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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, 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
July 31, 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
June 30, 2000 December 31, 1999
------------ -----------------
Cash and cash equivalents (note 2) $ 5,981,836 66,462
Receivables:
Trade 289,273 --
Affiliates 6,878 8,662
Other 5,563 1,780
------------ -----------------
301,714 10,442
Prepaid expenses 13,573 2,205
------------ -----------------
Total current assets 6,297,123 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 127,063 23,413
Less accumulated depreciation (29,874) (21,973)
------------ -----------------
97,189 1,440
Goodwill net of accumulated amortization of
$23,005 (note 3) 547,188 --
------------ -----------------
$ 6,941,500 80,549
============ =================
(Continued)
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OCEANIC EXPLORATION COMPANY AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS, CONTINUED
(UNAUDITED)
LIABILITIES AND STOCKHOLDERS' EQUITY (DEFICIT)
June 30, 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 176,000 162,131
Accounts payable to affiliate 60,000 60,000
United Kingdom taxes payable, including
accrued interest 486,356 507,249
Accrued expenses 172,193 299,419
------------- -----------------
Total current liabilities 894,549 2,386,435
------------- -----------------
Deferred income taxes 12,533 12,533
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Total liabilities 907,082 2,398,968
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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) 5,258,963 (3,093,874)
------------- -----------------
Total stockholders' equity (deficit) 6,034,418 (2,318,419)
------------- -----------------
Contingencies (note 2)
$ 6,941,500 80,549
============= =================
See accompanying notes to consolidated financial statements.
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OCEANIC EXPLORATION COMPANY AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATIONS
(UNAUDITED)
Six Months Ended Three Months Ended
June 30, June 30,
2000 1999 2000 1999
------------ ------------ ------------ ------------
Revenues:
Net profits interest proceeds (note 2) $ 6,739,342 -- -- --
Staffing revenue 895,490 -- 895,490 --
Interest income 2,125,118 483 87,119 225
Other 423,497 289,087 164,593 141,465
------------ ------------ ------------ ------------
10,183,447 289,570 1,147,202 141,690
------------ ------------ ------------ ------------
Costs and expenses:
Interest and financing costs 19,614 55,387 4,700 29,206
Exploration expenses 7,070 6,669 3,590 2,730
Staffing direct costs 740,677 -- 740,677 --
Amortization and depreciation 30,906 47,820 30,746 --
General and administrative 784,601 458,521 539,544 211,706
------------ ------------ ------------ ------------
1,582,868 568,397 1,319,257 243,642
------------ ------------ ------------ ------------
Income (loss) before income taxes 8,600,579 (278,827) (172,055) (101,952)
Income tax (expense) benefit (247,742) 23,713 1,436 --
------------ ------------ ------------ ------------
Net income (loss) $ 8,352,837 (255,114) (170,619) (101,952)
============ ============ ============ ============
Income (loss) per common share $ .84 (.03) (.02) (.01)
============ ============ ============ ============
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,
2000 1999
----------- -----------
Cash flows from operating activities:
Net income (loss) $ 8,352,837 (255,114)
Adjustments to reconcile net income (loss) to net cash used in operating
activities:
Amortization and depreciation 30,906 47,820
Deferred income tax benefit -- (23,713)
Increase in accounts receivable and due from affiliates (291,272) (20,223)
Increase in prepaid expenses and other assets (370) (3,338)
Increase in accounts payable and accounts payable
to affiliate 13,869 19,533
(Decrease) increase in United Kingdom taxes payable,
including accrued interest payable, and accrued expenses (148,119) 10,951
----------- -----------
Net cash provided by (used in) operating activities 7,957,851 (224,084)
Cash flows from investing activities:
Purchase of operations and certain assets of Alliance (682,232) --
Purchase of fixed assets (2,609) --
----------- -----------
Net cash used in investing activities (684,841) --
Cash flows from financing activities:
(Repayments to) advances from notes payable to shareholder
and affiliate (1,357,636) 220,000
----------- -----------
Net increase (decrease) in cash 5,915,374 (4,084)
----------- -----------
Cash at beginning of period 66,462 29,718
----------- -----------
Cash at end of period $ 5,981,836 25,634
=========== ===========
See accompanying notes to consolidated financial statements.
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OCEANIC EXPLORATION COMPANY AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
June 30, 2000
(1) SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
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
The Registrant has a contract with Denison Mines, Ltd., as working
interest owner of the Greek properties, whereby the Registrant is entitled to
receive 15% net profits interest on any successful development of the Greek
properties. The calculation of net profits interest proceeds for the period
January 1, 1993 through December 31, 1997 was a matter of disagreement between
Denison and the Registrant. The Registrant was successful in a legal action that
was commenced against Denison Mines in June 1994 and was completed in January
2000. 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).
Calendar year 1998 was the final year of production for the Prinos oil
field in Greece. Under the terms of the consortium agreement with the Greek
government, Denison is entitled to 100% cost recovery in the final year,
therefore the Registrant did not receive any net profits interest payments
subsequent to December 31, 1997. 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
the remaining exploration area of the Aegean Sea, a portion of which has been
subject to 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.
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(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. Under
this method, the excess of the purchase price over the net assets acquired is
first allocated to adjust the recorded value of the tangible and identified
intangible assets acquired to their fair market value, with any excess then
recorded as goodwill. In the case of Alliance, the excess of the purchase price,
plus legal and other professional fees incurred, over the net assets acquired,
resulted in an increase in the recorded value of cash, prepaids and fixed assets
in the amount of $34,373, $10,998 and $101,041, respectively, with the excess of
$570,193 being recorded as goodwill.
The unaudited pro forma revenue, net income (loss) and income (loss) per
common share for the six months ended June 30, 2000 and 1999, respectively,
assuming the acquisition occurred on January 1, 1999 are as follows:
Six Months Ended
June 30,
2000 1999
----------- ---------
Revenue $11,095,001 2,136,692
Net income (loss) 8,189,172 (572,191)
Basic and diluted income (loss) per common share $ .83 (.06)
The above pro forma results are not necessarily indicative of the Registrant's
results had the acquisition occurred on January 1, 1999.
(4) NOTES PAYABLE TO SHAREHOLDER AND AFFILIATE
Notes payable to shareholder and affiliate at December 31, 1999
represent borrowings under agreements with International Hydrocarbons ("IH"),
the Registrant's majority shareholder and its affiliate, NWO Resources, Inc.
("NWO"). 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.
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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 net profits interest in the Greek properties. The Registrant also receives
revenues from sales of seismic data gathered in its oil and gas exploration and
development activities and from management services. Sales of seismic data is
sporadic and other revenue is insufficient to fund the Registrant's ongoing
operations. There have been no sales of seismic data during the six-month period
ended June 30, 2000 or the nine-month period 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 Greek
property had been the subject of litigation that was completed in the
Registrant's favor in January 2000. 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, and an 8-K/A filed on June
30, 2000, the Registrant purchased the employment operations and certain assets
of Alliance on March 31, 2000 for $581,000. As part of the acquisition, the
Registrant entered into employment contracts with key management personnel and
is using the acquired assets to continue providing employment placement services
in the San Diego area. Although the Registrant anticipated an additional
investment of approximately $400,000 to fund working capital requirements
subsequent to the closing, only $300,000 was required. In June, Alliance began
an aggressive five-month advertising and marketing campaign that is expected to
increase sales along with attracting quality temporary staffing. The employment
operations are currently averaging approximately $300,000 in sales each month.
When payments under the Greek properties interest were suspended in
1994, the Registrant funded its operations through draws against lines of credit
established with NWO and IH. 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 $569,000 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 based on costs relating to employee salaries and other
operating expenses plus an additional fee of 5% of the total amount.
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
For the six months and the three months ended June 30, 2000 the
Registrant reported net income of $8,352,837 and a net loss of $170,619,
respectively, compared to a net loss of $255,114 and $101,952 for the six
months and the three months ended June 30, 1999, respectively.
Net profits interest proceeds reflect a 100% increase from a year ago
when there was no related revenue. The Registrant received $6,739,342, 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.
Staffing revenue for the six months and the three months ended June 30,
2000 of $895,490 is related to the acquisition of Alliance on March 31, 2000 and
therefore there is no related revenue for the six months and the three months
ended June 30, 1999.
Interest income of $2,125,118 for the six months ended June 30, 2000 and
$87,119 for the three months ended June 30, 2000 is a substantial increase over
$483 and $225 for the respective periods in 1999. This is due to the payment of
accrued interest on the above-mentioned judgment, along with interest earnings
on the large cash balance that is currently being maintained.
Other revenue for the six-month period ended June 30, 2000 increased 46%
to $423,497 from $289,087 for the same period a year ago. As part of the
aforementioned judgment, the Registrant received an additional amount of
$106,237 relating to prior periods. Without the additional payment, other
revenue, consisting primarily of management fee income, increased 10% for the
period. For the three months ended June 30, 2000 other revenue of $164,593 was
16% higher than the same period a year ago.
Interest and financing costs of $19,614 for the six months ended June
30, 2000 represents a decrease of 65% from the same period a year ago. This is
attributable to the repayment of notes payable to shareholder and affiliate, on
February 1, 2000, using funds received from the judgment.
This also accounts for the 84% decrease in interest and financing costs to
$4,700 for the three months ended June 30, 2000 from $29,206 for the same three
months in 1999.
Exploration expenses have remained relatively consistent at $7,070 for
the six months ended June 30, 2000 and $3,590 for the three months ended June
30, 2000 compared to $6,669 and $2,730 for the respective periods in 1999.
Staffing direct costs of $740,677 for the six months and three months
ended June 30, 2000 represent salaries and related payroll costs of the
temporary employees of Alliance.
Amortization and depreciation costs for the six months ended June 30,
2000 of $30,906 decreased 35% from $47,820 for the six months ended June 30,
1999. The Registrant's major oil and gas producing property in Greece was fully
depleted for book purposes as of March 31, 1999. For the three months ended June
30, 1999, and for the three months and the six months ended June
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30, 2000, depletion was zero. However, the Registrant had amortization costs of
$23,005 and depreciation of $7,494 related to the acquisition of Alliance on
March 31, 2000 during the six months and the three months ended June 20, 2000.
For the six months and the three months ended June 30, 2000 general and
administrative costs of $784,601 and $539,544, respectively, represent a
significant increase over general and administrative costs of $458,521 and
$211,706 for the respective periods in 1999. Approximately $250,000 is directly
related to Alliance. Without Alliance costs, general and administrative costs
increased 16% from a year ago. This increase is primarily due to increased audit
fees and travel expenses related to the acquisition of Alliance.
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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.
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) The registrant filed an 8-K/A on June 14, 2000 that amended and
supplemented the Form 8-K filed on April 14, 2000.
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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 11, 2000 /s/ Charles N. Haas
------------------------------- -------------------------------------
Charles N. Haas
President
Date: August 11, 2000 /s/ Phylis Anderson
------------------------------- -------------------------------------
Phylis Anderson
Treasurer and Chief Financial Officer
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INDEX TO EXHIBITS
EXHIBIT
NUMBER DESCRIPTION
- ------- -----------
27 Financial Data Schedule