UNITED STATES SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
SCHEDULE 14A
Proxy Statement Pursuant to Section 14(a) of the
Securities Exchange Act of 1934
Filed by the Registrant [x]
Filed by a Party other than the Registrant [ ]
Check the appropriate box:
[ ] Preliminary Proxy Statement
[ ] Confidential, for Use of the Commission Only (as permitted by Rule
14a-6(e)(2))
[ X] Definitive Proxy Statement
[ ] Definitive Additional Materials
[ ] Soliciting Material under ss.240.14a-12
Far East Energy Corporation
---------------------------
(Name of Registrant as Specified in Its Charter)
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[ X] No fee required.
[ ] $125 per Exchange Act Rules O-11(c)(1)(ii), 14a-6(i)(1),14a-6(i)(2) or
Item 22(a)(2) of Schedule 14A.
[ ] Fee computed on table below per Exchange Act Rules 14a-6(i)(4) and
0-11.
(1) Title of each class of securities to which transaction applies:
(2) Aggregate number of securities to which transaction applies:
(3) Per unit price or other underlying value of transaction computed
pursuant to Exchange Act Rule 0-11 (set forth the amount on which
the filing fee is calculated and state how it was determined):
(4) Proposed maximum aggregate value of transaction:
(5) Total fee paid:
[ ] Fee paid previously with preliminary materials.
[ ] Check box if any part of the fee is offset as provided by Exchange Act
Rule 0-11(a)(2) and identify the filing for which the offsetting fee
was paid previously. Identify the previous filing by registration
statement number, or the Form or Schedule and the date of its filing.
1. Amount Previously Paid:
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4. Date Filed:
FAR EAST ENERGY CORPORATION
400 N. Sam Houston Parkway East, Suite 205
Houston, Texas 77060
NOTICE OF ANNUAL MEETING OF SHAREHOLDERS
To be held on October 7, 2003
To Our Shareholders:
You are cordially invited to attend the Annual Meeting of the Shareholders of
Far East Energy Corporation (hereinafter referred to as the "Company"), to be
held on Tuesday, October 7, 2003 at 2:00 p.m. (CST) at the Sofitel Hotel, 425
North Sam Houston Parkway, East, Houston, Texas 77060, for the following
purposes:
1. PROPOSAL NO. 1: To elect the Board of Directors, each to serve
until the next Annual Meeting of the shareholders
or until their respective successors are elected
and qualify;
2. PROPOSAL NO. 2: To ratify and approve the selection by the Board
of Directors of the Payne, Falkner, Smith &
Jones, P.C. as the Company's independent
accountants for the current year; and
3. PROPOSAL NO. 3: To consider and vote upon such other business as
may properly come before the meeting or any
adjournment thereof.
The complete text of these proposals and the reasons your directors have
proposed their adoption are contained in the Proxy Statement, and you are urged
to carefully study them. If you do not plan to attend the Annual Meeting, you
are respectfully requested to sign, date and return the accompanying Proxy
promptly.
FOR THE REASONS STATED HEREIN, YOUR BOARD OF DIRECTORS RECOMMENDS THAT YOU
VOTE "FOR" THESE PROPOSALS. YOUR VOTE IS IMPORTANT NO MATTER HOW MANY SHARES YOU
OWN. TO BE SURE THAT YOUR SHARES WILL BE VOTED AT THE MEETING, PLEASE SIGN AND
DATE THE ENCLOSED PROXY. THIS WILL NOT PREVENT YOU FROM ATTENDING AND VOTING
YOUR SHARES IN PERSON. PROMPT RETURN OF YOUR PROXY WILL REDUCE THE COMPANY'S
EXPENSES IN THIS MATTER.
Only shareholders of record as shown on the books of the Company at the close
of business on August 27, 2003 will be entitled to vote at the Annual Meeting or
any adjournment thereof. A list of the Company's shareholders entitled to notice
of, and to vote at, the Annual Meeting will be made available during regular
business hours at the Company's principal executive offices at 400 N. Sam
Houston Parkway East, Suite 205 Houston, Texas 77060 from the date of this
notice for inspection by any shareholder for any purpose germane to the Annual
Meeting. The Annual Meeting may adjourn from time to time without notice other
than by announcement at the Annual Meeting, or at any adjournments thereof, and
any and all business for which the Annual Meeting is hereby noticed may be
transacted at any such adjournments.
By order of the Board of Directors,
Joe Cooper, President
FAR EAST ENERGY CORPORATION
400 N. Sam Houston Parkway East, Suite 205
Houston, Texas 77060
PROXY STATEMENT FOR ANNUAL MEETING OF SHAREHOLDERS TO BE HELD
ON OCTOBER 7, 2003
INFORMATION CONCERNING SOLICITATION AND VOTING
This Proxy Statement is being furnished to shareholders of Far East Energy
Corporation (the "Company") in connection with the Board of Director's
solicitation of proxies for use at the 2003 annual meeting of shareholders to be
held on October 7, 2003, and at any adjournment of that meeting (the "Annual
Meeting"). The first date on which this Proxy Statement and the form of Proxy
are first being mailed to shareholders of the Company is on or about September
23, 2003.
The Board of Directors has fixed August 27, 2003 as the record date for
determining stockholders who are entitled to vote at the Annual Meeting. At the
close of business on August 27, 2003, the Company had issued and outstanding
48,212,500 shares of common stock, par value $0.001 (the "Common Stock"), held
of record by approximately 86 stockholders. Each share of Common Stock is
entitled to one vote on each matter properly coming before the Annual Meeting.
The Company will not solicit proxies personally, by telephone or
facsimile. The Company, however, may make a request by telephone, facsimile, or
mail strictly limited to confirming the shareholder's receipt of the proxy and
requesting that the shareholder sign and return the proxy solicited by this
statement. The Company does not expect to pay compensation to any party other
than employees (and then only their regular salaries plus expenses) for the
solicitation of proxies, but may reimburse brokers, custodians, nominees and
fiduciaries for the expense of forwarding solicitation material and proxies to
beneficial owners of their outstanding stock. The cost of soliciting proxies,
not expected to exceed $5,000, will be borne by the Company.
All proxies will be voted in accordance with the instructions contained
therein, if properly executed and not revoked. Proxies that are signed by
shareholders but that lack any such specification will be voted in favor of the
proposals set forth in the Notice of the Annual Meeting. The management of the
Company does not know of any other matters which will be presented for action at
the Annual Meeting, but the person named in the Proxy intends to vote or act
with respect to any other proposal which may be presented for action in
accordance with his best judgment. A vote FOR Proposal #3 will effectively
confer authority in the Proxy holder to vote the shares covered by the Proxy as
the Proxy Holder deems appropriate. A vote AGAINST Proposal #3 will be treated
as shares over which no Proxy is granted and therefore counted as an abstention
from voting on any other business as may properly come before the Annual
Meeting, including any modification or variation to an existing proposal. Any
proxy may be revoked by a stockholder at any time before it is exercised by
giving written notice to that effect to the corporate secretary of the Company
or by voting in person at the Annual Meeting.
The presence in person or by executed proxy of the holders of a majority
of the aggregate voting power represented by the shares of Common Stock, issued
and outstanding and entitled to vote at the meeting, together as a single class,
shall constitute a quorum for transacting business at the meeting. Any shares
which are withheld or abstain from voting will be counted for the purpose of
obtaining a quorum. Shares held in "street name" by brokers or nominees and not
reflected as held of record on the Company's shareholder list as of the Record
Date may only be voted through the brokers or nominees absent the submission of
a "legal proxy" issued by Automatic Data Processing, Inc. Shares held in "street
name" by brokers or nominees who indicate that they do not have discretionary
authority to vote such shares as to a particular matter ("broker non-votes")
will not be counted as votes "for" or "against" the proposals, and will not be
counted as shares voted on such matter.
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The total number of votes cast "for" will be counted for purposes of
determining whether sufficient affirmative votes have been cast to approve each
proposal. Abstentions from voting on a proposal, as well as broker non-votes,
will be considered for purposes of determining the number of total votes present
at the Annual Meeting. Abstentions will have the same effect as votes against
the proposals.
The directors are elected by a plurality of the votes cast by the shares
of Common Stock entitled to vote in the election. The affirmative vote of the
holders of a majority of the shares of Common Stock present or represented at
the meeting is required to elect, ratify and approve the selection by the Board
of Payne, Falkner, Smith & Jones, PC. as the Company's independent accountant
for the current year.
Management of the Company has been informed by the executive officers,
directors, and control persons of the Company that such parties intend to vote
all shares they beneficially hold with voting rights FOR all of the proposals
set forth in the notice. Together, such parties and proxies represent
approximately 19.1% of the votes eligible to be cast at the Annual Meeting.
SECURITY OWNERSHIP OF CERTAIN
BENEFICIAL OWNERS AND MANAGEMENT
The following table sets forth certain information concerning the
ownership of the Company's Common Stock as of August 27, 2003, with respect to:
(i) each person known to the Company to be the beneficial owner of more than
five percent (5%) of the Company's Common Stock; (ii) all directors; and (iii)
directors and executive officers of the Company as a group. As of August 27,
2003, there were 48,212,500 shares of Common Stock issued and outstanding.
Amount and Nature
Title of Class Name and Address of of Beneficial Percent of Class
Beneficial Owner Ownership (1) (2)
- --------------------------------------------------------------------------------
Executive Officers and Directors
- --------------------------------------------------------------------------------
Joe Cooper
Common Stock 400 N. Sam Houston
($0.001 par Pkwy E., Suite 205
value) Houston, Texas 77060 240,000 (3) Less than 1%
- --------------------------------------------------------------------------------
Jawaharlal Gondi
Common Stock 400 N. Sam Houston
($0.001 par Pkwy E., Suite 205
value) Houston, Texas 77060 7,860,000 (4) 15.9%
- --------------------------------------------------------------------------------
Tun Aye Sai
Common Stock 400 N. Sam Houston
($0.001 par Pkwy E., Suite 205
value) Houston, Texas 77060 1,120,000 (5) 2.3%
- --------------------------------------------------------------------------------
Common Stock Directors and Executive
($0.001 par Officers as a Group
value) (3 individuals) 9,220,000 19.1%
- --------------------------------------------------------------------------------
(1) The number of shares and the percentage of the class beneficially owned by
the entities above is determined under rules promulgated by the SEC and the
information is not necessarily indicative of beneficial ownership for any
other purpose. Under such rules, beneficial ownership includes any shares as
to which the individual has sole or shared voting power or investment power
and also any shares which the individual has the right to acquire within 60
days through the exercise of any stock option or other right. The inclusion
herein of such shares, however, does not constitute an admission that the
named stockholder is a direct or indirect beneficial owner of such shares.
Unless otherwise indicated, each person or entity named in the table has sole
voting power and investment power (or shares such power with his or her
spouse) with respect to all shares of capital stock listed as beneficially
owned by such person or entity.
(2) Percentages are based upon the total 48,212,500 outstanding shares of
Common Stock combined with the number of shares of Common Stock beneficially
owned by each person or entity.
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(3) Includes 240,000 shares which underlie vested options.
(4) Includes 4,000,000 shares of Common Stock owned by the Arthi Trust of
which Gondi is the principal beneficial owner of 100% of the voting stock,
400,000 shares which underlie vested options, and 230,000 shares purchasable
pursuant to warrants. The Warrants may be exercised during the period
commencing upon the date the Warrants are granted and ending two (2) years
from that date or the date the Warrants are redeemed by the Company.
(5) Includes 120,000 shares which underlie vested options.
EQUITY COMPENSATION
Number of securities
Number of securities remaining available for
to be issued Weighted-average future issuance under equity
upon exercise of exercise price of compensation plans
outstanding options outstanding options, (excluding securities
Plan Category warrants and rights warrants and rights reflected in column (a))
- --------------------------------------------------------------------------------
(a) (b) (c)
Equity compensation plans
approved by security holders 0 n/a 0
- --------------------------------------------------------------------------------
Equity compensation plans
not approved by security
holders 3,990,000 $0.65 0
- --------------------------------------------------------------------------------
Total 3,990,000 $0.65 0
- --------------------------------------------------------------------------------
Description of Equity Compensation
On January 29, 2002, the Company granted non-qualified options ("Options")
to purchase Two Million Five Hundred Forty Thousand (2,540,000) shares of Common
Stock at an exercise price of $0.65 to the following optionees:
Name of Optionee Number Of Shares Underlying Options
----------------- -----------------------------------
John Springsteen 200,000
Jawaharlal Gondi 1,000,000
Tun Aye Sai 300,000
Mike McElwrath 100,000
Larry Izzo 30,000
Ben Malek 30,000
Joe Cooper 600,000
Don Gunther 280,000
The Options are exercisable, in whole or in part, until January 29, 2009,
and vest in five (5) equal allotments as follows:
(i) Twenty percent (20%) of the Option Shares became exercisable on July 29,
2002;
(ii) Twenty percent (20%) of the Option Shares became exercisable on January
29, 2003;
(iii) Twenty percent (20%) of the Option Shares shall be exercisable on January
29, 2004;
(iv) Twenty percent (20%) of the Option Shares shall be exercisable on January
29, 2005; and
(v) Twenty percent (20%) of the Option Shares shall be exercisable on January
29, 2006.
Also on January 29, 2002, the Company granted Options to purchase One Million
Four Hundred Fifty Thousand (1,450,000) shares of Common Stock at an exercise
price of $0.65 to the following optionees. However, because each of the
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individuals below are no longer employed by the Company, their Options no longer
vest and they consequently own the following vested Options:
Number Of Shares
Underlying Options Number Of Shares Number Of Shares
Name of Optionee Granted Vested No Longer Vesting
- ----------------- ------------------- ---------------- -----------------
Bill Jackson 1,000,000 400,000 600,000
Chris Jackson 300,000 120,000 180,000
Ramesh Kalluri 150,000 60,000 90,000
DESCRIPTION OF BUSINESS
General
The Company was incorporated as Egoonline.com ("Egoonline"), on February
4, 2000 to engage in the business of providing Internet-based takeout service
for restaurants. Egoonline changed its name to EZfoodstop.com ("EZfoodstop") on
April 26, 2000. Although the Company originally engaged in providing
Internet-based takeout services, it abandoned those operations in 2001 becoming
a dormant shell without assets or liabilities. EZfoodstop changed its name to
Far East Energy Corporation on January 10, 2002.
The Company executed two (2) Production Sharing Contracts with China
United CoalBed Methane Corporation ("CUCBM") on January 25, 2002. Pursuant to
the two Production Sharing Contracts, one of which is subject to formal
ratification by the Ministry of Foreign Trade and Economic Cooperation
("MOFTEC'), the Company received the authority from CUCBM to jointly explore,
develop, produce and sell coalbed methane gas in and from a total area of 1,272
square kilometers in the Enhong, Laochang and Zhaotong areas of the Yunnan
Province of the People's Republic of China. On December 30, 2002, MOFTEC
ratified the Production Sharing Contract with CUCBM to jointly explore, develop,
produce and sell coal bed methane gas in and from a total area of 1,072 square
kilometers in the Enhong and Laochang areas of Yunnan Province, PRC. The
Production Sharing Contract with CUCBM in the Zhaotong area of Yunnan Province
has not yet been ratified by MOFTEC.
On January 21, 2003, the Company's wholly owned subsidiary, Far East
Montana, Inc., closed its merger with Newark Valley Oil & Gas Inc. ("Newark")
and we tendered $100,000 as the first installment on the $600,000 purchase
price. The original agreement terms concerning payment and fund raising, was
amended on June 19, 2003. In the original agreement of the $500,000 balance of
the purchase price, $200,000 was to be paid on July 21, 2003, and $300,000 was
due to be tendered on January 21, 2004. The merger also required the Company to
raise $2,000,000 in financing on or before June 21, 2003. In the Amended Plan of
Merger Agreement the due date for the $200,000 payment was extended to September
30, 2003; the requirement to raise $2 million was extended to December 31, 2003
and in all other respects the Plan of Merger Agreement remains unchanged. The
Company assumed liabilities of $375,000 due to Gulf Coast Oil and Gas, the
original sellers of the leases acquired in the merger. To date $175,000 has been
paid and the remaining $200,000 is due on January 5, 2004.
As a result of the merger with Newark, the Company now owns and is in the
process of developing certain undeveloped oil, gas and mineral rights and
interests in approximately 150,000 net acres in eastern Montana. The Company
intends to drill 10 wells on the Montana project late this year with gas sales
and some revenue occurring in early 2004. Expenditures for the drilling of the
10 wells are expected to be approximately $1,500,000.
On March 19, 2003, the Company entered into a Memorandum of Understanding
("MOU") with a Conoco Phillips' subsidiary, Phillips China Inc., which set forth
the terms and conditions of an agreement for the Company to acquire a net
undivided forty percent (40%) of Phillips' seventy percent (70%) interest in
both the Shouyang PSC and the Qinnan PSC. On July 17, 2003, Far East and
Phillips signed two Farmout Agreements on the Qinnan and Shouyang CBM blocks in
Shanxi Province, P.R.C. and also signed an Assignment Agreement on the two
blocks. These agreements formalized the Company's acquisition of an undivided
4
forty percent (40%) working interest from Phillips' (70%) interest. The
breakdown is Far East forty percent (40%), Phillips thirty percent (30%) and
China United Coalbed Methane ("CUCBM") thirty percent (30%). The Assignment
Agreement has been received by CUCBM and is being submitted for approval by the
Ministry of Commerce, (The Ministry of Foreign Trade and Economic Cooperation
("MOFTEC") that approved the Yunnan contract has been merged into the Ministry
of Commerce).
The Agreement obligates the Company to fracture stimulate and production
test three exploration wells that were drilled by Phillips and pay 100% of the
cost for these tests. Upon the satisfactory completion of the testing, the
Company will have the option to give notice to extend into the second phase of
exploration by drilling three (3) additional wells. The Company will be
responsible for 100% of the costs of the second phase of exploration and the
drilling of three (3) wells. Upon the Company successfully completing the second
phase, Phillips will have the option to elect to either retain its net undivided
thirty percent (30%) participating interest, or take a five percent (5%)
overriding royalty interest ("ORRI") on the contractor's overall Participating
Interest share under the PSCs. The ORRI will be capped at five percent (5%) of
the current contractor's seventy percent (70%) Participating Interest, or a
three and a half percent (3.5%) ORRI on a one hundred percent (100%) interest
basis. Under the terms of the Farmout Agreement, the Company must post a
$1,000,000 surety bond to act as a work performance guarantee covering all
aspects of the evaluation and work program to test the three existing wells,
which the Company is attempting to obtain now. The Company is also responsible
for costs relating to China United Coalbed Methane Company ("CUCBM") Joint
Management Committee salary fees, training fees, exploration fees and assistance
fees as outlined in the Production Sharing Contract. The Company will also pay
ConocoPhillips $76,052 for CBM equipment and materials associated with the
project.
As of August 28, 2003, the Company had a total of five (5) employees, all
of which were employed full-time.
MARKET FOR COMMON EQUITY AND RELATED STOCKHOLDER MATTERS
The Company's Common Stock received the symbol "EZFS" on the OTC Bulletin
Board on February 15, 2001. On January 16, 2002, the Company's symbol was
changed to "FEEC" to reflect the Company's name change to Far East Energy
Corporation. Because no meaningful trading market for the Company's Common Stock
occurred until 2002, the table below sets forth the high and low sales prices
for the Company's Common Stock for only those quarters after the first quarter
of 2002. The quotations below reflect inter-dealer prices, without retail
markup, markdown or commission and may not represent actual transactions.
Year Quarter High Low
2002 First $3.95 $2.50
Second $4.49 $3.15
Third $4.52 $3.19
Fourth $4.60 $3.60
2003 First $4.40 $2.80
Second $2.70 $0.35
As of September 19, 2003, the closing trading price for the Company's
Common Stock was $1.95.
Shareholders
As of August 27, 2003, there were approximately eighty-six (86)
shareholders of record holding a total of 48,212,500 shares of common stock, and
no shares of the Company's preferred stock were outstanding. However, the
Company believes approximately 665 persons own its common stock through broker
or bank or other nominee.
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Dividends on the Common Stock
The Company has not declared a cash dividend on its Common Stock in the
last two fiscal years and the Company does not anticipate the payment of future
dividends. There are no other restrictions that currently limit the Company's
ability to pay dividends on its Common Stock other than those generally imposed
by applicable state law.
Recent Sales of Unregistered Securities
Beginning on December 31, 2002 and ending on May 15, 2003, the Company
engaged in an accredited investors offering ("Offering") of shares of its common
stock, $0.001 par value ("Common Stock"), at two dollars and fifty cents
(US$2.50) per share, which Offering was made pursuant to exemptions from
registration under the Securities Act of 1933, including but not limited to
Sections 3(b) or 4(2). The Company issued 60,000 shares of Common Stock at
US$2.50 per share to a group of accredited entities for a total offering price
of $150,000. There was a commission of ten percent (10%) or $15,000 paid with
net proceeds to the Company of $135,000. The proceeds from the Offering were
used in the Company's acquisition and pursuit of oil and gas properties as well
as its exploration efforts.
Additionally, since April 30, 2003 the Company effected private placement
sales of approximately 8,800,000 shares of Common Stock at $0.65 per share to a
group of forty (40) accredited investors for a total price of approximately
$5,700,000 for private placements were made pursuant to exemptions from
registration under Sections 3(b) and 4(2) of the Securities Act of 1933. Net of
fees and sales commissions, the Company received approximately $5,130,000. A
commission of ten percent (10%) was paid the brokers who introduced the Company
to these accredited investors, all of whom have had prior business relations
with their broker.
MANAGEMENT'S DISCUSSION AND ANALYSIS OR PLAN OF OPERATION
Forward-looking Information
This information statement contains forward-looking statements. For this
purpose, any statements contained herein that are not statements of historical
fact may be deemed to be forward-looking statements. These statements relate to
future events or to our future financial performance. In some cases, you can
identify forward-looking statements by terminology such as "may," "should,"
"expects," "plans," "anticipates," "believes," "estimates," "predicts,"
"potential" or "continue" or the negative of such terms or other comparable
terminology. These statements are only predictions. Actual events or results may
differ materially. There are a number of factors that could cause our actual
results to differ materially from those indicated by such forward-looking
statements.
Although the Company believes that the expectations reflected in the
forward-looking statements are reasonable, it cannot guarantee future results,
levels of activity, performance, or achievements. Although all such
forward-looking statements are accurate and complete as of this filing, the
Company cannot predict whether the statements will ultimately be accurate and
consequently do not assume responsibility for the ultimate accuracy and
completeness of such forward-looking statements. The Company is under no duty
to update any of the forward-looking statements after the date of this
information statement to conform such statements to actual results. The
foregoing management's discussion and analysis should be read in conjunction
with the Company's financial statements and the notes herein.
Overview
The Company's operations for the six months ended June 30, 2003 and
throughout 2002 consisted of searching for suitable oil and gas prospects to
acquire and developing drilling and production plans. The Company succeeded in
this search with the execution the two (2) Production Sharing Contracts with
CUCBM, the merger of its wholly owned subsidiary with Newark Valley Oil & Gas
Inc., and the execution of the Memorandum of Understanding ("MOU") with a Conoco
Phillips' subsidiary, Phillips China Inc. on March 19, 2003.
The Company's business operations in China and the United States will
continue to increase the Company's expenses and, if such operations are
successful, it will also increase its revenues. The Company is moving forward in
the natural gas industry in China by virtue of the ratification of the
6
Production Sharing Contract to explore, develop, produce and sell coal bed
methane gas in the Enhong and Laochang areas, and the acquisition of
undeveloped oil and gas rights and interests in the state of Montana, and the
Conoco Phillips Farmout Agreement in Shanxi Province.
Results Of Operations
The following discussion should be read in conjunction with the audited
financial statements and notes thereto included in our annual report on Form
10-KSB for the fiscal year ended December 31, 2002; and should further be read
in conjunction with the financial statements included in this report.
Comparisons made between reporting periods herein are for the year ended
December 31, 2002 as compared to the year ended December 31, 2001. A comparison
of the periods in 2002 relative to the same periods in 2001 may not be
meaningful, as the Company did not have exploration, development, extraction and
sale of coalbed methane gas activities in China during the year ended December
31, 2001 versus its current focus.
Year Ended December 31, 2002 Compared To Year Ended December 31, 2001
The Company had no operating revenue for the year ended December 31, 2002
and no revenue for the same period in 2001. The Company's operating loss
increased to $2,130,000 for the year ended December 31, 2002 as compared to
$15,000 for the same period in 2001, attributable to increases in general and
administrative expenses related to its exploration, development, extraction and
sale of coalbed methane and coal mine methane gas in China.
The Company's assets as of December 31, 2002 were $4,750,000 as compared
to $27,000 as of December 31, 2001. The increase in net assets was due primarily
to cash received as a result of the Company's March 2002 private placement of
5,250,500 shares of Common Stock at $0.65 per share.
Six Months Ended June 30, 2003 Compared To Six Months Ended June 30, 2002
The Company had no operating revenue for the six months ended June 30,
2003 and no operating revenue for the same period in 2002. Its operating loss
increased by $1,346,000 for the six months ended June 30, 2003 as compared to
$659,000 for the same period in 2002, attributable to increases in general and
administrative expenses by $102,000, geological and engineering services in the
amount of $265,000, other consulting and professional services totaling
$124,000, $503,000 in compensation as compared to $171,000 in the first six
months of 2002, travel expenses equaling $181,000, and legal and accounting
expenses of $121,000.
Capital Resources And Liquidity
Year Ended December 31, 2002 Compared To Year Ended December 31, 2001
As of December 31, 2002, the Company's primary source of liquidity
included cash and cash equivalents of $1,008,000, as compared to $27,000 as of
December 31, 2001.
During the year ended December 31, 2002, the Company sold 5,250,500 shares
of Common Stock at US$0.65 per share to a group of accredited entities for a
total offering price of $3,412,825. The offering was made pursuant to exemptions
from registration under Section 4(2) of the Securities Act of 1933.
Although there was a net loss from the Company's operating activities, due
to financing there was an increase in the Company's liquidity. Net cash provided
from financing activities increased to $3,052,000 for the year ended December
31, 2002 from $0 for the same period in 2001.
As of December 31, 2002, the Company's primary source of liquidity
included cash and cash equivalents of $1,008,000, as compared to $27,000 as of
December 31, 2001.
7
The Company's accounts payable increased to $253,000 as of the fiscal year
ended December 31, 2002, as compared to $0 for the same period in 2001.
Shareholder's equity as of December 31, 2002, was $947,000, as compared to
$27,000 as of December 31, 2001. This net increase is due to the issuance of
common shares offset by an increase in deficit accumulated during the
development stage of $2,156,000 in the fiscal year ended December 31, 2002 as
compared to $26,000 for the same period in 2001.
Through private placements of its Common Stock, the Company received
approximately $3,052,072 in March 28, 2002 and $150,000 in January 2003.
Six Months Ended June 30, 2003 Compared to Six Months Ended June 30, 2002
As of June 30, 2003, the Company's cash and cash equivalents were
$187,000, as compared to $1,008,000 as of December 31, 2002. The decrease is due
to the expenditures made in the Company's acquisition of oil and gas properties
and exploration rights. The Company's accounts payable increased to $439,000 as
of the six months ended June 30, 2003, as compared to $253,000 for the same
period in 2002, which is due to its increased focus on development activities.
Shareholder's equity as of June 30, 2003, was $257,000, as compared to
$947,000 as of December 31, 2002.
As there were no operating revenues for the fiscal six months ended June
30, 2003, the Company anticipates that the commencement of its business
operations in China and the United States will drastically increase expenses
and, if such operations are successful, revenues will be generated.
Obligations and Future Capital Requirements
The Company's current cash position is expected to satisfy its minimal
operating needs and financial obligations for the next twelve (12) months, or
through August 2004. The Company may still elect to obtain bank loans on
favorable terms and/or sell additional shares of its equity securities to secure
cash required for future operations after the twelve month period and/or to
accelerate development of the Company's projects. Because the Company has
acquired an undeveloped natural resource that will require substantial
exploration and development, it does not expect to generate meaningful revenues
until at least mid-2004. Future expenses will have to be financed through a
combination of cash flow from production, and in the early stages, through
future financings of equity and/or debt until cash flow from production is
adequate.
FINANCIAL STATEMENTS
The Company's financial statements for the fiscal year ended December 31,
2002, and the quarter ended June 30, 2003, are attached hereto beginning on page
F-1.
PROPOSAL NO. 1
ELECTION OF DIRECTORS
The Board of Directors has determined that there will be three (3)
directors of the Company elected at the Annual Meeting. The Board of Directors
has nominated Joe Cooper, Jawaharlal Gondi and Tun Aye Sai. In the absence of
other instructions, the proxies will be voted for each of the individuals named,
each of whom the Board proposes for election as a director of the Company. If
elected, such individuals will serve until the next Annual Meeting of
shareholders or until their successors are duly elected and qualified. All of
the nominees are members of the present Board of Directors. The Board of
Directors intends to add two to four additional outside directors to the Board
at a later date.
8
The Board recommends a vote FOR the election of each of the nominees
listed below.
Nomination of Directors
All of the nominees for director are current directors of the Company. The
Board has no reason to believe that any nominee would be unable or unwilling to
serve if elected. If a nominee becomes unable or unwilling to accept nomination
or election, the Board will either select a substitute nominee or will reduce
the size of the Board. If you have submitted a proxy and a substitute nominee is
selected, your shares will be voted for the election of the substitute nominee.
About the Directors
Set forth below is biographical and other information about the persons
who will make up the Board following the annual meeting, presuming election of
the nominees named above. All Directors of the Company will hold office until
the next annual meeting of shareholders of the Company or until successors are
duly elected and qualified.
Name Age Position(s) and Office(s)
---- --- -------------------------
Joe Cooper 50 President, Secretary, Treasurer, and
a Director
Jawaharlal (Lal) Gondi 62 Director
Tun Aye Sai 57 Director of China Operations and a
Director
Joe Cooper was appointed as the President of the Company on August 18,
2003, and was appointed its Secretary, Treasurer and a director on May 19, 2003,
and was appointed Vice President of Coal Bed Methane ("CBM") Operations of the
Company in April 2002. Mr. Cooper was the Exploration Manager for Anshutz
Exploration Co. Gulf Coast from 2000 until he joined the Company in 2002.
Between 1999 and 2000, he undertook several independent consulting assignments,
which included evaluating CBM projects in Illinois, Indiana, and Kentucky in the
Illinois Basin, and Arkoma and the Cherokee Basins in Oklahoma. Prior to that,
he spent 20 years with Amoco Petroleum Company ("Amoco") and gained significant
experience in CBM in the development of the Oak Grove Field in the Black Warrior
Basin, Alabama. Throughout the 1990s, Mr. Cooper was involved with Amoco's entry
into CBM exploration in China, India, South Africa, and Australia. Mr. Cooper
held the position of Exploration Manager in both India and South Africa. During
his tenure with Amoco, he was a member of the Amoco CBM Network of Excellence.
Mr. Cooper currently serves on BPI Industries' advisory board. He holds a Master
of Science degree in geology with honors from Memphis State University and a
Bachelor of Arts in geology, magna cum laude, from the University of Tennessee,
Chattanooga.
Jawaharlal (Lal) Gondi was appointed a director of the Company on December
31, 2001. Mr. Gondi is a geologist with an extensive financial background. He
has eleven years of diverse mineral exploration experience and twenty-three
years of corporate finance and investment knowledge of capital markets. He has
served as director, senior officer or principal of a number of brokerage firms
both in Canada & Europe. Mr. Gondi served as senior executive director of Union
Capital, UK, a brokerage firm, from March 1993 to May 1997. He was self-employed
from May 1997 to January 2001 trading public securities. Mr. Gondi has served on
the board of directors and as the president of BPI Industries since January
2001, became its chairman in August 2001, and continued to serve in these
positions until November 2001. He holds a Masters of Science degree in applied
geology from Andhra University, Waltair, India and completed several advanced
courses in geology & finance in North America.
Tun Aye Sai was appointed the Director of China Operations and a director
of the Company on December 31, 2001. Mr. Sai has over 30 years of international
mining and exploration experience. He has extensive experience in developing and
managing mining projects in China and Southeast Asia. Mr. Sai has served as a
director and consultant for Golden Pacific Resources since May 1994. He holds a
Bachelor of Engineering degree in mining from Rangoon Institute of Technology,
Rangoon, Burma and a post graduate diploma in management and administration from
Institute of Economics, Rangoon, Burma.
9
Meetings and Committees of the Board of Directors
The Board held one (1) meeting and took action by written consent fourteen
(14) times during fiscal 2002. All of the directors attended the meeting of the
Board of Directors during fiscal 2002.
The Company has no standing audit, compensation, or nominating committees,
and no committees performing similar functions.
Directors' Compensation
The Company's directors are not compensated for any meeting of the board
of directors which they attend.
Compliance with Section 16(a) of the Exchange Act
Based solely upon a review of forms 3, 4 and 5 furnished to the Company,
the Company is not aware of any person, who at any time during the fiscal year
ended December 31, 2002, was a director, officer, or beneficial owner of more
than ten percent (10%) of the Common Stock of the Company, and who failed to
file, on a timely basis, reports required by Section 16(a) of the Securities
Exchange Act of 1934 during such fiscal year, except for Bill Jackson, John
Springsteen, Jawaharlal Gondi, Ramesh Kalluri, Tun Aye Sai and Chris Jackson
whose non-qualified options to purchase shares of Common Stock vested and became
exercisable on July 29, 2002 and January 29, 2003, all of which were reported on
Form 4 on or about February 10, 2003.
COMPENSATION AND OTHER BENEFITS
Executive Compensation
No compensation in excess of $100,000 was awarded to, earned by, or paid
to any executive officer of the Company during the fiscal years 2002, 2001 and
2000. The following table provides summary information for the years 2002, 2001
and 2000 concerning cash and non-cash compensation paid or accrued by the
Company to or on behalf of the Company's chief executive officer.
SUMMARY COMPENSATION TABLES
-----------------------------------------------------
Annual Compensation
-----------------------------------------------------
Name and Other Annual
Principal Position Year Salary ($) Bonus ($) Compensation ($)
- ------------------ -----------------------------------------------------------
Jawaharlal Gondi,
President 2002 60,000 -0- 5,343
- ------------------ -----------------------------------------------------------
John Green,
President 2001 -0- -0- -0-
- ------------------ -----------------------------------------------------------
John Green, 2000 -0- -0- -0-
President
- ------------------ -----------------------------------------------------------
10
--------------------------------------------------------
Long Term Compensation
--------------------------------------------------------
Awards Payouts
--------------------------------------------------------
Restricted Securities Underlying LTIP All Other
Name and Principal Stock Options/ Payouts Compensation
Position Year Award(s)($) SARs(#) ($) ($)
- --------------------------------------------------------------------------------
Jawaharlal Gondi,
President 2002 -0- -0- -0- -0-
- --------------------------------------------------------------------------------
John Green,
President 2001 -0- -0- -0- -0-
- --------------------------------------------------------------------------------
John Green,
President 2000 -0- -0- -0- -0-
- --------------------------------------------------------------------------------
-------------------------------------------------------------
Option/SAR Grants in Last Fiscal Year
(Individual Grants)
-------------------------------------------------------------
Number of Percent of
Name Securities Total Options/
Underlying SARs Granted Exercise of
Options/SARs(1) to Employees In Base Price
Fiscal Year ($/Sh) Expiration Date
- --------------------------------------------------------------------------------
John Springsteen 200,000 5.0% $0.65/Share January 29, 2009
- --------------------------------------------------------------------------------
Jawaharlal Gondi 1,000,000 25.1% $0.65/Share January 29, 2009
- --------------------------------------------------------------------------------
Tun Aye Sai 300,000 7.5% $0.65/Share January 29, 2009
- --------------------------------------------------------------------------------
Mike McElwrath 100,000 2.5% $0.65/Share January 29, 2009
- --------------------------------------------------------------------------------
Larry Izzo 30,000 0.8% $0.65/Share January 29, 2009
- --------------------------------------------------------------------------------
Ben Malek 30,000 0.8% $0.65/Share January 29, 2009
- --------------------------------------------------------------------------------
Joe Cooper 600,000 15.0% $0.65/Share January 29, 2009
- --------------------------------------------------------------------------------
Don Gunther 280,000 7.0% $0.65/Share January 29, 2009
- --------------------------------------------------------------------------------
Bill Jackson (2) 1,000,000 25.1% $0.65/Share January 29, 2009
- --------------------------------------------------------------------------------
Chris Jackson (2) 300,000 7.5% $0.65/Share January 29, 2009
- --------------------------------------------------------------------------------
Ramesh Kalluri (2) 150,000 3.8% $0.65/Share January 29, 2009
- --------------------------------------------------------------------------------
(1) These options to purchase shares of the Company's Common Stock were granted
to these individuals on January 29, 2002 to reward them as incentive based
stock options and to motivate these persons. These options to purchase
shares vest in five (5) equal allotments with twenty percent (20%) vesting
and being exercisable on July 29, 2002, and the remaining eighty percent
(80%) vesting and being exercisable in four (4) equal annual increments
beginning on January 29, 2003 and continuing until January 29, 2006. All of
these options are exercisable until and expire on January 29, 2009. Because
these options and the shares underlying these options are being provided as
motivation to the individuals only, both the option and the underlying
shares may not be sold, transferred, assigned, pledged for a loan, margined,
hypothecated or exchanged, except pursuant to the laws of descent, for a
period of three (3) years from the date of grant.
(2) These individuals are no longer employed by the Company and, therefore,
their options no longer vest. Accordingly, Bill Jackson owns 400,000 vested
shares, and his option for the remaining 600,000 shares has expired. Chris
Jackson owns 120,000 vested shares, and his option for the remaining 180,000
shares has expired. Ramesh Kalluri owns 60,000 vested shares, and his option
for the remaining 90,000 shares has expired.
11
PROPOSAL 2
RATIFICATION OF APPOINTMENT OF INDEPENDENT AUDITORS
Subject to ratification by the stockholders, the Board has selected Payne,
Falkner, Smith & Jones, P.C., independent auditors, to audit the financial
statements of the Company for the fiscal year ending December 31, 2003. Although
stockholder approval of the Board of Directors' selection of Payne, Falkner,
Smith & Jones, P.C. is not required by law, the Board of Directors believes that
it is advisable to give stockholders an opportunity to ratify this selection. If
the stockholders do not approve this proposal at the Annual Meeting, the Board
of Directors may reconsider the selection of Payne, Falkner, Smith & Jones, P.C.
Representatives of Payne, Falkner, Smith & Jones, P.C. are not expected to
be present at the Meeting and will have an opportunity to make a statement if
they desire to do so. Such representatives, if present, will be available to
respond to appropriate questions from stockholders.
The Board recommends a vote FOR the ratification of the appointment of
Payne, Falkner, Smith & Jones, P.C. as the Company's independent auditors.
CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND FINANCIAL
DISCLOSURE
On May 10, 2002, the board of directors of the Company appointed Payne,
Falkner, Smith & Jones, P.C. as the Company's independent auditor for the fiscal
year ended December 31, 2002. This appointment represented a change in the
Company's auditor from De Visser & Gray. There was no disagreement with,
resignation by, or dismissal of De Visser & Gray. This change was prompted by
the move of the Company's principal executive office from Vancouver, B.C.,
Canada to Houston, Texas. De Visser & Gray's report on the Company's financial
statements for the past two (2) years did not contain an adverse opinion or
disclaimer of opinion, and had not been modified as to uncertainty, audit scope,
or accounting principles.
There were no disagreements with De Visser & Gray on any matter of
accounting principles or practices, financial statement disclosure, or auditing
scope or procedure. The change was prompted by the move of the Company's
principal executive office from Vancouver, B.C., Canada to Houston, Texas. The
decision to change accountants was approved by the Company's Board.
Representatives of the Company's current independent accountant, Payne, Falkner,
Smith & Jones, P.C., are not expected to be present at the Annual Meeting.
INDEPENDENT PUBLIC ACCOUNTANTS
Audit Fees
Payne, Falkner, Smith & Jones, P.C. billed the Company an aggregate of
$30,000 in fees for professional services rendered in connection with the audit
of the Company's financial statements for the most recent fiscal year ended
December 31, 2002.
Payne, Falkner, Smith & Jones, P.C. billed the Company an aggregate of
$3,850 in fees for professional services rendered in connection with the review
of the Company's financial statements included in its Form 10-QSB for the
quarterly period ended June 30, 2003.
De Visser & Gray billed the Company an aggregate of $500 in fees for
professional services rendered in connection with the audit of the Company's
financial statements for the most recent fiscal year ended December 31, 2001.
12
Payne, Falkner, Smith & Jones, P.C. billed the Company an aggregate of
$1,200 in fees for professional services rendered in connection with the review
of the Company's financial statements included in its Form 10-QSB for the
quarterly period ended March 31, 2002.
Audit-Related Fees
Payne, Falkner, Smith & Jones, P.C. and De Visser & Gray did not bill the
Company for any assurance and related services reasonably related to the
performance of the audit or review of the Company's financial statements which
are not disclosed above.
Tax Fees
Payne, Falkner, Smith & Jones, P.C. billed the Company $525 in 2002 for
professional services rendered for tax compliance, tax advice, and tax planning.
The Company was not billed for professional services rendered for tax
compliance, tax advice and tax planning in 2001.
Financial Information Systems Design and Implementation Fees
Payne, Falkner, Smith & Jones, P.C. did not perform any information
technology services relating to financial information systems design and
implementation for the fiscal years December 31, 2001 and December 31, 2002.
All Other Fees
Payne, Falkner, Smith & Jones, P.C. and De Visser & Gray have not billed
the Company any other fees for professional or other related services.
The Company's Board of Directors has determined that the provision of
services by Payne, Falkner, Smith & Jones, P.C., and DeVisser & Gray as set
forth above, was compatible with maintaining the principal accountant's
independence.
PROPOSAL NO. 3
OTHER BUSINESS
The Board of Directors is not aware of any business to come before the
meeting other than those matters described above in this proxy statement. If,
however, any other matters should properly come before the meeting, it is
intended that holders of proxies will act in accordance with their judgment on
such matters.
A vote FOR Proposal #3 will effectively confer authority in the Proxy
holder to vote the shares covered by the Proxy as the Proxy Holder deems
appropriate. A vote AGAINST Proposal #3 will be treated as shares over which no
Proxy is granted and therefore counted as an abstention from voting on any other
business as may properly come before the Annual Meeting, including any
modification or variation to an existing proposal. Any proxy may be revoked by a
shareholder at any time before it is exercised by giving written notice to that
effect to the corporate secretary of the Company or by voting in person at the
Annual Meeting.
DEADLINE FOR SUBMISSION OF SHAREHOLDER PROPOSALS
Proposals of shareholders that are intended to be presented at the
Company's next Annual Meeting must be received by the Company no later than May
25, 2004 in order to be included in the proxy statement and proxy relating to
the meeting.
13
The person presiding at the next annual meeting may refuse to permit to be
brought before the meeting any shareholder proposal not made in compliance with
Rule 14a-8 of the Securities Exchange Act of 1934.
ANNUAL REPORT
The Company will provide without charge to each shareholder of record as
of August 27, 2003, upon the written request of such person, a copy of the
Company's Form 10-KSB, including the financial statements, for the year ending
December 31, 2002. A copy of any exhibit to the Company's Form 10-KSB may also
be obtained from the Company at no charge upon written request for each such
exhibit requested. Such written requests should be sent to Joe Cooper,
President, Far East Energy Corporation, 400 N. Sam Houston Parkway East, Suite
205, Houston, Texas 77060.
BY THE ORDER OF THE BOARD OF DIRECTORS:
/s/ Joe Cooper, President
-------------------------
Houston, Texas
September 22, 2003
14
FAR EAST ENERGY CORPORATION
AND SUBSIDIARY
Consolidated Financial Statements
December 31, 2002 and 2001
(With Independent Auditors' Report Thereon)
F-1
Independent Auditors' Report
The Board of Directors
Far East Energy Corporation and Subsidiary
We have audited the accompanying consolidated balance sheet of Far East Energy
Corporation and Subsidiary (a development stage company) as of December 31, 2002
and the related consolidated statements of operations, changes in stockholders'
equity and cash flows for the year then ended. These consolidated financial
statements are the responsibility of the Company's management. Our
responsibility is to express an opinion on these financial statements based on
our audit. The financial statements of Far East Energy Corporation and
Subsidiary (formerly EZFoodstop.com) as of December 31, 2001, were audited by
other auditors whose report dated January 11, 2002, on those statements included
an explanatory paragraph that described the company's lack of an established
source of revenue raised substantial doubt about its ability to continue as a
going concern as discussed in Note 2 to the financial statements.
We conducted our audit in accordance with auditing standards generally accepted
in the United States of America. Those standards require that we plan and
perform the audit to obtain reasonable assurance about whether the financial
statements are free of material misstatement. An audit includes examining, on a
test basis, evidence supporting the amounts and disclosures in the financial
statements. An audit also includes assessing the accounting principles used and
significant estimates made by management, as well as evaluating the overall
financial statement presentation. We believe that our audit provides a
reasonable basis for our opinion.
In our opinion, the 2002 consolidated financial statements referred to above
present fairly, in all material respects, the financial position of Far East
Energy Corporation and Subsidiary as of December 31, 2002, and the results of
its operations and its cash flows for the year then ended, in conformity with
accounting principles generally accepted in the United States of America.
The accompanying consolidated financial statements have been prepared assuming
that the Company will continue as a going concern. As discussed in Note 2 to the
consolidated financial statements, the Company has incurred net losses since its
inception and has no established source of revenues. Those conditions raise
substantial doubt about its ability to continue as a going concern. Management's
plans regarding those matters are described in Note 1. The consolidated
financial statements do not include any adjustments relating to the
recoverability and classification of recorded assets, or the amounts and
classification of liabilities that might be necessary in the event the company
cannot continue in existence.
February 20, 2003
F-2
FAR EAST ENERGY CORPORATION AND SUBSIDIARY
(formerly EZfoodstop.com)
(A Development Stage Company)
Consolidated Balance Sheet
December 31, 2002 and 2001
ASSETS 2002 2001
- ------ --------- --------
Current:
Cash and cash equivalents $1,008,000 $27,000
Prepaids and other current assets 1,000 -
--------- --------
Total current assets 1,009,000 27,000
--------- --------
Property and equipment, net 101,000 -
Intanglible asset 175,000 -
Investment in joint venture 3,332,000 -
Other 143,000 -
--------- ---------
$4,750,000 $27,000
============ =========
LIABILITIES AND STOCKHOLDERS' EQUITY
- ------------------------------------
Current Liabilities:
Accounts payable $ 253,000 $ -
Other liabilites 250,000 -
Current portion of long-term liabilities 300,000 -
----------- ----------
Total current liabilitis 803,000 -
----------- ----------
Other Long Term Liabilities 3,000,000 -
----------- ----------
Commitments and contingencies - -
Stockholder's equity:
Common stock, $0.001 par value,
100,000,000 shares authorized,
47,350,500 and 2,250,000 issued
and outstanding at December 31,2002
and 2001, respectively 45,000 2,000
Additional paid in capital 3,060,000 51,000
Deficit accumulated during the development
stage (2,516,000) (26,000)
Accumulated other comprehensive loss (2,000) -
------------ ----------
Total stockholders'equity 947,000 27,000
------------ ----------
$4,750,000 $ 27,000
============ ===========
See accompanying notes to consolidated financial statements.
F-3
FAR EAST ENERGY CORPORATION AND SUBSIDIARY
(formerly EZfoodstop.com)
(A Development Stage Company)
Consolidated Statement of Operations
For the Years Ended December 31, 2002 and 2001
Cumulative
During
Development
Stage 2002 2001
--------- -------- --------
Revenues:
Interest income $ 13,000 $ 13,000 $ -
Foreign currency exchange gain 1,000 1,000 -
--------- --------- ---------
Total revenues 14,000 14,000 -
--------- --------- ---------
Expenses:
Geologic and engineering services 380,000 380,000 -
Other consulting and professional services 296,000 296,000 -
Compensation 596,000 596,000 -
Travel 575,000 575,000 -
Legal and accounting 71,000 66,000 3,000
General and administrative 252,000 231,000 12,000
---------- ---------- ---------
Total expenses 2,170,000 2,144,000 15,000
---------- ---------- ---------
Loss before income taxes (2,156,000) (2,130,000) (15,000)
Income Taxes - - -
----------- ---------- ---------
Net Loss (2,156,000) (2,130,000) (15,000)
Deficit - beginning of period - (26,000) (11,000)
----------- ----------- ---------
Accumulated deficit - end of period $(2,156,000) $(2,156,000) $ (26,000)
============= ============ ============
Earnings per share - Basic $ (0.05) $ (0.00)
============ ============
Earnings per share - Diluted $ (0.05) (0.00)
============ ============
See accompanying notes to consolidated financial statements.
F-4
FAR EAST ENERGY CORPORATION AND SUBSIDIARY
(formerly EZFoodstop.com)
(A Development Stage Company)
Consolidated Statement of Stockholders'Equity
For the years ended December 31, 2002, 2001 and 2000
$.001 Par Value Deficit
Common Stock Accumulated Accumulated
-------------------Additional During the Other Total
Date of Number of Par Paid-in Development Comprehensive Comprehensive Stockholders'
Transaction Shares Value Capital Stage Loss Loss Equity
----------- ------ ----- ------- ----- ---- ---- ------
Shares issued 4/00 - 8/00 2,250,000 $ 2,000 $ 51,000 $ 0 $ 0 $ 53,000
Net loss 0 0 0 (11,000) 0 $ (11,000) (11,000)
--------- ------- -------- --------- -------- =========== --------
Balance December 31, 2000 2,250,000 2,000 51,000 (11,000) 0 0 42,000
Net loss 0 0 0 (15,000) 0 $ (15,000) (15,000)
--------- ------- -------- --------- -------- =========== --------
Balance December 31, 2001 2,250,000 2,000 51,000 (26,000) 0 0 27,000
18 for 1 Stock Split 01/01/02 38,250,000 38,000 (38,000) 0 0 0 0
Sale of stock for cash 1/24 - 4/1/02 5,250,500 5,000 3,047,000 0 0 0 3,052,000
Stock issued in connection with
acquisition in process 12/30/02 1,600,000 2,000 6,718,000 0 0 0 6,720,000
Stock issued subject to acquisition
completion 12/30/02 (1,600,000) (2,000)(6,718,000) 0 0 0 (6,720,000)
Comprehensive loss:
Net loss
Other comprehensive loss,
net of tax: 0 0 0 (2,130,000) $(2,130,000) (2,130,000)
Foreign currency translation
adjustment 0 0 0 0 (2,000) (2,000) (2,000)
---------- ------- --------- ---------- --------- ------------ ----------
Total Comprehensive Loss $(2,132,000)
============
Balance December 31, 2002 45,750,500 $ 45,000 $3,060,000 $(2,156,000)$ (2,000) $ 947,000
========== ======== ========== =========== = ======= ==========
See accompanying notes to consolidated financial statements
F-5
FAR EAST ENERGY CORPORATION AND SUBSIDIARY
(formerly EZfoodstop.com)
(A Development Stage Company)
Consolidated Statement of Cash Flows
For the Years Ended December 31, 2002 and 2001
Cumulative
During
Development
Stage 2002 2001
------------- ------------ ----------
Cash flows from operating activities:
Net loss $ (2,156,000) $(2,130,000) $(15,000)
Adjustments to reconcile net loss to
cash used in operations:
Depreciation 7,000 7,000 -
Increase in prepaid expense (1,000) (1,000) -
Increase (decrease) in accounts payable 253,000 253,000 (1,000)
------------- ------------ -----------
Net cash used in operations (1,897,000) (1,871,000) (16,000)
-------------- ------------- ------------
Cash flows from investing activities:
Acquisitions of intangibles (90,000) (90,000) -
Investments in property and equipment (108,000) (108,000) -
------------- ------------ -----------
Net cash used in investing activities (198,000) (198,000) -
------------- ------------ -----------
Cash flows from financing activities:
Proceeds from the sale of common stock 3,105,000 3,052,000 -
------------- ------------ -----------
Effect of exchange rate changes on cash (2,000) (2,000) -
------------- ------------ -----------
Increase (decrease) in cash and cash equivalents 1,008,000 981,000 (16,000)
Cash and cash equivalents - beginning of period - 27,000 43,000
------------- ------------ -----------
Cash and cash equivalents - end of period $1,008,000 $1,008,000 $27,000
============= ============ ===========
See accompanying notes to consolidated financial statements.
F-6
FAR EAST ENERGY CORPORATION AND SUBSIDIARY
(formerly EZfoodstop.com)
(A Development Stage Company)
Notes to Consolidated Financial Statements
December 31, 2002 and 2001
1. Summary of Significant Accounting Policies
------------------------------------------
Basis of Presentation
- ---------------------
The financial statements include the accounts of Far East and its wholly owned
subsidiary, Far East (BVI), Inc. (Far East BVI) and its Chinese joint venture
entity, Guihzou Far East Panjiang Chemical Co. Ltd. (GFEPC). Far East is
organized under the laws of the State of Nevada. Far East BVI is organized under
the laws of the British Virgin Islands. GFEPC is a Chinese joint venture. All
significant intercompany balances and transactions have been eliminated in
consolidation.
The following is a summary of the significant accounting policies used by Far
East Energy Corporation and Subsidiary (together referred to as the Company) in
the preparation of its financial statements. These accounting policies conform
to generally accepted accounting principles and practices generally followed
within the mining and extraction industries. A description of the more
significant of these policies follows.
Business
- --------
The Company was incorporated as Egoonline.com in the State of Nevada, United
States of America on February 4, 2000 under the Nevada Revised Statutes, Chapter
78, Private Companies, and changed its name to EZfoodstop.com on April 26, 2000.
EZFoodstop.com changed its name to Far East Energy Corporation on January 10,
2002.
Far East Energy Corporation is an independent energy company engaged in the
acquisition, exploration, development, and production of coal bed methane
reserves in China and the United States. Its current operations are principally
focused on developing its coal bed methane projects located in the Guizhou and
Yunnan Provinces of China.
The accompanying consolidated financial statements have been prepared in
conformity with generally accepted accounting principles, which contemplates
continuation of the Company as a going concern. The Company has been in the
development stage since its formation on February 4, 2000. The Company has
incurred net losses since its inception and has not established a source of
revenue. In view of these matters, realization of a major portion of the assets
in the accompanying consolidated balance sheet is dependent upon continued
operations of the Company, which in turn is dependent upon the Company's ability
to meet its financing requirements, and the success of its future operations.
These factors raise substantial doubt about the Company's ability to continue as
a going concern. Management believes that actions presently being taken to
revise the Company's operating and financial requirements provide the
opportunity for the Company to continue as a going concern. The accompanying
consolidated financial statements do not include any adjustments that might
result from the outcome of this uncertainty.
F-7
FAR EAST ENERGY CORPORATION AND SUBSIDIARY
(formerly EZfoodstop.com)
(A Development Stage Company)
Use of Estimates
- ----------------
The preparation of financial statements in conformity with accounting principles
generally accepted in the United States of America requires management to make
estimates and assumptions that affect the reported amounts of assets and
liabilities and disclosure of contingent assets and liabilities at the date of
the financial statements and the reported amounts of revenues and expenses
during the reporting period. Actual results could differ from those estimates.
Cash and Cash Equivalents
- -------------------------
The Company considers all highly liquid investments with an original maturity of
three months or less to be cash equivalents.
Property and Equipment
- ----------------------
The Company follows the successful efforts method of accounting. Under this
method, the Company capitalizes all costs related to property acquisitions and
successful exploratory wells, all development costs and the costs of support
equipment and facilities. Certain costs of exploratory wells are capitalized
pending determination that proved reserves have been found. All costs related to
unsuccessful exploratory wells are expensed when such wells are determined to be
non-productive; other exploration costs, including geological and geophysical
costs, are expensed as incurred. The Company recognizes gain or losses on the
sale of properties on a field basis.
Unproved leasehold costs are capitalized and reviewed periodically for
impairment on a property-by- property basis, considering factors such as
drilling and exploitation plans and lease terms. Costs related to impaired
prospects are charged to expense. An impairment expense could result if oil and
gas prices decline in the future or if downward reserves revisions are recorded,
as it may not be economic to develop some of these unproved properties.
Costs of development dry holes and proved leaseholds are amortized on the
unit-of-production method based on proved reserves on a field basis. The
depreciation of capitalized production equipment and drilling costs is based on
the unit-of-production method using proved developed reserves on a field basis.
Unproved oil and gas properties, including any related capitalized interest
expense, are not amortized, but are assessed for impairment either individually
or on an aggregated basis.
The costs of certain unevaluated leasehold acreage, wells drilled and
international concession rights are not being amortized. Costs not being
amortized are periodically assessed for possible impairments or reductions in
value. If a reduction in value has occurred, costs being amortized are increased
or a charge is made against earnings for those international operations where a
reserve base is not yet established.
The Company applies Statement of Financial Accounting Standards ("SFAS") No.
121, "Accounting for the Impairment of Long-Lived Assets and for Long-Lived
Assets to be Disposed of." Under SFAS No. 121, long-lived assets and certain
intangibles are reported at the lower of the carrying amount or their estimated
recoverable amounts. Long-lived assets subject to the requirements of SFAS No.
121 are evaluated for possible impairment through review of undiscounted
expected future cash flows. If the sum of undiscounted expected future cash
flows is less than the carrying amount of the asset or if changes in facts and
circumstances indicate, an impairment loss is recognized. No impairment existed
at December 31, 2002.
F-8
FAR EAST ENERGY CORPORATION AND SUBSIDIARY
(formerly EZfoodstop.com)
(A Development Stage Company)
Income Taxes
- ------------
Deferred tax assets and liabilities are reflected at currently enacted income
tax rates applicable to the period in which the deferred tax assets and
liabilities are expected to be realized or settled. As changes in tax laws or
rates are enacted, deferred tax assets and liabilities are adjusted through the
provision for income taxes. Valuation allowances are established when necessary
to reduce deferred tax assets to the amount expected to be realized.
Environmental Matters
- ---------------------
Environmental costs are expensed or capitalized depending on their future
economic benefit. Costs that relate to an existing condition caused by past
operations with no future economic benefit are expensed. Liabilities for future
expenditures of a non-capital nature are recorded when future environmental
expenditures and/or remediation are deemed probable and the costs can be
reasonably estimated. Costs of future expenditures for environmental remediation
obligations are not discounted to their present value.
Net Loss Per Share
- ------------------
The Company applies SFAS No. 128, "Earnings Per Share" for the calculation of
"Basic" and "Diluted" earnings per share. Basic earnings per share includes no
dilution and is computed by dividing income available to common stockholders by
the weighted average number of common shares outstanding for the period. Diluted
earnings per share reflects the potential dilution of securities that could
share in the earnings of the Company.
Revenue Recognition
- --------------------
Methane gas sales revenues generally are recorded using the sales method,
whereby the Company recognizes sales revenue based on the amount of gas sold to
purchasers on its behalf.
Stock Options
- -------------
The Company applies APB Opinion 25, "Accounting for Stock Issued to Employees,"
and related interpretations in accounting for its stock option plan and has
adopted the disclosure-only provisions of Statement of Financial Accounting
Standards No. 123, "Accounting for Stock-Based Compensation" (SFAS No. 123).
Accordingly, no compensation cost for stock options granted has been recognized,
as all options granted under these plans had an exercise price equal to or
greater than the market value of the underlying common stock on the day of
grant. Had compensation cost for these plans been determined consistent with the
provisions of SFAS No. 123, the Company's stock-based compensation expense, net
loss and loss per share would have been adjusted to the following pro forma
amounts:
F-9
FAR EAST ENERGY CORPORATION AND SUBSIDIARY
(formerly EZFoodstop.com)
(A Development Stage Company)
2002
---------
Stock-based compensation expense - as reported $ -
Stock-based compensation expense - pro forma 252,000
Net loss - as reported 2,130,000
Net loss - pro forma 2,382,000
Loss per share - as reported
Basic 0.05
Diluted 0.05
Loss per share - pro forma
Basic 0.05
Diluted 0.05
The Company estimated the fair value of each stock award at the grant date by
using the Black-Scholes option-pricing model with the following
weighted-average assumptions used for grants in the year ended December 31,
2002: dividend yield at 0%; expected volatility of approximately 50%; risk-free
interest rate of 1.4% and expected lives of one to 4 years for the options.
There was no stock option plan prior to 2002.
Foreign Currency Translation
- ----------------------------
Foreign currency transactions and financial statements are translated in
accordance with Statement of Financial Accounting Standards No. 52, Foreign
Currency Translation. The functional currency for the Company's foreign
operations is the applicable foreign currency. The translation of the applicable
foreign currency into U.S. dollars is performed for balance sheet accounts using
current exchange rates in effect at the balance sheet date and for revenue and
expense accounts using a weighted average exchange rate during the period. The
gains or losses resulting from such translation are included in the consolidated
statements of stockholders' equity and comprehensive income.
Foreign currency translation resulted in an aggregate exchange loss of $2,000 in
2002. There were no foreign currency transactions in 2001.
Fair Values of Financial Instruments
- ------------------------------------
The following table presents the carrying amounts and estimated fair values of
the Company's financial instruments at December 31, 2002 and 2001.
2002 2001
-------------------------- ---------------------------
Carrying Estimated Carring Estimated
Amount Fair Value Amount Fair Value
---------- ----------- -------- ---------
(In Thousands)
Cash and cash
equivalents $1,008 $1,008 $ 27 $ 27
Other liabilites 3,550 3,336 - -
The following methods and assumptions were used to estimate the fair value of
the financial instruments summarized in the table above. The carrying values of
accounts receivable, other assets, accounts payable and accrued expenses
included in the accompanying consolidated balance sheets approximated fair
market value at December 31, 2002 and 2001.
F-10
FAR EAST ENERGY CORPORATION AND SUBSIDIARY
(formerly EZFoodstop.com)
(A Development Stage Company)
Cash and cash equivalents
The carrying amounts approximate fair value due to the short-term maturity of
the instruments.
Other Liabilities and Commitments
The fair value of other liabilities and commitments is the present value of
amounts to be paid determined at appropriate current interest rates.
Reclassification
- ----------------
Certain amounts previously reported have been reclassified to conform to the
current format.
Recent Accounting Pronouncements
- --------------------------------
In July 2001, the Financial Accounting Standards Board ("FASB") issued SFAS No.
141, "Business Combinations." SFAS No. 141 is intended to improve the
transparency of the accounting and reporting for business combinations by
requiring that all business combinations be accounted for under a single method-
- -the purchase method. This statement is effective for all business combinations
initiated after June 30, 2001.
In July 2001, the FASB issued SFAS No. 142, "Goodwill and Other Intangible
Assets." This statement applies to intangibles and goodwill acquired after June
30, 2001, as well as goodwill and intangibles previously acquired. Under this
statement, goodwill as well as other intangibles determined to have an infinite
life will no longer be amortized; however, these assets will be reviewed for
impairment on a periodic basis. This statement is effective for the Company for
the first quarter in the fiscal year ending December 31, 2002. Management does
not believe that the adoption of this statement will have a material effect on
the Company's financial statements.
In August 2001, the FASB issued SFAS No. 143, "Accounting for Asset Retirement
Obligations." SFAS No. 143 requires the fair value of a liability for an asset
retirement obligation to be recognized in the period in which it is incurred if
a reasonable estimate of fair value can be made. The associated asset retirement
costs are capitalized as part of the carrying amount of the long-lived asset.
SFAS No. 143 is effective for fiscal years beginning after June 15, 2002.
Management does not believe that the adoption of this statement will have a
significant impact on the company's financial statements.
In October 2001, the FASB issued SFAS No. 144, "Accounting for the Impairment or
Disposal of Long-Lived Assets." SFAS No. 144 requires that long-lived assets be
measured at the lower of carrying amount or fair value less cost to sell,
whether reported in continuing operations or in discontinued operations. SFAS
No. 144 is effective for financial statements issued for fiscal years beginning
after December 15, 2001. Management does not believe that the adoption of this
statement will have a significant impact on the company's financial statements.
2. Going Concern
- -------------------
The Company's financial statements are prepared using generally accepted
accounting principles applicable to a going concern, which contemplates the
realization of assets and the liquidation of liabilities in the normal course of
business. The Company currently has no source of revenue. The ability of the
Company to continue as a going concern is dependent upon its ability to raise
substantial funds for use in development activities.
F-11
FAR EAST ENERGY CORPORATION AND SUBSIDIARY
(formerly EZFoodstop.com)
(A Development Stage Company)
3. Statement of Cash Flows
- ----------------------------
The Company uses the indirect method to present cash flows from operating
activities. Other supplemental cash flow information for the years ended
December 31, 2002 and 2001 is presented as follows:
2002 2001
--------- ----------
Cash transactions:
Cash paid for interst $ - $ -
========= ==========
Cash paid for income taxes $ - $ -
========= ==========
Noncash transactions:
Acquisition of contact rights $ 150,000 $ -
========= ==========
4. Property and Equipment
- -------------------------
Property and equipment includes the following:
2002 2001
---------- ----------
Furniture and equipment $ 108,000 $ -
Accumulated depreciation (7,000) -
---------- ----------
$ 101,000 $ -
========== ==========
5. Intangible Assets
- ----------------------
Intagible assets consist of mineral exploration rights acquired during 2002 and
are being amortized over three years. Assigned costs amounted to approximately
$175,000. There was no amortization expense in 2002. Estimated amortization
expense for each of the ensuing years through December 31, 2005, is 58,000.
On January 25, 2002, the Company entered into a Production Sharing Contract with
the China United Coal Bed Methane Corporation (CUCBM), which has exclusive legal
authority over all coal bed methane gas in the People's Republic of China (PRC).
Pursuant to the Production Sharing Contract, the Company received the authority
from CUCBM to jointly explore, develop, produce and sell coal bed methane gas in
and from a total area of 1,072 unevaluated square kilometers in the Enhong and
Laochang areas of Yunnan Province, PRC. The Production Sharing Contract was
subject to formal ratification by PRC's Ministry of Foreign Trade and Economic
Cooperation (MOFTEC). On December 30, 2002, MOFTEC ratified this Production
Sharing Contract. The contract requires the Company to pay $150,000 to CUCBM
upon ratification.
The Company has another Production Sharing Contract of the same date with CUCBM
in the Zhaotong area of Yunnan Province which has not yet been ratified.
The Company has the right to earn a minimum of 60% interest in the joint
venture, with CUCBM retaining the remaining 40%. In the event CUCBM elects to
participate at a level less than 40%, their interest will be reduced
proportionately, increasing the Company's participating interest.
F-12
FAR EAST ENERGY CORPORATION AND SUBSIDIARY
(formerly EZFoodstop.com)
(A Development Stage Company)
As a result of MOFTEC's ratification and approval of the Production Sharing
Contract concerning the Enhong and Laochang areas, the Company can commence its
exploration program which initially involves the drilling of five (5)
exploratory wells and eight (8) pilot development wells.
6. Investment in Joint Venture
- ------------------------------
On June 5, 2002, the Company executed a Sino-Foreign Joint Venture Contract (the
Contract) with Panjiang Coal-Electricity (Group) Co. Ltd. (Panjiang) to
establish a joint venture limited liability company (Joint Venture) in the PRC
to extract and use coalmine methane gas from six (6) operating Panjiang
coalmines which cover an area of 120 square kilometers. This contract was
entered into by the Company through its wholly owned subsidiary, Far East BVI.
The Company is developing drilling plans to prove and exploit the resources in
these contract areas in the Guizhou Province.
In consideration for this right to capture this coalmine methane gas, the
Company will pay a total of $3,300,000 to Panjiang over the next three (3) years
with $300,000 being paid at the beginning of the thirteenth (13th) month,
$600,000 being paid at the beginning of the nineteenth (19th) month, $1,100,000
being paid at the beginning of the twenty-seventh (27th) month, and $1,300,000
being paid at the beginning of the thirty third (33rd) month. These obligations
are recorded in the consolidated financial statements as of December 31, 2002.
Additionally, the Company has agreed to provide Panjiang with 16,000,000 cubic
meters per year of untreated, minimum 30% concentration, coalmine methane gas
(equivalent to 5,500,000 cubic meters of pure methane) for use in Panjiang
employee households.
The Company has also committed to provide all of the necessary funds for the
extraction and use of the coalmine methane gas operations over the twenty (20)
year term of the Contract.
However, as these amounts are not yet determinable, there is no provision in the
financials as of December 31, 2002.
Panjiang will, in addition to allowing full and complete access to the coalmine
methane gas, do the following:
- Apply to the relevant authorities for the establishment of the Joint
Venture and obtain necessary approvals;
- Assist in obtaining a business license for the Joint Venture;
- Assist in getting land use rights, water use rights, electricity
supply and other necessities for field development, well drilling,
installation, upgrading, purification of coalmine methane gas and
production of chemical products;
- Provide all the land use rights for the household use methane gas
pipelines;
- Assist the foreign employees in getting relevant visas;
- Assist in purchasing equipment, materials, vehicles, communication
equipment; and
- Assist in the design and construction of the project, and in
recruiting managers, technicians, and workers and other required
employees.
F-13
FAR EAST ENERGY CORPORATION AND SUBSIDIARY
(formerly EZFoodstop.com)
(A Development Stage Company)
The Company may withdraw from the project at any time by providing ninety (90)
days written notice to Panjiang. During the first seven (7) year period, the
Company will receive one hundred percent (100%) of the profits derived from its
sale of coalmine methane gas and its products. After the expiration of the first
seven (7) year period, the Company will pay Panjiang the following percentage of
net profits derived from the sale of coalmine methane gas and its products:
Year Eight 10%
Year Nine through Sixteen 20%
Year Seventeen through Twenty 50%
Subsequent to December 31, 2002 the Company notified Panjiang of its intention
to withdraw from the project which effectively eliminates all assets and
obligations associated with the project. If the Company had withdrawn from the
project in 2002 the total assests and liabilities in the accompanying
consolidated balance sheet would have been decreased by approximately
$3,300,000.
7. Other Assets
- ----------------
Effective December 31, 2002, the Company entered into an agreement to acquire a
significant amount of assets when its wholly owned subsidiary, Far East Montana,
Inc., executed a Plan of Merger (Agreement) with Newark Valley Oil & Gas, Inc, a
Nevada corporation (Newark) wholly owned by North American Oil and Gas, Inc.,
(North American). Newark survived the merger and became a wholly owned
subsidiary of the Company. Pursuant to the Agreement, in exchange for one
hundred percent (100%) of the outstanding equity of Newark, the Company has
issued: 1,600,000 restricted common shares and agreed to pay $600,000 in cash
($100,000 paid at closing, $200,000 to be paid five (5) months after closing and
$300,000 to be paid twelve (12) months after closing), and assumed liabilities
with a fair value of $364,000.
As a result of the agreement, the Company will acquire certain undeveloped oil,
gas and mineral rights and interests in approximately 147,535.10 net acres
located in the eastern portion of the state of Montana. Of the total net acres,
approximately 134,530.16 acres constitute federal leases, approximately 5,141,80
acres constitute state of Montana leases, and approximately 7,863.14 acres
constitute freehold leases. This acquisition will be intended to constitute a
tax- free plan of reorganization pursuant to IRC Section 368(a)(1)(A). This
acquisition will be accounted for as a purchase. As such, acquired assets and
liabilities will be recorded at their fair value at the date of acquisition.
F-14
FAR EAST ENERGY CORPORATION AND SUBSIDIARY
(formerly EZFoodstop.com)
(A Development Stage Company)
The agreement contains a contingency that the Company must use its best efforts
to secure additional financing in the amount of $2,000,000 within 120 days from
the date of closing (December 31, 2002). Any amounts of financing received by
the Company since the date of the execution of the Letter of Intent on November
9, 2002 shall be deducted from the total $2,000,000 financing requirement. In
the event such financing is not secured within 120 days of Closing, the Company
shall be in default of this Agreement and the transaction shall be subject to
rescission. In the event of rescission, the Company will transfer all of the
outstanding equity interests in Newark to North American. North American will
return to the Company the 1,600,000 restricted common shares of the Company.
However, North American will retain any monies tendered pursuant to the
Agreement.
8. Long Term Liabilities
- --------------------------
Long-term liabilities consist of obligations arising from the acquisition of
certain assets more fully described in Note 4.
Liabilities associated with the acquisition $3,300,000
of certain contract rights
Less current maturitiies included in current
liabilities 300,000
-------------
$3,000,000
=============
Following are maturities of long-term liabilities for each of the next three
years:
2003 $300,000
2004 1,700,000
2005 1,300,000
--------------
$3,300,000
==============
F-15
FAR EAST ENERGY CORPORATION AND SUBSIDIARY
(formerly EZFoodstop.com)
(A Development Stage Company)
9. Income Taxes
- -----------------
Deferred income taxes reflect the net tax effects of temporary differences
between the recorded amounts of assets and liabilities for financial reporting
purposes and the amounts used for income tax purposes. Significant components of
the Company's deferred tax assets and liabilities as of December 31, 2002 and
2001 are as follows:
2002 2001
------- ---------
Deferred tax assets:
Net Operating loss $762,000 $ 4,000
Deferred tax liabilities:
Bank premises and equipment 1,000 -
--------- ---------
Net deferred tax asset 761,000 4,000
Less valuation allowance (761,000) (4,000)
--------- ---------
$ - $ -
========= ==========
At December 31, 2002, the Company had a net operating loss carryforward for
federal income tax purposes of approximately $2,240,000, which will expire
beginning in 2016. At December 31, 2002 and 2001, management believed that the
above indicated valuation allowance was necessary in order to comply with the
provisions of Statement of Financial Accounting Standard No. 109, as discussed
in note 1.
Income taxes for financial reporting purposes differed from the amounts computed
by applying the statutory federal income tax rates due to the recording of the
valuation allowance. The net change in the valuation allowance for the year
ended December 31, 2002 and 2001 was $757,000 and $4,000, respectively.
10. Commitments and Contingencies
- -----------------------------------
The Company is involved in legal actions arising from normal business
activities. Management believes that these actions are without merit or that the
ultimate liability, if any, resulting from them will not materially affect the
financial position or results of operations of the Company. The Company does not
anticipate any material losses as a result of commitments and contingent
liabilities.
Rent expense for the year ended December 31, 2002 was approximately $49,000.
There was no rent expense in 2001. There are no noncancelable leases with
remaining terms in excess of one year.
F-16
FAR EAST ENERGY CORPORATION AND SUBSIDIARY
(formerly EZFoodstop.com)
(A Development Stage Company)
11. Related Party Transactions
- --------------------------------
In the ordinary course of business, the Company has and expects to continue to
have transactions, including borrowings, with its employees, officers, directors
and their affiliates. In the opinion of management, such transactions are on the
same terms as for comparable transactions with unaffiliated persons.
The Company leases its Houston office from an entity owned in part by an officer
and stockholder of the Company. The lease is classified as an operating lease
and provides for minimum monthly rentals of $3,000 through May 2003.
12. Stockholders' Equity
- -------------------------
Earnings per Share
The following table sets forth the computation of basic and diluted loss
per share:
2002 2001
----------- ---------
(In Thousands, Except Per Share Data)
Numerator:
Net loss from continuing operations $ 2,130 $ 15
------------ -----------
Numerator for basic
loss per share - loss
available to common stockholders $ 2,130 $ 15
------------ -----------
Numerator for dulutive loss per
share - loss available to common
stockholders after assumed conversions $ 2,130 $ 15
----------- -----------
Denominator:
Denominator for basic loss per share
share - weighted average shares 44,810 40,500
Effect of dilutive securities:
Stock Options - -
----------- ----------
Dilutive potential common shares - -
----------- ----------
Denominator for diluted loss per
share - adjusted weighted
average shares and assumed
conversion 44,810 40,500
----------- ----------
Basic loss per common share $ 0.05 $ -
=========== ==========
Diluted loss per common share $ 0.05 -
=========== ==========
For the years ended December 31, 2002 and 2001 all common stock equivalents were
included in the computation of diluted earnings per share.
F-17
FAR EAST ENERGY CORPORATION AND SUBSIDIARY
(formerly EZFoodstop.com)
(A Development Stage Company)
Private Placement Offerings of Common Stock
The Company engaged in an accredited investors offering (Offering) of shares of
its common stock, $0.001 par value (Common Stock), at sixty-five cents ($0.65)
per share. The offering was made pursuant to exemption from registration under
Section 4(2) of the Securities Act of 1933.
Beginning January 24, 2002 and concluding on March 19, 2002, pursuant to Rule
506 of the Securities Act of 1933, Common Stock shares of 5,250,500 were sold to
a group of 22 accredited foreign investors and two accredited United States
individuals for a total offering price of $3,412,825. A commission of 11% was
paid to the broker and escrow agent utilized to affect the European sales. The
proceeds from the US investors were not subject to a commission.
13. Stock Option Plan
- ----------------------
On January 29, 2002, the Board of Directors adopted, and the Company's
stockholders subsequently approved, a non-qualified Stock Option Plan (the
Plan), whereby certain employees have been granted incentive options to purchase
up to 3,990,000 shares of the common stock of the Company. The vesting schedule
is 20% per year beginning July 29, 2002 and continuing at 20% per year on each
January 29. The options expire January 29, 2009.
The exercise price of incentive options must be equal to at least the fair
market value of the common stock as of the date of grant. Under the terms of the
Company's Stock Option Agreement, options were granted to key employees at not
less than the market price of the Company's common stock on the date of grant.
The purpose of the options is to reward directors and key personnel for joining
the Company and to give them an incentive to remain with the Company.
As of December 31, 2002, the Company had granted 3,990,000 options under the
Plan.
There was no stock option plan prior to 2002.
A summary of option transactions during the year ended December 31, 2002 is as
follows:
2002
---------------------------------
Shares Under Option Price
Option Per Share
--------------- ----------------
Outstanding at beginning of year - $ -
Granted 3,990,000 0.65
Exercised - -
Forfeited - -
--------------- ----------------
Outstanding at end of year 3,990,000 0.65
=============== ================
Options exercisable 798,000
Weigted average per share
fair value of options granted
during the period $ 0.65
F-18
FAR EAST ENERGY CORPORATION AND SUBSIDIARY
(formerly EZFoodstop.com)
(A Development Stage Company)
A summary of options outstanding as of December 31, 2002 as follows:
Weighted
Exercise Number of Options Average Remaining Number of Options
Price Outstanding Contractual Life Exercisable
-------- ----------------- ----------------- -----------------
$0.65 3,990,000 6.08 years 798,000
All the outstanding options are exercisable at various times in years 2003
through 2009. All non-qualified stock options were granted at or greater than
fair value on the date of grant. Generally, options granted under the Plan have
a seven-year term and provide for vesting over four years.
14. Subsequent Event
- --------------------
During the first quarter of 2003 the Company sold 60,000 shares of its common
stock for $2.50 per share.
F-19
FAR EAST ENERGY CORP.
(formerly EZFoodstop.com)
Balance Sheet
As at June 30, 2003 and December 31, 2002
(U.S.$) (U.S.$)
(unaudited)
June 30 December 31
2003 2002
------------ ------------
ASSETS
Current Assets
Cash and cash Equivalents $ 187,000 $ 1,008,000
Prepaids and other current assets - 1,000
----------- -----------
Total current assets $ 187,000 $ 1,009,000
----------- -----------
Property and equipment, net 87,000 101,000
Investment in Joint Venture - 3,322,000
Intangible Asset 145,000 175,000
Other Assets 402,000 143,000
----------- -----------
TOTAL ASSETS 821,000 4,750,000
=========== ===========
LIABILITIES
Current Liabilities
Accounts Payable 439,000 253,000
Other liabilities - 250,000
Notes payable 125,000 -
Current portion of long-term liabilities - 300,000
----------- -----------
Total Current Liabilities 564,000 803,000
----------- -----------
Long-Term Liabilities
Other Long-Term Liabilities - 3,000,000
----------- -----------
TOTAL LIABILITIES 564,000 3,803,000
----------- -----------
STOCKHOLDERS' EQUITY
Stockholders' Equity (note 4)
Common stock, $0.001 par value,
500,000,000 shares authorized,
48,212,500 and 47,350,500 issued
and outstanding at June 30, 2003
and December 31, 2002 respectively 47,000 45,000
Additional paid in capital 3,714,000 3,060,000
Accumulated other comprehensive loss (2,000) (2,000)
Deficit accumulated during the Development
Stage (3,502,000) (2,156,000)
------------ -----------
257,000 947,000
------------ -----------
$821,000 $4,750,000
============ ===========
F-20
FAR EAST ENERGY CORP.
(formerly EZFoodstop.com)
Statements of Operations and Accumulated Deficit
For the Six Months and Three Months
Ended June 30, 2003 (unaudited) and 2002 (unaudited)
Cumulative For the Six Month For the Three Month
During Periods Ended Periods Ended
Development June 30, June 30,
Stage 2003 2002 2003 2002
----------------------------------------------------------------
Revenues
Interest income $ 14,000 $ 1000 $ - $ 1000 $ -
Foreign currency exchange gain 1,000 0 - - -
-------- -------- ------- -------- ---------
Total Revenue $15,000 1000 0 1000 -
Expenses
Geologic and engineering services 645,000 265,000 75,000 193,000
Other consulting and professional services 400,000 124,000 117,000 37,000
Compensation 1,099,000 503,000 171,000 261,000
Travel 756,000 181,000 141,000 89,000
Legal and accounting 192,000 121,000 71,000 53,000
General and administrative 374,000 102,000 84,000 28,000 6,000
Loss on investment in Joint Venture 22,000 22,000 0
Amortization 29,000 29,000 14,000 -
----------- ------------- ---------- ------------ ----------
Net loss for the period (3,502,000) (1,346,000) (659,000) (674,000) (6,000)
Deficit - beginning of period - (2,156,000) (26,000) (2,828,000) (16,000)
----------- ------------ ---------- ------------ ----------
Accumulated deficit - end of period (3,502,000) (3,502,000) (685,000) (3,502,000) (22,000)
============ ============ =========== ============ ===========
Weighted average number of
shares outstanding 45,892,634 45,750,500 45,750,500 45,750,500
=========== ============ =========== ============
Loss per share - Basic $ .029 .014 .015 -
=========== ============ =========== ============
Loss per share - Diluted $ .029 .014 .015 -
=========== ============ =========== ============
F-21
FAR EAST ENERGY CORP.
(formerly EZFoodstop.com)
Consolidated Statement of Stockholders' Equity
For the Period from the Date
of Incorporation(February 4, 2000) to June 30, 2003 (unaudited)
Deficit
$.001 Par Value Accumulated
Common Stock During the Other Total
Date of Number of Par Paid-In Development Comprehensive Comprehensive Stockholders'
Transaction Shares Value Capital Stage Loss Loss Equity
Shares issued 4/00 - 8/00 2,250,000 $2,000 $ 51,000 $ - $ - $ - $ 53,000
Net loss - - - (11,000) - (11,000) (11,000)
-----------------------------------------------------------========-------------
Balance, December 31, 2000 2,250,000 2,000 51,000 (11,000) - - 42,000
Net loss - - - (15,000) - (15,000) (15,000)
-------------------------------------------------------========-------------
Balance, December 31, 2001 2,250,000 2,000 51,000 (26,000) - - 27,000
18 for 1 Stock Split 1/1/02 38,250,000 38,000 (38,000) - - - -
Sale of stock for cash 1/24 - 4/1/02 5,250,500 5,000 3,047,000 - - - 3,052,000
Stock issued in connection
with acquisition in process 12/30/02 1,600,000 2,000 6,718,000 - - - 6,720,000
Stock issued subject to
acquisition completion 12/30/02 (1,600,000) (2,000)(6,718,000) - - - (6,720,000)
Comprehensive loss:
Net loss - - - (2,130,000) - (2,130,000) (2,130,000)
Other comprehensive loss, net of tax
Foreign currency translation
adjustment - - - - (2,000) (2,000) (2,000)
---------------------------------------------------------------------------------
Total Comprehensive Loss - - - - - (2,132,000) -
===========
Balance, December 31, 2002 45,750,500 45,000 3,060,000 (2,156,000) ( 2,000) - 947,000
Sale of stock for cash 2/6 - 6/23/03 862,000 2,000 654,000 - - - 656,000
Comprehensive Loss:
Net loss - - - (1,346,000) - (1,346,000) (1,346,000)
---------------------------------------------------------------------------------
Total comprehensive loss - - - - - $ (1,346,000) -
===========
Balance, June 30 , 2003 46,612,500 $47,000 $3,714,000 $(3,502,000) $(2,000) - $ 257,000
==================================================================================
F-22
FAR EAST ENERGY CORP.
(formerly EZFoodstop.com)
Statements of Cash Flows
For the six Month Periods Ended June 30, 2003 and 2002
Cumulative
During For the Six Month
Development Periods Ended
Stage June 30,
(unaudited) (unaudited)
--------------- --------------------------------
2003 2002
Cash Provided By (Used For): --------------- ---------------
Operating Activities
Net loss for the period $(3,502,000) $(1,346,000) $(659,000)
Adjustment to reconcile net loss to cash used
in operations
Depreciation 21,000 14,000 -
Amortization 29,000 29,000 -
Decrease in prepaid expense - 1,000 -
Increase in accounts payable 439,000 187,000 55,000
-------------- -------------- ---------------
Net Cash used by operating activities (3,013,000) (1,115,000) (604,000)
-------------- -------------- ---------------
Investing Activities
Acquisitions of Intangibles (598,000) (259,000) -
Investments in property and equipment (108,000) - (23,000)
Loss on Investment in Joint Venture 22,000 22,000 -
------------- -------------- ---------------
Net cash used in investing activities (684,000) (237,000) (23,000)
------------- -------------- ---------------
Financing Activities
Net proceeds from the sale of common stock 3,761,000 656,000 3,052,000
Decrease in other liabilities - (250,000) -
Increase in notes payable 125,000 125,000 -
------------- -------------- ---------------
Net Cash provided by Financing Activities 3,886,000 531,000 3,052,000
------------- -------------- ---------------
Effect of exchange rate changes on cash (2,000) - -
Increase (decrease) in cash and cash
equivalents 187,000 (821,000) 2,425,000
Cash and cash equivalents - beginning of
period - 1,008,000 27,000
------------- --------------- --------------
Cash and cash equivalents - end of period 187,000 187,000 2,452,000
============= =============== ==============
F-23
FAR EAST ENERGY CORP.
(formerly EZFoodstop.com)
(A Development Stage Company)
Notes to the Financial Statements
For the Six Month Period Ended June 30, 2003 (unaudited)
1. THE CORPORATION AND ITS BUSINESS
The Company was incorporated as Egoonline.com in the State of Nevada, United
States of America on February 4, 2000 under the Nevada Revised Statutes, Chapter
78, Private Companies, and changed its name to EZfoodstop.com on April 26, 2000.
EZFoodstop.com changed its name to Far East Energy Corporation on January 10,
2002.
The Company's United States office is located in Houston, Texas, and the Company
has offices in Beijing and in Kunming, Yunnan Province of the People's Republic
of China. During the second quarter of 2003 the Company closed offices in the
cities of Guiyang and Panjiang, Guizhou Province. The Company is in its
development stage and to date its activities have been limited to initial
organization, capital formation, CBM well drill planning, and CMM production
planning.
2. SUMMARY OF SIGNIFICANT ACCOUNTING PRINCIPLES
These financial statements have been prepared in US Dollars using US Generally
Accepted Accounting Principles.
Accounting Method
The Company records income and expenses on the accrual method.
Fiscal Year
The fiscal year end of the Company is December 31.
Net Loss Per Share
The Company applies SFAS No. 128, "Earnings Per Share" for the calculation of
"Basic" and "Diluted" earnings per share. Basic earnings per share includes no
dilution and is computed by dividing income available to common stockholders
by the weighted average number of common shares outstanding for the period.
Diluted earnings per share reflects the potential dilution of securities that
could share in the earnings of the Company.
Financial Instruments
Unless otherwise indicated, the fair value of all reported assets and
liabilities which represent financial instruments (none of which are held for
trading purposes)approximate the carrying values of such amounts.
F-24
Statement of Cash Flows
For purposes of the statement of cash flows, the Company considers all highly
liquid debt instruments purchased with an original maturity of three months or
less to be cash equivalents.
Use of Estimates
The preparation of financial statements in conformity with accounting principles
generally accepted in the United States of America requires management to make
estimates and assumptions that affect the reported amounts of assets and
liabilities and disclosure of contingent assets and liabilities at the date of
the financial statements and the reported amounts of revenues and expenses
during the reporting period. Actual results could differ from those estimates.
3. GOING CONCERN
The Company's financial statements are prepared using generally accepted
accounting principles applicable to a going concern, which contemplates the
realization of assets and the liquidation of liabilities in the normal course of
business. The Company currently has no source of revenue. The ability of the
Company to continue as a going concern is dependent upon its ability to raise
substantial funds for use in development activities.
4. COMMON STOCK
Authorized
On March 4, 2003, a Special Meeting of our shareholders approved an
amendment to our articles of incorporation to increase the number of shares of
Common Stock authorized for issuance from 100,000,000 to 500,000,000 at par
value of $0.001. The shareholders also approve an amendment to our articles of
incorporation to authorize a class of 500,000,000 shares of preferred stock, par
value $0.001.
Issued
Prior to an 18 for 1 forward stock split:
1,250,000 common shares were issued at $0.002 per share for a consideration of
$2,500.
1,000,000 common shares were issued at $0.05 per hare for a consideration of
$50,000. Subsequent to an 18 for 1 forward stock split:
5,250,500 common shares were issued at $0.65 per share. Net of expenses
associated with the offering, consideration to the Company was $3,052,000.
60,000 common shares were issued at $2.50 per share.
802,000 common shares were issued at $0.65 per share.
F-25
5. INTANGIBLE ASSETS
Intangible assets consist of mineral exploration rights acquired during
2002 and are being amortized over three years. Assigned costs amounted to
approximately $175,000. There was no amortization expense in 2002. Amortization
expense during the first six months of 2003 was $29,000.
On January 25, 2002, the Company entered into a Production Sharing Contract with
the China United Coal Bed Methane Corporation (CUCBM), which has exclusive legal
authority over all coal bed methane gas in the People's Republic of China (PRC).
Pursuant to the Production Sharing Contract, the Company received the authority
from CUCBM to jointly explore, develop, produce and sell coal bed methane gas in
and from a total area of 1,072 unevaluated square kilometers in the Enhong and
Laochang areas of Yunnan Province, PRC. The Production Sharing Contract was
subject to formal ratification by PRC's Ministry of Foreign Trade and Economic
Cooperation (MOFTEC). On December 30, 2002, MOFTEC ratified this Production
Sharing Contract.
The Company has another Production Sharing Contract of the same date with CUCBM
in the Zhaotong area of Yunnan Province which has not yet been ratified. The
Company has the right to earn a minimum of 60% interest in the joint venture,
with CUCBM retaining the remaining 40%. In the event CUCBM elects to participate
at a level less than 40%, their interest will be reduced proportionately,
increasing the Company's participating interest.
As a result of MOFTEC's ratification and approval of the Production Sharing
Contract concerning the Enhong and Laochang areas, the Company can commence its
exploration program which initially involves the drilling of five (5)
exploratory wells and eight (8) pilot development wells.
6. INVESTMENT IN JOINT VENTURE
During the fist quarter of 2003, Far East Energy notified Panjiang
Coal-Electricity (Group) Co. Ltd. that it was terminating the Joint Venture
executed on June 5, 2002. The Company has no further obligations to the Joint
Venture and is now in the process of dissolving the Joint Venture Company as
required by Chinese law.
On June 5, 2002, we executed a Sino-Foreign Joint Venture Contract (the
"Contract") with Panjiang Coal-Electricity (Group) Co. Ltd. ("Panjiang") to
establish a joint venture limited liability company ("Joint Venture") in the
People's Republic of China to extract and use coal mine methane gas from six (6)
operating Panjiang coal mines which cover an area of 120 square kilometers. This
Contract was entered into on our behalf by our wholly owned subsidiary Far East
Energy (BVI), Inc., an international business company incorporated in the
British Virgin Islands. We are developing drilling plans to prove and exploit
the resources in our contract areas in the Guizhou Province.
F-26
In consideration for this right to capture Panjiang's coal mine methane gas, the
Company will pay a total of $3,300,000 to Panjiang over the next three (3) years
with $300,000 being paid at the beginning of the thirteenth (13th) month,
$600,000 being paid at the beginning of the nineteenth (19th) month, $1,100,000
being paid at the beginning of the twenty-seventh (27th) month, and $1,300,000
being paid at the beginning of the thirty- third (33rd) month. Additionally, the
Company has agreed to provide Panjiang with 16,000,000 cubic meters per year of
untreated, minimum 30% concentration, coal mine methane gas (equivalent to
5,500,000 cubic meters of pure methane) for use in Panjiang employee households.
The Company has also committed to provide all of the necessary funds for the
extraction and use of the coal mine methane gas operations over the twenty (20)
year term of the Contract.
Panjiang will, in addition to allowing full and complete access to the coal
mine methane gas, do the following:
(i) Apply to the relevant authorities for the establishment of the Joint
Venture and obtain necessary approvals;
(ii) Assist in obtaining a business license for the Joint Venture; (iii)
Assist in getting land use rights, water use rights, electricity
supply and other
necessities for field development, well drilling, installation,
upgrading, purification of coal mine methane gas and production of
chemical products;
(iv) Provide all the land use rights for the household use methane gas
pipelines; (v) Assist the foreign employees in getting relevant
visas;
(vi) Assist in purchasing equipment, materials, vehicles, communication
equipment;
and,
(vii) Assist in the design and construction of the project, and in
recruiting managers, technicians, workers and other required
employees.
The Company may withdraw from the Panjiang project at any time by providing
ninety (90) days written notice. During the first seven (7) year period, the
Company will receive one hundred percent (100%) of the profits derived from its
sale of coal mine methane gas and its products. After the expiration of the
first seven (7) year period, the Company will pay Panjiang the following
percentage of net profits derived from its sale of coal mine methane gas and its
products:
Year Eight 10%
Year Nine through Sixteen 20%
Year Seventeen through Twenty 50%
Subsequent to December 31, 2002 the Company notified Panjiang of its intention
to withdraw from the project which effectively eliminates all assets and
obligations associated with the project. If the Company had withdrawn from the
project in 2002 the total assests and liabilities in the accompanying
consolidated balance sheet would have been decreased by approximately
$3,300,000.
F-27
7. NOTES PAYABLE
A loan of $25,000 was made to the company by one of its former Directors, Ramesh
Kalluri on May 1, 2003. The loan is due and payable on May 1, 2004. The interest
rate of the loan is 10% with the accrued interest payable in four installments
on August 1, 2003, on November 1, 2003, on February 1, 2004 and on May 1, 2004.
On June 12, 2003, the Company took a loan from Professional Trading Services,
Kuttelgasse 4, 8001 Zurich, Switzerland in the amount of $100,000. Maturity is
on demand, at the option of the lender, repayable in cash with accrued interest.
Interest on the loan is five (5) percent per year. The loan has a Conversion
Privilege, at the exclusive option of the lender. The loan is convertible into
units of FEEC stock at $0.65 per share of common stock and one full warrant
exercisable at $1.00. Interest payments will be made yearly at the annual
maturity date, unless repaid earlier in full.
On July 23, 2003, the Company signed a Loan Agreement with Clarion Finanz AG,
Gerbergasse 5, 8001 Zurich, Switzerland. The principle amount of the loan is
$200,000. Maturity is on demand, at the option of the lender, repayable in cash
with accrued interest. Interest on the loan is five (5) percent per year. The
loan has a Conversion Privilege, at the exclusive option of the lender. The loan
balance is convertible into FEEC stock at $0.65 per share of common stock and
one full warrant for one common share exercisable at $1.00. Interest payments
will be made yearly at the annual maturity date, unless repaid earlier in full.
Since January 2003 and in order to facilitate further company financing, funds
raised by the company outside of the United States have been placed in a trust
account in the name of Far East Energy Corporation in Zurich, Switzerland. The
trustees on the account are Konrad Meyer and Ursula Stabinger of Interglobe
Finance. Instructions for withdrawals and transfers from the account require the
signatures of at least two officers of the company.
8. COMMITMENTS AND CONTINGENCIES
The Company is involved in legal actions arising from normal business
activities. Management believes that these actions are without merit or that the
ultimate liability, if any, resulting from them will not materially affect the
financial position or results of operations of the Company. The Company does not
anticipate any material losses as a result of commitments and contingent
liabilities.
On April 25, 2003, the Company received notice that TMP Worldwide, Inc. ("TMP")
had filed a lawsuit against it in the 151st Judicial District Court in Harris
County, Houston, Texas for two counts. The first count was for breach of
contract and the second count was entitled a suit on open account. On May 19,
2003, TMP filed a motion for nonsuit because they no longer wished to prosecute
the action against the Company. Prior to May 19, 2003, the Company agreed to
settle this matter with TMP. The Order Granting Nonsuit is expected to be signed
by the Court without delay. The settlement of this litigation required our
payment of:
(i) $155,000 by May 15, 2003, which has been tendered; and
(ii) the balance of approximately $307,539 payable in three monthly
installments to be made June 15, 2003, July 15, 2003 and August 15,
2003.
(iii) $100,000 was paid on or about June 15th; the payment terms were
modified for the remaining $207,539 due on July 15 and August 15,
2003 to be paid in four monthly installments to be made August 1,
2003 (which has been tendered); September 1, 2003, October 1, 2003
and November 1, 2003.
F-28
FAR EAST ENERGY CORPORATION
400 N. Sam Houston Parkway East, Suite 205
Houston, Texas 77060
***PROXY***
THIS PROXY IS SOLICITED ON BEHALF OF THE BOARD OF DIRECTORS
The undersigned hereby appoints Joe Cooper as Proxy, with full power of
substitution and revocation, the true and lawful attorney and proxy of the
undersigned at the Annual Meeting of shareholders (the "Meeting") of the Company
to be held Tuesday, October 7, 2003 at 2:00 p.m. (CDT), at the Sofitel Hotel,
425 North Sam Houston Parkway, East, Houston, Texas 77060, or any adjournments
thereof, to vote the shares of Common Stock of the Company standing in the name
of the undersigned on the books of the Company, or such shares of Common Stock
of the Company as the undersigned may otherwise be entitled to vote on the
record date for Meeting with all powers the undersigned would possess if
personally present at the Meeting, with respect to the matters set forth below
and described in the Notice of the Annual Meeting of shareholders dated
September 22, 2003, and the accompanying Proxy Statement of the Company.
1. Election of the Board of Directors until the next Annual Meeting.
[ ] For all nominees listed below (except as marked to the contrary)
For the nominee Against the nomine Abstain
1. Joe Cooper [ ] [ ] [ ]
2. Jawaharlal Gondi [ ] [ ] [ ]
3. Tun Aye Sai [ ] [ ] [ ]
2. Ratification of the employment of Payne, Falkner, Smith & Jones, P.C. as
the Company's independent auditor for the fiscal year ending December 31,
2003.
For [ ] Against [ ] Abstain [ ]
3. Any other business as may properly come before the meeting or any
adjournment thereof.
For [ ] Against [ ] Abstain [ ]
A vote FOR Proposal #3 will effectively confer authority in the Proxy holder
to vote the shares covered by the Proxy as the Proxy Holder deems appropriate.
A vote AGAINST Proposal #3 will be treated as shares over which no Proxy is
granted and therefore counted as an abstention from voting on any other
business as may properly come before the Annual Meeting, including any
modification or variation to an existing proposal.
4. Mark "FOR" to enroll this account to receive certain future shareholder
communications in a single package per household. Mark "AGAINST" if you do
not want to participate. To change your election in the future, call
(713) 586-1900.
For [ ] Against [ ]
In His Discretion, the Proxy Is Authorized to Vote upon Such Other Business That
May Properly Come Before the Meeting.
THE BOARD OF DIRECTORS RECOMMENDS A VOTE FOR ALL PROPOSALS LISTED. IF NO
DIRECTIONS ARE GIVEN BY THE PERSON(S) EXECUTING THIS PROXY, THE SHARES WILL BE
VOTED IN FAVOR OF ALL LISTED PROPOSALS. THIS PROXY WHEN PROPERLY EXECUTED WILL
BE VOTED IN THE MANNER DIRECTED HEREIN BY THE UNDERSIGNED STOCKHOLDER, AND
UNLESS OTHERWISE SPECIFIED, THE SHARES WILL BE VOTED FOR ALL PROPOSALS.
Please sign exactly as your name appears on your certificate. When shares are
held by joint tenants, both should sign. When signing as attorney, executor,
administrator, trustee or guardian, please give full title as such and submit
powers of attorney or other appropriate document. If a corporation, please sign
in full corporate name by President or other authorized officer. If a
partnership, please sign in partnership name by authorized person.
Dated _____________________, 2003
______________________________ _____________________ ______________________
Please Print or Type Your Name Signature Number of Shares Voted
PLEASE MARK, SIGN, DATE, AND RETURN THIS PROXY PROMPTLY TO THE ADDRESSEE IN THE
ENCLOSED STAMPED ENVELOPE.
If you have had a change of Address, please print or type your new address(s)
in the space below:
15
FAR EAST ENERGY CORPORATION
400 N. Sam Houston Parkway East, Suite 205
Houston, Texas 77060
Telephone: (713) 586-1900
Consent to Electronic Delivery of Corporate Information to Shareholders
For your convenience, we are now offering you, as a Far East Energy Corporation
("Far East") shareholder, the option of viewing future Far East corporate
information, including Annual Reports and Proxy Statements, on the Internet. You
can access them at your convenience and easily print them if you wish. The best
part is that you would receive the information earlier than ever before.
Please note that this is a global consent to receive all corporate information
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please note that consenting to this service could subject you to costs
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If your Far East stock is held directly with a broker, please contact ADP
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mail, please enter your name and Tax Payer ID # or Social Security # below:
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I (we) consent to use Far East's Internet site to receive all future corporate
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By signing below and returning this card to Far East at the address listed
herein, I agree with the above.
Date:____________________
_________________________________
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Far East Energy Corporation
400 N. Sam Houston Parkway East, Suite 205
Houston, Texas 77060
16