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UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-QSB
(Mark One)
[X] QUARTERLY REPORT UNDER SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT
OF 1934
For the quarterly period ended March 31, 2000
[ ] 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)
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.
YES X NO
--- ---
Shares outstanding at Common $.0625 Par Value
April 30, 2000
9,916,154
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PART I - FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS
OCEANIC EXPLORATION COMPANY AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
(UNAUDITED)
ASSETS
March 31, 2000 December 31, 1999
-------------- -----------------
Cash and cash equivalents (note 2) $ 6,426,808 66,462
Receivables:
Affiliates 6,454 8,662
Other 1,680 1,780
------------ ------------
8,134 10,442
Prepaid expenses (note 3) 12,591 2,205
------------ ------------
Total current assets 6,447,533 79,109
------------ ------------
Oil and gas property interests, full-cost method
of accounting (note 2) 39,000,000 39,000,000
Less accumulated amortization, depreciation
and valuation allowance (39,000,000) (39,000,000)
------------ ------------
-- --
Furniture, fixtures and equipment (note 3) 136,914 23,413
Less accumulated depreciation (22,133) (21,973)
------------ ------------
114,781 1,440
Goodwill (note 3) 586,414 --
------------ ------------
$ 7,148,728 80,549
============ ============
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OCEANIC EXPLORATION COMPANY AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS, CONTINUED
(UNAUDITED)
LIABILITIES AND STOCKHOLDERS' EQUITY (DEFICIT)
March 31, 2000 December 31, 1999
-------------- -----------------
Current liabilities:
Note payable to shareholder (note 4) $ -- 1,202,636
Note payable to affiliate (note 4) -- 155,000
Accounts payable 213,484 162,131
Accounts payable to affiliate 60,000 60,000
United Kingdom taxes payable, including
accrued interest 504,894 507,249
Accrued expenses 152,780 299,419
-------------- --------------
Total current liabilities 931,158 2,386,435
Deferred income taxes 12,533 12,533
-------------- --------------
Total liabilities 943,691 2,398,968
-------------- --------------
Stockholders' equity (deficit):
Preferred stock, $10 par value. Authorized
600,000 shares; none issued -- --
Common stock, $.0625 par value. Authorized
12,000,000 shares; 9,916,154 shares issued and
outstanding 619,759 619,759
Capital in excess of par value 155,696 155,696
Retained earnings (deficit) 5,429,582 (3,093,874)
-------------- --------------
Total stockholders' equity (deficit) 6,205,037 (2,318,419)
-------------- --------------
Contingencies (note 2)
$ 7,148,728 80,549
============== ==============
See accompanying notes to consolidated financial statements.
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OCEANIC EXPLORATION COMPANY AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATIONS
(UNAUDITED)
Three Months Ended
March 31,
2000 1999
------------ ------------
Revenues:
Net profits interest proceeds (note 2) $ 6,739,342 --
Interest income 2,037,999 258
Other 258,904 147,622
------------ ------------
9,036,245 147,880
------------ ------------
Costs and expenses:
Interest and financing costs 14,914 26,181
Exploration expenses 3,480 3,939
Amortization and depreciation 160 47,660
General and administrative 245,057 246,975
------------ ------------
263,611 324,755
------------ ------------
Income (loss) before income taxes 8,772,634 (176,875)
Income tax (expense) benefit (249,178) 23,713
------------ ------------
Net income (loss) $ 8,523,456 (153,162)
============ ============
Basic and diluted income (loss) per
common share $ .86 (.02)
============ ============
See accompanying notes to consolidated financial statements.
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OCEANIC EXPLORATION COMPANY AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
(UNAUDITED)
Three Months Ended
March 31,
2000 1999
------------ ------------
Cash flows from operating activities:
Net income (loss) $ 8,523,456 (153,162)
Adjustments to reconcile net income (loss) to net cash
used in operating activities:
Amortization and depreciation 160 47,660
Deferred income tax benefit -- (23,713)
Decrease in accounts receivable and due from affiliates 2,308 2,181
Decrease in prepaid expenses and other assets 612 570
Increase in accounts payable and accounts payable
to affiliate 51,353 19,516
(Decrease) increase in United Kingdom taxes payable,
including accrued interest payable, and accrued expenses (148,994) (9,433)
------------ ------------
Net cash provided by (used in) operating activities 8,428,895 (116,381)
Cash flows from investing activities:
Purchase of operations and certain assets of Alliance (710,913) --
Cash flows from financing activities:
(Repayments to) advances from notes payable to shareholder
and affiliate (1,357,636) 110,000
------------ ------------
Net increase (decrease) in cash 6,360,346 (6,381)
------------ ------------
Cash at beginning of period 66,462 29,718
------------ ------------
Cash at end of period $ 6,426,808 23,337
============ ============
See accompanying notes to consolidated financial statements.
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OCEANIC EXPLORATION COMPANY AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
March 31, 2000
(1) SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
BASIS OF PRESENTATION
The consolidated balance sheet as of December 31, 1999 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 Registrant
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
Registrant are set forth in the financial statements and notes thereto and are
included in the Registrant's latest annual report on Form 10-KSBT. It is
suggested that these consolidated financial statements be read in conjunction
with that document.
(2) NET PROFITS INTEREST PROCEEDS
Effective January 1, 1993, the operator of the Greek properties
negotiated an agreement with the Greek government which amended the original
license agreement entered into in June 1975 (the "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. Denison Mines, Ltd. ("Denison"), the working interest owner having the
contractual obligation to the Registrant for the 15% net profits interest, (also
called "Prinos Interest" in some parts of this Report) asserted that the
calculation of the amounts due to the Registrant should be based on the amended
agreement with the Greek government. The Registrant disagreed with this
interpretation and commenced a legal action in Canada seeking a declaration by
the Ontario Court of Justice (General Division) in Toronto, Canada (the "Court")
that amounts due the Registrant attributable to its 15% net profits interest be
calculated based on the terms of the License Agreement before this amendment. In
December 1996, the Registrant received notification that the Court had issued a
judgment in its favor. Denison subsequently filed a Notice of Appeal requesting
that the judgment be set aside. The hearing before the Ontario Court of Appeal
was held in June 1999. On December 16, 1999, the Registrant received
notification that the Appellate Court had upheld the lower court's decision. At
December 31, 1999, however, Denison still had the option to apply for leave to
further appeal to the Supreme Court of Canada. This option was effective until
February 14, 2000, sixty days from the date of the December 16, 1999 decision.
In January 2000, Denison and the Registrant reached agreement whereby Denison
would pay the net profits interest as ordered by the Court. The Registrant
received $8,614,789 and
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$15,868 on January 27, 2000 and February 9, 2000, respectively, from Denison.
These amounts consisted of $6,739,342 (net of Greek taxes) for net profits
interest payments from January 1, 1993 through December 31, 1997, $118,255 for
court costs and accrued interest of $1,773,060 (net of Canadian withholding
taxes).
Effective March 31, 1999, the consortium operating the Greek properties
relinquished its license to operate the Prinos oil field in Greece. However, the
consortium retained its exploration rights in an area of the Aegean Sea over
which there has been an ongoing ownership dispute between Greece and Turkey.
Should the dispute be resolved and the consortium drill and successfully develop
any additional prospects, the Registrant would be entitled to once again receive
its 15% net profits interest, applicable to Denison's working interest.
(3) ALLIANCE ACQUISITION
Effective March 31, 2000, the Registrant purchased the employment
operations and certain assets of Alliance Services Associates, Inc., the wholly
owned subsidiary of Alliance Staffing Associates, Inc. (collectively "Alliance")
for $581,000. Alliance is an employment agency located in San Diego, California.
The acquisition was accounted for using the purchase method of accounting. The
purchase price, legal fees and other professional fees incurred have been
allocated to the following assets:
Prepaid Expenses $ 10,998
Fixed Assets 113,501
Goodwill - Non Compete Agreements 150,000
Goodwill - Other 436,414
---------
$ 710,913
=========
The unaudited pro forma revenue, net income (loss) and income (loss) per common
share for the three months ended March 31, 2000 and 1999, respectively, assuming
the acquisition occurred on January 1, 1999 are as follows:
Three Months Ended
March 31,
2000 1999
------------ ------------
Revenue $ 9,995,950 1,059,436
Net income (loss) 8,375,849 (358,329)
Basic and diluted income (loss) per common share $ .84 (.04)
The above pro forma results are not necessarily indicative of the Registrant's
results had the acquisition occurred on January 1, 1999.
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(4) NOTES PAYABLE TO SHAREHOLDER AND AFFILIATE
Notes payable to shareholder and affiliate represented borrowings under
agreements with International Hydrocarbons ("IH"), the Registrant's majority
shareholder and its affiliate. In October 1998, the note was assigned to IH from
NWO Resources, Inc. ("NWO"), an affiliate of IH. In April 1999, an Extension
Agreement was executed allowing the Registrant to draw additional amounts as
needed for working capital up to $1,500,000. Interest continued to accrue at
8.25%. In addition, the Registrant was not required to make interest payments at
December 31, 1999. Principal and accrued interest were, however, due upon demand
by IH. Effective June 30, 1999, the Registrant was notified that IH would no
longer be able to provide financing pursuant to the line of credit arrangement.
Instead, all future advances were to be provided by NWO pursuant to a new
promissory note to NWO which allowed the Registrant to draw amounts needed for
working capital up to $300,000. Advances under the NWO line of credit accrued
interest at 8.25 %, with interest payable monthly. Principal was due on March
31, 2000 or earlier, if such demand was made by NWO. Both lines of credit were
secured by the Registrant's 15% net profits interest in the offshore Greece oil
and gas property and all proceeds from the pending litigation.
After the Registrant received the funds in January 2000 from its
litigation against Denison, the Registrant paid off the outstanding principal
and accrued interest balances of $1,202,636 and $180,381, respectively, to IH
and the outstanding principal balance of $175,000 to NWO on February 1, 2000.
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS
LIQUIDITY AND CAPITAL RESOURCES
Historically, the Registrant's principal source of revenue has been from
its Prinos Interest. The Registrant also receives revenues from sales of seismic
data gathered in its oil and gas exploration and development activities and from
administrative services. That revenue is sporadic and is not sufficient to fund
the Registrant's ongoing operations. There have been no sales of seismic data
during the three-month period ended March 31, 2000 or the nine-months ended
December 31, 1999.
As previously noted, net profits interest payments received by the
Registrant for January 1, 1993 through December 31, 1997 applicable to the
Prinos property have been the subject of litigation. In June 1994, the
Registrant commenced legal action against Denison who has the contractual
obligation to pay the net profits interest. The Registrant was seeking a
declaration by the Court that amounts due the Registrant attributable to its
interest be calculated based on the terms of the License Agreement prior to a
1993 amendment agreed to by the consortium and the Greek government. In
September 1996, the lawsuit went to trial. In December 1996, the Registrant
received notification that the Court had rendered a judgment in the Registrant's
favor. The defendant subsequently filed a Notice of Appeal requesting that the
judgment be set aside. The Appellate Court hearing before
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the Ontario Court of Appeal was held in June 1999. On December 16, 1999, the
Registrant received notification that the Appellate Court had upheld the lower
court's decision. At December 31, 1999, however, Denison still had the option to
apply for leave to further appeal to the Supreme Court of Canada. This option
was effective until February 14, 2000, sixty days from the date of the December
16, 1999 decision. In January 2000, Denison and the Registrant reached agreement
whereby Denison would pay the net profits interest as ordered by the Court. The
Registrant received $8,614,789 and $15,868 on January 27, 2000 and February 9,
2000, respectively, from Denison. These amounts consisted of $6,739,342 (net of
Greek taxes) for net profits interest payments from January 1, 1993 through
December 31, 1997, $118,255 for court costs and accrued interest of $1,773,060
(net of Canadian withholding taxes).
As noted in an 8-K filed on April 14, 2000, the Registrant purchased the
employment operations and certain assets of Alliance on March 31, 2000 for
$581,000. The Registrant intends to use the assets purchased to continue the
current operations of the employment placement service. As the Registrant was
able to retain the key personnel of Alliance, it is anticipated that an
investment in an aggressive marketing and advertising campaign will improve
Alliance's current level of cash flow and profitability.
When payments under the Prinos Interest were suspended in 1994, the
Registrant funded its operations through draws against the line of credit
initially established with NWO. In October 1998, this line of credit was
assigned from NWO to IH, the Registrant's majority shareholder. In April 1999,
the Registrant executed an Extension Agreement with IH allowing the Registrant
to draw up to $1,500,000 as needed for working capital purposes. Under the terms
of the Extension Agreement, the Registrant was not required to make any
principal or interest payments as of December 31, 1999. However, all principal
and accrued interest were due upon demand by IH. Effective June 30, 1999, the
remaining balance under the IH line of credit was replaced with a new line of
credit with NWO in which the Registrant is allowed to draw up to $300,000 for
general working capital purposes. Interest payments to NWO calculated at the
rate of 8.25% were due monthly and principal was due on March 31, 2000 or
earlier, if such demand was made by NWO.
After the Registrant received the funds from its litigation against
Denison in January 2000, the Registrant paid off the outstanding principal and
accrued interest balances of $1,202,636 and $180,381, respectively, to IH and
the outstanding principal balance of $175,000 to NWO on February 1, 2000.
The Registrant currently receives approximately $573,000 per year in
connection with services it provides to Cordillera Corporation and San Miguel
Valley Corporation pursuant to management agreements providing for payments to
the Registrant based on costs for actual time and expenses incurred in
activities conducted on behalf of those entities. The amounts received under the
management agreements are costs relating to employee salaries and other
operating expenses.
The Registrant is also in the process of pursuing additional investment
opportunities; however, no definitive plans have been made.
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RESULTS OF OPERATIONS
The Registrant reported net income of $8,523,456 and a net loss of
$153,162 for the three month periods ending March 31, 2000 and 1999,
respectively.
The most significant factor in the fluctuation of net income between the
periods is that the Registrant received $6,739,342 in revenue, net of Greek tax,
pertaining to a judgment awarded in its favor relating to its net profits
interest from January 1, 1993 through December 31, 1997. Interest and other
income for the three months ended March 31, 2000 increased over that of the
prior year primarily due to interest income and court costs awarded on the above
mentioned judgment. Interest and financing costs for the three months ended
March 31, 2000 have decreased from the prior year due to the repayment of notes
payable to shareholder and affiliate using funds received from the judgment. For
the three months ended March 31, 2000, amortization and depreciation expenses
have decreased as the Registrant's major oil and gas producing property in
Greece was fully depleted for book purposes as of March 31, 1999. General and
administrative expenses have remained relatively stable between the two periods.
PART II - OTHER INFORMATION
ITEM 1. LEGAL PROCEEDINGS
In June 1994, the Registrant commenced legal action against Denison
seeking a declaration by the Court that amounts due the Registrant attributable
to its net profits interest in certain oil and gas producing areas offshore
Greece be calculated based on the terms of the License Agreement prior to a 1993
amendment agreed to by the consortium and the Greek government. On December 13,
1996, the Registrant received notification that the Ontario Court of Justice
(General Division) in Toronto, Canada, had issued a judgment in its favor.
Subsequently, Denison filed a Notice of Appeal. The hearing before the Ontario
Court of Appeal was held in June 1999. On December 16, 1999, the Registrant
received notification that the Appellate Court had upheld the lower court's
decision. In January 2000, Denison and the Registrant reached agreement whereby
Denison would pay the net profits interest as ordered by the Court. The
Registrant received $8,614,789 and $15,868 on January 27, 2000 and February 9,
2000, respectively, from Denison.
See the Registrant's Form 10-KSB for the fiscal year ended December 31,
1999, for a more detailed discussion of these legal proceedings.
ITEM 2. CHANGE IN SECURITIES
Not applicable.
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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.
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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. Those reports previously filed with
the Securities and Exchange Commission as required by Item 601 of Regulation S-B
are incorporated herein by reference, in accordance with the provisions of Rule
12b-32, to the reports or registration statements identified below.
Exhibit Number Name of Exhibit Location
-------------- --------------- --------
10.1 Third Addendum to Office Building Page 13 of the signed
Lease dated March 1, 2000 original of this report.
10.2 Management Agreement between Page 15 of this signed
the Registrant and Cordillera original of this report.
Corporation dated January 1, 2000
10.3 Management Agreement between Page 20 of this signed
the Registrant and San Miguel original of this report.
Valley Corporation dated
January 1, 2000
27 Financial Data Schedule for
2000 First Quarter 10-QSB.
(b) Three reports on Form 8-K were filed during the quarter for which
this Report is filed.
On January 31, 2000, Form 8-K was filed reporting the funds received
from Denison Mines, Ltd. in final settlement of the Registrant's
lawsuit.
On February 9, 2000, Form 8-K was filed which reported the change of
the Registrant's fiscal year end from March 31 to December 31.
On April 14, 2000, Form 8-K was filed which reported the purchase of
the employment operations and certain assets of Alliance Services
Associates, Inc., the wholly owned subsidiary of Alliance Staffing
Associates, Inc., located in San Diego, California.
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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: May 10, 2000 /s/ Charles N. Haas
------------------- -------------------------------------
Charles N. Haas
President
Date: May 10, 2000 /s/ Phylis Anderson
------------------- -------------------------------------
Phylis Anderson
Treasurer and Chief Financial Officer
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EXHIBIT INDEX
Exhibit Number Description
-------------- -----------
10.1 Third Addendum to Office Building
Lease dated March 1, 2000
10.2 Management Agreement between
the Registrant and Cordillera
Corporation dated January 1, 2000
10.3 Management Agreement between
the Registrant and San Miguel
Valley Corporation dated
January 1, 2000
27 Financial Data Schedule for
2000 First Quarter 10-QSB.