UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-QSB/A - QUARTERLY OR TRANSITIONAL REPORT
AMENDMENT NO. 1
(Mark One)
[ X ] QUARTERLY REPORT UNDER SECTION 13 OR 15(D) OF THE
SECURITIES EXCHANGE ACT OF 1934
For the quarterly period ended June 30, 1995
[ ] TRANSITION REPORT UNDER SECTION 13 OR 15(D) OF THE
EXCHANGE ACT
For the transition period from ______ to ______
Commission file number 0-6540
Oceanic Exploration Company
-----------------------------------------------------------------
(Exact name of small business issuer as specified in its charter)
Delaware 84-0591071
----------------- -----------------
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
5000 South Quebec Street, Suite 450, Denver, CO 80237
------------------------------------------------------
(Address of principal executive offices)
(303) 220-8330
------------------------------------------------------
(Issuer's Telephone number)
------------------------------------------------------
(Former name, former address and former fiscal year,
if changed since last report)
Indicate by Check whether the Issuer (1) filed all reports required to be
filed by Section 13 or 15(d) of the Exchange Act during the past 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
Shares outstanding at Common $.0625 Par Value
August 10, 1995
3,915,154
PART I - FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS
OCEANIC EXPLORATION COMPANY AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
ASSETS
June 30, March 31,
1995 1995
------------ ------------
Cash $ 190,174 154,628
Receivables:
Affiliates 3,439 2,237
Other - 9,633
------------ -----------
3,439 11,870
Prepaid expenses 982 4,347
Restricted cash - 15,629
------------ -----------
Total current assets 194,595 186,474
------------ -----------
Oil and gas property
interests, full-cost method
of accounting -- Greece 39,000,000 39,000,000
Less accumulated amortization,
depreciation and
valuation allowance (37,698,409) (37,629,909)
------------ -----------
1,301,591 1,370,091
------------ -----------
Other assets 615 757
------------ -----------
$ 1,496,801 1,557,322
============ ===========
(continued)
2
OCEANIC EXPLORATION COMPANY AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS, CONTINUED
LIABILITIES AND
STOCKHOLDER'S DEFICIT
June 30, March 31,
1995 1995
----------- ----------
Current liabilities:
Notes payable to affiliate (note 2) $ 2,000,000 2,000,000
Accounts payable 232,803 181,879
Accounts payable to affiliates 60,000 60,000
United Kingdom taxes payable,
including accrued interest 408,958 408,958
Accrued expenses 130,383 90,487
----------- ----------
Total current liabilities 2,832,144 2,741,324
----------- ----------
Deferred income taxes (note 4) 776,002 808,062
Other noncurrent liabilities 15,788 15,217
----------- ----------
Total liabilities 3,623,934 3,564,603
----------- ----------
Stockholders' deficit:
Common stock, $.0625 par value.
Authorized 12,000,000 shares;
issued and outstanding
3,915,154 shares 244,697 244,697
Capital in excess of par value 6,665 6,665
Accumulated deficit (2,378,495) (2,258,643)
----------- ----------
Total stockholders' deficit (2,127,133) (2,007,281)
----------- ----------
Contingencies (note 3)
$ 1,496,801 1,557,322
=========== ==========
See accompanying notes to consolidated financial statements.
3
OCEANIC EXPLORATION COMPANY AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATIONS
Three Months Ended
June 30,
------------------------
1995 1994
--------- --------
Revenues:
Oil and gas sales - Greece (note 3) $ - 183,333
Other 120,164 70,094
--------- -------
120,164 253,427
--------- -------
Costs and expenses:
Interest and financing costs 45,222 27,564
Exploration expenses 14,601 38,479
Amortization and depreciation 68,500 80,189
General and administrative 143,753 152,472
--------- -------
272,076 298,704
--------- -------
Loss before income taxes (151,912) (45,277)
Provision for income taxes (note 4) (32,060) 39,533
--------- -------
Net loss $(119,852) (84,810)
========= =======
Loss per common share $ (.03) (0.02)
========= =======
See accompanying notes to consolidated financial statements.
4
OCEANIC EXPLORATION COMPANY AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
Three Months Ended
June 30,
----------------------
1995 1994
---------- --------
Cash flows from operating activities:
Net loss $ (119,852) (84,810)
Adjustments to reconcile net loss
to net cash provided by (used in)
operating activities:
Amortization and depreciation 68,500 80,189
Deferred income tax benefit (32,060) (33,800)
Decrease (increase) in receivables 8,431 (103,585)
Decrease (increase) in restricted cash 15,629 (87)
Decrease in prepaid expenses and other assets 3,507 936
Increase in accounts payable 50,924 2,565
Increase (decrease) in accrued expenses 39,896 (13,092)
Increase in other noncurrent liabilities 571 1,067
---------- --------
Net cash provided by (used in) operating
activities 35,546 (150,617)
---------- --------
Cash flows from financing activities:
Borrowings from affiliates - 200,000
---------- --------
Net cash provided by financing activities - 200,000
---------- --------
Net increase in cash 35,546 49,383
Cash at beginning of period 154,628 48,928
---------- --------
Cash at end of period $ 190,174 98,311
========== ========
See accompanying notes to consolidated financial statements.
5
OCEANIC EXPLORATION COMPANY AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
JUNE 30, 1995
(1) SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
BASIS OF PRESENTATION
The consolidated balance sheet as of March 31, 1995, which has been
derived from audited statements, and the unaudited interim consolidated
financial statements included herein have been prepared pursuant to the rules
and regulations of the Securities and Exchange Commission. Certain
information and note disclosures normally included in annual financial
statements prepared in accordance with generally accepted accounting
principles have been condensed or omitted pursuant to those rules and
regulations, although the Company believes that the disclosures made are
adequate to make the information presented not misleading. In the opinion of
management, all adjustments consisting of normal reoccurring accruals have
been made which are necessary for the fair presentation of the periods
presented. The accounting policies of the Company are set forth in the
financial statements and notes thereto and are included in the Company's
latest annual report on Form 10-KSB/A. It is suggested that these consolidated
financial statements be read in conjunction with that document.
(2) NOTES PAYABLE
Notes payable to affiliate at June 30 and March 31, 1995 represent
borrowings under a $2,000,000 line of credit established in favor of the
Company by NWO Resources, Inc. (NWO) (an affiliate). The NWO line of credit,
which expires January 1, 1996, provides for cumulative draws of up to
$2,000,000 with interest payable monthly on the outstanding principal balance
at the greater of the U.S. bank prime lending rate or 1 3/4% above the 30-day
LIBOR. Borrowings under the line of credit are secured by the Company's 15%
net profits interest in the offshore Greece oil and gas properties. As of
August 10, 1995, the Company is in default on the line of credit as it has
not made its interest payments for May, June and July 1995.
(3) OIL AND GAS SALES - GREECE
Effective January 1, 1993, the operator of the Greek properties
negotiated an agreement with the Greek government which amended the original
license agreement. The amendment provides for a sliding scale for
calculating the operator's recoverable costs and expenses and for the
calculation of the Greek royalty interest. The working interest owner who
has the contractual obligation to the Company for the 15% net profits
interest has asserted that the calculation of the amounts due to the Company
should be based on the amended agreement with the Greek government. The
Company disagrees with this interpretation and has commenced a legal action
in Canada seeking a declaration by the Court that amounts due the
6
Company attributable to its 15% net profits interest be calculated based on
the terms of the license agreement before this amendment. The Company is
seeking damages of approximately $5,000,000 for the period from January 1,
1993 through March 31, 1994 plus damages since that date and undetermined
future damages. The Registrant estimates that damages for unpaid revenues
for the period from April 1, 1994 through June 30, 1995, are approximately
$6,000,000, $5,000,000 of which is attributable to the year ended March 31,
1995. While the Company believes it has a reasonable possibility of
prevailing in the litigation, the ultimate outcome of the matter cannot
presently be determined. Accordingly, no amounts have been recorded in the
accompanying financial statements for current revenues or damages, if any,
that may ultimately be awarded to the Company. Unpaid revenues for the net
profits interest calculated under the terms of the amended agreement are
estimated at approximately $580,000 for the period from January 1, 1993
through June 30, 1995, $490,000 of which is attributable to the year ended
March 31, 1995.
In response to the legal action commenced by the Company, the working
interest owner has ceased remitting payments to the Company and has filed a
counteraction seeking damages in the amount of $4,800,000 plus interest and
costs, alleging the Company was overpaid for the period January 1, 1989
through December 31, 1993. As the working interest owner has ceased
remitting payments to the Company for its 15% net profits interest, the
Company has not recorded any revenues for Greece for the year ended March 31,
1995 or for the quarter ended June 30, 1995. A revenue accrual had been made
for the quarter ended June 30, 1994 but was subsequently reversed in the
financial statements for the year ended March 31, 1995. The Registrant
believes that the revenues are suspended based on the alleged amounts due
Denison as filed in their counterclaim. While the Company also believes that
it will prevail on the counterclaim, the ultimate outcome of that matter
likewise cannot be determined. Accordingly, no provision for any liability
or loss that may result upon final resolution of the counterclaim has been
recognized in the financial statements.
(4) INCOME TAXES
Income tax expense (benefit) consists of the following:
Three Months Ended
--------------------
June 30, June 30,
1995 1994
------- -------
Current:
Foreign - Greece $ -- 73,333
Deferred:
Foreign - Greece (32,060) (33,800)
-------- -------
Total income tax
expense (benefit) $(32,060) 39,533
======== =======
7
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS
LIQUIDITY AND CAPITAL RESOURCES
In the past, the Registrant's principal source of revenue was from
its net profits interest in an oil and gas concession located offshore
Greece. The average per barrel price for oil production from the
Registrant's concession in Greece was $14.47, $12.38 and $15.65 for the years
ended March 31, 1995, 1994, and 1993, respectively.
Due to high Greek income taxes and royalties in combination with
declining production levels, low oil prices and increasing operating costs,
the consortium operating the Greek properties believed that the Greek
operation was at its economic breakeven point. As a result, Denison Mines
Ltd. (Denison) of Canada and its partners commenced negotiations in 1992 with
senior Greek government officials to obtain relief from the high level of
government taxes and royalties. On February 23, 1993, the consortium reached
an agreement with the Greek government resulting in an amendment to the
License Agreement known as Law 98/1975 which regulates the operation of the
field. The amendment was ratified by the Greek Parliament on June 23, 1993
and was retroactive to January 1, 1993.
The amendment provides for a sliding scale for both the cost recovery
factor and the Greek royalty interest based on the annual adjusted gross
income from operations on a calendar year basis. The new law also provides
for a reduction in the effective Greek income tax rate from 50% to 40%.
In addition, the new law required Denison and its partners to spend
$15 million during 1993 and 1994 in infill drilling in order to enhance the
recoverability of the hydrocarbons. In March 1994, the consortium announced
the discovery of a new oil field by the drilling of the Prinos North-2 well.
According to Denison's 1994 Annual Report, two oil bearing zones were flow
tested with a 30 meter upper section flowing at about 3,200 barrels per day
and a 7 meter lower section flowing at 150 barrels per day. Oil in place was
calculated at about 18 million barrels of which 5 million may be recoverable.
The crude from this discovery has an API gravity of about 25 degrees,
contains about 7% sulphur and may have a selling value of between $1.50 and
$4.00 per barrel less than Prinos crude. The Registrant has not received any
further information regarding the development plans, if any, for this new
discovery.
Denison, who has the contractual obligation to pay the Registrant's
15% net profits interest, has asserted that the calculation of the amounts
due the Registrant should be based on the amended agreement with the Greek
government. The Registrant disagrees with this interpretation and has
commenced legal action seeking a declaration by the Court that amounts due
the Registrant attributable to its 15% net profits interest be calculated
based on the terms of the license agreement prior to the 1993 amendment. The
Registrant is seeking damages of approximately $5,000,000 for the period from
January 1, 1993 through March 31, 1994 plus damages
8
since that date and undetermined future damages. The Registrant
estimates that damages for unpaid revenues for the period from
April 1, 1994 through June 30, 1995, are approximately
$6,000,000, $5,000,000 of which is attributable to the year
ended March 31, 1995. The Registrant believes there is a
reasonable possibility of prevailing in the litigation but the
ultimate outcome of the lawsuit cannot be determined at this
time. Furthermore, there are no assurances that the Registrant
will be able to collect from Denison on a successful judgment
or settlement of the pending litigation. Therefore, no amounts
have been recorded in the financial statements for revenues or
damages, if any, that may ultimately be awarded. On November
25, 1994, the case was transferred to the Commercial List of the
Ontario Court. A court date has been scheduled for February
1996.
In response to the lawsuit filed against Denison by the
Registrant, Denison has filed a counterclaim seeking damages of
approximately $4,800,000 plus interest and costs alleging that
the Registrant was overpaid for the period from January 1, 1989
through December 31, 1993. In addition, Denison has ceased
remitting payments to the Registrant for its 15% net profits
interest. The Registrant believes that the revenues are
suspended based on the alleged amounts due Denison as filed in
their counterclaim. Accordingly, the Registrant has not recorded
any oil and gas revenues for Greece for the current year. While
the Registrant also believes that it will prevail on the
counterclaim, the ultimate outcome likewise cannot be determined.
Accordingly, no provision for any liability or loss that may
result upon final resolution of the counterclaim has been
recognized in the financial statements.
The Registrant's counsel is unable to conclude that the
likelihood of an adverse determination in the litigation with
Denison is remote. In addition, if the Registrant obtains a
favorable judgment against Denison, there is no assurance that
the Registrant will be able to collect the judgment because of
Denison's current condition.
Denison's suspension of the Registrant's principal source of
revenue has resulted in the Registrant's inability to fulfill its
financial obligations as they become due and therefore the
Registrant faces potential insolvency. Accordingly, the
Registrant's auditors have issued an opinion on the Registrant's
financial statements for the year ended March 31, 1995 that
included an explanatory paragraph discussing the uncertainty
regarding the Registrant's ability to continue as a going
concern. The financial statements do not contain any adjustments
that may be necessary if the Registrant is unable to continue as
a going concern. In addition to the uncertainty of the
Registrant's ability to continue as a going concern, the
auditor's report also refers to the uncertainty associated with
the legal action against Dension and indicates that no provision
for any liability or loss that may result upon adjudication has
been recognized in the financial statements for the year ended
March 31, 1995.
The Registrant has used draws against its line of credit
with NWO, the parent company of International Hydrocarbons, the
Registrant's majority stockholder, to cover its general operating
9
expenses. The NWO line of credit provides for cumulative draws of
up to $2,000,000 with interest payable monthly on the outstanding
balance at the greater of the U.S. bank prime lending rate or 1-3/4%
above the 30-day LIBOR in effect on the date of each draw
against the line of credit. Such draws are evidenced by
promissory notes payable no later than January 1, 1996.
Cumulative draws on the NWO line of credit are $2,000,000 at June
30, 1995. The line of credit is secured by the Registrant's 15%
net profits interest in the offshore Greece properties. Recent
discussions with NWO indicate that NWO is unwilling to extend
further financial assistance to the Registrant. As of August 10,
1995, the Registrant is in default on the line of credit as it
has not made its interest payments for May, June and July 1995.
The Registrant will require additional funds to finance its
litigation costs, pay interest expense, and continue limited
operations. Management is reviewing the Registrant's activities
and taking actions to reduce overhead costs. On July 7, 1995, a
resolution was passed by the Board of Directors of the Registrant
directing the two independent directors on the Board to attempt
to negotiate with NWO an extension of the due date of the line of
credit until December 31, 1996, and an increase in the amount
available on such line by an additional $700,000. It was further
resolved that if the independent directors could not negotiate a
satisfactory extension of the line of credit with NWO, then the
Registrant would investigate pursuing a rights offering to raise
the required additional capital to enable the Company to fund its
operations through December 31, 1996. The rights offering would
be done on the basis that International Hydrocarbons would agree
to buy all remaining shares not purchased by the other
shareholders and would also be contingent upon NWO entering into
a standstill agreement with the Registrant. If an agreement
could not be reached on either of the foregoing options then the
independent directors would refer the matter back to the entire
Board for further consideration.
The independent directors have discussed the Registrant's
proposal to extend the line of credit with NWO and have been
notified by NWO that there was no interest on the part of NWO in
restructuring the loan without the rights offering.
On August 8, 1995, a meeting of the Board of Directors was
held to discuss NWO's position and determine the next option
available to the Registrant. The Board passed a resolution
authorizing the Registrant to attempt a rights offering to raise
$600,000 by offering 6 million shares to its shareholders at $.10
per share subject to International Hydrocarbons agreeing to
purchase all shares not purchased by other shareholders of the
Registrant. It was further resolved that NWO would be asked to
provide advances to cover the costs of the Denison litigation up
to an estimated $100,000 with the amount of such advances plus
interest thereon to be repaid upon receipt of the proceeds of the
rights offering. In addition, NWO would execute a standstill
agreement wherein NWO would agree to suspend collection of
interest and principal on the $2,000,000 of promissory notes
currently outstanding until December 31, 1996.
NWO has agreed in principal to the terms of the above
proposal and a settlement agreement has been reached.
10
The Registrant is beginning the preparation of the necessary
documentation to proceed with the rights offering. There can
be no assurances that the rights offering will be successfully
completed under the time constraints of the settlement agreement
with NWO. Unless additional funds can be made available, it is
unlikely that the Registrant can continue as a going concern. The
financial statements do not include any adjustments that might
result from the outcome of this uncertainty.
11
PART II - OTHER INFORMATION
ITEM 1. LEGAL PROCEEDINGS
Not applicable.
ITEM 2. CHANGE IN SECURITIES
Not applicable.
ITEM 3. DEFAULTS UPON SENIOR SECURITIES
Not applicable.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
Not applicable.
ITEM 5. OTHER INFORMATION
Not applicable.
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K
(a) Exhibits filed herewith are listed below and if not located in
another previously filed registration statement or report, are attached to
this Report at the pages set out below. The "Exhibit Number" below refers to
the Exhibit Table in Item 601 of Regulation S-B.
12
Exhibit Number Name of Exhibit Location
- -------------- --------------- --------
3.1 Articles of Incorporation Page 58 of Report on
(including all amendments) Form 10-K for year
ended Sept. 30, 1980
3.2 Bylaws (including all amend- Page 15 of Form 8
ments) (Amendment No. 1 to
10-K Report) dated
June 1, 1982
10.1 Memorandum of Agreement dated Report on Form 10-K
June 30, 1976 between Oceanic for year ended Sep-
Exploration Company and Denison tember 30, 1976
Mines Limited
10.2 Letter Agreement dated July 28, Report on Form 10-K
1976 amending Agreement of for year ended Sep-
June 30, 1976 tember 30, 1976
10.3 Amendment dated August 27, 1976 Report on Form 10-K
to Agreement of June 30, 1976 for year ended Sep-
tember 30, 1976
10.4 Farm-out Agreement with Page 38 of Form 10-KSB
Enterprise Oil Exploration for year ended
Limited and NMX Resources March 31, 1995
(Overseas) Limited dated
September 22, 1989
10.5 Letter Agreement with Page 54 on Form 10-KSB
Enterprise Oil Exploration for year ended
Limited and NMX Resources March 31, 1995
(Overseas) Limited dated
September 22, 1989
10.6 Letter of Indemnification with Page 62 on Form 10-KSB
Enterprise Oil Exploration for year ended
Limited and NMX Resources March 31, 1995
(Overseas) Limited dated
September 22, 1989
10.7 Management Agreement with Page 63 on Form 10-KSB
Cordillera Corporation dated for year ended
January 1, 1990 March 31, 1995
10.8 Management Agreement with Page 67 on Form 10-KSB
San Miguel Valley Corporation for year ended
dated January 1, 1990 March 31, 1995
13
Exhibit Number Name of Exhibit Location
- -------------- --------------- --------
10.9 Office Building Lease with Page 71 on Form 10-KSB
Sorrento West Properties, Inc. for year ended
dated March 1, 1991 March 31, 1995
10.10 Addendum to Office Building Page 129 on Form 10-KSB
Lease dated March 1, 1994 for year ended
March 31, 1995
10.11 Promissory Note with NWO Page 131 on Form 10-KSB
Resources, Inc. dated for year ended
June 15, 1994 March 31, 1995
10.12 Promissory Note with NWO Page 132 on Form 10-KSB
Resources, Inc. dated for year ended
July 18, 1994 March 31, 1995
10.13 Security Agreement in favor Page 133 on Form 10-KSB
of NWO Resources, Inc. for year ended
dated July 27, 1994 March 31, 1995
10.14 Promissory Note with NWO Page 149 on Form 10-KSB
Resources, Inc. dated for year ended
September 22, 1994 March 31, 1995
10.15 Promissory Note with NWO Page 150 on Form 10-KSB
Resources, Inc. dated for year ended
December 15, 1994 March 31, 1995
10.16 Promissory Note with NWO Page 151 on Form 10-KSB
Resources, Inc. dated for year ended
January 1, 1995 March 31, 1995
10.17 Promissory Note with NWO Page 152 on Form 10-KSB
Resources, Inc. dated for year ended
February 15, 1995 March 31, 1995
10.18 Letter Agreement between Page 15 on Form 10-QSB
NWO Resources, Inc. and for the quarter
the Registrant dated ended June 30, 1995.
August 9, 1995
(b) There have been no reports on Form 8-K filed during the quarter for
which this Report is filed.
14
SIGNATURES
In accordance with the requirements of the Exchange Act, the Registrant
caused this Report to be signed on its behalf by the undersigned, thereunto
duly authorized.
OCEANIC EXPLORATION COMPANY
Date: November 22, 1995 /s/ Charles N. Haas
----------------- ---------------------------------
Charles N. Haas
President
Date: November 22, 1995 /s/ Diana J. Peters
----------------- ---------------------------------
Diana J. Peters
Treasurer and
Chief Financial Officer
15