well locations for drilling and to drill and equip
development wells.
During the year ended August 31, 2001, the Company wrote down the carrying
value of its petroleum and natural gas interests by $4,790,379 from the
ceiling test performed effective August 31, 2001. No write- down was
required during the year ended August 31, 2000 from the ceiling test
performed effective August 31, 2000. During the year ended August 31, 1999,
the Company wrote down the carrying value of its petroleum and natural gas
interests by $1,649,518 from the ceiling test performed effective August
31, 1999. The ceiling test is a cost-recovery test and is not intended to
result in an estimate of fair market value.
4. OTHER ASSETS
2001 2000
$ $
Convertible note (a) 619,080 588,880
Loan to officer (b) 193,463 184,025
-------- --------
812,543 772,905
Less current portion 193,463 -
-------- --------
619,080 772,905
======== ========
F-9
14
TRIMARK OIL & GAS LTD.
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
FOR THE YEARS ENDED AUGUST 31, 2001, 2000 AND 1999
(Expressed in Canadian Dollars)
4. OTHER ASSETS (continued)
(a) The Company holds a US$400,000 unsecured convertible note (the "ALPNET
Note") issued by ALPNET, Inc. ("ALPNET"), a public Utah company
trading on the facilities of the National Association of Securities
Dealers. The ALPNET Note has a variable interest rate of US prime plus
2%, payable on a quarterly basis. The principal is repayable in three
equal annual instalments commencing June 2, 2003. The Company has the
right to convert all or any portion of the outstanding principal into
common stock of ALPNET, on the basis of US$2.22 per share. ALPNET has
the right to pay the full amount, or any portion, of the ALPNET Note
prior to its maturity.
In connection with the ALPNET Note, ALPNET granted the Company a
warrant to purchase up to 90,090 common shares of ALPNET, at an
exercise price of US$3.33 per share, on or before June 2, 2002.
(b) During the year ended August 31, 2000, the Company provided a
US$125,000 relocation loan to the President of the Company. The loan
bears interest at 5% per annum, compounded monthly, and matures on
March 27, 2002. During the year ended August 31, 2001, interest income
of $9,968 (2000 - $4,018) was received.
5. ADVANCES
During the year ended August 31, 2001, the Company received $553,200
pursuant to a proposed $1 million convertible debenture financing. The
terms initially proposed was that the debentures bear interest at 10% per
annum with interest for the first year to be prepaid on closing in common
shares of the Company at $0.35 per share. Interest thereafter would be paid
quarterly in cash or shares at the holder's option. The debentures were
proposed to have a three year term and be convertible into shares at $0.35
per share in year one, at $0.40 per share in year two and at $0.45 per
share in year three. In light of the current market conditions the Company
and the subscribers are negotiating a revision to the terms and features.
The Company has recorded $4,904 of interest expense, based on a rate of 10%
per annum. The amount has been included in accounts payable and accrued
liabilities. Hilton Petroleum Ltd. ("Hilton"), a public company which is a
shareholder of the Company and in which certain of its officers and
directors are also officers and directors of the Company, advanced
$153,200.
F-10
15
TRIMARK OIL & GAS LTD.
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
FOR THE YEARS ENDED AUGUST 31, 2001, 2000 AND 1999
(Expressed in Canadian Dollars)
6. SHARE CAPITAL
Authorized - unlimited common shares without par value
Issued and outstanding - 2001 2000 1999
------------------------- -------------------------- --------------------------
Number $ Number $ Number $
Balance, beginning of year 16,005,446 17,141,542 11,625,360 12,414,941 3,306,710 5,854,294
------------ ------------ ------------ ------------- ------------ -------------
Issued during the year
Private placements 4,482,570 2,395,560 3,699,279 4,399,261 - -
Exercise of options - - 200,000 228,000 620,300 493,990
Exercise of special warrants - - - - 6,538,350 5,385,100
Exercise of warrants - - 325,000 286,000 - -
Exercise of agents warrants - - 155,807 137,110 - -
Acquisition of
petroleum interest - - - - 1,160,000 1,044,000
------------ ------------ ------------ ------------- ------------ -------------
4,482,570 2,395,560 4,380,086 5,050,371 8,318,650 6,923,090
Issuance costs - - - (323,770) - (362,443)
------------ ------------ ------------ ------------- ------------ -------------
4,482,570 2,395,560 4,380,086 4,726,601 8,318,650 6,560,647
------------ ------------ ------------ ------------- ------------ -------------
Balance, end of year 20,488,016 19,537,102 16,005,446 17,141,542 11,625,360 12,414,941
============ ============ ============ ============= ============ =============
(a) During the year ended August 31, 2001, the Company completed the
following private placements:
(i) 118,570 units at $0.70 per unit for proceeds of $83,000. Each
unit is comprised of one common share and one share purchase
warrant entitling the holder to purchase an additional share at
$0.84 per share on or before June 19, 2002. The $83,000 gross
proceeds were received at August 31, 2000 and recorded as share
subscriptions received. As at August 31, 2001, the warrants
remain outstanding; and
(ii) 2,200,000 units, at $0.52 per unit, for proceeds of $1,144,000.
Each unit is comprised of one common share and one share purchase
warrant entitling the holder to purchase an additional share at
$0.52 per share for a period of two years. The purchasers of the
private placement are a private company owned by the President of
the Company and Hilton. At August 31, 2001, the warrants remained
outstanding; and
F-11
16
TRIMARK OIL & GAS LTD.
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
FOR THE YEARS ENDED AUGUST 31, 2001, 2000 AND 1999
(Expressed in Canadian Dollars)
6. SHARE CAPITAL (continued)
(iii) 2,164,000 units at $0.54 per unit for proceeds of $1,168,560,
with officers, directors and insiders of the Company. Each unit
is comprised of one common share and one share purchase warrant.
Two warrants entitles the holder to purchase an additional share
at an exercise price of $0.62 per share on or before August 15,
2003. The Company also granted warrants to its agents (the
"Agents' Warrants") to purchase 400,000 common shares of the
Company at an exercise price of $0.62 per share on or before
August 15, 2002. At August 31, 2001, the warrants and Agents'
Warrants remained outstanding.
(b) During the year ended August 31, 2000, the Company completed a number
of private placement financings, as follows:
(i) 2,513,564 units, at $1.42 per unit, for proceeds of $3,245,491,
net of finders fees and issue costs of $323,770. Each unit
consisted of one common share and one share purchase warrant. Two
warrants entitled the holder to purchase an additional share for
a period of two years, at a price of $1.56 per share on or before
September 24, 2000 and thereafter, at $1.73 per share on or
before September 24, 2001. Subsequent to August 31, 2001, the
warrants expired without exercise. Directors, officers and a
company controlled by the President of the Company purchased
202,079 units.
(ii) 1,185,715 units at $0.70 per unit, for proceeds of $830,000. Each
unit consisted of one common share and one share purchase
warrant. Each warrant entitles the holder to purchase an
additional share for a period of two years, at a price of $0.84
per share on or before April 11, 2002. The Chairman, private
corporations controlled by the President of the Company and a
director of the Company purchased all of the units. As of August
31, 2001, the warrants remained unexercised.
(c) The Company grants share options in accordance with the policies of
the CDNX. Under the general guidelines of the CDNX the Company may
reserve up to 10% of its issued and outstanding shares to its
employees, directors or consultants to purchase common shares of the
Company.
Stock options to directors and employees of the Company and
consultants to acquire shares were granted and outstanding as at
August 31, 2001. These options are exercisable on varying dates
expiring from fiscal 2002 to fiscal 2004 at prices ranging from $0.60
to $1.90 per share.
F-12
17
TRIMARK OIL & GAS LTD.
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
FOR THE YEARS ENDED AUGUST 31, 2001, 2000 AND 1999
(Expressed in Canadian Dollars)
6. SHARE CAPITAL (continued)
Details of options outstanding are as follows:
2001 2000
------------------------------- -------------------------------
2001 Weighted 2000 Weighted
Number Average Number Average
of Options Exercise Price of Options Exercise Price
$ $
Balance, beginning of year 837,000 1.28 902,000 1.13
Granted 850,000 0.61 150,000 1.90
Exercised - - (200,000) 1.14
Cancelled/expired (100,000) 1.33 (15,000) 0.70
--------- ---------
Balance, end of year 1,587,000 0.92 837,000 1.28
========= =========
See also Note 13.
(d) As at August 31, 2001, 10,417 common shares are held in escrow, the
release of which is subject to the determination and direction of the
regulatory authorities.
7. INCOME TAXES
Future income tax assets and liabilities of the Company as at August 31,
2001 and 2000 are as follows:
2001 2000
$ $
Future income tax assets (liabilities)
Losses carried forward 2,490,000 1,467,000
Other 152,000 214,000
Petroleum and natural gas interests 1,960,000 (227,000)
---------- ----------
4,602,000 1,454,000
Valuation allowance (4,602,000) (1,454,000)
---------- ----------
Net future income tax asset - -
========== ==========
F-13
18
TRIMARK OIL & GAS LTD.
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
FOR THE YEARS ENDED AUGUST 31, 2001, 2000 AND 1999
(Expressed in Canadian Dollars)
7. INCOME TAXES (continued)
2001 2000
$ $
Income tax rate reconciliation
Combined federal and provincial income tax rate 44% 44%
=========== =========
Expected income tax recovery 2,271,000 133,500
Foreign income tax rate differences (332,000) (79,000)
Non-deductible depreciation and depletion (1,809,000) (27,000)
Deductible petroleum and natural gas interest expenditures 643,000 275,000
Non-taxable unrealized foreign exchange gains 284,000 81,000
Other 62,000 62,000
Unrecognized benefit of income tax losses (1,119,000) (445,500)
----------- ---------
Actual income tax recovery - -
=========== =========
As at August 31, 2001, the Company has accumulated non-capital losses for
Canadian income tax purposes of approximately $1,200,000, expiring from
2002 to 2008, and for United States income tax purposes of approximately
US$3,600,000, expiring from 2008 to 2021, which are available for
application against future taxable income, the related benefits of which
have not been recognized in these financial statements.
8. RELATED PARTY TRANSACTIONS
(a) During the year ended August 31, 2001, the Company was charged
$157,239 (2000 - $120,264; 1999 - $144,232) for management,
professional, accounting and administrative fees and professional fees
provided by directors of the Company or companies controlled by
directors of the Company.
(b) As at August 31, 2001, accounts payable and accrued liabilities
include $101,158 (2000 - $98,268) due to Hilton.
(c) During the year ended August 31, 1999, the Company and Hilton entered
into a number of agreements whereby the Company purchased, from
Hilton, certain leasehold interests in unproved petroleum properties
for US$3,450,000 and sold, to Hilton, certain leasehold interests for
US$700,000. The net consideration of US$2,750,000 consisted of
US$2,050,000 cash and US$700,000 paid by the issuance of 1,160,000
common shares of the Company.
(d) See also Notes 4(b), 5 and 6.
F-14
19
TRIMARK OIL & GAS LTD.
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
FOR THE YEARS ENDED AUGUST 31, 2001, 2000 AND 1999
(Expressed in Canadian Dollars)
9. SEGMENTED INFORMATION
As at August 31, 2001, the Company and its subsidiaries operated in one
industry segment, the exploration for, and the development and production
of crude oil and natural gas. The Company's current petroleum interests are
located in the United States and its corporate assets are located in
Canada. Identifiable assets, revenues and net loss in each of these
geographic areas are as follows:
2001
-----------------------------------------------------
Identifiable Net
Assets Revenues Income (Loss)
$ $ $
United States 7,349,920 536,864 (5,533,636)
Canada 818,251 98,556 485,356
---------- ---------- -----------
8,168,171 635,420 (5,048,280)
========== ========== ===========
2000
-----------------------------------------------------
Identifiable Net
Assets Revenues Income (Loss)
$ $ $
United States 8,223,111 260,952 (54,324)
Canada 1,913,516 137,497 (242,525)
---------- ---------- -----------
10,136,627 398,449 (296,849)
========== ========== ===========
1999
-----------------------------------------------------
Identifiable Net
Assets Revenues Income (Loss)
$ $ $
United States 5,410,650 135,865 (1,645,195)
Canada 1,287,345 7,464 (396,996)
---------- ---------- -----------
6,697,995 143,329 (2,042,191)
========== ========== ===========
F-15
20
TRIMARK OIL & GAS LTD.
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
FOR THE YEARS ENDED AUGUST 31, 2001, 2000 AND 1999
(Expressed in Canadian Dollars)
10. FINANCIAL INSTRUMENTS
(a) Fair Values
The fair values of financial instruments at August 31, 2001 and 2000,
were estimated based on relevant market information and the nature and
terms of financial instruments. Management is not aware of any factors
which would significantly affect the estimated fair market amounts,
however, such amounts have not been comprehensively revalued for
purposes of these financial statements. Disclosure subsequent to the
balance sheet dates and estimates of fair value at dates subsequent to
August 31, 2001 and 2000 may differ significantly from that presented.
Fair value approximates the amounts reflected in the financial
statements for cash, accounts receivable and accounts payable and
accrued liabilities and advances. The fair value of other assets at
August 31, 2001, is estimated to be approximately $780,250.
(b) Credit Risk Management
The accounts receivable are from various companies operating in the
oil and gas industry in the United States and are subject to normal
industry credit risks.
11. DIFFERENCES BETWEEN CANADIAN AND UNITED STATES GENERALLY ACCEPTED
ACCOUNTING PRINCIPLES
(a) The consolidated financial statements of the Company have been
prepared in accordance to Canadian GAAP which differ in certain
material respects from US GAAP. Material differences between Canadian
and US GAAP and their effect on the Company's consolidated financial
statements are summarized in the tables below.
Consolidated Statement of Loss
2001 2000 1999
$ $ $
Net loss as reported under Canadian GAAP (5,048,280) (296,849) (2,042,191)
Adjustments for related party transactions (ii) 815,793 - 450,084
Stock-based compensation (iv) (316,069) (98,126) (735,393)
Other compensation expense (vii) (172,720) (134,742) (31,600)
----------- ----------- -----------
Net loss under US GAAP (4,721,276) (529,717) (2,359,100)
=========== =========== ===========
Weighted average number of
common shares outstanding (i) 17,361,325 15,012,218 5,296,479
=========== =========== ===========
Loss per share under US GAAP (0.27) (0.04) (0.45)
=========== =========== ===========
F-16
21
TRIMARK OIL & GAS LTD.
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
FOR THE YEARS ENDED AUGUST 31, 2001, 2000 AND 1999
(Expressed in Canadian Dollars)
11. DIFFERENCES BETWEEN CANADIAN AND UNITED STATES GENERALLY ACCEPTED
ACCOUNTING PRINCIPLES (continued)
Consolidated Balance Sheet
2001 2000
$ $
Total assets under Canadian GAAP 8,168,171 10,136,627
Adjustments for related party transactions (ii) (1,928,229) (2,744,022)
Deferred tax asset (v) 2,490,000 1,651,821
Less: Valuation allowance (v) (2,490,000) (1,651,821)
----------- -----------
Total assets under US GAAP 6,239,942 7,392,605
=========== ===========
Total liabilities under Canadian GAAP 1,073,829 306,565
----------- -----------
Total liabilities under US GAAP 1,073,829 306,565
=========== ===========
Total shareholders' equity under Canadian GAAP 7,094,342 9,830,062
Adjustments for related party transactions (ii) (1,928,229) (2,744,022)
----------- -----------
Total shareholders' equity under US GAAP 5,166,113 7,086,040
=========== ===========
(i) Earnings per Share
Under US GAAP outstanding special warrants are included in the
calculation of loss per share.
(ii) Capital Contributions with Respect to Related Party Transactions
As described in Note 8(c), during the year ended August 31, 1999,
the Company acquired and disposed of certain petroleum interests
with Hilton Inc. for a combination of monetary and non-monetary
consideration.
US GAAP requires that certain transfers of non-monetary assets to
a company by its promoters or shareholders, in exchange for
stock, should generally be recorded at the transferor's
historical cost basis, whereas under Canadian GAAP, transfers of
non- monetary assets may be recorded based on the fair value of
either the stock issued or the assets acquired under certain
circumstances. Under Canadian GAAP these transactions were
recorded at their fair values. The transactions have been
adjusted to reflect the transactions based on the historical cost
basis.
The net loss under US GAAP has also been adjusted for the
subsequent amortization and impairment charges of a portion of
these petroleum interest acquisitions costs.
F-17
22
TRIMARK OIL & GAS LTD.
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
FOR THE YEARS ENDED AUGUST 31, 2001, 2000 AND 1999
(Expressed in Canadian Dollars)
11. DIFFERENCES BETWEEN CANADIAN AND UNITED STATES GENERALLY ACCEPTED
ACCOUNTING PRINCIPLES (continued)
(iii) Ceiling test on petroleum interests
US GAAP requires that the net book value of proved petroleum
interests not exceed the sum of the present value of estimated
future net revenues (determined using current prices of petroleum
production less estimated future expenditures to be incurred in
developing and producing the proved reserves, discounted at ten
percent). This ceiling test was performed effective August 31,
2001 and it was determined that no additional write-down of
proved petroleum interests was necessary.
(iv) The Company grants stock options which reserves common shares for
issuance to employees and directors. Under Canadian GAAP, the
issuance of stock options is not recognized for accounting
purposes. Under US GAAP, the issuance of stock options requires
an assessment to determine stock based compensation. Accordingly,
the Company has applied the provisions of Financial Account
Standards ("SFAS") 123 Accounting for Stock-Based Compensation to
calculate stock-based compensation under US GAAP using the fair
value method.
The fair value of each option grant is estimated on the date of
grant using the Black- Scholes option pricing model with the
following assumptions used for grants in 2001, 2000 and 1999:
2001 2000 1999
------------------ ----------------- -----------------
Risk-free interest rate 4.81% - 6.47% 5.63% - 5.79% 6.25% - 7.5%
Expected volatility 124% 87% 89%
Expected lives 3 years 2 - 3 years 3 years
(v) Income Tax
Under Canadian GAAP, deferred tax assets relating to the
potential benefit of income tax loss carryforwards are not
recognized unless there is virtual certainty of realization of
the benefit. US GAAP provides similar treatment, but requires the
benefit be recognized and a valuation allowance be recognized to
fully offset the deferred tax asset.
As at August 31, 2001, the Company has fully reserved the
$2,490,000 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. Of the total
tax benefit, $838,179 is attributable to the year ended August
31, 2001.
F-18
23
TRIMARK OIL & GAS LTD.
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
FOR THE YEARS ENDED AUGUST 31, 2001, 2000 AND 1999
(Expressed in Canadian Dollars)
11. DIFFERENCES BETWEEN CANADIAN AND UNITED STATES GENERALLY ACCEPTED
ACCOUNTING PRINCIPLES (continued)
(vi) Private Placements of Common Stock and Special Warrants with
Related Parties
US GAAP requires disclosure of private placements conducted by
the Company where directors and officers of the Company are
participants. During the year ended August 31, 2001, directors,
officers and companies controlled by the directors or officers
acquired 2,284,000 shares or special warrants (2000 - 1,387,794;
1999 - 1,580,000) of the Company, pursuant to private placements
conducted by the Company, for cash proceeds of $1,223,360 (2000 -
$1,116,952; 1999 - $1,264,000).
(vii) Private Placements of Common Stock
The Company conducts the majority of its equity financings
pursuant to private placements. Under the policies of the
Canadian Venture Exchange, on which the Company's common stock is
listed, the Company may provide a discount off the market price
of the Company's common stock. US GAAP does not permit a discount
from the market price. US GAAP requires the recognition of the
market value of the Company's common stock as a credit to share
capital, with a charge to operations for the portion of the
discount relating to equity financings conducted with officers
and directors of the Company and a charge to shareholders'
equity, as a capital distribution, for the discount relating to
the remaining portion of the equity financings.
Under US GAAP, loss and capital distributions for the year ended
August 31, 2001 would increase by $172,720 (2000 - $134,742; 1999
- $31,600) and $140,700 (2000 - $184,919; 1999 - $37,805),
respectively, and share capital, as at August 31, 2001 would
increase by $961,402 (2000 - $647,982). There is no net change to
shareholders' equity.
(b) The Company's consolidated statements of cash flow comply with US
GAAP.
(c) New Technical Pronouncements
In September 2000, SFAS No. 140 "Accounting for Transfers and
Servicing of Financial Assets and Extinguishments of Liabilities - A
Replacement of FASB Statement No. 125" was issued. Adoption of SFAS
No. 140 is not expected to have an impact on the Company's financial
statements.
F-19
24
TRIMARK OIL & GAS LTD.
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
FOR THE YEARS ENDED AUGUST 31, 2001, 2000 AND 1999
(Expressed in Canadian Dollars)
11. DIFFERENCES BETWEEN CANADIAN AND UNITED STATES GENERALLY ACCEPTED
ACCOUNTING PRINCIPLES (continued)
In June 2001, the Financial Accounting Standards Board ("FASB") issued
SFAS 141 "Business Combinations" and SFAS 142 "Goodwill and Other
Intangible Assets". SFAS 141 requires all business combinations
initiated after June 30, 2001 to be accounted for under the purchase
method. For all business combinations for which the date of
acquisition is after June 30, 2001, SFAS 141 also establishes specific
criteria for the recognization of intangible assets separately from
goodwill and requires unallocated negative goodwill to be written off
immediately as an extraordinary gain rather than deferred and
amortized. SFAS 142 changes the accounting for goodwill and other
intangible assets after an acquisition. The most significant changes
made by SFAS 142 are: 1) goodwill and intangible assets with
indefinite lives will no longer be amortized; 2) goodwill and
intangible assets with indefinite lives must be tested for impairment
at least annually; and 3) the amortization period for intangible
assets with finite lives will no longer be limited to forty years. The
Company does not believe that the adoption of these statements will
have a material effect on its financial position, results of
operations, or cash flows.
In June 2001, the FASB also approved for issuance SFAS 143, "Asset
Retirement Obligations." SFAS 143 establishes accounting requirements
for retirement obligations associated with tangible long-lived assets,
including (1) the timing of the liability recognition, (2) initial
measurement of the liability, (3) allocation of assets retirement cost
to expense, (4) subsequent measurement of the liability, and (5)
financial statement disclosure. SFAS 143 requires that an asset
retirement cost should be capitalized as part of the cost of the
related long-lived asset and subsequently allocated to expense using a
systematic and rational method. The adoption of SFAS 143 is not
expected to have a material effect on the Company's financial
position, results of operations, or cash flows.
12. SUPPLEMENTARY CASH FLOW INFORMATION
Non-cash investing and financing activities were conducted by the Company
as follows:
2001 2000 1999
$ $ $
Investing activities
Acquisition of petroleum interests
with issuance of shares - - (1,044,000)
========== ========== ==========
Financing activities
Issuance of shares for petroleum interests - - 1,044,000
Issuance of shares for special warrants exercised - - 5,385,100
Special warrants exercised - - (5,385,100)
---------- ---------- ----------
- - 1,044,000
========== ========== ==========
F-20
25
TRIMARK OIL & GAS LTD.
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
FOR THE YEARS ENDED AUGUST 31, 2001, 2000 AND 1999
(Expressed in Canadian Dollars)
12. SUPPLEMENTARY CASH FLOW INFORMATION (continued)
Other supplementary cash flow information:
2001 2000 1999
$ $ $
Interest paid in cash - 12,649 -
========== ========== ==========
Income taxes paid in cash - - -
========== ========== ==========
13. SUBSEQUENT EVENT
Subsequent to August 31, 2001, employee and director stock options to
purchase 200,000 common shares of the Company expired. The Company has
repriced the remaining stock options to purchase 1,387,000 shares to $0.15
per share and granted an option to an employee to acquire 50,000 shares at
a price of $0.15 per share for a period of three years.
F-21
26