SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-QSB
[ X ] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15 (D) OF THE SECURITIES
EXCHANGE ACT OF 1934
FOR THE QUARTER ENDED MARCH 31, 2000,
OR [ ] Transition Report Under Section 13 or 15 (d) of the Securities
Exchange Act of 1934
For the transition period ________,
Commission File No. 0-17213
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LOCH HARRIS, INC.
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(Exact name of small business issuer as specified in its charter)
Nevada 87-0418799
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(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
14205 Burnet Rd.
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(Address of principal executive offices)
Austin, Texas 78728
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(Address of previous executive offices)
(512) 328-7808
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(Issuer's telephone number, including area code)
Securities registered pursuant to Section 12(b) of the Act: None
Securities registered pursuant to Section 12(g) of the Act:
Common Stock $0.01 Par Value
----------------------------
(Title of Class)
Indicate by check mark whether the Issuer (1) has filed all reports required to
be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during
the preceding 12 months (or for such shorter period that the registrant was
required to file such reports), and (2) has been subject to such filing
requirements for the past 90 days. YES [X] NO [ ]
The aggregate market value of the voting common equity held by non-affiliates
computed by reference to average bid and ask price of such common equity, as of
March 31, 2000 is $328,842,894. On this date approximately 322,394,994 shares
were held by non-affiliates.
As of March 31, 2000, the issuer had 429,859,993 shares of its $0.01 par value
common stock outstanding.
Transitional Small Business Disclosure Format: YES[ ] NO [X]
1
FORM 10-QSB
PART I
ITEM 1 - FINANCIAL STATEMENTS
See Exhibit A.
ITEM 2 - MANAGEMENT'S DISCUSSION AND ANALYSIS OR PLAN OF OPERATION
SUMMARY
Loch Harris, Inc. ("Loch" or the "Company") is a new generation incubator
corporation that is aggressively acquiring companies, technologies, patents and
projects that have global markets and have the potential to be developed into
stand-alone public companies. Loch's network has products ready for aggressive
marketing which meet market needs in the vital areas of information technology,
communication, agri-business, and energy.
The Company adopted its incubator business model in 1993, and has developed and
organized around subsidiaries, through which it plans to bring companies public.
These subsidiaries are Chemical Detection Technology, Inc., AgraTech
International, Inc., and PetroTech Resources International, Inc.
Significant recent developments include the February 2000 test organized by the
Institute Ruder Boskovic in conjunction with the Croatian Mine Action Center
("CROMAC") and the Croatian Ministry of the Interior to verify the effectiveness
of Loch's landmine detection technology. In each of the independent tests,
performed in Zagreb, the Company's landmine detection technology worked
perfectly. Subsequent developments include a memorandum of understanding
between CROMAC and Loch Harris to proceed with the development of its landmine
detection technology ELF ("Eliminate Landmines Forever"). Loch Harris plans to
return to Croatia for further tests and development. Loch Harris intends to
cooperate with CROMAC to develop other possible applications of the ELF
technology.
SUBSIDIARY OPERATIONS
Chemical Detection Technology, Inc. ("ChemTech") was incorporated to develop and
- -----------------------------------
commercialize proprietary remote substance detection technologies. Some of the
technologies have passed laboratory tests and stand on the cusp of
revolutionizing unique industry problems. With the addition of Dr. Henry Blair
as Chief Scientist for ChemTech in January 1998, the company announced its
intent to develop the ELF (Eliminate Landmines Forever), its first real-time
remote substance detector for the location, mapping and identification of
individual landmines.
By the 1st fiscal quarter of 1999, the ChemTech team expanded its fully-funded
development research to include a 2nd unique real-time semi-conductor
fabrication tool for the non-invasive remote sensing and mapping of the internal
chemical processes in wafer plasma chambers, called VAMMP (VAcuum
Multi-constituent Monitor for Plasma
2
ITEM 2 - MANAGEMENT'S DISCUSSION AND ANALYSIS OR PLAN OF OPERATION:
SUBSIDIARY OPERATIONS (CONTINUED)
Landmine detection is a prominent application for ChemTech's remote
nitrate/explosives detector. Loch's proprietary technology utilizes new
innovative applications of state of the art x-ray sensing techniques coupled
with fluorescence designed to uniquely find concealed or buried landmines. The
ELF unit will be able to actually "see" the nitrate molecules, locate and
identify them in real time, less than 100 milliseconds (ms). One configuration
of the ELF unit will be man portable. It will enable landmine technicians to
accurately identify and document the location of landmines. ChemTech's research
indicates that ELF's range could be extended to effective heights from an
airborne platform.
Current landmine detection processes have not gained much in technological
advancement in reliable real-time identification. Other than men with trained
dogs and hand held probes, new technological breakthrough attempts utilizing
ground penetrating radar (GPR), infrared (IR), microwaves, chemical sniffers or
other close range recognition systems have all fallen short of delivering a
reliable instrument for field use. Each technique has its own individual
inherent limitations, failures and inefficiencies. The ELF unit represents a
major breakthrough in landmine detection technology that could dramatically
change the way landmines are currently located.
ChemTech's VAMMP (VAcuum Multi-constituent Monitor for Plasma) will monitor and
measure plasma constituents in vacuum processing systems in real time using
ultraviolet excitation. The technology could have far reaching impact on
semiconductor manufacturing and represents a potentially lucrative application.
Discussions with strategic partners are underway under binding non-disclosure
agreements. The VAMMP initiative is fully-funded with a $1.5 million
commitment.
FUTURE APPLICATIONS identified for ChemTech's technology include:
- - Security monitoring in public applications (baggage, airport security,
etc.)
- - Victim recovery and identification
- - Alcohol detection devices
- - H2S detection in mineshafts and oil & gas exploration
- - Standoff biological and chemical detection in an open air environment
- - Clean room monitoring systems that detect contaminating particulates
- - Vehicle exhaust monitoring (smog testing)
- - Environmental testing
- - Earthquake / volcanic prediction
- - Military, counter intelligence and counter terrorism applications
From the detection of contaminates in clean rooms to finding buried landmines
and other UXO (unexploded ordinance), the remote sensing capabilities of
ChemTech's technologies could benefit both mankind and Loch shareholders for
years to come.
3
ITEM 2 - MANAGEMENT'S DISCUSSION AND ANALYSIS OR PLAN OF OPERATION:
SUBSIDIARY OPERATIONS (CONTINUED)
AgraTech International, Inc., ("AgraTech") is currently developing new
- -------------------------------
technologies in two areas: Tuli cattle genetic breeding and high efficiency
Solar Pumping Systems (SPS).
AgraTech started this exciting project in 1997, and plans to grow their Tuli
herd through the development of a high tech embryo transfer program. Now a
viable commercial venture, the Tuli genetics may be purchased from AgraTech in a
number of ways: as bulls, recipient heifers, genetic donors, semen, and
embryos. Cryogenically preserved semen straws and frozen embryos are the
stock-in-trade of AgraTech, bringing 21st century techniques to agribusiness.
On January 1, 2000, Loch Harrris, Inc. acquired two west Texas corporations,
Stockton Feed & Milling, Inc. and Ranchers Feed Yards, Inc. AgraTech currently
manages these subsidiaries. For approximately 40 years, Stockton Feed &
Milling, Inc. has been producing and distributing a variety of agricultural feed
and other products to wholesale and retail markets. Ranchers Feed Yards, Inc.
derives its income by providing ranchers with a variety of services, including
the storage, feeding, maintenance and eventual sales of livestock.
RECENT ACQUISITIONS
- --------------------
Loch Harris, Inc. has secured exclusive, proprietary rights to a breakthrough
technology that could slash manufacturing times and advance precise measurements
required in the semiconductor industry by two orders of magnitude. ChemTech
scientists are already working to integrate the advanced Shack Hartmann
wavefront sensor to an existing nanometrology device developed by noted
physicist Dr. Henry Blair.
The result is expected to create a noninvasive, real-time, in situ remote
sensing tool capable of accuracies to one billionth of a meter (10 to the minus
9th) without disturbing the environment being studied. It is currently utilized
for telescope mirror alignment in operation at renowned observatories such as
the Galileo in Italy, the Zeiss in Greece and the Apache Point in Arizona. The
technology is expected to generate greater benefits for the semiconductor
manufacturing industry. Those benefits come in the pre-process, where wafer
flatness, edge condition, total thickness variation, and bow and warp must be
precisely measured, and also in the end-process, where the measurement of film
and roughness are critical. Current processes require as long as 10 to 16
minutes to mechanically measure these variances. Loch's ChemTech device could
cut that process to less than 20 seconds, representing significant savings in
the multi-billion dollar semiconductor industry.
In the last calendar quarter of 1999, Loch also acquired the assets of Phoenix
Marketing Representatives ("PMR"), the California based manufacturers
representative and distributor of equipment for the surface mount and
microelectronics industries and incorporated ChemTech/PMR to continue to do
business in this sector. ChemTech/PMR provides Loch with an important marketing
arm at the time that it is developing its VAMMP technology.
In August 1999 Loch signed an intent to acquire ELF subcontractor, System
Specialists, Inc. ("SSI"), contractors for military, astronomical and
semiconductor applications. Under the capable leadership of Dr. Wade Poteet
and Harold Cauthen, SSI has nearly three decades in design and fabrication of
airborne, balloon and space borne remote sensing instrumentation. With this
acquisition, Loch has positioned itself for future remote sensing
applications similar to ELF and VAMMP. SSI's clientele includes NASA's
Marshall Space Flight Center and Jet Propulsion Lab, Naval Research
Laboratory, Raytheon Corporation, Lawrence Livermore Laboratories, National
Optical Astronomy Observatories (NOAO), Ball Aerospace, Nichols Research,
Inc., Brookhaven Laboratories and many more. SSI has completed a sixth and
final telescope and crated it for its final journey to the top of Mt. Wilson,
California. The year and a half fabrication work on the multi million dollar
project will result in the six telescopes being aligned in a unique permanent
arrangement by the CHARA Project, a consortium managed by Georgia Tech
University in Atlanta.
4
ITEM 2 - MANAGEMENT'S DISCUSSION AND ANALYSIS OR PLAN OF OPERATION:
RECENT ACQUISITIONS (CONTINUED)
CONTINUED OPERATIONS
The Company's current cash requirements consist mainly of research and
development costs related to chemical detection technologies and solar pump
production. The Company's three self-funding subsidiaries, ChemTech/PMR, Inc.,
Stockton Feed and Milling, Inc. and Ranchers Feed Yards, Inc., provide adequate
cash flows to fund their operations. Expenditures related to the Tuli cattle
venture and overhead costs remain minimal. To properly provide for development
of its products and expansion of its operation, the Company could be required to
secure additional funds through capital contributions, equity funding or other
available financing options. At this time, the Company has sufficient cash,
capital, and access to funding to enable the Corporation to continue ongoing
projects as well as operations.
Although the Company's operations include significant costs related to research
and development, the Company did not capitalize any research and development
costs during the three months ended March 31, 2000 or 1999. The Company
maintains its corporate office in Austin, Texas.
PART II
ITEM 5 - OTHER INFORMATION
None.
5
ITEM 6 - EXHIBITS AND REPORTS ON FORM 8-K
EXHIBIT A
INDEX TO CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)
Page
Consolidated Balance Sheets as of March 31, 2000 and March 31, 1999. . . . 7
Consolidated Statements of Operations for the three months ended
March 31, 2000 and March 31, 1999. . . . . . . . . . . . . . . . . . . . . 8
Consolidated Statements of Shareholders' Equity for the three months ended
March 31, 2000 and March 31, 1999. . . . . . . . . . . . . . . . . . . . . 9
Consolidated Statements of Cash Flows for the three months ended
March 31, 2000 and March 31, 1999. . . . . . . . . . . . . . . . . . . . 10
Notes to Consolidated Financial Statements . . . . . . . . . . . . . . . . 11
6
LOCH HARRIS, INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS (UNAUDITED)
MARCH 31, 2000 AND MARCH 31, 1999
ASSETS 2000 1999
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Current assets
Cash $ 1,338,171 $ 34,167
Accounts receivable 532,799 50,000
Prepaid expenses 19,714 -0-
Inventory 359,599 -0-
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Total current assets 2,250,283 84,167
Oil and gas properties, using successful efforts
accounting, net of accumulated depreciation,
amortization and impairment (Note 2):
Proved undeveloped properties 221,694 221,694
Property and equipment, net of
accumulated depreciation (Note 3) 175,467 148,193
Other assets, net (Note 5) 1,152,970 58,650
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Total assets $ 3,800,414 $ 512,704
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LIABILITIES AND SHAREHOLDERS' EQUITY
- -----------------------------------------------------
Current liabilities:
Accounts payable $ 356,720 $ 104,154
Accrued liabilities 22,748 -0-
Short-term note payable 1,459,676 58,563
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Total current liabilities 1,839,144 162,717
Shareholders' equity:
Common stock, $.01 par value;
500,000,000 and 300,000,000 shares authorized,
respectively; 417,930,309 and 244,031,341
shares issued and outstanding, respectively
(Note 6) 4,179,303 2,440,313
Additional paid in capital (Note 6) 18,250,169 13,122,594
Retained deficit (20,468,202) (15,171,400)
Treasury stock (Note 6) -0- (41,520)
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Total shareholders' equity 1,961,270 349,987
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Total liabilities and shareholders' equity $3,800,414 $512,704
============= =============
The accompanying notes are an integral part of these financial statements.
7
LOCH HARRIS, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATIONS (UNAUDITED)
THREE MONTHS ENDED MARCH 31, 2000 AND MARCH 31, 1999
2000 1999
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Revenues:
Direct product sales $ 765,259 $ -0-
Cost of goods sold (420,509) -0-
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Gross profit from direct sales 344,750 -0-
Commissions from indirect sales 95,648 -0-
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Net income before operating expenses 440,398 -0-
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Operating expenses:
General and administrative 562,911 31,455
Consulting services 3,155,527 64,616
Salaries and benefits 67,631 457
Depreciation and amortization 11,142 6,879
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Total operating expenses 3,797,211 103,407
Other income 6,609 -0-
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Net profit (loss) $(3,350,204) $(103,407)
============ ==========
The accompanying notes are an integral part of these financial statements.
8
LOCH HARRIS, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF SHAREHOLDERS' EQUITY (UNAUDITED)
THREE MONTHS ENDED MARCH 31, 2000 AND MARCH 31, 1999
Retained
Additional Earnings Treasury
Number of Shares Amount Paid in Capital (Deficit) Stock Total
---------------- ---------- ----------------- ------------- ---------- ------------
BALANCE AT DECEMBER 31, 1998 231,031,341 $2,310,313 $ 13,128,428 $(15,067,993) $ (63,318) $ 307,430
Common stock issued for:
Services and/or cash 13,000,000 130,000 (5,834) 124,166
Treasury stock 21,798 21,798
Net loss (103,407) (103,407)
---------------- ---------- ----------------- ------------- ---------- ------------
BALANCE AT MARCH 31, 1999 244,031,341 $2,440,313 $ 13,122,594 $(15,171,400) $ (41,520) $ 349,987
================ ========== ================= ============= ========== ============
BALANCE AT DECEMBER 31, 1999 391,925,309 $3,919,253 $ 14,769,943 $(17,117,998) $ -0- $ 1,571,198
Common stock issued for services 26,005,000 260,050 2,855,226 3,115,276
Contributions 625,000 625,000
Net profit (loss) (3,350,204) (3,350,204)
---------------- ---------- ----------------- ------------- ---------- ------------
BALANCE AT MARCH 31, 2000 417,930,309 $4,179,303 $ 18,250,169 $ 20,468,202 $ -0- $ 1,961,270
================ ========== ================= ============= ========== ============
The accompanying notes are an integral part of these financial statements.
9
LOCH HARRIS, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS (UNAUDITED)
THREE MONTHS ENDED MARCH 31, 2000 AND MARCH 31, 1999
2000 1999
------------ ----------
Cash flows from operating activities:
Net loss $(3,350,204) $(103,407)
------------ ----------
Adjustments to reconcile net loss to net cash
provided by operating activities:
Depreciation and amortization 11,142 6,879
Common stock issued for services, etc. 3,115,276 24,166
Increase (decrease) in accounts payable 44,034 21,150
Increase (decrease) in accrued liabilities (2,199) -0-
Decrease (increase) in inventory (273,100) -0-
Decrease (increase) in deposits & escrowed funds 929,491 -0-
Decrease (increase) in prepaid assets (5,442) -0-
Decrease (increase) in accounts receivable (262,427) -0-
------------ ----------
Total adjustments 3,556,775 52,195
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Cash flows from operating activities 206,571 (51,212)
------------ ----------
Cash flows from investing activities:
Cash received from the sale of property and equipment -0- 10,311
Cash payments for the purchase of property and equipment
and other assets 380,429 (11,437)
------------ ----------
Cash flows from investing activities 380,429 1,374
------------ ----------
Cash flows from financing activities:
Cash contributed 625,000 -0-
Cash proceeds from issuance/sale of stock -0- 50,000
Cash proceeds from the sale of treasury stock -0- 21,798
------------ ----------
Cash flows from financing activities 625,000 71,798
------------ ----------
Net increase (decrease) in cash 1,212,000 21,960
Cash and cash equivalents - beginning of three months 126,171 12,207
------------ ----------
Cash and cash equivalents - end of three months $ 1,338,171 $ 34,167
============ ==========
Supplemental disclosures of cash flow information:
Common stock issued for services $ 3,115,276 $ 24,166
============ ==========
The accompanying notes are an integral part of these financial statements.
10
LOCH HARRIS, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)
THREE MONTHS ENDED MARCH 31, 2000 AND MARCH 31, 1999
NOTE 1 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
- ----------------------------------------------------------
NATURE OF BUSINESS AND ORGANIZATION:
Loch Harris, Inc. and Subsidiaries (the "Company") (formerly Eclectix, Inc.) was
organized under the laws of the State of Nevada on March 13, 1985. On July 31,
1988, Eclectix, Inc. entered into an agreement and plan of reorganization with
the shareholders of Loch Harris Energy, Inc., in which Eclectix, Inc. acquired
100% of the common stock of Loch Harris Energy, Inc. As part of the
reorganization, Eclectix, Inc. changed its name to Loch Harris, Inc.
Prior to 1990, the Company was involved in the acquisition, development, and
production of oil and gas reserves. During 1989, severe economic conditions
forced the Company to cease operations and the Company remained in a dormant
state until 1993 when the Company acquired some software applications and became
involved in the research and development of such properties. During 1997, the
Company purchased an interest in an Oklahoma oil and gas operation and purchased
selected assets, including technology, designs and working papers for a solar
pump. During 1998, the Company began development of various chemical detection
technologies. Additionally, the Company purchased Tuli Cattle for development
and reproduction.
In early 1999, the Company purchased an interest in a joint venture that owns a
herd of Canadian Tuli cattle, semen straws, frozen genetic embryos and other
assets. During the fiscal year 1999, the Company acquired additional chemical
detection technologies from consultants. In the fall of 1999, the Company
incorporated ChemTech/PMR, Inc. to manage the assets purchased from PMR, a
California manufacturer's representative and distributor.
On January 1, 2000, the Company acquired two west Texas corporations, Stockton
Feed & Milling, Inc. and Ranchers Feed Yards, Inc. For approximately 40 years,
Stockton Feed & Milling, Inc. has been producing and distributing, a variety of
agricultural feed and other products to both wholesale and retail markets.
Ranchers Feed Yards, Inc. derives its income by providing ranchers with a
variety of services, including the storage, feeding, maintenance and eventual
sales of livestock. AgraTech manages these two subsidiaries. The Company
continues to develop chemical detection technologies.
GOING CONCERN:
As shown in the accompanying consolidated financial statements, the Company
incurred net losses of $3,350,204 and $103,407 for the three months ended March
31, 2000 and 1999, respectively. For the period subsequent to March 31, 2000,
the Company anticipates possible capital contributions by interested investors
and the issuance of additional common stock to provide funds for current
operating expenses and new projects. Additionally, the Company's two West Texas
corporations will provide cash flow and revenues, along with ChemTech/PMR, Inc.
These funds will enable the Company to produce a level of revenue necessary to
provide the Company with positive cash flow, adequate working capital and
positive earnings during the next fiscal year.
PRINCIPLES OF CONSOLIDATION:
The accompanying consolidated financial statements include the accounts of the
Company and its subsidiaries Chemical Detection Technology, Inc., AgraTech
International, Inc., ChemTech/PMR, Inc., Stockton Feed and Milling, Inc.,
Ranchers Feed Yards, Inc., PetroTech Resources International, Inc., US Aerodyne,
Ltd., InfoTech International, Inc., P.C. Sentry, Inc., and Loch Harris Energy,
Inc. All significant intercompany accounts and transactions have been
eliminated in consolidation.
CASH AND CASH EQUIVALENTS:
For purposes of the Statement of Cash Flows, the Company considers all
investments with maturities of three months or less when purchased to be cash
equivalents. The Company has no investments classified as cash equivalents on
March 31, 2000 or 1999.
11
LOCH HARRIS, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)
THREE MONTHS ENDED MARCH 31, 2000 AND MARCH 31, 1999
NOTE 1 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (continued)
- -----------------------------------------------------------------------
PROPERTY AND EQUIPMENT:
Property and equipment are recorded at cost. Depreciation is computed using the
straight-line method over the estimated useful lives of the assets of three to
seven years. Ordinary maintenance and repairs are expensed as incurred.
OIL AND GAS PROPERTIES:
The Company uses the successful efforts method of accounting for oil and gas
producing activities. Costs to acquire mineral interests in oil and gas
properties, to drill and equip exploratory wells that find proved reserves, and
to drill and equip development wells are capitalized. Costs to drill
exploratory wells that do not find proved reserves, geological and geophysical
costs, and costs of carrying and retaining unproved properties are expensed.
Unproved oil and gas properties that are individually significant are
periodically assessed for impairment of value, and a loss is recognized at the
time of impairment by providing an impairment allowance. Other unproved
properties are amortized based on the Company's experience of successful
drilling and average holding period. Capitalized costs of producing oil and gas
properties, after considering estimated dismantlement and abandonment costs and
estimated salvage values, are depreciated and depleted by the unit-of-production
method. Support equipment and other property and equipment are depreciated over
their estimated useful lives.
On the sale or retirement of a complete unit of a proved property, the costs and
related accumulated depreciation, depletion, and amortization are eliminated
from the property accounts, and the resultant gain or loss is recognized. On
the retirement or sale of partial unit of proved property, the cost is charged
to accumulated depreciation, depletion, and amortization with a resulting gain
or loss recognized in income. On the sale of an entire interest in an unproved
property for cash or cash equivalents, gain or loss on the sale is recognized,
taking into consideration the amount of any recorded impairment if the property
had been assessed individually. If a partial interest in an unproved property
is sold, the amount received is treated as a reduction of the cost of the
interest retained.
REVENUE RECOGNITION:
Revenues from the sale of the Company's products are recognized when persuasive
evidence of an arrangement exists, delivery has occurred, the customer fee is
fixed and collection is probable. During the three months ended March 31, 2000,
the Company recorded revenues of approximately $307,524 from ChemTech/PMR,
Inc.'s direct and indirect sales, approximately $422,104 from Stockton Feed &
Milling, Inc.'s sales, and approximately $131,279 from Ranchers Feed Yards,
Inc.'s operations. The Company recorded no revenues during the three months
ended March 31, 1999.
INCOME TAXES:
The Company accounts for income taxes using the liability method as required by
Statement of Financial Accounting Standards No. 109 ("FAS 109"), Accounting for
Income Taxes. Deferred tax assets and liabilities are determined based on
differences between the financial statement and tax basis of assets and
liabilities using enacted tax rates expected to be in effect for the year in
which the differences are expected to reverse. The net change, if any, in
deferred tax asset and liabilities is reflected in the statement of operations.
USE OF ESTIMATES:
The preparation of financial statements in conformity with generally accepted
accounting principles requires management to make estimates and assumptions that
affect the reported amounts of assets and liabilities and disclosure of
contingent assets and liabilities at the date of the financial statements and
the reported amounts of revenues and expenses during the reporting period.
Actual results could differ from those results.
12
LOCH HARRIS, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)
THREE MONTHS ENDED MARCH 31, 2000 AND MARCH 31, 1999
NOTE 1 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
- -----------------------------------------------------------------------
TREASURY STOCK:
Acquisitions and sales of the Company's treasury shares are accounted for using
an average cost method.
NOTE 2 - OIL AND GAS PROPERTIES
- -------------------------------------
During 1997, the Company purchased an 80% interest in oil and gas leasehold
estates in Okmulgee County, Oklahoma including existing equipment. No value was
assigned to the equipment due to the wells requiring substantial workovers to be
productive. There has been no activity from the oil and gas property during the
three months ended March 31, 2000 or 1999. Capitalized costs relating to oil
and gas producing activities for 80% of proved undeveloped oil and gas
properties were $221,694 at March 31, 2000 and 1999.
NOTE 3 - PROPERTY AND EQUIPMENT
- ------------------------------------
Property and equipment at March 31, 2000 and 199 consisted of the following:
2000 1999
---------- ---------
Office equipment $ 96,040 $ 53,757
---------- ---------
Other equipment 296,729 -0-
Vehicles 30,000 12,000
Land 8,000 -0-
Buildings & improvements 416,252 -0-
Agricultural products 5,500 132,189
Less accumulated depreciation (677,054) (49,753)
---------- ---------
Net property and equipment $ 175,467 $148,193
========== =========
Depreciation expense, which is calculated on a straight-line basis, was $3,717
and $5,265 for the three months ended March 31, 2000 and 1998, respectively
NOTE 4 - INVESTMENT IN JOINT VENTURE
- ------------------------------------------
During the year ended June 30, 1999, the Company purchased a 25% undivided
interest in certain Tuli cattle, semen straws, frozen genetic embryos and all
other identifying assets with the cattle, from Texalta Limited Partnership. The
25% interest in the assets was contributed to AgraNetics'98. AgraNetics '98 is
a joint venture between Texalta Limited Partnership (75%) and Loch Harris, Inc.
(25%). AgraNetics '98 has entered into a management agreement with AgraTech
International, Inc., a subsidiary of the Company, for an initial term to manage,
market and sell the assets of the joint venture. AgraTech International, Inc.
will receive 35% of the gross revenue from sales of the new products generated
or acquired through the joint venture, and 10% of the revenue from sales of
existing assets. AgraTech International, Inc. will pay any ordinary capital or
maintenance charges or expenses in connection with the management of the joint
venture assets.
The investment in the joint venture is recorded on the equity method of
accounting. The joint venture has not received any revenue or incurred expenses
as of March 31, 2000. The Investment in AgraNetics is classified for reporting
purposes along with Other Assets (see Note 5).
13
LOCH HARRIS, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)
THREE MONTHS ENDED MARCH 31, 2000 AND MARCH 31, 1999
NOTE 5 - OTHER ASSETS
- -------------------------
During the recent years, the Company patented certain technologies related to an
advanced electronic monitoring and notification system and purchased technology,
designs and working papers related to the development of the Solar Pumping
System (SPS). See above Note 4 for description of Investment in AgraNetics.
Other assets as of March 31, 2000 and 1998 were as follows:
2000 1999
----------- ---------
Solar pump technology $ 42,500 $ 42,500
----------- ---------
Other intangible assets 82,232 28,500
Investment in AgraNetics 70,536 -0-
Goodwill 997,328
Less accumulated amortization (39,626) (12,350)
----------- ---------
Other assets, net $1,152,970 $ 58,650
========== =========
Amortization charged to expense for the three months ended March 31, 2000 and
1998 was $6,117 and $1,614, respectively.
NOTE 6 - SHAREHOLDER EQUITY
- -------------------------------
During the three months ended March 31, 2000 and 1999, the Company issued
26,005,000 and 3,000,000 shares of common stock, respectively, (Subject to Rule
144) for acquisition of technologies, employee compensation, consultants and
professional fees. The common stock was recorded as a charge to earnings in the
amount of $3,115,276 and $24,166 for the respective periods.
As of March 31, 1999, the Company retained treasury shares at a cost of $41,520.
NOTE 7 - STOCK OPTIONS AND WARRANTS
- -----------------------------------------
A summary of the status of the Company's stock options for the three months
ended March 31, 2000 and 1999 is presented below:
2000 1999
---------- ----------
Options outstanding 34,500,000 13,500,000
Options granted -0- -0-
Options exercised -0- -0-
Options canceled -0- -0-
---------- ----------
Options outstanding and exercisable 34,500,000 13,500,000
========== ==========
15
LOCH HARRIS, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)
THREE MONTHS ENDED MARCH 31, 2000 AND MARCH 31, 1999
NOTE 7 - STOCK OPTIONS AND WARRANTS (CONTINUED)
- ------------------------------------------------------
The following table summarizes the information about stock options as of March
31, 2000 and 1999:
Wgtd. Avrg. Weighted Weighted
Range of Remaining Average Average
Exercise Number Date Contractual Exercise Price Number Exercise Price
Price outstanding Granted Life (Total Shares) Exercisable (Exer. Shares)
------------ ----------- ------- ----------- --------------------- ----------- ---------------------
$ .25 4,000,000 6/1/95 1 years $ .25 4,000,000 $ .25
.25 4,000,000 7/1/95 1 years .25 4,000,000 .25
.01 1,000,000 7/26/96 2 years .01 1,000,000 .01
.01 500,000 7/26/96 2 years .01 500,000 .01
.051 25,000,000 04/22/99 5 years .051 25,000,000 .051
===========================================================================================================
.01-
$ .25 34,500,000 3.6 years $ .11 34,500,000 $ .11
============ =========== =========== ===================== ============= ===================
All options, which were granted to officers, directors or consultants for
services, expire in years 1999 through 2004. Each stock option granted can be
exercised for one share of common stock.
15
LOCH HARRIS, INC. AND SUBSIDIARIES
SUPPLEMENTAL RESERVE INFORMATION (UNAUDITED)
MARCH 31, 2000 AND 1999
The following estimates of proved undeveloped reserve quantities and related
standardized measure of discounted net cash flow are estimates only, and do not
purport to reflect realizable values or fair market values of the Company's
reserves. The Company emphasizes that reserve estimates are inherently
imprecise and that estimates of new discoveries are more imprecise than those of
producing oil and gas properties. Accordingly, these estimates are expected to
change as future information becomes available. All of the Company's reserves
are located in the United States.
Proved reserves are estimated reserves of crude oil (including condensate and
natural gas liquids) and natural gas that geological and engineering data
demonstrate with reasonable certainty to be recoverable in future years from
known reservoirs under existing economic and operating conditions. Proved
undeveloped reserves are those expected to be recovered through existing wells,
equipment, and operating methods, but that require a major capital expenditure.
The standardized measure of discounted future net cash flows is computed by
applying year-end prices of oil and gas (with consideration of price changes
only to the extent provided by contractual arrangements) to the estimated future
production of proved oil and gas reserves, assuming continuation of existing
economic conditions. The estimated future net cash flows are then discounted
using a rate of 6.5 percent a year to reflect the estimated timing of the future
cash flows.
Oil *(Bbls) Gas (Mcf)
------------- ------------
Proved undeveloped reserves 26,866 267,247
============= ============
Standardized measure of discounted
future net cash flows
as of March 31, 2000 and 1999:
Future cash inflows $ 856,884
Future production (252,090)
Future development costs (294,420)
------------
Net cash flow undiscounted 310,374
Future net cash flows 6.5% annual
discounted for estimated
timing of cash flows (88,680)
------------
Standardized measures of discounted
future net cash flows relating to proved
undeveloped oil and gas reserves $ 221,694
============
*Oil reserves shown include condensate only. Oil volumes are expressed in
barrels which are equivalent to 42 United States gallons. Gas volumes are
expressed in thousands of standard cubic feet (MCF) at the contract temperature
and pressure bases.
16
SIGNATURES
In accordance with the requirements of the Exchange Act, the registrant caused
this report to be signed on its behalf by the undersigned, thereunto duly
authorized.
Signature Capacity Date
- --------- -------- ----
Chairman of the Board May 15, 2000
- ---------------------- ---------------------
Dr. R.B. Baker
Chief Financial Officer May 15, 2000
- ---------------------- ---------------------
Mark E. Baker
17