20-F 1 form20f.txt DECEMBER 31, 2003 UNITED STATES SECURITIES AND EXCHANGE COMMISSION Washington, D.C. 20549 FORM 20-F REGISTRATION STATEMENT PURSUANT TO SECTION 12(b) OR 12(g) OF THE SECURITIES EXCHANGE ACT OF 1934 OR X ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 For the calendar year ended December 31, 2003 OR TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 For the transition period from _________________ to ________________ Commission file number CityView Corporation Limited -------------------------------------------------------------------------------- (Exact Name of Registrant as specified in its charter) -------------------------------------------------------------------------------- (Translation of Registrant's name into English) Western Australia, Australia -------------------------------------------------------------------------------- (Jurisdiction of incorporation or organization) Level 9, 28 The Esplanade, Perth Western Australia 6000 -------------------------------------------------------------------------------- (Address of principal executive offices) Securities registered or to be registered pursuant to Section 12(b) of the Act. None Securities registered or to be registered pursuant to Section 12(g) of the Act. Ordinary Shares Securities for which there is a reporting obligation pursuant to Section 15(d) of the Act. None Indicate the number of outstanding shares of each of the issuer's classes of capital or common stock as of the close of the period covered by the annual report. 70,161,616 ordinary shares as of December 31, 2003. Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. X Yes No Indicate by check mark which financial statement item the registrant has elected to follow. X Item 17 Item 18 (APPLICABLE ONLY TO ISSUERS INVOLVED IN BANKRUPTCY PROCEEDINGS DURING THE PAST FIVE YEARS) Indicate by check mark whether the registrant has filed all documents and reports required to be filed by Sections 12, 13 or 15(d) of the Securities Exchange Act of 1934 subsequent to the distribution of securities under a plan confirmed by a court. Yes No Not applicable 2 PART I ITEM 1. IDENTITY OF DIRECTORS, SENIOR MANAGEMENT AND ADVISERS Providing information called for in Item 1 is not required for filing a Form 20-F as an Annual Report under the Exchange Act. Nevertheless, the Company is providing its "Corporate Directory" updated from as it appeared in the Annual Report for the year ended December 31, 2003 as filed with Australian Stock Exchange Limited on March 25, 2004. Directors Yusufali M Jumabhoy Chairman Resigned March 5, 2004 A I Saddique Chairman Ee Beng Yew Chief Executive Goh Yong Kheng Director Md Nazri Ramli Director Thinagaran Director John F Arbouw Director Company Secretary John F Arbouw Registered Office 1st Floor 17 Ord Street, West Perth, Western Australia 6005 Principal Place of Business Level 9, 28 The Esplanade Perth Western Australia 6000 Telephone: (61-8) 9226 4788 Facsimile: (61-8) 9266 4799 Email: info@cityviewcorp.com Web: www.cityviewcorp.com Auditor - BDO Chartered Accountants 256 St George's Terrace Perth Western Australia 6000 Australian Share Registry Computershare Investor Services Pty Limited Level 2, 45 St George's Terrace Perth Western Australia 6000 Telephone: (61-8) 9323 2000 Facsimile: (61-8) 9323 2033 USA Share Registry Computershare Trust Company, Inc. 350 Indiana Street, Suite 800 Golden, Colorado 80401 Telephone: (303) 262 0600 Facsimile: (303) 262 0700 Attorney - Australia Simon Watson 17 Ord Street West Perth Western Australia 6005 Attorney - USA Gary B. Wolff, P C 805 Third Avenue New York, New York 10022 3 ITEM 2. OFFER STATISTICS AND EXPECTED TIMETABLE Not applicable ITEM 3. KEY INFORMATION A. Selected Consolidated Financial Data The selected historical data presented below has been derived from the financial statements of the Company, which have been examined by Feldman Sherb and Co., P.C. (hereinafter "Feldman") in their report for the years ended December 31, 2002, 2001, 2000, 1999, and 1998 and by Sherb & Co., LLP (hereinafter "Sherb") and BDO Chartered Accountants ("BDO") for year ended December 31, 2003. With respect to Sherb, be advised that Feldman, a professional corporation of certified public accountants was the independent accounting firm for the Company for the years indicated above. The report of Feldman on the 2001 financial statements of Registrant contained no adverse opinion, disclaimer of opinion or modification of the opinion. Feldman was merged into Grassi & Co., CPA's, P.C., ("Grassi") and the principal accountants who had been responsible for the Company's audit during the years indicated above, left and started their own firm called Sherb & Co., LLP ("Sherb"). As a result the Company dismissed Grassi and selected Sherb to serve as independent public accountants for the calendar year 2002. During the two most recent calendar years the Company has not consulted with Sherb regarding the application of accounting principles to a specific or contemplated transaction. Neither the Company nor anyone on its behalf consulted with Sherb regarding the type of audit opinion that might be rendered on the Company's financial statements or any matter that was the subject of a disagreement or event as defined at Item 304(a)(2) of Regulation S-B. The decision to change Auditors was recommended and approved by the board of directors of the Company on 17 April 2000. During the period from January 1, 1998 to the date of change of auditors and through the date of this report, there were no disagreements with Feldman or Sherb on any matter of accounting principles or practices, financial statement disclosure, or auditing scope or procedure, which disagreements, if not resolved to the satisfaction of Feldman or Sherb would have caused it to make reference to the subject matter of the disagreements in connection with its reports on the Company's financial statements as described on Item 304(a)(1)(iv)(A). In addition, there were no such events as described under Item 304(a)(1)(iv)(B) of Regulation S-B during such periods. The consolidated financial statements are presented in Australian dollars and have been prepared in accordance with Australian generally accepted accounting principles ("Australian GAAP"), which may vary in certain respects from generally accepted accounting principles in the United States ("US GAAP"). The following table summarizes certain financial information and should be read in conjunction with "Item 5 - Operating and Financial Review and Prospects." The Company has not declared a dividend during each of the years ended December 31, 1998 through 2003 inclusive. There were significant fluctuations in revenues and net income (loss) between the years stated in the table below. For the reasons set forth herein the information shown below may not be indicative of the Company's future results of operation. In February 2004,the Board of Directors of the Company approved the recommendation that BDO Australia would oversee the annual Audit both in Australia and in the United States. Sherb and Co will continue to Edgarize the Company's monthly Forms 6K and annual Form 20-F reports. 4 Statement of Loss and Accumulated Deficit Data: Year Ended Year Ended Year Ended ---------- ---------- ---------- December 31, December 31, December 31, ------------ ------------ ------------ 2001 2002 2003 ---- ---- ---- Amounts in Accordance with Australian GAAP AUD$ AUD$ AUD$ Income Statement Data: Operating revenues - - Loss from continuing operations 1 (4,165,287) (9,303,440) (1,076,003) Per Ordinary Share (dollars) 2 (.08) (.14) (.02) Balance Sheet Data: Total Assets 15,857,736 9,483,216 8,625,142 Shareholders' equity 15,749,381 9,385,941 8,309,938 Amounts in Accordance with US GAAP Income Statement Data: Operating Revenues - - Loss from continuing operations (4,374,487) (4,683,438) 1,585,390 Per Ordinary Share (dollars) 2 (.08) (.07) (.026) Balance Sheet Data: Total Assets 3,794,934 2,040,416 672,955 Shareholders' equity 3,686,579 1,943,141 357,751 1 Net income (loss) consists of operating profit (loss) after income tax attributable to members of the parent entity. 2 Per share data has been retroactively restated to reflect the effects of a 1 for 5 reverse stock split effective April 14, 1997. 5 Exchange Rates Solely for informational purposes, this Form 20-F contains translations of certain Australian dollar amounts into or from US dollars at a specified rate. These translations should not be construed as a representation that the Australian dollar amounts represented in the US dollar amounts indicated, could be converted into or from US dollars at the rate indicated. The following table sets forth, for the financial periods indicated, certain information concerning the Noon Buying Rate for Australian dollars expressed in US dollars per AUD$1.00 as follows: A. 5 Most Recent Financial Years Period High Low Period-End Average (1) ------------------------------- ---------- -------- ---------- ----------- ------------------------------- ---------- -------- ---------- ----------- 12 months to December 31, 1999 0.6569 0.62.40 0.6500 0.6429 ------------------------------- ---------- --------- ---------- ----------- 12 months to December 31, 2000 0.6685 0.5073 0.5599 0.5828 ------------------------------- ---------- --------- ---------- ----------- 12 months to December 31, 2001 0.5727 0.4773 0.5115 0.5182 ------------------------------- ------------ --------- ---------- ----------- 12 months to December 31, 2002 0.6259 0.5049 0.5612 0.5424 12 months to December 31, 2003 0.7493 0.5588 0.7495 0.6525 B. Previous 6 Months November 1 to November 30, 2003 0.7264 0.6946 0.7247 0.7162 October 1 to October 31, 2003 0.7105 0.6751 0.7044 0.6926 September 1 to September 30, 2003 0.6834 0.6345 0.6776 0.6624 August 1 to August 31, 2003 0.6622 0.6350 0.6477 0.6524 July 1 to July 31, 2003 0.6845 0.6436 0.6531 0.6629 June 1 to June 30, 2003 0.6735 0.6478 0.6671 0.6643 C. Latest Practicable Date At June 16, 2004 the Australian dollar expressed in US dollars per AUD$1.00 was $ 0.6984. [1] Represents the average of the Noon Buying Rates on the last day of each month during the period. Nature Of Trading Market The Company's ordinary shares commenced trading on the Australian Stock Exchange Limited on January 2, 1992 and commenced trading on the Electronic Over-the-Counter Bulletin Board in the United States on April 11, 1997. The Company subsequently gained clearance to trade on the NASDAQ Small Capital Market on June 11, 1997 and continuously traded on that exchange until its delisting effective May 8, 2000 subsequent to a February 11, 2000 oral hearing before the NASDAQ Listing Qualifications Panel which delisting was upheld (upon Company appeal) by the NASDAQ Listing and Hearing Review Council on October 25, 2000. On December 29, 2000 the Company's securities were listed for trading on the NASD Electronic Over The Counter Bulletin Board ("OTCBB") and continues to trade on the OTCBB under the symbol CTVWF. As of May 31, 2004 the Company had 958 holders of record of its Ordinary Shares. The Company has not paid any dividends since it's inception and does not anticipate paying any dividends on its Ordinary Shares in the foreseeable future. 6 The following reflects the high and low bid price for the Company's Ordinary Shares as reflected on the Australian Stock Exchange Limited for the last three years and the most recent quarter ended March 31, 2004. -------------- ----- ---- ----- ----- ----------- Quarter Ending High High Low Low Volume in AUD $ US $ AUD $ US $ 000's -------------- ----- ----- ----- ----- ----------- -------------- ----- ----- ----- ----- ----------- March 31, 2001 1.14 0.64 0.35 0.18 16,864 -------------- ----- ----- ----- ----- ----------- -------------- ----- ----- ----- ----- ----------- June 30, 2001 0.57 0.30 0.33 0.15 15,892 -------------- ----- ----- ----- ----- ----------- -------------- ----- ----- ----- ----- ----------- September 2001 0.39 0.18 0.20 0.10 8,257 -------------- ----- ----- ----- ----- ----------- -------------- ----- ----- ----- ----- ----------- December 2001 0.27 0.13 0.15 0.07 9,455 -------------- ----- ----- ----- ----- ----------- -------------- ----- ----- ----- ----- ----------- March 2002 0.29 0.16 0.165 0.077 12,780 -------------- ----- ----- ----- ----- ----------- -------------- ----- ----- ----- ----- ----------- June 30, 2002 0.285 0.17 0.145 0.08 8,614,416 -------------- ----- ----- ----- ----- ----------- -------------- ----- ----- ----- ----- ----------- September 2002 0.165 0.08 0.13 0.063 3,945,745 -------------- ----- ----- ----- ----- ----------- -------------- ----- ----- ----- ----- ----------- December 2002 0.265 0.135 0.12 0.05 9,436,897 -------------- ----- ----- ----- ----- ----------- -------------- ----- ----- ----- ----- ----------- March 31, 2003 0.22 0.12 0.15 0.08 4,489,765 -------------- ----- ----- ----- ----- ----------- -------------- ----- ----- ----- ----- ----------- June 2003 0.145 0.080 0.090 0.055 2,229,062 -------------- ----- ----- ----- ----- ----------- -------------- ----- ----- ----- ----- ----------- September 2003 0.125 0.065 0.092 0.05 2,845,066 -------------- ----- ----- ----- ----- ----------- -------------- ----- ----- ----- ----- ----------- December 2003 0.12 0.075 0.071 0.04 4,294,403 -------------- ----- ----- ----- ----- ----------- -------------- ----- ----- ----- ----- ----------- March 2004 0.125 0.11 0.07 0.04 3,766,237 -------------- ----- ----- ----- ----- ----------- ITEM 3 A (i) COMPANY AUDITORS BDO Chartered Accountants (through their office in Perth, Western Australia) is the Company's independent auditor in all jurisdictions. B. Capitalization And Indebtedness Not applicable C. Reasons For The Offer And Use Of Proceeds Not applicable D. Risk Factors Risks In Respect Of The Company's Energy Portfolio The future profitability, and viability of operations and activities in the Company's energy portfolio will depend on a number of risks including but not limited to the following: 1. Commodity prices and in particular the price of oil and gas; 2. Currency exchange rate fluctuations; 3. The strength of the equity markets at the time of any capital raising by the Company; 4. Judicial decisions and legislative amendments; 5. Environmental management issues with which the Company may from time to time have to comply; 6. General economic conditions in Australia and southeast Asian countries and their major trading partners and in particular inflation rates, commodity supply and demand factors and industrial disruption; 7. Risks inherent in exploration including, amongst other things, successful exploration, identification, development and exploitation of use of resources and reserves, and competent management; and 8. Political stability of south East Asian countries. 7 There is no assurance that any of the Company's energy properties contain significant commercially viable reserves until appropriate and sufficient exploration work is concluded and an economic and feasibility study based upon such work is conducted and concluded. The Company also owned certain gold interests which were disposed of during 1999. A. The "MEDCO" Loans Recoverability Of Loans By The Company To Other Companies. The loans of AUD$7,952,187 to Medco Madura Pty Ltd and Medco Simenggaris Pty Ltd represent moneys owing to the Company for work previously carried out on the Madura and Simenggaris blocks in Indonesia and paid for by the Company. The ultimate recoverability of these loans is dependent upon the future development and successful exploitation of the Madura and Simenggaris blocks by those companies. B. The "SANDS SOLUTION" Loans During 2000 and 2001 CityView lent $3 million to Sands Solutions against the security of a registered charge over Sands Solutions with the right to convert the loan into equity. During this period, a Due Diligence Committee was established to monitor the performance of Sands Solutions and to review the security of the loan. The Due Diligence Committee was assisted by independent legal, financial and technical advisors. On February 26, 2002, Curtin Consultancy Services ("CCS") advised the former directors of CityView that it had formed the view that there was sufficient potential value in the intellectual property rights owned by Sands Solutions to provide security for the loan of $3 million. Under the terms of the agreements between CityView and Sands Solutions, CityView were entitled to have all moneys repaid to it on July 1, 2003 or to convert its loan into equity in Sands Solutions on a formula based on an independent valuation to be undertaken prior to the repayment date. In October 2002, CityView's new directors received information that Sands Solutions were in financial difficulties and that this asset, carried in CityView's accounts at $3 million, may not be recoverable in full. The current board of directors immediately crystallized their floating charge over all of Sands' assets and undertaking. On November 25, 2002, Sands Solutions appointed an administrator. The Board of CityView took immediate steps to protect CityView's rights and applied to the Supreme Court of Western Australia to appoint a Receiver over Sands Solutions' assets and undertaking. On December 5, 2002, CityView obtained an order from the Supreme Court of Western Australia appointing Mervyn Jonathan Kitay of Grant Thornton as Receiver and Manager of Sands Solutions Group Pty Ltd. The Receiver and Manager is in the process of realising the assets and undertaking of Sands Solutions and the Board will know in due course as to how much, if any, of the loan is recoverable. Pending the outcome of the realisation of the said assets, the Board of Directors have decided that provision should be made in CityView's accounts for this loan. In light of the above matters, the Board instructed Grant Thornton to carry out a review of Sands Solution's financial accounts, to scrutinise all significant transactions of Sands Solutions for the past 3 years and advise if the same were in order. In the event that the review reveals any discrepancies in the financial accounts or in any significant transaction, the Board resolved to put the results of the review in the hands of its solicitors and obtain professional advice on the matter. The Board views this entire matter with deep concern and intends to pursue all and any remedies that CityView may have. The Board views this entire matter with deep concern and intends to pursue all and any remedies that CityView may have, whether against Sands Solutions or any other person, to recover any loss that it has suffered in this matter. In this regard, CityView instructed and received legal advice from Allens Arthur Robinson, a leading Australian law firm, and pursuant to the said legal advice, the Board instructed Allens Arthur Robinson to carry out further enquiries into the circumstances of the loan which may include a public examination of the relevant persons involved in the matter. The Board will ensure that the full circumstances of the loan are closely scrutinised to ensure that there was no impropriety or breach of duty by any person or party owing a duty to CityView. See also Item 4, Information on the Company - B2B E - Commerce Investment for information relating to Primeorder AG which involved Sands Solutions. 8 Item 4. Information on the Company A. History And Development Of The Company The term "Company" refers to CityView Corporation Limited, a corporation organized under the laws of Western Australia on May 3, 1987, and its wholly owned subsidiary CityView Asia Pty Ltd. During 2000 the Company deregistered five of the Company's subsidiary companies, as these companies were inactive and superfluous to the Company's requirements. The names of these companies were: Western Akar Petroleum Pty Ltd; Western Wisesa Petroleum Pty Ltd; Western Nusantara Energi Pty Ltd; Western Resources NL; and Western Sangkimah NL. Another two of the Company's former subsidiaries (Western Madura Pty Ltd and Western Simenggaris Petroleum Pty Ltd) are no longer subsidiaries of the Company as these companies are now controlled by Pt Medco Energi Corporation which now owns 75% of the shares in each of these companies. The Company publishes its consolidated financial statements expressed in Australian dollars. In this document, references to "US dollars" or "US$" are to the currency of the United States of America and references to "Australian Dollars" or "AUD$" are to currency of Australia. Solely for convenience, Form 20-F contains translations of certain Australian dollar amounts into US dollars at specified rates. These translations should not be construed as representations that the Australian dollar amounts actually represent such US dollar amounts or could have been or could be converted into US dollars at the rates indicated or any other rates. For information regarding rates of exchange between Australian dollars and US dollars from 1999 to the present, see "Item 3A. Selected Financial Data - Exchange Rates." The Company is subject to the information requirements of the Securities Exchange Act of '34, as amended. According, we file monthly Forms 6-K and Annual Form 20-F with the SEC. You may read and copy any document we file at the SEC's public reference room at 450 Fifth Street, N. W., Washington, D.C. 20549. You should call the SEC at 1-800-SEC-0330 for further information on the public reference rooms. Our SEC filings will also be available to the public at the SEC's web site at "http:/www.sec.gov." The current financial period is for the twelve months ended December 31, 2003. References in this document to a particular prior year are to the calendar year unless otherwise indicated. The Company produces annual reports containing audited consolidated financial statements and an opinion thereon by the Company's independent public accountants. Such financial statements have been audited in accordance with Australian Standards ("AIS"). The Company also produces quarterly reports as required by Australian Stock Exchange Limited, which contain selected financial information, and notices to shareholders of the Company. The Company also produces financial statements prepared in accordance with Australian Accounting Principles ("AAP"), which are required to be furnished to shareholders under Australian law. AAP may vary in certain respects from Generally Accepted Accounting Principles in the United States ("US GAAP"). A reconciliation between Australian and US GAAP for the financial periods ended December 2003, 2002 and 2001 are disclosed in footnote (25) to the financial statements contained herein. The Company is a corporation organized under the laws of Western Australia on May 3, 1987 under the name CityView Investments Limited and was listed on Australian Stock Exchange Limited as an investment company. The Company was initially listed on the Second Board of the Perth Stock Exchange on October 20, 1987 and was transferred to the Main Board of Australian Stock Exchange Limited on January 2 1992. The Company changed its name to CityView Corporation Limited on August 9 1996, to CityView Energy Corporation Limited on May 19, 1996 and on May 31, 2000 changed its name to its current name of CityView Corporation Limited. CityView's investments were focused originally on realty, then gold and realty, then energy and gold and then e-commerce and energy. Since early 2002 the Company's investments have focused on energy. Australian Government Regulation The Australian Securities and Investments Commission is an Australian government instrumentality that administratively enforces the Australian Corporations Act 2001, which is the main body of law regulating companies in Australia. The Corporations Act 2001 covers matters such as directors' duties and responsibilities, preparation of accounts, auditor control, issue and transfer of shares, control of shareholder meetings, rights of minority interests, amendments to capital structure, preparation and filing of public documents such as annual reports, changes in directors and changes in capital. Australian Stock Exchange Limited imposes listing rules on all listed companies, including the Company. The listing rules cover such issues as immediate notification to the market of relevant information, periodic financial reporting and the prior approval of shareholder reports by the Australian Stock Exchange Limited. The Company believes that it is in compliance with the foregoing Australian laws and regulations. 9 B Business Overview General The Company identified Indonesia for its focus for acquisitions and development of oil and gas reserves. Indonesia was selected after considering prospectively for oil and gas, demand for the produced product, availability of supportive infrastructure, foreign company participation terms and conditions and sovereign risk. Benefits Associated with Indonesia Indonesia has a record for honouring participation agreements and keeping tax and terms stable. The process for co-operation with domestic and foreign parties is explained as follows: o All oil and natural gas exploitation in Indonesia is the responsibility of Perusahaan Pertambangan Minyak dan Gas Bumi Negara ("Pertamina"), an enterprise established under the Law of the Republic of Indonesia Number 8 Year 1971. o Pertamina may co-operate with other parties by way of a "Production Sharing Contract," (hereinafter "PSC"), the form and terms of which are established by government regulations. o While terms have altered marginally since the PSC was first introduced, usually the objective of the change has been to improve the terms in an attempt to attract further foreign investment in Indonesia. o The PSC format has proved a stable and reliable contract for international investment. o The Company is involved in two PSCs with Pertamina located onshore Madura Island and Onshore North East Kalimantan and the PSCs are held by Medco Madura Pty Ltd and Medco Simenggaris Pty Ltd respectively (collectively hereinafter called "Madura and Simenggaris"). Risks Associated With Indonesia There are a number of factors which could have a material downside effect on any Madura and Simenggaris' future financial performance in Indonesia or the value of the shares in the Company. These factors include: o Fluctuations in the world market price of oil and gas; o Fluctuations in the value of the Indonesian rupiah against the US dollar; o Abnormal interruptions in oil and gas production or delivery resulting from war, political disturbance, civil unrest or industrial disruption; o Changes in government regulations or the relevant fiscal regime. o Unforeseen adverse geological conditions; o Unavailability or excessive costs of industry service support, caused by any of the above. The Company believes that the benefits described above outweigh the risks. There is no assurance, however, that one or more of the aforementioned risks will not severely damage Company prospects and operations. Selection Of Target Areas For Acquisition The criteria for assessing oil and gas opportunities in Indonesia includes consideration of the following: o Review of geological and geophysical information available from Pertamina and other sources. o Assessing proximity of the oil and/or gas prospect to a means of transporting the production to market. The foregoing component of production costs can significantly affect the economics of a project. o Assessing access to support services such as engineering, rig services and service contractors. Costs for mobilization and demobilization of such services are an important consideration. o Assessing field prospects of oil and gas, usually determined by quality and quantity of geophysical, geological, petrophysical and production data available. o Assessing the degree of difficulty in producing the oil and gas prospect from an engineering perspective, to enable an accurate assessment of production costs. o Conducting commercial analysis to establish the ability of a particular project to achieve adequate rate of return on investment. Evaluation Techniques Experienced geologists and geophysicists are engaged as contractors to employ the technologies of investigation in assessing hydrocarbon prospects. These include reprocessing and reinterpretation of existing seismic data. Afterwards 10 the data in its original interpreted form can be enhanced to enable more accurate mapping of the structure. The technology available for seismic acquisition and processing is continually being improved. Interpretation tools such as computer mapping and modelling packages enable greater amounts of data to be processed and superior interpretations to be made. Madura and Simenggaris utilize both the data directly relating to the field being investigated, along with regional data to compile as complete an understanding, as the available data will allow. Electrical wireline logs are utilized where available to interpret reservoir parameters of interval thickness, hydrocarbon presence, porosity, water saturation and other important parameters. This data is interpreted utilizing experienced engineers and advanced software packages designed for such analysis. The result are then integrated with the geological and geophysical information, in an endeavour to use one form of analysis to confirm the other. Utilizing the geophysical mapping and the petrophysical interpretation, the reservoir engineer is then able to estimate potential oil and/or gas reserves and recovery factors likely to be achieved. Any available past production records are analysed and can, on occasion, be utilized as a means of predicting future production rates and cumulative production forecast, by extrapolation of the past results, utilizing accepted engineering practices. The application of computer models can also aid the reservoir engineer in forecasting production potential. An accurate model can duplicate past production history. Market For Oil And Gas Production The market for oil and gas production in Indonesia is generally regulated. Under the terms of the PSC-JOB, Madura and Simenggaris have the right to sell their oil production to Pertamina at the government established Indonesian Crude Price (hereinafter "ICP") and Pertamina cannot refuse to buy the production. The ICP is an average price for a basket of crude oil. The basket used in the ICP calculation is comprised of Sumatra Light Crude (SLC), Tapis crude (from Malaysia), Oman crude, Dubai crude and Gippsland crude (Australia) prices. The ICP is adjusted on a monthly basis at the end of each month and then applied to the same month. The price for a particular crude oil in Indonesia is then adjusted relative to the crude quality. Pertamina has strategically located facilities throughout most of Indonesia, where crude oil can be delivered, commonly referred to as the "Point of Custody Transfer." Madura and Simenggaris are responsible for their portion of costs for delivering the crude to the Point of Custody Transfer. Above certain levels of production, Madura and Simenggaris have the right to sell its oil production on the world market if it is able to negotiate preferred selling terms. Preferred selling terms are terms, which are more favourable, then those available to the contractor under the ICP pricing system. Under the standard terms of Technical Assistance Contracts and Production Sharing Contracts, the contractor has the right during the term thereof to freely lift, dispose of and export 100% of its share of crude oil, and retain abroad the proceeds obtained therefrom. After 5 years of production the contractor is required to meet its domestic market obligation and sell 25% of its share of production to Pertamina at 15% of the prevailing price. All producers in a producing region receive the same price. The major oil companies purchase crude oil offered for sale at posted field prices. There are price adjustments for quality difference from the Bench Mark. Oil sales are normally contracted with a gatherer who will pick-up the oil at the well site. In some instances there may be deductions for transportation from the wellhead to the sales point. At this time the majority of crude oil purchasers do not charge transportation fees, unless the well is outside their service area. The oil gatherer will usually handle all check disbursements to both the working interest and royalty owners. The Company was a working interest owner to December 31, 1999. In January 2000 the Company entered an agreement for the Company's interest in the new work programs to be carried by Pt Medco Energi Corporation Tbk. When the Company becomes a working interest owner, the Company will be responsible for the payment of its proportionate share of the operating expenses of the well. Royalty owners and over-riding royalty owners receive a percentage of gross oil production for the particular lease and are not obligated in any manner whatsoever to pay for the cost of operating the lease. Gas is sold direct to consumers at prices determined by Pertamina. As the price continually fluctuates, it is not possible to quote an accurate figure. The report by Gaffney Cline dated February 16, 2004 and announced by the Company quoted gas prices at US dollars 2.35mmbtu .The lower gas prices in some industry sectors are a form of subsidy imposed by the government. Larger gas reserves near to LNG facilities are able to supply gas to these operations. Indonesia is the largest exporter of LNG in the world. The gas purchaser will pay the well operator 100% of the sales proceeds each and every month for the previous months sales. The operator is responsible for all checks and distributions to the working interest and royalty owners. There is no standard price for gas. Depending on the type of contract, ultimate destination, transportation, treatment and compression charges, the prices will vary. Prices will fluctuate with the seasons and the general market conditions. The Company does not anticipate any significant change in the manner production is purchased. However, no assurance can be given at this time that such changes will not occur. 11 As Indonesia moves closer towards becoming a net importer of crude oil, the Indonesian government, through the state owned enterprise Pertamina in which all oil and gas reserves are vested, is endeavouring to increase production through new incentives to attract foreign expertise and capital for exploration and production, through development and enhancement of existing reserves. Government incentives for PSC-JOBs include o After tax split for oil, new incentive 35% Contractor Equity, from a previous range of 15% to 25%. This in effect means that the Contractor can receive a larger portion of the total production from any field, after the deduction of Operating Costs. Allowing for a tax rate of 44%, the Contractor is entitled under this legislation, to 62.5% of remaining production after recovery of Operating Costs pre tax, as opposed to the previous entitlement of 26.7857% to 44.6428% pre tax. o After tax split for gas 40% for Contractor, from 35% previously. Similar to the above, the Contractor is entitled to 71.426% of the production, after deducting Operating Costs, as opposed to 62.5% previously. o Domestic market oil fee increased from 15% of crude price to 25% of crude price. Under the terms of all TACs and PSCs, the Contractor is required to sell and deliver to Pertamina a portion of the share of the Crude Oil to which the Contractor is entitled, at the Domestic Market Oil Fee, which is a set percentage of the price realized by the Contractor for all other production from the Contract Area. Under the previous regulations, the Contractor received only 15% of such price, whereas under the new legislation, the Contractor receives 25% of the realized price. The net result is that the Contractor is receiving an additional 10% of the Crude Oil price for that portion of Crude Oil, which it is obligated to sell and deliver to Pertamina to fulfil the Contractor's obligation towards the supply of the domestic market in Indonesia. o First Tranche Petroleum reduced from 20% to 15%. First Tranche Petroleum, being a portion of the total Petroleum production to be split between the parties before any deduction for recovery of Operating Costs, reduces the amount available for recovery of Operating Costs. As the Contractor is providing funding under the contract terms, it is in the Contractor's interest to have as much of the Petroleum production available for recovery of such costs, prior to distribution between the parties thereafter. Reduction of the First Tranche Petroleum percentage from 20% to 15% means an additional 5% of the Petroleum production is available to the Contractor for Cost Recovery. The price for oil in Indonesia is tied to a basket of crude oils around the world, ensuring an "international" price dependency. The basket of crude oils used to establish the ICP effectively means that the ICP is very much subject to world oil prices, giving it international stability as opposed to being affected by domestic constraints. The ICP compares favourably with other comparable crude oils in that its price is formulated from a basket of comparable crude from other countries. Energy Portfolio A. Madura Block Onshore Madura Island Near Surabaya East Java On January 28, 1997 the President Director of Pertamina awarded the Madura Block to CityView and signed the authorization for CityView's then 100% owned subsidiary Western Madura Pty Ltd ("Western Madura") to commence operations on the Madura Block prior to the formal signing of the PSC-JOB agreement. The signing of the contract took place on May 15, 1997, awarding the 2728km2 Madura Block to Western Madura for an exploration term of 10 years and production term of 20 years. CityView was not required to make any cash payment for this award and no payment in cash or otherwise was made by or on behalf of CityView for the award of the Madura Block. The block covers an area of 674,100 acres and lies in the oil and gas region of east Java. A number of large fields have been discovered in the vicinity and it is these same producing trends, which are being examined on Madura. The block lies close to the heavily industrialized city of Surabaya where there is a ready market for oil and gas. History Oil and gas exploration began on Madura Island in the late 1800's to 1910 with over 100 shallow (less than 500m) wells drilled on oil seeps and surface features. Production was marginal with a cumulative total of less than 1.0MMBO ("Million barrels of Oil"). Exploration was limited on the block until the 1970's when it was held in succession by Indonesia Cities Services, Pertamina and Shell. Several generations of seismic data were acquired in the 1980's and 1990's but only 6 wells have been drilled on the Island since 1910. 12 Throughout 1999, discussions took place with PT Medco Energi Corporation TBK ("Medco") for Medco to supervise and pay for the new work programs for the development and bringing into production of the Madura block. Approval was given at the Company's General Meeting held on December 30,1999 for the Company to allot a 75% interest in Western Madura to Medco in consideration of Medco carrying out and paying for the new work programs. The agreement was signed between CityView and Medco on January 25, 2000. The Company's interest in Western Madura was reduced from 100% to 25% and Western Madura was renamed Medco Madura Pty Ltd. In accordance with the above, Medco submitted to Pertamina for approval a Year 2000 budget of US$3,519,000 for the drilling of three wells on the Sebaya and Karasan prospects at Madura in the second and third quarters. Medco is the operator of the block and required to supervise and pay for the new work programs for development and bringing into production of the fields. After the end of the free carry period, Medco and the Company will contribute on a pro-rata basis in accordance with the respective 75% and 25% interests with the Company continuing to receive 25% of any profits generated. Regional Setting There is an E-W terrain running across the block that underwent inversion in the Plio-Pleistocene. Within that band, a number of structures have been identified due to the inversion at fairly shallow levels. These relatively shallow features were the principal target for the Medco Madura Pty Ltd program. PT Medco Energi Corporation TBK ("Medco" "Operator")) free carried CityView throughout the work program. The first well drilled by Medco was Sebaya-1 into a large faulted anticlinal feature underlying the old Kertegeneh field discovered in 1900. Medco spudded (i.e., commenced drilling and entered) Sebaya-1 on September 20, 2001. Medco's original objective for Sebaya-1 was to drill to a depth of 1230 metres (4035 feet) and test the Tawun sands at 200 metres (656 feet) and the Tuban sands at 900 metres (2953 feet). During the course of the drilling three zones of oil and gas shows were encountered between 2250-3100 feet. Medco was sufficiently encouraged by the drilling results to decide to deepen the well to explore its deeper zones, Lower Tuban Limestone or Upper Kujung Limestone. During the deepening of the well Medco encountered high formation pressures. The rig was only equipped with a 3000 psi Blowout Preventor (BOP). Oil and gas shows were encountered at 4527 feet and 5793 feet. Due to lost circulation problems at 4531 feet and high formation pressures encountered below this depth, deeper drilling was suspended at 5954 feet. The well was plugged back with cement to 5498 feet and 7-inch liner was run and cemented with the bottom of the liner at 5310 feet. A zone that had encountered oil and gas shows from 4527-4570 during drilling was production tested to determine the pressure, fluid content and potential production rates of the formation. This production test was within 1ft of a loss circulation zone. The zone was perforated from 4528-4548 feet. There was insufficient pressure and no flow rate was established. The Operator had elected to return to the Sebaya Well with a 5,000-PSI BOP and as such decided to re-test this zone with the others after drilling the Karasan Well. Madura Block - Madura Island, Indonesia: Karasan #1 Karasan #1 was spud in on January 12, 2002 and was drilled to a depth of 4300 feet. One zone was identified for testing. This zone was tested and initially flowed gas. However, the flow rate was constricted allowing only marginal gas build up during well shut-in, which quickly bled to zero once the well was flowed. Acid injection was used to try to remove the formation restriction; which was successful in the short term however the well stopped flowing again. Medco believed that chalk migration may have been a contributory factor for possible plugging of the formation. As only one zone had been identified in the well and as test results were poor, it was believed that even with stimulation the zone may not prove to be commercial. The well was plugged and abandoned. Medco performed an analysis of the data and issued a well final report concluding that the zone was not commercial. Madura Block - Madura Island, Indonesia: Sebaya #1 Sebaya #1 was re-entered on April 10, 2002. The cement plug retaining the well was drilled out and a 4 1/2-inch liner was set and cemented ready for testing. The cementing of the 4 1/2-inch liner was poor due to the high influx of gas while cementing. Delays were encountered due to a leak in the 4 1/2-inch hanger caused by gas channelling during cementing. The mud weight was increased in order to control the channel leak through the hanger. Shortly after a plug was set an injection test was performed. The well started to encounter loss circulation. It was determined that a second leak had occurred in the previous cement squeezed second zone due to fracturing of the cement retainer. Mud was used to control the gas influx from the 4 1/2-inch hanger, however the heavy weight mud was lost through the fractured second zone, which resulted in continued high-pressure gas influx from the 4 1/2-inch hanger. Considerable time was lost due to the difficulty in balancing these two problems at the same time. 13 The problem was finally resolved with the constant addition of LCM (loss circulation material) to the mud until such time that losses stabilised through the second zone. The second zone was then immediately squeezed allowing the operation to continue. Once the problems were overcome the first zone of the well was perforated. The well immediately flowed gas and condensate. The gas and condensate rates changed considerably during the test and it was believed that some degree of blockage was present at the casing perforation due to plugging by loose shale. The final results for the zone showed a flow rate through a 16-inch choke of 76.24 bpd condensate, 51.3 API, and 0.670 MMSCF/D gas. The Operator re-mapped the structure in order to determine the possible reservoir reserves based on the data obtained from drilling the well and test results. The well was suspended in consideration of delineation well and the possibility of production from the Sebaya well at a later date, should the structure be determined to be of commercial value. The second, third and fourth zones did not flow. The second zone was within one foot of the loss circulation zone. It was believed at the time that a wash out of the formation occurred in the zone while heavy losses were being encountered. Madura Block - Madura Island, Indonesia: Tambuku #1 Medco originally advised that Tembuku#-1 would be drilled back to back with the Telaga well and that the spud-in date was estimated for early November 2002, however this was brought forward and spud in was at midnight October 21, 2002. The target depth was programmed for 10,416 feet. At 5616 feet the rig took a gas kick and there was a gas flare 5 metres in length. In order to contain the gas influx, mud weight was increased. At the time the bit nozzles became plugged and the rig was unable to circulate the mud. The operator decided to collide (cut) the drill pipe to regain circulation due to well control safety requirements. The bottom hole assembly was then left in the hole and the well was side tracked. At 5380 feet of the sidetracking operation, the well encountered a gas influx and the mud was 1% oil cut. In the previous well (ie. before the sidetrack), Medco advised that the condensate produced may have been a result of gas condensing over a long shut in period, however in the new sidetracked well bore, the formation appeared to be actually producing both gas and light oil/condensate. Log data for zone 5614 to 5622 feet, suggested gas and light oil/condensate with 15% porosity. At 6890 feet, background gas ranged from 300-400 units. Medco continued to analyse the log data and advised that it anticipated to test three zones and possibly a fourth with each test zone expected to take approximately ten days. On January 14, 2003 DST 1 was perforated. No flow was established and an injectivity test confirmed the perforating guns had misfired. DST 1 was re-perforated on January 17, 2003. Due to poor flow rates the zone was stimulated with acid. The surface pressure increased to above 1000 psi and gas flow rates were in excess of 1 MMCFD. During the test the surface pressure dropped consistently although gas flow rates declined at a lesser rate. It was determined that the zone would require a comprehensive acid stimulation prior to re-testing. At the time the Operator received conformation from the authorities that the exploration period for the concession would be extended a further year. With the pressure of time restraints removed the Operator decided that it would be in a position to return to the Tambuku Well for full acid stimulation and re-testing of this zone. DST 2 was perforated to establish if the zone was able to flow by itself or would also require acid stimulation. Initially the zone did not flow and was swabbed. Swabbing was successful and the zone flowed gas and condensate for a 15-minute period until flow rates dropped off. It was then determined that this zone would also require acid stimulation and that economics dictated that re-testing should be performed by a smaller less expensive rig, allowing the larger rig 2 to move to the Telaga location. The Operator also considered perforating other zones during the retesting of the Tambuku Well. Madura Block - Madura Island, Indonesia: Telaga # 1 The Operator originally estimated the spud-in date for the Telaga #1 well would be August 2002. It subsequently decided that the Telaga #1 would be drilled back to back with Tambuku # 1. The target depth was programmed for 10,545 feet. The finalising of land use rights, approvals and permits took place throughout 2002. On March 29, 2003 Telaga #1 was spud-in. 2003/2004 Summary of the Madura Block Four wells in the Madura Block, namely Sebaya, Karasan, Tambuku and Telaga have been drilled by the Pertamina-Medco Madura Pty Ltd Joint Operating Body (JOB). With the exception of Karasan, hydrocarbons have been discovered in the 14 wells, however problems were encountered in all of the wells preventing full prospect evaluation. In addition to these discoveries, there was also an undeveloped gas-condensate discovery, Arosbaya, within the Block. As the Madura Block concession was due for relinquishment in May 2004, the JOB engaged international consultants, Gaffney Cline & Associates (GCA) to apply its Decision Cycle Compression (DCC) process in order to assist the JOB in making a recommendation on the future course of action. In reaching a joint recommendation, a GCA/JOB team would: 1. Review all geotechnical work 2. Integrate well results and independent reviews into a coherent block wide evaluation 3. Identify and provide plans to mitigate the risks of key uncertainties 4. Review previous drilling programs and make recommendations for future success 5. Evaluate and assess markets, pricing and costs 6. Review PSC commitments and requirements 7. Make a detailed recommendation with action plan for the way forward. The project commenced with the first of the three phases of DCC, data gathering, in mid-November 2003. Further data gathering and interviews of key stakeholders was conducted in Jakarta during the period of December 3 to 5, 2003. The second phase of DCC, Pre-Implementation, had the GCA team working independently from December 5 to December 19 reviewing all available information. During this time the GCA team familiarised itself with operations and formed its own insights, opinions and conclusions relative to the Madura block. The last phase of the DCC process was Implementation. During this phase GCA worked collaboratively with dedicated staff from the JOB with the goal to ultimately reaching a unanimous opinion as to the potential of the Madura block. The JOB/GCA team presented its findings and recommendations in late January 2004. CONCLUSIONS 1. The Madura block is hydrocarbon bearing with potentially commercial accumulations with unrisked gas resources in the order of 1.2 trillion cubic feet in 4 prospects namely, Sebaya, Arosbaya, Telaga and Tambuku. 2. The power market on Madura represents a ready opportunity for sales of up to 16 MMcf/d. 3. A ten-year volume commitment will likely be required from the Gili Power Plant. For full conversion of the Gili power plant, this commitment amounts to approximately 80 Bcf of gas reserves. 4. The central fault block of the Sebaya prospect is estimated to contain about 155 Bcf of recoverable gas, more than enough for the existing power market. 5. The production rate is the key to economics. Drilling operations must be carefully carried out to minimize formation damage. 6. A Production Sharing Contract extension should be obtained that not only allows development of Sebaya but also holds the block for future development of the other identified prospects. GCA/JOB's RECOMMENDATIONS The JOB should retain the block and make a proposal to the authorities, BP MIGAS to: o Extend the relinquishment date by a minimum of at least one year o Drill two appraisal wells (1 firm and 1 contingent on the firm well) on the Sebaya prospect o Obtain agreement to be able to hold the entire block with Plan of Development acceptance and development of Sebaya and for as long as production operations are maintained thereon. Upon acceptance of the proposal by BP MIGAS, the JOB should: o Obtain a Letter Of Intent for gas sales to the Gili Power Plant from the national power company, PLN o Investigate independent power generation by the JOB at the Sebaya field site o Run a Drilling Well On Paper workshop for both appraisal wells o Refine facility costs and construction timing o Perform detailed mapping of the Sebaya prospect Upon completion of the above Sebaya activities: o Undertake geological field studies to investigate Tuban sand reservoir potential o Prepare appraisal plan for Arosbaya o Continue evaluation of other island prospects GCA/JOB's recommendations have been accepted by the shareholders of the PSC/JOB. The recommendations were also presented to the relevant authorities, BP MIGAS together with a request for extension of the Block. A work program and Budget 15 for the drilling of the first appraisal well on the Sebaya prospect - Sebaya 2, has also been submitted to BP MIGAS and the Operating Shareholder is confident that the extension will be granted in due course. On 11 June 2004 the Company announced that the Operator had obtained a one-year extension for the relinquishment of the Madura Block from the relevant Indonesian authorities. It is anticipated that Sebaya 2 will be drilled in the fourth Quarter of 2004. Prospects Market Medco Madura Pty Ltd has had several discussions with the Indonesional National Power Company to supply gas to the Gili power plant on Madura Island. B. Simenggaris Block Onshore North-East Borneo On September 28, 1997 the President Director of Pertamina signed the authorization for CityView's then 100% owned subsidiary Western Simenggaris Pty Ltd ("Western Simenggaris") to commence operations on the Simenggaris Block prior to the formal signing of the PSC-JOB agreement. The signing of the Contract took place on February 24, 1998 awarding the 2734km2 Simenggaris Block to Western Simenggaris. The block covers an area of 675,582 acres and lies in the oil and gas Tarakan Basin region. The nearby giant Pamusian field was discovered in 1905 and the Bunyu field in 1920. Four discoveries have been made within the block: the Sembakung oilfield (40 million barrels oil), the Bangkudulis oilfield, Sesayap-1 and S.Sembakung-1. The former two are producing fields excluded from the contract area and the latter two are undeveloped gas-condensate discoveries, which do form part of the contract area. Similar to the agreement negotiated with Medco on Madura, CityView retains a 25% interest in exchange for being free carried throughout the work program as per the January 25, 2000 agreement. History The Simenggaris Block is adjacent to some of the earliest oil production in Indonesia with exploration dating back to the 1890's. Exploration was limited on the block until the late 1960's when portions of the block were held in succession by Japex, ARCO, Deminex and Pertamina. Several generations of seismic data were acquired and 15 wells were drilled within the Block leading to four discoveries: Sembakung oil field, Bangkudulis oil field, Sesayap-1 and S.Sembakung-1. The former two are producing fields excluded from the Contract area and the latter two are undeveloped gas-condensate discoveries, which do form part of the Contract area. Regional Setting The Simenggaris Block lies in the Tarakan Basin region. The Tarakan Basin stratigraphy consists of a classic prograding deltaic sequence from upper Miocene through Pliocene time. The majority of the reserves are found along the Kalimantan coast in Pliocene age deltaic reservoirs. Further inland gas and oil are found in upper Miocene age, paleogeographic equivalent, deltaic reservoirs. The upper Miocene age reservoirs are under explored and are expected to be the focus of the Medco work program. Prospects - Market The operating shareholder is currently sourcing for markets. Simenggaris Block - Kalimantan Indonesia: Pidawan#1 The Pidawan #1 well was spud in on March 1, 2002 and the anticipated target depth was 7546 feet. Two zones were identified for testing. Gas readings were 116 units at 2,439 feet, 174 units at 2,609 feet, 134 units at 2,694 feet and 184 units at 2,882 feet. At around 7000 feet, there were several oil shows in the lower section of the well. Mud logs indicated that the shows ranged from 2-foot sections to 6 feet in length. Drilling problems and delays were encountered during the drilling of this well. In July 2002 when Drill Stem Test # 1 ("DST") was perforated, Zone-1 flowed gas and condensate. Preliminary test results indicate that the well was able to flow 2.870 MMSCF/D on a 128/64-inch choke size from DST #1 and 1.6 MMSCF/D on a 28/64-inch choke size from DST #2. At this time the Operator requested permission from the relevant authorities to temporarily suspend the well. Medco then worked on the results of the well and performed an analysis, re-mapping the structure and estimating possible reserves. In August 2002, Medco released a press statement stating - "Pidawan #1 exploration well was spudded on 1 March 2002 and completed July 17, 2002. The well is a gas discovery well located in Simenggaris JOB Block, N. E. Kalimantan, near Tarakan Island. Total depth of the well is 7504 feet. Preliminary estimated reserves; based on available information for Pidawan #1 well is 25 BCFG. 16 Potential market for the gas discovery includes the Bunyu Methanol Plant and power generation in Tarakan Island". Medco advised that it would conduct a feasibility study on the building of a pipeline from the Pidawan location to Tarakan Island in order to market the gas. In April 2004, the Operating Shareholder ("Medco") advised that it was currently focusing its efforts on securing purchasers or a reliable market for the gas and the results would determine the future course of action for this concession. The Simenggaris block is programmed to drill a further two wells. These wells are "Bangku Besar" and a second well, the location of which has yet to be determined. In October 2002, Medco advised CityView that the estimated resources, ased on information available to Medco were:. Bangku Besar A1 27 MMBO oil and 127 BCF gas These estimates were furnished to CityView by the Operating Shareholder and have not been verified in accordance with Australian Stock Exchange Listing rules 5.11,5.12 and 5.13. CityView released the estimated reserves in good faith but advises investors to exercise due caution in relying on the same. Medco has yet to advise CityView as to the event of the seismic survey. Philippines Block SC41, Offshore Sabah Malaysia CityView has a 2.5% interest in the petroleum permit block held under Service Contract 41 which is an offshore oil and gas exploration area of approximately 3 million acres in the Sandakan Basin within Philippine waters adjacent to the border with east Malaysia. The Sandakan Basin is filled mainly with Mio-Pliocene age fluvio-deltaic sedimentary rocks that are analogous in many ways to the prolific Baram and Mahakam deltas adjacent to Borneo. The block contains the Rhino prospect for which Robertson Blackwatch has calculated a range of possible STOIIP (stock tank barrels of oil initially in place) of between 1,260 and 2,730 million stock tank barrels (MMstb) of oil and a possible range of between 0.9 and 1.96 trillion cubic feet of gas (TCF). CityView was free carried through a two well program (Hippo-1 and Wildebeest-1) by MMC Exploration & Production (Philippines) Pte Ltd, a subsidiary of Malaysia Mining Corporation Berhad. All contributions to expenditure on the past work program of two wells within the block have been met on behalf of CityView by MMC Exploration & Production (Philippines) Pte Ltd. CityView's participation was held under a Deed of Trust Agreement ("Trust Agreement") signed on April 14, 2000 with MMC Exploration & Production (Philippines) Pte Ltd ("MMCP"), a subsidiary of Malaysia Mining Corporation Berhad, whose 15% participating interest included CityView's 2.5% held on trust. Under the Trust Agreement, CityView was free carried by MMCP through a two-well work program (Hippo-1 and Wildebeest-1) completed on June 30, 2000. The next program was under review by the Operating Shareholder, Unocal, throughout 2002, and CityView was advised that the program would commence in late 2004 due to an extension to the one-year moratorium granted by the Philippine Government MMCP has finalised with the partners in the Block to dispose of its entire participating interest of 15% through an Assignment Agreement effective October 17, 2002, in exchange for a full recovery of all expenditure to date, the actual amount to be verified following the Government's audit. The recovery is conditional upon successful production of petroleum in the Block. MMCP has agreed to pay CityView a portion of the amount that MMCP receives in accordance with CityView's proportionate interest in the Block. As the recovery of these monies are conditional upon successful production of petroleum in the Block, the Board of Directors deemed it prudent to make provision for the same in CityView's accounts Market Oil is easier to produce and market as it would simply be produced from a floating production storage unit ("FPSU") and then delivered anywhere in the country. Gas is more difficult to monetize as it will require a pipeline to get the gas to market and costs associated with laying a pipeline far exceed production and marketing costs for oil in the regions discussed herein. Marketing opportunities in nearby Sabah are being examined. Competition The oil and gas industry is highly competitive. The Company's competitors and potential competitors include major oil companies and independent producers of varying sizes, which are engaged in the acquisition of producing properties and the exploration and development of prospects. Many of the Company's competitors have greater financial, personnel and other resources than does the Company and 17 therefore have a greater leverage to use in acquiring prospects, hiring personnel and marketing oil and gas. Accordingly, a high degree of competition in these areas is expected to continue. Indonesian Government Regulation The Company may either sell its production on the international market or opt to sell it domestically. There is a commitment to sell 25% of any oil production domestically (called Domestic Market Obligation) at 15% of the crude price. This commitment is imposed in the terms of all PSCs and does not vary between PSCs. This commitment becomes effective after the first 60 months of production. As the fields have not reached a level of commercial production, the commitment does not currently apply. There are no constraints on production. Indonesia has no exchange controls; therefore, foreigners are able to move funds freely in and out of the country through accounts denominated in local foreign currency. On all projects in which a company enters into a PSC with Pertamina, it is obligated to: o Conduct an environmental baseline assessment at the beginning of its activities. o Take the necessary precautions for protection of ecological systems, navigation and fishing, and prevent extensive pollution of the area, sea or rivers as the result of operations undertaken under the work program. o After the expiration or termination or relinquishment of any contract area, or abandonment of any field, remove all equipment and installations from the area in a manner acceptable to Pertamina, and perform all necessary site restoration activities in accordance with applicable government regulations, the costs of which are treated as operating costs and are thus cost recoverable, through project revenues. The Company considers these environmental obligations to be a part of its policy of good oil field practice and further acknowledges that the terms are considered normal throughout the world. Further, the Company believes that the foregoing obligations will not have a material impact on the Company's operations. ASAB Oil Limited CityView's subsidiary, CityView Asia Pty Ltd, under former Directors of the Company, entered into an agreement with ASAB Oil Limited and European Oil plc on June 21, 2002. This agreement replaced an agreement of January 8, 2002 between CityView Asia, ASAB Oil and Black Sea Oil Inc as European Oil has taken over Black Sea's interest in the venture. Negotiations conducted by a former director, to sell CityView's shareholding to European Oil plc continued unsuccessfully throughout 2002. Indications were that a settlement appeared remote. The current Board of Directors determined in 2003 that provision be made for its interest in ASAB Oil Limited. B2B E-Commerce Investment In January 2000, CityView agreed to acquire certain rights to take up a strategic interest in Sands Solutions Group Pty Ltd ("Sands Solutions"), then a developer of integrated B2B applications. Under the terms of the Heads of Agreement, CityView agreed to make a commercial loan under the security of a fixed and floating charge over Sands Solutions, with the right to convert the loan into equity. CityView advanced AUD$3 million under the terms of the loan. The acquisition by CityView of any interest in Sands Solutions above 10% required that a Prospectus be filed by CityView with Australian Stock Exchange Limited in accordance with the requirements of the Australian Securities and Investments Commission. While the filing of such Prospectus did not generate comments, it required accuracy of all material information in order to avoid director's personal liability for material misstatements. The current Board was informed that the Heads of Agreement was negotiated on an arms-length basis between the directors of each corporation not having any overlapping interest in the other corporation. Similarly, it was advised, that the due diligence of Sands Solutions was conducted by the independent directors of each Company. The current Board further understands that the manner of proceeding has been necessary due to the fact that a family trust of a former CityView director, Mr Smyth owned fifty percent of Sands and McDougall and owned one-third of Sands Solutions. The trustee of the Smyth family trust was Salant Nominees Pty Ltd and its two directors were Mr Smyth and his wife Jennifer Lee Smyth. Mr and Mrs Smyth controlled the family trust in their capacity as its sole two directors. Mr Smyth was also a director of both Sands and McDougall and Sands Solutions. It was advised that in order to avoid potential conflicts the independent directors represented CityView in dealings with Sands Solutions while Sands Solutions was primarily represented by Paul William Keogh, one of its directors. 18 Under the terms of the agreements between CityView and Sands Solutions, CityView could have elected to have all moneys repaid to it on July 1, 2003 or CityView could have elected to convert the loan into equity in Sands Solutions on a formula based on an independent valuation to be undertaken prior to the repayment date. CityView anticipated that payment for the acquisition of an equity interest would be accomplished through conversion of the AUD$3 million loan to Sands Solutions and through further funds it may have been able to receive from private placements of CityView's shares with otherwise unaffiliated third parties. As Sands Solutions was placed under administration, CityView immediately obtained a court order for its own receiver to be appointed to realize the assets and undertaking of Sands Solutions. CityView raised the AUD$3 million that was lent to Sands Solutions, in part, by issuing 7,300,000 CityView shares in January 2000 to private placement participants for proceeds of AUD$3,613,500, with the shares (once issued) then representing approximately 20% of all outstanding CityView shares and with no one participant (or group of participants acting in concert) being or becoming a principal stockholder of CityView. For material negative events relating to Sands occurring during 2002 and thereafter reference is made to Item 3 D - Risk Factors - "Recoverability of Loans...to Other Companies" as well as to Item 5 - Technology. On February 26, 2002, Curtin Consultancy Services ("CCS") advised the former Directors of CityView that it had formed the view that there was sufficient potential value in the intellectual property rights owned by Sands Solutions to provide security for the loan of $3 million. This opinion and a subsequent Independent Report by CCS were based largely on anecdotal information and in-house product demonstrations provided by Sands Solutions. CCS was not provided with independently audited financial statements; did not consult with any Sands Solutions customers; did not assess the value of any patents or patents pending; and did not review or report on any of the company's tangible assets. In October 2002, CityView's current Directors received information that Sands Solutions was in financial difficulties and that the asset, carried in CityView's accounts at $3 million may not be recoverable. The current Board of Directors immediately crystallised its floating charge over all of Sands' assets and undertaking. On November 25, 2002, Sands Solutions appointed an administrator. Your Board took immediate steps to protect CityView's rights and applied to the Supreme Court of Western Australia to appoint a Receiver over Sands Solutions' assets and undertaking. On December 5, 2002, CityView obtained an order from the Supreme Court of Western Australia appointing Mervyn Jonathan Kitay of Grant Thornton as receiver and manager of Sands Solutions Group Pty Ltd. The Receiver and Manager then took steps to realise the assets and undertaking of Sands Solutions. The Board views this entire matter with deep concern and intends to pursue all and any remedies that CityView may have to recover any loss that it has suffered in this matter. In this regard, CityView instructed and received legal advice from Allens Arthur Robinson, a leading Australian law firm, and pursuant to the said legal advice, the Board instructed Allens Arthur Robinson to carry out further enquiries into the circumstances of the loan which may include a public examination of the relevant persons involved in the matter. The Board will ensure that the full circumstances of the loan are closely scrutinised to ensure that there was no impropriety or breach of duty by any person or party owing a duty to CityView. Primeorder AG Historical In November 2000 the Company entered into an agreement with Sands Solutions under which the Company acquired a beneficial interest of 25% in Primeorder AG, a marketing company established in Hamburg, Germany to market the e-commerce applications of Sands Solutions throughout Europe. Sands Solutions had a 26% interest in Primeorder AG. As partial consideration for the Company's interest in Primeorder AG, the Company agreed to lend up to AUD$2,000,000 to Sands Solutions. This money was to be used for the establishment and promotion of Primeorder AG. The extent of the payments and when they were to be made to satisfy the loan was to depend on how rapidly Primeorder AG expanded its business in Europe. The Company has already advanced AUD$332,251 to Sands Solutions for use by Primeorder AG with the advance forming part of the loan disclosed herein. As further consideration for the acquisition of its interest in Primeorder AG, the Company issued 500,000 options in November 2000 to persons in Germany who were associated with Primeorder AG. The options were convertible into fully paid ordinary shares at an exercise price of AUD$0.80 each and all the options expired unexercised on 14 June 2001. 19 In April 2002, in accordance with the recommendations of the Due Diligence Committee, the Company signed agreements with Sands Solutions pursuant to which the Company no longer has an interest in Primeorder AG and the Company has been released from all obligations to provide more funds to Sands Solutions or its subsidiary Primeorder AG. CityView Corporation (UK) Ltd. See also Item 5 subheading CityView Corporation (UK) Ltd. As relates to certain Company plans in November 2001 to invest in high tech companies which plans were later (April 2002) abandoned. C. Organizational Structure The Company conducts its operations through itself and its wholly owned subsidiary CityView Asia Pty Ltd. D. Property, Plant And Equipment Particulars Of Oil Leases - Madura (Medco Madura Pty Ltd) And Simenggaris (Medco Simenggaris Pty Ltd) The Company's wholly owned subsidiary CityView Asia Pty Ltd owns 25% of Medco Madura Pty Ltd and 25% of Medco Simenggaris Pty Ltd since May 26, 2000 having previously owned (since December 31, 1999) 100% of such companies. Executive Address As of January 1, 2003, the Company's registered office is located at 17 Ord Street, West Perth, Western Australia 6005. The Company's principal place of business is leased premises at Level 9, 28 The Esplanade, Western Australia, telephone: (61 8) 9226 4788, fax: (61 8) 9226 4799, email: info@cityviewcorp.com, website: www.cityviewcorp.com. ITEM 5. OPERATING AND FINANCIAL REVIEW AND PROSPECTS A. Operating results The current financial period is for the twelve months ended December 31, 2003. The Company's consolidated financial statements are prepared in accordance with Australian Generally Accepted Accounting Principals ("Australian GAAP"), which may vary in certain respects from Generally Accepted Accounting Principals in the United States ("US GAAP"). A reconciliation between Australian and US GAAP for the financial periods ended December 31, 2003, 2002, 2001, 2000, and 1999 are disclosed in footnote 25 to the financial statements contained herein. The following discussion references the amounts computed in accordance with Australian GAAP for the results of operations of the Company for the financial periods ended December 31, 2003, 2002, 2001, 2000, and 1999. Principal Activities The principal activities of the Company during the financial year were investments in energy. Results Of Operations The discussion set forth below relates to the Company's results of operations as prepared in accordance with Australian GAAP. A reconciliation between Australian and US GAAP for the financial periods ended December 31, 2002, 2001 and 2000 are disclosed in footnote 25 to the financial statements contained herein. Year Ended December 31, 2003 Compared To Year Ended December 31, 2002 The net loss of the consolidated entity for the financial year after providing from income tax and eliminating outside equity interests was AUD$1,076,003 compared to a loss of AUD$9,303,440 for the previous financial year. decrease in operating loss resulted was due to the fact that there were no further asset write downs. Year Ended December 31, 2002 Compared To Year Ended December 31, 2001. The net loss of the consolidated entity for the financial year after providing for income tax and eliminating outside equity interests was AUD$9,303,440 compared to a loss of AUD$4,165,287 for the previous financial year. The increase in operating loss resulted primarily by the increase in the provision for write down of exploration costs of approximately AUD$5,384,170 and the provision for doubtful debts of AUD$3,000,000, i.e., the Sands Solution loan/investment. 20 Year Ended December 31, 2001 Compared To Year Ended December 31, 2000. The net loss of the consolidated entity for the financial year after providing for income tax and eliminating outside equity interests was AUD$4,165,287 compared to a loss of AUD$5,537,576 for the previous financial year. The decrease in operating loss resulted primarily by the decrease in the write off of exploration costs of approximately AUD$950,000. Dividends The directors did not recommend the payment of a dividend and no dividends have been paid or declared since the end of the previous financial year or during the previous 4 years. Review of Operations Although an extensive description of the operations of the Company is included in the Business overview, which precedes this report, a summary of the pertinent aspects of those operations is contained in this Item 5. Energy Portfolio A. Indonesia - Madura Block onshore Madura Island near Surabaya east Java Historical CityView owns 25% of Medco Madura Pty Ltd, the holder of the Madura Block under a Production Sharing Contract-Joint Operating Body agreement ("PSC-JOB") with the Indonesian Government for an exploration term of ten years commencing May 15, 1997 and a production term of twenty years. The Block covers an area of 674,100 acres close to the heavily industrialised city of Surabaya where there is a ready market for oil and gas. A number of large fields have been discovered in the vicinity and it is these same producing trends, which are being examined on Madura. The operator of the block is PT Medco Energi Corporation TBK ("Medco"), which free carried CityView throughout the recent work program. At the end of the free carry period, Medco and the Company will contribute on a pro-rata basis in accordance with the respective 75% and 25% interests with the Company continuing to receive 25% of any profits generated. Madura Block - Madura Island, Indonesia: Sebaya #1. The first well drilled by Medco was Sebaya-1 into a large faulted anticlinal feature underlying the old Kertegeneh field discovered in 1900. Medco spudded Sebaya-1 on 20 September 2001. Medco's original objective for Sebaya-1 was to drill to a depth of 1230 metres (4035 feet) and test the Tawun sands at 200 metres (656 feet) and the Tuban sands at 900 metres (2953 feet). During the course of the drilling three zones of oil and gas shows were encountered between 2250-3100 feet. Medco was sufficiently encouraged by the drilling results to decide to deepen the well to explore its deeper zones, Lower Tuban Limestone or Upper Kujung Limestone. During the deepening of the well Medco encountered high formation pressures. The rig was only equipped with a 3000 psi Blowout Preventor (BOP). Oil and gas shows were encountered at 4527 feet and 5793 feet. Due to lost circulation problems at 4531 feet and high formation pressures encountered below this depth, deeper drilling was suspended at 5954 feet. The well was plugged back with cement to 5498 feet and 7-inch liner was run and cemented with the bottom of the liner at 5310 feet. A zone that had encountered oil and gas shows from 4527-4570 feet was production tested to determine the pressure, fluid content and potential production rates of the formation. The 7-inch liner was perforated with four perforations per foot from 4528-4548 feet. Small amounts of salt water were recovered. An attempt to inject salt water into the perforations with 1100 psi at the surface was negative. Based on the test results, Medco is of the opinion that the perforation failed to make holes through the liner and cement into the formation. Sebaya #1 was re-entered in April 2002 The cement plug retaining the well was drilled out and a 4 1/2-inch liner was set and cemented ready for testing. The cementing of the 4 1/2-inch liner was poor due to the high influx of gas while cementing. Delays were encountered due to a leak in the 4 1/2-inch hanger caused by gas channelling during cementing. The mud weight was increased in order to control the channel leak through the hanger. Shortly after a plug was set an injection test was performed. The well started to encounter loss circulation. It was determined that a second leak had occurred in the previous cement squeezed second zone due to fracturing of the cement retainer. Mud was used to control the gas influx from the 4 1/2-inch hanger, however the heavy weight mud was lost through the fractured second zone, which resulted in continued high-pressure gas influx from the 4 1/2-inch hanger. Considerable time was lost due to the difficulty in balancing these two problems at the same time. The problem was finally resolved with the constant addition of LCM (loss circulation material) to the mud until such time that losses stabilised through the second zone. The second zone was then immediately squeezed allowing the operation to continue. 21 Once the problems were overcome the first zone of the well was perforated. The well immediately flowed gas and condensate. The gas and condensate rates changed considerably during the test and it is believed that a constriction was present at the casing perforation due to plugging by loose shale. The final results for this zone showed a flow rate through a 16-inch choke of 76.24 bpd condensate, 51.3 API, and 0.670 MMSCF/D gas. The Operator re-mapped the structure in order to determine the possible reservoir reserves based on the data obtained from drilling the well and test results. The well was suspended in consideration of delineation well and the possibility of production from the Sebaya well at a later date, should the structure be determined to be of commercial value. The second, third and fourth zones did not flow. The second zone was within one foot of the loss circulation zone. It was believed at the time that a wash out of the formation occurred in the zone while heavy losses were being encountered. Madura Block - Madura Island, Indonesia: Karasan #1 The second well drilled by Medco in the Madura Block was Karasan-1, which was drilled to only 4186 feet as the rig did not have the capacity to reach the deeper zones. Testing of gas flows in the upper zone was inconsequential. Medco has decided that instead of drilling deeper at this location, it will drill a well at nearby Telaga. This well will have a target depth of up to 9000 feet and should provide a better understanding of the deep zone at Karasan. Karasan #1 was spud in on January 12, 2002 and was drilled to a depth of 4300 feet. One zone was identified for testing. This zone was tested and initially flowed gas. However, the flow rate was constricted allowing only marginal gas build up during well shut-in, which quickly bled to zero once the well was flowed. Acid injection was used to try to remove the formation restriction; this was only successful in the short term however again the well stopped flowing. Medco believes that chalk migration may be a contributory factor for possible plugging of the formation. As only one zone had been identified in the well and as the test results were poor, it was believed that even with stimulation the zone may not prove to be commercial. The well was plugged and abandoned. Medco has performed an analysis of the data and has issued a well final report concluding that the zone is not commercial. Madura Block - Madura Island, Indonesia: Tambuku #1 Medco originally advised that Tembuku#-1 would be drilled back to back with the Telaga well. Spud in took place in October 2002. The target depth was programmed for 10,416 feet. At 5616 feet the rig took a gas kick and there was a gas flare 5 metres in length. In order to contain the gas influx, mud weight was increased. At the time the bit nozzles became plugged and the rig was unable to circulate the mud. The operator decided to collide (cut) the drill pipe to regain circulation due to well control safety requirements. The bottom hole assembly was then left in the hole and the well was side tracked. At 5380 feet of the sidetracking operation, the well encountered a gas influx and the mud was 1% oil cut. In the previous well (ie. before the sidetrack), Medco advised that the condensate produced may have been a result of gas condensing over a long shut in period, however in the new sidetracked well bore, the formation appeared to be actually producing both gas and light oil/condensate. Log data for the zone 5614 to 5622 feet, suggested gas and light oil/condensate with 15% porosity. At 6890 feet, background gas ranged from 300-400 units. Medco continued to analyse the log data and advised that it anticipated testing 3 zones and possibly a fourth with each test zone expected to take approximately ten days. DST 1 was perforated on January 14, 2003. No flow was established and an injectivity test confirmed the perforating guns had misfired. DST 1 was re-perforated on January 17, 2003. Due to poor flow rates the zone was stimulated with acid. The surface pressure increased to above 1000 psi and gas flow rates were in excess of 1 MMCFD. During the test the surface pressure dropped consistently although gas flow rates declined at a lesser rate. It was determined that the zone would require a comprehensive acid stimulation prior to re-testing. At this time the Operator received conformation from the authorities that the exploration period for the concession would be extended for a further year to May 15, 2004. With the pressure of time restraints removed the Operator decided that it would be able to return to the Tambuku Well for full acid stimulation and re-testing of this zone. On 11 June 2004 the Company announced that the Operator had obtained a confirmed one-year extension for the relinquishment of the Madura Block from the relevant Indonesian authorities. The extension is now to 14 May 2005. 22 DST 2 was perforated to establish if the zone was able to flow by itself or would also require acid stimulation. Initially the zone did not flow and was swabbed. Swabbing was successful and the zone flowed gas and condensate for a 15-minute period until flow rates dropped off. It was then determined that the zone would require acid stimulation and that economics dictated that re-testing should be performed by a smaller less expensive rig, allowing the larger rig 2 to move to the Telaga location. The Operator would also consider perforating other zones during the retesting of the Tambuku Well. Madura Block - Madura Island, Indonesia: Telaga # 1 Medco originally estimated the spud-in date for the Telaga #1 well would be August 2002. It subsequently decided that this well would be drilled back to back with Tambuku # 1. The target depth was programmed for 10,545 feet. The finalising of land use rights, approvals and permits took place throughout 2002. Telaga #1 spud in on March 29, 2003. o o The Board has concluded that in relation to the Madura Concession, CityView's contribution to the recommended drilling program will be approximately US$2.5 million. In order to raise this capital, the options currently under consideration are to: a) sell the Company's 25% share in Madura at the best possible price based on Gaffney Cline's report and use the sale proceeds to invest in other as yet unidentified businesses. b) Farm-in an experienced petroleum investor to free-carry the Company's 25% interest. In this event the Company would have to give up a percentage of its interest. c) Call for a rights issue to raise up to AUD$10 million shareholder funds. Use US$2.5 million for the next phase of the Madura drilling program and allocate the balance for other as yet unidentified investments. The Board is presently deciding the commercial viability of the above options. SEE ALSO ITEM 4B 2003/2004 Summary of the Madura Block B. Indonesia - Simenggaris Block Onshore North-East Borneo Historical: CityView owns 25% of Medco Simenggaris Pty Ltd which holds the Simenggaris Block under a PSC-JOB agreement for a ten-year exploration term commencing February 24, 1998 followed by a production term of twenty years. The Block encompasses an area of 675,582 acres and lies in the oil and gas Tarakan Basin region. Four discoveries have been made within the Block: the Sembakung oilfield (40 million barrels oil), the Bangkudulis oilfield, Sesayap-1 and S.Sembakung-1. The former two are producing fields excluded from the contract area and the latter two are undeveloped gas-condensate discoveries, which do form part of the contract area. Similar to the agreement negotiated with Medco on Madura, CityView was free carried throughout the work program. The first drilling location selected by Medco was at Pidawan on the same trend as the Sembakung oilfield. The Pidawan-1 well was spudded on February 21, 2002 with a target depth of approximately 7000 feet: to date the well has reached a depth of approximately 2000 feet. Pidawan-1, a strategic well with the lowest probability in comparison to the other prospects on this trend. Upon completion of the drilling of Pidawan-1, Medco plans to drill the more optimum prospects of Sesayap-B and Bangkupesar. The Pidawan #1 well was spud in on March 1, 2002 and the anticipated target depth was 7546 feet. Two zones were identified for testing. Gas readings were 116 units at 2,439 feet, 174 units at 2,609 feet, 134 units at 2,694 feet and 184 units at 2,882 feet. At around 7000 feet, there were several oil shows in the lower section of the well. Mud logs indicated that that the shows ranged from 2-foot sections to 6 feet in length. Drilling problems and delays were encountered during the drilling of this well. In July 2002 when Drill Stem Test # 1 ("DST") was perforated, Zone-1 flowed gas and condensate. Preliminary test results indicate that the well was able to flow 2.870 MMSCF/D on a 128/64-inch choke size from DST #1 and 1.6 MMSCF/D on a 28/64-inch choke size from DST #2. At this time the Operator requested permission from the relevant authorities to temporarily suspend the well. Medco then worked on the results of the well and performed an analysis, re-mapping the structure and estimating possible reserves. In August 2002, Medco released a press statement stating - "Pidawan #1 exploration well was spudded on March 1, 2002 and completed July 17, 2002. The well is a gas discovery well located in Simenggaris JOB Block, N. E. Kalimantan, 23 near Tarakan Island. Total depth of the well is 7504 feet. Preliminary estimated reserves; based on available information for Pidawan #1 well is 25 BCFG. Potential market for the gas discovery includes the Bunyu Methanol Plant and power generation in Tarakan Island". Medco advised that it would conduct a feasibility study on the building of a pipeline from the Pidawan location to Tarakan Island in order to market the gas. The Company is awaiting definitive results. The Simenggaris block is programmed to drill a further two wells. The wells are "Bangku Besar" and a second well, the location of which has yet to be determined. In October 2002, Medco advised CityView that the estimated resources, based on information available to Medco were: Bangku Besar A1 27 MMBO oil and 127 BCF gas These estimates were furnished to CityView by the Operating Shareholder and have not been verified in accordance with Australian Stock Exchange Listing rules 5.11,5.12 and 5.13. CityView released the estimated reserves in good faith but advises investors to exercise due caution in relying on the same. Medco advised that drilling of the Bangku Besar Barat and Sesayap wells would not be commenced until a seismic survey had been performed over the fields. The seismic survey is expected to commence early 2004. Medco intends to perform and conclude a seismic survey, as the geological data from the survey will assist them in determining which part of the block to relinquish to the Indonesian authorities in Year 2004. Under the terms of the agreement, 25% of the block is to be relinquished to the Indonesian authorities in Year 2004. As this Concession is located in a remote area in East Kalimantan and although the property has some prospectivity, there is a distinct absence of off-take contractual opportunities. The Board is keeping the financial commitments to this concession at a standstill mode until the Madura Block results become clearer. Philippines - Block SC41, Offshore Sabah Malaysia Historical CityView has a 2.5% interest in the petroleum permit block held under Service Contract 41 which is an offshore oil and gas exploration area of approximately 3 million acres in the Sandakan Basin within Philippine waters adjacent to the border with east Malaysia. The Sandakan Basin is filled mainly with Mio-Pliocene age fluvio-deltaic sedimentary rocks that are analogous in many ways to the prolific Baram and Mahakam deltas adjacent to Borneo. The block contains the Rhino prospect for which Robertson Blackwatch has calculated a range of possible STOIIP (stock tank barrels of oil initially in place) of between 1,260 and 2,730 million stock tank barrels (MMstb) of oil and a possible range of between 0.9 and 1.96 trillion cubic feet of gas (TCF). CityView has been free carried through a two well program (Hippo-1 and Wildebeest-1) by MMC Exploration & Production (Philippines) Pte Ltd, a subsidiary of Malaysia Mining Corporation Berhad. All contributions to expenditure on the past work program of two wells within the block have been met on behalf of CityView by MMC Exploration & Production (Philippines) Pte Ltd. CityView's participation was held under a Deed of Trust Agreement ("Trust Agreement") signed on 14 April 2000 with MMC Exploration & Production (Philippines) Pte Ltd ("MMCP"), a subsidiary of Malaysia Mining Corporation Berhad, whose 15% participating interest included CityView's 2.5% held on trust. Under the Trust Agreement, CityView was free carried by MMCP through a two-well work program (Hippo-1 and Wildebeest-1) completed on June 30, 2000. The next program was under review by the Operating Shareholder, Unocal, throughout 2002, and CityView was advised that the program would commence in late May 2004. due to a one-year moratorium granted by the Philippine Government. MMCP has finalised with the partners in the Block to dispose of its entire participating interest of 15% through an Assignment Agreement effective October 17, 2002, in exchange for a full recovery of all expenditure to date, the actual amount to be verified following the Government's audit. The recovery is conditional upon successful production of petroleum in the Block. MMCP has agreed to pay CityView a portion of the amount that MMCP receives in accordance with CityView's proportionate interest in the Block. As the recovery of these monies are conditional upon successful production of petroleum in the Block, the Board of Directors have deemed it prudent to make provision for the same in CityView's accounts 24 Technology - Sands Solutions Group Pty Ltd Historical During 2000 and 2001 CityView lent AUD$3 million to Sands Solutions against the security of a registered charge over Sands Solutions with the right to convert the loan into equity. A Due Diligence Committee was established to monitor the performance of Sands Solutions and to review the security of the loan. The Due Diligence Committee was assisted by independent legal, financial and technical advisors. Subsequent On February 26, 2002, Curtin Consultancy Services advised CityView that it had formed the view that there was sufficient potential value in the intellectual property rights owned by Sands Solutions to provide security for the loan of AUD$3 million. In April 2002, in accordance with the recommendations of the Due Diligence Committee, the Company signed agreements with Sands Solutions pursuant to which the Company no longer has an interest in Primeorder AG and the Company has been released from all obligations to provide more funds to Sands Solutions or its subsidiary Primeorder AG. Also under the terms of the agreements between CityView and Sands Solutions, CityView could have elected to have all moneys repaid to it on July 1, 2003 or CityView could have converted its loan into equity in Sands Solutions on a formula based on an independent valuation to be undertaken prior to the repayment date. CityView anticipated that payment for the acquisition of an equity interest would be accomplished through conversion of the AUD$3 million loan to Sands Solutions and through further funds it may be able to receive from private placements of CityView's shares with otherwise unaffiliated third parties. As Sands Solutions were placed under administration, CityView immediately obtained a court order for their own receiver to be appointed to realize the assets and undertaking of Sands Solutions. See also Item 4B - B2B E - Commerce Investment, Item 3D Risk Factors "Recoverability of Loans ... to Other Companies" which contains negative findings as relates to the Borrower and its ability to repay. Global Network Technologies Pty Ltd Historical Historical In November 2000 CityView acquired an interest in Telezon Limited (formerly called Min-Tech 8 Limited), a regional telecommunications company that is incorporated in Australia and was listed on Australian Stock Exchange Limited under the code "TLZ". In August 2001 CityView made an off market scrip bid for 50% of Telezon's shares and options: this bid was withdrawn after Telezon appointed administrators. After extensive negotiations with Telezon's principal shareholder GWT Systems Limited, CityView rolled its investment into a shareholding of 20% in Global Network Technologies Pty Ltd (Global Networks), which had acquired the prime assets of Telezon's business. The principal asset of Global Networks is Intellink Communications, which sells and installs: o Panasonic Telephone systems and communication accessories; o Point to point microwave links for high-speed data networks and carries on a small run production/refurbishment service of Plessey telephones. In April 2002 the current Board of CityView made the decision to focus on the Company's energy interests. No further action was taken to advance negotiations with Global Network Technologies Pty Ltd and other related parties. CityView Corporation (UK) Ltd In November 2001, CityView acquired a United Kingdom subsidiary company - CityView Corporation (UK) Ltd ("CityView (UK)") which was formerly known as Comstock Industries (UK) Limited. CityView (UK) was acquired as a vehicle for the Company potential investment in the high-technology sector by possibly acquiring a number of profitable high-technology companies in order to complement CityView's energy interest. CityView believed that there were opportunities to acquire profitable new technology businesses available due to the downturn in global technology valuations and which could deliver immediate cash flow to CityView. These new technology companies were believed to be undervalued by the capital markets due to their lack of public listing and were thought to have the potential to deliver high levels of revenue and PBIT growth. 25 CityView identified several companies which it believed fit the above criteria and these were enumerated to shareholders at the Company's General Meeting of December 24, 2001. During the due diligence process, the potential of CityView's energy interests began to emerge as the results of Medco's work program started to filter in and the Company recognised the need to focus its resources on the Company's energy interests. On April 4, 2002, the Board of CityView decided not to proceed with the proposed acquisitions of technology companies. Employee Share And Option Benefits The shareholders of the Company at its annual general meeting held on 31 May 2000 approved an Employee Share Plan, which included an Incentive Option Plan. The Company issued 2,500,000 options in 2001 under the Plan exercisable on or before June 30, 2002 at a price of $0.35 and 200,000 options exercisable on or before June 30, 2002 at a price of $0.20 each. All of these options expired unexercised on June 30, 2002. No options were issued in 2002 or 2003. Options At the date of this report there are no outstanding options on issue. No options were issued throughout the year. Inflationary And Other Economic Pressures Currently, the Company is not generating revenues from its oil and gas operations. Future revenues, if any, in this segment are governed, in part primarily by worldwide commodity pricing. No immediate effect in respect to inflation and changes on prices is expected. However, inflationary pressures affect the Company's exploration and development expenditure, which is primarily incurred in U.S. dollars. The director's estimation of inflation is considered in regards to the general state of the world economy, and of the United States and Indonesia in particular. This exposure to inflationary pressure is dependent on the mix of goods and services provided to the Company by suppliers, sourced internally in Indonesia and externally. At this stage the Company is unable to quantify the mix of inflationary pressures from different sources that will affect the supply of goods and services to the Company. The official government released Indonesian average inflation rates for the seven years beginning 1997 were as follows:
1997 1998 1999 2000 2001 2002 2003 Inflation Rates % 11.05% 77.63% 2.01% 9.35% 9.00% 9.70% 5.06%
It is the policy of the directors to regularly monitor the cost of operations on a per barrel basis in respect to viability of individual projects and to take any necessary actions. The Company's operations in these industries comprise exploration and development expenditure and therefore are not affected by inflationary and price pressures of oil and gas product pricing. However, normal inflationary pressures on the Company's general expenditure on goods and services affect this expenditure. Government Policies The Company considered the issue of political risk in the Republic of Indonesia in which the Company has acquired assets and may continue to do so as a matter of normal business practice. The Company's expected initial producing properties are located in Indonesia where there has been a long established petroleum industry, with significant elements of foreign capital investments and no history of expropriation. The Republic of Indonesia is a separate national state and like many other national states regulates, controls and taxes activities conducted by residents and non-residents in the country and the flow of investment into the country and the return of capital out of the country. All of these controls and regulations are subject to change from time to time. Some of the interests of the Company in Indonesia are by way of contract between a subsidiary of the Company and bodies, which are wholly owned arms of the Government of the Republic of Indonesia. These contracts are subject to controls and regulations by the contracting parties and by the government of the Republic of Indonesia. These factors, in addition to the usual exploration and production risk and the economic and political stability of the host country, Indonesia must all be taken into account in relation to the Company's operations in Indonesia. Other than the effect of the government's economic fiscal monetary or political policies of the Republic of Indonesia, or factors upon the operations of the Company, these policies or factors do not affect investments by United States Nationals in Ordinary Shares of the Company. 26 Likely Developments And Expected Results Of Operations Information on likely developments and expected results of operations (ie financial forecasts and/or forward looking information) of the consolidated entity has not been included in this report since management considers such information to be commercially sensitive and/or confidential and/or not subject to sufficient certainty. Indemnification Of Officers And Auditors The Company has not, during or since the financial year, indemnified or agreed to indemnify an officer or director of the Company or any related body corporate against a liability incurred as an officer or auditor. B. Liquidity And Capital Resources Year Ended December 31, 2003 compared to Year Ended December 31, 2002 As at December 31, 2003 the Company had working capital of AUD$350,091 compared to a working capital of AUD$1,425,845 at December 31, 2002. Cash flow used in operating activities decreased from AUD$1,113,672 in the year ended December 31, 2002 to AUD$833,819 in the year ended December 31, 2003. The primary difference for the decrease in funds used was for a reduction in marketing fees and corporate advisory fees. Cash flow used for investing decreased from AUD$428,703 for the year ended December 31, 2002 to AUD$6,746 in the year ended December 31, 2003. The only funds used for investments was to purchase computer equipment The Company did not generate any cash flows from financing activities in the year ended December 31, 2003 compared to AUD$2,940,000 in the year ended December 31, 2002. Previous cash flows from financing activities principally comprised the issuance of ordinary shares in the Company by private placements. There were no shares issued for the year ended December 31, 2003. Year Ended December 31, 2002 compared to Year Ended December 31, 2001 At December 31, 2002, the Company had working capital of AUD$1,425,845 compared to a working capital of AUD$167,015 at December 31, 2001. Cash flow used in operating activities decreased from AUD$3,878,839 in the year ended December 31, 2001 to AUD$1,113,672 in the year ended December 31, 2002. The primary difference for the decrease in funds used was for a reduction in marketing fees, brokerage fees and corporate advisory fees. Cash flow used for investing decreased from AUD$819,562 for the year ended December 31, 2001 to AUD$428,703 in the year ended December 31, 2002. This decrease in funds used for investing activities was primarily due to revenue from the sale of shares in a listed corporation - "CGX". No further funds were advanced to Sands Solutions. The Company generated cash flows from financing activities of AUD$2,940,000 in the year ended December 31, 2002 compared to AUD$3,977,725 in the year ended December 31, 2001. Cash flows from financing activities principally comprised the issuance of ordinary shares in the Company by private placements. Year Ended December 31, 2001 compared to Year Ended December 31, 2000 At December 31, 2001, the Company had working capital of AUD$167,015 compared to working capital of AUD$531,613 at December 31, 2000. Cash flow used in operating activities increased from AUD$2,854,435 in the year ended December 31, 2000 to AUD$3,878,839 in the year ended December 31, 2001. The primary differences for the increase in funds used were for marketing fees, brokerage fees and corporate advisory fees. Cash flow used for investing decreased from AUD$4,000,147 for the year ended December 31, 2001 to AUD$819,562 in the year ended December 31, 2001. This decrease in funds used for investing activities was primarily due to decreased payments for acquisition, exploration, evaluation and development of oil fields. A further loan of AUD$500,000 was advanced to Sands Solutions during the year ended December 31, 2001 compared to AUD$2,500,000 during the year ended December 31, 2000. The Company generated cash flows from financing activities of AUD$3,977,725 in the year ended December 31, 2001 compared to AUD$7,679,977 in the year ended December 31, 2000. Cash flows from financing activities principally comprised the issuance of ordinary shares in the Company by private placements and the conversion of share options into ordinary share capital of the Company. 27 C. Research And Development, Patents And Licences Not applicable D. Trend Information Not applicable E. Off-Balance Sheet Arrangements The Company does not have any off balance sheet arrangements in place. F. Tabular Disclosures of Contractual Obligations The cost of any work to the Madura and Simenggaris Blocks (hereto discussed in Items 4 and 5) will be met by the Company in proportion to its equity interests, however, these amounts and the time frame in which they will be required is still uncertain. G. Safe Harbor In accordance with Safe Harbor Provisions referred to in Item 5G as provided for in Section 27A of the Securities Act ("Statutory Safe Harbors") the Company applies same to any forward looking information provided by it in response to Item 5E and 5F hereof, as well as the Items (4 and 5) referred to in Item 5F except to the extent that same relates to historical facts. ITEM 6. DIRECTORS, SENIOR MANAGEMENT AND EMPLOYEES A. Directors And Senior Management Name Age Position A I Saddique 60 Chairman Ee Beng Yew 50 Chief Executive Officer and Chief Financial Officer Goh Yong Kheng 57 Director Md Nazri Ramli 48 Director Thinagaran 41 Director John F Arbouw 58 Director/Company Secretary Yusufali M Jumabhoy 66 Resigned March 5, 2004 All directors hold office until the next annual general meeting of shareholders and until their successors have been elected and qualified. The Company's officers are elected by the Board of Directors after each annual meeting of the Company's shareholders and hold office until their death, resignation or removal from office. Directors The names and particulars of the directors of the Company in office during and since the end of the financial year are: Ahmad Iqbal Saddique - Chairman Mr Saddique read law in the United Kingdom and qualified as a barrister. He is the President of Central Asia Petroleum Limited, a company having substantial interests in oil and gas producing fields in Central Asia. Mr Saddique is currently the Managing Director of Midwestern Oil Pte Ltd (formerly Falcon Oil Pte Ltd). Mr Saddique has substantial interests in companies owning the patents to unique, innovative and revolutionary water treatment and desalination technologies as well as other cutting edge technologies in the field of extraction of water from waste material and the pulverizing of the residue. Ee Beng Yew - Chief Executive Mr Ee Beng Yew is an Associate of the Institute of Chartered Accountants in England and Wales and has several years of working experience in Chartered Accountants and Certified Public Accountants firms in England and Singapore respectively. Mr Ee was also a Director of a public company listed on both the Singapore and Malaysian Stock Exchanges and he was Managing Director of several of its subsidiaries. Goh Yong Kheng - Director Mr Goh holds a Masters degree of Science from the Australian National University. After working with the University of Singapore for three years, Mr Goh managed his own Marketing Consultant businesses in South East Asia for eight years. Mr Goh was a Management Consultant in China for two years for a Hong Kong company prior to his current position as a Director of a group of companies in the water and oil technology businesses. 28 Md Nazri Ramli - Director Mr. Nazri graduated from University of Malaya with a Bachelor of Science (BSc) Honours Degree in Geology in 1979 and started his career in the upstream sector of the oil & gas industry. He was a senior geologist for various oil companies including Petronas, Occidental, Sun Oil and Texaco covering the Southeast Asian (SEA) region. Mr. Nazri was appointed as the General Manager of Business Development for Crest Petroleum Berhad in 1993 and later as General Manager of PT Petronusa Bhumibakti, the partner with Crest in the Selat Panjang concession in Central Sumatera. Currently he is the General Manager of Business Development for MMC Engineering Group Berhad, a 75% subsidiary of Malaysia Mining Corporation Berhad. Prior to his current appointment, Mr. Nazri was a freelance business development consultant in the exploitation of natural resources since 1997. Part of the assignment involved the assessment of oil and gas concessions in Asia and Africa. Mr. Nazri has authored and delivered papers on topics covering hydrocarbon exploration in SEA Thinagaran - Director Mr Thinagaran holds a law degree from the National University of Singapore and has been in practice for the past 13 years as an advocate and solicitor in Singapore. He was a partner with an established law firm and is currently practicing as a consultant with the same firm. Messrs Saddique, Goh, Thinagaran and Ee are associated with CityView's largest individual shareholder Midwestern Oil Pte Ltd, a Singaporean energy company whose shareholders have interests in substantial oil and gas producing fields in Central Asia. John Arbouw - Director and Company Secretary Mr Arbouw was born in Holland and educated in Canada. He is a member of the Australian Institute of Company Directors (MAICD) and has worked in North America, Europe, Asia and New Zealand. He has lived and worked in Australia for the past 26 years and has provided strategic communications advice to Federal and State Governments as well as some of the major corporations in Australia. Mr Arbouw has served on a number of boards and has written extensively on global corporate governance issues. Yusufali M Jumabhoy - Director Resigned March 5, 2004 Mr Jumabhoy was appointed as Chairman of the Board of Directors of CityView and Chairman of the Independent Audit Committee on October 16, 2001. Mr Jumabhoy holds a law degree from London University and is a barrister from the Inner Temple in London. He was the Senior Partner of a law firm for many years and served as council member of the Law Society of Singapore. Mr Jumabhoy has extensive business experience as a commercial lawyer and is well known in the South East Asian investment community. The resignation was not because of disagreements with the Company on any matter relating to the Company's operations, policies or practices, but rather due to personal reasons. B. Compensation Remuneration of Directors The remuneration of all directors is determined and reviewed on a periodic basis and appropriate recommendations are made to the board of directors. In each instance the remuneration is assessed with regard to the nature of the remuneration and the performance of the recipient together with all other relevant factors with the overall objective of achieving maximum benefits for shareholders by providing sufficient expertise and experience within the board and executive officers. The remuneration is made up of several elements including base fees and salaries, incentive benefits (including the Incentive Option Plan established under the Employee Share Plan) and other general benefits covering travel and vehicle expenses and similar outgoings. The remuneration for each director for the financial year (inclusive of benefits to associated or related parties) was: Name Base fee Other fees Incentives $ $ (Options) A I Saddique Nil Nil Nil Y K Goh Nil Nil Nil B Y Ee Nil Nil Nil Md N Ramli Nil Nil Nil Thinagaran Nil Nil Nil J F Arbouw Nil Nil Nil Y M Jumabhoy Nil 61,589 NIL 29 No amount of money has been set aside by the Company to provide pension or similar benefits for its officers and directors. C. Board Practices The board of directors resolved on June 14, 2000 to formalize the terms of reference of the board audit committee. The board has adopted a formal audit charter with the primary objective of assisting the board in fulfilling its responsibilities to shareholders, potential shareholders and the investment community relating to accounting and reporting practices of the Company and its present or future subsidiaries and the quality and integrity of the financial reporting. D. Employees At December 31, 2003 the Company had 1 full time employee at its principal place of business in Australia. Consultants on a per diem basis undertake much of the Company's work. E. Share Ownership See Item 7A Major shareholders Employee Share Plan No Options were issued under the Incentive Option Plan for the year ended December 31, 2003. On June 25, 2001 the Company issued a total of 2,500,000 options under the Incentive Option Plan forming part of the Employee Share Plan that was approved by shareholders at the annual general meeting held on May 31, 2000. During the year there were no more than ten eligible participants for the Employee Share Plan. The options were issued as a performance incentive for no consideration to eligible employees under the Incentive Option Plan. Each of these options conferred the right to acquire one (1) ordinary fully paid share in the capital of the Company at a price of $0.35 each on or before June 30, 2002. In accordance with the terms of the Employee Share Plan all issues of options under the Employee Share Plan are at the discretion of the directors. o o On October 31, 2001 a further 200,000 options were issued under the Incentive Option Plan exercisable at a price of $0.20 each on or before June 30, 2002. None of the aforesaid 2,700,000 options were exercised and all such options expired have expired. 30 ITEM 7. MAJOR SHAREHOLDERS AND RELATED PARTY TRANSACTIONS. A. Major Shareholders The following table sets forth the Ordinary Share ownership of each person known by the Company to be the beneficial owner of five percent or more of the Company's shares, each director and officer individually and the directors and officers as a group as at March 31, 2004. Each person has sole voting and investment power with respect to the shareholdings shown and all ownership is of record and beneficial.
Directors/Officers Name Number of Shares Options --------------------------------- ------------------------------------------------------------------------------ ------------------ --------------------------------- ------------------------------------------------------------------------------------------------- A I Saddique Mr Saddique is a director and shareholder of Midwestern Oil Pte Ltd (formerly known as Falcon Chairman Oil Pte Ltd), which owns 15,500 fully paid ordinary shares in CityView. Mr Saddique is also a 63 Robinson Rd director and shareholder of Thomas Omar Pte Ltd, which owns 500,000 fully paid ordinary shares Afro Asia in CityView. Building #03-16 Singapore --------------------------------- ------------------------------------------------------------------------------------------------- --------------------------------- ------------------------------------------------------------------------------------------------- B Y Ee Mr Ee is a shareholder of Midwestern Oil Pte Ltd (formerly known as Falcon Oil Pte Ltd), which Chief Executive Officer owns 15,500 fully paid ordinary shares in CityView. 63 Robinson Rd Afro Asia Building #03-16 Singapore --------------------------------- ------------------------------------------------------------------------------------------------- --------------------------------- ------------------------------------------------------------------------------------------------- Y K Goh Mr Goh is a shareholder of Midwestern Oil Pte Ltd (formerly known as Falcon Oil Pte Ltd), which Director owns 15,500,000 fully paid ordinary shares in CityView. 63 Robinson Rd Afro Asia Building #03-16 Singapore --------------------------------- ------------------------------------------------------------------------------------------------- --------------------------------- ------------------------------------------------------------------------------ ------------------ Thinagaran Nil Nil Director 63 Robinson Rd Afro Asia Building #03-16 Singapore --------------------------------- ------------------------------------------------------------------------------ ------------------ --------------------------------- ------------------------------------------------------------------------------ ------------------ Md N Ramli Nil Nil Director 62000 Putra Jaya Wilayah Perseketuan Malaysia --------------------------------- ------------------------------------------------------------------------------ ------------------ --------------------------------- ------------------------------------------------------------------------------ ------------------ J F Arbouw 30,425 Nil Director/Company Secretary 22 Derby Street Vaucluse NSW 2000 --------------------------------- ------------------------------------------------------------------------------ ------------------ --------------------------------- ------------------------------------------------------------------------------ ------------------ R M Elliott Nil Nil Appointed April 20, 2004 22 Brightmore Street Cremorne NSW 2090 --------------------------------- ------------------------------------------------------------------------------ ------------------ --------------------------------- ------------------------------------------------------------------------------ ------------------ Y M Jumabhoy Nil Nil Resigned March 5, 2004 63 Robinson Rd Afro Asia Building #03-16 Singapore --------------------------------- ------------------------------------------------------------------------------ ------------------
31 Major Shareholders Name Number of Shares Percent of Class US Control Account C/- Computershare Trust Company Inc 21,456,801 30.58% Midwestern Oil Pte Ltd 63 Robinson Rd Afro Asia Building #3-16 Singapore 15,500,000 22.09% Malaysia Mining Corporation Berhad 32nd Floor, Menara PNB 201A Jalan Tun Razak 50400 Kuala Lumpur Malaysia 8,616,188 12.28% Based on 70,161,616 shares outstanding as of March 31, 2004. B. Related Party Transactions There are no additional interests of management in transaction involving the Company except for those stated herein or in Item 17 - notes to financial statements. C. Interests Of Experts And Counsel Not applicable ITEM 8. FINANCIAL INFORMATION A. Consolidated Statements And Other Financial Information Reference is made to "Item 17. Financial Statements" for the financial statements included in this annual report. An action is pending against the Company in New York Supreme Court, New York County, (Index No.: 109628/02) by Worldwide Business Networks, Inc. alleging a breach of contract for $150,000 and punitive damages. The Company believes the action is totally without merit, and a motion to dismiss the action is pending on the grounds that the summons was served in violation of a court order and on other grounds. The Company is not a party to any other material litigation, and to its knowledge no other action, suit or proceeding is pending or has been threatened. To date, the Company has not paid a dividend. The declaration, amount, and date of distribution of any dividend in the future will be decided by the Board of Directors from time to time based upon and subject to the Company's earnings, financial requirements, and other conditions prevailing at the time. B. Significant changes - There have been no significant changes since date of last annual financial statements. ITEM 9. THE OFFER AND LISTING Not applicable ITEM 10. ADDITIONAL INFORMATION A. Share Capital Not applicable B. Memorandum and Articles of Association This information has been previously provided. C. Material Contracts There were no material contracts other than these entered into in the ordinary course of business to which the Company or any member of the group is a party during the past 2 years. 32 D. Exchange Controls Exchange controls and other limitations affecting security holders: Australia has largely abolished exchange controls on investment transactions. The Australian dollar is freely convertible into US dollars except that all payments and cash transactions in excess of $5,000 to non-residents must be reported to the Australian Cash Transactions Agency, which monitors such transactions, whether they be in the form of cash, dividends, capital or profits. The Foreign Acquisitions and Takeovers Act ("Foreign Acquisitions Act") sets forth limitations on the rights of non-Australian residents to own or vote the ordinary shares of an Australian company. The Foreign Acquisitions Act permits the Commonwealth Treasurer to examine acquisitions and arrangements that could result in foreign persons controlling an Australian business. The Commonwealth Treasurer may prohibit a proposed takeover if it would lead to a change of control of a business where the resultant control would be foreign and therefore considered to be against the national interest. The Foreign Acquisitions Act contains divestiture provisions to ensure it can be enforced, as well as, stringent monetary-penalty provisions for breaches and the making of false or misleading statements. The Foreign Acquisitions Act requires the prior approval of the Commonwealth Treasurer for certain classes of persons to enter into an agreement to acquire shares of an Australian company, if, after the acquisition, such person or corporation would hold a substantial interest in such corporation, as explained herein. The foregoing approval requirement applies to the following classes of persons: (i) any natural person not ordinarily resident in Australia, (ii) any corporation in which either a natural person not ordinarily resident in Australia or a foreign corporation (as defined in the Foreign Acquisitions Act) holds a substantial interest, and (iii) two or more such persons or corporations which hold an aggregate substantial interest. The Foreign Acquisitions Act requires foreign persons or foreign-controlled entities to give forty (40) days notice to the Commonwealth Treasurer of a proposal to acquire or increase (or offer to acquire or increase) a single interest of 15% or more of the ownership or voting power of an Australian company. If two or more foreign persons or foreign-controlled entities are acting together, the threshold is 40% in the aggregate. The Constitution of the Company does not contain any additional limitations on a non-resident's right to hold or vote the Company's securities. E. Taxation The following discussion summarizes US federal and Australian tax consequences of the ownership of Shares by a person ("US Portfolio Stockholder") that: (i) is a citizen or resident of the US, a US corporation or that otherwise will be subject to US federal income tax on a net income basis in respect of the Shares; (ii) is not a resident of Australia for Australian tax purposes; (iii) has not, within the preceding five years, beneficially owned 10% of the issued capital or voting stock in the Company; and, (iv) has not used the Shares in carrying on a trade or business, wholly or partly through a permanent establishment in Australia. The statements regarding US and Australian tax laws set forth herein are based on those laws as in force on the date of this document that may affect the tax consequence described herein (some of which may have retroactive effect). This summary is not exhaustive of all possible tax consideration and investors are advised to satisfy themselves as to the overall tax consequences, including specifically the consequences under US, state, local and other laws, of the acquisition, ownership and disposition of Shares by consulting their own tax advisers. Taxation of Gains on Sale A US Portfolio Stockholder is not subject to Australian income tax on the sale of its Shares in the Company. Passive Foreign Investment Company Status A foreign corporation is classified as a passive foreign investment company (a "PFIC") in any taxable year in which, after taking into account the income and assets of certain subsidiaries pursuant to the applicable US Internal Revenue Code "look-through" rules, either (i) at least 75% of its gross income is passive income, or (ii) at least 50% of the average value of its assets is attributable to assets that produce passive income from cash holdings and profits from the sale of marketable securities, even if derived from an active business. If the Company were a PFIC during any year in which a US Portfolio Stockholder owned Shares, that US Portfolio Stockholder would be subject to additional taxes on any gain realized from the sale or any other disposition of the Shares, or any excess distribution received from the Company. 33 A US Portfolio Stockholder will have an excess distribution to the extent that distributions on Shares during a taxable year exceeded 125% of the average amount received during the three preceding taxable years (or, if shorter, the US Portfolio Stockholders' holding period for the Shares). To compute the tax on gain or on an excess distribution, (i) the excess distribution or the gain is allocated rateably over the US Portfolio Stockholder's holding period for the Shares, (ii) the amount allocated to the current taxable year at the highest applicable marginal rate in effect for each year and (iii) an interest charge is imposed to recover the deemed benefit from the deferred payment of the tax attributable to each year. If the Company is a PFIC, US persons that own an interest in another entity that owns shares in the Company may be treated as indirect holders of their proportionate share of that entity's Shares, and may be taxed on their proportional share of any gain or excess distribution from that entity attributable to the entity's in the Company. A US person that owns an interest in the entity that is an actual holder of Shares will be treated as an indirect holder if (i) the actual holder is itself a PFIC, (ii) the actual holder is a foreign corporation other than a PFIC in which the US person who owns an interest in the actual holder owns (directly or indirectly) at least 50% in value of the actual holder's shares, or (iii) the actual holder is a partnership, trust or estate in which the US Portfolio Stockholder is a partner or beneficiary. An indirect holder must take into income its portion of any excess distribution received by the actual holder or any gain recognized by the actual holder on the Shares. An indirect holder also must treat an appropriate portion of its gain on the sale or disproportion of its interest in the actual holder as gain on the sale of the Shares. If the Company were a PFIC, a US Portfolio Stockholder of Shares would generally be subject to similar rules with respect to distribution by, and dispositions of the shares of, any direct or indirect subsidiaries of the Company that were PFICs. The Internal Revenue Code provides each US stockholder in an PFIC with an election whereby the additional US tax burden imposed on gain on sale of PFIC stock and receipt of excess distributions from a PFIC, as described above, can be avoided. This election generally requires that the PFIC stockholder include in its income, its pro-rata share of the PFICs distributed and undistributed income, as computed under US tax accounting principles, on an current basis. In certain cases, a further election is available to an electing PFIC stockholder to defer the tax payable with respect to the stockholder's pro-rata share of the PFICs undistributed income, although in this case interest applies on the deferred tax. Thus, even if the first or both of these elections are made, a US stockholder of a PFIC loses the tax benefit, which is available with respect to investment in a non-PFIC corporation, of deferring and converting to capital gain the investor's personal US tax liability with respect to the Company's undistributed income. These elections also generally require that the PFIC annually provide the electing PFIC shareholder, for inspection by the Internal Revenue Service, an analysis of the PFICs income computed under US tax accounting principals. The Company does not intend to furnish any US Portfolio Stockholder with the information that it would need in order to avoid the PFIC tax treatment described by electing to include its share of the Company's income on a current basis. Therefore these elections may not be available to the Company's US Portfolio Stockholders. There are other adverse US tax rules associated with holding Shares in a company that has been a PFIC during any part of a US Portfolio Stockholders holding period. These include a denial of a step-up in a tax basis on the death of a US individual stockholder, and burdensome reporting requirements. If the Company ceases to be a PFIC, a US Portfolio Stockholder may avoid the contained application of the tax treatment described above by electing to be treated as if it sold its Shares on the last day of the last taxable year in which the Company was a PFIC. Any gain is recognized and subjected to tax under the rules described above. Loss is not recognized. The US Portfolio Stockholder's basis in the Shares is increased by the amount of gain recognized on the deemed sale. This election is not available to a US Portfolio Stockholder that previously elected to include its share of the Company's income on a current basis. The US Congress recently has considered legislation that would alter the PFIC rules substantially. Prospective investors should consult their own tax advisors as to the potential application of the PFIC rules, as well as, the impact of any proposed legislation that could affect them. Taxation of Dividends The Company does not expect to pay cash dividends for the foreseeable future, but, rather, to retained earnings, if any, to finance expansion of its business. Should the Company begin paying dividends, however, the Company's dividends to its US Portfolio Stockholders would be exempt from Australian dividend withholding tax to the extent such dividends are considered to be "franked" for Australian tax purposes. A dividend is considered to be "franked" to the extent that such dividend is paid out of the Company's income on which Australian corporate tax has been levied. Even if not "franked," a dividend will be exempt from Australian dividend withholding tax if it is paid out of the Company's non-Australian source dividend income and the Company specifies a "foreign dividend account declaration percentage" for such purpose. The Company anticipates that if it pays dividends, such dividends would likely be either "franked," or paid from the Company's non-Australian source dividend income as 34 specified in the foreign dividend account declaration percentage, and therefore would be exempt from Australian dividend withholding tax. If, however, dividends are paid by the Company that are not "franked," nor paid from the initial Company's non-Australian source dividend income as specified in the foreign dividend account declaration percentage, such dividend would then be subject to Australian dividend withholding tax. However, in accordance with the provisions of the Australia/United States Income Tax Treaty, Australian withholding tax on dividend income derived by a US stockholder would be limited to 15% of the gross amount of the dividend. Subject to certain limitations, any Australian dividend withholding tax may be claimed as a credit against the federal income tax liability of the US stockholder. The overall limitation on non-US taxes eligible for US credit is calculated separately with respect to specific classes, or "baskets" of income. For this purpose, dividends distributed by the Company will generally constitute "passive income" or, in the case of certain US Portfolio Stockholder, "financial service income." The US tax credits allowable with respect to each income basket cannot exceed the US federal income tax payable with respect to such income. The consequences of the separate limitation calculation will depend on the nature and sources of each US Portfolio Stockholder's income and the deductions allocable thereto. Distributions on the Shares will constitute dividends for US Federal income tax purposes to the extent paid out of current or accumulated earnings and profits, if any of the Company, as determined for US federal income tax purposes. If the Company pays a dividend, such dividend would likely be paid in Australian dollars. The amount of dividend income for a US Portfolio Stockholder will be the US dollar value of the dividend payment on the date of receipt, even if the dividend is not converted into US dollars Gain or loss, if any, realized on a sale or other disposition of Australian Dollars will be ordinary income or loss to the US Portfolio Stockholder. Dividends paid by the Company will not be eligible for the "inter-corporate dividends received" deduction allowed to US corporations. Estate And Gift Tax Australia does not impose any estate, inheritance or gift taxes. Therefore, no Australian estate tax, inheritance tax or gift tax will be imposed on the death or upon a lifetime gift by, a US Portfolio Stockholder. F. Dividends And Paying Agents Not applicable G. Statement By Experts Not applicable H. Documents On Display Persons having a right of inspection of the Company's records under the Australian Corporations and securities legislation can inspect such records by contacting the Company's principal place of business at Level 9, 28 The Esplanade, Perth Western Australia, Telephone: (61 8) 9226 4788, Fax: (61 8) 9226 4799, email: info@cityviewcorp.com The Company is subject to the information requirements of the Securities Exchange Act of '34, as amended. Accordingly the monthly Form 6-K and Annual Form 20-F are filed with the SEC. A copy of any document filed can be read at the SEC's public reference room at 450 Fifth Street, N. W., Washington, D.C. 20549. For further information, please call the SEC at 1-800-SEC-0330 on the public reference rooms. The Company's SEC filings are also available to the public at the SEC's web site at "http:/www.sec.gov." I. Subsidiary Information Additional information not applicable ITEM 11. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK Not applicable ITEM 12. DESCRIPTION OF SECURITIES OTHER THAN EQUITY SECURITIES A. Debt Securities Not applicable 35 B. Warrants And Rights Not applicable C. Other Securities Not applicable D. American Depositary Shares Not applicable PART II ITEM 13. DEFAULTS, DIVIDEND ARREARAGES AND DELINQUENCIES Not applicable ITEM 14. MATERIAL MODIFICATIONS TO THE RIGHTS OF SECURITY HOLDERS AND USE OF PROCEEDS Not applicable ITEM 15. Controls And Procedures Our management, under the supervision and with the participation of our chief executive officer and chief accounting officer, conducted an evaluation of our "disclosure controls and procedures" (as defined in the Securities Exchange Act of 1934 Rules ss.ss.13a-15 and 15d-15). Since date of evaluation, our chief executive officer and chief accounting officer have concluded that as of the Evaluation Date, our disclosure controls and procedures are effective to ensure that all material information required to be filed in this Annual Report on Form 20-F has been made known to them in a timely fashion. During the fiscal year, there have been no significant changes (including corrective actions with regard to significant deficiencies or material weaknesses) in our internal controls or in other factors that could significantly affect these controls subsequent to the Evaluation Date set forth above. ITEM 16A. Audit Committee Financial Expert Code And Ethics The Board of Directors of CityView Corporation Limited (`the Company") resolved on June 14 2000 to formulate the terms of reference (Charter) of the board of audit committee ("the Committee"). The objectives, composition, term of office and duties and responsibilities of the Committee ("the Charter") have been updated to meet the Principles of Good Corporate Governance and Best Practice Recommendations as suggested by the Australian Stock Exchange Corporate Governance Council on March 31, 2003. A copy of the Charter has been posted on the website. Audit Committee Charter Objectives: The Audit Committee is appointed by the Board to assist the Board in monitoring (1) the integrity of the financial statements of the Company, (2) the compliance by the Company with legal and regulatory requirements and (3) the independence and performance of the Company's internal and external auditors. The members of the Audit Committee shall meet the independence and experience requirements of the Australian Stock Exchange. The Audit Committee shall have the authority to retain special legal, accounting or other consultants to advise the Committee. The Audit Committee may request any officer or employee of the Company or the Company's outside counsel or independent auditor to attend a meeting of the Committee or to meet with any members of, or consultants to, the Committee. The Audit Committee shall make regular reports to the Board. The Audit Committee shall at least annually, unless otherwise specified: 1. Review and reassess the adequacy of this Charter annually and recommend any proposed changes to the Board for approval. 36 2. Review the annual audited financial statements with management, including major issues regarding accounting and auditing principles and practices as well as the adequacy of internal controls that could significantly affect the Company's financial statements. 3. Review an analysis prepared by management and the independent auditor of significant financial reporting issues and judgments made in connection with the preparation of the Company's financial statements. 4. Review with management and the independent auditor the effect of regulatory and accounting initiatives as well as off-balance sheet structures on the Company's financial statements. 5. Review with management and the independent auditor the Company's quarterly financial statements prior to the filing of them with the relevant regulators. 6. Meet periodically with management to review the Company's major financial risk exposures and the steps management has taken to monitor and control such exposures. 7. Review major changes to the Company's auditing and accounting principles and practices as suggested by the independent auditor, internal auditors or management. 8. Recommend to the Board the appointment of the independent auditor, which firm is ultimately accountable to the Audit Committee and the Board. 9. Review the experience and qualifications of the senior members of the independent auditor team and the quality control procedures of the independent auditor. Review the experience and qualifications of the Company's senior finance executives. 10. Approve the fees to be paid to the independent auditor. 11. Establish guidelines for the retention of the independent auditor for any non-audit service. 12. Receive periodic reports from the independent auditor regarding the auditor's independence, discuss such reports with the auditor, and if so determined by the Audit Committee, recommend that the Board take appropriate action to satisfy itself of the independence of the auditor. 13. Evaluate together with the Board the performance of the independent auditor and, whether it is appropriate to rotate independent auditors on a regular basis. If so determined by the Audit Committee, recommend that the Board replace the independent auditor. 14. Recommend to the Board guidelines for the Company's hiring of employees of the independent auditor who were engaged on the Company's account. 15. Review the appointment and replacement of the senior internal auditing executive. 16. Review the significant reports to management prepared by the internal auditing department and management's responses. 17. Meet with the independent auditor prior to the audit to review the planning and staffing of the audit. 18. Obtain from the independent auditor assurance that Section 10A of the Private Securities Litigation Reform Act (1995) is adhered to. 19. Obtain reports from management, the Company's senior internal auditing executive and the independent auditor that the Company's subsidiary/foreign affiliated entities are in conformity with applicable legal requirements and the Company's Code of Conduct/Ethics, including disclosures of insider and affiliated party transactions. 20. Discuss with the independent auditor the matters required to be discussed in relating to the conduct of the audit. 21. Review with the independent auditor any problems or difficulties the auditor may have encountered and any management letter provided by the auditor and the Company's response to that letter. Such review should include: (a) Any difficulties encountered in the course of the audit work, including any restrictions on the scope of activities or access to required information, and any disagreements with management. (b) Any changes required in the planned scope of the internal audit. (c) The internal audit department responsibilities, budget and staffing. 22. Prepare the report required by the rules of the Australian Stock Exchange/Securities Exchange Commission. 23. Advise the Board with respect to the Company's policies and procedures regarding compliance with applicable laws and regulations and with the Company's Code of Conduct/Ethics. 24. Review with the Company's General Counsel legal matters that may have a material impact on the financial statements, the Company's compliance policies and any material reports or inquiries received from regulators or governmental agencies. 25. Assess its performance of the duties specified in this charter and report its findings to the Board of Directors. While the Audit Committee has the responsibilities and powers set forth in this Charter, it is not the duty of the Audit Committee to plan or conduct audits or to determine that the Company's financial statements are complete and accurate and are in accordance with generally accepted accounting principles. This is the responsibility of management and the independent auditor. Nor is it the duty of the Audit Committee to conduct investigations, to resolve disagreements, if any, between management and the independent auditor or to assure compliance with laws and regulations and the Company's Code of Conduct/Ethics. The CityView Audit Committee currently comprises three directors, two of which are independent under the Principles of Corporate Governance and Best Practice Recommendations of the Australian Stock Exchange. 37 Pursuant to Section 407 of the Sarbanes-Oxley Act of 2002 (SOXA), the Company has a duty as party of its dual listing to adopt rules disclosing whether it has at least one "audit committee financial expert" serving on its audit committee, and, if so, whether the expert is independent of management. In addition, the "financial expert" should have: o an understanding of generally accepted accounting principles and financial statements o the ability to assess the general application of such principles in connection with the accounting for estimates, accruals and reserves o experience preparing, auditing, analyzing or evaluating financial statements that present a breadth and level of complexity generally comparable to those of the issuer's financial statements, or experience actively supervising one or more person engaged in such activities o an understanding of internal controls and procedures for financial reporting o an understanding of audit committee functions The attributes of the "financial expert" will have been acquired through any one or more of the following ways: o education and experience as a principal financial officer, principal accounting officer, controller, public accountant or auditor or experience in one or more positions that involve the performance of a similar function o experience actively supervising a principal financial officer, principal accounting officer, controller, public accountant, auditor or person performing similar functions o experience overseeing or assessing the performance of companies or public accountants with respect to the preparation, auditing or evaluation of financial statements o other relevant experience o an understanding of internal controls and procedures for financial reporting o an understanding of audit committee functions. The Company designated John F. Arbouw MAICD as its "financial expert" on the Audit Committee in that Mr Arbouw fulfils some but not all of the criteria set out in Section 407. Mr Arbouw has experience as a managing director and chief financial officer of a communications company and has been a financial journalist and financial commentator. He is an advisor to several companies on corporate strategy and on a cumulative basis has gained experience and understanding of internal controls and procedures for financial reporting and an understanding of audit committee functions. As well, Mr Arbouw has: o an understanding of generally accepted accounting principles and financial statements o the ability to assess the general application of such principles in connection with the accounting for estimates, accruals and reserves o an understanding of internal controls and procedures for financial reporting. ITEM 16B. Code of Ethics CityView Corporation Limited is committed to excellence, integrity and professionalism as well as the growth and development of all its operations. This commitment extends to ensuring shareholders and stakeholders are fully informed about the Company's activities and that the Board of Directors and employees conduct themselves: o Honestly and with integrity and respect not only with one another, but with all of the group's stakeholders; o that they use confidentiality and discretion involving information that is proprietary to the group; o that they avoid any conflict of interest which may interfere with the independent exercise of their judgement in the best interests of the group; o that they adhere to all laws and regulations determining the group's legal and moral obligations; and o that they foster a non-discriminatory work and business environment to promote a climate of harmony and tolerance. 38 ITEM 16C. Principal Accountant Fees and Services The aggregate fees billed for the last two fiscal years for professional services rendered by the Company's auditors are as follows: 2003 2002 Audit fees A$85,607 A$88,019 Other services A$13,365 A$17,540 --------------------------- A$98,972 A$105,559 --------------------------- ITEM 16D. Exemption from the Listing Standards for Audit Committees Not Applicable. ITEM 16E Purchases of Equity Securities by the Issuer and Affiliated Purchasers None. PART III ITEM 17. FINANCIAL STATEMENTS CITYVIEW CORPORATION LIMITED ACN 009 235 634 FOR THE FINANCIAL YEAR ENDED 31 DECEMBER 2003 Page Number Auditor's Report F- Statement of Financial Performance F- Statement of Financial Position as at 31 December 2002 F- Statement of Cash Flows F- Notes to and forming part of the Financial Statements F--F- 39 REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM We have audited the accompanying Statement of Financial Position of CityView Corporation Limited as of December 31, 2003 and 2002 and the related statements of financial performance and cash flows for each of the three years in the period ended December 31 2003. 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 the standards of the Public Company Accounting Oversight Board (United States). 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 financial statements referred to above present fairly, in all material respects, the financial position of the Company as of December 2003 and 2002 and the results of its operations and its cash flows for each of the three years in the period ended December 31 2003 in conformity with Australia generally accepted accounting principles. Without qualification to the opinion expressed above, attention is drawn to the following matter: As disclosed in Note 10, the ultimate recovery of the loans amounting to $7,952,187 from Medco Madura Pty Ltd and Medco Simenggaris Pty Ltd are dependent upon the future development and successful exploitation or possible sale of the underlying areas of interest. Illegible Signature BDO Chartered Accountants Perth, Western Australia Dated 25th day of June 2004 40 STATEMENT OF FINANCIAL PERFORMANCE FOR THE FINANCIAL YEAR ENDED 31 DECEMBER 2003
Consolidated Entity Parent Entity 31-Dec-03 31-Dec-02 31 Dec 01 31-Dec-03 31-Dec-02 NOTE $ $ $ $ Revenues from ordinary activities 2 24,629 595,007 229,087 24,629 595,007 Administration Expenses (129,856) (235,146) (463,967) (129,856) (235,146) Employee wages and benefits expense (92,272) (150,088) (185,558) (92,272) (150,088) Consulting/Legal Expenses (625,806) (607,251) (2,615,539) (625,806) (607,251) Depreciation and amortisation expense (6,995) (7,050) (5,226) (6,995) (7,050) Occupancy Expenses (62,848) (68,272) (29,446) (62,848) (68,272) Brokerage and Advisory Fees - - (549,638) - - Provision for doubtful debts - (3,000,000) - - (8,384,170) Provision for write-down of investments - (5,384,170) - - - Investment loss - (408,811) (487,329) - (257,234) Other expenses from ordinary activities (182,855) (37,659) (57,671) (182,855) (37,660) Loss from ordinary activities before income tax expense 3 (1,076,003) (9,303,440) (4,165,287) (1,076,003) (9,151,864) Income tax expense - - - - - Loss from ordinary activities after related income tax expense (1,076,003) (9,303,440) (4,165,287) (1,076,003) (9,151,864) ---------------------------------------------------------------------------- Net loss attributable to members of the parent entity (1,076,003) (9,303,440) (4,165,287) (1,076,003) (9,151,864) ----------------------------------------------------------------------------- Basic loss per share (cents per share) 17 (1.53c) (13.67c) (8.07) Where diluted earnings per share are not diluted, they are not disclosed. The accompanying notes form part of these financial statements. 41 STATEMENT OF FINANCIAL POSITION AS AT 31 DECEMBER 2003 Consolidated Entity Parent Entity 31-Dec-03 31-Dec-02 31-Dec-03 31-Dec-02 NOTE $ $ $ $ CURRENT ASSETS Cash 8 658,943 1,499,508 658,935 1,499,500 Receivables 9 6,352 23,612 6,352 23,612 --------------------------------- -------------------------------- TOTAL CURRENT ASSETS 665,295 1,523,120 665,287 1,523,112 --------------------------------- -------------------------------- NON CURRENT ASSETS Receivables 10 7,952,187 7,952,187 7,952,187 7,952,187 Investments 11 - - 10 10 Equipment 12 7,658 7,907 7,658 7,907 Acquisition, exploration and development 13 2 2 - - -------------------------------- -------------------------------- TOTAL NON CURRENT ASSETS 7,959,847 7,960,096 7,959,855 7,960,104 --------------------------------- -------------------------------- TOTAL ASSETS 8,625,142 9,483,216 8,625,142 9,483,216 --------------------------------- -------------------------------- CURRENT LIABILITIES Payables 14 300,804 84,415 300,804 84,415 --------------------------------- -------------------------------- TOTAL CURRENT LIABILITIES 300,804 84,415 300,804 84,415 --------------------------------- -------------------------------- NON CURRENT LIABILITIES Provisions 15 14,400 12,860 14,400 12,860 --------------------------------- -------------------------------- TOTAL NON CURRENT LIABILITIES 14,400 12,860 14,400 12,860 --------------------------------- -------------------------------- TOTAL LIABILITIES 315,204 97,275 315,204 97,275 --------------------------------- -------------------------------- --------------------------------- -------------------------------- NET ASSETS 8,309,938 9,385,941 8,309,938 9,385,941 ================================= ================================ EQUITY Contributed equity 16(a) 57,235,996 57,235,996 57,235,996 57,235,996 Accumulated losses 16(e) (48,926,058) (47,850,055) (48,926,058) (47,850,055) --------------------------------- -------------------------------- TOTAL EQUITY 8,309,938 9,385,941 8,309,938 9,385,941 ================================= ================================ The accompanying notes form part of these financial statements. TOTAL SHAREHOLDERS' EQUITY (DEFICIT) 9,385,941 15,749,381 9,385,941 15,597,805 42 CITYVIEW CORPORATION LIMITED STATEMENT OF CASH FLOWS FOR THE FINANCIAL YEAR ENDED 31 DECEMBER 2003 Consolidated Entity Parent Entity 31-Dec-03 31-Dec-02 31 Dec 01 31-Dec-03 31-Dec-02 NOTE $ $ $ $ Cash Flows From Operating Activities Interest received 41,888 260,117 211,251 41,888 260,117 Interest & other costs of finance paid - - (549,638) Payments to suppliers and employees (875,707) (1,373,789) (3,540,452) (875,707) (1,071,112) ---------------------------------------------------------------------------- Net cash provided/(used) by operating activities 20(c) (833,819) (1,113,672) 3,878,839 (833,819) (810,995) --------------------------------------------------------------------------- Cash flows from investing activities Loan to Sands Solution Group Pty Ltd - - 500,000 Sale of shares in listed corporations - 335,467 - - 335,467 Payment for investment in listed corporation - - (163,911) Payment for acquisitions - (764,170) (155,651) - - Advance to controlled entities - - - - (1,021,397) Payment for property, plant & equipment (6,746) - - (6,746) - ---------------------------------------------------------------------------- Net cash provided/(used) by investing activities (6,746) (428,703) (819,562) (6,746) (685,930) ---------------------------------------------------------------------------- Cash from financing activities Proceeds from the issue of shares - 2,940,000 3,977,725 - 2,940,000 ---------------------------------------------------------------------------- Net cash provided/(used) by financing activities - 2,940,000 3,977,725 - 2,940,000 ---------------------------------------------------------------------------- Net increase/(decrease) in cash (840,565) (1,397,625) (720,696) (840,565) 1,443,075 Cash at the beginning of the financial year 1,499,508 101,883 822,559 1,499,500 56,425 ---------------------------------------------------------------------------- Cash at the end of the financial year 20(a) 658,943 1,499,508 101,883 658,935 1,499,500 ----------------------------------------------------------------------------
The accompanying notes form part of these financial statements. 43 NOTES TO AND FORMING PART OF THE FINANCIAL STATEMENTS FOR THE FINANCIAL YEAR ENDED 31 DECEMBER 2003 1. Statement of Significant Accounting Policies Basis of Reporting The financial report is a general purpose financial report which has been prepared in accordance with the Corporations Act 2001, all applicable Accounting Standards and Urgent Issues Group Consensus Views and other authoritative pronouncements of the Australian Accounting Standards Board, and complies with other legal requirements. The financial report covers the consolidated entity CityView Corporation Limited ("CityView") and its controlled entities and CityView as an individual parent entity. CityView is a listed public company, incorporated and domiciled in Australia. The financial report has been prepared on an accrual basis and is based on historical cost and, except where stated, does not take into account changing money values or current valuations of non current assets. Cost is based on the consideration given in exchange for assets. Significant Accounting Policies Accounting policies are selected and applied in a manner which ensures that the resulting financial information satisfies the concepts of relevance and reliability, and that the substance of underlying transactions and other events is reported. The following significant accounting policies have been adopted in the preparation and presentation of the financial report: (a) Principles of Consolidation A controlled entity is an entity controlled by CityView. Control exists where CityView has the capacity to dominate the decision making in relation to the financial and operating policies of another entity so that the other entity operates with CityView to achieve the objectives of CityView. A list of controlled entities is contained in Note 19 to the financial statements. All inter company balances and transactions between entities in the consolidated entity, including any unrealised profits or losses, have been eliminated on consolidation. Where controlled entities have entered or left the consolidated entity during the year their operating results have been included from the date control was obtained or until the date control ceased. Outside interests in the equity and results of the entities that are controlled are shown as a separate item in the consolidated financial report. (b) Taxation The Company adopts the liability method of tax effect accounting under which the income tax expense shown in the statement of financial performance is calculated on profit/(loss) from ordinary activities adjusted for permanent differences. The tax effect of timing differences arising from items being brought to account in different periods for income and accounting purposes is carried forward in the balance sheet as a future tax benefit or a deferred tax liability. Future income tax benefits: (i) are not brought to account unless realisation of the asset is assured beyond reasonable doubt; and (ii) where they relate to tax losses are only brought to account when their realisation is virtually certain. (c) Foreign Currency Foreign currency transactions during the year are converted to Australian currency at the rates of exchange applicable at the dates of the transactions. Amounts receivable and payable in foreign currencies at balance date are converted at the rates of exchange ruling at that date. 44 NOTES TO AND FORMING PART OF THE FINANCIAL STATEMENTS FOR THE FINANCIAL YEAR ENDED 31 DECEMBER 2003 Statement of Significant Accounting Policies (cont) The gains and losses from conversion of short-term assets and liabilities, whether realised or unrealised are included in profit from ordinary activities as they arise. The assets and liabilities of the overseas controlled entities, which are self-sustaining, are translated at year-end rates and operating results are translated at the rates ruling at the end of each month. Gains and losses arising on translation are taken directly to the foreign currency translation reserve. (d) Acquisition, Exploration and Development Expenditure The consolidated entity has interests in contracts to develop and operate oil and gas fields in Indonesia. These contracts are under standard terms for foreign companies operating in those countries and the amounts for acquisition costs and exploration and development expenditure are recorded at cost. The contracts are subject to controls and regulations by the respective host country and to some extent may be affected by the political stability of that country. While the share of revenue from shareable oil and gas from the operations in Indonesia will be receivable by the consolidated entity in US dollars, the ultimate recoverability of the acquisition costs and exploration and development expenditure will be dependent on the future development and successful exploitation of the respective areas of interest or the ultimate sale of those areas. The directors are not able to determine what effect these factors, together with any fall in world oil and gas prices, may have on the future values of any expenditure carried forward. (e) Equipment Each class of equipment is carried at cost or fair value less, where applicable, any accumulated depreciation. The carrying amount of equipment is reviewed annually by directors to ensure it is not in excess of the recoverable amount from these assets. The recoverable amount is assessed on the basis of the expected net cash flows which will be received from the assets employment and subsequent disposal. The expected net cash flows have not been discounted to their present values in determining recoverable amounts. The cost of fixed assets constructed within the consolidated entity includes the cost of materials, direct labour, borrowing costs and an appropriate proportion of fixed and variable overheads. (f) Depreciation All equipment has been depreciated on a straight-line basis so as to write off the net cost of each asset over its expected useful life. The normal estimated useful life for equipment adopted for depreciation purposes is 3 years. (g) Investments Investments in controlled entities are recorded at cost and other investments are carried at cost or valuation determined by the directors. (h) Payables Trade payables and other accounts payable are recognised when the consolidated entity becomes obliged to make payments for the purchase of goods or services received. (i) Receivables Trade and other receivables are recorded at amounts due less provision for doubtful debts if recovery of the full amount due is no longer probable. (j) Recoverable Amount of Non-Current Assets Non-current assets are written down to the recoverable amount where the carrying value of a non-current asset exceeds the recoverable amount. In determining the recoverable amount expected net cash flows have not been discounted. 45 NOTES TO AND FORMING PART OF THE FINANCIAL STATEMENTS FOR THE FINANCIAL YEAR ENDED 31 DECEMBER 2003 (k) Employee Entitlements Provision is made for the company's liability for employee entitlements arising from services rendered by employees to balance date. Employee entitlements expected to be settled within one year together with entitlements arising from wages and salaries, annual leave and sick leave which will be settled after one year, have been measured at their nominal amount. Other employee entitlements payable later than one year have been measured at the present value of the estimated future cash outflows to be made for those entitlements. Contributions are made by the consolidated entity to employee superannuation funds and are charged as expenses when incurred. The Company does not record as an asset or a liability, the difference between the employer established defined benefit superannuation plan's accrued benefits and the net market value of the plans assets. The Company operates an Employee Share Plan, no shares or options were outstanding as at the 31 December 2003 under the plan.
Consolidated Entity Parent Entity 31-Dec-03 31-Dec-02 31-Dec-03 31-Dec-02 -------------------------- ------------------------ Number of employees at year end 1 1 1 1
The Company also uses the services of several consultants and contractors on an as needs basis. (l) Cash For the purpose of the statement of cash flows, cash includes: - Cash on hand and at call deposits with banks or financial institutions, net of bank overdrafts; and - Investments in money market instruments with less than 14 days to maturity. (m) Revenue Interest revenue is recognised on a proportional basis taking into account the interest rates applicable to the financial assets. Dividend revenue is recognised when the right to receive a dividend has been established. Dividends received from associates and joint venture entities are accounted for in accordance with the equity method of accounting. (n) Comparative Figures Where required by Accounting Standards comparative figures have been adjusted to conform with changes in presentation for the current financial year. (o) Going Concern The financial statements have been prepared adopting the going concern convention, which assumes continuity of normal business activities and the realisation of assets and the settlement of liabilities in the ordinary course of business. 46 NOTES TO AND FORMING PART OF THE FINANCIAL STATEMENTS FOR THE FINANCIAL YEAR ENDED 31 DECEMBER 2003
Consolidated Entity Parent Entity 31-Dec-03 31-Dec-02 31 Dec 01 31-Dec-03 31-Dec-02 $ $ $ $ $ 2. Revenue Revenue - Investing activities Proceeds from sale of shares in listed corporations - 335,467 - - 335,467 Revenue - from Outside Operating activities Interest received on loan to Sands Solutions - 192,166 216,522 - 192,166 Interest received - other parties 24,629 67,374 12,565 24,629 67,374 ------------- -------------- -------------- ---------------- --------------- Total Revenue 24,629 595,007 229,087 24,629 595,007 ------------- -------------- -------------- ---------------- --------------- 3. Loss from ordinary activities Loss from ordinary activities before income tax has been determined after: Expenses General and administrative expenses 467,831 457,678 - 467,831 457,678 Depreciation 6,995 7,050 5,226 6,995 7,050 Marketing services - 33,487 1,579,107 - 33,487 Consultants/Legal Services 625,806 607,251 - 625,806 607,251 Investment Loss - 408,811 714,410 - 257,234 Provision for doubtful debts - 3,000,000 - - 8,384,170 Provision for write-down of investments - 5,384,170 - - - ------------- -------------- -------------- ---------------- --------------- Total expenses 1,100,632 9,898,447 4,394,374 1,100,632 9,746,871 ------------- -------------- -------------- ---------------- --------------- Net Income (Loss) (1,076,003) (9,303,440) (4,165,287) (1,076,003) (9,151,864) ------------- -------------- -------------- ---------------- --------------- 4. Income Tax (a) The prima facie income tax benefit on loss from ordinary activities before income tax reconciles to the income tax benefit in the financial statements as follows: Loss from ordinary activities before income Tax (1,076,003) (9,303,440) (4,165,287) (1,076,003) (9,151,863) ------------- -------------- -------------- ---------------- --------------- Income tax expenses/(benefit) calculated at 30% of loss from ordinary activities before income tax for year ended December 31 2003 (322,801) (2,791,032) (1,249,586) (322,801) (2,745,559) Permanent differences 49,959 68,794 974,333 49,959 23,321 Timing differences and tax losses not brought to account as future income tax benefits 2,966 2,520,648 275,253 2,966 2,520,648 Current Year Tax loss not recognised 269,876 201,590 - 269,876 201,590 ------------- -------------- -------------- ---------------- --------------- Income tax expense - - - - - ------------- -------------- -------------- ---------------- --------------- (b) Future income tax benefits not brought to account as assets 3,896,798 3,626,922 3,425,331 3,896,798 3,626,922 3,896,798 3,626,922 3,425,331 3,896,798 3,626,922 ------------- -------------- -------------- ---------------- ---------------
The taxation benefits of tax losses and timing differences not brought to account will only be obtained if: i) assessable income is derived of a nature and of an amount sufficient to enable the benefit from the deductions to be realised; ii) conditions for deductibility imposed by the law are complied with; and iii) no changes in tax legislation adversely affect the realisation of the benefit from the deductions. 47 NOTES TO AND FORMING PART OF THE FINANCIAL STATEMENTS FOR THE FINANCIAL YEAR ENDED 31 DECEMBER 2003 CityView Corporation Limited and its wholly owned Australian subsidiaries have decided to implement the tax consolidation legislation as of 1 January 2004. The Australian Taxation Office has not yet been notified of this decision. The entities also intend to enter into a tax sharing agreement but details of this agreement are yet to be finalised. The financial effect of the implementation of the legislation has not been recognised in the financial statements for the year ended 31 December 2003. 5. Directors' Remuneration The directors of the Company who held office during the Financial year ended 31 December 2003 were: Y M Jumabhoy (Resigned 5 March 2004) A I Saddique B Y Ee R M Goh Md N Ramli Thinagaran J F Arbouw
Consolidated Entity Parent Entity 31-Dec-03 31-Dec 02 31 Dec 01 31-Dec-03 31-Dec-02 31 Dec 01 $ $ $ $ $ $ The aggregate of income paid or payable, or otherwise made available, in respect of the financial year, to all directors of the Company, directly or indirectly, by the 61,589 259,004 564,023 Company or by any related party. The aggregate of income paid or payable, or otherwise made available, in respect of the financial year, to all directors of each entity in the consolidated entity, directly or indirectly, by the entities in which they 61,589 259,004 564,023 are directors or by any related party. The number of directors of the Company whose total income falls within each successive $10,000 band of income: Consolidated Entity Parent Entity 31-Dec-03 31-Dec 02 31 Dec 01 31-Dec-03 31-Dec-02 31 Dec 01 Number Number Number Number Nil 6 7 1 6 7 1 $20,000 - $29,999 - - 1 1 $30,000 - $39,999 - - 1 1 $50,000 - $ 59,999 - 1 - - 1 - $60,000 - $ 69,999 1 - - 1 - - $70,000 - $ 79,999 - 1 - - 1 - $100,000 - $109,999 - - 1 1 $120,000 - $129,999 - 1 1 - 1 1 $250,000 - $259,999 - - 1 1
All of the executives of the Company were also its directors during the financial year. 48 NOTES TO AND FORMING PART OF THE FINANCIAL STATEMENTS FOR THE FINANCIAL YEAR ENDED 31 DECEMBER 2003 6. Employee Share Plan There are no shares or options outstanding at 31 December 2003 under the Employee Share Plan.
Consolidated Entity Parent Entity 31-Dec-03 31-Dec-02 31-Dec-03 31-Dec-02 $ $ $ $ 7. Remuneration of Auditors Amounts received, or due and receivable from the Company and any related organisation for: Auditing the financial statements 85,607 88,019 85,607 88,019 Other services 13,365 17,540 13,365 17,540 --------------------------- -------------------------- 98,972 105,559 98,972 105,559 --------------------------- -------------------------- 8. Cash Cash on hand 500 500 500 500 Cash at bank 658,443 1,499,008 658,435 1,499,000 --------------------------- -------------------------- 658,943 1,499,508 658,935 1,499,500 --------------------------- -------------------------- 9. Current Receivables Other debtors - 17,26 - 17,260 Deposits 6,352 6,352 6,352 6,352 --------------------------- -------------------------- 6,352 23,612 6,352 23,612 --------------------------- -------------------------- 10. Non Current Receivables Loans to controlled entities - at cost - - 5,384,170 5,384,170 Provision for doubtful debt - at cost - - (5,384,170) (5,384,170) Loan to Sands Solutions - at cost 3,000,000 3,000,000 3,000,000 3,000,000 Provision for doubtful debt - at cost (3,000,000) (3,000,000) (3,000,000) (3,000,000) Loans to Medco Madura Pty Ltd and Medco Simenggaris Pty Ltd - at cost 7,952,187 7,952,187 7,952,187 7,952,187 --------------------------- -------------------------- 7,952,187 7,952,187 7,952,187 7,952,187 --------------------------- --------------------------
The loans to Medco Madura Pty Ltd and Medco Simenggaris Pty Ltd represent moneys owing to the Company for work previously carried out on the Madura and Simenggaris blocks in Indonesia and paid for by the Company. The ultimate recoverability of these loans is dependent upon the successful exploitation of the Madura and Simenggaris blocks by those companies. Upon stringent review of the Company's assets, the Board of Directors made the decision to raise a provision for doubtful debt of the following assets: Block SC41 Philippines $4,620,000.00 ASAB Oil Limited $ 764,170.00 Both assets are held in the Company's 100% owned subsidiary CityView Asia Pty Ltd and are represented in the Parent Entity above as a loan to Controlled Entities. Sands Solutions Group Pty Ltd $3,000,000.00 A provision for doubtful debt has been raised against the loan to Sands Solutions Group Pty Ltd, due to the fact that Sands Solutions appointed a Administrator on 25 November 2002. Consequently on 5 December 2002, The Board of CityView, in order to protect the Company's rights obtained an order from the Supreme Court of Western Australia appointing Mervyn Kitay of Grant Thornton as receiver and manager of Sands Solutions. 49 NOTES TO AND FORMING PART OF THE FINANCIAL STATEMENTS FOR THE FINANCIAL YEAR ENDED 31 DECEMBER 2003
Consolidated Entity Parent Entity 31-Dec-03 31-Dec-02 31-Dec-03 31-Dec-02 $ $ $ $ 11. Non-Current Investments In controlled entities - at cost CityView Asia Pty Ltd - - 10 10 --------------------------------- -------------------------------- Total Non-Current Investments - - 10 10 --------------------------------- -------------------------------- 12. Equipment Equipment at cost 29,113 22,367 29,113 22,367 Less accumulated depreciation (21,455) (14,460) (21,455) (14,460) --------------------------------- -------------------------------- 7,658 7,907 7,658 7,907 --------------------------------- -------------------------------- Balance at the beginning of year 7,907 10,177 7,907 10,177 Additions 6,746 4,780 6,746 4,780 Depreciation expense (6,995) (7,050) (6,995) (7,050) --------------------------------- -------------------------------- Carrying amount at year end 7,658 7,907 7,658 7,907 --------------------------------- -------------------------------- 13. Acquisition, Exploration and Development Acquisition costs and exploration and development expenditure carried forward in respect of areas of interest - at cost 5,384,172 5,384,172 - - Provision for write-down of investments (5,384,170) (5,384,170) - - --------------------------------- -------------------------------- 2 2 - - --------------------------------- -------------------------------- As mentioned in Note 10, the Board of Directors have raised a provision for write-down of investments totalling $5,384,170.00 comprising of two assets - Block SC41 Philippines $4,620,000.00 and its interest in ASAB Oil $764,170.00 14. Current Payables Unsecured: Trade creditors 239,867 13,697 239,867 13,697 Accrued expenses 60,937 70,718 60,937 70,718 --------------------------------- -------------------------------- 300,804 84,415 300,804 84,415 --------------------------------- -------------------------------- 15. Non Current Payables Long Service Leave 14,400 12,860 14,400 12,860 --------------------------------- -------------------------------- 14,400 12,860 14,400 12,860 --------------------------------- --------------------------------
50 NOTES TO AND FORMING PART OF THE FINANCIAL STATEMENTS FOR THE FINANCIAL YEAR ENDED 31 DECEMBER 2003 16. Equity (a) Contributed equity There were no shares issued by the company during the year ended 31 December 2003. Ordinary fully paid shares at 31 December 2002 70,161,616 57,235,996 ---------- ---------- Ordinary fully paid shares at 31 December 2003 70,161,616 57,235,996 Ordinary shares participate in dividends and the proceeds on winding up of the parent entity in proportion to the number of shares held. At shareholders' meetings each ordinary shareholder is entitled to one vote when a poll is called otherwise each shareholder has one vote on a show of hands. (b) Options: As at 31 December 2003 there were no options on issue. (c) Dividends: The Directors declared no dividend during the reporting period. (d) Franking credits The Company retains no franking credits for the year ended 31 December 2003 and the year ended 31 December 2002. (e) Accumulated losses
Consolidated Entity Parent Entity 31-Dec-03 31-Dec-02 31-Dec-03 31-Dec-02 $ $ $ $ Accumulated losses at the beginning of the financial year 47,850,055 38,546,615 47,850,055 38,698,191 Net loss attributable to the members of the parent entity 1,076,003 9,303,440 1,076,003 9,151,864 --------------------------------- --------------------------------- Accumulated losses at the end of this financial year 48,926,058 47,850,055 48,926,058 47,850,055 --------------------------------- --------------------------------- 17. Earnings per share 31-Dec-03 31-Dec-02 31-Dec-01 Basic loss per share (cents per share) (1.53c) (13.67c) (0.08c) The weighted average number of ordinary shares on issue used in the calculation of basic earnings per 70,161,616 68,044,904 51,579,570 Diluted earnings per share are not disclosed, as they are not diluted.
51 NOTES TO AND FORMING PART OF THE FINANCIAL STATEMENTS FOR THE FINANCIAL YEAR ENDED 31 DECEMBER 2003 o 18. Financial Reporting by Segments (a) Primary Segments
Investments Exploration Consolidated 31 Dec 03 31 Dec 02 31 Dec 03 31 Dec 02 31 Dec 03 31 Dec 02 $ $ $ $ $ $ Revenue outside the consolidated entity 24,629 595,007 - - 24,629 595,007 ------------- ------------------ ---------------- ---------------- --- -------------- -------------- Segment profit/(loss) after income tax (896,949) (9,303,440) (179,054) - (1,076,003) (9,303,440) ------------- ------------------ ---------------- ---------------- --- -------------- -------------- Segment assets 14,010 31,519 8,611,132 9,451,697 8,625,142 9,483,216 Segment Liability 315,204 97,275 - - 315,204 97,275 Depreciation/amortisation (6,995) (7,050) - (6,995) (7,050) The major products and services covered by those segments are: Investments from general financing and corporate activities Exploration of oil and gas interests (b) Secondary Segments Indonesia Australia 31 Dec 03 31 Dec 02 31 Dec 03 31 Dec 02 $ $ $ $ Revenue outside the consolidated entity - - 24,629 595,007 Segment profit/ (loss) after income tax (179,054) - (896,949) (9,151,864) Segment Assets 7,952,187 7,952,187 672,955 1,531,029 Segment Liability - - 315,204 97,275 Depreciation/amortisation - - (6,995) - United Kingdom Consolidated 31 Dec 03 31 Dec 02 31 Dec 03 31 Dec 02 $ $ $ $ Revenue outside the consolidated entity - - 24,629 595,007 Segment profit/ (loss) after income tax - (151,576) (1,076,003) (9,303,440) Segment Assets - - 8,625,142 9,483,216 Segment Liability - - 315,204 97,275 Depreciation/amortisation - - (6,995) - The pricing of intersegmental transactions is the same as prices charged on transactions with parties outside the economic entity. 19. Particulars Relating to All Entities Country of Type of Principal Ownership interest Incorporation Shares Held Activity Parent entity 2003 2002 ---- ---- CityView Corporation Limited Australia Ordinary Investment 100% 100% Controlled entities CityView Asia Pty Ltd Australia Ordinary Exploration 100% 100% Other Medco Madura Pty Ltd Australia Ordinary Exploration 25% 25% Medco Simenggaris Pty Ltd Australia Ordinary Exploration 25% 25%
The accounts of Medco Madura Pty Ltd and Medco Simenggaris Pty Ltd are not included in the consolidated accounts according to the equity method of accounting for investments because the Company does not exercise a significant influence over those companies. The loans to Medco Madura Pty Ltd and Medco Simenggaris Pty Ltd are classified as non-current receivables in the balance sheet (refer to Note 10). 52 NOTES TO AND FORMING PART OF THE FINANCIAL STATEMENTS FOR THE FINANCIAL YEAR ENDED 31 DECEMBER 2003
Consolidated Entity Parent Entity 31-Dec-03 31-Dec-02 31 Dec 01 31-Dec-03 31-Dec 02 20. Notes to Statement of Cash Flow $ $ $ $ $ (a) Reconciliation of cash Cash at the end of the financial year as shown in the statement of cash flows is reconciled to the related items in the balance sheet as follows: Borrowings - - - - - Cash 658,943 1,499,508 101,883 658,935 1,499,500 ----------------------------------------------------------------------------------- 658,943 1,499,508 101,883 658,935 1,499,500 ----------------------------------------------------------------------------------- (b) Business disposed of - - - - - (c) Reconciliation of loss from ordinary activities after tax to net cash provided by/(used by) operating activities Loss from ordinary activities (1,076,003) (9,303,440) 4,165,287 (1,076,003) (9,151,864) Less non cash operating items: Depreciation 6,995 7,050 5,226 6,995 7,050 Issue of shares in lieu of payment to suppliers and employees - - 762,743 - - Write-downs to recoverable amount of investment - 5,043,923 701,300 - 681,156 Change in assets and liabilities net of the effect of purchase and disposal of controlled entities: (Increase)/decrease in receivables 17,260 3,149,875 (920,025) 17,260 7,614,224 (Decrease)/increase in payables 217,929 (11,080) (262,796) 217,929 38,439 ----------------------------------------------------------------------------------- Net cash provided/(used) by operating activities (833,819) (1,113,672) (3,878 ,839) (833,819) (810,995) -----------------------------------------------------------------------------------
(d) For the purpose of the statement of cash flows, cash includes cash on hand and in banks and investments in money market instruments, net of outstanding bank overdrafts 21. Related Party Disclosures Transactions between related parties are on normal commercial terms and conditions are no more favourable than those available to other parties unless otherwise stated. (a) Directors The following persons held the position of director of the Company during the financial year ended 31 December 2003: Y M Jumabhoy B Y Ee A I Saddique Md N Ramli R Goh J F Arbouw Thinagaran The remuneration of directors is disclosed in Note 5 to the financial statements. (b) Interests of directors As at 31 December 2003 the directors of the Company and their related entities hold a relevant interest in the following shares and options in the Company: 31 December 03 31 December 02 Shares 16,030,425 14,790,942 Options Nil Nil 53 NOTES TO AND FORMING PART OF THE FINANCIAL STATEMENTS FOR THE FINANCIAL YEAR ENDED 31 DECEMBER 2003 (c) Transactions with directors and related entities (i) Mr Y M Jumabhoy is the proprietor of YMJ Consultancy. The Company entered into a contract with YMJ Consultancy dated 1 June 2002 for the provision of services relating to the Company's major shareholders based in Singapore and Malaysia and overseeing the Company's general operations in South East Asia. This contract was terminated by mutual agreement in November 2003. (d) Interests in director-related entities Apart from the disclosures in this note, no director has entered into a material contract with the Company since the end of the financial year and there were no material contracts involving interests of directors or payment upon termination subsisting at the end of the financial year. (e) Equity interests in controlled entities As disclosed in Note 19 the Company has the entire ownership of CityView Asia Pty Ltd., which is its only controlled entity. (f) Transactions within the group The parent in the consolidated entity is CityView Corporation Limited. As included in Note 10, CityView Corporation Limited has raised a provision for doubtful debt of the Company's interest free operating loan to CityView Asia Pty Ltd. In addition, Medco Simenggaris Pty Ltd and Medco Madura Pty Ltd owe the Company $3,408,082 and $4,544,105 respectively, although these companies are not part of the consolidated entity (refer to Note 19). 22. Commitments for Expenditure The cost of any work to the Madura and Simenggaris blocks will be met by the Company in proportion to its equity interests. There are no other commitments for expenditure. 23. Subsequent Events On 5 March 2004, the Board accepted the resignation of Mr Jumabhoy, who, for personal reasons resigned as Director/Chairman of the Company. There are no other subsequent events. 24. Financial Instruments (a) Significant Accounting Policies Details of the significant accounting policies and methods adopted, including the criteria for recognition, the basis of measurement and the basis on which revenues and expenses are recognised, in respect of each class of financial asset, financial liability and equity instrument are outlined in Note 1 to the financial statements. (b) The consolidated entity's exposure to interest rate risk which is the risk that a financial instrument's value will fluctuate as a result of changes in market interest rates and the effective weighted average interest rates on classes of financial assets and financial liabilities is as follows:
----------------------------------------------------- ---------------------------------------- -------------------------------- FIXED INTEREST ----------------------------------------------------- ---------------------------------------- -------------------------------- Average Variable Less than 1 to 5 More than Non-Interest Total Interest Interest 1 Year Years 5 years Bearing 2003 rate % $ $ $ $ $ $ --------------------------- ------------- ----------- ------------- ------------- ------------ ---------------- --------------- Financial Assets --------------------------- ------------- ----------- ------------- ------------- ------------ ---------------- --------------- Cash 5.06% - 658,943 - - - 658,943 --------------------------- ------------- ----------- ------------- ------------- ------------ ---------------- --------------- Receivables - - - - - 6,352 6,352 --------------------------- ------------- ----------- ------------- ------------- ------------ ---------------- --------------- Financial Liabilities --------------------------- ------------- ----------- ------------- ------------- ------------ ---------------- --------------- Payables - - - - - 315,204 315,204 --------------------------- ------------- ----------- ------------- ------------- ------------ ---------------- --------------- ----------------------------------------------------- ---------------------------------------- -------------------------------- 54 FIXED INTEREST ----------------------------------------------------- ---------------------------------------- -------------------------------- Average Variable Less than 1 to 5 Years More than Non-Interest Total Interest Interest 1 Year $ 5 years Bearing 2002 rate % $ $ $ $ $ --------------------------- ------------- ----------- ------------- ------------- ------------ ---------------- --------------- Financial Assets --------------------------- ------------- ----------- ------------- ------------- ------------ ---------------- --------------- Cash 4.69% - 1,499,508 - - - 1,499,508 --------------------------- ------------- ----------- ------------- ------------- ------------ ---------------- --------------- Receivables - - - - - 23,612 23,612 --------------------------- ------------- ----------- ------------- ------------- ------------ ---------------- --------------- --------------------------- ------------- ----------- ------------- ------------- ------------ ---------------- --------------- Financial Liabilities --------------------------- ------------- ----------- ------------- ------------- ------------ ---------------- --------------- Payables - - - - - 97,275 97,275 --------------------------- ------------- ----------- ------------- ------------- ------------ ---------------- ---------------
(c) Credit Risk The Company has adopted a policy of only dealing with credit worthy parties and, where appropriate, obtaining sufficient collateral or security as a means of mitigating the risk of financial loss through defaults in contractual obligations. Except as disclosed in Note 10 the Company does not have any significant credit risk exposure to a single debtor or group of debtors having similar characteristics. The carrying amount of financial assets recorded in the financial statements, without provision for losses, represents the maximum exposure of the consolidated entity to credit risk without taking into account the value of any collateral or other security. The credit risk exposure of the consolidated entity would also include the difference between the carrying amount and the realisable amount. (d) Currency hedging The consolidated entity has not entered into forward foreign exchange contracts to hedge the exchange rate risk arising from transactions in foreign currencies. (e) Net Fair Value The carrying amount of assets and liabilities recorded in the financial statements represents their respective net fair values determined in accordance with the accounting policies referred to in Note 1. 25. UNITED STATES GENERALLY ACCEPTED ACCOUNTING PRINCIPLES RECONCILIATION ("US GAAP") The following is a summary of all material differences between Australian and United States generally accepted accounting principles. (a) Marketable Securities Investments (or Marketable Securities) are valued at the lower of cost and recoverable amount (often equated to market value). Any such write-down is adjusted through the profit and loss account. For US GAAP purposes, securities are separated into portfolios of "Trading", "Available for Sale" and "Held to Maturity". The amounts recorded as current investments represent these which would be classified as "Available for Sale" under US GAAP. Available for Sale are accounted for at market value, with movement adjusted through shareholders' equity. An "other than temporary" decline in the market value of investments has been recognized as impairments and recorded in the profit and loss account. Realized profits and losses are reversed and adjusted to the profit and loss account. (b) Capitalized Exploration Expenditure Exploration expenditure incurred by CityView, directly or through it's joint venture interest, are capitalized as incurred to the extent the expenditure is expected to be recouped through the sale of successful development of the area, or where the activities have not yet reached a stage that permits reasonable assessment of the existence of economically recoverable reserves. US GAAP requirements indicate that these costs are generally written-off as incurred, or until economically recoverable reserves are identified. (c) Income tax There are no major differences between accounting for income tax under Australian and US GAAP. However, where adjustments for other reconciling items result in a permanent difference, appropriate adjustment has been made. (d) SFAS 144: Accounting for Impairment of Long-Lived Assets and for Long-Lived Assets to be disposed of 55 This pronouncement is similar to an Australian Corporations Law requirement that requires directors to review the carrying value of all non-current assets annually, determine if they are being recorded at greater than their recoverable amount, and if so, write-down the value of the asset to its recoverable amount of disclose information to prevent the accounts from being misleading. (e) Principles of Consolidation As indicated in Note 1(l) to the financial statements, Australian GAAP requires consolidation of controlled entities. In accordance with Australian GAAP, control exists where an entity has the "capacity to dominate decision making in relation to the financial and operating policies of another entity..." US GAAP, however, requires than an entity must control another entity usually as indicated by its ownership interests. As the ownership interest in the Company's subsidiaries is greater then 50% in all cases (representing ownership and actual control), no reconciling Australian/US GAAP adjustments are required. (f) The company's accounting policy in respect of amortization of carried forward exploration expenditure is calculated based on the economically recoverable proven reserves of the company. US GAAP requires the amortization to be based on the proven and probable reserves of the company. As significant production has not commenced CityView has not applied this accounting policy in the financial statements for the financial periods ended 31 December 1999, 31 December 2000, 31 December 2001, 31 December 2002 and 31 December 2003 and therefore no reconciliation adjustment is required. (e) Principles of Consolidation As indicated in Note 1(l) to the financial statements, Australian GAAP requires consolidation of controlled entities. In accordance with Australian GAAP, control exists where an entity has the "capacity to dominate decision making in relation to the financial and operating policies of another entity..." US GAAP, however, requires than an entity must control another entity usually as indicated by its ownership interests. As the ownership interest in the Company's subsidiaries is greater then 50% in all cases (representing ownership and actual control), no reconciling Australian/US GAAP adjustments are required. (f) The company's accounting policy in respect of amortization of carried forward exploration expenditure is calculated based on the economically recoverable proven reserves of the company. US GAAP requires the amortization to be based on the proven and probable reserves of the company. As significant production has not commenced CityView has not applied this accounting policy in the financial statements for the financial periods ended 31 December 2001, 31 December 20020 and 31 December 2003 and therefore no reconciliation adjustment is required. (g) New Accounting Standards The effect of the application of the following recent pronouncements is considered below. Their application will not have a material effect on the Australian/US GAAP reconciliations detailed in this note. SFAS 146 Accounting for Costs Associated with Exit or Disposal Activities This statement requires companies to recognize costs associated with exit or disposal activities, other than SFAS 143 costs, when they are incurred rather than at the date of a commitment to an exit or disposal plan. Examples of these costs are lease termination costs, employee severance costs associated with restructuring, discontinued operation, plant closing or other exit or disposal activity. This statement is effective after 15 December 2002. SFAS 147 Acquisitions of Certain Financial Institutions - an amendment of FASB Statement No. 72 and 144 and FASB Interpretation No. 9. This statement makes the acquisition of financial institutions come under the statements 141 and 142 instead of statement 72, 144 and FASB Interpretation No. 9. This statement is applicable for acquisition on or after 1 October 2002. SFAS 148 Accounting for Stock-Based Compensation - Transition and Disclosure Amends FASB 123 to provide alternative methods of transition for an entity that voluntarily changes to the fair value based method of accounting for stock-based employee compensation. SFAS 149 Amendment of Statement 133 on Derivative Instruments and Hedging Activities 56 This Statement amends and clarifies financial accounting and reporting for derivative instruments, including certain derivative instruments embedded in other contracts (collectively referred to as derivatives) and for hedging activities under FASB Statement No. 133, Accounting for Derivative Instruments and Hedging Activities. SFAS 150 Financial Instruments with Characteristics of both Liabilities and Equity This statement requires that such instruments be classified as liabilities in the balance sheet. SFAS 150 is effective for financial instruments entered into or modified after 31 May 2003. Interpretation No. 46 (FIN 46) Effective 31 January 2003, The Financial Accounting Standards Board requires certain variable interest entities to be consolidated by the primary beneficiary of the entity if the equity investors in the entity do not have the characteristics of an continuing financial interest or do not have sufficient equity at risk for the entity to finance its activities without additional subordinated financial support from other parties. The Company has not invested in any such entities and does not expect to do so in the foreseeable future. The adoption of these new Statements is not expected to have a material effect on the Company's current financial position, results or operations or cash flows. In December 2002, the FASB issued SFAS No. 148, "Accounting for Stock-Based Compensation -- Transition and Disclosure -- an Amendment of FASB Statement No. 123." SFAS No. 148 provides alternative methods of transition for a voluntary change to the fair value based method of accounting for stock-based employee compensation. The Company does not currently intend to adopt the fair value based method of measuring compensation associated with stock awards and grants. As a consequence of continuing to utilize the intrinsic value method of measuring such compensation, the Company will be required to provide additional disclosures in its quarterly financial statements which will reflect the impact on net income and earnings per share on a pro forma basis as if the Company had applied the fair value method to stock-based employee compensation. (h) Employee Stock Purchase Plan The Company has one stock-based compensation plan. The Company applies Australian GAAP and related interpretations in accounting for its plans. Accordingly, no compensation cost has been recognized for its stock option plan. Under US GAAP under FASB 123, Accounting for Stock Based Compensation, disclosure is required of compensation expense that would have been recognized on FASB 123. For the years ended 31 December 1002, 2002 and 2003 no stock based compensation has been made. Reconciliation Adjustments The following reconciliations show the effect on net profit/loss for the financial periods ended December 31, 2002, 2002 and 2001 using the US GAAP basis of accounting for the matters outlined in items (a) to (h) above.
31 Dec 03 31 Dec 02 31 Dec 01 Reconciliation Adjustments US$ A$ A$ A$ ----------------------------------------------------------------------------------------------------------------------------- Net income (loss) after Tax in accordance with Australian GAAP (702,092) (1,076,003) (9,303,440)) (4,165,287) Reconciliation Adjustments Exploration expenditure written-off as incurred (381,784) (509,357) 4,620,002* - ----------------------------------------------------------------------------------------------------------------------------- Net income (loss) after tax in accordance with US GAAP (1,083,876) (1,585,390) (4,683,438) (4,165,287) -------------- -------------- ----------------------- -- --------------------- * Previously already written off for US GAAP purposes. Earnings (loss) per share after tax in accordance (.015) (.026) (.07) (.08) With US GAAP (in cents) 57 31 Dec 03 31 Dec 02 31 Dec 01 Reconciliation Adjustments US$ A$ A$ A$ ----------------------------------------------------------------------------------------------------------------------------- Shareholder's equity attributable to member of the chief entity in accordance with Australian GAAP 6,228,298 8,309,938 9,385,941 15,749,381 Reconciliation Adjustments Exploration expenditure written-off as incurred (5,960,163) (7,952,187) (7,442,800) (12,062,802) ----------------------------------------------------------------------------------------------------------------------------- Total shareholder's equity in accordance with US GAAP 268,135 357,751 1,943,141 3,686,579 -----------------------------------------------------------------------------------------------------------------------------
================ ITEM 18. FINANCIAL STATEMENTS Not applicable. Consolidated financial statements are provided under Item 17. ITEM 19. EXHIBITS None 58 SIGNATURES The Registrant hereby certifies that it meets all of the requirements for filing on Form 20-F and that it has duly caused and authorized the undersigned to sign this annual report on its behalf. CITYVIEW CORPORATION LIMITED THINAGARAN Director Dated: June 25, 2004 59 CERTIFICATIONS I, Ee Beng Yew, the Chief Executive Officer certify that: 1. I have reviewed this annual report on Form 20-F of CityView Corporation Limited; 2. Based on my knowledge, this annual report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this annual report; 3. Based on my knowledge, the financial statements, and other financial information included in this annual report, fairly present in all material respects the financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this annual report; 4. The registrant's other certifying officers and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-14 and 15d-14) for the registrant and have: a. designed such disclosure controls and procedures to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this annual report is being prepared; b. evaluated the effectiveness of the registrant's disclosure controls and procedures as at the end of the period prior to the filing date of this annual report (the "Evaluation Date"); and c. presented in this annual report our conclusions about the effectiveness of the disclosure controls and procedures based on our evaluation as of the Evaluation Date; 5. The registrant's other certifying officers and I have disclosed, based on our most recent evaluation, to the registrant's auditors and the audit committee of registrant's board of directors (or persons performing the equivalent function): a. all significant deficiencies in the design or operation of internal controls which could adversely affect the registrant's ability to record, process, summarize and report financial data and have identified for the registrant's auditors any material weaknesses in internal controls; and b. any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant's internal controls; and 6. The registrant's other certifying officers and I have indicated in this annual report whether or not there were significant changes in internal controls or in other factors that could significantly affect internal controls subsequent to the date of our most recent evaluation, including any corrective actions with regard to significant deficiencies and material weaknesses. Date: June 25, 2004 By:___________________________________________ Ee Beng Yew Chief Executive Officer * Provide a separate certification for each principal executive officer and principal financial officer of the registrant. See Rules 13a-14 and 15d-14. The required certification must be in the exact form set forth above. 60 CERTIFICATIONS I, Ee Beng Yew, the Chief Financial Officer certify that: 1. I have reviewed this annual report on Form 20-F of CityView Corporation Limited; 2. Based on my knowledge, this annual report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this annual report; 3. Based on my knowledge, the financial statements, and other financial information included in this annual report, fairly present in all material respects the financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this annual report; 4. The registrant's other certifying officers and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-14 and 15d-14) for the registrant and have: d. designed such disclosure controls and procedures to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this annual report is being prepared; e. evaluated the effectiveness of the registrant's disclosure controls and procedures as at the end of the period prior to the filing date of this annual report (the "Evaluation Date"); and f. presented in this annual report our conclusions about the effectiveness of the disclosure controls and procedures based on our evaluation as of the Evaluation Date; 5. The registrant's other certifying officers and I have disclosed, based on our most recent evaluation, to the registrant's auditors and the audit committee of registrant's board of directors (or persons performing the equivalent function): c. all significant deficiencies in the design or operation of internal controls which could adversely affect the registrant's ability to record, process, summarize and report financial data and have identified for the registrant's auditors any material weaknesses in internal controls; and d. any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant's internal controls; and 6. The registrant's other certifying officers and I have indicated in this annual report whether or not there were significant changes in internal controls or in other factors that could significantly affect internal controls subsequent to the date of our most recent evaluation, including any corrective actions with regard to significant deficiencies and material weaknesses. Date: June 25, 2004 By:___________________________________________ Ee Beng Yew Chief Financial Officer 61 Exhibit 99.1 CERTIFICATION PURSUANT TO 18 U.S.C. SECTION 1350, AS ADOPTED PURSUANT TO SECTION 906 OF THE SARBANES-OXLEY ACT OF 2002 In connection with the Annual Report of CityView Corporation Limited (the "Company") on Form 20-F for the fiscal year ended December 31, 2003 as filed with the Securities and Exchange Commission on the date hereof (the "Report"), I,Ee Beng Yew, Chief Financial Officer of the Company, certify, pursuant to 18 U.S.C. ss.1350, as adopted pursuant to ss.906 of the Sarbanes-Oxley Act of 2002, that: (1) The Report fully complies with the requirements of Section 13(a) or 15(d) of the Securities Exchange Act of 1934; and (2) The information contained in the Report fairly presents, in all material respects, the financial condition and result of operations of the Company. Ee Beng Yew June 25, 2004 62 Exhibit 99.2 CERTIFICATION PURSUANT TO 18 U.S.C. SECTION 1350, AS ADOPTED PURSUANT TO SECTION 906 OF THE SARBANES-OXLEY ACT OF 2002 In connection with the Annual Report of CityView Corporation Limited (the "Company") on Form 20-F for the fiscal year ended December 31, 2003 as filed with the Securities and Exchange Commission on the date hereof (the "Report"), I, Ee Beng Yew, Chief Executive Officer of the Company, certify, pursuant to 18 U.S.C. ss.1350, as adopted pursuant to ss.906 of the Sarbanes-Oxley Act of 2002, that: (1) The Report fully complies with the requirements of Section 13(a) or 15(d) of the Securities Exchange Act of 1934; and (2) The information contained in the Report fairly presents, in all material respects, the financial condition and result of operations of the Company. Ee Beng Yew June 25, 2004 63