UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-KSB/A
[X] ANNUAL REPORT UNDER SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF
1934
For the Fiscal Year Ended March 31, 2000
[ ] TRANSITION REPORT UNDER SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE
ACT OF 1934
Commission file number: 0-7914
BASIC EARTH SCIENCE SYSTEMS, INC.
8547 E. Arapahoe Road, J-464
Greenwood Village, Colorado 80112
Telephone (303) 773-8000
Incorporated in Delaware IRS ID# 84-0592823
Securities registered under Section 12(b) of the Act: NONE
Securities registered under Section 12(g) of the Act: Common Stock, $.001 par
value
Check whether the issuer (1) filed all reports required to be filed by Section
13 or 15(d) of the Exchange Act 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 the filing requirements for the past 90 days. Yes X No___
Check if disclosure of delinquent filers in response to Item 405 of Regulation
S-B is not contained in this form, and no disclosure will 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-KSB or any amendment to
this Form 10-KSB. [ ]
Issuer's revenues for its most recent fiscal year: $2,219,000
As of June 22, 2000, 16,530,487 shares of the registrant's common stock were
outstanding and the aggregate market value of such common stock held by
non-affiliates was approximately $1,243,000.
<PAGE>
Basic Earth Science Systems, Inc.
Form 10-KSB/A
March 31, 2000
Table of Contents
-----------------
Part III:
Page
----
Item 9. Directors, Executive Officers, Promoters and
Control Persons; Compliance With
Section 16(a) of the Exchange Act........................... 3
Item 10. Executive Compensation...................................... 5
Item 11. Security Ownership of Certain Beneficial Owners
and Management.............................................. 7
Item 12. Certain Relationships and Related
Transactions................................................ 8
2
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Part III
ITEM 9
DIRECTORS, EXECUTIVE OFFICERS, PROMOTERS AND CONTROL PERSONS;
COMPLIANCE WITH SECTION 16(a) OF THE EXCHANGE ACT
Directors
---------
The following sets forth the names and ages of the four members of the Board of
Directors of Basic Earth Science Systems, Inc. ("Basic" or "the Company") who
served in the past year, their respective principal occupations or employment
during the past five years, and the period during which each has served as a
director of the Company.
G. W. Breuer (81) was a co-founder of the Company and has been a member of the
Board of Directors since inception in 1969. Mr. Breuer also served as the
Company's Chief Executive Officer from 1969 through March 1993 and was its
President from February 1978 through March 1993. Mr. Breuer is a 1940 graduate
of Purdue University with a degree in petroleum engineering. He has been retired
for the past five years. Mr. Breuer resigned from the Board of Directors
effective September 1, 1999.
David J. Flake (45) has been a director of the Company since September 1987. Mr.
Flake began his career at Basic in November 1980 as tax accountant and was
appointed Controller in July 1983, a position he held until his resignation in
January 1993 to pursue other business and financial opportunities. From
September 1987 through January 1993, Mr. Flake also served as
Secretary/Treasurer of the Company. In April 1994, Mr. Flake was appointed
Corporate Secretary. Mr. Flake received his Bachelor of Science degree in
Accounting/Business Administration from Regis University in Denver, Colorado in
1977 and his Masters Degree in Business Administration from Colorado State
University's Executive MBA Program in 1995. Since September 1998 Mr. Flake has
been providing financial consulting services to the Company.
Edgar J. Huffman (60) was elected to the Board of Directors in May 1993. For the
past five years Mr. Huffman has served continuously in the following capacities.
He is a director of Visa Industries, an oil and gas producer, located in
Phoenix, Arizona. Visa Industries is a public company traded in the
over-the-counter market. He also serves as Chairman of the Board and Director of
Finance and Planning for the Montessori Day Schools in Phoenix. Mr. Huffman
received a Bachelor of Science degree in Business Administration from Indiana
Central University and a Masters Degree in Business Administration from Arizona
State University. He also attended the Finance Program at New York University's
Graduate School of Business.
Ray Singleton (49) has been a director of Basic since July 1989. Mr. Singleton
joined the Company in June 1988 as Production Manager/Petroleum Engineer. In
October 1989 he was elected Vice President of Basic and was appointed President
and Chief Executive Officer in March 1993. Upon the resignation of Mr. Flake,
noted above, Mr. Singleton was appointed Acting Treasurer. Mr. Singleton began
his career with Amoco Production Company in Texas as a production engineer. He
was subsequently employed for the predecessor of Union Pacific Resources as a
drilling, completion and production engineer and in 1981 began his own
engineering consulting firm, serving the needs of some 40 oil and gas companies.
In this capacity he was employed by Basic on various projects from 1981 to 1987.
Mr. Singleton received a degree in petroleum engineering from Texas A&M
University in 1973 and received a Masters Degree in Business Administration from
Colorado State University's Executive MBA Program in 1992. Mr. Singleton
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currently serves on the Board of Directors of the Independent Petroleum
Association Mountain States (IPAMS) and is a former president of that
organization. IPAMS is a thirteen state, regional trade association which
represents the interests of independent oil and gas companies in the Rocky
Mountain region. In addition, Mr. Singleton is a member of the Society of
Petroleum Engineers.
Executive Officers
------------------
At this time, and during the past year, all executive officers are also board
members. Their names, ages, principal occupations and/or employment during the
past five years are set forth above. There are no family relationships between
or among the officers and Board of Directors.
Directors are elected by the Company's shareholders at each annual meeting or,
in the case of a vacancy, are appointed by the directors then in office, to
serve until the next annual meeting or until their successors are elected and
qualified. Officers are appointed by and serve at the discretion of the Board of
Directors.
Board Committees and Attendance
-------------------------------
The Board of Directors of the Company held one meeting during the fiscal year
ended March 31, 2000 (fiscal 2000). During the year ended March 31, 1999 (fiscal
1999) four meetings were held. Each of the directors attended 100% of the
meetings.
In May 1993, the Board established an Audit Committee consisting of Messrs.
Flake and Huffman, both outside directors. The Audit Committee is authorized by
the Board of Directors to review, with the Company's independent accountants,
the annual financial statements of the Company prior to publication and to make
annual recommendations to the Board for the appointment of independent public
accountants for the ensuing year. The Audit Committee also reviews the
effectiveness of the financial and accounting functions, operations, and
internal controls implemented by Basic's management.
In June 1993, the Board formed a Compensation Committee that currently consists
of Messrs. Huffman and Flake. This committee reviews and recommends to the Board
of Directors the compensation and benefits of all officers of the Company, and
is empowered to review general policy matters, including compensation and
benefits, pertaining to the employees of the Company.
Basic does not have a Nominating Committee.
Compliance with Section 16(a) of the Securities Exchange Act
------------------------------------------------------------
Section 16(a) of the Securities Exchange Act requires the Company's officers and
directors and shareholders of more than ten percent of the Company's common
stock to file reports of ownership and changes in ownership of the Company's
common stock with the Securities and Exchange Commission (SEC) and the National
Association of Securities Dealers. Officers, directors and
greater-than-ten-percent shareholders are required by SEC regulations to furnish
the Company with copies of all Section 16(a) forms they file.
Based solely upon a review of copies of ownership reports submitted to Basic,
the Company believes that, for fiscal 2000, Mr. Huffman filed one late report.
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ITEM 10
EXECUTIVE COMPENSATION
Executive Officer Compensation
------------------------------
The following table sets forth the compensation paid or accrued by the Company
to its Chief Executive Officer for fiscal 2000, 1999 and 1998. No other
director, officer or employee received annual compensation that exceeded
$100,000.
<TABLE>
<CAPTION>
Other Securities All
Name and Fiscal Annual Annual Annual Underlying Other
Principal Position Year Salary Bonus Compensation Options (#) Compensation
------------------ ---- ------ ----- ------------ ----------- ------------
(1) (2) (3)
<S> <C> <C> <C> <C> <C> <C>
Ray Singleton 2000 $52,107 $3,077 $4,001 -- $407
President, Chief 1999 78,308 -- 4,910 -- 371
Executive Officer, 1998 75,416 3,077 3,860 90,000 338
Acting Treasurer
</TABLE>
(1) From March 1999 to November 1999 Mr. Singleton, in an effort to counteract
the negative effect that depressed oil prices had on the Company's cash flow,
volunteered to reduce his salary 50 percent. This lowered his annual salary by
approximately $28,000. (See also Item 12, Certain Relationships and Related
Transactions, below.)
(2) Other Annual Compensation includes $2,245, $2,486 and $2,535 paid or accrued
through the Oil and Gas Incentive Compensation Plan for fiscal 2000, 1999 and
1998, respectively. Other Annual Compensation also includes $1,756, $2,424, and
$1,325 which represents matching funds contributed by the Company to its 401(k)
plan (see discussion of both Oil and Gas Incentive Compensation and 401(k) Plans
below).
(3) All Other Compensation of $407, $371 and $338 are premiums paid for a life
insurance policy for Mr. Singleton during fiscal 2000, 1999 and 1998,
respectively. Mr. Singleton designates the beneficiary.
The Company has an Oil and Gas Incentive Compensation Plan (the O&G Plan) for
current and former key employees. Through this O&G Plan, Basic pays to the O&G
Plan participants a portion of its net revenue after operating expenses on
certain properties as designated by the O&G Plan Management Committee. Messrs.
Huffman and Flake are members of the O&G Plan Management Committee. The portion
of the net revenue contributed from any property shall not exceed 5% of Basic's
interest in that property. The participants in the O&G Plan make no cash outlay
in order to participate; it is entirely non-contributory, and an interest is not
assignable, transferable, nor can it be pledged by the participant. Interest in
the O&G Plan vests over a period ranging from four to eleven years. Basic can
sell or otherwise transfer its interest in properties designated for the O&G
Plan. If the Company sells a property in the O&G Plan, the participants shall
receive their respective percentages of the sales price. There are currently
five participants in the O&G Plan including Messrs. Flake and Singleton. During
fiscal 2000, 1999 and 1998 Mr. Singleton was paid or accrued $2,245, $2,486 and
$2,535, respectively, through the O&G Plan. These amounts are included in the
Other Annual Compensation column in the Executive Officer Compensation table
above.
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In October 1997, Basic implemented a savings plan that allows participants to
make contributions by salary reduction pursuant to Section 401(k) of the
Internal Revenue Code. Employees are required to work for the Company one year
before they become eligible to participate in the 401(k) Plan. The Company
matches 100% of the employee's contribution up to 3% of the employee's salary.
Contributions are vested when made. During fiscal 2000, 1999 and 1998, the
Company contributed $1,756, $2,424 and $1,325, respectively, to the 401(k) Plan
on behalf of Mr. Singleton. This amount is also included in the Other Annual
Compensation column in the Executive Officer Compensation table above.
On July 27, 1995, the Board of Directors adopted the 1995 Incentive Stock Option
Plan (the Plan) and in October 1995, the Company's shareholders approved the
Plan. This Plan was established to 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.
During fiscal 1998 Mr. Singleton was granted options to purchase 90,000 shares
of the Company's common stock. These options may be exercised at a strike price
of $0.115 per share. This exercise price approximated the fair market value of
the stock at the date of grant. In total, Mr. Singleton has been granted options
to purchase 165,000 shares, all of which were still outstanding at March 31,
2000. The terms of the options are for a period not to exceed ten years
beginning on the grant date, provided Mr. Singleton remains a director or
employee of the Company.
The Company has no contract with any officer which would give rise to any cash
or non-cash compensation resulting from the resignation, retirement or any other
termination of such officer's employment with the Company or from a change in
control of the Company or a change in any officer's responsibilities following a
change in control.
Director Compensation
---------------------
In the past, directors have received no compensation for their services to the
Company as directors, but are reimbursed for expenses actually incurred in
attending board meetings. However, the 1995 Incentive Stock Option Plan (the
"Plan") noted above, provides for eligible, non-employee members of the Board of
Directors of the Company or its subsidiaries (Non-Employee Directors) to
receive, as compensation for their services, grants of certain options to
purchase common stock of the Company.
Specifically, the Plan provides that each eligible, Non-Employee Director shall
initially be granted a non-qualified option to purchase 50,000 shares of common
stock effective July 27, 1995, the effective date of the Plan. Thereafter, on
each anniversary date of the Plan, each Non-Employee Director shall be granted a
non-qualified option to purchase 25,000 shares of common stock of the Company.
Accordingly, during fiscal 2000, 1999 and 1998 Messrs. Flake and Huffman, as
Non-Employee Directors and individually owning less than 10% of Basic's common
stock, were each automatically granted non-qualified options to purchase 25,000
shares of common stock each year at exercise prices of approximately $0.042,
$0.0325 and $0.09, respectively. Messrs. Flake and Huffman each hold options to
purchase 150,000 shares of Basic common stock. As of March 31, 2000, none of
6
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these options had been exercised. The terms of the options are for a period not
to exceed ten years beginning on the grant date, provided Messrs. Flake and
Huffman remain directors of the Company.
As a fully-vested, former key employee of the Company, Mr. Flake also
participants in the Oil and Gas Incentive Compensation Plan (the O&G Plan)
discussed above. Compensation under the O&G Plan is not for services rendered as
a director, but pertains to his fully-vested interest in the O&G Plan for
services performed as a key employee of the Company in prior years. During
fiscal 2000, 1999 and 1998, Mr. Flake was paid or accrued $1,775, $1,966 and
$2,004, respectively, through the O&G Plan.
ITEM 11
SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS
AND MANAGEMENT
Set forth below, as of May 15, 2000, is information concerning stock ownership
of all persons, or group of persons, known by the Company to own beneficially 5%
or more of the shares of Basic's common stock and all directors and executive
officers of the Company, both individually and as a group, who held such
positions in fiscal 2000. Basic has no knowledge of any other persons, or group
of persons, owning beneficially more than 5% of the outstanding common stock of
Basic as of May 15, 2000.
Percent of
Outstanding
Name and Address Shares of Common Stock Shares Beneficially
of Beneficial Owner Beneficially Owned Owned
------------------- ------------------ -----
Ray Singleton 4,340,351 26.3%
Denver, CO (1)
David J. Flake 572,850 3.5%
Denver, CO (2)
Edgar J. Huffman 92,372 0.5%
Phoenix, AZ (3)
All officers and directors 5,005,573 30.3%
as a group (3 persons) (1),
(2) and (3)
(1) Represents 4,340,351 shares owned directly by Mr. Singleton, 234,706 of
which are held as collateral by the Company against a note receivable from Mr.
Singleton (see Item 12, Certain Relationships and Related Transactions, below).
In August 1999, Mr. Singleton purchased from G. W. Breuer, at the time a member
of Basic's Board of Directors, all of the stock directly controlled by Mr.
Breuer and his wife. This transaction comprised 3,765,272 shares of the
Company's common stock.
(2) Represents 534,164 shares owned directly by Mr. Flake and 38,686 shares with
indirect beneficial ownership.
7
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(3) Represents 92,372 shares owned by Mr. Huffman directly. In addition, 312,387
shares (approximately 2.0%) of the Company's common stock are held by the
Foundation for Montessori Education, a charitable corporation of which Mr.
Huffman's wife is a former director. Mr. Huffman claims no beneficial interest
in the shares.
Company management knows of no arrangements that may result in a change in
control of Basic.
ITEM 12
CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
In September 1995, the Board of Directors authorized a loan to Mr. Singleton not
to exceed $10,000. In August 1997 the Board of Directors increased the
authorized loan amount to $20,000. Under the terms of this authorization, Mr.
Singleton may only use these funds for the purchase of Company stock from
existing shareholders. Pursuant to, and during the course of, this arrangement,
Mr. Singleton borrowed approximately $16,000 from the Company to purchase
234,706 shares. The loan is evidenced by a promissory note and requires
quarterly interest payments at a fluctuating rate equal to the Company's cost of
debt. The note requires no scheduled principal payments and any outstanding
balance on October 6, 2000 is due and payable at that time. The loan is
collateralized by the purchased stock.
At October 1, 1999, the Company owed Mr. Singleton approximately $32,000 in
accrued vacation pay. This amount was carried on the Company's financial
statements as a current liability, and as such, had a detrimental impact on the
Company's balance sheet and current ratio. Recognizing this, the Board of
Directors and Mr. Singleton reached an agreement, such that for each $2,000 of
accrued vacation pay foregone by Mr. Singleton, Basic would reduce the note
receivable by $1,000. Under this arrangement, the Company eliminated $16,000 of
the payable to Mr. Singleton while reducing the note receivable from him by
$8,000 during fiscal 2000. Following this transaction, as of March 31, 2000, Mr.
Singleton had a remaining balance on the note receivable of approximately
$8,000, while the Company owed Mr. Singleton approximately $16,000 in accrued
vacation pay. During fiscal 2001, the Company expects to record similar
transactions such that by September 30, 2000, the balance owed by Mr. Singleton
on the note receivable shall be reduced to zero and accrued vacation pay shall
be reduced by an additional $16,000.
At March 31, 1999 Basic was leasing approximately 3,000 square feet of office
space in downtown Denver for its corporate headquarters for $3,450 per month.
The lease term expired April 30, 1999. Due to the magnitude of a proposed rent
increase (approximately 37%) and a required three-year commitment, the Company,
in April 1999, moved its office to a new location. The new office space is in a
building owned by Mr. Singleton. Under the terms of the new lease agreement,
Basic had a one-year lease term through March 31, 2000 with monthly payments of
$1,200. In addition, during fiscal 2000, the Company amortized approximately
$8,000 in capitalized leasehold costs that were incurred to upgrade this new
office space. At March 31, 2000 these costs had been fully amortized. In April
2000, the Company signed a six-month lease extension at a rate of $2,000 per
month. The lease agreement is favorable in comparison to other arrangements and
options available to the Company in terms of available office space, lease term
and lease rates. In addition, having fully amortized the capitalized leasehold
improvements in fiscal 2000, the Company does not anticipate additional
amortization expense in the current fiscal year.
8
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The effect of the aforementioned note receivable/accrued vacation transaction
fully offset the amortized leasehold expense. As a result, there was no impact
on the Company's general and administrative expense or on the Company's
Consolidated Statement of Operations from these transactions in fiscal 2000.
However, in fiscal 2000, rent expense was reduced by approximately $28,000 as a
result of the move to the new office space.
Beginning in September 1998, Mr. Flake has provided consulting services to the
Company at a per diem rate comparable to prevailing market rates. The total
amounts paid or accrued during fiscal 2000 and 1999 were $44,000 and $26,000,
respectively.
It is the policy of Basic that officers or directors may assign to or receive
assignments from Basic in oil and gas prospects only on the same terms and
conditions as accepted by independent third parties. It is also the policy of
Basic that officers or directors and Basic may participate together in oil and
gas prospects generated by independent third parties only on the same terms and
conditions as accepted by each other.
During fiscal 2000, the Company purchased from third parties five wells in
Sheridan County, Montana in which Mr. Singleton also participated. Basic
acquired working interests ranging from approximately 20% to 45% while Mr.
Singleton's interests range from approximately 2% to 10%. Basic's total cost of
these acquisitions was approximately $7,000 while Mr. Singleton's proportionate
cost was $1,000. During fiscal 1999 the Company purchased from a third party an
approximate 56% working interest in a well in McKenzie County, North Dakota for
approximately $5,000. As a part of the purchase, Mr. Singleton bought a 20%
working interest for a proportionate cost of approximately $2,000. At March 31,
2000, with respect to his working interest in the aforementioned wells, the
Company has a $10,000 receivable from Mr. Singleton for his share of operating
expenses on these wells and a $4,000 payable to him for his share of net revenue
from the properties.
During the year ended March 31, 1995, Basic retained the services of Visa Stock
Transfer, replacing Society National Bank as the Company's stock transfer agent.
Visa Stock Transfer is a wholly-owned subsidiary of Visa Industries, Inc., of
which Mr. Huffman is a director. The fees charged by Visa Stock Transfer are
lower than those charged by other stock transfer agents.
In fiscal 2000, 1999 and 1998, there were no other significant related party
transactions.
Pursuant to the requirements of Section 13 of the Securities Exchange Act of
1934, this report is signed below by the following persons on behalf of Basic
and in the capacities indicated.
BASIC EARTH SCIENCE SYSTEMS, INC.
/s/ Ray Singleton
-----------------
Ray Singleton, President and Principal
Accounting Officer
July 21, 2000
-------------
Date
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