UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 8-K/A
CURRENT REPORT
Pursuant to Section 13 of 15 (d) of the Securities Exchange Act of 1934
Date of Report (Date of earliest event reported): November 28, 2000
-------------------
N-Vision Technology, Inc.
------------------------------------------------------
(Exact name of Registrant as Specified in its Charter)
Delaware 0-18656 75-2268672
- ------------------------ ---------------------- ---------------------------
(State of Incorporation) (Commission File Number) (IRS Employer Identification
No.)
11931 Wickchester, Suite 201, Houston, TX 77043
-----------------------------------------------
(Address of principal executive offices)
Registrant's telephone number, including area code: 281-556-1375
Ponder Industries, Inc.
5005 Riverway Dr., Suite 550, Houston, TX 77056
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(Former name or former address, if changed since last report)
This amended Form 8-K relates to the transaction on December 19, 2000 pursuant
to which N-Vision Technology, Inc. ("N-Vision") merged with and into Ponder
Industries, Inc. ("Ponder"). As permitted, the original Form 8-K omitted certain
financial statements of N-Vision required by Form 8-K. This amendment is filed
to provide the financial statements of N-Vision.
Item 7. Financial Statements and Exhibits
(a) Financial Statements of Business Acquired
N-Vision Technology, Inc.
Independent Auditors Report............................. F-1
Consolidated Balance Sheet as of December 31, 2000...... F-2
Consolidated Statement of Income for the Year Ended
December 31, 2000 and for the Period from Inception
to December 31, 1999................................. F-4
Consolidated Statement of Cash Flows for the Year
Ended December 31, 2000 and for the Period from
Inception to December 31, 1999....................... F-5
Consolidated Statement of Changes in Stockholders
Equity for the period from Inception to December
31, 2000............................................. F-7
Notes to Financial Statements........................... F-8
(b) Pro Forma Financial Information
The merger of N-Vision into Ponder will be accounted for using
the purchase method of accounting. N-Vision will be deemed the
acquiror for accounting and financial reporting purposes.
Because pro forma financial statements giving effect to the
merger on a historical basis would be substantially identical
to the financial statements of N-Vision, no pro forma
financial statements are included herewith.
2
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934,
the Registrant has duly caused this Current Report on Form 8-K to be signed on
its behalf by the undersigned hereunto duly authorized.
N-VISION TECHNOLOGY, INC.
Dated: March 12, 2001 By: /s/ Joseph T. Kaminski
---------------------------------
Joseph T. Kaminski
Chief Executive Officer
INDEPENDENT AUDITORS' REPORT
To the Board of Directors
N-Vision Technologies, Inc.
Houston, Texas
We have audited the accompanying consolidated balance sheet of N-Vision
Technologies, Inc. as of December 31, 2000, and the related consolidated
statements of operations, shareholders' equity, and cash flows for the year
ended December 31, 2000, and from inception (May 15, 1999) to December 31, 1999.
These financial statements are the responsibility of the Company's management.
Our responsibility is to express an opinion on these financial statements based
on our audit.
We conducted our audit in accordance with generally accepted auditing standards.
Those standards require that we plan and perform the audit to obtain reasonable
assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audit provides a reasonable basis for our opinion.
In our opinion, such financial statements referred to in the first paragraph
present fairly, in all material respects, the financial position of the Company,
as of December 31, 2000 and the results of its operations and its cash flows for
the year ended December 31, 2000, and from inception (May 15, 1999) to December
31, 1999, in conformity with generally accepted accounting principles.
The accompanying financial statements have been prepared assuming that the
Company will continue as a going concern. The Company has suffered recurring
losses from operations and has a net working capital deficiency, which raises
substantial doubt about its ability to continue as a going concern. Management's
plans regarding those matters are described in Note 2. The financial statements
do not include any adjustments that might result from the outcome of these
uncertainties.
THOMAS LEGER & CO., L.L.P.
Houston, Texas
March 7, 2001
F-1
N-VISION TECHNOLOGY, INC. & SUBSIDIARIES
CONSOLIDATED BALANCE SHEET
December 31, 2000
ASSETS
CURRENT ASSETS
Cash $ 34,825
Accounts receivable - Net of
allowance for doubtful accounts of $20,847 1,009,131
Other receivables 9,562
Prepaid expenses 53,642
-------------
Total Current Assets 1,107,161
-------------
PROPERTY AND EQUIPMENT - At cost
Equipment 2,029,668
Furniture and fixtures 213,556
Autos and trucks 486,469
Other 12,966
-------------
2,742,659
Accumulated depreciation (1,333,852)
-------------
Net Property and Equipment 1,408,807
-------------
OTHER ASSETS
Cost in excess of assets acquired - Net of
amortization of $138,994 639,322
Deposits 64,620
--------------
Total Other Assets 703,942
--------------
TOTAL ASSETS $ 3,219,909
==============
The accompanying footnotes are an integral part of these financial statements
F-2
N-VISION TECHNOLOGY, INC. & SUBSIDIARIES
CONSOLIDATED BALANCE SHEET
December 31, 2000
LIABILITIES AND SHAREHOLDERS' EQUITY
CURRENT LIABILITIES
Accounts payable $ 1,346,934
Payroll taxes payable 246,952
Accrued expenses 457,082
Sales tax obligation 217,540
Notes Payable Bank
Equipment 625,000
Term loan 302,342
Other notes payable 268,238
-------------
Current portion of long-term debt 27,000
-------------
Total Current Liabilities 3,491,087
LONG TERM DEBT
Debentures Payable 550,000
Automobile installment notes - net of current portion 18,834
-------------
Total Liabilities 4,059,921
------------
SHAREHOLDER'S EQUITY
Common stock, $.01 par value, 50,000,000
Shares authorized, 10,906,467 issued
and outstanding 109,065
Paid-In-capital 1,842,743
Retained earnings (2,791,819)
-------------
Total Shareholder's Equity (840,011)
-------------
TOTAL LIABILITIES AND SHAREHOLDERS' EQUITY $ 3,219,909
=============
The accompanying footnotes are an integral part of these financial statements
F-3
N-VISION TECHNOLOGY, INC. & SUBSIDIARIES
CONSOLIDATED STATEMENT OF OPERATIONS
FOR THE YEAR ENDED DECEMBER 31, 2000
AND THE PERIOD FROM INCEPTION (MAY 15, 1999) TO DECEMBER 31, 1999
From Inception
(May 15, 1999)
For the Year To
Ended December 31,
2000 1999
------------- ------------
SALES $ 3,253,091 $ 464,012
------------- ------------
COST OF SALES 2,804,491 490,892
------------- ------------
Gross Profit (Loss) 448,600 (26,881)
------------- ------------
OPERATING EXPENSES
General and administrative 738,962 256,335
Salaries 700,460 195,219
Depreciation and Amortization 518,758 167,455
Interest expense 351,637 62,057
Legal and accounting 131,828 90,828
------------- ------------
Total Operating Expenses 2,441,645 771,894
------------- ------------
Loss Before Income Tax (1,993,045) (798,774)
FEDERAL INCOME TAXES - -
------------- ------------
NET LOSS $ (1,993,045) $ (798,774)
============= ============
NET LOSS PER SHARE $ (0.22) $ (0.19)
============= ============
WEIGHTED AVERAGE SHARES OUTSTANDING 8,946,514 4,229,086
============= ============
The accompanying footnotes are an integral part of these financial statements
F-4
N-VISION TECHNOLOGY, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENT OF CHANGES IN SHAREHOLDERS' EQUITY
Additional Total
Common Stock Paid - In Retained Stockholders'
-----------------------
Shares Amount Capital Deficit Equity
------- ------- --------- --------- -------------
Original issue to founders - May 18, 1999
For services and other consideration 5,000,000 $ 50,000 $ - $ - $ 50,000
Stock issued at $.01 per share for -
Southern 3D Exploration, Inc. 1,000,000 10,000 - - 10,000
Goods and services 132,215 1,322 - - 1,322
Common stock sold for cash 460,330 4,603 60,397 - 65,000
Consolidated loss from operations for the year - - - (798,774) (798,774)
---------- ------- ------- --------- ---------
Balance at December 31, 1999 6,592,545 65,925 60,397 (798,774) (672,452)
---------- ------- ------- --------- ---------
Shares issued at $.01 per share for -
Officers and directors compensation 502,200 5,022 - - 5,022
Investment units sold for cash 150,000 1,500 - - 1,500
Investment units exchanged for Company debt 125,000 1,250 - - 1,250
Goods and services 450,000 4,500 - - 4,500
Loan renewals 100,000 1,000 - - 1,000
Special share distribution 818,826 8,188 - - 8,188
Stock issued in lieu of bonus payment 76,273 763 37,369 - 38,132
Stock issued in lieu of interest 77,000 770 37,730 - 38,500
Common stock sold for cash 270,000 2,700 67,300 - 70,000
Restructuring arrangement 1,744,624 17,447 1,639,947 - 1,657,394
Consolidated loss from operations for the year - - (1,993,045) (1,993,045)
----------- ---------- ------------ ------------- -----------
Balance at December 31, 1999 10,906,468 $ 109,065 $ 1,842,743 $ (2,791,819) $ (840,011)
=========== ========== ============ ============= ===========
The accompanying footnotes are an integral part of these financial statements
F-5
N-VISION TECHNOLOGY, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENT OF CASH FLOWS
FOR THE YEAR ENDED DECEMBER 31, 2000
AND THE PERIOD FROM INCEPTION (MAY 15, 1999) TO DECEMBER 31, 1999
From Inception
(May 15, 1999)
For the Year To
Ended December 31,
2000 1999
------------ ----------------
Cash Flows From Operating Activities
Net (Loss) $ (1,993,045) $ (798,774)
------------- --------------
Adjustments to reconcile Net Income (Loss) to net cash provided
by operations
Depreciation and amortization 518,758 176,597
Changes in current assets and liabilities
Accounts receivable (892,443) 11,378
Other assets (6,513) 136,218
Accounts payable and accrued liabilities 2,013,481 302,389
------------- -------------
Total adjustments 1,633,283 626,582
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Net Cash (Used In) Operating Activities (359,762) (172,192)
------------- -------------
Cash Flows From Investing Activities
Net book value of property sold or disposed 6,866 -
Additions to property and equipment - (3,236)
Southern 3D Exploration, Inc. Acquisition - 61,656
------------- -------------
Net Cash Provided By (Used In) Investing Activities 6,866 58,420
------------- -------------
Cash Flows From Financing Activities
Repayment of short and long-term debt (189,528) (51,228)
Long-term borrowing 243,187 100,000
Net proceeds from sale of debentures 264,062 -
Proceeds from issuance of common stock 70,000 65,000
------------- -------------
Net Cash Provided By Financing Activities 387,721 113,772
------------- -------------
Net Increase (Decrease) In Cash During The Period 34,825 -
Cash Beginning of Period - -
------------- -------------
Cash End of Period $ 34,825 $ -
============= =============
The accompanying footnotes are an integral part of these financial statements
F-6
N-VISION TECHNOLOGIES, INC
SUPPLEMENTAL STATEMENT OF CASH FLOWS
FOR THE YEAR ENDED DECEMBER 31, 2000
AND THE PERIOD FROM INCEPTION (MAY 15, 1999) TO DECEMBER 31, 1999
From Inception
(May 15, 1999)
For the Year To
Ended December 31,
2000 1999
------------- ----------------
Supplemental Cash Flow Information
Interest paid during the year $ 442,800 $ 27,400
Income taxes paid during the year 18,800 -
Noncash Investing and Financing Transactions
Common Stock exchanged for restructured bank debt 1,390,600 -
Notes payable issued for zero balance checking arrangement 302,300 -
Common Stock issued in lieu of interest payments 305,300 -
Convertible debentures exchanged for current obligations 250,000 -
Common Stock issued as compensation 43,300 -
Operating equipment for shareholder debt - 44,500
Common Stock issued for services 27,300 1,332
Common Stock issued in connection with acquisitions - 168,220
The accompanying footnotes are an integral part of these financial statements
F-7
N-VISION TECHNOLOGY, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
DECEMBER 31, 2000 AND 1999
MERGER WITH PONDER INDUSTRIES, INC.
On December 19, 2000 N-Vision Technology, Inc. (a Nevada corporation) merged
with Ponder, Industries, Inc., (Ponder) a Delaware Corporation with publicly
owned Common Stock traded in the "over-the-counter" marketplace. The merged
company, which changed its name to N-Vision Technology, Inc. (here-in after
N-Vision or the Company), retained its Delaware charter and the Nevada
corporation was dissolved.
Ponder was under the jurisdiction of a federal bankruptcy court in a Chapter 11
proceeding and had no recent operating activities except for the proceeding.
Ponder's approved Plan of Reorganization included the merger with N-Vision, the
establishment of a Liquidating Trust that received all of Ponder's
pre-acquisition tangible and intangible assets and assumed the responsibility
for all of its asserted liabilities and dismissed all unasserted claims and
contingent liabilities. For accounting purposes, the transaction was treated as
an acquisition of Ponder, by N-Vision whose shareholders owned approximately 80%
of the surviving corporation.
Under the terms of the Plan of Merger and Reorganization, the Ponder
shareholders and bankruptcy claimants received the following shares of the
merged companies:
Class of Claimant Shares Issued
----------------
Existing shareholders -
After giving effect to a 1 for 20 reverse stock split 476,127
Various non-priority
Creditors 1,428,381
In addition, the Company reserved but did not issue 750,000 shares of Common
Stock for a potential distribution to the Priority Claimants, as defined in the
bankruptcy plan, in the event that the resources of the Liquidating Trust are
insufficient to compensate that class of creditors.
F-8
MERGER WITH PONDER INDUSTRIES, INC. (continued)
The following summarized information is provided on a pro forma basis to present
the results of operations for December 31, 2000 and 1999 as if the merger had
been effected on January 1, 1999.
Pro Forma Results of Operations
----------------------------------
2000 1999
------ ------
Revenue $ 3,253,091 $ 464,012
Net income (loss $ (1,993,045) $ (798,774)
Earnings (loss) per share $ ( .22) $ ( .19)
Average shares outstanding
NOTE 1 -- NATURE OF BUSINESS AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
Nature and History of Business
- ------------------------------
The consolidated financial statements include N-Vision Technology, Inc., a
Nevada Corporation (Company) and its wholly owned subsidiaries, Southern 3-D
Exploration, Inc. (Southern) and All Terrain Industries, Inc. (ATI), Texas
Corporations acquired in 1999, and N-Vision Energy, Inc. (N-V Energy), a Texas
corporation formed in 2000.
N-Vision as a development stage enterprise sought business opportunities and
capital from its incorporation, October 22, 1998, until it commenced operations
in May 1999 and acquired its two subsidiaries in September 1999.
Southern and ATI lines of business are performing contract seismographic testing
for the oil and gas industry and general contract drilling in the mid-west and
gulf coast areas of the United States. Their results of operations are included
in the accompanying consolidated financial statements for the period from the
date of acquisition and account for all the consolidated revenue and
substantially all of the operations of the Company.
N-V Energy was formed to identify development drilling and recompletion
opportunities in existing oil and gas fields using Southern's seismic technology
and plans to commence exploration and development operations in 2001.
F-9
NOTE 1 -- NATURE OF BUSINESS AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
(continued)
Significant Accounting Policies Of The Company
- ----------------------------------------------
Basis Of Financial Presentation
The financial statements represent the operations of N-Vision (the Nevada
corporation) prior to the date it consummated its merger with Ponder Industries,
Inc. The date of the combination was December 19, 2000 but there were no
significant events or transactions that occurred in the period between the
acquisition date and December 31, 2000, the date of these financial statements.
Principles of Consolidation
The consolidated financial statements include the accounts of the Company and
its subsidiaries. Significant inter-company accounts and transactions have been
eliminated.
Estimates
The presentation 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 the revenues and expenses during the reporting periods.
Ultimate actual results could differ from those estimates.
Concentrations of Credit Risk
Financial instruments that potentially subject the Company to concentrations of
credit risk consist primarily of trade receivables and cash. The Company places
its cash with high quality financial institutions. At times the Company's
deposits may exceed federally insured limits of $100,000 but at December 31,
2000 no deposits exceeded the insured limits.
F-10
NOTE 1 -- NATURE OF BUSINESS AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
(continued)
Concentrations of Credit Risk
Generally, no collateral or other security is required to support customer
receivables. To reduce credit risk, a customer's credit history is reviewed
before extending credit. In addition, an allowance for doubtful accounts is
established based on factors surrounding the credit risk of specific customers,
historical trends and other information. Management established an allowance for
doubtful accounts at the balance sheet date of $20,848. During 2000 and 1999,
39% and 57% of revenues were attributable to four and two customers,
respectively.
Property and Equipment
Property and equipment are stated at cost less accumulated depreciation, which
is computed using the straight-line method over lives ranging from five to seven
years. In September 1999 N-Vision acquired substantially all of its operating
equipment in an all-stock transaction.
Expenditures for major acquisitions and improvements are capitalized while
expenditures for maintenance and repairs are charged to operations. The cost of
assets sold or retired and any related accumulated depreciation are eliminated
from the accounts, and any resulting gain or loss is included in operations.
Cost in Excess of Assets Acquired
Cost in Excess of Assets Acquired is amortized on a straight-line basis over
periods ranging from 5 to 20-year periods.
Income Taxes
Federal income taxes are accounted for using a policy that requires the
recognition of deferred income taxes and valuation allowances when necessary.
Deferred income taxes are recognized for the tax consequences in future years of
differences between the tax basis of assets and liabilities and their basis for
financial reporting purposes. The differences relate to the use of tax
accelerated methods of asset depreciation versus the straight line method used
for financial reporting and the cash method of recognizing revenues and expenses
for income tax purposes. Recognized amounts of deferred taxes are determined
using enacted tax laws and statutory tax rates that are applicable to the
periods in which the differences are expected to affect taxable income.
F-11
NOTE 1 -- NATURE OF BUSINESS AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
(continued)
Income Taxes
Valuation allowances are established when necessary to reduce deferred tax
assets to expected realizable amounts. Income tax expense is the tax payable for
the period adjusted for the change during the period in deferred tax assets and
liabilities.
Statements of Cash Flows
For purposes of the statement of cash flows, cash equivalents include
short-term, highly liquid investments with maturities of three months or less at
the time of acquisition.
Net Loss Per Share
Net loss per share is computed by dividing the net loss by the common and common
equivalent shares considered outstanding during each period. Equivalent shares
issuable under stock options are determined using the treasury stock method.
There is no difference between basic and fully diluted earnings per shares for
the periods presented.
Legal Matters
N-Vision is subject to legal proceedings that have arisen in the ordinary course
of its business. Such actions are generally asserted property damage claims by
landowners where the Company's geophysical testing is conducted. The claims are
usually small and are rebilled to the client contracting for the service. In the
opinion of management, these actions will not have a material adverse effect
upon the financial position of the Company.
Meaning of "From Inception"
In the financial presentation, the term from inception shall mean from the
effective inception of N-Vision's business operations, which was on or about May
15, 1999.
F-12
NOTE 2 -- GOING CONCERN
At December 31, 2000 the Company's operating expenses have exceeded operating
revenues. This cumulative deficit has been funded by open account creditor debt,
secured and unsecured loans, common stockholders' cash investment and Common
Stock exchanged for property and services.
Although the Company has continued to operate with the above sources of funds
through February 2001, it is uncertain whether these same or comparable sources
will be available for the full development of its business strategy. The
business strategy includes a series of private and public securities offerings
to fund corporate growth and business development.
N-Vision's financial statements are prepared using generally accepted accounting
principles applicable to a going concern that contemplates the realization of
assets and liquidation of liabilities in the normal course of business. However,
N-Vision in its business strategy development stage has not established a source
of revenues sufficient to cover its operating costs and allow it to continue as
a going concern supported by its cash flow from operations. N-Vision is seeking
long-term funding through private and public securities offerings. Management
believes that sufficient funding will be raised to meet operating needs during
the remainder of its current implementation stage.
NOTE 3 -- MERGER AND ACQUISITION ACTIVITY
Southern 3-D Exploration, Inc.
Effective September 1999 N-Vision issued 1,000,000 shares of its Common Stock at
par value to acquire Southern and its subsidiary, ATI. The Stock Purchase and
Exchange Agreement provided for additional, contingent shares of N-Vision to be
issued in connection with the acquisition based on Southern's 1999 operating
performance, but no additional shares were required to be issued.
Due to the contingent acquisition purchase price and the post acquisition change
in management, this business combination is accounted for by the purchase method
of accounting and resulted in $229,876 of cost in excess of assets acquired,
which is being amortized over 5 years. The results of operations of Southern are
included with the consolidated results of operations beginning September 1,
1999. N-Vision did not incur material liabilities in connection with the
acquisition related to discontinuing a business activity or to terminating or
relocating employees.
F-13
NOTE 3 -- MERGER AND ACQUISITION ACTIVITY (continued)
Southern 3-D Exploration, Inc.
The following summarized information is provided on a pro forma basis to present
the results of operations for 1999 as if the acquisition had been effected on
January 1, 1999.
1999 Pro Forma Results of Operations
--------------------------------------
Revenue $ 2,086,800
Net income (loss) $(2,021,833)
Earnings (loss) per share $ (.44)
All Terrain Industries, Inc.
Southern acquired All Terrain in 1998 for $2,500,000 cash, which resulted in a
purchased price that was $548,400 in excess of the fair market value of the
tangible assets acquired. That excess cost is being amortized over 20 years.
ACE Energy Ltd.
N-Vision entered into an agreement in June 2000 with ACE Energy Ltd., a Texas
limited partnership ("Ace"), to acquire certain oil and gas property rights.
Upon executing the agreement, the Company assigned and conveyed 150,000 shares
of Common Stock to Ace as non-refundable "earnest money." The transaction was
not consummated and the common shares were transferred to the holder.
NOTE 4 -- STOCK TRANSACTIONS
Special Purpose Common Stock Issues
Merger and acquisition activity described in Note 3 resulted in the issuance of
1,000,000 shares of Common Stock in 1999. In addition, the Company has issued or
agreed to issue Common Stock in satisfaction of certain expenses incurred, as
inducements to advance funds to the Company, in connection with Stock Based
Compensation arrangements, and as part of particular Investment Units sold in
2000.
F-14
NOTE 4 -- STOCK TRANSACTIONS (continued)
Stock for Debt
In September 2000, the Company executed a debt exchange agreement in which its
primary lending institution accepted 1,744,624 shares of Common Stock for
$1,657,393 of indebtedness (the equivalent of $.95 per common share.). The
Company agreed that contemporaneously with a successful proposed private or
public offering, it would repurchase the shares sold to the lending institution
for $1.25 per common share. If a public offering is not consummated within one
year, the Company has committed to assure the aforementioned shares are free of
any securities market trading restrictions and the Bank will have the right to
sell the stock in the open market.
Investment Units
In 2000 the Company raised $550,000 through the sale of Investment Units,
including $300,000 sold for cash and $250,000 exchanged for debt the Company had
incurred. Each of the 22 Investment Units sold included a $25,000 Debenture
obligation due in two years, 12,500 shares of Common Stock and warrants to
purchase an additional 12,500 shares of Common Stock at $1 per share. See the
summary below of Warrant activity during 2000 and Note 5 for description of the
Debentures.
Stock Based Compensation
N-Vision has issued or agreed to issue Common Stock as part of its compensation
package for employees and directors. See the summary below of Stock Option
activity during 2000.
Stock Options and Warrants
Stock Option and Stock Warrant activity of the Company during 2000 is summarized
as follows:
Shares 2000
Price Per Shares Expired or Ending Expiration
Recipient Share Granted Exercised Shares Date
----------- --------- -------- ----------- ------- -----------
Stock Options $ .40 500,000 None 500,000 2005
Warrants $ 1.00 275,000 None 275,000 2002
F-15
NOTE 4 -- STOCK TRANSACTIONS (continued)
Stock Options and Warrants
The stock options were granted in August 2000 with options for 100,000 common
shares going to each of the four principal officers of the Company and options
for an aggregate of 100,000 common shares going to three key employees. The
options vest 50% immediately, 25% after year one and 25% after year two. The
warrants were issued with the 22 Investment Units described above.
Accounting for Option Compensation
The fair value of options granted will be estimated on the date of grant using
the Black-Scholes options pricing model, assuming a risk free interests rate of
5.98% for the five year options, no expected dividend yield, the expected life
of the options and zero expected volatility. The zero volatility will be assumed
because of the lower level of trading shares in the secondary market system.
The Company applies the Accounting Principles Board Opinion No. 25 and related
interpretations in accounting for stock option and purchase plans. Accordingly,
no compensation cost has been recognized for any stock option agreements. No
options were granted in 1999 and options totaling 500,000 shares were granted in
2000. Had compensation cost been determined based upon the estimated fair value
at the grant dates for awards under those plans consistent with the method of
FASB Statement 123, the Company's net loss and loss per share for the year ended
December 31, 2000 would have been as reflected in the pro forma amounts
indicated below:
Net loss $ (2,044,082)
Net loss per common share $ (.19)
F-16
NOTE 5 -- NOTES PAYABLE, LONG TERM DEBT AND DEBENTURES
Notes payable and long-term debt at December 31, 2000 includes the Bank debt and
other obligations to the following institutions and individuals:
Notes Payable to Bank bearing interest at the prime rate plus 1% or
10 % at December 31, 2000:
Term loan collateralized by equipment (A) $ 625,000
Term loan collateralized by accounts receivable,
equipment and intangibles (A) 302,342
Note payable to stockholder (B) 100,000
Note payable to stockholder (C) 100,000
Note payable to stockholder (D) 10,000
Insurance premiums financed requiring monthly payments
of about $7,500, bearing interest at 12% 37,484
Unsecured, interest free demand note payable to a
corporation controlled by a major stockholder of the Company 20,754
----------
Total notes payable $1,195,580
==========
(A) The promissory term notes to the bank, which were derivatives of the
previously, described debt restructuring, were due December 15, 2000 and
were renewed under substantially the same terms until June 15, 2001.
(B) This note bears interest at 7 3/4%, is collateralized by specific equipment
and is due January 2001. This loan was renewed on three occasions during
2000 and each renewal included compensatory shares of Common Stock, an
aggregate of 100,000 shares for the year. This note was renewed again in
January 2001.
(C) This note bears interest at 10%, is subordinated to other debt of the
Company and is due June 2001. Principal and accrued interest on the note
may be converted, at the holder's option, into Common Stock of the Company
at the conversion rate of $0.25 per share.
(D) This represents an advance by a non-affiliate shareholder. It is due on
demand without a nominal interest rate but with a compensatory issue of
5,000 shares of the Company's Common Stock.
F-17
NOTE 5 -- NOTES PAYABLE, LONG TERM DEBT AND DEBENTURES (Continued)
Automobile Installment Notes
Collateralized automobile installment notes have aggregate monthly payments of
approximately $2,800 and bear interest at 9 1/4%. The obligations totaling
$45,834 require principal payments of about $27,000 in 2001 with the remainder
of the principal balances due in 2002.
Debentures
As described in Note 4, various individuals, Shareholders or vendors acquired
N-Vision Investment Units (aggregating $550,000) that included non-assignable,
subordinated promissory notes (Debentures). The Debentures are subordinate to
other Company notes and contracts and cannot be repaid if the Company is in
default in the payment of any of its contractual debt. The Debentures have a
nominal interest rate of 14%, can be paid, at the Company's discretion, in stock
or cash and are to be repaid within two years of the date the Investment Units
were sold.
NOTE 6 -- INCOME TAXES
The following table sets forth a reconciliation of the statutory federal income
tax for the years ended December 31, 2000 and 1999.
2000 1999
------ ------
Loss before income taxes $ 1,993,045 $ 798,774
=========== ===========
Income tax benefit computed at statutory rates (677,635) (271,583)
Increase in valuation allowance 665,047 270,904
Permanent differences, nondeductible expenses 12,588 679
------------ ------------
Tax provision $ - $ -
============ ============
No federal income taxes have been paid since the inception of the Company.
F-18
NOTE 6 -- INCOME TAXES (continued)
Deferred Income Taxes
The tax effects of the temporary differences between reportable financial
statement income and taxable income are recognized as a deferred tax asset and
liability. Significant components of the deferred tax assets and liabilities are
set out below along with a valuation allowance to reduce the net deferred tax
asset to zero.
In order to comply with generally accepted accounting principles, management has
decided to establish the valuation allowance because of the potential that the
tax benefits underlying deferred tax asset may not be realized.
2000 1999
------ ------
Deferred tax asset:
Net operating loss carryforwards $ 771,424 $ 283,877
Conversion to cash basis for tax reporting - 10,390
-------- ---------
Total deferred tax asset 771,424 294,267
-------- ---------
Deferred tax liability:
Recognizing more depreciation for tax reporting
purposes than for financial reporting purposes 3,890 23,363
Conversion to cash basis for tax reporting 102,487 -
-------- ---------
Total deferred liability 106,377 23,363
-------- ---------
Net tax asset 665,047 270,904
Valuation allowance (665,047) (270,904)
-------- ---------
Net deferred taxes $ - $ -
======== =========
F-19
NOTE 6 -- INCOME TAXES (continued)
Net Operating Loss Carryforwards
The tax asset recognized above for the future use of net operating loss
carryforwards ("NOL") is available primarily because of N-Vision's acquisition
of Southern in September 1999. As of December 31, 2000 the Company has a
cumulative NOL for federal income tax purposes of approximately $2,982,000 and
an NOL for alternative minimum tax purposes of approximately the same amount.
These carryforwards expire in years 2019 and 2020 Internal Revenue Code Section
382 limits future use of NOLs of acquired companies approximately ($713,000 of
the Company's NOL arise from the Southern acquisition).
NOTE 7 -- RELATED PARTY TRANSACTIONS
At December 31, 2000 and 1999 the Company had a non-interest bearing note
payable of $20,754 issued to a company owned primarily by a Common Stock
stockholder. During 1999 this debt was reduced $44,500 with the transfer of
certain operating equipment to the stockholder.
On August 31, 2000, the Company made a pro-rata share distribution of 818,825
shares to the existing shareholders for the purpose of compensating them for the
dilution attributable to an additional special share allotment necessary in the
Ponder Industries, Inc. merger. The shares distributed were equal to 10% of the
recorded shares outstanding on that date. See note on Ponder Industries, Inc.
merger.
In December 2000, four officer shareholders received 502,200 shares of Common
Stock as partial compensation for their services as Company executives and
directors. The Company has deferred $209,000 in earned executive compensation to
be paid in the future as funds become available.
The Company leases its equipment yard storage facility from a Common Stock
holder for $3,056 a month.
F-20
NOTE 8 -- COMMITMENTS
The Company leases its operating and administrative facilities on both
month-to-month and long-term arrangements. Its equipment storage facility in
southeast Texas is leased for $3,056 on a month-to-month basis from an employee
stockholder. In Addition, the Company leases the following from outside parties:
Facility Basis of Contract Monthly Future Commitment
---------- ------------------- --------- -------------------
Executive office Month-to-month $ 1,100 None
Administrative office To April 30, 2003
$ 3,690 Year 2001 - $45,800
3,766 Year 2002 - $47,016
3,918 Year 2001 - $15,672
NOTE 9 -- SUBSEQUENT EVENTS
Letter of Commitment to Raise Capital
On March 7, 2001, the Company engaged a New York financial advisor and
securities placement agent to assist in raising up to $25,500,000 in long-term
equity or equity linked capital to finance the acquisition of oil and gas
properties and meeting general corporate needs. The agent received a $25,000
retainer with the execution of the agreement. Then, after 30 days, they will
receive $10,000 monthly for services rendered, be reimbursed for out-of-pocket
expenses and upon the successful completion of the placement memorandum be paid
$50,000 in cash bonuses. The engagement letter provides that the agent and
advisor will receive a cash success fee of up to 5% of the funds raised and
warrants to acquire Common Stock equal to 5% of the number of shares outstanding
after the offering, exercisable at the placement offering price.
Letter of Intent to Acquire Oil and Gas Company
On March 1, 2001, the Company issued a letter of intent to acquire an Oklahoma
oil and gas production company for $12,000,000 in cash at the time of closing
but shall be subject to the outcome of a third party reservoir engineering
report, the eliminating certain low yield production and an assessment of
development potential and drilling in progress. The effective date of the
transfer of ownership is to be April 1, 2001 with a proposed closing date of May
1, 2001.
F-21