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BLACK DOME ENERGY CORPORATION
1536 Cole Boulevard, Building 4, Suite 325
Golden, Colorado 80401
(303) 231-9059
NOTICE OF SPECIAL MEETING OF SHAREHOLDERS
TO BE HELD ____________, 1996
TO THE SHAREHOLDERS OF BLACK DOME ENERGY CORPORATION:
NOTICE HEREBY IS GIVEN that a Special Meeting of Shareholders of Black
Dome Energy Corporation, a Colorado corporation (the "Company"), will be held
in the Cole Conference Room of the Denver West Office Park located at 1746
Cole Boulevard, Building 21, Suite 225, Golden, Colorado 80401, on
______________, 1996, at ______ _.m., and at any and all adjournments thereof,
for the purposes of:
1. Obtaining shareholder authorization for the voluntary
dissolution of the Company under Colorado law; and
2. The transaction of any other business which may lawfully come
before the Meeting.
Only holders of the no par value common stock of the Company of record at
the close of business on __________, 1996 will be entitled to notice of and to
vote at the Meeting or at any adjournment or adjournments thereof. The
proxies are being solicited by the Board of Directors of the Corporation.
All Shareholders, whether or not they expect to attend the Special
Meeting of Shareholders in person, are urged to sign and date the enclosed
Proxy and return it promptly in the enclosed envelope. The giving of a proxy
will not affect your right to vote in person if you attend the Meeting.
BY ORDER OF THE BOARD OF DIRECTORS
Golden, Colorado EDGAR J. HUFF, PRESIDENT
_____________, 1996
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PROXY STATEMENT
OF
BLACK DOME ENERGY CORPORATION
1536 Cole Boulevard, Building 4, Suite 325
Golden, Colorado 80401
SPECIAL MEETING OF SHAREHOLDERS
__________, 1996
SOLICITATION OF PROXIES
The accompanying Proxy is solicited on behalf of the Board of Directors
of Black Dome Energy Corporation (hereinafter referred to as either "Black
Dome" or the "Company") in connection with a Special Meeting of Shareholders
to be held in the Cole Conference Room of the Denver West Office Park located
at 1746 Cole Boulevard, Building 21, Suite 225, Golden, Colorado 80401 on
__________, 1996, at __:__ _.m., and at any adjournments thereof, for the
purpose of obtaining shareholder authorization to dissolve the Company as
discussed below.
The cost of preparing, assembling and mailing the Notice of Special
Meeting of Shareholders, Proxy Statement and Proxy, which are first being
mailed to the shareholders on or about September __, 1996, will be borne by
the Company. It is contemplated that solicitation of Proxies will be
primarily by mail, but may be supplemented by personal solicitation by the
Company's officers, employees and Directors, for which no additional
compensation will be paid.
Any shareholder giving a Proxy may revoke it at any time before it is
voted by delivering a later-dated Proxy, or by notifying the Secretary of the
Company either in person or by written notice specifically revoking the power
to use and vote the Proxy. Shareholder attendance and voting in person at the
Special Meeting will also revoke any Proxy given by such shareholder. If no
specification is made on the Proxy, the shares will be voted in accordance
with the recommendation of the Board of Directors, as stated herein, or at the
discretion of the named proxies with regard to any other matter that may
properly come before the Special Meeting.
VOTING AT THE SPECIAL MEETING
The close of business on September__, 1996 has been fixed by the
Company's Board of Directors as the record date for the determination of
shareholders entitled to vote at the Special Meeting of Shareholders. As of
that date, the Company had issued and outstanding 73,755 shares of no par
value Common Stock.
The Company's Articles of Incorporation do not permit cumulative voting
by the shareholders. The Common Stock is the Company's only class of voting
securities outstanding. Accordingly, each holder of Common Stock as of the
record date shall be entitled to cast one vote for each share of Common Stock.
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The holders of a majority of the issued and outstanding shares of Common
Stock entitled to vote, whether present in person or represented by Proxy,
constitute a quorum at the Special Meeting. Assuming the presence of a
quorum, the affirmative vote of the holders of a majority of the shares of
Common Stock present in person or represented by Proxy at the Special Meeting
is required for the proposal discussed herein. Shares of Common Stock
represented in person or by Proxy (including shares which abstain) will be
counted for purposes of determining whether a quorum is present at the Special
Meeting. Abstentions will be treated as shares present and entitled to vote
with respect to any particular matter, but will not be counted as a vote in
favor of such matter. Accordingly, an abstention from voting on a matter has
the same effect as a vote against the matter since it is one less vote for
approval. Broker non-votes on one or more matters will have no impact on such
matters since they are not considered "shares present" for voting purposes.
No dissenters rights of appraisal or other similar rights are available
to shareholders under the Colorado Business Corporation Act with respect to
the adoption of a plan to dissolve and the subsequent sale of all or
substantially all of the Company's assets in the ordinary course of business
after obtaining shareholder authorization to dissolve, and the subsequent
filing of Articles of Dissolution with the Colorado Secretary of State.
STOCK OWNERSHIP OF MANAGEMENT
AND CERTAIN BENEFICIAL OWNERS
The Company currently has 73,755 shares of its common stock issued and
outstanding, each share of which is entitled to one vote. No shares of any
other class are issued or outstanding at the present time. The following
table sets forth certain information as of June 30, 1996 with respect to the
beneficial ownership of Common Stock by (i) each person known to the Company
to own beneficially more than five percent of the outstanding Common Stock,
(ii) each executive officer of the Company, (iii) each Director and nominee
for Director of the Company, and (iv) all executive officers and Directors
(and nominees) of the Company as a group:
<TABLE>
<CAPTION>
Amount and
Nature of
Name and Address Beneficial Percent
of Beneficial Owner Title of Class Ownership1 of Class
- - - ------------------- -------------- ---------- --------
<S> <C> <C> <C>
Edgar J. Huff2 Common Stock 43,698 59.25%
2374 Eldorado Lane (No Par Value)
Evergreen, CO 80439
Robert C. Huff4 Common Stock 999 1.35%
9930 South 87th E. Ave. (No Par Value)
Tulsa, OK 74133
James E. Huff4 Common Stock 1,099 1.49%
2414 Briar Ridge Dr. (No Par Value)
Houston, TX 77057
</TABLE>
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<TABLE>
<CAPTION>
<S> <C> <C> <C>
Tish M. Hartman3 Common Stock 400 .54%
31499 Robinson Hill Road (No Par Value)
Golden, CO 80403
Joseph R. Albi, Sr.4 Common Stock 300 .41%
P.O. Box 5271, T.A. (No Par Value)
Denver, CO 80217
Joseph R. Albi, Jr. Common Stock 7,249 9.83%
2864 East Clairton Drive (No Par Value)
Highlands Ranch, CO 80126
Officers and/or Common Stock 46,096 63.04%
Directors as a (No Par Value)
Group (5 Persons)
</TABLE>
1) All beneficial owners have sole voting and investment power over shares
indicated in the table.
2) President, Treasurer and Director of the Company.
3) Secretary of the Company.
4) Director of the Company.
Edgar J. Huff currently controls the Company by virtue of his ownership
of 59.25% of the Company's outstanding Common Stock. There is no arrangement
known to the Company, including any pledge by any person of securities of the
Company or any of its parents, the operation of which may at a subsequent date
result in a change in control of the Company.
PROPOSAL 1 - AUTHORIZATION TO DISSOLVE THE CORPORATION
The Board of Directors has determined that it would be in the best
interests of the Company and its shareholders to dissolve the Company as
expeditiously as possible. The Company was formed in 1979 with Edgar J. Huff
contributing his own oil and gas properties in exchange for his ownership of
all of the Company's then issued and outstanding shares. In 1980 the Company
conducted a public offering of its shares through a now defunct brokerage firm
at an offering price of $0.10 per share and received gross proceeds of $2
million. As promised in the prospectus, the Company invested the proceeds
from the offering into the oil and gas business (primarily oil).
By 1983, the price of crude oil had fallen from nearly $40 per barrel to
approximately $8 per barrel, and the Company's revenues and stock price had
also declined correspondingly. As a result, the Company no longer qualified
to be listed on NASDAQ and was delisted. The brokerage firm that had
conducted the Company's public offering (and served as the only significant
market maker in its stock) became defunct, and, for all practical purposes,
trading in the Company's shares ceased. The Company could no longer
afford to pay cash compensation to its officers, but Mr. Huff continued
to manage the Company's business and served as its Chief Executive Officer
with no compensation during the years 1983, 1984, 1985, 1989, and 1990.
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During the years 1986, 1987 and 1988, Mr. Huff received compensation for his
services only in the form of stock. Even when Mr. Huff began receiving cash
compensation for his services again in 1991, he agreed to take his
compensation on a deferred basis so that the Company did not have to utilize
its then current revenues to pay his salary. Since the Company did not have
sufficient cash available at that time, Mr. Huff loaned his personal funds
to the Company to enable it to participate in various oil and gas ventures
in order to establish additional cash flow and reserves. From July of 1986
through July of 1994, Mr. Huff provided the Company with furnished office
space (including utilities and janitorial services) at no charge. Effective
June 30, 1996 (when it became apparent to management that it would be in the
best interests of the shareholders for the Company to dissolve), Mr. Huff's
salary was terminated at his request. He has agreed to continue to serve
as the Company's President without salary until the dissolution of the Company
is completed.
Although the Company began to generate a small profit, management
concluded that it would be necessary for the Company to attract additional
capital from outside sources to replace its existing properties (which were
generating revenues, but also depleting in value as they produced) and for
expansion. In seeking this additional capital, the Company was informed by
investment bankers and others that as long as the Company's securities fell
within the definition of "penny stocks" under certain regulations which were
adopted in 1990, they would not be willing to assist the Company in providing
such capital. In response to suggestions that the Company be restructured so
that it could potentially attract additional capital and also reduce its
administrative expenses, the Company effectuated a one for 1,001 share reverse
stock split in 1994. Although the goal of reducing expenses was achieved, the
Company has not been able to attract the additional capital that is necessary
for even the replacement of its existing properties.
The Company's properties have continued to deplete as they have produced,
and the Company has begun to incur substantial losses from operations as
revenues have declined accordingly. As a result, the Company's independent
auditors qualified their opinion on the Company's financial statements for the
fiscal year ended December 31, 1995, stating that ". . . the Company has
suffered recurring losses from operations which raise substantial doubt about
the Company's ability to continue as a going concern." As the Company's
properties will continue to deplete and eventually become worthless if the
status quo is permitted to continue for an unreasonable period of time, the
Board of Directors has determined that it would be in the best interests of
the Company's shareholders to authorize the immediate dissolution of the
Company and liquidate its assets for cash in one or more commercially
reasonable transactions while there is still a sufficient value to allow for a
distribution to be made to shareholders after all of the Company's liabilities
are paid.
Upon obtaining shareholder authorization to dissolve and the filing of
Articles of Dissolution with the Colorado Secretary of State, the Company
would continue its corporate existence under Colorado law, but would not be
permitted to carry on any business except as is appropriate to wind up its
affairs and liquidate its business and affairs, including collecting its
assets, disposing of its properties that will not be distributed in kind to
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its shareholders, discharging or making provision for discharging its
liabilities, distributing its remaining property among its shareholders
according to their interests, and doing every other act necessary to wind up
and liquidate its business and affairs. Accordingly, it is anticipated that
upon obtaining shareholder authorization to dissolve, the Company would
promptly file Articles of Dissolution with the Colorado Secretary of State
and then proceed to liquidate its business and affairs, collecting its
assets and selling substantially all of its non-cash assets in one or
more commercially reasonable transactions. The net proceeds left after the
payment of all liabilities (including, but not limited to, the payment of
amounts owed to Mr. Huff for deferred compensation of $222,500), will
be distributed to all of the shareholders on a pro rata basis.
The Board may require shareholders to surrender their stock certificates
as a condition to receipt of the distribution. The Company will close its
stock transfer books on the close of business on a record date fixed by the
Board for the liquidating distribution. Only shareholders of record on this
record date shall be entitled to the distribution and no transfers made
subsequent to that date, except by will, intestate succession or operation of
law, shall be recognized on the books of the Company.
The Colorado Business Corporation Act provides that the assets of a
dissolved corporation that should be transferred to a creditor, claimant, or
shareholder of the Company who cannot be found or who is not legally
competent to receive them must be reduced to cash and deposited with the
State treasurer as property presumed to be abandoned under State law. If the
amount deposited is not claimed by such person within three years of the date
for payment, it will be presumed to be abandoned and become the property of
the State of Colorado.
A Colorado corporation is permitted to revoke its dissolution within one
hundred twenty days after the effective date of its dissolution, but such
revocation would be required to be approved by the affirmative vote of at
least a majority of the shares outstanding at a meeting called for such
purpose. Upon adoption of such a resolution, a Statement of Revocation of
Voluntary Dissolution would be filed with the Colorado Secretary of State and,
upon filing the Revocation of Dissolution, would become effective and the
Company would be permitted to carry on its business.
The Board of Directors will utilize its best efforts to obtain the
highest possible price from the sale of its properties. The Company is not
currently engaged in any discussions or negotiations with any third parties
with respect to the sale of any of its properties, and the identities of any
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future purchasers are currently not known. As the Company has oil and gas
properties located in both Kansas and Oklahoma, it is somewhat likely that
these properties may be sold to different purchasers in separate
transactions. If deemed prudent under the circumstances at the time of each
such transaction, the Board of Directors intends to obtain and rely upon
appropriate appraisals and fairness opinions from one or more independent
engineering firms. It is also possible that some or all of the properties
might be offered for sale in one or more auctions of oil and gas properties
with the Company setting a "floor" price for any potential transactions. As a
last resort, it is also possible that some or all of the properties might be
purchased by Mr. Huff if for any reason the Company is unable to sell such
properties to unrelated parties for amounts acceptable to the Board of
Directors.
After payment of obligations, claims and expenses and making provision or
establishing reserves for the payment of future liabilities, the Company will
distribute the remaining cash proceeds from the sale of the Company's assets
to the shareholders of the Company in proportion to their holdings of the
Company's common stock. Without further shareholder action, the liquidating
distribution will be made as determined by the Board of Directors. The
Company intends to make the distribution at the earliest practicable date
after the Company's assets are sold and its liabilities are paid.
SELECTED FINANCIAL DATA
<TABLE>
<CAPTION>
Six Months
Ended Years Ended December 31,
---------------------------------------------
June 30, 1996 1995 1994 1993 1992 1991
------------- ---- ---- ---- ---- ----
<S> <C> <C> <C> <C> <C> <C>
Total Revenues $302,062 $440,661 $762,655 $677,537 $616,351 $265,490
Oil and Gas Sales 296,226 402,627 592,513 647,328 537,162 213,732
Other Revenue 5,836 38,034 170,172 30,209 79,189 51,758
Net Income (loss) (73,902) (210,598) (44,498) 6,338 61,208 (37,793)
Net Income (loss)
per share (1.00) (2.86)* (.61)* .16* .91* (.62)*
Total Assets 367,986 411,046 718,918 1,040,364 612,748 466,789
Obligations -- -- 120,000 60,000
Deferred Comp. 222,500 160,000 100,000 180,000
Bank Debt - LOC 57,297 84,987 132,724 222,987 -- --
Book Value Per
Share $.05 $1.05 $3.91 $4.52 $4.36 $4.98
</TABLE>
* Earnings per share are restated to reflect the 1 for 1001 reverse stock
split approved by shareholders on September 2, 1994.
After the Company has disposed of its oil and gas properties in a
corporate dissolution and collected all of the proceeds from such sales,
Colorado law provides that the Company must discharge (or make provision for
discharging) its liabilities. The Company's existing liabilities as of June
30, 1996 are as follows:
<TABLE>
<CAPTION>
Current Liabilities:
<S> <C>
Accounts Payable $ 79,275
Note Payable - Bank 53,297
Other Payables 9,600
_________
Total Current Liabilities $ 142,172
_________
</TABLE>
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<TABLE>
<CAPTION>
<S> <C>
Amount Payable to Mr. Huff
as Deferred Compensation $ 222,500
_________
TOTAL LIABILITIES $ 364,672
_________
</TABLE>
These liabilities and all other liabilities incurred between June 30,
1996 and the distribution of amounts to shareholders, including without
limitation the costs associated with the holding of the subject Meeting of
Shareholders (estimated to be $40,000), costs associated with the sale of the
Company's properties (estimated to be $35,000), and the costs associated with
winding up the Company's affairs and making a final distribution (estimated to
be $25,000) would then be paid. The net amount remaining after the
satisfaction of all of the Company's liabilities would then be distributed on
a pro rata basis to all of the shareholders of the Company who are
shareholders of record on the effective date of the dissolution as stated in
the Articles of Dissolution to be filed with the Colorado Secretary of State
(which date is currently anticipated to be the same as the Meeting date).
Because of the fact that there has been no established trading market in
the Company's Common Stock for approximately the past ten years, no current
market information concerning the Common Stock is available.
Description of Company's Business.
- - - ---------------------------------
The Company explores for, develops and acquires interests in producing
oil and gas leases for the purpose of resale of a portion of the working
interest to industry participants, or for addition of reserves for its own
account. The Company acquires and retains the operation of the oil and gas
production from these leases.
During the fiscal year ended December 31, 1995, the Company's revenues
attributable to its overall income were derived primarily from the sale of oil
and gas from its producing oil and gas leases.
The Company is involved in the exploration, development and purchase and
production of oil and gas properties as a general partner, joint venturer, or
for its own account, and as an oil and gas lease operator. The Company's
activities have in the past included the formation of joint ventures and
drilling programs.
The Company's principal products are natural gas, crude oil and oil field
operations and supervision. Crude oil and natural gas are sold to various
purchasers, which generally service the areas in which the producing wells are
located. The Company operates oil and gas properties for its own account and
for the account of other working interest owners in the property.
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There has been no public announcement of, and no information otherwise
has been made public about, a new product or industry segment which would
require the investment of a material amount of the Company's assets or which
otherwise is material.
The existence of commercial oil and gas reserves is essential to the
ultimate realization of value from the Company's properties and thus may be
considered a raw material essential to the Company's business. However, the
acquisition, exploration, development, production, and sale of oil and gas are
subject to many factors which are outside the Company's control. These
factors include national and international economic conditions, availability
of drilling rigs, casing, pipe, and other equipment and supplies, proximity to
and capacity of pipelines, the supply and price of other fuels, and the
regulation of prices, production, transportation, and marketing by the
Department of Energy and other federal and state governmental authorities.
These factors have not materially hindered nor adversely affected the business
of the Company; however, it is not known what, if any, additional regulations
or constraints may arise, or to what extent, if any, they may affect the
Company's operations. The Company acquires oil and gas properties from
landowners, other owners of interests in such properties, or governmental
entities.
The Company does not own any patents, trademarks, licenses, franchises or
concessions, except oil and gas leases and other interests granted by private
landowners, the loss of any one of which could have a material impact on the
Company.
The Company's business is not seasonal in nature, except to the extent
that natural gas prices may tend to fluctuate on a seasonal basis and
development of its oil and gas properties and its ability to drill oil and gas
wells and the availability of drilling rigs and other equipment, have
occasionally been more restricted at calendar year end due to increased demand
from tax-sheltered drilling programs conducted by others.
It is the practice of the Company as well as others similarly situated in
the industry to attempt to retain working capital in order to participate in
the purchase of producing properties and the drilling and development of
properties via partnerships, joint ventures and other arrangements, and to
acquire significant blocks of undeveloped properties for future development
and/or exploration. Working capital is not needed to meet rapid delivery
requirements of customers, or to assure the Company of continuous allotments
of goods from suppliers.
During fiscal 1995, two customers accounted for 10% or more
(individually) of total oil and gas sales: Boyd Resene and Associates, 73%
and Helmerich & Payne Energy Services, Inc., 13%. The Company believes that
it could be adversely affected by the loss of these major gas customers;
however, there are numerous spot market gas purchasers who could be utilized
for the sale of natural gas. During 1995, the Company sold oil and/or gas to
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eight (8) customers. No revenues were received in connection with foreign
governments in which the Company acted as a producer.
The Company has no backlog due to the nature of its business, nor is
backlog material to an understanding of the Company's business.
The Company has no material portion of its business which may be subject
to renegotiation of profits or termination of contracts or subcontracts at the
election of government.
The purchase of existing producing properties and exploration,
development and production of oil and gas are subject to considerable
competition, and the Company is faced with strong competition from major and
medium sized oil and gas companies and other independent operators. The
principal methods of competition in the industry for the acquisition of
producing oil and gas properties and leases are industry sales packages and
the solicitation, bidding and auctioning of individual producing properties,
and the payment of bonus payments at the time of acquisition of leases.
Companies with greater financial and operational resources, larger technical
staffs and labor forces, better developed equipment for exploration, and more
extensive experience will be in a better position than the Company to compete
for such leases. In addition, the ability of the Company to market any oil or
gas which it might produce could be severely limited by its inability to
compete with larger companies operating in the same area who may be willing or
able to offer any oil or gas produced by them at a price lower than that of
the Company. In addition, the availability of a ready market for oil and gas
will depend upon numerous factors beyond the Company's control, including the
extent of domestic production and imports of oil and gas, proximity and
capacity of pipelines, the overall foreign domestic supply and demand of oil
and gas, and the effect of federal, state and local regulations of oil and gas
production and sales. The Company has an insignificant competitive position
in the oil and gas industry.
The Company is engaged in finding and producing oil and gas, and no funds
are allocated to product research and development in the conventional sense.
Since its inception, the Company has not had any customer or government
sponsored research activities relating to the development of new products,
services or techniques or the improvement of existing products, services or
techniques.
The Company, as an owner and operator of oil and gas properties, is
subject to various federal, state and local laws and regulations relating to
the discharge of materials into, and protection of, the environment. These
laws and regulations, among other things, impose liability on the Company for
the cost of pollution clean-up resulting from operations, subject the Company
to liability for pollution damages, require suspension or cessation of
operations in affected areas and impose restrictions on the injection of
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liquids into subsurface aquifers that may contain groundwater.
Environmental requirements may necessitate significant capital outlays
which may materially affect the Company's earnings and potential earnings and
could cause material changes in its form of business. The Company has made
and will continue to make expenditures in its efforts to comply with these
requirements which it believes are necessary business costs in the oil and gas
industry. As of December 31, 1995, the Company is not aware of any existing
environmental claims which would have a material adverse effect upon its
capital expenditures, earnings or competitive position.
There is no assurance, however, that existing laws or regulations or
changes in or additions to laws or regulations regarding the protection of the
environment will not adversely affect the Company. It is impossible to
determine whether or to what extent the Company's future performance may be
affected by environmental laws; however, management does not believe that such
laws have had a material adverse effect on the Company's financial position or
results of operations.
The Company currently has one full-time salaried employee, one
full-time non-salaried employee (Mr. Huff), one full-time contract employee,
and one part-time contract employee, and one contact engineer employed on a
retainer basis who are directly engaged in its activities. The employees and
retainer perform geologic, engineering and economic property evaluations,
production enhancement design and operations, management and marketing of
production on a daily basis, accounting, and secretarial and administrative
services for the Company, as well as all general corporate management, under
the direction of the Board of Directors.
The Company has no material operations in foreign countries and no
material portion of its sales or revenues is derived from customers in foreign
countries.
Management's Discussion and Analysis of Financial Condition and Results of
Operations.
- - - --------------------------------------------------------------------------
Working capital (which incorporates current and deferred obligations)
increased slightly by $2,137 during the year ended December 31, 1995. These
results followed a working capital increase of $84,031 in 1994. Lower
received natural gas prices, payment of a portion of the deferred
compensation, declining production without reserve replacement and significant
depreciable and depletable costs resulted in the Company's loss of $210,598 or
$2.86/share in 1995. Low natural gas prices, payment of a portion of the
deferred compensation, unsuccessful workover costs of two wells in Oklahoma,
and the costs associated with restructuring the Company contributed to the
loss of $44,498 or $0.61 per share in 1994.
10
<PAGE>
In October, 1992, as a source for additional working capital, the Company
obtained a $300,000 line of credit with a lending institution, secured with 10
producing natural gas wells in Clark County, Kansas. As of December 31, 1994,
a total of $132,724 was borrowed from the line of credit. During 1995, the
Company reconstructed the debt obligations associated with the outstanding
balance of the line of credit. As of December 31, 1995, the Company had bank
debt obligations of $84,987 tied to an 8.5% note which matures on March 31,
1997. In addition, the Company holds a $150,000 line of credit secured with
eight (8) Clark County, Kansas producing gas properties against which no sums
were borrowed as of December 31, 1995.
The Company currently has no commitments for capital expenditures. The
Company is utilizing its own cash resources as well as outside capital to
attempt to purchase additional producing oil and gas properties. In general,
the Company's financial condition will not permit the risk of exploratory or
development drilling activities unless outside risk capital is obtained.
During the fiscal year ended December 31, 1995, oil and gas revenues
decreased by $189,886 or 32% as compared to fiscal 1994, primarily as a result
of lower received natural gas prices, decreases in Company net oil and gas
production without reserve replacement and the sale of five (5) properties in
1994. At December 31, 1995, twenty-one wells are producing to contribute to
this income. Management expects normal production decline from the presently
producing wells during 1996. At December 31, 1995, the Company was operating
18 wells as opposed to 19 producing wells at December 31, 1994. Current
markets remain unstable and it is impossible to predict how these will
function. Any price increase or decrease will have a direct effect on the
Company.
The Company experienced a net loss of $210,598 or $2.86/share during 1995
compared to a net loss of $44,498 or $.61/share during 1994. The decrease in
earnings is a direct result of significant operational/rework expenses
associated with properties, significantly lower received natural gas prices,
and declining production without reserve replacement.
Interest income has decreased in the past few years both because of
smaller amounts of invested cash and lower interest rates.
General and administrative costs decreased from $266,603 in 1994 to
$237,918 in 1995, primarily as a result of the elimination of one full-time
salaried employee during 1994. However, overall general and administrative
costs remain high relative to the Company's size. Management believes general
and administrative costs cannot be reduced below current levels while
prudently managing the Company's assets.
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Oil and gas production costs have decreased to $190,795 in 1995 as
compared to $300,236 in 1994. Both 1995 and 1994 oil and gas production costs
reflect the additional operational and re-work costs associated with acquired
properties.
The acquisition of producing gas properties in 1991, 1992 and 1993
significantly increased Black Dome's reserves during those three years.
During 1994, the Company focused on re-working operations to improve and
maintain production from all properties while recovering costs associated with
the acquisitions. During 1994, the Company disposed of five (5) producing
properties. During 1995, two (2) gas wells (1.73 net wells) in which the
Company held an interest were plugged and abandoned. The Company was not
successful in adding reserves through drilling or acquisition activity during
1995.
As a result of significant production decline and the Company's
unsuccessful drilling and acquisition activity, net proved remaining reserves
decreased significantly (26% on a Bbl equivalency basis) between December 31,
1995 and December 31, 1994. The estimated SEC net present value of total
proved reserves decreased from $1,281,621 at December 31, 1994 to $1,196,316
at December 31, 1995. Higher 1995 received year-end oil and gas prices
cushioned the impact of lower 1995 reserve levels on the estimated SEC net
present value of total proved reserves.
All of the foregoing conditions are expected to have a material adverse
impact on the future operations of the Company. The Company's revenues are
currently expected to continuously decrease during the next fiscal year as
properties are sold to pay expenses, and as the remaining producing properties
suffer normal declines in production. The Company does not currently have
sufficient financial resources to purchase new producing properties to
replenish expected production declines, or to replace properties that have
been (and in all likelihood will continue to be) sold to pay operating
expenses. Expenses of operations are not expected to decrease during the
next fiscal year.
During fiscal 1996, the Company intends to continue to explore reasonable
avenues relative to preserving and maximizing shareholder value. The
recurring losses from operations sustained by the Company (primarily as the
result of declining reserves, poor natural gas prices, inadequate reserve
replacement and relatively high fixed costs associated with maintaining
operations) raise substantial doubt about its ability to continue as a going
concern. One of the avenues that management currently intends to explore is
the voluntary liquidation of the Company during the next twelve months. In
the event that the Company is unable to receive significant funding from some
viable outside source or does not voluntarily liquidate substantially all of
its assets during the next twelve months, it currently appears to be likely
that the Company will continue to deplete its assets in order to meet its
ongoing operating expenses (which will ultimately result in little or nothing
12
<PAGE>
being available for distribution to any of the Company's shareholders upon its
eventual liquidation.)
Under Colorado law the Company is not permitted to sell substantially all
of its assets without first obtaining approval from a majority of its
shareholders. The cost of holding such a shareholders' meeting (including
printing, mailing, legal and accounting expenses) is currently estimated to be
approximately $40,000. These costs will reduce the amount that would
otherwise have been available for distribution to shareholders upon
liquidation.
Current economic trends still indicate that costs of conducting business
activities will not rise as rapidly as they have during the preceding
inflationary years.
Governmental and foreign decisions over which Management has no control
could impact the prices received for the Company's oil and gas and could have
a very serious effect on profits. It is impossible to predict long-term or
even short-term trends in pricing.
There are no current legal proceedings concerning the Company and there
are none pending.
There were no shareholder meetings of the Company held during the fiscal
year ended December 31, 1995.
From October 1980 through November 12, 1984, Black Dome's common stock
was traded on the over-the-counter market under the symbol "BDEC" and the
quotes were carried by NASDAQ during that period of time. NASDAQ voluntarily
withdrew "BDEC" from the system on November 12, 1984 due to the depressed
price of the stock. Since that date there has been sporadic trading in the
Company's stock. At the present time, there are no market makers listed in
the "pink sheets."
The number of holders of record of Black Dome's no par value common
stock at September 1, 1996 was approximately 1,616.
Holders of common stock are entitled to receive such dividends as may be
declared by Black Dome's Board of Directors. No dividends have been paid with
respect to Black Dome's common stock and no dividends are anticipated to be
paid in the foreseeable future.
Description of Properties.
- - - -------------------------
Reserves. Proved developed and undeveloped oil and gas reserves of the
Company at December 31, 1995 and December 31, 1994 were computed by Joseph R.
Albi, Jr., a consulting petroleum engineer and former Executive Vice President
of the Company, and were audited by Donald M. Osmus, a consulting Petroleum
Engineer. Proved developed and undeveloped oil and gas reserves of the
13
<PAGE>
Company at December 31, 1993 were computed by the Company and audited by
Donald M. Osmus.
All of the Company's reserves are located in the continental United
States and the majority of the properties comprising these reserves are
operated by Black Dome Energy Corporation.
<TABLE>
<CAPTION>
Reserve Category
-----------------------------------------------------------
Proved Developed Proved Undeveloped Total Proved
---------------- ------------------ ------------
(1) (2)
--- ---
December 31, (Bbls)* (Mcf)** (Bbls)* (Mcf)** (Bbls)* (Mcf)**
- - - ------------ ------ ----- ------ ----- ------ -----
<S> <C> <C> <C> <C> <C> <C>
1993 25,985 2,664,920 9,005 4,169 34,990 2,669,089
1994 9,355 2,031,425 -- -- 9,355 2,031,425
1995 9,825 1,431,318 -- 52,256 9,825 1,483,574
</TABLE>
* Refers to barrels consisting of 42 U.S. gallons.
** Refers to a volume of 1,000 cubic feet under prescribed conditions of
pressure and temperature and represents the basic unit for measuring the
volume of natural gas.
Proved Developed Reserves. These are proved reserves which can be
expected to be recovered through existing wells with existing equipment and
operating methods. This classification includes:
Proved Developed Producing Reserves. These are proved developed reserves
which are expected to be produced from existing completion interval(s) now
open for production in existing wells; and
Proved Developed Non-Producing Reserves. These are proved developed
reserves which exist behind the casing of existing wells, or at minor depths
below the present bottom of such wells, which are expected to be produced
through these wells in the predictable future, where the cost of making such
oil and gas available for production should be relatively small compared to
the cost of a new well.
Additional oil and gas expected to be obtained through the
application of fluid injection or other improved recovery techniques for
supplementing the natural forces and mechanisms of primary recovery are
included as "Proved Developed Reserves" only after testing by a pilot project
or after the operation of an installed program has confirmed through
production response that increased recovery will be achieved.
Proved Undeveloped Reserves. These are proved reserves which are
expected to be recovered from new wells on undrilled acreage, or from existing
wells where a relatively major expenditure is required for recompletion.
Reserves on undrilled acreage are limited to those drilling units offsetting
productive units, which are reasonably certain of production when demonstrated
14
<PAGE>
with certainty that there is continuity of production from the existing
productive formation. Estimates for proved undeveloped reserves may be
attributable to acreage for which an application of fluid injection or other
improved recovery technique is used or contemplated only where such techniques
have been proved effective by actual tests in the area and in the same
reservoir.
Present Value of Estimated Future Net Revenues from Proved Developed and
Proved Undeveloped Oil and Gas Reserves. The table below presents, as of the
end of 1995, 1994 and 1993, the present value of the estimated future net
revenues attributable to proved developed reserves and proved undeveloped
reserves discounted at an annual rate of ten percent (10%) per year.
<TABLE>
<CAPTION>
Present Value of Future
Net Revenues (dis- Future Net Revenues
counted at 10%) as of Proved Proved Total
December 31, Developed Undeveloped Proved
- - - ----------------------- --------- ----------- ------
<S> <C> <C> <C>
1993 $2,720,531 $19,185 $2,739,716
1994 $1,281,621 $ 0 $1,281,621
1995 $1,175,279 $21,037 $1,196,316
</TABLE>
While it is reasonable to anticipate that the prices received from the
future sale of production may be higher or lower than the prices used in the
evaluation described above, and the operating and other costs relating to such
production may increase above existing levels, such increases in prices and
costs have been omitted from consideration in making these evaluations in
accordance with rules adopted by the Securities and Exchange Commission.
The Company emphasizes that reserve estimates and rates of production are
inherently imprecise and that estimates of new discoveries and non-producing
and/or undeveloped reserves are more imprecise than those of mature producing
oil and gas properties. Accordingly, the estimates are subject to change as
further information becomes available.
For additional information concerning oil and gas revenues, see Note 6 to
the Financial Statements.
Reserves Reported to Other Agencies. The Company did not file any oil or
gas reserve estimates with, or include such estimates in reports to, any other
federal governmental authority or agency within its last fiscal year.
Production. The following table shows the Company's net quantities of oil
(including condensate and natural gas liquids) and of gas produced for each of
the Company's past three fiscal years:
15
<PAGE>
<TABLE>
<CAPTION>
Net Oil and Gas Production
Year Ended December 31,
------------------------
1995 1994 1993
---- ---- ----
<S> <C> <C> <C>
Gas (Mcf) 261,562 309,210 286,162
Oil/Condensate (Barrels) 1,382 2,747 2,783
</TABLE>
The Company has no long-term supply or similar arrangements with foreign
governments or authorities.
Average Sales Price and Production Costs. The average sales prices
(including transfers) and production costs per barrel of oil and Mcf of gas
received by the Company for the fiscal years ended December 31, 1995, 1994 and
1993, were as follows. Equivalent barrels of production were calculated on
the basis of 6 Mcf equals 1 Barrel.
<TABLE>
<CAPTION>
Oil (Per Bbl) Gas (Per Mcf) Production (MCF)
Year Ended Sales Sales Costs of
December 31, Price Price Equivalent Bbls
- - - ------------ -------------- ------------- ----------------
<S> <C> <C> <C>
1995 $17.10 $1.45 $4.24
1994 16.97 1.83 6.21
1993 16.73 2.10 5.83
</TABLE>
16
<PAGE>
Productive Wells and Acreage. The following tables set forth the
Company's: (i) total gross and net productive oil and gas wells, and (ii)
total gross and net developed acreage, both as of December 31, 1995:
Productive Oil and Gas Wells. As of December 31, 1995, the Company owned
an interest in 21 oil and/or gas properties, 18 of which are operated by the
Company. The following depicts the number of gross and net oil and gas wells
producing or capable of production in which the Company owned an interest at
the end of the last fiscal period.
<TABLE>
<CAPTION>
Total Wells (Gross)* Total Wells (Net)**
Oil Gas Total Oil Gas Total
--- --- ----- --- --- -----
<S> <C> <C> <C> <C> <C> <C>
December 31, 1995 2 19 21 1.03 14.64 15.67
</TABLE>
The above numbers reflect a reduction of two (2) gross wells (1.73 net
wells) which were plugged and abandoned in 1995.
* A "gross well or acre" is a well or acre in which a working interest is
owned. The number of gross wells or acres is the total number of wells or
acres in which a working interest is owned.
** A "net well or acre" exists when the sum of the fractional ownership
working interests in gross wells or acres equals one. The number of net
wells or acres is the sum of fractional working interests owned in gross
wells or acres, expressed as whole numbers and fractions thereof.
16
<PAGE>
Developed Acreage. The following depicts the number of gross and net
developed acres in which the Company owned an interest at the end of the
Company's last fiscal year.
<TABLE>
<CAPTION>
Gross Acres Net Acres
----------- ---------
<S> <C> <C>
December 31, 1995 9,191 6,078
</TABLE>
Undeveloped Acreage. The following table sets forth information
regarding undeveloped acreage in which the Company has an interest.
<TABLE>
<CAPTION>
Location Gross Acres Net Acres
-------- ----------- ---------
<S> <C> <C>
Kansas 160 105
Texas 28 10
___ ___
Total 188 115
</TABLE>
As of the date of this filing, the Company's total undeveloped acreage is
held by production and is not subject to expiration until the producing well
or wells which it holds is/are non-commercial or plugged and abandoned.
Drilling Activity. The following summarizes the drilling activity of
the
Company during each of the last three fiscal years.
<TABLE>
<CAPTION>
Year Ended Total Development Exploratory
December 31, Wells Oil Gas Dry Oil Gas Dry
- - - ------------ ----- --- --- --- --- --- ---
<S> <C> <C> <C> <C> <C> <C> <C>
1995-
Gross Wells 1 0 1 0 0 0 0
Net Wells .4 0 .4 0 0 0 0
1994-
Gross Wells 0 0 0 0 0 0 0
Net Wells 0 0 0 0 0 0 0
1993-
Gross Wells 0 0 0 0 0 0 0
Net Wells 0 0 0 0 0 0 0
</TABLE>
Present Activities. The Company participated in the unsuccessful
drilling of one (1) gross well (.4 net well) during the fourth quarter of
1995. Two (2) gross wells (1.73 net wells) in which the Company held an
interest were plugged and abandoned during 1995. No additional oil and/or gas
properties were acquired by the Company during 1995.
Delivery Commitments. As of March 21, 1996, the Company was not
obligated to provide a fixed and determinable quantity of oil or gas in the
future pursuant to existing contracts or agreements, nor has the Company had
any significant delivery commitments since its inception on December 12, 1979.
17
<PAGE>
Federal Income Tax Consequences
- - - -------------------------------
The following discussion summarizes the material federal income tax
consequences to the Company and the shareholders of the proposed sale of
assets and liquidation pursuant to the provisions of the Internal Revenue Code
of 1986, as amended (the "Code"), as in effect on the date of this Proxy
Statement, the Treasury Regulations issued thereunder, and applicable
administrative and judicial interpretations of the Code and Regulations which
have been published on that date. This summary was prepared by the Company
and is not based on an opinion of any legal or accounting firm.
This discussion does not purport to address consequences which vary
according to the particulars of a given shareholder's situation. Accordingly,
for information concerning the precise impact of this transaction upon him, a
shareholder should consult his own tax advisor.
Tax Consequences to Shareholders. The cash proceeds distributed to a
shareholder on liquidation will be treated, for tax purposes, as received in
exchange for his stock. The shareholder will be treated as having received
capital gain or loss in the amount of the difference between the amount of the
distribution and the basis of his or her stock. Whether there is gain or loss
will depend on the amount distributed and the shareholder's tax basis for the
stock. Whether the gain or loss is long-term or short-term will depend on
the particular shareholder's holding period for the stock. If blocks of stock
were acquired at different times or at different prices, separate computations
of gain or loss must be made. The taxability of the liquidating transactions
to a shareholder is determined as of the time that he receives, or is entitled
to receive, the proceeds of liquidation. The mere cessation of business is
not a liquidation, and shareholders are not thereby in constructive receipt of
a liquidating dividend. However, a distribution may be treated as a complete
liquidation even though a nominal amount of cash is reserved for
contingencies.
The capital gain or loss rule applicable to a complete liquidation
applies as well to a liquidation carried out through a series of
distributions. In general, any distribution which is one of a "series" in
complete liquidation of the corporation is treated in the same manner as a
single distribution in complete liquidation. A separate computation of gain
or loss is not permitted with respect to the part of the stock first
redeemed. The amount received is applied in reduction of the aggregate basis,
and the excess over such aggregate basis is reportable as gain when
received. Such gain, however, must be computed separately for each block of
stock for the purpose of determining the applicable percentages of capital
gain or loss required to be taken in account.
Tax Consequences to Company. The Tax Reform Act of 1986 repealed the tax
rules which generally provided that a corporation which completely liquidated
18
<PAGE>
within a twelve month period would not be required to recognize any gain or
loss on any sale of assets. Accordingly, the general rule which now applies
is that corporations must recognize any gain or loss realized in the sale of
property in contemplation of complete liquidation. However, because all or
nearly all of the sales of assets in contemplation of the liquidation of the
Company have been or are expected to be at a loss, this rule is not expected
to have an impact on the Company.
At present, it is not anticipated that an opinion of counsel will be
rendered to the Company or the shareholders relative to the tax consequences
of the described transactions. Due to the delay and expense which would be
involved, no Internal Revenue Service ruling has been applied for.
The Board of Directors therefore recommends that the following resolution
be adopted by the shareholders:
RESOLVED, that the shareholders of Black Dome Energy Corporation (the
"Company") hereby authorize the dissolution of the Company and the filing
of Articles of Dissolution with the Office of the Colorado Secretary of
State, and that upon the filing of such Articles of Dissolution, the
activities of the Company shall thereafter be limited to those business
activities appropriate to wind up the Company and liquidate its business
and affairs, including collecting its assets, disposing of its properties
that will not be distributed in kind to its shareholders, discharging or
making provision for discharging its liabilities, distributing its
remaining property among its shareholders according to their interests,
and doing every other act necessary to wind up and liquidate its business
and affairs.
It is anticipated that a representative from the accounting firm of
Halliburton, Hunter & Associates, P.C., the Company's principal accountants
for the current year and the most recently completed fiscal year, is expected
to be present at the Meeting, will have the opportunity to make a statement if
he desires to do so, and is expected to be available to respond to
appropriate questions.
The affirmative vote of a majority of the currently outstanding shares is
required for approval of this proposal. The Board of Directors recommends a
vote "FOR" this proposal, and all of the members of the Board of Directors
have orally informed the Company that they currently intend to vote in favor
of the proposal at the Meeting. As the members of the Board of Directors
collectively own 62.50% of the Company's currently issued and outstanding
shares (which is more than the amount necessary to approve the action proposed
to be taken), no other votes by any shareholders will be necessary for the
proposal to be adopted.
19
<PAGE>
FINANCIAL STATEMENTS
--------------------
The financial statements of the Company for the fiscal year ended
December 31, 1995, including audited financial statements as of and for the
years ended December 31, 1995, 1994 and 1993, and unaudited financial
statements as of June 30, 1996, and for the six months then ended, are
attached hereto and are incorporated by this reference into this Proxy
Statement.
AVAILABILITY OF REPORT ON FORM 10-K
-----------------------------------
Upon written request, the Company will provide, without charge, a copy of
its Annual Report on Form 10-K for the fiscal year ended December 31, 1995, to
each shareholder of record or each shareholder who holds stock in the name of
a bank or broker as nominee as of the close of business on the record date.
Any request by a shareholder for the Company's Annual Report on Form 10-K
should be mailed to the Company at 1536 Cole Boulevard, Suite 325, Golden,
Colorado 80401.
SHAREHOLDER PROPOSALS
---------------------
In the event that the authorization to dissolve the Company is approved,
the Board of Directors anticipates that the Company will not hold an annual
meeting of its shareholders prior to the dissolution of the Company. However,
in the event that an annual meeting of the Company's shareholders is held in
the future, any proposal by a shareholder intended to be presented at the
Company's next annual meeting of shareholders must be received at the offices
of the Company a reasonable amount of time prior to the date on which the
proxy statement and proxy for that meeting are mailed to shareholders in order
to be included in the Company's proxy statement and proxy relating to that
meeting.
OTHER BUSINESS
--------------
As of the date of this Proxy Statement, management of the Company was not
aware of any other matter to be presented at the Meeting other than as set
forth herein. However, if any other matters are properly brought before the
Meeting, the shares represented by valid proxies will be voted with respect to
such matters in accordance with the judgment of the persons voting them.
MISCELLANEOUS
-------------
The cost of solicitation of proxies will be borne by the Company. The
Company will reimburse brokerage firms and other custodians, nominees and
fiduciaries for reasonable expenses incurred by them in sending proxy
materials to the beneficial owners of Common Stock. In addition to
solicitations by mail, directors, officers and regular employees of the
20
<PAGE>
Company may solicit proxies personally or by telegraph or telephone without
additional compensation.
By Order of the Board of Directors
Edgar J. Huff
President
Denver, Colorado
September __, 1996
PLEASE SIGN, DATE AND RETURN THE ENCLOSED PROXY CARD AT YOUR
EARLIEST
CONVENIENCE. A SELF-ADDRESSED, POSTAGE PAID ENVELOPE IS ENCLOSED
FOR
MAILING.<PAGE>INDEX TO FINANCIAL STATEMENTS
21
<PAGE>
INDEX TO FINANCIAL STATEMENTS
Page
----
December 31, 1995 and 1994
Report of Independent Certified Public Accountants F1
Balance Sheet at December 31, 1995 and 1994 F2,F3
Statement of Income at December 31, 1995, 1994, 1993 F4
Statement of Stockholders Equity at December 31, 1995 F5
Statement of Cash Flows at December 31, 1995, 1994, 1993 F6
Notes to Financial Statements F7-F13
June 30, 1996 Unaudited
Balance Sheet ot June 30, 1996 and December 31, 1995 F14,15
Statement of Operations for six-months ended June 31,
1996 and 1995 F16
Statement of Cash Flows for six-months ended June 30,
1995 and 1995 F17
<PAGE>
REPORT OF INDEPENDENT CERTIFIED PUBLIC ACCOUNTANTS
--------------------------------------------------
The Board of Directors and Stockholders
Black Dome Energy Corporation
Evergreen, Colorado
We have audited the balance sheet of Black Dome Energy
Corporation as of December 31, 1995 and 1994 and the related
statements of income, stockholders' equity, and cash flows for
the three years ended December 31, 1995, 1994, and 1993. 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 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 Black Dome Energy Corporation as of December 31, 1995 and 1994
and the results of its operations and its cash flows for the
three years ended December 31, 1995, 1994, and 1993 in conformity
with generally accepted accounting principles.
As discussed in Note 1 to the financial statements, in 1995, the
Company elected to change its method of accounting for
depreciation of lease and well equipment from the straight line
method to the unit of production method and the financial
statements have been restated to reflect the change.
The accompanying financial statements have been prepared assuming
that the Company will continue as a going concern. As discussed
in Note 1 to the financial statements, the Company has suffered
recurring losses from operations which raise substantial doubt
about the Company's ability to continue as a going concern.
Management's plans in regard to these matters are also described
in Note 1. The financial statements do not include any
adjustments that might result from the outcome of this
uncertainty.
Littleton, Colorado Halliburton, Hunter, & Associates, P.C.
March 14, 1996
F1
<PAGE>
BLACK DOME ENERGY CORPORATION
Balance Sheet
-------------
<TABLE>
<CAPTION>
December 31,
-------------------------
1995 1994
----------
- - - ---------
Assets
<S> <C> <C>
Current assets:
Cash $ 63,008 $ 53,429
Accounts receivable:
Joint interest owners 10,158 10,357
Oil and gas sales 69,772 86,273
Other 200 1,556
-------
- - - -------
Total current assets 143,138 151,615
------- -------
Property and equipment, at cost:
Oil and gas properties, net (successful
efforts method) 220,994 393,976
Other property and equipment, net of
accumulated depreciation of $58,367
and $51,427, respectively 1,988 7,589
Inventory of well equipment 44,926 53,921
------- -------
267,908 455,486
------- -------
Other assets:
Deposit --- 2,294
------- -------
$ 411,046 $ 609,395
=========== ===========
</TABLE>
See accompanying notes to financial statements
F2
<PAGE>
<TABLE>
<CAPTION>
Liabilities and Stockholders' Equity
<S> <C> <C>
Current liabilities:
Notes payable, current portion $ 62,896 $ ---
Line-of-credit --- 132,724
Accounts payable, trade 78,581 79,257
Accounts payable, officer 9,600 9,600
Accrued interest 662 ---
Deferred compensation 160,000 100,000
-------- --------
Total current liabilities 311,739 321,581
-------- --------
Long-term debt, less current portion 22,091 ---
Commitments and Contingencies
Stockholders' equity:
Common stock, no par value. Authorized
75,000,000 shares; issued and outstanding
73,755 shares in 1995 and 73,455 shares
in 1994 292,415 292,415
Additional paid-in capital 1,886,495 1,886,495
Accumulated deficit (2,093,137) (1,882,539)
----------- -----------
85,773 296,371
-------- --------
Less treasury stock 8,557 8,557
-------- --------
77,216 287,814
-------- --------
$ 411,046 $ 609,395
========= =========
</TABLE>
F3
<PAGE>
BLACK DOME ENERGY CORPORATION
Statement of Income
-------------------
<TABLE>
<CAPTION>
December 31,
-------------------------------
1995 1994 1993
------- ------- -------
<S> <C> <C> <C>
Revenue:
Oil and gas sales $ 402,627 592,513 647,328
Operating income 38,034 19,879 28,402
Gain (loss) on property disposition --- 142,852 ---
Interest income 366 2,413 1,804
Other income (loss) 357 4,998 3
------- ------- -------
441,384 762,655 677,537
------- ------- -------
Costs and expenses:
Oil and gas production 166,262 300,236 249,814
Production and windfall profit taxes 22,737 37,136 44,461
Depreciation, depletion and amortization 199,519 119,218 130,522
Exploration expense 10,110 216 616
Write-off non-productive wells 15,438 65,955 ---
Interest 14,250 17,739 10,200
General and administrative 223,666 266,603 235,586
------- ------- -------
651,982 807,103 671,199
------- ------- -------
Earnings (loss) before income taxes (210,598) (44,448) 6,338
Provision for income tax --- --- 1,000
----- ----- -----
Net earnings (loss) before income
tax benefit (210,598) (44,448) 5,338
Income tax benefit --- --- 1,000
----- ----- -----
Net earnings (loss) $ (210,598) (44,448) 6,338
============ ======== =======
Earnings (loss) per common and common
equivalent share (1) $ (2.86) (.61) .16
========= ======== =======
</TABLE>
(1) Calculated after one-for-1,001 share reverse split
See accompanying notes to financial statements
F4
<PAGE>
BLACK DOME ENERGY CORPORATION
Statement of Stockholders' Equity
---------------------------------
<TABLE>
<CAPTION>
Common Stock Total
------------------- Additional Accumulated
Stock-
Stated Paid-in Earnings
Holder's
Shares Value Capital (Deficit) Equity
------- -------- --------- ---------- --------
<S> <C> <C> <C> <C> <C>
Balance at December
31, 1992 67,500,000 $283,040 1,886,495 (1,844,429) 325,106
Net earnings for the
year ended December
31, 1993 --- --- --- 6,338 6,338
Balance at December
31, 1993 67,500,000 283,040 1,886,495 (1,838,091) 331,444
Stock issued in lieu
of annual compensation 7,500,000 9,375 --- --- 9,375
Reverse split of stock
one-for-1,001 (74,926,545) --- --- --- ---
Net loss for year --- --- --- ( 44,448) (44,448)
Balance at December
31, 1994 73,455 292,415 1,886,496 (1,882,539) 296,371
Stock issued to employees
for bonus 300 --- --- --- ---
Net loss for year --- --- --- (210,590) (210,590)
Balance at December
31, 1995 73,755 $292,415 1,886,495 (2,093,137) 85,773
====== ======== ========= =========== ======
</TABLE>
See accompanying notes to financial statements
F5
<PAGE>
BLACK DOME ENERGY CORPORATION
Statement of Cash Flows
-----------------------
<TABLE>
<CAPTION>
December 31,
1995 1994 1993
---------- ----------- ---------
<S> <C> <C> <C>
Cash flows from operating activities:
Net earnings (loss) $ (210,598) (44,448) 6,338
Depreciation, depletion, amortization 199,519 119,218 130,522
(Gain) loss on property dispositions --- (142,852) ---
Changes in assets and liabilities:
(Increase) decrease in receivables 18,056 16,444 15,011
Increase (decrease) in accounts payable (676) (224,815) 78,863
Increase (decrease) in other liabilities 662 --- ---
(Increase) decrease in other assets 2,294 729 3,024
Increase (decrease) in deferred
compensation 60,000 (80,000) 60,000
------ -------- ------
Net cash provided (used) by
operating activities 69,257 (355,724) 293,758
------ --------- -------
Cash flows from investing activities:
Acquisition of properties --- --- (197,580)
Proceeds from property dispositions --- 164,424 7,193
Purchase of equipment (28,598) (59,698) (222,082)
Purchase of well equipment inventory,
net of transfers to wells 8,995 (20,115) 22,336
Write-off non-producing properties 7,662 65,955 ---
-------- -------- --------
Net cash (used in) provided by
investing activities (11,941) 150,566 (390,133)
-------- ------- ---------
Cash flows from financing activities:
Increase (decrease) in line-of-credit (132,724) --- 223,987
Increase (decrease) in notes payable 132,724 --- 2,800
Payments on note payable (47,737) --- ---
Issuance of common stock --- 9,375 ---
Acquisition of Treasury stock --- (8,557) ---
-------- ------- --------
Net cash (used in) provided by
financing activities (47,737) 818 226,787
Increase (decrease) in cash 9,579 (204,340) 130,412
Cash balance at beginning of year 53,429 257,769 127,357
------- -------- -------
Cash balance at end of year $ 63,008 53,429 257,769
========= ======== =======
</TABLE>
See accompanying notes to financial statements
F6
<PAGE>
BLACK DOME ENERGY CORPORATION
Notes to Financial Statements
December 31, 1995 and 1994
1. Summary of Significant Accounting Policies:
-------------------------------------------
Operations of the company
-------------------------
Black Dome Energy Corporation was incorporated as a Colorado
corporation on December 12, 1979 and was in the development stage
through 1980. The Company is involved in exploration for oil and gas
and the acquisition, development, and operation of oil and gas leasehold
interests.
Property and equipment and depreciation, depletion, and amortization
--------------------------------------------------------------------
The Company follows the successful-efforts method of accounting
for oil and gas exploration and development costs. Under this method,
lease acquisition costs and exploration and development costs
attributable to the finding and development of proved reserves are
capitalized. Exploratory dry hole costs and other nonproductive
oil and gas activities are expensed. Costs of nonproductive
leases are charged to expense when abandoned or substantially impaired,
based upon a property-by-property evaluation. Capitalized costs relating
to producing properties are depleted or depreciated on the units-of-
production method based on the total of proved reserves. Expenditures for
repairs and maintenance costs and delay rentals are charged to expense
as incurred; renewals and betterments are capitalized. The cost and related
accumulate depreciation, depletion, or amortization of property sold or
otherwise retired are eliminated from the accounts; and gains or losses
on dispositions are reflected in the consolidated statement of operations.
Furniture, office equipment, and an automobile are depreciated using the
straight-line method of depreciation over the estimated useful lives of the
assets.
The Company had previously used the straight line method of
depreciation for lease and well equipment, and in 1995, changed to the
units-of-production method. The change resulted in additional depreciation
of $56,525 ($.77 per share) in 1995; $26,999 ($.37 per share) in 1994;
$55,628 ($.76 per share) in 1993; and $26,302 in prior years. The Company's
financial statements have been restated to reflect the changes. The Company
believes that this better reports income to conform to Financial Accounting
Standards Board Statement of Accounting Standards No. 121.
Inventory
---------
Inventory of lease and well equipment is valued at the lower of cost
or market. Cost is determined by either the specific identification method
or average cost method depending on the nature of the inventory item.
Income taxes
------------
The Company accounts for income taxes using tax-liability method in
accordance with Financial Accounting Standards Board Statement No. 109.
The effect of Statement 109 will not have a material effect on the financial
statements of the Company. The benefit of tax carryforwards has not been
recognized because realization is not assured.
Gain (loss) per share
---------------------
Gain (loss) per common share is computed on the basis of the weighted
average number of shares of common stock and common stock equivalents
outstanding during the year.* There were 73,755 shares outstanding at
December 31,1995 and 73,455 at December 31, 1994.
* after allowing for the one-for 1,001 reverse split during in 1994.
F7
<PAGE>
BLACK DOME ENERGY CORPORATION
Notes to Financial Statements, Continued
December 31, 1995 and 1994
1. Summary of Significant Accounting Policies:
-------------------------------------------
Basis of presentation and going concern
---------------------------------------
The accompanying financial statements have been prepared on a
going-concern basis which contemplates the realization of assets and the
satisfaction of liabilities in the normal course of business. The
financial statements do not include any adjustments relating to the
recoverability and classification of recorded assets amounts or the
amount and classification of liabilities that might be necessary should
the Company be unable to continue as a going concern. The Company's
continuation as a going concern is dependent upon its ability to
generate sufficient cash flow to meet its obligations on a timely
basis, to obtain additional financing as may be required, and to increase
sales to a level where the Company becomes profitable. The Company's
management believes it will be able to attain these goals.
2. Oil and Gas Operations:
-----------------------
Information related to the Company's oil and gas operations
is summarized as follows:
<TABLE>
<CAPTION>
December 31,
1995 1994 1993
----------------------------
<S> <C> <C> <C>
Capitalized costs:
Unproved properties $ --- --- ---
Proved oil and gas properties 885,006 866,280 958,459
------- ------- -------
885,006 866,280 958,459
Accumulated
depletion, depreciation
and amortization 664,012 362,781 336,943
------- ------- -------
$ 220,994 502,499 621,516
======= ======= =======
Costs incurred in oil and gas
producing activities:
Property acquisition costs --- --- 197,580
Exploration costs 10,110 216 616
Production costs 188,999 337,372 294,275
Depreciation, depletion, and
amortization expense 199,519 119,218 130,522
------- ------- -------
$ 398,628 456,806 622,993
======= ======= =======
Sales of oil and gas, net of
production costs $ 213,678 $ 255,141 $ 353,053
======= ======= =======
</TABLE>
3. Income Taxes:
-------------
At December 31, 1995, net operating losses available for federal income
tax purposes total approximately $1,250,000, of which $189,000, $187,000,
$237,000, $151,000, $250,000, $36,000 and $200,000 will expire in 1996,
1997, 1998, 1999, 2000, 2006, and 2007 respectively. Investment tax
credit carryforwards at December 31, 1995, total $13,800 of which,
$8,900, $2,000, $2,800, and $100 will expire in 1996, 1997, 1998, and
1999, respectively, if not utilized.
F8
<PAGE>
BLACK DOME ENERGY CORPORATION
Notes to Financial Statements, Continued
December 31, 1995 and 1994
4. Employment Contracts:
--------------------
On May 8, 1991, the Company entered into an employment contract with
E.J. Huff as President of Black Dome for a four-year period beginning
January 1, 1991 and ending December 31, 1994. The contract provides for
annual compensation of $9,600 paid currently and $60,000 to be deferred
to the final year of the contract. At December 31, 1994, $240,000 for
the first four years of deferred compensation had been recognized by the
Company and payment of $140,000 had been made. The deferred compensation
is unfunded.
During 1993 and 1994 in lieu of his $9,600 annual compensation and with
approval of the Board of Directors, Mr. Huff accepted 6,800,000 and
7,500,00 restricted (pre reverse split) shares of the Company's no par
value common stock and cash compensation of $1,100.
On December 31, 1994, the Company entered into an employment contract
with E.J. Huff as President of Black Dome for the three years ending
December 31, 1997 with annual compensation of $100,000 for 1995;
$125,000 for 1996 and $150,000 for 1997.
On July 1, 1991, the Company entered into an employment contract with
J.R. Albi, Jr., as Executive Vice President of Black Dome for a three-year
period beginning July 1, 1991 and ending June 30, 1994. The contract
provides for annual compensation of $60,000. Upon execution of the
agreement, Mr. Albi received 7,256,000 pre-split shares of the Company's
common stock valued at $.00125 per share or $9,070. The shares were
restricted for the term of the contract and were forfeitable as follows:
If Mr. Albi left the employ of the Company prior to June 30, 1992, all of
the shares; prior to June 30, 1993, two-thirds of the shares; and prior
to June 30, 1994, one-third of the shares. The contract has been
fulfilled.
5. Major Customers:
---------------
During the year ended December 31, 1995 sales of oil and gas to two
customers totaled approximately $295,000 and $52,000. During the year
ended December 31, 1994, sales of oil and gas to two major customers were
$336,000 and $154,000. During the year ended December 31, 1993, sales of
oil and gas to two customers totaled approximately $132,000 and $242,000.
6. Supplementary Oil and Gas Information (Unaudited):
--------------------------------------------------
Changes in proved oil and gas reserves:
<TABLE>
<CAPTION>
1995 1994
Oil Gas Oil Gas
(Bbls) (Mcf) (Bbls) (Mcf)
------ ----- ------ -----
<S> <C> <C> <C> <C>
Proved reserves:
Balance at beginning of
year 9,355 2,031,425 34,990 2,669,089
Properties sold --- --- (19,247) (227,135)
Additions to and
revisions of previous
estimates 1,852 (286,289) (3,641) (101,313)
Production (1,382) (261,562) (2,747) (309,216)
------ ------- ----- -------
Balance at end of year 9,825 1,483,574 9,355 2,031,425
===== ========= ===== =========
</TABLE>
F9
<PAGE>
BLACK DOME ENERGY CORPORATION
Notes to Financial Statements
December 31, 1995 and 1994
6. Supplementary Oil and Gas Information (Unaudited), Continued:
-------------------------------------------------------------
<TABLE>
<CAPTION>
<S> <C> <C>
Proved developed reserves:
Balance at December 31, 1993 25,985 2,664,920
Balance at December 31, 1994 9,355 2,031,425
Balance at December 31, 1995 9,825 1,431,318
</TABLE>
Future net cash flows from proved oil and gas reserves:
<TABLE>
<CAPTION>
Future net cash flows at
December 31, 1995
------------------
Total Proved
Proved Developed
Reserves Reserves
---------------------
<S> <C> <C>
December 31,
-----------
1996 $ 306,423 338,801
1997 290,572 271,754
1998 232,079 217,449
Remainder 853,044 814,673
------- -------
$ 1,682,118 $1,642,677
========= =========
</TABLE>
Present value of future net cash flows (discounted at 10%):
<TABLE>
<CAPTION>
Proved
Proved Developed
------ ---------
<S> <C> <C>
December 31,
-----------
1993 2,739,716 2,720,531
1994 1,281,621 1,281,621
1995 1,196,316 1,175,279
</TABLE>
Changes in present value of estimated future net cash flows
from proved oil and gas reserves:
<TABLE>
<CAPTION>
December 31,
------------------------------
1995 1994 1993
---- ---- ----
<S> <C> <C> <C>
Present value at beginning of period $ 1,281,621 $ 2,739,716 $ 2,039,192
Additions and revisions, net of
future estimated development and
productions costs and net of
properties sold 128,323 (1,202,954) 1,053,577
Sales of oil and gas, net of
lifting costs (213,628) (255,141) (353,053)
------- ------- -------
Present value at end of period $ 1,196,316 $ 1,281,621 $ 2,739,716
========= ========= =========
</TABLE>
F10
<PAGE>
BLACK DOME ENERGY CORPORATION
Notes to Financial Statements
December 31, 1995 and 1994
6. Supplementary Oil and Gas Information (Unaudited), Continued:
-------------------------------------------------------------
Summary of oil and gas producing activities on the basis of
reserve recognition accounting:
<TABLE>
<CAPTION>
1995 1994
________ ________
<S> <C> <C>
Additions and revisions to present value
(discounted at 10%) of estimated future
net revenues of proved oil and gas reserves:
Additions, net of estimated future development
and production costs $ 21,037 $ ---
Revisions to estimates of reserves
proved in prior years:
Changes in prices, net of production
costs and taxes 31,256 (66,517)
Other revisions (10,327) (125,100)
Accretion of discount 86,357 (1,011,337)
---------- -----------
Total additions and revisions 128,323 (1,202,954)
Less evaluated acquisition, exploration
and development costs incurred --- ---
---------
- - - --------
Additions and revisions under evaluated
costs 128,323 (1,202,954)
Provision for income taxes --- ---
------- -----------
Results of oil and gas producing activities
on the basis of reserve recognition
accounting $ 128,323 $ (1,202,954)
============ =============
</TABLE>
The following accounting policies have been used in preparing the
Reserve Recognition Accounting (RRA) presentation. The summary of oil and
gas producing activities on the basis of RRA was prepared based on the
rules of the Securities and Exchange Commission (SEC).
Under RRA, earnings are recognized as proved reserves are found based
on the estimated present value of such reserves, computed as described
below. Subsequent revisions to the RRA valuation of proved reserves are
included in earnings as they occur. Proved reserves are those quantities
of oil and gas which can be expected, with little doubt, to be recoverable
commercially at current prices and costs under existing operating methods.
The proved reserves and related valuations were computed by J.R. Albi,
Jr. and audited by Donald M. Osmus, independent petroleum consulting
individual, in accordance with the rules of the SEC. Estimated future
net revenues were computed by applying current prices received by the
Company to estimated future production of reserves, less estimated future
development and production costs and windfall profit taxes based on current
costs. A discount factor of 10% was applied to the estimated future
revenues to compute the estimated present value of proved oil and gas
reserves. This valuation procedure does not necessarily result in an
estimate of the fair market value of the Company's oil and gas properties.
F11
<PAGE>
BLACK DOME ENERGY CORPORATION
Notes to Financial Statements, Continued
December 31, 1995 and 1994
6. Supplementary Oil and Gas Information (Unaudited), Continued:
-------------------------------------------------------------
Totals of proved reserves are inherently imprecise estimates and are
continually subject to revision based on production history, results of
additional exploration and development, price changes, and other factors.
The pretax income (loss) reflected in the primary financial statements
for oil and gas producing activities corresponds to the pretax income
(loss) on the basis of RRA of $128,323 in 1995 and $(1,202,954) in 1994
and $1,053,577 in 1993, respectively.
"Additions to reserves" are the result of current acquisitions and
development activities. Increases in prices are the approximate effect on
the RRA valuation of proved reserves due to price changes. Other revisions
represent the net effect of all revisions to estimated quantities of proved
reserves. Accretion of discount was computed by multiplying 10% times the
present value of future net revenues as of the beginning of the year,
adjusted to reflect downward revisions.
Evaluated acquisition, exploration, development, and production costs
include current and estimated future costs associated with the current year
reserve additions. Such expenses include property acquisitions, well
costs, lease rentals, and abandonments. The cost of acquiring unproved
properties and drilling exploratory wells are deferred until the properties
are evaluated and determined to be either productive or nonproductive,
at which time they are charged to expense. There were no deferred
acquisition and exploration costs at December 31, 1995 and 1994.
The provision for income taxes is based on the "liability" method
computed by applying the current statutory income tax rate to the
difference between the year end RRA valuation of proved reserves and the
tax basis in the properties less estimated investment tax credits and
statutory depletion associated with future development costs.
7. Commitments and Contingencies:
------------------------------
There were no commitments or contingencies known to management
at December 31, 1995.
8. Related Party Transactions:
---------------------------
On January 27, 1992, the Company issued its one-year note for $35,000
to Clayton Corporation, a company controlled by E.J. Huff, with interest
at 8% per annum. On January 27, 1993, the not was renewed and interest
paid by issuance of a note for $2,800. On January 27, 1994, an additional
note for $2,800 was issued for interest which was included in accrued
interest at December 31, 1993. The notes were paid in full in 1994.
9. Environmental Liabilities:
--------------------------
The company's oil and gas operations are subject to various federal,
state, and local laws and regulations regarding environmental and
ecological matters. These laws and regulations, among other things,
impose liability on the Company, as a lessee under an oil and gas lease
for the cost of pollution clean-up resulting from operations, subject the
lessee to liability for pollution damages, require suspension
or cessation of operations in affected areas and impose restrictions on
the injection of liquids into subsurface aquifers that may contain
groundwater.
As of December 31, 1995, the Company was not aware of any environmental
claims which would have a material impact upon the Company's financial
position or results of operations.
F12
<PAGE>
BLACK DOME ENERGY CORPORATION
Notes to Financial Statements, Continued
December 31, 1995 and 1994
10. Reverse stock split and Treasury Stock
--------------------------------------
During 1994, the Company effected a reverse stock split pursuant to
which one new share of the Company's Common Stock was issued in exchange
for each 1,001 shares of the Company's previously outstanding Common
Stock. To the extent that such reverse stock split resulted in any
shareholder owning less than a single full share of the Company's common
stock, the Company paid cash for each such fractional share in an amount
equal to the appropriate fraction of $5.90 per whole share (which
represents the fair value of a whole share after the consummation of the
proposed reverse stock split as determined by the Company's Board of
Directors). To the extent that the proposed reverse stock split
resulted in fractional shares held by persons who owned one or more full
shares of the Company's common stock after consummation of the reverse
stock split, such fractional shares were rounded up or down to the
nearest full share.
F13
<PAGE>
BLACK DOME ENERGY CORPORATION AND SUBSIDIARY
--------------------------------------------
BALANCE SHEET
-------------
<TABLE>
<CAPTION>
June 30, December 31,
____1996_____ ____1995____
(Unaudited) (Note)
ASSETS
------
<S> <C> <C>
Current Assets:
Cash $134,762 $ 63,008
Accounts Receivable 81,926 80,130
-------- --------
Total current assets $216,688 $143,138
-------- --------
Property and equipment, at cost:
Oil and gas properties - net
(successful efforts method) 105,108 220,994
Materials and supplies 45,952 44,926
Other property and equipment - net 238 1,988
------- -------
Total assets $ 367,986 $ 411,046
========= =========
</TABLE>
Note: The balance sheet at December 31, 1995 has been taken from the audited
financial statements at that date, and condensed.
F14
<PAGE>
BLACK DOME ENERGY CORPORATION AND SUBSIDIARY
BALANCE SHEET (CONT'D)
----------------------
<TABLE>
<CAPTION>
June 30, December 31,
____1996___ ____1995____
(Unaudited) (Note)
LIABILITIES_AND_STOCKHOLDER'S_EQUITY
------------------------------------
<S> <C> <C>
Current Liabilities:
Accounts Payable $ 79,275 $ 79,243
Note Payable - Bank 53,297 84,987
Other Payables 9,600 9,600
------- -------
Total Current Liabilities 142,172 173,830
------- -------
Deferred Liability 222,500 160,000
------- -------
Stockholders' Equity:
Common stock; no par value;
authorized 10,000,000 shares,
issued and outstanding 73,755
and 73,455 shares, respectively 2,170,353 2,170,353
Accumulated deficit (2,167,039) (2,093,137)
----------- -----------
Total stockholders' equity 3,314 77,216
----------- -----------
Total liabilities and
stockholders' equity $ 367,986 $ 411,046
============ ============
</TABLE>
Note: The balance sheet at December 31, 1995 has been taken from the audited
financial statements at that date, and condensed.
F15
<PAGE>
BLACK DOME ENERGY CORPORATION AND SUBSIDIARY
STATEMENT OF OPERATIONS
-----------------------
<TABLE>
<CAPTION>
Six Months Ended June 30,
1996 1995
---------------------
(Unaudited)
Revenue:
<S> <C> <C>
Oil and gas sales $296,226 $223,177
Operating income 5,678 5,678
Interest Income 158 198
Miscellaneous -- 248
-------- --------
Total $302,062 $229,301
-------- --------
Expenses:
Oil & Gas production 104,409 96,726
Production and windfall
profit taxes 16,640 13,435
Depreciation, depletion
and amortization 83,500 33,000
General & Administrative 171,415 135,265
Total $375,964 $278,426
-------- --------
Income (loss) before
taxes $<73,902> $<49,125>
Provision for Income
taxes -- --
Net Income (Loss) before
Income Tax Benefit $<73,902> $<49,125>
--------- ---------
Income Tax Benefit -- --
Net Income (loss) $<73,902> $<49,125>
======== ========
Income per common and
common equivalent share $ <1.00> $ <.67>
========= =========
F16
<PAGE>
BLACK DOME ENERGY CORPORATION AND SUBSIDIARY
STATEMENT OF CASH FLOWS
-----------------------
</TABLE>
<TABLE>
<CAPTION>
Six Months
Ended
June 30,
------------------
1996 1995
(Unaudited)
<S> <C> <C>
Net Cash Flows Provided <USED> By
Operating Activities $<73,902> $<49,125>
Net Cash Used In Investing Activities 118,880 28,767
Net Cash Used In Financing Activities 26,776 --
------- -------
Net Increase(Decrease) in Cash $ 71,754 $<20,358>
======== ========
</TABLE>
F17
