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 SEPTEMBER 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. 0-17213
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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 ask 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.
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
The Company's 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. To properly provide for development of its products and
expansion of its operation, the Company will be required to raise additional
funds through significant capital contributions. During the fall of 1999, the
Company received a $1,500,000 capital commitment from an interested investor.
During 1998, Chemical Detection Technology, Inc. (ChemTech), 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. Bench models of the ELF (Eliminate
Landmines Forever) and VAMMP (Vacuum Multi-constituent Monitor of Plasma)
systems are currently being developed. Live field-testing of the ELF is
expected in early 2000. A prototype of the VAMMP is expected to be completed in
May 2000.
Another subsidiary of Loch Harris, Inc., AgraTech International, Inc.
(AgraTech), 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 bought a herd of Tuli cattle and moved them to
Fredericksburg, Texas. During 1999, a joint venture resulted in the addition of
24 head of purebred Canadian Tuli cattle. In October 1999, the Company
announced an agreement with Rodney Jones to manufacture the solar pump he
invented for Loch Harris, Inc. The solar pump operation began production in
late Fall 1999.
InfoTech International Systems, Inc. (InfoTech), a subsidiary established in
April of 1977, directs development of the Sentry 93000 Notification System and
InfoNotes system. PetroTech Resources International, Inc. (PetroTech), a
subsidiary established in July of 1997, manages the Oklahoma oil and gas
operation acquired by the Company in May of 1997.
The Company is currently finalizing negotiations and formation of two new
subsidiaries, PMR, a manufacturers representative to the semiconductor industry,
and System Specialists Inc. (SSI), subcontractor for ELF and VAMMP prototypes.
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 September 30, 1999 or 1998. The Company
maintains its corporate office in Austin, Texas.
2
<PAGE>
PART II
ITEM 5 - OTHER INFORMATION
None.
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 Sheets as of September 30, 1999 and September 30, 1998 5
Consolidated Statements of Operations for the three months ended
September 30, 1999 and September 30, 1998 6
Consolidated Statements of Shareholders' Equity for the three months ended
S eptember 30, 1999 and September 30, 1998 8
Consolidated Statements of Cash Flows for the three months ended
September 30, 1999 and September 30, 1998 9
Notes to Consolidated Financial Statements 10
</TABLE>
4
<PAGE>
<TABLE>
<CAPTION>
LOCH HARRIS, INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS (UNAUDITED)
SEPTEMBER 30, 1999 AND SEPTEMBER 30, 1998
ASSETS 1999 1998
- ----------------------------------------------------- ------------- -------------
<S> <C> <C>
Current assets
Cash $ 382,687 $ 11,773
Accounts receivable 1,903 -0-
Prepaid expenses 70,601 -0-
------------- -------------
Total current assets 455,191 11,773
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) 48,618 99,246
Other assets, net (Note 5) 147,144 61,878
------------- -------------
Total assets $ 872,647 $ 394,591
============= =============
LIABILITIES AND SHAREHOLDERS' EQUITY
- -----------------------------------------------------
Current liabilities:
Accounts payable $ 86,999 $ 78,414
Accrued liabilities 22,872 -0-
Current maturities of long-term debt (Note 6) 50,564 -0-
------------- -------------
Total current liabilities 160,435 78,414
Shareholders' equity:
Common stock, $.01 par value;
400,000,000 and 300,000,000 shares authorized,
respectively; 384,750,309 and 212,346,741
shares issued and outstanding, respectively
(Note 7) 3,847,503 2,123,467
Additional paid in capital (Note 7) 13,424,595 13,178,491
Retained deficit (16,532,386) (14,876,243)
Treasury stock (Note 7) (27,500) (109,538)
------------- -------------
Total shareholders' equity 712,212 316,177
------------- -------------
Total liabilities and shareholders' equity $ 872,647 $ 394,591
============= =============
</TABLE>
The accompanying notes are an integral part of these financial statements.
5
<PAGE>
<TABLE>
<CAPTION>
LOCH HARRIS, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATIONS (UNAUDITED)
THREE MONTHS ENDED SEPTEMBER 30, 1999 AND SEPTEMBER 30, 1998
1999 1998
<S> <C> <C>
------------- -------------
Revenues $ -0- $ -0-
------------- -------------
Operating expenses:
General and administrative 249,562 35,265
Consulting services 59,910 127,108
Salaries and benefits 387 14,509
Depreciation and amortization 9,834 6,879
------------- -------------
Total operating expenses 319,693 183,761
------------- -------------
Net loss $ (319,693) $ (183,761)
============= =============
Basic and diluted net loss per share $ (.001) $ (.001)
============= =============
Basic and diluted weighted average shares outstanding 257,874,300 156,371,735
============= =============
</TABLE>
The accompanying notes are an integral part of these financial statements.
6
<PAGE>
<TABLE>
<CAPTION>
LOCH HARRIS, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF SHAREHOLDERS' EQUITY (UNAUDITED)
THREE MONTHS ENDED SEPTEMBER 30, 1999 AND SEPTEMBER 30, 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, 1998 207,832,241 $2,078,322 $ 13,087,388 $(14,692,482) $ (65,250) $ 407,978
Common stock issued for:
Services 4,514,500 45,145 91,103 - - 136,248
Treasury stock - - - - (44,288) (44,288)
Net loss - - - (183,761) - (183,761)
----------- ---------- ---------------- ------------- ---------- ----------
BALANCE AT SEPTEMBER 30, 1998 212,346,741 $2,123,467 $ 13,178,491 $(14,876,243) $(109,538) 316,177
=========== ========== ================ ============= ========== ==========
BALANCE AT JUNE 30, 1999 365,652,650 $3,656,526 $ 13,021,755 $(16,212,693) $ (30,000) $ 435,588
Common stock issued for:
Cash 17,165,511 171,656 328,344 - - 500,000
Services 582,148 5,821 12,892 - - 18,713
Cash (previously subscribed) 1,350,000 13,500 36,500 - - 50,000
Contributions - - 8,070 - - 8,070
Treasury stock
Sold - - 17,034 - 2,500 19,534
Net loss - - - (319,693) - (319,693)
----------- ---------- ---------------- ------------- ---------- ----------
BALANCE AT SEPTEMBER 30, 1999 384,750,309 $3,847,503 $ 13,424,595 $(16,532,386) $ (27,500) $ 712,212
=========== ========== ================ ============= ========== ==========
</TABLE>
The accompanying notes are an integral part of these financial statements.
7
<PAGE>
<TABLE>
<CAPTION>
LOCH HARRIS, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS (UNAUDITED)
THREE MONTHS ENDED SEPTEMBER 30, 1999 AND SEPTEMBER 30, 1998
1999 1998
---------- ----------
<S> <C> <C>
Cash flows from operating activities:
Net loss $(319,693) $(183,761)
---------- ----------
Adjustments to reconcile net loss to net cash
provided by operating activities:
Depreciation and amortization 9,834 6,879
Common stock issued for services 18,713 136,248
Increase (decrease) in accounts payable 7,290 46,772
Increase (decrease in accrued liabilities 1,253 -0-
Decrease (increase) in prepaid assets (70,601) -0-
Decrease (increase) in accounts receivable 863 -0-
---------- ----------
Total adjustments (32,648) 189,899
---------- ----------
Cash flows from operating activities (352,341) 6,138
---------- ----------
Cash flows from investing activities:
Cash payments for the purchase of property and equipment (5,575) (3,735)
Cash payment for the purchase of other assets -0- (2,500)
---------- ----------
Cash flows from investing activities (5,575) (6,235)
---------- ----------
Cash flows from financing activities:
Cash contributed 8,070 -0-
Cash proceeds from issuance of common stock 550,000 -0-
Cash principal payments on long-term debt (20,000) -0-
Cash proceeds from the sale of treasury stock 19,534 -0-
Cash payments for purchase of treasury stock -0- (44,288)
---------- ----------
Cash flows from financing activities 557,604 (44,288)
---------- ----------
Net increase (decrease) in cash 199,688 (44,385)
Cash and cash equivalents - beginning of year 182,999 56,158
---------- ----------
Cash and cash equivalents - end of year $ 382,687 $ 11,773
========== ==========
Supplemental disclosures of cash flow information:
Common stock issued for services $ 18,713 $ 136,248
========== ==========
</TABLE>
The accompanying notes are an integral part of these financial statements.
8
<PAGE>
LOCH HARRIS, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)
THREE MONTHS ENDED SEPTEMBER 30, 1999 AND SEPTEMBER 30, 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 $319,693 and $183,761 for the three months ended
September 30, 1999 and 1998, respectively. For the period subsequent to
September 30, 1999, the Company anticipates contributions by interested
investors and the issuance of additional common stock to provide funds for
current operating expenses 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 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
September 30, 1999 or 1998.
9
<PAGE>
LOCH HARRIS, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)
THREE MONTHS ENDED SEPTEMBER 30, 1999 AND SEPTEMBER 30, 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 three 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 September 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.
10
<PAGE>
LOCH HARRIS, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)
THREE MONTHS ENDED SEPTEMBER 30, 1999 AND SEPTEMBER 30, 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 three months
ended September 30, 1999 or 1998. Capitalized costs relating to oil and gas
producing activities for 80% of proved undeveloped oil and gas properties were
$221,694 at September 30, 1999 and 1998.
NOTE 3 - PROPERTY AND EQUIPMENT
- ------------------------------------
Property and equipment at September 30, 1999 and 1998 consisted of the
following:
<TABLE>
<CAPTION>
1999 1998
--------- ---------
<S> <C> <C>
Office equipment $ 71,339 $ 51,469
Vehicles 12,000 12,000
Cattle breeding herd 5,500 75,000
Less accumulated depreciation (40,221) (39,223)
--------- ---------
Net property and equipment $ 48,618 $ 99,246
========= =========
</TABLE>
Depreciation expense, which is calculated on a straight-line basis, was $3,717
and $5,265 for the three months ended September 30, 1999 and 1998, respectively
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 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 September 30, 1999. The Investment in AgraNetics is classified for
reporting purposes along with Other Assets (see Note 5).
11
<PAGE>
LOCH HARRIS, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)
THREE MONTHS ENDED SEPTEMBER 30, 1999 AND SEPTEMBER 30, 1998
NOTE 5 - OTHER ASSETS
- -------------------------
During the recent years, 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. See above Note 4 for description
of Investment in AgraNetics. Other assets as of September 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 28,500
Investment in AgraNetics 70,536 -0-
Less accumulated amortization (27,392) (9,122)
Other assets, net $147,144 $61,878
</TABLE>
Amortization charged to expense for the three months ended September 30, 1999
and 1998 was $6,117 and $1,614, 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 three months ended September 30, 1999 and 1998, the Company issued
582,148 and 4,514,500 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 $18,713 and $136,248
for the respective periods.
During 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.
As of September 30, 1999 and 1998, the Company retained 1,100,000 and 1,055,285
treasury shares at a cost of $27,500 and $109,538, respectively.
12
<PAGE>
LOCH HARRIS, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)
THREE MONTHS ENDED SEPTEMBER 30, 1999 AND SEPTEMBER 30, 1998
NOTE 8 - STOCK OPTIONS AND WARRANTS
- -----------------------------------------
A summary of the status of the Company's stock options for the three months
ended September 30, 1999 and 1998 is presented below:
<TABLE>
<CAPTION>
1999 1998
---------- ----------
<S> <C> <C>
Options outstanding 38,500,000 13,500,000
Options granted -0- -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
September 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>
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.
NOTE 9 - 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 257,874,300 156,371,735
Effect of dilutive securities:
----------- -----------
Stock options -0- -0-
=========== ===========
Weighted average number of common shares and
----------- -----------
dilutive potential common stock used in diluted EPS 257,874,300 156,371,735
=========== ===========
</TABLE>
13
<PAGE>
LOCH HARRIS, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)
THREE MONTHS ENDED SEPTEMBER 30, 1999 AND SEPTEMBER 30, 1998
NOTE 9 - EARNINGS PER SHARE (CONTINUED)
- ---------------------------------------------
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 three
months ended September 30, 1999 or 1998 because their effects were antidulutive.
NOTE 10 - 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 September 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
September 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.
14
<PAGE>
LOCH HARRIS, INC. AND SUBSIDIARIES
SUPPLEMENTAL RESERVE INFORMATION (UNAUDITED)
SEPTEMBER 30, 1999 AND 1998
The following estimates of proved undeveloped reserve quantities and related
standardized measure of discounted net cash flow are estimates only, and do not
purport to reflect realizable values or fair market values of the Company's
reserves. The Company emphasizes that reserve estimates are inherently
imprecise and that estimates of new discoveries are more imprecise than those of
producing oil and gas properties. Accordingly, these estimates are expected to
change as future information becomes available. All of the Company's reserves
are located in the United States.
Proved reserves are estimated reserves of crude oil (including condensate and
natural gas liquids) and natural gas that geological and engineering data
demonstrate with reasonable certainty to be recoverable in future years from
known reservoirs under existing economic and operating conditions. Proved
undeveloped reserves are those expected to be recovered through existing wells,
equipment, and operating methods, but that require a major capital expenditure.
The standardized measure of discounted future net cash flows is computed by
applying year-end prices of oil and gas (with consideration of price changes
only to the extent provided by contractual arrangements) to the estimated future
production of proved oil and gas reserves, assuming continuation of existing
economic conditions. The estimated future net cash flows are then discounted
using a rate of 6.5 percent a year to reflect the estimated timing of the future
cash flows.
<TABLE>
<CAPTION>
Oil *(Bbls) Gas (Mcf)
------------ ---------
Proved undeveloped reserves 26,866 267,247
------------ ---------
<S> <C> <C>
Standardized measure of discounted future net cash flows
as of September 30, 1999 and 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 discounted 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>
15
<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.
Signature Capacity Date
- ------------------- ----------------------- ----------------
/S/ Dr. R.B. Baker Chairman of the Board November14, 1999
- ------------------- ----------------
Dr. R.B. Baker
/S/ Mark E. Baker Chief Financial Officer November14, 1999
- ------------------- ----------------
Mark E. Baker
16
<PAGE>
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