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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, 2003
[ ] 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
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)
441-295-1422
- --------------------------------------------------------------------------------
(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 May 12, 2003 was 46,211,604.
COASTAL CARIBBEAN OILS & MINERALS, LTD.
FORM 10-Q
MARCH 31, 2003
TABLE OF CONTENTS
PART I - FINANCIAL INFORMATION
ITEM 1 Financial Statements Page
----
Consolidated balance sheets at March 31, 2003 and December 31, 2002 3
Consolidated statements of operations for the three month periods ended March 31,
2003 and 2002 and for the period from January 31, 1953 (inception) to March 31,
2003 4
Consolidated statements of cash flows for the three month periods ended March 31,
2003 and 2002 and for the period from January 31, 1953 (inception) to March 31,
2003 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 13
ITEM 4 Controls and Procedures 13
PART II - OTHER INFORMATION
ITEM 5 Other Information 14
ITEM 6 Exhibits and Reports on Form 8-K 16
Signatures 17
Rule 13a-14 Certifications 18-19
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,
------------ ------------
2003 2002
------------ ------------
ASSETS (unaudited) (Note)
Current assets:
Cash and cash equivalents $ 93,929 $ 292,095
Interest and accounts receivable 872 4,068
Notes receivable -- --
Prepaid expenses 322,508 410,632
------------ ------------
Total current assets 417,309 706,795
------------ ------------
Contingent litigation claim (Note 4) -- --
------------ ------------
Total assets $ 417,309 $ 706,795
============ ============
LIABILITIES AND SHAREHOLDERS' DEFICIT
Current liabilities:
Accounts payable and accrued liabilities $ 835,809 $ 915,085
Due to related parties 690,450 621,618
------------ ------------
Total current liabilities 1,526,259 1,536,703
------------ ------------
Minority interests -- --
Shareholders' deficit:
Common stock, par value $.12 per share:
Authorized - 250,000,000 shares
Outstanding - 46,211,604 and 46,211,604 shares, respectively 5,545,392 5,545,392
Capital in excess of par value 32,117,811 32,067,811
------------ ------------
37,663,203 37,613,203
Deficit accumulated during the development stage (38,772,153) (38,443,111)
------------ ------------
Total shareholders' deficit (1,108,950) (829,908)
------------ ------------
Total liabilities and shareholders' deficit $ 417,309 $ 706,795
============ ============
Note: The balance sheet at December 31, 2002 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
Three months ended Jan. 31, 1953
March 31, (inception)
--------------------------------------- to March 31,
2003 2002 2003
------------- ------------- -------------
INTEREST AND OTHER INCOME $ 453 $ 3,662 $ 3,877,365
------------- ------------- -------------
EXPENSES:
Legal fees and costs 119,932 316,432 16,350,069
Administrative expenses 169,103 193,755 9,238,731
Salaries 34,117 37,950 3,558,345
Shareholder communications 6,345 9,028 3,924,126
Write off of unproved properties -- -- 5,501,247
Exploration costs -- -- 247,465
Lawsuit judgments -- -- 1,941,916
Minority interests -- -- (632,974)
Other -- -- 364,865
Contractual services -- -- 2,155,728
------------- ------------- -------------
329,497 557,165 42,649,518
------------- ------------- -------------
NET LOSS $ (329,044) $ (553,503)
============= =============
Deficit accumulated during
the development stage $ (38,772,153)
=============
Average number of shares
outstanding (basic & diluted) 46,211,604 43,468,329
============= =============
Net loss per share (basic & diluted) $ (.01) $ (.01)
============= =============
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
2003 2002 March 31, 2003
------------ ------------ ------------
OPERATING ACTIVITIES:
Net loss $ (329,044) $ (553,503) $(38,772,153)
Adjustments to reconcile net loss to net cash
used in operating activities:
Minority interest -- -- (632,974)
Write off of unproved properties -- -- 5,501,247
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:
Interest and accounts receivable 3,196 6,943 (872)
Prepaid expenses 88,126 62,873 (322,508)
Accounts payable and accrued liabilities (10,444) 292,020 1,526,259
Deferred financing costs -- (145,882) --
------------ ------------ ------------
Net cash used in operating activities (248,166) (337,549) (32,254,328)
------------ ------------ ------------
INVESTING ACTIVITIES:
Additions to oil, gas, and mineral properties
net of assets acquired for common stock and
reimbursements -- -- (3,621,688)
Proceeds from relinquishment of surface rights -- -- 246,733
Purchase of fixed assets -- -- (61,649)
------------ ------------ ------------
Net cash used in investing activities -- -- (3,436,604)
------------ ------------ ------------
FINANCING ACTIVITIES:
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 -- 800,000
Sale of subsidiary shares -- -- 3,720,000
------------ ------------ ------------
Net cash provided by financing activities 50,000 -- 35,784,861
------------ ------------ ------------
Net (decrease) increase in cash and cash equivalents (198,166) (337,549) 93,929
Cash and cash equivalents at beginning of period 292,095 609,024 --
------------ ------------ ------------
Cash and cash equivalents at end of period $ 93,929 $ 271,475 $ 93,929
============ ============ ============
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 58.84% 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, 2003 are not necessarily
indicative of the results that may be expected for the year ending December 31,
2003. 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, 2002.
Note 2. Litigation
Florida Litigation
Coastal Petroleum has been involved in various lawsuits for many years.
Coastal Petroleum's current litigation (Florida Litigation) now involves one
basic claim: whether the State's denial of a permit constitutes 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.
In 1990, the State of Florida enacted legislation that prohibits
drilling or exploration for oil or gas on Florida's offshore acreage. Although
the law does not apply to areas where Coastal Petroleum is entitled to conduct
exploration, the State of Florida has effectively prevented any exploratory
drilling by denying the Company's application for drilling permits. In
addition, in those areas where Coastal Petroleum has only a royalty interest,
the law also effectively prohibits production of oil and gas, rendering it
impossible for Coastal Petroleum to collect royalties from those areas. During
1998, Coastal Petroleum exhausted its legal remedies in its efforts to obtain
compensation for the drilling prohibition on its royalty interest acreage.
Lease Taking Case (Lease 224-A)
On June 26, 2000, the First District Court of Appeal affirmed an
earlier ruling that the Florida Department of Environmental Protection (DEP)
could deny Coastal Petroleum a permit to drill an exploratory well about nine
miles south of St. George Island in the Florida Panhandle. While the appeals
court held that the DEP could take such action on the basis of a compelling
public purpose in not allowing offshore oil and gas drilling in Florida, the
court also found that the DEP's action would be unconstitutional "if just
compensation is not paid for what is taken." The
6
COASTAL CARIBBEAN OILS & MINERALS, LTD.
FORM 10-Q
PART I - FINANCIAL INFORMATION
ITEM 1 FINANCIAL STATEMENTS
appeals court stated that whether the denial of the permit constituted a taking
of Coastal Petroleum's property should be determined by the Circuit Court.
On January 16, 2001, Coastal Petroleum Company filed a complaint in the
Leon County Circuit Court in Florida against the State of Florida seeking
compensation for the State's taking of its property rights to explore for oil
and gas within its Lease 224-A.
On February 13, 2001, certain holders of royalties pertaining to Lease
224-A filed a Motion to Intervene as Additional Plaintiffs. On April 24, 2001,
the Leon County Circuit trial judge granted certain royalty holders with
overriding royalties, which aggregate approximately 4% on State Lease 224-A, the
right to intervene on a limited basis in the takings lawsuit. On May 22, 2001,
the royalty holders appealed the Circuit Court's order granting them limited
intervention to the First District Court of Appeal, claiming the order denied
them the right to fully participate in the case until after final judgment and
that the court erroneously found that the royalty holders lack an ownership
interest in Coastal Petroleum's lease. On June 12, 2001, the Court of Appeal
ordered the royalty holders to show cause why the appeal should not be dismissed
for lack of jurisdiction. The royalty holders filed a response to the Court of
Appeal on June 21, 2001, Coastal Petroleum filed its reply on July 2, 2001 and
the State of Florida filed its reply on July 5, 2001. The Court of Appeal
dismissed the appeal without jurisdiction on March 28, 2002.
Counsel for the appealing royalty holders has advised Coastal Petroleum
that the royalty holders' position is that their interest is worth substantially
more than 4% of whatever judgment may be awarded to Coastal Petroleum in the
litigation and that they intend to make a claim against any recovery Coastal
Petroleum may obtain in the litigation. Coastal Petroleum has informed the
Circuit Court and counsel for the royalty holders that Coastal Petroleum is not
making any claim in the litigation on behalf of any interest the royalty holders
may have.
On October 8, 2002, after a two week trial the trial court in the
takings litigation orally ruled from the bench that the State's denial of a
permit to drill on Coastal Petroleum's Lease 224-A did not constitute an
unlawful taking of Coastal Petroleum's property. On November 15, 2002, the trial
court issued its Final Judgment that the State's denial of a permit to drill on
Coastal Petroleum's Lease 224-A did not constitute an unlawful taking of Coastal
Petroleum's property. Coastal Petroleum Company filed a notice of appeal of the
Final Judgment to the Florida First District Court of Appeal on November 18,
2002 and filed its initial brief on February 10, 2003. The intervenors
(described above) joined the appeal of the Final Judgment and appealed the
ruling on their motion to intervene. The intervenors filed their brief on
February 10, 2003. The DEP filed their Answer Brief on March 21, 2003, the State
Trustees filed its Answer Brief on March 7, 2003, and Coastal filed an Answer
Brief to the intervenors on March 7, 2003. In response to the State's Motion to
Strike Coastal's Answer Brief, the Court struck all briefs except Coastal's
Initial Brief, treated the intervenors' appeal as separate, consolidated the
appeals and reset the briefing schedule. The intervenors' filed their Initial
Briefs on April 28, 2003. The Answer Briefs of Coastal and the State are due on
May 23, 2003.
On December 13, 2002, the State filed a motion for an order by the
trial court by which the State seeks to recover $178,315 from Coastal Petroleum,
including expert witness fees, deposition costs and copying costs. On December
20, 2002, Coastal Petroleum filed objections
7
COASTAL CARIBBEAN OILS & MINERALS, LTD.
FORM 10-Q
PART I - FINANCIAL INFORMATION
ITEM 1 FINANCIAL STATEMENTS
and responses to the State's motion, objecting to the costs and requesting an
evidentiary hearing. In the opinion of Company's litigation counsel, the State's
motion for fees and costs is without merit. On April 9, 2003, the State agreed
not to pursue its motion until after conclusion of the appeal in this case. An
award of costs by the trial court against Coastal Petroleum could be appealed by
either party. Coastal Petroleum also would have the right to seek an automatic
stay of any cost award rendered against it pending appeal of the award, by the
posting of a bond deemed sufficient by the trial court.
Royalty Taking Case
The offshore areas covered by Coastal Petroleum's original leases
(prior to the 1976 Settlement Agreement) are subject to certain other royalty
interests held by third parties, including Coastal Caribbean. In 1994, several
of those third parties, including Coastal Caribbean which has approximately a
12% interest in any recovery, have instituted a separate lawsuit against the
State. That lawsuit claims that the royalty holders' interests have been
confiscated as a result of the State's actions discussed above and that they are
entitled to compensation for that taking.
The royalty holders were not parties to the 1976 Settlement Agreement,
and the royalty holders contend that the terms of the Settlement Agreement do
not protect the State from taking claims by those royalty holders. The case is
currently pending before the Circuit Court in Tallahassee. On December 2, 1999,
the Circuit Court denied the State's motion to dismiss the plaintiffs' claim of
inverse condemnation but dismissed several other claims.
On May 10, 2000, the State filed a motion for summary judgment but no
hearing date has been set for the motion. Discovery is proceeding.
Any recovery made in the royalty holders' lawsuit would be shared among
the various plaintiffs in that lawsuit, including Coastal Caribbean, but not
Coastal Petroleum.
Lease Taking Case (Lease 224-B)
On May 21, 2002, Coastal Petroleum filed a complaint in the Leon County
Circuit Court, Florida against the State of Florida seeking compensation for the
State's alleged taking of its property rights to explore for oil and gas within
its State Lease 224-B. The lease encompasses more than 400,000 acres off the
West Coast of Florida in the Gulf of Mexico. On July 22, 2002, a motion by the
State of Florida to dismiss the case was heard. The court denied the State's
motion to dismiss the case on August 30, 2002. The case is currently pending and
is in the discovery stage.
On March 28, 2003, the State filed a motion to stay the proceeding
until the appeal of Lease 224-A is completed. A hearing before the trial judge
was held on May 1, 2003, at which Coastal objected to the stay unless the stay
was conditioned upon the suspension of Coastal's lease obligation. The judge
gave parties 10 days to resolve the issue by agreement or he would enter an
order resolving it. As of May 13, 2003, the judge has not yet resolved this
issue.
8
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, 2003
Granted Expiration Total Vested Exercise Prices ($)
- ------- ---------- ----- ------ -------------------
1998 May 19, 2003 225,000 225,000 2.625
2000 March 22, 2010 700,000 700,000 .91
------- ------- ------
925,000 925,000 ($1.33
======= ======= Weighted Average)
Options reserved for future grants 75,000
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, 2003 and 2002.
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. Furthermore, on January 16, 2001, Coastal Petroleum Company
filed a complaint in the Leon County Circuit Court in Florida against the State
of Florida seeking compensation for the State's taking of its property rights to
explore for oil and gas within its Lease 224-A. On November 15, 2002, the trial
court issued its Final Judgment that the State's denial of a permit to drill on
Coastal Petroleum's Lease 224-A did not constitute an unlawful taking of Coastal
Petroleum's property. The Company is currently in the process of appealing the
court's ruling. The cost of that litigation has been substantial and has
required the Company to obtain additional capital. On March 10, 2003, Coastal
Petroleum sold 2 shares of its common stock to a non-shareholder of Coastal
Petroleum for $50,000. This amount has been included as an increase to
additional paid-in capital. The sale of additional shares of Coastal Petroleum
common stock to this and other parties is being pursued although to date, no
binding agreements have been entered into.
With the amount of cash on hand at March 31, 2003, the Company should
be able to fund its operations through June 30, 2003, provided that the
Company's directors, certain of its officers, legal counsel and administrative
consultants agree to continue to defer the payment of all of their past and
current salaries and fees. As of March 31, 2003, the amount of salaries and fees
deferred totaled approximately $1,443,000. Because the proceeds from offerings
of the Company's common stock have been inadequate to fund the Company's capital
needs, the Company is exploring other possible funding sources, particularly the
other shareholders of Coastal Petroleum. 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 that may result from the outcome of
these uncertainties.
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
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)
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.
LIQUIDITY AND CAPITAL RESOURCES
LIQUIDITY
In July 2002 Coastal Caribbean concluded a rights offering and sold
2,743,275 shares of common stock for $.50 per share and received net proceeds of
approximately $900,000.
At March 31, 2003, Coastal Caribbean had approximately $94,000 of cash
available. Management believes that this amount should be sufficient to fund the
Company's operations through June 30, 2003, 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.
In addition, an estimated amount of approximately $185,000 would be necessary to
fund the Company's operations through December 31, 2003, assuming these
deferrals continue. This amount would be approximately $650,000 if such
deferrals do not continue. After June 30, 2003, the Company may have to suspend
or cease operations and may have to file for bankruptcy under the laws of
Bermuda unless and until the Company can secure additional financing. The
Company's current cash is expected to be used for general corporate purposes,
and to continue the litigation against the State of Florida.
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)
Certain directors, officers, legal counsel and administrative
consultants have agreed to defer the payment of their salaries and fees. At
March 31, 2003, the amount of salaries and fees being deferred totaled
approximately $1,443,000.
Coastal Caribbean has a working capital deficiency, has a limited
amount of cash, has incurred recurring losses and has a deficit accumulated
during the development stage. On January 16, 2001, Coastal Petroleum filed a
complaint in the Leon County Circuit Court in Florida against the State of
Florida seeking compensation for the State's taking of its property rights to
explore for oil and gas within its Lease 224-A. On November 15, 2002, the Trial
Court issued its Final Judgment that the State's denial of a permit to drill on
Coastal Petroleum's Lease 224-A did not constitute an unlawful taking of Coastal
Petroleum's property. The cost of that litigation has been substantial and will
require the Company to obtain additional capital.
Since October 2002, Coastal Caribbean and Coastal Petroleum have
attempted to raise funds from the other shareholders of Coastal Petroleum and
from others. With the exception of the sale in the first quarter by Coastal
Petroleum of two shares of its common stock for $25,000 per share to a
non-shareholder of Coastal Petroleum and non-binding indications of interest in
purchasing shares from Coastal Petroleum by other potential purchasers, those
efforts have been unsuccessful.
During the three months ended March 31, 2003 the Company made the
following cash expenditures.
Angerer and Angerer (Litigation Counsel) $ 80,443
Philip Ware (President) 23,001
Transfer Agent 6,000
Ernst & Young - Accountants 20,000
Directors & Officers Insurance 85,908
Daniel Sharp (Chief Financial Officer) 21,762
Payroll Taxes 1,761
Office Expenses 6,433
Miscellaneous 3,968
--------
Total $249,276
========
11
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)
If the Company does not raise additional capital prior to June 30, 2003 the
Company will discontinue payments during the second quarter ending June 30, 2003
to Angerer & Angerer and Mr. Philip Ware. The Company expects to make a cash
payment of approximately $27,000 for directors and officers insurance during the
second quarter.
In the event the lease obligations are not suspended, if the Company
does not raise additional capital before the annual rentals on the leases are
due, it will be unable to make an annual rental payment on its Florida lease of
$59,000 which was last paid in July, 2002.
RESULTS OF OPERATIONS
THREE MONTHS ENDED MARCH 31, 2003 VS. MARCH 31, 2002
The Company incurred a loss of $329,000 for the 2003 quarter, compared
to a loss of $554,000 for the comparable 2002 quarter.
INTEREST INCOME AND OTHER INCOME DECREASED 85% from $3,700 in the 2002
quarter to $500 in the 2003 quarter because of the decrease in the amount of
funds available to invest.
LEGAL FEES AND COSTS DECREASED 62% to $120,000 for the 2003 quarter,
compared to $316,000 in the prior period. Legal fees and costs were higher in
the 2002 period as a result of 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, particularly the
preparation for the trial in the litigation, which commenced in September, 2002.
Legal fees and costs continue to be incurred, although at a reduced level, as
the Company appeals the adverse decision which was handed down by the court in
October, 2002.
ADMINISTRATIVE EXPENSES DECREASED 13% during the 2003 period to
$169,000 compared to $194,000 in the 2002 period. Accounting and administrative
expenses decreased from $60,000 in the 2002 period to $25,000 in the 2003 period
because of the costs associated with various filings with the Securities and
Exchange Commission made in 2002. Offsetting this was an increase in the cost of
Directors' and Officers' liability insurance from $59,000 in 2002 to $84,000 in
the 2003 quarter.
SALARIES DECREASED 11% in the 2003 quarter to $34,000 compared to
$38,000 in the 2002 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 DECREASED 33% during the 2003 period to
$6,000 from $9,000 in the 2002 period because the Company reduced its
shareholder communications expenses to conserve its cash resources.
12
COASTAL CARIBBEAN OILS & MINERALS, LTD.
FORM 10-Q
PART I - FINANCIAL INFORMATION
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, 2003.
ITEM 4 CONTROLS AND PROCEDURES
We, Phillip W. Ware, the principal executive officer and Daniel W.
Sharp, 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 significantly affect these
controls subsequent to the date of their evaluation, including any
corrective actions with regard to significant deficiencies and material
weaknesses.
13
COASTAL CARIBBEAN OILS & MINERALS, LTD.
FORM 10-Q
PART II - OTHER INFORMATION
MARCH 31, 2003
ITEM 5 - OTHER INFORMATION
In Coastal's current appeal of the November 15, 2002 Final Judgment
entered by the trial court finding no taking of Coastal's Lease 224-A, Coastal
filed its Initial Brief on January 27, 2003 and the intervenors filed their
Initial Brief on February 10, 2003. The DEP filed their Answer Brief on March
21, 2003, the State Trustees filed its Answer Brief on March 7, 2003, and
Coastal filed an Answer Brief to the intervenors on March 7, 2003. In response
to the State's Motion to Strike Coastal's Answer Brief, the Court struck all
briefs except for Coastal's Initial Brief, treated the intervenors' appeal as a
separate appeal, consolidated the appeals and reset the briefing schedule. The
intervenors' filed their Initial Briefs on April 28, 2003. The Answer Briefs of
Coastal and the State are due on May 23, 2003.
The only matter from the inverse condemnation trial on Lease 224-A
remaining in the trial court is the State's motion for costs. On April 9, 2003,
the State agreed not to pursue its motion for costs until after conclusion of
the appeal in this case.
In Coastal's inverse condemnation suit covering Lease 224-B, the State
filed a motion to stay the proceeding until the appeal of Lease 224-A is
completed. A hearing before the trial judge was held on May 1, 2003, at which
Coastal objected to the stay unless the stay was conditioned upon the suspension
of Coastal's lease obligations. The judge gave the parties 10 days to resolve
the issue by agreement or he would enter an order resolving it. As of May 13,
2003, the judge has not yet resolved this issue.
Effective March 31, 2003 Nicholas Dill resigned as a director of
Coastal Caribbean Oils & Minerals, Ltd.
Effective February 28, 2003, Mr. Benjamin Heath resigned as an officer
and director of Coastal Caribbean Oils & Minerals, Ltd. and of Coastal Petroleum
Company.
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
14
COASTAL CARIBBEAN OILS & MINERALS, LTD.
FORM 10-Q
PART II - OTHER INFORMATION
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, 2002.
15
COASTAL CARIBBEAN OILS & MINERALS, LTD.
FORM 10-Q
PART II - OTHER INFORMATION
MARCH 31, 2003
ITEM 6 - EXHIBITS AND REPORTS ON FORM 8-K
(a) Exhibits
99(1) Certification pursuant to 18 U.S.C. Section 1350, as
adopted pursuant to Section 906 of the Sarbanes-Oxley
Act of 2002 executed by Phillip W. Ware.
99(2) Certification pursuant to 18 U.S.C. Section 1350, as
adopted pursuant to Section 906 of the Sarbanes-Oxley
Act of 2002 executed by Daniel W. Sharp.
(b) Reports on Form 8-K
No reports on Form 8-K were filed during the three months
ended March 31, 2003.
16
COASTAL CARIBBEAN OILS & MINERALS, LTD.
FORM 10-Q
MARCH 31, 2003
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: May 12, 2003 By /s/ Daniel W. Sharp
--------------------------------------
Daniel W. Sharp
Treasurer and Chief Accounting and
Financial Officer
17
FORM 10-Q
COASTAL CARIBBEAN OILS & MINERALS, LTD.
RULE 13A-14 CERTIFICATION
I, Phillip W. Ware, certify that:
1. I have reviewed this quarterly report on Form 10-Q of Coastal
Caribbean Oils & Minerals, Ltd.
2. Based on my knowledge, this quarterly report does not contain any
untrue statement of a material fact or omit to state a material fact necessary
to make the statements made, in light of the circumstances under which such
statements were made, not misleading with respect to the period covered by this
quarterly report;
3. Based on my knowledge, the financial statements, and other financial
information included in this quarterly report, fairly present in all material
respects the financial condition, results of operations and cash flows of the
registrant as of, and for, the periods presented in this quarterly report;
4. The registrant's other certifying officers and I are responsible for
establishing and maintaining disclosure controls and procedures (as defined in
Exchange Act Rules 13a-14 and 15d-14) for the registrant and we have:
a) designed such disclosure controls and procedures to ensure that
material information relating to the registrant, including its
consolidated subsidiaries, is made known to us by others within those
entities, particularly during the period in which this quarterly report
is being prepared;
b) evaluated the effectiveness of the registrant's disclosure controls
and procedures as of a date within 90 days prior to the filing date of
this quarterly report (the "Evaluation Date"); and
c) presented in this quarterly report our conclusions about the
effectiveness of the disclosure controls and procedures based on our
evaluation as of the Evaluation Date;
5. The registrant's other certifying officers and I have disclosed,
based on our most recent evaluation, to the registrant's auditors and the audit
committee of registrant's board of directors (or persons performing the
equivalent function):
a) all significant deficiencies in the design or operation of internal
controls which could adversely affect the registrant's ability to
record, process, summarize and report financial data and have
identified for the registrant's auditors any material weaknesses in
internal controls; and
b) any fraud, whether or not material, that involves management or
other employees who have a significant role in the registrant's
internal controls; and
6. The registrant's other certifying officers and I have indicated in
this quarterly report whether or not there were significant changes in internal
controls or in other factors that could significantly affect internal controls
subsequent to the date of our most recent evaluation, including any corrective
actions with regard to significant deficiencies and material weaknesses.
Date: May 12, 2003
/s/ Phillip W. Ware
-------------------------
Phillip W. Ware
President
18
FORM 10-Q
COASTAL CARIBBEAN OILS & MINERALS, LTD.
RULE 13A-14 CERTIFICATION
I, Daniel W. Sharp, certify that:
1. I have reviewed this quarterly report on Form 10-Q of Coastal
Caribbean Oils & Minerals, Ltd.
2. Based on my knowledge, this quarterly report does not contain any
untrue statement of a material fact or omit to state a material fact necessary
to make the statements made, in light of the circumstances under which such
statements were made, not misleading with respect to the period covered by this
quarterly report;
3. Based on my knowledge, the financial statements, and other financial
information included in this quarterly report, fairly present in all material
respects the financial condition, results of operations and cash flows of the
registrant as of, and for, the periods presented in this quarterly report;
4. The registrant's other certifying officers and I are responsible for
establishing and maintaining disclosure controls and procedures (as defined in
Exchange Act Rules 13a-14 and 15d-14) for the registrant and we have:
a) designed such disclosure controls and procedures to ensure that
material information relating to the registrant, including its
consolidated subsidiaries, is made known to us by others within those
entities, particularly during the period in which this quarterly report
is being prepared;
b) evaluated the effectiveness of the registrant's disclosure controls
and procedures as of a date within 90 days prior to the filing date of
this quarterly report (the "Evaluation Date"); and
c) presented in this quarterly report our conclusions about the
effectiveness of the disclosure controls and procedures based on our
evaluation as of the Evaluation Date;
5. The registrant's other certifying officers and I have disclosed,
based on our most recent evaluation, to the registrant's auditors and the audit
committee of registrant's board of directors (or persons performing the
equivalent function):
a) all significant deficiencies in the design or operation of internal
controls which could adversely affect the registrant's ability to
record, process, summarize and report financial data and have
identified for the registrant's auditors any material weaknesses in
internal controls; and
b) any fraud, whether or not material, that involves management or
other employees who have a significant role in the registrant's
internal controls; and
6. The registrant's other certifying officers and I have indicated in
this quarterly report whether or not there were significant changes in internal
controls or in other factors that could significantly affect internal controls
subsequent to the date of our most recent evaluation, including any corrective
actions with regard to significant deficiencies and material weaknesses.
Date: May 12, 2003
/s/ Daniel W. Sharp
----------------------------------
Daniel W. Sharp
Treasurer and Chief Accounting and
Financial Officer
19