SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-QSB
(Mark One)
[X] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
For the quarterly period ended December 31, 1998
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
For the transition period from __________ to __________
Commission file number 0-16203
Delta Petroleum Corporation
(Exact name of registrant as specified in its charter)
Colorado 84-1060803
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
555 17th Street, Suite 3310
Denver, Colorado 80202
(Address of principal (Zip Code)
executive offices)
(303) 293-9133
(Registrant's telephone number, including area code)
Indicate by check mark whether the registrant (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___
5,775,858 shares of common stock $.01 par value were outstanding
as of February 8, 1999.
FORM 10-QSB
2nd QTR.
FY 1999
INDEX
PART I FINANCIAL INFORMATION
PAGE NO.
Item 1. Consolidated Financial Statements
Consolidated Balance Sheets - December 31, 1998 and
June 30, 1998 (unaudited). . . . . . . . . . . . . . . . . .1
Consolidated Statements of Operations -
Three and Six Months Ended
December 31, 1998 and 1997 (unaudited) . . . . . . . . . . .3
Consolidated Statement of Stockholders' Equity
Year Ended June 30, 1998 and
Six Months Ended December 31, 1998 (unaudited) . . . . . . .5
Consolidated Statements of Cash Flows -
Three and Six Months Ended
December 31, 1998 and 1997 (unaudited) . . . . . . . . . . .6
Notes to Consolidated Financial Statements (unaudited). . . . 7
Item 2. Management's Discussion and Analysis
Or Plan of Operations . . . . . . . . . . . . . . . . . . 11
PART II OTHER INFORMATION
Item 1. Legal Proceedings. . . . . . . . . . . . . . . . . . . . . 17
Item 2. Changes in Securities. . . . . . . . . . . . . . . . . . . 17
Item 3. Defaults upon Senior Securities. . . . . . . . . . . . . . 17
Item 4. Submission of Matters to a Vote of
Security Holders. . . . . . . . . . . . . . . . . . . 17
Item 5. Other Information. . . . . . . . . . . . . . . . . . . . . 17
Item 6. Exhibits and Reports on Form 8-K . . . . . . . . . . . . . 17
DELTA PETROLEUM CORPORATION
AND SUBSIDIARY
CONSOLIDATED BALANCE SHEETS
(UNAUDITED)
December 31, June 30,
1998 1998
ASSETS
Current Assets:
Cash $523,474 17,135
Trade accounts receivable, net of
allowance for doubtful accounts of $50,000 at
December 31, 1998 and June 30, 1998 206,655 224,285
Accounts receivable - related parties 153,832 127,415
Other current assets 10,100 10,100
Total current assets 894,061 378,935
Property and Equipment:
Oil and gas properties, at cost (using
the successful efforts method
of accounting):
Undeveloped offshore California properties 6,959,830 6,959,830
Undeveloped onshore domestic properties 675,299 726,127
Undeveloped foreign properties 623,920 -
Developed onshore domestic properties 2,237,363 3,369,881
Office furniture and equipment 81,069 80,446
10,577,481 11,136,284
Less accumulated depreciation and depletion (1,411,563) (2,234,525)
Net property and equipment 9,165,918 8,901,759
Investment in Bion Environmental
Technologies, Inc. (Bion) 437,658 1,069,149
$10,497,637 10,349,843
December 31, June 30,
1998 1998
LIABILITIES AND STOCKHOLDERS' EQUITY
Current Liabilities:
Accounts payable trade $516,171 570,469
Other accrued liabilities 40,381 10,000
Royalties payable 164,907 264,320
Total current liabilities 721,459 844,789
Stockholders' Equity
Preferred stock, $.10 par value;
authorized 3,000,000 shares;
none issued - -
Common stock, $.01 par value;
authorized 300,000,000 shares,
issued 5,775,858
shares at December 31, 1998
and 5,513,858
shares at June 30, 1998 57,759 55,139
Additional paid-in capital 26,243,621 25,571,921
Accumulated comprehensive
income (loss) (101,467) 457,594
Accumulated deficit (16,423,735) (16,579,600)
Total stockholders' equity 9,776,178 9,505,054
Commitments
$10,497,637 10,349,843
DELTA PETROLEUM CORPORATION
AND SUBSIDIARY
CONSOLIDATED STATEMENTS OF OPERATIONS
(UNAUDITED)
Three Months Ended
December 31, December 31,
1998 1997
Revenue:
Oil and gas sales $104,427 476,055
Gain on sale of oil and gas properties 957,147 197,542
Other revenue 60,580 73,766
Total revenue 1,122,154 747,363
Expenses:
Lease operating expenses 47,115 94,632
Depreciation and depletion 24,810 63,446
Exploration expenses 14,578 176,423
Dry hole costs 122,489 -
General and administrative 305,446 390,729
Stock option expense 21,830 5,478
Realized loss on sale of securities 9,053 -
Total expenses 545,321 730,708
Net income $576,833 16,655
Net income per common share:
Basic $0.10 *
Diluted $0.09 *
* less than $.01 per common share
DELTA PETROLEUM CORPORATION
AND SUBSIDIARY
CONSOLIDATED STATEMENTS OF OPERATIONS
(UNAUDITED)
Six Months Ended
December 31, December 31,
1998 1997
Revenue:
Oil and gas sales $306,906 793,261
Gain on sale of oil and gas properties 957,147 434,144
Other revenue 121,740 141,878
Total revenue 1,385,793 1,369,283
Expenses:
Lease operating expenses 125,094 189,236
Depreciation and depletion 93,526 152,671
Exploration expenses 56,292 226,442
Dry hole costs 219,707 -
General and administrative 674,592 759,390
Stock option expense 28,675 11,809
Realized loss on sale of securities 22,042 -
Interest expense 10,000 -
Total expenses 1,229,928 1,339,548
Net income $155,865 29,735
Net income per common share:
Basic $0.03 0.01
Diluted $0.02 0.01
DELTA PETROLEUM CORPORATION
AND SUBSIDIARY
Consolidated Statement of Stockholders' Equity
Year ended June 30, 1998 and six months ended December 31, 1998
<TABLE>
Additional
Common Stock paid-in
Shares Amount capital
<S> <C> <C> <C>
Balance, July 1, 1997 5,230,631 $52,306 24,950,128
Unrealized gain on equity securities - - -
Stock options granted as compensation - - 46,402
Shares issued for cash upon exercise of options 114,100 1,141 202,395
Shares issued for cash 156,950 1,570 348,430
Shares issued for services 22,500 225 64,463
Shares reacquired and retired (10,323) (103) (39,897)
Net loss - - -
Balance, June 30, 1998 5,513,858 55,139 25,571,921
Unrealized loss on equity securities - - -
Stock options granted as compensation - - 28,675
Shares issued for cash 2,000 20 5,955
Shares issued for services 10,000 100 15,650
Shares issued for properties 250,000 2,500 621,420
Net income - - -
Balance, December 31, 1998 5,775,858 57,759 26,243,621
</TABLE>
<TABLE>
Accumulated
comprehensive
income Accumulated
(loss) deficit Total
<S> <C> <C> <C>
Balance, July 1, 1997 (213,969) (15,617,597) 9,170,868
Unrealized gain on equity securities 671,563 - 671,563
Stock options granted as compensation - - 46,402
Shares issued for cash upon exercise of options - - 203,536
Shares issued for cash - - 350,000
Shares issued for services - - 64,688
Shares reacquired and retired - - (40,000)
Net loss - (962,003) (962,003)
Balance, June 30, 1998 457,594 (16,579,600) 9,505,054
Unrealized loss on equity securities (559,061) - (559,061)
Stock options granted as compensation - - 28,675
Shares issued for cash - - 5,975
Shares issued for services - - 15,750
Shares issued for properties - - 623,920
Net income - 155,865 155,865
Balance, December 31, 1998 (101,467) (16,423,735) 9,776,178
</TABLE>
DELTA PETROLEUM CORPORATION
AND SUBSIDIARY
CONSOLIDATED STATEMENTS OF CASH FLOWS
(UNAUDITED)
Six Months Ended
December 31, December 31,
1998 1997
Net cash used in operating activities ($768,483) (548,556)
Cash flows from investing activities:
Additions to property and equipment (160,573) (509,751)
Proceeds from sale of oil and
gas properties 1,384,000 663,000
Proceeds from sale of securities available 71,837 46,532
Increase in accounts receivable from
related parties (26,417) (24,175)
Net cash provided by investing activities 1,268,847 175,606
Cash flows from financing activities:
Issuance of common stock for cash 5,975 350,000
Stock issued for cash upon exercise of options - 13,750
Net cash provided by financing activities 5,975 363,750
Net increase (decrease) in cash 506,339 (9,200)
Cash at beginning of period 17,135 393,048
Cash at end of period $523,474 383,848
Supplemental cashflow information:
Cash paid during the period for interest $10,000 3,633
Non-cash financing activity:
Common stock issued for undeveloped foreign $623,920 -
See accompanying notes to consolidated financial statements.
DELTA PETROLEUM CORPORATION
AND SUBSIDIARY
Notes to Consolidated Financial Statements
Six Months Ended December 31, 1998 and 1997
(Unaudited)
(1) Basis of Presentation
The accompanying unaudited consolidated financial statements
have been prepared in accordance with the instructions to Form
10-QSB and, in accordance with those rules, do not
include all the information and notes required by generally
accepted accounting principles for complete financial statements.
As a result, these unaudited consolidated financial statements
should be read in conjunction with the Company's audited
consolidated financial statements and notes thereto filed with
the Company's most recent annual report on Form 10-KSB. In the
opinion of management, all adjustments, consisting only of normal
recurring accruals, considered necessary for a fair presentation
of the financial position of the Company and the
results of its operations have been included. Operating results
for interim periods are not necessarily indicative of the results
that may be expected for the complete fiscal year. For a
more complete understanding of the Company's operations and
financial position, reference is made to the consolidated
financial statements of the Company, and related notes thereto,
filed with the Company's annual report on Form 10-KSB/A for the
year ended June 30, 1998, previously filed with the Securities
and Exchange Commission.
In June 1997, the Financial Accounting Standards Board
issued Statement of Financial Accounting Standards No. 130,
Reporting Comprehensive Income (Statement No. 130), effective
for years beginning after December 15, 1997. Statement No. 130
establishes standards for reporting and display of comprehensive
income and its components in a full set of general-
purpose financial statements. The Company adopted Statement No.
130 effective July 1, 1998 and, accordingly, has reported
accumulated other comprehensive income (loss) as a separate line
item in the stockholders' equity section of its consolidated
balance sheets at December 31, 1998 and June 30, 1998. The
components of total comprehensive income (loss) for the periods
consist of net earnings and unrealized gain (loss) on equity
securities and are as follows:
Three Months Ended Six Months Ended
December 31, December 31,
1998 1997 1998 1997
Net income (loss) $576,833 16,655 (155,865) 29,735
Other comprehensive
income (loss) (110,903) 590,232 559,061 758,008
Total comprehensive
income income
(loss) $465,930 606,887 403,196 787,743
(2) Investments
The Company's investment in Bion Environmental Technologies,
Inc. (Bion) is classified as an available for sale security and
reported at its fair market value, with unrealized gains and
losses excluded from earnings and reported as a separate
component of stockholders' equity. During the six months ended
December 31, 1998, the Company received an additional 5,609
shares of Bion's common stock for rent provided by the Company.
Also during the six months ended December 31, 1998, the Company
realized a loss on the sale of securities available for
sale of $22,042.
The cost and estimated market value of the Company's
investment in Bion at December 31, 1998 and June 30, 1998 are as
follows:
Estimated
Unrealized Market
Cost Gain (loss) Value
December 31, 1998 $539,125 (101,467) 437,658
June 30, 1998 $611,555 457,594 1,069,149
(3) Oil and Gas Properties
On October 12, 1998, the Company entered into an agreement
with an unrelated entity to acquire two exploration licenses
covering approximately 1.9 million acres in the Pavlodar
region of Eastern Kazakhstan in exchange for 250,000 shares of
the Company's common stock and 500,000 warrants to purchase
common stock at prices ranging from $3.50 to $5.00 per
share.
On November 16, 1998, the Company completed the sale of 23
oil and gas wells located in the Anadarko Basin of Oklahoma for
$1,384,000 to an unrelated entity.
(4) Loan Payable
On August 20, 1998, the Company entered into a loan
agreement with an unrelated entity for $400,000 which was due and
paid by November 20, 1998 and was collateralized by all
producing oil and gas properties owned by the Company. Interest
on the loan was payable at an annual rate of 10%. In addition to
the principal and interest payment required, the Company
also paid this entity a $50,000 fee.
(5) Earnings Per Share
The following table sets forth the computation of basic and
diluted earnings per share:
Three Months Ended Six Months Ended
December 31, December 31,
1998 1997 1998 1997
Numerator:
Numerator for basic
and diluted
earnings per share
- income available
to common
stockholders $576,833 16,655 155,865 29,735
Denominator:
Denominator for
basis earnings
per share -
weighted average
shares 5,763,071 5,283,566 5,643,148 5,257,452
Effect of dilutive
securities
Stock options 789,451 546,198 871,993 584,304
Denominator for
diluted
earnings per
common share -
adjusted weighted
average
shares assuming
conversion 6,552,522 5,829,764 6,515,141 5,841,756
Basic earnings
per common share $.10 * .03 .01
Diluted earnings
per common share $.09 * .02 .01
*less than $.01 per common share
(6) Subsequent Event
On January 1, 1999, the Company completed a sale of
194,444 shares of the Company's common stock to Evergreen
Resources, Inc. for net proceeds to the Company of $350,000.
Item 2. Management's Discussion and Analysis or Plan of
Operations
Liquidity and Capital Resources.
At December 31, 1998, the Company had working capital
of $172,601 compared to a working capital deficit of $465,854 at
June 30, 1998. On January 1, 1999, the Company completed a sale
of 194,444 shares of the Company's common stock to Evergreen
Resources, Inc. for net proceeds to the Company of $350,000.
The Company's current assets include accounts
receivable from related parties (including affiliated companies)
of $153,832 at December 31, 1998 which is primarily for
drilling costs, and lease operating expense on wells owned by the
related parties and operated by the Company. The amounts are due
on open account and are non-interest bearing. The
Company's current liabilities include royalties payable of
$164,907 at December 31, 1998 which represent the Company's
estimate of royalties payable on production attributable to the
Company's 91.68% owned subsidiary, Amber Resources Company
("Amber"), interest in certain wells in Oklahoma, including
production prior to the acquisition of Amber. The
Company believes that the operators of the affected wells have
paid some of the royalties on behalf of the Company and have
withheld such amounts from revenues attributable to the
Company's interest in the wells. The Company has contacted the
operators of the wells in an attempt to determine what amounts
the operators have paid on behalf of the Company over the
past five years, which amounts would reduce the amounts owed by
the Company. The Company has been informed by its legal counsel
that the applicable statue of limitations period for actions
on written contracts arising in the state of Oklahoma is five
years. The statute of limitation has expired for royalty owners
to make a claim for a portion of the estimated royalties that had
previously been accrued. Accordingly, these amounts have been
written off and recorded as other income.
The Company believes that it is unlikely that all
claims that might be made for payment of royalties payable in
suspense or for recoupment royalties payable would be made at
one time. Further, Amber, rather than Delta, would be directly
liable for payment of any such claims. The Company believes,
although there can be no assurance, that it may ultimately be
able to settle with potential claimants for less than the amounts
recorded for royalties payable.
On August 20, 1998, the Company entered into a
loan agreement with an unrelated entity for $400,000 which was
due and paid by November 20, 1998 and was collateralized by all
producing oil and gas properties owned by the Company and
personally guaranteed by the Company's officers. Interest on the
loan was payable at an annual rate of 10%. In addition to the
principal and interest payment required, the Company also paid
this entity a $50,000 fee.
The Company expects to raise additional capital by
selling its common stock in order to fund its capital
requirements for its portion of the costs of the drilling and
completion of development wells on its proved undeveloped
properties during the next twelve months. There
is no assurance that it will be able to do so or that it will be
able to do so upon terms that are acceptable. The Company does
not currently have a credit facility with any bank and it has not
determined the amount, if any, that it could borrow against its
existing properties. The Company will continue to explore
additional sources of both short-term and long-term liquidity
to fund its operations and its capital requirements for
development of its properties including establishing a credit
facility, sale of equity or debt securities and sale of
properties. Many of the factors which may affect the Company's
future operating performance and liquidity are
beyond the Company's control, including oil and natural gas
prices and the availability of financing.
After evaluation of the considerations described above,
the Company believes that its cash flow from its existing
producing properties, proceeds from the sale of producing
properties, and other sources of funds will be adequate to fund
its operating expenses, pay off the loan payable,
and satisfy its other current liabilities over the next year or
longer.
Results of Operations
Net Earnings (Loss). The Company reported net
earnings for the three and six months ended December 31, 1998 of
$576,833 and $155,865 compared to net earnings of $16,655 and
$29,735 for the three and six months ended December 31, 1997,
respectively.
Revenue. Total revenue for the three and six months
ended December 31, 1998 were $1,122,154 and $1,385,793 compared
to $747,363 and $1,369,283 for the three and six months
ended December 31, 1997, respectively. Oil and gas sales for
the three and six months ended December 31, 1998 were $104,427
and $306,906 compared to $476,055 and $793,261 for the
three and six months ended December 31, 1997, respectively. The
Company's oil and gas sales decreased as a result of the sale of
certain oil and gas properties.
Production volumes and average prices received for the
three month period ended December 31, 1998 and 1997 are as
follows:
Three Months Ended Six Months Ended
December 31, December 31,
1998 1997 1998 1997
Production:
Oil (barrels) 358 6,567 2,206 8,544
Gas (Mcfs) 50,431 123,937 144,570 262,462
Average Price:
Oil (per barrel) $11.47 $17.94 $11.17 $17.94
Gas (per Mcf) $ 1.99 $2.89 $1.95 $2.42
Lease Operating Expenses. Lease operating expenses were
$47,115 and $125,094 for the three and six months ended December
31, 1998 and $94,632 and $189,236 for the three and
six months ended December 31, 1997, respectively. On a Mcf
equivalent basis, lease operating expenses were $.90 and $.79,
respectively, per Mcf equivalent during the three and six months
ended December 31, 1998 compared to $.60 and $.60, respectively,
per Mcf equivalent for the same periods in 1997. The decrease in
lease operating expense can be attributed to the sale of certain oil
and gas properties.
Depreciation and Depletion Expense. Depreciation and
depletion expense for the three and six months ended December 31,
1998 were $24,810 and $93,526 compared to $63,446 and
$152,671 for the same period in 1997. On a Mcf equivalent
basis, depreciation and depletion expense were $.47 and $.59,
respectively, per Mcf equivalent during the three and six months
ended December 31, 1998 compared to $.39 and $.48, respectively,
per Mcf equivalent for the same periods in 1997. The decrease in
depreciation and depletion expense can be attributable
to the sale of certain oil and gas properties during the second
quarter of fiscal 1999.
Exploration Expenses. The Company recorded exploration
expenses of $14,578 and $56,292 for the three and six months
ended December 31, 1998 compared to $176,423 and
$226,442 for the same period in 1997. Exploration costs during
fiscal 1997 were attributed to the Company's participation in the
shooting of 3-D seismic on prospects in the Sacramento Basin
in Northern California.
Dry Hole Costs. The company recorded dry hole costs of
$122,489 and $219,707 relating to six dry holes during the six
months ended December 31, 1998.
General and Administrative Expenses. General and
administrative expenses for the three and six months ended
December 31, 1998 were $305,446 and $674,592 compared to $390,729
and $759,390 for the same periods in 1997. General and
administrative expenses for the six months ended December 31,
1998 decreased from the prior year as a result of a decrease in
salaries and public relation expenses.
Future Operations
The Company's Offshore California proved undeveloped
reserves are attributable to its interests in four federal units
(plus one additional lease) located offshore California near
Santa Barbara. While these interests represent ownership of
substantial oil and gas reserves classified
as proved undeveloped, the cost to develop the reserves will be
substantial. The estimated cost, which will be incurred over the
life of the properties (assumed to be 38 years), for the complete
development of all of the properties in which Delta owns an
interest, including delineation wells, environmental mitigation,
development wells, fixed platforms, fixed platform facilities,
pipelines and power cables, onshore facilities and platform
removal is currently estimated to be slightly
in excess of approximately $3 billion. The Company's share of
such costs is estimated to be $216,000,000. Operating expenses
for the same properties over the same period of time,
including platform operating costs, well maintenance and repair
costs, oil, gas and water treating costs, lifting costs and
pipeline transportation costs are expected to be approximately
$3,325,000,000 with the Company's share estimated to be
$285,000,000.
Each working interest owner will be required to pay its
proportionate share of these costs based upon the amount of the
interest that it owns. The size of Delta's working interest in
the units varies from 2.492% to 15.60%. The Company may be
required to farm out all or a portion of its interests in these
properties to a third party if it cannot fund its share of the
development costs. There can be no assurance that the Company
can farm out its interests on acceptable terms. If the Company
were to farm out its interests in these properties, its share of
the proved reserves attributable to the properties would be
decreased substantially. The Company may also incur substantial
dilution of its interests in the properties if it elects to use
other methods of financing the development costs. Net revenues
over the same time period, to be shared by all of the working
interest owners in proportion to the size of their respective
working interests, are estimated to be approximately
$2,924,000,000 after the payment of all of the above expenses and
amounts due to owners of royalty interests with Delta's share
estimated to be $228,000,000.
These units have been formally approved and are regulated by
the MMS. While the Federal Government has recently attempted to
expedite the process of obtaining permits and authorizations
necessary to develop the properties, there can be no assurance
that it will be successful in doing so. The Company does not
have a controlling interest in and does not act
as the operator of any of the offshore California properties and
consequently will generally not control the timing of either the
development of the properties or the expenditures for
development unless Delta chooses to unilaterally propose the
drilling of wells under the relevant operating agreements.
Management and its independent engineering consultant have
considered these factors relating to timing of the development of
the reserves in the preparation of the reserve information
relating to these properties. It is anticipated that, based upon
discussions with appropriate governmental agencies, development
of the subject leases will require from three to five years for
permitting. Because of the substantial reserves contained in the
projects, it is generally accepted that they will be developed;
however, the time required to complete development may be from
five to ten years. As additional information becomes available
in the future, the Company's estimates of the proved undeveloped
reserves attributable to these properties could materially
change.
The MMS initiated the California Offshore Oil and Gas Energy
Resources (COOGER) study at the request of the local regulatory
agencies of the three counties (Ventura, Santa Barbara
and San Luis Obispo) affected by offshore oil and gas
development. A private consulting firm is currently conducting
the study under a contract with the MMS. The COOGER study seeks
to present a long-term regional perspective of potential onshore
constraints that should be considered when developing existing
undeveloped offshore leases. COOGER will project the
economically recoverable oil and gas production from offshore
leases which have not yet been developed. These projections will
be utilized to assist in identifying a potential range of
scenarios for developing these leases. These scenarios will then
be compared to the projected infrastructural, environmental and
socioeconomic baselines between 1995 and 2015.
No specific decisions regarding levels of offshore oil and
gas development or individual projects will occur in connection
with the COOGER study. Information presented in the study
is intended to be utilized as a reference document to provide the
public, decision makers and industry with a broad overview of
cumulative industry activities and key issues associated with
a range of development scenarios. The exact effects upon
offshore development of the adoption of any one of the scenarios
are not yet capable of analysis because the study has not yet
been completed and reviewed. However, the Company has evaluated
its position with regard to the scenarios currently being studied
with respect to properties and the results of such evaluation are
set forth in its Form 10-KSB/A for the year ended June 30, 1998.
Current Status. On November 5, 1996, the MMS directed a
Suspension of Operations for the POCS Non-Producing Leases and
Units, pursuant to CFR 250.10(b)(4), extending the
existing Suspension of Operations ("SOO") from January 1, 1997
until December 31, 1998. This action permitted unit owners to
cease paying lease payments to the Federal government and
suspended the requirements relating to development of the leases
during this period. The directive cited the fact that the MMS
had requested in 1992 that the lease owners participate in
what became known as the COOGER (California Offshore Oil and Gas
Energy Resources) Study and during the term of the Study that the
leases would be held under a SOO.
The MMS issued a second letter on December 24, 1996 with the
intent to notify all lease owners of the course of action to be
followed by the lease and unit operators prior to the
expiration of the SOO. In another letter, on December 3, 1998,
(which superceded a September 17, 1998 MMS letter) the MMS
informed all owners and operators that due to delays
in the COOGER Study, the SOO's on the units would be extended
through the second quarter of 1999 and revised the dates for
actions required by the previous letters. During the first half
of 1999 each operator is to meet with the MMS to discuss
conceptual plans that will lead to eventual development. By May
15, 1999, each operator has been directed to submit what the
MMS has termed "Schedule of Events" for a specific lease or unit
that it operates and also a request for a Suspension of
Production time period to execute the Schedule of Events. The
lease Suspension of Operations and unit Schedule of Events, when
approved by the MMS, will go into effect on July 1, 1999.
In order to carry out the requirements of the December 24,
1996 and December 3, 1998 MMS letters, all operators of the units
in which the Company owns non-operating interests
(described below) are currently engaged in studies to develop a
conceptual framework and general timetable for continued
delineation and development of the leases. For delineation, the
operators will outline the mobile drilling unit well activities,
including number and location. For development, the operators'
reports will cover the total number of facilities involved,
including platforms, pipelines, onshore processing facilities,
transportation systems and marketing plans.
The Company is participating with the operators in meeting the
MMS schedules through meetings, and consultations and is sharing
in the costs as invoiced by the operators.
Year 2000
The Company has completed a review of its computer system
and applications (which began in fiscal 1997) to identify the
systems that could be affected by the "Year 2000" issue.
The Year 2000 problem is the result of computer programs being
written using two digits rather than four to define the
applicable year. Any of the Company's programs that have
time-sensitive software may recognize a date using "00" as the
year 1900 rather than the year 2000. This
could result in a major system failure or miscalculations.
On the basis of its review, the Company currently believes
that the Year 2000 issue will not pose material operational
problems for the Company. To the Company's knowledge after
investigation, no "embedded technology" (such as microchips in an
electronic control system) of the Company poses a material Year
2000 concern.
Because the Company believes that it has no material
internal Year 2000 problems, the Company has not and does not
expect to expend a significant amount of funds to address Year
2000 issues. It is Company policy to continue to review its
suppliers' Year 2000 compliance and require assurance of Year
2000 compliance from new suppliers; however, such monitoring
does not involve a significant cost to the Company.
In addition to the foregoing, the Company has contacted its
major vendors and has received either oral or written assurances
from its major vendors or has reviewed assurances
contained on vendors' web sites that they have no material Year
2000 problems. The Company believes that its vendors are largely
fungible; therefore, in the event a vendor's representations
regarding its Year 2000 compliance were untrue for any reason,
the Company believes that it could find adequate Year
2000-compliant vendors as substitutes.
The Company has also received either oral or written
assurances from its customers or has reviewed assurances
contained on its customers' web sites that they have no Year
2000 problems which would materially adversely affect the
business or operations of the Company.
The information contained in this Year 2000 discussion is
forward-looking and involves risks and uncertainties that may
cause actual results to vary materially from those projected.
Some factors that could significantly impact Delta's expected
Year 2000 compliance and the estimated cost thereof include
internal computer hardware or software problems which have not
as yet been identified by Delta, and currently undisclosed and
unanticipated problems which may be encountered by third parties
with whom Delta has business relationships.
PART II - OTHER INFORMATION
Item 1. Legal Proceedings. The Company is not engaged in any
material pending legal proceedings to which the Company or its
subsidiaries are a party or to which any of its property is
subject.
Item 2. Changes in Securities. None.
Item 3. Defaults Upon Senior Securities. None.
Item 4. Submission of Matters to a Vote of Security Holders.None
Item 5. Other Information. None
Item 6. Exhibits and Reports on Form 8-K.
(a) Exhibits.
27. Financial Data Schedule.
99.1 Agreement between Evergreen and Delta
Petroleum Corporation effective January 1, 1999.
99.2 Agreement between Burdette A. Ogle and Delta
Petroleum Corporation effective December 17, 1998.
(b) Reports on Form 8-K:
November 23, 1998; Items 2., 5. and 7.
SIGNATURE
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.
DELTA PETROLEUM CORPORATION
(Registrant)
s/Aleron H. Larson, Jr.
Aleron H. Larson, Jr.
Chairman of the Board, Treasurer and
Chief Financial Officer
s/Kevin K. Nanke
Kevin K. Nanke, Controller and
Principal Accounting Officer
Date: February 10, 1999
INDEX
(2) Plan of Acquisitions, Reorganization, Arrangement,
Liquidation, or Succession. Not applicable.
(3) Articles of Incorporation and By-laws. The Articles of
Incorporation and Articles of Amendment to Articles of
Incorporation and By-laws of the Registrant were filed as
Exhibits 3.1, 3.2, and 3.3, respectively, to the Registrant's
Form 10 Registration Statement under the Securities and Exchange
Act of 1934, filed September 9, 1987, with
the Securities and Exchange Commission and are incorporated
herein by reference. Statement of Designation and Determination
of Preferences of Series A Convertible Preferred Stock of Delta
Petroleum Corporation is incorporated by Reference to Exhibit
28.3 of the Current Report on Form 8-K dated June 15, 1988.
Statement of Designation and Determination of Preferences of
Series B Convertible Preferred Stock of Delta Petroleum
Corporation is incorporated by reference to Exhibit 28.1 of the
Current Report on Form 8-K dated August 9, 1989.
(4) Instruments Defining the Rights of Security Holders.
Not applicable.
(9) Voting Trust Agreement. Not applicable.
(10) Material Contracts. Not applicable.
(11) Statement Regarding Computation of Per Share Earnings. Not
applicable.
(12) Statement Regarding Computation of Ratios. Not applicable.
(13) Annual Report to Security Holders, Form 10-Q or Quarterly
Report to Security Holders. Not applicable.
(16) Letter re: Change in Certifying Accountants. Not applicable.
(17) Letter re: Director Resignation. Not applicable.
(18) Letter Regarding Change in Accounting Principals. Not
applicable.
(19) Previously Unfiled Documents. Not applicable.
(21) Subsidiaries of the Registrant. Not applicable.
(22) Published Report Regarding Matters Submitted to Vote of
Security Holders. Not applicable.
(23) Consent of Experts and Counsel. Not applicable.
(24) Power of Attorney. Not applicable.
(27) Financial Data Schedule. Filed herewith electronically.
(99) Additional Exhibits.
99.1 Agreement between Evergreen and Delta Petroleum
Corporation effective January 1, 1999.
99.2 Agreement between Burdette A. Ogle and Delta Petroleum
Corporation effective December 17, 1998.
INVESTMENT REPRESENTATION AGREEMENT
Delta Petroleum Corporation
C/O 555 17th Street, Suite 3310
Denver, Colorado 80202
Gentlemen:
1. Subscription. The Undersigned, EVERGREEN RESOURCES, INC.
("Evergreen" or "Undersigned") and its designees, hereby agrees to
acquire from Delta Petroleum Corporation ("Delta" or the "Company")
194,444 shares of the restricted and legended common stock of Delta
(collectively the "Securities") for an aggregate of $350,000 in a
private negotiated transaction pursuant to Section 3(b) and/or 4(2)
of the Act (and the regulations promulgated thereunder) and/or
other applicable statute, rule and\or regulation. Closing,
including delivery of the Securities and payment therefore, shall
take place as of January 1, 1999.
2. Representations and Warranties. The Undersigned warrants
and represents to the Company that:
a. The Securities are being acquired by the Undersigned
for investment for its own account, and not with a view to the
offer or sale in connection therewith, or the distribution thereof,
and that the Undersigned is not now, and will not in the future,
participate, directly or indirectly, in an underwriting of any such
undertaking except in compliance with applicable registration
provisions of the Act.
b. The Undersigned will not take, or cause to be taken,
any action that would cause it to be deemed an underwriter of the
Securities, as defined in Section 2(11) of the Securities Act of
1933, as amended (the "Act").
c. The Undersigned has been afforded an opportunity to
examine such documents and obtain such information concerning the
Company as it may have requested, including without limitation all
publicly available information, and has had the opportunity to
request such other information (and all information so requested
has been provided) for the purpose of verifying the information
furnished to it and for the purpose of answering any question it
may have had concerning the business affairs of the Company and it
has reviewed to the extent desired by it the Articles, Bylaws and
Minutes of the Company, documentation concerning the Company's
financial condition, assets, liabilities, share ownership and
capital structure, operations, sales, management, public market,
public filings, litigation and other material contracts and
matters.
d. The Undersigned (and its officers, directors and/or
agents, as applicable) have had an opportunity to personally ask
questions of, and receive answers from, one or more of the officers
and directors of the Company and/or the attorneys for the Company
to ascertain and verify the accuracy and completeness of all
material information regarding the Company, its business and its
officers, directors, and promoters. The Undersigned has had an
opportunity to ask questions of and receive answers from duly
designated representatives of the Company concerning the terms and
conditions pursuant to which the Securities are being acquired by
it.
e. The Undersigned understands that its acquisition of the
Securities from the Company is a negotiated private transaction.
f. By reason of the knowledge and experience of the
Undersigned (and that of its officers and directors and their
respective advisors and investment bankers) in financial and
business matters in general, and investments in particular, it is
capable of evaluating the merits and risks of an investment in the
Securities.
g. The Undersigned is capable of bearing the economic risks
of an investment in the Securities.
h. The Undersigned's present financial condition is such
that it is under no present or contemplated future need to dispose
of any portion of the Securities to satisfy any existing or
contemplated undertaking, need or indebtedness.
i. If required to do so, it has retained to advise it, as to
the merits and risks of a prospective investment in the Securities,
a purchaser representative, legal counsel, financial and accounting
advisors, investment bankers, etc.
j. The Undersigned hereby represents and warrants to the
Company that all of the representations, warranties and
acknowledgements contained in this agreement, and the agreements,
if any, to which this document is attached as an exhibit are true,
accurate and complete as of the date herein and acknowledges that
the Company, its officers, directors, agents, and affiliates have
relied on its representations and warranties herein in consenting
to the restricted issuance and/or transfer of the Securities and
the Undersigned hereby agrees to indemnify and hold the Company
(together with its officers, directors, agents and affiliates)
harmless with respect to any and all expenses, claims or litigation
(including without limitation reasonable attorney's fees related
thereto) arising from or related to breach of this agreement
including without limitation breach of any warranty or
representation herein.
3. Restrictions. The Undersigned acknowledges and
understands that the Securities are unregistered and must be held
indefinitely by the Undersigned and/or its assignees unless they
are subsequently registered under the Act or an exemption from such
registration is available. The Undersigned further acknowledges
that it is fully aware of the applicable limitations on the resale
of the Securities. For instance, Rule 144 (the "Rule") permits
sales of "Restricted Securities" held for not less than two years
and upon compliance with the requirements of such Rule. Further,
the Securities must be sold in an active market and appropriate
information relating to the Company must be generally available in
order to effectuate a transaction pursuant to the Rule by an
affiliate of the Company. Any and all certificates representing
the Securities and any and all securities issued in replacement or
conversion thereof or in exchange thereof shall bear the following
legend, or one substantially similar thereto, which the Undersigned
has read and understands:
The Securities represented by this Certificate have not been
registered under the Securities Act of 1933 (the "Act") and
are "restricted securities" as that term is defined in Rule
144 under the Act. The Securities may not be offered for
sale, sold or otherwise transferred except pursuant to an
effective registration statement under the Act or pursuant to
an exemption from registration under the Act, the availability
of which is to be established to the satisfaction of the
Company.
4. Registration Rights. Subject to the approval of an
underwriter, if any, involved in a registration relating to a
public offering of the Company's securities, in the event that the
Company shall file a registration statement (or similar document)
with the U.S. Securities & Exchange Commission on a form which
would legally allow inclusion of the shares issued pursuant hereto,
the Company shall include such shares in such registration
statement, at the Company's sole cost.
5. Successors and Assigns. This agreement shall be binding
upon and shall inure to the benefit of the parties hereto and to
the successors and assigns of the Company and to the personal and
legal representatives, heirs, guardians, successors and permitted
assignees of the Undersigned.
6. Applicable Law. This agreement shall be governed by and
construed in accordance with the laws of the State of Colorado and,
to the extent it involves any United States statute, in accordance
with the laws of the United States, and jurisdiction and venue for
any dispute related hereto shall be in the District Court for the
City and County of Denver, Colorado.
Evergreen Resources, Inc. By: s/Mark Sexton
Typed or Printed Name Signature, President & CEO
84-0834147 1401 17th Street, Suite 1200
Social Security or Tax Address
Identification Number
Denver, Colorado 80202
City, State and Zip Code
ACCEPTED:
DELTA PETROLEUM CORPORATION
By: s/Aleron H. Larson, Jr.
Dated: December 30, 1998
OPTION
and
FIRST RIGHT OF REFUSAL
1. Option:
Effective January 1, 1999 for good and valuable consideration
the receipt of which is hereby acknowledged, Evergreen Resources,
Inc. ("Evergreen") is hereby granted an option ("Option"), until
September 30, 1999 to acquire 50% of those property interests owned
by Delta Petroleum Corporation ("Delta") which are listed on the
attached Exhibit A (the "Properties") by transferring to Delta the
194,444 shares purchased by Evergreen under an Investment
Representation Agreement of even date herewith. Delta will warrant
and defend title against all persons claiming title thereto through
Delta. In the event that Evergreen exercises its option to acquire
the Properties, Delta will assign 50% of its interest in the
Properties to Evergreen subject to its proportionate share of the
reserved production payment in favor of Burdette A. Ogle ("Ogle")
described in the copies of the documents attached hereto and listed
below (the "Documents").
The Documents provide for the reservation of an undivided
three percent (3%) of substances produced from the Properties
("Production Payment") until an aggregate amount of $8,000,000 (or
a reduced amount as provided in the Documents under certain
circumstances) has been paid to Ogle or his successors either from
any production attributable to the reserved 3% or the minimum
annual advanced payment ("Minimum Payment") discussed below. The
Documents further provide that, irrespective of whether the
Properties are producing or non-producing at any time, that Ogle
shall be paid a Minimum Payment in the amount of $350,000 per year.
This Minimum Payment may be composed of the proceeds from the
production of the reserved 3%, a direct cash payment or a
combination thereof. Upon exercise of its option, Evergreen will
assume and agree to pay the direct cash portion of the Minimum
Payment under the terms set forth in the Documents until the
production proceeds from the reserved 3% from 100% of the
Properties are adequate to cover the Minimum Payment. It is
provided, however, that Evergreen shall be responsible only for
payment of the cash portion of the Minimum Payment with respect to
the Properties and that the reserved Production Payment derived
from the reservation of an undivided three percent (3%) of
substances produced from the Properties shall burden and be paid
from 100% of the substances produced from the Properties equally
and proportionately regardless of ownership.
Delta represents that it has paid $1,200,000 to date in
Minimum Payments, thereby correspondingly reducing the maximum
aggregate amount due under the Production Payment from $8,000,000
to $6,800,000. Each successive payment shall further reduce the
remaining amount due under the Production Payment.
The following Document copies are attached hereto:
* Lease interests Purchase Option Agreement between Delta
and Ogle;
* Purchase and Sale Agreement between Delta and Ogle;
* Assignments from Ogle to Delta for interests in OCS-P409,
OCS-P0415,
OCS-P-0416, OCS-P0421, OCS-P0422, OCS-P0460, OCS-P0462,
and OCS-P464;
In the event Evergreen exercises its Option, the parties will
enter into agreements and assignments in the format of those
included in the attached Documents.
Until September 30, 1999, or the exercise of the Option,
whichever occurs first, Delta agrees: 1) that it will pay all costs
associated with or derived from the ownership of the Properties,
including payments to Ogle as provided in the attached Documents;
2) that it will not otherwise encumber the Properties or allow the
Properties to be encumbered in any fashion through operation of law
or otherwise except as is already provided in the attached
documents in favor of Ogle and his successors.
In the event of any failure by Delta to pay costs associated
with or derived from the ownership of the Properties or in the
event of the placement of any encumbrance upon the Properties,
Delta will notify Evergreen in writing within three business days
of such event. Upon such notification, Evergreen shall have the
option, but not the obligation, to pay such unpaid cost(s) or to
pay the funds necessary to prevent or remove any such encumbrance.
If Evergreen advances funds to Delta or directly to others for such
purposes, Delta will execute a twelve month promissory note in an
amount equal to the funds advanced with interest at ten percent
(10%) per annum in favor of Evergreen and the Properties shall
secure the repayment thereof under documentation customary in such
transactions.
2. Right of First Refusal:
In the event of a proposed sale or farmout by Delta of any of
its property interests in the offshore Santa Barbara area, Delta
agrees to afford Evergreen the right, within 30 days of written
notice by Delta to Evergreen, to purchase or farm into such
properties upon the same terms as those proposed; provided that
Evergreen must have exercised or must then exercise the above
described option.
Dated: December 30, 1998
DELTA PETROLEUM CORPORATION
s/Aleron H. Larson, Jr.
Authorized Officer,
Aleron H. Larson, Jr.,
Chairman, CEO
EVERGREEN RESOURCES, INC.
s/Mark S. Sexton
Authorized Officer, Mark S. Sexton,
President, CEO
AGGREGATE LIST OF OIL & GAS LEASES
SUBJECT TO RESERVED PRODUCTION PAYMENTS
1. San Miguel Field
OCS-P 0409: Oil and Gas Lease from the United States of America, as
Lessor, to Oxy Petroleum, Inc., et al, as Lessee, effective July 1,
1981, designated Serial No. OCS-P 0409 and covering all of Block
22, OCS Official Protraction Diagram NI 10-6, Santa Maria (Tract
53-182).
Leasehold Interest: 12.67169%
2. Point Sal Unit
OCS-P 0415: Oil and Gas Lease from the United States of America, as
Lessor, to Ogle Petroleum Inc., et al., as Lessee, effective July
1, 1981 designated Serial No. OCS-P 0415, and covering all of Block
66, OCS Official Protraction Diagram, NI 10-6, Santa Maria.
Leasehold Interest: 1.88682%
OCS-P 0416: Oil and Gas Lease from the United States of
America, as Lessor, to Ogle Petroleum Inc., et al., as
Lessee, effective July 1, 1981 designated Serial No. OCS-P
0416, and covering all of Block 67, OCS Official Protraction
Diagram, NI 10-6, Santa Maria.
Leasehold Interest: 3.03049%
OCS-P 0421: Oil and Gas Lease from the United States of America,
as Lessor, to Ogle Petroleum Inc., et al., as Lessee, effective
July 1, 1981 designated Serial No. OCS-P 0421, and covering all
of Block 110, OCS Official Protraction Diagram, NI 10-6, Santa
Maria.
Leasehold Interest: 1.88682%
OCS-P 0422: Oil and Gas Lease from the United States of America,
as Lessor, to Ogle Petroleum Inc., et al., as Lessee, effective
July 1, 1981 designated Serial No. OCS-P 0422, and covering all
of Block 111, OCS Official Protraction Diagram, NI 10-6, Santa
Maria.
Leasehold Interest: 4.50000%
5. Gato Canyon Unit
OCS-P 0460: Oil and Gas Lease from the United States of America, as
Lessor, to Atlantic Richfield Company, as Lessee, effective August
1, 1982, designated Serial No. OCS-P 046O, and covering all of
Block 53N 72W, that portion seaward of the Three Geographical Mile
Line, Channel Islands Area, OCS Leasing Map No. 6A.
Leasehold Interest: 1.52930%
OCS-P 0462: Oil and Gas Lease from the United States of America,
as Lessor, to Ogle Petroleum Inc., et al., as Lessee, effective
August 1, 1982, designated Serial No. OCS-P 0462, and covering
all of Block 52N 72W, Channel Islands Area, OCS Leasing Map No.
6A.
Leasehold Interest: 1.52930%
OCS-P 0464: Oil and Gas Lease from the United States of America,
as Lessor, to Atlantic Richfield Company, as Lessee, effective
August 1, 1982, designated Serial No. OCS-P 0464, and covering
all of Block 53N 71W, that portion seaward of the Three
Geographical Mile Line, Channel Islands Area, OCS Leasing Map No.
6B.
Leasehold Interest: 1.52930%
AGREEMENT
Effective as of December 17, 1998, Delta Petroleum Corporation
("Delta") and Burdette A. Ogle ("Ogle") agree as follows:
1) These parties are also parties to an agreement entitled
"Purchase and Sale Agreement" dated January 3, 1995 and to certain
agreements of conveyance related thereto each of which is entitled
"Assignment, Conveyance and Bill of Sale of Federal Oil and Gas
Leases Reserving a Production Payment", which are referenced herein
as the "Assignments".
2) The parties hereto agree that each of the Assignments
shall be amended so that Section II-10 thereof shall read as
follows:
10. Assignee may avoid the obligation of Section II-9 of
this Agreement to make minimum annual payments by
reassigning such Leases to Assignor or relinquishing such
Leases, all as provided in this Section II-10.
A. If Assignee shall desire to surrender one or more of
the Leases, it shall give Assignor written notice of its
intention to do so at least ninety days (90) prior to the
date on which Assignee proposes to surrender such Leases,
specifying the Leases, their locations, status, the
amount of monthly production, if any, operations proposed
or being actively consider for or with respect to such
Leases, the amount of any anticipated expenditures during
the following two years, if known to Assignee, and such
other information as would be considered relevant by a
reasonable and prudent operator. For a period which ends
five calendar days prior to the date of proposed
surrender specified in such notice, Assignor shall have
the right and option to require Assignee to assign such
Leases to Assignor, without consideration, by giving
written notice thereof to Assignee. If Assignor shall
elect to reacquire such Leases, Assignee shall promptly
thereafter reconvey such Leases to Assignor by an
instrument substantially the same as this Conveyance
(omitting therefrom this Section 10 and all references to
the Production Payment) and securing the approval of the
Minerals Management Service (or other agency then
authorized in the premises) to such reconveyance. Upon
the written notice of intention of such reassignment, the
obligation to make Minimum Payments shall terminate with
respect to the Leases so reconveyed, but shall not
terminate with respect to any other Leases.
B. If Assignor elects to reacquire any or all of the
leases to be surrendered, as provided in Section II-10A
above, then Assignee may elect to retain the ownership of
a portion of the subject lease or leases to be
reassigned, free and clear of the Production Payment and
related Minimum Payments, which portion retained by
Assignee shall be calculated as follows: beginning with
Minimum Payment paid on January 4, 1999 and for each
future Minimum Payment that is paid under Section II-9
hereof, Assignee may elect to reduce the portion of the
interest in the lease or leases so reassigned by 4.375%
out of 100% of the interest that would otherwise have
been reassigned.
C. If Assignor shall notify Assignee in writing that
Assignor does not elect or if Assignor shall fail to
elect to require Assignee to reassign to Assignor the
Leases specified in such notice, Assignee may relinquish
such Leases.
D. When Assignee has relinquished or reassigned to
Assignor all of the Leases subject to the Production
Payment, Assignee's obligation to make Minimum Payments
shall terminate.
E. If Assignee shall fail to relinquish the Leases
specified in a notice given under Section II-10 at the
time specified therein, the provisions of this section
shall again be applicable to such Lease.
3) In consideration of this agreement, Delta agrees to
reissue that certain warrant owned by Ogle for 100,000 shares of
Delta common stock with the exercise price reduced from $8.00 per
share to $3.00 per share, with the repurchase option reduced to
$6.00 and with the termination date extended from August 31, 1999
to August 31, 2004.
Delta Petroleum Corporation
By: s/Aleron H. Larson, Jr.
Authorized Officer
s/Burdette A. Ogle
Burdette A. Ogle
<TABLE> <S> <C>
<ARTICLE> 5
<S> <C>
<PERIOD-TYPE> 6-MOS
<FISCAL-YEAR-END> JUN-30-1999
<PERIOD-END> DEC-31-1998
<CASH> 523,474
<SECURITIES> 0
<RECEIVABLES> 153,832
<ALLOWANCES> 50,000
<INVENTORY> 0
<CURRENT-ASSETS> 894,061
<PP&E> 10,577,481
<DEPRECIATION> 1,411,563
<TOTAL-ASSETS> 10,497,637
<CURRENT-LIABILITIES> 721,459
<BONDS> 0
0
0
<COMMON> 57,759
<OTHER-SE> 9,718,419
<TOTAL-LIABILITY-AND-EQUITY> 10,497,637
<SALES> 306,906
<TOTAL-REVENUES> 1,385,793
<CGS> 0
<TOTAL-COSTS> 1,229,928
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 10,000
<INCOME-PRETAX> 155,865
<INCOME-TAX> 0
<INCOME-CONTINUING> 155,865
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 155,865
<EPS-PRIMARY> .03
<EPS-DILUTED> .02
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