SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 6-K
REPORT OF FOREIGN PRIVATE ISSUER
PURSUANT TO RULE 13a - 16 OR 15d - 16 OF
THE SECURITIES EXCHANGE ACT OF 1934
For the month of June 2005
Assure Energy, Inc.
--------------------------------------------------------------------------------
(Registrant's name)
521 3rd Avenue, S.W., Suite 800
Calgary, Alberta T2P 3T3
Canada
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(Address of principal executive office)
Indicate by check mark whether the registrant files or will file annual reports
under cover of Form 20-F or Form 40F
Form 20-F |X| Form 40-F |_|
Indicate by check mark whether the registrant by furnishing the information
contained in this Form is also thereby furnishing the information to the
Commission pursuant to Rule 12g3-2(b) under the Securities Exchange Act of 1934.
Yes |_| No |X|
If "Yes" is marked, indicate below the file number assigned to the registrant in
connection with Rule 12g3-2(b):
TABLE OF CONTENTS
1. Consolidated Financial Statements of Registrant for the Three Months Ended
March 31, 2005 as filed on SEDAR on June 1, 2005;
2. Management's Discussion and Analysis of Financial Condition and Results of
Operations for the Three Months Ended March 31, 2005 as filed on SEDAR on June
1, 2005;
3. Press Release Dated June 1, 2005 Announcing Filing of Unaudited Financial
Statements for the Three Months Ended March 31, 2005 and the Postponement of
Registrant's Annual and Special Meeting of Shareholders as filed on SEDAR on
June 1, 2005;
4. Certification of Interim Filings During Transition Period by Registrant's
President and Chief Financial Officer as Filed on SEDAR on June 1, 2005;
5. Letter to British Columbia and Alberta Securities Commissions dated June 1,
2005 advising of the postponement of Registrant's Annual and Special Meeting of
Shareholders as filed on SEDAR on June 1, 2005.
Pursuant to the requirements of the Securities Exchange Act of 1934, the
registrant has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.
Dated: June 3, 2005 ASSURE ENERGY, INC.
By: /s/ Harvey Lalach
--------------------
Name: Harvey Lalach
Title: President
2
ITEM 1
ASSURE ENERGY, INC.
CONSOLIDATED FINANCIAL STATEMENTS
For the three months ended March 31, 2005
(Unaudited - Prepared by Management)
(Expressed in Canadian Dollars)
Assure Energy, Inc.
Consolidated Balance Sheets
(Unaudited - prepared by management)
(Expressed in Canadian Dollars)
--------------------------------------------------------------------------------
March 31, December 31,
2005 2004
------------------------------------------------- ------------ ------------
ASSETS (Audited)
Current Assets
Cash $ 108,509 $ 112,660
Receivables 10,167,339 3,224,863
Deposits and prepaid expenses 597,195 481,542
------------------------------------------------- ------------ ------------
10,873,043 3,819,065
Deposits 53,200 53,200
Investment 942,866 927,626
Property and equipment (note 2) 31,535,936 34,282,243
------------------------------------------------- ------------ ------------
Total Assets $ 43,405,045 $ 39,082,134
================================================= ============ ============
LIABILITIES AND SHAREHOLDERS' EQUITY
Current Liabilities
Payables and accrued liabilities $ 12,501,172 $ 8,269,333
Bank loan (note 3) 6,600,000 6,150,000
Due to shareholders (note 4) 2,964,311 2,520,372
Interest payable 11,113 11,245
Current portion of long term debt (note 5) 983,821 978,896
------------------------------------------------ ------------ ------------
23,060,417 17,929,846
Long term debt (note 5) 2,901,462 3,131,412
Asset retirement obligation (note 6) 1,286,775 1,279,702
Future income taxes 1,903,626 2,220,885
------------------------------------------------ ------------ ------------
29,152,280 24,561,845
------------------------------------------------ ------------ ------------
Shareholders' Equity
Common shares (note 7b) 26,108,527 25,256,913
Preferred shares (note 7c) 3,489,521 3,489,521
Warrants (note 7e) 1,836,001 2,070,001
Contributed surplus (note 7b) 995,950 995,950
Currency exchange adjustment 319,960 319,960
Deficit (18,497,194) (17,612,056)
------------------------------------------------ ------------ ------------
14,252,765 14,520,289
------------------------------------------------ ------------ ------------
Total Liabilities and Shareholders' Equity $ 43,405,045 $ 39,082,134
================================================ ============ ============
The accompanying notes are an integral part of these consolidated financial
statements.
2
Assure Energy, Inc.
Consolidated Statements of Operations and Deficit
(Unaudited - prepared by management)
(Expressed in Canadian Dollars)
--------------------------------------------------------------------------------
For the three months ended March 31, 2005 2004
------------------------------------------------ ------------ ------------
REVENUE
Petroleum and natural gas sales $ 2,740,524 3,386,613
Less: royalties, net of tax credits (479,147) (671,363)
------------------------------------------------ ------------ ------------
Net petroleum and natural gas revenue 2,261,377 2,715,250
Equity income 15,240 4,370
Interest and other income 5,244 3,952
------------------------------------------------ ------------ ------------
2,281,861 2,723,572
------------------------------------------------ ------------ ------------
EXPENSES
Asset retirement obligation - accretion 22,572 31,459
Depletion and depreciation 1,228,475 1,349,394
Foreign exchange loss (gain) 11,381 (42,633)
General and administrative 1,011,456 1,574,873
Interest 172,645 226,117
Production and operating costs 946,982 926,533
------------------------------------------------ ------------ ------------
3,393,511 4,065,743
------------------------------------------------ ------------ ------------
Loss before income taxes 1,111,650 1,342,171
------------------------------------------------ ------------ ------------
Income tax expense - current 55,854 66,330
Income tax recovery - future (317,259) (302,869)
------------------------------------------------ ------------ ------------
Total income tax expense (261,405) (236,539)
------------------------------------------------ ------------ ------------
Net loss after taxes (850,245) (1,105,632)
Minority interest in consolidated subsidiary -- 46,987
------------------------------------------------ ------------ ------------
Net loss for the period (850,245) (1,058,645)
Deficit, beginning of period (17,612,056) (13,722,191)
Dividends (34,893) (76,054)
------------------------------------------------ ------------ ------------
Deficit, end of period $(18,497,194) $(14,856,890)
================================================ ============ ============
$ (0.04) $ (0.06)
Loss per share - Basic
Weighted average common shares outstanding
- Basic 21,327,198 17,626,290
(Diluted earnings per share have not been presented as such would be
antidilutive)
The accompanying notes are an integral part of these consolidated financial
statements
3
Assure Energy, Inc.
Consolidated Statements of Cash Flows
(Unaudited - prepared by management)
(Expressed in Canadian Dollars)
--------------------------------------------------------------------------------
For the three months ended March 31, 2005 2004
-------------------------------------------------- ----------- -----------
OPERATING ACTIVITIES
Net loss for the period $ (850,245) $(1,058,645)
Add (deduct) items not affecting cash:
Depreciation and depletion 1,228,475 1,349,394
Asset retirement obligation - accretion 22,572 31,459
Minority interest -- (46,987)
Future income taxes (317,259) (302,869)
Equity share of earnings of investment (15,240) (4,370)
Interest and dividends paid through the
issuance of shares 83,161 588,155
Stock compensation expense 192,565 165,214
Accrued interest payable (132) --
Foreign exchange loss (gain) 11,381 (42,633)
Provision for income tax 55,854 21,092
-------------------------------------------------- ----------- -----------
411,132 699,810
Net change in non-cash operating
working capital 2,582,963 1,963,737
-------------------------------------------------- ----------- -----------
Net cash provided by operating activities 2,994,095 2,663,547
-------------------------------------------------- ----------- -----------
FINANCING ACTIVITIES
Proceeds (repayments) from/to long
term debt -- (34,174)
Bank loan advances (repayments) 450,000 (1,050,000)
Shareholders advances 443,939 --
Proceeds from the exercise of warrants 101,220 --
-------------------------------------------------- ----------- -----------
Net cash provided by financing activities 995,159 (1,084,174)
-------------------------------------------------- ----------- -----------
INVESTING ACTIVITIES
Net change in property and equipment (3,997,667) (5,959,962)
-------------------------------------------------- ----------- -----------
Net cash used in investing activities (3,997,667) (5,959,962)
-------------------------------------------------- ----------- -----------
Effect of exchange rates changes on cash 4,262 89,501
-------------------------------------------------- ----------- -----------
Net cash flow for the period (4,151) (4,291,088)
Cash, beginning of period 112,660 4,628,405
-------------------------------------------------- ----------- -----------
Cash, end of period $ 108,509 $ 337,317
-------------------------------------------------- ----------- -----------
The accompanying notes are an integral part of these consolidated financial
statements
4
Assure Energy, Inc.
Notes to Consolidated Financial Statements
March 31, 2005
(Unaudited prepared by management)
(Expressed in Canadian Dollars)
--------------------------------------------------------------------------------
1. NATURE OF THE BUSINESS AND BASIS OF PRESENTATION
The interim consolidated financial statements of the Company have been
prepared by management, without audit or review by the Company's auditor,
in accordance with Canadian generally accepted accounting principles. The
preparation of financial statements in conformity with generally accepted
accounting principles requires management to make estimates and
assumptions that affect the amounts reported in the financial statements
and accompanying notes. Actual results could differ from those estimates.
The interim financial statements have, in management's opinion, been
properly prepared using careful judgment with reasonable limits of
materiality. These interim financial statements do not include all the
note disclosures required for annual financial statements and therefore
they should be read in conjunction with the Company's audited consolidated
financial statements for the year ended December 31, 2004. The interim
financial statements have been prepared following the same significant
accounting policies as the most recently reported annual financial
statements.
Assure Energy, Inc. (the "Company" or "Assure") and its subsidiaries are
engaged in the exploration, development and production of oil and natural
gas in the Canadian provinces of Alberta, Saskatchewan and British
Columbia.
The interim consolidated financial statements present the results of
operations of the Company for the three months ended March 31, 2005 and
its wholly owned subsidiaries, Assure Oil & Gas Corp. ("Oil & Gas") and
Westerra 2000 Inc. ("Westerra"). All material inter-company accounts and
transactions have been eliminated on consolidation.
2. PROPERTY AND EQUIPMENT
Accumulated
Depletion and
March 31, 2005 Cost Depreciation Net Book Value
------------------------------------------------------- -------------- -------------- --------------
Petroleum and natural gas properties and equipment $ 60,821,461 $ 29,307,668 $ 31,513,793
Furniture and equipment 124,136 101,993 22,143
------------------------------------------------------- -------------- -------------- --------------
$ 60,945,597 $ 29,409,661 $ 31,535,936
------------------------------------------------------- -------------- -------------- --------------
Accumulated
Depletion and
December 31, 2004 Cost Depreciation Net Book Value
------------------------------------------------------- -------------- -------------- --------------
Petroleum and natural gas properties and equipment $ 62,339,292 $ 28,083,446 $ 34,255,846
Furniture and equipment 124,136 97,739 26,397
------------------------------------------------------- -------------- -------------- --------------
$ 62,463,428 $ 28,181,185 $ 34,282,243
------------------------------------------------------- -------------- -------------- --------------
At March 31, 2005, costs amounting to $1,070,482 (2004 - $1,169,342) that
were incurred on unproven properties have been excluded from costs subject
to depletion.
An impairment test calculation was performed on the Company's property,
plant and equipment as of March 31, 2005 and it was determined that the
fair market value exceeded the carrying amount of the Company's property,
and equipment.
5
Assure Energy, Inc.
Notes to Consolidated Financial Statements
March 31, 2005
(Unaudited prepared by management)
(Expressed in Canadian Dollars)
--------------------------------------------------------------------------------
3. BANK LOAN
a) Assure Energy Inc.
As at March 31, 2005 the Company had available a $5,775,000 (2004 -
$6,400,000) revolving operating demand loan facility with a Canadian
chartered bank. The facility reduces by $75,000 per month commencing
November 30, 2004 and reduces by $275,000 per month commencing January 31,
2005. The loan bears interest at the bank's prime rate plus 1.5% interest
subject to a standby fee of 0.125% per annum. The Company also had
available, a $1,200,000 non-revolving acquisition and development demand
loan facility at the same bank with interest payable at the bank's prime
rate plus 1.5% subject to a drawdown fee of 0.375% (acquisition) or 0.50%
(development) and a standby fee of 0.125% per annum. The facilities are
secured by a $20 million debenture over all the assets of the Company.
These facilities will be reviewed no later than April 30, 2005. As at
March 31, 2005, the Company had drawn down $5,300,000 (2004 - $5,700,000)
against these facilities and this amount has been classified as a current
liability. Under the credit facility agreement with the bank, the Company
is subject to certain covenants.
As at March 11, 2005 the Company agreed and accepted a Temporary Demand
Loan facility with a Canadian chartered bank in the amount of $1,000,000
to provide for financing of capital expenditures associated with the
completion and tie in of certain gas wells. The loan bears interest at the
bank's prime rate plus 3% per annum. The facility is secured by a variable
rate promissory demand note in the face amount of $1,000,000, a guarantee
from Oil & Gas and Westerra, and a general assignment of book debts from
Westerra. As at March 31, 2005, the Company had drawn down $1,000,000
(2004 - $nil) against this facility and this amount has been classified as
a current liability.
b) Assure Oil & Gas Corp.
As at March 31, 2005, the Company had available, through its wholly owned
subsidiary Oil & Gas a $1,200,000 revolving, operating demand loan
facility with a Canadian chartered bank. The loan bears interest at the
bank's prime rate plus 1.0% interest subject to a standby fee of 0.125%
per annum. The Company also had available through Oil & Gas a $450,000
non-revolving acquisition and development demand loan facility at the same
bank with interest payable at the bank's prime rate plus 1.25% subject to
a drawdown fee of 0.25% (acquisition) or 0.50% (development) and a standby
fee of 0.125% per annum. The facilities are secured by a $10 million
debenture over all the assets of Oil & Gas and a $10 million guarantee
from Assure and Westerra. These facilities will be reviewed no later than
April 30, 2005. As at March 31, 2005, Oil & Gas had drawn down $300,000
(2004 - $450,000) against these facilities and this amount has been
classified as a current liability. Under the credit facility agreement
with the bank, the Company is subject to certain covenants.
Subsequent to March 31, 2005, the bank loans for the Company and Oil and
Gas have been combined and refinanced subject to certain credit approval
conditions outlined below.
On March 7, 2005, the Company, signed a term sheet outlining the terms and
conditions of proposed financing to replace the existing bank loan.
Subject to certain credit approval conditions, the Company will have
available a $7,100,000 revolving operating demand loan facility with a
Canadian chartered bank. The loan will bear interest at the bank's prime
rate plus 2% interest, subject to a standby fee of 0.125% per annum. The
Company will also have available, a $2,700,000 non-revolving development
demand loan facility at the same bank with interest payable at the bank's
prime rate plus 2.5%, subject to a drawdown fee of 1% and a standby fee of
0.125% per annum. The facilities are secured by a $10 million debenture
over all the assets of Oil & Gas, a $10 million guarantee from Assure and
Westerra, and a $40 million supplemental debenture over the major
producing petroleum and natural gas reserves of Assure, Oil & Gas, and
Westerra. These facilities will be reviewed by July 15, 2005 and upon the
Company's fiscal year end December 31, 2005, and not later than April 30,
2006. This new facility replaced both the Company's and Oil & Gas'
facilities. A commitment fee in the amount of $500,000 was payable upon
delivery of the commitment to the Company, payable in monthly payments of
$100,000 per month commencing April 1, 2005. An earnest fee in the amount
of $50,000 will also be payable on April 1, 2005.
6
Assure Energy, Inc.
Notes to Consolidated Financial Statements
March 31, 2005
(Unaudited prepared by management)
(Expressed in Canadian Dollars)
--------------------------------------------------------------------------------
4. DUE TO SHAREHOLDERS
Due to shareholders is $2,964,311 (2004 - $2,520,372) as at March 31, 2005
advanced from certain shareholders. The funds were advanced for general
operational purposes, are unsecured, non-interest bearing and without
fixed or agreed repayment terms and are subordinated to the bank.
5. LONG TERM DEBT
The Company's long term debt consists of a six-year note payable issued by
its wholly owned subsidiary Oil & Gas in the principal amount of $750,000
(December 31, 2004 - $800,000) (the "CDN dollar Note") and a six-year
subordinated promissory note payable in the principal amount of US
$2,592,000, equivalent to Canadian $3,135,283 (December 31, 2004 - US
$2,754,000, equivalent to Canadian $3,310,308) (the "US dollar Note").
The CDN dollar Note was issued on December 28, 2002 and amended on June 1,
2004 and matures on December 28, 2008. The note accrues interest at 7.75 %
per annum. Quarterly payments of principal and interest are due on March
28, June 28, September 28, and December 28. The note is subordinated to
all present and future bank debt of Oil & Gas and its subsidiaries.
The US dollar Note was issued on March 15, 2003, as amended on December 5,
2003, and further amended on June 1, 2004 and matures on March 15, 2009.
The note accrues interest at 7.75% per annum. Quarterly payments of
principal and interest are due and payable in US dollars on March 15, June
15, September 15, and December 15. The note is unsecured and is
subordinated to all present and future bank debt of the Company and its
subsidiaries. In connection with the issuance of the US dollar Note, the
Company issued 450,000 common stock purchase warrants to purchase an equal
number of the Company's common stock with an exercise price of $3.75 (US
$3.10) per share. These common stock purchase warrants may be exercised at
any time during the five years commencing July 1, 2003.
On June 1, 2004 the CDN dollar Note and the US dollar Note were amended
such that during the 20 month period immediately following the date of
amendment all principal and interest payments due to the Note Holder under
the Notes may at, the Company's option, be paid in common shares of the
Company. Following such 20 month period all principal and interest
payments due to the Note Holder under the Notes may, at the Holder's
option, be paid in common shares of the Company.
For the purposes of payments under the Notes in common shares, the common
shares will be valued at the average closing price of the Company's common
shares during the 10 day trading period immediately preceding the due date
for the payment.
Principal payments of $50,000 plus $14,795 of interest due on March 28,
2005 on the CDN dollar Note were satisfied by the issue by the Company of
52,832 common shares at $1.23 (US $1.01) per share.
Interest of $63,517 (US $52,628) and principal of $195,518 (US $162,000)
due on March 15, 2005 on the US dollar Note have been satisfied by the
issue of 229,745 common shares at $1.13 (US $0.93) per share.
6. ASSET RETIREMENT OBLIGATION
The following table presents the reconciliation of the beginning and
ending aggregate carrying amount of the obligation associated with the
retirement of oil and gas properties.
2005 2004
----------- -----------
Present value of obligation at January 1, $ 1,279,702 $ 1,088,682
Acquisitions/(dispositions) (15,499) --
New obligations during the period -- 112,513
Accretion expense 22,572 78,507
----------- -----------
$ 1,286,775 $ 1,279,702
=========== ===========
7
Assure Energy, Inc.
Notes to Consolidated Financial Statements
March 31, 2005
(Unaudited prepared by management)
(Expressed in Canadian Dollars)
--------------------------------------------------------------------------------
7. EQUITY INSTRUMENTS
a) Authorized
Preferred Shares - 4,977,250 Blank Check non-voting Preferred Shares,
17,500 Series A Preferred Shares and 5,250 Series B Preferred Shares.
Common Shares - 100,000,000 shares without par value.
b) Common Shares
Three Months Ended Year Ended
March 31, 2005 December 31, 2004
------------------------------------------- --------------------------------------- ---------------------------------------
Contributed Contributed
# Shares Amount Surplus # Shares Amount Surplus
------------------------------------------- ----------- ----------- ----------- ----------- ----------- -----------
Beginning balance 23,868,265 $25,256,913 $ 995,950 19,650,100 $15,597,103 $ 288,623
Payment of dividend on preferred shares -- -- -- 68,363 300,705 --
Exercise of warrants (i) 234,000 335,220 -- 100,000 506,503 --
Private placement -- -- -- 482,000 2,216,596 --
Payment of principal and interest on long
term debt (ii) 282,577 323,829 -- 191,387 795,594 --
Pursuant to 2003 private placement -- -- -- 143,500 -- --
Quarry amalgamation -- -- -- 3,098,758 5,508,903 --
Stock compensation -- 192,565 -- -- -- 707,327
To be issued for payment of principal and
interest on long term debt -- -- -- 134,157 331,509 --
------------------------------------------- ----------- ----------- ----------- ----------- ----------- -----------
Ending balance 24,384,842 $26,108,527 $ 995,950 23,868,265 $25,256,913 $ 995,950
------------------------------------------- ----------- ----------- ----------- ----------- ----------- -----------
(i) During the quarter, 234,000 warrants were exercised for a
total of $335,220 (cash proceeds of $101,220 plus $234,000
value ascribed to the warrants upon issue, see note 7(e)). In
the prior year 100,000 warrants were exercised on settlement
of interest on long term debt.
(ii) During the quarter the Company issued 282,577 (2004 - 191,387)
common shares on settlement of principal and interest payments
due during the period on long term debt as disclosed in Note
5.
c) Preferred Shares
Three Months Ended Year Ended
March 31, 2005 December 31, 2004
----------------------------- ----------------------- -----------------------
# Shares Amount # Shares Amount
----------------------------- ---------- ---------- ---------- ----------
Beginning balance 22,750 $3,489,521 22,750 $3,489,521
Shares issued -- -- -- --
----------------------------- ---------- ---------- ---------- ----------
Ending balance 22,750 $3,489,521 22,750 $3,489,521
----------------------------- ---------- ---------- ---------- ----------
On June 1, 2002, the Company sold 17,500 shares of Series A Preferred
Stock ("Series A") with a stated value of US $100 (CDN $153) and a
cumulative 5% dividend payable in cash or shares of the Company's common
stock raising US $1,750,000 (Cdn$2,684,247). The Series A is convertible
at the option of the holder after two years, or if called for redemption
by the Company, transferred into units of the Company at US $1.50 per unit
for every US $1 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 US $1.75 per share at any time
during the four year period commencing one year after the date of
issuance.
8
Assure Energy, Inc.
Notes to Consolidated Financial Statements
March 31, 2005
(Unaudited prepared by management)
(Expressed in Canadian Dollars)
--------------------------------------------------------------------------------
7. EQUITY INSTRUMENTS - CONT'd
On August 27, 2002, the Company issued 5,250 shares of its Convertible
Series B Preferred Stock ("Series B") raising US $525,000 (CDN $815,724).
The Series B has a stated value of US $100 (CDN $155), 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 at US $1.75 per unit for every
US $1 of stated value of preferred stock. Each unit consists of one share
of the Company's common stock and one common stock purchase warrant
exercisable at US $2.00 per share, at any time during the four year period
commencing one year from the date of issuance of the units.
d) Stock Options
Three Months Ended Year Ended
March 31, 2005 December 31, 2004
------------------------------ --------------------------------------------- ---------------------------------------------
Wtd Avg Wtd Avg Wtd Avg Wtd Avg Wtd Avg Wtd Avg
Price Price remain Price Price remaining
# Options (US $) (Cdn $) life (yrs) # Options (US $) (Cdn $) life (yrs)
---------------------------- ---------- -------- --------- --------- --------- -------- --------- --------
Options outstanding,
beginning of period 1,105,000 $ 3.20 $ 3.85 3.92 425,000 $ 2.93 $ 3.52 3.69
Issued -- -- -- 1,120,000 3.29 3.96
Cancelled (310,000) 3.40 4.17 (440,000) 3.40 4.09
---------------------------- ---------- -------- --------- --------- --------- -------- --------- --------
Options outstanding,
end of period 795,000 $ 3.00 $ 3.68 3.50 1,105,000 $ 3.20 $ 3.85 3.92
---------------------------- ---------- -------- --------- --------- --------- -------- --------- --------
Options exercisable,
end of period 335,000 $ 3.20 $ 3.92 442,500 $ 3.22 $ 3.87
---------------------------- ---------- -------- --------- --------- --------- -------- --------- --------
The fair value of options issued in 2004 were determined using an
appropriate option pricing model and the following assumptions: expected
volatility of 27% to 53%, risk free interest rate of 3.5%, expected lives
of three to five years and dividend yield of 0%. The fair value of the
options is recognized and expensed over the vesting period of the options.
During the quarter $192,565 was recorded in stock compensation expense as
disclosed in note 7(b) using the Black-Scholes option-pricing model.
e) Warrants
Three Months Ended Year Ended
March 31, 2005 December 31, 2004
------------------------------------------------------ -------------------------- --------------------------
# Warrants Amount # Warrants Amount
------------------------------------------------------ ----------- ----------- ----------- -----------
Beginning balance 10,671,900 $ 2,070,001 10,036,400 $ 1,976,913
Issued in connection with private placement and
investor relations -- -- 675,500 160,088
Issued for investor relation services -- -- 60,000 33,000
Exercise of warrants (234,000) (234,000) (100,000) (100,000)
------------------------------------------------------ ----------- ----------- ----------- -----------
Ending balance 10,437,900 $ 1,836,001 10,671,900 $ 2,070,001
------------------------------------------------------ ----------- ----------- ----------- -----------
9
Assure Energy, Inc.
Notes to Consolidated Financial Statements
March 31, 2005
(Unaudited prepared by management)
(Expressed in Canadian Dollars)
--------------------------------------------------------------------------------
7. EQUITY INSTRUMENTS - CONT'd
e) Warrants - cont'd
March 31, 2005 December 31, 2004
----------------------------------------------------- ---------------------------------- ----------------------------------
Wtd Avg Wtd Avg Wtd Avg Wtd Avg
Exercise Exercise Exercise Exercise
Price Price Price Price
# Warrants (US $) (Cdn $) # Warrants (US $) (Cdn $)
----------------------------------------------------- ----------- -------- -------- ----------- -------- --------
Beginning balance 10,671,900 $ 1.54 $ 1.85 10,036,400 $ 1.38 $ 1.79
Exercised during the year (Class A) (234,000) 0.33 0.43 -- -- --
Exercised in payment of interest -- -- -- (100,000) 3.10 3.73
Issued in connection with private placement -- -- -- 482,000 4.00 4.81
Issued in connection with investor relation services -- -- -- 60,000 4.05 4.89
Issued in connection with investor relation services -- -- -- 50,000 2.50 3.02
Issued in connection with private placement -- -- -- 143,500 4.00 4.81
----------------------------------------------------- ----------- -------- -------- ----------- -------- --------
Ending balance 10,437,900 $ 1.56 $ 1.85 10,671,900 $ 1.54 $ 1.85
----------------------------------------------------- ----------- -------- -------- ----------- -------- --------
8. RISK MANAGEMENT
a) Interest rate risk management
The Company's fixed rate debt is subject to interest rate price risk as
the value will fluctuate as a result of changes in market rates. Floating
rate debt is subject to interest rate cash flow risk as the required cash
flows to service the debt will fluctuate as a result of changes in market
rates.
At March 31, 2005, the Company had fixed the interest rates on the
following interest bearing obligations:
March 31, 2005 December 31, 2004
--------------------------------------------------------------------------
Long term debt $ 3,885,283 $ 4,110,308
b) Foreign currency rate risk
A significant portion of the Company's debt is denominated in the United
States dollars. The Company does not have any exposure to any highly
inflationary foreign currencies. The amount of debt denominated in United
States dollars is US$2,592,000 (2004 - US$2,754,000). The increase or
decrease in net earnings before taxes for each 1 percent change in foreign
exchange rate on the US denominated debt amounts to approximately $26,000
(2004 - $28,000) per annum.
9. COMMITMENTS AND CONTINGENCIES
There have been no material changes in the existence, likelihood or
amount of contingencies from the preceding annual audited consolidated
financial statements.
10
Assure Energy, Inc.
Notes to Consolidated Financial Statements
March 31, 2005
(Unaudited prepared by management)
(Expressed in Canadian Dollars)
--------------------------------------------------------------------------------
10. RELATED PARTY TRANSACTIONS
Included in accounts receivable is $274,691 (2004 - $249,938) and included
in accounts payable is $429,551 (2004 - $377,339) due to companies
controlled by a director of the Company. These accounts receivable and
payable arise as the Company and this director share an interest in oil
and gas properties that the Company operates.
All related party transactions have been recorded at the agreed to
exchange amount which reflects fair value.
11. SUBSEQUENT EVENTS
On April 21, 2005 the Company engaged the services of Haywood Securities
Inc. ("Haywood") a TSE member firm, as its exclusive financial advisor to
assist the Company in evaluating strategic alternatives to maximize
shareholder value. In the event that such alternatives result in a merger,
takeover or business combination (the "Transaction") with another company,
Haywood would earn a commission equivalent to 0.9% of the Transaction
value. On April 25, 2005 the Company amended its employment agreements
such that in the event of a Transaction the Company's President and two
Vice Presidents are entitled to receive severance pay of approximately
$600,000 in the aggregate. As part of this amendment, 3 employees of the
Company were granted a total of 510,000 stock options, exercisable at
$1.25Cdn for 1 year from the date of grant.
12. CHANGE IN REPORTING CURRENCY & COMPARATIVE FIGURES
Most of the Company's operations are conducted by its Canadian
subsidiaries in Canadian dollars. As only limited operations are conducted
in United States dollars the Company adopted Canadian dollars as its
reporting currency effective January 1, 2003. Comparative figures for the
prior period have been restated using the current rate method of currency
translation as though the Canadian dollar was the reporting currency in
that period. The net effect of adopting Canadian dollars as the Company's
reporting currency reduces the foreign currency fluctuations recorded as a
result of translating the Company's Canadian subsidiaries into US dollars.
As substantially all of the operations are now in Canada, management is of
the opinion that the Canadian dollar will more accurately reflect the
balance sheet and the net exposure in US dollars will be appropriately
recognized through the income statement. The net exposure to the US dollar
will primarily come from US dollar denominated accounts such as cash and
trade payables. All numbers reported in these financial statements are
stated in Canadian dollars unless otherwise denoted. Certain comparative
figures have been restated to confirm to the current period presentation.
13. SEASONALITY TREND INFORMATION
The level of activity in the Canadian oil and gas industry is influenced
by seasonal weather patterns. Wet weather and spring thaw make the ground
unstable. Consequently, municipalities and provincial transportation
departments enforce road bans that restrict the movement of rigs and other
heavy equipment, thereby reducing activity levels. Also, certain oil and
gas producing properties located in swampy terrain are only accessible
during winter months. Seasonal factors and unexpected weather patterns may
lead to declines in exploration and production activity and increased
consumer demand or changes is supply during certain months of the year may
influence the commodity prices.
11
ITEM 2
ASSURE ENERGY, INC.
MANAGEMENT'S DISCUSSION AND ANALYSIS
OF FINANCIAL CONDITION AND OPERATING RESULTS
FOR THE QUARTER ENDED MARCH 31, 2005
--------------------------------------------------------------------------------
OVERVIEW
This Management's Discussion and Analysis ("MD&A") dated May 30, 2005, is a
review of the operating and financial activities of Assure Energy, Inc. (the
"Company" or "Assure") and its subsidiaries for the quarter ended March 31,
2005. This MD&A should be read in conjunction with the audited consolidated
financial statements and notes thereto of Assure for the years ended December
31, 2004 and 2003. Unless otherwise indicated, all dollar amounts in this MD&A
are Canadian dollars and have been presented in accordance with Generally
Accepted Accounting Principles.
Comparisons made of the current period to the previous year are to the
corresponding period in the previous year unless otherwise indicated. Readers
are advised that certain cautionary statements in the MD&A in the annual report
for the year ended December 31, 2004 are not repeated herein but apply to this
MD&A.
Assure and its subsidiaries are engaged in the exploration, development and
production of oil and natural gas in the Canadian provinces of Alberta,
Saskatchewan and British Columbia. Additional information relating to the
Company can be found on the website of the United States Securities and Exchange
Commission at www.sec.gov. and on the website of the System for Electronic
Document Analysis and Retrieval (SEDAR) at www.sedar.com.
The Company's results of operations for the quarter ended March 31, 2005 and
March 31, 2004 include the accounts of Assure Oil & Gas Corp. ("Oil & Gas") and
Westerra 2000 Inc. ("Westerra").
The Company's financial results depend on many factors, including, but not
limited to, commodity prices, exploration and development success, control of
capital expenditures, and operating and overhead costs. These factors impact the
Company's ability to obtain financing for its operations. Many of these factors
are outside of Assure's control. See the "Business Risks" section of this MD&A.
Certain Measures in this MD&A do not have any standardized meaning as prescribed
by Canadian generally accepted accounting principles ("Canadian GAAP") such as
cash flow from operations, and netback and therefore are considered non-GAAP
measures. Therefore, these measures may not be comparable to similar measures
presented by other issuers. There measures have been described and presented in
this MD&A in order to provide shareholders and potential investors with
additional information regarding the Company's liquidity and its ability to
generate funds to finance its operations. Management's use of these measures has
been disclosed further in this MD&A as these measures are discussed and
presented.
The following Management Discussion and Analysis may contain forward-looking
statements. Forward-looking statements are based on current expectations that
involve a numbers of risks and uncertainties which could cause actual events or
results to differ materially from those reflected herein. Forward-looking
statements are based on the estimates and opinions of management of the Company
at the time the statements were made.
OVERALL PERFORMANCE
Revenues from oil and natural gas production, before deduction of royalties and
operating costs, decreased by $646,089 to $2,740,524 in 2005 from $3,386,613 in
2004. Net revenue from oil and natural gas production, after deduction of
royalties and operating costs, decreased by $474,322 to $1,314,395 in 2005 from
$1,788,717 in 2004. The Company's net loss decreased by $208,400 to $850,245 in
2005 from $1,058,645 in 2004. The Company's production decreased by 295 boe/d to
809 boe/d in 2005 compared to 1,103 boe/d in 2004.
1
SELECTED QUARTERLY INFORMATION
The table below sets out the Company's selected quarterly information for the
quarters ended March 31, 2005 and 2004:
----------------------------------------------------------------------------------------------------
Quarter Ended March 31 2005 less 2004 %
2005 2004 Change Change
------------------------------------------ ------------ ------------ ----------- --------
OPERATIONS
Production:
Crude oil & NGL's (Bbl/d) 488 773 (285) (37)
Natural gas (Mcf/d) 1,926 1,983 (57) (3)
Total (Boe/d) 809 1,103 (295) (27)
Average sales prices:
Crude oil ($/Bbl) $ 38.22 $ 33.44 $ 4.78 14
Natural gas ($/Mcf) $ 6.12 $ 5.74 $ 0.39 7
Total ($/boe) $ 37.63 $ 33.73 $ 3.90 12
Royalty expense ($/ Boe) $ (6.58) $ (6.69) $ 0.11 (2)
Operating expense ($/ Boe) $ (13.00) $ (9.23) $ (3.77) 41
Netback ($/ Boe) $ 18.05 $ 17.81 $ 0.23 1
FINANCIAL (CDN$)
Revenues:
Crude oil & NGL's $ 1,679,001 $ 2,351,818 $ (672,817) (29)
Natural gas 1,061,523 1,034,795 26,728 3
========================================== ============ ============ =========== ========
2,740,524 3,386,613 (646,089) (19)
Royalty expenses (479,147) (671,363) 192,216 (29)
Operating expenses (946,982) (926,533) (20,449) 2
========================================== ============ ============ =========== ========
Net revenue from oil and gas production 1,314,395 1,788,717 (474,322) (27)
------------------------------------------ ------------ ------------ ----------- --------
Net loss $ (850,245) $ (1,058,645) $ 208,400 (20)
========================================== ============ ============ =========== ========
Net loss per share $ (0.04) $ (0.06) $ 0.02 (33)
========================================== ============ ============ =========== ========
Cash flow from operations before changes
in working capital $ 411,132 $ 699,810 $ (288,678) (41)
Capital expenditures $ 3,997,667 $ 5,959,962 $(1,962,295) (33)
Long term liabilities $ 6,091,863 $ 7,682,417 $(1,590,554) (21)
Total assets $ 43,405,045 $ 37,414,869 $ 5,990,176 16
Dividends (preferred shares) $ 34,893 $ 76,054 $ (41,161) (54)
*Cash flow from operations is not a measure that has any standardized meaning
prescribed by Canadian GAAP and is considered a non GAAP measure. Therefore this
measure may not be comparable to similar measures presented by other issuers.
This measure has been presented in this MD&A as additional information regarding
the company's liquidity and ability to generate funds to finance its operations.
Cash flow from operations is calculated by adding back non-cash items to
earnings. This number is reconciled to the net income for the year in the
statement of cash flows included in the consolidated financial statements
NGLs - natural gas liquids
Bbls/d - barrels of oil per day
Mcf/d - thousand cubic feet per day
Mmcf/d - million cubic feet per day
Boe/d - barrels of oil equivalent per day
(A boe conversion ratio of 6 mcf: 1bbl is based on an energy equivalency
conversion method primarily applicable at the burner tip and does not represent
a value equivalency at the wellhead)
2
RESULTS OF OPERATIONS
Production
For the quarter ending March 31, 2005 the average oil and NGLs production per
day decreased by 285 bbls/d to 488 bbls/d compared to 773 bbls/d for the
comparable period in 2004. With the sale of the Chestermere property effective
January 1, 2005, there was a loss of 126 bbls/d. The Ribstone, Chauvin and
Enchant areas of Alberta experienced natural declines of 126 bbls/d, 51 bbls/d
and 25 bbls/d respectively. The Golden Spike area of Alberta and the
Lloydminster area of Saskatchewan increased by 26 and 21 bbls/d respectively
with the remaining 4 bbls/d decrease attributed to other areas.
The Company's oil and NGLs production from the Chauvin, Ribstone, Golden Spike
and Enchant areas of Alberta were 209 bbls/d, 136 bbls/d, 34 bbls/d and 22
bbls/d, respectively. The Company's Lloydminster area of Saskatchewan produced
67 bbls/d and 20 bbls/d were attributed to other areas.
For the quarter ending March 31, 2005 the average natural gas production per day
decreased by 57 mcf/d to 1,926 mcf/d compared to 1,983 mcf/d for the comparable
period in 2004. The largest decrease came from the Rigel area of British
Columbia, which decreased by 515 mcf/d. With the sale of the Chestermere
property effective January 1, 2005, there was a loss of 210 mcf/d. The
Lloydminster area of Saskatchewan and the Lomond and Royce areas of Alberta
experienced decreases of 102 mcf/d, 43 mcf/d and 28 mcf/d respectively. The
Currant area of British Columbia experienced the largest increase, an increase
of 434 mcf/d. The Golden Spike, Enchant and Ansell/Edson areas of Alberta
increased by 158 mcf/d, 106 mcf/d and 82 mcf/d respectively with the remaining
61 mcf/d increase attributed to other areas
The Company's natural gas production includes 756 mcf/d and 165 mcf/d,
respectively, from the West Currant and Rigel areas of British Columbia.
Lloydminster in Saskatchewan produced 273 mcf/d of natural gas. The Enchant and
Golden Spike areas at production levels of 318 mcf/d and 158 mcf/d respectively
were the largest natural gas producing areas in Alberta. The remaining natural
gas production of 256 mcf/d arose from other areas of Alberta.
Prices
The average oil price realized by the Company in the first quarter of 2005 was
$38.22 per barrel, an increase of 14% from $33.44 per barrel in the same quarter
last year. Higher average prices for oil during 2005 compared to 2004 were the
major contributing factor. All oil producing properties experienced a price
increase in the first quarter of 2005 over the same period in 2004 except for
the Lloydminster area in Saskatchewan, which experienced a drop of $3.54 per
barrel from $27.57 in 2004 to $24.03 in 2005.
The average natural gas price realized by the Company in the first quarter of
2005 was $6.12 per mcf, an increase of 7% from $5.74 per mcf for the same period
a year ago. Similar to oil prices, average prices for natural gas were higher in
2005 compared to 2004. All gas producing properties experienced a price increase
in the first quarter of 2005 over the same quarter in 2004.
Petroleum and natural gas sales
Revenues from oil and natural gas production, before deduction of royalties and
operating costs, decreased by $646,089 to $2,740,524 in the first quarter of
2005 compared to $3,386,613 for the same period last year. The decrease is
primarily attributed to the sale of the Chestermere property effective January
1, 2005 as well as natural production declines.
3
Royalties
Royalties decreased $192,216 or $0.11 per boe from $671,363 or $6.69 per boe in
the first quarter of 2004 to $479,147 or $6.58 per boe in the first quarter of
2005.
The major factor contributing to the decrease in royalty expense was the sale of
Chestermere effective January 1, 2005 which contributed $198,000 in royalty
expense in last year's first quarter.
Royalties as a percentage of revenues decreased from 20% to 17%.
Operating Costs
Operating costs increased by $20,449 to $946,982 in the first quarter of 2005
compared to $926,533 in the same period in 2004. Operating costs on a boe basis
increased by $3.77 per boe from $9.23 per boe in the first quarter of 2004 to
$13.00 per boe for the first quarter of 2005. Although overall production was
down for 2005 compared to 2004, a reduction in operating costs was not realized
as costs of extraction increased and a number of operating expenses such as
contract operating, surface rentals, mineral lease rentals, utilities, overhead
charges, etc. were not entirely correlated to production.
General and administrative expenses
General and administrative expenses decreased $563,417 to $1,011,456 for the
quarter ending March 31, 2005. The decrease is primarily attributed to the
amalgamation of Quarry with the Company as duplicate administrative costs and
professional fees were eliminated.
Interest expense
Interest expense decreased by $53,472 to $172,645 for the quarter ending March
31, 2005. The decrease is due to the Company carrying less debt quarter over
quarter. In the quarter ended March 31, 2004 the Company paid approximately
$30,000 in interest on $1,250,000 debt that was extinguished during 2004 and not
included in the quarter ended March 31, 2005. As well, interest on the US
subordinated note payable decreased approximately $10,000 compared to last
quarter due to a principal reduction of CDN $1,113,000 (US $648,000).
Depletion and depreciation
Depletion and depreciation expense decreased by $120,919 to $1,228,475 in the
first quarter of 2005 compared to $1,349,394 in the same period last year. The
sale of the Chestermere property in this year's first quarter was the major
factor in the decrease in depletion.
On a boe basis, depletion and depreciation was $16.87 per boe for the first
quarter of 2005 compared to $13.44 per boe for the same quarter a year ago.
4
Foreign Exchange
In the first quarter of 2005, the Company realized a foreign exchange loss of
$11,381 compared to a foreign exchange gain of $42,633 in last year's first
quarter.
The United States dollar amounts have been converted into Canadian dollar
amounts for convenience purposes using either the average or the period end
exchange rates shown below:
Three months ended March 31, 2005 $1.2270
Three months ended March 31, 2004 $1.3176
As at March 31, 2005 $1.2096
As at December 31, 2004 $1.2020
Income Taxes
The net future tax liability of $1,903,626 as at March 31, 2005 (2004 -
$2,220,885) results primarily from the difference in the tax basis and carrying
value of property, plant and equipment.
In the first quarter of 2005, the Company's current tax provision was $55,854
compared to $66,330 a year ago.
The Company's future tax recovery was $317,259 for the first quarter of 2005
compared to $302,869 for the same quarter last year.
Equity Income
The equity income arises from the Company's 39.77% interest in Keantha Holdings
Inc., a private company.
Net loss and net loss per share
Assure recorded a net loss $850,245 or $0.04 per common share for the quarter
ended March 31, 2005, compared to a net loss of $1,058,645 or $0.06 per common
share for the same period in 2004.
SUMMARY OF QUARTERLY RESULTS
---------------------------- ------- ---------------------------------------- ----------------------------
2005 2004 2003
------- ---------------------------------------- ----------------------------
($ thousand unless
otherwise indicated) Q1 Q4 Q3 Q2 Q1 Q4(1) Q3 Q2(2)
---------------------------- ------- ------- ------- ------- ------- ------- ------- ------
Net petroleum and
natural gas revenue $ 2,261 $ 3,088 $ 3,902 $ 2,858 $ 2,715 $ 2,837 $ 2,047 $ 895
Net loss $ (850) $ (964) $ (501) $(1,140) $(1,059) $(9,667) $(1,539) $ (703)
Net loss per share - basic $ (0.04) $ (0.05) $ (0.02) $ (0.06) $ (0.06) $ (0.60) $ (0.09) $(0.04)
---------------------------- ------- ------- ------- ------- ------- ------- ------- ------
(1)The second quarter of 2003 does not include the results of Quarry Oil & Gas
Ltd. as it was purchased July 28, 2003.
(2)The fourth quarter of 2003 includes $9,078,379 in additional depletion
expense for the ceiling test writedown.
5
FINANCIAL RESOURCES AND LIQUIDITY
During the quarter ended March 31, 2005, the Company's cash decreased by $4,151
compared to a decrease of $4,291,088 in the prior year's quarter. The components
of the change are set out below.
Quarter Ended March 31 Change
2005 2004
------------------------------------------------- ----------- ----------- -----------
Net income after adjustment for non-cash items $ 411,132 $ 699,810 $ (288,678)
Increase in working capital 2,582,963 1,963,737 619,226
------------------------------------------------- ----------- ----------- -----------
Provided by operating activities 2,994,095 2,663,547 330,548
Used in investing activities (3,997,667) (5,959,962) 1,962,295
Provided (used) by financing activities 995,159 (1,084,174) 2,079,333
Effect of exchange rate changes on cash 4,262 89,501 (85,239)
------------------------------------------------- ----------- ----------- -----------
Net change in cash $ (4,151) $(4,291,088) $ 4,286,937
------------------------------------------------- ----------- ----------- -----------
Cash flow from operations
Cash flow from operations for the quarter ended March 31, 2005, after adjustment
for non-cash items and before changes in working capital, decreased by $288,678
to $411,132 due to the sale of the Chestermere property effective January 1,
2005.
Cash flow provided by financing activities
During the quarter ended March 31, 2005 234,000 warrants were exercised for
total proceeds of $101,220. The Company received $443,939 from shareholders,
which are unsecured, non-interest bearing and have no fixed terms of repayment.
The Company increased the demand bank loan by $450,000.
Cash flow used in investing activities
Cash flow of $3,997,667 was used in investing activities for the Company's
capital expenditure program.
During the quarter ended March 31, 2005, Assure and its subsidiaries
participated in drilling 2.0 wells (net 1.0) in the West Currant Area of British
Columbia.
Assure has no commitments for capital expenditures other than exploration,
drilling, completion and equipping expenditures to be incurred in the normal
course of business. The Company anticipates that these expenditures will be
funded out of existing capital resources.
The calculation of cash flow is disclosed on the Consolidated Statement of Cash
Flows in the Consolidated Financial Statements.
Working Capital
The Company had a working capital deficiency of $12,187,374 at March 31, 2005,
including payables and accrued liabilities of $12,501,172, the demand bank loan
of $6,600,000, advances from shareholder of $2,964,311, current portion of
long-term debt of $983,821 and interest payable of $11,113. Assure anticipates
that it will be able to fund this deficiency out of cash flows from operations,
and bank borrowings.
At December 31, 2004 the Company had a working capital deficiency of $14,110,781
including payable and accrued liabilities of $8,269,333, the demand bank loan of
$6,150,000 advances from shareholders of $2,520,372, current portion of
long-term debt of $978,896, and interest payable of $11,245.
6
Demand Bank Loans
Assure Energy, Inc.
As at March 31, 2005 the Company had available a $5,775,000 (2004 - $6,400,000)
revolving operating demand loan facility with a Canadian chartered bank. The
facility reduces by $275,000 per month commencing January 31, 2005. The loan
bears interest at the bank's prime rate plus 1.5% interest subject to a standby
fee of 0.125% per annum. The Company also had available, a $1,200,000
non-revolving acquisition and development demand loan facility at the same bank
with interest payable at the bank's prime rate plus 1.5% subject to a drawdown
fee of 0.375% (acquisition) or 0.50% (development) and a standby fee of 0.125%
per annum. The facilities are secured by a $20 million debenture over all the
assets of the Company. These facilities will be reviewed no later than April 30,
2005. As at March 31, 2005, the Company had drawn down $5,300,000 (2004 -
$5,700,000) against these facilities and this amount has been classified as a
current liability. Under the credit facility agreement with the bank, the
Company is subject to certain covenants.
As at March 11, 2005 the Company agreed and accepted a Temporary Demand Loan
facility with a Canadian chartered bank in the amount of $1,000,000 to provide
for financing of capital expenditures associated with the completion and tie in
of certain gas wells. The loan bears interest at the bank's prime rate plus 3%
per annum. The facility is secured by a variable rate promissory demand note in
the face amount of $1,000,000, a guarantee from Oil & Gas and Westerra, and a
general assignment of book debts from Westerra. As at March 31, 2005, the
Company had drawn down $1,000,000 (2004 - $nil) against this facility and this
amount has been classified as a current liability.
Assure Oil & Gas Corp.
As at March 31, 2005, the Company had available, through its wholly owned
subsidiary Oil & Gas a $1,200,000 revolving, operating demand loan facility with
a Canadian chartered bank. The loan bears interest at the bank's prime rate plus
1.0% interest subject to a standby fee of 0.125% per annum. The Company also had
available through Oil & Gas a $450,000 non-revolving acquisition and development
demand loan facility at the same bank with interest payable at the bank's prime
rate plus 1.25% subject to a drawdown fee of 0.25% (acquisition) or 0.50%
(development) and a standby fee of 0.125% per annum. The facilities are secured
by a $10 million debenture over all the assets of Oil & Gas and a $10 million
guarantee from Assure and Westerra. These facilities will be reviewed no later
than April 30, 2005. As at March 31, 2005, Oil & Gas had drawn down $300,000
(2004 - $450,000) against these facilities and this amount has been classified
as a current liability. Under the credit facility agreement with the bank, the
Company is subject to certain covenants.
Subsequent to March 31, 2005, the bank loans for the Company and Oil and Gas
have been combined and refinanced subject to certain credit approval conditions
outlined below.
On March 7, 2005, the Company, signed a term sheet outlining the terms and
conditions of proposed financing to replace the existing bank loan. Subject to
certain credit approval conditions, the Company will have available a $7,100,000
revolving operating demand loan facility with a Canadian chartered bank. The
loan will bear interest at the bank's prime rate plus 2% interest, subject to a
standby fee of 0.125% per annum. The Company will also have available, a
$2,700,000 non-revolving development demand loan facility at the same bank with
interest payable at the bank's prime rate plus 2.5%, subject to a drawdown fee
of 1% and a standby fee of 0.125% per annum. The facilities are secured by a $10
million debenture over all the assets of Oil & Gas, a $10 million guarantee from
Assure and Westerra, and a $40 million supplemental debenture over the major
producing petroleum and natural gas reserves of Assure, Oil & Gas, and Westerra.
These facilities will be reviewed by July 15, 2005 and upon the Company's fiscal
year end December 31, 2005, and not later than April 30, 2006. This new facility
replaced both the Company's and Oil & Gas' facilities. A commitment fee in the
amount of $500,000 was payable upon delivery of the commitment to the Company,
payable in monthly payments of $100,000 per month commencing April 1, 2005. An
earnest fee in the amount of $50,000 will also be payable on April 1, 2005.
7
COMMITMENTS AND CONTINGENCIES
Litigation
The Company is currently involved in litigation with a former officer of Quarry
who is claiming $240,000 in respect of termination and severance pay. The
Company is contesting this claim and has not accrued any amounts for this
litigation. Examinations for discovery have occurred and the matter is currently
in abeyance as of May 30, 2005 as the plaintiff has not moved the litigation
forward.
Employment Agreements
The Company currently has employment agreements with three employees
("Employees") of the Company. The employment agreements specify that the
Employees are entitled to lump sum payments in the event that the Company is
sold.
In the ordinary course of business, the Company and its subsidiaries enter into
contracts which contain indemnification provisions, such as loan agreements,
purchase contracts, service agreements, licensing agreements, asset purchase and
sale agreements, joint venture agreements, operating agreements, leasing
agreements, land use agreements etc. In such contracts, the Company may
indemnify counterparties to the contracts if certain events occur. These
indemnification provisions vary on an agreement by agreement basis. In some
cases, there are no pre-determined amounts or limits included in the
indemnification provisions and the occurrence of contingent events that will
trigger payment under them is difficult to predict. Therefore, the maximum
potential future amount that the Company could be required to pay cannot be
estimated.
CONTRACTUAL OBLIGATIONS
Description Total 2005 2006 2007 2008 2009
---------------------------------- ---------- -------- ---------- -------- -------- --------
Operating Leases (note 1) $ 180,098 $ 85,068 $ 87,720 $ 7,310 $ -- $ --
Note Payable (note 2) 750,000 150,000 200,000 200,000 200,000 --
Subordinated Note Payable (note 3) 3,135,283 603,871 778,896 778,896 778,896 194,724
---------- -------- ---------- -------- -------- --------
Total Contractual Obligations $4,065,381 $838,939 $1,066,616 $986,206 $978,896 $194,724
========== ======== ========== ======== ======== ========
(1) Effective August 1, 2004, the Company entered into a new lease for the
rental of office space for the period to January 31, 2007. The Company is
committed to payments of $87,720 per annum for rent plus a proportionate share
of operating costs. The Company has also entered into a sublease that expires
December 31, 2005. The Company is committed to payments of $25,704 per annum for
rent plus a proportionate share of operating costs.
(2) The Company's long-term debt consists of a six-year note payable (the "CDN
Dollar Note") issued by its wholly owned subsidiary Oil & Gas in the principal
amount of $750,000 (2004 - $800,000) and a six-year Subordinated Promissory Note
Payable (the "US Dollar Note") in the principal amount of US $2,592,000,
equivalent to Canadian $3,135,283 (2004 - US $2,754,000, equivalent to Canadian
$3,310,308).
The CDN Dollar Note was issued on December 28, 2002 and matures on December 28,
2008. The note accrues interest at 7.5% per annum. Quarterly payments of
principal and interest are due on March 28, June 28, September 28 and December
28. The note is subordinated to all present and future bank debt of Oil & Gas
and its subsidiaries.
(3) The US Dollar Note was issued on March 15, 2003, as amended on December 5,
2003, and matures on March 15, 2009. The note accrues interest at 7.75% per
annum. Quarterly payments of principal and interest are due and payable in US
dollars on March 15, June 15, September 15 and December 15. The note is
unsecured and is subordinated to all present and future bank debt of the Company
and its subsidiaries. In connection with the issuance of the Subordinated Note,
the Company issued 450,000 common stock purchase warrants to purchase an equal
number of the Company's common stock with an exercise price of $3.75 (US $3.10)
per share. These common stock purchase warrants may be exercised at any time
during the five years commencing July 1, 2003.
8
TRANSACTIONS WITH RELATED PARTIES
Included in accounts receivable is $274,691 (2004 - $249,938) and included in
accounts payable is $429,551 (2004 - $377,339) due to companies controlled by a
director of the Company. These accounts receivable and payable arise as the
Company and this director share an interest in oil and gas properties that the
Company operates.
All related party transactions have been recorded at the agreed to exchange
amount, which reflects fair value.
ACCOUNTING POLICIES AND CRITICAL ESTIMATES
There have been no changes to the Company's accounting policies and practices
and critical accounting estimates in 2005.
New Canadian Accounting Pronouncements
The Canadian Institute of Chartered Accountants (CICA) has issued a number of
accounting pronouncements, some of which may impact the Company's reported
results and financial position in future periods.
Financial Instruments
Financial Instruments of the Company consist of cash, accounts receivable,
income taxes payable, accounts payable and accrued liabilities, due to
shareholders, debenture payable, long term debt and bank loans. The fair value
of these financial instruments approximates their carrying value. It is
management's opinion that the Company is not exposed to significant risks
associated with these financial instruments, other than foreign exchange
fluctuation on a portion of the long term debt.
BUSINESS RISKS
Operating risks and Insurance Coverage
Our business involves a variety of operating risks, including:
o Blowouts, cratering and explosions;
o Mechanical problems;
o Uncontrolled flows of oil, natural gas or well fluids;
o Fires;
o Formations with abnormal pressures;
o Pollution and other environmental risks; and
o Natural disasters
The operation of our natural gas gathering and pipeline systems also involves
various risks of explosions and environmental hazards caused by pipeline leaks
and ruptures. The location of pipelines near populated areas, including
residential areas, commercial business centers and industrial sites, could
increase these risks. Any of these events could result in loss of human life,
significant damage to property, environmental pollution, impairment of our
operations and substantial losses to us. In accordance with customary industry
practice, we maintain insurance against some, but not all, of these risks and
losses. The occurrence of any of these events not fully covered by insurance
could have a material adverse effect on our financial position and results of
operations.
9
Commodity Pricing and Risk Management Activities
Our revenues operating results, financial condition and ability to borrow funds
or obtain additional capital depend substantially on prevailing prices for
natural gas and oil. Declines in oil and gas prices may materially adversely
affect our financial condition, liquidity, ability to obtain financing and
operating results. Lower oil and gas prices also may reduce the amount of oil
and gas that we can produce economically. Historically, oil and gas prices and
markets have been volatile, with prices fluctuating widely, and they are likely
to continue to be volatile. Depressed prices in the future would have a negative
impact on our future financial results. In particular, substantially lower
prices would significantly reduce revenue and could potentially impact the
outcome of our annual impairment test.
The majority of our production is sold at market responsive prices. Generally,
if the commodity indexes fall, the prices that we receive for our production
will also decline. Therefore, the amount of revenue that we realize is partially
determined by factors beyond our control. However, management may mitigate this
price risk with the use of financial instruments.
Environmental Regulations
The Company is subject to various regulatory and statutory requirements relating
to the protection of the environment. These requirements, in addition to
contractual agreements and management decisions, result in the accrual of
estimated future removal and site restoration costs. These costs are accrued
based on estimates of reserves and future costs. Any changes in these will
affect future earnings. Costs attributable to these commitments and
contingencies are expected to be incurred over an extended period of time and
are to be funded mainly from the Company's cash provided by operating
activities. Although the ultimate impact of these matters on net earnings cannot
be determined at this time, it could be material for any one-quarter or year.
Kyoto
The Kyoto protocol, ratified by the Canadian Federal Government in December
2002, came into force on February 16, 2005. The protocol commits Canada to
reducing greenhouse gas emissions to six percent below 1990 levels over the
period 2008-2012. The Federal Government released a framework outlining its
Climate Change action plan on April 13, 2005. The plan as released contains few
technical details regarding the implementation of the Government's greenhouse
gas reduction strategy. The Climate Change Working Group of the Canadian
Association of Petroleum Producers continues to work with the Federal and
Alberta governments to develop an approach for implementing targets and enabling
greenhouse gas control legislation, which protects the industry's
competitiveness, limits the cost and administrative burden of compliance and
supports continued investment in the sector. As the federal government has yet
to release a detailed Kyoto compliance plan, the Company is unable to predict
the impact of potential regulations upon its business; however, it is possible
that the Company would face increases in operating costs in order to comply with
the greenhouse gas emissions legislation.
Unaudited Interim Financial Statements
In accordance with National Instrument 51-102 released by the Canadian
Securities Administrators, the Company discloses that its auditors have not
reviewed the unaudited financial statements for the periods ended March 31, 2005
and 2004.
10
SEASONALITY TREND INFORMATION
The level of activity in the Canadian oil and gas industry is influenced by
seasonal weather patterns. Wet weather and spring thaw make the ground unstable.
Consequently, municipalities and provincial transportation departments enforce
road bans that restrict the movement of rigs and other heavy equipment, thereby
reducing activity levels. Also, certain oil and gas producing properties located
in swampy terrain are only accessible during winter months. Seasonal factors and
unexpected weather patterns may lead to declines in exploration and production
activity and increased consumer demand or changes is supply during certain
months of the year may influence the commodity prices.
SUBSEQUENT EVENTS
On April 21, 2005 the Company engaged the services of Haywood Securities Inc.
("Haywood") a TSE member firm, as its exclusive financial advisor to assist the
Company in evaluating strategic alternatives to maximize shareholder value. In
the event that such alternatives result in a merger, takeover or business
combination (the "Transaction") with another company, Haywood would earn a
commission equivalent to 0.9% of the Transaction value. On April 25, 2005 the
Company amended its employment agreements such that in the event of a
Transaction the Company's President and two Vice Presidents are entitled to
receive severance pay of approximately $600,000 in the aggregate. As part of
this amendment, 3 employees of the Company were granted a total of 510,000 stock
options, exercisable at $1.25 Cdn for 1 year from the date of grant.
11
ITEM 3
Assure Announces first Quarter Results
CALGARY, Alberta- June 1, 2005--Assure Energy, Inc. (OTCBB:ASURF) (FWB:ASL) (WKN
357954) ("Assure" or the "Company") announces that it has filed its First Three
Months Consolidated Financial Statements and Management Discussion and Analysis
for the quarter ended March 31, 2005. The above filings are available for review
at www.sedar.com and will be posted at the company's website at
www.assure-energy.com.
The company also announces that the Annual Meeting of the Shareholders to be
held on June 14, 2005 has been postponed until further notice.
Assure is a junior oil and gas company with operations in British Columbia,
Alberta and Saskatchewan. Assure maintains a high working interest in its
properties and operates over 90% of its production.
FORWARD-LOOKING STATEMENTS
This news release contains forward-looking statements as defined by the Private
Securities Litigation Reform Act of 1995. Forward-looking statements include
statements concerning plans, objectives, goals, strategies, future events or
performance and underlying assumptions and other statements, which are other
than statements of historical facts. These statements are subject to
uncertainties and risks including, but not limited to, product and service
demand and acceptance, changes in technology, economic conditions, the impact of
competition and pricing, government regulation, and other risks defined in this
document and in statements filed from time to time with the Securities and
Exchange Commission. All such forward-looking statements, whether written or
oral, and whether made by, or on behalf of, the Company, are expressly qualified
by these cautionary statements and any other cautionary statements which may
accompany the forward-looking statements. In addition, the Company disclaims any
obligation to update any forward-looking statements to reflect events or
circumstances after the date hereof.
Assure Energy, Inc. (OTC Bulletin Board:ASURF; FRANKFURT:ASL)
-----------------------------------------------------
Contact:
Assure Energy, Inc.
Harvey Lalach
President
(403) 266-4975 Email: hlalach@assure-energy.com
1
ITEM 4
FORM 52-109FT2
CERTIFICATION OF INTERIM FILINGS DURING TRANSITION PERIOD
I, Harvey Lalach, President and Chief Financial Officer of Assure Energy,
Inc. ("Assure"), certify that:
1. I have reviewed the interim filings (as this term is defined in
Multilateral Instrument 52-109 Certification of Disclosure in
Issuers' Annual and Interim Filings) of Assure (the issuer), for the
period ending March 31, 2005;
2. Based on my knowledge, the interim filings do not contain any untrue
statement of a material fact or omit to state a material fact
required to be stated or that is necessary to make a statement not
misleading in light of the circumstances under which it was made,
with respect to the period covered by the interim filings; and
3. Based on my knowledge, the interim financial statements together
with the other financial information included in the interim filings
fairly present in all material respects the financial condition,
results of operations and cash flows of the issuer, as of the date
and for the periods presented in the interim filings.
May 30, 2005
(Signed) "Harvey Lalach "
-------------------------------------
Harvey Lalach
President and Chief Financial Officer
1
ITEM 5
June 1, 2005
British Columbia Securities Commission
Alberta Securities Commission
Dear Sirs:
Re: ASSURE ENERGY, INC.
CUSIP: 04621U-10-4
Annual and Special Meeting of Shareholders
Please be advised that the Annual and Special Meeting of Shareholders to be held
at Calgary, Alberta on June 14, 2005 has been postponed until further notice.
Yours truly,
(Signed) Harvey Lalach
Harvey Lalach, President
Assure Energy, Inc.
1