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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, 2001
[ ] 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.)
7800 East Dorado Place, Suite 250, Englewood, CO 80111
(Address of principal executive offices)
(303) 220-8330
(Issuer's Telephone number)
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(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
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Shares outstanding at Common $.0625 Par Value
May 11, 2001
9,916,154
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PART I - FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS
OCEANIC EXPLORATION COMPANY AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
(UNAUDITED)
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ASSETS
- ------
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March 31, 2001 December 31, 2000
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Cash and cash equivalents $ 5,111,855 $ 5,475,156
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Receivables:
Trade, net of allowance for doubtful accounts 240,944 271,147
Affiliates 6,856 6,113
Other 75,518 66,591
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323,318 343,851
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Prepaid expenses 24,421 32,698
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Total current assets 5,459,594 5,851,705
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Oil and gas property interests, full-cost method of
accounting 39,033,600 39,033,600
Less accumulated amortization, depreciation
and impairment allowance (39,033,600) (39,033,600)
------------ ------------
-- --
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Furniture, fixtures and equipment 179,872 161,019
Less accumulated depreciation (55,113) (44,649)
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124,759 116,370
Goodwill, net of accumulated amortization of $92,019
and $69,014, respectively 478,174 501,179
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$ 6,062,527 $ 6,469,254
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(Continued)
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OCEANIC EXPLORATION COMPANY AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS CONTINUED
(UNAUDITED)
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LIABILITIES AND STOCKHOLDERS' EQUITY
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March 31, 2001 December 31, 2000
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Current liabilities:
Accounts payable $ 61,426 $ 150,483
Accounts payable to affiliate 60,000 60,000
United Kingdom taxes payable, including
accrued interest 468,280 488,323
Accrued expenses 216,578 185,274
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Total current liabilities 806,284 884,080
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Deferred income taxes 2,208 2,208
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Total liabilities 808,492 886,288
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Stockholders' equity:
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 4,478,580 4,807,511
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Total stockholders' equity 5,254,035 5,582,966
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$6,062,527 $6,469,254
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See accompanying notes to consolidated financial statements.
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OCEANIC EXPLORATION COMPANY AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATIONS
(UNAUDITED)
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Three Months Ended
March 31,
2001 2000
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Revenues:
Net profits interest proceeds (note 2) $ -- 6,739,342
Staffing revenue 717,131 --
Interest income 77,466 2,037,999
Other 138,781 258,904
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933,378 9,036,245
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Costs and expenses:
Interest and financing costs 4,849 14,914
Exploration expenses 30,486 3,480
Staffing direct costs 624,517 --
Amortization and depreciation 33,469 160
General and administrative 568,988 245,057
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1,262,309 263,611
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(Loss) income before income taxes (328,931) 8,772,634
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Income tax (expense) benefit -- (249,178)
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Net (loss) income $ (328,931) 8,523,456
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(Loss) income per common share $ (0.03) 0.86
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================================================================================
See accompanying notes to consolidated financial statements.
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OCEANIC EXPLORATION COMPANY AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
(UNAUDITED)
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Three Months Ended
March 31,
2001 2000
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Cash flows from operating activities:
Net income (loss) $ (328,931) 8,523,456
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Adjustments to reconcile net income (loss) to cash
used in operating activities:
Amortization and depreciation 33,469 160
Decrease in accounts receivable and due from affiliates 20,533 2,308
Decrease in prepaid expenses and other assets 8,277 612
(Decrease) increase in accounts payable and accounts payable
to affiliate (89,057) 51,353
Increase(decrease) in United Kingdom taxes payable,
including accrued interest payable, and accrued expenses 11,261 (148,994)
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Cash (used in) provided by operating activities (344,448) 8,428,895
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Cash flows from investing activities:
Purchase of operations and certain assets of Alliance -- (710,913)
Purchase of fixed assets (18,853) --
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Cash used in investing activities (18,853) (710,913)
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Cash flows from financing activities--
repayments to shareholder and affiliate -- (1,357,636)
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Net (decrease) increase in cash (363,301) 6,360,346
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Cash at beginning of period 5,475,156 66,462
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Cash at end of period $ 5,111,855 6,426,808
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=====================================================================================================
See accompanying notes to consolidated financial statements.
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OCEANIC EXPLORATION COMPANY AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
March 31, 2001
(1) SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
The consolidated balance sheet as of December 31, 2000, that has been
derived from audited financial 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
Oceanic 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. Interim results are not
necessarily indicative of results for a full year. The information included
herein should be read in conjunction with the financial statements and notes
thereto included in the December 31, 2000 Form 10-KSB.
(2) NET PROFITS INTEREST PROCEEDS
Historically, the most significant source of revenue for Oceanic has
been its 15% net profits interest in certain oil and gas producing properties
offshore Greece. Denison Mines, Ltd. ("Denison") had the contractual obligation
to make payments to the Company under the Greek Interest. In June 1994, Oceanic
commenced an action against Denison claiming they had failed to pay the full
amount due under an agreement dated August 30, 1976. The suit was settled in
favor of Oceanic and on January 27, 2000 and February 9, 2000, the Company
received $8,614,789 and $15,868, respectively. 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 $197,007 Canadian withholding taxes).
(3) INFORMATION CONCERNING BUSINESS SEGMENTS
During the three months ended March 31, 2000, the Company operated in a
single business segment, oil and gas exploration. Oceanic acquired Alliance
effective March 31, 2000. Upon this acquisition, the Company began operating in
two business segments, oil and gas exploration and employment operations. The
Company's oil and gas exploration activities have generally consisted of
exploration of concessions through various forms of joint arrangements with
unrelated companies, whereby the parties agree to share the costs of
exploration, as well as the costs of, and any revenue from, a discovery. The
objective of the Company's employment operations is to provide office and
administrative personnel to companies in the San Diego, California area through
temporary placement services, payrolling services and direct placement services.
As the Company operated in
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a single business segment during the three months ended March 31, 2000, segment
information is reported below only for the three months ended March 31, 2001.
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OIL AND GAS
EXPLORATION,
INCLUDING EMPLOYMENT
THREE MONTHS ENDED MARCH 31, 2001 CORPORATE OPERATIONS TOTAL
- --------------------------------- --------- ---------- -----
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Revenue 213,267 720,111 933,378
(Loss) before taxes (137,874) (191,057) (328,931)
Total assets 5,136,537 925,990 6,062,527
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ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS
Certain information in this Form 10-KSB includes "forward-looking
statements" within the meaning of Section 27A of the Securities Act of 1933 and
Section 21E of the Securities Exchange Act of 1934. You can identify these
statements by words such as "may," "will," "expect," "anticipate," "estimate,"
"continue" or other similar words. These statements discuss future expectations,
contain projections of results of operations or financial condition or state
other forward-looking information and are based on certain assumptions and
analyses made by the Company in light of its experience and its perception of
historical trends, current conditions, expected future developments and other
factors it believes are appropriate in the circumstances. Such statements are
subject to a number of assumptions, risks and uncertainties, including such
factors as uncertainties in cash flow, expected acquisition benefits, the
volatility and level of oil and natural gas prices, production rates and reserve
replacement, reserve estimates, drilling and operating risks, competition,
litigation, environmental matters, the potential impact of government
regulations, and other such matters, many of which are beyond the control of the
Company. Readers are cautioned that forward-looking statements are not
guarantees of future performance and that actual results or developments may
differ materially from those expressed or implied in the forward-looking
statements.
The following discussion and analysis should be read in conjunction with
Oceanic's Consolidated Financial Statements and Notes thereto.
LIQUIDITY AND CAPITAL RESOURCES
Oceanic's primary sources of liquidity are cash and cash equivalents on
hand, cash provided by operating activities and debt financing provided by
shareholder and affiliate, as necessary. Cash needs are for the acquisition,
exploration and development of oil and gas properties, the operation of a
temporary staffing agency and the payment of trade payables. Exploration and
development programs and temporary staffing operations are being financed by
internally
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generated cash flow and cash and cash equivalents on hand. The capital
expenditure budget is periodically reviewed and is a function of necessity and
available cash flow.
Cash Flow: Cash used in operating activities for the three months ended
March 31, 2001 was $344,448, compared to cash provided by operating activities
of $8,428,895 for the comparable period in 2000. As described in Note 2, Oceanic
received $8,614,789 and $15,868 on January 27, 2000 and February 9, 2000,
respectively, relating to net profits interest payments for January 1, 1993
through December 31, 1997, applicable to the Greek properties, that had been the
subject of litigation.
Operations of Alliance, the employment agency in San Diego, California,
produced a net loss of approximately $191,000, and resulted in cash used in
operating activities of approximately $103,000. The net changes in operating
assets and liabilities included a decrease in receivables and prepaids along
with an increase in accrued expenses. Revenue generated by the employment agency
averaged $302,000 per month during 2000; however, revenue generated during the
first three months of 2001 averaged only $239,000 per month. As noted in the
Company's 10-KSB filed March 30, 2001, Oceanic replaced the president of
Alliance effective March 26, 2001.
Oceanic currently receives approximately $448,000 per year in
connection with services provided to Cordillera Corporation and San Miguel
Valley Corporation, pursuant to management agreements, compared to $571,000 for
the year ended December 31, 2000. The amounts received under the agreements are
based on costs relating to employee salaries and other operating expenses, plus
an additional fee of 5% of the total amount. The level of service provided to
San Miguel Valley Corporation has decreased approximately $10,000 per month.
Cash used in investing activities during the three months ended March
31, 2001 was $18,853, compared to $710,913 in the comparable period during 2000
when Oceanic acquired Alliance at a cost of $581,000 plus legal and professional
fees of approximately $130,000.
There were no cash flows from financing activity for the three months
ended March 31, 2001. During the comparable period in 2000, $1,357,636 was used
to repay shareholder and affiliate debt.
Oceanic had $5,111,855 in cash and cash equivalents and working capital
of $4,653,310 at March 31, 2001 compared with $6,426,808 in cash and cash
equivalents and working capital of $5,516,375 at March 31, 2000.
Opportunities to invest in oil and gas properties continue to be
evaluated. Oceanic is also seeking acquisitions of assets or companies that
would afford opportunities in other areas, but no definitive plans have been
made.
RESULTS OF OPERATIONS
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Total revenue for the three months ended March 31, 2001 was
substantially reduced from the comparable period in 2000. As noted previously,
Oceanic received net profits interest of $6,739,342 (net of Greek taxes) and
accrued interest of $1,773,060 (net of Canadian withholding taxes) during the
three months ended March 31, 2000. There was no comparable revenue during the
three months ended March 31, 2001. The decrease in revenue, along with a loss
from the operations of Alliance and an increase in certain other costs, as
described below, contributed to a net loss for the first three months of 2001
compared to a large net income for the three months ended March 31, 2000.
The operations of Alliance generated staffing revenue of $717,131, and
incurred direct costs of $624,517, during the three months ended March 31, 2001.
There was no comparable revenue and costs during the three months ended March
31, 2000 as the operations of Alliance were acquired at the end of that quarter.
Interest revenue for the first three months of 2001 is comparable to
interest revenue for the same period of 2000, excluding the accrued interest
payment received from Denison during the three months ended March 31, 2000. The
interest payment was recorded at the gross amount of $1,970,066, before Canadian
withholding taxes.
Other revenue for the three months ended March 31, 2001 is 46% less than
the comparable period during 2000 for two main reasons: 1) In addition to the
net profits interest described in Note 2, Oceanic received an additional
$118,255 during the three months ended March 31, 2000. This was recorded as
other revenue; and, 2) The reduced level of services provided to San Miguel
Valley Corporation resulted in management fees that were approximately 23% less
than the comparable period during 2000.
Interest and financing costs for the three months ended March 31, 2001
are approximately $10,000 less than the same period of 2000 due to the repayment
of shareholder and affiliate debt during the three months ended March 31, 2000.
Exploration expenses for the first three months of 2001 are
significantly higher than the same three months of 2000. This is due to ongoing
legal fees associated with exploring the legal issues surrounding Oceanic's
Timor Gap concession.
Amortization and depreciation expense for the three months ended march
31, 2001 is mainly associated with the acquisition of Alliance. Fixed assets
acquired of $101,041 are being depreciated in addition to the amortization of
goodwill that was recorded as a result of the purchase.
General and administrative costs associated with Alliance for the three
months ended March 31, 2001 were $286,418. The balance of the general and
administrative costs for the period, $282,570, represents an increase of $37,513
over the three months ended March 31, 2000. The increase is attributable to
increased audit fees, increased rent and costs associated
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with the transition of management for Alliance.
PART II - OTHER INFORMATION
ITEM 1. EXHIBITS AND REPORTS ON FORM 8-K
None
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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 11, 2001 /s/ Charles N. Haas
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Charles N. Haas
President
Date: May 11, 2001 /s/ Phylis J. Anderson
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Treasurer and Chief Financial Officer