SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-QSB
(MARK ONE)
[X] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(D)
OF THE SECURITIES EXCHANGE ACT OF 1934
[ ] FOR THE QUARTERLY PERIOD ENDED MARCH 31, 1999.
OR
TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(D)
OF THE SECURITIES EXCHANGE ACT OF 1934
FOR THE TRANSITION PERIOD FROM _____________ TO ____________
Commission File Number 33-99978
ABACAN RESOURCE CORPORATION
(Exact name of registrant as specified in its charter)
ALBERTA, CANADA (I.R.S. Employer
(State or other jurisdiction of Identification No.)
incorporation or organization)
3050 POST OAK BLVD, SUITE 600
HOUSTON, TEXAS
77056
(Address of principal executive offices)
(Zip Code)
(713) 479-9770
Registrant's telephone number, including area code)
Check whether the issuer (1) has filed all reports required to be filed by
Section 13 or 15(d) of the Securities Exchange Act during the preceding 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 [ ]
State the number of shares outstanding of each of the issuers classes of common
equity, as of the latest practical date: 114,370,836 shares of common stock were
outstanding on May 11, 1999.
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ABACAN RESOURCE CORPORATION
INDEX
PART I FINANCIAL INFORMATION Page Number
Item 1 Consolidated Balance sheets as of March 31, 3
1999 and December 31, 1998
Consolidated Statements of Operations for the 4
Three Months ended March 31, 1999 and 1998
Consolidated Statements of Change in Cash Flows 5
for the Three Months ended March 31, 1999 and 1998
Notes to Consolidated Financial Statements 6
Item 2 Management's Discussion and Analysis of 10
Financial Condition and Results of Operations
PART II OTHER INFORMATION
Item 1 Legal Proceedings 14
Item 3 Defaults Upon Senior Securities 14
Item 4 Submission of Matters to a Vote of Security Holders 15
Item 6 Exhibits and Reports on Form 8K 15
SIGNATURES 16
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PART 1 - FINANCIAL INFORMATION
Item 1 - Financial Statements
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ABACAN RESOURCE CORPORATION
CONSOLIDATED BALANCE SHEETS
(Thousands of U.S. Dollars)
March 31, 1999 December 31, 1998
(unaudited) (audited)
---------------- -------------------
<S> <C> <C>
ASSETS
Current Assets
Cash $ 2,497 $ 3,305
Accounts receivable 23 31
---------------- -------------------
2,520 3,336
---------------- -------------------
Petroleum and natural gas properties (Note 3) 92,409 92,431
---------------- -------------------
Deposits and other 66 42
---------------- -------------------
$ 94,995 $ 95,809
================ ===================
LIABILITIES
Current Liabilities
Accounts payable $ 10,203 $ 9,663
Royalties payable (Note 4) 5,373 5,373
Senior Secured Loan (Note 5) 30,702 30,702
---------------- -------------------
46,278 45,738
---------------- -------------------
SHAREHOLDERS' EQUITY
Share capital 276,750 276,750
Deficit (228,033) (226,679)
---------------- -------------------
48,717 50,071
---------------- -------------------
$ 94,995 $ 95,809
================ ===================
</TABLE>
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<TABLE>
<CAPTION>
ABACAN RESOURCE CORPORATION
CONSOLIDATED STATEMENTS OF OPERATIONS AND DEFICIT
FOR THE THREE MONTHS ENDED MARCH 31,
(Thousands of U.S. Dollars)
1999 1998
(unaudited) (unaudited)
------------ ------------
<S> <C> <C>
REVENUE
Petroleum revenue (net of foreign taxes) $ - $ 9,986
Royalties - (1,235)
Interest and other 28 41
Property insurance settlement (Note 3) 460 C
------------ ------------
488 8,792
------------ ------------
EXPENSES
Operating - 8,041
General and administrative 1,338 1,644
Interest and other financial expense 482 1,039
Depletion, depreciation and amortization 22 1,980
------------ ------------
1,842 12,704
------------ ------------
NET LOSS FOR THE PERIOD (1,354) (3,912)
------------ ------------
DEFICIT, Beginning of period 226,679 239,176
------------ ------------
DEFICIT, END OF PERIOD $ 228,033 $ 243,088
- -------------------------------------------- ============ ============
NET LOSS PER SHARE $ (0.01) $ (0.03)
- -------------------------------------------- ============ ============
</TABLE>
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<TABLE>
<CAPTION>
ABACAN RESOURCE CORPORATION
CONSOLIDATED STATEMENTS OF CHANGE IN CASH FLOW
FOR THE THREE MONTHS ENDED MARCH 31,
(Thousands of U.S. Dollars)
1999 1998
(unaudited) (unaudited)
------------ -----------
<S> <C> <C>
Cash provided by (used in):
OPERATING ACTIVITIES
Net loss for the period $ (1,354) $ (3,912)
Items not affecting cash
Depletion, depreciation and amortization 22 1,980
------------ ---------
Changes in non-cash operating working capital items 548 10,240
------------ ---------
(784) 8,308
------------ ---------
FINANCING ACTIVITIES
Long term debt - (2,916)
Capital lease obligation - (352)
- -------------------------------------------------------- ------------ ---------
- - (3,268)
- -------------------------------------------------------- ------------
INVESTING ACTIVITIES
Expenditures on petroleum and natural gas properties - (15,758)
Changes in non-cash working capital items - 10,862
Other (24) -
------------ ---------
(24) (4,896)
------------ ---------
INCREASE (DECREASE) IN CASH (808) 144
------------ ---------
CASH - BEGINNING OF PERIOD 3,305 1,813
------------ ---------
CASH - END OF PERIOD $ 2,497 $ 1,957
- -------------------------------------------------------- ============ =========
</TABLE>
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ABACAN RESOURCE CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(UNAUDITED)
1. BASIS OF PRESENTATION
Interim Financial Statements
------------------------------
The consolidated financial statements included herein have been prepared by
Abacan Resource Corporation and are unaudited, except for the balance sheet
at December 31, 1998, which has been prepared from the audited financial
statements at that date. These financial statements include accounts of
Abacan Resource Corporation, a Canadian Corporation incorporated in the
Province of Alberta and all of its wholly owned subsidiaries (the
"Company"). The accompanying consolidated balance sheet as at March 31,
1999 and the consolidated statements of operations and deficit and changes
in cash flows for the three months ended March 31, 1999 and March 31, 1998
include all adjustments (consisting only of normal recurring adjustments
and accruals) considered necessary to present fairly the Company's the
financial position as at March 31, 1999 and the results of operations and
cash flows for the three months ended March 31, 1999 and March 31, 1998.
Certain information and footnote disclosures normally included in financial
statements prepared in accordance with generally accepted accounting
principles have been omitted pursuant to the rules and regulations of the
Securities and Exchange Commission (the "SEC"). These financial statements
and the notes thereto should be read in conjunction with the Company's
annual report on Form 10-KSB for the year ended December 31, 1998 and any
capitalized terms used but not defined in these Notes to Consolidated
Financial Statements have the same meaning given to them in that Form
10-KSB.
Continuation of Business
--------------------------
Abacan Resource Corporation is an independent energy company engaged in the
acquisition and exploration of oil and gas properties located principally
in the West African countries of Nigeria and Benin. Since the
reorganization of its oil and gas operations in June 1998, the Company has
focused its efforts on its Benin Basin holdings where negotiations are
currently underway for the establishment in Benin of a natural gas powered
electrical generation plant that is planned to utilize the natural gas
resources identified in the Company's Benin Basin concessions. The Company
is also actively marketing the farm-out, sale or other disposition of its
properties to industry partners.
The consolidated financial statements are unaudited and have been presented
by management using accounting principles applicable to a going concern,
which assumes that the Company will continue operations in the foreseeable
future and be able to realize assets and satisfy liabilities in the normal
course of business. The Company has a liquidity problem which casts doubt
upon the validity of this assumption.
The Company's ability to continue as a going concern is dependent upon the
following factors which outline management's plan:
i) the development of the natural gas reserves in the Benin Basin
Concessions OML113 and OPL 310 including the development of a market
for the produced natural gas in this area;
ii) obtaining financing in the form of equity, debt or a combination
thereof in order to continue the development of the petroleum reserves
in the above mentioned Concessions;
iii) negotiating a joint venture for the continued exploration and
development of the Company's West African acreage position;
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iv) continuing to finance general and administrative expenses from
existing cash or financing in the form of equity, debt or combination
thereof; and
v) negotiations with certain suppliers to settle current liabilities and
forbearance of the Company's secured and unsecured creditors.
If the going concern assumption was not appropriate for these financial
statements, then adjustments would be necessary in the carrying value of
assets and liabilities, the reported net loss and the balance sheet
classifications used.
Generally Accepted Accounting Standards
------------------------------------------
The financial statements of the Company have been prepared in accordance
with accounting principles generally accepted in Canada which differ from
accounting principles generally accepted in the United States. In the
opinion of management, there are no differences between Canadian and U.S.
GAAP materially affecting the Company's interim financial statements.
2. LOSS PER COMMON SHARE
Supplemental loss per share information is provided below:
<TABLE>
<CAPTION>
For the Three Months Ended March 31
---------------------------------------------------------------------------
Loss Shares Per-Share Amount
-------------------------- ----------------------------- ----------------
1999 1998 1999 1998 1999 1998
------------ ------------ ---------------- ----------- ------- -------
<S> <C> <C> <C> <C> <C> <C>
Net loss $(1,354,000) $(3,912,000) 114,370,836 112,881,836 $(0.01) $(0.03)
------------ ------------ ---------------- ----------- ------- -------
Basic loss per Share
$ (0.01) $ (0.03) - - - -
------------ ------------ ---------------- ----------- ------- -------
Stock Options 12,356,200 10,461,750 - - - -
- ---------------------- ------------ ------------ ---------------- ----------- ------- -------
Diluted loss per Share
$ (0.01) $ (0.03) - - - -
============ ============ ================ =========== ======= =======
</TABLE>
Net loss per common share has been computed by dividing net earnings (loss)
by the weighted average number of shares of common stock outstanding during
the periods. During the three months ended March 31, 1999, the Company had
outstanding 12,356,200 stock options and warrants to purchase 12,356,200
shares of common stock, which were antidilutive and were not included in
the calculation as the exercise price exceeded the market value. In 1998,
the Company adopted SFAS No. 128, "Earnings per Share," effective December
31, 1997. This accounting change had no effect on previously reported
earnings (loss) per share (EPS) data.
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3. PETROLEUM AND NATURAL GAS PROPERTIES
The Company disposed of substantially all of its working interests in its
petroleum and natural gas properties located in the Niger Delta region of
Nigeria in June 1998 as part of a general reorganization of its petroleum
and natural gas operations. As a result, following the reorganization the
Company's principal petroleum and natural gas properties are comprised of
Nigerian offshore Block OML 113, Block OPL 310 and Benin Republic offshore
Blocks 1 and 4.
During the period, the Company received $460,000 from the settlement of an
insurance claim of its Ima #9 well located in the Niger Delta in respect of
a concession previously disclosed of.
The Company's interests in its petroleum and natural gas properties include
obligations to meet certain minimum work requirements and/or expenditures.
In the case of Block OML 113, the Company has satisfactorily met such
minimum requirements.
On Concession Block OPL 310, the Company is required to complete a minimum
work program consisting of three wells and a seismic program. The
obligation of the Company to initiate expenditures towards satisfaction of
the minimum work program commences after receipt of requisite government
approval of the joint venture agreement between the Company an the
indigenous Nigerian concession owner, Optimum Petroleum Development
Limited. The OPL for Concession Block OPL 310 has expired and Optimum has
not secured a renewal, extension or requisite government approval of the
joint venture agreement.
In Benin, the Company was required to complete a seismic program and drill
one well on Block 1 by February 28, 1999. The Company has obtained an
extension to August 30, 1999 to meet these requirements. The Company is
required to complete a seismic program on Block 4 during an initial
exploration period ending January 31, 2000. The Company is awaiting
government confirmation that the minimum work program for the initial
exploration period has been satisfied.
4. ROYALTIES PAYABLE
As at March 31, 1999, royalties payable included an amount of $1.0 million
owed to Abacan International Resource Management Inc. ("Airmi"), $1.4
million to Yinka Folawiyo Petroleum Company Limited ("YFP") and $2.9
million to several other unrelated companies. All of the royalties relate
to the Ima Field. Airmi is a company wholly owned by Wade G. Cherwayko, a
former senior executive officer and director of the Company. YFP is
substantially controlled by the father of Mr. Tunde Folawiyo, a director of
the Company. Mr. Folawiyo is also an executive officer of YFP.
5. SENIOR SECURED LOAN
On June 30, 1998, the Company established a $30.7 million credit facility
(the "Secured Loan"). The Secured Loan replaced a Crude Oil Prepayment
Agreement that was established in 1997 and pursuant to which approximately
$35.0 million was advanced to the Company. Under the terms of the Secured
Loan, interest is payable on the outstanding principal balance of the
credit facility at a maximum rate equal to Libor plus 4% per annum.
Repayment of $20.1 million of the principal amount is due June 30, 1999
with the balance of $10.6 million due on December 31, 1999. Under the terms
of the Secured Loan, interest payments are due quarterly and were to
initially commence on December 31, 1998. Subsequent to December 31, 1998,
the Company received written confirmation from the lender that the first
quarterly interest payment due December 31, 1998 had been capitalized and
that interest payments would commence on March 31, 1999. The lender
subsequently advised that notwithstanding its written extension, the first
interest installment continued to be due on December 31, 1998. The Company
has not made the December 31, 1998 or March 31, 1999 interest installments
and is currently negotiating with the lender for relief from these payments
and from other near-term cash interest and principal payments.
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The Company has granted security in respect of its repayment obligations
under the Secured Loan. Included as security are: (1) a pledge of all of
the common shares of those subsidiaries that hold or held Participating
Interests in the Company's Niger Delta and Benin Basin Concessions; (2) a
series of debentures granting a security interest against the Company's
Participating Interests in its Niger Delta and Benin Basin Concessions; and
(3) a guarantee of Abacan Resource Corporation for all outstanding amounts
due under the Secured Loan.
6. CONTINGENCIES
While the Company is defending various lawsuits, there are two lawsuits in
which the claims are significant, which relate to liabilities assumed by
Amni. Although Amni has agreed to assume liability for any claims against
the Company in respect of oil and gas operations on the Ima Field, the
Company will continue to be liable to trade and other creditors until
settlement arrangements can be established. The total amounts claimed in
the two lawsuits (exclusive of costs and interest) is approximately
$3,700,000. The management of the Company has determined that the Company
does not have any material exposure in any of the lawsuits.
7. SUBSEQUENT EVENTS
On January 26, 1999, the Company announced that it had been advised by
Nasdaq Stock Market Inc. that the trading price of the Company's common
stock was below the $1.00 per share minimum established by the Nasdaq
National Market for continued listing on that market. The Company was
granted until April 7, 1998 to meet the minimum trading price requirement,
failing which the Company's common stock would become subject to de-listing
from the Nasdaq National Market. On March 29, 1999, the shareholders of the
Company approved a resolution authorizing the directors of the Company, in
their sole discretion, to give effect to a consolidation (reverse stock
split) of the Company's common stock in order to satisfy the Nasdaq minimum
trading price requirement. Subsequent thereto, the directors determined
that it was not in the best interests of the Company to effect a
consolidation at that time and did not proceed to authorize a consolidation
of the Company's common stock. On April 8, 1999, the Company's common
shares were de-listed from the Nasdaq National Market and commenced trading
on the Nasdaq OTC Bulletin Board. The Company's common shares continue to
trade on The Toronto Stock Exchange.
8. UNCERTAINTY DUE TO THE YEAR 2000 ISSUE
The Year 2000 Issue arises because many computerized systems use two digits
rather than four to identify a year. Date-sensitive systems may recognize
the year 2000 as 1900 or some other date, resulting in errors when
information using year 2000 dates is processed. In addition, similar
problems may arise in some systems which use certain dates in 1999 to
represent something other than a date. The effects of the Year 2000 Issue
may be experienced before, on, or after January 1, 2000, and, if not
addressed, the impact on operations and financial reporting may range from
minor errors to significant systems failure which could affect the
Company's ability to conduct normal business operations. However, it is not
possible to be certain that all aspects of the Year 2000 Issue affecting
the Company, including those related to the efforts of customers,
suppliers, or other third parties, will be fully resolved.
Item 2 - Management's Discussion and Analysis of Financial Condition and
Results of Operations
The following should be read in conjunction with the Company's financial
statements contained herein and in the Form 10-KSB for the year ended December
31, 1998 along with Management's Discussion and Analysis contained in such Form
10-KSB. Any capitalized terms used but not defined in the following discussion
have the same meaning given to them in the Form 10-KSB.
Abacan Resource Corporation is an independent energy company engaged in the
acquisition and exploration of oil and gas properties located principally in the
West African countries of Nigeria and Benin. Prior to a reorganization of its
oil and gas operations in June 1998, the Company's operations were focused in
two distinct geological regions - the Niger Delta, Nigeria's prolific oil
producing region located in south-central Nigeria, and the Benin Basin, a
largely unexplored area located in the coastal waters of western Nigeria and
Benin. Subsequent to the reorganization of its oil and gas operations, the
Company has focused its efforts on its Benin Basin holdings where negotiations
are currently underway for the establishment in Benin of a natural gas powered
electrical generation plant that is expected to utilize the natural gas
resources identified in the Company's Benin Basin concessions. The Company is
also actively marketing the farm-out, sale or other disposition of its
properties to industry partners.
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OVERVIEW OF FIRST QUARTER OF 1999
The Company is continuing to focus on its two initiatives involving its
substantial Benin Basin acreage: (1) the Benin Power Project, which is expected
to be supplied fuel from the Company's Block OML 113 and Benin Block 1 gas
reserves; and (2) the exploration of its Benin Basin Concessions consisting of
Block OML 113 and Block OPL 310 in Nigeria and Block 4, offshore Benin.
Benin Power Project
- -------------------
On May 27, 1998, the Company entered into a Letter of Intent ("LOI") with a
subsidiary of a major international natural gas and electrical power generating
company and the Government of Benin for the development of an electrical power
plant to be located in Cotonou, Benin. Under the terms of the LOI, the required
natural gas feedstock for the project is expected to come from the Company's Aje
Field natural gas resources identified on Nigerian Block OML 113 and from Block
1 in Benin. Negotiations are continuing towards the signing of a definitive
Power Purchase Agreement.
Exploration of Additional Benin Basin Acreage
- ---------------------------------------------
The Company is focused on the development of its Benin Basin concession however,
it does not currently have the financial resources necessary to explore and
develop its prospects and therefore will be reliant on third-party funding
sources to provide the necessary capital to do so. Interest has been expressed
by a several possible industry partners and the Company continues to explore
various options with respect to securing a partner. Types of relationships that
are currently being contemplated are joint venture transactions, farm-outs,
sales of interests or a merger.
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<PAGE>
LIQUIDITY, OPERATING AND CAPITAL REQUIREMENTS AND FUNDING ALTERNATIVES
The Company continues to have a serious liquidity problem that casts doubt upon
the ability of the Company to continue operations in the foreseeable future. As
of March 31, 1999, the Company had approximately $2.5 million of cash, senior
secured debt of approximately $30.7 million, accounts payable of approximately
$10.2 million and royalties payable of approximately $5.4 million.
As a result of the disposition of its producing properties in June 1998, the
Company did not have any other source of oil and gas revenue during the three
months ended March 31, 1999. The Company does not anticipate generating revenues
or cash flow until the completion of the Benin Basin electrical generation
project or the sale or farm-out of part or all of its existing properties. The
Company has limited cash reserves and, despite a reduction in operational costs,
is continuing to incur general, administrative and other related expenses
including interest expense. Based upon current expenditure levels, the cash
reserves of the Company will not be sufficient to sustain the operations of the
Company at current levels. That being the case, the Company's ability to
continue as a going concern is dependent on the following:
1. The development of the natural gas resources in Benin Basin Concession
Blocks OML 113 and OPL 310 including the development of a commercial market
for the natural gas produced in this area;
2. Obtaining financing in the form of equity, debt or a combination thereof in
order to continue the development of the petroleum resources in the above
referenced concession blocks;
3. Negotiating a joint venture for the continued exploration and development
of the Company's West African acreage position;
4. Continuing to finance general and administrative expenses from existing
cash or financing in the form of equity, debt or a combination thereof;
5. Negotiations with certain suppliers to settle current liabilities and
forbearance of the Company's secured and unsecured creditors;
The Company has received an indication from two major shareholders that, subject
to the fulfillment of certain conditions, additional funding may be available to
the Company. However, there is no assurance any such funding, joint venture
transactions or asset sales will be available to the Company.
SENIOR SECURED LOAN
In August 1997, the Company was advanced a Secured Loan pursuant to a Crude Oil
Prepayment Agreement with a major international oil marketing company. The
proceeds of the Secured Loan were used by the Company to repay outstanding
project financing and exploration and development costs for the production of
petroleum from the Ima Field located in the Niger Delta. The $30.7 million
Secured Loan was restructured on June 30, 1998. As restructured, repayment of
the principal amount of $20.1 million of the secured loan was deferred until
June 30, 1999 with the balance of $10.6 million due on December 31, 1999.
Interest payments were to commence quarterly on December 31, 1998. Subsequent to
December 31, 1998, the Company received written confirmation from the lender
that the first quarterly interest payment due December 31, 1998 had been
capitalized and that interest payments would commence on March 31, 1999. The
lender subsequently advised that notwithstanding its written extension, the
first interest installment continued to be due on December 31,1998. The Company
has not made the December 31, 1998 or March 31, 1999 interest installments. The
Company is currently negotiating with the lender regarding relief from these
payments and from other near-term interest and principal payments. The Company
currently does not have nor does it anticipate having sufficient funds to
satisfy the initial principal payment due on the Secured Loan on June 30, 1999.
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The Company has granted security to the lender in respect of its repayment
obligations under the Secured Loan. The Secured Loan includes a number of events
of default. In the event of the Company's default under the terms of the Secured
Loan, the lender may call upon the Company to immediately pay the outstanding
principal or interest due thereunder, or take title to, sell or otherwise
dispose of the common shares of substantially all of the Company's subsidiaries.
Should the lender become entitled to realize upon its security, the Company may
lose part or all of its interests in part of all of its oil and gas properties.
The Company may currently be in default of one or more terms of the Secured
Loan.
ACCOUNTS PAYABLE
As at March 31, 1999, the Company had approximately $10.2 million in unsecured
trade debt. The Company continues to work to reach settlement arrangements with
its creditors.
CONTINGENCIES
While the Company is defending various lawsuits, there are two lawsuits in which
the claims are significant, which relate to liabilities assumed by Amni.
Although Amni has agreed to assume liability for any claims against the Company
in respect of oil and gas operations on the Ima Field, the Company will continue
to be liable to trade and other creditors until settlement arrangements can be
established. The total amounts claimed in the two lawsuits (exclusive of costs
and interest) is approximately $3,700,000. The management of the Company has
determined that the Company does not have any material exposure in any of the
lawsuits.
ROYALTIES PAYABLE
As at March 31, 1999, royalties payable included an amount of $1.0 million owed
to Abacan International Resource Management Inc. ("Airmi"), $1.4 million to
Yinka Folawiyo Petroleum Company Limited ("YFP") and $2.9 million to several
other unrelated companies. All of the royalties relate to the Ima Field. AIRMI
is a company wholly owned by Wade G. Cherwayko, a former senior executive
officer and director of the Company. YFP is substantially controlled by the
father of Mr. Tunde Folawiyo, a director of the Company. Mr. Folawiyo is also an
executive officer of YFP.
RESULTS OF OPERATIONS
Production and Sales
- --------------------
The Company discontinued its hydrocarbon production operations due to the sale
of the Ima Field in June 1998. Consequently, no production revenues or
production expenses were recorded during the three months ended March 31, 1999.
Property Insurance Settlement
- -----------------------------
The Company received approximately $460,000 from the settlement of an insurance
claim of its Ima #9 well located in the Niger Delta in respect of a concession
block previously disposed of.
General and Administrative Expenses
- -----------------------------------
General and Administrative expenses for the three months ended March 31, 1999
were approximately $1.3 million versus approximately $1.6 million for the three
months ended March 31, 1998. The reduction in costs was attributed primarily to
a reduction in overhead expenses due primarily to the closure of three offices,
a reduction in staff levels and the out-sourcing of several of the Company's
administrative functions. The Company continues however to incur significant
legal and accounting expenses incurred related to the completion of negotiations
respecting its Benin Basin properties and its ongoing restructuring process.
Critical to continued existence of the Company is the continued reduction and
re-alignment of general and administrative expenses to better reflect the
Company's current situation and future prospects. The Company currently has no
revenue or cash flow and limited cash reserves. Accordingly, the Company will
require additional financing in the near term in order to sustain its current
level of operations.
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Interest and Other Financial Expense
- ------------------------------------
For the three months ended March 31, 1999, the Company incurred approximately
$0.5 million in interest and other financial expenses versus approximately $1.0
million for the same period in 1998. These charges are primarily related to the
lender both prior to and following its restructuring. The December 31, 1998 and
March 31, 1999 quarterly interest payments have not been made. The Company is
currently negotiating with the lender regarding relief from these payments and
from other near-term cash interest and principal payments.
OUTLOOK
As outlined in the Company's most recent annual report on Form 10-KSB, the
continuing corporate financial restructure is a critical priority to the
sustained viability of the Company. The Company is exploring opportunities to
raise additional capital, settle liabilities and reduce overhead costs. In
addition, the Company is exploring various options that allow for external
funding for further development of its remaining Benin Basin concession blocks,
including a farm-out, sale of interests or merger. Should the Company be unable
to raise additional capital, either directly or through a combination of a sale
or farm-out of assets, or a business combination, it may be required to cease
operations.
YEAR 2000
The Company is assessing the impact of the Year 2000 issue on its operations,
including the development and implementation of project plans and cost estimates
required to make its information systems infrastructure Year 2000 compliant.
Based on existing information, the Company believes that anticipated spending
necessary to become Year 2000 compliant will not have a material effect on the
financial position, cash flows or results of operations of the Company, nor will
the Year 2000 issues cause any material adverse effect on the future business
operations of the Company. There can be no assurance, however, as to the
ultimate effect of the Year 2000 issue on the Company.
SUBSEQUENT EVENTS
Common Shares De-Listed From Nasdaq National Market
- ---------------------------------------------------
On January 26, 1999, the Company announced that it had been advised by Nasdaq
Stock Market Inc. that the trading price of the Company's common stock was below
the $1.00 per share minimum established by the Nasdaq National Market for
continued listing on that market. The Company was granted until April 7, 1998 to
meet the minimum trading price requirement, failing which the Company's common
stock would become subject to de-listing from the Nasdaq National Market. On
March 29, 1999, the shareholders of the Company approved a resolution
authorizing the directors of the Company, in their sole discretion, to give
effect to a consolidation (reverse stock split) of the Company's common stock in
order to satisfy the Nasdaq minimum trading price requirement. Subsequent
thereto, the directors determined that it was not in the best interests of the
Company to effect a consolidation at that time and did not proceed to authorize
a consolidation of the Company's common stock. On April 8, 1999, the Company's
common shares were de-listed from the Nasdaq National Market and commenced
trading on the Nasdaq OTC Bulletin Board. The Company's common shares continue
to trade on The Toronto Stock Exchange.
PART II - OTHER INFORMATION
Item 1 - Legal Proceedings
There have been no material changes to the status of the legal proceedings
reported by the Company on Form 10-KSB for the year ended December 31, 1998.
Item 3 - Defaults Upon Senior Securities
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On June 30, 1998, the Company restructured its outstanding $30.7 million senior
secured loan. As restructured, repayment of the principal amount of $20.1
million of the loan was deferred until June 30, 1999 with the balance of $10.6
million due on December 31, 1999. Interest payments were to commence quarterly
on December 31, 1998. Subsequent to December 31, 1998, the Company received
written confirmation from the lender that the first quarterly interest payment
due December 31, 1998 had been capitalized and that interest payments would
commence on March 31, 1999. The lender subsequently advised that,
notwithstanding its written extension, the first interest installment continued
to be due on December 31, 1998. The Company has not made the December 31, 1998
or March 31, 1999 interest installments. As of March 31, 1999 total interest
arrears are estimated at $974,000 in respect of such unpaid installments.
-14-
<PAGE>
Item 4 - Submission of Matters to a Vote of Security Holders
(a) The Company held an annual and special meeting of shareholders on March 29,
1999.
(c) Set forth are the results of the voting with respect to each matter acted
upon at the meeting (proxy totals in thousands):
<TABLE>
<CAPTION>
Broker
For Against Withheld Abstain Non votes
---------- --------- -------- ------- ---------
<S> <C> <C> <C> <C> <C>
Setting Number of Directors at Five 68,343,146 325,681 - - -
---------- --------- -------- ------- ---------
Election of Directors
Timothy T. Stephens 68,388,195 - 414,137 - -
James S. Harvie 68,414,332 388,000
T. B. ("Tunde") Folawiyo 68,420,899 381,433
James A. Kishpaugh 68,418,932 383,400
Kenneth C. Rutherford 68,423,932 378,400
---------- --------
Amendment to the Articles of Incorporation to 67,616,231 1,104,443 - - -
Give Effect to a Reverse Stock Split, at the
Discretion of the Board of Directors
Appointment of Deloitte & Touche, LLP as 68,460,704 - 285,748 - -
Auditor
</TABLE>
Item 6 - Exhibit and Reports on Form 8-K
(a) Exhibit - 27.1 - Financial Data Schedule
(b) Reports on Form 8-K. No reports on Form 8-K were filed during the quarter
ended March 31, 1999.
-15-
<PAGE>
ABACAN RESOURCE CORPORATION AND SUBSIDIARIES SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the
Registrant has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.
ABACAN RESOURCE
CORPORATION
(Registrant)
Date: May 14, 1999 By: /s/ Timothy T. Stephens
-------------- -----------------------------------
Timothy T. Stephens
President (Chief Executive Officer)
and a Director
-16-
<PAGE>
Index to Exhibits
Exhibit # Description Data Schedule
--------- -------------------------
27.1 Financial Data Schedule
-17-
<PAGE>
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM ABACAN
RESOURCE CORPORATION MARCH 31, 1999 FORM 10-QSB AND IS QUALIFIED IN ITS ENTIRETY
BY REFERENCE TO UNAUDITED FINANCIAL STATEMENTS.
</LEGEND>
<MULTIPLIER> 1000
<S> <C>
<PERIOD-TYPE> 3-MOS
<FISCAL-YEAR-END> DEC-31-1998
<PERIOD-START> JAN-01-1999
<PERIOD-END> MAR-31-1999
<CASH> 2497
<SECURITIES> 0
<RECEIVABLES> 23
<ALLOWANCES> 0
<INVENTORY> 0
<CURRENT-ASSETS> 2520
<PP&E> 92409
<DEPRECIATION> 0
<TOTAL-ASSETS> 94995
<CURRENT-LIABILITIES> 46278
<BONDS> 0
<COMMON> 276750
0
0
<OTHER-SE> (228033)
<TOTAL-LIABILITY-AND-EQUITY> 94995
<SALES> 0
<TOTAL-REVENUES> 488
<CGS> 0
<TOTAL-COSTS> 1360
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 482
<INCOME-PRETAX> (1354)
<INCOME-TAX> 0
<INCOME-CONTINUING> (1354)
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (1354)
<EPS-PRIMARY> (.01)
<EPS-DILUTED> (.01)
</TABLE>
