UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 20-F
REGISTRATION STATEMENT PURSUANT TO SECTION 12(b) OR (g) OF THE SECURITIES
EXCHANGE ACT OF 1934
OR
X ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE
ACT OF 1934
For the calendar year ended December 31, 2000
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 0-28794
CityView Corporation Limited
(Exact name of Registrant as specified in its charter)
Western Australia, Australia
(Jurisdiction of incorporation or organization)
63 Burswood Road, Burswood, Western Australia 6100
(Address of principal executive offices)
Securities registered or to be registered pursuant to Section 12(b) of the Act.
Title of each class Name of each exchange on which registered
NONE N/A
Securities registered or to be registered pursuant to Section 12(g) of the Act.
Ordinary Shares
(Title of Class)
Securities for which there is a reporting obligation pursuant to Section 15(d)
of the Act.
NONE
(Title of Class)
Indicate the number of outstanding shares of each of the issuer's classes of
capital or common stock as of the close of the period covered by the annual
report.
47,064,516 ordinary shares as at December 31, 2000
Indicate by check mark whether the registrant (1) has filed all reports required
to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during
the preceding 12 months (or for such shorter period that the registrant was
required to file such reports), and (2) has been subject to such filing
requirements for the past 90 days.
X Yes No
Indicate by check mark which financial statement item the registrant has elected
to follow.
X Item 17 Item 18
(APPLICABLE ONLY TO ISSUERS INVOLVED IN BANKRUPTCY PROCEEDINGS DURING THE PAST
FIVE YEARS)
Indicate by check mark whether the registrant has filed all documents and
reports required to be filed by Sections 12, 13 or 15(d) of the Securities
Exchange Act of 1934 subsequent to the distribution of securities under a plan
confirmed by a court.
Yes No Not applicable
PART I
ITEM 1. IDENTITY OF DIRECTORS, SENIOR MANAGEMENT AND ADVISERS.
Providing information called for in Item 1 is not required for filing a Form
20-F as an Annual Report under the Exchange Act. Nevertheless, the Company is
providing its "Corporate Directory" as it appeared in the Annual Report for the
year ended December 31, 2000 as filed with Australian Stock Exchange Limited.
CORPORATE DIRECTORY
Directors
Peter Mark Smyth
Peter John Augustin Remta
Leslie Robert Maurice Friday
Registered Office
63 Burswood Road,
Burswood Western Australia 6100
Telephone: (61-8) 6250 9099
Facsimile: (61-8) 6250 9088
Email: info@cityviewcorp.com
Web: www.cityviewcorp.com
Auditors
BDO Chartered Accountants
267 St George's Terrace
Perth Western Australia 6000
USA Auditors
Feldman Sherb & Co., P C
805 Third Avenue,
New York NY 10022
USA Attorney
Gary B Wolff, P C
747 Third Avenue
New York NY 10017
Company Secretary
Warren Martin Baillie
Australian Share Registry
Computershare Registry Services
45 St. George's Terrace,
Perth Western Australia, 6000
Telephone: (61-8) 9323 2000
Facsimile: (61-8) 9323 2033
USA Share Registry
Computershare Trust Company, Inc
1825 Lawrence Street, Suite 444
Denver, Colorado 80202-1817
Telephone: (303) 984 4062
Facsimile: (303) 986 2444
Stock Exchange Listings
Australian Stock Exchange Limited
Trading Code: CVI
NASD OTC Bulletin Board
Trading symbol: CTVWF
ITEM 2. OFFER STATISTICS AND EXPECTED TIMETABLE.
Not applicable
2
ITEM 3. KEY INFORMATION.
A. Selected financial data
Selected Consolidated Financial Data
The selected historical data presented below has been derived from the
financial statements of the Company, which have been examined by Feldman
Sherb and Co., P.C. in their report for the years ended December 31, 2000,
1999, and 1998 and by Deloitte Touche Tohmatsu, Chartered Accountants, in
their report for the years ended December 31, 1997 and 1996 and the six
months ended December 31, 1996 and by Grant Thornton, Chartered
Accountants, and Deloitte Touche Tohmatsu, Chartered Accountants, for the
company's then subsidiary, Western Resources NL, for the financial periods
ended June 30, 1996.
The consolidated financial statements are presented in Australian dollars
and have been prepared in accordance with Australian generally accepted
accounting principles ("Australian GAAP"), which may vary in certain
respects from generally accepted accounting principles in the United States
("US GAAP").
The following table summarizes certain financial information and should be
read in conjunction with "Item 5 - Operating and Financial Review and
Prospects." The Company has not declared a dividend during each of the
financial periods ended June 30, 1996, and the years ended December 31,
1997, 1998, 1999 and 2000. There were significant fluctuations in revenues
and net income (loss) between the years stated in the table below. Please
refer to Item 5 - Operating and Financial Review and Prospects. For the
reasons set forth herein the information shown below may not be indicative
of the company's future results of operation.
Statement of Loss and Accumulated Deficit Data:
Year Ended Six Months Ended Year Ended Year Ended Year Ended Year Ended
June 30, December 31, December 31, December 31, December 31, December 31,
1996 1996 1997 1998 1999 2000
-------------- ----------------- ---------------- ---------------- ----------------- --------------
Amounts in Accordance AUD$ AUD$ AUD$ AUD$ AUD$ AUD$
with Australian GAAP
Income Statement Data:
Operating revenues - - - - - -
Loss from continuing
operations (1) (3,182,272) (2,065,874) (2,382,196) (20,362,087) (11,095,107) (5,537,576)
Loss from continuing
operations per ordinary
share (dollars) (2) (1.40) (0.38) (0.21) (1.53) (0.70) (0.13)
Balance Sheet Data:
Total Assets 4,468,564 15,635,535 24,688,249 13,247,886 7,579,445 16,227,889
Shareholders' equity 3,069,848 14,842,222 16,150,035 (2,803,225) 5,491,274 15,936,943
Amounts in Accordance
with US GAAP
Income Statement Data:
Operating Revenues - - - - - -
Loss from continuing
operations (1) (3,182,272) (2,065,874) (20,973,206) (12,188,902) (8,043,615) 10,373,578)
Loss form continuing
operations per ordinary
share (dollars) (2) (0.28) (0.38) (1.84) (.92) (0.51) (0.25)
Balance Sheet Data:
Total Assets 2,891,352 13,986,629 5,052,513 737,413 136,645 4,165,087
Shareholders' equity 1,492,636 13,193,296 (3,485,701) (15,313,698) (1,951,526) 3,874,141
(1) Net income (loss) consists of operating profit (loss) after income tax
attributable to members of the parent entity.
(2) Per share data has been retroactively restated to reflect the effects of a 1
for 5 reverse stock split effective April 14, 1997.
3
Exchange Rates
Solely for informational purposes, this Form 20-F contains translations of
certain Australian dollar amounts into or from US dollars at a specified rate.
These translations should not be construed as representation that the Australian
dollar amounts represented in the US dollar amounts indicated, or could be
converted into or from US dollars at the rate indicated. The following table
sets forth, for the financial periods indicated, certain information concerning
the Noon Buying Rate for Australian dollars expressed in US dollars per
AUD$1.00.
Period High Low Period-End Average(1)
- ---------------------------------- ---------- --------- ---------- -----------
12 Months to June 30, 1995 0.7753 0.7108 0.7180 0.7404
- ---------------------------------- ---------- --------- ---------- -----------
12 Months to June 30, 1996 0.7980 0.7108 0.7856 0.7587
- ---------------------------------- ---------- --------- ---------- -----------
6 months to December 31, 1996 0.8137 0.7735 0.7944 0.7918
- ---------------------------------- ---------- --------- ---------- -----------
12 months to December 31, 1997 0.7944 0.6515 0.6515 0.74.28
- ---------------------------------- ---------- --------- ---------- -----------
12 months to December 31, 1998 0.6806 0.5500 0.6139 0.6150
- ---------------------------------- ---------- --------- ---------- -----------
12 months to December 31, 1999 0.6569 0.62.40 0.6500 0.6429
- ---------------------------------- ---------- --------- ---------- -----------
12 months to December 31, 2000 0.6685 0.5073 0.5599 0.5828
- ---------------------------------- ---------- --------- ---------- -----------
At June 13, 2001 the Australian dollar expressed in US dollars per AUD$1.00 is
$.52763.
[1] Represents the average of the Noon Buying Rates on the last day of each
month during the period.
Nature Of Trading Market
The Company's ordinary shares commenced trading on the Australian Stock Exchange
Limited on January 2, 1992 and commenced trading on the Electronic
Over-the-Counter Bulletin Board in the United States on April 11, 1997. The
Company subsequently gained clearance to trade on the NASDAQ Small Capital
Market on June 11, 1997 and continuously traded on that exchange until its
delisting effective May 8, 2000 subsequent to a February 11, 2000 oral hearing
before the NASDAQ Listing Qualifications Panel which delisting was upheld (upon
Company appeal) by the NASDAQ Listing and Hearing Review Council on October 25,
2000.
On December 29, 2000 the Company's securities were listed for trading on the
NASD Electronic Over The Counter Bulletin Board ("OTCBB"). Dupont Securities
Group, Inc., a wholly owned NASD member firm securities broker/dealer subsidiary
of Dupont Direct Financial Holdings, Inc., a financial services holding company
was appointed to act as the initial, exclusive registered market maker in the
Company's securities on the OTCBB. Other securities dealers were permitted to
become market makers in the Company's securities as from January 24, 2001 as
provided for under the NASD rules.
As of May 31, 2001 the Company had 1,267 holders of record of its Ordinary
Shares.
4
The Company has not paid any dividends since it's inception and does not
anticipate paying any dividends on its Ordinary Shares in the foreseeable
future.
The following reflects the high and low bid price for the Company's Ordinary
Shares as reflected on the Australian Stock Exchange Limited for the last three
years.
Quarter Ending High High Low Low Volume
AUD$ US$ AUD$ US$ in 000's
- ---------------------- ---------- ---------- ------------ ------------- --------
March 31 1998 2.35 $1.56 $2.32 1.00 412
- ---------------------- ---------- ---------- ------------ ------------- --------
June 30 1998 2.00 1.62 1.93 1.12 816
- ---------------------- ---------- ---------- ------------ ------------- --------
September 30 1998 1.30 0.84 1.20 0.69 1,539
- ---------------------- ---------- ---------- ------------ ------------- --------
December 31 1998 0.90 0.50 0.90 0.47 411
- ---------------------- ---------- ---------- ------------ ------------- --------
March 31 1999 1.02 0.69 0.63 0.34 1,551
- ---------------------- ---------- ---------- ------------ ------------- --------
June 30 1999 0.80 0.53 0.55 0.31 929
- ---------------------- ---------- ---------- ------------ ------------- --------
September 30 1999 1.00 0.71 0.47 0.22 2,748
- ---------------------- ---------- ---------- ------------ ------------- --------
December 31 1999 0.95 0.59 0.65 0.31 9,423
- ---------------------- ---------- ---------- ------------ ------------- --------
March 31 2000 3.91 2.72 0.56 0.34 132,174
- ---------------------- ---------- ---------- ------------ ------------- --------
June 30 2000 2.30 1.47 0.75 0.34 34,245
- ---------------------- ---------- ---------- ------------ ------------- --------
September 30 2000 1.74 1.13 0.92 0.38 9,004
- ---------------------- ---------- ---------- ------------ ------------- --------
December 31 2000 1.17 0.50 0.61 0.16 13,205
- ---------------------- ---------- ---------- ------------ ------------- --------
March 31, 2001 1.14 0.64 0.35 0.18 16,864
- ---------------------- ---------- ---------- ------------ ------------- --------
5
ITEM 3 A (i) COMPANY AUDITORS
BDO Chartered Accountants (through their office in Perth, Western Australia) is
the Company's independent auditors in connection with its reporting obligations
in Australia only while Feldman Sherb & Co., P.C. ("FS") is the Company's
independent auditors in connection with US reporting obligations.
History of Company auditors
Deloitte Touche Tohmatsu ("D&T") (through their office in Perth, Western
Australia) had previously audited the Company's consolidated financial
statements for calendar years ended December 31, 1999, 1998 and 1997 but no
longer acts as the Company's independent auditors. All or certain specific
portions of such audit were subsequently reviewed by Nasdaq personnel during the
course of certain hearings which subsequently led to the Company's Nasdaq
delisting. During the course of such review, questions were raised as to the
applicability of Australian Auditing Standards as opposed to US Generally
Accepting Accounting Principles ("US GAAP") and what reconciliation, if any, had
to be made between these two standards. Additionally, questions regarding
related issues were raised during the course of the Securities and Exchange
Commission ("SEC") review of this Form 20-F.
As a result of the above and notwithstanding the fact that D&T had initially
opined on the Company's financial statements included in its 1999 Form 20-F, D&T
subsequently refused to opine on US GAAP matters (due to its representation of
lack of sufficient familiarity therewith) and, in effect, withdrew its earlier
opinion. In addition to the reason cited herein D&T indicated that its refusal
to opine was also based upon its opinion that it now retroactively felt that it
lacked the necessary independence to do so due to the fact that it had prepared
an "Independent Experts Report" on behalf of the Company in October of 1996 and
that, accordingly, D&T was of the opinion that it should not have acted as
CityView's auditors for subsequent years with respect to U.S. matters
(notwithstanding the fact that D&T felt that Australian independence
requirements did not preclude it from auditing the Company's financial
statements for Australian reporting purposes).
Management turned to Feldman Sherb & Co., P.C. ("FS"). FS, having previously
been introduced to the Company by its counsel, had initially rendered certain
consulting services to the Company (regarding US GAAP disclosures in the
Company's Form 20-F and US GAAP treatment of certain completed transactions;
specifically relating to oil and gas acquisition and exploration costs. Such
consulting services did not relate to (a) the application of accounting
principles to proposed transactions or (b) the type of audit opinion that might
be rendered by FS on the Company's financial statements. FS did not consult with
D&T regarding the above mentioned issues. As a direct result of the consulting
services rendered by FS to the Company, management decided to utilize such
firm's services for auditing purposes and filings within the U.S. for purposes
of compliance with US GAAP and securities related matters. Accordingly, FS which
was already familiar with the Company's Form 20-F having acted as consultants
with respect to responses to SEC comment letters and Nasdaq inquiries (and
having assisted in compilation and preparation of various correspondence and
filings with the SEC in regards to the Company's Form 20-F filings) was engaged
(on October 16, 2000) to audit the Company's financial statements for years
ended December 31, 1997, 1998 and 1999. A field audit was subsequently conducted
commencing October 23, 2000. FS's audit report dated October 27, 2000 is part
of the Company's Form 20-F for the year ended December 31, 1999.
6
At the Company's May 31, 2000 Annual Meeting of Stockholders, D&T was replaced
as auditors (in Australia) by the firm BDO Chartered Accountants of Perth,
Western Australia, which latter appointment was carried out with the consent of
Australian Securities and Investments Commission, the statutory body in
Australia empowered with the administration and regulation of corporations and
corporate law. The Company's Board of Directors participated in and approved the
decision to change independent accountants.
While D&T no longer acts as the Company's auditors it still acts, from time to
time, as a consultant to the Company and provided assistance and backup
documentation as was required by FS during the latter's audit included of
October 2000.
As a result of all of the above and most specifically the initial and ongoing
consulting services rendered by FS to the Company (as aforesaid) its active
and ongoing participation in preparing necessary responses to inquiries made of
the Company by both Nasdaq and the SEC and its knowledge with respect to US GAAP
matters, management decided to utilize the services of FS as its auditors for
all matters regarding or relating to US governmental and/or administrative
agencies and/or accounting matters.
To summarize the above, D&T had been engaged as Company independent auditors in
connection with Company reporting obligations in both Australia and the U.S. On
May 31, 2000 BDO replaced D&T as Company independent auditors in connection with
its reporting obligations in Australia only while FS replaced D&T as the
Company's independent auditors in connection with U.S. reporting obligations.
The report of D&T on the financial statements for the years indicated above
contained no adverse opinion or disclaimer of opinion and was not qualified or
modified as to uncertainty, audit scope or accounting principles.
In connection with D&T's audits for the years indicated above, there were no
disagreements with D&T on any matter of accounting principles or practices,
financial statement disclosure, or auditing scope or procedure, which
disagreements, if not resolved to the satisfaction of D&T would have caused D&T
to make reference to them in their report on the financial statements for such
years.
7
B. Capitalization and indebtedness
Not applicable
C. Reasons for the offer and use of proceeds
Not applicable
D. Risk factors
Risks in respect of the Company's energy portfolio
The future profitability and viability of operations and activities in the
Company's energy portfolio will depend on a number of risks including but not
limited to the following:
1. Commodity prices and in particular the price of oil and gas;
2. Currency exchange rate fluctuations;
3. The strength of the equity markets at the time of any capital raising
by the Company;
4. Judicial decisions and legislative amendments;
5. Environmental management issues with which the Company may from time to
time have to comply;
6. General economic conditions in Australia and south east Asian countries
and their major trading partners and in particular inflation rates,
commodity supply and demand factors and industrial disruption;
7. Risks inherent in exploration including, amongst other things,
successful exploration, identification, development and exploitation of
use of resources and reserves, and competent management;
8. Political stability of south east Asian countries.
There is no assurance that any of the Company's energy properties contain
significant commercially viable reserves until appropriate and sufficient
exploration work is done and an economic and feasibility study based upon such
work is conducted. The Company also owned certain gold interests which were
disposed of during 1999. Reference is herewith made to GOLD - Raeside Joint
Venture and Duketon Prospects as appearing in the Company's 1999 20-F wherein it
was indicated that in consideration for the discharge of certain liabilities
aggregating US$54,459 the Company sold its subsidiary and interest in the
Raeside Joint Venture in November 1999 to an unaffiliated third party and sold
its subsidiary and interest in Duketon Prospect in December 1999 to an
unaffiliated third party for nominal consideration. CityView no longer holds any
gold interests.
8
Recoverability of loans by the Company to other companies
Early in 2000, CityView acquired the rights to take up a strategic interest in
Sands Solutions Group Pty Ltd ("Sands Solutions"), a developer of integrated B2B
applications. Under the terms of the Heads of Agreement, CityView agreed to make
a commercial loan to Sands Solutions with the right to convert the loan into
equity upon conclusion of extensive due diligence and an independent valuation.
To date, CityView has advanced AUD$3 million under the terms of the loan. The
loan to Sands Solutions is secured by a registered fixed and floating charge
over all the assets and undertaking of that company. Its recoverability is
reliant in the normal course of trading on the planned expansion of and
increased revenues from the businesses conducted by Sands Solutions or the sale
of those businesses and other assets of that company. It is considered that in
the event of default a sale of those businesses and assets should would realize
sufficient funds to satisfy the loan. If the Company acquires an interest in
Sands Solution then it would set off the loan against any purchase money payable
for that acquisition.
The loans of AUD$10,225,105 to Medco Madura Pty Ltd and Medco Simenggaris Pty
Ltd represent moneys owing to the Company for work previously carried out on the
Madura and Simenggaris blocks in Indonesia and paid for by the Company. The
ultimate recoverability of these loans is dependent upon the future development
and successful exploitation of the Madura and Simenggaris blocks by those
companies.
9
ITEM 4. INFORMATION ON THE COMPANY.
A. History and development of the Company
The term "Company" refers to CityView Corporation Limited, a corporation
organized under the laws of Western Australia on May 3, 1987, and its one wholly
owned subsidiary CityView Asia Pty Ltd. During 2000 the Company deregistered
five of the Company's subsidiary companies as these companies were inactive and
superfluous to the Company's requirements. The names of these companies were:
Western Akar Petroleum Pty Ltd; Western Wisesa Petroleum Pty Ltd; Western
Nusantara Energi Pty Ltd; Western Resources NL; and Western Sangkimah NL.
Another two of the Company's former subsidiaries (Western Madura Pty Ltd and
Western Simenggaris Petroleum Pty Ltd) are no longer subsidiaries of the Company
as these companies are now controlled by Pt Medco Energi Corporation which now
owns 75% of the shares in each of these companies.
The Company publishes its consolidated financial statements expressed in
Australian dollars. In this document, references to "US dollars" or "US$" are to
the currency of the United States of America and references to "Australian
Dollars" or "AUD$" are to currency of Australia. Solely for convenience, Form
20-F contains translations of certain Australian dollar amounts into US dollars
at specified rates. These translations should not be construed as
representations that the Australian dollar amounts actually represent such US
dollar amounts or could have been or could be converted into US dollars at the
rates indicated or any other rates. Unless otherwise indicated, the translation
of Australian dollars into US dollars has been made at the rate of AUD$1.00 =
US$0.5599, the noon buy-in rate in New York City for cable transfers in
Australian dollars as certified for customs purposes by the Federal Reserve Bank
of New York (the "Noon Buying Rate") on December 31, 2000. For information
regarding rates of exchange between Australian dollars and US dollars from 1991
to the present, see "Item 3A. Selected Financial Data - Exchange Rates."
The current financial period is for the twelve months ended December 31, 2000.
References in this document to a particular prior year are to the calendar year
unless otherwise indicated. The Company produces annual reports containing
audited consolidated financial statements and an opinion thereon by the
Company's independent public accountants. Such financial statements have been
audited in accordance with Australian Standards ("AIS"). The Company also
produces quarterly reports as required by Australian Stock Exchange Limited,
which contain selected financial information, and notices to shareholders of the
Company. The Company also produces financial statements prepared in accordance
with Australian Accounting Principles ("AAP"), which are required to be
furnished to shareholders under Australian law. AAP may vary in certain respects
from Generally Accepted Accounting Principles in the United States ("US GAAP").
A reconciliation between Australian and US GAAP for the financial periods ended
December 31, 2000, 1999, and 1998 are disclosed in footnote 26 to the financial
statements contained herein.
10
The Company is a corporation organized under the laws of Western Australia on
May 3, 1987 under the name CityView Investments Limited and was listed on
Australian Stock Exchange Limited as an investment company. The Company was
initially listed on the Second Board of the Perth Stock Exchange on October 20,
1987 and was transferred to the Main Board of Australian Stock Exchange Limited
on January 2 1992. The Company changed its name to CityView Corporation Limited
on August 9 1996, to CityView Energy Corporation Limited on May 19, 1996 and on
May 31, 2000 changed its name to CityView Corporation Limited. CityView's
investments were focused originally on realty, then gold and realty, then energy
and gold and since January 2000 e-commerce and energy.
Australian Government Regulation
The Australian Securities and Investments Commission is an Australian government
instrumentality that administratively enforces the Australian Corporations Law,
which is the main body of law regulating companies in Australia. The
Corporations Law covers matters such as directors' duties and responsibilities,
preparation of accounts, auditor control, issue and transfer of shares, control
of shareholder meetings, rights of minority interests, amendments to capital
structure, preparation and filing of public documents such as annual reports,
changes in directors and changes in capital.
Australian Stock Exchange Limited imposes listing rules on all listed companies,
including the Company. The listing rules cover such issues as immediate
notification to the market of relevant information, periodic financial reporting
and the prior approval of shareholder reports by the Australian Stock Exchange
Limited.
The Company believes that it is in compliance with the foregoing Australian laws
and regulations.
11
B. Business overview
General
The Company identified Indonesia for its focus for acquisitions and development
of oil and gas reserves. Indonesia was selected after considering prospectivity
for oil and gas, demand for the produced product, availability of supportive
infrastructure, foreign company participation terms and conditions and sovereign
risk.
Benefits Associated with Indonesia
Indonesia has a record for honoring participation agreements and keeping tax and
terms stable. The process for co-operation with domestic and foreign parties is
explained as follows:
o All oil and natural gas exploitation in Indonesia is the responsibility
of Perusahaan Pertambangan Minyak dan Gas Bumi Negara ("Pertamina"), an
enterprise established under the Law of the Republic of Indonesia
Number 8 Year 1971.
o Pertamina may co-operate with other parties by way of a "Production
Sharing Contract," (hereinafter "PSC"), the form and terms of which are
established by government regulations.
o While terms have altered marginally since the PSC was first introduced,
usually the objective of the change has been to improve the terms in an
attempt to attract further foreign investment in Indonesia.
o The PSC format has proved a stable and reliable contract for
international investment.
o The Company is involved in two PSCs with Pertamina located onshore
Madura Island and Onshore North East Kalimantan and the PSCs are held
by Medco Madura Pty Ltd and Medco Simenggaris Pty Ltd respectively
(collectively hereinafter called "Madura and Simenggaris").
Indonesia is considered one of the more mature regions of the world for oil and
gas investment in respect to security of tenure in contracts covering oil and
gas rights of a foreign company.
Risks Associated with Indonesia
There are a number of factors which may have a material downside effect on
Madura and Simenggaris' future financial performance in Indonesia or the value
of the shares in the Company. These factors include:
o Fluctuations in the world market price of oil and gas;
o Fluctuations in the value of the Indonesian rupiah against the US dollar;
o Abnormal interruptions in oil and gas production or delivery resulting from
war, political disturbance, civil unrest or industrial disruption;
o Changes in government, government regulations or the relevant fiscal regime;
o Unforeseen adverse geological conditions; o Unavailability or excessive
costs of industry service support, caused by any of the above.
The Company believes that the benefits described above far outweigh the risks.
There is no assurance, however, that one or more of the aforementioned risks
will not severely damage Company prospects and operations.
12
Selection of Target Areas for Acquisition
The criteria for assessing oil and gas opportunities in Indonesia includes
consideration of the following:
o Detailed review of geological and geophysical information available
from Pertamina and other sources.
o Assessing proximity of the oil and/or gas prospect to a means of
transporting the production to market. The foregoing component of
production costs can significantly affect the economics of a project.
o Assessing access to support services such as engineering, rig services
and service contractors. Costs for mobilization and demobilization of
such services is an important consideration.
o Assessing field prospects of oil and gas, usually determined by quality
and quantity of geophysical, geological, petrophysical and production
data available.
o Assessing the degree of difficulty in producing the oil and gas
prospect from an engineering perspective, to enable an accurate
assessment of production costs.
o Conducting commercial analysis to establish the ability of a particular
project to achieve adequate rate of return on investment.
Evaluation Techniques
Experienced geologists and geophysicists are engaged as contractors to employ
the most advanced technologies of investigation in assessing hydrocarbon
prospects. These include reprocessing and reinterpretation of existing seismic
data. Afterwards the data in its original interpreted form can be enhanced to
enable more accurate mapping of the structure. The technology available for
seismic acquisition and processing is continually being improved. Interpretation
tools such as computer mapping and modeling packages, enable greater amounts of
data to be processed and superior interpretations to be made. Madura and
Simenggaris utilize both the data directly relating to the field being
investigated, along with regional data to compile as complete an understanding
as the available data will allow.
Electrical wireline logs are utilized where available to interpret reservoir
parameters of interval thickness, hydrocarbon presence, porosity, water
saturation and other important parameters. This data is interpreted utilizing
experienced engineers and advanced software packages designed for such analysis.
The result are then integrated with the geological and geophysical information,
in an endeavor to use one form of analysis to confirm the other.
Utilizing the geophysical mapping and the petrophysical interpretation, the
reservoir engineer is then able to estimate potential oil and/or gas reserves
and recovery factors likely to be achieved. Any available past production
records are analyzed and can often be utilized as a means of predicting future
production rates and cumulative production forecast, by extrapolation of the
past results, utilizing accepted engineering practices. The application of
computer models can also aid the reservoir engineer in forecasting production
potential. An accurate model can duplicate past production history.
13
Market for Oil and Gas Production
The market for oil and gas production in Indonesia is generally regulated. Under
the terms of the PSC, Madura and Simenggaris have the right to sell their oil
production to Pertamina at the government established Indonesian Crude Price
(hereinafter "ICP") and Pertamina cannot refuse to buy the production. The ICP
is an average price for a basket of crude oil. The basket used in the ICP
calculation is comprised of Sumatra Light Crude (SLC), Tapis crude (from
Malaysia), Oman crude, Dubai crude and Gippsland crude (Australia) prices. The
ICP is adjusted on a monthly basis at the end of each month and then applied to
the same month. The price for a particular crude oil in Indonesia is then
adjusted relative to the crude quality. Pertamina has strategically located
facilities throughout most of Indonesia, where crude oil can be delivered,
commonly referred to as the "Point of Custody Transfer." Madura and Simenggaris
are responsible for their portion of costs for delivering the crude to the Point
of Custody Transfer. Above certain levels of production, Madura and Simenggaris
have the right to sell its oil production on the world market if it is able to
negotiate preferred selling terms. Preferred selling terms are terms which are
more favorable then those available to the contractor under the ICP pricing
system.
Under the standard terms of Technical Assistance Contracts and Production
Sharing Contracts, the contractor has the right during the term thereof to
freely lift, dispose of and export 100% of its share of crude oil, and retain
abroad the proceeds obtained therefrom. After 5 years of production the
contractor is required to meet its domestic market obligation and sell 25% of
its share of production to Pertamina at 15% of the prevailing price.
All producers in a producing region receive the same price. The major oil
companies purchase crude oil offered for sale at posted field prices. There are
price adjustments for quality difference from the Bench Mark. Oil sales are
normally contracted with a gatherer who will pick-up the oil at the well site.
In some instances there may be deductions for transportation from the well head
to the sales point. At this time the majority of crude oil purchasers do not
charge transportation fees, unless the well is outside their service area. The
oil gatherer will usually handle all check disbursements to both the working
interest and royalty owners. The Company was a working interest owner to
December 31, 1999. In January 2000 the Company entered an agreement for the
Company's interest in the new work programs to be carried by Pt Medco Energi
Corporation Tbk. Commencing January 1, 2002 the Company expects to be a working
interest owner. By being a working interest owner, the Company will be
responsible for the payment of its proportionate share of the operating expenses
of the well. Royalty owners and over-riding royalty owners receive a percentage
of gross oil production for the particular lease and are not obligated in any
manner whatsoever to pay for the cost of operating the lease.
Gas is sold direct to consumers at prices determined by Pertamina in the
following range:
Industry Price Range per MCF
Fertilizer manufacture US$1.00 - US$1.50
Petrochemical US$2.00
Steel Industry Process US$0.65
Steel Industry Fuel/Power US$2.00
Electricity generation US$2.45 - US$3.00
Cement manufacture US$3.00
Other US$2.70
14
The lower gas prices in some industry sectors are a form of subsidy imposed by
the government. Larger gas reserves near to LNG facilities are able to supply
gas to these operations. Indonesia is the largest exporter of LNG in the world.
The gas purchaser will pay the well operator 100% of the sales proceeds each and
every month for the previous months sales. The operator is responsible for all
checks and distributions to the working interest and royalty owners. There is no
standard price for gas. Depending on the type of contract, ultimate destination,
transportation, treatment and compression charges, the prices will vary. Prices
will fluctuate with the seasons and the general market conditions. The Company
does not anticipate any significant change in the manner production is
purchased. However, no assurance can be given at this time that such changes
will not occur.
As Indonesia moves closer towards becoming a net importer of crude oil, the
Indonesian government, through the state owned enterprise Pertamina in which all
oil and gas reserves are vested, is endeavoring to increase production through
new incentives to attract foreign expertise and capital for exploration and
production, through development and enhancement of existing reserves.
Government incentives for PSCs include:
o After tax split for oil, new incentive 35% Contractor Equity, from a
previous range of 15% to 25%. This in effect means that the Contractor
can receive a larger portion of the total production from any field,
after the deduction of Operating Costs. Allowing for a tax rate of 44%,
the Contractor is entitled under this legislation, to 62.5% of
remaining production after recovery of Operating Costs pre tax, as
opposed to the previous entitlement of 26.7857% to 44.6428% pre tax.
o After tax split for gas 40% for Contractor, from 35% previously. As for
the above, the Contractor is entitled to 71.426% of the production,
after deducting Operating Costs, as opposed to 62.5% previously.
o Domestic market oil fee increased from 15% of crude price to 25% of
crude price. Under the terms of all TACs and PSCs, the Contractor is
required to sell and deliver to Pertamina a portion of the share of the
Crude Oil to which the Contractor is entitled, at the Domestic Market
Oil Fee, which is a set percentage of the price realized by the
Contractor for all other production from the Contract Area. Under the
previous regulations, the Contractor received only 15% of such price,
whereas under the new legislation, the Contractor receives 25% of the
realized price. The net result is that the Contractor is receiving an
additional 10% of the Crude Oil price for that portion of Crude Oil
which it is obligated to sell and deliver to Pertamina to fulfill the
Contractor's obligation towards the supply of the domestic market in
Indonesia.
15
o First Tranche Petroleum reduced from 20% to 15%. First Tranche
Petroleum, being a portion of the total Petroleum production to be
split between the parties before any deduction for recovery of
Operating Costs, reduces the amount available for recovery of Operating
Costs. As the Contractor is providing funding under the contract terms,
it is in the Contractor's interest to have as much of the Petroleum
production available for recovery of such costs, prior to distribution
between the parties thereafter. Reduction of the First Tranche
Petroleum percentage from 20% to 15% means an additional 5% of the
Petroleum production is available to the Contractor for Cost Recovery.
The price for oil in Indonesia is tied to a basket of crude oils around the
world, ensuring an "international" price dependency. The basket of crude oils
used to establish the ICP effectively means that the ICP is very much subject to
world oil prices, giving it international stability as opposed to being affected
by domestic constraints. The ICP compares favorably with other comparable crude
oils in that its price is formulated from a basket of comparable crudes from
other countries.
Energy Portfolio
Madura Block onshore Madura Island near Surabaya east Java
On January 28, 1997 the President Director of Pertamina awarded the Madura Block
to CityView and signed the authorization for CityView's then 100% owned
subsidiary Western Madura Pty Ltd ("Western Madura") to commence operations on
the Madura Block prior to the formal signing of the PSC-JOB agreement. The
signing of the contract took place on May 15, 1997, awarding the 2728km(2)
Madura Block to Western Madura for an exploration term of 10 years and
production term of 20 years. CityView was not required to make any cash payment
for this award and no payment in cash or otherwise was made by or on behalf of
CityView for the award of the Madura Block.
The block covers an area of 674,100 acres and lies in the oil and gas region of
east Java. A number of large fields have been discovered in the vicinity and it
is these same producing trends which are being examined on Madura. The block
lies close to the heavily industrialized city of Surabaya where there is a ready
market for oil and gas.
History
Oil and gas exploration began on Madura Island in the late 1800's to 1910 with
over 100 shallow (less than 500m) wells drilled on oil seeps and surface
features. Production was marginal with a cumulative total of less than 1.0MMBO
("Million barrels of Oil"). Exploration was limited on the block until the
1970's when it was held in succession by Indonesia Cities Services, Pertamina
and Shell. Several generations of seismic data were acquired in the 1980's and
1990's but only 6 wells have been drilled on the Island since 1910.
Throughout 1999, discussions took place with PT Medco Energi Corporation TBK
("Medco") for Medco to supervise and pay for the new work programs for the
development and bringing into production of the Madura block.
16
Approval was given at the Company's General Meeting held on December 30,1999 for
the Company to allot a 75% interest in Western Madura to Medco in consideration
of Medco carrying out and paying for the new work programs. The agreement was
signed between CityView and Medco on January 25, 2000. The Company's interest in
Western Madura was reduced from 100% to 25% and Western Madura was renamed Medco
Madura Pty Ltd. In accordance with the above, Medco submitted to Pertamina for
approval a Year 2000 budget of US$3,519,000 for the drilling of three wells on
the Sebaya and Karasan prospects at Madura in the second and third quarters.
Medco is the operator of the block and required to supervise and pay for the new
work programs for development and bringing into production of the fields. After
that, Medco and the Company will contribute on a pro-rata basis in accordance
with the respective 75% and 25% interests with the Company continuing to receive
25% of any profits generated.
Medco is free carrying CityView throughout the new work programs agreed with
Pertamina. The program includes substantial drilling and will be carried out at
no cost to CityView.
Medco has completed an extensive program of reprocessing seismic data and
geological and geophysical studies. As a result of this evaluation, drilling
locations have been selected on two prospects, Karasan and Sebaya, for drilling
in mid 2001.
Karasan is a 2000-3000 acre structure at the Prupuh limestone level. Seismic
data gives strong indications that the feature is probably a reef build-up
analogous to the Mudi reef discovery in east Java (40 million barrels of oil).
Karasan will be predominately gas bearing. The proposed well will be drilled to
a depth of 1,250 meters.
Sebaya is a large faulted anticlinal feature underlying the old Kertegeneh field
discovered in 1900. Oil production from Kertegeneh confirms that Sebaya may have
commercially viable oil production capabilities. Most of the Tawun and Tuban
sections have not been tested by the older shallow wells. The proposed well will
be drilled to a depth of 1230 meters.
17
Regional Setting
There is an E-W terrain running across the block that underwent inversion in the
Plio-Pleistocene. Within that band, a number of structures have been identified
^due to the inversion at fairly shallow levels. These relatively shallow
features are the principal target for the Medco Madura Pty Ltd program.
Prospects
Market
Medco Madura Pty Ltd has discussed with the local Madura government downstream
projects which include a small refinery and a power plant to supply the local
market and displace imports from East Java.
18
Simenggaris Block onshore north-east Borneo
On September 28, 1997 the President Director of Pertamina signed the
authorization for CityView's then 100% owned subsidiary Genindo Western
Petroleum Pty Ltd ("Western Simenggaris") to commence operations on the
Simenggaris Block prior to the formal signing of the PSC-JOB agreement. The
signing of the Contract took place on February 24, 1998 awarding the 2734km(2)
Simenggaris Block to Genindo. The contract term is 10 years for exploration and
20 years for production. Genindo changed its name to Western Simenggaris
Petroleum Pty Ltd on June 22 1998. CityView was not required to make any cash
payment for this award and no payment in cash or otherwise was made by or on
behalf of CityView for the award of the Simenggaris Block.
The block covers an area of 675,582 acres and lies in the oil and gas Tarakan
Basin region. The nearby giant Pamusian field was discovered in 1905 and the
Bunyu field in 1920. Four discoveries have been made within the block: the
Sembakung oilfield (40 million barrels oil), the Bangkudulis oilfield, Sesayap-1
and S.Sembakung-1. The former two are producing fields excluded from the
contract area and the latter two are undeveloped gas-condensate discoveries
which do form part of the contract area.
Similar to the agreement negotiated with Medco on Madura, CityView retains a 25%
interest in exchange for being free carried throughout the work program as per
the January 25, 2000 agreement. Medco has selected a drilling location at the
Pidawan prospect and the cost of drilling this well will form part of the new
work program. The proposed well will be drilled to a depth of 2,300 meters.
History
The Simenggaris Block is adjacent to some of the earliest oil production in
Indonesia with exploration dating back to the 1890's. Exploration was limited on
the block until the late 1960's when portions of the block were held in
succession by Japex, ARCO, Deminex and Pertamina. Several generations of seismic
data were acquired and 15 wells were drilled within the Block leading to four
discoveries: Sembakung oil field, Bangkudulis oil field, Sesayap-1 and
S.Sembakung-1. The former two are producing fields excluded from the Contract
area and the latter two are undeveloped gas-condensate discoveries.
Regional Setting
The Simenggaris Block lies in the Tarakan Basin region. The Tarakan Basin
stratigraphy consists of a classic prograding deltaic sequence from upper
Miocene through Pliocene time. The majority of the reserves are found along the
Kalimantan coast in Pliocene age deltaic reservoirs. Further inland gas and oil
are found in upper Miocene age, paleogeographic equivalent, deltaic reservoirs.
The upper Miocene age reservoirs are under explored and will be the focus of the
Medco work program.
19
Prospects
Market
Several gas markets have been identified for the Simenggaris Block with gas
prices of US$1.00-1.50 per MCF expected, based on current pricing levels. These
markets include a future fertilizer plant and also a methanol plant on Bunyu
Island.
20
Philippines Block SC41, offshore Sabah Malaysia
ARCO Philippines Inc, Preussag Energies GMBH, MMC Exploration & Production
(Philippines) Pte Ltd ("MMCEPPL") and a consortium of fifteen Filipino resource
companies hold Block SC41 in the Sandakan Basin in offshore Philippines adjacent
to the border with Sadah East Malaysia. SC41 includes an area of about 12,000
km2 (3 million acres) on which ARCO has acquired 5,100 km of seismic data with
simultaneous gravity and magnetic surveys. The Sandakan Basin is filled mainly
with Mio-Pliocene age fluvio-deltaic sedimentary rocks that are analogous in
many ways to the prolific Baram and Mahakam deltas adjacent to Borneo.
ARCO has mapped several large prospects in the undrilled distal portion of the
delta complex. Seismic amplitude anomalies and flat spots that conform to these
structures indicate that hydrocarbon generation, migration and entrapment have
occurred. Twelve prospects of potential have been identified in SC41 including
the Rhino prospect and the Hippo prospect, both of which have confirmed the
presence of hydrocarbons. UNOCAL is now the operator of the block and is
carrying out a detailed analysis of the 3D seismic to determine the next well
location.
In June of 1999 the Company executed an agreement with Malaysia Mining
Corporation Berhad (MMC) for the transfer to MMC of its 49% interest in MMC
Exploration & Production (Philippines) Pte Ltd, in satisfaction of its
outstanding debt of US$10,555,450 to MMC and discharge (January 24, 2000) of the
deed of charge dated February 4, 1998.
On April 13, 2000 CityView acquired from ASAB Resources Limited a 2.5% interest
in Block SC41 for AUD$4,620,002. This interest is free carried by MMCEPPL (i.e.
CityView is not required to contribute financially) through the current work
program. See also Item 5 - "Energy".
Market
Oil is easier to produce and market as it would simply be produced from a
floating production storage unit ("FPSU") and then delivered anywhere in the
country. Gas is more difficult to monetize as it will require a pipeline to get
the gas to market and costs associated with laying a pipeline far exceed
production and marketing costs for oil in the regions discussed herein.
Marketing opportunities in nearby Sabah would be examined.
21
Past Energy related activities
Timoforo
On shore Irian Jaya
CityView's then 85% owned subsidiary, Western Wisesa Petroleum Pty. Ltd, was
formed to negotiate with Pertamina to secure title to the block. During 1999 the
Company ceased its negotiations for the block on the grounds of inadequate
commerciality.
Tuba Obi East ("TOE")
Onshore South Sumatra
In June 1994, Pt Akar Golindo (PTAG) was invited by Pertamina to bid on the Tuba
Obi East Block in Sumatra. On August 1, 1996 CityView signed a Memorandum of
Understanding with PTAG to form a joint company Western Akar Petroleum Pty Ltd
("Akar") to operate and develop TOE. Akar (then a 90% owned subsidiary of
CityView) then signed a TAC for Tuba Obi East on May 15, 1997. The block is
55km(2) in size.
During 1999 the Company withdrew from TOE on the grounds of inadequate
commerciality.
Tanjung Miring Timur ("TMT")
Onshore South Sumatra
On December 17, 1996 CityView's then 80% owned subsidiary, Western Nusantara
Energi Pty Ltd ("Nusantara") signed a TAC to take over the operations of the TMT
Oilfield.
During 1999 the Company withdrew from TMT on the grounds of inadequate
commerciality
Sangatta Sangkimah
East Kalimantan
On December 8, 1995 CityView's then wholly owned subsidiary Western Sangkimah NL
("Western") was assigned an 87.5% interest in a TAC for the Sangkimah oilfield
which lies within a Pertamina concession area known as Sangatta.
To comply with Pertamina's work program a workover of Well No. SS-1 was carried
out in December 1997 which confirmed a minimum production rate of 30BOPD.
Operations on Well No. SS-1 were then suspended. An exploratory well No. SST-1
was then drilled to a depth of 1550 m to test the "Q" sands. After encountering
only minor oil content the well was plugged.
22
During 1999 the Company withdrew from Sangatta Sangkimah on the grounds of
inadequate commerciality.
Competition
The oil and gas industry is highly competitive. The Company's competitors and
potential competitors include major oil companies and independent producers of
varying sizes which are engaged in the acquisition of producing properties and
the exploration and development of prospects. Many of the Company's competitors
have greater financial, personnel and other resources than does the Company and
therefore have a greater leverage to use in acquiring prospects, hiring
personnel and marketing oil and gas. Accordingly, a high degree of competition
in these areas is expected to continue.
Indonesian Government Regulation
The Company may either sell its production on the international market or opt to
sell it domestically. There is a commitment to sell 25% of any oil production
domestically (called Domestic Market Obligation) at 15% of the crude price. This
commitment is imposed in the terms of all PSCs and does not vary between PSCs.
This commitment becomes effective after the first 60 months of production. As
the fields have not reached a level of commercial production, the commitment
does not currently apply. There are no constraints on production. Indonesia has
no exchange controls; therefore, foreigners are able to move funds freely in and
out of the country through accounts denominated in local foreign currency.
On all projects in which a company into a PSC with Pertamina, it is obligated
to:
o Conduct an environmental baseline assessment at the beginning of its
activities.
o Take the necessary precautions for protection of ecological systems,
navigation and fishing, and prevent extensive pollution of the area,
sea or rivers as the result of operations undertaken under the work
program.
o After the expiration or termination or relinquishment of any contract
area, or abandonment of any field, remove all equipment and
installations from the area in a manner acceptable to Pertamina, and
perform all necessary site restoration activities in accordance with
applicable government regulations, the costs of which are treated as
operating costs and are thus cost recoverable, through project
revenues.
The Company considers these environmental obligations to be a part of its policy
of good oil field practice and further acknowledges that the terms are
considered normal throughout the world. Further, the Company believes that the
foregoing obligations will not have a material impact on the Company's
operations.
23
B2B E-Commerce Investment
In January 2000, CityView agreed to acquire certain rights to take up a
strategic interest in Sands Solutions Group Pty Ltd ("Sands Solutions"), a
developer of integrated B2B applications. Under the terms of the Heads of
Agreement, CityView agreed to make a commercial loan under the security of a
fixed and floating charge over Sands Solutions, with the right to convert the
loan into equity upon conclusion of extensive due diligence and an independent
valuation. To date, CityView has advanced AUD$3 million under the terms of the
loan. The outcome of this valuation and the due diligence investigations will
determine the level of equity that CityView ultimately acquires in Sands
Solutions and its price. The extensive due diligence will enable CityView to
limit its risk whilst at the same time earning interest on monies advanced.
Simultaneously the maximum amount payable under the agreement for a 40% interest
has been capped at AUD$20 million. By capping the entry costs and extending the
due diligence period, CityView has, to a degree, insulated itself from market
fluctuations. The acquisition by CityView of any interest in Sands Solutions
above 10% requires that a Prospectus be filed by CityView with Australian Stock
Exchange Limited in accordance with the requirements of the Australian
Securities and Investments Commission. While the filing of such Prospectus does
not generate comments, it does require accuracy of all material information so
as to avoid director's personal liability for material misstatements.
The Heads of Agreement was negotiated on an arms-length basis between the
directors of each corporation not having any overlapping interest in the other
corporation. Similarly the due diligence of Sands Solutions is being conducted
by the independent directors of each Company.
This manner of proceeding has been necessary due to the fact that a family trust
of CityView's CEO used to own fifty percent of Sands and McDougall and owns
one-third of Sands Solutions. The trustee of the Smyth family trust is Salant
Nominees Pty Ltd and its two directors are Peter Mark Smyth and his wife
Jennifer Lee Smyth. Mr and Mrs Smyth control the family trust in their capacity
as its sole two directors. Also, Mr Smyth was a director of both Sands and
McDougall and Sands Solutions although he is no longer a director of either.
To avoid potential conflicts the directors representing CityView in dealings
with Sands Solutions are its independent directors Peter John Augustin Remta and
Leslie Robert Maurice Friday while Sands Solutions is primarily represented by
Paul William Keogh, one of its directors.
CityView anticipates that the outcome of the independent valuation and due
diligence investigations will determine the level of equity that CityView
ultimately acquires in Sands Solutions and its price. CityView anticipates that
payment for the acquisition of an equity interest will be accomplished through
conversion of the AUD$3 million loan to Sands Solutions and through further
funds it may be able to receive from private placements of CityView's shares
with otherwise unaffiliated third parties.
24
CityView raised the AUD$3 million that has been lent to Sands Solutions, in
part, by issuing 7,300,000 CityView shares in January 2000 to private placement
participants for proceeds of AUD$3,613,500 with these shares (once issued) then
representing approximately 20% of all outstanding CityView shares and with no
one participant (or group of participants acting in concert) being or becoming a
principal stockholder of CityView.
History of Sands Solutions
In 1994 Sands & McDougall, a Western Australian office supplier, successfully
evolved a B2B solution for its largest customers such as Alcoa and Caterpillar
who wished to reduce their procurement costs.
As business grew Sands Solutions was established in 1994 to meet the expanding
demand. After prototype electronic-data interchanges, a closed-loop integrated
processing system called Smart Clips was developed. Initial installations were
based on client/server technologies, but since then new systems have been
introduced that are true internet/intranet applications with benefits in terms
of ease of use, security and integration to existing accounting systems.
The primary target for the application of Smart Clips are existing ERP
(Enterprise Resource Planning) suites. Most ERP suites were installed in the
1990's at a high capital cost to organizations implementing them. These suites
primarily support unsynchronized batch oriented data exchange, whereas
e-business requires near real-time message exchanges. Architecturally, most of
the installed bases of ERP suites are not capable of effectively supporting
e-business initiatives. As businesses are reluctant to write-off their large
investment in ERP suites, they are actively seeking to leverage it. Smart Clips
applications enable them to do this as they deliver greater functionality at a
fraction of the capital and implementation cost of other recognised B2B
e-procurement applications.
The e-procurement sector of the e-business services market is predicted to be
the biggest growth sector over the next five years. According to the Boston
Consulting Group, spending on e-commerce systems in Australia will grow from $17
billion in 2000 to $235 billion by 2005, with 22% of transactions being
conducted online by 2005. Sound business fundamentals are the key characteristic
of the present e-business revolution which is being led by "old economy"
companies. Conventional businesses are taking the tools crafted in the dot-com
boom and adapting them. Sands Solutions expects that the results over the next
five years will be startling as e-business tools are used to streamline internal
operations and make possible new business ventures that were previously
unachievable.
Sands Solutions believes that it has a sustainable competitive advantage through
the depth of its position in the e-procurement market which has been continually
enhanced with each additional buy-side application released. The deepening of
Sands Solutions' position will be further strengthened with the roll out of its
m-commerce solution in the third quarter of 2001. The Smart Clips e-procurement
solution is comparable to the emerging "peer to peer" B2B e-commerce models
described in the Harvard Business Review, November-December 2000: the difference
being that Smart Clips is a proven working solution, several years ahead of its
competitors.
25
Originally Smart Clips was restricted to the customers of Sands & McDougall.
Last year was the first time that Smart Clips was made available to the public.
With dot com hype overheating the market in 2000, marketing of Sands Solutions
products was deferred until 2001. The downturn in the world economy has turned
attention to cost reduction rather than sales increase so that the timing
appears right to market the applications.
The initial idea for the acquisition of an interest in Sands Solutions resulted
from substantial negotiations between London Partners Australia Pty Ltd
("London") and Sands and McDougall personnel with London then presenting a
proposal to CityView. Mr Smyth did not propose CityView's investment in Sands
Solutions. Initially, London proposed an investment in Sands Solutions to Sands
Solutions and after an extensive discussion between Mr. William Keogh of Sands
Solutions and London's Victor Melville of London, London felt that CityView,
then being a NASDAQ and Australian Stock Exchange Limited ("ASX") listed
company, was a good candidate to propose an acquisition with London feeling that
such stock exchange listing(s) would give CityView a better opportunity than a
non-public company to raise funds for such acquisition. London then made such
suggestion to CityView after it (London) had both initiated, negotiated and
orchestrated the proposed transaction.
The relationship between London and CityView is a business relationship whereby
London assists CityView in its private placements in its capacity as a licensed
securities dealer that assists in raising funds for various corporations in the
normal course of its business while also providing corporate consulting advice.
London is otherwise unaffiliated with either CityView or Sands Solutions.
The proposed investment in Sands Solutions is intended as an expansion of
CityView business and not as a change of business operations, as CityView
remains actively engaged in energy operations as indicated herein.
C. Organizational structure
The Company conducts its operations through itself and its wholly owned
subsidiary CityView Asia Pty Ltd.
During 2000 the Company deregistered five of the Company's subsidiary companies
as these companies were inactive and superfluous to the Company's requirements.
The names of these companies were: Western Akar Petroleum Pty Ltd; Western
Wisesa Petroleum Pty Ltd; Western Nusantara Energi Pty Ltd; Western Resources
NL; and Western Sangkimah NL. Another two of the Company's former subsidiaries
(Western Madura Pty Ltd and Western Simenggaris Petroleum Pty Ltd) are no longer
subsidiaries of the Company as these companies are now controlled by Pt Medco
Energi Corporation which now owns 75% of the shares in each of these companies.
26
D. Property, plant and equipment
Particulars of oil leases
Madura - Medco Madura Pty Ltd and Simenggaris - Medco Simenggaris Pty Ltd The
Company's wholly owned subsidiary CityView Asia Pty Ltd owns 25% of Medco Madura
Pty Ltd and 25% of Medco Simenggaris Pty Ltd since May 26, 2000 having
previously owned (since December 31, 1999) 100% of such properties.
Executive address
On May 1, 2000 the Company relocated its offices to leased premises at 63
Burswood Road, Burswood, Western Australia, telephone: (61 8) 6250 9099, fax:
(61 8) 6250 9088, email: info@cityviewcorp.com.
27
ITEM 5. OPERATING AND FINANCIAL REVIEW AND PROSPECTS.
A. Operating results
The current financial period is for the twelve months ended December 31, 2000.
The Company's consolidated financial statements are prepared in accordance with
Australian Generally Accepted Accounting Principals ("Australian GAAP") which
may vary in certain respects from Generally Accepted Accounting Principals in
the United States ("US GAAP"). A reconciliation between Australian and US GAAP
for the financial periods ended December 31, 2000, 1999, and 1998 are disclosed
in footnote 26 to the financial statements contained herein.
The following discussion references the amounts computed in accordance with
Australian GAAP for the results of operations of the Company for the financial
periods ended December 31, 2000, 1999, and 1998..
Principal Activities
The principal activities of the Company during the financial year were
investments in energy, electronic commerce and most recently telecommunications.
Results of operations
The discussion set forth below relates to the Company's results of operations as
prepared in accordance with Australian GAAP. A reconciliation between Australian
and US GAAP for the financial periods ended December 31, 2000, 1999, and 1998
are disclosed in footnote 26 to the financial statements contained herein.
Year Ended December 31, 2000 compared to Year Ended December 31, 1999.
The net loss of the consolidated entity for the financial year after providing
for income tax and eliminating outside equity interests was AUD$5,537,576
compared to a loss of AUD$11,095,107 for the previous financial year. The
decrease in operating loss resulted primarily by the decrease in the write off
of exploration costs of approximately AUD$4,800,000, a decrease in loss on
disposed subsidiary of AUD$1,200,000, and a decrease in interest expense of
approximately AUD$920,000 because of conversion of debentures in 1999 offset by
an increase in selling, general and administrative costs of approximately
AUD$1,400,000.
Year Ended December 31, 1999 compared to Year Ended December 31, 1998.
The Company's gross revenues for the year ended December 31, 1999 were AUD$208
as compared to AUD$335,980 for the year ended December 31, 1998.
There was no operating revenue from operations in Indonesia for both the year
ended December 31, 1999 and December 31, 1998.
The Company incurred an operating loss before tax of AUD$11,095,107 in the year
ended December 31, 1999 compared to a loss of AUD$20,362,087 in the year ended
December 31, 1998. The decrease in operating loss resulted primarily from the
loss on disposal of a subsidiary of AUD$12,673,100 in 1998 offset by an increase
of write-off of exploration expenditures in 1999 of AUD$2,465,587.
28
The Company disposed of subsidiaries engaged in unprofitable ventures,
principally oil and gas exploration projects. All costs incurred by the
subsidiaries were written off as incurred. The impact on the Company's future
results of operations, financial position and liquidity resulting from the
disposal of these subsidiaries will be nil.
The Company wrote-off exploration costs of AUD$4,786,387 in 1999 and
AUD$2,320,000 in 1998. These costs related to properties in Indonesia. The
Company wrote off these costs because these areas were determined to be
non-economic because the production costs would exceed any expected revenues.
Dividends
The directors did not recommend the payment of a dividend and no dividends have
been paid or declared since the end of the previous financial year.
Review of Operations
Although a fairly extensive description of the operations of the Company is
included in the Business overview which precedes this report a summary of the
pertinent aspects of those operations is contained in this Item 5.
Energy
On 25 January 2000 agreements were signed between CityView and PT Medco Energi
Corporation TBK ("Medco") by which Medco undertook the supervision and payment
for extensive work under a new works program for the Madura and Simenggaris
blocks in return for it acquiring an interest of 75% in each of those blocks.
The new work program and accompanying budget has been agreed between Medco and
Pertamina (which is the Indonesian state owned oil and gas organisation
Perusahaan Pertambangan Minyak Dan Gas Bumi Negara) as required by the
subscription agreements entered into by CityView and Medco.
29
The Company holds its interest of 25% in each of those blocks through its wholly
owned subsidiary of CityView Asia Pty Ltd and neither the Company nor that
subsidiary is currently required to contribute towards any of the cost of the
new work programs in developing the Madura and Simenggaris blocks.
Extensive reappraisal of seismic data and geological and geophysical studies
have been carried out by Medco on both blocks. As a result of the reappraisal
undertaken by Medco it has been decided to slightly vary the proposed drilling
locations on the three selected prospects known as Sebaya, Karasan and Pidawan.
As part of the acquisition of its interest in Block SC41 all contributions to
expenses of the current work program of two wells (which includes Rhino) within
the block will be met on behalf of the Company by MMC Exploration & Production
(Philippines) Pte Ltd which is a subsidiary of Malaysia Mining Corporation
Berhad, the largest shareholder of CityView.
The consideration for the acquisition was the issue to ASAB Resources Limited as
vendor of 2,200,000 million shares in the capital of the Company valued at
US$1,100,000 for each percentage point interest. This is a lower rate than the
price paid to CityView by Malaysia Mining Corporation Berhad in December 1999 of
US$1,133,333 for each percentage point based on a Gaffney Cline valuation of
US$17,000,000 for a 15% working interest in Block SC 41. The interest sold by
CityView to Malaysia Mining Corporation Berhad in Block SC 41 was not free
carried.
Business to Business E-Commerce
Early in 2000, CityView negotiated an entry into the e-commerce industry through
Sands Solutions. As a result the Company agreed to make commercial loans to
Sands Solutions against the security of a registered fixed and floating charge
over Sands Solutions with the intention of converting the loans into equity upon
conclusion of an extensive due diligence study and independent valuation. So far
the Company has advanced AUD$3 million to Sands Solutions under the terms of the
loan.
The outcome of this valuation and the due diligence investigations by the
independent directors will determine the level of equity that CityView
ultimately acquires in Sands Solutions and the price that it pays for the
acquisition. As Mr Smyth is a former director of Sands Solutions and his family
trust has a one third equity interest in that company he is not involved in the
due diligence process.
In November 2000, expansion to Europe took place through the Company and Sands
Solutions acquiring a joint interest of 51% in Primeorder AG ("Primeorder")
which has its headquarters in Hamburg, Germany. CityView has an interest of 25%
in Primeorder with Sands Solutions holding the balance of 26%. Primeorder AG has
been established to market the e-commerce applications of Sands Solutions
throughout Europe. The marketing focus of Primeorder AG will be on the unique
interface of Sands Solutions' Smart Clips ("Supply Management Advanced
Resourcing Tools, Closed Loop Integrated Processing System") with existing
computer systems. Particular emphasis will be on the integration of Smart Clips
and SAP R/3.
30
Min-Tech 8 Limited
The Company has 6,270,000 shares and a like number of options in Min-Tech 8
Limited ("Min-Tech") which is an Australian listed public company trading on
Australian Stock Exchange Limited under the code MTC.
The products and services provided by Min-Tech include high speed and capacity
data transmission (with band widths for carriage) and connections to mainstream
telecommunications facilities. It is also a leading provider of microwave
networks for clients including Qantas Airways, Ansett Australia Airlines, the
Victorian Police, Motorola and NEC.
The Company's investment in Min-Tech makes it the second largest individual
holder of shares and options.
The investment in Min-Tech has cost AUD$701,300 being the acquisition of
3,670,000 shares and options in November 2000 for AUD$550,500 and a further
2,600,000 shares and options for $AUD150,800 in March 2001. The options are
convertible into fully paid ordinary shares in Min-Tech on or before 31 December
2004 at a price of $AUD0.20 each.
Because of the nature of the investment the directors have valued the holding of
the Company in Min-Tech at cost without any provision for diminution.
Employee Share and Option Benefits
The shareholders of the Company at its annual general meeting held on 31 May
2000 approved an Employee Share Plan which included an Incentive Option Plan.
The Company has issued 2,000,000 options under the Plan exercisable at $AUD0.80
until 14 June 2001.
Options
At the date of this report there are on issue 540,000 unlisted options
convertible into fully paid ordinary shares at an exercise price of $AUD0.76
each on or before 30 June 2001 and 3,400,000 unlisted options convertible into
fully paid ordinary shares at an exercise price of $AUD1.62 each on or before 31
December 2001.
In addition, the Company on 8 November 2000 issued 4,900,000 options to London
Partners Australia Pty Ltd which were exercisable on or before 14 June 2001 at a
price of $AUD0.80 each. Of these, 982,500 options were exercised and the
remaining 3,917,500 options were subsequently cancelled by mutual agreement on
14 February 2001.
31
The Company on 16 February 2001 issued 3,500,000 options to London Broking
Services Pty Ltd exercisable on or before 30 April 2001 at a price of $AUD0.70
each but on 1 March 2001 the Company by mutual agreement with the holder agreed
to cancel 2,000,000 of those options leaving 1,500,000 of those options still on
issue.
On 2 March 2001 the Company issued to London Broking Services Pty Ltd another
2,000,000 options exercisable on or before 31 March 2001 at a price of $AUD0.50
each.
In order to secure the exercise of these options for the purposes of providing
additional capital, the Company on 16 February 2001 and 1 March 2001 entered
into agreements with London Partners Australia Pty Ltd under which that company
would procure and ensure that the options would be exercised. These agreements
were subject to the price of shares in CityView remaining at certain specified
levels which has not been achieved.
In spite of the price of the shares not achieving those levels London Partners
Australia Pty Ltd has arranged the exercise of a total of 1,300,000 options to
raise $AUD650,000 as additional capital.
The directors are presently negotiating with London Partners Australia Pty Ltd
to arrange for additional options to be exercised.
Inflationary and other economic pressures
The Company is not currently generating revenues from its oil and gas
operations. Future revenues in this segment are governed primarily by worldwide
commodity pricing. No immediate effect in respect to inflation and changes on
prices is expected. However, inflationary pressures affect the Company's
exploration and development expenditure which is primarily incurred in U.S.
dollars. The directors estimation of inflation is considered in regards to the
general state of the world economy, and of the United States and Indonesia in
particular. This exposure to inflationary pressure is dependent on the mix of
goods and services provided to the Company by suppliers, sourced internally in
Indonesia and externally. At this stage the Company is unable to quantify the
mix of inflationary pressures from different sources that will affect the supply
of goods and services to the Company.
The average official government released Indonesian inflation rates for the
seven years beginning 1994 were as follows:
1994 1995 1996 1997 1998 1999 2000
Inflation Rates % 9.24 8.64 6.47 11.05 77.63 2.01 9.35
32
It is the policy of the directors to regularly monitor the cost of operations on
a per barrel basis in respect to viability of individual projects and will
take any necessary actions.
The Company's operations in these industries comprise exploration and
development expenditure and therefore are not affected by inflationary and price
pressures of oil and gas product pricing. However, this expenditure is effected
by normal inflationary pressures on the Company's general expenditure on goods
and services.
Government Policies
The Company has considered the issue of political risk in the Republic of
Indonesia in which the Company has acquired assets and will continue to do so as
a matter of normal business practice. The Company's expected initial producing
properties are located in Indonesia where there has been a long established
petroleum industry, with significant elements of foreign capital investments and
no history of expropriation.
The Republic of Indonesia is a separate national state and like many other
national states regulates, controls and taxes activities conducted by residents
and non-residents in the country and the flow of investment into the country and
the return of capital out of the country. All of these controls and regulations
are subject to change from time to time. Some of the interests of the Company in
Indonesia are by way of contract between a subsidiary of the Company and bodies
which are wholly owned arms of the Government of the Republic of Indonesia.
These contracts are subject to controls and regulations by the contracting
parties and by the government of the Republic of Indonesia. These factors, in
addition to the usual exploration and production risk and the economic and
political stability of the host country, Indonesia must all be taken into
account in relation to the Company's operations in Indonesia.
Other than the effect of the government's economic fiscal monetary or political
policies of the Republic of Indonesia, or factors upon the operations of the
Company, these policies or factors do not affect investments by United States
Nationals in Ordinary Shares of the Company.
Likely Developments and Expected Results of Operations
Information on likely developments and expected results of operations (ie
financial forecasts and/or forward looking information) of the consolidated
entity has not been included in this report management considers such
information to be commercially sensitive and/or confidential and/or not subject
sufficient certainty.
Indemnification of Officers and Auditors
During the financial year, the Company paid a premium in respect of a contract
insuring the directors, the company secretary and all executive officers of the
Company and of any related body corporate against a liability incurred as a
director, secretary or executive officer to the extent permitted by the
Corporations Law. The contract of insurance prohibits disclosure of the nature
of the liability and the amount of the premium.
33
The Company has not otherwise, during or since the financial year, indemnified
or agreed to indemnify an officer or director of the Company or any related body
corporate against a liability incurred as an officer or auditor.
34
B. Liquidity and capital resources
Year Ended December 31, 2000 compared to Year Ended December 31, 1999
At December 31, 2000, the Company had working capital of AUD$531,613 compared to
a working capital deficit of AUD$2,072,377 at December 31, 1999.
Cash flow used in operating activities increased from AUD$1,982,595 in the year
ended December 31, 1999 to AUD$2,854,435 in the year ended December 31, 2000.
The primary differences for increase in funds used was for marketing fees,
brokerage fees and corporate advisory fees.
Cash flow used for investing increased from AUD$ nil for the year ended December
31, 1999 to AUD$4,000,147 in the year ended December 31, 2000. This increase in
funds used for investing activities was primarily due to increased payments for
acquisition, exploration, evaluation and development of oil fields. A loan of
AUD$2,500,000 was advanced to Sands Solutions during the year ended December 31,
2000.
The Company generated cash flows from financing activities of AUD$7,679,977 in
the year ended December 31, 2000 compared to AUD$1,992,771 in the year ended
December 31, 2000. Cash flows from financing activities principally comprise the
issue of ordinary shares in the Company by private placements and the conversion
of share options into ordinary share capital of the Company.
Year Ended December 31, 1999 compared to Year Ended December 31, 1998.
For the year ended 1999 the Company agreed to allot 75% interest in its
Indonesia oil and gas properties to Medco, in consideration of Medco carrying
out and paying for the new work programs. Accordingly, the Company has no
planned expenditures for its Indonesian oil and gas properties for fiscal 2000
and 2001.
At December 31, 1999, the Company had a working capital deficit of AUD$
2,072,377 compared to AUD$15,431,298 at December 31, 1998. This decrease in
working capital deficit resulted mainly from the settlement of debt to MMC.
Cash flow used in operating activities decreased from AUD$2,495,512 in the year
ended December 31,1998 to AUD$1,982,595 in the year ended December 31, 1999. The
primary differences for decrease in funds used was due to the slow down of
activity, mainly in Jakarta.
Cash flow used for investing decreased from AUD$9,402,910 for the year ended
December 31, 1998 to AUD$ nil in the year ended December 31, 1999. This decrease
in funds used for investing activities was primarily due to decreased payments
for acquisition, exploration, evaluation and development of oil fields. Due to
oil prices during 1998/1999 exploration expenditure was cut back and a greater
emphasis placed on reducing debt and restructuring the Company primarily through
agreement with Medco.
35
The Company generated cash flows from financing activities of AUD$1,992,771 in
the year ended December 31, 1999 compared to AUD$10,022,062 in the year ended
December 31, 1998. Cash flows from financing activities principally comprise the
issue of ordinary shares in the Company by private placements and the conversion
of share options into ordinary share capital of the Company and loans from
related party of AUD$5,951,600 in 1998.
For the period from December 31, 1999 through June 2000, AUD$660,000 of
debentures were converted into shares capital. The Company also raised
additional equity capital of AUD$9,808,000 and AUD$1,662,000 of proceeds were
received from the exercise of options. Accordingly, working capital increased by
AUD$12,130,000 as a result of these transactions.
C. Research and development, patents and licences
Not applicable
36
D. Trend information
Not applicable
37
ITEM 6. DIRECTORS, SENIOR MANAGEMENT AND EMPLOYEES.
A. Directors and senior management
Name Age Position
Peter Mark Smyth 61 Chief Executive Officer and Director
Peter John Augustin Remta 59 Director and Chairman of the
independent audit committee
Leslie Robert Maurice Friday 63 Director and member of the
independent audit committee
Warren Martin Baillie 29 Secretary, Chief Financial Officer
and General Counsel and member of
the independent audit committee
All directors hold office until the next annual general meeting of shareholders
and until their successors have been elected and qualified. The Company's
officers are elected by the Board of Directors after each annual meeting of the
Company's shareholders and hold office until their death, resignation or removal
from office.
Directors
The names and particulars of the directors of the Company in office during and
since the end of the financial year are:
Peter Mark Smyth - Chief Executive Officer
Mr Smyth holds a masters degree in jurisprudence from Oxford University. After
admission as an attorney in London, he worked for Arthur Andersen in Sydney and
then Price Waterhouse as a taxation specialist. In 1969 Mr Smyth became the
company secretary and treasurer of the Australian branch of the Selection Trust
Group (now BP Minerals). Since leaving Selection Trust some 25 years ago, Mr
Smyth has founded and developed a number of successful companies in various
parts of the world. He has been Chief Executive of CityView since 1996 and is a
non-executive director of Sands Solutions.
Peter John Augustin Remta - Chairman
Mr Remta practiced as a lawyer for many years in the fields of corporate and
mining law. He has extensive experience in the direction and management of
public companies and was appointed a director of CityView on 6 May 1987. Mr
Remta was for some time the Honorary Consul General for the Philippines in
Western Australia and has held a number of public company directorships. He is
chairman of the Company's independent audit committee.
Leslie Robert Maurice Friday
Mr Friday has extensive business interests and a long record of proven
investments. He founded and for many years ran a large and successful property
development and home building group which was regarded as an industry leader. By
the time Mr Friday sold the group it had started expanding into property
developments in Asia as well as throughout Australia. He has served on the
governing bodies of building and industry organizations and other company boards
involving various business and investment activities. Mr Friday was a director
of CityView from May 1987 to September 1996 and was reappointed a director on 1
January 2000. He is a member of the Company's independent audit committee.
38
Warren Martin Baillie - Secretary, Chief Financial Officer and General Counsel ^
Mr. Baillie's experience has been in both financial and legal arenas. He
recently practiced as an attorney in the areas of commercial and corporate law
with the large independent law firm Jackson McDonald. He has also worked with
the Perth office of Ernst & Young, Chartered Accountants. Mr. Baillie's
qualifications include a Bachelor of Commerce degree from the University of
Western Australia and a Bachelor of Laws degree from Murdoch University of
Western Australia. He is a member of the Company's independent audit committee
and was appointed Secretary, Chief Financial Officer and General Counsel of the
Company in May of 2000.
All of the above officers have been in office since the start of the financial
year to the date of this report.
[Peter Remta and Mark Smyth will advise which profile they want included in 2000
20F]
B. Compensation
Remuneration of Directors
The remuneration of all directors is determined and reviewed on a periodic basis
and appropriate recommendations are made to the board of directors. In each
instance the remuneration is assessed with regard to the nature of the
remuneration and the performance of the recipient together with all other
relevant factors with the overall objective of achieving maximum benefits for
shareholders by providing sufficient expertise and experience within the board
and executive officers.
The remuneration is made up of several elements including base fees and
salaries, incentive benefits (including the Incentive Option Plan established
under the Employee Share Plan) and other general benefits covering travel and
vehicle expenses and similar outgoings.
The remuneration for each director for the financial year (inclusive of benefits
to associated or related parties) was :
Name Base fee Other fees Incentives
$ $ (Options)
P M Smyth 10,000 213,825 (1) 700,000
P J A Remta 10,000 41,090 500,000
L R M Friday 10,000 - 200,000
(1) See also Item 7B hereinafter.
39
Mr P M Smyth is an executive director of the Company while the other two
directors are non- executive.
The options accruing to the directors were issued under the Employee Share Plan
and have been valued at 37 cents each using the Black Scholes Model. The
Company's Employee Share Plan is described in Item 6.E.
No amount of money has been set aside by the Company to provide pension or
similar benefits for its officers and directors.
C. Board practices
The board of directors resolved on 14 June 2000 to formalize the terms of
reference of the board audit committee. The board has adopted a formal audit
charter with the primary objective of assisting the board in fulfilling its
responsibilities to shareholders, potential shareholders and the investment
community relating to accounting and reporting practices of the Company and its
present or future subsidiaries and the quality and integrity of the financial
reporting.
D. Employees
At December 31, 2000 the Company had 5 full time employees at its registered
office in Australia. Much of the Company's work is undertaken by consultants on
a per diem basis.
E. Share ownership
See Item 7A Major shareholders
Employee Share Plan
The Company has an Employee Share Plan (which includes an Incentive Option Plan)
that was approved by shareholders at the Annual General Meeting held on 31 May
2000.
On 14 June 2000 the Company issued a total of 2,000,000 options under the
Incentive Option Plan forming part of the Employee Share Plan. During the year
there were no more than ten eligible participants for the Employee Share Plan.
The options were issued as a performance incentive for no consideration to
eligible employees under the Incentive Option Plan. Each of these options
confers the right to acquire one (1) ordinary fully paid share in the capital of
the Company at a price of AUD$0.80 each on or before 14 June 2001. All of the
options remained unexercised and on issue as at 31 December 2000.
40
Of the total number of options issued, 700,000 options were issued to Mr P M
Smyth, 500,000 options were issued to Mr P J A Remta and 200,000 options were
issued to Mr L R M Friday. In addition 500,000 options were issued on trust to
Messrs Friday and Remta for future distribution to employees at the discretion
of the directors.
41
ITEM 7. MAJOR SHAREHOLDERS AND RELATED PARTY TRANSACTIONS.
A. Major shareholders
The following table sets forth the Ordinary Share ownership of each person known
by the Company to be the beneficial owner of ten percent or more of the
Company's shares, each director and officer individually and the directors and
officers as a group. Each person has sole voting and investment power with
respect to the shareholdings shown and all ownership is of record and
beneficial.
Name and address Number of Position Percent of
of owner Shares Class
- --------------------------------------------------------------------------------
Peter Mark Smyth 196,084 Director and
19 View Street Chief Executive *
Peppermint Grove 6011 Officer
Western Australia
Peter John Augustin Remta 66,233 Non executive Director *
34 Karoo Street
South Perth 6151
Western Australia
Leslie Robert
Maurice Friday 74,590 Non executive Director *
1/24 Marjorie Avenue
Shelley
Western Australia
Warren M Baillie 12,000 Secretary/General Counsel/ *
3 Bennetts Place Chief Financial Officer
Sorrento 6020
Western Australia
42
Malaysia Mining Corporation
Corporation Berhad.
32nd Floor, Menara PNB
201A Jalan Tung Razak
Kuala Lumpur 50400
Malaysia 8,616,188 (1 17.67 %
All officers and directors
as a group (4 persons) *
(1) Includes an additional 6,624,790 Ordinary Shares issued on July 11, 2000
subject to an irrevocable contractual agreement made to Malaysia Mining
Corporation Berhad for consideration received.
Based on 48,764,516 shares outstanding as of March 16, 2001.
* Represents less than 1%
B. Related party transactions
Mr P M Smyth's family trust has a one-third equity interest in Sands Solutions.
The Company made a loan of AUD$2,500,000 to Sands Solutions during the year and
has charged Sands Solutions interest on that loan at 7%.
On 1 February 2001 and 10 April 2001 the Company advanced further amounts of
AUD$250,000 to Sands Solutions under the existing loan arrangements, increasing
the loan to Sands Solutions to AUD$3 million.
Mr P M Smyth is a director and shareholder of Romarcam Investments Pty Ltd. The
Company has entered into a contract with Romarcam Investments Pty Ltd dated 19
April 1999 for the provision of management services. Fees paid during the
financial year at normal commercial rates were AUD$213,825 compared to
AUD$180,000 in the previous year.
Mr P J A Remta is an employee and members of his family are shareholders of
Westchester Pty Ltd which provides consultancy and corporate management services
to the Company under a consultancy agreement reduced to writing and dated 1
February 2001. Fees paid during the financial year at normal commercial rates
were AUD$41,090.
There are no additional interests of management in transaction involving the
Company except for those stated herein or in Item 17- notes to financial
statements.
C. Interests of experts and counsel
Not applicable
43
ITEM 8. FINANCIAL INFORMATION.
A. Consolidated Statements and Other Financial Information
Reference is made to "Item 17. Fiancial Statements" for the financial statements
included in this annual report.
Legal proceedings
The Company is not a party to any litigation and to its knowledge, no action,
suit or proceedings against it has been threatened by any person or firm.
A claim asserted by Consolidated Securities SA ("CSSA") for fees of
(pound)78,795.62 (AUD$196,841.42) was settled on September 21, 2000 and in
accordance therewith the Company was required to issue and did issue 104,000 of
its ordinary shares to CSSA and in addition was required to and has paid, on
September 21, 2000, CSSA the sum of US$65,630. As a result, a District Court
Order dismissing such action was filed on October 12, 2000.
To date, the Compnay has not paid a dividend. The declaration, amount, and date
of distribution o fany dividend in the future will be decided by the Board of
Directors from time to time based upon and subject to the Company's earnings,
financial requirements, and other conditions prevailing at the time.
B. Significant changes
On 1 February 2001 and 10 April 2001 the Company advanced amounts of AUD$250,000
to Sands Solutions under the loan arrangements heretofore disclosed which
increased the loan to Sands Solutions to AUD$3,000,000.
On 14 February 2001 the Company by agreement with the holders cancelled
3,917,500 options which were exercisable at AUD$0.80 each on or before 14 June
2001 and on 16 February 2001 it issued another 3,500,000 options exercisable at
AUD$0.70 each on or before 30 April 2001.
On 1 March 2001 a total of 2,000,000 of these new options were cancelled by
agreement between the Company and the holders and on 2 March 2001 the Company
issued another 2,000,000 options exercisable at AUD$0.50 each on or before 31
March 2001.
As a result of these transactions a total of 1,300,000 options has already been
exercised since 31 December 2000 to raise AUD$650,000 as working capital for the
Company.
These transactions were entered into for the purposes of enabling the Company to
raise additional working capital at prices more reflective of the prevailing
market price of its shares.
The financial effects of the transactions referred to in this item will be
included in the Company's accounts for the year ended 31 December 2001.
44
ITEM 9. THE OFFER AND LISTING.
Not applicable
ITEM 10. ADDITIONAL INFORMATION.
A. Share capital
Not applicable
B. Memorandum and articles of association
This information has been previously provided.
C. Material contracts
Primeorder AG
In November 2000 the Company entered an agreement with Sands Solutions under
which the Company acquired a beneficial interest of 25% in Primeorder AG which
is a marketing company established in Hamburg, Germany to market the e-commerce
applications of Sands Solutions throughout Europe. Sands Solutions has a 26%
interest in Primeorder AG.
As partial consideration for the Company's interest in Primeorder AG, the
Company agreed to lend up to AUD$2,000,000 to Sands Solutions. This money will
be used for the establishment and promotion of Primeorder AG. The extent of the
payments and when they will be made to satisfy the loan will depend on how
rapidly Primeorder AG expands its business in Europe. The Company has already
advanced AUD$332,251 to Sands Solutions for use by Primeorder AG with the
advance forming part of the loan disclosed herein.
As further consideration for the acquisition of its interest in Primeorder AG,
the Company issued 500,000 options in November 2000 to persons in Germany who
are associated with Primeorder AG. The options are convertible into fully paid
ordinary shares at an exercise price of AUD$0.80 each on or before 14 June 2001.
Petroleum Permit Block SC41 - offshore Western Philippines
On 30 June 1999 CityView's wholly owned subsidiary, CityView Asia Pty Ltd,
executed an agreement with Malaysia Mining Corporation Berhad ("MMC") for the
transfer of the Company's 49% interest in MMC Exploration & Production
(Philippines) Pte Ltd ("MMCEPPL") in full or partial satisfaction of the
Company's then outstanding debt to MMC and to discharge the Deed of Charge of 4
February 1998. At the general meeting of the Company's shareholders on 30
December 19999, the shareholders approved the sale and the Deed of Charge was
discharged on 24 January 2000.
In April 2000 the Company, through its subsidiary CityView Asia Pty Ltd, entered
an agreement to acquire an interest of 2.5% in Block SC 41 from ASAB Resources
Limited. As part of this acquisition all contributions to expenses of the
current work program of two wells (which includes Rhino) within the block will
be met on behalf of the Company by MMCEPPL. The consideration for the
acquisition was the issue to ASAB Resources Limited as vendor of 2,200,000
million shares in the capital of the Company valued at US$1,100,000 for each
percentage point interest. This is a lower rate than the price paid to CityView
by MMC in 1999 of US$1,133,333 for each percentage point based on a Gaffney
Cline valuation of US$17,000,000 for a 15% working interest in Block SC 41.
Additionally the interest sold by CityView to MMC in Block SC 41 was not free
carried.
Indonesia - Madura and Simenggaris
25 January 2000, agreements were signed between the Company and PT Medco Energi
Corporation Tbk ("Medco") in respect of the Madura and Simenggaris Production
Sharing Contracts. Under these agreements Medco will supervise and pay for the
new work programs for the development and bringing into production of the oil
and gas files covered by these contracts. The Company anticipates that from 2002
onwards each party will contribute on a pro-rata basis in accordance with their
interests in each PSC, which are Medco 75% and CityView 25%.
Sands Solutions
In 2000 a heads of agreement was entered between CityView and Sands Solutions
under which CityView acquired the rights to take up a strategic interest in
Sands Solutions, a developer of integrated B2B applications. Under the terms of
the heads of agreement, CityView agreed to make a commercial loan to Sands
Solutions with the right to convert the loan into equity upon conclusion of
extensive due diligence and an independent valuation.
Raeside Gold project
CityView's former subsidiary Copperwell Pty Ltd had a 10% interest in the
Raeside Gold Project located approximately 10km east of Leonora in Western
Australia covering an area of 168 square kilometers. In consideration for the
discharge of all outstanding liabilities for the Raeside project, CityView
entered an agreement on 5 November 1999 with Triton Resources Limited to sell
its subsidiary Copperwell Pty Ltd to Triton Resources Limited.
Artane Minerals NL
CityView's former subsidiary Artane Minerals NL had a 97% interest in the Golden
Spinifex and some adjoining tenements at Duketon which have been joint ventured
to Johnson's Well Mining NL. On 1 December 1999 CityView entered an agreement
with Yule River Mining Pty Ltd to sell its interest in Artane Minerals NL to
Yule River Mining Pty Ltd.
44(A)
D. Exchange controls
Exchange controls and other limitations affecting security holders
Australia has largely abolished exchange controls on investment transactions.
The Australian dollar is freely convertible into US dollars except that all
payments and cash transactions in excess of $5,000 to non-residents must be
reported to the Australian Cash Transactions Agency, which monitors such
transactions, whether they be in the form of cash, dividends, capital or
profits.
The Foreign Acquisitions and Takeovers Act ("Foreign Acquisitions Act") sets
forth limitations on the rights of non-Australian residents to own or vote the
ordinary shares of an Australian company. The Foreign Acquisitions Act permits
the Commonwealth Treasurer to examine acquisitions and arrangements that could
result in foreign persons controlling an Australian business. The Commonwealth
Treasurer may prohibit a proposed takeover if it would lead to a change of
control of a business where the resultant control would be foreign and therefore
considered to be against the national interest. The Foreign Acquisitions Act
contains divestiture provisions to ensure it can be enforced, as well as,
stringent monetary-penalty provisions for breaches and the making of false or
misleading statements.
The Foreign Acquisitions Act requires the prior approval of the Commonwealth
Treasurer for certain classes of persons to enter into an agreement to acquire
shares of an Australian company, if, after the acquisition, such person or
corporation would hold a substantial interest in such corporation, as explained
herein. The foregoing approval requirement applies to the following classes of
persons: (i) any natural person not ordinarily resident in Australia, (ii) any
corporation in which either a natural person not ordinarily resident in
Australia or a foreign corporation (as defined in the Foreign Acquisitions Act)
holds a substantial interest, and (iii) two or more such persons or corporations
which hold an aggregate substantial interest.
45
The Foreign Acquisitions Act requires foreign persons or foreign-controlled
entities to give forty (40) days notice to the Commonwealth Treasurer of a
proposal to acquire or increase (or offer to acquire or increase) a single
interest of 15% or more of the ownership or voting power of an Australian
company. If two or more foreign persons or foreign-controlled entities are
acting together, the threshold is 40% in the aggregate.
The Constitution of the Company does not contain any additional limitations on a
non-resident's right to hold or vote the Company's securities.
E. Taxation
The following discussion summarizes US federal and Australian tax consequences
of the ownership of Shares by a person ("US Portfolio Stockholder") that: (i) is
a citizen or resident of the US, a US corporation or that otherwise will be
subject to US federal income tax on a net income basis in respect of the Shares;
(ii) is not a resident of Australia for Australian tax purposes; (iii) has not,
within the preceding five years, beneficially owned 10% of the issued capital or
voting stock in the Company; and, (iv) has not used the Shares in carrying on a
trade or business, wholly or partly through a permanent establishment in
Australia.
The statements regarding US and Australian tax laws set forth herein are based
on those laws as in force on the date of this document that may affect the tax
consequence described herein (some of which may have retroactive effect). This
summary is not exhaustive of all possible tax consideration and investors are
advised to satisfy themselves as to the overall tax consequences, including
specifically the consequences under US, state, local and other laws, of the
acquisition, ownership and disposition of Shares by consulting their own tax
advisers.
Taxation of Gains on Sale
A US Portfolio Stockholder is not subject to Australian income tax on the sale
of its Shares in the Company.
Passive Foreign Investment Company Status
A foreign corporation is classified as a passive foreign investment company (a
"PFIC") in any taxable year in which, after taking into account the income and
assets of certain subsidiaries pursuant to the applicable US Internal Revenue
Code "look-through" rules, either (i) at least 75% of its gross income is
passive income, or (ii) at least 50% of the average value of its assets is
attributable to assets that produce passive income from cash holdings and
profits from the sale of marketable securities, even if derived from an active
business.
46
If the Company were a PFIC during any year in which a US Portfolio Stockholder
owned Shares, that US Portfolio Stockholder would be subject to additional taxes
on any gain realized from the sale or any other disposition of the Shares, or
any excess distribution received from the Company.
A US Portfolio Stockholder will have an excess distribution to the extent that
distributions on Shares during a taxable year exceeded 125% of the average
amount received during the three preceding taxable years (or, if shorter, the US
Portfolio Stockholders' holding period for the Shares). To compute the tax on
gain or on an excess distribution, (i) the excess distribution or the gain is
allocated ratably over the US Portfolio Stockholder's holding period for the
Shares, (ii) the amount allocated to the current taxable year at the highest
applicable marginal rate in effect for each year and (iii) an interest charge is
imposed to recover the deemed benefit from the deferred payment of the tax
attributable to each year.
If the Company is a PFIC, US persons that own an interest in another entity that
owns shares in the Company may be treated as indirect holders of their
proportionate share of that entity's Shares, and may be taxed on their
proportional share of any gain or excess distribution from that entity
attributable to the entity's in the Company. A US person that owns an interest
in the entity that is an actual holder of Shares will be treated as an indirect
holder if (i) the actual holder is itself a PFIC, (ii) the actual holder is a
foreign corporation other than a PFIC in which the US person who owns an
interest in the actual holder owns (directly or indirectly) at least 50% in
value of the actual holder's shares, or (iii) the actual holder is a
partnership, trust or estate in which the US Portfolio Stockholder is a partner
or beneficiary. An indirect holder must take into income its portion of any
excess distribution received by the actual holder or any gain recognized by the
actual holder on the Shares. An indirect holder also must treat an appropriate
portion of its gain on the sale or disproportion of its interest in the actual
holder as gain on the sale of the Shares. If the Company were a PFIC, a US
Portfolio Stockholder of Shares would generally be subject to similar rules with
respect to distribution by, and dispositions of the shares of, any direct or
indirect subsidiaries of the Company that were PFICs.
The Internal Revenue Code provides each US stockholder in an PFIC with an
election whereby the additional US tax burden imposed on gain on sale of PFIC
stock and receipt of excess distributions from a PFIC, as described above, can
be avoided. This election generally requires that the PFIC stockholder include
in its income, its pro-rata share of the PFICs distributed and undistributed
income, as computed under US tax accounting principles, on an current basis. In
certain cases, a further election is available to an electing PFIC stockholder
to defer the tax payable with respect to the stockholder's pro-rata share of the
PFICs undistributed income, although in this case interest applies on the
deferred tax. Thus, even if the first or both of these elections are made, a US
stockholder of a PFIC loses the tax benefit, which is available with respect to
investment in a non-PFIC corporation, of deferring and converting to capital
gain the investor's personal US tax liability with respect to the Company's
undistributed income. These elections also generally require that the PFIC
annually provide the electing PFIC shareholder, for inspection by the Internal
Revenue Service, an analysis of the PFICs income computed under US tax
accounting principals.
47
The Company does not intend to furnish any US Portfolio Stockholder with the
information that it would need in order to avoid the PFIC tax treatment
described by electing to include its share of the Company's income on a current
basis. Therefore these elections may not be available to the Company's US
Portfolio Stockholders.
There are other adverse US tax rules associated with holding Shares in a company
that has been a PFIC during any part of a US Portfolio Stockholders holding
period. These include a denial of a step-up in a tax basis on the death of a US
individual stockholder, and burdensome reporting requirements.
If the Company ceases to be a PFIC, a US Portfolio Stockholder may avoid the
contained application of the tax treatment described above by electing to be
treated as if it sold its Shares on the last day of the last taxable year in
which the Company was a PFIC. Any gain is recognized and subjected to tax under
the rules described above. Loss is not recognized. The US Portfolio
Stockholder's basis in the Shares is increased by the amount of gain recognized
on the deemed sale. This election is not available to a US Portfolio Stockholder
that previously elected to include its share of the Company's income on a
current basis. The US Congress recently has considered legislation that would
alter the PFIC rules substantially. Prospective investors should consult their
own tax advisors as to the potential application of the PFIC rules, as well as,
the impact of any proposed legislation that could affect them.
Taxation of Dividends
The Company does not expect to pay cash dividends for the foreseeable future,
but, rather, to retained earnings, if any, to finance expansion of its business.
Should the Company begin paying dividends, however, the Company's dividends to
its US Portfolio Stockholders would be exempt from Australian dividend
withholding tax to the extent such dividends are considered to be "franked" for
Australian tax purposes. A dividend is considered to be "franked" to the extent
that such dividend is paid out of the Company's income on which Australian
corporate tax has been levied. Even if not "franked," a dividend will be exempt
from Australian dividend withholding tax if it is paid out of the Company's
non-Australian source dividend income and the Company specifies a "foreign
dividend account declaration percentage" for such purpose. The Company
anticipates that if it pays dividends, such dividends would likely be either
"franked," or paid from the Company's non-Australian source dividend income as
specified in the foreign dividend account declaration percentage, and therefore
would be exempt from Australian dividend withholding tax.
48
If, however, dividends are paid by the Company that are not "franked," nor paid
from the initial Company's non-Australian source dividend income as specified in
the foreign dividend account declaration percentage, such dividend would then be
subject to Australian dividend withholding tax. However, in accordance with the
provisions of the Australia/United States Income Tax Treaty, Australian
withholding tax on dividend income derived by a US stockholder would be limited
to 15% of the gross amount of the dividend. Subject to certain limitations, any
Australian dividend withholding tax may be claimed as a credit against the
federal income tax liability of the US stockholder. The overall limitation on
non-US taxes eligible for US credit is calculated separately with respect to
specific classes, or "baskets" of income. For this purpose, dividends
distributed by the Company will generally constitute "passive income" or, in the
case of certain US Portfolio Stockholder, "financial service income." The US tax
credits allowable with respect to each income basket cannot exceed the US
federal income tax payable with respect to such income. The consequences of the
separate limitation calculation will depend on the nature and sources of each US
Portfolio Stockholder's income and the deductions allocable thereto.
Distributions on the Shares will constitute dividends for US Federal income tax
purposes to the extent paid out of current or accumulated earnings and profits,
if any of the Company, as determined for US federal income tax purposes. If the
Company pays a dividend, such dividend would likely be paid in Australian
dollars. The amount of dividend income for a US Portfolio Stockholder will be
the US dollar value of the dividend payment on the date of receipt, even if the
dividend is not converted into US dollars Gain or loss, if any, realized on a
sale or other disposition of Australian Dollars will be ordinary income or loss
to the US Portfolio Stockholder. Dividends paid by the Company will not be
eligible for the "inter-corporate dividends received" deduction allowed to US
corporations.
Estate and Gift Tax
Australia does not impose any estate, inheritance or gift taxes. Therefore, no
Australian estate tax, inheritance tax or gift tax will be imposed on the death
or upon a lifetime gift by, a US Portfolio Stockholder.
F. Dividends and paying agents
Not applicable
G. Statement by experts
Not applicable
H. Documents on display
Persons having a right of inspection of the Company's records under the
Australian corporations and securities legislation can inspect such records by
contacting the Company's registered office at 63 Burswood Road, Burswood,
Western Australia, Telephone: (61 8) 6250 9099, Fax: (61 8) 6250 9088, email:
info@cityviewcorp.com.
49
I. Subsidiary information
Additional information not applicable
ITEM 11. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK.
Not applicable
ITEM 12. DESCRIPTION OF SECURITIES OTHER THAN EQUITY SECURITIES.
A. Debt securities
Not applicable
B. Warrants and rights
Not applicable
C. Other securities
Not applicable
D. American depositary shares
Not applicable
50
PART II
ITEM 13. DEFAULTS, DIVIDEND ARREARAGES AND DELINQUENCIES.
Not applicable
ITEM 14. MATERIAL MODIFICATIONS TO THE RIGHTS OF SECURITY HOLDERS AND USE OF
PROCEEDS.
Not applicable
E. Use of proceeds
Not applicable
ITEM 15. [RESERVED]
ITEM 16. [RESERVED]
PART IV
ITEM 17. FINANCIAL STATEMENTS.
CITYVIEW ENERGY CORPORATION LIMITED
ACN 009 235 634
Annual Report For The Financial Year Ended 31 December 2000
Page Number
Auditors' Report F-2
Profit and Loss Statement F-4
Balance Sheet F-5
Statement of Cash Flows F-6
Notes to and forming Part of the Financial Statements F-7-F-26
F-1
INDEPENDENT AUDITORS' REPORT
Board of Directors and Shareholders
CityView Corporation Limited
We have audited the accompanying consolidated balance sheets of CityView
Corporation Limited as of December 31, 2000 and 1999 and the related
consolidated statements of profit and loss, and cash flows for the years ended
December 31, 2000, 1999, and 1998. These financial statements are the
responsibility of the Company's management. Our responsibility is to express an
opinion on these financial statements based on our audit.
We conducted our audit in accordance with United States generally
accepted auditing standards. Those standards require that we plan and perform
the audit to obtain reasonable assurance about whether the financial statements
are free of material misstatement. An audit includes examining on a test basis,
evidence supporting the amounts and disclosures in the financial statements. An
audit also includes assessing the accounting principles used and significant
estimates made by management, as well as evaluating the overall financial
statement presentation. We believe that our audit provides a reasonable basis
for our opinion.
In our opinion, the financial statements referred to above present
fairly, the consolidated financial position of CityView Corporation Limited as
of December 31, 2000 and 1999 and the consolidated results of its profit and
loss and its cash flows for the years ended December 31, 2000, 1999 and 1998 in
conformity with Australian generally accepted accounting principles.
/s/Feldman Sherb & Co, P.C.
Feldman Sherb & Co., P.C.
Certified Public Accountants
New York, New York
May 23, 2001
F-2
The accompanying financial statements have been prepared in accordance with
Australian generally accepted accounting principles.
F-3
CITYVIEW CORPORATION LIMITED
PROFIT AND LOSS STATEMENT
FOR THE FINANCIAL YEAR ENDED 31 DECEMBER 2000
Consolidated Entity Parent Entity
31-Dec-00 31-Dec-99 31-Dec-98 31-Dec-00 31-Dec-99
NOTE AUD$ AUD$ AUD$ AUD$ AUD$
Operating profit (loss) before income tax 2 (5,537,576) (11,095,107) (20,362,087) (5,506,962) (10,505,250)
Income tax attributable to operating profit (loss) 3 - - - - -
-------------- ------------- ------------ ----------- ------------
Operating profit (loss) after income tax (5,537,576) (11,095,107) (20,362,087) (5,506,962) (10,505,250)
Outside equity interests in operating profit (loss) - - - - -
-------------- ------------- ------------ ----------- ------------
Operating profit (loss) after income tax
attributable to members of the parent entity (5,537,576) (11,095,107) (20,362,087) (5,506,962) (10,505,250)
Accumulated losses at the beginning of the
financial year (39,399,202) (28,304,095) (7,942,008)(39,429,816) (28,924,566)
-------------- ------------- ------------ ----------- ------------
Accumulated losses at the end of the (44,936,778) (39,399,202) (28,304,095)(44,936,778) (39,429,816)
============== ============= ============ =========== ============
financial year
Notes to and forming part of the financial statements are included on
pages F-7 to F-26.
F-4
CITYVIEW CORPORATION LIMITED
BALANCE SHEET
31 DECEMBER 2000
Consolidated Entity Parent Entity
31-Dec-00 31-Dec-99 31-Dec-00 31-Dec-99
NOTE AUD$ AUD$ AUD$ AUD$
CURRENT ASSETS
Cash 822,559 11,679 822,551 -
Receivables 7 - 4,115 - -
------------------------------- -----------------------------
TOTAL CURRENT ASSETS 822,559 15,794 822,551 -
------------------------------- -----------------------------
NON CURRENT ASSETS
Receivables 8 10,225,105 - 14,845,105 7,442,800
Investments 9 550,500 - 550,510 10
Property, plant and equipment 10 9,723 - 9,723 -
Acquisition, exploration and development 11 4,620,002 7,563,651 - -
------------------------------- -----------------------------
TOTAL NON CURRENT ASSETS 15,405,330 7,563,651 15,405,338 7,442,810
------------------------------- -----------------------------
TOTAL ASSETS 16,227,889 7,579,445 16,227,889 7,442,810
------------------------------- -----------------------------
CURRENT LIABILITIES
Accounts payable 12 290,946 1,419,561 290,946 1,310,169
Borrowings 13 - 668,610 - 671,981
------------------------------- -----------------------------
TOTAL CURRENT LIABILITIES 290,946 2,088,171 290,946 1,982,150
------------------------------- -----------------------------
TOTAL LIABILITIES 290,946 2,088,171 290,946 1,982,150
------------------------------- -----------------------------
NET ASSETS/(LIABILITIES) 15,936,943 5,491,274 15,936,943 5,460,660
=============================== =============================
SHAREHOLDERS' EQUITY
Share capital 14 60,873,721 44,890,476 50,318,271 44,890,476
Reserves 15 - - - -
Accumulated losses (44,936,778) (39,399,202) (34,381,328) (39,429,816)
------------------------------- -----------------------------
Shareholders' equity attributable to the
members of the parent entity 15,936,943 5,491,274 15,936,943 5,460,660
------------------------------- -----------------------------
TOTAL SHAREHOLDERS' EQUITY/(DEFICIT) 15,936,943 5,491,274 15,936,943 5,460,660
=============================== =============================
Notes to and forming part of the accounts are included on pages F-7 to F-26
F-5
CITYVIEW CORPORATION LIMITED
STATEMENT OF CASH FLOWS
FOR THE FINANCIAL YEAR ENDED 31 DECEMBER 2000
Consolidated Entity Parent Entity
31-Dec-00 31-Dec-99 31-Dec-98 31-Dec-00 31-Dec-99
NOTE AUD$ AUD$ AUD$ AUD$ AUD$
Cash Flows From Operating Activities
Interest received 139,119 205 10,187 139,119 205
Interest and other costs of finance paid (607,455) (11,040) (4,667) (607,455) (3,635)
Payments to suppliers and employees (2,386,099) (1,971,760) (2,501,032) (2,386,099) (1,993,850)
-------------------------------------- ---------------------------
Net cash provided (used) by operating activities 20(d) (2,854,435) (1,982,595) (2,495,512) (2,854,435) (1,997,280)
-------------------------------------- ---------------------------
Cash flows from investing activities
Loan to Sands Solutions.com Pty Ltd ("Sands Solutions") (2,500,000) - - (2,500,000) -
Payment for the development of oil fields (949,647) - - (949,647) -
Payment for investment in listed corporation. (550,500) - - (550,500) -
Payment for the acquisition, exploration,
evaluation and development of oil fields - - (9,402,910) - -
-------------------------------------- ---------------------------
Net cash provided/(used) by investing activities (4,000,147) - (9,402,910) (4,000,147) -
-------------------------------------- ---------------------------
Cash from financing activities
Proceeds from the issue of shares 7,679,977 1,992,771 2,431,118 7,679,977 1,992,771
Proceeds from the issue of debentures - - 1,639,344 - -
Loans from related party - - 5,951,600 - -
Repayment of loan from related party - - - - -
-------------------------------------- ---------------------------
Net cash provided/(used) by financing activities 7,679,977 1,992,771 10,022,062 7,679,977 1,992,771
-------------------------------------- ---------------------------
Net increase (decrease) in cash 825,395 10,176 (1,876,360) 825,395 (4,509)
Cash at the beginning of the financial year 11,679 1,503 1,882,576 (3,371) 1,138
Adjustment re cash held in entities disposed (14,515) - (4,713) 527 -
-------------------------------------- ---------------------------
Cash at the end of the financial year 20(a) 822,559 11,679 1,503 822,551 (3,371)
====================================== ===========================
Notes to and forming part of the accounts are included on pages F-7 to F-26
F-6
NOTES TO AND FORMING PART OF THE FINANCIAL STATEMENTS
FOR THE FINANCIAL YEAR ENDED 31 DECEMBER 2000
1. Statement of Accounting Policies
Significant Accounting Policies
Accounting policies are selected and applied in a manner which ensures that
the resulting financial information satisfies the concepts of relevance and
reliability, and that the substance of underlying transactions and other
events is reported.
The following significant accounting policies have been adopted in the
preparation and presentation of the financial report:
(a) Foreign Currency
All foreign currency transactions during the financial year have been
brought to account using the exchange rate in effect at the date of the
transaction. Monetary items in foreign currencies have been translated at
the exchange rate existing at the balancing date. Exchange differences are
brought to account in the profit and loss account in the period in which
they arise.
(b) Taxation
The Company adopts the liability method of tax effect accounting under
which the income tax expense shown in the profit and loss statement is
calculated on operating profit adjusted for permanent differences. The tax
effect of timing differences arising from items being brought to account in
different periods for income and accounting purposes is carried forward in
the balance sheet as a future tax benefit or a deferred tax liability.
Future income tax benefits:
(i) are not brought to account unless realisation of the asset is assured
beyond reasonable doubt; and
(ii)where they relate to tax losses are only brought to account when
their realisation is virtually certain.
(c) Acquisition, Exploration and Development Expenditure
The consolidated entity has interests in contracts to develop and operate
oil and gas fields in Indonesia and the Philippines. These contracts are
under standard terms for foreign companies operating in those countries and
the amounts for acquisition costs and exploration and development
expenditure are recorded at cost. The contracts are subject to controls and
regulations by the respective host countries and to some extent may be
affected by the political stability of those countries. While the share of
revenue from shareable oil and gas from the operations in Indonesia and the
Philippines will be receivable by the consolidated entity in US dollars,
the ultimate recoverability of the acquisition costs and exploration and
development expenditure will be dependent on the future development and
successful exploitation of the respective areas of interest or the ultimate
sale of those areas. The directors are not able to determine what effect
these factors, together with any fall in world oil and gas prices, may have
on the future values of any expenditure carried forward.
(d) Going Concern
The financial statements have been prepared adopting the going concern
convention which assumes continuity of normal business activities and the
realisation of assets and the settlement of liabilities in the ordinary
course of business. The going concern convention has been adopted as
agreements have been entered into under which the share of all expenditure
for exploration and development of the areas of interest in Indonesia and
the Philippines normally payable by the consolidated entity will in each
case be met by outside joint venture partners. In addition arrangements
have been made to raise sufficient funds to meet continuing operations of
the consolidated entity. As at 31 December 2000 the consolidated entity and
the parent Company had working capital of AUD$531,613 and AUD$531,605
respectively and net assets of AUD$15,936,943.
F-7
NOTES TO AND FORMING PART OF THE FINANCIAL STATEMENTS
FOR THE FINANCIAL YEAR ENDED 31 DECEMBER 2000
Summary of Accounting Policies (cont)
(e) Depreciation
All equipment has been depreciated on a straight-line basis so as to write
off the net cost of each asset over its expected useful life. The normal
estimated useful life for equipment adopted for depreciation purposes is 3
years.
(f) Investments
Investments in controlled entities are recorded at cost and other
investments are carried at cost or valuation determined by the directors.
(g) Accounts Payable
Trade payables and other accounts payable are recognized when the
consolidated entity becomes obliged to make payments for the purchase of
goods or services received.
(h) Borrowings
Debentures, bank loans and other loans are recorded at an amount equal to
the net proceeds received. Interest payable on borrowings is recognized on
an accrual basis.
(i) Financial instruments issued by the Company
Debt and equity instruments are classified as either liabilities or as
equity in accordance with the substance of the contractual agreements.
(j) Receivables
Trade and other receivables are recorded at amounts due less provision for
doubtful debts if recovery of the full amount due is no longer probable.
(k) Recoverable Amount of Non-current Assets
Non-current assets are written down to the recoverable amount where the
carrying value of a non-current asset exceeds the recoverable amount. In
determining the recoverable amount expected net cash flows have not been
discounted.
(l) Principles of consolidation
The consolidated accounts comprise the accounts of the Company and its
controlled entity. A controlled entity is any entity controlled by the
Company. Control exists where the Company has the capability to dominate
decision making in relation to the financial and operating policies of
another entity o that the other entity operates with the Company to
achieve the objectives of the Company. A list of controlled entities is
contained in Note 18.
All inter-company balances and transactions between entities in the
consolidated entity, including any unrealized profits or losses, have been
eliminated on consolidation.
Where controlled entities have entered or left the consolidated entity
during the year, their operating results have been included from the date
control was obtained or until the date control ceased.
(m) Sale of Western Resources NL
The financial statements for the year ended 31 December 1998 included the
effects of the sale for a note of AUD$325,786 made as of 18 December 1998
of the Company's 100% interest in Western Resources NL and its
subsidiaries. The aggregate loss recorded as at 31 December 1998 of this
transaction to the consolidated entity was AUD$12,673,100. During the year
ended December 31 1999 the Company wrote off the note of AUD$325,786 due to
uncollectibility.
F-8
NOTES TO AND FORMING PART OF THE FINANCIAL STATEMENTS
FOR THE FINANCIAL YEAR ENDED 31 DECEMBER 2000
Consolidated Entity Parent Entity
31-Dec-00 31-Dec-99 31-Dec-98 31-Dec-00 31-Dec-99
AUD$ AUD$ AUD$ AUD$ AUD$
2. Operating Profit/(Loss)
The operating profit/(loss) before
income tax
includes the following items of revenue
and expense:
Proceeds from the sale of non current
investment - 3 325,786 - 3
Revenue - Operating
Sales - - - - -
Interest received on loan to Sands Solutions 63,095 - - 63,095 -
Interest received - other parties 76,024 205 10,194 76,024 205
Proceeds on sale of investments - - - - 179,889
Foreign exchange gain 68,249 - - 68,249 -
-------------------------------------------------------------------------
Total Revenue 207,368 208 335,980 207,368 180,097
The shareholders of the Company on 30 December 1999 agreed to partially satisfy
the debt to Malaysia Mining Corporation Berhad of AUD$14,861,564 by the sale to
it of the Company's interest of 6.125% in the Petroleum Permit Block held under
Service Contract 41 in offshore Philippines. This net interest in Service
Contract 41 accrued to the Company through its shareholding of 49% in MMC
Exploration & Production (Philippines) Pte Ltd. The sale was achieved by the
Company transferring to Malaysia Mining Corporation Berhad all of its
shareholding in MMC Exploration & Production (Philippines) Pte Ltd for a price
of AUD$10,555,450. The interest of the Company in Service Contract 41
(represented by its shareholding in MMC Exploration & Production (Philippines)
Pte Ltd) had been written down to a nil value. The sale of AUD$10,555,450 was
recorded in the financial statements of the Company for the year ended 31
December 1999 as a capital contribution.
Expenses
General and administrative expenses 1,728,903 3,910,909 3,727,582 1,698,289 4,413,816
Depreciation 2,184 9,097 8,446 2,184 8,252
Provision for doubtful debts 854,850 - - 854,850 -
Provision for doubtful debts in respect of
amounts receivable from controlled entities - - - - 4,088,760
Interest expense 59,570 973,121 963,553 59,570 973,121
Loss on disposal of property, plant and
equpment - - 12,002 - -
Write off unidentified assets - - 74,981 - -
Marketing services 1,499,430 - 1,499,430 -
Corporate public relations 818,007 - 818,007 -
Financial and brokerage services 86,000 - 86,000 -
Consultants services 696,000 - 696,000 -
Loss on disposal of subsidiary - 1,201,388 12,673,100 - 1,201,388
Provision for diminution of investment - 214,413 689,095 - 10
Foreign currency translation losses - - 228,508 - -
Exploration expenditure written off - 4,786,387 2,320,800 - -
-----------------------------------------------------------------------
Total expenses 5,744,944 11,095,315 20,698,067 5,714,330 10,685,347
-----------------------------------------------------------------------
Net Income (Loss) (5,537,576) (11,095,107) (20,362,087) (5,506,962) (10,505,250)
========================================================================
F-9
NOTES TO AND FORMING PART OF THE FINANCIAL STATEMENTS
FOR THE FINANCIAL YEAR ENDED 31 DECEMBER 2000
Consolidated Entity Parent Entity
31-Dec-00 31-Dec-99 31-Dec-98 31-Dec-00 31-Dec-99
AUD$ AUD$ AUD$ AUD$ AUD$
3. Income Tax
(a)The prima facie income tax benefit on pre-tax
accounting profit reconciles to the income tax
benefit in the financial statements as follows:
Operating Profit / (Loss) (5,537,576) (11,095,107) (20,362,087) (5,506,962) (10,505,250)
---------------------------------------------------------------------
Income tax expense/(benefit) calculated at 34% of
Operating profit for year ended 31 December 2000
and 36% for year ended 31 December 1999 and 1998 (1,882,775) (3,994,239) (7,330,351) (1,872,367) 3,781,890
Permanent differences - - - -
Tax loss now brought to account - - - (3,781,890)
Timing differences and tax losses not brought to
Account as future income tax benefits 1,882,775 3,994,239 (7,330,351) 1,872,367 -
---------------------------------------------------------------------
Income tax expense - - - - -
---------------------------------------------------------------------
(b) Future income tax benefits not brought to
account as assets 14,211,080 12,328,305 10,279,690 13,492,663 8,020,296
---------------------------------------------------------------------
14,211,080 12,328,305 10,279,690 13,492,663 8,020,296
---------------------------------------------------------------------
The taxation benefits of tax losses and timing differences not brought to
account will only be obtained if:
i) assessable income is derived of a nature and of an amount sufficient to
enable the benefit from the deductions to be realized:
ii) conditions for deductibility imposed by the law are complied with; and
iii) no changes in tax legislation adversely affect the realization of the
benefit from the deductions.
F-10
NOTES TO AND FORMING PART OF THE FINANCIAL STATEMENTS
FOR THE FINANCIAL YEAR ENDED 31 DECEMBER 2000
4. Directors' Remuneration
The directors of the Company for the year ended 31 December 2000 were :
Peter Mark Smyth
Peter John Augustin Remta
Leslie Robert Maurice Friday
Consolidated Entity Parent Entity
31-Dec-00 31-Dec-99 31-Dec-98 31-Dec-00 31-Dec-99 31-Dec-98
AUD$ AUD$ AUD$ AUD$ AUD$ AUD$
The aggregate of income paid or payable,or otherwise
made available, in respect of the financial year,
to all directors of the Company, directly or indirectly,
by the Company or by any related party. 284,915 985,000 413,207
------------------------------------
The aggregate of income paid or payable,
or otherwise made available, in respect
of the financial year, to all directors
of each entity in the consolidated
entity, directly or indirectly, by the
entities in which they are directors or
by any related party. 284,915 985,000 413,207
-----------------------------------
The number of directors of the Company whose total income falls within each
successive AUD$10,000 band of income;
0 - $ 9,999 - 1 - 1 -
$10,000 - $19,999 1 - 1 - 4
$50,000 - $59,999 1 - 1 - -
$60,000 - $69,999 - 1 - 1 1
$220,000 - $229,999 1 - 1 - -
$280,000 - $289,999 - 1 - 1 1
$630,000 - $639,999 - 1 - 1 -
All of the executives of the Company were also its directors during the
financial year.
F-11
NOTES TO AND FORMING PART OF THE FINANCIAL STATEMENTS
FOR THE FINANCIAL YEAR ENDED 31 DECEMBER 2000
5. Employee Share Plan
The Company has an Employee Share Plan (which includes an Incentive Option Plan)
that was approved by shareholders at the Annual General Meeting held on 31 May
2000.
On 14 June 2000 the Company issued a total of 2,000,000 options under the
Incentive Option Plan forming part of the Employee Share Plan. During the year
there were no more than ten eligible participants for the Employee Share Plan.
The options were issued as a performance incentive for no consideration to
eligible employees under the Incentive Option Plan. Each of these options
confers the right to acquire one (1) ordinary fully paid share in the capital of
the Company at a price of AUD$0.80 each on or before 14 June 2001. All of the
options remained unexercised and on issue as at 31 December 2000.
Consolidated Entity Parent Entity
31-Dec-00 31-Dec-99 31-Dec-00 31-Dec-99
AUD$ AUD$ AUD$ AUD$
6. Remuneration of Auditors
Amounts received, or due and receivable from the
Company and any related organisation for:
Auditing the financial statements 20,000 25,000 20,000 25,000
Other services 15,000 20,000 15,000 20,000
----------------------------- ---------------------------
35,000 45,000 35,000 45,000
----------------------------- ---------------------------
7. Current Receivables
Prepayments and deposits - - - -
Other debtors 854,850 4,115 854,850 -
Provision for doubtful debt (854,850) - (854,850) -
----------------------------- ---------------------------
- 4,115 - -
----------------------------- ---------------------------
On 28 February 2000 the Company acquired 1,000,000 shares and 250,000 warrants
in CGX Energy Inc at a cost of AUD$1,676,150 which was lent to it by Azure
Energy Fund Inc. On 18 May 2000 the Company sold the shares for the equivalent
of AUD$2,531,000 and after settlement of the loan realised a profit of
AUD$854,850. That profit has not yet been received from Azure Energy Fund Inc
and consequently a provision for doubtful debt has been raised. The Company
still holds the warrants but they have not been included in the financial
statements as they have minimal value.
8. Non Current Receivables
Loans to controlled entities - - 4,620,000 -
Loan to Sands Solutions 2,500,000 - 2,500,000 -
Loans to Medco Madura Pty Ltd and
Medco Simenggaris Pty Ltd 7,725,105 - 7,725,105 7,442,800
------------------------------ ------------------------------
10,225,105 - 14,845,105 7,442,800
------------------------------ ------------------------------
The loans to Medco Madura Pty Ltd and Medco Simenggaris Pty Ltd represent moneys
owing to the Company for work previously carried out on the Madura and
Simenggaris blocks in Indonesia and paid for by the Company. The ultimate
recoverability of these loans is dependent upon the future development and
successful exploitation of the Madura and Simenggaris blocks by those companies.
The loan to Sands Solutions is secured by a registered fixed and floating charge
over all the assets and undertaking of that company. Its recoverability is
reliant in the normal course of trading on the planned expansion of and
increased revenues from the businesses conducted by Sands Solutions or the sale
of those businesses and other assets of that company. It is considered that in
the event of default a sale of those businesses and assets would realise
sufficient funds to satisfy the loan. The directors would set off the loan
against any purchase money payable for the acquisition by the Company of an
interest in Sands Solutions.
F-12
NOTES TO AND FORMING PART OF THE FINANCIAL STATEMENTS
FOR THE FINANCIAL YEAR ENDED 31 DECEMBER 2000
Consolidated Entity Parent Entity
31-Dec-00 31-Dec-99 31-Dec-00 31-Dec-99
AUD$ AUD$ AUD$ AUD$
9. Non-Current Investments
At cost:
Shares in controlled entities - CityView Asia Pty
Ltd - - 10 10
Shares and options in listed corporation 550,500 - 550,500 -
------------------------------- ---------------------------
550,500 - 550,510 10
------------------------------- ---------------------------
10. Equipment
Equipment at cost 11,907 24,752
11,907 27,907
Less accumulated depreciation (2,184) (27,907) (2,184) (24,752)
------------------------------- ---------------------------
9,723 - 9,723
------------------------------- ---------------------------
11. Acquisition, Exploration and Development
Acquisition costs and exploration and development
expenditure carried forward in respect of areas of
interest at cost: 4,620,002 7,563,651 - -
------------------------------- ---------------------------
4,620,002 7,563,651 - -
------------------------------- ---------------------------
The consolidated entity has entered into contracts to develop and operate oil
fields in Indonesia and the Philippines. These contracts are under standard
terms for foreign companies operating in those countries. The costs will be
amortised over the life of the various projects once production commences. The
ultimate recoverability of the acquisition costs and exploration and development
expenditure is dependent upon the future development and successful exploitation
or the possible sale of the respective areas of interest.
12. Current Accounts Payable
Unsecured:
Trade creditors 113,006 476,156 113,006 115,393
Accrued expenses 177,940 943,405 177,940 1,194,776
------------------------------- ---------------------------
290,946 1,419,561 290,946 1,310,169
------------------------------- ---------------------------
13. Current Borrowings
Debentures - 668,610 - 668,610
Other - - - 3,371
------------------------------- ---------------------------
- 668,610 - 671,981
------------------------------- ---------------------------
F-13
NOTES TO AND FORMING PART OF THE FINANCIAL STATEMENTS
FOR THE FINANCIAL YEAR ENDED 31 DECEMBER 2000
Consolidated Entity Parent Entity
31-Dec-00 31-Dec-99 31-Dec-00 31-Dec-99
14. Share Capital AUD$ AUD$ AUD$ AUD$
Ordinary fully paid shares on issue as at 31 December
2000 were 47,064,516 shares (1999: 29,025,216 shares) 60,873,721 44,890,476 50,318,271 44,890,476
------------------------------- --------------------------
60,873,721 44,890,476 50,318,271 44,890,476
------------------------------- --------------------------
During the year ended 31 December 2000 the Company issued the following shares:
Date Nature of Issue Issue price Number of Share capital
- ---- ---------------
for each share Shares A$
---------- ------ -
19 01 00 Conversion debenture 0.61 808,255 + 493,561
19 01 00 Conversion debenture 0.53 312,735 + 165,593
19 01 00 Share issued 0.50 7,300,000 # 3,613,500
01 02 00 Option exercise 0.76 100,000 76,000
02 02 00 Option exercise 0.76 10,000 * 7,600
04 02 00 Option exercise 0.76 40,000 30,400
07 02 00 Option exercise 0.76 200,000 152,000
07 02 00 Option exercise 0.70 160,000 * 112,000
16 02 00 Option exercise 0.76 400,000 304,000
05 03 00 Option exercise 0.70 10,000 7,000
07 03 00 Option exercise 0.70 70,000 49,000
09 03 00 Option exercise 0.76 10,000 7,600
16 03 00 Option exercise 0.76 250,000 190,000
22 03 00 Option exercise 0.76 200,000 152,000
28 03 00 Option exercise 0.76 50,000 38,000
07 04 00 Option exercise 0.70 10,000 7,000
11 04 00 Shares issued for services 1.00 500,000 * 500,000
11 04 00 Shares issued for services 2.10 2,200,000 * 4,620,000
02 05 00 Option exercise 0.63 600,000 376,800
02 05 00 Shares issued for services 1.00 300,000 * 300,000
06 06 00 Shares issued for services 0.86 900,000 * 774,000
01 09 00 Shares issued 1.45 424,310 # 615,250
05 09 00 Shares issued 1.45 617,500 # 895,375
11 09 00 Shares issued for services 1.45 280,000 * 406,000
15 09 00 Shares issued for services 1.45 200,000 * 290,000
21 09 00 Shares issued for services 1.01 104,000 * 114,566
20 11 00 Option exercise 0.80 857,500 686,000
01 12 00 Option exercise 0.80 125,000 100,000
18 12 00 Option exercise 0.76 500,000 380,000
19 12 00 Shares issued for services 1.04 500,000 * 520,000
--------------- -----------------------
18,039,300 15,983,245
+ Shares issued following the last exercise of a right of conversion by holders
of debentures that were given by the Company in June 1998 to support borrowings
for working capital purposes
* Shares and options issued for services rendered, satisfaction of debt or
purchase of assets
# Shares issued to raise working capital
F-14
Options:
As at 31 December 2000 there were on issue:
(i) 540,000 unlisted options convertible into fully paid ordinary shares at an
exercise price of AUD$0.76 each on or before 30 June 2001;
(ii) 3,400,000 unlisted options convertible into fully paid ordinary shares at
an exercise price of AUD$1.62 each on or before 31 December 2001;
(iii)2,000,000 unlisted options issued as part of the Incentive Option Plan
under the Employee Share Plan and convertible into fully paid ordinary
shares at an exercise price of AUD$0.80 each on or before 14 June 2001;
and
(iv) 4,417,500 unlisted options convertible into fully paid ordinary shares at
an exercise price of AUD$0.80 each on or before 14 June 2001.
Consolidated Entity Parent Entity
31-Dec-00 31-Dec-99 31-Dec-00 31-Dec-99
15. Reserves
Asset revaluation reserve - - - -
Balance at beginning of financial year - 281,286 - -
Devaluation of exploration and development - (281,286) - -
---------------- -------------- ------------ -----------
Balance at the end of the financial year - - - -
---------------- -------------- ------------ ------------
16. Earnings per share 31-Dec-00 31-Dec-99
Basic earnings/(loss) per share (cents per share) (.13c) (.70c)
The weighted average number of ordinary shares on issue
used in the calculation of basic earnings per share 41,999,364 15,899,719
Diluted earnings per share are not disclosed as they are not materially
different from basic earnings per share
F-15
NOTES TO AND FORMING PART OF THE FINANCIAL STATEMENTS
FOR THE FINANCIAL YEAR ENDED 31 DECEMBER 2000
17. Financial Reporting by Segments
(a) Industry Segments
Investments Exploration
31 Dec 00 31 Dec 99 31 Dec 98 31 Dec 00 31 Dec 99 31 Dec 98
AUD$ AUD$ AUD$ AUD$ AUD$ AUD$
Revenue outside the
consolidated entity 139,119 - 10,194 - 208 325,786
--------------- --------------- --------------- ---------------- ------------------ -----------------
Segment operating
profit and (loss) (604,656) - (715,074) (4,932,920) (11,095,107) (19,647,013)
--------------- --------------- --------------- ---------------- ------------------ -----------------
Segment operating
profit and (loss)
after tax (604,656) - (715,074) (4,932,920) (11,095,107) (19,647,013)
--------------- --------------- --------------- ---------------- ------------------ -----------------
Segment assets 3,882,782 - 12,237,888 12,345,107 7,579,445 12,657,973
Eliminations Consolidated
31 Dec 00 31 Dec 99 31 Dec 98 31 Dec 00 31 Dec 99 31 Dec 98
AUD$ AUD$ AUD$ AUD$ AUD$ AUD$
Revenue outside the
consolidated entity - - - 139,119 208 335,980
------------- ----------------- --------------- ---------------- ------------------ -----------------
Segment operating
profit and (loss) - - - (5,537,576) (11,095,107) (20,362,087)
------------- ----------------- --------------- ---------------- ------------------ -----------------
Segment operating profit
and (loss) after tax - - - (5,537,576) (11,095,107) (20,362,087)
------------- ----------------- --------------- ---------------- ------------------ -----------------
Segment assets - - (11,647,975) 16,227,889 7,579,445 13,247,886
The major products and services covered by those segments are: Investments from
general financing and corporate activities Exploration of oil and gas interests
(b) Geographical Segments
Indonesia Australia
31 Dec 00 31 Dec 99 31 Dec 98 31 Dec 00 31 Dec 99 31 Dec 98
AUD$ AUD$ AUD$ AUD$ AUD$ AUD$
Revenue Outside the
consolidated entity - - - 139,119 208 335,980
-------------- ------------- ------------------ ---------------- ---------------- --------------
Segment operating profit
and (loss) (4,932,920) (11,545,307) (3,715,637) (604,656) 450,200 (24,484,142)
-------------- ------------- ------------------ ---------------- ---------------- --------------
Segment operating profit (3,715,637)
and (loss) after tax (4,932,920) (11,545,307) (604,656) 450,200 (24,484,142)
-------------- ------------- ------------------ ---------------- ---------------- --------------
Segment Assets 12,345,107 7,579,445 11,485,351 3,882,782 7,442,800 12,981,824
F-16
Eliminations Consolidated
31 Dec 00 31 Dec 99 31 Dec 98 31 Dec 00 31 Dec 99 31 Dec 98
AUD$ AUD$ AUD$ AUD$ AUD$ AUD$
Revenue Outside the
consolidated entity - - - 139,119 208 335,980
-------------- ------------- ------------------ ---------------- ---------------- --------------
Segment operating profit
and (loss) - - (7,837,692) (5,537,576) (11,095,107) (20,362,087)
-------------- ------------- ------------------ ---------------- ---------------- --------------
Segment operating profit (7,837,692) (11,095,107) (20,362,087)
and (loss) after tax - - (5,537,576)
-------------- ------------- ------------------ ---------------- ---------------- --------------
Segment Assets - (7,442,800) (11,219,289) 16,227,889 7,579,445 13,247,886
18. Particulars Relating to All Entities
Ownership interest
Parent entity 2000 1999
CityView Corporation Limited Australia Ordinary 100% 100%
Controlled entity
CityView Asia Pty Ltd Australia Ordinary 100% 100%
Other
Medco Madura Pty Ltd Australia Ordinary 25% 100%
Medco Simenggaris Pty Ltd Australia Ordinary 25% 100%
The accounts of Medco Madura Pty Ltd and Medco Simenggaris Pty Ltd are not
included in the consolidated accounts according to the equity method of
accounting for investments because the Company does not exercise a significant
influence over those companies. The loans to Medco Madura Pty Ltd and Medco
Simenggaris Pty Ltd are classified as non-current receivables in the balance
sheet (refer to Note 8).
19. Winding up of Controlled Entities
During the financial year ended 31 December 2000 the consolidated entity wound
up the following companies (all of which are incorporated in Australia) due to
the fact that they were inactive and any losses associated with these companies
had been written off in previous years:
Western Resources NL
Western Sangkimah NL
Western Nusantara Energi Pty Ltd
Western Akar Petroleum Pty Ltd
Western Wisesa Petroleum Pty Ltd
F-17
NOTES TO AND FORMING PART OF THE FINANCIAL STATEMENTS
FOR THE FINANCIAL YEAR ENDED 31 DECEMBER 2000
Consolidated Entity Parent Entity
31-Dec-00 31-Dec-99 31-Dec-98 31-Dec-00 31-Dec-99
20. Notes to Statement of Cash Flow AUD$ AUD$ AUD$ AUD$ AUD$
(a) Reconciliation of cash
For the purpose of the statement of
cash flows, cash includes cash on hand
and in banks and investments in money
market instruments, net of outstanding
bank overdrafts. Cash at the end of
the financial year as shown in the
statement of cash flows is reconciled
to the related items in the balance
sheet as follows:
Borrowings - - - - (3,371)
Cash 822,559 11,679 1,503 822,551 -
--------------------------------------------------------------
822,559 11,679 1,503 822,551 (3,371)
--------------------------------------------------------------
(b) Business acquired
During the financial year no business
was
acquired. - - - -
(c) Business disposed of - - - -
Consideration
Cash - 3 325,786 - 3
---------------------------------------------------------------
Book value of net assets sold
Cash - - 4,713 - -
Non current receivables (net of
foreign exchange gain) - - 15,005,577 - -
Non current investments - - 1,056,304 - -
---------------------------------------------------------------
Net assets disposed of - - 16,066,594 - -
Adjustment for accumulated losses
already brought to account - (1,201,391) (3,067,708) - (1,201,391)
Loss on disposal - 1,201,388 12,673,100 - 1,201,388
---------------------------------------------------------------
- 3 325,786 - 3
---------------------------------------------------------------
F-18
Consolidated Entity Parent Entity
20. Note to Statement of Cash Flow 31 Dec-00 31-Dec-99 31 Dec-98 31-Dec-00 31-Dec-99
(cont) AUD$ AUD$ AUD$ AUD$ AUD$
(d) Reconciliation of operating profit
to net cash provided by operating
activities
Operating profit/(loss) after income tax (5,537,576) (11,095,107) (20,362,087) (5,506,962) (10,505,250)
Less non cash operating items:
Depreciation 2,184 9,097 (273,678) 2,184 8,252
Mineral exploration expenditure written
off - 4,786,387 2,320,800 - -
Provision for loss on loan to
associated entities - - - - 4,088,760
Profit on the sale of Block SC41
Philippines - - - - -
Interest expense 59,570 973,121 963,553 59,570 973,121
Loss on disposal of subsidiaries - 1,201,388 12,673,100 - 1,201,388
Loss on disposal of plant and equipment - - 12,002
Loss on sale of investments - 214,413 689,095 - 169,516
Exchange (gain)/Loss (68,249) - - (68,249) -
Issue of shares in lieu of payment to
suppliers and employees 6,600,556 829,872 127,500 6,460,550 829,872
Write of of unidentified assets - - 74,981 - -
Write back amortized rent - - (335,937) - -
Change in assets and liabilities:
Purchase of Block SC41 Philippines - - - 4,620,000
(Increase)/decrease in receivables (2,782,305) 483,331 149,460 (7,402,305) 330,113
(Decrease)/increase in trade creditors
and accruals (1,128,615) 614,903 1,465,699 (1,019,223) 906,948
---------------------------------------------------------------
Net cash provided/(used) by operating (2,854,435) (1,982,595) (2,495,512) (2,854,435) (1,997,280)
activities ---------------------------------------------------------------
(e) Non-cash financing and investing activities
The Company settled a number of creditors through the issue of shares and
options and also converted certain debentures into shares as referred to in Note
14.
21. Related Party Disclosures
(a) Directors
The following persons held the position of director of the Company during
the financial year ended 31 December 2000:
Peter Mark Smyth
Peter John Augustin Remta
Leslie Robert Maurice Friday
The remuneration of directors is disclosed in Note 4 to the financial
statements.
(b) Interests of directors
The directors and their related entities hold a relevant interest in the
following shares in the Company:
31 December 00 31 December 99
Shares 343,076 442,545
Options 1,100,000 550,000
(c) Transactions with directors and related entities
(i) Mr P M Smyth is a director and shareholder of Romarcam Investments Pty
Ltd. The Company has entered into a contract with Romarcam Investments
Pty Ltd dated 19 April 1999 for the provision of management services.
Fees paid during the financial year at normal commercial rates were
AUD$213,825 compared to AUD$180,000 in the previous year. These
transactions have been reflected in Note 4.
(ii) On 22 March 2000 the company issued 200,000 shares to Romarcam
Investments Pty Ltd following the exercise of options. These
transactions have been reflected in Note 14.
(iii)Mr P M Smyth is a non-executive director of Sands Solutions and his
family trust has a one-third equity interest in that company. The
Company made a loan of AUD$2,500,000 to Sands Solutions during the
year and has charged Sands Solutions interest on that loan.
These transactions have been reflected in Notes 8 and 24.
F-19
(iv)Mr P J A Remta is an employee and members of his family are
shareholders of Westchester Pty Ltd which provides consultancy and
corporate management services to the Company under a consultancy
agreement reduced to writing and dated 1 February 2001. Fees
paid during the financial year at normal commercial rates were
AUD$41,090. These transactions have been reflected in Note 4.
(v)On 14 June 2000 the Company issued a total of 1,900,000 options to
directors under the Incentive Option Plan established by the Employee
Share Plan. Of that number 700,000 options were issued to Mr P M
Smyth, 500,000 options were issued to Mr P J A Remta and 200,000
options were issued to Mr L R M Friday. In addition 500,000 options
were issued on trust to Messrs Friday and Remta for future
distribution to employees at the discretion of the directors. These
transactions have been reflected in Note 5.
(d) Interests in director-related entities
Apart from the disclosures in this note, no director has entered into a
material contract with the Company since the end of the financial year and
there were no material contracts involving interests of directors or
payment upon termination subsisting at the end of the financial year.
(e) Equity interests in controlled entities
As disclosed in Note 18 the Company has the entire ownership of CityView
Asia Pty Ltd which is its only controlled entity.
(f) Transactions within the group
The parent in the consolidated entity is CityView Corporation Limited. As
disclosed in Note 8, CityView Asia Pty Ltd owes AUD$4,620,000 to CityView
Corporation Limited.
In addition, Medco Simenggaris Pty Ltd and Medco Madura Pty Ltd owe the
Company AUD$3,205,322 and AUD$4,519,783 respectively, although these
companies are not part of the consolidated entity (refer to Note 18).
22. Commitments for Expenditure
(a) Madura and Simenggaris
Under the agreements between the Company and PT Medco Energi Corporation
TBK ("Medco") all of the expenditure for exploration and development of the
Madura and Simenggaris blocks, under a new work program as defined in the
agreements and as agreed between Medco and the Indonesian state owned oil
and gas organization known as Pertamina would be met by Medco. The new work
program, as already agreed, covers exploration and development work.
The cost of any subsequent work to the Madura and Simenggaris blocks will
need to be met by the Company in proportion to its equity interests.
(b) Service Contract 41
The documents relating to the acquisition by the consolidated entity of the
interest of 2.5% in Petroleum Permit Block Service Contract 41 provide that
MMC Exploration & Production (Philippines) Pte Ltd will pay for all the
expenditure attributable to that interest through the current work program
wells which is still to be completed.
23. Subsequent Events
On 1 February 2001 the Company advanced a further $250,000 to Sands Solutions
under the loan arrangements disclosed in Note 8, which increased the loan to
Sands Solutions to AUD$2,750,000.
On 14 February 2001 the Company by agreement with the holders cancelled
3,917,500 options which were exercisable AUDat $0.80 each on or before 14 June
2001 and on 16 February 2001 it issued another 3,500,000 options exercisable at
AUD$0.70 each on or before 30 April 2001.
On 1 March 2001 a total of 2,000,000 of these new options were cancelled by
agreement between the Company and the holders and on 2 March 2001 the Company
issued another 2,000,000 options exercisable at AUD$0.50 each on or before 31
March 2001.
F-20
As a result of these transactions a total of 1,300,000 options has already been
exercised since 31 December 2000 to raise AUD$650,000 as working capital for the
Company.
These transactions were entered into for the purposes of enabling the Company to
raise additional working capital at prices more reflective of the prevailing
market price of its shares.
The financial effects of the transactions referred to in this Note will be
included in the Company's accounts for the year ended 31 December 2001.
F-21
NOTES TO AND FORMING PART OF THE FINANCIAL STATEMENTS
FOR THE FINANCIAL YEAR ENDED 31 DECEMBER 2000
24. Financial Instruments
(a) Significant Accounting Policies
Details of the significant accounting policies and methods adopted,
including the criteria for recognition, the basis of measurement and the
basis on which revenues and expenses are recognised, in respect of each
class of financial asset, financial liability and equity instrument are
outlined in Note 1 to the financial statements.
(b) Interest Rate Risk
FIXED INTEREST
Average Variable Less than 1 to 5 More than 5 Non-Interest Total
Interest Interest 1 Year Years years Bearing
2000 rate % $'000 $'000 $'000 $'000 $'000 $'000
Financial Assets
Cash 822,559 822,559
Receivables
Loan - Sands Solutions 7% 2,500,000 2,500,000
Financial Liabilities
Payables 290,946 290,946
FIXED INTEREST
Average Variable Less than 1 to 5 More than 5 Non-Interest Total
Interest Interest 1 Year Years years Bearing
1999 rate % $ $ $ $ $ $
Financial Assets
Cash 11,679 11,679
Receivables 124,966 4,115
Financial Liabilities
Payables 1,419,561 1,419,561
Debentures 6 % 668,610 668,610
(c) Credit Risk
The Company has adopted a policy of only dealing with credit worthy parties
and, where appropriate, obtaining sufficient collateral or security as a
means of mitigating the risk of financial loss through defaults in
contractual obligations.
Except as disclosed in Notes 8 and 21(f) the Company does not have any
significant credit risk exposure to a single debtor or group of debtors
having similar characteristics.
The carrying amount of financial assets recorded in the financial
statements, without provision for losses, represents the maximum exposure
of the consolidated entity to credit risk without taking into account the
value of any collateral or other security.
The credit risk exposure of the consolidated entity would also include the
difference between the carrying amount and the realisable amount.
(d) Currency hedging
The consolidated entity has not entered into forward foreign exchange
contracts to hedge the exchange rate risk arising from transactions in
foreign currencies.
(e) Net Fair Value
The carrying amount of assets and liabilities recorded in the financial
statements represents their respective net fair values determined in
accordance with the accounting policies referred to in Note 1.
F-22
NOTES TO AND FORMING PART OF THE FINANCIAL STATEMENTS
FOR THE FINANCIAL YEAR ENDED 31 DECEMBER 2000
25. Contingent Liabilities
In November 2000 the Company acquired a beneficial interest of 25% in
Primeorder AG which is a marketing company established in Hamburg, Germany
to market the e-commerce applications of Sands Solutions throughout Europe.
Sands Solutions has a 26% interest in Primeorder AG.
As partial consideration for the Company's interest in Primeorder AG, the
Company agreed to lend up to AUD$2,000,000 to Sands Solutions. This money
will be used for the establishment and promotion of Primeorder AG.
The extent of the payments and when they will be made to satisfy the loan
will depend on how rapidly Primeorder AG expands its business in Europe.
The Company has already advanced AUD$332,251 to Sands Solutions for use by
Primeorder AG with the advance forming part of the loan disclosed in Note
8.
As further consideration for the acquisition of its interest in Primeorder
AG, the Company issued 500,000 options in November 2000 to persons in
Germany who are associated with Primeorder AG. The options are convertible
into fully paid ordinary shares at an exercise price of AUD$0.80 each on or
before 14 June 2001.
There are no other contingent liabilities.
26. UNITED STATES GENERALLY ACCEPTED ACCOUNTING PRINCIPLES RECONCILIATION
("US GAAP")
The following is a summary of all material differences between Australian
and United States generally accepted accounting principles.
(a) Marketable Securities
Investments (or Marketable Securities) are valued at the lower of cost and
recoverable amount (often equated to market value). Any such write-down is
adjusted through the profit and loss account. For US GAAP purposes,
securities are separated into portfolios of "Trading", "Available for Sale"
and "Held to Maturity". The amounts recorded as current investments
represent these which would be classified as "Available for Sale" under US
GAAP. Available for Sale are accounted for at market value, with movements
adjusted through shareholders' equity. An "other than temporary" decline in
the market value of investments has been recognized as impairments and
recorded in the profit and loss account. Realized profits and losses are
reversed and adjusted to the profit and loss account.
(b) Capitalized Exploration Expenditure
Exploration expenditure incurred by CityView, directly or through it's
joint venture interest, are capitalized as incurred to the extent the
expenditure is expected to be recouped through the sale of successful
development of the area, or where the activities have not yet reached a
stage that permits reasonable assessment of the existence of economically
recoverable reserves. US GAAP requirements indicate that these costs are
generally written-off as incurred, or until economically recoverable
reserves are identified.
(c) Income tax
There are no major differences between accounting for income tax under
Australian and US GAAP. However, where adjustments for other reconciling
items result in a permanent difference, appropriate adjustment has been
made.
(d) SFAS 121: Accounting for Impairment of Long-Lived Assets and for
Long-Lived Assets to be disposed of
This pronouncement is similar to an Australian Corporations Law requirement
that requires directors to review the carrying value of all non-current
assets annually, determine if they are being recorded at greater than their
recoverable amount, and if so, write-down the value of the asset to its
recoverable amount of disclose information to prevent the accounts from
being misleading.
F-23
(e) Principles of Consolidation
As indicated in Note 1(l) to the financial statements, Australian GAAP
requires consolidation of controlled entities. In accordance with
Australian GAAP, control exists where an entity has the "capacity to
dominate decision making in relation to the financial and operating
policies of another entity..." US GAAP, however, requires than an entity
must control another entity usually as indicated by its ownership
interests. As the ownership interest in the Company's subsidiaries is
greater then 50% in all cases (representing ownership and actual control),
no reconciling Australian/US GAAP adjustments are required.
(f) The company's accounting policy in respect of amortization of carried
forward exploration expenditure is calculated based on the economically
recoverable proven reserves of the company. US GAAP requires the
amortization to be based on the proven and probable reserves of the
company. As significant production has not commenced CityView has not
applied this accounting policy in the financial statements for the
financial periods ended 31 December 1998, 31 December 1999 and 31 December
2000 and therefore no reconciliation adjustment is required.
(g) New Accounting Standards
The effect of the application of the following recent pronouncements is
considered below. Their application will not have a material effect on the
Australian/US GAAP reconciliations detailed in this note.
In June 1998 and June 2000, the FASB issued SFAS No. 133, "Accounting for
Derivative Instruments and Hedging Activities" and SFAS No. 138,
"Accounting for Certain Derivative Instruments and Certain Hedging
Activities." These statements establish accounting and reporting standards
requiring that every derivative instrument be recorded on the balance sheet
as either an asset or liability measured at its fair value. SFAS Nos. 133
and 138 also require that changes in the derivative's fair value be
recognized currently in earnings unless specific hedge accounting criteria
are met. SFAS Nos. 133 and 138 are effective for fiscal years beginning
after June 15, 2000. The Company does not expect that the adoption of these
new standards will have a material impact on the Company's earnings or
financial position.
(h) Employee Stock Purchase Plan
The Company has one stock-based compensation plan. The Company applies
Australian GAAP and related interpretations in accounting for its plans.
Accordingly, no compensation cost has been recognized for its stock option
plan.Under US GAAP under FASB 123, Accounting for Stock Based Compensation,
disclosure is required of compensation expense that would have been
recognized on FASB 123. Had compensation cost for the Company's stock-based
compensation plan been determined based on the fair value at the grant
dates for awards under those plans consistent with the method of FASB
Statement 123, the Company's net loss and loss per share would have been
increased to the pro forma amounts indicated below:
F-24
31-Dec-00 31-Dec-00 31-Dec-99 31-Dec-98
US$ AUD$ AUD$ AUD$
--------------- ----------------- ----------------- ------------------
Net Profit (Loss) after Income Tax attributable
to members of the parent company
- As reported (3,100,489) (5,537,576) (11,095,107) (20,362,087)
- Pro Forma (3,244,489) (5,681,576) (11,235,107) (20,362,087)
Basic earnings (loss) per share - As reported (0.07) (.13) (0.70) (1.53)
- Pro Forma (0.08) (.14) (0.71) (1.53)
The fair value of each option grant was estimated as of the date of grant using
the Black- Scholes option-pricing model with the following weighted-average
assumptions used for grants in the period ended December 31, 2000 and 1999: no
dividends will be paid, expected volatility of 50.0% risk-free interest rate of
5% and expected lives of 1 year.
Reconciliation Adjustments
The following reconciliations show the effect on net profit/loss for the
financial periods ended December 31, 2000, 1999 and 1998 using the US GAAP basis
of accounting for the matters outlined in items (a) to (h) above.
31-Dec-00 31-Dec-00 31-Dec-99 31-Dec-98
Note US$ AUD$ AUD$ AUD$
----------- ---------------- ---------------- ----------------- ----------------
Reconciliation Adjustments
Net income (loss) after tax in
accordance with Australian GAAP (3,100,489) (5,537,576) (11,095,107) (20,362,087)
Reconciliation Adjustments
Transfer realized temporary
share portfolio losses from
shareholder's equity (reserve) (g) (1) - - (1,734,895) -
Exploration expenditure
written-off as incurred (2,586,739) (4,620,002) 4,786,387 8,173,185
Stock based compensation cost (h) (120,939) (216,000) - -
---------------- ---------------- ----------------- ----------------
Net income (loss) after tax in accordance
with US GAAP (5,808,167) 10,373,576 (8,043,615) (12,188,902)
================ ================ ================= ================
Earnings (loss) per share from (.14) (.25) (.51) (.92)
Continuing Operations in accordance
with US GAAP (in cents)
(1) Represents the realized loss on the sale of Triton Investment.
F-25
31-Dec-00 31-Dec-00 31-Dec-99 31-Dec-98
Note US$ AUD$ AUD$ AUD$
----------- ---------------- ---------------- ----------------- ----------------
Reconciliation Adjustments
Shareholder's equity attributable to
member of the chief entity in
accordance with Australian GAAP 8,923,094 15,936,943 5,491,274 (2,803,225)
Reconciliation Adjustments
Exploration expenditure written-off (b) (6,753,963) (12,062,802) (7,442,800) (12,510,473)
as incurred
---------------- ---------------- ----------------- ----------------
Total shareholder's equity in 2,169,131 3,874,141 (1,951,526) (15,313,698)
accordance with US GAAP ================ ================ ================= ================
F-26
ITEM 18. FINANCIAL STATEMENTS.
Not applicable. Consolidated financial statements are provided under Item 17.
ITEM 19. EXHIBITS.
None
51
SIGNATURES
The Registrant hereby certifies that it meets all of the requirements for filing
on Form 20-F and that it has duly caused and authorized the undersigned to sign
this annual report on its behalf.
CITYVIEW CORPORATION LIMITED
By/s/Mark Smyth___________
Peter Mark Smyth
Chief Executive Officer and
Member Of the Board of Directors
Dated: June 15, 2001
52