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PRELIMINARY COPY
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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 November __, 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 November__, 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 had 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.
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. 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
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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 a few years ago,
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 (decrease in value)
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 made a special
determination that it would be in the best interests in all 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. Before recommending dissolution to the shareholders,
the Board of Directors made a determination that, upon liquidation of the
Company's properties, it is reasonably likely that there will be a sufficient
amount available to allow for a cash distribution to be made to the Company's
shareholders.
In making its determination that immediate dissolution of the Company
would be in the best interests of all of the shareholders, the Board of
Directors did not establish any independent or special committee to consider
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the matter, but instead considered both the current situation and potential
solutions as an entire Board. After deliberation, the Board voted unanimously
to adopt the subject proposal to recommend dissolution with all directors
participating in the discussion and no director abstaining from voting. In
making such determination, a variety of alternatives were considered by the
Board.
The first alternative considered was to essentially continue to operate
the Company's business in the future in much the same manner as it has been
operated in the past. This alternative was rejected because the Company is
currently operating at a loss and its oil and gas properties are depleting in
value and will eventually become worthless over a relatively finite period of
time (depending upon the accuracy of the Company's estimates as to the rates
at which production will continue to decline in the future, and the
consistency of oil and gas prices during the period). It was determined that
the eventual dissolution of the Company would be inevitable under this
scenario and that the longer the Company continues to operate in its current
mode, the less likely it would be that the Company's shareholders would
receive a distribution upon liquidation. It was therefore decided that this
alternative would not be in the best interests of the shareholders.
The second alternative considered was to continue to seek sufficient
capital from outside sources to replace the Company's existing properties and
allow the Company to expand to a sufficient size to enable it to operate at a
profit. This alternative was rejected because the Company has made diligent
attempts to obtain equity capital from outside sources for a number of years
without success. It was noted that because of the Company's small size and
limited cash flow it has not been able to successfully attract and retain
younger professional staff to augment and eventually replace Mr. Huff in the
management of the business, and that Mr. Huff's age has become an impediment
to attracting such investment capital without younger professional staff
already in place.
The Board discussed the wisdom of attempting to obtain additional debt
financing from banking institutions, but this was rejected because of the
same problems associated with equity financing coupled with the additional
risks that the Company might not be successful in achieving a sufficient
level of cash flow from its utilization of any borrowed funds to enable it
to service such additional debt, and that the shareholders would then be
placed at substantial risk that the Company might lose even the value of its
existing properties in the event of a foreclosure resulting from such
additional borrowing. The Board concluded that, because of the risks
involved, this scenario should be rejected as not being in the best
interests of all of the shareholders.
A third alternative discussed was to sell just a portion of the Company's
properties and use the proceeds to purchase new properties that would produce
better cash flow. It was acknowledged that this practice had already been
implemented in recent years and that, because of depletion, the Company
has now reached a point where it can no longer simply replace properties, but
instead needs to add additional properties to achieve a sufficient level of
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cash flow to maintain even a rudimentary staff. As the purchase of additional
properties would necessarily require an infusion of capital which does not
appear to be available, this alternative was also rejected.
The fourth and final alternative that was considered was a possible sale
of control of the Company to outsiders with a requirement that the
purchaser(s) infuse substantial additional cash and properties into the
Company and thereby allow the corporate entity to continue in existence with
a different management group. As the controlling shareholder, Mr. Huff
reported to the Board that he had engaged in discussions with a variety of
third parties with respect to a possible sale of a control block of the
Company's shares, but that (primarily because of his fiduciary duty to use
reasonable efforts to protect the interests of minority shareholders after
consummation of a sale of control) he had not been able to negotiate a
transaction with any potential purchaser that he deemed to be suitable.
This alternative was not rejected, but the Board determined that because of
the declining value of the Company's properties, it would not be in the best
interests of the shareholders to continue to wait to see if a suitable
purchaser could eventually be found. It was decided that if a suitable
purchaser could be identified within 120 days after dissolution is authorized
but before it is completed, the authorization to dissolve could be revoked by
a majority vote of the shareholders at a meeting duly called for such purpose.
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
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 remaining amounts
owed to Mr. Huff for deferred compensation of $122,500), will be distributed
to all of the shareholders on a pro rata basis.
The Board of Directors will utilize its best efforts to obtain the
highest possible price from the sale of its properties. The Company has
distributed detailed descriptions of its oil and gas properties to
approximately thirty unaffiliated oil and gas operators who have been
identified by management as being potential purchasers, but 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 producing oil
and gas properties located in both Kansas and Oklahoma, it is somewhat likely
that these properties might be sold to different purchasers in separate
transactions.
Upon receipt of authorization to dissolve from the shareholders,
management will contact each of the oil and gas operators who have received
detailed descriptions of the Company's oil and gas properties, notify them
that authorization to dissolve has been obtained and solicit offers. It is
likely that the detailed descriptions of the properties will need to be
updated to a more current date in order for potential purchasers to make
informed decisions with respect to making offers. This process is expected
to be completed in not more than 60 days after authorization is obtained.
Assuming that one or more acceptable offers are received by the Company
as a result of this process, the Board of Directors will then evaluate each of
the offers and make a determination as to whether or not one or more of such
offers should be pursued based upon the amount(s) offered and the financial
strength and reputation of each offeror. It is anticipated that any offers
deemed acceptable by the Board of Directors would very likely be contingent
upon the successful completion of a due diligence process by each of the
potential purchasers, which due diligence process should be completed within
an additional 60 day period. The Company would then engage in negotiations
to enter into appropriate agreements to sell the properties, and attempt to
consummate the transactions with the goal of receiving all proceeds from the
sale of its properties within 180 days after shareholder authorization to
dissolve is obtained.
Shareholders will not be permitted to vote on any individual sales of the
Company's assets after the authorization to dissolve has been obtained, even
if all of the assets are ultimately sold in a single transaction. 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. In the
event that the Company does not receive offers that are deemed acceptable by
the Board, it is possible that some or all of the properties might be offered
for sale in one or more independent 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 and/or other affiliates of the Company if for any
reason the Company is unable to sell such properties to unrelated parties for
amounts acceptable to the Board of Directors.
If any such purchases of properties by Mr. Huff and/or other affiliates
of the Company occur (of which there is no assurance), they would only occur
if all of the following conditions are met: (1) the purchase price to be paid
by Mr. Huff and/or the other affiliates would be required to be an amount
acceptable to the Board of Directors with the affected director(s) abstaining
from participation in the decision, (2) the amount of the purchase price
would be required to be in excess of the highest legitimate offer for the
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properties from any other party after diligent attempts by the Company to
market the properties for sale, (3) the purchase price would be required to
be in an amount equal to or greater than the appraised value of the subject
properties as determined by a qualified independent appraiser and (4) the
Company would be required to obtain a fairness opinion with respect to any
such transaction from a qualified independent engineering firm stating, in
essence, that the amount of the purchase price and the terms of the
transaction are fair and reasonable to the Company under the circumstances.
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. It is the
goal of the Board of Directors to cause all of such remaining proceeds to be
paid out to shareholders in a single distribution within 30 days after the
aggregate amount of such funds are received by the Company.
Prior to distribution, it is anticipated that all cash proceeds will be
held by the Company and either deposited in a federally insured bank or
savings and loan, or invested in obligations of (or obligations guaranteed by)
the United States Government or any agency thereof, or time deposits or
certificates of deposit issued by any bank or trust company organized under
the laws of the United States or any state thereof in such amounts and with
such maturities as are deemed appropriate by the Board of Directors.
Although it is possible that more than one distribution will be made to
shareholders if significant delays are encountered with respect to the sale
or receipt of proceeds regarding a portion of the properties, it is
anticipated that all of the remaining proceeds will be distributed at once
in order to minimize expenses.
Colorado law requires that before any distribution can be made, however,
the Board of Directors must make certain that all of the Company's
obligations, claims and expenses are either paid or other provision has been
made, or that adequate reserves have been set aside for the payment of future
liabilities. In this regard, it is anticipated that all secured indebtedness
(bank debt) of approximately $53,000 will be paid in full at the time of sale
of the underlying collateral, and that accounts payable ($79,275 at June 30,
1996), other payables ($9,600 at June 30, 1996) and all other obligations,
claims and expenses (including those expenses associated with the
dissolution) will be paid as they are incurred within 30 days of invoice.
Other obligations (including the payment of $122,500 to Mr. Huff for deferred
compensation) will be paid from proceeds obtained from the sale of the
Company's properties prior to the time that any distribution to shareholders
is made.
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Accordingly, it is estimated by management that it will be necessary for
the Company to receive net proceeds from the sale of its properties in an
amount of not less than $300,000 in order to make a cash distribution to its
shareholders as the result of the proposed liquidation, as this is the amount
that is currently anticipated to be necessary to pay all of the Company's
expected obligations, claims and expenses as of such time. Management
believes that the Company will be able to sell its properties within the next
twelve months for an amount in excess of $300,000, but (due to constant and
unpredictable fluctuations in the market value of oil and gas properties) the
amount that the Company will ultimately receive from the sale of its
properties is currently not capable of being estimated with any degree of
certainty.
It is not currently envisioned that any amount will be retained by the
Company for the payment of any contingencies which might arise after the date
of the distribution, but the Board of Directors will diligently attempt to
make certain that all such contingencies have been identified and satisfied
before any distribution is made. It is currently anticipated that all
remaining proceeds will be distributed to shareholders within 12 months after
the date that authorization to dissolve is obtained from the shareholders.
The Board may require shareholders to surrender their stock certificates
as a condition of 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 will be entitled to the distribution and no transfers made
subsequent to that date, except by will, intestate succession or operation of
law, will 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 five 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 therefore recommends that the following
resolution be adopted by the shareholders:
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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.
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 upon 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
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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
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.
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.
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
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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 Ownership(1) of Class
- ------------------- -------------- ---------- --------
<S> <C> <C> <C>
Edgar J. Huff(2) Common Stock 43,698 59.25%
2374 Eldorado Lane (No Par Value)
Evergreen, CO 80439
Robert C. Huff(4) Common Stock 999 1.35%
9930 South 87th E. Ave. (No Par Value)
Tulsa, OK 74133
James E. Huff(4) Common Stock 1,099 1.49%
2414 Briar Ridge Dr. (No Par Value)
Houston, TX 77057
Tish M. Hartman(3) 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.
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SELECTED FINANCIAL DATA
<TABLE>
<CAPTION>
Six Months Six Months
Ended Ended
June 30, 1995 June 30, 1996
------------- -------------
<S> <C> <C>
Total Revenues $229,301 $302,062
Oil and Gas Sales 223,177 296,226
Other Revenue 6,124 5,836
Net Income (loss) (76,125) (27,152)
Net Income (loss)
per share (1.03) (.37)
Total Assets 666,684 414,736
Obligations --
Deferred Comp. 150,000 222,500*
Bank Debt - LOC 91,509 53,297
Book Value Per
Share $.86 $.68
</TABLE>
* Earnings per share are restated to reflect the 1 for 1001 reverse stock
split approved by shareholders on September 2, 1994.
<TABLE>
<CAPTION>
Years Ended December 31,
-------------------------------------------------------
1995 1994 1993 1992 1991
---- ---- ---- ---- ----
<S> <C> <C> <C> <C> <C>
Total Revenues $440,661 $762,655 $677,537 $616,351 $265,490
Oil and Gas Sales 402,627 592,513 647,328 537,162 213,732
Other Revenue 38,034 170,172 30,209 79,189 51,758
Net Income (loss) (210,598) (44,498) 6,338 61,208 (37,793)
Net Income (loss)
per share (2.86)* (.61)* .10* .91* (.62)*
Total Assets 411,046 718,918 1,040,364 612,748 466,789
Obligations -- 120,000 60,000 --
Deferred Comp. 160,000 100,000 180,000
Bank Debt - LOC 84,987 132,724 222,987 -- --
Book Value Per
Share $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.
<TABLE>
<CAPTION>
Six Months Ended June 30,
-------------------------------------------
1996 1995 1994 1993
---- ---- ---- ----
<S> <C> <C> <C> <C>
Total Revenues $302,062 $229,301 $353,163 $297,131
Oil and Gas Sales 296,226 223,177 343,766 282,244
Other Revenues 5,836 6,124 9,397 14,887
Net Income (loss) (27,152) (76,125) (41,958) (11,706)
Net Income (loss)
per share (.37) (1.03) (.58) (.17)
</TABLE>
12
<PAGE>
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
--------
Amount Payable to Mr. Huff
as Deferred Compensation $122,500*
--------
TOTAL LIABILITIES $364,672
</TABLE>
* Mr. Huff received a cash payment of $100,000 on October 10, 1996 which
reduced the amount of deferred compensation due to him from $222,500
to $122,500.
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 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
13
<PAGE>
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.
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
14
<PAGE>
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
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
15
<PAGE>
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
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, one
part-time contract employee, and one contract 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.
16
<PAGE>
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.
Cash increased by $71,754 from December 31, 1995 to June 30, 1996,
primarily due to maintenance and recompletion costs on existing oil and gas
properties in prior periods, which improved the Company's ability to deliver
oil and gas. Also there has been an increase in the price received for oil
and gas sales. The increase in oil and gas sales for the six months ended
June 30, 1996, as compared to June 30, 1995 was $73,049, while production
costs only increased by $7,683. Production costs for the six month period
ended June 30, 1995 were $100,684 and were $104,409 for the six months ended
June 30, 1996. Depreciation and depletion increased $23,500 as a result of
increased production, with a corresponding increase in production taxes.
General and administrative expenses were lower by $10,600 for the June 30,
1996 period as compared to June 30, 1995. General and administrative
expenses for the six month period ended June 30, 1993 were $122,886 compared
to $124,665 for the same period ended June 30, 1996.
The current ratio deficit was reduced from $190,692 to $147,984, an
improvement in liquidity of $42,708 during the six months ended June 30, 1996.
Restructuring of the operations and tighter control on costs resulted in
a decrease in the six month period ended June 30, 1996 of $47,135 in
production costs and $27,151 in general and administrative costs which
reached their peak in the six month period ended June 30, 1994.
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
17
<PAGE>
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 were 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.
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 reworking operations to improve and
18
<PAGE>
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
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
19
<PAGE>
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 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.
20
<PAGE>
<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 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.
21
<PAGE>
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:
22
<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>
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.
23
<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.
24
<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
25
<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
November __, 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
26
<PAGE>
HALLIBURTON, HUNTER & ASSOCIATES, P.C.
Certified Public Accountants
2329 West Main Street, Suite 106
Littleton, Colorado 80120-1900
Phone (303) 730-7999
Fax (303) 730-2683
October 28, 1996
The Board of Directors
Black Dome Energy Corporation
Evergreen, CO
RE: Change in method of accounting for depreciation of lease and well
equipment on producing properties.
Comments: We have reviewed the effect of the changes from straight-line
depreciation of lease and well equipment used on producing
properties to the unit of production method. This better matches
revenues and expenses on an annual basis, and should preclude any
adjustments that would be necessary upon the adoption of FSAB 121.
Summary: We approve of the changes in the method of accounting for
depreciation of lease and well equipment.
BY(Signature) /s/ Halliburton, Hunter & Associates, P.C.
<PAGE>
November 5, 1996
Roger Schwall, Assistant Director
Securities and Exchange Commission
450 5th Street, N.W.
Judiciary Plaza
Washington, D.C. 20549
Re: Black Dome Energy Corporation
Preliminary Proxy Materials
Commission File No. 0-9394
Gentlemen:
This letter is in response to the staff's comment letter dated October
11, 1996. For your convenience, the text of the staff's letter is reproduced
below in bold print and each comment is followed by the Company's response.
The Proposal
- ------------
1. Reorder the proxy materials to move the resolution to the forepart
of the document.
In response to the comment, the resolution has been moved to pages 8 and 9 of
the document.
2. Discuss in greater detail why the Board of Directors has determined
that it is in the best interests of the Company and its shareholders
to dissolve the Company.
Appropriate discussion has been added on pages 3, 4 and 5 of the Information
Statement.
3. Clarify whether the Board made a special determination that
dissolution is in the best interests of all shareholders.
Clarification has been made on page 3 that the Board made a special
determination that dissolution is in the best interests of all shareholders.
<PAGE>
4. Disclose whether the Board established an independent or special
committee to consider dissolution.
Appropriate disclosure has been added at the bottom of page 3 and the top of
page 4 to make it clear that the decision to dissolve was made by the entire
Board of Directors meeting as a whole and that no special or independent
committees were formed.
5. Describe in sufficient detail the steps the Company will employ to
dissolve itself. Disclose how dissolution will be conducted and
whether shareholders will be allowed to vote on any material sales of
assets.
In response to the comment, disclosure has been added on pages 5, 6, 7 and 8
to detail the steps the Company will employ to dissolve itself, to disclose
how dissolution will be conducted and to make it clear that shareholders will
not be allowed to vote on any material sales of assets after dissolution is
authorized.
6. Clarify whether the Board made any, or obtained any, determination
concerning the value of the Company's assets before recommending
dissolution.
Discussion has been added on page 8 in response to the staff's comment.
7. Disclose the approximate amount of time the dissolution is expected
to take.
Disclosure has been added on page 8 that dissolution is expected to be
completed within 12 months from the date that authorization to dissolve is
obtained, and disclosure has been added on page 6 to the effect that it is
the Company's goal to try to obtain all proceeds from the sale of properties
within 6 months after authorization is obtained.
8. Disclose whether the Company contemplates selling assets to any
affiliates other than Mr. Huff under the plan of dissolution.
The staff is supplementally informed that the Company is not currently
contemplating the sale of any oil and gas properties to Mr. Huff or any other
affiliate, and that any such sale would only occur under the circumstances now
disclosed on pages 6 and 7. Notwithstanding the foregoing, language has been
added on pages 6 and 7 disclosing the possibility that affiliates other than
Mr. Huff could participate in one or more purchases of properties under the
plan of dissolution.
<PAGE>
9. With regard to potential sales to Mr. Huff discuss in more specific
detail the procedures that will be followed to determine when such a
sale may be the "last resort."
As discussed above, appropriate language has been added on pages 6 and 7.
10. Describe in general detail the process the Company will use to
obtain the highest possible price for the Company's assets.
Language has been added on pages 5, 6 and 7 to describe in general detail the
process the Company will use to obtain the highest possible price for the
Company's assets.
11. Provide a schedule of the Company's assets, an estimated value of
proceeds from the sales of such assets, the total value of
liabilities and costs that must be discharged before there can be
any distribution to shareholders, the projected amount that may be
available for distribution to shareholders and the projected amount
per share.
Discussion has been added on page 8 of the Information Statement in response
to the comment to disclose that in order to make a distribution to
shareholders it will be necessary for the Company to receive proceeds in
excess of approximately $300,000, and that the Board of Directors believes the
Company will be successful in obtaining proceeds in excess of that amount.
Because the Company has extremely limited assets, it would not be useful to
provide a schedule of assets that is more detailed than the one provided in
the Company's financial statements. Further, because of the risks involved
and the disadvantage that would be created for the Company in its future
negotiations with potential purchasers if the amount that the Board expects to
be received from the sale of its properties upon consummation of those same
negotiations were to be made public (and for the reasons stated on page 8 of
the Information Statement), the staff is supplementally informed that the
Company does not wish to make any projections in the Information Statement as
to the amount currently expected to be received from the sale of its
properties or the amount that might ultimately be available for distribution
to shareholders after the properties are sold.
<PAGE>
12. Disclose whether any director or directors abstained or voted against
the proposal to dissolve the Company.
In response to the comment, appropriate disclosure has been added at the top
of page 4 to indicate that no director abstained or voted against the proposal
to dissolve the Company.
13. Clarify whether the Company will make partial distributions to
shareholders as assets are sold. If not, discuss the priority of
shareholders in relation to other obligations with regard to such
payments. If partial payments will not be made, disclose what the
Company will do with proceeds held (i.e., invested in securities,
etc.).
Appropriate disclosures have been added on page 7 in response to the comment.
14. Clarify whether the Company will retain any proceeds for unknown
contingencies, if so, disclose the percentage to be retained.
Appropriate disclosure has been added on page 8 in response to the comment.
ACCOUNTING COMMENTS
Proposal 1 - Authorization to Dissolve the Corporation, page 2
- --------------------------------------------------------------
15. Supplementally confirm to the staff that the value of office space
provided by Mr. Huff at no charge was reflected in the financial
statements as a capital contribution and expense. If not,
supplementally advise the staff as to the reason such cost was not
required to be reflected in the financial statements.
The staff is supplementally informed that the value of office space provided
by Mr. Huff at no charge was not reflected in the financial statements as a
capital contribution and expense because no shares or other equity instruments
were issued to any person in connection with his provision of office space to
the Company, and the Company is not aware of any accounting requirement to
reflect any cost in its financial statements under these circumstances. The
Company began renting space from an unaffiliated entity in July 1994, and
appropriate rent expense is recognized from that date forward.
<PAGE>
Selected Financial Data, page 6
- -------------------------------
16. Include interim information as of and for the comparable 1995 period.
Comparable financial data for the period ended June 30, 1995 has been added on
page 12 in response to the comment.
17. Supplementally reconcile the amount of the note payable to bank
in the selected financial data with the tabular disclosure of
outstanding liabilities at June 30, 1996 presented on the same page.
The staff is supplementally advised that the amounts are the same, and that
the typographical error on page 12 has been corrected.
MD&A, page 10
- -------------
18. The discussion should be expanded to discuss the Company's liquidity
as of June 30, 1996 and the results of operations for the six months
ended June 30, 1996 compared to the comparable interim period of the
prior year, and to discuss the 1994 results of operations compared to
1993.
The discussion has been expanded on page 18 in accordance with the comment.
19. The staff notes that the Company restructured its operations in 1994.
Discuss the effect of such restructuring on the Company's results of
operations in 1995 and 1994. See EITF 94-3.
In accordance with the comment, the effects of the restructuring on the
Company's results of operations in 1995 and 1994 are now discussed on page 18.
20. The MD&A and notes to the financial statements should disclose the
impact of adoption of SFAS 121 and 123 will have on the Company's
future financial statements. Reference is made to SAB Topic 11(M).
Both MD&A and the notes to the Company's financial statements have been
modified to disclose the impact that the adoption of SFAS 121 and 123 will
have on the Company's future financial statements.
<PAGE>
21. Update the discussion on page 12 for the proposed dissolution of the
Company. Even if the liquidation basis of accounting is not
appropriate as of June 30, 1996 (see later comment), discuss the
anticipated liquidation value of the Company's net assets compared
to their book value.
In response to the comment, the discussion formerly appearing on page 12 has
been updated for the proposed dissolution of the Company. The staff is
supplementally informed that the anticipated liquidation value of the
Company's net assets (less costs to sell) is in excess of their current book
value as reflected in the financial statements. The disclosures in the
financial statements have been modified to include the information specified
by paragraph 19 of SFAS 121.
Financial Statements
- --------------------
22. Since the vote for liquidation of the Company is assured, it appears
the financial statements at June 30, 1996 should be presented on
the liquidation basis of accounting.
The staff is supplementally informed that the anticipated liquidation value of
the Company's net assets (less costs to sell) is in excess of their current
book value as reflected in the financial statements. The disclosures in the
financial statements have been modified to include the information specified
by paragraph 19 of SFAS 121 (please see response to comment 21, above).
Balance Sheet, page F-3
- -----------------------
23. The allowance for doubtful accounts should be separately presented
in accordance with Rule 5-02(4). Please revise or advise.
The staff is supplementally informed that no such allowance was considered
necessary since 99% of accounts receivable have historically been collected
within 45 days.
24. Provide the disclosures specified in Rule 5-02.19 of Regulation S-X
with respect to loans payable to bank and unused line of credit.
In response to the comment, a new Note 11 has been added to the financial
statements.
<PAGE>
25. Disclose the number of shares in the treasury and the method of
accounting used for them (e.g., at cost).
The staff is supplementally informed that all shares in the Company's treasury
were recorded at the Company's cost and have been retired. The Financial
Statements have been corrected in the stockholders' equity section of the
balance sheet and on the statement of stockholders' equity, and in note 10 to
the financial statements to reflect such cancellation.
Statement of Income, page F-4
- -----------------------------
26. Disclose the weighted average shares outstanding used in the
calculation of earnings (loss) per share for each period of
operations presented. Common stock equivalents should only be
included in the calculation when dilutive, and treasury stock should
not be considered outstanding. Reference is made to paragraph 30 of
APB 15.
In response to the comment, the weighted average number of shares outstanding
used in the calculation of earnings (loss) per share for each period of
operations presented has been added to the data included in the Statement of
Income.
27. Disclose any components of "other income" in 1994 which are
individually significant. Reference is made to Rule 5-03(b).7 of
Regulation S-X.
The staff is supplementally informed by the Company that there are no material
items to be included in "other income."
Statement of Cash Flows, page F-6
- ---------------------------------
28. The write-off of non-producing properties should be reclassified as
an adjustment of operating cash flows. Please revise.
In response to the comment, the write-off of non-producing properties has been
reclassified as an adjustment of operating cash flows as requested.
29. Supplementally reconcile the amount of the adjustment for the
write-off of nonproducing properties to the amount of the expense
on the statements of operations.
The staff is supplementally informed that the accounts have been reconciled
and are now in agreement.
<PAGE>
30. Provide the supplemental disclosures specified in paragraphs 29 and
32 of FAS 95. It is unclear if the change in the line of credit in
1995 to a note payable is a cash transaction that should be included
in the statement of cash flows.
The staff is informed in response to the comment that the Company's Cash Flow
Statement has been corrected as well as additional information is included in
Note 11.
31. Provide disclosure to explain the change in the amount of the line
of credit in 1993 when it increased by $223,987 to only $132,724
when converted to a note payable in 1995.
The staff is informed in response to the comment that the Company's Cash Flow
Statement has been corrected and additional information has been included in
Note 11 for clarification (please see response to comment 30, above).
Note 1. Summary of Significant Accounting Policies, page F-7
- -------------------------------------------------------------
32. Briefly describe the Company's significant revenue recognition
policies.
In response to the comment, additional language has been included in Note 1 to
describe the Company's significant revenue recognition policies.
Note 1. Property and equipment and depreciation, depletion and amortization,
page F-7
- -----------------------------------------------------------------------------
33. The 1995 change in depreciation methods should be accounting for
as a cumulative adjustment in the period of change and not as a
retroactive adjustment. Clarify the statement that the change
"better reports income to conform to FAS 121," and that depreciation
is only recorded on well equipment placed in service. Reference is
made to paragraphs 18-21 of APB 20. Please revise the financial
statements accordingly.
Footnote 1 has been revised in response to the comment.
Note 1. Basis of Presentation and Going Concern, page F-8
- ----------------------------------------------------------
34. The note does not provide sufficient description of management's
plans with regard to the Company's going concern uncertainty. The
note should contain a reasonably detailed description of
management's specific viable plans intended to mitigate the effect
of such condition and management's assessment of the likelihood that
such plans can be effectively implemented. This discussion should
be updated, as necessary, for the interim period ended June 30, 1996.
We note the discussion on page 12 of the filing.
<PAGE>
Additional information has been provided in Footnote 1 in response to the
comment. If the proposed language is deemed acceptable to the staff, an
appropriate amendment to the Company's Quarterly Report on Form 10-Q will be
filed.
Note 3. Income Taxes, page F-8
- -------------------------------
35. Supplementally confirm that net operating losses are the only
temporary difference. It appears that the Company utilized a
carryback in 1993, and it is unclear why the Company recognized no
benefit from the 1994 and 1995 net losses since there was net
income in prior years. Provide all the disclosures specified by
paragraph 43 of FAS 109.
The staff is supplementally informed that net operating losses are the only
temporary difference. Additional information has been included in Footnote 3
for clarification in response to the comment.
Note 4. Employment Contracts, page F-9
- ---------------------------------------
36. All common stock references should give retroactive effect to the
reverse stock split. Please revise.
All references to common stock have been revised in accordance with the
comment to give retroactive effect to the reverse stock split. If the
proposed language is deemed acceptable to the staff, an appropriate amendment
to the Company's Quarterly Report on Form 10-Q will be filed.
37. Supplementally advise why the 6.8 million shares issued to Mr. Huff
in 1993 are not presented in the Statement of Stockholders' Equity.
The staff is supplementally informed that the subject 6.8 million shares were
issued to Mr. Huff in 1992, and the typographical error has been corrected.
Note 6. Supplementary Oil and Gas Information, page F-9
- --------------------------------------------------------
38. The analysis of changes in reserve quantities should be presented
for each year of operations included in the financial statements.
Reference is made to paragraph 11 of FAS 69.
In response to the comment, reserve information for the 1993 fiscal year has
been added. If the proposed language is deemed acceptable to the staff, an
appropriate amendment to the Company's Quarterly Report on Form 10-Q will be
filed.
<PAGE>
39. Detail the components of the future cash flows related to oil and
gas properties. See paragraph 30 of FAS 69.
In response to the comment, the subject disclosure has been modified to detail
the components of the future cash flows related to oil and gas properties in
accordance with the requirements of paragraph 30 of FAS 69. If the proposed
language is deemed acceptable to the staff, an appropriate amendment to the
Company's Quarterly Report on Form 10-Q will be filed.
Updating
- --------
40. In the event of a delay in the mailing date of the definitive proxy
statement, the financial statements and related disclosures should
be updated pursuant to Rule 3-12 of Regulation S-X.
In the event of a delay in the mailing date of the definitive proxy statement,
the financial statements and related disclosures will be updated pursuant to
Rule 3-12 of Regulation S-X.
Accountants' Report
- -------------------
41. An accountants' report complying with Rule 12b-11 of the Exchange
Act Rules should be filed with the definitive proxy statement.
Copies of the manually signed accountants' report should be retained
for five years. See Instruction 1 to Item 14 of Schedule 14A. Also
see Rule 302 of Regulation S-T.
An accountants' report complying with Rule 12b-11 of the Exchange Act Rules
will be filed with the definitive proxy statement at the time of filing.
Copies of the manually signed accountants' report will be retained for five
years.
Form 10-K
- ---------
42. The Form 10-K should be amended to include Exhibit 18, a
preferability letter from the Company's accountants with respect to
the change in accounting principle.
In response to the comment, the Form 10-K is proposed to be amended to include
Exhibit 18, a preferability letter, in the form attached as supplemental
information. If the proposed language is deemed acceptable to the staff, an
appropriate amendment to the Company's Quarterly Report on Form 10-Q will be
filed.
<PAGE>
June 30, 1996 Form 10-Q
- -----------------------
43. Amend the filing to include financial statements and MDA with
respect to the quarter ended June 30, 1996 and comparable prior year
information, in addition to the year to date information. Reference
is made to Article 10 of Regulation S-X. Alternately, such
information could be included in the Schedule 14A.
In response to the comment, proposed disclosure has been added to the subject
Form 10-Q to provide financial statements and MDA with respect to the quarter
ended June 30, 1996 and comparable prior year information, in addition to the
year to date information. If the proposed language is deemed acceptable to
the staff, an appropriate amendment to the Company's Quarterly Report on Form
10-Q will be filed.
44. The deferred compensation liability should be classified as a
current asset similar to the audited financial statements.
In response to the comment, the deferred compensation liability has been
classified as a current asset similar to the audited financial statements. If
the proposed disclosure is deemed acceptable to the staff, an appropriate
amendment to the Company's Quarterly Report on Form 10-Q will be filed.
45. The components of cash flows should be presented to the extent
specified by Rule 10-01(a)(4) of Regulation S-X. Also the statement
of cash flows should be reconciled to the balance sheet pursuant to
paragraph 7 of FAS 95.
In response to the comment, the components of cash flows have been modified so
that they are presented to the extent specified by Rule 10-01(a)(4) of
Regulation S-X, and the statement of cash flows has been reconciled to the
balance sheet pursuant to paragraph 7 of FAS 95. If the proposed modification
is deemed acceptable to the staff, an appropriate amendment to the Company's
Quarterly Report on Form 10-Q will be filed.
46. The interim financial statements should include appropriate notes.
See Article 10 of Regulation S-X.
The staff is supplementally informed that there have been no material changes
in the disclosures contained in the footnotes of the audited financial
statements for the fiscal year ended December 31, 1995 which would require
<PAGE>
additional disclosures to be made in the interim financial statements. As the
footnote disclosure in the interim financial statements would substantially
duplicate the disclosure contained in the most recent audited financial
statements, the footnote disclosure in the interim financial statements has
been omitted.
47. Expand the interim MDA to address the following (and consider the
same items in the annual MDA discussions):
(a) Explain how maintenance and recompletion of oil and gas
properties would increase cash.
(b) Explain why depreciation, depletion and amortization expense
has increased. Also address why the 1996 decline in oil and
gas properties on the balance sheet exceeds the amount of
depreciation, depletion and amortization expense. (Explain
why the 1995 expense increased even though production declined).
(c) Address how accounts receivable in 1996 have declined in spite
of increases in revenues.
(d) Quantify the amount of production volume changes, and also
address the effect of changes in average price on revenues.
(e) Address the changes in production costs as a percentage of
revenues.
The interim MDA and annual MDA have both been expanded on page F-9 to
address the items listed in the comment. If the proposed modifications are
deemed acceptable to the staff, an appropriate amendment to the Company's
Quarterly Report on Form 10-Q will be filed.
Closing Comments
- ----------------
The Company should respond to the comments as specified by filing an
amendment to the filing. The amendment should be accompanied by a letter
responding to each comment and noting the specific location of any change in
the materials made in response to the comment. If the Company thinks any
comment is inapplicable or inappropriate, the Company should advise the staff
in writing, together with appropriate supplemental support for its view.
No response necessary.
<PAGE>
If you have any additional questions or comments, or if you need any
additional information, please don't hesitate to call.
Very truly yours,
KRYS BOYLE GOLZ
FREEDMAN & SCOTT, P.C.
BY(Signature) /s/Stanley F. Freedman, P.C.
SFF/jab (comment.ltr)
<PAGE>
INDEX TO FINANCIAL STATEMENTS
Page
December 31, 1995 and 1994
Report of Independent Certified Public Accountants F-1
Balance Sheet at December 31, 1995 and 1994 F-2
Statement of Income at December 31, 1995, 1994, 1993 F-5
Statement of Stockholder's Equity at December 31, 1995 F-6
Statement of Cash Flows at December 31, 1995, 1994, 1993 F-7
Notes to Financial Statements F-8 - F-14
June 30, 1996 Unaudited
Balance Sheet of June 30, 1996 and December 31, 1995 F-15 - F-16
Statement of Operations for six months ended June 30,
1995 and 1996 F-17
Statement of Cash Flows for six months ended June 30,
1995 and 1996 F-18
Management's Discussion and Analysis of Financial
Condition and Results of Operations F-19
<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.
BY(Signature) /s/ Halliburton, Hunter & Associates, P.C.
Littleton, Colorado
(Date) March 14, 1996
F-1
<PAGE>
BLACK DOME ENERGY CORPORATION
Balance Sheet
December 31, 1995 and 1994
F-2
<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
<PAGE>
<TABLE>
<CAPTION>
Liabilities and Stockholders' Equity
------------------------------------
<S> <C> <C>
Current liabilities:
Note payable, bank $ 84,987 ---
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 333,830 321,581
------- -------
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 1,877,938 1,877,938
Accumulated deficit (2,093,137) (1,882,539)
--------- ---------
77,216 287,814
--------- ---------
$ 411,046 $ 609,395
========= =========
F-4
<PAGE>
BLACK DOME ENERGY CORPORATION
Statement of Income
-------------------
</TABLE>
<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) .10
========== ======= ======
Weighted average number of shares 73,605 72,866 67,433
========== ======= ======
</TABLE>
(1) Calculated after one-for-1,001 share reverse split
See accompanying notes to financial statements
F-5
<PAGE>
BLACK DOME ENERGY CORPORATION
Statement of Stockholders' Equity
<TABLE>
<CAPTION>
Common Stock
__________________ Additional Accumulated Total
Stated Paid-in Earnings Stockholders'
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,
and retirement
of treasury
stock (74,926,545) --- (8,557) --- (8,557)
Net loss
for year --- --- --- ( 44,448) (44,448)
---------- -------- --------- --------- --------
Balance at
December
31, 1994 73,455 292,415 1,877,938 (1,882,539) 287,814
---------- -------- --------- ----------- -------
Stock issued
to employees
for bonus 300 --- --- --- ---
Net loss for
year --- --- --- (210,598) (210,598)
--------- -------- --------- ----------- ---------
Balance at
December
31, 1995 73,755 $ 292,415 1,877,938 (2,093,137) 77,216
======== ========= ========= =========== =======
</TABLE>
See accompanying notes to financial statements
F-6
<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) ---
Write-off non-producing properties 15,438 65,955 ---
Changes in assets and liabilities:
(Increase) decrease in
receivables 18,056 16,444 15,011
Increase (decrease) in accounts
payable (676) (133,552) 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 84,695 (198,506) 293,758
------ --------- -------
Cash flows from investing activities:
Acquisition of properties --- --- (197,580)
Proceeds from property dispositions --- 164,424 7,193
Purchase of equipment (36,374) (59,698) (222,082)
Purchase of well equipment inventory,
net of transfers to wells 8,995 (20,115) 22,336
Net cash (used in) provided by
investing activities (27,379) 84,611 (390,133)
-------- ------ --------
Cash flows from financing activities:
Increase (decrease) in line-of-credit (41,215) (91,263) 223,987
Increase (decrease) in notes payable (6,522) --- 2,800
Issuance of common stock --- 9,375 ---
Acquisition of Treasury stock --- (8,557) ---
------- ------- -------
Net cash (used in) provided by
financing activities (47,737) (90,445) 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>
* During the current year, the line-of-credit was converted to a note
payable in the amount of $91,509. See Note 11 to finanacial statements.
See accompanying notes to financial statements
F-7
<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.
Income from oil and gas sales is recognized as deliveries are made to the
purchasers. Operating income is recognized as services are performed in the
management and operations of the producing properties.
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 accumulated 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 matching of income and expenses in the proper periods.
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.
F-8
<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. If unable to attain these goals, the Company will consider disposition
of some or all of its producing properties.
If the Company determines that disposal of its producing properties is
necessary, in accordance with Statement of Financial Accounting Standards No.
121, paragraph 19, the following should be considered. The Company would
dispose of part of all property and equipment at a date to be determined. At
December 31, 1995, the carrying amount of those assets was $267,908. The
Company would not incur a loss on the disposal of the producing properties.
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>
F-9
<PAGE>
BLACK DOME ENERGY CORPORATION
Notes to Financial Statements, Continued
December 31, 1995 and 1994
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.
The Company reports income for financial statements and income tax
reporting on the same basis of accounting.
The Financial Accounting Standards Board issued Statement No. 109,
"Accounting for Income Taxes", which employs an asset and liability approach
for income taxes, the objective of which is to recognize the amount of current
and deferred tax payable at the date of the financial statements using the
provisions of enacted tax laws. The Company has applied the provisions of
Statement 109 in the accompanying financial statements. The net operating
loss carryforward of approximately $1,250,000 results in tax recovery assets
of approximately $625,000; however a valuation reserve has been recorded for
the full amount due to the uncertainty regarding the realizability of the
deferred tax assets.
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 1992 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) 6,793 and 7,492 (post 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) 7,249 (post-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.
F-10
<PAGE>
BLACK DOME ENERGY CORPORATION
Notes to Financial Statements
December 31, 1995 and 1994
6. Supplementary Oil and Gas Information (Unaudited):
- ---------------------------------------------------------
Changes in proved oil and gas reserves:
<TABLE>
<CAPTION>
1995 1994 1993
Oil Gas Oil Gas Gas Oil
(Bbls) (Mcf) (Bbls) (Mcf) (Bbls) (Mcf)
------ ----- ------ ----- ------ -----
Proved reserves:
<S> <C> <C> <C> <C> <C> <C>
Balance at
beginning of year 9,355 2,031,425 34,990 2,669,089 45,658 2,209,505
Properties sold --- --- (19,247) (227,135) --- ---
Additions to and
revisions of
previous
estimates 1,852 (286,289) (3,641) (101,313) (9,885) 925,746
Production (1,382) (261,562) (2,747) (309,216) (2,783) (286,162)
------ --------- ------- --------- ------- ---------
Balance at
end of year 9,825 1,483,574 9,355 2,031,425 34,990 2,669,089
====== ========= ===== ========= ====== =========
<CAPTION>
Proved developed reserves:
<S> <C> <C>
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
<CAPTION>
Future net cash flows from proved oil and gas reserves:
Future net cash flows at
------------------------
December 31, 1995
Total Proved
Proved Developed
Reserves Reserves
-------- --------
December 31,
------------
<S> <C> <C>
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
<CAPTION>
Present value of future net cash flows (discounted at 10%):
Proved
Proved Developed
--------- ---------
December 31,
<S> <C> <C>
1993 2,739,716 2,720,531
1994 1,281,621 1,281,621
1995 1,196,316 1,175,279
</TABLE>
F-11
<PAGE>
BLACK DOME ENERGY CORPORATION
Notes to Financial Statements
December 31, 1995 and 1994
6. Supplementary Oil and Gas Information (Unaudited), Continued:
- --------------------------------------------------------------------
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
=========== =========== ===========
<CAPTION>
Summary of oil and gas producing activities on the basis of reserve
recognition accounting:
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>
F-12
<PAGE>
BLACK DOME ENERGY CORPORATION
Notes to Financial Statements, Continued
December 31, 1995 and 1994
6. Supplementary Oil and Gas Information (Unaudited), Continued:
- --------------------------------------------------------------------
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.
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.
F-13
<PAGE>
BLACK DOME ENERGY CORPORATION
Notes to Financial Statements, Continued
December 31, 1995 and 1994
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 note 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.
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. Payments for treasury stock of $8,557 have been charged
to additional paid-in capital.
11. Line-of Credit
- ----------------------
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.
F-14
<PAGE>
BLACK DOME ENERGY CORPORATION
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) 151,858 220,994
Materials and supplies 45,952 44,926
Other property and equipment - net 238 1,988
---------- -----------
Total assets $ 414,736 $ 411,046
========== ===========
</TABLE>
Note: The balance sheet at December 31, 1995 has been taken from the audited
financial statements at that date and condensed.
F-15
<PAGE>
Liabilities and Stockholders' Equity
------------------------------------
<TABLE>
<CAPTION>
June 30, December 31,
1996 1995
----------- ------------
(Unaudited) (Note)
<S> <C> <C>
Current liabilities:
Accounts Payable $ 79,275 $ 79,243
Note Payable - Bank 53,297 84,987
Other Payables 9,600 9,600
Deferred Compensation 222,500 160,000
------- -------
Total Current Liabilities 364,672 333,830
------- -------
Stockholders' Equity:
Common stock; no par value; Authorized
10,000,000 shares; issued and outstanding
73,755 2,170,353 2,170,353
Accumulated deficit (2,120,289) (2,093,137)
----------- -----------
Total stockholders' equity 50,064 77,216
----------- ----------
Total liabilities and
stockholders' equity $ 414,736 $ 411,046
========== ==========
</TABLE>
Note: The balance sheet at December 31, 1995 has been taken from the audited
financial statements at that date and condensed.
F-16
<PAGE>
BLACK DOME ENERGY CORPORATION
Statement of Operations
<TABLE>
<CAPTION>
Six Months Ended June 30,
1996 1995
-------------------------
(Unaudited)
<S> <C> <C>
Revenue:
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 and gas production 104,409 96,726
Production and windfall profit taxes 16,640 13,435
Depreciation, depletion and amortization 83,500 60,000
General and administrative 124,665 135,265
-------- --------
Total $329,214 $305,426
-------- --------
Income (loss) before taxes $(27,152) $(76,125)
Provision for income tax --- ---
-------- --------
Net income (loss) before income
tax benefit $(27,152) $(76,125)
Income tax benefit --- ---
---------- --------
Net income (loss) $ (27,152) (76,125)
=========== ========
Income per common and common
equivalent share $ (.37) (.67)
=========== ========
</TABLE>
F-17
<PAGE>
BLACK DOME ENERGY CORPORATION
Condensed Statement of Cash Flows
<TABLE>
<CAPTION>
Six Months Ended June 30,
1996 1995
-----------------------
(Unaudited)
<S> <C> <C>
Cash flows from operating activities:
Net earnings (loss) $ (27,152) $(76,125)
Depreciation, depletion, amortization 83,500 60,000
---------- ---------
Changes in assets and liabilities:
Increase (decrease) in receivables (1,795) 4,434
Increase (decrease) in accounts payable 31 12,609
Increase (decrease) in other liabilities -- 6,634
Increase (decrease) in deferred compensation 62,500 19,600
------ ------
Net cash provided (used) by
operating activities $117,084 $ 27,152
-------- --------
Cash flows from investing activities:
Purchase of equipment $(14,666) $ (763)
Purchase of well equipment inventory,
net of transfers to wells 1,026 (5,532)
-------- ---------
Net cash (used in) provided by
investing activities (13,640) (6,295)
--------- ---------
Cash flows from financing activities:
Increase (decrease) in line-of-credit $(31,690) $(41,215)
Net cash (used in) provided by
financing activities (31,690) (41,215)
--------- ---------
Increase (decrease) in cash 71,754 (20,358)
Cash balance at beginning of period 63,008 53,429
--------- ---------
Cash balance at end of period $134,762 $33,071
======== =========
F-18
<PAGE>
Management's Discussion and Ananlysis of Financial
Condition and Results of Operations
--------------------------------------------------
General
- -------
This discussion and analysis covers variations in the balance sheets
December 31, 1995 and June 30, 1996, and in the statements of operations
and changes in cash flows for the six-month periods ended June 30, 1996 and
1995.
Liquidity and Capital Resources
- -------------------------------
Cash increased by $71,754 from December 31, 1995 to the end of the
second quarter, 1996. This increase in cash was attributable primarily
to the maintenace and increase in product prices. Cash flows and current
revenues are estimated to be sufficient to meet anticipated operating
requirements for more than one year.
Results of Operations
- ---------------------
Oil and gas sales have increased compared to the six-month period in
1995 due to better product prices from the Company's operated oil and gas
properties.
Gross income from the Company owned and operated wells has increased
compared to the six-month period ended June 30, 1995.
Interest income is comparable to the prior period in 1995.
Depreciation, Depletion and Amortization (DDA) for the period has
increased compared to the same six-month period in 1995.
The Company's exploration expense reflects mimimal exploration
activity for both periods.
Oil and gas production expenses are comparable for the six-month periods
of 1996 and 1995.
The Company's General and Administrative expense for the quarter ended
June 30, 1996, decreased compared to the second quarter of 1995. Management
is attemping to contain general and administrative expenses by fully
utilizing its existing personel.
F-19
</TABLE>
