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UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-KSB
(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, 1996.
[ ] 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:
Title of class Name of exchange on which registered
COMMON STOCK ($.0625 PAR VALUE) NOT APPLICABLE
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 or any
amendment to this Form 10-KSB. [ ]
Issuer's revenues for fiscal year ended March 31, 1996 $2,064,367
As of June 7, 1996, 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 $1,229,109.
As of June 7, 1996, the Registrant had outstanding 9,916,154 shares of common
stock ($.0625 par value).
An index of the documents incorporated herein by reference and/or annexed as
exhibits to this Report appears on pages 40, 41, 42 and 43.
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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. The 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, the 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. The Registrant's
property interests are located in the North Aegean Sea, offshore Greece and in
the East China Sea. The Registrant has identified a prospect in Bolivia, has
prepared a preliminary plan for exploration and is attempting to find
participants to finance exploration costs. Since 1994, the Registrant has not
been able to participate in exploration and development, other than limited
activities in Bolivia to the extent that funding is available, and has
concentrated its efforts on the litigation regarding the Prinos Interest. (SEE
ITEM 2 "PROPERTIES-GREECE.")
The Registrant's only significant source of revenue, its 15% net profit interest
in certain oil and gas producing areas offshore Greece (also called "net
earnings interest" or "Prinos Interest" in some parts of this Report), is
currently the subject of litigation. The prospects for the Registrant
continuing as a going concern are dependent on obtaining a favorable judgment or
settlement in the litigation and collecting or enforcing the judgment or
settlement. Since litigation commenced and through November 1995, payments
under the Prinos Interest were suspended. The Registrant funded its operations
through draws against the line of credit established with NWO Resources, Inc.
("NWO"), the parent of the Registrant's principal stockholder. Prior to the end
of fiscal year 1995, the Registrant's credit line was exhausted and the
Registrant had no resources to make monthly interest payments on the advances
under the line of credit.
On September 19, 1995, the Registrant entered into a Modification Agreement with
NWO (the "Modification Agreement"). (SEE ITEM 1 "BUSINESS-NWO LINE OF CREDIT.")
The Modification Agreement provides for limited funding of litigation expenses
and temporary relief from any collection actions by NWO. The Modification
Agreement also allows the Registrant to retain up to $200,000 of any proceeds
received from its Prinos Interest for general working capital purposes. The
Modification Agreement does not provide any further funding for operating
expenses of the Registrant other than limited funding of the litigation with
respect to the Prinos Interest.
On November 27, 1995, the Registrant received $810,522 from Denison Mines
Limited ("Denison") representing unpaid net revenues from the Prinos
Interest. These revenues cover
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the period from January 1, 1993 through October 31, 1995, and are calculated
under the terms of the 1975 license agreement between the Greek government
and the consortium operating the Prinos properties (the "License Agreement")
as amended in 1993. This payment was made in connection with the agreement
of Denison to withdraw the counterclaim filed by Denison against the
Registrant. As of December 1995, Denison resumed monthly revenue payments to
the Registrant for its Prinos Interest as calculated under the terms of the
amended License Agreement. Pursuant to the Modification Agreement, the
Registrant retained $200,000 from the payment received from Denison and paid
NWO $610,522 on November 30, 1995.
In February 1996, the Registrant successfully raised $524,093, net of offering
costs, from the sale of Common Stock. These funds should be sufficient to fund
the litigation and limited operations through December 31, 1996, the date by
which time the Registrant anticipates a judgment will be rendered in the
ligation.
The Registrant's business activities involve only one industry segment, oil and
gas exploration and development. Financial information relating to the
Registrant's business and an explanation of the same may be found in Items 6 and
7 of this Report.
The Registrant employs six people, four of whom are full-time employees. The
full-time employees also provide services to two related entities pursuant to
management agreements entered into by the Registrant and those entities. (SEE
ITEM 12 "CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS.")
The Registrant's principal executive offices are located at 5000 South Quebec
Street, Suite 450, Denver, Colorado 80237, and its telephone number is
(303) 220-8330.
(a) MODE OF OPERATION
The 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.
The Registrant has usually obtained concessions directly from a government or
governmental agency and has then entered into arrangements with other
participants whereby the 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 the 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.
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In order to maintain its concessions in good standing, the 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 the Registrant holds an interest
generally involve the expenditure of substantial sums of money. The Registrant
has, in the past, satisfied required expenditures on its concessions. The
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 Prinos Interest (SEE ITEM 2
"PROPERTIES-GREECE.") 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 $27,000,000 or alternatively, an accounting and payment
of the Prinos Interest in respect of the period commencing January 1, 1993.
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. 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 Registrant. A court date has been scheduled for September 1996.
(SEE ITEM 3 "LEGAL PROCEEDINGS.")
NWO LINE OF CREDIT: Since payments under the Prinos Interest were suspended,
the Registrant had funded its operations through draws against the line of
credit established with NWO Resources, Inc. ("NWO"), the parent of the
Registrant's principal stockholder. Prior to the end of fiscal year 1995, the
Registrant's credit line was exhausted. During the first half of fiscal year
1996, the Registrant had no resources to make monthly interest payments on the
advances under the line of credit. Accordingly, on September 19, 1995, the
Registrant entered into the Modification Agreement, modifying the existing line
of credit arrangement between the Registrant and NWO. Prior to entering into
the Modification Agreement, the NWO line of credit provided 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. Draws under the
line of credit are evidenced by promissory notes which were originally payable
by the Registrant's wholly-owned subsidiary, Oceanic International Properties
Corporation ("OIPC") no later than January 1, 1996 with interest at annual rates
of 7% to 9%. Cumulative draws on the NWO line of credit had reached $2,000,000
by February 15, 1995. The line of credit is secured by the Registrant's Prinos
Interest. At the time the Modification Agreement was entered into, the
Registrant was in default under the terms of the line of credit as it had not
made its interest payments for May, June, July and August 1995.
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The Modification Agreement provides as follows:
1. Except as provided below, NWO will forebear on collection until December
31, 1996 of the interest and principal on the $2,000,000 of promissory
notes evidencing draws on the NWO line of credit ("Oceanic Notes") which it
holds from OIPC.
2. Any monies collected by the Registrant from Denison either before or after
December 31, 1996 will first be applied to paying accrued interest on the
Oceanic Notes. After all accrued interest has been paid, and prior to
December 31, 1996, the Registrant will be permitted to use up to $200,000
of monies collected from Denison for working capital purposes. All
remaining collections from Denison will be applied first to accrued
interest and then to reducing principal on the Oceanic Notes.
3. The Security Agreement between the Registrant and NWO will be amended to
provide that NWO has a full security interest in all proceeds from the
Registrant's lawsuit against Denison and any existing and future Registrant
receivables from Denison.
4. The interest rate on the Oceanic Notes is adjusted to 8.25%.
5. The Registrant agrees to diligently pursue its lawsuit against Denison.
6. The Registrant will use its best efforts to file the Registration Statement
with the Securities and Exchange Commission with respect to the Rights
Offering described in the Registration Statement and use its best efforts
to cause the Registration Statement to become effective by December 31,
1995 (subsequently extended by sixty (60) days pursuant to an Extension
Agreement dated December 27, 1995).
7. In order to enable the Registrant to diligently pursue its lawsuit against
Denison, NWO agrees to make advances to the Registrant for ongoing legal
fees as reflected in statements received by the Registrant subsequent to
August 1, 1995 in connection with the Denison litigation up to an estimated
$100,000 in litigation expenses.
8. The Registrant agrees to reimburse NWO for such advances up to an estimated
$100,000 together with interest thereon computed at the annual rate of 10%
upon receipt of the proceeds of the Rights Offering described in the
Registration Statement or January 31, 1996, whichever occurs earlier.
On November 27, 1995, the Registrant received $810,522 from Denison representing
unpaid revenues on the Prinos Interest. These revenues covered the period from
January 1, 1993 through October 31, 1995, and were calculated under the terms of
the License Agreement as amended in 1993. Pursuant to the Modification
Agreement, the Registrant retained $200,000 from the payment received from
Denison. On November 30, 1995 the Registrant paid NWO $610,522. $92,402 was
applied to accrued interest and $518,120 was applied to the loan leaving
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an outstanding loan balance of $1,481,880. Future payments by Denison under the
Prinos Interest will also be applied to the Registrant's obligations to NWO
pursuant to the Modification Agreement. As of March 31, 1996, the outstanding
loan balance was $1,308,201. The Registrant does not believe that the payments
made under the Prinos Interest as calculated under the terms of the amended
License Agreement at current production and price levels will be sufficient to
repay the obligations owed to NWO.
RIGHTS OFFERING: In accordance with the terms of the Modification Agreement,
the Registrant filed a Form SB-2 with the Securities and Exchange Commission on
October 6, 1995 for the purpose of registering 6,001,000 shares of additional
common stock to be issued pursuant to a rights offering ("Rights Offering").
Under the terms of the Rights Offering, the Registrant offered to the existing
shareholders of its Common Stock, $.0625 par value (the "Common Stock") the
right to subscribe for additional shares of Common Stock ("Additional Common
Stock") on the basis of 1.5325 shares of Common Stock for each share of Common
Stock (the "Rights"), held of record at the close of business on January 16,
1996. The Rights included an over-subscription privilege which allowed
stockholders to acquire more than the number of shares to which the Rights
entitled them in the event all stockholders did not participate. The Additional
Common Stock was offered to stockholders at $.10 per share.
The Registrant raised $524,093, net of offering costs, from the sale of
6,001,000 shares of Additional Common Stock. The funds were raised for the
purpose of reimbursing NWO for its advancement of legal fees and accrued
interest thereon and funding future operations until settlement of the Denison
litigation.
(c) COMPETITION
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 the Registrant competes with other exploration and development companies of
far greater means for the available funds. Because of the Registrant's
financial condition, the Registrant is not currently able to participate in
exploration and development activities. Even though funds were raised from the
Rights Offering, the scope of the Registrant's exploration activities is
constrained by the shortage of funds.
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.
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GREECE: The Registrant has the right to receive the Prinos Interest payable by
Denison 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 Prinos Interest is subject to a lien in favor of NWO, which
lien secures payment of the amounts due to NWO by the Registrant. (SEE ITEM 1
"BUSINESS-NWO LINE OF CREDIT.")
Daily production from the Prinos/South Kavala Fields averaged 8,543 barrels of
oil and 129 tons of sulphur during fiscal year ended March 31, 1996. According
to Denison's 1995 Annual Report, calendar year 1995 production decreased 15%
from that of 1994 as the reserves continue to be depleted. In an effort to
maintain economic production levels, the consortium commenced a two or three
well infill drilling program at the producing Prinos Field in December 1995.
The first well was completed as a producer in March 1996 and the second well was
abandoned because of technical difficulties.
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 break-even 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 June 1975 license
agreement (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 1995 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 3 million may be
recoverable. The crude from this discovery has an API gravity of about 20
degrees, contains about 7% sulphur and may have a selling value of between $1.50
and $4.00 per barrel less than Prinos crude. In April 1996, the consortium
signed another
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agreement with the Greek government ("Second Supplemental Agreement") setting
out the terms under which the drilling at Prinos North was to proceed. This
agreement increased the Greek government's participating interest in Prinos
North from 15% to 35% and allows the consortium to recover $5.00 per barrel
of Prinos North crude produced for operating costs. In June 1996, the
consortium received a Ministerial Decision (the "Decision") from the Greek
government allowing for the write-off of up to $20,000,000 in capitalized
costs associated with the drilling activities at Prinos and Prinos North.
The Greek government is allowing the deduction of these costs from annual
gross income before calculation of the Greek State's Total Share. The
Registrant has not yet determined the extent to which the Decision will
impact its payments under the Prinos Interest. In May 1996, the consortium
began drilling a horizontal well from the Prinos production platform to the
Prinos North reservoir. Drilling time is estimated at 100 days.
Denison, who has the contractual obligation to pay the Prinos Interest, has
asserted that the calculation of the amounts due the Registrant should be based
on the amended agreement with the Greek government. The amended agreement
provides for higher cost recoveries than the License Agreement before the 1993
amendment. If higher cost recoveries are used in calculating the amount due
under the Prinos Interest, the amount will be significantly lower than the
amount calculated under the License Agreement before the 1993 amendment. 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 Prinos Interest be calculated based on the terms of the License Agreement
before the 1993 amendment. The Registrant is seeking $27,000,000 or
alternatively, an accounting and payment of the 15% Net Earnings Interest
effective January 1, 1993. The Registrant estimates damages for unpaid revenues
are approximately $13,100,000 for the period from January 1, 1993 through March
31, 1996 plus damages since that date and undetermined future damages. 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 due to Denison's
current financial condition. (SEE ITEM 3 "LEGAL PROCEEDINGS.")
When the legal action against Denison commenced, Denison suspended payments
under the Prinos Interest. Denison also asserted a counterclaim for $4,700,000
against the Registrant for alleged past overpayments by Denison. On
November 27, 1995, the Registrant received $810,522 from Denison representing
unpaid revenues on the Prinos Interest. These revenues covered the period from
January 1, 1993 through October 31, 1995, and were calculated under the terms of
the License Agreement as amended in 1993. This payment was made in connection
with the agreement of Denison to withdraw the counterclaim filed by Denison
against the Registrant. As of December 1995, Denison resumed monthly revenue
payments to the Registrant for its Prinos Interest as calculated under the terms
of the amended License Agreement. The Registrant is continuing to pursue its
litigation against Denison challenging Denison's position that the calculation
of the Prinos Interest should be based on the amended License Agreement.
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Pursuant to the Modification Agreement, the Registrant retained $200,000 from
the payment by Denison. On November 30, 1995 the Registrant paid NWO $610,522.
$92,402 was applied to accrued interest and $518,120 was applied to the loan
leaving an outstanding loan balance of $1,481,880. Future payments by Denison
under the Prinos Interest will also be applied to the Registrant's obligations
to NWO pursuant to the Modification Agreement. As of March 31, 1996, the
outstanding loan balance was $1,308,201. The Registrant does not believe that
the payments made under the Prinos Interest as calculated under the terms of the
amended License Agreement at current production and price levels will be
sufficient to repay the obligations owed to NWO.
There is no assurance as to how long the Prinos property will continue to
produce oil and gas and, accordingly, how long the Registrant can expect revenue
from its Prinos Interest. The Registrant has analyzed the data provided to it
from Denison and other data that the Registrant has been able to verify from
publicly available sources in determining the potential revenue from the Prinos
Interest. The consortium operating the Prinos property has announced a new oil
discovery (Prinos North), which is subject to the Prinos Interest. The
Registrant has not verified the data provided by Denison with respect to that
new oil discovery and its potential revenue and does not have sufficient
resources to do so reasonably. Additionally, the Registrant is aware that other
members of the consortium believe the estimated amounts provided by Denison may
be exceeded. These analyses are not publicly available and, accordingly, have
not been verified. There is a possibility that the revenues from the Prinos
property would substantially differ from current estimates.
REPUBLIC OF CHINA (TAIWAN): The 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, 1996.
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.
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 1996 to indicate that the lifting of the current force
majeure status is imminent.
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BOLIVIA: The 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. The Registrant has preliminarily agreed to the terms of an
operations contract pertaining to such area and anticipates signing an
operations contract in fiscal year 1997. The Registrant is attempting to find
participants to finance exploration costs.
OTHER: The Registrant leases 2,562 square feet of office space in an office
building located at 5000 South Quebec Street, Denver, Colorado. The office
building is owned by a related party. The lease expires on February 28, 1997.
(SEE ITEM 12 "CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS.")
ITEM 3. LEGAL PROCEEDINGS
The Registrant has commenced an action in the Ontario Court (General Division),
Canada, against Denison. The Registrant claims that Denison has failed since
January 1, 1993 to pay the Registrant the Prinos Interest pursuant to an
agreement dated August 30, 1976, which is to be calculated on the basis of the
terms of the License Agreement.
The Registrant has claimed the following relief in the action:
1. a constructive trust or equitable lien over funds received by Denison
representing the unpaid portion of the Prinos Interest;
2. a vendor's lien over assets purchased by Denison from the Registrant
including Denison's interest in the License Agreement; and
3. $27,000,000.00 or alternatively, an accounting and payment of the
Prinos Interest in respect of the period commencing January 1, 1993.
Denison has defended the action on the basis that the Registrant is not entitled
to the payment claimed, and is entitled only to payment of the Prinos Interest
calculated in accordance with the terms of the License Agreement as amended by
an agreement with the Greek State dated February 23, 1993.
Denison counterclaimed for the repayment of the sum of $4,747,811 that it
alleged it mistakenly paid to the Registrant as part of the Prinos Interest
during the period from January 1, 1989, to December 31, 1993. On November 27,
1995, the Registrant received unpaid revenues on the Prinos Interest for the
period from January 1, 1993 through October 31, 1995, calculated under the terms
of the License Agreement as amended in 1993. This payment was made in
connection with the agreement of Denison to withdraw the counterclaim filed by
Denison against the Registrant. As of December 1995, Denison has resumed
monthly revenue
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payments to the Registrant for its Prinos Interest as calculated under the
terms of the amended License Agreement. The Registrant will continue to
pursue its litigation against Denison challenging Denison's position that the
calculation of the Prinos Interest should be based on the amended License
Agreement.
The statement of claim in this action was issued on June 9, 1994. The matter
was transferred to the Ontario Court (General Division) Commercial List by order
of November 25, 1994. The parties filed with the Court the following schedule
for the progress of this action:
1. Delivery of documents occurred by April 15, 1995;
2. Examination for discovery of both parties occurred during the week of
June 26, 1995;
3. Motions arising from discovery was completed by October 31, 1995;
4. Trial to be held September 1996.
The Registrant is vigorously pursuing this action. Oral discovery of the
parties has now been completed.
The Registrant's legal counsel, Osler, Hoskin & Harcourt in Toronto, Canada, is
unable to advise as to the probable outcome of the claim by the Registrant.
Management's decision to pursue a legal action against Denison was based on
management's review of information provided to the Registrant by Denison and
oral discussions with legal counsel. Based on that information and those
discussions, Management believed that there was a reasonable basis for
commencing a legal action against Denison and continues to believe that there is
a reasonable possibility of success in the litigation. Of course, litigation is
inherently uncertain and there is no assurance as to the final outcome. The
Registrant has not received a written determination from its legal counsel with
respect to the litigation.
It should be noted that if the claim is unsuccessful the Registrant will remain
entitled to payment of the Prinos Interest calculated in accordance with the
terms of the License Agreement, as amended. The amounts of such payments will
be substantially lower than the payments received prior to January 1, 1993. The
Registrant does not believe that the payments made under the Prinos Interest
calculated under the amended License Agreement at current production and price
levels will be sufficient to repay the obligations owed to NWO.
Any judgment obtained by the Registrant or Denison in relation to the claim will
be subject to the right of the losing party to appeal to the Ontario Court of
Appeal. Notice of appeal to the Court of Appeal must be filed within 30 days
after judgment. Barring an order to expedite the appeal, which may or may not
be available in this case, it may take approximately 2 years
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before an appeal is heard. A further appeal to the Supreme Court of Canada
is available with leave of the Supreme Court.
Enforcement of a judgment in Ontario is generally carried out by seizure and
sale of assets, garnishment of debts, or appointment of a receiver. Until
recently, 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. In a press release dated December 21, 1995,
Denison announced that it had obtained the final order of the Ontario Court of
Justice, General Division approving its Plan of Arrangement. The press release
indicated that as a result of the contribution of all stakeholders, Denison has
been preserved as a going concern and its capital structure has been
substantially improved. The court approval of the Plan may increase the
likelihood that Denison would have assets available for satisfaction of a
judgment in favor of the Registrant. However, the Registrant does not have
sufficient information in its possession to determine whether any assets of
Denison are unsecured and available for satisfaction of a judgment in favor of
the Registrant.
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
COMMON STOCK: Subject to the rights of holders of any series of Preferred Stock
which may from time to time be issued, holders of Common Stock are entitled to
one vote per share on matters acted upon at any shareholders' meeting, including
the election of directors, and to dividends when, as and if declared by the
Board of Directors out of funds legally available therefor. There is no
cumulative voting and the Common Stock is not redeemable. In the event of any
liquidation, dissolution or winding up of the Registrant, each holder of Common
Stock is entitled to share ratably in all assets of the Registrant remaining
after the payment of liabilities and any amounts required to be paid to holders
of Preferred Stock, if any. Holders of Common Stock have no preemptive or
conversion rights and are not subject to further calls or assessments by the
Registrant. All shares of Common Stock now outstanding are and will be fully
paid and non-assessable.
12
<PAGE>
The Registrant's Common Stock is not listed on any exchange. The Registrant's
Common Stock was previously traded on the Pacific Stock Exchange under the
symbol OXC. However, the Registrant has failed to maintain the minimum
standards required by the Exchange to maintain its listing as a Tier II Security
on the Exchange. On August 25, 1995, the Registrant was notified that it was
subject to the initiation of delisting procedures. Its listing status was
reviewed by the Exchange at a meeting of the Equity Listing Committee held on
October 3, 1995. The Registrant was informed that the Committee had decided to
delist its Common Stock. On October 4, 1995, the Registrant's Common Stock was
suspended from trading. 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, and the Registrant's ability to meet the requirements for an ongoing
concern. On December 8, 1995, representatives of the Registrant appealed the
decision to delist the stock before the Board of Appeals Committee of the
Exchange. Finding no compelling evidence to recommend that the October 3, 1995,
decision of the Committee be revised, the decision to delist was upheld and
affirmed. The delising of the Registrant from the Exchange will likely have an
adverse effect on the market value of the Common Stock. The Registrant has
secured a broker-dealer to serve as a market maker for trades in its Common
Stock.
On January 24, 1996 the National Association of Securities Dealers, Inc.
approved the right for the Registrant's Common Stock to be quoted on the OTC
Bulletin Board under the symbol OCEX.U.
The range of closing prices in Registrant's Common Stock over the last two
fiscal years (which are not necessarily representative of actual transactions)
is set out below.
<TABLE>
<CAPTION>
Three Months Fiscal 1996 Fiscal 1995
Ended High Low High Low
------------ ------------------ ----------------
<S> <C> <C> <C> <C>
June 30 $ .75 .50 $1.13 .88
September 30 .63 .25 .88 .75
December 31 (1) (1) .75 .50
March 31 (1) (1) .88 .63
</TABLE>
(1) The prices set forth above represent sales on the Exchange prior to the
delisting. The reported closing price of the Common Stock on October 3,
1995 was $.25. Subsequent to March 31, 1996, two transactions comprising
6,000 shares occurred at $.16 per share.
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 7, 1996, the number of record holders of
Registrant's common stock was 499.
13
<PAGE>
PREFERRED STOCK: The Board of Directors of the Registrant, without further
action by the stockholders, is authorized to issue the shares of Preferred Stock
in one or more series and to determine the voting rights, preferences as to
dividends, and the liquidation, conversion, redemption and other rights of each
series. The issuance of a series with voting and conversion rights may
adversely affect the voting power of the holders of Common Stock. The issuance
of Preferred Stock may have the effect of delaying, deferring or preventing a
change in control of the Registrant without further action by the shareholders.
The Registrant has no present plans to issue any shares of Preferred Stock.
TRANSFER AGENT: The Registrant's Transfer Agent is Chase Mellon Shareholder
Services, 300 South Grand Avenue, Los Angeles, California 90071-3401.
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 has been from its
Prinos Interest. Payments to the Registrant under the Prinos Interest were
suspended in 1994 when the Registrant commenced legal action against Denison.
The Registrant also receives revenues from sales of seismic data gathered in its
oil and gas exploration and development. That revenue is sporadic and is not
sufficient to fund the Registrant's ongoing operations. During the year ended
March 31, 1996, the Registrant recorded approximately $36,700 of revenue from
the sale of seismic data.
The Registrant currently receives approximately $322,000 per year in connection
with services it renders to Cordillera Corporation and San Miguel Valley
Corporation pursuant to management agreements providing for reimbursement of
costs for actual time and expenses incurred in activities conducted on behalf of
those entities. The amounts received under the management agreements are a
reimbursement for employee salaries and other operating expenses. (SEE ITEM 12
"CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS.")
Denison's reduced payments to the Registrant under the Prinos Interest have
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 for the year ended March 31, 1996 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.
14
<PAGE>
When payments under the Prinos Interest were suspended, the Registrant funded
its operations through draws against the line of credit established with NWO.
Prior to the end of fiscal year 1995, the Registrant's credit line was
exhausted. During the first half of fiscal year 1996, the Registrant had no
resources to make monthly interest payments on the advances under the line of
credit.
On September 19, 1995, the Registrant entered into the Modification Agreement
with NWO. The Modification Agreement provides for limited funding of litigation
expenses and provides temporary relief from any collection actions by NWO. The
Modification Agreement also allows the Registrant to retain up to $200,000 of
any proceeds received from its Prinos Interest for general working capital
purposes. The Modification Agreement does not provide any further funding for
operating expenses of the Registrant other than limited funding of the
litigation with Denison. (SEE ITEM 1 "BUSINESS-NWO LINE OF CREDIT.")
On November 27, 1995, the Registrant received $810,522 from Denison representing
unpaid revenues net of related Greek income taxes on the Prinos Interest. These
revenues cover the period from January 1, 1993 through October 31, 1995, and are
calculated under the terms of the License Agreement as amended in 1993. This
payment was made in connection with the agreement of Denison to withdraw the
counterclaim filed by Denison against the Registrant. As of December 1995,
Denison has resumed monthly revenue payments to the Registrant for its Prinos
Interest as calculated under the terms of the amended License Agreement.
Pursuant to the Modification Agreement with NWO, the Registrant retained
$200,000 from the payment of Denison. On November 30, 1995 the Registrant paid
NWO $610,522. $92,402 was applied to accrued interest and $518,120 was applied
to the loan leaving an outstanding loan balance of $1,481,880. Future payments
by Denison under the Prinos Interest will also be applied to the Registrant's
obligations to NWO pursuant to the Modification Agreement. As of March 31,
1996, the outstanding loan balance was $1,308,201. The Registrant does not
believe that the payments made under the Prinos Interest as calculated under the
terms of the amended License Agreement at current production and price levels
will be sufficient to repay the obligations owed to NWO.
In February 1996, Registrant was able to successfully raise $524,093, net of
offering costs, in connection with the sale of additional common stock through
the Rights Offering. (SEE ITEM 1 "BUSINESS-RIGHTS OFFERING.") Pursuant to the
terms of the Modification Agreement with NWO, $64,107 from the Rights Offering
was used to reimburse NWO for advances made to the Registrant for legal fees;
$61,876 and $2,231 were applied to the principal and accrued interest,
respectively. The Registrant estimates that the funding provided from the
Rights Offering will be sufficient to fund the litigation and limited operations
through December 31, 1996, the date prior to which the Registrant anticipates a
judgment will be rendered in the litigation.
15
<PAGE>
Even if a judgment in the Registrant's favor is obtained, of which there is no
assurance, there is no guarantee that the Registrant would be able to collect
that judgment and, if able to collect, when the judgment would be actually
collected. Until recently, 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. In a press release dated
December 21, 1995, Denison announced that it had obtained the final order of the
Ontario Court of Justice, General Division approving its Plan of Arrangement.
The press release indicated that as a result of the contribution of all
stakeholders, Denison has been preserved as a going concern and its capital
structure has been substantially improved. The court approval of the Plan may
increase the likelihood that Denison would have assets available for
satisfaction of a judgment in favor of the Registrant. However, the Registrant
does not have sufficient information in its possession to determine whether any
assets of Denison are unsecured and available for satisfaction of a judgment in
favor of the Registrant.
Unless funds are collected as a result of the litigation with Denison and the
revenue stream is resumed under the Prinos Interest as calculated under the
original License Agreement, the Registrant will be required to obtain some
additional source of capital, in addition to the Rights Offering described
herein, to fund continuing operations past December 1996 and pay off the NWO
loan and accrued interest when due on December 31, 1996.
If the judgment is not favorable, the Registrant would likely still have its
Prinos Interest; however, the revenue stream will likely be substantially
reduced. If such unfavorable outcome occurs, the Registrant does not believe
that the payments made under the Prinos Interest as calculated under the terms
of the amended License Agreement at current production and price levels will be
sufficient to repay the obligations owed to NWO. The Registrant may be forced
to liquidate its assets, and in such case, little if any assets would be
available for distribution to shareholders.
If the litigation with Denison is resolved in the Registrant's favor and
payments are resumed under the Prinos Interest as calculated under the License
Agreement prior to the 1993 Amendment, that revenue should be sufficient to fund
on-going operations and limited new exploration activities. All revenues from
the Prinos Interest will be initially applied to repay the Registrant's
obligations to NWO under the Modification Agreement. (SEE ITEM 1 "BUSINESS-NWO
LINE OF CREDIT.") There is no assurance as to how long the Prinos property will
continue to produce oil and gas and, accordingly, how long the Registrant can
expect revenue from its Prinos Interest.
16
<PAGE>
RESULTS OF OPERATIONS
The Registrant reported net income of $396,166 for the year ended March 31, 1996
and net losses of $796,602 and $448,746 for the years ended March 31, 1995 and
1994, respectively.
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,
---------------------------------
1996 1995 1994
---- ---- ----
<S> <C> <C> <C>
Calculation of Greek
revenues 861,500 (573,100) (3,377,000)
Greek revenues applicable
to prior years 895,000 - -
Production decline (217,000) - (78,000)
Price increase(decrease) 38,000 - (477,000)
(Increase)reduction in
depreciation and
depletion charges (62,924) 10,941 433,889
Increase(reduction) in
other revenues 165,650 59,266 (182,000)
Other 120,841 (53,006) 23,608
---------- ---------- ----------
Increase(decrease) in
income before taxes $1,801,067 $ (555,899) (3,656,503)
---------- ---------- ----------
---------- ---------- ----------
</TABLE>
The most significant factors in the fluctuations of net income between the
periods are Denison's suspension of revenues in 1994 followed by receipt of
unpaid revenues for January 1, 1993 through October 31, 1995 in November 1995
(SEE ITEM 2 "PROPERTIES"), 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 $244,630 in 1994 to $233,689 for
1995, reflecting the declining base of depletable costs for the Greece
concession. In 1996, the depletion provision increased to $296,613 as a result
of a reduction in estimated future net revenues attributable to the Prinos
Interest. Fluctuations in other revenues are primarily attributable to interest
income from Denison relating to unpaid revenues, management fees (SEE ITEM 12
"CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS") and receipts from sales of
seismic data and investments.
17
<PAGE>
The provision for income taxes in fiscal 1996 increased approximately $608,000
from the fiscal 1995 provision due to an increase in Greek income taxes
corresponding to the increase in Greek oil and gas revenues recorded.
ITEM 7. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
<TABLE>
<CAPTION>
INDEX PAGE
<S> <C>
Independent Auditors' Report 20
Consolidated Balance Sheets 21
Consolidated Statements of
Operations and Accumulated Deficit 22
Consolidated Statements of
Cash Flows 23
Notes to Consolidated Financial Statements 24-30
</TABLE>
18
<PAGE>
OCEANIC EXPLORATIN COMPANY
AND SUBSIDIARIES
CONSOLIDATED FINANCIAL STATEMENTS
MARCH 31, 1996 AND 1995
(WITH INDEPENDENT AUDITORS' REPORT THEREON)
19
<PAGE>
[LETTERHEAD]
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, 1996 and 1995, 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, 1996.
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, 1996 and 1995, and the results of their operations and their cash
flows for each of the years in the three-year period ended March 31, 1996 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.
/S/ KPMG PEAT MARWICK LLP
KPMG PEAT MARWICK LLP
Denver, Colorado
May 29, 1996
20
<PAGE>
OCEANIC EXPLORATION COMPANY
AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
MARCH 31, 1996 AND 1995
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
ASSETS 1996 1995
- ------ ------------ ------------
<S> <C> <C>
Cash $ 642,650 154,628
Accounts receivable 683 9,633
Due from affiliates 2,765 2,237
Restricted cash - 15,629
Prepaids and other 1,500 5,104
------------ ------------
Total current assets 647,598 187,231
------------ ------------
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 (37,926,522) (37,629,909)
------------ ------------
1,073,478 1,370,091
------------ ------------
$ 1,721,076 1,557,322
------------ ------------
------------ ------------
LIABILITIES AND STOCKHOLDERS' DEFICIT
- -------------------------------------
Current liabilities:
Notes payable to affiliate (note 2) $ 1,308,201 2,000,000
Accounts payable 232,363 181,879
Accounts payable to affiliates 60,000 60,000
United Kingdom taxes payable, including
accrued interest 405,319 408,958
Accrued expenses (note 6) 94,017 90,487
------------ ------------
Total current liabilities 2,099,900 2,741,324
------------ ------------
Deferred income taxes 708,198 808,062
Other liabilities - 15,217
------------ ------------
Total liabilities 2,808,098 3,564,603
------------ ------------
Stockholders' deficit (note 5):
Preferred stock, $10 par value, Authorized 600,000
shares; none issued - -
Common stock, $.0625 par value. Authorized
12,000,000 shares; 9,916,154 and 3,915,154 shares
issued and outstanding at March 31, 1996 and 1995,
respectively 619,759 244,697
Capital in excess of par value 155,696 6,665
Accumulated deficit (1,862,477) (2,258,643)
------------ ------------
Total stockholders' deficit (1,087,022) (2,007,281)
------------ ------------
Commitments and contingencies (notes 1, 3 and 6)
$ 1,721,076 1,557,322
------------ ------------
------------ ------------
</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, 1996, 1995, AND 1994
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
1996 1995 1994
----------- ----------- -----------
<S> <C> <C> <C>
Revenue:
Oil and gas sales - Greece (note 3) $ 1,577,222 - 573,100
Other (note 6) 487,145 321,495 262,229
----------- ----------- -----------
2,064,367 321,495 835,329
----------- ----------- -----------
Costs and expenses:
Interest and financing costs 167,494 150,164 112,028
Exploration expenses 18,466 181,566 213,115
Amortization and depreciation 296,613 233,689 244,630
General and administrative 654,602 629,950 583,531
----------- ----------- -----------
1,137,175 1,195,369 1,153,304
----------- ----------- -----------
Income (loss) before income taxes 927,192 (873,874) (317,975)
Income tax (expense) benefit (note 4) (531,026) 77,272 (130,771)
----------- ----------- -----------
Net income (loss) 396,166 (796,602) (448,746)
Accumulated deficit at beginning of year (2,258,643) (1,462,041) (1,013,295)
----------- ----------- -----------
Accumulated deficit at end of year $(1,862,477) (2,258,643) (1,462,041)
----------- ----------- -----------
----------- ----------- -----------
Income (loss) per common share $.09 (.20) (.11)
----------- ----------- -----------
----------- ----------- -----------
Weighted average number of common
shares outstanding 4,259,474 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, 1996, 1995, AND 1994
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
1996 1995 1994
---------- ---------- ----------
<S> <C> <C> <C>
Cash flows from operating activities:
Net income (loss) $ 396,166 (796,602) (448,746)
Adjustments to reconcile net income (loss) to
net cash provided by (used in) operating
activities:
Amortization and depreciation 296,613 233,689 244,630
Deferred income tax benefit (99,864) (77,272) (78,332)
Decrease in accounts receivable and due
from affiliates 8,422 296 23,699
(Increase) decrease in restricted cash 15,629 (458) (280)
(Increase) decrease in prepaid expenses
and other assets 3,604 (1,544) 456
Increase (decrease) in accounts payable 50,484 119,985 (304,487)
Increase (decrease) in United Kingdom
taxes payable, including accrued interest
payable, and accrued expenses (109) 40,839 13,285
Decrease in other noncurrent liabilities (15,217) (13,233) (11,506)
---------- ---------- ----------
Net cash provided by (used in)
operating activities 655,728 (494,300) (561,281)
---------- ---------- ----------
Cash flows from financing activities:
Borrowings from (repayments to) affiliate, net (691,799) 600,000 (55,000)
Proceeds from common stock issued pursuant to
rights offering, net of offering costs 524,093 - -
---------- ---------- ----------
Net cash provided by (used in)
financing activities (167,706) 600,000 (55,000)
---------- ---------- ----------
Net increase (decrease) in cash 488,022 105,700 (616,281)
Cash at beginning of year 154,628 48,928 665,209
---------- ---------- ----------
Cash at end of year $ 642,650 154,628 48,928
---------- ---------- ----------
---------- ---------- ----------
Interest paid $ 144,412 124,781 86,690
---------- ---------- ----------
---------- ---------- ----------
Federal income taxes paid (refunded) $ - (4,125) (18,997)
---------- ---------- ----------
---------- ---------- ----------
Foreign income taxes paid $ 630,890 - 228,100
---------- ---------- ----------
---------- ---------- ----------
</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 non-operated 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. As a result,
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 fiscal 1996 under a line of
credit agreement (see note 2).
In September 1995, the Company entered into a Modification Agreement
with NWO concerning the line of credit. The Modification Agreement
provided that NWO would forebear collection of principal and interest
on the line of credit until December 31, 1996 in exchange for the
Company filing a Form SB-2 Registration Statement with the Securities
and Exchange Commission registering shares of common stock to be
issued to stockholders pursuant to a rights offering (see note 5).
In February 1996, the Company raised $524,093, net of offering costs,
in connection with the rights offering. In addition to the funds from
the 15% net profits interest in the Greek properties, the Company
should have sufficient working capital to meet operating needs through
December 31, 1996. Litigation concerning the 15% net profits interest
is scheduled for trial in September 1996 (see note 3).
If the litigation is resolved in the Company's favor and the Company
is successful in collecting or enforcing the judgment or settlement,
the 15% net profits interest should be sufficient to fund on-going
operations. If the judgment is not favorable and the Company is
unable to obtain additional financing, 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.
24
<PAGE>
OCEANIC EXPLORATION COMPANY
AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS, CONTINUED
- --------------------------------------------------------------------------------
(1) SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
(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, 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 1996 and 1995 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).
The rate of depreciation, depletion and amortization as a percentage
of gross revenues (net of Greek income taxes) for Greece is as
follows:
Year ended March 31,
----------------------------------
1996 1995 1994
------ ------ ------
Greece 31% - 71%
The Company recorded a provision for depreciation, depletion and
amortization of $233,689 for fiscal year 1995 but did not record any
revenues for its property interest.
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 (see note 7).
25
<PAGE>
OCEANIC EXPLORATION COMPANY
AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS, CONTINUED
- --------------------------------------------------------------------------------
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, 1996 and 1995, all capitalized costs were subject to
amortization.
(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 weighted average number of
common shares outstanding for the period.
(g) ESTIMATES
The preparation of financial statements in conformity with generally
accepted accounting principles requires management to make estimates
and assumptions that effect the reported amounts of assets and
liabilities and disclosures 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.
(h) RECLASSIFICATIONS
Certain amounts for 1995 have been reclassified to conform to the 1996
presentation.
(2) NOTES PAYABLE TO AFFILIATE
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 and all proceeds from the pending litigation (see note 3).
26
<PAGE>
OCEANIC EXPLORATION COMPANY
AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS, CONTINUED
- --------------------------------------------------------------------------------
In September 1995, the Company entered into a Modification Agreement with
NWO concerning the line of credit. The Modification Agreement provided
that NWO would forebear collection of principal and interest on the line of
credit until December 31, 1996. In addition, the annual interest rate was
adjusted to 8.25%. In exchange, the Company was required to pursue funding
from the sale of additional shares of its common stock (see note 5).
(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 license
agreement before this amendment. The Company is seeking $27,000,000, or
alternatively an accounting and payment of the 15% net earnings interest
effective January 1, 1993. The Company estimates damages for unpaid
revenues are approximately $13,100,000 for the period from January 1, 1993
through March 31, 1996 plus damages since that date and 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, the working interest owner had ceased
remitting payment to the Company. In November 1995, the Company received
payment representing unpaid revenues on the royalty interest from
January 1, 1993 through October 31, 1995. In December 1995, the working
interest owner resumed monthly revenue payments. All of these revenue
payments are calculated under the terms of the amended license agreement.
Oil and gas sales revenue for the year ended March 31, 1996 include
$682,503 in respect of the current year royalty interest calculation while
$894,719 relates to unpaid revenues of prior years.
(4) INCOME TAXES
Income tax expense (benefit) consists of the following:
Year ended March 31
--------------------------------
1996 1995 1994
--------- --------- ---------
Current:
Foreign - Greece $ 630,890 - 228,100
U.S. federal - - (18,997)
--------- --------- ---------
Total current income tax
expense 630,890 - 209,103
--------- --------- ---------
Deferred:
Foreign - Greece (118,664) (93,476) (97,852)
U.S. federal 18,800 16,204 19,520
--------- --------- ---------
Total deferred income tax
benefit (99,864) (77,272) (78,332)
--------- --------- ---------
Total income tax expense
(benefit) $ 531,026 (77,272) 130,771
--------- --------- ---------
--------- --------- ---------
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:
Year ended March 31
--------------------------------------
1996 1995 1994
--------- --------- ---------
Computed at U.S. statutory tax
rate $ 315,246 (297,117) (108,112)
Effect of Greek operations,
including foreign tax credits 196,980 203,641 238,360
Other, net 18,800 16,204 523
--------- --------- ---------
Income tax expense $ 531,026 (77,272) 130,771
--------- --------- ---------
--------- --------- ---------
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, 1996 and 1995 relate to the Greece oil and gas
property interest.
(5) COMMON STOCK
In January 1996, the Company issued 6,001,000 additional shares of common
stock pursuant to a rights offering for proceeds of $524,093, net of
offering costs. Each shareholder was offered the right to purchase 1.5325
shares of additional common stock for each share of common stock owned as
of the record date at the price of $.10 per share. The Company used the
proceeds to reimburse NWO for advances of legal fees and accrued interest
thereon, and retained the remainder to fund future operations.
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, 1996, 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 stock 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 1996, 1995, and 1994, such reimbursements amounted to
approximately $322,000, $274,000, and $231,000, respectively, and have been
included as other revenue in the accompanying statements of operations.
28
<PAGE>
OCEANIC EXPLORATION COMPANY
AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS, CONTINUED
- --------------------------------------------------------------------------------
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 1996,
1995, and 1994, the Company recorded $20,777, $27,038, and $24,607,
respectively, as pension expense under this plan.
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 the
final installment of $17,500 which is due January 1, 1997.
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, 1996, 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
$26,675 for 1996 and $32,998 for 1995. Future minimum lease payments are
$27,000 for 1997. The Company plans to extend the current lease which
terminates March 1, 1997, on similar terms.
(7) SUPPLEMENTAL FINANCIAL DATA - OIL AND GAS PRODUCING ACTIVITIES (UNAUDITED)
The following information is presented in accordance with Statement of
Financial Accounting Standards No. 69, "Disclosure about Oil and Gas
Producing Activities," (SFAS No.69).
(a) 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, 1996, 1995 and 1994 are as follows:
Year ended March 31
--------------------------------------
1996 1995 1994
--------- --------- ---------
OIL AND GAS REVENUE -
Greece (1) $ 1,577,222 - 573,100
Less Greek income taxes paid (630,890) - (228,100)
--------- --------- ---------
$ 946,332 - 345,000
--------- --------- ---------
--------- --------- ---------
(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.
(continued)
29
<PAGE>
OCEANIC EXPLORATION COMPANY
AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS, CONTINUED
- --------------------------------------------------------------------------------
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 (37,926,522) (37,629,909) (37,396,220)
------------ ------------ ------------
$ 1,073,478 1,370,091 1,603,780
------------ ------------ ------------
------------ ------------ ------------
(b) INFORMATION REGARDING PROVED OIL AND GAS RESERVES
The Company's interest in Greece consists of a contractual right to receive
a 15% "net profits interest." Because the Company has a net profits
interest and not a working interest in this property, the Company 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 Company. In previous
reports to the Commission, the Company has provided information concerning
estimated quantities of proved oil and gas reserves attributable to the
Prinos Interest which has 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 Company does not have access to the
engineering data upon which the infill drilling program was based.
Therefore, the Company is not in a position to estimate the potential
future producible reserves and/or present value of future net revenues
attributable to the Prinos Interest.
The Company estimates the present value of future net cash flows
attributable to its Prinos Interest in determining the ceiling limitation
on the carrying amount of the property under the full cost method of
accounting. The estimate is based on the historical cash flows and
production profiles attributable to its interest, adjusted for current
production and current prices. For purposes of calculating the ceiling
limitation, the estimate of the present value of future net revenues
attributable to its Prinos Interest is based on the terms of the License
Agreement as amended in 1993 and reflects production estimated as
continuing through fiscal year 2001 at which time the Company estimates
the field will no longer be economic under current prices and production
profiles. As of March 31, 1996, the Company's estimate of the ceiling
limitation under the full cost method of accounting is in excess of the
carrying amount of its Prinos Interest.
30
<PAGE>
ITEM 8. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND
FINANCIAL DISCLOSURE
Not applicable.
PART III
ITEM 9. DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT
COMPLIANCE WITH SECTION 16(a) OF THE EXCHANGE ACT
The following table sets forth the names and ages of the members of the
Registrant's Board of Directors and its executive officers, and sets forth the
position with the Registrant held by each:
<TABLE>
<CAPTION>
NAME AGE POSITION
- ---- --- --------
<S> <C> <C>
James Neal Blue 61 Director; Chairman of the Board and Chief
Executive Officer of the Registrant
Charles N. Haas 58 Director and President of the Registrant
John L. Redmond 65 Director and Vice President, International
Exploration of the Registrant
Gene E. Burke, M.D. 67 Director
Sidney H. Stires 66 Director
Janet A. Holle 45 Vice President/Secretary of the Registrant
Lori A. Brundage 32 Treasurer and Chief Financial Officer of the
Registrant
</TABLE>
Directors of the Registrant hold these positions until their respective
successors are elected and qualified. The current directors, except for John L.
Redmond, were elected in 1982 and no meeting of the stockholders has been held
since that date. Mr. Redmond was appointed in 1994 by the remaining directors
to fill a vacancy on the Board of Directors.
JAMES N. BLUE. Mr. Blue has been a director and officer of the Registrant since
1981. He is also Chairman of General Atomics in San Diego, California and
President of Cordillera Corporation in Denver, Colorado.
31
<PAGE>
CHARLES N. HAAS. Mr. Haas has been a director and officer of the Registrant
since 1981.
JOHN L. REDMOND. Mr. Redmond has been a director of the Registrant since 1994.
He has been Vice President, International Exploration of the Registrant since
1990.
GENE E. BURKE, M.D.. Mr. Burke has been a director of the Registrant since
1972. He has been a physician in sole practice in Houston, Texas during that
time.
SIDNEY H. STIRES. Mr. Stires has been a director of the Registrant since 1980.
During that time Mr. Stires has been the President of Stires & Co., Inc., an
investment banking company in New York, NY.
JANET A. HOLLE. Ms. Holle has been an officer of the Registrant since 1987.
LORI A. BRUNDAGE. Ms. Brundage has been an officer of the Registrant since
1996. Since 1991, she has held the positions of Accounting Manager and Senior
Accountant for the Denver Technological Center, a real estate development
company in Denver, Colorado.
Based upon a review of Forms 3, 4 and 5 furnished to the Registrant with respect
to the current fiscal year, these directors failed to file the following forms
on a timely basis:
<TABLE>
<CAPTION>
Number Number of
of Late Transactions
Name Reports Covered Late Reports
- ---- ------- ------- ------------
<S> <C> <C> <C>
John L. Redmond 1 1 Form 4
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 Payout
------------------------------ --------------------------------
(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 1996 60,000 (1) - - - - - -
Chairman of 1995 60,000 (1) - - - - - -
the Board 1994 60,000 (1) - - - - - -
and Chief
Executive
Officer
Charles N. Haas 1996 158,886 (2) - - - - - 21,562 (2)(3)
President 1995 158,762 (2) - - - - - 21,899 (2)(3)
1994 159,862 (2) - - - - - 20,766 (2)(3)
</TABLE>
(1) Monthly officer's fee of $5,000.
(2) A portion of the salary and compensation paid to Mr. Haas has been
reimbursed based on cost sharing arrangements with other companies. (SEE
ITEM 12 "CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS.")
(3) The Registrant is a participant in the Cordillera and Affiliated Companies'
Money Purchase Pension Plan and 401(K) Plan, covering all qualified
employees of the Registrant. The pension plan is a non-contributory
defined contribution plan. Registrant 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 Registrant 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
Registrant or any of its affiliates receive directors' fees of $500 per month.
Members of the board of directors who are
33
<PAGE>
employees do not receive directors' fees. Mr. Blue receives a monthly fee of
$5,000 for services as an officer of the Registrant.
There are no employment contracts outstanding at this time. 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 the final installment of $17,500 which
is due January 1, 1997.
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, 1996 and the amount is included in accrued
expenses in the accompanying balance sheets.
The Registrant has no compensation committee. James N. Blue and Charles N. Haas
participated in all deliberations concerning executive officer compensation.
34
<PAGE>
ITEM 11. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT
As of June 7, 1996 there were issued and outstanding 9,916,154 shares of Common
Stock and is the Registrant's only class of voting securities. Holders of
Common Stock are entitled to one vote per share on each matter upon which
shareholders may be entitled to vote.
The following table sets forth information regarding shares of Common Stock of
the Registrant beneficially owned as of June 7, 1996 by: (i) each person known
by the Registrant to beneficially own 5% or more of the outstanding Common
Stock, (ii) each director, (iii) each person named in the summary compensation
table and (iv) all officers and directors as a group.
<TABLE>
<CAPTION>
Nature of Percentage of
Names and Addresses of Officers, Amount of Beneficial Voting
Directors and Principal Shareholders Common Stock Ownership Securities
- ------------------------------------ ------------ ---------- -------------
<S> <C> <C> <C>
Allen & Company 824,200 Sole voting and 8.3 %
and various affiliates (1) investment power
711 Fifth Avenue
New York, NY 10022
International Hydrocarbons (2) 4,912,178 Sole voting and 49.5 %
c/o John E. Jones investment power
5000 S. Quebec Street, Suite 450
Denver, CO 80237
International Cordillera Limited 545,800 Sole voting and 5.5 %
c/o WITC investment power
8082 S. Niagara Way
Englewood, CO 80112
James N. Blue (3) (4) None N/A N/A
5000 S. Quebec St., Suite 450
Denver, CO 80237
Charles N. Haas (3) None N/A N/A
5000 S. Quebec St., Suite 450
Denver, CO 80237
Sidney H. Stires (3) 68,000 As Trustee less than 1%
432 Park Avenue South
New York, NY 10016 500 Sole voting and less than 1%
investment power
</TABLE>
35
<PAGE>
<TABLE>
<CAPTION>
Nature of Percentage of
Names and Addresses of Officers, Amount of Beneficial Voting
Directors and Principal Shareholders Common Stock Ownership Securities
- ------------------------------------ ------------ ---------- -------------
<S> <C> <C> <C>
Gene E. Burke, M.D. (3) None N/A N/A
3555 Timmons, # 680
Houston, TX 77027
John L. Redmond (3) None N/A N/A
5000 S. Quebec St., Suite 450
Denver, CO 80237
All Directors and Officers 68,500 less than 1%
as a group (7 persons)
</TABLE>
(1) 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 (as adjusted for the
issuance of 6,001,000 shares of Common Stock pursuant to the Rights
Offering):
<TABLE>
<CAPTION>
Names Common Shares Percentages
- ----- -------------- -----------
<S> <C> <C>
Allen & Company 165,000 1.7 %
American Diversified Enterprises, Inc. 232,500 2.3
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 .5
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 .7
Toni Allen Goutal 55,500 .6
Angela Frances Allen Kramer 43,700 .4
Nathaniel Charles Allen Kramer 56,000 .6
Bruce Allen 20,000 .2
C. Robert Allen, IV 5,000 .1
</TABLE>
36
<PAGE>
<TABLE>
<CAPTION>
Names Common Shares Percentages
- ----- -------------- -----------
<S> <C> <C>
John Godwin Allen 5,000 .1
Luke Andrew Allen 5,000 .1
Thaddeus Mack Allen 5,000 .1
Evelyn Henry 52,000 .5
Marjorie Bisgood 59,500 .6
Bradley Roberts 2,083 *
</TABLE>
* Less than .1%
(2) International Hydrocarbons is a wholly-owned subsidiary of NWO. Mr. Blue
is president and a director both of International Hydrocarbons and NWO. He
is also president and a major stockholder of Cordillera Corporation
("Cordillera"). Through Cordillera, Mr. Blue beneficially holds 60.667% of
Class B common stock of NWO.
(3) Director of the Registrant
(4) Does not include shares owned by International Hydrocarbons. International
Hydrocarbons is a wholly-owned subsidiary of NWO. Mr. Blue is president
and a director of both International Hydrocarbons and NWO. Through
Cordillera, of which Mr. Blue is president and a major stockholder,
Mr. Blue beneficially holds 60.667% of Class B common stock of NWO.
ITEM 12 - CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
NWO LINE OF CREDIT
The Registrant has a $2,000,000 line of credit with NWO, the parent company of
International Hydrocarbons, the Registrant's principal stockholder. The line of
credit is secured by the Registrant's Prinos Interest. Prior to the end of
fiscal year 1995, the Registrant's credit line was exhausted. During the first
half of fiscal year 1995 the Registrant had no resources to maintain interest
payments under the line of credit. Accordingly, on September 19, 1995, the
Registrant entered into a Modification Agreement with NWO, modifying the
existing line of credit arrangement between the Registrant and NWO. (SEE ITEM 1
"BUSINESS-NWO LINE OF CREDIT.") On November 30, 1995 the Registrant paid NWO
$610,522. $92,402 was applied
37
<PAGE>
to accrued interest and $518,120 was applied to the loan leaving an
outstanding loan balance of $1,481,880. As of March 31, 1996, the
outstanding loan balance was $1,308,201.
Cordillera is a stockholder of NWO holding 60.667% of Class B common stock.
Mr. Blue, the Chairman of the Board and Chief Executive Officer of the
Registrant, is president and a major stockholder of Cordillera.
MANAGEMENT AGREEMENTS
The Registrant has a cost sharing arrangement under which it provides management
services to Cordillera and to San Miguel Valley Corporation (SMVC), an affiliate
of Cordillera, pursuant to agreements providing for reimbursement of costs for
actual time and expenses incurred on Cordillera and SMVC activities. In 1996,
1995 and 1994 such reimbursements amount to approximately $322,000, $274,000 and
$231,000, respectively, which have been included as other revenue in the
accompanying statements of operations. Mr. Blue, the Chairman of the Board and
Chief Executive Officer of the Registrant, is president and a major stockholder
of Cordillera.
OFFICER FEES
Mr. Blue receives officers' fees of $5,000 per month for his services as
Chairman of the Board and Chief Executive Officer of the Registrant. Mr. Blue
is president and a director of International Hydrocarbons, the Registrant's
principal stockholder, and its parent, NWO. Through Cordillera, of which
Mr. Blue is president and a major stockholder, Mr. Blue beneficially holds
60.667% of Class B common stock of NWO.
EMPLOYEE BENEFIT PLANS
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 1996,
1995, and 1994, the Registrant recorded $20,777, $27,038, and $24,607,
respectively, as pension expense under this plan. Mr. Blue, the Chairman of the
Board and Chief Executive Officer of the Registrant, is president and a major
stockholder of Cordillera.
LEASE OF CORPORATE HEADQUARTERS
The 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, the Chairman of the Board and Chief Executive Officer of the
Registrant, and his family. Rent payments for 1996 and 1995 were $26,675 and
$32,998, respectively. These payments include adjustments for the Registrant's
proportionate share of operating expenses. Lease payments are estimated to be
$27,000 for
38
<PAGE>
1997. The Registrant plans to extend the current lease which expires March 1,
1997. The Registrant believes that, with respect to the lease of its corporate
headquarters, it obtained terms no less favorable than what could have been
obtained from unrelated parties in arms-length transactions.
DEFERRED COMPENSATION AGREEMENT
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, 1997.
BONUS
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, 1996, and the amount is included in accrued
expenses in the accompanying balance sheets.
39
<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, 1996 and 1995
Consolidated Statements of Operations and Accumulated Deficit - Years
ended March 31, 1996, 1995 and 1994
Consolidated Statements of Cash Flows - Years ended March 31, 1996,
1995 and 1994
Notes to Consolidated Financial Statements
40
<PAGE>
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.
<TABLE>
<CAPTION>
Exhibit Number Name of Exhibit Location
- -------------- --------------- ---------
<S> <C> <C>
3.1 Articles of Incorporation Page 58 of Report on
(including all amendments) Form 10-K for year
ended September 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 for
June 30, 1976 between Oceanic year ended September 30, 1976
Exploration Company and Denison
Mines Limited
10.2 Letter Agreement dated July 28, Report on Form 10-K for
1976 amending Agreement of year ended September 30, 1976
June 30, 1976
10.3 Amendment dated August 27, 1976 Report on Form 10-K for
to Agreement of June 30, 1976 year ended September 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, 1995
(Overseas) Limited dated
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, 1995
(Overseas) Limited dated
September 22, 1989
41
<PAGE>
<CAPTION>
Exhibit Number Name of Exhibit Location
- -------------- --------------- ---------
<S> <C> <C>
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, 1995
(Overseas) Limited dated
September 22, 1989
10.7 Agreement for Study and Exhibit 10.8 on Form SB-2
Petroleum Evaluation of the filed October 6, 1995,
South East Area of Bolivia, File # 33-63277
dated May 11, 1992
10.8 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
10.9 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
10.10 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
10.11 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
10.12 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
10.13 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
10.14 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
42
<PAGE>
<CAPTION>
Exhibit Number Name of Exhibit Location
- -------------- --------------- ---------
<S> <C> <C>
10.15 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
10.16 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
10.17 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
10.18 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
10.19 Modification Agreement Exhibit 10.20 on Form SB-2
with NWO Resources, Inc. filed October 6, 1995,
dated September 19, 1995 File # 33-63277
10.20 First Amendment to Exhibit 10.21 on Form SB-2
Security Agreement with filed October 6, 1995,NWO
Resources, Inc. File # 33-63277
dated September 19, 1995
10.21 Letter dated August 22, 1995 Exhibit 10.22 on Form SB-2
from International Hydrocarbons filed October 6, 1995,
regarding purchase of unsubscribed File # 33-63277
stock in Rights Offering
10.22 Extension Agreement Exhibit 10.23 on Form SB-2,
with NWO Resources, Inc. Amendment 2, filed
dated December 27, 1995 January 3, 1996,
File # 33-63277
</TABLE>
(b) One report on Form 8-K was filed during the quarter for which this Report
is filed.
On March 13, 1996, Form 8-K was filed which reported the results of the
Rights Offering in January 1996.
43
<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)
By /s/ Charles N. Haas
____________________________________
Charles N. Haas, President
Dated June 28, 1996.
Pursuant to the requirements of the Securities Exchange Act of 1934, this Report
has been signed below by the following persons on behalf of the Registrant and
in the capacity and on the date indicated, namely:
1. By its principal executive officer.
Date: June 28, 1996 /s/ Charles N. Haas
____________________________________
Charles N. Haas, President
2. And by its principal financial officer.
Date: June 27, 1996 /s/ Lori A. Brundage
____________________________________
Lori A. Brundage, Treasurer
3. And by a majority of its board of directors.
Date: June 27, 1996 /s/ James N. Blue
____________________________________
James N. Blue, Director
Date: June 28, 1996 /s/ Charles N. Haas
____________________________________
Charles N. Haas, Director
Date: June 27, 1996 /s/ Sidney H. Stires
____________________________________
Sidney H. Stires, Director
<TABLE> <S> <C>
<PAGE>
<ARTICLE> 5
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM FORM 10-KSB
FOR THE FISCAL YEAR ENDED MARCH 31, 1996 AND IS QUALIFIED IN ITS ENTIRETY BY
REFERENCE TO SUCH FINANCIAL STATEMENTS.
</LEGEND>
<S> <C>
<PERIOD-TYPE> YEAR
<FISCAL-YEAR-END> MAR-31-1996
<PERIOD-END> MAR-31-1996
<CASH> 642,650
<SECURITIES> 0
<RECEIVABLES> 3,448
<ALLOWANCES> 0
<INVENTORY> 0
<CURRENT-ASSETS> 647,598
<PP&E> 39,000,000
<DEPRECIATION> 37,926,522
<TOTAL-ASSETS> 1,721,076
<CURRENT-LIABILITIES> 2,099,900
<BONDS> 0
0
0
<COMMON> 619,759
<OTHER-SE> 155,696
<TOTAL-LIABILITY-AND-EQUITY> 1,721,076
<SALES> 0
<TOTAL-REVENUES> 2,064,367
<CGS> 0
<TOTAL-COSTS> 0
<OTHER-EXPENSES> 969,681
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 167,494
<INCOME-PRETAX> 927,192
<INCOME-TAX> 531,026
<INCOME-CONTINUING> 396,166
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 396,166
<EPS-PRIMARY> .09
<EPS-DILUTED> .09
</TABLE>
