<PAGE> 1
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 8-K/A
(AMENDMENT NO. 1)
CURRENT REPORT
Pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934
Date or Report (Date of earliest event reported) August 21, 2000
SOUTH TEXAS DRILLING & EXPLORATION, INC.
(Exact name of registrant as specified in its charter)
State of Texas 2-70145 74-2088619
(State or other jurisdiction (Commission (IRS Employer
of incorporation) File Number) Identification No.)
9310 Broadway, Building 1, San Antonio, Texas 78217
(Address of principal executive offices) (Zip Code)
Registrant's telephone number, including area code (210) 828-7689
--------------------------------------------------------------------------------
(Former name or former address, if changed since last report.)
<PAGE> 2
The undersigned registrant hereby amends the following Item 7. Financial
Statements and Exhibits of its Form 8-K filed on September 1, 2000, dated August
21, 2000 to include the following:
ITEM 7. FINANCIAL STATEMENTS AND EXHIBITS
As discussed in Item 2. Acquisition or Disposition of Assets, of the
Company's Form 8-K filed on September 1, 2000 dated August 21, 2000, the Company
acquired all of the issued and outstanding stock of Pioneer Drilling Co., a
Texas corporation, pursuant to a Stock Purchase Agreement dated July 21, 2000,
as amended. The consideration for the acquisition consisted of a cash payment of
$10,731,456 and issuance of 341,575 restricted shares of the Company's common
stock. The source of funds for the acquisition includes proceeds from the
Company's borrowings under its (1) $9,000,000 credit facility with Frost
National Bank, N.A., and (2) $3,000,000 credit facility with The American Bank,
N.A., each of which was entered into in connection with the acquisition.
The accompanying pro forma combined financial statements are based on the
historical financial statements of South Texas Drilling & Exploration for the
year ended March 31, 2000, and the three months ended June 30, 2000. The pro
forma combined financial statements are also based on the historical financial
statements of Pioneer Drilling Co., for the years ended June 30, 1999 and 2000.
The Pro Forma Combined Balance Sheet as of June 30, 2000 has been prepared
assuming the acquisition was consummated as of June 30, 2000.
The Pro Forma Combined Statements of Operations for the year ended March
31, 2000 and the three months ended June 30, 2000, have been prepared assuming
the acquisition of Pioneer Drilling Co., and the related borrowings had been
consummated on April 1, 1999.
The pro forma adjustments are based upon available information and
assumptions that management of the Company believes are reasonable. The pro
forma combined financial statements do not purport to represent the financial
position or results of operations of the Company which would have occurred had
such transaction been consummated on the dates indicated or the Company's
financial position or results of operations for any future date or period.
(a) Financial Statements.
Financial Statements of Pioneer Drilling Co., Inc. as of June 30,
2000 including Statements of Operations and Statements of Cash
Flow for the years ended June 30, 1999 and 2000, together with
report of independent auditors Tranbarger & Welge, L.L.P.
(b) Pro Forma Financial Information.
Pro Forma Combined Balance Sheet of South Texas Drilling &
Exploration, Inc. as of June 30, 2000.
Pro Forma Combined Financial Statements of South Texas Drilling &
Exploration, Inc. as of June 30, 2000 and for the year ended
March 31, 2000 and the three months ended June 30, 2000.
2
<PAGE> 3
(c) Exhibits.
Number Document
10.1 Stock Purchase Agreement by and among South Texas
Drilling & Exploration, Inc., and the shareholders of
Pioneer Drilling Co., Inc. dated July 21, 2000.
10.2 Loan Agreement between South Texas Drilling &
Exploration, Inc. and The Frost National Bank.
10.3 Promissory Note between South Texas Drilling &
Exploration, Inc. and The Frost National Bank.
10.4 Loan Agreement between South Texas Drilling &
Exploration, Inc. and American Bank, N.A.
10.5 Promissory Note between South Texas Drilling &
Exploration, Inc. and American Bank, N.A.
3
<PAGE> 4
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the
Registrant has duly caused this report to be signed on its behalf by the
undersigned hereunto duly authorized.
Date: October 31, 2000 SOUTH TEXAS DRILLING
& EXPLORATION, INC.
By: /s/ Wm. Stacy Locke
-------------------------------
Wm. Stacy Locke, President
<PAGE> 5
ITEM 7(a)
INDEPENDENT AUDITORS' REPORT
The Board of Directors
Pioneer Drilling Co., Inc.
Corpus Christi, Texas
We have audited the accompanying balance sheets of Pioneer Drilling Co., Inc.
as of June 30, 2000 and 1999 and the related statements of operations,
shareholder's equity and cash flows for each of the years in the two-year
period ended June 30, 2000. 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 audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of
material misstatements. 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 Pioneer Drilling Co., Inc. as
of June 30, 2000 and 1999, and the results of their operations and their cash
flows for each of the years in the two-year period ended June 30, 2000, in
conformity with generally accepted accounting principles.
July 28, 2000
/s/ TRANBARGER & WELGE, L.L.P.
<PAGE> 6
PIONEER DRILLING CO., INC.
BALANCE SHEET
<TABLE>
<CAPTION>
June 30,
----------------------
2000 1999
---------- ----------
<S> <C> <C>
CURRENT ASSETS:
Cash and cash equivalents $ (31,907) $ 547,233
Accounts Receivable 3,038,199 1,532,371
Inventory 80,394 43,732
Prepaid expenses 20,047 38,769
---------- ----------
TOTAL CURRENT ASSETS 3,106,733 2,162,105
---------- ----------
PROPERTY AND EQUIPMENT, AT COST:
Drilling rigs and equipment 6,917,681 6,510,560
Oil and gas properties, based on full
cost accounting period 432,679 38,881
Transportation, office, land and other 775,407 739,682
Leasehold costs 12,504 12,504
---------- ----------
8,138,271 7,301,627
Less accumulated depreciation, depletion
and amortization (3,270,747) (2,493,763)
---------- ----------
NET PROPERTY AND EQUIPMENT 4,867,524) 4,807,864
---------- ----------
TOTAL ASSETS $7,974,257 $6,969,969
========== ==========
</TABLE>
See accompanying notes to financial statements.
2
<PAGE> 7
PIONEER DRILLING CO., INC.
BALANCE SHEET (CONTINUED)
<TABLE>
<CAPTION>
JUNE 30,
------------------------------
2000 1999
------------ ------------
<S> <C> <C>
CURRENT LIABILITIES:
Current installments of long-term debt $ 630,803 $ 622,256
Line of credit 368,385 --
Accounts payable 1,808,286 3,091,997
Accrued expenses:
Payroll and payroll taxes 153,500 457,545
Employee bonus payable 200,000 --
Federal income tax payable 351,401 --
Other 162,412 241,963
------------ ------------
TOTAL CURRENT LIABILITIES 3,674,787 4,413,761
Deferred income tax payable 1,160,256 458,145
Long-term debt, less current installments 1,020,919 1,454,784
------------ ------------
TOTAL LIABILITIES 5,855,962 6,326,690
SHAREHOLDER'S EQUITY:
Common stock 1,530 1,530
Additional paid-in capital 348,313 348,313
Retained earnings 1,817,952 342,936
------------ ------------
2,167,795 692,779
Less treasury stock (49,500) (49,500)
------------ ------------
TOTAL SHAREHOLDER'S EQUITY 2,118,295 643,279
------------ ------------
TOTAL LIABILITIES AND SHAREHOLDER'S EQUITY $ 7,974,257 $ 6,969,969
============ ============
</TABLE>
See accompanying notes to financial statements.
3
<PAGE> 8
PIONEER DRILLING CO., INC.
STATEMENT OF OPERATIONS
<TABLE>
<CAPTION>
YEARS ENDED
JUNE 30,
----------------------------
2000 1999
------------ ------------
<S> <C> <C>
REVENUES:
Contract drilling $ 22,805,299 $ 17,550,140
Oil and gas, net 75,904 40,637
Miscellaneous income 19,366 21,324
------------ ------------
TOTAL OPERATING REVENUES 22,900,569 17,612,101
------------ ------------
COST AND EXPENSES:
Contract drilling 16,958,528 15,396,617
Depreciation, depletion and
Amortization 776,983 649,557
General and administrative 2,372,133 1,921,950
------------ ------------
TOTAL OPERATING COSTS AND EXPENSES 20,107,644 17,968,124
------------ ------------
Earnings (loss) from operations 2,792,925 (356,023)
------------ ------------
OTHER INCOME (EXPENSES):
Interest expense (291,440) (200,382)
Gain on sale of assets -- 74,430
Interest income 27,043 4,709
------------ ------------
TOTAL OTHER INCOME (EXPENSES) (264,397) (121,243)
------------ ------------
Earnings (loss) before income taxes 2,528,528 (477,266)
Income taxes (351,401) --
Deferred tax (expense) benefit (702,111) 321,364
------------ ------------
NET EARNINGS (LOSS) $ 1,475,016 $ (155,902)
============ ============
</TABLE>
See accompanying notes to financial statements.
4
<PAGE> 9
PIONEER DRILLING CO., INC.
STATEMENT OF SHAREHOLDERS' EQUITY
<TABLE>
<CAPTION>
Common Add'l Paid Retained Treasury
Stock in Capital Earnings Stock Total
<S> <C> <C> <C> <C> <C>
BALANCE AS OF JULY 1, 1998 $ 1,530 $ 348,313 $ 498,838 $ (49,500) $ 799,181
Net loss -- -- (155,902) -- (155,902)
------------ ------------ ------------ ------------ ------------
BALANCE AS OF JUNE 30, 1999 1,530 348,313 342,936 (49,500) 643,279
Net earnings -- -- 1,475,016 -- 1,475,016
------------ ------------ ------------ ------------ ------------
BALANCE AS OF JUNE 30, 2000 $ 1,530 $ 348,313 $ 1,817,952 $ (49,500) $ 2,118,295
============ ============ ============ ============ ============
</TABLE>
See accompanying notes to financial statements.
5
<PAGE> 10
PIONEER DRILLING CO., INC.
STATEMENT OF CASH FLOWS
<TABLE>
<CAPTION>
YEARS ENDED
JUNE 30,
-----------------------------
2000 1999
------------ -----------
<S> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
Net earnings (loss) $ 1,475,016 $ (155,902)
Adjustments to reconcile net earnings (loss)
to net cash provided by operating activities:
Depreciation, depletion and amortization 776,984 649,557
Gain on sale of assets (74,430)
Provisions for deferred income taxes 702,111 458,145
Changes in current assets and liabilities:
Receivables (1,505,828) (44,910)
Inventory (36,662) (23,754)
Prepaid expenses 18,722 (14,017)
Accounts payable (1,283,711) 1,604,393
Accrued expenses 167,805 542,025
------------ -----------
NET CASH PROVIDED (USED) BY
OPERATING ACTIVITIES $ 314,437 2,941,107
------------ -----------
CASH FLOWS FROM FINANCING ACTIVITIES:
Proceeds from notes payable -- $ 24,000
Proceeds from line of credit 1,151,762 1,775,000
Principal payments of debt (1,208,695) (3,685,733)
------------ -----------
NET CASH PROVIDED (USED) IN FINANCING ACTIVITIES: (56,933) (1,886,733)
------------ -----------
CASH FLOWS FROM INVESTING ACTIVITIES:
Purchase of property and equipment (836,644) (562,730)
Proceeds from sale of property and equipment -- 175,000
------------ -----------
NET CASH (USED) IN INVESTING ACTIVITIES (836,644) (387,730)
------------ -----------
</TABLE>
See accompanying notes to financial statement.
6
<PAGE> 11
PIONEER DRILLING CO., INC.
STATEMENT OF CASH FLOWS (CONTINUED)
<TABLE>
<CAPTION>
YEARS ENDED
JUNE 30,
-------------------------
2000 1999
----------- ---------
<S> <C> <C>
NET INCREASE (DECREASE) IN CASH AND CASH EQUIVALENTS (579,140) 666,644
Beginning cash and cash equivalents 547,233 (119,411)
----------- ---------
ENDING CASH AND CASH EQUIVALENTS $ (31,907) $ 547,233
=========== =========
Supplementary disclosure:
Interest paid $ 291,440 $ 200,382
</TABLE>
See accompanying notes to financial statement.
7
<PAGE> 12
PIONEER DRILLING CO., INC.
NOTES TO FINANCIAL STATEMENTS
1. ORGANIZATION AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
Pioneer Drilling Co., Inc, ("the Company"), provides land based contract
drilling services for the oil and gas industry, primarily in Central and South
Texas. The Company also has Oil and Gas operations acquired as a result of
certain contracts for its drilling services. The Company provides drilling
services under a variety of contractual arrangements to its customers.
The financial statements have been prepared in accordance with generally
accepted accounting principles. In preparing the financial statements,
management is required to make estimates and assumptions that affect the
reported amounts of assets and liabilities as of the dates of the balance
sheets and income and expenses for the periods. Actual results could differ
significantly from those estimates.
INCOME TAXES
Pursuant to Statement of Financial Accounting Standard No. 109, "Accounting for
Income Taxes", the Company follows the asset and liability method of accounting
for income taxes under which deferred tax assets and liabilities are recognized
for the future tax consequences attributable to differences between the
financial statement carrying amounts of existing assets and liabilities and
their respective tax bases. Deferred tax assets and liabilities are measured
using enacted tax rates expected to apply to taxable income in the years in
which those temporary differences are expected to be recovered or settled.
Under Statement 109, the effect on deferred tax assets and liabilities of a
change in tax rates is recognized in income in the period that includes the
enactment date.
CONTRACT DRILLING
Contract drilling revenues are earned on footage, daywork, and turnkey
contracts. Revenues and costs related to these contracts are included in the
determination of earnings as work progresses. The Company invoices for contract
drilling monthly for the revenues earned according to the terms of the
respective contracts.
PREPAID EXPENSES
Prepaid expenses include items that are routinely expensed in the normal course
of business over the periods of benefit.
8
<PAGE> 13
PIONEER DRILLING CO., INC.
NOTES TO FINANCIAL STATEMENTS
1. ORGANIZATION AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
PROPERTY AND EQUIPMENT
Oil and gas producing activities are accounted for using the full cost method.
Under the full cost method all costs incurred in the acquisition, exploration
and development of all oil and gas properties, including surrendered and
abandoned leaseholds, delay lease rentals and dry hole costs, are capitalized.
All costs related to production, general corporate overhead and other similar
activities are expensed in the period incurred.
Depletion of oil and gas properties is provided by the unit of production method
based on the Company's interest in the aggregated, estimated recoverable
reserves of all properties. Depletion includes a ceiling limitation adjustment
required under the full cost method of accounting. The ceiling limitation
adjustment is applicable when the carrying value of oil and gas properties
exceeds the discounted net present worth of estimated future cast flows on those
properties based on prices at the end of the period.
Depreciation of drilling, transportation and other equipment is provided using
the straight-line method over estimated useful lives ranging from three to
twelve years.
Maintenance and repairs are charged to operations; renewals and betterments are
charged to appropriate property and equipment accounts.
Long-lived assets and intangible assets are reviewed for impairment whenever
events or circumstances provide evidence that suggests that the carrying amount
of the asset may not be recovered. In performing the review for recoverability,
the future cash flows expected to result from the use of the asset and its
eventual disposition are estimated. If the sum of the expected future cash
flows is less than the carrying amount of the asset, an impairment loss is
recognized.
CASH EQUIVALENTS
For purposes of the statements of cash flows, the Company considers all highly
liquid debt instruments purchased with a maturity of three months or less to be
cash equivalents.
9
<PAGE> 14
PIONEER DRILLING CO., INC.
NOTES TO FINANCIAL STATEMENTS
2. NOTES PAYABLE AND LONG-TERM DEBT
Notes payable and long-term debt of the Company are described below:
<TABLE>
<CAPTION>
JUNE 30,
---------------------
2000 1999
-------- --------
<S> <C> <C>
Note payable to bank, secured by transportation
equipment, due in monthly payments of $763 including
interest at 9.0% due in 2001. $ 10,097 $ 18,495
Note payable to finance company, secured by
transportation equipment, due in monthly payments of
$676 including interest at 8.75% due in 2000. 3,382 11,499
Note payable to bank, secured by equipment, due in
monthly payments of $1,763 including interest at
9.75% due in 2010. 130,921 136,317
Note payable to bank, secured by transportation
equipment, due in monthly payments of $529 including
interest at 10.9% due in 2002. 9,940 14,909
Note payable to Small Business Administration,
secured by equipment, due in monthly payments of
$1,019 including interest at 6.76% due in 2016. 118,006 121,633
Note payable to finance company secured by property
and equipment, due in monthly payments of $26,697
including interest at 12% due in 2001. 569,652 625,041
Note payable to individual secured by property, due in
monthly payments of $1,268 including interest at 10%
due in 2001. 19,811 31,553
</TABLE>
10
<PAGE> 15
PIONEER DRILLING CO., INC.
NOTES TO FINANCIAL STATEMENTS
2. NOTES PAYABLE AND LONG-TERM DEBT (CONTINUED)
<TABLE>
<CAPTION>
June 30,
------------------------
2000 1999
---------- ----------
<S> <C> <C>
Note payable to bank, secured by transportation
equipment, due in monthly payments of $713 including
interest at 8.5% due in 2003. 22,007 27,798
Note payable to bank, secured by equipment, due in
monthly payments of $12,981 including interest at
9.5% due in 2007. 767,906 844,795
Note payable to individuals, secured by equipment, due
in lump sum payment of $245,000 paid in 2000. 245,000
----------- ----------
Less current portion $ 630,803 $ 622,256
----------- ----------
Total long-term debt $ 1,020,919 $1,454,784
=========== ==========
</TABLE>
Long-term debt maturing each year subsequent to June 30, 2000, is as follows:
<TABLE>
<S> <C>
June 30, 2001 $630,803
June 30, 2002 $216,942
June 30, 2003 $125,756
June 30, 2004 $130,332
June 30, 2005 $143,626
thereafter $404,263
</TABLE>
3. INCOME TAXES
In fiscal years 1999 and 2000, the expected tax expense/benefit computed by
applying the Federal statutory rate of 34% plus the state rate of 4.5% to
income (loss) before income taxes differs from income tax expense (benefit)
principally due permanent tax differences.
11
<PAGE> 16
PIONEER DRILLING CO., INC.
NOTES TO FINANCIAL STATEMENTS
3. INCOME TAXES (CONTINUED)
The tax effects of temporary differences that give rise to significant portions
of the deferred tax assets and deferred tax liabilities at June 30, 2000 are
presented below:
<TABLE>
<CAPTION>
2000
----------
<S> <C>
Deferred tax liabilities:
Property and equipment, principally due to
Differences in depreciation $3,013,654
----------
Total future taxable differences $3,013,654
----------
Tax Rate (State and Federal) 38.5%
----------
Net deferred tax liabilities $1,160,256
==========
</TABLE>
The deferred tax liability at June 30, 1999 was $409,477. The net change in
deferred tax liability for the year ended June 30, 2000 was an increase of
$615,165 due primarily to the utilization of tax attribute carryovers. The
deferred state tax liability at June 30, 1999 was $48,668. The net change in
total deferred tax liability for the year ended June 30, 2000 was an increase of
$86,946 also due to primarily to the utilization of tax attribute carryovers.
4. BUSINESS SEGMENTS
The Company is engaged in contract drilling of oil and gas wells. The Company
also owns certain oil and gas operations. Effective July 1, 2000, the Company
sold the oil and gas operations to a Company owned by Mr. Lars Potter, CEO for
$724,348, resulting in a gain of $144,195 to the Company. The Company accepted a
note receivable from Mr. Potter bearing 0% interest. The note is due 60 days
from the date of sale.
The oil and gas operations contributed in immaterial amount towards the
Company's gross revenues in fiscal 2000 and fiscal 1999 and constituted an
insignificant amount of its total assets, therefore, disclosure of fiscal 2000
and fiscal 1999 oil and gas information has been omitted. In fiscal 2000, four
customers accounted for 75% or more of contract drilling revenues. The Company
has commitments for certain drilling contracts through 2001.
12
<PAGE> 17
PIONEER DRILLING CO. INC.
NOTES TO FINANCIAL STATEMENTS
5. RELATED PARTY TRANSACTIONS
The Company paid $895,256 in 1999 and $1,231,447 in 2000 for rental of oilfield
equipment related to Buffalo Oilfield Equipment, a company affiliated with two
major stockholders in the Company. The Company had no receivable or payable
balance with Buffalo Oilfield Equipment at June 30, 2000.
6. FAIR VALUE OF FINANCIAL INSTRUMENTS
Cash and cash equivalents, trade receivables and payables and short-term debt:
The Company holds cash and cash equivalents, trade receivables and payables and
short-term debt. The carrying amount of these instruments approximates fair
value due to short maturity of the instruments.
Long-term debt:
The carrying amount of the Company's long-term debt approximates fair value.
7. SUBSEQUENT EVENT
The Board of Directors executed an agreement on August 22, 2000 to sell the
stock of the Company for approximately $12 million. Any taxable gain or loss on
this transaction is the responsibility of the individual stockholder as taxes
are assessed on their individual tax returns.
13
<PAGE> 18
ITEM 7(b)
SOUTH TEXAS DRILLING & EXPLORATION, INC. AND SUBSIDIARIES
UNAUDITED PRO FORMA CONSOLIDATED BALANCE SHEET
AS OF JUNE 30, 2000
<TABLE>
<CAPTION>
Historical
---------------------------
South Texas
Drilling & Pro Forma Pro Forma
Exploration Pioneer Adjustments Combined
------------ ------------ ------------ ------------
<S> <C> <C> <C> <C>
Assets
Current assets:
Cash and cash equivalents $ 8,833,446 (31,907) (3,472,917) (B) 4,577,059
12,000,000 (C)
(2,020,107) (E)
(10,731,456) (F)
Securities available for sale 900,757 -- -- 900,757
Receivables 3,376,319 3,038,199 724,347 (A) 7,138,865
Contract drilling in progress 471,674 -- -- 471,674
Prepaid expenses 127,854 100,441 -- 228,295
------------ ------------ ------------ ------------
Total current assets 13,710,050 3,106,733 (3,500,133) 13,316,650
------------ ------------ ------------ ------------
Net property and equipment 11,920,863 4,867,524 (514,645) (A) 28,695,965
12,422,223 (D)
------------ ------------ ------------ ------------
Total assets 25,630,913 7,974,257 8,407,445 42,012,615
============ ============ ============ ============
Liabilities and Shareholders' Equity
Current liabilities:
Current installments, long-term
debt 3,594,633 999,188 (3,472,917) (B) 1,728,859
1,607,143 (C)
(999,188) (E)
Accounts payable 5,160,784 1,808,286 209,702 (A) 7,178,772
Accrued expenses 1,307,775 867,313 -- 2,175,088
------------ ------------ ------------ ------------
Total current liabilities 10,063,192 3,674,787 (2,655,260) 11,082,719
Deferred income tax payable -- 1,160,256 3,040,518 (D) 4,200,774
Long-term debt 313,994 1,020,919 10,392,857 (C) 10,706,851
(1,020,919) (E)
------------ ------------ ------------ ------------
Total liabilities 10,377,186 5,855,962 9,757,196 25,990,344
------------ ------------ ------------ ------------
Shareholders' equity:
Preferred stock, Series A 800,000 -- -- 800,000
Preferred stock, Series B 2,999,994 -- -- 2,999,994
Common stock 1,095,284 1,530 34,158 (F) 1,129,442
(1,530) (H)
Additional paid-in capital 25,355,753 348,313 734,386 (F) 26,090,139
(49,500) (G)
(298,813) (H)
Retained earnings (deficit) (15,223,425) 1,817,952 (1,817,952) (H) (15,223,425)
Less treasury stock -- (49,500) 49,500 (G) --
Accumulated other comprehensive
income-unrealized gain on
securities available for sale 226,121 -- -- 226,121
------------ ------------ ------------ ------------
Total shareholders' equity 15,253,727 2,118,295 (1,349,751) 16,022,271
------------ ------------ ------------ ------------
Total liabilities and shareholders'
equity $ 25,630,913 7,974,257 8,407,445 42,012,615
============ ============ ============ ============
</TABLE>
14
<PAGE> 19
SOUTH TEXAS DRILLING & EXPLORATION, INC. AND SUBSIDIARIES
UNAUDITED PRO FORMA CONSOLIDATED STATEMENT OF OPERATIONS
FOR THE YEAR ENDED MARCH 31, 2000
<TABLE>
<CAPTION>
Historical
----------------------------
South Texas
Drilling & Pro Forma Pro Forma
Exploration Pioneer Adjustments Combined
------------ ------------ ------------ ------------
<S> <C> <C> <C> <C>
Revenues:
Contract drilling $ 19,391,025 22,551,664 41,942,689
Oil and gas, net 12,402 65,934 (65,934) (A) 12,402
Management fees and other 71,352 21,897 93,249
------------ ------------ ------------ ------------
Total operating revenues 19,474,779 22,639,495 (65,934) 42,048,340
------------ ------------ ------------ ------------
Costs and expenses:
Contract drilling 16,766,776 18,090,069 34,856,845
Depreciation, depreciation and amortization 1,808,557 745,126 1,008,923 (I) 3,562,606
General and administrative 658,174 2,113,898 2,772,072
------------ ------------ ------------ ------------
Total operating costs and expenses 19,233,507 20,949,093 (1,008,923) 41,191,523
------------ ------------ ------------ ------------
Earnings (loss) from operations 241,272 1,690,402 (1,074,857) 856,817
------------ ------------ ------------ ------------
Other income (expense):
Interest expense (350,606) (145,482) (725,624) (J) (1,221,712)
Interest income 85,407 25,702 111,109
Gain on sale of assets (41,408) -- (41,408)
------------ ------------ ------------ ------------
Total other income (expense) (306,607) (119,780) (725,624) (1,152,011)
------------ ------------ ------------ ------------
Earnings (loss) before income taxes (65,335) 1,570,622 (1,800,481) (295,194)
Income taxes (14,283) (467,073) 593,530 (K) 112,174
------------ ------------ ------------ ------------
Net earnings (loss) (79,618) 1,103,549 (1,206,951) (183,020)
Preferred stock dividend requirements 303,999 -- 303,999
------------ ------------ ------------ ------------
Net earnings (loss) applicable to
common stockholders $ (383,617) 1,103,549 (1,206,951) (487,019)
============ ============ ============ ============
Earnings (loss) per common share-Basic $ (0.06) (0.07)
============ ============
Earnings (loss) per common shares-Diluted $ (0.06) (0.07)
============ ============
Weighted average number of shares
outstanding-Basic 6,242,140 341,575 6,583,175
============ ============ ============
Weighted average number of shares
outstanding-Diluted 6,242,140 341,575 6,583,175
============ ============ ============
</TABLE>
15
<PAGE> 20
SOUTH TEXAS DRILLING & EXPLORATION, INC. AND SUBSIDIARIES
UNAUDITED PRO FORMA CONSOLIDATED STATEMENT OF OPERATIONS
FOR THE THREE MONTHS ENDED JUNE 30, 2000
<TABLE>
<CAPTION>
Historical
----------------------------
South Texas
Drilling & Pro Forma Pro Forma
Exploration Pioneer Adjustments Combined
------------ ------------ ------------ ------------
<S> <C> <C> <C> <C>
Revenues:
Contract drilling $ 8,804,995 4,337,031 13,142,026
Oil and gas 5,610 20,584 (20,584) (A) 5,610
Management fees and other 56,572 2,136 58,708
------------ ------------ ------------ ------------
Total operating revenues 8,867,177 4,359,751 (20,584) 13,206,344
------------ ------------ ------------ ------------
Costs and expenses:
Contract drilling 7,475,376 3,207,916 10,683,292
Depreciation, depreciation and amortization 512,466 194,246 244,266 (I) 950,978
General and administrative 195,021 637,015 832,036
------------ ------------ ------------ ------------
Total operating costs and expenses 8,182,863 4,039,177 244,266 12,466,306
------------ ------------ ------------ ------------
Earnings (loss) from operations 684,314 320,574 (264,850) 740,038
------------ ------------ ------------ ------------
Other income (expense):
Interest expense (108,396) (182,048) (29,906) (J) (320,350)
Interest income 87,084 6,050 93,134
------------ ------------ ------------ ------------
Total other income (expense) (21,312) (175,998) (29,906) (227,216)
------------ ------------ ------------ ------------
Earnings (loss) before income taxes 663,002 144,576 (294,756) 512,822
Income taxes (14,410) (135,690) (44,772) (K) (194,872)
------------ ------------ ------------ ------------
Net earnings (loss) 648,592 8,886 (339,528) 317,950
Preferred stock dividend requirements 76,000 -- 76,000
------------ ------------ ------------ ------------
Net earnings (loss) applicable to
common stockholders $ 572,592 8,886 (339,528) 241,950
============ ============ ============ ============
Earnings (loss) per common share-Basic $ 0.06 0.03
============ ============
Earnings (loss) per common shares-Diluted $ 0.05 0.03
============ ============
Weighted average number of shares
outstanding-Basic 9,336,071 341,575 9,677,646
============ ============ ============
Weighted average number of shares
outstanding-Diluted 12,356,231 341,575 12,697,806
============ ============ ============
</TABLE>
16
<PAGE> 21
SOUTH TEXAS DRILLING & EXPLORATION, INC. AND SUBSIDIARIES
NOTES TO UNAUDITED PRO FORMA
COMBINED FINANCIAL STATEMENTS
(A) To reflect the sale, prior to South Texas Drilling & Exploration's
acquisition of Pioneer Drilling Co.'s stock, of oil and gas interests held
by Pioneer Drilling Co. to a Pioneer shareholder. In exchange for the oil
and gas interests, Pioneer received a note receivable in the amount of
$712,275. The note, along with accrued interest of $12,072, was paid in
full after Pioneer's acquisition by South Texas Drilling & Exploration,
Inc.
(B) To reflect the payment by South Texas Drilling & Exploration to its
previous lender of $3,472,917, the entire outstanding principal balance,
plus interest at prime (9.50% at June 30, 2000) plus 1.75%. The payment
was made as a condition of the Company's new lenders who provided funds
for the Pioneer acquisition.
(C) To reflect the Company's incurring $12,000,000 in debt to fund the
acquisition of Pioneer Drilling Co. $9,000,000 was provided by one lender.
This debt is payable in monthly payments of $107,143 (seven year
amortization) plus interest at prime (9.5% at June 30, 2000) plus one
percent. The note matures on August 11, 2003. $3,000,000 was provided by a
second lender. This debt is payable in monthly payments of interest only
at prime (9.5% at June 30, 2000) plus one percent for the first three
months. Thereafter, the debt is payable in monthly payments of $50,585,
including interest, with a final payment of all outstanding principal and
interest due on November 15, 2007.
(D) To reflect the allocation of the purchase price to property and equipment
and to reflect the tax effect of the difference between the fair value of
the Pioneer assets and the tax basis of those assets. Deferred income
taxes were reduced in part by the recognition of the tax benefit of
$1,742,125 of South Texas Drilling & Exploration, Inc net operating loss
carryforwards which previously had been offset by a valuation allowance.
The purchase price, purchase-price allocation, and financing of the
transaction are summarized as follows:
<TABLE>
<S> <C>
Purchase price paid:
Cash $ 10,731,456
Issuance of common stock 768,544
------------
Total purchase consideration $ 11,500,000
============
Allocated to:
Historical book value of Pioneer Drilling Company's
assets and liabilities $ 2,118,295
Adjustments to step-up assets and liabilities to fair value:
Property and equipment 12,422,223
Deferred income tax payable (3,040,518)
------------
$ 11,500,000
============
</TABLE>
(E) To reflect the payment to Pioneer's lender of the entire outstanding
balance. The payment was made out of the $3,000,000 loan incurred by South
Texas Drilling & Exploration, Inc.
(F) To reflect the payment to Pioneer's shareholders for the stock of Pioneer
Drilling Co. Total consideration for the stock was $11,500,000, of which
$10,731,456 was paid in cash and $768,544 was paid in South Texas Drilling
& Exploration, Inc. stock, 341,575 shares at $2.25 per share.
(G) To reflect the elimination of Pioneer Drilling Co.'s treasury stock.
(H) To reflect elimination entries required for the consolidation of the
financial statements of South Texas Drilling & Exploration, Inc. and
Pioneer Drilling Co.
17
<PAGE> 22
(I) To reflect the increase in depreciation expense resulting from purchase
price allocation of property and equipment depreciated on a straight line
basis over periods of 12 years for drilling and related equipment and 30
years for the building.
(J) To reflect the increase in interest expense resulting from the issuance of
debt to finance the cash portion of the purchase price. A change of 1/4
percent in the interest rate would result in a change in interest expense
of $30,000 for the twelve-month period.
(K) To reflect the income tax effect of pro forma results at an effective tax
rate of 38%.
18
<PAGE> 23
INDEX TO EXHIBITS
<TABLE>
<CAPTION>
EXHIBIT
NUMBER DESCRIPTION
------- -----------
<S> <C>
10.1 Stock Purchase Agreement by and among South Texas Drilling &
Exploration, Inc., and the shareholders of Pioneer Drilling Co., Inc.
dated July 21, 2000.
10.2 Loan Agreement between South Texas Drilling & Exploration, Inc. and
The Frost National Bank.
10.3 Promissory Note between South Texas Drilling & Exploration, Inc. and
The Frost National Bank.
10.4 Loan Agreement between South Texas Drilling & Exploration, Inc. and
American Bank, N.A.
10.5 Promissory Note between South Texas Drilling & Exploration, Inc. and
American Bank, N.A.
</TABLE>
