UNITED STATES SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-QSB/A
AMENDMENT NO. 1
(Mark One)
/X/ Quarterly Report pursuant to Section 13 or 15(d) of the Securities
Exchange Act of 1934 for the quarterly period ended September 30, 2003;
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 0-18596
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AMERICAN NATURAL ENERGY CORPORATION
-------------------------------------------------------------------
(Exact name of small business issuer as specified in its charter)
OKLAHOMA 73-1605215
------------------------------- -------------------
(State or other jurisdiction of (I.R.S employer
incorporation of organization) identification no.)
7030 SOUTH YALE, SUITE 404, TULSA, OKLAHOMA 74136
-------------------------------------------------
(Address of principal executive offices, zip code)
(918) 481-1440
------------------------------------------------
(Issuer's Telephone Number, Including Area Code)
Check 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 issuer 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 whether the registrant is an accelerated filer
(as defined in Rule 12b-2 of the Exchange Act).
Yes | | No |X|
APPLICABLE ONLY TO CORPORATE ISSUERS:
As of November 12, 2003, 26,054,546 shares of the Registrant's Common
Stock, $0.01 par value, were outstanding.
AMERICAN NATURAL ENERGY CORPORATION
QUARTERLY REPORT ON FORM 10-QSB
INDEX
PART I - FINANCIAL INFORMATION
Page
Item 1. Financial Statements (unaudited)
Condensed Consolidated Balance Sheets - September 30, 2003
and December 31, 2002........................................ 3
Condensed Consolidated Statements of Operations -
Three Months and Nine Months Ended September 30, 2003 and
September 30, 2002........................................... 4
Condensed Consolidated Statements of Cash Flows -
Three Months and Nine Months Ended September 30, 2003 and
September 30, 2002........................................... 5
Notes to Condensed Consolidated Financial Statements......... 7
Item 2. Management's Discussion and Analysis or Plan of
Operations................................................... 16
Item 3. Controls and Procedures...................................... 23
PART II - OTHER INFORMATION
Item 1. Legal Proceedings............................................ 23
Item 2. Changes In Securities........................................ 24
Item 5. Other Information............................................ 24
Item 6. Exhibits and Reports on Form 8-K............................. 31
2
PART I - FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS
AMERICAN NATURAL ENERGY CORPORATION
CONDENSED CONSOLIDATED BALANCE SHEETS (UNAUDITED)
<Table>
<Caption>
SEPTEMBER 30, DECEMBER 31,
2003 2002
$ $
-------------- ------------
ASSETS
Current assets:
Cash and cash equivalents 55,743 86,295
Accounts receivable - net 539,818 357,127
Prepaid expenses 106,021 28,291
Marketable securities -- 192,947
Oil inventory 15,140 53,228
-------------- -----------
Total current assets 716,722 717,888
Proved oil and natural gas properties, net of
accumulated depletion, depreciation,
amortization and impairment of $7,650,183 and $6,960,678 2,658,047 1,089,200
Unproved oil and natural gas properties 3,283,274 2,710,994
Equipment and other fixed assets, net of
accumulated depreciation of $171,684 and $76,706 662,503 742,672
Deferred expenses 11,035 --
------------- -----------
Total assets 7,331,581 5,260,754
------------- -----------
LIABILITIES AND STOCKHOLDERS' DEFICIT
Current liabilities:
Accounts payable and accrued liabilities 4,229,357 1,894,267
Accrued interest 82,004 314,275
Notes payable -- 500,000
Current portion of long-term debt -- 3,961,887
------------- -----------
Total current liabilities 4,311,361 6,670,429
Long-term debt 4,412,440 --
Production payments (Note 7) 1,076,268 --
Asset retirement obligation (Note 5) 1,398,283 --
------------- -----------
6,886,991 --
------------- -----------
Total liabilities 11,198,352 6,670,429
------------- -----------
Stockholders' deficit:
Common stock
Authorized - 100,000,000 shares with par value of $0.01
Issued - 26,054,546 (2002 - 25,199,846) 260,545 251,998
Additional paid-in capital 7,758,331 7,427,503
Accumulated deficit, since January 1, 2002 (in conjunction
with the quasi-Reorganization stated capital was
reduced by an accumulated deficit of $2,015,495) (12,659,344) (8,730,517)
Accumulated other comprehensive income (loss) 773,697 (358,659)
------------- -----------
Total stockholders' (deficit) (3,866,771) (1,409,675)
------------- -----------
Total liabilities and stockholders' (deficit) 7,331,581 5,260,754
------------- -----------
</Table>
The accompanying notes are an integral part of these condensed
consolidated financial statements.
3
AMERICAN NATURAL ENERGY CORPORATION
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS (Unaudited)
For the three-month and nine-month periods ended
September 30, 2003 and September 30, 2002
<Table>
<Caption>
THREE MONTHS ENDED NINE MONTHS ENDED
SEPTEMBER 30, SEPTEMBER 30,
------------------------- --------------------------
2003 2002 2003 2002
$ $ $ $
----------- ----------- ----------- -----------
Revenues:
Oil and gas sales ................... 620,895 230,760 1,334,839 233,591
Operations income ................... 7,586 -- 16,937 --
Interest and other income ........... -- 680 1,408 167,273
----------- ----------- ----------- -----------
628,481 231,440 1,353,184 400,864
----------- ----------- ----------- -----------
Expenses:
Lease operating expense ............. 66,445 161,497 382,801 195,678
Production taxes .................... 27,336 6,184 55,219 6,184
Depletion, depreciation and
amortization ...................... 265,986 121,916 773,629 130,821
General and administrative .......... 633,535 361,857 1,498,185 1,093,777
Foreign exchange (gain) loss ........ (45,126) (339,726) 1,294,395 (58,502)
Interest ............................ 124,133 11,566 293,046 14,574
Impairment of oil and gas properties -- 281,449 152,064 281,449
Gain on sale of marketable securities -- -- (172,788) (284,018)
Loss on sale of fixed assets ........ -- -- -- 3,280
----------- ----------- ----------- -----------
Total expenses ................. 1,072,309 604,743 4,276,551 1,383,243
----------- ----------- ----------- -----------
Loss before cumulative effect of
accounting change ................. (443,828) (373,303) (2,923,367) (982,379)
----------- ----------- ----------- -----------
Cumulative effect of accounting
change (Note 5) ................... -- -- (1,005,460) --
----------- ----------- ----------- -----------
Net loss ............................ (443,828) (373,303) (3,928,827) (982,379)
----------- ----------- ----------- -----------
Other comprehensive income (loss):
Unrealized gain (loss) on marketable
securities ......................... -- (51,771) 13,870 (313,092)
Foreign exchange translation ........ (45,101) (341,323) 1,291,274 (98,833)
Reclassification adjustment for gain
on sale of marketable securities
included in net income ............. -- -- (172,788) (212,933)
----------- ----------- ----------- -----------
Other comprehensive income (loss) ... (45,101) (393,094) 1,132,356 (624,858)
----------- ----------- ----------- -----------
Comprehensive loss .................. (488,929) (766,397) (2,796,471) (1,607,237)
----------- ----------- ----------- -----------
Basic and diluted loss per share
before cumulative effect of
accounting change .................. (0.02) (0.01) (0.11) (0.04)
----------- ----------- ----------- -----------
Cumulative effect of accounting
change ............................. -- -- (0.04) --
----------- ----------- ----------- -----------
Net loss per share .................. (0.02) (0.01) (0.15) (0.04)
----------- ----------- ----------- -----------
Weighted average number of shares
outstanding - basic and diluted .... 26,054,546 25,199,846 25,690,007 25,192,097
----------- ----------- ----------- -----------
The accompanying notes are an integral part of these condensed
consolidated financial statements.
4
AMERICAN NATURAL ENERGY CORPORATION
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS (UNAUDITED)
For the three-month and nine-month periods ended
September 30, 2003 and September 30, 2002
THREE MONTHS ENDED NINE MONTHS ENDED
SEPTEMBER 30, SEPTEMBER 30,
------------------------- -----------------------
2003 2002 2003 2002
$ $ $ $
----------- ----------- -----------------------
Cash flows from operating activities:
Income (loss) for the period ........... (443,828) (373,303) (3,928,827) (982,379)
Non cash items:
Depreciation, depletion and amortization 265,986 121,916 773,629 130,821
Foreign exchange (gain) loss ........... (45,126) (339,726) 1,294,395 (58,502)
Gain on sale of marketable securities .. -- -- (172,788) (284,018)
Loss on sale of fixed asset ............ -- -- -- 3,280
Impairment of oil and gas properties ... -- 281,449 152,064 281,449
Cumulative effect of accounting change . -- -- 1,005,460 --
Non cash compensation expense .......... -- -- 39,375 23,625
Changes in assets and liabilities:
Accounts receivables ................... 664,944 (167,471) (182,691) 37,596
Oil inventory .......................... 6,749 -- 5,012 --
Prepaid expenses and other assets ...... 24,937 20,126 71,981 (12,159)
Accounts payable, accrued liabilities
and interest ......................... (133,056) 495,412 2,298,764 1,663,649
---------- ---------- ---------- ----------
Net cash provided by (used in)
operating activities ................. 340,606 38,403 1,356,374 803,362
---------- ---------- ---------- ----------
Cash flows from investing activities:
Proceeds from sale of marketable
securities ........................... -- -- 208,051 2,439,905
Proceeds from the sale of oil and gas
properties ........................... -- -- 461,544 --
Purchase of marketable securities ...... -- -- -- (163,600)
Purchase and development of oil and gas
properties ........................... (38,635) (580,411) (2,774,545) (3,693,298)
Purchase of fixed assets ............... -- (44,015) (14,809) (922,818)
---------- ---------- ---------- ----------
Net cash provided by (used in)
investing activities ................. (38,635) (624,426) (2,119,759) (2,339,811)
---------- ---------- ---------- ----------
Cash flows from financing activities:
Issuance of notes payable .............. -- 500,000 2,500,000 500,000
Payments of notes payable .............. (141,674) -- (2,973,918) --
Production payment loan ................ -- -- 1,538,456 --
Production payments .................... (160,898) -- (327,350) --
Issuance of capital stock .............. -- -- -- 11,719
---------- ---------- ---------- ----------
Cash provided by financing activities .. (302,572) 500,000 737,188 511,719
Effect of exchange rate changes on cash 25 2,931 (4,355) (44,672)
---------- ---------- ---------- ----------
Increase (decrease) in cash and cash
equivalents .......................... (576) (83,092) (30,552) (1,069,402)
Cash beginning of period ............... 56,319 130,985 86,295 1,117,295
---------- ---------- ---------- ----------
Cash end of period ..................... 55,743 47,893 55,743 47,893
---------- ---------- ---------- ----------
The accompanying notes are an integral part of these condensed
consolidated financial statements.
5
AMERICAN NATURAL ENERGY CORPORATION
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS (UNAUDITED) (CONTINUED)
For the three-month and nine-month periods ended
September 30, 2003 and September 30, 2002
THREE MONTHS ENDED NINE MONTH ENDED
SEPTEMBER 30, SEPTEMBER 30,
----------------- -----------------
2003 2002 2003 2002
$ $ $ $
-------- ------- -------- -------
Supplemental disclosures:
Interest paid .......................... 101,961 11,566 243,357 14,574
Non cash operating activities
Capitalized interest included in
unproved properties .................... 60,653 70,090 232,942 204,567
Non cash financing activities
Common shares issued in conjunction with
issuance of notes payable .............. -- -- 300,000 --
Accounts payable refinanced as notes
payable ................................ -- -- 203,823 --
Prepaid expenses financed .............. -- -- 160,746 --
Accrued interest refinanced upon
modification of debt ................... -- -- 331,728 --
The accompanying notes are an integral part of these condensed
consolidated financial statements.
6
AMERICAN NATURAL ENERGY CORPORATION
Notes to Condensed Financial Statements (Unaudited)
September 30, 2003 and 2002
- --------------------------------------------------------------------------------
1 SIGNIFICANT ACCOUNTING POLICIES
The accounting policies and methods followed in preparing these unaudited
condensed consolidated financial statements are those used by American
Natural Energy Corporation (the "Company") as described in Note 1 of the
notes to consolidated financial statements included in the Annual Report
on Form 10-KSB. However, the unaudited consolidated financial statements
for the three-month and nine-month periods ended September 30, 2003 and
2002 do not conform in all respects to the disclosure and information that
is required for annual consolidated financial statements. These interim
condensed consolidated financial statements should be read in conjunction
with the most recent annual consolidated financial statements of the
Company.
In the opinion of management, all adjustments considered necessary for
fair statement have been included in these interim condensed consolidated
financial statements. Operating results for the three-month and nine-month
periods ended September 30, 2003 are not indicative of the results that
may be expected for the full year ending December 31, 2003.
The Company has elected to follow APB No. 25, "Accounting for Stock Issued
to Employees" and related interpretations in accounting for its employee
stock options. Under APB No. 25, compensation expense is recognized for
the difference if any, on the date of the grant, between the estimated
fair value of the Company's stock and the amount the employee must pay to
acquire the stock. Compensation expense is recognized immediately for past
services and rateably for future services over the option-vesting period.
Compensation expense has been recognized for any grants to individuals who
do not meet the definition of employee.
The following table illustrates the effect on net income and earnings per
share as if the Company had applied the fair value recognition provisions
of FASB Statement No. 123, "Accounting for Stock-Based Compensation," to
stock-based employee compensation.
Three Months Ended, Nine Months Ended,
September 30 September 30
------------------------ --------------------------
2003 2002 2003 2002
$ $ $ $
---------- ---------- ---------- ------------
Net loss as reported ........... (443,828) (373,303) (3,928,827) (982,379)
Pro forma compensation expense,
net of tax ............... (17,173) (64,252) (51,519) (192,755)
---------- ---------- ---------- ------------
Pro forma net loss ............. (461,001) (437,555) (3,980,346) (1,175,134)
---------- ---------- ---------- ------------
Basic and diluted loss per share
As reported .................... (0.02) (0.01) (0.15) (0.04)
Compensation expense, net of tax -- -- -- (0.01)
---------- ---------- ---------- ------------
Pro forma ...................... (0.02) (0.01) (0.15) (0.05)
---------- ---------- ---------- ------------
7
AMERICAN NATURAL ENERGY CORPORATION
Notes to Condensed Financial Statements (Unaudited)
September 30, 2003 and 2002
- --------------------------------------------------------------------------------
For purposes of the pro forma disclosures, the estimated fair value of the
options is amortized to expense over the options' vesting period, which is
two years. Because our stock options vest over two years and additional
awards may be made each year, the above pro forma disclosures may not be
representative of the effects on pro forma net income for future periods.
The Company accounts for equity instruments issued in exchange for the
receipt of goods or services from other than employees in accordance with
SFAS No. 123 and the conclusions reached by the Emerging Issues Task Force
in Issue No. 96-18, "Accounting for Equity Instruments That Are Issued to
Other Than Employees for Acquiring, or in Conjunction with Selling, Goods
or Services" (EITF 96-18). Costs are measured at the estimated fair market
value of the consideration received or the estimated fair value of the
equity instruments issued, whichever is more reliably measurable. The
value of equity instruments issued for consideration other than employee
services is determined on the earlier of a performance commitment or
completion of performance by the provider of goods or services as defined
by EITF 96-18.
2 EARNINGS (LOSS) PER SHARE
Basic earnings (loss) per share is computed by dividing net income or loss
(the numerator) by the weighted average number of shares outstanding during
the period (the denominator). The computation of diluted earnings per share
is the same as for basic earnings per share except the denominator is
increased to include the weighted average additional number of shares that
would have been outstanding if previously granted stock options had been
exercised, unless they are anti-dilutive.
The numerators and denominators used in calculating basic and diluted
earnings per share were as follows:
Three Months Ended Nine Months Ended
September 30, September 30,
--------------------------- ----------------------------
2003(1) 2002(1) 2003(2) 2002(2)
$ $ $ $
------------- ------------- ------------ --------------
Numerator - net income (loss)
before cumulative effect of
accounting change
Basic and diluted .......... (443,828) (373,303) (2,923,367) (982,379)
Cumulative effect of accounting
change ..................... -- -- (1,005,460) --
----------- ----------- ----------- -----------
Net income (loss) - basic and
diluted .................... (443,828) (373,303) (3,928,827) (982,379)
----------- ----------- ----------- -----------
Denominator - weighted average
number of shares outstanding
Basic and diluted .......... 26,054,546 25,199,846 25,690,007 25,192,097
8
AMERICAN NATURAL ENERGY CORPORATION
Notes to Condensed Financial Statements (Unaudited)
September 30, 2003 and 2002
- --------------------------------------------------------------------------------
- -------------------
(1) The denominator excludes the effect of 1,550,000 and 1,750,000 outstanding
potentially dilutive options and warrants, in 2003 and 2002 respectively,
at a weighted average price of $0.33 per share due to the net loss.
(2) The denominator excludes the effect of 1,550,000 and 1,950,000 outstanding
potentially dilutive options and warrants, in 2003 and 2002 respectively,
at a weighted average price of $0.33 per share due to the net loss.
3 REORGANIZATION
On January 18, 2002, the shareholders of Gothic Resources, Inc. (Gothic)
approved an arrangement under Section 192 of the Canada Business
Corporation Act with its subsidiary, American Natural Energy Corporation
(ANEC), whereby all of the Gothic shareholders exchanged their shares of
common stock for shares of common stock of ANEC and Gothic became a
subsidiary of ANEC. On that date, the shareholders also approved the
reduction of the stated capital of Gothic by the amount of the accumulated
deficit of $2,015,495. This transaction has been accounted for as a
quasi-reorganization. Gothic may be deemed a predecessor of the Company.
4 RECENT ACCOUNTING PRONOUNCEMENTS
Statement of Financial Accounting Standards No. 141, Business Combinations
(FAS 141) and Statement of Financial Accounting Standards, No. 142,
Goodwill and Intangible Assets (FAS 142) were issued by the Financial
Accounting Standards Board (FASB) in June 2001 and became effective for us
on July 1, 2001 and January 1, 2002, respectively. FAS 141 requires all
business combinations initiated after June 30, 2001 to be accounted for
using the purchase method. Additionally, FAS 141 requires companies to
disaggregate and report separately from goodwill certain intangible assets.
FAS 142 establishes new guidelines for accounting for goodwill and other
intangible assets. Under FAS 142, goodwill and certain other intangible
assets are not amortized, but rather are reviewed annually for impairment.
One interpretation being considered relative to these standards is that oil
and gas mineral rights held under lease and other contractual arrangements
representing the right to extract such reserves for both undeveloped and
developed leaseholds should be classified separately from oil and gas
properties, as intangible assets on our balance sheets. In addition, the
disclosures required by FAS 141 and 142 relative to intangibles would be
included in the notes to financial statements. Historically, we have
included these oil and gas mineral rights held under lease and other
contractual arrangements representing the right to extract such reserves as
part of the oil and gas properties, even after FAS 141 and 142 became
effective.
As applied to companies like us that have adopted full cost accounting for
oil and gas activities, we understand that this interpretation of FAS 141
and 142, as described above, would only affect our balance sheet
classification of proved oil and gas leaseholds acquired after June 30,
2001 and our unproved oil and gas leaseholds. Our results of operations and
cash flows would not be affected, since these oil and gas mineral rights
held under lease and other contractual
9
AMERICAN NATURAL ENERGY CORPORATION
Notes to Condensed Financial Statements (Unaudited)
September 30, 2003 and 2002
- --------------------------------------------------------------------------------
arrangements representing the right to extract such reserves would continue
to be amortized in accordance with full cost accounting rules.
At September 30, 2003 and December 31, 2002, we had undeveloped leaseholds
of approximately $3.3 million and $2.7 million, respectively, that would be
classified on our balance sheet as "intangible undeveloped leasehold" and
developed leaseholds of an estimated net book value of $1.6 million and
$830,000 at September 30, 2003 and December 31, 2002, respectively, that
would be classified as "intangible developed leaseholds", if we applied the
interpretation currently being considered.
We will continue to classify our oil and gas mineral rights held under
lease and other contractual rights representing the right to extract such
reserves as tangible oil and gas properties until further guidance is
provided.
In July 2002, the FASB issued SFAS No. 146, "Accounting for Costs
Associated with Exit or Disposal Activities". SFAS 146 is effective for
exit or disposal activities initiated after December 31, 2002. Adoption of
this standard did not have any impact on our financial position or results
of operations.
In April 2003, the FASB issued Statement of Financial Accounting Standards
No. 149, "Amendment of Statement 133 on Derivative Instruments and Hedging
Activities" (FAS 149). FAS 149 amends and clarifies financial accounting
and reporting for derivative instruments, including certain derivative
instruments embedded in other contracts (collectively referred to as
derivatives) and for hedging activities under FAS No. 133, "Accounting for
Derivative Instruments and Hedging Activities". This pronouncement is
effective for contracts entered into or modified after June 30, 2003, and
for hedging relationships designated after that date. The Company currently
has no derivatives or hedging activities, therefore, the implementation of
FAS 149 did not have any effect on our financial opposition, results of
operations, or cash flows.
In May 2003, the FASB issued Statement on Financial Accounting Standards
No. 150, Accounting for Certain Financial Instruments with Characteristics
of both Liabilities and Equity ("SFAS 150"). SFAS 150 establishes standards
regarding the classification and measurement of certain financial
instruments with characteristics of both liabilities and equity. It
requires that an issuer classify a financial instrument that is within its
scope as a liability (or an asset in some circumstances). Many of those
instruments were previously classified as equity. Certain provisions of
SFAS 150 are effective for us starting in the quarter ended September 30,
2003. The application of SFAS 150 did not have any effect on our financial
position, results of operations or cash flow.
5 ASSET RETIREMENT OBLIGATIONS
Effective January 1, 2003, the Company adopted SFAS No. 143, Accounting for
Asset Retirement Obligations. This statement applies to obligations
associated with the retirement of tangible long-lived assets that result
from the acquisition, construction and development of the assets.
SFAS 143 requires that the fair value of a liability for a retirement
obligation be recognized in the period in which the liability is incurred.
For oil and gas properties, this is the period in which
10
AMERICAN NATURAL ENERGY CORPORATION
Notes to Condensed Financial Statements (Unaudited)
September 30, 2003 and 2002
- --------------------------------------------------------------------------------
an oil or gas well is acquired or drilled. The asset retirement obligation
is capitalized as part of the carrying amount of the asset at its
discounted fair value. The liability is then accreted each period until the
liability is settled or the asset is sold, at which time the liability is
reversed and any gain or loss resulting from the settlement of the
obligation is recorded.
We identified and estimated all of our asset retirement obligations for
tangible, long-lived assets as of January 1, 2003. These obligations were
for plugging and abandonment costs for depleted oil and gas wells. Prior to
the adoption of SFAS 143, we included an estimate of our asset retirement
obligations related to our oil and gas properties in our calculation of oil
and gas depreciation, depletion and amortization expense. Upon adoption of
SFAS 143, we recorded the discounted fair value of our expected future
obligations of $1.4 million and recorded an increase in unproved properties
of $0.4 million. The cumulative effect of the change in accounting
principles was a $1.0 million loss which was recorded in the condensed
consolidated statement of operations for the quarter ended March 31, 2003.
Had SFAS 143 been adopted as of January 1, 2002, the Company's net loss for
the nine-month and three-month periods ended September 30, 2002 would have
increased by approximately $88,000 and $18,000 and there would have been no
effect on the reported earnings per share. The effect of SFAS 143 for the
nine-month and three month periods ended September 30, 2003 was an increase
in the net loss before cumulative effect of accounting change of
approximately $108,000 and $36,000, respectively.
The components of the change in our asset retirement obligations are shown
below. Information for the quarters ended March 31, 2002, June 30, and
September 30, 2002 is shown on a pro forma basis.
For the Quarters Ended
-----------------------
2003 2002
$ $
---------- ----------
Asset retirement obligations,
January 1 ................ 1,435,460 1,292,538
Additions and revisions ..... 9,385 --
Settlements and disposals ... (157,082) --
Accretion expense ........... 36,732 34,337
---------- ----------
Asset retirement obligations,
March 31 ................. 1,324,495 1,326,875
Additions and revisions ..... 2,386 --
Settlements and disposals ... -- --
Accretion expense ........... 35,119 35,249
---------- ----------
Asset retirement obligations,
June 30 .................. 1,362,000 1,362,124
Additions and revisions ..... -- --
Settlements and disposals ... -- --
Accretion expense ........... 36,283 36,187
---------- ----------
Asset retirement obligations,
September 30 ............. 1,398,283 1,398,311
---------- ----------
11
AMERICAN NATURAL ENERGY CORPORATION
Notes to Condensed Financial Statements (Unaudited)
September 30, 2003 and 20022
- --------------------------------------------------------------------------------
6 NOTES PAYABLE
In March 2003 the Company borrowed $2,500,000 from Quest Capital
Corporation, as successor to Quest Investment Corporation (collectively
"Quest") in the form of a note payable due October 31, 2003. Interest is
payable monthly at an annual rate of 12% (effective rate 22.0%). The note
is collateralized by a mortgage on all oil and gas properties of the
Company. The Company also issued 688,000 shares of its stock to Quest as
additional consideration. A director of the Company is also a director of
Quest. Concurrent with the sale of Convertible Secured Debentures on
October 21, 2003 the Company paid the Quest note in full and the Company
received a release of collateral held by Quest (See Note 8).
On March 12, 2003 the Company also entered into a refinancing transaction
with Bank One whereby Bank One was paid $2,250,000 and the Company received
a partial release of collateral held by Bank One resulting from the
ANEC/Couba Reorganization Plan. Additionally, the Company entered into a
note payable with Bank One for the remaining balances due pursuant to the
Plan in the amount of $1,715,134. The note is due December 31, 2003 and
bears interest at the Bank One prime rate plus 2%, currently 6.25%, payable
quarterly. The note is collateralized by oil and gas assets of the Company
and is subordinated to the Quest financing and net profits production
payments owed to TransAtlantic Petroleum (USA) Corp (See Note 7).
Concurrent with the sale of Convertible Secured Debentures on October 21,
2003 the Company paid the Bank One note in full and the Company received a
release of collateral held by Bank One (See Note 8).
The outstanding balance of the notes payable due to Quest and Bank One in
the amount of $4.4 million, at September 30, 2003, refinanced in October
2003, with the proceeds of the Convertible Debentures, are classified as
long-term debt in the condensed consolidated balance sheet as of September
30, 2003.
7 PRODUCTION PAYMENT FINANCING
On March 12, 2003, we entered into a funding arrangement with TransAtlantic
Petroleum (USA) Corp. ("TransAtlantic") whereby TransAtlantic agreed to
advance to us up to $2.0 million, of which up to $1.8 million is to be used
to fund our share of the drilling and completion costs for the four initial
wells we drill in St. Charles Parish, Louisiana ("Subject Wells"). In
exchange, TransAtlantic received a production payment payable out of 75% of
the net revenues from the Subject Wells, and, upon repayment, a 10% working
interest in such wells. In addition, TransAtlantic received a 10% interest
in our Bayou Couba lease and our lease with the State of Louisiana
("Subject Leases"). Further, TransAtlantic has the right to acquire a 10%
participation in any additional interests we acquire in the 23.138 square
mile Bayou Couba salt dome development area, including any interests
acquired through our area of mutual interest joint development agreement
with ExxonMobil Corp. Our obligations to TransAtlantic are collateralized
by a lien against our interest in the Subject Wells and their hydrocarbon
production. At September 30, 2003 we had drawn a total of $2,000,000,
including the $200,000 not specifically identified with the drilling of the
Subject Wells. Imputed interest on the $2,000,000 amounted to $461,544,
which was recorded as a discount on the production payment liability, with
a corresponding reduction in the value of proved and unproved oil and
natural gas properties, representing the sale of the 10% working interest
in the Subject Leases and Subject Wells. The discount is accreted to
interest expense, using the units of production method. As of
12
AMERICAN NATURAL ENERGY CORPORATION
Notes to Condensed Financial Statements (Unaudited)
September 30, 2003 and 2002
- --------------------------------------------------------------------------------
September 30, 2003 the outstanding balance of the production payment loan
was $1,369,986, of which $293,718 attributable to produced volumes is
included in accounts payable and accrued liabilities. Concurrent with the
sale of Convertible Secured Debentures on October 21, 2003 the Company paid
the TransAtlantic production payment loan in full and the Company received
a release of collateral held by TransAtlantic (See Note 8).
A current director and a former director of the Company are current
directors of TransAtlantic. Therefore, this transaction represents a
related party transaction. Concurrent with the sale of Convertible Secured
Debentures on October 21, 2003 the chairman of TransAtlantic was appointed
to the board of directors of the Company (See Note 8).
8 SUBSEQUENT EVENT
On October 21, 2003 and October 31, 2003 the Company completed financing
transactions of US$11.695 million and US$305,000, respectively, by issuing
Convertible Secured Debentures (the "Debentures"). The Debentures are
repayable on September 30, 2005 with interest payable quarterly commencing
December 31, 2003 at 8% per annum. The outstanding principal of the
Debentures is convertible into common shares of the Company at any time
prior to maturity at a conversion price of US$0.45 per share, subject to
antidilution adjustment, and the Debentures are redeemable by the Company
at any time after October 1, 2004 if the weighted price per share on the
TSX Venture Exchange for a 20 consecutive trading day period prior to the
date notice of redemption is given has exceeded 1662/3% of the conversion
price. A finder's fee in the amount of US$360,000 was paid to Middlemarch
Partners Limited of London, England in connection with the financing. The
Company used approximately US$5.9 million of the proceeds of the financing
for the repayment of the secured debt held by Quest Capital Corporation,
Bank One and TransAtlantic Petroleum (USA) Corp. and approximately US$2.1
million of the proceeds for the payment of accounts payable and intends to
use the balance primarily for exploration and development of its Bayou
Couba oil and gas leases within its ExxonMobil Joint Development Project in
St. Charles Parish, Louisiana. The Debentures are collateralized by
substantially all of ANEC's assets.
The Debentures are convertible into common shares at a conversion price of
$0.45 per share. On the dates the transaction was completed, the closing
price for shares of the Company's common stock on the TSX Venture Exchange
was $0.70 per share. Accordingly, because of the conversion price being
less than the market price on the dates the transaction was completed,
there was created a beneficial conversion feature to the Debentures of
approximately $6.7 million. This amount will be amortized to interest
expense over the life of the Debentures which mature on September 30, 2005.
In the event any Debentures are converted prior to September 30, 2005, any
un-amortized discount attributed to those proportionate holdings will be
expensed at the time of conversion.
The Debentures and any common shares issued upon conversion of the
Debentures will be subject to a statutory hold period of four months under
applicable Canadian securities legislation and stock exchange policies. The
offer and sale of the Debentures was not registered under the US Securities
Act of 1933, as amended (the "Act"), and the Debentures and the shares
issuable
13
AMERICAN NATURAL ENERGY CORPORATION
Notes to Condensed Financial Statements (Unaudited)
September 30, 2003 and 2002
- --------------------------------------------------------------------------------
on conversion may not be offered and sold free of any restrictions on
resale under the Act absent registration under that Act or an applicable
exemption from the registration requirements.
Concurrent with the financing, two additional directors were elected to the
board of directors of the Company. One of the newly elected directors is
the chairman of TransAtlantic.
9 LIQUIDITY AND CAPITAL RESOURCES
The Company has sustained substantial losses in the first three quarters of
2003 and for the year 2002, totaling approximately $3.9 million and $8.6
million, has a stockholders' deficit of $3.9 million and $1.4 million at
September 30, 2003 and December 31, 2002, a working capital deficiency of
approximately $3.6 million all of which lead to questions concerning the
ability of the Company to meet its obligations as they come due. The
Company also has a need for substantial funds to develop its oil and gas
properties.
The accompanying financial statements have been prepared on a going concern
basis which contemplates continuity of operations, realization of assets
and liquidation of liabilities in the ordinary course of business. As a
result of the losses incurred and current negative working capital, there
is no assurance that the carrying amounts of assets will be realized or
that liabilities will be liquidated or settled for the amounts recorded.
The ability of the Company to continue as a going concern is dependent upon
adequate sources of capital and the ability to sustain positive results of
operations and cash flows sufficient to continue to explore for and DEVELOP
its oil and gas reserves.
In the ordinary course of business, the Company makes substantial capital
expenditures for the exploration and development of oil and natural gas
reserves. Historically, the Company has financed its capital expenditures,
debt service and working capital requirements with the proceeds of debt and
private offering of its securities. Cash flow from operations is sensitive
to the prices the Company receives for its oil and natural gas. A reduction
in planned capital spending or an extended decline in oil and gas prices
could result in less than anticipated cash flow from operations and an
inability to sell more of its common stock or refinance its debt with
current lenders or new lenders, which would likely have a further material
adverse effect on the Company.
The net proceeds of the Convertible Secured Debenture issuance, after the
payment of various debt and payables obligations, are being used to fund
the Company's exploration program on its ExxonMobil joint development area.
To the extent additional funds are required to fully exploit and develop
this area, it is management's plan to raise additional capital through the
sale of its common stock, however, it currently has no firm commitment from
any potential investors.
10 COMMITMENTS AND CONTINGENCIES
As part of the purchase price of the assets acquired from Couba Operating
Company pursuant to Second Amended Plan of Reorganization effective
December 31, 2001, the Company agreed that the holders of unsecured claims
aggregating approximately $4.9 million would receive payment
14
AMERICAN NATURAL ENERGY CORPORATION
Notes to Condensed Financial Statements (Unaudited)
September 30, 2003 and 2002
- --------------------------------------------------------------------------------
of 100% of their allowed claim out of a net profits interest and overriding
royalty in the production from existing wells on the Bayou Couba lease (as
described below) and new wells drilled on an area of mutual interest
covering an approximately 23.5 square mile area outside the area covered by
the Bayou Couba lease. The net profits interest and overriding royalty
provide that such creditors will be allocated 50% of the net profits from
production from the workover of wells existing on December 31, 2001 on the
Bayou Couba lease acreage, 15% of the net profits from production from the
drilling after December 31, 2001 of new wells on the Bayou Couba lease
acreage and 6% of the net profits from production from the drilling after
December 31, 2001 of new wells on the area of mutual interest. The net
profits interest and overriding royalty interest terminate upon repayment
of the unsecured claims. As new wells are drilled the overriding royalty
interest and net profits interest will reduce future revenues of the
Company. The Company has not evaluated the future liability associated with
this contingency. Additionally, the Company agreed that, after repayment to
it of 200% of all costs of bankruptcy, drilling, development and field
operations from net revenues of the Bayou Couba lease and the area of
mutual interest, the former holders of equity securities of Couba will be
entitled to a reversionary interest in the wells in the Bayou Couba lease
equal to 25% of the working interest obtained by the Company directly from
Couba at the time of confirmation and as a result of the plan of
reorganization of Couba.
We are a defendant in a number of legal proceedings which we consider to be
routine litigation that is incidental to our business. We do not expect to
incur any material liability as a consequence of such litigation.
15
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OR PLAN OF OPERATION
GENERAL
We are engaged in the acquisition, development, exploitation and
production of oil and natural gas. Our revenues and profitability can be
expected to be dependent, to a significant extent, upon prevailing spot market
prices for oil and natural gas. Additionally, our revenues and profitability can
be expected to be dependent upon the quantities of oil and natural gas produced
and sold. Prices for oil and natural gas are subject to wide fluctuations in
response to changes in supply of and demand for oil and natural gas, market
uncertainty and a variety of additional factors that are beyond our control.
Such factors include political conditions, weather conditions, government
regulations, the price and availability of alternative fuels and overall
economic conditions.
Prior to December 31, 2001, our principal activities, including those
of our predecessor, Gothic Resources, Inc., involved very limited oil and
natural gas exploration in the southern United States. We also invested in
shares of other public oil and gas exploration companies resulting in material
capital gains. Since December 31, 2001, we have engaged in several transactions
which we believe will enhance our oil and natural gas development, exploitation
and production activities and our ability to finance further activities.
On December 31, 2001, we acquired the assets and capital stock of Couba
Operating Company ("Couba"). Couba, organized in 1993, was primarily engaged in
the production of oil from properties located in St. Charles Parish, Louisiana.
Couba's principal acreage is the subject of a lease (the "Bayou Couba Lease")
under which Couba owned a 72% working interest in 1,319.991 gross acres. There
are 58 well bores of varying depths located on the property. In addition, the
assets include a gathering system covering approximately 25 miles located on the
Bayou Couba Lease and various production facilities, geological data, well logs
and production information. The information includes 3-D seismic information
completed in 1997. The seismic information relates to an area of approximately
23.5 square miles that includes the Bayou Couba lease, among other acreage.
Production from the wells commenced in 1941 and only oil and non-commercial
quantities of natural gas were produced. Natural gas has never been produced in
commercial quantities, and all gas production wells from the original
development of the property were plugged.
On January 22, 2002, we completed a corporate reorganization which
resulted in our domestication as a corporation into the U.S. from Canada.
In February 2002, we leased 1,729 acres from the State of Louisiana
giving us in excess of 3,000 acres under lease, all within the boundaries of the
3-D seismic data acquired as a part of the Couba transaction described above.
In November 2002, we entered into a four-year joint development
agreement with ExxonMobil Corp. relating to both our Couba properties and
additional properties owned by ExxonMobil Corp. The agreement creates an area of
mutual interest ("AMI") covering approximately 8,400 acres, all within the 23.5
square mile 3-D seismic area and calls for both parties to make available for
development, leases and/or mineral interests each owns within the
16
AMI. Both parties may propose wells for drilling and the non-proposing party may
elect whether or not to participate, with that election affecting only the
proposed location. If both parties elect to participate in the proposed well,
the interest in the well will be shared equally. Each party is responsible for
its share of costs to develop the acreage within the AMI. Operations of the
wells are at the election of the ExxonMobil Corp. but we anticipate that we will
drill and operate most wells within the AMI. In March 2003, we assigned a 10%
participation right in this AMI to Trans-Atlantic Petroleum Corp. in partial
consideration for a $2.0 million financing.
Our financial statements have been prepared on a going concern basis
which contemplates continuity of operations, realization of assets and
liquidation of liabilities in the ordinary course of business. We had a net loss
of $3.9 million during the nine months ended September 30, 2003 and had a
working capital deficiency of $3.6 million, and a shareholder deficit of $3.9
million as of that date. We have sustained substantial losses during the years
ended December 31, 2002 and 2001, , and had negative cash flow from operations
in each of 2002 and 2001, all of which lead to questions concerning our ability
to meet our obligations as they come due. We also have a need for substantial
funds to develop our oil and gas properties. We have financed our activities
using private debts and equity financings and we have no line of credit or other
financing agreement providing borrowing availability with a commercial lender.
As a result of the losses incurred and current negative working capital and
other matters described above, there is no assurance that the carrying amounts
of our assets will be realized or that liabilities will be liquidated or settled
for the amounts recorded. Our ability to continue as a going concern is
dependent upon adequate sources of capital and the ability to sustain positive
results of operations and cash flows sufficient to continue to explore for and
develop our oil and gas reserves. See the discussion under the caption "How we
financed our activities"
The independent accountants' report on our financial statements as of
and for the year ended December 31, 2002 includes an explanatory paragraph which
states that we have sustained substantial losses, a shareholders' deficit, a
working capital deficiency and negative cash flow from operations in each of
2002 and 2001 that raise substantial doubt about our ability to continue as a
going concern.
In the ordinary course of business, we have made and expect to continue
to make substantial capital expenditures for the exploration and development of
oil and natural gas reserves. In the past, we have financed our capital
expenditures, debt service and working capital requirements with the proceeds of
debt and private offerings of our securities. Our cash flow from operations is
sensitive to the prices we receive for our oil and natural gas. A reduction in
planned capital spending or an extended decline in oil and gas prices could
result in less than anticipated cash flow from operations and a lessened ability
to sell more of our common stock or refinance our debt with current lenders or
new lenders, which would likely have a further material adverse effect on us.
17
A COMPARISON OF OPERATING RESULTS FOR THE NINE MONTHS ENDED SEPTEMBER 30, 2003
AND SEPTEMBER 30, 2002
We incurred a net loss of $3.9 million in the nine months ended
September 30, 2003 compared to a net loss of $982,000 for the same period in
2002. During the nine months ended September 30, 2003, our revenues were
comprised of oil and gas sales and operations income totaling $1.4 million
compared with oil and gas sales of $234,000 in 2002. We had interest and other
income in 2003 of $1,000 compared with interest and other income of $167,000 in
2002. Other income in 2002 of $167,000 principally represents the recovery of
accounts receivable written off in prior periods.
Our total expenses were $4.3 million for the nine months ended
September 30, 2003 as compared to $1.4 million for the nine months ended
September 30, 2002. Our general and administrative expenses in 2003 were $1.5
million compared to $1.1 million in 2002. Interest expense in 2003 of $293,000
compared to $15,000 in 2002 and reflects increased debt outstanding during 2003.
Lease operating expenses of $383,000, production taxes of $55,000 and depletion,
depreciation and amortization of $774,000 in 2003 increased from $196,000,
$6,000, and $131,000, respectively in 2002 reflecting the increase in operating
activity. We incurred an impairment charge reflecting a write-down of the
carrying value of our oil and gas properties of $152,000 in 2003 compared to an
impairment charge of $281,000 in 2002.
In 2003, we had a gain on the sale of marketable securities of $173,000
and a foreign exchange loss of $1.3 million. In 2002, we had a gain on the sale
of marketable securities of $284,000 and a foreign exchange gain of $59,000.
We also had a charge for the cumulative effect of an accounting change
resulting from the application of Statement of Financial Accounting Standards
No. 143, Accounting for Asset Retirement Obligations, in the amount of $1.0
million. We had no comparable charge in 2002.
LIQUIDITY AND CAPITAL RESOURCES
A COMPARISON OF CASH FLOW FOR THE NINE MONTHS ENDED SEPTEMBER 30, 2003 AND
SEPTEMBER 30, 2002
Our net cash provided by operations was $1.4 million for the nine
months ended September 30, 2003 as compared to net cash provided by operations
of $803,000 for 2002. Cash provided by operating activities was impacted in 2003
by a gain of $173,000 on the sale of marketable securities and a foreign
currency exchange loss of $1.3 million, which did not affect our cash position.
Depletion, depreciation and amortization was $774,000 in 2003, resulting from
commenced oil and gas operations, compared to $131,000 in 2002. Accounts
receivable, accounts payable, accrued liabilities and interest increased
significantly in 2003 over 2002 because of the expanded scope of our activities.
We also incurred a non cash impairment of our oil and gas properties in the
amount of $152,000, resulting from ceiling test write-down, in 2003 compared to
$281,000 in 2002. During the nine months ended September 30, 2003 we had a
charge for the cumulative effect of an accounting change resulting from the
application of
18
Statement of Financial Accounting Standards No. 143, Accounting for Asset
Retirement Obligations, in the amount of $1.0 million. We had no comparable
charge in 2002.
We used $2.1 million of net cash in investing activities during the
nine months ended September 30, 2003 compared to net cash used of $2.3 million
in 2002. The 2003 cash used in investing activities includes $2.8 million for
the purchase and development of oil and gas properties and $15,000 for the
purchase of fixed assets compared to $3.6 million and $923,000, respectively, in
2002. Proceeds from the sale of marketable securities, net of cash expended in
2002 on purchases of marketable securities, were $208,000 in 2003 compared to
approximately $2.3 million in 2002. Proceeds from the sale of oil and gas
properties amounted to $462,000 in 2003. We had no property sales in 2002.
Our net cash provided by financing activities for the nine months ended
September 30, 2003 was $737,000 compared to $512,000 provided in 2002. Current
nine month activity was the result of new financing from Quest Investment
Corporation and TransAtlantic Petroleum (USA) Corp. and repayments to a private
investor and Bank One.
Additional information regarding liquidity and capital resources is
included under the caption "Future Capital Requirements and Resources."
CRITICAL ACCOUNTING POLICIES
We consider accounting policies related to stock options, oil and gas
properties, and income taxes to be critical accounting policies. These policies
are summarized in Management's Discussion and Analysis or Plan of Operations in
our Annual Report on Form 10-KSB for the year ended December 31, 2002, except
for our accounting policy related to stock options which is summarized in Note 1
to the notes to the consolidated financial statements included in our Annual
Report on Form 10-KSB.
HOW WE HAVE FINANCED OUR ACTIVITIES
Our activities since 2002 have been financed primarily from private
sales of debt and equity securities. Most recently, in October 2003, we
completed the private sale of $12.0 million principal amount of 8% Convertible
Secured Debentures (the "Debentures") due September 30, 2005. The Debentures
bear interest payable quarterly commencing December 31, 2003 at 8% per annum.
The outstanding principal of the Debentures is convertible into shares of our
Common Stock at any time prior to maturity at a conversion price of $0.45 per
share, subject to anti-dilution adjustment, and the Debentures are redeemable by
us at any time after October 1, 2004 if the average weighted price per share on
the TSX Venture Exchange for a 20 consecutive trading day period prior to the
date notice of redemption is given has exceeded 166-2/3% of the conversion
price. The Debentures are collateralized by substantially all of our assets. A
finder's fee in the amount of $360,000 was paid in connection with the
financing. We used approximately $5.9 million of the proceeds of the financing
for the repayment of secured debt, approximately $2.1 million for the payment of
accounts payable and intend to use the balance primarily for exploration and
development of our Bayou Couba oil and gas leases within its ExxonMobil Joint
Development Project in St. Charles Parish, Louisiana. The secured
19
indebtedness repaid included $2.5 million to Quest Investment Corporation, which
bore interest at 12% per annum, was due October 31, 2003, and was collateralized
by a first lien on substantially all our assets, and approximately $1.7 million
owing to Bank One Michigan, NA, which bore interest at the bank's prime rate
plus 2%, was due December 31, 2003 and was collateralized by a junior lien on
substantially all our assets. In addition, we paid out of the proceeds a $1.7
million production payment owing to TransAtlantic Petroleum (USA) Corp.
TransAtlantic retained its 10% participation right in our AMI with ExxonMobil
Corp. described above which was granted as partial consideration for the $2.0
million financing entered into in March 2003.
In connection with the financing, John Fleming, Chairman and Director
of TransAtlantic, and Jules Poscente, Chairman and Director of Eurogas Corp,
both of Calgary, Alberta, were elected to our Board of Directors.
The Debentures are convertible into common shares at a conversion price
of $0.45 per share. On the dates the transaction was completed, the closing
price for shares of our common stock on the TSX Venture Exchange was $0.70 per
share. Accordingly, because of the conversion price being less than the market
price on the dates the transaction was completed, there was created a beneficial
conversion feature to the Debentures of approximately $6.7 million. This amount
will be amortized to interest expense over the life of the Debentures which
mature on September 30, 2005. In the event any Debentures are converted prior to
September 30, 2005, any un-amortized discount attributed to those proportionate
holdings will be expensed at the time of conversion.
Purchasers of the Debentures included TransAtlantic Petroleum (USA)
Corp., $3.0 million principal amount, Quest Capital Corp., $500,000 principal
amount, and Mr. Jules Poscente, $300,000 principal amount. Mr. John Fleming, who
was elected a Director of our company at the closing of the sale of the
Debentures, is the Chairman of TransAtlantic. Mr. Brian Bayley, who has been a
Director of our company since June 2001, is also President and Chief Executive
Officer of Quest Capital Corp. and a Director of TransAtlantic. In addition, a
corporation of which Mr. Fleming is the sole shareholder, purchased $500,000
principal amount of Debentures. Mr. Poscente was elected a Director of our
company at the closing. Out of the proceeds of the sale of the Debentures,
TransAtlantic was paid $1.7 million in payment in full of a production payment
owing to it and Quest Capital Corp. was paid $2.5 million in repayment of a
loan.
FUTURE CAPITAL REQUIREMENTS AND RESOURCES
20
Our capital requirements relate to the acquisition, exploration,
enhancement, development and operation of oil and natural gas properties. In
general, because our oil and natural gas reserves will be depleted by production
over time, the success of our business strategy is dependent upon a continuous
acquisition, exploitation, enhancement, and development program. In order to
achieve profitability and generate cash flow, we are dependent upon acquiring or
developing additional oil and natural gas properties or entering into joint oil
and natural gas well development arrangements.
We currently expect that available cash and, the proceeds of the sale
of the Debentures issued in October 2003, will be sufficient to fund planned
capital expenditures for our ExxonMobil joint development area through 2003. To
the extent additional funds are required to fully exploit and develop this area,
it is management's plan to raise additional capital through the sale of its
common stock, however, it currently has no firm commitment from any potential
investors and such additional capital may not be available to us in the future.
Our business strategy requires us to obtain additional financing and
our failure to do so can be expected to adversely affect our ability to grow our
revenues, oil and gas reserves and achieve and maintain a significant level of
revenues and profitability. There can be no assurance we will obtain this
additional funding. Such funding may be obtained through the sale of equity
securities or by incurring additional indebtedness. Without such funding, our
revenues will continue to be limited and it can be expected that our operations
will not be profitable. In addition, any additional equity funding that we
obtain may result in material dilution to the current holders of our common
stock.
We intend, as opportunities arise, to evaluate the acquisition and
development of additional leasehold interests. We are unable at this time to
state whether or where any such additional properties may be acquired, to
estimate the purchase price for any properties we may acquire or to state the
terms on which financing for these purposes can be obtained.
ACCOUNTING MATTERS
Statement of Financial Accounting Standards No. 141, Business
Combinations (FAS 141) and Statement of Financial Accounting Standards, No. 142,
Goodwill and Intangible Assets (FAS 142) were issued by the Financial Accounting
Standards Board (FASB) in June 2001 and became effective for us on July 1, 2001
and January 1, 2002, respectively. FAS 141 requires all business combinations
initiated after June 30, 2001 to be accounted for using the purchase method.
Additionally, FAS 141 requires companies to disaggregate and report separately
from goodwill certain intangible assets. FAS 142 establishes new guidelines for
accounting for goodwill and other intangible assets. Under FAS 142, goodwill and
certain other intangible assets are not amortized, but rather are reviewed
annually for impairment. One interpretation being considered relative to these
standards is that these oil and gas mineral rights held under lease and other
contractual arrangements representing the right to extract such reserves for
both undeveloped and developed leaseholds should be classified separately from
oil and gas properties, as intangible assets on our balance sheets. In addition,
the disclosures required by FAS 141 and 142 relative to intangibles would be
included in the notes to financial statements. Historically, we have included
these oil and gas mineral rights held under lease and other
21
contractual arrangements representing the right to extract such reserves as part
of the oil and gas properties, even after FAS 141 and 142 became effective.
As applied to companies like us that have adopted full cost accounting
for oil and gas activities, we understand that this interpretation of FAS 141
and 142, as described above, would only affect our balance sheet classification
of proved oil and gas leaseholds acquired after June 30, 2001 and our unproved
oil and gas leaseholds. Our results of operations and cash flows would not be
affected, since these oil and gas mineral rights held under lease and other
contractual arrangements representing the right to extract such reserves would
continue to be amortized in accordance with full cost accounting rules.
At September 30, 2003 and December 31, 2002, we had undeveloped
leaseholds of approximately $3.3 million and $2.7 million, respectively, that
would be classified on our condensed consolidated balance sheets as "intangible
undeveloped leasehold" and developed leaseholds of an estimated net book value
of $1.6 million and $830,000 at September 30, 2003 and December 31, 2002,
respectively, that would be classified as "intangible developed leaseholds" if
we applied the interpretation currently being considered.
We will continue to classify our oil and gas mineral rights held under
lease and other contractual rights representing the right to extract such
reserves as tangible oil and gas properties until further guidance is provided.
CAUTIONARY STATEMENT FOR PURPOSES OF THE "SAFE HARBOR" PROVISIONS OF THE PRIVATE
SECURITIES LITIGATION REFORM ACT OF 1995
With the exception of historical matters, the matters we discussed
below and elsewhere in this Report are "forward-looking statements" as defined
under the Securities Exchange Act of 1934, as amended, that involve risks and
uncertainties. The forward-looking statements appear in various places including
under the headings Item 1. Financial Information and Item 2. Management's
Discussion and Analysis or Plan of Operation. These risks and uncertainties
relate to our capital requirements, business strategy, ability to raise capital
and fund our oil and gas well drilling and development plans, our ability to
fund the repayment of our outstanding indebtedness, our ability to attain and
maintain profitability and cash flow and continue as a going concern, our
ability to increase our reserves of oil and gas through drilling activities and
acquisitions, our ability to enhance and maintain production from existing wells
and successfully develop additional producing wells, our access to debt and
equity capital and the availability of joint venture development arrangements,
our ability to remain in compliance with the terms of any agreements pursuant to
which we borrow money and to repay the principal and interest when due, our
estimates as to our needs for additional capital and the times at which
additional capital will be required, our expectations as to our sources for this
capital and funds, our ability to successfully implement our business strategy,
our ability to identify and integrate successfully any additional producing oil
and gas properties we acquire and operate such properties profitably, our
ability to maintain compliance with covenants of our loan documents and other
agreements pursuant to which we issue securities or borrow funds and to obtain
waivers and amendments when and as required, our ability to borrow funds or
maintain levels of borrowing availability under our borrowing arrangements, our
ability to meet our budgeted capital
22
expenditures, our statements and estimates about quantities of production of oil
and gas as it implies continuing production rates at those levels, proved
reserves or borrowing availability based on proved reserves and our future net
cash flows and their present value.
Readers are cautioned that the risk factors described in our
registration statement on Form 10-SB and other reports filed with the
Commission, as well as those described elsewhere in this Report, in some cases
have affected, and in the future could affect, our business plans and actual
results of operations and could cause our actual consolidated results during
2003 and beyond, to differ materially from those expressed in any
forward-looking statements made by or on our behalf.
Our common shares have no trading market in the United States, and
there can be no assurance as to the liquidity of any markets that may develop
for our common shares, the ability of the holders of common shares to sell their
common shares in the United States or the price at which holders would be able
to sell their common shares. Any future trading prices of the common shares will
depend on many factors, including, among others, our operating results and the
market for similar securities.
ITEM 3. CONTROLS AND PROCEDURES
Under the supervision and with the participation of our management,
including Michael K. Paulk, our President, and Steven P. Ensz, our Vice
President, Finance, we have evaluated our disclosure controls and procedures as
of the end of the period covered by this report, and, based on their evaluation,
Mr. Paulk and Mr. Ensz have concluded that these controls and procedures are
effective. There were no significant changes in our internal controls or in
other factors that could significantly affect these controls subsequent to the
date of their evaluation.
Disclosure controls and procedures are our controls and other
procedures that are designed to ensure that information required to be disclosed
by us in the reports that we file or submit under the Exchange Act is recorded,
processed, summarized and reported, within the time periods specified in the
Securities and Exchange Commission's rules and forms. Disclosure controls and
procedures include, without limitation, controls and procedures designed to
ensure that information required to be disclosed by us in the reports that we
file or submit under the Exchange Act is accumulated and communicated to our
management, including Mr. Paulk and Mr. Ensz, as appropriate to allow timely
decisions regarding required disclosure.
PART II - OTHER INFORMATION
ITEM 1. LEGAL PROCEEDINGS
On October 7, 2003, we were served with a Summons and Complaint in
litigation instituted against us by Wiser Oil Company in the United States
District Court for the Eastern District of Louisiana. In the litigation, Wiser
is seeking declaratory and injunctive relief and specific performance with
respect to matters arising under a Leasehold Acquisition and
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Development Agreement entered into by us with Wiser in February 2002. The
matters relate to interpretations under the agreement of Wiser's rights to a 25%
participation in oil and gas interests acquired by us in an area of mutual
interest created by the agreement in return for a payment of 25% of the
acquisition cost. These interests relate to acreage outside our Bayou- Couba
lease acreage in the area that is the subject of our joint development agreement
with Exxon/Mobil Corporation. Wiser is also seeking unspecified damages based on
allegations that ANEC has not performed under the agreement in good faith. We
believe that we have good and meritorious defenses in the litigation.
ITEM 2. CHANGES IN SECURITIES.
(a) and(b) In October 2003, we sold $12.0 million principal amount of
our 8% Convertible Secured Debentures due September 30, 2005. See Item
5. Other Information. The Indenture pursuant to which the Debentures
were issued contains a number of covenants among which is a covenant
that prohibits us from declaring or paying any dividends (other than
stock dividends) on any of our shares or calling for redemption or
purchase for cancellation or making any capital distribution with
respect to any of our shares.
(c) Subsequent to September 30, 2003, in October 2003, we issued $12.0
million of our 8% Convertible Secured Debentures due September 30,
2005. The Debentures were issued in a transaction exempt from and not
requiring registration under the U.S. Securities Act of 1933, as
amended, by virtue of Regulation D and Regulation S adopted under that
Act. The securities were sold to "accredited investors", as defined in
Regulation D, and all of whom resided outside of the United States. No
underwriter participated in the sale of the securities. We paid a
commission of $360,000 in connection with the transaction. Reference is
made to Item 5. Other Information of this Quarterly Report on Form
10-QSB for a description of the conversion rights of the Debentures.
ITEM 5. OTHER INFORMATION.
In October 2003, we completed a $12.0 million private convertible debt
financing transaction. We issued $12.0 million of our 8% Convertible Secured
Debentures due September 30, 2005. The Debentures were issued in a transaction
not requiring registration requirements of the U.S. Securities Act of 1933, as
amended, and were sold to investors outside of the United States.
GENERAL. The Debentures were issued and sold pursuant to the terms of a
Trust Indenture dated as of October 8, 2003 entered into with Computershare
Trust Company of Canada, Vancouver, British Columbia, as Trustee. The aggregate
principal amount of Debentures that may be issued under the Indenture is limited
to $12.0 million. Each Debenture will mature on September 30, 2005 and bears
interest at 8% per annum from the date of original issuance, payable in equal
quarterly amounts on March 31, June 30, September 30 and December 31 of each
year and on maturity, with the first interest payment due on December 31, 2003.
The Debentures were issued as fully registered Debentures in denominations of
$1,000 and integral
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multiples of $1,000. Each Debenture is equally and proportionately entitled to
the benefits of the Indenture.
REDEMPTION. Commencing October 1, 2004 and subject to the limitations
and restrictions described below, the Debentures are redeemable prior to
maturity, in whole at any time, but not in part, at our option at a price equal
to the principal amount together with accrued and unpaid interest to the date
fixed for redemption. The Debentures are not redeemable unless we have filed
with the Trustee on the day notice of redemption is first given an Officers'
Certificate certifying that the weighted average price per share for our Common
Stock on the TSX Venture Exchange (or if the Common Stock is not listed on the
TSX Venture Exchange, on the Toronto Stock Exchange, or if the Common Stock is
not listed on the Toronto Stock Exchange, on such stock exchange on which the
Common Stock is listed as may be selected for such purpose by our Directors or,
if the Common Stock is not so listed, then on the over-the-counter market)
during twenty (20) consecutive trading days ended not more than five (5) trading
days preceding the date on which such notice of redemption is first given was at
least 166-2/3% of the Debenture conversion price on the date of filing the
Officers' Certificate with the Trustee. The weighted average price is determined
by dividing the aggregate sale price of all shares sold on the said exchange or
market, as the case may be, during the twenty (20) consecutive trading days by
the total number of shares so sold. In addition, the Debentures are not
redeemable unless a registration statement we have agreed in the Indenture to
file under the U.S. Securities Act with respect to the shares of Common Stock
issuable on conversion of the Debentures has been declared effective by the U.S.
Securities and Exchange Commission and remains effective on the date the
Debentures are redeemed.
At such time as we give notice of the redemption of the Debentures, all
of the Debentures called for redemption are due and payable at the redemption
price and, provided the monies necessary to redeem the Debentures have been
deposited with the Trustee, interest on the Debentures ceases to accrue.
CONVERSION. The holder of each Debenture has the right and option, at
any time prior to the close of business on the earlier of September 29, 2005 or,
if such Debenture has been previously called for redemption, the business day
immediately preceding the date fixed for redemption, to convert the whole or any
integral multiple of $1,000 principal amount of Debentures into shares of our
Common Stock at the conversion price then in effect. The initial conversion
price is $0.45 per share of Common Stock, subject to adjustment under certain
circumstances, or a conversion rate of approximately 2,222.2 shares of Common
Stock for each $1,000 principal amount of Debentures.
No fractional shares are issuable upon conversion of a Debenture;
however, if more than one Debenture is surrendered for conversion at one time by
the same holder, the number of shares issuable is to be computed on the basis of
the aggregate principal amount to be converted. In lieu of issuing a fractional
share, we can satisfy such fractional interest by paying to the holder a sum of
money equal to the appropriate fraction of the value of a share based on the
last reported sale price or, if none, the mean between the closing bid and ask
quotations on the stock exchange on which our shares are listed or, if not
listed, a value determined by our Directors, on the business day next preceding
the date the shares are converted. In the event such amount is less than $10.00,
such fractional interest is cancelled without compensation.
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The conversion price is subject to adjustment under certain
circumstances, including among others, (a) in the event we (i) subdivide or
re-divide our outstanding Common Stock, (ii) reduce, combine or consolidate our
outstanding Common Stock, or (iii) issue shares of Common Stock to the holders
of all or substantially all of our outstanding Common Stock by way of a stock
dividend, in which event, the conversion price in effect is to be
proportionately adjusted; (b) in the event we issue shares of Common Stock
(other than options outstanding on the closing date of the sale of the
Debentures) or rights, options or warrants or convertible securities exercisable
or convertible at a price less than the conversion price, or in the event of
certain rights offerings of shares of Common Stock to all our stockholders at a
price per share less than 95% of the current market price, as defined, or
certain other issuances of other shares, or other rights, options or warrants,
evidences of indebtedness or asset to all our stockholders, the conversion price
is to be proportionately adjusted under the terms provided in the Indenture, or
(d) in the event of any reclassification or change of the shares of Common Stock
or a merger, consolidation, amalgamation or reorganization or in case of a sale
of all or substantially all our assets, each Debenture will be convertible into
the number of shares or the number, kind or amount of other securities or
property which the Debentureholder would have received if, on the effective date
of the event or transaction, the Debentureholder held the number of shares into
which the Debenture was convertible.
The Certificates for shares issuable on conversion of the Debentures
are to bear legends relating to restrictions on re-sales of the shares under
United States and Canadian securities' laws. The legend under United States law
is to appear until the resale of the shares of Common Stock issuable on
conversion of the Debenture has been registered under the U.S. Securities Act
and the legend under Canadian law is to appear until a date which is four months
and one day after the issue of the Debenture.
COVENANTS WE MADE. In the Indenture we agreed that so long as any of
the Debentures remain outstanding, we will, among other things, (a) duly and
punctually pay the principal and interest on the Debentures, (b) carry on our
business in accordance with ordinary business practice and do all things
necessary to preserve our corporate existence and not consolidate, amalgamate or
merge with another corporation or transfer substantially all our business except
with the approval of the Debentureholders by adoption of an extraordinary
resolution at a meeting of Debentureholders, (c) take all such steps and actions
as may be required to maintain our listing and posting for trading of our Common
Stock on a recognized Canadian stock exchange, and (d) remain a reporting issuer
and not be in default in any filing or other requirement under the securities
laws of British Columbia, Alberta and Ontario and remain in compliance with all
required filings under the U.S. Exchange Act and the U.S. Securities Act.
In addition, we agreed that so long as any of the Debentures remain
outstanding, we will not, among other things, (a) incur any indebtedness without
the prior approval of the Debentureholders by adoption of an extraordinary
resolution at a meeting, except that we are entitled to incur unsecured
indebtedness of up to $2.0 million aggregate principal amount, (b) create or
permit to exist any security interest, mortgage, pledge or lien on any of our
assets or property other than those that are incurred or may arise by operation
of law, so long as we are not in default of the obligation, or those in favor of
a government or political sub-division or instrumentality to secure the
performance of a covenant or obligation or entered into at the request of such
authorities where the security interest is required pursuant to a contract,
statute,
26
order or regulation; or (c) declare or pay any dividends, other than stock
dividends, on our shares or call for redemption or purchase for cancellation or
make any capital distribution with respect to our shares.
We have also agreed to file as promptly as practicable, at our expense,
under the U.S. Securities Act, one or more registration statements with respect
to our shares of Common Stock issuable on conversion of the Debentures. We
agreed to use our best efforts to cause such registration statement to be
declared effective as promptly as possible and to use our best efforts to
maintain the effectiveness of such registration statement for a period of two
years following the closing of the sale of the Debentures, plus a number of days
equal to the number of days, if any, during which the right of the holders of
the shares issuable on conversion of the Debentures to offer and sell the shares
has been suspended.
Debentureholders whose securities are included in a registration
statement are to furnish us such information regarding the holders of securities
to be registered and the proposed manner of distribution as we may request and
such holder is to otherwise co-operate with us in connection with such
registration, qualification or compliance. We have agreed to indemnify and
defend each such holder and each underwriter of securities being sold by any
such holder (and any person who controls such holder or underwriter) against all
claims, losses, damages, liabilities and expenses resulting from any untrue
statement or alleged untrue statement of a material fact contained therein or
from any omission or alleged omission to state therein a material fact required
to be stated therein or necessary to make the statements therein not misleading,
except insofar as the same may have been based upon information furnished in
writing to us by such holder or underwriter expressly for use therein, and with
respect to such information furnished to us, such holder will indemnify and
defend us against all claims, losses, damages, liabilities and expenses
resulting from any untrue statement or alleged untrue statement of a material
fact contained therein or any omission or alleged omission to state a material
fact required to be stated or necessary to make the information not misleading.
The rights to registration of the securities may be transferred or
assigned by the holder to any transferee or assignee of the securities subject
to such transferee or assignee agreeing to be bound by the terms of the
registration provisions of the Indenture.
COLLATERAL.
To secure the due and punctual payment of principal and interest on the
Debentures and other amounts owing and outstanding under the Indenture, we
granted to the Trustee, including an agent of the Trustee acting as collateral
agent, a mortgage, lien, and security interest in substantially all our oil and
gas leasehold and other interests in lands and mineral interests, overriding
royalty, royalty and surface leases, unitization, operating agreements, pooling
agreements relating to those properties, hydrocarbons in and under those
properties, contracts for the sale, purchase or exchange of hydrocarbons
produced from those properties, and accounts and contract rights, operating
equipment used on those properties, and other properties that may from time to
time be subjected to the lien created.
In addition, we have agreed to execute and deliver in favor of the
Trustee charges or mortgages and liens against any assets or property acquired
after the sale of the Debentures.
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DEFAULT AND ACCELERATION.
Upon the happening of any one or more of the following events, namely:
o if we default in payment of the principal when it becomes due and payable;
o if we default in payment of any interest due on any Debenture and any such
default continues for a period of 10 days;
o if a decree or order of a court having jurisdiction is entered adjudging us
a bankrupt or insolvent under any bankruptcy, insolvency or analogous laws,
or appointing a receiver of, or of substantially all of our property or
ordering the winding-up or liquidation of our affairs, and any such decree
or order continues unstayed and in effect for a period of 30 days;
o if a resolution is passed for the winding-up or liquidation of us, except
in the course of carrying out or pursuant to a transaction in respect of
which the conditions of the Indenture are performed, or if we institute
proceedings to be adjudicated a bankrupt or insolvent, or consent to the
institution of bankruptcy or insolvency proceedings against us under any
bankruptcy, insolvency or analogous laws, or consent to the filing of any
such petition or to the appointment of a receiver of, or of any substantial
part of, our property or if we make a general assignment for the benefit of
creditors, or admit in writing our inability to pay our debts generally as
they become due or take corporate action in furtherance of any of the
foregoing;
o if we fail to make any payment of principal or interest on any
indebtedness in an amount greater than $250,000 in respect of which we are
liable when the same becomes due and beyond any period of grace provided
with respect thereto;
o if any event or circumstance occurs under an agreement or instrument
relating to our indebtedness in an amount greater than $250,000 which could
permit a person to declare such indebtedness or any part thereof to become
due prior to the stipulated date for repayment or maturity, and such event
or circumstance shall not be remedied or cured, or waived by the holders of
such indebtedness, within 30 days after such event or circumstance shall
have occurred;
o if we shall neglect to observe or perform any other covenant or condition
contained, in the Indenture or related collateral agreements to be observed
or performed by us and, after notice has been received by us from the
Trustee, we shall fail to make good such default within a period of 30
days, unless the Trustee (having regard to the subject matter of the
default) shall have agreed to a longer period, and in such event, within
the period agreed to by the Trustee;
o if there is a change of our control (as defined in the Indenture and
determined by the Trustee, based on the advice of counsel); or
28
o if Jules Poscente or John J. Fleming, or any replacement Director for
either of them, ceases at any time to be two of our directors on our board
and any of the following occurs:
(i) such Director has so ceased to be a Director as a
result of a resolution passed or an election of
Directors approved by our shareholders; or
(ii) we fail to give notice to the Trustee and the holders
of the Debentures that one or more of such Directors
has ceased to be a Director of our corporation within
five days after the date such person ceased to be
such a director; or
(iii) we fail to appoint or elect an individual, who has
been approved as a replacement Director by resolution
of the Debentureholders and who has consented to act
as such, to fill a vacancy in such two Directors'
positions within five days of such resolution being
passed by the Debentureholders and we receive notice
thereof;
then in each and every such event the mortgage and lien against our assets shall
become enforceable and the Trustee may in its discretion and shall upon receipt
of a request in writing signed by the holders of not less than 25% in principal
amount of the Debentures then outstanding, subject to the provisions of the
Indenture, by notice in writing to us declare the principal of and interest on
all Debentures then outstanding and all other moneys outstanding to be due and
payable and whereupon we must forthwith pay to the Trustee for the benefit of
the Debentureholders the principal of, accrued and unpaid interest and such
other moneys due on the Debentures,
As the term is used above, a change of control includes any person or
group of persons becoming the beneficial holder of 50% or more of our
outstanding total voting power or there is consummated a consolidation or merger
in which we are not the continuing or surviving corporation or pursuant to which
our outstanding shares are converted into cash, securities or other property,
other than a merger in which the holders of our shares immediately prior to the
merger hold a majority of the shares of the surviving corporation.
Subject to the provisions of any extraordinary resolution that may be
passed by the Debentureholders, in case we shall fail to pay to the Trustee,
forthwith after the same shall have been declared to be due and payable, the
principal of and interest on all Debentures then outstanding, together with any
other amounts due, the Trustee may in its discretion and shall upon receipt of a
request in writing signed by the holders of not less than 25% in principal
amount of the Debentures then outstanding, proceed to obtain or enforce payment
of the principal of and interest on all the Debentures then outstanding together
with any other amounts due, and to enforce and to realize on, collateral for the
Debentures.
MEETINGS OF DEBENTUREHOLDERS.
Meetings of Debentureholders are to be held upon receipt by the Trustee
of a written request from us or a written request signed by the holders of not
less than 25% in principal amount of the Debentures then outstanding. In the
event of the Trustee fails within 30 days after
29
receipt of any such request to give notice convening a meeting, we or such
Debentureholders, as the case may be, may convene such meeting. Every such
meeting shall be held in the City of Vancouver or at such other place as may be
approved or determined by the Trustee.
Every question submitted to a meeting shall be decided in the first
place by a majority of the votes given on a show of hands. At any such meeting,
unless a poll is duly demanded as herein provided, a declaration by the chairman
that a resolution has been carried or carried unanimously or by a particular
majority or lost or not carried by a particular majority shall be conclusive
evidence of the fact. The chairman of any meeting shall be entitled, both on a
show of hands and on a poll, to vote in respect of the Debentures, if any, held
by him.
On every extraordinary resolution, and on any other question submitted
to a meeting when demanded by the chairman or by one or more Debentureholders or
proxies for Debentureholders, a poll shall be taken in such manner and either at
once or after an adjournment as the chairman shall direct. Questions other than
extraordinary resolutions shall, if a poll be taken, be decided by the votes of
the holders of a majority in principal amount of the Debentures represented at
the meeting and voted on the poll.
On a show of hands every person who is present and entitled to vote,
whether as a Debentureholder or as proxy for one or more Debentureholders or
both, shall have one vote. On a poll each Debentureholder present in person or
represented by a proxy duly appointed by an instrument in writing shall be
entitled to one vote in respect of each $1,000 principal amount of Debentures of
which he shall then be the holder. A proxy need not be a Debentureholder.
In addition to the powers conferred upon them by any other provisions
of this Indenture or by law, a meeting of the Debentureholders shall have the
following powers, among others, exercisable from time to time by extraordinary
resolution:
o power to sanction any modification, abrogation, alteration, compromise or
arrangement of the rights of the Debentureholders or the Trustee against
us, or against our property,
o power to assent to any modification of or change in or addition to or
omission from the provisions contained in the Indenture, any Debenture, the
Documents relating to the collateral which shall be agreed to by us and to
authorize the execution of the documents embodying any modification,
change, addition or omission;
o power to sanction any scheme or plan for the reconstruction or
reorganization of us or for the consolidation, amalgamation or merger of us
with any other corporation or for the sale, leasing, transfer or other
disposition of our undertaking, property and assets or any part thereof;
o power to direct or authorize the Trustee to exercise any power, right,
remedy or authority given to it by Indenture, or the documents relating to
the collateral in any manner specified in any such extraordinary resolution
or to refrain from exercising any such power, right, remedy or authority;
30
o power to waive and direct the Trustee to waive any default or cancel any
declaration of acceleration made by the Trustee either unconditionally or
upon any condition specified in such extraordinary resolution;
o power to remove the Trustee from office and to appoint a new Trustee or
Trustees;
o power to sanction the exchange of the Debentures for or the conversion
thereof into shares, bonds, debentures or other securities or obligations
of ours or of any company formed or to be formed;
o power to authorize us and the Trustee to grant extensions of time for
payment of interest on any of the Debentures, whether or not the interest
the payment in respect of which is extended, is at the time due or overdue;
and
An "extraordinary resolution" means a resolution proposed to be passed
as an extraordinary resolution at a meeting of Debentureholders for the purpose
and held in accordance with the provisions of the Indenture at which, the
holders of not less than 50% in principal amount of the Debentures then
outstanding are present in person or by proxy and passed by the favourable votes
of the holders of not less than 66-2/3% of the principal amount of Debentures
represented at the meeting and voted on a poll upon such resolution. If, at any
such meeting, the holders of not less than 50% in principal amount of the
Debentures outstanding are not present in person or by proxy within 30 minutes
after the time appointed for the meeting, then the meeting, if convened by or on
the requisition of Debentureholders, shall be dissolved, but in any other case
it shall stand adjourned to such date, being not less than 10 nor more than 60
days later, and to such place and time as may be appointed by the chairman. Not
less than 10 days notice shall be given of the time and place of such adjourned
meeting. At the adjourned meeting the Debentureholders present in person or by
proxy shall form a quorum and may transact the business for which the meeting
was originally convened and a resolution proposed at such adjourned meeting and
passed by the favorable vote of not less than 66-2/3% of the principal amount of
Debentures represented at the meeting and voted on a poll upon such resolution
shall be an extraordinary resolution so long as the holders of not less than 25%
in principal amount of the Debentures then outstanding are present in person or
by proxy at such adjourned meeting.
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K
(a) Exhibits
2.0 Second Amended Joint Plan of Reorganization Proposed by Couba
Operating Company, American Natural Energy Corporation and Gothic
Resources Inc. filed in the United States Bankruptcy Court, Western
District of Oklahoma. Case No. 00-11837-W (Chapter 11)(1).
2.1 Order Confirming Plan, filed November 16, 2001 with U.S.
Bankruptcy Court, Western District of Oklahoma(2)
3.1 Certificate of Incorporation of American Natural Energy
Corporation, formerly named Dayton Energy Corporation(1)
31
3.2 Certificate of Amendment filed March 23, 2001(2)
3.3 Certificate of Amendment filed December 20, 2001(2)
10.2 Loan Agreement dated August 2, 2002 between Middlemarch Partners
Limited and the Registrant(2)
10.3 Leasehold Acquisition and Development Agreement with The Wiser Oil
Company(2)
10.4 Assignment of Oil, Gas and Mineral Lease dated as of February 18,
2002 relating to State Lease Number 17353(2)
10.5 Loan Agreement effective as of March 12, 2003 between Registrant and
Bank One, N.A.(2)
10.6 Loan Agreement dated March 12, 2003 between Registrant and Quest
Investment Corporation(2)
10.7.1 Production Payment Purchase and Sale Agreement between
Registrant and TransAtlantic Petroleum (USA) Corp. dated March 10,
2003(2)
10.7.2 Production Payment Conveyance from Registrant to TransAtlantic
Petroleum (USA) Corp. dated March 10, 2003(2)
10.7.3 Purchase and Exploration Agreement between Registrant and
TransAtlantic Petroleum (USA) Corp. dated March 10, 2003(2)
10.8.1 Form of Subscription Agreement to purchase the Registrant's 8%
Convertible Secured Debenture due September 30, 2005(3)
10.8.2 Trust Indenture dated as of October 8, 2003 between the Registrant
and Computershare Trust Company of Canada(3)
21.0 Subsidiaries of the Registrant
NAME JURISDICTION OF ORGANIZATION
---- ----------------------------
Gothic Resources Inc. Canada Business Corporations Act
Couba Operating Company Oklahoma
31.1 Certification of President and Chief Executive Officer Pursuant
to Rule 13a-14(a)(4)
31.2 Certification of Chief Financial Officer Pursuant to Rule 13a-
14(a)(4)
32.1 Certification of President and Chief Executive Officer Pursuant
to Section 1350 (furnished, not filed)(4)
32.2 Certification of Chief Financial Officer Pursuant to Section 1350
(furnished, not filed)(4)
- ----------------------------
(1) Filed as an exhibit to registration statement on Form 10-SB filed
August 12, 2002.
(2) Filed as an exhibit to Amendment No. 1 to registration statement on
Form S-B.
(3) Filed or furnished with the Registrant's Quarterly Report on Form 10-QSB
for the quarter ended September 30, 2003.
(4) Filed or furnished with Amendment No. 1 to the Registrant's Quarterly
Report on Form 10-QSB for the quarter ended September 30, 2003.
(b) Reports on Form 8-K
32
During the quarter ended September 30, 2003, we filed the following
Current Reports on Form 8-K in response to the Items named:
Report Date Item
----------- ----
September 10, 2003 Item 7. Financial Statements and
Exhibit (Press Release dated
September 10, 2003 attached as
exhibit)
33
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934 the
Registrant has duly caused this Report to be signed on its behalf by the
undersigned thereunto duly authorized.
AMERICAN NATURAL ENERGY CORPORATION
-------------------------------------
(Registrant)
Date: February 6, 2004 /S/ Michael K. Paulk
-------------------------------------
Michael K. Paulk
President and Chief Executive Officer
/S/ Steven P. Ensz
-------------------------------------
Steven P. Ensz
Principal Financial and
Accounting Officer
34