SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-KSB
[ 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 Under Section 13 or 15 (d) of the Securities
Exchange Act of 1934 For the transition period ________,
Commission File No. 0-18866
LOCH HARRIS, INC.
-----------------
(Exact name of small business issuer as specified in its charter)
Nevada 87-0418799
------------------------- ----------------
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
14205 Burnet Rd.
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(Address of principal executive offices)
Austin, Texas 78728
--------------------------------------
(Address of previous executive offices)
(512) 328-7808
------------------------------------------
(Issuer's telephone number, including area code)
Securities registered pursuant to Section 12(b) of the Act: None
Securities registered pursuant to Section 12(g) of the Act:
Common Stock $0.01 Par Value
----------------------------
(Title of Class)
Indicate by check mark whether the Issuer (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 [ ] NO [ X]
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 of Part III of this Form 10 KSB, or any amendment to
this Form 10-KSB. [X]
Issuer reported no revenue for the year ended June 30, 1998.
The aggregate market value of the voting common equity held by non-affiliates
computed by reference to average bid and asked price of such common equity, as
of March 15, 1999 is $5,067,096. On this date approximately 202,683,836 shares
were held by non-affiliates.
As of March 15, 1999, the issuer had 232,183,836 shares of its $0.01 par value
common stock outstanding.
1
<PAGE>
FORM 10-KSB
PART I
ITEM 1 - BUSINESS
Business Development
- ---------------------
Loch Harris, Inc. (the Company) was incorporated under Nevada law as Green
Resources, Inc. on March 13, 1985, which merged with Innovative Health Care
Products Corporation, a Colorado corporation on June 16, 1986. The name was
changed in July of 1986 to Eclectix, which merged in 1988 with Loch Harris
Energy, Inc., a Delaware corporation involved in oil and gas operations. The
name was changed to Loch Harris, Inc. in September of 1988.
Business of Issuer
- --------------------
The initial health and medical business declined prior to the 1988 merger. The
subsequent oil and gas operations ceased by late 1989 due to unfavorable
industry conditions and the drastic fall in oil and gas prices. Loch Harris,
Inc. elected to remain inactive until restructuring efforts initiated in 1992
were completed.
In September of 1993, the Company acquired for common stock P.C. Sentry, Inc., a
Texas corporation, which had developed a sophisticated computer surveillance
monitoring system (Sentry 93000 Notification System). In November 1993, Company
purchased with common stock an electronic telephone message software program
(InfoNotes). During the six months ended June 30, 1997, the Company patented
certain technologies in relationship to the Sentry 93000 Notification System.
The Company established AgraTech International, Inc. in January of 1997 and
InfoTech International Systems, Inc. in April of 1997, two wholly owned
subsidiaries. In May 1997, the Company acquired, for common stock and cash, an
interest in an Oklahoma oil and gas operation and purchased for cash select
assets, including technology, designs and working papers for a solar pump, from
a Nevada Corporation, U. S. Aerodyne. In June 1997, the Company entered into a
joint venture agreement to purchase Tuli cattle for development and
reproduction. Subsequent to June of 1997, the Company filed a lawsuit to obtain
possession of a portion of the Tuli cattle herd. During 1998, the lawsuit was
settled, the joint venture was dissolved and the Company obtained 36 head of
cattle and moved them to a ranch in Fredericksburg, Texas.
During July of 1997, the Company established three additional subsidiaries, US
Aerodyne, Ltd., PetroTech Resources International, Inc. and Chemical Detection
Technology, Inc. Late in 1997, the Company expanded operations to include
chemical detection applications.
At June 30, 1998, the Company continued with development of the software
systems, the Tuli cattle venture, the Oklahoma oil and gas operations, the solar
pump models and the chemical detection units. The Company did not incur any
research and development costs during the year ended June 30, 1998 or the six
months ended June 30, 1997. There are no significant effects on Company
operations from environmental regulations.
ITEM 2 - PROPERTIES
During the six months ended June 30, 1997, the Company purchased for $100,000
and 4,000,000 shares of the Company's common stock, an 80% interest in leasehold
estates in Okmulgee County, Oklahoma including existing equipment. Due to the
restrictions on the common stock (Rule 144), the common stock was valued at 20%
of the quoted stock price of $0.57 on the date of the sale. No value was
assigned to the equipment due to the wells requiring substantial workovers to be
productive.
ITEM 3 - LEGAL PROCEEDINGS
As of June 30, 1998, there were no material pending legal proceedings.
ITEM 4 - SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
2
<PAGE>
During the second calendar quarter of 1998, there were no matters submitted to a
vote of security holders.
PART II
ITEM 5 - MARKET FOR COMMON STOCK AND RELATED STOCKHOLDER MATTERS
The Company issues common stock with dividends and voting rights which is listed
for trading on the Over-the-Counter Bulletin Board (OTC:BB).
On October 15, 1997, the Company amended its articles of incorporation to
increase the number of authorized shares of common stock to 300,000,000 shares
at $0.01 par value per share.
As of June 30, 1998, there were 914 shareholders of record. The Company did not
declare a cash dividend for the year ended June 30, 1998, for the six months
ended June 30, 1997, or for the quarter ended September 30, 1998.
The following table indicates the range of high and low closing bid information
for the Company's common stock, as obtained from National Quotation Bureau, LLC.
The quotations reflect inter-dealer prices, without retail mark-up, mark-down or
commission and may not represent actual transactions.
Closing Bid
-----------------
Period Ending High Low
- -------------------- ---- ---
March 31, 1997 .14 .12
June 30, 1997 .32 .30
September 30, 1997 .24 .19
December 31, 1997 .13 .09
March 31, 1998 .08 .06
June 30, 1998 .13 .06
September 30, 1998 .06 .06
December 31, 1998 .06 .06
ITEM 6 - MANAGEMENT'S DISCUSSION AND ANALYSIS
The cash requirements of the Company remain minimal at the present time and the
Company is currently debt free. To properly provide for development of its
products and expansion of its operations, the Company will be required to raise
additional funds during the next twelve months. The Company anticipates
obtaining operating funds through additional significant capital contributions
by interested investors.
As of June 30, 1998, management is committed to continue the development of the
Sentry 93000 Notification System and InfoNotes system, the Tuli cattle, the
Oklahoma oil and gas operations, the solar pump models and the chemical
detection applications. Additionally, the Company plans to extend the company
into the acquisitions of other state-of-the-art technologies.
ITEM 7 - FINANCIAL STATEMENTS AND SUPPLEMENTAL DATA
INDEX TO CONSOLIDATED FINANCIAL STATEMENTS
3
<PAGE>
<TABLE>
<CAPTION>
INDEX TO CONSOLIDATED FINANCIAL STATEMENTS
Page
----
<S> <C>
Report of Independent Auditors 5
Consolidated Balance Sheet as of June 30, 1998 and June 30, 1997 6
Consolidated Statements of Operations for year ended June 30, 1998
and six months ended June 30, 1997 7
Consolidated Statements of Shareholders' Equity for the year ended
June 30, 1998 and six months ended June 30, 1997 8
Consolidated Statement of Cash Flows for the year ended June 30, 1998
and six months ended June 30, 1997 9
Notes to Consolidated Financial Statements 10
</TABLE>
4
<PAGE>
BROWN, GRAHAM AND COMPANY, P.C.
CERTIFIED PUBLIC ACCOUNTANTS
To the Board of Directors
Loch Harris, Inc.
INDEPENDENT AUDITOR'S REPORT
We have audited the accompanying consolidated balance sheets of Loch Harris,
Inc. (the "Company") as of June 30, 1998 and June 30, 1997, and the related
consolidated statements of operations, stockholders' equity and cash flows for
the year ended June 30, 1998 and six months ended June 30, 1997. These
consolidated 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 audits 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 consolidated financial statements referred to above present
fairly, in all material respects, the financial position of Loch Harris, Inc.
as of June 30, 1998, and June 30, 1997, and the results of their operations and
cash flows for the year ended June 30, 1998, and six months ended June 30, 1997,
in conformity with generally accepted accounting principles.
The accompanying financial statements have been prepared assuming that the
Company will continue as a going concern. As discussed in Note 1 to the
consolidated financial statements, the Company has suffered losses from
operations for the year ended June 30, 1998, and six months ended June 30,
1997, and the years ended December 31, 1996 and 1995, which raise substantial
doubt about its ability to continue as a going concern. The financial
statements do not include any adjustments relating to the recoverability and
classification of recorded assets, or the amounts and classification of
liabilities that might be necessary in the event the Company cannot continue in
existence.
/S/ Brown, Graham and Company, P.C.
Georgetown, Texas
March 27, 1999
5
<PAGE>
<TABLE>
<CAPTION>
LOCH HARRIS, INC.
CONSOLIDATED BALANCE SHEETS
JUNE 30, 1998 AND JUNE 30, 1997
ASSETS 1998 1997
- ------------------------------------------------- ------------- -------------
<S> <C> <C>
Current assets
Cash $ 56,158 $ 354,716
Oil and gas properties, using successful efforts
accounting, net of accumulated depreciation,
amortization and impairment (Note 2 ):
Proved undeveloped properties 221,694 221,694
Property and equipment, net of
accumulated depreciation (Note 3) 100,777 112,342
Other assets (Note 4) 60,991 57,948
------------- -------------
Total assets $ 439,620 $ 746,700
============= =============
Current liabilities:
Accounts payable $ 31,642 $ 36,765
Accrued liabilities -0- 18,442
------------- -------------
Total current liabilities 31,642 55,207
------------- -------------
Shareholders' equity:
Common stock, $.01 par value;
300,000,000 shares authorized;
207,832,241 and 110,179,385 shares issued
and outstanding, respectively (Note 5) 2,078,322 1,101,794
Additional paid in capital (Note 5) 13,087,388 11,723,508
Retained deficit (14,692,482) (12,133,809)
Treasury stock (Note 5) (65,250) -0-
------------- -------------
Total shareholders' deficit 407,978 691,493
------------- -------------
Total liabilities and shareholders' deficit $ 439,620 $ 746,700
</TABLE>
The accompanying notes are an integral part of these financial statements.
6
<PAGE>
<TABLE>
<CAPTION>
LOCH HARRIS, INC.
CONSOLIDATED STATEMENTS OF OPERATIONS
YEAR ENDED JUNE 30, 1998 AND SIX MONTHS ENDED JUNE 30, 1997
1998 1997
------------- -------------
<S> <C> <C>
Revenues $ - $ -
------------- -------------
Operating expenses:
General and administrative 302,798 145,887
Consulting services 2,040,929 833,677
Salaries and benefits 187,439 45,630
Depreciation and amortization 27,507 3,035
Write-off of abandoned properties - 37,371
Impairment of long-lived assets - 338,318
------------- -------------
Total operating expenses 2,558,673 1,403,918
------------- -------------
Net loss $ (2,558,673) $ (1,403,918)
============= =============
Basic and diluted net loss per share $ (.02) $ (.01)
============= =============
Basic and diluted weighted average shares outstanding 151,643,397 100,909,302
============= =============
</TABLE>
The accompanying notes are an integral part of these financial statements.
7
<PAGE>
<TABLE>
<CAPTION>
LOCH HARRIS, INC.
CONSOLIDATED STATEMENTS OF SHAREHOLDERS' EQUITY
YEAR ENDED JUNE 30, 1998 AND SIX MONTHS ENDED JUNE 30, 1997
Retained
Number of Additional Earnings Treasury
Shares Amount Paid in Capital (Deficit) Stock Total
----------- ---------- ---------------- ------------- ---------- ------------
<S> <C> <C> <C> <C> <C> <C>
BALANCE AT DECEMBER 31, 1996 94,564,385 $ 945,644 $ 9,691,603 $(10,729,891) $ - $ (92,644)
Common stock issued for:
Services 11,615,000 116,150 606,840 - - 722,990
Purchases of property
And equipment 4,000,000 40,000 416,000 - - 456,000
Additional cash contribution -
(Note5) - - 1,009,065 - 1,009,065
Net loss - - - (1,403,918) - (1,403,918)
----------- ---------- ---------------- ------------- ---------- ------------
BALANCE AT JUNE 30, 1997 110,179,385 $1,101,794 $ 11,723,508 $(12,133,809) $ - $ 691,493
Common stock issued for:
Cash 47,494,288 474,943 126,366 - 601,309
Services 50,158,568 501,585 1,237,514 - - 1,739,099
Treasury Stock - - - - (65,250) (65,250)
Net loss - - - (2,558,673) - (2,558,673)
----------- ---------- ---------------- ------------- ---------- ------------
BALANCE AT JUNE 30, 1998 207,832,241 $2,078,322 $ 13,087,388 $(14,692,482) $ (65,250) $ 407,978
=========== ========== ================ ============= ========== ============
</TABLE>
The accompanying notes are an integral part of these financial statements.
8
<PAGE>
<TABLE>
<CAPTION>
LOCH HARRIS, INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS
YEAR ENDED JUNE 30, 1998 AND SIX MONTHS ENDED JUNE 30, 1997
1998 1997
------------ ------------
<S> <C> <C>
Cash flows from operating activities:
Net loss $(2,558,673) $(1,403,918)
------------ ------------
Adjustments to reconcile net loss to net cash
provided by operating activities:
Depreciation and amortization 27,507 3,034
Impairment of long-lived assets - 338,318
Common stock issued for services 1,739,099 722,990
Decrease in accounts payable (5,123) (63,479)
Decrease in accrued liabilities (18,442) 18,442
------------
Total adjustments 1,743,041 1,019,305
------------
Cash flows from operating activities (815,632) (384,613)
------------ ------------
Cash flows from investing activities:
Cash payments for the purchase of property and equipment (9,485) (217,736)
Cash payment for the purchase of other assets (9,500) (52,000)
------------ ------------
Cash flows from investing activities (18,985) (269,736)
------------ ------------
Cash flows from financing activities:
Cash payments for purchase of treasury stock (65,250) -
Proceeds from sale of common stock 601,309 1,009,065
------------ ------------
Cash flows from financing activities 536,059 1,009,065
------------ ------------
Net increase (decrease) in cash (298,558) 354,716
Cash and cash equivalents - beginning of year 354,716 -
------------ ------------
Cash and cash equivalents - end of year $ 56,158 $ 354,716
============ ============
Supplemental disclosures of cash flow information:
Common stock issued for services $ 1,739,099 $ 722,990
============ ============
</TABLE>
The accompanying notes are an integral part of these financial statements.
9
<PAGE>
LOCH HARRIS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
YEAR ENDED JUNE 30, 1998 AND SIX MONTHS ENDED JUNE 30, 1997
NOTE 1 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
- ----------------------------------------------------------
NATURE OF BUSINESS AND ORGANIZATION:
Loch Harris, Inc. (the "Company") (formerly Eclectix, Inc.) was organized under
the laws of the State of Nevada on March 13, 1985. On July 31, 1988, Eclectix,
Inc. entered into an agreement and plan of reorganization with the shareholders
of Loch Harris Energy, Inc., in which Eclectix, Inc. acquired 100% of the common
stock of Loch Harris Energy, Inc. As part of the reorganization, Eclectix, Inc.
changed its name to Loch Harris, Inc. During the period ended June 30, 1997,
the Company changed its fiscal year to June 30 and filed a transition report.
Prior to 1990, the Company was involved in the acquisition, development, and
production of oil and gas reserves. During 1989, severe economic conditions
forced the Company to cease operations and the Company remained in a dormant
state until 1993. During the year ended December 31, 1993, the Company
purchased P.C. Sentry, Inc. which owned an advanced electronic monitoring and
notification system (Sentry 93000). Also the Company purchased an electronic
telephone message software program (InfoNotes). The Company is involved in
research and development of the intellectual properties, particularly computer
software solutions.
During the first six months of 1997, the Company purchased an interest in an
Oklahoma oil and gas operation and purchased selected assets, including
technology, designs and working papers for a solar pump. Additionally, the
Company entered into a joint venture agreement to purchase Tuli Cattle for
development and reproduction.
The Company purchased all of the common stock of AgraTech International, Inc. in
January 1997, and InfoTech International, Inc. in April 1997. During July of
1997, the Company purchased all of the common stock of US Aerodyne, Ltd.,
PetroTech Resources International, Inc. and Chemical Detection Technology, Inc.
GOING CONCERN:
As shown in the accompanying consolidated financial statements, the Company
incurred net losses of $2,558,673 and $1,403,918 for the year ended June 30,
1998 and the six months ended June 30, 1997, respectively. For the period
subsequent to June 30, 1998, the Company anticipates contributions by interested
investors and the issuance of additional common stock to provide operating
expenses and funding for the purchase of new products. These funds will enable
the Company to produce a level of revenue necessary to provide the Company with
positive cash flow, adequate working capital and positive earnings during the
next fiscal year.
The financial statements do not include any adjustments that might be necessary
if the Company is unable to continue as a going concern.
PRINCIPLES OF CONSOLIDATION:
The accompanying consolidated financial statements include the accounts of the
Company and its wholly-owned subsidiaries US Aerodyne, Ltd., PetroTech Resources
International, Inc., Chemical Detection Technology, Inc., AgraTech
International, Inc., InfoTech International, Inc., P.C. Sentry, Inc., and Loch
Harris Energy, Inc. All significant intercompany accounts and transactions have
been eliminated in consolidation.
CASH AND CASH EQUIVALENTS:
For purposes of the Statement of Cash Flows, the Company considers all
investments with maturities of three months or less when purchased to be cash
equivalents. The Company has no investments classified as cash equivalents on
June 30, 1998 or 1997.
10
<PAGE>
LOCH HARRIS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
YEARS ENDED JUNE 30, 1998 AND JUNE 30, 1997
NOTE 1 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES - CONTINUED
- ------------------------------------------------------------------------
EQUIPMENT:
Equipment is recorded at cost. Depreciation is computed using the straight-line
method over the estimated useful lives of the assets of five to seven years.
Ordinary maintenance and repairs are expensed as incurred.
OIL AND GAS PROPERTIES:
The Company uses the successful efforts method of accounting for oil and gas
producing activities. Costs to acquire mineral interests in oil and gas
properties, to drill and equip exploratory wells that find proved reserves, and
to drill and equip development wells are capitalized. Costs to drill
exploratory wells that do not find proved reserves, geological and geophysical
costs, and costs of carrying and retaining unproved properties are expensed.
Unproved oil and gas properties that are individually significant are
periodically assessed for impairment of value, and a loss is recognized at the
time of impairment by providing an impairment allowance. Other unproved
properties are amortized based on the Company's experience of successful
drilling and average holding period. Capitalized costs of producing oil and gas
properties, after considering estimated dismantlement and abandonment costs and
estimated salvage values, are depreciated and depleted by the unit-of-production
method. Support equipment and other property and equipment are depreciated over
their estimated useful lives.
On the sale or retirement of a complete unit of a proved property, the costs and
related accumulated depreciation, depletion, and amortization are eliminated
from the property accounts, and the resultant gain or loss is recognized. On
the retirement or sale of partial unit of proved property, the cost is charged
to accumulated depreciation, depletion, and amortization with a resulting gain
or loss recognized in income.
On the sale of an entire interest in an unproved property for cash or cash
equivalents, gain or loss on the sale is recognized, taking into consideration
the amount of any recorded impairment if the property had been assessed
individually. If a partial interest in an unproved property is sold, the amount
received is treated as a reduction of the cost of the interest retained.
REVENUE RECOGNITION:
Revenues from the sale of the Company's products are recognized when persuasive
evidence of an arrangement exists, delivery has occurred, the customer fee is
fixed and collection is probable. The Company recorded no revenues during the
year ended June 30, 1998 or the six months ended June 30, 1997.
INCOME TAXES:
The Company accounts for income taxes using the liability method as required by
Statement of Financial Accounting Standards No. 109 ("FAS 109"), Accounting for
Income Taxes. Deferred tax assets and liabilities are determined based on
differences between the financial statement and tax basis of assets and
liabilities using enacted tax rates expected to be in effect for the year in
which the differences are expected to reverse. The net change, if any, in
deferred tax asset and liabilities is reflected in the statement of operations.
11
<PAGE>
LOCH HARRIS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
YEARS ENDED JUNE 30, 1998 AND JUNE 30, 1997
NOTE 1 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES - CONTINUED
- ------------------------------------------------------------------------
USE OF ESTIMATES:
The preparation of financial statements in conformity with generally accepted
accounting principles requires management to make estimates and assumptions that
affect the reported amounts of assets and liabilities and disclosure of
contingent assets and liabilities at the date of the financial statements and
the reported amounts of revenues and expenses during the reporting period.
Actual results could differ from those results.
TREASURY STOCK:
Acquisitions and sales of the Company's treasury shares are accounted for using
an average cost method.
NOTE 2 - OIL AND GAS PROPERTIES
- -------------------------------------
During the six months ended June 30, 1997, the Company purchased for $100,000
and 4,000,000 shares of the Company's common stock, an 80% interest in leasehold
estates in Okmulgee County, Oklahoma including existing equipment. Due to the
restrictions on the common stock (Rule 144), the common stock was valued at 20%
of the quoted stock price of $0.57 on the date of the sale. No value was
assigned to the equipment due to the wells requiring substantial workovers to be
productive.
Due to the valuation of the reserve estimates, the recoverability of the
carrying amounts of these assets is questionable. As a result, pursuant to FASB
Statement No. 121, Accounting for Impairment of Long-Lived Assets and for
Long-Lived Assets to be Disposed Of, an impairment of $338,318 has been
recognized for this property and included as a component of income before income
taxes under the caption "Impairment of long-lived assets" as of June 30, 1997.
In calculating the impairment loss, fair value was determined by reviewing the
discounted cash flows of future sales.
There has been no activity from the oil and gas property during the year ended
June 30, 1998 or six months ended June 30, 1997.
<TABLE>
<CAPTION>
Six Months
Year Ended Ended
June 30, 1998 June 30, 1997
-------------- ---------------
<S> <C> <C>
Capitalized costs relating to oil and gas producing activities:
Proved undeveloped oil and gas properties (at 80%) $ 221,694 $ 560,012
Less impairment - (338,318)
--------------
Net capitalized costs $ 221,694 $ 221,694
============== ===============
</TABLE>
NOTE 3 - PROPERTY AND EQUIPMENT
- ------------------------------------
Property and equipment at June 30, 1998 and June 30, 1997 consisted of the
following:
<TABLE>
<CAPTION>
1998 1997
--------- ---------
<S> <C> <C>
Office equipment $ 47,735 $ 38,249
Vehicles 12,000 12,000
Cattle breeding herd 75,000 75,000
Less accumulated depreciation (33,958) (12,907)
Net property and equipment $100,777 $112,342
========= =========
</TABLE>
12
<PAGE>
Depreciation expense, which is calculated on a straight-line basis, was $21,051
for the year ended June 30, 1998 and $1,983 for the six months ended June 30,
1997.
NOTE 4 - OTHER ASSETS
- -------------------------
Other assets as of June 30, 1997, consisted of computer software and intangible
assets including an advanced electronic monitoring and notification system and
an electronic telephone message software program in the amount of $2,671,875
acquired in 1993 and other intangibles of $14,775. Amortization of capitalized
costs is computed using the straight-line method over the remaining estimated
economic life of the product of 5 years.
During the six months ended June 30, 1997, the Company determined that
significant cash requirements for additional research and development are
required before the products would be available for sale. Due to the need for
significant research and development, Company's management made a thorough
evaluation of the Company's operations, including among other things, the
carrying value of long-lived assets. Effective December 31, 1996, management
determined that based on the current market conditions and an analysis of the
projected undiscounted future cash flows calculated in accordance with the
provisions of SFAS No. 121, the carrying amount of its computer software and
intangibles may not be recoverable. The resultant impairment of these
long-lived assets necessitated a write-down of $930,439 of the assets acquired
in 1993. During the year ended June 30, 1998, the Company decreased other
assets and the related accumulated amortization and impairment by $2,686,650.
During the year ended June 30, 1998 and six months ended June 30, 1997, the
Company patented certain technologies related to an advanced electronic
monitoring and notification system and purchased technology, designs and working
papers for a solar pump. Other assets as of June 30, 1998 and 1997 were as
follows:
<TABLE>
<CAPTION>
1998 1997
-------- ------------
<S> <C> <C>
Computer software $ - $ 2,671,875
Solar pump technology 42,500 42,500
Other intangible assets 26,000 31,275
Less accumulated amortization
and impairment (7,509) (2,687,702)
Other assets, net $60,991 $ 57,948
======== ============
</TABLE>
NOTE 5 - SHAREHOLDER EQUITY
- -------------------------------
During the year ended June 30, 1998 and the six months ended June 30, 1997, the
Company issued 50,158,568 and 11,615,000 shares of common stock, respectively,
(Subject to Rule 144) for employee compensation, consultants and professional
fees. The common stock was recorded as a charge to earnings in the amount of
$1,739,099 and $722,990 for the respective periods. Additionally, during the
six months ended June 30, 1997, the Company issued 4,000,000 shares of common
stock for the purchase of the Oklahoma oil and gas operations (see Note 2).
During the six months ended June 30, 1997, the Company authorized the issuance
of 10,179,385 shares of common stock in excess of common stock authorized by the
State of Nevada. As of June 30, 1997, uncertificated shares amounted to
16,250,000 shares, which were not issued until the articles of incorporation
were amended on October 15, 1997, authorizing 300,000,000 shares of common
stock.
13
<PAGE>
LOCH HARRIS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
YEARS ENDED JUNE 30, 1998 AND JUNE 30, 1997
NOTE 5 - SHAREHOLDER EQUITY - CONTINUED
- ---------------------------------------------
During the year ended June 30, 1998 and the six months ended June 30, 1997, the
Company received capital contributions from various stockholders in connection
with the private sale of free trading common stock. As a part of the sale of
free trading shares of common stock, stockholders were issued three shares of
restricted common stock (Rule 144) for each share of free trading stock sold and
the proceeds contributed to the Company. The Company recorded the issuance of
replacement shares by valuing the shares at 33% of the market value of the
common stock on the issuance date. The $1,009,065 capital contribution recorded
during the six months ended June 30, 1997 is related to the shares issued during
the year ended June 30, 1998.
During the year ended June 30, 1998, the Company acquired 1,684,801 shares of
treasury stock by issuing three shares of restricted common stock (Rule 144) for
each free trading share, valued at 33% of the market value of the common stock
on the issuance date. The Company sold 1,163,051 shares at cost, therefore no
gain or loss was recorded in the accompanying financial statements. As of June
30, 1998, the Company retained 521,750 treasury shares at a cost of $65,250.
NOTE 6 - STOCK OPTIONS AND WARRANTS
- -----------------------------------------
A summary of the status of the Company's stock options as of June 30, 1998 and
June 30, 1997 is presented below:
<TABLE>
<CAPTION>
1998 1997
---------- ----------
<S> <C> <C>
Options outstanding 13,500,000 13,500,000
Options granted - -
Options exercised - -
Options canceled - -
Options outstanding and exercisable 13,500,000 13,500,000
========== ==========
</TABLE>
The following table summarizes the information about stock options as of June
30, 1998 and 1997:
<TABLE>
<CAPTION>
Weighted
Average Weighted Weighted
Range of Remaining Average Average
Exercise Number Date Contractual Exercise Price Number Exercise Price
----------- -------- ----------- --------------------- ----------- ---------------------
Price outstanding Granted Life (Total Shares) Exercisable (Exer. Shares)
- ------------ ----------- -------- ----------- --------------------- ----------- ---------------------
<S> <C> <C> <C> <C> <C> <C>
.25 4,000,000 12/18/94 5 years $ .25 4,000,000 $ .25
.25 4,000,000 6/1/95 5 years .25 4,000,000 .25
.25 4,000,000 7/1/95 5 years .25 4,000,000 .25
.01 1,000,000 7/26/96 5 years .01 1,000,000 .01
.01 500,000 7/26/96 5 years .01 500,000 .01
============ ----------- ======== =========== ===================== ----------- =====================
.01-
.25 13,500,000 5 years $ .22 13,500,000 $ .22
============ =========== =========== ===================== =========== =====================
</TABLE>
All options were granted to consultants for services which expire in years 1999
through 2001. Each stock option granted can be exercised for one share of
common stock.
14
<PAGE>
LOCH HARRIS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
YEARS ENDED JUNE 30, 1998 AND JUNE 30, 1997
NOTE 7 - INCOME TAXES
- -------------------------
A reconciliation of income tax at the statutory rate to the Company's effective
rate follows:
<TABLE>
<CAPTION>
1998 1997
------------ ------------
<S> <C> <C>
Computed at the expected statutory rate (credit) $ (870,000) $ (477,000)
Valuation allowance 870,000 477,000
Income tax $ - $ -
============ ============
Deferred tax assets are as follows:
Net operating loss carryforward $(4,995,000) $(4,125,000)
Valuation allowance 4,995,000 4,125,000
$ - $ -
============ ============
</TABLE>
The Company had cumulative net operating loss carryforwards of approximately
$14,690,000 and $12,134,000 at June 30, 1998 and June 30, 1997, respectively,
for federal tax reporting purposes. The net operating loss carryforwards expire
in varying amounts beginning in the year 2002 and may be limited due to the
types of business the Company may engage.
NOTE 8 - EARNINGS PER SHARE
- --------------------------------
The following data details the amounts used in computing earnings per share
(EPS) and the weighted average number of shares of dilutive potential common
stock.
<TABLE>
<CAPTION>
1998 1997
----------- -----------
<S> <C> <C>
Weighted average number of common shares
issued in basic EPS 151,643,397 100,909,302
Effect of dilutive securities:
Stock options - -0-
----------- -----------
Weighted average number of common shares and
dilutive potential common stock used in diluted EPS 151,643,397 100,909,302
=========== ===========
</TABLE>
Stock options convertible into 13,500,000 shares of common stock were not
included in computing diluted EPS for the year ended June 30, 1998 or for the
six months ended June 30, 1997 because their effects were antidulutive.
15
<PAGE>
BROWN, GRAHAM AND COMPANY, P.C.
CERTIFIED PUBLIC ACCOUNTANTS
To the Board of Directors
Loch Harris, Inc.
Our report on our audit of the basic financial statements of Loch Harris, Inc.
for the year ended June 30, 1998 and the six months ended June 30, 1997 appears
on page 5. Those audits were conducted for the purpose of forming an opinion on
the basic financial statements taken as a whole. The following supplemental
reserve information is presented for the purpose of additional analysis and is
not a required part of the basic financial statements. Such information has not
been subjected to the auditing procedures applied in the audits of the basic
financial statements, and, accordingly, we express no opinion on it.
/S/ Brown, Graham and Company, P.C.
Georgetown, Texas
March 27, 1999
16
<PAGE>
SUPPLEMENTAL RESERVE INFORMATION (UNAUDITED)
AS OF JUNE 30, 1998
The following estimates of proved undeveloped reserve quantities and related
standardized measure of discounted net cash flow are estimates only, and do not
purport to reflect realizable values or fair market values of the Company's
reserves. The Company emphasizes that reserve estimates are inherently
imprecise and that estimates of new discoveries are more imprecise than those of
producing oil and gas properties. Accordingly, these estimates are expected to
change as future information becomes available. All of the Company's reserves
are located in the United States.
Proved reserves are estimated reserves of crude oil (including condensate and
natural gas liquids) and natural gas that geological and engineering data
demonstrate with reasonable certainty to be recoverable in future years from
known reservoirs under existing economic and operating conditions. Proved
undeveloped reserves are those expected to be recovered through existing wells,
equipment, and operating methods, but that require a major capital expenditure
The standardized measure of discounted future net cash flows is computed by
applying year-end prices of oil and gas (with consideration of price changes
only to the extent provided by contractual arrangements) to the estimated future
production of proved oil and gas reserves, assuming continuation of existing
economic conditions. The estimated future net cash flows are then discounted
using a rate of 6.5 percent a year to reflect the estimated timing of the future
cash flows.
<TABLE>
<CAPTION>
Oil *(Bbls) Gas (Mcf)
Proved undeveloped reserves 26,866 267,247
<S> <C> <C>
Standardized measure of discounted future net cash flows
at June 30, 1998:
Future cash inflows $ 856,884
Future production (252,090)
Future development costs (294,420)
Net cash flow undiscounted 310,374
Future net cash flows 6.5% annual discount for estimated
timing of cash flows (88,680)
Standardized measures of discounted future net cash flows relating
to proved undeveloped oil and gas reserves $ 221,694
==========
<FN>
*Oil reserves shown include condensate only. Oil volumes are expressed in barrels which
are equivalent to 42 United States gallons. Gas volumes are expressed in thousands of
standard cubic feet (MCF) at the contract temperature and pressure bases.
</TABLE>
17
<PAGE>
ITEM 8 - CHANGES IN/DISAGREEMENTS WITH ACCOUNTANTS
None.
PART III
ITEM 9 - DIRECTORS AND EXECUTIVE OFFICERS, PROMOTERS AND CONTROL PERSONS
The following table identifies the Company's directors and executive officers as
of June 30, 1998.
<TABLE>
<CAPTION>
NAME AGE TITLE PERIODS OF SERVICE
<S> <C> <C> <C>
R. B. Baker 68 CEO 1988 to present
Director
Charles M. Blackwell 51 Director 1997 to present
Rodney A. Boone 48 President 1997 to present
Director
Mark E. Baker 43 Sr. Vice President 1997 to present
Secretary/Treasurer
Director
Mathew B. Harris 25 Sr. Vice President 1997 to present
Director
</TABLE>
None of the above named directors hold directorships in other reporting
companies. All directors serve until the next annual meeting of stockholders
and the concurrent election of directors.
R. B. Baker has been an officer and director of the Company since 1988. He has
also served as shareholder relations director since 1988. His background in
public relations, human resources, management, travel, real estate, investments
and finance equips him to serve as a leader of the Company.
Charles Blackwell joined the Company's Board of Directors in 1997, bringing his
experience in management of a 56,000-acre ranch that ranges across three
counties. He has developed an artificial insemination and embryo transfer
program for a 750-head commercial cow-calf operation, a 200-head herd of
registered Shorthorn and Brangus, and 65-head of registered thoroughbreds and
quarterhorses. He has been president of his own agribusiness consulting firm
since 1995. He holds a Master of Science degree in Range Animal Science from
Sul Ross State University. He has completed further study toward a Master of
Science on the effects of minerals on production and reproduction in beef
cattle.
Rodney Boone is an engineer who holds three advanced degrees from Stanford
University. Before coming to the Company in 1997, he was owner and president of
a California company engaged in consulting, project management and real estate
development. He has had two decades of success in managing massive complex
projects, including construction of permanent facilities for the Diablo Canyon
nuclear power plant.
18
<PAGE>
Mark E. Baker joined the Company in May 1997. He attended Baylor University
before receiving degrees in business management and finance-economics from the
University of Mary-Hardin Baylor. He owned a real estate investment and
management company before joining the Company. He has outstanding
administration and financial skills sharpened by experience in detail-intensive
positions. Mark E. Baker is the son of R B. Baker.
Mathew B. Harris holds two undergraduate business degrees from Baylor University
with a concentration in advertising, marketing and strategic management. Since
1997, he directs marketing, strategic and organizational issued for the Company.
ITEM 10 - EXECUTIVE COMPENSATION
The following table summarizes compensation paid during the last three fiscal
years to the Company's executive officers and directors.
<TABLE>
<CAPTION>
Securities
Other Annual Restricted Underlying All Other
Name And Compensa- Stock Options LTIP Compen-
Principal Position Year Salary Bonus tion Awards SARs Payouts sation
- ------------------ ---- ------- ------ ------------ ----------- ---------- -------- ----------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
R. B. Baker - CEO 1998 $28,194 $ -0- $ -0- $ 198,600 $ -0- $ -0- $ -0-
1997 6,667 -0- -0- 115,000 -0- -0- 4,500
1996 -0- -0- -0- 27,000 10,000 -0- -0-
- ------------------ ---- ------- ------ ------------ ----------- ---------- -------- ----------
Rodney A. Boone 1998 36,458 -0- -0- 211,100 -0- -0- -0-
President
</TABLE>
ITEM 11- SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT
Name and Amount and
address of nature of
beneficial beneficial Percent of
Title of class owner owner Class
- ---------------- --------------------- ------------ -----------
Common Harris Partners, Ltd. 14,077,953 6.77%
587 Hummingbird Ln shares
Fredericksburg, TX 78624
ITEM 12 - CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
During the year ended June 30, 1998, and six months ended June 30, 1997, the
Company received capital contributions from Harris Partners Ltd. totaling
$248,736 and $1,009,065 respectively, in relation to the private sale of free
trading common stock.
19
<PAGE>
PART IV
ITEM 13 - EXHIBITS AND REPORTS ON FORM 8-K
None.
20
<PAGE>
SIGNATURES
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.
Date March 30, 1999 By
------------------- Dr. R.B. Baker, Chairman of the Board
Pursuant to the requirements of the Securities Exchange Act of 1934, this report
has been signed below by the following persons on behalf of this Registrant and
in the capacities and on the dates indicated.
Signature Capacity Date
- --------- -------- ----
- ---------------- Chairman of the Board March 30, 1999
Dr. R.B. Baker -------------------
- ---------------- Secretary/Treasurer March 30, 1999
Mark Baker ------------------
21
<PAGE>
<TABLE> <S> <C>
<ARTICLE> 5
<MULTIPLIER> 1
<S> <C>
<PERIOD-TYPE> YEAR
<FISCAL-YEAR-END> JUN-30-1998
<PERIOD-START> JUL-01-1997
<PERIOD-END> JUN-30-1998
<CASH> 56158
<SECURITIES> 0
<RECEIVABLES> 0
<ALLOWANCES> 0
<INVENTORY> 0
<CURRENT-ASSETS> 56158
<PP&E> 383462
<DEPRECIATION> 0
<TOTAL-ASSETS> 439620
<CURRENT-LIABILITIES> 31642
<BONDS> 0
<COMMON> 2078322
0
0
<OTHER-SE> (1670344)
<TOTAL-LIABILITY-AND-EQUITY> 439620
<SALES> 0
<TOTAL-REVENUES> 0
<CGS> 0
<TOTAL-COSTS> 0
<OTHER-EXPENSES> 2558673
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 0
<INCOME-PRETAX> 0
<INCOME-TAX> 0
<INCOME-CONTINUING> 0
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (2558673)
<EPS-PRIMARY> (.02)
<EPS-DILUTED> (.02)
</TABLE>
