1
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-Q
(Mark One)
[X] Quarterly Report Pursuant to Section 13 or 15(d)
of the Securities Exchange Act of 1934
For the Quarterly Period Ended February 28, 1997
-----------------
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
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PONDER INDUSTRIES, INC.
(Exact name of registrant as specified in its charter)
Delaware 75-2268672
(State or other jurisdiction of (IRS Employer
incorporation or organization) Identification No.)
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 X No
--- ---
Indicate the number of shares outstanding of each of the issuer's classes of
common stock as of the latest practicable date.
Class Outstanding at March 31, 1997
----- -----------------------------
Common Stock, $.01 par value 13,271,324
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\ PONDER INDUSTRIES, INC., AND SUBSIDIARIES
INDEX
Page
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PART I FINANCIAL INFORMATION
Item 1: Condensed Consolidated Balance Sheets as of February 28, 1997, and
August 31, 1996 3
Condensed Consolidated Statements of Operations for the Three Months and Six Months
Ended February 28/29, 1997 and 1996 5
Condensed Consolidated Statements of Cash Flows for the Six
Months Ended February 28/29, 1997 and 1996 6
Notes to Condensed Consolidated Financial Statements 8
Item 2: Management's Discussion and Analysis of Financial Condition and Results
of Operations 11
PART II OTHER INFORMATION
Item 1: Legal Proceedings 14
Item 2: Changes in Securities 14
Item 3: Defaults Upon Senior Securities 14
Item 4: Submission of Matters to a Vote of Security Holders 14
Item 5: Other Information 14
Item 6: Exhibits and Reports on Form 8-K 14
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PONDER INDUSTRIES, INC., AND SUBSIDIARIES
CONDENSED CONSOLIDATED BALANCE SHEETS
February 28,
1997 August 31,
ASSETS (Unaudited) 1996
------------ ------------
CURRENT ASSETS:
Cash and cash equivalents $ 34,300 $ 397,927
Receivables, net 5,190,589 3,646,960
Other receivable 500,000 500,000
Parts and supplies 3,444,529 3,046,288
Prepaid expenses and other 243,737 514,464
------------ ------------
Total current assets 9,413,155 8,105,639
------------ ------------
PROPERTY AND EQUIPMENT 31,772,153 28,170,569
Less-Accumulated depreciation and amortization (13,685,188) (12,644,782)
------------ ------------
18,086,965 15,525,787
------------ ------------
INVESTMENT IN JOINT VENTURE 309,996 --
OTHER ASSETS 2,233,322 2,184,435
DEFERRED ASSETS, net 833,242 853,408
GOODWILL, net 1,398,119 1,232,807
------------ ------------
4,774,679 4,270,650
------------ ------------
$ 32,274,799 $ 27,902,076
============ ============
The accompanying notes are an integral part of these condensed
consolidated financial statements.
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PONDER INDUSTRIES, INC., AND SUBSIDIARIES
CONDENSED CONSOLIDATED BALANCE SHEETS (Continued)
February 28,
1997 August 31,
LIABILITIES AND STOCKHOLDERS' EQUITY (Unaudited) 1996
------------ ------------
CURRENT LIABILITIES:
Current maturities of long-term debt and other $ 2,746,303 $ 1,922,814
Accounts and notes payable, trade 5,398,358 2,863,477
Accrued liabilities 1,142,640 2,122,559
------------ ------------
Total current liabilities 9,287,301 6,908,850
------------ ------------
LONG-TERM DEBT, less current maturities 8,128,429 4,148,207
------------ ------------
OTHER LONG-TERM LIABILITIES 706,506 449,418
------------ ------------
DEFERRED TAXES PAYABLE 898,502 233,081
------------ ------------
CONVERTIBLE DEBENTURES 8,400,000 9,150,000
------------ ------------
COMMITMENTS AND CONTINGENCIES (Note 2)
STOCKHOLDERS' EQUITY:
Common stock, $.01 par value, authorized 50,000,000 shares, issued
12,699,997 shares and 12,131,347 shares at 1997 and 1996, respectively, of
which 289,873 are held as treasury shares 127,000 121,313
Additional paid-in capital 22,722,934 21,880,361
Cumulative foreign currency translation adjustment (13,068) 23,596
Accumulated deficit (16,709,074) (13,775,188)
------------ ------------
6,127,792 8,250,082
LESS:
Note receivable for common stock (63,540) (63,540)
Deferred compensation (182,453) (146,284)
Treasury stock (1,027,738) (1,027,738)
------------ ------------
Total stockholders' equity 4,854,061 7,012,520
------------ ------------
$ 32,274,799 $ 27,902,076
============ ============
The accompanying notes are an integral part of these condensed
consolidated financial statements.
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PONDER INDUSTRIES, INC., AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
(Unaudited)
Three Months Ended Six Months Ended
February 28/29 February 28/29
------------------------------ -----------------------------
1997 1996 1997 1996
------------ ------------ ------------ -----------
TOOL RENTALS AND SALES $ 5,247,917 $ 2,036,006 $ 10,389,042 $ 4,181,857
COSTS OF SERVICE AND SALES 2,276,776 1,085,952 4,479,396 1,932,917
------------ ------------ ------------ -----------
Gross profit 2,971,141 950,054 5,909,646 2,248,940
------------ ------------ ------------ -----------
EXPENSES:
Operating 2,819,163 1,191,730 5,139,443 2,017,729
General and administrative 1,692,967 485,360 2,850,021 915,269
------------ ------------ ------------ -----------
4,512,130 1,677,090 7,989,464 2,932,998
------------ ------------ ------------ -----------
Operating loss (1,540,989) (727,036) (2,079,818) (684,058)
OTHER INCOME (EXPENSE):
Interest, net (565,543) (145,714) (919,306) (212,267)
Gain (loss) on disposal of assets 48,005 (6,044) 48,005 (1,254)
Other 6,276 155,762 17,233 186,862
------------ ------------ ------------ -----------
LOSS BEFORE DISCONTINUED OPERATIONS (2,052,251) (723,032) (2,933,886) (710,717)
DISCONTINUED OPERATIONS -- 1,400,000 -- 1,400,000
------------ ------------ ------------ -----------
NET INCOME (LOSS) $ (2,052,251) $ 676,968 $ (2,933,886) $ 689,283
============ ============ ============ ===========
EARNINGS (LOSS) PER SHARE $ (.17) $ .08 $ (.24) $ .09
============ ============ ============ ===========
WEIGHTED AVERAGE COMMON SHARES AND COMMON SHARE EQUIVALENTS
OUTSTANDING
12,352,524 7,974,260 12,298,187 7,405,578
============ ============ ============ ===========
The accompanying notes are an integral part of these condensed
consolidated financial statements.
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PONDER INDUSTRIES, INC., AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(Unaudited)
Six Months
Ended February 28/29
-----------------------------
1997 1996
------------ -----------
CASH FLOWS FROM OPERATING ACTIVITIES:
Net income (loss) $ (2,933,886) $ 689,283
Adjustments to reconcile net income (loss) to net cash used in
operating activities-
Depreciation and amortization 1,136,770 325,360
(Gain) loss on disposal of assets (48,005) 1,254
Gain from discontinued operations -- (1,400,000)
Deferred compensation expense 54,740 --
Noncash interest expense 506,662 --
Net change in operating assets and liabilities-
Receivables (1,543,629) (735,502)
Parts and supplies (398,241) (107,370)
Prepaid expenses and other 270,727 97,599
Accounts and notes payable, trade 2,534,881 255,348
Accrued and other liabilities (1,013,118) 97,775
------------ -----------
Net cash used in continuing operating activities (1,433,099) (776,253)
------------ -----------
CASH USED IN DISCONTINUED OPERATIONS -- (510,390)
------------ -----------
Net cash used in operating activities (1,433,099) (1,286,643)
------------ -----------
CASH FLOWS FROM INVESTING ACTIVITIES:
Purchases of property and equipment (3,215,101) (257,143)
Proceeds from asset sales 205,024 52,745
Investment in joint venture (115,431) --
------------ -----------
Net cash used in investing activities (3,125,508) (204,398)
------------ -----------
CASH FLOWS FROM FINANCING ACTIVITIES:
Principal payments of long-term debt (7,697,552) (3,773,077)
Financing and debt collateral payments (233,245) 122,433
Proceeds from long-term debt borrowings 12,162,441 4,050,230
Proceeds from issuance of common stock -- 911,000
------------ -----------
Net cash provided by financing activities 4,231,644 1,310,586
------------ -----------
EFFECT OF EXCHANGE RATE CHANGES ON CASH (36,664) --
------------ -----------
NET CHANGE IN CASH AND CASH EQUIVALENTS (363,627) (180,455)
CASH AND CASH EQUIVALENTS, beginning of period 397,927 180,455
------------ -----------
CASH AND CASH EQUIVALENTS, end of period $ 34,300 $ --
============ ===========
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Six Months
Ended February 28/29
--------------------------
1997 1996
------------- --------
SUPPLEMENTAL DISCLOSURES OF CASH FLOWS INFORMATION:
Cash paid for interest $ 397,701 $176,627
============= ========
Cash paid for income taxes $ -- $ --
============= ========
SUPPLEMENTAL DISCLOSURES OF NONCASH INVESTING AND FINANCING ACTIVITIES:
Assets acquired for debt $ -- $925,474
============= ========
Assets acquired and liabilities assumed in connection with acquisitions $ 845,021 $ --
============= ========
Assets contributed in connection with joint venture $ 194,565 $ --
============= ========
Capital lease obligation incurred $ 136,121 $ --
============= ========
Common stock issued in connection with acquisitions $ 18,601 $ --
============= ========
Common stock issued in connection with debenture conversions $ 738,750 $ --
============= ========
Deferred compensation accrued for stock option grants $ 90,909 $ --
============= ========
The accompanying notes are an integral part of these condensed
consolidated financial statements.
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PONDER INDUSTRIES, INC., AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
1. BASIS OF PRESENTATION:
The condensed consolidated financial statements included herein have been
prepared by Ponder Industries, Inc., and subsidiaries (collectively referred to
as the Company), without audit, pursuant to the rules and regulations of the
Securities and Exchange Commission. However, all adjustments have been made to
the accompanying financial statements which are, in the opinion of the
Company's management, necessary for a fair presentation of the Company's
financial position, results of operations and cash flows for the periods
covered. Certain information and footnote disclosures normally included in
financial statements prepared in accordance with generally accepted accounting
principles have been condensed or omitted pursuant to such rules and
regulations, although the Company believes that the disclosures are adequate to
make the information presented herein not misleading. These consolidated
financial statements should be read in conjunction with the consolidated
financial statements and the notes thereto included in the Company's latest
Annual Report on Form 10-K.
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 estimates.
Certain reclassifications have been made to prior year balances to conform with
current year presentation.
2. NEW ACCOUNTING PRONOUNCEMENTS
The Financial Accounting Standards Board (FASB) issued Statement of Financial
Accounting Standards (SFAS) No. 125, "Accounting for Transfers and Servicing of
Financial Assets and Extinguishments of Liabilities," in June 1996. This
statement provides accounting and reporting standards for, among other things,
the transfer and servicing of financial assets, such as factoring receivables
with recourse and will require the Company to classify its financial assets
pledged as collateral separately in the financial statements. This statement is
effective for transactions occurring after December 31, 1996, and is to be
applied prospectively. Earlier or retroactive application is not permitted. In
December 1996, the FASB issued SFAS No. 127, "Deferral of the Effective Date of
Certain Provisions of SFAS No. 125." SFAS No. 127 postpones some, but not all,
of the provisions of SFAS No. 125 to December 31, 1997. The Company believes
the adoption of these statements will not have an impact on the financial
condition or results of operations of the Company.
In February 1997, the FASB issued SFAS No. 128, "Earnings Per Share." SFAS No.
128 replaces the presentation of Primary Earnings Per Share (EPS) with Basic
EPS and requires dual presentation of Basic and Diluted EPS on the face of the
statements of operations and requires a reconciliation of the numerator and
denominator of the Basic EPS computation to the numerator and denominator of
the Diluted EPS computation. Basic EPS excludes dilution and is computed by
dividing income available to common stockholders by the weighted-average number
of common shares outstanding for the period. Diluted EPS reflects the potential
dilution that could occur if securities or other contracts to issue common
stock were
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PONDER INDUSTRIES, INC., AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (Continued)
exercised or converted into common stock or resulted in the issuance of common
stock that then shared in the earnings of the Company. Diluted EPS is computed
similarly to Fully Diluted EPS pursuant to Accounting Principles Board Opinion
No. 15, "Earnings Per Share." SFAS No. 128 is effective for financial
statements issued after December 15, 1997, and earlier application is not
permitted. SFAS No. 128 requires restatement of all prior period EPS data
presented. Management has determined that SFAS No. 128 will not impact EPS for
the three and six months ended February 28, 1997, because dilutive per share
amounts are not applicable for loss periods.
3. LONG-TERM DEBT:
In December 1996, the Company entered into a revolving account transfer and
purchase agreement from a lender which allows the Company to factor up to $4
million of its eligible accounts receivable at an interest rate equal to the
higher of 7 percent or the Base Rate, as defined, plus 5.5 percent (13.75
percent at February 28, 1997). This financing is with the same lender which
provided a $2.5 million Inventory Revolver and $3.5 million Term Loan in
November 1996 as discussed in the notes included in the Company's latest Annual
Report on Form 10-K. The Company's obligations under this agreement are secured
by the Company's accounts receivable not factored, its inventory and by 1,000
shares of one of its subsidiaries, a limited guarantor. The agreement requires
compliance with the same covenants as those under the Inventory Revolver and
Term Loan. The agreement expires in December 1998. At February 28, 1997,
$1,616,961 was owed to the lender under this agreement and was included in
long-term debt.
4. CONTINGENCIES:
In October 1995, the Securities and Exchange Commission (the Commission)
notified the Company that the staff of the Commission intended to recommend
that the Commission institute a cease and desist proceeding against the Company
and various former officers and directors of the Company on the basis of
alleged violations of the Securities Act of 1934 (the Exchange Act), primarily
related to the Company's accounting treatment with respect to revenue
recognition for the Company's former operations in Azerbaijan in the Company's
periodic reports filed with the Commission in late fiscal 1992 and fiscal 1993
and the Company's press release in August 1992 concerning the results of the
Azerbaijan operations. The Company has requested that the Commission not follow
the recommendations of the staff on the grounds that its accounting treatment
with respect to the Azerbaijan operations was appropriate under the then
existing circumstances and that the revenue was recognized in good faith.
Recently, the staff indicated it would not recommend action concerning the
Exchange Act filings but did intend to recommend that the Commission take
action with respect to the press release. That recommendation is currently
pending. In April 1997, the Company submitted a settlement offer to the
Commission. The settlement offer requires no monetary payment by the Company.
The Company had been a defendant in a lawsuit by a former employee seeking
damages for a wrongful termination. The suit was filed in December 1993. The
suit sought approximately $317,000 in unpaid wages and value of $142,695 for
38,052 shares of stock he would have earned during the remainder of his
contract term. In May of 1995, the former employee sought to enjoin the Company
from conducting an auction sale of certain assets; as a result of those
injunctive proceedings, the Court ordered that $200,000 of the proceeds from
the auction be tendered into the registry of the Court to satisfy any possible
adverse judgment against
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PONDER INDUSTRIES, INC., AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (Continued)
the Company. On April 7, 1997, a final judgment was entered whereby the former
employee will recover the sum of $200,000 out of the funds held in the registry
of the Court and will be issued 77,922 shares of common stock of the Company.
Included in general and administrative expenses for the three months ended
February 28, 1997, is $265,000 of accrued settlement costs relating to
disposition of this suit.
In August 1996, a case was filed in the United States District Court for the
Western District of New York alleging that the Company breached an obligation
to convert certain debentures held by the plaintiff into the Company's common
stock. The plaintiff asserts damages in an amount in excess of $50,000,
attorney's fees and costs and seeks an order compelling the Company to convert
the plaintiff's debentures into common stock. The Company is contesting the
plaintiff's claims and has responded to the plaintiff's complaint by filing
counterclaims and third-party claims against the plaintiff, the Company's other
convertible debenture holders and the placement agent on the convertible
debenture offering alleging various violations of the Securities Exchange Act,
common law fraud, civil conspiracy, negligent misrepresentation, breach of
contract, breach of fiduciary duty, negligence, indemnification and seeking a
declaration that the Company has no obligation to convert the debentures and no
liability for failure to so convert. Also, in August 1996, an action was filed
in the United States District Court for the Northern District of Illinois,
Eastern Division, by two other convertible debenture holders of the Company who
allege that the Company breached an obligation to convert certain debentures
held by the plaintiffs into the Company's common stock. The plaintiffs seek a
declaratory judgment setting forth the rights and liabilities of the parties
and an award of shares of common stock or an undisclosed amount of money
allegedly due them. The Company is contesting plaintiffs' claims and has
removed the action to federal court and has moved to transfer it to the Western
District of New York pursuant to a forum selection clause in the agreements
between the parties. The plaintiffs have recently agreed to the transfer of the
action to the Western District of New York.
The Company is also a party to additional claims and legal proceedings arising
in the ordinary course of business. Although no assurances can be given, the
Company believes it has meritorious defenses to all of the above actions and
intends to defend itself vigorously. The Company believes it is unlikely that
the final outcome of any of the claims or proceedings to which the Company is a
party, including those described above, would have a material adverse effect on
the Company's financial statements; however, due to the inherent uncertainty of
litigation, the range of possible loss, if any, cannot be estimated with a
reasonable degree of precision and there can be no assurance that the
resolution of any particular claim or proceeding would not have an adverse
effect on the Company's results of operations for the interim period in which
such resolution occurred.
5. SUBSEQUENT EVENTS:
On March 31, 1997, the Company received $450,000 under a Regulation S offering
of 511,200 shares.
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PONDER INDUSTRIES, INC., AND SUBSIDIARIES
MANAGEMENT'S DISCUSSION AND ANALYSIS
OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
This Quarterly Report on Form 10-Q contains certain "forward-looking"
statements as such term is defined in the Private Securities Litigation Reform
Act of 1995 and information relating to Ponder Industries, Inc., ("the Company")
and its subsidiaries that are based on the beliefs of the Company's management
as well as assumptions made by and information currently available to the
Company's management. When used in this report, the words "anticipate,"
"believe," "estimate," "expect," and "intend" and words or phrases of similar
import, as they relate to the Company or its subsidiaries or Company
management, are intended to identify forward-looking statements. Such
statements reflect the current risks, uncertainties and assumptions related to
certain factors including, without limitations, competitive factors, general
economic conditions, customer relations, relationships with vendors, the
interest rate environment, governmental regulation and supervision,
seasonality, distribution networks, product introductions and acceptance,
technological change, changes in industry practices, onetime events and other
factors described herein. Based upon changing conditions, should any one or
more of these risks or uncertainties materialize, or should any underlying
assumptions prove incorrect, actual results may vary materially from those
described herein as anticipated, believed, estimated, expected or intended.
The Company does not intend to update these forward-looking statements.
The following discussion is included to describe the Company's financial
position and results of operations for the three-month and six-month periods
ended February 28, 1997 and February 29, 1996. The condensed consolidated
financial statements and notes thereto contain detailed information that should
be referred to in conjunction with this discussion.
BUSINESS REVIEW
Ponder is an international oil field service and rental tool company that
specializes in the use of fishing tools for the recovery of unwanted
obstructions in oil and gas wells. The Company also rents specialized oil
field equipment such as pressure control equipment, tools, pipe and tubing used
in the drilling, completion and workover of wells. Ponder currently has 21
locations domestically and 2 internationally serving the North Sea area.
Demand for the Company's services and rentals depends primarily on the number
of oil and gas wells being drilled, the depth and drilling conditions of such
wells and the level of workover activity. Drilling and workover activity is
largely dependent on the prices for oil and natural gas. Demand for oil and
natural gas the past year has allowed for higher prices than the average prices
for the past several years. World oil prices have been in the mid to near $20s
per barrel for several months and many industry analysts are forecasting this
situation to continue throughout 1997. The continuation of favorable market
conditions should provide Ponder with the business environment necessary to
return to profitability.
LIQUIDITY AND CAPITAL RESOURCES
The working capital decrease of approximately $1,071,000 and increase in
long-term debt of $3,980,000 is the result of continued operating losses and
equipment purchases relating to the Company's aggressive
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expansion program. Since the beginning of fiscal 1996, the Company has
expanded from four domestic locations to twenty-one domestic and two
international locations, resulting in substantially increased equipment
purchases and operating and general and administrative costs.
In March 1997, the Company received net proceeds of approximately $450,000
from a Regulation S offering of 511,200 shares of common stock.
Management is currently evaluating the results of this aggressive expansion
program and has begun certain internal restructuring and cost reduction actions
relative to store profitability, staffing requirements and general and
administrative expenses. Management believes that these reductions will not
impair the Company's ability to maintain revenue growth. Management believes
that the planned cost reductions and short term limited expansion will provide
positive cash flow from operations and with the existing credit facilities will
provide the Company with sufficient capital resources and liquidity to manage
its routine operations.
In December 1996, the Company entered into a revolving account transfer and
purchase agreement from a lender which allows the Company to factor up to $4
million of its eligible accounts receivable at an interest rate equal to the
higher of 7 percent or the Base Rate, as defined, plus 5.5 percent (13.75
percent at February 28, 1997). This financing is with the same lender which
provided a $2.5 million Inventory Revolver and $3.5 million Term Loan in
November 1996 as discussed in the notes included in the Company's latest Annual
Report on Form 10-K.
RESULTS OF OPERATIONS
COMPARISON OF THE THREE MONTHS ENDED FEBRUARY 28, 1997 AND FEBRUARY 29, 1996
A net loss of $2,052,251, or $.17 per share, was recorded for the three months
ended February 28, 1997, compared to net income of $676,968, or $.08 per share
for the same period of the prior year. The Company's operating loss was
$1,540,989 or $.12 per share, compared to an operating loss of $727,036, or
$.09 per share for the same period of the prior year.
Revenues increased $3,211,911, or 158%, to $5,247,917 for the three months
ended February 28, 1997, compared to $2,036,006 for the same period of the
prior year. The increase is due to a significant increase in the Company's
marketing effort and an increase in the number of operating locations.
Cost of sales and services increased $1,190,824, or 110%, to $2,276,776 from
$1,085,952 and operating expenses increased $1,627,433, or 137%, to $2,819,163
from $1,191,730. These increases are due to the increase in sales activity,
establishing new store locations and the addition of operating personnel.
General and administrative expenses increased $1,207,607, or 249%, to
$1,692,967 as compared to $485,360 for the comparable prior period. The
Company has significantly increased its regional and corporate sales group and
has increased its corporate and administrative staff as a result of its
expansion effort. Additionally, the Company has incurred increased accounting,
legal and public corporation expenses associated with the increase in business
activity.
The Company's gross profit margin was 57% for the three months ended February
28, 1997 as compared to 47% for the comparable prior period. The increase is
due to increased sales as a result of the Company's expansion effort.
Net interest expense increased $419,829 to $565,543 as compared to $145,714 for
the comparable prior period. The increase is due primarily to $248,936 noncash
interest and debt issue cost amortization on the 8% convertible debentures
issued effective April 26, 1996. The Company's increase in bank debt and other
financing arrangements and an increase in the average interest rate of bank
debt has resulted in an approximate $171,000 increase in interest expense.
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COMPARISON OF THE SIX MONTHS ENDED FEBRUARY 28, 1997 AND FEBRUARY 29, 1996
A net loss of $2,933,886, or $.24 per share, was recorded for the six months
ended February 28, 1997, compared to net income of $689,283, or $.09 per share
for the same period of the prior year. The Company's operating loss was
$2,079,818 or $.17 per share, compared to an operating loss of $684,058, or
$.09 per share for the same period of the prior year.
Revenues increased $6,207,185, or 148%, to $10,389,042 for the six months ended
February 28, 1997, compared to $4,181,857 for the same period of the prior
year. The increase is due to a significant increase in the Company's marketing
effort and an increase in the number of operating locations.
Cost of sales and services increased $2,546,479, or 132%, to $4,479,396 from
$1,932,917 and operating expenses increased $3,121,714, or 155%, to $5,139,443
from $2,017,729. These increases are due to the increase in sales activity,
establishing new store locations and the addition of operating personnel.
General and administrative expenses increased $1,934,752, or 211%, to
$2,850,021 as compared to $915,269 for the prior period. The Company has
significantly increased its regional and corporate sales group and has
increased its corporate and administrative staff as a result of its expansion
effort. Additionally, the Company has incurred increased accounting, legal and
public corporation expenses associated with the increase in business activity.
The Company's gross profit margin was 57% for the six months ended February 28,
1997 as compared to 54% for the comparable prior period. The increase is due to
increased sales as a result of the Company's expansion efforts.
Net interest expense increased $707,039 to $919,306 as compared to $212,267 for
the comparable prior period. The increase is due primarily to $520,975 noncash
interest and debt issue cost amortization on the 8% convertible debentures
issued effective April 26, 1996. The Company's increase in bank debt and other
financing arrangements and an increase in the average interest rate of bank
debt has resulted in an approximate $186,000 increase in interest expense.
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PONDER INDUSTRIES, INC., AND SUBSIDIARIES
PART II - OTHER INFORMATION
Item 1. Legal Proceedings - For a description of legal proceedings against
the Company, see Note 4 of the notes to condensed consolidated
financial statements included herein.
Item 2. Changes in Securities - None
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
*10.1 - Loan Agreement for KBK Financial, Inc.
*10.2 - Collateral Security Agreement dated November 27, 1996.
*10.3 - Security Agreement -- Pledge
*10.4 - Revolving Account Transfer and Purchase Agreement.
*11 - Computation of Earnings (Loss) Per Share.
*27 - Financial Data Schedule.
(b) Reports on Form 8-K - None
- ---------------
* Filed herewith
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SIGNATURES
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 D. Armstrong
---------------------------------
Larry D. Armstrong
President, Chief Executive Officer
and Chairman of the Board of
Directors
By /s/ Eugene L. Butler
---------------------------------
Eugene L. Butler
Executive Vice President,
Chief Financial Officer and
Director
Dated: April 11, 1997
16
EXHIBIT INDEX
Exhibit
Number Description
------ -----------
*10.1 - Loan Agreement for KBK Financial, Inc.
*10.2 - Collateral Security Agreement dated November 27, 1996.
*10.3 - Security Agreement -- Pledge
*10.4 - Revolving Account Transfer and Purchase Agreement.
*11 - Computation of Earnings (Loss) Per Share.
*27 - Financial Data Schedule.
(b) Reports on Form 8-K - None
- ---------------
* Filed herewith