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, 1999,
OR [ ] Transition Report Under Section 13 or 15 (d) of the Securities
Exchange Act of 1934
For the transition period ________,
Commission File No. 0-18866
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 [X] NO [ ]
Indicate by check mark if disclosure of delinquent filers pursuant to Item 405
of Regulation S-B is not contained herein, and will not be contained, to the
best of registrant's knowledge, in definitive proxy or information statements
incorporated by reference 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, 1999.
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 October 8, 1999 is $36,281,111. On this date approximately 292,589,605
shares were held by non-affiliates.
As of October 8, 1999, the issuer had 393,160,309 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, and 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.
In September of 1993, the Company acquired P. C. Sentry, Inc., a Texas
corporation. The Company established AgraTech International, Inc. in January of
1997 and InfoTech International Systems, Inc. in April of 1997. During July of
1997, Loch Harris, Inc. established three additional subsidiaries, US Aerodyne,
Ltd., PetroTech Resources International, Inc. and Chemical Detection Technology,
Inc.
Business of Issuer
- --------------------
Prior to 1990, we were involved in the acquisition, development, and production
of oil and gas reserves. During 1989, severe economic conditions forced us to
cease operations and we remained in a dormant state until 1993 when we acquired
some software applications and were involved in the research and development of
such properties. During 1997, we purchased an interest in an Oklahoma oil and
gas operation and purchased selected assets, including technology, designs and
working papers for a solar pump. During 1998, we began development of various
chemical detection technologies. Additionally, the Company purchased Tuli
Cattle for development and reproduction.
In early 1999, we purchased an interest in a joint venture that owns a herd of
Canadian Tuli cattle, semen straws, frozen genetic embryos and other assets.
One of the Company's subsidiaries, AgraTech International, Inc., manages all
assets of this joint venture. During the fiscal year 1999, we also acquired
additional chemical detection technologies from consultants.
At June 30, 1999, we continued the development of the chemical detection
applications, the solar pumps and the Tuli cattle program. The Oklahoma oil and
gas properties and the software technologies still exist within the Company's
assets. The Company did not record any research and development costs during
the year ended June 30, 1999. There are no significant effects on Company
operations from environmental regulations.
ITEM 2 - PROPERTIES
During 1997, the Company purchased an 80% interest in oil and gas leasehold
estates in Okmulgee County, Oklahoma including existing equipment. There was
activity from the oil and gas properties during the years ended June 30, 1999 or
1998.
ITEM 3 - LEGAL PROCEEDINGS
As of June 30, 1999, there were no material pending legal proceedings.
ITEM 4 - SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
During the second calendar quarter of 1999, there were no matters submitted to a
vote of security holders.
2
<PAGE>
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 April 22, 1999, we authorized an amendment to the articles of incorporation
to increase the number of authorized common stock shares to 400,000,000 shares
at $0.01 par value per share.
As of June 30, 1999, there were 992 shareholders of record. There were no cash
dividends declared for the years ended June 30, 1999 or 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.
<TABLE>
<CAPTION>
Closing Bid
------------
Period Ending High Low
- ------------------ ---- ---
<S> <C> <C>
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
March 31, 1999 .05 .05
June 30, 1999 .09 .08
</TABLE>
ITEM 6 - MANAGEMENT'S DISCUSSION AND ANALYSIS
Current cash requirements consist mainly of research and development costs
related to the chemical detection technologies and solar pump production.
Expenditures related to the Tuli cattle venture and overhead costs remain
minimal at the present time. The Company is free of long-term debt. 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, 1999, management is committed to continue the development of the
chemical detection applications, the solar pumps and the Tuli cattle program.
The Oklahoma oil and gas properties and the software technologies still exist
within the Company's assets. As well, we will continue to seek opportunities to
acquire other state-of-the-art technologies and assets to enhance our existing
development operations.
3
<PAGE>
ITEM 7 - FINANCIAL STATEMENTS AND SUPPLEMENTAL DATA
<TABLE>
<CAPTION>
INDEX TO CONSOLIDATED FINANCIAL STATEMENTS
Page
<S> <C>
Report of Independent Auditors 5
Consolidated Balance Sheet as of June 30, 1999 and 1998 6
Consolidated Statements of Operations for years ended
June 30, 1999 and 1998 7
Consolidated Statements of Shareholders' Equity for the
years ended June 30, 1999 and 1998 8
Consolidated Statement of Cash Flows for the years ended
June 30, 1999 and 1998 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. and Subsidiaries (the "Company") as of June 30, 1999 and 1998, and the
related consolidated statements of operations, shareholders' equity and cash
flows for the years then ended. 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.
and Subsidiaries as of June 30, 1999 and 1998, and the results of their
operations and cash flows for the years then ended, 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 years ended June 30, 1999 and 1998, 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
October 11, 1999
5
<PAGE>
<TABLE>
<CAPTION>
LOCH HARRIS, INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
JUNE 30, 1999 AND 1998
ASSETS 1999 1998
- ---------------------------------------------------- ------------- -------------
<S> <C> <C>
Current assets
Cash $ 182,999 $ 56,158
Accounts receivable 2,766 -0-
------------- -------------
Total current assets 185,765 56,158
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) 46,760 100,777
Investment in joint venture (Note 4) 70,536 -0-
Other assets (Note 5) 82,725 60,991
Total assets $ 607,480 $ 439,620
============= =============
LIABILITIES AND SHAREHOLDERS' EQUITY
- ----------------------------------------------------
Current liabilities:
Accounts payable $ 99,709 $ 31,642
Accrued liabilities 22,872 -0-
Current maturities of long-term debt (Note 6) 49,311 -0-
------------- -------------
Total current liabilities 171,892 31,642
------------- -------------
Shareholders' equity:
Common stock, $.01 par value; 400,000,000
and 300,000,000 shares authorized;
365,652,650 and 207,832,241 shares issued
and outstanding, respectively (Note 7) 3,656,526 2,078,322
Additional paid in capital (Note 7) 13,021,755 13,087,388
Retained deficit (16,212,693) (14,692,482)
Treasury stock (Note 7) (30,000) (65,250)
------------- -------------
Total shareholders' equity 435,588 407,978
------------- -------------
Total liabilities and shareholders' equity $ 607,480 $ 439,620
============= =============
</TABLE>
The accompanying notes are an integral part of these financial statements.
6
<PAGE>
<TABLE>
<CAPTION>
LOCH HARRIS, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATIONS
YEARS ENDED JUNE 30, 1999 AND 1998
1999 1998
------------- -------------
<S> <C> <C>
Revenues $ -0- $ -0-
------------- -------------
Operating expenses:
General and administrative 572,724 302,798
Consulting services 347,630 2,040,929
Salaries and benefits 510,119 187,439
Depreciation and amortization 27,027 27,507
------------- -------------
Total operating expenses 1,457,500 2,558,673
------------- -------------
Net loss from operations (1,457,500) (2,558,673)
------------- -------------
Other income and expenses:
Other income 1,473 -0-
Other expense (2,299) -0-
Loss on sale of assets (61,885) -0-
------------- -------------
Total other income and expense (62,711) -0-
------------- -------------
Loss before taxes $ (1,520,211) $ (2,558,673)
============= =============
Basic and diluted net loss per share $ (.006) $ (.017)
============= =============
Basic and diluted weighted average shares outstanding 251,060,301 151,643,397
============= =============
</TABLE>
The accompanying notes are an integral part of these financial statements.
7
<PAGE>
<TABLE>
<CAPTION>
LOCH HARRIS, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF SHAREHOLDERS' EQUITY
YEARS ENDED JUNE 30, 1999 AND 1998
Retained
Number of Additional Earnings Treasury
Shares Amount Paid in Capital (Deficit) Stock Total
------------ ------------ ----------------- ------------- --------- ------------
<S> <C> <C> <C> <C> <C> <C>
BALANCE AT JUNE 30, 1997 110,179,385 $ 1,101,794 $ 11,723,508 $(12,133,809) $ -0- $ 691,493
Common stock issued for:
Cash 47,494,288 474,943 126,366 -0- -0- 601,309
Services 50,158,568 501,585 1,237,514 -0- -0- 1,739,099
Treasury stock -0- -0- -0- -0- (65,250) (65,250)
Net loss -0- -0- -0- (2,558,673) -0- (2,558,673)
------------ ------------ ----------------- ------------- --------- ------------
BALANCE AT JUNE 30, 1998 207,832,241 $ 2,078,322 $ 13,087,388 $(14,692,482) $(65,250) $ 407,978
Common stock issued for:
Cash 51,645,409 516,454 98,027 -0- -0- 614,481
Services 102,525,000 1,025,250 (251,978) -0- -0- 773,272
Properties 5,000,000 50,000 (17,000) -0- -0- 33,000
Common stock subscribed (1,350,000) (13,500) (36,500) -0- -0- (50,000)
Treasury stock:
Purchased -0- -0- -0- -0- (37,500) (37,500)
Sold -0- -0- 28,134 -0- 72,750 100,884
Stock options granted -0- -0- 113,684 -0- -0- 113,684
Net loss -0- -0- -0- (1,520,211) -0- (1,520,211)
------------ ------------ ----------------- ------------- --------- ------------
BALANCE AT JUNE 30, 1999 365,652,650 $ 3,656,526 $ 13,021,755 $(16,212,693) $(30,000) $ 435,588
============ ============ ================= ============= ========= ============
</TABLE>
The accompanying notes are an integral part of these financial statements.
8
<PAGE>
<TABLE>
<CAPTION>
LOCH HARRIS, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
YEARS ENDED JUNE 30, 1999 AND 1998
1999 1998
------------ ------------
<S> <C> <C>
Cash flows from operating activities:
Net loss $(1,520,211) $(2,558,673)
------------ ------------
Adjustments to reconcile net loss to net cash
provided by operating activities:
Depreciation and amortization 27,026 27,507
Loss on disposal of property 61,885 -0-
Common stock issued for services 773,272 1,739,099
Stock options granted for consultants 113,684 -0-
Decrease (increase) in accounts receivable (2,766) -0-
Increase (decrease) in accounts payable 48,069 (5,123)
Increase (decrease) in accrued liabilities 22,872 (18,442)
------------ ------------
Total adjustments 1,044,042 1,743,041
------------ ------------
Cash flows from operating activities (476,169) (815,632)
------------ ------------
Cash flows from investing activities:
Cash payments for the purchase of property and equipment (18,030) (9,485)
Cash proceeds from the sale of assets 90,951 -0-
Cash payment for purchase of investment (3,036) -0-
Cash payment for the purchase of other assets (96,551) (9,500)
------------ ------------
Cash flows from investing activities (26,666) (18,985)
------------ ------------
Cash flows from financing activities:
Cash payments for purchase of treasury stock -0- (65,250)
Principal payments on long-term debt (35,689) -0-
Proceeds from sale of treasury stock 100,884 -0-
Proceeds from issuance of common stock 564,481 601,309
------------ ------------
Cash flows from financing activities 629,676 536,059
------------ ------------
Net increase (decrease) in cash 126,841 (298,558)
Cash and cash equivalents - beginning of year 56,158 354,716
------------ ------------
Cash and cash equivalents - end of year $ 182,999 $ 56,158
============ ============
Supplemental disclosures of cash flow information:
Cash paid for interest $ 1,966 $ -0-
Decrease in additional paid in capital by cost of treasury stock sold 72,750 -0-
Purchase of intellectual properties for common stock 33,000 -0-
Purchase of investment with note payable 67,500 -0-
Purchase of treasury stock with note payable 37,500 -0-
Stock options granted for consultants 113,684 -0-
Common stock issued for services 773,272 1,739,099
============ ============
</TABLE>
The accompanying notes are an integral part of these financial statements.
9
<PAGE>
LOCH HARRIS, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
YEARS ENDED JUNE 30, 1999 AND 1998
NOTE 1 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
- ----------------------------------------------------------
NATURE OF BUSINESS AND ORGANIZATION:
Loch Harris, Inc. and Subsidiaries (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 when the Company acquired some software applications and was
involved in the research and development of such properties. During 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. During 1998 the Company began development of various chemical detection
technologies. Additionally, the Company purchased Tuli Cattle for development
and reproduction.
In early 1999, the Company purchased an interest in a joint venture that owns a
herd of Canadian Tuli cattle, semen straws, frozen genetic embryos and other
assets. One of the Company's subsidiaries, AgraTech International, Inc.,
manages all assets of this joint venture. During the fiscal year 1999, the
Company acquired additional chemical detection technologies from consultants.
The Company continues to develop chemical detection technologies.
GOING CONCERN:
As shown in the accompanying consolidated financial statements, the Company
incurred net losses of $1,520,211 and $2,558,673 for the years ended June 30,
1999 and 1998, respectively. For the period subsequent to June 30, 1999, the
Company anticipates contributions by interested investors and the issuance of
additional common stock to provide funds for operating expenses current and new
projects. 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, 1999 or 1998.
10
<PAGE>
LOCH HARRIS, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
YEARS ENDED JUNE 30, 1999 AND 1998
NOTE 1 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
- -----------------------------------------------------------------------
PROPERTY AND EQUIPMENT:
Property and equipment are 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
years ended June 30, 1999 or 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.
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.
11
<PAGE>
LOCH HARRIS, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
YEARS ENDED JUNE 30, 1999 AND 1998
NOTE 1 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
- -----------------------------------------------------------------------
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 an 80% interest in oil and gas leasehold
estates in Okmulgee County, Oklahoma including existing equipment. No value was
assigned to the equipment due to the wells requiring substantial workovers to be
productive.
There has been no activity from the oil and gas property during the years ended
June 30, 1999 or 1998. Capitalized costs relating to oil and gas producing
activities for 80% of proved undeveloped oil and gas properties was $221,694 at
June 30, 1999 and 1998.
NOTE 3 - PROPERTY AND EQUIPMENT
- ------------------------------------
Property and equipment at June 30, 1999 and June 30, 1998 consisted of the
following:
<TABLE>
<CAPTION>
1999 1998
--------- ---------
<S> <C> <C>
Office equipment $ 65,763 $ 47,735
Vehicles 12,000 12,000
Cattle breeding herd 5,500 75,000
Less accumulated depreciation (36,503) (33,958)
--------- ---------
Net property and equipment $ 46,760 $100,777
========= =========
</TABLE>
Depreciation expense, which is calculated on a straight-line basis, was $13,260
for the year ended June 30, 1999 and $21,051 for year ended June 30, 1998.
NOTE 4 - INVESTMENT IN JOINT VENTURE
- ------------------------------------------
During the year ended June 30, 1999, the Company purchased a 25% undivided
interest in certain Tuli cattle, semen straws, frozen genetic embryos and all
other identifying assets with the cattle, from Texalta Limited Partnership. The
25% interest in the assets was contributed to AgraNetics'98. AgraNetics '98 is
a joint venture between Texalta Limited Partnership (75%) and Loch Harris, Inc.
(25%). AgraNetics '98 has entered into a management agreement with AgraTech
International, Inc., a wholly owned subsidiary of the Company, for an initial
term to manage, market and sell the assets of the joint venture. AgraTech
International, Inc. will receive 35% of the gross revenue from sales of the new
products generated or acquired through the joint venture, and 10% of the revenue
from sales of existing assets. AgraTech International, Inc. will pay any
ordinary capital or maintenance charges or expenses in connection with the
management of the joint venture assets.
The investment in the joint venture is recorded on the equity method of
accounting. The joint venture has not received any revenue or incurred expenses
as of June 30, 1999.
12
<PAGE>
LOCH HARRIS, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
YEARS ENDED JUNE 30, 1999 AND 1998
NOTE 5 - OTHER ASSETS
- -------------------------
During the years ended June 30, 1999 and 1998, 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, 1999 and 1998 were as follows:
<TABLE>
<CAPTION>
1999 1998
--------- --------
<S> <C> <C>
Solar pump technology $ 42,500 $42,500
Other intangible assets 61,500 26,000
Less accumulated amortization
and impairment
(21,275) (7,509)
--------- --------
Other assets, net $ 82,725 $60,991
========= ========
</TABLE>
Amortization charged to expense for the years ended June 30, 1999 and 1998 was
$13,766 and $6,456, respectively.
NOTE 6 - LONG-TERM DEBT
- ---------------------------
Current maturities of long-term debt consists of a 10% note payable to Texalta
Resources, Inc. (the general partner in Texalta Limited Partnership - Note 4),
in the amount of $49,311, payable in monthly installments of $10,000 plus
interest and is unsecured.
NOTE 7 - SHAREHOLDER EQUITY
- -------------------------------
During the years ended June 30, 1999 and 1998, the Company issued 102,525,000
and 50,158,568 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 $773,272 and $1,739,099 for
the respective periods.
During the years ended June 30, 1999 and 1998, 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.
During the years ended June 30, 1999 and 1998, the Company acquired 5,165,285
and 1,684,801 shares, respectively, 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. During the year
ended June 30, 1999, the Company sold 3,965,285 shares of treasury stock
resulting in excess receipts of $28,124, which was recorded as additional paid
in capital. During the year ended June 30, 1998, the Company sold 1,163,051
shares of treasury stock at cost, therefore no excess receipts or disbursements
were recorded in the accompanying financial statements. As of June 30, 1999 and
1998, the Company retained 1,200,000 and 521,750 treasury shares at a cost of
$30,000 and $65,250, respectively.
13
<PAGE>
LOCH HARRIS, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
YEARS ENDED JUNE 30, 1999 AND 1998
NOTE 8 - STOCK OPTIONS AND WARRANTS
- -----------------------------------------
A summary of the status of the Company's stock options as of June 30, 1999 and
June 30, 1998 is presented below:
<TABLE>
<CAPTION>
1999 1998
---------- ----------
<S> <C> <C>
Options outstanding 13,500,000 13,500,000
Options granted 25,000,000 -0-
Options exercised -0- -0-
Options canceled -0- -0-
---------- ----------
Options outstanding and exercisable 38,500,000 13,500,000
========== ==========
</TABLE>
The following table summarizes the information about stock options as of June
30, 1999 and 1998:
<TABLE>
<CAPTION>
Wgtd. Avrg. 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 1 years $ .25 4,000,000 $ .25
.25 4,000,000 6/1/95 1 years .25 4,000,000 .25
.25 4,000,000 7/1/95 1 years .25 4,000,000 .25
.01 1,000,000 7/26/96 2 years .01 1,000,000 .01
.01 500,000 7/26/96 2 years .01 500,000 .01
.051 25,000,000 04/22/99 5 years .051 25,000,000 .051
======== =========== ======== =========== ================ =========== ================
.01-
$ .25 38,500,000 3.6 years $ .11 38,500,000 $ .11
======== =========== =========== ================ =========== ================
</TABLE>
14
<PAGE>
All options, which were granted to officers, directors or consultants for
services, expire in years 1999 through 2004. Each stock option granted can be
exercised for one share of common stock.
Stock options for employees are recorded as compensation as applied under APB
No. 25. Since the exercise price of the stock option is in excess of the market
value at the date of grant, no compensation has been recorded at June 30, 1999.
SFAS No. 123 requires the Company to provide pro forma information regarding net
income (loss) applicable to common stockholders and income (loss) per share as
if compensation cost for the Company's stock options granted to employees had
been determined in accordance with the fair value based method prescribed in
that Statement.
The Company estimated the fair value of each stock option at the grant date by
using the Black-Scholes option-pricing model with the following weighted-average
assumptions used for grants:
<TABLE>
<CAPTION>
<S> <C>
Dividend yield 0 %
Expected volatility 33.29 %
Risk-free interest rate 5.1 %
Expected lives 5 years
</TABLE>
LOCH HARRIS, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
YEARS ENDED JUNE 30, 1999 AND 1998
NOTE 8 - STOCK OPTIONS AND WARRANTS (CONTINUED)
- ------------------------------------------------------
The weighted fair value of options granted for compensation during the year
ended June 30, 1999 was $0.008.
Under the accounting provisions of SFAS No. 123, the Company's net loss
applicable to common stockholders and loss pro forma amounts are as follows:
Net (loss) applicable to common stockholders: 1999
------------
As reported $(1,520,211)
Pro forma $(1,596,000)
Net (loss) per share:
As reported $ (.006)
Pro forma $ (.006)
NOTE 9 - INCOME TAXES
- -------------------------
A reconciliation of income tax at the statutory rate to the Company's effective
rate follows:
<TABLE>
<CAPTION>
1999 1998
------------ ------------
<S> <C> <C>
Computed at the expected statutory rate (credit) $ (517,000) $ (870,000)
Non-deductible items 9,000 -0-
Valuation allowance 508,000 870,000
------------ ------------
Income tax $ -0- $ -0-
============ ============
Deferred tax assets are as follows:
Net operating loss carryforward $ 3,072,384 $ 2,546,384
Valuation allowance (3,072,384) (2,546,384)
------------ ------------
$ -0- $ -0-
============ ============
</TABLE>
The Company had cumulative net operating loss carryforwards of approximately
$9,000,000 and $7,490,000 at June 30, 1999 and 1998, respectively, for federal
tax reporting purposes. During the year ended June 30, 1999, the Company
determined that $7,200,000 of net operating losses was not available to benefit
future periods, therefore, the net operating loss carryforward as of June 30,
1998 has been restated. The net operating loss carryforwards expire in varying
amounts beginning in the year 2008 and may be limited due to the types of
business the Company may engage.
15
<PAGE>
LOCH HARRIS, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
YEARS ENDED JUNE 30, 1999 AND 1998
NOTE 10 - 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>
1999 1998
----------- -----------
<S> <C> <C>
Weighted average number of common shares
issued in basic EPS 251,060,301 151,643,397
Effect of dilutive securities:
Stock options - -
----------- -----------
Weighted average number of common shares and
dilutive potential common stock used in diluted EPS 251,060,301 151,643,397
=========== ===========
</TABLE>
Stock options convertible into 38,500,000 shares and 13,500,000 shares of common
stock, respectively, were not included in computing diluted EPS for the years
ended June 30, 1999 or 1998 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.
and Subsidiaries for the years ended June 30, 1999 and 1998 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
October 11, 1999
17
<PAGE>
LOCH HARRIS, INC. AND SUBSIDIARIES
SUPPLEMENTAL RESERVE INFORMATION (UNAUDITED)
JUNE 30, 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>
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, 1999:
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
</TABLE>
*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.
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, 1999. Each director shall hold office until resignation or until
his successor shall have been elected and qualified. None of the above named
directors hold directorships in other reporting companies.
<TABLE>
<CAPTION>
NAME AGE TITLE PERIODS OF SERVICE
<S> <C> <C> <C>
R. B. Baker 69 Chairman 1988 to present
Director
Charles M. Blackwell 52 Director 1997 to present
Rodney A. Boone 49 CEO 1997 to present
Director
Mark E. Baker 44 CFO 1997 to present
Secretary/Treasurer
Director
Mathew B. Harris 26 Director 1997 to present
John A. Peck 54 Director 1998 to present
</TABLE>
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.
19
<PAGE>
ITEM 9 - DIRECTORS AND EXECUTIVE OFFICERS, PROMOTERS AND CONTROL PERSONS
(CONTINUED)
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.
John A. Peck is a graduate of the advanced management program of the Harvard
School of Business. He is currently a developer in the Halifax area and owns
the Country Club of Halifax, Halifax Environmental Co., Inc. and Halifax
Cranberry Products, Inc. From 1961 to 1991 he was associated with Cumberland
Farms, where he was manager of agricultural operations and vice president of the
real estate division.
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 And Year Salary Bonus Other Annual Securities Underlying LTIP All Other
Principal Position Compensa- Restricted Options Payouts Compen-
tion Stock SARs sation
Awards
-----------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
R. B. Baker - 1999 $ 1,718 $ -0- $ 122,020 $ -0- -0- $-0- -0- $ -0-
Chairman 1998 28,194 -0- 198,600 -0- -0- -0- -0-
1997 6,667 -0- 119,500 -0- -0- -0-
Rodney A. Boone -- 1999 -0- -0- $ 309,600 $ -0- -0- -0- -0-
CEO 1998 36,458 -0- 211,000 -0- -0- -0- -0-
1997 -0- -0- -0- -0- -0- -0- -0-
</TABLE>
20
<PAGE>
ITEM 11- SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT
<TABLE>
<CAPTION>
TITLE OF CLASS NAME AND ADDRESS AMOUNT AND NATURE PERCENT OF CLASS
OF BENEFICIAL OWNER OF BENEFICIAL OWNER
-------------------- -------------------
<S> <C> <C> <C>
Common R. B. Baker 23,500,000 shares 6.43
14205 N. Burnet Road
Austin, Texas 78728
Common Rodney A. Boone 43,000,000 shares 11.76
14205 N. Burnet Road
Austin, Texas
</TABLE>
ITEM 12 - CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
None.
PART IV
ITEM 13 - EXHIBITS AND REPORTS ON FORM 8-K
None.
21
<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 October 13, 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 October 13, 1999
- --------------------- ------------------
Dr. R.B. Baker
Chief Financial Officer October 13, 1999
- --------------------- ------------------
Mark Baker
22
<PAGE>
<TABLE> <S> <C>
<ARTICLE> 5
<MULTIPLIER> 1
<S> <C>
<PERIOD-TYPE> 12-MOS
<FISCAL-YEAR-END> JUN-30-1999
<PERIOD-START> JUL-01-1998
<PERIOD-END> JUN-30-1999
<CASH> 182999
<SECURITIES> 0
<RECEIVABLES> 2766
<ALLOWANCES> 0
<INVENTORY> 0
<CURRENT-ASSETS> 185765
<PP&E> 421715
<DEPRECIATION> 0
<TOTAL-ASSETS> 607480
<CURRENT-LIABILITIES> 171892
<BONDS> 0
0
0
<COMMON> 3656526
<OTHER-SE> (3220938)
<TOTAL-LIABILITY-AND-EQUITY> 607480
<SALES> 0
<TOTAL-REVENUES> 0
<CGS> 0
<TOTAL-COSTS> 0
<OTHER-EXPENSES> 1520211
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 0
<INCOME-PRETAX> (1520211)
<INCOME-TAX> 0
<INCOME-CONTINUING> 0
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (1520211)
<EPS-BASIC> 0
<EPS-DILUTED> 0
</TABLE>
