<PAGE> 1
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-K
[X] ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
For the fiscal year ended December 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 0-14334
XPLOR CORPORATION
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(Exact name of registrant as specified in its charter)
Delaware 13-3299127
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State or other jurisdiction of I.R.S. Employer
incorporation or organization identification No.
16800 Greenspoint Park Drive, Ste 300 South, Houston, TX 77060
-----------------------------------------------------------------------
(Address of principal executive offices, including zip code)
Registrant's telephone number, including area code (281) 875-2780
Securities registered pursuant to Section 12(b) of the Act:
None
Securities registered pursuant to Section 12(g) of the Act:
Common Stock, $.01 par value
----------------------------
(Title of Class)
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 twelve months, and (2) has been subject to such filing
requirements for the past 90 days. YES X NO
--- ---
Indicate by check mark if disclosure of delinquent filers pursuant to Item
405 of Regulation S-K is not contained herein, and will not be contained, to the
best of the Registrant's knowledge, in the definitive proxy statement
incorporated by reference in Part III of this Form 10-K or any amendment to this
Form 10-K. [X]
The aggregate market value of the Common Stock held by non-affiliates of
the Registrant, computed by reference to the closing bid price of such stock on
March 18, 1997 was approximately $3,863,991. As of March 18, 1997, the
Registrant had outstanding 2,037,171 shares of Common Stock.
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PART I
Items 1. and 2. Business; Properties
General Information
Xplor Corporation (the "Company") is primarily engaged in the business of
acquiring, evaluating, developing and operating oil and gas properties, with
developed oil and gas properties, acreage and production in six states. A large
percentage of the Company's production is comprised of gas produced in West
Virginia. The Company also operates an intrastate gas gathering system in Texas.
The Company was incorporated in the State of Delaware in September 1985 and
acquired significant assets in March 1986 by merger with Xplor Energy
Corporation and asset acquisitions of ten limited partnerships which had been
sponsored by Xplor Energy Corporation and by Parliament Hill Corporation, which
was at that time a principal stockholder of the Company.
Proposed Merger and Property Acquisition
On February 11, 1997, the Company announced that it had agreed in principle to
an arrangement under which the Company will merge with a substantial
privately-held oil and gas company, and acquire additional oil and gas
properties from a larger publicly-held oil and gas company in exchange for
shares of the Common Stock of the Company. Xplor will have, upon completion of
both the merger and property acquisition, estimated proved reserves of 13,500
MMcf and a significant inventory of exploration and development properties.
At the time of completing the transactions, it is anticipated that the current
stockholders of the Company will own approximately 21% of the outstanding shares
of the Company, the stockholders of the private company to be merged with the
Company will own approximately 58%, and the publicly-held company selling the
additional properties will own approximately 21%.
Completion of the transactions is subject to significant conditions, including,
among other things, finalization of definitive documentation and approvals by
the Boards of Directors of the Company and the other parties.
Oil and Gas Reserves and Production Information
The Company has not filed any estimate of oil or gas reserve information with
any federal authority or agency other than the Securities and Exchange
Commission. The following table summarizes the estimate of the Company's net
proved reserves as of December 31, 1996 reviewed by Ryder
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Scott Company, independent petroleum engineers. Approximately 83% of the
Company's owned and operated proved reserves on a present value basis is derived
from gas reserves in Barbour and Doddridge Counties, West Virginia.
Proved Reserves
(12/31/96)
Oil and Condensate (Mbbls) 56
Natural Gas (MMcf) 2,362
Equivalent Barrels (MBOE) 450
Present Value @ 10% (1,000s) $3,857
The foregoing table represents an increase in value and a decrease in amount of
reserves as compared with December 31, 1995. See Note 9 of Notes to Consolidated
Financial Statements (Supplementary Oil and Gas Disclosures) for further
information.
Drilling Activity
The Company did not drill any development wells during the three years ended
December 31, 1996. The following table sets forth the Company's drilling
activity for that period.
Exploratory Wells
-----------------
Gross Wells Net Wells
------------------------ ---------------------------
Year Productive Dry Total Productive Dry Total
---- ---------- --- ----- ---------- --- -----
1994 0 2 2 0.00 0.36 0.36
1995 0 0 0 0.00 0.00 0.00
1996 0 0 0 0.00 0.00 0.00
-------------------------------------------------------
Totals 0 2 2 0.00 0.36 0.36
=======================================================
Productive Wells
----------------
(As of 12/31/96)
Gross Wells Net Wells
-----------------------------------------------------
State Oil Gas Total Oil Gas Total
----- --- --- ----- --- --- -----
West Virginia - 143 143 0.00 56.93 56.93
Louisiana 1 7 8 0.04 0.26 0.30
Oklahoma 1 7 8 0.02 0.31 0.33
Texas 8 2 10 0.94 0.41 1.35
Colorado 0 1 1 0.00 0.60 0.60
California 3 0 3 0.20 0.00 0.20
-----------------------------------------------------
Totals 13 160 173 1.20 58.51 59.71
------ =====================================================
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Acreage
The following table sets forth the developed acreage of the Company as of
December 31, 1996:
Developed Acreage
-----------------
State Gross Acres Net Acres
----- ----------- ---------
West Virginia 5,358.68 2,029.32
Louisiana 820.32 40.00
Texas 1,731.00 248.76
Colorado 477.94 288.56
Oklahoma 2,173.69 73.06
California 400.00 26.36
--------- --------
Totals 10,961.63 2,706.06
========= ========
Undeveloped Acreage
As of December 31, 1996, the Company had no interest in undeveloped leases.
Production
The following table summarizes the net oil and gas production, weighted average
sales prices and average production (lifting) costs per unit of production
(equivalent Mcf @ 6bbls=1Mcf) for the Company for the periods indicated:
Units of Production Average Unit Price
--------------------- --------------------------
Average
Oil Gas Lifting
Year Ended (bbls) (Mcf) Oil Gas Cost/Mcf
---------- ----- ----- --- --- --------
12/31/94 4,435 229,003 $13.78 $2.13 $1.00
12/31/95 3,653 171,205 $15.83 $2.00 $1.04
12/31/96 4,758 169,073 $17.53 $2.32 $0.94
Competition, Markets and Regulation
Competition: The oil and gas industry is highly competitive in all its phases.
There are a large number of operators engaged in oil and gas property
acquisition and development. The Company encounters strong competition in
acquiring economically desirable properties, equipment and labor to operate and
maintain its properties from major and independent oil and gas companies, many
of which possess greater financial resources and larger staffs than the Company.
Markets: The availability of a ready market for any oil and gas produced by the
Company depends upon numerous factors beyond its control, the exact effect of
which cannot be accurately predicted.
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These factors include the amount of oil and gas available for sale, crude oil
imports, the availability of adequate pipeline and other transportation
facilities, the marketing of competitive fuels and other matters affecting the
availability of a ready market such as fluctuating supply and demand.
For the years 1996, 1995 and 1994 sales of gas production in West Virginia,
respectively, to Howard Energy Company, Natural Gas Clearinghouse and Phoenix
Diversified Venture, Inc. accounted for, respectively, approximately 70%, 54%
and 67% of the Company's total revenues. In 1997, the Company's West Virginia
gas production is being sold to Columbia Energy Systems Corporation under a
one-year contract which incorporates market sensitive pricing.
Production of any oil and gas discovered or acquired by the Company is affected
to some degree by state and federal regulations. Many states have statutory
provisions regulating the production and sale of oil and gas, including
provisions regarding deliverability. Such statutes, and the regulations
promulgated in connection therewith, are generally intended to prevent waste and
to protect correlative rights to produce oil and gas between owners of a common
reservoir. Certain state regulatory authorities also regulate the amount of oil
and gas produced by assigning allowable rates of production to each well or
proration unit, which may increase or decrease in accordance with supply and
demand.
Environmental Regulation: The federal government and various state and local
governments have adopted laws and regulations regarding the control of
contamination of the environment. These laws and regulations may require the
acquisition of a permit before drilling commences, prohibit drilling activities
on certain lands lying within wilderness areas or where pollution arises and
impose substantial liabilities for pollution resulting from drilling operations.
Violation of environmental legislation and regulations may result in the
imposition of fines and, in certain circumstances, the entry of an order for the
abatement of the conditions or suspension of the activities giving rise to the
violation. To date the Company has not been required to spend or invest material
sums for environmental compliance. However, inasmuch as environmental laws and
regulations are frequently changed, the Company is unable to predict the
ultimate costs of future compliance. Management does not believe that
expenditures required by the Company to be in compliance with such laws and
regulations will have a material impact on the Company's financial position or
results of operation.
Other Government Regulations: The oil and gas industry is subject to extensive
federal and state regulation governing the conduct of operations, once
production is established. Matters that are subject to federal or state control
include permits to drill, the location of wells and limitations on production
for conservation purposes. Moreover, the Company's operations may be affected
from time to time in varying degrees by changes in federal and state laws and
regulations.
Employees: As of March 18, 1997 the Company had two employees, its Chairman and
President and an administrative assistant. With its relocation of its executive
offices from Denver, Colorado to Houston, Texas, the Company outsourced
accounting functions to a professional oil and gas financial services firm and
well tending to a professional contractor.
Other Properties: The Company's executive and operating offices are located in
Houston, Texas where it occupies premises of approximately 2,150 square feet
pursuant to a lease which expires on July 31, 1998. The Company's annual rental
expense is approximately $26,000.
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Item 3. Legal Proceedings
The Company is a party in a number of lawsuits arising in the ordinary course of
business. In the opinion of management, final judgements or settlements, if any,
which may be awarded or entered into in connection with any one or more of these
suits would not have a material adverse effect on the Company's financial
position or results of operations.
Item 4. Submission of Matters to a Vote of Security Holders
Not applicable.
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Part II
Item 5. Market for the Registrant's Common Equity and Related Stockholder
Matters
The Company's Common Stock is traded on the NASDAQ SmallCap Market under the
symbol XPLR. The following table sets forth the range of high and low closing
bid prices for each quarterly period during the two most recent fiscal years, as
reported by the NASDAQ SmallCap Market System after June 9, 1995 and on the
NASDAQ National Market System where the stock was traded before that date. All
SmallCap quotations represent inter-dealer quotations, without retail mark-up,
mark-down or commission, and may not represent actual transactions.
1995 High Low
---- ---- ---
First Quarter 1 1/2 1 1/8
Second Quarter 2 1 1/8
Third Quarter 2 1/8 1 5/8
Fourth Quarter 2 1 1/8
1996
----
First Quarter 2 1/4 1 5/8
Second Quarter 3 3/8 1 7/8
Third Quarter 3 2 1/8
Fourth Quarter 2 7/8 1 3/4
On March 18, 1997, the closing bid price for the Company's Common Stock was
$3.875 per share.
The Company had 922 stockholders of record as of March 18, 1997. The Company has
not paid dividends since January 1991 and has no present intention to resume
their payment.
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Item 6. Selected Financial Data
The following table sets forth selected financial data of the Company for the
fiscal years ended December 31, 1992 through 1996.
1996 1995 1994 1993 1992
---- ---- ---- ---- ----
Total Assets $5,482 $5,867 $3,777 $4,561 $5,920
Operating Revenues 613 552 867 895 1,097
Total Revenues 755 3,084 919 1,796 1,756
Exploration Costs - 42 344 1 3
Provision for Asset
Impairment 4 304 37 317 58
(Provision) Benefit for
Deferred Taxes 30 (317) - - -
Net Income (Loss) (166) 1,214 (765) 349 (442)
Net Income (Loss) per
Common Share $(.08) $.59 $(.38) $.17 $(.21)
[In thousands, except per share information]
Item 7. Management's Discussion and Analysis of
Financial Condition and Results of Operations
(a) Liquidity
At December 31, 1996, the Company had working capital of $2,498,000 compared
with $2,452,000 at December 31, 1995, an increase of $46,000. The ratio of
current assets to current liabilities at December 31, 1996 was 6.65 to 1
compared with 4.53 to 1 at December 31, 1995.
Net cash used in operating activities during 1996 was $109,000, whereas
$2,530,000 was provided by operating activities during 1995 due in large part to
the receipt of contract settlement proceeds of $2,490,000 primarily from the
settlement of the Columbia bankruptcy described below. Cash and cash equivalents
decreased by $109,000 principally due to the payment in 1996 for properties
acquired in 1995. The reduction of $97,000 in accounts receivable was primarily
the result of the timing of revenue receipts. The decrease in current
liabilities of $252,000 reflected payments on the prior year's accruals for
property acquisitions and payments to working interest owners in connection with
the Columbia bankruptcy settlement. During 1996, no cash was used in or provided
by investing or financing activities.
On February 11,1997, the Company announced that it has agreed in principle to an
arrangement under which the Company will merge with a substantial
privately-held oil and gas company, and acquire additional oil and gas
properties from a larger publicly-held oil and gas company in
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exchange for shares of common stock of the Company ("Proposed Merger"). In the
event that the Proposed Merger is consummated, it is expected that the Company
will significantly increase working capital.
(b) Capital Resources
As of December 31, 1996, the Company did not have material commitments for
capital expenditures. In the event the Proposed Merger is consummated, it is
expected that the Company will assume significant commitments for development
and exploration for which available working capital should be adequate.
(c) Results of Operations
Year Ended December 31, 1996 Compared with Year Ended December 31, 1995
The Company experienced a net loss of $166,000 for 1996 versus net income of
$1,214,000 for 1995. In 1995, the Company settled its claims against Columbia
Gas Transmission Corporation which had been a major purchaser of the Company's
West Virginia gas production and which had been operating under Chapter 11
bankruptcy. Primarily as a result of this settlement, the Company's 1995 income
reflected contract settlement proceeds of $2,490,000. Excluding the 1995
Columbia settlement, the Company's loss of $166,000 for 1996 represented an
improvement of $793,000 over 1995's loss from continuing operations of $959,000.
Oil and gas revenue of $476,000 for 1996 increased by $76,000 over 1995's oil
and gas revenue of $400,000, primarily due to increased oil and gas prices. The
1996 cost of oil and gas sales of 42% relative to sales decreased by 19% from
the prior year's cost of 52% relative to sales. This decrease was primarily due
to increases in prices. The 1996 depletion rate of 40% as a percentage of sales
is comparable to last year's rate of 44%. During 1996, the Company booked
valuation adjustments of $4,000 as compared to the $304,000 recorded during
1995.
The Company's 1996 investment income of $142,000 increased by $112,000 over 1995
due primarily to interest received from the investment of the Columbia contract
settlement proceeds.
During 1996, general and administrative expense of $555,000 decreased $81,000
from $636,000 in 1995. This reduction was primarily due to decreases in payroll,
insurance and legal costs as a result of downsizing the Company in 1996 and
outsourcing accounting activities. The Company relocated its corporate offices
in June 1996 to Houston, Texas from Denver, Colorado.
Year Ended December 31, 1995 Compared with Year Ended December 31, 1994
The Company's income of $1,214,000 for 1995 represented a $1,979,000 increase
over the 1994 net loss of $765,000 and was attributable to the Columbia contract
settlement. Non-cash charges in 1995 included a $317,000 provision for income
taxes, asset impairments totaling $304,000 and acquisition financing commitment
expenses of $187,000. A decrease of $149,000 in oil and gas sales was offset by
decreases of $52,000 in depreciation, depletion and amortization and of $78,000
in costs of oil and gas sales.
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Oil and gas revenue of $400,000 for 1995 decreased by $149,000 compared with
1994 primarily due to reduced production from wells in Louisiana which
experienced mechanical problems and the absence of revenue from wells sold
during 1995. Revenues from pipeline sales and fees decreased by $157,000 during
1995 due to reduced gas receipts from one supply source which ceased production.
The 1995 cost of oil and gas sales of 52% relative to sales was the same as the
prior year, and the depletion rate of 44% as a percentage of sales was
comparable to the prior year's rate of 42%. During 1995, the Company booked
valuation adjustments of $304,000 including $246,000 from non-operated wells in
Texas and the Rocky Mountain region and $55,000 for its pipelines in Texas where
one supplier abandoned wells connected to the system.
During 1995, the Company agreed in principle to acquire certain oil properties
in Illinois. The termination of the proposed acquisition resulted in the
recognition of $105,000 of general and administrative expense. However, the
overall increase in general and administrative expense was limited to $28,000
compared with the prior year by a comprehensive reduction in other areas and the
absence of a $58,000 accrual for franchise taxes recognized in 1994.
During 1996, the Company adopted the Financial Accounting Standards Board's
Statement of Financial Accounting Standard No. 121 entitled "Accounting for the
Impairment of Long-Lived Assets and for Long-Lived Assets to be Disposed Of"
("SFAS No. 121"). This Statement is effective for fiscal years beginning after
December 15, 1995. The adoption of SFAS No. 121 did not have a material impact
on the Company's financial position or results of operations.
During 1996, the Company also adopted Financial Accounting Standard No. 123
entitled "Accounting for Stock-Based Compensation" ("SFAS No. 123") for
disclosure purposes only. For financial reporting purposes, the Company elected
to remain with the accounting prescribed by APB Opinion No. 25. The disclosure
requirements of SFAS No. 123 are effective for financial statements for fiscal
years beginning after December 31, 1995.
Item 8. Financial Statements and Supplementary Data
This information appears in a separate section of this report following Part IV.
Item 9. Disagreements on Accounting and Financial Disclosure
Not applicable.
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PART III
Item 10. Directors and Executive Officers of the Registrant
The directors and executive officers of the Company are as follows:
Director
Name Age Since Position
---- --- ----- --------
James E. Gayle 47 1994 Chairman, President and
Chief Executive Officer
Martin A. Bell 45 1991 Director and Secretary
J. Morton Davis 69 1986 Director
Richard Goldberger 67 1995 Director
Leonard Toboroff 64 1994 Director
James E. Gayle was elected as a director and as chief executive officer in June
1994, Chairman effective July 1994 and President effective September 1994. Since
1979, he has been Chairman, President and sole stockholder of HGX Energy
Corporation which provides market and contract consulting services to
independent oil and gas exploration and production companies, natural gas
pipeline companies and local distribution companies. Prior to Mr. Gayle's
election as an officer and director of the Company, HGX was acting as a
consultant to the Company since October 1993.
Martin A. Bell is the Vice Chairman and General Counsel of D.H. Blair Investment
Banking Corp., a member of the New York Stock Exchange, and has been General
Counsel of that organization and predecessor companies since 1991.
J. Morton Davis is presently, and has been since 1962, the Chairman of the Board
of D.H. Blair Investment Banking Corp. and predecessor companies. Since 1967 he
has also served as President of Engex Inc., a closed-end, non-diversified
investment company. Mr. Davis is a director of American List Corp. and
Parliament Hill Corporation.
Richard Goldberger was elected a director in September 1995. He has been
Chairman of the Board and Chief Executive Officer of Linda's Flame Roasted
Chicken, Inc. (restaurants and restaurant franchising) since 1992 and is a
director of United Jersey Banks. He was also the founder of Garden State
Brickface Company where he served as Chairman and chief executive from 1953
until 1989.
Leonard Toboroff, a private investor, has been for more than the last five years
Vice Chairman of Riddell Sports Inc., a manufacturer of protective sports
equipment. He serves as a director of Riddell, Allis-Chalmers Corporation (oil
field services), Banner Aerospace Inc. (aviation parts and aircraft sales),
Engex Inc. (closed-end, non-diversified investment company) and Saratoga
Beverages Inc. (branded water products).
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All directors of the Company will hold office until the next annual meeting of
stockholders and until their successors have been elected and qualified. The
officers are elected by the Board of Directors.
Item 11. Executive Compensation
The following table sets forth the compensation paid by the Company for the
three years ended December 31, 1996 to its chief executive officer. At no time
during this period did the Company pay any executive officer annual compensation
exceeding $100,000 or any bonus.
SUMMARY COMPENSATION TABLE
Annual Compensation Long-Term Compensation
------------------- ----------------------
Name and Position Fiscal Year Salary($) Option Awards (#)
- ----------------- ----------- --------- -----------------
James E. Gayle 1994 71,508 100,000
Chairman, President 1995 96,000 150,000
& CEO (A) 1996 92,000 - 0 -
James A. Scarpone 1994 12,000 - 0 -
Chairman & CEO 1995 - 0 - - 0 -
1996 - 0 - - 0 -
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(A) Mr. Gayle became chief executive officer in June 1994, replacing Mr.
Scarpone. The amount shown as salary compensation for 1994 includes consulting
fees paid during 1994 to Mr. Gayle's affiliate, HGX Energy Corporation, which
had been acting as a consultant to the Company prior to his election.
The Company does not have a long-term incentive plan or a retirement plan. It
maintains only the stock option plans reflected in the foregoing and following
table. No options were granted to or exercised by the chief executive officer in
1996. The following table sets forth information with respect to fiscal 1996
concerning individual options and values relating to the Company's chief
executive officer.
<TABLE>
<CAPTION>
Aggregated FY-End Option Values
-------------------------------
Number of Securities Underly Value of Unexercised In-the-Money
Unexercised Options at FY-End (#) Options at FY-End ($)
Exercisable/ Exercisable/
Name Unexercisable Unexercisable
---- ------------- -------------
<S> <C> <C>
James E. Gayle 87,500/162,500 $64,063/$110,938
</TABLE>
Directors of the Company receive no compensation for service on the Board, other
than reimbursement of expenses for attendance at meetings. Directors who are not
officers or employees of the Company or holders of 5% or more of the Company's
outstanding stock also receive annually options to purchase 10,000 shares of the
Company's stock at an exercise price equal to the fair market value at the time
of grant.
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Item 12. Security Ownership of Certain Beneficial Owners and Management
Set forth below is information concerning stock ownership of all persons known
by the Company to own beneficially 5% or more of the Company's Common Stock, all
directors, and all directors and officers of the Company as a group, based upon
the 2,037,171 shares of Common Stock outstanding on March 18, 1997 plus shares
deemed outstanding pursuant to Securities and Exchange Commission Rule
13d-3(d)(1).
Name of Beneficial Holder Amount and Nature
or Identity of Group of Beneficial Ownership (1) Percent of Class
--------------------- ----------------------- ----------------
J. Morton Davis(2) 1,066,512(3) 53.7%
James E. Gayle 87,500(4) 4.1%
Martin A. Bell 30,500(4)(5) 1.5%
Richard Goldberger 20,000(4) 1.0%
Kinder Investments, L.P.(6) 503,000(7) 19.8%
Leonard Toboroff 20,000(4) 1.0%
All directors and officers
as a group (5 persons) 1,224,512(4) 57.0%
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(1) All persons named have sole voting and investment power, except as otherwise
noted.
(2) 44 Wall Street, New York, NY 10005.
(3) Includes: (i) 766,307 shares owned by D.H. Blair Investment Banking Corp.
("Blair Investment"); (ii) warrants to purchase 10,000 shares at $2.125 per
share expiring June 10, 1997 owned by Blair Investment; (iii) warrants to
purchase 20,000 shares at $3.29 per share expiring September 1, 1999 owned by
Blair Investment; (iv) 163,411 shares owned by Rivkalex Corp. ("Rivkalex"); (v)
70,954 shares owned by Rosalind Davidowitz, Mr. Davis' spouse; and (vi) 35,840
shares owned by Parliament Hill Corporation ("PHC"). Mr. Davis is the sole
stockholder of Blair Investment. Blair Investment may be deemed to beneficially
own 796,307 or 38.5% of the Company's Common Stock. Ms. Davidowitz may be deemed
to beneficially own 270,205 shares or 13.3% of the Company's Common Stock.
Rivkalex may be deemed to beneficially own 163,411 shares or 8% of the Company's
Common Stock. Mr. Davis has sole power to vote or to direct the vote, to dispose
or to direct the disposition of shares owned by Blair Investment. Ms. Davidowitz
and the Board of Directors of PHC, of which Mr. Davis is a director and
Chairman, have the power to vote or to direct the vote, to dispose or to direct
the disposition of shares owned by PHC. Ms. Davidowitz has sole voting and
dispositive control of the shares owned by herself and Rivkalex. Mr. Davis
disclaims beneficial ownership of all shares attributed to Rosalind Davidowitz
and Rivkalex. PHC is a private corporation of which Rosalind Davidowitz
beneficially owns 72.6% and Blair Investment beneficially owns 13.4%. The number
of shares shown does not include any shares beneficially owned by Kinder
Investments, L.P. and referred to in note (7) below, the ownership of which are
disclaimed by Mr. Davis, Ms. Davidowitz and Blair Investment.
(4) Includes immediately exercisable options to purchase shares as follows: Mr.
Gayle, 87,500 shares; Mr. Bell, 30,000 shares; Mr. Goldberger, 20,000 shares;
Mr. Toboroff, 20,000 shares; and all officers and directors as a group, 187,500
shares.
(5) Excludes shares owned by Blair Investment, with which Mr. Bell is employed,
as beneficial ownership of such shares is disclaimed by Mr. Bell.
(6) 779 CR 403, Greenville, NY 12083.
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(7) Includes 500,000 shares issuable pursuant to the warrant exercisable at
$2.00 per share. The General Partner of Kinder Investments, L.P. ("Kinder") is
Kenton E. Wood who has sole voting and dispositive power over shares owned by
Kinder. Mr. Wood is also Chief Executive Officer and a director and stockholder
of D.H. Blair & Co., Inc. ("Blair"). Certain limited partners of Kinder are also
stockholders of Blair. The limited partners of Kinder are the children and
grandchildren of J. Morton Davis and Rosalind Davidowitz. The number of shares
shown does not include any shares owned by Blair Investment, Mr. Davis or Ms.
Davidowitz, the beneficial ownership of which are disclaimed by Kinder and Mr.
Wood.
Item 13. Certain Relationships and Related Party Transactions
Not applicable.
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PART IV
Item 14. Exhibits, Financial Statements, Schedules, and Reports on Form 8-K
(a) 1. The following are contained in a separate section of this
Form 10-K which follows Part IV.
Page
----
Report of Independent Public Accountants..............................18
Consolidated Balance Sheets ..........................................19
Consolidated Statements of Operations - Years ended
December 31, 1996, 1995 and 1994......................................21
Consolidated Statements of Stockholders' Equity - Years ended
December 31, 1996, 1995 and 1994......................................22
Consolidated Statements of Cash Flows - Years ended
December 31, 1996, 1995 and 1994......................................23
Notes to Consolidated Financial Statements............................24
Supplementary Oil and Gas
Disclosures (Unaudited) ..............................................32
2. Financial Statement Schedules.
None. All Schedules for which provision is made in the applicable
accounting regulation of the Securities and Exchange Commission
are omitted since they are not required under the related
instructions or are inapplicable or the required information is
shown in the financial statements or related notes.
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3. Exhibits:
(3) Certificate of Incorporation and By-Laws (1)
(4.1) Warrant issued to Kinder Investments, L.P. (2)
(10.1) Registrant's 1985 Incentive Stock Option Plan (1)
(10.7) Registrant's 1995 Stock Option Plan (2)
(10.8) Note and Warrant Agreement with Kinder Investments, L.P. (2)
(b) The Company did not file any reports on Form 8-K during the quarter ended
December 31, 1996.
(c) See Item 14(a)(3) above.
(d) See Item 14(a)(2) above.
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(1) Incorporated by reference to the Registrant's Statement on Form S-4 (File
No. 33-1903) declared effective on January 8, 1986.
(2) Incorporated by reference to the Registrant's Form 10-K for the year ended
December 31, 1995.
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Item 8. Financial Statements and Supplementary Data
XPLOR CORPORATION AND SUBSIDIARY
INDEX TO CONSOLIDATED FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
Page
----
REPORT OF INDEPENDENT PUBLIC ACCOUNTANTS 18
FINANCIAL STATEMENTS:
Consolidated Balance Sheets 19
Consolidated Statements of Operations 21
Consolidated Statements of Stockholders' Equity 22
Consolidated Statements of Cash Flows 23
Notes to Consolidated Financial Statements 24
-17-
<PAGE> 18
REPORT OF INDEPENDENT PUBLIC ACCOUNTANTS
To Xplor Corporation
We have audited the accompanying consolidated balance sheets of XPLOR
CORPORATION (a Delaware corporation) AND SUBSIDIARY as of December 31, 1996 and
1995, and the related consolidated statements of operations, stockholders'
equity and cash flows for each of the three years in the period ended December
31, 1996. These financial statements are the responsibility of the Company's
management. Our responsibility is to express an opinion on these consolidated
financial statements based on our audits.
We conducted our audits 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 audits provide a reasonable basis for our opinion.
In our opinion, the financial statements referred to above present fairly, in
all material respects, the financial position of Xplor Corporation and
subsidiary as of December 31, 1996 and 1995, and the results of their operations
and their cash flows for each of the three years in the period ended December
31, 1996 in conformity with generally accepted accounting principles.
Denver, Colorado
February 21, 1997
/s/ Arthur Andersen LLP
-18-
<PAGE> 19
XPLOR CORPORATION AND SUBSIDIARY
CONSOLIDATED BALANCE SHEETS
AS OF DECEMBER 31, 1996 AND 1995
1996 1995
---- ----
ASSETS (In Thousands)
CURRENT ASSETS:
Cash and cash equivalents $ 2,755 $ 2,864
Accounts receivable and other 185 282
-------- --------
Total current assets 2,940 3,146
OIL AND GAS PROPERTIES AND EQUIPMENT (successful
efforts method), at cost 18,843 18,843
Less-accumulated depreciation, depletion, amortization
and impairment (16,592) (16,401)
-------- --------
2,251 2,442
INVESTMENT IN EQUITY SECURITIES, less reserve of $45
for unrealized losses at December 31, 1995 118 55
OTHER ASSETS, less accumulated depreciation of $138 and
$133 at December 31, 1996 and 1995, respectively 173 224
-------- --------
Total assets $ 5,482 $ 5,867
======== ========
The accompanying notes to consolidated financial statements
are an integral part of these balance sheets.
-19-
<PAGE> 20
XPLOR CORPORATION AND SUBSIDIARY
CONSOLIDATED BALANCE SHEETS
AS OF DECEMBER 31, 1996 AND 1995
1996 1995
---- ----
LIABILITIES AND STOCKHOLDERS' EQUITY (In Thousands)
CURRENT LIABILITIES:
Accounts payable $ 221 $ 389
Accrued liabilities-
Suspended revenues and settlements 167 197
Other 54 108
-------- --------
Total current liabilities 442 694
Deferred income taxes 287 317
-------- --------
Total liabilities 729 1,011
COMMITMENTS AND CONTINGENCIES (Note 6)
STOCKHOLDERS' EQUITY:
Preferred stock, par value of $.01 per share--authorized
1,000,000 shares; none issued -- --
Common stock, par value of $.01 per share--authorized
15,000,000 shares; issued 2,595,673 shares at
December 31, 1996 and 1995 26 26
Additional paid-in capital 20,678 20,678
Accumulated deficit (13,253) (13,087)
Unrealized gains on equity securities 63 --
-------- --------
Total stockholders' equity before
common stock in treasury 7,514 7,617
Less cost of common stock in treasury--558,502
shares at December 31, 1996 and 1995 (2,761) (2,761)
-------- --------
Total stockholders' equity 4,753 4,856
Total liabilities and stockholders' equity $ 5,482 $ 5,867
======== ========
The accompanying notes to consolidated financial statements
are an integral part of these balance sheets.
-20-
<PAGE> 21
XPLOR CORPORATION AND SUBSIDIARY
CONSOLIDATED STATEMENTS OF OPERATIONS
FOR THE YEARS ENDED DECEMBER 31, 1996, 1995 AND 1994
<TABLE>
<CAPTION>
1996 1995 1994
------ ------ ------
(In Thousands, Except Per Share Data)
<S> <C> <C> <C>
REVENUES:
Oil and gas sales $ 476 $ 400 $ 549
Pipeline sales and fees 8 11 168
Gain on sale of oil and gas properties and other -- 12 5
Management and administrative fees 22 26 32
Oil field operation fees 107 115 118
Interest income and other 142 30 47
Contract settlement proceeds -- 2,490 --
------ ------ ------
755 3,084 919
------ ------ ------
COSTS AND EXPENSES:
Cost of oil and gas sales 201 206 284
Pipeline operating costs -- 2 138
Exploration costs -- 42 344
Provision for asset impairment 4 304 37
Depreciation, depletion and amortization 191 176 228
General and administrative 555 636 608
Interest and financing costs -- 187 --
Unrealized security losses -- -- 45
------ ------ ------
951 1,553 1,684
Income (loss) before income taxes (196) 1,531 (765)
BENEFIT (PROVISION) FOR INCOME TAXES 30 (317) --
------ ------ ------
Net income (loss) $ (166) $1,214 $ (765)
====== ====== ======
Net income (loss) per share of common
stock and common stock equivalent $(0.08) $ 0.59 $(0.38)
====== ====== ======
WEIGHTED AVERAGE NUMBER OF SHARES OUTSTANDING 2,037 2,051 2,037
====== ====== ======
</TABLE>
The accompanying notes to consolidated financial statements
are an integral part of these statements.
-21-
<PAGE> 22
XPLOR CORPORATION AND SUBSIDIARY
CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY
FOR THE YEARS ENDED DECEMBER 31, 1996, 1995 AND 1994
<TABLE>
<CAPTION>
Unrealized
Additional Gain On
Common Paid-In Accumulated Equity Treasury
Stock Capital Deficit Securities Stock Total
------ ---------- ----------- ---------- -------- -----
(In Thousands, Except Share Data)
<S> <C> <C> <C> <C> <C> <C>
BALANCE at December 31, 1993 $26 $20,471 $(13,536) $-- $(2,761) $ 4,200
Net loss -- -- (765) -- -- (765)
--- ------- -------- --- ------- -------
BALANCE at December 31, 1994 26 20,471 (14,301) -- (2,761) 3,435
Stock options issued -- 20 -- -- -- 20
Warrants issued -- 187 -- -- -- 187
Net Income -- -- 1,214 -- -- 1,214
--- ------- -------- --- ------- -------
BALANCE at December 31, 1995 26 20,678 (13,087) -- (2,761) 4,856
Net loss -- -- (166) -- -- (166)
Unrealized gain -- -- -- 63 -- 63
--- ------- -------- --- ------- -------
BALANCE at December 31, 1996 $26 $20,678 $(13,253) $63 $(2,761) $ 4,753
=== ======= ======== === ======= =======
</TABLE>
The accompanying notes to consolidated financial statements
are an integral part of these statements.
-22-
<PAGE> 23
XPLOR CORPORATION AND SUBSIDIARY
CONSOLIDATED STATEMENTS OF CASH FLOWS
FOR THE YEARS ENDED DECEMBER 31, 1996, 1995 and 1994
<TABLE>
<CAPTION>
1996 1995 1994
-------- ------- ------
(In Thousands)
<S> <C> <C> <C>
OPERATING ACTIVITIES:
Net income (loss) $ (166) $1,214 $(765)
Adjustments to reconcile net income (loss) to net
cash (used in) provided by operating activities-
Stock options issued -- 20 --
Warrants issued -- 187 --
Gain on sale of oil and gas properties and other -- (12) (5)
Unrealized securities losses -- -- 45
Write-off of lease inventory, oil and gas
properties and equipment -- -- 344
Deferred income taxes (30) 317 --
Provision for asset impairment 4 304 37
Depreciation, depletion and amortization 191 176 228
Changes in operating assets and liabilities-
Decrease (increase) in accounts receivable
and other 132 (59) 46
Decrease in due from Parliament Hill
Corporation and affiliates 12 31 78
Increase (decrease) in accounts payable (168) 298 (59)
Increase (decrease) in accrued liabilities (84) 54 40
------ ------ -----
Net cash (used in) provided by operating activities (109) 2,530 (11)
------ ------ -----
INVESTING ACTIVITIES:
Net proceeds from sale of property -- 24 3
Additions to oil and gas properties and equipment -- (116) (242)
Additions to lease inventory -- -- (110)
Proceeds from disposition of other assets -- 5 10
Proceeds from lease inventory 3 --
------ ------ -----
Net cash used in investing activities -- (84) (339)
------ ------ -----
FINANCING ACTIVITIES -- -- --
------ ------ -----
Net cash used in financing activities -- -- --
------ ------ -----
INCREASE (DECREASE) IN CASH AND CASH EQUIVALENTS (109) 2,446 (350)
CASH AND CASH EQUIVALENTS, at beginning of year 2,864 418 768
------ ------ -----
CASH AND CASH EQUIVALENTS, at end of year $2,755 $2,864 $ 418
====== ====== =====
</TABLE>
The accompanying notes to consolidated financial statements
are an integral part of these statements.
-23-
<PAGE> 24
XPLOR CORPORATION AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
DECEMBER 31, 1996
(1) ORGANIZATION AND BASIS OF PRESENTATION
Xplor Corporation (the "Company") is primarily engaged in the business of
acquiring, evaluating, developing and operating oil and gas properties. The
majority of the Company's oil and gas reserves and production is attributable to
wells in West Virginia.
(2) SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
Oil and Gas Properties and Equipment
The Company uses the successful efforts method of accounting for oil and gas
producing activities. Costs to acquire mineral interests in oil and gas
properties, to drill and equip exploratory wells that find proved reserves, and
to drill and equip development wells are capitalized. Costs to drill exploratory
wells that do not find proved reserves and geological and geophysical costs are
expensed.
Capitalized costs of producing properties are depreciated and depleted by the
units-of-production method based upon proved oil and gas reserves of the
properties. Capitalized costs of producing properties by geographical region are
periodically reviewed for impairment and, if necessary, are written down to
estimated recoverable amounts based on undiscounted future net revenues.
Capitalized costs for unproved properties are periodically reviewed for
impairment and, if necessary, a valuation allowance is provided.
In March 1995, the Financial Accounting Standards Board issued Statement of
Financial Accounting Standards No.121 entitled "Accounting for the Impairment of
Long-Lived Assets and for Long-Lived Assets to be Disposed Of" ("SFAS 121").
This statement requires the Company to perform an impairment test for its
capitalized exploration and development costs, similar to the policy the Company
had followed. The adoption of SFAS 121 did not have a material impact on the
Company's financial position or results of operations.
Income (Loss) Per Share
Net income per share is based on the weighted average number of shares of common
stock outstanding during the period, including common stock equivalents of
dilutive stock options and warrants.
Net loss per share is based on the weighted average number of shares of common
stock outstanding during the period. For this calculation, shares issuable upon
exercise of stock options and warrants are excluded from the weighted average
number of shares since their effect would be antidilutive.
-24-
<PAGE> 25
Statement of Cash Flows
The Company defines all liquid investments with an original maturity of three
months or less to be cash equivalents. Income taxes paid were approximately
$30,000 in 1996. No income tax payments were made in 1995 and 1994. No interest
payments were made in 1996, 1995 or 1994.
Deferred Income Taxes
See Note 3 for a discussion of the Company's policy relative to accounting for
income taxes.
Reclassifications
Certain amounts in prior years have been reclassified to conform to the 1996
presentation.
Use of Estimates
The preparation of financial statements in conformity with generally accepted
accounting principles requires management to make estimates and assumptions that
affect the reported amounts of assets and liabilities and disclosure of
contingent assets and liabilities at the date of the financial statements and
the reported amounts of revenues and expenses during the reporting period.
Actual results could differ from those estimates.
Fair Value of Financial Instruments
Financial instruments include cash, marketable equity securities, and short-term
receivables and trade obligations. The carrying amounts for receivables and
obligations approximate fair value because of the short maturity of these
instruments.
Marketable Equity Securities
The Company adopted Statement of Financial Accounting Standards No.115,
"Accounting for Certain Investments in Debt and Equity Securities" ("SFAS 115"),
on January 1, 1994. Under this Statement, the Corporation's marketable
securities have been classified as available for sale and are recorded at
current market value with an offsetting adjustment to Stockholders' Equity. At
December 31, 1995, marketable securities were carried at the lower of cost or
market as the equity securities had been restricted from sale. Net unrealized
gains on noncurrent marketable equity securities are included as a component of
Stockholders' Equity.
-25-
<PAGE> 26
(3) INCOME TAXES
Effective January 1, 1993, the Company adopted Statement of Financial Accounting
Standards No. 109, "Accounting for Income Taxes" ("SFAS 109"). SFAS 109 requires
that the Company account for income taxes under the liability method rather than
the deferred method previously required by Accounting Principles Board Opinion
No. 11, "Accounting for Income Taxes." There was no cumulative effect for this
change in accounting for income taxes attributable to fiscal years prior to
1993.
Under SFAS 109, a deferred tax liability or asset is created when temporary
differences arise between the financial reporting basis and the tax basis of the
Company's liabilities and assets, as measured by the statutory tax rates in
effect when such differences are expected to reverse. In addition, deferred tax
assets may result where the Company reasonably expects to utilize existing tax
net operating losses or tax credit carryforwards. A valuation allowance must be
established against any portion of a deferred tax asset for which the Company
believes it is more likely than not the related tax benefit will not be
realized. Components of the Company's deferred tax assets and (liabilities) at
December 31, 1996 and 1995, were as follows:
1996 1995
---- ----
Loss carryforwards $ 293,000 $ 339,000
Alternative minimum tax credit 30,000 -
Depreciation, depletion and
amortization (610,000) (656,000)
--------- ---------
Net deferred tax liability $(287,000) $(317,000)
========== =========
The effective tax rate on income from operations before taxes is different from
the U.S. corporate income tax statutory rate for the following reasons:
Years Ended December 31
-----------------------------
1996 1995 1994
---- ---- -----
U.S. corporate tax provision (benefit)
at statutory rate $(67,000) $ 521,000 $(260,000)
Tax effect of financial reporting
and tax differences 46,000 70,000 15,000
Changes in valuation allowance -- (307,000) 266,000
State taxes -- 46,000 --
Other (9,000) (13,000.) (21,000)
-------- --------- ---------
$(30,000) $ 317,000 $ --
======== ========= =========
The Company has net operating loss carryforwards available at December 31, 1996,
aggregating approximately $869,000, which expire in years 2006 through 2009.
-26-
<PAGE> 27
(4) STOCK OPTIONS
At December 31, 1996, the Company has reserved 406,000 shares of its common
stock for future issuance in connection with outstanding stock options
exercisable at prices ranging from $1.25 to $3.29 per share. All stock options
expire on various dates beginning in 1997 and ending in 2006.
A summary of the option activity follows:
<TABLE>
<CAPTION>
Years Ended December 31,
-------------------------
1996 1995 1994
---- ---- ----
Wtd. Avg. Wtd. Avg. Wtd. Avg.
Options Ex. Price Options Ex. Price Options Ex. Price
------- --------- ------- --------- ------- ----------
<S> <C> <C> <C> <C> <C> <C>
Options outstanding,
beginning of period 401,000 $1.736 248,567 $2.008 220,418 $2.830
Options granted 20,000 $1.875 160,000 $1.500 192,100 $1.810
Options exercised -- -- -- -- -- --
Options expired (15,000) $1.500 (7,567) $5.596 (163,951) $2.884
------- ------- -------
Options outstanding,
end of period 406,000 $1.752 401,000 $1.736 248,567 $2.008
------- ------- -------
Options exercisable,
end of period 243,500 $1.959 176,000 $2.119 248,567 $2.008
------- ------- -------
</TABLE>
On January 1, 1996, two outside directors of the company were granted stock
options to purchase 20,000 shares of common stock at fair market value.
On June 28, 1995, the Option Committee of the Board of Directors granted stock
options to purchase 160,000 shares of common stock to officers of the Company.
The Company recognized $20,000 of compensation expense related to these
issuances.
On July 23, 1994, the Option Committee of the Board of Directors granted an
option to purchase 100,000 shares of common stock to an officer of the Company.
The Committee granted an option to purchase 20,000 shares of common stock on
September 1, 1993, to another officer of the Company. Effective July 22, 1994,
this option was exchanged for a new option to purchase 20,000 shares of common
stock with the original exercise price. On September 1, 1994, the Committee
granted options to purchase 15,000 shares of common stock to employees of the
Company. Also during 1994, options to purchase 57,100 shares of common stock
under the stock option plan were exchanged for options to purchase 57,100 shares
of common stock with the original exercise prices and terms outside of the stock
option plan for a former officer who became a consultant to the Company.
-27-
<PAGE> 28
The following summarizes information about stock options outstanding at December
31, 1996:
Options Outstanding
-------------------
Range of Number Weighted Average Weighted Average
Exercise Price Outstanding Remaining Contractual Life Exercise Price
- -------------- ----------- -------------------------- --------------
$1.25-$1.49 140,000 7 years $1.29
$1.50-$1.85 160,000 8.5 years $1.50
$1.86-$2.15 46,000 4.77 years $2.02
$3.29 60,000 2.75 years $3.29
The Company accounts for its stock-based compensation plans under APB No. 25,
under which no compensation expense has been recognized as all options have been
granted with an exercise price equal to the fair value of the Company's common
stock on the date of grant, except as stated above. The Company adopted
Statement of Financial Accounting Standards No. 123, "Accounting for Stock Based
Compensation" ("SFAS 123") for disclosure purposes in 1996. For SFAS 123
purposes, the fair value of each option grant has been estimated as of the date
of grant using an option pricing model with the following weighted average
assumptions:
Year Ended Year Ended
December 31, December 31,
1996 1995
------------ -----------
Risk-free interest rate 5.70% 6.01%
Dividend rate 0% 0%
Expected volatility 98.22% 98.22%
Expected life 8.33 years 10 years
Using these assumptions, the fair value of the stock options and warrants
granted in 1996 and 1995 was approximately $34,000 and $645,500 respectively,
which would be amortized as compensation expense over the vesting period of the
options. Because the SFAS 123 method of accounting has not been applied to
options or warrants granted prior to January 1, 1995 the resulting pro forma
compensation cost may not be representative of that to be expected in future
years. Had compensation expense been determined consistent with SFAS 123,
utilizing the assumptions
-28-
<PAGE> 29
detailed above, the Company's net income and earnings per share would have been
reduced to the following pro forma amounts.
For the For the
Year Ended Year Ended
December 31, December 31,
1996 1995
------------ -------------
(In thousands)
Net earnings:
As reported $( 166) $ 1,214
Pro forma $( 261) $ 982
Net earnings per common and
common equivalent share:
As reported $( .08) $ 0.59
Pro forma $( .13) $ 0.48
The Company also issued warrants in 1995 to purchase common stock. See Note 5
for further discussion.
(5) RELATED PARTY TRANSACTIONS
Management Services for Related Parties
Before 1996, the Company provided management services as the joint interest
operator of properties of certain Parliament Hill Corporation ("PHC") managed
partnerships. The Company earned management fees of approximately $13,000 and
$17,000 during the years ended December 31, 1995 and 1994, respectively. The
Company is a general partner of an oil and gas partnership in which it earned
management fees of approximately $13,000 in 1996.
Securities Transactions
The Company has an investment in equity securities which were underwritten by
PHC affiliates. The original cost of the equity securities was $100,000. The
market value of the equity securities was approximately $118,000 and $121,000 at
December 31, 1996 and 1995, respectively.
Cash and Cash Equivalents
At December 31, 1996 and 1995, the Company had money market and cash investments
on account with a brokerage firm in which J. Morton Davis, a director and
significant shareholder of the Company, is the sole stockholder. The total of
such investments aggregated approximately $219,000 and $210,000 at December 31,
1996 and 1995, respectively, which is included in Cash and Cash Equivalents in
the accompanying Consolidated Balance Sheets.
Issuance of Warrants
During 1995, the Company issued warrants to purchase 500,000 shares of its
common stock to a party related to Mr. Davis. The warrants were issued in
consideration of a $1 million loan
-29-
<PAGE> 30
commitment from the party to the Company. The warrants, which expire on October
23, 2000, have an exercise price of $2.00 per share. The Company has estimated
the fair value of the warrants on the date of grant to be approximately
$187,000. Such amount has been included in Interest and Financing Costs in the
accompanying Consolidated Statements of Operations in 1995.
1990 Special Credit Drilling Partnership, Ltd.("SCDP")
The Company is the managing general partner of SCDP, which was formed in 1990 to
acquire and develop gas properties in West Virginia and has successfully drilled
and completed 19 gas wells. As managing general partner, the Company receives
fees from SCDP for management services, overhead, and the transportation and
marketing of production. In 1996, 1995 and 1994, such fees totaled $117,000,
$116,000 and $120,000, respectively. Amounts receivable for these services were
$21,000 and $11,000 at December 31, 1996 and 1995, respectively. See Note 9 for
the oil and gas reserves net to the Company's interest in SCDP.
Other Related Party Transactions
During 1995, the Company purchased interests in certain producing properties
from XOIL 1980 Special Drilling Partners L.P. ("XOIL 1980") and XOIL 1982
Special Drilling Partners L.P. ("XOIL 1982"), of which PHC is the general
partner. The total consideration paid by the Company to acquire such interests
was approximately $102,000. Included in Accounts Payable in the accompanying
1995 Consolidated Balance Sheets are two amounts aggregating $154,000 payable to
these partnerships, which were paid in 1996. Of this total, $100,000 relates to
amounts payable in connection with the Company's purchase of the interests
discussed above and the remainder represents these partnerships' share of the
settlement proceeds referred to in Note 7.
(6) COMMITMENTS AND CONTINGENCIES
Remaining lease payments at December 31, 1996 for the Houston Office were
$13,000. Total rent expense during 1996, 1995 and 1994 was $26,000, $31,000 and
$32,000, respectively.
The Company is from time to time involved in litigation of a nature related to
its business. The Company is a party in a number of lawsuits arising in the
ordinary course of business. In the opinion of the Company, final judgements or
settlements, if any, which may be awarded or entered into in connection with any
one or more of these suits would not have a material adverse effect on the
Company's financial position or results of operations.
(7) COLUMBIA BANKRUPTCY
The Company had substantial claims against Columbia Gas Transmission Corporation
("Columbia") which in past years had been the major purchaser of the Company's
West Virginia gas production and which was operating under Chapter 11 bankruptcy
between 1991 and 1995. In connection with Columbia's discharge from bankruptcy
in the fourth quarter of 1995, the Company agreed to a settlement of all of its
claims against Columbia and, in December 1995, received settlement proceeds of
$2,444,000, which is included in Contract Settlement Proceeds in the
accompanying Consolidated Statements of Operations. The settlement also provided
a 5% holdback which the Company may ultimately receive. However, as the ultimate
outcome with
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<PAGE> 31
respect to this additional amount is uncertain, the accompanying financial
statements do not reflect this amount.
(8) SUBSEQUENT EVENT (UNAUDITED)
On February 11, 1997, the Company announced that it had agreed in principle to
an arrangement under which the Company will merge with a substantial
privately-held oil and gas company, and acquire additional oil and gas
properties from a larger publicly-held oil and gas company in exchange for
shares of the Common Stock of the Company. Upon completion of both the merger
and property acquisition, management estimates that the Company will have
estimated proved reserves of 13,500 MMcf and a significant inventory of
exploration and development properties.
At the time of completing the transactions, it is anticipated that the current
stockholders of the Company will own approximately 21% of the outstanding shares
of the Company, the stockholders of the private company to be merged with the
Company will own approximately 58%, and the publicly-held company selling the
additional properties will own approximately 21%.
Completion of the transactions is subject to significant conditions, including,
among other things, finalization of definitive documentation and approvals by
the Boards of Directors of the Company and the other parties.
-31-
<PAGE> 32
(9) SUPPLEMENTARY OIL AND GAS DISCLOSURES
The following financial information pertains to oil and gas production
activities of the Company, all of which relates to proved properties located
within the continental United States.
Costs incurred in oil and gas property acquisition, exploration, and development
activities were as follows:
Year Ended December 31,
1996 1995 1994
---- ---- ----
(In Thousands)
Property acquisitions - proved $ - $ 116 $ -
Exploration - 42 344
Development - - -
The following information summarizes the operating results of oil and gas
producing activities:
Year Ended December 31
----------------------
1996 1995 1994
---- ---- ----
(In Thousands)
REVENUE:
Sales $ 476 $ 400 $ 549
LESS:
Production costs (201) (206) (284)
Exploration costs - (42) (344)
Depreciation, depletion, amortization and
provisions for asset impairment* (195) (480) (265)
Income taxes** - - -
----- ------ ------
Results of operations from oil and gas producing
activities before corporate overhead and
interest costs $ 80 $(328) $(344)
===== ====== ======
* Includes provisions for asset impairment relating to lease inventory and
surrendered or abandoned leases amounting to $4,000, $304,000 and $37,000,
respectively, for the years ended December 31, 1996, 1995 and 1994.
** No income taxes are provided as the Company has net operating loss
carryforwards.
During 1996, one customer accounted for $333,000 or 70% of total sales. In 1995,
two customers accounted for $229,000 or 54% and $48,000 or 11% of total sales,
respectively. In 1994, one customer accounted for $371,000 or 67% of total
sales.
-32-
<PAGE> 33
Unaudited Supplemental Information
The following unaudited information summarizes the Company's net ownership
interests in proved oil and gas reserves and related data. Estimates of oil and
gas reserves are made annually by the Company and reviewed by Ryder Scott
Company, independent petroleum engineers, the most recent having been performed
as of December 31, 1996. The determination of these reserves is a complex and
highly interpretive process which is subject to continual revision as additional
information becomes available. In most cases, a relatively accurate
determination of reserves may not be possible for several years due to the time
needed for development drilling, testing, and studies of the reservoirs.
The quantities of proved reserves presented below include only those amounts
which the Company reasonably expects to recover in the future from known
reservoirs under existing economic and operating conditions. Therefore, proved
reserves are limited to those quantities that are recoverable commercially at
current prices and costs under existing regulatory practices and with existing
technology. Accordingly, any changes in future prices, costs, regulations,
technology and other factors could significantly increase or decrease proved
reserve estimates. All the reserves are classified as proved developed at the
end of the respective years.
Oil Gas
(BBL) (MCF)
----- -----
Balance at December 31, 1993 70,382 3,237,836
Revisions of previous estimates (15,305) (231,278)
Extensions, discoveries and other additions -- --
Production (4,435) (229,003)
------- ----------
Balance at December 31, 1994 50,642 2,777,555
------- ----------
Revisions of previous estimates (8,811) (200,267)
Extensions, discoveries and other additions -- --
Production (3,653) (171,205)
Purchases of reserves in place 4,691 304,902
Sales of reserves in place -- (57,172)
------- ----------
Balance at December 31, 1995 42,869 2,653,813
------- ----------
Revisions of previous estimates 17,935 (122,991)
Extensions, discoveries and other additions -- --
Production (4,758) (169,073)
Purchases of reserves in place -- --
Sales of reserves in place -- --
------- ----------
Balance at December 31, 1996 56,096 2,361,749
======= ==========
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<PAGE> 34
The following table sets forth a standardized measure of the discounted future
net cash flows attributable to the Company's proved oil and gas reserves. Future
cash flows were computed by applying end of period prices of oil and gas to the
estimated future production of proved oil and gas reserves. The future
production and development costs represent the estimated future expenditures
(based on current costs) to be incurred in developing and producing the proved
reserves, assuming continuation of existing economic conditions. Future income
tax expenses were computed by applying statutory income tax rates to the
difference between pretax net cash flows relating to the Company's proved oil
and gas reserves and the tax basis of proved oil and gas properties reduced by
net operating loss carryforwards available to the Company at the end of each
period.
Years Ended December 31
-----------------------
1996 1995 1994
---- ---- ----
(In Thousands)
Future cash inflows $11,696 $ 7,597 $ 6,463
Future production costs and development (3,175) (2,691) (2,755)
Future income tax expenses (2,042) ( 957) ( 66)
-------- -------- -------
Future net cash flows 6,479 3,949 3,642
10% annual discount for estimated timing
of cash flows (3,346) (1,944) (1,464)
-------- -------- -------
Standardized measure--end of period $ 3,133 $ 2,005 $ 2,178
======== ======== =======
The oil and gas reserves net to the Company's interest in SCDP had a present
value, discounted at 10%, of approximately $443,000, $239,000 and $192,000 at
December 31, 1996, 1995 and 1994, respectively. Such values are not included in
the foregoing table.
The following are the principal sources of changes in the standardized measure
of estimated discounted future net cash flows for the following periods:
Years Ended December 31
--------------------------
1996 1995 1994
---- ---- ----
(In Thousands)
Standardized measure--beginning of period $ 2,005 $ 2,178 $ 2,578
Increase (decrease) in standardized measure:
Sales, net of production costs ( 276) ( 194) ( 266)
Net changes in prices and production costs 1,857 945 ( 772)
Revisions of previous quantity estimates ( 22) ( 272) ( 215)
Purchase of minerals in place - 223 -
Sales of minerals in place - ( 25) -
Accretion of discount 231 222 318
Net change in income taxes ( 415) ( 265) 556
Other ( 247) ( 807) ( 21)
------- ------- -------
Standardized measure--end of period $ 3,133 $ 2,005 $ 2,178
======= ======= =======
-34-
<PAGE> 35
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.
XPLOR CORPORATION
Date: 3/27/97
/s/ James E. Gayle
---------------------------------------------
James E. Gayle, Chairman, President and Chief
Executive Officer
Pursuant to the requirements of the Securities Exchange Act of 1934, this report
has been signed below by the following persons on behalf of the Registrant and
in the capacities and on the dates indicated.
Date: 3/27/97
/s/ James E. Gayle
---------------------------------------------
James E. Gayle, Chairman, President and Chief
Executive Officer
Date: 3/27/97
/s/ James E. Gayle
---------------------------------------------
James E. Gayle, Principal Accounting Officer
Date: 3/27/97
/s/ Martin A. Bell
---------------------------------------------
Martin A. Bell, Director
Date: 3/27/97
/s/ J. Morton Davis
---------------------------------------------
J. Morton Davis, Director
Date: 3/27/97
/s/ Richard Goldberger
---------------------------------------------
Richard Goldberger, Director
Date: 3/27/97
/s/ Leonard Toboroff
---------------------------------------------
Leonard Toboroff, Director
-35-
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM CONSOLIDATED
BALANCE SHEET AS OF DECEMBER 31, 1996 AND IS QUALIFIED IN ITS ENTIRETY BY
REFERENCE TO SUCH FINANCIAL STATEMENTS
</LEGEND>
<S> <C>
<PERIOD-TYPE> 12-MOS
<FISCAL-YEAR-END> DEC-31-1996
<PERIOD-START> JAN-01-1996
<PERIOD-END> DEC-31-1996
<CASH> 2,755
<SECURITIES> 0
<RECEIVABLES> 185
<ALLOWANCES> 0
<INVENTORY> 0
<CURRENT-ASSETS> 2,940
<PP&E> 18,843
<DEPRECIATION> 16,592
<TOTAL-ASSETS> 5,482
<CURRENT-LIABILITIES> 442
<BONDS> 0
0
0
<COMMON> 26
<OTHER-SE> 4,727
<TOTAL-LIABILITY-AND-EQUITY> 5,482
<SALES> 484
<TOTAL-REVENUES> 755
<CGS> 201
<TOTAL-COSTS> 201
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 0
<INCOME-PRETAX> (166)
<INCOME-TAX> 0
<INCOME-CONTINUING> (166)
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (166)
<EPS-PRIMARY> (.08)
<EPS-DILUTED> (.08)
</TABLE>
