<PAGE>
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-QSB
(Mark One)
[ X ] QUARTERLY REPORT UNDER SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE
ACT OF 1934
For the quarterly period ended June 30, 1997.
[ ] TRANSITION REPORT UNDER SECTION 13 OR 15(d) OF THE EXCHANGE ACT
For the transition period from ______ to ______. Commission
file number 0-6540.
OCEANIC EXPLORATION COMPANY
(Exact name of small business issuer as specified in its charter)
DELAWARE 84-0591071
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
5000 South Quebec Street, Suite 450, Denver, CO 80237
(Address of principal executive offices)
(303) 220-8330
(Issuer's Telephone number)
---------------------------------------------------
(Former name, former address and former fiscal year,
if changed since last report)
Check whether the Issuer (1) filed all reports required to be filed by
Section 13 or 15(d) of the Exchange Act during the past 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
----- -----
Shares outstanding at Common $.0625 Par Value
July 31, 1997
9,916,154
<PAGE>
PART I - FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS
OCEANIC EXPLORATION COMPANY AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
ASSETS
- ------
June 30,1997 March 31, 1997
------------ --------------
Cash $ 185,542 201,715
Receivables:
Affiliates 7,907 2,904
Other 1,800 2,551
----------- ------------
9,707 5,455
Prepaid expenses 982 1,428
----------- ------------
Total current assets 196,231 208,598
----------- ------------
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 (38,327,665) (38,263,165)
----------- ------------
672,335 736,835
Other assets 3,040 --
----------- ------------
$ 871,606 945,433
----------- ------------
----------- ------------
(Continued)
2
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OCEANIC EXPLORATION COMPANY AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS, CONTINUED
LIABILITIES AND STOCKHOLDERS' DEFICIT
June 30, 1997 March 31, 1997
------------- --------------
Current liabilities:
Notes payable to affiliate (note 3) $ 833,061 874,474
Accounts payable 210,971 187,767
Accounts payable to affiliate 60,000 60,000
United Kingdom taxes payable, including
accrued interest 468,494 456,337
Accrued expenses 81,148 78,286
----------- ----------
Total current liabilities 1,653,674 1,656,864
Deferred income taxes (note 4) 568,104 594,865
----------- ----------
Total liabilities 2,221,778 2,251,729
----------- ----------
Stockholders' deficit:
Preferred stock, $10 par value. Authorized
600,000 shares; none issued -- --
Common stock, $.0625 par value. Authorized
12,000,000 shares; 9,916,154 shares issued and
outstanding (note 5) 619,759 619,759
Capital in excess of par value 155,696 155,696
Accumulated deficit (2,125,627) (2,081,751)
----------- ----------
Total stockholders' deficit (1,350,172) (1,306,296)
----------- ----------
Contingencies (note 2)
$ 871,606 945,433
----------- ----------
----------- ----------
See accompanying notes to consolidated financial statements.
3
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OCEANIC EXPLORATION COMPANY AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATIONS
Three Months Ended
June 30,
1997 1996
--------------------------
Revenues:
Oil and gas sales - Greece (note 2) $ 157,802 216,827
Other 78,490 75,376
---------- ----------
236,292 292,203
---------- ----------
Costs and expenses:
Interest and financing costs 23,342 26,763
Exploration expenses 4,024 691
Amortization and depreciation 64,500 80,511
General and administrative 151,942 151,492
---------- ----------
243,808 259,457
---------- ----------
(Loss) income before income taxes (7,516) 32,746
Income tax expense (note 4) (36,360) (53,302)
---------- ----------
Net loss $ (43,876) (20,556)
---------- ----------
---------- ----------
Loss per common share $ (.01) (.01)
---------- ----------
---------- ----------
See accompanying notes to consolidated financial statements.
4
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OCEANIC EXPLORATION COMPANY AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
<TABLE>
Three Months Ended
June 30,
1997 1996
-----------------------
<S> <C> <C>
Cash flows from operating activities:
Net loss $(43,876) (20,556)
Adjustments to reconcile net loss to net cash
provided by (used in) operating activities:
Amortization and depreciation 64,500 80,511
Deferred income tax benefit (26,761) (33,429)
Increase in accounts receivable and due from affiliates (4,252) (2,923)
(Increase) decrease in prepaid expenses and other assets (2,594) 417
Increase (decrease) in accounts payable and accounts payable
to affiliate 23,204 (59,653)
Increase in United Kingdom taxes payable, including accrued
interest payable, and accrued expenses 15,019 8,814
--------- ---------
Net cash provided by (used in) operating activities 25,240 (26,819)
--------- ---------
Cash flows from financing activities:
Repayments of notes payable to affiliate (41,413) (75,416)
--------- ---------
Net decrease in cash (16,173) (102,235)
--------- ---------
Cash at beginning of period 201,715 642,650
--------- ---------
Cash at end of period $185,542 540,415
--------- ---------
--------- ---------
</TABLE>
See accompanying notes to consolidated financial statements.
5
<PAGE>
OCEANIC EXPLORATION COMPANY AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
June 30, 1997
(1) SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
BASIS OF PRESENTATION
The consolidated balance sheet as of March 31, 1997 which has been
derived from audited statements and the unaudited interim consolidated
financial statements included herein have been prepared pursuant to the rules
and regulations of the Securities and Exchange Commission. Certain
information and note disclosures normally included in annual financial
statements prepared in accordance with generally accepted accounting
principles have been condensed or omitted pursuant to those rules and
regulations, although the Registrant believes that the disclosures made are
adequate to make the information presented not misleading. In the opinion of
management, all adjustments consisting of normal reoccurring accruals have
been made which are necessary for the fair presentation of the periods
presented. The accounting policies of the Registrant are set forth in the
financial statements and notes thereto and are included in the Registrant's
latest annual report on Form 10-KSB. It is suggested that these consolidated
financial statements be read in conjunction with that document.
(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 entered into in June 1975 (the "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. Denison Mines, Ltd. ("Denison"), the working interest owner
having the contractual obligation to the Registrant for the 15% net profits
interest, (also called "Prinos Interest" in some parts of this Report) has
asserted that the calculation of the amounts due to the Registrant should be
based on the amended agreement with the Greek government. The Registrant
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 Registrant attributable to
its 15% net profits interest be calculated based on the terms of the License
Agreement before this amendment. In December 1996, the Registrant received
notification that the Court had issued a judgment in its favor. The Court
ordered Denison to pay $4,000,000 plus interest to the Registrant for the
period from January 1, 1993 through December 31, 1995 and to make payments to
the Registrant subsequent to December 31, 1995 also based on the terms of the
original license agreement. The Court also awarded court costs to the
Registrant which are anticipated to be approximately $107,000. Denison
subsequently 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. While the Registrant believes it has a
reasonable probability of prevailing in its action, the ultimate outcome of
the matter
6
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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 Registrant. 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 would be substantially lower than the payments received
prior to January 1, 1993.
In response to the legal action, the working interest owner had ceased
remitting payment to the Registrant and, accordingly, no revenue was received
for the period from January 1, 1993 to October 31, 1995. In November 1995,
the Registrant received a payment from the working interest owner for this
period. 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.
(3) NOTES PAYABLE
Notes payable to affiliate at March 31, 1997 and June 30, 1997 represent
borrowings under a $2,000,000 line of credit established in favor of the
Registrant by NWO Resources, Inc. ("NWO"), the parent company of
International Hydrocarbons, the Registrant's majority stockholder. The NWO
line of credit provides for cumulative draws of up to $2,000,000 with
interest payable monthly on the outstanding balance at the greater of the
U.S. bank prime lending rate or 1-3/4% above the 30-day LIBOR. The line of
credit is secured by the Registrant's 15% net profits interest in the
offshore Greece oil and gas property and all proceeds from the pending
litigation. 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.
In September 1995, the Registrant entered into a Modification Agreement
with NWO (the "Modification Agreement") concerning the line of credit. The
Modification Agreement provided that NWO would forbear 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
Registrant was required to pursue funding from the sale of additional shares
of its common stock, which offering was completed.
In December 1996, an Extension Agreement was executed extending the
period of time during which NWO would forbear 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 Registrant to retain 50% of all net profits interest
payments from Denison, with the remaining amount payable to NWO.
As of June 30, 1997, the outstanding loan balance was $833,061. The
Registrant does not believe that the payments made under the net profits
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.
7
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(4) INCOME TAXES
Income tax (expense) benefit consists of the following:
Three Months Ended
June 30,
1997 1996
-----------------------
Current:
Foreign - Greece $ (63,121) (86,731)
Deferred:
Foreign - Greece 26,761 33,429
---------- -------
Total income tax expense $ (36,360) (53,302)
---------- -------
---------- -------
(5) COMMON STOCK
In accordance with the terms of the Modification Agreement, the
Registrant filed a Registration Statement on Form SB-2 with the Securities
and Exchange Commission on October 6, 1995 for the purpose of registering
6,001,000 shares of additional common stock to be issued pursuant to a rights
offering ("Rights Offering"). In January 1996, the Registrant raised $524,093,
net of offering costs, from the Rights Offering. The Registrant used the
proceeds to reimburse NWO for advances of legal fees and accrued interest
thereon, and retained the remainder to fund future operations.
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS
LIQUIDITY AND CAPITAL RESOURCES
The Registrant's principal source of revenue, its net profits interest
in an oil and gas concession located offshore Greece, is currently the
subject of litigation. Denison, who has the contractual obligation to pay
the net profits interest, has asserted that the calculation of the amounts
due the Registrant should be based upon the 1993 amendment to the License
Agreement. Payments received under the amended License Agreement are
significantly lower.
The Registrant also receives revenues from sales of seismic data gathered
in its oil and gas exploration and development activities. This revenue is
sporadic and is not sufficient to fund the Registrant's ongoing operations.
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.
8
<PAGE>
When payments for the net profits 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 Registrant's lawsuit against Denison,
provided for limited funding of litigation expenses and temporary relief from
any collection actions by NWO. The Modification Agreement also allowed the
Registrant to retain up to $200,000 of any proceeds received for its net profits
interest for general working capital purposes.
On November 27, 1995, the Registrant received $810,522 from Denison
representing unpaid revenues for its net profits interest. These revenues
covered the period from January 1, 1993 through October 31, 1995, and are
calculated under the terms of the License Agreement as amended in 1993. This
payment was made in connection with the agreement of Denison to withdraw the
counterclaim filed by Denison against the Registrant. As of December 1995,
Denison has resumed monthly revenue payments to the Registrant for its net
profits 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. On November 30, 1995, the
Registrant paid NWO $610,522. $92,402 was applied to accrued interest and
$518,120 was applied to the loan leaving an outstanding balance under the
line of credit of $1,481,880. Future payments by Denison for the net profits
interest will also be applied to the Registrant's obligations to NWO pursuant
to the Modification Agreement.
In February 1996, the Registrant was able to successfully raise $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 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 June 30, 1997, the outstanding loan balance was $833,061. 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.
9
<PAGE>
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 contractual 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. 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 net profits interest as calculated under the
License Agreement prior to the 1993 amendment, that revenue should be sufficient
to fund on-going operations and limited new exploration activities. 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.
10
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The financial statements do not include any adjustments that might result
from the uncertainties described above.
PART II - OTHER INFORMATION
ITEM 1. LEGAL PROCEEDINGS
In June 1994, the Registrant commenced legal action against Denison
seeking a declaration by the Court that amounts due the Registrant
attributable to its net profits interest 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. On December 13, 1996, the Registrant received notification that
the Ontario Court of Justice (General Division) in Toronto, Canada, had
issued a judgment in its favor. Specifically, the Court found that Denison
is obligated to pay the Registrant its 15% net profits 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 with the Court in which it requested
that the judgment be set aside for errors in the judge's findings. The
Registrant disagrees that there were errors made. Therefore, it appears that
the final determination will likely have to 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 accompanying
financial statements for current revenues or damages, if any, that may
ultimately be awarded to the Registrant.
In November, 1995, Denison agreed to withdraw its counterclaim filed
against the Registrant in connection with the litigation between the parties.
See the Registrant's Form 10-KSB for the fiscal year ended March 31,
1997, for a more detailed discussion of these legal proceedings.
ITEM 2. CHANGE IN SECURITIES
Not applicable.
ITEM 3. DEFAULTS UPON SENIOR SECURITIES
Not applicable.
11
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ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
Not applicable.
ITEM 5. OTHER INFORMATION
In August 1995, the Registrant was notified by the Pacific Stock Exchange
(the "Exchange") that it was subject to the initiation of delisting
procedures for failure to maintain the minimum standards as a Tier II
Security on the Exchange. In January 1996, the National Association of
Securities Dealers, Inc. approved the right for the Registrant's common stock
to be quoted on the OTC Bulletin Board under the symbol OCEX.U.
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K
(a) 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. Those reports previously
filed with the Securities and Exchange Commission as required by Item 601 of
Regulation S-B are incorporated herein by reference, in accordance with the
provisions of Rule 12b-32, to the reports or registration statements
identified below.
Exhibit Number Name of Exhibit Location
- -------------- --------------- --------
None
(b) No reports on Form 8-K were filed during the quarter for which this
Report is filed.
12
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SIGNATURES
In accordance with the requirements of the Exchange Act, the Registrant
caused this Report to be signed on its behalf by the undersigned, thereunto
duly authorized.
OCEANIC EXPLORATION COMPANY
Date: August 6, 1997 /s/ Charles N. Haas
------------------------ -------------------------------------
Charles N. Haas
President
Date: August 6, 1997 /s/ Lori A. Brundage
------------------------ -------------------------------------
Lori A. Brundage
Treasurer and Chief Financial Officer
13
<TABLE> <S> <C>
<PAGE>
<ARTICLE> 5
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM FORM 10-QSB
FOR THE QUARTER ENDING JUNE 30, 1997 AND IS QUALIFIED IN ITS ENTIRETY BY
REFERENCE TO SUCH FINANCIAL STATEMENTS.
</LEGEND>
<S> <C>
<PERIOD-TYPE> 3-MOS
<FISCAL-YEAR-END> MAR-31-1998
<PERIOD-END> JUN-30-1997
<CASH> 185,542
<SECURITIES> 0
<RECEIVABLES> 9,707
<ALLOWANCES> 0
<INVENTORY> 0
<CURRENT-ASSETS> 196,231
<PP&E> 39,000,000
<DEPRECIATION> (38,327,665)
<TOTAL-ASSETS> 871,606
<CURRENT-LIABILITIES> 2,221,778
<BONDS> 0
0
0
<COMMON> 619,759
<OTHER-SE> 155,696
<TOTAL-LIABILITY-AND-EQUITY> 871,606
<SALES> 0
<TOTAL-REVENUES> 236,292
<CGS> 0
<TOTAL-COSTS> 0
<OTHER-EXPENSES> 220,466
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 23,342
<INCOME-PRETAX> (7,516)
<INCOME-TAX> (36,360)
<INCOME-CONTINUING> (43,876)
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (43,876)
<EPS-PRIMARY> (.01)
<EPS-DILUTED> (.01)
</TABLE>
