SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
______________________
FORM 10-KSB
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, 1998 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 small business issuer 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-B 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-KSB. X
Issuer's revenues for is most recent fiscal year: $6,000
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, 1998.
$ 0
Number of shares outstanding of each of the registrant's classes of
common stock, as of September 28, 1998.
50,772,982 shares of registrant's
common stock, $0.01 par value
Part III of the registrant's Proxy Statement relating to its 1998
Annual Meeting of Shareholders is incorporated by reference herein.
<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
generated by New Paraho, if any, for Federal income tax purposes, 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 $70,975 from ERTL to New
Paraho in October 1997, for losses utilized by ERTL on its June 30, 1997
federal income tax return. Additionally, New Paraho recognized $170,000
in deferred tax benefit in fiscal year 1998, in anticipation of losses to be
utilized by ERTL on its June 30, 1998 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 has had no recent sales, and its current
activities 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 has made the
determination to maintain minimal activity absent this needed funding. The
Company believes it has established the feasibility of constructing and
operating such a plant, however, the inability to obtain financing has
prevented establishing commercial production of shale oil-derived asphalt
paving materials. If financing were obtained, the risks of changes in
technology and changes in government regulations could also prevent the
commercial production.
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 $373,000 in 1996, $81,000 in 1997, and
$14,000 in 1998 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 aggressively sought financial
commitments for the construction of a commercial retorting facility from 1989
through June of 1998, to date the Company has not received any commitments
from any potential financial partner. The Company is not currently actively
seeking financing, but would entertain proposals regarding financing a
commercial facility, 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 reduced the total
amount outstanding on the line of credit to $865,596, where it remained as
of June 30, 1998. 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. In May and June 10 1998, The Commissioner of Patents
and Trademarks issued two separate patents covering a method for recycling
and rejuvenating asphalt pavement, and an asphalt rejuvenater and recycled
asphalt composition. These patents provide protection for these processes
until March 2016.
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, 1998 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
The Company is a defendant in Corn Construction Co., New Paraho,
et al. v. Walker Field, Colorado, Public Airport Authority, Case No. 96 CV
545; Division B, Mesa County District Court. This proceeding involves an
allegedly defective runway constructed at Walker Field Airport in Grand
Junction, Colorado in 1996 with product manufactured by New Paraho.
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. The claims against New Paraho
revolve around representations allegedly made by New Paraho that the
product used would be appropriate for application.
The case has progressed into the discovery phase of the litigation with
trial set for May-June 1999. There has been some movement toward
settlement. The Company is being defended under a reservation of rights
issued by The Hartford Insurance Company.
The Company has requested a vigorous defense.
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, 1996 are as
follows:
<TABLE>
FROM THE NATIONAL QUOTATION SERVICE
Fiscal 1998 Fiscal 1997
High Low High Low
<S> <C> <C> <C> <C>
First Quarter -- -- -- --
Second Quarter .001 .001 -- --
Third Quarter .001 .001 -- --
Fourth Quarter -- -- -- --
</TABLE>
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, 1998, 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. 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, 1999, 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 an increase in working capital of $60,363 in the
fiscal year ended June 30, 1998. Funds were primarily obtained from the
reimbursement of tax savings from ERTL. Funds were used primarily for
minimal operating expenses and a retainer for a consultant enlisted by the
Company to obtain financing.
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, 1999.
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, 1998. 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 tax reimbursement from ERTL for current use of tax
losses should be sufficient to sustain this requirement for the current year.
The board of directors of ERTL has consented to provide any additional
funding to maintain this minimum level of existence for the year ending June
30, 1999.
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, 1999, 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 $212,000 in fiscal 1998. The Company does
not have the resources to commit significant funds for these objectives in 1999
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.
Year 2000 Issue - The Company plans to address computer
software that could be affected by the Year 2000 problem by the installation
of new hardware and software programs that will be Year 2000 compliant
during the first half of 1999. The Company estimates that the costs of such
efforts will be approximately $15,000. The Year 2000 problem is the result
of computer programs being written using two digits rather than four to define
the applicable year. Any programs that have time-sensitive software may
recognize a date using "00" as the year as the year 1900 rather than the year
2000. This could result in a major system failure or miscalculations. The
Company believes that the new hardware and software programs will address
the Year 2000 problem, but cannot give assurances that no Year 2000
problems will occur. The Year 2000 problem may impact other entities with
which the Company transacts business, and the Company cannot predict the
effect of the Year 2000 problem of such entities.
Results of Operations
1998 - Revenues in fiscal 1998 consisted of minimal
interest and rental income in addition to a gain of $241,000 recognized on a
deferred tax benefit reimbursed by its parent. Costs and expenses were
incurred to maintain the Company at a minimum level.
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.
<PAGE>
INDEX TO FINANCIAL STATEMENTS
PAGE
Independent Auditor's Report . . . . . . . . . . . . . . . . . . . . . . . .21
Consolidated Balance Sheets - June 30, 1998 . . . . . .
. . . . . .22
Consolidated Statements of Operations -
For the Years Ended June 30, 1998 and 1997 . . . . . . . . . . . . . . . .23
Consolidated Statement of Stockholders' Deficit -
For the Period from July 1, 1996 through June 30,
1998 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .24
Consolidated Statements of Cash Flows -
For the Years Ended June 30, 1998 and 1997 . . . . . . . . . . . . . . . .25
Notes to Consolidated Financial Statements . . . . . . . . . . . . . . . . .26
<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, 1998, and the related consolidated statements
of operations, stockholders' deficit, and cash flows for
the years ended June 30, 1998 and 1997. 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
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 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 audits provide 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, 1998 and
the consolidated results of their operations and their
cash flows for the years ended June 30, 1998 and 1997, 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
Denver, Colorado
July 24, 1998<PAGE>
The New Paraho Corporation and Subsidiaries
Consolidated Balance Sheets
JUNE 30, 1998
ASSETS
<TABLE>
Current Assets:
<S> <C>
Cash $ 30,000
Tax benefit receivable - parent 130,000
Prepaid expenses 9,000
Total current assets 169,000
Plant, furniture and equipment (net), at cost 14,000
Oil shale mineral properties, at cost 41,000
Patent (net of accumulated amortization
of $16,000) 31,000
Supplies 12,000
Certificates of deposit, restricted 27,000
TOTAL ASSETS $294,000
LIABILITIES AND STOCKHOLDERS' DEFICIT
<S> <C>
CURRENT LIABILITIES:
Accounts payable $ 31,000
Reclamation liability 100,000
Accrued liabilities 2,000
Total current liabilities 133,000
LONG-TERM LIABILITY -
Note payable, related party 866,000
COMMITMENTS AND CONTINGENCY (Note 9)
STOCKHOLDERS' DEFICIT:
Common stock, $.01 par value; authorized
75,000,000 shares; issued and
outstanding 50,772,982 shares 508,000
Par value of common stock issued in excess of
the fair market value of assets acquired (353,000)
Accumulated deficit (860,000)
Total stockholders' deficit (705,000)
TOTAL LIABILITIES AND STOCKHOLDERS' DEFICIT $ 294,000
</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,
1998 1997
<S> <C> <C>
REVENUES:
Asphalt sales $ - $ 7,000
Interest income 2,000 89,000
Other 4,000 6,000
Total revenues 6,000 102,000
COSTS AND EXPENSES:
Asphalt research 14,000 81,000
General and administrative 198,000 286,000
Total costs and expenses 212,000 367,000
LOSS BEFORE TAX BENEFIT (206,000) (265,000)
Tax benefit - parent 241,000 763,000
NET INCOME $ 35,000 $ 498,000
NET INCOME PER SHARE $ - $ .01
WEIGHTED AVERAGE SHARES 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, 1996 through June 30, 1998
<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, 1996 50,772,982 508,000 $ (369,000) $ (1,393,000) $(1,254,000)
Contributed
services - - 16,000 - 16,000
Net income - - - 498,000 498,000
BALANCES,
at June 30, 1997 50,772,982 508,000 (353,000) (895,000) (740,000)
Net income - - - 35,000 35,000
BALANCES,
at June 30, 1998 50,772,982 $508,000 $(353,000) $ (860,000) $ (705,000)
</TABLE>
See accompanying notes to these consolidated financial statements.
<PAGE>
The New Paraho Corporation and Subsidiaries
Consolidated Statements of Cash Flows
<TABLE>
Years ended June 30
1998 1997
<S> <C> <C>
CASH FLOW FROM OPERATING ACTIVITIES:
Net income $ 35,000 $ 498,000
Adjustments to reconcile net income to net cash
provided by (used in) operating activities:
Depreciation and amortization 38,000 41,000
Contributed services - 16,000
Changes in operating assets and liabilities:
Decrease (increase) in:
Receivables - 43,000
Tax benefit receivable - parent (130,000) -
Inventory 35,000 32,000
Prepaid expenses 3,000 2,000
Deposits - 1,000
Increase (decrease) in:
Accounts payable 19,000 (9,000)
Reclamation liability - 100,000
Accrued liabilities - (8,000)
Net cash provided by (used in) operating activities - 716,000
CASH FLOWS FROM INVESTING ACTIVITIES:
Payment received on note receivable - 385,000
Expenditures for patents 13,000 -
Net cash provided by (used in) investing activities (13,000) 385,000
CASH FLOWS FROM FINANCING ACTIVITIES:
Payments made on note payable - (1,549,000)
NET DECREASE IN CASH (13,000) (448,000)
CASH, at beginning of year 43,000 491,000
CASH, at end of year $ 30,000 $ 43,000
</TABLE>
<TABLE>
SUPPLEMENTAL DISCLOSURE OF NON-CASH
INVESTING AND FINANCING ACTIVITIES:
<S> <C> <C>
Decrease to note receivable and note payable
related to the assignment of the note
receivable to a related party:
Note receivable $ - $(3,083,000)
Note payable - (3,083,000)
</TABLE>
See accompanying notes to these 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.
Inventory - Inventory consists of shale oil asphaltic cement
and is stated at the lower of cost or estimated net
realizable value.
Net Income Per Share - Basic net income per share is computed
based on the weighted average number of common shares
outstanding during the periods. Diluted net income per share
is not presented as the effect of potential common stock is
anti-dilutive.
Comprehensive Income - Statement of Financial Accounting
Standards (SFAS) No. 130, Reporting Comprehensive Income was
issued in June 1997 and adopted by the Company in the first
quarter of 1998. This statement establishes standards for
the reporting and display of comprehensive income in
financial statements. Comprehensive income is generally
defined as the change in equity of a business enterprise
during the period from transactions and other events and
circumstances from nonowner sources. There were no
differences between net income and comprehensive income for
the years ended June 30, 1998 or 1997.
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.
Significant estimates include, among other things, the
estimated cost of reclamation. Due to the uncertainties
inherent in the estimation process, it is reasonably possible
that the estimate of the reclamation liability could be
revised in the near-term and that such revisions could be
material.
2. Ability to Continue As a Going Concern:
As of June 30, 1998, the Company has an accumulated deficit
of $860,000 and a net capital deficiency of $705,000.
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, 1999.
Management believes that this financial support in
combination with the cash on hand at June 30, 1998 will be
sufficient to fund operations through June 30, 1999.
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:
<TABLE>
<S> <C>
Plant, furniture and equipment at June 30, 1998 consist of:
Retort facility and related equipment $ 236,000
Other equipment 22,000
Office furniture and equipment 57,000
315,000
Less accumulated depreciation (301,000)
$ 14,000
</TABLE>
Oil shale mineral properties at June 30, 1998 consist of:
<TABLE> <S> <C>
Paraho Ute Project:
Utah state leasehold rights $ 25,000
Utah fee land 16,000
$ 41,000
</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 $10,000 are required on the Utah state leases.
4. 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.
5. 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 and assets at June 30, 1998 are
as follows:
<TABLE>
<S> <C>
Deferred tax assets:
Tax net operating loss carryforwards $ 1,922,000
Tax basis of property and equipment
greater than book 500,000
Business credits and other 131,000
Total deferred tax assets 2,553,000
Valuation allowance for deferred tax assets (2,553,000)
Net deferred tax assets $ -
</TABLE>
The valuation allowance decreased by $187,000 from June 30,
1997 to June 30, 1998. 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 1998 and 1997, the Company received reimbursements
from ERTL for the application of the Company's NOL
carryforwards against taxable income of ERTL. For the years
ended June 30, 1998 and 1997, respectively, the Company
received $241,000 and $763,000 of reimbursement of which
$130,000 is recorded as a receivable at June 30, 1998.
The Company's effective tax rate differs from the Federal
statutory rate of 34% as follows:
<TABLE>
<S> <C> <C>
June 30,
1998 1997
Tax provision (benefit) at statutory rate $ (71,000) $(90,000)
Reduction of deferred tax asset valuation
allowance (170,000) (673,000)
Tax benefit - parent $(241,000) $(763,000)
</TABLE>
The Company has operating loss carryforwards for income tax
purposes of approximately $5,195,000, which expire in
varying amounts from 2005 to 2013. In addition, the Company
has general business credit carryovers for income tax
purposes of approximately $131,000, which expire in varying
amounts from 1999 to 2004. Approximately $87,000 are a
result of the pre-acquisition operations of Paraho
Development Corporation.
6. 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.
7. 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 1998
to reflect a maturity date of July 1, 1999. 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 balance of the note
at June 30, 1998 was $866,000.
For the year ended June 30, 1997, the Company received
contributed professional services of $16,000 from ERTL. For
the year ended June 30, 1998, the Company received
professional services totaling $20,000 from ERTL. As of
June 30, 1998, the Company owed ERTL $29,000 for current and
prior year professional services. The Company also had a
receivable of $130,000 due from ERTL as of June 30, 1998 for
the tax benefit used by ERTL.
8. 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:
1999 $ 6,000
2000 6,000
2001 6,000
2002 6,000
2003 2,000
$26,000
The lease provides for fixed payments of $6,000 per year for
periods when the plant is not in operation and $28,000 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 for each year of 1998 and 1997. 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, 1998. 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 complaint by an airport
authority which utilized the Company's product in paving an
airport runway. The airport authority has also filed suit
against the general contractor and the project engineer
alleging that the runway was negligently designed and built.
Total damages asserted against all three defendants are
alleged to be $750,000. Management believes that the
Company has meritorious defenses, and that any potential
liability would be covered by insurance. 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.
9. 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.
<PAGE>
Item 8. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON
ACCOUNTING AND FINANCIAL DISCLOSURE
Not applicable.
<PAGE>
PART III
ITEMS 9 THROUGH 12
Items 9 through 12 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, 1998 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.
No reports on Form 8-K were filed by the Company during the fiscal
year ended June 30, 1998.
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.
(10)(l)(viii) Amendment to the Promissory Note to the Tell Ertl
Family Trust,
dated June 1, 1998.
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: 9/28/98
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 9/28/98
Joseph L. Fox Officer and Director
/s/Theo Ertl Chairman of the 9/28/98
Theo Ertl Board of Directors
/s/Jann Ertl Director 9/28/98
Jann Ertl
/s/Jill Ertl Director 9/28/98
Jill Ertl
/s/Buff Ertl Palm Director 9/28/98
Buff Ertl Palm
/s/Twig Ertl Director 9/28/98
Twig Ertl
/s/Larry A. Lukens Director 9/28/98
Larry A. Lukens
/s/William J. Murray, Jr. Director 9/28/98
William J. Murray, Jr.
/s/Adam A. Reeves Director 9/28/98
Adam A. Reeves
/s/Peter L. Richard Director 9/28/98
Peter L. Richard
/s/Anne M. Smith Controller 9/28/98
Anne M. Smith
<PAGE>
EXHIBIT 10(l)(viii)
June 1, 1998
WE, THE UNDERSIGNED, agree that the Promissory Note, between
The New Paraho Corporation and the Tell Ertl Family Trust, dated
August 29, 1989, and attached hereto, has been amended to state a
due date of July 1, 1999.
TELL ERTL FAMILY TRUST THE NEW PARAHO CORPORATION
BY /S/ Theo Ertl BY/S/Joseph L. Fox
Theo Ertl Joseph L. Fox
Co-Trustee President
<TABLE> <S> <C>
<ARTICLE> 5
<S> <C>
<PERIOD-TYPE> 12-MOS
<FISCAL-YEAR-END> JUN-30-1998
<PERIOD-END> JUN-30-1998
<CASH> 30000
<SECURITIES> 0
<RECEIVABLES> 130000
<ALLOWANCES> 0
<INVENTORY> 0
<CURRENT-ASSETS> 169000
<PP&E> 315000
<DEPRECIATION> 301000
<TOTAL-ASSETS> 294000
<CURRENT-LIABILITIES> 133000
<BONDS> 866000
0
0
<COMMON> 155000
<OTHER-SE> 0
<TOTAL-LIABILITY-AND-EQUITY> 294000
<SALES> 0
<TOTAL-REVENUES> 6000
<CGS> 0
<TOTAL-COSTS> 212000
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 0
<INCOME-PRETAX> (206000)
<INCOME-TAX> 241000
<INCOME-CONTINUING> 0
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<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 35000
<EPS-PRIMARY> 0
<EPS-DILUTED> 0
</TABLE>
