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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 June 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)
State of Colorado 84-0821158
(State of other jurisdiction (IRS Employer
of incorporation or organization) Identification No.)
734 7th Ave. S.W., Suite 1345
Calgary, Alberta
Canada T2P 3P8
--------------
(Address of Principal Executive Offices)
(403) 233-7914
(Issuer's telephone number)
APPLICABLE ONLY TO CORPORATE ISSUERS
The number of shares outstanding of the issuer's Common Stock, as of August
11, 1997, was 10,156,133.
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
June 30 March 31
1997 1997
---- ----
CURRENT ASSETS:
Cash $ 61 $ 6
Accounts Receivable:
Oil and gas 2 7
Other 5 2
Prepaids 72 32
------- -------
Total Current Assets 140 47
------- -------
NOTE RECEIVABLE 9 9
------- -------
INVESTMENT IN SOCO TAMTSAG
MONGOLIA, INC. ("SOTAMO") 1,199 2,820
------- -------
INVESTMENT IN SOCO plc 3,764 -
------- -------
PROPERTY AND EQUIPMENT, AT COST:
Oil and Gas
(full cost accounting) 8,270 7,814
Less: Accumulated depreciation,
depletion & amortization (7,797) (7,797)
------- -------
Total Property and Equipment 473 17
------- -------
TOTAL ASSETS $ 5,585 $ 2,893
======= =======
See notes to condensed financial statements.
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TERRITORIAL RESOURCES, INC.
Balance Sheets
Liabilities and Stockholders' Equity
($1,000)
Unaudited
June 30 March 31
1997 1997
---- ----
CURRENT LIABILITIES:
Accounts payable $ 91 $ 92
Bank loan 7 166
Due to affiliated party - 224
------- -------
Total Current Liabilities 98 482
------- -------
DEFERRED INCOME TAXES 1,321 -
------- -------
STOCKHOLDERS' EQUITY:
Common stock, no par value, $.001
stated value; 200,000,000 shares
authorized; 9,854,951 shares issued
at June 30, 1997 and 9,604,951
at March 31, 1997 28 28
Additional paid in capital 6,306 6,125
Unrealized gain on securities
held for sale 57 -
Accumulated deficit, $5,121 deficit
eliminated in quasi-reorganization
effective March 31, 1986 (2,208) (3,725)
Treasury stock, 1,819 shares, at cost (17) (17)
------- -------
Total Stockholders' Equity 4,166 2,411
------- -------
TOTAL LIABILITIES AND STOCKHOLDERS'
EQUITY $ 5,585 $ 2,893
======= =======
See notes to condensed financial statements.
3
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TERRITORIAL RESOURCES, INC.
Income Statements - Unaudited
For the Three Months Ended June 30, 1997 and 1996
($1,000)
Three Months Ended June 30
--------------------------
1997 1996
---- ----
REVENUES:
Oil & gas sales $ 1 $ 9
Gain on sale of SOTAMO shares 2,949 -
---------- ----------
Total Revenues 2,950 9
---------- ----------
COSTS AND EXPENSES:
Production costs - 1
Depreciation, depletion,
and amortization - 5
General and administrative 108 10
Interest 4 -
---------- ----------
Total Costs and Expenses 112 16
---------- ----------
NET INCOME (LOSS) BEFORE INCOME TAXES 2,838 (7)
Income Tax Provision 1,321 -
---------- ----------
NET INCOME (LOSS) $ 1,517 $ (7)
========== ==========
NET INCOME (LOSS) PER SHARE $ .158 $ (.0008)
========== ==========
Average Common Shares Outstanding 9,604,951 8,720,219
========== ==========
See notes to condensed financial statements.
4
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TERRITORIAL RESOURCES, INC.
Statements of Cash Flows - Unaudited
For the Three Months Ended June 30, 1997 and 1996
($1,000)
Three Months Ended June 30
--------------------------
1997 1996
---- ----
CASH FLOWS FROM OPERATING ACTIVITIES:
Net Income (loss) $ 1,517 (7)
Adjustments to reconcile net
income to cash provided (used)
by operations:
Depreciation, depletion and
amortization - 5
Gain on sale of SOTAMO shares (2,949) -
Deferred income taxes 1,321 -
Changes in operating assets
and liabilities:
Accounts receivable 2 4
Prepaid expenses (40) (7)
Accounts payable (1) (8)
Accrued liabilities - 45
------- -------
Cash provided by (used in) operations (150) 32
------- -------
CASH FLOW FROM INVESTMENT ACTIVITIES:
Additional investment in SOTAMO. (63) (234)
Additions to property and equipment (275) -
Proceeds from sale of SOTAMO shares 926 -
------- -------
Cash provided (used in) from
investment activities 588 (234)
------- -------
CASH FLOW FROM FINANCING ACTIVITIES:
Repayment of debt (159) -
Advances from stockholders and affiliates (224) 250
------- -------
Cash provided by (used in)
financing activities (383) 250
------- -------
CHANGE IN CASH BALANCE 55 48
------- -------
CASH BALANCE - BEGINNING 6 39
------- -------
CASH BALANCE - ENDING $ 61 $ 87
======= =======
See notes to condensed financial statements.
5
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TERRITORIAL RESOURCES, INC.
Notes to Condensed Financial Statements
June 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
Company's report on Form 10-KSB for the year ended March
31, 1997. 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. There is no provision for income taxes for the three-month period ended June
30, 1996.
Item 2. Management's Discussion and Analysis of Financial Condition and Results
of Operations
On April 30, 1997, the shareholders of Territorial Resources, Inc., a
Colorado corporation ("Territorial" or the "Company"), approved and adopted
amendments to the Articles of Incorporation of the Company that increased the
number of authorized shares of common stock, no par value, of the Company
("Common Stock") to 200,000,000, and effected a one-for-three reverse stock
split of the outstanding shares of Common Stock. See Part II, Item 4.
Submission of Matters to a Vote of Security Holders, below.
Sale of 72 SOTAMO Shares. During the quarter ended June 30, 1997,
Territorial completed the sale to SOCO International plc ("SOCO International"),
a corporation organized under the laws of England, of 72 shares ("72 SOTAMO
Shares") of SOCO Tamtsag Mongolia, Inc., a Delaware close corporation with
interests in Mongolia ("SOTAMO"). The sale was consummated pursuant to a
Shareholders' Exchange Agreement between Territorial and SOCO International.
Edward T. Story, Jr., the President and Chief Executive Officer of SOCO
International, is a former director of Territorial and currently holds
approximately 4.64% of the issued and outstanding shares of Common Stock of
Territorial. In addition, Jimmy M. McCarroll, a director of Territorial, and
Exploration Associates, Inc., an affiliate of William C. Penttila and Dennis M.
Buck, have served as consultants to SOCO International and/or its affiliates in
connection with certain of their international oil and gas
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projects. Mr. Penttila is a director and the President of Territorial, and Mr.
Buck is the Vice President, Exploration of Territorial.
In exchange for the sale of the 72 SOTAMO Shares, Territorial received
approximately $926,000 in cash and 873,250 ordinary shares of SOCO
International. SOCO International recently completed an initial public offering
and listing of its shares for trading on the London Stock Exchange. The 873,250
shares of SOCO International represent approximately 1.77% of the outstanding
shares of SOCO International, based on information provided to Territorial by
SOCO International. Based on the initial offering price of SOCO International
shares in the public offering, the total proceeds received by Territorial in
connection with the sale of its interests in SOTAMO were equal to approximately
$4.6 million. The 873,250 ordinary shares of SOCO International held by
Territorial had a value of $3.764 million, based on the closing share price on
June 30, 1997 for SOCO International shares.
On July 22, 1997, Territorial sold an additional 73,250 ordinary shares of
SOCO International and received cash proceeds therefor of approximately
$420,000. As a result, the Company currently holds approximately 800,000
ordinary shares of SOCO International. The Company currently intends to apply
the proceeds of the sales of the SOCO International plc shares made to date and
any additional sales of such shares to its continuing working capital needs,
primarily in Mongolia and offshore Thailand.
As a result of the sale of the 72 SOTAMO Shares, 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.
Acquisition of Gulf of Thailand Concession Interests. On June 30, 1997,
affiliates of SOCO International assigned to the Company a 2.5% undivided
working interest in each of two oil and gas Concessions (the "Concessions")
relating to so-called Blocks B8/38 and B4/32 in the Gulf of Thailand. The
assignment was made as a result of the Company's purchase of a right to acquire
such working interests from Jimmy M. McCarroll, a director of the Company,
pursuant to an Asset Purchase Agreement by and among the Company, Mr. McCarroll
and the SOCO International affiliates. In exchange therefor, the Company paid
to Mr. McCarroll, $210,000 in cash and issued to Mr. McCarroll an aggregate of
550,000 shares of Common Stock of Territorial, 300,000 of which shares are held
in escrow pending the occurrence of certain drilling and production results.
Mr. McCarroll earned his interests in the Concessions by completing a farm-out
of the interests to an unrelated third party behalf of the SOCO International
affiliates.
On July 10, 1997, the Company acquired an additional 5% undivided working
interest in each of the two Concessions from the same SOCO International
affiliates holding interests in such Concessions, pursuant to a Farmout
Agreement among the Company and such SOCO International affiliates. The parties
thereto agreed that, with respect to the first well drilled on Block B8/38,
Territorial will not be obligated to pay any portion of the costs and expenses
thereof until (a) the sum of $3,000,000 has been expended in connection with
drilling such well or (b) the first well has been drilled and logged and the
well logging tools have been recovered on the rig floor, whichever of (a) or (b)
occurs first. With respect to its aggregate 7.5% interests in the two
Concessions, Territorial is required to pay an aggregate of 12.5% of all costs
and expenses of the first
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well drilled on Block B8/38 to the casing point in excess of those set forth in
the preceding sentence, and an aggregate of 12.5% of all costs and expenses of
the second well, whether such well is drilled on Block B8/38 or Block B4/32,
until such second well has been drilled and logged and the well logging tools
have been recovered on the rig floor. Other than as described above, Territorial
will be required to pay an aggregate of 7.5% of all costs and expenses with
respect to future operations of the Concessions.
Although the assignments with respect to the working interests of
Territorial in the Concessions have been made by the respective SOCO
International affiliates, each such assignment remains subject to certain
consents or approvals from the Government of Thailand and/or its
instrumentalities.
Other. During the three months ended June 30, 1997, the Company recorded a
gain of $2.949 million on the sale of the 72 SOTAMO Shares described above.
Other sources of revenue were not significant. General and administrative costs
were $108,000 compared to $10,000 in the comparable 1996 period, increasing due
to higher levels of corporate activity. Net income for the period was $1.517
million compared to a loss of $7,000 in 1996. The increase was due primarily to
the gain on sale of the 72 SOTAMO Shares, less a provision for income taxes of
$1.321 million.
During the quarter, the Company applied approximately $338,000 towards its
interests in Mongolia and Thailand. In addition, approximately $383,000 was
applied to repay bank loans and all remaining shareholder advances owed to
Daniel A. Mercier, Chairman of the Board and Chief Executive Officer of the
Company. Cash used in operations was $150,000 and cash balances at June 30,
1997, increased to $61,000 from $6,000 at March 31, 1997.
PART II. OTHER INFORMATION
Item 2. Changes in Securities
In connection with the Company's acquisition of a 2.5% undivided working
interest in two oil and gas concessions in the Gulf of Thailand on June 30, 1997
(as described above), the Company paid to Jimmy M. McCarroll, a director of the
Company, $210,000 in cash and issued to Mr. McCarroll an aggregate of 550,000
shares of Common Stock of Territorial. At the time of such acquisition, the
Company and Mr. McCarroll entered into an Escrow Agreement pursuant to which,
among other things, 300,000 of such shares of Common Stock are to be held in
escrow and are 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. In the event that any such condition
is not fulfilled as provided in the Escrow Agreement, the shares subject to such
condition will be returned to the Company. So long as such shares are held
pursuant to the terms of the Escrow Agreement, Mr. McCarroll has the right to
vote such shares. The shares of Common Stock issued to Mr. McCarroll as
described in this paragraph were issued in reliance upon an exemption afforded
by section 4(2) of the Securities Act of 1933, as amended to date, based on the
nature of the transaction and Mr. McCarroll's relationship with the issuer.
8
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Item 4. Submission of Matters to a Vote of Security Holders
On April 30, 1997, the Company held an annual meeting of shareholders of the
Company. At the meeting, shareholders elected as directors of the Company
Douglas N. Baker, Richard A. N. Bonnycastle, Jimmy M. McCarroll, Daniel A.
Mercier, Donald L. Oliver, William C. Penttila and Lamont C. Tolley. In
addition, the shareholders approved and adopted amendments to the Articles of
Incorporation of the Company that increased the number of authorized shares of
Common Stock to 200,000,000 shares (the "Increase in Authorized Shares"), and
effected a one-for-three reverse stock split ("Reverse Stock Split") of the
outstanding shares of Common Stock. The shareholders also ratified the
selection of Price Waterhouse, Calgary, Alberta, Canada, as the principal
accountant to audit the Company's financial statements.
The number of votes for, against or withheld, and the number of abstentions
and broker non-votes as to each matter (including a separate tabulation with
respect to each director nominee) at the annual shareholders' meeting were as
follows:
Number of
Matter or Number of Number of Votes Abstentions and
Director Nominee Votes For Against or Withheld Broker Non-Votes
Increase in
Authorized Shares 15,486,166 9,156 5,823
Reverse Stock Split 15,482,981 13,982 4,182
Director Nominees
Douglas N. Baker 15,496,076 5,069 --
Richard A. N.
Bonnycastle 15,495,976 5,169 --
Jimmy M. McCarroll 15,496,076 5,069 --
Daniel A. Mercier 15,496,068 5,077 --
Donald L. Oliver 15,496,076 5,069 --
William C. Penttila 15,495,976 5,169 --
Lamont C. Tolley 15,496,076 5,069 --
Ratification of
Price Waterhouse 15,497,222 2,598 1,325
9
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Item 6. Exhibits and Reports on Form 8-K
(a) Exhibits
3 (i) Articles of Incorporation, as amended to the date of this
Report (filed as Exhibit 3(i) to the Company's Current
Report on Form 8-K dated May 13, 1997).
3(ii) Bylaws, as amended to the date of this Report (filed as
Exhibit 3(ii) to the Company's Annual Report on Form 10-KSB
for the Year Ended March 31, 1997).
10.1 Plan and Agreement of Reorganization, dated as of March 12,
1996, by and among William C. Penttila, Dennis M. Buck,
Michael C. Nemec, Thomas B. Patrick and the Company (filed
as Exhibit 2.0 to the Company's Current Report on Form 8-K
dated March 29, 1996).
10.2 Option Agreement, dated March 1, 1996, by and between Asia
Energy Ltd. and the Company (filed as Exhibit 10.1 to the
Company's Current Report on Form 8-K dated March 29, 1996).
10.3 Letter of Engagement, dated March 12, 1997, between
Territorial Resources, Inc. and McDermid St. Lawrence
Securities Ltd. (filed as Exhibit 10.3 to the Company's
Annual Report on Form 10-KSB for the Year Ended March 31,
1997).
10.4 Shareholders' Exchange Agreement between Territorial
Resources, Inc. and SOCO International plc, dated 6 May
1997 (filed as Exhibit 10.1 to the Company's Current Report
on Form 8-K dated June 5, 1997).
10.5 Letter Agreement between Territorial Resources, Inc. and
SOCO International plc, dated 8 May 1997 (filed as Exhibit
10.2 to the Company's Current Report on Form 8-K dated June
5, 1997).
10.6 Asset Purchase Agreement, dated as of May 30, 1997, among
SOCO Exploration (Thailand) Company Limited, SOCO Thaitex,
Inc., Territorial Resources (Delaware), Inc. and Jimmy M.
McCarroll (filed as Exhibit 10.6 to the Company's Annual
Report on Form 10-KSB for the Year Ended March 31, 1997).
10.7 Escrow Agreement, dated as of June 26, 1997, by and among
Jimmy M. McCarroll, Territorial Resources (Delaware), Inc.
and Theodore J. Lee (filed as Exhibit 10.7 to the Company's
Annual Report on Form 10-KSB for the Year Ended March 31,
1997).
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10.8 Farmout Agreement, dated as of July 10, 1997, by and among
Territorial Resources (Delaware), Inc., SOCO Exploration
(Thailand) Company Limited and SOCO Thaitex, Inc. (filed as
Exhibit 10.8 to the Company's Annual Report on Form 10-KSB
for the Year Ended March 31, 1997).
10.9 Stockholder's Agreement by and among SOCO Tamtsag Mongolia,
Inc., dated November 7, 1994, and its stockholders (filed
as Exhibit 10.9 to the Company's Annual Report on Form 10-
KSB for the Year Ended March 31, 1997).
22. Subsidiaries (filed as Exhibit 22 to the Company's Annual
Report on Form 10-KSB for the Year Ended March 31, 1997).
27. Financial Data Schedule*
____________
* Filed with this Report
(b) Reports on Form 8-K.
The Company filed a Report on Form 8-K dated April 14, 1997,
reporting under item 4 thereof a change in certifying
accountants.
The Company filed a Report on Form 8-K dated May 13, 1997,
reporting under item 5 thereof amendments to the Company's
Articles of Incorporation increasing the number of
authorized shares of common stock, no par value, to
200,000,000 shares and effecting a one-for-three reverse
stock split of all outstanding shares of common stock.
The Company filed a Report on Form 8-K dated June 5, 1997,
reporting under item 2 thereof the sale of certain assets in
exchange for cash and securities.
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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: August 12, 1997 By: /s/ Daniel A. Mercier
---------------------
Daniel A. Mercier
Chairman of the Board and
Chief Executive Officer
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<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 THREE MONTHS
ENDED JUNE 30, 1997, AND IS QUALIFIED IN ITS ENTIRETY BY REFERENCE TO SUCH
FINANCIAL STATEMENTS.
</LEGEND>
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<PERIOD-END> JUN-30-1997
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<ALLOWANCES> 0
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<CURRENT-ASSETS> 140
<PP&E> 8,270
<DEPRECIATION> 7,797
<TOTAL-ASSETS> 5,585
<CURRENT-LIABILITIES> 98
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0
0
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<OTHER-SE> 4,108
<TOTAL-LIABILITY-AND-EQUITY> 5,585
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<OTHER-EXPENSES> 108
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