SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-QSB
/X/ QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE
ACT OF 1934
For the quarterly period ended December 31, 1995
/ / TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
Commission File Number 0-7914
BASIC EARTH SCIENCE SYSTEMS, INC.
(Exact name of small business issuer as specified in its charter)
DELAWARE 84-0592823
(State or other jurisdiction of (IRS Employer
incorporation or organization) Identification No.)
633 Seventeenth Street, Suite 1670, Denver, Colorado 80202
(Address of principal executive offices) (Zip Code)
(303) 294-9525
(Issuer's telephone number)
Check whether the issuer (1) filed all reports required to be filed by Section
13 or 15(d) of the Securities Exchange Act of 1934 during the past 12 months (or
for such shorter period that the registrant was required to file such reports),
and (2) has been subject to such filing requirements for the past 90 days.
Yes /X/ No / /
Shares of common stock outstanding on February 14, 1996: 16,580,487
<PAGE>
PART I.
FINANCIAL INFORMATION
Item 1. Financial Statements
Basic Earth Science Systems, Inc.
Consolidated Balance Sheets
Page 1 of 2
<TABLE>
<CAPTION>
December 31 March 31
1995 1995
(Unaudited)
----------- ---------------
<S> <C> <C>
Assets
Current assets
Cash & cash equivalents $53,000 $83,000
Accounts receivable
Oil and gas sales 291,000 292,000
Joint interest and other, net 92,000 299,000
Other current assets 122,000 46,000
-------- --------
Total current assets 558,000 720,000
-------- --------
Notes receivable 7,000 0
Property and equipment
Oil and gas property (full cost method) 31,753,000 31,418,000
Office building and support equipment 440,000 435,000
---------- ----------
32,193,000 31,853,000
Accumulated depletion - FCP (includes
cumulative ceiling limitation charges
of $14,091,000) (29,245,000) (28,763,000)
Accumulated depreciation (376,000) (358,000)
------------ ------------
Net property & equipment 2,572,000 2,732,000
Other assets 71,000 56,000
------------ ------------
Total Assets $3,208,000 $3,508,000
============ ============
</TABLE>
See accompanying notes.
<PAGE>
Basic Earth Science Systems, Inc.
Consolidated Balance Sheets
Page 2 of 2
<TABLE>
<CAPTION>
December 31 March 31
1995 1995
(Unaudited)
------------ ------------
<S> <C> <C>
Liabilities
Current liabilities
Accounts payable & accrued liabilities $476,000 $492,000
Current portion of long-term debt 360,000 514,000
---------- ----------
Total current liabilities 836,000 1,006,000
Long-term debt, less current portion 506,000 606,000
---------- ----------
Total liabilities 1,342,000 1,612,000
---------- ----------
Shareholders' Equity
Preferred stock, $.10 par value
Authorized - 3,000,000 shares
Issued - 0 shares ----- -----
Common stock, $.10 par value
32,000,000 shares authorized;
16,580,487 shares outstanding at
December 31 and 16,307,013 shares
outstanding at March 31 1,688,000 1,688,000
Additional paid-in capital 21,022,000 21,022,000
Employee Stock Ownership Plan
contribution 0 13,000
Accumulated deficit (20,828,000) (20,798,000)
Less treasury stock at cost (299,265
shares at December 31 and 572,739
shares at March 31) (16,000) (29,000)
------------ ------------
Total shareholders' equity 1,866,000 1,896,000
------------ ------------
Total Liab. & Shareholders' Equity $3,208,000 $3,508,000
============ ============
</TABLE>
See accompanying notes.
<PAGE>
Basic Earth Science Systems, Inc.
Consolidated Statements of Operations
(Unaudited)
<TABLE>
<CAPTION>
Nine Months Ended Quarter Ended
December 31 December 31
1995 1994 1995 1994
-------- -------- -------- --------
<S> <C> <C> <C> <C>
Revenue:
Oil and gas sales $2,107,000 $968,000 $710,000 $399,000
Well service revenue 5,000 6,000 2,000 1,000
---------- -------- --------- --------
Total revenue 2,112,000 974,000 712,000 400,000
---------- -------- --------- --------
Expenses:
Oil and gas production 1,292,000 530,000 411,000 222,000
Production tax 168,000 66,000 54,000 27,000
Well service expenses 5,000 5,000 2,000 1,000
Depreciation, depletion and
amortization 493,000 299,000 151,000 120,000
General & administrative 108,000 186,000 40,000 66,000
---------- --------- -------- --------
Total expenses 2,066,000 1,086,000 658,000 436,000
---------- --------- -------- --------
Income (loss) from
operations 46,000 (112,000) 54,000 (36,000)
Other Income (Expense):
Interest & other income 4,000 25,000 2,000 18,000
Gain on sale of building ----- 38,000 ---- ----
Interest expense (80,000) (34,000) (23,000) (14,000)
-------- -------- -------- --------
Total other income (exp) (76,000) 29,000 (21,000) 4,000
-------- -------- -------- --------
Net income (loss) before
income taxes (30,000) (83,000) 33,000 (32,000)
Income taxes ---- ---- ---- ----
-------- -------- -------- --------
Net income (loss) $(30,000) $(83,000) $33,000 $(32,000)
========= ========= ======== =========
Weighted average number of
shares outstanding 16,445,242 16,636,643 16,580,487 16,557,013
Net income (loss)/share $(.002) $(.005) $.002 $(.002)
</TABLE>
See accompanying notes.
<PAGE>
Basic Earth Science Systems, Inc.
Consolidated Statements of Cash Flows
(Unaudited)
<TABLE>
<CAPTION>
Nine Months Ended
December 31
1995 1994
------------ ------------
<S> <C> <C>
Cash Flows from Operating Activities
Net loss $(30,000) $(83,000)
Adjustments to reconcile net income to net
cash provided by operating activities:
Depreciation, depletion & amortization 493,000 299,000
Employee Stock Ownership Plan ----- 17,000
Change in current assets & current liabilities
Accounts receivable, net 208,000 (54,000)
Accounts payable & accrued liabilities (16,000) 22,000
Other current assets (76,000) 20,000
Other assets (22,000) (51,000)
Gain on sale of office building ----- (38,000)
Other 8,000 6,000
------------ ------------
Net cash provided by oper. activities 565,000 138,000
------------ ------------
Cash Flows from Investing Activities
Capital expenditures
Oil and gas property (336,000) (763,000)
Support equipment (5,000) (43,000)
Proceeds from sale of prop. & equipment ----- 382,000
------------ ------------
Net cash used in investing activities (341,000) (424,000)
------------ ------------
Cash Flows from Financing Activities
Proceeds from borrowing 220,000 500,000
Long-term debt payments (474,000) (391,000)
Purchase of treasury stock ----- (8,000)
------------ ------------
Net cash provided by (used in)
financing activities (254,000) 101,000
------------ ------------
Cash
Net increase (decrease) (30,000) (185,000)
Balance at beginning of period 83,000 378,000
------------ ------------
Balance at end of period $53,000 $193,000
============ ============
</TABLE>
See accompanying notes.
<PAGE>
Basic Earth Science Systems, Inc.
Notes to Financial Statements
December 31, 1995
The accompanying interim financial statements of Basic Earth Science Systems,
Inc. (Basic or the Company) are unaudited. However, in the opinion of
management, the interim data includes all adjustments, consisting of normal
recurring adjustments, necessary for a fair presentation of the results for the
interim period.
The financial statements included herein have been prepared by the Company
pursuant to the rules and regulations of the Securities and Exchange Commission.
Certain information and footnote disclosures normally included in financial
statements prepared in accordance with generally accepted accounting principles
have been condensed or omitted pursuant to such rules and regulations.
Management believes the disclosures made are adequate to make the information
not misleading and suggests that these condensed financial statements be read in
conjunction with the financial statements and notes hereto included in Basic's
March 31, 1995 annual report.
Summary of Significant Accounting Policies
Income Taxes
In the first quarter of fiscal 1994, Basic implemented Statement of Financial
Accounting Standards No. 109 ("SFAS 109"), "Accounting for Income Taxes,"
effective as of April 1, 1993. SFAS 109 requires recognition of deferred income
tax assets and liabilities based upon enacted tax laws for all temporary
differences between financial reporting and tax bases of assets, liabilities and
carryforwards under SFAS 109. Deferred tax assets are then reduced, if deemed
necessary (i.e., more likely than not), by a valuation allowance for the amount
of any tax benefits which, based on current circumstances, are not expected to
be realized.
The Company's adoption of SFAS 109 had no cumulative effect on operations since
the net deferred tax asset of $6,314,000 was offset by a valuation allowance of
an equal amount. The Company's deferred tax liabilities and assets are
comprised of the following components at December 31, 1995 and 1994.
(Intentionally left blank.)
<TABLE>
<CAPTION>
1995 1994
---------- ----------
<S> <C> <C>
Deferred tax liabilities
Depreciation and depletion $(546,000) $(397,000)
Deferred tax assets
Net operating loss carryfwds 5,705,000 5,705,000
Statutory depletion carryfwd 1,155,000 1,155,000
Valuation allowance (6,314,000) (6,463,000)
------------ ------------
Net deferred tax asset $0 $0
============ ============
</TABLE>
At March 31, 1995, the Company had available approximately $16,304,000 of net
operating loss carryforwards which expire in varying amounts in the years 1996
through 2010. The Company also has available a depletion carryover of
approximately $3,355,000.
The Company has established a valuation allowance due to the uncertainty that
the full amount of the operating loss carryforwards will be utilized due to
expiration and other factors. Although management expects improvement in future
results of operations, it emphasizes past performance rather than income
projections when determining the valuation allowance. Any subsequent
adjustments to the valuation allowance, if deemed appropriate due to changed
circumstances, will be recognized as a separate component of the provision for
income taxes.
Item 2. Management's Discussion and Analysis
Liquidity and Capital Resources
Liquidity
During the past three quarters, current assets decreased 23% from $720,000 at
year ended March 31, 1995 (March 31) to $558,000 at December 31, 1995 (December
31) and current liabilities decreased 17% from $1,006,000 at March 31 to
$836,000 at December 31. Consequently, the Company's current ratio decreased
from .72:1 at March 31 to .67:1 at December 31 (up slightly from the previous
quarter). For Bank covenant purposes, at March 31 the current ratio was 1.46:1
and decreased to 1.17:1 at December 31 (also up slightly from the previous
quarter).
On November 29, 1995, the Company reported on a Form 8-K that it had advised its
bank that as of October 31, 1995 it failed to satisfy the liquidity covenant in
its Loan Agreement. The Company also failed to satisfy this liquidity covenant
at November 30, 1995. The Company requested and received a waiver from its Bank
regarding both violations. At December 31, 1995, the Company was in compliance
with all loan covenants.
Hedging
The Company previously disclosed the use of put option oil contracts to protect
against price uncertainty during a critical period of debt repayment. All of
these options expired unexercised.
Subsequent to the expiration of these put options, the Company sold 27 oil
futures contracts with maturities ranging from February 1996 to January 1997.
The majority of the contracts are in the first six months. The average price of
the contracts is $18.30 per barrel. The intent of these transactions is to
reduce the Company's exposure to price uncertainty during this period of
relatively high financial leverage.
Liquidity Outlook
The Company's primary source of funding is the net cash flow from the sale of
its oil and gas production. The profitability and cash flow generated by the
Company's operations in any particular accounting period will be directly
related to: (a) the volume of oil and gas produced and then sold, (b) the
average realized prices for oil and gas sold, and (c) lifting costs. Despite
the Company's increased monthly debt repayment and interest requirements,
management believes the cash generated from operations and hedging activities
will enable the Company to meet its existing and normal recurring obligations as
they become due in the remainder of fiscal year 1996.
Debt
On September 13, 1995, the Bank and the Company modified its previous loan
agreement to create a "Declining Balance, Revolving Line Of Credit" (DBRLOC) and
increased the face amount of the promissory note to $2,500,000. The Company is
now able to draw on the DBRLOC up to $2,500,000 or the borrowing base, whichever
is less. At September 13, 1995 the Company's borrowing base was set at
$1,050,000, but declines monthly by the minimum required principal payment.
Under the DBRLOC and note, the Company is required to make monthly principal
payments commencing October 31, 1995 and continuing each month thereafter until
May 31, 1998 in the following minimum amounts:
<TABLE>
<CAPTION>
<S> <C> <C>
October 31, 1995 through December 31, 1995 $53,000 per month
January 31, 1996 through December 31, 1996 $30,000 per month
January 31, 1997 through December 31, 1997 $25,000 per month
January 31, 1998 through April 30, 1998 $20,000 per month
May 31, 1998 Balance of remaining principal
</TABLE>
The Company's borrowing base will be reviewed biannually and may be adjusted up
or down due to reevaluation of previously collateralized properties, addition of
newly acquired properties, increased reserves created by enhancements or
exploitation and rising or declining oil or gas prices. At May 31, 1998, unless
the DBRLOC is again modified or the borrowing base is adjusted, the outstanding
principal balance is expected to be approximately $131,000.
In addition to the above described principal payments, monthly interest payments
are due on the unpaid principal balance at the Bank's fluctuating prime lending
rate plus two percent (2%). In addition, quarterly, the Company is required to
pay a 1/2% commitment fee on the unused portion of the adjusted and declined
borrowing base. As of December 31, 1995, the Company's effective annual
interest rate was 10.75%.
As a result of the foregoing loan modification, the Company now has the ability
to draw additional funds from the DBRLOC up to the then effective borrowing
base. In addition, the Company may reduce the loan balance ahead of schedule
and be able to re-borrow up to the declined and/or adjusted borrowing base. The
increased loan facility allows the Company to continue implementing its plan of
acquiring additional producing properties and exploiting both existing and newly
acquired properties for additional cashflow and reserve potential. At this time
the Company has not identified any additional properties for acquisition.
Following the covenant violation discussed above, the Company drew $220,000 from
the DBRLOC to cure said violation. As a result, at December 31, 1995, the
Company had the ability to draw an additional $25,000 before reaching the
borrowing base limit.
In addition to the above described DBRLOC, on September 13, 1995, the Bank and
the Company executed the collateral documents necessary to create a second
Revolving Line Of Credit (RLOC) and make an additional $900,000 available for
the Company's hedging activities. The terms of the RLOC were finalized in
December 1995 and funds under this second facility were made available. In
addition to other requirements and restrictions, the funds from the RLOC can
only be used to fund margin requirements associated with the Company's hedging
activities. At December 31, 1995 the Company had drawn $46,000 from this
facility to fund the margin requirements associated with the hedging activities
described above.
The DBRLOC and RLOC are collateralized and secured by mortgages on substantially
all of the Company's producing oil and gas properties and the Company's
hedging/margin account associated with the Company's hedging activities.
Strategy Implementation
The Company previously disclosed an unsuccessful recompletion attempt and
unexpected repair and replacement costs on recently acquired properties.
Expenditures in these two areas placed the Company in violation of its loan
covenants for a short period during the quarter just ended. In addition to an
advance of funds from its DBRLOC described above, the Company curtailed its
recompletion and acquisition efforts in order to cure this violation. Having
cured this violation at December 31, 1995, the Company intends to repay a
portion of the funds advanced before resuming its acquisition and exploitation
strategy.
The Company continues to be adversely affected by the magnitude of unanticipated
repair costs associated with equipment on recently acquired Williston basin
properties. The Company expects these repair costs to continue, albeit in
decreasing amounts, as the Company discovers, repairs and replaces damaged
and/or compromised equipment. While the impact of these costs is evident on
current profitability, the Company cannot predict what the impact will be on
future profitability.
Outlook for Remainder of Fiscal Year 1996
To the extent that funds are available, the Company intends to pursue the
acquisition of producing properties and the exploitation of both existing
properties and those which it acquires. However, the Company may alter or vary
its plan of operation based upon changes in circumstances, unforeseen
opportunities, inability to negotiate favorable acquisition or loan terms, lack
of funding, change in oil or gas prices, lending institution requirements and
other events which the Company is not able to anticipate.
Results of Operations
Year-to-Date Comparison
Overview
Operations in the nine months ended December 31, 1995 (1995) resulted in a net
loss of $30,000 compared to a net loss of $83,000 in the nine months ended
December 31, 1994 (1994).
Revenues
Oil and gas sales increased $1,139,000 (more than 117%) in 1995 from 1994. Of
this amount, $1,077,000 (95%) was attributable to increases in oil production
while oil price decreases accounted for a slight negative variance of $1,000
(less than 1%). Gas volume increases accounted for a positive variance of
$64,000 (5%) while gas price decreases accounted for a $1,000 negative variance
(less than 1%).
Volumes and Prices
Total liquid production increased 138%, from 48,100 barrels in 1994 to 114,500
barrels in 1995, while the average price per barrel decreased slightly (less
than 1%) from $16.22 in 1994 to $16.21 in 1995. Total gas production increased
34% from 119,800 MCF in 1994 to 160,700 MCF in 1995, while the price per MCF
decreased slightly (less than 1%) from $1.57 in 1994 to $1.56 in 1995. The
increase in both liquid and gas production was primarily due to the Company's
Williston basin acquisition completed in March 1995, its participation in the
October 1995 recompletion of a Montana well in which the Company owns a 50%
working interest, and its drilling and recompletion program in the Wattenburg
field in northeast Colorado conducted from August 1994 to February 1995.
Expenses
Oil and gas production expense, including production tax, increased $864,000
(145%) in 1995 from 1994 primarily as a result of the aforementioned Williston
basin acquisition and the Montana well recompletion. Consequently, the overall
lifting cost per equivalent barrel increased 18%, from $8.76 in 1994 to $10.33
in 1995.
Depreciation, depletion and amortization expense increased $194,000 (65%) in
1995 from 1994 due to increases in the full cost pool and increases in produced
volumes, both attributable to the aforementioned acquisition and recompletion
efforts. The average depletion expense per equivalent barrel decreased 7% from
$4.14 in 1994 to $3.83 in 1995 as a result of the proportionally greater amount
of estimated reserves that were added at (and subsequent to) the year ended
March 31, 1995.
Net general and administrative expense decreased $78,000 (42%) in 1995 from
1994. This decrease is attributable to an increase in the number of Company-
operated properties, and associated administrative overhead fees, following the
Williston basin acquisition mentioned above. Also contributing to the overall
decrease in gross general and administrative expense were decreases in building
expenses and outside professional fees which were partially offset by increases
in salaries and office expenses.
Quarter Ended December 31, 1995 Compared to Quarter Ended December 31, 1994
Overview
Operations in the quarter ended December 31, 1995 (1995) resulted in net income
of $33,000 compared to a net loss of $32,000 in the quarter ended December 31,
1994 (1994).
Revenues
Oil and gas sales increased $311,000 (78%) in 1995 from 1994. Of this amount,
approximately $307,000 (99%) was attributable to increases in oil production
while oil price increases accounted for a positive variance of $20,000 (6%).
Gas volume decreases accounted for a negative $29,000 (-9%) while the increase
in gas prices accounted for a positive $13,000 (4%) of the total variance.
Volumes and Prices
Total liquid production increased 103%, from 19,100 barrels in 1994 to 38,700
barrels in 1995, while the average price per barrel increased 3%, from $15.65 in
1994 to $16.18 in 1995. Total gas production decreased 29%, from 70,900 MCF in
1994 to 50,100 MCF in 1995, while the price per MCF increased 18%, from $1.41 in
1994 to $1.67 in 1995. The increase in liquid production was primarily due to
the Company's Williston basin acquisition and the Montana well recompletion
mentioned above. The decrease in gas production was primarily due to normal
production decline associated with wells newly drilled and/or recompleted in
fiscal 1994.
Expenses
Oil and gas production expense, including production tax, increased $216,000
(87%) in 1995 from 1994 primarily as a result of the aforementioned Williston
basin acquisition and the Montana well recompletion. Consequently, the overall
lifting cost per equivalent barrel increased 23%, from $8.05 in 1994 to $9.88 in
1995.
Depreciation, depletion and amortization expense increased $31,000 (26%) in 1995
from 1994 due to increases in the full cost pool and increases in produced
volumes, both attributable to the aforementioned acquisition and recompletion
efforts. The average depletion expense per equivalent barrel decreased 18% from
$3.79 in 1994 to $3.12 in 1995 as a result of the proportionally greater amount
of estimated reserves that were added at (and subsequent to) the year ended
March 31, 1995.
Net general and administrative expense decreased $26,000 (39%) in 1995 compared
to 1994. This decrease is attributable to an increase in the number of Company-
operated properties, and associated administrative overhead fees, following the
Williston basin acquisition mentioned above.
(Intentionally left blank.)
<PAGE>
Liquids and Natural Gas Production, Sales Prices and Production Costs
Liquids and natural gas production, average sales prices and average production
costs per equivalent barrel of production are shown in the following table for
the nine months and quarter ended December 31 in the current and prior year.
<TABLE>
<CAPTION>
Nine Months Ended Quarter Ended
December 31 December 31
1995 1994 1995 1994
------------ -------- --------- ----------
<S> <C> <C> <C> <C>
Production
Oil (barrels) 114,500 48,100 38,700 19,100
Gas (mcf) 160,700 119,800 50,100 70,900
Revenue
Oil $1,856,000 $780,000 $626,000 $299,000
Gas 251,000 188,000 84,000 100,000
---------- -------- -------- --------
Total $2,107,000 $968,000 $710,000 $399,000
========== ======== ======== ========
Average sales price
Oil (per barrel) $16.21 $16.22 $16.18 $15.65
Gas (per mcf) 1.56 1.57 1.67 1.41
Total production expense(1) $1,460,000 $596,000 $465,000 $249,000
Average production expense(2) $10.33 $8.76 $9.88 $8.05
</TABLE>
- ----------------------------
(1) Operating expenses, including production tax
(2) Operating expenses, including production tax, per equivalent barrel (6 mcf
of gas is equivalent to 1 barrel of oil)
(Intentionally left blank.)
<PAGE>
PART II.
OTHER INFORMATION
Item 1. Legal Proceedings
None
Item 2. Changes in Securities
None
Item 3. Defaults Upon Senior Securities
None
Item 4. Submission of Matters to a Vote of Security Holders
An annual meeting of the shareholders was held on October 6, 1995. Proxies for
the election of directors at this meeting were solicited pursuant to Regulation
14A under the Exchange Act. There was no solicitation in opposition to
management's director nominees and all such director nominees were elected.
They are as follows: G. W. Breuer, David J. Flake, Edgar J. Huffman and Ray
Singleton. The number of votes cast for, against, and withheld with respect to
each nominee are as follows:
<TABLE>
<CAPTION>
For Against Withheld
-------- -------- --------
<S> <C> <C> <C>
G. W. Breuer 14,832,959 1,268,036 34,550
David J. Flake 11,865,560 4,235,435 34,550
Edgar J. Huffman 12,191,956 3,909,039 34,550
Ray Singleton 12,192,418 3,908,577 34,550
</TABLE>
The Board of Directors (BOD) had submitted two additional matters to the
Company's shareholders for approval at this annual meeting. First, the BOD
proposed to amend the Company's Certificate of Incorporation to reduce the par
value of the Company's capital stock from ten cents ($0.10) per share to one-
tenth of one cent ($0.001) per share. Proxies for this issue were solicited
pursuant to Regulation 14A under the Exchange Act. There was no solicitation in
opposition to management's proposal and the proposal was accepted with the
number of votes being as follows: For: 10,799,378 votes; Against: 5,281,802
votes; Abstentions: 86,388 votes.
Second, the BOD requested shareholder approval of the 1995 Incentive Stock
Option Plan. This Plan would provide a flexible and comprehensive stock option
and incentive plan which permits the granting of long-term incentive awards to
employees, including officers and directors employed by the Company or its
subsidiary, as a means of enhancing and strengthening the Company's ability to
attract and retain those individuals on whom the continued success of the
Company most depends. Proxies for this issue were solicited pursuant to
Regulation 14A under the Exchange Act. There was no solicitation in opposition
to management's proposal and the proposal was accepted with the number of votes
being as follows: For: 8,555,342 votes; Against: 5,229,546 votes; Abstentions:
85,785 votes.
No other matters were voted upon at the meeting.
Item 5. Other Information
None
Item 6. Exhibits and Reports on Form 8-K
a. Exhibits
<TABLE>
<CAPTION>
Exhibit
No. Document
- ------- --------
<S> <C>
10(i)a Amended Loan Agreement between Norwest Bank Colorado, N.A. and Basic,
dated September 13, 1995, previously filed.
10(i)a 1995 Stock Option Plan, previously filed.
</TABLE>
b. Reports on Form 8-K
The following Form 8-Ks have been filed with the Securities and Exchange
Commission since March 31, 1995 and are incorporated herein by reference. For
further information on these disclosures, reference to the original documents
should be made. The following is a summary of those original documents.
Form 8-K dated June 19, 1995
On June 19, 1995, the Company reported that it had entered into a hedging
transaction whereby the Company executed twenty-two (22) put option contracts at
a cost of approximately $9,000. The intent of this transaction was to create a
$17.00 per barrel floor price for approximately 75% of the Company's anticipated
oil production from key properties through October 1995.
Form 8-K dated September 13, 1995
On September 13, 1995, the Company reported that it had renegotiated its loan
agreement with Norwest Bank Colorado N.A (the Bank) whereby the existing term
loan was modified to create a "Declining Balance, Revolving Line Of Credit." In
addition to the above, the Bank and the Company executed the collateral
documents necessary to create a second Revolving Line Of Credit and make an
additional $900,000 available for the Company's hedging activities. The terms
of the RLOC have not yet been finalized and funds under this second facility are
not yet available.
Form 8-K dated November 29, 1995
On November 29, 1995, the Company reported that it had advised its Bank that as
of October 31, 1995, it failed to satisfy the liquidity covenant in its Loan
Agreement. The Company requested and received a waiver from its Bank regarding
said violation. Further, the Company reported that it has drawn on its line of
credit and expects to continue doing so in order to pay current liabilities in
their normal course and attain a current ratio acceptable to its Bank.
(Intentionally left blank)
<PAGE>
Pursuant to the requirements of the Securities Exchange Act of 1934, this report
is signed by the following authorized person on behalf of Basic.
(Registrant) BASIC EARTH SCIENCE SYSTEMS, INC.
(Name and title) Ray Singleton, President
(Signature) /s/ Ray Singleton
(Date) February 14, 1996
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
This schedule contains summary financial information extracted from the
consolidated balance sheets, statements of operations, and statements of cash
flows found on pages 3, 4, 5 and 6 of the Company's Form 10-QSB for the
year-to-date and is qualified in its entirety by reference to such financial
statements.
</LEGEND>
<S> <C>
<PERIOD-TYPE> 9-MOS
<FISCAL-YEAR-END> MAR-31-1996
<PERIOD-END> DEC-31-1995
<CASH> 53,000
<SECURITIES> 0
<RECEIVABLES> 418,000
<ALLOWANCES> (35,000)
<INVENTORY> 0
<CURRENT-ASSETS> 558,000
<PP&E> 32,193,000
<DEPRECIATION> (29,621,000)
<TOTAL-ASSETS> 3,208,000
<CURRENT-LIABILITIES> 836,000
<BONDS> 0
<COMMON> 1,688,000
0
0
<OTHER-SE> 1,688,000
<TOTAL-LIABILITY-AND-EQUITY> 3,208,000
<SALES> 2,107,000
<TOTAL-REVENUES> 2,112,000
<CGS> 2,066,000
<TOTAL-COSTS> 2,066,000
<OTHER-EXPENSES> 0
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<NET-INCOME> (30,000)
<EPS-PRIMARY> (.002)
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</TABLE>
