SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
______________________
FORM 10-K
ANNUAL REPORT
PURSUANT TO SECTION 13 OR 15(d) OF
THE SECURITIES EXCHANGE ACT OF 1934
(X) Annual report pursuant to section 13 or 15(d) of the
Securities Exchange Act of 1934
For the fiscal year ended June 30, 1997 or
( ) Transition report pursuant to section 13 or 15(d) of the
Securities Exchange Act of 1934
Commission File Number 0-8536
_____________________
THE NEW PARAHO CORPORATION
(Exact name of registrant as specified in its charter)
Colorado 84-1034362
(State or other Jurisdiction (I.R.S. Employer
of incorporation or organization) Identification Number)
5387 Manhattan Circle, Suite 104, Boulder, CO 80303
(Address of principal executive offices)
Registrant's telephone number, including area code (303) 543-8900
Securities registered pursuant to Section 12(b) of the Act: NONE
Securities registered pursuant to Section 12(g) of the Act:
Common Stock $.01 Par Value
(Title of Class)
Indicate by check mark whether the registrant (1) has filed all
reports required to be filed by Section 13 or 15(d) of the
Securities Exchange Act of 1934 during the preceding 12 months (or
for such shorter period that the registrant was required to file
such reports), and (2) has been subject to such filing requirements
for the past 90 days. Yes X No ___
Indicate by check mark if disclosure of delinquent filers pursuant
to Item 405 of Regulation S-K (s.229.405 of this chapter) is not
contained herein, and will not be contained, to the best of
registrant's knowledge, in definitive proxy or information
statements incorporated by reference in Part III of this Form 10-K
or any amendment to this Form 10-K. X
Aggregate market value of the voting stock held by nonaffiliates of
the registrant (9,988,662 shares) based upon the most recent
average bid and asked prices of such stock which are as of August
29, 1997.
$ 0
Indicate by check mark whether the registrant has filed all
documents and reports required to be filed by Section 12, 13 or
15(d) of the Securities Exchange Act of 1934 subsequent to the
distribution of securities under a plan confirmed by a court.
Yes X No ___
Number of shares outstanding of each of the registrant's classes of
common stock, as of September 28, 1996.
50,772,982 shares of registrant's
common stock, $0.01 par value
Registrant's definitive proxy statement filed pursuant to
Regulation 14A, for the annual meeting to be held in December, 1997
is incorporated into Part III by reference.
<PAGE>
PART I
Item 1. BUSINESS
Introduction - The New Paraho Corporation and
its subsidiaries (the "Company" or "New Paraho") hold patents
and proprietary rights applicable to the retorting of oil from
shale by use of an aboveground, vertical shaft retort. The
Company also has certain intellectual properties for the testing
and commercial development of the use of shale oil in the
production of asphalt. In addition, the Company owns interests
in oil shale lands.
History - On July 23, 1986 Paraho Development
Corporation merged with New Paraho, which was a wholly-owned
subsidiary of Energy Resources Technology Land, Inc. ("ERTL"),
pursuant to a plan of reorganization under Chapter 11 of the
Bankruptcy Code. Following the merger, shareholders of Paraho
Development Corporation received 5% of the outstanding common
stock of New Paraho. Former creditors of Paraho Development
Corporation received 15% of the common stock of New Paraho and
income certificates (the "Income Certificates") representing
rights in oil shale mineral properties located in Rio Blanco
County, Colorado which were previously owned by ERTL (all of
ERTL's interest in such properties before it transferred 50% of
such interest to the Company is hereinafter defined as the "Rio
Blanco Properties"). After the merger, ERTL owned 80% of the
outstanding common stock of New Paraho.
New Paraho was incorporated in December 1985 as a wholly-
owned subsidiary of ERTL. ERTL capitalized New Paraho with
$1,000 and contributed 50% of its interest in the Rio Blanco
Properties. ERTL accounted for the acquisition of Paraho
Development Corporation as a purchase.
Based upon the current control by ERTL of New Paraho, the
Company is included for Federal income tax purposes as part of
the ERTL consolidated group of corporations and the results of
its operations are reported in the consolidated Federal income
tax returns filed by ERTL from the date of the confirmation of
reorganization, July 23, 1986, forward. Accordingly, and as
long as such controlling interest is maintained, losses and/or
tax credits, if any, for Federal income tax purposes generated
by New Paraho may be applied against the income and/or income
tax for Federal income tax purposes of members of the ERTL
group.
The group has established a tax allocation policy which
requires the Federal income tax liability to be computed on a
separate return basis. Any losses or other credits directly
attributable to the Company which result in a reduction of the
consolidated tax liability will be reimbursed by the parent.
Likewise, the Company will be charged for its share of the
consolidated tax liability. This policy resulted in a payment
of $763,192 from ERTL to New Paraho in December 1996, for losses
utilized by ERTL on its June 30, 1996 federal income tax return.
Asphalt Feasibility Program - The activities of
the Company have been devoted to developing, testing and test
marketing shale oil-derived asphalt paving materials. There is
no established market for these materials, and they are not
produced in commercial quantities, although the Company has sold
small quantities of these materials to customers on an isolated
basis. The Company's current activities and sales are not
sufficient to sustain the Company on an ongoing basis without
either substantial additional outside funding or the financing
and development of a commercial plant. The Company's recent
activities have been designed to establish the feasibility of
constructing and operating such a plant. Even if the
feasibility of such a plant can be established, a number of
events or circumstances could prevent the Company from
establishing commercial production of shale oil-derived asphalt
paving materials. These include changes in technology, changes
in government regulations, and the inability to obtain financing
for a commercial facility.
To establish the commercial economics of producing
shale oil-derived asphalt, the Company initiated the Asphalt
Feasibility Program which included the construction and
evaluation of field test strips and a more thorough evaluation
of the economic viability of producing and marketing commercial
quantities of shale oil-derived asphalt paving materials.
The Company expended approximately $743,000 in 1995,
$373,000 in 1996, and $81,000 in 1997 on direct research and
development of this shale oil-derived asphalt product. The
Company does not have funding for any additional research and
development or commercial production efforts. Although the
Company is seeking additional financing to fund these efforts,
it currently appears unlikely that the Company will succeed in
obtaining this financing.
Based on the results of the test strip evaluations, the
Asphalt Feasibility Program has determined that this product is
technically feasible. Since 1989, the Company has been
attempting to finance, design, and construct a retorting and
SOMAT production facility suitable for asphalt operations. This
has included efforts to seek funding to construct and operate a
commercial-scale production facility with an initial capacity of
275 BPSD (barrels per stream day) of shale oil (Phase I) and
subsequent expansion by an additional 275 BPSD (Phase II). A
preliminary estimate for the construction of Phase I of the
project, modernization and expansion of the mine, pilot and
start-up operating losses, working capital and financing costs
is $42.5 million. The estimated cost for Phase II is $15.8
million, with expected positive cash flow from operations
reducing costs by $4.1 million in the fourth year of the
project. Total estimated net costs for Phase I and II are $54.2
million. Although the Company has been aggressively seeking
financial commitments for the construction of a commercial
retorting facility since 1989, to date the Company has not
received any commitments from any potential financial partner.
Although the Company is continuing to seek financial
commitments, and from time to time has discussions with
potential funding sources, it currently has no solid prospects
for obtaining this financing.
Asphalt Feasibility Program Financing - Most of
the financing for the Asphalt Feasibility Program has been
provided by the Tell Ertl Family Trust (the "Trust") under a
line of credit. As of June 30, 1995, the Company owed the Trust
$5,497,119 in principal plus accrued interest on the line of
credit. At that time, the Trust determined it would not advance
further funds under the line of credit. Effective July 1, 1995,
in recognition of the Company's inability to repay the line of
credit, the Trust agreed to waive the repayment of interest
accrued to date and to eliminate future interest accruals. On
December 18, 1996, the Company used funds from the annual
principal payment received on its note receivable from Tosco
Corporation's wholly-owned subsidiary, The Oil Shale
Corporation, resulting from its purchase of the Rio Blanco
Properties (the "Purchase Option"), to reduce the principal
amount of the note payable to the Trust. Also on that date, New
Paraho executed an assignment to the Trust of its interest in
the note receivable, in the amount of $3,083,120. These
payments, in addition to two other principal payments to the
Trust during fiscal year 1997 have reduced the total amount
outstanding on the line of credit to $865,596. It is unlikely
that the Company will be able to repay this remaining
indebtedness to the Trust.
Paraho Technology - The Company, directly and
through its subsidiaries, owns the Paraho Process which consists
of patents and proprietary rights applicable to the retorting of
oil from shale by use of an above ground, vertical shaft retort.
In connection with the Asphalt Feasibility Program, the Company
has continued its research and development activities on the
Paraho Process. The Company has already successfully
demonstrated the Paraho Process on a semi-works scale. Paraho
Development Corporation, predecessor to the Company, produced
approximately 110,000 barrels of shale oil. Of these,
approximately 98,000 barrels were refined into gasoline, jet
fuel, heavy fuel oil and other products. These products were
tested by several government agencies and private companies
under the direction of the U.S. Navy, and met specifications set
by the U.S. Navy. There can be no assurance, however, that any
commercial oil shale facility will be constructed or that, if
such a facility is constructed, it will use the Paraho Process.
The Company will not be able to generate revenues from the
Paraho Process unless it succeeds in financing the construction
of a commercial facility, or is able to license the technology
to third parties for construction of such a facility. Due to
the Company's inability to obtain financing to date, and the
lack of any interest by third parties in licensing the
technology, the Company does not expect it will realize any
revenues from the Paraho Process in the foreseeable future.
Even if it succeeds in financing a facility or licensing the
technology to third parties, due to the lengthy lead time
necessary to engineer and construct a commercial oil shale
facility, as well as the constraints imposed by governmental
regulations, at best, it will be a number of years before any
royalties may be earned by New Paraho under any licenses it may
grant for the use of the Paraho Process.
The Paraho Process includes an entire system for the
processing of oil shale, including mining, crushing, retorting
and disposing of the shale. Protection of the Paraho Process is
based upon several patents covering equipment, process
conditions and methods of operating a retort, many of which have
expired. The Company expended resources in prior years to apply
for new patents as a result of the Department of Energy
sponsored PON Commercial design project initiated by Paraho
Development Corporation. As a result of these efforts, on
August 14, 1990, the U.S. Patent Office issued this patent as
#4,948,468. Management believes that the interrelation of the
remaining patents, in addition to this new patent should provide
adequate protection of the Paraho Process through the year 2007.
Along with the patent protection, New Paraho has developed
proprietary know-how and technical data and experience regarding
the design, construction and operation of retorts and related
facilities. Such technology and know-how are protected by
confidentiality and patent assignment agreements. The
agreements generally require the maintenance of the
confidentiality of all Paraho Process technology and trade
secrets and require assignment to the Company of all patents
relating to its business or products. New Paraho also had
rights received from ERTL to use certain rights in patents,
patent applications and other intellectual properties that ERTL
had acquired from Western Research Institute regarding the use
of shale oil-derived asphalt material (the "WRI Technology") for
the Asphalt Feasibility Program. Pursuant to the amended and
restated exclusive sublicense agreement, dated September 28,
1992, between New Paraho and University of Wyoming Research
Corporation (UWRC), formerly WRI, the Company was required to
make annual minimum royalty payments for the three years prior
to the expiration of the patent. The Company declined to make
the second to the last payment, and, in effect, terminated the
agreement. Rights to use this technology for commercial
production of asphalt during the remaining life (through April
19, 1999) of the patent, would require negotiating a new
agreement with UWRC.
SOMAT Technology - While proceeding with the
Asphalt Feasibility Program, the Company developed the SOMAT
(Shale Oil Modified Asphalt Technology) process to further
process crude shale oil into shale oil asphalt modifiers. This
process is proprietary information and the Company seeks to
protect it under patent and trade secrets law. In furtherance
of this objective, in March 1996, the Company made application
to the U.S. Patent Office for a patent on the use of SOMAT in
recycled asphalt applications.
Governmental Regulation - Environment -
Federal, state and local laws and regulations have a substantial
impact on the development of an oil shale industry.
Environmental concerns include air quality, water usage and
pollution, dust problems, spent shale disposal and land
reclamation. Numerous governmental permits are required in
connection with the construction and operation of one or more
commercial-size retorts and related facilities (including the
mine from which oil shale is extracted). Mining of the oil
shale, which is accomplished using conventional room and pillar
or surface mining methods, presents the usual difficulties
associated with mining methods, including safety considerations.
The Company believes that it and its subsidiaries have received
all permits necessary for them to mine oil shale and to process
it at the Pilot Plant Lease site in support of the Asphalt
Feasibility Program.
Employees - The Company currently has no paid
employees. The Company has no plans to add employees unless
financing for a commercial facility is obtained.
Competition - New Paraho is only one of many
companies that has attempted to develop a workable, economical
process for recovering oil from shale. The adverse conditions
which now exist for the commercial development of oil shale,
when coupled with the absence of federal government incentives,
have caused many of these companies to abandon or to defer
further research and development of their competing technologies
as well as development of their oil shale mineral resource
holdings. Nonetheless, many of the Company's future competitors
may have far greater resources than the Company. If any one of
these companies is successful, its success may significantly
reduce the value of the Paraho Process. Further, it is possible
that new technologies, which could require lower capital costs
or present other advantages, could reduce the value of the
Paraho Process. New Paraho is unable, at this time, to assess
accurately the status of the development or economics of
competing processes, and no assurance can be given that the
Paraho Process will be able to compete effectively with other
processes.
At present, management believes that the Company is the
only producer of a shale oil-derived asphalt material for
testing purposes. The Company believes that shale oil produced
by the Paraho Process used in connection with the SOMAT Process
produces a higher quality and a higher yield of asphalt modifier
than shale oil produced by other processes.
With respect to competing asphalt modifiers, a Federal
program focused on the development of improved asphalt testing
systems and on the development of improved asphalt binders has
led to a greater demand for improved asphalt quality. Among the
products used to improve the asphalt binder, lime, liquid anti-
strip additives, and polymer modified asphalts are the most
popular and widely used. Based on the results of the laboratory
and actual road tests to date, Paraho believes that SOMAT will
be able to compete effectively with these products. In the case
of lime and liquid anti-strips, SOMAT's competitive advantage
will come through a technically superior product that is priced
comparable to the best performing anti-strip products, and in
the case of the polymer modified products, SOMAT's advantage
will come through comparable, if not superior, technical
performance at a lower price. However, there is no assurance
that competitors will not develop products with performance
characteristics superior to SOMAT.<PAGE>
Item 2. PROPERTIES
Rio Blanco Properties - On December 17, 1987,
The Oil Shale Corporation, a wholly-owned subsidiary of Tosco
Corporation exercised the Purchase Option on the Rio Blanco
Properties. Details of the transaction are as described in the
discussion of the Asphalt Feasibility Program.
Pilot Plant Lease - On October 15, 1982, Paraho
Development leased 200 acres of private land near Rifle,
Colorado from an individual for an initial term of ten years
with provisions for extensions. The leased land provides a
location for the Company to operate its pilot oil shale retort
facility, and management considers the land to be adequate space
to enable New Paraho to carry out research operations. As
renegotiated on October 8, 1992, the lease calls for an annual
minimum rent of $6,000 and an operational rate of $28,296 per
year. The new lease expires in October, 2002. For the twelve
months ended June 30, 1997 the lease was maintained at the
minimum rent level.
Utah Oil Shale Lands - New Paraho has acquired
rights to approximately 10,432 acres of oil shale lands in
Uintah County, Utah. Of the total, New Paraho owns an undivided
80% interest in 160 acres in fee. The remaining 10,272 acres
are controlled by New Paraho under State of Utah Leases for oil
shale or under agreements with third parties.
Item 3. LEGAL PROCEEDINGS
Parties in Corn Construction Co. v. Walker Field,
Colorado, Public Airport Authority, Case No. 96 CV 545; Division
B, Mesa County District Court have designated New Paraho as a
potentially responsible non-party and, on or about September 22,
1997, defendant Corn Construction Co. ("Corn") filed a Motion
for Leave to file Third Party Complaint against New Paraho.
This proceeding involves an allegedly defective runway
constructed at Walker Field Airport in Grand Junction, Colorado
in 1996. Walker Field Airport alleges that its general
contractor, Corn, and the engineer on the project, Armstrong
Consultants, Inc. ("Armstrong"), negligently designed and built
the runway. In the third party designation and in the Third
Party Complaint, Armstrong and Corn, respectively, contend that
New Paraho negligently made representations about its shale oil-
derived asphalt modifier product, which was a component of the
asphalt runway. In addition, Corn, in its Third Party
Complaint, set forth claims of negligence, breach of contract,
"implied contractual Indemnity" and "breach of implied warranty
of fitness of particular purpose" against New Paraho. It is
likely that Corn will be allowed to join New Paraho and there is
the possibility that one or more other parties to this
litigation may also assert claims against New Paraho.
Item 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS.
Not Applicable.<PAGE>
PART II
Item 5. MARKET FOR REGISTRANT'S COMMON EQUITY AND RELATED
STOCK HOLDER MATTERS
The Company's common stock is traded over-the-counter. The
reported high and low bid prices for each quarterly period since
July 1, 1995 are as follows:
FROM THE NATIONAL DAILY QUOTATION SERVICE
<TABLE>
Bid Prices Asked Prices
High Low High Low
<S> <C> <C> <C> <C>
1995
July 3 through
September 29 .03125 .03125 .12 .10
October 2 through
December 29 .03125 .001 .20 .05
1996
January 2 through
March 29 .001 .001 .05 .05
April 1 through
June 28 .001 .001 .05 .05
July 1 through
September 30 -- -- .05 .05
October 1 through
December 31 -- -- .05 .05
1997
January 2 through
March 31 -- -- .05 .05
April 1 through
June 30 -- -- .05 .05
</TABLE>
<PAGE>
The high and low prices specified above represent prices
between broker-dealers. They do not include retail mark-ups and
mark-downs or any commissions to the broker-dealer and may not
reflect prices in actual transactions.
As of July 14, 1992, the Company's stock was deleted from
the NASDAQ Small-Cap Market, because the Company failed to meet
the new bid price requirement. The stock has been only thinly
and sporadically traded, and is now listed on an electronic
bulletin board system.
As of September 1, 1997, the approximate number of
shareholders of record of The New Paraho common stock was 1,300.
New Paraho has never paid dividends on its common stock and
there is no prospect that dividends will be paid in the
foreseeable future. The Company intends to follow its policy of
retaining any earnings to provide funds to offset current
obligations, for additional research and development and for
expansion.<PAGE>
Item 6. SELECTED FINANCIAL DATA
<TABLE>
Statement of
Operations Year Ended Year Ended Year Ended Year Ended Year Ended
Data 6/30/93 6/30/94 6/30/95 6/30/96 6/30/97
__________________________________________________________________________________________________
<S> <C> <C> <C> <C> <C>
Revenues $ 282,028 $ 291,710 $ 495,319 $ 370,362 $ 101,678
Net Income (Loss) (1,352,930) (1,297,216) (1,068,172) 1,121,268 497,804
Net Income (Loss)
per Share (.03) (.03) (.02) .02 .01
Cash Dividend per
Common Share -- -- -- -- --
Balance Sheet As of As of As of As of As of
Data 6/30/93 6/30/94 6/30/95 6/30/96 6/30/97
_________________________________________________________________________________________________
<S> <C> <C> <C> <C> <C>
Total Assets $4,930,698 $4,937,652 $4,469,950 $4,274,440 $239,931
Long Term Debt 4,653,181 6,070,155 6,792,078 5,497,119 865,596
</TABLE>
Item 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS
Cautionary Statement Pursuant To Safe Harbor
Provisions Of The Private Securities Litigation Reform Act Of
1995 - In this report, periodic reports filed with the
Securities and Exchange Commission, press releases and other
communications from time to time, the Company sometimes makes
"forward-looking statements" within the meaning of the federal
securities laws. These forward-looking statements include,
among others, statements concerning the Company's outlook for
the future and information about its future plans, such as plans
with respect to commercializing the asphalt technology;
continued research and development; the costs and feasibility of
constructing a commercial retorting plant; the Company's plans
and expectations as to funding of capital expenditures and
operations; and other statements of expectations, beliefs,
future plans and strategies, anticipated events or trends and
similar expressions concerning matters that are not historical
facts. Such forward-looking statements are subject to risks and
uncertainties that could cause actual results to differ
materially from those expressed in or implied by such
statements. Many of these risks and uncertainties have been
discussed in the Company's prior filings with the Securities and
Exchange Commission.
The Company's strategy is (i) to continue to seek
opportunities to fund the Asphalt Feasibility Program, including
the construction of a commercial plant, and (ii) to look for
other opportunities to commercialize the Company's oil shale
technology. It will pursue these strategies without employees
or significant operational or capital resources. The most
important factors that could prevent the Company from achieving
these goals, and cause actual results to differ materially from
those expressed in the forward-looking statements, include, but
are not limited to, the following:
- A reduced demand for or interest in the Company's
asphalt product, for example, resulting from the
failure of government agencies to require that asphalt
used in highway construction projects have
characteristics like the Company's asphalt product.
- The development of alternative or competing asphalt
modifiers.
- As the Company operates in a capital-intensive
industry, the inability to secure adequate capital to
fund ongoing operations or a commercial plant.
- Risks inherent in construction, including delays and
cost overruns.
- Changes in government regulations.
Liquidity - Due to the inability to obtain
financing for a commercial project, the exhaustion of the
Company's existing financial resources, and the fact that the
Company's line of credit will mature on July 1, 1998, the
Company expects that it will not have the funds to continue
operations, and may be required to sell assets or liquidate to
meet its obligations.
The Company realized a decrease in working capital of
$993,284 in the fiscal year ended June 30, 1997. Funds were
primarily obtained from sales of asphalt paving material and
from interest and principal payments on the promissory note from
The Oil Shale Corporation. Funds were used primarily to repay
the promissory note to the Trust, for operating expenses, and
research and development related to the Asphalt Feasibility
Program.
On May 1, 1994, the Company was granted an increase in its
line of credit to $5,500,000 by the Trust. Borrowings under
this note are at the discretion of the trustees of the Trust.
The note is due on July 1, 1998. During fiscal year 1997, the
Company reduced the total outstanding balance of $5,497,119 on
the note by $4,631,523. The repayment (a financing activity)
consisted of $1,540,000 in cash and an assignment of the
Company's interest in a promissory note from The Oil Shale
Corporation. As part of the Company's investing activities,
annual payments of approximately $385,000 were received in
fiscal years 1997, 1996, and 1995 on this note receivable. The
Company owed $865,596 on this note as of June 30, 1997. In
recognition of the Company's inability to repay the interest on
this note, the Trust waived unpaid interest accrued to date and
eliminated further interest accruals.
The Trust has notified the Company that it does not intend
to increase the line of credit, and it is unlikely that the
Trust will agree to extend the maturity date. Accordingly, the
Company will not have any funds to continue operations unless it
succeeds in obtaining additional financing. Since 1989, the
Company has been seeking to obtain financial commitments to
design, construct, and operate a commercial facility to produce
asphalt. Although, the Company from time to time has
discussions with potential funding sources, it currently has no
solid prospects for obtaining such financial commitments.
Possible future sources of cash include sales of oil shale-
derived asphalt paving materials. Additional future sources of
cash may include revenues from the performance of further
research services or from the use of the Company's pilot plant
retort facility. Management presently does not expect that
significant revenues from these sources will be obtained.
The Company has reduced operating expenses by laying off
all employees and discontinuing operations related to the
Asphalt Feasibility Program. In order to maintain the
facilities and remaining assets of the Company, minimum
operating expenses of approximately $100,000 annually must be
met. The board of directors of ERTL has consented to continue
funding the Company's costs at this minimum level for the year
ending June 30, 1998.
If the Company is required to repay the promissory note to
the Trust in full, any source of cash available to meet these
expenses would be depleted. The Company does not believe it
will have sufficient revenues to pay operating costs at a level
needed to continue the Asphalt Feasibility Program. Further, if
the Trust does not agree to extend the maturity date of its note
beyond July 1, 1998, unless the Company obtains additional
financing (which currently appears unlikely), the Company will
be required to sell or transfer assets to repay the note, and
may be required to terminate operations and liquidate. The
Company may negotiate with the Trust to retain some portion of
The Oil Shale Company's promissory note as a source of cash flow
to meet these expenses, however there is no assurance that these
negotiations will be successful.
Capital Resources - New Paraho's current long-term
objectives include finding third-party funding for the research
and development related to the Asphalt Feasibility Program and
the Paraho Process, licensing of the Paraho Process and
commercialization of shale oil and shale oil-derived products.
In pursuit of these objectives, New Paraho incurred costs and
expenses of $367,066,including an accrual of $100,000 for
estimated future reclamation requirements in fiscal 1997. The
Company does not have the resources to commit significant funds
for these objectives in 1998 and later years. At the present
time, New Paraho believes that the most viable option for the
continued pursuit of these aforementioned objectives is the
successful completion of the Asphalt Feasibility Program and
subsequent commercialization efforts. Management has estimated
that such a commercial project would require capital of $54
million. While the Company has been attempting to seek
commitments for such financing, it has been unable to do so to
date, and it currently has no solid prospects for obtaining such
financing.
Results of Operations
1997 - Revenues in fiscal 1997 consisted
primarily of interest income on the promissory note from the Oil
Shale Corporation. The Company also recognized a gain of
$763,192 on a deferred tax benefit reimbursed by its parent.
Costs and expenses were incurred to maintain the Company at a
minimal maintenance level.
1996 - Revenues in fiscal 1996 consisted
primarily of sales of SOMAT and interest payments on the
promissory note from The Oil Shale Corporation. In addition, an
extraordinary gain was incurred when the Tell Ertl Family Trust
relieved and discharged the Company of all obligations to pay
accrued interest on its line of credit with the Trust. Costs
and expenses related to research and development of the Asphalt
Feasibility Program.
1995 - Revenues in fiscal 1995 consisted
primarily of sales of SOMAT and interest received on the
promissory note from The Oil Shale Corporation. Costs and
expenses related to research and development of the Asphalt
Feasibility Program. <PAGE>
Item 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
Index to Financial Statements Page
Reports of Independent Auditors 25
Consolidated Balance Sheets at June 30, 27
1997 and June 30, 1996
Consolidated Statements of Operations for 29
the years ended June 30, 1997, 1996
and 1995
Consolidated Statements of 30
Stockholders' Equity for the years
ended June 30, 1997, 1996 and 1995
Consolidated Statements of Cash flows for 31
the years ended June 30, 1997, 1996
and 1995
Notes to Consolidated Financial Statements 33
<PAGE>
THE NEW PARAHO CORPORATION
AND SUBSIDIARIES
Consolidated Financial Statements
For Years Ended
June 30, 1997, 1996 and 1995
<PAGE>
INDEPENDENT AUDITOR'S REPORT
Board of Directors
The New Paraho Corporation and Subsidiaries
We have audited the accompanying consolidated balance sheet
of The New Paraho Corporation and subsidiaries as of
June 30, 1997, and the related consolidated statements of
operations, stockholders' deficit, and cash flows for the
year then ended. These financial statements are the
responsibility of the Company's management. Our
responsibility is to express an opinion on these
consolidated 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 consolidated financial statements are free of
material misstatement. An audit includes examining, on a
test basis, evidence supporting the amounts and disclosures
in the consolidated financial statements. An audit also
includes assessing the accounting principles used and
significant estimates made by management, as well as
evaluating the overall consolidated financial statement
presentation. We believe that our audit provides a
reasonable basis for our opinion.
In our opinion, the consolidated financial statements
referred to above present fairly, in all material respects,
the consolidated financial position of The New Paraho
Corporation and subsidiaries at June 30, 1997 and the
consolidated results of their operations and their cash
flows for the year then ended, in conformity with generally
accepted accounting principles.
As discussed in Note 2 to the consolidated financial
statements, the Company's recurring losses from operations,
net capital deficiency and inability to obtain financing to
construct a commercially feasible oil shale retort facility
raise substantial doubt about its ability to continue as a
going concern. Management's plans as to these matters are
also described in Note 2. The accompanying consolidated
financial statements do not include any adjustments that
might result from the outcome of this uncertainty.
Hein + Associates llp
July 30, 1997<PAGE>
Report of Independent Auditors
The Board of Directors
The New Paraho Corporation
We have audited the accompanying consolidated balance sheet
of the New Paraho Corporation as of June 30, 1996, and the
related consolidated statements of operations, stockholders'
equity (deficit), and cash flows for each of the two years
in the period ended June 30, 1996. These financial
statements are the responsibility of the Company's
management. Our responsibility is to express an opinion on
these financial statements based on our audits.
We conducted our audits 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 that our audits provide a
reasonable basis for our opinion.
In our opinion, the financial statements referred to above
present fairly, in all material respects, the consolidated
financial position of The New Paraho Corporation at June 30,
1996, and the consolidated results of its operations and its
cash flows for each of the two years in the period ended
June 30, 1996, in conformity with generally accepted
accounting principles.
As discussed in Note 2 to the financial statements, the
Company's recurring losses from operations, net capital
deficiency and inability to obtain financing to construct a
commercially feasible oil shale retort facility raise
substantial doubt about its ability to continue as a going
concern. Management's plans as to these matters are also
described in Note 2. The accompanying financial statements
do not include any adjustments that might result from the
outcome of this uncertainty.
ERNST & YOUNG LLP
August 7, 1996
<PAGE>
The New Paraho Corporation and Subsidiaries
Consolidated Balance Sheets
<TABLE>
June 30
1997 1996
<S> <C> <C>
Assets
Current assets:
Cash $ 43,259 $ 491,164
Accounts receivable - 28,246
Inventory 35,344 67,105
Note receivable - 385,390
Interest receivable - 14,452
Prepaid expenses 12,203 14,413
Total current assets 90,806 1,000,770
Plant, furniture and equipment (net)
at cost 49,249 87,920
Oil shale mineral properties, at
cost 40,525 40,525
Patent (net of accumulated amortization
of $14,215 and $12,186 in 1997 and
1996, respectively) 20,307 22,336
Supplies 12,044 12,044
Note receivable - 3,083,120
Certificates of deposit, restricted 27,000 27,000
Deposits - 725
TOTAL ASSETS $ 239,931 $4,274,440
</TABLE>
<PAGE>
Liabilities and Stockholders' Deficit
<TABLE>
June 30
1997 1996
<S> <C> <C>
CURRENT LIABILITIES:
Accounts payable $ 11,896 $ 20,456
Reclamation liability 100,000 -
Accrued liabilities 2,454 10,547
Total current liabilities 114,323 31,003
LONG-TERM LIABILITY -
Note payable, related party 865,596 5,497,119
COMMITMENTS AND CONTINGENCY (Note 9)
STOCKHOLDERS' DEFICIT:
Common stock, $.01 par value;
authorized 75,000,000 shares;
issued and outstanding 50,772,982
shares 507,730 507,730
Par value of common stock issued in
excess of the fair market value of
assets acquired (352,648) (368,538)
Accumulated deficit (895,070) (1,392,874)
Total stockholders' deficit (739,988) (1,253,682)
TOTAL LIABILITIES AND STOCKHOLDERS'
DEFICIT $ 239,931 $4,274,440
</TABLE>
See accompanying notes to these consolidated financial statements.
<PAGE>
The New Paraho Corporation and Subsidiaries
Consolidated Statements of Operations
<TABLE>
Years ended June 30
1997 1996 1995
<S> <C> <C> <C>
REVENUES:
Asphalt sales $ 6,796 $ 137,452 $ 283,969
Research and contract services - 30,598 778
Interest income 88,573 193,778 207,128
Other 6,309 8,534 3,444
Total revenues 101,678 370,362 495,319
COSTS AND EXPENSES:
Asphalt research 80,948 373,387 743,482
General and administrative 286,118 170,662 249,522
Interest expense - 4 570,487
Total costs and expenses 367,066 544,053 1,563,491
LOSS BEFORE INCOME TAXES AND
EXTRAORDINARY ITEM (265,388) (173,691) (1,068,172)
DEFERRED TAX BENEFIT 763,192 - -
INCOME (LOSS) BEFORE EXTRAORDINARY
ITEM 497,804 (173,691) (1,068,172)
EXTRAORDINARY GAIN ON EARLY
EXTINGUISHMENT OF DEBT - 1,294,959 -
NET INCOME (LOSS) $ 497,804 $1,121,268 $(1,068,172)
NET INCOME (LOSS) PER SHARE:
Loss before extraordinary item $ .01 $ (.01) $ (.02)
Extraordinary item - .03 -
Net income (loss) per share $ .01 $ (.02) $ (.02)
WEIGHTED AVERAGE SHARES 50,772,982 50,772,982 50,772,982
</TABLE>
See accompanying notes to these consolidated financial statements.
<PAGE>
The New Paraho Corporation and Subsidiaries
Consolidated Statements of Stockholders' Deficit
for the period from July 1, 1994 through June 30, 1997
<TABLE>
Par Value
of Common
Stock Issued Total
in Excess of the Stockholders'
Common Stock Fair Market Value Accumulated Equity
Shares Amount of Assets Acquired Deficit (Deficit)
<S> <C> <C> <C> <C> <C>
BALANCES,
at July 1, 1994 50,772,982 507,730 $ (368,538) $ (1,445,970) $(1,306,778)
Net loss - - - (1,068,172) (1,068,172)
BALANCES,
at June 30, 1995 50,772,982 507,730 (368,538) (2,514,142) (2,374,950)
Net income - - - 1,121,268 1,121,268
BALANCES,
at June 30, 1996 50,772,982 507,730 (368,538) (1,392,874) (1,253,682)
Contributed
services - - 15,890 - 15,890
Net income - - - 497,804 497,804
BALANCES,
at June 30, 1997 50,772,982 $507,730 $(352,648) $ (895,070) $ (739,988)
</TABLE>
See accompanying notes to these consolidated financial statements.
<PAGE>
The New Paraho Corporation and Subsidiaries
Consolidated Statement of Cash Flows
<TABLE>
Years ended June 30
1997 1996 1995
<S> <C> <C> <C>
CASH FLOW FROM OPERATING ACTIVITIES:
Net income (loss) $ 497,804 $1,121,268 $(1,068,172)
Adjustments to reconcile net income
(loss) to net cash provided by
(used in) operating activities:
Depreciation and amortization 40,700 42,280 45,684
Contributed services 15,890 - -
Forgiveness of debt - (1,294,959) -
Gain on disposal of assets - (3,629) -
Changes in operating assets
and liabilities:
Decrease (increase) in:
Receivables 42,698 (24,791) 24,431
Inventory 31,761 128,289 136,276
Prepaid expenses 2,210 2,358 268
Deposits 725 - -
Increase (decrease) in:
Accounts payable (8,587) (16,758) (109,795)
Reclamation liability 100,000 - -
Accrued liabilities (8,092) (5,061) (11,658)
Accrued interest and discount
on payable to income
certificate holders - - 569,923
Net cash provided by (used in)
operating activities 715,109 (51,003) (413,043)
CASH FLOWS FROM INVESTING ACTIVITIES:
Purchase of plant, furniture & equipment - (3,131) -
Proceeds from disposal of fixed assets - 9,000 -
Payment received on note receivable 385,390 385,390 385,390
Short-term investments - 20,000 -
Net cash provided by investing
activities 385,390 411,259 385,390
CASH FLOWS FROM FINANCING ACTIVITIES:
Payments made on note payable (1,548,404) - -
Borrowing under line-of-credit agreement - - 152,000
Net cash provided by (used in)
financing activities (1,548,404) - 152,000
NET INCREASE (DECREASE) IN CASH (447,905) 360,256 124,347
CASH, at beginning of year 491,164 130,908 6,561
CASH, at end of year $ 43,259 $ 491,164 $ 130,908
</TABLE>
<PAGE>
Consolidated Statement of Cash Flow (continued)
<TABLE>
Years ended June 30
1997 1996 1995
<S> <C> <C> <C>
SUPPLEMENTAL DISCLOSURE OF NON-CASH
INVESTING AND FINANCING ACTIVITIES:
Decrease to note receivable and note
payable related to the assignment of
the note receivable to a related
party:
Note receivable $(3,083,120) - -
Note payable (3,083,120 - -
</TABLE>
See accompanying notes to these consolidated financial statements.<PAGE>
THE NEW PARAHO CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
1. Description of Business and Summary of Accounting Policies:
Description of Business - The New Paraho Corporation (the
"Company") was incorporated in July 1986 as a wholly-owned
subsidiary of Energy Resources Technology Land, Inc. (ERTL).
ERTL capitalized the Company with $1,000 and contributed 50%
of its interest in oil shale mineral properties located in
Rio Blanco County, Colorado. Operations of the Company
commenced on July 23, 1986.
On July 23, 1986, the Company merged with Paraho Development
Corporation pursuant to Paraho Development Corporation's Plan
of Reorganization (Plan of Reorganization) under Chapter 11
of the United States Bankruptcy Code. Shareholders of Paraho
Development Corporation received 5% of the outstanding common
stock of the Company and former creditors of Paraho
Development Corporation received 15% of the common stock of
the Company and income certificates representing a right to a
specified percentage of certain income received by the
Company from oil shale mineral properties located in Rio
Blanco County, Colorado.
Following the merger, ERTL holds 80% of the outstanding
common stock of the Company and, accordingly, the Company
accounted for the acquisition of Paraho Development
Corporation as a purchase.
The Company, directly and through its subsidiaries, holds
patents and proprietary rights applicable to the retorting of
oil from shale by use of an above-ground, vertical shaft
retort. The Company also has rights to use certain
intellectual properties to test the suitability of shale oil
in the production of asphalt. In addition, the Company owns
interests in oil shale lands.
Principles of Consolidation - The consolidated financial
statements include the accounts of the Company and its
subsidiaries. All significant intercompany accounts and
transactions have been eliminated in consolidation.
Plant, Furniture and Equipment, Oil Shale Mineral Properties,
and Patent - Depreciation is provided on a straight-line
basis over the estimated useful lives of the assets, which
range from three to ten years. Amortization is provided on a
straight-line basis over seventeen years, the estimated
useful life of the patent.
Impairment of Long-Lived Assets - The Company adopted the
provisions of Statement of Financial Accounting Standards
No. 121, "Impairment of Long-Lived Assets" (SFAS 121)
effective July 1, 1996. In the event that facts and
circumstances indicate that the cost of property and
equipment or other long-lived assets may be impaired, an
evaluation of recoverability of net carrying costs will be
performed. If an evaluation is required, the estimated
future undiscounted cash flows associated with the asset will
be compared to the asset's carrying amount to determine if a
write-down to estimated fair value is required. The adoption
of SFAS 121 had no effect on the Company's financial
statements.
Inventory - Inventory consists of shale oil asphaltic cement
and is stated at the lower of cost or estimated net
realizable value.
Net Income (Loss) Per Share - Net income (loss) per share is
computed based on the weighted average number of common
shares outstanding during the periods.
Income Taxes - The Company has elected to file a consolidated
federal income tax return with its parent, ERTL. The
consolidating companies have implemented a tax allocation
policy. Under this policy, the federal income tax provision
is computed on a separate return basis and the companies
receive reimbursement to the extent their losses and other
credits result in a reduction of the consolidated tax
liability, or are charged for their share of the consolidated
tax liability.
Statement of Cash Flows - For purposes of the statement of
cash flows, the Company considers all highly liquid debt
instruments purchased with an original maturity of three
months or less to be cash equivalents.
Use of Estimates - The preparation of the Company's
consolidated financial statements in conformity with
generally accepted accounting principles requires management
to make estimates and assumptions that affect the amounts
reported in these financial statements and accompanying
notes. Actual results could differ from those estimates.
Reclassifications - Certain amounts in 1996 and 1995
financial statements have been reclassified to conform to the
1997 presentation. Such reclassifications had no effect on
net income or loss.
2. Ability to Continue As a Going Concern:
As of June 30, 1997, the Company has an accumulated deficit
of $895,070 and a net capital deficiency of $739,988.
Ultimately, the Company's ability to continue as a going
concern is dependent on obtaining sufficient financing to
construct a commercially feasible oil shale retort facility,
and achieving profitable operations. Management will
continue to seek sources for this financing. Management
believes that they will continue to receive financial support
from their majority shareholder through June 30, 1998.
Management believes that this financial support in
combination with the cash on hand at June 30, 1997 and the
sale of inventory will be sufficient to fund operations
through June 30, 1998.
These financial statements do not include any adjustments to
reflect the possible effects on the recoverability and
classification of assets or the amount and classification of
liabilities that may result from the possible inability of
the Company to continue as a going concern.
3. Plant, Furniture and Equipment, and Oil Shale Mineral Properties:
Plant, furniture and equipment at June 30, 1997 and 1996
consist of:
<TABLE>
1997 1996
<S> <C> <C>
Retort facility and related
equipment $ 235,818 $ 235,818
Other equipment 37,603 37,603
Office furniture and equipment 41,747 42,088
315,168 315,509
Less accumulated depreciation (265,919) (227,589)
49,249 87,920
</TABLE>
Oil shale mineral properties at June 30, 1997 and 1996
consist of:
<TABLE>
1997 1996
<S> <C> <C>
Paraho Ute Project:
Utah state leasehold
rights $ 24,525 $ 24,525
Utah fee land 16,000 16,000
$ 40,525 $ 40,525
</TABLE>
Oil shale mineral properties consist of approximately
10,272 acres of Utah state leases and an 80% undivided
interest in 160 acres of Utah fee land. Annual renewal
rental payments of $10,272 are required on the Utah state
leases.
4. Note Receivable and Sale of Property and Mineral Rights:
On December 17, 1987, Tosco Corporation's wholly-owned
subsidiary, The Oil Shale Company, exercised its option,
granted in 1963 by the Company's parent, to acquire from the
Company its 50% ownership interest in certain property and
mineral rights for $6,355,850. The Company received
$575,000 cash and a note receivable in the amount of
$5,780,850 on closing. The note is receivable in fifteen
equal annual installments of $385,390 which commenced
December 17, 1990. The principal balance bears interest at
5% receivable quarterly.
On December 18, 1996, the Company assigned its interest in
the note receivable in partial payment of a portion of the
principal amount of a note payable owed to a related party.
The balance of the note receivable outstanding at the time
of the assignment was $3,083,120.
5. Certificates of Deposit:
The Company has $27,000 in certificates of deposit which are
restricted under terms of a reclamation performance bond and
will be released following completion of mining activities
and restoration of mining sites.
6. Income Taxes:
The Company accounts for income taxes in conformity with FAS
No. 109. Under the provisions of FAS No. 109, a deferred
tax liability or asset (net of a valuation allowance) is
provided in the financial statements by applying the
provisions of applicable tax laws to measure the deferred
tax consequences of temporary differences which result in
net taxable or deductible amounts in future years as a
result of events recognized in the financial statements in
the current or preceding years.
Deferred income taxes reflect the net tax effects of
temporary differences between the carrying amounts of assets
and liabilities for financial reporting purposes and the
amounts used for income tax purposes. Significant
components of the Company's deferred tax liabilities and
assets are as follows:
<TABLE>
June 30,
1997 1996
<S> <C> <C>
Deferred tax liabilities -
Tax over book depreciation $ (318,000) $ (318,991)
Deferred tax assets:
Tax net operating loss
carryforwards 2,127,000 3,291,212
Business credits and other 131,000 133,188
Tax basis of property and
equipment greater than book 800,000 800,459
Total deferred tax assets (2,740,000) (3,905,868)
Net deferred tax assets 318,000 318,991
Net deferred tax assets/liabilities $ - $ -
</TABLE>
The change in the valuation allowance is primarily due to
the usage of the net operating loss carryforward by the
Company's parent as discussed below.
The Company is included, for federal income tax purposes, in
the consolidated income tax return filed by ERTL. During
fiscal 1997, the Company received $763,192 from ERTL as
reimbursement for the application of the Company's NOL
carryforwards against taxable income of ERTL. General
business credit carryovers of approximately $87,000 are a
result of the pre-acquisition operations of Paraho
Development Corporation and may only be applied against
future taxable income of the Company.
The Company has operating loss carryforwards for income tax
purposes of approximately $5,750,000, which expire in
varying amounts from 2005 to 2012. In addition, the Company
has general business credit carryovers for income tax
purposes of approximately $131,000, which expire in varying
amounts from 1998 to 2004.
7. Financial Instruments:
The estimated fair values for financial instruments under
SFAS No. 107, Disclosures about Fair value of Financial
Instruments, are determined at discrete points in time based
on relevant market information. These estimates involve
uncertainties and cannot be determined with precision.
Management estimates that the fair value of cash, accounts
receivable, accounts payable, and accrued expenses is
approximately equal to their carrying value due to the
relatively short maturity of these instruments. It is not
practicable to estimate the fair value of long-term debt due
to the related party nature of this debt.
8. Related Party Transactions:
In June 1987, the Company obtained a $2,500,000 unsecured
line of credit from the Tell Ertl Family Trust, which holds
47% of the outstanding common stock of ERTL. This line was
increased to $5,500,000 in May 1994 and amended in June 1997
to reflect a maturity date of July 1, 1998. The note
provides that the Trust reserves the right to approve
activities and budgets of the Company during the term of the
promissory note. Effective July 1, 1995, the Company was
relieved and discharged of all obligations to pay accrued
interest on the line. In addition, the line shall no longer
accrue interest as of July 1, 1995. The forgiveness of debt
is shown as an extraordinary gain on the statement of
operations for the year ended June 30, 1996.
For the year ended June 30, 1995, the Company paid
professional fees totaling $36,000 to an affiliate of a
director.
For the year ended June 30, 1997, the Company received
contributed professional services of $15,890 from ERTL, a
majority stockholder.
9. Commitments and Contingency:
The Company leases the land upon which the pilot plant is
located under an operating lease. Future minimum lease
payments for this land are as follows:
1998 $ 6,000
1999 6,000
2000 6,000
2001 6,000
2002 6,000
Thereafter 1,500
$ 31,500
The lease provides for fixed payments of $6,000 per year for
periods when the plant is not in operation and $28,296 per
year for periods when the pilot plant is in operation
prorated on a daily basis. Total lease payments relating to
this lease were $6,000, $6,000, and $6,000 for 1997, 1996
and 1995, respectively. The Company has the option to
extend the lease upon expiration.
Upon expiration of the lease the Company is required to
reclaim the land to the condition before use by the Company.
The cost of reclamation has been estimated by the Company to
be approximately $100,000. This amount is recorded as a
liability at June 30, 1997. The Company has $27,000 in
certificates of deposit restricted for the funding of this
liability as described in Note 5.
The Company has been named in a third party complaint by a
general contractor which utilized the Company's product in
paving an airport runway. The airport authority has filed
suit against the general contractor and the project engineer
alleging that the runway was negligently designed and built.
While the ultimate liability in this matter is difficult to
assess, management believes that the matter will be resolved
without a material adverse effect on the Company's financial
position.
10. Stock Option:
On January 1, 1991, the Company granted an officer of the
Company an option to purchase up to 1,150,000 shares of
Common Stock for $.05 per share. Of the 1,150,000 shares
included in the grant, 150,000 shares became exercisable on
July 1, 1991. The remaining 1,000,000 shares are
exercisable in increments of 250,000 shares to 500,000
shares upon the occurrence of specified events. The option
expires ten years from the date of grant. Effective
December 21, 1995, the officer assigned all right, title,
and interest in the stock option agreement dated January 1,
1991 to ERTL, Inc.<PAGE>
Item 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON
ACCOUNTING AND FINANCIAL DISCLOSURE
On May 20, 1997 the board of directors of The New
Paraho Corporation approved the engagement of Hein + Associates
LLP, of Denver, Colorado, to audit and report on the Company's
financial statements for the year ended June 30, 1997.
On such date, the board of directors also approved the
dismissal of Ernst & Young LLP of Denver, Colorado as the
Company's previous auditors.
The report of Ernst & Young LLP on the Company's
financial statements as of June 30, 1995, and as of June 30,
1996, and for the years then ended contained an explanatory
paragraph as to the ability of the Company to continue as a going
concern.
The report of Ernst & Young LLP on the Company's
financial statements for the two most recent fiscal years
contained no adverse opinion or disclaimer of opinion and was not
qualified nor modified as to audit scope, or accounting
principles.
During the Company's two most recent fiscal years and
subsequent interim periods preceding the dismissal of Ernst &
Young LLP, there were no disagreements with Ernst & Young LLP on
any matter of accounting principles or practices, financial
statement disclosure, or auditing scope or procedure, which
disagreement, if not resolved to the satisfaction of Ernst &
Young LLP, would have caused it to make reference to the subject
matter of the disagreement in connection with its report.
The Company has provided the former accountant, Ernst &
Young LLP, with a copy of the foregoing disclosures. A letter,
addressed to the Commission, by the former accountants stating
that it agrees with the above statements made by the Company is
attached hereto as an exhibit.
During the two most recent fiscal years and the
subsequent interim period preceding Ernst & Young LLP's
dismissal, the Company was not advised by Ernst & Young LLP that
internal controls necessary for the Company to develop reliable
financial statements do not exist nor that information has come
to its attention that led it to no longer be able to rely on
management's representations or that has made it unwilling to be
associated with the financial statements prepared by management.
The Company has not been advised by Ernst & Young LLP of the need
to expand significantly the scope of the Company's audit, nor has
the Company been advised that during the two most recent fiscal
years and the subsequent interim periods preceding its dismissal,
information has come to the attention of Ernst & Young LLP that
if investigated may (i) materially impact the fairness or
reliability of either a previously issued audit report of the
underlying financial statements, or the financial statements
issued or to be issued covering the fiscal periods subsequent to
the date of the most recent financial statements covered by an
audit report (June 30, 1996), or (ii) cause Ernst & Young LLP to
be unwilling to rely on management's representations or be
associated with the Company's financial statements.
The Company has not been advised by Ernst & Young LLP
that information has come to its attention that it has concluded
materially impacts the fairness or reliability of either (i) a
previously issued audit or (ii) the financial statements issued
or to be issued covering the fiscal periods subsequent to June
30, 1996.
No consultations occurred between the Company and Hein
+ Associates LLP during the two most recent fiscal years and any
subsequent interim periods prior to Hein + Associates LLP's
appointment, regarding the application of accounting principles,
the type of audit opinion, or other information considered by the
Company in reaching a decision as to any accounting, auditing, or
financial reporting issue.
<PAGE>
PART III
ITEMS 10 THROUGH 13
Items 10 through 13 are incorporated by reference from
the sections entitled "Election of Directors and Officers",
"Amount and Nature of Beneficial Ownership", and "Remuneration
and Other Transactions with Management and Others" in the
Registrant's definitive proxy statement for its annual meeting to
be held in December, 1997 which proxy statement shall be filed no
later than 120 days after the end of the Company's most recent
fiscal year.
<PAGE>
PART IV
Item 14. EXHIBITS, FINANCIAL STATEMENT SCHEDULES, AND
REPORTS ON FORM 8-K
The Index to Financial Statements is at Page 23. No
financial statements or financial statement schedules are
incorporated by reference. All schedules are omitted since the
required information is not present or is not present in amounts
sufficient to require submission of the schedules, or because the
information required is included in the consolidated financial
statements and notes thereto.
A report on Form 8-K was filed on June 6, 1997 with the
Securities and Exchange Commission regarding changes in
registrant's certifying accountant. The disclosures in this
report are included in Item 9 of this report.
Exhibit Index
Exhibit No. Description
(3) Articles of Incorporation and By-Laws. Reference
is made to Exhibits 4 and 5 to Registrant's Form
8-K filed on July 23, 1986 (file number 0-8536)
that is incorporated herein by reference.
(10) (k) Promissory Note from The Oil Shale Corporation in
the principal sum of $11,561,699.50, dated
December 17, 1987. Reference is made of Exhibit
10(k) to Registrant's Annual Report on Form 10-K
for the Fiscal Year Ended June 30, 1988 that is
incorporated herein by reference.
(10) (l) Promissory Note to the Tell Ertl Family Trust in
the principal sum of $3,000,000 dated August 29,
1989. Reference is made of Exhibit 10(l) to
Registrant's Annual Report on Form 10-K for the
Fiscal Year ended June 30, 1989 that is
incorporated herein by reference.
(10)(l)(i) Amendment to the Promissory Note to the Tell Ertl
Family Trust, dated September 19, 1990. Reference
is made of Exhibit 10(l)(i) to Registrant's Annual
Report on Form 10-K for the Fiscal Year Ended June
30, 1991 that is incorporated herein by reference.
(10)(l)(ii) Amendment to the Promissory Note to the Tell Ertl
Family Trust, dated August 26, 1992. Reference is
made of Exhibit (10)(l)(ii) to Registrant's Annual
Report on Form 10-K for the Fiscal Year ended
June 30, 1992, that is incorporated herein by
reference.
(10)(l)(iii) Amendment to the Promissory Note to the Tell Ertl
Family Trust, dated August 20, 1993. Reference is
made of Exhibit (10)(l)(iii) to Registrant's
Annual Report on Form 10-K for the Fiscal Year
ended June 30, 1993, that is incorporated herein
by reference.
(10)(l)(iv) Amendment to the Promissory Note to the Tell Ertl
Family Trust, dated May 1, 1994. Reference is
made of Exhibit (10)(l)(iv) to Registrant's Annual
Report on Form 10-K for the Fiscal Year ended June
30, 1994, that is incorporated herein by
reference.
(10)(l)(v) Amendment to the Promissory Note to Tell Ertl
Family Trust, dated June 1, 1995. Reference is
made of Exhibit (10)(l)(v) to Registrant's Annual
Report on Form 10-K for the Fiscal Year ended June
30, 1995, that is incorporated herein by
reference.
(10)(l)(vi) Amendment to the Promissory Note to Tell Ertl
Family Trust, dated July 1, 1995. Reference is
made of Exhibit (10)(l)(vi) to Registrant's Annual
Report on Form 10-K for the Fiscal Year ended June
30, 1996, that is incorporated herein by
reference.
(10)(l)(vii) Amendment to the Promissory Note to Tell Ertl
Family Trust, dated June 1, 1996. Reference is
made of Exhibit (10)(l)(vii) to Registrant's
Annual Report on Form 10-K for the Fiscal Year
ended June 30, 1996, that is incorporated herein
by reference.
The Company will furnish to shareholders a copy of any exhibit
upon request and the payment of five cents per page for copying
costs.<PAGE>
Pursuant to the requirements of Section 13 or 15(d) of the
Securities Exchange Act of 1934, the registrant has duly caused
this report to be signed on its behalf by the undersigned,
thereunto duly authorized.
THE NEW PARAHO CORPORATION
(Registrant)
By:/s/Joseph L. Fox
Joseph L. Fox
President
Date: 9/29/97
Pursuant to the requirements of the Securities Exchange Act
of 1934, this report has been signed below by the following
persons on behalf of the registrant and in the capacities and on
the dates indicated.
/s/Joseph L. Fox Principal Executive 9/29/97
Joseph L. Fox Officer and Director
/s/Theo Ertl Chairman of the 9/29/97
Theo Ertl Board of Directors
/s/Jann Ertl Director 9/29/97
Jann Ertl
/s/Jill Ertl Director 9/29/97
Jill Ertl
/s/Buff Ertl Palm Director 9/29/97
Buff Ertl Palm
/s/Twig Ertl Director 9/29/97
Twig Ertl
/s/Larry A. Lukens Director 9/29/97
Larry A. Lukens
/s/William J. Murray, Jr. Director 9/29/97
William J. Murray, Jr.
/s/Adam A. Reeves Director 9/29/97
Adam A. Reeves
/s/Peter L. Richard Director 9/29/97
Peter L. Richard
/s/Anne M. Smith Controller 9/29/97
Anne M. Smith
<TABLE> <S> <C>
<ARTICLE> 5
<S> <C>
<PERIOD-TYPE> YEAR
<FISCAL-YEAR-END> JUN-30-1997
<PERIOD-END> JUN-30-1997
<CASH> 43259
<SECURITIES> 0
<RECEIVABLES> 0
<ALLOWANCES> 0
<INVENTORY> 35344
<CURRENT-ASSETS> 90806
<PP&E> 315168
<DEPRECIATION> (265919)
<TOTAL-ASSETS> 239931
<CURRENT-LIABILITIES> 114323
<BONDS> 865596
0
0
<COMMON> 155082
<OTHER-SE> 0
<TOTAL-LIABILITY-AND-EQUITY> 239931
<SALES> 6796
<TOTAL-REVENUES> 864870
<CGS> 0
<TOTAL-COSTS> 367066
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 0
<INCOME-PRETAX> 497804
<INCOME-TAX> 0
<INCOME-CONTINUING> 497804
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 497804
<EPS-PRIMARY> .01
<EPS-DILUTED> .01
</TABLE>
