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 September 30, 1998
------------------
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 November 20, 1998: 16,530,487
<PAGE>
BASIC EARTH SCIENCE SYSTEMS, INC.
FORM 10-QSB
INDEX
PART I. FINANCIAL INFORMATION
Item 1. Financial Statements.......................................... 3
Consolidated Balance Sheets - September 30, 1998
and March 31, 1998............................................ 3
Consolidated Statements of Operations - Quarter Ended
and Six Months Ended September 30, 1998 and
September 30, 1997............................................ 5
Consolidated Statements of Cash Flows - Six Months Ended
September 30, 1998 and September 30, 1997..................... 6
Notes to Financial Statements................................. 7
Item 2. Management's Discussion and Analysis.......................... 9
Results of Operations......................................... 10
PART II. OTHER INFORMATION
Item 1. Legal Proceedings............................................. 14
Item 2. Changes in Securities......................................... 14
Item 3. Defaults Upon Senior Securities............................... 14
Item 4. Submission of Matters to a Vote of Security Holders........... 14
Item 5. Other Information............................................. 14
Item 6. Exhibits and Reports on Form 8-K.............................. 15
Signatures............................................................. 15
2
<PAGE>
<TABLE>
<CAPTION>
PART I.
FINANCIAL INFORMATION
---------------------
Item 1. Financial Statements
- ----------------------------
Basic Earth Science Systems, Inc.
Consolidated Balance Sheets
Page 1 of 2
September 30 March 31
1998 1998
------------ ------------
(Unaudited)
Assets
<S> <C> <C>
Current assets
Cash and cash equivalents $ 77,000 $ 52,000
Accounts receivable
Oil and gas sales 128,000 160,000
Joint interest and other receivables 99,000 97,000
Less: allowance for doubtful accounts (54,000) (54,000)
Other current assets 235,000 226,000
------------ ------------
Total current assets 485,000 481,000
------------ ------------
Property and equipment
Oil and gas property (full cost method) 32,616,000 32,559,000
Support equipment 453,000 450,000
------------ ------------
33,069,000 33,009,000
Accumulated depletion - FCP (includes cumulative
ceiling limitation charges of $14,961,000) (31,425,000) (31,217,000)
Accumulated depreciation (387,000) (374,000)
------------ ------------
Net property and equipment 1,257,000 1,418,000
Other noncurrent assets 82,000 85,000
------------ ------------
Total noncurrent assets 1,339,000 1,503,000
------------ ------------
Total Assets $ 1,824,000 $ 1,984,000
============ ============
See accompanying notes.
3
<PAGE>
Basic Earth Science Systems, Inc.
Consolidated Balance Sheets
Page 2 of 2
September 30 March 31
1998 1998
------------ ------------
(Unaudited)
Liabilities
Current liabilities
Accounts payable $ 187,000 $ 324,000
Accrued liabilities 143,000 144,000
Current portion of long-term debt 360,000 234,000
------------ ------------
Total current liabilities 690,000 702,000
------------ ------------
Long-term debt, less current portion 270,000 390,000
------------ ------------
Shareholders' Equity
Preferred stock, $.001 par value
Authorized - 3,000,000 shares
Issued - 0 shares -- --
Common stock, $.001 par value
32,000,000 shares authorized;
16,879,752 shares issued at September 30
and at March 31 17,000 17,000
Additional paid-in capital 22,692,000 22,692,000
Accumulated deficit (21,822,000) (21,794,000)
Less: treasury stock (349,265 shares at September 30
and March 31); at cost (23,000) (23,000)
------------ ------------
Total shareholders' equity 864,000 892,000
------------ ------------
Total Liabilities and Shareholders' Equity $ 1,824,000 $ 1,984,000
============ ============
See accompanying notes.
4
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
Basic Earth Science Systems, Inc.
Consolidated Statements of Income
(Unaudited)
Six Months Ended Quarters Ended
September 30 September 30
1998 1997 1998 1997
------------ ------------ ------------ ------------
Revenue
<S> <C> <C> <C> <C>
Oil and gas sales $ 794,000 $ 1,359,000 $ 350,000 $ 709,000
Well service revenue 16,000 12,000 8,000 11,000
------------ ------------ ------------ ------------
Total revenue 810,000 1,371,000 358,000 720,000
------------ ------------ ------------ ------------
Expenses
Oil and gas production 474,000 794,000 236,000 391,000
Production tax 42,000 123,000 30,000 63,000
Well service expenses 14,000 13,000 7,000 12,000
Depreciation, depletion and
amortization 214,000 279,000 99,000 157,000
General and administrative 61,000 66,000 25,000 38,000
------------ ------------ ------------ ------------
Total operating expenses 805,000 1,275,000 397,000 661,000
------------ ------------ ------------ ------------
Income (loss) from operations 5,000 96,000 (39,000) 59,000
------------ ------------ ------------ ------------
Other income (expense)
Interest and other income (expense) 8,000 5,000 2,000 (3,000)
Interest expense (41,000) (25,000) (17,000) (14,000)
------------ ------------ ------------ ------------
Total other expense (33,000) (20,000) (15,000) (17,000)
------------ ------------ ------------ ------------
Income (loss) before income taxes (28,000) 76,000 (54,000) 42,000
Income taxes -- -- -- --
------------ ------------ ------------ ------------
Net income (loss) $ (28,000) $ 76,000 $ (54,000) $ 42,000
============ ============ ============ ============
Basic and diluted weighted average
number of shares outstanding 16,530,487 16,580,487 16,530,487 16,580,487
============ ============ ============ ============
Basic and diluted net income
(loss) per share $ (.002) $ .005 $ (.003) $ .003
============ ============ ============ ============
See accompanying notes.
5
</TABLE>
<PAGE>
Basic Earth Science Systems, Inc.
Consolidated Statements of Cash Flows
(Unaudited)
Six Months Ended
September 30
1998 1997
--------- ---------
Cash flows from operating activities
Net income (loss) $ (28,000) $ 76,000
Adjustments to reconcile net income to
net cash provided by operating activities:
Depreciation, depletion and amortization 214,000 279,000
Change in current assets and current liabilities:
Accounts receivable, net 30,000 54,000
Accounts payable and accrued liabilities (138,000) (30,000)
Other current assets (9,000) 69,000
Other noncurrent assets 3,000 1,000
Other adjustments 7,000 9,000
--------- ---------
Net cash provided by operating activities 79,000 458,000
--------- ---------
Cash flows from investing activities
Capital expenditures
Oil and gas property (140,000) (258,000)
Support equipment (3,000) (6,000)
Proceeds from sale of property and equipment 83,000 --
--------- ---------
Net cash used in investing activities (60,000) (264,000)
--------- ---------
Cash flows from financing activities
Long-term debt payments (61,000) (175,000)
Proceeds from borrowing 67,000 --
--------- ---------
Net cash provided by (used in) financing activities 6,000 (175,000)
--------- ---------
Cash
Net increase 25,000 19,000
Balance at beginning of period 52,000 97,000
--------- ---------
Balance at end of period $ 77,000 $ 116,000
========= =========
Supplemental disclosure of cash flow information:
Cash paid for interest $ 35,000 $ 25,000
See accompanying notes.
6
<PAGE>
Basic Earth Science Systems, Inc.
Notes to Financial Statements
September 30, 1998
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 thereto included in Basic's
March 31, 1998 Form 10-KSB.
Forward-Looking Statements
- --------------------------
This Form 10-QSB includes "forward-looking statements" within the meaning of
Section 27A of the Securities Act of 1933, as amended (the "Securities Act"),
and Section 21E of the Securities Exchange Act of 1934, as amended (the
"Exchange Act"). All statements other than statements of historical fact
included in this Form 10-QSB, including, without limitation, the statements
under both "Notes To Financial Statements" and "Item 2. Management's Discussion
and Analysis or Plan of Operation" located elsewhere herein regarding the
Company's financial position and liquidity, the amount of and its ability to
make debt service payments, its strategies, financial instruments, and other
matters, are forward-looking statements. Although the Company believes that the
expectations reflected in such forward-looking statements are reasonable, it can
give no assurance that such expectations will prove to have been correct.
Important factors that could cause actual results to differ materially from the
Company's expectations are disclosed in this Form 10-QSB in conjunction with the
forward-looking statements included in this Form 10-QSB.
FASB 133
- --------
In June 1998, the FASB issued SFAS No. 133, "Accounting for Derivative
Instruments and Hedging Activities" which establishes accounting and reporting
standards for derivative instruments including certain derivative instruments
embedded in other contracts and for hedging activities. SFAS 133 is effective
for all fiscal quarters of fiscal years beginning June 15, 1999. Management
believes the adoption of this statement will not have a material impact on the
Company's financial statements.
7
<PAGE>
Year 2000
- ---------
The "Year 2000" problem is the result of computer programs being written using
two digits rather than four to define the applicable year. Any computer programs
that have time sensitive software may recognize a date using "00" as the year
1900 rather than the year 2000. Speculation as to the impact of this issue
varies widely.
The Company cannot state that the Year 2000 problem will not pose material
operational problems. Nor is the Company in control of the external forces that
could create these material impacts. The Company has not completed a
comprehensive assessment of the Company's Year 2000 problem, nor established any
written Year 2000 policies.
The vast majority of the Company's software are Microsoft Windows 95/Office 97
products and are not expected to be a problem. The software provider that
supports the Company's software program for its principal accounting system has
assured the Company that it will be Year 2000 compliant by March 1999. Since
modification of this program is included in the ongoing software support
contract, the Company does not expect to expend any significant amount of funds
to address resolving Year 2000 issues.
The Company is not dependent on any one vendor in a given area, and should not
be impacted by the failure of any one vendor to provide the Company with
necessary supplies and equipment.
The Company sells its primary product, oil, to a number of purchasers, and
sometimes to multiple purchasers in the same geographical area. Furthermore, for
the vast majority of the Company's product, the Company can switch purchasers
within 30 days. For these reasons, the Company has not contacted any of its
purchasers as to whether or not they are Year 2000 compliant, nor does
management believe it necessary at this time.
Summary of Significant Accounting Policies
- ------------------------------------------
Reclassifications Certain prior year amounts may have been reclassified to
conform to current year presentation.
Cash and Cash Equivalents For purposes of the Consolidated Balance Sheets and
Statements of Cash Flows, Basic considers all highly liquid investments with a
maturity of ninety days or less when purchased to be cash equivalents.
Use of Estimates The preparation of financial statements in conformity with
generally accepted accounting principles requires management to make estimates
and assumptions that affect the reported amounts of assets and liabilities at
the date of the financial statements and the reported amounts of revenues and
expenses during the reporting period. Actual results could differ from those
estimates. There are many factors, including global events, that may influence
the production, processing, marketing, and valuation of crude oil and natural
gas. A reduction in the valuation of oil and gas properties resulting from
declining prices or production could adversely impact depletion rates and
ceiling test limitations.
8
<PAGE>
Item 2. Management's Discussion and Analysis or Plan of Operation
- -----------------------------------------------------------------
Liquidity and Capital Resources
- -------------------------------
Liquidity During the six months just ended, current assets increased 1% from
$481,000 at year ended March 31, 1998 (March 31) to $485,000 at September 30,
1998 (September 30) and current liabilities decreased 2% from $702,000 at March
31 to $690,000 at September 30. Consequently, the Company's current ratio
increased slightly from 0.69:1 at March 31 to 0.70:1 at September 30. A specific
Bank covenant requires the maintenance of a current ratio of at least 1:1, after
adjustment for the removal of the current portion of long-term debt. At
September 30, 1998, the Company was in compliance with all Bank covenants and
the Company's current ratio was 1.47:1 as calculated per the provisions of the
covenants.
With the current drop in oil prices, Basic has been forced to shut in marginally
producing wells as they become unprofitable. When these wells are shut in,
equipment is removed and transferred to inventory to be either used on other
properties or sold at market value. This increase in inventory resulted in the
increase in other current assets. In turn, oil and gas sales receivable declined
due to lower sales volume and the decline in oil prices
Debt As of September 30, 1998, the Company did not have any remaining borrowing
capacity. Under the terms of the agreement with its bank in effect at September
30, 1998, Basic was obligated to make monthly principal payments of $30,000
beginning August 1, 1998. The Company was able to make only one $30,000 payment
on September 30, 1998 followed by a $10,000 principal payment on October 31,
1998. Effective November 3, 1998 Basic and its bank entered into an agreement to
modify the existing loan agreement. Effective immediately, the borrowing base
was set at $620,000 and the Company is to begin making monthly principal
payments of $10,000 beginning November 30, 1998 through March 31, 1999. At April
30, 1999 the monthly principal payments will increase to $20,000 through March
31, 2000. On the maturity date of April 1, 2000 any remaining balance due shall
be paid in full. Reference should be made to the Company's Form 10-KSB as of
March 31, 1998 for further disclosure regarding the Company's debt.
Hedging At September 30, 1998, the Company had 17 open options contracts to
hedge future deliveries with maturities ranging from November 1998 through
February 1999 at prices ranging from $15.00 to $20.00 per barrel.
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.
Assuming that oil prices do not decline significantly from current levels, and
having successfully renegotiated its bank debt, 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 fiscal year
1999.
9
<PAGE>
Strategy Implementation
- -----------------------
The Company's long term plan of operation involves the acquisition and
exploitation of producing properties. However, the Company has suspended this
plan pending the recovery of oil prices. In the interim, the Company has
renegotiated its bank debt, thereby lowering its monthly principal payment
requirements. The Company expects to continue focusing on reducing both lease
operating and general and administrative expenses. In addition, the Company
plans to accelerate its plans to divest and/or abandon marginal wells in an
effort to generate additional cash from sales or the salvage of leasehold
equipment. Basic may also alter or vary these plans pending the recovery of oil
prices based upon changes in circumstances, unforeseen opportunities and other
events which the Company is not able to anticipate.
The Company holds a number of marginal wells which have been shut in due to low
oil prices. As mentioned above, Basic intends to accelerate its efforts to plug
or sell these wells in the current fiscal year. Management believes that the
salvage value of the associated equipment, net of plugging costs, will have a
positive impact on the Company's cash flow.
The Company also holds several major value properties (relative to the size of
its existing debt). If its various short-term efforts fail, and oil prices do
not recover, the Company may chose to sell one or several of these properties in
order to reduce or extinguish its existing debt.
If oil prices should drop further from their current low levels, the impacts
could be several. The Company may incur further ceiling test limitations and be
required to further write down oil and gas properties. Moreover, even if the
Company is successful in any or all of its previously discussed efforts, there
can be no assurance that the Company will be able to continue to meet its
existing obligations as they become due in fiscal year 1999.
Results of Operations
- ---------------------
Year-To-Date Comparison
- -----------------------
Overview
- --------
Operations in the six months ended September 30, 1998 (1998) resulted in a net
loss of $28,000 compared to net income of $76,000 for the same period in 1997
(1997).
Revenues
- --------
Oil and gas sales revenue decreased $565,000 (42%) in 1998 from 1997. Oil sales
revenue declined $541,000 (45%). Lower oil sales volume accounted for $292,000
(54%) of this decline while the drop in oil prices resulted in a negative
variance of $249,000 (46%). In addition, gas sales revenue decreased $24,000
(16%) in 1998 from 1997. A decrease in gas sales volume accounted for $21,000
(88%) of this variance while the remaining $3,000 (12%) decrease was
attributable to drop in gas prices. As discussed in more detail in the following
paragraph, in addition to normal production decline, lower oil and gas sales
volumes are a function of prices. As oil and/or gas prices continue to decline,
more wells become uneconomic and must be shut in or abandoned thus reducing
sales volume.
10
<PAGE>
Volumes and Prices
- ------------------
Total liquid sales decreased 24%, from 68,000 barrels in 1997 to 51,600 barrels
in 1998 while there was a 27% drop in the average price per barrel from $17.78
in 1997 to $12.95 in 1998. Total gas sales decreased 14%, from 88,600 MCF in
1997 to 76,200 MCF in 1998, and the average price per MCF dropped 2%, from $1.69
in 1997 to $1.65 in 1998. Along with normal production decline, liquid sales
were adversely impacted by the sharp decline in oil prices. With lower oil
prices the Company has been forced to shut-in marginally producing wells in
order to reduce expenses so as to maintain a positive cash flow.
Expenses
- --------
Oil and gas production expense decreased $320,000 (40%) in 1998 from 1997
primarily as a result of the curtailment of field activities. As noted in the
preceding paragraph, marginally producing wells have been shut-in due to lower
oil prices. In addition, the Company has scaled back its workovers on many
properties pending some recovery in oil prices.
Production taxes decreased $81,000 (66%) as a result of two factors. First, the
drop in oil and gas sales revenue directly resulted in a decline in production
taxes. Second, Basic received the benefit of a $23,000 refund of severance taxes
in the first quarter of 1998. As a result of the decreases in both oil and gas
production expense and production taxes, the overall lifting cost per equivalent
barrel decreased 28% from $11.08 in 1997 to $8.02 in 1998.
Depreciation, depletion and amortization expense decreased $65,000 (23%) in 1998
from 1997. An increase in the depletion rate from 10.2% in 1997 to 14.4% in 1998
was more than offset by the significant reduction of the depletable base (full
cost pool) due to the ceiling limitation writedown at March 31, 1998. As a
result, the depletion expense per equivalent barrel decreased from $3.29 in 1997
to $3.24 in 1998.
Gross general and administrative expense decreased $24,000 (12%) in 1998 from
1997. However, net general and administrative expense decreased only $5,000 (8%)
as a direct result of the drop in oil prices. As Basic shut in some of the
marginally producing wells that it operated, it reduced the amount of general
and administrative overhead that the Company is allowed to recover from outside
interests in these wells. The decrease in gross general and administrative
expense is also a reflection of management's efforts to reduce expenses in light
of the continued decline in oil prices. The largest decrease occurred in the
area of employee compensation and benefits that declined $12,000 (10%) in 1998
from 1997. Despite the overall decrease, net general and administrative expense
per equivalent barrel increased from $0.80 in 1997 to $0.96 in 1998 as a result
of decreased oil and gas sales volumes.
Quarter Ended September 30, 1998 Compared to Quarter Ended September 30, 1997
- -----------------------------------------------------------------------------
Overview
- --------
Operations in the quarter ended September 30, 1998 (1998) resulted in a net loss
of $54,000 compared to net income of $42,000 in the quarter ended September 30,
1997 (1997).
11
<PAGE>
Revenues
- --------
Oil and gas sales revenue decreased $359,000 (51%) in 1998 from 1997. Oil sales
revenue declined $321,000 (52%). Lower oil sales volume accounted for $196,000
(61%) of this decline while the drop in oil prices resulted in a negative
variance of $125,000 (39%). In addition, gas sales revenue decreased $38,000
(44%) in 1998 from 1997. A decrease in gas volume sales accounted for $29,000
(76%) of this variance while the remaining $9,000 (24%) decrease was
attributable to a drop in gas prices.
Volumes and Prices
- ------------------
Total liquid sales decreased 31%, from 35,600 barrels in 1997 to 24,400 barrels
in 1998 while there was a 29% drop in the average price per barrel from $17.48
in 1997 to $12.34 in 1998. Total gas sales decreased 33%, from 48,600 MCF in
1997 to 32,600 MCF in 1998, and the average price per MCF dropped 17%, from
$1.80 in 1997 to $1.50 in 1998. Along with normal production decline, liquid
sales were adversely impacted by the sharp decline in oil prices. As mentioned
throughout, with lower oil prices the Company has been forced to shut-in
marginally producing wells in order to reduce expenses so as to maintain a
positive cash flow.
Expenses
- --------
Oil and gas production expense decreased $155,000 (40%) in 1998 from 1997
primarily as a result of the curtailment of field activities. As noted in the
preceding paragraph, marginally producing wells have been shut-in due to lower
oil prices. In addition, the Company has scaled back its workovers on many
properties pending some recovery in oil prices.
Production taxes decreased $33,000 (52%) as a direct result of the drop in oil
and gas sales revenue. Because of the decreases in both oil and gas production
expense and production taxes, the overall lifting cost per equivalent barrel
decreased 14% from $10.39 in 1997 to $8.90 in 1998.
Depreciation, depletion and amortization expense decreased $58,000 (37%) in 1998
from 1997. This decrease was caused by the significant reduction of the
depletable base (full cost pool) due to the ceiling limitation writedown at
March 31, 1998. As a result, the depletion expense per equivalent barrel
decreased from $3.50 in 1997 to $3.26 in 1998.
Gross general and administrative expense decreased $25,000 (24%) in 1998 from
1997 and net general and administrative expense decreased $13,000 (34%). Again,
the difference is due to the fact that as oil prices continue to remain at their
current low levels, Basic has been forced to shut in some of the marginally
producing wells that it operated. This reduces the amount of general and
administrative overhead that the Company is allowed to recover from outside
interests in these wells. Also, in an effort to maintain a positive cash flow,
management has taken additional steps to reduce general and administrative
expenses where possible. Again, the largest decrease occurred in the area of
employee compensation and benefits that declined $11,000 (19%) in 1998 from
1997. Despite the decrease in oil and gas sales volumes, net general and
administrative expense per equivalent barrel decreased from $0.87 in 1997 to
$0.84 in 1998.
12
<PAGE>
Liquids and Natural Gas Production, Sales Price and Production Costs
--------------------------------------------------------------------
The following table shows selected financial information for the six months and
quarter ended September 30 in the current and prior year. Certain prior year
amounts may have been reclassified to conform to current year presentation.
<TABLE>
<CAPTION>
Six Months Ended Quarter Ended
September 30 September 30
1998 1997 1998 1997
---------- ---------- ---------- ----------
Sales volume
<S> <C> <C> <C> <C>
Oil (barrels) 51,600 68,000 24,400 35,600
Gas (mcf) 76,200 88,600 32,600 48,600
Revenue
Oil $ 668,000 $1,209,000 $ 301,000 $ 622,000
Gas 126,000 150,000 49,000 87,000
---------- ---------- ---------- ----------
794,000 1,359,000 350,000 709,000
Total production expense(1) 516,000 917,000 266,000 454,000
---------- ---------- ---------- ----------
Gross profit $ 278,000 $ 442,000 $ 84,000 $ 255,000
========== ========== ========== ==========
Depletion expense $ 208,000 $ 272,000 $ 96,000 $ 153,000
Depletion expense per BOE(3) $ 3.24 $ 3.29 $ 3.26 $ 3.50
Average production expense(2,3) $ 8.02 $ 11.08 $ 8.90 $ 10.39
Average sales price(3)
Oil (per barrel) $ 12.95 $ 17.78 $ 12.34 $ 17.48
Gas (per mcf) 1.65 1.69 1.50 1.80
- ----------------------------
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)
3 Averages calculated based upon non-rounded figures
(Intentionally left blank)
13
</TABLE>
<PAGE>
PART II.
OTHER INFORMATION
-----------------
(Cumulative from March 31, 1998)
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
- -----------------------------------------------------------
During the six months ended September 30, 1998, there were no meetings of
Basic's shareholders nor were any matters submitted to a vote of security
holders through the solicitation of consents, proxies or otherwise.
Item 5. Other Information
- -------------------------
At March 31, 1998, the Company accepted the resignation of its controller, a
long time employee. Fortunately, the Company was able to immediately hire a
replacement. However, this new controller resigned in the quarter just ended.
The Company has interviewed a number of candidates, and made a concerted effort
to fill this position, all to no avail. A number of factors have influenced this
situation. The availability of accountants with oil and gas experience in the
Denver area is surprisingly low. Basic's size and the desire for public
accounting experience creates a disparity in salary expectations by both
parties. Also, the "Going Concern" opinion letter, which the Company received in
its most recent Form 10-KSB, makes it difficult to recruit candidates who
currently have employment.
Other than not timely filing its quarterly Form 10-QSB's, the Company has not
been adversely impacted by this vacancy. Although, allowing this position to
remain vacant is not sustainable and could in the long run adversely impact the
Company. In the interim, the Company has been able to fulfill its SEC and other
governmental agencies filing requirements with the use of one contract person.
The Company expects to continue its efforts to fill this position with a full
time employee.
14
<PAGE>
Item 6. Exhibits and Reports on Form 8-K
- ----------------------------------------
None.
Pursuant to the requirements of the Securities Exchange Act of 1934, this report
is signed by the following authorized person on behalf of Basic.
BASIC EARTH SCIENCE SYSTEMS, INC.
- ---------------------------------
Ray Singleton, President and
Principal Accounting Officer
Date: November 20, 1998
15
<TABLE> <S> <C>
<ARTICLE> 5
<S> <C>
<PERIOD-TYPE> 6-MOS
<FISCAL-YEAR-END> MAR-31-1999
<PERIOD-START> APR-01-1998
<PERIOD-END> SEP-30-1998
<CASH> 77,000
<SECURITIES> 0
<RECEIVABLES> 227,000
<ALLOWANCES> (54,000)
<INVENTORY> 235,000<F1>
<CURRENT-ASSETS> 485,000
<PP&E> 33,069,000
<DEPRECIATION> (31,812,000)
<TOTAL-ASSETS> 1,824,000
<CURRENT-LIABILITIES> 690,000
<BONDS> 0
0
0
<COMMON> 17,000
<OTHER-SE> 0
<TOTAL-LIABILITY-AND-EQUITY> 1,824,000
<SALES> 794,000
<TOTAL-REVENUES> 810,000
<CGS> 805,000<F2>
<TOTAL-COSTS> 0
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 41,000
<INCOME-PRETAX> (28,000)<F3>
<INCOME-TAX> 0
<INCOME-CONTINUING> 0
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (28,000)<F3>
<EPS-PRIMARY> (.002)<F3>
<EPS-DILUTED> (.002)<F3>
<FN>
<F1> and other current assets
<F2> Operating expenses
<F3> (loss)
</FN>
</TABLE>
