SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-K/A
Amendment No. 1
(Mark One)
{X} ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
For the fiscal year ended December 31, 1998
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 0-10337
-------
OKLAHOMA ENERGY CORPORATION
------------------------------------------------------
(Exact name of registrant as specified in its charter)
Oklahoma 73-1129531
- ------------------------------ -------------------
State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
2 West Main Street, Cyril, OK 73029-0579
--------------------------------------------------
(Address of principal executive offices) (Zip Code)
Registrant's telephone number, including area code: (580) 464-3759
Securities registered pursuant to Section 12(b) of the Act: None
Securities registered pursuant to Section 12(g) of the Act: Common,
$0.10 par value
Indicate by check mark whether the registrant (1) has filed all reports required
to be filed by Section 13 or 15(d) of the Securities and Exchange Act of 1934
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 [ ]
Indicate by check mark if disclosure of delinquent filers pursuant to Item 405
of Regulation S-K is not contained herein, and will not be contained, to the
best of Registrant's knowledge, in definitive proxy or information statements
incorporated by reference in Part III of this Form 10-K or any amendment to this
Form 10-K. { }
Total issuer's revenues for 1998 were -0-.
The aggregate market value of the shares of common stock held by non-affiliates
of the registrant, based upon the average bid and asked price of such stock, as
of December 31, 1998, was $.05 per Share $2,337,246.
As of December 31, 1998 there were outstanding 46,744,911 shares of Oklahoma
Energy Corporation's common stock, par value $.10 per share.
DOCUMENTS INCORPORATED BY REFERENCE
No documents are incorporated by reference into this Report except those
Exhibits so incorporated as set forth in the Exhibit Index.
Transitional Small Business Disclosure Format (Check one): Yes [ ] No [X]
<PAGE>
OKLAHOMA ENERGY CORPORATION
Form 10-K/A Report for the Fiscal Year
Ended December 31, 1998
TABLE OF CONTENTS
Page
----
PART I
Item 1. Business ....................................................... 1
Item 2. Properties ..................................................... 2
Item 3. Legal Proceedings .............................................. 3
Item 4. Submission of Matters to a Vote of Security Holders............. 3
PART II
Item 5. Market for Registrant's Common Stock and
Related Stockholder Matters .................................. 3
Item 7. Management's Discussion and Analysis of Financial
Condition and Results of Operations .......................... 3
Item 8. Financial Statements and Supplementary Data .................... 5
Item 9. Changes in and Disagreements with Accountants on
Accounting and Financial Disclosure .......................... 5
PART III
Item 10. Directors and Executive Officers of the Registrant ............ 5
Item 11. Executive Compensation ........................................ 6
Item 12. Security Ownership of Certain Beneficial Owners
and Management ............................................... 6
Item 13. Certain Relationships and Related Transactions ................ 7
PART IV
Item 14. Exhibits, Financial Statement Schedules and
Reports on Form 8-K ......................................... 7
Signature .............................................................. 8
<PAGE>
PART I
ITEM 1. BUSINESS
GENERAL DEVELOPMENT OF BUSINESS
Oklahoma Energy Corporation formerly, Cayman Resources Corporation
(hereinafter referred to as "the Company") was incorporated on September 4, 1981
under the laws of the State of Oklahoma. The Company was formed to facilitate
the tax free exchange and merger of 100% of the stock of its predecessor, Cayman
Corporation, with certain limited partnership oil and gas interests sponsored by
Cayman Corporation as general partner.
The Company has one active subsidiary, Cyril Petrochemical Corporation
(CPC). The stock of CPC is pledged to the Oklahoma Industrial Finance Authority
(OIFA) as collateral for a loan to the Company. This loan is in default and the
prospect for foreclosure by the OIFA is likely. If this occurred the Company
could lose all its interest in CPC and the Cyril Refinery.
In the recent past, the Company's principal business have been (1) the
refinery of crude oil into diesel fuel, kerosene, paint thinners and lacquers,
and specialty industrial solvents at its refinery in Cyril, Oklahoma (Cyril
Refinery); and (2) production of and exploration for crude oil and natural gas;
and (3) contract operations of producing oil and natural gas properties.
However, the Company no longer operates the Cyril refinery and the Company has
sold all its oil and gas properties and well operations.
The Company has no material patents, licenses, franchises or concessions
which are considered significant to its operations.
The Company has not been a party to any bankruptcy, receivership,
reorganization adjustment or similar proceeding.
The Company has no present business activity.
Since the refinery operations began in January of 1994, and through April
of 1995, the Cyril Refinery acquired approximately 803,388 barrels of crude oil.
The Company acquires such crude oil feed stock by the barrel at the daily
average West Texas Intermediate (WTI) crude oil posted price plus transportation
and handling costs which varies depending on the distance that particular crude
oil barrel is transported to the plant. The daily average WTI is calculated on a
monthly basis.
COMPETITION
If the Company is able to refinance the Cyril Refinery, such operation
would be in direct competition with many other refiners. Many of the refineries
with which the Company will compete have vast resources from which to draw and
are able to offer for sale many products which can not be offered by the
Company. Also, the refining companies with which the Company will compete can
offer their products at prices which may be below the Company's cost of
producing the same products. The Company must deal with this competition by
strictly defining its specialty markets. To establish this market, the Company
must offer a quality product at a competitive price with special services such
as custom blending.
In addition to the market competition for the sale of its products, the
Company would compete with much larger refineries to acquire the high quality,
low sulphur crude oil necessary to supply the special needs of the Cyril
Refinery.
1
<PAGE>
RISK FACTORS
The Company's operation of the Cyril Refinery is inherently dangerous. The
refinery process calls for heating large volumes of crude oil and natural gas
condensate in order to separate each barrel into various other products, many of
which are highly volatile. Even though the Company maintains a fire water
system, there is always some danger of explosions and fire. Also, the operations
of the Cyril Refinery equipment can be extremely dangerous. Although
considerable effort is taken to follow all safety procedures, because of the
size and complexity of the refinery equipment, accidents may occur.
In addition to the physical inherent risks of operating refinery equipment
and the handling of crude oil, natural gas, natural gas condensate, and other
potentially explosive materials, the Company's refinery operation is subject to
substantial economic risks. Production and sale of hydrocarbon solvents, diesel,
and other products that will be produced by the Company's refinery operation is
a very competitive business. There is no certainty that the Company can
establish a market for its products. There is no assurance that the Company will
be able to operate the Cyril Refinery in a profitable manner. Because of the
substantial capital investment made by the Company in the renovation and start
up of the Cyril Refinery, the future of the Company is dependent upon its
ability to refinance and operate the Cyril Refinery successfully.
ENVIRONMENTAL RISK
In 1987 the Cyril Refinery site was placed on the Environmental Protection
Agency's (EPA) National Priority List. A remedial study was completed by the EPA
in 1991 and it was determined that there were certain hazardous substances
present at the old refinery site, some of which could be found on CPC's
property. Although the EPA found levels of contamination which did not pose an
immediate hazard to human life, over the next five years CPC will be required to
conduct limited remediation of hydrocarbons and other contaminants contained
within the boundaries of the CPC property. The Company will be required to
conduct this soil remediation in conjunction with the bioremediation plan now
being formulated by the EPA for the adjacent property under the EPA's control.
Bioremediation is accomplished by introducing living organisms into the soil
through an irrigation system. When combined with water, heat and oxygen, these
organisms naturally consume the hydrocarbons contained in the soil, converting
it into harmless gases which dissipate into the atmosphere.
Officers of the Company
The Officers of the Company are as follows:
Officer
Name Age Position with Company Since
---- --- --------------------- -----
Arthur E. Juhl 56 President and CEO 1998
Employees
The Company has only one employee, its President.
ITEM 2. PROPERTIES
The Company's properties consist of 104 acres located in Cyril, Oklahoma on
which is located an oil refinery capable of producing up to 5,000 barrels of oil
per day. The refinery includes tanks to store crude oil and related products, an
office building, a lunch and changing facility, a test lab and computer
facility, a warehouse and shop and a truck loading facility.
2
<PAGE>
ITEM 3. LEGAL PROCEEDINGS
The Company is currently involved in numerous lawsuits that could
materially affect its ability to operate. Also the Company has numerous
judgments in favor of creditors. Most suites have arisen because of the
Company's inability to timely pay all its obligations. The litigation can only
be satisfied if the Company is successful in securing new working capital as
planned.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
The Company has not submitted any matters to the shareholders for a vote
during this reporting period.
PART II
ITEM 5. MARKET FOR REGISTRANT'S COMMON EQUITY AND RELATED STOCKHOLDER MATTERS.
The Company's Common Stock is traded over-the-counter on the Electronic
Bulletin Board under the symbol "OKOK". During the last twelve months, the bid
price of the Company's stock has ranged in price from $0.03 to $0.20 per share
on a post reverse stock split basis. The Company has six market makers as of
December 31, 1998.
The transfer agent for the Company's stock is Chase Mellon Shareholder
Services, 450 West 33rd Street, 15th Floor, New York, NY 10001-2697. On December
31, 1998, the outstanding shares of the Company's Common Stock totaled
46,744,911 shares and were held by approximately 2,250 shareholders of record.
The Company has never declared or paid any cash dividends and has no present
intention of paying cash dividends to common shareholders.
ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS
Liquidity and Capital Resources
Presently, the Company has no liquidity or working capital. The Company
lacks necessary capital to meet its obligations. The Company has not been able
to meet its current obligations.
Results of Operations - Operating Revenues
The Company had no revenues in 1998.
Operating Costs and Expenses
Operating expenses remained the same as a result of the shut down of the
Company's Cyril Refinery operations.
SIGNIFICANT EVENTS
Reactivation of Cyril Refinery
In January of 1994, the Company began its Cyril Refinery operations. The
Company shut down refinery operations in April of 1995. During the sixteen
months of operations, the Company experienced substantial mechanical problems
and was unable to meet product specifications demanded by its customers. As a
result, the Company realized significant losses from its operation of the Cyril
Refinery which caused the loss of its crude oil credit lines and the ultimate
shut down of refinery operations.
Although the Company is now pursuing financing which will enable it to
renew its financing arrangements and allow it to start up operations of the
Cyril Refinery again, there is absolutely no assurance that the Company will be
successful.
3
<PAGE>
Sale of Company's Oil and Gas Assets to Satisfy Working Capital Debt
Effective January 1, 1995, the Company assigned substantially all its oil
and gas production to the Cayman Lenders Limited Liability Corporation in
exchange for a release of indebtedness and in lieu of foreclosure on the
$1,600,000 in debt loaned to it by a group of individuals known as the Capital
Investors. Such funds were borrowed by the Company in 1993 to finance the
renovation of the Cyril Refinery.
Cyril Refinery Vendor Payables
The Company and its subsidiary have a substantial amount of past-due vendor
payables for which it has no source of payment. The Company is currently
developing a plan to offer such vendors a settlement plan to be financed with
new investing funding. The Company has not yet secured such new financing and
can in no way be assured of securing such financing.
Oklahoma Industrial Finance Authority $750,000 Loan
On November 10, 1993, the Company secured a $750,000 loan from the Oklahoma
Industrial Finance Authority (OIFA), which funds were used to satisfy a portion
of the Company's start-up working capital needs. The OIFA loan was for one year
and is now in default with interest accruing at eight percent (8%). The OIFA may
decide to foreclose at any time.
Environmental Considerations
In 1988, the Cyril Refinery property formerly owned by Oklahoma, was placed
on the National Priority List (NPL). This action was taken by the EPA in
accordance with the Comprehensive Environmental Response Compensation Liability
Act of 1980 (CERCLA), as amended by the Superfund and Reauthorization Act of
1986 (SARA). In 1991, the EPA concluded a Remedial Investigation/Feasibility
Study (RIFS) of the Cyril Refinery site. The RIFS identified certain areas where
contamination and hazardous chemicals exist. The RIFS conclusion was that the
contaminants found at the ORC site did not pose an immediate hazard of
significant risk to human health at off-site testing locations used by the
study. It was therefore determined that the contaminants contained within the
ORC site could be remediated over a period of time. In 1991, the EPA issued a
Proposed Plan of Action (PPA) which outlined several alternative actions which
could be taken to either contain, remediate or remove the identified
contaminated material. Following public hearings, the EPA issued its Record of
Decision (ROD) which together with the PPA outlines in general the EPA's plan to
clean up the entire ORC site.
In April 1997, the Oklahoma Department of Environmental Quality (ODEQ)
filed an announcement of changes to the CRC site remediation plan which greatly
reduced the scope and cost of the "clean-up" work. They announced that rather
than building a bioremediation plant, they plan to isolate the remaining soil
into one location on the ORC property (not on the Company's property) where they
will "encapsulate" the material with concrete. The ODEQ and EPA have informed
the Company that they will transport approximately 1,500 cubic yards of soil
from the Company's property to the EPA/ODEQ-controlled property to be
encapsulated.
The Company is aware of the need to cooperate with State and Federal
agencies to provide a plan and implement that plan to clean up any and all
identifiable hazards on its property. In January 1992, the Company executed a
Consent Agreement and Final Order with the Oklahoma State Department of Health.
All of the work required by such Consent to Order has now been completed by the
Company. In addition to the requirements made of the Company in accordance with
the Consent Order, the Company plans to continue to cooperate with the Oklahoma
State Department of Health (OSDH) and the EPA to complete the remediation of all
hazardous areas located on the CPC property. The Company has developed a plan to
achieve this goal and believes that those plans are feasible. Management
estimates, based upon review and evaluation of the above studies, that the cost
to transport the remaining soil to the EPA encapsulation site is approximately
$100,000. This will substantially complete the Company's requirement under the
Consent Order Dated January 1, 1992.
4
<PAGE>
Common Stock Issued
On March 7, 1997 the Company sold 15,200,000 shares of its common stock,
par value $.10, in a transaction outside the United States without registration
under the Securities and Exchange Act (the Act) of 1933. Such sale was offered
and accepted by a Canadian company (Purchaser), not a U.S. Person as defined in
Regulation S of the Act. The Company's common stock was issued in consideration
for the assignment of certain contract leasehold rights held by the Purchaser to
drill for oil and natural gas in Cameron Parish, South Louisiana. These leases
are not currently producing. The Company plans to develop the leasehold over the
next twelve months, which will require a significant amount of capital. At this
time, the Company does not have the capital to develop these leases, but hopes
to secure such financing. Because of the Company's present poor financial
condition, there is no assurance that it will be able to secure the financing
necessary to develop its Louisiana leasehold rights. In 1998 because of the lack
of financing the Company was unable to develop the Louisiana leasehold rights.
On November 11, 1997, the Company sold 5,000,000 shares of its common
stock, par value $.10, in a transaction outside the United States without
registration under the Securities and Exchange Act (the Act) of 1933. Such sale
was offered and accepted by a Panamanian company (Purchaser), not a U.S. Person
as defined in Regulation S of the Act. The Company's common stock was issued in
consideration for the cancellation of Company debt incurred over the year for
the cash to maintain the Cyril Refinery and other general and administrative
costs.
ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
The financial statements required by Item 8 are included elsewhere in this
report (see Part IV, Item 14).
ITEM 9. CHANGES IN AND DISAGREEMENTS WITH THE INDEPENDENT ACCOUNTANTS ON
ACCOUNTING AND FINANCIAL DISCLOSURE
In March 1999, the Company engaged Turner, Stone & Company, L.L.P. to
complete an independent audit. There were no disagreements with the Company's
former auditors over any auditing, accounting or disclosure matters.
PART III
ITEM 10. DIRECTORS, EXECUTIVE OFFICERS, PROMOTERS AND CONTROL PERSONS;
COMPLIANCE WITH SECTION 16(a) OF THE EXCHANGE ACT
OFFICERS
The following persons are the executive officers of the Company and serve
at the pleasure of the Board of Directors:
Name Age Since Position with Company
- ---- --- ----- ---------------------
Arthur E. Juhl 56 1998 President and CEO of
Oklahoma Energy Corporation,
President of Cyril
Petrochemical Corporation.
James Fuller 57 1998 Director
Fred S. Konigsberg 48 1998 Director
Don Mac Phail III 51 1998 Director
5
<PAGE>
Arthur E. Juhl
- --------------
Mr. Juhl became President of the Company in July of 1998. Prior, he was an
officer and consultant to various corporations in "turn around" situations. He
has a degree in Mechanical Engineering and has attended law school, as well as
doing extensive studies in business and finance. He is well acquainted with
refinery operations and product marketing.
James Fuller
- ------------
Mr. Fuller is President of North Coast Securities, a San Francisco
brokerage company. Mr. Fuller was a former Vice President of the New York Stock
Exchange and has been in the securities field for a number of years.
Fred S. Konigsberg
- ------------------
Mr. Konigsberg is a corporate attorney with extensive experience in the
securities field. He has represented many different corporations over the years.
His practice is both located in San Francisco and in the Los Angeles area.
Don Mac Phail III
- -----------------
Mr. Mac Phail is President of Mac Phail Investment Group, a Boston
Massachusetts company that deals in stock and bonds and offers financial
planning. Mr. Mac Phail has been in the securities business for over thirty
years on the east coast.
ITEM 11. EXECUTIVE COMPENSATION
CASH COMPENSATION
Name of Capacity
Individual or in which
Number of Remuneration Cash 0ther
Persons in Group Received Compensation Remuneration
- ---------------- -------- ------------- ------------
Arthur E. Juhl President $ 0 $51,000 ($15,000 paid
Oklahoma Energy in common
Corporation stock; $36,000
accrued)
ITEM 12. SECURITIES OWNERSHIP OF CERTAIN BENEFICIAL OWNERS, DIRECTORS AND
MANAGEMENT
Certain Beneficial Owners. The following table sets forth persons known to the
Company who own directly or beneficially more than five percent (5%) of the
voting common shares of the Company, both the Common Stock and the Common Stock
equivalent of all the preferred, as one sole class of stock being all the
authorized and issued stock of the Company. The total number of voting shares of
the Company's Common Stock at December 31, 1998 is 46,744,911 shares. (See Notes
to Item 11.)
NUMBER OF VOTING
SHARES BENEFICIALLY PERCENTAGE OF TOTAL
HELD BY 5% OWNERS VOTING SHARES
----------------- -------------
Eileen Shaw 7,213,000 15.4%
6
<PAGE>
Ownership of Directors and Management. The following table sets forth the
ownership of all voting shares of the Company; both the Common Stock and the
Common Stock equivalent of the Preferred Stock, held by each of the officers and
directors of the Company as of August 15, 1994. (See Notes to Item 11.)
NUMBER OF VOTING
SHARES BENEFICIALLY
OWNED BY PERCENTAGE OF TOTAL
OFFICERS & DIRECTORS VOTING SHARES
-------------------- -------------
Arthur E. Juhl 355,000 .8%
James Fuller 110,000 .2%
Don Mac Phail III 100,000 .2%
Fred S. Konigsberg -- --
Total beneficial ownership of
Officers & Directors 565,000 1.2%
NOTES TO ITEM 12 - SECURITIES OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND
MANAGEMENT
(1) The nature of ownership of the shares described in the above table is
direct.
ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
None
PART IV
ITEM 14. EXHIBITS AND REPORTS ON FORM 8K
(1) Financial Statements and Financial Statements Schedules. A list of
financial statements and financial statement schedules is contained in
"Index to Consolidated Financial Statements and Schedules" on page F-1
hereof.
(2) Reports on Form 8-K. Report filed July 2, 1998 - Change in Control of
Registrant.
Report filed December 11, 1998 - Change of Directors.
7
<PAGE>
SIGNATURE
In accordance with Section 13 or 15(d) of the Exchange Act, the registrant
caused this report to be signed on its behalf by the undersigned, thereunto duly
authorized.
OKLAHOMA ENERGY CORPORATION
Formerly CAYMAN RESOURCES CORPORATION
(Registrant)
Dated: March 18, 1999 By: /s/ Arthur E. Juhl
------------------ -------------------------------------
Arthur E. Juhl, President and
Chief Executive Officer
8
<PAGE>
C O N T E N T S
AUDITOR' REPORT . . . . . . . . . . . . . . . . . . . . . . . . . . . F-1
CONSOLIDATED BALANCE SHEET. . . . . . . . . . . . . . . . . . . . . . F2-F3
CONSOLIDATED STATEMENT OF DISCONTINUED OPERATIONS. . . . . . . . . . F-4
CONSOLIDATED STATEMENT OF STOCKHOLDERS' EQUITY. . . . . . . . . . . . F-5
CONSOLIDATED STATEMENT OF CASH FLOWS. . . . . . . . . . . . . . . . . F-6
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS. . . . . . . . . . . . . . F-7-F-14
<PAGE>
Turner, Stone & Company
12700 Park Central Drive, Suite 1610
Dallas, Texas 75251
Independent Auditor's Report
Board of Directors and Stockholders
Oklahoma Energy Corporation
and Subsidiaries
Cyril, Oklahoma
We have audited the accompanying consolidated balance sheet of Oklahoma Energy
Corporation and subsidiaries as of December 31, 1998, and the related
consolidated statement of discontinued operations, stockholders' equity, and
cash flows for the year then ended. These financial statements are the
responsibility of the company's management. Our responsibility is to express an
opinion on these financial statements based on our audit.
We conducted our audit in accordance with generally accepted auditing standards.
Those standards require that we plan and perform the audit to obtain reasonable
assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and the overall financial statement
presentation. We believe that our audit provides a reasonable basis for our
opinion.
In our opinion, the consolidated financial statements referred to above present
fairly, in all material respects, the consolidated financial position of
Oklahoma Energy Corporation and subsidiaries at December 31, 1998, and the
consolidated results of their operations and cash flows for the year then ended
in conformity with generally accepted accounting principles.
The accompanying consolidated financial statements have been prepared assuming
that the Company will continue as a going concern. As discussed in Note 1 to the
consolidated financial statements, the Company has suffered recurring losses
from operations and has a net capital deficiency that raise substantial doubt
about its ability to continue as a going concern. Management's plans in regard
to these matters are also described in Note 1. The consolidated financial
statements do not include any adjustments that might result from the outcome of
this uncertainty.
/s/ Edward L. Turner
- --------------------
Certified Public Accountants
August 2, 1999
F-1
<PAGE>
OKLAHOMA ENERGY CORPORATION
AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEET
DECEMBER 31, 1998
Assets
------
Current assets:
Cash $ 10,693
------------------
Total current assets 10,693
Property and equipment, at cost, net of $1,350,861
of accumulated depreciation, held for resale 8,933,615
------------------
$ 8,944,308
==================
The accompanying notes are an integral part of the consolidated financial
statements.
F-2
<PAGE>
OKLAHOMA ENERGY CORPORATION
AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEET
DECEMBER 31, 1998
Liabilities and Stockholders' Equity
------------------------------------
Current liabilities:
Accounts payable $ 1,303,459
Accrued expenses 664,840
Stockholder advances 132,547
Notes payable 760,000
----------------
Total current liabilities 2,860,846
----------------
Reserve for estimated costs of refinery
environmental cleanup 2,501,500
Commitments and contingencies -
Stockholders' equity:
Preferred stock, $.10 par value, 6,000,000
shares authorized, 638,647 shares issued
and outstanding 63,866
Common stock $.05 par value, 50,000,000
shares authorized, 47,528,244 shares
issued and outstanding 2,376,413
Paid in capital in excess of par 28,211,405
Accumulated deficit ( 27,049,568)
Treasury stock, 17,233 common shares and
182,511 preferred shares, at cost ( 20,154)
----------------
3,581,962
----------------
$ 8,944,308
=================
The accompanying notes are an integral part of the consolidated financial
statements.
F-3
<PAGE>
OKLAHOMA ENERGY CORPORATION
AND SUBSIDIARIES
CONSOLIDATED STATEMENT OF DISCONTINUED OPERATIONS
FOR THE YEAR ENDED DECEMBER 31, 1998
Operating revenues $ -
-------------------
Operating costs and expenses:
General and administrative 170,164
Interest expense 162,837
-------------------
Total operating costs and expenses 333,001
-------------------
Loss before income taxes ( 333,001)
Income taxes -
Net loss $ ( 333,001)
===================
Net loss per share:
Basic $ ( .007)
The accompanying notes are an integral part of the consolidated financial
statements.
F-4
<PAGE>
<TABLE>
<CAPTION>
OKLAHOMA ENERGY CORPORATION
AND SUBSIDIARIES
CONSOLIDATED STATEMENT OF STOCKHOLDERS' EQUITY
FOR THE YEAR ENDED DECEMBER 31, 1998
Additional
Preferred Stock Common Stock Paid-In Accumulated Treasury Stock
Shares Amount Shares Amount Capital Deficit Amount Total
------- --------- ---------- ---------- ----------- ------------- --------- ----------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Balance at December 31, 1997 638,647 $ 63,866 47,168,244 $2,358,413 $28,211,405 $(26,716,567) $(20,154) $3,896,963
Services for stock 360,000 18,000 18,000
Net loss
( 333,001) (333,001)
------- --------- ---------- ---------- ----------- ------------- --------- ----------
Balance at December 31, 1998 638,647 $ 63,866 47,528,244 $2,376,413 $28,211,405 (27,049,568) $(20,154) $3,581,962
======= ========= ========== =========== =========== ============= ========= ==========
The accompanying notes are an integral part of the consolidated financial
statements.
F-5
</TABLE>
<PAGE>
OKLAHOMA ENERGY CORPORATION
AND SUBSIDIARIES
CONSOLIDATED STATEMENT OF CASH FLOWS
FOR THE YEAR ENDED DECEMBER 31, 1998
Cash flows provided (used) by operating activities:
Net loss $ ( 333,001)
--------------------
Adjustments to reconcile net loss to net cash used
in operating activities:
Common stock issued for service 18,000
Increase (decrease) in accounts payable 2,311
Increase (decrease) in accrued expenses 180,836
--------------------
Total adjustments 201,147
--------------------
Net cash used in operating activities ( 131,854)
--------------------
Cash flows provided by investing activities -
Cash flows provided by financing activities:
Advances from stockholders 132,547
Proceeds from note payable 10,000
--------------------
Net cash provided by financing activities 142,547
--------------------
Net increase (decrease) in cash 10,693
Cash at beginning of year -
--------------------
Cash at end of year $ 10,693
=====================
The accompanying notes are an integral part of the consolidated financial
statements.
F-6
<PAGE>
OKLAHOMA ENERGY CORPORATION
AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
Operating and financial status of Company
- -----------------------------------------
Oklahoma Energy Corporation (the Company) was incorporated on September 4, 1981
under the laws of the State of Oklahoma. In the recent past, the Company's
principal business has been the refinery of crude oil into diesel fuel,
kerosene, and other industrial products at its refinery in Cyril, Oklahoma
(Cyril Refinery), the production of and exploration for crude oil and natural
gas and the contract operations of producing oil and gas properties. However,
the Company no longer operates the Cyril refinery and the Company has sold all
its oil and gas properties and well operations.
In April 1995, the Cyril Refinery stopped its refining because it was unable to
achieve profitable operations and pay its obligations on a current basis. The
Company is currently in default on a note payable that is secured by the
refinery and pledged with all of the outstanding common stock of the subsidiary
which owns the refinery, Cyril Petrochemical Corporation (CPC) (Note 2). The
viability of the Company to continue as a going concern will be dependent, in
large part, on its ability to secure additional sources of financing or equity
capital, sell the Cyril Refinery, work out satisfactory arrangements with its
lender and/or to conduct profitable operations. Management is currently
attempting to sell its Cyril Refinery and has one sale contract pending the
evaluation by the buyers of potential environmental remediation exposure (Note
7). In addition, the Company is attempting to obtain external financing and/or
equity capital sufficient enough to allow it to once again start up refinery
operations.
Principles of consolidation
- ---------------------------
The consolidated financial statements include the general accounts of Oklahoma
Energy Corporation and its wholly owned subsidiaries, Cayman Production Company
(CPCo), Cayman Exploration Corporation (CEC) and Cyril Petrochemical Corporation
(CPC), the Company's only active subsidiary. All intercompany accounts and
transactions have been eliminated in the consolidation and each subsidiary
corporation has a fiscal year end of December 31.
Cash flow information
- ---------------------
For purposes of the statement of cash flows, the Company considers cash on hand
and all highly liquid debt instruments purchased with an original maturity of
three months or less to be cash.
Property and equipment
- ----------------------
The refinery property and equipment is stated at cost less accumulated
depreciation. No depreciation has been taken on the refinery since it
discontinued operations in April 1995. Other property costs, less accumulated
depreciation, are removed from the accounts upon disposition, and gains or
losses on disposals are reflected in operations. All repairs and maintenance are
expensed as incurred.
F-7
<PAGE>
OKLAHOMA ENERGY CORPORATION
AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
Management estimates
- --------------------
The preparation of financial statements in conformity with generally accepted
accounting principles requires management to make estimates and assumptions that
affect the reported amounts of assets and liabilities and disclosure of
contingent assets and liabilities at the date of the financial statements and
the reported amounts of revenues and expenses during the reporting period.
Actual results could differ from those estimates.
Income taxes
- ------------
The Company follows the provisions of Statement of Financial Accounting
Standards ("SFAS") No. 109, "Accounting for Income Taxes." Deferred taxes are
determined based on the estimated future tax effects of temporary differences
between the financial statement and tax basis of assets and liabilities. The
Company files a consolidated tax return.
Net loss per share
- ------------------
Basic loss per share is computed by dividing the net loss by the weighted
average number of common stock shares outstanding during the year. The weighted
average number of common stock shares outstanding for 1998 totaled 47,290,545.
No effect has been given to the assumed exercise of convertible preferred stock
because the effects would be antidilutive.
2. NOTES PAYABLE
Notes payable at December 31, 1998, consisted of the following:
Note payable to the Wall Street Trading Group,
due January 1, 1999, with interest accruing at
8% from June 15, 1998. $ 10,000
Note payable to Oklahoma Industrial Finance
Authority with 10.875% interest payable quarterly,
January, April, July, October. The note is
secured by the refinery and the stock of CPC
is pledged to the Oklahoma Industrial Finance
Authority (OIFA) as collateral. This loan has been
in default since October 1996 and accrued interest
payable totals $319,453. 750,000
------------
$ 760,000
============
F-8
<PAGE>
OKLAHOMA ENERGY CORPORATION
AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
3. RELATED PARTY TRANSACTIONS
Stockholders
- ------------
During the year ended December 31, 1998, the Company received
non-interest-bearing advances from a stockholder totaling $132,547. The advances
are due on demand and unsecured.
Officers
- --------
During the year ended December 31, 1998, the Company entered into a compensation
agreement with an officer. The agreement provides for monthly compensation of
$3,000 payable in common stock of the Company. In addition, the agreement
provides an option to purchase 750,000 common stock shares at $.05 per share
upon the officer successfully obtaining lending arrangements for no less than
$1,000,000. This officer resigned from the Company in May 1999 without obtaining
the lending arrangements and the agreement was terminated.
For the year ended December 31, 1998, $18,000 of compensation was accrued under
this agreement and remains unpaid. The Company intends to pay this amount out of
the proceeds from a sale of the refinery (Note 7).
4. COMMITMENTS AND CONTINGENCIES
Trade payables, judgments and liens
- -----------------------------------
During the year ended December 31, 1997, the Company wrote off approximately
$6,200,000 of unsecured accounts payable management believes it will no longer
be liable for because of their age and the lack of collection activity by its
creditors. This transaction was accounted for as extinguishment of debt.
Management believes the amount it may have to pay on these accounts payable will
not be significant although it is not possible to estimate the amounts the
Company will ultimately be liable for.
At December 31, 1998, the Company has various judgments against its assets and
liens on its Cyril Refinery totaling $1,301,149, plus $326,950 of related
accrued interest, $80,838 of which was accrued during the year ended December
31, 1998. These judgments and liens and the related accrued interest are
reflected in the accompanying consolidated financial statements as accounts
payable and accrued expenses, respectively.
Leases
- ------
The Company is currently not obligated under any noncancellable operating or
capital lease agreements.
Year 2000 computer compliance
- -----------------------------
Management believes the Company's computer hardware and the software is
currently in compliance with the year 2000 dating issues. Furthermore,
management does not believe any additional significant costs will be incurred in
dealing with this issue and the accompanying consolidated financial statements
do not contain any reserve for this contingency. The Company has charged to
expense when incurred approximately $2,000 related to becoming year 2000
compliant.
F-9
<PAGE>
OKLAHOMA ENERGY CORPORATION
AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
Because of the unprecedented nature of the year 2000 issue, its effects and the
success of related remediation efforts will not be fully determinable until the
year 2000 and thereafter. Management cannot assure that the Company is or will
be year 2000 ready, that the Company's remediation efforts will be successful in
whole or in part, or that parties with whom the Company does business will be
year 2000 ready.
Litigation
- ----------
At December 31, 1998, the Company is not a party to any litigation, legal
proceedings or similar claims.
5. PREFERRED STOCK
The authorized capital stock of the Company includes 6,000,000 shares of
preferred stock, par value $0.10 per share. The preferred stock may be issued in
one or more series, and the terms and rights of such stock is determined by the
Board of Directors.
Preferred stock issued and outstanding at par at December 31, 1998 is as
follows:
Series A cumulative preferred stock, 40,000
shares issued and outstanding at December 31,
1998; $66,805 dividends in arrears at December
31, 1998; aggregate liquidation preference
was $116,805 at December 31, 1998 $ 4,000
Series B cumulative preferred stock, 83,335
shares issued and outstanding at December 31,
1998; $167,014 dividends in arrears at December
31, 1998; aggregate liquidation preference was
$292,017 at December 31, 1998 8,335
Series C convertible, exchangeable, preferred stock,
1,000,000 shares authorized, 33,401 issued and
outstanding at December 31, 1998; aggregate
liquidation preference was $3,340 at December 31, 1998;
convertible to 217,107 shares of common stock at
December 31, 1998; 19,600 shares held in treasury
at December 31, 1998 3,340
Series D convertible, exchangeable, preferred stock,
1,000,000 shares authorized, 481,911 issued and
outstanding at December 31, 1998; aggregate
liquidation preference was $1,204,778 at December
31, 1998; convertible to1,204,778 shares of common
stock at December 31, 1998; 162,911 shares held in
treasury at December 31, 1998 48,191
Series E convertible, exchangeable, preferred stock,
1,000,000 shares authorized, 0 issued and outstanding
at December 31, 1998; aggregate liquidation preference
was $0 at December 31, 1998; convertible to 0 shares
of common stock -
----------
$ 63,866
F-10
<PAGE>
OKLAHOMA ENERGY CORPORATION
AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
The rights of Series B Preferred Stock are subordinate to those of Series A
Preferred Stock. The rights of Series D Preferred Stock are subordinate to those
of Series C Preferred Stock, and the rights of Series C and D Preferred Stock
are both subordinate to Series A and B Preferred Stock. The rights of Series E
Preferred Stock are subordinate to Series A, B, C and D Preferred Stock.
In addition to the cumulative dividends on the Series A ($.10 per share
annually) and the Series B ($.12 per share annually) Preferred Stock, each share
of the Series A and Series B Preferred Stock is entitled to participate share
for share with the common stock in any dividends paid after the holders of the
common stock receive dividends of $.25 per share in any year. Dividend payments
on Series A and B Preferred Stock are legally restricted until the Company has
positive retained earnings. Each share of Series A and B Preferred Stock is
entitled to one vote. Series C, D and E Preferred Stock are entitled to vote on
an as-converted to common stock basis.
6. COMMON STOCK
Common stock issued
- -------------------
On March 7, 1997, the Company sold 15,200,000 shares of its common stock, par
value $.10, in a transaction outside the United States without registration
under the Securities and Exchange Act (the Act) of 1933. Such sale was offered
and accepted by a Canadian company (Purchaser) which was not an U.S. Person as
defined in Regulation S of the Act. The Company's common stock was issued in
consideration for the assignment of certain contract leasehold rights held by
the Purchaser to drill for oil and natural gas in Cameron Parish, Louisiana.
These leases are not currently producing. The Company plans to develop the
leasehold over the next twelve months, which will requires a significant amount
of capital. At this time, the Company does not have the capital to develop these
leases, but hopes to secure such financing. Because of the Company's present
poor financial condition, there is no assurance that it will be able to secure
the financing necessary to develop its Louisiana leasehold rights.
On November 11, 1997, the Company sold 5,000,000 shares of its common stock, par
value $.10, in a transaction outside the United States without registration
under the Securities and Exchange Act (the Act) of 1933. Such sale was offered
and accepted by a Panamanian company (Purchaser) which was not an U.S. Person as
defined in Regulation S of the Act. The Company's common stock was issued in
consideration for the cancellation of Company debt incurred over the year for
the cash to maintain the Cyril Refinery and other general and administrative
costs.
7. SUBSEQUENT EVENTS
Reactivation of Cyril Refinery
- ------------------------------
In January of 1994, the Company reactivated its Cyril Refinery operations. The
Company shut down refinery operations in April of 1995. During the sixteen
months of operations, the Company experienced substantial mechanical problems
and was unable to meet product specifications demanded by its customers. As a
result, the Company realized significant losses from its operation of the Cyril
Refinery which caused the loss of its crude oil credit lines and the ultimate
shut down of refinery operations.
Although the Company is now pursuing financing which will enable it to renew its
financing arrangements and allow it to start up operations of the Cyril Refinery
again, there is absolutely no assurance that the Company will be successful.
F-11
<PAGE>
OKLAHOMA ENERGY CORPORATION
AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
Environmental considerations
- ----------------------------
In 1988, the Cyril Refinery property formerly owned by the State of Oklahoma,
was placed on the National Priority List (NPL). This action was taken by the EPA
in accordance with the Comprehensive Environmental Response Compensation
Liability Act of 1980 (CERCLA), as amended by the Superfund and Reauthorization
Act of 1986 (SARA). In 1991, the EPA concluded a Remedial
Investigation/Feasibility Study (RIFS) of the Cyril Refinery site. The RIFS
identified certain areas where contamination and hazardous chemicals exist. The
RIFS conclusion was that the contaminants found at the ORC site did not pose an
immediate hazard of significant risk to human health at off-site testing
locations used by the study. It was therefore determined that the contaminants
contained within the ORC site could be remediated over a period of time. In
1991, the EPA issued a Proposed Plan of Action (PPA) which outlined several
alternative actions which could be taken to either contain, remediate or remove
the identified contaminated material. Following public hearings, the EPA issued
its Record of Decision (ROD) which together with the PPA outlines in general the
EPA's plan to clean up the entire ORC site.
In April 1997, the Oklahoma Department of Environmental Quality (ODEQ) filed an
announcement of changes to the ORC site remediation plan which greatly reduced
the scope and cost of the "clean-up" work. They announced that rather than
building a bioremediation plan, they plan to isolate the remaining soil into one
location on the ORC property (not on the Company's property) where they will
"encapsulate" the material with concrete. The ODEQ and EPA have informed the
Company that they will transport approximately 1,500 cubic yards of soil from
the Company's property to the EPA/ODEQ-controlled property to be encapsulated.
The Company is aware of the need to cooperate with State and Federal agencies to
provide a plan and implement that plan to clean up any and all identifiable
hazards on its property. In January 1992, the Company executed a Consent
Agreement and Final Order with the Oklahoma State Department of Health. All of
the work required by this Consent has now been completed by the Company. In
addition, to the requirements made of the Company in accordance with the Consent
Order, the Company plans to continue to cooperate with the Oklahoma State
Department of Health (OSDH) and the EPA to complete the remediation of all
hazardous areas located on the CPC property. The Company has developed a plan to
achieve this goal and believes that those plans are feasible. Management
estimates, based upon review and evaluation of the above studies, that the cost
to transport the remaining soil to the EPA encapsulation site is approximately
$100,000. This will substantially complete the Company's requirement under the
Consent Order Dated January 1, 1992. However, the EPA's Superfund has expended
$900,000 to date for environmental remediation pursuant to the 1992 Consent
Order. The total estimated cost of the 1992 Consent Order is $1,000,000. This
amount has been included in management's reserve for refinery cleanup.
In January 1999, the EPA/ODEQ again addressed environmental issues existing at
the Cyril Refinery. The remedial actions cited involved the following items (not
listed in order of importance): Asbestos containing materials, storm water and
process water issues, hazardous waste treatment, ground water recovery and
treatment, PCB oil containing transformers, and hazardous waste storage units.
In July 1999, the Company prepared an environmental remediation plan, which
addressed these issues. Management estimates, base upon review and evaluation of
the above actions, that the cost of these remedial efforts will be $1,501,500
and this amount has been included in management's reserve for refinery cleanup.
F-12
<PAGE>
OKLAHOMA ENERGY CORPORATION
AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
8. INCOME TAXES
Deferred federal income tax provisions result from temporary differences in the
recognition of revenues and expenses for tax and financial reporting purposes
primarily relating to different methods of accounting for environmental clean up
reserves.
For the years ended December 31, 1998, pursuant to Statement of Financial
Accounting Standards No. 109, the Company has recognized deferred tax assets and
liabilities which have been offset by a valuation allowance in the same amount.
Significant components of the Company's deferred tax assets and liabilities are
summarized below.
Deferred tax liability relating to refinery property $( 1,193,622)
Deferred tax assets:
Refinery Environmental cleanup reserve 850,510
Tax effect of net operating loss carryforwards 603,014
Investment tax credit carryforwards 615,500
Valuation allowance ( 875,402)
-------------
$ -
=============
A reconciliation of income tax expense at the statutory federal rate of 34% to
income tax expense at the Company's effective tax rate for the years ended
December 31, 1998 is as follows.
Tax computed at statutory rate 113,220
Benefit of operating loss carryforward ( 113,220)
----------------
Income tax expense $ -
================
At December 31, 1998, the Company had available net operating loss carryforwards
for federal income tax purposes of approximately $6,500,000, which expire if
unused in the years 2001 through 2008. Additionally, the Company has investment
tax credit carryforwards of $615,500, expiring through the year 2000. The
Company has provided a valuation allowance for the full benefit of its net
operating loss carryforwards and investment tax credit carryforwards, because
management believes that it is more likely than not that the benefit from these
carryforwards will not be realized. The utilization of these carryforwards may
also be significantly limited in the future because of the provisions of Section
382 of the Internal Revenue Code of 1986 relating to the Company's 1991
acquisition of CPC.
9. FINANCIAL INSTRUMENTS
The Company's financial instruments, which potentially subject the Company to
credit risks, consist of its cash and notes payable.
F-13
<PAGE>
OKLAHOMA ENERGY CORPORATION
AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
Cash
- ----
The Company maintains its cash in bank deposit and other accounts which, at
times, may exceed federally insured limits. The Company has not experienced any
losses in such accounts, and does not believe it is subject to any credit risks
involving its cash.
Notes payable
- -------------
Management believes the carrying value of these notes represent the fair value
of these financial instruments because their terms are similar to those in the
lending market for comparable loans with comparable risks.
10. SEGMENT INFORMATION
The Company's refinery operations, which are currently discontinued, constitute
its only reportable operating segment. Accordingly, the accompanying
consolidated financial statements reflect only the assets, liabilities, net
assets and operating results related to this discontinued operations.
F-14
<TABLE> <S> <C>
<ARTICLE> 5
<S> <C>
<PERIOD-TYPE> YEAR
<FISCAL-YEAR-END> DEC-31-1999
<PERIOD-START> JAN-01-1998
<PERIOD-END> DEC-31-1999
<CASH> 10,693
<SECURITIES> 0
<RECEIVABLES> 0
<ALLOWANCES> 0
<INVENTORY> 0
<CURRENT-ASSETS> 0
<PP&E> 10,284,476
<DEPRECIATION> 1,350,861
<TOTAL-ASSETS> 8,944,308
<CURRENT-LIABILITIES> 2,860,846
<BONDS> 0
0
63,866
<COMMON> 2,376,413
<OTHER-SE> 0
<TOTAL-LIABILITY-AND-EQUITY> 8,944,308
<SALES> 0
<TOTAL-REVENUES> 0
<CGS> 0
<TOTAL-COSTS> 170,164
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 162,837
<INCOME-PRETAX> (333,001)
<INCOME-TAX> 0
<INCOME-CONTINUING> (333,001)
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (333,001)
<EPS-BASIC> (.007)
<EPS-DILUTED> 0
</TABLE>