<PAGE>
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-QSB
(Mark One)
[X] QUARTERLY REPORT UNDER SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE
ACT OF 1934
For the quarterly period ended June 30, 1999
[ ] TRANSITION REPORT UNDER SECTION 13 OR 15(d) OF THE EXCHANGE ACT
For the transition period from ______ to ______. Commission file
number 0-6540.
OCEANIC EXPLORATION COMPANY
(Exact name of small business issuer as specified in its charter)
DELAWARE 84-0591071
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
5000 South Quebec Street, Suite 450, Denver, CO 80237
(Address of principal executive offices)
(303) 220-8330
(Issuer's Telephone number)
----------------------------------------------------
(Former name, former address and former fiscal year,
if changed since last report)
Check whether the Issuer (1) filed all reports required to be filed by Section
13 or 15(d) of the Exchange Act during the past 12 months (or for such shorter
period that the registrant was required to file such reports), and (2) has been
subject to such filing requirements for the past 90 days.
YES X NO
----- -----
Shares outstanding at Common $.0625 Par Value
July 31, 1999
9,916,154
<PAGE>
PART I - FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS
OCEANIC EXPLORATION COMPANY AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
(UNAUDITED)
<TABLE>
<CAPTION>
ASSETS
June 30, 1999 March 31, 1999
------------- --------------
<S> <C> <C>
Cash $ 25,634 23,337
Receivables:
Affiliates 30,261 7,857
Other 1,680 1,680
----------- -----------
31,941 9,537
Prepaid expenses 5,460 1,552
----------- -----------
Total current assets 63,035 34,426
----------- -----------
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) (39,000,000)
----------- -----------
-- --
Other assets 1,760 1,920
----------- -----------
$ 64,795 36,346
----------- -----------
----------- -----------
</TABLE>
(Continued)
2
<PAGE>
OCEANIC EXPLORATION COMPANY AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS, CONTINUED
(UNAUDITED)
<TABLE>
<CAPTION>
LIABILITIES AND STOCKHOLDERS' DEFICIT
June 30, 1999 March 31, 1999
------------- --------------
<S> <C> <C>
Current liabilities:
Note payable to shareholder (note 3) $ 1,202,636 1,092,636
Accounts payable 179,055 179,038
Accounts payable to affiliate 60,000 60,000
United Kingdom taxes payable, including
accrued interest 485,043 490,403
Accrued expenses 198,553 172,809
----------- -----------
Total current liabilities 2,125,287 1,994,886
Deferred income taxes 22,022 22,022
----------- -----------
Total liabilities 2,147,309 2,016,908
----------- -----------
Stockholders' deficit:
Preferred stock, $10 par value. Authorized
600,000 shares; none issued -- --
Common stock, $.0625 par value. Authorized
12,000,000 shares; 9,916,154 shares issued and
outstanding 619,759 619,759
Capital in excess of par value 155,696 155,696
Accumulated deficit (2,857,969) (2,756,017)
----------- -----------
Total stockholders' deficit (2,082,514) (1,980,562)
----------- -----------
Contingencies (note 2)
$ 64,795 36,346
----------- -----------
----------- -----------
</TABLE>
See accompanying notes to consolidated financial statements.
3
<PAGE>
OCEANIC EXPLORATION COMPANY AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATIONS
(UNAUDITED)
<TABLE>
<CAPTION>
Three Months Ended
June 30,
1999 1998
----------- -----------
<S> <C> <C>
Revenues:
Oil and gas sales - Greece (note 2) $ -- --
Other 141,690 111,156
--------- ---------
141,690 111,156
--------- ---------
Costs and expenses:
Interest and financing costs 29,206 23,544
Exploration expenses 2,730 2,387
Amortization and depreciation -- 47,500
General and administrative 211,706 179,199
--------- ---------
243,642 252,630
--------- ---------
Loss before income taxes (101,952) (141,474)
Income tax benefit -- 19,000
--------- ---------
Net loss $(101,952) (122,474)
--------- ---------
--------- ---------
Loss per common share $ ( .01) (.01)
--------- ---------
--------- ---------
</TABLE>
See accompanying notes to consolidated financial statements.
4
<PAGE>
OCEANIC EXPLORATION COMPANY AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
(UNAUDITED)
<TABLE>
<CAPTION>
Three Months Ended
June 30,
1999 1998
----------- -----------
<S> <C> <C>
Cash flows from operating activities:
Net loss $(101,952) (122,474)
Adjustments to reconcile net loss to net cash
used in operating activities:
Amortization and depreciation -- 47,500
Deferred income tax benefit -- (19,000)
Increase in accounts receivable and
due from affiliates (22,404) (12,537)
(Increase) decrease in prepaid expenses
and other assets (3,748) 660
Increase (decrease) in accounts payable
and accounts payable to affiliate 17 (5,096)
Increase in United Kingdom taxes payable,
including accrued interest payable,
and accrued expenses 20,384 50,346
--------- ---------
Net cash used in operating activities (107,703) (60,601)
Cash flows from financing activities:
Advances from notes payable to shareholder 110,000 60,000
--------- ---------
Net increase (decrease) in cash 2,297 (601)
--------- ---------
Cash at beginning of period 23,337 38,601
--------- ---------
Cash at end of period $ 25,634 38,000
--------- ---------
--------- ---------
</TABLE>
See accompanying notes to consolidated financial statements.
5
<PAGE>
OCEANIC EXPLORATION COMPANY AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
June 30, 1999
(1) SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
BASIS OF PRESENTATION
The consolidated balance sheet as of March 31, 1999 which has been
derived from audited statements and the unaudited interim consolidated
financial statements included herein have been prepared pursuant to the rules
and regulations of the Securities and Exchange Commission. Certain
information and note disclosures normally included in annual financial
statements prepared in accordance with generally accepted accounting
principles have been condensed or omitted pursuant to those rules and
regulations, although the Registrant believes that the disclosures made are
adequate to make the information presented not misleading. In the opinion of
management, all adjustments consisting of normal reoccurring accruals have
been made which are necessary for the fair presentation of the periods
presented. The accounting policies of the Registrant are set forth in the
financial statements and notes thereto and are included in the Registrant's
latest annual report on Form 10-KSB. It is suggested that these consolidated
financial statements be read in conjunction with that document.
(2) OIL AND GAS SALES - GREECE
Effective January 1, 1993, the operator of the Greek properties
negotiated an agreement with the Greek government which amended the original
license agreement entered into in June 1975 (the "License Agreement"). The
amendment provides for a sliding scale for calculating the operator's
recoverable costs and expenses and for the calculation of the Greek royalty
interest. Denison Mines, Ltd. ("Denison"), the working interest owner having
the contractual obligation to the Registrant for the 15% net profits
interest, (also called "Prinos Interest" in some parts of this Report)
asserted that the calculation of the amounts due to the Registrant should be
based on the amended agreement with the Greek government. The Registrant
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 Registrant attributable to
its 15% net profits interest be calculated based on the terms of the License
Agreement before this amendment. In December 1996, the Registrant received
notification that the Court had issued a judgment in its favor. The Court
ordered Denison to pay $6,111,101 including interest to the Registrant for
the period from January 1, 1993 through December 13, 1996 and to make
payments to the Registrant subsequent to December 13, 1996 also based on the
terms of the original License Agreement. The Court also awarded court costs
to the Registrant which are anticipated to be approximately $107,000 plus
interest. Denison subsequently filed a Notice of Appeal requesting that the
judgment be set aside. Therefore, it appears that the final determination
will likely have to be made by the Appellate Court. The hearing before the
Ontario Court of Appeal was held on June 14 and 15, 1999. However, the
6
<PAGE>
Ontario Court of Appeal has not as yet issued the final decision. While the
Registrant believes it has a reasonable probability of prevailing in its
action, the ultimate outcome of the matter cannot presently be determined.
Accordingly, no amounts have been recorded in the accompanying consolidated
financial statements for current revenues or damages, if any, that may
ultimately be awarded to the Registrant.
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.
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.
(3) NOTE PAYABLE TO SHAREHOLDER
Note payable to shareholder at March 31, 1999 and June 30, 1999
previously represented borrowings under a $2,000,000 line of credit
established in favor of the Registrant by NWO Resources, Inc. ("NWO"),
previously the parent company of International Hydrocarbons ("IH"), the
Registrant's majority stockholder. The line of credit is secured by the
Registrant's 15% net profits interest in the offshore Greece oil and gas
property and all proceeds from the pending litigation. In October 1998, the
line of credit was assigned from NWO to IH.
In April 1999, an Extension Agreement was executed with IH allowing the
Registrant to draw up to $1,500,000 as needed for working capital. In
addition, the Registrant is currently not required to make interest payments
to IH. Principal and accrued interest are due on demand by IH. In June 1999,
the remaining balance under the IH line of credit was replaced with a new
line of credit with NWO in which the Registrant is allowed to draw up to
$300,000 for general working capital purposes. Interest payments to NWO
calculated at the rate of 8.25% are due monthly. Principal is due upon demand
by NWO. This line of credit, although subordinate to that with IH, is also
secured by the Registrant's 15% net profits interest in the offshore Greece
oil and gas property and all proceeds from the pending litigation. Funds from
the NWO line of credit should be sufficient to fund the litigation and
limited operations through the final judgment by the Appellate Court;
however, the Registrant may be required to obtain additional capital to fund
continuing operations and pay off the IH and NWO loans 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 and NWO, there is
substantial doubt about the ability of the Registrant to continue as a going
concern in the event the judgment is overturned on appeal. Accordingly, the
Registrant's auditors have issued an opinion on the Registrant's financial
statements
7
<PAGE>
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 include any adjustments that
might result from the outcome of this uncertainty.
As of June 30, 1999, the outstanding loan payable to IH was $1,202,636
and no amounts had been drawn under the line of credit with NWO. 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 and NWO if demand is made before
the collection of any judgment or settlement from Denison.
ITEM 2. MANAGEMENT'S 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 have been no sales of seismic data
during the three-month period ended June 30, 1999 or the year ended March 31,
1999.
The Registrant currently receives approximately $564,000 per year in
connection with services it provides 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. In June 1999, the remaining balance under the IH
line of
8
<PAGE>
credit was replaced with a new line of credit with NWO in which the
Registrant is allowed to draw up to $300,000 for general working capital
purposes. Interest payments to NWO calculated at the rate of 8.25% are due
monthly. Principal is due upon demand by NWO. Funds from the NWO line of
credit should be sufficient to fund the litigation and limited operations
through the date of the final decision by the Appellate Court; however, the
Registrant may be required to obtain additional capital to fund continuing
operations and pay off the IH and NWO loans and accrued interest when due.
As of June 30, 1999, the outstanding loan payable to IH was $1,202,636
and no amounts had been drawn under the line of credit with NWO. Unless funds
are received from the judgment or a settlement with Denison or another source
of revenue is established, the Registrant will not be able to repay its
obligations to IH or NWO if either demands repayment.
As previously noted, 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 who has 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 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
NWO 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.
9
<PAGE>
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.
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 and NWO loans 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 and NWO, there is
substantial doubt about the ability of the Registrant to continue as a going
concern in the event the judgment is overturned on appeal. 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
funds are received as a result, that revenue should be sufficient to repay
the IH and NWO loans and fund on-going operations and limited new exploration
activities.
YEAR 2000 READINESS
The Year 2000 issue is the result of computer programs being written
using two digits rather than four to define the applicable year. As a result,
any of the Registrant's computer programs that have date-sensitive software
may recognize a date using "00" as the year 1900 rather than the year 2000.
This could result in system failures or miscalculations causing disruptions
of operations of the Registrant.
Since 1996, the Registrant has replaced all of its computer hardware and
software with that which is Year 2000 compliant. The cost associated with
these upgrades was not material.
Failure of third parties upon whom the Registrant's business relies to
timely remediate their Year 2000 Issues could adversely affect the
Registrant's operations. However, the major third parties with whom the
Registrant deals have indicated that they are addressing the Year 2000 Issue
and intend to have the matter resolved before December 1999.
The Registrant has not, to date, implemented a Year 2000 Contingency
Plan. However, the Registrant is prepared to develop and implement a
contingency plan should the status of any of the above change.
10
<PAGE>
PART II - OTHER INFORMATION
ITEM 1. LEGAL PROCEEDINGS
In June 1994, the Registrant commenced legal action against Denison
seeking a declaration by the Court that amounts due the Registrant
attributable to its net profits interest in certain oil and gas producing
areas offshore Greece be calculated based on the terms of the License
Agreement prior to a 1993 amendment agreed to by the consortium and the Greek
government. On December 13, 1996, the Registrant received notification that
the Ontario Court of Justice (General Division) in Toronto, Canada, had
issued a judgment in its favor. Specifically, the Court found that Denison is
obligated to pay the Registrant its 15% net profits interest in accordance
with the terms of the License Agreement prior to the 1993 amendment. First,
the Court ordered Denison to pay $6,111,101 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 with
the Court in which it requested that the judgment be set aside for errors in
the judge's findings. The Registrant disagrees that there were errors made.
Therefore, it appears that the final determination will likely have to be
made by the Appellate Court. The 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. Accordingly, no
amounts have been recorded in the accompanying financial statements for
current revenues or damages, if any, that may ultimately be awarded to the
Registrant.
See the Registrant's Form 10-KSB for the fiscal year ended March 31,
1999, for a more detailed discussion of these legal proceedings.
ITEM 2. CHANGE IN SECURITIES
Not applicable.
ITEM 3. DEFAULTS UPON SENIOR SECURITIES
Not applicable.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
Not applicable.
ITEM 5. OTHER INFORMATION
Not applicable.
11
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ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K
(a) Exhibits filed herewith are listed below and if not located in
another previously filed registration statement or report, are attached to
this Report at the pages set out below. The "Exhibit Number" below refers to
the Exhibit Table in Item 601 of Regulation S-B. Those reports previously
filed with the Securities and Exchange Commission as required by Item 601 of
Regulation S-B are incorporated herein by reference, in accordance with the
provisions of Rule 12b-32, to the reports or registration statements
identified below.
<TABLE>
<CAPTION>
Exhibit Number Name of Exhibit Location
- -------------- --------------- --------
<S> <C> <C>
10.1 Promissory Note with NWO Page 13 of the signed original
Resources, Inc. dated June 30, 1999 of this report.
10.2 Security Agreement in favor of NWO Page 14 of the signed original
Resources, Inc. dated June 30, 1999 of this report.
</TABLE>
(b) No reports on Form 8-K were filed during the quarter for which this
Report is filed.
12
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SIGNATURES
In accordance with the requirements of the Exchange Act, the Registrant
caused this Report to be signed on its behalf by the undersigned, thereunto
duly authorized.
OCEANIC EXPLORATION COMPANY
Date: August 11, 1999 /s/ Charles N. Haas
------------------- ------------------------------
Charles N. Haas
President
Date: August 11, 1999 /s/ Lori A. Brundage
------------------- ------------------------------
Lori A. Brundage
Treasurer and Chief Financial Officer
<PAGE>
PROMISSORY NOTE
JUNE 30, 1999 $300,000.00
For value received, Oceanic International Properties Corporation
("OIPC"), a Colorado corporation, promises to pay to or to the order of NWO
Resources, Inc. ("NWO"), an Ohio corporation, the sum of Three Hundred
Thousand Dollars ($300,000.00) with interest from the date of each loan draw
at the rate of 8.25% per annum, payable at maturity. Principal and interest
are payable at 5000 South Quebec Street, Suite 450, Denver, Colorado 80237.
It is agreed that accrued interest hereunder shall be payable monthly
and that the principal amount of this Promissory Note and all accrued
interest hereunder is due and payable March 31, 2000. However, NWO may, at
its sole discretion, make demand on OIPC for repayment of all amounts due and
payable under this Promissory Note at any time prior to March 31, 2000. If
not paid when due, the principal and accrued interest hereunder shall draw
interest at the rate of Twelve percent (12%) per annum, and that failure to
make any payment of the principal and interest when due, or any default,
shall cause the whole Note to become due at once, or the interest to be
treated as principal at the option of the holder of the Note.
OIPC hereby waives presentment, demand, protest or notice of any kind in
connection with this Promissory Note but is entitled to the benefits of any
other right it may possess at law or in equity. If this Promissory Note or
interest thereon is not paid when due, or suit is brought, OIPC agrees to pay
all reasonable costs of collection, including a reasonable sum for attorneys'
fees.
This Promissory Note shall be construed in accordance with and governed
by the laws of the state of Colorado.
ATTEST: OCEANIC INTERNATIONAL PROPERTIES
CORPORATION
/s/ Janet A. Holle /s/ Charles N. Haas
- ------------------------- --------------------------
Janet A. Holle, Secretary Charles N. Haas, President
13
<PAGE>
SECURITY AGREEMENT
This Security Agreement made and entered into this 30th day of June,
1999 by Oceanic Exploration Company, a Delaware corporation, and Oceanic
International Properties Corporation, a Colorado corporation ("Debtor") whose
address is 5000 South Quebec Street, Suite 450, Denver, Colorado 80237, in
favor of NWO Resources, Inc., an Ohio corporation, whose address is 5000
South Quebec Street, Suite 450, Denver, Colorado 80237 ("Secured Party");
WITNESSETH:
WHEREAS, Debtor has a line of credit with Secured Party whereby Debtor is
entitled to make periodic draws up to the aggregate of $300,000.00, which
draws are evidenced by a promissory note payable no later than March 31,
2000; and
WHEREAS, Secured Party will continue such line of credit provided that Debtor
gives acceptable security for all past and future borrowings; and
WHEREAS, Debtor has offered to grant and Secured Party is willing to accept a
security interest in: (a) Debtor's 15% net earnings interest and the future
revenues attributable to such interest held through Denison Mines Limited
("Denison") in certain areas offshore Greece; and (b) all proceeds resulting
from or related to the litigation commenced in the Ontario Court (General
Division), Canada between Debtor and Denison, including any existing and
future accounts or other amounts receivable by Debtor from Denison; and
WHEREAS, Debtor has previously granted a security interest to International
Hydrocarbons ("IH"), the new security interest to be granted hereunder to
Secured Party will therefore be subordinated to the security interest held by
IH;
14
<PAGE>
NOW THEREFORE, for and in consideration of the premises and the agreements
herein contained and for other good and valuable consideration, the receipt
and sufficiency of which is hereby acknowledged, Debtor and Secured Party
hereby agree as follows:
ARTICLE I
SECURITY INTEREST
Section 1.01 GRANT OF SECURITY INTEREST. Debtor hereby grants to
Secured Party a security interest in, a general lien upon and a right of
set-off against, the following described property ("Collateral"):
(a) All of Debtor's right, title and interest in that certain Memorandum
of Agreement made the 30th day of June 1976 between Debtor and Denison
Mines Limited ("Denison") pursuant to which Denison purchased among other
things a certain 68.75% interest in a certain Exploration and Development
Agreement dated June 14, 1976, by and between the Greek State and Oceanic
Exploration Co. of Greece ("Oceanic of Greece"), Hellenic Oil Company,
Inc., Wintershall Aktiengesellschaft and White Shield Greece Oil
Corporation and pursuant to which a certain Oil Payment and Net Earnings
Interest as therein defined was reserved; as amended by a letter agreement
dated July 28, 1976, and as further amended by Memorandum made the 27th day
of August 1975 between Debtor, Oceanic of Greece, Denison, certain
Subsidiaries of Debtor therein defined; and certain additional Subsidiaries
of Debtor therein defined; and the Oil Payment and Net Earnings Interest
Agreement made the 30th day of August, 1976 between Debtor, Denison and
Oceanic of Greece.
(b) All of Debtor's accounts and general intangibles whether now
existing or hereafter arising relating to the property described in (a)
above.
(c) The proceeds, products, additions to, substitutions for and
accessions of the property described in (a) above.
15
<PAGE>
(d) All proceeds resulting from or related to the litigation commenced
in the Ontario Court (General Division), Canada ("Court") between Debtor
and Denison, including any existing and future accounts or other amounts
receivable by Debtor from Denison. In September 1996, the lawsuit went to
trial. In December 1996, Debtor received notification that the Court had
rendered a judgment in Debtor's favor. Subsequently, however, Denison
filed a Notice of Appeal requesting that the judgment be set aside.
Therefore, the final determination will be made by the Appellate Court.
The Appellate Court hearing before the Ontario Court of Appeal was held in
June 1999. However, the Ontario Court of Appeal has not as yet issued its
decision.
Section 1.02 OBLIGATIONS SECURED. The security interest in,
general lien upon, and right of set-off against the Collateral is granted to
secure the following Obligations: (a) payment of all indebtedness of Debtor
to Secured Party now or hereafter existing under or in connection with the
$300,000.00 line of credit in favor of Debtor or the promissory note issued
thereunder and any and all renewals, extensions for any period or
rearrangements thereof (the "Indebtedness"), (b) the performance of all
obligations of Debtor under this Security Agreement.
ARTICLE 2
REPRESENTATIONS AND WARRANTIES
In order to induce Secured Party to accept this Security
Agreement, Debtor represents and warrants to Secured Party that:
Section 2.01 OWNERSHIP AND LIENS. Except for the security
interest of IH and the subordinated security interest of Secured Party
granted in this Security Agreement, Debtor owns good and indefeasible title
to the Collateral free and clear of any other liens, adverse claims or
options. Debtor has full right, power and authority to grant a security
interest in the Collateral to Secured Party in the manner provided herein,
free and clear of any other liens, adverse claims and options except for the
security interest previously granted to IH. No other
16
<PAGE>
lien, adverse claim or option has been created by Debtor or is known by
Debtor to exist with respect to the Collateral except for the security
interest previously granted to IH; and to the best of Debtor's information
and belief, no financing statement or other security instrument is on file in
any jurisdiction covering such Collateral other than those in favor of
Secured Party and the security interest previously granted to IH. At the
time the security interest in favor of Secured Party attaches, good and
indefeasible title to all after-acquired property included within the
Collateral, free and clear of any other liens, adverse claims or options,
except for the security interest previously granted to IH, will be vested in
Debtor.
Section 2.02 LOCATION. Debtor's chief executive office and
principal and chief place of business is located at the address set forth in
the opening paragraph of this Security Agreement. The office where Debtor
keeps its records concerning accounts and general intangibles has the same
address as Debtor's chief executive office and principal and chief place of
business.
Section 2.03 SECURED PARTY'S SECURITY INTEREST. This Security
Agreement creates a valid and binding security interest in the Collateral
securing the Obligations. All filings and other actions necessary or
desirable to perfect or protect such security interest have been duly taken.
No further or subsequent filing, recording, registration or other public
notice of such security interest is necessary in any office or jurisdiction
in order to perfect such security interest or to continue, preserve or
protect such security interest except for continuation statements or for
filings upon the occurrence of any of the events stated in Section 3.05 of
this Security Agreement. Such perfected security interest in the Collateral
constitutes a second-priority security interest under the Uniform Commercial
Code as presently in effect in the State of Colorado (the "Code") subordinate
only to the first-priority security interest previously granted to IH.
Section 2.04 BINDING OBLIGATIONS. This Security Agreement
constitutes valid and binding obligations of Debtor, enforceable in
accordance with its terms (except that
17
<PAGE>
enforcement may be subject to any applicable bankruptcy, insolvency or
similar laws generally affecting the enforcement of creditors' rights).
Section 2.05 NO LEGAL BAR OR RESULTANT LIEN. This Security
Agreement does not and will not violate any provisions of the articles or
certificate of incorporation or bylaws of Debtor or any contract, agreement,
law, regulation, order, injunction, judgment, decree or writ to which Debtor
is subject.
Section 2.06 NO CONSENT. Debtor's delivery and performance of
this Security Agreement, does not require the consent or approval of any
other person, including without limitation any regulatory authority or
governmental body of the United States or any state thereof or any political
subdivision of the United States or any state thereof.
Section 2.07 BENEFIT. Debtor's grant of a security interest in
favor of Secured Party in accordance with this Security Agreement reasonably
may be expected to benefit, directly or indirectly, Debtor.
ARTICLE 3
COVENANTS AND AGREEMENTS
Section 3.01 FURTHER ASSURANCES. Debtor will from time to time
sign, execute, deliver and file, alone or with Secured Party, any financing
statements, security agreements or other documents; procure any instruments
or documents as may be requested by Secured Party; and take all further
action that may be necessary or desirable, or that Secured Party may request,
to confirm, perfect, preserve and protect the security interest intended to
be granted hereby. Debtor shall do all such additional and further acts or
things, give such assurances and execute such documents or instruments as
Secured Party requires to vest more completely in and assure to Secured Party
its rights under this Security Agreement.
18
<PAGE>
Section 3.02 DELIVERY OF INFORMATION. Debtor will transmit to
Secured Party promptly all information that Debtor may have or receive with
respect to the Collateral which might in any way affect the value of the
Collateral or Secured Party's rights or remedies with respect thereto.
Section 3.03 COMPROMISE OF COLLATERAL. Debtor will not adjust,
settle or compromise any rights respecting the Collateral without the prior
written consent of Secured Party.
Section 3.04 EXPENSES. Debtor agrees to pay to Secured Party all
advances, charges, costs and expenses (including attorneys' fees and legal
expenses) incurred by Secured Party in connection with the transaction which
gives rise to this Security Agreement, in connection with executing,
confirming, perfecting and preserving the security interest created under
this Security Agreement, in connection with protecting Secured Party against
claims or interests of any person against the Collateral, and in exercising
any right, power or remedy conferred by this Security Agreement or by law or
in equity (including, but not limited to, attorneys' fees and legal expenses
incurred by Secured Party in the collection of instruments deposited with or
purchased by Secured Party and amounts incurred in connection with the
operation, maintenance or foreclosure of the Collateral). The amount of all
such advances, charges, costs and expenses shall be due and payable to
Secured Party upon demand together with interest thereon.
Section 3.05 FINANCING STATEMENT FILINGS; NOTIFICATIONS. Debtor
recognizes that financing statements pertaining to the Collateral have been
or will be filed with the office of the Secretary of State for the State of
Colorado. Debtor will immediately notify Secured Party of any condition or
event that may change the proper location for the filing of any financing
statements or other public notice or recordings for the purpose of perfecting
a security interest in the Collateral. Without limiting the generality of
the foregoing, Debtor will (a) immediately notify Secured Party of any change
to another jurisdiction (i) in the
19
<PAGE>
location of Debtor's chief executive office or principal and chief place of
business; (ii) in the location of the office where Debtor keeps its records
concerning accounts; and (b) immediately notify Secured Party of any change
in Debtor's name, identity or corporate structure. In any notice furnished
pursuant to this paragraph, Debtor will expressly state that the notice is
required by this Security Agreement and contains facts that will or may
require additional filings of financing statements or other notices for the
purpose of continuing perfection of the Secured Party's security interest in
the Collateral.
ARTICLE 4
EVENTS OF DEFAULT AND REMEDIES
Section 4.01 EVENTS. Any of the following events shall be
considered an "Event of Default" as that term is used herein:
(a) Principal and Interest Payments - default is made in the
payment when due of any installment of principal or interest on the
promissory note issued in connection with the line of credit or of any
other fee provided for herein; or
(b) Representations and Warranties - any representation or
warranty by Debtor herein proves to have been incorrect in any material
respect as of the date when made or deemed made; or
(c) Covenants - default is made in the due observance of
performance by Debtor of any of the covenants or agreements contained in
this Security Agreement and such default continues unremedied for a period
of thirty (30) days after notice thereof being given by Secured Party to
Debtor; or
(d) Involuntary Bankruptcy or Other Proceedings - an involuntary
case or other proceeding shall be commenced against Debtor which seeks
liquidation,
20
<PAGE>
reorganization or other relief with respect to it or its debts or other
liabilities under any bankruptcy, insolvency or other similar law now or
hereafter in effect or seeking the appointment of a trustee, receiver,
liquidator, custodian or other similar official of it or any substantial
part of its property, and such involuntary case or other proceeding shall
remain undismissed or unstayed for a period of thirty (30) days; or an
order for relief against Debtor shall be entered in any such case under
the Federal Bankruptcy Code; or
(e) Voluntary Petitions, etc. - Debtor shall commence a
voluntary case or other proceeding seeking liquidation, reorganization or
other relief with respect to itself or its debts or other liabilities under
any bankruptcy, insolvency or other similar law now or hereafter in effect
or seeking the appointment of a trustee, receiver, liquidator, custodian or
other similar official of it or any substantial part of its property, or
shall consent to any such relief or to the appointment of or taking
possession by any such official in an involuntary case or other proceeding
commenced against it, or shall make a general assignment for the benefit of
creditors, or shall fail generally to, or shall admit in writing its
inability to pay its debts generally as they become due, or shall take any
corporate action to authorize or effect any of the foregoing.
Section 4.02 DEFAULT REMEDIES. Upon the occurrence of any Event
of Default described in Section 4.01 (d) or (e), hereof, lending obligations
of Secured Party under the line of credit in favor of Debtor, shall
immediately terminate, and the notes thereunder shall become immediately due
and payable, all without written notice and without presentment, demand,
protest, notice of protest or dishonor or any other notice of default of
any kind, all of which are hereby expressly waived by the Debtor. Upon
the occurrence of any other Event of Default specified in Section 4.01
hereof, at any time during the continuance of such Event of Default, Secured
Party may by written notice to Debtor declare the entire principal amount of
all Indebtedness then outstanding including interest accrued thereon to be
immediately due and payable without presentment, demand, protest, notice of
protest or dishonor or other notice of
21
<PAGE>
default of any kind, all of which are hereby expressly waived by the
Debtor, and the lending obligations of Secured Party under the line of
credit shall immediately terminate unless and until Secured Party shall
reinstate same in writing.
Upon the happening and during the continuance of any Event of
Default Secured Party may then, or at any time thereafter and from time to
time, apply, set-off, collect, sell in one or more sales, lease, or otherwise
dispose of, any or all of the Collateral, in its then condition or following
any commercially reasonable preparation or processing, in such order as
Secured Party may elect, and any such sale may be made either at public or
private sale at its place of business or elsewhere, or at any brokers' board
or securities exchange, either for cash or upon credit or for future
delivery, at such price as Secured Party may deem fair, and Secured Party may
be the purchaser of any or all Collateral so sold and may hold the same
thereafter in its own right free from any claim of Debtor or right of
redemption. No such purchase or holding by Secured Party shall be deemed a
retention by Secured Party in satisfaction of the Obligations. All demands,
notices and advertisements, and the presentment of property at sale are
hereby waived. If, notwithstanding the foregoing provisions, any applicable
provision of the Code or other law requires Secured Party to give reasonable
notice of any such sale or disposition or other action, Debtor hereby agree
five (5) days' prior written notice shall constitute reasonable notice.
Secured Party may require Debtor to assemble the Collateral and make it
available to Secured Party at a place designated by Secured Party which is
reasonably convenient to Secured Party and Debtor. Any sale hereunder may be
conducted by an auctioneer or any officer or agent of Secured Party.
Section 4.03 RIGHT OF SET-OFF. Upon the happening and during the
continuance of any Event of Default Secured Party is hereby authorized to
then, or at any time thereafter and from time to time, without notice to
Debtor apply and set-off (i) any and all deposits (general or special, time
or demand, provisional or final) of Debtor at any time held by Secured Party;
(ii) any and all other claims of Debtor against Secured Party, now or
hereafter existing, (iii) any and all other indebtedness at any time owing by
Secured Party to or for the
22
<PAGE>
account of Debtor; (iv) any and all money, instruments, securities,
documents, chattel paper, credits, claims, demands and other property, rights
or interests of Debtor which at any time shall come into the possession or
custody or under the control of Secured Party, for any purpose; and (v) the
proceeds of any of the foregoing property against the Obligations as if the
same were included in the Collateral, and Debtor hereby grants to Secured
Party a security interest in, a general lien upon, and a right to so set-off
and apply such property against the Obligations regardless of whether or not
Secured Party shall have made any demand for payment of the Indebtedness or
shall have given any other notice. Secured Party agrees to promptly notify
Debtor after any such set-off and application, provided, however, the failure
of Secured Party to give any such notice shall not affect the validity of
such set-off and application. The rights of Secured Party under this Section
are in addition to other rights and remedies (including, without limitation,
other rights of set-off) which Secured Party may have.
Section 4.04 PROCEEDS. After the happening of any Event of
Default the proceeds of any sale or other disposition of the Collateral and
all sums received or collected by Secured Party from or on account of the
Collateral shall be applied by Secured Party in the manner set forth in the
Code.
Section 4.05 DEFICIENCY. Debtor shall remain liable to Secured
Party for any unpaid Indebtedness, advances, costs, charges and expenses,
together with interest thereon.
Section 4.06 SECURED PARTY'S DUTIES. The powers conferred upon
Secured Party by this Security Agreement are solely to protect its interest
in the Collateral and shall not impose any duty upon Secured Party to
exercise any such powers. Secured Party shall be under no duty whatsoever to
make or give any presentment, demand for performance, notice of
nonperformance, protest, notice of protest, notice of dishonor, or other
notice or demand in connection with any Collateral or the Obligations, or to
take any steps necessary to preserve any rights against prior parties.
Secured Party shall not be liable for failure to collect or realize upon any
or all of the Obligations or Collateral, or for any delay in so doing, nor
shall
23
<PAGE>
Secured Party be under any duty to take any action whatsoever with regard
thereto. Secured Party shall use reasonable care in the custody and
preservation of any Collateral in its possession but need not take any steps
to keep the Collateral identifiable. Secured Party shall have no duty to
comply with any recording, filing, or other legal requirements necessary to
establish or maintain the validity, priority or enforceability of, or Secured
Party's rights in or to, any of the Collateral.
Section 4.07 CONTINUING AGREEMENT. This is a continuing Security
Agreement and the grant of a security interest hereunder shall remain in full
force and effect and all the rights, powers and remedies of Secured Party
hereunder shall continue to exist until the Indebtedness is paid in full as
the same becomes due and payable, until Secured Party has no further
obligation to advance monies to Debtor pursuant to the line of credit in
favor of Debtor and until Secured Party, upon request of Debtor, has executed
a written termination statement, reassigned to Debtor without recourse, the
Collateral and all rights conveyed hereby and returned possession of the
Collateral to Debtor.
Section 4.08 CUMULATIVE RIGHTS. The rights, powers and remedies
of Secured Party hereunder shall be in addition to all rights, powers and
remedies given by statute or rule of law and are cumulative. The exercise of
any one or more of the rights, powers and remedies provided herein shall not
be construed as a waiver of any other rights, powers and remedies of Secured
Party. Furthermore, regardless of whether or not the Uniform Commercial Code
is in effect in the jurisdiction where such rights, powers and remedies are
asserted, Secured Party shall have the rights, powers and remedies of a
secured party under the Code.
Section 4.09 EXERCISE OF RIGHTS, ETC. Time shall be of the
essence for the performance of any act under this Security Agreement or the
Obligations by Debtor but neither Secured Party's acceptance of partial or
delinquent payments nor any forbearance, failure or delay by Secured Party in
exercising any right, power or remedy shall be deemed a waiver of
24
<PAGE>
any obligation of Debtor or of any right, power or remedy of Secured Party or
preclude any other or further exercise thereof; and no single or partial
exercise of any right, power or remedy shall preclude any other or further
exercise thereof, or the exercise of any other right, power or remedy.
Section 4.10 REMEDY AND WAIVER. Secured Party may remedy any
Default without waiving the Default remedied and may waive any Default
without waiving any prior or subsequent Default.
ARTICLE 5
MISCELLANEOUS
Section 5.01 PRESERVATION OF LIABILITY. Neither this Security
Agreement nor the exercise by Secured Party of (or the failure to so
exercise) any right, power or remedy conferred herein or by law shall be
construed as relieving Debtor from liability on the Indebtedness and for any
deficiency thereon.
Section 5.02 NOTICES. Any notice or demand under this Security
Agreement or in connection with this Security Agreement shall be in writing
and shall be mailed by first class or express mail, postage prepaid, or sent
by telecopy or other similar form of rapid transmission or personally
delivered to an officer of the receiving party. All such communications
shall be mailed, sent or delivered to Debtor or Secured Party at their
respective addresses shown in the first paragraph of this Security Agreement.
Section 5.03 CONSTRUCTION. This Security Agreement has been made
in and the security interest granted hereby is granted in and each shall be
governed by the laws of the State of Colorado and of the United States of
America, as applicable, in all respects, including matters of construction,
validity, enforcement and performance.
25
<PAGE>
Section 5.04 AMENDMENT AND WAIVER. This Security Agreement may
not be amended (nor may any of its terms be waived) unless such amendment or
waiver is in writing and is executed by Debtor and Secured Party.
Section 5.05 INVALIDITY. If any provision of this Security
Agreement is rendered or declared invalid, illegal or unenforceable by reason
of any existing or subsequently enacted legislation or by a judicial decision
which shall have become final, Debtor and Secured Party shall promptly meet
and negotiate substitute provisions for those rendered invalid, illegal or
unenforceable, but all of the remaining provisions shall remain in full force
and effect.
Section 5.06 SUCCESSORS AND ASSIGNS. The covenants, and
agreements herein contained by or on behalf of Debtor shall bind their
successors and assigns and shall inure to the benefit of Secured Party, its
successors and assigns.
Section 5.07 TITLES OF ARTICLES, SECTIONS AND SUBSECTIONS. All
titles or headings to articles, sections, subsections or other divisions of
this Security Agreement are only for the convenience of the parties and shall
not be construed to have any effect or meaning with respect to the other
content of such articles, sections, subsections or other divisions, such
other content being controlling as to the agreement between the parties
hereto.
Section 5.08 COUNTERPARTS. This Security Agreement may be
executed in two or more counterparts, and it shall not be necessary that the
signatures of all parties hereto be contained on any one counterpart hereof;
each counterpart shall be deemed an original, but all together shall
constitute one and the same instrument.
26
<PAGE>
IN WITNESS HEREOF, Debtor and Secured Party have caused this instrument
to be duly executed as of the date first above written.
DEBTOR:
OCEANIC EXPLORATION COMPANY
By /s/ Charles N. Haas
---------------------------
President
OCEANIC INTERNATIONAL PROPERTIES
CORPORATION
By /s/ Charles N. Haas
---------------------------
President
SECURED PARTY:
NWO RESOURCES, INC.
By /s/ John E. Jones
---------------------------
Secretary/Treasurer
27
<TABLE> <S> <C>
<PAGE>
<ARTICLE> 5
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM FORM 10-QSB
FOR THE QUARTER ENDED JUNE 30, 1999, AND IS QUALIFIED IN ITS ENTIRETY BY
REFERENCE TO SUCH FINANCIAL STATEMENTS.
</LEGEND>
<S> <C>
<PERIOD-TYPE> 3-MOS
<FISCAL-YEAR-END> MAR-31-2000
<PERIOD-END> JUN-30-1999
<CASH> 25,634
<SECURITIES> 0
<RECEIVABLES> 31,941
<ALLOWANCES> 0
<INVENTORY> 0
<CURRENT-ASSETS> 63,035
<PP&E> 39,000,000
<DEPRECIATION> (39,000,000)
<TOTAL-ASSETS> 64,795
<CURRENT-LIABILITIES> 2,125,287
<BONDS> 0
0
0
<COMMON> 619,759
<OTHER-SE> 155,696
<TOTAL-LIABILITY-AND-EQUITY> 64,795
<SALES> 0
<TOTAL-REVENUES> 141,690
<CGS> 0
<TOTAL-COSTS> 0
<OTHER-EXPENSES> 214,436
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 29,206
<INCOME-PRETAX> (101,952)
<INCOME-TAX> 0
<INCOME-CONTINUING> (101,952)
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (101,952)
<EPS-BASIC> (.01)
<EPS-DILUTED> (.01)
</TABLE>
