<PAGE>
UNITED STATES SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-QSB
(Mark One)
[x] QUARTERLY REPORT UNDER SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE
ACT OF 1934
For the quarterly period ended June 30, 2000
[ ] TRANSITION REPORT UNDER SECTION 13 OR 15(d) OF THE EXCHANGE ACT
For the transition period from to
--------- ---------
Commission File No. 000-31107
KEYSTONE SILVER MINES, INC.
(Name of Small Business Issuer in Its Charter)
Idaho 82 6008705
------- ------------
(STATE OR OTHER JURISDICTION OF (I.R.S. EMPLOYER INCORPORATION OR
ORGANIZATION) IDENTIFICATION NO.)
808 S. College, Suite 300, McKinney, TX 75069
------------------------------------------
(ADDRESS OF PRINCIPAL EXECUTIVE OFFICE)
(509) 326-1029
---------------------------
(ISSUER'S TELEPHONE NUMBER)
SECURITIES REGISTERED PURSUANT TO SECTION 12(B) OF THE ACT:
(None)
SECURITIES REGISTERED PURSUANT TO SECTION 12(G) OF THE ACT:
Common Stock, par value $0.05
(Title of Class)
State the number of shares outstanding of each of the issuer's classes of common
equity as of June 30, 2000: Common stock 1,974,070 shares
Transitional Small Business Disclosure Format
(Check one): Yes [ ] No [x]
1
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TABLE OF CONTENTS
PART 1- FINANCIAL INFORMATION
PAGE
----
Item 1. Financial Statements..................................... 3/12
Item 2. Plan of Operation........................................ 13
PART 11- OTHER INFORMATION
Item 1. Legal Proceedings........................................ 15
Item 2. Changes in Securities.................................... 16
Item 3. Defaults Upon Senior Securities.......................... 16
Item 4. Submission of Matters to a Vote of Security Holders...... 16
Item 5. Other Information........................................ 16
Item 6. Exhibits and Reports on Form 8-K......................... 16
SIGNATURES....................................................... 17
2
<PAGE>
FINANCIAL STATEMENTS
(Unaudited)
June 30, 2000
TABLE OF CONTENTS
PAGE
BALANCE SHEET - ASSETS 4
BALANCE SHEET - LIABILITIES AND SHAREHOLDER'S EQUITY 4
STATEMENT OF OPERATIONS 5
STATEMENT OF STOCKHOLDERS' EQUITY 6
STATEMENT OF CASH FLOWS 7
NOTES TO FINANCIAL STATEMENTS 8
3
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<TABLE>
KEYSTONE SILVER MINES, INC.
BALANCE SHEETS
JUNE 30, 2000 & JUNE 30, 1999
(Unaudited)
ASSETS
------
<CAPTION>
JUNE 30, 2000 JUNE 30, 1999
<S> <C> <C>
CURRENT ASSETS
Account Receivable, related party $ 2,654 $ -
---------- ----------
PROPERTY AND EQUIPMENT
Oil and gas properties (successful efforts) 62,500 -
Less accumulated depreciation, depletion, and amortization 368 -
---------- ----------
NET PROPERTY AND EQUIPMENT 62,132 -
---------- ----------
OTHER ASSETS
Organization costs, net of accumulated amortization of
$2,000 and $0, respectively 18,000 -
Deferred tax asset, net of allowance of $22,296 - -
---------- ----------
TOTAL OTHER ASSETS 18,000 -
---------- ----------
$ 82,786 $ -
========== ==========
LIABILITIES
-----------
JUNE 30, 2000 JUNE 30, 1999
TOTAL LIABILITIES $ - $ 100,000
SHAREHOLDERS' EQUITY
Common stock,$ 0.05 par, 10,000,000 shares
authorized, 1,974,070 and 9,034,868 shares
outstanding, respectively 98,703 451,743
Additional paid-in-capital 521,959 ( 13,581)
Outstanding stock options 100,000 -
Retained deficit (637,876) (538,162)
---------- ----------
TOTAL SHAREHOLDERS EQUITY 82,786 -
---------- ----------
$ 87,786 $ -
========== ==========
</TABLE>
THE ACCOMPANYING NOTES ARE AN INTEGRAL PART
OF THESE UNAUDITED FINANCIAL STATEMENTS.
4
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<TABLE>
KEYSTONE SILVER MINES, INC.
STATEMENT OF OPERATIONS
Forthe three months ending June 30, 2000 and 1999, and
For the six months ending June 30, 2000 and 1999
(UNAUDITED)
<CAPTION>
THREE MONTHS ENDING JUNE 30 SIX MONTHS ENDING JUNE 30
--------------------------- -------------------------
2000 1999 2000 1999
<S> <C> <C> <C> <C>
REVENUE
Oil and gas revenue $ 5,491 $ - $ 5,491 $ -
--------- --------- --------- ---------
EXPENSES
Lease operating expense 2,837 - 2,837 -
Depreciation, depletion and amortization 1,368 - 2,368 -
Consulting expense 100,000 - 100,000 -
--------- --------- --------- ---------
TOTAL EXPENSES 104,205 - 105,205 -
--------- --------- --------- ---------
NET LOSS BEFORE PROVISION FOR INCOME TAXES
(98,714) - (99,714) -
--------- --------- --------- ---------
PROVISION FOR INCOME TAXES - - - -
--------- --------- --------- ---------
NET LOSS $(98,714) $ - $(99,714) $ -
========= ========= ========= =========
LOSS PER SHARE:
Basic $ (0.05) $ - $ (0.05) $ -
========= ========= ========= =========
Diluted $ (0.01) $ - $ (0.01) $ -
========= ========= ========= =========
THE ACCOMPANYING NOTES ARE AN INTEGRAL PART
OF THESE UNAUDITED FINANCIAL STATEMENTS.
</TABLE>
5
<PAGE>
<TABLE>
KEYSTONE SILVER MINES, INC.
Statements of Changes in Shareholders' Equity
For the Six Months Ended June 30, 2000, and
For Six Months Ended June 30, 1999
(Unaudited)
<CAPTION>
Discount/ Outstanding
Common Additional Stock Retained
Shares Stock Paid-In-Capital Options Deficit Total
----------- ----------- ----------- ----------- ----------- -----------
<S> <C> <C> <C> <C> <C> <C>
Balance, December 31, 1998 9,034,868 $ 451,743 $ (13,581) $ - $ (538,162) $ (100,000)
Net income - - - - - -
----------- ----------- ----------- ----------- ----------- -----------
Balance, June 30, 1999 9,034,868 $ 451,743 $ (13,581) $ - $ (538,162) $ (100,000)
=========== =========== =========== =========== =========== ===========
Balance, December 31, 1999 349,070 17,453 440,709 100,000 (538,162) 20,000
Shares issued for acquisition
of oil and gas properties 625,000 31,250 31,250 - - 62,500
Shares issued for services 1,000,000 50,000 50,000 - - 100,000
Net loss - - - - (99,714) (99,714)
----------- ----------- ----------- ----------- ----------- -----------
Balance, June 30, 2000 1,974,070 $ 98,703 $ 521,959 $ 100,000 $ (637,876) $ 82,786
=========== =========== =========== =========== =========== ===========
</TABLE>
THE ACCOMPANYING NOTES ARE AN INTEGRAL PART
OF THESE UNAUDITED FINANCIAL STATEMENTS.
6
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<TABLE>
KEYSTONE SILVER MINES, INC.
Statements of Cash Flows
For the Six Months Ended June 30, 2000, and 1999
(Unaudited)
<CAPTION>
JUNE 30, 2000 JUNE 30, 1999
<S> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES
Net loss (99,714) -
Adjustment to reconcile net loss to net cash
Provided by operating activities
Depreciation, depletion, and amortization 2,368 -
Services acquired with common stock 100,000 -
Changes in assets and liabilities:
Increase in account receivable, related party 2,654 -
Net cash flows provided by operating activities - -
------------ ------------
CASH FLOWS FROM INVESTING ACTIVITIES - -
------------ ------------
CASH FLOWS FROM FINANCING ACTIVITIES - -
------------ ------------
NET INCREASE IN CASH - -
CASH, beginning - -
------------ ------------
CASH, ending - -
============ ============
SUPPLEMENTAL DISCLOSURE OF NON-CASH INVESTING
AND FINANCING ACTIVITIES
Shares issued for services related to organization costs $ - $ -
============ ============
Shares issued for acquisition of oil and gas properties $ 62,500 $ -
============ ============
Shares issued for services $ 100,000 $ -
============ ============
Options issued for reduction in payable to shareholder $ - $ -
============ ============
</TABLE>
THE ACCOMPANYING NOTES ARE AN INTEGRAL PART
OF THESE UNAUDITED FINANCIAL STATEMENTS.
7
<PAGE>
LIABILITIES
-----------
KEYSTONE SILVER MINES, INC.
Notes to Financial Statements
NOTES TO UNAUDITED FINANCIAL STATEMENTS
FOR THE SIX MONTHS ENDED JUNE 30, 2000
NOTE A - BASIS OF PRESENTATION
The financial statements included in this report have been
prepared by Keystone Silver Mines, Inc. (the "Company")
pursuant to the rules and regulations of the Securities and
Exchange Commission for interim reporting and include all
normal and recurring adjustments which are, in the opinion of
management, necessary for a fair presentation. These financial
statements have not been audited by an independent accountant.
Certain information and footnote disclosures normally included
in financial statements prepared in accordance with accounting
principles generally accepted in the United States of America
have been condensed or omitted pursuant to such rules and
regulations for interim reporting. The Company believes that
the disclosures are adequate to make the information presented
not misleading. However, these financial statements should be
read in conjunction with the Company's audited financial
statements and notes thereto for the years ended December 31,
1999 and 1998. The financial data for the interim periods
presented may not necessarily reflect the results to be
anticipated for the complete year.
NOTE B - SIGNIFICANT ACCOUNT POLICIES
Organization
------------
Keystone Silver Mines, Inc. (the Company), was originally
incorporated in the State of Idaho on July 1, 1957, as Uranium
Discovery and Development Company, for the purpose of
exploring and developing uranium properties in Utah and
acquiring mining claims and exploring for silver and lead in
Shoshone County, Idaho and Mineral County, Montana. In 1962,
the Company changed its name to Keystone Silver Mines, Inc.
In 1993, the mining laws in the U.S. were changed with the
result that the Bureau of Land Management (BLM) placed a $200
fee per unpatented mining claim for that year with an annual
fee of $100 per mining claim thereafter. The Board of
Directors decided in 1993 that the Company could not afford
the annual fees to the BLM and therefore dropped all but ten
of the unpatented claims. Subsequently, the remaining value of
claims was reduced to zero.
8
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KEYSTONE SILVER MINES, INC.
Notes to Financial Statements (Continued)
Effective August 9, 1999, the Company affected a reverse stock
split. At that date 9,034,868 shares of common stock were
outstanding. These shares were cancelled and converted at a
ratio of 1 share of Keystone Silver Mines, Inc. common stock
for every 70 shares of Keystone Silver Mines, Inc. common
stock outstanding.
Business Activity
-----------------
The Company is principally engaged in the production of oil
and gas. The Company owns a working interest in an oil and gas
property located in Kansas. The Company is planning to acquire
and develop oil and gas properties within the mid-continent
region of the United States.
Estimates
---------
The preparation of financial statements is conformity with
generally accepted accounting principles requires management
to make estimates and assumptions that affect the reported
amounts of assets and liabilities and disclosure of contingent
assets and liabilities at the date of the financial statements
and the reported amounts of revenues and expenses during the
reporting period. Actual results could differ from those
estimates.
Oil and Gas Properties
----------------------
The Company follows the successful efforts method of
accounting for its oil and gas producing activities. Under the
successful efforts method, the Company capitalizes all oil and
gas leasehold acquisition costs. For unproved properties,
leasehold impairment is recognized based upon an individual
property assessment and exploration experience. Upon discovery
of commercial reserves, such leasehold costs are transferred
to proved properties.
Geological and geophysical expenses, production costs, and
overhead are charged against income as incurred. Exploratory
drilling costs are capitalized when incurred. If exploratory
wells are determined to be unsuccessful (dry holes),
applicable costs are expensed. Costs incurred to drill and
equip developmental wells, including unsuccessful development
wells, are capitalized.
Expenditures related to extensive well workover are
capitalized upon determining that the workover resulted in
significantly increased proved reserves. All other workover
costs are expensed as incurred. These costs include those for
deepening existing producing wells within the same producing
formation when such operations are conducted for the purpose
of restoring efficient operating conditions as well as other
repairs, reconditioning, or reworking costs of wells already
drilled and operating.
9
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KEYSTONE SILVER MINES, INC.
Notes to Financial Statements (Continued)
Depreciation, depletion, and amortization of the cost of
proved producing oil and gas properties, including wells and
related equipment and facilities, are determined by the
units-of-production method based on quantities produced as a
percent of estimated proved recoverable reserves.
Depreciation, depletion, and amortization was $368 for the six
months ended June 30, 2000. There was no depreciation,
depletion, or amortization for the six months ended June 30,
1999.
When complete units of depreciable property are retired or
sold, the asset costs and related accumulated depreciation and
depletion are eliminated with any gain or loss reflected in
income.
Federal Income Taxes
--------------------
The Company accounts for federal income taxes under the
provisions of SFAS No. 109 which requires the recognition of
deferred tax assets and liabilities for the future tax
consequences attributable to differences between financial
statement carrying amounts of existing assets and liabilities
and their respective tax basis. In addition, the recognition
of future tax benefits, such as net operating loss
carryforwards, are required to the extent that realization of
such benefits are more likely.
NOTE C - RELATED PARTY TRANSACTIONS
At December 31, 1998, the Company had an outstanding payable
due to a majority shareholder totaling $100,000. During the
year ended December 31, 1999, an agreement was entered into
with Jeff Johnson, whereby he would obtain controlling
interest in the Company. Mr. Johnson paid $100,000 directly to
the shareholder. Pursuant to the agreement, the Company's
capital structure was reorganized as discussed at NOTE B and
Mr. Johnson received an option to purchase 5,000,000 shares of
common stock at $.05 per share. (NOTE F - As of June 30, 2000,
Mr. Johnson has not exercised this option, however, Mr.
Johnson holds an 82% interest in the Company as of June 30,
2000.)
Jeff Johnson, president and shareholder of the Company, is the
sole shareholder of Scope Operating Company. Scope Operating
Company is the operator for the Company's oil and gas
property. Scope Operating Company receives the oil and gas
revenue and pays the direct operating expenses of the
property. The summary of transactions between Scope Operating
Company and the Company for the six months ended June 30,
2000, and the year ended December 31, 1999, are as follows:
10
<PAGE>
KEYSTONE SILVER MINES, INC.
Notes to Financial Statements (Continued)
<TABLE>
<CAPTION>
June 30, June 30,
2000 1999
<S> <C> <C>
Oil and gas revenue-working interest $5,491 $ -
Less: lease operating expenses $2,837 $ -
Net income remitted to the Company $2,654 $ -
</TABLE>
Effective April 11, 2000, the Company entered into an
agreement to purchase a twenty-five percent working interest
in an oil and gas property from Scope Operating Company.
During April 2000, this property began its initial production.
Pursuant to this agreement, the Company issued 625,000 of its
unregistered, restricted stock at a value of $62,500, which is
the discounted value of the Company's unregistered common
stock. The property value recorded is significantly less than
the value presented in the current reserve study.
The Company had an account receivable balance from Scope
Operating Company in the amount of $2,654 at June 30, 2000.
NOTE D - ORGANIZATION COSTS
Costs incurred to accomplish the changes in the capital
structure have been capitalized as organization costs. These
costs will be amortized over sixty months beginning in January
2000. During the six months ended June 30, 2000, the Company
incurred amortization expense in the amount of $2,000.
NOTE E - FEDERAL INCOME TAX AND DEFERRED FEDERAL INCOME TAX
Due to a net operating loss, the Company currently has no
liability for the state or federal income taxes. The Company
has no significant temporary differences between financial
statement carrying amounts and their respective tax basis
resulting in deferred taxes. A deferred tax asset of $22,296
related to the net operating loss carryforward has been
recorded; however, a valuation allowance has been provided for
the entire balance of this deferred tax asset. Therefore, the
provision for income taxes for the six months ended June 30,
2000, and the six months ended June 30, 1999, is zero. The
Company has an aggregate net operating loss carryforward of
$99,714. The net operating loss carryforward will expire in
2020.
11
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KEYSTONE SILVER MINES, INC.
Notes to Financial Statements (Continued)
NOTE F - COMMITMENTS AND CONTINGENCIES
The exploration, development, and production of oil and gas is
subject to various federal and state laws and regulations to
protect the environment. Various state and governmental
agencies are considering or have adopted laws and regulations
regarding environmental control which could adversely affect
the business of the Company. Compliance with such legislation
and regulations, together with penalties resulting from
noncompliance therewith, will increase the cost of oil and gas
development and production. Some of these costs may ultimately
be borne by the Company.
As a part of the agreement with Jeff Johnson (NOTE C), options
were issued for the purchase of 5,025,000 shares of post-split
common stock at $0.05 per share. Jeff Johnson receive
5,000,000 of the options and various other individuals
received the remaining 25,000 options. The options expire
August 9, 2001. As of June 30, 2000, none of the options have
been exercised.
NOTE G - CONCENTRATIONS
One customer accounted for all of the Company's oil and gas
sales for the six months ended June 30, 2000.
12
<PAGE>
Item 2 - Plan of Operation
The Company was organized July 1, 1957 (Date of Inception) under the laws of the
State of Idaho, as Uranium Discovery & Development Company. The corporate
purpose was to explore and develop uranium properties in Utah and in the silver
and lead areas of Shoshone County, Idaho and Mineral County, Montana. The
Company authorized 10,000,000 shares of common stock at $.05 per share par
value.
On February 12, 1962, the Company changed its name to Keystone Silver Mines,
Inc. In 1993, mining law changed with the result that a fee was placed on
unpatented mining claims of $200.00 per claim for that year and $100.00 annual
renewal fees in following years. The Board of Directors at the time dropped all
but ten unpatented claims that it then held. Subsequently, the value of all
mining claims was reduced to zero.
As of August 9, 1999, there were 9,034,868 shares of common stock outstanding.
On that date, the Board of Directors authorized a 70 to 1 reverse split.
Following the split, the Company had 129,070 shares outstanding. It then issued
220,000 shares in exchange for services rendered with the result that as of
December 31, 1999, there were 349,070 shares of common stock outstanding.
As part of the reorganization which occurred on August 9, 1999, the Company
acquired a working interest in an oil and gas property located in the State of
Kansas in exchange for 625,000 post-split shares of common stock and issued an
additional 1,000,000 shares for services in connection with the acquisition.
As of April 30, 2000, the Company had 1,974,070 shares of common stock
outstanding. 149,070 of those common shares are freetrading. The balance of the
common shares outstanding are unregistered and restricted having been issued
pursuant to Section 4(2) of the Securities & Exchange Act of 1933, as amended.
These shares may be registered after August 9, 2000 by the filing of a Form 144
pursuant to Regulation 230.144 of the Securities & Exchange Act of 1933, as
amended.
Also, on August 9, 1999, the Company authorized certain stock options as
follows:
To S. Jeff Johnson, an option to purchase 5,000,000 shares at $.05 at any time
within 2 years of August 9, 1999; to Harry F. Magnuson, an option to purchase
11,500 shares at $.05 at any time within 2 years of August 9, 1999; to Terry
Dunne, an option to purchase 11,500 shares at $.05 at any time within 2 years of
August 9, 1999; to Mark Absec, an option to purchase 500 shares at $.05 at any
time within 2 years of August 9, 1999; to Dennis O'Brien, an option to purchase
500 shares at $.05 at any time within 2 years of August 9, 1999 to R. M.
MacPhee, an option to purchase 500 shares at $.05 at any time within 2 years of
August 9, 1999; and to Thomas R. Magnuson, an option to purchase 500 shares at
$.05 at any time within 2 years of August 9, 1999. None of these options had
been exercised as of April 20, 2000.
The Company will now engage in the oil and gas business including production
from currently owned operations and the acquisition and development of
additional mid-continent oil and gas properties.
On August 9, 1999, the Company purchased a 25% undivided interest in the oil and
gas lease which the Company acquired was formerly owned by Scope Operating
Company and Scope will remain as the operator of the lease. Scope Operating
Company is the holder of the other 75% of the lease and will continue to own
that portion of the leasehold.
13
<PAGE>
The lease is known as the Felts Lease which is located in the Cherokee Platform
Province which extends from South Eastern Kansas and into part of South Western
Missouri and North Eastern Oklahoma. The Cherokee Platform Province covers a
total of 37 counties, is 235 miles long and 210 miles wide in an area of
approximately 26,500 square miles. The Felts Lease consists of 90 acres within
that broader expanse. The development of the Cherokee Platform Province began in
the 1860's with drilling in Bourbon and Cherokee Counties in Kansas with the
first discovery of oil in Allen County, Kansas in 1873. Over 200,000 wells have
been drilled in the province and 431 fields larger than 1 MMBOE have been
discovered. By the end of 1990, over 5.3 billion barrels of oil had been
discovered and 4.3 trillion cubic feet of gas had been discovered.
The Felts Lease is comprised of approximately 90 acres near Coffeyville, Kansas,
approximately 110 miles North North East of Tulsa, Oklahoma. The acreage is
bound by a river on the West side and is adjacent to an improved roadway (State
Highway 169) on the East.
From 1983 to 1984 29 wells were drilled East of the river. The original operator
was Black Star Petroleum, now defunct. Most of the wells were fully equipped and
were oil wells or injection wells. Black Star produced approximately 17,000
barrels of oil over a two year period before declaring bankruptcy. The wells
then sat idle for many years until the landowner began pumping 3 to 5 wells on
an intermittent basis. From mid 1993 through 1995, the landowner recovered and
received approximately $100,000.00 from oil sales. In 1999, the lease was sold
to Scope Operating Company, the property was cleaned up and access to the wells
was again established.
Oil production is from the Red Fork Sandstone at approximately 600 feet. The
feature is a North East/South West trending sandbar with accumulations of over
thirty feet of sand under some areas of the lease. Cores from an adjacent lease
show the Red Fork to have an average porosity of 19% and an average permeability
of 100 millidracys. Engineering calculations indicate 240,000 barrels of
recoverable oil under the Felts Lease with only 20,000 barrels having already
been recovered. All 20,000 barrels were recovered with primary production
methods. This leaves approximately 220,000 barrels recoverable by primary and
secondary production methods.
All wells were drilled through the Red Fork, cased, cemented to surface,
perforated and lightly fraced. This gives the operator logs of the formation as
well as control over the injection fluids which will be used for secondary
recovery. All of these factors should increase the amount of oil recovered and
increase the effect of secondary recovery.
During 1999, Scope Operating Company implemented a Phase I program that included
ten producing wells. The ten wells were pulled, cleaned out, downhole pumps were
repaired or replaced. New electrical wiring was installed throughout and a
portion of a new storage facility was constructed. Initially, the ten wells were
produced over a thirty day period with the result of approximately 10 to 12
barrels of oil production per day and good gas production with a ratio of an
average water/oil of 50/50. All indications were that the property would flood
successfully.
Phase II was completed in early 2000 bringing in a total of 21 producing oil
wells, 7 injector wells and a single water supply well. The storage facility and
injection plant were completed under this program.
Presently the wells are producing and all oil is sold pursuant to a division
order dated April 1, 2000 to Cooperative Refining, LLC. Payment for the crude
oil is adjusted on a daily basis and is based upon the common benchmark SPC West
Texas Intermediate Sweet, plus $1.00 per barrel as a premium due to the fact
that the oil produced is of high quality being 32 degree API gravity and because
of the close proximity of the wells to the refinery.
14
<PAGE>
The crude oil contract can be terminated at any time by either party. There are
other purchasers in the area who would buy the oil if Cooperative Refining no
longer wished to do so. Management of Scope Operating is confident that there
will always be a ready market for the sale of the crude oil produced from the
Felts Lease for as long as oil can be produced from it.
Revenues received are divided by the payment of 12% to the landowner and 87% to
Scope Operating Company. Scope Operating then deducts the lease operating
expenses from the gross revenue and distributes the net proceeds to the Company,
Keystone, and other working interest participants in the leasehold.
Forward Looking Statements:
This Quarterly Report on Form 10-QSB may be deemed to contain forward-looking
statements within the meaning of Section 27A of the Securities Act of 1933 and
Section 21E of the Securities Exchange Act of 1934. The Company intends that
such forward-looking statements be subject to the safe harbors created by such
statutes. The forward-looking statements included herein are based on current
expectations that involve a number of risks and uncertainties. Accordingly, to
the extent that this Annual Report contains forward-looking statements regarding
the financial condition, operating results, business prospects or any other
aspect of the Company, please be advised that the Company's actual financial
condition, operating results and business performance may differ materially from
that projected or estimated by the Company in forward-looking statements. The
differences may be caused by a variety of factors, including but not limited to
adverse economic conditions, intense competition, including intensification of
price competition and entry of new competitors and products, adverse federal,
state and local government regulation, inadequate capital, unexpected costs and
operating deficits, increases in general and administrative costs, lower sales
and revenues than forecast, loss of customers, customer returns of products sold
to them by the Company, disadvantageous currency exchange rates, termination of
contracts, loss of suppliers, technological obsolescence of the Company's
products, technical problems with the Company's products, price increases for
supplies and components, inability to raise prices, failure to obtain new
customers, litigation and administrative proceedings involving the Company, the
possible acquisition of new businesses that result in operating losses or that
do not perform as anticipated, resulting in unanticipated losses, the possible
fluctuation and volatility of the Company's operating results, financial
condition and stock price, losses incurred in litigating and settling cases,
dilution in the Company's ownership of its business, adverse publicity and news
coverage, inability to carry out marketing and sales plans, loss or retirement
of key executives, changes in interest rates, inflationary factors, and other
specific risks that may be alluded to in this Annual Report or in other reports
issued by the Company. In addition, the business and operations of the Company
are subject to substantial risks which increase the uncertainty inherent in the
forward-looking statements. In light of the significant uncertainties inherent
in the forward-looking information included herein, the inclusion of such
information should not be regarded as a representation by the Company or any
other person that the objectives or plans of the Company will be achieved.
PART II - OTHER INFORMATION
Item 1. Legal Proceedings.
None
15
<PAGE>
Item 2 - Changes in Securities
On August 9, 1999, the Company authorized certain stock options as follows:
To S. Jeff Johnson, an option to purchase 5,000,000 shares at $.05 at any time
within 2 years of August 9, 1999; to Harry F. Magnuson, an option to purchase
11,500 shares at $.05 at any time within 2 years of August 9, 1999; to Terry
Dunne, an option to purchase 11,500 shares at $.05 at any time within 2 years of
August 9, 1999; to Mark Absec, an option to purchase 500 shares at $.05 at any
time within 2 years of August 9, 1999; to Dennis O'Brien, an option to purchase
500 shares at $.05 at any time within 2 years of August 9, 1999 to R. M.
MacPhee, an option to purchase 500 shares at $.05 at any time within 2 years of
August 9, 1999; and to Thomas R. Magnuson, an option to purchase 500 shares at
$.05 at any time within 2 years of August 9, 1999. None of these options had
been exercised as of June 30, 2000.
Item 3 - Defaults upon Senior Securities
None
Item 4 - Submission to a Vote of Security Holders
None
Item 5 - Other Information
None
Item 6 - Exhibits and Reports on Form 8-K
None
16
<PAGE>
SIGNATURES
In accordance with the requirements of the Exchange Act, the registrant caused
this report to be signed on its behalf by the undersigned, thereunto duly
authorized.Section 12 of the Securities Exchange Act of 1934, the registrant
Dated: September 21, 2000
By: /s/ S. Jeff Johnson
---------------------------
S. Jeff Johnson
Chief Executive Officer, Director
17
