<PAGE>
U.S. 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 September 30, 1997
[_] TRANSITION REPORT UNDER SECTION 13 OR 15(d) OF
THE EXCHANGE ACT
For the transition period from ............ to ..............
Commission File No. 0-9617
TERRITORIAL RESOURCES, INC.
(Exact name of small business issuer as
specified in its charter)
Colorado 84-0821158
(State of other jurisdiction (IRS Employer
of incorporation or organization) Identification No.)
734 7 Ave. S.W., Suite 1345
Calgary, Alberta
Canada T2P 3P8
(Address of Principal Executive Offices)
(403) 233-7914
(Issuer's telephone number)
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 [_]
APPLICABLE ONLY TO CORPORATE ISSUERS
The number of shares outstanding of the issuer's Common Stock, as of November 6,
1997, was 10,157,266.
Transitional Small Business Disclosure Format (check one): Yes [ ] No [X]
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PART I. FINANCIAL INFORMATION
Item 1. Financial Statements.
TERRITORIAL RESOURCES, INC.
Balance Sheets
Assets
($1,000)
Unaudited
September 30 March 31
1997 1997
------------ --------
CURRENT ASSETS:
Cash $ 67 $ 6
Accounts Receivable:
Oil and gas 2 7
Other 9 2
Prepaids 81 32
------- -------
Total Current Assets 159 47
------- -------
NOTE RECEIVABLE 9 9
------- -------
INVESTMENT IN SOCO TAMTSAG
MONGOLIA,INC. ("SOTAMO") 1,465 2,820
------- -------
INVESTMENT IN SOCO INTERNATIONAL PLC
("SOCO") 4,497 -
------- -------
PROPERTY AND EQUIPMENT, AT COST:
Oil and Gas (full cost accounting) 9,057 7,814
Less: Accumulated depreciation,
depletion & amortization (7,797) (7,797)
------- -------
Total Property and Equipment 1,260 17
------- -------
TOTAL ASSETS $ 7,390 $ 2,893
======= =======
See notes to condensed financial statements.
2
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TERRITORIAL RESOURCES, INC.
Balance Sheets (continued)
Liabilities and Stockholders' Equity
($1,000)
Unaudited
September 30 March 31
1997 1997
------------ --------
CURRENT LIABILITIES:
Accounts payable $ 57 $ 92
Bank loan 130 166
Due to affiliated party - 224
------- -------
Total Current Liabilities 187 482
------- -------
DEFERRED INCOME TAXES 1,368 -
------- -------
STOCKHOLDERS' EQUITY:
Common stock, no par value, $.001
stated value; 200,000,000 shares
authorized; 9,957,266 shares issued
at September 30, 1997 and 9,604,951
at March 31, 1997 28 28
Additional paid in capital 6,378 6,125
Unrealized gain on securities
held for sale 1,526 -
Accumulated deficit, $5,121 deficit
eliminated in quasi-
reorganization effective
March 31, 1986 (2,080) (3,725)
Treasury stock, 1,819 shares,
at cost (17) (17)
------- -------
Total Stockholders' Equity 5,835 2,411
------- -------
TOTAL LIABILITIES AND STOCKHOLDERS'
EQUITY $ 7,390 $ 2,893
======= =======
See notes to condensed financial statements.
3
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TERRITORIAL RESOURCES, INC.
Income Statements - Unaudited
September 30, 1997 and 1996
($1,000)
Six Months Ended Three Months Ended
September 30 September 30
-------------------- --------------------
1997 1996 1997 1996
---- ---- ---- ----
REVENUES:
Oil & gas and other $ 3 $ 17 $ 2 $ 8
Gain on sale of SOTAMO shares 2,949 - - -
Gain of sale of SOCO plc shares 266 - 266 -
--------- --------- --------- ---------
Total Revenues 3,218 17 268 8
--------- --------- --------- ---------
COSTS AND EXPENSES:
Production costs - 1 - -
Depreciation, depletion,
and amortization - 10 - 5
General and administrative 200 58 92 48
Interest 5 - 1 -
--------- --------- --------- ---------
Total Costs and Expenses 205 69 93 53
--------- --------- --------- ---------
NET INCOME (LOSS) BEFORE
INCOME TAXES 3,013 (52) 175 (45)
Income Tax Provision 1,368 - 47 -
--------- --------- --------- ---------
NET INCOME (LOSS) $ 1,645 $ (52) $ 128 $ (45)
========= ========= ========= =========
NET INCOME (LOSS) PER SHARE $ .169 $ (.006) $ .013 $ (.005)
========= ========= ========= =========
Average Common Shares Outstanding 9,737,000 8,920,443 9,868,000 9,149,662
========= ========= ========= =========
See notes to condensed financial statements.
4
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TERRITORIAL RESOURCES, INC.
Statements of Cash Flows- Unaudited
September 30, 1997 and 1996
($1,000)
Six Months Ended Three Months Ended
September 30 September 30
----------------- ------------------
1997 1996 1997 1996
-------- ------- ------- -------
CASH FLOWS FROM OPERATING
ACTIVITIES:
Net Income (loss) $ 1,645 $ (52) $ 128 $ (45)
Adjustments to reconcile net
income to cash provided (used)
by operations:
Depreciation, depletion and
amortization - 10 - 5
Gain on sale of SOTAMO
shares (2,949) - - -
Gain of sale of SOCO shares (266) - (266) -
Deferred income taxes 1,368 - 47 -
Changes in operating assets
and liabilities: -
Accounts receivable (2) 3 (4) (1)
Prepaid expenses (49) (9) (9) (1)
Accounts payable (35) 209 (34) 218
Accrued liabilities - (48) - (95)
------- ------- ------ -------
Cash provided by (used in)
operations (288) 113 (138) 81
------- ------- ------ -------
CASH FLOW FROM INVESTMENT
ACTIVITIES:
Additional investment in SOTAMO (329) (699) (266) (465)
Additions to property and
equipment (990) - (715) -
Proceeds from sale of SOTAMO
shares 926 - - -
Proceeds from sale of SOCO shares 1,002 - 1,002 -
------- ------- ------- -------
Cash provided (used in) from
investment activities 609 (699) 21 (465)
------- ------- ------- -------
CASH FLOW FROM FINANCING
ACITIVITIES:
Issue of common stock - 498 - 498
Debt incurred (repaid) (36) - 123 -
Advances from stockholders and
affiliates (224) 55 - (195)
------- ------- ------- -------
Cash provided by (used in)
financing activities (260) 553 123 303
------- ------- ------- -------
CHANGE IN CASH BALANCE 61 (33) 6 (81)
CASH BALANCE - BEGINNING 6 39 61 87
------- ------- ------- -------
CASH BALANCE - ENDING $ 67 $ 6 $ 67 $ 6
======= ======= ======= =======
See notes to condensed financial statements.
5
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TERRITORIAL RESOURCES, INC.
Notes to Condensed Financial Statements
September 30, 1997 (Unaudited)
1. The information presented in this report on Form 10-QSB is condensed
from what would appear in annual financial statements. Accordingly, the
financial statements included herein should be read in conjunction with the
consolidated financial statements and notes thereto contained in the Annual
Report on Form 10-KSB for the fiscal year ended March 30, 1997, filed by
Territorial Resources, Inc. ("Territorial" or the "Company"). The financial
statements included herein include all adjustments that in the opinion of
management are necessary in order to make the financial statements not
misleading. Except as otherwise described in the financial statements, all
amounts stated in dollars or ($) represent United States dollars and all
references to shares of common stock, no par value ("Common Stock"), of the
Company have been adjusted to reflect a one-for-three reverse stock split
effected in May 1997.
2. The results for the interim period are not necessarily indicative of
results to be expected of the Company for the fiscal year ended March 31, 1998
due to seasonal or other factors. The Company believes that the interim period
reports filed on Form 10-QSB are representative of its financial position,
changes in financial position and results of operations for the periods covered
thereby.
3. The number of shares of Common Stock reflected as issued on the
unaudited Balance Sheet as of September 30, 1997 does not include 200,000 shares
of Common Stock held in escrow. See "PART II. OTHER INFORMATION, Item 2. Changes
in Securities and Use of Proceeds," below.
4. On October 29, 1997, the Company sold an additional 100,000 SOCO Shares,
as defined below, for cash proceeds of approximately $620,000.
Item 2. Management's Discussion and Analysis of Financial Condition and Results
of Operations
Sale of 72 SOTAMO Shares. As previously disclosed, during the six months ended
September 30, 1997, Territorial completed the sale to SOCO International plc
("SOCO") of 72 shares of SOCO Tamtsag Mongolia, Inc. ("SOTAMO"), in exchange for
$926,000 in cash and 873,250 ordinary shares of capital stock of SOCO ("SOCO
Shares").
On July 22, 1997, Territorial sold 73,250 SOCO Shares for cash proceeds of
$418,000. On September 9, 1997, Territorial sold a further 100,000 SOCO Shares
and received cash proceeds of $583,000. As a result of these sales the Company
held approximately 700,000 SOCO Shares at September 30, 1997. The Company
applied the proceeds of the sales of the SOCO Shares to its continuing working
capital needs, primarily in Mongolia and offshore Thailand. On October 29, 1997,
the Company sold an additional 100,000 SOCO Shares for cash proceeds of
approximately $620,000.
Mongolia Drilling Results. Territorial through its interest in SOTAMO
participated in drilling 3 wells during the six months ended September 30,1997,
all of which were located on Block XIX. The SOTAMO 19-3 well tested 39 degree
API oil on drill stem test at a rate of 687 barrels per day from a sandstone
conglomerate in the Upper Tsagantsaav interval at a depth of 2400 meters. The
well has been cased and completed for production. It is currently suspended
pending completion of production facilities and commencement of crude oil sales
pursuant to a crude oil sales contract between SOTAMO and China Petroleum
Engineering Construction Corporation.
6
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The SOTAMO 19-4 well, located approximately half a kilometer north of the 19-3
well, recovered a small amount of crude oil on a drill stem test of the Upper
Tsagantsaav sands. The well has been cased and is currently suspended pending
further testing which is expected to commence in April or May, 1998. The last
well in the 1997 program, SOTAMO 19-5, located approximately 5 kilometers north
northeast of the 19-3 well, is currently drilling at a depth of 2,300 meters.
Territorial directly or through its subsidiaries, owns an aggregate of
approximately five percent of the outstanding shares of common stock of SOTAMO,
in addition to its other interests in the Tamtsag Basin.
Thailand Drilling Results. During the three months ended September 30, 1997, the
Company participated in drilling three holes in the Gulf of Thailand on Block
B8/38 resulting in two suspended oil wells and one dry hole. The two wells which
were suspended confirmed the presence of the Pornsiri structure which had
previously tested oil at a rate of 730 barrels per day from a Miocene sand at a
depth of 3,700 feet in the Sun B7/32-2 well drilled in 1993.
As previously disclosed, Territorial earned a 7.5% interest in the 9,500 square
kilometer Block B8/38 in consideration for $210,000 cash and an aggregate of
550,000 shares of Common Stock and agreeing to pay 12.5% of the costs of
drilling and testing two wells on Block B8/38. These obligations have now been
fulfilled and Territorial's share of future costs and revenues with respect to
the Block will be 7.5%. Further seismic and geological studies are expected to
be conducted on the Block during 1998.
Other. During the three months ended September 30, 1997, the Company recorded a
gain of $266,000 on the sale of the 173,250 SOCO Shares described above. Other
sources of revenue were not significant. General and administrative costs were
$92,000 compared to $48,000 in the comparable 1996 period, increasing due to
higher levels of corporate activity. Net income for the period was $128,000
compared to a loss of $45,000 in 1996. The increase was due primarily to the
gain on sale of the SOCO Shares, less a provision for income taxes of $47,000.
During the quarter, the Company applied approximately $981,000 towards its
interests in Mongolia and Thailand. Cash used in operations was $138,000 and
cash balances at September 30, 1997 increased to $67,000 from $61,000 at June
30, 1997 and $6,000 at March 31, 1997.
PART II. OTHER INFORMATION
Item 2. Changes in Securities and Use of Proceeds
As previously described, the Company acquired a 2.5% undivided working interest
in two oil and gas concessions in the Gulf of Thailand on June 30, 1997, and in
connection therewith, paid $210,000 in cash to Jimmy M. McCarroll, a director of
the Company, and issued to him an aggregate of 550,000 shares of Common Stock,
of which 300,000 shares were held in escrow to be released in increments of
100,000 shares to Mr. McCarroll upon the occurrence of certain conditions
relating to the progress and results of operations of the Thailand concessions.
As a result of the fulfillment of one of the escrow conditions, 100,000 of such
shares were released from escrow on September 19, 1997.
Item 6. Exhibits and Reports on Form 8-K
(a) Exhibits 27. Financial Data Schedule (filed with this Report)
(b) Reports on Form 8-K (None)
7
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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.
TERRITORIAL RESOURCES, INC.
Dated: November 7, 1997 By: /s/ Daniel A. Mercier
--------------------------------
Daniel A. Mercier
Chairman of the Board and
Chief Executive Officer
8
<TABLE> <S> <C>
<PAGE>
<ARTICLE> 5
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM THE
UNAUDITED FINANCIAL STATEMENTS OF THE COMPANY AS OF AND FOR THE SIX MONTHS ENDED
SEPTEMBER 30, 1997, AND IS QUALIFIED IN ITS ENTIRETY BY REFERENCE TO SUCH
FINANCIAL STATEMENTS.
</LEGEND>
<S> <C>
<PERIOD-TYPE> 6-MOS
<FISCAL-YEAR-END> MAR-31-1998
<PERIOD-START> MAR-31-1997
<PERIOD-END> SEP-30-1997
<CASH> 67
<SECURITIES> 4,497
<RECEIVABLES> 9
<ALLOWANCES> 0
<INVENTORY> 0
<CURRENT-ASSETS> 159
<PP&E> 9,057
<DEPRECIATION> 7,797
<TOTAL-ASSETS> 7,390
<CURRENT-LIABILITIES> 187
<BONDS> 0
0
0
<COMMON> 28
<OTHER-SE> 5,807
<TOTAL-LIABILITY-AND-EQUITY> 7,390
<SALES> 3
<TOTAL-REVENUES> 3,218
<CGS> 0
<TOTAL-COSTS> 0
<OTHER-EXPENSES> 200
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<INTEREST-EXPENSE> 5
<INCOME-PRETAX> 3,013
<INCOME-TAX> 1,368
<INCOME-CONTINUING> 1,645
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<NET-INCOME> 1,645
<EPS-PRIMARY> .169
<EPS-DILUTED> .169
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