1
FORM 10-Q
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
(X) QUARTERLY REPORT UNDER SECTION 13 OR 15 (d) OF THE SECURITIES EXCHANGE
ACT OF 1934
FOR THE QUARTERLY PERIOD ENDED: MAY 31, 1996
OR
( ) 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 0-18656
PONDER INDUSTRIES, INC.
(EXACT NAME OF REGISTRANT AS SPECIFIED IN ITS CHARTER)
DELAWARE 75-2268672
(STATE OR OTHER JURISDICTION OF (I.R.S. EMPLOYER
INCORPORATION OR ORGANIZATION) IDENTIFICATION NUMBER)
5005 RIVERWAY DRIVE, SUITE 550, HOUSTON, TEXAS 77056
(ADDRESS OF PRINCIPAL EXECUTIVE OFFICES, ZIP CODE)
(713)965-0653
(Registrant's telephone number, including area code)
Indicate by check mark whether the registrant (1) has filed all reports
required to be filed by Section 13 or 15(d) of the Securities Exchange Act of
1934 during the preceding 12 months (or for such shorter period that the
registrant was required to file such reports), and (2) has been subject to such
filing requirements for the past 90 days.
Yes XX No
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APPLICABLE ONLY TO CORPORATE ISSUERS:
Indicate the number of shares outstanding of each of the issuer's classes of
common stock as of the latest practicable date.
Class Issued at July 11, 1996
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Common Stock, $.01 par value 11,677,007
Page 1 of 12
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INDEX
PART I - FINANCIAL INFORMATION
Condensed Consolidated Statements of Operations for the three
and nine months periods ended May 31, 1996 and 1995 Page 3
Condensed Consolidated Balance Sheets as of
May 31, 1996 and August 31, 1995 Page 4
Condensed Consolidated Statements of Cash Flows for
the nine months ended May 31, 1996 and 1995 Page 5
Condensed Consolidated Statements of Stockholders' Equity
for the nine months ended May 31, 1996 Page 6
Notes to Condensed Consolidated Financial Statements Page 7
Management's Discussion and Analysis of Financial
Condition and Results of Operations Page 9
PART II - OTHER INFORMATION:
Legal proceedings Page 10
Changes in Securities Page 10
Defaults upon Senior Securities Page 10
Submission of Matters to a Vote of Security Holders Page 10
Other Information Page 10
Exhibits and Reports - Form 8-K Page 10
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PONDER INDUSTRIES, INC.
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
(UNAUDITED)
Nine Months Ended Three Months Ended
May 31, May 31,
--------------------------- ---------------------------
1996 1995 1996 1995
------------ ------------ ------------ ------------
Tool rentals and sales $ 7,184,421 5,176,972 3,002,564 1,331,963
Costs of service and sales 3,120,126 2,603,316 1,187,209 715,018
------------ ------------ ------------ ------------
Gross profit $ 4,064,295 2,573,656 1,815,355 616,945
Operating expenses 2,008,037 1,016,295 957,351 341,541
General and administrative 2,636,660 1,215,804 1,047,029 410,595
Other (income) expense (206,275) (116,509) (17,497) (36,569)
------------ ------------ ------------ ------------
$ (374,127) 458,066 (171,528) (98,622)
------------ ------------ ------------ ------------
Interest 444,251 391,069 230,068 137,752
Depreciation 520,329 633,098 227,647 201,965
(Gain) loss on sale of ass 6,576 (1,342,064) 5,322 (1,343,238)
------------ ------------ ------------ ------------
Income (loss) from continuing
operations $ (1,345,283) 775,963 (634,565) 904,899
Discontinued operations 1,400,000 (286,984) -- (286,984)
------------ ------------ ------------ ------------
Net income (loss) $ 54,717 488,979 (634,565) 617,915
============ ============ ============ ============
Earnings (loss) per share:
Continuing operation $ (0.16) 0.12 (0.07) 0.13
============ ============ ============ ============
Discontinued operations $ 0.17 (0.04) -- (0.04)
============ ============ ============ ============
Net income (loss) $ 0.01 0.08 (0.07) 0.09
============ ============ ============ ============
Weighted average shares outstanding 8,250,998 6,667,437 9,350,018 6,667,437
============ ============ ============ ============
See accompanying notes to consolidated financial statements.
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PONDER INDUSTRIES, INC.
CONDENSED CONSOLIDATED BALANCE SHEETS
Assets
May 31, 1996 August 31, 1995
------------ ---------------
(Unaudited)
Current Assets
Cash - unrestricted $ 5,332,721 180,445
Cash - restricted -- 169,988
Receivables 3,691,986 1,277,110
Inventories 869,492 596,641
Prepaid expenses and other 728,170 341,468
------------ ------------
Total current assets $ 10,622,369 2,565,652
------------ ------------
Property and Equipment 25,705,069 14,310,745
Less accumulated depreciation (13,326,344) (11,548,868)
------------ ------------
$ 12,378,725 2,761,877
------------ ------------
Parts and supplies 808,257 804,212
Investment 900,000 --
Deferred cost and other assets 398,846 108,076
Goodwill - net 813,823 575,360
------------ ------------
$ 2,920,926 1,487,648
------------ ------------
$ 25,922,020 6,815,177
============ ============
Liabilities and Stockholder's Equity
Current liabilities
Note payable $ -- 200,000
Current installments of long-term debt 1,216,109 356,522
Accounts payable 2,595,952 666,570
Accrued liabilities 309,799 426,755
Estimated accrued costs-discontinued operations -- 510,390
------------ ------------
Total current liabilities $ 4,121,860 2,160,237
------------ ------------
Deferred tax liability 168,904 --
------------ ------------
Long-term debt 2,818,689 2,343,012
------------ ------------
8% convertible debentures, net of discount 9,885,417 --
------------ ------------
Stockholder's equity:
Common stock-$.01 par value; 112,665 66,674
authorized 50,000,000
shares, issued 11,266,558
shares of which 289,873
are held as treasury shares
Additional paid in capital 19,731,087 13,216,573
Accumulated deficit (9,828,398) (9,883,115)
------------ ------------
$ 10,015,354 3,400,132
Less: Note receivable for stock (60,466) (60,466)
Treasury stock (1,027,738) (1,027,738)
------------ ------------
Total stockholder's equity $ 8,927,150 2,311,928
------------ ------------
$ 25,922,020 6,815,177
============ ============
See accompanying notes to consolidated financial statements.
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PONDER INDUSTRIES, INC.
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(UNAUDITED)
Nine Months Ended May 31,
----------------------------
1996 1995
------------ ------------
Cash Flows from operating activities:
Net income $ 54,717 488,979
Depreciation 520,329 952,709
Sale of assets 6,576 (1,342,064)
Gain from discontinued operations (1,400,000) --
Net change in assets and liabilities:
Receivables (1,351,150) (1,011,977)
Inventories (272,851) 9,961
Prepaid expenses 113,298 225,797
Payables 611,075 (455,804)
Accrued liabilities 116,956 (260,105)
------------ ------------
Cash flow - continuing operating activities $ (1,601,050) (1,392,504)
------------ ------------
Cash flow - discontinued activities (510,390) --
------------ ------------
Cash flow - operating activities $ (2,111,440) (1,392,504)
Cash Flows from investing activities:
Property and equipment additions (3,893,001) (185,493)
Acquisition of business (1,600,000) --
Proceeds from sales of assets -- 2,729,631
------------ ------------
Cash flow - investing activities $ (5,493,001) 2,544,138
Cash Flows from financing activities:
Principal payments (4,472,777) (6,057,917)
Collection of notes receivable -- 6,732
Bank overdraft -- 2,889
Reduction of restricted cash - debt collateral (169,988) --
Issuance of stock 2,412,000 --
Issuance of 8% Debentures, net of discount 9,885,000 --
Debt issuance proceeds 5,102,482 4,896,662
------------ ------------
Cash flow - financing activities $ 12,756,717 (1,151,634)
Cash increase (decrease) 5,152,276 --
Cash and cash equivalents beginning 180,445 --
------------ ------------
Cash and cash equivalents ending $ 5,332,721 --
============ ============
Supplemental Disclosure:
Cash paid for interest $ 255,874 294,548
============ ============
Cash paid for taxes $ -- 15,045
============ ============
See accompanying notes to consolidated financial statements.
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Ponder Industries, Inc.
Condensed Consolidated Statement of Stockholders' Equity
(Unaudited)
Common Stock Additional
--------------------- Paid-in Accumulated Note Treasury
Balance: Shares Par Value Capital (Deficit) Receivable Stock Total
------ --------- ---------- ----------- ---------- -------- -----
September 1, 1995 6,667,437 $ 66,674 13,216,573 (9,883,115) (60,466) (1,027,738) $ 2,311,928
Shares issued 4,599,121 $ 45,991 6,514,514 ---- ---- ---- $ 6,560,505
Net income ---- ---- ---- 54,717 ---- ---- $ 54,717
---------- -------- ---------- ---------- ------- ---------- -----------
Balance:
May 31, 1996 11,266,558 $112,665 19,731,087 (9,828,398) (60,466) (1,027,738) $ 8,927,150
========== ======== ========== ========== ======= ========== ===========
See accompanying notes to consolidated financial statements.
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NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
1. BASIS OF PRESENTATION
The accompanying unaudited consolidated financial statements have been prepared
in accordance with the instructions to Form 10-Q and in the opinion of
management, reflect all adjustments which are of a normal recurring nature
necessary for a fair presentation of financial position, results of operations
and of cash flow. These financial statements should be read in conjunction
with the financial statements and notes thereto included in the Company's
latest annual report on Form 10-K.
2. EARNINGS PER SHARE
Net income (loss) per share is computed using the weighted average number of
common stock and common stock outstanding for the periods reported.
3. RESTATEMENT OF PRIOR PERIODS
In February of 1996 the Company disposed of its operations in Azerbaijan. Such
operations were sold to Titan Resources Inc. (Titan) for $500,000 and 1,500,000
shares of Titan stock valued at $900,000. This resulted in a gain of $1,400,000
on the discontinued operations as the Company had previously written off all
assets associated with this operation. Operating results applicable to
Azerbaijan for the nine and three months ended May 31, 1995 are classified as
discontinued operations in the accompanying financial statements.
Depreciation expense for the nine months and the three months ended May 31,
1995, in the amounts of $633,098 and $201,965, respectively, were previously
included in operating and general and administrative expense in the
accompanying statements of operations.
4. ACQUISITIONS
During the second quarter, the Company acquired Runyon Oil Tools, Inc. (Olney,
Illinois), DiKor, Inc. (Carni, Illinois) and C & F Fishing Tools, Inc.
(Maysville, Oklahoma) in separate transactions in consideration for an
aggregate of $354,001 and 330,915 shares of the Company's restricted common
stock.
Effective April 1, 1996, the Company completed the acquisition of Panther Oil
Tools, (UK) Ltd (a Jersey company) and the assets of Villain Ltd. (a Guernsey
company) for $1,250,000 and 1,200,000 shares of the Company's restricted common
stock. The following table sets forth the proforma effect of the acquisitions.
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For the Nine Months Ended
-----------------------------------------------------
May 31, 1996 May 31, 1995
-------------------------- ------------------------
As Reported Proforma As Reported Proforma
-------------------------- ------------------------
Tool Rental and Sales $7,184,421 $8,782,521 $5,176,972 $6,694,242
Income from Continuing Operations $54,717 $319,317 $488,979 $654,704
Earnings per share from Continuing $ 0.01 $ 0.03 $ 0.06 $ 0.08
Operations
For the Three Months Ended
-----------------------------------------------------
May 31, 1996 May 31, 1995
-------------------------- ------------------------
As Reported Proforma As Reported Proforma
-------------------------- ------------------------
Tool Rental and Sales $3,002,564 $3,230,864 $1,331,963 $1,548,723
Income (loss) from Continuing ($634,565) ($596,765) $617,915 $641,590
Operations
Earnings (loss) per share from ($ 0.06) ($ 0.06) $ 0.08 $ 0.08
Continuing Operations
5. DEBENTURE OFFERING
Effective April 26, 1996, the Company completed a $10,950,000 placement of
eight percent Convertible Debentures. The debenture issue resulted in net
proceeds of $9,855,000. The debentures may be converted into common stock of
the Company as of specified dates, and will be automatically converted into
common stock on April 26, 1999. The debentures generally convert at a defined
conversion price formula, based on $5.0625 per share or at a variable
conversion rate relative to the market price at date of conversion.
As of July 12, 1996, debentures in the aggregate principal amount of
$1,100,000 had been converted into 357,256 shares of common stock. Bond
discount amortization in the amount of $30,417 and interest in the amount of
$84,000 are included in interest expense for the nine months and three months
ended May 31, 1996.
6. SUBSEQUENT EVENTS
In May, 1996, the Company signed a Letter of Intent to acquire Abilene, Texas
based G&L Fishing Tool Company (G&L)) for $4,000,000 and a $5,000,000 short
term note. The Company anticipates the acquisition to be completed in August,
1996.
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ITEM 2 MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS
LIQUIDITY AND CAPITAL RESOURCES
The Company's working capital was $6,500,509 on May 31, 1996 as compared to
$405,415 on August 31, 1995. The major source of the increase was the April
26, 1996 issuance of the eight percent (8%) Convertible Debenture which
provided $9,855,000 as discussed in Note 4 to the accompanying financial
statements. Additionally, in December 1995, 1,500,000 shares of restricted
common stock with warrants were sold, with resulting net proceeds of $912,000.
During the second quarter of 1996, warrants to purchase 500,000 shares at
$1.00 per share and 500,000 shares at $2.00 per share were exercised for a
total consideration of $1,500,000.
During the period, the Company completed the acquisitions discussed in Note 3,
which utilized cash of $1,600,000 and purchased property and equipment in
consideration for cash of $3,800,000.
The Company's ability to satisfy its cash requirements is evaluated by
analyzing key measures of liquidity applicable to the Company. The following
table is a summary of the measures which are significant to management.
May 31, 1996 August 31, 1995
------------ ---------------
Working Capital $6,500,509 $405,415
Current Ratio 2.58 to 1 1.19 to 1
Debt to Capitalization .61 to 1 .54 to 1
(Debt/Debt + Equity)
RESULTS OF OPERATIONS
NINE MONTHS ENDED MAY 31, 1996 VS MAY 31, 1995
Revenues increased $2,007,449 or 39%, cost of sales increased $516,810 or 20%
and operating expenses increased $991,742 or 98% when compared to the same
period of the prior year. The increases are attributable to increased
marketing efforts and the addition of new locations in Louisiana, Arkansas and
Oklahoma. Operating expenses increased disproportionately to revenue due to
increased new location start-up costs and the addition of operating personnel.
General and administrative expense increased substantially due to additional
management personnel and expenses relating to acquisitions.
During May of 1995 the Company conducted an auction of its excess rental tools
and certain equipment. Such sale resulted in $2,657,656 proceeds and
$1,357,887 gain from disposal of assets.
THREE MONTHS ENDED MAY 31, 1996 VS MAY 31, 1995
Revenues increased $1,670,601 or 125%, cost of sales increased $472,191 or 66%
and operating expenses increased $615,810 or 180%, all increases due to
management's efforts to increase operating locations and marketing efforts.
General and administrative expenses increased 155% due to the addition of
management personnel and expenses relating to acquisitions.
During May of 1995 the Company conducted an auction of its excess rental tools
and certain equipment. Such sale resulted in $2,657,656 proceeds and
$1,357,887 gain from disposal of assets.
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PART II. OTHER INFORMATION
ITEM 1 . LEGAL PROCEEDINGS
For a description of legal proceedings against the Company see Item 1 of the
Company's Quarterly Report on Form 10-Q dated February 29, 1996.
ITEM 2. CHANGES IN SECURITIES
Not applicable
ITEM 3. DEFAULTS UPON SENIOR SECURITIES
Not applicable
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
Not applicable.
ITEM 5. OTHER INFORMATION
Not applicable
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K
(a) Exhibits.
*2.1 Agreement for Sale and Purchase of Stock of Runyon Oil Tools,
Inc. dated April 26, 1996, among Ponder Industries, Inc.,
Runyon Oil Tools, Inc., Steven E. Runyon, Freda M. Runyon, as
Custodian for Stephanie Runyon under the Illinois Uniform
Transfers to Minors Act, Freda M. Runyon, as Custodian for
Amanda Runyon under the Illinois Uniform Transfers to Minors
Act, Freda M. Runyon, as Custodian for Lucas Runyon under the
Illinois Uniform Transfers to Minors Act, and Freda M. Runyon,
as Custodian for Blake Runyon under the Illinois Uniform
Transfers to Minors Act.
2.2 Stock Purchase Agreement dated May 23, 1996, among Ponder
Energy Services, Inc., Panther Oil Tools (UK) Ltd. and Panther
Oil Tools Ltd. (incorporated by reference to Exhibit 2.1 of
the Company's Current Report on Form 8-K filed June 7, 1996).
2.3 Asset Purchase Agreement dated May 23, 1996, among Ponder
Energy Services, Inc., Villain Ltd., John Le Seelleur, Mel
Maitland and Wayne Tynon (incorporated by reference to Exhibit
2.1 of the Company's Current Report on Form 8-K filed June 7,
1996).
*2.4 Stock Purchase Agreement dated May 17, 1996, between Ponder
Industries, Inc. and LJH Corporation.
*4.1 Form of 8% Convertible Debenture of Ponder Industries, Inc.
dated April 26, 1996.
*10.1 Regulation S Securities Subscription Agreement dated April 26,
1996, among each Subscriber for 8% Convertible Debentures of
Ponder Industries, Inc. and Ponder Industries, Inc.
*10.2 Offshore Securities Subscription Agreement dated December 22,
1995, between Eagle Management Services Limited and Ponder
Industries, Inc.
*10.3 Offshore Securities Subscription Agreement dated December 22,
1995, between Atlantic Holdings Limited and Ponder
Industries, Inc.
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*10.4 Warrant to Purchase Common Stock, $.01 par value, of Ponder
Industries, Inc. between Eagle Management Services Limited and
Ponder Industries, Inc.
*10.5 Warrant to Purchase Common Stock, $.01 par value, of Ponder
Industries, Inc. between Atlantic Holdings Limited and Ponder
Industries, Inc.
27 Financial Data Schedule.
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* Filed herewith
(b) Reports on Form 8-K
(1) A Form 8-K (Item 2. Acquisition or Disposition of
Assets) was filed on June 7, 1996 reporting the
acquisition of all of the issued and outstanding
capital stock of Panther Oil Tools (UK) Ltd. and
substantially all of the assets of Villain Ltd.
*****************
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Pursuant to the requirements of the Securities Exchange Act of 1934, the
registrant has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.
PONDER INDUSTRIES, INC.
By: /s/ Larry Armstrong
-----------------------------------
Larry Armstrong
President and Chief Executive
Officer
/s/ Eugene L. Butler July 12, 1996
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Eugene L. Butler
Executive Vice President and
Chief Financial Officer
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INDEX TO EXHIBITS
EXHIBIT
NUMBER DESCRIPTION
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*2.1 Agreement for Sale and Purchase of Stock of Runyon Oil Tools,
Inc. dated April 26, 1996, among Ponder Industries, Inc.,
Runyon Oil Tools, Inc., Steven E. Runyon, Freda M. Runyon, as
Custodian for Stephanie Runyon under the Illinois Uniform
Transfers to Minors Act, Freda M. Runyon, as Custodian for
Amanda Runyon under the Illinois Uniform Transfers to Minors
Act, Freda M. Runyon, as Custodian for Lucas Runyon under the
Illinois Uniform Transfers to Minors Act, and Freda M. Runyon,
as Custodian for Blake Runyon under the Illinois Uniform
Transfers to Minors Act.
2.2 Stock Purchase Agreement dated May 23, 1996, among Ponder
Energy Services, Inc., Panther Oil Tools (UK) Ltd. and Panther
Oil Tools Ltd. (incorporated by reference to Exhibit 2.1 of
the Company's Current Report on Form 8-K filed June 7, 1996).
2.3 Asset Purchase Agreement dated May 23, 1996, among Ponder
Energy Services, Inc., Villain Ltd., John Le Seelleur, Mel
Maitland and Wayne Tynon (incorporated by reference to Exhibit
2.1 of the Company's Current Report on Form 8-K filed June 7,
1996).
*2.4 Stock Purchase Agreement dated May 17, 1996, between Ponder
Industries, Inc. and LJH Corporation.
*4.1 Form of 8% Convertible Debenture of Ponder Industries, Inc.
dated April 26, 1996.
*10.1 Regulation S Securities Subscription Agreement dated April 26,
1996, among each Subscriber for 8% Convertible Debentures of
Ponder Industries, Inc. and Ponder Industries, Inc.
*10.2 Offshore Securities Subscription Agreement dated December 22,
1995, between Eagle Management Services Limited and Ponder
Industries, Inc.
*10.3 Offshore Securities Subscription Agreement dated December 22,
1995, between Atlantic Holdings Limited and Ponder
Industries, Inc.
*10.4 Warrant to Purchase Common Stock, $.01 par value, of Ponder
Industries, Inc. between Eagle Management Services Limited and
Ponder Industries, Inc.
*10.5 Warrant to Purchase Common Stock, $.01 par value, of Ponder
Industries, Inc. between Atlantic Holdings Limited and Ponder
Industries, Inc.
27 Financial Data Schedule.
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* Filed herewith