<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 December 31, 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 or 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
February 5, 1998, was 10,157,266.
Transitional Small Business Disclosure Format (check one): Yes [_]; No [X]
<PAGE>
PART I. FINANCIAL INFORMATION
Item 1 Financial Statements
TERRITORIAL RESOURCES, INC.
Balance Sheets
Assets
($1,000)
Unaudited
December 31 March 31
1997 1997
---- ----
CURRENT ASSETS:
Cash $ 25 $ 6
Accounts Receivable:
Oil and gas - 7
Other 6 2
Prepaids 5 32
------ ------
Total Current Assets 36 47
------ ------
NOTE RECEIVABLE 9 9
------ ------
INVESTMENT IN SOCO TAMTSAG
MONGOLIA,INC. ("SOTAMO") 1,740 2,820
------ ------
INVESTMENT IN SOCO INTERNATIONAL PLC ("SOCO") 3,601 -
------ ------
PROPERTY AND EQUIPMENT, AT COST:
Oil and Gas (full cost accounting) 9,365 7,814
Less: Accumulated depreciation,
depletion & amortization (7,797) (7,797)
------ ------
Total Property and Equipment 1,568 17
------ ------
TOTAL ASSETS $6,954 $2,893
====== ======
See notes to condensed financial statements.
<PAGE>
TERRITORIAL RESOURCES, INC.
Balance Sheets
Liabilities and Stockholders' Equity
($1,000)
Unaudited
December 31 March 31
1997 1997
---- ----
CURRENT LIABILITIES:
Accounts payable $ 261 $ 92
Bank loan 24 166
Due to affiliated party - 224
------ ------
Total Current Liabilities 285 482
------ ------
DEFERRED INCOME TAXES 1,362 -
------ ------
STOCKHOLDERS' EQUITY:
Common stock, no par value, $.001
stated value; 200,000,000 shares
authorized; 9,857,266 shares issued
at December 31, 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 1,055 -
Accumulated deficit, $5,121 deficit
eliminated in quasi-reorganization
effective March 31, 1986 (2,137) (3,725)
Treasury stock, 1,819 shares, at cost (17) (17)
------ ------
Total Stockholders' Equity 5,307 2,411
------ ------
TOTAL LIABILITIES AND STOCKHOLDERS'
EQUITY $6,954 $2,893
====== ======
See notes to condensed financial statements.
<PAGE>
TERRITORIAL RESOURCES, INC.
Income Statements - Unaudited
December 31, 1997 and 1996
($1,000)
Nine Months Ended Three Months Ended
----------------- ------------------
December 31 December 31
----------- -----------
1997 1996 1997 1996
---- ---- ---- ----
REVENUES:
Oil & gas and other $ 3 $ 18 $ - $ 1
Gain on sale of SOTAMO shares 2,949 - - -
Gain on sale of SOCO shares 464 - 198 -
------ ------ ------ ------
Total Revenues 3,416 18 198 1
------ ------ ------ ------
COSTS AND EXPENSES:
Production costs - 1 - -
Depreciation, depletion,
and amortization - 3 - (7)
General and administrative 460 113 260 55
Interest 6 - 1 -
------ ------ ------ ------
Total Costs and Expenses 466 117 261 48
------ ------ ------ ------
NET INCOME (LOSS) BEFORE 2,950 (99) (63) (47)
INCOME TAXES
Income Tax Provision 1,362 - (6) -
------ ------ ------ ------
NET INCOME (LOSS) $1,588 $ (99) $ (57) $ (47)
====== ====== ====== ======
NET INCOME (LOSS) PER SHARE $ .162 $(.011) $(.006) $(.005)
====== ====== ====== ======
Average Common Shares
Outstanding (000's) 9,811 9,079 9,957 9,395
====== ====== ====== ======
See notes to condensed financial statements.
<PAGE>
TERRITORIAL RESOURCES, INC.
Statements of Cash Flows - Unaudited
December 31, 1997 and 1996
($1,000)
<TABLE>
<CAPTION>
Nine Months Ended Three Months Ended
----------------- ------------------
December 31 December 31
----------- -----------
1997 1996 1997 1996
---- ---- ---- ----
CASH FLOWS FROM OPERATING
ACTIVITIES:
<S> <C> <C> <C> <C>
Net Income (loss) $ 1,588 $ (99) $ (57) $ (47)
Adjustments to reconcile net income to - -
cash provided (used) by operations:
Depreciation, depletion and
amortization - 3 - (7)
Gain on sale of SOTAMO shares (2,949) - - -
Gain of sale of SOCO shares (464) - (198) -
Deferred income taxes 1,362 - (6) -
Changes in operating assets
and liabilities: -
Accounts receivable 3 (70) 5 (73)
Prepaid expenses 27 (7) 76 2
Accounts payable 169 185 204 (24)
Accrued liabilities - (49) - (1)
------- ----- ----- -----
Cash provided by (used in) operations (264) (37) 24 (150)
------- ----- ----- -----
CASH FLOW FROM INVESTMENT
ACTIVITIES.
Additional investment in SOTAMO (604) (956) (275) (257)
Additions to property and equipment (1,298) - (308) -
Proceeds from sale of SOTAMO shares 926 - - -
Proceeds from sale of SOCO shares 1,625 - 623 -
Proceeds from sale of oil and gas
property - 135 - 135
------- ----- ----- -----
Cash provided (used in) from
investment activities 649 (821) 40 (122)
------- ----- ----- -----
CASH FLOW FROM FINANCING
ACITIVITIES:
Issue of preferred stock - 164 - 164
Issue of common stock - 541 (106) 43
Debt incurred (repaid) (142) - - -
Advances from stockholders and affiliates (224) 135 - 80
Note receivable - 1 - 1
------- ----- ----- -----
Cash provided by (used in)
financing activities (366) 841 (106) 288
------- ----- ----- -----
CHANGE IN CASH BALANCE 19 (17) (42) 16
CASH BALANCE - BEGINNING 6 39 67 6
------- ----- ----- -----
CASH BALANCE - ENDING $ 25 $ 22 $ 25 $ 22
======= ===== ===== =====
See notes to condensed financial statements.
</TABLE>
<PAGE>
TERRITORIAL RESOURCES, INC.
Notes to Condensed Financial Statements
December 31, 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 ending 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 December 31, 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. As previously disclosed in a Form 8-K dated January 28, 1998, Territorial
entered into a Reorganization Agreement and Plan of Merger with SOCO and
SOCO Resources (Colorado), Inc., a Colorado corporation and wholly-owned
subsidiary of SOCO ("Newco"), pursuant to which and subject to the
conditions set forth therein, Territorial has agreed to merge with Newco.
See "Part II, OTHER INFORMATION, Item 5. Other Information" below.
Item 2. Management's Discussion and Analysis of Financial Condition and Results
of Operations
Sale of 72 SOTAMO Shares. As previously disclosed, during the nine months ended
December 31, 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 shares of SOCO.
On July 22, 1997, Territorial sold 73,250 shares of SOCO for cash proceeds of
$418,000. On September 9, 1997, Territorial sold a further 100,000 shares of
SOCO and received cash proceeds of $583,000. On October 29, 1997, the Company
sold a further 100,000 SOCO shares for cash proceeds of $624,000. As a result
of these sales the Company held approximately 600,000 ordinary shares of SOCO at
December 31, 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.
Mongolian Operations. As previously disclosed, Territorial through its interest
in SOTAMO participated in drilling 4 wells during the nine months ended December
31, 1997, in the Tamtsag Basin of northeastern Mongolia. Three of the wells
were located in Block XIX and one of the wells was located in Block XXI in the
Tamtsag Basin. The Company expects production to commence from the SOTAMO 19-3
well during February 1998.
<PAGE>
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, was abandoned.
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.
During the nine months ended December 31, 1997, Territorial's application for an
additional contract area in Mongolia was approved by the Petroleum Authority of
Mongolia. The contract area, known as Area XI, Galba, comprises approximately
3,000,000 acres and is located in the South Gobi region of Mongolia.
Other. During the three months ended December 31, 1997, the Company recorded a
gain of $198,000 on the sale of the 100,00 shares of SOCO described above.
Other sources of revenue were not significant. General and administrative costs
were $260,000 compared to $55,000 in the comparable 1996 period, increasing due
to higher levels of corporate activity. Net loss for the period was $57,000
compared to a loss of $47,000 in 1996.
During the quarter, the Company applied approximately $583,000 towards its
interests in Mongolia and Thailand. Cash from operations was $24,000 and cash
balances at December 31, 1997 decreased to $25,000 from $67,000 at September 30,
1997 and $6,000 at March 31, 1997.
PART II. OTHER INFORMATION
Item 5. Other Information
As previously disclosed in a Form 8-K dated January 28, 1998, Territorial
entered into a Reorganization Agreement and Plan of Merger with SOCO and SOCO
Resources (Colorado), Inc., a Colorado corporation and wholly-owned subsidiary
of SOCO ("Newco"), pursuant to which and subject to the conditions set forth
therein, Territorial has agreed to merge with Newco (the "Merger").
Pursuant to that Agreement, Territorial will call a meeting of its shareholders
to approve a reverse split of its Common Stock on the basis of one new share for
every 36,000 shares outstanding. No new fractional shares will be issued as a
result of the reverse split, and instead, each shareholder who would otherwise
be entitled to receive a fractional new share would receive cash equal to $1.40
multiplied by the number of pre-split shares of Common Stock held by the
shareholder which would otherwise be converted into a fractional new share of
Common Stock. Following the approval and effectuation of the reverse split,
expected to occur in March, 1998, Territorial will have less than 30 remaining
shareholders and will terminate its reporting obligations under the Securities
Exchange Act of 1934. A meeting of the remaining shareholders is anticipated to
be held in June 1998 to approve the Merger, pursuant to which each share of
Common Stock held by the remaining shareholders prior to the reverse split
(excluding any shares for which a cash payment was received in the reverse
split) will be valued at $1.40 and exchanged for the equivalent value of SOCO
shares based on the average trading price of SOCO shares on the London Stock
Exchange for the ten trading days prior to the closing of the Merger.
<PAGE>
Item 6. Exhibits and Reports on Form 8-K
(a) Exhibits
27 Financial Data Schedule (filed with this Report).
99.1 News release dated January 29, 1998, announcing agreement
with SOCO International plc for the merger of the Company
with a wholly-owned subsidiary of SOCO International plc
(filed as Exhibit 99.1 to the Company's Current Report on
Form 8-K dated January 28, 1998).
99.2 Reorganization Agreement and Plan of Merger dated as of
January 28, 1998, among the Company, SOCO International plc
and SOCO Resources (Colorado), Inc. (filed as Exhibit 99.2
to the Company's Current Report on Form 8-K dated January
28, 1998).
(b) Reports on Form 8-K
The Company filed a Report on Form 8-K dated January 28, 1998,
reporting under Item 5 thereof that the Company executed a
Reorganization Agreement and Plan of Merger and certain related
matters.
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: February 8, 1998 By: /s/ DANIEL A. MERCIER
---------------------
Daniel A. Mercier
Chairman of the Board and
Chief Executive Officer
<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 NINE MONTHS
ENDED DECEMBER 31, 1997, AND IS QUALIFIED IN ITS ENTIRETY BY REFERENCE TO SUCH
FINANCIAL STATEMENTS.
</LEGEND>
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> 9-MOS
<FISCAL-YEAR-END> DEC-31-1997
<PERIOD-END> DEC-31-1997
<CASH> 25
<SECURITIES> 3,601
<RECEIVABLES> 9
<ALLOWANCES> 0
<INVENTORY> 0
<CURRENT-ASSETS> 36
<PP&E> 9,365
<DEPRECIATION> 7,797
<TOTAL-ASSETS> 6,954
<CURRENT-LIABILITIES> 285
<BONDS> 0
0
0
<COMMON> 28
<OTHER-SE> 5,279
<TOTAL-LIABILITY-AND-EQUITY> 6,954
<SALES> 3
<TOTAL-REVENUES> 3,416
<CGS> 0
<TOTAL-COSTS> 0
<OTHER-EXPENSES> 460
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 6
<INCOME-PRETAX> 2,950
<INCOME-TAX> 1,362
<INCOME-CONTINUING> 1,588
<DISCONTINUED> 0
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<NET-INCOME> 1,588
<EPS-PRIMARY> .162
<EPS-DILUTED> .162
</TABLE>
