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UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-Q
[X] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
For the quarterly period ended March 31, 2004
-------------------------------------
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
For the transition period from ________________ to _________________
Commission file number 1-4668
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COASTAL CARIBBEAN OILS & MINERALS, LTD.
---------------------------------------
(Exact name of registrant as specified in its charter)
BERMUDA NONE
- ------------------------------- -------------------
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
Clarendon House, Church Street, Hamilton, Bermuda HM 11
- --------------------------------------------------------------------------------
(Address of principal executive offices) (Zip Code)
(850) 653-9165
- --------------------------------------------------------------------------------
(Registrant's telephone number, including area code)
- --------------------------------------------------------------------------------
(Former name, former address and former fiscal year,
if changed since last report)
Indicate by check mark whether the registrant (l) has filed all reports
required to be filed by Section 13 or 15 (d) of the Securities Exchange Act of
l934 during the preceding 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. |X| Yes |_| No
Indicate by check mark whether the registrant is an accelerated filer (as
defined in Rule 12b-2 of the Exchange Act). |_| Yes |X| No
The number of shares outstanding of the issuer's single class of common
stock as of April 30, 2004 was 46,211,604.
COASTAL CARIBBEAN OILS & MINERALS, LTD.
FORM 10-Q
MARCH 31, 2004
Table of Contents
PART I - FINANCIAL INFORMATION
ITEM 1 Financial Statements Page
- ------ -------------------- ----
Consolidated balance sheets at March 31, 2004 and December 31, 2003 3
Consolidated statements of operations for the three month periods ended
March 31, 2004 and 2003 and for the period from January 31, 1953
(inception) to March 31, 2004 4
Consolidated statements of cash flows for the three month periods ended
March 31, 2004 and 2003 and for the period from January 31, 1953
(inception) to March 31, 2004 5
Notes to consolidated financial statements 6
ITEM 2 Management's Discussion and Analysis of Financial Condition and Results
of Operations 9
ITEM 3 Quantitative and Qualitative Disclosure About Market Risk 12
ITEM 4 Controls and Procedures 12
PART II - OTHER INFORMATION
ITEM 5 Other Information 13
ITEM 6 Exhibits and Reports on Form 8-K 14
Signatures 15
2
COASTAL CARIBBEAN OILS & MINERALS, LTD.
FORM 10-Q
PART I - FINANCIAL INFORMATION
ITEM 1 Financial Statements
- ------ --------------------
CONSOLIDATED BALANCE SHEETS
(Expressed in U.S. dollars)
(A Bermuda Corporation)
A Development Stage Company
March 31, December 31,
--------- ------------
2004 2003
--------- ------------
Assets (unaudited) (Note)
Current assets:
Cash and cash equivalents $ 1,270 $ 2,875
Prepaid expenses and other 56,537 87,947
------------ ------------
Total current assets 57,807 90,822
------------ ------------
Contingent litigation claim (Note 4) - -
------------ ------------
Total assets $ 57,807 $ 90,822
============ ============
Liabilities and Shareholders' (Deficit) Equity
Current liabilities:
Accounts payable and accrued liabilities $ 824,965 $ 805,110
Amounts due to related parties 1,192,561 1,053,800
------------ ------------
Total current liabilities 2,017,526 1,858,910
------------ ------------
Minority interests - -
Shareholders' (deficit) equity
Common stock, par value $.12 per share:
Authorized - 250,000,000 shares
Outstanding - 46,211,604, respectively 5,545,392 5,545,392
Capital in excess of par value 32,137,811 32,137,811
------------ ------------
37,683,203 37,683,203
Deficit accumulated during the development stage (39,642,922) (39,451,291)
------------ ------------
Total shareholders' (deficit) equity (1,959,719) (1,768,088)
------------ ------------
Total liabilities and shareholders' (deficit) equity $ 57,807 $ 90,822
============ ============
Note: The balance sheet at December 31, 2003 has been derived from
the audited consolidated financial statements at that date.
See accompanying notes.
3
COASTAL CARIBBEAN OILS & MINERALS, LTD.
FORM 10-Q
PART I - FINANCIAL INFORMATION
ITEM 1 Financial Statements
- ------ --------------------
CONSOLIDATED STATEMENTS OF OPERATIONS
(Expressed in U.S. dollars)
(A Bermuda Corporation)
A Development Stage Company
(unaudited)
For the
period from
Jan. 31, 1953
Three months ended (inception)
------------------ to March 31,
March 31, 2004
--------- ----
2004 2003
---- ----
Interest and other income $ 0 $ 453 $ 3,877,570
----------- ----------- ------------
Expenses:
Legal fees and costs 84,389 119,932 16,656,977
Administrative expenses 75,917 169,103 9,603,196
Salaries 24,760 34,117 3,667,733
Shareholder communications 6,565 6,345 3,955,092
Write off of unproved properties - - 5,560,494
Exploration costs - - 247,465
Lawsuit judgments - - 1,941,916
Minority interests - - (632,974)
Other - - 364,865
Contractual services - - 2,155,728
----------- ----------- ------------
191,631 329,497 43,520,492
----------- ---------- -----------
Net loss $ (191,631) $ (329,044)
=========== ===========
Deficit accumulated during
the development stage $(39,642,922)
============
Average number of shares
outstanding (basic & diluted) 46,211,604 46,211,604
=========== ===========
Net loss per share (basic & $ (.01) $ (.01)
diluted) ======= =======
See accompanying notes.
4
COASTAL CARIBBEAN OILS & MINERALS, LTD.
FORM 10-Q
PART I - FINANCIAL INFORMATION
ITEM 1 Financial Statements
- ------ --------------------
CONSOLIDATED STATEMENTS OF CASH FLOWS
(Expressed in U.S. Dollars)
(A Bermuda Corporation)
A Development Stage Company
(unaudited)
For the period from
Three months ended Jan. 31, 1953
March 31, (inception)
--------------------------------- To
2004 2003 March 31, 2004
------------ ------------ --------------
Operating activities:
Net loss $ (191,631) $ (329,044) $(39,642,923)
Adjustments to reconcile net loss to net cash
used in operating activities:
Minority interest - - (632,974)
Write off of unproved properties - - 5,619,741
Common stock issued for services - - 119,500
Compensation recognized for stock option grant - - 75,000
Recoveries from previously written off properties - - 252,173
Net change in:
Prepaid expenses and other 31,410 91,322 (56,538)
Accrued liabilities 141,616 (10,444) 2,000,528
------------ ------------ ------------
Net cash used in operating activities (18,605) (248,166) (32,265,493)
------------ ------------ ------------
Investing activities:
Additions to oil, gas, and mineral properties
net of assets acquired for common stock and
reimbursements - - (3,740,182)
Proceeds from relinquishment of surface rights - - 246,733
Purchase of fixed assets - - (61,649)
------------ ------------ ------------
Net cash used in investing activities - - (3,555,098)
------------ ------------ ------------
Financing activities:
Loans from officers 17,000 - 17,000
Sale of common stock net of expenses - - 30,380,612
Shares issued upon exercise of options - - 884,249
Sale of shares by subsidiary - 50,000 820,000
Sale of subsidiary shares 3,720,000
------------ ------------ ------------
- -
Net cash provided by financing activities 17,000 50,000 35,821,861
------------ ------------ ------------
Net (decrease) increase in cash and cash equivalents (1,605) (198,166) 1,270
Cash and cash equivalents at beginning of period 2,875 292,095 -
------------ ------------ ------------
Cash and cash equivalents at end of period $ 1,270 $ 93,929 $ 1,270
============ ============ ============
See accompanying notes.
5
COASTAL CARIBBEAN OILS & MINERALS, LTD.
FORM 10-Q
PART I - FINANCIAL INFORMATION
ITEM 1 Financial Statements
- ------ --------------------
Note 1. Basis of Presentation
---------------------
The accompanying unaudited consolidated financial statements include the
Company's 58.45% owned subsidiary, Coastal Petroleum Company (Coastal Petroleum)
and have been prepared in accordance with generally accepted accounting
principles for interim financial information and with the instructions to Form
10-Q and Rule 10-01 of Regulation S-X. Accordingly, they do not include all of
the information and footnotes required by generally accepted accounting
principles for complete financial statements. In the opinion of management, all
adjustments considered necessary for a fair presentation have been included. All
such adjustments are of a normal recurring nature. Operating results for the
three month period ended March 31, 2004 are not necessarily indicative of the
results that may be expected for the year ending December 31, 2004. For further
information, refer to the consolidated financial statements and footnotes
thereto included in the Company's Annual Report on Form 10-K for the year ended
December 31, 2003.
Note 2. Litigation
----------
Florida Litigation
- ------------------
Coastal Petroleum has been involved in various lawsuits for many years.
Coastal Petroleum's current litigation now involves one basic claim: whether the
State's offshore drilling policy and its denial of a permit constitute a taking
of Coastal Petroleum's property. In addition, Coastal Caribbean is a party to
another action in which Coastal Caribbean claims that certain of its royalty
interests have been confiscated by the State.
Lease Taking Case (Lease 224-A)
- -------------------------------
On April 7, 2004, Coastal filed a Petition for Writ of Certiorari with the
United States Supreme Court asking the Court to accept jurisdiction to consider
the final judgment of the trial court as affirmed by the appellate court,
finding no taking of Coastal's property. After jurisdictional briefs are
submitted the Court will decide whether to exercise its jurisdiction and if so
briefs on the merits will be required.
Royalty Taking Case
- -------------------
There has been no material change in these proceedings during this quarter.
Lease Taking Case (Lease 224-B)
- -------------------------------
There has been no material change in these proceedings during this quarter.
6
COASTAL CARIBBEAN OILS & MINERALS, LTD.
FORM 10-Q
PART I - FINANCIAL INFORMATION
ITEM 1 Financial Statements
- ------ --------------------
Note 3. Loss per share
--------------
Loss per share is based upon the weighted average number of common and
common equivalent shares outstanding during the period. The Company's basic and
diluted calculations of EPS are the same because the exercise of options is not
assumed in calculating diluted EPS, as the result would be anti-dilutive (the
Company has continuing losses).
Note 4. Stock Options
-------------
The Company has elected to follow Accounting Principles Board Opinion No.
25, "Accounting for Stock Issued to Employees" (APB No. 25) and related
interpretations in accounting for its stock options because the alternative fair
value accounting provided under FASB Statement No. 123, "Accounting for Stock
Based Compensation," requires use of option valuation models that were not
developed for use in valuing stock options. Under APB No. 25, because the
exercise price of the Company's stock options equals the market price of the
underlying stock on the date of grant, no compensation expense is recognized.
Pro forma information regarding net income and earnings per share is
required by Statement 123, and has been determined as if the Company had
accounted for its stock options under the fair value method of that Statement.
The fair value for these options was estimated at the date of grant using a
Black-Scholes option pricing model.
Summary of Options Outstanding at March 31, 2004
- ------------------------------------------------
Granted Expiration Total Vested Exercise Prices ($)
- ------- ---------- ----- ------ -------------------
2000 March 22, 2010 700,000 700,000 .91
------- ------- ---
700,000 700,000 .91
======= =======
(Weighted Average)
Options reserved for 75,000
- --------------------
future grants
- -------------
The assumptions used in the 2000 valuation model were: risk free interest rate -
6.66%, expected life - 10 years, expected volatility - .741, and expected
dividend - 0. Because the Company's stock options have characteristics
significantly different from those of traded options, and because changes in the
subjective input assumptions can materially affect the fair value estimate, in
management's opinion, the existing models do not necessarily provide a reliable
single measure of the fair value of its stock options.
Had the Company determined stock-based compensation based on the fair value of
the options granted at the grant date, consistent with the method prescribed
under SFAS No. 123, there would have been no change to the Company's net loss
for the three months ended March 31, 2004 and 2003.
7
COASTAL CARIBBEAN OILS & MINERALS, LTD.
FORM 10-Q
PART I - FINANCIAL INFORMATION
ITEM 1 Financial Statements
- ------ --------------------
Note 5. Going Concern
-------------
The Company has a working capital deficiency, has a limited amount of cash,
has incurred recurring losses and has a deficit accumulated during the
development stage. We have been and continue to be involved in several legal
proceedings against the State of Florida which has limited our ability to
commence development activities on our unproven oil and gas properties or obtain
compensation for certain property rights we believe have been taken. The cost of
that litigation has been substantial, which requires the Company to continually
obtain additional capital.
The Company has received a commitment from some of its Officers to loan the
Company funds which management believes should be sufficient to fund the
Company's operations through June 2004, provided that payments to the Company's
litigation counsel and to the Company's salaried employee are deferred and
provided further that payments to other Company counsel are also deferred. These
loans totaled approximately $30,000 through April 26, 2004. There can be no
assurances these loans will allow the Company to continue operations for any
significant length of time. The Company may have to suspend or cease operations
and may have to wind up the Company or be forced into insolvent liquidation
under the laws of Bermuda unless and until the Company can secure additional
financing.
These situations raise substantial doubt about the Company's ability to
continue as a going concern. The consolidated financial statements do not
include any adjustments to reflect the possible future effects on the
recoverability and classification of assets or amounts and classification of
liabilities, which may result from the outcome of this uncertainty.
8
COASTAL CARIBBEAN OILS & MINERALS, LTD.
FORM 10-Q
PART I - FINANCIAL INFORMATION
ITEM 2 Management's Discussion and Analysis of Financial Condition and Results
- ------ -----------------------------------------------------------------------
of Operations
-------------
Forward Looking Statements
Statements included in Management's Discussion and Analysis of Financial
Condition and Results of Operations which are not historical in nature are
intended to be forward looking statements. The Company cautions readers that
forward looking statements are subject to certain risks and uncertainties that
could cause actual results to differ materially from those indicated in the
forward looking statements. Among the risks and uncertainties are: the
uncertainty of securing additional financing through the sale of shares of
Coastal Petroleum and/or Coastal Caribbean; the uncertainty of any decision
favorable to Coastal Petroleum in its litigation against the State of Florida;
and the substantial cost of continuing the litigation.
Critical Accounting Policies
The Company follows the full cost method of accounting for its oil and gas
properties. All costs associated with property acquisition, exploration and
development activities whether successful or unsuccessful are capitalized. Since
the Company's properties were undeveloped and nonproducing and the subject of
litigation, capitalized costs were not being amortized.
The capitalized costs are subject to a ceiling test which basically limits
such costs to the aggregate of the estimated present value discounted at a 10%
rate of future net revenues from proved reserves, based on current economic and
operating conditions, plus the lower of cost or fair market value of unproved
properties.
The Company assesses whether its unproved properties are impaired on a
periodic basis. This assessment is based upon work completed on the properties
to date, the expiration date of its leases and technical data from the
properties and adjacent areas. These properties are subject to extensive
litigation with the State of Florida and all costs to date have been expensed
for impairment.
9
COASTAL CARIBBEAN OILS & MINERALS, LTD.
FORM 10-Q
PART I - FINANCIAL INFORMATION
ITEM 2 Management's Discussion and Analysis of Financial Condition and Results
- ------ -----------------------------------------------------------------------
of Operation (Cont'd)
---------------------
Liquidity and Capital Resources
Liquidity
The Company has a working capital deficiency, has a limited amount of cash,
has incurred recurring losses and has a deficit accumulated during the
development stage. We have been and continue to be involved in several legal
proceedings against the State of Florida which has limited our ability to
commence development activities on our unproven oil and gas properties or obtain
compensation for certain property rights we believe have been taken. The cost of
that litigation has been substantial, which requires the Company to continually
obtain additional capital.
At March 31, 2004, Coastal Caribbean had approximately $1,000 of cash and
cash equivalents available. In addition, the Company has received a commitment
from some of its Officers to loan the Company funds which management believes
should be sufficient to fund the Company's operations through June 2004,
provided that payments to the Company's litigation counsel and to the Company's
salaried employee are deferred and provided further that payments to other
Company counsel are also deferred. These loans totaled approximately $30,000
through April 26, 2004. There can be no assurances these loans will allow the
Company to continue operations for any significant length of time.
Certain directors, officers, legal counsel and administrative consultants
have agreed to defer the payment of their salaries and fees. At March 31, 2004,
the amount of salaries and fees being deferred totaled approximately $1,193,000.
After the filing of the 10-Q, the Company may have to suspend or cease
operations and may have to wind up the company or be forced into insolvent
liquidation under the laws of Bermuda unless and until the Company can secure
additional funds for operations.
Coastal Caribbean and Coastal Petroleum have attempted to raise funds from
the other shareholders of Coastal Petroleum and from others. Since March 2003,
Management has been unsuccessful at raising additional funds.
The Company's annual rental payments on its Florida leases of approximately
$59,000 are due beginning in July 2004.
These situations raise substantial doubt about the Company's ability to
continue as a going concern. The consolidated financial statements do not
include any adjustments to reflect the possible future effects on the
recoverability and classification of assets or amounts and classification of
liabilities, which may result from the outcome of this uncertainty.
10
COASTAL CARIBBEAN OILS & MINERALS, LTD.
FORM 10-Q
PART I - FINANCIAL INFORMATION
ITEM 2 Management's Discussion and Analysis of Financial Condition and Results
- ------ -----------------------------------------------------------------------
of Operation (Cont'd)
---------------------
Results of Operations
- ---------------------
Three months ended March 31, 2004 vs. March 31, 2003
- ----------------------------------------------------
The Company incurred a loss of $192,000 for the 2004 quarter, compared to a
loss of $329,000 for the comparable 2003 quarter.
Interest income and other income decreased 100% from $500 in the 2003
quarter to $-0- in the 2004 quarter because of the decrease in the amount of
funds available to invest.
Legal fees and costs decreased 30% to $84,000 for the 2004 quarter,
compared to $120,000 in the prior period. Legal fees and costs decreased in 2004
compared with 2003 due to reduction in expenditures for legal fees and experts
related to Coastal Petroleum Company's lawsuit against the State of Florida
seeking compensation for the State's taking of its property rights to explore
for oil and gas within its state Lease 224-A.
Administrative expenses decreased 55% during the 2004 period to $76,000
compared to $169,000 in the 2003 period. Accounting and administrative expenses
decreased from $25,000 in the 2003 period to $21,000 in the 2004 period. In
addition, Directors' and Officers' liability insurance decreased from $84,000 in
2003 to $27,000 in the 2004 quarter.
Salaries decreased 27% in the 2004 quarter to $25,000 compared to $34,000
in the 2003 quarter as a result of the resignation of the President of the
Company effective February 28, 2003. The Company's other salaried employee was
elected President on March 1, 2003 without any increase in compensation.
Shareholder communications increased 3% during the 2004 period to $7,000
from $6,000 in the 2003 period.
11
ITEM 3 Quantitative and Qualitative Disclosure About Market Risk
- ------ ---------------------------------------------------------
The Company does not have any significant exposure to market risk as there
were no investments in marketable securities at March 31, 2004.
ITEM 4 Controls and Procedures
- ------ -----------------------
We, Phillip W. Ware, the principal executive officer and Kenneth M.
Cornell, the principal financial officer, have evaluated the Company's
disclosure controls and procedures (as defined in Rules 13a-14(c) and 15d-14(c)
adopted under the Securities Act of 1934) within the ninety (90) day period
prior to the date of this report and have concluded:
1. That the Company's disclosure controls and procedures are adequately
designed to ensure that material information relating to the Company,
including its consolidated subsidiary, is timely made known to such
officers by others within the Company and its subsidiary, particularly
during the period in which this quarterly report is being prepared; and
2. That there were no significant changes in the Company's internal
controls or in other factors that could materially affect or are
reasonably likely to materially affect these controls subsequent to the
date of their evaluation, including any corrective actions with regard
to significant deficiencies and material weaknesses.
12
COASTAL CARIBBEAN OILS & MINERALS, LTD.
FORM 10-Q
PART II - OTHER INFORMATION
March 31, 2004
ITEM 5 Other Information
- ------ -----------------
On April 7, 2004, Coastal filed a Petition for Writ of Certiorari with the
United States Supreme Court asking the Court to accept jurisdiction to consider
the final judgment of the trial court as affirmed by the appellate court,
finding no taking of Coastal's property. After jurisdictional briefs are
submitted the Court will decide whether to exercise its jurisdiction and if so
briefs on the merits will be required.
Coastal Caribbean is currently a passive foreign investment company, or
PFIC, for United States federal income tax purposes, which could result in
negative tax consequences to a shareholder. If, for any taxable year, the
Company's passive income or assets that produce passive income exceed levels
provided by U.S. law, the Company would be a "passive foreign investment
company," or PFIC, for U.S. federal income tax purposes. For the years 1987
through 2001, Coastal Caribbean's passive income and assets that produce passive
income exceeded those levels and for those years Coastal Caribbean constituted a
PFIC. If Coastal Caribbean is a PFIC for any taxable year, then the Company's
U.S. shareholders potentially would be subject to adverse U.S. tax consequences
of holding and disposing of shares of our common stock for that year and for
future tax years. Any gain from the sale of, and certain distributions with
respect to, shares of the Company's common stock, would cause a U.S. holder to
become liable for U.S. federal income tax under Section 1291 of the Internal
Revenue Code (the interest charge regime). The tax is computed by allocating the
amount of the gain on the sale or the amount of the distribution, as the case
may be, to each day in the U.S. shareholder's holding period. To the extent that
the amount is allocated to a year, other than the year of the disposition or
distribution, in which the corporation was treated as a PFIC with respect to the
U.S. holder, the income will be taxed as ordinary income at the highest rate in
effect for that year, plus an interest charge.
For further information, refer to the consolidated financial statements and
footnotes thereto included in the Company's Annual Report on Form 10-K for the
year ended December 31, 2003.
13
COASTAL CARIBBEAN OILS & MINERALS, LTD.
FORM 10-Q
PART II - OTHER INFORMATION
March 31, 2004
ITEM 6 Exhibits and Reports on Form 8-K
- ------ --------------------------------
(a) Exhibits
--------
31.1 Certification pursuant to Rule 13a-14 by Phillip W. Ware
31.2 Certification pursuant to Rule 13a-14 by Kenneth M. Cornell
32.1 Certification pursuant to Section 906 by Phillip W. Ware
32.2 Certification pursuant to Section 906 by Kenneth M. Cornell
(b) Reports on Form 8-K
-------------------
On January 13, 2004, the Company filed a Current Report on
Form 8-K to report that:
Coastal Caribbean Oils & Minerals, Ltd. ("Company")
issued a press release announcing the Florida First District
Court of Appeal denied the Company's Motion for Clarification,
Rehearing, Certification and Request for a Written Opinion as
to the Court's per curiam decision issued on December 3, 2003.
As a result of the denial of the Motion, the Court's decision
affirming the trial court's final judgment finding no taking
of Coastal's State Drilling Lease 224-A, has become final. The
Company continues to evaluate its options.
14
COASTAL CARIBBEAN OILS & MINERALS, LTD.
FORM 10-Q
March 31, 2004
SIGNATURES
----------
Pursuant to the requirements 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.
COASTAL CARIBBEAN OILS & MINERALS, LTD.
---------------------------------------
Registrant
Date: April 30, 2004 By /s/ Phillip W. Ware
------------------------------------
Phillip W. Ware
Chief Executive Officer,
President and Treasurer
By /s/ Kenneth M. Cornell
------------------------------------
Kenneth M. Cornell
Chief Financial Officer
and Principal Financial Officer
15