As filed with the Securities and Exchange Commission on July 22, 2003
Registration No. ________
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM S-4
REGISTRATION STATEMENT UNDER THE SECURITIES ACT OF 1933
ASSURE ENERGY, INC.
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(Name of Small Business Issuer in its Charter)
Canada 1311 None
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(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
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(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: As soon as
practicable after the effective date of this Registration Statement and the
requisite votes are obtained pursuant to the solicitation by Assure Energy, Inc.
referred to in this Registration Statement.
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 $49,709,825 $4,573.30
(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., a Canadian corporation, on a one-for-one basis pursuant
to the continuance and conversion described in this Registration
Statement.
-------------------------
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
THE INFORMATION IN THIS PROXY STATEMENT/PROSPECTUS IS NOT COMPLETE AND MAY BE
CHANGED. WE MAY NOT OFFER OR SELL THESE SECURITIES UNTIL THE REGISTRATION
STATEMENT FILED WITH THE SECURITIES AND EXCHANGE COMMISSION IS EFFECTIVE. THIS
PROSPECTUS IS NOT AN OFFER TO SELL THESE SECURITIES AND IT IS NOT SOLICITING AN
OFFER TO BUY THESE SECURITIES IN ANY JURISDICTION WHERE THE OFFER OR SALE IS NOT
PERMITTED.
PROXY/PROSPECTUS SUBJECT TO COMPLETION, DATED _____, 2003
ASSURE ENERGY, INC.
2750-140 4th Avenue, S.W.
Calgary, Alberta, Canada T2P 3N3
NOTICE OF SPECIAL MEETING OF STOCKHOLDERS
A special meeting of the stockholders of Assure Energy, Inc. will be held on
_______, 2003, at ___ a.m., at the offices of Gottbetter & Partners, LLP., 630
Third Avenue, 5th Floor, New York, New York 10017, for the purpose of voting
upon a proposal to change the incorporation of the company from Nevada to
Alberta, Canada. The continuance will be accomplished through the adoption of
the proposed plan of conversion. If we complete the continuance, Assure Energy,
Inc. will be continued under the Alberta Business Corporations Act and cease to
be incorporated in Nevada and as a result will be governed by the Alberta
Business Corporations Act.
Only stockholders of record at the close of business on ________, 2003 are
entitled to notice of and to vote at the meeting.
At the meeting, we will also transact such other business as may properly come
before the meeting or any adjournments or postponements thereof.
Stockholders of record are not entitled to appraisal rights of the fair value of
their shares.
You vote is important. To insure your shares are represented, you should
complete, sign and date the enclosed proxy and return it promptly in the
enclosed envelope, whether or not you expect to attend the special meeting. You
may revoke your proxy and vote in person if you decide to attend the meeting and
your shares are not held in street name.
ASSURE ENERGY INC.'S BOARD OF DIRECTORS BELIEVES THAT THE CONTINUANCE IS
ADVISABLE AND IN THE BEST INTEREST OF SHAREHOLDERS AND RECOMMENDS THAT
STOCKHOLDERS VOTE "FOR" THE PROPOSAL.
By Order of the Board of Directors,
Harvey Lalach
President and Chief Executive Officer
_________, 2003
3
___________, 2003
Dear Assure Energy Inc. stockholder:
You are cordially invited to attend a special meeting of stockholders to be held
on _____, 2003 at ____ p.m. at the offices of Gottbetter & Partners, LLP., 630
Third Avenue, 5th Floor, New York, New York 10017. The purpose of the meeting is
to allow you to vote on the proposed conversion plan that would change the
company's domicile from Nevada to Alberta, Canada. If we complete the conversion
and continuance, the company will be governed by the Alberta Business
Corporations Act.
We believe that the continuance to Canada will more accurately reflect our
present operations as an oil and gas company, which have always been in Canada.
Since engaging in this line of business, we have never had any employees or
operations in the U.S. We also believe the continuance to Canada will enable us
to benefit from investor interest in Canada for Canadian oil and gas companies
and other Canadian sources of financing more readily available to Canadian
companies.
Assure Nevada common stock is currently listed for trading on the
Over-the-Counter Bulletin Board under the symbol "ASUR"
Our Board of Directors has declared the continuance and conversion plan
advisable and recommends that you vote in favor of the continuance of the
company from Nevada to Canada.
We are calling a special meeting of the stockholders to vote on the plan of
continuance and conversion and are soliciting proxies for use at the meeting.
The record date for voting at the meeting is ____________, 2003.
Stockholders of record are not entitled to appraisal rights of the fair value of
their shares if they vote against the plan of conversion.
SEE "RISK FACTORS," BEGINNING ON PAGE 12 FOR A DISCUSSION OF CERTAIN RISKS,
INCLUDING TAX EFFECTS, RELATING TO THE CONVERSION AND THE OWNERSHIP OF COMMON
SHARES IN ASSURE NEVADA.
This proxy statement/prospectus is first being mailed to holders of Assure
Energy, Inc. common stock on or about
____________, 2003.
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.
4
THIS PROSPECTUS INCORPORATES IMPORTANT BUSINESS AND FINANCIAL INFORMATION ABOUT
ASSURE ENERGY, INC. THAT IS NOT INCLUDED IN OR DELIVERED WITH THIS DOCUMENT.
THIS INFORMATION IS AVAILABLE WITHOUT CHARGE TO HOLDERS OF ASSURE ENERGY, INC.
COMMON STOCK UPON WRITTEN OR ORAL REQUEST. REQUESTS SHOULD BE MADE TO ASSURE
ENERGY, INC. 2750-140 4th AVENUE, S.W., CALGARY, ALBERTA, CANADA T2P 3N3,
ATTENTION: SECRETARY, TELEPHONE: (403) 266-2787. TO OBTAIN TIMELY DELIVERY, YOU
SHOULD REQUEST INFORMATION NO LATER THAN __________________, 2003.
Sincerely,
Harvey Lalach
President and Chief Executive Officer
5
TABLE OF CONTENTS
PAGE
SUMMARY
The Company .................................................. 7
Factors You Should Consider .................................. 7
SUMMARY FINANCIAL INFORMATION ................................ 10
RISK FACTORS ................................................. 12
Risks Relating to the Continuance ............................ 12
Risks Relating to the Company ................................ 13
CONTINUANCE AND CONVERSION PROPOSAL .......................... 17
VOTING AND PROXY INFORMATION ................................. 19
DISSENTERS' RIGHTS ........................................... 21
MATERIAL UNITED STATES FEDERAL TAX CONSEQUENCES .............. 22
MATERIAL CANADIAN TAX CONSEQUENCES ........................... 25
COMPARATIVE RIGHTS OF STOCKHOLDERS ........................... 28
ACCOUNTING TREATMENT ......................................... 34
BUSINESS OF ASSURE ENERGY, INC ............................... 34
LEGAL PROCEEDINGS ............................................ 42
PLAN OF OPERATION ............................................ 43
MARKET FOR COMMON EQUITY AND RELATED STOCKHOLDER MATTERS ..... 44
MANAGEMENT ................................................... 47
EXECUTIVE COMPENSATION ....................................... 48
CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS ............... 52
SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT
53
DESCRIPTION OF CAPITAL STOCK ................................. 54
EXPERTS ...................................................... 57
LEGAL MATTERS ................................................ 57
AVAILABLE INFORMATION ........................................ 57
INCORPORATION OF CERTAIN DOCUMENTS BY REFERENCE .............. 58
CAUTIONARY STATEMENT CONCERNING FORWARD LOOKING
STATEMENTS ................................................... 58
FINANCIAL STATEMENTS OF ASSURE ENERGY, INC ................... F-1
ANNEX A
Plan of Conversion
Articles of Assure Canada*
By-Laws of Assure Canada*
* To be filed by amendment
6
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, THE FINANCIAL STATEMENTS OF THE COMPANY AND THE OTHER INFORMATION THAT
IS INCORPORATED BY REFERENCE. THE SYMBOL "$" REFERS TO UNITED STATES DOLLARS.
In this prospectus, unless otherwise indicated or the context otherwise
requires, we will refer to Assure Nevada and Assure Canada as "we", "us", "our"
or "the company".
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." 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 Canadian 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 Canadian company will be the officers and directors of the
Nevada company. The 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" on page 28.
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
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.
REASONS FOR THE CONVERSION
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We believe that the continuance to 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 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 and the other
information included beginning on page 12 of this prospectus.
Although you are entitled to dissent from the proposed continuance and plan of
conversion, Nevada law does not grant dissenters' rights in a conversion.
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 and Canadian 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 Canadian 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 Canadian 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" on page 22.
CANADIAN INCOME TAX CONSEQUENCES
On our continuance to Canada, the Canadian 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
8
exceed the taxable basis in the assets a tax will be due. Pre-continuance losses
are available for use in Canada.
A Canadian stockholder will not realize a disposition of their Nevada shares on
the continuance to Canada. 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" on page
25.
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 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 Canadian 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 or bylaw amendment requires
approval by vote of the holders of a majority of the
outstanding stock. Under Canadian law, an amendment to a
corporation's charter requires approval by two-thirds majority
of the stockholders.
o Dissenter's rights are available to stockholders under more
circumstances under Canadian law than under Nevada law.
o Stockholders have a statutory oppression remedy under Canadian
law that does not exist under Nevada statute. It is similar to
the common law action in Delaware for breach of fiduciary
duty, but the Canadian remedy does not require stockholders to
prove that the directors acted in bad faith.
o A director's liability may not be limited under Canadian law
as it may under Nevada law.
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 a Canadian one represents a transaction between entities under
common control. Assets and
9
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 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.
OUR RECOMMENDATION TO STOCKHOLDERS
Taking into consideration all of the factors and reasons for the conversion set
forth above and elsewhere in this proxy statement/prospectus, our board of
directors has approved the conversion and recommends that our stockholders vote
FOR approval of the continuance and plan of conversion.
THE SPECIAL MEETING
MATTER TO BE VOTED ON
Our stockholders will be asked to approve the continuance and conversion plan.
This plan will have the effect of changing our domicile from Nevada to Alberta,
Canada.
VOTE NEEDED TO APPROVE THE PLAN OF CONVERSION
Approval of the plan of conversion requires the affirmative vote of stockholders
holding at least a majority of the outstanding shares of Assure Nevada common
stock.
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
INFORMATION CONTAINED IN THIS TABLE SHOULD BE READ IN CONJUNCTION WITH OUR "PLAN
OF OPERATION" AND THE CONSOLIDATED FINANCIAL STATEMENTS AND ACCOMPANYING NOTES
INCLUDED HEREIN.
The financial statements of Assure Nevada have been prepared in accordance with
accounting principles generally
10
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 Three Months
December 31, 2002 December 31, 2001 Ended March 31, 2003
----------------- ----------------- --------------------
Revenues $ 1,136,896 $ 0 $ 1,074,142
Net Income (Loss) $ (792,162) $ (59,383) (380,574)
Net Income (Loss) Per Share (.03) (.002) (.03)
Weighted Average Number of
Shares Outstanding 27,924,740 31,070,762 15,757,233
Balance Sheet Data:
December 31, 2002 December 31, 2001 March 31, 2003
----------------- ----------------- --------------
Current Assets $ 2,424,724 $ 17,289 $ 9,051,858
Total Assets $ 7,161,203 $ 20,289 $13,884,562
Current Liabilities $ 1,028,100 $ 6,144 $ 510,406
Total Liabilities $ 1,733,040 $ 6,144 $ 5,826,305
Stockholders' Equity $ 5,428,163 $ 14,145 $ 8,058,257
11
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 the control of the company, 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
12
the demand for our shares in the United States. The decrease may not be offset
by increased demand for our shares in Canada.
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.
Assure Nevada was formed in Delaware in August 1999 to engage in a toy
business. No operations in this area were ever commenced. Commencing with its
April 23, 2002 acquisition of Assure Oil & Gas Corp., followed by Assure Oil &
Gas Corp.'s May 30, 2002 acquisition of Westerra 2000 Inc., Assure Delaware
became an oil and gas company. Through Assure Canada, we are committed to
continue and expand these operations. 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
Executive Officers And Key Employees, 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.
13
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 March
31, 2003 we had accumulated deficit in the amount of $1,241,726. 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 Canada May Materially Affect Shareholders' Rights.
Canadian law is materially different from Nevada law, under which
Assure Nevada is currently incorporated. We cannot assure you that the
differences between Canadian law and Nevada law will not materially affect the
interests of our shareholders. See "Comparative Rights of Shareholders."
14
Our Existing Shareholders Will Continue To Control Us After This Offering. Their
Interests May Be Different From And Conflict With Yours.
The interests of our existing shareholders could conflict with yours.
After the continuance, our existing shareholders will beneficially own a
majority of our outstanding common stock. Accordingly, if they act together,
they will have the power to approve corporate transactions and control the
election of all of our directors and other issues for which the approval of our
shareholders is required. This concentration of ownership may also delay, deter
or prevent a change in control of our company and may make some transactions
more difficult or impossible to complete without the support of these
stockholders. As a result, if you purchase shares of our common stock you may
have no effective voice in our management. See "Principal Stockholders" and
"Certain Transactions".
Sales Of Shares Eligible For Future Sale Could Depress The Market Price For Our
Common Stock.
We presently have issued and outstanding 16,433,000 shares of our
common stock, options to purchase 120,000 shares of our common stock at an
exercise price of $2.75 per share, and warrants to purchase 10,383,500 shares of
our common stock at exercise prices ranging from $.333 to $3.10 per share. We
also have issued and outstanding 17,500 shares of convertible Series A Preferred
Stock and 5,250 shares of convertible Series B Preferred Stock. Most of our
outstanding convertible securities are not presently convertible. 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. Unless we are able to increase our net worth and market valuation
substantially, we will never be able to meet the eligibility requirements of
NASDAQ. Moreover, 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
15
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 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.
Market transactions in our common stock are subject to the "Penny Stock
Rules" of the Securities and Exchange Act of 1934, which are discussed in more
detail below. These rules could make it difficult to trade our common stock
because compliance with them can delay or preclude certain trading transactions.
This could have an adverse effect on the ability of an investor to sell any
shares of our common stock.
The Penny Stock Rules Apply To Our Common Stock. This May Make It More Difficult
For Holders Of Our Common Stock To Resell Their Shares.
As discussed above, at the present time, our common stock is not listed
on The Nasdaq SmallCap Stock Market or on any stock exchange. Although dealer
prices for our common stock are listed on the OTC Bulletin Board, trading has
been sporadic and limited since such quotations first appeared.
The Securities Enforcement and Penny Stock Reform Act of 1990 requires
special disclosure relating to the market for penny stocks in connection with
trades in any stock defined as a "penny stock". Commission regulations generally
define a penny stock to be an equity security that has a market price of less
that $5.00 per share and is not listed on the Nasdaq SmallCap Stock Market or a
major stock exchange. These regulations subject all broker-dealer transactions
involving such securities to the special "Penny Stock Rules" set forth in Rule
15g 9 of the Securities Exchange Act of 1934 (the "34 Act"). It may be necessary
for the Selling Shareholder to utilize the services of broker-dealers who are
members of the NASD. The current market price of our common stock is
substantially less that $5 per share and such stock can, for at least for the
foreseeable future, be expected to continue to trade in the over-the-counter
market at a per share market price of substantially less than $5. Accordingly,
any broker-dealer sales of our shares will be subject to the Penny Stock Rules.
These Rules affect the ability of broker-dealers to sell our securities and also
may affect the ability of purchasers of our common stock to sell their shares in
the secondary market, if such a market should ever develop.
The Penny Stock Rules also impose special sales practice requirements on
broker-dealers who sell securities to persons other than their established
customers or "Accredited Investors." Among other things, the Penny Stock Rules
require that a broker-dealer make a special suitability determination respecting
the purchaser and receive the purchaser's written agreement to the transaction
prior to the sale. In addition, the Penny Stock Rules require that a
broker-dealer deliver, prior to any transaction, a disclosure schedule prepared
in accordance with the requirements of the Commission relating to the penny
stock market. Finally, monthly statements have to be sent to any holder of such
penny stocks disclosing recent price information for the penny stock held in the
account and information on the limited market in penny stocks. Accordingly, for
so long as the Penny Stock Rules are applicable to our common stock, it may be
difficult to trade such stock because compliance with such Rules can delay or
preclude certain trading transactions. This could have an adverse effect on the
liquidity and price of our common stock.
16
CONTINUANCE AND CONVERSION PROPOSAL
BACKGROUND OF THE PROPOSAL
The Board of Directors of Assure Nevada has determined that it is advisable to
change the company's domicile from Nevada to Alberta, Canada. Management 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. Articles of Continuance will also be filed
with the Director of Business Corporations in Canada. Upon the filing, the
company will be continued as a Canadian company and will be governed by the laws
of Alberta, Canada. The assets and liabilities of the Canadian 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 Canadian 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 Canadian 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 Section 92A.120 of the Nevada Revised Statutes, the board of
directors of Assure Nevada has adopted a resolution 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 the Plan of Conversion and file a notice of
registered office, a notice of directors and Articles of Continuance with the
Director under the Alberta Business Corporations Act. Upon the filing of the
Plan of Conversion in accordance with Section 92A.205 of the Nevada Revised
Statutes and payment to the Secretary of State of all fees prescribed thereto,
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 Director 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
17
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 Canada 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 approval of the plan of conversion by the stockholders of
Assure Nevada.
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 special meeting of Assure Nevada stockholders.
Therefore, the only condition required for the Company to adopt the plan of
conversion and become continued into Canada is that the stockholders must duly
approve the plan of conversion.
CONDITIONS TO THE CONSUMMATION OF THE CONVERSION
The Board of Directors of Assure Nevada has adopted and approved the plan of
conversion. The only other material consents, approvals or authorizations of or
filings required to consummate the conversion are the approval of the
stockholders of Assure Nevada in accordance with Section 92A. 120 of the Nevada
Revised Statutes, the filing of the Articles of Conversion with the Secretary of
State of Nevada and the filing of Articles of Continuance with the Alberta
Director of Business 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
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
18
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.
RECOMMENDATION OF THE BOARD OF DIRECTORS
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 the stockholders have an opportunity to vote on
the proposed 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, have concluded that the proposals are fair to Assure Nevada and its
stockholders.
ACCORDINGLY, THE BOARD OF DIRECTORS UNANIMOUSLY RECOMMENDS THAT STOCKHOLDERS
VOTE FOR THE PROPOSAL CONTAINED IN THIS PROXY/PROSPECTUS
VOTING AND PROXY INFORMATION
SPECIAL MEETING
A special meeting of the Assure Nevada stockholders will be held at ____________
p.m. on ___________, 2003, at the offices of Gottbetter & Partners, LLP., 630
Third Avenue, 5th Floor, New York, New York 10017 (or at any adjournments or
postponements thereof) to consider and
19
vote on a proposal to effect a plan of conversion, which will have the effect of
transferring the jurisdiction of incorporation of Assure Nevada from the State
of Nevada to Alberta, Canada, and to vote on any other matters that may properly
come before such meeting. The presence, in person or by proxy, of stockholders
holding a majority of the outstanding shares of Assure Nevada common stock will
constitute a quorum. The vote of any stockholder who is represented at the
special meeting by proxy will be cast as specified in the proxy. If no vote is
specified in a duly executed and delivered proxy such vote will be cast for the
proposal. Any stockholder of record who is present at the special meeting in
person will be entitled to vote at the meeting regardless of whether the
stockholder has previously granted a proxy for the special meeting.
THE BOARD OF DIRECTORS OF ASSURE NEVADA HAS APPROVED THE CONTINUANCE AND
RECOMMENDS THAT STOCKHOLDERS VOTE IN FAVOR OF ITS APPROVAL.
PROXY SOLICITATION
The total cost of soliciting proxies will be borne by us. Proxies may be
solicited by officers and regular employees of Assure Nevada without extra
remuneration, by personal interviews, telephone and by electronic means. We
anticipate that banks, brokerage houses and other custodians, nominees and
fiduciaries will forward soliciting material to stockholders and those persons
will be reimbursed for the related out-of-pocket expenses they incur.
RECORD DATE
Only those stockholders of record at the close of business on
______________________, 2003, as shown in Assure Nevada's records, will be
entitled to vote or to grant proxies to vote at the special meeting.
VOTE REQUIRED FOR APPROVAL
Approval of the conversion plan requires the affirmative vote of the
stockholders of Assure Nevada holding a majority of the shares of Assure Nevada
common stock. Abstentions and broker "non-votes" will not have any effect on the
vote. As of July 18, 2003, there were 16,433,000 shares of common stock
outstanding held by approximately 41 holders of record.
PROXY INSTRUCTIONS
Each Assure Nevada stockholder as of ____________________, 2003, will receive a
proxy card. A stockholder may grant a proxy to vote for or against, or to
abstain from voting on, the proposals by marking his or her proxy card
appropriately and executing it in the space provided.
Holders of our common stock whose names appear on the stock records of Assure
Nevada should return their proxy card to our transfer agent, Continental Stock
Transfer & Trust Company, in the envelope provided with the proxy card.
Stockholders who hold their common stock in the name of a bank, broker or other
nominee should follow the instructions provided by their bank, broker or nominee
on voting their shares.
20
TO BE EFFECTIVE, A PROXY CARD MUST BE RECEIVED PRIOR TO THE SPECIAL MEETING. ANY
PROPERLY EXECUTED PROXY WILL BE VOTED IN ACCORDANCE WITH THE SPECIFICATION
INDICATED ON THE PROXY CARD. A PROPERLY EXECUTED AND RETURNED PROXY CARD IN
WHICH NO SPECIFICATION IS MADE WILL BE VOTED FOR THE PROPOSAL.
If any other matters are properly presented at the special meeting for
consideration, including consideration of a motion to adjourn the meeting to
another time and/or place (including adjournment for the purpose of soliciting
additional proxies), the persons named in the proxy card and acting under its
authority will have discretion to vote on such matters in accordance with their
best judgment.
PROXY REVOCATION
Holders of Assure Nevada common stock whose names appear on the stock records of
Assure Nevada may revoke their proxy card at any time prior to its exercise by:
o Giving written notice of such revocation to the corporate
secretary;
o Appearing and voting in person at the special meeting; or
o Properly completing and executing a later-dated proxy and
delivering it to the corporate secretary at or before the
special meeting.
Presence without voting at the special meeting will not automatically revoke a
proxy, and any revocation during the meeting will not affect votes previously
taken. Assure Nevada stockholders who hold their Assure Nevada common stock in
the name of a bank, broker or other nominee should follow the instructions
provided by their bank, broker or nominee in revoking their previously voted
shares.
PROXY VALIDITY
All questions as to the validity, form, eligibility (including time of receipt),
and acceptance of proxy cards will be determined by the Assure Nevada board of
directors. Any such determination will be final and binding. The Assure Nevada
board of directors will have the right to waive any irregularities or conditions
as to the manner of voting. Assure Nevada may accept proxies by any reasonable
form of communication so long as Assure Nevada can be reasonably assured that
the communication is authorized by the Assure Nevada stockholder.
DISSENTERS' RIGHTS
Under Chapter 92A of the Nevada Revised Statutes, stockholders of record are
entitled to the fair value of all or a portion of their shares in certain
corporate transactions, such as a merger. However, such appraisal rights are not
available in a plan of conversion.
21
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.
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.
22
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.
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 Canadian company
in exchange for stock of the Canadian company. This is to be followed by a
distribution of the stock in the Canadian 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 the company exceed or materially
exceed 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 Canadian 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
23
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
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
24
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 ("Canada - United States
income tax treaty"). 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.
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
25
provided as to the effect of any other Canadian federal or foreign tax law,
other than the income tax laws of the 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 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 Canada to non-resident individual stockholders
who do not carry on business in Canada. Nevada stockholders should consult their
own Canadian tax advisors on the Canadian tax consequences of the proposed
continuance.
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 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 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
26
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 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
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
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
ensure 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
27
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 Canada, 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 Canada. 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.
COMPARATIVE RIGHTS OF STOCKHOLDERS
After the conversion, the stockholders of the former Nevada corporation will
become the holders of shares in the capital 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 summary description of the
more significant differences. This summary 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.
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.
INSPECTION OF STOCKHOLDERS LIST
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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. It 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.
CANADA. Under Canadian law, where a corporation has previously distributed its
shares to the public, shareholders and creditors of a corporation may, on
payment of a reasonable fee may 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, an affidavit
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 (i)
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, or (ii) the contract or transaction, in good
faith, is ratified or approved by the holders of a majority of the voting power,
(iii) 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 (iv) 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.
CANADA. Under Canadian 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 has a material interest in is not invalid if the
director or officer has disclosed the nature and extent of his interest and the
contract or transaction was approved by the directors. Even if such disclosure
is not made, a director or officer will not be accountable to the corporation
for any profit realized in such a transaction, and the contract or transaction
will not be invalid only by reason of such interest, if the contract or
transaction is approved by a special resolution at a meeting of shareholders,
disclosure of his interest sufficient to indicate its nature is made before
shareholder approval, and the contract or transaction is 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.
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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: (i) by the stockholders;
(ii) by the board of directors by majority vote of a quorum consisting of
directors who were not parties to the actions, suit or proceeding; (iii) 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 (iv) 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. 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.
CANADA. Canadian 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: (i) acted honestly and in good faith with a view to the best
interests of the corporation; and (ii) 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 favour 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
30
NEVADA. Approval of mergers and consolidations 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: (i) the merger does not
amend the articles of incorporation of the corporation; (ii) each outstanding
share immediately prior to the merger is to be an identical share after the
merger, and (iii) 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.
CANADA. Approvals of amalgamations (except amalgamations between a corporation
and wholly owned subsidiaries), consolidations, 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.
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, 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. 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 or by proxy, regardless of whether 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.
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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 present
when only 5% of the issued and outstanding share capital is present. Our
proposed bylaws contain such a provision. Except where the Canada Business
Corporations Act requires approval by a special resolution, being 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 require
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 favour 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).
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, and that do business directly or indirectly in
Nevada. Where applicable, the statute prohibits 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 (a) any merger with an "interested
stockholder," or any other corporation which is or after the merger
32
would be, an affiliate or associate of the interested stockholder, (b) any sale,
lease, exchange, mortgage, pledge, transfer or other disposition of assets, to
an "interested stockholder," having (i) an aggregate market value equal to 5% or
more of the aggregate market value of the corporation's assets; (ii) an
aggregate market value equal to 5% or more of the aggregate market value of all
outstanding shares of the corporation; or (iii) representing 10% or more of the
earning power or net income of the corporation, (c) 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, (d) the adoption of any
plan or proposal for the liquidation or dissolution of the corporation proposed
by the "interested stockholder," (e) certain transactions which would result in
increasing the proportionate percentage of shares of the corporation owned by
the "interested stockholder," or (f) 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 (a) (i) 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
(ii) 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 (b) (i) 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 (ii) 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.
CANADA. There is no provision under Canadian 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 (i) shares in the surviving corporation, (ii) shares in another
entity that is publicly listed or held by more than 2,000 shareholders, or (iii)
any combination of cash or shares in an entity described in (i) or (ii). Also,
the Nevada law does not provide for dissenters' rights in the case of a sale of
assets.
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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, transfer or ownership of shares of a
class or to add change or remove restrictions on the business 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, sell, lease or exchange all or substantially
all its property, or carry out a going private or squeezeout transaction.
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 will be those of Assure as a Nevada company.
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 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.
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
34
our 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. No new oil or gas wells are currently
being drilled by Assure Oil & Gas Corp.
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 (i) 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.; (ii)
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
(iii) 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.
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
36
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 March 6, 2003 we entered into a share purchase agreement (the "Share
Purchase Agreement") with 5 shareholders (the "Shareholders") of Quarry Oil &
Gas Ltd., ("Quarry") an Alberta, Canada corporation respecting our proposed
purchase of 6,750,000 Quarry shares from the shareholders for an aggregate
purchase price of CDN $8,962,650 (approximately US $5,800,000) or CDN $1.3278
per share. These shares represent 47.28% of Quarry's outstanding common shares.
The transaction is tentatively scheduled to close on or before July 31, 2003.
Quarry is a junior oil and gas exploration and development company based on
Calgary, Alberta whose common shares are listed on the TSX Venture Exchange
under the symbol "QUC". Quarry's average daily production is currently
approximately 1200 barrels of oil equivalent per day. Quarry has a stable oil
production base in Alberta and has recently added significant gas production
from its discoveries in northeast British Columbia where it has access to a
large base of undeveloped lands. It has developed an extensive portfolio of
natural gas prospects to facilitate future growth.
The Share Purchase Agreement contains a covenant by us to engage in one
of the following post closing activities:
o present to Quarry an experienced, previously successful
management team for Quarry, subject to the reasonable consent
of the Shareholders;
o make, within 60 days of closing, an offer to acquire the
remaining Quarry shares at a price of not less than CDN
$1.3278 per share; or
o subscribe, within 90 days of closing, to a material private
placement of Quarry at a subscription price per share of CDN
$1.3278.
We have yet to determine which of these alternatives we will choose.
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
37
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 have agreed to pay Investormedia Group $325,585 consisting of
typesetting, printing and mailing costs and a 5% fee payable to Investormedia
Group.
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 (2) shares.
Nevada Reincorporation
On ________, 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.
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.
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
38
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 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
39
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.
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.
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
40
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.
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. 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
41
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 and our independent contractors including a production
accountant, accountant, geologist, land administrator and engineer work from
this location. We believe this space is sufficient to handle our present and
immediate future needs. In the event our sublease 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 available from several
alternative sources at comparable rates.
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, two option wells were drilled and
the plaintiffs also earned an interest in some of the farmout lands. On January
29, 2003, plaintiffs provided notice to defendants to drill additional option
wells. On or about February 24, 2003, defendants advised plaintiffs that the
notice was invalid, that they were not to occupy any further farmout lands or
commence any further drilling on the farmout lands, and that the
42
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. While we believe the plaintiffs claims have merit, 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.
PLAN OF OPERATION
We were incorporated on August 11, 1999 in the state of Delaware 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 manufacturers'
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.
("Assure O&G").
Assure O&G is actively engaged in the exploration, development, acquisition and
production of petroleum and natural gas (P&NG) properties primarily located in
Western Canada. In October 2000 Assure O&G 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
O&G has acquired varying interests, through farmout participations, asset
purchases, acquisitions of crown land rights and corporate acquisitions, of both
producing and prospective P&NG properties in the Western Sedimentary Basin of
Western Canada.
On May 30, 2002 Assure O&G entered into a Share Purchase Agreement with the 3
shareholders of Westerra 2000 Inc. ("Westerra"), wherein Assure O&G acquired
Westerra, an Alberta, Canada corporation engaged in the exploration, development
and production of oil and gas properties primarily located in Saskatchewan,
Canada.
On March 26, 2003, we entered into a Share Purchase Agreement with certain
shareholders of Quarry Oil & Gas, Ltd. whereby we expect to acquire
approximately 47.28% of Quarry Oil & Gas Ltd.'s outstanding shares. We expect
the purchase transaction to close on or before July 31, 2003. Quarry Oil & Gas
Ltd., is an oil and gas exploration and development company.
We plan to continue to explore, develop and acquire P&NG properties over the
next twelve months to increase cash flow, and to build P&NG reserves. We
anticipate engaging in 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 and corporate acquisitions. We
also may from time to time acquire, or enter into strategic alliances with,
complementary businesses to achieve these objectives.
43
We anticipate that our presently available capital resources together with
expected oil and gas cash flow from our existing oil and gas production will be
sufficient to fund our current oil and gas operations during the next twelve
months. We intend to fund our acquisition strategy and new exploration programs
during the next twelve months from oil and gas cash flow, working capital, sales
of our securities and other available sources of financing. Our employee levels
are expected to increase during the next twelve months in direct proportion to
the anticipated expansion of our oil and gas exploration program and available
cash resources. We do not presently anticipate any purchases or sales of plant
or significant equipment other than the purchase of pump jacks which are used to
enhance oil production and equipment utilized to transport gas to processing
facilities. Alternatively, we may rent, lease or subcontract for the use of such
equipment. We do no expect to engage in any material research and development
activities during the next twelve months. The exploration of and drilling for
oil and gas reserves is risky, uncertain and capital intensive. No assurance can
be given that we will increase our oil and gas operations to the extent we
anticipate or that if increased, our new acquisitions and exploration programs
will prove to be successful.
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." 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.
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
44
December 31, 2002 $3.06 $3.05
Match 31, 2002 $3.06 $3.06
June 30, 2002 $3.10 $2.75
Holders
As of July 18, 2003, there were approximately 41 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 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.
45
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.
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
46
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.
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 July 18, 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
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 also serves as president, chief
executive and financial officer and as a director for each of Assure Oil & Gas
47
Corp. and Westerra 2000 Inc. 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.
Mr. 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.
Board of Directors
Our directors presently receive no remuneration for acting as such. Directors
may however be reimbursed their expenses, if any, for attendance at meetings of
the Board of Directors. 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 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.
48
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.
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% $2.75 October 1, 2002 September 30, 2005
49
(1) Ms. West's employment contract provided for the grant of 200,000 stock
options to Ms. West. These options were never issued and upon the termination of
Ms. West's employment effective December 6, 2002, all rights of Ms. West to
receive these options were likewise terminated.
(2) Does not take into account 200,000 stock options that were issuable to
Suzanne West (the "West Options") pursuant to her September 17, 2002 Employment
Agreement or 150,000 stock options that were issuable to Cameron Smigel (the
"Smigel Options") pursuant to his September 16, 2002 Employment Agreement. Due
to the December 6, 2002 termination of the West Employment Agreement and the
December 13, 2002 termination of the Smigel Employment Agreement, the West
Options and Smigel Options were never issued.
Stock Option Plans
We have not adopted any stock option plans since our inception.
Stock Appreciation Rights
We have not granted any stock appreciation rights to the named
executive officers or any other persons since our inception.
Aggregated Option/SAR Exercises in Last Fiscal Year and
Fiscal Year End Option/SAR Values
Number of Securities Underlying Value of Unexercised In-the-Money
Shares Acquired On Value Unexercised Options/SARs Options/SARs
Exercise Realized at Fiscal Year End (#) at Fiscal Year End ($)
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
20,000
10,000 Exercisable $3,100 Exercisable
James Golla N/A N/A 10,000 Unexercisable $3,100 Unexercisable
Suzanne West N/A N/A N/A N/A
100,000
50,000 Exercisable $15,500 Exercisable
Harvey Lalach N/A N/A 50,000 Unexercisable $15,500 Unexercisable
50
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, since December 6, 2002 we have been paying Mr. Lalach a salary
of CDN$7,500 per month (approximately US$5,000) under a verbal month to month
arrangement.
Compensation of Directors
We do not presently compensate our directors for serving as directors.
Both of our present directors are also employees, however, and receive
compensation from us in their employment capacities.
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.
51
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 30, 2002 we entered into a nine month employment agreement
with Harvey Lalach. 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.
52
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 July 18, 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) 7.05%
------------------------------------ ------------------------------------- ------------------------- ---------------
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) 8.4%
------------------------------------ ------------------------------------- ------------------------- ---------------
Harvey Lalach
2575 Alberta Court 50,000 shares,
Kelowna, British Columbia V1W 2X8 Common Stock, $.001 per share Direct (4) .32%
------------------------------------ ------------------------------------- ------------------------- ---------------
James Golla
829 Terlin Blvd. 10,000 shares,
Mississauga, Ontario L5H 1T1 Common Stock, $.001 per share Direct (5) .065%
------------------------------------ ------------------------------------- ------------------------- ---------------
All officers and directors as a 60,000 shares,
group (2 persons) Common Stock, $.001 per share Direct (6) .389%
------------------------------------ ------------------------------------- ------------------------- ---------------
(1) Includes 600,000 presently exercisable options
(2) The beneficial owner of Bamby Investments, S.A. is Camille Escher
(3) Includes 750,000 presently exercisable options
(4) Includes 50,000 presently exercisable stock options.
(5) Includes 10,000 presently exercisable stock options.
(6) Includes 60,000 presently exercisable stock options.
53
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 July 18, 2003 16,433,000 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;
54
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 July 18, 2003 we have 3,600,000 A Warrants; 3,600,00 B Warrants; and
3,183,500 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 commencing 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. 100,000 of the other
Warrants are exercisable for the purchase of one share of our common stock
55
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 July 18, 2003 we have 120,000 stock options issued and outstanding, each
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.
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 $1.75 per share at any time during the
four year period commencing one year after the date of issuance of the units.
The conversion price for the conversion of a share of Series A Preferred Stock
into units is $1.50 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 (i)
prior to the Company's common stock; (ii) prior to any class or series of
capital stock of the Company that, by its terms, ranks junior to the Series A
Preferred Stock; (iii) 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
(iv) 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.
56
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 an exercise price of $2.00 per share and that the
conversion price for the conversion of a share of Series B Preferred Stock into
units is $1.75 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, 630 Third Avenue, 5th Floor,
New York, New York 10017.
AVAILABLE INFORMATION
Assure Nevada has been and is currently subject to the informational
requirements of the Securities Exchange Act of 1934, as amended. In accordance
with those requirements, we file, and after the conversion will file reports and
other information with the Securities and Exchange Commission. 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.
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.
57
INCORPORATION OF CERTAIN DOCUMENTS BY REFERENCE
The SEC allows us to "incorporate by reference" the information we file with
them, which means that we can disclose important information to you by referring
you to those documents. The information incorporated by reference is considered
to be part of this prospectus, and information filed later with the SEC will
update and supersede this information. We incorporate by reference any future
filings made with the SEC under Section 13(a), 13(c), 14, or 15(d) of the
Securities Exchange Act of 1934 after the date of this prospectus and before the
date of the conversion.
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
You should rely only on the information incorporated by reference or provided in
this prospectus. We have authorized no one to provide you with different
information. We are not making an offer of these securities in any state where
the offer is not permitted. You should not assume that the information in this
prospectus is accurate as of any date other than the date on the front of the
document.
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.
58
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 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
59
Notes to Consolidated Financial Statements (Audited).................................. F-6
Consolidated Balance Sheet as at March 31, 2003 (Unaudited)........................... F-20
Consolidated Statement of Operations for the three month periods
ended March 31, 2003 and 2002 (Unaudited)............................................. F-21
Consolidated Statement of Cash Flows for the three month periods
ended March 31, 2003 and 2002 (Unaudited)............................................. F-22
Notes to Consolidated Financial Statement (Unaudited)................................. F-23
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
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)
3.1 3.1 Certificate of Incorporation of Registrant as filed August 11, 1999.(5)
60
SEC Report
Reference
Exhibit No. Number Description
-----------------------------------------------------------------------------------------------------------------------
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 Registrant.(5)
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
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
23.1 Consent of Independent Auditors
23.2 Consent of Gottbetter & Partners, LLP. (included in Exhibit 5.1)
61
(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.
(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.
Item 22. Undertakings.
62
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;
(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
(iii) Include any additional or changed material information on the plan of
distribution.
(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.
(4) Respond to requests for information that is incorporated by reference into
the prospectus within one business day of receipt of such request, and to send
the incorporated documents by first class mail or other equally prompt means.
This includes information contained in documents filed subsequent to the
effective date of the registration statement through the date of responding to
the request.
(5) To supply by means of a post-effective amendment all information concerning
a transaction, and the company being acquired involved therein, that was not the
subject of and included in the registration statement when it became effective.
63
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
July 21, 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
------------------------------------ Director Dated: July 21, 2003
Harvey Lalach
/s/ James Golla
------------------------------------ Director Dated: July 21, 2003
James Golla
64
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
MARCH 31, 2003
(Unaudited)
ASSETS
Current Assets:
Cash $ 7,532,304
Accounts receivable and other current assets 1,519,554
------------
Total current assets 9,051,858
Restricted cash 59,001
Property and equipment, net of accumulated depreciation
and depletion of $1,438,983 4,773,703
------------
$ 13,884,562
============
LIABILITIES AND STOCKHOLDERS' EQUITY
Current Liabilities:
Accounts payable and accrued expenses $ 422,041
Income tax payable 88,365
------------
Total current liabilities
510,406
Long term debt 5,209,524
Obligation for site restoration 61,456
Deferred income tax payable 44,919
------------
5,826,305
------------
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,
16,433,000 shares issued and outstanding 16,433
Additional paid in capital 6,507,193
Accumulated other comprehensive income 501,357
Accumulated deficit (1,241,726)
------------
Total stockholders' equity 8,058,257
------------
$ 13,884,562
============
See Notes to Consolidated Financial Statements.
F-20
ASSURE ENERGY, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATIONS
THREE MONTHS ENDED MARCH 31,
(Unaudited)
2003 2002
------------ ------------
Revenue:
Oil and gas production $ 1,074,142 $ --
------------ ------------
Total royalties expense:
Crown royalties 134,353 --
Freehold royalties 42,706 --
Gross overriding royalties 20,009 --
------------ ------------
Total royalties expense 197,068 --
------------ ------------
Net oil and gas revenue 877,074 --
------------ ------------
Expenses:
General and administrative 247,787 105,498
Operating expense 150,946 --
Interest and bank charges 182,626 --
Depletion and site restoration 579,701 --
------------ ------------
Total expenses 1,161,060 105,498
------------ ------------
Loss before provision for income taxes (283,986) (105,498)
------------ ------------
Provision for income taxes:
Current 85,887 --
Deferred 10,701 --
------------ ------------
Total provision for income taxes 96,588 --
------------ ------------
Loss from operations (380,574) (105,498)
Other comprehensive income, net of taxes
Foreign translation gain 428,658 --
------------ ------------
Comprehensive income (loss) $ 48,084 $ (105,498)
============ ============
Basic loss per common share $ (.03) $ *
============ ============
Basic weighted average common shares outstanding 15,757,233 31,326,000
============ ============
* Amount is less than $.01
See Notes to Consolidated Financial Statements.
F-21
ASSURE ENERGY, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
THREE MONTHS ENDED MARCH 31,
(Unaudited)
2003 2002
----------- -----------
Cash flows from operating activities:
Net loss $ (380,574) $ (105,498)
Adjustments to reconcile net loss to net cash used in
operating activities:
Depreciation and depletion 476,295 --
Allowance for site restoration 18,543 --
Interest expense on warrants 181,260 --
Deferred income taxes 16,763 --
Change in operating assets and liabilities:
Accounts receivable and other current assets (311,584) --
Accounts payable and accrued expenses (606,059) 19,376
Income tax payable 88,365 --
----------- -----------
Net cash used in by operating activities (516,991) (86,122)
----------- -----------
Cash flows from investing activities:
Purchases of property and equipment (568,412) --
----------- -----------
Cash flows from financing activities:
Proceeds from long term debt 4,500,000 100,000
Proceeds from sale of units 2,400,750 --
----------- -----------
Net cash provided by financing activities 6,900,750 100,000
----------- -----------
Effect of exchange rate changes on cash 500,203 --
----------- -----------
Increase (decrease) in cash 6,315,550 13,878
Cash, beginning of period 1,216,754 17,289
----------- -----------
Cash, end of period $ 7,532,304 $ 31,167
=========== ===========
Supplemental disclosure of cash flow information:
Cash paid during the period for interest $ 759 $ --
=========== ===========
See Notes to Consolidated Financial Statements.
F-22
ASSURE ENERGY, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
MARCH 31, 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 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. It is
suggested that these financial statements be read in conjunction with
the financial statements and footnotes thereto included in the
Company's Annual Report on Form 10-KSB for the fiscal year ended
December 31, 2002. The results of operations for the three-months ended
March 31, 2003 are not necessarily indicative of the operating results
that may be expected for the fiscal 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 - Pro forma information
The following table represents unaudited consolidated pro forma
information as if Energy, Oil and Westerra had been combined as of
January 1, 2002. The pro forma data is presented for illustrative
purposes only and is not necessarily indicative of the combined results
of operations of future periods or the results that actually would have
resulted had Energy, Oil, and Westerra been a combined company during
the specified periods.
Three months Ended
March 31, 2002
------------
REVENUE
Oil and gas production $ 317,706
============
Total Revenue $ 317,706
============
NET LOSS $ (178,706)
============
BASIC LOSS PER COMMON SHARE $ (.01)
BASIC WEIGHTED AVERAGE COMMON SHARES OUTSTANDING 31,326,000
F-23
ASSURE ENERGY, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
MARCH 31, 2003
(Unaudited)
Note 4 - Summary of Significant Accounting Policies
Stock based compensation
Effective January 1, 2003, the Company adopted the fair value of
accounting for stock 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.
Three Months
Ended
March 31, 2003
--------------
Net loss (as reported) $ (380,574)
Deduct: Total stock based compensation expense determine
under the fair value based method for all awards granted,
modified or settled during the period, net of related taxes --
-----------
Pro forma net loss $ (380,574)
===========
Basic, as reported $ (.03)
===========
Basic, pro forma $ (.03)
===========
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
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.
Note 5 - 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 payments 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. The common stock
purchase warrants may be exercised, at any time, during the five years
commencing July 1, 2003. The common stock purchase warrants have a fair
value at the grant date of $181,260, which has been recorded as
interest expense in the accompanying consolidated statement of
operations.
F-24
ASSURE ENERGY, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
MARCH 31, 2003
(Unaudited)
Note 6 - Stockholders' Equity
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. The warrants have a fair value of at $482,500 at
March 31, 2003.
Note 7 - Subsequent event
On April 7, 2003 the Company entered into an agreement with an
unrelated third party to provide internet public relations services. As
compensation for its services the Company will pay $50,000, of which
$25,000 was paid upon the signing of the Consulting Agreement. In
addition, the Company issued 100,000 warrants, exercisable at any time,
to purchase an equal amount of the Company's common stock at $3.00 per
share, expiring on April 7, 2008.
F-25
ANNEX A
PLAN OF CONVERSION
It is hereby certified that:
1. The constituent business corporation participating in the plan of
conversion is Assure Energy, Inc., which is incorporated under the laws
of the State of Nevada ("Assure Nevada"). The current address of Assure
Nevada is 2750-140 4th Avenue, S.W. Calgary, Alberta T2P 3N3.
2. The proposed name of the resulting business corporation is Assure
Energy, Inc., a company continued under the laws of Canada ("Assure
Canada"). The proposed address of Assure Canada will be 2750-140 4th
Avenue, S.W. Calgary, Alberta T2P 3N3.
3. A copy of the Articles of Continuance and By-Laws of Assure Canada is
attached hereto.
4. Assure Nevada desires to effectuate a conversion to Assure Canada
pursuant to Nevada Revised Statutes Chapter 92A.105.
5. The conversion of Assure Energy, Inc., a Nevada corporation, to Assure
Energy, Inc., a Canadian corporation, is intended to qualify as a
tax-free reorganization under the provisions of Section 368(a)(1)(F) of
the Internal Revenue Code of 1986, as amended. Upon the effective date
of the conversion, each issued and outstanding share of Assure Nevada
shall automatically, without any action on the part of the company or a
stockholder, become one issued and outstanding share of Assure Canada.
6. Assure Nevada is authorized to issue 100,000,000 shares of common
stock, 4,977,250 shares of blank check preferred stock, 17,500 shares
of Series A Preferred Stock and 5,250 shares of Series B Preferred
Stock. As of the date hereof, Assure Nevada has 16,433,000 shares of
common stock, 17,500 shares of Series A Preferred Stock, and 5,250
shares of Series B Preferred Stock issued and outstanding.
7. Assure Canada is authorized to issue shares of common shares and
preferred shares. Upon the effective date of the plan of conversion,
Assure Canada will have 16,433,000 common shares, 17,500 Series A
preferred shares, and 5,250 Series B preferred shares issued and
outstanding.
8. Upon the effectiveness of the plan of conversion, the separate
existence of Assure Nevada shall cease.
9. The Articles of Incorporation and By-Laws of Assure Canada will be the
Articles of Incorporation and By-Laws of Assure Canada, the resulting
entity, and will continue in full force and effect until changed,
altered or amended as provided in the Canada Business Corporations Act.
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10. The officers and directors of Assure Nevada shall be the officers and
directors of Assure Canada upon the effective date of the plan of
conversion, all of whom shall hold their directorships and offices
until the election and qualification of their respective successors or
until their tenure is otherwise terminated.
11. The plan of conversion was duly adopted by the Board of Directors of
each of Assure Nevada and Assure Canada on _________________, 2003.
12. The plan of conversion was duly adopted by the stockholders of Assure
Nevada at a meeting duly constituted and held on ____________, 2003.
The plan of conversion shall be effective upon the filing hereof.
ASSURE ENERGY, INC. (a NEVADA CORPORATION)
By:
------------------------
Name: Harvey Lalach
Title: President
ASSURE ENERGY, INC. (a CANADIAN CORPORATION)
By:
------------------------
Name: Harvey Lalach
Title: President
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