UNITED
STATES SECURITIES AND EXCHANGE COMMISSION
WASHINGTON,
D.C. 20549
Form
10-K
(Mark
One)
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x
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|
ANNUAL
REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE
ACT OF
1934
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For
the fiscal year ended December 31, 2005
or
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o
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TRANSITION
REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE
ACT OF
1934
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For
the transition period from _________________
to_________________
Commission
file number 001-04668
Coastal
Caribbean Oils & Minerals, Ltd.
(Exact
name of Registrant as specified in its charter)
BERMUDA
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NONE
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(State
or Other Jurisdiction of Incorporation or
Organization)
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(I.R.S.
Employer Identification No.)
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|
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Clarendon
House, Church Street, Bermuda
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HM
11
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(Address
of Principle Executive Offices)
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(Zip
Code)
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Registrant’s
telephone number, including area code:
(850)
653-2732
Securities
registered pursuant to Section 12(b) of the Act:
Title
of each class
NONE
|
Name
of each exchange on which registered
NONE
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Securities
registered pursuant to Section 12(g) of the Act:
Title
of Class
Common
stock, par value $.12 per share
Indicate
by check mark if the registrant is a well-known seasoned issuer, as defined
in
Rule 405 of the Securities Act. o
Yes
x
No
Indicate
by check mark if the registrant is not required to file reports pursuant to
Section 13 or Section 15(d) of the Act. o
Yes
x
No
Note-Checking
the box above will not relieve any registrant required to file reports pursuant
to Section 13 or 15(d) of the Exchange Act from their obligations under those
Sections.
Indicate
by check mark whether the registrant (1) has filed all reports required to
be
filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 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
o
No
Indicate
by check mark if disclosure of delinquent filers pursuant to Item 405 of
Regulation S-K §229.405 of this chapter) is not contained herein, and will not
be contained, to the best of registrant’s knowledge, in definitive proxy or
information statements incorporated by reference in Part III of this Form 10-K
or any amendment to this Form 10-K. o
Yes x
No
Indicate
by check mark whether the registrant is a large accelerated filer, an
accelerated filer, or a non-accelerated filer. See definition of “accelerated
filer and large accelerated filer” in Rule 12b-2 of the Exchange Act. (Check
one):
Large
accelerated filer o Accelerated
filer o Non-accelerated
filer x
State
the
aggregate market value of the voting and non-voting common equity held by
non-affiliates computed by reference to the price at which the common equity
was
last sold, or the average bid and asked price of such common equity, as of
the
last business day of the registrant’s most recently completed second fiscal
quarter: $5,280,039 (U.S.) at June 30, 2005.
Note
- If a
determination as to whether a particular person or entity is an affiliate cannot
be made without involving unreasonable effort and expense, the aggregate market
value of the common stock held by non-affiliates may be calculated on the basis
of assumptions reasonable under the circumstances, provided that the assumptions
are set forth in this Form.
Indicate
the number of shares outstanding of each of the registrant's classes of common
stock, as of the latest practicable date: Common stock, par value $.12 per
share, 46,211,604 shares outstanding as of March 7, 2006.
DOCUMENTS
INCORPORATED BY REFERENCE
List
hereunder the following documents if incorporated by reference and the Part
of
the Form 10K (e.g. Part I, Part II, etc.) into which the document is
incorporated: (1) Any annual report to security holders; (2) Any proxy or
information statement; and (3) Any prospectus filed pursuant to Rule 424(b)
or
(c) under the Securities Act of 1933. The listed documents should be clearly
described for identification purposes (e.g., annual report to security holders
for fiscal year ended December 24, 1980).
None
TABLE
OF CONTENTS
Page
PART
I
Item
1.
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Business
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5
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General
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5
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Crude
Oil and Natural Gas Exploration and Development
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6
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Environmental
and Other Regulations
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6
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Competition
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7
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Employees
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8
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Oil
and Gas Properties
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8
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Acreage
and Wells
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9
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Drilling
Activity
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9
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Item
1A.
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Risk
Factors
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10
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Item
1B.
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Unresolved
Staff Comments
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19
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Item
2.
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Properties
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19
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Item
3.
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Legal
Proceedings
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20
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Item
4.
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Submission
of Matters to a Vote of Security Holders
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21
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PART
II
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Item
5.
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Market
for the Company's Common Stock, Related
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Stockholder
Matters and Issuer Purchases of Equity Securities
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23
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Item
6.
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Selected
Consolidated Financial Data
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26
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Item
7.
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Management's
Discussion and Analysis of Financial Condition
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and
Results of Operation
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27
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Item
7A.
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Quantitative
and Qualitative Disclosures About Market Risk
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31
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Item
8.
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Financial
Statements and Supplementary Data
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32
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Item
9.
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Changes
in and Disagreements with Accountants on
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Accounting
and Financial Disclosure
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48
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Item
9A.
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Controls
and Procedures
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48
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PART
III
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Item
10.
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Directors
and Executive Officers of the Registrant
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49
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Item
11.
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Executive
Compensation
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52
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Item
12.
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Security
Ownership of Certain Beneficial Owners and Management
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54
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and
Related Stockholder Matters
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Item
13.
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Certain
Relationships and Related Transactions
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56
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Item
14.
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Principal
Accountant Fees and Services
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57
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PART
IV
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Item
15.
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Exhibits,
Financial Statement Schedules
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58
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___________________________
All
monetary figures set forth are expressed in United States currency.
PART I
Company
Website
The
Company has a website located at http://www.coastalcarib.com.
The
website can be used to access recent news releases, Securities and Exchange
Commission filings, and other items of interest. The Contents of the Company’s
website are not incorporated into this document. Securities and Exchange
Commission filings, including supplemental schedules and exhibits can also
be
accessed free of charge through the SEC website at http://www.sec.gov.
General
Coastal
Caribbean Oils & Minerals, Ltd. (“Company” or “Coastal Caribbean”), was
organized in Bermuda on February 14, 1962. The Company is the successor to
Coastal Caribbean Oils, Inc., a Panamanian corporation organized on January
31,
1953 to be the holding company for Coastal Petroleum Company (“Coastal
Petroleum”). Coastal Caribbean, has been engaged, through its subsidiary,
Coastal Petroleum, in the exploration for oil and gas reserves. At December
31,
2005, Coastal Caribbean's principal asset was its 100% interest in its
subsidiary Coastal Petroleum. Coastal Petroleum's principal assets are its
nonproducing oil and gas leases in the States of Montana and North Dakota in
a
fertile oil producing region know as the Williston Basin. Coastal Petroleum
is
the lessee under leases relating to the exploration for and production of oil
and gas on approximately 131,297 net acres of land in Valley and Blaine
Counties, Montana and approximately 21,688 net acres of land in Billings, Slope
and Stark Counties, North Dakota.
Prior
to
acquiring leases in Montana and North Dakota, Coastal Petroleum was the lessee
under State of Florida oil, gas and mineral leases covering approximately
3,700,000 acres of submerged lands along the Gulf Coast and under certain inland
lakes and rivers. For more than 15 years, the State of Florida used laws,
policies and permit denials to prevent Coastal from using its leases. The
Company vigorously litigated to be able to use its leases or to be compensated
for the State’s taking of them, but Florida courts ruled against the Company.
Finally, during 2004, the
United States Supreme Court refused to hear Coastal’s case. See Item 3. “Legal
Proceedings”.
After
the
United States Supreme Court refused to hear the case, the State of Florida
approached the Company regarding a possible buyback of the Company’s leases on
the condition that all parties with oil, gas or mineral interests in the lands
covered by the leases were joined in one agreement. On June 1, 2005 the Company,
Coastal Petroleum and other royalty holders (“Royalty Holders”) entered an
agreement to exchange mutual releases, dismiss pending actions and to surrender
the leases and royalty rights back to the State of Florida in exchange for
a
total compensation of
$12.5
million to be divided among the parties in interest.
By
agreement with the State, the compensation received under the Agreement was
deposited into an escrow account and payments were made to the Royalty Holders,
Lykes Mineral Corporation, the Settlement Consultant, and Coastal Caribbean
and
Coastal Petroleum Creditors. The Company and its subsidiary received
approximately $4,872,000 in net proceeds. The Company also regained 100%
ownership of its subsidiary, Coastal Petroleum.
The
Company has utilized the funds it received from the Agreement with the State
of
Florida to acquire the leases in Montana and North Dakota described above and
to
begin drilling there. No commercial oil or gas discoveries have yet been made
on
these properties; therefore, the Company has no proved reserves of oil and
gas
and has had no production.
Crude
Oil and Natural Gas Exploration
Through
its wholly owned subsidiary, Coastal Petroleum, the Company has begun to explore
for oil and gas on its recently acquired leases. On January 14, 2006, the
Company began drilling a well in north-central Montana. On January 30, 2006,
the
Company announced that the Blaine County well had been drilled to its objective
and production casing was set. The Company is currently awaiting the completion
and testing of multiple zones in the well.
The
Company expects to drill approximately five more exploratory wells in 2006
in
its search for oil from the Lodgepole formation and other formations which
have
or may produce oil in the Williston Basin. These wells will be both in Montana
and in North Dakota on the leases the Company has acquired over the last 9
months. Some or all of the wells may be drilled with a partner or
partners.
Meanwhile,
the Company has continued to acquire acreage and is proceeding with the process
of permitting a well in its main block of leases in Valley County, in eastern
Montana.
Environmental Regulation
Coastal
Caribbean is committed to responsible management of the environment, health
and
safety, as these areas relate to the Company’s operations. The Company strives
to achieve the long-term goal of sustainable development within the framework
of
sound environmental, health and safety practices and standards.
All
facets of the Company's operations are affected by a myriad of federal, state,
regional and local laws, rules and regulations. The Company is further affected
by changes in such laws and by constantly changing administrative regulations.
Furthermore, government agencies may impose substantial penalties if the Company
fails to comply with such regulations or for any contamination resulting from
the Company's operations.
The
costs
incurred to ensure compliance with environmental, health and safety laws and
other regulations are inextricably connected to normal operating expenses such
that the Company is unable to separate the expenses related to these
matters.
Coastal
Caribbean maintains insurance coverage that it believes is customary in the
industry although it is not fully insured against all environmental or other
risks. The Company is not aware of any environmental claims existing as of
December 31, 2005 that would have a material impact upon the Company's financial
position, results of operations, or liquidity.
Regulation
of Oil and Gas
The
oil
and gas industry is extensively regulated by numerous federal, state and local
authorities. Legislation affecting the oil and gas industry is under constant
review for amendment or expansion, frequently increasing the regulatory burden.
Also, numerous departments and agencies, both federal and state are authorized
by statute to issue rules and regulations binding on the oil and gas industry
and its individual members, some of which carry substantial penalties for
failure to comply. Although the regulatory burden on the oil and gas industry
increases the Company's cost of doing business and, consequently, may affect
profitability, these burdens generally do not affect the Company any differently
or to any greater or lesser extent than they affect other companies in the
industry with similar types, quantities and locations of production.
The
Company's operations are subject to various types of regulation at federal,
state and local levels. These types of regulation include requiring permits
for
the drilling of wells, drilling bonds and reports concerning operations. Most
states, and some counties and municipalities in which the Company operates
may
also regulate one or more of the following: the location of wells; the method
of
drilling and casing wells; the rates of production or "allowables;" the surface
use and restoration of properties upon which wells are drilled; the plugging
and
abandoning of wells; and notice to surface owners and other third
parties.
State
laws regulate the size and shape of drilling and spacing units or proration
units governing the pooling of oil and natural gas properties. Some states
allow
forced pooling or integration of tracts to facilitate exploration while other
states rely on voluntary pooling of lands and leases. In some instances, forced
pooling or unitization may be implemented by third parties and may reduce the
Company's interest in the unitized properties. In addition, state conservation
laws establish maximum rates of production from oil and natural gas wells,
generally prohibit the venting or flaring of natural gas and impose requirements
regarding the ratability of production. These laws and regulations may limit
the
amount of oil and natural gas the Company can produce from its wells or limit
the number of wells or the locations at which it can drill.
Moreover,
each state generally imposes a property, production or severance tax with
respect to the production and sale of oil, natural gas and natural gas liquids
within its jurisdiction.
Competition
The
oil
and gas industry is highly competitive. The Company must compete with other
companies that have substantially greater resources available to them. As an
independent, the Company does not own any refining or retail outlets and,
therefore, it would have little control over the price it may receive for any
crude oil it produces. In acquisition activities, significant competition exists
as integrated and independent companies and individual producers are active
bidders for desirable oil and gas properties. Although many of these competitors
have greater financial and other resources than the Company, Management believes
that Coastal Caribbean is in a position to compete effectively due to its low
cost structure, transaction flexibility, experience and
determination.
Employees
The
Company currently has one employee. The Company relies heavily on consultants
for legal, accounting, geological and administrative services. The Company
uses
consultants because it believes it is more cost effective than employing a
larger full time staff.
Oil
and Gas Properties
Williston
Basin
Blaine
County, Montana
The
Company owns a 100% working interest in one property consisting of 160 acres
located in northern Blaine County. At payout, the Company’s working interest is
reduced to 75%. The Company has no proved reserves on the property.
On
January 14, 2006, the Company’s wholly owned subsidiary, Coastal Petroleum,
began drilling a well on this property. On January 30, 2006, the Company
announced that the well had been drilled to its objective and production casing
was set. The Company is currently awaiting the completion and testing of
multiple zones in the well.
Valley
County, Montana
The
Company’s assets in Valley County consist of leases covering approximately
131,297 net acres. The Company’s working interest in these properties is 100%.
At payout, the Company’s working interest is reduced to 75%. The Company has no
proved reserves on the property.
Most
of
the leases were acquired during 2005, with the latest BLM leases covering
approximately 27,780 gross acres (27,740 net acres) being acquired on February
2, 2006. There has been no drilling yet by the Company on these
leases.
Billings,
Slope and Stark Counties, North Dakota
The
Company owns leases covering approximately 21,688 net acres in these three
counties. The Company’s working interest in these properties is 100%. At payout,
the Company’s working interest is reduced to 75%. The Company has no proved
reserves on the property.
The
Company acquired the leases covering approximately 30,345 gross acres in 2005
and has not yet begun any drilling on them.
Acreage
and Wells
The
following chart reflects the approximate acreage held under lease by Coastal
Caribbean through its wholly owned subsidiary Coastal Petroleum, at December
31,
2005:
Acreage under lease at December
31, 2005
Lease
Location
|
Gross
Acres*
|
Net
Acres**
|
Undeveloped
|
Developed
|
Undeveloped
|
Developed
|
Montana
|
104,951.57
|
0
|
103,557.75
|
0
|
North
Dakota
|
30,345.56
|
0
|
21,688.116
|
0
|
Total:
|
135,297.13
|
0
|
125,245.866
|
0
|
* A
gross
acre is an acre in which a working interest is owned.
** A
net
acre is deemed to exist when the sum of fractional ownership working interests
in gross acres equals one. The number of net acres is the sum of the fractional
working interests owned in gross acres expressed as whole numbers and fractions
thereof.
No
wells
were drilled in 2005.
Drilling
Activity
While
Coastal Caribbean drilled no wells in 2005, the Company drilled an exploratory
well beginning on January 14, 2006. Production casing was set in that well
in
late January 2006 and the Company is currently awaiting completion and testing
of multiple horizons in the well.
Item
1A. Risk
Factors
An
investment in our securities involves a high degree of risk. You should
carefully consider the following risk factors before you decide to buy our
securities. Any of these factors could cause the value of your investment to
decline significantly or become worthless. If you decide to buy our securities,
you should be able to afford a complete loss of your investment.
Risks
Relating to an Investment in Our Stock
At
this stage of our business operations, even with our good faith efforts,
investors have a high probability of losing their
investment.
We
have
yet to discover oil or gas products on any of our properties. In addition,
because the nature of our business is expected to change as a result of shifts
in the market price of oil and natural gas, competition, and the development
of
new and improved technology, management forecasts are not necessarily indicative
of future operations and should not be relied upon as an indication of future
performance.
While
Management believes its estimates of projected occurrences and events are within
the timetable of its business plan, our actual results may differ substantially
from those that are currently anticipated.
We
may need additional capital in the future to finance our planned growth, which
we may not be able to raise or it may only be available on terms unfavorable
to
us or our stockholders, which may result in our inability to fund our working
capital requirements and harm our operational results.
We
have
and expect to continue to have substantial capital expenditure and working
capital needs. We believe that current cash on hand, revenues from operations
and the other sources of liquidity are sufficient enough to fund our operations
through fiscal 2006. After that time we will need to rely on cash flow from
operations or raise additional cash to fund our operations, to fund our
anticipated reserve replacement needs and implement our growth strategy, or
to
respond to competitive pressures and/or perceived opportunities, such as
investment, acquisition, exploration and development activities.
If
operating difficulties or other factors, many of which are beyond our control,
cause our revenues or cash flows from operations, to decrease, we may be limited
in our ability to spend the capital necessary to complete our development,
exploitation and exploration programs. If our resources or cash flows do not
satisfy our operational needs, we will require additional financing, in addition
to anticipated cash generated from our operations, to fund our planned growth.
Additional
financing might not be available on terms favorable to us, or at all. If
adequate funds were not available or were not available on acceptable terms,
our
ability to fund our operations, take advantage of unanticipated opportunities,
develop or enhance our business or otherwise respond to competitive pressures
would be significantly limited. In such a capital restricted situation, we
may
curtail our acquisition, drilling, development, and exploration activities
or we
may be forced to sell some of our assets on an untimely or unfavorable
basis.
We
are subject to the penny stock rules and these rules may adversely effect
trading in our common shares.
Our
common stock is considered a `low-priced' security under rules promulgated
under
the Securities Exchange Act of 1934. In accordance with these rules,
broker-dealers participating in transactions in low-priced securities must
first
deliver a risk disclosure document which describes the risks associated with
such stocks, the broker-dealer's duties in selling the stock, the customer's
rights and remedies and certain market and other information. Furthermore,
the
broker-dealer must make a suitability determination approving the customer
for
low-priced stock transactions based on the customer's financial situation,
investment experience and objectives. Broker-dealers must also disclose these
restrictions in writing to the customer, obtain specific written consent from
the customer, and provide monthly account statements to the customer. The effect
of these restrictions will likely be a decrease in the willingness of
broker-dealers to make a market in our common shares, decreased liquidity of
our
common shares and increased transaction costs for sales and purchases of our
common shares as compared to other securities.
These
Exchange Act rules may limit the ability or willingness of brokers and other
market participants to make a market in our shares and may limit the ability
of
our shareholders to sell in the secondary market, through brokers, dealers
or
otherwise. We also understand that many brokerage firms discourage their
customers from trading in shares falling within the "penny stock" definition
due
to the added regulatory and disclosure burdens imposed by these Exchange Act
rules. The SEC from time to time may propose and implement even more stringent
regulatory or disclosure requirements on shares not listed on NASDAQ or on
a
national securities exchange. The adoption of the proposed changes that may
be
made in the future could have an adverse effect on the trading market for our
shares.
We
may incur substantial write-downs of the carrying value of our gas and oil
properties, which would adversely impact our
earnings.
We
intend
to periodically review the carrying value of our gas and oil properties under
the full cost accounting rules of the Securities and Exchange Commission. Under
these rules, capitalized costs of proved gas and oil properties may not exceed
the present value of estimated future net revenues from proved reserves,
discounted at an annual rate of 10%. Application of this “ceiling” test requires
pricing future revenue at the un-escalated prices in effect as of the end of
each fiscal quarter and requires a write-down for accounting purposes if the
ceiling is exceeded, even if prices were depressed for only a short period
of
time. We may be required to write down the carrying value of our gas and oil
properties when natural gas and oil prices are depressed or unusually volatile,
which would result in a charge against our earnings. Once incurred, a write-down
of the carrying value of our natural gas and oil properties is not reversible
at
a later date.
Competition
in our industry is intense. We are very small and have an extremely limited
operating history as compared to the vast majority of our competitors, and
we
may not be able to compete effectively.
We
intend
to compete with major and independent natural gas and oil companies for property
acquisitions. We will also compete for the equipment and labor required to
operate and to develop natural gas and oil properties. The majority of our
anticipated competitors have substantially greater financial and other resources
than we do. In addition, larger competitors may be able to absorb the burden
of
any changes in federal, state and local laws and regulations more easily than
we
can, which would adversely affect our competitive position.
These
competitors may be able to pay more for natural gas and oil properties and
may
be able to define, evaluate, bid for and acquire a greater number of properties
than we can. Our ability to acquire additional properties and develop new and
existing properties in the future will depend on our ability to conduct
operations, to evaluate and select suitable properties and to consummate
transactions in this highly competitive environment. In addition, some of our
competitors have been operating in our core areas for a much longer time than
we
have and have demonstrated the ability to operate through industry
cycles.
Drilling
wells is a high risk activity, often involving significant costs that may be
more than our estimates, and may not result in any addition to our production
or
reserves. Any material inaccuracies in drilling costs, estimates or underlying
assumptions will materially affect our business.
Developing
and exploring for natural gas and oil involves a high degree of operational
and
financial risk, which precludes definitive statements as to the time required
and costs involved in reaching certain objectives. The budgeted costs of
drilling, completing and operating wells are often exceeded and can increase
significantly when drilling costs rise due to a tightening in the supply of
various types of oilfield equipment and related services. Moreover, the
successful drilling of a natural gas or oil well does not ensure a profit on
investment. Exploratory wells bear a much greater risk of loss than development
wells.
A
variety
of factors, both geological and market-related, can cause a well to become
uneconomical or only marginally economic. Our initial drilling and development
sites, and any potential additional sites that may be developed, require
significant additional exploration and development, regulatory approval and
commitments of resources prior to commercial development. Any success that
we
may have with these wells or any future drilling operations will most likely
not
be indicative of our current or future drilling success rate. If our actual
drilling and development costs are significantly more than our estimated costs,
we may not be able to continue our business operations as proposed and would
be
forced to modify our plan of operation.
The
natural gas and oil business involves numerous uncertainties and operating
risks
that can prevent us from realizing profits and can cause substantial
losses.
Our
development, exploitation and exploration activities may be unsuccessful for
many reasons, including weather, cost overruns, equipment shortages and
mechanical difficulties. Moreover, the successful drilling of a natural gas
and
oil well does not ensure a profit on investment. A variety of factors, both
geological and market-related, can cause a well to become uneconomical or only
marginally economical. In addition to their cost, unsuccessful wells can hurt
our efforts to replace reserves. The natural gas and oil business involves
a
variety of operating risks, including:
· |
blow-outs
and surface cratering;
|
· |
uncontrollable
flows of oil, natural gas, and formation
water;
|
· |
natural
disasters, such as hurricanes and other adverse weather
conditions;
|
· |
pipe,
cement, or pipeline failures;
|
· |
embedded
oil field drilling and service
tools;
|
· |
abnormally
pressured formations; and
|
· |
environmental
hazards, such as natural gas leaks, oil spills, pipeline ruptures
and
discharges of toxic gases.
|
· |
If
we experience any of these problems, it could affect well bores,
gathering
systems and processing facilities, which could adversely affect our
ability to conduct operations. We could also incur substantial losses
as a
result of:
|
· |
injury
or loss of life;
|
· |
severe
damage to and destruction of property, natural resources and
equipment;
|
· |
pollution
and other environmental damage;
|
· |
clean-up
responsibilities;
|
· |
regulatory
investigation and penalties;
|
· |
suspension
of our operations; and
|
· |
repairs
to resume operations.
|
The
unavailability or high cost of drilling rigs, equipment, supplies, personnel
and
other services could adversely affect our ability to execute on a timely basis
our development, exploitation and exploration plans within our
budget.
Shortages
or an increase in cost of drilling rigs, equipment, supplies or personnel could
delay or interrupt our operations, which could impact our financial condition
and results of operations. Drilling activity in the geographic areas in which
we
conduct drilling activities may increase, which would lead to increases in
associated costs, including those related to drilling rigs, equipment, supplies
and personnel and the services and products of other vendors to the industry.
Increased drilling activity in these areas may also decrease the availability
of
rigs. We do not have any contracts with providers of drilling rigs and we cannot
be assured that drilling rigs will be readily available when we need them.
Drilling and other costs may increase further and necessary equipment and
services may not be available to us at economical prices.
Our
lease ownership may be diluted due to financing strategies we may employ in
the
future due to our lack of capital.
To
accelerate our development efforts we plan to take on working interest partners
that will contribute to the costs of drilling and completion and then share
in
revenues derived from production. In addition, we may in the future, due to
a
lack of capital or other strategic reasons, establish joint venture partnerships
or farm out all or part of our development efforts. These economic strategies
may have a dilutive effect on our lease ownership and will more than likely
reduce our potential operating revenues.
Our
business plan anticipates that we will be able to develop our oil and gas
properties. The cost to develop our oil and gas properties is significant,
and,
to date, we have been unable to fully implement our business plan due to our
limited amount of funds and the availability of drilling equipment. Unless
we
can fully implement our business plan, our revenues and results of operations,
and the value of your investment, will be adversely affected.
We
believe that the properties held by our subsidiary, Coastal Petroleum, have
significant reserves of oil and gas, however, we have not had the time, the
necessary funds, or equipment availability to fully exploit these resources.
The
costs associated with the development of oil and gas properties, including
engineering studies, equipment purchase or leasing and personnel costs, are
significant. In order to be profitable we must enhance our oil and gas
production, which means that we must drill more wells. In order to drill more
wells, we may need to find additional sources of capital, in addition to the
revenues we expect to earn from our oil and gas sales. We cannot guarantee
that
future financing will be available to us, on acceptable terms or at all. If
we
do not earn revenues sufficient to implement our business plan and we fail
to
obtain other financing, either through another offering of our securities or
by
obtaining loans, we may not become profitable and we may be unable to continue
our operations. If we were not able to continue our operations, your securities
would become worthless.
We
have accumulated losses. Our continued inability to generate revenues that
will
allow us to profitably operate our business could adversely affect the value
of
your investment.
As
of
year end we did not earn any money from oil and gas sales to pay for our
operating expenses. For the fiscal year ended December 31, 2005 we reported
net
income due to the gain on the one time settlement of lawsuits with the State
of
Florida. However, we cannot give you any assurance that we will generate profits
in the near future, or at all. If we fail to generate profits and we are unable
to obtain financing to continue our operations, we could be forced to severely
curtail, or possibly even cease, our operations.
Even
if we fully develop our oil and gas properties, we may not be profitable. Our
inability to operate profitably will adversely affect our business and the
value
of your investment.
We
have
assumed that once we fully develop our oil and gas properties we will be
profitable. Our reserves may prove to be lower than expected, production levels
may be lower than expected, the costs to exploit the oil and gas may be higher
than expected, new regulations may adversely impact our ability to exploit
these
resources and the market price for crude oil and natural gas may be lower than
current prices. We also face competition from other oil and gas companies in
all
aspects of our business, including oil and gas leases, marketing of oil and
gas,
and obtaining goods, services and labor.
We
may not have enough insurance to cover all of the risks we face. If our
insurance coverage should prove to be inadequate, our financial condition and
results of operations, as well as the value of your investment, could be
adversely affected.
In
accordance with customary industry practices, we maintain insurance coverage
against some, but not all, potential losses in order to protect against the
risks we face. We do not carry business interruption insurance nor do we have
a
policy of insurance on the life of Phillip W. Ware, our President and Chief
Executive Officer. We may elect not to carry insurance if our management
believes that the cost of available insurance is excessive relative to the
risks
presented. In addition, we cannot insure fully against pollution and
environmental risks.
The
occurrence of an event not fully covered by insurance could have a material
adverse effect on our financial condition and results of operations and on
the
value of your investment.
Oil
and natural gas prices are highly volatile in general and low prices negatively
affect our financial results.
Our
revenue, profitability, cash flow, future growth and ability to borrow funds
or
obtain additional capital, as well as the carrying value of our properties,
are
substantially dependent upon prevailing prices of oil and natural gas.
Historically, the markets for oil and natural gas have been volatile, and such
markets are likely to continue to be volatile in the future. Prices are subject
to wide fluctuation in response to relatively minor changes in the supply of
and
demand for oil and natural gas, market uncertainty and a variety of additional
factors that are beyond our control. Among the factors that can cause this
volatility are:
· |
worldwide
or regional demand for energy, which is affected by economic
conditions;
|
· |
the
domestic and foreign supply of natural gas and
oil;
|
· |
domestic
and foreign governmental
regulations;
|
· |
political
conditions in natural gas and oil producing
regions;
|
· |
the
ability of members of the Organization of Petroleum Exporting Countries
to
agree upon and maintain oil prices and production levels;
and
|
· |
the
price and availability of other
fuels.
|
Declines
in oil and natural gas prices may materially adversely affect our financial
condition, liquidity, and ability to finance planned capital expenditures and
results of operations. We may be required in the future to write down the
carrying value of our oil and natural gas properties when oil and natural gas
prices are depressed or unusually volatile. Whether we will be required to
take
such a charge will depend on the prices for oil and natural gas at the end
of
any quarter and the effect of reserve additions or revisions and capital
expenditures during such quarter. If a write down is required, it would result
in a charge to earnings, but would not impact cash flow from operating
activities.
It
is
impossible to predict natural gas and oil price movements with certainty. Lower
natural gas and oil prices may not only decrease our future revenues on a per
unit basis but also may reduce the amount of natural gas and oil that we can
produce economically. A substantial or extended decline in natural gas and
oil
prices may materially and adversely affect our future business enough to force
us to cease our business operations. In addition, our financial condition,
results of operations, liquidity and ability to finance planned capital
expenditures will also suffer in such a price decline. Further, natural gas
and
oil prices do not necessarily move together.
Government
regulation and liability for environmental matters may adversely affect our
business and results of operations.
Oil
and
natural gas operations are subject to various federal, state and local
government regulations, which may be changed from time to time. Matters subject
to regulation include:
· |
discharge
permits for drilling operations;
|
· |
reports
concerning operations;
|
· |
unitization
and pooling of properties; and
|
From
time
to time, regulatory agencies have imposed price controls and limitations on
production by restricting the rate of flow of oil and natural gas wells below
actual production capacity in order to conserve supplies of oil and natural
gas.
There
are
federal, state and local laws and regulations primarily relating to protection
of human health and the environment applicable to the development, production,
handling, storage, transportation and disposal of oil and natural gas,
by-products thereof and other substances and materials produced or used in
connection with oil and natural gas operations. In addition, we may be liable
for environmental damages caused by previous owners of property we purchase
or
lease. As a result, we may incur substantial liabilities to third parties or
governmental entities. We are also subject to changing and extensive tax laws,
the effects of which cannot be predicted. The implementation of new laws or
regulations, or the modification of existing laws or regulations, could have
a
material adverse effect on us.
Reserve
estimates depend on many assumptions that may turn out to be inaccurate. Any
material inaccuracies in these reserve estimates or underlying assumptions
will
materially affect the quantities and present value of our reserves.
Estimating
proved reserves involves many uncertainties, including factors beyond our
control. There are uncertainties inherent in estimating quantities of proved
oil
reserves since petroleum engineering is not an exact science. Estimates of
commercially recoverable oil reserves and of the future net cash flows from
them
are based upon a number of variable factors and assumptions
including:
· |
historical
production from the properties compared with production from other
producing properties;
|
· |
the
effects of regulation by governmental
agencies;
|
· |
future
operating costs, severance and excise taxes, abandonment costs,
development costs and workover and remedial costs.
|
Development
of our reserves, when and if established, may not occur as scheduled and the
actual results may not be as anticipated.
Our
future reserve estimates will be based on various assumptions, including
assumptions required by the Securities and Exchange Commission relating to
natural gas and oil prices, drilling and operating expenses, capital
expenditures, taxes and availability of funds. The process of estimating our
natural gas and oil reserves is anticipated to be extremely complex, and will
require significant decisions and assumptions in the evaluation of available
geological, geophysical, engineering and economic data for each reservoir.
Our
actual production, revenues, taxes, development expenditures and operating
expenses will likely vary from those anticipated. These variances may be
material.
Our
common stock is thinly traded, so you may be unable to sell at or near ask
prices or at all if you need to sell your stock to raise money or otherwise
desire to liquidate your shares.
Our
common shares are "thinly-traded" on the NASD OTC Bulletin Board, meaning that
the number of persons interested in purchasing our common shares at or near
ask
prices at any given time may be relatively small or non-existent. This situation
is attributable to a number of factors, including the fact that we are a small
company which is relatively unknown to stock analysts, stock brokers,
institutional investors and others in the investment community that generate
or
influence sales volume. As a consequence, there may be periods of several days
or more when trading activity in our shares is minimal or non-existent, as
compared to issuers which have a large and steady volume of trading activity
that will generally support continuous sales without an adverse effect on share
price.
We
cannot
give you any assurance that a broader or more active public trading market
for
our common shares will develop or be sustained, or that current trading levels
will be sustained. Due to these conditions, we can give you no assurance that
you will be able to sell your shares at or near ask prices or at all if you
need
money or otherwise desire to liquidate your shares.
Examples
of external factors, which can generally be described as factors that are
unrelated to the operating performance or financial condition of any particular
company, include changes in interest rates and worldwide economic and market
conditions and trends, as well as changes in industry conditions such as changes
in the cost of energy and the passage of regulatory and environmental rules.
Changes in the market price of our common stock may have no connection with
our
operating results, financial condition or prospects. We cannot make any
predictions or projections as to what the prevailing market price for our common
stock will be at any time, or as to what effect, if any, that the availability
or sale of our common stock will have on the prevailing market price. Because
of
the volatility of the price of our common stock, the value of your investment
could decline substantially.
Our
right to issue additional capital stock at any time could have an adverse effect
on your proportionate ownership and voting and other
rights.
We
are
entitled under our Certificate of Incorporation to issue up to 250,000,000
shares of common stock. Our Board of Directors may generally issue those shares,
or options or warrants to purchase those shares, without further approval by
our
shareholders. In the event that we will be required to issue additional
securities to raise capital to further our development plans, your proportionate
ownership and voting rights could be adversely affected by the issuance of
additional common shares, or options or warrants to purchase those shares,
including a dilution in your proportionate ownership and voting rights. We
cannot give you any assurance that we will not issue additional common shares,
or options or warrants to purchase those shares, under circumstances we may
deem
appropriate at the time. The issuance of additional common stock by our
management will have the effect of diluting the proportionate equity interest
and voting power of holders of our common stock.
We
have not paid cash dividends and it is unlikely that we will pay cash dividends
in the foreseeable future. Investing in our securities will not provide you
with
income.
We
plan
to use all of our earnings, to the extent we have earnings, to fund our
operations. We do not plan to pay any cash dividends in the foreseeable future.
We cannot guarantee that we will, at any time, generate sufficient surplus
cash
that would be available for distribution as a dividend to the holders of our
common stock. You should not expect to receive cash dividends on our common
stock.
Our
dependence on outside equipment and service providers may hurt our
profitability.
We
need
to obtain logging equipment and cementing and well treatment services in the
area of our operations. We may not be able to obtain these items in a timely
and
cost-effective manner. Several factors, including increased competition in
the
area, may limit their availability. Longer waits and higher prices for equipment
and services may reduce our profitability.
We
must increase our oil production revenue or develop additional sources of funds
to support our oil operations.
Our
long
term success is ultimately dependent on our ability to expand our revenue base
through the acquisition and development of producing properties. We have made
significant investments in oil and gas leases in North Dakota and Montana.
The
acquisitions are not indicative of future success. All of the projects
envisioned in our business plan are subject to the risk of failure and the
loss
of our investment. In the event we are not able to increase the revenues from
our leases, the leases could fall into default and we could lose our rights
to
those leases.
Drilling
for and producing oil is a high risk activity with many uncertainties that
could
adversely affect our business, financial condition or results of operations.
Our
future success will depend on the success of our exploitation, exploration,
development and production activities. Our oil exploration and production
activities are subject to numerous risks beyond our control; including the
risk
that drilling will not result in commercially viable oil production. Our
decisions to purchase, explore, develop or otherwise exploit prospects or
properties will depend in part on the evaluation of data obtained through
geophysical and geological analyses, production data and engineering studies,
the results of which are often inconclusive or subject to varying
interpretations. Our cost of drilling, completing and operating wells is often
uncertain before drilling commences.
Overruns
in budgeted expenditures are common risks that can make a particular project
uneconomical. The cost of drilling, completing and operating wells is often
uncertain. Moreover, drilling may be curtailed, delayed or canceled as a result
of many factors, including title problems, weather conditions, shortages of,
or
delays in delivery of equipment, as well as the financial instability of well
operators, major working interest owners and well servicing companies. Our
wells
may be shut-in for lack of a market until a pipeline or gathering system with
available capacity is extended into our area. Our oil wells may have production
curtailed until production facilities and delivery arrangements are acquired
or
developed for them. The affect of one or more of the above factors could result
in our becoming unprofitable or ceasing business.
Item 1B. Unresolved
Staff Comments
Item 2. Properties
Properties
Information
required by Item 2 “Properties” is included under Item 1
“Business.”
Disclosure
Concerning Oil and Gas Operations.
Since
the
properties in which the Company has interests are undeveloped and nonproducing,
items 2 through 4 of Securities Exchange Act Industry Guide 2 are not
applicable.
(5) Undeveloped
Acreage.
The
Company's undeveloped acreage as of December 31, 2005 was as
follows:
|
|
Gross Acres
|
|
Net Acres
|
|
Montana
|
|
|
104,951.57
|
|
|
103,557.750
|
|
North
Dakota
|
|
|
30,345.56
|
|
|
21,688.116
|
|
Total:
|
|
|
135,297.13
|
|
|
125,245.866
|
|
(6) Drilling Activity.
There
was
no drilling activity in 2005. See Drilling Activity section under Item 1
Business at page 9.
(7) Present Activities.
See
Drilling
Activity section under Item 1 Business at page 9.
Agreement
with the State of Florida
For
years
the Company’s subsidiary, Coastal Petroleum litigated against the State in an
effort to secure drilling permits and drill for oil off the coast of Florida.
The State denied Coastal Petroleum permission to drill on its Leases, a decision
that was upheld by a Florida court. Florida courts also denied Coastal Petroleum
compensation for a taking of the Leases. Furthermore, the longstanding State
policy against any drilling for oil or gas offshore of Florida remains in place
as a reflection of the Florida Statutes which bans such activity, and there
is
no indication that it will change. Given the policy and court decisions, any
additional attempt by Coastal Petroleum to secure a permit to drill its Florida
Leases was considered by Management as futile.
After
the
United States Supreme Court refused to hear Coastal Petroleum’s taking case in
2004 and the Company’s legal options were limited, the State of Florida
approached Coastal Petroleum regarding a possible buyback of its leases. With
limited financial resources to continue a legal fight which was further
frustrated with recent court decisions, Coastal Petroleum continued discussions
with the State and ultimately, on June 1, 2005 was joined by Coastal Caribbean
and other royalty holders in
accepting an offer by the State of Florida to repurchase Coastal Petroleum’s
Florida Leases and other royalty rights.
The
proceeds from the State were divided by the parties to the Agreement and
the
Company and its subsidiary received approximately $4.871 million after payment
to all their creditors. The
Agreement resulted in the closing and dismissal of all of the Company’s
litigation concerning the leases including the following:
· |
Drilling
Permit Litigation - Lease Taking Case (Lease 224-A)
|
· |
Ancillary
Matters to Lease Taking Case (Lease
224-A)
|
· |
Coastal
Caribbean Royalty Litigation
|
· |
Lease
Taking Case (Lease 224-B)
|
The
Company is currently not a party to any litigation.
Contingency
Fees
All
contingency fees previously issued to firms or individuals relating to the
litigation against the State of Florida, were released or nullified by the
2005
Agreement with the State of Florida or in the mutual releases exchanged pursuant
to that Agreement. No contingency fees remain in effect.
Item 4. Submission
of Matters to a Vote of Security Holders
On
December 9, 2005, the Company held an annual meeting at which new directors
were
elected and other proposals were voted upon and passed as follows:
PROPOSAL
I.
To elect
the following persons as directors of Coastal:
|
Number
of Shares Voted
|
Number
of Shareholders
|
Robert
J. Angerer, Sr.
|
|
|
For
|
39,751,242
|
1477
|
Withheld
|
1,338,955
|
68
|
|
|
|
Phillip
W. Ware
|
|
|
For
|
39,550,527
|
1477
|
Withheld
|
1,539,670
|
68
|
|
|
|
Herbert
D. Haughton
|
|
|
For
|
39,538,377
|
1477
|
Withheld
|
1,551,820
|
68
|
|
|
|
Anthony
F. Randazzo
|
|
|
For
|
39,473,348
|
1477
|
Withheld
|
1,616,849
|
68
|
|
|
|
Matthew
D. Cannon
|
|
|
For
|
39,529,534
|
1477
|
Withheld
|
1,560,663
|
68
|
PROPOSAL
II.
To
approve the 2005 Employees Incentive Stock Option and Limited Rights
Plan.
|
Number
of Shares Voted
|
Number
of Shareholders
|
For
|
17,707,411
|
1290
|
Against
|
3,789,442
|
232
|
Abstain
|
573,528
|
126
|
PROPOSAL
III.
Ratification of the appointment of the firm Baumann, Raymondo & Company as
the independent auditors of Coastal for the fiscal year ending December 31,
2005.
|
Number
of Shares Voted
|
Number
of Shareholders
|
For
|
40,062,697
|
1453
|
Against
|
437,669
|
35
|
Abstain
|
589,831
|
61
|
PROPOSAL
IV.
The
approval of the adjournment of the Annual Meeting to solicit additional proxies
in the event that there are not sufficient votes to approve any one or more
of
the proposals.
|
Number
of Shares Voted
|
Number
of Shareholders
|
For
|
39,510,966
|
1425
|
Against
|
1,129,375
|
78
|
Abstain
|
449,856
|
71
|
PART II
Market Information.
The
principal market for the Company's common stock is in the over-the-counter
market on the "Electronic Bulletin Board" of the National Association of
Securities Dealers, Inc. under the symbol COCBF.
The
quarterly high and low closing prices on the Electronic Bulletin Board and
the
Pink Sheets (Pink Sheets LLC) during the last two years were as
follows:
2004
|
|
1st quarter
|
|
2nd quarter
|
|
3rd quarter
|
|
4th quarter
|
|
|
|
|
|
|
|
|
|
|
|
High
|
|
|
.09
|
|
|
.27
|
|
|
.26
|
|
|
.15
|
|
Low
|
|
|
.05
|
|
|
.06
|
|
|
.10
|
|
|
.05
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2005
|
|
|
1st
quarter
|
|
|
2nd
quarter
|
|
|
3rd
quarter
|
|
|
4th
quarter
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
High
|
|
|
.17
|
|
|
.22
|
|
|
.21
|
|
|
.21
|
|
Low
|
|
|
.075
|
|
|
.06
|
|
|
.095
|
|
|
.085
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
The
approximate number of record holders of the Company's common stock at March
7,
2006 was 8,100.
Dividends.
The
Company has never declared or paid dividends on its common stock and it does
not
anticipate declaring or paying any dividends in the foreseeable future. The
Company plans to retain any future earnings to reduce the deficit accumulated
during the development stage of $33,358,354 at December 31, 2005 and to finance
its operations.
Foreign Exchange Control Regulations
The
Company is subject to the applicable laws of The Islands of Bermuda relating
to
exchange control, but has the permission of the Foreign Exchange Control of
Bermuda to carry on business in, to receive, disburse and hold United States
dollars and dollar securities under its designation as an External Account
Company. The Company has been advised that, although as a matter of law it
is
possible for such designation to be revoked, there is little precedent for
revocation under Bermuda law.
Income
and Withholding Taxes
Coastal
Caribbean is a Bermuda corporation. Bermuda currently imposes no taxes on
corporate income or capital gains realized outside of Bermuda. Any amounts
received by Coastal Caribbean from United States sources as dividends, interest,
or other fixed or determinable annual or periodic gains, profits and income,
will be subject to a 30% United States withholding tax. In addition, any
dividends from its domestic subsidiary, Coastal Petroleum, will not be eligible
for the 100% dividends received deduction, which is allowable in the case of
a
United States parent corporation. Shares of the Company held by persons who
are
citizens or residents of the United States are subject to federal estate and
gift and local inheritance taxation. Any dividends received by such persons
will
also be subject to federal, State and local income taxation. The foregoing
rules
are of general application only, and reflect law in force as of the date of
this
report.
A
convention between Bermuda and the United States relating to mutual assistance
on tax matters became operative in 1988.
Passive
Foreign Investment Company Rules
The
Internal Revenue Code of 1986, as amended, provides special rules for
distributions received by U.S. holders on stock of a passive foreign investment
company (PFIC), as well as amounts received from the sale or other disposition
of PFIC stock.
Under
the
PFIC rules, a non-U.S. corporation will be classified as a PFIC for U.S. federal
income tax purposes in any taxable year in which, after applying certain
look-through rules, either (1) at least 75 percent of its gross income is
passive income or (2) at least 50 percent of the gross value of its assets
is
attributable to assets that produce passive income or are held for the
production of passive income.
Passive
income for this purpose generally includes dividends, interest, royalties,
rents, and gains from commodities and securities transactions. Special rules
apply in cases where a foreign corporation owns directly or indirectly at least
a 25 percent interest in a subsidiary, measured by value. In this case, the
foreign corporation is treated as holding its proportionate share of the assets
of the subsidiary and receiving directly its proportionate share of the income
of the subsidiary when determining whether it is a PFIC. Thus, Coastal Caribbean
would be deemed to receive its pro rata share of the income and to hold its
pro
rata share of the assets, of Coastal Petroleum.
Based
on
certain estimates of its gross income and gross assets and the nature of its
business, Coastal Caribbean would be classified as a PFIC for the years 1987
through 2005. Once an entity is considered a PFIC for a taxable year, it will
be
treated as such for all subsequent years with respect to owners holding the
stock in a year that it was classified as a PFIC under the income or asset
test
described above. Whether the Company will be a PFIC under either of these tests
in future years will be difficult to determine because the tests are applied
annually. Based upon Coastal Caribbean's current passive income, it is likely
that Coastal Caribbean will be classified as a PFIC in 2006.
If
Coastal Caribbean is classified as a PFIC with respect to a U.S. holder any
gain
from the sale of, and certain distributions with respect to, shares of our
common stock, would cause a U.S. holder to become liable for U.S. federal income
tax under Code section 1291 (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. The interest
charge would generally be calculated as if the distribution or gain had been
recognized ratably over the U.S. holder's holding period (for PFIC purposes)
for
the shares. To the extent an amount is allocated to the year of the disposition
or distribution, or to a year before the first year in which the corporation
qualified as a PFIC, the amount so allocated is included as additional gross
income for the year of the disposition or distribution. A U.S. holder also
would
be required to make an annual return on IRS Form 8621 that describes any
distributions received with respect to our shares and any gain realized on
the
sale or other disposition of our shares.
As
an
alternative to taxation under the interest charge regime, a U.S. holder
generally can elect, subject to certain limitations, to annually take into
gross
income the appreciation or depreciation in our common shares' value during
the
tax year (mark-to-market election). If a U.S. holder makes the mark-to-market
election, the U.S. holder will not be subject to the above-described rule.
Instead, if a U.S. holder makes the mark-to-market election, the U.S. holder
recognizes each year an amount equal to the difference as of the close of the
taxable year between the U.S. holder's fair market value of the common shares
and the adjusted basis in the common shares. Losses would be allowed only to
the
extent of net gain previously included by the U.S. holder under the
mark-to-market election for prior taxable years. Amounts included in or deducted
from income under the mark-to-market election and actual gains and losses
realized upon the sale or disposition of the common shares, subject to certain
limitations, will be treated as ordinary gains or losses. If the mark-to-market
election is made for a year other than the first year in the U.S. holder’s
holding period in which the corporation was a PFIC, the first year’s
mark-to-market inclusion, if any, is taxed as if it were a distribution subject
to the interest charge regime discussed above.
Another
alternative election which would allow a U.S. holder to elect to take its pro
rata share of Coastal Caribbean's undistributed income into gross income as
it
is earned by Coastal Caribbean (QEF election) would only be available to a
U.S.
holder if Coastal Caribbean provided certain information to the shareholders
of
Coastal Caribbean. Coastal Caribbean has had no undistributed income for the
years 1987 through 2005. If the QEF election is made in a year other than the
first year of the U.S. holder’s holding period in which the foreign corporation
is a PFIC, both the QEF regime and interest charge regime can apply, unless
a
special election is made. Under this special election, the taxpayer is treated
as if it disposed of its PFIC stock in a transaction subject to the interest
charge rules to the extent gain is deemed to be recognized. Once this election
is made, the holder will be subject only to the QEF regime.
Recent
Sales of Unregistered Securities
None
Purchases
of Equity Securities by the Issuer and Affiliated
Purchasers
None
The
following selected consolidated financial information (in thousands except
for
per share amounts) for the Company insofar as it relates to each of the five
years in the period ended December 31, 2005 has been extracted from the
Company's consolidated financial statements.
|
|
Years
ended December 31,
|
|
|
|
2005
|
|
2004
|
|
2003
|
|
2002
|
|
2001
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net
income (loss)
|
|
$
|
6,766
|
|
$
|
(673
|
)
|
$
|
(1,008
|
)
|
$
|
(2,448
|
)
|
$
|
(6,585
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net
income (loss) per share (basic and diluted)
|
|
|
.15
|
|
|
(.01
|
)
|
|
(.02
|
)
|
|
(.05
|
)
|
|
(.15
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cash
and cash equivalents and marketable securities
|
|
|
2,250
|
|
|
-
|
|
|
3
|
|
|
292
|
|
|
609
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Unproved
oil, gas and, mineral properties (full cost method)
|
|
|
1,861
|
|
|
-
|
|
|
-
|
|
|
-
|
|
|
-
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total
assets
|
|
|
4,387
|
|
|
17
|
|
|
91
|
|
|
707
|
|
|
1,077
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Shareholders'
(deficit) equity:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Common
stock
|
|
|
5,545
|
|
|
5,545
|
|
|
5,545
|
|
|
5,545
|
|
|
5,216
|
|
Capital
in excess of par value
|
|
|
32,138
|
|
|
32,138
|
|
|
32,138
|
|
|
32,068
|
|
|
31,498
|
|
Deficit
accumulated during the development stage
|
|
|
(33,358
|
)
|
|
(40,124
|
)
|
|
(39,451
|
)
|
|
(38,443
|
)
|
|
(35,996
|
)
|
Total
shareholders’ (deficit) equity
|
|
$
|
4,325
|
|
$
|
(2,441
|
)
|
$
|
(1,768
|
)
|
$
|
(830
|
)
|
$
|
718
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Common
stock shares outstanding (weighted average)
|
|
|
44,212
|
|
|
44,212
|
|
|
44,212
|
|
|
44,734
|
|
|
43,468
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
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. For a discussion of certain risk factors affecting the Company,
please see “Risk Factors” above.
General
This
has
been a momentous transitional year for Coastal Caribbean. This year the Company
settled and ended its ongoing legal battles against the State of Florida to
allow Coastal Petroleum to use its leases or to be compensated for them. That
end has given new life to the Company as we refocus our efforts from litigating
for the right to drill, to actual drilling for oil and gas.
The
Company is now an active independent oil and gas exploration company. Through
its subsidiary Coastal Petroleum, the Company has acquired mineral rights in
North Dakota and Montana in the oil producing region known as the Williston
Basin. Our objective formations on those leases include the Lodgepole and
several others. The Company's future growth will be driven primarily by
exploration and development activities. Its business strategy is to increase
shareholder value by acquiring and drilling reasonably priced prospects that
have good potential, whether in the Williston Basin or in other parts of the
United States, with the goal of shaping the Company into a producing independent
oil and gas firm. The Company will continue to seek high quality exploration
projects with potential for providing long-term drilling inventories that
generate high returns.
In
Montana, the Company has obtained the rights to explore in two areas: a large
tract in Valley County in eastern Montana; and a smaller tract in Blaine County
in north central Montana. The Company has obtained lease rights in approximately
131,297 net acres in eastern Montana, close to known production from a Lodgepole
reef in Valley County. This area of Montana has a number of other producing
formations. This is the Company’s area of primary focus for Montana. The smaller
tract in north central Montana is more than 130 miles west of the Valley County
acreage. The first wildcat well was drilled to a depth of 4,600 feet in this
smaller tract in Blaine County, Montana. The well is considered a “tight hole”
and drilling results will remain confidential until the well is completed and
tested. We have a second approved permit near this well. We are moving forward
with permitting prospects on our main leasehold in eastern Montana, in Valley
County, which is 130 miles east of the first well. We anticipate that the next
well will commence after March and that we will be joined by partners in that
well.
A
well to
test the Lodgepole reefs (our primary target) in eastern Montana will cost
approximately $500,000. After completion of the first well there and payout
(complete return of our investment) the Company has the option to continue
and
drill more than 50 prospects either alone or with a partner or partners. This
will allow the Company to become active in this oil play which has very good
potential but with a small initial investment.
In
North
Dakota, the Company controls the working interest on approximately 21,688 net
acres in Slope, Billings, and Stark Counties, on which 20 drillable prospects
have been mapped to date. The depth of wells in North Dakota is deeper than
in
Montana (approximately 9,500 feet versus approximately 5,000 feet), and thus
the
cost of drilling is higher. A typical North Dakota wildcat well costs about
$1.2
million to drill. The Company intends to bring in partners to share the risk
and
investment in wells it drills in North Dakota until the Company is in a stronger
financial position.
The
Company is currently having discussions with potential partners for
participation in wells in both Montana and North Dakota, but does not yet have
any commitments from potential partners.
We
plan
to drill approximately five exploratory wells in 2006 in addition to the one
we
began drilling in January. However, the number of wells that we drill in 2006
and their cost will be subject to various factors, including the availability
of
drilling rigs that we can hire and whether we drill alone or with partners.
In
addition, we could reduce the number of wells that we drill if oil and natural
gas prices were to decline significantly. We expect the cost of drilling the
five wells to depend upon many factors including those above which may affect
the cost of operations and whether and to what extent partners participate
with
the Company.
The
drilling deadlines on the leases that were previously set at January 31, 2006,
have been extended until March 31, 2006.
Liquidity
and Capital Resources
As
more
fully described in Note 1 to the consolidated financial statements, we have
no
recurring revenues, have experienced recurring losses prior to 2005 and have
a
deficit accumulated during the development stage. We, along with various other
related parties, recently settled several lawsuits, which were filed by the
Company, our subsidiary Coastal Petroleum Company and other related parties
against the State of Florida. All of these lawsuits were related to the State’s
actions limiting our ability to commence development activities through our
subsidiary. The cost of that litigation was substantial. Management believes
its
current cash position will allow the Company to move forward to explore and
develop profitable oil and gas operations, although there is no assurance these
efforts will be successful. These situations raise substantial doubt about
our
ability to continue as a going concern. Our 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 these
uncertainties.
At
December 31, 2005, we have $2,250,000 in cash compared to $179 at December
31,
2004. In July 2005, we and others settled all our lawsuits with the State of
Florida for a total of $12,500,000. Our share of the proceeds was $8,105,000,
from which we paid all our legal related obligations and creditors, and acquired
the remaining minority interest in Coastal Petroleum, after which we netted
$4,872,000 in cash.
During
2005, we have spent $1,860,000 for oil and gas lease rights and related costs
including:
· |
A
group of oil and gas lease rights to approximately 103,557 net acres
in
Montana for $1,568,000. These leases are subject to various overriding
royalty interests held by others of up to 19.5%. The leases expire
in
years from 2007 to 2014.
|
· |
Oil
and gas lease rights to approximately 21,688 acres in Slope County
North
Dakota and two well sites in Valley County Montana for $100,000 from
an
entity controlled by one of the Company’s directors. The leases include an
option to drill for additional prospects in the Valley County area.
The
leases provide for an after payout 25% working interest, and a 20%
net
revenue interest in each well, on a well by well basis, to an entity
controlled by one of the Company’s directors. The leases are also subject
to the overriding royalty interest of the landowner. The Company
expects
to partner with other entities so that its cost to drill the initial
well
in North Dakota to be approximately $425,000 over the next twelve
months.
|
We
expect
to continue to participate with partners to drill additional wells both in
Montana and North Dakota.
Results
of Operations and Critical Accounting Policies and
Estimates
Development
Stage Enterprise Presentation
The
Company is a development stage enterprise. It has never had substantial revenues
and has operated at a loss each year (except 2005) since its inception in 1953.
Oil
and Gas Accounting
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.
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.
Prior
to
2005, all costs incurred in connection with the Company’s Florida leases were
considered impaired by
the
actions taken by the State of Florida. The Company recorded an impairment charge
in 2001 and has expensed
subsequent costs when incurred.
During
2005, we acquired new oil and gas leases in North Dakota and Montana. We have
capitalized these and other related costs and have begun a site selection and
well drilling program.
Goodwill
Impairment
As
part
of the 2005 settlement, we acquired the remaining minority interest in our
subsidiary, Coastal Petroleum representing 15.2% of its outstanding common
stock
for $802,000 in cash. Since Coastal did not have any tangible or intangible
assets, we assigned this amount to goodwill. We then evaluated the goodwill
and
determined it was impaired as Coastal Petroleum had no expected revenues or
cash
flows at that time and we recorded an impairment expense of $802,000.
2005
vs. 2004
During
2005, we settled all our legal actions with the State of Florida and realized
a
gain of $8,124,000. In previous years, we expensed all our oil and gas property
lease costs as impaired as well as substantial legal costs. This gain provided
us with our first reported net income for 2005 of $6,800,000, compared to a
net
loss of $(673,000) for 2004.
For
most
of 2005 and 2004, we have been working toward resolution of our legal actions
against the State of Florida. During this time, we continued to suffer declining
financial condition and a lack of resources to continue pursuing expensive
and
lengthy litigation. We minimized expenses, deferred payments and borrowed funds
from our officers to maintain our legal efforts against the State of
Florida.
Our
interest income increased in 2005 due to the short-term investment of cash
received from the settlement. We had no such investments in 2004.
For
2005
and 2004, we had one employee, and maintained legal counsel on a monthly
retainer, maintained our periodic reporting obligations and attempted to
minimize all other operating expenses. Our operating expenses were $572,000
and
$673,000 for 2005 and 2004, respectively. The largest decrease was in legal
expenses in 2005 from 2004 due to our change in focus to settle with the State
of Florida. Our shareholder related expenses increased in 2005 due to holding
a
shareholder meeting in 2005 that was not held in 2004.
For
2005,
we reported a goodwill impairment expense of $802,000. We had no such impairment
charges in 2004.
2004
vs. 2003
For
most
of 2004 and 2003, we pursued our legal actions against the State of Florida.
During this time, we continued to suffer declining financial condition and
a
lack of resources to continue pursuing expensive and lengthy litigation. We
minimized expenses, deferred payments and began borrowed funds from our officers
to maintain our legal efforts against the State of Florida.
We
reported a net loss of $(673,000) and $(1,008,000) for 2004 and 2003,
respectively.
During
2003, we had two employees. During 2004, in an effort to conserve cash, we
reduced our personnel to one employee, and began efforts to reduce operating
expenses. We changed accounting consultants and auditors and eliminated our
directors and officers insurance and other nonessential operating expenses.
Our
operating expenses were $672,908 and $1,008,838 for 2004 and 2003, respectively.
In 2004, we received a payment extension on our annual lease payments to the
State of Florida, which were a $59,000 expense in 2003.
The
Company does not have any significant exposure to market risk as the only market
risk sensitive instruments are its investments in marketable securities. At
December 31, 2005, the carrying value of such investments (including those
classified as cash and cash equivalents) was approximately $2,250,236, the
fair
value was $2,250,236 and the face value was $2,250,236. Since the Company
expects to hold the investments to maturity, the maturity value should be
realized.
Report
of Independent Registered Public Accounting Firm
To
the
Board of Directors
Coastal
Caribbean Oils & Minerals, Ltd.
Apalachicola,
Florida
We
have
audited the consolidated balance sheet of Coastal Caribbean Oils & Minerals,
Ltd. and subsidiary as of December 31, 2005, and the related consolidated
statements of operations, cash flows, and common stock and capital in excess
of
par for the year ended December 31, 2005 and for the period from January 31,
1953 (inception) to December 31, 2005. These financial statements are the
responsibility of the Company's management. Our responsibility is to express
an
opinion on these financial statements based on our audit.
We
conducted our audit in accordance with the standards of the Public Company
Accounting Oversight Board (United States). Those standards require that we
plan
and perform the audit to obtain reasonable assurance about whether the financial
statements are free of material misstatement. An audit includes examining,
on a
test basis, evidence supporting the amounts and disclosures in the financial
statements. An audit also includes assessing the accounting principles used
and
significant estimates made by management, as well as evaluating the overall
financial statement presentation. We believe that our audit provided a
reasonable basis for our opinion.
In
our
opinion, the consolidated financial statements referred to above present fairly,
in all material respects, the consolidated financial position of Coastal
Caribbean Oils & Minerals, Ltd. and subsidiary as of December 31, 2005, and
the results of their operations and cash flows for the year ended December
31,
2005, and for the period from January 31, 1953 (inception) to December 31,
2005,
in conformity with accounting principles generally accepted in the United States
of America.
The
accompanying consolidated financial statements have been prepared assuming
the
Company will continue as a going concern. As discussed in Notes 1 and 4 to
the
consolidated financial statements, the Company suffered recurring losses from
operations and has not yet realized any revenues from development activities.
This raises substantial doubt about the Company’s ability to continue as a going
concern. The consolidated financial statements do not include any adjustments
that might result from the outcome of this uncertainty.
|
/s/ Baumann, Raymondo & Company
PA |
Tampa,
Florida
February
15, 2006
Report
of Independent Registered Public Accounting Firm
To
the
Board of Directors,
Coastal
Caribbean Oils & Minerals, Ltd.:
We
have
audited the accompanying consolidated balance sheet of Coastal Caribbean Oils
& Minerals, Ltd. (a development stage company) as of December 31, 2004, and
the related consolidated statements of operations, cash flows and common stock
and capital in excess of par value for the years ended December 31, 2004 and
2003. These financial statements are the responsibility of the Company’s
management. Our responsibility is to express an opinion on these financial
statements based on our audits.
We
conducted our audits in accordance with the standards of the Public Company
Accounting Oversight Board (United States). Those standards require that we
plan
and perform the audit to obtain reasonable assurance about whether the financial
statements are free of material misstatement. We were not engaged to perform
an
audit of the Company’s internal control over financial reporting. Our audit
included consideration of internal control over financial reporting as a basis
for designing audit procedures that are appropriate in the circumstances, but
not for the purpose of expressing an opinion on the effectiveness of the
Company’s internal control over financial reporting. Accordingly, we express no
such opinion. An audit also includes examining, on a test basis, evidence
supporting the amounts and disclosures in the financial statements, assessing
the accounting principles used and significant estimates made by management,
and
evaluating the overall financial statement presentation. We believe that our
audits provide a reasonable basis for our opinion.
In
our
opinion, the consolidated financial statements referred to above present fairly,
in all material respects, the consolidated financial position of Coastal
Caribbean Oils & Minerals, Ltd. as of December 31, 2004, and the
consolidated results of its operations and cash flows for the years ended
December 31, 2004 and 2003, in conformity with accounting principles generally
accepted in the United States of America.
The
accompanying consolidated financial statements have been prepared assuming
that
the Company will continue as a going concern. As more fully described in Notes
1
and 4 to the consolidated financial statements, the Company had a working
capital deficiency, has incurred recurring losses and has a deficit accumulated
during the development stage. 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
classifications or liabilities that may result from the outcome of these
uncertainties.
|
/s/ James Moore & Co.,
P.L. |
March
17,
2005
Gainesville,
Florida
COASTAL
CARIBBEAN OILS & MINERALS, LTD.
(A
Bermuda Corporation)
A
Development Stage Company
CONSOLIDATED
BALANCE SHEETS
(Expressed
in U.S. dollars)
|
|
December
31,
|
|
|
|
2005
|
|
2004
|
|
Assets
|
|
|
|
|
|
Current
assets:
|
|
|
|
|
|
Cash
and cash equivalents
|
|
$
|
2,250,236
|
|
$
|
179
|
|
Prepaid
expenses and other
|
|
|
199,754
|
|
|
16,322
|
|
Total
current assets
|
|
|
2,449,990
|
|
|
16,501
|
|
|
|
|
|
|
|
|
|
Certificates
of deposit
|
|
|
75,000
|
|
|
-
|
|
Petroleum
leases
|
|
|
1,860,614
|
|
|
-
|
|
Equipment,
net
|
|
|
1,771
|
|
|
-
|
|
Contingent
litigation claim (Note 4)
|
|
|
-
|
|
|
-
|
|
Total
assets
|
|
$
|
4,387,375
|
|
$
|
16,501
|
|
Liabilities
and Shareholders’ (Deficit) Equity
|
|
|
|
|
|
|
|
Current
liabilities:
|
|
|
|
|
|
|
|
Accounts
payable and accrued liabilities
|
|
$
|
27,526
|
|
$
|
863,127
|
|
Income
taxes payable
|
|
|
35,000
|
|
|
-
|
|
Amounts
due to related parties
|
|
|
-
|
|
|
1,594,369
|
|
Total
current liabilities
|
|
|
62,526
|
|
|
2,457,496
|
|
|
|
|
|
|
|
|
|
Minority
interests
|
|
|
|
|
|
-
|
|
|
|
|
|
|
|
|
|
Shareholders'
(deficit) equity:
|
|
|
|
|
|
|
|
Common
stock, par value $.12 per share:
|
|
|
|
|
|
|
|
Authorized
- 250,000,000 shares
|
|
|
|
|
|
|
|
Outstanding
- 46,211,604
shares,
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
|
|
|
(33,358,354
|
)
|
|
(40,124,198
|
)
|
Total
shareholders’ (deficit) equity
|
|
|
4,324,849
|
|
|
_(2,440,995
|
)
|
Total
liabilities and shareholders’ (deficit) equity
|
|
$
|
4,387,375
|
|
$
|
16,501
|
|
|
|
|
|
|
|
|
|
See
accompanying notes.
COASTAL
CARIBBEAN OILS & MINERALS, LTD.
(A
Bermuda Corporation)
A
Development Stage Company
CONSOLIDATED
STATEMENTS OF OPERATIONS
(Expressed
in U.S. Dollars)
|
|
|
|
For
the
period
from
|
|
|
|
|
|
Jan.
31, 1953
|
|
|
|
|
|
(inception)
|
|
|
|
Years
ended December 31,
|
|
to
|
|
|
|
2005
|
|
2004
|
|
2003
|
|
Dec.
31, 2005
|
|
|
|
|
|
|
|
|
|
|
|
Gain
on settlement
|
|
$
|
8,124,016
|
|
$
|
-
|
|
$
|
-
|
|
$
|
8,124,016
|
|
Interest
and other income
|
|
|
50
723
|
|
|
1
|
|
|
658
|
|
$
|
3,928,294
|
|
|
|
|
8,174,739
|
|
|
1
|
|
|
658
|
|
|
12,052,310
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Expenses:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Legal
fees and costs
|
|
|
155,388
|
|
|
327,091
|
|
|
342,451
|
|
|
17,055,067
|
|
Administrative
expenses
|
|
|
201,847
|
|
|
208,414
|
|
|
457,649
|
|
|
9,937,540
|
|
Salaries
|
|
|
112,020
|
|
|
112,838
|
|
|
118,745
|
|
|
3,867,831
|
|
Shareholder
communications
|
|
|
102,817
|
|
|
24,565
|
|
|
30,746
|
|
|
4,075,909
|
|
Goodwill
impairment
|
|
|
801,823
|
|
|
-
|
|
|
-
|
|
|
801,823
|
|
Write
off of unproved properties
|
|
|
-
|
|
|
-
|
|
|
59,247
|
|
|
5,560,494
|
|
Exploration
costs
|
|
|
-
|
|
|
-
|
|
|
-
|
|
|
247,465
|
|
Lawsuit
judgments
|
|
|
-
|
|
|
-
|
|
|
-
|
|
|
1,941,916
|
|
Minority
interests
|
|
|
-
|
|
|
-
|
|
|
-
|
|
|
(632,974
|
)
|
Other
|
|
|
-
|
|
|
-
|
|
|
-
|
|
|
364,865
|
|
Contractual
services
|
|
|
-
|
|
|
-
|
|
|
-
|
|
|
2,155,728
|
|
|
|
|
1,373,895
|
|
|
672,908
|
|
|
1,008,838
|
|
|
45,375,664
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Income
tax expense
|
|
|
35,000
|
|
|
-
|
|
|
-
|
|
|
35,000
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net
income (loss)
|
|
$
|
6,765,844
|
|
$
|
(672,907
|
)
|
$
|
(1,008,180
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Deficit
accumulated during the
|
|
|
|
|
|
|
|
|
|
|
|
|
|
development
stage
|
|
|
|
|
|
|
|
|
|
|
$
|
(33,358,354
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net
income (loss) per share based on weighted average number of shares
outstanding during the period:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Basic
and diluted EPS
|
|
$
|
.15
|
|
$
|
(.01
|
)
|
$
|
(.02
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Weighted
average number of shares outstanding (basic and diluted)
|
|
|
46,211,604
|
|
|
46,211,604
|
|
|
46,211,604
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
See
accompanying notes.
COASTAL
CARIBBEAN OILS & MINERALS, LTD.
(A
Bermuda Corporation)
A
Development Stage Company
CONSOLIDATED
STATEMENTS OF CASH FLOWS
(Expressed
in U.S. Dollars)
|
|
|
|
|
|
|
|
For
the period from
Jan.
31, 1953
|
|
|
|
|
|
|
|
|
|
(inception)
|
|
|
|
Years
ended December 31,
|
|
To
|
|
|
|
2005
|
|
2004
|
|
2003
|
|
Dec.
31, 2005
|
|
|
|
|
|
|
|
|
|
|
|
Operating
activities:
|
|
|
|
|
|
|
|
|
|
Net
income (loss)
|
|
$
|
6,765,844
|
|
$
|
(672,907
|
)
|
$
|
(1,008,180
|
)
|
$
|
(33,358,355
|
)
|
Adjustments
to reconcile net loss to net cash
|
|
|
|
|
|
|
|
|
|
|
|
|
|
used
in operating activities:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Gain
on settlement
|
|
|
(8,124,016
|
)
|
|
-
|
|
|
-
|
|
|
(8,124,016
|
)
|
Goodwill
impairment
|
|
|
801,823
|
|
|
-
|
|
|
-
|
|
|
801,823
|
|
Minority
interest
|
|
|
-
|
|
|
-
|
|
|
-
|
|
|
(632,974
|
)
|
Depreciation
|
|
|
120
|
|
|
-
|
|
|
-
|
|
|
120
|
|
Write
off of unproved properties
|
|
|
-
|
|
|
-
|
|
|
59,247
|
|
|
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
|
|
|
(183,432
|
)
|
|
71,625
|
|
|
326,752
|
|
|
(199,755
|
)
|
Accrued
liabilities
|
|
|
(2,349,680
|
)
|
|
518,296
|
|
|
322,208
|
|
|
27,528
|
|
Income
taxes payable
|
|
|
35,000
|
|
|
-
|
|
|
-
|
|
|
35,000
|
|
Other
assets
|
|
|
-
|
|
|
-
|
|
|
-
|
|
|
-
|
|
Net
cash used in operating activities
|
|
|
(3,054,341
|
)
|
|
(82,986
|
)
|
|
(299,973
|
)
|
|
(35,384,215
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Investing
activities:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Additions
to oil, gas, and mineral properties
|
|
|
|
|
|
|
|
|
|
|
|
|
|
net
of assets acquired for common stock and reimbursements
|
|
|
(1,860,614
|
)
|
|
-
|
|
|
(59,247
|
)
|
|
(5,600,796
|
)
|
Net
proceeds from settlement
|
|
|
8,124,016
|
|
|
-
|
|
|
-
|
|
|
8,124,016
|
|
Proceeds
from relinquishment of surface rights
|
|
|
-
|
|
|
-
|
|
|
-
|
|
|
246,733
|
|
Purchase
of certificates of deposit
|
|
|
(75,000
|
)
|
|
-
|
|
|
-
|
|
|
(75,000
|
)
|
Purchase
of Minority interest in CPC
|
|
|
(801,823
|
)
|
|
--
|
|
|
-
|
|
|
(801,823
|
)
|
Purchase
of equipment
|
|
|
(1,891
|
)
|
|
-
|
|
|
-
|
|
|
(63,540
|
)
|
Net
cash provided by (used in) investing activities
|
|
|
5,384,688
|
|
|
-
|
|
|
(59,247
|
)
|
|
1,829,590
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Financing
activities:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Loans
from Officers
|
|
|
31,500
|
|
|
80,290
|
|
|
-
|
|
|
111,790
|
|
Repayment
of loans to officers
|
|
|
(111,790
|
)
|
|
-
|
|
|
-
|
|
|
(111,790
|
)
|
Sale
of common stock, net of expenses
|
|
|
-
|
|
|
-
|
|
|
-
|
|
|
30,380,612
|
|
Shares
issued upon exercise of options
|
|
|
-
|
|
|
-
|
|
|
-
|
|
|
884,249
|
|
Sale
of shares by subsidiary
|
|
|
-
|
|
|
-
|
|
|
70,000
|
|
|
820,000
|
|
Sale
of subsidiary shares
|
|
|
-
|
|
|
-
|
|
|
-
|
|
|
3,720,000
|
|
Net
cash provided by financing activities
|
|
|
(80,290
|
)
|
|
80,290
|
|
|
70,000
|
|
|
35,804,861
|
|
Net
increase (decrease) in cash and cash equivalents
|
|
|
2,250,057
|
|
|
(2,696
|
)
|
|
(289,220
|
)
|
|
2,250,236
|
|
Cash
and cash equivalents at beginning of period
|
|
|
179
|
|
|
2,875
|
|
|
292,095
|
|
|
-
|
|
Cash
and cash equivalents at end of period
|
|
$
|
2,250,236
|
|
$
|
179
|
|
$
|
2,875
|
|
$
|
2,250,236
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
See
accompanying notes.
COASTAL
CARIBBEAN OILS & MINERALS, LTD.
(A
Bermuda Corporation)
A
Development Stage Company
CONSOLIDATED
STATEMENT OF COMMON STOCK
AND
CAPITAL IN EXCESS OF PAR VALUE
(Expressed
in U.S. dollars)
For
the
period from January 31, 1953 (inception) to December 31, 2005
|
|
|
|
|
|
Capital
in
|
|
|
|
Number
of
|
|
Common
|
|
Excess
|
|
|
|
Shares
|
|
Stock
|
|
of
Par Value
|
|
Shares
issued for net assets and unrecovered costs
|
|
|
|
|
|
|
|
at
inception
|
|
|
5,790,210
|
|
$
|
579,021
|
|
$
|
1,542,868
|
|
Sales
of common stock
|
|
|
26,829,486
|
|
|
3,224,014
|
|
|
16,818,844
|
|
Shares
issued upon exercise of stock options
|
|
|
510,000
|
|
|
59,739
|
|
|
799,760
|
|
Market
value ($2.375 per share) of shares issued in
|
|
|
|
|
|
|
|
|
|
|
1953
to acquire an investment
|
|
|
54,538
|
|
|
5,454
|
|
|
124,074
|
|
Shares
issued in 1953 in exchange for 1/3rd
of
a 1/60th
|
|
|
|
|
|
|
|
|
|
|
overriding
royalty (sold in prior year) in nonproducing
|
|
|
|
|
|
|
|
|
|
|
leases
of Coastal Petroleum
|
|
|
84,210
|
|
|
8,421
|
|
|
-
|
|
Market
value of shares issued for services rendered
|
|
|
|
|
|
|
|
|
|
|
during
the period 1954-1966
|
|
|
95,188
|
|
|
9,673
|
|
|
109,827
|
|
Net
transfers to restate the par value of common stock
|
|
|
|
|
|
|
|
|
|
|
outstanding
in 1962 and 1970 to $0.12 per share
|
|
|
-
|
|
|
117,314
|
|
|
(117,314
|
)
|
Increase
in Company's investment (equity) due to
|
|
|
|
|
|
|
|
|
|
|
capital
transactions of Coastal Petroleum in 1976
|
|
|
-
|
|
|
-
|
|
|
117,025
|
|
Balance
at December 31, 1990
|
|
|
33,363,632
|
|
|
4,003,636
|
|
|
19,395,084
|
|
Sale
of subsidiary shares
|
|
|
-
|
|
|
-
|
|
|
300,000
|
|
Balance
at December 31, 1991
|
|
|
33,363,632
|
|
|
4,003,636
|
|
|
19,695,084
|
|
Sale
of subsidiary shares
|
|
|
-
|
|
|
-
|
|
|
390,000
|
|
Balance
at December 31, 1992
|
|
|
33,363,632
|
|
|
4,003,636
|
|
|
20,085,084
|
|
Sale
of subsidiary shares
|
|
|
-
|
|
|
-
|
|
|
1,080,000
|
|
Balance
at December 31, 1993
|
|
|
33,363,632
|
|
|
4,003,636
|
|
|
21,165,084
|
|
Sale
of subsidiary shares
|
|
|
-
|
|
|
-
|
|
|
630,000
|
|
Balance
at December 31, 1994
|
|
|
33,363,632
|
|
|
4,003,636
|
|
|
21,795,084
|
|
Sale
of subsidiary shares
|
|
|
-
|
|
|
-
|
|
|
600,000
|
|
Balance
at December 31, 1995
|
|
|
33,363,632
|
|
|
4,003,636
|
|
|
22,395,084
|
|
Sale
of common stock
|
|
|
6,672,726
|
|
|
800,727
|
|
|
5,555,599
|
|
Sale
of subsidiary shares
|
|
|
-
|
|
|
-
|
|
|
480,000
|
|
Exercise
of stock options
|
|
|
10,000
|
|
|
1,200
|
|
|
12,300
|
|
Balance
at December 31, 1996
|
|
|
40,046,358
|
|
|
4,805,563
|
|
|
28,442,983
|
|
Sale
of subsidiary shares
|
|
|
-
|
|
|
-
|
|
|
240,000
|
|
Exercise
of stock options
|
|
|
10,000
|
|
|
1,200
|
|
|
10,050
|
|
Balance
at December 31, 1997,1998 and 1999
|
|
|
40,056,358
|
|
|
4,806,763
|
|
|
28,693,033
|
|
Sale
of common stock
|
|
|
3,411,971
|
|
|
409,436
|
|
|
2,729,329
|
|
Compensation
recognized for stock option grant
|
|
|
-
|
|
|
-
|
|
|
75,000
|
|
Balance
at December 31, 2000 and 2001
|
|
|
43,468,329
|
|
|
5,216,199
|
|
|
31,497,362
|
|
Sale
of common stock
|
|
|
2,743,275
|
|
|
329,193
|
|
|
570,449
|
|
Balance
as of December 31, 2002
|
|
|
46,211,604
|
|
|
5,545,392
|
|
|
32,067,811
|
|
Sale
of subsidiary shares |
|
|
- |
|
|
- |
|
|
70,000 |
|
Balance
as of December 31, 2003, 2004 and 2005
|
|
|
46,211,604
|
|
$
|
5,545,392
|
|
$
|
32,137,811
|
|
See
accompanying notes.
COASTAL
CARIBBEAN OILS & MINERALS, LTD.
Notes
to Consolidated Financial Statements
December
31, 2005
1. Summary of significant accounting policies
Consolidation
The
accompanying consolidated financial statements include the accounts of Coastal
Caribbean Oils & Minerals, Ltd., a Bermuda corporation (Coastal Caribbean)
and its wholly owned subsidiary, Coastal Petroleum Company (“Coastal
Petroleum”), referred to collectively as the Company. The Company, which has
been engaged in a single industry and segment, is considered to be a development
stage company since its exploration for oil, gas and minerals has not yielded
any significant revenue or reserves. All intercompany transactions have been
eliminated. Certain prior year amounts have been reclassified to conform with
the current year presentation.
Cash
and Cash Equivalents
The
Company considers all highly liquid short-term investments with maturities
of
three months or less at the date of acquisition to be cash equivalents.
Use
of
Estimates
The
preparation of consolidated financial statements in conformity with accounting
principles generally accepted in the United States requires management to make
estimates and assumptions that affect the amounts reported in the financial
statements and accompanying notes. The outcome of the litigation and the ability
to develop the Company’s oil and gas properties will have a significant effect
on the Company’s financial position and results of operations. Actual results
could differ from those estimates.
Unproved
Oil, Gas and Mineral Properties
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.
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.
COASTAL
CARIBBEAN OILS & MINERALS, LTD.
Notes
to Consolidated Financial Statements
December
31, 2005
1. Summary of significant accounting policies
(Cont'd)
Prior
to
2005, the
Company’s undeveloped and nonproducing Florida properties were subject to
extensive
litigation with the State of Florida and all
costs
associated with oil and gas properties were deemed impaired and had been
expensed.
Sale
of Subsidiary Shares
All
amounts realized from the sale of Coastal Petroleum shares have been credited
to
capital in excess of par value.
Net
Income (Loss) Per Share
Net
income (loss) per common 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.
Financial
instruments
The
carrying value for cash and cash equivalents, and accounts payable approximates
fair value based on anticipated cash flows and current market
conditions.
Stock
Options
The
Company follows the disclosure provisions of Statement of Financial
Accounting Standards (SFAS or Statement) No. 148, “Accounting for Stock-Based
Compensation -- Transition and Disclosure”, which amends SFAS No.
123,
“Accounting for Stock-Based Compensation”. SFAS No. 148 provides
alternative methods of transition for a voluntary change to the fair
value based method of accounting for stock-based employee compensation,
which was originally provided under SFAS No. 123.
At
December 31, 2005, the Company maintains two stock-based employee
compensation plans (see note 6, Stock Option Plan). The Company accounts for
the
employee stock compensation plan in accordance with the intrinsic
value-based method prescribed by Accounting Principles Board Opinion
No. 25, “Accounting for Stock Issued to Employees.” No stock-based employee
compensation expense is reflected in net loss as all options
granted under the plans have an exercise price equal to the fair market
value of the underlying common stock on the date of grant.
COASTAL
CARIBBEAN OILS & MINERALS, LTD.
Notes
to Consolidated Financial Statements
December
31, 2005
1. Summary of significant accounting policies
(Cont'd)
New
Accounting Pronouncements
The
Financial Accounting Standards Board (“FASB”) has issued several new standards
which have implementation dates subsequent to the Company’s year end. Management
does not believe that any of these new standards will have a material impact
on
the Company’s financial position, results of operations or cash
flows.
Going
Concern
The
Company has no recurring revenues, had recurring losses prior to 2005 and has
a
deficit accumulated during the development stage. We, along with various other
related parties, settled several lawsuits in 2005, which were filed by the
Company, our subsidiary Coastal Petroleum Company and other related parties
against the State of Florida (See Note 4). All of these lawsuits were related
to
the State’s actions limiting our ability to commence development activities
through our subsidiary. The cost of that litigation was substantial. Management
believes its current cash position will allow the Company to move forward to
explore and develop profitable oil and gas operations, although there is no
assurance these efforts will be successful.
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.
2. Coastal
Petroleum Company - Minority Interests
In
2005,
as part of the settlement with the State of Florida, Lykes Minerals Corp.
(Lykes), a wholly owned subsidiary of Lykes Bros. Inc. returned its 78 Coastal
Petroleum shares (26.35%) to Coastal Petroleum in order to receive compensation
from the State of Florida for all its rights and to cancel an agreement with
Lykes that entitled Lykes to exchange each Coastal Petroleum share for 100,000
Coastal Caribbean shares, subject to adjustment for dilution and other factors
and the right to exchange Coastal Petroleum shares for overriding royalty
interests in Coastal Petroleum's properties.
In
2005,
Coastal Petroleum also acquired 45 of its shares (15.20%) from others as part
of
the settlement with the State of Florida for $802,000. As Coastal Petroleum
had
no tangible or intangible assets at the time the shares were acquired, the
full
purchase price was assigned to goodwill. The Company reviewed its goodwill
related to Coastal Petroleum for impairment and determined the goodwill was
fully impaired. Therefore, an impairment charge of $802,000 was expensed in
2005.
COASTAL
CARIBBEAN OILS & MINERALS, LTD.
Notes
to Consolidated Financial Statements
December
31, 2005
Coastal
Petroleum is a wholly owned subsidiary of Coastal Caribbean at December 31,
2005.
3. Unproved
Oil, Gas and Mineral Properties
North
Dakota and Montana Leases
In
November 2005, the Company acquired a group of oil and gas lease rights to
approximately 103,557 acres in Montana for $1,568,000. These leases are subject
to a various overriding royalty interests to others up to 19.5%. The leases
expire in years from 2007 to 2014.
In
July
2005, the Company acquired the rights to drill two 6,500 foot wells to test
a
Mississippian Lodgepole Reef in Valley County, in northeast Montana for a one
time fee of $50,000 from an entity controlled by one of the Company’s Directors.
The Company is obligated to drill a test well before March 31, 2006 and has
the
option to drill fifty additional prospects in the Valley County area. The
Company estimates the cost to drill each of these test wells to be approximately
$500,000 and expects partners to participate for the bulk of
expenditures.
Also
in
July 2005, the Company acquired leases to the deeper rights in approximately
21,688 acres in and near Slope County, North Dakota for a one time fee of
$50,000 from an entity controlled by one of the Company’s Directors. The Company
is obligated to drill a test well before March 31, 2006, and has the option
to
drill the remaining Lodgepole Reef prospects on these leases. The Company plans
to again partner with other entities to share the cost of the initial 9,700
foot
test well the total estimated drilling cost of which would be approximately
$1,200,000.
The
Company is currently assessing its oil and gas leases and identifying
prospective drilling sites.
Florida
Leases
The
Florida Leases were surrendered to Florida as a part of the 2005 Agreement
with
Florida and are no longer held by the Company.
Prior
to
2005, Coastal Petroleum held three unproved and nonproducing oil, gas and
mineral leases granted by the Trustees of the Internal Improvement Fund of
the
State of Florida (Trustees). These leases cover submerged and unsubmerged lands,
principally along the Florida Gulf Coast, and certain inland lakes and rivers
throughout the State. The two leases bordering the Gulf Coast were divided
into
three areas, each running the entire length of the coastline from Apalachicola
Bay to the Naples area. Coastal Petroleum held certain royalty interests in
the
inner area, no interest in the middle area and a 100% working interest in the
outside area. Coastal Petroleum also held a 100% working interest in Lake
Okeechobee, and a royalty interest in other areas. Coastal Petroleum had agreed
not to conduct exploration, drilling, or mining operations on said lake, except
with prior approval of the Trustees.
COASTAL
CARIBBEAN OILS & MINERALS, LTD.
Notes
to Consolidated Financial Statements
December
31, 2005
4. Litigation
Settlement
Agreement with the State of Florida
The
State
paid out the settlement through an intermediary in July 2005 The total
settlement and the amount received by the Company was as follows:
Gross
settlement proceeds
|
|
$
|
12,500,000
|
|
|
|
|
|
|
Distribution
to other parties:
|
|
|
|
|
Lykes
Mineral Corporation
|
|
|
1,390,000
|
|
Outside
Royalty Holders
|
|
|
2,540,000
|
|
Settlement
Consultant
|
|
|
465,000
|
|
|
|
|
|
|
Gross
proceeds to Coastal
|
|
|
8,105,000
|
|
|
|
|
|
|
Purchase
of other CPC shares
|
|
|
802,000
|
|
Paid
to Coastal Creditors
|
|
|
2,431,000
|
|
|
|
|
|
|
Net
proceeds to Company
|
|
$
|
4,872,000
|
|
The
Company recorded a gain on its share of the settlement of $8,124,000 after
deducting all direct settlement costs and costs to cancel various royalty rights
related to the Florida leases.
The
settlement with the State of Florida in July 2005, included the closing and
dismissal of the following legal actions:
Drilling
Permit Litigation - Lease
Taking Case (Lease 224-A)
Drilling
Permit Litigation - Lease
Taking Case (Lease 224-B)
Royalty
Taking Case
Prior
to
2005, Coastal Petroleum had agreed to pay an aggregate of 7.9% in contingent
fees based on any net recovery from execution on or satisfaction of judgment
or
from settlement of the Florida litigation. No contingency fees were deemed
due
from the proceeds of the settlement agreement with the State of Florida, as
the
past costs and fees for the Florida Litigation exceed the amount of funds the
Company will receive under the Agreement.
5. Common Stock
The
Company's Bye-Law No. 21 provides that any matter to be voted upon must be
approved not only by a majority of the shares voted at such meeting, but also
by
a majority in number of the shareholders present in person or by proxy and
entitled to vote thereon.
COASTAL
CARIBBEAN OILS & MINERALS, LTD.
Notes
to Consolidated Financial Statements
December
31, 2005
5. Common Stock
(Cont'd)
On
March
10, 2003, the Company concluded the sale of two shares of Coastal Petroleum
at a
price of $25,000 per share. On October 7 and 28, 2003, the Company concluded
the
sale of two shares of Coastal Petroleum at a price of $10,000 per share. The
Company realized net proceeds of $70,000 in 2003 for these sales.
There
was
no activity in Common Stock during 2005 and 2004.
The
following represents shares issued upon sales of common stock:
|
|
Number
|
|
Common
|
|
Capital
in Excess
|
|
Year
|
|
of
Shares
|
|
Stock
|
|
of
Par Value
|
|
1953
|
|
|
300,000
|
|
$
|
30,000
|
|
$
|
654,000
|
|
1954
|
|
|
53,000
|
|
|
5,300
|
|
|
114,265
|
|
1955
|
|
|
67,000
|
|
|
6,700
|
|
|
137,937
|
|
1956
|
|
|
77,100
|
|
|
7,710
|
|
|
139,548
|
|
1957
|
|
|
95,400
|
|
|
9,540
|
|
|
152,492
|
|
1958
|
|
|
180,884
|
|
|
18,088
|
|
|
207,135
|
|
1959
|
|
|
123,011
|
|
|
12,301
|
|
|
160,751
|
|
1960
|
|
|
134,300
|
|
|
13,430
|
|
|
131,431
|
|
1961
|
|
|
127,500
|
|
|
12,750
|
|
|
94,077
|
|
1962
|
|
|
9,900
|
|
|
990
|
|
|
8,036
|
|
1963
|
|
|
168,200
|
|
|
23,548
|
|
|
12,041
|
|
1964
|
|
|
331,800
|
|
|
46,452
|
|
|
45,044
|
|
1965
|
|
|
435,200
|
|
|
60,928
|
|
|
442,391
|
|
1966
|
|
|
187,000
|
|
|
26,180
|
|
|
194,187
|
|
1967
|
|
|
193,954
|
|
|
27,153
|
|
|
249,608
|
|
1968
|
|
|
67,500
|
|
|
9,450
|
|
|
127,468
|
|
1969
|
|
|
8,200
|
|
|
1,148
|
|
|
13,532
|
|
1970
|
|
|
274,600
|
|
|
32,952
|
|
|
117,154
|
|
1971
|
|
|
299,000
|
|
|
35,880
|
|
|
99,202
|
|
1972
|
|
|
462,600
|
|
|
55,512
|
|
|
126,185
|
|
1973
|
|
|
619,800
|
|
|
74,376
|
|
|
251,202
|
|
1974
|
|
|
398,300
|
|
|
47,796
|
|
|
60,007
|
|
1975
|
|
|
-
|
|
|
-
|
|
|
(52,618
|
)
|
1976
|
|
|
-
|
|
|
-
|
|
|
(8,200
|
)
|
1977
|
|
|
850,000
|
|
|
102,000
|
|
|
1,682,706
|
|
1978
|
|
|
90,797
|
|
|
10,896
|
|
|
158,343
|
|
1979
|
|
|
1,065,943
|
|
|
127,914
|
|
|
4,124,063
|
|
1980
|
|
|
179,831
|
|
|
21,580
|
|
|
826,763
|
|
1981
|
|
|
30,600
|
|
|
3,672
|
|
|
159,360
|
|
1983
|
|
|
5,318,862
|
|
|
638,263
|
|
|
1,814,642
|
|
1985
|
|
|
-
|
|
|
-
|
|
|
(36,220
|
)
|
1986
|
|
|
6,228,143
|
|
|
747,378
|
|
|
2,178,471
|
|
1987
|
|
|
4,152,095
|
|
|
498,251
|
|
|
2,407,522
|
|
1990
|
|
|
4,298,966
|
|
|
515,876
|
|
|
26,319
|
|
1996
|
|
|
6,672,726
|
|
|
800,727
|
|
|
5,555,599
|
|
2000
|
|
|
3,411,971
|
|
|
409,436
|
|
|
2,729,329
|
|
2002
|
|
|
2,743,275
|
|
|
329,193
|
|
|
570,449
|
|
|
|
|
39,657,458
|
|
$
|
4,763,370
|
|
$
|
25,674,221
|
|
COASTAL
CARIBBEAN OILS & MINERALS, LTD.
Notes
to Consolidated Financial Statements
December
31, 2005
5. Common Stock
(Cont'd)
The
following represents shares issued upon exercise of stock options:
|
|
Number
|
|
Common
|
|
Capital
in Excess
|
|
Year
|
|
of
Shares
|
|
Stock
|
|
of
Par Value
|
|
1955
|
|
|
73,000
|
|
$
|
7,300
|
|
$
|
175,200
|
|
1978
|
|
|
7,000
|
|
|
840
|
|
|
6,160
|
|
1979
|
|
|
213,570
|
|
|
25,628
|
|
|
265,619
|
|
1980
|
|
|
76,830
|
|
|
9,219
|
|
|
125,233
|
|
1981
|
|
|
139,600
|
|
|
16,752
|
|
|
227,548
|
|
1996
|
|
|
10,000
|
|
|
1,200
|
|
|
12,300
|
|
1997
|
|
|
10,000
|
|
|
1,200
|
|
|
10,050
|
|
|
|
|
530,000
|
|
$
|
62,139
|
|
$
|
822,110
|
|
6.
Stock
Option Plans
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.
Unexcercised
options that existed prior to the 2005 Agreement with the State of Florida
were
terminated by the Agreement or the releases exchanged during the process of
closing the Agreement.
During
1995, the Company adopted a Stock Option Plan covering 1,000,000 shares of
the
Company’s common stock. In July 2005, the Company issued an option to its
president to acquire 50,000 shares of the Company’s common stock at a price of
$.15 per share under the Company’s stock option plan. The option expires in ten
years. The Company determined the fair value of the stock did not exceed the
exercise price on the date of issue and no expense was recorded in
2005.
In
July
2005, the Company issued an option to its legal counsel to acquire 25,000 shares
of the Company’s common stock at a price of $.15 per share. The option expires
in July 2015. As the market value of the stock equaled the exercise price on
the
date of issue, the options are noncompensatory, and no expense was recorded
for
2005.
In
December 2005, the Company issued options to its directors to acquire 200,000
shares of the Company’s common stock at a price of $.15 per share. The option
expires in December 2015. As the market value of the stock equaled the exercise
price on the date of issue, the options are noncompensatory, and no expense
was
recorded for 2005.
COASTAL
CARIBBEAN OILS & MINERALS, LTD.
Notes
to Consolidated Financial Statements
December
31, 2005
6.
Stock
Option Plans (Cont'd)
During
2005, the Company adopted a Stock Option Plan covering 2,300,000 shares of
the
Company’s common stock. In September 2005, the Company issued an option to its
president to acquire 250,000 shares of the Company’s common stock at a price of
$.20 per share under the Company’s stock option plan, subject to the approval of
the Plan by shareholders. The Plan was approved at the shareholders meeting
on
December 9, 2005. The option expires in ten years. The Company determined the
fair value of the stock did not exceed the exercise price on the date of issue
and no expense was recorded in 2005.
The
following table summarizes stock option activity:
Options
outstanding
|
|
Number
of Shares
|
|
Exercise
Price ($)
|
|
|
|
|
|
|
|
|
Outstanding
and exercisable at December 31, 2004
|
|
700,000
|
|
|
.91
|
|
Nullified,
cancelled or released during 2005
|
|
(700,000
|
)
|
|
.91
|
|
Issued
during 2005
|
|
525,000
|
|
|
.15
-.20
|
|
Outstanding
and exercisable at December 31, 2005
|
|
525,000
|
|
|
.15
-.20
|
|
|
|
|
|
|
|
|
Available
for grant at December 31, 2005
|
|
2,775,000
|
|
|
|
|
|
Summary
of Options Outstanding at December 31,
2005
|
Year
Granted
|
|
Number
of Shares
|
|
Expiration
Date
|
|
Exercise
Prices ($)
|
|
|
|
|
|
|
|
|
|
Granted
2005
|
|
|
50,000
|
|
|
July
25, 2015
|
|
|
.15
|
|
Granted
2005
|
|
|
25,000
|
|
|
July
25, 2015
|
|
|
.15
|
|
Granted
2005
|
|
|
250,000
|
|
|
Sep.
27, 2015
|
|
|
.20
|
|
Granted
2005
|
|
|
200,000
|
|
|
Dec.
20, 2015
|
|
|
.15
|
|
7. Income taxes
Bermuda
currently imposes no taxes on corporate income or capital gains outside of
Bermuda. The Company currently has net taxable income as the result of the
gain
on settlement. The Company will be able to deduct approximately $1,600,000
in
temporary differences and offset the remaining income tax liability using
approximately $1,900,000 of its $10,700,000 net operating loss carry forward.
However, the Company estimates it will have approximately $35,000 due under
the
Alternative Minimum Tax. The Company will have approximately $8,800,000 in
net
operating losses to carry forward to 2006.The remaining net operating loss
carry
forwards expire in periods from 2009 through 2024 as follows: $61,000 in 2009,
$571,000 in 2010, $955,000 in 2011, $1,281,000 in 2012, $757,000 in 2018,
$622,000 in 2019, $749,000 in 2020, $1,884,000 in 2021, $1,693,000 in 2022,
$132,000 in 2023 and $51,000 in 2024. For financial reporting purposes, a
valuation allowance has been recognized to offset the deferred tax assets
relating to those carry forwards. Significant components of the Company’s
deferred tax assets were as follows:
COASTAL
CARIBBEAN OILS & MINERALS, LTD.
Notes
to Consolidated Financial Statements
December
31, 2005
7. Income taxes
(Cont’d)
|
|
2005
|
|
2004
|
|
Net
operating losses
|
|
$
|
3,300,000
|
|
$
|
4,024,000
|
|
Accruals
to related parties
|
|
|
-
|
|
|
268,000
|
|
Write
off of unproved properties
|
|
|
-
|
|
|
1,831,000
|
|
Total
deferred tax assets
|
|
|
3,300,000
|
|
|
6,123,000
|
|
Valuation
allowance
|
|
|
(3,300,000
|
)
|
|
(6,123,000
|
)
|
Net
deferred tax assets
|
|
$
|
-
|
|
$
|
-
|
|
|
|
|
|
|
|
|
|
Components
of the income tax provision are as follows:
|
|
2005
|
|
2004
|
|
Provision
for income taxes
|
|
|
|
|
|
Current
provision for income taxes
|
|
$
|
1,345,000
|
|
$
|
-
|
|
Provision
for deferred tax liability
|
|
|
-
|
|
|
-
|
|
Benefit
of other deductible carryforward items
|
|
|
(617,000
|
)
|
|
-
|
|
Benefit
of net operating loss
|
|
|
(693,000
|
)
|
|
(253,000
|
)
|
Deferred
asset valuation allowance (reversal)
|
|
|
-
|
|
|
253,000
|
|
|
|
|
|
|
|
|
|
Net
income tax provision
|
|
$
|
35,000
|
|
$
|
-
|
|
8. Related
party transactions
Oil
and Gas Exploration Activities
In
2005,
the Company acquired various oil and gas rights for one time fees of $100,000
from an entity controlled by one of the Company’s Directors.
The
Company uses an entity controlled by one of the Company’s Directors to perform
geotechnical analysis of potential drilling sites at a cost of $500 per site
plus expenses. The Company has paid $50,000 to this entity as of
2005.
Loans
Since
2003, Robert Angerer Sr. and Phillip Ware loaned the Company a total of
$112,000, which was repaid in 2005.
Services
The
Company was billed $72,000 in fees by Angerer & Angerer during 2005 and was
billed annually $288,000 by Angerer & Angerer in 2004 and 2003. Robert
Angerer, Sr. was elected a director of Coastal Caribbean and of Coastal
Petroleum on January 30, 2003
and
re-elected a Vice President of Coastal Caribbean and Coastal Petroleum in
December 2005.
COASTAL
CARIBBEAN OILS & MINERALS, LTD.
Notes
to Consolidated Financial Statements
December
31, 2005
8. Related
party transactions (Cont’d)
The
Company was billed $44,022 for legal fees by the law firm of Igler &
Dougherty, PA, during 2005 and $7,725 in fees during 2004. Mr. Herbert D.
Haughton, a shareholder of the firm, was elected a director of Coastal Caribbean
and of Coastal Petroleum in December 2005.
At
December 31, 2004, accounts payable included accrued fees from related parties
of $129,000, $268,000 and $597,000 due to G&OD, INC, Murtha Cullina LLP and
Angerer & Angerer, respectively and those amounts were paid in 2005.
Murtha
Cullina LLP provided legal services to the Company prior to 2004. Mr. Timothy
L.
Largay, a partner of the firm of Murtha Cullina LLP, was a director and Vice
President of the Company from January 15, 2001 until his resignation on October
7, 2002. G&O’D INC provided accounting and administrative services prior to
2004. G&O’D INC was owned by Mr. James R. Joyce, who was the Company
Treasurer and Assistant Secretary, until his retirement in December 2002.
9. Selected
quarterly financial data (unaudited)
The
following is a summary (in thousands, except for per share amounts) of the
quarterly results of operations for the years ended December 31, 2005 and
2004:
2005
|
|
QTR
1
|
|
QTR
2
|
|
QTR
3
|
|
QTR
4
|
|
|
|
($)
|
|
($)
|
|
($)
|
|
($)
|
|
|
|
|
|
|
|
|
|
|
|
Total
revenues
|
|
|
-
|
|
|
-
|
|
|
-
|
|
|
-
|
|
Expenses
|
|
|
(88
|
)
|
|
(66
|
)
|
|
(185
|
)
|
|
(233
|
)
|
Gains
and other income
|
|
|
-
|
|
|
-
|
|
|
8,147
|
|
|
28
|
|
Income
Taxes
|
|
|
-
|
|
|
-
|
|
|
(35
|
)
|
|
-
|
|
Impairment
of goodwill
Net
income (loss)
|
|
|
-
(88
|
)
|
|
-
(66
|
)
|
|
(802)
7,125
|
|
|
-
(205
|
)
|
Per
share (basic & diluted)
|
|
|
(.002
|
)
|
|
(.001
|
)
|
|
.154
|
|
|
(.004
|
)
|
Weighted
average number of shares outstanding
|
|
|
46,212
|
|
|
46,212
|
|
|
46,212
|
|
|
46
212
|
|
2004
|
|
QTR
1
|
|
QTR
2
|
|
QTR
3
|
|
QTR
4
|
|
|
|
($)
|
|
($)
|
|
($)
|
|
($)
|
|
|
|
|
|
|
|
|
|
Total
revenues
|
|
|
-
|
|
|
-
|
|
|
-
|
|
|
-
|
|
Expenses
|
|
|
(192
|
)
|
|
(171
|
)
|
|
(152
|
)
|
|
(158
|
)
|
Gains
and other income
|
|
|
-
|
|
|
-
|
|
|
-
|
|
|
-
|
|
Income
Taxes
|
|
|
-
|
|
|
-
|
|
|
-
|
|
|
-
|
|
Net
income (loss)
|
|
|
(192
|
)
|
|
(171
|
)
|
|
(152
|
)
|
|
(158
|
)
|
Per
share (basic & diluted)
|
|
|
(.004
|
)
|
|
(.004
|
)
|
|
(.003
|
)
|
|
(.003
|
)
|
Weighted
average number of shares outstanding
|
|
|
46,212
|
|
|
46,212
|
|
|
46,212
|
|
|
46,212
|
|
Item
9. Changes
in and Disagreements with Accountants on Accounting
and Financial Disclosure
Previous
Independent Accountants
On
August
18, 2005, James Moore & Co., P.L. ("James Moore") resigned as Coastal
Caribbean Oils & Minerals, Ltd.'s (the "Company") independent public
accountants. James Moore's decision to resign was not recommended or approved
by
the Company's Board of Directors or any committee thereof.
James
Moore's report on the Company's consolidated financial statements for the
Company's fiscal year ended December 31, 2004 did not contain an adverse opinion
or disclaimer of opinion, nor were they qualified or modified as to uncertainty,
audit scope or accounting principles.
During
the fiscal year ended December 31, 2004 and through August 18, 2005, there
were
no disagreements with James Moore on any matter of accounting principles or
practices, financial statement disclosure, or auditing scope or procedure which,
if not resolved to James Moore's satisfaction, would have caused James Moore
to
make reference to the subject matter in connection with their report on the
Company's consolidated financial statements for such years; and there were
no
reportable events as defined in Item 304(a)(1)(v) of the Regulation S-K.
The
Company provided James Moore with a copy of the foregoing disclosures.
New
Independent Accountants
On
August
18, 2005 the Company retained Baumann Raymondo & Company, P.A. as its
independent public accountants.
Item
9A. Controls
and Procedures
Phillip
W. Ware, the principal executive officer and the principal financial officer,
has 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 annual 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
our evaluation, including any corrective actions with regard to significant
deficiencies and material weaknesses.
PART III
Item
10. Directors
and Executive Officers of the Company
Directors
As
of
December 31, 2005, the board of directors included five members, one of whom,
Mr. Ware, also serves as an executive officer. The board is divided into three
classes, with each class serving a term of office of three years or until such
time as their successors are elected, qualified, and assume office.
Name
|
Director
Since
|
Other
Offices
Held
With the Company
|
Age
and Business Experience
For
the Past Five Years
|
Directors
With Three Year Terms Expiring at the 2008 Annual
Meeting:
|
Phillip
W. Ware
|
1985
|
President,
Chief Executive Officer and Principal Accounting Officer
|
Mr.
Ware, age 56, has been employed by Coastal Petroleum Company since
1976.
He has served as President of Coastal Petroleum since April 1985.
Mr. Ware
is a 1975 graduate of the University of Florida and is a professional
geologist registered with the State of Florida.
|
Robert
J. Angerer, Sr.
|
2003 |
Vice
President and
Chairman
of the Board
|
Mr.
Angerer, age 59, is a partner in Oil For
America, an oil exploration business formed in 2002, with operations
primarily in North Dakota and Montana. He is a lawyer and an engineer
and
has been a member of the Florida Bar since 1974. He has been a partner
in
the Tallahassee law firm of Angerer & Angerer since 1994. He is a
graduate of the University of Michigan and of Florida State University
College of Law. He has served as a director of Coastal Petroleum since
2003. |
|
|
|
|
|
|
Directors
With Two Year Terms Expiring at the 2007 Annual Meeting
|
Herbert
D. Haughton
|
N/A
|
None
|
Mr.
Haughton, age 63, is a banking, corporate and securities lawyer.
He is a
shareholder in the Tallahassee, Florida law firm of Igler & Dougherty,
PA, where he has practiced law since 1994, following his admission
to the
Florida Bar. Prior to entering the practice of law, Mr. Haughton
spent
over 30 years in the banking industry serving as president and chief
executive officer of three different community banks in Florida from
1977
to 1991. He is a graduate of Cleary University and Florida State
University College of Law.
|
Anthony
F. Randazzo, Ph.D.
|
N/A
|
None
|
Dr.
Randazzo, age 64, is Professor Emeritus of Geological Sciences at
the
University of Florida where he has worked since 1967. He served as
Chairman of the Department of Geology at the University of Florida
from
1988 to 1995. He is also currently a co-principal and President of
the
geotechnical consulting firm Geohazards, Inc. which he was instrumental
in
forming in1985. He earned his B.S. degree at The City College of
New York
in 1963, his M.S. from the University of North Carolina at Chapel
Hill
1965, and his Ph.D. from the University of North Carolina at Chapel
Hill
in 1968. He is a Registered Professional Geologist in the State of
Florida
and the State of Georgia.
|
Director
With One Year Term Expiring at the 2006 Annual Meeting
|
Matthew
D. Cannon
|
N//A
|
None
|
Mr.
Cannon, age 61, is currently a partner in the Cannon Trading Partnership,
which he formed in 1993. From 1991 to 1992 he served as a partner
in
Seisma Drilling Corporation. From 1988 to 1991 he served as vice
president
and director of Hilb, Rogal and Hamilton Company, an insurance agency
located in Gainesville, Florida which specialized in underwriting,
rating,
sales, collections and claims associated with commercial lines insurance
policies. Prior to that he served as vice president and director
of the
Cannon-Treweek insurance agency from 1968
to1988.
|
Executive
Officers
Philip
W.
Ware has been President of Coastal Petroleum and Vice President of Coastal
Caribbean for many years and became President of Coastal Caribbean effective
March 1, 2003, and Robert J. Angerer, Sr., became a director of Coastal
Caribbean on January 30, 2003 and Vice President of Coastal Caribbean on
February 27, 2003. Effective August 18, 2005, Kenneth
Michael Cornell of Cornell & Associates, Inc. resigned as the Chief
Financial Officer and Principal Accounting Officer of the Company, at which
time
Mr. Ware was appointed Principle Accounting Officer.
Officers
of Coastal Caribbean are elected annually by the board and report directly
to
it.
Only
Mr.
Ware received direct compensation for his services as an officer of Coastal
Caribbean or Coastal Petroleum. $69,000 and $92,000 of Mr. Ware’s compensation
for his services was deferred during 2003 and 2004, respectively and was paid
in
2005. Mr.
Ware
devotes 100% of his professional time to the business and affairs of Coastal
Caribbean and Coastal Petroleum. The
other
executive officer devotes a small percentage of his professional time as an
officer on behalf of the companies.
The
business experience described for each director or executive officer above
covers the past five years.
We
are
not aware of any arrangements or understandings between any of the individuals
named above and any other person by which any of the individuals named above
was
selected as a director and/or executive officer. We are not aware of any family
relationship among the officers and directors of Coastal Caribbean or its
subsidiary except for the father and son relationship between Mr. Angerer,
Sr.
and Robert J. Angerer, Jr., who serves as the Company’s Secretary.
Compliance
with Section 16(a) of the Securities Exchange Act of
1934
Section
16(a) of the Securities Exchange Act of 1934 requires the Company's executive
officers, directors and persons who beneficially own more than 10% of the
Company's Common Stock to file initial reports of beneficial ownership and
reports of changes in beneficial ownership with the Securities and Exchange
Commission (the "SEC"). Such persons are required by the SEC regulations to
furnish the Company with copies of all Section 16(a) forms filed by such
persons. Based solely on its copies of forms received by it, or written
representations from certain reporting persons that no Form 5's were required
for those persons, the Company believes that during the just completed fiscal
year, its executive officers, directors, and greater than 10% beneficial owners
compiled with all applicable filing requirements.
Code
of Ethics
The
Company has adopted a Code of Ethics applicable to principle executive and
financial officers. The Code of Ethics is posted on the Company’s website at
www.coastalcarib.com
and may
be reviewed by following the link entitled “Corporate Governance Materials.” A
copy of the Code of Ethics is also filed herein as Exhibit (j).
Item
11. Executive
Compensation
The
following table sets forth certain summary information concerning the
compensation of the President of the Company for the three years ending with
2005. No other company employee received $100,000 or more in total
compensation.
|
Summary
Compensation Table
|
|
Annual
Compensation
|
|
Long-Term
Compensation
|
Name
and
Principal
Position
|
Year
|
Salary
|
Bonus
(1)
|
Other
Annual
Compensation
(2)(6)
|
Stock
Options
(3)
|
|
|
|
|
|
|
Phillip
W. Ware
|
2005
|
$112,020
|
None
|
$
13,800
|
300,000
|
President
and
Chief |
2004
|
92,000
(4)
|
None
|
13,800
|
None
|
Executive
Officer
|
2003
|
92,000
(5)
|
None
|
13,800
|
None
|
(1)
|
Annual
Cash Bonus Award - Annual incentive awards, which were paid during
the
year or immediately following the year
indicated.
|
(2)
|
Other
Annual Compensation - All additional forms of cash and non-cash
compensation paid, awarded or earned, including automobile allowances,
401(k) Plan matching contributions, and club membership
costs.
|
(3)
|
Stock
Options - Grant of stock options to acquire 50,000 shares was made
under
the Company’s 1995 Stock Option Plan. Grant of stock options to acquire
250,000 shares was made under the Company’s 2005 Incentive Stock Option
Plan
|
(4)
|
This
amount was accrued in 2004 and paid in
2005.
|
(5)
|
Of
this amount $23,000 was paid in 2003 and $69,000 was accrued and
paid in
2005.
|
(6)
|
Payment
to SEP-IRA pension plan (all of which was deferred and paid in
2005).
|
Mr.
Ware’s current base salary is $125,000. On June 22, 2005, the Company also
approved of its subsidiary granting an incentive to Mr. Ware and that incentive
was granted as a 1% overriding interest in any well that he recommends that
is
drilled by the Company or its subsidiary Coastal Petroleum. No payments under
this incentive plan were paid during 2005.
Compensation
of Directors
Directors
received $71,250 in 2005 as payment for directors fees accrued during the year
2004. Beginning in the year 2005, the Company paid each director an annual
fee
of $25,000 for director service or a prorated share of that amount based upon
time spent serving as a director during any part of the year. The total amount
of director fees paid in 2005 for service as a director during 2005 was $54,725.
Stock
Options
The
Company granted Philip Ware 50,000 stock options, exercisable at $.15 per share
and 250,000 stock options, exercisable at $.20 per share, for ten years during
the year ended December 31, 2005. The
following table provides information about unexercised stock options held by
the
Named Executive Officers at December 31, 2005:
Aggregated
Option/SAR Exercises in 2004 and December 31, 2005
Option/SAR
Values
|
|
Shares
Acquired
On
Exercise (#)
|
Value
Realized
($)
|
Number
of Securities Underlying Unexercised Options/SARs (#)
at
December 31, 2005
|
Value
of Unexercised In-The-Money
Options/SARs
at
December 31, 2005
|
Name
|
|
|
Exercisable
|
Unexercisable
|
Exercisable
|
Unexercisable
|
|
|
|
|
|
|
|
Phillip
W. Ware
|
-0-
|
-0-
|
50,000
|
-
|
-0-
|
-
|
Phillip
W. Ware |
-0-
|
-0-
|
250,000
|
-
|
-0-
|
-
|
The
Company has not adjusted or amended the exercise price of any stock options
during the year end December 31, 2005.
All
the
outstanding options that existed prior to the 2005 Agreement with the State
of
Florida were terminated as part of the Agreement with the State of Florida
and
through the mutual releases exchanged as a part of the closing under that
Agreement.
Compensation
Committee Interlocks and Insider Participation
The
Compensation Committee serves with regard to compensation and personnel
policies, programs and plans, including management development and succession,
and to approve employee compensation and benefit programs. The Compensation
Committee’s charter was adopted on December 20, 2005. A copy of the
Compensation Committee Charter may be obtained by a written request addressed
to
Mr. Robert J. Angerer, Jr., Secretary, P.O. Box 10468, Tallahassee, Florida
32302. Members of the Compensation Committee are: Herbert D. Haughton and
Matthew D. Cannon.
Item
12. Security
Ownership of Certain Beneficial Owners and Management
Security
Ownership of Certain Beneficial Owners
As
of
December 31, 2005, Mr. Robert J. Angerer, Sr. owned 2,067,487 shares, or 4.47%,
of our common stock and his son, Mr. Robert J. Angerer, Jr., beneficially owned
2,256,914 shares, or 4.88%, of our common stock. Mr. Angerer, Sr. disclaims
beneficial ownership of any shares owned by his son.
As
of
March 7, 2006, no persons or apparent groups of persons are known by management
to own beneficially five percent or more of the Company’s outstanding
shares.
Security
Ownership of Management
The
following table sets forth information as to the number of shares of the
Company's common stock owned beneficially at December 31, 2005, by each director
of the Company and by all directors and executive officers as a group:
|
|
Amount
and Nature of Beneficial Ownership
|
|
Name
of Individual or Group
|
|
Shares
Held Directly or Indirectly
|
|
Options
|
|
Percent
of
Class
|
|
Phillip
W. Ware
|
|
|
144,121
|
|
|
300,000
|
|
|
0.95
|
%
|
Robert
J. Angerer, Sr.
|
|
|
2,067,487
|
|
|
50,000
|
|
|
4.58
|
%
|
Herbert
D. Haughton
|
|
|
50,000
|
|
|
50,000
|
|
|
0.21
|
%
|
Anthony
F. Randazzo
|
|
|
100,000
|
|
|
50,000
|
|
|
0.32
|
%
|
Matthew
D. Canon
|
|
|
99,200
|
|
|
50,000
|
|
|
0.32
|
%
|
Directors
and executive officers as
a group (a total of 5 persons)
|
|
|
2,460,808
|
|
|
500,000
|
|
|
6.34
|
%
|
______________________
EQUITY
COMPENSATION PLAN INFORMATION
The
following table provides information about the Company’s common stock that may
be issued upon the exercise of options and rights under the Company’s 1995 Stock
Option Plan and the Company’s 2005 Employee’s Incentive Stock Option Plan as of
December 31, 2005.
Plan
Category
|
|
Number
of Securities to be issued upon exercise of outstanding options,
warrants
and rights
(a)
(#)
|
|
Weighted
average exercise price of outstanding options, warrants and
rights
(b)
($)
|
|
Number
of securities remaining available for issuance under equity compensation
plans (excluding securities reflected in column (a))
(c)
(#)
|
|
Equity
compensation plans not approved by security holders (1)
|
|
|
250,000
|
|
$
|
0.15
|
|
|
750,000
|
|
Equity
compensation plans approved by security holders (2)
|
|
|
250,000
|
|
$
|
0.20
|
|
|
2,050,000
|
|
Total:
|
|
|
500,000
|
|
$
|
0.15
- 0.20
|
|
|
2,800,000
|
|
(1) 1995
Stock Option Plan
(2) 2005
Employee’s Incentive Stock Option Plan
The
Company’s 1995 Stock
Option Plan was adopted by the Board of Directors of the Company in March 1995.
1,000,000 shares of the Company's common stock were authorized for issuance
under the terms of the plan. Options under the plan may be granted only to
directors, officers, key employees of, and consultants and consulting firms
to,
(i) the Company, (ii) subsidiary corporations of the Company from time to time
and any business entity in which the Company from time to time has a substantial
interest, who, in the sole opinion of the Committee of the Board administering
the Plan, are responsible for the management and/or growth of all or part of
the
business of the Company. The exercise price of each option to be granted under
the plan shall not be less than the fair market value of the stock subject
to
the option on the date of grant of the option.
The
Company’s 2005
Employees’ Stock Option and Limited Rights Plan (“Employees’ Plan”) was adopted
by the Board on September 27, 2005, for the benefit of officers and other key
employees of Coastal and Coastal Caribbean. The Plan was approved by the
shareholders at the Annual General Meeting held on December 9, 2005. The
Employees’ Plan provides for 2,300,000 shares of Coastal common stock to be
reserved for future issuance pursuant to the exercise of stock options. This
represents 5% of the total number of shares of the Company’s outstanding common
stock. Employees of Coastal or Coastal Petroleum may be granted options to
purchase shares of common stock, as determined by the Board in its sole
discretion.
Options
granted under the Program will be “incentive stock options” within the meaning
of section 422A of the Internal Revenue Code of 1986, as amended, which are
designed to result in beneficial tax treatment to the employee but no tax
deduction to Coastal. The per share exercise price at which the shares of common
stock may be purchased upon exercise of a granted option will be equal to or
greater than the Fair Market Value of a share of common stock as of the date
of
grant. Fair Market Value of a share of common stock is defined in the Employees’
Plan. At no time will Coastal have total cumulative stock options outstanding
to
acquire more than 15% of the outstanding common stock of Coastal under all
of
its plans.
Item
13. Certain
Relationships and Related Transactions
Angerer
& Angerer
The
law
firm of Angerer & Angerer, Tallahassee, Florida, has been litigation counsel
to the Company for more than twenty-five years. Mr. Robert J. Angerer, Sr.,
a
partner of the firm, was elected a director of Coastal Caribbean and of Coastal
Petroleum on January 30, 2003, and a Vice President of Coastal Caribbean and
Coastal Petroleum on February 28, 2003. During 2005, Angerer & Angerer
billed Coastal Petroleum $72,000 for legal fees.
Robert
J. Angerer, Sr.
Mr.
Robert J. Angerer, Sr., a director, Vice President and Chairman of the Board
of
both Coastal Caribbean and Coastal Petroleum, loaned the Companies funds in
the
total amount of $106,000 to enable them to continue operating during 2003 and
2004 and those loans were repaid in 2005.
On
July
15, 2005 Coastal Petroleum acquired a lease and the rights to drill two 5,100
foot wells to test a Mississippian Lodgepole Reef in Valley County, in northeast
Montana. Coastal Petroleum acquired these rights for $50,000 from Oil For
America, a partnership in which Robert J. Angerer, Sr. is a partner. Included
in
the agreement is the right to drill additional prospects in the Valley County
area.
Coastal
Petroleum also acquired leases from Oil For America to the deeper rights in
approximately 21,688 net acres in and near Slope County, North Dakota for an
additional $50,000. The Company has the option to drill the remaining Lodgepole
Reef prospects on these leases.
The
leases were acquired on terms and under circumstances that are substantially
the
same or at least as favorable as those prevailing at the time for comparable
transactions with or involving other non-affiliated companies.
Igler
& Dougherty, PA
The
law
firm of Igler & Dougherty, PA, Tallahassee, Florida, has been SEC counsel to
the Company for almost three years. Mr. Herbert D. Haughton, a shareholder
of
the firm, was elected a director of Coastal Caribbean and of Coastal Petroleum
in December 2005. During 2005, Igler & Dougherty billed Coastal Petroleum
$44,022 for legal fees.
Item
14. Principal
Accountant Fees and Services
Baumann,
Raymondo and Company, P.A. audited the Company’s financial statements for 2005
and performed the review for the quarter ended September 30, 2005. James Moore
& Co., P.L. audited the Company’s financial statements for 2004 and 2003 and
performed the review for the quarters ended March 31, 2005 and June 30, 2005.
Fees
related to services performed by Baumann, Raymondo and Company, P.A. and James
Moore & Co., P.L. in 2005 and 2004 were as follows:
|
|
2005
|
|
2004
|
|
Audit
Fees (1)
|
|
$
|
33,668
|
|
$
|
22,817
|
|
Audit-Related
Fees
|
|
|
-0-
|
|
|
-0-
|
|
Tax
Fees (2)
|
|
|
2,350
|
|
|
1,200
|
|
Total
|
|
$
|
36,018
|
|
$
|
24,017
|
|
|
(1)
|
Audit
fees represent fees for professional services provided in connection
with
the audit of our financial statements and review of our quarterly
financial statements. The Audit Committee must pre-approve audit
related
and non-audit services not prohibited by law to be performed by the
Companies independent auditors. The Audit Committee for the Company
was
made up of John D. Monroe and Graham B. Collis until July 28, 2004
when
they both resigned as directors. From their resignation until December
9,
2005, the Audit Committee was comprised of the only remaining directors,
Phillip W. Ware and Robert J. Angerer, Sr. Since their appointment
on
December 9, 2005, newly elected directors Matthew D. Cannon and Anthony
F.
Randazzo have served as the members of the Audit Committee. The Audit
Committee pre-approved all audit related and non-audit services in
2005
and 2004.
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The
Audit Committee has reviewed Coastal Caribbean’s audited financial
statements as of, and for, the fiscal year ended December 31, 2005,
and
met with both management and Coastal Caribbean’s independent auditors to
discuss those financial statements. Management has represented to
the
Audit Committee that the financial statements were prepared in accordance
with accounting principles generally accepted in the United States
of
America.
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The
Audit Committee has received from, and discussed with Baumann, Raymondo
& Company, PA, the written disclosure and the letter required by
Independence Standards Board Standard No. 1 (Independence
Discussions with Audit Committees).
These items relate to that firm’s independence from Coastal Caribbean. The
Audit Committee has also discussed with Baumann, Raymondo & Company
any matters required to be discussed by Statement on Auditing Standards
No. 61 (Communication
with Audit Committees).
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Based
on
the reviews and discussions referred to above, the Audit Committee recommended
to the Board that Coastal Caribbean’s audited financial statements be included
in the Company’s Annual Report on Form 10-K for the fiscal year ended December
31, 2005, and filed with the Securities and Exchange Commission.
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(2) |
Tax
fees principally included tax advice, tax planning and tax return
preparation.
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PART IV
Item 15. Exhibits
and Financial Statement Schedules
Financial Statements
The
financial statements listed below and included under Item 8 above are filed
as
part of this report.
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Page
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Reports
of Independent Registered Public Accounting Firms
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32
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Consolidated
balance sheets at December 31, 2005 and 2004
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34
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Consolidated
statements of operations for each of the three years in the period
ended
December 31, 2005 and for the period from January 31, 1953 (inception)
to
December 31, 2005.
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35
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Consolidated
statements of cash flows for each of the three years in the period
ended
December 31, 2005 and for the period from January 31, 1953 (inception)
to
December 31, 2005.
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36
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Consolidated
statement of common stock and capital in excess of par value for
the
period from January 31, 1953 (inception) to December 31,
2005
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37
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Notes
to consolidated financial statements.
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38-47
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Financial Statement Schedules
All
schedules have been omitted since the required information is not present or
not
present in amounts sufficient to require submission of the schedule, or because
the information required is included in the consolidated financial statements
and the notes thereto.
Exhibits
The
following exhibits are filed as part of this report:
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(g) |
Stock
Option Plan adopted March 7, 1995 filed as Exhibit 4A to form S-8
dated
July 28, 1995 (File
Number 001-04668) is incorporated herein by
reference.
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(h)
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Memorandum
of Settlement dated June 1, 2005 between Coastal Petroleum Company,
et al.
and the State of Florida filed as Exhibit 10(h) to form 10K-A dated
July
27, 2005 (File Number 001-04668) is incorporated herein by
reference.
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(i)
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Incentive
Stock Option Plan adopted September 30, 2005 and approved by the
shareholders on December 9, 2005 filed as Appendix A to form DEF
14A dated
November 3, 2005 (File Number 001-04668) is incorporated herein by
reference.
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(j)
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Code
of Ethics applicable to principle executive and financial officers
adopted
December 20, 2005.
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21. |
Subsidiaries of the registrant. |
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The
Company has one subsidiary, Coastal Petroleum Company, a Florida
corporation which is 100 % owned.
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23. |
Consent of experts and counsel. |
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23.1 |
Consent
of James, Moore &
Co., P.L.
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23.2 |
Consent
of Baumann, Raymondo & Company PA |
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31.1 |
Certification
of Chief Executive Officer and Principal Financial Officer Required
by
Rule 13a-14(a)-15d-14(a) under the Exchange
Act
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32.1
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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.
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SIGNATURES
Pursuant
to the requirements of Section 13 or 15(d) of the Securities Exchange Act of
1934, the registrant has duly caused this report to be signed on its behalf
by
the undersigned, thereunto duly authorized.
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COASTAL CARIBBEAN OILS
&
MINERALS, LTD. |
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(Registrant) |
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By: |
/s/ Phillip
W. Ware |
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Phillip
W. Ware,
Chief Executive Officer |
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President
and
Principal Financial Officer |
Dated:
March 7, 2006
Pursuant
to the requirements of the Securities Exchange Act of 1934, this report has
been
signed below by the following persons on behalf of the registrant and in the
capacities and on the date indicated.
By
/s/
Phillip W. Ware
Phillip
W. Ware
Director,
Chief Executive Officer,
President
and Principal Financial Officer
Dated:
March 7, 2006
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By
/s/
Robert J. Angerer
Robert
J. Angerer
Director
and Vice President
Dated:
March 7, 2006
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By
/s/
Herbert D. Haughton
Herbert
D. Haughton
Director
Dated:
March 7, 2006
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By
/s/Anthony
F. Randazzo
Anthony
F. Randazzo
Director
Dated:
March 7, 2006
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By
/s/
Matthew D. Cannon
Matthew
D. Cannon
Director
Dated:
March 7, 2006
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INDEX
TO EXHIBITS
Exhibit
No.
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10.(j)
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Code
of Ethics applicable to principle executive and financial officers
adopted
December 20, 2005.
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23.1 |
Consent
of James Moore & Co., P.L.
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23.2 |
Consent of Baumann, Raymondo & Company,
PA |
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31.1 |
Certification
pursuant to Rule 13a-14 by Phillip W.
Ware |
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32.1
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Certification
pursuant to Section 906 by Phillip W.
Ware
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