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The Company provides for deferred income taxes on all
<br />amounts which are reported in different periods for income
<br />lax and financial reporting purposes. The tax effects of the
<br />timing differences resulting in deferred taxes for the years
<br />ended June 30, 1985 and 1984 are as follows:
<br /> 1985 1981
<br />Inlanxible drilling cosh, dry hole costs,
<br />bandoned leases and delay rentals $4,283,54b S?,595.b I I
<br />Etcess of book over lax deprecial¢m,
<br />deplclinn and amortization (1,406,444) Il.drn,7831
<br />Tax ryvlnershi ps reporting mcnme and
<br />ecpences on a calendar vear bn>~s (2,088,002) 1.595,191
<br />Uther 144.100) 315f)74
<br /> $ 745,000 53,ols,ouo
<br />5. Commitments:
<br />Operating Leases:
<br />The Company leases office space under a noncuxelable
<br />lease agreement Certain officers and directors ui the
<br />Company have an interest in the office building in v,~hich the
<br />Company leases space. The agreement provides for monthly
<br />rentals of $15,782. The lease Is for a term of five years and
<br />the Company has an option to renew the lease for two
<br />successive flue-year terms at rental rates w be determined.
<br />Future minimum rental payments required antler the lease
<br />are as follows:
<br />Year Ending lone 30
<br />198,' 5189,380
<br />19ns 1a9,3nu
<br />19n~1 I ev, 3eu
<br />Tnlal 55671.1 ~10
<br />Rent expense under the lease is being recognized for
<br />financial statement purposes on a straight-line basis over the
<br />term of the lease. Rent expense fur the years ended June 30,
<br />1986,1985 and 1984 was $Iii,bSG,$155,U38,and $39,715,
<br />respectively. The lessor has proposed an extension of the
<br />lease to a five-year term from August 1, 1986 in conslderalion
<br />for lowered rental rates fur that period. Negotiations relating
<br />to the lessor"s proposal are in progress.
<br />Employment Contracts:
<br />At July 1, 1986, the Company hoc employment agreements
<br />with three of the Company's officers. Total minimum annual
<br />compensation under the three-year terms of the employment
<br />agreements is $214.800 (an aggregate of $b 3x,400 for all
<br />years). The contracts also provide for participation in fringe
<br />benefit programs of the Company.
<br />6. LlHgatton;
<br />Marathon Litigation:
<br />In the suit brought by the Company against Marathon the
<br />former operator of the Tulare Lake Field in Kings County,
<br />California in the District Court for the City and Counh~ of
<br />Denver, State of Colorado, Civil Action No. 85 CV 6456,
<br />the Company sought recovery for various alleged operating
<br />expense overcharges, alleged underpayment of the prevailing
<br />price for crude oil, and alleged improper field operating
<br />practices. Marathon, on the other hand, counterclaimed
<br />(or payment of 25 percent of the amount of $3,575,000
<br />($893,750), which it paid to the lessors of the Tulare Lake
<br />Field, allegedly on behal(of all working interest owners, to
<br />settle a claim for underpaid royalties asserted by the lessors
<br />to have resulted from the improper drainage of the Held.
<br />The Company has settled all disputes with Marathon.
<br />Elements of the settlement include the receipt by the
<br />Company of a credit in the amount of $648,750 to be
<br />applied against the claim of $893,750 made by Marathon,
<br />which resulted in the Company paying to Marathon the
<br />sum of $245,000. In addition, Marathon assigned to the
<br />Company, Marathon's claim against a field gas purchaser
<br />relating to alleged underpayments. Marathon gave no
<br />assurance or representation as to the validity ur value of
<br />the claim.
<br />Neither the Company nor Marathon, as a result of the
<br />settlement, admitted any liability to the other, and expressly
<br />denied such liability. Mutual general releases of liability have
<br />been signed by each party. The settlement was eilectecf to
<br />reduce the cost of litigation and to resolve highly disputed
<br />claims which would have required significant administrative
<br />time and resources.
<br />7. Stockholders Equity:
<br />Sale of Common Stock:
<br />During the year ended June 30, 1984, the Company
<br />completed an offering to its existing stockholders of
<br />nontransferable rights to subscribe for shares of its common
<br />clock at $8.50 per share. An aggregate 0(1,047,441 common
<br />shares were subscribed for and sold in the ofiering which
<br />resulted in net proceeds to the Company o(approximately
<br />$8,700,000.
<br />Preferred Stuck:
<br />The Company has 10,000,000 authorized and unissued
<br />shares of $.Ul par value preferred stock.
<br />stock Options:
<br />The Companyb board of directors has authorized the
<br />adoption of five incentive stock option plans (1981, 1982.
<br />1983, 1984 and 1985) and a nonqualified stock option plan
<br />covering a total of 650,000 shares of common stock which
<br />are available for grant to employees and directors of the
<br />Company. Options granted under the plans are exercisable at
<br />prices equal to the market value of the common stock of the
<br />date of grant and in installments of not less than one-third of
<br />the shares uptirnied. Options under the 1981 plan expire five
<br />years alter date of grant and options under each of the other
<br />plans expire ten years after date of grant Options under the
<br />1981 plan have been fully exercised.
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