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 For the fiscal year ended ______________, OR
[X] TRANSITION REPORT UNDER SECTION 13 OR 15 (D) OF THE SECURITIES EXCHANGE ACT
OF 1934 FOR THE TRANSITION PERIOD FROM JANUARY 1, 1997 TO JUNE 30, 1997,
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.
-------------------
(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 six months ended June 30, 1997.
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 I - 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. In December 1998, the joint
venture was dissolved and the Company obtained 36 head of cattle and moved them
to a ranch in Fredericksburg, Texas.
At June 30, 1997, the Company continued with development of the Sentry 93000
Notification and InfoNotes software systems, the Tuli cattle venture, the
Oklahoma oil and gas operations and the solar pump models. The Company did not
incur any research and development costs during the six months ended June 30,
1997. There are no significant effects on Company operations from environmental
regulations. At June 30, 1997 the Company had five employees, including four
officers.
ITEM 2 - PROPERTIES
During the six months ended June 30, 1997, the Company purchased for $100,000 of
cash and 4,000,000 shares of the Company's common stock, an 80% interest in
leasehold estates in Okmulgee County, Oklahoma which includes 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, 1997, there were no material pending legal proceedings.
ITEM 4 - SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
2
<PAGE>
During the second quarter of 1997, 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 August 8, 1996, the Company amended its articles of incorporation to increase
the number of authorized shares of common stock to 100,000,000 shares at $0.01
par value per share.
As of June 30, 1997, there were 498 shareholders of record. The Company did not
declare a cash dividend for the six months ended June 30, 1997, for the year
ended December 31,1996, or for the quarter ended September 30, 1997.
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.
<TABLE>
<CAPTION>
Closing Bid
-----------
Period Ending High Low
- -------------------- ---- ---
<S> <C> <C>
March 31, 1996 .10 .03
June 30, 1996 .03 .03
September 30, 1996 .06 .02
December 31, 1996 .04 .02
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
</TABLE>
ITEM 6 - MANAGEMENT'S DISCUSSION AND ANALYSIS
The cash requirements of the Company remain minimal at the present time due to
consultants agreeing to accept common stock for payment of services. 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, 1997, 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 and the solar pump models. Additionally, the
Company plans to extend the company into the acquisitions of other
state-of-the-art technologies. Several other subsidiary companies are planned
for the remainder of 1997.
3
<PAGE>
ITEM 7 - FINANCIAL STATEMENTS AND SUPPLEMENTAL DATA
INDEX TO CONSOLIDATED FINANCIAL STATEMENTS
Page
Report of Independent Auditors 5
Consolidated Balance Sheet as of June 30, 1997 and December 31, 1996 6
Consolidated Statements of Operations for the six months ended
June 30, 1997 and for the year ended December 31, 1996 7
Consolidated Statements of Shareholders' Equity for the six months ended
June 30, 1997 and for the year ended December 31, 1996 8
Consolidated Statement of Cash Flows for the six months ended
June 30, 1997 and for the year ended December 31, 1996 9
Notes to Consolidated Financial Statements 10
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, 1997 and December 31, 1996, and the related
consolidated statements of operations, stockholders' equity and cash flows for
the six months ended June 30, 1997 and the year ended December 31, 1996. 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 audit.
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, 1997 and December 31, 1996, and the results of their operations and
cash flows for the six months ended June 30, 1997 and the year ended December
31, 1996, 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 six months ended June 30, 1997 and the year 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 8, 1999
<PAGE>
<TABLE>
<CAPTION>
LOCH HARRIS, INC.
CONSOLIDATED BALANCE SHEETS
JUNE 30, 1997 AND DECEMBER 31, 1996
ASSETS 1997 1996
------------- -------------
Current assets
<S> <C> <C>
Cash $ 354,716 $ -
Oil and gas properties, using successful efforts
accounting, net of accumulated depreciation,
amortization and impairment (Note 2 ):
Proved undeveloped properties 221,694 -
Property and equipment, net of
accumulated depreciation (Note 3) 112,342 7,600
Other assets (Note 4) 57,948 -
Total assets $ 746,700 $ 7,600
============= =============
LIABILITIES AND SHAREHOLDER'S DEFICIT
- -----------------------------------------------------
Current liabilities:
Accounts payable $ 36,765 $ 100,244
Accrued liabilities 18,442 -
------------- -------------
Total current liabilities 55,207 100,244
Shareholder's equity:
Common stock, $.01 par value;
100,000,000 shares authorized;
110,179,385 and 94,564,385 shares issued
and outstanding, respectively (Note 5) 1,101,794 945,644
Additional paid in capital (Note 5) 11,723,508 9,691,603
Retained deficit (12,133,809) (10,729,891)
Total shareholder's deficit 691,493 (92,644)
------------- -------------
Total liabilities and shareholder's deficit $ 746,700 $ 7,600
============= =============
</TABLE>
6
<PAGE>
<TABLE>
<CAPTION>
LOCH HARRIS, INC.
CONSOLIDATED STATEMENTS OF OPERATIONS
SIX MONTHS ENDED JUNE 30, 1997 AND THE YEAR ENDED DECEMBER 31, 1996
1997 1996
------------- ------------
<S> <C> <C>
Revenues $ - $ -
------------- ------------
Operating expenses:
General and administrative 145,887 276,943
Consulting services 833,677 -
Salaries and benefits 45,630 -
Depreciation and amortization 3,035 540,061
Write-off of abandoned properties 37,371 -
Impairment of long-lived assets 338,318 930,439
------------- ------------
Total operating expenses 1,403,918 1,747,443
------------- ------------
Net loss $ (1,403,918) $(1,747,443)
============= ============
Basic and diluted net loss per share $ (.01) $ (.03)
============= ============
Basic and diluted weighted average shares outstanding 100,909,302 69,230,686
============= ============
</TABLE>
7
<PAGE>
<TABLE>
<CAPTION>
LOCH HARRIS, INC.
CONSOLIDATED STATEMENTS OF SHAREHOLDER'S EQUITY
SIX MONTHS ENDED JUNE 30, 1997 AND THE YEAR ENDED DECEMBER 31, 1996
Retained
Number of Additional Earnings
Shares Amount Paid in Capital (Deficit) Total
----------- ---------- ----------------- -------------- ---------------
<S> <C> <C> <C> <C> <C>
BALANCE AT DECEMBER 31, 1995 54,884,385 $ 109,769 $ 10,251,345 $( 8,982,448) $ 1,378,666
Common stock issued for:
Services 39,601,467 79,203 181,341 - 260,544
Cash 78,533 157 432 - 589
Increase in par value of common
stock to $0.01 per share - 756,515 ( 756,515) - -
Stock options issued - - 15,000 - 15,000
Net loss - - - ( 1,747,443) ( 1,747,443)
----------- ---------- ----------------- -------------- ---------------
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
=========== ========== ================= ============== ===============
</TABLE>
8
<PAGE>
<TABLE>
<CAPTION>
LOCH HARRIS, INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS
SIX MONTHS ENDED JUNE 30, 1997 AND THE YEAR ENDED DECEMBER 31, 1996
1997 1996
------------ ------------
<S> <C> <C>
Cash flows from operating activities:
Net loss $(1,403,918) $(1,747,443)
------------ ------------
Adjustments to reconcile net loss to net cash
Provided by operating activities:
Depreciation and amortization 3,034 540,061
Impairment of long-lived assets 338,318 930,439
Common stock issued for services 722,990 260,544
Stock options granted for services - 15,000
Decrease in accounts payable (63,479) -
Increase in accrued liabilities 18,442 -
------------ ------------
Total adjustments 1,019,305 1,746,044
Net cash used for operating activities (384,613) (1,399)
Cash flows from investing activities:
Cash payments for the purchase of property and equipment (269,736) -
Cash flows from financing activities:
Contribution of capital 1,009,065 -
Proceeds from sale of common stock - 589
------------ ------------
Net increase (decrease) in cash 354,716 (810)
Cash and cash equivalents - beginning of year - 810
------------ ------------
Cash and cash equivalents - end of year $ 354,716 $ -
============ ============
Supplemental disclosures of cash flow information
Common stock issued for services $ 722,990 $ 260,544
============ ============
Stock options issued for services $ - $ 15,000
============ ============
</TABLE>
9
<PAGE>
LOCH HARRIS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
SIX MONTHS ENDED JUNE 30, 1997 AND YEAR ENDED DECEMBER 31, 1996
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.
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.
Also the Company purchased all of the common stock of AgraTech International,
Inc. in January 1997, and InfoTech International, Inc. in April 1997. The
companies are inactive at the present time.
GOING CONCERN:
As shown in the accompanying consolidated financial statements, the Company
incurred net losses of $1,403,918 and $1,747,443 for the six months ended June
30, 1997 and the year ended December 31, 1996, respectively. For the period
subsequent to June 30, 1997, 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 AgraTech International, Inc., InfoTech
International, Inc., P.C. Sentry, Inc., and Loch Harris Energy, Inc., which are
all inactive. 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, 1997 or December 31, 1996.
10
<PAGE>
LOCH HARRIS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
SIX MONTHS ENDED JUNE 30, 1997 AND YEAR ENDED DECEMBER 31, 1996
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
six months ended June 30, 1997 or the year ended December 31, 1996.
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
SIX MONTHS ENDED JUNE 30, 1997 AND YEAR ENDED DECEMBER 31, 1996
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.
NOTE 2 - OIL AND GAS PROPERTIES
- -------------------------------------
During the six ended June 30, 1997, the Company purchased for $100,000 of cash
and 4,000,000 shares of the Company's common stock, an 80% interest in leasehold
estates in Okmulgee County, Oklahoma which includes 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." In calculating the
impairment loss, fair value was determined by reviewing the discounted cash
flows of future sales.
<TABLE>
<CAPTION>
1997
--------
<S> <C>
Capitalized costs relating to oil and gas producing activities:
Proved undeveloped oil and gas properties (at 80%) 560,012
Less impairment 338,318
Net capitalized costs $221,694
========
</TABLE>
NOTE 3 - PROPERTY AND EQUIPMENT
- ------------------------------------
Property and equipment at June 30, 1997 and December 31, 1996, consisted of the
following:
<TABLE>
<CAPTION>
1997 1996
-------- -------
<S> <C> <C>
Office equipment $ 38,249 $18,524
Vehicles 12,000 -
Cattle breeding herd 75,000 -
Less accumulated depreciation 12,907 10,924
Net property and equipment $112,342 $ 7,600
======== =======
</TABLE>
Depreciation expense, which is calculated on a straight-line basis, was $1,983
for the six months ended June 30, 1997 and $2,731 for the year ended December
31, 1996.
12
<PAGE>
LOCH HARRIS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
SIX MONTHS ENDED JUNE 30, 1997 AND YEAR ENDED DECEMBER 31, 1996
NOTE 4 - OTHER ASSETS
- -------------------------
Other assets as of December 31, 1996 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. Amortization of capitalized costs is computed
using the straight-line method over the remaining estimated economic life of the
product of 5 years.
Subsequent to the year ended December 31, 1996, the Company determined that
significant cash requirements for additional research and development are
required before the products would be available for sale. As a result of
limited available resources and 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 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.
<TABLE>
<CAPTION>
1997 1996
---------- ----------
<S> <C> <C>
Computer software $2,671,875 $2,671,875
Solar pump technology 42,500 -
Other intangible assets 31,275 14,775
Less accumulated amortization
and impairment 2,687,702 2,686,650
Other assets, net $ 57,948 $ -
========== ==========
</TABLE>
NOTE 5 - SHAREHOLDER EQUITY
- -------------------------------
During the six months ended June 30, 1997 and the year ended December 31, 1996,
the Company issued 11,615,000 and 39,601,467 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 as
applied under APB No. 25 in the amount of $722,990 and $260,544 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).
On August 8, 1996, the Company amended its articles of incorporation to change
its authorized shares of common stock to 100,000,000 shares at $0.01 par value
per share. The change necessitated an increase in common stock and a decrease
in additional paid-in capital in the amount of $756,515.
13
<PAGE>
LOCH HARRIS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
SIX MONTHS ENDED JUNE 30, 1997 AND YEAR ENDED DECEMBER 31, 1996
NOTE 5 - SHAREHOLDER EQUITY - CONTINUED
- ---------------------------------------------
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, uncertified shares amounted to 16,250,000
shares and were not issued until the articles of incorporation were amended on
October 15, 1997, authorizing 300,000,000 shares of common stock.
As of June 30, 1997, the Company had received $1,009,065 from a stockholder in
connection with an option for the right to purchase certain assets from the
Company. Since the assets were not developed and the option lapsed, the
$1,009,065 was recorded as additional paid in capital.
NOTE 6 - STOCK OPTIONS AND WARRANTS
- -----------------------------------------
A summary of the status of the Company's stock options as of June 30, 1997 and
December 31, 1996 is presented below:
<TABLE>
<CAPTION>
1997 1996
---------- ----------
<S> <C> <C>
Options outstanding 13,500,000 12,000,000
Options granted - 1,500,000
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, 1997 and December 31, 1996:
<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.
Stock options granted to consultants for the year ended December 31, 1996, have
been recorded as compensation as applied under APB No. 25 in the amount of
$15,000.
14
<PAGE>
LOCH HARRIS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
SIX MONTHS ENDED JUNE 30, 1997 AND YEAR ENDED DECEMBER 31, 1996
NOTE 7 - INCOME TAXES
- -------------------------
A reconciliation of income tax at the statutory rate to the Company's effective
rate follows:
<TABLE>
<CAPTION>
1997 1996
----------------- -----------------
<S> <C> <C>
Computed at the expected statutory rate (credit) $ ( 477,000) $ ( 594,000)
----------------- -----------------
Valuation allowance 477,000 594,000
----------------- -----------------
Income tax $ - $ -
================= =================
Deferred tax assets are as follows:
Net operating loss carryforward $ (4,125,000) $ (3,648,163)
----------------- -----------------
Option for purchase of assets 343,000 -
----------------- -----------------
Valuation allowance 3,782,000 3,648,163
----------------- -----------------
$ - $ -
================= =================
</TABLE>
The Company had cumulative net operating loss carryforwards of approximately
$12,134,000 and $10,700,000 at June 30, 1997 and December 31, 1996,
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.
15
<PAGE>
<TABLE>
<CAPTION>
1997 1996
----------- ----------
<S> <C> <C>
Weighted average number of common shares
issued in basic EPS 100,909,302 69,230,686
----------- ----------
Effect of dilutive securities:
Stock options - -
----------- ----------
Weighted average number of common shares
and dilutive potential common stock used in
diluted EPS 100,909,302 69,230,686
- ------------------------------------------- =========== ==========
</TABLE>
Stock options convertible into 13,500,000 shares of common stock were not
included in computing diluted EPS for the six months ended June 30, 1997 and the
year ended December 31, 1996 because their effects were antidulutive.
16
<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 six months ended June 30, 1997 and the year ended December 31, 1996
appears on page 6. 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 8, 1999
17
<PAGE>
SUPPLEMENTAL RESERVE INFORMATION (UNAUDITED)
AS OF JUNE 30, 1997
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)
----------- ----------
<S> <C> <C>
Proved undeveloped reserves 26,866 267,247
Standardized measure of discounted future net cash flows
at June 30, 1997:
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>
18
<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, 1997.
<TABLE>
<CAPTION>
NAME AGE TITLE PERIODS OF SERVICE
<S> <C> <C> <C>
R. B. Baker 68 President 1988 to present
CEO
Director
Charles M. Blackwell 51 Director 1997 to present
Rodney A. Boone 48 COO 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 President 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 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.
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 the Company's President, 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.
19
<PAGE>
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>
Name Year Salary Bonus Other Annual Securities Underlying LTIP All Other
And Compensation Restricted Options Payouts Compen-
Principal Position Stock Awards SARs sation
- ------------------ ---- ------- ------ ------------- ------------- ----------- -------- ----------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
R. B. Baker - CEO 1997 $ 6,667 $ -0- $ -0- $ 115,000 $ -0- $ -0- $ 4,500
1996 -0- -0- -0- 27,000 10,000 -0- -0-
1995 -0- -0- -0- 45,000 -0- -0- -0-
</TABLE>
ITEM 11- SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT
<TABLE>
<CAPTION>
Name and Amount and
address of nature of
beneficial beneficial Percent of
Title of class owner owner Class
- -------------- ------------------------ ---------- -----------
<S> <C> <C> <C>
Common R.B. Baker 9,500,000 8.6%
14205 Burnet Rd. shares
Austin, TX 78728
Common Harris Partners, Ltd. 37,250,000 33.8%
587 Hummingbird Ln shares
Fredericksburg, TX 78624
</TABLE>
ITEM 12 - CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
During the six months ended June 30, 1997, the Company received capital
contributions from Harris Partners Ltd. totaling $1,009,065.
PART IV
ITEM 13 - EXHIBITS AND REPORTS ON FORM 8-K
None.
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 19, 1999 By /s/ Dr. R.B. Baker
---------------- -------------------------------------
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
- --------- -------- ----
/S/ Dr. R.B. Baker Chairman of the Board March 19, 1999
- ------------------ --------------
Dr. R.B. Baker
/S/ Mark Baker Secretary/Treasurer March 19, 1999
- ------------------ --------------
Mark Baker
<PAGE>
<TABLE> <S> <C>
<ARTICLE> 5
<MULTIPLIER> 1
<S> <C>
<PERIOD-TYPE> 6-MOS
<FISCAL-YEAR-END> JUN-30-1997
<PERIOD-START> JAN-01-1997
<PERIOD-END> JUN-30-1997
<CASH> 354716
<SECURITIES> 0
<RECEIVABLES> 0
<ALLOWANCES> 0
<INVENTORY> 0
<CURRENT-ASSETS> 354716
<PP&E> 391984
<DEPRECIATION> 0
<TOTAL-ASSETS> 746700
<CURRENT-LIABILITIES> 55207
<BONDS> 0
<COMMON> 12825303
0
0
<OTHER-SE> (12133809)
<TOTAL-LIABILITY-AND-EQUITY> 746700
<SALES> 0
<TOTAL-REVENUES> 0
<CGS> 0
<TOTAL-COSTS> 0
<OTHER-EXPENSES> 1403918
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 0
<INCOME-PRETAX> 0
<INCOME-TAX> 0
<INCOME-CONTINUING> 0
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (1403918)
<EPS-PRIMARY> 0
<EPS-DILUTED> 0
</TABLE>
