As filed with the Securities and Exchange Commission on October 31, 2003
Registration No. 333-107233
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
PRE-EFFECTIVE AMENDMENT NO. 1
TO FORM S-4
REGISTRATION STATEMENT UNDER THE SECURITIES ACT OF 1933
ASSURE ENERGY, INC.
--------------------------------------------------------------------------------
(Name of Small Business Issuer in its Charter)
Canada 1311 None
--------------------------------------------------------------------------------
(State or jurisdiction of (Primary Standard Industrial (I.R.S. Employer
incorporation organization) Classification Code Number) Identification No.)
2750-140 4th Avenue S.W., Calgary, Alberta, Canada T2P 3N3
(403) 266-2787
--------------------------------------------------------------------------------
(Address and telephone number of principal executive offices)
Copies of communications to:
Adam S. Gottbetter, Esq.
Gottbetter & Partners, LLP
630 Third Avenue
New York, New York 10017
Approximate date of commencement of proposed sale to the public: Upon
consummation of the continuance described herein.
If the securities being registered on this Form are being offered in connection
with the formation of a holding company and there is compliance with General
Instruction G, check the following box. [_]
If this form is filed to register additional securities for an offering pursuant
to Rule 462(b) under the Securities Act, check the following box and list the
Securities Act registration statement number of the earlier effective
registration statement for the same offering. [_]
If this form is a post-effective amendment filed pursuant to Rule 462(d) under
the Securities Act, check the following box and list the Securities Act
registration statement number of the earlier effective registration statement
for the same offering. [_]
CALCULATION OF REGISTRATION FEE
Title of each class of Amount to be Proposed Proposed Amount of
securities to be registered registered maximum aggregate aggregate offering registration fee
offering price price
per share
---------------------------------------------------------------------------------------------------------------------
Common Stock, $.001 par value 16,433,000 $3.025(1) $49,709,825(1) $4,573.30(1)
Common Stock, $.001 par value 1,548,100 $4.345(2) $6,726,495(2) $618.84(2)
----------- ------ ---------- ---------
Total 17,981,100 $5,192.14(3)
=========== =========
(1) Estimated solely for the purpose of calculating the registration fee
pursuant to Rule 457 under the Securities Act of 1933, as amended, on
the basis of the average of the bid and ask prices reported on July
17, 2003 on the over-the-Counter Bulletin Board for the common stock,
par value $.001 per share, of Assure Energy, Inc., a Nevada
corporation which will become common stock, $.001 par value, of Assure
Energy, Inc., an Alberta Canada corporation, on a one-for-one basis
pursuant to the continuance and conversion described in this
Registration Statement. Payment of the registration fee for these
shares was made at the time of the original filing of the Registration
Statement on July 22, 2002.
(2) Estimated solely for the purpose of calculating the registration fee
pursuant to Rule 457 under the Securities Act of 1933, as amended, on
the basis of the average of the bid and ask prices reported on October
24, 2003 on the over-the-Counter Bulletin Board for the common stock,
par value $.001 per share, of Assure Energy, Inc., a Nevada
corporation which will become common stock, $.001 par value, of Assure
Energy, Inc., a Canadian corporation, on a one-for-one basis pursuant
to the continuance and conversion described in this Registration
Statement.
(3) Includes $4,573.30 previously paid.
-------------------------
THE REGISTRANT HEREBY AMENDS THIS REGISTRATION STATEMENT ON SUCH DATE OR DATES
AS MAY BE NECESSARY TO DELAY ITS EFFECTIVE DATE UNTIL THE REGISTRANT SHALL FILE
A FURTHER AMENDMENT WHICH SPECIFICALLY STATES THAT THIS REGISTRATION STATEMENT
SHALL THEREAFTER BECOME EFFECTIVE IN ACCORDANCE WITH SECTION 8(a) OF THE
SECURITIES ACT OF 1933, OR UNTIL THIS REGISTRATION STATEMENT SHALL BECOME
EFFECTIVE ON SUCH DATE AS THE COMMISSION, ACTING PURSUANT TO SECTION 8(a), MAY
DETERMINE.
2
PROSPECTUS
ASSURE ENERGY, INC.
2750-140 4th Avenue, S.W.
Calgary, Alberta, Canada T2P 3N3
17,981,100 SHARES OF COMMON STOCK
Our board of directors and persons holding a majority of our outstanding common
shares have approved a plan of continuance and conversion that will change our
domicile from Nevada to Alberta, Canada. We presently have 17,981,100 shares of
common stock issued and outstanding and will have 17,981,100 shares of common
stock outstanding at the effective time of our reincorporation in Alberta.
Our common stock is currently listed for trading on the NASD Over-The-Counter
Bulletin Board (the "OTCBB") under the symbol ASUR. Upon the effectiveness of
our reincorporation in Alberta we will be considered a foreign private issuer
under the Securities Act of 1933, as amended and our common stock is expected to
be listed for trading on the OTCBB under the symbol ASURF.
SEE "RISK FACTORS," BEGINNING ON PAGE 10 FOR A DISCUSSION OF CERTAIN RISKS,
INCLUDING TAX EFFECTS, RELATING TO THE CONVERSION AND THE OWNERSHIP OF OUR
COMMON SHARES.
PLEASE NOTE THAT NEITHER THE SEC NOR ANY STATE SECURITIES COMMISSION HAS
APPROVED OR DISAPPROVED OF THESE SECURITIES OR DETERMINED IF THIS PROSPECTUS IS
TRUTHFUL OR COMPLETE. ANY REPRESENTATION TO THE CONTRARY IS A CRIMINAL OFFENSE.
October 31, 2003
3
TABLE OF CONTENTS
PAGE
SUMMARY
The Company .................................................. 5
Factors You Should Consider .................................. 5
SUMMARY FINANCIAL INFORMATION ................................ 5
RISK FACTORS ................................................. 10
Risks Relating to the Continuance ............................ 10
Risks Relating to the Company ................................ 11
CONTINUANCE AND CONVERSION ................................... 14
DISSENTERS' RIGHTS ........................................... 16
MATERIAL UNITED STATES FEDERAL TAX CONSEQUENCES .............. 19
MATERIAL CANADIAN TAX CONSEQUENCES ........................... 23
COMPARATIVE RIGHTS OF STOCKHOLDERS ........................... 26
ACCOUNTING TREATMENT ......................................... 34
BUSINESS OF ASSURE ENERGY, INC ............................... 34
LEGAL PROCEEDINGS ............................................ 43
MANAGEMENT'S DISCUSSION AND ANALYSIS
OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS ........ 44
MARKET FOR COMMON EQUITY AND RELATED STOCKHOLDER MATTERS ..... 45
MANAGEMENT ................................................... 49
EXECUTIVE COMPENSATION ....................................... 50
CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS ............... 54
SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT
55
DESCRIPTION OF CAPITAL STOCK ................................. 57
EXPERTS ...................................................... 60
LEGAL MATTERS ................................................ 60
AVAILABLE INFORMATION ........................................ 60
CAUTIONARY STATEMENT CONCERNING FORWARD LOOKING
STATEMENTS .............................................. 61
FINANCIAL STATEMENTS OF ASSURE ENERGY, INC ................... F-1
4
SUMMARY
THIS SUMMARY PROVIDES AN OVERVIEW OF THE INFORMATION CONTAINED IN THIS
PROSPECTUS AND DOES NOT CONTAIN ALL OF THE INFORMATION YOU SHOULD CONSIDER.
THEREFORE, YOU SHOULD ALSO READ THE MORE DETAILED INFORMATION SET FORTH IN THIS
DOCUMENT, INCLUDING THE FINANCIAL STATEMENTS OF THE COMPANY. THE SYMBOL "$"
REFERS TO UNITED STATES DOLLARS.
In this prospectus, unless otherwise indicated or the context otherwise
requires, we will refer to Assure Energy, Inc., a Nevada corporation herein
referred to as Assure Nevada and Assure Energy, Inc, an Alberta Canada
corporation herein referred to as Assure Canada as "we", "us", "our" or "the
Company". The procedure by which we will change our domicile from Nevada to
Alberta, Canada is referred to as a conversion or a continuance.
THE COMPANY
We are actively engaged in the exploration, development, acquisition and
production of petroleum and natural gas properties primarily located in Western
Canada. We own varying interests through farmout participations, asset
purchases, and acquisitions of crown land rights of both producing and
prospective oil and gas properties. For a more detailed discussion of our
operations see "Business of Assure Energy, Inc." beginning on page 34. Our
principal executive office is located at 2750-140 4th Avenue, S.W., Calgary,
Alberta, Canada, telephone (403) 266-2787.
After the continuance, we will be a Canadian corporation governed by the Alberta
Business Corporations Act. We will continue to conduct the business in which we
are currently engaged. Our operations and employees presently exist entirely
within Canada, and therefore there will be no material effect on operations. Our
business and operations following the conversion will be identical in most
respects to our current business, except that we will no longer be subject to
the corporate laws of the State of Nevada but will be subject to the Alberta
Business Corporations Act. The Alberta company hereinafter referred to as Assure
Canada, will be liable for all the debts and obligations of the Nevada company,
hereinafter referred to as Assure Nevada, and the officers and directors of the
Alberta company will be the officers and directors of the Nevada company. The
material differences between the laws will not materially affect our business
but will affect your rights as a stockholder. The differences between the
applicable laws of the two jurisdictions is discussed in greater detail under
the heading "Comparative Rights of Stockholders" beginning on page 26.
FACTORS YOU SHOULD CONSIDER
The conversion, which will have the effect of transferring our domicile from
Nevada to Alberta, Canada will not have any effect on your relative equity or
voting interests in our business. You will continue to hold exactly the same
number and type of shares which you currently hold. The continuance will,
however, result in changes in your rights and obligations under applicable
corporate laws. In addition, the continuance may have tax consequences for you.
5
REASONS FOR THE CONVERSION
We believe that the continuance to Alberta Canada will more accurately reflect
our operations, all of which are based in Canada. Since entering our current
line of business, we have not had any operations in the U.S. We also believe the
continuance to Alberta, Canada may enable us to benefit from new financing
opportunities that may be available to us as a Canadian corporation.
RISK FACTORS RELATED TO THE CONVERSION TRANSACTION
Factors such as possible adverse tax consequences and stock price volatility of
our common stock following the continuance may affect your interest in owning
Assure Canada common shares. In evaluating the merits of the proposed
conversion, you should carefully consider the risk factors included in this
prospectus beginning on page 10.
MATERIAL TAX CONSEQUENCES FOR STOCKHOLDERS
The following is a brief summary of the material tax consequences the
continuance will have for stockholders. Stockholders should consult their own
tax advisers with respect to their particular circumstances. A more detailed
summary of the factors affecting the tax consequences for stockholders is set
out under "Material United States Federal Tax Consequences" and "Material
Canadian Income Tax Consequences."
UNITED STATES FEDERAL INCOME TAX CONSEQUENCES
On the date of the continuance, the Nevada company must recognize any gain but
not any losses to the extent that the fair market value of any of its assets
exceeds its taxable basis in such assets. The calculation of any potential gain
will need to be made separately for each asset held. No loss will be allowed for
any asset that has a taxable basis in excess of its fair market value. We do not
believe that any of our assets have a fair market value which is greater or
significantly greater than their respective tax basis. Accordingly, we do not
expect to recognize material taxable gains as a result of the continuance.
U.S. holders of our stock will not be required to recognize any gain or loss as
a result of the continuance. A U.S. stockholder's adjusted basis in the shares
of the Alberta company will be equal to such stockholder's adjusted basis in the
shares of the Nevada company. A U.S. stockholder's holding period in the shares
of the Alberta company will include the period of time during which such
stockholder held his or her shares in the Nevada company. For a more complete
discussion of the U.S. Income Tax Consequences, please see "Material United
States Federal Income Tax Consequences" beginning on page 19.
CANADIAN INCOME TAX CONSEQUENCES
On our continuance to Alberta, Canada, the Alberta company will be deemed to
dispose of and to immediately re-acquire its assets at their fair market value.
If the fair market value of the assets exceed the taxable basis in the assets a
tax will be due. Pre-continuance losses are available for use in Alberta.
6
A Canadian stockholder will not realize a disposition of their Nevada shares on
the continuance to Alberta. To the extent a deemed dividend is paid by the
Nevada company to a Canadian stockholder, the amount of the dividend will be
included in their income. For a more complete discussion of the Canadian Income
Tax Consequences, please see "Material Canadian Income Tax Considerations"
beginning on page 23.
HOW THE CONVERSION WILL AFFECT YOUR RIGHTS AS A STOCKHOLDER
You will continue to hold the same shares you now hold following the continuance
of the company to Alberta, Canada. However, the rights of stockholders under
Nevada law differ in certain substantive ways from the rights of stockholders
under the Alberta Business Corporations Act. Examples of some of the changes in
stockholder rights which will result from continuance are:
o Under Nevada law, unless otherwise provided in the charter,
stockholders may act without a meeting by written consent of
the majority of the voting power of the outstanding common
stock entitled to vote on the matter, and notice need not be
given to stockholders. Under Alberta law, stockholders may
only act by way of a resolution passed at a duly called
meeting unless all stockholders otherwise entitled to vote
consent in writing.
o Under Nevada law, a charter amendment requires approval by
vote of the holders of a majority of the outstanding stock.
Under Alberta law, an amendment to a corporation's charter
requires approval by the holders of a two-thirds majority of
the outstanding stock represented in person or by proxy.
o Dissenter's rights are available to stockholders under more
circumstances under Alberta law than under Nevada law.
o Stockholders have a statutory oppression remedy under Alberta
law that does not exist under Nevada law. It is similar to the
common law action in Delaware for breach of fiduciary duty,
but the Alberta remedy does not require stockholders to prove
that the directors acted in bad faith.
o A director's liability may not be limited under Alberta law as
it may under Nevada law.
o Under Nevada law, unless otherwise provided in the charter or
by-laws, a majority of the voting power constitutes a quorum
for the transaction of business at a shareholders' meeting. In
all matters, other than the elections of directors, the
affirmative vote of the majority of shares present in person
or by proxy constitutes the act of the stockholders. Under
Alberta law, unless otherwise provided in the by-laws, a
majority of the voting power constitutes a quorum for the
transaction of business at a shareholders' meeting. However,
Alberta companies may provide that a quorum is deemed present
when as little
7
as 5% of the issued and outstanding share capital is present.
Our proposed by-laws contain a provision that provides a
quorum is deemed present when 12.5% or more of the issued and
outstanding share capital is present. Except where the Alberta
Business Corporation Act requires approval by a special
resolution, being approved by a two-thirds majority of the
shares present in person or represented by proxy and entitled
to vote on the resolution, a simple majority of the shares
present in person or represented by proxy and entitled to vote
on a resolution is required to approve a resolution properly
brought before the shareholders.
For a more detailed discussion of the differences in the rights of stockholders
under Nevada and Alberta law see "Comparative Rights of Stockholders" beginning
on page 26.
PRICE VOLATILITY
We cannot predict what effect the continuance will have on the market price
prevailing from time to time or the liquidity of our shares.
ACCOUNTING TREATMENT OF THE CONVERSION
For U.S. accounting purposes, conversion of our company from a Nevada
corporation to an Alberta one represents a transaction between entities under
common control. Assets and liabilities transferred between entities under common
control are accounted for at historical cost, in accordance with the guidance
for transactions between entities under common control in Statement of Financial
Accounting Standards No. 141, Business Combinations. The historical comparative
figures of Assure Canada will be those of Assure Nevada.
Upon the effective date of the conversion, we will be subject to the securities
laws of the province of Alberta. We will qualify as a foreign private issuer in
the United States. Before our continuance in Alberta, Canada, we prepared our
consolidated financial statements in accordance with generally accepted
accounting principles ("GAAP") in the United States. As a Canadian domestic
issuer, we will be required to prepare our annual and interim consolidated
financial statements in accordance with Canadian generally accepted accounting
principles. For purpose of our annual disclosure obligations in the United
States, we will annually file in the United States consolidated financial
statements prepared in accordance with Canadian GAAP together with a
reconciliation to US GAAP.
SUMMARY FINANCIAL INFORMATION
THE FOLLOWING SUMMARY FINANCIAL INFORMATION FOR THE YEARS ENDED DECEMBER 31,
2002 AND DECEMBER 31, 2001 INCLUDES BALANCE SHEET AND STATEMENT OF OPERATIONS
DATA FROM THE AUDITED CONSOLIDATED FINANCIAL STATEMENTS OF ASSURE NEVADA. THE
SUMMARY FINANCIAL INFORMATION FOR THE SIX MONTHS ENDED JUNE 30, 2003 INCLUDES
BALANCE SHEET AND STATEMENT OF OPERATIONS DATA FROM UNAUDITED CONSOLIDATED
FINANCIAL STATEMENTS OF ASSURE NEVADA. THE INFORMATION CONTAINED IN THIS TABLE
SHOULD BE READ IN CONJUNCTION WITH OUR "MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS" AND THE CONSOLIDATED FINANCIAL
STATEMENTS AND ACCOMPANYING NOTES INCLUDED HEREIN.
8
The financial statements of Assure Nevada have been prepared in accordance with
accounting principles generally accepted in the United States. The application
of Canadian generally accepted accounting principles, which will be applicable
to our financial statements following the conversion, would not result in any
material differences from the Assure Nevada financial statements.
Income Statement Data:
Year Ended Year Ended Six Months Ended June
December 31, 2002 December 31, 2001 30, 2003
----------------- ----------------- --------
Revenues $1,136,896 $- $1,932,192
Net Income (Loss) $(792,162) $ (59,383) (914,705)
Net Income (Loss) Per Share $ (0.03) $ (0.002) $ (0.06)
Weighted Average Number of
Shares Outstanding 27,924,740 31,070,762 16,096,983
Balance Sheet Data:
December 31, 2002 December 31, 2001 June 30, 2003
----------------- ----------------- -------------
Current Assets $2,424,724 $17,289 $9,827,079
Total Assets $7,161,203 $20,289 $14,981,405
Current Liabilities $1,028,100 $6,144 $979,463
Total Liabilities $1,733,040 $6,144 $6,323,793
Stockholders' Equity $5,428,163 $14,145 $8,657,612
9
RISK FACTORS
An investment in our common shares involves certain risks. In evaluating us and
our business, investors should carefully consider the following risk factors in
addition to the other information included or incorporated by reference in this
prospectus.
RISKS RELATING TO THE CONTINUANCE
We May Owe Taxes As A Result Of The Continuance If Our Conclusions Relating To
The Value Of Our Assets Are Incorrect
For U.S. tax purposes, on the date of continuance, we will be treated as though
we sold all of our property and received the fair market value for those
properties. We will be taxed on any income or gain realized on that "sale." If
the fair market value of any of our assets is greater than our tax basis in such
assets, we will have taxable gain on the deemed "sale".
We reviewed our assets, liabilities and paid-up capital and believe that we will
not owe material U.S. federal income taxes as a result of the continuance. We
believe that the fair market value of most of our assets is not in excess of our
tax basis in such assets. We further believe that the fair market value for
those assets with a fair market value that is in excess of the tax basis for
such assets is not materially excessive. Accordingly, we believe that little or
no U.S. taxes will be owed as a result of the proposed continuance. It is
possible that the facts on which we based our assumptions and conclusions could
change before the continuance is completed. We have not applied to the federal
tax authorities for a ruling on this matter and do not intend to do so. We have
also made certain assumptions regarding the tax treatment of this transaction in
order to reach our conclusions and it may be possible for some of these
assumptions to be interpreted in a different manner which would be less
favorable to us. You should understand that it is possible that the federal tax
authorities will not accept our valuations or positions and claim that we owe
more taxes then we expect as a result of this transaction.
The Stock Price Of Our Common Shares May Be Volatile. In Addition, Demand In The
United States For Our Shares May Be Decreased By The Change In Domicile.
The market price of our common shares may be subject to significant fluctuations
in response to variations in results of operations and other factors.
Developments affecting the oil and gas industry including oil and gas price
fluctuations could also have a significant impact on the market price for our
shares. In addition, the stock market has experienced a high level of price and
volume volatility. Market prices for the stock of many similar companies have
experienced wide fluctuations which have not necessarily been related to the
operating performance of such companies. These broad market fluctuations, which
are beyond our control, could have a material adverse effect on the market price
of our shares.
We cannot predict what effect, if any, the conversion will have on the market
price prevailing from time to time or the liquidity of our common shares. The
change in domicile may decrease the demand for our shares in the United States.
The decrease may not be offset by expected increased demand for our shares in
Canada.
10
RISKS RELATING TO THE COMPANY
We Have A Limited Operating History With Respect To Our Current Business. This
Makes An Evaluation Of Our Business Difficult.
We were formed in Delaware in August 1999 to engage in a toy business. No
operations in this area were ever commenced. Commencing with our April 23, 2002
acquisition of Assure Oil & Gas Corp., followed by Assure Oil & Gas Corp.'s May
30, 2002 acquisition of Westerra 2000 Inc., we became an oil and gas company.
Through Assure Canada, we are committed to continue and expand these operations.
Through our wholly owned subsidiary, Assure Holdings Inc., we also own
approximately 48.5% of the outstanding common shares of Quarry Oil & Gas Ltd., a
junior oil and gas exploration and development company based in Calgary,
Alberta. Both Assure Oil & Gas Corp. and Westerra 2000 Inc. have limited
operating histories. Accordingly, we have limited performance history on which
you can evaluate our future performance. We are at an early stage of development
and it is possible that we may not achieve the revenues that we anticipate. If
that occurs, we will receive less than our anticipated income from our
operations and our profitability will suffer. Before investing, you should
carefully evaluate the risks, uncertainties, expenses and difficulties
frequently encountered by early stage companies.
Our Future Success Is Dependent On The Performance And Continued Service Of Our
Chief Executive Officer, And Our Ability To Attract And Retain Skilled
Personnel.
Our performance and future operating results are dependent on the continued
service and performance of Harvey Lalach, our president and chief executive and
financial officer. To the extent that the services of Mr. Lalach become
unavailable, our business or prospects may be adversely affected. Should we be
required to do so, we do not know whether we would be able to employ an equally
qualified person or persons to replace Mr. Lalach. We do not currently maintain
"key man" insurance for any of our executive officers or other key employees and
do not intend to obtain this type of insurance following the completion of this
offering. If we are successful in further developing our business, we will
require additional managerial, administrative and support personnel. Competition
for highly-qualified personnel is intense, and we cannot assure that we can
retain our key employees or that we will be able to attract or retain qualified
personnel in the future. The loss of the services of any of our management or
other key employees and our inability to attract and retain other necessary
personnel could have a material adverse effect on our financial condition,
operating results, and cash flows. See "Directors, Executive Officers, Promoters
and Control Persons".
Our Competitors Have Greater Financial and Human Resources Than We Do. This May
Give Them A Competitive Advantage
The oil and gas industry is highly competitive. We encounter competition from
numerous companies in all or our activities, particularly in acquiring rights to
explore for crude oil and natural gas. Most of our competitors are larger and
have substantially greater financial and human resources than we do.
11
The oil and gas business involves large-scale capital expenditures and
risk-taking. In the search for new oil and gas reserves, long lead times are
often required from successful exploration to subsequent production. Operations
in the oil and gas industry depend on a depleting natural resource. The number
of areas where it can be expected that oil and gas will be discovered in
commercial quantities is constantly diminishing and exploration risks are high.
Areas where oil or gas may be found are often in remote locations where
exploration and development activities are capital intensive and operating costs
are high.
Our future success will depend, to a significant extent, on our ability to make
good decisions regarding our capital expenditures, especially when taking into
consideration our limited resources. We can give no assurance that we will be
able to overcome the competitive disadvantages we face as a small company with
limited capital.
We Do Not Intend To Pay Dividends On Our Common Stock For The Foreseeable
Future.
We have not paid any cash dividends, nor do we contemplate or anticipate paying
any dividends upon our common stock in the foreseeable future.
We May Need Additional Financing Which May Not Be Available And, If Available,
Might Only Be Available On Unfavorable Terms. Our Failure To Obtain Financing,
If Needed, Would Hinder Our Operations And Our Ability To Achieve Profitability.
We have principally funded our operations to date through sales of our equity
and debt securities. We expect to continue to raise funds in the future through
sales of our debt or equity securities and through loans until such time, if
ever, as we are able to operate profitably. There can be no assurance given that
we will be able to obtain funds in such manner or on terms that are beneficial
to us. Our inability to obtain needed funding can be expected to have a material
adverse effect on our operations and our ability to achieve profitability.
We Have A History Of Losses And An Accumulated Deficit And Expect To Continue to
Incur Losses Until We Establish Profitable Business Operations. This Could Drive
The Price Of Our Stock Down
We have experienced operating losses since our inception. As at June 30, 2003 we
had accumulated deficit in the amount of $1,775,857. We expect to incur
additional operating losses until we are able to establish profitable business
operations. If we fail to establish profitable business operations and continue
to incur losses, the price of our common stock can be expected to fall.
The Continuance Into Alberta, Canada May Materially Affect Shareholders' Rights.
Alberta law is materially different from Nevada law, under which Assure Nevada
is currently incorporated. We cannot assure you that the differences between
Alberta law and Nevada law will not materially affect the interests of our
shareholders. See "Comparative Rights of Shareholders."
12
Sales Of Shares Eligible For Future Sale Could Depress The Market Price For Our
Common Stock.
We presently have issued and outstanding:
o 17,981,100 shares of our common stock
o options to purchase 120,000 shares of our common stock at an
exercise price of $2.75 per share
o options to purchase 305,000 shares of our common stock at an
exercise price of $3.00 per share
o warrants to purchase 8,835,400 shares of our common stock at
exercise prices ranging from $.333 to $3.10 per share
o 17,500 shares of convertible Series A Preferred Stock
o 5,250 shares of convertible Series B Preferred Stock.
None of our outstanding shares of Series A or Series B Preferred Stock are
presently convertible. All but 3,600,000 of our outstanding warrants are
presently exercisable. Market sales of large amounts of our common stock, or the
potential for those sales even if they do not actually occur, may have the
effect of depressing the market price of our common stock. In addition, if our
future financing needs require us to issue additional shares of common stock or
securities convertible into common stock, the supply of common stock available
for resale could be increased which could stimulate trading activity and cause
the market price of our common stock to drop, even if our business is doing
well.
There Is A Limited Public Market For Our Common Stock. Unless Such Market Is
Expanded You May Have Difficulty Selling Shares Of Our Common Stock.
To date there has been only a limited and sporadic public market for our common
stock. There can be no assurance that an active and more reliable public market
will develop in the future or, if developed, that such market will be sustained.
Purchasers of shares of our common stock may, therefore, have difficulty in
reselling such shares. As a result, investors may find it impossible to
liquidate their investment in us should they desire to do so. Our common stock
is currently traded in the over-the-counter market and quoted on the OTC
Bulletin Board. As at the date hereof, we are not eligible for inclusion in
NASDAQ or for listing on any national stock exchange. At the present time, we
are unable to state when, if ever, we will meet the Nasdaq application
standards. Even if we meet the minimum requirements to apply for inclusion in
The Nasdaq SmallCap Market, there can be no assurance that approval will be
received or, if received, that we will meet the requirements for continued
listing on the Nasdaq SmallCap Market. Further, Nasdaq reserves the right to
withdraw or terminate a listing on the Nasdaq SmallCap Market at any time and
for any reason in its discretion. If we are unable to obtain or to maintain a
listing on the Nasdaq SmallCap Market, quotations, if any, for "bid" and "asked"
prices of the common stock would be available only on the OTC Bulletin Board
where our
13
common stock is currently quoted or in the "pink sheets". This can result in an
investor's finding it more difficult to dispose of or to obtain accurate
quotations of prices for our common stock than would be the case if our common
stock were quoted on the Nasdaq Small Cap Market. Irrespective of whether or not
our common stock is included in the Nasdaq SmallCap system, there can be no
assurance that the public market for our common stock will become more active or
liquid in the future.
CONTINUANCE AND CONVERSION
BACKGROUND OF THE CONTINUANCE AND CONVERSION
The Board of Directors of Assure Nevada and the holders of a majority of its
outstanding common stock have determined that it is advisable to change the
company's domicile from Nevada to Alberta, Canada. Management of Assure Nevada
has determined that a conversion will be the most effective means of achieving
the desired change of domicile. The Nevada Revised Statutes allow a corporation
that is duly incorporated, organized, existing and in good standing under Nevada
law to convert into a foreign entity pursuant to a plan of conversion approved
by the stockholders of the Nevada corporation.
Under the continuance and conversion, Articles of Conversion will be filed with
the Secretary of State of Nevada and Articles of Continuance, along with other
documents required by the Alberta Business Corporation Act, will be filed with
the Registrar of Corporations in the Province of Alberta. Upon the filings, we
will be continued as an Alberta company and will be governed by the laws of
Alberta, Canada. The assets and liabilities of the Alberta company immediately
after the consummation of the conversion will be identical to the assets and
liabilities of the Nevada company immediately prior to the conversion. The
current officers and directors of the Nevada company will be the officers and
directors of the Alberta company. The change of domicile will not result in any
material change to the business of Assure Nevada and will not have any effect on
the relative equity or voting interests of our stockholders. Each previously
outstanding share, option and warrant of Assure Nevada will become one share,
option and warrant of the Alberta company. The change in domicile will, however,
result in changes in the rights and obligations of current Assure Nevada
stockholders under applicable corporate laws. For an explanation of these
differences see "Comparative Rights of Stockholders". In addition, the merger
may have adverse tax consequences for stockholders. For a more detailed
explanation of the circumstances to be considered in determining the tax
consequences, see "Material United States Federal Tax Consequences" and
"Material Canadian Tax Consequences."
Pursuant to Sections 92A.120 and 78.320 of the Nevada Revised Statutes, the
board of directors and the holders of a majority of the outstanding common stock
of Assure Nevada have adopted resolutions approving the plan of conversion. The
effect of this conversion will be to change the domicile of Assure Nevada from
Nevada to Alberta, Canada. Assure Nevada shall file with the Secretary of State
of Nevada Articles of Conversion and shall file a Notice of Registered Office, a
Notice of Directors and Articles of Continuance with the Registrar under the
Alberta Business Corporations Act. Upon the filing of the Plan of Conversion in
accordance with Section 92A.205 of the Nevada
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Revised Statutes and payment to the Secretary of State of Nevada of all
prescribed fees, the conversion shall become effective in accordance with
Section 92A.240 of the Nevada Revised Statutes. Upon receipt of the Articles of
Continuance and payment of all applicable fees, the Registrar shall issue a
Certificate of Continuance, and the continuance shall be effective on the date
shown in the certificate.
REASONS FOR THE CHANGE OF DOMICILE
We believe that the continuance to Alberta, Canada will more accurately reflect
our present operations as an oil and gas company, which have always been in
Canada. Further, all of our employees are located in Canada. We also believe the
continuance to Alberta may enable us to benefit from new financing opportunities
which may become available to us. Furthermore, a majority of our issued and
outstanding common stock is owned of record by non-U.S. residents. Accordingly,
upon the continuance, we will be considered a "foreign private issuer" under the
Securities Act of 1933, as amended.
EFFECTIVE TIME OF THE CONVERSION
The continuance and conversion will become effective upon:
o The delivery of duly executed articles of conversion to the
Secretary of State of the State of Nevada in accordance with
Section 92A.205 of the Nevada Revised Statutes.
o The issuance of a Certificate of Continuance by the Director
of Business Corporations under the Alberta Business
Corporations Act.
We anticipate that the Articles of Conversion and Articles of Continuance will
be filed promptly after the effective date of the Registration Statement of
which this Prospectus is a part.
CONDITIONS TO THE CONSUMMATION OF THE CONVERSION
The Board of Directors and the holders of a majority of the outstanding common
stock of Assure Nevada have adopted and approved the plan of conversion. The
only other material actions required to consummate the conversion are the filing
of the Articles of Conversion with the Secretary of State of Nevada and the
filing of Articles of Continuance, along with other documents required by the
Alberta Business Corporations Act, with the Alberta Registrar of Corporations.
EXCHANGE OF SHARE CERTIFICATES
No exchange of certificates that, prior to the effective time of the
continuance, represented shares of Assure Nevada common stock is required with
respect to the continuance and the transactions contemplated by the conversion
plan. Promptly after the effective time of the conversion, we shall mail to each
record holder of certificates that immediately prior to the effective time of
the conversion represented shares of Assure Nevada common stock, a letter of
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transmittal and instructions for use in surrendering those certificates. Upon
the surrender of each certificate formerly representing Assure Nevada stock,
together with a properly completed letter of transmittal, we shall issue in
exchange a share certificate of Assure Canada and the stock certificate
representing shares in the Assure Nevada shall be cancelled.
STOCK OPTIONS AND WARRANTS
As of the effective time of the conversion, all warrants and options to purchase
shares of Assure Nevada common stock granted or issued prior to the effective
time of the conversion will become warrants and options to purchase shares in
Assure Canada as continued under the Alberta Business Corporations Act.
THE BOARD OF DIRECTORS HAS UNANIMOUSLY APPROVED THE CONTINUANCE AND PLAN OF
CONVERSION DESCRIBED IN THIS PROSPECTUS
In reaching its decision, the board reviewed the fairness to Assure Nevada and
its stockholders of the proposed continuance and considered, without assigning
relative weights to, the following factors:
o The fact that all of the company's operations, assets and
employees and current principal executive offices are
currently located in Canada.
o The belief of the board of directors that the continuance may
provide new financing opportunities for the company.
o The belief that there will be minimal or no tax consequences
to Assure Nevada from the proposed continuance.
o The fact that stockholders holding a majority of Assure
Nevada's outstanding common shares will have consented to the
continuance.
Without relying on any single factor listed above more than any other factor,
the board of directors, based upon their consideration of all such factors taken
as a whole, concluded that the proposals are fair to Assure Nevada and its
stockholders.
DISSENTERS' RIGHTS
Under Section 92A.120 of the Nevada Revised Statutes, (the "NRS") the approval
of the board of directors of a company and the affirmative vote of the holders
of at least a majority of its outstanding shares on the record date for a
stockholder vote are required to approve a conversion and adopt a plan of
conversion. Our board of directors and holders of a majority of our outstanding
shares have approved our plan of conversion by written consent. Public
announcement of the conversion was first announced, after the close of trading,
on September 11, 2003 via a press release. We are granting dissenters rights to
all shareholders of record as of the effective time of the conversion that have
owned their shares since on or before September 11, 2003 and did not consent to
the conversion.
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All eligible shareholders that comply with the dissenters rights procedures
provided for in Chapter 92A of the NRS will be entitled to payment in cash of
the fair value of their Assure Nevada shares together with accrued interest
thereon. This discussion is qualified in its entirety by reference to Sections
92A.300 to 92A.500 of the NRS. A copy of Sections 92A.300 to 92A.500 of the NRS
will be provided to all eligible shareholders. If an eligible shareholder fails
to take any action required by Nevada law, their right to dissent in connection
with the conversion will be waived or terminated.
Within 10 days after the effective time of the conversion, we will send notice
of the effective time of the conversion and the availability of dissenters'
rights to each eligible shareholder. The notice will:
o state where the demand for payment must be sent and where and
when certificates for Assure Nevada shares are to be
deposited;
o supply a form for demanding payment;
o be accompanied by a copy of Sections 92A.300 through 92A.500
of the NRS;
An eligible shareholder to whom a dissenter's notice is sent must, by the date
set forth in the dissenter's notice:
o demand payment;
o certify whether the stockholder acquired beneficial ownership
of the shares before the close of trading on September 11,
2003; and
o deposit his or her certificates in accordance with the terms
of the dissenter's notice.
Eligible shareholders who do not demand payment or deposit their certificates
where required, each by the date set forth in the dissenter's notice, will not
be entitled to demand payment for their shares under Nevada law governing
dissenters' rights.
Within 30 days after receipt of a valid demand for payment, we will pay each
dissenter who complied with the procedures described by the Nevada dissenters'
rights statute the amount we estimate to be the fair value of the shares, plus
accrued interest. The payment will be accompanied by:
o our balance sheet as of the end of a fiscal year ending not
more than 16 months before the date of payment, a statement of
income for that fiscal year, a statement of changes in
shareholders' equity for that fiscal year and the latest
available interim financial statements, if any;
o a statement of our estimate of the fair value of the shares;
o an explanation of how the interest was calculated;
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o a statement of dissenters' rights to demand payment under
Section 92A.480 of the NRS; and
o a copy of Sections 92A.300 through 92A.500 of the NRS.
An eligible dissenter may notify us in writing of the dissenter's own estimate
of the fair value of the shares and interest due, and demand payment based upon
his or her estimate, less our fair value payment or offer for payment, or reject
the offer for payment made by us and demand payment of the fair value of the
dissenter's shares and interest due if the dissenter believes that the amount
paid or offered is less than the fair value of the dissenter's shares or that
the interest due is incorrectly calculated. A dissenter waives his right to
demand such payment unless the dissenter notifies us of his demand in writing
within 30 days after we made or offered payment for the dissenter's shares.
If a demand for payment remains unsettled, we will commence a proceeding within
60 days after receiving the demand for payment and petition the court to
determine the fair value of the shares of Assure Nevada common stock and accrued
interest. If we do not commence the proceeding within the 60-day period, we will
be required to pay each dissenter whose demand remains unsettled the amount
demanded.
Each dissenter who is made a party to the proceeding is entitled to a judgment:
o for the amount, if any, by which the court finds the fair
value of the dissenter's shares, plus interest, exceeds the
amount paid by us; or
o for the fair value, plus accrued interest, of the dissenter's
after-acquired shares for which we elected to withhold payment
pursuant to Nevada law.
Under Nevada law, the fair value of shares of Assure Nevada common stock means
the value of the shares immediately before the consummation of the conversion,
excluding any increase or decrease in value in anticipation of the conversion
unless excluding such increase or decrease is inequitable. The value determined
by the court for the Assure Nevada common stock could be more than, less than,
or the same as the conversion consideration, but the form of consideration
payable as a result of the dissent proceeding would be cash.
The court will determine all of the costs of the proceeding, including the
reasonable compensation and expenses of any appraisers appointed by the court.
The court will assess the costs against us, except that the court may assess
costs against all or some of the dissenters, in the amounts the court finds
equitable, to the extent that the court finds the dissenters acted arbitrarily,
vexatiously or not in good faith in demanding payment. The court may also assess
the fees and expenses of the counsel and experts for the respective parties, in
amounts the court finds equitable:
o against us in favor of all dissenters if the court finds we
did not substantially comply with the Nevada dissenters'
rights statute; or
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o against either us or a dissenter in favor of any other party,
if the court finds that the party against whom the fees and
expenses are assessed acted arbitrarily, vexatiously or not in
good faith with respect to the dissenters' rights provided
under the Nevada dissenters' rights statute.
If the court finds that the services of counsel for any dissenter were of
substantial benefit to other dissenters similarly situated, and that the fees
for those services should not be assessed against us, the court may award to
those counsel reasonable fees to be paid out of the amounts awarded to the
dissenters who were benefited.
If a proceeding is commenced because we did not pay each dissenter who complied
with the procedures described by the Nevada dissenters' rights statute the
amount we estimated to be the fair value of the shares, plus accrued interest,
within 30 days after receipt of a valid demand for payment, the court may assess
costs against us, except that the court may assess costs against all or some of
the dissenters who are parties to the proceeding, in amounts the court finds
equitable, to the extent the court finds that such parties did not act in good
faith in instituting the proceeding. The assessment of costs and fees, if any,
may also be affected by Nevada law governing offers of judgment.
The foregoing summary of the rights of eligible dissenting stockholders does not
purport to be a complete statement of such rights and the procedures to be
followed by stockholders desiring to exercise any available dissenters' rights.
The preservation and exercise of dissenters' rights require strict adherence to
the applicable provisions of Nevada law.
MATERIAL UNITED STATES FEDERAL TAX CONSEQUENCES
GENERAL
The following sections summarize material provisions of United States federal
income tax laws that may affect our stockholders and us. Although this summary
discusses the material United States federal income tax considerations arising
from and relating to the continuance, it does not purport to discuss all of the
United States consequences that may be relevant to our stockholders, nor will it
apply to the same extent or in the same way to all stockholders. The summary
does not describe the effect of the U.S. federal estate tax laws or the effects
of any state or local tax law, rule or regulation, nor is any information
provided as to the effect of any other United States or foreign tax law, other
than the income tax laws of the United States to the extent specifically set
forth herein.
The tax discussion set forth below is based upon the facts set out in this
prospectus and upon additional information possessed by our management and upon
representations of our management. The tax discussion is included for general
information purposes only. It is not intended to be, nor should it be construed
to be, legal or tax advice to any particular stockholder. The following does not
address all aspects of taxation that may be relevant to you in light of your
individual circumstances and tax situation. YOU ARE STRONGLY ADVISED AND ARE
EXPECTED TO CONSULT WITH YOUR OWN LEGAL AND TAX ADVISORS REGARDING THE UNITED
STATES INCOME TAX CONSEQUENCES OF THE CONTINUANCE IN LIGHT OF YOUR PARTICULAR
CIRCUMSTANCES.
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UNITED STATES FEDERAL INCOME TAX CONSEQUENCES
This portion of the summary applies to U.S. holders who own our common shares as
capital assets. U.S. holders include individual citizens or residents of the
United States, corporations (or entities treated as corporations for U.S.
federal income tax purposes), and partnerships organized under the laws of the
United States or any State thereof or the District of Columbia. Trusts are U.S.
holders if they are subject to the primary supervision of a U.S. court and the
control of one or more U.S. persons with respect to substantial trust decisions.
An estate is a U.S. holder if the income of the estate is subject to U.S.
federal income taxation regardless of the source of the income. U.S. holders who
own interests indirectly through one or more non-U.S. entities or carry on
business outside the United States through a permanent establishment or fixed
place of business, or U.S. holders who hold an interest other than as a common
shareholder, should consult with their tax advisors regarding their particular
tax consequences.
This summary also describes certain U.S. federal income tax consequences to
Canadian holders following the continuance, who are specifically those persons
resident in Canada who own our common shares as capital assets. The discussion
is limited to the U.S. federal income tax consequences to Canadian holders of
their ownership and disposition of the common shares of the company as a result
of the continuance and assumes the Canadian holders have no other U.S. assets or
activities.
This discussion is based on the Internal Revenue Code of 1986, as amended,
adopted and proposed regulations thereunder, Internal Revenue Service ("IRS")
rulings and pronouncements, reports of congressional committees, judicial
decisions, and current administrative practice, all of which are subject to
change, perhaps with retroactive effect. Any such change could alter the tax
consequences discussed below. No ruling from the IRS will be requested
concerning the U.S. federal income tax consequences of the continuance. The tax
consequences set forth in the following discussion are not binding on the IRS or
the courts and no assurance can be given that contrary positions will not be
successfully asserted by the IRS or adopted by a court. As indicated above, this
discussion does not address all aspects of U.S. federal income taxation that may
be relevant to particular U.S. holders in light of their personal circumstances
or to U.S. holders subject to special treatment under the U.S. Internal Revenue
Code, including, without limitation, banks, financial institutions, insurance
companies, tax-exempt organizations, broker-dealers, S corporations, individual
retirement and other deferred accounts, application of the alternative minimum
tax rules, holders who received our stock as compensation, persons who hold
notes or stock as part of a hedge, conversion, or constructive sale transaction,
straddle, or other risk-reduction transaction, persons that have a "functional
currency" other than the U.S. dollar, and persons subject to taxation as
expatriates. Furthermore, this discussion does not address the tax consequences
applicable to holders that are treated as partnerships or other pass-through
entities for U.S. federal income tax purposes.
This summary does not address the U.S. federal income tax consequences to a U.S.
holder of the ownership, exercise, or disposition of any warrants or options.
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U.S. TAX CONSEQUENCES TO THE COMPANY
While the continuance of the Company from Nevada to Alberta, Canada is actually
a migration of the corporation from Nevada to Alberta, Canada, for tax purposes,
the continuance is treated as the transfer of our assets to the Alberta company
in exchange for stock of the Alberta company. This is to be followed by a
distribution of the stock in the Alberta company to our stockholders, and then
the exchange by Assure Nevada's stockholders of their Assure Nevada stock for
Assure Canada stock. As a Nevada company, we must recognize gain (but not loss)
on the assets held by us at the time of the conversion to the extent that the
fair market value of any of our assets exceeds their respective basis in the
assets. The calculation of any potential gain will need to be made separately
for each asset held by Assure Nevada. No loss will be allowed for any asset that
has a taxable basis in excess of its fair market value. We do not believe the
current fair market value of the assets held by Assure Nevada exceeds or
materially exceeds their respective basis. Accordingly, we are not expecting
Assure Nevada to recognize material taxable gains as a result of the
continuance.
U.S. TAX CONSEQUENCES TO U.S. AND CANADIAN SHAREHOLDERS
The continuance should be treated by shareholders as the exchange by them, of
their stock for stock of the Alberta company. The shareholders will not be
required to recognize any U.S. gain or loss on this transaction. A shareholder's
adjusted basis in the shares of Assure Canada received in the exchange will be
equal to such shareholder's adjusted basis in the shares of Assure Nevada
surrendered in the exchange. A shareholder's holding period in the shares of
Assure Canada received in the exchange should include the period of time during
which such shareholder held his or her shares in Assure Nevada.
CONTROLLED FOREIGN CORPORATION CONSIDERATIONS
There is currently no single U.S. shareholder of Assure Nevada that owns
(directly or indirectly) at least 10% of the Assure Nevada shares. Further, the
total combined ownership of all U.S. shareholders is less than 50%. Therefore,
the Controlled Foreign Corporation ("CFC") rules under Internal Revenue Code
("IRC") Sections 951 - 959 will not apply to Assure Canada and its U.S.
shareholders immediately after the continuance. Any United States person who
owns (directly or indirectly) 10% or more of the total combined voting power of
all classes of stock entitled to vote of a foreign corporation, such as Assure
Canada, will be considered a "United States shareholder" under the CFC rules.
If, in the future, "United States shareholders" (as defined above) own more than
50% of the total combined voting power of all classes of Assure Canada stock
entitled to vote or own more than 50% of the value of Assure Canada stock,
Assure Canada will be considered to be a CFC for U.S. tax purposes. In such
situation, the "United States shareholders" would likely be subject to the
effects of the CFC rules, and should consult with their tax advisors regarding
their particular tax consequences.
FOREIGN PERSONAL HOLDING COMPANY CONSIDERATIONS
21
There is not currently a group of five or fewer U.S. shareholders of Assure
Nevada that owns (directly or indirectly) more than 50% of the Assure Nevada
shares. Therefore, the Foreign Personal Holding Company ("FPHC") rules under IRC
Sections 551 - 558 will not apply to Assure Canada immediately after the
continuance. If, in the future, any group of five or fewer U.S. shareholders
owns (directly or indirectly) more than 50% of Assure Canada's stock, the U.S.
shareholders may be subject to the FPHC rules, depending on the type of income
earned by the company. Should that situation occur, the U.S. shareholders should
consult with their tax advisors regarding their particular tax consequences.
PASSIVE FOREIGN INVESTMENT COMPANY CONSIDERATIONS
After the continuance, Assure Canada and every U.S. shareholder of Assure Canada
will need to annually evaluate whether Assure Canada is a Passive Foreign
Investment Company ("PFIC") under IRC Sections 1291 - 1298. If, at any time
after the continuance, Assure Canada were considered a PFIC, the company and all
U.S. shareholders of Assure Canada would need to consider various potential
reporting requirements, tax elections, and tax liabilities imposed under the
PFIC rules. In such situation, the company and all U.S. shareholders should
consult with their tax advisors regarding their particular tax consequences.
If Assure Canada generates revenues in any tax year that are at least 75%
passive income (dividends, interest, royalties, rents, annuities, foreign
currency gains, and gains from the sale of assets generating passive income),
Assure Canada will be considered a PFIC for that year and for all future years.
In addition, if 50% or more of the gross average value of Assure Canada's assets
in any tax year consist of assets that would produce passive income (including
cash and cash equivalents held as working capital), Assure Canada will be
considered a PFIC for that year and for all future years.
POST-CONTINUANCE U.S. TAXATION OF INCOME, GAINS AND LOSSES
After the continuance, Assure Canada will not have any U.S. activities or
operations. As long as Assure Canada does not develop a permanent establishment
in the U.S., the operations of Assure Canada will not be subject to U.S. income
tax. If Assure Canada receives dividends, interest, rent, or royalties from any
U.S. entity, those amounts will be subject to withholding tax (which will be
withheld and remitted to the US Treasury by the U.S. entity paying the dividends
or interest) under the convention between the United States of America and
Canada with respect to taxes on income and capital. Depending on the particular
situation, such amounts may be available to offset taxes imposed by the country
of residence of a particular stockholder.
POST-CONTINUANCE SALE OF ASSURE CANADA SHARES
A U.S. shareholder who sells his or her shares of Assure Canada will generally
recognize capital gain (or loss) equal to the amount by which the cash received
pursuant to sale of the shares exceeds (or is exceeded by) such holder's
adjusted basis in the shares surrendered. If the U.S. shareholder's holding
period for the Assure Canada shares (which includes the holding period for the
Assure Nevada shares) is less than one year, the U.S. shareholder will recognize
ordinary income (or loss) on the sale of his or her shares.
22
POST-CONTINUANCE DIVIDENDS ON ASSURE CANADA SHARES
Any dividends received by U.S. shareholders of Assure Canada will be recognized
as ordinary income by the shareholders for U.S. tax purposes. Any Canadian tax
withheld by Canada Customs & Revenue Agency on such dividends will be available
as a foreign tax credit to the U.S. shareholders. In general, any Canadian
income tax withheld from dividends paid to U.S. shareholders can be used by the
shareholder to offset the U.S. income tax assessed on the dividends. The amount
of the Canadian taxes that can be used as a foreign tax credit will depend on
the particular tax situation of each U.S. shareholder. Each U.S. shareholder
should consult with a tax advisor regarding the calculation of any available
foreign tax credit available in his or her particular tax consequences.
MATERIAL CANADIAN TAX CONSEQUENCES
GENERAL
The following sections summarize material provisions of Canadian federal income
tax laws that may affect our stockholders and us. Although this summary
discusses the material Canadian federal income tax considerations arising from
and relating to the continuance, it does not purport to discuss all of the
Canadian tax consequences that may be relevant to our stockholders, nor will it
apply to the same extent or in the same way to all stockholders. The summary
does not describe the effects of any provincial or local tax law, rule or
regulation, nor is any information provided as to the effect of any other
Canadian federal or foreign tax law, other than the income tax laws of Canada to
the extent specifically set forth herein.
The tax discussion set forth below is based upon the facts set out in this
prospectus and upon additional information possessed by our management and upon
representations of our management. The tax discussion is included for general
information purposes only. It is not intended to be, nor should it be construed
to be, legal or tax advice to any particular stockholder. The following does not
address all aspects of taxation that may be relevant to you in light of your
individual circumstances and tax situation. YOU ARE STRONGLY ADVISED AND ARE
EXPECTED TO CONSULT WITH YOUR OWN LEGAL AND TAX ADVISORS REGARDING THE CANADIAN
INCOME TAX CONSEQUENCES OF THE CONTINUANCE IN LIGHT OF YOUR PARTICULAR
CIRCUMSTANCES.
CANADIAN INCOME TAX CONSIDERATIONS
The following general summary is our understanding of the Canadian federal
income tax consequences of the proposed continuance of Assure Nevada to Alberta,
Canada as it applies to Assure Canada and to those individual Canadian resident
stockholders to whom shares of the Nevada company constitute "capital property"
for the purposes of the Income Tax Act (Canada) (the "Act"). This summary also
describes the principal Canadian federal income tax consequences of the proposed
continuance of Assure Nevada to Alberta, Canada to non-resident individual
stockholders who do not carry on business in Canada. Stockholders should consult
their own Canadian tax advisors on the Canadian tax consequences of the proposed
continuance.
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This summary is based upon our understanding of the current provisions of the
Act, the regulations thereunder in force on the date hereof (the "Regulations"),
any proposed amendments (the "Proposed Amendments") to the Act or Regulations
previously announced by the Federal Minister of Finance and our understanding of
the current administrative and assessing policies of the Canada Customs and
Revenue Agency. This description is not exhaustive of all possible Canadian
federal income tax consequences and does not take into account or anticipate any
changes in law, whether by legislative, governmental or judicial action other
than the Proposed Amendments, nor does it take into account provincial or
foreign tax considerations, which may differ significantly from those discussed
herein.
CONSEQUENCES OF CONTINUANCE TO ALBERTA, CANADA
CANADIAN CORPORATION
As a result of being granted articles of continuance to Alberta, Canada, Assure
Canada will be deemed to have been incorporated in Alberta, Canada from that
point onwards, and not to have been incorporated elsewhere.
NOT FOREIGN PROPERTY
As of the date of continuance, Assure Canada shares will not be considered
foreign property for investment by a registered pension plan, registered
retirement savings plan or deferred profit sharing plan. It is not likely that
the Assure Canada shares will ever be considered foreign property.
DEEMED DISPOSITION
As a result of the continuance to Alberta, Canada, Assure Canada will be deemed
to have disposed of, and immediately reacquired, all of its assets at their then
fair market value. Gains arising on the deemed disposition of taxable Canadian
property (if any) are taxable in Canada (subject to exclusion by the
Canada-United States income tax treaty). Since all of our property is located in
Canada, all of our property is taxable Canadian property.
Pre-continuance accrued gains on a subsequent disposition by Assure Canada are
not subject to further Canadian tax. Pre-continuance accrued losses are
available for future use in Canada. The effect of this provision is that Assure
Canada's assets are re-stated for Canadian income tax purposes at their fair
market value as at the time of continuance to Canada.
NEW FISCAL PERIOD
We will be deemed to have a year-end immediately prior to our continuance to
Alberta, Canada. For Canadian income tax purposes, Assure Canada will be able to
choose a new fiscal year end falling within the 12 months following the date of
continuance.
CONSEQUENCES OF CONTINUANCE TO CANADIAN STOCKHOLDERS
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NO DEEMED DISPOSITION
A stockholder will not realize a disposition of their Assure Nevada shares on
the continuance to Canada. For Canadian income tax purposes, the income tax cost
of their Assure Canada shares will be equal to the income tax cost of their
Nevada shares. On a subsequent sale of Assure Canada shares, a capital gain or
loss will result equal to the proceeds of disposition less the income tax cost
of their Assure Canada shares and any related selling costs.
DEEMED DIVIDEND
The deemed disposition of Assure Nevada's assets will result in a decrease in
the income tax cost of certain of its assets. To the extent there is an
adjustment in the income tax cost of Assure Canada's assets, a corresponding
adjustment to the paid up capital of Assure Canada's shares will be made to
insure their paid up capital does not exceed the difference between the adjusted
income tax cost of its assets (as adjusted by the deemed disposition) and its
outstanding liabilities. Since a decrease in Assure Canada's paid up capital is
required, such decrease is allocated pro-rata amongst Assure Canada's shares.
If an increase in the income tax cost of Assure Canada's asset values is
realized, Assure Canada may elect to increase the paid up capital of its shares
prior to continuing to Canada. In the event Assure Canada makes such an
election, it will be deemed to have paid a dividend to its stockholders.
Canadian stockholders that are deemed to have received such a dividend must
include that dividend in income. In such a situation, the amount of the dividend
will be added to the stockholders' income tax cost of their Assure Canada
shares. Since the tax consequences would be detrimental to individual
stockholders if we were to increase the income tax cost, we will not be making
such an election.
INTEREST EXPENSE
Assure Nevada's continuance to Canada will not affect the deductibility of
interest incurred on money borrowed to purchase shares of Assure Nevada.
Generally, interest that is currently deductible will continue to be deductible
by a stockholder after our continuance to Canada, as long as the stockholder
continues to own Assure Canada shares.
CONSEQUENCES OF CONTINUANCE TO NON-RESIDENT STOCKHOLDERS
On the continuance of Assure Nevada to Alberta, the income tax cost of a
non-resident's Assure Canada shares will be equal to their fair market value at
the time of continuance to Alberta. A subsequent disposition of Assure Canada
shares by a non-resident stockholder will not be subject to tax in Canada
provided his shares are not taxable Canadian property.
To the extent Assure Canada pays a dividend to a non-resident stockholder, such
dividend is subject to a 25% withholding tax (to be reduced by an income tax
treaty between Canada and the non-resident stockholder's country of residence).
Under the treaty, most shareholders of Assure Canada would be subject to a 15%
withholding tax. Any shareholders that are corporation and that own 10% or more
of Assure Canada would be subject to a 5% withholding tax.
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COMPARATIVE RIGHTS OF STOCKHOLDERS
After the conversion, the stockholders of the former Nevada corporation will
become the holders of shares of a Canadian company organized under the Alberta
Business Corporations Act. Differences between the Nevada Revised Statutes and
the Alberta Business Corporations Act, will result in various changes in the
rights of stockholders of Assure. It is impractical to describe all such
differences, but the following is a description of the material differences.
This description is qualified in its entirety by reference to the Nevada Revised
Statutes and the Alberta Business Corporations Act.
ELECTION AND REMOVAL OF DIRECTORS
NEVADA. Any director, or the entire Board, may be removed with or without cause,
but only by the vote of not less than two thirds of the voting power of the
company at a meeting called for that purpose. The directors may fill vacancies
on the board.
ALBERTA, CANADA. Any director, or the entire Board, may be removed with or
without cause, but only by a majority vote at a meeting of shareholders called
for that purpose. The directors may fill vacancies on the Board subject to the
provisions of the articles of the corporation and the Alberta Business
Corporations Act.
INSPECTION OF STOCKHOLDERS LIST
NEVADA. Under Nevada law, any stockholder of record of a corporation who has
held his shares for more than six months and stockholders holding at least 5% of
all of its outstanding shares, is entitled to inspect, during normal business
hours, the company's stock ledger and make extracts therefrom. Nevada Law also
provides that a Nevada company may condition such inspection right upon delivery
of a written affidavit stating that inspection is not desired for any purpose
not related to the stockholder's interest in the company.
ALBERTA, CANADA. Under Alberta law, where a corporation has previously
distributed its shares to the public, any person may, on payment of a reasonable
fee, require a corporation to furnish a list setting out the names and addresses
of the stockholders of a corporation and the number of shares held by each
stockholder. In order to obtain such a list, a statutory declaration must also
be provided confirming that the list will only be used in connection with an
effort to influence voting of the stockholders, an offer to acquire securities
of the corporation or any other matter relating to the affairs of the
corporation.
TRANSACTIONS WITH OFFICERS AND DIRECTORS
NEVADA. Under Nevada law, contracts or transactions in which a director or
officer is financially interested are not automatically void or voidable if:
26
o the fact of the common directorship, office or financial
interest is known to the board of directors or committee, and
the board or committee authorizes, approves or ratifies the
contract or transactions in good faith by a vote sufficient
for the purpose, without counting the vote or votes of the
common or interested director or directors;
o the contract or transaction, in good faith, is ratified or
approved by the holders of a majority of the voting power;
o the fact of common directorship, office or financial interest
known to the director or officer at the time of the
transactions is brought before the board of directors for
actions; or
o the contract or transaction is fair to the corporation at the
time it is authorized or approved.
Common or interested directors may be counted to determine presence of a quorum
and if the votes of the common or interested directors are not counted at the
meeting, then a majority of directors may authorize, approve or ratify a
contract or transaction.
ALBERTA, CANADA. Under Alberta law, a material contract or transaction between a
corporation and one or more of its directors or officers, or between a
corporation and another entity in which a director or officer of the corporation
is a director or officer, or in which the director or officer has a material
interest in, is not invalid nor is the director or officer accountable to the
corporation for any profit realized, if the director or officer has disclosed
the nature and extent of his interest and the contract or transaction was
approved by the directors or the shareholders and it was reasonable and fair to
the corporation at the time it was approved. Interested directors may be counted
for the purpose of determining a quorum at a meeting of directors called to
authorize the contract.
LIMITATION ON LIABILITY OF DIRECTORS; INDEMNIFICATION OF OFFICERS
AND DIRECTORS
NEVADA. Nevada law provides for discretionary indemnification made by the
corporation only as authorized in the specific case upon a determination that
indemnification of the director, officer, employee or agent is proper in the
circumstances. The determination must be made either:
o by the stockholders;
o by the board of directors by majority vote of a quorum
consisting of directors who were not parties to the actions,
suit or proceeding;
o if a majority vote of a quorum consisting of directors who
were not parties to the actions, suit or proceeding so orders,
by independent legal counsel in a written opinion; or
o if a quorum consisting of directors who were not parties to
the actions, suit or proceeding cannot be obtained, by
independent legal counsel in a written opinion.
27
The articles of incorporation, the bylaws or an agreement made by the
corporation may provide that the expenses of officers and directors incurred in
defending a civil or criminal action, suit or proceeding must be paid by the
corporation as they are incurred and in advance of the final disposition of the
actions, suit or proceeding, upon receipt of an undertaking by or on behalf of
the director or officer to repay the amount if it is ultimately determined by a
court of competent jurisdiction that he is not entitled to be indemnified by the
corporation. The provisions do not affect any right to advancement of expenses
to which corporate personnel other than directors or officers may be entitled
under any contract or otherwise by law. The indemnification and advancement of
expenses authorized in or ordered by a court pursuant to Nevada law does not
exclude any other rights to which a person seeking indemnification or
advancement of expenses may be entitled under the articles of incorporation or
any bylaw, agreement, vote of stockholders or disinterested directors or
otherwise, for either an action in his official capacity or an action in another
capacity while holding office, except that indemnification, unless ordered by a
court or for the advancement of expenses, may not be made to or on behalf of any
director or officer if his acts or omissions involved intentional misconduct,
fraud or a knowing violation of the law and was material to the cause of action.
In addition, indemnification continues for a person who has ceased to be a
director, officer, employee or agent and inures to the benefit of the heirs,
executors and administrators of such a person.
ALBERTA, CANADA. Alberta law provides that a corporation may indemnify a
director or officer or former director or officer of the corporation against
costs, charges and expenses, including an amount paid to settle an action or
satisfy a judgment reasonably incurred by the individual, in respect of a
proceeding to which such person was a party by reason of being or having been a
director or officer, if the person:
o acted honestly and in good faith with a view to the best
interests of the corporation; and
o in the case of a criminal or administrative proceeding
enforced by a monetary penalty, he had reasonable grounds for
believing his conduct was lawful.
Where the indemnity is in respect of an action by or on behalf of the
corporation for a judgment in its favor to which the director or officer is made
party, such indemnity is only available if the director or officer fulfills
those conditions.
VOTING RIGHTS WITH RESPECT TO EXTRAORDINARY CORPORATE TRANSACTIONS
NEVADA. Approval of mergers and consolidations, amendments to the articles of
incorporation, and sales, leases or exchanges of all or substantially all of the
property or assets of a corporation, whether or not in the ordinary course of
business, requires the affirmative vote or consent of the holders of a majority
of the outstanding shares entitled to vote, except that, unless required by the
articles of incorporation, no vote of stockholders of the corporation surviving
a merger is necessary if:
o the merger does not amend the articles of incorporation of the
corporation,
28
o each outstanding share immediately prior to the merger is to
be an identical share after the merger, and
o either no common stock of the corporation and no securities or
obligations convertible into common stock are to be issued in
the merger, or the common stock to be issued in the merger,
plus that initially issuable on conversion of other securities
issued in the merger does not exceed 20% of the common stock
of the corporation outstanding immediately before the merger.
ALBERTA, CANADA. Approvals of amalgamations (except amalgamations between a
corporation and wholly owned subsidiaries), continuances into other
jurisdictions, share consolidations, business combinations, and sales, leases or
exchanges of substantially all the property of a corporation, other than in the
ordinary course of business of the corporation requires approval by the
stockholders by a two-thirds majority vote at a duly called meeting.
STOCKHOLDERS' CONSENT WITHOUT A MEETING
NEVADA. Unless otherwise provided in the articles of incorporation or the
bylaws, any actions required or permitted to be taken at a meeting of the
stockholders may be taken without a meeting if, before or after taking the
actions, a written consent is signed by the stockholders holding at least a
majority of the voting power, except that if a different proportion of voting
power is required for such an actions at a meeting, then that proportion of
written consent is required. In no instance where actions is authorized by
written consent need a meeting of the stockholders be called or notice given.
ALBERTA, CANADA. Any action required or permitted to be taken at a meeting of
the stockholders may be taken by a written resolution signed by all the
stockholders entitled to vote on such resolution.
STOCKHOLDER VOTING REQUIREMENTS
NEVADA. Unless the articles of incorporation or bylaws provide for different
proportions, a majority of the voting power, which includes the voting power
that is present in person or by proxy, regardless of whether the proxy has
authority to vote on all matters, constitutes a quorum for the transactions of
business. In all matters other than the election of directors and certain
corporate actions, including approval of amendments to the articles of
incorporation for which Chapter 98 of the Nevada Revised Statutes imposes
special voting requirements, the affirmative vote of the majority of shares
present in person or represented by proxy at the meeting and entitled to vote on
the subject matter shall be the act of the stockholders. Under Nevada law,
charter amendments require approval by persons holding a majority of a
corporation's outstanding voting shares without regard to the number of shares
that may be present at a meeting in person or by proxy. Directors must be
elected by a plurality of the votes of the shares present in person or
represented by proxy at the meeting and entitled to vote on the election of
directors. Where a separate vote by a class or series or classes or series is
required, a majority of the voting power of the class or series that is present
in person or by proxy, regardless of whether
29
the proxy has authority to vote on all matters, constitutes a quorum for the
transaction of business. An act by the stockholders of each class or series is
approved if a majority of the voting power of a quorum of the class or series
votes for the actions.
ALBERTA, CANADA. Unless the by-laws otherwise provide, a quorum of stockholders
is present for a meeting if the holders of a majority of the shares entitled to
vote at the meeting are present in person or represented by proxy. It is common
practice for companies to provide for a quorum of stockholders to be deemed
present when as little as 5% of the issued and outstanding share capital
entitled to vote is present in person or represented by proxy. Our proposed
bylaws provide that a quorum of shareholders is present at a meeting of
shareholders if at least 2 persons are present in person or by proxy who hold or
represent by proxy, in the aggregate, not less than 12.5% of the shares entitled
to be voted at the meeting. This provision may be detrimental to the rights of
shareholders owning a majority of our voting shares. As a result thereof,
resolutions may be passed at shareholders meeting not attended by such
shareholders that would have otherwise not been subject to a vote. Except where
the Alberta Business Corporations Act requires approval by a special resolution,
requiring approval by a two-thirds majority of the shares present in person or
represented by proxy and entitled to vote on the resolution, a simple majority
or the shares present in person or represented by proxy and entitled to vote on
a resolution is required to approve any resolution properly brought before the
stockholders. Where the articles of a corporation provide for cumulative voting,
stockholders voting at an election of directors have the right to a number of
votes equal to the votes attached to the shares held by such stockholder
multiplied by the number of directors to be elected and stockholders may cast
all such votes in favor of one candidate for director or may distribute the
votes among the candidates in any manner. The holders of a class or series of
shares are entitled to vote separately on proposals to amend the articles of a
corporation where such amendment affects the rights of such class or series in a
manner different than other shares of the corporation. A vote to approve any
such amendment is passed if approved by a two-thirds majority of the voting
power of the class or series represented in person or by proxy at a meeting
called to approve such amendment.
DIVIDENDS
NEVADA. A corporation is prohibited from making a distribution to its
stockholders if, after giving effect to the distribution, the corporation would
not be able to pay its debts as they become due in the usual course of business
or the corporation's total assets would be less than its total liabilities (plus
any amounts necessary to satisfy any preferential rights).
ALBERTA, CANADA. A corporation is prohibited from declaring or paying a dividend
if there are reasonable grounds for believing that the corporation, is or would
after the payment be, unable to pay its liabilities as they become due or the
realizable value of the corporation's assets would be less than the total of its
liabilities and stated capital of all classes.
ANTI-TAKEOVER PROVISIONS
NEVADA. Nevada's "Acquisition of Controlling Interest Statute" applies to Nevada
corporations that have at least 200 shareholders, with at least 100 shareholders
of record being Nevada residents that do business directly or indirectly in
Nevada. Where applicable, the statute prohibits
30
an acquiror from voting shares of a target company's stock after exceeding
certain threshold ownership percentages, until the acquiror provides certain
information to the company and a majority of the disinterested shareholders vote
to restore the voting rights of the acquiror's shares at a meeting called at the
request and expense of the acquiror. If the voting rights of such shares are
restored, shareholders voting against such restoration may demand payment for
the "fair value" of their shares (which is generally equal to the highest price
paid in the transaction subjecting the stockholder to the statute). The Nevada
statute also restricts a "business combination" with "interested shareholders",
unless certain conditions are met, with respect to corporations which have at
least 200 shareholders of record. A "combination" includes:
o any merger with an "interested stockholder," or any other
corporation which is or after the merger would be, an
affiliate or associate of the interested stockholder;
o any sale, lease, exchange, mortgage, pledge, transfer or other
disposition of assets, to an "interested stockholder," having
an aggregate market value equal to 5% or more of the aggregate
market value of the corporation's assets; an aggregate market
value equal to 5% or more of the aggregate market value of all
outstanding shares of the corporation; or representing 10% or
more of the earning power or net income of the corporation;
o any issuance or transfer of shares of the corporation or its
subsidiaries, to the "interested stockholder," having an
aggregate market value equal to 5% or more of the aggregate
market value of all the outstanding shares of the corporation;
o the adoption of any plan or proposal for the liquidation or
dissolution of the corporation proposed by the "interested
stockholder";
o certain transactions which would result in increasing the
proportionate percentage of shares of the corporation owned by
the "interested stockholder"; or
o the receipt of benefits, except proportionately as a
stockholder, of any loans, advances or other financial
benefits by an "interested stockholder."
An "interested stockholder" is a person who, together with affiliates and
associates, beneficially owns (or within the prior three years, did beneficially
own) 10% or more of the corporation's voting stock. A corporation to which this
statute applies may not engage in a "combination" within three years after the
interested stockholder acquired its shares, unless the combination or the
interested stockholder's acquisition of shares was approved by the board of
directors before the interested stockholder acquired the shares. If this
approval was not obtained, then after the three year period expires, the
combination may be consummated if all applicable statutory requirements are met
and either:
o the board of directors of the corporation approves, prior to
such person becoming an "interested stockholder", the
combination or the purchase of shares by the "interested
stockholder"; or the combination is approved by the
affirmative vote of holders of a majority of voting power not
beneficially owned by the "interested stockholder" at a
meeting called no earlier than three years after the date the
"interested stockholder" became such; or
31
o the aggregate amount of cash and the market value of
consideration other than cash to be received by holders of
common shares and holders of any other class or series of
shares meets certain minimum requirements set forth in the
statutes, and prior to the consummation of the "combination",
except in limited circumstances, the "interested stockholder"
will not have become the beneficial owner of additional voting
shares of the corporation.
ALBERTA, CANADA. There is no provision under Alberta law similar to the Nevada
Acquisition of Controlling Interest Statute.
APPRAISAL RIGHTS; DISSENTERS' RIGHTS
NEVADA. Nevada law limits dissenters rights in a merger, when the shares of the
corporation are listed on a national securities exchange included in the
National Market System established by the National Association of Securities
Dealers, Inc. or are held by at least 2,000 shareholders of record, unless the
shareholders are required to accept in exchange for their shares anything other
than cash or
o shares in the surviving corporation if the surviving
corporation is publicly listed on a national securities
exchange or held by more than 2,000 shareholders;
o shares in another entity that is publicly listed on a national
securities exchange or held by more than 2,000 shareholders;
or
o any combination of cash or shares in an entity described
above.
Also, the Nevada law does not provide for dissenters' rights in the case of a
sale of assets.
ALBERTA, CANADA. Under the Alberta Business Corporations Act stockholders have
rights of dissent where the corporation amends its articles to change any
provisions restricting or constraining the issue or transfer of ownership of
shares of a class, or to add, change or remove restrictions on the business or
businesses the corporation may carry out. Stockholders also have dissent rights
where a corporation proposes to amalgamate, other than with a wholly owned
subsidiary corporation, continue to another jurisdiction, or sell, lease or
exchange all or substantially all of its property.
STATUTORY OPPRESSION REMEDY
NEVADA. There is no provision under Nevada law similar to the Alberta Oppression
Remedy Statute described below.
ALBERTA, CANADA. Under the Alberta Business Corporations Act, shareholders,
creditors, or officers and directors of a corporation may apply to a court for
relief for acts or omissions by a corporation, or its officers, directors, or
other affiliates that are oppressive or unfairly prejudicial to or that unfairly
disregard the interests of such persons. The court may issue an order:
32
o restraining the conduct complained of;
o appointing a receiver;
o to regulate a corporation's affairs by amending its articles
or bylaws;
o declaring that any amendment made to the articles or bylaws
pursuant to the above operates notwithstanding any unanimous
shareholder agreement made before or after the date of the
order, until the court otherwise orders;
o directing an issue or exchange of securities;
o appointing directors in place of or in addition to all or any
of the directors then in office;
o directing a corporation, subject to Section 34(2) of the
Alberta Business Corporations Act, or any other person to
purchase securities of a security holder;
o directing a corporation or any other person to pay to a
security holder any part of the money paid by the security
holder for securities;
o directing a corporation, subject to Section 43 of the Alberta
Business Corporations Act, to pay a dividend to its
shareholders or a class of its shareholders;
o varying or setting aside a transaction or contract to which a
corporation is a party and compensating the corporation or any
other party to the transaction or contract;
o requiring a corporation, within a time specified by the court,
to produce to the court or an interested person financial
statements in the form required by Section 155 of the Alberta
Business Corporations Act or an accounting in any other form
the court may determine;
o compensating an aggrieved person;
o directing rectification of the registers or other records of a
corporation under Section 244 of the Alberta Business
Corporations Act;
o for the liquidation and dissolution of the corporation
o directing an investigation under Part 18 of the Alberta
Business Corporations Act to be made;
o requiring the trial of any issue;
o granting leave to the applicant to:
33
o bring an action in the name and on behalf of the corporation
or any of its subsidiaries, or
o intervene in an action to which the corporation or any of its
subsidiaries is a party, for the purpose of prosecuting,
defending or discontinuing an action on behalf of the
corporation or any of its subsidiaries.
ACCOUNTING TREATMENT
The continuance of our company from Nevada to Alberta, Canada represents, for
U.S. accounting purposes, a transaction between entities under common control.
Assets and liabilities transferred between entities under common control are
accounted for at historical cost, in accordance with the guidance for
transactions between entities under common control in Statement of Financial
Accounting Standards No. 141, Business Combinations. The historical comparative
figures of Assure Canada will be those of Assure Nevada.
Upon the effective date of the conversion, we will be subject to the securities
laws of Alberta, Canada as those laws apply to Canadian domestic issuers. We
will qualify as a foreign private issuer in the United States. Before our
continuance in Alberta, we prepared our consolidated financial statements in
accordance with generally accepted accounting principles ("GAAP") in the United
States. As a Canadian domestic issuer, we will be required to prepare our annual
and interim consolidated financial statements in accordance with Canadian
generally accepted accounting principles. For purpose of our annual disclosure
obligations in the United States, we will annually file in the United States
consolidated financial statements prepared in accordance with Canadian GAAP
together with a reconciliation to US GAAP.
BUSINESS OF ASSURE ENERGY, INC.
General
We were incorporated on August 11, 1999 in the State of Delaware under the name
Inventoy.com, Inc. with the objective to license toy designs to toy
manufacturers and to act as a toy inventor's agent in licensing toy designs
developed by others. We expected to market such toy designs by both direct
meetings with toy manufactures' representatives and through a web site that
could give manufacturers the opportunity to review pictures and descriptions of
new inventions at a single source to decide whether a face-to-face meeting would
be useful. Given the effect of an overcrowded .com business environment, no
operations in this area were ever commenced. Accordingly we looked at other
ventures of merit for corporate participation as a means of enhancing
shareholder value. This strategy resulted in our April 23, 2002 Acquisition
Agreement with Assure Oil & Gas Corp., an Ontario, Canada corporation, and the
shareholders of Assure Oil & Gas Corp.
The Acquisition Agreement principally involved our acquisition of all of Assure
Oil & Gas Corp.'s issued and outstanding capital stock, making Assure Oil & Gas
Corp. a wholly owned subsidiary of ours, in exchange for 2,400,000 units, each
unit consisting of one share of our
34
common stock, one Class A Warrant and one Class B Warrant. Each Class A Warrant,
as amended, entitles the holder thereof to acquire one share of our common stock
at a price of $.50 per share at any time or from time to time during the four
year period commencing on October 1, 2003 and expiring on September 30, 2007.
Each Class B Warrant, as amended, entitles the holder thereof to acquire one
share of our common stock at a price of $1.00 per share at any time or from time
to time during the four year period commencing on July 1, 2004 and expiring on
June 30, 2008. As the result of the September 17, 2002 3:2 forward stock split
the 2,400,000 units became 3,600,000 units, consisting of 3,600,000 shares,
3,600,000 Class A Warrants and 3,600,000 Class B Warrants. Similarly, the
exercise price for each Class A Warrant became $.333 and the exercise price for
each Class B Warrant became $.667 per share. In connection with the Acquisition
Agreement, Ed Kaplan, one of our directors at that time, resigned and was
replaced by James Golla, a designee of Assure Oil & Gas Corp. Further, on May 1,
2002 we amended our Certificate of Incorporation to change our name from
Inventoy.com, Inc. to Assure Energy, Inc.
Assure Oil & Gas Corp. is actively engaged in the exploration, development,
acquisition and production of petroleum and natural gas properties primarily
located in Western Canada. In October 2000 Assure Oil & Gas Corp. commenced its
oil and gas operations as part of an initiative to create cash flow by
participating in a Farmout Agreement to drill a prospective Elkton zone natural
gas well. To date, Assure Oil & Gas Corp. has acquired varying interests,
through farmout participations, asset purchases and acquisitions of crown land
rights in approximately 3200 gross acres (3040 net acres) of both producing and
prospective petroleum and natural gas properties in the Western Sedimentary
Basin of Western Canada. Assure Oil & Gas Corp. has seven producing oil wells
with working interests therein ranging from 16.88%-95%. Assure Oil & Gas Corp.'s
share of the average daily production for the past three months from these oil
wells is approximately 28 barrels of oil per day. Six of these oil wells also
produce gas that contributes to Assure Oil & Gas Corp. the equivalent of
approximately 31 barrels of oil equivalent per day. Assure Oil & Gas Corp. has
three other gas wells that contribute to Assure Oil & Gas Corp. approximately 71
barrels of oil equivalent per day. Working interests in these gas wells vary
from 10.83% to 95%. Assure Oil & Gas Corp. currently has one abandoned and three
shut in gas wells. Assure Oil & Gas Corp. is currently drilling one deep test
well to the Wabamum formation in the Doe East area of Alberta.
Assure Oil & Gas Corp. plans to continue to explore, develop or acquire
petroleum and natural gas properties to increase cash flow, and to build
petroleum and natural gas reserves. Assure Oil & Gas Corp. anticipates an
exploration program that could include infill drilling of current proved and
producing properties, seismic interpretation of prospective properties and
exploratory drilling. Acquisitions could include lands, licenses and leases,
producing well bores or corporate acquisitions. Assure Oil & Gas Corp. also may
from time to time acquire, or enter into strategic alliances with complementary
business to achieve these objectives.
On March 14, 2002 we signed an asset purchase agreement with Inventoy.com
International, Inc., through which we assigned all of our rights, titles and
exclusive interests in and to all patents, trademarks, trade names, technical
processes, know-how and other intellectual property that was associated with our
business at that time (toy designs), including the twenty seven (27) toy designs
we acquired from Kaplan Design Group upon our formation, in exchange for all of
the outstanding shares of Inventoy.com International, Inc. (100 shares, par
value $.001).
35
On May 30, 2002 Assure Oil & Gas Corp. entered into a Share Purchase Agreement
with the three shareholders of Westerra 2000 Inc., an Alberta, Canada
corporation engaged in the exploration, development and production of oil and
gas properties primarily located in Alberta and Saskatchewan, Canada. Pursuant
to the Share Purchase Agreement, Assure Oil & Gas Corp. acquired all of the
capital stock of Westerra 2000 Inc. The purchase price was CDN$3,450,000
(approximately US$2,100,000) consisting of:
o CDN$2,677,703.55 paid, on behalf of Westerra 2000 Inc., to
Alta Gas Services Inc. pursuant to a June 1, 2001 Loan
Agreement between Westerra 2000 Inc. and Alta Gas Services
Inc.;
o CDN$422,296.45 paid to the three shareholders of Westerra 2000
Inc. on a pro rata basis in proportion to their share
ownership in Westerra 2000 Inc.; and
o CDN$350,000 (approximately US $221,000) payable to the three
shareholders of Westerra 2000 Inc. on a pro rata basis in
proportion to their share ownership in Westerra 2000 Inc.
following the resolution of title deficiencies on certain
properties.
The parties deemed the effective date of the Acquisition Agreement to be April
1, 2002. As a consequence thereof, Assure Oil & Gas Corp. paid an additional
CDN$34,164.98 to Alta Gas Services Inc., which represented additional interest
due under the loan agreement. As a further consequence, net revenues and prepaid
expenses of Westerra 2000 Inc., attributable to the period ending after April 1,
2002 but received by Westerra 2000 Inc. prior to May 30, 2002, were credited to
Assure Oil & Gas Corp. The title deficiencies referred to above were resolved in
January 2003 but we have not released the CDN $350,000 to the three shareholders
of Westerra 2000 Inc. based on our contention that certain Westerra 2000 Inc.
wells that had been reported to us to be proven/producing wells have not, in
fact, been on production. Consequently, the three shareholders commenced an
action against us in Calgary, Alberta on February 19, 2003 seeking release of
the CDN $350,000 together with interest. See "Legal Proceedings."
The Share Purchase Agreement also provided that within 60 days of Assure Oil &
Gas Corp.'s recoupment of the CDN$3,450,000 Purchase Price in the form of net
revenue from the acquired Westerra 2000 Inc. natural gas production, Assure Oil
& Gas Corp. had to give notice thereof to the three shareholders of Westerra
2000 Inc., who within 30 days of receipt of such notice, could elect to acquire
an aggregate 25% working interest in such natural gas production for no
additional consideration.
Westerra 2000 Inc. owns certain natural gas and oil interests in approximately
five sections of land (3,200 acres gross - 1,920 acres net) in the Lloydminster
area along the provincial border of Alberta and Saskatchewan (the "Westerra
interests"). Westerra 2000 Inc. has six producing oil wells with working
interests therein ranging from 50% to 100%. Westerra 2000 Inc.'s share of the
average daily production for the past three months from these oil wells is
approximately 130 barrels of oil per day. Westerra 2000 Inc. also has eight
producing gas wells, each with a working interest of 60%. Westerra 2000 Inc.'s
share of the average daily production for the past three months from these gas
wells is approximately 153 barrels of oil equivalent per day, based upon the
standard gas conversion ratio where six million cubic feet of gas equals one
barrel of oil. Westerra 2000 Inc. has one suspended and one abandoned oil well.
No new oil or gas wells are currently being drilled by Westerra 2000 Inc.
36
On August 27, 2002 we entered into a Stock Exchange Agreement with Inventoy.com
International, Inc., Kaplan Design Group, Douglas Kaplan, Ed Kaplan and Ron
Beit-Halachmy. At the time of the Stock Exchange Agreement, Kaplan Design Group,
Douglas Kaplan, Ed Kaplan and Ron Beit-Halachmy (collectively the
"Shareholders") owned an aggregate of 14,440,000 shares of our common stock (the
"Shares"). Pursuant to the Stock Exchange Agreement, the Shareholders exchanged
the Shares for all of the issued and outstanding shares of Inventoy.com
International, Inc., our inactive wholly-owned subsidiary. Inventoy.com
International, Inc. owned patents, trademarks, tradenames, technical processes,
know-how and other intellectual property intended to be utilized in a business
involving the licensing of toy designs developed by others. The Shareholders
included certain founders of ours that contributed the Inventoy assets to us
upon our formation. The Shares had been received by the Shareholders in
consideration of their contribution of the Inventoy assets. The decision to sell
Inventoy.com International, Inc. to the Shareholders was based upon the
determination that Inventoy International, Inc. did not fit into our current
operations which primarily consist of the exploration, development, and
acquisition of petroleum and gas properties located in Western Canada. Pursuant
to the Stock Exchange Agreement, the Shares were cancelled and returned to the
status of authorized but unissued shares.
On July 28, 2003 we completed the acquisition of 6,267,500 common shares of
Quarry Oil & Gas Ltd. ("Quarry"), pursuant to a March 6, 2003 Share Purchase
Agreement (the "Share Purchase Agreement") among us, Quarry, and certain Quarry
shareholders including Al J. Kroontje, Trevor G. Penford, Karen Brawley-Hogg,
Donald J. Brown and Troon Investments, Ltd. (collectively the "Sellers"). We
subsequently received an additional 482,500 Quarry shares from the Sellers
resulting in our aggregate purchase of 6,750,000 Quarry shares (the "Acquisition
Shares") pursuant to the Share Purchase Agreement. These 6,750,000 shares
together with the 169,900 Quarry shares already owned by us represent
approximately 48.5% of the outstanding common shares of Quarry. The Acquisition
Shares were purchased by us at a price of CDN $1.3278 (approximately US$.95) per
share or CDN $8,962,650 (approximately US $6,434,107) on an aggregate basis. In
furtherance of the Share Purchase Agreement, on July 28, 2003 Harvey Lalach was
appointed the president and chief executive officer of Quarry.
The Share Purchase Agreement provided for the transfer of certain Quarry assets
(the "Excluded Assets") by Quarry, prior to closing, to a Quarry subsidiary, 51%
of which was sold to the Sellers on the closing date of the Share Purchase
Agreement, at a purchase price of CDN$867,662 (approximately US$622,877). The
purchase price represented 51% of the adjusted net book value of the Excluded
Assets as at the date of the Share Purchase Agreement. The Share Purchase
Agreement also provided for the payment by Quarry to Al Kroontje or his
designees, the sum of CDN$592,500 (approximately US$425,344) representing (i)
salary compensation to Mr. Kroontje for the six years ended December 31, 2000
when Mr. Kroontje did not receive any compensation for serving as an officer and
director of Quarry; (ii) severance pay; and (iii) a retirement allowance.
Payment in full was made to Mr. Kroontje at closing. In furtherance of our
obligations under the Share Purchase Agreement, in September 2003, we presented
to Quarry and the Sellers, an experienced, previously successful management team
for Quarry. The members of the management team are Harvey Lalach, Colin McNeil,
Tim Chorney,
37
Cam Bogle, Colin Emerson and Trevor Penford. Since August 29, 2003, Messrs.
Chorney, Bogle and Emerson have been employed by Assure Oil & Gas Corp. in the
capacities of Operations Manager, Land Manager, and Exploration Manager,
respectively. Through Assure Oil & Gas Corp., we are presently negotiating a
Management Services Agreement with Quarry whereby we will supply Quarry with the
services of certain of our employees that have management or operational
expertise including, but not limited to, the services of Messrs. Chorney, Bogle
and Emerson. In consideration thereof, Quarry will pay us a monthly fee equal to
a percentage of the costs incurred by us in providing such services.
Quarry is a junior oil and gas exploration and development company based in
Calgary, Alberta, Canada whose common shares are listed on the TSX Venture
Exchange under the symbol "QUC". Quarry's average daily production is currently
approximately 1100 barrels of oil equivalent per day. Quarry has a stable oil
production base in Alberta, Canada. It has recently added significant gas
reserves from its discoveries in northeast British Columbia, Canada where it has
access to a large base of undeveloped lands. Quarry has also developed a
portfolio of natural gas prospects to facilitate future growth.
On April 7, 2003 we entered into a Consulting Agreement with TGR Group, LLC,
("TGR") a Nevada limited liability company, pursuant to which TGR provides
public relations services on our behalf. Pursuant to the Agreement, as amended,
we paid a $25,000 fee to TGR and issued100,000 5 year warrants to TGR, each
exercisable for the purchase of 1 share of our restricted common at a price of
$3 per share. Piggyback registration rights apply with respect to the shares
underlying the warrants. These piggyback registration rights do not apply to
registration statements relating solely to employee benefit plans, business
combinations or changes in domicile.
On March 25, 2003 we entered into a one year Consulting Agreement with
Investormedia Group pursuant to which Investormedia Group provides us with
strategic planning and media services, including assistance with creating market
awareness of our company. In consideration of these services, we pay
Investormedia Group a monthly retainer of $2,500 plus a fee equal to 15% of the
of the gross cost of services engaged or facilitated by Investormedia Group. In
certain mutually agreed upon instances, the fee can be reduced to 5%. On June
21, 2003 we authorized Investormedia Group to include a report on us in a
newsletter with an estimated circulation of 300,000 persons. In consideration
thereof, we paid Investormedia Group an aggregate of $326,585 consisting of
typesetting, printing and mailing costs and a 5% agency fee.
Stock Splits
Following the close of business on March 6, 2002 we effected a 4:1 forward stock
split in favor of our shareholders of record as of the close of business on
February 25, 2002. Pursuant to the stock split our 5,221,000 shares of common
stock issued and outstanding on the record date were increased to 20,884,000
shares of common stock.
Following the close of business on September 17, 2002 we effected a 3:2 forward
stock split in favor of our shareholders of record as of the close of business
on September 10, 2002. Pursuant to the stock split our 10,244,000 shares of
common stock issued and outstanding on the record date were increased to
15,366,000 shares.
38
Nevada Reincorporation
On September 11, 2003 we reincorporated from Delaware to Nevada for the sole
purpose of taking advantage of the Nevada continuance statute. The
reincorporation was effected through a Plan and Agreement of Merger between
Assure Energy, Inc., a Delaware corporation, hereinafter referred to as Assure
Delaware, and Assure Nevada. The Merger was approved by the holders of a
majority of the outstanding shares of Assure Delaware. Pursuant to Delaware Law,
dissenting Assure Delaware shareholders were given appraisal rights. No
dissenting shareholders to whom appraisal rights applied made written demand for
appraisal within the required period for doing so.
Financing Transactions
During the period October 2000 through April 2001 we engaged in a private
offering of up to 1,500,000 shares of our common stock at a price of $.10 per
share. The offering was completed in April 2001 with the sale of 1,111,000
shares of our common stock to 42 people resulting in gross proceeds of $111,100.
The offering was made in reliance on Rule 506 of Regulation D under the
Securities Act of 1933, as amended. The information set forth above does not
take into account the effects of our March 6, 2002 and September 17, 2002 stock
splits.
On April 23, 2002 we completed a $1,250,000 debt financing with an accredited
investor. The debt was evidenced by our demand promissory note dated April 23,
2002 and bore interest at the rate of 1% above the prime rate charged by
Citicorp. The note was subsequently cancelled and the principal amount thereof
was utilized to purchase $1,250,000 of our Series A Preferred Stock. The note
was issued pursuant to the exemption from registration contained in Section 4(2)
of the Securities Act of 1933, as amended.
On May 8, 2002 we completed a $1,750,000 equity financing with three accredited
persons pursuant to the exemption from the registration provisions of the
Securities Act of 1933, as amended, provided by Rule 506 of Regulation D. In
connection therewith, we issued an aggregate of 1,400,00 units at a purchase
price of $1.25 per unit. Each unit consists of one share of our common stock and
one common stock purchase warrant. Each warrant as amended, entitles the holder
to purchase one share of our common stock at a price of $1.50 per share for a
period of four years commencing July 1, 2003. As the result of the September 17,
2002 3:2 forward stock split the 1,400,000 unit shares became 2,100,000 shares
and the 1,400,000 warrants became 2,100,000 warrants, each with an exercise
price of $1.00 per share. Both the shares underlying the units and the shares
underlying the unit warrants have piggyback registration rights.
As of June 1, 2002 we entered into a Preferred Stock Purchase Agreement with
three accredited persons pursuant to which we sold them 17,500 shares of our
Convertible Series A Preferred Stock at a price of $100 per share (the "Stated
Value") or an aggregate of $1,750,000. The Series A Preferred Stock was issued
pursuant to Section 4(2) of the Securities Act of 1933, as amended. One of the
purchasers was the purchaser of our $1,250,000 note described above, which
pursuant to a Note Termination and Conversion Agreement with us dated as of June
1, 2002 terminated the April 23, 2002 note referred to above and applied the
$1,250,000 principal amount thereof to the purchase of 12,500 shares of our
Series A Preferred Stock. The Series A
39
Preferred Stock is convertible by the holder after 2 years, or if called for
redemption by us, into units. The initial conversion price for the conversion of
the Series A Preferred Stock is $1.50 of Stated Value. Each unit consists of one
share of our common stock and one common stock purchase warrant. Each warrant
entitles the holder there of to purchase one share of our common stock at a
price of $1.75 per share at any time during the four year period commencing one
year after the date of issuance. Piggyback registration rights apply to the
shares underlying the units and unit warrants issuable upon conversion of the
Series A Preferred Stock. As the result of the September 17, 2002 3:2 forward
stock split, the initial conversion price of the Series A Preferred Stock became
$1.00 of Stated Value and the exercise price for each share underlying the unit
warrants issuable upon conversion of the Series A Preferred Stock became
approximately $1.166 per share. The holders of the Series A Preferred Stock are
entitled to receive out of funds legally available for the payment of dividends,
dividends in cash or stock at the rate of 5% per annum on the Stated Value of
each share of Series A Preferred Stock. Dividends on the Series A Preferred
Stock are cumulative from the issuance date.
As of August 27, 2002 we entered into a Preferred Stock Purchase Agreement with
an accredited person pursuant to which we sold such person 5,250 shares of our
Convertible Series B Preferred Stock at a price of $100 per share (the "Stated
Value") or an aggregate of $525,000. The Series B Preferred Stock was issued
pursuant to Section 4(2) of the Securities Act of 1933, as amended. The Series B
Preferred Stock is convertible by the holder after 2 years, or if called for
redemption by us, into units. The initial conversion price for the conversion of
the Series B Preferred Stock is $1.75 of Stated Value. Each unit consists of one
share of our common stock and one common stock purchase warrant. Each warrant
entitles the holder thereof to purchase one share of our common stock at a price
of $2.00 per share at any time during the four year period commencing one year
after the date of issuance. Piggyback registration rights apply to the shares
underlying the units and the unit warrants issuable upon conversion of the
Preferred Stock. As the result of the September 17, 2002 3:2 forward stock
split, the initial conversion price of the Series B Preferred Stock became
approximately $1.166 of Stated Value and the exercise price for each share
underlying the unit warrants issuable upon conversion of the Series B Preferred
Stock became approximately $1.333 per share. The holders of the Series B
Preferred Stock are entitled to receive out of funds legally available for the
payment of dividends, dividends in cash or stock at the rate of 5% per annum on
the Stated Value of each share of Series B Preferred Stock. Dividends on the
Series B Preferred Stock are cumulative from the issuance date.
On December 28, 2002 Assure Oil & Gas Corp. completed a CDN $1,000,000 debt
financing with an accredited investor. The debt is evidenced by a six year
promissory note which bears interest at the rate of 3 1/2% above the prime rate
charged by Royal Bank of Canada in Toronto. No interest or principal is due on
the note during the first year of the note. On the first anniversary of the
note, all interest then due on the note is payable in full. Thereafter, for the
balance of the term of the note, interest and principal is payable quarterly.
The debt is subordinated to all present and future bank debt of ours, including
our subsidiaries.
On February 26, 2003 we completed a $2,400,750 equity financing in which we sold
1,067,000 units to 2 accredited investors at a price of $2.25 per unit. Each
unit consists of 1 share of our common stock and 1/2 warrant. Each full warrant
entitles the holder to purchase one share of our common stock at a price of
$2.50 per share for a period of five years, commencing February 26, 2003.
40
On March 15, 2003 we completed a $4,500,000 debt financing with an accredited
investor. The debt is evidenced by a six year promissory note which bears
interest at the rate of 3 1/2 % above prime rate charged by Citibank in New
York. No interest or principal is due on the note during the first year of the
note. On the first anniversary of the note, all interest then due on the note is
payable in full. Thereafter, for the balances of the term of the note, interest
and principal is payable quarterly. The debt is subordinated to all present and
future bank debt of ours, including our subsidiaries. In consideration of the
financing, we also issued 450,000 warrants to the investor dated March 15, 2003.
Each warrant entitles the holder to purchase 1 share of our common stock at a
price of $3.10 per share during the 5 year period commencing July 1, 2003.
In October 2003, persons holding an aggregate of 1,538,100 Class A Warrants
exercised such warrants at an exercise price of $.333 per share resulting in
proceeds of approximately $512,187.
In October 2003, a person holding 10,000 warrants exercisable at $3.00 per share
exercised such warrants resulting in proceeds of $30,000.
Supplies and Suppliers
Any raw materials required by us in the operation of our business are available
at competitive rates from many suppliers. We are not dependent on any one
supplier for raw materials.
Research and Development
We have not engaged in any research and development activities since our
inception.
Customers
No single customer accounts for a significant portion of our revenues.
Competition
The oil and gas industry is highly competitive. We encounter competition from
numerous companies in all or our activities, particularly in acquiring rights to
explore for crude oil and natural gas. Most of our competitors are larger and
have substantially greater financial and human resources than we do.
The oil and gas business involves large-scale capital expenditures and
risk-taking. In the search for new oil and gas reserves, long lead times are
often required from successful exploration to subsequent production. Operations
in the oil and gas industry depend on a depleting natural resource. The number
of areas where it can be expected that oil and gas will be discovered in
commercial quantities is constantly diminishing and exploration risks are high.
Areas where oil or gas may be found are often in remote locations where
exploration and development activities are capital intensive and operating costs
are high.
Our future success will depend, to a significant extents, on our ability to make
good decisions regarding our capital expenditures, especially when taking into
consideration our limited resources. We can give no assurance that we will be
able to overcome the competitive disadvantages we face as a small company with
limited capital.
41
Government Regulation
As an oil and gas company with operations in Alberta, Canada and Saskatchewan,
Canada we are subject to the rules and regulations of the Alberta Energy and
Utilities Board (the "EUB") and the Saskatchewan Industry and Resources ("SIR").
The function of both the EUB and SIR is to insure that the discovery,
development and delivery of oil and gas and other natural resources takes place
in a manner that is fair, responsible and in the public interest. The EUB and
SIR establish guidelines which we follow with respect to our oil and gas
operations. Our operating costs are materially affected by these requirements.
Employees
At the present time, our only employees are our two executive officers, our
operations manager, land manager and exploration manager. We utilize independent
contractors for our other service requirements.
Patents, Trademarks and Licenses
We do not have any patents, trademarks, licenses, franchises, concessions,
royalty agreements or labor contracts.
Property
Our executive offices consist of approximately 1,836 square feet of space which
Assure Oil & Gas Corp. subleases at 140-4th Avenue SW, Calgary, Alberta. The
sublease which commenced on October 1, 2002 continues through December 30, 2005.
Under the sublease we pay CDN$4,674.81 per month (approximately US$3,115 per
month). Our president, operations manager, land manager, exploration manager and
our independent contractors including a production accountant, accountant, and
engineer work from this location. Since October 1, 2003, we are also utilizing
approximately 1,500 square feet of office space provided to us by Quarry Oil &
Gas Ltd. at 521 3rd Avenue SW, Suite 1250, Calgary, Alberta T2P 3T3. We are
currently negotiating an arrangement with Quarry Oil & Gas Ltd. respecting the
use of this space. Quarry Oil & Gas Ltd.'s current lease at this location covers
approximately 5,000 square feet of space, runs through April 7, 2007 and
involves base rent payments of CDN$4,000 (approximately US$3,000) per month
together with Quarry's share of taxes and other operating expenses related to
the premises. Under such an arrangement with Quarry Oil & Gas Ltd., we expect to
be charged for the amount of space utilized by us on a pro rata basis. In
conjunction with this new arrangement, we intend to sublease the space at
140-4th Avenue SW to a third party for the remainder of the lease term. We
believe our present space or alternatively, the Quarry Oil & Gas Ltd. space, is
sufficient to handle our present and immediate future needs. In the event our
present sublease or if applicable, our proposed arrangement with Quarry Oil &
Gas Ltd. is terminated for any reason or not renewed upon the expiration of the
present term, space sufficient to handle our then present and expected future
needs is expected to be available from several alternative sources at comparable
rates.
42
LEGAL PROCEEDINGS
On February 19, 2003 Gary Freitag, Garth R. Keyte and Evan Stephens filed a
Statement of Claim against Assure Oil & Gas Corp. in the Court of Queen's Bench
of Alberta, Canada Judicial District of Calgary seeking judgment in the sum of
CDN$350,0000 (approximately US $221,000) together with interest thereon at the
rate of 6% per annum from January 15, 2003. The action relates to CDN$350,000
that was placed in trust as part of the May 30,2002 Share Purchase Agreement
between Assure Oil & Gas Corp. and the three shareholders of Westerra 2000 Inc.
Plaintiffs claim the money should have been released to them on or about January
15, 2003, the date of resolution of certain title deficiencies that existed at
the time the Share Purchase Agreement was executed. We filed a Statement of
Defense and Counterclaim based upon our assertion that certain of the Westerra
2000 Inc. wells that had been purchased in consideration of a report that
indicated they were proven or producing wells were and are in fact non-producing
and that the shareholders had represented that the wells could be brought to
production at any time. We further asserted that since the wells are not on
production the holdback has been forfeited and is not payable. On May 27, 2003,
Messrs. Freitag, Keyte, and Stephens filed a Reply and Statement of Defense to
Counterclaim alleging that the payment of the CDN $350,000 to them was
unconditional and that no representations or warranties had been made that any
of Westerra 2000 Inc. wells were proven or producing. While we disagree with
these statements made in the Reply and Statement of Defense to Counterclaim, and
we continue to believe our position has merit we can offer no assurance as to
the outcome of this matter.
On July 3, 2003, Assure Oil and Gas Corp. and Westerra 2000 Inc., hereinafter
referred to as the plaintiffs, filed a Statement of Claim in the Court of
Queen's Bench of Alberta, Judicial District of Calgary (Action No.: 0301-10499)
naming Lloyd Venture 1 Inc., 970313 Alberta Ltd. and Roswell Petroleum
Corporation as defendants. The action relates to a May 2002 Farmout and Option
Agreement in which Assure Oil & Gas Corp. and Nevarro Energy Ltd. were given the
ability to earn an interest in certain oil and gas interests of the defendants.
Effective November 8, 2002, Nevarro Energy Ltd. assigned its interests under the
Farmout and Option Agreement to Westerra 2000 Inc. The plaintiffs claim that all
of the requirements to earn an interest in the properties was satisfied and that
they became entitled to drill certain option wells, subject to the terms of the
Farmout and Option Agreement. Consequently, several option wells were drilled
and the plaintiffs earned interests in some of the farmout lands. Subsequently,
plaintiffs provided notices to defendants to drill additional option wells.
Defendants advised plaintiffs that the notices were invalid, that they were not
to occupy any further farmout lands or commence any further drilling on the
farmout lands, and that the Farmout and Option Agreement was terminated. The
action seeks an order declaring that the plaintiffs have properly exercised
their rights to drill the option wells in accordance with the Farmout and Option
Agreement, an order for specific performance, and a declaration that the
plaintiffs are entitled to exercise the remainder of their rights under the
Farmout and Option Agreement to elect to drill further option wells and to earn
a working interest in the specifically identified farmout lands. On August 25,
2003 the defendants filed a Statement of Defense and a Counterclaim. In the
Statement of Defense defendants allege that:
43
o Westerra has no interest in the Farmout Agreement or,
alternatively, it failed to provide proper notice of such
interest to defendants;
o Plaintiffs have no right to drill any additional option wells
or to earn further interests in the farmout lands;
o Plaintiffs had no right to drill multiple option wells and
failed to exercise their right to drill option wells in
accordance with the provisions of the Farmout and Option
Agreement; and
o Certain election notices were improperly issued by plaintiffs,
were not valid, and resulted in plaintiff's not having any
interest in certain farmout lands;
The Counterclaim seeks, among other things:
o Orders for accounting of all production from certain wells
drilled pursuant to the Farmout and Option Agreement;
o An order directing the abandonment of certain wells drilled
pursuant to the Farmout and Option Agreement; and
o Monetary charges for trespass and general damages.
We are presently preparing a Statement of Defense to the Counterclaim. While we
believe our claims have merit and the defendants Statement of Defense and
Counterclaim does not, we can offer no assurance as to the outcome of this
matter.
No other legal proceedings are pending to which we or any of our property is
subject, nor to our knowledge are any such proceedings threatened.
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF
OPERATIONS
RESULTS OF OPERATIONS
For the three-months ended June 30, 2003 and June 30, 2002, we had total revenue
of $884,229 and $304,512, respectively. For the six-months ended June 30, 2003
and June 30, 2002, we had total revenue of $1,958,371 and $304,598 respectively.
The increase in total revenues for the six months ended June 30, 2003 as
compared to the six months ended June 30, 2002 was due in part to the fact that
our subsidiaries, Assure Oil & Gas Corp. and Westerra 2000 Ltd. were acquired
effective April 1, 2002. Accordingly, only three months of operations were
included in the six months ended June 30, 2002. Other factors giving rise to the
revenue increases during the three and six months ended June 30, 2003 include
significant increases in the prices of oil and natural gas in 2003 and the
relative strength of the Canadian dollar since December 2002. Our total expenses
for the three-months ended June 30, 2003 and June 30, 2002 were $1,256,532 and
$235,579, respectively. Our total
44
expenses were $2,417,592 for the six-months ended June 30, 2003 and $341,162 for
the six-months ended June 30, 2002. The increase in total expenses for the three
and six months ended June 30, 2003 as compared to the three and six months ended
June 30, 2002 were due to increased costs associated with our expanded
operations including increases in general and administration expenses, operating
expenses, interest expenses and depletion and site restoration. For the
three-months ended June 30, 2003 and June 30, 2002, we had a net loss of
$534,131 or $.03 per share and $2,868, or less than $.01 per share,
respectively. For the six-months ended June 30, 2003, we had a net loss of
$914,705 or $.06 per share as compared to a net loss of $108,365 or less than
$.01 per share, for the six-months ended June 30, 2002. The Company attributes
the losses for the three and six months ended June 30, 2003, in part, to higher
than anticipated depletion and site restoration expenses. During the three
months ended June 30, 2003, the Company incurred non-recurring professional fees
related to the partial acquisition of Quarry Oil & Gas Ltd.
LIQUIDITY AND CAPITAL RESOURCES
We have incurred losses since the inception of our business as an oil and gas
exploration and development company. Since that time, we have been dependent on
acquisitions and funding from private lenders and investors to conduct
operations. As of June 30, 2003 we had an accumulated deficit of $1,775,857. As
of June 30, 2003, we had total current assets of $9,827,079 and total current
liabilities of $979,463 or working capital of $8,847,616. We will continue to
evaluate possible acquisitions of or investments in businesses and properties
that are complimentary to ours. These may require the use of cash, which could
require us to seek additional financing. We may sell equity or debt securities
or seek credit facilities to fund acquisition-related or other business costs.
Sales of equity or convertible debt securities would result in additional
dilution to our stockholders. We may also need to raise additional funds in
order to support more rapid expansion, respond to competitive pressures, or take
advantage of unanticipated opportunities. Our future liquidity and capital
requirements will depend upon numerous factors, including the success of our
existing exploration and development activities.
MARKET FOR COMMON EQUITY AND RELATED
STOCKHOLDER MATTERS
Market Information
Our common stock is quoted on the OTC Bulletin Board of the National Association
of Securities Dealers, Inc. (the "NASD") under the symbol "ASUR." Following the
continuance our stock is expected to be quoted under the symbol "ASURF". From
November 6, 2001 until May 1, 2002, the date we changed our name from
Inventoy.com, Inc. to Assure Energy, Inc., our stock was quoted under the symbol
"INVY." The following table sets forth, for the periods and fiscal quarters
indicated, the high and low closing bid prices per share of our common stock, as
derived from quotations provided by Pink Sheets, LLC. Such quotations reflect
inter-dealer prices, without retail mark-up, mark-down or commission, and may
not represent actual transactions. Prices after March 6, 2002 reflect the 4:1
forward stock split which took effect after the close of business on March 6,
2002. Prices after September 17, 2002 reflect the aforementioned 4:1 forward
stock split and the 3:2 forward stock split which took effect after the close of
business on September 17, 2002.
45
Period Indicated or Quarter Ended High Bid Low Bid
--------------------------------- -------- -------
November 6, 2001 - December 31, 2001 $.05 $.01
January 2, 2002 - March 6, 2002 $.06 $.05
March 7, 2002 - March 31, 2002 $.25 $.01
June 30, 2002 $2.45 $.02
July 1, 2002 - September 17, 2002 $4.00 $2.45
September 18, 2002 - September 30, 2002 $3.05 $3.05
December 31, 2002 $3.06 $3.05
March 31, 2003 $3.06 $3.06
June 30, 2003 $3.10 $2.75
September 30, 2003 $3.91 $2.90
Holders
As of October 21, 2003, there were approximately 40 record holders of our common
stock.
Dividends
We have never declared any cash dividends with respect to our common stock.
Future payment of dividends is within the discretion of our board of directors
and will depend on our earnings, capital requirements, financial condition and
other relevant factors. Although there are no material restrictions limiting, or
that are likely to limit, our ability to pay dividends on our common stock, we
presently intend to retain future earnings, if any, for use in our business and
have no present intention to pay cash dividends on our common stock.
Recent Sales of Unregistered Securities
The information set forth below discusses the amount of securities sold on the
dates provided and does not take into account the effects of our February 2002
4:1 forward stock split or our September 2002 3:2 forward stock split, except to
the extent the date of issuance was after the date of one or both of the splits.
In October 2003, we issued an aggregate of 1,548,100 shares of our common stock
to 13 persons in connection with their exercise of common stock purchase
warrants. These issuances were made in reliance on the exemption from
registration provided by Section 4(2) of the Securities Act of 1933, as amended.
Effective August 28, 2003 we issued 50,000 non-statutory stock options to one
person each exercisable, upon vesting, to purchase one share of our common stock
at a price of $3.00 per share during the three year period ending August 27,
2006. The issuance was made in reliance on the exemption from registration
provided by Section 4(2) of the Securities Act of 1933, as amended.
46
Effective August 29, 2003 we issued an aggregate of 225,000 non statutory stock
options to three persons each exercisable, upon vesting, to purchase one share
of our common stock at a price of $3.00 per share during the three year period
ending August 28, 2006. These issuances were made in reliance on the exemption
from registration provided by Section 4(2) of the Securities Act of 1933, as
amended.
Effective September 4, 2003 we issued 30,000 non-statutory stock options to Lisa
Komoroczy, each exercisable, upon vesting to purchase one share of our common
stock at a price of $3.00 per share during the three year period ending
September 3, 2006. The issuance was made in reliance on the exemption from
registration provided by Section 4(2) of the Securities Act of 1933, as amended.
In April 2003 we issued 100,000 warrants to 1 person for consulting services,
each exercisable upon issuance to purchase one share of our common stock at a
price of $3.00 per share during a five year exercise period. The issuance was
made in reliance or the exemption from registration provided by Section 4(2) of
the Securities Act of 1933, as amended.
On March 15, 2003 we issued a six-year, $4,500,000 promissory note (the "Note")
together with 450,000 5 year warrants (the "Warrants") to 1 person. Each Warrant
entitles the holder to purchase one share of our common stock at a price of
$3.10 per share. The issuance of the Note and Warrants was made in reliance on
the exemption from registration provided by Section 4(2) of the Securities Act
of 1933, as amended.
On February 26, 2003 we completed a $2,400,750 equity financing in which we sold
1,067,000 units to 2 persons at a purchase price of $2.25 per unit. Each unit
consists of 1 share of our common stock and one-half warrant. Each full warrant
entitles the holder to purchase one share of our common stock at a price of
$2.50 per share for a period of five years commencing February 26, 2003. The
issuance was made in reliance on the exemption from registration provided by
Section 4(2) of the Securities Act of 1933, as amended.
On December 28, 2002, Assure Oil & Gas Corp. issued a six year CDN $1,000,000
promissory note (the "Note") to 1 person. The issuance of the Note was made in
reliance on the exemption from registration provided by Section 4(2) of the
Securities Act of 1933, as amended.
Effective October 1, 2002 we issued 100,000 and 20,000 non statutory stock
options, respectively to Harvey Lalach and James Golla, each exercisable, upon
vesting, to purchase one share of our common stock at a price of $2.75 per share
during the three year period ending September 30, 2005. These issuances were
made in reliance on the exemption from registration provided by Section 4(2) of
the Securities Act of 1933, as amended.
Effective October 1, 2002 we issued 200,000 non-statutory stock options to 1
person for consulting services, each exercisable upon issuance to purchase one
share of our common stock at a price of $2.75 per share during the two year
period ending September 30, 2004. The issuance was made in reliance on the
exemption from registration provided by Section 4(2) of the Securities Act of
1933, as amended. Effective April 28, 2003 these options were terminated.
On August 27, 2002 we sold 5,250 shares of our Series B Preferred Stock at a
price of $100 per share or $525,000 on an aggregate basis to 1 person. The sale
was made in reliance on the exemption from registration provided by Section 4(2)
of the Securities Act of 1933, as amended.
47
As of June 1, 2002 we sold 17,500 shares of our Series A Preferred Stock at a
price of $100 per share or $1,750,000 on an aggregate basis to 3 persons. The
sales were made in reliance on the exemption from registration provided by
Section 4(2) of the Securities Act of 1933, as amended.
On May 8, 2002 we completed a $1,750,000 equity financing in which we sold
1,400,000 units to 3 persons at a purchase price of $1.25 per unit. Each unit
consisted of 1 share of our common stock and 1 common stock purchase warrant,
each exercisable for the purchase of an additional share of our common stock.
The sale was made in reliance on the exemption from registration provided by
Rule 506 of Regulation D under the Securities Act of 1933, as amended.
In connection with our April 23, 2002 Acquisition Agreement with Assure Oil &
Gas Corp. and the shareholders of Assure Oil & Gas Corp. we issued an aggregate
of 2,400,000 units to the shareholders of Assure Oil & Gas Corp. Each unit
consisted of 1 share of our common stock, 1 Class A Warrant and 1 Class B
Warrant. Each Class A Warrant and Class B Warrant is exercisable for the
purchase of 1 additional share of our common stock. The sale of the units was
made in reliance on the exemption from registration provided by Section 4(2) of
the Securities Act of 1933, as amended.
During the period October 2000 through April 2001 we engaged in a private
offering of up to 1,500,000 shares of our common stock at a price of $.10 per
share. The offering was completed in April 2001 with the sale of 1,111,000
shares of our common stock to 42 people resulting in gross proceeds of $111,100.
The offering was made in reliance on Rule 506 of Regulation D under the
Securities Act of 1933. as amended.
In July 2001, we issued 10,000 shares of our common stock to Ron Beit-Halachmy
at a price of $.001 per share in consideration of his serving as one of our
directors. The sale of the stock was made in reliance on the exemption from
registration provided by Section 4(2) of the Securities Act of 1933, as amended.
In October 2000 and December 2000, respectively, we issued 250,000 shares of our
common stock to Kaplan Gottbetter & Levenson, LLP, in exchange for legal
services rendered, and 250,000 shares of our common stock to Dunlap Industries
Ltd., in exchange for financial consulting services rendered. For purposes of
the foregoing transactions, the shares were valued at $.10 per share. The sales
of the stock were made in reliance on the exemption from registration provided
by Section 4(2) of the Securities Act of 1933, as amended.
In July 2000 we issued 300,000 shares of our common stock to each of Ed Kaplan
and Douglas Kaplan at a price of $.001 per share or $300 on an aggregate basis.
The sales were made in reliance on the exemption from registration provided by
Section 4(2) of the Securities Act of 1933, as amended.
In July 2000 we issued 3,000,000 shares of our common stock to Kaplan Design
Group in exchange for 27 toy designs. These shares were valued at $.001 per
share or $3,000 on an aggregate basis. The sale was made in reliance on the
exemption from registration provided by Section 4(2) of the Securities Act of
1933, as amended.
48
MANAGEMENT
DIRECTORS, EXECUTIVE OFFICERS, PROMOTERS AND CONTROL PERSONS; COMPLIANCE WITH
SECTION 16(a) OF THE EXCHANGE ACT
Executive Officers, Directors and Key Employees
Directors serve until the next annual meeting of the stockholders; until their
successors are elected or appointed and qualified, or until their prior
resignation or removal. Officers serve for such terms as determined by our board
of directors. Each officer holds office until such officer's successor is
elected or appointed and qualified or until such officer's earlier resignation
or removal. No family relationships exist between any of our present directors
and officers.
The following table sets forth certain information, as of October 27, 2003, with
respect to our directors and executive officers.
Date of Election
Name Positions Held Age or Appointment as Director
---- -------------- --- --------------------------
Harvey Lalach President, Chief Executive and Financial 37 September 12, 2002
Officer, Director
James Golla Secretary, Treasurer, Director 70 April 23, 2002
Lisa Komoroczy Director 38 September 4, 2003
The following is a brief account of the business experience of each of our
directors and executive officers during the past five years or more.
Harvey Lalach has served as a director for us since September 12, 2002, as a
vice president from September 19, 2002 through December 6, 2002, as our
president and chief executive officer since December 6, 2002 and as our chief
financial officer since December 13, 2002. He has served as the president and
chief executive of Quarry Oil & Gas Ltd. since July 28, 2003. He also serves as
president, chief executive and financial officer and as a director for each of
Assure Oil & Gas Corp. and Westerra 2000 Inc. From July 22, 2003 to the present
he has served as a director for Keantha Holdings Inc., a private company that is
49% owned by Quarry Oil & Gas Ltd. Mr. Lalach was employed in the investment
industry from 1987 to 1997 where he served as a securities trader, a floor
trader and ultimately a branch manager for Green Line Investor Services, Inc.
Mr. Lalach was the manager of administration and corporate relations for Goldtex
Resources Ltd., a public mining company listed on TSX Venture Exchange Inc.,
from July 1997 to November 1998. He was the founder, president and director of
GlobalNetCare, Inc. an Internet company whose shares are publicly traded on the
OTC Bulletin Board, from November 1998 to March 2001. From September 2001 to
July 2002, Mr. Lalach was the vice-president and director of Aubryn
International Corp., a company that was mining for spring water in Southern
California whose shares are publicly on the OTC Bulletin Board.
49
James Golla has served as a director of ours since April 23, 2002. He served as
our interim president and chief executive officer from August 1, 2002 until
September 12, 2002. He has served as our secretary and treasurer since August 1,
2002. Mr. Golla was a sports and business journalist with the Globe and Mail,
Canada's national newspaper, from 1954 until his retirement in November 1996.
Mr. Golla is also currently a director of Altair Nanotechnologies Inc. and has
been since May 1994, a company that is developing nanomaterial products and is
listed on the NASDAQ small-cap market. Mr. Golla is a director of several other
public companies including Apogee Minerals Ltd. (since February 1998), a public
oil and gas exploration company listed on the TSX Venture Exchange, Inc.,
European Gold, a public gold exploration company listed on the TSX Venture
Exchange, Inc., Radiant Energy Corp., a high tech company manufacturing products
for the airline industry listed on the TSX Venture Exchange, Inc., and Barton
Bay Resources, a public oil and gas company listed on the TSX Venture Exchange,
Inc.
Lisa Komoroczy has served as a director of ours since September 4, 2003. She has
served in various financial consulting, accounting and administrative capacities
during the past ten years. For the past three years she has worked as an
independent consultant. Within this period, she has provided consulting services
to Path 1 Network Technologies Inc., a US public company, and to several private
companies. From December 1998 until July 2000 she served as Director of Finance
and Administration for The Box Lot Company. Other jobs have involved her serving
as vice president-finance for a merchant banking firm and as an accountant for
KPMG Peat Marwick. She received a B.A. Degree from California State University
of Fullerton after majoring in finance and accounting.
Board of Directors
Our directors presently receive no cash remuneration for acting as such.
Directors may however be reimbursed their expenses, if any, for attendance at
meetings of the Board of Directors. We may also grant stock options to our
directors. In September 2003 we issued 30,000 stock options to Lisa Komoroczy.
Our Board of Directors may designate from among its members an executive
committee and one or more other committees. No such committees have been
appointed to date.
Compliance with Section 16(a) of the Exchange Act
Our common stock is not registered pursuant to Section 12 of the Securities
Exchange Act of 1934, as amended (the "Exchange Act"). Accordingly, our
officers, directors and principal shareholders are not subject to the beneficial
ownership reporting requirements of Section 16(a) of the Exchange Act.
EXECUTIVE COMPENSATION
The following table sets forth information concerning the total compensation
paid or accrued by us during the three fiscal years ended December 31, 2002 to
(i) all individuals that served as our
50
chief executive officer or acted in a similar capacity for us at any time during
the fiscal year ended December 31, 2002 and (ii) all individuals that served as
executive officers of ours at any time during the fiscal year ended December 31,
2002 that received annual compensation during the fiscal year ended December 31,
2002 in excess of $100,000.
Summary Compensation Table
Annual Compensation Long-Term Compensation
Fiscal Year Restricted All Other
Name and Ended Other Options/ Stock LTIP Compen
Principal Position December 31 Salary Bonus Compensation SARs Awards Payouts sation
------------------ ----------- ------ ----- ------------ ---- ------ ------- ------
Ed Kaplan 2002 0 0 0 0 0 0 0
President and CEO 2001 0 0 0 0 0 0 0
2000 0 0 0 0 0 0 0
Doug Kaplan 2002 0 0 0 0 0 0 0
President and CEO 2001 0 0 0 0 0 0 0
2000 0 0 0 0 0 0 0
James Golla 2002 0 0 0 20,000(1) 0 0 0
President and CEO 2001 0 0 0 0 0 0 0
2000 0 0 0 0 0 0 0
Suzanne West 2002 $31,150(2) 0 0 0(3) 0 0 0
President and CEO 2001 0 0 0 0 0 0 0
2000 0 0 0 0 0 0 0
Harvey Lalach 2002 $10,384 0 0 100,000(4) 0 0 0
President and CEO 2001 0 0 0 0 0 0 0
2000 0 0 0 0 0 0 0
(1) Consists of 20,000 stock options issued to Mr. Golla on October 1, 2002
with an exercise price of $2.75 per share. See "Certain Relationships
and Related Transactions."
(2) Excludes $34,010 paid to Ms. West as consulting fees for services
performed by Ms. West subsequent to her engagement as our president and
chief executive officer.
(3) Ms. West's employment contract provided for the grant of 200,000 stock
options to Ms. West. These options were never issued and upon the
termination of Ms. West's employment effective December 6, 2002, all
rights of Ms. West to receive these options were likewise terminated
(4) Consists of 100,000 stock options issued to Mr. Lalach on October 1,
2002 with an exercise price of $2.75 per share.
51
Option/SAR Grants In Last Fiscal Year
(Individual Grants)
Number of
Securities
Underlying Percent of Total Exercise or
Options/SARs Options/SARs Granted to Base Price
Name Granted (#) Employees in Fiscal Year (per share) Date of Grant Expiration Date
---- ----------- ------------------------ ----------- ------------- ---------------
Ed Kaplan 0 Not Applicable ("N/A") N/A N/A N/A
Doug Kaplan 0 N/A N/A N/A N/A
James Golla 20,000 16.66% $2.75 October 1, 2002 September 30, 2005
Suzanne West 0 (1) N/A(2) N/A N/A N/A
Harvey Lalach 100,000 83.33% $2.75 October 1, 2002 September 30, 2005
(1) Ms. West's employment contract provided for the grant of 200,000 stock
options to Ms. West. These options were never issued and upon the termination of
Ms. West's employment effective December 6, 2002, all rights of Ms. West to
receive these options were likewise terminated.
(2) Does not take into account 200,000 stock options that were issuable to
Suzanne West (the "West Options") pursuant to her September 17, 2002 Employment
Agreement or 150,000 stock options that were issuable to Cameron Smigel (the
"Smigel Options") pursuant to his September 16, 2002 Employment Agreement. Due
to the December 6, 2002 termination of the West Employment Agreement and the
December 13, 2002 termination of the Smigel Employment Agreement, the West
Options and Smigel Options were never issued.
Stock Option Plans
We have not adopted any stock option plans since our inception.
Stock Appreciation Rights
We have not granted any stock appreciation rights to the named executive
officers or any other persons since our inception.
Aggregated Option/SAR Exercises in Last Fiscal Year and
Fiscal Year End Option/SAR Values
Number of Securities Underlying Value of Unexercised In-the-Money
Shares Acquired On Value Unexercised Options/SARs Options/SARs
Exercise Realized at Fiscal Year End (#) at Fiscal Year End ($)
Name (#) ($) Exercisable/Unexcercisable Exercisable/Unexcercisable
---- --------------- ------------- -------------------------- --------------------------
Ed Kaplan N/A N/A N/A N/A
Doug Kaplan N/A N/A N/A N/A
James Golla N/A N/A 20,000
10,000 Exercisable $3,100 Exercisable
10,000 Unexercisable $3,100 Unexercisable
Suzanne West N/A N/A N/A N/A
Harvey Lalach N/A N/A 100,000
50,000 Exercisable $15,500 Exercisable
50,000 Unexercisable $15,500 Unexercisable
52
Long Term Incentive Plan Awards
We made no long-term incentive plan awards to the named executive officers or
any other persons since our inception during the fiscal year ended December 31,
2002.
Employment Contracts, Termination of Employment,
and Change-in-Control Arrangements
Effective September 12, 2002 we entered into a three-year employment agreement
with Suzanne West whereby Ms. West agreed to serve as our president and chief
executive officer. The agreement provided for an annual base salary of CDN
$100,000, the grant of 200,000 5 year non-statutory stock options exercisable at
$2.75 per share, and performance bonuses tied to our achievement of specified
oil and gas production levels. Effective December 6, 2002 Ms. West voluntarily
terminated the employment agreement to pursue other interests.
Effective September 30, 2002 we entered into a nine-month employment agreement
with Harvey Lalach to serve as our Vice-President-Corporate Affairs. The
agreement was automatically renewable for successive six-month terms unless
either party delivered written notice of termination to the other at least 15
days prior to the end of the then existing term. Upon the December 6, 2002
resignation of Suzanne West, Mr. Lalach succeeded to the positions of president
and chief executive officer and the agreement was deemed terminated except with
respect to the options granted to Mr. Lalach thereunder. The agreement provided
for a base salary of CDN $3,000 per month and the grant of 100,000 3-year
non-statutory stock options with an exercise price of $2.75 per share. The
options contain anti-dilution provisions. 50,000 of the options vested on March
31, 2003. The remaining 50,000 options vest on March 31, 2004. In recognition of
his added duties, commencing December 6, 2002 we were paying Mr. Lalach a salary
of CDN$7,500 per month (approximately US$5,000) under a verbal month to month
arrangement. Effective September 2, 2003 we entered into a 2 year written
employment agreement with Mr. Lalach. Thereunder, we are paying Mr. Lalach a
base annual salary of CDN$90,000.
Compensation of Directors
We do not presently provide cash compensation to our directors for serving as
directors. We have, in one instance however, provided a director with stock
options in consideration for her serving as such. Two of our three present
directors are also employees, however, and receive compensation from us in their
employment capacities.
53
Report on Repricing of Options/SARs
During the fiscal year ended December 31, 2002 we did not adjust or amend the
exercise price of any stock options or SARs.
CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
In July, 2000 we issued 300,000 shares of our common stock to our founder and
president Ed Kaplan in exchange for a $300 subscription receivable, and issued
300,000 shares of our common stock to our secretary Douglas Kaplan in exchange
for a $300 subscription receivable. These shares were valued at par value, $.01
per share.
In July, 2000 we issued 3,000,000 shares of our common stock to Kaplan Design
Group in exchange for twenty-seven toy designs from Kaplan Design Group. These
shares were valued at par value, $.001 per share for a total of $3,000. Ed
Kaplan Associates paid $3,000 for the toy designs and then transferred them to
Kaplan Design Group for no additional consideration.
In July, 2001 we issued 10,000 shares of common stock, at par value $.001, to
our then newly appointed director Ron Beit-Halachmy.
On August 27, 2002 we entered into a Stock Exchange Agreement with Inventoy.com
International Inc., Kaplan Design Group, Douglas Kaplan, Ed Kaplan and Ron
Beit-Halachmy whereby we transferred ownership of our then inactive subsidiary,
Inventoy.com International Inc., to Kaplan Design Group, and Messrs.
Beit-Halachmy, Kaplan and Kaplan in exchange for an aggregate of 14,440,000
shares of our common stock. For a more detailed discussion of this transaction
see "Business of Assure Energy, Inc.".
Effective October 1, 2002 we issued 100,000 and 20,000 stock options,
respectively, to Harvey Lalach and James Golla. The options have a three year
term that expires on September 30, 2005 and are exercisable for the purchase of
shares of our common stock at an exercise price of $2.75 per share.
Effective September 12, 2002 we entered into a three year employment agreement
with Suzanne West. The agreement was terminated effective December 6, 2002. See
"Item 10. Executive Compensation - Employment Contracts, Termination of
Employment, and Change in Control Arrangements."
Effective September 16, 2002 we entered into a two year employment agreement
with Cameron Smigel pursuant to which he served as a vice president and as our
chief financial officer until the termination of his employment with us
effective December 13, 2002. The agreement provided for an annual base salary of
CDN $86,000 and the issuance of 150,000 stock options exercisable for the
purchase of one share of our common stock at a price of $2.75 per share. The
options were never issued and upon Mr. Smigel's termination of his employment,
our obligation to issue the options ceased.
Effective September 30, 2002 we entered into a nine month employment agreement
with Harvey Lalach. Subsequent thereto Mr. Lalach was employed under a verbal
month to month arrangement. Effective September 2, 2003 we entered into a two
year employment agreement with Mr. Lalach. See "Item 10. Executive Compensation
- Employment Contracts, Termination of Employment, and Change in Control
Arrangements."
54
Effective September 4, 2003 we issued 30,000 non-statutory stock options to Lisa
Komoroczy. The options have a term of three years that expires on September 3,
2006 and are exercisable for the purchase of shares of our common stock at an
exercise price of $3.00 per share.
In October 2003 we issued 150,000 shares of our common stock to Shelly Green in
connection with her exercise of a like number of Class A Warrants at an exercise
price of $.333 per share.
In October 2003 we issued 21,600 shares of our common stock to Lisa Komoroczy in
connection with her exercise of a like number of Class A Warrants at an exercise
price of $.333 per share.
In October 2003, we issued 20,000 shares of our common stock to Harvey Lalach in
connection with his exercise of a like number of Class A Warrants at an exercise
price of $.333 per share.
SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT
The following table sets forth information with respect to the beneficial
ownership of our common stock known by us as of October 29, 2003 by (i) each
person or entity known by us to be the beneficial owner of more than 5% of our
common stock, (ii) each of our directors, (iii) each of our executive officers,
and (iv) all of our directors and executive officers as a group. The percentages
in the table have been calculated on the basis of treating as outstanding for a
particular person, all shares of our common stock outstanding on such date and
all shares of our common stock issuable to such holder in the event of exercise
of outstanding options, warrants, rights or conversion privileges owned by such
person at said date which are exercisable within 60 days of such date. Except as
otherwise indicated, the persons listed below have sole voting and investment
power with respect to all shares of our common stock owned by them, except to
the extent such power may be shared with a spouse.
------------------------------------ ------------------------------------- ------------------------- ---------------
Name and Address Amount and Nature Percentage
of Beneficial Owner Title of Class of Beneficial Ownership of Class
------------------------------------ ------------------------------------- ------------------------- ---------------
Hans Schopper
P.O. Box CB 11742
Chelsea Place 1,200,000 shares,
Nassau Bahamas Common Stock, $.001 per share Direct (1) 6.5%
------------------------------------ ------------------------------------- ------------------------- ---------------
Bamby Investments S.A. (2)
Plaza 2000 Bldg.
50th Street, 16th Floor
Panama 5 1,500,000 shares,
Republic of Panama Common Stock, $.001 per share Direct (3) 8%
------------------------------------ ------------------------------------- ------------------------- ---------------
55
------------------------------------ ------------------------------------- ------------------------- ---------------
Name and Address Amount and Nature Percentage
of Beneficial Owner Title of Class of Beneficial Ownership of Class
------------------------------------ ------------------------------------- ------------------------- ---------------
Shelly Green
P.O. Box 55 1,044,000 shares,
Jacksons Point, Ontario L0E 1L0 Common Stock, $.001 per share Direct (4) 5.7%
------------------------------------ ------------------------------------- ------------------------- ---------------
Harvey Lalach
2575 Alberta Court 90,000 shares,
Kelowna, British Columbia V1W 2X8 Common Stock, $.001 per share Direct (5) .5%
------------------------------------ ------------------------------------- ------------------------- ---------------
James Golla
829 Terlin Blvd. 10,000 shares,
Mississauga, Ontario L5H 1T1 Common Stock, $.001 per share Direct (6) .056%
------------------------------------ ------------------------------------- ------------------------- ---------------
Lisa Komoroczy
P.O. Box 1652 58,200 shares,
Rancho Santa Fe, CA 92067 Common Stock, $.001 per share Direct (7) .3%
------------------------------------ ------------------------------------- ------------------------- ---------------
All officers and directors as a 158,200 shares,
group (3 persons) Common Stock, $.001 per share Direct (8) .88%
------------------------------------ ------------------------------------- ------------------------- ---------------
(1) Includes 600,000 presently exercisable stock options.
(2) The beneficial owner of Bamby Investments, S.A. is Camille Escher.
(3) Includes 750,000 presently exercisable warrants.
(4) Includes 372,000 presently exercisable warrants.
(5) Includes 50,000 presently exercisable stock options.
(6) Includes 10,000 presently exercisable stock options.
(7) Includes 15,000 presently exercisable stock options.
(8) Includes 75,000 presently exercisable stock options.
56
Changes in Control
Not Applicable.
DESCRIPTION OF CAPITAL STOCK
Our authorized capital consists of 105,000,000 shares of which 100,000,000
shares are designated as common stock, par value $.001 per share, 4,977,250
shares are designated as blank check preferred stock, $.0001 per share, 17,500
shares are designated as Series A Preferred Stock and 5,250 shares are
designated as Series B Preferred Stock. As of October 29, 2003, 17,981,100
shares of our common stock, 17,500 shares of our Series A Preferred Stock and
5,250 shares of our Series B Preferred Stock were issued and outstanding.
Common Stock
Each holder of our common stock is entitled to one vote for each share owned of
record on all matters voted upon by our shareholders. In the event of a
dissolution of our company, the holders of our common stock are entitled to
share equally and ratably in our assets, if any, remaining after the payment of
all of our debts and liabilities.
Our common stock has no preemptive rights, no cumulative voting rights, and no
redemption, sinking fund, or conversion privileges. Since the holders of our
common stock do not have cumulative voting rights, holders of more that 50% of
our outstanding shares can elect all of our directors, and holder of the
remaining shares, by themselves, cannot elect any of our directors. Holders of
our commons tock are entitled to receive dividends if, as, and when declared by
our board of directors out of funds legally available for such purpose.
Blank Check Preferred Stock
Shares of our preferred stock may be issued from time to time one or more series
or classes. Our Board of Directors is expressly authorized to provide by
resolution or resolutions duly adopted prior to issuance, for the creation of
each such series and class of preferred stock and to fix the designation and the
powers, preferences, rights, qualifications, limitations, and restrictions
relating to the shares of each such series. The authority of the Board of
Directors with respect to each series of preferred stock shall include, but not
be limited to, determining the following:
o the designation of such series, the number of shares to
constitute such series and the stated value thereof if
different from the par value thereof;
o whether the shares of such series shall have voting rights, in
addition to any voting rights provided by law, and, if so, the
term of such voting rights, which may be general or limited;
o the dividends, if any, payable on such series, whether any
such dividends shall be cumulative, and, if so, from what
dates, the conditions and dates upon which such dividends
shall be payable, and the preference or relation which such
dividends shall bear to the dividends payable on any shares of
stock of any other class or any other series of Preferred
Stock;
57
o whether the shares of such series shall be subject to
redemption by us, and, if so, the times, prices and other
conditions of such redemption;
o the amount or amounts payable upon shares of such series upon,
and the rights of the holders of such series in, the voluntary
or involuntary liquidation, dissolution or winding up, or upon
any distribution of our assets;
o whether the shares of such series shall be subject to the
operation of a retirement or sinking fund and, if so, the
extent to and manner in which any such retirement or sinking
fund shall be applied to the purchase or redemption of the
shares of such series for retirement or other corporate
purposes and the terms and provisions relating to the
operation thereof;
o whether the shares of such series shall be convertible into,
or exchangeable for, shares of stock of any other class or any
other series of Preferred Stock or any other securities and,
if so, the price or prices or the rate or rates of conversion
or exchange and the method, if any, of adjusting the same, and
any other terms and conditions of conversion or exchange;
o the conditions or restrictions, if any, upon the creation of
indebtedness by us or upon the issue of any additional stock,
including additional shares of such series or of any other
series of Preferred Stock or of any other class; and
o any other powers, preferences and relative, participating,
options and other special rights, and any qualifications,
limitations and restrictions, thereof.
The powers, preferences and relative, participating optional and other special
rights of each series of Preferred Stock, and the qualifications, limitations or
restrictions thereof, if any, may differ from those of any and all other series
at any time outstanding. All shares of any one series of Preferred Stock shall
be identical in all respects with all other shares of such series, except that
shares of any one series issued at different times may differ as to the dates
from which dividends thereof shall be cumulative.
Stock Options and Warrants
As of October 29, 2003 we have 2,061,900 A Warrants; 3,600,000 B Warrants; and
3,173,500 other warrants issued and outstanding. Each A Warrant is exercisable
for the purchase of one share of our common stock at a price of $.333 per share
during the four year period that commenced on October 1, 2003. Each B Warrant is
exercisable for the purchase of one share of our common stock at a price of
$.667 per share during the four year period commencing on July 1, 2004.
2,100,000 of the other warrants are exercisable for the purchase of one share of
our common stock at a price of $1.00 per share during the four year period that
commenced on July 1, 2003. 533,500 of the other warrants are exercisable for the
purchase of one share of our common stock at a price of $2.50 per share during
the five year period that commenced February 26, 2003. 90,000 of the other
Warrants are exercisable for the purchase of one share of our
58
common stock at a price of $3.00 per share during the five year period that
commenced on April 7, 2003. 450,000 of the other Warrants are exercisable for
the purchase of one share of common stock at a price of $3.10 per share during
the five year period that commenced on July 1, 2003.
As of October 29, 2003 we have 425,000 stock options issued and outstanding.
120,000 of these stock options are exercisable for the purchase of one share of
our common stock at a price of $2.75 per share at any time through September 30,
2005. 305,000 of these options are exercisable for the purchase of one share of
our common stock at a price of $3.00 per share, 50,000 of which are exercisable
at any time through August 27, 2006, 225,000 of which are exercisable at any
time through August 28, 2006 and 30,000 of which are exercisable at any time
through September 3, 2006.
Transfer Agent and Registrar
Continental Stock Transfer & Trust Company, 17 Battery Place, New York, New York
10004 is our transfer agent and the registrar for our common stock. Its phone
number is (212) 509-4000.
Series A Preferred Stock
This series consists of seventeen thousand five hundred (17,500) shares of
convertible Series A Preferred Stock with a stated value of one hundred dollars
per share. The holders of Series A Preferred Stock are entitled to receive
dividends at the rate of five percent (5%) per annum on the stated value of each
share of Series A Preferred Stock. Dividends on the Series A Preferred Stock are
cumulative from the date of issuance. So long as any shares of the Series A
Preferred Stock are outstanding, no dividends shall be declared or paid or set
apart for payment or other distribution declared or made upon junior securities
including our common stock. The outstanding shares of Series A Preferred Stock
are convertible into Company units as is determined by dividing the stated value
by the conversion price, as defined below, at the option of the Holder in whole
or in part. Each unit consists of one share of common stock and one common stock
purchase warrant which may be exercised for the purchase of one additional share
of common stock at an exercise price of $1.166 per share at any time during the
four year period commencing one year after the date of issuance of the units.
The present conversion price for the conversion of a share of Series A Preferred
Stock into units is $1.00 of stated value and is subject to anti-dilution
provisions.
The shares of Series A Preferred Stock are redeemable at the sole option of the
Company at any time prior to the Company's receipt of a notice of conversion to
the extent funds are legally available therefor, at any time and from time to
time, in whole or in part, at a redemption price equal to 105% of the stated
value of each share of Series A Preferred Stock being redeemed plus accrued and
unpaid dividends thereon.
The Series A Preferred Stock as to dividends, redemptions, and the distribution
of assets upon liquidation, dissolution or winding up of the Company, ranks:
o prior to the Company's common stock;
59
o prior to any class or series of capital stock of the Company
that, by its terms, ranks junior to the Series A Preferred
Stock;
o junior to any class or series of capital stock of the Company
which by its terms ranks senior to the Series A Preferred
Stock; and
o pari passu with any other series of preferred stock of the
Company which by its terms ranks on a parity with the Series A
Preferred Stock.
Series B Preferred Stock
This Series consists of five thousand two hundred fifty (5,250) shares of
convertible Series B Preferred Stock, with a stated value of one hundred dollars
per share. The Series B Preferred Stock is pari passu with the Series A
Preferred Stock and is identical in all respects, except that the warrants
issuable upon conversion have a current exercise price of $1.333 per share and
that the current conversion price for the conversion of a share of Series B
Preferred Stock into units is $1.166 of stated value.
EXPERTS
The financial statements referred to in this prospectus and elsewhere in the
registration statement have been audited by Rogoff & Company, P.C., independent
public accountants, as indicated in their reports with respect thereto, and are
included in reliance upon the authority of said firm as experts in giving said
reports.
LEGAL MATTERS
The validity of the issuance of common stock offered hereby will be passed upon
for Assure Canada by Gottbetter & Partners, LLP, 488 Madison Avenue, 12th Floor,
New York, New York 10022.
AVAILABLE INFORMATION
We are subject to the informational requirements of the Securities Exchange Act
of 1934, as amended. In accordance with those requirements, we presently file,
and after the conversion will continue to file reports and other information
with the Securities and Exchange Commission. After the conversion however, we
will be a foreign private issuer and will file reports related to this new
status including but not limited to the filing of annual reports on Form 20-F.
Such reports and other information can be inspected and copied at the public
reference facilities maintained by the SEC in Room 1024, 450 Fifth Street, NW,
Washington, D.C. 20549. Copies of such material may also be obtained at
prescribed rates by writing to the SEC's Public Reference Section, 450 Fifth
Street, NW, Washington, D.C. 20549 upon payment of the fees prescribed by the
SEC. Please call the SEC at 1-800-SEC-0330 for more information on the operation
of its public reference rooms. The SEC also maintains a Web site that contains
reports, proxy and information statements and other materials that are filed
through the SEC's Electronic Data Gathering, Analysis, and Retrieval (EDGAR)
system. This Web Site can be accessed at http://www.sec.gov. Our reports,
registration statements, and other information that we file electronically with
the SEC are available on this site.
60
You may request a copy of any of our filings, at no cost, by writing or
telephoning us at the following address:
Secretary
Assure Energy, Inc.
2750-140 4th Avenue, S.W.
Calgary, Alberta T2P 3N3
(403) 266-2787
This prospectus does not contain all the information set forth in that
registration statement of which it is a part and the related exhibits.
Statements herein concerning the contents of any contract or other document are
not necessarily complete, and in each instance reference is made to such
contract or other document filed with the SEC or included as an exhibit, or
otherwise, each such contract or document being qualified by and subject to such
reference in all respects. The registration statement and any subsequent
amendments, including exhibits filed as a part of the registration statement,
are available for inspection and copying as set forth above.
CAUTIONARY STATEMENT CONCERNING FORWARD-LOOKING STATEMENTS
Information included or incorporated by reference in this prospectus may include
"forward-looking statements". This information may involve known and unknown
risks, uncertainties and other factors which could cause actual results,
financial performance, operating performance or achievements expressed or
implied by such forward-looking statements not to occur or be realized. Such
forward-looking statements generally are based upon our best estimates of future
results, performance or achievement and based upon current conditions and the
most recent results of operations. Forward-looking statements may be identified
by the use of forward-looking terminology such as "believes," "could,"
"possibly," "probably," "anticipates," "estimates," "projects," "expects,"
"may," "will," or "should" or the negative thereof or other variations thereon
or comparable terminology.
This prospectus contains forward-looking statements, including statements
regarding, among other things, our projected sales and profitability, our growth
strategies, anticipated trends in our industry and our future plans. These
statements may be found under "Business", as well as in this prospectus
generally. Our actual results or events may differ materially from the results
discussed in forward-looking statements as a result of various factors,
including, without limitation, the risks outlined under "Risk Factors" and
elsewhere in this prospectus.
Although we believe that the expectations reflected in the forward-looking
statements are reasonable, we cannot guarantee future results, levels of
activity, performance or achievements. Moreover, we do not assume responsibility
for the accuracy or completeness of the forward-looking statements after the
date of this prospectus.
61
PART II
INFORMATION NOT REQUIRED IN THE PROSPECTUS
Item 20. Indemnification of Directors and Officers.
Nevada law permits a company to indemnify its directors and officers, except for
any act of dishonesty. Assure has provided in its by-laws for the
indemnification of officers and directors to the fullest extent possible under
Nevada law against expenses (including attorney's fees), judgments, fines,
settlements, and other amounts actually and reasonably incurred in connection
with any proceeding, arising by reason of the fact that such person is or was an
agent of ours. In addition, Assure has the power, to the maximum extent and in
the manner permitted by Nevada Revised Statutes, to indemnify each of our
employees and agents (other than directors and officers) against expenses
(including attorneys' fees), judgments, fines, settlements and other amounts
actually and reasonably incurred in connection with any proceeding arising by
reason of the fact that such person is or was an agent of Assure.
The Certificate of Incorporation of Assure Nevada limits or eliminates the
personal liability of its officers and directors for damages resulting from
breaches of their fiduciary duty for acts or omissions except for damages
resulting from acts or omissions which involve intentional misconduct, fraud, a
knowing violation of law, or the inappropriate payment of dividends in violation
of Nevada Revised Statutes.
Item 21. Exhibits.
Exhibits
The following exhibits are included as part of this report:
Financial Statements
Page
----
Independent Auditors Report - Rogoff & Company, P.C .................... F-1
Consolidated Balance Sheet (Audited) as at December 31, 2002 ........... F-2
Consolidated Statements of Operations (Audited) for the years ended
December 31, 2002 and December 31, 2001 ................................ F-3
Consolidated Statement of Stockholders' Equity (Audited) for the year
ended December 31, 2002 ................................................ F-4
Consolidated Statements of Cash Flows (Audited) for the years ended
December 31, 2002 and December 31, 2001 ................................ F-5
Notes to Consolidated Financial Statements (Audited) ................... F-6
Consolidated Balance Sheet as at June 30, 2003 (Unaudited) ............. F-20
Consolidated Statement of Operations for the three and six month periods
ended June 30, 2003 and 2002 (Unaudited) ............................... F-21
Consolidated Statement of Cash Flows for the six month periods
ended June 30, 2003 and 2002 (Unaudited) ............................... F-22
Notes to Consolidated Financial Statement (Unaudited) .................. F-23
62
Financial Statement Schedules
All financial statement schedules are omitted because they are not applicable or
the required information is shown in the financial statements or notes thereto.
Exhibits
SEC Report
Reference
Exhibit No. Number Description
----------- ------ -----------
2.1 2.1 Asset Purchase Agreement dated March 14, 2002 between Registrant and
Inventoy.com International, Inc.(1)
2.2 2.1 Acquisition Agreement dated April 23, 2002 by and among Registrant,
Assure Oil & Gas Corp. ("Assure") and the shareholders of Assure (2)
2.3 2.1 Share Purchase Agreement dated May 30, 2002 by and among Assure Oil and
Gas Corp., and Gary Freitag, Garth R. Keyte and Evan Stephens.(3)
2.4 2.1 Stock Exchange Agreement dated August 27, 2002 by and among Registrant,
Inventoy.com International Inc., Kaplan Design Group, Douglas Kaplan,
Ed Kaplan and Ron Beit-Halachmy.(4)
2.5 2.1 Share Purchase Agreement dated March 6, 2003 by and among Assure
Energy, Inc., and Al J. Kroontje, Trevor G. Penford, Karen
Brawley-Hogg, Donald J. Brown, Troon Investments, Ltd., and Quarry Oil
& Gas, Ltd. (9)
2.6 2.2 Amending Agreement dated March 26, 2003 to March 6, 2003 Share Purchase
Agreement. (9)
2.7 2.3 Amending Agreement No. 2 dated April 11, 2003 to March 6, 2003 Share
Purchase Agreement. (9)
63
SEC Report
Reference
Exhibit No. Number Description
----------- ------ -----------
2.8 2.1 Agreement and Plan of Merger dated as of September 9, 2003 between
Assure Energy, Inc., a Delaware corporation and Assure Energy, Inc., a
Nevada corporation. (10)
2.9 2.2 Certificate of Merger as filed with the Delaware Secretary of State
effective September 11, 2003. (10)
2.10 2.3 Articles of Merger as filed with the Nevada Secretary of State on
September 11, 2003. (10)
2.11 Form of Articles of Conversion(11)
2.12 Form of Plan of Conversion(11)
2.13 Form of Articles of Continuance(11)
3.1 3.1 Certificate of Incorporation of Registrant as filed August 11, 1999.(5)
3.2 3.1 Certificate of Amendment to Certificate of Incorporation of Registrant
filed February 15, 2002.(6)
3.3 3.1 Certificate of Amendment to Certificate of Incorporation of Registrant
filed May 1, 2002.(2)
3.4 3.2 By-Laws of Assure Energy, Inc., a Delaware corporation.(5)
3.5 3.1 Articles of Incorporation of Assure Energy, Inc., a Nevada corporation
as filed with the Nevada Secretary of State on September 3, 2003. (10)
3.6 3.2 By-Laws of Assure Energy, Inc., a Nevada corporation. (10)
3.7 Form of By-Laws of Assure Energy, Inc., an Alberta corporation(11)
4.1 4.1 Registration Rights Agreement dated as of April 23, 2002 by and between
Registrant and the shareholders of Assure Oil & Gas Corp.(1)
4.3 4.3 Certificate of Designation, Preferences and Rights of Series A
Preferred Stock of Registrant as filed on June 7, 2002(8)
4.4. 4.1 Certificate of Designation, Preferences and Rights of Series B
Preferred Stock of Registrant as filed on August 28, 2002.(4)
64
SEC Report
Reference
Exhibit No. Number Description
----------- ------ -----------
5.1 Opinion of Gottbetter & Partners, LLP regarding the validity of the
securities issued hereby(11)
10.1 10.1 Promissory Note dated April 23, 2002 (2)
10.2 10.1 Convertible Preferred Stock Purchase Agreement dated August 27, 2002 (4)
10.3 10.1 Employment Agreement dated as of September 12, 2002 between Registrant
and Suzanne West.(7)
10.4 10.4 Convertible Preferred Stock Purchase Agreement dated as of June 1,
2002(8)
10.5 10.5 Employment Agreement dated as of September 17, 2002 between Registrant
and Harvey Lalach(8)
10.6 10.6 Stock Option Agreement made as of September 17, 2002 between Registrant
and Harvey Lalach(8)
10.7 10.7 Stock Option Agreement made as of October 1, 2002 between Registrant
and James Golla(8)
10.8 10.8 Stock Option Agreement made as of October 1, 2002 between Registrant
and Primoris Group Inc.(8)
10.9 10.9 Subordinated Promissory Note dated December 28, 2002(8)
10.10 10.10 Subordinated Promissory Note with Warrant dated March 15, 2003(8)
21 List of subsidiaries of Registrant (11)
23.1 Consent of Independent Auditors(11)
23.2 Consent of Gottbetter & Partners, LLP. (included in Exhibit 5.1)
(1) Filed with the Securities and Exchange Commission on May 1, 2002 as an
exhibit, numbered as indicated above, to the Registrant's Quarterly
Report on Form 10-QSB for the quarterly period ended January 31, 2002,
which exhibit is incorporated herein by reference.
(2) Filed with the Securities and Exchange Commission on May 8, 2002, as an
exhibit, numbered as indicated above, to the Registrant's Current
Report on Form 8-K dated April 23, 2002, which Exhibit is incorporated
herein by reference.
65
(3) Filed with the Securities and Exchange Commission on June 14, 2002, as
an exhibit, numbered as indicated above, to the Registrant's Current
Report on Form 8K dated May 30, 2002, which exhibit is incorporated
herein by reference.
(4) Filed with the Securities and Exchange Commission on September 11,
2002, as an exhibit, numbered as indicated above, to the Registrant's
Current Report on Form 8K dated August 27, 2002, which exhibit is
incorporated herein by reference.
(5) Filed with the Securities and Exchange Commission on May 25, 2001 as an
exhibit, numbered as indicated above, to the Registrants' registration
statement on Form SB-2, which exhibit is incorporated herein by
reference.
(6) Filed with the Securities and Exchange Commission on April 8, 2002, as
an exhibit, numbered as indicated above, to the Registrant's Transition
Report on Form 10-QSB for the transition period from August 1, 2001 to
December 31, 2001, which exhibit is incorporated herein by reference.
(7) Filed with the Securities and Exchange Commission on November 19, 2002,
as an exhibit, numbered as indicated above to the Registrant's
Quarterly Report on Form 10-QSB for the quarterly period ended
September 30, 2002, which exhibit is incorporated herein by reference.
(8) Filed with the Securities and Exchange Commission on April 15, 2003, as
an exhibit, numbered as indicated above to the Registrant's Annual
Report on Form 10KSB for the year ended December 31, 2002, which
exhibit is incorporated herein by reference.
(9) Filed with the Securities and Exchange Commission on August 11, 2003,
as an exhibit, numbered as indicated above to the Registrant's Current
Report on Form 8K dated July 28, 2003, which exhibit is incorporated
herein by reference.
(10) Filed with the Securities and Exchange Commission on September 25,
2003, as an exhibit, numbered as indicated above to the Registrant's
Current Report on Form 8K dated September 11, 2003, which exhibit is
incorporated herein by reference.
(11) Filed herewith.
Item 22. Undertakings.
The undersigned registrant hereby undertakes that it will:
(1) File, during any period in which it offers or sells securities, a
post-effective amendment to this registration statement to:
(i) Include any prospectus required by Section 10(a) (3) of the Securities
Act; and
66
(ii) Reflect in the prospectus any facts or events which, individually or
together, represent a fundamental change in the information set forth
the registration statement. Notwithstanding the foregoing, any increase
or decrease in volume of securities offered (if the total dollar value
of securities offered would not exceed that which was registered) and
any deviation from the low or high end of the estimated maximum
offering range may be reflected in the form of prospectus filed with
the Commission pursuant to Rule 424(b) if, in the aggregate, the
changes in volume and price represent no more than a 20 percent change
in the maximum aggregate offering price set forth in the "Calculation
of Registration Fee" table in the effective registration statement; and
(2) For determining liability under the Securities Act, treat each
post-effective amendment as a new registration statement of the securities
offered, and the offering of the securities at that time to be the initial bona
fide offering.
(3) File a post-effective amendment to remove from registration any of the
securities that remain unsold at the end of the offering.
Insofar as indemnification for liabilities arising under the Securities Act of
1933 business issuer pursuant to the foregoing provisions, or otherwise, the
small business issuer has been advised that in the opinion of the Securities and
Exchange Commission such indemnification is against public policy as express in
the Act and is, therefore, unenforceable. In the event that a claim for
indemnification against such liabilities (other than the payment by the
registrant of expenses incurred or paid by a director, officer or controlling
person of the registrant in the successful defense of any such action, suit or
proceeding) is asserted by such director, officer or controlling person in
connection with the securities being registered, the registrant will, unless in
the opinion of counsel the matter has been settled by controlling precedent,
submit to a court of appropriate jurisdiction the question whether such
indemnification by it is against public policy as expressed in the Securities
Act and will be governed by the final adjudication of such issue.
67
SIGNATURES
Pursuant to the requirements of the Securities Act of 1933, as amended, the
Registrant has duly caused this Registration Statement to be signed on its
behalf by the undersigned, thereunto duly authorized, in Alberta, Canada, on
October 30, 2003.
By: /s/ Harvey Lalach
----------------------------------------------------
Harvey Lalach
President, Chairman, Chief Executive Officer, Secretary and Treasurer
(principal executive officer and principal financial officer)
Pursuant to the requirements of the Securities Act of 1933, as amended,
this Registration Statement has been signed by the following persons in
the capacities and on the dates indicated.
/s/ Harvey Lalach
-----------------------
Harvey Lalach President, Chairman, Chief Dated: October 30, 2003
Executive Officer, Secretary
and Treasurer (principal
executive officer and principal
financial officer)
/s/ Lisa Komoroczy Director Dated: October 30, 2003
------------------------
Lisa Komoroczy
68
Independent Auditors' Report
To the Stockholders' and the Board of Directors
of Assure Energy, Inc.
We have audited the accompanying consolidated balance sheet of Assure Energy
Inc. and Subsidiaries (the "Company") as of December 31, 2002, and the related
consolidated statements of operations and comprehensive loss, stockholders'
equity and cash flows for each of the two years then ended. These financial
statements are the responsibility of the Company's management. Our
responsibility is to express an opinion on these financial statements based on
our audits.
We conducted our audits in accordance with 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 audits provide a
reasonable basis for our opinion.
In our opinion, the consolidated financial statements referred to above present
fairly, in all material respects, the financial position of Assure Energy, Inc.
and Subsidiaries at December 31, 2002, and the consolidated results of their
operations and their cash flows for each of the two years then ended, in
conformity with accounting principles generally accepted in the United States of
America.
/s/ Rogoff & Company, PC
New York, New York
March 28, 2003
F-1
ASSURE ENERGY, INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEET
DECEMBER 31, 2002
ASSETS
Current Assets:
Cash $ 1,216,754
Accounts receivable 1,199,077
Prepaid expenses 8,893
-----------
Total current assets 2,424,724
Restricted cash 54,893
Property and equipment, net 4,681,586
-----------
$ 7,161,203
===========
LIABILITIES AND STOCKHOLDERS' EQUITY
Current Liabilities:
Accounts payable and accrued expenses $ 1,028,100
-----------
Deferred income tax payable 28,156
Long term debt 633,871
Obligation for site restoration 42,913
-----------
1,733,040
-----------
Commitments and Contingencies
Stockholders' Equity:
Preferred stock; 4,977,250 shares authorized
Series A; stated value $100, 5% cumulative dividend; 17,500 shares
authorized, issued and outstanding 1,750,000
Series B; stated value $100, 5% cumulative dividend, 5,250 shares
authorized, issued and outstanding 525,000
Common stock; $.001 par value; 100,000,000 shares
authorized; 15,366,000 shares issued and outstanding 15,366
Additional paid in capital 3,926,250
Accumulated other comprehensive income 72,699
Accumulated deficit (861,152)
-----------
Total stockholders' equity 5,428,163
-----------
$ 7,161,203
===========
See Notes to Consolidated Financial Statements.
F-2
ASSURE ENERGY, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATIONS AND COMPREHENSIVE LOSS
FOR THE YEARS ENDED DECEMBER 31,
2002 2001
------------ ------------
Revenue:
Oil and gas revenue $ 1,136,896 $ --
------------ ------------
Expenses:
Production expenses 299,622 --
Royalties 174,693 --
Depreciation, depletion and site restoration 724,247 --
Interest 24,178 --
General and administrative 677,932 59,383
------------ ------------
Total expenses 1,900,672 59,383
------------ ------------
Loss from operations before provision for income taxes (763,776) (59,383)
Provision for deferred income taxes 28,386 --
------------ ------------
Net loss (792,162) (59,383)
Other comprehensive income, net of taxes:
Foreign translation gain 72,699 --
------------ ------------
Comprehensive loss $ (719,463) $ (59,383)
============ ============
Basic loss per share $ (.03) $ (.002)
============ ============
Basic weighted average common shares outstanding 27,924,740 31,070,762
============ ============
See Notes to Consolidated Financial Statements.
F-3
ASSURE ENERGY, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENT OF STOCKHOLDERS' EQUITY
FOR THE YEARS ENDED DECEMBER 31, 2002 AND 2001
Additional
Preferred Stock Common Stock Paid In Accumulated
Shares Amount Shares Amount Capital Deficit
----------- ----------- ----------- ----------- ----------- -----------
Balance, December 31, 2000 -- $ -- 24,750,000 $ 24,750 $ 51,836 $ (9,607)
Issuance of common stock to director -- -- 60,000 60 -- --
Sale of common stock under private placement -- -- 6,516,000 6,516 633 --
Net loss -- -- -- -- -- (59,383)
----------- ----------- ----------- ----------- ----------- -----------
Balance, December 31, 2001 -- -- 31,326,000 31,326 52,469 (68,990)
Issuance of common stock
for acquisition -- -- 3,600,000 3,600 2,104,821 --
Sale of common stock under
private placement -- -- 2,100,000 2,100 1,747,900 --
Sale of Series A
Preferred Stock 5,000 500,000 -- -- -- --
Conversion of long term debt
to Series A Preferred Stock 12,500 1,250,000 -- -- -- --
Sale of assets in exchange
for common stock -- -- (21,660,000) (21,660) 21,060 --
Sale of Series B Convertible
Preferred Stock 5,250 525,000 -- -- -- --
Other comprehensive income -- -- -- -- -- --
Net loss -- -- -- -- -- (792,162)
----------- ----------- ----------- ----------- ----------- -----------
Balance, December 31, 2002 22,750 $ 2,275,000 15,366,000 $ 15,366 $ 3,926,250 $ (861,152)
=========== =========== =========== =========== =========== ===========
Accumulated
Other Total
Subscription Comprehensive Stockholders'
Receivable Income Equity
----------- ----------- -----------
Balance, December 31, 2000 $ (600) $ -- $ 66,379
Issuance of common stock to director -- -- 60
Sale of common stock under private placement -- -- 7,149
Net loss -- -- (59,383)
----------- ----------- -----------
Balance, December 31, 2001 (600) -- 14,205
Issuance of common stock
for acquisition -- -- 2,108,421
Sale of common stock under
private placement -- -- 1,750,000
Sale of Series A
Preferred Stock -- -- 500,000
Conversion of long term debt
to Series A Preferred Stock -- -- 1,250,000
Sale of assets in exchange
for common stock 600 -- --
Sale of Series B Convertible
Preferred Stock -- -- 525,000
Other comprehensive income -- 72,699 72,699
Net loss -- -- (792,162)
----------- ----------- -----------
Balance, December 31, 2002 $ -- $ 72,699 $ 5,428,163
=========== =========== ===========
See Notes to Consolidated Financial Statements.
F-4
ASSURE ENERGY, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
FOR THE YEARS ENDED DECEMBER 31,
2002 2001
----------- -----------
Cash flows from operating activities:
Net loss $ (792,162) $ (59,383)
Adjustments to reconcile net loss to net cash
used in operating activities:
Depreciation and depletion 641,928 --
Allowance for site restoration 53,000 --
Deferred income taxes 28,156 --
Sale of toy patents 3,000 --
Common stock issued for services -- 50,000
Changes in operating assets and liabilities:
Accounts receivable (930,089) --
Prepaid expenses (229) --
Accounts payable and accrued expenses 965,350 (1,567)
----------- -----------
Net cash used in operating activities (31,046) (10,950)
----------- -----------
Cash flows from investing activities:
Purchases of property and equipment (1,394,521) --
Restricted cash (54,893) --
Acquisition of business (2,051,645) --
----------- -----------
Net cash used in investing activities (3,501,059) --
----------- -----------
Cash flows from financing activities:
Proceeds from sale of preferred stock 1,025,000 --
Proceeds from sale of common stock 1,750,000 7,149
Proceeds from long term debt 1,883,871 --
----------- -----------
Net cash provided by financing activities 4,658,871 7,149
----------- -----------
Effect of exchange rate changes on cash 72,699 --
----------- -----------
Increase (decrease) in cash 1,199,465 (3,801)
Cash, beginning of year 17,289 21,090
----------- -----------
Cash, end of year $ 1,216,754 $ 17,289
=========== ===========
Supplemental disclosure of cash flow information:
Cash paid during the year for interest $ 24,178 $ --
=========== ===========
Supplemental disclosure of non-cash financing activities:
Conversion of debt to Series A Preferred Stock $ 1,250,000 $ --
=========== ===========
Common stock issued for acquisition $ 2,108,421 $ --
=========== ===========
Common stock issued for deferred offering costs $ -- $ 50,000
=========== ===========
See Notes Consolidated Financial Statements.
F-5
ASSURE ENERGY, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
DECEMBER 31, 2002
NOTE 1 - DESCRIPTION OF BUSINESS AND ACQUISITIONS
Assure Energy, Inc. formerly Inventoy.com (the "Company") was
incorporated in the State of Delaware on August 11, 1999. From
inception through March 31, 2002, the Company had been in the
developmental stage. On March 14, 2002 the Company ceased business in
the toy design business. On August 27, 2002 the Company sold its toy
designs to certain former officers and shareholders of the Company in
exchange for all of their common stock in the Company which was
21,660,000 shares. After the transaction the Company cancelled these
shares and returned them to the status of authorized but unissued
shares of common stock. On May 1, 2002 the Company changed its name to
Assure Energy, Inc.
On February 22, 2002, the Board of Directors of the Company approved a
change in the Company's fiscal year to December 31 from July 31.
The board of directors authorized a 4-for-1 common stock split with a
record date of February 25, 2002 and another 3-for-2 common stock split
with a record date of September 10, 2002. All share and per share
information has been retroactively restated to reflect these stock
splits.
Effective April 1, 2002 the Company acquired all of the issued and
outstanding common stock of Assure Oil & Gas Corp., ("Oil & Gas") a
Canadian corporation, engaged in the exploration, development and
production of oil and gas properties in Alberta, Canada, for 3,600,000
units. Each unit consists of one share of the Company's common stock,
one A warrant which entitles the holder to acquire another share of the
Company's common stock at $.33 per share and one B warrant which
entitles the holder to acquire an additional share of the Company's
common stock at $.67 per share. The A warrants are exercisable from
October 1, 2003 through September 30, 2007 while the B warrants are
exercisable from July 1, 2004 through June 30, 2008. The purchase price
was derived entirely from the fair value of the Company's common stock
as the A and B warrants were determined to have deminimus value at the
date of acquisition.
The acquisition of Oil & Gas was accounted for as a purchase. The
purchase price of $2,108,421 has been allocated to the assets acquired
and liabilities assumed based upon their fair values at the date of
acquisition. The purchase price included excess of the fair value over
book basis of $992,482 which is attributable entirely to the oil and
natural gas properties based upon an independent evaluation of proved
oil and natural gas reserves. Total consideration paid has been
allocated as follows:
Current Assets $ 369,028
Oil and Natural Gas Properties 1,887,435
Accounts Payable and Accrued Expenses (148,042)
----------------
Purchase price $ 2,108,421
================
Effective April 1, 2002 the Company acquired all of the issued and
outstanding common stock of Westerra 2000, Inc. ("Westerra"), a
Canadian corporation, engaged in the exploration, development and
production of oil and gas properties in Alberta and Saskatchewan,
Canada, for $2,060,345 in cash.
F-6
ASSURE ENERGY, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
DECEMBER 31, 2002
NOTE 1 - DESCRIPTION OF BUSINESS AND ACQUISITIONS - continued
The acquisition of Westerra was accounted for as a purchase. The
purchase price has been allocated to the assets acquired and
liabilities assumed based upon their fair values at the date of
acquisition. Total consideration paid has been allocated as follows:
Current Assets $ 8,700
Oil and Natural Gas Properties 2,051,645
----------
Purchase price $2,060,345
==========
The following unaudited pro forma consolidated results of operations
for the year ended December 31, 2002 assume that the Oil & Gas and
Westerra acquisitions had occurred as of January 1, 2002, giving effect
to purchase accounting adjustments, if any. The pro forma data is for
informational purposes only and may not necessarily reflect the actual
results of operations had Oil & Gas and Westerra been operated as a
part of the Company since January 1, 2002.
Revenue:
Oil and gas $ 1,439,699
Other 6,704
------------
Total revenue $ 1,446,403
============
Net loss $ (594,460)
============
Earning per share - basic and diluted (a) $ (.02)
============
Weighted average common stock outstanding - basic and diluted 27,924,740
============
(a) Reflects the effect of cumulative preferred stock dividends.
NOTE 2 - BASIS OF PRESENTATION
The accompanying consolidated financial statements present the results
of operations of the Company for the years ended December 31, 2002 and
2001 and its wholly owned subsidiaries, Oil & Gas and Westerra from
April 1, 2002, the effective date of the acquisitions, through December
31, 2002. All material intercompany accounts and transactions have been
eliminated in consolidation.
F-7
ASSURE ENERGY, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
DECEMBER 31, 2002
NOTE 3 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
Concentration of credit risk
Concentrations of credit risk with respect to trade receivables are
limited to customers dispersed primarily across Canada. All trade
receivables are concentrated in the oil and natural gas exploration and
production segment of the economy; accordingly the Company is exposed
to business and economic risk. Although the Company does not currently
foresee a concentrated credit risk associated with these trade
receivables, repayment is dependent upon the financial stability of the
oil and gas industry.
Property and equipment
Oil and gas properties are accounted for using the full cost method of
accounting, whereby all costs associated with acquisition, exploration
and development of oil and gas properties, including directly related
internal costs, are capitalized on a country by country cost center
basis. The cost of drilling and equipping wells, both exploratory and
development are capitalized. Capitalized costs of producing oil and gas
properties, after allowance for estimated abandonment and salvage
costs, are depleted using the unit of production method based upon the
estimated recoverable proven oil and gas reserves.
Costs of acquiring and evaluating unproved properties are initially
excluded from depletion calculations. These unevaluated properties are
assessed annually to ascertain whether impairment has occurred. When
proved reserves are assigned or the property is considered to be
impaired, the cost of the property or the amount of impairment is
included in the depletion calculation.
In applying the full cost method, the Company performs a ceiling test
on properties which restricts the capitalized costs less accumulated
depletion from exceeding an amount equal to the estimated undiscounted
value of future net revenues from proved oil and natural gas reserves,
as determined by independent engineers, based upon sales prices
achievable under existing contracts and posted average reference prices
in effect at year end, and current costs, after deducting estimated
future general and administrative expenses, production related costs,
financing costs, future site restoration costs and income taxes.
Furniture and fixtures are depreciated over the estimated useful lives
of the assets, generally five years. Maintenance and repairs are
expensed as incurred while major renewals and improvements are
capitalized.
Site Restoration
Site restoration costs are costs being accrued for the future
restoration of the property back to its original condition. The accrual
is based upon management's best estimate of the future costs calculated
on the unit of production basis, utilizing proved producing reserves.
F-8
ASSURE ENERGY, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
DECEMBER 31, 2002
NOTE 3 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES - continued
Impairment of long-lived assets
In accordance with Statement of Financial Accounting Standards ("SFAS")
No. 144 "Accounting for the Impairment or Disposal of Long-Lived
Assets" (SFAS 144), the Company reviews long-lived assets for
impairment whenever circumstances and situations change such that there
is an indication that the carrying amounts may not be recovered. In
such circumstances, the Company will estimate the future cash flows
expected to result from the use of the asset and its eventual
disposition. Future cash flows are the future cash inflows expected to
be generated by an asset less the future outflows expected to be
necessary to obtain those inflows. If the sum of the expected future
cash flows (undiscounted and without interest charges) is less than the
carrying amount of the asset, the Company will recognize an impairment
loss to adjust to the fair value of the asset. Management believes that
there are no long-lived impaired assets at December 31, 2002.
Income Taxes
The Company uses the liability method for income taxes as required by
SFAS No. 109 "Accounting for Income Taxes." Under this method, deferred
tax assets and liabilities are determined based on differences between
financial reporting and tax basis of assets and liabilities. Deferred
tax assets and liabilities are measured using enacted tax rates and
laws that will be in effect when the differences are expected to
reverse. Valuation allowances are established when it is more likely
than not that the deferred tax assets will not be realized.
Joint Ventures
Substantially all of the Company's operations are carried out through
joint ventures with unrelated third parties. These financial statements
reflect only the Company's proportionate interest in such ventures.
Revenue Recognition
Revenue from the production of oil and natural gas is earned when title
passes to the customer.
Stock based compensation
The Company accounts for stock based compensation in accordance with
SFAS No. 123, "Accounting for Stock-Based Compensation". Accordingly,
the Company has elected use the intrinsic method to account for stock
based compensation relating to employees. When the exercise price of
employee stock options equals or exceeds the market price of the
underlying stock as of the grant date, no compensation expense is
recorded. As required, the Company provides the pro forma effects of
employee stock based compensation using the fair value method. With
respect to stock based compensation granted to nonemployees, the
Company records an expense equal to the fair value of the option on the
measurement date, which is either the earlier of the date at which a
commitment for performance is reached or the date at which the service
is complete.
F-9
ASSURE ENERGY, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
DECEMBER 31, 2002
NOTE 3 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES - continued
Loss Per Share
The Company presents basic loss per share, and if appropriate, diluted
earnings per share in accordance with the provisions of SFAS No. 128,
"Earnings Per Share" ("SFAS 128").
Under SFAS 128 basic net loss available to common stockholders per
share is computed by dividing the net loss for the year by the weighted
average number of common shares outstanding for the year. Net loss
available to common stockholders is computed by taking the net loss and
adding cumulative dividends on preferred stock for the year. Diluted
net earnings per share is computed by dividing the net earnings for the
period by the weighted average number common share and common share
equivalents during the year. Common stock equivalents include warrants
and options issued during the year.
Comprehensive Loss
Comprehensive loss consists of net income for the period and foreign
currency translation adjustments.
Financial Instruments
The carrying amounts of financial instruments, including cash, accounts
receivable, and accounts payable and accrued expenses approximate fair
value at December 31, 2002 because of the short term maturity of the
instruments. The carrying value of the due to former shareholder of
business acquired approximates fair value based the purchase agreement.
The carrying value of the long term debt approximates fair value as of
December 31, 2002 based upon debt terms available for entities under
similar terms. The carrying amount of the preferred stock is not
practical to estimate without incurring excessive cost, as this
instrument is not publicly traded.
Foreign Currency Translation and Transactions
The assets and liabilities of the foreign subsidiaries are translated
at current exchange rates and related revenues and expenses at average
exchange rates in effect during the year. Resulting translation
adjustments, if material, are recorded as a separate component of
stockholders' equity while foreign currency transaction gains and
losses are included in operations. At December 31, 2002 the foreign
currency translation adjustment was not material and included in
general and administrative expenses in the consolidated statement of
operations.
Use of Estimates
The preparation of financial statements in conformity with accounting
principles generally accepted in the United States of America required
management to make estimates and assumptions that affect the reported
amounts of assets and liabilities and the disclosure of contingent
assets and liabilities at the date of the financial statements and
revenue and expenses during the reporting period. Actual results could
differ from those estimated.
F-10
ASSURE ENERGY, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
DECEMBER 31, 2002
NOTE 3 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES - continued
New Accounting Pronouncements
In June 2001 the Financial Accounting Standards Board ("FASB") issued
SFAS No. 141, "Business Combinations" ("SFAS 141"). SFAS 141 requires
the purchase method of accounting for all business combinations
initiated after June 30, 2001 and eliminates the pooling-of-interest
method. SFAS 141 further clarifies the criteria for recognition of
intangible assets separately from goodwill.
In June 2001 the FASB issued SFAS No. 142, "Goodwill and Other
Intangible Assets," ("SFAS 142"). SFAS 142 eliminates the amortization
of goodwill and indefinite lived intangible assets and initiates an
annual review for impairment. Identifiable intangible assets with
determinable useful lives will continue to be amortized. The Company
adopted this Statement as of January 1, 2002 and management does not
believe that this Statement will have a material impact on the
financial statements.
In August 2001, the FASB issued SFAS No. 143, "Accounting for Asset
Retirement Obligations" ("SFAS 143"), which is effective for fiscal
years beginning after June 15, 2002. It requires that obligations
associated with the retirement of a tangible long-lived asset be
recorded as a liability when those obligations are incurred, with the
amount of the liability initially measured at fair market value. Upon
initially recognition of an accrued retirement obligation, an entity
must capitalize the cost by recognizing an increase in the carrying
amount of the related long-lived asset. Over time, the liability is
accreted to its present value each period, and the capitalized cost is
depreciated over the useful life of the related asset. Upon settlement
of the liability, an entity either settles the obligation for its
recorded amount or incurs a gain or loss upon settlement. Management
believes the adoption of SFAS 143 will not have a significant effect on
the Company's financial statements.
In July 2002, the FASB issued SFAS No. 146, "Accounting for Costs
Associated with Exit or Disposal Activities" ("SFAS 146"). SFAS 146
requires that a liability for costs associated with an exit or disposal
activity be recognized and measured initially at fair value only when
the liability is incurred. SFAS 146 is effective for exit or disposal
activities that are initiated after December 31, 2002. The Company does
not expect the adoption of SFAS 146 to have a material impact on its
operating results or financial position.
In November 2002, the FASB issued Interpretation No. 45, "Guarantor's
Accounting and Disclosure Requirements for Guarantees, Including
Indirect Guarantees of Indebtedness to Others, an interpretation of
FASB Statements No. 5, 57 and 107 and a rescission of FASB
Interpretation No. 34" ("FIN 45"). FIN 45 requires the recognition of
an initial liability for the fair value of an obligation assumed by
issuing a guarantee. The provision for the initial recognition and
measurement of the liability will be applied on a prospective basis to
guarantees issued or modified after December 31, 2002. The adoption of
FIN 45 is not expected to materially affect the consolidated financial
statements.
F-11
ASSURE ENERGY, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
DECEMBER 31, 2002
NOTE 3 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES - continued
On December 31, 2002, the FASB issued SFAS No. 148, "Accounting for
Stock-Based Compensation-Transition and Disclosure." SFAS No. 148
amends SFAS No. 123, and provides alternative methods of transition for
a voluntary change to the fair value based method of accounting for
stock-based employee compensation. In addition, SFAS 148 amends the
disclosure requirements of SFAS 123 to require more prominent and more
frequent disclosures in financial statements of the effects of
stock-based compensation. The interim disclosure requirements of SFAS
No. 148 are effective for interim periods beginning after December 15,
2002. The Company's stock-based compensation related to employees and
non-employee directors is recognized using the intrinsic value method
in accordance with Accounting Principles Board Opinion No. 25,
"Accounting for Stock Issued to Employees," and thus there is no
compensation expense for options granted with exercise prices equal to
the fair value of the Company's common stock on the date of the grant.
The Company is currently evaluating the effect that SFAS 148 will have
on the Company's financial statements, if any.
Management does not believe that recently issued, but not yet effective
accounting pronouncements if currently adopted would have a material
effect on the accompanying financial statements.
NOTE 4 - RESTRICTED CASH
Restricted cash at December 31, 2002 consists of approximately $55,000
held by an agency of the Alberta Provincial Government which may only
be utilized in the event that the Company does not fulfill its
obligation regarding site restoration.
NOTE 5 - PROPERTY AND EQUIPMENT
Property and equipment, at cost, at December 31, 2002 consists of the
following:
Oil and natural gas properties (including approximately $110,000
of non producing properties) $ 5,630,705
Furniture and fixtures 13,569
----------------
5,644,274
Less accumulated depreciation and depletion 962,688
----------------
$ 4,681,586
================
F-12
ASSURE ENERGY, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
DECEMBER 31, 2002
NOTE 6 - INCOME TAXES
As of December 31, 2002, the Company has a net operating loss
carryforward of approximately $400,000 which may be utilized to offset
future taxable income for United States Federal and New York State
Corporate tax purposes. A portion of these net operating loss
carryforwards begin to expire in 2014 with the majority beginning to
expire in 2020. The Company's net operating loss carryforward may be
subject to a substantial limitation due to the change of ownership
rules under Section 382 of the Internal Revenue Code. There are no
timing differences between financial reporting and tax reporting. This
net operating loss carryforward creates a deferred tax asset of
approximately $60,000. Since it is more likely than not that the
Company will not realized a benefit from these net operating loss
carryforwards a 100% valuation allowance has been recorded to reduce
the deferred tax asset to its net realizable value.
The Company's wholly owned subsidiaries have a net operating loss of
approximately $380,000 under The Income Tax Act (Canada). These net
operating losses can be carried back three years and forward seven
years to offset future taxable income. The Canadian entities have
recorded a deferred tax expense of $28,386 for the period from April 1,
2002 through December 31, 2002 relating to the timing differences
between financial reporting and tax reporting relating to royalty
expenses. The Canadian net operating loss creates a deferred tax asset
of approximately $152,000. Since it is more likely than not that the
Canadian subsidiaries will not realize a benefit from these net
operating loss carryforwards a 100% valuation allowance has been
recorded to reduce the deferred tax asset to its net realizable value.
NOTE 7 - LONG TERM DEBT
On March 15, 2003 the Company entered into a six year Subordinated
Promissory Note Payable (the "Subordinated Note") with a foreign entity
with a principle balance of $4,500,000. This Subordinate Note accrues
interest at Citibank's prime rate (4.25% per annum at December 31,
2002) plus 3.5% per annum. No interest will be due until March 14,
2004, at which time all accrued and outstanding interest is due and
payable. Thereafter, quarterly payments of principle and interest are
due each June 15, September 15, December 15 and March 15. This note is
subordinated to all present and future bank debt of the Company and its
subsidiaries. The Company further agreed to issue 450,000 common stock
purchase warrants to purchase an equal number of the Company's common
stock with an exercise price of $3.10 per share. These common stock
purchase warrants may be exercised at ant time during the five years
commencing July 1, 2003.
On December 28, 2002 the Company obtained a note payable in the
principle amount of $633,871. This note payable accrues interest at the
Canadian bank prime rate (which was 4.5% per annum at December 31,
2002) plus 3.5% per annum. The note payable requires an interest only
payment on December 28, 2003. Thereafter the note payable requires
quarterly principle payments of approximately $39,600 plus interest
through December 28, 2007. This note is subordinated to all present and
future bank debt of the Company and its subsidiaries.
F-13
ASSURE ENERGY, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
DECEMBER 31, 2002
NOTE 7 - LONG TERM DEBT
The aggregate maturities of long term debt at December 31, 2002 are as
follows:
December 31,
2003 $ -
2004 158,500
2005 158,500
2006 158,500
2007 158,371
------------------
$ 633,871
==================
NOTE 8 - STOCK OPTIONS
The Company has issued non statutory stock options to two employees,
and an unrelated third party vendor as partial compensation for
services rendered (See Note 10).
On October 1, 2002 the Company issued 20,000 options to an employee of
the Company with an exercise price of $2.75 per share (which is the
fair value at the grant date), through September 30, 2005. The first
10,000 stock options vest on the earlier of March 31, 2003 or upon the
Company achieving 1,000 barrels of oil per day or its natural gas
equivalent (the "Initial Vesting Period"). The remaining 10,000 stock
options vest on the one year anniversary of the Initial Vesting Period.
A summary of the Company's stock option activity is as follows:
Common Stock
---------------------------------
Weighted average
Shares Exercise Price
------------ -----------------
Outstanding, December 31, 2001 -- $ --
Grants 320,000 2.75
Exercised -- --
------- --------
Outstanding, December 31, 2002 320,000 $ 2.75
======= ========
A summary of the Company's stock options outstanding is as follows:
Options Outstanding Options Exercisable
---------------------------------------------- -------------------------------
Weighted-
Average
Remaining
Range of Exercise Number Contractual Weighted-Average Number Weighted-Average
Prices Outstanding Life Exercise Price Exercisable Exercise Price
------ ----------- ---- -------------- ----------- --------------
$0.00 - $2.75 320,000 1.60 $ 2.75 200,000 $ 2.75
F-14
ASSURE ENERGY, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
DECEMBER 31, 2002
NOTE 8 - STOCK OPTIONS - continued
Had the Company adopted the fair value based method for employee
options at the grant date the net loss for the year ended December
would have increased to $888,316 and had no effect on the loss per
share.
The Company's calculations for employee option grants during the year
ended December 31, 2002 were made using an appropriate option-pricing
model using the following assumptions: expected volatility 16.3%, risk
free interest rate 2.3%, expected life in years 3 and dividend yield
0%.
NOTE 9 - EQUITY TRANSACTIONS
Preferred Stock
During June 2002 the Company issued shares of its Series A Preferred
Stock ("Series A"). The Series A has a stated value of $100, a
cumulative 5% dividend payable in cash or shares of the Company's
common stock. The Series A is convertible by the holder after two
years, or if called for redemption by the Company, transferred into
units of the Company on a one for one basis at $1.00 of stated value.
Units consist of one share of the Company's common stock and one common
stock purchase warrant. Each common stock purchase warrant entitles the
holder to purchase one share of the Company's common stock exercisable
at $1.17 per share at any time during the four year period commencing
one year after the date of issuance. On April 23, 2002 the Company
completed a $1,250,000 debt financing with a foreign corporate entity.
During June 2002 the debt was converted into 12,500 shares of the
Company's Series A. On June 7, 2002 the Company issued an additional
5,000 shares of its Series A. At December 31, 2002 the Series A had
accumulated a dividend payable of approximately $50,000.
During August 2002 the Company issued shares of its Convertible Series
B Preferred Stock ("Series B"). The Series B has a stated value of
$100, a cumulative 5% dividend payable annually in cash or common stock
of the Company, and the right to convert the Series B into units
commencing on the second anniversary of the issuance of the Series B.
Each unit consists of one share of the Company's common stock and one
common stock purchase warrant exercisable at $1.33 per share, at any
time during the four year period commencing one year from the date of
issuance of the units. The initial conversion price is $1.17 for each
unit. On August 27, 2002 the Company entered into a Preferred Stock
Purchase Agreement to sell 5,250 shares of the Company's Series B at a
price of $100 per share. At December 31, 2002 the Series B has a
cumulative dividend of approximately $9,000.
Common Stock
On February 15, 2002 the Board of Directors of the Company approved a
plan, and filed an amended certificate of incorporation, to increase
the Company's authorized capital from 20,000,000 shares to 100,000,000
shares.
F-15
ASSURE ENERGY, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
DECEMBER 31, 2002
NOTE 9 - EQUITY TRANSACTIONS - continued
On May 8, 2002, the Company completed an equity financing with certain
accredited investors, exempt from the registration provisions of the
Securities Act of 1933, as amended by Rule 506 of Regulation D. In that
financing, the Company received $1,750,000 in exchange for 2,100,000
units, each unit consisting of one share of the Company's common stock
and one common stock purchase warrant entitling the holder to acquire
another share of the Company's common stock exercisable at $1.00 per
share, for a period of four years commencing July 1, 2003.
During February 2003 the Company entered into Subscription Agreements
to sell 1,067,000 units for an aggregate of $2,400,750. Each unit
consists of one share of the Company's common stock and one half common
stock purchase warrant. Each full warrant entitles the holder to
purchase one share of the Company's common stock at $2.50 per warrant
share for a period of five years commencing from the date of issuance,
February 26, 2003.
During August 2000 the Company's Board of Directors authorized a
Private Placement Offering (the "Offering") of the 6,666,000 Company's
common stock to a limited number of sophisticated investors at a price
of approximately $.02 per share. During the first seven months of 2001
the Company completed this Offering by issuing 6,516,000 shares of its
common stock for proceeds of $7,149 net of deferred offering costs of
$101,451. As part of the Offering the Company issued 50,000 of its
common stock for services rendered as deferred offering costs.
NOTE 10 - COMMITMENTS AND CONTINGENCIES
Employment and Consulting Agreements
On September 17, 2002 the Company entered into an Employment Agreement
(the "Agreement") with one officer of the Company. The initial term of
the Agreement is for nine months commencing on September 30, 2002. The
officer became the Company's president in December 2002, his salary was
increased to approximately $56,000 annually and the Agreement was
cancelled. The stock option portion of the Agreement has been retained
where the officer has been granted 100,000 options to purchase to
purchase an equal number of the Company's common stock at an exercise
price of $2.75 per share (which is the fair value at the grant date),
through September 30, 2005. The first 50,000 stock options vest on the
earlier of March 31, 2003 or upon the Company achieving 1,000 barrels
of oil per day or its natural gas equivalent (the "Initial Vesting
Period"). The remaining 50,000 stock options vest on the one year
anniversary of the Initial Vesting Period.
On September 17, 2002 the Company entered into a Consulting Service
Agreement (the "Service Agreement") with an unrelated third party (the
"Consultant"). The services by the Consultant include media and
investor relations. The initial term of the Service Agreement is for a
period from September 23, 2002 through November 30, 2003. For this
service the Company is required to pay in advance $5,500 per month, as
well as reasonable out-of-pocket expenses not to exceed $1,500 per
month. As part of the Service Agreement the Consultant has been granted
200,000 options to purchase an equal number of common stock at an
exercise price of $2.75 per share through September 30, 2004. The
Company agrees to make all necessary legal and regulatory filings to
enable the issuance of the option agreement to the Consultant. The
Service Agreement includes piggyback registration rights.
F-16
ASSURE ENERGY, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
DECEMBER 31, 2002
NOTE 10 - COMMITMENTS AND CONTINGENCIES - continued
Legal Proceedings
On February 19, 2003 an action was brought against the Company in the
Court of Queen's Bench of Alberta (Canada), Judicial District of
Calgary. The allegation is that the Company owes monies to the
plaintiffs pursuant to a Share Purchase Agreement dated May 30, 2002.
The plaintiffs are seeking approximately $221,000 plus accrued interest
at 6% per annum from January 15, 2003. The Company has filed a
Statement of Defense and Counterclaim based upon management's believe
that certain of the Westerra wells purchased were represented as being
proven/producing when they were non producing. The Company believes its
position has merit but can offer no assurance as to the outcome.
Leases
The Company has an operating lease for its corporate headquarters. The
lease expires on December 31, 2005 and requires annual payments of
approximately $37,400.
NOTE 11 - CONCENTRATIONS
At December 31, 2002 all of the Company's cash is held outside of the
United States. The Company had deposits with commercial financial
institutions which at times, may exceed the Canadian insured limits of
approximately $40,000. Management has placed these funds in high
quality institutions in order to minimize the risk.
At December 31, 2002 the Company had three customers that accounted for
50.0% of the accounts receivable. For the period from April 1, 2002
through December 31, 2002 the Company had one customer that accounted
for 10.8% of the Company's revenue.
NOTE 12 - SEGMENT AND GEOGRAPHIC INFORMATION
The Company operates in one business segment which includes the
exploration and production of oil and natural gas. The Company conducts
all of its operations in Canada. Information about the Company's assets
in different geographic locations as of December 31, 2002 is shown
below pursuant to the provisions of SFAS 131, "Disclosures About
Segments of an Enterprise and Related Information."
Total Assets are as follows:
Canada $ 6,973,403
United States 187,800
----------------
Total Assets $ 7,161,203
================
F-17
ASSURE ENERGY, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
DECEMBER 31, 2002
NOTE 13 - SIGNIFICANT TRANSACTION
On March 6, 2003 the Company has entered into a Purchase Agreement
among certain shareholders (the "Selling Shareholders") of Quarry Oil
and Gas Ltd ("Quarry'), an Alberta corporation, to acquire 47% of the
outstanding common stock of Quarry for approximately $5,800,000 in
cash. As part of the Purchase Agreement the Company has agreed to one
of the three following post closing activities: introduce to Quarry an
experienced management team, subject to approval of the Selling
Shareholders, make an offer, within 60 days of the closing, to acquire
the remaining outstanding common stock of Quarry at a price of not less
then the original purchase price or subscribe, within 90 days of the
closing date, to a material private placement of Quarry common stock at
a subscription price per share of not less than the purchase price. The
Company anticipates completing this Purchase Agreement within the near
term.
NOTE 14 - SUPPLEMENTAL INFORMATION (UNAUDITED)
The following supplemental information regarding oil and natural gas
activities of the Company is presented pursuant to the disclosure
requirements promulgated by the Securities and Exchange Commission and
SFAS No. 69, "Disclosures About Oil and Gas Producing Activities."
Following is a summary of the estimated quantities of the Company's
crude oil and natural gas reserves for the years indicated, as
estimated by a qualified engineering firm, as of December 31, 2002. All
of the Company's reserves are located in Canada. Proved reserves cannot
be measured exactly because the estimation of reserves involves
numerous judgmental determinations. Accordingly, reserve estimates must
be continually revised as a result of new information obtained from
drilling production history, new geological and geophysical data and
changes in economic conditions.
Oil Natural Gas
Quantity of Oil and Natural Gas Reserves (Bbls) (Mcf)
---------- ----------
Total proved reserves at December 31, 2001 -- --
Acquisition 159,953 1,988,428
Production (13,253) (314,428)
---------- ----------
Total proved reserves at December 31, 2002 146,700 1,674,000
========== ==========
Proved developed reserves:
December 31, 2002 13,200 207,000
========== ==========
The following table sets forth the aggregate amounts of capitalized
costs relating to the Company's oil and natural gas producing
activities and the aggregate amount of related accumulated depletion as
of December 31, 2002:
Unproved properties not being amortized $ 110,000
Proved properties being amortized 5,520,705
Less accumulated depletion (961,332)
-----------
Net capitalized costs $ 4,669,373
===========
F-18
ASSURE ENERGY, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
DECEMBER 31, 2002
NOTE 14 - SUPPLEMENTAL INFORMATION (UNAUDITED) - continued
The following table reflects the costs incurred in oil and natural gas
property acquisition, exploration, and development activities during
the year ended December 31, 2002:
Property and acquisition costs $ 3,575,317
Exploration costs --
Development costs 2,055,388
----------------
$ 5,630,705
================
Standardized Measure of Discounted Future Net Cash Flows
The following table reflects the Standardized Measure of Discounted
Future Net Cash Flows relating to the Company's interest in proved oil
and gas reserves as of December 31, 2002:
Future cash inflows $ 12,207,000
Future development costs (71,000)
Future production costs (4,586,000)
------------
Future net cash inflows before income taxes 7,550,000
Future income taxes (1,092,000)
------------
Future net cash flows 6,458,000
10% discount factor (1,516,000)
------------
Standardized measure of discounted future net cash inflow $ 4,942,000
============
F-19
ASSURE ENERGY, INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEET
JUNE 30, 2003
(Unaudited)
ASSETS
Current Assets:
Cash $ 7,996,544
Accounts receivable and other current assets 1,830,535
------------
Total current assets 9,827,079
Available-for-sale securities 138,108
Restricted cash 64,267
Property and equipment, net of accumulated depreciation
and depletion of $2,029,370 4,951,951
------------
$ 14,981,405
============
LIABILITIES AND STOCKHOLDERS' EQUITY
Current Liabilities:
Current portion of long term debt $ 79,200
Accounts payable and accrued expenses 613,306
Accrued interest payable 210,000
Income tax payable 76,957
------------
Total current liabilities 979,463
Long term debt net of current portion 5,191,139
Obligation for site restoration 83,580
Deferred income tax payable 69,611
------------
6,323,793
Stockholders' Equity:
Preferred stock: 4,977,250 shares authorized
Series A; stated value $100, 5% cumulative dividend; 17,500 shares
authorized, issued and outstanding 1,750,000
Series B; stated value $100, 5% cumulative dividend, 5,250 shares
authorized, issued and outstanding 525,000
Common stock; $.001 par value, 100,000,000 shares authorized,
16,433,000 shares issued and outstanding 16,433
Additional paid in capital 6,635,292
Accumulated other comprehensive income 1,506,744
Accumulated deficit (1,775,857)
------------
Total stockholders' equity 8,657,612
------------
$ 14,981,405
============
See Notes to Consolidated Financial Statements.
F-20
ASSURE ENERGY, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATIONS
(Unaudited)
Six Months Ended Three Months Ended
June 30, June 30,
------------------------------- -------------------------------
2003 2002 2003 2002
------------ ------------ ------------ ------------
Revenue:
Oil and gas production $ 1,932,192 $ 297,206 $ 858,050 $ 297,206
Other 26,179 7,392 26,179 7,306
------------ ------------ ------------ ------------
Total revenue 1,958,371 304,598 884,229 304,512
------------ ------------ ------------ ------------
Royalties expense:
Crown royalties 267,811 49,225 133,458 49,225
Freehold royalties 73,474 22,576 30,768 22,576
Gross overriding royalties 59,711 -- 39,702 --
------------ ------------ ------------ ------------
Total royalties expense 400,996 71,801 203,928 71,801
------------ ------------ ------------ ------------
Net oil and gas revenue 1,557,375 232,797 680,301 232,711
------------ ------------ ------------ ------------
Expenses:
General and administrative 559,667 148,103 311,880 42,520
Operating 377,010 82,327 226,064 82,327
Interest 393,791 22,082 211,165 22,082
Depletion and site restoration 1,087,124 88,650 507,423 88,650
------------ ------------ ------------ ------------
Total expenses 2,417,592 341,162 1,256,532 235,579
------------ ------------ ------------ ------------
Loss before provision for income taxes (860,217) (108,365) (576,231) (2,868)
------------ ------------ ------------ ------------
Provision (benefit) for income taxes 54,488 -- (42,100) --
------------ ------------ ------------ ------------
Net loss (914,705) (108,365) (534,131) (2,868)
Other comprehensive income (loss), net of taxes:
Foreign translation gain (loss) 1,434,045 (120,490) 1,005,387 (120,490)
------------ ------------ ------------ ------------
Comprehensive income (loss) $ 519,340 $ (228,855) $ 471,256 $ (123,358)
============ ============ ============ ============
Basic loss per common share $ (0.06) $ * $ (0.03) $ *
============ ============ ============ ============
Basic weighted average common shares
outstanding 16,096,983 33,649,757 16,433,000 35,947,978
============ ============ ============ ============
* Amount is less than $.01
See Notes to Consolidated Financial Statements.
F-21
ASSURE ENERGY, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
SIX MONTHS ENDED JUNE 30,
(Unaudited)
2003 2002
----------- -----------
Cash flows from operating activities:
Net loss $ (914,705) $ (108,365)
Adjustments to reconcile net loss to net cash used in
operating activities:
Depreciation and depletion 1,066,682 75,063
Allowance for site restoration 40,667 13,587
Warrants issued for interest 181,260 --
Options and warrants issued for services 127,500 --
Deferred income taxes 41,455 --
Change in operating assets and liabilities:
Accounts receivable and other current assets (622,565) (58,230)
Other assets -- 3,000
Accounts payable and accrued expenses (414,195) (119,756)
Accrued interest payable 210,000 --
Income tax payable 76,957 --
----------- -----------
Net cash used in operating activities (206,944) (194,701)
----------- -----------
Cash flows from investing activities:
Purchases of property and equipment (1,337,047) (101,913)
Restricted cash (9,374) --
Purchase of available-for-sale securities (138,108) --
Acquisition of business -- (1,838,620)
----------- -----------
Net cash used in investing activities (1,484,529) (1,940,533)
----------- -----------
Cash flows from financing activities:
Proceeds from long term debt 4,500,000 1,350,000
Proceeds from the sale of units 2,400,750 --
Proceeds from sale of common stock -- 1,750,000
Proceeds from sale of Series A Preferred Stock -- 500,000
----------- -----------
Net cash provided by financing activities 6,900,750 3,600,000
----------- -----------
Effect of exchange rate changes on cash 1,570,513 47,182
----------- -----------
Increase in cash 6,779,790 1,511,948
Cash, beginning of period 1,216,754 17,289
----------- -----------
Cash, end of period $ 7,996,544 $ 1,529,237
=========== ===========
Supplemental disclosure of non-cash financing activities:
Conversion of debt to Series A Preferred Stock $ -- $ 1,250,000
=========== ===========
Common stock issued for acquisition $ -- $ 2,108,421
=========== ===========
Options and warrants issued for services $ 127,500 $ --
=========== ===========
See Notes to Consolidated Financial Statements
F-22
ASSURE ENERGY, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
JUNE 30, 2003
(Unaudited)
Note 1 - Nature of Business
Assure Energy, Inc. (the "Company") was incorporated in the State of
Delaware on August 11, 1999. The Company, through its wholly owned
Canadian subsidiaries Assure Oil & Gas Corp. and Westerra 2000, Inc.,
is engaged in the exploration, development and production of oil and
natural gas properties in the Canadian providences of Alberta and
Saskatchewan.
Note 2 - Basis of Presentation
The accompanying unaudited consolidated financial statements and
related footnotes have been prepared in accordance with accounting
principles generally accepted in the United States of America for
interim financial statements and pursuant to the rules and regulations
of the Securities and Exchange Commission for Form 10-QSB. Accordingly,
they do not include all of the information and footnotes required by
accounting principles generally accepted in the United States of
America for complete financial statements. In the opinion of
management, all adjustments (consisting of normal recurring accruals)
considered necessary for a fair presentation have been included. For
further information read the financial statements and footnotes thereto
included in the Company's Annual Report on Form 10-KSB for the year
ended December 31, 2002. The results of operations for the six-months
ended June 30, 2003 are not necessarily indicative of the operating
results that may be expected for the year ending December 31, 2003.
The accompanying financial statements include the accounts of the
Company and its wholly owned subsidiaries. All significant intercompany
balances and transactions have been eliminated in consolidation.
Note 3 - Summary of Significant Accounting Policies
Stock based compensation
Effective January 1, 2003, the Company adopted the fair value of
accounting for stock based based compensation following the provisions
of Statement of Financial Accounting Standards No. 148 "Accounting for
Stock-Based Compensation - Transition and Disclosure" an amendment of
SFAS No. 123.
Six Months
Ended
June 30, 2003
-------------
Net loss (as reported)
$ (914,705)
Deduct: Total stock based compensation expense determined
under the fair value based method for all awards granted,
modified or settled during the period, net of related taxes --
-----------
Pro forma net loss $ (914,705)
===========
Basic, as reported $ (0.06)
===========
Basic, pro forma $ (0.06)
===========
F-23
ASSURE ENERGY, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
JUNE 30, 2003
(Unaudited)
Note 3 - Summary of Significant Accounting Policies - continued
Investments in Marketable Securities
The Company's investments in marketable equity securities have been
classified as available-for-sale. Accordingly, they are carried at fair
value, with unrealized gains and losses, net of related tax effects,
reported as a separate component of stockholders' equity (deficiency)
and accumulated other comprehensive income (loss). At June 30, 2003 the
unrealized loss was not material.
Use of estimates
The preparation of consolidated 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 the
disclosure of contingent assets and liabilities at the date of the
financial statements and revenues and expenses during the reporting
period. Actual results could differ from those estimates.
Recent accounting pronouncements
In April 2003, the FASB issued Statement of Financial Accounting
Standards No. 149 (SFAS 149), "Amendment of Statement 133 on Derivative
Instruments and Hedging Activities." This statement amends SFAS 133 to
provide clarification on the financial accounting and reporting of
derivative instruments and hedging activities and requires contracts
with similar characteristics to be accounted for on a comparable basis.
The Company is in the process of assessing the effect of SFAS 149 and
does not expect the adoption of the statement, which will be effective
for contracts entered into or modified after June 30, 2003, to have a
material effect on its financial position or results of operations.
In May 2003, the FASB issued Statement of Financial Accounting
Standards No. 150 (SFAS 150), "Accounting for Certain Financial
Instruments with Characteristics of both Liabilities and Equity." SFAS
150 establishes standards on the classification and measurement of
financial instruments with characteristics of both liabilities and
equity. SFAS 150 will become effective for financial instruments
entered into or modified after May 31, 2003. The adoption of SFAS 150
has not had a material effect on the Company's financial position or
results of operations.
In November 2002, the FASB issued Emerging Issues Task Force (EITF)
Issue No. 00-21, "Revenue Arrangements with Multiple Deliverables."
EITF 00-21 addresses certain aspects of the accounting by a company for
arrangements under which it will perform multiple revenue-generating
activities. EITF 00-21 addresses when and how an arrangement involving
multiple deliverables should be divided into separate units of
accounting. EITF 00-21 provides guidance with respect to the effect of
certain customer rights due to company nonperformance on the
recognition of revenue allocated to delivered units of accounting. EITF
00-21 also addresses the impact on the measurement and/or allocation of
arrangement consideration of customer cancellation provisions and
consideration that varies as a result of future actions of the customer
or the company. Finally, EITF 00-21 provides guidance with respect to
the recognition of the cost of certain deliverables that are excluded
from the revenue accounting arrangement. The provisions of EITF 00-21
will apply to revenue arrangements entered into in fiscal periods
beginning after June 15, 2003. The adoption of EITF 00-21 has not had a
material effect on its financial position or results of operations.
Management does not believe that any recently issued, but not yet
effective accounting pronouncements, if currently adopted, would have a
material effect on the accompanying consolidated financial statements.
F-24
ASSURE ENERGY, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
JUNE 30, 2003
(Unaudited)
Note 4 - Subsequent event
On July 28, 2003 the Company acquired 6,267,500 shares of Quarry Oil & Gas Ltd.
("Quarry") pursuant to an agreement dated March 6, 2003, involving the purchase
of an aggregate of 6,750,000 Quarry shares. As of August 8, 2003 the Company
acquired an additional 438,000 shares of Quarry. The Company is presently
awaiting receipt of another 44,500 shares. These 6,750,000 shares together with
169,900 shares previously purchased by the Company represent approximately 48.5%
of the outstanding common shares of Quarry. The aggregate purchase price for the
6,750,000 Quarry shares acquired pursuant to the March 6, 2003 agreement was
approximately $6,400,000 which was paid in cash. Quarry is an oil and natural
gas exploration and development company located in Calgary, Canada with
properties in Alberta and British Columbia
F-25
EXHIBIT INDEX
SEC Report
Reference
Exhibit No. Number Description
----------- ------ -----------
2.1 2.1 Asset Purchase Agreement dated March 14, 2002 between Registrant and
Inventoy.com International, Inc.(1)
2.2 2.1 Acquisition Agreement dated April 23, 2002 by and among Registrant,
Assure Oil & Gas Corp. ("Assure") and the shareholders of Assure (2)
2.3 2.1 Share Purchase Agreement dated May 30, 2002 by and among Assure Oil and
Gas Corp., and Gary Freitag, Garth R. Keyte and Evan Stephens.(3)
2.4 2.1 Stock Exchange Agreement dated August 27, 2002 by and among Registrant,
Inventoy.com International Inc., Kaplan Design Group, Douglas Kaplan,
Ed Kaplan and Ron Beit-Halachmy.(4)
2.5 2.1 Share Purchase Agreement dated March 6, 2003 by and among Assure
Energy, Inc., and Al J. Kroontje, Trevor G. Penford, Karen
Brawley-Hogg, Donald J. Brown, Troon Investments, Ltd., and Quarry Oil
& Gas, Ltd. (9)
2.6 2.2 Amending Agreement dated March 26, 2003 to March 6, 2003 Share Purchase
Agreement. (9)
2.7 2.3 Amending Agreement No. 2 dated April 11, 2003 to March 6, 2003 Share
Purchase Agreement. (9)
2.8 2.1 Agreement and Plan of Merger dated as of September 9, 2003 between
Assure Energy, Inc., a Delaware corporation and Assure Energy, Inc., a
Nevada corporation. (10)
2.9 2.2 Certificate of Merger as filed with the Delaware Secretary of State
effective September 11, 2003. (10)
2.10 2.3 Articles of Merger as filed with the Nevada Secretary of State on
September 11, 2003. (10)
2.11 Form of Articles of Conversion(11)
2.12 Form of Plan of Conversion(11)
2.13 Form of Articles of Continuance(11)
1
SEC Report
Reference
Exhibit No. Number Description
----------- ------ -----------
3.1 3.1 Certificate of Incorporation of Registrant as filed August 11, 1999.(5)
3.2 3.1 Certificate of Amendment to Certificate of Incorporation of Registrant
filed February 15, 2002.(6)
3.3 3.1 Certificate of Amendment to Certificate of Incorporation of Registrant
filed May 1, 2002.(2)
3.4 3.2 By-Laws of Assure Energy, Inc., a Delaware corporation.(5)
3.5 3.1 Articles of Incorporation of Assure Energy, Inc., a Nevada corporation
as filed with the Nevada Secretary of State on September 3, 2003. (10)
3.6 3.2 By-Laws of Assure Energy, Inc., a Nevada corporation. (10)
3.7 Form of By-Laws of Assure Energy, Inc., an Alberta corporation(11)
4.1 4.1 Registration Rights Agreement dated as of April 23, 2002 by and between
Registrant and the shareholders of Assure Oil & Gas Corp.(1)
4.3 4.3 Certificate of Designation, Preferences and Rights of Series A
Preferred Stock of Registrant as filed on June 7, 2002(8)
4.4. 4.1 Certificate of Designation, Preferences and Rights of Series B
Preferred Stock of Registrant as filed on August 28, 2002.(4)
5.1 Opinion of Gottbetter & Partners, LLP regarding the validity of the
securities issued hereby(11)
10.1 10.1 Promissory Note dated April 23, 2002 (2)
10.2 10.1 Convertible Preferred Stock Purchase Agreement dated August 27, 2002 (4)
10.3 10.1 Employment Agreement dated as of September 12, 2002 between Registrant
and Suzanne West.(7)
10.4 10.4 Convertible Preferred Stock Purchase Agreement dated as of June 1,
2002(8)
10.5 10.5 Employment Agreement dated as of September 17, 2002 between Registrant
and Harvey Lalach(8)
2
SEC Report
Reference
Exhibit No. Number Description
----------- ------ -----------
10.6 10.6 Stock Option Agreement made as of September 17, 2002 between Registrant
and Harvey Lalach(8)
10.7 10.7 Stock Option Agreement made as of October 1, 2002 between Registrant
and James Golla(8)
10.8 10.8 Stock Option Agreement made as of October 1, 2002 between Registrant
and Primoris Group Inc.(8)
10.9 10.9 Subordinated Promissory Note dated December 28, 2002(8)
10.10 10.10 Subordinated Promissory Note with Warrant dated March 15, 2003(8)
21 List of subsidiaries of Registrant (11)
23.1 Consent of Independent Auditors(11)
23.2 Consent of Gottbetter & Partners, LLP. (included in Exhibit 5.1)
(1) Filed with the Securities and Exchange Commission on May 1, 2002 as an
exhibit, numbered as indicated above, to the Registrant's Quarterly Report on
Form 10-QSB for the quarterly period ended January 31, 2002, which exhibit is
incorporated herein by reference.
(2) Filed with the Securities and Exchange Commission on May 8, 2002, as an
exhibit, numbered as indicated above, to the Registrant's Current Report on Form
8-K dated April 23, 2002, which Exhibit is incorporated herein by reference.
(3) Filed with the Securities and Exchange Commission on June 14, 2002, as an
exhibit, numbered as indicated above, to the Registrant's Current Report on Form
8K dated May 30, 2002, which exhibit is incorporated herein by reference.
(4) Filed with the Securities and Exchange Commission on September 11, 2002, as
an exhibit, numbered as indicated above, to the Registrant's Current Report on
Form 8K dated August 27, 2002, which exhibit is incorporated herein by
reference.
(5) Filed with the Securities and Exchange Commission on May 25, 2001 as an
exhibit, numbered as indicated above, to the Registrants' registration statement
on Form SB-2, which exhibit is incorporated herein by reference.
(6) Filed with the Securities and Exchange Commission on April 8, 2002, as an
exhibit, numbered as indicated above, to the Registrant's Transition Report on
Form 10-QSB for the transition period from August 1, 2001 to December 31, 2001,
which exhibit is incorporated herein by reference.
3
(7) Filed with the Securities and Exchange Commission on November 19, 2002, as
an exhibit, numbered as indicated above to the Registrant's Quarterly Report on
Form 10-QSB for the quarterly period ended September 30, 2002, which exhibit is
incorporated herein by reference.
(8) Filed with the Securities and Exchange Commission on April 15, 2003, as an
exhibit, numbered as indicated above to the Registrant's Annual Report on Form
10KSB for the year ended December 31, 2002, which exhibit is incorporated herein
by reference.
(9) Filed with the Securities and Exchange Commission on August 11, 2003, as an
exhibit, numbered as indicated above to the Registrant's Current Report on Form
8K dated July 28, 2003, which exhibit is incorporated herein by reference.
(10) Filed with the Securities and Exchange Commission on September 25, 2003, as
an exhibit, numbered as indicated above to the Registrant's Current Report on
Form 8K dated September 11, 2003, which exhibit is incorporated herein by
reference.
(11) Filed herewith.
4