SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-QSB
QUARTERLY REPORT UNDER SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
For Quarter Ended March 31, 2000
Commission file Number 0-10337
OKLAHOMA ENERGY CORPORATION
(Formerly Cayman Resources Corporation)
-------------------------------------------------------------
(Exact name of registrant as specified in its charter)
Oklahoma 73-1129531
- ------------------ --------------------
(State or other (I.R.S. Employer
jurisdiction of Identification No.)
incorporation
or organization)
2 West Main Street, Cyril, OK 73029-0579
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(Address of principal executive offices) (Zip Code)
(580) 464-3751
--------------------------------------------------
Registrant's telephone number, including area code
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 [ ]
APPLICABLE ONLY TO ISSUERS INVOLVED IN BANKRUPTCY
PROCEEDINGS DURING THE PRECEDING FIVE YEARS
Indicate by check mark whether the registrant has filed all documents and
reports required to be filed by Sections 12, 13 or 15(d) of the Securities
Exchange Act of 1934 subsequent to the distribution of securities under a plan
confirmed by a court. Yes [ ] No [ ] N/A [ X ]
Indicate the number of shares outstanding of each of the registrant's classes of
common stock, as of the latest practicable date:
Common stock, par value $.05 per share
47,530,755 outstanding shares as of March 31, 2000
<PAGE>
OKLAHOMA ENERGY CORPORATION
(Formerly Cayman Resources Corporation)
Table of Contents
PART I - FINANCIAL INFORMATION
Page No.
Item 1. OKLAHOMA ENERGY CORPORATION 1
Balance Sheet as of March 31, 2000
Statement of Operations for the three
months ended March 31, 2000 and 1999
Statement of Cash Flows for the three months
ended March 31, 2000 and 1999
Notes to Financial Statements
Item 2. Management's Discussion and Analysis 1
PART II - OTHER INFORMATION 3
Item 1. Legal Proceedings
Item 2. Changes in Securities
Item 3. Defaults upon Senior Securities
Item 4. Submission of Matters to a Vote of Security Holders
Item 5. Other Information
Item 6. Exhibits and Reports on Form 8-K
SIGNATURE PAGE 4
<PAGE>
PART I FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS
The financial statements as of March 31, 2000 are incorporated herein
by reference as Exhibit 1.
ITEM 2. 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 1999.
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.
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
payable for which the Company is currently developing a plan to offer such
vendors a settlement plan on a case by case basis.
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.
1
<PAGE>
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.
2
<PAGE>
PART II. OTHER INFORMATION
ITEM 1: LEGAL PROCEEDINGS
None
ITEM 2: CHANGES IN SECURITIES AND USE OF PROCEEDS
None
ITEM 3: DEFAULTS UPON SENIOR SECURITIES
None
ITEM 4: SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
None
ITEM 5: OTHER INFORMATION
None
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K
a) The following exhibits are included herein:
(1) Financial statements at March 31, 2000.
(2) Statement re: computation of earnings per share.
b) No reports on Form 8-K have been filed by the Company during the quarter
for which this report is filed.
3
<PAGE>
SIGNATURE
Pursuant to the requirements of the Securities Exchange Act of 1934, the
Registrant has duly caused this report to be signed on its behalf by the
undersigned, thereunto duly authorized.
OKLAHOMA ENERGY CORPORATION
Dated: May 18, 2000 By: /s/ Jan Schutze
----------------------------------------
Jan Schutze
President and Chief Executive Officer
4
<PAGE>
<TABLE>
<CAPTION>
EXHIBIT 1
OKLAHOMA ENERGY CORPORATION
AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEET
MARCH 31, 2000
Assets
<S> <C>
Current assets:
Cash $ 45,788
-------------
Total current assets 45,788
-------------
Property and equipment, at cost, net of $1,350,861
of accumulated depreciation, held for resale 8,933,615
-------------
$ 8,979,403
=============
The accompanying notes are an integral part of the consolidated financial statements.
</TABLE>
5
<PAGE>
<TABLE>
<CAPTION>
OKLAHOMA ENERGY CORPORATION
AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEET
MARCH 31, 2000
Liabilities and Stockholders' Equity
<S> <C>
Current liabilities:
Accounts payable $ 1,301,737
Accrued expenses 942,248
Stockholder advances 346,634
Notes payable 760,000
-------------
Total current liabilities 3,350,619
-------------
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 2,376,538
Paid in capital in excess of par 28,211,280
Accumulated deficit ( 27,504,246)
Treasury stock, 17,233 common shares and
182,511 preferred shares, at cost ( 20,154)
-------------
3,127,284
-------------
$ 8,979,403
=============
The accompanying notes are an integral part of the consolidated financial statements.
</TABLE>
6
<PAGE>
<TABLE>
<CAPTION>
OKLAHOMA ENERGY CORPORATION
AND SUBSIDIARIES
CONSOLIDATED STATEMENT OF DISCONTINUED OPERATIONS
FOR THE THREE MONTHS ENDED MARCH 31, 2000 AND 1999
<S> <C> <C>
2000 1999
---- ----
Operating revenues $ - $ -
------------- -------------
Operating costs and expenses:
General and administrative 33,100 26,400
Interest expense 20,591 20,591
------------- -------------
Total operating costs and expenses 53,691 46,991
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Loss before income taxes ( 53,691) ( 46,991)
Income taxes - -
------------- -------------
Net loss $( 53,691) $( 46,991)
============= =============
Net loss per share:
Basic $( .001) $( .001)
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 CASH FLOWS
FOR THE THREE MONTHS ENDED MARCH 31, 2000 AND 1999
<S> <C> <C>
2000 1999
---- ----
Cash flows provided (used) by operating activities:
Net loss $( 53,691) $( 46,991)
------------- -------------
Adjustments to reconcile net loss to net cash used
in operating activities:
Common stock issued for service - -
Increase (decrease) in accounts payable - -
Increase (decrease) in accrued expenses 20,591 46,991
------------- -------------
Total adjustments 20,591 46,991
------------- -------------
Net cash used in operating activities ( 33,100) -
------------- -------------
Cash flows provided by investing activities - -
Cash flows provided by financing activities:
Advances from stockholders 67,467 -
------------- -------------
Net cash provided by financing activities 67,467 -
------------- -------------
Net increase (decrease) in cash 34,367 -
Cash at beginning of quarter 11,421 10,693
------------- -------------
Cash at end of quarter $ 45,788 $ 10,693
============= =============
The accompanying notes are an integral part of the consolidated financial statements.
</TABLE>
8
<PAGE>
OKLAHOMA ENERGY CORPORATION
AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
MARCH 31, 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 three month period ended March 31, 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 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.
9
<PAGE>
OKLAHOMA ENERGY CORPORATION
AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
MARCH 31, 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 for March 31, 2000 and 1999
totaled 47,528,244 and 47,290,545, respectively. 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 March 31, 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 $410,016. 750,000
------------
$ 760,000
============
10
<PAGE>
OKLAHOMA ENERGY CORPORATION
AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
MARCH 31, 2000 AND 1999
3. RELATED PARTY TRANSACTIONS
Stockholders
During the quarter ended March 31, 2000 and 1999, the Company received
non-interest-bearing advances from a stockholder totaling $67,467 and $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.
During May 1999 a compensation agreement was entered into with another officer
that provided for the monthly 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.
For the quarter ended March 31, 2000 and 1999, $13,000 and $44,000,
respectively, of compensation was accrued under these agreements and remains
unpaid.
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 March 31, 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, $87,755 and $80,838, respectively, of
which was accrued during the year ended December 31, 1999 and 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 noncancelable operating or
capital lease agreements.
Year 2000 computer compliance
As of this date, the Company has not experienced any problems relating to the
ability of the Company's computerized information systems to accurately process
information that is date sensitive. In addition, the Company has not experienced
any difficulties or problems in its operations resulting from any year 2000
dating issue problems of any third parties the Company relies upon.
Litigation
At March 31, 2000, the Company is not a party to any new litigation, legal
proceedings or similar claims.
11
<PAGE>
OKLAHOMA ENERGY CORPORATION
AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
MARCH 31, 2000 AND 1999
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 March 31, 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 to1,204,778 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
12
<PAGE>
OKLAHOMA ENERGY CORPORATION
AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
MARCH 31, 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 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.
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.
13
<PAGE>
OKLAHOMA ENERGY CORPORATION
AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
MARCH 31, 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.
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.
During 1999, negotiations continued with the EPA and the Oklahoma DEQ concerning
this cleanup and no changes in management's estimate of these remedial costs was
considered necessary.
14
<PAGE>
OKLAHOMA ENERGY CORPORATION
AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
MARCH 31, 2000 AND 1999
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 March 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>
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 March
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 March 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.
15
<PAGE>
OKLAHOMA ENERGY CORPORATION
AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
MARCH 31, 2000 AND 1999
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.
16
<PAGE>
<TABLE>
<CAPTION>
OKLAHOMA ENERGY CORPORATION
AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
MARCH 31, 2000 AND 1999
EXHIBIT 2
Statement Re: Computation of Earnings per Share:
Three Months Ended
------------------
<S> <C> <C>
March 31, 2000 March 31, 1999
-------------- --------------
Primary and fully diluted:
Weighted average shares
outstanding 47,528,244 47,290,545
-------------- --------------
Total weighted average
number of shares outstanding 47,528,244 47,290,545
============== ==============
Net income (loss) $( 53,690) $( 46,991)
============== ==============
Per share amount $( .001) $( .001)
============== ==============
</TABLE>
17
<PAGE>
<TABLE> <S> <C>
<ARTICLE> 5
<S> <C>
<PERIOD-TYPE> YEAR
<FISCAL-YEAR-END> DEC-31-2000
<PERIOD-START> JAN-01-1999
<PERIOD-END> MAR-31-2000
<CASH> 45,788
<SECURITIES> 0
<RECEIVABLES> 0
<ALLOWANCES> 0
<INVENTORY> 0
<CURRENT-ASSETS> 0
<PP&E> 10,284,476
<DEPRECIATION> 1,350,861
<TOTAL-ASSETS> 8,979,403
<CURRENT-LIABILITIES> 3,350,619
<BONDS> 0
0
63,866
<COMMON> 2,376,538
<OTHER-SE> 0
<TOTAL-LIABILITY-AND-EQUITY> 8,979,403
<SALES> 0
<TOTAL-REVENUES> 0
<CGS> 0
<TOTAL-COSTS> 0
<OTHER-EXPENSES> 33,100
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 20,591
<INCOME-PRETAX> (53,691)
<INCOME-TAX> 0
<INCOME-CONTINUING> (53,691)
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (53,691)
<EPS-BASIC> (.001)
<EPS-DILUTED> 0
</TABLE>
