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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, 1997.
[ ] 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, 1997 $1,245,652
As of June 6, 1997, 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 $2,878,314.
As of June 6, 1997 the Registrant had outstanding 9,916,154 shares of common
stock ($.0625 par value).
An index of the documents incorporated herein by reference and/or annexed as
exhibits to this Report appears on pages 37 through 41.
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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 its property
interest in the North Aegean Sea. (SEE ITEM 2 "PROPERTIES-GREECE.")
The Registrant's only significant source of revenue, its 15% net profits
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. In June 1994, the Registrant commenced
legal action against Denison Mines, Ltd. ("Denison"), the company having the
contractural obligation to pay the Prinos Interest. The Registrant was seeking
a declaration by the Ontario Court of Justice (General Division) in Toronto,
Canada (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.
In September 1996, the lawsuit went to trial. In December 1996, the Registrant
received notification that the Court had rendered a judgment in the Registrant's
favor. The defendant subsequently filed a Notice of Appeal requesting that the
judgment be set aside. Therefore , it appears that the final determination will
likely be made by the Appellate Court. While the Registrant believes there is a
reasonable probability 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 Registrant's financial statements for current revenue or
damages, if any, that may ultimately be awarded to the Registrant. (SEE ITEM 3
"LEGAL PROCEEDINGS.") It should be noted that if the appeal by Denison is
successful, 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.
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Upon commencement of the litigation, payments under the Prinos Interest were
suspended. The Registrant funded its operations through draws against the
$2,000,000 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") modifying the existing line of credit
arrangement. The Modification Agreement provided for limited funding of
litigation expenses and relief from any collection actions by NWO until December
31, 1996. The Modification Agreement also allowed the Registrant to retain up
to $200,000 of any proceeds received from its Prinos Interest for general
working capital purposes. The Modification Agreement did 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
representing unpaid net revenues from the Prinos Interest. These revenues
cover the period from January 1, 1993 through October 31, 1995, and were
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 January 1996, the Registrant raised $524,093, net of offering costs, from the
sale of 6,001,000 shares of its Common Stock (the "Rights Offering").
In March 1997, the Registrant executed an Extension Agreement to the
Modification Agreement whereby NWO agreed to forbear any collection
proceedings on the line of credit until March 31, 1998. In addition, the
Registrant may retain 50% of all net profits interest payments received from
its Prinos Interest to cover its operating expenses. These amounts together
with funds from the Rights Offering should be sufficient to fund the
litigation and limited operations through at least March 31, 1998.
As of March 31, 1997, the outstanding loan balance was $874,474. 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 by March 31, 1998.
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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 five 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.
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) 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
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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
The Registrant holds various interests in concessions or leases for oil and
gas exploration which are listed below. Oil and gas property interests as
reflected in the accompanying financial statements include costs attributable
only to the Greek interest. Costs on all other foreign concessions described
below have been charged to expense in prior years.
GREECE: The Registrant has the right to receive 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.
Daily production from the Prinos/South Kavala Fields averaged 11,967 barrels
of oil and 156 tons of sulphur during the fiscal year ended March 31, 1997,
including production for Prinos North averaging 2,611 barrels of oil per day.
According to Denison's 1996 Annual Report, Denison's share of calendar year
1996 production increased 11% from that of 1995. The increase is primarily
due to the successful completion of the horizontal well drilled from the
existing production platform into the previously non-producing development
area known as Prinos North in August 1996 and the well infill drilling
program at the producing Prinos Field beginning in December 1995. Under the
drilling program, 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 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%.
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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 April 1996, the consortium signed
another 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 their total share. In August
1996, production commenced in the Prinos North oil field at 3,500 barrels per
day. Denison's 1996 Annual Report states that Prinos North crude typically
has a selling value of $2.00 to $3.00 per barrel less than Prinos crude.
Denison has been calculating payment of the Registrant's net profits interest
after consideration of the Second Supplemental Agreement and the Decision.
The Registrant disagrees with this approach and has notified Denison of such.
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 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 trial began in
September 1996. In December 1996, the Registrant received a favorable
judgment from the Court. However, Denison has filed a Notice of Appeal
requesting that the judgment be set aside. Therefore, it appears that the
final determination will likely have to be made by the Appellate Court. In
addition, if the Registrant obtains a final determination 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 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.
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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 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 by March 31, 1998.
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, 1997.
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 1997 to indicate that the lifting of the current force
majeure status is imminent.
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; however, an exploration agreement
has not been finalized pending the issuance of the new hydrocarbons law. Under
the new hydrocarbons law, all discussions and/or negotiations will be with the
National Secretariat of Energy. The terms of any operations contract must
conform to the provisions of the new law.
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 (including Prinos
North) pursuant to an agreement dated August 30, 1976, which is to be calculated
on the basis of the terms of the License Agreement.
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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 payments to the Registrant for its Prinos Interest as calculated
under the terms of the amended License Agreement.
The trial, which began on September 30, 1996, was concluded two weeks later. On
December 13, 1996, the Registrant received notification that the Court had
issued a judgment in its favor. Specifically, the Court found that Denison is
obligated to pay the Registrant its 15% net earnings interest in accordance with
the terms of the License Agreement prior to the 1993 amendment. First, the
Court ordered Denison to pay $4,000,000 plus interest to the Registrant for the
period January 1, 1993 through December 31, 1995. Second, the Court ordered
Denison to make payments to the Registrant subsequent to December 31, 1995, also
calculated based on the terms of the original License Agreement. Lastly, the
Court awarded court costs to the Registrant which are anticipated to be
approximately $107,000.
Subsequent to receiving the judgment from the Court, Denison filed a Notice of
Appeal requesting that the judgment be set aside based on its belief that the
trial judge erred in her interpretation of the respective contracts. Barring an
order to expedite the appeal, which may or may not be available in this case, it
may take up to 2 years before the appeal is heard. A further appeal to the
Supreme Court of Canada is possible.
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The Registrant's legal counsel, Osler, Hoskin & Harcourt in Toronto, Canada, is
unable to advise as to the probable outcome of the appeal by Denison.
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 continues to believe that there is a reasonable
probability 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.
Enforcement of a judgment in Ontario is generally carried out by seizure and
sale of assets, garnishment of debts, or appointment of a receiver. Previously,
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. Based upon more recent public filings, however, it
appears that Denison's debt restructuring approved in 1995 was successful in
preserving Denison as a going concern. This restructuring may also 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 final determination 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.
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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 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. issued
its approval 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 the Registrant's Common Stock over the last two
fiscal years (which are not necessarily representative of actual transactions)
is set out below.
Three Months Fiscal 1997 Fiscal 1996
Ended High(1) Low(1) High Low
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June 30 .18 .18 $.75(2) .50(2)
September 30 .19 .19 .63(2) .25(2)
December 31 .75 .25 (3) (3)
March 31 .70 .50 .38(1) .13(1)
(1) Prices represent sales on the OTC Bulletin Board.
(2) Prices represent sales on the Exchange prior to the delisting.
(3) As the Registrant was delisted from the Pacific Stock Exchange on
October 3, 1995 and not approved for quotation on the OTC Bulletin Board
until January 24, 1996, there is no information available for this period.
The reported closing price of common stock on October 3, 1995 was $.25.
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The 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 6, 1997, the number of record holders of
the Registrant's common stock was 485.
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, 400 South Hope Street, Fourth Floor, Los Angeles, California
90071-3401.
ITEM 6. MANAGEMENT DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS
LIQUIDITY AND CAPITAL RESOURCES
Historically, the Registrant's principal source of revenue has been from its
Prinos Interest. The Registrant also receives revenues from sales of seismic
data gathered in its oil and gas exploration and development activities. 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 $278,000 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.")
When payments under the Prinos Interest were suspended in 1994, 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, secured by the Registrant's Prinos
Interest and all proceeds from the
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Registrant's lawsuit against Denison, provided for limited funding of
litigation expenses and relief from any collection actions by NWO until
December 31, 1996. The Modification Agreement also allowed the Registrant to
retain up to $200,000 of any proceeds received from its Prinos Interest for
general working capital purposes.
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 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 of the payment 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 principal.
In February 1996, the Registrant raised $524,093, net of offering costs, in
connection with the sale of 6,001,000 shares of additional common stock through
the 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.
In March 1997, the Registrant executed an Extension Agreement to the
Modification Agreement whereby NWO agreed to forbear any collection proceedings
on the line of credit until March 31, 1998. In addition, the Registrant may
retain 50% of all net profits interest payments received from its Prinos
Interest to cover its operating expenses. The Registrant estimates that these
funds, in addition to those from the Rights Offering, will be sufficient to fund
the litigation and limited operations through at least March 31, 1998.
As of March 31, 1997, the outstanding loan balance was $874,474. 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 by March 31,
1998.
The Registrant's net profits interest in the offshore Greece property is
currently the subject of litigation. In June 1994, the Registrant commenced
legal action against the company having the contractural obligation to pay the
net profits interest. The Registrant was seeking a declaration by the Court
that amounts due the Registrant attributable to its interest be calculated based
on the terms of the License Agreement prior to a 1993 amendment agreed to by the
consortium and the Greek government. In September 1996, the lawsuit went to
trial. In December 1996, the Registrant received notification that the Court
had rendered a judgment in the Registrant's favor. The defendant subsequently
filed a Notice of Appeal requesting that the judgment be set aside. Therefore ,
it appears that the final determination will likely be made by the Appellate
Court.
12
<PAGE>
While the Registrant believes there is a reasonable probability of prevailing
in the litigation, the ultimate outcome of the lawsuit cannot be determined
at this time.
Even if a final determination 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. Previously, 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. Based upon
more recent public filings, however, it appears that Denison's debt
restructuring approved in 1995 may have been successful in preserving Denison as
a going concern. This restructuring may also 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 final determination 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 additional
capital, in addition to the Rights Offering described above, to fund continuing
operations beyond March 1998 and to pay off the NWO loan and accrued interest
when due on March 31, 1998.
If the final determination is not favorable, the Registrant will still have its
Prinos Interest; however, the revenue stream will be substantially reduced. If
such unfavorable outcome occurs, it is uncertain if 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
repay the NWO loan and fund on-going operations and limited new exploration
activities. 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 to receive revenue from its Prinos Interest.
13
<PAGE>
RESULTS OF OPERATIONS
The Registrant reported net losses of $219,274 and $796,602 for the years
ended March 31, 1997 and 1995, respectively, and net income of $396,166 for
the year ended March 31, 1996. The following table summarizes the primary
components of changes in net income before the provision for income taxes for
the relevant periods:
Year ended March 31,
--------------------
1997 1996 1995
---- ---- ----
Calculation of Greek
revenues (122,700) 861,500 (573,100)
Greek revenues received in 1996
applicable to prior years (895,000) 895,000 -
Production increase (decline) 226,500 (217,000) -
Price increase 157,900 38,000 -
(Increase) reduction in
depreciation and
depletion charges (40,030) (62,924) 10,941
(Reduction) increase in
other revenues (185,389) 165,650 59,266
Other (23,524) 120,841 (53,006)
---------- ----------- ----------
(Decrease) increase in
income before taxes $(882,243) $1,801,067 $(555,899)
---------- ----------- ----------
---------- ----------- ----------
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, offset in part by a production increase in 1997 due to the successful
completion of Prinos North and recent infill drilling programs. (SEE ITEM 2
"PROPERTIES.") The depletion provision increased from $233,698 in 1995 to
$296,613 in 1996 to $336,643 in 1997 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 in 1996
relating to unpaid revenues, management fees (SEE ITEM 12 "CERTAIN RELATIONSHIPS
AND RELATED TRANSACTIONS") and receipts from sales of seismic data and
investments in 1996.
14
<PAGE>
The provision for income taxes in fiscal 1997 decreased approximately $267,000
from the fiscal 1996 provision due to a decrease in Greek income taxes
corresponding to the decrease in Greek oil and gas revenues recorded.
ITEM 7. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
INDEX PAGE
Independent Auditors' Report 17
Consolidated Balance Sheets 18
Consolidated Statements of
Operations and Accumulated Deficit 19
Consolidated Statements of
Cash Flows 20
Notes to Consolidated Financial Statements 21-28
15
<PAGE>
[LOGO]
The Global Leader
OCEANIC EXPLORATION COMPANY
AND SUBSIDIARIES
CONSOLIDATED FINANCIAL STATEMENTS
MARCH 31, 1997 AND 1996
(WITH INDEPENDENT AUDITORS' REPORT THEREON)
16
<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, 1997 and 1996, 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, 1997.
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, 1997 and 1996, and the results of their operations and their cash
flows for each of the years in the three-year period ended March 31, 1997 in
conformity with generally accepted accounting principles.
/s/KPMG PEAT MARWICK LLP
KPMG PEAT MARWICK LLP
Denver, Colorado
May 28, 1997
17
<PAGE>
OCEANIC EXPLORATION COMPANY
AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
MARCH 31, 1997 AND 1996
- ------------------------------------------------------------------------------
<TABLE>
<CAPTION>
ASSETS 1997 1996
- ------ ---- ----
<S> <C> <C>
Cash $ 201,715 642,650
Accounts receivable 2,551 683
Due from affiliates 2,904 2,765
Prepaids and other 1,428 1,500
---------- -----------
Total current assets 208,598 647,598
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 (38,263,165) (37,926,522)
---------- -----------
736,835 1,073,478
---------- -----------
$ 945,433 1,721,076
---------- -----------
---------- -----------
LIABILITIES AND STOCKHOLDERS' DEFICIT
Current liabilities:
Notes payable to affiliate (note 3) $ 874,474 1,308,201
Accounts payable 187,767 232,363
Accounts payable to affiliates 60,000 60,000
United Kingdom taxes payable, including
accrued interest 456,337 405,319
Accrued expenses (note 6) 78,286 94,017
---------- -----------
Total current liabilities 1,656,864 2,099,900
Deferred income taxes 594,865 708,198
---------- -----------
Total liabilities 2,251,729 2,808,098
Stockholders' deficit (note 4):
Preferred stock, $10 par value. Authorized 600,000
shares; none issued - -
Common stock, $.0625 par value. 12,000,000 authorized
shares; 9,916,154 shares issued and outstanding 619,759 619,759
Capital in excess of par value 155,696 155,696
Accumulated deficit (2,081,751) (1,862,477)
---------- -----------
Total stockholders' deficit (1,306,296) (1,087,022)
---------- -----------
Commitments and contingencies (notes 1, 2 and 6)
$ 945,433 1,721,076
---------- -----------
---------- -----------
</TABLE>
See accompanying notes to consolidated financial statements.
18
<PAGE>
OCEANIC EXPLORATION COMPANY
AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATIONS AND ACCUMULATED DEFICIT
YEARS ENDED MARCH 31, 1997, 1996, AND 1995
- ------------------------------------------------------------------------------
<TABLE>
1997 1996 1995
---- ---- ----
<S> <C> <C> <C>
Revenue:
Oil and gas sales - Greece (note 2) $ 943,895 1,577,222 -
Other (note 6) 301,757 487,145 321,495
---------- --------- ---------
1,245,652 2,064,367 321,495
---------- --------- ---------
Costs and expenses:
Interest and financing costs 116,117 167,494 150,164
Exploration expenses 13,464 18,466 181,566
Amortization and depreciation 336,643 296,613 233,689
General and administrative 734,477 654,602 629,950
---------- --------- ---------
1,200,701 1,137,175 1,195,369
---------- --------- ---------
Income (loss) before income taxes 44,951 927,192 (873,874)
Income tax (expense) benefit (note 5) (264,225) (531,026) 77,272
---------- --------- ---------
Net (loss) income (219,274) 396,166 (796,602)
Accumulated deficit at beginning of year (1,862,477) (2,258,643) (1,462,041)
---------- --------- ---------
Accumulated deficit at end of year $(2,081,751) (1,862,477) (2,258,643)
---------- --------- ---------
---------- --------- ---------
(Loss) income per common share $(.02) .09 (.20)
--- --- ---
--- --- ---
Weighted average number of common
shares outstanding 9,916,154 4,259,474 3,915,154
---------- --------- ---------
---------- --------- ---------
</TABLE>
See accompanying notes to consolidated financial statements.
19
<PAGE>
OCEANIC EXPLORATION COMPANY
AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
YEARS ENDED MARCH 31, 1997, 1996, AND 1995
- ------------------------------------------------------------------------------
<TABLE>
1997 1996 1995
---- ---- ----
<S> <C> <C> <C>
Cash flows from operating activities:
Net (loss) income $(219,274) 396,166 (796,602)
Adjustments to reconcile net (loss) income to
net cash (used in) provided by operating
activities:
Amortization and depreciation 336,643 296,613 233,689
Deferred income tax benefit (113,333) (99,864) (77,272)
(Increase) decrease in accounts receivable
and due from affiliates (2,007) 8,422 296
Decrease (increase) in restricted cash - 15,629 (458)
Decrease (increase) in prepaid expenses
and other assets 72 3,604 (1,544)
(Decrease) increase in accounts payable (44,596) 50,484 119,985
Increase (decrease) in United Kingdom
taxes payable, including accrued interest
payable, and accrued expenses 35,287 (109) 40,839
Decrease in other noncurrent liabilities - (15,217) (13,233)
--------- --------- ----------
Net cash (used in) provided by
operating activities (7,208) 655,728 (494,300)
--------- --------- ----------
Cash flows from financing activities:
(Repayments to) borrowings from affiliate, net (433,727) (691,799) 600,000
Proceeds from common stock issued pursuant to rights
offering, net of offering costs - 524,093 -
--------- --------- ----------
Net cash (used in) provided by
financing activities (433,727) (167,706) 600,000
--------- --------- ----------
Net (decrease) increase in cash (440,935) 488,022 105,700
Cash at beginning of year 642,650 154,628 48,928
--------- --------- ----------
Cash at end of year $ 201,715 642,650 154,628
--------- --------- ----------
--------- --------- ----------
Interest paid $ 95,459 144,412 124,781
--------- --------- ----------
--------- --------- ----------
Federal income taxes refunded $ - - (4,125)
--------- --------- ----------
--------- --------- ----------
Foreign income taxes paid $ 369,467 630,890 -
--------- --------- ----------
--------- --------- ----------
</TABLE>
See accompanying notes to consolidated financial statements.
20
<PAGE>
OCEANIC EXPLORATION COMPANY
AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
MARCH 31, 1997 AND 1996
- -----------------------------------------------------------------------------
(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) BASIS OF PRESENTATION
Currently, the Company's operations are not generating sufficient cash
flow to fund operations and service the Company's debt obligations.
As a result, the Company has been economically dependent upon NWO
Resources, Inc. (NWO) to provide financing for the Company under a
line of credit. NWO is the parent corporation of the Company's
majority stockholder, International Hydrocarbons.
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 (subsequently extended
to March 31, 1998) 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 4).
In February 1996, the Company raised $524,093, net of offering costs,
in connection with the rights offering. Remaining funds from the
offering plus cash flow from the Company's interest in the Greek
properties, should be sufficient to meet the Company's working capital
needs through at least March 31, 1998.
In December 1996, a judgment in the trial concerning the Company's net
profits interest was issued in the Company's favor (see note 2).
However, the defendant appealed the court decision, and it appears
that the final determination will be made by the Appellate Court. 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 over turned on appeal, the Company
will retain its interest in the offshore Greece property; however, the
revenue from the property will be substantially reduced and it is
uncertain if the payments made to the Company based on current
production and price levels will be sufficient to repay the obligation
to NWO. In that event, the Company will be required to obtain
additional capital or liquidate its assets to fund continuing
operations beyond March 1998 and to pay off the NWO loan and accrued
interest when due on March 31, 1998.
21
<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 1997 and 1996 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 2).
The rate of depreciation, depletion and amortization as a percentage
of gross revenue (net of Greek income taxes) for Greece is as follows:
Year ended March 31,
--------------------------------
1997 1996 1995
---- ---- ----
Greece 59% 31% -
The Company recorded a provision for depreciation, depletion and
amortization of $233,689 for fiscal year 1995 but did not record any
revenue 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).
22
<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, 1997 and 1996, 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.
(f) INCOME (LOSS) PER SHARE
Income (loss) per share is based on the weighted average number of
common shares outstanding during 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
revenue and expenses during the reporting period. Actual results
could differ from those estimates.
(2) 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 Ontario Court of Justice (General Division) in
Toronto, Canada (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. In December 1996, the Company
received notification that the Court had rendered a judgment in the
Company's favor. The Court ordered the working interest owner to pay
$4,000,000 plus interest to the Company for the period from January 1, 1993
through December 31, 1995 and to make payments to the Company subsequent to
December 31, 1995
23
<PAGE>
OCEANIC EXPLORATION COMPANY
AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS, CONTINUED
- -----------------------------------------------------------------------------
also based on the terms of the original license agreement. The Court also
awarded court costs to the Company which are anticipated to be
approximately $107,000. The defendant subsequently filed a Notice of
Appeal requesting that the judgment be set aside. Therefore, it appears
that the final determination will likely be made by the Appellate Court.
While the Company believes it has a reasonable probability of prevailing in
its action, the ultimate outcome of the matter cannot presently be
determined. Accordingly, no amounts have been recorded in the accompanying
consolidated 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 revenue for 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 were calculated under the terms of the amended license agreement.
Oil and gas sales revenue for the year ended March 31, 1996 included
$682,503 in respect of the royalty interest for the current year, while
$894,719 related to unpaid revenue relating to prior years.
(3) 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 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 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, which offering was
completed (see note 4).
In December 1996, an Extension Agreement was executed extending the period
of time during which NWO would forebear collection of principal and
interest until March 31, 1997. In March 1997, another Extension Agreement
was executed extending the forbearance period until March 31, 1998. This
agreement allows the Company to retain 50% of all net profits interest
payments received from Denison, with the remaining amount payable to NWO.
(4) 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 its operations.
24
<PAGE>
OCEANIC EXPLORATION COMPANY
AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS, CONTINUED
- ------------------------------------------------------------------------------
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, 1997, 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.
(5) INCOME TAXES
Income tax expense (benefit) consists of the following:
Year ended March 31,
-------------------------
1997 1996 1995
---- ---- ----
Current:
Foreign - Greece $ 377,558 630,890 -
---------- --------- --------
Deferred:
Foreign - Greece (134,658) (118,664) (93,476)
U.S. federal 21,325 18,800 16,204
---------- --------- --------
Total deferred income tax benefit (113,333) (99,864) (77,272)
---------- --------- --------
Total income tax expense (benefit) $264,225 531,026 (77,272)
---------- --------- --------
---------- --------- --------
The reconciliation between tax expense computed by multiplying pretax
income by the U.S. federal statutory tax rate of 34% and the reported
amount of income tax expense is as follows:
<TABLE>
<CAPTION>
Year ended March 31,
--------------------
1997 1996 1995
---- ---- ----
<S> <C> <C> <C>
Computed at U.S. statutory tax rate $ 15,283 315,246 (297,117)
Effect of Greek operations, including
foreign tax credits 227,617 196,980 203,641
Other, net 21,325 18,800 16,204
--------- ------- ---------
Income tax expense $ 264,225 531,026 (77,272)
--------- ------- ---------
--------- ------- ---------
</TABLE>
Greek income taxes are withheld from oil and gas revenue payments to the
Company. The effective Greek income tax rate applicable to the Company's
15% net profits interest was reduced from 50% to 40% effective January 1,
1993 with respect to existing development areas. The 50% tax rate remains
effective for areas outside the current development area.
Temporary differences between the financial statement carrying amounts and
tax bases of assets and liabilities that give rise to the deferred tax
liability at March 31, 1997 and 1996 relate to the Greece oil and gas
property interest.
25
<PAGE>
OCEANIC EXPLORATION COMPANY
AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS, CONTINUED
- ------------------------------------------------------------------------------
(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 1997, 1996, and 1995, such reimbursements amounted to
approximately $278,000, $322,000, and $274,000, respectively, and have been
included as other revenue in the accompanying consolidated statements of
operations.
Cordillera has a defined contribution pension plan and a 401(k) plan
covering all qualified employees of the Company. Contributions to the
pension plan are based on a percentage of employee compensation ranging
from 6% to 11.7%. The Company is required to match employee contributions
to the 401(k) plan to the extent of 6% of annual compensation. During
1997, 1996, and 1995, the Company recorded $39,886, $36,748, and $42,472,
respectively, as pension expense under these plans.
The Company had a deferred compensation agreement with a former officer
that entitled this officer to receive $175,000 payable in a maximum of ten
equal installments beginning January 1, 1988. The final installment of
$17,500 was paid in January 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, 1997, and the amount is included in accrued
expenses in the accompanying consolidated 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
$29,463 for 1997, $26,675 for 1996 and $32,998 for 1995. Future minimum
lease payments are $42,380, $43,554, and $43,554 for 1998, 1999 and 2000,
respectively.
26
<PAGE>
OCEANIC EXPLORATION COMPANY
AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS, CONTINUED
- ------------------------------------------------------------------------------
(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, 1997, 1996 and 1995 are as
follows:
Year ended March 31,
-------------------------------
1997 1996 1995
---- ---- ----
OIL AND GAS REVENUE
Greece (1) $ 943,895 1,577,222 -
Less Greek income taxes paid (377,558) (630,890) -
---------- ---------- -----
$ 566,337 946,332 -
---------- ---------- -----
---------- ---------- -----
(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.
<TABLE>
<CAPTION>
Year ended March 31,
-------------------------------
1997 1996 1995
---- ---- ----
<S> <C> <C> <C>
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 (38,263,165) (37,926,522) (37,629,909)
------------- ------------ ------------
$ 736,835 1,073,478 1,370,091
------------- ------------ ------------
------------- ------------ ------------
</TABLE>
(B) INFORMATION REGARDING PROVED OIL AND GAS RESERVES
The Company's interest in the oil and gas property offshore 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
27
<PAGE>
OCEANIC EXPLORATION COMPANY
AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS, CONTINUED
- ------------------------------------------------------------------------------
(7) SUPPLEMENTAL FINANCIAL DATA - OIL AND GAS PRODUCING ACTIVITIES (UNAUDITED),
(CONTINUED)
information concerning estimated quantities of proved oil and gas
reserves attributable to its Greek property which has been derived
from publicly available information. Currently, there is no publicly
available information which takes into consideration the effects of
any drilling during 1993 through 1996. Similarly, the Company does
not have access to the engineering data upon which these programs
were 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 its Greek property.
The Company estimates the present value of future net cash flows
attributable to its Greek property 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 Greek property 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, 1997, the Company's estimate of the ceiling limitation
under the full cost method of accounting is in excess of the carrying
amount of its Greek property.
28
<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:
NAME AGE POSITION
- ---- --- --------
James Neal Blue 62 Director; Chairman of the Board and Chief
Executive Officer of the Registrant
Charles N. Haas 59 Director and President of the Registrant
John L. Redmond 66 Director and Vice President, International
Exploration of the Registrant
Gene E. Burke, M.D. 67 Director
Sidney H. Stires 67 Director
Janet A. Holle 46 Vice President/Secretary of the Registrant
Lori A. Brundage 33 Treasurer and Chief Financial Officer of the
Registrant
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.
CHARLES N. HAAS. Mr. Haas has been a director and officer of the Registrant
since 1981.
29
<PAGE>
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 , O'Donnell & 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:
Number Number of
of Late Transactions
Name Reports Covered Late Reports
- ---- ------- ------------ ------------
Sidney H. Stires 1 1 Form 5
30
<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.
<TABLE>
<CAPTION>
SUMMARY COMPENSATION TABLE
Long Term Compensation
------------------------------------
Annual Compensation Awards Payout
------------------------------------------ ------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
(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 (#) ($) tion ($)
James N. Blue 1997 60,000 (1) - - - - - -
Chairman of 1996 60,000 (1) - - - - - -
the Board 1995 60,000 (1) - - - - - -
and Chief
Executive
Officer
Charles N. Haas 1997 158,086 (2) - - - - - 21,988 (2)(3)
President 1996 158,886 (2) - - - - - 21,562 (2)(3)
1995 158,762 (2) - - - - - 21,899 (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 up to a
maximum of $150,000. 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
31
<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 had
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. The final installment of $17,500 was paid in January 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, 1997 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.
32
<PAGE>
ITEM 11. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT
As of June 6, 1997 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 6, 1997 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
711 Fifth Avenue power
New York, NY 10022
International Hydrocarbons (2) 4,912,178 Sole voting and 49.5 %
c/o John E. Jones investment
5000 S. Quebec Street, Suite 450 power
Denver, CO 80237
International Cordillera Limited 545,800 Sole voting and 5.5 %
c/o WITC investment
8082 S. Niagara Way power
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)
5000 S. Quebec St., Suite 450
Denver, CO 80237 None N/A N/A
Sidney H. Stires (3) 30,000 As Trustee less than 1 %
12 East 44th Street
New York, NY 10017
</TABLE>
33
<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 30,000 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):
Names Common Shares Percentages
- ----- ------------- -----------
Allen & Company 165,000 1.7 %
American Diversified Enterprises, Inc. 232,500 2.3
Herbert Anthony Allen, 47,917 .5
Susan Kathleen Wilson and Herbert
Allen as Successor Trustees of Trust
created by Herbert Allen pursuant to
Agreement dated 12/1/64
Terry Allen Kramer and Irwin H. Kramer, 70,000 .7
as Trustees U/A for Issuer of
Terry Allen Kramer pursuant to
Agreement dated 4/5/63
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
34
<PAGE>
Names Common Shares Percentages
- ----- ------------- -----------
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 *
* 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. In March 1997, the
Registrant executed an Extension Agreement whereby NWO agreed to forbear any
collection proceedings on the line of credit until March 31, 1998. In addition,
the Registrant may retain 50% of all net profits interest payments received from
Denison to cover its operating expenses. As of March 31, 1997, the outstanding
loan balance was $874,474.
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.
35
<PAGE>
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 1997,
1996 and 1995 such reimbursements amount to approximately $278,000, $322,000 and
$274,000, respectively. 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 and a 401(k) plan covering
all qualified employees of the Registrant. Contributions to the pension plan
are based on a percentage of employee compensation ranging from 6% to 11.7%.
The Registrant is required to match employee 401(k) contributions to the extent
of 6% of annual compensation. During 1997, 1996, and 1995, the Registrant
recorded $39,886, $36,748, and $42,472, respectively, as pension and 401(k)
expense under these plans. 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 1997, 1996 and 1995 were $29,463, $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
$42,400, $43,600 and $43,600 for 1998 through 2000, respectively. 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.
36
<PAGE>
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, 1997.
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, 1997 and 1996
Consolidated Statements of Operations and Accumulated Deficit - Years
ended March 31, 1997, 1996 and 1995
Consolidated Statements of Cash Flows - Years ended
March 31, 1997, 1996 and 1995
Notes to Consolidated Financial Statements
37
<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.
Exhibit Number Name of Exhibit Location
- -------------- --------------- --------
3.1 Articles of Incorporation Page 58 of Report on
(including all amendments) Form 10-K for year
ended 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
38
<PAGE>
Exhibit Number Name of Exhibit Location
- -------------- --------------- --------
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
39
<PAGE>
Exhibit Number Name of Exhibit Location
- -------------- --------------- --------
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 File # 33-63277
unsubscribed 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
10.23 Extension Agreement Page 16 of the Report
with NWO Resources, Inc. on Form 10-QSB for the
dated December 11, 1996 quarterly period
ended December 31, 1996
40
<PAGE>
Exhibit Number Name of Exhibit Location
- -------------- --------------- --------
10.24 Second Addendum to Page 42 of the
Office Building Lease signed original
dated March 1, 1997 of this report.
10.25 Extension Agreement Page 44 of the
with NWO Resources, Inc. signed original of
dated March 10, 1996 this report
(b) No reports on Form 8-K were filed during the last quarter of the period
covered by this Report.
41
<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 25, 1997.
--------------------------
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 25, 1997 /s/ Charles N. Haas
------------------------- ------------------------------------
Charles N. Haas, President
2. And by its principal financial officer.
Date: June 20, 1997 /s/ Lori A. Brundage
------------------------- ------------------------------------
Lori A. Brundage, Treasurer
3. And by a majority of its board of directors.
Date: June 26, 1997 /s/ James N. Blue
------------------------- ------------------------------------
James N. Blue, Director
Date: June 25, 1997 /s/ Charles N. Haas
------------------------- ------------------------------------
Charles N. Haas, Director
Date: June 20, 1997 /s/ Sidney H. Stires
------------------------- ------------------------------------
Sidney H. Stires, Director
<PAGE>
SECOND ADDENDUM TO LEASE
This Second Addendum to Lease ("Addendum"), to be effective March 1,
1997, is entered into by and between SORRENTO WEST PROPERTIES, INC. as
"Landlord" and OCEANIC EXPLORATION COMPANY as "Tenant" and forms a part of
that certain Office Building Lease dated March 1, 1991, as amended by that
certain Addendum to Lease effective March 1, 1994, (the "Lease"), covering
the Premises commonly known as Suite 450, 5000 South Quebec Street and
located within the Quebec Pointe office building in unincorporated Arapahoe
County, State of Colorado.
WITNESSETH:
WHEREAS, Tenant and Landlord wish to extend the term of the Lease; and
WHEREAS, Tenant and Landlord have mutually agreed to the terms and
conditions of such extension and wish to confirm such agreement;
NOW THEREFORE, in consideration of the mutual covenants and conditions
contained herein, Tenant and Landlord agree as follows:
1. The Term of the Lease is hereby extended for a three (3) year
period, commencing March 1, 1997 and terminating February 28, 2000,
(the "Extended Term"). All references to the "Term" in the Lease
shall include the Extended Term.
2. The Minimum Rent for the Extended Term shall be at the rate of
$17.00 per square foot payable in monthly installments of Three
Thousand Six Hundred Twenty-Nine and 50/100 Dollars ($3,629.50).
Tenant shall commence paying such Minimum Rent May 1, 1997.
3. The Base Operating Year for the Extended Term for the purposes of
calculating Tenant's pro rata share of Operating Expenses, as
provided in Section 3 of the Lease, shall be calendar year 1997.
4. Except as modified herein, the Lease shall remain in full force and
effect and the remaining terms, provisions, covenants and conditions
shall remain unchanged.
<PAGE>
IN WITNESS WHEREOF, this Second Addendum to Lease is executed as of the
day and year first written above.
LANDLORD: TENANT:
SORRENTO WEST PROPERTIES, INC. OCEANIC EXPLORATION COMPANY
By: /s/ Charles N. Haas By: /s/ Janet A. Holle
-------------------------------- --------------------------------
Charles N. Haas Janet A. Holle
Vice President Vice President
<PAGE>
EXTENSION AGREEMENT
This Extension Agreement (the "Agreement") is entered into as of the 10th
day of March 1997, by and among Oceanic Exploration Company, a Delaware
corporation ("OEC"), Oceanic International Properties Corporation, a Colorado
corporation and wholly-owned subsidiary of OEC ("OIPC"), and NWO Resources,
Inc., an Ohio corporation ("NWO").
WHEREAS, OEC, OIPC and NWO entered into that certain Modification Agreement
dated September 19, 1995 which provided among other things that NWO would
forbear collection of principal or interest on the Oceanic Notes until December
31, 1996 (subsequently extended to March 31, 1997 pursuant to an extension
agreement dated December 11, 1996); and that OEC would diligently pursue its
pending lawsuit against Denison Mines, Ltd. ("Denison"); and
WHEREAS, OEC, OIPC and NWO have entered into two previous Extension
Agreements dated December 27, 1995 and December 11, 1996; and
WHEREAS, OEC has pursued its lawsuit against Denison as provided for in the
Modification Agreement, and a judgment has been issued in OEC's favor by a lower
court; which judgment has since been appealed by Denison; and
WHEREAS, based on the initial outcome of the trial, the parties hereto are
encouraged that the final determination will be in OEC's favor and wish to
extend the period of forbearance on collection of principal or interest on the
Oceanic Notes and allow OEC sufficient operating cash until such final
determination has been received;
NOW THEREFORE, in consideration of the mutual covenants contained herein,
the parties hereby agree as follows:
1. The period of time during which NWO will forbear collection of
principal or interest on the Oceanic Notes shall be further extended for a
period of twelve months commencing March 31, 1997 to March 31, 1998.
2. Effective March 31, 1997 and until such time as a final determination
is made by the Appellate Court, OEC will be allowed to keep 50% of any payment
received from Denison for its Net Profits Interest (the "Denison Proceeds") for
general working capital purposes. The remaining 50% of the Denison Proceeds
will be applied by OEC and OIPC to paying accrued and unpaid interest and
outstanding principal on the Oceanic Notes.
3. Except as modified herein and in the Extension Agreements dated
December 27, 1995 and December 11, 1996, the Modification Agreement will
continue in full force and effect and the remaining terms, provisions, covenants
and conditions shall remain unchanged.
<PAGE>
IN WITNESS HEREOF, the parties hereto have executed this Agreement as of
the date first set forth above.
OEC
OCEANIC EXPLORATION COMPANY
By: /s/ Charles N. Haas
-----------------------------------
Charles N. Haas
President
OIPC
OCEANIC INTERNATIONAL
PROPERTIES CORPORATION
By: /s/ Charles N. Haas
-----------------------------------
Charles N. Haas
President
NWO
NWO RESOURCES, INC.
By: /s/ John E. Jones
-----------------------------------
John E. Jones
Secretary-Treasurer
<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, 1997 AND IS QUALIFIED IN ITS
ENTIRETY BY REFERENCE TO SUCH FINANCIAL STATEMENTS.
</LEGEND>
<RESTATED>
<S> <C>
<PERIOD-TYPE> YEAR
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0
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