<TABLE>
<CAPTION>
EXHIBIT 1
Turner, Stone & Company
Certified Public Accountants
A Registered Limited Liability Partnership
12700 Park Central Drive, Suite 1610
Dallas, TX 75251
Independent Accountant's Report
Board of Directors and Stockholders
Oklahoma Energy Corporation
and Subsidiaries
Cyril, Oklahoma
We have reviewed the accompanying consolidated balance sheet of Oklahoma Energy
Corporation and subsidiaries at September 30, 2000, and the related consolidated
statements of operations and cash flows for the three month and nine month
period then ended. These financial statements are the responsibility of the
Company's management.
We conducted our review in accordance with standards established by the American
Institute of Certified Public Accountants. A review of interim financial
information consists principally of applying analytical procedures to financial
data and making inquiries of persons responsible for financial and accounting
matters. It is substantially less in scope than an audit conducted in accordance
with generally accepted auditing standards, the objective of which is the
expression of an opinion regarding the financial statements taken as a whole.
Accordingly, we do not express such an opinion.
Based on our review, we are not aware of any material modifications that should
be made to the accompanying consolidated financial statements for them to be in
conformity with generally accepted accounting principles.
/s/ Turner, Stone & Company
----------------------------
Certified Public Accountants
November 13, 2000
5
<PAGE>
OKLAHOMA ENERGY CORPORATION
AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEET
SEPTEMBER 30, 2000
Assets
<S> <C>
Current assets:
Cash $ 27,662
-------------
Total current assets 27,662
-------------
Property and equipment, at cost, net of $1,350,861
of accumulated depreciation, idle 8,933,615
Deposits 20,420
-------------
$ 8,981,697
=============
The accompanying notes are an integral part of the consolidated financial statements.
6
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
OKLAHOMA ENERGY CORPORATION
AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEET
SEPTEMBER 30, 2000
Liabilities and Stockholders' Equity
<S> <C>
Current liabilities:
Accounts payable $ 1,301,738
Accrued expenses 1,101,124
Stockholder advances 447,800
Notes payable 760,000
-------------
Total current liabilities 3,610,662
-------------
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, 47,530,755 shares
issued and outstanding 2,376,538
Paid in capital in excess of par 28,352,571
Accumulated deficit ( 27,806,857)
Treasury stock, 17,233 common shares and
182,511 preferred shares, at cost ( 116,583)
-------------
2,869,535
-------------
$ 8,981,697
=============
The accompanying notes are an integral part of the consolidated financial statements.
</TABLE>
7
<PAGE>
<TABLE>
<CAPTION>
OKLAHOMA ENERGY CORPORATION
AND SUBSIDIARIES
CONSOLIDATED STATEMENT OF DISCONTINUED OPERATIONS
FOR THE THREE MONTHS ENDED SEPTEMBER 30, 2000 AND 1999
<S> <C> <C>
2000 1999
---- ----
Operating revenues $ - $ -
------------- -------------
Operating costs and expenses:
General and administrative 97,752 23,600
Interest expense 60,410 20,591
------------- -------------
Total operating costs and expenses 158,162 44,191
------------- -------------
Loss before income taxes ( 158,162) ( 44,191)
Income taxes - -
------------- -------------
Net loss $( 158,162) $( 44,191)
============= =============
Net loss per share:
Basic $( .003) $( .001)
The accompanying notes are an integral part of the consolidated financial statements.
</TABLE>
8
<PAGE>
<TABLE>
<CAPTION>
OKLAHOMA ENERGY CORPORATION
AND SUBSIDIARIES
CONSOLIDATED STATEMENT OF DISCONTINUED OPERATIONS
FOR THE NINE MONTHS ENDED SEPTEMBER 30, 2000 AND 1999
<S> <C> <C>
2000 1999
---- ----
Operating revenues $ - $ -
------------- -------------
Operating costs and expenses:
General and administrative 207,548 50,000
Interest expense 148,754 41,182
------------- -------------
Total operating costs and expenses 356,302 91,182
------------- -------------
Loss before income taxes ( 356,302) ( 91,182)
Income taxes - -
------------- -------------
Net loss $( 356,302) $( 91,182)
============= =============
Net loss per share:
Basic $( .007) $( .002)
The accompanying notes are an integral part of the consolidated financial statements.
</TABLE>
9
<PAGE>
<TABLE>
<CAPTION>
OKLAHOMA ENERGY CORPORATION
AND SUBSIDIARIES
CONSOLIDATED STATEMENT OF CASH FLOWS
FOR THE NINE MONTHS ENDED SEPTEMBER 30, 2000 AND 1999
<S> <C> <C>
2000 1999
---- ----
Cash flows provided (used) by operating activities:
Net loss $( 356,302) $( 91,182)
------------- -------------
Adjustments to reconcile net loss to net cash used
in operating activities:
Common stock issued for service - -
Increase (decrease) in deposits ( 20,420) -
Increase (decrease) in accrued expenses 179,468 91,182
------------- -------------
Total adjustments 159,048 91,182
------------- -------------
Net cash used in operating activities ( 197,254) -
------------- -------------
Cash flows provided by investing activities - -
Cash flows provided by financing activities:
Advances from stockholders 54,467 -
Repayments to stockholders ( 35,834) -
Sale of treasury stock 194,862 -
------------- -------------
Net cash provided by financing activities 213,495 -
------------- -------------
Net increase (decrease) in cash 16,241 -
Cash at beginning of year 11,421 10,693
------------- -------------
Cash at end of quarter $ 27,662 $ 10,693
============= =============
Purchase of treasury stock in exchange
for note payable $ 150,000 $ -
The accompanying notes are an integral part of the consolidated financial statements.
</TABLE>
10
<PAGE>
OKLAHOMA ENERGY CORPORATION
AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
SEPTEMBER 30, 2000 AND 1999
1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
Basis of presentation
The accompanying unaudited financial statements have been prepared in accordance
with generally accepted accounting principles for interim financial information
and with the instructions to Form 10-Q and Article 10 of Regulation S-X.
Accordingly, they do not include all of the information and footnotes required
by generally accepted accounting principles for complete financial statements.
In the opinion of management, all adjustments (consisting of normal recurring
accruals) considered necessary for a fair presentation have been included.
Operating results for the nine month period ended September 30, 2000 are not
necessarily indicative of the results that may be expected for the year ended
December 31, 2000. For further information, refer to the financial statements
and footnotes thereto included in the Company's annual report for the year ended
December 31, 1999.
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 obtain external financing and/or equity capital sufficient enough
to allow it to once again start up refinery operations (Note 7).
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.
11
<PAGE>
OKLAHOMA ENERGY CORPORATION
AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
SEPTEMBER 30, 2000 AND 1999
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.
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 at September 30, 2000 and 1999
totaled 47,530,755 and 47,290,545, respectively. No effect has been given to the
assumed exercise of convertible preferred stock because the effect would be
antidilutive.
2. NOTES PAYABLE
Notes payable at September 30, 2000, 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. Although past due, this note
is not considered in default by the lender $ 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 $401,016. 750,000
------------
$ 760,000
============
12
<PAGE>
OKLAHOMA ENERGY CORPORATION
AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
SEPTEMBER 30, 2000 AND 1999
3. RELATED PARTY TRANSACTIONS
Stockholders
During the nine months ended September 30, 2000 and 1999, the Company received
non-interest bearing advances from a stockholder totaling $168,633 and $132,547,
respectively. These advances are due on demand and unsecured. During the quarter
ended September 30, 2000, the Company received interest bearing advances (8.0%)
from a stockholder totaling $150,000 due December 31, 2000, repaid $35,834 of
these advances and accrued interest totaling $4,446.
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.
During May 1999 a compensation agreement was entered into with another officer
that provided for compensation of $6,000 to accrue monthly and be paid upon
closing of the refinery sale. This agreement is being renegotiated due to the
plant not being sold and alternative uses being considered. This officer
resigned from the Company in April 2000.
During May 2000 an agreement was entered into with another officer that provided
for a monthly compensation of $10,000. For the quarter ended September 30, 2000
and 1999, $21,000 of compensation was unpaid under the above agreement.
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 September 30, 2000 and 1999, the Company has various judgments against its
assets and liens on its Cyril Refinery totaling $1,301,149, plus $414,705 and
$326,950, respectively, of related accrued interest, $132,755 and $77,878,
respectively, of which was accrued during the quarter ended September 30, 2000
and 1999. 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 noncancelable operating or
capital lease agreements.
Litigation
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%).
On June 30, 2000, the Company entered into an "Option Contract to Purchase Cyril
Petrochemical Corporation's Promissory Note, Mortgage and Security Agreement,
and all Additional Collateral" ("Contract") with the Oklahoma Industrial
Financial Authority ("OIFA"). The original loan was dated November 10, 1993.
According to the Contract, as part of the collateral subject to the Contract, is
Share Certificate No. 25, which was pledged to OIFA and continues to be pledged
to OIFA, in the amount of 1000 shares of all outstanding common stock of Cyril
Petrochemical Corporation, owned by Cayman Resources Corporation, presently
doing business as Oklahoma Energy Corporation. Additionally, according to the
13
<PAGE>
OKLAHOMA ENERGY CORPORATION
AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
SEPTEMBER 30, 2000 AND 1999
terms of the OIFA loan, OIFA holds the first mortgage and has a security
interest pursuant to a Uniform Commercial Code Financing Statement as to all of
the Company's present and future equipment, filed on November 10, 1993. As
further stated in the Contract, another lien in the original amount of $321,692,
is asserted to be held by GEO American, Inc. for labor and material supplied to
the site. The mortgage, promissory note, the pledged stock, the UCC-1 security
interest and the lien can be purchased under the Contract for the aggregate sum
of $950,000, less option payments which are to be applied to the purchase price.
Management of the Company believes it to be in the best interest of the Company
to cause the exercise of the Contract.
OIFA and Geo American may foreclose on any and all collateral at any time by the
re-activation of their legal proceedings, subject to the Company's right under
the Contract.
During the week of July 5, 2000, the Company received a letter dated June 29,
2000 from John A. Rayll, Jr. concerning a judgment in his favor against Cayman
Resources Corporation, filed in Tulsa County, Oklahoma's District Court on May
28, 1997. Mr. Rayll claims that he is owed the sum of $119,363 as of September
30, 2000. Mr. Rayll further claims that he had purchased at a sheriff's sale all
of Cayman Resources Corporation's right, title and interest in Stock Certificate
No. 25 representing 1,000 common stock shares of the Company. It has been
independently confirmed that the Oklahoma Industrial Financial Authority (OIFA)
has physical possession of Certificate No. 25 as part of its security interests
under the OIFA loan, and that the Notice of Sale which was caused to be
published by John Whetsel, Sheriff of Oklahoma County by D.R. Williams on July
15, 1997, provided in pertinent part that the 1,000 shares represented by Share
Certificate No. 25 is in the possession of OIFA and any such sale was and is
subject to the prior possessory lien of OIFA, among other matters. Management
has been and is diligently pursuing to challenge Mr. Rayll's claim. It is
Management's position that this claim will be vigorously defended and contested
on several grounds.
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 September 30, 2000 and 1999 is
as follows:
Series A cumulative preferred stock, 40,000
shares issued and outstanding at December 31,
1999; $70,805 dividends in arrears at December
31, 1999; aggregate liquidation preference
was $120,805 at December 31, 1999 $ 4,000
Series B cumulative preferred stock, 83,335
shares issued and outstanding at December 31,
1999; $177,014 dividends in arrears at December
31, 1999; aggregate liquidation preference was
$302,017 at December 31, 1999 8,335
Series C convertible, exchangeable, preferred stock,
1,000,000 shares authorized, 33,401 issued and
outstanding at December 31, 1999; aggregate
liquidation preference was $3,340 at December 31, 1999;
convertible to 217,107 shares of common stock at
December 31, 1999; 19,600 shares held in treasury
at December 31, 1999 3,340
Series D convertible, exchangeable, preferred stock,
1,000,000 shares authorized, 481,911 issued and
outstanding at December 31, 1999; aggregate
liquidation preference was $1,204,778 at December
31, 1999; convertible to 1,204,778 shares of common
stock at December 31, 1999; 162,911 shares held in
treasury at December 31, 1999 48,191
Series E convertible, exchangeable, preferred stock,
1,000,000 shares authorized, 0 issued and outstanding
at December 31, 1999; aggregate liquidation preference
was $0 at December 31, 1999; convertible to 0 shares
of common stock -
----------
$ 63,866
==========
14
<PAGE>
OKLAHOMA ENERGY CORPORATION
AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
SEPTEMBER 30, 2000 AND 1999
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 has no immediate plans to
develop the leasehold, 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.
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.
In July 1997 the Corporation changed its name from Cayman Resources Corporation
to Oklahoma Energy Corporation. A stock reserve was set up for Cayman stock
certificate holders to exchange their certificates for OEC stock certificates.
During 1999, 2,511 shares of Cayman certificates were converted to OEC stock
certificates.
7. ENVIRONMENTAL ISSUES
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.
15
<PAGE>
OKLAHOMA ENERGY CORPORATION
AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
SEPTEMBER 30, 2000 AND 1999
Although the Company is now pursuing financing which will enable it to renew its
financing arrangements and allow it to utilize the refinery as a storage
facility prior to resuming the operations of the Cyril Refinery again, there is
absolutely no assurance that the Company will be successful.
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.
16
<PAGE>
OKLAHOMA ENERGY CORPORATION
AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
SEPTEMBER 30, 2000 AND 1999
In January 1999, the EPA/ODEQ addressed environmental issues existing at the
Cyril Refinery and continue to do. 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.
The Company has agreed to the clean-up of the site in cooperation with the lead
government agency, the Oklahoma Department of Environmental Quality ("ODEQ"),
Superfund, and the EPA Compliance Assurance and Enforcement Division ("RCRA").
The EPA has presented its Initial Administrative Order to Cyril Petrochemical
Corporation and to OKOK. The order outlines the actions necessary to complete
the clean-up. During the clean-up, the EPA has agreed to allow the operation of
the tankfarm and refinery simultaneously with the environmental cleanup. OKOK is
presently pursuing the initial stages of obtaining the necessary permits for the
tankfarm and the refinery for its operations necessary to commence such
concurrent activities.
The cost of the entire clean-up is estimated to be between $2 and $4 Million.
Within that range, a lower cost is expected because the EPA appears to be
agreeable to a risk-based or "brown field" approach to the clean-up. OKOK has
reserved $2.5 Million for the clean-up.
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, 2000 and 1999, 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.
<TABLE>
<CAPTION>
<S> <C> <C>
2000 1999
---- ----
Deferred tax liability relating to refinery
Property $( 1,193,622) $( 1,193,622)
Deferred tax assets:
Refinery Environmental cleanup reserve 850,510 850,510
Tax effect of net operating loss
carryforwards 2,346,000 2,210,000
Investment tax credit carryforwards 615,500 615,500
Valuation allowance ( 2,618,388) ( 2,482,388)
-------------- --------------
$ - $ -
============== ==============
</TABLE>
17
<PAGE>
OKLAHOMA ENERGY CORPORATION
AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
SEPTEMBER 30, 2000 AND 1999
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, 2000 and 1999 is as follows.
<TABLE>
<CAPTION>
<S> <C> <C>
Tax computed at statutory rate ( 136,336) ( 113,220)
Losses not providing tax benefit 136,336 113,220
-------------- --------------
Income tax expense $ - $ -
============== ==============
</TABLE>
At December 31, 2000 and 1999, the Company had available net operating loss
carryforwards for federal income tax purposes of approximately $6,900,000 and
$6,500,000, respectively, 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.
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 operation.
18
<PAGE>
OKLAHOMA ENERGY CORPORATION
AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
SEPTEMBER 30, 2000 AND 1999
11. SUBSEQUENT EVENTS
On July 5, 2000, the Company entered into a letter of intent with Camtraco
Enterprises, Inc. ("Camtraco") of Houston, Texas. The transaction envisioned a
long-term strategic alliance with Camtraco and the Company in the storage and
blending of crude oil and jet fuel under a Mentor-Protege program established by
the Department of Defense, together with feedstock supply necessary to operation
the program. Based on the results of subsequent negotiations, the Company is no
longer pursuing this Camtraco relationship.
OIFA Agreement
On June 30, 2000, the Company entered into an "Option Contract to Purchase
Cyril Petrochemical Corporation's Promissory Note, Mortgage and Security
Agreement, and all Additional Collateral" ("Contract") with the Oklahoma
Industrial Financial Authority ("OIFA"). The original loan was dated November
10, 1993. According to the Contract, as part of the collateral subject to the
Contract, is Share Certificate No. 25, which was pledged to OIFA and continues
to be pledged to OIFA, in the amount of 1000 shares of all outstanding common
stock of Cyril Petrochemical Corporation, owned by Cayman Resources Corporation,
presently doing business as Oklahoma Energy Corporation. Additionally, according
to the terms of the OIFA loan, OIFA holds the first mortgage and has a security
interest pursuant to a Uniform Commercial Code Financing Statement as to all of
the Company's present and future equipment, filed on November 10, 1993. As
further stated in the Contract, another lien in the original amount of $321,692,
is asserted to be held by GEO American, Inc. for labor and material supplied to
the site. The mortgage, promissory note, the pledged stock, the UCC-1 security
interest and the lien can be purchased under the Contract for the aggregate sum
of $950,000, less option payments which are to be applied to the purchase price.
Management of the Company believes it to be in the best interest of the Company
to cause the exercise of the Contract.
19
<PAGE>
<TABLE>
<CAPTION>
OKLAHOMA ENERGY CORPORATION
AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
SEPTEMBER 30, 2000 AND 1999
EXHIBIT 3
Statement Re: Computation of Earnings per Share:
Nine Months Ended
------------------
<S> <C> <C>
September 30, 2000 September 30, 1999
------------------ ------------------
Primary and fully diluted:
Weighted average shares
outstanding 47,530,755 47,290,545
-------------- --------------
Total weighted average
number of shares outstanding 47,530,755 47,290,545
============== ==============
Net income (loss) $( 356,302) $( 91,182)
============== ==============
Per share amount $( .007) $( .002)
============== ==============
20
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