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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 June 30, 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)
(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
May 11, 2001
9,916,154 Common $.0625 Par Value
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PART I - FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS
OCEANIC EXPLORATION COMPANY AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
(UNAUDITED)
June 30, 2001 December 31, 2000
------------- -----------------
ASSETS
Cash and cash equivalents $ 4,733,175 $ 5,475,156
Receivables:
Trade, net of allowance for doubtful accounts
of $8,713 and $0.00, respectively 193,229 271,147
Affiliates 6,590 6,113
Other 126,106 66,591
------------ ------------
325,925 343,851
Prepaid expenses 36,134 32,698
------------ ------------
Total current assets 5,095,234 5,851,705
------------ ------------
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)
------------ ------------
-- --
Furniture, fixtures and equipment 175,810 161,019
Less accumulated depreciation (64,174) (44,649)
------------ ------------
111,636 116,370
Goodwill, net of accumulated amortization of
$115,024 and $69,014, respectively 455,169 501,179
------------ ------------
$ 5,662,039 $ 6,469,254
============ ============
(Continued)
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OCEANIC EXPLORATION COMPANY AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS CONTINUED
(UNAUDITED)
June 30, 2001 December 31, 2000
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LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Accounts payable $ 282,865 $ 150,483
Accounts payable to affiliate 60,000 60,000
United Kingdom taxes payable, including
accrued interest 472,096 488,323
Accrued expenses 313,583 185,274
---------- ----------
Total current liabilities 1,128,544 884,080
Deferred income taxes 2,208 2,208
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Total liabilities 1,130,752 886,288
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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 3,755,832 4,807,511
---------- ----------
Total stockholders' equity 4,531,287 5,582,966
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$5,662,039 $6,469,254
========== ==========
See accompanying notes to consolidated financial statements.
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OCEANIC EXPLORATION COMPANY AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATIONS
(UNAUDITED)
Three Months Ended Six Months Ended
June 30, June 30,
2001 2000 2001 2000
---- ---- ---- ----
Revenues:
Net profits interest proceeds (note 2) $ -- -- $ -- 6,739,342
Staffing revenue 578,452 895,490 1,295,583 895,490
Interest income 52,301 87,119 129,767 2,125,118
Other 128,334 164,593 267,115 423,497
------------ ------------ ------------ ------------
759,087 1,147,202 1,692,465 10,183,447
------------ ------------ ------------ ------------
Costs and expenses:
Interest and financing costs 4,833 4,700 9,682 19,614
Exploration expenses (note 3) 306,343 3,590 336,829 7,070
Staffing direct costs 489,863 740,677 1,114,380 740,677
Amortization and depreciation 33,512 30,746 66,981 30,906
General and administrative 682,099 539,544 1,251,087 784,601
------------ ------------ ------------ ------------
1,516,650 1,319,257 2,778,959 1,582,868
------------ ------------ ------------ ------------
(Loss) income before income taxes (757,563) (172,055) (1,086,494) 8,600,579
Income tax (expense) benefit 34,815 1,436 34,815 (247,742)
------------ ------------ ------------ ------------
Net (loss) income $ (722,748) (170,619) (1,051,679) 8,352,837
============ ============ ============ ============
(Loss) income per common share $ (0.07) (0.02) (0.11) 0.84
============ ============ ============ ============
See accompanying notes to consolidated financial statements.
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OCEANIC EXPLORATION COMPANY AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
(UNAUDITED)
Six Months Ended
June 30,
2001 2000
---- ----
Cash flows from operating activities:
Net (loss) income $(1,051,679) 8,352,837
Adjustments to reconcile net (loss) income to cash
(used in) provided by operating activities:
Amortization and depreciation 66,981 30,906
Loss on disposal of fixed assets 2,616 --
Decrease (increase) in accounts receivable and due from
affiliates 17,926 (291,272)
Increase in prepaid expenses (3,436) (370)
Increase in accounts payable and accounts payable
to affiliate 132,382 13,869
Increase (decrease) in United Kingdom taxes payable,
including accrued interest, and accrued expenses 112,082 (148,119)
----------- ----------
Cash (used in) provided by operating activities (723,128) 7,957,851
Cash flows from investing activities:
Purchase of operations and certain assets of Alliance -- (682,232)
Purchase of fixed assets (18,853) (2,609)
----------- ----------
Cash used in investing activities (18,853) (684,841)
Cash flows from financing activities--
repayments to shareholder and affiliate -- (1,357,636)
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Net (decrease) increase in cash (741,981) 5,915,374
----------- ----------
Cash at beginning of period 5,475,156 66,462
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Cash at end of period $ 4,733,175 5,981,836
=========== ==========
See accompanying notes to consolidated financial statements.
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OCEANIC EXPLORATION COMPANY AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
June 30, 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
in the United States of America, have been condensed or omitted pursuant to
those rules and regulations, although Oceanic Exploration Company ("Oceanic" or
"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 recurring 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 had
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) EXPLORATION EXPENSES
As discussed in the December 31, 2000 Form 10-KSB, in 1974 Portugal
granted an offshore concession to a subsidiary of Oceanic to explore for and
develop oil and gas in the Timor Gap area. On January 5, 1976, subsequent to
Indonesia's unlawful invasion and occupation of East Timor, Portugal agreed to a
suspension of performance under the concession agreement, based upon force
majeure.
On December 11, 1989, Australia and Indonesia, ignoring Oceanic's
rights under the concession from Portugal, signed the Timor Gap Treaty,
purporting to create a joint zone of
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cooperation whereby these two countries could control the exploration and
development of hydrocarbons in an area over which both countries claimed rights.
A portion of this area, designated as Zone A, falls largely within the area
where Oceanic holds rights under its concession agreement with Portugal. The
treaty created a Joint Authority that purported to enter into production sharing
contracts with various companies who have carried out exploration activities.
During 1999 the people of East Timor voted for independence from
Indonesia and the United Nations initiated a transition of East Timorese
independence under the authority of the United Nations Transitional
Administration in East Timor ("UNTAET"). Since that time, Oceanic has been
investigating and evaluating with outside counsel, whether, and against whom,
Oceanic has claims relating to the frustration of performance of its concession
with Portugal.
On June 21, 2001, representatives of Oceanic and outside legal counsel
met with certain officials of UNTAET at the United Nations Headquarters in Dili,
East Timor. This meeting was followed the next day by a meeting with the Cabinet
of the East Timor Transitional Administration. At this meeting, Oceanic
representatives discussed the 1974 concession granted by Portugal to Oceanic's
subsidiary and Oceanic's concept for the construction of a natural gas pipeline
for a liquified natural gas plant and related facilities to be located in East
Timor.
Oceanic is preparing to file a statement of claim in the Federal Court
of Australia, New South Wales District Registry, naming the Commonwealth of
Australia, the Joint Authority established pursuant to the Timor Gap Treaty, and
other parties as yet to be determined, as respondents.
(4) 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.
OIL AND GAS
EXPLORATION,
INCLUDING EMPLOYMENT
THREE MONTHS ENDED JUNE 30, 2001 CORPORATE OPERATIONS TOTAL
- -------------------------------- --------- ---------- -----
Revenue 171,371 587,716 759,087
Loss before taxes (586,834) (170,729) (757,563)
Total assets 4,821,273 840,766 5,662,039
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OIL AND GAS
EXPLORATION,
INCLUDING EMPLOYMENT
THREE MONTHS ENDED JUNE 30, 2000 CORPORATE OPERATIONS TOTAL
- -------------------------------- --------- ---------- -----
Revenue 251,426 895,776 1,147,202
Loss before taxes (69,714) (102,341) (172,055)
Total assets 5,783,130 1,158,370 6,941,500
OIL AND GAS
EXPLORATION,
INCLUDING EMPLOYMENT
SIX MONTHS ENDED JUNE 30, 2001 CORPORATE OPERATIONS TOTAL
------------------------------ --------- ---------- -----
Revenue 384,638 1,307,827 1,692,465
Loss before taxes (726,165) (360,329) (1,086,494)
Total assets 4,821,273 840,766 5,662,039
OIL AND GAS
EXPLORATION,
INCLUDING EMPLOYMENT
SIX MONTHS ENDED JUNE 30, 2000 CORPORATE OPERATIONS TOTAL
- ------------------------------ --------- ---------- -----
Revenue 9,287,671 895,776 10,183,447
Income (loss) before taxes 8,702,920 (102,341) 8,600,579
Total assets 5,783,130 1,158,370 6,941,500
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS
Certain information in this Form 10-QSB 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
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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 as of June
30, 2001 and 2000 and for the respective periods then ended.
LIQUIDITY AND CAPITAL RESOURCES
Oceanic's primary sources of liquidity are cash and cash equivalents,
cash provided by the settlement of litigation related to the net profits
interest, 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 an employment agency and the payment of
trade payables. Exploration and development programs and employment operations
are being financed by internally 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 six months ended
June 30, 2001 was $723,128, compared to cash provided by operating activities of
$7,957,851 for the comparable period in 2000. As described in Note 2 of the
consolidated financial statements, 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 $360,300, and resulted in cash used in
operating activities of approximately $250,800. The net changes in Alliance's
operating assets and liabilities included a decrease in receivables and prepaids
along with an increase in accrued expenses. Revenue generated by Alliance during
the first six months of 2001 averaged $216,000 per month.
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.
Management fees, included in other revenues, for the six months ended June 30,
2001 were approximately $235,000 compared to approximately $286,500 for the six
months ended June 30, 2000.
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Cash used in investing activities during the six months ended June 30,
2001 was $18,853, compared to $684,841 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 six months
ended June 30, 2001. During the comparable period in 2000, $1,357,636 was used
to repay shareholder and affiliate debt.
Oceanic had $4,733,175 in cash and cash equivalents and working capital
of $3,966,690 at June 30, 2001 compared with $6,297,123 in cash and cash
equivalents and working capital of $5,402,574 at June 30, 2000.
RESULTS OF OPERATIONS
THREE-MONTH COMPARISON
Total revenue for the three months ended June 30, 2001 is 34% less than
total revenue for the three months ended June 30, 2000. Staffing revenues are
down 35% due to a decline in the number of customers from a year ago. Alliance
has been under new management for the three months ended June 30, 2001. Although
there has been no increase in revenues during that time, management has reduced
expenses and concentrated on putting systems and a team in place to handle
anticipated growth. Interest income is down 40% due to lower cash balances and a
decrease in interest rates from a year ago. Other revenue is down 22% mainly due
to a decrease in management fees related to a decrease in the level of services
provided to San Miguel Valley Corporation.
Exploration expenses for the three months ended June 30, 2001 are
substantially higher than during the comparable three months of 2000. As
discussed in Note 3 of the consolidated financial statements, Oceanic has been
investigating and evaluating with outside counsel, whether, and against whom, it
has claims relating to the frustration of performance of its concession with
Portugal in the Timor Gap area.
Staffing direct costs for the three months ended June 30, 2001 are 34%
less than for the three months ended June 30, 2000. This is in line with the
decrease in revenues.
General and administrative expenses for the three months ended June 30,
2001 are 26% higher than the comparable period a year ago. Oceanic was required
to pay six months' severance and one year's severance to the outgoing President
and Human Resources Director of Alliance, respectively, according to the terms
of their employment agreements.
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SIX-MONTH COMPARISON
Total revenue for the six months ended June 30, 2001 is substantially
less than total revenue for the six months ended June 30, 2000. As noted in Note
2 of the consolidated financial statements, 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) in the first six months of 2000. There was
no comparable revenue during the six months ended June 30, 2001.
Staffing revenue of $1,295,583 for the six months ended June 30, 2001
was offset by staffing direct costs of $1,114,380. As the operations of Alliance
were acquired March 31, 2000, the amount of staffing revenue and direct staffing
costs for the six months ended June 30, 2000 represents only three months of
revenue and expenses.
Interest revenue for the six months ended June 30, 2001 is
substantially less than the comparable six months of 2000 mainly because the
accrued interest payment received as part of the Denison settlement was recorded
at the gross amount of $1,970,066, before Canadian withholding taxes.
Other revenue for the six months ended June 30, 2001 is 37% less than
the comparable period during 2000 for two main reasons: 1) Oceanic received
court costs of $118,255 during the six months ended June 30, 2000 that was
recorded as other revenue; and, 2) The level of services provided to San Miguel
Valley Corporation decreased approximately $10,000 per month during the first
six months of 2001.
Interest and financing costs for the six months ended June 30, 2001 are
approximately half as much as during the comparable period of 2000 due to the
repayment of shareholder and affiliate debt during the six months ended June 30,
2000.
Exploration expenses for the first six months of 2001 are significantly
higher than the comparable six months of 2000. This is due to ongoing legal fees
associated with exploring the legal issues surrounding Oceanic's Timor Gap
concession. Refer to the discussion of exploration expenses in Note 3 of the
consolidated financial statements.
Amortization and depreciation expense for the six months ended June 30,
2001 and 2000 is mainly associated with the acquisition of Alliance. As Alliance
was acquired March 31, 2000, related expenses for the six months ended June 30,
2001 are approximately twice as much as during the comparable period of 2000.
General and administrative costs associated with Alliance for the six
months ended June 30, 2001 and 2000 were $553,312 and $257,440, respectively.
The balance of general and administrative costs for the six months ended June
30, 2001 represents an increase of approximately $170,000 over the six months
ended June 30, 2000. The increase is attributable to increased rent and costs
associated with the transition of management for Alliance.
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The decrease in revenues and increase in certain expenses has resulted
in net loss of $1,051,679 for the six months ended June 30, 2001 compared to net
income of $8,352,837 for the six months ended June 30, 2000.
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: August 14, 2001 /s/ Charles N. Haas
----------------------- ---------------------------------------------
Charles N. Haas
President
Date: August 14, 2001 /s/ Phylis J. Anderson
----------------------- ---------------------------------------------
Phylis J. Anderson
Treasurer and Chief Financial Officer