<PAGE>
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-KSB/A - AMENDMENT NO. 1
(Mark one)
[ X ] Annual Report under Section 13 or 15(d) of the
Securities Exchange Act of 1934 [Fee Required]
For the fiscal year ended March 31, 1995.
[ ] Transition Report under Section 13 or 15(d) of the
Securities Exchange Act of 1934 [No Fee Required]
For the transition period from ____________ to ____________.
Commission file number 0-6540 .
---------------
OCEANIC EXPLORATION COMPANY
(Name of small business issuer in its charter)
DELAWARE 84-0591071
(State of Incorporation) (I.R.S. Employer Ident. No.)
5000 South Quebec Street, Suite 450
Denver, Colorado 80237
(303) 220-8330
(Address and telephone number of principal executive offices)
Securities registered under Section 12(b) of the Exchange Act:
<TABLE>
<CAPTION>
Title of class Name of exchange on which registered
-------------- ------------------------------------
<S> <C>
Common stock ($.0625 par value) The Pacific Stock Exchange
Incorporated
</TABLE>
Securities registered under Section 12(g) of the Exchange Act:
NONE
Check whether the issuer (1) filed all reports required to be filed by
Section 13 or 15(d) of the Exchange Act during the 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
--- ---
Check if there is no disclosure of delinquent filers in response to Item
405 of Regulation S-B contained in this form, and no disclosure will 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-KSB/A or any amendment to this Form 10-KSB. [ ]
Issuer's revenues for fiscal year ended March 31, 1995 $321,495
As of June 8, 1995, the aggregate market value of the voting stock held by
non-affiliates of the Registrant, computed by reference to the average of the
bid and ask price on such date was $1,235,178.
As of June 8, 1995, the Registrant had outstanding 3,915,154 shares of common
stock ($.0625 par value).
An index of the documents incorporated herein by reference and/or annexed as
exhibits to the signed originals of this report appears on pages 37, 38 and
39.
<PAGE>
PART I
ITEM 1. BUSINESS
Oceanic Exploration Company (the "Registrant", also called the "Company" in
some parts of this Report, which terms include its subsidiaries) was
incorporated in 1969 and is engaged in the business of acquiring oil and gas
concessions covering large blocks of acreage and in conducting exploration
activities thereon, including seismic and other geophysical evaluation and
exploratory drilling where appropriate. Registrant conducts its operations
directly or through wholly owned subsidiaries. The term "concession" is used
herein to mean exploration, development and production rights with respect to
a specific area, which rights may be created by agreement with a government,
governmental agency or corporation. When a discovery of oil or gas occurs,
Registrant will pursue the development of reserves and the production of oil
or gas to the extent considered economically feasible and may finance
development by farming out or selling a portion of its interest in the
discovery. Registrant's property interests are located in the North Aegean
Sea, offshore Greece and in the East China Sea.
Registrant's business activities involve only one industry segment, oil and
gas exploration and development. Financial information relating to
Registrant's business and an explanation of the same may be found in Items 6
and 7 of this Report.
Registrant employs six people, four of whom are full-time employees.
(a) MODE OF OPERATION
Registrant has generally undertaken exploration of concessions through
various forms of joint arrangements with unrelated companies, whereby the
parties agree to share the costs of exploration, as well as the costs of and
any revenue from a discovery. Such arrangements do not always equate the
proportion of expenditures undertaken by a party with the share of revenues
to be received by such party.
Registrant has usually obtained concessions directly from a government or
governmental agency and has then entered into arrangements with other
participants whereby Registrant has received cash payments and has had its
share of exploration expenditures paid (either before or after being
expended) in whole or in part by other participants.
Since Registrant's establishment, sales of partial interest in its
concessions have been part of its normal course of business and have provided
funds for the acquisition of further concessions and for exploration of
existing concessions. Some of the competition and risk factors relating to
this method of doing business are referred to below in (c).
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In order to maintain its concessions in good standing, Registrant is usually
required to expend substantial sums for exploration and, in many instances,
for surface rentals or other cash payments. Additionally, the development of
any discoveries made upon concessions in which Registrant holds an interest
generally involve the expenditure of substantial sums of money. Registrant
has, in the past, satisfied required expenditures on its concessions.
Registrant cannot be certain that its revenues in the future will be
sufficient to satisfy expenditures required to be made on its concessions and
continues to pursue other opportunities from alternative sources which would
enhance its liquidity.
(b) RECENT DEVELOPMENTS
DENISON LITIGATION: In June 1994, the Registrant commenced legal action
against Denison Mines Ltd. (Denison) of Canada seeking a declaration by the
Court that amounts due the Registrant attributable to its 15% net earnings
interest (also called net profits interest in some parts of this report) in
certain oil and gas producing areas offshore Greece be calculated based on
the terms of the license agreement prior to a 1993 amendment agreed to by the
consortium and the Greek government. The Registrant is seeking damages of
approximately $5,000,000 for the period from January 1, 1993 through March
31, 1994 plus damages since that date and undetermined future damages. The
Registrant estimates that damages for unpaid revenues for the period from
April 1, 1994 through September 30, 1995 are approximately $7,000,000,
$5,000,000 of which is attributable to the year ended March 31, 1995. While
the Registrant believes there is a reasonable possibility of prevailing in
the litigation, the ultimate outcome of the lawsuit cannot be determined at
this time. Furthermore, there are no assurances that the Registrant will be
able to collect from Denison on a successful judgment or settlement of the
pending litigation. Initially, it appeared, based on Denison's public
filings, that the financial stability of Denison was questionable and that
Denison continued to operate at the sufferance of its secured creditors.
Denison announced on October 16, 1995 that Denison's Board had approved a
Plan of Arrangement which, among other things, incorporates agreements
restructuring the debt held by Denison's major lenders, the Toronto Dominion
Bank, Bank of America Canada, and the Canadian Mortgage and Housing
Corporation. The announcement states that the Plan is to be put to the
shareholders at meetings scheduled for December 18, 1995. These announced
plans if implemented may increase the likelihood that Denison would have
assets available for satisfaction of a judgment in favor of the Registrant.
No amounts have been recorded in the financial statements for revenues or
damages, if any, that may ultimately be awarded. Unpaid revenues for the net
earnings interest calculated under the terms of the amended agreement are
estimated at approximately $675,000 for the period from January 1, 1993
through September 30, 1995, $490,000 of which is attributable to the year
ended March 31, 1995. On November 25, 1994, the case was transferred to the
Commercial List of the Ontario Court. A court date has been scheduled for
February 1996.
In response to the lawsuit filed against Denison by the Registrant, Denison
has filed a counterclaim seeking damages of approximately $4,800,000 plus
interest and costs alleging that the Registrant was overpaid for the period
from January 1, 1989 through December 31,
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1993. In addition, Denison has ceased remitting payments to the Registrant
for its 15% net profits interest. The Registrant believes that the revenues
are suspended based on the alleged amounts due Denison as filed in the
counterclaim. Accordingly, the Registrant has not recorded any oil and gas
revenues for Greece for the current year. While the Registrant also believes
that it will prevail on the counterclaim, the ultimate outcome likewise
cannot be determined. Accordingly, no provision for any liability or loss
that may result upon final resolution of the counterclaim has been recognized
in the financial statements. Legal proceedings are described in Item 3.
LIQUIDITY: The Registrant has been dependent upon the Prinos net profits
interest and draws on a line of credit facility provided by NWO Resources,
Inc. (NWO) for operating cash flow. NWO is the parent corporation of the
Registrant's majority stockholder, International Hydrocarbons. The
Registrant required financial assistance from NWO during 1995 under the line
of credit agreement (see Item 6). Recent discussions with NWO indicate that
NWO is unwilling to extend further financial assistance to the Registrant. As
of May 31, 1995, the Registrant is in default on the line of credit as it has
not made its interest payment for May 1995. Management has entered into
discussions with NWO with a view towards achieving an agreement which would
defer interest and principal payments and allow the Registrant to obtain the
alternative financing necessary to fund litigation costs and continue limited
operations. There can be no assurances that an agreement can be reached with
NWO.
The Registrant will require additional funds to fund its litigation costs,
pay interest expense, and continue limited operations (See Item 6).
Management is reviewing the Registrant's activities and taking actions to
reduce overhead costs. The Registrant is considering various options to fund
its activities which include raising additional capital, borrowing additional
funds, the sale of assets or a merger with another company. Obtaining the
additional financing may be difficult and there can be no assurances that the
Registrant will be successful in doing so. Unless additional funds can be
made available, it is unlikely that the Registrant can continue as a going
concern. The financial statements do not include any adjustments that might
result from the outcome of this uncertainty.
(c) COMPETITION AND RISK FACTORS
The oil and gas industry is competitive, and the Registrant must compete with
many long-established companies having far greater resources and operating
experience. Furthermore, the demand for financing of oil and gas and mineral
exploration and development programs substantially exceeds the available
supply, and Registrant competes with other exploration and development
companies of far greater means for the available funds. The scope of its
exploration activities is currently constrained by this shortage of funds.
Oil and gas exploration activities, especially in foreign areas, are also
subject to a wide variety of risks which affect not only the concessions
themselves but also their saleability (whether of partial interests or
otherwise) to third parties. In addition to
4
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the risk of failing to find marketable quantities of oil and gas after
substantial expenditures of time and money, any of the following factors may
also adversely affect Registrant's business operations:
(i) The effects of the current suspension of the Greek net
earnings interest payment on continuing operations;
(ii) Unsuccessful results in the pending litigation against
the operator of the Greek properties;
(iii) Potential expropriation or nationalization of concessions
or facilities by foreign governments;
(iv) Jurisdictional disputes between foreign governments
concerning areas in which Registrant's concessions are located;
(v) Civil unrest or significant political changes in foreign
countries in which Registrant holds concessions;
(vi) Taxation by foreign governments of Registrant's income
derived within their jurisdiction combined with uncertainties over the
availability in the United States of foreign tax credits for taxes actually
paid to foreign governments; and
(vii) Fluctuations in price of and demand for oil and gas.
ITEM 2. PROPERTIES
Registrant holds various interests in concessions or leases for oil and gas
exploration which are listed below.
Oil and gas property interests as reflected in the accompanying financial
statements include costs attributable only to the Greek interest. Costs on
all other foreign concessions described below have been charged to expense in
prior years.
GREECE. The Registrant has the right to receive an "oil payment and net
profits interest" payable by Denison Mines Ltd., a Canadian company, from the
proceeds of production of oil and gas from certain concession areas totaling
approximately 430,000 acres in the North Aegean Sea, offshore Greece.
"Development areas" for the Prinos Oil Field covering 23,390 gross acres and
for the Kavala Gas Field covering 11,787 gross acres have been defined by the
Greek government and given "development status." The term of each
"development" license is 26 years, with an automatic 10-year renewal. The
remaining exploration area adjoining Prinos and South Kavala covers 153,316
acres and an exploration area east of the island of Thasos covers an
additional 243,367 acres.
The Registrant's 15% net profits interest is subject to a lien in favor of
NWO Resources, Inc. ("NWO"), which lien secures payment of the amounts due to
NWO by the Company. See "MANAGEMENT DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS."
Daily production from the Prinos/South Kavala Fields averaged 10,652 barrels
of oil, .42
5
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MCF of natural gas and 151 tons of sulphur during fiscal year ended March 31,
1995. According to Denison's 1994 Annual Report, calendar year 1994
production was essentially maintained at levels achieved in calendar year
1993 as a result of the completion of workovers and the drilling of infill
wells and that two more infill wells are being considered for 1995 in order
to maintain economic rates of production.
Due to high Greek income taxes and royalties in combination with declining
production levels, low oil prices and increasing operating costs, the
consortium believed that the Greek operation was at its economic breakeven
point. As a result, Denison and its partners commenced negotiations in 1992
with senior Greek government officials to obtain relief from the high level
of government taxes and royalties. On February 23, 1993, the consortium
reached an agreement with the Greek government resulting in an amendment to
the License Agreement known as Law 98/1975 which regulates the operation of
the field. The amendment was ratified by the Greek Parliament on June 23,
1993 and was retroactive to January 1, 1993.
The amendment provides for a sliding scale for both the cost recovery factor
and the Greek royalty interest based on the annual adjusted gross income from
operations on a calendar year basis. The new law also provides for a
reduction in the effective Greek income tax rate from 50% to 40%.
In addition, the new law required Denison and its partners to spend $15
million during 1993 and 1994 in infill drilling in order to enhance the
recoverability of the hydrocarbons. In March 1994, the consortium operating
the Greek properties announced the discovery of a new oil field by the
drilling of the Prinos North-2 well. Denison's 1994 Annual Report states that
two oil bearing zones were flow tested with a 30 meter upper section flowing
at about 3,200 barrels per day and a 7 meter lower section flowing at 150
barrels per day. Oil in place was calculated at about 18 million barrels of
which 5 million may be recoverable. The crude from this discovery has an API
gravity of about 25 degrees, contains about 7% sulphur and may have a selling
value of between $1.50 and $4.00 per barrel less than Prinos crude. The
Registrant has not received any further information regarding the development
plans, if any, for this new discovery.
Denison, who has the contractual obligation to pay the Registrant's 15% net
profits interest, has asserted that the calculation of the amounts due the
Registrant should be based on the amended agreement with the Greek
government. The Registrant disagrees with this interpretation and has
commenced legal action seeking a declaration by the Court that amounts due
the Registrant attributable to its 15% net profits interest be calculated
based on the terms of the license agreement before the 1993 amendment. The
Registrant is seeking damages of approximately $5,000,000 for the period from
January 1, 1993 through March 31, 1994 plus damages since that date and
undetermined future damages. The Registrant estimates that damages for the
unpaid revenues for the period from April 1, 1994 through September 30, 1995
are approximately $7,000,000, $5,000,000 of which is attributable to the year
ended March 31, 1995. The
6
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Registrant believes there is a reasonable possibility of prevailing in the
litigation but the ultimate outcome of the lawsuit cannot be determined at
this time. Furthermore, there are no assurances that the Registrant will be
able to collect from Denison on a successful judgment or settlement of the
pending litigation. Therefore, no amounts have been recorded in the
financial statements for revenues or damages, if any, that may ultimately be
awarded. Unpaid revenues for the net earnings interest calculated under the
terms of the amended agreement are estimated at approximately $675,000 for
the period from January 1, 1993 through September 30, 1995, $490,000 of which
is attributable to the year ended March 31, 1995.
In response to the lawsuit filed against Denison by the Registrant, Denison
has filed a counterclaim seeking damages of approximately $4,800,000 plus
interest and costs alleging that the Registrant was overpaid for the period
from January 1, 1989 through December 31, 1993. In addition, Denison has
ceased remitting payments to the Registrant for its 15% net profits interest.
The Registrant believes that the revenues are suspended based on the alleged
amounts due Denison as filed in their counterclaim. Accordingly, the
Registrant has not recorded any oil and gas revenues for Greece for the
current year. While the Registrant also believes that it will prevail on the
counterclaim, the ultimate outcome likewise cannot be determined.
Accordingly, no provision for any liability or loss that may result upon
final resolution of the counterclaim has been recognized in the financial
statements. Legal proceedings are described in Item 3.
The Registrant's counsel is unable to conclude that the likelihood of an
adverse determination in the litigation with Denison is remote. In addition,
if the Registrant obtains a favorable judgment against Denison, there is no
assurance that the Registrant will be able to collect the judgment because
of Denison's current condition.
REPUBLIC OF CHINA (TAIWAN). Registrant holds a 22.23% working interest in a
concession located north of Taiwan in the East China Sea, covering 3,706,560
gross acres. The exploration license for this concession had a nominal term
extending to 1979, requiring exploration activity and minimum expenditures.
Preparations for initial exploratory drilling were suspended in 1977 under a
claim of force majeure, pending resolution of a territorial dispute among the
Republic of China (Taiwan), the Government of Japan and the People's Republic
of China. The Chinese Petroleum Corporation (Taiwan) has agreed to suspend
obligations under this concession until December 31, 1995.
During fiscal 1990, the Registrant entered into a farmout agreement with two
United Kingdom companies conveying two-thirds of its original 66.67% interest
in the concession.
Due to the uncertainty of sovereignty in the area, no immediate development
expenditures, as required under the terms of the concession agreement, are
anticipated. The Registrant has incurred $27,171 of exploration expenses
during fiscal 1995 as the result of ongoing negotiations with the governments
of China and Taiwan and the reprocessing of seismic data to assist in the
future
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exploration and development of the concession.
In fiscal year 1994, the Registrant reported that the People's Republic of
China was indicating its intention to open up adjacent concession areas for
bidding and that a resolution to the sovereignty issues may result. Nothing
has occurred in fiscal year 1995 to indicate that the lifting of the current
force majeure status is imminent.
BOLIVIA. Registrant has conducted a preliminary exploration study of a
10,500 square kilometer area located in the eastern part of the country near
the Paraguayan border, pursuant to a work study program with Y.P.F.B., the
government controlled agency having responsibility for oil and gas
exploration in Bolivia. Registrant has preliminarily agreed to the terms of
an operations contract pertaining to such area and anticipates signing an
operations contract in fiscal year 1996.
VIETNAM. The Registrant has decided not to pursue the Memorandum Agreement
with PetroVietnam pertaining to an area offshore Vietnam in the South China
Sea due to the inability to reach favorable terms for an exploration
agreement.
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OCEANIC EXPLORATION COMPANY AND SUBSIDIARIES
UNAUDITED SUPPLEMENTAL INFORMATION
RELATING TO OIL AND GAS
PROPERTY INTERESTS
The information presented below relates solely to the Registrant's interest
in offshore Greece described in Item 2 to this Form 10-KSB/A.
The Registrant's interest in Greece consists of a contractual right to
receive a 15% "net profits interest." Because the Registrant has a net
profits interest and not a working interest in this property, the Registrant
is only entitled to receive information regarding current monthly production
quantities and net revenue. Consequently, certain information regarding the
operations of the property is unavailable to the Registrant. In recent
years, the Registrant has provided information concerning estimated
quantities of proved oil and gas reserves attributable to its net profits
interest which had been derived from publicly available information.
Currently, there is no publicly available information which takes into
consideration the effects of the infill drilling during 1993 and 1994 as
required under the 1993 amendment to the License Agreement known as Law
98/1975. Similarly, the Registrant does not have access to the engineering
data upon which the infill drilling program was based. Therefore, the
Registrant is not in a position to estimate the potential future producible
reserves and/or present value of future net revenues attributable to its net
profits interest.
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OIL AND GAS REVENUE AND COST INFORMATION
Revenue from and costs incurred in oil and gas producing activities for
the fiscal years ended March 31, 1995, 1994 and 1993 are as follows:
<TABLE>
<CAPTION>
Year ended March 31,
------------------------------------------
1995 1994 1993
----------- ---------- -----------
<S> <C> <C> <C>
Oil and gas revenue (1)
Greece - $ 573,100 $ 4,523,500
Less Greek income taxes paid - (228,100) (2,245,499)
----------- ---------- -----------
- $ 345,000 $ 2,278,001
=========== ========== ===========
Capitalized costs related
to oil and gas producing
activities
Proved properties
Greece $39,000,000 $39,000,000 $39,000,000
Less accumulated depreciation,
depletion and amortization (37,629,909) (37,396,220) (37,151,590)
----------- ----------- -----------
$ 1,370,091 $ 1,603,780 $ 1,848,410
=========== =========== ===========
</TABLE>
(1) The Company's gross revenues are burdened only by Greek income taxes.
The Company has no production costs since its property interest is a net
profits interest.
The rate of depreciation, depletion and amortization as a percentage of gross
revenues (net of Greek income taxes) for Greece is as follows:
<TABLE>
<CAPTION>
Year ended March 31,
-----------------------------
1995 1994 1993
---- ---- ----
<S> <C> <C> <C>
Greece - 71% 30%
</TABLE>
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ITEM 3. LEGAL PROCEEDINGS
On June 13, 1994, the Registrant commenced legal action against Denison Mines
Ltd. in the Ontario Court (General Division) of Ontario, Canada. The
Registrant is seeking a declaration by the Court that amounts due the
Registrant attributable to its 15% net profits interest be calculated based
on the terms of the license agreement prior to the 1993 amendment. The
Registrant is seeking damages of approximately $5,000,000 for the period from
January 1, 1993 through March 31, 1994 plus undetermined future damages. On
November 25, 1994, the case was transferred to the Commercial List of the
Ontario Court. A court date has been scheduled for February 1996.
In response to the lawsuit filed against Denison by the Company, Denison has
filed a counterclaim seeking damages of approximately $4,800,000 plus
interest and costs alleging that the Company was overpaid for the period from
January 1, 1989 through December 31, 1993. Registrant's net profits interest
is described in Item 2.
The ultimate outcome of the litigation cannot presently be determined.
Accordingly, no provision for any revenues or damages that may result upon
adjudication has been recognized in the financial statements.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
Not applicable.
PART II
ITEM 5. MARKET FOR COMMON EQUITY AND RELATED STOCKHOLDER MATTERS
Registrant's common stock is traded on the Pacific Stock Exchange
Incorporated and is traded under the symbol OXC. The Registrant has
failed to maintain the minimum standards required by the Pacific Stock
Exchange (the "Exchange") to maintain its listing as a Tier II Security on
that Exchange. On August 25, 1995, the Registrant was notified that it is
subject to the initiation of delisting procedures. Its listing status was
reviewed by the Exchange at a meeting of the Equity Listing Committee (the
"Committee") held on October 3, 1995. The Registrant was informed that the
Committee had decided to delist its common stock. The Committee based its
decision upon the Registrant's deficiencies with respect to the following
components of the Exchange's listing maintenance requirements: net tangible
assets of at least $500,000, aggregate market value of at least $500,000, and
a minimum bid price per share of at least $1. The Registrant has the right
to appeal the decision of the Committee and the Registrant intends to pursue
such an appeal. The Registrant's common stock is suspended from trading as
of October 4, 1995 and will remain suspended until the appeals process is
completed. At that time, the common stock will either resume trading on the
Exchange or be delisted. If the stock is delisted from the Exchange, it will
be necessary to secure a broker-dealer to serve as a market maker for trades
in the stock. This may impact the convenience of trading in the shares. Any
impact on the market value of the shares cannot be predicted. There are no
assurances that the Registrant will continue to be listed on the Pacific
Stock Exchange.
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The range of closing prices in Registrant's stock over the last two years
(which are not necessarily representative of actual transactions) is set out
below.
<TABLE>
<CAPTION>
Fiscal 1995 Fiscal 1994
------------- -------------
High Low High Low
----- --- ----- ----
<S> <C> <C> <C> <C>
June 30 $1.13 .88 $1.56 1.38
September 30 .88 .75 1.50 .56
December 31 .75 .50 1.00 .63
March 31 .88 .63 1.13 .75
</TABLE>
Registrant uses all available funds for working capital purposes, and has
never paid a dividend. Registrant's management does not anticipate paying
dividends in the future. As of June 8, 1995, the number of record holders of
Registrant's common stock was 502.
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ITEM 6. MANAGEMENT DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS
LIQUIDITY AND CAPITAL RESOURCES
In the past, the Registrant's principal source of revenue was
from its net profits interest in an oil and gas concession
located offshore Greece. The average per barrel price for oil
production from the Registrant's concession in Greece was
$14.47, $12.38 and $15.65 for the years ended March 31, 1995,
1994, and 1993, respectively.
Due to high Greek income taxes and royalties in combination with
declining production levels, low oil prices and increasing
operating costs, the consortium operating the Greek properties
believed that the Greek operation was at its economic breakeven
point. As a result, Denison and its partners commenced
negotiations in 1992 with senior Greek government officials to
obtain relief from the high level of government taxes and
royalties. On February 23, 1993, the consortium reached an
agreement with the Greek Government resulting in an amendment to
the License Agreement known as Law 98/1975 which regulate the
operation of the field. The amendment was ratified by the Greek
Parliament on June 23, 1993 and was retroactive to January 1, 1993.
The amendment provides for a sliding scale for both the cost
recovery factor and the Greek royalty interest based on the
annual adjusted gross income from operations on a calendar year
basis. The new law also provides for a reduction in the
effective Greek income tax rate from 50% to 40%.
In addition, the new law required Denison and its partners to
spend $15 million during 1993 and 1994 in infill drilling in
order to enhance the recoverability of the hydrocarbons. In
March 1994, the consortium announced the discovery of a new oil
field by the drilling of the Prinos North-2 well. According to
Denison's 1994 Annual Report, two oil bearing zones were flow
tested with a 30 meter upper section flowing at about 3,200
barrels per day and a 7 meter lower section flowing at 150
barrels per day. Oil in place was calculated at about 18 million
barrels of which 5 million may be recoverable. The crude from
this discovery has an API gravity of about 25 degrees, contains
about 7% sulphur and may have a selling value of between $1.50
and $4.00 per barrel less than Prinos crude. The Registrant has
not received any further information regarding the development
plans, if any, for this new discovery.
Denison, who has the contractual obligation to pay the
Registrant's 15% net profits interest, has asserted that the
calculation of the amounts due the Registrant should be based on
the amended agreement with the Greek government. The Registrant
disagrees with this interpretation and has commenced legal action
seeking a declaration by the Court that amounts due the
Registrant attributable to its 15% net profits interest be
calculated based on the terms of the license agreement prior to
the 1993 amendment. The Registrant is seeking damages of
13
<PAGE>
approximately $5,000,000 for the period from January 1, 1993
through March 31, 1994 plus damages since that date and
undetermined future damages. The Registrant estimates that
damages for unpaid revenues for the period from April 1, 1994
through September 30, 1995 are approximately $7,000,000,
$5,000,000 of which is attributable to the year ended March 31,
1995. The Registrant believes there is a reasonable possibility
of prevailing in the litigation but the ultimate outcome of the
lawsuit cannot be determined at this time. Furthermore, there
are no assurances that the Registrant will be able to collect
from Denison on a successful judgment or settlement of the
pending litigation. Initially, it appeared, based on Denison's
public filings, that the financial stability of Denison was
questionable and that Denison continued to operate at the
sufferance of its secured creditors. Denison announced on
October 16, 1995 that Denison's Board had approved a Plan of
Arrangement which, among other things, incorporates agreements
restructuring the debt held by Denison's major lenders, the
Toronto Dominion Bank, Bank of America Canada, and the Canadian
Mortgage and Housing Corporation. The announcement states that
the Plan is to be put to the shareholders at meetings scheduled
for December 18, 1995. These announced plans if implemented may
increase the likelihood that Denison would have assets available
for satisfaction of a judgment in favor of the Registrant. No
amounts have been recorded in the financial statements for
revenues or damages, if any, that may ultimately be awarded.
Unpaid revenues for the net earnings interest calculated under the
terms of the amended agreement are estimated at approximately $675,000
for the period from January 1, 1993 through September 30, 1995,
$490,000 of which is attributable to the year ended March 31, 1995.
In response to the lawsuit filed against Denison by the
Registrant, Denison has filed a counterclaim seeking damages of
approximately $4,800,000 plus interest and costs alleging that
the Registrant was overpaid for the period from January 1, 1989
through December 31, 1993. In addition, Denison has ceased
remitting payments to the Registrant for its 15% net profits
interest. The Registrant believes that the revenues are
suspended based on the alleged amounts due Denison as filed in
the counterclaim. Accordingly, the Registrant has not recorded
any oil and gas revenues for Greece for the current year. While
the Registrant also believes that it will prevail on the
counterclaim, the ultimate outcome likewise cannot be determined.
Accordingly, no provision for any liability or loss that may
result upon final resolution of the counterclaim has been
recognized in the financial statements.
Denison's suspension of the Registrant's principal source of
revenue has resulted in the Registrant's inability to fulfill its
financial obligations as they become due and therefore the
Registrant faces potential insolvency. Accordingly, the
Registrant's auditors have issued an opinion on the Registrant's
financial statements that includes an explanatory paragraph
discussing the uncertainty regarding the Registrant's ability to
continue as a going concern. The financial statements do not
contain any adjustments that may be necessary if the Registrant
is unable to continue as a going concern. In addition to the
uncertainty of the Registrant's ability to continue as a going
14
<PAGE>
concern, the auditor's report also refers to the uncertainty
associated with the legal action against Denison and indicates
that no provision for any liability or loss that may result upon
adjudication has been recognized in the financial statements for
the year ended March 31, 1995.
The Registrant has used draws against its line of credit with
NWO, the parent company of International Hydrocarbons, the
Registrant's majority stockholder, to cover its general operating
expenses. The NWO line of credit provides for cumulative draws
of up to $2,000,000 with interest payable monthly on the
outstanding balance at the greater of the U.S. bank prime
lending rate or 1 3/4% above the 30-day LIBOR in effect on the
date of each draw against the line of credit. Such draws are
evidenced by promissory notes payable no later than January 1,
1996. Cumulative draws on the NWO line of credit are $2,000,000
at March 31, 1995. The line of credit is secured by the
Registrant's 15% net profits interest in the offshore Greece
properties. Recent discussions with NWO indicate that NWO is
unwilling to extend further financial assistance to the
Registrant. As of May 31, 1995, the Registrant is in default on
the line of credit as it has not made its interest payment for
May 1995. Management has entered into discussions with NWO with
a view towards achieving an agreement which would defer interest
and principal payments and allow the Registrant to obtain the
alternative financing necessary to fund litigation costs and
continue limited operations. There can be no assurances that an
agreement can be reached with NWO.
The Registrant will require additional funds to fund its
litigation costs, pay interest expense, and continue limited
operations. Management is reviewing the Registrant's activities
and taking actions to reduce overhead costs. The Registrant is
currently considering various options to fund its activities
which include raising additional capital, borrowing additional
funds, the sale of assets, or a merger with another company.
There can be no assurances that the Registrant will be successful
in any of these arrangements. Unless additional funds can be
made available, it is unlikely that the Registrant can continue
as a going concern. The financial statements do not include any
adjustments that might result from the outcome of this uncertainty.
RESULTS OF OPERATIONS
The Registrant reported net losses of $796,602 and $448,746 for
the years ended March 31, 1995 and 1994, respectively, and net
income of $1,511,343 for the year ended March 31, 1993. The most
significant factors in the fluctuations of net income between the
periods are lower Greek revenues as the result of the position
taken by Denison in the calculation of the Registrant's 15% net
profits interest, variances in oil and gas prices received, and
the effect of normal production declines from the Prinos and
South Kavala fields in Greece. The depletion provision decreased
from $678,519 in 1993 to $244,630 for 1994, and subsequently to
$233,689 for 1995, reflecting the declining base of depletable
costs for the Greece concession.
15
<PAGE>
The following table summarizes the primary components of changes
in net income before the provision for income taxes for the
relevant periods:
<TABLE>
<CAPTION>
YEAR ENDED MARCH 31,
-----------------------------------------
1995 1994 1993
---------- ---------- ----------
<S> <C> <C> <C>
Calculation of Greek
revenues (573,100) (3,377,000) (623,000)
Production decline - (78,000) (1,315,000)
Price decrease - (477,000) (115,000)
Reduction in
depreciation and
depletion charges 10,941 433,889 176,842
(Increase) reduction in
interest costs (38,136) 43,741 200,211
Increase (reduction) in
other income 59,266 (182,000) -
Other (14,870) (20,133) 65,220
---------- ---------- ----------
Decrease in income
before taxes $ (555,899) (3,656,503) (1,610,727)
========== ========== ==========
</TABLE>
For the year ended March 31, 1995, other components of changes in
net income are the net effect of a decrease in exploration expenses
and an increase in general and administrative expenses.
The provision for income taxes in fiscal 1995 decreased
approximately $208,000 from the fiscal 1994 provision due to a
decrease in Greek income taxes corresponding to the decrease in
Greek oil and gas revenues recorded.
16
<PAGE>
ITEM 7. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
INDEX PAGE
----- ----
Independent Auditors' Report 19
Consolidated Balance Sheets 20-21
Consolidated Statements of
Operations and Accumulated Deficit 22
Consolidated Statements of
Cash Flows 23
Notes to Consolidated Financial Statements 24-29
17
<PAGE>
OCEANIC EXPLORATION COMPANY
AND SUBSIDIARIES
CONSOLIDATED FINANCIAL STATEMENTS
MARCH 31, 1995 AND 1994
(WITH INDEPENDENT AUDITORS' REPORT THEREON)
18
<PAGE>
INDEPENDENT AUDITORS' REPORT
The Board of Directors and Stockholders
Oceanic Exploration Company:
We have audited the accompanying consolidated balance sheets of Oceanic
Exploration Company and subsidiaries as of March 31, 1995 and 1994, and the
related consolidated statements of operations and accumulated deficit and
cash flows for each of the years in the three-year period ended March 31,
1995. These consolidated financial statements are the responsibility of the
Company's management. Our responsibility is to express an opinion on these
consolidated financial statements based on our audits.
We conducted our audits 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
significant estimates made by management, as well as evaluating the overall
financial statement presentation. We believe that our audits provide a
reasonable basis for our opinion.
In our opinion the consolidated financial statements referred to above
present fairly the financial position of Oceanic Exploration Company and
subsidiaries as of March 31, 1995 and 1994, and the results of their
operations and their cash flows for each of the years in the three-year
period ended March 31, 1995 in conformity with generally accepted accounting
principles.
The accompanying consolidated financial statements have been prepared
assuming that Oceanic Exploration Company and subsidiaries will continue as a
going concern. As discussed in Note 1 to the consolidated financial
statements, the Company's inability to generate sufficient cash flow to
sustain operations and service its debt raises substantial doubt about the
Company's ability to continue as a going concern. Management's plans in
regard to these matters are also disclosed in Note 1. The consolidated
financial statements do not include any adjustments that might result from
the outcome of this uncertainty.
As discussed in Note 3 to the consolidated financial statements, the Company
has commenced legal action in Canada seeking a declaration by the Court that
amounts due the Company attributable to its 15% net profits interest in an
oil and gas property offshore Greece be calculated based on the terms of a
license agreement with the Greek government before a recent amendment. The
working interest owner who has the contractual obligation to the Company for
its 15% net profits interest has ceased remitting payments to the Company and
has filed a counterclaim. The ultimate outcome of the litigation cannot
presently be determined. Accordingly, no provision for any liability or loss
that may result upon adjudication has been recognized in the accompanying
consolidated financial statements.
/s/ KPMG Peat Marwick LLP
--------------------------------------
KPMG Peat Marwick LLP
Denver, Colorado
May 31, 1995
19
<PAGE>
OCEANIC EXPLORATION COMPANY
AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
March 31, 1995 and 1994
- ------------------------------------------------------------------------------
ASSETS
<TABLE>
<CAPTION>
1995 1994
------------ -----------
<S> <C> <C>
Cash $ 154,628 48,928
Receivables:
Federal income tax - 4,125
Affiliates 2,237 7,264
Other 9,633 777
------------ -----------
11,870 12,166
Prepaid expenses 4,347 2,235
Restricted cash 15,629 15,171
------------ -----------
Total current assets 186,474 78,500
------------ -----------
Oil and gas property interests, full- cost
method of accounting -- Greece (note 2) 39,000,000 39,000,000
Less accumulated amortization,
depreciation, and valuation allowance (37,629,909) (37,396,220)
------------ -----------
1,370,091 1,603,780
------------ -----------
Other assets 757 1,325
------------ -----------
$ 1,557,322 1,683,605
============ ===========
(Continued)
</TABLE>
20
<PAGE>
OCEANIC EXPLORATION COMPANY
AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS, CONTINUED
- ------------------------------------------------------------------------------
<TABLE>
<CAPTION>
LIABILITIES AND STOCKHOLDERS' DEFICIT 1995 1994
- ------------------------------------- ----------- -----------
<S> <C> <C>
Current liabilities:
Notes payable to affiliate (notes 1 and 2) $ 2,000,000 --
Accounts payable 181,879 61,894
Accounts payable to affiliates 60,000 60,000
United Kingdom taxes payable, including
accrued interest 408,958 355,303
Accrued expenses (note 6) 90,487 103,303
----------- -----------
Total current liabilities 2,741,324 580,500
----------- -----------
Note payable to affiliate (note 2) -- 1,400,000
Deferred income taxes 808,062 885,334
Other noncurrent liabilities 15,217 28,450
----------- -----------
Total liabilities 3,564,603 2,894,284
----------- -----------
Stockholders' deficit (note 5):
Common stock, $.0625 par value. Authorized
12,000,000 shares; issued and outstanding
3,915,154 shares 244,697 244,697
Capital in excess of par value 6,665 6,665
Accumulated deficit (2,258,643) (1,462,041)
----------- -----------
Total stockholders' deficit (2,007,281) (1,210,679)
----------- -----------
Commitments and contingencies (notes 1,
3 and 6)
$ 1,557,322 1,683,605
=========== ===========
</TABLE>
See accompanying notes to consolidated financial statements.
21
<PAGE>
OCEANIC EXPLORATION COMPANY
AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATIONS AND ACCUMULATED DEFICIT
Years Ended March 31, 1995, 1994, and 1993
- -------------------------------------------------------------------------------
<TABLE>
<CAPTION>
1995 1994 1993
----------- ---------- ----------
<S> <C> <C> <C>
Revenue:
Oil and gas sales -- Greece (note 3) $ -- 573,100 4,523,500
Other (note 6) 321,495 262,229 444,065
----------- ---------- ----------
321,495 835,329 4,967,565
----------- ---------- ----------
Costs and expenses:
Interest and financing costs 150,164 112,028 155,769
Exploration expenses 181,566 213,115 220,935
Amortization and depreciation 233,689 244,630 678,519
General and administrative 629,950 583,531 573,814
----------- ---------- ----------
1,195,369 1,153,304 1,629,037
----------- ---------- ----------
Income (loss) before income taxes (873,874) (317,975) 3,338,528
Income tax (benefit) expense (note 4) (77,272) 130,771 1,827,185
----------- ---------- ----------
Net income (loss) (796,602) (448,746) 1,511,343
Accumulated deficit at beginning of year (1,462,041) (1,013,295) (2,524,638)
----------- ---------- ----------
Accumulated deficit at end of year $(2,258,643) (1,462,041) (1,013,295)
=========== ========== ==========
Income (loss) per common share $(.20) (.11) .39
===== ==== ===
Number of common shares outstanding 3,915,154 3,915,154 3,915,154
=========== ========== ==========
</TABLE>
See accompanying notes to consolidated financial statements.
22
<PAGE>
OCEANIC EXPLORATION COMPANY
AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
Years Ended March 31, 1995, 1994, and 1993
- -----------------------------------------------------------------------------
<TABLE>
<CAPTION>
1995 1994 1993
--------- -------- ----------
<S> <C> <C> <C>
Cash flows from operating activities:
Net income (loss) $(796,602) (448,746) 1,511,343
Adjustments to reconcile net income (loss) to
net cash (used in) provided by operating
activities:
Amortization and depreciation 233,689 244,630 678,519
Deferred income tax benefit (77,272) (78,332) (425,000)
Decrease in receivables 296 23,699 17,257
(Increase) decrease in restricted cash (458) (280) 198,673
(Increase) decrease in prepaid expenses
and other assets (1,544) 456 442
Increase (decrease) in accounts payable 119,985 (304,487) 221,011
Decrease in accounts payable to
affiliates - - (172,432)
Increase (decrease) in United Kingdom
taxes payable, including accrued interest
payable, and accrued expenses 40,839 13,285 (36,828)
Decrease in other noncurrent liabilities (13,233) (11,506) (40,644)
--------- -------- ----------
Net cash (used in) provided by
operating activities (494,300) (561,281) 1,952,341
--------- -------- ----------
Cash flows from financing activities:
Principal payments on primary bank loan - - (2,002,534)
Borrowings from (repayments to) affiliate, net 600,000 (55,000) 650,000
--------- -------- ----------
Net cash provided by (used in)
financing activities 600,000 (55,000) (1,352,534)
--------- -------- ----------
Net increase (decrease) in cash 105,700 (616,281) 599,807
Cash at beginning of year 48,928 665,209 65,402
--------- -------- ----------
Cash at end of year $ 154,628 48,928 665,209
========= ======== ==========
Interest paid $ 124,781 86,690 137,821
========= ======== ==========
Federal income taxes paid (refunded) $ (4,125) (18,997) 6,686
========= ======== ==========
Foreign income taxes paid $ - 228,100 2,245,499
========= ======== ==========
</TABLE>
See accompanying notes to consolidated financial statements.
23
<PAGE>
OCEANIC EXPLORATION COMPANY
AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
March 31, 1995 and 1994
- ------------------------------------------------------------------
(1) Summary of Significant Accounting Policies
(a) GENERAL
Oceanic Exploration Company (the Company) is principally
engaged in a worldwide search for oil and gas reserves.
The Company's investment in oil and gas properties
consists primarily of interests in proven reserves
offshore Greece. Substantially all production from the
offshore Greece property is sold 50% to the Greek national
refinery and 50% to BP-France based on prices determined
by reference to current world oil prices as specified by
contracts signed by the operator with both customers.
(b) GOING CONCERN BASIS OF PRESENTATION
The financial statements have been prepared on a going
concern basis which contemplates the realization of assets
and the satisfaction of liabilities and commitments in the
normal course of business. Several factors, described
below, raise substantial doubt about the ability of the
Company to continue as a going concern.
Currently, the Company's operations are not generating
sufficient cash flow to fund operations and the Company's
debt service. The Company has been economically dependent
upon NWO Resources, Inc. (NWO). NWO is the parent
corporation of the Company's majority stockholder,
International Hydrocarbons. The Company required
financial assistance from NWO during 1995 under a line of
credit agreement (see note 2).
Through fiscal year 1995, NWO continued to advance funds to
the Company up to the limit of the line of credit
agreement. NWO has no obligation or commitment to provide
further financial support and recent discussions with NWO
indicate that NWO is unwilling to extend further financial
assistance to the Company. As of May 31, 1995, the
Company is in default on the line of credit as it has not
made its interest payment for May 1995. Management has
entered into discussions with NWO with a view towards
achieving an agreement which would defer principal and
interest payments and allow the Company to finance its
litigation costs and continue limited operations (see note
3). There can be no assurance that such an agreement can
be reached with NWO.
The Company will require additional funds to fund its
litigation costs and continue limited operations until the
pending litigation is completed or settled. Management is
reviewing the Company's activities and taking actions to
reduce overhead costs. The Company is also considering
various options to fund its activities, which include
raising additional capital, borrowing additional funds,
the sale of assets, or a merger with another company.
Obtaining the additional financing may be difficult and
there can be no assurances that the Company will be
successful in doing so.
24
<PAGE>
OCEANIC EXPLORATION COMPANY
AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS, CONTINUED
- ------------------------------------------------------------------
(1) SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
Due to the uncertainties regarding the Company's ability
to obtain additional financing and reach an agreement
with NWO to defer payments due on its line of credit,
there is substantial doubt about the ability of the
Company to continue as a going concern. The financial
statements do not include any adjustments that might
result from the outcome of this uncertainty.
(c) PRINCIPLES OF CONSOLIDATION
The consolidated financial statements include the accounts
of the Company and its wholly owned domestic and
foreign subsidiaries. All significant intercompany
balances and transactions have been eliminated in
consolidation.
(d) OIL AND GAS PROPERTIES
Oil and gas properties are accounted for using the full-
cost method of accounting in accordance with the rules
prescribed by the Securities and Exchange Commission
(SEC). Under this method, all acquisition,
exploration, and development costs are capitalized on a
country-by-country basis as incurred. Gains or losses
on disposition of oil and gas properties are recognized
only when such dispositions involve significant
reserves within the individual country cost pools.
Capitalized costs less related accumulated amortization
may not exceed the sum of (1) the present value of
future net revenue from estimated production of proved
oil and gas reserves, computed using current prices and
costs and a discount rate of 10%; plus (2) the cost of
properties not being amortized, if any; plus (3) the
lower of cost or fair value of unproved properties
included in costs being amortized; less (4) income tax
effects related to differences in the book and tax
basis of oil and gas properties.
The Company's offshore Greece oil and gas property
interests represent a 15% net profits interest in such
properties. Accordingly, depletion of oil and gas
properties is computed using the future net revenue
method. Depletion expense for 1995 and 1994 has been
calculated based on the Company's estimate of the
revenue due for its net profits interest, calculated in
a manner consistent with the terms of the amended
license agreement (see note 3).
Because the Company's interest in the offshore Greece oil
and gas property is a net profits interest and not a
working interest, the Company is only entitled to receive
information regarding current monthly production
quantities and net revenue. Consequently, certain reserve
information regarding the operations of the property is
unavailable to the Company.
The cost of undeveloped properties is excluded from
amortization pending a determination of the existence
of proved reserves. Such undeveloped properties are
assessed periodically for impairment. The amount of
impairment, if any, is added to the costs to be
amortized. At March 31, 1995 and 1994, all capitalized
costs were subject to amortization.
25
<PAGE>
OCEANIC EXPLORATION COMPANY
AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS, CONTINUED
- ------------------------------------------------------------------
(e) INCOME TAXES
The Financial Accounting Standards Board has issued
Statement of Financial Accounting Standards No. 109,
ACCOUNTING FOR INCOME TAXES. Under the asset and
liability method of Statement 109, deferred tax assets and
liabilities are recognized for the future tax consequences
attributable to differences between the financial
statement carrying amounts of existing assets and
liabilities and their respective tax bases. Deferred tax
assets and liabilities are measured using enacted tax
rates expected to apply to taxable income in the years in
which those temporary differences are expected to be
recovered or settled. Under Statement 109, the effect on
deferred tax assets and liabilities of a change in tax
rates is recognized in operations in the period that
includes the enactment date.
Effective April 1, 1993, the Company adopted Statement 109
and has reported no effect for this change in the method
of accounting for income taxes.
(f) INCOME (LOSS) PER SHARE
Income (loss) per share is based on the number of common
shares outstanding for the period.
(g) RECLASSIFICATIONS
Certain amounts for 1994 have been reclassified to conform
to the 1995 presentation.
(2) NOTES PAYABLE
Notes payable to affiliate represents borrowings under a line
of credit with NWO. The NWO line of credit provides for
cumulative draws of up to $2,000,000 with interest payable
monthly on the outstanding principal balance at the greater
of the U.S. bank prime lending rate or 1 3/4% above the 30-
day LIBOR. Borrowings under the line of credit are secured
by the Company's 15% net profits interest in the offshore
Greece oil and gas property. The borrowings are secured by
promissory notes payable no later than January 1, 1996. As
of May 31, 1995, the Company is in default of the line of
credit as it has not made its interest payment for May 1995.
(3) OIL AND GAS SALES -- GREECE
Effective January 1, 1993, the operator of the Greek
properties negotiated an agreement with the Greek government
which amended the original license agreement. The amendment
provides for a sliding scale for calculating the operator's
recoverable costs and expenses and for the calculation of the
Greek royalty interest. The working interest owner who has
the contractual obligation to the Company for the 15% net
profits interest has asserted that the calculation of the
amounts due to the Company should be based on the amended
agreement with the Greek government. The Company disagrees
with this interpretation and has commenced a legal action in
Canada seeking a declaration by the Court that amounts due
the Company attributable to its 15% net profits interest be
calculated based on the terms of the
26
<PAGE>
OCEANIC EXPLORATION COMPANY
AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS, CONTINUED
- ------------------------------------------------------------------
license agreement before this amendment. The Company is
seeking damages of approximately $5,000,000 for the period
from January 1, 1993 through March 31, 1994 plus undetermined
future damages. While the Company believes it has a
reasonable possibility of prevailing in its action, the
ultimate outcome of the matter cannot presently be
determined. Accordingly, no amounts have been recorded in
the accompanying financial statements for current revenues
or damages, if any, that may ultimately be awarded to the
Company.
In response to the legal action commenced by the Company, the
working interest owner has ceased remitting payments to the
Company and has filed a counteraction seeking damages in the
amount of $4,800,000 plus interest and costs, alleging the
Company was overpaid for the period January 1, 1989 through
December 31, 1993. As the working interest owner has ceased
remitting payments to the Company for its 15% net profits
interest, the Company has not recorded any revenues for
Greece for the current year. While the Company also believes
that it will prevail on the counterclaim, the ultimate
outcome of that matter likewise cannot be determined.
Accordingly, no provision for any liability or loss that may
result upon final resolution of the counterclaim has been
recognized in the financial statements.
(4) INCOME TAXES
Income tax expense (benefit) consists of the following:
<TABLE>
<CAPTION>
Year ended March 31
------------------------------
1995 1994 1993
-------- ------- ---------
<S> <C> <C> <C>
Current:
Foreign -- Greece $ -- 228,100 2,245,499
U.S. federal -- (18,997) 6,686
-------- ------- ---------
Total current income tax expense -- 209,103 2,252,185
-------- ------- ---------
Deferred:
Foreign -- Greece (93,476) (97,852) (450,465)
U.S. federal 16,204 19,520 25,465
-------- ------- ---------
Total deferred income tax benefit (77,272) (78,332) (425,000)
-------- ------- ---------
Total income tax (benefit) expense $(77,272) 130,771 1,827,185
======== ======= =========
</TABLE>
27
<PAGE>
OCEANIC EXPLORATION COMPANY
AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS, CONTINUED
- ------------------------------------------------------------------
The reconciliation between tax expense computed by
multiplying pretax income by the U.S. federal statutory tax
rate of 34% and the reported amount of income tax expense is
as follows:
<TABLE>
<CAPTION>
Year ended March 31
--------------------------------
1995 1994 1993
-------- ------- ----------
<S> <C> <C> <C>
Computed at U.S. statutory tax rate $ - - 1,135,100
Foreign -- Greek income taxes, net (93,476) 130,248 1,795,034
Tax credit for Greek income taxes - - (1,081,906)
Other, net 16,204 523 (21,043)
-------- ------- ----------
Income tax expense $(77,272) 130,771 1,827,185
======== ======= ==========
</TABLE>
Greek income taxes are withheld from oil and gas revenue
payments to the Company. The effective Greek income tax rate
applicable to the Company's 15% net profits interest was
reduced from 50% to 40% effective January 1, 1993 with
respect to existing development areas. The 50% tax rate
remains effective for areas outside the current development
area.
Temporary differences between the financial statement
carrying amounts and tax bases of assets and liabilities that
give rise to the deferred tax liability at March 31, 1995 and
1994 relate to the Greece oil and gas property interest.
(5) STOCK OPTIONS AND GRANTS
The Company adopted an incentive plan in June 1976 which
reserved 500,000 shares of common stock for stock options and
200,000 shares for stock grants to be awarded to Company
officers, directors, and employees, including certain
eligible consultants. At March 31, 1995, no stock options or
grants were outstanding. At that date, 223,500 shares were
available for future stock option awards and 115,626 shares
were available for future grants.
(6) RELATED PARTY TRANSACTIONS
The Company provides management services under a cost sharing
arrangement to Cordillera Corporation (Cordillera), the
beneficial controlling shareholders of the Company, and to
San Miguel Valley Corporation (SMVC), an affiliate of
Cordillera, under agreements providing for reimbursement of
costs for actual time and expenses incurred on Cordillera and
SMVC activities. In 1995, 1994, and 1993, such
reimbursements amounted to approximately $274,000, $231,000,
and $287,000, respectively, which have been included as other
revenue in the accompanying statements of operations.
Cordillera has a defined contribution pension plan covering
all qualified employees of the Company. Contributions to the
plan are based on a percentage of employee compensation
ranging from 6% to 11.7%. During 1995, 1994, and 1993, the
Company recorded $27,038, $24,607, and $25,270, respectively,
as pension expense under this plan.
28
<PAGE>
OCEANIC EXPLORATION COMPANY
AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS, CONTINUED
- ------------------------------------------------------------------
(6) RELATED PARTY TRANSACTIONS (CONTINUED)
The Company has a deferred compensation agreement with a
former officer entitling this officer to receive $175,000
payable in a maximum of ten equal installments beginning
January 1, 1988 or, if such person dies prior to receiving
all installments, payable at such time to his beneficiaries
to the extent of the remaining balance. Included in accrued
expenses is $17,500 which is due January 1, 1996.
In fiscal 1983, the Board of Directors authorized a bonus of
$25,000 to the president of the Company, payable as cash flow
permits. The president has not been paid as of March 31,
1995, and the amount is included in accrued expenses in the
accompanying balance sheets.
The Company leases 2,562 square feet of space in an office
building owned by Sorrento West Properties, Inc., a company
indirectly owned and controlled by an officer and director of
the Company. Rent payments were $32,998 for 1995 and $32,152
for 1994. Future minimum lease payments are $27,000 for 1996
and $29,000 for 1997.
29
<PAGE>
ITEM 8. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON
ACCOUNTING AND FINANCIAL DISCLOSURE
Not applicable.
30
<PAGE>
PART III
ITEM 9. DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT,
COMPLIANCE WITH SECTION 16(a) OF THE EXCHANGE ACT
The directors of the Registrant are:
<TABLE>
<CAPTION>
Principal Occupation Director
Name Age During Last Five Years Since
- ---- --- ---------------------- --------
<S> <C> <C> <C>
James Neal Blue 60 Chairman, General Atomics, 1981
San Diego, California;
President, Cordillera
Corporation, Denver, Colorado;
Chairman of the Board and Chief
Executive Officer of Registrant
Gene E. Burke, M.D. 66 Physician in sole private 1972
practice in Houston, Texas
Charles N. Haas 57 President of Registrant 1981
Sidney H. Stires 65 President, Stires & Co., Inc. 1980
New York, New York
(securities dealer)
John L. Redmond 64 Vice President, International 1994
Exploration of Registrant
</TABLE>
31
<PAGE>
The officers of the Registrant are:
<TABLE>
<CAPTION>
Principal Occupation Officer
Name Age During Last Five Years Since
- ---- --- ---------------------- -------
<S> <C> <C> <C>
James Neal Blue 60 Chairman, General Atomics, 1981
San Diego, California;
President, Cordillera
Corporation, Denver,
Colorado; Chairman of the
Board and Chief Executive
Officer of the Registrant
Charles N. Haas 57 President of the Registrant 1981
John L. Redmond 64 Vice President-Exploration 1990
of the Registrant
Janet A. Holle 44 Vice President/Secretary of 1982
the Registrant
Diana J. Peters 37 Treasurer and Chief Financial 1992
Officer of Registrant; from
1988 to 1992, Consulting
Accountant
</TABLE>
Based upon a review of Forms 3, 4 and 5 furnished to the Registrant with
respect to the current fiscal year, this director failed to file the
following forms on a timely basis:
<TABLE>
<CAPTION>
Number Number
of Late of Transactions
Name Reports Covered Late Reports
- ---- ------- ---------------- ------------
<S> <C> <C> <C>
Sidney H. Stires 1 1 Form 4
</TABLE>
32
<PAGE>
ITEM 10. EXECUTIVE COMPENSATION
The following information summarizes compensation paid by Registrant to
James N. Blue, Chief Executive Officer and Charles N. Haas, President.
SUMMARY COMPENSATION TABLE
<TABLE>
<CAPTION>
Long Term Compensation
----------------------------
Annual Compensation Awards Payouts
--------------------------- ------------------- -------
(a) (b) (c) (d) (e) (f) (g) (h) (i)
Other
Name Fiscal Annual Restric-
and Year Compen- ted Stock LTIP All other
Principal Ended Salary Bonus sation Award(s) Options/ Payouts Compensa-
Position March 31 ($) ($) ($) ($) SARs (#) ($) tion ($)
- --------- -------- ----------- ----- ------- --------- -------- ------- ---------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
James N. Blue 1995 60,000 (1) - - - - - -
Chairman of 1994 60,000 (1) - - - - - -
the Board 1993 60,000 (1) - - - - - -
and Chief
Executive
Officer
Charles N. Haas 1995 158,762 - - - - - 21,899 (2)
President 1994 159,862 - - - - - 20,766 (2)
1993 161,789 - - - - - 22,892 (2)
</TABLE>
(1) Monthly officer's fee of $5,000.
(2) The Company is a participant in the Cordillera and Affiliated
Companies' Money Purchase Pension Plan and 401(K) Plan, covering
all qualified employees of the Company. The pension plan is a
non-contributory defined contribution plan. Company contributions
to this plan are based on 6% of total compensation not exceeding
the limit established annually for the Federal Insurance
Contribution Act (FICA) and 11.7% of compensation in excess of this
limit. Vesting begins after two years of service at a rate of 20%
annually with full vesting subsequent to five years of service or
upon retirement, death or permanent disability. The 401(K) plan
provides for discretionary employee contribution of up to 10% of
annual pre-tax earnings, subject to the maximum amount established
annually under Section 401(K) of the Internal Revenue Code. The
Company is required to match contributions to the extent of 6% of
annual employee compensation. Employer contributions to the plan
vest immediately.
Members of Registrant's board of directors who are not employees of the
Company or any of its affiliates receive directors' fees of $500 per month.
Members of the board of directors who are employees do not receive
directors' fees.
There are no employment contracts outstanding at this time.
Registrant has no compensation committee. James N. Blue and Charles N.
Haas participated in all deliberations concerning executive officer
compensation.
33
<PAGE>
ITEM 11. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT
As of June 8, 1995, the only entities known to management of Registrant to own
more than 5% of any class of Registrant's stock are specified below.
<TABLE>
<CAPTION>
Nature of
Class of Name and Address Beneficial Percent
Stock of Beneficial Owner Amount Ownership of Class
-------- ------------------- ------ ---------- --------
<S> <C> <C> <C> <C>
Common *Allen & Company 824,200 sole voting 21%
and various affiliates and invest-
711 Fifth Avenue ment power
New York, NY 10022
Common **International 1,713,483 sole voting 43.8%
Hydrocarbons and invest-
c/o John E. Jones ment power
5000 S. Quebec Street
Suite 450
Denver, CO 80237
</TABLE>
* The information regarding Common Stock owned by Allen & Company is based
on the information contained in the Amendment No. 1 to Schedule 13D dated
April 20, 1987 filed by the persons and entities identified below, which
reports the following ownership of the Common Stock.
<TABLE>
<CAPTION>
Name Common Shares Percentages
- ---- ------------- -----------
<S> <C> <C>
Allen & Company 165,000 4.2%
American Diversified Enterprises, Inc. 232,500 5.9
Herbert Anthony Allen,
Susan Kathleen Wilson and Herbert
Allen as Successor Trustees of Trust
created by Herbert Allen pursuant to
Agreement dated 12/1/64 47,917 1.2
Terry Allen Kramer and Irwin H. Kramer,
as Trustees U/A for Issuer of
Terry Allen Kramer pursuant to
Agreement dated 4/5/63 70,000 1.8
Toni Allen Goutal 55,500 1.4
Angela Frances Allen Kramer 43,700 1.1
Nathanial Charles Allen Kramer 56,000 1.4
Bruce Allen 20,000 .5
C. Robert Allen, IV 5,000 .1
John Godwin Allen 5,000 .1
Luke Andrew Allen 5,000 .1
Thaddeus Mack Allen 5,000 .1
Everlyn Henry 52,000 1.3
Marjorie Bisgood 59,500 1.5
Bradley Roberts 2,083 Less than .1%
</TABLE>
**International Hydrocarbons is a wholly owned subsidiary of NWO Resources,
Inc. Mr. Blue is president and a director of International Hydrocarbons. He
is also president and a director of NWO Resources, Inc. Cordillera
Corporation, of which Mr. Blue is president and a major stockholder, and Mr.
Blue beneficially hold 60.667% of Class B common stock of NWO Resources, Inc.
34
<PAGE>
The directors and officers of Registrant beneficially own the
following shares of Registrant's stock as of June 8, 1995.
<TABLE>
<CAPTION>
Nature of
Class of Name and Address of Beneficial Percent
Stock Beneficial Owner Amount Ownership of Class
- -------- ------------------- ------ ---------- --------
<S> <C> <C> <C> <C>
Common James N. Blue None* N/A N/A
5000 S. Quebec St.
Suite 450
Denver, CO 80237
Common Charles N. Haas None N/A N/A
5000 S. Quebec St.
Suite 450
Denver, CO 80237
Common Sidney H. Stires 34,000 As Trustee less than
432 Park Avenue South 1%
New York, NY 10016
Common John L. Redmond 1,000 As Individual less than
5000 S. Quebec St. 1%
Suite 450
Denver, CO 80237
Common All Directors 35,000 less than
and officers 1%
as a group
(7 persons)
</TABLE>
* Does not include shares owned by International Hydrocarbons.
International Hydrocarbons is a wholly-owned subsidiary of NWO Resources,
Inc. Mr. Blue is president and a director of both International
Hydrocarbons and NWO Resources, Inc. Cordillera Corporation, of which Mr.
Blue is president and a major stockholder, and Mr. Blue beneficially hold
60.667% of Class B common stock of NWO Resources, Inc.
35
<PAGE>
ITEM 12. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
Registrant has a $2,000,000 line of credit with NWO Resources,
Inc. (NWO), the parent company of International Hydrocarbons, the
Registrant's majority stockholder. The line of credit is secured
by the Registrant's 15% net profits interest in the offshore
Greece property (see Item 6).
Cordillera Corporation is a stockholder of NWO Resources, Inc.
holding 60.667% of Class B common stock. Mr. Blue is president
and a major stockholder of Cordillera Corporation.
The Registrant has a cost sharing arrangement which provides
management services to Cordillera Corporation (Cordillera) and to
San Miguel Valley Corporation (SMVC), an affiliate of Cordillera,
under agreements providing for reimbursement of costs for actual
time and expenses incurred on Cordillera and SMVC activities. In
1995, 1994, and 1993, such reimbursements amount to approximately
$274,000, $231,000 and $287,000, respectively, which have been
included as other revenue in the accompanying statements of
operations.
Cordillera has a defined contribution pension plan covering all
qualified employees of the Registrant. Contributions to the plan
are based on a percentage of employee compensation ranging from
6% to 11.7%. During 1995, 1994, and 1993, the Registrant
recorded $27,038, $24,607, and $25,270, respectively, as pension
expense under this plan.
The Registrant has a deferred compensation agreement with a
former officer entitling this officer to receive $175,000 payable
in a maximum of ten equal installments beginning January 1, 1988
or, if such person dies prior to receiving all installments,
payable at such time to his beneficiaries to the extent of the
remaining balance. Included in accrued expenses is $17,500 which
is due January 1, 1996.
In fiscal 1983, the Board of Directors authorized a bonus of
$25,000 to the president of the Registrant, payable as cash flow
permits. The president has not been paid as of March 31, 1995,
and the amount is included in accrued expenses in the
accompanying balance sheets.
Registrant leases 2,562 square feet of space in an office
building located at 5000 South Quebec Street, Denver, Colorado.
The building is owned by Sorrento West Properties, Inc., a
company indirectly owned and controlled by Mr. Blue and his
family. Rent payments for 1995 were $32,998. Future lease
payments are estimated to be $27,000 for 1996 and $29,000 for
1997.
36
<PAGE>
ITEM 13. EXHIBITS, FINANCIAL STATEMENT SCHEDULES AND
REPORTS ON FORM 8-K
(a) 1. Financial statements filed as part of this Report
in Item 7 are as follows:
Independent Auditors' Report
Consolidated Balance Sheets -
March 31, 1995 and 1994
Consolidated Statements of
Operations and Accumulated
Deficit - Years Ended
March 31, 1995, 1994 and
1993
Consolidated Statements of
Cash Flows - Years ended
March 31, 1995, 1994 and
1993
Notes to Consolidated Financial
Statements
2. Exhibits filed herewith are listed below and if not
located in another previously filed registration statement or
report, are attached to this Report at the pages set out below.
The "Exhibit Number" below refers to the Exhibit Table in Item
601 of Regulation S-B.
37
<PAGE>
Exhibit Number Name of Exhibit Location
- -------------- --------------- --------
3.1 Articles of Incorporation Page 58 of Report on
(including all amendments) Form 10-K for year
ended Sept. 30, 1980
3.2 Bylaws (including all amend- Page 15 of Form 8
ments) (Amendment No. 1 to
10-K Report) dated
June 1, 1982
10.1 Memorandum of Agreement dated Report on Form 10-K
June 30, 1976 between Oceanic for year ended Sep-
Exploration Company and Denison tember 30, 1976
Mines Limited
10.2 Letter Agreement dated July 28, Report on Form 10-K
1976 amending Agreement of for year ended Sep-
June 30, 1976 tember 30, 1976
10.3 Amendment dated August 27, 1976 Report on Form 10-K
to Agreement of June 30, 1976 for year ended Sep-
tember 30, 1976
10.4 Farm-out Agreement with Page 38 of the Report
Enterprise Oil Exploration on Form 10-KSB for the
Limited and NMX Resources year ended March 31,
(Overseas) Limited dated 1995
September 22, 1989
10.5 Letter Agreement with Page 54 of the Report
Enterprise Oil Exploration on Form 10-KSB for the
Limited and NMX Resources year ended March 31,
(Overseas) Limited dated 1995
September 22, 1989
10.6 Letter of Indemnification with Page 62 of the Report
Enterprise Oil Exploration on Form 10-KSB for the
Limited and NMX Resources year ended March 31,
(Overseas) Limited dated 1995
September 22, 1989
10.7 Management Agreement with Page 63 of the Report
Cordillera Corporation dated on Form 10-KSB for the
January 1, 1990 year ended March 31,
1995
10.8 Management Agreement with Page 67 of the Report
San Miguel Valley Corporation on Form 10-KSB for the
dated January 1, 1990 year ended March 31,
1995
10.9 Office Building Lease with Page 71 of the Report
Sorrento West Properties, Inc. on Form 10-KSB for the
dated March 1, 1991 year ended March 31,
1995
38
<PAGE>
Exhibit Number Name of Exhibit Location
- -------------- --------------- --------
10.10 Addendum to Office Building Page 129 of the Report
Lease dated March 1, 1994 on Form 10-KSB for the
year ended March 31,
1995
10.11 Promissory Note with NWO Page 131 of the Report
Resources, Inc. dated on Form 10-KSB for the
June 15, 1994 year ended March 31,
1995
10.12 Promissory Note with NWO Page 132 of the Report
Resources, Inc. dated on Form 10-KSB for the
July 18, 1994 year ended March 31,
1995
10.13 Security Agreement in favor Page 133 of the Report
of NWO Resources, Inc. on Form 10-KSB for the
dated July 27, 1994 year ended March 31,
1995
10.14 Promissory Note with NWO Page 149 of the Report
Resources, Inc. dated on Form 10-KSB for the
September 22, 1994 year ended March 31,
1995
10.15 Promissory Note with NWO Page 150 of the Report
Resources, Inc. dated on Form 10-KSB for the
December 15, 1994 year ended March 31,
1995
10.16 Promissory Note with NWO Page 151 of the Report
Resources, Inc. dated on Form 10-KSB for the
January 1, 1995 year ended March 31,
1995
10.17 Promissory Note with NWO Page 152 of the Report
Resources, Inc. dated on Form 10-KSB for the
February 15, 1995 year ended March 31,
1995
(b) There have been no reports on Form 8-K filed during the last
quarter of the period covered by this Report.
39
<PAGE>
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) 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.
OCEANIC EXPLORATION COMPANY
(REGISTRANT)
Date: November 22, 1995 By /s/ Charles N. Haas
------------------------ -----------------------------
Charles N. Haas, President
and Principal Executive Officer
Date: November 22, 1995 By /s/ Diana J. Peters
------------------------ -----------------------------
Diana J. Peters, Treasurer
and Chief Financial Officer
40
