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 October 31, 1998
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
Commission file number 0-9800
LYRIC INTERNATIONAL, INC.
(Exact name of small business issuer as specified in its charter)
Colorado 75-1711324
(State or other jurisdiction (I.R.S. Employer Identification No.)
of incorporation or organization)
16775 Addison Road, Suite 300, Dallas, Texas 75248
(Address of principal executive offices)
(972) 713-6050
(Issuer's telephone number)
Check whether the issuer (1) filed all reports required to be filed by
Sections 13 or 15(d) of the Securities 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 CORPORATE ISSUERS
State the number of shares outstanding of each of the issuer's classes of
common equity as of the latest practicable date: 1,041,969 shares of common
stock as of December 18, 1998.
Transitional Small Business Disclosure Format (check one);
Yes....... No...X....
Index to Quarterly Report on Form 10Q-SB
PART I - FINANCIAL INFORMATION
Item 1. Financial Statements.
Report on Review by Independent Certified
Public Accountants
Consolidated Balance Sheets as of October 31, 1998
and April 30, 1998
Consolidated Statements of Operations for the Three
and Six Months Ended October 31, 1998 and 1997 and
Cumulative Period During the Development Stage
Consolidated Statement of Changes in Stockholders'
Equity/(Deficiency)
Consolidated Statements of Cash Flows for the Six
Months Ended October 31, 1998 and 1997 and
Cumulative Period During the Development Stage
Selected Information for Consolidated Financial Statements
Item 2. Plan of Operation.
PART II - OTHER INFORMATION
Item 1. Legal Proceedings.
Item 2. Changes in Securities.
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.
SIGNATURES
PART I - FINANCIAL INFORMATION
Item 1. Financial Statements.
REPORT ON REVIEW BY INDEPENDENT CERTIFIED PUBLIC ACCOUNTANTS
Board of Directors
Lyric International, Inc.
Dallas, Texas
We have reviewed the accompanying consolidated balance sheet of Lyric
International, Inc. (formerly Lyric Energy, Inc.) as of October 31, 1998, and
the related consolidated statements of operations, changes in stockholders'
equity, and cash flows for three and six months ended October 31, 1998 and
1997. These financial statements are the responsibility of the Company's
management.
We conducted our review in accordance with standards established by the
American Institute of Certified Public Accountants. A review of interim
financial information consists principally of applying analytical review
procedures to financial data and making inquiries of persons responsible for
financial and accounting matters. It is substantially less in scope than an
audit conducted in accordance with generally accepted auditing standards, the
objective of which is the expression of an opinion regarding the financial
statements taken as a whole. Accordingly, we do not express such an opinion.
Based on our review, we are not aware of any material modifications that
should be made to the accompanying consolidated financial statements for them
to be in conformity with generally accepted accounting principles.
We have previously audited, in accordance with generally accepted auditing
standards, the balance sheet as of April 30, 1998, and the related statements
of operations, changes in stockholders' equity, and cash flows for the year
then ended (not presented herein); and in our report dated June 19, 1997, we
expressed an unqualified opinion on those financial statements. In our
opinion, the information set forth in the accompanying condensed consolidated
balance sheet as of April 30, 1998 is fairly stated in all material respects
in relation to the consolidated balance sheet from which it has been derived.
/s/ Robert Early & Company, P.C.
Robert Early & Company, P.C.
Abilene, Texas
December 14, 1998
LYRIC INTERNATIONAL, INC.
(A Development Stage Enterprise)
Consolidated Balance Sheets
October 31, April 30,
1998 1998
(Unaudited)
Assets
Current Assets:
Cash $ 516,365 $ -
Accounts receivable-related parties 111,510 -
Notes receivable 103,205
Prepaid expenses 8,140 -
____________ _________
Total Current Assets 739,220 -
____________ _________
Fixed Assets:
Equipment 364,706 -
Oil and gas properties 1,794,735 -
Accumulated depreciation and
depletion (32,203) -
____________ _________
Total Fixed Assets 2,127,238 -
____________ _________
Other assets 4,370 -
____________ _________
TOTAL ASSETS $ 2,870,828 $ -
============ =========
Liabilities and Stockholders' Equity/(Deficiency)
Current Liabilities:
Accounts payable $ 167,376 $ -
Accrued expenses 29,962 -
Accrued interest 9,919 -
Advance from related parties 292,876 15,117
Advances from stockholders 292,488 -
__________ __________
Total Current Liabilities 792,621 15,117
__________ __________
Stockholders' Equity/(Deficiency):
Preferred stock:
Series B, $100 stated value
(10,000,000 shares authorized,
19,532 shares outstanding) 1,953,200 -
Common stock, $.01 stated value
(250,000,000 shares authorized,
1,767,366 and 1,041,366 outstanding) 17,674 10,414
Additional paid-in capital 2,966,627 2,713,808
Retained (deficit) (2,687,204) (2,687,204)
(Deficit) accumulated during the
Development Stage (172,090) (52,135)
______________ _____________
Total Stockholders' Equity 2,078,207 (15,117)
______________ _____________
TOTAL LIABILITIES AND
STOCKHOLDERS' EQUITY $ 2,870,828 $ -
============== =============
See accompanying selected information and accountant's report.
LYRIC INTERNATIONAL, INC.
(A Development Stage Enterprise)
Consolidated Statements of Operations
For Three and Six Months Ended October 31, 1998 and 1997
(Unaudited)
Cumulative
During the
Development Three Months Six Months
Stage 1998 1997 1998 1997
Revenues:
Oil production $41,696 $41,696 $ - $41,696 $ -
Oilfield services 51,015 51,015 - 51,015 -
__________ _______ ______ ________ _______
Total Revenues 92,711 92,711 - 92,711 -
__________ _______ _______ _______ _______
Costs of Revenues:
Production Taxes 1,936 1,936 - 1,936 -
Lease Operating 25,273 15,792 - 25,273 -
Rig expenses 26,511 26,511 - 26,511 -
Rig personnel costs 37,882 37,882 - 37,882 -
Depletion and
depreciation 24,616 24,616 - 24,616 -
___________ _________ _______ ________ ______
Total Costs of
Revenues 116,218 106,737 - 116,218 -
___________ _________ _______ ________ ______
Gross Profit (23,507) (14,026) - (23,507) -
___________ _________ _______ _________ ______
General and
administrative expenses:
Personnel costs 33,208 33,208 - 33,208 -
Legal & professional 24,432 21,716 - 24,432 -
Other 79,542 20,487 - 28,889 -
__________ ________ _____ _______ ______
Total G& A
expenses 137,182 75,411 - 86,529 -
__________ ________ _____ ________ ______
Loss from
Operations (160,689) (89,437) - (110,036) -
Interest expense
(primarily to
related parties) (11,401) (9,919) - (9,919) -
__________ __________ ______ ________ ________
NET (LOSS) $ (172,090) $ (99,356) $ - $(119,955) $ -
=========== ========== ====== ========= ========
Basic loss per
weighted average
share $(0.19) $(0.06) $(0.00) $(0.11) $(0.00)
Weighted average
shares outstanding 903,088 1,767,366 1,041,366 1,133,192 1,041,366
See accompanying selected information and accountant's report.
LYRIC INTERNATIONAL, INC.
(A Development Stage Enterprise)
Consolidated Statement of Changes in Stockholders' Equity/(Deficiency)
Deficit
Addi- Accumulated
Date of Preferred Common tional Accum- During the
Tran- Stock Stock Paid-In lated Development
saction Shares Amount Shares Amount Capital (Deficit) Stage
BALANCES,
November
30, 1996 - $ - 195,114 $1,952 $2,158,177 $(2,682,701) $ -
Contributed
by related
parties
through
cancellation
of debts 01/15/97 - - - - 464,093 - -
Issued
for Cash 04/10/97 846,252 8,462 91,538 - -
Net (loss) - - - - - (4,503)(37,018)
___________________________________________________________
BALANCES,
April
30, 1997 - - 1,041,366 10,414 2,713,808 (2,687,204) -
Net (loss) - - - - - - (15,117)
____________________________________________________________
BALANCES,
April 30,
1998 1,041,366 10,414 2,713,808 (2,687,204)(52,135)
Issued for
oil & gas
property
07/27/98 13,500 1,350,000 66,000 660 49,340 - -
Adjustment
for cost
in excess
of reserve
value - - - - (174,184) - -
Issued for
note
receivable
08/20/98 1,032 103,200 - - 5 - -
Issued for
Woodman
Enterprises
09/01/98 5,000 500,000 - - - - -
Adjustment
for cost
in excess
of related
party basis - - - - (115,592) - -
Private
placement
10/15/98 - - 660,000 6,600 493,250 - -
Net(loss) - - - - - - (119,955)
______________________________________________________________
BALANCES,
October
31, 1998 19,532$1,953,200 1,767,366$17,674 $2,966,627$(2,687,204)$(172,090)
==================================================================
See accompanying selected information and accountant's report.
LYRIC INTERNATIONAL, INC.
(A Development Stage Enterprise)
Consolidated Statements of Cash Flows
For Six Months Ended October 31, 1998 and 1997
(Unaudited)
Cumulative
During the
Development
Stage 1998 1997
CASH FLOWS FROM
OPERATING ACTIVITIES:
Net loss $ (172,090) $ (119,955) $ -
Adjustments to reconcile
net income/(loss) to
net cash provided by
operations:
Depreciation and
depletion 24,997 24,997 -
Decrease/(increase) in:
Accounts receivable-
related parties (47,759) (47,759) -
Prepaid expenses 80 80 -
Increase/(decrease) in:
Accounts payable 104,798 154,168 -
Accrued expenses 20,597 19,115 -
____________ __________ _________
Net Cash Provided/(Used)
by Operating Activities (69,377) 30,646 -
_____________ __________ _________
CASH FLOWS FROM
INVESTING ACTIVITIES:
Purchase of oil
properties (240,002) (240,002) -
Development of oil
properties (118,917) (118,917) -
Purchase of
equipment (27,495) (27,495) -
Cash from Woodman
Enterprises, Inc.
acquisition 12,036 12,036 -
_____________ ____________ ___________
Net Cash (Used) in
Investing Activities (374,378) (374,378) -
_____________ ____________ ___________
CASH FLOWS FROM
FINANCING ACTIVITIES:
Advances from
related parties 277,371 277,371 -
Advances from
stockholders 82,876 82,876 -
Proceeds from
issuing stock 599,850 499,850 -
____________ ___________ _________
Net Cash Provided by
Investing Activities 960,097 860,097 -
____________ ____________ _________
Increase in cash
for period 516,342 516,365 -
Cash, Beginning
of period 23 - -
____________ ____________ _________
Cash, End of period $516,365 $516,365 $ -
============ ============ ==========
Supplemental Disclosures:
Cash payments for:
Interest $ - $ - $ -
Income taxes - - -
Cancellation of related
party and other
indebtedness $458,166 $ - $ -
Acquisition of oil property:
Note payable 210,000 - -
Common & preferred
stock 1,225,816 - -
Acquisition of
Woodman Enterprises, Inc.:
Current assets 88,377 88,377 -
Fixed assets (net) 330,004 330,004 -
Liabilities (33,974) (33,974) -
Preferred B shares
issued (384,407) (384,407) -
See accompanying selected information and accountant's report.
Lyric International, Inc.
(A Development Stage Enterprise)
Selected Information for Consolidated Financial Statements
October 31, 1998
(Unaudited)
NOTE 1: BASIS OF PRESENTATION
The accompanying unaudited consolidated financial statements have been
prepared in accordance with generally accepted accounting principles for
interim financial information and with the instructions of Regulation S-B.
They do not include all information and footnotes required by generally
accepted accounting principles for complete financial statements. However,
except as disclosed herein, there has been no material change in the
information included in the Company's Annual Report on Form 10-KSB for the
year ended April 30, 1998. In the opinion of Management, all adjustments
(consisting of normal recurring accruals) considered necessary for a fair
presentation have been included. The report of Robert Early & Company, P.C.
commenting on their review accompanies the condensed financial statements
included in Item 1 of Part 1. Operating results for the six-month period
ended October 31, 1998, are not necessarily indicative of the results that may
be expected for the year ending April 30, 1999.
Development Stage Enterprise -- The Company returned to the development stage
in November 1996 with the transfer of its final operating responsibility to
others and thereby reducing its activities to the sole pursuit of identifying,
evaluating, structuring, and completing a merger with or acquisition of a
privately owned entity. During the six months ended October 1998 and
subsequent to that date, the Company has acquired oil interests in Mitchell
County, Texas, an oil field service Company, and a 50% interest in an entity
which has contracts to develop maps indicating subterranean fresh water supply
sources in Mexico using a new mapping technology. The Company is also
reviewing the possibility of acquiring real estate in Florida. Management
anticipates exiting the development stage during the current fiscal year.
Going Concern Issues The Company has been relatively inactive during the
past three years due to a shortage of operating assets and working capital.
The Company's activities (described below) have not generated sufficient
revenues to cover operating expenses. These factors raise substantial doubt
about the Company's ability to continue as a going concern. The Company
signed a Letter of Intent to merge with Natural Gas Technologies, Inc. (NGT)
in January 1997. In January 1998, the merger agreement with NGT was
terminated by NGT. During July 1998, the Company acquired a producing oil and
gas lease in Mitchell County, Texas with limited production and significant
development potential. Work over and rework efforts were begun to bring
existing wells back into production.
The ability of the Company to continue as a going concern is dependent on its
ability to acquire the additional funds to bring its property and investments
into profitable production or for its stockholders to continue to fund its
activities. There have been no adjustments to financial statement information
which might be required should the Company be unable to continue as a going
concern.
NOTE 2: STOCK TRANSACTIONS
During July, the Company held a special stockholder meeting at which the
following was approved: a reverse split of common shares of 1 for 240.597, the
authorization of 10,000,000 shares of preferred stock, and a name change for
the Company from Lyric Energy, Inc. to its current name. All share amounts
presented have been restated as though the reverse split had occurred at the
earliest date presented.
The directors established a Series B Preferred Stock with par value set at
$100 per share and which is entitled to cumulative dividends at 8% of par
value. These Series B shares are also convertible, at the option of the
holder, into the Company's common stock during calendar 1999. The conversion
will be based on the 10-day average closing price of the Company's common
stock immediately prior to the conversion effective date. Additionally, all
Series B preferred shares convert to common shares on January 1, 2000 based on
the average of the last 10 days' closing prices in 1999.
The shares issued as described below and in Note 4 had not been issued by the
Company's stock transfer agent at October 31, 1998. However, they have been
presented as issued in these financial statements due to contract
requirements.
During August 1998, the Company agreed to issue 1,032 shares of Series B
preferred stock to its majority shareholder in exchange for the transfer of a
$103,250 note receivable from Trans Energy, Inc. which is due upon demand and
bears interest at 8% per annum.
During October 1998, the Company placed 660,000 units as the result of a
private placement effort that yielded the Company $499,850. The units
consisted of one common share, one Class A warrant to purchase one common
share, and one Class B warrant to purchase one common share. The Class A
warrants may be exercised at $1 per share while the Class B warrants may be
exercised at $2 per share. Both classes of warrants expire five years after
the underlying common shares have been registered. The Company has the option
of calling the Class A warrants after the Company's stock has closed at a
price above $1 for 20 consecutive trading days. The Class B warrants may be
called after the stock has closed above $2 for 20 consecutive trading days.
NOTE 3: ACQUISITION OF OIL AND GAS ASSETS
During July 1998, the Company purchased an oil and gas lease in Mitchell
County, Texas covering approximately 560 acres. This property has 56 existing
wells which had limited production but needed work. The Company plans to
convert a number of wells to water injection wells to enhance oil recovery.
Some existing wells will have to be plugged.
The Company paid a total of $1,850,000 for this property. The purchase price
consisted of $240,000 cash, a note for $210,000, 66,000 units identical to the
units sold in the private placement discussed in Note 2, and 13,500 shares of
Series B preferred stock. The note bears interest at 8% and is due July 27,
1999. The stock has been valued at $0.375 per share for the common and $100
per share for the preferred. However, due to a discounted present value
calculation by a petroleum engineer using a 20% discount factor, the property
was recorded at the lower estimated fair value of $1,675,816 with the balance
being an adjustment of additional paid in capital.
NOTE 4: ACQUISITION OF WOODMAN ENTERPRISES, INC.
Effective September 1, 1998, the Company entered into an agreement to acquire
Woodman Enterprises, Inc. from Redbank Petroleum, Inc. in exchange for 5,000
shares of Series B preferred stock. Woodman is an entity created in February
1998 to obtain the necessary equipment to be able to provide a broad range of
well work over services. Woodman purchased a work over rig, a reverse
drilling unit, a cement truck, and other pertinent equipment. The Company
acquired this entity for work on its own properties as well as to be able to
offer services to other oil and gas producers. The following tables present a
condensed balance sheet for Woodman at September 1, 1998 and the related
condensed statement of operations for the period from inception to August 31,
1998.
Condensed Balance Sheet
Cash $ 12,036
Accounts receivable 63,751
Other current assets 12,590
______________
Total current assets 88,377
Fixed assets (net of depreciation) 330,004
______________
Total Assets $ 418,381
==============
Accounts payable & accrued expenses $ 33,974
Total stockholder's equity 384,407
______________
Total Liabilities and
Stockholder's Equity $ 418,381
==============
Condensed Statement of Operations
Total revenues $ 78,492
Costs of revenues 62,035
_____________
Gross profit 16,457
Other operating expenses 29,514
_____________
Net Loss $ (13,057)
=============
NOTE 5: EARNINGS PER SHARE
Basic earnings per share have been presented on the statement of operations.
All of the outstanding Series B preferred shares (19,532 shares) are
convertible into common shares based on their $100 par value and the average
market price for common shares for the 10 days prior to conversion. Based on
the stock price at November 30, 1998, the preferred would convert into 488,300
common shares. All of these shares are deemed to be common stock equivalents.
However, they have not been included in a calculation of diluted earnings per
share because they would be antidilutive due to the losses reported.
NOTE 6: SUBSEQUENT EVENTS
In November 1998, the Company signed an agreement to purchase Redbank
Petroleum's 50% interest in Seismic International, Inc. for 50,000 shares of
its Series B preferred stock with a par value of $100 per share plus 10%
percent of the first $50,000,000 in future gross revenues. Seismic recently
executed its first contract to produce subsurface mapping in Mexico to locate
municipal and commercial grade water deposits. Seismic's partners have
expanded on new technologies which enables them to produce subsurface maps
detailed enough to distinguish the difference between fresh water, salt water,
sand, limestones, clays, and shales. This new technology has exciting
possibilities in all areas of mining and exploration by pinpointing not only
the structures, as with traditional seismic, but also the contents of the
structure. Seismic is currently negotiating additional contracts ranging
upwards from $5,000,000.
The Company is also pursuing the acquisition of a small fisherman's hotel in
southern Florida.
On November 16, 1998, the Company initiated an additional private placement
program under Fortress Financial. This program is to place 150,000 units at
$5 per unit. Units consist of one share of common stock and one Class C
warrant to purchase one common share. These Class C warrants are exercisable
at $6 per share and expire three years after the closing of the private
placement.
Item 2. Plan of Operation
Cautionary Statement with Regard to Forward Looking Information
This report may include 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 (the "Securities Act"), and Section 21E of
the Securities Exchange Act of 1934, as amended. All statements, other than
statements of historical facts, included in this report that address
activities, events or developments that Lyric International, Inc. (the
"Company" or "Lyric") expects, believes or anticipates will or may occur in
the future, including such matters as costs and expenses of the acquisition of
producing, developmental or exploratory properties, oil and gas reserve data
and information, costs of capital, projected margins, business strategies,
expansion and growth of the Company's operations, Year 2000 issues 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, including general economic and business conditions,
oil and gas pricing issues, the availability of certain 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. You 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.
General
Lyric currently is focusing on three areas in which it conducts business:
(i) natural resources, (ii) subsurface mapping technology, and (iii) real
estate.
Natural Resources
The Company primarily plans to build shareholder value through consistent
growth in per share reserves, production and the resulting cash flow in
earnings of the Company. To accomplish this, the Company plans to acquire
working interests in properties which are expected to produce secondary
recoveries of oil and gas through the use of new technologies, water floods or
additional drilling. These types of properties can usually be acquired on
more favorable terms than properties in primary production, although lease
operating costs for these properties are higher upon acquisition than
properties in primary production.
In July 1998, the Company completed an acquisition of oil and gas
properties from West Texas Recovery, Inc. in exchange for 13,500 shares of the
Company's Series B Preferred Stock, a $210,000 promissory note, $240,000 cash
and 66,000 units consisting of one share of the Company's $.01 par value
common stock (the "Common Stock"), one Class A Warrant and one Class B
Warrant. A Class A Warrant may be exercised to purchase one share of Common
Stock at $1 per share and a Class B Warrant may be exercised to purchase one
share of Common Stock at $2 per share. The property covers 600 acres in
Mitchell County, Texas, all of which are developed. At the time the Company
acquired the property it contained a total of 56 wells which had limited
production and needed reconditioning. The Company has reconditioned a number
of the wells and has converted a number of the wells into water injection
wells to enhance the oil recovery from those wells. Some of the wells on the
property are required to be plugged.
As of December 21, 1998, the Company had 22 producing wells, 5 operating
injection wells and 29 shut-in wells on the property in Mitchell County. The
Company is currently producing and selling approximately 60 to 80 barrels of
oil per day under one lease on the property that includes 6 producing wells.
The remainder of the producing wells are being operated under two other leases
on the property. The approximately 100 barrels of oil per day being produced
from those wells currently is being stored in tanks on the property. Lyric
plans to recondition the remaining shut-in wells on the oil and gas properties
acquired from West Texas Recovery, Inc. and increase revenues from those
properties. There is not however any assurance that the Company will be
successful in reconditioning the remaining shut-in wells on a profitable
basis.
All of the Company's properties in Mitchell County are operated by West
Texas Recovery, Inc. The Company pays West Texas Recovery, Inc. $2,000 per
month for overhead expenses for operating those wells and reimburses West
Texas Recovery, Inc. for all well operating costs. Michael G. Maguire, the
President and Chairman of the Board of the Company, is the President, Chief
Executive Officer and Chief Financial Officer of West Texas Recovery, Inc.
On September 1, 1998, the Company acquired all of the outstanding shares
of common stock of Woodman Enterprises, Inc. in exchange for 5,000 shares of
Lyric's $100 par value Series B Preferred Stock. Woodman Enterprises, Inc. is
a company primarily engaged in the business of subcontracting equipment used
to service and maintain oil and gas wells up to 12,000 feet in depth. Woodman
Enterprises, Inc. also has cement and water trucks and subcontracts equipment
used for the re-entry of oil and gas wells. The Company intends to use the
that equipment to rework properties which it has acquired and other properties
which it intends to acquire. Woodman Enterprises, Inc. was a wholly owned
subsidiary of Redbank Petroleum, Inc., a corporation which is owned 50 percent
by Warren Donohue, a director and officer of Lyric, and 50 percent by Brent
Wagman, the majority shareholder of Lyric.
All services of Woodman Enterprises, Inc. through October 31, 1998 had
been provided to West Texas Recovery, Inc. and Wagman Petroleum, Inc. Brent
Wagman beneficially owns approximately 45 percent of the outstanding common
stock, and is an officer and director, of Wagman Petroleum, Inc. All of the
services provided to West Texas Recovery, Inc. were on the previously
described properties owned by the Company in Mitchell County. Although no
work had been performed for entities unrelated to the Company through October
31, 1998, prices charged to related parties have been the same prices as have
been quoted to unrelated entities for similar work and are believed to be in
line with prices generally charged by the industry. During November 1998, the
Company pursued and accepted engagements for future work for several unrelated
entities.
Subsurface Mapping Technology
On November 30, 1998, Lyric acquired 50 percent of the outstanding common
stock of Seismic International, Inc. from Redbank Petroleum, Inc. in exchange
for 50,000 shares of the Company's Series B Preferred Stock. The Company also
agreed with Redbank Petroleum, Inc. that Redbank Petroleum, Inc. is entitled
to receive 10 percent of the first $50,000,000 of gross revenue generated by
Seismic International, Inc.
Seismic International, Inc. is a company that currently negotiates and
obtains contracts to produce subsurface maps. Seismic International, Inc.
currently plans to subcontract the work to be performed under those contracts
to North American Geophysical and North Trend Geophysical, the owners of the
subsurface mapping technology which includes the equipment that obtains the
subsurface data and the software that analyzes that data. Redbank Petroleum,
Inc. has agreed with the Company that Redbank Petroleum, Inc. will attempt to
obtain a licensing agreement with the owners of the subsurface mapping
technology, pursuant to which Seismic International, Inc. will be able to
produce the subsurface maps without subcontracting that work to the owners of
the technology.
The subsurface mapping technology is a type of electronic mapping that
produces detailed maps of subsurface structures and geology similar to a
magnetic resonance imaging system used to diagnose humans in hospitals. It
can determine the difference between various liquids located underground such
as fresh water and salt water as well as the difference between various types
of rocks (limestone, sandstone, clay, shale and other ore bearing rocks). The
Company believes this technology will lend itself to locating various minerals
and should lower exploration costs in mining, oil and gas exploration,
locating municipal water supplies, and many other types of mining by mapping
subsurface structures.
On October 23, 1998, Seismic International, Inc. executed its first
contract with Geophysical de Mexico to perform subsurface mapping in central
Mexico to locate municipal and commercial grade water deposits. That contract
is for $7,500,000 and requires Seismic International, Inc. to complete the
subsurface mapping work prior to January 6, 1999. If the subsurface mapping
work is not completed prior to that date, Geophysical de Mexico is not
required to pay Seismic International, Inc. any amounts required under the
contract. Seismic International, Inc. plans to subcontract all of the mapping
work to North American Geophysical and North Trend Geophysical. Seismic
International, Inc. however has not entered into any definitive agreements
with those entities to perform the subcontract work. Seismic International,
Inc. also is currently negotiating additional contracts with Geophysical de
Mexico in excess of $5,000,000 each. There is not however any assurance that
such contracts will be consummated.
Real Estate
The Company currently is negotiating with certain parties to acquire a
beach front hotel near Key Largo, Florida. The parties however have not
entered into any definitive agreements. The Company has not determined the
manner in which the possible purchase of the hotel may be financed.
Liquidity and Capital Resources
As of October 31, 1998, Lyric had a cash balance of $516,365. The
Company's capital requirements to conduct its plan of operation is significant
and there is not any assurance that the Company will be able to obtain such
funds or obtain the required capital on terms favorable to the Company. The
Company plans to satisfy its capital requirements for the next twelve months
by selling the Company's securities and obtaining financing from related
parties. If Lyric is unable to obtain financing from related parties, the
sale of its securities or some other source, it is unlikely that Lyric will
continue as a going concern.
Year 2000 Issues
Year 2000 issues may arise if computer programs have been written using
two digits (rather than four) to define the applicable year. In such case,
programs that have time-sensitive logic may recognize a date using "00" as the
year 1900 rather than the year 2000, which could result in miscalculations or
system failures.
The Company has not completed its assessment of the Year 2000 issue, but
currently believes that costs of addressing the issue will not have a material
adverse impact on the Company's financial position. The Company has not
automated many of its operations with information technology ("IT") systems
and non-IT systems because of the size of the Company, and presently believes
that the Company's existing computer systems and software will not need to be
upgraded to mitigate the Year 2000 issues. The Company has not incurred any
costs associated with its assessment of the Year 2000 problem. In the event
that Year 2000 issues impact the Company's accounting operations and other
operations aided by its computer system, the Company believes, as part of a
contingency plan, that it has adequate personnel to perform those functions
manually until such time that any Year 2000 issues are resolved.
The Company believes that the third parties with whom the Company has
material relationships will not materially be affected by the Year 2000 issues
as those third parties are relatively small entities which do not rely heavily
on IT and non-IT systems for their operations. However, if the Company and
third parties upon which it relies are unable to address any Year 2000 issues
in a timely manner, it could result in a material financial risk to the
Company, including loss of revenue and substantial unanticipated costs.
Accordingly, the Company plans to devote all resources required to resolve any
significant Year 2000 issues in a timely manner.
PART II - OTHER INFORMATION
Item 1. Legal Proceedings
See the Company's Annual Report on Form 10-KSB for the fiscal year ended
April 30, 1998.
Item 2. Changes in Securities
During August 1998, the Company agreed to issue 1,032 shares of Series B
Preferred Stock to its majority shareholder in exchange for the transfer of a
$103,250 note receivable from Trans Energy, Inc. which is due upon demand and
bears interest at 8% per annum. The issuance of the securities in that
transaction was made pursuant to Section 4(2) under the Securities Act as an
offering not involving a public offering.
On September 1, 1998, the Company acquired all of the outstanding shares
of common stock of Woodman Enterprises, Inc. in exchange for 5,000 shares of
the Company's Series B Preferred Stock. The issuance of the securities in
that transaction was made pursuant to Section 4(2) under the Securities Act as
an offering not involving a public offering.
During October 1998, the Company sold 660,000 units to investors in
exchange for $499,850. The units consisted of one share of Common Stock, one
Class A Warrant to purchase one share of Common Stock, and one Class B Warrant
to purchase one share of Common Stock. The issuance of the securities in that
transaction was made pursuant to Rule 506 under the Regulation D of the
Securities Act.
Holders of the Company's Series B Preferred Stock are entitled to
cumulative dividends at the rate of 8% of the par value of the Series B
Preferred Stock. Each share of Series B Preferred Stock is convertible, at
the option of the holder thereof, into the Company's Common Stock during the
period commencing on January 1, 1999 until December 31, 1999. The number of
shares of Common Stock into which one share of Series B Preferred Stock will
be converted will be equal to $100 divided by the average closing price of the
Company's Common Stock traded over the counter, or on Nasdaq or any national
exchange (the "Average Closing Price") for the ten trading days immediately
prior to the conversion effective date. All shares of Series B Preferred
Stock automatically convert to shares of the Company's Common Stock on January
1, 2000 based on the Average Closing Price for the ten trading days
immediately prior to January 1, 2000.
The Class A Warrants may be exercised at $1 per share and the Class B
Warrants may be exercised at $2 per share. Both classes of warrants expire
five years after the underlying shares of Common Stock have been registered
under the Securities Act. The Company has the option of calling the Class A
Warrants after the Company's Common Stock has closed at a price above $1 for
20 consecutive trading days. The Class B Warrants may be called after the
Common Stock has closed above $2 for 20 consecutive trading days.
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
3.1 Articles of Amendment to the Articles of Incorporation of
Lyric International, Inc. as filed with the Colorado
Secretary of State on September 22, 1998. Filed herewith.
10.1 Purchase and Sale Agreement between the Company and West
Texas Recovery, Inc. dated July 27, 1998. Filed herewith.
10.2 Contract for Sale and Purchase of Business between the
Company and Redbank Petroleum, Inc. dated September 1, 1998.
(Incorporated by reference from Exhibit 10.1 to the Company's
Current Report on Form 8-K as filed on December 9, 1998).
10.3 Agreement dated October 23, 1998 between Seismic
International, Inc. and Geophysical de Mexico. (Incorporated
by reference from Exhibit 10.1 to the Company's Current
Report on Form 8-K as filed on December 15, 1998).
27.1 Financial Data Schedule
(b) Reports On Form 8-K
The Company filed three Current Reports on Form 8-K during the quarter
ended October 31, 1998. The Company's Form 8-Ks filed on August 11, 1998 and
September 3, 1998 reported the Company's acquisition of certain oil and gas
properties from West Texas Recovery, Inc. on July 27, 1998. The Company's
Form 8-K filed on September 15, 1998 reported the Company's acquisition of
Woodman Enterprises, Inc. on September 1, 1998.
SIGNATURES
In accordance with the requirements of the Exchange Act, the registrant
caused this report to be signed on its behalf by the undersigned, thereunto
duly authorized.
LYRIC INTERNATIONAL, INC.
Date: December 21, 1998 By: /s/ Michael G. Maguire
________________________________
Michael G. Maguire, President