UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 20-F
[ ] REGISTRATION STATEMENT PURSUANT TO SECTION 12(b) or 12(g) OF THE
SECURITIES EXCHANGE ACT OF 1934
OR
[x] ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
For the fiscal year ended July 31, 2002 (with other information to January 15,
2003 except where noted)
OR
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
For the transition period from to
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Commission file number 0-27668
TRANS-ORIENT PETROLEUM LTD.
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(Exact name of Registrant specified in its charter)
TRANS-ORIENT PETROLEUM LTD.
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(Translation of Registrant's name into English)
YUKON TERRITORY, CANADA
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(Jurisdiction of incorporation or organization)
887 Helmcken Street
Vancouver, British Columbia, Canada, V6Z 1B1
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(Address of principal executive offices)
COMMON SHARES WITHOUT PAR VALUE
(Title of Class)
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
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None Not applicable
Securities registered or to be registered pursuant to Section 12(g) of the Act
Common Shares without Par Value
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(Title of Class)
Securities for which there is a reporting obligation pursuant to Section 15(d)
of the Act. None
Number of outstanding shares of Trans-Orient's only class of capital stock as
on July 31, 2002.
2,416,823 Common Shares Without Par Value
Indicate by check mark whether 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 Registrant was
required to file such reports), and (2) has been subject to such filing
requirements for the past 90 days.
NOT APPLICABLE
Indicate by check mark which financial statement item Registrant has elected to
follow:
Item 17 [X] Item 18 [ ]
(End of Cover Page)
TABLE OF CONTENTS
of the Form 20F of Trans-Orient Petroleum Ltd.
(herein "the Registrant")
Page
PART I 1
ITEM 1. IDENTITY OF DIRECTORS, SENIOR MANAGEMENT AND ADVISERS 1
ITEM 2. OFFER STATISTICS AND EXPECTED TIMETABLE 1
ITEM 3. KEY INFORMATION 1
ITEM 4. INFORMATION ON THE REGISTRANT 5
ITEM 5. OPERATING, FINANCIAL REVIEW AND PROSPECTS 8
ITEM 6. DIRECTORS, SENIOR MANAGEMENT AND EMPLOYEES 10
ITEM 7. MAJOR SHAREHOLDERS AND RELATED TRANSACTIONS 12
ITEM 8. FINANCIAL INFORMATION 15
ITEM 9. THE OFFER AND LISTING 15
ITEM 10. ADDITIONAL INFORMATION 17
ITEM 11. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK 25
ITEM 12. DESCRIPTION OF SECURITIES OTHER THAN EQUITY SECURITIES 25
PART II 25
ITEM 13. DEFAULTS, DIVIDEND ARREARAGES AND DELINQUENCIES 25
ITEM 14. MATERIAL MODIFICATIONS TO THE RIGHTS OF SECURITY HOLDERS
AND USE OF PROCEEDS 25
PART III 26
ITEM 17. FINANCIAL STATEMENTS. 26
INDEX TO FINANCIAL STATEMENTS 26
ITEM 18. FINANCIAL STATEMENTS 46
ITEM 19. EXHIBITS 46
INDEX TO EXHIBITS 46
SIGNATURES 48
PART I
Currency
All currency amounts are stated in United States dollars unless otherwise
indicated. (Canadian dollars are denoted CAD.)
ITEM 1. IDENTITY OF DIRECTORS, SENIOR MANAGEMENT AND ADVISERS
Not applicable (this is an Annual Report only)
ITEM 2. OFFER STATISTICS AND EXPECTED TIMETABLE
Not applicable (this is an Annual Reporting only)
ITEM 3. KEY INFORMATION
A. Selected financial data
The selected historical financial information presented in the table below for
each of the years ended July 31, 2002, 2001, 2000, 1999 and 1998, is derived
from the audited consolidated financial statements of the Registrant. The
audited financial statements of the Registrant for the years ended July 31,
2002, 2001 and 200 are included in this Filing. The selected historical
financial information for the years ended July 31, 1999 and 1998 presented in
the table below are derived from audited financial statements of the Registrant
that are not included in this Filing but were included in previous filings. The
selected financial information presented below should be read in conjunction
with the Registrant's consolidated financial statements and the notes thereto
(Item 17) and the Operating and Financial Review and Prospects (Item 5)
elsewhere in this Filing.
The selected consolidated financial data has been prepared in accordance with
Canadian Generally Accepted Accounting Principles ("Canadian GAAP"). The
consolidated financial statements included in Item 17 in this filing are also
prepared under Canadian GAAP. Included within these financial consolidated
statements in Note 11 is a reconciliation between Canadian and US GAAP.
Under Canadian Generally Accepted Accounting Principles (in US$)
Year Ended July 31
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2002 2001 2000 1999 1998
$ $ $ $ $
Balance Sheet Data
Current Assets 338,714 186,412 483,887 895,661 2,341,089
Investment in Associated
Companies 754,791 1,086,058 5,566,720 508,375 250,000
Property and Equipment 127,483 139,870 153,893 54,502 64,066
Oil and Gas Interests 1 2 2 2,873,752 1,469,056
Total Assets 1,220,989 1,412,342 6,204,502 4,332,290 4,124,211
Share Capital 13,145,075 12,945,075 12,453,075 8,946,390 7,729,536
Deficit (11,993,534) (11,595,970) (6,330,492) (4,805,611) (3,697,393)
Operating Data
Gross Revenue 3,589 29,536 41,636 78,314 96,606
Net Loss (397,564) (5,265,478) (1,524,881) (1,108,218) (583,855)
Net Loss per Share (0.26) (3.78) (1.32) (1.32) (1.08)
Under U.S. Generally Accepted Accounting Principles (in US$)
Year Ended July 31
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2002 2001 2000 1999 1998
$ $ $ $ $
Balance Sheet Data
Current Assets 338,714 186,412 483,887 895,661 2,341,089
Investment in Associated
Companies 754,791 1,537,954 6,141,739 3,832,500 1,625,000
Property and Equipment 127,483 139,870 153,893 54,502 64,066
Oil and Gas Interests 1 2 2 2,873,752 1,469,056
Total Assets 1,225,068 1,864,238 6,779,521 7,656,415 5,499,211
Share Capital 13,978,686 13,778,686 13,298,982 9,829,797 8,598,156
Deficit (12,827,145) (12,429,581) (7,176,399) (5,689,018) (4,566,013)
Accumulated Other
Comprehensive Income - 451,896 575,019 3,324,125 1,375,000
Operating Data
Gross Revenue 3,589 29,536 41,636 78,314 96,606
Net Loss (397,564) (5,253,182) (1,487,381) (1,123,005) (1,371,355)
Comprehensive Income
(Loss) (849,460) (5,376,305) (4,236,487) 826,120 3,645
Net Loss per Share (0.26) (1.26) (0.43) (0.44) (0.72)
Although there are differences between Canadian GAAP and US GAAP there are no
material differences for the years ended July 31, 2002 and 2001. (See also
Item 17.)
Exchange Rates
The Registrant's financial statements, as provided under Item 8 and 17 are
presented in United States Dollars. On July 31, 2002 the buying rate for
Canadian dollars was US $1.00 for Cdn$1.5829. At the close of business on
January 15, 2003 the buying rate for Canadian dollars was US$1.00 for
Cdn$1.5368. Rates of exchange are obtained from the Bank of Canada and believed
by the Registrant to approximate closely the rates certified for customs
purposes by the Federal Reserve Bank in New York.
The following table sets out the buying rate for Canadian dollars for the last
six months:
Feb 2002 Mar 2002 Apr 2002 May 2002 Jun 2002 Jul 2002
Month End 1.6020 1.5942 1.5685 1.5280 1.5162 1.5829
Average 1.5960 1.5867 1.5813 1.5495 1.5310 1.5464
High (2) 1.5398 1.5763 1.5793 1.5508 1.5355 1.5450
Low (2) 1.4939 1.5381 1.5366 1.5323 1.5140 1.5103
The following table sets out the buying rate for Canadian dollars for the last
five fiscal years:
2002 2001 2000 1999 1998
Year End (1) 1.5776 1.5325 1.4870 1.5063 1.5119
Average 1.5700 1.5237 1.4722 1.5104 1.4267
High (2) 1.6125 1.5793 1.5108 1.5795 1.5119
Low (2) 1.5122 1.4730 1.4353 1.4465 1.3722
Notes:
(1) Year end is July 31.
(2) The high and low buying rate figures are selected from daily high and low
figures.
B. Capitalization and indebtedness
Not applicable (this is an Annual Report only)
C. Reasons for the offer and use of proceeds
Not applicable (this is an Annual Report only)
D. Risk Factors
The common shares of the Registrant must be considered a speculative investment
due to a number of factors primarily related to the nature of its business
(resource exploration) and its early stage of development and history of
losses. An investment in the Registrant's common shares should only be made by
persons who can afford to lose their entire investment and there can be no
assurance that the Registrant's common shares will increase in value. The
purchase of the common shares involves a number of significant risk factors.
Purchasers of common shares should consider the following:
1. Need for New Exploration Prospects, Failure to Locate Commercial
Quantities of Hydrocarbons
The Registrant currently has no directly-operated petroleum prospects and is
searching for possible new projects. This will require additional funding.
Exploration for hydrocarbons is a speculative venture necessarily involving
substantial risk. There is no certainty that the expenditures the Registrant
may incur on any exploration properties which may be acquired will result in
discoveries of commercial quantities of hydrocarbons. In addition, even if
hydrocarbons are discovered, the costs of extraction and delivering the
hydrocarbons to market, and variations in the market price may render any
deposit found uneconomic. Geological conditions are variable and unpredictable.
Even if production is commenced from a well, the production will inevitably
decline and may be affected or terminated by geological conditions that cannot
be foreseen.
2. History of Losses
The Registrant has a history of losses from operations from failed investments
in oil and gas and the internet. There is no assurance that the registrant will
enjoy any success in any future business activity. Limited Financial Resources
The Registrant has limited financial resources and it may not be able to raise
sufficient funds to either acquire new oil and gas prospects or to maintain its
corporate existence. The Registrant currently has no operating revenues and
relies principally on the issuance of common shares and the sale of its assets
(primarily securities) to raise funds to finance its business of seeking
hydrocarbon prospects.. There is no assurance that market conditions will
continue to permit the Registrant to raise funds on acceptable terms or at all.
Such financings will almost certainly result in equity dilution to existing
shareholders.
3. Competition with Other Companies
Other companies with greater financial resources and/or expertise are in
competition with the Registrant for oil and gas prospect opportunities. The
Registrant must compete with such companies in bidding for the acquisition of
petroleum interests from various state authorities, in purchasing or leasing
equipment necessary to explore for, develop and produce hydrocarbons and in
obtaining the services of personnel in the exploration for, and development and
production of, hydrocarbons.
4. Consequences of Failure to Satisfy Prescribed Permit or License
Terms and Conditions
The Registrant may acquire or hold interests in unproven exploration permits
and varying circumstances, including an inadequacy in the financial resources
available to the Registrant to pay for the work required by the permit terms
and conditions or, the inability of the Registrant to secure the required
equipment such as a drilling rig at the time required, and or circumstances
beyond the control or influence of the Registrant may result in the failure to
satisfy the terms and conditions of the permit and could therefore result in
the complete loss or surrender of the interest in the permit or license without
compensation to the Registrant.
5. No Petroleum Reserves
The Registrant has no properties on which any petroleum or other hydrocarbon
in commercial quantities is known to exist.
6. Thinly Traded Public Market
The Registrant's shares trade on the OTCBB. The Registrant has only 152
registered shareholders as at January 15, 2003, and its shares are relatively
thinly traded. There can be no assurance that a stable market for the
Registrant's common shares will ever develop or, if it should develop, be
sustained. It should be assumed that the market for the Registrant's common
shares will continue to be highly illiquid, sporadic and volatile. The
Registrant is required to maintain its status as a "reporting issuer" under the
Securities Exchange Act of 1934, in order to be traded by broker-dealers
regulated by the National Association of Securities Dealers. If the Registrant
fails to remain current in its filings with the Securities and Exchange
Commission, the Registrant may be delisted and its shareholders may not be able
to sell their shares in the public market within the United States.
7. Dealings With Associated Companies
The Registrant is associated through common directors, common officers and
common shareholdings with other public junior resource companies. In certain
cases, the Registrant has previously been assigned interests from associated
companies in compliance with applicable corporate law. The Registrant may also
make application for interests in petroleum properties with associated
companies. Persons who are not willing to rely on the discretion and judgment
of management and the boards of directors of the Registrant and the associated
companies should not consider a purchase of its securities.
See Item 7 - "Major Shareholders and Related Transactions"
8. Value of Properties
The amounts attributed to future properties in the Registrant's financial
statements represent acquisition and exploration expenditures only, and should
not be taken to in any way reflect realizable value.
9. Investment Companies Act
The Registrant may incur significant costs to avoid investment company status
and may suffer other adverse consequences if deemed to be an investment company
under the Investment Company Act of 1940 ("Investment Company Act"). Some of
the Registrant's equity investments in other businesses may constitute
investment securities under the Investment Company Act. A company may be deemed
to be an investment company if it owns investment securities with a value
exceeding 40% of its total assets, subject to certain exclusions. Investment
companies are subject to registration under, and compliance with, the
Investment Company Act unless a particular exclusion or safe harbor provision
applies. If the Registrant were to be deemed an investment company, it would
become subject to the requirements of the Investment Company Act. As a
consequence, the Registrant would be prohibited from engaging in business or
issuing securities as it has in the past and might be subject to civil and
criminal penalties for non-compliance. In addition, certain of the Registrant's
contracts might be voidable, and a court-appointed receiver could take control
of the Registrant and liquidate the business. Unless an exclusion or safe
harbor was available to the Registrant, it would have to attempt to reduce its
investment securities as a percentage of its total assets. This reduction can
be attempted in a number of ways, including the disposition of investment
securities and the acquisition of non-investment security assets. If the
Registrant were required to sell investment securities, the Registrant may sell
them sooner than it otherwise would have based on economic factors solely.
These sales would likely be at depressed prices and the Registrant may never
realize anticipated benefits from, or may incur losses on, these investments.
The Registrant may be unable to sell some investments due to contractual or
legal restrictions or the inability to locate a suitable buyer. Moreover, the
Registrant may incur tax liabilities when it sells assets.
10. Penny Stock Regulation and Difficulties in Selling Shares
The Securities and Exchange Commission (the "SEC") has adopted rules that
regulate broker-dealer practices in connection with transactions in "penny
stocks." Penny stocks generally are equity securities with a price of less than
$5.00 per share (other than securities registered on certain national
securities exchanges or quoted on the NASDAQ National Market System, provided
that current price and volume information with respect to transactions in such
securities is provided by the exchange or system). The penny stock rules
require a broker-dealer, prior to a transaction in a penny stock not otherwise
exempt from the rules, to deliver a standardized risk disclosure document
prepared by the SEC that provides information about penny stocks and the nature
and level of risks in the penny stock market. The broker-dealer also must
provide the customer with bid and offer quotations for the penny stock, the
compensation of the broker-dealer and its salesperson in the transaction, and
monthly account statements showing the market value of each penny stock held in
the customer's account. In addition, the penny stock rules require that prior
to a transaction in a penny stock not otherwise exempt from such rules, the
broker-dealer must make a special written determination that a penny stock is a
suitable investment for the purchaser and receive the purchaser's written
agreement to the transaction. These disclosure requirements often have the
effect of reducing the level of trading activity in any secondary market for a
stock that becomes subject to the penny stock rules. The Registrant's common
stock is currently subject to the penny stock rules, and accordingly, investors
may find it difficult to sell their shares, if at all.
11. Concentration of Ownership and Ineffective Voting Powers
The directors, officers and other affiliates of the Registrant beneficially own
a sufficient number of the outstanding common shares of the Registrant to have
substantial influence over matters which may require a majority vote of the
Registrant's shareholders, such as the election of members of the board of
directors or the sale of all or substantially all of the Registrant's assets.
Should the directors, officers and affiliates vote their shares in a like
manner on a matter requiring a majority vote of the Registrant's shareholders,
it is most likely that their position on the matter would control the outcome
of the vote. Additionally, because the directors, officers and affiliates
posses substantial influence over the Registrant through their significant
shareholdings, the value attributable to the right to vote is greatly reduced.
This could result in a reduction in the market value to the shares owned by a
shareholder because of the ineffective voting power.
ITEM 4. INFORMATION ON THE REGISTRANT
A. History and Development of the Registrant
The Registrant was incorporated on July 25, 1986 under the name Palo Duro
Exploration Ltd. by the registration of memorandum and articles under the
Company Act (British Columbia). The Registrant changed its name to Stoney Creek
Mines Ltd. on July 15, 1988 and to Cyn-Tech Ventures Ltd. on June 30, 1992. On
June 30, 1992 the Registrant consolidated its shares on a one new for three old
basis. On June 29, 1995 the Registrant consolidated its shares on a one new for
five old basis and changed its name to Consolidated Cyn-Tech Ventures Ltd. On
June 27, 1996 the Registrant subdivided its shares on a three new for one old
basis and changed its name to Trans-Orient Petroleum Ltd. On September 26, 1997
the Registrant was continued from a company subsisting under the Company Act
(British Columbia) to a company subsisting under the Business Corporations Act
(Yukon). On May 4, 1998 the Registrant subdivided its shares on a two new for
one old basis and increased its authorized capital to 200,000,000 shares
without par value. On January 17, 2001 the Registrant consolidated its common
shares on a one new for twelve old basis, and increased its authorized capital
from 200,000,000 to an unlimited amount without par value. The Registrant
received shareholder approval at the Annual and Special meeting on January 18,
2002 to further consolidate all of its common shares on a one new for three old
basis. The Registrant implemented this consolidation on April 5, 2002. The
Company did not change its name as a result of the consolidation.
The Registrant became a public or "reporting company" in British Columbia on
obtaining a receipt for its initial prospectus offering in British Columbia in
April, 1989 and the trading of its shares through the facilities of the
Vancouver Stock Exchange ("VSE") commenced about that time. On November 10,
1996 the shares of the Registrant commenced trading on the unlisted securities
facility of the New Zealand Stock Exchange under the symbol TOP. On June 10,
1997 the shares of the Registrant commenced trading on the National Association
of Securities Dealers' over-the-counter bulletin board (the "OTCBB") under the
symbol TEPUF. On July 31, 1997 the shares of the Registrant were voluntarily
delisted from trading through the facilities of the VSE. Currently the
Registrants trading symbol on the OTCBB is "TOPTF".
B. Business Overview
Overview of Operations
The Registrant is a Vancouver, British Columbia, Canada based company that has
recently relinquished its direct oil and gas prospect interests in exchange for
securities in several affiliated companies the most important of which is Indo
Pacific Energy Ltd.. The Registrant holds share equity interests in three
associated junior oil and gas exploration companies. In addition the Registrant
currently plans to seek funds to invest directly into new exploration projects
and to consider investing venture capital into existing exploration companies.
During the year ended July 31, 1997 the Registrant changed the focus of its
business from petroleum exploration in Canada to petroleum exploration in the
Austral-Pacific region and began to acquire and explore petroleum interests in
the region, often together with one or more associated companies, in particular
Indo-Pacific Energy Ltd.
Between July 1997 and January 2000, the Registrant's primary focus was on oil
and gas exploration through varying participating interests in thirteen
permits, located in New Zealand, Australia and Papua New Guinea. On May 23,
2000, the Registrant held a Special Meeting of Shareholders and the
Registrant's shareholders approved the sale of its directly-held interests in
its oil and gas permits located in New Zealand, Australia and Papua New Guinea
to Indo-Pacific Energy Ltd., a company with certain common shareholders and
directors. Under the terms of the sale (the "Indo-Pacific Sale"), a loan
payable of approximately $1,042,000 owing to Indo-Pacific by the Registrant was
offset against the purchase price and the Registrant received 4,184,224 Indo
units consisting of one common share and a Series "A" share purchase warrant of
Indo-Pacific. Each Series "A" warrant is now exercisable (reflecting both an
Indo-Pacific share reverse split and an amendment described below) at a price
of $1.25 until December 31, 2002 and $1.40 until December 31, 2003.
Additionally, the Registrant will receive a Series "B" warrant for each Series
"A" warrant exercised upon a commercial discovery in any of the properties
transferred to Indo-Pacific. The Series "B" warrants are exercisable within two
years and entitle the Registrant to purchase one common share of Indo-Pacific
Energy Ltd. at a price of $2.50 per share.
The Registrant also received under the Indo-Pacific Sale a gross overriding
royalty over any future hydrocarbon production of the Australia and Papua New
Guinea permits, however these royalties were surrendered for amended equity
warrants in Indo-Pacific. (See below.)
The Registrant also received additional consideration for the sale of its oil
and gas interests under the Indo-Pacific Sale as follows:
1. 1,800,000 common shares of AMG Oil Ltd. ("AMG") valued at $720,000
for the transaction, and an option to purchase further shares of AMG
which option has expired unexercised;
2. 600,000 shares of Gondwana Energy, Ltd. valued at $20,000; and
3. 517,020 shares of the Registrant which were surrendered for
cancellation (originally valued at $222,319).
The Registrant's wholly owned subsidiaries, Trans-Orient Petroleum (PNG)
Limited, Trans-Orient Petroleum (AUST) Pty. Ltd. and ZOCA 96-16 Pty. Ltd. were
sold to Indo-Pacific Energy Ltd. pursuant to the transaction. The total
purchase price for the assets sold to Indo-Pacific equated to $4,097,360.
During the Registrant's 2001 fiscal year, Indo-Pacific consolidated its common
shares on a one new for five old basis resulting in the number of shares the
Registrant owned of Indo-Pacific at that time being consolidated from 4,184,224
shares to 836,845 shares. As a result of this consolidation all warrants were
also consolidated on a one new for five old basis but pursuant to the new
agreement these warrants were repriced as described above.
The warrants received on the Indo-Pacific Sale were amended as per an agreement
reached between the Registrant and Indo-Pacific dated January 3, 2002. Under
this amending agreement the Registrant agreed to terminate all its royalty
rights over exploration permits sold to Indo-Pacific under the Indo-Pacific
Sale. In return, Indo-Pacific has agreed to amend the terms of the warrants
received by the Registrant. Under the amended terms of the agreements the
Series "A" warrants entitling the Registrant to acquire an additional 836,845,
post consolidation, shares of Indo-Pacific have been extended to December 31,
2003 and the exercise price has been reduced to $1.25 per share up to December
31, 2002 and $1.40 thereafter until expiry on December 31, 2003. The Series "B"
warrants come into effect in the event of a commercial discovery on any of the
permits and licenses sold to Indo-Pacific. Upon a discovery being made
Indo-Pacific will issue the Registrant additional warrants to acquire shares at
a price of $2.50 per share equal to the number of Series "A" warrants
exercised. These warrants will expire on December 31, 2003 in conjunction with
the Series "A" warrants.
Concurrent with the sale of the Registrant's oil and gas interests in May 2000,
the Registrant implemented a new business plan to expand its investments in
internet infrastructure and e-commerce. To this end the Registrant has written
off its investment in Verida Internet Corp. in the amount of $3,225,869 which
accounts for the majority of the loss recorded in fiscal 2001.
On September 16, 2002, the Registrant acquired, by way of private placement,
175,000 additional units of Indo-Pacific at US$0.80 per unit. Each unit
consists of one common share and one share purchase warrant, exercisable at
US$0.90 in year one and US$1.15 in year two.
The Registrant, during the 2002 fiscal year, sold 59,900 shares of Indo-Pacific
with a carrying value of $67,075 for cash proceeds of $76,908. In addition
during the 2003 fiscal year to date the Registrant has sold an additional
63,000 shares of Indo-Pacific with a carrying value of $46,620 for cash
proceeds of $63,038.These proceeds have been used for general working capital
In summary, the Registrant's current primary asset is its approximately 12%
interest in the equity of Indo-Pacific (17% fully diluted).Indo Pacific has a
market capitalization in the $6 million range. One director of the Registrant,
Mr. Zinkhofer, represents the Registrant on the board of Indo-Pacific.
C. Organization Structure
The Registrant has two wholly-owned subsidiaries, being Reservoir Rock Holdings
Ltd. and Trans-Orient Petroleum (NZ) Limited, both of which are currently
inactive and one active wholly owned subsidiary, being DLJ Management Corp.
The Registrant is currently taking steps to liquidate the inactive wholly-owned
subsidiaries as they are not required. Unless indicated otherwise, the terms
"the Registrant" or any reference to its business and operations means
Trans-Orient Petroleum Ltd. inclusive of its subsidiaries.
D. Property, Plant and Equipment
The Registrant has no direct oil and gas interests so it has no operational
property, plant or equipment. The Registrant maintains a corporate office
space at 887 Helmcken Street, Vancouver, BC, Canada. The office space is shared
with other public companies all of whom receive corporate services from the
Registrant's wholly-owned subsidiary DLJ Management Corp. The Registrant also
owns a 400 sq. foot office condominium located at 1406-1050 Burrard Street,
Vancouver B.C. The office condominium was originally purchased for Cdn
$147,000 and is held for investment purposes. In addition to its interest in
Indo-Pacific, the Registrant also currently owns:
(a) 8,200,000 common shares with a current market bid price of $0.05
per share, and warrants and options to acquire a further 5,000,000
common shares, at a price of $1 per share, of AMG Oil Ltd, until April
10, 2005. AMG Oil Ltd. is a reporting company under the The
Securities Exchange Act of 1934 that began to be quoted on the OTCBB
on January 15, 2003. The registrant's interest in AMG Oil account for
42.71% (54% on a full diluted basis) of the outstanding shares of AMG
Oil. The registrant accounts for the investment in AMG Oil using the
equity method and as a result the carrying value of the investment is
$1.00.
2,400,000 common shares with a current market bid price of $0.25 per share of
Gondwana Energy, Ltd. Gondwana Energy, Ltd. is a non-registered company quoted
on the National Quotation Bureau's "Pink Sheets". The Registrant's interest in
Gondwana accounts for 19.05% of the outstanding shares of Gondwana. The
Registrant accounts for the investment in Gondwana using the cost method and as
a result the carrying value of the investment is $40,000. However, as both the
AMG and Gondwana markets are highly illiquid, and as such the Registrant does
not consider the currently quoted prices realizable.
ITEM 5. OPERATING, FINANCIAL REVIEW AND PROSPECTS
The following discussion and analysis is management's opinion of the
Registrant's historical financial and operating results and should be read in
conjunction with the audited consolidated financial statements of the
Registrant (See Item 17) for the years ended July 31, 2002, 2001, and 2000,
together with the notes related thereto. The financial statements have been
prepared in accordance with Canadian GAAP, and a reconciliation to US GAAP is
provided in the notes to the financial statements, under Item 17. All dollar
values are expressed in United States dollars, unless otherwise stated.
Operating Results
Summary
The Registrant does not generate any sales or revenue from operations. It has
experienced losses in each of its fiscal periods since incorporation. The
Registrant's only source of capital currently is the issuance of equity
securities and to a lesser extent the sale of assets, primarily its portfolio
of marketable securities.Total losses incurred from incorporation to the fiscal
period ending July 31, 2002 were $11.99 million. The level of future
operations, if any, may be limited by the availability of capital resources,
the sources of which are not predictable. As a consequence of not currently
having any oil and gas prospects and the financial resources to explore them,
the Registrant's results from operations are not meaningful and the primary
financial information of relevance to investors, in management's opinion, are
the measures of liquidity and solvency.
Liquidity -2002 Compared to 2001 and 2000
Currently, the Registrant has sufficient capital to satisfy its overhead
expenditures for the 2003 fiscal year. The Registrant did not receive any
revenue from its operations in 2002 and does not expect to receive any
operational revenue during the fiscal 2003 year. Overhead expenditure needs
after fiscal 2003 will likely require the Registrant to raise additional
capital from outside sources. It is uncertain whether the Registrant will be
able to secure outside sources of capital in an amount that is sufficient for
the Registrant to continue with its expected operations. Due to the nature of
its business, the Registrant does not believe that debt financing is available
to it.
At July 31, 2002 the Registrant had $269,266 in working capital (July 31, 2001:
$123,175, July 31, 2000: $401,968). Cash and cash equivalents were $293,124,
$126,900, and $408,648 at July 31, 2002, 2001 and 2000 respectively. The
Registrant had negative cash flow from operations of $110,684, $773,174, and
$588,604 for the years ending July 31, 2002, 2001 and 2000 respectively.
A net provision of cash from investing activities totalling $76,908 was
provided to the Registrant for the year ended July 31, 2002 as a result of the
sale of Indo-Pacific shares. A net use of cash used in investing activities
totalled $574, and $3,573,159 for July 31, 2001 and 2000 respectively. On
August 30, 2000 the Registrant entered into a loan agreement with Verida
Internet Corp. whereby the Registrant agreed to loan Verida Internet Corp.
$500,000 in order to fund existing operations of Verida. The principal amount
and accrued interest was due on February 27, 2001 and the loan and interest
totalling $517,115 was written off as uncollectible as of July 31, 2001.
Subsequent to the Registrant writing-off the loan and interest, the Registrant
negotiated a compromise agreement with Verida and one of its debtors whereby
the Registrant will receive from monies owed to Verida by the debtor, monthly
payments of approximately CAD$ 15,170 for a period of twenty four months. The
total that was expected to be received per the agreement was CAD$ 363,982,
including principal and interest. As of January 15, 2003 the Registrant has
received a total of CAD$182,035. In October of 2002, the Registrant was advised
by the debtor that they are not in a position to continue paying the
Registrant. There is considerable doubt whether the Registrant will receive any
further payments relating to this compromise agreement and the Registrant is
considering its legal options. (See Item 7 - "Major Shareholders and Related
Transactions").
The Registrant's financing activities generated $200,000, $492,000 and
$3,736,000 at July 31, 2002, 2001 and 2000 respectively. Financing activities
during fiscal 2002 consisted solely of issuing equity securities by way of
private placements with investors known to the Registrant's management.
During the 2002 fiscal year, the Registrant consolidated (reverse-split) its
common shares on the basis of one new share for every three old shares. During
the 2001 fiscal year, the Registrant increased its authorized share capital to
an unlimited number of common stock without par value and consolidated
(reverse-split) its shares of common stock on a basis of one new share for
every twelve old shares. The effects of both consolidations have been applied
on a retroactive basis for the affected transactions described below.
In June of 2002, the Registrant completed a private placement financing of
1,000,000 units in its capital stock at $0.20 per unit. Each unit consists of
one share of common stock and one share purchase warrant to purchase one
additional share at a price of $0.25 in the first year and $0.30 in year two.
(See Item 7 - "Major Shareholders and Related Transactions")
Through two transactions dated September 12, 2000 and October 12, 2000, the
Registrant issued a total of 125,000 units at a price of $2.40 per unit
pursuant to private placement agreements for total proceeds of $300,000. Each
unit consists of one share of common stock and one share purchase warrant to
purchase one additional share at a price of $2.40 until September 12, 2001 and
October 12, 2001 and thereafter at a price of $3.00 until expiry on September
12, 2002 and October 12, 2002.
On November 14, 2000, the Registrant issued a total of 50,000 units at a price
of $1.92 per unit pursuant to a private placement agreement for total proceeds
of $96,000. Each unit consists of one share of common stock and one share
purchase warrant to purchase one additional share at a price of $1.92 until
November 14, 2001 and thereafter at a price of $3.00 until expiry on November
14, 2002. On December 15, 2000, the Registrant issued a total of 133,333 units
at a price of $0.72 per unit pursuant to a private placement agreement for
total proceeds of $96,000. Each unit consists of one share of common stock and
one share purchase warrant to purchase one additional share at a price of $0.72
until December 15, 2001 and thereafter at a price of $1.20 until expiry on
December 15, 2002.
Results of Operations -2002 Compared to 2001 and 2000
The Registrant has not received any revenue from operations. Any revenue
received by the Registrant was received as a result of interest income earned
on cash balances.
Interest income was $3,589, $29,536 and $41,636 for the periods ending July 31,
2002, 2001 and 2000 respectively. The reduction in interest is primarily due to
decreased balances of cash and cash equivalents and lower interest rates.
Overall, the Registrant's expenses, net of recorded gains, were $497,953,
$5,295,014, and $1,566,517 for the periods ending July 31, 2002, 2001 and 2000
respectively. General and administrative expenses were $224,676, $297,237, and
$534,029 for the periods ending July 31, 2002, 2001 and 2000 respectively. The
decrease for 2002 compared to 2001 and 2000 was primarily due to decreased
operational activities during the year, which is expected to continue unless
greater funding permits increased business activity.
The Registrant's losses from continuing operations were $388,480, $5,265,478
and $1,703,655 for July 31, 2002, 2001 and 2000 respectively. The losses from
continuing operations for 2002 consisted of general and administrative costs as
described above of $224,676 (2001: $297,237 and 2000: $534,029), write-down of
investment in associated companies of $264,192 (2001: $4,010,411 and 2000:
$261,514), equity in loss of associated company of $Nil (2001: $470,251 and
2000: $949,748) and write-off of loan receivable from associated company of
$Nil (2001: $517,115 and 2000: $Nil). These losses were partially offset in
2002 with interest income of $3,589 (2001: $29,536 and 2000: $41,636), gain on
sale of investment in associated company of $9,833 (2001 and 2000: $Nil) and a
recovery of loan receivable previously written-off of $86,967 (2001 and 2000:
$Nil)
During the 2000 fiscal year the Registrant also recorded a write down of oil &
gas interests equal $394,385 which was offset by a recorded gain of $573,159
from the sale of the Registrant's exploration permits. These losses stated as a
loss per share were $0.26, $3.78, $1.32 under Canadian generally accepted
accounting principals (see reconciliation of net losses and losses per share to
U.S. generally accepted accounting principles in note 11 of the Registrant's
financial statements).
Inflation
Not applicable.
Foreign Currency Fluctuations
The Registrant holds its cash reserves primarily in US dollars and does not
have significant obligations in other currencies so it does not perceive it is
currently subject to significant exchange risks.
Government Regimes
The Registrant, through its equity holdings of Indo-Pacific, is indirectly
subject to foreign governmental regulations that relate directly and indirectly
to its operations including title to the petroleum interests acquired by the
Registrant, production, marketing and sale of hydrocarbons, taxation,
environmental matters, restriction on the withdrawal of capital from a country
in which the Registrant is operating and other factors. There is no assurance
that the laws relating to the ownership of petroleum interests and the
operation of the Registrant's business in the jurisdictions in which it
currently operates will not change in a manner that may materially and
adversely affect its business. There is no assurance that the laws of any
jurisdiction in which the Registrant carries on business may not change in a
manner that materially and adversely affects its business.
Research and Development, Patents and Licences
Not applicable.
Trend Information
Not applicable.
ITEM 6. DIRECTORS, SENIOR MANAGEMENT AND EMPLOYEES
At July 31, 2002, the directors and officers of the Registrant were:
Name, Age and Municipality
of Residence Position Held Office Held Since
- --------------------------------------------------------------------------------
Mr. Garth Johnson, 29 (1) (2)
Vancouver, B.C. Interim President and
Chief Executive Officer,
Corporate Secretary,
Chief Financial Officer
and a Director 2001
Michael Hart, 56(1)
Vancouver, B.C. Director 1998
Bernhard Zinkhofer, 47 (1)
Richmond, B.C. Director 1997
Notes:
<FN>
<F1>
(1) Member of audit committee.
<F2>
(2) On March 11, 2002, Mr. Alex Guidi resigned as an officer and
director of the Registrant and was replaced by Mr. Frank Jacobs. Mr.
Jacobs subsequently resigned as an officer and director of the
Registrant on May 30, 2002 and was replaced as Interim President and
Chief Executive Officer by Mr. Garth Johnson.
</FN>
All directors were re-elected on January 17, 2003 and have a term of office
expiring at the next annual meeting of the Registrant expected in January,
2004. All officers have a term of office lasting until their removal or
replacement by the board of directors.
Mr. Garth Johnson is a Certified General Accountant who was a Controller with a
manufacturer in the lumber industry from 1994 to 1997 in Surrey, B.C. In 1997,
Mr. Johnson joined the Registrant as the corporate accountant. He has been the
Chief Financial Officer and Secretary of the Registrant since October 16, 2000
and has been a director of the Registrant since April 10, 2001.
Mr. Michael Hart became a director of the Registrant on December 13, 1999.
Between September 1995 and April 1996. Between September 1997 through early
1998, Mr. Hart worked with Scimtar Hydrocarbons Corp. as an investor relations
officer. During the period in which Mr. Hart was employed, Scimtar Hydrocarbons
Corp. was an Alberta Stock Exchange listed company whose business was oil and
gas exploration primarily in the Middle East. Between March 1998 and March
1999, Mr. Hart was a partner in M. Nigro Consulting Ltd. a partnership formed
for the purpose of providing investor relations services to public companies
trading on the Alberta Stock Exchange. From April 1999 until present Mr. Hart
has held the position of president of Hart-Byrne Enterprises Ltd. Hart-Byrne
Enterprises Ltd. is a private company formed by Mr. Hart and other investors,
which is developing specialized products for the music industry. Mr. Hart is
also president of On The Wing Productions Inc., a private company which is also
developing products for the music industry.
Mr. Bernhard Zinkhofer obtained a Bachelor of Commerce from the University of
Calgary in 1977, became a member of the Canadian Institute of Chartered
Accountants in 1980 after articling with a predecessor of KPMG Peat Marwick
Thorne and obtained a Bachelor of Law from the University of Victoria in 1983.
From 1983 to 1990, Mr. Zinkhofer practised law with a local firm in Vancouver,
British Columbia in the corporate and securities areas. In 1990, Mr. Zinkhofer
became an associate of, and in 1991 a partner of, the firm of Lang Michener
Lawrence & Shaw of Vancouver, B.C. and Toronto, Ontario.
The Registrant does not have liability insurance to cover its directors and
officers in the performance of their duties. To date, no agreements to
contractually provide indemnities have been executed or delivered.
Compensation
The following table sets forth the aggregate compensation paid by the
Registrant for services rendered during the last full fiscal year indicated:
SUMMARY COMPENSATION TABLE All Other
Annual Compensation Long Term Compensation Compen-
Awards Payouts sation($)
---------------------------- ---------------------------- --------- ---------
Restricted
Name and Principal Position Year Salary($) Bonus($) Other Securities Shares or LTIP
Annual Under Restricted Share Payouts($)
Compen- Options/ Units($)
sation($) SARs
Granted(#)
- ----------------------------------------------------------------------------------------------------------------------
Garth Johnson
(1)Interim President and
Chief Executive Officer and
Chief Financial Officer,
Director 2002 $14,029 Nil Nil Nil Nil Nil Nil
2001 $3,691 Nil Nil Nil Nil Nil Nil
2000 Nil Nil Nil Nil Nil Nil Nil
Michael Hart
Director 2002 Nil Nil Nil Nil Nil Nil Nil
2001 Nil Nil Nil Nil Nil Nil Nil
2000 Nil Nil Nil Nil Nil Nil Nil
Bernhard Zinkhofer
Director 2002 Nil Nil Nil Nil Nil Nil $8,771
2001 Nil Nil Nil 5,000 Nil Nil $4,480
2000 Nil Nil Nil Nil Nil Nil $65,844
<FN>
<F1>
(1) Mr. Garth Johnson became Interim President and Chief Executive
officer of the Registrant on May 30, 2002. Mr. Johnson became corporate
secretary and chief financial officer on October 16, 2000 replacing Mr.
Katsumata and a director on April 10, 2001 replacing Dr. Bennett.
</FN>
All of the Registrant's executive officers and directors also serve as officers
or directors of other companies or have other occupations.
With the exception of Mr. Johnson, the Registrant does not pay regular
remuneration to its executive officers. Mr. Johnson is paid by the Registrant
through its subsidiary, DLJ Management Corp. for his role in management and
corporate reporting and accounting specifically for time spent on the
Registrant.
No other cash compensation, including salaries, fees, commissions, and bonuses
was paid or is to be paid to the directors and officers for services rendered,
nor was any remuneration paid to directors except legal services provided by a
law firm in which Bernhard Zinkhofer, is a partner. The cost of these legal
services during the 2002 fiscal year was $8,771 (2001 fiscal year - $4,480).
The Registrant currently does not offer profit sharing, pension or retirement
benefit plans to its officers or directors and none are presently proposed.
There are no arrangements for payments on termination for any officer in the
event of a change of control.
Employees and Consultants
The Registrant currently has no full-time employees. Two persons providing
substantially all administrative services to the Registrant are employed
through its wholly owned subsidiary DLJ Management Corp ("DLJ").
Share ownership by officers and directors during the 2002 fiscal
At July 31, 2002 there were no shares of the Registrant owned by directors' and
officers.
There were no directors' and senior officers' options granted or
exercised in the years ended July 31, 2002 or 2001 and there were no
outstanding stock options to managment.
ITEM 7. MAJOR SHAREHOLDERS AND RELATED TRANSACTIONS
Major shareholders
Beneficial Holders of More Than Five Percent of Outstanding Shares
The following schedule sets forth the common stock ownership of each person
known by us to be the beneficial owner of 5% or more of the Registrant's common
stock. All ownership shown is of record and reflects beneficial ownership as of
January 15, 2003.Security Held by Certain Beneficial Owners
Name and Address of Owner Number of Shares Percentage of Class
Alex Guidi
Vancouver, B.C. 2,000,040 (1) 62.07%
Peter Loretto
Richmond, B.C. 296,949 (2) 11.68%
Tanya Loretto
Richmond, B.C. 251,688 (3) 10.41%
Cede & Company (4)
New York, New York 174,417 7.22%
CDS & Company (4)
Toronto, Ontario 1,022,145 42.29%
(1) Of the 2,000,040 common shares owned by Mr. Guidi, 750,000 are
attributable to common shares that may be acquired within 60 days under
warrants and 55,556 are attributable to common shares which may be
acquired within 60 days under options.
(2) Of the 296,949 common shares owned by Mr. Loretto, 125,000 are
attributable to common shares that may be acquired within 60 days under
warrants.
(3) Of the 251,868 common shares owned by Mrs. Loretto, 125,000 are
attributable to common shares that may be acquired within 60 days under
warrants.
(4)These shares are registered in the names
of brokerage clearing houses and management of the Registrant is
unaware of the beneficial ownership of the shares registered in the
above names although certain of those figures include shares of
management registered in brokerage houses.
Insider Reporting
The Securities Act (Yukon) does not prescribe any reporting requirements for
insiders of the Registrant. The Registrant is a reporting issuer in British
Columbia and insiders comply with the requirements of Part 12 of the Securities
Act (British Columbia). Insiders (generally officers, directors and holders of
more than ten percent of voting securities) are required to file individual
insider reports of changes in their ownership within ten days after the month
in which any trade in the Registrant's securities occurs. Copies of the reports
are available for public inspection at the offices of the British Columbia
Securities Commission, 12th Floor, 701 West Georgia Street, Vancouver, British
Columbia V7Y 1L2 (phone (604) 899-6500, facsimile: (604) 899-6506.
Host Country Shareholders
The proportion and number of shareholders in the host country as at January 15,
2003 are as follows:
Proportion of shares held in the U.S. 7.54%
Number of shareholders 132
Number of shares held 182,151
Arrangements Affecting Shareholdings
There are no known arrangements, which would significantly affect the control
of the major shareholder.
Associated Company/Related Party Shareholdings
At January 15, 2003: Mr. Guidi was a controlling shareholder of Indo-Pacific
Energy Ltd. who beneficially held 1,349,716 common shares and fully vested
options and warrants to acquire a further 512,000 common shares. Additionally,
Mr. Guidi has a further vesting option to acquire up to 200,000 common shares,
of which is currently vested the right to acquire up to 100,000 common shares
of Indo-Pacific Energy Ltd., all of which collectively represents a 26.64%
ownership interest of Indo-Pacific Energy Ltd. on an undiluted basis; At
January 15, 2003, Mr. Guidi beneficially held 2,184,000 common shares and
warrants to acquire a further 2,500,000 common shares, all of which
collectively represents 79.67% ownership interest TAG Oil Ltd. ("TAG")
(formerly, "Durum Cons. Energy Corp.")on an undiluted basis. ; Mr. Bernhard
Zinkhofer is a Director of TAG while Mr. Garth Johnson is the Chief Financial
Officer, Corporate Secretary and Director of TAG. At January 15, 2003, Mr.
Guidi was a controlling shareholder of AMG Oil Ltd. owning 4,477,500 common
shares or 22.84% of AMG Oil Ltd.; Mr. Michael Hart is a director and the
corporate secretary of AMG Oil Ltd. and owns a fully vested option to acquire
up to 15,000 common shares. At January 15, 2003, Mr. Guidi was a controlling
shareholder of Gondwana Energy, Ltd. and beneficially held 3,000,000 shares
equalling a 47.6% ownership interest in Gondwana Energy Ltd. and Mr. Johnson
owns 2,000 common shares of, and also acts as, Gondwana Energy, Ltd.'s
Corporate Secretary and Treasurer.
Related Party Transactions
The following are reported as Related Party Transactions. The nature of the
transaction, the affiliate(s) who had an interest in the transaction and the
nature of the interest are included in the description of each of the
transactions:
(a) During the 2002 fiscal year, the Registrant completed a private
placement financing of 1,000,000 units of its capital stock at $0.20
per unit. Each unit consists of one common share and one share purchase
warrant, exercisable at $0.25 in year one and $0.30 in year two. The
securities were placed with individuals that beneficially own 5% or
more of the Registrants outstanding shares. Mr Alex Guidi, Mr. Peter
Loretto and Mrs. Tanya Loretto acquired 750,000 units, 125,000 units
and 125,000 units respectively.
(b) During the 2001 fiscal year, the loan reported in the Registrants
20F for the period ended July 31, 2000, including principal and
interest, made by the Registrant to Verida Internet Corp. ("Verida")
came due. By letter dated March 12, 2001 Verida notified the Registrant
that the Company was unable to pay the amount owed for principal and
interest owed on the loan. As a result the Registrant wrote-off the
loan receivable, totalling $517,115 consisting of principal and
interest. Subsequent to the write-off, the Registrant, Verida and one
of its directors came to a Compromise Agreement dated October 15, 2001
whereby Verida assigned specific amounts to the Registrant and two
other persons entitling the Registrant to receive CAD$ 363,982
including principal and interest over a period of 24 months. As of
January 15, 2003 the Registrant has received CAD$ 182,035. In October
of 2002, the Registrant was advised by the debtor that they are not in
a position to continue paying the Registrant. There is considerable
doubt whether the Registrant will receive any further payments relating
to this compromise agreement and the Registrant is considering its
legal options.
(c) On January 3, 2002, the Registrant and Indo-Pacific agreed to
terminate the royalty agreement entered into as part of the sale of the
Registrants exploration permits and assets located in Australia, New
Zealand and Papua New Guinea to Indo-Pacific. In return for the
Registrant agreeing to terminate the royalties, Indo-Pacific agreed to
amend the terms of certain warrants received by the Registrant as a
result of the sale. In particular the Series "A" warrants entitling the
Registrant to acquire 836,845 shares of Indo-Pacific have been extended
to December 31, 2003 and the exercise price was reduced to $1.25 per
share up to December 31, 2002 and to $1.40 thereafter until December
31, 2003. In addition, the Series "B" warrants which come into effect
in the event of a commercial discovery occurring and entitling the
Registrant to acquire shares equal to the number of Series "A" warrants
exercised were extended to December 31, 2003 at a new exercise price of
$2.50 per share.
(d) As of January 15, 2003 the Registrant has sold 122,900 shares of
Indo-Pacific Energy Ltd. for proceeds of $139,946, resulting in a gain
over book value of $26,251.
(e) During the 2002 fiscal year the Registrant paid $6,115 (2001:
$5,775) in rent to a private company wholly owned by Mr. Alex Guidi.
During the 2002 fiscal year the Registrant incurred $8,771 (2001:
$4,480) in legal fees to a law firm in which Mr. Bernhard Zinkhofer is
a partner. During the 2002 fiscal year the Registrant paid $Nil (2001:
$3,438) to a subsidiary of Verida Internet Corp., as associated
company, for website and corporate development. During the 2002 fiscal
year, the Registrant also paid $14,029 (2001: $3,961) for wages and
benefits to a director of the Company.
(f) During the 2002 fiscal year, the Company entered into a rental
agreement with a related company, TAG Oil Ltd., for the Company's use
of office space owned by TAG. The agreement is on a month-to-month
basis at a rate of CAD$1,000 per month. The Company has paid CAD$6,000
for the year ended July 31, 2002.
(g) During the 2002 fiscal year, the Company entered into a six-month
executive employment contract with Mr. Frank Jacobs effective March 1,
2002. The executive contract consisted of Mr. Frank Jacobs replacing
the Company's current President, CEO and Director effective March 1,
2002. In addition to the above, Mr. Jacobs received remuneration of
approximately CAD$15,000 per month along with certain accommodation and
travel allowances totaling approximately CAD$17,000 for the term of the
contract. Under this contract the Company incurred costs of
approximately CAD$26,246. On April 29, 2002 the Company entered into an
agreement with Mr. Jacobs, assigning his employment obligations under
the executive contract to TAG, resulting in the Company being
reimbursed by TAG for all expenses. As a result of this assignment, Mr.
Jacobs resigned as President, CEO and as a Director and was replaced as
President and CEO, on an interim basis, by Mr. Johnson while the
Registrant seeks a permanent replacement to Mr. Jacobs.
(h) During the 2002 fiscal year, the Registrant's wholly owned
subsidiary, DLJ Management Corp., provided corporate services
consisting of accounting and administrative services to AMG Oil Ltd.,
Indo-Pacific Energy Ltd., Gondwana Energy, Ltd. and TAG Oil Ltd.
(formerly, "Durum Cons. Energy Corp"). DLJ Management Corp. billed
these companies on a cost recovery basis, the amount of which was
determined by the amount of time devoted by DLJ Management Corp.'s
staff to each company. These amounts were as follows in CAD$: $Nil
(2001: $122,428), $94,558 (2001: $96,558), $129,629 (2001: $93,096) and
$Nil (2001: $22,740) to Indo, AMG, TAG and Gondwana, respectively.
(i) On September 6, 2002, the Registrant acquired, by way of private
placement, 175,000 units of Indo-Pacific Energy Ltd. at a price of
$0.80 per unit. Each unit consists of one common share and one share
purchase warrant, exercisable at $0.90 in year one and $1.15 in year
two.
ITEM 8. FINANCIAL INFORMATION
Consolidated Statements and Other Financial Information
Consolidated financial statements are provided under PART III. Item 17.
FINANCIAL STATEMENTS
There are no material legal proceedings to which the Registrant is subject or
which are anticipated or threatened.
The Registrant has never paid dividends to shareholders nor is there a policy
in place to do so. All cash flow derived by the Registrant is re-invested in
the Registrant's operations.
Significant Changes
All significant events subsequent to the financial statements have been covered
in Note 10. Subsequent Events in the Financial Statements provided under Note
17.
ITEM 9. THE OFFER AND LISTING
Offer and Listing Details
There is no offering of stock hereunder. This is an annual report only.
Price History of the stock
The Registrant voluntarily delisted its shares from the Vancouver Stock
Exchange ("VSE") and the CDNX, the successor to the VSE, in Vancouver, British
Columbia, Canada on July 31, 1997. Beginning on June 10, 1997, the Registrant's
shares traded on the OTC Bulletin Board ("OTCBB") under the symbol "TEPUF"
which was subsequently changed to "TOPXF" on March 1, 2001, concurrent with the
1 for 12 share consolidation approved by the shareholders on January 17, 2001.
Concurrent with a further 1 for 3 share consolidation approved by shareholders
on January 18, 2002 the Registrants symbol was changed to "TOPTF" on the
effective date of the consolidation being April 4, 2002.
All values noted below are in US dollars per share for the OTCBB and Canadian
dollars for the CDNX.
Summary trading by year, for the five most recently competed fiscal periods ending July 31, 2001.
OTCBB CDNX
------------------------ -------------------------
Year High (1,2) Low (1,2) High (1,2) Low (1,2)
1998 4.80 0.13 - -
1999 2.625 0.43 - -
2000 0.68 0.25 - -
2001 1.01 0.03 - -
2002 1.01 0.12 - -
Summary trading by quarter for the two most recently competed fiscal periods ending July 31, 2002.
OTCBB
------------------------
Year and Quarter High (1,2) Low (1,2)
2001
First Quarter 0.32 0.15
Second Quarter 0.20 0.03
Third Quarter 1.01 0.25
Fourth Quarter 0.70 0.30
2002
First Quarter 0.50 0.20
Second Quarter 0.30 0.14
Third Quarter 0.70 0.12
Fourth Quarter 1.01 0.39
Summary trading by quarter for the six most recently completed months ending December 31, 2002.
OTCBB
------------------------
Month High (1,2) Low (1,2)
July 1 to Sept. 30 1.00 0.39
Oct. 1 to Dec. 31 0.60 0.25
<FN>
<F1>
(1) OTCBB quotations may reflect interdealer prices, without retail
Markup, mark-down or commission and may not necessarily reflect actual
transactions.
<F2>
(2) The source for quotations listed between September 2000 until present
was found at the OTCBB's own website located at www.otcbb.com. All other
quotations are form the Canada Stockwatch website located at
www.canada-stockwatch.com.
As at January 15, 2003 there were 2,416,823 shares outstanding. At January 15,
2003 there were 17 shareholders of record resident in Canada holding 2,234,310
shares and 132 shareholders of record resident in the United States holding
182,151 shares.
</FN>
Plan of Distribution
Not applicable
Markets
The authorized capital of the Registrant consists of an unlimited number of
Common Shares without par value, of which 2,416,823 Common Shares were issued
on July 31, 2002 and 2,416,823 Common Shares are issued as of January 15, 2003.
The Registrant's shares traded on the Vancouver Stock Exchange ("VSE") in
Vancouver, British Columbia, Canada until July 31, 1997. Beginning on June 10,
1997 the Registrant's shares traded on the OTC Bulletin Board ("OTCBB") under
the symbol "TEPUF", "TOPXF" effective March 1, 2001 and "TOPTF" effective April
5, 2002.
Selling Shareholders
Not applicable
Dilution
Not applicable
Expenses of the Issue
Not applicable
ITEM 10. ADDITIONAL INFORMATION
Share Capital
Not applicable
Memorandum and Articles of association
The Registrant's Articles of Association were previously filed with Form 20F
for the Year Ended July 31, 2000. The provisions thereof have not changed since
that time.
Material contracts
Attached as Exhibits are material contracts the Registrant entered into during
the period from the Registrants fiscal year ended July 31, 2000 up to January
15, 2003.
Exchange Controls
The Registrant is a Yukon, Canada incorporated corporation. The Registrant's
head office is located in Vancouver, British Columbia, Canada. There is no law
or governmental decree or regulation in Canada that restricts the export or
import of capital, or affects the remittance of dividends, interest or other
payments to a non-resident holder of Common Shares, other than withholding tax
requirements. Any such remittances to United States residents are subject to
withholding tax. See "Taxation".
There is no limitation imposed by the laws of Canada or by the charter or other
constituent documents of the Registrant the right of a non-resident to hold or
vote the Common Shares, other than as provided in the Investment Canada Act
(Canada) (the "Investment Act"). The following discussion summarizes the
material features of the Investment Act for a non-resident who proposes to
acquire the Common Shares. It is general only, it is not a substitute for
independent advice from an investor's own advisor, and it does not anticipate
statutory or regulatory amendments. The Registrant does not believe the
Investment Act will have any affect on it or on its non-Canadian shareholders
due to a number of factors including the location of its current projects and
its small capitalization.
The Investment Act generally prohibits implementation of a reviewable
investment by an individual, government or agency thereof, corporation,
partnership, trust or joint venture (each an "entity") that is not a "Canadian"
as defined in the Investment Act (a "non-Canadian"), unless after review the
Director of Investments appointed by the minister responsible for the
Investment Act is satisfied that the investment is likely to be of net benefit
to Canada. The size and nature of a proposed transaction may give rise to an
obligation to notify the Director to seek an advance ruling. An investment in
the Common Shares by a non-Canadian other than a "WTO Investor" (as that term
is defined in the Investment Act and which term includes entities which are
nationals of or are controlled by nationals of member states of the World Trade
Organization) when the Registrant was not controlled by a WTO Investor, would
be reviewable under the Investment Act if it was an investment to acquire
control of the Registrant and the value of the assets of the Registrant, as
determined in accordance with the regulations promulgated under the Investment
Act, was $5 million or more, or if an order for review was made by the federal
cabinet on the grounds that the investment related to Canada's cultural
heritage or national identity, regardless of the value of the assets of the
Registrant. An investment in the Common Shares by a WTO Investor, or by a
non-Canadian when the Registrant was controlled by a WTO Investor, would be
reviewable under the Investment Act if it was an investment to acquire control
of the Registrant and the value of the assets of the Registrant, as determined
in accordance with the regulations promulgated under the Investment Act, was
not less than a specified amount, which for 2000 exceeds Cdn. $192 million. A
non-Canadian would acquire control of the Registrant for the purposes of the
Investment Act if the non-Canadian acquired a majority of the Common Shares.
The acquisition of less than a majority but one-third or more of the Common
Shares would be presumed to be an acquisition of control of the Registrant
unless it could be established that, on the acquisition, the Registrant was not
controlled in fact by the acquiror through the ownership of the Common Shares.
Certain transactions relating to Common Shares would be exempt from the
Investment Act, including:
(a) an acquisition of the Common Shares by a person in the ordinary
course of that person's business as a trader or dealer in securities,
(b) an acquisition of control of the Registrant in connection with the
realization of security granted for a loan or other financial
assistance and not for a purpose related to the provisions of the
Investment Act, and
(c) an acquisition of control of the Registrant by reason of an
amalgamation, merger, consolidation or corporate reorganization
following which the ultimate direct or indirect control remained
unchanged.
Taxation
Material Canadian Federal Income Tax Consequences for United States Residents
The following summarizes the material Canadian federal income tax consequences
generally applicable to the holding and disposition of Common Shares by a
holder (in this summary, a "U.S. Holder") who, (a) for the purposes of the
Income Tax Act (Canada) (the "Tax Act"), is not resident in Canada, deals at
arm's length with the Registrant, holds the Common Shares as capital property
and does not use or hold the Common Shares in the course of carrying on, or
otherwise in connection with, a business in Canada, and (b) for the purposes of
the Canada-United States Income Tax Convention, 1980 (the "Treaty"), is a
resident solely of the United States, has never been a resident of Canada, and
has not held or used (and does not hold or use) Common Shares in connection
with a permanent establishment or fixed base in Canada. This summary does not
apply to traders or dealers in securities, limited liability companies,
tax-exempt entities, insurers, financial institutions (including those to which
the mark-to-market provisions of the Tax Act apply), or any other U.S. Holder
to which special considerations apply.
This summary is based on the current provisions of the Tax Act including all
regulations thereunder, the Treaty, all proposed amendments to the Tax Act, the
regulations and the Treaty publicly announced by the Government of Canada to
the date hereof, and the current administrative practices of the Canada Customs
and Revenue Agency. It has been assumed that all currently proposed amendments
will be enacted as proposed and that there will be no other relevant change in
any governing law or administrative practice, although no assurances can be
given in these respects. The immediately following summary does not take into
account Canadian provincial, U.S. federal (which follows further below), state
or other foreign income tax law or practice. The tax consequences to any
particular U.S. Holder will vary according to the status of that holder as an
individual, trust, corporation, partnership or other entity, the jurisdictions
in which that holder is subject to taxation, and generally according to that
holder's particular circumstances. Accordingly, this summary is not, and is not
to be construed as, Canadian tax advice to any particular U.S. Holder.
Dividends
Dividends paid or deemed to be paid to a U.S. Holder by the Registrant will be
subject to Canadian withholding tax. Under the Treaty, the rate of withholding
tax on dividends paid to a U.S. Holder is generally limited to 15% of the gross
amount of the dividend (or 5% if the U.S. Holder is a corporation and
beneficially owns at least 10% of the Registrant's voting shares). the
Registrant will be required to withhold the applicable withholding tax from any
such dividend and remit it to the Canadian government for the U.S. Holder's
account.
Disposition
A U.S. Holder is not subject to tax under the Tax Act in respect of a capital
gain realized on the disposition of a Common Share in the open market unless
the share is "taxable Canadian property" to the holder thereof and the U.S.
Holder is not entitled to relief under the Treaty. A common share will be
taxable Canadian property to a U.S. Holder if, at any time during the 60 months
preceding the disposition, the U.S. Holder or persons with whom the U.S. Holder
did not deal at arm's length alone or together owned, or had rights to acquire,
25% or more of the Registrant's issued shares of any class or series.
A U.S. Holder whose common shares do constitute taxable Canadian property, and
who might therefore be liable for Canadian income tax under the Tax Act, will
generally be relieved from such liability under the Treaty unless the value of
such shares at the time of disposition is derived principally from real
property situated in Canada. The value of the Registrant's common shares is not
currently derived principally from real property situated in Canada.
United States Tax Consequences
United States Federal Income Tax Consequences
The following summarizes the material United States federal income tax
consequences, under current law, generally applicable to a U.S. Holder (as
hereinafter defined) of common shares of the Registrant. This discussion does
not address all potentially relevant federal income tax matters and it does not
address consequences peculiar to persons subject to special provisions of
federal income tax law, such as those described below as excluded from the
definition of a U.S. Holder. In addition, this discussion does not cover any
state, local or foreign tax consequences. (see "Taxation - Canadian Federal
Income Tax Consequences" above). Accordingly, holders and prospective holders
of common shares of the Registrant should consult their own tax advisors about
the specific federal, state, local, and foreign tax consequences to them of
purchasing, owning and disposing of common shares of the Registrant, based upon
their individual circumstances.
The following discussion is based upon the sections of the Internal Revenue
Code of 1986, as amended (the "Code"), Treasury Regulations, published Internal
Revenue Service ("IRS") rulings, published administrative positions of the IRS
and court decisions that are currently applicable, any or all of which could be
materially and adversely changed, possibly on a retroactive basis, at any time
and which are subject to differing interpretations. This discussion does not
consider the potential effects, both adverse and beneficial, of any proposed
legislation which, if enacted, could be applied, possibly on a retroactive
basis, at any time.
U.S. Holders
As used herein, a "U.S. Holder" means a holder of common shares of the
Registrant who is a citizen or individual resident of the United States, a
corporation or partnership created or organized in or under the laws of the
United States or of any political subdivision thereof, an estate whose income
is taxable in the United States irrespective of source or a trust subject to
the primary supervision of a court within the United States and control of a
United States fiduciary as described Section 7701(a)(30) of the Code. This
summary does not address the tax consequences to, and U.S. Holder does not
include, persons subject to specific provisions of federal income tax law, such
as tax-exempt organizations, qualified retirement plans, individual retirement
accounts and other tax-deferred accounts, financial institutions, insurance
companies, real estate investment trusts, regulated investment companies,
broker-dealers, non-resident alien individuals, persons or entities that have a
"functional currency" other than the U.S. dollar, shareholders subject to the
alternative minimum tax, shareholders who hold common shares as part of a
straddle, hedging or conversion transaction, and shareholders who acquired
their common shares through the exercise of employee stock options or otherwise
as compensation for services. This summary is limited to U.S. Holders who own
common shares as capital assets and who own (directly and indirectly, pursuant
to applicable rules of constructive ownership) no more than 5% of the value of
the total outstanding stock of the Registrant. This summary does not address
the consequences to a person or entity holding an interest in a shareholder or
the consequences to a person of the ownership, exercise or disposition of any
options, warrants or other rights to acquire common shares. In addition, this
summary does not address special rules applicable to United States persons (as
defined in Section 7701(a)(30) of the Code) holding common shares through a
foreign partnership or to foreign persons holding common shares through a
domestic partnership.
Distribution on Common Shares of the Registrant
In general, U.S. Holders receiving dividend distributions (including
constructive dividends) with respect to common shares of the Registrant are
required to include in gross income for United States federal income tax
purposes the gross amount of such distributions, equal to the U.S. dollar value
of such distributions on the date of receipt (based on the exchange rate on
such date), to the extent that the Registrant has current or accumulated
earnings and profits, without reduction for any Canadian income tax withheld
from such distributions. Such Canadian tax withheld may be credited, subject to
certain limitations, against the U.S. Holder's federal income tax liability or,
alternatively, may be deducted in computing the U.S. Holder's federal taxable
income by those who itemize deductions. (See more detailed discussion at
"Foreign Tax Credit" below). To the extent that distributions exceed current or
accumulated earnings and profits of the Registrant, they will be treated first
as a return of capital up to the U.S. Holder's adjusted basis in the common
shares and thereafter as gain from the sale or exchange of property.
Preferential tax rates for long-term capital gains are applicable to a U.S.
Holder which is an individual, estate or trust. There are currently no
preferential tax rates for long-term capital gains for a U.S. Holder which is a
corporation.
In the case of foreign currency received as a dividend that is not converted by
the recipient into U.S. dollars on the date of receipt, a U.S. Holder will have
a tax basis in the foreign currency equal to its U.S. dollar value on the date
of receipt. Generally any gain or loss recognized upon a subsequent sale or
other disposition of the foreign currency, including the exchange for U.S.
dollars, will be ordinary income or loss. However, an individual whose realized
gain does not exceed $200 will not recognize that gain, provided that there are
no expenses associated with the transaction that meet the requirements for
deductibility as a trade or business expense (other than travel expenses in
connection with a business trip) or as an expense for the production of income.
Dividends paid on the common shares of the Registrant generally will not be
eligible for the dividends received deduction provided to corporations
receiving dividends from certain United States corporations. A U.S. Holder
which is a corporation and which owns shares representing at least 10% of the
voting power and value of the Registrant may, under certain circumstances, be
entitled to a 70% (or 80% if the U.S. Holder owns shares representing at least
20% of the voting power and value of the Registrant) deduction of the United
States source portion of dividends received from the Registrant (unless the
Registrant qualifies as a "foreign personal holding company" or a "passive
foreign investment company," as defined below). the Registrant does not
anticipate that it will earn any United States income, however, and therefore
does not anticipate that any U.S. Holder will be eligible for the dividends
received deduction.
Under current Treasury Regulations, dividends paid on the Registrant's common
shares, if any, generally will not be subject to information reporting and
generally will not be subject to U.S. backup withholding tax. However,
dividends and the proceeds from a sale of the Registrant's common shares paid
in the U.S. through a U.S. or U.S. related paying agent (including a broker)
will be subject to U.S. information reporting requirements and may also be
subject to the 31% U.S. backup withholding tax, unless the paying agent is
furnished with a duly completed and signed Form W-9. Any amounts withheld under
the U.S. backup withholding tax rules will be allowed as a refund or a credit
against the U.S. Holder's U.S. federal income tax liability, provided the
required information is furnished to the IRS.
Foreign Tax Credit
A U.S. Holder who pays (or has withheld from distributions) Canadian income tax
with respect to the ownership of common shares of the Registrant may be
entitled, at the option of the U.S. Holder, to either receive a deduction or a
tax credit for such foreign tax paid or withheld. Generally, it will be more
advantageous to claim a credit because a credit reduces United States federal
income taxes on a dollar-for-dollar basis, while a deduction merely reduces the
taxpayer's income subject to tax. This election is made on a year-by-year basis
and generally applies to all foreign taxes paid by (or withheld from) the U.S.
Holder during that year. There are significant and complex limitations which
apply to the credit, among which is the general limitation that the credit
cannot exceed the proportionate share of the U.S. Holder's United States income
tax liability that the U.S. Holder's foreign source income bears to his or its
worldwide taxable income. In the determination of the application of this
limitation, the various items of income and deduction must be classified into
foreign and domestic sources. Complex rules govern this classification process.
In addition, this limitation is calculated separately with respect to specific
classes of income such as "passive income, " "high withholding tax interest,"
"financial services income," "shipping income," and certain other
classifications of income. Dividends distributed by the Registrant will
generally constitute "passive income" or, in the case of certain U.S. Holders,
"financial services income" for these purposes. The availability of the foreign
tax credit and the application of the limitations on the credit are fact
specific, and U.S. Holders of common shares of the Registrant should consult
their own tax advisors regarding their individual circumstances.
Disposition of Common Shares of the Registrant
In general, U.S. Holders will recognize gain or loss upon the sale of common
shares of the Registrant equal to the difference, if any, between (i) the
amount of cash plus the fair market value of any property received, and (ii)
the shareholder's tax basis in the common shares of the Registrant.
Preferential tax rates apply to long-term capital gains of U.S. Holders which
are individuals, estates or trusts. In general, gain or loss on the sale of
common shares of the Registrant will be long-term capital gain or loss if the
common shares are a capital asset in the hands of the U.S. Holder and are held
for more than one year. Deductions for net capital losses are subject to
significant limitations. For U.S. Holders which are not corporations, any
unused portion of such net capital loss may be carried over to be used in later
tax years until such net capital loss is thereby exhausted. For U.S. Holders
that are corporations (other than corporations subject to Subchapter S of the
Code), an unused net capital loss may be carried back three years and carried
forward five years from the loss year to be offset against capital gains until
such net capital loss is thereby exhausted.
Other Considerations
Set forth below are certain material exceptions to the above-described general
rules describing the United States federal income tax consequences resulting
from the holding and disposition of common shares:
Foreign Personal Holding Company
If at any time during a taxable year more than 50% of the total combined voting
power or the total value of the Registrant's outstanding shares is owned,
directly or indirectly (pursuant to applicable rules of constructive
ownership), by five or fewer individuals who are citizens or residents of the
United States and 60% or more of the Registrant's gross income for such year is
derived from certain passive sources (e.g., from certain interest and
dividends), the Registrant may be treated as a "foreign personal holding
company." In that event, U.S. Holders that hold common shares would be required
to include in gross income for such year their allocable portions of such
passive income to the extent the Registrant does not actually distribute such
income. the Registrant does not believe that it currently qualifies as a
foreign personal holding company. However, there can be no assurance that the
Registrant will not be considered a foreign personal holding company for the
current or any future taxable year.
Foreign Investment Company
If 50% or more of the combined voting power or total value of the Registrant's
outstanding shares is held, directly or indirectly, by citizens or residents of
the United States, United States domestic partnerships or corporations, or
estates or trusts other than foreign estates or trusts (as defined by the Code
Section 7701(a)(31)), and the Registrant is found to be engaged primarily in
the business of investing, reinvesting, or trading in securities, commodities,
or any interest therein, it is possible that the Registrant may be treated as a
"foreign investment company" as defined in Section 1246 of the Code, causing
all or part of any gain realized by a U.S. Holder selling or exchanging common
shares to be treated as ordinary income rather than capital gain. the
Registrant does not believe that it currently qualifies as a foreign investment
company. However, there can be no assurance that the Registrant will not be
considered a foreign investment company for the current or any future taxable
year.
Passive Foreign Investment Company
United States income tax law contains rules governing "passive foreign
investment companies" ("PFIC") which can have significant tax effects on U.S.
Holders of foreign corporations. These rules do not apply to non-U.S. Holders.
Section 1297 of the Code defines a PFIC as a corporation that is not formed in
the United States if, for any taxable year, either (i) 75% or more of its gross
income is "passive income," which includes interest, dividends and certain
rents and royalties or (ii) the average percentage, by fair market value (or,
if the corporation is not publicly traded and either is a controlled foreign
corporation or makes an election, by adjusted tax basis), of its assets that
produce or are held for the production of "passive income" is 50% or more. the
Registrant appears to have been a PFIC for the fiscal year ended July 31, 2000,
and at least certain prior fiscal years. In addition, the Registrant expects to
qualify as a PFIC for the fiscal year ending July 31, 2001 and may also qualify
as a PFIC in future fiscal years. Each U.S. Holder of the Registrant is urged
to consult a tax advisor with respect to how the PFIC rules affect such U.S.
Holder's tax situation.
Each U.S. Holder who holds stock in a foreign corporation during any year in
which such corporation qualifies as a PFIC is subject to United States federal
income taxation under one of three alternative tax regimes at the election of
such U.S. Holder. The following is a discussion of such alternative tax regimes
applied to such U.S. Holders of the Registrant. In addition, special rules
apply if a foreign corporation qualifies as both a PFIC and a "controlled
foreign corporation" (as defined below) and a U.S. Holder owns, actually or
constructively, 10% or more of the total combined voting power of all classes
of stock entitled to vote of such foreign corporation (See more detailed
discussion at "Controlled Foreign Corporation" below).
A U.S. Holder who elects to treat the Registrant as a qualified electing fund
("QEF") will be subject, under Section 1293 of the Code, to current federal
income tax for any taxable year to which the election applies in which the
Registrant qualifies as a PFIC on his pro rata share of the Registrant's (i)
"net capital gain" (the excess of net long-term capital gain over net
short-term capital loss), which will be taxed as long-term capital gain, and
(ii) "ordinary earnings" (the excess of earnings and profits over net capital
gain), which will be taxed as ordinary income, in each case, for the
shareholder's taxable year in which (or with which) the Registrant's taxable
year ends, regardless of whether such amounts are actually distributed. A U.S.
Holder's tax basis in the common shares will be increased by any such amount
that is included in income but not distributed.
The procedure a U.S. Holder must comply with in making an effective QEF
election, and the consequences of such election, will depend on whether the
year of the election is the first year in the U.S. Holder's holding period in
which the Registrant is a PFIC. If the U.S. Holder makes a QEF election in such
first year, i.e., a "timely" QEF election, then the U.S. Holder may make the
QEF election by simply filing the appropriate documents at the time the U.S.
Holder files his tax return for such first year. If, however, the Registrant
qualified as a PFIC in a prior year during the U.S. Holder's holding period,
then, in order to avoid the Section 1291 rules discussed below, in addition to
filing documents, the U.S. Holder must elect to recognize under the rules of
Section 1291 of the Code (discussed herein), (i) any gain that he would
otherwise recognize if the U.S. Holder sold his stock on the qualification date
or (ii) if the Registrant is a controlled foreign corporation, the U.S.
Holder's pro rata share of the Registrant's post-1986 earnings and profits as
of the qualification date. The qualification date is the first day of the
Registrant's first tax year in which the Registrant qualified as a QEF with
respect to such U.S. Holder. For purposes of this discussion, a U.S. Holder who
makes (i) a timely QEF election, or (ii) an untimely QEF election and either of
the above-described gain-recognition elections under Section 1291 is referred
to herein as an "Electing U.S. Holder." A U.S. Holder who holds common shares
at any time during a year of the Registrant in which the Registrant is a PFIC
and who is not an Electing U.S. Holder (including a U.S. Holder who makes an
untimely QEF election and makes neither of the above-described gain-recognition
elections) is referred to herein as a "Non-Electing U.S. Holder." An Electing
U.S. Holder (i) generally treats any gain realized on the disposition of his
Registrant common shares as capital gain; and (ii) may either avoid interest
charges resulting from PFIC status altogether, or make an annual election,
subject to certain limitations, to defer payment of current taxes on his share
of the Registrant's annual realized net capital gain and ordinary earnings
subject, however, to an interest charge. If the U.S. Holder is not a
corporation, any interest charge imposed under the PFIC regime would be treated
as "personal interest" that is not deductible.
In order for a U.S. Holder to make (or maintain) a valid QEF election, the
Registrant must provide certain information regarding its net capital gains and
ordinary earnings and permit its books and records to be examined to verify
such information. the Registrant intends to make the necessary information
available to U.S. Holders to permit them to make (and maintain) QEF elections
with respect to the Registrant. the Registrant urges each U.S. Holder to
consult a tax advisor regarding the availability of, and procedure for making,
the QEF election.
A QEF election, once made with respect to the Registrant, applies to the tax
year for which it was made and to all subsequent tax years, unless the election
is invalidated or terminated, or the IRS consents to revocation of the
election. If a QEF election is made by a U.S. Holder and the Registrant ceases
to qualify as a PFIC in a subsequent tax year, the QEF election will remain in
effect, although not applicable, during those tax years in which the Registrant
does not qualify as a PFIC. Therefore, if the Registrant again qualifies as a
PFIC in a subsequent tax year, the QEF election will be effective and the U.S.
Holder will be subject to the rules described above for Electing U.S. Holders
in such tax year and any subsequent tax years in which the Registrant qualifies
as a PFIC. In addition, the QEF election remains in effect, although not
applicable, with respect to an Electing U.S. Holder even after such U.S. Holder
disposes of all of his or its direct and indirect interest in the shares of the
Registrant. Therefore, if such U.S. Holder reacquires an interest in the
Registrant, that U.S. Holder will be subject to the rules described above for
Electing U.S. Holders for each tax year in which the Registrant qualifies as a
PFIC.
In the case of a Non-Electing U.S. Holder, special taxation rules under Section
1291 of the Code will apply to (i) gains realized on the disposition (or deemed
to be realized by reasons of a pledge) of his Registrant common shares and (ii)
certain "excess distributions," as defined in Section 1291(b), by the
Registrant.
A Non-Electing U.S. Holder generally would be required to pro rate all gains
realized on the disposition of his Registrant common shares and all excess
distributions on his Registrant common shares over the entire holding period
for the common shares. All gains or excess distributions allocated to prior
years of the U.S. Holder (excluding any portion of the holder's period prior to
the first day of the first year of the Registrant (i) which began after
December 31, 1986, and (ii) for which the Registrant was a PFIC) would be taxed
at the highest tax rate for each such prior year applicable to ordinary income.
The Non-Electing U.S. Holder also would be liable for interest on the foregoing
tax liability for each such prior year calculated as if such liability had been
due with respect to each such prior year. A Non-Electing U.S. Holder that is
not a corporation must treat this interest charge as "personal interest" which,
as discussed above, is wholly non-deductible. The balance, if any, of the gain
or the excess distribution will be treated as ordinary income in the year of
the disposition or distribution, and no interest charge will be incurred with
respect to such balance. In certain circumstances, the sum of the tax and the
PFIC interest charge may exceed the amount of the excess distribution received,
or the amount of proceeds of disposition realized, by the U.S. Holder.
If the Registrant is a PFIC for any taxable year during which a Non-Electing
U.S. Holder holds Registrant common shares, then the Registrant will continue
to be treated as a PFIC with respect to such Registrant common shares, even if
it is no longer definitionally a PFIC. A Non-Electing U.S. Holder may terminate
this deemed PFIC status by electing to recognize gain (which will be taxed
under the rules discussed above for Non-Electing U.S. Holders) as if such
Registrant common shares had been sold on the last day of the last taxable year
for which it was a PFIC.
Effective for tax years of U.S. Holders beginning after December 31, 1997, U.S.
Holders who hold (actually or constructively) marketable stock of a foreign
corporation that qualifies as a PFIC may elect to mark such stock to the market
annually (a "mark-to-market election"). If such an election is made, such U.S.
Holder will generally not be subject to the special taxation rules of Section
1291 discussed above. However, if the mark-to-market election is made by a
Non-Electing U.S. Holder after the beginning of the holding period for the PFIC
stock, then the Section 1291 rules will apply to certain dispositions of,
distributions on and other amounts taxable with respect to the Registrant
common shares. A U.S. Holder who makes the mark-to-market election will include
in income for each taxable year for which the election is in effect an amount
equal to the excess, if any, of the fair market value of the common shares of
the Registrant as of the close of such tax year over such U.S. Holder's
adjusted basis in such common shares. In addition, the U.S. Holder is allowed a
deduction for the lesser of (i) the excess, if any, of such U.S. Holder's
adjusted tax basis in the common shares over the fair market value of such
shares as of the close of the tax year, or (ii) the excess, if any, of (A) the
mark-to-market gains for the common shares in the Registrant included by such
U.S. Holder for prior tax years, including any amount which would have been
treated as a mark-to-market gain for any prior tax year but for the Section
1291 rules discussed above with respect to Non-Electing U.S. Holders, over (B)
the mark-to-market losses for shares that were allowed as deductions for prior
tax years. A U.S. Holder's adjusted tax basis in the common shares of the
Registrant will be adjusted to reflect the amount included in or deducted from
income as a result of a mark-to-market election. A mark-to-market election
applies to the taxable year in which the election is made and to each
subsequent taxable year, unless the Registrant common shares cease to be
marketable, as specifically defined, or the IRS consents to revocation of the
election. Because the IRS has not established procedures for making a
mark-to-market election, U.S. Holders should consult their tax advisor
regarding the manner of making such an election. No view is expressed regarding
whether common shares of the Registrant are marketable for these purposes or
whether the election will be available.
Under Section 1291(f) of the Code, the IRS has issued Proposed Treasury
Regulations that, subject to certain exceptions, would treat as taxable certain
transfers of PFIC stock by Non-Electing U.S. Holders that are generally not
otherwise taxed, such as gifts, exchanges pursuant to corporate
reorganizations, and transfers at death. Generally, in such cases the basis of
the Registrant common shares in the hands of the transferee and the basis of
any property received in the exchange for those common shares would be
increased by the amount of gain recognized. Under the Proposed Treasury
Regulations, an Electing U.S. Holder would not be taxed on certain transfers of
PFIC stock, such as gifts, exchanges pursuant to corporate reorganizations, and
transfers at death. The transferee's basis in this case will depend on the
manner of the transfer. In the case of a transfer by an Electing U.S. Holder
upon death, for example, the transferee's basis is generally equal to the fair
market value of the Electing U.S. Holder's common shares as of the date of
death under Section 1014 of the Code. The specific tax effect to the U.S.
Holder and the transferee may vary based on the manner in which the common
shares are transferred. Each U.S. Holder of the Registrant is urged to consult
a tax advisor with respect to how the PFIC rules affect his or its tax
situation.
Whether or not a U.S. Holder makes a timely QEF election with respect to common
shares of the Registrant, certain adverse rules may apply in the event that
both the Registrant and any foreign corporation in which the Registrant
directly or indirectly holds shares is a PFIC (a "lower-tier PFIC"). Pursuant
to certain Proposed Treasury Regulations, a U.S. Holder would be treated as
owning his or its proportionate amount of any lower-tier PFIC shares, and
generally would be subject to the PFIC rules with respect to such
indirectly-held PFIC shares unless such U.S. Holder makes a timely QEF election
with respect thereto. the Registrant intends to make the necessary information
available to U.S. Holders to permit them to make (and maintain) QEF elections
with respect to each subsidiary of the Registrant that is a PFIC.
Under the Proposed Treasury Regulations, a U.S. Holder who does
not make a timely QEF election with respect to a lower-tier PFIC generally
would be subject to tax (and the PFIC interest charge) on (i) any excess
distribution deemed to have been received with respect to his or its lower-tier
PFIC shares and (ii) any gain deemed to arise from a so-called "indirect
disposition" of such shares. For this purpose, an indirect disposition of
lower-tier PFIC shares would generally include (i) a disposition by the
Registrant (or an intermediate entity) of lower-tier PFIC shares, and (ii) any
other transaction resulting in a diminution of the U.S. Holder's proportionate
ownership of the lower-tier PFIC, including an issuance of additional common
shares by the Registrant (or an intermediate entity). Accordingly, each
prospective U.S. Holder should be aware that he or it could be subject to tax
even if such U.S. Holder receives no distributions from the Registrant and does
not dispose of its common shares. The Registrant strongly urges each
prospective U.S. Holder to consult a tax advisor with respect to the adverse
rules applicable, under the Proposed Treasury Regulations, to U.S. Holders of
lower-tier PFIC shares.
Certain special, generally adverse, rules will apply with respect to Registrant
common shares while the Registrant is a PFIC unless the U.S. Holder makes a
timely QEF election. For example under Section 1298(b)(6) of the Code, a U.S.
Holder who uses PFIC stock as security for a loan (including a margin loan)
will, except as may be provided in regulations, be treated as having made a
taxable disposition of such shares.
Controlled Foreign Corporation
If more than 50% of the total combined voting power of all classes of shares
entitled to vote or the total value of the shares of the Registrant is owned,
actually or constructively, by citizens or residents of the United States,
United States domestic partnerships or corporation, or estates or trusts other
than foreign estates or trusts (as defined by the Code Section 7701(a)(31)),
each of which own, actually or constructively, 10% or more of the total
combined voting power of all classes of shares entitled to vote of the
Registrant ("United States Shareholder"), the Registrant could be treated as a
controlled foreign corporation ("CFC") under Subpart F of the Code. This
classification would effect many complex results, one of which is the inclusion
of certain income of a CFC which is subject to current U.S. tax. The United
States generally taxes United States Shareholders of a CFC currently on their
pro rata shares of the Subpart F income of the CFC. Such United States
Shareholders are generally treated as having received a current distribution
out of the CFC's Subpart F income and are also subject to current U.S. tax on
their pro rata shares of increases in the CFC's earnings invested in U.S.
property. The foreign tax credit described above may reduce the U.S. tax on
these amounts. In addition, under Section 1248 of the Code, gain from the sale
or exchange of shares by a U.S. Holder of common shares of the Registrant which
is or was a United States Shareholder at any time during the five-year period
ending on the date of the sale or exchange is treated as ordinary income to the
extent of earnings and profits of the Registrant attributable to the shares
sold or exchanged. If a foreign corporation is both a PFIC and a CFC, the
foreign corporation generally will not be treated as a PFIC with respect to
United States Shareholders of the CFC. This rule generally will be effective
for taxable years of United States Shareholders beginning after 1997 and for
taxable years of foreign corporations ending with or within such taxable years
of United States Shareholders. Special rules apply to United States
Shareholders who are subject to the special taxation rules under Section 1291
discussed above with respect to a PFIC. Because of the complexity of Subpart F,
a more detailed review of these rules is outside of the scope of this
discussion. the Registrant does not believe that it currently qualifies as a
CFC. However, there can be no assurance that the Registrant will not be
considered a CFC for the current or any future taxable year.
The Registrant strongly urges each prospective U.S. Holder to consult a tax
advisor with respect to the adverse rules applicable, under the Proposed
Treasury Regulations, to U.S. Holders of lower-tier PFIC shares.
Dividends and paying agents
Not applicable
Statement by experts
Not applicable
Documents on display
Documents concerning the Registrant which are referred to in this document may
be inspected in its offices, 887 Helmcken Street, Vancouver, B.C. Canada V6Z
1B1 or at the registered office at Suite 200 Financial Plaza, 204 Lambert
Street, White Horse, YT, Y1A 3T2, Canada. Copies of the Registrant's financial
statements and other continuous disclosure documents required under the British
Columbia Securities Act may be viewed at www.sedar.com.
Documents referred to in this document are filed with the US Securities
Commission.
Subsidiary information
A list of subsidiaries of the Registrant is identified in Note 2 (b) in the
notes to the consolidated financial statements and in ITEM 4. ORGANIZATIONAL
STRUCTURE.
ITEM 11. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
Not required as the Registrant is a small business issuer, in accordance with
Section 12(b)-2 of the Act.
ITEM 12. DESCRIPTION OF SECURITIES OTHER THAN EQUITY SECURITIES
There are no securities in the Registrant other than equity securities, being
Common Stock and Warrants to purchase Common Stock in the Registrant.
PART II
ITEM 13. DEFAULTS, DIVIDEND ARREARAGES AND DELINQUENCIES
A. There has been no material default in any indebtedness, as the
Registrant has no debt.
B. The Registrant has never paid nor declared a dividend, so there are
no arrearages.
ITEM 14. MATERIAL MODIFICATIONS TO THE RIGHTS OF SECURITY HOLDERS
AND USE OF PROCEEDS
Not applicable.
PART III
ITEM 17. FINANCIAL STATEMENTS.
The following is a summary statement of the material differences between
Canadian and U.S. generally accepted accounting principles relevant in the
preparation of the Registrant's financial statements:
(a) under U.S. GAAP, compensation cost is recognized when the market
value of stock options as at the grant date exceeds the exercise price
of the stock options. Additionally, note disclosure is required to
reflect the results of the Registrant to provide fair values of options
granted using the Black-Scholes option pricing model. Under Canadian
GAAP, no such expense is recognized;
(b) under U.S. GAAP, compensation cost is also recognized when shares
held in escrow are released based on the excess of market value at the
escrow release date over the price of the escrow shares. Under
Canadian GAAP, no such expense is recognized;
(c) under U.S. GAAP, escrow shares are excluded from the
weighted-average number of shares outstanding used in the calculation
of loss per share. Under Canadian GAAP, escrow shares are included in
the weighted average number of shares outstanding; and
(d) under U.S. GAAP, a ceiling test under the full cost method is
required for each cost centre by comparing the net capitalized cost to
the present value of the estimated future net revenues from production
of proved reserves discounted by 10%, net of the effects of future
costs to develop and produce the proved reserves, plus the costs of
unproved properties net of impairment, and less the effects of income
taxes. Any excess capitalized costs are written off to expense. Under
Canadian GAAP, ceiling tests under the full cost method are required
for each cost centre and for the aggregate of all cost centres by
comparing the net capitalized costs to the estimated future net
revenues from production of proved reserves without discount, plus the
costs of unproved properties net of impairment, with any excess
capitalized costs written off to expense. Further, the ceiling test
for the aggregate of all cost centres is required to include the
effects of future removal and site restoration costs, general and
administrative expenses, financing costs and income taxes.
The registrant does not believe that any of these differences are significant
to the disclosure of tits operations for fiscal 2001 and 2002,
Financial Statements begin on page 28.
INDEX TO FINANCIAL STATEMENTS
Page
Auditors' Report 27
Consolidated Balance Sheets 28
Consolidated Statements of Operations and Deficit 29
Consolidated Statements of Cash Flows 30
Notes to the Consolidated Financial Statements 32
The financial statements and Report of the independent Auditors are filed as
part of the Registrant's Annual Report.
AUDITORS' REPORT
To the Shareholders of Trans-Orient Petroleum Ltd.
We have audited the consolidated balance sheets of Trans-Orient Petroleum Ltd.
as at July 31, 2002 and 2001 and the consolidated statements of operations and
deficit and cash flows for each of the years in the three-year period ended
July 31, 2002. These consolidated financial statements are the responsibility
of the Company's management. Our responsibility is to express an opinion on
these consolidated financial statements based on our audits.
We conducted our audits in accordance with Canadian generally accepted auditing
standards. Those standards require that we plan and perform an audit to obtain
reasonable assurance whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence
supporting the amounts and disclosures in the financial statements. An audit
also includes assessing the accounting principles used and significant
estimates made by management, as well as evaluating the overall financial
statement presentation.
In our opinion, these consolidated financial statements present fairly, in all
material respects, the financial position of the Company as at July 31, 2002
and 2001 and the results of its operations and its cash flows for each of the
years in the three year period ended July 31, 2002 in accordance with Canadian
generally accepted accounting principles.
COMMENTS BY AUDITORS FOR U.S. READERS ON CANADA - U.S. REPORTING DIFFERENCES
In the United States, reporting standards for auditors require the addition of
an explanatory paragraph (following the opinion paragraph) when the financial
statements are affected by significant uncertainties and contingencies such as
those referred to in Note 1 to these financial statements. Although we
conducted our audits in accordance with both Canadian and U.S. generally
accepted auditing standards, our report to the shareholders dated November 15,
2002 is expressed in accordance with Canadian reporting standards, which do not
require a reference to such matters when the uncertainties are adequately
disclosed in the financial statements.
"Sadovnick Telford & Skov"
---------------------------
CHARTERED ACCOUNTANTS
Vancouver, British Columbia
Canada
November 15, 2002
- -------------------------------------------------------------------------------
TRANS-ORIENT PETROLEUM LTD.
Consolidated Balance Sheets
(Expressed in United States Dollars)
- -------------------------------------------------------------------------------
As at July 31, 2002 2001
- -------------------------------------------------------------------------------
Assets
Current
Cash and short-term deposits $ 293,124 $ 126,900
Accounts receivable 2,555 2,869
Due from related company 10,685 6,705
Due from associated companies 3,543 9,365
Prepaid expenses 28,807 40,573
- -------------------------------------------------------------------------------
338,714 186,412
Investment in associated companies 754,791 1,086,058
Property and equipment 127,483 139,870
Oil and gas interests 1 2
- -------------------------------------------------------------------------------
Total Assets $ 1,220,989 $ 1,412,342
Liabilities
Current
Accounts payable and accrued liabilities $ 55,122 $ 53,345
Due to associated company 14,326 9,892
- -------------------------------------------------------------------------------
Total Liabilities 69,448 63,237
- -------------------------------------------------------------------------------
Shareholders' Equity
Common stock without par value;
Unlimited number of shares authorized;
Issued and outstanding at July 31, 2002:
2,416,823 shares
(July 31, 2001: 1,416,823 shares)
13,145,075 12,945,075
Deficit (11,993,534) (11,595,970)
- -------------------------------------------------------------------------------
Total Shareholders' Equity 1,151,541 1,349,105
- -------------------------------------------------------------------------------
Total Liabilities and Shareholders' Equity $ 1,220,989 $ 1,412,342
- -------------------------------------------------------------------------------
Approved by the Directors:
"Garth Johnson" "Michael Hart"
- ---------------- --------------
Director Director
See accompanying notes to the consolidated financial statements
- --------------------------------------------------------------------------------------------------------
TRANS-ORIENT PETROLEUM LTD.
Consolidated Statements of Operations and Deficit
(Expressed in United States Dollars)
- --------------------------------------------------------------------------------------------------------
For the Years Ended July 31, 2002 2001 2000
- --------------------------------------------------------------------------------------------------------
Expenses
General and administrative (Schedule) $ 224,676 $ 297,237 534,029
- --------------------------------------------------------------------------------------------------------
Loss before other items (224,676) (297,237) (534,029)
Other Items
Interest income 3,589 29,536 41,636
Write-down of investment in associated companies (264,192) (4,010,411) (261,514)
Write-off of loan receivable from associated company - (517,115) -
Write-off of oil and gas interest (1)
Gain on sale of investment in associated company 9,833 - -
Equity in loss of associated company - (470,251) (949,748)
Recovery of loan receivable previously written-off 86,967 - -
- --------------------------------------------------------------------------------------------------------
Loss from continuing operations (388,480) (5,265,478) (1,703,655)
Discontinued operations:
Write-off of oil and gas interests - - (394,385)
Gain on sale of oil and gas interests - - 573,159
- --------------------------------------------------------------------------------------------------------
Loss before income taxes (388,480) (5,265,478) (1,524,881)
Provision for income taxes (9,084) - -
- --------------------------------------------------------------------------------------------------------
Net loss for the year (397,564) (5,265,478) (1,524,881)
Deficit - Beginning of year (11,595,970) (6,330,492) (4,805,611)
- --------------------------------------------------------------------------------------------------------
Deficit - End of year $ (11,993,534) $ (11,595,970) $ (6,330,492)
- --------------------------------------------------------------------------------------------------------
Loss per share -basic $ (0.26) $ (3.78) $ (1.32)
-diluted $ (0.26) $ (3.78) $ (1.32)
- --------------------------------------------------------------------------------------------------------
See accompanying notes to the consolidated financial statements
- -------------------------------------------------------------------------------------------------------------
TRANS-ORIENT PETROLEUM LTD.
Consolidated Statements of Cash Flows
(Expressed in United States Dollars)
- -------------------------------------------------------------------------------------------------------------
For the Years Ended July 31, 2002 2001 2000
- -------------------------------------------------------------------------------------------------------------
Operating Activities
Net loss for the year $ (397,564) $ (5,265,478) $ (1,524,881)
Adjustments to reconcile net loss to
cash applied to operating activities:
Amortization 12,387 14,597 15,083
Forgiveness of debt - - 7,001
Write-off of loan receivable from associated company - 517,115 -
Write-off of oil and gas interest 1
Write-down of investment in associated company 264,192 4,010,411 261,514
Gain on sale of investment in associated company (9,833) - -
Equity in loss of associated company - 470,251 949,748
Recovery of loan receivable previously written-off (86,967) - -
Changes in non-cash working capital:
Accounts receivable 314 11,112 (8,560)
Due from related company (3,980) (4,825) (1,880)
Due from associated companies 5,822 5,824 (15,189)
Prepaid expenses 11,766 3,616 (2,357)
Accounts payable and accrued liabilities 1,777 (10,895) (42,668)
Loan receivable from associated company 86,967 (517,115) -
Due to associated company 4,434 (7,787) (47,641)
- -------------------------------------------------------------------------------------------------------------
Net cash used for operating activities of continuing
Operations (110,684) (773,174) (409,830)
Discontinued operations:
Write-off of oil and gas interests - - 394,385
Gain on sale of oil and gas interests - - (573,159)
- -------------------------------------------------------------------------------------------------------------
Net cash used for operating activities (110,684) (773,174) (588,604)
- -------------------------------------------------------------------------------------------------------------
Financing Activities
Common stock issued for cash 200,000 492,000 3,736,000
- -------------------------------------------------------------------------------------------------------------
Net cash provided by financing activities 200,000 492,000 3,736,000
- -------------------------------------------------------------------------------------------------------------
Investing Activities
Proceeds from sale of investment in associated
Company 76,908
Purchase of investment in associated companies - - (3,437,495)
Purchase of property and equipment, net - (574) (114,474)
Discontinued operations:
Acquisition and exploration of oil and gas interests - - (1,064,118)
Proceeds from sale of oil and gas interests - - 1,042,928
- ----------------------------------------------------------------------------------------------------------------
Net cash provided by (used for) investing activities 76,908 (574) (3,573,159)
- ----------------------------------------------------------------------------------------------------------------
Net increase (decrease) in cash during the year 166,224 (281,748) (425,763)
Cash and short-term deposits - Beginning of year 126,900 408,648 834,411
- ----------------------------------------------------------------------------------------------------------------
Cash and short-term deposits - End of year $ 293,124 $ 126,900 $ 408,648
- ----------------------------------------------------------------------------------------------------------------
See accompanying notes to the consolidated financial statements
- ---------------------------------------------------------------------------------------
TRANS-ORIENT PETROLEUM LTD.
Consolidated Schedules of General and Administrative Expenses
(Expressed in United States Dollars)
- ---------------------------------------------------------------------------------------
For the Years Ended July 31, 2002 2001 2000
- ---------------------------------------------------------------------------------------
General and Administrative Expenses
Accounting and audit $ 15,484 $ 22,470 $ 21,820
Bad debts - - 7,001
Consulting fees 27,445 35,406 41,644
Corporate relations and development 19,164 43,633 89,699
Corporation capital tax 3,914 - 7,998
Amortization 12,387 14,597 15,083
Filing and transfer agency fees 9,288 8,496 8,356
Foreign exchange loss 4,394 4,322 46,148
Investor relations 8,120 - -
Interest - - 18,051
Legal 10,999 9,394 92,062
Office and miscellaneous 26,222 32,595 36,319
Printing 11,640 35,917 53,387
Rent 18,176 18,352 17,486
Telephone 10,252 8,783 4,217
Travel, promotion and accommodation 10,076 15,780 6,593
Wages and benefits 37,115 47,492 68,165
- ---------------------------------------------------------------------------------------
$ 224,676 $ 297,237 $ 534,029
- ---------------------------------------------------------------------------------------
See accompanying notes to the consolidated financial statements
- -------------------------------------------------------------------------------
TRANS-ORIENT PETROLEUM LTD.
Notes to the Consolidated Financial Statements
(Expressed in United States Dollars)
- -------------------------------------------------------------------------------
For the Years Ended July 31, 2002 and 2001
- -------------------------------------------------------------------------------
NOTE 1 - NATURE OF OPERATIONS
Trans-Orient Petroleum Ltd. (the "Company") was incorporated under the Company
Act (British Columbia) on July 25, 1986 and continued its jurisdiction of
incorporation to the Yukon Territory under the Business Corporations Act
(Yukon). The Company is actively engaged in identifying, financing, and
providing business development services for early-stage resource and technology
businesses ("Associated Companies"). The Company's operating strategy is to
acquire a significant equity interest in Associated Companies and to provide
financial, managerial, and technical support to accelerate the achievement of
the Associated Companies' business goals and objectives. At July 31, 2002, the
Company held interests in four Associated Companies.
The Company's consolidated financial statements are presented on a going
concern basis, which assumes that the Company will continue to realize its
assets and discharge its liabilities in the normal course of operations.
However, the Company does not generate sufficient cash flow from operations to
adequately fund its activities and has therefore relied principally upon the
issuance of securities for financing. Future capital requirements will depend
on many factors including the Company's ability to execute its business plan.
The Company intends to continue relying upon the issuance of securities to
finance its future activities but there can be no assurance that such financing
will be available on a timely basis under terms acceptable to the Company.
Although these consolidated financial statements do not include any adjustments
that may result from the inability to secure future financing, such condition
would have a material adverse effect on the Company's business, results of
operations and financial condition.
Refer to Note 3
NOTE 2 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
a) Accounting Principles and Use of Estimates
These financial statements are prepared in conformity with Canadian
generally accepted accounting principles which requires the Company's
management to make informed judgements and estimates that affect the
reported amounts of assets and liabilities and disclosures of contingent
assets and liabilities at the date of the financial statements and the
reported amounts of revenues and expenses during the fiscal year. Actual
results could differ from these estimates.
Material differences between Canadian and United States generally accepted
accounting principles which affect the Company are referred to in Note 11.
b) Basis of Consolidation
These consolidated financial statements include the accounts of
Trans-Orient Petroleum Ltd. and its wholly-owned subsidiaries, DLJ
Management Corp. and Reservoir Rock Holdings Limited and its wholly-owned
subsidiary, Trans-Orient Petroleum (NZ) Limited. All significant
intercompany balances and transactions have been eliminated.
c) Principles of Accounting for Investment in Associated Companies
The Company's investments in Associated Companies are accounted for using
either the equity method or the cost method of accounting. The equity
method is used when the Company exercises significant influence over an
associated company. The cost method of accounting is applied to Associated
Companies over which the Company does not exercise significant influence.
- -------------------------------------------------------------------------------
TRANS-ORIENT PETROLEUM LTD.
Notes to the Consolidated Financial Statements
(Expressed in United States Dollars)
- -------------------------------------------------------------------------------
For the Years Ended July 31, 2002 and 2001
- -------------------------------------------------------------------------------
NOTE 2 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (continued)
d) Translation of Foreign Currencies
The Company's foreign operations through its subsidiaries are of an
integrated nature and accordingly, the temporal method of foreign currency
translation is used for conversion into United States dollars. Monetary
assets and liabilities are translated into United States dollars at the
rates prevailing on the balance sheet date. Other assets and liabilities
are translated into United States dollars at the rates prevailing on the
transaction dates. Revenues and expenses arising from foreign currency
transactions are translated into United States dollars at the average rate
for the year. Exchange gains and losses are recorded as income or expense
in the year in which they occur.
e) Financial Instruments
Cash and short-term deposits, accounts receivable, due from related
company, due from associated companies, accounts payable and accrued
liabilities and due to associated company are carried at cost which
approximates fair value due to the short-term nature of these instruments.
Investment in associated companies are accounted for using either the
equity method or cost method of accounting.
f) Property and Equipment
Property and equipment are recorded at cost and amortized over their useful
lives as follows:
Apartment 4% Declining Balance Method
Furniture and Office Equipment 20% Declining Balance Method
Leasehold Improvements 5 year Straight Line Method
g) Basic and diluted net loss per common share
Basic net loss per common share is calculated by dividing the net loss by
the weighted average number of common shares outstanding during the year.
Diluted net loss per common share is calculated by dividing the net loss by
the sum of the weighted average number of common shares outstanding during
the year. Common equivalent shares consist of the shares issuable upon
exercise of stock options and warrants calculated using the treasury stock
method. Common equivalent shares are not included in the calculation of
the weighted average number of shares outstanding for diluted net loss per
common share when the effect would be anti-dilutive.
h) Cash and short-term deposits
Cash and cash equivalents presented in the consolidated financial
statements, include short-term investments with maturities of three months
or less of purchase.
NOTE 3 - INVESTMENT IN ASSOCIATED COMPANIES
a) At July 31, 2002, the Company's ownership interests in Associated
Companies accounted for under the equity method or cost method of
accounting are as follows:
- -------------------------------------------------------------------------------
TRANS-ORIENT PETROLEUM LTD.
Notes to the Consolidated Financial Statements
(Expressed in United States Dollars)
- -------------------------------------------------------------------------------
For the Years Ended July 31, 2002 and 2001
- -------------------------------------------------------------------------------
NOTE 3 - INVESTMENT IN ASSOCIATED COMPANIES (continued)
Write-down of
Disposals Investment in July 31, Percentage Number of
July 31, 2001 During Associated 2002 Of Common
Carrying Value the Year Companies Carrying Value Ownership Stock Held
Equity Method:
AMG Oil Ltd. $ 1 $ - $ - $ 1 42.71% 8,200,000
Cost Method:
Verida Internet Corp. 1 - - 1 8.68% 844,642
Indo-Pacific Energy Ltd. 1,046,056 (67,075) (264,192) 714,789 11.97% 776,945
Gondwana Energy, Ltd. 40,000 - - 40,000 19.05% 2,400,000
------------------------------------------------------------------
1,086,057 (67,075) (264,192) 754,790
$ 1,086,058 $ (67,075) $ (264,192) $ 754,791
At July 31, 2002, the estimated market values of the above shares are
consistent with their carrying value. During the year ended July 31, 2002, the
Company sold 59,900 shares of Indo-Pacific Energy Ltd. with a carrying value of
$67,075 for cash proceeds of $76,908, resulting in a gain of $9,833.
At July 31, 2002, the Company held the following stock options and share
purchase warrants to purchase shares of common stock:
Number Price Expiry
of Shares per Share Date
AMG Oil Ltd. 5,000,000 $1.00 April 10, 2005
Indo-Pacific Energy Ltd. 836,845 $1.25/ December 31, 2002/
$1.40 December 31, 2003
During the year ended July 31, 2002, the Company's warrants to purchase shares
in Indo-Pacific were amended to the above as per an agreement reached between
the Company and Indo-Pacific. Under the agreement, the Company agreed to
terminate all its royalty rights over exploration permits sold to Indo-Pacific
in the 2000 fiscal year. In return Indo-Pacific agreed to amend the terms of
the warrants received by the Company, by extending them to December 31, 2003
and reducing the exercise price to $1.25 per share up to December 31, 2002 and
$1.40 thereafter until expiry on December 31, 2003.
The series "B" warrants come into effect in the event of a commercial discovery
on any of the permits sold to Indo-Pacific. Upon a discovery being made,
Indo-Pacific will issue the Company additional warrants to acquire shares at a
reduced price of $2.50 per share equal to the number of shares of Series "A"
warrants exercised. These warrants will expire on December 31, 2003 in
conjunction with the Series "A" warrants.
- -------------------------------------------------------------------------------
TRANS-ORIENT PETROLEUM LTD.
Notes to the Consolidated Financial Statements
(Expressed in United States Dollars)
- -------------------------------------------------------------------------------
For the Years Ended July 31, 2002 and 2001
- -------------------------------------------------------------------------------
NOTE 4 - PROPERTY AND EQUIPMENT
Property and equipment are comprised as follows:
2002 2001
Apartment $ 100,945 $ 100,945
Furniture and office equipment 102,617 102,617
Leasehold improvements 2,337 2,337
-------------------------------------
205,899 205,899
Accumulated amortization (78,416) (66,029)
-------------------------------------
$ 127,483 $ 139,870
-------------------------------------
NOTE 5 - RELATED PARTY TRANSACTIONS
Certain transactions of the Company involve publicly traded companies having
directors, officers and/or principal shareholders in common with the Company.
These companies are AMG Oil Ltd. ("AMG"), Verida Internet Corp. ("Verida"),
Indo-Pacific Energy Ltd. ("Indo-Pacific"), Gondwana Energy, Ltd. ("Gondwana")
and TAG Oil Ltd. ("TAG") (formerly "Durum Cons. Energy Corp.")
a) Investment in Associated Companies
Investment in Associated Companies consists entirely of common shares of
AMG, Verida, Indo-Pacific and Gondwana.
Refer to Note 3
b) Due from/to Related and Associated Parties
At July 31, 2002, the Company was owed $10,685 (July 31, 2001 - $6,705) by
TAG, $3,543 (July 31, 2001 - $3,308) by AMG and $Nil (July 31, 2001 -
$6,057) by Indo-Pacific. At July 31, 2002, the Company owed $14,326 (July
31, 2001 - $9,892) to Indo-Pacific. These amounts are non-interest bearing
and have no fixed terms for repayment.
c) Loan Receivable from Associated Company
Subsequent to the write-off of the loan as reported in the July 31, 2001
fiscal year, the Company negotiated a loan repayment schedule with Verida
allowing the Company to receive monthly payments of approximately
CAD$15,170 for a period of twenty four months. The total that will be
received per the agreement will be CAD$363,982, including principal and
interest. For the fiscal period ending July 31, 2002 the Company has
received CAD$136,538 (US$86,967).
d) Other
During the 2002 fiscal year, the Company paid $6,115 (July 31, 2001:
$5,775) in rent to a private company wholly-owned by the former President
of the Company.
- -------------------------------------------------------------------------------
TRANS-ORIENT PETROLEUM LTD.
Notes to the Consolidated Financial Statements
(Expressed in United States Dollars)
- -------------------------------------------------------------------------------
For the Years Ended July 31, 2002 and 2001
- -------------------------------------------------------------------------------
NOTE 5 - RELATED PARTY TRANSACTIONS (continued)
During the 2002 fiscal year, the Company entered into a rental agreement
with a related company, TAG Oil Ltd., for the Company's use of office space
owned by TAG. The agreement is on a month-to-month basis at a rate of
CAD$1,000 per month. The Company has paid CAD$6,000 for the year ended July
31, 2002.
During the 2002 fiscal year, the Company incurred approximately $8,771
(July 31, 2001: $4,480) for legal services to a law firm in which a
director of the Company is a partner and $Nil (July 31, 2001: $3,438) for
website and corporate development to Verida.
During the 2002 fiscal year, the Company incurred $14,029 (July 31, 2001:
$3,691) for wages and benefits to a director of the Company.
During the 2002 fiscal year, the Company entered into a six-month executive
employment contract with Mr. Frank Jacobs effective March 1, 2002. The
executive contract consisted of Mr. Frank Jacobs replacing the Company's
current President, CEO and Director effective March 1, 2002. In addition to
the above, Mr. Jacobs received remuneration of approximately CAD$15,000 per
month along with certain accommodation and travel allowances totaling
approximately CAD$17,000 for the term of the contract. Under this contract
the Company incurred costs of approximately CAD$26,246. On April 29, 2002
the Company entered into an agreement with Mr. Jacobs, assigning his
employment obligations under the executive contract to TAG, resulting in
the Company being reimbursed by TAG for all expenses.
NOTE 6 - SHARE CAPITAL
a) Authorized and Issued Share Capital
The authorized share capital of the Company consists of an unlimited number of
common stock without par value.
Number
Issued and fully paid: of Shares Amount
Balance at July 31, 2000 1,314,046 $ 12,453,075
Shares issued during the year for cash:
Issued for private placements 102,777 492,000
Balance at July 31, 2001 1,416,823 12,945,075
Shares issued during the year for cash:
Issued for private placements 1,000,000 200,000
Balance at July 31, 2002 2,416,823 $ 13,145,075
Pursuant to private placement agreements during the 2002 fiscal year, the
Company completed a financing consisting of 1,000,000 units in its capital
stock at US$0.20 per unit. Each unit consists of one common share and one
share purchase warrant, exercisable at US$0.25 in year one and US$0.30 in
year two.
- -------------------------------------------------------------------------------
TRANS-ORIENT PETROLEUM LTD.
Notes to the Consolidated Financial Statements
(Expressed in United States Dollars)
- -------------------------------------------------------------------------------
For the Years Ended July 31, 2002 and 2001
- -------------------------------------------------------------------------------
NOTE 6 - SHARE CAPITAL (continued)
The Company, as approved by shareholders on January 18, 2002 at the
Company's annual meeting, has consolidated the Company's common shares on
the basis of one new share without par value for every three existing
common shares without par value. The effect of the share consolidation has
been applied on a retroactive basis.
b) Incentive Stock Options and Share Purchase Warrants
During the 2002 fiscal year, no stock options were granted or amended
except for the consolidation of the Company's outstanding options on a one
for three basis as a result of the consolidation of the Company's common
stock. The effects of the consolidation have been applied on a retroactive
basis.
At July 31, 2002, the following stock options are outstanding:
Number Price Expiry
of Shares per Share Date
------------------- --------------- -------------------
55,556 $54.00 March 31, 2003
5,000 $31.50 March 31, 2003
27,777 $31.50 March 31, 2005
-----------
88,333
-----------
At July 31, 2002, the following share purchase warrants to purchase common
shares are outstanding:
Number Price Expiry
of Shares per Share Date
------------------- --------------- -------------------
27,777 $9.00 September 12, 2002
13,889 $9.00 October 12, 2002
16,667 $9.00 November 15, 2002
44,444 $3.60 December 15, 2002
1,000,000 $0.25 June 12, 2003/
$0.30 June 12, 2004
-------------------
1,102,777
-------------------
During the 2002 fiscal year, warrants to acquire 223,750 shares expired as
they were not exercised.
The Company consolidated its shares of common stock on a basis of one new
share for every three old shares. The effects of the one for three
consolidation on the Company's outstanding stock options and share purchase
warrants have been applied on a retroactive basis.
Refer to Note 10
- -------------------------------------------------------------------------------
TRANS-ORIENT PETROLEUM LTD.
Notes to the Consolidated Financial Statements
(Expressed in United States Dollars)
- -------------------------------------------------------------------------------
For the Years Ended July 31, 2002 and 2001
- -------------------------------------------------------------------------------
NOTE 7 - LOSS PER SHARE
The loss per share is calculated using the weighted-average number of common
shares outstanding during the fiscal year. For this purpose, stock
consolidations are reflected on a retroactive basis to the preceding years.
The weighted-average number of common shares outstanding used to calculate loss
per share are as follows:
2002 fiscal year 1,553,809
2001 fiscal year 1,389,700
2000 fiscal year 1,152,983
NOTE 8 - INCOME TAXES
At July 31, 2002, the Company has approximately $2.48 million (July 31, 2001 -
$2.53 million) of resource and other unused tax pools to offset future taxable
income derived in Canada. Additionally at July 31, 2002, the Company has
non-capital losses of approximately $1.59 million (July 31, 2001 - $1.57
million) available for future deductions from taxable income derived in Canada,
which expire as follows:
2004 $ 164,602
2005 187,703
2006 298,218
2007 290,074
2008 617,241
2009 35,661
--------------
$ 1,593,499
--------------
Significant components of the Company's deferred tax assets are comprised of
the following at July 31, 2002 calculated at 41.72%.
Net capital loss carry-forward $ 181,950
Net operating loss carry-forwards 664,808
Resources and other unused tax pools 1,034,658
1,881,416
---------------
Valuation allowance (1,881,416)
---------------
$ -
---------------
A valuation allowance has been established, and accordingly, no benefit has
been recognized for the Company's deferred tax assets. The Company believes
that, based on a number of factors, the available objective evidence creates
sufficient uncertainty regarding the realizability of the deferred tax assets
such that a full valuation allowance has been recorded. These factors include
the Company's current history of net losses and the expected near-term future
losses. The Company will continue to assess the realizability of the deferred
tax assets based on actual and forecasted operating results.
- -------------------------------------------------------------------------------
TRANS-ORIENT PETROLEUM LTD.
Notes to the Consolidated Financial Statements
(Expressed in United States Dollars)
- -------------------------------------------------------------------------------
For the Years Ended July 31, 2002 and 2001
- -------------------------------------------------------------------------------
NOTE 8 - INCOME TAXES (continued)
For the year ended July 31, 2002, one of the Company's New Zealand subsidiaries
recorded a provision for income taxes of $9,084, based on its taxable income,
and after utilizing all non-capital loss carry-forwards available. At July 31,
2002, the Company has approximately $0.87 million of capital losses available
for deductions from future capital gains.
NOTE 9 - COMPARATIVE FIGURES
Certain comparative figures have been restated to conform to the presentation
of the 2002 fiscal year.
NOTE 10 - SUBSEQUENT EVENTS
a) Share Purchase Warrants
58,333 share purchase warrants expired as they were not exercised.
b) Investment in Associated Company
The Company acquired, by way of private placement, 175,000 units of
Indo-Pacific at $0.80 per unit. Each unit consists of one common share and
one share purchase warrant, exercisable at $0.90 in the first year and
$1.15 in year two.
c) Loan Receivable from Associated Company
The Company, in addition to the payments received and referred to in Note 5
above, has received an additional CAD$45,497 to the date of this report.
There is considerable doubt whether the Company will receive any further
payments relating to the loan repayment schedule.
NOTE 11 - DIFFERENCES BETWEEN CANADIAN AND UNITED STATES GENERALLY ACCEPTED
ACCOUNTING PRINCIPLES
These consolidated financial statements have been prepared in accordance with
Canadian generally accepted accounting principles ("Canadian GAAP") which
conform in all material respects with United States generally accepted
accounting principles ("U.S. GAAP") except for the following differences:
CONSOLIDATED BALANCE SHEETS
a) Assets
i) Investment in Associated Companies
Under Canadian GAAP, the Company's investments in Associated Companies
accounted for under the cost method of accounting are valued at the lower
of cost or market value. Under U.S. GAAP, such investments are classified
as available-for-sale securities and reported at market value, with
unrealized gains and losses included as a component of comprehensive
income.
- -------------------------------------------------------------------------------
TRANS-ORIENT PETROLEUM LTD.
Notes to the Consolidated Financial Statements
(Expressed in United States Dollars)
- -------------------------------------------------------------------------------
For the Years Ended July 31, 2002 and 2001
- -------------------------------------------------------------------------------
NOTE 11 - DIFFERENCES BETWEEN CANADIAN AND UNITED STATES GENERALLY ACCEPTED
ACCOUNTING PRINCIPLES (continued)
July 31,4 July 31,
2002 2001
------------ ------------
Investments under Canadian GAAP $ 754,791 $ 1,086,058
Adjustment required under U.S. GAAP (451,896) (123,123)
Cumulative historical adjustments to date 451,896 575,019
------------ ------------
Investments under U.S. GAAP $ 754,791 $ 1,537,954
------------ ------------
Total assets under U.S. GAAP as at July 31, 2002 and 2001 are $1,225,068
and $1,864,238, respectively.
b) Stockholders' Equity
i) Common Stock
Under U.S. GAAP, compensation cost must be considered for all stock options
granted requiring the Company to utilize both the intrinsic value-based and
the fair value based methods of accounting and reporting stock-based
compensation. Under Canadian GAAP, no such cost is recognized. The
Company, if required to report under U.S. GAAP, would elect to apply
Accounting Principles Board Opinion No. 25: Accounting for Stock Issued to
Employees ("APB 25") to account for all stock options granted. Further,
Statement of Financial Accounting Standards No. 123: Accounting for
Stock-Based Compensation ("SFAS 123") requires additional disclosure to
reflect the results of the Company as if it had elected to follow SFAS 123.
SFAS 123 requires a fair value based method of accounting for stock
options using the Black-Scholes option pricing model. This model was
developed for use in estimating the fair value of traded options and
require the input of and are highly sensitive to subjective assumptions
including the expected stock price volatility. Stock options granted by
the Company have characteristics significantly different from those of
traded options. In the opinion of management, the existing model does not
provide a reliable single measure of the fair value of stock options
granted by the Company. Under APB 25, compensation cost must be recognized
for all compensatory stock options granted whenever the market price of the
Company's shares on the date of grant exceeds the exercise price.
July 31, July 31,
2002 2001
------------ ------------
Common stock under Canadian GAAP $ 13,145,075 $ 12,945,075
Accrued compensation from stock options
granted or amended during the year - -
Compensation recovery from cancellation/expiry
of previously issued stock options - (12,296)
Cumulative historical adjustments to date 833,611 845,907
------------ ------------
Common stock under U.S. GAAP $ 13,978,686 $ 13,778,686
------------ ------------
- -------------------------------------------------------------------------------
TRANS-ORIENT PETROLEUM LTD.
Notes to the Consolidated Financial Statements
(Expressed in United States Dollars)
- -------------------------------------------------------------------------------
For the Years Ended July 31, 2002 and 2001
- -------------------------------------------------------------------------------
NOTE 11 - DIFFERENCES BETWEEN CANADIAN AND UNITED STATES GENERALLY ACCEPTED
ACCOUNTING PRINCIPLES (continued)
In accordance with SFAS 123, the following is a summary of the changes in
the Company's stock options for the 2002, 2001 and 2000 fiscal years:
2002 2001 2000
------------------ ------------------ ------------------
Weighted Weighted Weighted
Average Average Average
Number Exercise Number Exercise Number Exercise
of Shares Price of Shares Price of Shares Price
------------------ ------------------ ------------------
Balance at beginning of year 88,333 $ 45.63 89,027 $ 45.72 90,694 $ 45.36
Granted - - - - - -
Exercised - - - - - -
Expired - - (694) 58.26 - -
Cancelled - - - - (1,667) 31.68
------- -------- -------
Outstanding and exercisable
at end of year 88,333 $ 45.63 88,333 $ 45.63 89,027 $ 45.72
------- ------- -------- ------- ------- --------
Weighted-average fair
value of options granted
during the year $ 0.00 $ 0.00 $ 0.00
------- -------- -------
No stock options were granted during the 2002, 2001 or 2000 fiscal years.
The following is a summary of the Company's net loss and basic and diluted
loss per share as reported and pro forma as if the fair value based method
of accounting defined in SFAS 123 had been applied for the 2002, 2001 and
2000 fiscal years:
2002 2001 2000
-------------------------- ------------------------------ ------------------------------
As Pro As Pro As Pro
Reported Forma Reported Forma Reported Forma
-------------------------- ------------------------------ ------------------------------
Net loss for the year $ (397,564) $ (397,564) $ (5,253,182) $ (5,232,983) $ (1,487,381) $ (1,466,081)
Basic and diluted
Loss per share $ (0.26) $ (0.26) $ (3.78) $ (3.78) $ (1.29) $ (1.26)
-------------------------- ------------------------------ ------------------------------
- -------------------------------------------------------------------------------
TRANS-ORIENT PETROLEUM LTD.
Notes to the Consolidated Financial Statements
(Expressed in United States Dollars)
- -------------------------------------------------------------------------------
For the Years Ended July 31, 2002 and 2001
- -------------------------------------------------------------------------------
NOTE 11 - DIFFERENCES BETWEEN CANADIAN AND UNITED STATES GENERALLY ACCEPTED
ACCOUNTING PRINCIPLES (continued)
ii) Accumulated Deficit
The effects of Note 11(b)(i) on accumulated deficit are as follows:
July 31, July 31,
2002 2001
-------------- --------------
Deficit under Canadian GAAP $ (11,993,534) $ (11,595,970)
Net loss under U.S. GAAP (397,564) (5,253,182)
Deduct net loss under Canadian GAAP 397,564 5,265,478
Cumulative historical adjustments to date (833,611) (845,907)
-------------- --------------
Accumulated deficit under U.S. GAAP $ (12,827,145) $ (12,429,581)
-------------- --------------
iii) Accumulated Other Comprehensive Income
The effects of Note 11(a) on accumulated other comprehensive income are as
follows:
July 31, July 31,
2002 2001
-------------- --------------
Accumulated other comprehensive income
under Canadian GAAP $ - $ -
Unrealized gain (loss) on investment
in associated companies (451,896) (123,123)
Cumulative historical adjustments to date 451,896 575,019
-------------- --------------
Accumulated other comprehensive income
under U.S. GAAP$ - $ 451,896
-------------- --------------
As a result of these adjustments under U.S. GAAP, total stockholders'
equity as at July 31, 2002 and 2001 are $1,151,451 and $1,801,001,
respectively.
- -------------------------------------------------------------------------------
TRANS-ORIENT PETROLEUM LTD.
Notes to the Consolidated Financial Statements
(Expressed in United States Dollars)
- -------------------------------------------------------------------------------
For the Years Ended July 31, 2002 and 2001
- -------------------------------------------------------------------------------
NOTE 11 - DIFFERENCES BETWEEN CANADIAN AND UNITED STATES GENERALLY ACCEPTED
ACCOUNTING PRINCIPLES (continued)
c) Net Loss and Comprehensive Income (Loss) for the Year
The following are the effects of Notes 11(a) and (b) on net loss and
comprehensive income (loss) for the 2002, 2001 and 2000 fiscal years:
2002 2001 2000
----------- ------------- -------------
Net loss for the year under Canadian GAAP $ (397,564) $ (5,265,478) $ (1,524,881)
Compensation recovery from cancellation
of previously issued stock options - 12,296 37,500
----------- ------------- -------------
Net loss for the year under U.S. GAAP $ (397,564) $ (5,253,182) $ (1,487,381)
Other comprehensive income (loss):
Unrealized gain (loss) on investment
in associated companies (451,896) (123,123) (2,749,106)
----------- ------------- -------------
Comprehensive income (loss) for
the year under U.S. GAAP $ (849,460) $ (5,376,305) $ (4,236,487)
----------- ------------- -------------
d) Loss per Share
Statement of Financial Accounting Standards No. 128: Earnings per Share
("SFAS 128") replaces the presentation of primary earnings per share
("EPS") with a presentation of both basic and diluted EPS for all entities
with complex capital structures including a reconciliation of each
numerator and denominator. Basic EPS excludes dilutive securities and is
computed by dividing income available to common stockholders by the
weighted-average number of common shares outstanding for the year. Diluted
EPS reflects the potential dilution that could occur if dilutive securities
were converted into common stock and is computed similarly to fully-diluted
EPS pursuant to previous accounting pronouncements. SFAS 128 applies
equally to loss per share presentations.
The following is a reconciliation of the numerators and denominators of the
basic and diluted loss per share calculations for the 2002, 2001 and 2000
fiscal years:
- -------------------------------------------------------------------------------
TRANS-ORIENT PETROLEUM LTD.
Notes to the Consolidated Financial Statements
(Expressed in United States Dollars)
- -------------------------------------------------------------------------------
For the Years Ended July 31, 2002 and 2001
- -------------------------------------------------------------------------------
NOTE 11 - DIFFERENCES BETWEEN CANADIAN AND UNITED STATES GENERALLY ACCEPTED
ACCOUNTING PRINCIPLES (continued)
2002 2001 2000
----------- ------------- -------------
Numerator, net loss for the year
under U.S. GAAP $ (397,564) $ (5,253,182) $ (1,487,381)
----------- ------------- -------------
Denominator:
Weighted-average number of shares
under U.S. GAAP 1,553,809 1,389,700 1,153,983
----------- ------------- -------------
Basic and diluted loss per share
under U.S. GAAP $ (0.26) $ (3.78) $ (1.29)
----------- ------------- -------------
Stock options and share purchase warrants outstanding were not included in
the computation of diluted loss per share as such inclusion would be
antidilutive due to net losses incurred for the 2002, 2001 and 2000 fiscal
years.
e) General and Administrative Expenses
The following are the effects of Note 11(b)(i) on expenses for the 2002,
2001 and 2000 fiscal years:
2002 2001 2000
--------- --------- ----------
General and administrative expenses
under Canadian GAAP $ 233,849 $ 297,237 $ 534,029
Compensation recovery from cancellation
of previously issued stock options - (12,296) (37,500)
General and administrative expenses
under U.S. GAAP $ 233,849 $ 284,941 $ 496,529
CONSOLIDATED STATEMENTS OF CASH FLOWS
f) Operating Activities
The following are the effects of the adjustments required to reconcile from
Canadian to U.S. GAAP for the 2002, 2001 and 2000 fiscal years:
- -------------------------------------------------------------------------------
TRANS-ORIENT PETROLEUM LTD.
Notes to the Consolidated Financial Statements
(Expressed in United States Dollars)
- -------------------------------------------------------------------------------
For the Years Ended July 31, 2002 and 2001
- -------------------------------------------------------------------------------
NOTE 11 - DIFFERENCES BETWEEN CANADIAN AND UNITED STATES GENERALLY ACCEPTED
ACCOUNTING PRINCIPLES (continued)
2002 2001 2000
------------- ------------- -------------
Net loss for the year under U.S. GAAP $ (397,564) $ (5,253,182) $ (1,487,381)
Compensation recovery from previously
granted stock options - (12,296) (37,500)
Other components of operating activities
which are similar under Canadian and
U.S. GAAP 286,879 4,492,304 1,115,051
------------- ------------- -------------
Net cash used for operating activities $ (110,685) $ (773,174) $ (409,830)
------------- ------------- -------------
ITEM 18. FINANCIAL STATEMENTS
Not applicable.
ITEM 19. EXHIBITS
Key to the following document types:
1. Articles of Incorporation and Registered Incorporation Memorandum of
Trans-Orient.
2. Other Instruments defining the rights of the holders of equity or debt
securities.
3. A. Agreements to which Directors, Officers, promoters
voting trustees or security holders or their affiliates named
in the Registration Statement are parties other than contracts
involving only the purchase or sale of current assets having a
determinable market price.
B. Material contracts not made in the ordinary course of
business or which are to be performed in whole or in part at or
after the filing of the Registration Statement or which was
entered into not more than two years before filing.
INDEX TO EXHIBITS
Exhibits which accompany this Annual Report on Form 20-F are as follows:
Type of
Document Description Page Number
- --------- ------------------------------------------------------------------------ -----------
3A Subscription agreements with Alex Guidi dated June 6, 2002.
See "Item 7 - Major Shareholders and Related Transactions" 49
3A Subscription Agreements with Peter Loretto dated June 6, 2002.
See "Item 7 - Major Shareholders and Related Transactions" 70
3A Subscription Agreement with Tanya Loretto dated June 6, 2002.
See "Item 7 - Major Shareholders and Related Transactions" 91
3B Agreement dated August 23, 2002 between the Registrant and
Indo-Pacific Energy Ltd. for the purchase of 175,000 units
Of Indo-Pacific at a price of US$.80 per unit.
See "Item 7 - Major Shareholders and Related Transactions" 112
3B Agreement dated February 14, 2002 between the Registrant and
Indo-Pacific Energy Ltd. for the termination of the Registrants
Royalty Rights and amendment of the warrants held by the
Registrant to acquire additional shares in Indo-Pacific.
See "Item 7 - Major Shareholders and Related Transactions" 134
4 Other - "Certification under Sarbanes Oxley Act" 140
Exhibits which have been filed with previous Annual Reports on Form 20-F are as
follows:
Type of
Document Description
- --------- ---------------------------------------------------------------------
1 & 2 Articles of incorporation, bylaws and instruments defining rights of
common shareholders have been previously filed with the 20F for
fiscal 2000 filed January 29, 2001.
3A Subscription agreements with McLellan Investments Inc. dated
September 12, 2000 have been previously filed with the 20F for fiscal
2001 filed January 29, 2002.
3A Subscription Agreements with Ron Bertuzzi dated October 12, 2000 and
December 20, 2000 have been previously filed with the 20F for fiscal
2001 filed January 29, 2002.
3A Subscription Agreement with Peter Loretto dated November 15, 2000
has been previously filed with the 20F for fiscal 2001 filed
January 29, 2002.
3A Compromise Agreement between the Registrant and Verida Internet Corp.
dated October 15, 2001 has been previously filed with the 20F for
fiscal 2001 filed January 29, 2002.
3A Agreement dated August 27, 1999 between the Registrant and Alex Guidi
for the purchase of 4,000,000 units at a price of US$0.20 per unit
have been previously filed with the 20F for fiscal 2000 filed
January 29, 2001.
3B Investor relations service agreement with Republic Communications
Ltd. dated January 1, 2002.
3B Agreement dated July 19, 2000 between the Registrant and Verida
Internet Corp. for the purchase of 178,571 units at a price of
US$4.00 per unit have been previously filed with the 20F for fiscal
2000 filed January 29, 2001.
3B Agreement of Purchase and Sale dated January 29, 2000 between the
Registrant and Indo-Pacific Energy Ltd. have been previously filed
with the 20F for fiscal 2000 filed January 29, 2001.
3B Agreement dated April 10, 2000 between the Registrant and AMG Oil
Ltd. for the purchase of 5,000,000 units at a price of US$.05 per
unit have been previously filed with the 20F for fiscal 2000 filed
January 29, 2001.
3B Agreement of Purchase for Real Property dated March 15, 2000 have
been previously filed with the 20F for fiscal 2000 filed
January 29, 2001.
3B Loan Agreement between the Registrant and Verida Internet Corp.
have been previously filed with the 20F for fiscal 2000 filed
January 29, 2001.
SIGNATURES
Pursuant to the requirements of Section 12 of the Securities Exchange Act of
1934, the Registrant certifies that it meets all of the requirements for filing
on Form 20-F at July 31, 2002 and has duly caused this annual report to be
signed on its behalf by the undersigned, thereunto duly authorized.
January 30, 2003
TRANS-ORIENT PETROLEUM LTD.
By: "Garth Johnson"
_____________________________________________________________________
Garth Johnson, Interim President, CEO and Secretary, CFO and Director