SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-QSB
[ X ] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15 (D) OF THE SECURITIES
EXCHANGE ACT OF 1934
FOR THE QUARTER ENDED MARCH 31, 1999
OR [ ] Transition Report Under Section 13 or 15 (d) of the Securities
Exchange Act of 1934
For the transition period ________,
Commission File No. 0-17213
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 [ X ] NO [ ]
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 May 14, 1999 is $9,969,269. On this date approximately 229,849,176 shares
were held by non-affiliates.
As of May 14, 1999, the issuer had 262,349,176 shares of its $0.01 par value
common stock outstanding.
Transitional Small Business Disclosure Format: YES[ ] NO [ X ]
1
<PAGE>
FORM 10-QSB
PART I
ITEM 1 - FINANCIAL STATEMENTS
See Exhibit A.
ITEM 2 - MANAGEMENT'S DISCUSSION AND ANALYSIS OR PLAN OF OPERATION
Loch Harris, Inc. (the "Company") currently operates free of any long-term debt
with minimal cash requirements. In order to continue 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. The Company plans to continue product development in
each of its subsidiary companies and continuously searches for opportunities to
acquire other state-of-the-art-technologies.
During 1998, Chemical Detection Technology, Inc., a subsidiary established in
July of 1997, expanded the Company's operations into chemical detection
applications. These operations are based upon the remote sensing technology
developed by Dr. Henry Blair.
Another subsidiary of the Company, AgraTech International, Inc., under the
direction of its President Charles Blackwell, oversees the Tuli cattle breeding
program and development and marketing for the solar pumps. During 1998, the
Company obtained 36 head of Tuli cattle and moved them to a ranch in
Fredericksburg, Texas. In early 1999, the Company added an additional herd of
purebred Tuli from Canada.
InfoTech International Systems, Inc., a subsidiary established in April of 1977,
directs development of the Sentry 93000 Notification System and InfoNotes
system. PetroTech Resources International, Inc., a subsidiary established in
July of 1997, manages the Oklahoma oil and gas operation acquired by the Company
in May of 1997.
Although the Company's operations include significant costs related to research
and development, the Company did not capitalize any research and development
costs during the three months ended March 31, 1999. There are no current plans
to increase or decrease the number of permanent employees.
2
<PAGE>
PART II
ITEM 5 - OTHER INFORMATION
The Company announced, during the final quarter of 1998, the completion of
negotiations related to non-disclosure instruments with Computing Devices of
Canada, a subsidiary of General Dynamics.
During March of 1999, the Company expanded its cattle breeding program with the
acquisition of 11 purebred Tuli bulls and 13 heifers. The cattle arrived in
Fredericksburg, Texas from Canada to join the existing herd of Tuli crossbreeds.
Charles Blackwell, President of AgraTech International, Inc., predicts that "the
Tuli will eventually be prime prospects for a global export market that will be
important for the state [Texas]." The Company continues development of the
breeding and cryogenic program.
April of 1999 brought an announcement by the Company of its relationship with a
private Nevada based capital investment fund, Coldwater Capital. With this $1
million investment, the Company intends to produce a working bench model of its
landmine detector prototype. The ELF (Eliminate Landmines Forever) unit is the
invention of noted physicist Dr. Henry Blair, a consultant for Chemical
Detection Technologies, Inc. (ChemTech). Most recently, the Company established
a laboratory site and began production of the ELF model.
3
<PAGE>
ITEM 6 - EXHIBITS AND REPORTS ON FORM 8-K
<TABLE>
<CAPTION>
EXHIBIT A
INDEX TO CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)
Page
<S> <C>
Consolidated Balance Sheet as of March 31, 1999 and March 31, 1998. . . . . . 5
Consolidated Statements of Operations for three months ended March 31, 1999
and three months ended March 31, 1998 . . . . . . . . . . . . . . . . . . . 6
Consolidated Statements of Shareholders' Equity for three months ended
March 31, 1999 and three months ended March 31, 1998. . . . . . . . . . . . 7
Consolidated Statement of Cash Flows for three months ended
March 31, 1999 and three months ended March 31, 1998. . . . . . . . . . . . 8
Notes to Consolidated Financial Statements. . . . . . . . . . . . . . . . . . 9
</TABLE>
4
<PAGE>
<TABLE>
<CAPTION>
LOCH HARRIS, INC.
CONSOLIDATED BALANCE SHEETS (UNAUDITED)
MARCH 31, 1999 AND MARCH 31, 1998
ASSETS 1999 1998
- ----------------------------------------------------- ------------- -------------
<S> <C> <C>
Current assets
Cash . . . . . . . . . . . . . . . . . . . . . . . $ 34,167 $ 2,705
Account receivable . . . . . . . . . . . . . . . . 50,000
-------------
Total current assets . . . . . . . . . . . . . . . $ 84,167 $ 2,705
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). . . . . . . . . 148,193 112,660
Other assets (Note 4) . . . . . . . . . . . . . . . . 58,650 62,606
------------- -------------
Total assets . . . . . . . . . . . . . . . . $ 512,704 $ 399,665
============= =============
LIABILITIES AND SHAREHOLDERS' DEFICIT
- -----------------------------------------------------
Current liabilities:
Accounts payable . . . . . . . . . . . . . . . . . $ 104,154 $ 53,334
Short-term note payable. . . . . . . . . . . . . . 58,563
-------------
Total current liabilities . . . . . . . . . . . $ 162,717 $ 53,334
Shareholders' equity:
Common stock, $.01 par value;
300,000,000 shares authorized;
244,031,341 and 147,951,085 shares issued
and outstanding, respectively (Note 5) . . . . 2,440,313 1,479,511
Additional paid in capital (Note 5). . . . . . . . 13,122,594 12,948,266
Retained deficit . . . . . . . . . . . . . . . . . (15,171,400) (14,081,446)
Treasury stock . . . . . . . . . . . . . . . . . . (41,520) -
------------- -------------
Total shareholders' deficit . . . . . . . . . . 349,987 346,331
------------- -------------
Total liabilities and shareholders' deficit. $ 512,704 $ 399,665
============= =============
</TABLE>
The accompanying notes are an integral part of these financial statements.
5
<PAGE>
<TABLE>
<CAPTION>
LOCH HARRIS, INC.
CONSOLIDATED STATEMENTS OF OPERATIONS (UNAUDITED)
THREE MONTHS ENDED MARCH 31, 1999 AND MARCH 31, 1998
1999 1998
----------
<S> <C> <C>
Revenues . . . . . . . . . . . . $ - $ -
------------ ----------
Operating expenses:
General and administrative. . 31,455 46,432
Consulting services . . . . . 64,616 393,853
Salaries and benefits . . . . 457 32,934
Depreciation and amortization 6,879 6,879
------------ ----------
Total operating expenses . . . . 103,407 480,098
------------ ----------
Net loss . . . . . . . . . . . . $( 103,407) $(480,098)
============ ==========
</TABLE>
The accompanying notes are an integral part of these financial statements.
6
<PAGE>
<TABLE>
<CAPTION>
LOCH HARRIS, INC.
CONSOLIDATED STATEMENTS OF SHAREHOLDERS' EQUITY (UNAUDITED)
THREE MONTHS ENDED MARCH 31, 1999 AND MARCH 31, 1998
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, 1997 132,500,985 $ 1,325,010 $ 12,628,106 $ (13,601,348) $ - $ 351,768
Common stock issued for:
Services and/or cash. . . 15,450,100 154,501 320,160 - - 474,661
Net loss . . . . . . . . . . - - - ( 480,098 ) - (480,098)
----------- ----------- ----------------- --------------- ---------- ----------
BALANCE AT MARCH 31, 1998. . 147,951,085 $ 1,479,511 $ 12,948,266 $ (14,081,446) $ - $ 346,331
=========== =========== ================= =============== ========== ==========
BALANCE AT DECEMBER 31, 1998 231,031,341 $ 2,310,313 $ 13,128,428 $ (15,067,993) $( 63,318) $ 307,430
Common stock issued for:
Services and/or cash. . . 13,000,000 130,000 (5,834) - - 124,166
Treasury stock . . . . . . . - - - - 21,798 21,798
Net loss . . . . . . . . . . - - - ( 103,407) - (103,407)
----------- ----------- ----------------- --------------- ---------- ----------
BALANCE AT MARCH 31, 1999. . 244,031,341 $ 2,440,313 $ 13,122,594 $ (15,171,400) $( 41,520) $ 349,987
=========== =========== ================= =============== ========== ==========
</TABLE>
The accompanying notes are an integral part of these financial statements.
7
<PAGE>
<TABLE>
<CAPTION>
LOCH HARRIS, INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS (UNAUDITED)
THREE MONTHS ENDED MARCH 31, 1999 AND MARCH 31, 1998
1999 1998
------------- -------------
<S> <C> <C>
Cash flows from operating activities:
Net loss. . . . . . . . . . . . . . . . . . . . . . . . . . $ ( 103,407) $ ( 480,098)
------------- -------------
Adjustments to reconcile net loss to net cash
provided by operating activities:
Depreciation and amortization. . . . . . . . . . . . . 6,879 6,879
Common stock issued for services . . . . . . . . . . . 24,166 363,000
Increase in accounts payable . . . . . . . . . . . . . 21,150 5,538
-------------
Total adjustments. . . . . . . . . . . . . . . . . . 52,195 375,417
-------------
Cash flows from operating activities . . . . . . . . ( 51,212) ( 104,681)
------------- -------------
Cash flows from investing activities:
Cash received for the sale of property and equipment . . 10,311
Cash payments for the purchase of property and equipment ( 8,937) ( 2,469)
Cash payment for the purchase of other assets. . . . . . ( 2,500)
-------------
Cash flows from investing activities. . . . . . . . . 1,374 ( 4,969)
------------- -------------
Cash flows from financing activities:
Cash proceeds from sale of common stock. . . . . . . . . 50,000 102,477
Cash proceeds from the sale of treasury stock. . . . . . 21,798 9,184
------------- -------------
Cash flows from financing activities. . . . . . . . . 71,798 111,661
------------- -------------
Net increase (decrease) in cash. . . . . . . . . . . . . . . . 21,960 2,011
Cash and cash equivalents - beginning of three months. . . . . 12,207 694
------------- -------------
Cash and cash equivalents - end of three months. . . . . . . . $ 34,167 $ 2,705
============= =============
Supplemental disclosures of cash flow information:
Common stock issued for services . . . . . . . . . . . . . $ 24,166 $ 363,000
============= =============
</TABLE>
The accompanying notes are an integral part of these financial statements.
8
<PAGE>
LOCH HARRIS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)
THREE MONTHS ENDED MARCH 31, 1999 AND MARCH 31, 1998
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. During 1998, the Company expanded its operations
to include chemical detection applications.
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 $103,407 and $480,098 for the three months ended March
31, 1999 and 1998, respectively. For the period subsequent to March 31, 1999,
the Company anticipates contributions by interested investors and the issuance
of additional common stock to provide operating expenses and funding for product
development. 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 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 inter-company 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
March 31, 1999 or 1998.
9
<PAGE>
LOCH HARRIS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)
THREE MONTHS ENDED MARCH 31, 1999 AND MARCH 31, 1998
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
three months ended March 31, 1999 and 1998.
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.
10
<PAGE>
LOCH HARRIS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)
THREE MONTHS ENDED MARCH 31, 1999 AND MARCH 31, 1998
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 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. 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 three months
ended March 31, 1999 and 1998.
<TABLE>
<CAPTION>
1999 1998
-------- --------
<S> <C> <C>
Capitalized costs relating to oil and gas producing activities:
Proved undeveloped oil and gas properties (at 80%). . . . . . $221,694 $221,694
Less impairment . . . . . . . . . . . . . . . . . . . . . . . - -
-------- --------
Net capitalized costs . . . . . . . . . . . . . . . . . . $221,694 $221,694
======== ========
</TABLE>
NOTE 3 - PROPERTY AND EQUIPMENT
- ------------------------------------
Property and equipment at March 31, 1999 and 1998 consisted of the following:
<TABLE>
<CAPTION>
1999 1998
--------- ---------
<S> <C> <C>
Office equipment. . . . . . . $ 53,757 $ 54,358
Vehicles. . . . . . . . . . . 12,000 12,000
Cattle breeding herd. . . . . 132,189 75,000
Less accumulated depreciation (49,753) (28,698)
--------- ---------
Net property and equipment. . $148,193 $112.660
========= =========
</TABLE>
Depreciation expense, which is calculated on a straight-line basis, was $5,265
and $5,265 for the three months ended March 31, 1999 and 1998, respectively.
11
<PAGE>
LOCH HARRIS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)
THREE MONTHS ENDED MARCH 31, 1999 AND MARCH 31, 1998
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.
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 fiscal year ended June 30, 1998, the
Company decreased other assets and the related accumulated amortization and
impairment by $2,686,650.
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. Amortization of capitalized costs is computed using the
straight-line method over the remaining estimated economic life of the product
of 5 years. Other assets as of March 31, 1999 and 1998 were as follows:
<TABLE>
<CAPTION>
1999 1998
--------- --------
<S> <C> <C>
Solar pump technology . . . . $ 42,500 $42,500
Other intangible assets . . . 28,500 26,000
Less accumulated amortization (12,350) (5,894)
--------- --------
Other assets, net . . . . . . $ 58,650 $62,606
========= ========
</TABLE>
NOTE 5 - SHAREHOLDER EQUITY
- -------------------------------
During the three months ended March 31, 1999 and 1998, the Company issued
3,000,000 and 15,250,000 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 $24,166 and $363,000
for the respective periods.
NOTE 6 - STOCK OPTIONS AND WARRANTS
- -----------------------------------------
A summary of the status of the Company's stock options as of March 31, 1999 and
1998 is presented below:
<TABLE>
<CAPTION>
1999 1998
---------- ----------
<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>
12
<PAGE>
<TABLE>
<CAPTION>
LOCH HARRIS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)
THREE MONTHS ENDED MARCH 31, 1999 AND MARCH 31, 1998
NOTE 6 - STOCK OPTIONS AND WARRANTS (CONTINUED)
- ------------------------------------------------------
The following table summarizes the information about stock options as of March 31, 1999 and 1998:
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.
13
<PAGE>
SUPPLEMENTAL RESERVE INFORMATION (UNAUDITED)
AS OF MARCH 31, 1999
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>
<S> <C> <C>
Oil *(Bbls) Gas (Mcf)
------------ ----------
Proved undeveloped reserves. . . . . . . . . . . . . . . . . . . . 26,866 267,247
============ ==========
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>
14
<PAGE>
SIGNATURES
In accordance with the requirements of the Exchange Act, the registrant caused
this report to be signed on its behalf by the undersigned, thereunto duly
authorized.
Date May 14, 1999 By /s/ Dr. R.B. Baker
----------------- --------------------------------------------
Dr. R.B. Baker, Chairman of the Board
Date May 14, 1999 By /s/ Mark E. Baker
----------------- --------------------------------------------
Mark E. Baker, Secretary/Treasurer
15
<PAGE>
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