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 DECEMBER 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
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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
January 31, 2000 is $538,495,167. On this date approximately 295,175,129 shares
were held by non-affiliates.
As of January 31, 2000, the issuer had 398,885,309 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. As well, the Company's three self-funding subsidiaries,
ChemTech/PMR, Inc., Stockton Feed and Milling, Inc. and Ranchers Feed Yards,
Inc., provide adequate cash flows to fund their operations. 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 capital
contributions.
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.
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 1999.
The Company acquired Stockton Feed & Milling, Inc. and Ranchers Feed Yards, Inc.
on January 1, 2000 to warehouse, wholesale and retail its proprietary line of
high-tech agricultural products and to serve as a showcase for the Tuli cattle.
AgraTech manages these two subsidiaries.
The Company incorporated ChemTech/PMR, Inc. in the fall of 1999 to manage asset
purchased from PMR, a California manufacturer's representative and equipment
distributor to the semiconductor industry.
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.
2
<PAGE>
PART I ITEM 2 - MANAGEMENT'S DISCUSSION AND ANALYSIS OR PLAN OF OPERATION
(CONTINUED)
The Company is currently finalizing negotiations and formation of another
subsidiary, 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 December 31, 1999 or 1998. The Company
maintains its corporate office in Austin, Texas.
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 December 31, 1999 and December 31, 1998. 5
Consolidated Statements of Operations for the three months ended
December 31, 1999 and December 31, 1998. . . . . . . . . . . . . . . . . 6
Consolidated Statements of Shareholders' Equity for the three months ended
December 31, 1999 and December 31, 1998. . . . . . . . . . . . . . . . . 7
Consolidated Statements of Cash Flows for the three months ended
December 31, 1999 and December 31, 1998. . . . . . . . . . . . . . . . . 8
Notes to Consolidated Financial Statements . . . . . . . . . . . . . . . . 9
</TABLE>
4
<PAGE>
<TABLE>
<CAPTION>
LOCH HARRIS, INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS (UNAUDITED)
DECEMBER 31, 1999 AND DECEMBER 31, 1998
ASSETS 1999 1998
- ----------------------------------------------------- ------------- -------------
<S> <C> <C>
Current assets
Cash . . . . . . . . . . . . . . . . . . . . . . . $ 126,171 $ 12,207
Accounts receivable. . . . . . . . . . . . . . . . 270,372 -0-
Prepaid expenses . . . . . . . . . . . . . . . . . 14,272 -0-
Deposits and escrowed funds. . . . . . . . . . . . 929,491 -0-
Inventory. . . . . . . . . . . . . . . . . . . . . 86,499 -0-
------------- -------------
Total current assets. . . . . . . . . . . . . . $ 1,426,805 12,207
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). . . . . . . . . 119,305 96,269
Other assets, net (Note 5). . . . . . . . . . . . . . 141,027 60,264
------------- -------------
Total assets . . . . . . . . . . . . . . . . $ 1,908,831 $ 390,434
============= =============
LIABILITIES AND SHAREHOLDERS' EQUITY
- -----------------------------------------------------
Current liabilities:
Accounts payable . . . . . . . . . . . . . . . . . $ 312,686 $ 83,004
Accrued liabilities. . . . . . . . . . . . . . . . 24,947 -0-
------------- -------------
Total current liabilities . . . . . . . . . . . 337,633 83,004
Shareholders' equity:
Common stock, $.01 par value;
400,000,000 and 300,000,000 shares authorized,
respectively; 391,925,309 and 231,031,341
shares issued and outstanding, respectively
(Note 6) . . . . . . . . . . . . . . . . . . . 3,919,253 2,310,313
Additional paid in capital (Note 6). . . . . . . . 14,769,943 13,128,428
Retained deficit . . . . . . . . . . . . . . . . . (17,117,998) (15,067,993)
Treasury stock (Note 6). . . . . . . . . . . . . . -0- (63,318)
------------- -------------
Total shareholders' equity. . . . . . . . . . . 1,571,198 307,430
------------- -------------
Total liabilities and shareholders' equity . $ 1,908,831 $ 390,434
============= =============
</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 DECEMBER 31, 1999 AND DECEMBER 31, 1998
1999 1998
---------- ----------
<S> <C> <C>
Revenues:
Direct product sales. . . . . . . $ 177,139 $ -0-
Cost of goods sold. . . . . . . . (157,167) -0-
---------- ----------
Gross profit from direct sales. . 19,972 -0-
Commissions from indirect sales . 45,063 -0-
---------- ----------
Net income before operating expenses 65,035 -0-
---------- ----------
Operating expenses:
General and administrative. . . . 490,173 93,813
Consulting services . . . . . . . 150,640 146,507
Salaries and benefits . . . . . . -0- 258
Depreciation and amortization . . 9,834 6,879
---------- ----------
Total operating expenses . . . . . . 650,647 191,750
---------- ----------
Net loss . . . . . . . . . . . . . . $(585,612) $(191,750)
========== ==========
</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 DECEMBER 31, 1999 AND DECEMBER 31, 1998
Additional Retained
Number of Paid in Earnings Treasury
Shares Amount Capital (Deficit) Stock Total
----------- ---------- ------------ ------------- ---------- -----------
<S> <C> <C> <C> <C> <C> <C>
BALANCE AT SEPTEMBER 30, 1998 212,346,741 $2,123,467 $13,178,491 $(14,876,243) $(109,538) $ 316,177
Common stock issued for:
Services . . . . . . . . . 18,684,600 186,846 (50,063) - - 136,783
Treasury stock. . . . . . . . - - - - 46,220 46,220
Net loss. . . . . . . . . . . - - - (191,750) - (191,750)
----------- ---------- ------------ ------------- ---------- -----------
BALANCE AT DECEMBER 31, 1998. 231,031,341 $2,310,313 $13,128,428 $(15,067,993) $( 63,318) $ 307,430
=========== ========== ============ ============= ========== ===========
BALANCE AT SEPTEMBER 30, 1999 384,750,309 $3,847,503 $13,424,595 $(16,532,386) $ (27,500) $ 712,212
Common stock issued for:
Cash . . . . . . . . . . . 1,400,000 14,000 517,884 - - 531,884
Services . . . . . . . . . 775,000 7,750 16,531 - - 24,281
Assets . . . . . . . . . . 4,000,000 40,000 83,284 - - 123,284
Contributions. . . . . . . 1,000,000 10,000 43,667 - - 53,667
Contributions . . . . . . . . - - 683,982 - - 683,982
Treasury stock
Sold . . . . . . . . . . . - - - - 27,500 27,500
Net loss. . . . . . . . . . . - - - (585,612) - (585,612)
----------- ---------- ------------ ------------- ---------- -----------
BALANCE AT DECEMBER 31, 1999. 391,925,309 $3,919,253 $14,769,943 $(17,117,998) $ -0- $1,571,198
=========== ========== ============ ============= ========== ===========
</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 DECEMBER 31, 1999 AND DECEMBER 31, 1998
1999 1998
------------ ----------
<S> <C> <C>
Cash flows from operating activities:
Net loss. . . . . . . . . . . . . . . . . . . . . . . . . . $ (585,612) $(191,750)
------------ ----------
Adjustments to reconcile net loss to net cash
provided by operating activities:
Depreciation and amortization. . . . . . . . . . . . . 9,834 6,879
Common stock issued for services, etc. . . . . . . . . 77,948 136,783
Increase (decrease) in accounts payable. . . . . . . . 225,687 4,590
Increase (decrease) in accrued liabilities . . . . . . 2,075 -0-
Decrease (increase) in inventory . . . . . . . . . . . (86,499) -0-
Decrease (increase) in deposits & escrowed funds . . . (929,491) -0-
Decrease (increase) in prepaid assets. . . . . . . . . 56,329 -0-
Decrease (increase) in accounts receivable . . . . . . (268,469) -0-
------------ ----------
Total adjustments. . . . . . . . . . . . . . . . . . (912.586) 148,252
------------ ----------
Cash flows from operating activities . . . . . . . . (1,498,198) (43,498)
------------ ----------
Cash flows from investing activities:
Cash payments for the purchase of property and equipment 48,880 (2,288)
------------ ----------
Cash flows from financing activities:
Cash contributed . . . . . . . . . . . . . . . . . . . . 683,982 -0-
Cash proceeds from issuance/sale of stock. . . . . . . . 559,384 46,220
Cash principal payments on long-term debt. . . . . . . . (50,564) -0-
------------ ----------
Cash flows from financing activities. . . . . . . . . 1,192,802 46,220
------------ ----------
Net increase (decrease) in cash. . . . . . . . . . . . . . . . (256,516) 434
Cash and cash equivalents - beginning of year. . . . . . . . . 382,687 11,773
------------ ----------
Cash and cash equivalents - end of three months. . . . . . . . $ 126,171 $ 12,207
============ ==========
Supplemental disclosures of cash flow information:
Common stock issued for services . . . . . . . . . . . . . $ 24,281 $ 136,783
============ ==========
</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 DECEMBER 31, 1999 AND DECEMBER 31, 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. During the fiscal year 1999, the Company acquired additional chemical
detection technologies from consultants. In the fall of 1999, the Company
incorporated ChemTech/PMR, Inc. to manage the assets purchased from PMR, a
California manufacturer's representative and distributor. The Company continues
to develop chemical detection technologies.
GOING CONCERN:
As shown in the accompanying consolidated financial statements, the Company
incurred net losses of $585,612 and $191,750 for the three months ended December
31, 1999 and 1998, respectively. For the period subsequent to December 31, 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. Additionally, the Company acquired two West Texas corporations
which will provide cash flow and revenues, along with ChemTech/PMR, Inc. 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.
PRINCIPLES OF CONSOLIDATION:
The accompanying consolidated financial statements include the accounts of the
Company and its subsidiaries Chemical Detection Technology, Inc., AgraTech
International, Inc., ChemTech/PMR, Inc., PetroTech Resources International,
Inc., US Aerodyne, Ltd., 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
December 31, 1999 or 1998.
9
<PAGE>
LOCH HARRIS, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)
THREE MONTHS ENDED DECEMBER 31, 1999 AND DECEMBER 31, 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. During the three months ended December 31,
1999, the Company recorded revenues from the direct and indirect sales of
ChemTech/PMR, Inc. Additionally, the Company recorded deferred revenue related
to the sale of genetic embryos by AgraTech International, Inc. Actual sales
will be recorded once delivery of the products has occurred. The Company
recorded no revenues during the three months ended December 31, 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 DECEMBER 31, 1999 AND DECEMBER 31, 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 December 31, 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 December 31, 1999 and 1998.
NOTE 3 - PROPERTY AND EQUIPMENT
- ------------------------------------
Property and equipment at December 31, 1999 and 1998 consisted of the following:
<TABLE>
<CAPTION>
1999 1998
--------- ---------
<S> <C> <C>
Office equipment. . . . . . . $ 93,902 $ 53,757
Other equipment . . . . . . . 51,840 -0-
Vehicles. . . . . . . . . . . 12,000 12,000
Cattle breeding herd. . . . . 5,500 75,000
Less accumulated depreciation (43,937) (44,488)
--------- ---------
Net property and equipment. . $119,305 $ 96,269
========= =========
</TABLE>
Depreciation expense, which is calculated on a straight-line basis, was $3,717
and $5,265 for the three months ended December 31, 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 December 31, 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 DECEMBER 31, 1999 AND DECEMBER 31, 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 December 31, 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 (33,509) (10,736)
--------- ---------
Other assets, net . . . . . . $141,027 $ 60,264
========= =========
</TABLE>
Amortization charged to expense for the three months ended December 31, 1999 and
1998 was $6,117 and $1,614, respectively.
NOTE 6 - SHAREHOLDER EQUITY
- -------------------------------
During the three months ended December 31, 1999 and 1998, the Company issued
7,175,000 and 18,684,600 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 $24,281 and $136,783
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 December 31, 1998, the Company retained 610,000 treasury shares at a cost
of $63,318.
NOTE 7 - STOCK OPTIONS AND WARRANTS
- -----------------------------------------
A summary of the status of the Company's stock options for the three months
ended December 31, 1999 and 1998 is presented below:
<TABLE>
<CAPTION>
1999 1998
---------- ----------
<S> <C> <C>
Options outstanding . . . . . . . . 34,500,000 13,500,000
Options granted . . . . . . . . . . -0- -0-
Options exercised . . . . . . . . . -0- -0-
Options canceled. . . . . . . . . . -0- -0-
---------- ----------
Options outstanding and exercisable 34,500,000 13,500,000
========== ==========
</TABLE>
12
<PAGE>
LOCH HARRIS, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)
THREE MONTHS ENDED DECEMBER 31, 1999 AND DECEMBER 31, 1998
NOTE 7 - STOCK OPTIONS AND WARRANTS (CONTINUED)
- ------------------------------------------------------
The following table summarizes the information about stock options as of
December 31, 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)
- --------- ----------- -------- ----------- ---------------- ----------- ---------------
<C> <C> <C> <S> <C> <C> <C>
$ .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 34,500,000 3.6 years $ .11 34,500,000 $ .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 8 - 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 December 31, 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
December 31, 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.
13
<PAGE>
LOCH HARRIS, INC. AND SUBSIDIARIES
SUPPLEMENTAL RESERVE INFORMATION (UNAUDITED)
DECEMBER 31, 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)
----------- -----------
<S> <C> <C>
Proved undeveloped reserves. . . . . . . . . . . . . . . . . . . . 26,866 267,247
=========== ===========
Standardized measure of discounted future net cash flows
as of December 31, 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>
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.
Signature Capacity Date
- ---------------------- ----------------------- ---------------------
/s/ Dr. R.B. Baker Chairman of the Board February 14, 2000
- ---------------------- ----------------------
Dr. R.B. Baker
/s/ Mark E. Baker Chief Financial Officer February 14, 2000
- ---------------------- ----------------------
Mark E. Baker
15
<PAGE>
<TABLE> <S> <C>
<ARTICLE> 5
<MULTIPLIER> 1
<S> <C>
<PERIOD-TYPE> 3-MOS
<FISCAL-YEAR-END> JUN-30-2000
<PERIOD-START> OCT-01-1999
<PERIOD-END> DEC-31-1999
<CASH> 126171
<SECURITIES> 0
<RECEIVABLES> 270372
<ALLOWANCES> 0
<INVENTORY> 86499
<CURRENT-ASSETS> 1426805
<PP&E> 340999
<DEPRECIATION> 0
<TOTAL-ASSETS> 1908831
<CURRENT-LIABILITIES> 337633
<BONDS> 0
0
0
<COMMON> 3919253
<OTHER-SE> (2348055)
<TOTAL-LIABILITY-AND-EQUITY> 1571198
<SALES> 177139
<TOTAL-REVENUES> 222202
<CGS> 157167
<TOTAL-COSTS> 157167
<OTHER-EXPENSES> 650647
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 0
<INCOME-PRETAX> 0
<INCOME-TAX> 0
<INCOME-CONTINUING> 0
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (585612)
<EPS-BASIC> 0
<EPS-DILUTED> 0
</TABLE>
