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U.S. Securities and Exchange Commission
Washington, D.C. 20549
FORM 10-SB
GENERAL FORM FOR REGISTRATION OF SECURITIES OF SMALL
BUSINESS ISSUERS
UNDER SECTION 12(d) OR (g) OF THE SECURITIES EXCHANGE ACT OF 1934
Basic Technologies, Inc.
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(Name of Small Business Issuer in its charter)
Colorado 84-1446622
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(State or other jurisdiction of (I.R.S. Employer Identification No.)
incorporation or organization)
1026 West Main Street, #208A
Lewisville, Texas 75067
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(Address of principal executive offices) (Zip Code)
Issuer's telephone number, (972) 436-3789
Securities to be registered under Section 12(b) of the Act:
Title of each class Name of each exchange on which
to be so registered each class is to be registered
None
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Securities to be registered under Section 12(g) of the Act:
Common Stock, $.00001 par value
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(Title of class)
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ITEM 1. DESCRIPTION OF BUSINESS.
(a) BUSINESS DEVELOPMENT.
Basic Technologies, Inc. (the "Company"), was organized under the laws
of the State of Colorado on January 21, 1998. The Company was initially
organized for the purpose of pursuing and completing a business combination with
Yankee Development Corporation ("Yankee Development"), a Texas corporation
engaged in the business of the acquisition and development of oil and gas
ventures and related interests. The Company's executive offices are presently
located at 1026 West Main Street, Suite #208, Lewisville, Texas 75067, and its
telephone and facsimile numbers are (972) 436-3789 and (972) 219-1832,
respectively. The Company's presence on the world wide web is accessible at the
domain http://www.basictech.com and its related links.
The Company received gross proceeds in the amount of $25,000 from the
sale of a total of 25,000 shares of common stock, $.00001 par value per share
(the "Common Stock"), in an offering conducted during the period from March to
April 7, 1998, pursuant to Section 3(b) of the Securities Act of 1933, as
amended (the "Act"), and Rule 504 of Regulation D promulgated thereunder.
On April 23, 1998, the Company issued and sold, pursuant to that
certain Acquisition Agreement and Closing Memorandum dated April 23, 1998, an
aggregate of 5,305,625 newly-issued, restricted shares, constituting
approximately 90% of the then outstanding shares, of the Company's Common Stock
in consideration of the exchange therefor of all 1,000 outstanding shares of
common stock, no par value per share, of Yankee Development owned of record and
beneficially by the Shelton Voting Trust. Immediately following the "reverse
acquisition" transaction, the Shelton Voting Trust, the former owner of Yankee
Development, controlled approximately 90% of the outstanding shares of Common
Stock of the Company and Yankee Development became a wholly-owned subsidiary of
the Company. The transaction was accounted for under the purchase of assets,
rather than the pooling of interests, method of accounting. Mr. Bryan L. Walker,
the President, Chief Executive Officer and Chairman of the Board of Directors of
the Company and the President and a director of Yankee Development and Simpco,
Inc. ("Simpco"), also a 100%-owned subsidiary of the Company, is the trustee of
the Shelton Voting Trust. (See Part I, Item 7. "Certain Relationships and
Related Transactions" and Part II, Item 4. "Recent Sales of Unregistered
Securities.")
On October 16, 1998, the Company, together with Simpco, which was then
unaffiliated with the Company, organized P & A Remediation, LLC (hereafter "PAR
Texas"), a Texas limited liability company owned 99% and 1% by the Company and
Simpco, respectively, for the purpose of engaging in the business of plugging
oil wells, conducting environmental remediation of oil fields and salvaging the
construction materials, pipe, steel tubulars and used oil field equipment for
resale on the secondary market.
The Company, effective as of January 15, 1999, issued and sold, in
accordance with that certain Acquisition Agreement and Closing Memorandum dated
effective January 15, 1999, a total of 850,000 newly-issued, restricted shares
of Common Stock in consideration of the exchange therefor of all 10,000
outstanding shares of common stock, no par value per share, of Simpco. Simpco
then became a wholly-owned subsidiary of the Company, in the transaction which
was accounted for under the purchase of assets method. Prior to its acquisition
by the Company effective as of January 15, 1999, Simpco was operating and
approved by the responsible regulatory agencies of the states of Texas and
Oklahoma to be engaged in the business of oil well plugging, REMEDIATION and
salvage activities, which are now conducted by P & A Remediation. Since its
acquisition by the Company, Simpco has acted solely in the capacity of referring
business contacts; acting as agent in the state of Oklahoma; and as the owner
and
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lessor to P & A Remediation, as the lessee, of the used oil field equipment
owned by Simpco effective as of January 15, 1999, and subsequently acquired from
unaffiliated third parties.
On November 24, 1999, the Company organized P & A Remediation, LLC
(hereafter "PAR Oklahoma"), an Oklahoma limited liability company, for the
purpose of engaging in the business of plugging oil wells for industry and
government in the state of Oklahoma, conducting environmental remediation of oil
fields and salvaging the construction materials, pipe, steel tubulars and used
oil field equipment for resale on the secondary market.
On December 31, 1999, the Company organized Cyber Cities Technologies,
Inc. (hereafter CCTECH), a wholly-owned Hawaii corporation, for the purpose of
receiving and operating the assets of an unrelated third party and thereafter to
engage in the business of providing regional Internet provider services and
computer consulting operations from Honolulu, Hawaii.
The Company, on March 16, 2000, issued and sold, in accordance with
that certain Acquisition Agreement and Closing Memorandum dated effective
December 31, 1999, a total of 979,232 newly-issued, restricted shares of Common
Stock in the company, in consideration for the conveyance and transfer of
certain selected assets listed in (i) that certain Acquisition Agreement and
Closing Memorandum between the Company and Cyber City Honolulu, Inc., (hereafter
CCHONO) an unaffiliated third party; (ii) that certain Bill of Sale dated
December 31, 1999 from Cyber City Honolulu, Inc. to Cyber Cities Technologies,
Inc.; and (iii) that certain Assignment dated December 31, 1999, from Cyber City
Honolulu, Inc., to Cyber Cities Technologies, Inc. The stock for assets
transaction was accounted for under the pooling of interests method.
See (b) "Business of Issuer" immediately below for a description of the
Company's current operations conducted through its subsidiaries: Yankee
Development, Simpco, PAR Texas, PAR Oklahoma, and CCTECH, as well as future
proposed activities.
(b) BUSINESS OF ISSUER.
GENERAL
The Company serves as a holding company for three wholly-owned
corporate subsidiaries, Yankee Development, Simpco, and Cyber Cities
Technologies, and two limited liability companies, PAR Texas and PAR Oklahoma
(hereafter collectively "P & A Remediation'). Yankee Development owns a working
interest in proven, developed oil reserves on 2,300 acres in Tom Green County,
Texas. Through P & A Remediation, the Company performs environmental remediation
and salvage operations for the oil industry, and markets and sells construction
materials, pipe, steel tubulars and used oil field equipment obtained from
salvage operations or acquired for resale on the secondary market. Simpco owns
certain reconditioned oil field equipment and vehicles that are leased to P & A
Remediation for use in conducting oil field plugging, remediation and salvage
activities. Cyber Cities Technologies provides high speed internet access for
residential and business customers in Hawaii.
Since its creation by the Company, PAR Oklahoma has acted solely in the
legal capacity of a general contractor for oil well plugging and cleanup jobs
for the company's operations in the state of Oklahoma. Simpco has acted solely
in the capacity of the owner and lessor to PAR Oklahoma, as the lessee, of the
used oil field equipment owned by Simpco; and as agent for the procurement of
state bid contracts. Simpco which was a previously approved oil well cementer
with the state of Oklahoma, has successfully bid on, and been awarded a number
of bid contracts from the Oklahoma Corporation Commission to plug oil wells and
clean up oil well sites. PAR Oklahoma, is the assignee of those bid contracts
from Simpco. Subsequent to its creation, and
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doing business in Oklahoma as Simpco, PAR Oklahoma has acted in the business of
engaging in the business of plugging oil wells for both government and industry,
conducting environmental remediation of oil fields and salvaging the
construction materials, pipe, steel tubulars and used oil field equipment for
resale on the secondary market.
Company management has decided to delay additional development and
production of Yankee Development's oil reserves until such time as sufficient
capital is raised to properly drill and complete the required number of wells to
prove or disprove the field's reserve study. This could possibly mean the
drilling of up to twenty (20) wells, at a total cost of up to $1,300,000. The
results of drilling such wells can never be determined in advance. The industry
has a history of unprofitable efforts resulting from dry holes, or commercial
wells which fail to produce in quantities sufficient to provide an economic
return. Yankee Development, since inception, has generated no revenues from the
production of oil. No assurance can be given that Yankee Development will
generate any revenues or achieve profitability from the production of the
proven, developed reserves owned as of the date hereof or from oil and/or gas
properties, if any, acquired in the future. Until that time, the Company intends
to focus upon expanding P & A Remediation's environmental remediation and
salvage business in the private sector and, in addition, to include the State of
Texas' Railroad Commission; the Oklahoma Corporation Commission; and /or other
government customers. Management believes that the Company can continue to
exploit the numerous opportunities available because of the volatile nature of
the domestic oil and gas industry to expand P & A Remediation's business and,
additionally, acquire companies engaged in one or more aspects of the plugging,
remediation and salvage business, as well as obtain producing and/or developed
oil and/or gas properties. These opportunities include, but are not limited to,
(i) the availability of producing wells and field equipment at low or distressed
prices; (ii) the availability for minimal compensation of a pool of
highly-trained field and supervisory personnel because of industry layoffs;
(iii) the availability of heavy construction and oilfield equipment, and the
businesses operating the same, at low or distressed prices; and (iv) increased
environmental remediation and salvage business attributable to the increasing
number of wells desired to be plugged, or required to be plugged at public
expense because of abandonment by operators due to of the volatile nature of the
domestic independent oil & gas industry; the depressed (unstable) price of crude
oil; or because of environmental hazards.
In the short term, the Company intends to develop a plan for internal
growth for its wholly-owned subsidiary, Cyber Cities Technologies, Inc.,
(hereafter CCTECH) which services the consumers of the State of Hawaii with high
speed Internet Access for residence and business uses. The assets were acquired
from CCHONO, which was a regional Internet Service Provider located in a leased
location in Honolulu, Hawaii. Prior to the asset acquisition by the Company,
CCHONO was engaged in the provision of internet access and computer consulting
to the regional Hawaii market for a period of three years. Cyber Cities
Technologies, Inc., (CCTECH) is currently engaged in the growth of the existing
regional market for dial up internet access, as well as the growth of
Asynchronous Data Subscriber Line (ADSL), the newest high speed Internet Access
technology, in the regional market.
The Company is currently doing business as CYBER CITY HONOLULU and
CYBER CITY MAUI, maintaining offices on the islands of Oahu and Maui. CCTECH
also provides computer and internet commerce consultation services to
businesses. A long term plan for nationwide internet service and a review of
market opportunities available to the Company is currently in process by Company
management.
The Company plans to diversify its operations through the acquisition
of companies engaged in businesses unrelated to the oil and gas business. The
Company is not presently engaged in negotiations for the acquisition of any
companies operating in industries unrelated to the Company's business.
See below for a more detailed description of the Company's current
operations, conducted through its subsidiaries, as well as how the Company
addresses competitive business conditions, its position in the industry, and
methods of operations that are designed to serve its targeted customers.
The Company owns a tract of land containing five acres in Young County,
Texas, on which a metal building is situated that was purchased from a
non-affiliate on March 19, 1999, for
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a total purchase price of $12,500. The property is subject to that certain
Promissory Note Secured by Deed of Trust dated March 19, 1999, in the principal
amount of $11,500, bearing interest at the rate of 10% per annum and payable in
installments of approximately $245 per month commencing on May 1, 1999, and
terminating on April 1, 2004.
The Company leases four facilities used as oil field offices or salvage
yards. One is located in Runnels County, Texas, at 11813 North Highway 83, on
approximately five acres one mile north of Ballinger, Texas; one is located at
408 South Highway 79, on approximately three acres in the City of Olney, Texas;
one is located at 505 Knox Street, on approximately five and one half acres in
Young County, Texas; and the other is located at 208 East Modoc on leased
railroad company land of approximately four acres in the City of Nowata,
Oklahoma. With the exception of Ballinger, all lessors are unaffiliated with the
Company. The Company rents the Ballinger facility on a month-to-month basis at a
rate of $450 per month; the Young County facility at a monthly rental of $550
pursuant to a renewable lease with a purchase option; the Olney facility on a
short term lease under an agreement to improve and maintain physical possession;
and the Nowata facility is being acquired by the Company, from an unaffiliated
company, under an asset purchase agreement for a total of $62,500.00, on which
$2,500 was paid under a renegotiated agreement, with $20,000.00 due as soon as
is possible, and the remaining $40,000 due December 31, 2000.
The Company has assumed liability for two leases of offices from which
the Company houses and operates its internet operations in the state of Hawaii.
The main office of the Company is located in the City of Honolulu, Hawaii, at
2628 Ualena Street, Suite C, in an industrial office / warehouse area adjoining
to and east of the Honolulu International Airport. The space is leased on a five
year lease (currently in year three) for a monthly rental of $1300, from an
unaffiliated company. The other leased location is on the island of Maui, in the
city of Kahului, at 355 Hukilike, Suite 103, in an industrial office / warehouse
area three miles west of the Kahului Airport. The space is leased on a five year
term (currently in year two) from an unaffiliated company.
The Company's executive offices are leased from an affiliate on a
month-to-month basis at the rate of $250 per month.
YANKEE DEVELOPMENT CORPORATION (YANKEE)
General. Yankee Development Corporation is a Texas corporation
organized on December 31, 1997. As described above, the corporation was acquired
by the Company in a reverse acquisition transaction consummated on April 23,
1998.
Yankee Development owns a working interest in proven, developed oil
reserves on 2,300 acres in western Texas known as the Yankee (Canyon Sand) Field
Unit, MA., RRC No. 03215, of Tom Green County, Texas, as set forth in that
certain Unit Agreement as recorded in Volume 405, Page 609 of the Deed Records
of Tom Green County, Texas. The acquisition cost of $3,711,000 assigned to the
reserves at the time of their acquisition in April 1998 represents the
discounted net present value of net revenues, and was calculated based upon the
then market price of $15.00 per each of 880,000 recoverable barrels of oil, less
development and operating costs, discounted at a rate of 10%. The current market
price of crude oil is approximately $25.00 per barrel, but the carrying value of
the reserves will not be increased. These proved, developed oil reserves are
Yankee Development's only significant assets. Management has decided to delay
additional development and production of Yankee Development's oil reserves until
such time as sufficient capital is raised to properly drill and complete the
required number of wells to prove or disprove the field's reserve study. This
could possibly mean the drilling of up to twenty (20) wells, at a total cost of
up to $1,300,000. The results of drilling such wells can never be determined in
advance. The industry has a history of unprofitable efforts resulting from dry
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holes, or commercial wells which fail to produce in quantities sufficient to
provide an economic return. Yankee Development, since inception, has generated
no revenues from the production of oil. No assurance can be given that Yankee
Development will generate any revenues or achieve profitability from the
production of the proven, developed reserves owned as of the date hereof or from
oil and/or gas properties, if any, acquired in the future.
Competition. With respect to Yankee Development's future acquisition of
additional developed oil and/or gas properties, there are a large number of
operators engaged in the exploration for and production of oil and gas and a
correspondingly high degree of competition exists for desirable oil and gas
prospects. Because of Yankee Development's operating history, limited to the
company's acquisition of proven, developed oil reserves in western Texas to be
further developed and produced in the future, Yankee Development may be at a
severe competitive disadvantage in its ability to purchase prospects. The oil
and gas industry is dominated by a number of large companies having financial
resources far in excess of Yankee Development's resources. The principal means
of competition for the acquisition of oil and gas leases are the payment of
bonuses at the time of acquisition of leases and property, the payment of
royalties from production, the amount of annual rental payments and the nature
of requirements for exploration and production. Companies with greater financial
resources, larger staffs, more sophisticated equipment and more extensive
experience will be in a better position than Yankee Development to compete for
oil and gas leases and properties. Additionally, the marketing of oil and gas,
if any, found and produced by the company will be affected by a number of
factors that are beyond Yankee Development's control, the exact nature of which
cannot be accurately predicted. These factors include, but are not limited to,
crude oil imports, the availability of adequate pipeline and other
transportation facilities, the marketing of competitive fuels and other matters
affecting the availability of a ready market, such as fluctuating supply and
demand. In recent years, crude oil and natural gas prices have declined because
of, among other factors, an oversupply in the world markets and decreased
demand. In the past year, oil prices have significantly increased and then
subsided somewhat. The recent volatility in the international energy markets
points out the inherent risks in the industry.
Regulation. The exploration for and production of oil and gas is
generally subject to regulation by state regulatory authorities. In some states,
the production of oil and gas is regulated by conservation laws and regulations,
which set allowable rates of production, regulate the spacing of wells and thus
control the number of wells that can be drilled in a given area and otherwise
control the conduct of oil and gas operations. Further, Yankee Development's
future drilling and production operations, if any, will be subject to state,
Federal and local environmental protection regulations that may necessitate
significant capital outlays that would materially affect the financial position
and business operations of the company. Despite the retention of qualified
engineers and operators, Yankee Development may be adversely affected by
pollution and environmental laws that protect against waste, conserve natural
resources and prevent pollution and damage to the environment, enacted by
Federal, state and local agencies in jurisdictions in which the company
operates. If any penalties or prohibitions were imposed on Yankee Development
for violating such regulations, the company's operations could be adversely
affected. Additionally, the production of oil and gas is subject to Federal
regulation with regard to the imposition of land use controls, the amount of oil
imported into the United States from other countries, taxation and other
matters, that is complex and continuously changing. Legislation adopted by
Congress in some respects emphasizes decreasing demand for, rather than
increasing the supply of, oil and gas. Yankee Development cannot predict the
nature and terms of any energy legislation that may be enacted by Congress in
the future nor can the company be assured that any such legislation would not
have an adverse affect upon its business. In addition, foreign countries
establish prices and production quotas for petroleum products from time to time
with the intent of reducing global oversupply and maintaining or increasing
certain price levels. Management is unable to predict the effect, if any, such
actions would have on the
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amount of, or the prices received for, oil and/or gas, if any, produced and sold
from Yankee Development's wells.
Title to Properties. Yankee Development believes it has satisfactory
title to all of its material properties in accordance with standards generally
accepted in the oil and gas industry. As is customary in the industry in the
case of undeveloped properties, little investigation of record title is made at
the time of acquisition. Investigations, including a title opinion of legal
counsel, generally are made before commencement of drilling operations. To the
extent title opinions or other investigations reflect title defects, Yankee
Development, rather than the seller of undeveloped property, typically is
responsible to cure any such title defects at the Company's expense. If the
Company was unable to remedy or cure title defects of a nature such that it
would not be prudent to commence drilling operations on the property, the
Company could suffer a loss of its entire investment in such property. Yankee
Development's properties are subject to customary royalty, overriding royalty,
carried, net profits, working and other similar interests, liens incident to
operating agreements, liens for current taxes and other burdens.
Environmental Considerations. The exploration for, and development of,
oil and gas involves the extraction, production and transportation of materials
which, under certain conditions, can be hazardous or can cause environmental
pollution problems. In light of the current interest in environmental matters,
Yankee Development cannot predict what effect possible future public or private
action may have on the business of Yankee Development. Yankee Development is
continually taking actions it believes are necessary in its operations to ensure
conformity with applicable federal, state and local environmental regulations.
As of March 31, 2000, Yankee Development has not been fined or cited for any
environmental violations which would have a material adverse effect upon capital
expenditures, earnings, cash flows or the competitive position of Yankee
Development in the oil and gas industry.
Insurance Coverage. Yankee Development is subject to all the risks
inherent in the exploration for, and development of, oil and gas, including
blowouts, fires and other casualties. The Company maintains insurance coverage
as is customary for entities of a similar size engaged in operations similar to
that of Yankee Development, but losses can occur from uninsurable risks or in
amounts in excess of existing insurance coverage. The occurrence of an event
which is not insured or not fully insured could have an adverse impact upon
Yankee Development's earnings, cash flows and financial position.
Cautionary Statement Regarding Forward-Looking Statements. In the
interest of providing the shareholders with certain information regarding Yankee
Development's future plans and operations, certain statements set forth in this
Form 10SB relate to management's future plans and objectives. Such statements
are forward- looking statements within the meanings of Section 27A of the
Securities Act of 1933, as amended, and Section 21E of the Securities Exchange
Act of 1934, as amended. Although any forward-looking statements contained in
this Form 10SB or otherwise expressed by or on behalf of Yankee Development are,
to the knowledge and in the judgment of the officers and directors of Yankee
Development, expected to prove true and come to pass, there can be no assurances
that any of these expectations will prove correct or that any of the actions
that are planned will be taken. Forward-looking statements involve known and
unknown risks and uncertainties which may cause Yankee Development's actual
performance and financial results in future periods to differ materially from
any projection, estimate or forecasted result. There are a number of risks and
uncertainties in the oil and gas industry.
Volatility of oil and gas prices. It is impossible to predict future
oil and gas price movements with certainty. Declines in oil and gas prices may
materially adversely affect
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Yankee Development's financial condition, liquidity, ability to finance planned
capital expenditures and results of operations. Lower oil and gas prices may
also reduce the amount of oil and gas that Yankee Development can produce
economically.
Yankee Development's revenues, profitability, future growth and
ability to borrow funds or obtain additional capital, as well as the carrying
value of its properties, could be significantly affected by and / or dependent
upon prevailing prices of oil and gas. Historically, the markets for oil and gas
have been volatile, and they are likely to continue to be volatile in the
future. Prices for oil and gas are subject to wide fluctuation in response to
relatively minor changes in the supply of and demand for oil and gas, market
uncertainty and a variety of additional factors that are beyond Yankee
Development's control.
Competition from larger, more established oil and gas companies. Yankee
Development may encounter competition from other oil and gas companies in all
areas of its operation, including the acquisition of exploratory prospects and
proven properties. Yankee Development's competitors include major integrated
oil and gas companies and numerous independent oil and gas companies,
individuals and drilling and income programs. Many of its competitors are large,
well-established companies with substantially larger operating staffs and
greater capital resources than Yankee Development's and, in many instances,
have been engaged in the oil and gas business for a much longer time than Yankee
Development. Those companies may be able to pay more for exploratory prospects
and productive oil and gas properties, and may be able to define, evaluate, bid
for and purchase a greater number of properties and prospects than Yankee
Development's financial or human resources permit. Yankee Development's
ability to explore for oil and gas prospects and to acquire additional
properties in the future will be dependent upon its ability to conduct its
operations, to evaluate and select suitable properties and to consummate
transactions in highly competitive environments.
Risks of drilling activities. Yankee Development's success could be
materially affected upon the success of a drilling program. Yankee Development
's future drilling activities may not be successful and, if drilling activities
are unsuccessful, such failure will have an adverse effect on Yankee Development
's future results of operations and financial condition. Oil and gas drilling
involves numerous risks, including the risk that no commercially productive oil
or gas reservoirs will be encountered, even if the reserves targeted are
classified as proved. The cost of drilling, completing and operating wells is
often uncertain, and drilling operations may be curtailed, delayed or canceled
as a result of a variety of factors, including unexpected drilling conditions,
pressure or irregularities in formations, equipment failures or accidents,
adverse weather conditions, compliance with governmental requirements and
shortages or delays in the availability of drilling rigs and the delivery of
equipment. Although Yankee Development has identified numerous drilling
prospects, there can be no assurance that such prospects will be drilled or that
oil or gas will be produced from any such identified prospects or any other
prospects.
Availability of capital is important to the Company's ability to grow.
The acquisition of reserves is capital intensive, and funding for the costs of
acquisition may be greater than the Company's cash flow can provide. As a
result, additional financing may be required, and the availability or terms of
any such additional financing cannot be assured. In the event sufficient capital
resources are not available to the Company, it may negatively affect Yankee
Development's flexibility in planning for and reacting to possible acquisition
activities.
Risks relating to the acquisition of oil and gas properties. The
successful acquisition of producing properties requires an assessment of
recoverable reserves, future oil and gas prices, operating costs, potential
environmental and other liabilities and other factors. Such
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assessments are necessarily inexact and their accuracy inherently uncertain. In
connection with such an assessment, Yankee Development will perform a review of
the subject properties that it believes to be generally consistent with industry
practices. This usually includes on-site inspections and the review of reports
filed with various regulatory entities. Such a review, however, will not reveal
all existing or potential problems, nor will it permit a buyer to become
sufficiently familiar with the properties to fully assess their deficiencies and
capabilities. Inspections may not always be performed on every well, and
structural and environmental problems are not necessarily observable even when
an inspection is undertaken. Even when problems are identified, the seller may
be unwilling or unable to provide effective contractual protection against all
or part of these problems. There can be no assurances that any acquisition of
property interests by Yankee Development will be successful and, if an
acquisition is unsuccessful, that the failure will not have an adverse effect on
Yankee Development's future results of operations and financial condition.
Hazards relating to well operations and lack of insurance. The oil and
gas business involves certain hazards such as well blowouts; craterings;
explosions; uncontrollable flows of oil, gas or well fluids; fires; formations
with abnormal pressures; pollution; and releases of toxic gas or other
environmental hazards and risks, any of which could result in substantial losses
to Yankee Development. In addition, Yankee Development may be liable for
environmental damages caused by previous owners of property purchased or leased
by Yankee Development. As a result, substantial liabilities to third parties or
governmental entities may be incurred, the payment of which could reduce or
eliminate the funds available for exploration, development or acquisitions or
result in the loss of Yankee Development's properties. While the Company
believes that it maintains all types of insurance commonly maintained in the oil
and gas industry, it does not maintain business interruption insurance. In
addition, Yankee Development cannot predict with certainty the circumstances
under which an insurer might deny coverage. The occurrence of an event not fully
covered by insurance could have a materially adverse effect on Yankee
Development's financial condition and results of operations.
Future oil and gas production depends on continually replacing and
expanding reserves. In general, the volume of production from oil and gas
properties declines as reserves are depleted, with the rate of decline depending
on reservoir characteristics. Yankee Development's future oil and gas
production is, therefore, could be affected by and be highly dependent upon its
ability to economically find, develop or acquire additional reserves in
commercial quantities. Except to the extent Yankee Development acquires
properties containing proved reserves or conducts successful exploration and
development activities, or both, the proved reserves of Yankee Development will
decline as reserves are produced. The business of exploring for, developing or
acquiring reserves is capital-intensive. To the extent cash flow from operations
is reduced, and external reserves of capital become limited or unavailable,
Yankee Development's ability to make the necessary capital investments to
maintain or expand its asset base of oil and gas reserves would be impaired. In
addition, there can be no assurance that Yankee Development's future
exploration, development and acquisition activities will result in additional
proved reserves or that Yankee Development will be able to drill productive
wells at acceptable costs. Furthermore, although Yankee Development's revenues
could increase if prevailing prices for oil and gas increase significantly,
Yankee Development's finding and development costs could also increase.
Estimates of reserves and future cash flows are imprecise. Reservoir
engineering is a subjective process of estimating underground accumulations of
oil and gas that cannot be measured in an exact manner. Estimates of
economically recoverable oil and gas reserves and of future net cash flows
necessarily depend upon a number of variable factors and assumptions, such as
historical production from the area compared with production from other
producing areas, the assumed effects of regulations by governmental agencies,
and
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assumptions concerning future oil and gas prices, future operating costs,
severance and excise taxes, development costs and workover and remedial costs,
all of which may in fact vary considerably from actual results. For these
reasons, estimates of the economically recoverable quantities of oil and gas
attributable to any particular group of properties, classifications of such
reserves based on risk of recovery, and estimates of the future net cash flows
expected from them prepared by different engineers, or by the same engineers but
at different times, may vary substantially, and such reserve estimates may be
subject to downward or upward adjustment based upon such factors. In addition,
the status of the exploration and development program of any oil and gas company
is ever-changing. Consequently, reserve estimates also vary over time. Actual
production, revenues and expenditures with respect to Yankee Development's
reserves will likely vary from estimates, and such variances may be material.
P & A REMEDIATION, LLC. (PAR TEXAS)
General. P & A Remediation, LLC, is a Texas limited liability company
organized on October 16, 1998, by the Company and Simpco, which own 99% and 1%,
respectively, of the outstanding membership interests in the company. Prior to
the acquisition of Simpco by the Company effective as of January 15, 1999, P & A
Remediation was managed as a joint venture, with the Company contributing
working capital and personnel and Simpco contributing management expertise and
equipment. Since the acquisition of Simpco, most of Simpco's management members
have become full-time employees of P & A Remediation. Further, P & A Remediation
leases the oil field equipment used in its business operations from Simpco or
unaffiliated third parties.
PAR Texas' environmental remediation and salvage business involves the
plugging of oil wells and the remediation and clean-up of oil fields in
accordance with government rules and regulations applicable to the environment,
and the salvage or purchase for resale on the secondary market of construction
materials, pipe, steel tubulars and used and reconditioned oil field equipment.
To the extent practicable, PAR Texas performs its services, including testing,
threading and reworking of steel pipe recovered from the field, at the oil field
salvage yards leased by the Company in Ballinger and Olney, Texas. Although PAR
Texas desires to expand its customer base to include governmental agencies such
as the State of Texas' Railroad Commission, the company's customers are
presently limited to private and publicly-held oil and/or gas companies which
are operators of oil wells and fields requiring PAR Texas's plugging,
remediation and/or salvage services. The company's operations are presently
limited to the north central and central west regions of Texas. Since the
commencement of plugging business operations by PAR Texas in April 1999, as of
March 31, 2000 the company's plugging activities (approximately 131 wells) have
generated gross revenues from services approximating $480,107. In addition,
aggregate gross revenues approximating $205,331 generated during the period from
the date of the company's inception in October 1998 through March 2000, are
attributable to resales by the company of used and reconditioned oil field
equipment purchased for resale.
PAR Texas employs two types of contractual arrangements, cash and
salvage, in connection with its oil well plugging and remediation operations.
Contractual arrangements are often verbal in nature and may be turnkey on
specific oil wells or leases (groups of wells). Under the salvage type of
contract, the Company receives as its compensation pipe and/or used oil well
equipment mutually agreed upon by the parties. Revenue is recognized, and the
pipe and/or equipment are included in inventory, based upon the applicable
wholesale market prices of the items or the prices at which the items are
purchasable for resale on the open market. These inventory items, whether
received by PAR Texas as consideration for the performance of plugging and/or
remediation services or purchased outright for purposes of resale, are resold to
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customers including, primarily, oil and construction companies. Typical cash
payment arrangements for plugging a well involve a payment in the amount of a
percentage of the total estimated cost of the job at the time that equipment is
moved on site, with final payment due upon completion of the work and delivery
of the certification document (RRC Form W-3) required to be filed with the Texas
Railroad Commission. PAR Texas has experienced limited bad debts to date.
Management attributes this to the fact that the company policy is to, only upon
the receipt of final payment, deliver the cementing affidavits required to be
filed by the operator with the Texas regulatory authority indicating that the
well was properly plugged in accordance with applicable state regulations and
specifications.
The direct gross profit on the industry jobs presently being performed
by PAR Texas is generally approximately 35%. Management believes that the gross
profit margin on the same job, if performed for a government agency, could
increase to 55%. If PAR Texas is able to obtain contracts from state agencies,
the Company expects that payment would typically be received thirty days from
the date of completion of the well(s) and all contract requirements, thus
requiring that the Company have additional working capital to cover expenses
before payment is received. PAR Texas is generally required to pay suppliers and
subcontractors for pipe, equipment and other supplies and threading,
refurbishing and other services on a cash on demand, or "COD", basis.
Accordingly, should PAR Texas be successful in expanding its customer base to
include government agencies, of which there is no assurance, its working capital
may not be adequate to enable the company to continue in operation without the
receipt of additional funding.
The primary government customer targeted by the Company is the State of
Texas' Oil Well Plugging and Cleanup Fund (the "Cleanup Fund"), because of the
continuously increasing number of oil wells being added to the State of Texas'
inventory of wells requiring state-funded remediation. The Cleanup Fund, which
was enacted by Texas Senate Bill 1103 in 1991, created new sources of revenue
and authorized the Railroad Commission of the State of Texas to use the funds
for the purpose of plugging abandoned or environmentally undesirable oil and gas
wells. Each Railroad Commission District Office prepares bid contracts, referred
to as extended service contracts, which typically group twenty to forty
abandoned and plug-ordered wells that are available for bid by the Company and
others. Company management believes that the abandoned and inactive wells that
are candidates for state-funded plugging number in the tens of thousands as of
the date hereof. This calculation is based upon management's belief that there
are, on average, ten oil or gas wells, known as "stripper wells," producing, on
average, less than ten barrels of oil per day, per each of 12,500 operators
registered with the Railroad Commission listed in the Commission's inventory of
wells requiring state-funded remediation. Further, wells are added continuously
at the rate of 250 per month in an order of priority based on the perceived risk
to human health and the environment. The Dallas Morning News stated that there
are "as many as 17,000 wells abandoned across the state today..." on June 6,
2000. The past few years decline in the world price of crude oil has created
severe economic hardships for many small and medium sized operators with
"stripper" production. Due to the economic position in which they have been
placed, many operators voluntarily decided to shut-in or abandon their wells, or
in the alternative, to not return to production after mechanical or equipment
failure. The recent months' increase in prices has made some marginal production
now economically vaible. Yet many operators lack financial resources to reopen
their wells, and still others await longer term price stability before making
decisions on reopening wells.
In addition to the well plugging and clean-up operations, PAR Texas has
the ability to serve industry in the oil well servicing business by utilizing
the pulling machine equipment that the company has at its disposal, and other
equipment that is available in the marketplace, if it has adequate working
capital and can hire the necessary crews. Additional working capital would be
required, because PAR Texas is generally required to pay suppliers for equipment
and other supplies or services on a cash on demand, or "COD", basis.
Accordingly, should PAR Texas be successful in expanding its customer base to
include the industry well serving jobs, of which
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there is no assurance, its existing working capital may not be adequate to
enable the Company to continue in operation without the receipt of additional
funding.
In addition to oil well plugging and clean-up operations, PAR Texas
serves as a reseller of construction equipment, steel pipe and tubulars and
select used and reconditioned oil field equipment. These items are either
obtained from the company's salvage operations or purchased outright for resale
on the secondary market. The company is currently planning to resume remediation
work on a Conoco, Inc., 58-mile salvage project that involves the recovery of at
least 150,000 feet of three and one-half to six inch structural pipe which the
Company intends to resell for construction and other applications. Management
believes, without assurance, that the price obtainable for the recovered pipe
will range from $.80 to $1.50 per foot and that P & A Remediation will incur
costs of approximately $.30 per foot to gather and remove the pipe and
additional expense to straighten, clean and/or ready the pipe for resale. The
number of individuals employed by PAR Texas has increased from four in November
1998 to approximately eighteen as of the date hereof.
Competition. While PAR Texas has numerous competitors conducting
plugging and pipe salvage operations in the north central and central west
regions of Texas where it presently operates and a small number of capable oil
well service and cementing businesses in various locations throughout the
southwestern United States, the environmental remediation and salvage business
is highly fragmented in general. That is, the business is characterized by a
large number of companies which specialize in only one or a few, but not all, of
the individual job service requirements. This requires an operator, at increased
cost, to retain the services of a number of companies in order to complete the
job of plugging a well. Further, management perceives many of its competitors to
be undercapitalized. Accordingly, the Company's business plan involves the
acquisition of related businesses and additional equipment and personnel so as
to be capable of performing for the customer, on a turnkey basis and at
reasonable cost, all of the individual job service requirements involved in the
plugging of a single well. Company management believes that, should PAR Texas
achieve its desired level of vertical integration, which could not be assured,
the company would have a significant competitive advantage over its competitors.
Achievement of this goal, however, depends upon the receipt by the Company of
significant additional funding required to consummate the acquisition of, and
operate, the acquired companies.
Regulation. The oil well plugging and remediation operations of the
Company in the State of Texas are subject to regulation by the Oil and Gas
Division of the Railroad Commission of the State of Texas (the "Railroad
Commission"). As early as 1899, the State of Texas has had laws requiring oil
wells to be constructed with wrought iron or steel casing and to be plugged upon
abandonment for the purpose of isolating oil and gas from fresh water
formations. While the purpose of these early laws was to protect oil and gas
fields from contamination by fresh water, the laws have been retained today for
the opposite purpose, the protection of the environment from contamination by
oil, gas and their byproducts. The Railroad Commission's Oil and Gas Division
was created by statute in 1919 to regulate oil and gas exploration and
production operations in the state's numerous oil and gas fields. In the 1960's,
the Railroad Commission undertook the plugging, using limited state funds
appropriated from general revenues, of certain wells abandoned by a Railroad
Commission-registered operator because of insolvency, negligence or otherwise.
In 1983, a new state-funded well plugging fund was established and, in 1991,
additional authority and funding was obtained by the Railroad Commission to
address the growing problem of abandoned oil fields. In 1992, the rules for
plugging wells were amended, including the enactment of more stringent
requirements for monitoring and testing older, inactive wells having greater
potential for damaging the environment. At one time recently, the Railroad
Commission's plugging fund had a backlog of in excess of 1,800 wells requiring
plugging and was engaged in the review of seventy contaminated oil fields as
candidates for state-funded remediation. Company management
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believes that the abandoned and inactive wells that are candidates for
state-funded plugging number in the tens of thousands as of the date hereof.
This calculation is based upon management's belief that there are, on average,
ten oil or gas wells listed in the Railroad Commission's inventory of wells
requiring state-funded remediation per each of 12,500 operators registered with
the Railroad Commission. Further, wells are added continuously at the rate of
250 per month in an order of priority based on the perceived risk to human
health and the environment. The Dallas Morning News stated that there are "as
many as 17,000 wells abandoned across the state today..." on June 6, 2000.
SIMPCO, INC. (SIMPCO)
General. Simpco, a Texas corporation, was acquired by the Company in a
transaction effective as of January 15, 1999, as a result of which the Company
issued and sold a total of 850,000 newly-issued, restricted shares of Common
Stock in consideration of the exchange therefor of 100% of Simpco's outstanding
shares of common stock. Additional consideration for the acquisition was the
issuance of a promissory note for $110,000 payable to the Simpco shareholders,
and the assumption of $75,000 in Simpco or Simpco shareholders debt. Simpco was
engaged in oil and gas remediation operations prior to the effective date of its
acquisition by the Company on January 15, 1999. Since that date, Simpco has
ceased all ongoing operations except as procurement agent for state contracts
for PAR Oklahoma, and as the owner and lessor to P & A Remediation, also
wholly-owned subsidiaries of the Company, as the lessees, of the used oil field
and construction equipment, including, but not limited to, pulling machines,
trucks, trailers, bulldozers, wireline vehicles and specialty machined tools,
valued at approximately $960,000 as of the effective date on January 15, 1999,
of the Company's acquisition of Simpco.
In addition to the equipment owned by Simpco on the date of its
acquisition by the Company, Simpco leases to P & A Remediation other items of
oil field and construction equipment acquired by the Company from unaffiliated
third parties and assigned to Simpco subsequent to January 15, 1999. These items
include a double triple workover rig, a cementing system, a water truck, a
bulldozer, a wireline truck and all the specialty equipment necessary to cement
oil wells, which are leased by the Company from Mr. Rodney W. Simpson (the uncle
of Mr. Richard Simpson, a 8.21% shareholder of the Company) for a period of five
years through March 17, 2004, pursuant to that certain Equipment Lease Agreement
dated April 15, 1999. The lease provides for the payment of rental in the amount
of $1,093 per month through March 17, 2002, and monthly rental payments in the
amount of $818 commencing April 17, 2002, through March 17, 2004. Upon
termination, or the earlier pay-off, of the lease, Simpco has the option to
purchase the equipment for the sum of $10.00.
In addition to the above-described equipment, in a separate
transaction, Simpco received from the Company other items of specialty oil field
and construction equipment that are directly related to and used in conjunction
with a double pole (single tubing) workover rig and water truck purchased by the
Company from a then-employee of a Company subsidiary, Eddie J. Gober, pursuant
to the terms of that certain Promissory Note and Bill of Sale dated March 29,
1999. The $15,700 note provides for payments of $1,000 per month, including
principal and interest, on the anniversary date until paid in full.
In addition to the above-described equipment, in a separate
transaction, Simpco received from the Company other items of specialty oil field
equipment that are directly related to and used in conjunction with wire line
truck and related equipment purchased by the Company from an unaffiliated
person, Russell Auto Parts, pursuant to the terms of that certain Promissory
Note and Bill of Sale dated April 12, 1999. The $8,000 note provides for
payments of $500 per month, without interest, to start June 1, 1999 and
thereafter monthly until paid in full. Monthly payments were made until January
1, 2000, when the holder of the note verbally agreed to alter the repayment
terms of the original note to add three payments onto the end of the note and
forgive the payments due in January, February, and March 2000, for and in
consideration of the
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payment of $200 in fees, and the addition of interest to the then $4,500 balance
at 10% for the balance of the term of the note. All other terms remained the
same.
In addition to the above-described equipment, Simpco purchased a 1996
Ford F 350 Crewcab pickup truck from an unaffiliated person under an installment
contract and promissory note dated May 14, 1999, for the purchase price of
approximately $19,596. The contract requires the payment of a total of $15,775
in monthly installments over a period of three years commencing June 25, 1999,
at an interest rate of 10% per annum.
In addition to the above-described equipment, Simpco received from the
Company by assignment a 1995 Ford F350 Supercab pickup truck and a 1996 Ford
F350 Crewcab flatbed truck, each of which was purchased from an unaffiliated
person under promissory note and installment contracts. The purchase prices of
the 1995 and 1996 Ford were approximately $17,995 and $19,657, respectively. The
contract for the purchase of the 1995 Ford requires the Company's payment of a
total of $15,000 in monthly installments over a period of three years commencing
May 19, 1999, at an interest rate of 16.5% per annum. The contract for the
purchase of the 1996 Ford requires the Company's payment of a total of $18,300
in monthly installments over a period of three years commencing December 16,
1999, at an interest rate of 17.5% per annum.
In the aggregate, Simpco leases or has purchased, subject to promissory
notes, a variety of equipment and vehicles from a number of unaffiliated third
parties. The lease which contains a purchase option upon expiration, will expire
March 17, 2004. The lease requires monthly payments of $1,093. The equipment and
vehicle purchase notes are payable with the latest final payment due in
December, 2002, bear interest between 10% and 17.5% annually, and require
aggregate monthly payments of approximately $3,200. No single equipment lease or
purchase is essential to the continuing operations of PAR; further, equipment
and vehicles of the type subject to the leases and purchase notes are generally
available in the marketplace.
In addition to the above-described equipment, in multiple and separate
transactions, Simpco has received from the Company various other items of
specialty oil field and construction equipment that are directly related to and
used in conjunction with the day to day operations of the Company and its
subsidiaries.
Competition. As Simpco's only business is the leasing of equipment and
vehicles to affiliates, and as a contract procurement agent for affiliates, it
is not a revenue-producing operation of the Company, and is not subject to
competition.
Regulation. As a lessor to affiliated companies only, the only
regulations applicable to Simpco are vehicle licensing and weight requirements
imposed by the states and the federal government.
P & A REMEDIATION, LLC. (PAR OKLAHOMA)
General. P & A Remediation, LLC, (hereafter PAR Oklahoma) is an
Oklahoma limited liability company organized on October 31, 1999, by the
Company. Field management and support staff of Company operations in the state
of Oklahoma are employed by PAR Oklahoma. PAR Oklahoma leases the oil field
equipment used in its business operations from the Company, Simpco, or
unaffiliated third parties.
PAR Oklahoma's environmental remediation and salvage business involves
the plugging of oil wells and the remediation and clean-up of oil fields in
accordance with government rules and regulations applicable to the environment;
as well as the salvage or purchase for resale on the
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secondary market of construction materials, pipe, steel tubulars and used and
reconditioned oil field equipment. To the extent practicable, P & A Remediation
performs its services, including testing, threading and reworking of steel pipe
recovered from the field, at the oil field salvage yard purchased by the Company
in Nowata, Oklahoma.
Working from a newly acquired location on leased railroad company land,
in December 1999, the Company, acting through Simpco, successfully bid on and,
in January 2000, was awarded the initial bid contract on the first phase of the
Oklahoma Corporation Commission's management of the clean up project on the
north shores of Oologah Lake in Rogers County, Oklahoma. For a combined total of
$72,900 the Company committed to properly plug eighty one (81) abandoned and
purging oil wells within the confines of a forty two square mile site that has
several thousand wells to plug according to published statements by EPA
officials.
Administered by the Oklahoma Corporation Commission, the United States
Coast Guard, and the Environmental Protection Agency, according to published
reports the well plugging project is the largest of its kind. To date more than
eight hundred abandoned, unplugged wells have been identified within the area
targeted by the project. Money from the Oil Spill Liability Trust Fund, a $50
million emergency response fund, will be used to finance the project. The fund,
created by the Oil Pollution Act of 1990, is earmarked for cleaning up oil
spills that are contaminating or threatening to contaminate the nation's
waterways. Based upon EPA reports, Company management believes that the
abandoned and inactive wells that are candidates for this project number in the
thousands as of the date hereof, and that the project may have an effective life
of five years and potentially as much as $16 million in revenue available. There
can be no assurance that the project will continue, that the Company will win
any of the contracts for the project, that the Company will have the resources
to complete the work under any such contracts or that the Company, if it
receives any such contracts, will be able to complete them profitably.
PAR Oklahoma desires to expand its customer base to include private and
publicly-held oil and/or gas companies which are operators of oil wells and
fields requiring PAR Oklahoma's plugging, remediation and/or salvage services,
throughout the state of Oklahoma. The company's operations are presently limited
to the northeast regions of Oklahoma. Since the commencement of business
operations by PAR Oklahoma in November, 1999, and the award of the first phase
of the EPA project in January 2000, the company's activities have included the
plugging of approximately 57 wells, and have earned approximately $50,000 of the
accrued receivable on the first awarded contract (as of 3/31/00). Aggregate
gross revenues of $26,600 generated during the approximate two month period from
the date of the company's inception in October 1999 through December 1999, are
attributable to resales by the company of used and reconditioned oil field
equipment purchased for resale, and well service work performed for independent
oil companies. Other than the initial EPA bid contract, the Company has been
awarded other single well contracts from the OCC on jobs that are unrelated to
the EPA cleanup project mentioned above. These state funded contracts have not
been completed as of this date.
PAR Oklahoma is paid for its services under the guidelines of the
Oklahoma Corporation Commission, the United States Coast Guard, and the
Environmental Protection Agency on the Oologah Lake project in Rogers County,
Oklahoma. Payment for services performed for industry in the oil well service
business will be on a strict invoice contract basis. Company management has the
discretion on whether or not to establish credit arrangements with its oil well
service customers, but generally the company policy is to get payment upon
completion of work, thereby eliminating the possibility of credit loss.
For anticipated plugging and clean up operations with private industry,
PAR Oklahoma contemplates employing two types of contractual arrangements, cash
and salvage, in connection with its oil well plugging and remediation
operations, similar to its counterpart operating in the state of Texas.
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Though the Company intends to work for industry predominantly on a cash
or payment due upon receipt invoice basis, there will arise situations that call
for other contractual agreements. These contractual arrangements are sometimes
verbal and may be turnkey on specific oil wells or leases (groups of wells).
Under the salvage type of contract, the Company receives as its compensation
pipe and/or used oil well equipment mutually agreed upon by the parties. Revenue
is recognized, and the pipe and/or equipment are included in inventory, based
upon the applicable wholesale market prices of the items or the prices at which
the items are purchasable for resale on the open market. These inventory items,
whether received by PAR Oklahoma as consideration for the performance of
plugging and/or remediation services, or purchased outright for purposes of
resale, are resold to customers including, primarily, oil and construction
companies. Typical cash payment arrangements for plugging a well involve a
payment in the amount of a percentage of the total estimated cost of the job at
the time that equipment is moved on site, with final payment due upon completion
of the work and delivery of the certification document (OCC Form 1003) required
to be filed with the Oklahoma Corporation Commission. PAR Oklahoma has
experienced no bad debts to date because its sole business activity has been
working with the OCC on a government funded project. The Company has a strategy
to minimize any bad debt exposure in its operations in Oklahoma. Only upon the
receipt of final payment, does the Company deliver the cementing affidavits
required to be filed by the operator with the Oklahoma regulatory authority
indicating that the well was properly plugged in accordance with applicable
state regulations and specifications.
The geographic area typical of north east Oklahoma and southeast Kansas
has a market of abandoned oil wells different (though in principle the same)
from those that PAR Texas has encountered. Many of the wells drilled in this
part of the United States were drilled with the technology of, and in the era
of, the `oil boom' of the late 19th century. The producing horizon that is
predominant in the area, and the horizon specifically encountered on the project
mentioned, is significantly shallower that their counterparts in PAR TEXAS. Due
to this profound difference, the kinds of equipment used in the region varies
significantly from the Company's Texas operations. Much of the industry
equipment that is not sufficiently heavy enough to work in the regions of Texas
that PAR Texas works in, will work in the operations of Par Oklahoma. Due to
this, and other factors, the direct gross profit on the industry jobs presently
being performed by PAR Oklahoma, is generally approximately 55%. The gross
profit margin on the same job, management believes, with no assurances, if
performed for a government agency, could increase due to the volume of wells
typically put into a bid package or the `emergency' time frame involved.
The negative facet of working for government is the cash flow from
operations. Payment would typically be received thirty days from the date of
completion of the well(s), all contract requirements, and invoicing, thus
requiring additional working capital to cover expenses before payment is
received. PAR Oklahoma is generally required to pay suppliers and subcontractors
for pipe, equipment and other supplies and threading, refurbishing and other
services on a cash on demand, or "COD", basis. Accordingly, should PAR Oklahoma
be successful in expanding its customer base to include government agencies, of
which there is no assurance, its working capital may not be adequate to enable
the company to continue in operation without the receipt of additional funding.
For the specific project on the northern shores of Lake Oologah in
Rogers County, Oklahoma, the Corporation Commission District Office prepares bid
contracts, referred to as an `Invitation to Bid', which typically has grouped
forty to one hundred abandoned and plug-ordered wells in an `Invitation to Bid',
that is available for bid by the Company and others.
In the normal day to day operations of the office, the Corporation
Commission District Office also prepares bid contracts for single wells (or
small packages of wells) that are plug-ordered, or `emergency' wells, that are
available for bid by the Company and others. With the
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Company operating in the area, on similar jobs within the project, PAR Oklahoma
has the capability to expand its market with only marginal increases in
operating costs if the Company had the working capital to acquire more equipment
for state `emergency' well jobs. Additional working capital would also be
required to fund expanded operations, because PAR Oklahoma is generally required
to pay suppliers and subcontractors for equipment, other supplies and services
on a cash on demand, or "COD", basis. Accordingly, should PAR Oklahoma be
successful in expanding its customer base to include the `emergency' well jobs
of government agencies, of which there is no assurance, its existing working
capital may not be adequate to enable the Company to continue in operation
without the receipt of additional funding.
In addition to the well plugging and clean-up operations, PAR Oklahoma
has the ability to serve industry in the oil well servicing business by
utilizing the pulling machine equipment that the company has at its disposal,
and other equipment that is available in the marketplace, if it has adequate
working capital and can hire the necessary crews. Additional working capital
would be required, because PAR Oklahoma is generally required to pay suppliers
for equipment and other supplies or services on a cash on demand, or "COD",
basis. Accordingly, should PAR Oklahoma be successful in expanding its customer
base to include the industry well jobs, of which there is no assurance, its
existing working capital may not be adequate to enable the Company to continue
in operation without the receipt of additional funding.
In addition to oil well plugging and clean-up operations, PAR Oklahoma
serves as a reseller of construction equipment, steel pipe and tubulars and
select used and reconditioned oil field equipment. These items are either
obtained from the Company's parallel salvage operations or purchased outright
for resale on the secondary market.
The purchase of the location from which PAR Oklahoma operates afforded
an opportunity to supplement purchased operations by the Company in Texas, and
give the Company the capability to increase the market price of steel tubulars
it handles by threading and testing its inventory before resale. In March of
1999, the Company purchased the physical assets of Jeffries Pipe & Supply in
north central Texas. The assets were comprised of steel testing and threading
equipment, the facility being one of three facilities available to the open
industry market in southern Oklahoma and central and west Texas. The Company
chose to dismantle the assets and move them to the Ballinger, Texas, yard
location. The Nowata leased yard location has a fully equipped and functionally
similar, though smaller, pipe threading facility. Use of this facility, along
with the establishment of operations of the previously acquired equipment, will
allow PAR Oklahoma and PAR Texas to work together in the marketing of steel
tubulars that are acquired by the Company in its salvage operations.
The Company will require additional investment and working capital to
expand into this facet of its operations. PAR Oklahoma and PAR Texas are
generally required to pay suppliers and subcontractors for pipe, equipment and
other supplies and threading, refurbishing and other services on a cash on
demand, or "COD", basis. Accordingly, should the Company be successful in
expanding its customer base to include government agencies, of which there is no
assurance, its working capital may not be adequate to enable the company to
continue in operation without the receipt of additional funding.
Competition. While PAR Oklahoma has numerous competitors conducting
plugging and pipe salvage operations in the north east regions of Oklahoma and
south west Kansas, where it presently competes, and a small number of very
capable oil well service and cementing businesses in various locations
throughout the southwestern United States, the environmental remediation and
salvage business is highly fragmented in general. That is, the business is
characterized by a large number of companies which specialize in only one or a
few, but not all, of the individual job service requirements; thus requiring an
operator, at increased cost, to retain the services of a number of companies in
order to complete the job of plugging a well. Further,
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management perceives many of its competitors to be undercapitalized.
Accordingly, PAR Oklahoma's business plan involves the acquisition of related
businesses and additional equipment and personnel so as to be capable of
performing for the customer, on a turnkey basis and at reasonable cost, all of
the individual job service requirements involved in the plugging of a single
well. Company management believes that, should PAR Oklahoma achieve its desired
level of vertical integration, which could not be assured, the company would
have a significant competitive advantage over its competitors. Achievement of
this goal, however, depends upon the receipt by the Company of significant
additional funding required to consummate the acquisition of, and operate, the
acquired companies.
Regulation. The oversight of oil well drilling, production, and
plugging/remediation operations in the state of Oklahoma is a division of the
Oklahoma Corporation Commission (the "OCC"). The Oil & Gas Conservation
Commission has the mission statement `... to balance the rights of all parties,
assist the domestic oil and gas industry, protect and preserve the environment,
conserve the natural resources, and enforce the applicable rules and statutes of
our state with the highest degree of honesty and integrity for the people we
serve.' Like other states, in the late 19th century, the south west United
States `oil boom' required oversight. Created by statute, the OCC was created to
regulate oil and gas exploration and production operations in the state's
numerous oil and gas fields. The Company is also subject to federal jurisdiction
when operating within the confines of federal or Indian lands.
CYBER CITIES TECHNOLOGIES, INC. (CCTECH)
General. Cyber Cities Technologies, Inc. (hereafter CCTECH), is a
Hawaii corporation organized on December 30, 1999, by the Company, to operate
the internet service assets in Hawaii that the Company acquired as of January 1,
2000, from Cyber City Honolulu, Inc (hereafter CCHONO).
CCTECH is engaged in the service of an existing client base in the
Hawaii regional internet service market. This client base of about 3,500
consists of approximately (a) 80% conventional residential dial up access
accounts, (b) approximately 10% business access accounts, and (c) approximately
10% Asynchronous Data Subscriber Line (ADSL) access. CCTECH maintains two
resellers of its services to the resellers' client base, which represents
approximately 15% of the conventional dial up access customers. Prior to the
consummation of the asset acquisition, CCHONO had been in business for three
years in the Honolulu market and for one year in the Wailuku market on the
island of Maui. For those three years, according to published company
information, CCHONO experienced an average growth rate of 34% each year in
gross revenue, while maintaining expense growth to 21% annually. Gross revenue
for CCHONO for 1999 was approximately $ 425,000. CCHONO's limited capitalization
and cash/banking position would not allow for it to take advantage of the
increase in its market to fulfill the needed growth in the operation of the
company.
CCTECH uses two major Internet Access wholesalers, GTE Hawaiian
Telephone, Inc. and AT&T Internet Access. It employs access equipment, leased to
ensure the latest technology available to the consumer, to allow the client's
computer to call for access on a local exchange. This equipment, originally
leased from Ascend Communications, is presently provided by Lucent Technologies,
Inc. (following the recent acquisition of Ascend Communications by Lucent
Technologies, Inc). This equipment currently is state of the art and requires
limited upgrading to service its regional market at this time. The growth
pattern of this market is such that CCTECH is now capable of serving regional
growth with negligible growth of expenses, through the substitution of new
equipment leases in place of matured leases, resulting in increased profit.
However, should CCTECH be successful in expanding its customer base
significantly, of which there is no assurance, without sufficient equipment
capacity upgrades, its working capital may not be adequate to enable the company
to continue in operation without the receipt of additional funding. CCTECH
distributes licensed software, from both Microsoft and Netscape, customized to
provide the user with the easiest possible installation of the system settings.
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CCTECH offers computer consulting services to home and business network
customers. These services represent a significant growth area for this business,
as the traditional business client represents only approximately 10% of CCTECH's
revenue. These services are provided to advise the client on the type of network
to be developed, necessary security measures, type of equipment to be used, and,
if necessary, to build the desired network for the customer. Internet web based
work is performed in two ways. The first is the traditional small web page
product which is performed in-house, and the second is the larger project
requiring specialty work, such as e-commerce or extensive graphics work, which
CCTECH sub-contracts to professional designers. One area of growing interest is
the creation of Virtual Private Networking (VPN), which is one mechanism that
allows a company to have telecommuting employees. This is done through the use
of a provider, such as Cyber Cities Technologies, Inc., and ideally access such
as Asynchronous Data Subscriber Line (ADSL), and the recommended network
equipment on the client's site. Management believes that this type of access is
the only platform currently available at commercially reasonable prices that
allow the security necessary to meet the client's security needs.
CCTECH offers both residential and business consumers an access
connection referred to as Asynchronous Data Subscriber Line (ADSL). This type of
access does not require the client computer or network to "Dial-up" the access
network, but provides a continuous connection through the current phone line.
This type of access has two major benefits to CCTECH's client base: one is the
need for only one phone line, and the other is the high speed of the connection.
This type of networking represents approximately 10% of the corporation's
revenue and has grown to this point in less than 7 months, following the
introduction of the product by GTE Hawaiian Telephone. GTE Hawaiian Telephone,
Inc. is in the process of upgrading the remaining areas of the State of Hawaii
to enable consumers to choose this alternative network connection. Most
subscribers find that the convenience of continued use of the lone phone line
while using their computer on the Internet has proven its worth. This is
additionally an ideal solution for many of the businesses in Honolulu, where
building infrastructure does not support the addition of any more phone lines.
This solution, teamed with an aggressive Internet Service Provider, has enabled
several businesses to free two or three of their existing phone lines that have
been recently used for Internet Access. This area also represents a large target
area for growth.
Competition. While CCTECH has numerous competitors in its region of
operations, it has several market advantages. With the pricing of its services,
CCTECH's predecessor had a historical growth pattern in excess of its
competition. According to published company information, since the beginning of
Cyber City Honolulu, Inc. in 1996, there have been nine regional competitors
created. None are in existence today. CCTECH's primary and largest competitor
has been in the market for over twice the period and has begun expanding to the
other islands during its latest fiscal year. While the primary regional
competitors continue to experience moderate growth in the Hawaii market, few
have experienced the historical growth of this operation. The single largest
competitor in the market to the dial up regional Internet Service Provider is
the cable modem system in use in Honolulu, by Oceanic Cable, a subsidiary of
Time Warner, Inc. With availability limited to certain service areas, cost is a
factor affecting cable services. With cost and required reliability comparable
to the capabilities of the telephone system, consumer loyalty is dependent on
reliability as well as speed. In the last half of 1999, consumers, both
residential and business clients, have added security to the list of desires to
keep loyalty. The only present solution for the required security is the
Asynchronous Data Subscriber Line (ADSL) connection discussed earlier.
Industry Regulation and Changes. While to date there has been no
regulation of content or commerce utilizing the Internet, there are several
potential changes that the industry may potentially feel. There are a number of
Internet Service Providers (ISP's) that are engaged in the profitable area of
Long Distance Telephony, which is presently not regulated in any fashion.
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While there have been several attempts to classify these ISP's as Long Distance
Carriers and Surcharge their services as are the Long Distance Phone Carriers,
none have been successful at introducing any type of taxation to date.
Additionally, currently there is no Federal or local taxation of the commerce
conducted over the Internet.
EMPLOYEES AND CONSULTANTS
Mr. Bryan L. Walker, the President, Chief Executive Officer and
Chairman of the Board of Directors of the Company is also the President and a
director of Yankee Development and Simpco; a vice president and director of
Cyber Cities Technologies, and a manager of P & A Remediation, both the Texas &
Oklahoma entities. He has approximately fifteen years of experience since 1984
as a consultant to various independent oil companies and travel consulting firms
/ agencies in the State of Texas.
Mr. Richard C. Smith, the Treasurer, Chief Financial Officer and Member
of the Board of Directors of the Company, is also the Treasurer and director of
Yankee Development; the Secretary/Treasurer and director of Simpco; and the
Chief Financial Officer, Secretary/Treasurer of Cyber Cities Technologies; and
a manager of P&A Remediation, both the Texas & Oklahoma entities. He has
approximately twenty nine years in public accounting and has been the
Comptroller of several independent companies in the State of Texas.
Mr. Michael L. Bacon, a Vice President and Member of the Board of
Directors of the Company, serves as a Director and CEO and President of CCTECH.
Mr. Bacon previously served as the Chairman of the Board of Directors and CEO of
Cyber City Honolulu, Inc. from November 1996 until selected assets were acquired
by Basic Technologies, Inc. Enlisting in May of 1980 and based in Honolulu, Mr.
Bacon served the United States Navy as Assistant Engineer on various nuclear
powered naval vessels from May 1980 until retirement May of 2000.
Mr. Derek T. Smith, the Secretary and Member of the Board of Directors
of the Company, has been employed by CSC Consulting Group since 1996, and
currently as a principal consultant. CSC is a division of Computer Sciences
Corporation, a public company located in El Segundo, California. From August
1994 through July 1996, he was employed as a senior consultant by Hogan Systems,
Inc., a publicly-held consulting company with offices in Dallas, Texas, that was
acquired by Computer Sciences Corporation in August 1996. Mr. Smith was
employed, from January through July 1994, by the U.S. Small Business
Administration as a senior loan officer, disaster relief. From October 1988
through May 1992, he was employed in the position of market cost analyst by
Electronic Data Systems, Dallas, Texas.
Mrs. Laura N. Walker, a Member of the Board of Directors of the
Company, is also the Secretary of Yankee Development, and has approximately
fifteen years of experience in the retail travel agency and travel consulting
business. For the past twelve years, Ms. Walker has been a solo destination
consultant dealing strictly in destinations within the islands of the state of
Hawaii.
As of the date hereof, the Company has twenty-two full-time employees
and ten part-time employees. Of full time seven are engaged in administration,
thirteen are engaged in operations, and two are engaged in marketing and sales.
Of part-time employees, eight are engaged in operations and two are clerical in
nature. Of said employees, all executive positions, including Messrs. Brian L.
Walker and Richard C. Smith have been employed by the Company without cash
compensation through the date hereof. See "Executive Compensation" below for a
description of the equity ownership interests in the Company of all of its
executive officers and directors, including Messrs. Walker and Richard C. Smith.
None of the Company's employees are represented by a labor union. The Company
has never had a strike or lockout and considers its employee relations to be
good.
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(c) REPORTS TO SECURITY HOLDERS
General. The Company is not required to deliver an annual report to
security holders, though the Company voluntarily sends an annual report,
complete with audited financial statements to all interested parties in the
Company.
Commencing with the filing of this Form 10-SB, the Company will make
periodic filings with the Securities and Exchange Commission as required by the
commission's regulations. The public may read and copy any materials filed by
the Company at the Commission's Public Reference Room at 450 Fifth Street, NW,
Washington, DC 20549. The public may obtain information on the operation of the
Public Reference Room by calling the Commission at 1-800-SEC-0330. The
Commission also maintains an Internet site that contains reports, proxy and
information statements and other information regarding issuers that file
electronically, such as the Company, at http://www.sec.gov. The Company also
maintains current information at its website, http://www.basictech.com and its
related links.
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF PLAN AND RESULTS OF OPERATIONS.
The following discussion and analysis should be read in conjunction
with the financial statements and related notes included elsewhere in this Form
10-SB. This discussion contains forward-looking statements based on current
expectations, which involve risks and uncertainties. Actual results and the
timing of certain events could differ materially from the forward-looking
statements as a result of a number of factors, including those referred to in
Factors Affecting Future Operating Results.
Overview
The Company was founded in January 1998. Since then, by business
combinations, we have established a presence in two diverse industries. In the
environmental remediation and cleanup (oil well and field hazardous sites)
industry, we entered by acquiring the assets and operations of a private
company, and subsequently created two operating subsidiaries to take advantage
of business and market opportunities. The retention as full-time employees of
key management of the private company was pivotal to the natural development of
the business' growth. We recently entered the internet and computer consulting
business with the acquisition of a growing internet service provider (in
Honolulu), which has a blended consumer dialup and business customer base.
With adequate equipment and working capital financing, we are poised to
become a significant provider of oilfield environmental remediation and cleanup
services in the states of Texas and Oklahoma. With proper planning and financial
backing, our internet presence can expand in hosting domain-based Web sites, and
become a significant provider of high speed connectivity and enhanced services
in the State of Hawaii. Expanding from this market focus (basic internet and
high speed service) applications, such as electronic commerce and virtual
private networks based on Internet communications links, could be brought to
smaller population centers, and to small and medium sized businesses on the
mainland US and Pacific Rim. As of December 31, 1999, on Oahu and Maui, the
previous owner served approximately 3,500 customer accounts, including hosted
Web sites and resellers, and had total revenue of approximately $450,000 for the
year ended December 31, 1999.
From the time of our inception, the Company has raised limited amounts
of capital through the private placement and negotiation of short and
intermediate term promissory notes, relying heavily on the monetary backing of
key management and control persons. The Company has made no sale of debt and
equity securities since its organizational funding of
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$27,250. The Company's three major acquisitions, and the bulk of the Company's
assets, have been acquired by the issuance of restricted common stock. The
remainder of its asset acquisition has been funded through seller financing. The
Company has used income from operations and loan proceeds from short term and
stockholder notes to expand to its position today. We expect to use the proceeds
of sales of debt and equity securities, through both public and private
offerings, to further our strategic acquisition and investment strategy, and to
fund our operations in all industries in which the Company operates.
Plan and Results of Operation
The Company serves as a holding company for three wholly-owned
corporate subsidiaries, Yankee Development, Simpco, and Cyber Cities
Technologies, and two limited liability companies, PAR Texas and PAR Oklahoma
(hereafter collectively "P & A Remediation"). Yankee Development owns a working
interest in proven, developed oil reserves on 2,300 acres in Tom Green County,
Texas. Through P & A Remediation, the Company performs environmental remediation
and salvage operations for the oil industry, and markets and sells construction
materials, pipe, steel tubulars and used oil field equipment obtained from
salvage operations or acquired for resale on the secondary market. Simpco owns
certain reconditioned oil field equipment and vehicles that are leased to P & A
Remediation for use in conducting oil field plugging, remediation and salvage
activities. Cyber Cities Technologies provides high speed internet access for
residential and business customers in Hawaii.
For the period from inception (January 21, 1998) through March 31,
2000, the Company had approximately $ 876,969 in total revenues and $ 364,585 in
gross profit on sales, and operating expenses aggregating $ 611,605. As a
result, the Company had a net loss in the amount of $(247,020), $.02 per share
attributable to common stockholders.
The Company proposes to increase its oil well plugging, remediation and
salvage business in its current regions of operation in Texas and Oklahoma, and
expand such operations to the States of Kansas and New Mexico. Management does
not foresee Yankee Development's conducting additional development operations on
its existing properties or exploring for oil and gas elsewhere, until sufficient
capital is raised to prove the production capabilities of the field. The Company
intends to pursue available opportunities in the oil and gas business, including
the acquisition of additional proven, developed reserves, equipment and
personnel, and to expand its business through the acquisition of businesses
related and unrelated to the oil and gas business. If the Company is unable to
generate sufficient revenue from operations, management intends to explore all
available alternatives for debt and/or equity financing, including but not
limited to private and public securities offerings.
The Company proposes to create a world wide market distribution system
for oil & gas tubulars, equipment, and related products under synergies with its
internet subsidiary, utilizing the Company's presence on the World Wide Web and
the Internet on its domain `oilfieldjunk.com'. Significant steps are being made
by competitors in similar endeavors at the time of this writing. Because of
understaffing in the oilfield equipment marketing department of the Company, and
its corresponding lack of training in this relatively new marketing venue, the
Company has decided to take the position to `wait and see' what the competition
develops.
The Company proposes to increase its core business of dial up internet
service in its current regions of operation on Oahu and Maui, and expand such
operations to the islands of Kauai and the Big Island of Hawaii. The Company
plans to develop a national presence to make web page hosting and computer
consulting available to customers world wide in the coming months and years.
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Comparability of Year-to-Year Results of Operations
Due to the short period of Company existence, there are not comparable
periods of financial and operating activity. The prior fiscal year ending June
30, 1999 consisted of only about four months of revenue-producing activities,
preceded by an additional three months of start up activities. The interim
financial statement as of March 31, 2000, presents only nine months of operating
activity.
Revenue
The Company's revenues are limited, as of the date hereof, to those
generated by CCTECH in its business of internet service provider in Honolulu,
Hawaii; and from P & A Remediation from oil well plugging, remediation and
salvage operations in the states of Texas and Oklahoma. Limited revenues have
been realized from oil or gas production from company acquired producing oil &
gas leases.
Most of the internet service provider revenue is received from
customers who purchase basic internet service, hosting products, high-speed
Internet connectivity, and other enhanced value Internet services. The Company
hopes to offer a broad range of connectivity options to its customers including
dedicated, digital subscriber lines, integrated services digital network, frame
relay and dial-up connections. Connectivity customers typically sign a contract
for one year of service and pay fixed, recurring monthly service charges plus a
one-time setup fee under those agreements. These charges vary depending on the
type of service, the length of the contract and local market conditions. Web
hosting customers typically pay fixed, recurring monthly service charges plus a
one-time setup fee. These charges vary depending on the amount of disk space and
transit required by the customer.
Other potential enhanced services include:
- e-commerce;
- virtual private networks permitting our customers to engage in private
and secure Internet communication with their employees, vendors,
customers and suppliers;
- security services;
- co-location services, which include leased space, connectivity and
support services in specialized facilities for customers that wish to
place their own equipment and software in our secure, controlled
facilities;
- consulting; and,
- the sales of equipment and customer circuits.
Revenue for all products is recognized as the service is provided.
Amounts billed relating to future periods are recorded as deferred revenue and
amortized monthly as services are rendered.
Revenue is generated from two types of contractual arrangements, cash
and salvage, in connection with its oil well plugging and remediation
operations. Under the salvage type of contract, the Company receives as its
compensation pipe and/or used oil well equipment mutually agreed upon by the
parties. Revenue is recognized, and the pipe and/or equipment are
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included in inventory, based upon the applicable wholesale market prices of the
items or the prices at which the items are purchasable for resale on the open
market. These inventory items, whether received by P & A Remediation as
consideration for the performance of plugging and/or remediation services or
purchased outright for purposes of resale, are resold to customers including,
primarily, oil and construction companies.
The direct gross profit on the industry jobs presently being performed
by PAR Texas is generally approximately 35%. Management believes that the gross
profit margin on the same job, if performed for a government agency, could
increase to 55%. If PAR Texas is able to obtain contracts from state agencies,
the Company expects that payment would typically be received thirty days from
the date of completion of the well(s) and all contract requirements, thus
requiring that the Company have additional working capital to cover expenses
before payment is received. P & A Remediation is generally required to pay
suppliers and subcontractors for pipe, equipment and other supplies and
threading, refurbishing and other services on a cash on demand, or "COD", basis.
Accordingly, should P & A Remediation be successful in expanding its customer
base to include government agencies, of which there is no assurance, its working
capital may not be adequate to enable the company to continue in operation
without the receipt of additional funding.
The Company's plan calls for the primary government customer targeted
by the Company to be the State of Texas' Oil Well Plugging and Cleanup Fund (the
"Cleanup Fund"), because of the continuously increasing number of oil wells
being added to the State of Texas' inventory of wells requiring state-funded
remediation. Company management believes that the abandoned and inactive wells
that are candidates for state-funded plugging number in the tens of thousands as
of the date hereof. This calculation is based upon management's belief that
there are, on average, ten oil or gas wells, known as "stripper wells,"
producing, on average, less than ten barrels of oil per day, per each of 12,500
operators registered with the Railroad Commission listed in the Commission's
inventory of wells requiring state-funded remediation. Further, wells are added
continuously at the rate of 250 per month in an order of priority based on the
perceived risk to human health and the environment. The Dallas Morning News
stated that there are "as many as 17,000 wells abandoned across the state
today..." on June 6, 2000.
In addition to oil well plugging and clean-up operations, PAR Texas
serves as a reseller of construction equipment, steel pipe and tubulars and
select used and reconditioned oil field equipment. These items are either
obtained from the company's salvage operations or purchased outright for resale
on the secondary market. The company is currently planning to resume remediation
work on a Conoco, Inc., 58-mile salvage project that involves the recovery of at
least 150,000 feet of three and one-half to six inch structural pipe which the
Company intends to resell for construction and other applications.
Cost of Sales and Services
Cost of internet service consists primarily of local telecommunications
expense. Local telecommunications expense is primarily the cost of transporting
data between a customer's place of business, and the Company's local points of
presence as gateway to the internet. Customer's cost of service also includes
internet access expense and the cost of equipment sold to customers.
Cost of oilfield remediation services consist principally of direct
labor; contracted services; and in-hole material (cement, drilling gel, and
water) and equipment supplies.
Cost of sales consists of the purchased cost or earned cost of oilfield
pipe and equipment that has been sold.
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General and Administrative Expenses
General and administrative expenses consist primarily of salaries, rent
and utilities. Such expenses also include the expenses of general management,
technical labor, customer care and accounting.
General and administrative expenses are expected to continue to
increase in absolute dollars, but decrease as a percentage of total revenue as
revenue growth continue can outpace general expenses.
Both the internet operations and the oilfield remediation operation
have the opportunity to acquire scalable systems that can limit the number of
additional personnel and the need for additional office space to support
incremental revenue. The company expects these systems will result in the
ability to add significant additional revenue at low incremental costs. Although
we expect to continue to reduce our operating losses as a percentage of revenue,
there can be no assurance that we will be able to do so, or that the rate of any
reduction in losses will be as rapid as we expect.
Depreciation and Amortization
Depreciation is provided over the estimated useful lives of assets
ranging from three to fifteen years using the straight-line method. The excess
of cost over the fair value of net assets acquired, or goodwill, is amortized
using the straight-line method over a ten-year period. Debt issuance costs are
amortized over the life of the debt. Additional acquisitions and investments are
expected to cause depreciation and goodwill amortization to increase
significantly in the future.
Other expenses
Other expenses consist primarily of interest expense.
Liquidity and Capital Resources
Our business strategy has required, and is expected to continue to
require, substantial capital to fund acquisitions, working capital, capital
expenditures, and interest expense.
As of March 31,2000, the Company had approximately $28,000 in cash and
cash equivalents and $120,000 in current receivables.
We also have significant debt service requirements. At March 31, 2000,
our secured liabilities were $593,000 and the expected annual interest expense
associated with it is approximately $50.000. The interest expense and principal
repayment obligations associated with our debt could have a significant effect
on our future operations.
Our anticipated expenditures are inherently uncertain and will vary
widely based on many factors including operating performance and working capital
requirements, the cost of additional acquisitions and investments, the
requirements for capital equipment to operate our business and our ability to
raise additional funds. Accordingly, we may need significant amounts of cash in
excess of our plan, and no assurance can be given as to the actual amounts of
our future expenditures. We will have to increase revenue without a commensurate
increase in costs to generate sufficient cash to enable us to meet our debt
service obligations. There can be no assurance that we will have sufficient
financial resources if operating losses increase or additional acquisition or
other investment opportunities become available.
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We expect to meet our capital needs for the next 3 months with cash on
hand and operating cash flow, and beyond 3 months, with the proceeds from the
sale or issuance of capital stock, lease financing and additional debt. We
regularly examine financing alternatives based on prevailing market conditions
and expect to access the capital markets from time to time based on our current
and anticipated cash needs and market opportunities. Over the longer term, we
will be dependent on obtaining positive operating cash flow and, to the extent
cash flow is not sufficient, the availability of additional financing, to meet
our debt service obligations. Insufficient funding may require us to delay or
abandon some of our planned future expansion or expenditures, which could have a
material adverse effect on our growth and ability to realize economies of scale.
Forward-Looking Statements
The statements included in the discussion and analysis above that are
not historical or factual are "forward-looking statements" (as that term is
defined in the Private Securities Litigation Reform Act of 1995). The safe
harbor provisions provided in Section 27A of the Securities Act of 1933, as
amended, and Section 21E of the Securities Exchange Act of 1934, as amended,
apply to forward-looking statements made by the Company. These statements can be
identified by the use of forward-looking terminology such as "believes,"
"expects," "may," "will," "should," or "anticipates" or the negative thereof or
other variations thereon or comparable terminology, or by discussions of
strategy that involve risks and uncertainties. Management cautions the reader
that these forward-looking statements addressing the timing, costs and scope of
our acquisition of, or investments in, existing affiliates, the revenue and
profitability levels of the affiliates in which we invest, the anticipated
reduction in operating costs resulting from the integration and optimization of
those affiliates, and other matters contained herein or therein from time to
time regarding matters that are not historical facts, are only predictions. No
assurance can be given that future results indicated, whether expressed or
implied, will be achieved. While sometimes presented with numerical specificity,
these projections and other forward-looking statements are based on current
expectations and a variety of assumptions relating to our business, which,
although we consider them reasonable, may not be realized. Because of the number
and range of the assumptions underlying our projections and forward-looking
statements, many of which are subject to significant uncertainties and
contingencies that are beyond our reasonable control, some of the assumptions
will not materialize and unanticipated events and circumstances may occur
subsequent to the date of this report. Therefore, our actual experience and
results achieved during the period covered by any particular projections or
forward-looking statements may differ substantially from those projected.
Financial Condition, Capital Resources and Liquidity
At March 31, 2000, the Company had assets totaling $5,477,745 including
current assets in the amount of $378,991, fixed assets, including land, building
and equipment (less accumulated depreciation) in the amount of $1,305,736 and
$3,793,018 in other assets (primarily proved, developed oil reserves). Since the
Company's inception, it has received $27,250 in cash contributed as
consideration for the issuance of shares of Common Stock.
ITEM 3. DESCRIPTION OF PROPERTY.
Oil Development Projects and Acquisitions
Company Reserves, Production and Discussion
The following discussion of the Company's properties and potential
capital projects contains forward-looking statements that are based on current
expectations, estimates and
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projections about the oil and gas industry, management's beliefs and assumptions
made by management. Words such as "projects," "believes," "expects,"
"anticipates," "estimates," "plans," "could," variations of such words and
similar expressions are intended to identify such forward-looking statements.
Please refer to the section entitled "Cautionary Statement Regarding
Forward-Looking Statements" under Items I. & 2. for a discussion of factors
which could affect the outcome of the forward-looking statements.
Oil Reserves
The Company owns a working interest in proven, developed oil reserves
on approximately 2,300 acres in western Texas known as the Yankee (Canyon Sand)
Field Unit, MA., RRC No. 03215, of Tom Green County, Texas, as set forth in that
certain Unit Agreement as recorded in Volume 405, Page 609 of the Deed Records
of Tom Green County, Texas. The acquisition cost of $3,711,000 assigned to the
reserves at the time of their acquisition in April 1998 represents the
discounted net present value of net revenues, and was calculated based upon the
then market price of $15.00 per each of 880,000 recoverable barrels of oil, less
development and operating costs, discounted at a rate of 10%.
Future Plans
With a continuation of the current world market and pricing for crude
oil, the Company plans to initiate a plan to raise sufficient capital to
properly drill and complete the required number of wells to prove or disprove
the Company's field's reserve study. This could possibly mean the drilling of up
to twenty (20) wells, at a total cost of up to $1,300,000. The results of
drilling such wells can never be determined in advance. The industry has a
history of unprofitable efforts resulting from dry holes, or commercial wells
which fail to produce in quantities sufficient to provide an economic return.
Yankee Development, since inception, has generated no revenues from the
production of oil. No assurance can be given that Yankee Development will
generate any revenues or achieve profitability from the production of the
proven, developed reserves owned as of the date hereof or from oil and/or gas
properties, if any, acquired in the future.
Average Sales Prices and Production Costs
The Company has not produced its sole producing property long enough to
establish average costs against its approximate income of $2,500 fiscal year to
date.
Productive Oil and Gas Wells
The following table summarizes the productive oil and gas wells as of March 31,
2000 attributable to the Company's direct interests. Productive wells are
producing wells and wells capable of production.
Productive Wells - Grace Bell Lease, Archer County, Texas
Oil 2
Gas 0
Oil and Gas Acreage
Proved Reserve Quantities
The following sets forth the undeveloped and Proven Developed Oil Reserves
leasehold held directly by the Company as of March 31, 2000. Proved Developed
Oil Reserves is acreage offsetting acreage which is spaced or assignable to
productive wells within a known productive
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strata supported by geological and production analysis and /or study. This
undeveloped acreage is acreage on which wells have not been drilled or completed
to a point that would permit the production of commercial quantities of oil and
gas.
a. Proven Developed Oil Reserves acreage 1120 acres
Yankee Unit, Tom Green County, Texas 2358 acres total
b. Proven Developed Oil Reserves acreage 4 acres
Grace Bell Lease, Archer County, Texas 8 acres total
Drilling Activity
The Company has not had drilling activity on its owned properties.
Locations
The Company has eight locations, including (i) its leased executive
offices located at 1026 West Main Street, #208, Lewisville, Texas 75067; (ii) a
five-acre tract of land located in Young County, Texas, on which a metal
building is situated; (iii) a leased building situated on three and one half
acres in the City of Olney, Texas; (iii) a leased yard location situated on five
and one half acres in Young County, Texas, known also as 505 Knox Street, Olney,
Texas; (v) a leased building situated on five acres north of Ballinger, Texas,
used by Simpco prior to its acquisition by the Company; (vi) a purchased
leasehold facility, including three buildings and a pipe threading and testing
facility on leased railroad land in the City of Nowata, Oklahoma; (vii) a leased
office location of approximately fifteen hundred (1,500) square feet, located
upstairs in an industrial building at 2628 Ualena Street, Suite C, Honolulu,
Hawaii 96819; and (viii) a leased office location of approximately eight hundred
(800) square feet, located downstairs with retail front in an industrial
building at 355 Hukilike Street, Suite 103, Kahului, Maui, Hawaii 96732. The
Ballinger and Olney facilities are presently used by PAR Texas for its oil well
plugging, remediation and salvage operations. The Nowata facilities are
presently used by PAR Oklahoma for its oil well plugging, remediation and
salvage operations. The Honolulu and Kahului, Maui, facilities are presently
used by CCTECH for its internet service provider and computer consulting
operations. The Company anticipates that these facilities will be adequate for
its foreseeable future needs.
The executive offices of the Company are comprised of approximately 300
square feet of space in the DFW Metroplex located in Lewisville, Texas,
approximately ten miles north of the Dallas/Fort Worth International Airport.
The space has been rented from an affiliate of the Company on a month-to-month
basis at the rate of $250 per month since July 1, 1999.
The Company owns a tract of land containing five acres located within
the Texas Emigration and Land Company Survey No. 178, Abstract No. 425, in Young
County, Texas, immediately north of State Highway No. 79. A fenced-in, metal
building, comprised of approximately 1,600 square feet in sound structural and
functional condition, is situated on the property. The acreage and facility were
purchased by the Company from a non-affiliate on March 19, 1999, for a total
purchase price of $12,500. The property is subject to that certain Promissory
Note Secured by Deed of Trust dated March 19, 1999, in the principal amount of
$11,500, payable in installments of approximately $245 per month commencing on
May 1, 1999, and terminating on April 1, 2004. The note bears interest at the
rate of 10% per annum. In the opinion of management of the Company, the
facilities are adequately covered by insurance. P & A Remediation presently uses
the land and building for storing equipment.
The Company leases a yard comprised of approximately five acres and
office building situated thereon located one to two miles north of Ballinger,
Texas, on U.S. Highway 83 (also
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known as 11816 U.S. Highway North). The Company uses the acreage and facilities
for remediation and salvage activities. The property is leased from Mr. Richard
Simpson, an affiliate of the Company, for annual rent in the amount of $5,400
payable in monthly installments of $450 to Mr. Steve Simpson or other assignee
of Mr. Richard Simpson. Although the lease term expired on October 31, 1999,
Company management believes, without assurance, that it will be possible to
renew the lease on terms acceptable to management because Mr. Richard Simpson,
the lessor, is an affiliate of the Company.
The Company leases a house and lots on approximately five and one-half
acres located at 505 Knox Street, Olney, Texas, which it uses as an oilfield
salvage yard. The yard was originally leased from a non-affiliate for a period
of one year through November 30, 1999, at an annual rent of $6,600 payable in
monthly installment of $550 each. The lease was renewable for a period of one
year; at the expiration of which year the Company has the option to purchase the
property. By continuing rental payments, the Company novated the agreement and
renewed the lease on the Olney yard for the additional one-year period provided.
Management believes that the terms for renewal are comparable to those available
for the lease of comparable facilities in the surrounding Olney area.
On a short term lease, the Company leases an office building and shop
facility on approximately three and one-half acres located at 480 South Highway
79, Olney, Texas, which it used as a base of operations from July 1999 up to
January 2000, when the facility was closed pending the establishment of full
scale operations in the Company's Nowata, Oklahoma, yard. The yard is leased
from a non-affiliate for the consideration of general maintenance and
improvement of the leasehold estate and premises. The agreement is renewable for
an undetermined period of time. The Company has received a verbal agreement and
option to purchase the property, for $60,000 USD. The Company intends to renew
and maintain the lease on the Olney yard for the period provided. Management
believes that the terms for renewal are significantly below market to those
available for the lease of comparable facilities in the surrounding Olney area.
The Company has negotiated the purchase of the leasehold estate which
includes two buildings and a pipe threading and testing facility, located on
leased railroad land within the City of Nowata, Oklahoma. The former pipe dealer
and supply store located at 208 East Modoc, Nowata, Oklahoma 74048, is being
acquired by the Company under an asset purchase agreement for a total of $62,500
which was due $10,000 January 1, 2000, $10,000 due March 1, 2000, and $40,000
due December 31, 2000, from an unaffiliated company. Subsequently, the company
has paid $2,500 under a renegotiated agreement, with $20,000 due as soon as is
possible, and the original $40,000 due December 31, 2000.
The Company leases office space of approximately fifteen hundred
(1,500) square feet, located upstairs in an industrial building at 2628 Ualena
Street, Suite C, Honolulu, Hawaii 96819. The space is leased from a
non-affiliate for a period of five years from January 1997 through December 31,
2001, at an annual rent of $15,600 payable in monthly installment of $1,300
each. The lease does not have renewal provisions in the agreement, but the
Lessor has indicated its willingness to renew at market rates and terms.
Management believes that the terms of the lease and subsequent renewal are
comparable to those available for the lease of comparable facilities in the
surrounding Honolulu area.
The Company leases retail front office space of approximately eight
hundred (800) square feet, located downstairs with retail front in an industrial
building at 355 Hukilike, Suite 103, Kahului, Maui, Hawaii 96732. The space is
leased from a non-affiliate for a period of five years from May 1998 through
April 30, 2003, at a floating (based on CAM) annual rent of $12,000 payable in
monthly installment of $1,000 each. The lease does not have renewal provisions
in the agreement, but the Lessor has indicated its willingness to renew at
market rates and terms.
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Management believes that the terms of the lease and subsequent renewal are
comparable to those available for the lease of comparable facilities in the
surrounding Honolulu area.
The Company's current investment policy with respect to real estate is
to purchase in fee simple 100% of the interest in a particular real property
that is expected to be useful to the Company as a site on which to conduct
business operations. Accordingly, the Company's primary purpose for investing in
real estate is not the realization of capital gain or income, although it is
possible that such benefits may be realized. There are no limitations on the
percentage of assets which may be invested in any one investment, or type of
investment, and such policy may be changed without a vote of the Company's
shareholders.
ITEM 4. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT.
The following table sets forth certain information regarding the
ownership of the Company's Common Stock as of March 31, 2000 by each shareholder
known by the Company to be the beneficial owner of more than 5% of its
outstanding shares of Common Stock, each director and all executive officers and
directors as a group. Under the General Rules and Regulations of the Securities
and Exchange Commission (the "Commission"), a person is deemed to be the
beneficial owner of a security if such person has or shares the power to vote or
direct the voting, or dispose or direct the disposition, of such security.
Accordingly, more than one person may be deemed to be a beneficial owner of the
same securities. Unless otherwise indicated by footnote, each of the
shareholders named in the table has sole voting and investment power with
respect to the shares of Common Stock beneficially owned.
<TABLE>
<CAPTION>
SHARES PERCENTAGE
BENEFICIALLY OF
BENEFICIAL OWNER OWNED (1) CLASS (1)
-------------------------------------------- ------------ ----------
<S> <C> <C>
Bryan L. Walker (2) 5,505,625(5) 70.95%
1026 West Main Street, Suite #208
Lewisville, Texas 75067
Laura N. Walker (3) 5,505,625(6) 70.95%
8505 Freeport Parkway North, Suite #141
Irving, Texas 75063
Shelton Voting Trust 5,305,625(7) 68.37%
1026 West Main Street, Suite #208
Lewisville, Texas 75067
Cyber City Honolulu, Inc 979,232(8) 12.61%
2628 Ualena Street, Suite C
Honolulu, Hawaii 96815
Richard Simpson 637,500(9) 8.21%
P.O. Box 4881
County Road 261
Zephyr, Texas 76890
Richard C. Smith (2) 73,000(10) 0.94%
1026 West Main Street, Suite #208
Lewisville, Texas 75067
Derek T. Smith (4) 15,000(11)
14608 Lakecrest Drive
Addison, Texas 75244
All executive officers and directors 5,593,625 72.10%
as a group (four persons)
</TABLE>
------------------
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(1) Represents the number of shares of Common Stock owned of record and
beneficially by each named person or group, expressed as a percentage of
7,759,857 shares of the Company's Common Stock issued and outstanding as of
March 31, 2000.
(2) Executive officer and member of the Board of Directors of the
Company, Yankee Development, Simpco, Cyber Cities Technologies; and a Manager
of P&A Remediation.
(3) Member of the Board of Directors of the Company; executive officer
of Yankee Development.
(4) Executive officer and member of the Board of Directors of the
Company.
(5) Includes 5,305,625 shares of Common Stock owned of record by the
Shelton Voting Trust, of which Mr. Walker is the trustee, and 100,000 shares of
Common Stock owned of record by each of Mr. Walker and Ms. Laura N. Walker, Mr.
Walker's spouse.
(6) Includes 5,305,625 shares of Common Stock owned of record by the
Shelton Voting Trust, of which Mr. Walker is the trustee, and 100,000 shares of
Common Stock owned of record by each of Mr. Walker and Ms. Walker.
(7) Because Mr. Walker is the trustee of the Shelton Voting Trust,
beneficial ownership of the shares of Common Stock owned of record by the trust
is attributable to him and Ms. Walker, his spouse, under the applicable General
Rules and Regulations of the Commission.
(8) Includes 979,232 shares of Common Stock owned of record by the
corporation.
(9) Includes 212,500 shares of Common Stock owned of record by each of
the Simpco Trust #1, the Simpco Trust #2 and the Simpco Trust #3 (collectively,
the "Simpco Trusts" and, individually, a "Simpco Trust"), of which Mr. Simpson
is the trustee.
(10) Includes 30,000 shares of Common Stock owned of record by Ms.
Margie Moreno Smith, Mr. Smith's spouse.
(11) Less than one per cent.
ITEM 5. DIRECTORS, EXECUTIVE OFFICERS, PROMOTERS AND CONTROL PERSONS.
EXECUTIVE OFFICERS AND DIRECTORS
Set forth below are the names, ages, positions with the Company, Yankee
Development, Simpco, CCTech and P & A Remediation; and the business experience
of the executive officers and directors of the Company, Yankee Development,
Simpco and CCTech, and the Managers of P & A Remediation.
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<PAGE> 32
<TABLE>
<CAPTION>
NAME AGE POSITION
---------------------------- --- -------------------------------------------------------------------------------
<S> <C> <C>
Bryan L. Walker(1)(2)(3) 46 President, Chief Executive Officer and Chairman of the Board of Directors of
the Company; President and Director of Yankee Development and Simpco; Vice
President and Director of CCTech.
Richard C. Smith(1)(2)(3) 54 Treasurer, Chief Financial Officer and Director of the Company; Treasurer and
Director of Yankee Development; Secretary/Treasurer and Director of Simpco;
and Chief Financial Officer, Secretary/Treasurer, and Director of CCTech.
Michael L. Bacon 41 Vice President of the Company, Director of the Company; Chief Executive
Officer, President, and Director of CCTech.
Derek T. Smith(1) 34 Secretary of the Company, Director of the Company
Laura N. Walker(1) 42 Director of the Company; Secretary of Yankee Development.
</TABLE>
------------------
(1) The above-named persons may be deemed to be "promoters" and
"parents" of the Company, as those terms are defined under the General Rules and
Regulations promulgated under the Securities Act of 1933, as amended.
(2) Messrs. Walker and Smith hold, in addition to the positions with
each of the above-named corporations indicated in the above table, the office of
Managers of PAR Texas. They occupy these offices until the next annual meeting
of the members of PAR Texas and until their successors have been elected, unless
they sooner resign or are removed.
(3) Messrs. Walker and Smith hold, in addition to the positions with
each of the above-named corporations indicated in the above table, the office of
Manager of PAR Oklahoma. They occupy this office until the next annual meeting
of the members of PAR Oklahoma and until their successors have been elected,
unless they sooner resign or are removed.
All directors hold office until the next annual meeting of the
Company's shareholders and until their respective successors have been elected
and qualify. Officers serve at the pleasure of the Board of Directors. Messrs.
Walker, Bacon, Richard C. Smith and Derek T. Smith and Ms. Walker are expected
to devote approximately 90%, 100%, approximately 40%, approximately 5% and
approximately 10%, respectively, of their time to the business of the Company.
FAMILY RELATIONSHIPS
Mr. Bryan L. Walker, President, Chief Executive Officer and Chairman of
the Board of Directors of the Company and President and a director of Yankee
Development, and Simpco; and Vice President and director of Cyber Cities
Technologies; and a Manager of P&A Remediation; is the spouse of Ms. Laura N.
Walker, a director of the Company, and Secretary and of Yankee Development. Mr.
Richard C. Smith, Treasurer, Chief Financial Officer and a
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<PAGE> 33
director of the Company, Treasurer and a director of Yankee Development, the
Secretary/Treasurer and a director of Simpco; and a Manager of P&A
Remediation; is the father of Mr. Derek T. Smith, the Company's Secretary and
director.
BUSINESS EXPERIENCE
Bryan L. Walker has served as the President/Chief Executive Officer and
the Chairman of the Board of Directors of the Company since August 14, 1998, and
April 23, 1998, respectively. He served in the position of Vice President of the
Company from April 23, 1998, through August 14, 1998. Mr. Walker has served as a
director and the President of Yankee Development since January 7 and April 16,
1998, respectively. From January 7 through April 16, 1998, he served in the
position of Vice President of Yankee Development. Since January 15, 1999, Mr.
Walker has served in the positions of President and a director of Simpco. Since
January 4, 2000, Mr. Walker has served in the position of Vice President and
director of Cyber Cities Technologies. He has been self-employed as a
business/management consultant in the oil business serving independent oil
production companies since 1984. Mr. Walker has co-owned, together with his
spouse, Ms. Walker, a director of the Company, Secretary of Yankee Development,
since May 1997, Hawaiian Travel, Inc., a travel consulting firm affiliated with
the Company having offices in Irving, Texas. He received a Bachelor of Business
Administration degree from Southern Methodist University, Dallas, Texas, in
1976.
Richard C. Smith has served as the Treasurer and a director of the
Company since April 23, 1998, and as the Company's Chief Financial Officer since
August 14, 1998. Since April 16, 1998, he has served in the positions of
Treasurer and director of Yankee Development. Mr. Smith served, from January 7
through April 16, 1998, as a director and the Secretary of Yankee Development.
He has served, since January 15, 1999, as the Secretary/Treasurer and a director
of Simpco. Mr. Smith has twenty-eight years of experience in public accounting.
He has owned and operated a public accounting practice in Lewisville, Texas,
since March 1998, as a professional corporation under the name of Richard C.
Smith, CPA, P.C., and, during the period from February 1971 through February
1998, prior to that time, as a sole proprietor. He was employed by Atlantic
Richfield Oil Company as a staff accountant from June 1967 through February 1969
and by Mark III Manufacturing Corp., a privately-held manufacturing company
located in Roanoke, Texas, as a controller from March 1969 through January 1971.
Mr. Smith received a Bachelor of Business of Administration degree in accounting
from the University of North Texas in 1967.
Michael L. Bacon has served as a Vice President and Director of the
Company since January 4, 2000, and as the President and Chief Executive Officer
and a Director of Cyber Cities Technologies, Inc., since December 31, 1999. Mr.
Bacon served the United States Navy as Assistant Engineer on various nuclear
powered naval vessels from enlistment in May 1980 until his retirement May of
2000. He was an executive officer of Cyber City Honolulu, Inc. from November
1996 until selected operating assets and certain liabilities were acquired and
assumed by Basic Technologies, Inc. Mr. Bacon Served the United States Navy as
the Assistant Engineer on numerous Nuclear Powered Naval Vessels from May 1980
until May of 2000.
Derek T. Smith has served, since January 4, 2000, in the office of
Secretary of the Company. He served as the President of the Company during the
period from April 23 through August 14, 1998; and as Vice President of the
Company from August 14, 1998 through January 4, 2000. Since August 1996, Mr.
Smith has been employed by CSC Consulting Group, currently as a principal
consultant. CSC is a division of Computer Sciences Corporation, a public company
located in El Segundo, California. From August 1994 through July 1996, he was
employed as a senior consultant by Hogan Systems, Inc., a publicly-held
consulting company with offices in Dallas, Texas, that was acquired by Computer
Sciences Corporation in August 1996. Mr. Smith was employed, from January
through July 1994, by the U.S. Small Business Administration as a senior loan
officer, disaster relief. From October 1988 through May 1992, he was employed in
the position of market cost analyst by Electronic Data Systems, Dallas, Texas, a
publicly-held company. Mr. Smith received a Bachelor of Business
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<PAGE> 34
Administration degree in finance from The University of Texas at Austin in 1988
and a Masters of Business Administration degree in strategic management,
marketing and international business from the University of Georgia in 1993.
Laura N. Walker served as the Secretary of the Company from August 14,
1998, until January 4, 2000, and as a director of the Company since April 23,
1998. Since April 16, 1998, she has served as the Secretary of Yankee
Development. Together with her spouse, Mr. Walker, an executive officer and
director of the Company, Yankee Development, Simpco, Cyber Cities Technologies,
and a manager of P&A Remediation, Ms. Walker has co-owned, since May 1997,
Hawaiian Travel, Inc., a travel consulting firm with offices in Irving, Texas,
which is an affiliate of the Company.
ITEM 6. EXECUTIVE COMPENSATION
No cash compensation, and, except for Mr. Walker's use of a Company
automobile since January 8, 1999, 10% of which usage is estimated to be
personal, no non-cash compensation, has been awarded to, earned by or paid to
any Company executive officer or director for all services performed in all
capacities for the Company during the approximate one year and nine-month period
from the date of the Company's inception on January 21, 1998, through the date
hereof. It is anticipated that at such time as the Company's financial position
permits, the executive officers and/or directors of the Company will receive
appropriate compensation, in addition to reasonable salaries, such as bonuses,
coverage under medical and/or life insurance benefits plans and participation in
stock options and/or other profit sharing or pension plans, for services as
executive officers of the Company and may receive fees for their attendance at
meetings of the Board of Directors of the Company. As of the date hereof, the
Company does not provide officers with pension, stock appreciation rights,
long-term incentive or other plans and has no intention of implementing any such
plans for the foreseeable future. Further, to date, no cash or no non-cash
compensation has been awarded to, earned by or paid to any executive officer or
director of Yankee Development or Simpco, wholly-owned subsidiary corporations
of the Company, or to Mr. Richard C. Smith, Manager of P&A Remediation, for
services performed in all capacities for said companies.
COMPENSATION OF DIRECTORS
The Company has no standard arrangements for compensating the directors
of the Company, who also serve as the directors of Yankee Development and
Simpco, for their attendance at meetings of the Board of Directors.
ITEM 7. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS.
On or about January 21, 1998, the Company issued and sold 200,000
shares, 200,000 shares, 170,000 shares, and 30,000 shares, of Common Stock to
Messrs. James L. Speir, James Howe and John Bradley and Ms. Janine Kreuter,
respectively (a total of 600,000 shares of Common Stock), in consideration for
cash paid by each individual in the amount of $.00375 per share (a total of
$2,250). On or about April 16, 1998, a total of 510,000 shares of Common Stock
owned collectively by Messrs. Speir, Howe and Bradley and Ms. Kreuter were
transferred to a total of fourteen residents of the State of Texas, including
Mr. Bryan L. and Ms. Laura N. Walker and Messrs. Richard C. and Derek T. Smith,
the current members of management of the Company, Yankee Development, P & A
Remediation and/or Simpco, two trusts of which Mr. Richard C. Smith serves as
trustee and certain immediate family members of the foregoing, including
Mesdames Margie Moreno-Smith, Catherine E. Smith, and Angela D. McClure, Mr.
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<PAGE> 35
Richard C. Smith's spouse, mother and daughter, respectively. (See Part II, Item
4. "Recent Sales of Unregistered Securities.")
On April 23, 1998, the Company issued and sold 5,305,625 shares of
Common Stock to the Shelton Voting Trust in consideration for the sale and
transfer to the Company of all 1,000 outstanding shares of common stock of
Yankee Development. Mr. Walker, the President, Chief Executive Officer and
Chairman of the Board of Directors of the Company and Yankee Development and the
President and a director of Simpco and the beneficial owner of approximately
70.95% of the outstanding shares of the Company's Common Stock, is the trustee
of the Shelton Voting Trust. (See Part II, Item 4. "Recent Sales of Unregistered
Securities.")
PAR Texas, a wholly-owned subsidiary of the Company, entered into that
certain Short Form of Lease dated November 1, 1998, with Mr. Richard Simpson, as
lessor, pursuant to which P & A Remediation has leased the oil well plugging
yard and office location used by Simpco prior to its acquisition by the Company.
The acreage and facilities, located north of Ballinger, Texas, are leased from
Mr. Richard Simpson, beneficial owner of approximately 9.4% of the Company's
outstanding shares of Common Stock, for a term of one year through October 31,
1999. The lease provides for annual rent in the amount of $5,400 payable in
monthly installments of $450 to Mr. Steven Simpson, Mr. Richard Simpson's
brother, or other assignee as directed by Mr. Richard Simpson.
Since January 8, 1999, Mr. Walker has had the use of a Company
automobile, a 1995 Jeep Cherokee, 10% of his usage of which is estimated to be
personal.
On January 8, 1999, the Company acquired a 1995 Jeep from Ms. Walker,
the Secretary and a director of the Company and Yankee Development and the Vice
President, Secretary and a director of Simpco, in consideration for the
assumption by the Company of a promissory note in the principal amount of
$10,500, secured by a certificate of deposit owned by Ms. Walker, payable to a
bank in connection with the purchase. The note, which bears interest at the rate
of 7.85% per annum, is due on February 15, 2002.
The Company issued and sold, on January 15, 1999, 212,500 shares of
Common Stock to each of the Simpco Trust #1, the Simpco Trust #2 and the Simpco
Trust #3 (an aggregate of 637,500 shares of Common Stock) in consideration and
exchange for the sale and transfer to the Company by each trust of 2,500 shares
of common stock, collectively constituting 75% of the outstanding shares of
common stock, of Simpco. As a result of this transaction, ownership by the
Simpco Trusts of approximately 9.4% of the outstanding shares of the Company's
Common Stock is attributable to Mr. Richard Simpson, trustee of the Simpco
Trusts. (See Part II, Item 4. "Recent Sales of Unregistered Securities.")
The Company issued and sold, on March 16, 2000, 979,232 shares
newly-issued, restricted shares of Common Stock in the company to Cyber City
Honolulu, Inc., in consideration for the sale and conveyance to the Company's
wholly owned subsidiary CCTECH certain assets in accordance with that certain
Acquisition Agreement and Closing Memorandum dated effective January 1, 2000. As
a result of this transaction, approximately 12.61% of the outstanding shares of
the Company's Common Stock are owned by CCHONO. (See Part II, Item 5. "Recent
Sales of Unregistered Securities.")
Certain executive officers, directors and controlling shareholders of
the Company, including Messrs. Bryan L. Walker and Richard C. Smith and Ms.
Laura N. Walker, have made cash advances on open account to the Company
aggregating $360,023 during the period from June 1, 1998, through March 31,
2000. These advances have been classified as long-term debt in the Company's
financial statements.
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<PAGE> 36
ITEM 8. DESCRIPTION OF SECURITIES.
Description of Capital Stock
The Company's authorized capital stock consists of 100,000,000 shares
of Common Stock, $.00001 par value per share, and 10,000,000 shares of Preferred
Stock, $.00001 par value per share.
Description of Common Stock
All shares of Common Stock have equal voting rights and, when validly
issued and outstanding, are entitled to one vote per share in all matters to be
voted upon by shareholders. The shares of Common Stock have no preemptive,
subscription, conversion or redemption rights and may be issued only as
fully-paid and non-assessable shares. Cumulative voting in the election of
directors is not permitted; which means that the holders of a majority of the
issued and outstanding shares of Common Stock represented at any meeting at
which a quorum is present will be able to elect the entire Board of Directors if
they so choose and, in such event, the holders of the remaining shares of Common
Stock will not be able to elect any directors. In the event of liquidation of
the Company, each shareholder is entitled to receive a proportionate share of
the Company's assets available for distribution to shareholders after the
payment of liabilities and after distribution in full of preferential amounts,
if any, to be distributed to holders of the Preferred Stock. All shares of the
Company's Common Stock issued and outstanding are fully-paid and non-assessable.
Dividend Policy. Holders of shares of Common Stock are entitled to
share pro rata in dividends and distributions with respect to the Common Stock
when, as and if declared by the Board of Directors out of funds legally
available therefor, after requirements with respect to preferential dividends
on, and other matters relating to, the Preferred Stock, if any, have been met.
The Company has not paid any dividends on its Common Stock and intends to retain
earnings, if any, to finance the development and expansion of its business.
Future dividend policy is subject to the discretion of the Board of Directors
and will depend upon a number of factors, including future earnings, capital
requirements and the financial condition of the Company.
Transfer Agent and Registrar. The Transfer Agent and Registrar for the
Company's Common Stock is Corporate Stock Transfer, Inc., 3200 Cherry Creek
Drive South, Suite #430, Denver, Colorado 80209.
Description of Preferred Stock
Shares of Preferred Stock may be issued from time to time in one or
more series as may be determined by the Board of Directors. The voting powers
and preferences, the relative rights of each such series and the qualifications,
limitations and restrictions thereof shall be established by the Board of
Directors, except that no holder of Preferred Stock shall have preemptive
rights. The Company has no shares of Preferred Stock outstanding, and the Board
of Directors has no plan to issue any shares of Preferred Stock for the
foreseeable future unless the issuance thereof shall be in the best interests of
the Company.
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<PAGE> 37
PART II
ITEM 1. MARKET PRICE OF AND DIVIDENDS ON THE REGISTRANT'S COMMON EQUITY AND
OTHER SHAREHOLDER MATTERS.
(a) MARKET INFORMATION.
There has been no established public trading market for the Common
Stock since the Company's inception on January 21, 1998.
(b) HOLDERS.
As of March 31, 2000, the Company had 68 shareholders of record of its
7,759,857 issued and outstanding shares of Common Stock, $.00001 par value per
share.
(c) DIVIDENDS.
The Company has never paid or declared any dividends on its Common
Stock and does not anticipate paying cash dividends in the foreseeable future.
ITEM 2. LEGAL PROCEEDINGS.
Company management does not know of any legal proceedings to which the
Company or its subsidiaries are parties or to which the property of any of such
companies is the subject which are pending, threatened or contemplated, or of
any unsatisfied judgments against the Company or its subsidiaries except as
described below.
PAR Texas with current trade accounts payable of $50,000, is involved
in some disputes on open accounts, four of which have resulted in suits on
sworn account being filed in three counties in the State of Texas. In each
matter, PAR Texas has responded to the action by the Movant with denial of their
statements and claims against the company and made other contacts to attempt a
negotiated resolution. Each of the matters is being negotiated for a settlement
as of the date hereof. The disputed account balances total less than $22,000 and
management does not believe the disputes are likely to have a material adverse
effect on the Company.
On January 28, 2000, in the 119th District Court of Runnels County,
Texas, Winters Oilfield Supply filed a suit on a sworn account under Cause No.
13,050 alleging non-payment of $5,405.85 requesting judgment for the plead
amount, pre-judgment interest, costs, and $1,000 in attorney's fees. The matter
is pending in the Court. On March 14, 2000, in the 70th District Court of Ector
County, Texas, Pesco, Inc., filed a suit on a sworn account under Cause No.
108,790 alleging non-payment of $3,051.98 requesting judgment for the plead
amount, pre-judgment interest, costs, and $1,000 in attorney's fees. The matter
is pending in the Court. On April 26, 2000, in the County Court At Law No. 1, of
Taylor County, Texas, Hughes Diesel Service, Inc., filed a suit on a sworn
account under Cause No. 18719 alleging non-payment of $2,369.09 requesting
judgment for the plead amount, pre-judgment interest, costs, and $1,500 in
attorney's fees. The matter is pending in the Court. On May 26, 2000, in the
County Court At Law No. 1, of Taylor County, Texas, Angelo Properties, Inc.,
filed a suit on a sworn account under Cause No. 18739 alleging non-payment of
$6,443.28 requesting judgment for the plead amount, post-judgment interest,
costs, and $1,500 in attorney's fees. The matter is pending in the Court.
ITEM 3. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS.
David S. Hall, P.C., 1660 South Stemmons, Suite #420, Lewisville, Texas
75067, reported upon the Company's financial statements for the period from
inception (January 21, 1998) to June 30, 1999, and has been appointed as the
Company's independent accountant for the fiscal year ending June 30, 2000. There
has been no change in the Company's independent
37
<PAGE> 38
accountant during the period commencing with the Company's retention of David S.
Hall, P.C., through the date hereof.
ITEM 4. RECENT SALES OF UNREGISTERED SECURITIES.
On or about January 21, 1998, the Company issued and sold 200,000
shares, 200,000 shares, 170,000 shares, and 30,000 shares, of Common Stock,
$.00001 par value per share, to Messrs. James L. Speir, James Howe and John
Bradley and Ms. Janine Kreuter, respectively (a total of 600,000 shares of
Common Stock), in consideration for cash paid by each individual in the amount
of $750, $750, $637.50 and 112.50, respectively (a total of $2,250 at the rate
of $.00375 per share). The Company claimed the exemptions from registration, in
connection with each of the transactions described in this paragraph whereby the
Company issued and sold shares of its Common Stock in consideration for cash,
afforded by Section 4(2) of the Securities Act of 1933, as amended (the "Act"),
and Section 11-51-308(1)(p) of the Colorado Securities Act, as amended (the
"Colorado Act"). To make the exemptions available, the Company relied upon the
fact that the issuance and sale of the shares by the Company did not constitute
a public securities offering together with the fact that, at the time of the
sales, Mr. Speir and Ms. Kreuter were executive officers and directors of the
Company and Messrs. Speir, Howe and Bradley and Ms. Kreuter were accredited
investors. On or about April 16, 1998, a total of 510,000 shares of Common Stock
owned collectively by Messrs. Speir, Howe and Bradley and Ms. Kreuter were
transferred to a total of fourteen residents of the State of Texas, including
the current executive officers and directors of the Company, two trusts of which
the Company's Treasurer serves as trustee and certain immediate family members
of the foregoing. (See Part I, Item 7. "Certain Relationships and Related
Transactions.")
From March to April 7, 1998, the Company issued and sold an aggregate
of 25,000 shares of Common Stock to a total of thirty-five persons, including
twenty-six residents of the State of Colorado, five residents of the State of
Arizona and four residents of the State of Texas, in consideration for the total
sum of $25,000 in cash. No underwriter was employed in connection with the
offering and sale of the shares. The Company claimed the exemptions from
registration in connection with the offering provided under Section 3(b) of the
Act and Rule 504 of Regulation D promulgated thereunder and Section
11-51-308(1)(p) of the Colorado Act. The facts relied upon by the Company to
make the exemptions available include the following: (i) the aggregate offering
price for the offering of the shares of Common Stock did not exceed $1,000,000,
less the aggregate offering price for all securities sold within the twelve
months before the start of and during the offering of the shares in reliance on
any exemption under Section 3(b), or in violation of Section 5(a), of the Act;
(ii) the required number of manually executed originals and true copies of Form
D, accompanied, in connection with the Colorado notification of exemption, with
the appropriate exemption fee, were duly and timely filed with the U.S.
Securities and Exchange Commission and the Colorado Division of Securities;
(iii) no general solicitation or advertising was conducted by the Company in
connection with the offering of any of the shares; and (iv) the fact that the
Company has not been since its inception (a) subject to the reporting
requirements of Section 13 or 15(d) of the Securities Exchange Act of 1934, as
amended; (b) an "investment company" within the meaning the Investment Company
Act of 1940, as amended; or (c) a development stage company that either has no
specific business plan or purpose or has indicated that its business plan is to
engage in a merger or acquisition with an unidentified company or companies, or
other entity or person.
In April 1998, the Company issued and sold 5,305,625 shares of Common
Stock to the Shelton Voting Trust in consideration and exchange for the sale and
transfer to the Company of 1,000 shares of common stock, no par value per share,
constituting all of the outstanding common stock, of Yankee Development. The
Company relied, in connection with the "reverse acquisition" transaction, upon
the exemption from registration provided by Section 4(2) of the
38
<PAGE> 39
Act for sales of securities by an issuer not constituting a public securities
offering together with the fact that, at the time of the consummation of the
transaction, the Shelton Voting Trust had a net worth in excess of $700,000 and
Mr. Bryan L. Walker, the trustee of the trust, was an executive officer,
director and controlling shareholder of the Company. (See Part I, Item 7.
"Certain Relationships and Related Transactions.")
The Company issued and sold, on January 15, 1999, 212,500 shares of
Common Stock to each of Mr. Randy K. Dusek, the Simpco Trust #1, the Simpco
Trust #2 and the Simpco Trust #3 (an aggregate of 850,000 shares of Common
Stock) in consideration and exchange for the sale and transfer by each said
person to the Company of 2,500 shares of common stock, no par value per share,
collectively constituting all 10,000 outstanding shares of common stock, of
Simpco. The Company claimed the exemption from registration in connection with
the transaction, involving the exchange of shares of the Company's Common Stock
for shares of Simpco common stock, provided under Section 4(2) of the Act. The
facts relied upon by the Company to make the exemption available include the
following: (i) the transaction did not constitute a public securities offering
by the Company; (ii) Mr. Dusek was an accredited investor at the time of the
transaction; and (iii) each Simpco Trust that received shares of the Company's
Common Stock had a net worth in excess of $250,000 at the time of the
consummation of the transaction. (See Part I, Item 7. "Certain Relationships and
Related Transactions.")
The Company issued and sold, on March 16, 2000, 979,232 shares
newly-issued, restricted shares of Common Stock in the company to Cyber City
Honolulu, Inc., in consideration for the sale and conveyance to the Company's
wholly owned subsidiary CCTECH certain assets in accordance with that certain
Acquisition Agreement and Closing Memorandum dated effective December 31, 1999.
As a result of this transaction, CCHONO owns approximately 12.61% of the
outstanding shares of the Company's Common Stock. The Company relied, in
connection with the transaction, upon the exemption from registration provided
by Section 4 (2) of the Act.
ITEM 5. INDEMNIFICATION OF DIRECTORS AND OFFICERS.
Article IX of the Company's Articles of Incorporation contains
provisions providing for the indemnification of directors and officers of the
Company as follows:
The corporation shall indemnify, to the fullest extent
permitted by applicable law in effect from time to time, any person,
and the estate and personal representative of any such person, against
all liability and expense (including attorneys' fees) incurred by
reason of the fact that such person is or was a director or officer of
the Corporation or, while serving as a director or officer of the
Corporation, is or was serving at the request of the Corporation as a
director, officer, partner, trustee, employee, fiduciary, or agent of,
or in any similar managerial or fiduciary position of, another domestic
or foreign corporation or other individual or entity or of an employee
benefit plan. The Corporation shall also indemnify any person who is
serving or has served the Corporation as director, officer, employee,
fiduciary, or agent, and that person's estate and personal
representative, to the extent and in the manner provided in any bylaw,
resolution of the shareholders or directors, contract, or otherwise, so
long as such provision is legally permissible.
Article VIII, Section 8.3 of the Regulations and Operating Agreement of
P & A Remediation, LLC, contains provisions providing for the indemnification of
certain persons as follows:
39
<PAGE> 40
Indemnification By Company. The Limited Liability Company may
indemnify any person who was or is a party defendant or is threatened
to be made a party defendant to any threatened, pending or completed
action, suit or proceeding, whether civil, criminal, administrative, or
investigative (other than an action by or in the right of the Limited
Liability Company) by reason of the fact that he is or was a Member of
the Company, Officer, employee or agent of the Company, or is or was
serving at the request of the Company, against expenses (including
attorney's fees), judgments, fines and amounts paid in settlement
actually and reasonably incurred by him in connection with such action,
suit or proceeding if the Members determine that he acted in good faith
and in a manner he reasonably believed to be in or not opposed to the
best interest of the Limited Liability Company, and with respect to any
criminal action or proceeding, had no reasonable cause to believe his
conduct was unlawful. The termination of any action, suit, or
proceeding by judgment, order, settlement, conviction, or upon a plea
of nolo contendere or its equivalent, shall not in itself create a
presumption that the person did or did not act in good faith and in a
manner which he reasonably believed to be in the best interest of the
Limited Liability Company, and, with respect to any criminal action or
proceeding, had reasonable cause to believe that his conduct was
unlawful.
At present, there is no pending litigation or proceeding involving a
director or executive officer of the Company, Yankee Development or Simpco or
the Manager of PAR as to which indemnification is being sought.
PART F/S
The Financial Statements of Basic Technologies, Inc., required by
Regulation S-B commence on page F-1 hereof in response to Part F/S of this
Registration Statement on Form 10-SB and are incorporated herein by this
reference.
PART III
ITEM 1. INDEX TO EXHIBITS.
<TABLE>
<CAPTION>
ITEM
NUMBER DESCRIPTION
------ ---------------------------------------------------------------------
<S> <C>
3.1* Articles of Incorporation of Basic Technologies, Inc., filed January
21, 1998.
3.2* Bylaws of Basic Technologies, Inc.
3.3* Articles of Incorporation of Yankee Development Corporation filed
December 31, 1997.
3.4* Bylaws of Yankee Development Corporation.
3.5* Articles and Certificate of Organization of P & A Remediation, LLC,
filed October 16, 1998.
3.6* Regulations and Operating Agreement of P & A Remediation, LLC.
3.7* Articles of Incorporation of Simpco, Inc.
</TABLE>
40
<PAGE> 41
<TABLE>
<S> <C>
3.8* Bylaws of Simpco, Inc.
3.9* Articles and Certificate of Organization of P & A Remediation, LLC,
filed November 24, 1999.
3.10* Regulations and Operating Agreement of P & A Remediation, LLC.
3.11* Articles of Incorporation of Cyber Cities Technologies, Inc., filed
December 31, 1999.
3.12* Bylaws of Cyber Cities Technologies, Inc.
10.1* Voting Trust Agreement of Shelton Voting Trust dated July 1, 1986,
among Bryan L. Walker, for the benefit of Laura N. Walker, as her
separate property, Richard C. Smith and Bryan L. Walker, as trustee
and registrar.
10.2* General Warranty Assignment of Interest in Oil & Gas Lease dated
December 31, 1997, from the Shelton Voting Trust, as assignor, to
Yankee Development Corporation, as assignee.
10.3* Acquisition Agreement and Closing Memorandum dated April 23, 1998
between Basic Technologies, Inc., and Yankee Development Corporation.
10.4* Short Form of Lease dated November 1, 1998, between Rick Simpson, as
lessor, and P & A Remediation, LLC, as lessee.
10.5* Bill of Sale dated November 22, 1998, from Wes Roberts, as seller, to
Regal Operating Corp., as buyer.
10.6* Promissory Note dated November 22, 1998, in the principal amount of
$9,000 from Regal Operating Corp., as maker, payable to Wes Roberts,
as holder.
10.7* Short Form of Lease dated December 1, 1998, between the Estate of
Ivalene Kuykendall, as lessor, and P & A Remediation, LLC, as lessee.
10.8* Promissory Note dated December 1, 1998, in the principal amount of
$15,135 from P & A Remediation, LLC., as maker, payable to Gray
Production Trust, as holder.
10.9* Bill of Sale dated December 1, 1998, from Gray Production Trust, as
seller, to P & A Remediation, LLC., as buyer. Exhibit A attached.
10.10* Bill of Sale dated January 8, 1999, between Laura Walker, as seller,
and P & A Remediation, LLC, as buyer.
10.11* Promissory Note dated January 8, 1999, in the principal amount of
$10,500 from Laura N. Walker, as maker, payable to the United
Community Bank, N.A., as holder.
10.12* Acquisition Agreement and Closing Memorandum dated January 15, 1999,
between Basic Technologies, Inc., and Simpco, Inc.
10.13* Bill of Sale dated February 1, 1999, from Gray Production Trust, as
seller, to Simpco, Inc., as buyer. Exhibit A attached.
</TABLE>
41
<PAGE> 42
<TABLE>
<S> <C>
10.14* Promissory Note dated February 1, 1999, in the principal amount of
$11,550 from Simpco, Inc., as maker, payable to Gray Production Trust,
as holder.
10.15* Bill of Sale dated February 7, 1999, from Eric Simpson, et al, as
seller, to Basic Technologies, Inc., or assigns, as buyer.
10.16* Bill of Sale dated March 15, 1999, from Regal Operating Corporation,
as seller, to Simpco, Inc., as buyer.
10.17* Promissory Note dated March 18, 1999, in the principal amount of
$45,000 from Basic Technologies, Inc., as maker, payable to Boyd
Partners, Ltd., as holder.
10.18* Promissory Note dated March 18, 1999, in the principal amount of
$5,000 from Basic Technologies, Inc., as maker, payable to
Pleasantview Partners, Ltd., as holder.
10.19* Promissory Note Secured By Deed of Trust dated March 19, 1999, in the
principal amount of $11,500 from Basic Technologies, Inc., as maker,
payable to Wanda Ickert, as holder.
10.20* Deed of Trust dated March 19, 1999, among Basic Technologies, Inc., as
grantor, to W. W. Price, Jr., as trustee, for the benefit of Wanda
Ickert, as beneficiary.
10.21* Bill of Sale dated March 29, 1999, between Ed Gober, as seller, and
Basic Technologies, Inc., as buyer.
10.22* Promissory Note in the principal amount of $15,700 from Basic
Technologies, Inc., as maker, payable to Ed Gober, as holder.
10.23* General Assignment dated April 1, 1999, from Basic Technologies, Inc.,
as assignor, to Simpco, Inc., as assignee.
10.24* Bill of Sale dated April 12, 1999, between Russell Auto Parts, as
seller, and Basic Technologies, Inc., as buyer.
10.25* Promissory Note dated April 12, 1999, in the principal amount of
$8,000 from Basic Technologies, Inc., as maker, payable to Russell
Auto Parts, or assigns, as holder.
10.26* Bill of Sale dated April 12, 1999, from Basic Technologies, Inc., as
seller, to Simpco, Inc., as buyer.
10.27* Equipment Lease Agreement dated April 15, 1999, between Rodney W.
Simpson, as lessor, and Basic Technologies, Inc., as lessee.
10.28* Promissory Note dated April 19, 1999, in the principal amount of
$15,000.00 from Basic Technologies, Inc., as maker, payable to Clemons
Motor Co., Inc., as holder.
10.29* Bill of Sale dated April 19, 1999, from Basic Technologies, Inc., as
seller, to Simpco, Inc., as buyer.
10.30* Promissory Note dated May 14, 1999, in the principal amount of $15,775
from Simpco, Inc., as maker, payable to Clemons Motor Co., Inc., as
holder.
</TABLE>
42
<PAGE> 43
<TABLE>
<S> <C>
10.31* Promissory Note dated April 15, 1999, in the principal amount of
$30,000 from Simpco, Inc., as maker, payable to Baldwin & Klein
Corporation, as holder.
10.32* Promissory Note dated June 30, 1999, in the principal amount of
$68,000 from P & A Remediation, LLC., as maker, payable to Regal
Operating Corporation, as holder.
10.33* Promissory Note dated August 1, 1999, in the principal amount of
$24,000 from P & A Remediation, LLC., as maker, payable to Regal
Operating Corporation, as holder.
10.34* Contract to purchase inventory and leasehold estate, dated October 15,
1999, by and between P & A Remediation, LLC., Simpco, Inc., as buyer,
and Daniel C. Bohnsack, acting individually and as President of Pierce
Pipe and Supply, Inc., as seller.
10.35* Promissory Note dated November 4, 1999, in the principal amount of
$100,000 from Basic Technologies, Inc., as maker, payable to Dennis
Odom, as holder.
10.36* Promissory Note dated November 17, 1999, in the principal amount of
$18,300.00 from Basic Technologies, Inc., as maker, payable to Clemons
Motor Co., Inc., as holder.
10.37* Bill of Sale dated November 17, 1999, from Basic Technologies, Inc.,
as seller, to Simpco, Inc., as buyer.
10.38* Acquisition and closing memorandum, dated November 30, 1999, by and
between Basic Technologies, Inc., as buyer, and Cyber City Honolulu,
Inc., as seller.
10.39* Bill of Sale dated December 31, 1999, from Cyber City Honolulu, Inc.,
as seller, to Cyber Cities Technologies, Inc., as buyer.
10.40* Assignment of interests dated December 31, 1999, from Cyber City
Honolulu, Inc., as assignor, to Cyber Cities Technologies, Inc., as
assignee.
10.41* Short Form of Lease dated January 1, 2000, between Baldwin & Klein
Corporation, as lessor, and P & A Remediation, LLC, as lessee.
10.42* State of Oklahoma Purchase Order to Simpco, Inc., dated 1/19/2000,
$48,600.00 to plug 53 oil/gas wells under P.O. # T053381.
10.43* State of Oklahoma Purchase Order, to Simpco, Inc., dated 1/19/2000,
$24,300.00 to plug 28 oil/gas wells under P.O. # T053389.
10.44* Promissory Note dated March 7, 2000, in the principal amount of
$20,000 from Basic Technologies, Inc., as maker, payable to Nina E.
Angelo, as holder.
10.45* Promissory Note dated April 5, 2000, in the principal amount of
$30,000 from Basic Technologies, Inc., and P & A Remediation, LLC., as
makers, payable to Edwin Dean, as holder.
</TABLE>
43
<PAGE> 44
<TABLE>
<S> <C>
10.46* Promissory Note dated April 12, 2000, in the principal amount of
$29,790.60 from Basic Technologies, Inc., and P & A Remediation, LLC.,
as makers, payable to Cynthia Rice Cleaver, Trustee, as holder.
</TABLE>
------------------
*Filed herewith.
ITEM 2. DESCRIPTION OF EXHIBITS.
The documents required to be filed as Exhibit Number 2 in Part III of
Form 1-A filed as part of this Registration Statement on Form 10-SB are listed
in Item 1 of this Part III above. No documents are required to be filed as
Exhibit Numbers 3, 5, 6 or 7 in Part III of Form 1-A, and the reference to such
Exhibit Numbers is therefore omitted. No additional exhibits are filed hereto.
44
<PAGE> 45
SIGNATURES
In accordance with Section 12 of the Securities Exchange Act of 1934,
the registrant caused this Registration Statement to be signed on its behalf by
the undersigned, thereunto duly authorized.
BASIC TECHNOLOGIES, INC.
(Registrant)
Date: June 9,2000 By: /s/ Bryan L. Walker
-------------------------------------
Bryan L. Walker, President
45
<PAGE> 46
BASIC TECHNOLOGIES, INC.
FINANCIAL STATEMENTS
JUNE 30, 1999
F-1
<PAGE> 47
[DAVID S. HALL, P.C. LETTERHEAD]
INDEPENDENT AUDITOR'S REPORT
To the Board of Directors of
Basic Technologies, Inc.:
We have audited the accompanying consolidated balance sheet of Basic
Technologies, Inc. (a Corporation) as of June 30, 1999 and the related
consolidated statements of income, retained earnings and cash flows for the
fiscal year then ended. These consolidated 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 generally accepted auditing standards.
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 our audit provides a reasonable basis for our opinion.
In our opinion, the financial statements referred to above present fairly, in
all material respects, the financial position of Basic Technologies, Inc. as of
June 30, 1999, and the results of its operations and its cash flows for the
fiscal year then ended in conformity with generally accepted accounting
principles.
/s/ DAVID S. HALL, P.C.
Lewisville, Texas
May 24, 2000
F-2
<PAGE> 48
BASIC TECHNOLOGIES, INC.
Consolidated Balance Sheet
June 30, 1999
<TABLE>
<CAPTION>
ASSETS
<S> <C>
CURRENT ASSETS
Cash $ 13,349
Accounts Receivable 3,102
Inventories 87,335
-----------------
TOTAL CURRENT ASSETS 103,786
FIXED ASSETS
Equipment 1,226,873
Land & Buildings 9,974
-----------------
Less: Accumulated Depreciation (22,817)
-----------------
TOTAL FIXED ASSETS 1,214,030
OTHER ASSETS
Deposits 1,399
Organization Costs - Net 1,612
Proved Developed Oil Reserves 3,711,000
Deferred Tax Benefit 58,130
-----------------
TOTAL OTHER ASSETS 3,772,141
-----------------
TOTAL ASSETS $ 5,089,957
=================
</TABLE>
The accompanying notes are an integral part of these financial statements.
F-3
<PAGE> 49
BASIC TECHNOLOGIES, INC.
Consolidated Balance Sheet
June 30, 1999
<TABLE>
<CAPTION>
LIABILITIES AND STOCKHOLDERS' EQUITY
<S> <C>
CURRENT LIABILITIES
Bank Overdrafts $ 21,171
Accounts Payable 70,318
Accrued Taxes Payable 25,705
Current Portion of Long Term Debt 79,600
-----------------
TOTAL CURRENT LIABILITIES 196,794
LONG TERM LIABILITIES
Shareholder Payables 139,393
Capital Leases Payable 41,009
Notes Payable 402,615
Less: Current Portion of Long Term Debt (79,600)
-----------------
TOTAL LONG TERM LIABILITIES 503,417
STOCKHOLDERS' EQUITY
Common Stock, $.00001 par value, 100,000,000 shares
authorized and 6,780,625 issued and outstanding 68
Preferred Stock, $.00001 par value, 10,000,000 shares
authorized and no shares issued and outstanding 0
Paid in Capital 4,506,332
Retained Earnings (Deficit) (116,654)
-----------------
TOTAL STOCKHOLDERS' EQUITY 4,389,746
-----------------
TOTAL LIABILITIES AND
STOCKHOLDERS' EQUITY $ 5,089,957
=================
</TABLE>
The accompanying notes are an integral part of these financial statements.
F-4
<PAGE> 50
BASIC TECHNOLOGIES, INC.
Consolidated Statement of Income
For the period ended June 30, 1999
<TABLE>
<S> <C>
REVENUES $ 124,589
COST OF SALES 94,859
-------------
GROSS PROFIT $ 29,730
OPERATING EXPENSES
Selling, General & Administrative Expenses 204,967
-------------
NET INCOME (LOSS) FROM OPERATIONS $ (175,237)
OTHER (INCOME) EXPENSE
Interest (Income) (429)
-------------
TOTAL OTHER (INCOME) EXPENSE (429)
-------------
NET INCOME (LOSS) BEFORE TAXES (174,808)
DEFERRED TAX BENEFIT $ 58,130
-------------
NET INCOME (LOSS) (116,678)
Beginning Retained Earnings 24
-------------
ENDING RETAINED EARNINGS (DEFICIT) $ (116,654)
=============
EARNINGS PER SHARE
Income for Common Stockholders $ (0.02)
=============
</TABLE>
The accompanying notes are an integral part of these financial statements.
F-5
<PAGE> 51
BASIC TECHNOLOGIES, INC.
Consolidated Statement of Cash Flows
For the period ended June 30, 1999
<TABLE>
<S> <C>
CASH FLOWS FROM OPERATING ACTIVITIES
Net Income (Loss) $ (116,678)
Adjustments to reconcile net income to net cash
provided by operating activities:
Depreciation and Amortization 23,267
(Increase) in Accounts Receivable (3,102)
(Increase) in Inventories (87,335)
(Increase) in Deposits (1,399)
(Increase) in Deferred Tax Benefit (58,130)
Increase in Accounts Payable & Accrued Liabilities 96,023
-----------------
NET CASH PROVIDED BY
OPERATING ACTIVITIES (147,354)
NET CASH USED BY INVESTING ACTIVITIES
Purchase of Equipment (185,656)
-----------------
NET CASH USED BY
INVESTING ACTIVITIES (185,656)
CASH FLOWS FROM FINANCING ACTIVITIES
Principal Payments on Bank & Other Notes (40,451)
Proceeds of Notes Payable 201,024
Proceeds of Shareholder Loans 139,393
Issuance of Restricted Common Stock 9
-----------------
NET CASH USED BY
FINANCING ACTIVITIES 299,975
-----------------
NET (DECREASE) IN CASH (33,035)
CASH AT BEGINNING OF YEAR 25,212
-----------------
CASH AT END OF YEAR $ (7,823)
=================
</TABLE>
The accompanying notes are an integral part of these financial statements.
F-6
<PAGE> 52
BASIC TECHNOLOGIES, INC.
Statement of Changes in Stockholders' Equity
For the period ended June 30, 1999
<TABLE>
<CAPTION>
Additional Retained
Common Paid In Earnings
Stock Capital (Deficit) Total
----------- ----------- ----------- -----------
<S> <C> <C> <C> <C>
BALANCE, JUNE 30, 1998 $ 59 $ 3,738,191 $ 24 $ 3,738,274
Issuance of Common Stock
Acquisition of Wholly Owned
Subsidiary (Sale of
850,000 shares) 9 768,141 768,150
Net Loss, Current Year (116,678) (116,678)
----------- ----------- ----------- -----------
BALANCE, JUNE 30, 1999 $ 68 $ 4,506,332 $ (116,654) $ 4,389,746
=========== =========== =========== ===========
</TABLE>
The accompanying notes are an integral part of these financial statements.
F-7
<PAGE> 53
BASIC TECHNOLOGIES, INC.
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
June 30, 1999
NOTE 1 - NATURE OF ACTIVITIES AND SIGNIFICANT ACCOUNTING POLICIES
Nature of Activities and Basis of Accounting
The Company, a Corporation, is engaged in environmental remediation
and recovery of oil and gas properties in Texas, and development of
oil and gas ventures and related interests, with its corporate
headquarters located in Lewisville, Texas. The Company incorporated in
the state of Colorado on January 21, 1998 and its fiscal year end is
June 30.
The accompanying financial statements have been prepared on the
accrual basis of accounting in accordance with generally accepted
accounting principles.
Consolidation
The Company was formed as a parent holding company to operate through
subsidiaries. The financial statements consolidate the activities of
the parent along with:
Yankee Development Corp., a Texas corporation
P & A Remediation, LLC, a Texas limited liability company
Simpco, Inc., a Texas corporation
All significant intercompany transactions and balances have been
eliminated.
Cash
For purposes of the statement of cash flows, the Company considers all
short term securities purchased with a maturity of three months or
less to be cash equivalents. There are no restrictions on any
balances. Overdraft balances are presented as current liabilities.
Accounts Receivable
Due to the short period of Company operations and absence of bad
debts, management has made no provision for bad debts. There are no
significant concentrations of credit risk.
F-8
<PAGE> 54
Inventories
Inventories are shown at cost, using the first-in, first-out method.
In addition to direct purchases, inventory is acquired through the
performance of services (See note about revenues).
Fixed Assets
These assets are carried at acquisition cost. Depreciation is provided
using the straight-line method over the estimated economic lives of
the assets, which range from 20 years for buildings to 3 to 15 years
for all other assets.
The Company rebuilt and upgraded certain newly acquired used operating
equipment prior to placing the equipment in the field. All costs,
including related payroll costs, were capitalized.
Intangibles
Amortization of Organization Costs is calculated over 60 months.
Income Taxes
Income from the corporation is taxed at regular corporate rates per
the Internal Revenue Code.
Common Stock
The Company's common stock is stated at par value ($.0000l) and the
paid in capital represents the difference between the fair value of
the assets received and the common stock at par value.
Revenues
Services
Services for oil well plugging are provided using two types of
contracts: cash and salvage. Under the salvage type, the Company
receives as its compensation specified types of used oil well
equipment or pipe. Revenue is recognized and the items taken into
inventory based upon the relevant wholesale market prices, or the
prices at which the Company could buy the items for resale on the open
market.
F-9
<PAGE> 55
Sales
Inventory, whether acquired by purchase or through services, is resold
to oil and construction customers.
No revenues have been earned from oil and gas production during the
fiscal year.
Interest
Interest expensed for the period is $7,247. No interest has been
capitalized.
Estimates
The preparation of financial statements in conformity with generally
accepted accounting principles requires management to make estimates
and assumptions that affect certain reported amounts and disclosures.
Accordingly, actual results could differ from those estimates.
NOTE 2 - INVESTMENTS IN WHOLLY OWNED SUBSIDIARY
On April 23, 1998, the Company issued 5,305,625 restricted common shares in
exchange for 100% of Yankee Development Corporation. Upon consummation of the
transaction, the former owners of Yankee Development Corporation controlled
approximately 90% of the issued and outstanding shares of Basic Technologies,
Inc and Yankee Development Corporation became a wholly owned subsidiary of Basic
Technologies, Inc.
The transaction was consummated as a purchase of assets, rather than a pooling
of interests. The valuation assigned to the purchase of Yankee Development
Corporation is based on the underlying net assets, which consist of working
interests in proven oil and gas reserves discounted to net present value of net
revenues less development and operating costs. The discount applied was 10%. The
oil and gas reserves are the only substantial assets in the subsidiary company.
Cost of Acquiring Yankee Development Shares $3,711,000
The valuation of the oil and gas reserves is based on the market price of oil.
At the time of the valuation, the price used was $15/bbl. The price of oil at
the balance sheet date was $20.00 per barrel, and the current price of oil is
$32.00; however, the reserves are not to be revalued in excess of their original
valuation.
In October 1998, the Company formed a Limited Liability Company ~ & A
Remediation, LLC) with Simpco, Inc (a wholly owned subsidiary) with the
intention of developing environmental remediation in oil and gas fields. The
Company owns 99 % of the stock of P & A Remediation, LLC and Simpco, Inc. owns
1%.
F-10
<PAGE> 56
In January, 1999, the Company issued 850,000 shares of its authorized but
previously unissued shares of voting common stock in exchange for all of the
outstanding common stock of Simpco, Inc., a Texas corporation. There is a
contingency clause in the acquisition agreement, which provides for the issuance
of additional shares of stock should the value of the Simpco, Inc. assets exceed
a certain level within eighteen months of the acquisition. That corporation, now
a wholly owned subsidiary, is intended to be the owner and lessor of the
consolidated entities' operating equipment. A promissory note for $110,000.00
was also issued to the shareholders of Simpco, Inc. as part of the acquisition
cost. The transaction was accounted for under the purchase method.
NOTE 3 - EMPLOYEE BENEFITS
There are currently no qualified or non-qualified employee pensions, profit
sharing, stock option or other plans authorized for any class of employees.
NOTE 4 - LEASES
All leases for physical facilities are for a period of one year or less, with no
written option periods.
There is only one equipment lease, and is accounted for as a capital lease. The
leased assets are depreciated with interest imputed.
Amortization of capitalized lease costs is included with depreciation. Future
obligations required under the lease terms, adjusted for imputed interest are:
<TABLE>
<CAPTION>
Year Ending
June 30 Amount
<S> <C>
2000 $ 9,824
2001 7,351
2002 7,995
2003 8,745
2004 7,094
------------
Total $ 41,009
</TABLE>
NOTE 5 - COMMITMENTS AND CONTINGENCIES
No obligations, guarantees, potential lawsuits or other situations exist that
would require an accrual of any obligation or loss.
NOTE 6 - PROVEN DEVELOPED OIL RESERVES
F-11
<PAGE> 57
The Company owns, through a subsidiary, proven developed oil reserves on 2300
acres in West Texas. Valuation at the time of acquisition was based upon the
discounted net present value of net revenues, after development and operating
costs. The applied discount rate was 10%, and the oil price used was $15.00 per
barrel. The price of oil at the statement date was $20.00 per barrel, and the
current price of oil is $32.00 per barrel, but the reserves are not to be
revalued. Recoverable oil reserves are estimated to be 880,000 barrels. See also
Note 2 above.
NOTE 7 - INCOME TAXES
Effective December 31, 1993, the Company adopted Statement of Financial
Accounting Standards No.109, Accounting for Income Taxes ("SFAS No.109), which
requires the use of the liability method in the computation of income tax
expense and the current and deferred income taxes payable. Under SFAS No.109,
income tax expense consists of taxes payable for the year and the changes during
the year in deferred assets and liabilities. Deferred income taxes are
recognized for the tax consequences in future years of differences between the
tax bases and financial reporting bases of assets and liabilities. Valuation
allowances are established when necessary to reduce deferred tax assets to the
amount expected to be realized.
As there is a net operating loss in the current fiscal year, the Company has
calculated a deferred tax benefit as follows:
<TABLE>
<S> <C>
Gross deferred tax asset $ 67,301
Less: Deferred tax liability 9,171
---------
Net deferred tax benefit $ 58,130
---------
</TABLE>
NOTE 8 - SEGMENT REPORTING
Since only one segment, that of environmental remediation and salvage, has
revenue or operations during this period, no segment-reporting schedule is
presented.
NOTE 9 - EARNINGS PER SHARE
Basic earnings (loss) per share are computed by dividing the net loss by the
weighted average number of common shares outstanding during the period. There
are no provisions or contracts that would create dilutive potential common
stock.
NOTE 10 - ACCRUALS
No accrual of real or personal property taxes is made. The Company owned no
assets subject to taxation on the assessment date of January 1, 1999.
F-12
<PAGE> 58
No accrual of vacation time is made, because no employee met eligibility
requirements at the statement date.
NOTE 11- LONG-TERM DEBT
In January, 1999, the Company issued a $110,000 unsecured note, due January
2001, as part of the acquisition cost of Simpco, Inc. The note does not bear
interest, and the entire balance is due at maturity.
In March, 1999, the Company issued $50,000 in notes payable, due in March 2003
for working capital. Principal and interest accrued at 10% are payable monthly,
and the notes are secured by equipment.
In March, 1999, the Company issued a $11,500 mortgage payable, due in March 2004
for the purchase of real estate. Principal and interest accrued at 10% are
payable monthly and the mortgage is secured by real estate.
In February, 1999, the Company assumed $71,700 in unsecured notes payable, due
March 2004 for the purchase of inventory. Interest accrued at 7%, as well as the
entire principal balance, is due at maturity.
From November 1998 through May 1999, the Company issued six notes for a total of
$73,975 in notes payable for vehicle and equipment purchases, due from August
2000 through March 2004. Principal and interest accrued at rates from 7.85% to
16.5% are payable monthly and the notes are secured by vehicles and equipment.
Certain equipment installment notes payables are non-interest bearing. Interest
has been imputed at 9%, the related asset has been discounted, and the
imputed/discounted interest is included in interest expense.
There are no conversion provisions for any debt, or any restrictive or
subordinate covenants other than standard lines.
Maturities of long term debt are as follows:
<TABLE>
<CAPTION>
Year Ending
June 30 Amount
----------- ----------
<S> <C>
2000 $ 79,600
2001 105,165
2002 202,994
2003 46,281
2004 9,374
----------
Total $ 443,414
==========
</TABLE>
F-13
<PAGE> 59
NOTE 12 - RELATED PARTY TRANSACTIONS
Open account cash advances have been made by controlling shareholders. As of the
financials statement date, no promissory notes, interest rates or repayment
schedules have been set. The balances are classified as long-term obligations.
NOTE 13 - SUBSEQUENT EVENTS
On November 24, 1999, P&A Remediation LLC, an Oklahoma limited liability
company, was formed for the purpose of beginning remediation and sales
operations in Oklahoma.
Effective the close of business December 31, 1999, the Company acquired the
assets and operations, subject to certain liabilities, of Cyber City Honolulu,
Inc., a Hawaiian corporation, in a stock for asset exchange. The assets were
then transferred into a newly formed Hawaiian corporation, Cyber City
Technologies, Inc. The predecessor and successor companies are a regional
Internet service provider and Internet web page hosting service.
NOTE 14 - SUPPLEMENTAL DISCLOSURES-STATEMENT OF CASH FLOWS
Operating activities reflect interest paid of $7,247.
<TABLE>
<CAPTION>
Non cash acquisitions of Fixed Assets:
<S> <C>
Issuance of stock $ 878,150
Equipment loans $ 173,041
</TABLE>
Cash down payments are included on the statement of cash flows in capital
expenditures-purchase of fixed assets.
F-14
<PAGE> 60
BASIC TECHNOLOGIES, INC.
Consolidated Balance Sheet
March 31, 2000
<TABLE>
<CAPTION>
ASSETS
<S> <C> <C> <C>
CURRENT ASSETS
Cash $ 27,964
Accounts Receivable-Trade 119,357
Inventories 231,670
----------
TOTAL CURRENT ASSETS $ 378,991
FIXED ASSETS
Land $ 5,774
Building 4,200
Equipment 1,411,804
----------
Subtotal 1,421,778
Less: Accum. Depreciation (116,042)
----------
TOTAL FIXED ASSETS 1,305,736
OTHER ASSETS
Goodwill-Acquisition Costs (net) $ 51,635
Deposits 5,168
Organization Costs (net) 1,215
Proven Developed Oil Reserves 3,711,000
Oil Interests-Producing 24,000
-----------
TOTAL OTHER ASSETS 3,793,018
-----------
TOTAL ASSETS $ 5,477,745
-----------
</TABLE>
F-15
<PAGE> 61
BASIC TECHNOLOGIES, INC.
Consolidated Balance Sheet
March 31, 2000
<TABLE>
<CAPTION>
LIABILITIES AND STOCKHOLDER'S EQUITY
<S> <C> <C>
CURRENT LIABILITIES
Accounts Payable $ 149,695
Current Portion-Long Term Debt 61,380
Notes Payable-Short Term 120,000
----------
TOTAL CURRENT LIABILITIES $ 331,075
LONG TERM LIABILITIES
Payables-Shareholders $ 360,023
Mortgage Payable-Real Estate 9,787
Notes Payable 462,784
Less: Current Maturities (61,380)
----------
TOTAL LONG TERM LIABILITIES 771,214
-----------
TOTAL LIABILITIES $ 1,102,289
-----------
STOCKHOLDERS' EQUITY
Common Stock, $.00001 par value, 100,000,00 $ 78
shares authorized and 7,759,757 issued and
outstanding
Paid in Capital 4,622,398
Retained Earnings (Deficit) (247,020)
----------
TOTAL STOCKHOLDERS' EQUITY 4,375,456
-----------
TOTAL LIABILITIES AND
STOCKHOLDERS' EQUITY $ 5,477,745
-----------
</TABLE>
F-16
<PAGE> 62
BASIC TECHNOLOGIES, INC.
Consolidated Statement of Income
For Nine Months Ended March 31, 2000
<TABLE>
<S> <C> <C> <C>
TOTAL REVENUES $ 752,168
COST OF REVENUES
Inventory Costs $ 51,680
Labor/Direct Costs 252,418
Telephone Access 113,215
---------
TOTAL COST OF SALES 417,313
---------
GROSS PROFIT ON SALES $ 334,855
EXPENSES
Interest $ 17,314
Automotive/Equipment Expense 36,328
Office/Shop Expense 13,687
Insurance 12,600
Salaries/Management Fees 151,817
Taxes 13,237
Rent 24,910
Telephone/Utilities 21,505
Travel 22,740
Professional/Filing Fees 13,165
Amortization/Depreciation 70,031
Miscellaneous 9,307
---------
TOTAL EXPENSES (407,091)
---------
Net Loss
$ (72,236)
Earnings (Loss) Per Share:
For Common Stockholders $ (.01)
=========
</TABLE>
F-17
<PAGE> 63
BASIC TECHNOLOGIES, INC.
Consolidated Statement of Cash Flow
For the nine months ended March 31, 2000
<TABLE>
<CAPTION>
CASH FLOWS FROM OPERATING ACTIVITIES
<S> <C>
Net Income (Loss) $ (72,236)
Adjustments to reconcile net income to cash
provided by operating activities
Depreciation and Amortization 70,031
(Increase) in Accounts Receivable (119,357)
(Increase) in Inventories (144,335)
(Increase) in Deposits (3,769)
(Increase) in Accounts Payable
and Accrued Liabilities 53,672
------------
NET CASH USED BY
OPERATING ACTIVITIES $ (215,994)
NET CASH USED BY INVESTING ACTIVITIES
Purchase of Equipment (41,411)
------------
NET CASH USED BY
INVESTING ACTIVITIES (41,411)
CASH FLOWS FROM FINANCING ACTIVITIES
Principal Payments of Bank & Other Notes (47,438)
Proceeds of Notes Payable 120,000
Proceeds of Shareholder Loans 220,630
------------
NET CASH PROVIDED BY
FINANCING ACTIVITIES 293,192
------------
NET INCREASE IN CASH 35,787
CASH AT BEGINNING OF YEAR (7,823)
------------
CASH AT END OF YEAR $ 27,964
============
</TABLE>
F-18
<PAGE> 64
BASIC TECHNOLOGIES, INC.
NOTES TO INTERIM FINANCIAL STATEMENTS
March 31, 2000
NOTE 1 - NATURE OF ACTIVITIES
For the fiscal year to date the Company, through its subsidiaries, was
engaged in environmental remediation and recovery of oil and gas
properties in Texas and Oklahoma; development of oil and gas ventures
and related interests; and internet service provision and consulting in
Hawaii. Corporate headquarters are located in Lewisville, Texas. The
Company incorporated in the state of Colorado on January 21, 1998; it's
fiscal year end is June 30.
NOTE 2 - CONSOLIDATION
The Company was formed as a parent holding company, to operate through
subsidiaries. The financial statements consolidate the activities of
the parent along with:
- Yankee Development Corp., a Texas corporation
- P & A Remediation, LLC, a Texas limited liability company
- Simpco, Inc., a Texas corporation
- P & A Remediation, LLC, an Oklahoma limited liability
company
- Cyber Cities Technologies, Inc., a Hawaii corporation
All significant intercompany transactions and balances have been
eliminated.
NOTE 3 - SIGNIFICANT ACCOUNTING POLICIES
- Basis of Accounting
The accompanying financial statements have been prepared on the
accrual basis of accounting in accordance with generally accepted
accounting principles.
- Intangibles
Amortization of Organization Costs is calculated over 60 months.
- Common Stock
The Company's common stock is stated at par value ($.00001) and
the paid in capital represents the difference between the fair
value of the net assets received and the common stock at par
value. There are no commitments or provisions for stock options,
stock compensation, conversion rights, redemption requirements or
unusual voting rights.
- Estimates
The preparation of financial statements in conformity with
generally accepted accounting principles requires management to
make estimates and assumptions that affect certain reported
amounts and disclosures. Accordingly, actual results could differ
from those estimates.
- Cash
Balances represent cash and cash equivalents. There are no
restrictions on any balances. Overdraft balances are presented as
current liabilities. Such balances are only as per the books;
there was no overdraft at a bank.
F-19
<PAGE> 65
- Accounts Receivable
During the period of company operations, there have been few bad
debts. Accordingly, management has made no provisions for bad
debts. There are no significant concentrations of credit risk.
- Inventories
Inventories are shown at cost, using the first-in, first-out
method. In addition to direct purchases, inventory is acquired
through the performance of services (See note about revenues.)
Pipe inventory, in the form of a 35-mile long abandoned oil
gathering pipeline, was acquired for the issuance of a $35,000
promissory note. The company will dig up the pipe and prepare it
for sale.
- Property, Plant and Equipment
a. These assets are carried at acquisition cost. Depreciation
is provided using the straight line method over the
estimated economic lives of the assets, which range from 20
years for buildings to three to fifteen years for all other
assets.
b. The company rebuilt and upgraded certain newly-acquired used
operating equipment prior to putting them in the field. All
costs, including payroll, were capitalized.
- Stockholder Payables
Represent net balances of open advances made by shareholders.
There are no current provisions for interest charges or specific
repayment schedules.
- Revenues
a. Service Revenues
Services for oil-well plugging are provided using two types
of contracts: cash and salvage. Under the salvage type, the
company receives as its compensation specified types of used
oil well equipment or pipe. Revenue is recognized and the
items taken into inventory based upon the relevant wholesale
market prices, or the prices at which the company could buy
the items for resale on the open market.
Internet access and consulting services are provided on a
month-to-month basis and on term contracts. Revenue is
recognized each month as services are provided.
b. Sales Revenues
Inventory, whether acquired by purchase or through services,
is resold to oil and construction customers.
c. Minimal revenues have been earned from oil production during
the fiscal year to date.
- Interest
No interest has been capitalized. Expensed interest for the
period is $17,314.
NOTE 4 - EMPLOYEE BENEFITS
There are currently no qualified or non-qualified employee
pension, profit sharing, stock option or other plans authorized
for any class of employees.
F-20
<PAGE> 66
NOTE 5 - LEASES
- All leases for physical facilities are for a period of one year
or less, with no written option periods.
- There is only one equipment lease, the terms of which mandate
accounting as a capital lease. The leased assets are depreciated
with interest imputed, and the liability is included with
long-term notes payable.
- Amortization of capitalized lease costs is included with
depreciation. Future obligations required under the lease terms,
adjusted for imputed interest are:
<TABLE>
<CAPTION>
Year Ending
June 30 Amount
----------- ------
<S> <C>
2001 $ 7,351
2002 7,995
2003 8,745
2004 7,094
---------
Total $ 31,185
</TABLE>
NOTE 6 - COMMITMENTS AND CONTINGENCIES
- No obligations, guarantees, potential lawsuits or other situations
exist that would require an accrual of any obligation or loss.
NOTE 7 - PROVED DEVELOPED OIL RESERVES
The Company owns, through a subsidiary, proven developed oil reserves
on 2300 acres in west Texas. Valuation at the time of acquisition was
based upon the discounted net present value of net revenues, after
development and operating costs. The applied discount rate was 10%,
and the oil price used was $15.00 per barrel. The posted price of oil
at the statement date was $24.00 per barrel, but the reserves are not
to be revalued upward, based upon generally accepted accounting
principles and SEC regulations. Recoverable oil reserves are 880,000
barrels.
NOTE 8 - BUSINESS COMBINATION
Effective January 1, 2000, the Company issued 979,232 shares of its
authorized but unissued shares of voting common stock in a
stock-for-asset swap, for the assets and operations of Cyber City
Honolulu, Inc. The assets and operations were then transferred into a
newly formed Hawaii corporation, Cyber Cities Technologies, Inc. The
transaction was accounted for as a pooling of interests.
NOTE 9 - EARNINGS PER SHARE
Basic earnings (loss) per share are computed by dividing the net loss
by the weighted average number of common shares outstanding during the
period. There are no provisions or contracts that would create dilutive
potential common stock.
NOTE 10- LONG-TERM DEBT
Certain equipment installment notes payable are non-interest bearing.
Interest has been imputed at 9%, the related asset has been discounted,
and the imputed/discounted interest is included in interest expense.
F-21
<PAGE> 67
There are no conversion provisions for any debt, nor any restrictive or
subordinative covenants other than standard liens.
Maturities of long term debt are as follows:
<TABLE>
<CAPTION>
Twelve Months
Ending Amount
------------- ----------
<S> <C>
2001 $ 61,380
2002 109,835
2003 208,318
2004 81,010
2005 12,028
Total $ 472,571
</TABLE>
NOTE 11 - RELATED PARTY TRANSACTIONS
Open account cash advances have been made by controlling shareholders.
As of the financial statement date, no promissory notes, interest
rates or repayment schedules have been set. The balances are
classified as long-term obligations.
NOTE 12 - SUPPLEMENTAL DISCLOSURES-STATEMENT OF CASH FLOWS
- Operating activities reflect interest paid of $ 17,314
- Non cash acquisitions of Fixed assets:
Issuance of stock $ 175,066
Equipment loans $ 44,000
Cash down-payments are included on the statement of cash flows in
capital expenditures-fixed assets.
F-22
<PAGE> 68
INDEX TO EXHIBITS
<TABLE>
<CAPTION>
ITEM
NUMBER DESCRIPTION
------ ---------------------------------------------------------------------
<S> <C>
3.1* Articles of Incorporation of Basic Technologies, Inc., filed January
21, 1998.
3.2* Bylaws of Basic Technologies, Inc.
3.3* Articles of Incorporation of Yankee Development Corporation filed
December 31, 1997.
3.4* Bylaws of Yankee Development Corporation.
3.5* Articles and Certificate of Organization of P & A Remediation, LLC,
filed October 16, 1998.
3.6* Regulations and Operating Agreement of P & A Remediation, LLC.
3.7* Articles of Incorporation of Simpco, Inc.
3.8* Bylaws of Simpco, Inc.
3.9* Articles and Certificate of Organization of P & A Remediation, LLC,
filed November 24, 1999.
3.10* Regulations and Operating Agreement of P & A Remediation, LLC.
3.11* Articles of Incorporation of Cyber Cities Technologies, Inc., filed
December 31, 1999.
3.12* Bylaws of Cyber Cities Technologies, Inc.
10.1* Voting Trust Agreement of Shelton Voting Trust dated July 1, 1986,
among Bryan L. Walker, for the benefit of Laura N. Walker, as her
separate property, Richard C. Smith and Bryan L. Walker, as trustee
and registrar.
10.2* General Warranty Assignment of Interest in Oil & Gas Lease dated
December 31, 1997, from the Shelton Voting Trust, as assignor, to
Yankee Development Corporation, as assignee.
10.3* Acquisition Agreement and Closing Memorandum dated April 23, 1998
between Basic Technologies, Inc., and Yankee Development Corporation.
10.4* Short Form of Lease dated November 1, 1998, between Rick Simpson, as
lessor, and P & A Remediation, LLC, as lessee.
10.5* Bill of Sale dated November 22, 1998, from Wes Roberts, as seller, to
Regal Operating Corp., as buyer.
10.6* Promissory Note dated November 22, 1998, in the principal amount of
$9,000 from Regal Operating Corp., as maker, payable to Wes Roberts,
as holder.
10.7* Short Form of Lease dated December 1, 1998, between the Estate of
Ivalene Kuykendall, as lessor, and P & A Remediation, LLC, as lessee.
10.8* Promissory Note dated December 1, 1998, in the principal amount of
$15,135 from P & A Remediation, LLC., as maker, payable to Gray
Production Trust, as holder.
10.9* Bill of Sale dated December 1, 1998, from Gray Production Trust, as
seller, to P & A Remediation, LLC., as buyer. Exhibit A attached.
10.10* Bill of Sale dated January 8, 1999, between Laura Walker, as seller,
and P & A Remediation, LLC, as buyer.
10.11* Promissory Note dated January 8, 1999, in the principal amount of
$10,500 from Laura N. Walker, as maker, payable to the United
Community Bank, N.A., as holder.
10.12* Acquisition Agreement and Closing Memorandum dated January 15, 1999,
between Basic Technologies, Inc., and Simpco, Inc.
10.13* Bill of Sale dated February 1, 1999, from Gray Production Trust, as
seller, to Simpco, Inc., as buyer. Exhibit A attached.
</TABLE>
<PAGE> 69
<TABLE>
<S> <C>
10.14* Promissory Note dated February 1, 1999, in the principal amount of
$11,550 from Simpco, Inc., as maker, payable to Gray Production Trust,
as holder.
10.15* Bill of Sale dated February 7, 1999, from Eric Simpson, et al, as
seller, to Basic Technologies, Inc., or assigns, as buyer.
10.16* Bill of Sale dated March 15, 1999, from Regal Operating Corporation,
as seller, to Simpco, Inc., as buyer.
10.17* Promissory Note dated March 18, 1999, in the principal amount of
$45,000 from Basic Technologies, Inc., as maker, payable to Boyd
Partners, Ltd., as holder.
10.18* Promissory Note dated March 18, 1999, in the principal amount of
$5,000 from Basic Technologies, Inc., as maker, payable to
Pleasantview Partners, Ltd., as holder.
10.19* Promissory Note Secured By Deed of Trust dated March 19, 1999, in the
principal amount of $11,500 from Basic Technologies, Inc., as maker,
payable to Wanda Ickert, as holder.
10.20* Deed of Trust dated March 19, 1999, among Basic Technologies, Inc., as
grantor, to W. W. Price, Jr., as trustee, for the benefit of Wanda
Ickert, as beneficiary.
10.21* Bill of Sale dated March 29, 1999, between Ed Gober, as seller, and
Basic Technologies, Inc., as buyer.
10.22* Promissory Note in the principal amount of $15,700 from Basic
Technologies, Inc., as maker, payable to Ed Gober, as holder.
10.23* General Assignment dated April 1, 1999, from Basic Technologies, Inc.,
as assignor, to Simpco, Inc., as assignee.
10.24* Bill of Sale dated April 12, 1999, between Russell Auto Parts, as
seller, and Basic Technologies, Inc., as buyer.
10.25* Promissory Note dated April 12, 1999, in the principal amount of
$8,000 from Basic Technologies, Inc., as maker, payable to Russell
Auto Parts, or assigns, as holder.
10.26* Bill of Sale dated April 12, 1999, from Basic Technologies, Inc., as
seller, to Simpco, Inc., as buyer.
10.27* Equipment Lease Agreement dated April 15, 1999, between Rodney W.
Simpson, as lessor, and Basic Technologies, Inc., as lessee.
10.28* Promissory Note dated April 19, 1999, in the principal amount of
$15,000.00 from Basic Technologies, Inc., as maker, payable to Clemons
Motor Co., Inc., as holder.
10.29* Bill of Sale dated April 19, 1999, from Basic Technologies, Inc., as
seller, to Simpco, Inc., as buyer.
10.30* Promissory Note dated May 14, 1999, in the principal amount of $15,775
from Simpco, Inc., as maker, payable to Clemons Motor Co., Inc., as
holder.
</TABLE>
<PAGE> 70
<TABLE>
<S> <C>
10.31* Promissory Note dated April 15, 1999, in the principal amount of
$30,000 from Simpco, Inc., as maker, payable to Baldwin & Klein
Corporation, as holder.
10.32* Promissory Note dated June 30, 1999, in the principal amount of
$68,000 from P & A Remediation, LLC., as maker, payable to Regal
Operating Corporation, as holder.
10.33* Promissory Note dated August 1, 1999, in the principal amount of
$24,000 from P & A Remediation, LLC., as maker, payable to Regal
Operating Corporation, as holder.
10.34* Contract to purchase inventory and leasehold estate, dated October 15,
1999, by and between P & A Remediation, LLC., Simpco, Inc., as buyer,
and Daniel C. Bohnsack, acting individually and as President of Pierce
Pipe and Supply, Inc., as seller.
10.35* Promissory Note dated November 4, 1999, in the principal amount of
$100,000 from Basic Technologies, Inc., as maker, payable to Dennis
Odom, as holder.
10.36* Promissory Note dated November 17, 1999, in the principal amount of
$18,300.00 from Basic Technologies, Inc., as maker, payable to Clemons
Motor Co., Inc., as holder.
10.37* Bill of Sale dated November 17, 1999, from Basic Technologies, Inc.,
as seller, to Simpco, Inc., as buyer.
10.38* Acquisition and closing memorandum, dated November 30, 1999, by and
between Basic Technologies, Inc., as buyer, and Cyber City Honolulu,
Inc., as seller.
10.39* Bill of Sale dated December 31, 1999, from Cyber City Honolulu, Inc.,
as seller, to Cyber Cities Technologies, Inc., as buyer.
10.40* Assignment of interests dated December 31, 1999, from Cyber City
Honolulu, Inc., as assignor, to Cyber Cities Technologies, Inc., as
assignee.
10.41* Short Form of Lease dated January 1, 2000, between Baldwin & Klein
Corporation, as lessor, and P & A Remediation, LLC, as lessee.
10.42* State of Oklahoma Purchase Order to Simpco, Inc., dated 1/19/2000,
$48,600.00 to plug 53 oil/gas wells under P.O. # T053381.
10.43* State of Oklahoma Purchase Order, to Simpco, Inc., dated 1/19/2000,
$24,300.00 to plug 28 oil/gas wells under P.O. # T053389.
10.44* Promissory Note dated March 7, 2000, in the principal amount of
$20,000 from Basic Technologies, Inc., as maker, payable to Nina E.
Angelo, as holder.
10.45* Promissory Note dated April 5, 2000, in the principal amount of
$30,000 from Basic Technologies, Inc., and P & A Remediation, LLC., as
makers, payable to Edwin Dean, as holder.
10.46* Promissory Note dated April 12, 2000, in the principal amount of
$29,790.60 from Basic Technologies, Inc., and P & A Remediation, LLC.,
as makers, payable to Cynthia Rice Cleaver, Trustee, as holder.
</TABLE>
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*Filed herewith.
