U.S. 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 June 30, 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 0-20760
HORIZONTAL VENTURES, INC.
(Exact name of small business issuer as specified in its
charter)
COLORADO 84-1091986
(State or other jurisdiction (I.R.S. Employer
of incorporation of organization) Identification No.)
630 Fifth Avenue, Suite 1501, New York, NY 10111
(Address of principal executive office)
Issuer's telephone number: (212) 218-4680
Petro Union, Inc. d/b/a Horizontal Ventures, Inc.
575 Madison Avenue, Suite 1006
New York, NY 10022
(Former name, former address and former fiscal year, if changed
since last report)
Check whether the issuer (1) has filed all reports required
to be filed by Section 13 or 15(d) of the Exchange Act during the
past 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
APPLICABLE ONLY TO ISSUERS INVOLVED IN BANKRUPTCY
PROCEEDINGS DURING THE PRECEDING FIVE YEARS
Check whether the registrant filed all documents and
reports required to be filed by Section 12, 13, or 15(d) of the
Exchange Act after the distribution of securities under a plan
confirmed by court. Yes X No
APPLICABLE ONLY TO CORPORATE ISSUERS
State the number of shares outstanding of each of the
issuer's classes of common equity, as of the latest practicable
date:
Common Stock, no par value, outstanding at August 14, 1998:
1,570,981 shares
Transitional Small Business Disclosure Format (check one):
Yes No X
TABLE OF CONTENTS
PART I - FINANCIAL INFORMATION
Item 1. Financial Statements
Consolidated Balance Sheet as of June 30, 1998
(Unaudited)
Consolidated Statements of Operations for the
Three Months and Six Months Ended June 30, 1998
and 1997 (Unaudited)
Consolidated Statements of Cash Flows for the Six
Months Ended June 30, 1998 and 1997 (Unaudited)
Notes to Unaudited Consolidated Financial Statements,
June 30, 1998 and 1997 (Unaudited)
Item 2. Management's Discussion and Analysis
PART II - OTHER INFORMATION
Item 1. Legal Proceedings
Item 2. Changes in Securities and Use of Proceeds
Item 3. Defaults Upon Senior Securities
Item 4. Submission of Matters to a Vote of Security Holders
Item 5. Other Information
Item 6. Exhibits and Reports on Form 8-K
SIGNATURE
PART I - FINANCIAL INFORMATION
Item 1. Financial Statements.
HORIZONTAL VENTURES, INC.
CONSOLIDATED BALANCE SHEET
June 30, 1998 (UNAUDITED)
<TABLE>
<CAPTION>
ASSETS
<S> <C>
CURRENT ASSETS:
CASH AND CASH EQUIVALENTS $1,415,388
ACCOUNTS RECEIVABLE:
TRADE, NET OF ALLOWANCE FOR
DOUBTFUL ACCOUNTS OF $74,092 14,009
_______________
TOTAL CURRENT ASSETS 1,429,397
_______________
PROPERTIES AND EQUIPMENT,
AT COST, NET OF ACCUMULATED DEPRECIATION
AND DEPLETION OF $707,292 7,733,361
_______________
OTHER ASSETS:
DEPOSITS, PREPAYMENTS, AND
DEFERRED CHARGES 300,764
_______________
TOTAL ASSETS $9,463,522
================
LIABILITIES AND STOCKHOLDERS' EQUITY (DEFICIT)
LIABILITIES:
CURRENT LIABILITIES:
CURRENT MATURITIES OF LONG TERM NOTES $ 15,771
ACCOUNTS PAYABLE AND ACCRUED EXPENSES 115,168
OTHER CURRENT LIABILITIES 8,834
________________
TOTAL CURRENT LIABILITIES 139,773
________________
NONCURRENT LIABILITIES:
LONG TERM NOTES PAYABLE, NET
OF CURRENT MATURITIES 58,318
________________
TOTAL LIABILITIES 198,091
_________________
COMMITMENTS AND CONTINGENCIES -
STOCKHOLDERS' EQUITY (DEFICIT):
COMMON STOCK, NO PAR VALUE,
50,000,000 SHARES AUTHORIZED,
1,570,981 SHARES ISSUED AND
OUTSTANDING 11,672,519
ACCUMULATED DEFICIT (2,407,088)
________________
TOTAL STOCKHOLDERS' EQUITY 9,265,431
_________________
TOTAL LIABILITIES AND
STOCKHOLDERS' EQUITY $9,463,522
==================
</TABLE>
The accompanying notes are an integral part of these statements.
HORIZONTAL VENTURES, INC.
CONSOLIDATED STATEMENTS OF OPERATIONS
FOR THE THREE MONTHS AND SIX MONTHS ENDED
JUNE 30, 1998 AND 1997
(UNAUDITED)
<TABLE>
<CAPTION>
THREE MONTHS ENDED SIX MONTHS ENDED
JUNE 30, JUNE 30,
1998 1997 1998 1997
<S> <C> <C> <C> <C>
REVENUE $86,970 $25,847 $121,659 $129,165
COST OF REVENUE 30,381 37,964 64,553 113,864
GROSS PROFIT 56,590 (12,117) 57,106 15,301
GENERAL AND
ADMINISTRATIVE
EXPENSES 436,482 58,997 829,897 172,086
INCOME (LOSS)
FROM OPERATIONS (379,892) (71,114) (772,791) (156,785)
OTHER INCOME
(EXPENSES) 15,009 (44,209) 49,603 (36,365)
INCOME (LOSS)
BEFORE TAXES
ON INCOME (364,884) (115,323) (723,188) (193,150)
PROVISION FOR
INCOME TAXES - - - -
NET INCOME
(LOSS) $(364,884) $(115,323) $(723,188) $(193,150)
NET EARNINGS
(LOSS) PER
COMMON SHARE $(0.23) $(0.15) $(0.46) $(.025)
AVERAGE SHARES
OUTSTANDING USED
FOR COMPUTATION
OF EARNINGS
(LOSS) PER
SHARE 1,570,981 759,460 1,570,981 759,460
</TABLE>
The accompanying notes are an integral part of these statements.
HORIZONTAL VENTURES, INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS
FOR THE SIX MONTHS ENDED JUNE 30, 1998 AND 1997
(UNAUDITED)
<TABLE>
<CAPTION>
SIX MONTHS ENDED JUNE 30,
1998 1997
<S> <C> <C>
CASH FLOWS FROM OPERATING
ACTIVITIES:
NET (LOSS) $(723,188) $(193,150)
ADJUSTMENTS TO RECONCILE
NET LOSS TO CASH PROVIDED
(USED) BY OPERATIONS:
DEPRECIATION, DEPLETION
AND AMORTIZATION 109,366 93,324
(GAIN) LOSS ON SALE OF ASSETS - 21,062
STOCK AND PARTNERS' CAPITAL
INTEREST ISSUED FOR SERVICES - 300
CHANGE IN ACCOUNTS RECEIVABLE 3,173 45,740
CHANGE IN INTERESTS RECEIVABLE 3,433 -
CHANGE IN PAYMENT IN ADVANCE (8,669) 6,668
CHANGE IN ACCOUNTS PAYABLE (150,579) (28,898)
CHANGE IN OTHER LIABILITIES (681,011) -
NET CASH (USED) BY OPERATING
ACTIVITIES (1,447,476) (54,954)
CASH FLOWS FROM INVESTING
ACTIVITIES:
(INCREASE) IN PROPERTY
AND EQUIPMENT (1,033,692) (82,980)
INCREASE IN DEPOSITS (101,771) -
INCREASE IN ACCOUNTS RECEIVABLE,
PETRO UNION, INC. - (9,170)
PROCEEDS FROM SALE OF PROPERTY
AND EQUIPMENT - 55,181
NET CASH (USED) BY INVESTING
ACTIVITIES (1,135,463) (36,969)
CASH FLOWS FROM FINANCING
ACTIVITIES:
PROCEEDS FROM COMMON STOCK - NET 84,446 154,858
PROCEEDS FROM PREFERRED STOCK-NET - 30,000
INCREASE IN DUE TO RELATED PARTIES - 60,478
CHANGE IN CUSTOMER PAYMENTS
RECEIVED IN ADVANCE - (30,000)
REPAYMENT OF NOTES PAYABLE (18,768) (119,346)
NET CASH PROVIDED BY FINANCING
ACTIVITIES 65,678 95,990
NET INCREASE (DECREASE) IN CASH
AND CASH EQUIVALENTS (2,517,260) 4,067
CASH AND CASH EQUIVALENTS:
BEGINNING OF PERIOD 3,932,647 6,458
END OF PERIOD 1,415,388 10,525
NET INCREASE (DECREASE) IN
CASH AND CASH EQUIVALENTS $(2,517,260) $4,067
</TABLE>
The accompanying notes are an integral part of these statements.
HORIZONTAL VENTURES, INC.
Notes to Unaudited Consolidated Financial Statements
June 30, 1998 and 1997
(Unaudited)
NOTE 1 - THE COMPANY:
Horizontal Ventures, Inc., a Colorado corporation (the "Company"),
is engaged in the development of oil and gas properties for its own
account and the contract drilling of oil and gas wells. On July
13, 1998, the Company amended its Articles of Incorporation to
change its name from Petro Union, Inc. d/b/a Horizontal Ventures,
Inc. to Horizontal Ventures, Inc.
NOTE 2 - SIGNIFICANT ACCOUNTING POLICIES:
Basis of presentation - The consolidated financial statements
include the accounts of the Company and its wholly owned
subsidiaries, HVI Cat Canyon, Inc., a Colorado corporation, and
Calox, Inc. All significant intercompany accounts and transactions
have been eliminated.
The results for the interim periods presented herein are not
necessarily indicative of the results of operations that may be
expected for the upcoming quarters. In the opinion of management,
the information furnished reflects all adjustments necessary (which
all are of a normal recurring nature) for a fair presentation of
the Company's financial position as of June 30, 1998, and the
results of its operations and cash flows for the interim periods
ended June 30, 1998 and 1997.
The financial statements for the interim periods have been prepared
pursuant to the rules and regulations of the Securities and
Exchange Commission. Certain information and footnote disclosures
normally included in financial statements prepared in accordance
with generally accepted accounting principles have been condensed
or omitted pursuant to such rules and regulations. The financial
statements presented herein should be read in conjunction with the
financial statements for the year ended December 31, 1997 included
in the Company's 1997 Annual Report on Form 10-KSB.
The Company, then named Petro Union, Inc. ("PUI"), was a debtor in
possession under Chapter 11 of the U.S. Bankruptcy Code until
August 28, 1997, at which time the Bankruptcy Court approved its
plan of reorganization. As a part of its plan of reorganization,
PUI agreed to acquire all the outstanding stock of Horizontal
Ventures, Inc., an Oklahoma corporation ("HVI-Oklahoma"). The
acquisition of HVI-Oklahoma was completed on September 9, 1997, and
after the acquisition, HVI-Oklahoma shareholders owned more than
50% of the outstanding shares of PUI. Pursuant to the rules of the
Securities and Exchange Commission, the transaction was accounted
for as a "reverse merger." Accordingly, the accompanying
consolidated statements of operations and consolidated statements
of cash flows reflect the historical operations and cash flows of
HVI-Oklahoma (including those of PUI after September 9, 1997, the
effective date of the merger), whereas quarterly reports filed by
the Company prior to September 9, 1997 reflected operations and
cash flows of PUI. Subsequently, HVI-Oklahoma was merged with and
into the Company.
Certain reclassifications have been made to the 1997 amounts to
conform to the 1998 presentation.
Earnings per share - Earnings per share for the three months and
six months ended June 30, 1998 and 1997 have been calculated based
on the average number of shares outstanding during such periods.
NOTE 3 - CONTINGENCIES:
At June 30, 1998, the Company was the plaintiff in a lawsuit
against David J. LaPrade, a shareholder, former officer and
director, and an organizer of HVI-Oklahoma, and Mr. LaPrade's
current employer. The Company seeks to recover losses from the
alleged breach of fiduciary duty, misappropriating confidential
information and property of the Company, using it in unfair
competition with the Company, interfering with the Company's
existing and prospective relationships with its customers,
interfering with the Company's relationships with its employees,
and conversion of Company property. Mr. LaPrade has made
counterclaims against the Company for breach of his employment
agreement, libel and slander, and intentional infliction of
emotional distress; he seeks actual damages in excess of $10,000
and punitive damages in an unspecified amount. Management
believes that its claims against Mr. LaPrade will be successful
and that it will recover damages; moreover, management believes
that the ultimate outcome of Mr. LaPrade's counterclaim will not
have a material adverse effect on the Company's financial
condition, results of operations or cash flows. The accompanying
financial statements do not include a provision for any loss which
might result from Mr. LaPrade's counterclaim, nor do they include
any asset that might result from the Company's claims against Mr.
LaPrade.
NOTE 4 - SUBSEQUENT EVENTS:
On July 13, 1998, the Company amended its Articles of Incorporation
to among other things authorize the issuance of 50,000,000 shares
of no par value preferred stock with rights and preferences as the
Company's Board of Directors may determine.
<PAGE>
PART I (CONTINUED)
Item 2. Management's Discussion and Analysis
Overview
The Company's final accounting of the bankruptcy case was
accepted and the case was closed by the Bankruptcy Court for the
Southern District of Indiana on March 26, 1998. This marked the
end of almost a year of re-structuring by the Company. Management
spent a considerable amount of its time in this process and
intends to now focus on implementing its business strategy
hereon.
The results of the second quarter ended June 30, 1998, as
planned, relate to the Company's internal drilling program in
California and thus reflect the investment phase. In the view of
management, the current financials statements are not indicative
of the Company's potential and business plan. Over the last
year, the Company has re-structured both corporately and
internally and successfully implemented its horizontal technology
in the reservoirs in California and thus been in an investment
phase. This investment into its pilot program in California has
proven the technical and financial benefits of the Company's
technology in those reservoirs. Management expects this
investment to be rewarded as a result of an acquisition or joint
venture whereby this pilot program is implemented on a
significantly larger scale. The Company's current cost structure
can support three operative drilling crews in the field without
any additional capital. Thus management is focused on deploying
its crews to the field on either its own properties through an
acquisition or under a joint venture program.
In the first half of 1998, the Company drilled three horizontal
wells namely, UCB-09, UCB-38 and UCB-28. Each well was drilled
successfully utilizing the Company's Short radius technology and
resulted in a 47 ft radius with a 435 ft lateral on UCB-09, a
60ft radius with a 414 ft lateral on UCB-38 and a 50ft radius
with a 252 ft lateral on UCB-28. In view of the Company's long-
term strategy and the known sand problem in the Cat Canyon basin,
the Company completed each well with a different technique to
establish the standard. UCB-09 was completed with a standard Ace
down-hole pump and a KD system; UCB-38 with a KUDU pump while
UCB-28 was completed with a Ace Teflon-Luber Plunger down-hole
pump. The kick-off point (KOP) for each well was at a depth of
2,940-3,000 ft.
The variances in the completions proved to be extremely
successful as the Company attained direct experience on the
production capability from each of the techniques. UCB-09
production stabilized at 20 BOPD, UCB-38 got sanded up following
a few weeks of production while UCB-28 produces a net of 65 BOPD.
Each of these wells were re-entries into an abandoned well bore
in the Sisquoc formation which is one of the two pay zones within
the Company's lease in the Cat Canyon basin. Following this
successful drilling operation and completion technique
definition, the Company intends to resume its drilling program
early in the fourth quarter of 1998 to achieve its 500 BOPD
objective by year-end.
This Quarterly Report on Form 10-QSB includes certain statements
that may be deemed to be "forward-looking statements" within the
meaning of Section 27A of the Securities Act of 1933, as amended,
and Section 21E of the Securities Exchange Act of 1934, as
amended. All statements, other than statements of historical
facts, included in this Form 10-QSB that address activities,
events or developments that the Company expects, believes or
anticipates will or may occur in the future, including such
matters as future capital, development and exploration
expenditures (including the amount and nature thereof), drilling
of wells, reserve estimates (including estimates of future net
revenues associated with such reserves and the present value of
such future net revenues), future production of oil and gas,
repayment of debt, business strategies, expansion and growth of
the Company's operations and other such matters are forward-
looking statements. These statements are based on certain
assumptions and analyses made by the Company in light of its
experience and its perception of historical trends, current
conditions, expected future developments and other factors it
believes are appropriate in the circumstances. Such statements
are subject to a number of assumptions, risks and uncertainties,
general economic and business conditions, the business
opportunities (or lack thereof) that may be presented to and
pursued by the Company, changes in laws or regulations and other
factors, many of which are beyond the control of the Company.
Readers are cautioned that any such statements are not guarantees
of future performance and that actual results or developments may
differ materially from those projected in the forward-looking
statements.
The sharp decline (over 50%) in the oil prices during the first
half of 1998 had a negative effect on the Company's revenues. As
the Company has successfully stabilized its lifting costs to
under $4 per barrel from over $6 per barrel, the Cat Canyon
operation continues to be profitable.
The Company re-organized its management team at the end of March
1998 to better poise itself in implementing its two-prong
(exploitation and contract drilling) business strategy. The
Evansville offices were closed in late April and all operations
are now based in Tulsa in an effort to reduce G&A expenses and
consolidate operations.
As per the Company's business strategy, management is actively
pursuing acquisitions and currently is involved in due diligence
on one. Management expects to complete its first acquisition in
the third quarter. The acquisition, if completed, will add
production, drilling sites and cash flow to the Company and is
expected to positively affect liquidity.
The down turn in oil prices in the first half of 1998 has
deferred the drilling programs of some of the Company's
prospective contract drilling clients. Clients that had planned
to start drilling late second/early third quarter have now
indicated a desire to defer such programs into the fourth quarter
to observe the oil prices closer.
In view of the vast differences between the Company's structure
in the three months and six months ended June 30, 1997 and that
in the comparable periods ended June 30, 1998, the results of
operations comparisons are considered by management to be not
representative of the Company's potential. The liquidity
comparisons reflect the successful re-structuring process
accomplished by the management over the last nine months. The
management does not foresee any additional capital requirements
to continue its on-going operations through next year.
Results of Operations
Comparison of Three-Month Periods Ended June 30, 1998 and 1997
Revenues increased from $25,847 in the second quarter of 1997 to
$86,970 in the second quarter of 1998. Second quarter 1998
revenues were from oil production at the recently acquired field
in California and timber sales from its Indiana properties. The
Company commenced its contract drilling sales activities in the
second quarter of 1998 following over a year of not promoting its
services during the corporate restructuring process.
Cost of Revenue decreased from $37,964 in the second quarter of
1997 to $30,381 in the second quarter of 1998. Planned drilling
operations in California account for most of the expenses, and
the decrease as compared to the increase in revenues was
primarily attributable to the timber sales.
General and Administration expenses increased from $58,997 in the
second quarter of 1997 to $436,482 in the second quarter of 1998.
Considerable re-structuring with the closing of the Evansville
offices reduced the General and Administration expenses from the
first quarter as the offices were closed in April. The benefit
of this reduction is expected to be positively reflected in the
upcoming quarters.
Comparison of Six Month Periods Ended June 30, 1998 and 1997
Revenues decreased from $129,165 in the first half of 1997 to
$121,659 in the first half of 1998. First half 1998 revenues were
from oil production at the recently acquired field in California.
The decline in oil prices of over 50% coupled with the El Nino
storms that essentially shut the field down during February 1998
caused the revenues to be lower than initially projected.
Furthermore, two of the three horizontal wells drilled by the
Company attributed to a small percentage of the total production
as they were put on production late in the first quarter of 1998.
The Company commenced its contract drilling activities in the
second quarter of 1998 following over a year of not promoting its
services during the corporate restructuring process.
Cost of Revenue decreased from $113,864 in the first half of 1997
to $64,553 in the first half of 1998. Planned drilling operations
in California account for most of the expenses and are not
proportional to the revenues, as the three horizontal wells
drilled were not in production during the entire first half of
1998. Additionally, there was considerable El Nino-created
remedial repair expenses incurred during the month of February
1998.
General and Administration expenses increased from $172,086 in
the first half of 1997 to $829,897 in the first half of 1998. 33%
of the expenses were related to payroll. 25% of the expenses were
related to legal, accounting and consultant fees primarily
involved with year-end reporting and filing requirements. General
and Administration expenses are expected to remain relatively
consistent with the start-up of the contract drilling operations
in the upcoming quarters.
Liquidity and Capital Resources
At the end of the second quarter, the Company's liquid assets
consisting of cash and cash equivalents were $1,415,388 while
current liabilities were $139,773. The $1,857,319 decrease in
working capital from December 31, 1997 to June 30, 1998 was
primarily attributable to the Company's drilling program in its
Cat Canyon field in California and the final payment on the Cat
Canyon field. Additionally, in the first quarter of 1998 the
Company settled the previously-reported Gwartney litigation for
$25,000. Long-term liabilities as of June 30, 1998 were $58,318.
The Company expects the current liquidity to be sufficient to
support the on-going operations through next year without any
additional funding requirements.
Inflation
The Company does not believe that inflation will have a material
impact on the Company's future operations.
Year 2000 Issue
The Company does not utilize any proprietary computer software.
Instead, it uses commercially available software programs from
vendors such as Microsoft Corporation and Peachtree. The Company
has been advised that the software it uses is Year 2000
compliant. Accordingly, the Company does not expect to incur
significant expense in converting software to be Year 2000
compliant.
PART II - OTHER INFORMATION
Item 1. Legal Proceedings
As previously reported in the Company's 1997 Annual Report on
Form 10-KSB, on March 11, 1997 HVI-Oklahoma commenced a lawsuit
in the District Court for Tulsa County, Oklahoma against David J.
LaPrade, a shareholder, former officer and director, and an
organizer of the HVI-Oklahoma, and Mr. LaPrade's current
employer. The Company seeks to recover losses from alleged breach
of fiduciary duty, misappropriating confidential information and
property of the Company, using it in unfair competition with the
Company, interfering with the Company's existing and prospective
relationships with its customers, interfering with the Company's
relationships with its employees, and conversion of the Company
property. Mr. LaPrade has made counterclaims against the Company
for breach of his employment agreement, libel and slander, and
intentional infliction of emotional distress; he seeks actual
damages in excess of $10,000 and punitive damages in an
unspecified amount. As of June 30, 1998, the lawsuit was still
pending. The Company believes that the ultimate outcome of this
litigation will not have a material adverse effect on the
Company's financial condition, results of operations or cash
flows.
Item 2. Changes in Securities and Use of Proceeds
None.
Item 3. Defaults upon Senior Securities
None.
Item 4. Submission of Matters to a Vote of Security Holders
On July 2, 1998, the Company held its annual meeting of
shareholders. At that meeting the following matters were voted
upon as indicated below:
1. Election of the following directors to serve
during the ensuing year or if the staggered terms proposal
passes, until their successors are elected and qualified.
For Withheld
Randeep S. Grewal 1,168,203 634
Dr. Jan F. Holtrop 1,168,170 667
George C. Andrews 1,168,203 634
Dirk Van Keulen 1,168,171 666
Donald A. Christensen 1,168,204 633
2. Adoption of the Company's Amended and Restated
Articles of Incorporation containing the following provisions:
(i) Changing the name of the Company to Horizontal Ventures,
Inc.; (ii) Providing for the number of Directors to be
established by the Bylaws and further providing for staggered
terms for the Company's Directors; (iii) Authorizing the issuance
of 50,000,000 shares of no par value preferred stock with rights
and preferences as the Board of Directors may determine; (iv)
Changing voting requirements to: (a) reduce the voting
requirement for shareholder actions initiated by the Board of
Directors; and (b) increase the voting requirement for
shareholder actions not initiated by the Board of Directors; and
(v) reducing the quorum requirement from shares representing a
majority of the outstanding voting rights to shares representing
one-third of the outstanding voting rights.
For: 914,430
Against: 4,285
Abstain: 146
Broker non-votes: 249,976
3. Approval of the Horizontal Ventures, Inc. Non
Qualified Stock Option Plan.
For: 911,322
Against: 2,455
Abstain: 5,084
Broker non-votes: 249,976
4. Authorization of the Board of Directors to issue
up to 1,000,000 shares of the Company's no par value common or
preferred stock for equity offerings both private and public and
for the acquisition of assets or businesses.
For: 915,717
Against: 3,048
Abstain: 96
Broker non-votes: 249,976
Item 5. Other Information
None.
Item 6. Exhibits and Reports on Form 8-K
(a) Exhibits
Exhibit No. Description
3A Restated Articles of Incorporation
27 Financial Data Schedule
(b) Reports on Form 8-K
During the quarter for which this report is filed, the
Company did not file any Reports on Form 8-K.
SIGNATURE
In accordance with requirements of the Exchange Act, the
Registrant has duly caused this report to be signed on its behalf
by the undersigned, thereunto duly authorized.
HORIZONTAL VENTURES, INC.
Date: August 14, 1998 by: /S/ RANDEEP S. GREWAL
Randeep S. Grewal, Chief
Executive Officer
<TABLE> <S> <C>
<ARTICLE> 5
<S> <C>
<PERIOD-TYPE> 6-MOS
<FISCAL-YEAR-END> DEC-31-1998
<PERIOD-END> JUN-30-1998
<CASH> 1,415,388
<SECURITIES> 0
<RECEIVABLES> 88,101
<ALLOWANCES> (74,092)
<INVENTORY> 0
<CURRENT-ASSETS> 1,429,397
<PP&E> 8,440,653
<DEPRECIATION> (707,292)
<TOTAL-ASSETS> 9,463,522
<CURRENT-LIABILITIES> 139,773
<BONDS> 58,318
0
0
<COMMON> 11,672,519
<OTHER-SE> (2,407,088)
<TOTAL-LIABILITY-AND-EQUITY> 9,463,522
<SALES> 121,659
<TOTAL-REVENUES> 176,956
<CGS> 64,553
<TOTAL-COSTS> 64,553
<OTHER-EXPENSES> 829,897
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 5,694
<INCOME-PRETAX> (723,188)
<INCOME-TAX> 0
<INCOME-CONTINUING> (723,188)
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (723,188)
<EPS-PRIMARY> (0.46)
<EPS-DILUTED> (0.46)
</TABLE>
EXHIBIT 3A
RESTATED ARTICLES OF INCORPORATION
OF
HORIZONTAL VENTURES, INC.
FIRST: The name of the corporation is Horizontal Ventures, Inc.
SECOND: The corporation shall have perpetual existence.
THIRD: (a) Purposes. The nature, objects and purposes of the
business to be transacted shall be to transact all lawful business for which
corporations may be incorporated pursuant to the Colorado Business Corporation
Act.
(b) Powers. In furtherance of the foregoing purposes, the
corporation shall have and may exercise all of the rights, powers and
privileges now or thereafter conferred upon corporations organized under the
laws of Colorado. In addition, it may do everything necessary, suitable or
proper for the accomplishment of any of its corporation purposes.
FOURTH: (a) The aggregate number of shares which the corporation
shall have authority to issue is 50,000,000 shares of common stock having no
par value and 50,000,000 shares of preferred stock having no par value. The
shares of common stock shall have unlimited voting rights and shall constitute
the sole voting group of the corporation, except to the extent any additional
voting group or groups may hereafter be established in accordance with the
Colorado Business Corporation Act. The board of directors of the corporation,
by way of a unanimous vote, is authorized, subject to limitations prescribed
by law and the provisions of these Restated Articles of Incorporation, to
provide for the issuance of the shares of preferred stock in classes or
series, to establish or change the number of shares to be included in each
class or series, and to fix the designation, relative rights and preferences
and limitations of the shares of each class or series.
(b) Each shareholder of record shall have one vote for
each share of stock standing in his name on the books of the corporation and
entitled to vote, except that in the election of directors, each shareholder
shall have as many votes for each share held by him as there are directors to
be elected and for whose election the shareholder has the right to vote.
Cumulative voting shall not be permitted in the election of directors or
otherwise.
(c) At all meetings of shareholders, one-third of the
shares of a voting group entitled to vote at such meeting, represented in
person or by proxy, shall constitute a quorum of that voting group.
(d) Except as otherwise required by law, matters initiated
by the board of directors shall require for approval that the votes cast in
favor of the matter within each voting group exceed the votes cast against the
matter at a meeting in which a quorum is present. Except as otherwise
required by law, matters not initiated by the board of directors shall require
for approval the affirmative vote of two thirds of all votes entitled to be
cast within each voting group except that a shareholder initiative to remove a
director shall require only a simple majority vote of those shareholders
present in person or by proxy assuming there is a quorum.
(e) No shareholder of the corporation shall have any
preemptive or other right to subscribe for any additional unissued or treasury
shares of stock or for other securities of any class, or for rights, warrants
or options to purchase stock, or for scrip, or for securities of any kind
convertible into stock or carrying stock purchase warrants or privileges.
FIFTH: (a) The number of directors of the corporation shall be
fixed by the bylaws and shall be divided into three groups with staggered
terms. Each group shall contain one-third the total number of directors, as
near as may be. The initial board of directors upon filing these Restated
Articles of Incorporation with the Secretary of State of Colorado shall
consist of four directors divided into three groups as follows: Class A shall
consist of one director designated as the Chairman of the Board; Class B shall
consist of two directors, including the director designated as the Vice
Chairman of the Board; Class C shall consist of the remaining two directors.
The terms of the Class C directors expire at the first annual shareholders
meeting after their election. The terms of the Class B directors expire at
the second annual shareholders meeting after their election. The term of the
Class C director expires at the third annual shareholders meeting after his
election. Following the expiration of their initial terms, directors shall be
elected for terms of three years to succeed those whose terms expire.
(b) The initial directors in each class shall be as
follows:
Class A
Randeep S. Grewal 10815 Briar Forest Drive
Houston, Texas 77042
Class B
Dr. Jan F. Holtrop Van Alkemadelaan
2596 AS The Hague
The Netherlands
George Andrews 7899 West Frost Drive
Littleton, CO 80123
Class C
Dirk Van Keulen Heemraadslag 14
2805 DP Gouda
The Netherlands
Donald A. Christensen 48 South Evanston Way
Aurora, Colorado 80012
(c) One or more directors may be removed by the
shareholders with or without cause in the manner provided by the Colorado
Business Corporation Act.
SIXTH: The address of the initial registered office of the
corporation is 1700 Lincoln Street, Suite 1800, Denver, Colorado 80203. The
name of its initial registered agent at such address is Roger V. Davidson,
Esq. The corporation may conduct part or all of its business in any other
part of Colorado, of the United States or of the world. It may hold,
purchase, mortgage, lease and convey real and personal property in any of such
places.
SEVENTH: The address of the principal office of the corporation is 575
Madison Ave., Suite 1006, New York, New York 10022.
EIGHTH: The following provisions are inserted for the management of
the business and for the conduct of the affairs of the corporation, and the
same are in furtherance of and not in limitation or exclusion of the powers
conferred by law.
(a) Conflicting Interest Transactions. As used in this
paragraph, "conflicting interest transaction" means any of the following: (i)
a loan or other assistance by the corporation to a director of the corporation
or to an entity in which a director of the corporation is a director or
officer or has a financial interest; (ii) a guaranty by the corporation of an
obligation of a director of the corporation or of an obligation of an entity
in which a director of the corporation is a director or officer or has a
financial interest; or (iii) a contract or transaction between the corporation
and a director of the corporation or between the corporation and an entity in
which a director of the corporation is a director or officer or has a
financial interest. No conflicting interest transaction shall be void or
voidable, be enjoined, be set aside or give rise to an award of damages or
other sanctions in a proceeding by a shareholder or by or in the right of the
corporation, solely because the conflicting interest transaction involves a
director of the corporation or an entity in which a director of the
corporation is a director or officer or has a financial interest, or solely
because the director is present at or participates in the meeting of the
corporation's board of directors or of the committee of the board of directors
which authorizes, approves or ratifies a conflicting interest transaction, or
solely because the director's vote is counted for such purpose if: (A) the
material facts as to the director's relationship or interest and as to the
conflicting interest transaction are disclosed or are known to the board of
directors or the committee, and the board of directors or committee in good
faith authorizes, approves or ratifies the conflicting interest transaction by
the affirmative vote of a majority of the disinterested directors, even though
the disinterested directors are less than a quorum; or (B) the material facts
as to the director's relationship or interest and as to the conflicting
interest transaction are disclosed or are known to the shareholders entitled
to vote thereon, and the conflicting interest transaction is specifically
authorized, approved or ratified in good faith by a vote of the shareholders;
or (C) a conflicting interest transaction is fair as to the corporation as of
the time it is authorized, approved or ratified by the board of directors, a
committee thereof or the shareholders. Common or interested directors may be
counted in determining the presence of a quorum at a meeting of the board of
directors or of a committee which authorizes, approves or ratifies the
conflicting interest transaction.
(b) Loans and Guaranties for the Benefit of Directors.
Neither the board of directors nor any committee thereof shall authorize a
loan by the corporation to a director of the corporation or to an entity in
which a director of the corporation is a director or officer or has a
financial interest, or a guaranty by the corporation of an obligation of a
director of the corporation or of an obligation of an entity in which a
director of the corporation is a director or officer or has a financial
interest, until at least ten days after written notice of the proposed
authorization of the loan or guaranty has been given to the shareholders who
would be entitled to vote thereon if the issue of the loan or guaranty were
submitted to a vote of the shareholders. The requirements of this paragraph
(b) are in addition to, and not in substitution for, the provisions of
paragraph (a) of Article EIGHTH.
(c) Indemnification. The corporation shall indemnify, to
the maximum extent permitted by law, any person who is or was a director,
officer, agent, fiduciary or employee of the corporation against any claim,
liability or expense arising against or incurred by such person made party to
a proceeding because he is or was a director, officer, agent, fiduciary or
employee of the corporation or because he is or was serving another entity as
a director, officer, partner, trustee, employee, fiduciary or agent at the
corporation's request. The corporation shall further have the authority to
the maximum extent permitted by law to purchase and maintain insurance
providing such indemnification.
(d) Limitation on Director's Liability. No director of
this corporation shall have any personal liability for monetary damages to the
corporation or its shareholders for breach of his fiduciary duty as a
director, except that this provision shall not eliminate or limit the personal
liability of a director to the corporation or its shareholders for monetary
damages for: (i) any breach of the director's duty of loyalty to the
corporation or its shareholders; (ii) acts or omissions not in good faith or
which involve intentional misconduct or a knowing violation of law; (iii)
voting for or assenting to a distribution in violation of Colorado Revised
Statutes section 7-106-401 or these Restated Articles of Incorporation if it
is established that the director did not perform his duties in compliance with
Colorado Revised Statutes section 7-108-401, provided that the personal
liability of a director in this circumstance shall be limited to the amount of
the distribution which exceeds what could have been distributed without
violation of Colorado Revised Statutes section 7-106-401 or these Restated
Articles of Incorporation; or (iv) any transaction from which the director
directly or indirectly derives an improper personal benefit. Nothing
contained herein will be construed to deprive any director of his right to all
defenses ordinarily available to a director nor will anything herein be
construed to deprive any director of any right he may have for contribution
from any other director or other person.
(e) Negation of Equitable Interests in Shares or Rights.
Unless a person is recognized as a shareholder through procedures established
by the corporation pursuant to Colorado Revised Statutes section 7-107-204 or
any similar law, the corporation shall be entitled to treat the registered
holder of any shares of the corporation as the owner thereof for all purposes
permitted by the Colorado Business Corporation Act including without
limitation all rights deriving from such shares, and the corporation shall not
be bound to recognize any equitable or other claim to or interest in such
shares or rights deriving from such shares on the part of any other person,
including without limitation a purchaser, assignee or transferee of such
shares, unless and until such other person becomes the registered holder of
such shares or is recognized as such, whether or not the corporation shall
have either actual or constructive notice of the claimed interest of such
other person. By way of example and not of limitation, until such other
person has become the registered holder of such shares or is recognized
pursuant to Colorado Revised Statutes section 7-107-204 or any similar
applicable law, he shall not be entitled: (i) to receive notice of the
meetings of the shareholders; (ii) to vote at such meetings; (iii) to examine
a list of the shareholders; (iv) to be paid dividends or other distributions
payable to shareholders; or (v) to own, enjoy and exercise any other rights
deriving from such shares against the corporation. Nothing contained herein
will be construed to deprive any beneficial shareholder, as defined in
Colorado Revised Statutes section 7-113-101(1), of any right he may have
pursuant to Article 113 of the Colorado Business Corporation Act or any
subsequent law.
