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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
For the fiscal year ended March 31, 1999.
[ ] Transition Report under Section 13 or 15(d) of the Securities Exchange
Act of 1934
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
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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. [X]
Issuer's revenues for fiscal year ended March 31, 1999 $633,137
As of June 7, 1999, 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 $916,079.
As of June 7, 1999 the Registrant had outstanding 9,916,154 shares of common
stock ($.0625 par value).
An index of the documents incorporated herein by reference and/or annexed as
exhibits to this Report appears on pages 35 through 39.
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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, but is unable to proceed until
arrangements can be made with the current license holder. 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
"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 contractual
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. The Appellate Court hearing before the Ontario Court of
Appeal was held on June 14 and 15, 1999. However, the Ontario Court of
Appeal has not as yet issued the final decision. The prospects for the
Registrant continuing as a going concern are dependent on obtaining a
favorable determination in the appeal and collection of the judgment. 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.")
In December 1998, the Registrant was notified by Denison that April 1, 1998
through March 31, 1999 would be the final year of production for the Prinos
property. In the final year of production,
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Denison is entitled to 100% cost recovery; consequently, the Registrant did
not receive any net profits interest payments for this period. The revenue
recorded for the year ended March 31, 1999 pertains to January through March
1998 which had previously been withheld by Dension.
Effective March 31, 1999, the consortium operating the Greek properties
relinquished its license to operate the Prinos oil field in Greece. However,
the consortium retained its exploration rights in an area of the Aegean Sea
over which there has been an ongoing ownership dispute between Greece and
Turkey. Should the dispute be resolved and the consortium drill and
successfully develop any additional prospects, the Registrant would be
entitled to once again receive its 15% net profits interest, applicable to
Denison's working interest.
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 initially established with NWO Resources, Inc.
("NWO"), the parent company of International Hydrocarbons ("IH"), the
Registrant's principal stockholder. In October 1998, the note was assigned
from NWO to IH.
In April 1999, an Extension Agreement was executed allowing the Registrant to
draw additional amounts as needed for working capital up to $1,500,000. In
addition, the Registrant is currently not required to make interest payments.
Principal and accrued interest are due on demand by IH. Although these funds
should be sufficient to fund the litigation and limited operations through
the final judgment by the Appellate Court, the Registrant will be required to
obtain additional capital to fund continuing operations and pay off the IH
loan and accrued interest when due. Due to the uncertainties regarding the
outcome of the litigation and the Registrant's ability to obtain additional
financing to fund its future operations and repay the amounts due to IH in
the event the judgment is overturned on appeal, there is substantial doubt
about the ability of the Registrant to continue as a going concern. The
financial statements do not include any adjustments that might result from
the outcome of this uncertainty.
As of March 31, 1999, the outstanding loan balance was $1,092,636. Since the
Consortium has declared final year with respect to the Prinos property and it
is unknown if or when further development in the exploration area in Greece
will be undertaken, it is unlikely that the Registrant will have sufficient
funds to repay the obligations owed to IH if demand is made before the
collection of any judgment or settlement from Denison.
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 eight people, seven 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.")
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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 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.
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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 proceeds from 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 IH, which lien secures payment of the
amounts due to IH by the Registrant.
Daily production from the Prinos/South Kavala Fields averaged 6,507 barrels
of oil and 91 tons of sulphur during the period from April 1, 1998 through
November 29, 1998, including production for Prinos North averaging 1,681
barrels of oil per day. The Prinos oil field was shut in in November 1998
primarily because of lower oil prices and declining production.
Due to high Greek income taxes and royalties in combination with declining
production levels, low oil prices and increasing operating costs, the
consortium believed that the Greek operation was at its economic 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 provided 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 provided for a reduction in the
effective Greek income tax rate from 50% to 40%.
In addition, the new law required Denison and its partners to spend $15
million during 1993 and 1994 in infill drilling in order to enhance the
recoverability of the hydrocarbons. In 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. In August 1996, production commenced in the Prinos North oil field
at 3,500 barrels per day. Denison has been calculating payment of the
Registrant's net profits interest from Prinos North after consideration of
the Second Supplemental Agreement and a June 1996 Ministerial Decision. The
Registrant disagreed with this approach and 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 1993 agreement with
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the Greek government. The amended agreement provided 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
disagreed 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. The Appellate Court hearing before the
Ontario Court of Appeal was held on June 14 and 15, 1999. However, the
Ontario Court of Appeal has not as yet issued the final decision. 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 if Denison's current financial condition weakens. (SEE ITEM 3 "LEGAL
PROCEEDINGS.")
In December 1998, the Registrant was notified by Denison that April 1, 1998
through March 31, 1999 would be the final year of production for the Prinos
property. In the final year of production, Denison is entitled to 100% cost
recovery; consequently, the Registrant did not receive any net profits
interest payments for this period. The revenue recorded for the year ended
March 31, 1999 pertains to January through March 1998, which amounts had
previously been withheld by Denison.
Effective March 31, 1999, the consortium operating the Greek properties
relinquished its license to operate the Prinos oil field in Greece. However,
the termination of this license does not affect the extensive exploration
area east of Thassos Island where no exploration is currently permitted due
to territorial disputes between Greece and Turkey. This exploration area is
believed to have excellent potential; however, it is impossible to determine
at this time when exploration activities might be commenced in that area.
Should the dispute be resolved and the consortium drill and successfully
develop any additional prospects, the Registrant would be entitled to once
again receive its 15% net profits interest, applicable to Denison's working
interest.
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, 1999.
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.
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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 1999 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 had preliminarily agreed to the terms
of an operations contract pertaining to such area; however, prior to reaching
agreement with Y.P.F.B., the hydrocarbons law was changed to give the
National Secretariat of Energy jurisdiction over oil and gas exploration.
Pursuant to the new law, the area was offered for competitive bidding. The
Registrant was unsuccessful in the bidding process, but continues to monitor
the situation for future exploration opportunities in this area.
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 full amount of 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.
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.
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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 profits interest in accordance
with the terms of the License Agreement prior to the 1993 amendment. First,
the Court ordered Denison to pay approximately $6,100,000 including interest
to the Registrant for the period January 1, 1993 through December 13, 1996.
Second, the Court ordered Denison to make payments to the Registrant
subsequent to December 13, 1996, 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 plus interest.
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. As
a result, any orders for the payment of money are stayed pending the appeal.
The Appellate Court hearing before the Ontario Court of Appeal was held on
June 14 and 15, 1999. However, the Ontario Court of Appeal has not as yet
issued the final decision. A further appeal to the Supreme Court of Canada is
possible.
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. 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.
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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.
The Registrant's Common Stock is not currently listed on any exchange.
However, it is quoted on the OTC Bulletin Board under the symbol OCEX.U.
Per the OTC Bulletin Board, the range of bid prices in the Registrant's
Common Stock over the last two fiscal years (which are not necessarily
representative of actual transactions) are set out below.
<TABLE>
<CAPTION>
Three Months Fiscal 1999 Fiscal 1998
Ended High Low High Low
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<S> <C> <C> <C> <C>
June 30 .40 .09 .55 .50
September 30 .25 .13 .55 .40
December 31 .16 .06 .44 .38
March 31 .09 .06 .44 .40
</TABLE>
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 7, 1999, the number of record holders of
the Registrant's common stock was 467.
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
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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. There were no sales of seismic data during the years
ended March 31, 1999, 1998 or 1997.
The Registrant currently receives approximately $486,000 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.
Denison's curtailment of payments to the Registrant under the Prinos Interest
has resulted in the Registrant's inability to fulfill its financial
obligations as they become due and fund its operations over the longer term.
Consequently, the Registrant faces potential insolvency. Accordingly, the
Registrant's auditors have issued an opinion on the Registrant's financial
statements for the year ended March 31, 1999 that includes an explanatory
paragraph discussing the uncertainty regarding the Registrant's ability to
continue as a going concern. The financial statements do not contain any
adjustments that may be necessary if the Registrant is unable to continue as
a going concern.
When payments under the Prinos Interest were suspended in 1994, the
Registrant funded its operations through draws against the line of credit
initially established with NWO. In October 1998, this line of credit was
transferred from NWO to IH, the Registrant's major shareholder. In April
1999, the Registrant executed an Extension Agreement with IH allowing the
Registrant to draw up to $1,500,000 for working capital purposes. Under the
terms of the Extension Agreement, the Registrant is currently not required to
make any principal or interest payments. However, all principal and interest
are due upon demand by IH. Although these funds should be sufficient to fund
the litigation and limited operations through the date of the final decision
by the Appellate Court, the Registrant will be required to obtain additional
capital to fund continuing operations and pay off the IH loan and accrued
interest if IH demands repayment.
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As of March 31, 1999, the outstanding loan balance was $1,092,636. Unless
funds are received from the judgment or a settlement with Denison or another
source of revenue is discovered, the Registrant will not be able to repay its
obligations to IH if IH demands repayment.
Net profits interest payments received by the Registrant for January 1, 1993
through March 31, 1998 applicable to the Prinos property are currently the
subject of litigation. In June 1994, the Registrant commenced legal action
against Denison Mines, Ltd., 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. The Appellate
Court hearing before the Ontario Court of Appeal was held on June 14 and 15,
1999. However, the Ontario Court of Appeal has not as yet issued the final
decision. 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.
If the final determination is not favorable, the Registrant will retain its
interest in the exploration area of the offshore Greece property. However,
there is significant uncertainty whether or not this area will ever be
developed due to territorial disputes. Consequently, the Registrant will be
required to obtain additional financing to repay the amounts due to IH and
fund its future operations. The Registrant may be forced to liquidate its
assets, and in such case, it is unlikely that any assets would be available
for distribution to shareholders.
In December 1998, the Registrant was notified by Denison that April 1, 1998
through March 31, 1999 would be the final year of production for the Prinos
property. In the final year of production, Denison is entitled to 100% cost
recovery; consequently, the Registrant did not receive any net profits
interest payments for this period. The revenue recorded for the year ended
March 31, 1999 pertains to January through March 1998, which amounts had
previously been withheld by Denison.
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Unless funds are collected as a result of the litigation with Denison, the
Registrant will be required to obtain additional capital to fund continuing
operations and to pay off the IH loan and accrued interest when due. Due to
the uncertainties regarding the outcome of the litigation and the
Registrant's ability to obtain additional financing to fund its future
operations and repay the amounts due to NWO, in the event the judgment is
overturned on appeal, there is substantial doubt about the ability of the
Registrant to continue as a going concern. Accordingly, the Registrant's
auditors have issued an opinion on the Registrant's financial statements for
the year ended March 31, 1999 that includes an explanatory paragraph
discussing the uncertainty regarding the Registrant's ability to continue as
a going concern. The financial statements do not contain any adjustments
that may be necessary if the Registrant is unable to continue as a going
concern.
If the litigation with Denison is resolved in the Registrant's favor and the
Registrant is successful in collecting such, these monies should be
sufficient to repay the IH loan and fund on-going operations and limited new
exploration activities.
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RESULTS OF OPERATIONS
The Registrant reported net losses of $451,943, $222,323 and $219,274 for the
years ended March 31, 1999, 1998 and 1997, respectively.
The following table summarizes the primary components of changes in net
income before the provision for income taxes for the relevant periods:
<TABLE>
<CAPTION>
Year ended March 31,
1999 1998 1997
--------- --------- ---------
<S> <C> <C> <C>
Calculation of Greek
revenues (1) $ 70,100 $51,200 (122,700)
Greek revenues received in 1996
applicable to prior years -- -- (895,000)
Production (decline) increase (1) (241,800) (442,600) 226,500
Price (decrease) increase (1) (126,200) (127,400) 157,900
Increase (reduction) in
depreciation and
depletion charges 356,836 (210,192) (40,030)
Increase (reduction) in
other revenues 190,141 14,087 (185,389)
Other (186,456) 125,539 (23,522)
--------- --------- ---------
Increase (decrease) in
income before taxes $ 62,621 $(589,366) $(882,241)
--------- --------- ---------
--------- --------- ---------
</TABLE>
(1) Based upon information received from the operator.
One of the most significant factors in the fluctuations of net income between
the periods is the fact that the Registrant received no revenue pertaining to
April 1, 1998 through March 31, 1999 as Denison declared this period as final
year (SEE ITEM 2 "PROPERTIES-GREECE"). The revenue received in 1999 was for
January through March 1998, which had previously been withheld by Denison.
In addition, other factors include variances in oil and gas prices received,
and production declines in 1998 and 1997 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 infill drilling programs (SEE ITEM
2 "PROPERTIES-GREECE"). The provision for depletion increased from $336,643
in 1997 to $546,835 in 1998 and then decreased to $190,000 as a result of
reductions in the estimated future net revenues attributable to the Prinos
Interest. Fluctuations in other revenues are primarily attributable to
management fees (SEE ITEM 12 "CERTAIN RELATIONSHIPS AND RELATED
TRANSACTIONS").
13
<PAGE>
YEAR 2000 COMPLIANCE
The Registrant has conducted a review of its computer systems to identify
software that could be affected by the Year 2000 issue which results from
computer programs being written using two digits rather than four to define
the applicable year. Any computer programs that have time-sensitive software
may recognize a date using "00" as the year 1900 rather than the year 2000,
resulting in a major system failure or miscalculations. Since 1996, the
Registrant has updated all of its computer hardware and software with that
which is Year 2000 compliant. Although the Registrant believes it has
identified the internal Year 2000 issues which might impact operations, no
assurance can be given that all such issues have been identified or will be
corrected. Additionally, no assurances can be given that the Registrant's
vendors, banks or other third parties will not experience Year 2000 issues
which may have a significant impact on the Registrant's operations.
ITEM 7. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
<TABLE>
<CAPTION>
INDEX PAGE
<S> <C>
Independent Auditors' Report 16
Consolidated Balance Sheets 17
Consolidated Statements of
Operations and Accumulated Deficit 18
Consolidated Statements of
Cash Flows 19
Notes to Consolidated Financial Statements 20-26
</TABLE>
14
<PAGE>
OCEANIC EXPLORATION COMPANY
AND SUBSIDIARIES
Consolidated Financial Statements
March 31, 1999 and 1998
(With Independent Auditors' Report Thereon)
15
<PAGE>
INDEPENDENT AUDITORS' REPORT
The Board of Directors and Stockholders
Oceanic Exploration Company:
We have audited the accompanying consolidated balance sheets of Oceanic
Exploration Company and subsidiaries as of March 31, 1999 and 1998, 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,
1999. 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, 1999 and 1998, and the results of their
operations and their cash flows for each of the years in the three-year
period ended March 31, 1999 in conformity with generally accepted accounting
principles.
The accompanying consolidated financial statements have been prepared
assuming that Oceanic Exploration Company and subsidiaries will continue as a
going concern. As discussed in Note 1 to the consolidated financial
statements, the Company's inability to generate sufficient cash flow to
sustain operations and service its debt raises substantial doubt about the
Company's ability to continue as a going concern. Management's plans in
regard to these matters are also disclosed in Note 1. The consolidated
financial statements do not include any adjustments that might result from
the outcome of this uncertainty.
Denver, Colorado
June 21, 1999
16
<PAGE>
OCEANIC EXPLORATION COMPANY
AND SUBSIDIARIES
Consolidated Balance Sheets
March 31, 1999 and 1998
<TABLE>
<CAPTION>
ASSETS 1999 1998
------------- ------------
<S> <C> <C>
Cash $ 23,337 38,601
Accounts receivable 1,680 3,006
Due from affiliates 7,857 5,753
Prepaids and other 1,552 1,482
------------- ------------
Total current assets 34,426 48,842
Oil and gas property interests, full-cost method of
accounting (note 2) 39,000,000 39,000,000
Less accumulated amortization, depreciation and
valuation allowance (39,000,000) (38,810,000)
------------- ------------
-- 190,000
Other assets 1,920 2,560
------------- ------------
$ 36,346 241,402
------------- ------------
------------- ------------
LIABILITIES AND STOCKHOLDERS' DEFICIT
Current liabilities:
Note payable to shareholder (note 3) $ 1,092,636 842,636
Accounts payable 179,038 205,823
Accounts payable to affiliates 60,000 60,000
United Kingdom taxes payable, including
accrued interest 490,403 486,959
Accrued expenses 172,809 71,868
------------- ------------
Total current liabilities 1,994,886 1,667,286
Deferred income taxes (note 4) 22,022 102,735
------------- ------------
Total liabilities 2,016,908 1,770,021
Stockholders' deficit (note 5):
Preferred stock, $10 par value. Authorized 600,000
shares; none issued -- --
Common stock, $.0625 par value. Authorized 12,000,000
shares; 9,916,514 shares issued and outstanding 619,759 619,759
Capital in excess of par value 155,696 155,696
Accumulated deficit (2,756,017) (2,304,074)
------------- ------------
Total stockholders' deficit (1,980,562) (1,528,619)
------------- ------------
Commitments and contingencies (notes 1, 2 and 6) $ 36,346 241,402
------------- ------------
------------- ------------
</TABLE>
See accompanying notes to consolidated financial statements.
17
<PAGE>
OCEANIC EXPLORATION COMPANY
AND SUBSIDIARIES
Consolidated Statements of Operations and Accumulated Deficit
Years ended March 31, 1999, 1998 and 1997
<TABLE>
<CAPTION>
1999 1998 1997
------------ ----------- -----------
<S> <C> <C> <C>
Revenue:
Oil and gas sales (note 2) $ 127,152 425,094 943,895
Other (note 6) 505,985 315,844 301,757
------------ ----------- -----------
633,137 740,938 1,245,652
------------ ----------- -----------
Costs and expenses:
Interest and financing costs 101,282 90,567 116,117
Exploration expenses 9,382 31,392 13,464
Amortization and depreciation 190,000 546,835 336,643
General and administrative 814,268 616,559 734,477
------------ ----------- -----------
1,114,932 1,285,353 1,200,701
------------ ----------- -----------
(Loss) income before income taxes (481,795) (544,415) 44,951
Income tax benefit (expense) (note 4) 29,852 322,092 (264,225)
------------ ----------- -----------
Net loss (451,943) (222,323) (219,274)
Accumulated deficit at beginning of year (2,304,074) (2,081,751) (1,862,477)
------------ ----------- -----------
Accumulated deficit at end of year $ (2,756,017) (2,304,074) (2,081,751)
------------ ----------- -----------
------------ ----------- -----------
Loss per common share $ (0.05) (0.02) (0.02)
------------ ----------- -----------
------------ ----------- -----------
Weighted average number of common
shares outstanding 9,916,154 9,916,154 9,916,154
------------ ----------- -----------
------------ ----------- -----------
</TABLE>
See accompanying notes to consolidated financial statements.
18
<PAGE>
OCEANIC EXPLORATION COMPANY
AND SUBSIDIARIES
Consolidated Statements of Cash Flows
Years ended March 31, 1999, 1998 and 1997
<TABLE>
<CAPTION>
1999 1998 1997
------------ ----------- -----------
<S> <C> <C> <C>
Cash flows from operating activities:
Net loss $ (451,943) (222,323) (219,274)
Adjustments to reconcile net loss to net cash used
in operating activities:
Amortization and depreciation 190,000 546,835 336,643
Deferred income tax benefit (80,713) (492,130) (113,333)
Increase in accounts receivable and due from
affiliates (778) (3,304) (2,007)
Decrease (increase) in prepaid expenses and
other assets 570 (2,614) 72
(Decrease) increase in accounts payable (26,785) 22,571 (44,596)
Increase in United Kingdom taxes payable,
including accrued interest payable, and
accrued expenses 104,385 19,689 35,287
----------- ----------- -----------
Net cash used in operating activities (265,264) (131,276) (7,208)
----------- ----------- -----------
Cash flows from financing activities -
borrowings from (repayments to) shareholder, net 250,000 (31,838) (433,727)
----------- ----------- -----------
Net cash provided by (used in) financing
activities 250,000 (31,838) (433,727)
----------- ----------- -----------
Net decrease in cash (15,264) (163,114) (440,935)
Cash at beginning of year 38,601 201,715 642,650
----------- ----------- -----------
Cash at end of year $ 23,337 38,601 201,715
----------- ----------- -----------
----------- ----------- -----------
Interest paid $ -- 52,226 95,459
----------- ----------- -----------
----------- ----------- -----------
Foreign income taxes paid $ 26,430 178,000 369,467
----------- ----------- -----------
----------- ----------- -----------
</TABLE>
See accompanying notes to consolidated financial statements.
19
<PAGE>
OCEANIC EXPLORATION COMPANY
AND SUBSIDIARIES
Notes to Consolidated Financial Statements
March 31, 1999 and 1998
(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 a
non-operated net profit interest in proven reserves offshore
Greece (the Prinos Property). Effective March 31, 1999, the
Consortium operating the Greek property relinquished its license
pertaining to the development area to the Greek government. In
calendar year 1998, all oil sales were to the Hellenic Aspropyrgos
Refinery near Athens under a contract based on a combined product
price and a market based formula. Amounts paid to the Company for
its net profits interest were remitted in U.S. dollars.
(b) GOING CONCERN BASIS OF PRESENTATION
The financial statements have been prepared on a going concern
basis which contemplates the realization of assets and the
satisfaction of liabilities and commitments in the normal course
of business. Several factors, described below, raise substantial
doubt about the ability of the Company to continue as a going
concern.
Currently, the Company's operations are not generating sufficient
cash flow to fund operations and service the Company's debt
obligations. As a result, the Company has been economically
dependent upon International Hydrocarbons (IH) to provide
financing for the Company under a line of credit. IH is the
Company's majority stockholder.
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.
In December 1998, the Company was notified by the working interest
owner that April 1, 1998 through March 31, 1999 would be the final
year of production for the Prinos property. In the final year of
production, the working interest owner is entitled to 100% cost
recovery; consequently, the Company did not receive any payments
for its net profit interest in the final year. The revenue
recorded for the year ended March 31, 1999 pertained to the final
quarter of the previous year which had previously been withheld by
the operator.
If the litigation is resolved in the Company's favor and the
Company is successful in collecting or enforcing the judgment,
these funds should be sufficient to support on-going operations.
If the judgment is overturned on appeal, the Company will retain
its interest in the exploration area of the offshore Greece
property. However, there is significant uncertainty whether or not
this area will ever be developed due to territorial disputes.
The funds available under the IH line of credit should be
sufficient to fund the litigation and limited operations until the
final decision by the Appellate Court. The Appellate Court
hearing before the Ontario Court of Appeal was held on June 14-15,
1999. However, the Appellate
(Continued)
20
<PAGE>
OCEANIC EXPLORATION COMPANY
AND SUBSIDIARIES
Notes to Consolidated Financial Statements
March 31, 1999 and 1998
Court has not yet issued the final decision. In the event the
judgment is overturned, the Company will be required to obtain
additional capital to fund continuing operations and to pay off
the IH loan and accrued interest, which are now due on demand.
Due to the uncertainties regarding the outcome of the litigation
and the Company's ability to obtain additional financing to repay
the amounts due to IH and fund its future operations in the event
the judgment is overturned, there is substantial doubt about the
ability of the Company to continue as a going concern. The
financial statements do not include any adjustments that might
result from the outcome of this uncertainty.
(c) PRINCIPLES OF CONSOLIDATION
The consolidated financial statements include the accounts of the
Company and its wholly owned domestic and foreign subsidiaries.
All significant intercompany balances and transactions have been
eliminated in consolidation.
(d) OIL AND GAS PROPERTIES
Oil and gas properties are accounted for using the full-cost
method of accounting in accordance with the rules prescribed by
the Securities and Exchange Commission (SEC). Under this method,
all acquisition, exploration and development costs are capitalized
on a country-by-country basis as incurred. Gains or losses on
disposition of oil and gas properties are recognized only when
such dispositions involve significant reserves within the
individual country cost pools.
Capitalized costs less related accumulated amortization may not
exceed the sum of (1) the present value of future net revenue from
estimated production, 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. Any excess costs are recorded as
additional depletion expense.
The Company's offshore Greece oil and gas property interests
represented a 15% net profit interest in such properties.
Accordingly, depletion of oil and gas properties was computed
using the future net revenue method. Depletion expense has been
calculated based on the Company's estimate of the revenue due for
its net profits interest (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:
<TABLE>
<CAPTION>
1999 1998 1997
------------- -------------- --------------
<S> <C> <C> <C>
Greece 249% 214% 59%
</TABLE>
(Continued)
21
<PAGE>
OCEANIC EXPLORATION COMPANY
AND SUBSIDIARIES
Notes to Consolidated Financial Statements
March 31, 1999 and 1998
Because the Company's interest in the offshore Greece oil and gas
property was a net profit interest and not a working interest, the
Company was 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).
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, 1999 and 1998, all capitalized costs were
subject to amortization.
(e) INCOME TAXES
Income taxes are provided in accordance with, 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) LOSS PER SHARE
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.
(h) RECLASSIFICATIONS
Certain amounts for 1998 have been reclassified to conform to the
1999 presentation.
(2) OIL AND GAS SALES
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 asserted that the calculation of the amounts due to the
(Continued)
22
<PAGE>
OCEANIC EXPLORATION COMPANY
AND SUBSIDIARIES
Notes to Consolidated Financial Statements
March 31, 1999 and 1998
Company should be based on the amended agreement with the Greek
government. The Company disagreed with this interpretation and 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 approximately $6,100,000 including
interest to the Company for the period from January 1, 1993 through
December 13, 1996 and to make payments to the Company subsequent to
December 13, 1996 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 plus interest. 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. The Appellate Court hearing
before the Ontario Court of Appeal was held on June 14-15, 1999.
However, the Appellate Court has not yet issued the final decision.
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 revenues or damages,
if any, that may ultimately be awarded to the Company.
In December 1998, the Company was notified by the working interest owner
that April 1, 1998 through March 31, 1999 would be the final year of
production for the Prinos property. In the final year of production, the
working interest owner is entitled to 100% cost recovery; consequently,
the Company did not receive any net profits interest payments for this
period. The revenue recorded for the year ended March 31, 1999 pertains
to the period from January through March 1998 which had previously been
withheld by the operator.
Effective March 31, 1999, the consortium operating the Greek properties
has relinquished its license to operate the Prinos oil field in Greece.
However, they have retained the exploration rights in the area of the
Aegean Sea over which there has been an ongoing ownership dispute between
Greece and Turkey. Should the dispute be resolved and the consortium
drill and successfully develop any additional prospects, the Company
would be entitled to once again receive its 15% net profits interest
applicable to the working interest owner's share. However, as the Company
considers this to be a remote possibility in the near future, the Company
has fully depleted its investment in Greece.
(3) NOTE PAYABLE TO SHAREHOLDER
Note payable to shareholder represents borrowings under a line of credit
with IH, the Company's majority shareholder. In October 1998, the note
was assigned to IH from NWO Resources, Inc., the parent company of IH. In
April 1999, an Extension Agreement was executed allowing the Company to
draw additional amounts as needed for working capital up to $1,500,000.
Interest continues to accrue at 8.25%. In addition, the Company is
currently not required to make interest payments. Principal and accrued
interest are, however, due upon demand by IH. If the Company is unable to
repay the note upon demand for payment, principal and accrued interest
shall bear interest at a rate of 12% per annum after such due date.
(Continued)
23
<PAGE>
OCEANIC EXPLORATION COMPANY
AND SUBSIDIARIES
Notes to Consolidated Financial Statements
March 31, 1999 and 1998
(4) INCOME TAXES
Income tax benefit (expense) consists of the following:
<TABLE>
<CAPTION>
YEAR ENDED MARCH 31,
--------------------------------------------------
1999 1998 1997
-------------- -------------- --------------
<S> <C> <C> <C>
Current:
Foreign - Greece $ (50,861) (170,038) (377,558)
-------------- -------------- --------------
Deferred:
Foreign - Greece 76,000 218,734 134,658
U.S federal 4,713 273,396 (21,325)
-------------- -------------- --------------
Total deferred income tax benefit 80,713 492,130 113,333
-------------- -------------- --------------
Total income tax benefit (expense) $ 29,852 322,092 (264,225)
-------------- -------------- --------------
-------------- -------------- --------------
</TABLE>
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,
--------------------------------------------------
1999 1998 1997
-------------- ------------- -------------
<S> <C> <C> <C>
Computed at U.S. statutory tax rate $ 163,810 185,101 (15,283)
Increase (decrease) in the valuation
allowance 119,948 32,475 (1,593)
Effect of Greek operations, including
foreign tax credits (138,671) (136,405) (227,617)
Adjustment of taxes provided in prior years
and other, net (115,235) 240,921 (19,732)
-------------- ------------- -------------
Income tax benefit (expense) $ 29,852 322,092 (264,225)
-------------- ------------- -------------
-------------- ------------- -------------
</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.
(Continued)
24
<PAGE>
OCEANIC EXPLORATION COMPANY
AND SUBSIDIARIES
Notes to Consolidated Financial Statements
March 31, 1999 and 1998
At March 31, 1999 and 1998, the Company's significant components deferred
tax assets and liabilities are as follows:
<TABLE>
<CAPTION>
1999 1998
--------------- ---------------
<S> <C> <C>
Deferred tax assets:
Net operating loss carryforwards $ 114,000 --
Oil and gas properties, principally due to
differences in depreciation and depletion
and impairment 225,994 227,456
Other 162,019 154,609
--------------- ---------------
502,013 382,065
Valuation allowance (502,013) (382,065)
--------------- ---------------
Deferred liabilities:
Greek oil and gas properties, principally
due to differences in depreciation and
depletion and impairment -- (76,000)
Other (22,022) (26,735)
--------------- ---------------
(22,022) (102,735)
--------------- ---------------
Net deferred tax liabilities $ 22,022 102,735
--------------- ---------------
--------------- ---------------
</TABLE>
At March 31, 1999, the Company had net operating loss carryforwards of
approximately $284,000. If not utilized, the tax net operating losses
will expire in 2014.
(5) COMMON STOCK
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, 1999, no stock
options or grants were outstanding. At that date, 223,500 shares were
available for future stock option awards and 115,626 shares were
available for future stock grants.
(6) RELATED PARTY TRANSACTIONS
The Company provides management services under a cost sharing arrangement
to Cordillera Corporation (Cordillera), the beneficial controlling
shareholder 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 1999, 1998 and 1997, such reimbursements amounted to
approximately $486,000, $306,000 and $278,000, respectively, and have
been included as other revenue in the accompanying consolidated
statements of operations.
(Continued)
25
<PAGE>
OCEANIC EXPLORATION COMPANY
AND SUBSIDIARIES
Notes to Consolidated Financial Statements
March 31, 1999 and 1998
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
1999, 1998 and 1997, the Company recorded $65,830, $50,468 and $39,886,
respectively, as pension expense under these plans.
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
$47,323 for 1999, $42,380 for 1998 and $29,463 for 1997. Future minimum
lease payments are $39,925 for fiscal year ended March 31, 2000.
(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
Results of operations from oil and gas producing activities in
Greece for the fiscal years ended March 31, 1999, 1998 and 1997
are as follows:
<TABLE>
<CAPTION>
1999 1998 1997
---------------- --------------- ---------------
<S> <C> <C> <C>
Oil and gas sales $ 127,152 425,094 943,895
Amortization and depreciation (190,000) (546,835) (336,643)
Greek income taxes paid (50,861) (170,038) (377,558)
---------------- --------------- ---------------
$ (113,709) (291,779) 229,694
---------------- --------------- ---------------
---------------- --------------- ---------------
</TABLE>
The Company's gross revenues are burdened only by Greek income
taxes. The Company had no production costs since its property
interest was a net profit interest.
(B) INFORMATION REGARDING PROVED OIL AND GAS RESERVES
The Company's interest in the oil and gas property offshore Greece
consisted of a contractual right to receive a 15% "net profits
interest." Because the Company had a net profits interest and not
a working interest in this property, the Company was 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. Therefore, the Company was not in a position to estimate
the potential future production and/or present value of future net
revenues attributable to its Greek property.
26
<PAGE>
ITEM 8. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND
FINANCIAL DISCLOSURE
Not applicable.
PART III
ITEM 9. DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT
COMPLIANCE WITH SECTION 16(a) OF THE EXCHANGE ACT
The following table sets forth the names and ages of the members of the
Registrant's Board of Directors and its executive officers, and sets forth
the position with the Registrant held by each:
<TABLE>
<CAPTION>
NAME AGE POSITION
- ---- --- --------
<S> <C> <C>
James Neal Blue 64 Director; Chairman of the Board and Chief
Executive Officer of the Registrant
Charles N. Haas 61 Director and President of the Registrant
John L. Redmond 68 Director and Vice President, International
Exploration of the Registrant
Gene E. Burke, M.D. 69 Director
Sidney H. Stires 69 Director
Janet A. Holle 48 Vice President/Secretary of the Registrant
Lori A. Brundage 35 Treasurer and Chief Financial Officer of the
Registrant
</TABLE>
Directors of the Registrant hold these positions until their respective
successors are elected and qualified. The current directors, except for John
L. Redmond, were elected in 1982 and no meeting of the stockholders has been
held since that date. Mr. Redmond was appointed in 1994 by the remaining
directors to fill a vacancy on the Board of Directors.
JAMES N. BLUE. Mr. Blue has been a director and officer of the Registrant
since 1981. He is also Chairman of General Atomics in San Diego, California
and President of Cordillera Corporation in Denver, Colorado.
CHARLES N. HAAS. Mr. Haas has been a director and officer of the Registrant
since 1981.
27
<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.. Dr. 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, New York.
On August 11, 1998, an SEC Administrative Judge entered an order finding that
Stires, O'Donnell & Company, Incorporated ("Stires, O'Donnell") and Sidney H.
Stires willfully violated, and willfully aided and abetted the violation by
certain promoters, the antifraud provision of the Federal Securities laws.
The Judge further found that Stires, O'Donnell failed to supervise its
employees as required by Federal Securities law in connection with the
proposed sale of non-existent Securities known as "Euro-GICs". A civil
penalty of $300,000 was imposed on Stires, O'Donnell and a civil penalty of
$100,000 was imposed on Mr. Stires. In addition, Mr. Stires was suspended
from activity as a securities dealer for 90 days. Mr. Stires paid his fine
and has served his suspension. On June 24, 1999, the Commission issued an
Order reducing the $300,000 civil penalty to $150,000 and otherwise declaring
the decision final.
JANET A. HOLLE. Ms. Holle has been an officer of the Registrant since 1987.
LORI A. BRUNDAGE. Ms. Brundage has been an officer of the Registrant since
1996. Since 1991, she had held the positions of Accounting Manager and Senior
Accountant for the Denver Technological Center, a real estate development
company in Denver, Colorado.
28
<PAGE>
ITEM 10. EXECUTIVE COMPENSATION
The following information summarizes compensation paid by Registrant to James
N. Blue, Chief Executive Officer and Charles N. Haas, President.
SUMMARY COMPENSATION TABLE
<TABLE>
<CAPTION>
Long Term Compensation
---------------------------------
Annual Compensation Awards Payout
----------------------------------- ---------------------------------
(a) (b) (c) (d) (e) (f) (g) (h) (i)
Other
Name Fiscal Annual Restric-
and Year Compen- ted Stock LTIP All Other
Principal Ended Salary Bonus sation Award(s) Options/ Payouts Compensa-
Position March 31 ($) ($) ($) ($) SARs (#) ($) tion ($)
- --------- -------- ----------- --------- ------- --------- -------- ------- ---------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
James N. Blue 1999 60,000 (1) - - - - - -
Chairman of the 1998 60,000 (1) - - - - - -
Board and Chief 1997 60,000 (1) - - - - - -
Executive Officer
Charles N. Haas 1999 157,586 (2) - - - - - 21,804 (2)(4)
President 1998 157,956 (2) 25,000 (3) - - - - 23,836 (2)(4)
1997 158,086 (2) - - - - 21,988 (2)(4)
</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) A $25,000 bonus originally awarded by the Board of Directors in 1983 was
paid in August 1997.
(4) 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 $160,000. 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
29
<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. In fiscal 1983,
the Board of Directors authorized a bonus of $25,000 to the president of the
Registrant, which was paid in August 1997.
The Registrant has no compensation committee. James N. Blue and Charles N.
Haas participated in all deliberations concerning executive officer
compensation.
30
<PAGE>
ITEM 11. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT
As of June 7, 1999 there were issued and outstanding 9,916,154 shares of
Common Stock, which are the Registrant's only class of voting securities.
Holders of Common Stock are entitled to one vote per share on each matter
upon which shareholders may be entitled to vote.
The following table sets forth information regarding shares of Common Stock
of the Registrant beneficially owned as of June 7, 1999 by: (i) each person
known by the Registrant to beneficially own 5% or more of the outstanding
Common Stock, (ii) each director, (iii) each person named in the summary
compensation table and (iv) all officers and directors as a group.
<TABLE>
<CAPTION>
Nature of Percentage of
Names and Addresses of Officers, Amount of Beneficial Voting
Directors and Principal Shareholders Common Stock Ownership Securities
- ------------------------------------ ------------ --------- ----------
<S> <C> <C> <C>
Allen & Company 824,200 Sole voting and 8.3 %
and various affiliates (1) investment power
711 Fifth Avenue
New York, NY 10022
International Hydrocarbons (2) 4,912,178 Sole voting and 49.5 %
c/o John E. Jones investment power
5000 S. Quebec Street, Suite 450
Denver, CO 80237
International Cordillera Limited 545,800 Sole voting and 5.5 %
c/o WITC investment power
8082 S. Niagara Way
Englewood, CO 80112
James N. Blue (3) (4) None N/A N/A
5000 S. Quebec St., Suite 450
Denver, CO 80237
Charles N. Haas (3) None N/A N/A
5000 S. Quebec St., Suite 450
Denver, CO 80237
Sidney H. Stires (3) 30,000 As Trustee less than 1 %
12 East 44th Street
New York, NY 10017
31
<PAGE>
<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 (not adjusted for the
issuance of 6,001,000 shares of Common Stock pursuant to the Rights
Offering):
<TABLE>
<CAPTION>
Names Common Shares Percentages
----- ------------- -----------
<S> <C> <C>
Allen & Company 165,000 1.7 %
American Diversified Enterprises, Inc. 2.3 %
232,500
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 %
32
<PAGE>
<CAPTION>
Names Common Shares Percentages
----- ------------- -----------
<S> <C> <C>
John Godwin Allen 5,000 .1 %
Luke Andrew Allen 5,000 .1 %
Thaddeus Mack Allen 5,000 .1 %
Evelyn Henry 52,000 .5 %
Marjorie Bisgood 59,500 .6 %
Bradley Roberts 2,083 *
</TABLE>
* Less than .1%
(2) International Hydrocarbons is a wholly-owned subsidiary of NWO. Mr. Blue
is president and a director both of International Hydrocarbons and NWO. He
is also president and a major stockholder of Cordillera Corporation
("Cordillera"), the major stockholder of NWO. Through Cordillera and
affiliates, Mr. Blue beneficially holds 39.52% of the common stock of IH.
(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. He is also
president and major stockholder of Cordillera, the major stockholder of
NWO. Through Cordillera and affiliates, Mr. Blue beneficially holds 39.52%
of the common stock of IH.
ITEM 12 - CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
INTERNATIONAL HYDROCARBONS LINE OF CREDIT
The Registrant has a $1,500,000 line of credit with IH, the Registrant's
principal stockholder. The line of credit is secured by the Registrant's
Prinos Interest and any and all funds to be received under the Registrant's
judgment against Denison. In October 1998, this line of credit, previously
with NWO, was transferred to IH, a wholly-owned subsidiary of NWO. In April
1999, the Registrant executed an Extension Agreement whereby IH will allow
the Registrant to draw up to $1,500,000 for general working capital purposes.
In addition, the Registrant is currently not required to make monthly
interest payments. Principal and accrued interest is due upon demand by IH.
As of March 31, 1999, the outstanding loan balance was $1,092,636.
33
<PAGE>
Cordillera is the major stockholder of NWO, the parent company of IH. Mr.
Blue, the Chairman of the Board and Chief Executive Officer of the
Registrant, is president and a major stockholder of Cordillera. Through
Cordillera and affiliates, Mr. Blue beneficially holds 39.52% of the common
stock of IH.
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 1999, 1998 and 1997 such reimbursements amount to
approximately $486,000, $306,000, and $278,000, 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. He is also president and a major
stockholder of Cordillera, the major stockholder of NWO. Through Cordillera
and affiliates, Mr. Blue beneficially holds 39.52% of the common stock of IH.
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 1999, 1998, and 1997, the
Registrant recorded $65,830, $50,468 and $39,886, 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 1999, 1998 and 1997
were $47,323, $42,380 and $29,463, respectively. These payments include
adjustments for the Registrant's proportionate share of operating expenses.
As the Registrant's current lease expires February 28, 2000, lease payments
are estimated to be $39,925 for the year ended March 31, 2000. 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.
34
<PAGE>
BONUS
In fiscal 1983, the Board of Directors authorized a bonus of $25,000 to the
president of the Registrant, which was paid in August 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, 1999 and 1998
Consolidated Statements of Operations and Accumulated Deficit -
Years ended March 31, 1999, 1998 and 1997
Consolidated Statements of Cash Flows - Years ended
March 31, 1999, 1998 and 1997
Notes to Consolidated Financial Statements
35
<PAGE>
2. Exhibits filed herewith are listed below and if not located in another
previously filed registration statement or report, are attached to this Report
at the pages set out below. The "Exhibit Number" below refers to the Exhibit
Table in Item 601 of Regulation S-B.
<TABLE>
<CAPTION>
Exhibit Number Name of Exhibit Location
- -------------- --------------- --------
<S> <C> <C>
3.1 Articles of Incorporation Page 58 of Report on
(including all amendments) Form 10-K for year
ended September 30, 1980
3.2 Bylaws (including all amend- Page 15 of Form 8
ments) (Amendment No. 1 to
10-K Report) dated
June 1, 1982
10.1 Memorandum of Agreement dated Report on Form 10-K for
June 30, 1976 between Oceanic year ended September 30, 1976
Exploration Company and Denison
Mines Limited
10.2 Letter Agreement dated July 28, Report on Form 10-K for
1976 amending Agreement of year ended September 30, 1976
June 30, 1976
10.3 Amendment dated August 27, 1976 Report on Form 10-K for
to Agreement of June 30, 1976 year ended September 30, 1976
10.4 Farm-out Agreement with Page 38 of the Report
Enterprise Oil Exploration on Form 10-KSB for the
Limited and NMX Resources year ended March 31, 1995
(Overseas) Limited dated
September 22, 1989
10.5 Letter Agreement with Page 54 of the Report
Enterprise Oil Exploration on Form 10-KSB for the
Limited and NMX Resources year ended March 31, 1995
(Overseas) Limited dated
September 22, 1989
36
<PAGE>
<CAPTION>
Exhibit Number Name of Exhibit Location
- -------------- --------------- --------
<S> <C> <C>
10.6 Letter of Indemnification with Page 62 of the Report
Enterprise Oil Exploration on Form 10-KSB for the
Limited and NMX Resources year ended March 31, 1995
(Overseas) Limited dated
September 22, 1989
10.7 Agreement for Study and Exhibit 10.8 on Form SB-2
Petroleum Evaluation of the filed October 6, 1995,
South East Area of Bolivia, File # 33-63277
dated May 11, 1992
10.8 Management Agreement with Page 63 of the Report
Cordillera Corporation dated on Form 10-KSB for the
January 1, 1990 year ended March 31, 1995
10.9 Management Agreement with Page 67 of the Report
San Miguel Valley Corporation on Form 10-KSB for the
dated January 1, 1990 year ended March 31, 1995
10.10 Office Building Lease with Page 71 of the Report
Sorrento West Properties, Inc. on Form 10-KSB for the
dated March 1, 1991 year ended March 31, 1995
10.11 Addendum to Office Building Page 129 of the Report
Lease dated March 1, 1994 on Form 10-KSB for the
year ended March 31, 1995
10.12 Promissory Note with NWO Page 131 of the Report
Resources, Inc. dated on Form 10-KSB for the
June 15, 1994 year ended March 31, 1995
10.13 Promissory Note with NWO Page 132 of the Report
Resources, Inc. dated on Form 10-KSB for the
July 18, 1994 year ended March 31, 1995
10.14 Security Agreement in favor Page 133 of the Report
of NWO Resources, Inc. on Form 10-KSB for the
dated July 27, 1994 year ended March 31, 1995
37
<PAGE>
<CAPTION>
Exhibit Number Name of Exhibit Location
- -------------- --------------- --------
<S> <C> <C>
10.15 Promissory Note with NWO Page 149 of the Report
Resources, Inc. dated on Form 10-KSB for the
September 22, 1994 year ended March 31, 1995
10.16 Promissory Note with NWO Page 150 of the Report
Resources, Inc. dated on Form 10-KSB for the
December 15, 1994 year ended March 31, 1995
10.17 Promissory Note with NWO Page 151 of the Report
Resources, Inc. dated on Form 10-KSB for the
January 1, 1995 year ended March 31, 1995
10.18 Promissory Note with NWO Page 152 of the Report
Resources, Inc. dated on Form 10-KSB for the
February 15, 1995 year ended March 31, 1995
10.19 Modification Agreement Exhibit 10.20 on Form SB-2
with NWO Resources, Inc. filed October 6, 1995,
dated September 19, 1995 File # 33-63277
10.20 First Amendment to Exhibit 10.21 on Form SB-2
Security Agreement with filed October 6, 1995,
NWO Resources, Inc. File # 33-63277
dated September 19, 1995
10.21 Letter dated August 22, 1995 Exhibit 10.22 on Form SB-2
from International Hydrocarbons filed October 6, 1995,
regarding purchase of unsubscribed File # 33-63277
stock in Rights Offering
10.22 Extension Agreement Exhibit 10.23 on Form SB-2,
with NWO Resources, Inc. Amendment 2, filed
dated December 27, 1995 January 3, 1996,
File # 33-63277
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
38
<PAGE>
<CAPTION>
Exhibit Number Name of Exhibit Location
- -------------- --------------- --------
<S> <C> <C>
10.24 Second Addendum to Page 42 of the Report
Office Building Lease on Form 10-KSB for the
dated March 1, 1997 year ended March 31, 1997
10.25 Extension Agreement Page 44 of the Report
with NWO Resources, Inc. on Form 10-KSB for the
dated March 10, 1996 year ended March 31, 1997
10.26 Extension Agreement Page 42 of the Report
with NWO Resources, Inc. on Form 10-KSB for the
dated February 13, 1998 year ended March 31, 1998
10.27 Management Agreement Page 14 of the Report
with San Miguel Valley on Form 10-QSB for the
Corporation dated quarterly period ended
May 1, 1998 June 30, 1998.
10.28 Extension Agreement Page 40 of the
with International signed original
Hydrocarbons dated of this report
April 5, 1999
</TABLE>
(b) No reports on Form 8-K were filed during the last quarter during the period
covered by this Report.
39
<PAGE>
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) of the Securities Exchange
Act of 1934, the Registrant has duly caused this Report to be signed on its
behalf by the undersigned, thereunto duly authorized.
OCEANIC EXPLORATION COMPANY
(REGISTRANT)
By /s/ Charles N. Haas
--------------------------------------------
Charles N. Haas, President
Dated June 25, 1999
------------------------------------------
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.
<TABLE>
<S> <C>
Date: June 25, 1999 By /s/ Charles N. Haas
--------------------------------------- ------------------------------
Charles Haas, President
2. And by its principal financial officer.
Date: June 25, 1999 By /s/ Lori A. Brundage
--------------------------------------- ------------------------------
Lori A. Brundage, Treasurer
3. And by a majority of its board of directors.
Date: June 25, 1999 By /s/ James N. Blue
--------------------------------------- ------------------------------
James N. Blue, Director
Date: June 25, 1999 By /s/ Charles N. Haas
--------------------------------------- ------------------------------
Charles N. Haas, Director
Date: June 25, 1999 By /s/ John L. Redmond
--------------------------------------- ------------------------------
John L. Redmond, Director
</TABLE>
<PAGE>
EXTENSION AGREEMENT
This Extension Agreement (the "Agreement") is entered into as of the 5th
day of April 1999, 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 International
Hydrocarbons, a Wyoming corporation ("IH").
WHEREAS, OEC, OIPC and NWO Resources, Inc. ("NWO") (the previous holder
of the promissory note) 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, further extended to March 31,
1998 pursuant to an Extension Agreement dated March 10, 1997 and extended
again to March 31, 1999 pursuant to an Extension Agreement dated February 13,
1998); and that OEC would diligently pursue its pending lawsuit against
Denison Mines, Ltd. ("Denison"); and
WHEREAS, OEC, OIPC and NWO (the previous holder of the promissory note)
have entered into four previous Extension Agreements dated December 27, 1995,
December 11, 1996, March 10, 1997 and February 13, 1998; and
WHEREAS, NWO was the original holder of the $1,500,000.00 Promissory
Note dated January 1, 1995, the Modification Agreement dated September 19,
1995, and the Extension Agreements dated December 27, 1995, December 11,
1996, March 10, 1997 and February 13, 1998. NWO assigned its interest in
these documents to IH effective October 31, 1998; and
WHEREAS, OEC has diligently pursued its lawsuit against Denison as
provided for in the Modification Agreement, and a judgment has been issued in
OEC's favor by the Commercial Court in Toronto, Ontario; which judgment has
since been appealed by Denison; and
WHEREAS, due to the current uncertainty as to debt repayment to IH by
OEC and OIPC, IH is only willing to forbear on collection of the existing
OIPC debt and allow OIPC sufficient operating funds for a period of time to
be determined at the sole discretion of IH;
NOW THEREFORE, in consideration of the mutual covenants contained
herein, the parties hereby agree as follows:
1. For the time being and until further notice from IH to OEC and
OIPC, IH will forbear collection of principal or interest on Oceanic notes.
2. For the time being and until further notice by IH, OIPC will be
allowed to draw additional amounts under the existing $1,500,000.00
Promissory Note for general working capital purposes. Although interest will
continue to accrue on such amounts at 8.25% per annum
40
<PAGE>
pursuant to the Modification Agreement, OIPC will not be required to make any
interest payments on such amounts until demand is made by IH. IH may at its
sole discretion make demand on OEC and OIPC for repayment of all amounts due
and payable under said existing Promissory Note. Upon such demand the
amounts represented by said Promissory Note shall be immediately due and
payable, and if not paid when due, the principal and accrued interest shall
bear interest at the rate of 12% per annum after such due date.
3. OEC shall continue to diligently pursue its litigation with Denison
Mines, Ltd., as required pursuant to the September 19, 1995 Modification
Agreement.
4. Except as modified herein and in the Extension Agreements dated
December 27, 1995, December 11, 1996, March 10, 1997 and February 13, 1998,
the Modification Agreement will continue in full force and effect and the
remaining terms, provisions, covenants and conditions shall remain unchanged.
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
IH
INTERNATIONAL HYDROCARBONS
By: /s/ John E. Jones
-----------------------------------------
John E. Jones
Vice President
41
<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, 1999 AND IS QUALIFIED IN ITS ENTIRETY BY
REFERENCE TO SUCH FINANCIAL STATEMENTS.
</LEGEND>
<S> <C>
<PERIOD-TYPE> YEAR
<FISCAL-YEAR-END> MAR-31-1999
<PERIOD-END> MAR-31-1999
<CASH> 23,337
<SECURITIES> 0
<RECEIVABLES> 9,537
<ALLOWANCES> 0
<INVENTORY> 0
<CURRENT-ASSETS> 34,426
<PP&E> 39,000,000
<DEPRECIATION> 39,000,000
<TOTAL-ASSETS> 36,346
<CURRENT-LIABILITIES> 1,994,886
<BONDS> 0
0
0
<COMMON> 619,759
<OTHER-SE> 155,696
<TOTAL-LIABILITY-AND-EQUITY> 36,346
<SALES> 0
<TOTAL-REVENUES> 633,137
<CGS> 0
<TOTAL-COSTS> 0
<OTHER-EXPENSES> 1,013,650
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 101,282
<INCOME-PRETAX> (481,795)
<INCOME-TAX> (29,852)
<INCOME-CONTINUING> (451,943)
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (451,943)
<EPS-BASIC> (.05)
<EPS-DILUTED> 0
</TABLE>
