FORM 10-K
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
(Mark One)
[X] ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE
ACT OF 1934 [FEE REQUIRED]
For the fiscal year ended October 31, 1995
OR
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
For the transition period from ________ to ___________
Commission file number: 1-10987; 0-19708
PHOENIX RESOURCES TECHNOLOGIES, INC.
State or other jurisdiction of (I.R.S. Employer
incorporation or organization Identification No.)
NEVADA 84-1034982
PHOENIX RESOURCES TECHNOLOGIES, INC.
8283 North Hayden Road, Suite 128
Scottsdale, Arizona 85258
(602) 905-1320
Securities registered pursuant to Section 12(b) of the Act:
Title of Securities Exchanges on which Registered
None.
Securities registered pursuant to section 12(g) of the Act:
COMMON STOCK
***
Indicate by check mark whether the registrant (1) has filed all reports required
to be filed by Section 13 or 15(d) of the Securities Exchange Act ofv1934 during
the preceding 12 months (or for such shorter period that the registrant was
required to file such reports), and (2) has been subject tosuch filing
requirements for the past 90 days. Yes X No ____
Indicate by check mark if disclosure of delinquent filers pursuant to
Item 405 of Regulation S-K is not contained herein, and will not be contained,
to the best of registrants knowledge, in definitive proxy or information
statements incorporated by reference in Part III of this Form 10-K or any
amendment to this Form 10-K. [ ]
APPLICABLE ONLY TO REGISTRANTS INVOLVED IN BANKRUPTCY
PROCEEDINGS DURING THE PRECEDING FIVE YEARS:
Indicate by check mark whether the registrant has filed all documents
and reports required to be filed by Section 12, 13 or 15(d) of the Securities
Exchange Act of 1934 subsequent to the distribution of securities under a plan
confirmed by a court. Yes ____ No ____
(APPLICABLE ONLY TO CORPORATE REGISTRANTS)
Indicate the number of shares outstanding of each of the registrants
classes of common stock, as of the latest practicable date.
Title Outstanding
Common Stock 9,164,891 as of May 3, 1996
DOCUMENTS INCORPORATED BY REFERENCE
List hereunder the following documents if incorporated by reference and
the Part of the Form 10-K (e.g., Part I, Part II, etc.) into which the document
is incorporated: (1) Any annual report to security holders; (2) Any proxy or
information statement; and (3) Any prospectus filed pursuant to Rule 424(b) or
(c) under the Securities Act of 1933. The listed documents should be clearly
described for identification purposes (e.g., annual report to security holders
for fiscal year ended December 24, 1980).
<PAGE>
ITEM 1. BUSINESS.
(a) General Development of Business
Phoenix Resources Technologies, Inc. ("Phoenix Resources" or "Company"),
formerly named Hughes Resources, Inc., was originally organized in the State of
Colorado ("Firma, Inc.") as a corporation organized to take advantage of
unspecified business opportunities in 1986. On June 3, 1991, pursuant to a
reorganization agreement, Firma, Inc. merged with Hughes Wood Products, Inc.,
("HWP"), a Texas corporation, principally owned by Mr. James E. Hughes, Sr.,
whereby Hughes Resources, Inc. became the named successor and parent corporation
and HWP became its subsidiary.
Since 1991 the Company has been in the business of logging, milling, and
treating wood products in eastern Texas and western Louisiana through its
subsidiaries, Hughes Wood Products, Inc. ("HWP") and Houston Woodtech, Inc. HWP
has been in the wood products industry since 1977. In May 1994, with an interest
to eventually divest the Wood Products division from the corporation, the Board
of Directors considered expanding the Companys business to outside the wood
products industry, and formed a wholly owned subsidiary, Hughes Enterprises,
Inc. "HEI". The Company formed and provided minimal capitalization to HEI, but
at meetings and in discussions among the board members in October and November
1994, the Board determined that HEIs prospective business did not provide the
possibilities for expansion and growth initially believed and the cash required
to support HEIs operations was more than Hughes Resources could prudently
provide. The Company conveyed its interest in HEI to Charles Masters, a director
of the Company until January 1995, in exchange for a $200,000.00 unsecured
promissory note from Mr. Masters, bearing interest at 10% per annum, payable in
full by October 31, 1995. Mr. Masters has since defaulted on his obligation to
repay this note on October 31, 1995. The Board has not determined whether it
will pursue legal action in enforcing its interest in the promissory note
against Mr. Masters. However, the Board has tentatively determined that due to
the fact that the note is unsecured and Mr. Masters is of limited resources, the
probable benefits to be derived from such action will be less than the costs
likely to be incurred in bringing it. As such, the Company has written off this
amount as uncollectable.
Also in May 1994, the Company had determined that its investment in the
wood products industry was not providing the return and benefit to the
shareholders which the board determined was appropriate. At that time, the Board
agreed to proceed to divest the Company of its investment in HWP. Mr. James
Hughes, Chairman of the Board, President, and a significant shareholder, offered
to purchase HWP (including all of the Companys lumber, milling and treatment
operations and related assets and liabilities) in exchange for cancellation of
all shares and options to acquire shares of the Companys common stock he owns,
as well as paying the Company cash or other assets so that the Company receives
assets of a fair market value equal to the value it would be conveying to Mr.
Hughes.
In a Board meeting on March 3, 1995, the Company reviewed several proposals
presented to it that past week and settled on entering into the oil and gas
industry by acquiring six oil and gas wells located in Louisiana from Southwest
Holdings, Inc., ("Southwest") a company, organized under the laws of the British
Virgin Islands that is in the business of buying, selling and trading oil and
gas properties. By dividing itself into two divisions, the Energy Division and
the Wood Products Division, the Company has expanded in size and asset holdings
considerably during the past fiscal year. Since this acquisition, the Company
has rapidly expanded its Energy Division while its Wood Products operations have
continued to appreciate at a marginal rate.
(b) Acquisitions and Development of the Energy Division
1) Louisiana Oil and Gas Wells and Land
On March 9, 1995, the Company entered into the oil and gas industry through
the purchase of working interests in six oil and gas wells and approximately
seventeen acres of proven surrounding land. One well is located in Vermillion
Parish, known as the MAYO 12700 RA VUA, Lily B Huval No. 1. The other five wells
are located upon the Robert Beech Lease, in Trout Creek Field, La Salle Parish,
Louisiana. The Beech lease consists of these five wells and approximately
seventeen acres of surrounding undeveloped land. Three of the Robert Beech lease
wells are currently in production and two have workovers planned. The average
production from this lease is, as of March 15, 1995, approximately 10-12 barrels
per day. It is expected, although not certain, that this will increase to 20
barrels per day after the work-overs are completed. The estimated cost of these
workovers are approximately ten thousand dollars. At present, in aggregate these
Beech lease wells are operating at an operational deficit of approximately four
to five thousand dollars per month. Much of this excess operating costs is
attributable to the repairs that are being conducted by Crown Operating Company,
Inc. This is expected to change upon the completion of the planned work overs.
The Vermillion Parish well, Lily B. HUVAL No. 1, is also presently scheduled for
a work-over to remove excess salt water that has entered into this well.
Much like many of the surrounding wells in the area, the HUVAL No. 1 is a
water driven well and entry of salt water is a common problem. It is expected
that such a workover will cost approximately fifty thousand dollars. Upon
completion of this work-over, the HUVAL well is expected to produce a profitable
amount of natural gas per month. The Louisiana oil wells and property were
acquired by the Company by way of an asset purchase agreement executed on
February 28, 1995 with Southwest Holdings, Inc., a Company registered in the
British Virgin Islands, and substantially controlled and operated by Mr. James
R. Ray, the Registrants current President, CEO and Chairman of the Board. In
exchange for acquiring Southwests interests in the Louisiana assets, the Company
issued 8,291,000 shares of common stock and authorized and issued 200,000 shares
of its Class A convertible preferred stock to Southwest and its affiliates. (See
also Item 13 - Infra.) The Series A convertible preferred stock, par value of
$0.01, contains a five percent non-cumulative dividend preference, payable
semiannually in arrears to its holders. In addition, the Series A Convertible
Preferred Stock has a right of redemption by the Company which can only be
exercised after six months from the date of issuance and each Series A
Convertible Preferred Stock is convertible into five shares of common stock upon
the default of any two consecutive semi-annual dividend payments to its holders.
The Louisiana oil and gas wells and surrounding acreage were previously owned
and operated by J.A.D.E. Petroleum, Inc., a Texas corporation previously owned
and operated by Mr. James E. Hughes, Sr. However Mr. Hughes in a prior
transaction sold his complete interests in J.A.D.E. Petroleum by transferring
all of the issued and outstanding common stock of this corporation to Southwest
Holdings, Inc. As of the date of filing this annual report, the Louisiana Oil
and Gas wells have not been recorded as having being assigned to the Company
from Southwest Holdings, Inc. The Chairman of the Board of the Company has
stated that the assignments not being recorded is an oversight and will be
promptly done. Southwest, by way of the Chairman of the Company, has indicated
its intention to file such assignments promptly. (See also Item 13)
2) West Virginia Oil and Gas Wells, Gas Pipelines,
Drilling Contracts and Equipment
The Company has also acquired several additional assets in the oil and gas
industry this past fiscal year. On July 10, 1995 the Company entered into an
asset purchase agreements with Top Drilling, Inc., HAH Petroleum, Inc., and Mr.
Warren Haught to purchase certain oil and gas drilling equipment, approximatelty
1.95 acres of real property located in Ritchie County, West Virginia, certain
existing contracts for the drilling of oil and gas wells in Lewis County, West
Virginia, net royalty interests and/or working interests in three hundred and
seventy eight oil and gas wells located in the following counties in West
Virginia: Braxton, Calhoun, Doddridge, Gilmer, Pleasants, Ritchie, Taylor,
Tyler, Washington, and Wood counties. In addition, the company acquired a fifty
mile long gas gathering and transporting system (called the Panther system)
which includes transporting lines in excess of fifty miles. (All assets
described in paragraph herein above referred to as "Haught Assets"). The Company
contracted to acquire the Haught Assets with Top Drilling, Inc., a company which
owns, operates and currently possesses the oil and gas drilling equipment and
land in Ritchie County, and with HAH Petroleum, Inc., the company having the all
of the interests in the Panther gas gathering and transportation system and
having interests in the oil and gas wells in the several West Virginia counties
described above. Both Top Drilling and HAH Petroleum are companies substantially
controlled, owned and operated either directly or indirectly by the Haught
family.
The Company acquired the Haught Assets in exchange for the authorization
and issuance to Top Drilling, HAH Petroleum, Haught, and/or their assigns, the
issuance of two new series of Preferred Stock: one million (1,000,000) shares of
the Companys Series C Convertible Preferred Stock and one million (1,000,000)
shares of its Series D Convertible Preferred Stock, for a total value of eight
million dollars ($8,000,000). Both Series C and Series D having a par value of
$0.001, and convertible on a one to five basis, where one Series C Convertible
Preferred Stock is convertible into five shares of common stock and one Series D
Convertible Preferred Stock is convertible into five shares of common stock. The
Series C Convertible Preferred Stock has a redemption value of $5,000,000, where
such redemption privilege is exercisable on or after May 1, 1996. The Series D
Convertible Preferred Stock has a redemption value of $3,000,000 and is
redeemable on or after August 1, 1995. The estimated combined value of the
Haught Assets is in excess of twenty three million dollars. In a separate letter
agreement with Mr. Warren Haught also dated July 10, 1995, the Company agreed,
as part of the purchase of the above mentioned Haught Assets: to redeem all of
its Series D Convertible Preferred Stock for three million dollars ($3,000,000)
on or before January 31, 1996, pursuant to a successful sale of warrants to be
registered by the Company and issued prior to that date; covenanted not to
convey the Haught Assets until the redemption rights have been fully exercised
on the Series D Convertible Preferred Stock; agreed to issue a dividend of 4% to
its Series D holders with rights not subordinate to that of its Series A
outstanding dividend preferences, where such dividend payments are to be paid on
a monthly pro rata basis; and agreed to provide Mr. Warren Haught a seat on the
Board of Directors, Presidency of the Energy Division of the Company as well as
an annual salary of $60,000.00 plus bonuses. The Company further warranted that
if it was completely unsuccessful in its intended warrant sales used to finance
the redemption, it would turn over control of the Company to Mr. Warren Haught,
or his assigns. However, although the Company was unsuccessful in making any
monthly dividend payments to its Series D Convertible Preferred Stockholders,
nor was it successful in raising the necessary capital through any warrant
issuance to satisfy its redemption covenant prior to the January 31, 1996
deadline, representatives of Top Drilling Inc. and HAH Petroleum, Inc., in a
letter Dated December 25, 1995, agreed to waive their rights to obtain control
of the corporation and have recently confirmed their waiver of any past and
accrued dividend payments owing as holders of Series D Convertible Preferred
Stock. Although it is not certain whether all of the conditions of the above
purchase of assets has been completed, the company has secured and recorded
assignments to the Haught Assets in West Virginia. Although such dividend
payments have been waived, such payments could not be made to any party due to a
restrictive covenant within the Registrant's obligation with AG-PCA. (See Item 7
- - infra.)
The consolidation of operations in its newly formed Energy Division has not
been completed as of the date of filing this report. Currently, although it has
entered into binding contractual agreements with Mr. Warren Haught, Top
Drilling, Inc, and HAH Petroleum, Inc., the Company has not yet taken physical
control of the oil and gas drilling equipment or property in Ritchie County,
West Virginia. In addition, all revenues from the working and royalty interests
in the 378 oil wells and gas gathering and transportation system are not being
currently consolidated within the Energy Divisions operations. However, the
Company has been able to obtain assurances that all proceeds in excess of
current operation costs in the Haught Assets are being reinvested in work over
projects on the existing properties. Although the redemption right for three
million dollars of the Series D convertible preferred stock has been waived by
representatives of the Haught Assets, it is estimated by management that failure
on the part of the Company to obtain financing within the next twelve months may
further delay the consolidation of operations over the Haught Assets by the
Company. However, the Company is assured and expects the responsible parties to
fully implement its plan of consolidating all of its oil and gas operations
within its Energy Division.
3) Egan, Louisiana Oil Refinery
In a Board meeting on August 15, 1995, the Board discussed the proposed
purchase of a refinery located in Egan, Louisiana, reviewing an appraisal of the
facility dated in January, 1995 and discussed the plan of utilization by the
Company. At the time of consideration the Refinery was not operating. In
addition, the Board agreed to give Mr. James E. Hughes, Sr. a ninety day
non-extendible option to repurchase the refinery for the same amount of
consideration paid by the Company in the event that the purchase of the refinery
proved to be unprofitable. Mr. Hughes had originally owned and operated the
refinery and owned all of the issued and outstanding stock of U.S. Refining,
Inc., prior to selling his interests in U.S. Refining earlier that year to a
corporation unrelated to Pacific. After discussion, the Board entered into a
stock purchase agreement with Universal Pacific Reinsurance Co. ("Pacific"), a
company organized under the laws of the Marshall Islands, in exchange for
1,600,000 shares of common stock of the Company, and a promissory note in the
amount of $3,000,000, payable within sixty days. The repayment terms included
the accrual of interest at a rate of 8% if the note was not fully paid within
the sixty days and an increase to the overall accrued interest and a rate of 10%
thereafter.
On October 23, 1995 the Board convened in a special meeting to discuss the
status of the Louisiana refinery project. The Board stated that after further
study of the project during the past ninety days, the following problems had
emerged: (a) the Board had discovered that the ingress and egress of barges in
the canal appurtenant to the refinery was limited only to small barges due to a
railroad threstle that existed in the canal, making it economically unusable to
refine crude; (b) the proposed use as a blending facility would not be available
for the foreseeable future, and the stock of crude products were not presently
available and may not be available for some time. In addition, the Board
discussed Mr. James Hughes, Sr. offer to purchase the refinery through the
assumption of the $3,000,000 note in favor of Pacific and the payment of cash or
other assets by Mr. Hughes in the amount of $2,500,000. Upon further discussion
the board agreed to accept Mr. Hughes proposal. On October 23, 1995, the Company
entered into an asset purchase agreement with James E. Hughes under the terms as
described above. Mr. James E. Hughes, Sr. assumed the debt owed to Pacific and
contributed 250,000 shares in Stratford Acquisitions, Inc., which traded on the
OTC/ Bulletin Board in excess of $11.00 per share. The Board agreed that receipt
of these shares was fair compensation for the $2,500,000 outstanding on the
refinery purchase.
(c) Wood Products Division
As described above the Company, through its subsidiaries HWP and Houston
Wood Tech, Inc., is engaged in six different business segments within the wood
products industry: sawmilling, planing high grade hardwood lumber,logging, pole
milling, wood preserving, and wood preserving--export. The Companys operations
are located in the continental United States. The following describes the
Companys operations within the wood products industry.
1) Description of the Business - Wood Products Industry
As noted above, the Company is engaged in business in five industry
segments in the wood products industry. A brief description of these segments is
as follows. The sawmilling segment is primarily engaged in manufacturing lumber
and timbers from logs and producing specialty lumber products, together with
by-products of such operations including woodchips, shavings and sawdust. These
operations are located at the Companys sawmill in Bon Wier, Texas. The pole
milling segment is engaged in debarking logs and producing poles, and producing
woodchips as a by-product. The installation of the pole mill was completed in
September 1992. These operations are located at the Companys pole mill in
DeQuincy, Louisiana.
The hardwood segment is engaged in planing high grade hardwood lumber. The
resulting products are mostly used by furniture manufacturers.
Operations in the logging segment include cutting and hauling timber to
mills for further processing.
The wood preserving segment, which commenced in October 1990 with the
formation of HWT is primarily engaged in treating lumber with chemicals to
protect against the elements, fire and insects. These operations are located in
Houston, Texas.
The wood preserving -exporting segment is engaged in the treating of poles
with chemicals to protect against the elements, fire, and insects. The resulting
products are mostly used for utility purposes for telecommunications in Mexico.
These operations are located in Schertz, Texas, near San Antonio.
2) Products
The Company produces a number of different products which are utilized by
domestic and foreign companies. Briefly these include structural timbers,
decking lumber, and pressure treated wood products for landscaping and
commercial construction.
Poles. The Company produces utility poles, piling and construction poles at
its manufacturing facility at DeQuincy, Louisiana. The poles are generally 20
feet to 70 feet in length and conform to ANSI and ASTM Standards.
Some of these products are shipped to the HWP plant in Schertz, Texas and
to the HWT plant in Houston, Texas, for treatment, and then sold in both the
domestic and export markets. They are also sold to various other treating
companies throughout the U.S.
Debarked Logs. Debarked logs are timber removed from forests which have the
bark removed and undergo little additional milling or processing. During fiscal
years prior to 1995, the Company sold debarked log to a customer who exported
the logs to foreign buyers. There were no significant sales of debarked logs
during the fiscal year ended October 31, 1995, because of the dollar and foreign
currency fluctuations.
Lumber. The Company produces a diverse line of lumber products, including
structural timbers and decking. These products are manufactured at its mill in
Bon Wier, Texas, which is designed to cut large timbers. Structural grade
timbers up to 40 feet in length have been cut to fill special orders. Slabs are
cut from the sides of the round logs as they are squared into timbers, and
further processed into radius-edged decking which is used for patios, board
walks, decks and other items.
HWPs market strategy is to avoid competition in the notoriously cyclical
housing market which is supplied by major companies involved in the wood
products industry. The housing market is geared to the use of "dimension" lumber
sizes such as "2"x "4" and "2"x "6". Most of the Companys manufactured product
is destined for construction applications such as barns, sheds, fences,
bulkheads, piers, pilings, bridges, etc. The Company believes that this market
is more stable and better suited to the smaller mill operator. The Company
generally does not manufacture dimension lumber for the mass market.
Treated Wood Products. HWT sells wood products pressure- treated with CCA
(an inert copper, chromium, arsenic compound) *as a preservative. Wood so
treated is resistant to deterioration commonly associated with exposure to the
elements. Fire retardant is also applied to plywood and other items used mostly
in multi-family dwelling construction. HWT also produces lattice and other
specialty items which are primarily sold to the home improvement and landscaping
businesses.
Logging operations. The Company has arrangements with other forest products
companies which allows the Company to harvest and remove timber from their
properties.
Treated Wood Products for Export. In November 1991, the Company executed
and began shipment against a contract for the delivery of telephone poles
(treated with CCA) to buyers in Mexico. The Companys San Antonio plant is the
point of shipment of the poles which are currently purchased in untreated form
from HWPs DeQuincy pole mill and from unrelated parties.
Raw Materials. The raw material for the Companys operations is standing
timber which grows in forests in Louisiana and Texas. Although the Company owns
a small amount of timberlands, it is primarily dependent on timber deeds, which
provide the Company with the ability to harvest timber from the lands of others.
In most cases, the individual contracts under which the Company has operated are
of short duration, but the Company has had several years experience with the
property owners, who have renewed existing contracts with the Company or have
granted the Company new contracts. Because of the limited number of contractors
and the amount of timber available, the Company does not believe that there will
be a shortage of raw materials for its operations.
There are two basic types of timber: hardwood and softwood. Due to its long
fiber and other characteristics, softwood is generally preferred for
construction lumber and plywood and for paper products requiring strength. Some
hardwoods are preferred for lumber and veneer and are used primarily in the
manufacture of furniture, while other hardwoods with relatively short fibers are
valuable in the production of tissue, toweling and fine papers. Although many
types of timber may be suitable for a variety of uses, southern pine has
generally been one of the most marketable species in the construction industry
due to its strength and multiple use characteristics.
Most of the Companys available supply of timber consists of softwood,
principally southern pine. Climate, site arid soil conditions typically cause
softwood timber in the southern states to maintain a relatively high growth rate
in early years which allows for management on a relatively short rotation or
harvest cycle of 25 to 35 years, as compared with the Pacific Northwest and the
Rocky Mountain areas, which have a rotation or harvest cycle of 40 to 50 and 70
to 90 years respectively.
Although the end use of timber is determined by economic and market
conditions, as well as timber size, softwood timber from larger diameter trees
is typically processed into lumber and plywood, while smaller timber may be used
for poles or wood chips. The Companys supply of timber is centrally located to a
number of wood chip and pulp mill factories, including the Companys two mills.
With respect to timber deeds, the Company will generally cut trees in areas
or of diameters specified by the timber owner. In some cases, the timber owner
will specify the individual trees to be cut.
During 1993 and 1994 there were various suppliers of timber, none of which
was individually significant to the Company. The Company does not believe that
the loss of any supplier would adversely affect its operations because of the
availability of other sources at reasonable prices.
3) Industry Conditions
Competing in the specialty market as opposed to the dimension lumber market
insulates the Company from many of the cyclical fluctuations commonly associated
with residential construction aCtivity. Due to various factors, net sales from
the Companys saw milling operations have increased during the past several years
despite problems in the housing industry.
Environmental and political pressures which have adversely affected the
industry in the Northwest have not been manifest in the south. The vast majority
of the timberlands in HWPs region are privately owned. Much of the private land
is managed as timber plantations and has already been cut several times. Based
on available information the Company believes that more wood fiber is being
grown in the south than is being harvested. This bodes well for the continued
supply of raw material to HWPs mills.
Interest in southern pine has been on the increase in foreign markets for
the past several years due to its appealing properties of strength, appearance,
and ability to be treated for preservation. It is expected that the demand will
continue to increase due to the increasing scarcity of countries capable of or
willing to supply wood and wood products. In the northwest United States as well
as the rain forest regions of Central and South America and the Pacific Basin
pressures have increased to restrict harvesting natural resources. These
pressures combine to make the southern pine and the managed forests of the South
an area of strengthening interest.
4) Marketing. Competition and Business Strategy
The present intention of the Company is to divest its Wood Products
Division or a significant portion of the Wood Products assets, through a sale to
James E. Hughes, Sr., in exchange for additional oil and gas properties. As
discussed under Item 1(e), Item 3 and Item 7 below, the sale of Hughes Wood
Products, Inc. has been a contested issue within management. The former Chairman
of the Board, Mr. James E. Hughes, is of the opinion that he has purchased HWP
pursuant to an agreement entered on or about January 31, 1996. The manner in
which this transaction occurred, and the significant amount of assets sought to
be disposed of, may require appropriate shareholder approval by vote and a
fairness opinion.
(c) Other Corporate Matters
The Company changed its executive offices from Newton, Texas to Scottsdale,
Arizona on March 6, 1995. Its new corporate headquarters are located at 8283
North Hayden Road, Suite 128, Scottsdale, Arizona, 85204 and its telephone
number its (602) 905 - 1320.
On March 10, 1995, pursuant to its filing of a post effective amendment No.
1 to its Form S-1 Registration statement ( which became effective on February 3,
1992) and a Form 15 with by the Securities and Exchange Commission, the Company,
pursuant to Rule 12d2-2(d)of the Securities Exchange Act, effectively
deregistered 966,000 of the Companys common stock, underlying redeemable Class A
Common Stock Purchase Warrants and 966,000 of the Companys common stock
underlying redeemable Class B Common Stock Purchase Warrants and 263,284 Shares
of the Registrants common stock being offered by selling shareholders.
On April 21, 1995 the Company entered into an agreement with Martin
Goldberg, a financial consultant to assist in the handling of all public
relations, and to assist the company in securing financing for the Company. The
company issued one hundred thousand shares, post one for ten reverse split, of
its Form S-8 registered securities in consideration for Mr. Goldbergs services.
On July 5, 1995, by way of entering into a plan of merger with a similarly
structured corporation in the state of Nevada, the Company changed its domicile
from the State of Colorado to that of Nevada. The Articles of Merger, filed with
the State Department of Corporations in Nevada and Colorado, contemplated that
the approval, adoption and recommendation of the Plan of Merger was duly
authorized and approved pursuant to the exemptive provisions found in Title 7,
Section 111- 103 of the Colorado Business Corporations Act.
On July 31, 1995 the Company performed a one for ten reverse stock split of
its issued and outstanding common stock. There was no change in the par value or
any name change of the Company at the time. The Company had also changed its
transfer agent to IDATA, Inc. of Dallas, Texas.
On October 3, 1995, the Company filed an amendment to its existing Employee
Benefit Plan Registration Statement on Form S-8 by filing an amendment thereto
to register an additional two million shares of the Companys common stock,
rendering a total of six million shares available under this plan. Increase in
Authorized Securities - On August 21, 1995 the Board of Directors of the Company
agreed to increase the amount of authorized common stock shares from twenty six
million to one hundred million and increased the aggregate amount of authorized
preferred stock shares from ten million to fifty million shares.
On February 1, 1996, the Company changed its name to "Phoenix Resources
Technologies, Inc." from "Hughes Resources, Inc."
ITEM 2. PROPERTIES.
Executive and Administrative Offices
The Company currently leases its offices in Scottsdale, Arizona. The
facility is approximately 1600 square feet and has the office of the Chairman
and his assistant. The Company also owns its executive building in Newton,
Texas, which it purchased in September 1992, from an unaffiliated party. This
building is occupied by the Company. It consists of approximately 3,000 square
feet and is adequate for the Companys needs at present.
Oil and Gas Properties
The Company owns and conducts oil and gas production operations on the
Robert Beech Lease - which is situated upon seventeen acres of undeveloped and
proven reserves land, located in Trout Creek Field, Sec. 34, T8N, R2E, La Salle
Parish, Louisiana. With its recent acquisition of the oil and gas drilling
equipment from Top Drilling, Inc., the Company has the ability to explore for
additional wells on this property. All records of title to such drilling
equipment remains within the control of Top Drilling, Inc. and its affiliated
entities.A partial list of the major items included in the drilling equipment
includes: a Freuhauf ALIA-ISAI float trailer, 40 overall, 40 flat deck; a van
trailer, tandem axle; a 35 ton lowboy trailer 34; eight float trailers; 1978
Ford Flat Bed Truck; 1978 Vacuum Truck; 1982 FORD F-250 Four wheel drive; 1980
HACK winth Truck Mack Diesel; 1974 winth Truck Mack Diesel; forklift, backhoe,
Ditch trencher, crawler tractor, 6-crawler tracktor; 1981 JOY WB-12 Booster;
Gardner Denver booster; Gardner Denver air compressors; 4 LEROI air packages
soap pump mounted on float trailer; Witchex double drum drilling rig; Wilson
Mogul single drum drilling rig; Martin Decker Weight Indicator; Wilson 100 ton
blocks; Gardner Denver 150 ton swivel; Witchex R-3 double drum w/ air clutches
drilling rig; CABOT-FRANKS DTM Cruiser.
Phoenix Resources also acquired two tracts of land in Ritchie County, West
Virginia pursuant to the Top Drilling, Inc. asset purchase agreement. One tract
contains approximately 1.40 acres and the other contains approximately .55 of an
acre. The real estate purchased was subject to a judgement totaling $45,625
which would entitle the holder of the judgement to the first proceeds from any
sale of the real property.
Milling and Processing Properties
HWP owns 150 acres of land, a saw mill, related equipment for the saw mill
in Bon Wier, Texas. HWP acquired this property from an unaffiliated party in
1977. This mill has a capacity of 1,400,000 board feet per month. In 1991, the
Company added a boiler and dry kiln to the Bon Wier mill to replace the existing
kiln.
HWP also owns approximately 140 acres and a chip/debarking mill and a pole
mill in DeQunicy, Louisiana. Eighty acres were acquired in 1989 from an
unaffiliated party for $160,000, and 60 acres were acquired from another
unaffiliated party in 1990 at a cost of $115,000. The DeQuincy chip/debarking
mill has a capacity of approximately 20,000 tons of debarked logs per month.
Chips produced by the mill are sold to manufacturers of pulp and paper. The pole
mill is capable of producing approximately 600 poles measuring 25 feet or more.
The pole mill operates five days a week. These poles are shipped to the Companys
Shertz, Texas plant for treatment and further shipment to Mexico.
In October 1990, the Company, through its wholly-owned subsidiary Houston
Wood Tech, acquired a wood treatment facility in Houston, Texas from an
unaffiliated person, Houston Chemical Services, Inc. The wood treatment facility
consists of an 80,000 board foot kiln, treating cylinders, storage tanks,
buildings, and equipment.
In September 1991 the Company leased a 13 acre treatment facility in San
Antonio, Texas, from an unrelated party and in February 1993, exercised its
option to purchase the facility for $400,000. This purchase was financed by the
Companys former President, James E. Hughes, Sr.
ITEM 3. LEGAL PROCEEDINGS.
There were no significant or material legal proceedings that occurred
during the fourth quarter of the 1995 fiscal year. In a subsequent event, on May
1, 1996 the Company, acting through its agent Mr. James R. Ray, filed suit in
the United States District Court for the Northern District of Texas, Case No.
3-960V1000-D, against the former chairman of the Board, James E. Hughes, Sr.,
its former auditors, Langley, Williams & Company, as well as other related
individuals. The suit was dismissed by the Company in order so that all parties
could cooperate in the preparation and filing of the Companys delinquent Form
10-K annual report for fiscal year end 1995. At this time, however, there is no
clear evidence that the allegations made in the lawsuit are with our without
merit. The lawsuit has been dismissed without prejudice. The disputes alleged in
this lawsuit arise from certain obligations to perform that were alleged to have
been breached by the parties in their contract dated January 31, 1996. It is
anticipated that an acceptable divestiture of assets will be reached between the
parties within a few months, however the Company cannot give any assurances that
this lawsuit or similar suits between the parties will not be reasserted or
asserted in the future.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS.
There were no submissions of any matters to a vote of security holders
during the fourth quarter of the 1995 fiscal year.
ITEM 5. MARKET FOR REGISTRANTS COMMON EQUITY AND RELATED STOCKHOLDER
MATTERS.
The Registrants common stock, until April 24, 1996, was publicly traded on
the National Association of Securities Dealers, Inc. Automated Quotation System
under the symbol of "PRTI", within the NASDAQ Small Cap market. In addition, the
Registrants common stock was cross listed and traded under the Symbol of "HRS",
on the Boston Stock Exchange until May 20, 1996, at which time it was
deregistered by the Exchange. The Registrants common stock which is registered
pursuant to Section 12(g) of the Securities Exchange Act, was removed from
listing and trading was suspended from the NASDAQ Stock Market and the Boston
Stock Exchange due to the Companys delinquency in filing its annual report and
in preparing and submitting LAS application forms with NASDAQ to list additional
securities issued in conjunction with its financing and acquisition activities
during the fiscal year. However, the Registrant intends to reapply for listing
its registered common stock on both NASDAQ and the Boston Stock Exchange upon
the filing of and becoming current with its annual and periodic filing
requirements. The range of high and low bid quotations for the Companys common
stock as provided by the Electronic Bulletin Board and NASDAQ for the past two
years in provided below. These over the counter market quotations reflect
inter-dealer prices without retail markup, markdown or commissions and may not
necessarily represent actual transactions.
HIGH BID LOW BID
-------- -------
1994 FISCAL YEAR
- ----------------
First Quarter $1.56 $1.12
Second Quarter $1.31 $0.87
Third Quarter $1.44 $0.75
Fourth Quarter $1.12 $0.50
1995 FISCAL YEAR
- ----------------
First Quarter $0.94 $0.44
Second Quarter $0.87 $0.44
Third Quarter $0.75 $0.12
Fourth Quarter $1.25 $0.63
Item 6. Selected Financial Data.
The following information has been derived from the financial statements of
the Company appearing elsewhere in this Annual Report, and should be read in
conjunction with the financial statements and notes thereto. The per share
amount and the weighted average number of shares outstanding have been adjusted
to give effect to the stock splits approved by the Companys shareholders in June
and December 1991 and July 31, 1995.
Balance Sheet Data (In thousands):
1995 1994 1993 1992 1991
Current Assets $ 7,174 $ 7,364 $ 6,687 $ 5,602 $ 3,494
Total Assets 26,367 14,138 12,236 10,615 6,785
Long Term Debt (less
current maturities) 888 3,636 3,466 954 1,242
Total Liabilities 9,967 8,393 5,977 4,549 4,536
Stockholders Equity 16,398 5,745 6,259 6,066 2,249
Working Capital
(Deficit) (1,518) 2,715 4,283 2,006 441
The Company has never paid a dividend.
Operations Summary (In thousands, except per share data)
1995 1994 1993 1992 1991
Net Sales $ 26,462 $ 28,029 $ 29,217 $ 25,867 $ 25,601
Net Sales less Cost
of Sales (Gross
Profit) 2,541 3,697 2,991 1,461 2,599
Net Income (Loss)
before other expenses
and provision for
income taxes and
extraordinary item (2,927) 234 303 (752) 973
Net Income (Loss) (3,538) (35) 193 (496) 500
Net Income per
share of Common
Stock (Adjusted by
1995 Reverse Stock
Split) (2.08) $ (.07) $ .40 $ (1.00) $ 1.00
ITEM 7 - MANAGEMENTS DISCUSSION AND ANALYSIS
During the fiscal year ended October 31, 1995, the Company has entered into
the Oil and Gas Industry through the acquisition of oil and gas wells in
Louisiana and West Virginia, a gas gathering system in West Virginia and the
purchase of a drilling company including several drilling rigs and other
equipment which are also located in West Virginia. The Company has issued its
restricted common stock and two newly authorized and issued series of
convertible preferred stock as consideration for these asset acquisitions.
Management control has changed as a result of entering into these asset purchase
transactions through the election and nomination of James R. Ray as President
and Director of the Company, and the election and nomination of Warren Haught as
President of the Companys Energy Division and as a member of the Board of
Directors. In addition, Mr. James E. Hughes, Sr., the former President and
Chairman of the Board of the Company and its current President of its
subsidiary, Hughes Wood Products, Inc, resigned his position as President of the
Company pursuant to the election of Mr. James Ray to that position in early
March, 1995. However, Mr. Hughes has remained President of Hughes Wood Products,
Inc. thereafter, and recently resigned on January 22, 1996 from the Board of
Directors of the Registrant. The Company also changed its corporate headquarters
from Newton, Texas to Scottsdale, Arizona on March 6, 1995, although its wood
products operations remain and continue to be located in Newton, Texas. In a
subsequent and "post 1995" fiscal year transaction, the Company agreed to sell a
major portion of its Wood Products assets to Mr. James E. Hughes, Sr., pursuant
to a stock purchase agreement that was executed on January 31, 1996. This
agreement required that in exchange of all of the issued and outstanding stock
of Hughes Wood Products, Inc., the Company would acquire 49 oil and gas wells
from Mr. Hughes which were valued at approximately two million three hundred
thiry thousand dollars ($2,330,000.00).
In addition, the Company agreed to assume or liquidate certain secured
third party debt obligations which encumbered the assets of the Company
including its subsidiaries and assets personally owned by Mr. Hughes, Sr.,
Hughes Wood Products and which were also personnaly guaranteed by Mr. James
Hughes, Sr. as a condition of full performance under the contract. However, a
dispute ensued between Mr. Hughes and the current President and Chairman of the
Registrant, Mr. James Ray regarding the performance of the conditions and the
exact amount and nature of the assets that were to be divested pursuant to this
agreement and that were made part of the contract. This dispute, which later
developed into a lawsuit brought on behalf of the Company against the former
Chairman and others (See Item 3 - Legal Proceedings, supra.) caused the
gathering and obtaining of necessary information for the completion of the year
end audit extremely difficult to obtain. The inability to obtain necessary
information for its Wood Products operations, together with the Companys recent
entrance into a completely new industry segment in Oil and Gas, caused
significant delays in the preparation of and filing of the Companys annual and
periodic disclosure reports required by the Securities Exchange Act. The Company
has not included information on net production of the oil and gas properties
that is required by Items 801 and 802 of Regulation S-K on account of the
impracticality involved in preparing this information at the time of completing
its year end audit. However, when such information is obtained, the Company
intends to file information in compliance with the Industry Guides on oil and
gas acquisitions as required by Regulation S-K.
Results of Operations
As it has in previous years, the effects of rainfall and its impact on
moving heavy equipment to logging sites, and a decrease in raw material occurred
during the first two quarters of the Companys 1995 fiscal year. Current assets
decreased to $7,173,707 as of the fiscal year ended October 31, 1995 as compared
to $7,364,237 for the year ended October 31, 1994. This decrease is due to a
decrease in trade receiveables by the Company in an amount of $1,423,052 during
this past fiscal year and the acquisition of approximately $2,250,000 in
marketable securities received by the Company from Mr. James E. Hughes, Sr. in
part payment for the purchase of the Egan, Louisiana Oil Refinery. (See Item 1
Description of Business - Supra.) In addition, current assets were affected
during the 1995 fiscal year through the writing off of certain note payables in
the aggregate amount of $520,000. Of this amount, a $320,000 promissory note
bearing 7.5% interest entered into the previous year by the Company with
Iniciativas Turisticas Del Pacifico, S.A. (a Costa Rican corporation) and a
$200,000 promissory note receivable bearing 10% interest from its former
Director, Mr. Charles G. Masters were written off has uncollectable. (See Item
1- Supra.)
Through the acquisitions of the various oil and gas properties this past
year, the Company increased its total property, plant and equipment holdings to
$18,425,156 for the fiscal year ended October 31, 1995 as compared to $6,723,257
for the same period ended a year earlier, or an increase of $12,151,898 or by
194%. In addition, the Company also increased its overall assets through prepaid
expenses in the amount of $161,057 for the 1995 fiscal year end. Also
attributable to its expansion into the oil and gas industry has been the
increase to the Companys operating expenses during the 1995 fiscal year.
Operating expenses increased to $4,955,852 for the three year period ended
October 31, 1995 as compared to $3,117,290 for s similar period ended the year
before. This increase is due to the additional operating expenses incurred in
running its new corporate headquarter in Scottsdale Arizona in addition to
payment for consulting services rendered in connection with mergers and
acquisition services, payment for services for corporate financing transactions,
investor and public relations support, legal and other services for which the
company has issued its S-8 registered stock as compensation.
Capital Resources and Liquidity
As of the end of the fiscal year October 31, 1995, the Company reclassified
a note payable due to the Agricultural Production Credit Association ("AG-PCA")
from that of a long term debt to a short term debt obligation. The note, which
was executed by the Company, its two subsidiaries Hughes Wood Products, Inc. and
Houston Woodtech, Inc., as well as personally guaranteed by James E. Hughes,
Sr., under its original terms, was for the repayment of the original principal
amount of $3,551,000, bearing interest at a variable rate and payable to the
order of AG-PCA, its successors and assigns, dated September 10, 1993 and
payable over a period of ten years in 120 consecutive monthly installments of
principal and interest. The security of the AG-PCA note was the Louisiana
Property, Bon Wier Property, Comal County Property, Houston Property, all
general intangibles, contract rights, chattel paper, farm products and
instruments and fixtures of Resources (the Company), Wood Products, and
Woodtech, and the equipment and continuing guarantee agreement of James E.
Hughes, Sr. In addition, the Company, its subsidiaries, and James E. Hughes, Sr.
agreed to certain affirmative covenants that were entered into with AG-PCA,
including but not limited to delivering annual financial statements, Form 10-K,
Form 10-Q and other SEC reports, of the Company within 90 days after the end of
the fiscal year or promptly upon such reports becoming available to AG-PCA.
Although all installment payments have been made pursuant to this note as of
October 31, 1995, and more recently within the past 45 days, it is not certain
whether the Company has fully complied with or has received waivers of certain
covenants regarding delivering financial information to AG-PCA or if such a
waiver does not exist, whether a breach of a covenant for delivery of
information when available, in light of its current status in its installment
payment obligations as of October 31, 1995, amounts to a material breach of the
promissory note and an acceleration of the note payable. However, management is
of the opinion that should such an acceleration of payments pursuant to this
note occur, that such an event would have a significant impact on the Companys
ability to meet its current obligations and liabilities and would affect the
status of this Company as a going concern. At present Management is actively
seeking refinancing opportunities for this note obligation and is confident
although not certain whether it will be successfull in its efforts to refinance
this note. It is not certain whether AG-PCA will at the present time request the
performance of its covenants or of acceleration of the oustanding obligation.
5
<PAGE>
ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
6
<PAGE>
PHOENIX RESOURCES TECHNOLOGIES, INC.
AND SUBSIDIARIES
CONSOLIDATED FINANCIAL STATEMENTS
OCTOBER 31, 1995, 1994 AND 1993
<PAGE>
SMITH, DANCE & COMPANY
433 E. Las Colinas Blvd, Suite 1290
Irving, Texas 75039
214-556-1190
REPORT OF INDEPENDENT ACCOUNTANTS
To the Board of Directors and
Shareholders of Phoenix Resources
Technologies, Inc. (formerly Hughes Resources, Inc.):
We have audited the accompanying consolidated balance sheet of Phoenix Resources
Technologies, Inc. (formerly Hughes Resources, Inc.) and its subsidiaries as of
October 31,1995, and the related consolidated statement of operations, cash
flows and changes in shareholders equity for the year then ended. These
financial statements are the responsibility of the Companys management. Our
responsibility is to express an opinion on these financial statements based on
our audit. We did not audit the financial statements of Hughes Wood Products,
Inc. and its subsidiary Houston Woodtech, Inc., (wholly-owned subsidiaries of
Phoenix Resources Technologies, Inc), which statements reflect total assets of
$12,734,172 as of October 31, 1995 and total revenues of $26,270,937 for the
year then ended. Those statements were audited by other auditors whose report
was dual dated January 5, 1996 and April 26, 1996 and included an explanatory
paragraph which raised substantial doubt about the entities ability to continue
as a going concern, has been furnished to us, and our opinion, insofar as it
relates to the amounts of Hughes Wood Products, Inc. and its subsidiary, is
based solely on the report of the other auditors. The financial statements of
Phoenix Resources Technologies, Inc. and its subsidiaries for the years ended
October 31, 1994 and 1993, respectively were audited by other auditors, whose
report was dated January 5, 1995, expressed an unqualified opinion on those
statements.
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 consolidated financial statements are free of
material misstatement. An audit includes examining, on a test basis, evidence
supporting the amounts and disclosures in the consolidated financial statements.
An audit also includes assessing the accounting principles used and significant
estimates made by management, as well as evaluating the overall financial
statement presentation. We believe that our audit and the report of the other
auditors provides a reasonable basis for our opinion.
The Companys financial statements do not disclose the supplementary information
regarding certain oil and gas producing activities as required by SFAS No. 69.
In our opinion, disclosure of that information is required to conform with
generally accepted accounting principles; however, management believes it is
impracticable to develop the information.
In our opinion, except for the information discussed in the preceding paragraph,
based on our audit and the report of the other auditors, the consolidated
financial statements referred to in the first paragraph present fairly, in all
material respects, the financial position of Phoenix Resources, Inc., and
subsidiaries at October 31, 1995 and 1994, and the results of its operations and
its cash flows for each of the years in the three-year period ended October 31,
1995, in conformity with generally accepted accounting principles.
<PAGE>
The accompanying consolidated financial statements have been prepared assuming
that the Company will continue as a going concern. As shown in the accompanying
consolidated financial statements, the Company incurred a significant net loss
for the year ended October 31, 1995. As discussed in Notes 7 and 15 to the
financial statements, the Company was not in compliance with certain terms of
its long-term debt agreements at October 31, 1995. As the result of covenant
violations, the holder of such debt may, after notice and expiration of
applicable grace periods, declare the entire amount of such indebtedness due and
payable immediately. Management's plans to restructure its long-term debt are
also discussed in Note 15. These conditions raise substantial doubt about its
ability to continue as a going concern. The accompanying consolidated financial
statements do not include any adjustments relating to the recoverability and
classification of asset carrying amounts or the amount and classification of
liabilities that might result from the outcome of this uncertainty.
Irving, Texas
June 7, 1996
<PAGE>
PHOENIX RESOURCES TECHNOLOGIES, INC AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
October 31, 1995 and 1994
ASSETS
1995 1994
---- ----
CURRENT ASSETS
Cash and cash equivalents (note 1) 41,655 40,233
Trade receivables (less allowance for doubtful
accounts ($392,693 for 1995 and $85,357
for 1995) (notes 1 and 2) 1,477,069 2,900,121
Marketable securities (notes 1 and 16) 2,250,000
Inventories (notes 1 and 3) 2,347,592 2,665,382
Timber deeds (note 1 and 4) 639,699 808,877
Prepaid expenses 211,183 221,290
Notes receivable (note 2) - 609,690
Deferred income taxes (notes 1 and 10) 206,509 118,644
------------- ------------
Total current assets 7,173,707 7,364,237
PROPERTY, PLANT AND EQUIPMENT
(less accumulated depreciation of
$4,359,096 for 1995 and $4,127,691
for 1994) (notes 1 and 6) 18,425,155 6,273,257
LONG TERM RECEIVABLES
Advances to stockholders and
employees (notes 5 and 11) 386,651 279,427
OTHER ASSETS 381,804 220,747
------------- ------------
$ 26,367,317 $ 14,137,668
============= ============
The accompanying notes are an integral part of these statements
<PAGE>
PHOENIX RESOURCES TECHNOLOGIES, INC AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS (CONTINUED)
October 31, 1995 and 1994
LIABILITIES AND STOCKHOLDERS EQUITY
1995 1994
---- ----
CURRENT LIABILITIES:
Cash overdraft $ 379,657 $ -
Notes payable and current maturities
of long-term debt (note 7) 4,935,631 2,484,580
Obligations under capital
lease, current (note 8) 69,964 -
Accounts payable 2,150,205 1,675,975
Shareholder loans (notes 5 and 11) 146,071 -
Payroll tax liabilities (note 11) 618,060 -
Customer deposits 24,804 73,942
Accrued expenses (note 9) 367,208 312,605
---------------- ---------------
Total current liabilities 8,691,601 4,547,102
---------------- ---------------
LONG-TERM DEBT, less current maturities (note 7) 584,285 3,533,630
OBLIGATIONS UNDER CAPITAL LEASES, less
current portion (note 8) 304,107 102,062
---------------- ---------------
Total long-term debt 888,392 3,635,692
DEFERRED INCOME TAXES 388,491 209,783
STOCKHOLDERS EQUITY
Preferred stock, par value
$.001 per share, authorized
50,000,000 shares, 2,200,000 shares
issued and outstanding (notes 17 and 18)
- Series A, 5% annual dividend, non-cumulative
convertible into 1,000,000 shares of common
stock after March 29, 2000. 200,000 shares
issued and outstanding. 200 -
- Series C, no dividend, convertible into
5,000,000 shares of common stock after August
1, 1996. 1,000,000 shares issued and
outstanding. 1,000 -
- Series D, 4% dividend, non-cumulative,
callable within one year ending August 1, 1996, convertible into 5,000,OOO
shares of common stock after August 1, 1996, 1,000,000
shares issued and outstanding. 1,000 -
Common stock, par value $.001 per share, authorized 100,000,000 shares, issued
4,235,891 shares, outstanding 4,179,891 shares in 1995 and
4,749,657 in 1994. (note 18) 4,180 5,310
Capital in excess of par (note 18) 18,786,021 4,595,539
Treasury stock, 56,000 shares (733,400) (733,400)
Retained earnings (deficit) (note 18) (1,660,167) 1,877,642
--------------- ---------------
16,398,834 5,745,091
---------------- ---------------
Total liabilities and stockholders equity $ 26,367,317 $ 14,137,668
================ ===============
The accompanying notes are an integral part of these statements
<PAGE>
PHOENIX RESOURCES TECHNOLOGIES, INC AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATIONS
Three year period ended October 31, 1995, 1994, 1993
1995 1994 1993
---- ---- ----
Net sales $ 26,462,748 $ 28,029,628 $ 29,216,939
Cost of sales 23,921,487 24,332,472 26,226,315
------------ ------------ ------------
Gross profit 2,541,261 3,697,156 2,990,624
Operating expenses 4,743,117 3,117,290 2,469,899
------------ ------------ ------------
Operating income (2,201,856) 579,866 520,725
Other income and expenses
Inventory loss due to market decline (217,754) - -
Gain on disposition of assets, net 63,316 22,618 5,533
Other income 56,325 66,077 56,426
Interest expense (587,041) (413,508) (259,925)
Other expenses (39,959) (21,291) (19,594)
----------- ------------ -----------
Income (loss) before income taxes
and extraordinary item (2,926,969) 233,762 303,165
Provision (benefit) for income taxes
(notes 1 and 10) 90,841 115,071 109,906
------------ ------------ -----------
Income (loss) before extraordinary
item (3,017,810) 118,691 193,259
Extraordinary items (net of income
tax benefit for 1995 of $0 and
1994 of $79,344) (520,000) (154,022) -
------------ ------------ -----------
Net income or (loss) $ (3,537,810) $ (35,331) $ 193,259
============ ============ ===========
The accompanying notes are an integral part of these statments
<PAGE>
PHOENIX RESOURCES TECHNOLOGIES, INC AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATIONS(Continued)
Three year period ended October 31, 1995, 1994, 1993
Earnings (loss) per share and common stock equivalents (notes 5 and 11):
Income (loss) per weighted
average shares of common
stock outstanding
Primary
From operations $ (1.78) $ 0.24 $ 0.40
From extraordinary Items (0.31) (0.31) -
------------ ----------- -----------
Total primary earnings
per share $ (2.08) $ (0.07) $ 0.40
============ =========== ===========
Fully-diluted
From operations $ (2.08) $ 0.24 $ 0.40
From extraordinary Items (0.31) (0.31) -
------------ ------------ -----------
Total fully-diluted earnings
per share $ (2.08) $ (0.07) $ 0.40
============ ============ ===========
Weighted average number of common shares outstanding:
Primary (1 for 10 reverse
split adjusted) 1,697,206 497,966 483,148
============ ============ ===========
Fully-diluted (1 for 10
reverse split adjusted) 1,697,206 497,966 483,148
============ ============ ===========
The accompanying notes are an integral part of these statments
<PAGE>
PHOENIX RESOURCES TECHNOLOGIES, INC AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF STOCKHOLDERS EQUITY
Years ended October 31, 1995, 1994, 1993
Common Stock
----------------------- Capital in
Shares Amount excess of par
---------- ---------- ------------
Balance at October 31, 1992 5,309,657 $ 53,097 $ 4,547,752
Net income for the year ended
October 31, 1993 - - -
---------- ---------- ------------
Balance at October 31, 1993 5,309,657 53,097 4,547,752
Net Loss for the year ended
October 31, 1994 - - -
Purchase of treasury stock - - -
---------- ---------- ------------
Balance at October 31, 1994 5,309,657 53,097 4,547,752
Net loss for the year ended
October 31, 1995 - - -
Effect of 1 for 10 reverse stock
split (4,778,691) - -
Effect of change in par value from
$.01 per share to $.001 per share - (52,566) 52,566
Issuance of common stock for
purchase of Louisiana
properties 825,100 825 2,638,815
Issuance of common stock for
U. S. Refining stock 2,200,000 2,200 2,237,800
Issuance of preferred series A stock
for Louisiana properties - - 999,800
Issuance of preferred series C stock
for drilling rig and W. Virginia
wells - - 4,999,000
Issuance of preferred series D stock
for drilling rig and W. Virginia - - 2,999,000
wells
Issuance of S-8 stock for services 623,825 624 311,288
---------- ---------- ------------
Balance at October 31, 1995 4,179,891 $ 4,180 $ 18,786,021
========== ========== ============
The accompanying notes are an integral part of these statments
<PAGE>
PHOENIX RESOURCES TECHNOLOGIES, INC AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF STOCKHOLDERS EQUITY (Continued)
Years ended October 31, 1995, 1994, 1993
Preferred Stock Treasury Stock
---------------------- ---------------------
Shares Amount Shares Amount
---------- ---------- -------- -----------
Balance at October 31, 1992 - $ - 100,000 $ (255,000)
Net income for the year ended
October 31, 1993 - - - -
---------- ---------- -------- ----------
Balance at October 31, 1993 - - 100,000 (255,000)
Net Loss for the year ended
October 31, 1994 - - - -
Purchase of treasury stock - - 460,000 (478,400)
---------- ---------- ---------- ----------
Balance at October 31, 1994 - - 560,000 (733,400)
Net loss for the year ended
October 31, 1995 - - - -
Effect of 1 for 10 reverse stock
split - - - -
Effect of change in par value from
$.01 per share to $.001 per share - - - -
Issuance of common stock for
purchase of Louisiana
properties - - - -
Issuance of common stock for
U. S. Refining stock - - - -
Issuance of preferred series A stock
for Louisiana properties 200,000 200 - -
Issuance of preferred series C stock
for drilling rig and W. Virginia
wells 1,000,000 1,000 - -
Issuance of preferred series D stock
for drilling rig and W. Virginia
wells 1,000,000 1,000 - -
Issuance of S-8 stock for services ---------- ---------- --------- ----------
Balance at October 31, 1995 2,200,000 $ 2,200 560,000 $ (733,400)
========== ========== ========= ==========
The accompanying notes are an integral part of these statments
<PAGE>
PHOENIX RESOURCES TECHNOLOGIES, INC AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF STOCKHOLDERS EQUITY (Continued)
Years ended October 31, 1995, 1994, 1993
Retained
Earnings Total
------------ ------------
Balance at October 31, 1992 $ 1,719,714 $ 6,065,563
Net income for the year ended
October 31, 1993 193,259 193,259
------------ ------------
Balance at October 31, 1993 1,912,973 6,258,822
Net Loss for the year ended
October 31, 1994 (35,331) (35,331)
Purchase of treasury stock _ (478,400)
------------ -------------
Balance at October 31, 1994 1,877,642 5,745,091
Net loss for the year ended
October 31, 1995 (3,537,810) (3,537,810)
Effect of 1 for 10 reverse stock
split - -
Effect of change in par value from
$.01 per share to $.001 per share - -
Issuance of common stock for
purchase of Louisiana
properties - 2,639,640
Issuance of common stock for
U. S. Refining stock - 2,240,000
Issuance of preferred series A stock
for Louisiana properties - 1,000,000
Issuance of preferred series C stock
for drilling rig and W. Virginia
wells - 5,000,000
Issuance of preferred series D stock
for drilling rig and W. Virginia
wells - 3,000,000
Issuance of S-8 stock for services - 1 311,913
------------ -------------
Balance at October 31, 1995 $(1,660,167) $ 16,398,834
============ =============
The accompanying notes are an integral part of these statments
<PAGE>
PHOENIX RESOURCES TECHNOLOGIES, INC AND SUBSIDIARIES
CONSOLIDATED STATEMENT OF CASH FLOWS
Three-Year Period Ended October 31, 1995
1995 1994 1993
Cash flows from operating activities:
Net income (loss) $(3,537,810) $ (35,331) $ 193,259
Adjustments to reconcile net income (loss)
to net cash provided by (used in)
operating activities:
Depreciation and amortization 979,865 725,047 786,766
Deferred income taxes (benefit) 90,841 35,727 109,906
Stock exchanged for services 311,914 - -
Provision for doubtful accounts 522,026 (66,297) 32,913
Extraordinary item 520,000 - -
Inventory loss due to market decline 217,754 - -
(Gain) loss on disposition of property
and equipment 50,794 (22,618) (5,533)
Net increase (decrease) in operating
assets and liabilities:
Trade accounts receivable 990,716 (239,223) (893,676)
Inventories and timber deeds 269,214 (135,569) (90,854)
Prepaid expenses 10,107 (97,865) 40,640
Other assets (161,057) - -
Accounts payable 474,230 579,423 439,224
Accrued expenses and other
liabilities 672,663 - -
------------ ---------- -----------
Net cash provided by operating activities 1,411,257 743,294 612,645
------------ ---------- -----------
Cash flows from investing activities:
Advances to stockholders and employees (3,775,332) (1,899,327) (1,553,192)
Payments from stockholders and employees 3,814,179 1,450,604 1,601,472
Proceeds from sale of property, plant
and equipment 205,609 65,500 -
Loan originations - (520,000) -
Others (10,000) (58,229) (196,797)
Acquisition of property, plant and
equipment (1,748,526) (1,485,555) (1,260,322)
------------ ---------- -----------
Net cash used in investing activities (1,514,070) (2,447,007) (1,408,839)
------------ ---------- -----------
Cash flow from financing activities:
Net change in bank overdraft 379,657 - -
Customer deposits (49,138) (80,903) 154,845
Proceeds from borrowings 529,874 2,548,299 4,215,935
Principal payments on borrowings and
capital leases (756,158) (733,928) (3,489,732)
Purchase of treasury stock - (478,400) -
------------ ---------- -----------
Net cash provided by financing activities 104,235 1,255,068 881,048
------------ ---------- -----------
Net increase (decrease) in cash 1,422 (448,645) 84,854
Cash and cash equivalents at beginning of year 40,233 488,878 404,024
------------ ---------- -----------
Cash and cash equivalents at end of year $ 41,655 $ 40,233 $ 488,878
============ ========== ===========
Supplemental disclosure of cash flow information: Cash paid for:
Interest $ 660,147 $ 391,028 $ 275,699
Income tax - - -
The accompanying notes are an integral part of these statments
<PAGE>
PHOENIX RESOURCES TECHNOLOGIES, INC AND SUBSIDIARIES
CONSOLIDATED STATEMENT OF CASH FLOWS - CONTINUED
Three-Year Period Ended December 31, 1995
1995 1994 1993
SUPPLEMENTAL SCHEDULE OF NON-CASH
INVESTING AND FINANCING ACTIVITIES
Exchange of receivable from James E.
Hughes for land $ - $ 433,630 $ -
========== ========== ==========
Acquisition of Louisiana properties
for common stock and preferred
Series A stock $ 3,639,640 $ - $ -
========== ========== ===========
Acquisition of US Refining stock for
common stock and notes payable $ 2,240,000 $ - $ -
========== ========== ==========
Acquisition of drilling rig and
W. Virginia wells for preferred
series C and D stock $ 8,000,000 $ - $ -
========== ========== ==========
Issuance of S-8 stock for services $ 311,914 $ - $ -
========== ========== ==========
Change in par value of common stock $ 52,566 $ - $ -
========== ========== ==========
Acquisition of marketable securities
in exchange for U.S. Refining stock
and assumption of related notes
payable $ 2,250,000 $ - $ -
========== ========== ==========
Assumption of corporate debt by
corporate officer $ 713,772 $ - $ -
========== ========== ==========
Acquisition of heavy equipment
under capital leases $ 284,704 $ 126,836 $ -
========== ========== ==========
Write-off of fully depreciated
property, plant and equipment $ 598,830 $ - $ -
========== ========== ==========
The accompanying notes are an integral part of these statments
<PAGE>
PHOENIX RESOURCES TECHNOLOGIES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
NOTE 1 - NATURE OF OPERATIONS AND SUMMARY OF SIGNIFICANT ACCOUNTING
POLICIES
NATURE OF OPERATIONS
Phoenix Resources Technologies, Inc. and its subsidiaries (the Company), own and
operate a saw mill, pole mill, wood treating facilities, and hardwood mill in
Texas and Louisiana as well as oil and gas wells and oil and gas drilling
equipment. The Company operates in a cyclical industry group. Demand and prices
exhibit large variances from period to period. Management has attempted to
mitigate these variations by adopting specialized product lines that are less
susceptible to industry cycles, although the Company, during this fiscal year,
depended on one customer for 17% of its sales. Commercial graded materials are
manufactured from the sawmill for use in construction of barns, sheds,
bulkheads, bridges, trusses and decking. This market mix has proven more stable
than the housing market for dimension lumber such as 2 x 4 and 2 x 6. The pole
mill supplies debarked logs to a limited number of customers as well as pine
chips to domestic paper manufacturers. In addition, the pole mill manufactures
poles which are treated in the Companys pole treating facility in San Antonio,
Texas and are largely sold pursuant to a Mexican contract. Logging operations
provide major industry customers with delivered logs. The Houston wood treating
facility is a wholesaler of all types of wood products to a variety of vendors
involved in everything from home improvements to heavy construction. As with
many essential agricultural businesses, prices for standing timber vary from
time to time from changes in supply and demand rather than inflation. During
this fiscal year, the demand for timber escalated, while the supply remained
constant, thereby increasing the cost of the Companys raw material quite
substantially.
During 1995 the Company has attempted to diversify its operations by committing
a significant portion of its assets to the oil and gas industry.
SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
Principles of consolidation -
The consolidated financial statements include the accounts of Phoenix Resources
Technologies, Inc. and its wholly-owned subsidiaries Hughes Wood Products, Inc.
and Houston Woodtech, Inc. All significant intercompany accounts and
transactions have been eliminated.
Accounting estimates -
The process of preparing financial statements in conformity with generally
accepted accounting principles requires management to make estimates and
assumptions regarding certain types of assets, liabilities, revenues, and
expenses. Such estimates primarily relate to unsettled transactions and events
as of the date of the financial statements. Accordingly, upon settlement, actual
results may differ from estimated amounts.
Cash and cash equivalents -
For purposes of reporting the statement of cash flow, the Company considers all
cash accounts, which are not subject to withdrawal restrictions or penalties,
and all highly liquid debt instruments purchased with a maturity of three months
or less, to be cash equivalents <PAGE>
PHOENIX RESOURCES TECHNOLOGIES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
NOTE 1 - NATURE OF OPERATIONS AND SUMMARY OF SIGNIFICANT ACCOUNTING
POLICIES - Continued
SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES - Continued
Allowance for doubtful accounts -
The Company uses the allowance method to account for uncollectible accounts
receivable. The allowance for doubtful accounts is based upon prior experience
and managements analysis of collectibility.
Revenue recognition -
Sales of commercial products are recognized when shipped or delivered to the
consumer.
Inventories -
The Company values its inventories generally at the lower of cost (first-in,
first-out) or market. Lumber and wood products are valued using a full
absorption procedure using standard cost techniques. The standards are reviewed
and adjusted annually. Inventoried costs include material, direct labor, and
production overhead. Cost for the logs inventory generally represents average
current purchase cost.
During the current year, the saw milling segment did not provide the return and
benefit that was expected and market prices at year end were below cost.
Accordingly, at October 31, 1995, inventory for the saw milling segment has been
written down to estimated net realizable value, and results of operations
include a corresponding charge of $217,754 for 1995 and $0 for 1994.
Timber deeds -
Timber deeds represent standing timber purchased and are stated at cost less the
depletion of the timber cut. The costs of timber deeds are allocated as costs of
sales at rates based on average cost of estimated recoverable timber in each
tract.
Oil and gas properties -
Oil and gas properties are accounted for on the full cost method of accounting.
All costs associated with acquisition, exploration and development of oil and
gas reserves, including directly related overhead costs, are capitalized.
Investments -
Effective January 1, 1994 the Company adopted Statement of Financial Accounting
Standards No. 115, Accounting for Certain Investments in Debt and Equity
Securities (FAS 115). In accordance with FAS 115, the Companys debt and equity
securities are considered as either held-to-maturity or available-for-sale.
Held-to-maturity securities represent those securities that the Company has both
the positive intent and ability to hold to maturity and are carried at amortized
cost. Available-for-sale securities represent those securities that do not meet
the classification of held-to-maturity, are not actively traded and are carried
at fair value. Unrealized gains and losses on these securities are excluded from
earnings and are reported as a separate component of stockholders equity, net of
applicable taxes, until realized.
<PAGE>
PHOENIX RESOURCES TECHNOLOGIES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
NOTE 1 - NATURE OF OPERATIONS AND SUMMARY OF SIGNIFICANT ACCOUNTING
POLICIES - Continued
SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES - Continued
Property and equipment -
Property and equipment is stated at cost less accumulated depreciation. When
equipment is retired, its cost and the related accumulated depreciation are
eliminated from the respective accounts, and gain or losses arising from the
disposition are reflected as income or expense. Depreciation is computed by the
straight-line method over the following estimated useful lives:
Years
Buildings 5-35
Machinery and equipment:
General 5-10
Rolling stock 3- 5
Furniture 5-10
Leasehold improvements 5-10
Depletion -
Depreciation and depletion (including provisions for future abandonment and
restoration costs) of all capitalized costs of proved oil and gas producing
properties, except mineral interests, are expensed using the unit-of-production
method by individual fields as the proved developed reserves are produced.
Depletion expenses for capitalized costs of proved mineral interest are
recognized using the unit-of-production method by individual fields as the
related proved reserves are produced. Periodic valuation provisions for
impairment of capitalized costs of unproved mineral interests are expensed.
Income taxes -
Deferred income taxes are accounted for by the asset and liability method under
SFAS No. 109. The deferred tax assets and liabilities result from the
differences between the financial statement and tax return basis of these assets
and liabilities. Most of the differences in the asset and liability basis arise
principally from the use of accelerated methods of depreciation, the specific
charge-off method of accounting for bad debts and net operating loss
carryforwards.
Accrued workers compensation claims -
Estimates for unpaid claims, claims incurred but not reported and unpaid claims
adjustment expenses are provided by the third party administrator based upon the
nature of the injury, industry trends and experience. Management evaluates these
estimates for reasonableness.
Basis of Presentation -
Certain financial statement items in prior years have been reclassified to
conform to the current years format.
<PAGE>
PHOENIX RESOURCES TECHNOLOGIES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
NOTE 2 - TRADE AND NOTES RECEIVABLE
Following is a summary of trade receivables at October 31, 1995 and 1994:
1995 1994
---- ----
Trade receivables - Sawmill $ 191,417 $ 489,782
Pole Mill 491,155 436,606
Logging 141,795 154,274
Wood preserving 404,831 413,315
Wood preserving - export 223,207 976,166
Advances to contractors 417,357 515,335
------------ -------------
$1,869,762 2,985,478
Less: Allowance for doubtful accounts 392,693 85,357
------------ -------------
$1,477,069 $2,900,121
============ =============
As of October 31, 1995 and 1994, trade receivables were pledged as security for
a letter of credit. (Notes 7 and 16)
Following is a summary of notes receivable at October 31, 1995 and 1994. The two
major notes were deemed uncollectible during the current year and were expensed
as an extraordinary expense. (Note 19)
1995 1994
---- ----
7.5% note receivable from
Iniciativas Turisticas Del
Pacifico, S.A. (a Costa Rica
corporation); balance due on
June 10, 1995 - $ 320,000
10% note receivable from
Charles G. Masters; interest
only due quarterly beginning
January 31, 1995; balance
due on October 31, 1995 - 200,000
Others - 89,690
--------------- -------------
- $ 609,690
=============== =============
<PAGE>
PHOENIX RESOURCES TECHNOLOGIES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
NOTE 3 - INVENTORIES
Inventories at October 31, 1995 and 1994 consist of:
1995 1994
---- ----
Raw material - logs $ - $ 341,953
Lumber and wood products 2,344,938 2,082,874
Chemicals 220,409 240,555
Reduction of lumber and wood products
to market (217,755) -
----------- -----------
$2,347,592 $2,665,382
=========== ===========
Certain inventories are pledged to secure loans.(Notes 7 and 16)
NOTE 4 - TIMBER DEEDS
The amount of timber deeds as of October 31, 1995 and 1994 represents the
standing timber purchased at cost less the depletion of timber cost as follows:
1995 1994
---- ----
Original Cost 1,358,624 $1,465,768
Less: Depletion (718,925) (656,891)
------------ -----------
Net $ 639,699 $ 808,877
============ ===========
Certain timber deeds had expiration dates beyond twelve months from the balance
sheet date; however, all were classified as current assets because it was
anticipated that a majority of the timber would be cut within the next operation
cycle of the business.
NOTE 5 - ADVANCES TO AND FROM STOCKHOLDER AND EMPLOYEES
Following is a summary of these receivables at October 31, 1995 and 1994:
1995 1994
---- ----
Net to James E. Hughes, Sr. $ 347,422 $ 242,252
Loans to employees 39,229 37,175
------------- -------------
$ 386,651 $ 279,427
=========== ===========
Advances to shareholder bear interest at 8% per annum and are payable upon
demand by the Company. It is not anticipated that these amounts will be
collected within the next year, therefore, they have been classified as
noncurrent.
Advances from shareholder at October 31, 1995 total $146,071 represent net cash
advances made to the Company and is non interest bearing.
<PAGE>
PHOENIX RESOURCES TECHNOLOGIES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
NOTE 6 - PROPERTY AND EQUIPMENT
Major classes of property and equipment as of October 31, 1995 and 1994 are
shown below:
1995 1994
---- ----
Land $ 1,392,603 $ 1,347,603
Buildings 933,479 456,132
Machinery and equipment 12,209,125 8,008,484
Furniture and fixtures 259,269 256,124
Leasehold improvements 178,091 176,578
Construction in progress 10,134 29,191
Property held under capital leases 411,540 126,836
Oil and gas properties 7,539,640 -
------------- -------------
22,933,881 10,400,948
Less:
Accumulated depreciation (4,508,726) (4,127,691)
------------- -------------
$ 18,425,155 $ 6,273,257
============= =============
Reflected in the accompanying statements of operations is depreciation expense
of $979,865 for 1995 and $725,047 for 1994.
Certain property and equipment are pledged to secure loans as further explained
in Notes 7 and 16.
NOTE 7 - NOTES PAYABLE AND LONG-TERM DEBT
Notes payable and long-term debts as of October 31, 1995 and 1994 consisted of
the following:
1995 1994
---- ----
Notes payable:
Community Bank; Jasper, Texas; Advances on line of credit effective July 29,
1994 in the amount Of $1,500,000. The obligation is due July 29, 1995 with
interest at 9.25%; secured by accounts receivable and inventory and a
personal guarantee
by James E. Hughes, Sr. ( Note 16) $1,499,715 $1,499,715
Advances on line of credit from First National Bank of Newton effective June
28, 1994 in the amount of $300,000. This obligation is due on demand; with
interest at Bank Prime plus 2%, note written in the name
of James E. Hughes, Sr. - 156,891
<PAGE>
PHOENIX RESOURCES TECHNOLOGIES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
NOTE 7 - NOTES PAYABLE AND LONG-TERM DEBT - Continued
Insurance policy financing arrangements,
due on July 1, 1996, bearing interest
at 11.5% 62,467 117,818
First National Bank; Newton, Texas; Note payable in the original amount of
$300,000, executed on October 1, 1991, due on November 7, 1994, bearing
interest at 9%, secured by timber deeds and a personal guarantee
by James E. Hughes, Sr. - 180,040
Obligations callable by creditor: AG-PCA, Agriculture Production Credit
Associates; Tyler, Texas; note dated September 30, 1993 in original amount
of $3,551,000; payable in monthly installments of $42,151 including interest
at 8.45%; amortizing over 120 months; secured by all property and equipment
and a personal guaranty by James E. Hughes, Sr. 3,052,114 3,284,994
All other installment notes due: Various finance companies and banks; monthly
installments in the aggregate amount of $41,432; interest rates ranging from
6.75% to 11.9%; maturing from December 25, 1995 through May 1, 2000; secured
by various equipment 905,620 778,752
------------- ------------
Total notes payable and long-term
debt 5,519,916 6,018,210
Less: Short-term notes payable and
current maturities (4,935,631) (2,484,580)
----------- -------------
Long-term debt less notes payable and
current maturities $ 584,285 $ 3,533,630
=========== ============
<PAGE>
PHOENIX RESOURCES TECHNOLOGIES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
NOTE 7 - NOTES PAYABLE AND LONG-TERM DEBT - Continued
Annual maturities on long-term debt for the next five years are as follows:
October 31
----------
1996 $4,935,631
1997 260,593
1998 160,658
1999 76,852
2000 86,182
The loan with AG-PCA is actually in the name of Hughes Resources, Inc.; Hughes
Wood Products and Houston Woodtech, Inc. (Note 15) The loan agreement with
AG-PCA contains various covenants pertaining to maintenance of certain financial
ratios, reporting requirements, and other restrictions. At October 31, 1995, the
Company was in breach of various covenant requirements. Under the terms of the
agreement, the bank may call the loan if the Company is in violation of any of
the restrictive covenants. As of January 5, 1996, the bank has not waived the
requirements, and accordingly, the entire amount of the note, $3,052,114, has
been included in the current liabilities. (Notes 15 and 16)
Interest expense of $587,041 was incurred during 1995 and approximately $413,508
for 1994.
NOTE 8 - LEASES
The Company is the lessee of heavy equipment under capital leases expiring in
2000. The assets and liabilities under the capital leases are now recorded at
the lower of the present value of the minimum lease payments or the fair value
of the assets. The assets are depreciated over the lower of the related lease
terms or the estimated productive lives. Depreciation of the assets under the
capital leases are included in depreciation expense.
Following is a summary of assets held under capital leases:
1995 1994
-------- ---------
Heavy equipment $ 411,540 $ 126,836
========= =========
<PAGE>
PHOENIX RESOURCES TECHNOLOGIES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
NOTE 8 - LEASES - Continued
Minimum future lease payments under capital leases as of October 31, 1995 for
each of the next five years are:
Year Ending Capitalized
October 31 Leases
---------- -----------
1996 $ 106,148
1997 106,148
1998 106,148
1999 106,148
2000 44,680
----------
Total minimum lease payments $ 469,272
Less: amount representing interest (95,201)
----------
Present value of net minimum
lease payments $ 374,071
Less current maturities (69,964)
----------
Long term lease obligations $ 304,107
==========
Interest rates on capitalized leases are imputed based on the lower of company's
incremental borrowing rate at the inception of the lease or the lessor's
implicit rate of return.
NOTE 9 - ACCRUED EXPENSES
Accrued expenses at October 31, 1995 and 1994 are summarized below:
1995 1994
-------- --------
Salaries $ - $ 16,730
Interest 27,995 36,991
Other 40,785 54,264
Taxes, other than income taxes 124,977 79,356
Rent 11,667 11,669
Insurance 161,784 113,595
--------- --------
$367,208 $312,605
========= ========
<PAGE>
PHOENIX RESOURCES TECHNOLOGIES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
NOTE 10 - INCOME TAXES
Income tax expense (benefit) is comprised of the following components:
1995 1994 1993
----------- ----------- -----------
Current tax expense $ - $ - $ -
Deferred tax expense 90,841 115,071 5,989
Benefits from operating
loss carryforward (1,083,715) - 103,917
----------- ----------- -----------
(992,874) 115,071 109,906
Valuation allowance 1,083,715 - -
----------- ----------- -----------
$ 90,841 $ 115,071 $ 109,906
=========== =========== ===========
Reconciliation of the U.S. Statutory federal income tax rate of 34% to the
effective tax rates is as follows:
1995 1994 1993
---- ---- ----
Statutory tax rate (34%) 34% 34%
State taxes - - -
Non-deductible expenses 3 15 2
----- ----- -----
Effective tax rate (31%) 49% 36%
===== ===== =====
The Company's effective income tax rate is higher than what would be expected if
the federal statutory rate were applied to income from continuing operations
primarily because of expenses deductible for financial reporting purposes that
are not deductible for tax purposes.
Deferred tax assets (liabilities) result from the differences between financial
statement and tax return basis of certain assets and liabilities. Most of the
differences in the asset and liability basis arise from the use of accelerated
methods of depreciation, the specific charge-off method of accounting for bad
debts, and the net operating loss carryforward for income tax purposes. The
principal sources of these timing differences and the tax effects are as
follows:
1995 1994 1993
---- ---- ----
Current asset:
Excess of book over tax
bad debt allowance $206,509 $ 29,022 $ 51,562
Deferred expenses for
tax purposes - 89,622 -
-------- -------- --------
$206,509 $118,644 $ 51,562
======== ======== ========
<PAGE>
PHOENIX RESOURCES TECHNOLOGIES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
NOTE 10 - INCOME TAXES - Continued
Noncurrent asset (liability):
Benefit of NOL
carryforward $ 1,083,715 $ 90,862 $ 78,111
Excess of tax over book
accumulated depreciation (388,491) (300,645) (185,088)
----------- ----------- -----------
695,224 (209,783) (106,977)
Valuation allowance (1,083,715) - -
----------- ----------- -----------
$ (388,491) $ (209,783) $ (106,977)
=========== =========== ===========
The Company has available at October 31, 1995, unused net operating loss
carryforwards that may provide future tax benefits. However, since doubt exists
as to the actual future benefit to be realized, an allowance has been made and
no deferred tax asset, relating to the net operating loss carryforward, has been
reported in these financial statements.
The Company and its subsidiaries file a consolidated federal income tax return.
The income tax liability for the year is apportioned among the consolidated
group based upon Regulation 1.1552-1(a)(1) of the Internal Revenue Code. Under
the method prescribed by this regulation, the tax liability is apportioned to
each company based upon the ratio of its taxable income (loss) to that of the
consolidated taxable income (loss) of the group.
Since a consolidated tax return is filed, no adjustment for undistributed
subsidiary earnings need be made for deferred income taxes, because intercompany
profits are eliminated in computing the consolidated tax liability.
NOTE 11- RELATED PARTY TRANSACTIONS
During the years ended October 31, 1995, 1994 and 1993 the Company contracted
with J.R. Hughes Company, Inc. for contract hauling of wood products. J.R.
Hughes Company, Inc. is owned by James Hughes, Jr., an officer and director of
Hughes Wood Products, Inc. Total amounts paid during the year ended October 31,
1995 was $264,605; for 1994 $253,037 and for 1993 $189,576.
The Company believes that its arrangement with J.R. Hughes Company, Inc. are at
least as favorable to the Company as could have been obtained from third
parties.
In 1994, the Company purchased 460,000 shares of its own common stock owned by
James E. Hughes, Sr. at $1.04 per share.
In 1994, James E. Hughes, Sr. sold commercial property and timber land to the
Company. The purchase price of $433,630 was applied to reduce his obligation to
the Company.
Substantially all of the Company's assets are secured as collateral for a loan
obtained by James E. Hughes, Sr. in the amount of $362,628. In addition,
substantially all of the assets of James E. Hughes, Sr. are secured as
collateral for a loan obtained by the Company in the amount of $1,499,715.
In the current year, James E. Hughes, Sr. agreed to pay a portion of Hughes Wood
Products, Inc.'s payroll tax liability. The Company, however, is still
responsible for payment until the obligation is paid in full. The amount owed of
$618,060 is included on the balance sheet as of October 31, 1995.
<PAGE>
PHOENIX RESOURCES TECHNOLOGIES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
NOTE 11- RELATED PARTY TRANSACTIONS - Continued
During the 1995, 1994 and 1993, salaries of $12,000 were paid to each of the
spouses of James Hughes, Sr. and James Hughes, Jr. They were also provided
company vehicles.
Additional related party transactions are disclosed in Notes 5, 16 and 17.
NOTE 12 - INDUSTRY SEGMENT INFORMATION
During the current fiscal year, the Company and its subsidiary were engaged in
eight different business segments: saw milling, pole milling, logging, wood
preserving - lumber, wood preserving - poles, hardwood, oil and gas production
and oil and gas drilling. (Note 16)
The saw milling segment is primarily engaged in producing finished timbers and
lumber from logs. The by-products of such operations include wood chips,
shavings and sawdust.
The pole milling segment is primarily engaged in producing poles for use
primarily as supports of high power transmission lines. As a by-product of this
segment, it manufactures small and/or undesirable raw wood products into wood
chips used in the manufacture of paper.
Operations in the logging segment include cutting timber for saw logs, utility
poles, export logs, pulpwood and for chip mill use.
The wood preserving - lumber segment, which was begun in October 1990 with the
formation of the wholly-owned subsidiary, is primarily engaged in treating
lumber with chemicals to protect against the elements, fire and insects.
The wood preserving - poles segment is engaged in the treating of poles with
chemicals to protect against the elements, fire and insects. The resulting
products are mostly used for utility purposes for telecommunications in Mexico.
The exporting segment which was organized as a separate division in 1993 was
engaged in the exporting of scaled and debarked logs.
The hardwood segment is engaged in planing high grade hardwood lumber. The
resulting products are mostly used by furniture manufacturers.
The oil and gas production segment was originally purchased in February of 1995
and additional wells were added in July of 1995. The major business is the
production and sales of oil and gas from existing wells.
The oil and gas drilling business was purchased during July of 1995. The
principle activities of this business will be the drilling of oil and gas wells,
either for the Company's own account, or for outside companies. No business was
conducted during the current year in the drilling segment.
<PAGE>
PHOENIX RESOURCES TECHNOLOGIES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
NOTE 12 - INDUSTRY SEGMENT INFORMATION - Continued
The following tables illustrate net sales, operating income (loss) and other
financial information by industry segment for the year ended October 31, 1995.
The companies operate only in the continental United States.
1995 1994 1993
---- ---- ----
Net sales:
Saw milling $ 5,897,585 $ 5,874,370 $ 5,605,588
Pole milling 5,734,676 4,550,484 4,591,131
Logging 5,502,520 6,635,257 7,150,412
Wood preserving 7,380,225 7,832,885 7,250,701
lumber
Wood preserving 1,507,715 - -
poles
Exporting - other - 3,136,632 4,619,107
Hardwood 248,216 - -
Oil and gas drilling - - -
Oil and gas production 191,811 - -
----------- ----------- -----------
Total net sales $26,462,748 $28,029,628 $29,216,939
=========== =========== ===========
Operating income (loss):
Saw milling $ (494,431) $ 216,486 $ 355,831
Pole milling 346,387 675,053 88,100
Logging 211,259 706,799 795,331
Wood preserving - lumber 130,221 517,095 268,427
Wood preserving - other (69,146) - -
Exporting - other - - 196,403
Hardwood (105,979) - -
Oil and gas production (6,560) (1,535,567) (1,183,367)
Oil and gas drilling (26,285) - -
Corporate (2,187,322) - -
------------- ----------- ------------
Total operating (loss) $ (2,201,856) $ 579,866 $ 520,725
============= =========== ============
<PAGE>
PHOENIX RESOURCES TECHNOLOGIES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
NOTE 12 - INDUSTRY SEGMENT INFORMATION - Continued
Identifiable assets:
Saw milling $ 3,462,494 $ 4,609,199 $ 4,110,016
Pole milling 2,966,533 2,291,256 1,893,685
Logging 1,772,720 1,699,929 1,537,726
Wood preserving - lumber 1,833,200 3,504,072 3,443,471
Wood preserving - poles 697,699 - -
Exporting - other - - 51,155
Hardwood 570,553 - -
Oil and gas production 10,979,272 - -
Oil and gas drilling 800,000 - -
Corporate 3,284,846 2,033,212 1,199,649
----------- ----------- -----------
Total assets $26,367,317 $14,137,668 $12,235,702
=========== =========== ===========
Depreciation and amortization:
Saw milling $ 267,489 285,539 228,898
Pole milling 273,186 211,892 342,249
Logging 57,231 38,031 41,491
Wood preserving - lumber 100,439 147,042 140,562
Wood preserving -- poles 58,207 - -
Exporting - other - - -
Hardwood 1,086 - -
Oil and gas production 122,844 - -
Oil and gas drilling 26,785 - -
Corporate 72,598 42,543 33,566
----------- ----------- -----------
Total depreciation and
amortization $ 979,865 $ 725,047 $ 786,766
=========== =========== ===========
Additions to property and equipment:
Saw milling $ 122,882 $ 399,363 $ 471,369
Pole milling 393,822 704,173 244,966
Logging 316,297 33,930 23,492
Wood preserving - lumber 93,261 83,031 488,378
Wood preserving -- 18,554 - -
Exporting - other - - -
Hardwood 475,668 - -
Oil and gas production 10,979,272 - -
Oil and gas drilling 800,000 - -
Oil refinery - - -
Corporate 188,410 265,058 50,611
----------- ----------- ----------
Total addition to property and
equipment $13,388,166 $ 1,485,555 $ 1,278,816
=========== =========== ==========
<PAGE>
PHOENIX RESOURCES TECHNOLOGIES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
NOTE 12 - INDUSTRY SEGMENT INFORMATION - Continued
The Company sells a substantial portion of its product to one customer. During
the current year, sales to that customer aggregated $4,616,769, which represents
17.45% of net sales. During 1994, one customer accounted for 23% and a second
for 11% and during 1993 one customer accounted for 22%.
NOTE 13 - COMMITMENTS AND CONTINGENCIES
The Company and its subsidiaries entered into various operating leases for
facilities and equipment. The Houston property, on which the plant is located,
is leased at an annual rental of $35,000, which expires in June 1998. The
Company has an option to purchase the facility during the term of the lease for
$162,000.
The kiln and boiler facility in Bon Wier, Texas is leased for an 84 month period
at $11,616 per month, commencing September 30, 1991, with an option to purchase
the facility at termination of the lease for its then fair market value.
Also, certain transportation and other equipment are leased for 36 and 48 month
periods with total payments of $1,954 per month. All leases contain an option to
purchase at the termination of the leases for an amount which approximates the
estimated fair market value at that time.
The corporate office in Scottsdale, Arizona was leased for a period of 3 years,
in June of 1995 for an annual lease amount of $19,392 for the first year and
$19,998 for the second and third years.
The following is a schedule of the annual future minimum rental payments
required under operating leases that have initial or remaining noncancelable
lease terms in excess of one year as of October 31, 1995:
Year Ending
October 31
-----------
1996 $217,485
1997 213,064
1998 185,231
1999 108,384
--------
Total future minimum rental payments $724,164
========
Total rent expense for all operating leases, except those with terms of a month
or less that were not renewed, as of October 31, 1995 was $343,558; 1994 was
$342,912 and 1993 was $280,256.
The Company is heavily reliant upon sub-contractors to extract timber from the
forest. Advances are made to these sub-contractors to help finance their
activities until the cut timber is sold. The estimated net realizable value of
the advances outstanding at October 31, 1995, in the amount of $83,525 ($417,357
less an allowance of $333,832) are reflected in the accompanying financial
statements. These advances are secured by equipment owned by the sub-contractor.
Management monitors the fair market value of the equipment compared to the
outstanding advances for adequacy of collateral coverage.
<PAGE>
PHOENIX RESOURCES TECHNOLOGIES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
NOTE 13 - COMMITMENTS AND CONTINGENCIES - Continued
During 1993, the Company became partially self-funded for worker's compensation
insurance purposes. The Company's obligation (self-retention portion) under this
policy is $250,000 per occurrence for accidental medical expense claims. Claims
up to $100,000 in excess of the Company's obligation ($250,000) are covered by
external medical and health insurance. Claims in excess of $350,000 up to a
specific excess limit of $10,000,000 (inclusive of the retentions) are covered
by insurance. The Company contracts with a third-party to administer the
self-funded portion of worker's compensation. The third-party Administrator
maintains a trust fund on behalf of the Company. Claims made against the Company
are disbursed from this trust fund. The trust fund is replenished by the Company
through disbursements from the operating account when it is deemed necessary. In
accordance with state requirements, the Company has obtained a $250,000
irrevocable letter of credit in favor of the Louisiana Department of Employment
and Training, Office of Worker's Compensation. This letter of credit is secured
by trade receivables. There were no outstanding draws against the letter of
credit at October 31, 1995. Claims paid during 1995 totaled $913 and for 1994,
$32,913. Accrued expenses include $124,748 for 1995 and $110,500 for 1994 for
estimated claims incurred during the year but not paid..
Substantially all of the Company's assets are secured as collateral for loans
obtained by James E. Hughes, Sr. and Hughes Resources, Inc. in the amounts of
$362,628 and $3,052,114, respectively.
On August 10, 1995, the Company acquired oil drilling equipment, real estate and
oil and gas wells in exchange for preferred stock, series C and series D. Under
the terms of the agreement, the Company was to redeem the series D stock for
$3,000,000 by no later than January 31, 1996 or control of the Company and all
of its assets would revert to the seller via conversion of the preferred series
D stock into approximately 5,000,000 shares of common stock. The redemption was
to be accomplished by obtaining financing sufficient to pay all of the existing
debt and to redeem the preferred series D stock. Additionally, the series D
stock carries a dividend rate of 4% which is to accrue from the date of
issuance. The Company has not been successful in obtaining the necessary
financing or in redeeming the preferred series D stock as of the report date nor
have the preferred stockholders exercised their conversion rights.
The real estate purchased was subject to a judgement totaling $45,625 which
would entitle the holder of the judgement to the first proceeds from any sale of
the property.
NOTE 14 - EMPLOYEE BENEFIT PLANS
On February 1, 1994, the Company adopted a IRC 401(k) plan covering
substantially all eligible employees. Under the provisions of the plan, eligible
employees may defer up to 18% of their compensation; subject to Internal Revenue
Service limits. The Company contributed a matching ten cents on every dollar
contributed on the first three percent (3%) of employee compensation. Employees
must complete one year of service and attain age 21 before they are eligible to
participate. Participants may enter the plan on May 1, or November 1 immediately
following the completion of the age and service requirement. The Company
contributed $2,866 to the plan during 1995 and $3,011 during 1994.
NOTE 15 - UNCERTAINTIES
The accompanying financial statements have been prepared in conformity with
generally accepted accounting principles, which contemplates continuation of the
company as a going concern. However, the Company has sustained a substantial
operating loss in the current year and the Company has used substantial amounts
of working capital in its operations. In addition, at October 31, 1995, current
liabilities exceed current assets by $1,517,894.
<PAGE>
PHOENIX RESOURCES TECHNOLOGIES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
NOTE 15 - UNCERTAINTIES - Continued
In view of these matters, realization of a major portion of assets in the
accompanying consolidated balance sheet is dependent upon continued operations
of the Company, which in turn is dependent upon the Company's ability to meet
its financial requirements, and the success of its future operations. Management
is attempting to sell the two wood treating facilities and, if necessary, the
saw mill in order to liquidate the debts with AG-PCA and Community Bank. The oil
refinery was sold to liquidate the debt with Universal Pacific Reinsurance LTD.
Management intends to retain the logging, pole mill and the hardwood operations.
NOTE 16 - SUBSEQUENT EVENTS
As described in Note 7, the note payable to Community Bank became due on July
29,1995 and remained unpaid at October 31, 1995. However, on December 15, 1995,
the Bank renewed the loan for the same amount. The loan will mature on December
15, 1996, and will bear interest at 10.75% with monthly payments of $60,000 to
begin in July 1996.
On August 15, 1995, the Company purchased a refinery in exchange for $3,000,000
in a note payable and 2,200,000 shares of restricted common stock. This
acquisition included a provision whereby a related party had the option to
purchase the refinery within ninety days of the transaction at a price to be
determined later. In October 1995, the related party exercised the option and
purchased the refinery by assuming the 3,000,000 note and tendering marketable
securities of Stratford Acquisitions Corp. (a public company) which had a value
of $2,250,000 on the date of transfer. As of May 31, 1996, the value of the
stock had dropped to approximately $1,406,250.
On January 17, 1996, the Board of Directors approved the acquisition of three
pipeline systems. The total price of the acquisition was $1,750,000, payable in
2,250,000 shares of reg S stock and the assumption of $150,000 in debt. This
note did not bear interest and was due on March 15, 1996.
Effective January 31, 1996, the Company executed an agreement with James Hughes,
Sr. for the purchase and sale of stock of Hughes Wood Products, Inc. to Mr.
Hughes. Both parties are in dispute over the terms and conditions of the
agreement, as well as, the specific performance required by the contract.
However, all parties have indicated their desire to negotiate a settlement.
NOTE 17 - MERGERS AND ACQUISITIONS
During the current fiscal year, the company made several significant
acquisitions of both assets and corporate stock as summarized below:
On February 28, 1995 the Company acquired oil & gas reserves in Louisiana from a
related party in exchange for 825,100 shares of Rule 144 restricted common stock
and 200,000 shares of preferred series A stock. The transaction was valued at
the related party's basis and effectively passed control of the Company to a new
shareholder. The properties acquired were originally owned by a corporation
owned entirely by the former controlling shareholder of the Company but were
sold to the acquiring shareholder in a non-preferential transaction. The
subsequent purchase by the Company was for the same amount that was paid to the
former shareholder by the new controlling shareholder.
<PAGE>
PHOENIX RESOURCES TECHNOLOGIES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
NOTE 17 - MERGERS AND ACQUISITIONS - Continued
On July 10, 1995 the Company purchased approximately 300 oil and gas wells in
West Virginia, and the related equipment in exchange for 500,000 shares of
series C preferred stock and 666,667 shares of series D preferred stock. The
transaction was valued at $5,000,000.
On July 10, 1995 the Company acquired from a corporation related to the seller
in the paragraph immediately above, oil and gas drilling equipment along with
valid and existing contracts for the drilling of oil and gas wells in West
Virginia. The company issued 500,000 shares of series C preferred stock and
333,333 shares of series D preferred stock. The transaction was valued at
$3,000,000.
Both the W. Virginia oil wells and the drilling equipment were subject to an
agreement that the class D preferred stock was to be redeemed for $3,000,000 on
or before January 31, 1996 or the Company would relinquish control the Company
and all of assets to the prior owners of the wells and drilling equipment. After
one year from the date of issuance, each share of series D stock is convertible
to five shares of common stock (Note 13).
On August 14, 1995 the Company acquired all of the issued and outstanding stock
of U. S. Refining, Inc. which owned all of the land, building and assets of an
oil refinery in Egan, Louisiana, in exchange for 2,200,000 shares of Rule 144
restricted common stock and a 60 day $3,000,000 note. This transaction was
valued at $5,240,000. The corporation was sold to James Hughes, Sr. prior to the
end of the fiscal year(Note 16) and was inactive for the entire fiscal year.
Pursuant to a plan of merger, Hughes Resources, Inc. (a Colorado Corporation)
was merged into Hughes Resources Corporation (a Nevada Corporation) effective
June 27, 1995. The purpose of the merger was to redomicile the corporation from
Colorado to Nevada. The Nevada corporation had been formed solely for this
purpose and had no assets or liabilities prior to the merger. The articles of
incorporation of the surviving corporation were amended to increase the
authorized number of common shares to 100,000,000 with a par value of $.001
each, and to increase the authorized number of preferred shares to 50,000,000
with a par value of $.001 per share.
NOTE 18 - STOCKHOLDER'S EQUITY
The total number of shares of all classes of authorized capital stock is
150,000,000 shares, of which 50,000,000 shares shall be Preferred Stock, $.001
par value per share and 100,000,000 shares of Common Stock, $.001 par value per
share. For purposes of presenting earnings per share, the weighted average
shares outstanding have been retroactively restated to the earliest period
presented.
Preferred stock -
The designations and the powers, preferences and rights, qualifications,
limitations or restriction of the Preferred Stock shall be established in
accordance with the Nevada Corporation Code by the Board of Directors.
Additionally, the establishment of different series of Preferred Stock and
variations in the relative rights and preferences shall be established
accordingly.
Except for such voting powers with respect to the election of directors or other
matters as may be stated in the resolutions of the Board of Directors creating
any series of Preferred Stock, the holders of any such series shall have no
voting power whatsoever.
<PAGE>
PHOENIX RESOURCES TECHNOLOGIES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
NOTE 18 - STOCKHOLDER'S EQUITY - Continued
Common stock -
The holders of Common Stock shall have and possess all rights as shareholders of
the corporation, including such rights as may be granted by the Articles of
Incorporation, except as such rights may be limited by the preferences,
privileges, voting powers, restrictions and limitations of the Preferred Stock.
Subject to preferential dividend rights, if any, of the holders of Preferred
Stock, dividends upon the Common Stock may be declared by the Board of Directors
and paid out of any funds legally available therefore at such times and in such
amounts as the Board of Directors shall determine. In accordance with the loan
covenants, the payment of dividends are restricted. Dividends cannot be paid
without the prior written consent of Agriculture Production Credit Association.
Common stock purchase warrant -
In February, 1992, the Company completed a public offering by which 966,000
units were sold on a firm-commitment basis. Each unit consisted of two shares of
common stock, one Class A redeemable common stock purchase warrant and one Class
B redeemable common stock purchase warrant. Each Class A warrant is exercisable
to purchase one share of common stock for $5.00 per share through March 9, 1994,
and each Class B warrant is exercisable to purchase one share of common stock
for $7.00 per share through the same date. Such warrants expired at the close of
business March 9, 1995.
Stock option plan -
In July 1992, the Board of Directors adopted a plan by which each director of
the Company on July 31 of any year who is not also an employee will be granted
an option to purchase 2,000 shares of the Company's common stock, based on the
average bid and asked price (as reported by NASDAQ) during the month of July.
The options, when granted, will be exercisable for five years. No stock options
or stock appreciation rights were granted to any person pursuant to the Plan
during the year ended October 31, 1995. Options to purchase 10,000 shares each
are outstanding as of October 31, 1995 to James E. Hughes, Sr. and to James E.
Hughes, Jr. based on the average of bid and asked price on October 31, 1994 of
$.80 per share.
Additional options were granted to Charles Masters, exercisable at $1.00 per
share. During the current fiscal year, Mr. Masters resigned and the stock
options now are considered expired.
<PAGE>
PHOENIX RESOURCES TECHNOLOGIES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
NOTE 19 - EXTRAORDINARY ITEMS
The extraordinary items are described as follows, net of taxes:
1995 1994
-------- --------
Write down of notes receivable that were
unrelated to the business enterprises $520,000 $ --
Loss contingency accrual on the settlement
of a lawsuit in December 1994 -- 99,000
Loss from a joint venture terminated in
December 1994 -- 55,022
-------- --------
$520,000 $154,022
======== ========
NOTE 20 - EARNINGS (LOSS) PER SHARE
Earnings (loss) per share of common stock were computed by dividing net income
by the weighted average number of shares of common stock outstanding during the
period in the amount of 1,697,206 for 1995, 497,966 for 1994 and 483,148 for
1993 (after adjustment for a 1 for 10 reverse stock split).
ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND
FINANCIAL DISCLOSURE.
There were no events reportable pursuant to Item 304 of Regulation S-K by
the Company with any of its former independent auditors during the last two
fiscal years where such auditor has resigned, declined to stand for re-election
or was dismissed as a result of accounting or financial disclosure matters. In
March, 1996, the Company selected its current auditors as a result of entering
into the oil and gas industry and due to the fact that the former auditors,
Langley, Williams & Company, had advised the Company that because of their
unfamiliarity with the oil and gas auditing procedures, they did not desire to
be considered for the engagement as the Companys principal auditors for the 1995
fiscal year. Langley, Williams & Company did conduct the principal audit of the
Companys Wood Products Division, having conducted the audit on its wood products
subsidiaries, including Hughes Wood Products, Inc. and Houston Woodtech, Inc.
There were no disagreements with either the former or present accountants as to
any matter of accounting principles or practices, financial statement
disclosure, or auditing scope or procedure. The engagement of the independent
auditors was approved by the Board of Directors.
ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT.
Directors of Registrant
James R. Ray Mr. James R. Ray currently holds the following positions and
offices with Phoenix Resources: Chairman of the Board of Directors Chief
Executive Officer President March 3, 1995 to present. Mr. James R. Ray was
elected to the position of President of the Company pursuant to the asset
acquisition agreement entered into by Southwest Holdings, Inc. and the Company
on March 3, 1995. Mr. Ray was later nominated and made a member of the Company's
Board of Directors on March 9, 1995. During the past five years and until
January, 1995, Mr. Ray has practiced as a certified public accountant within his
own firm by the name of Ray & Associates, LLP. in Dallas, Texas. Mr. Ray has
been on the Board of Directors of Ex-cel Resources, Inc. a NASDAQ publicly
traded company prior to becoming involved with Phoenix Resources. During the
past five years, Mr. Ray has also been actively engaged in the purchase and sale
of numerous oil and gas interests through Southwest Holdings, Inc., a company
owned and operated by him. Age: 57
George W. Smith Current Positions and Offices held by George W. Smith with
Phoenix Resources: Director Secretary February 22, 1995 to present. Mr. Smith
has been self-employed during the past five years and has owned and operated
G.W.S. Holding Company, which is primarily involved in the purchase and sale of
oil leases, coal leases, natural gas contracts and bank guarantees. Term of
Office: February 22, 1995 to present, until the reelection of the Board at the
next annual stockholder's meeting. Age: 73
James E. Hughes, Sr. Offices and Positions held by James E. Hughes, Sr. as
of October 31, 1995: Chairman of the Board of Phoenix Resources Technologies,
Inc. Chief Executive Officer of Phoenix Resources Technologies, Inc. President
of Hughes Wood Products, Inc. Offices and Positions presently held by James E.
Hughes, Sr. : President of Hughes Wood Products, Inc. Feburary 23, 1995 to
January 22, 1996. Mr. Hughes has been in the wood products industry for the past
22 years. During the past five years Mr. Hughes has been employed by the Company
as its Chief Executive Officer, and President, as well as the President of its
subsidiary, Hughes Wood Products, Inc. Mr. Hughes, Sr. job duties have included
the oversight and management of the company until March, 1995 as well as the
continued oversight and management of the Comnpanys Wood Products Division.
Coast Casualty Insurance Company of Lake Charles, Louisiana. Term of Office:
February 23, 1995 to January 22, 1996. Age: 52
Warren R. Haught Current Positions held by Mr. Warren R. Haught: Director
of the Company President elect of the Companys Energy Division. July 10, 1995 to
present. Pursuant to the asset acquisition agreements entered into between Mr.
Warren Haught, Top Drilling, Inc. and HAH Petroleum, Inc. on or about July 10,
1995, Mr. Haught was to be elected as President of the newly formed Energy
Division of the Company as well as made a Director of the Company. Mr. Haught
has been self employed in the Oil and Gas Industry since 1952. A third
generation oil and gas industrialist, Mr. Haught has owned and operated several
oil and gas wells, in various capacities, including drilling, distribution, and
production. Mr. Haught brings a tremendous wealth of knowledge in the oil and
gas industry to the Company. He has been the President and Director and a member
of the Independent Oil and Gas Association of West Virginia. Term of Office:
July 10, 1995 to present. Age: 62
Executive Officers of Registrant
James R. Ray
See Directors of Registrant.
Warren R.Haught
See Directors of Registrant.
James E. Hughes, Sr.
See Directors of Registrant.
Marvin Lewis Assistant Secretary to the Company Term of Office: March 6,
1995 to present. Mr. Lewis has been engaged in the practice of law for the past
35 years. At present, he is no longer actively involved in his practice but
provides services as a legal consultant to the Company. Age: 55
ITEM 11. EXECUTIVE COMPENSATION.
SUMMARY COMPENSATION TABLE(1)
Long-Term Compensation
Annual Compensation Awards
- --------------------------------------------------------------------------------
Other
Name Annual Restricted Under-
and Compen- Stock lying
Principal sation Award(s) Options/
Position Yr Salary($) Bonus($) ($)
- --------------------------------------------------------------------------------
James E. Hughes 1995 75,000(2) 10,440(3) -0- -0-
Sr. Chief
Executive Officer
James R. Hughes 1994 150,000 10,440 -0- -0-
Sr. Chief
Executive Officer
James R. Hughes 1993 150,000 10,440 -0- -0-
Executive Officer
James R. Ray: 1995 -0- 15,000(4) -0- -0-
President
PAYOUTS
LTIP All Other
Payouts Compensation
Yr ($) SARS (7)
- --------------------------------------------------------------------------------
James E. Hughes 1995 -0- 300,000(4)
Sr. Chief
Executive Officer
James E. Hughes 1994 -0- -0-
Sr. Chief
Executive Officer
James E. Hughes 1993 -0- -0-
Sr. Chief
Exceutive Officer
James R. Ray 1995 -0- 2,500(6)
(1) The foregoing table sets forth information regarding compensation paid
to Officers of Phoenix Resources Technologies, Inc. during the three fiscal
years ended October 31, 1995. No other executive officer received compensation
in excess of $100,000 during fiscal 1995.
(2) Pursuant to the stock purchase agreement entered into in 1991 between
Firma, Inc. and Hughes Wood Products, Inc., the annual salary of Mr. Hughes for
the 1995 fiscal year was to be in excess of $167,375. However, Mr. Hughes
requested a reduction in his salary during this past fiscal year 1995 on account
of the cash shortages experienced by the Wood Products Division of the Company
during the year. Mr. Hughes received approximately $75,000 as a result of this
reduction.
(3) This amount, including other annual compensation columns for years 1994
and 1993, constitute amounts paid to or for the benefit of Mr. Hughes in
connection with a life insurance plan which was in place significantly prior to
the May 1991 acquisition of HWP by the Company. Pursuant to this plan, the
Company pays approximately $48,000 per year for insurance on the life of Mr.
Hughes, Sr. Although the Company is vested in the cash surrender value to the
extent of the premiums paid. The percentage of the premiums for the term
insurance portion of the policy is considered other compensation to Mr. Hughes
as indicated above.
(4) Mr. Hughes received 600,000 shares of pre one for ten reverse split
stock on March 22, 1996 as payment and consideration for personally guaranteeing
loans and indebtedness in excess of $6,000,000 owed by the Company. The
consideration was calculated based on a formula of $50,000 of compensation was
to be paid for every $1,000,000 dollars of indebtedness guaranteed. The shares,
which were issued pursuant to the Companys newly established Employee Benefit
Plan of 1995, were registered pursuant to Form S-8 and were freely tradeable at
the time of issuance. However, Mr. Hughes has not sold any of these shares as of
June 11, 1996.
(5) Mr. Ray received approximately 15,000 dollars worth of compensation as
a result of performing several minor contracting services for the company for
which he received direct compensation.
(6) Pursuant to services rendered as its Chief Executive Officer, the
Company granted Mr. Ray approximately two thousand five hundred dollars worth of
stock pursuant to the Companys Employee Benefit Plan as noted below. (See Note
7)
(7) The Board of Directors of the Company adopted an Employee Stock Benefit
Plan (the Plan) on March 17, 1995, by filing a Registration S-8 authorizing the
registration of four million shares of the Companys common stock for issuance in
connection with the compensation to its employees and consultants pursuant to
the plan. The Company filed a subsequent amendment to this Plan registering an
additional two million shares of common stock on October 3, 1995 as additional
stock to utilized as payment for services rendered to the corporation by its
employees and consultants. But for the issuance of 605,000 shares of this stock
as noted above (See notes 4 and 6) to Mssrs. Hughes and Ray, no other employee
of the Company has received stock pursuant to this plan.
Item 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT.
Security Ownership of Certain Beneficial Owners
Name and Address Amount and
Title of Class of Beneficial Owner Nature of Percent
Beneficial Owner of Class
- --------------------------------------------------------------------------------
Common Stock Southwest Holdings, Inc. 456100 (2) 4.98
P.O. Box 116 Road Town
Tortola, British Virgin
Islands
Security Ownership of Management(1)
Name and Address Amount and
Title of Class of Beneficial Owner Nature of Percent
Beneficial Owner of Class
- --------------------------------------------------------------------------------
Common Stock James R. Ray 456100 (2) 4.98
16730 E. Trevino Dr.
Fountain Hills, AZ 85266
Common Stock George W. Smith 5,000 0.05
Common Stock James E. Hughes, Sr. 283,642 3.10
(1) The above tables set forth information regarding current positions of
the Officers, Directors, and greater than five percent beneficial shareholders
Officers and Directors of Phoenix Resources Technologies, Inc. as of May 3,
1996.
(2) The 456,100 shares of common stock are held in the name of Southwest
Holdings, Inc., a Company that is wholly owned and controlled by Mr. James R.
Ray. As such, Mr. Ray has, by virtue of his substantial control over Southwest
Holdings, Inc., has a beneficial ownership interest in these shares.
ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS.
On February 28, 1995 the Registrant entered into an asset purchase
agreement (Agreement) with Southwest Holdings, Inc., (Southwest) a corporation
organized under the laws of the British Virgin Islands, and wholly owned by Mr.
James R. Ray. Pursuant to the Agreement the Registrant acquired six oil and gas
wells along with seventeen acres of surrounding land that is proven with oil and
gas reserves located in the Vermillion and La Salle Parishes of Louisiana,
(Southwest Assets) in exchange for which the Registrant issued 8,291,000 shares
of Rule 144 common stock and 200,000 shares of Series A Preferred Stock to
Southwest, and Southwests assignee, James C. Wiles, an unaffiliated creditor of
Southwest. The Agreement was consummated on March 9, 1995. Insofar as Mr. Ray
was made President of the Registrant as a result of this transaction, (See Item
11 supra.) and the fact that he substantially controlled Southwest at the time
of this transaction, Mr. Ray may have received an indirect beneficial interest
in the transaction as a result of his control position in Southwest. In
addition, Mr, Ray was nominated onto the Board of Directors of the Registrant
shortly after this transaction and was originally a nominee to the Board of
Directors at the time the Agreement was being considered by the Registrants
Board. As such, Mr. Ray may have received a direct beneficial interest in this
transaction. In addition, because Mr. Ray substantially controlled Southwest,
Mr. Ray may have received a direct beneficial interest in the stock issued to
Southwest by the Registrant pursuant to this transaction. The Southwest Assets
were previously held by J.A.D.E. Petroleum, Inc. a Texas Corporation that is a
wholly owned subsidiary of Southwest Holdings. In a previous transaction,
Southwest acquired the Southwest Assets through the acquisition of all of the
issued and outstanding stock of J.A.D.E. Petroleum, pursuant to a stock purchase
agreement between Southwest and James E. Hughes, Sr. Mr. Hughes exchanged his
ownership interest in the stock of J.A.D.E. Petroleum, Inc. in favor of
Southwest in exchange for a non-recourse promissory note in the amount of $6.7
million dollars and bearing 6% interest accruing on maturity. As such, the
transactions taken together may be construed as not having been conducted at
arms length and Mr. Hughes, Sr. may have received an indirect beneficial
interest in the Agreement. At the time of filing of this disclosure report, the
Registrant has not perfected its title in the Southwest Assets by obtaining and
recording the assignments of interest from Southwest. Management of the Company
has stated that this has been an oversight and the Company will promptly record
its interest in these assets with the local title recording offices in both
Vermillion and La Salle Parishes.
On August 15, 1995 the Company agreed, pursuant to a duly called Special
Meeting of the Board of Directors, to purchase the stock of U.S. Refining, Inc.
from Universal Pacific Reinsurance Ltd., a company registered and incorporated
in the Marshall Islands, (Universal Agreement), whereby, in exchange for two
million two hundred thousand shares of the Companys common stock and a
promissory note in favor of the Universal issued by the Company in the amount of
three million dollars and bearing interest at the rate of 8% to accrue upon
sixty days from the date of issuance, the Company acquired the stock of U.S.
Refining, Inc. and its assets which consisted of the Egan, Louisiana Oil
Refinery. The assets of U.S. Refining, Inc. consisted of an Oil Refinery that
was located in Egan, Louisiana. U.S. Refining, Inc. was previously owned and
substantially controlled by Mr. James E. Hughes, Sr., who in a previous and
unrelated transaction and party to the Universal Agreement sold his interests in
U.S. Refining, Inc. The Board also considered a proposal from Mr. Hughes, Sr.
who had requested that the Board allow him a ninety day option to purchase the
Oil Refinery for the same consideration paid by the Company in the event that
the Company had determined during this ninety day period that the refinery
acquisition proved to be inappropriate with the objectives and operations of the
Company. On October 3, 1995 the Board reconvened and determined that it was in
the best interests of the corporation to sell the refinery assets to Mr. Hughes.
The board based its decision on several factors including the fact that a
previously undiscovered fact had come the Boards attention which made the
refinery an unprofitable short term acquisition. Because of a railroad trestle
that existed in the middle of the canal, only but the smallest barges were able
to reach the ports of the refinery, making the refinery unprofitable without
incurring significant remediation costs. In addition, the previous plan of
utilizing the refinery as a crude oil blending facility proved to be an event
that could not be effectively implemented by the company given its current cash
flow shortage, as a profitable venture in the foreseeable future. In exchange
for the issued and outstanding stock of U.S. Refining. Inc., Mr. Hughes, Sr.
assumed the promissory note in favor of Universal and paid as consideration two
million two hundred and fifty thousand dollars worth of marketable securities to
the Company, for a total value of over five million five hundred thousand
dollars. As a result of these successive transactions occurring within a short
period of time, and Mr. Hughes previous affiliations with U.S. Refining, Inc.,
Mr. Hughes may have received a material indirect or direct beneficial interest
in this series of transactions and due to the related nature of the parties
involved, the transaction cannot be said to have occurred at arms length.
Item 14. Exhibits, Financial Statement Schedules, and Reports on Form 8-K.
Pursuant to the requirements of Section 13 or 15(d) of the Securities
Exchange Act of 1934, the registrant has duly caused this report to be signed on
its behalf by the undersigned, thereunto duly authorized.
PHOENIX RESOURCES TECHNOLOGIES, INC.
By: /s/ James R. Ray
------------------------------------------------
Title: President, Chairman of the Board, CEO
Date: June 14, 1996
By: /s/ George W. Smith
------------------------------------------------
Title: Secretary, Director
Date: June 14, 1996
Pursuant to the requirements of the Securities Exchange Act of 1934, this
report has been signed below by the following persons on behalf of the
registrant and in the capacities and on the dates indicated.
By: /s/ James E. Hughes, Sr.
--------------------------------------------------
Title: Former Director/Chairman of Registrant
Date: June 15, 1996
By:
Title
Date:
By:_____________________________________________________
Name
Title
Date:
By:_____________________________________________________
Name
Title
Date:
By:_____________________________________________________
Name
Title
Date:
ASSET PURCHASE AGREEMENT
This agreement is made as of the 28th day of February, 1995, by and between
Southwest Holdings, Inc., A British Virgin Islands corporation, acting by and
through its duly authorized officer, hereinafter "Southwest" and Hughes
Resources, Inc., a publicly held and traded corporation, hereinafter "HRI".
WITNESSETH
WHEREAS, Southwest Holdings, Inc., is a British Virgin Islands Corporation
acting by and through its duly authorized officer James Ray ("Ray"), and
WHEREAS, Southwest is desirous of selling certain of its assets, and
WHEREAS, HRI is a Colorado Corporation, publicly traded and a market for
its securities is made on the NASDAQ system, and
WHEREAS, HRI is acting through its duly authorized officer and president
James E. Hughes, ("Hughes"), and
WHEREAS, HRI is desirous of purchasing assets offered for purchase by
Southwest.
NOW, THEREFORE, in consideration of the mutual covenants and agreements
contained herein and for other and valuable considerations, the receipt and
sufficiency of such is mutually acknowledged, it is agreed, covenanted and
warranted as follows:
1. That Southwest owns free and clear of any liens or encumbrances certain
oil and gas wells.
2. The Boards of Directors and officers of HRI and Southwest have made an
independent valuation of the oil and gas properties, set forth on Exhibit "A"
attached hereto and made a part hereof as though fully forth herein.
3. HRI and Southwest agree that the properties set forth ion Exhibit "A"
have a fair market value of at least Six Million Seven Hundred Thousand Dollars,
($6,700,000.00).
4. HRI further agrees to issue to Southwest or its nominees capital stock,
common and preferred, in an amount totaling the agreed value of $6,700,000.
Common stock to be restricted only by regulation S of the Securities and
Exchange Commission provided that the common stock issued to Southwest will not
exceed five (5) million common shares. Attributes of the preferred shares to be
set by agreement of the parties.
5. HRI agrees to prepare Corporate documentation including, but not limited
to, appropriate corporate resolution and filings, if necessary with the
appropriate federal and state agencies concerned with the public securities
transactions, for the agreement set forth herein.
6. The parties hereto covenant and warrant that they will do the due
diligence they deem necessary prior to the delivery of the stock of HRI and
delivery if assets to HRI and will fully indemnify one to the other against any
claims they make if have committed by a party hereto.
7. The parties agree to execute and deliver any and all legal documents
reasonably required to close the purchase and sale.
8. The closing of the transactions set forth herein shall be on the 27th
day of February, 1995; unless extended, in writing and signed by the parties.
9. This Agreement may be amended of altered in any provision and such
change shall become effective when reduced to writing and signed by the parties.
10. This Agreement shall be binding upon and inure to the benefit of
Assigns, heirs and representatives and successors of the parties hereto.
IN WITNESS WHEREOF, the parties hereto have executed this agreement on
this, the 28th day of February, 1995.
/s/ James E. Hughes___________
Hughes Resources, Inc. by its President
/s/ James Ray________________
Southwest Holdings, Inc. by its President
/s/ James Ray________________
James Ray, Individually
/s/ James E. Hughes___________
James E. Hughes, Individually
<PAGE>
EXHIBIT A
LaSalle Parish La. Robert Beech Lease
API number Well number
17-059-2375600 001 Operating
17-059-2375700 002 Operating
17-059-2375800 003 Operating
17-059-2164900 004 Operating
unknown 005 Operating
Vermilion Parish, La. Mayo Lease
Lily B. Huval Shut in awaiting rework
Situation Consultants, Inc.
ROBERT BEECH LEASE
Trout Creek Field
Sec. 24, T8N. R2E
La Salle Parish, Louisiana
Evaluation of Remaining Oil Reserves
P.O. Box 833 o Benton, Louisiana 71006 o (318) 965-0169
<PAGE>
March 15, 1995
Mr. James R. Ray
Southwest Holdings, Inc.
8283 N. Hayden
Road, Suite 128 Scottsdale, AZ 85258
RE: Robert Beech Lease
Trout Creek Field
Sec. 24, T8N, R2E
La Salle Parish, Louisiana
Dear Mr. Ray:
Pursuant to your request, a study was made of the producing horizon, the
Sparta Sand, on the above referenced lease to determine the remaining
recoverable oil-in place.
Using volumetric calculations as shown in the attached Appendix A, it was
determined that the remaining recoverable oil-in-place is approximately 81.250
barrels. Based on a net before income tax value of $12.00 per barrel of oil
(after royalty and operating cost), the undiscounted value of the remaining
recoverable oil-in-place was calculated to be $975,000.
Discussion:
The Beech lease consists of 5 wells on 17+ acres and is presently operated
by Crown Operating Company, Inc. in Shreveport, Louisiana. Three wells are
presently on production with 2 workovers planned. The average production from
this lease is presently 10-12 barrels of oil per day. After the workovers are
completed, an increase to 20+ barrels is anticipated.
Appendix B shows a list of the wells, the lease production history, and
production graphs.
I hope that this study will provide you with the information that you need.
If you have any questions or need any additional information concerning this
study, please feel free to call me.
Yours truly,
s/ Robert M. Scoggins
Robert M. Scoggins, P.E. Registered Professional
Engineer P.O. Box 833 o Benton Louisiana 71006 o (318) 965-0169
<PAGE>
This reservoir study and subsequent projections were made from initial
completion data and tests indicating an initial BHP of 9126 psi and other data
obtained from JADE Petroleum. Assumptions made by preparer were gathered from
historical knowledge and professional experience of the type reservoir under
study. The projection of ultimate gas and condensate recovery may be greater or
less than shown as reservoir conditions sometimes change from unforeseen and
unknown reasons. This initial projection will be updated as additional
production data and bottom hole pressures are available.
If any further information is required please advise.
Yours very truly,
s/ Robert M. Scoggins
Robert M. Scoggins, P.E.
<PAGE>
A discussion of the data collection process and parameters used in the
calculations follows.
A Thermal Multigate Decay Log (TMD) was run by Halliburton in November of
1993. In indicated possible production from the 12,700' sand interval. Side wall
core data from the adjacent well bore at this interval was studied and
tabulated. All of the depths and descriptions were correlated with Gamma Ray
Neutron open hole log run in July of 1993, in the present well bore. This data
and correlations are shown in Table A.
From this accumulated data and extrapolations of known data, to its
corresponding interval to unknown data to its corresponding interval, (Table B)
an interval for perforating was selected. This interval of 12,683' - 12,685';
12,690' - 12,712' was perforated April 30, 1994. this zone as of May 28, 1994
was producing 1,500 MCF gas and 15 barrels of oil on a 7/64" choke and a flowing
tubing pressure of 7,420 psi.
The data used for the calculation of gas in place and recoverable gas was
obtained from the logs and core data. This data and reserve calculations is
shown in Table C. As seen, an average porosity of 22%, and an average water
saturation of 16%, with a net thickness of 24 feet and drainage area of 160A was
used to calculate gas in place. Gas in place was calculated to be 10,961,137
MCF. Using a recovery factor of 75.7% , probable recoverable gas was calculated
to be 8,297,581, or 2160 MCF per acre foot. This recoverable gas amount was used
with JEH's NRI of 78% to obtain as shown 6,401,839 MCF attributable to JEH's
interest.
The economic evaluation of the well extrapolated to its projected producing
limit of 16 1/2 years is shown in Table D. The well was produced at the present
rate of 1500 MCF/day for the remainder of 1994, than production increased on
January 1, 1995 to 2500 MCF/day. At this time the projection starts a production
decline rate of 9% per year until the estimated recoverable reserves are
produced. The next production shown reflects J.E.H.'s 10% WI or 78% of gross
production. The oil/condensate ratio to gas of 10 bbl's per 1000MCF was used to
estimate the condensate production and held constant for the life of the well.
The net revenue before taxes and operating cost was calculated using $20.00 per
bbl condensate and $2.00 per MCF gas with no escalation or BTU adjustment in
price for the life of the well.
From the sum of the net revenue from the condensate and produced gas a net
revenue of $14,084,098 was projected. Using a tax rate of 7.5% for gas and 12.5%
for condensate, and an operating cost of $3,000 per month a possible net
cumulative income of $12,366,636 was projected based on the probate recovery of
8,207,496 MCF of gas in 16 1/2 years.
The present value (PV) is tabulated discounted 10% for the life of the well
and the PV at 10% is shown to be $6,938,919.
________ROBERT M. SCOGGINS, P.E.________
A Professional Petroleum Engineering Company
<PAGE>
JADE Petroleum, Inc.
P.O. Box 565
Newton, Texas 75966
Attn: Mr. James E. Hughes
RE: MAYO 12700 RAVU
W. Parcperdue Field
Sec. 53, Tlls, R4E
Vermillion Parish, LA
Dear Mr. Hughes: Pursuant to r request, a study was made of the presently
producing zone in the above referenced well. The study was undertaken to
determine the probable gas condensate reserves in place under the 460A producing
unit and to determine the estimated recoverable gas reserves. From the estimated
recoverable reserves, the value of your interest based on your ownership of 100%
of the working interest and 78% of the gross revenue was determined. Summarily,
the results of this study pertaining to the James E. Hughes (JEH) interest are
as follows:
Reserve Category Total Recoverable Reserves
MCF BO*
Proven Producing 8,297,581 82,976
BO = 409* API at 60* condensate
JEH Evaluated Interest
Total Recoverable Reserves Future Value Total Future Value
MCF BO* Gas ($) Oil ($) ($)
6,401,839 64,021 12,803,676 1,280,420 14,084,098
Total Future Value Less Taxes & Operations Net Future Value
($) ($) ($)
14,084,098 1,717,329 12,366,769
JEH Evaluated Interest Present Value $6,938,919
ASSET PURCHASE AGREEMENT
This agreement is made as of the 10th day of July, 1995 by and between
Hughes Resources, Inc., a publicly held and traded corporation, hereinafter
"HRI" and Top Drilling, Inc., acting by and through its duly authorized
officers, hereinafter, "Top".
WITNESSETH
WHEREAS, Top is a corporation in good standing with the State of Nevada,
its State of Incorporation; and
WHEREAS, Top is desirous of selling certain of its' assets, and
WHEREAS, HRI is a Nevada Corporation, is publicly traded and a market for
its; common stock is made on the NASDAQ system and the Boston Stock Exchange,
and
WHEREAS, HRI is acting by and through its' duly authorized President, James
R. Ray ("Ray"), and is desirous of purchasing certain assets of Top.
NOW THEREFORE, in consideration of the mutual covenants and agreements
contained herein and for other good and valuable consideration, the receipt and
sufficiency of such is mutually acknowledged and accepted by the parties, it is
agreed, covenanted and warranted as follows:
THAT
1. Top owns free and clear of any liens or encumbrances certain oil and gas
drilling equipment, as set forth on Exhibit "A" attached hereto and made a part
hereof and real property as more fully set forth in the warranty deeds attached
and made hereof as Exhibit "B". The real property is located in Ritchie County
in the State of West Virginia. Except as noted in Paragraph 6.
2. Top covenants and warrants that it has valid and existing contracts for
the drilling of oil and gas wells in Lewis County, In the State of West Virginia
said contracts are attached hereto as Exhibit "C" and made a part hereof.
3. Top covenants and warrants that the contracts set forth in Exhibit "C"
are fully transferable without penalty and on the same conditions as stated
therein, and that there are no known of unknown breaches or challenges to the
contracts set forth in Exhibit "C".
4. Top covenants and warrants that it has done its due diligence and that
the parties to the contracts set forth in Exhibit "C" can perform the
obligations set forth for each party to the drilling contracts.
5. Top covenants and warrants that it has and is complying with all county,
state and federal regulations pertaining to the equipment, real estate and
drilling contracts, including but not limited to, OSHA requirements and
environmental rules and regulations currently in existence and that all real and
personal property taxes are currently assessed have been paid.
6. Top covenants and warrants that it has good and defensible legal title
to the real property set forth in Exhibit "B", and that valid and current title
opinions have or will be obtained prior to the closing date as set forth herein;
such title is subject to a lien of an undetermined amount filed in Ritchie
County, West Virginia.
7. That the officers of Top whose, signature appears below have full right
and authority to act on behalf of Top and to bind it Top, to the covenants
contained herein.
8. HRI covenants and warrants that it is a corporation in good standing
with all necessary permits to act as a publicly traded corporation, and that it
has no knowledge of any contest of impediment to its preferred stock being
issued in consideration for the purchase of assets as set forth herein, a
specimen copy of said preferred stock and its implementing corporate documents
are attached hereto as Exhibit "D".
9. That HRI covenant and warrants that it is duly authorized to transfer
two million five hundred thousand dollars ($2,50,000) of its Series C Preferred
Stock and five hundred thousand dollars ($500,000) of its Series D Preferred
Stock subject to the appropriate parameters of ownership for each class of stock
as shown on Exhibit "D" attached to and incorporated into this agreement, the
acquisition and purchase of the assets set forth in this agreement as full and
total consideration for the sale of these assets by Top.
10. That HRI has no knowledge of any contest or impediment pertaining to
the shares to be issued for the purchase of the Top assets described herein.
11. The Boards of Directors of Top and HRI have made an independent
valuation of the assets described in this agreement and attached hereto, and
that the assets being purchased have fair market value at least equal to the
stated consideration for the purchase.
12. HRI agrees to prepare corporate documentation including, but not
limited to, appropriate corporate resolutions and filings, if necessary, with
the appropriate agencies concerned with public securities transactions for the
transfer of its common stock as set forth herein as the total consideration for
the assets being sold by TOP.
13. The closing date for the purchase and sale of the assets will be no
later than the 31st day of July, 1995; unless mutually extended in writing by
both TOP and HRI.
In Witness whereof the parties have executed the Agreement as of the date
first stated above.
ATTEST HUGHES RESOURCES, INC.
__________________ s/ James R. Ray_____________
By its President
ATTEST TOP DRILLING
__________________ /s/ John P. Cook_____________
By its President
<PAGE>
BILL OF SALE
This Bill of Sale made as of the 31st day of July, 1995; by and between Top
Drilling Inc., a Nevada corporation, hereinafter "Seller" with offices at
Smithville, West Virginia and Hughes Resources, Inc., a Nevada corporation, with
offices at 8283 N. Hayden, Scottsdale, Az. 85258, hereinafter "Buyer".
Seller and Buyer acknowledge that there is good and sufficient
consideration for Seller to sell and for Buyer to buy. Seller sells and
transfers possession of the following personal property.
The personal property and appurtenant equipment set forth on Exhibit "A"
attached hereto and made a part hereof as though set forth verbatim herein.
The Seller Warrants that it owns this personal property and that it has the
authority to sell the personal property to the buyer.
Seller, also, warrants that the property is sold free and clear of all
liens, indebtedness, liabilities, except those set forth below: None
The Seller, further, warrants that the personal property being sold is in
good working condition as of this date.
Signed and Delivered to the Buyer on the above date.
Seller:
s/ John P. Cook_______________
by its President
Buyer:
Hughes Resources, Inc.
s/ James R. Ray________________
by its President
<PAGE>
AFFIDAVIT OF TITLE
This Affidavit of Title is made on July 31, 1995 between Top Drilling Inc,
Seller of Smithville, West Virginia, State of West Virginia, for Hughes
Resources, Inc., Buyer of 8283 N. Hayden Road, Scottsdale, Az.
1. Seller certifies that it is now in possession of and is the the absolute
owner of the following property:
As set forth in Exhibit "A"
2. Seller also states that its possession has been undisputed and that
Seller knows of no fact or reason that may prevent transfer of this property to
the Buyer.
3. Seller also states that no liens, debts, or lawsuits exist regarding
this property, except the following:
None
4. Seller finally states that it has full power to transfer full title to
this property to the Buyer.
s/ John P. Cook______________
(Signature of Seller)
by: Top Drilling Corporation
State of Ohio
County of Washington
On the 1st day of August, 1995, John P. Cook personally came before me and,
being duly sworn, did state that he is the person described in the above
document and that he signed the above document in my presence.
s/ David C. Zoller_____________ DAVID C. ZOLLER, Notary Public
In and For The State of Ohio
Notary Public, for the County of Washington My Commission Expires 6-17-1999
State of Ohio
July 10, 1995
Mr. Warren R. Haught
P.O. Box 2
Smithville, WV 26178
<PAGE>
Dear Mr. Haught:
This letter agreement is being written to accompany the contract signed
between Hughes Resources, Inc., Top Drilling Corp., and HAH Petroleum, Inc.
Hughes Resources, Inc. agrees to a best efforts schedule on the call of the
$3,000,000.00 of Class D preferred stock in the following manner.
1. August 31, 1995 $1,000,000.00
2. October 31, 1995 $1,000,000.00
3. January 31, 1996 $1,000,000.00
------------
Total $3,000,000.00
If the corporation is successful in placing the warrant program and if the
drilling contract is consummated, this schedule can and will bne accelerated. We
will make every effort to have the entire amount paid by January 31, 1996. If we
are completely unsuccessful then the conversion privilege will allow you or your
assigns to take control of the corporation and all the assets in the corporation
at the end of one year.
HRI will not convey any of the assets acquired from TOP Drilling Corp. of
HAH Petroleum Inc. until three million dollars ($3,000,000) is paid to the
holders of the preferred stock.
While this class D preferred stick is outstanding a dividend of four
percent (4%) will be paid monthly on a pro rata basis.
One seat on the Board of Directors will be made available to you or your
designated person. It ia understood that you will be the President if the Oil
and Gas Division of HURI, for at least one year period at an annual salary of
$60,000.00 plus bonus. It is also understood that a person to learn the
intricacies of the business will be hired as soon as possible to handle the day
to day activities. You will not be responsible for the accounting and
administration as that will be done in the Arizona Office.
As part of being President of the Oil and Gas division you will be
supervising the oil and gas production in Louisiana, and the utilization/ and or
disposition of the refinery also located in Louisiana.
_/s/ Warren R. Haught________________ _/s/ James R. Ray __________________
Warren R. Haught James R. Ray
<PAGE>
HUGHES RESOURCES, INC.
- ------------------------------------------------------------------------------
August 5, 1996(Sic)
Mr. Warren Haught, President
Energy Division
Box 14H
Smithville, W.Va.
Dear Warren:
This letter is being written to put our last agreement in writing.
Basically this agreement, which was verbal, said that the funds earned in
excess of normal expenses in your division would be retained by you for use in
workover projects, repairs on equipment, and expenditures to complete projects
underway when Hughes Resources, Inc. acquired the assets of TOP Drilling and
HAH, Inc.
We will be checking on the expenditures from time to time and will be
asking for reports on progress.
Thank you for your confidence in us and we will try to build a corporation
of which we can all be proud.
Sincerely,
/s/ James R. Ray
James R. Ray
President
- ------------------------------------------------------------------------------
8283 North Hayden Road, Suite 128 o Scottsdale, Arizona 85258 o (602)
905-1320 o Fax (602) 9005-1427
<PAGE>
December 25, 1995
James R. Ray, President
Hughes Resources, Inc.
8283 N. Hayden Suite 128
Scottsdale, Az 85258
Dear Mr. Ray:
We understand that the refinancing of the wood and oil and gas projects has
become somewhat extended in time. Therefore we are waiving the provision of our
comtract that calls for payment on January 31, 1996 and the provision that
allows for control of the corporation to revert to us at the end of one year
from the date of the contract.
We inderstand that we will be paid from the proceeds of the financing when
obtained.
thank you for your help.
Sincerely,
/s/ Robin J. Cook
Robin J. Cook
/s/ John P. Cook
John P. Cook
EXHIBIT "A"
EQUIPMENT LIST
ASSET/EQUIPMENT DATE ACQUIRED TOTAL COSTS
L 0005 1971 ASM Trailer 10/31/80 5,000.00
L 0006 1971 ASM Trailer 10/31/80 5,000.00
L 0006 1976 ASM Trailer 10/31/80 5,000.00
L 0005 1974 ASM Trailer 10/31/80 5,000.00
L 0006 1977 ASM Trailer 10/31/80 5,000.00
L 0026 1972 ASM Trailer 10/31/80 5,000.00
L 0035 1972 ASM Trailer 10/31/80 500.00
L 0135 ASM Trailer Long 1/31/83 19,383.89
CLASS TOTALS $49,883.89
R AH02 Washington - 12" - 90 12/31/81 16,835.00
R AH04 Washington Air Head 06/30/81 17,946.00
R AH05 Washington 12" 06/30/83 15,000.00
R CB02 GD/DET Booster 10/31/80 53,638.00
R CB05 WB12 Joy/GM Booster 12/11/86 22,500.00
R C02A GD/DET. 900 Comp 10/31/80 47,316.00
R C04A GD/CAT 750 Comp 02/28/79 110,250.00
R C05A GD/CAT 750 Comp 02/28/79 110,250.00
R C06A GD/DET 900 Comp 10/31/80 47,316.00
R C07A GD/CAT 900 Comp 11/30/83 41,405.00
R C08A LEROI/GM Comp 06/30/83 22,500.00
R C09A LEROI/GM Comp 06/30/83 22,500.00
R C10A LEROI/GM Comp 06/30/83 22,500.00
R C11A LEROI/GM Comp 06/30/83 22,500.00
R DP01 (4) Drill Collars 10/07/80 11,118.80
R DP02 (6) Drill Collars 03/31/82 21,848.00
R DP03 (4) Drill Collars 01/04/82 14,340.00
R DP04 (4) Drill Collars 11/18/81 14,340.00
R DP05 (6) Drill Collars 06/30/83 12,000.00
R DP01 900' 4 1/2Drill 10/31/80 25,000.00
R DP02 2100 3 1/2Drill 10/31/80 50,000.00
R DP03 3600 3 1/2Drill 10/31/80 85,000.00
R DP13 3 1/2Drill Pipe 10/31/84 33,495.00
R DP14 1985 Additions 10/31/85 23,461.31
R G008 Rig 8 Wichtex R 10/01/71 85,333.74
R G016 Rig 16 12/31/78 568,099.00
R G017 Rig 17 05/31/80 285,544.00
R G019 Rig 19 04/15/82 221,540.21
R LP01 Lima/Waukesha Light 07/10/79 7,250.00
R LP02 Lima/Waukesha Light 10/31/80 8,000.00
R LP04 Katc/Waukesha Light 12/31/81 8,300.00
R LP05 Detroit Light Plant 10/31/80 9,500.00
R M001 Rec. -0-Graph 05/18/79 5,398.75
R M002 Blow-out Preventer 10/31/80 7,500.00
R M004 Rec. -0- Graph 05/18/79 6,633.75
R New Kelley 03/31/82 8,525.00
R PM01 Oilwell Mud Pump 10/31/80 25,800.00
R PS01 Myers/Wauk Soap Pump 10/31/80 1,400.00
R PS02 Myers/Wauk Soap Pump 02/20/79 8,486.00
R PS03 J Beam Soap Pump 06/30/83 4,000.00
R RT02 Rotary Table (U) 10/31/80 12,526.00
R RT03 R3 Rotary Table 10/31/81 8,075.00
CLASS TOTALS $2,143,370.56
S 7901 Air Compressor (U) 01/30/79 1,500.00
S 8001 Comp. Jack Ham. (U) 10/31/80 3,000.00
S 8002 Shop Equip. (U) 10/31/80 6,500.00
S 8003 Elec. Hoist (U) 10/31/80 1,200.00
S 8004 Rigid Metal Saw (U) 10/31/80 1,000.00
S 8005 Holbert Welder (U) 10/31/80 2,000.00
S 8006 Air Compressor (U) 10/31/80 2,500.00
S 8105 Milling Machine 01/31/81 2,500.00
CLASS TOTALS $20,200.00
T 7901 1979 Ford Pick-up 01/09/79 8,000.00
T 7906 '71 Int'nl. Tan T. 01/30/79 10,000.00
T 7917 2 Rex Mixers (U) 01/30/79 2,000.00
T 7918 Winslo Silo (U) 01/30/79 5,000.00
T 8009 1977 Ford Pump Truck 10/31/80 40,000.00
T 8015 1978 Ford Flat-Bed 10/31/80 45,000.00
T 8026 1979 Int'nl Water 09/30/80 41,241.50
T 8105 '81 Ford F260 Pick 01/09/81 9,515.33
T 8204 1982 Ford F250 PU 03/29/82 11,143.00
T 8205 1982 Ford F250 PU 03/29/82 11,143.00
1981 Chevy PU 12/31/82 10,000.00
T 8305 1983 Fork 2FTHF26GODCA19051 8,000.00
T 8023 1980 Mack RD6865X7425 20,000.00
CLASS TOTALS $212,042.83
V 8003 A. C. Fork-Lift 10/31/80 25,000.00
Frac Tanks (14) @ $2,500.each 35,000.00
Waukesha Gas Compressor 5,000.00
Mack Service Rig 20,000.00
CLASS TOTALS $85,000.00
COMPANY TOTALS $2,510,497.28
EXHIBIT "B"
Deed dated August 16, 1989, by and between HAUGHT OIL PRODUCING CORPORATION
and 710 CORPORATION, recorded August 22,1989 in Deed Book 230, Page 717 at the
Ritchie County Clerk of the County Commission.
TRACT NO. 3:
BEGINNING AT A STAKE NEAR THE EASTERN EDGE OF THE South Fork of Hughes
River, which beginning the stake is S. 45' 40' W. 1 foot from an iron pipe;
thence S. 45' 4" W. 239 feet to a stake at the southern edge of West Virginia
State Route No. 47; thence with said highway, S. 48' 30" E. 263 feet to a stake
at the southwestern edge of said highway; thence leaving said highway, S. 35' "
W. 195 feet to a stake near the eastern edge of the South Fork of Hughes River;
thence down said river, N. 56' 50" W. 305 feet to a place of beginning,
containing 1.40 acres.
TRACT NO. 4:
BEGINNING at an iron post, on right-of-way of Satae Road No. 47, a corner
of Glenn L. Haught's pipe yard: thence along said road right-of-way, S. 48' E.
135 feet to an iron stake at a walnut; thence S. 36' 30' W. 165 feet to the
river; thence down the river N. 61' W. 132 feet to Glenn L. Haught's line;
thence with same N. 35' E. 195 feet to the place of beginning, containing 55/100
of an acre, more or less.
2
EXHIBIT H
ATTRIBUTES OF PREFERRED STOCK
Series C
Authorized 1,000,000 shares
Par Value $.01
Stated Value $4.00
Votes 5 votes for each share
Convertible into 5,000,000 shares of common stock upon May 1, 1996 Not callable
Sreies D
Authorized 1,000,000 shares
Par Value $.01
Stated Value $4.00
Callable immediately
Convertible into 5,000,000 dhares of common stock upon May 1, 1996 if not
called.
Jim McCutcheon Auctoneering Company
Old St. Marys Pike
P.O. Box 4268
Parkersburg,WV 26104
Phone 304/485-6561
Fax 304/485-7877
Page 2
QUALIFICATIONS OF APPRAISING COMPANY
The Jim McCutcheon Auctioneering Company specializes in the appraisal of
timber, energy, construction and industrial machinery, trucks, trailers,
aircraft, antiques and restauruanr equipment. jim McCutcheon Auctioneering
Company manages numerous absolute auctions each year, totalling in the millions
of dollaos. Many of these auctions are conducted at our own facility which is
one of the finest in the United States. This "hands-on" experience is the heart
of the appraisal expertise.
An extensive research library consisting of the actual auction results of
not only Jim McCutcheon Auctioneering Company but of all the major auctions in
the country is maintained. the library also contains retail sales of equipment
which is constantly updated.
James M. McCutcheon started business in Parkersburg, Wes Virginia in 1953.
The qualification for appraising comes from extensive hands-on experience.
The McCutcheon Companies have joint ventured, built and developed in excess
of $30 million worth of commercial and multi and single family properties in the
West Virginia and Indiana areas.
Mr. McCutcheon graduated Iowa School of Auctioneering in 1960, is a former
instructor at Parkersburg Community College and has served in the West Virginia
Legislature. At the present time, he is President and CEO of International
LEasing, Inc.m, International Contractors, Inc,., Leased Housing Developers, II,
and International Petroleum Investors, Inc. He id the individual owner and
operator of the Jim McCutcheon Auctioneering Company and a quarter horse and
Black Angus cattle farming operation.
3
<PAGE>
Jim McCutcheon Auctioneering Company
Old St. Marys Pike
P.O. Box 4268
Parkersburg, WV 26104
Phone 304/485-6561
Fax 304/485-7877
Page 3
STATEMENT OF LIMITING CONDITIONS
THE FAIR MARKET VALUE appraisal are prices which can be expected from a
private treaty sale, allowing adequate time for a buyer and seller to have a
meeting of the minds, with the assets being in like condition as they are now.
It is set forth to the best of the appraiser's knowledge and experience.
National and economic conditions and/or government actions effecting prices in
general could affect the indicated prices in particular.
WE DETERMINE value by visual inspection. The items are photographed and/or
video taped and a panel of McCutcheon's staff then reviews each item in the
appraisal. All pertinent information is placed on permanent file in our office.
The appraisal is established through the experience of the appraisers, utilizing
a vast library of product information, and actual sales made by the McCutcheon
Company at auction or by private treaty. the final decision is made by the fee
appraiser.
QUESTIONS AND/OR COMMENTS regarding this appraisal are welcome and should
be directed to the fee appraiser.
EVEN THOUGH ii is the firm belief of the Fee Appraiser that the information
furnished in this appraisal report and the conclusions drawn from this
information are true and correct, they are not guaranteed.
THE FEE APPRAISER is not required to give testimony or appear in court,
with reference to the property in question, unless arrangements have been
previously made.
THE FEE APPRAISER assumes no responsibility for matters of a legal nature
affecting the property appraisal or the title, nor does the appraiser render any
opinions as to the title, which is assumed to be good and marketable. The
property is appraised as though under responsible ownership.
4
<PAGE>
Page 4
CONDITION
THE FEE APPRAISER has used the following codes to identify the condition of
the items:
N = New
E = Excellent - Has seen very little or limited use
V = Very Good - Above average condition; may have been overhauled or have
not had enough use to require overhaul
G = Good - Average condition, with no known defects except as noted; in
operating condition, but may need some repair or parts replacement soon
F = Fair - Has seen considerable service and may require repair or
replacement of worn parts
P = Poor - Has seen hard service; needs repairs to be reliable, and may not
be operational
S = Salvage
THE FEE APPRAISER CERTIFIES he has no interest heretofore or contemplated
in the future, in the personal property appraisal.
He has personally inspected the property contained in this report to the
extent that was reasonably possible.
To the best of his knowledge and belief, all statements and information
included in this appralsal are true and are based upon his objective findings.
No pertinent information has been knoingly withheld or deleted in this report.
Neither his employment nor compensation for preparing this appraisal report
is contingent upon the value of the property appraised.
Page 5
ITEM QUANTITY DESCRIPTION CONDITION EACH MARKET PICTURE
VALUE
1 1 1974 ASSEMBLED (Frehauf) F 1,500.00 1
ALIA-ISAI float trailer,
40' overhaul, 40' flat
deck, tandem axle,
10:00x20 tires.
2 1 1974 ASSEMBLED van F 1,500.00 2
trailer, SN 312D2AAE
D2006, tandem axle, 10:
x20 tires.
F
3 1 1982 ASSEMBLED 35 ton 5,500.00 3
lowboy trailer, SN WV
78989, 34' overall, 22'
flat deck, 10:00x15 tires.
G
4 1 (8) float trailers, SN 18,000.00 none
N/A. There are a total of
eight float trailers that
appraiser is unable to
identify. As there are
no serial numbers
visible, appraiser has
appraised value at
$2,250.00 each, based on
an average condition FAIR.
PAGE 6
ITEM QUANTITY DESCRIPTION CONDITION EACH MARKET PICTURE
VALUE
F
5 1 1978 FORD 9000 flat bed
truck, SN U91TV882110,
odometer reading 131,824
miles, GM DETROIT 6-71
diesel engine, SPICER
Airmatic 8 speed
transmission, 222' wheel
base, tandem rear axles,
12,000 lb. front and
38,000 lb. rear axles,
GARWOOD 30,000 lb. winch,
18' oilfield bed with
headache rack and rolling F 8,750.00 5
tail board, 10:00x22
front and 10:00x20 rear
tires.
6 1 1978 INTERNATIONAL F-2574 F
vacuum truck, SN
CF257HHA13442, odometer
reading 162,024 miles,
CUMMINS PT270 diesel engine
with Jake brake, FULLER RTO
958LL transmission, 12,000
lb. front and 38,000 lb. rear
axles, DICKIRSON 70 bbl tank,
10:00x20 front and 10: x20
rear tires.
<PAGE>
Page 7
ITEM QUANTITY DESCRIPTION CONDITION EACH MARKET PICTURE
VALUE
G 17,500.00 6
7 1 1982 FORD F-250 4 wheel drive
pickup truck, SN
2FTFF26F9CCA13584. odometer
reading 189,312 miles, FORD
V-8 gasoline engine, 4 speed
transmission, 10' flat bed,
16" tires. P 1,500.00 7
8 1 1980 MACK RD686SX winch
truck, SN RD686SX7425,
odometer reading 95,777
miles, MACK 300 diesel engine
with Jake Brake, MACK 5 & 4
speed transmission, double
frame, tandem rear axles,
18,000 lb. front and 44,000
lb. rear axles, TULSA 64,000
lb. winch, fifth wheel
oilfield bed with headache
rack, 10:00x22 tires.
G 17,500.00 8
9 1 1974 MACK RD686S winch truck,
SN 1486, MACK 237 diesel
engine with Jake brake, MACK
5 & 4 speed transmission,
tandem rear axles, 12,000 lb.
front and 44,000 lb. rear
axles, TULSA 64,000 lb.
winch, fifth wheel oilfield
bed with headache rack and
rolling tailboard F 8,500.00 9
10 1 ALLIS CHALMERS 706 forklift, SN N/A,
ALLIS CHALMERS diesel engine, EROPS,
8,000 lb. capacity, 40" forks,
12.5x16" front and 16.9x24" rear tires.
F 7,500.00 10
11 1 1982 JOHN DEERE 310B backhoe/loader,
SN 039823T, odometer reading 199
houirs, JOHN DEERE powersift diesel
engine, ROPS, 24" bucket, 10x15 front
and 16.9x24 rear tires.
G 12,500.00 11
12 1 1986 DITCH WITCH R100P trencher, SN
750937, odometer reading 708 hours,
PERKINS diesel engine, powershift
transmission, ROPS. 6 way blade, crumb
bar, 21.51-16 tires.
G 17,500.00 12
13 1 1981 KOMATSU D65E crawler tractor, SN
34557, odometer reading 6,331 hours,
CUMMINS NH 220 powershift diesel
engine, ROPS, "C" frame hydraulic
manual angle 12" blade, CARCO 60
winch, engine enclosures.
G 22,500.00 13
14 1 1981 KOMATSU D65E-6 crawler tractor,
SN 34503, odometer reading 5,748
hours, CUMMINS NH220 diesel engine,
powershift transmission, ROPS, "C"
frame twin hydraulic tilt and manual
angle 12' blade, CARCO 60 winch,
engine enclosures. G 22,500.00 14
<PAGE>
Page 8
ITEM QUANTITY DESCRIPTION CONDITION EACH MARKET PICTURE
VALUE
15 1 1981 JOY WB-12 booster, SN 51414-81,
odometer reading 438 hours, GM
DETROIT 12V71T diesel engine, COTTA
GR16A transmission, 5x7 cylinders,
15,000 lb. rod load MOUNTED ON
ASSEMBLED 34' trailer, tandem axle,
10: x20 rear tires.
G 35,000.00 15
16 1 1979 GARDNER DENVER RXL8 booster, SN
N/A, odometer reading N/A, DETROIT
8V71 diesel engine, skid mounted.
F 12,000.00 16
17 1 (2) 1979 GARDNER DENVER STQYSA air
compressors, SN N/A, odometer
reading N/A, CATERPILLAR 3408 diesel
engine, 750 cfm/300 psi, skid
mounted, @$250,000. each.
F 40,000.00 16
18 1 1979 GARDNER DENVER STQYSA air
compressor, SN N/A, odometer reading
N/A, CATERPILLAR 3408 diesel engine,
900/cfm/250/psi, skid mounted.
F 22,500.00 16
19 1 (2) 1979 GARDNER DENVER STQYSA air
compressors, SN N/A, odometer
reading N/A, DETROIT 8V-92 diesel
engine, 900 cfm/250 psi, skid
mounted, @20,000. each. F 40,000.00 16
<PAGE>
Page 9
ITEM QUANTITY DESCRIPTION CONDITION EACH MARKET PICTURE
VALUE
20 1 (4) LEROI air packages, SN N/A,
odometer reading N/A, GM
DETROIT 6V-71 diesel engine,
570 cfm/125 psi, unitized and
skidded with MYERS triplex soap
pump powered by WAUKASHA
engine, soap tank MOUNTED on
34' float trailer, tandem axle,
10: x20 tires.
NOTE: This unit recently
reconditioned to make field
ready for drilling.
G 32,500.00 20
21 1 1971 WITCHTEX R-4 double drum
drillng rig, SN 71-994,
odometer reading N/A, G
DETROIT 8V71T diesel engine,
70' 150,000 lb. hydraulic
raised and scoped derrick,
hydraulic levelers, tandem
axle, 10:00x20 tires. P 8,500.00 21
<PAGE>
Page 10
ITEM QUANTITY DESCRIPTION CONDITION EACH MARKET PICTURE
VALUE
22 1 1979 WILSON Mogul 42 single drum
drilling rig, SN 7348, odometer
reading N/A, GM DETROIT 12V71T
diesel engine, 102' 250,000 lb.
hydraulic raised and scoped
derrick, hydraulic levelers,
17-1/2" GARDNER DENVER rotary
table, automatic driller, MARTIN
DECKER weight indicator, WILSON
100 ton blocks with Hydra hook,
rat hole digger, 4-1/4"x40'
square kelly with bushings,
GARDNER DENVER 150 ton swivel,
elevators, slips, drill collar
clamp, tongs and heads, 3000 lb.
annular BOP, hydramatic brakes,
makeup and breakout cat heads,
WILSON "V" door with back on ramp
MOUNTED ON 1979 WILSON tri-axle
trailer, 10:00x20 tires.
Doghouse with lockers, electric and gas heat, KATO light
plant, WAUKASHA skid mounted gasoline engine, MARTIN
DECKER Record-o-Graph MOUNTED ON 8' x 40' tandem axle
trailer.
G 125,000.00 22A,B,C
<PAGE>
Page 11
ITEM QUANTITY DESCRIPTION CONDITION EACH MARKET PICTURE
VALUE
23 1 1982 WITCHTEX R-3 double drum with
air clutches drilling rig, SN N/A,
odometer reading N/A, GM DETROIT
8V-71 diesel engine with torque
converter, (1) spinning cathead,
(1) plain cathead, hydraulic
breakout cathead, (2) MCKISSICK
3-sheeve blocks, complete handling
tools, GARDNER DENVER 17-1/2" X
44" rotary table, MARTIN DECKER
weight indicator, MARTIN DECKER
Recored-o-Graph, VARCO 4-1/4" X
40" square kelly with bushings
(new), 100 ton swivel, SNELSON
lighting, KATO generator with
WAUKESHA engine MOUNTED ON 1982
WITCHTEX tandem axle trailer, 10:
x20 tires.
Doghouse with lockers, heaters, lights, knowledge box, 2000
gallon fuel tank, MOUNTED ON 8' X 40' tandem axle trailer.
NOTE: This unit just
reconditioned to make field ready.
G 150,000.00 23A,B,C
24 1 CABOT-FRANKS 844/80 DTM Cruiser
double drum service rig, SN
74003-2. odometer reading N/A,
FRANKS right angle drive engine,
7" X 8-5/8" X 65' cable raised
pole, MCKISSICK 35 ton blocks and
hook, service tools, MOUNTED ON
1970 MACK DM611S truck, SN 2824,
odometer reading N/A, MACK 237
diesel engine with Jake brake,
MACK 5&3 speed transmission,
18,999 lb. front and 44,000 lb.
rear axles, tandem axle, 12:00x20
front and 10:00x20 rear tires.
F 27,500.00 24
<PAGE>
Page 12
ITEM QUANTITY DESCRIPTION CONDITION EACH MARKET PICTURE
VALUE
25 1 (2) GASSO 1550-C 2-1/2" to 5"X10"
pump truck, (2) GM DETROIT 4-71
diesel engines, water holding tank,
all hoses and connections necessary
for cementing operation MOUNTED ON
1977 FORD L9000 truck, SN
U91TVY49692, odometer reading 88,251
miles, GM DETROIT 8V-71 diesel
engine with Jake brake, FULLER
RT09513 transmission, 18,000 lb. G 21,500.00 25
front and 38,000 lb. rear axles,
10: x20 tires.
26 1 1971 INTERNATIONAL Fleetstar 2000
bulk cement truck, SN 457240G448531,
odometer reading 8,831 miles, GM
DETROIT 6-71 diesel engine, FULLER
RT9581 13 speed transmission, 186"
wheel base, 12,000 lb. front and
38,000 lb. rear axles, tandem axle, F 2,500.00 26
10:00x20 tires.
27 1 WASHINGTON 12" air head, flange,
body and rubber. G 3,250.00 none
28 24 Drill collars - sizes from 5-7/8" to F 600.00
14,400.00 none
7".
29 900(+/-) ft. 4-1/2" grade E drill pipe, 16.60
lb., plastic coated, hard banded. G 5.00
4,500.00 29
30 6330(+/-) ft. 3-1/2" drill pipe, 3-1/2 IF joints,
Grade E 13.30 lb., plastic coated, F 2.50
hard banded. 15,825.00 none
31 1 LIMA 15KW light plant, WAUKESHA
gasoline engine, skid mounted. F 2,500.00 31
<PAGE>
Page 13
ITEM QUANTITY DESCRIPTION CONDITION EACH MARKET PICTURE
VALUE
32 1 LIMA 15 KW light plant, SN N/A, F
WAUKESHA gasoline engine, skid
mounted. 2,500.00 31
33 1 OILWELL P102-5 7-1/2" X 12" mud
pump, GM DETROIT 8V-71 diesel
engine, OTECO chear valve, mud
gauge, skid mounted. F 7,500.00 33
34 1 1962 HARRIS J 210 FED air
compressor, 6 cyl. gasoline engine,
100 psi/210 cfm, skid mounted with
jack hammer. F 1,000.00 34
35 1 COFFING 2 ton electric hoist G 800.00 none
36 1 RIDGID 14" electric metal saw F 500.00 36
37 1 HOBART GRD-250 arc welder, SN none
12C-22877, 250 amp with leads. F 350.00
38 1 MILLER Big 40 welder, SN N/A, 4
cyl. gasoline engine with leads. F 1,200.00 none
39 1 1980 JET JVM-830f vertical milling
machine, SN 8619, 3 hp electric
engine. G 2,500.00 39
40 14 each 210 bbl. frac tanks, skid mounted. F 1,200.00
16,800.00 none
41 1 1966 WINSLOW 600 bbl two
compartment concrete batching bin,
30 cu. ft. weight batcher and 2
beam scale. G 3,500.00 41
TOTAL APPRAISAL 756,925.00
ASSET PURCHASE AGREEMENT
This Agreement is made as of the 10th day of July, 1995, by and between
Hughes Resources, Inc., a publicly held and traded corporation , hereinafter
"HRI" and HAH Petroleum, Inc., acting by and through its; duly authorized
officers, hereinafter "HAH".
WITNESSETH
WHEREAS, HAH is a corporation in good standing with the State of West
Virginia its State of Incorporation; and
WHEREAS, HAH is desirous of selling certain of its assets, and
WHEREAS, HRI is a Nevada Corporation, is publicly traded and a market for
its' common stock is made on the NASDAQ system and the Boston Stock Exchange,
and
WHEREAS, HRI if acting by and through its duly authorized President, James
R. Ray (Ray), and is desirous of purchasing certain assets of HAH.
NOW THEREFORE, in consideration of the mutual covenants and agreements
contained herein and for other good and valuable consideration, the receipt and
sufficiency of such is mutually acknowledged and accepted by the parties, it is
agreed, covenanted and warranted as follows:
THAT 1. HAH owns free and clear of any liens or encumbrances a varied
working interest in a minimum of three hundred (300) oil and gas wells and the
equipment appurtenant thereto and necessary for their operation as producing
wells; in Pleasants and Ritchie and various other counties in the State of West
Virginia, more particularly described in Exhibit "A" attached hereto and made a
part hereof.
2. That HAH covenants and warrants that the wells described in Paragraph 1
are presently producing wells and that there are contracts in force for the sale
of natural gas and oil from these wells and that there is a market "purchaser of
the oil and there is an existing hooked up gas line and transmission systems for
the gas produced by the wells, set forth on Exhibit "A".
3. That HAH covenants and warrants that the well set forth on Exhibit "A"
produce an average of 35,000 MCF per month of natural gas having a thermal unit
value of no less than an average of 1,200 BTU and a average of 1,340 BBL of oil
per month with a gravity of 42 to 52 degrees as evidenced by the production
reports, attached hereto as Exhibit "B" for twenty-seven months and that these
reports are certified as accurate by HAH.
4. That , attached hereto and made a part hereof as Exhibit "C" are some of
the existing contracts for the purchase of oil and gas produced from the wells
as described in Paragraph 1.
5. HAH covenants and warrants that the contracts in Exhibit "C" are fully
transferable without penalty and on the same terms and conditions as stated
therein, or renegotiable.
6. HAH covenants and warrants that it is the owner free and clear of any
liens and encumbrances of a gas gathering system, known as the Panther System. A
map of the right of way pipeline system with appropriate notations of valves,
meters, sizes of pipe and other appurtenances is attached as Exhibit "G".
7. HAH covenants and warrants that there are existing contracts for the
transportation of natural gas by and through the Panther System and that all
such contracts are attached hereto as Exhibit "D".
8. HAH covenants and warrants that it has right of way permits and deeds
that are valid and recorded for the gas gathering system (Panther System) and
that there are no disputes legal of otherwise to the right of say system
(Panther) that would obstruct of contest HAH's ownership or transporting ability
on the said natural gas transporting and gathering system, and that the rights
of way, permits and deeds are freely transferable to HRI upon closing of this
transaction.
9. HAH covenants and warrants that it has and in complying with all county,
state and federal regulations for the production of sale of oil and gas produced
from the wells as described on Exhibit "A", including, but not limited to any
and all Environmental Protection Agency (EPA) rules and regulations, currently
in existence. That all currently assessed taxes affecting the property are paid
in full.
10. HAH covenants and warrants that it has food and defensible legal title
to approximately 25,000 acres of oil and gas leases, as set forth in Exhibit
"E". HAH covenants that it knows of no impediments, claims, legal action,
including breaches of production clauses, of the said leases.
11. HAH covenants and warrants that the Division Orders, attached hereto as
Exhibit "F" are currently valid and not contested by any party and that the
Division Orders on Exhibit "F" are fully assignable and transferable, and that
all monies held by the purchasers pursuant to the Division orders will be the
sole property and asset of HRI, on the closing date.
12. That the officers of HAH whose signature appears below have full right
and authority to act on behalf of HAH and to bind HAH, to the covenants
contained herein.
13. HRI covenants and warrants that it is a corporation in good standing
with all necessary permits to act as a publicly traded corporation, and that it
has no knowledge of any contest or impediment to its common stock being publicly
traded on the NASDAQ system and/or Boston Stock Exchange.
14. That HRI covenants and warrants that it is duly authorized to transfer
two and one half million dollars ($2,500,000) of its Series C Preferred Stock
and two and one half million dollars ($2,500,000) of its Series D Preferred
Stock subject to the attributes of the preferred Stock as set forth in Exhibit
"H" attached and part of this agreement, for the acquisition and purchase of the
oil and gas wells acreage and gas gathering system (Panther), to HAH as the full
and total consideration for the sale of assets by HAH all as set forth in this
agreement.
15. That HRI has no knowledge of any contest or impediment pertaining to
the shares to be issued for the purchase of the HAH assets described herein.
16. The Boards of Directors if HAH and HRI have made an independent
valuation of the assets described in this agreement and the assets purchased
have a fair market value at least equal to the stated consideration for the
purchase.
17. HRI agrees to prepare corporate documentation including, but not
limited to, appropriate corporate resolutions and filings, if necessary, with
the appropriate agencies concerned with public securities transactions for the
transfer of its common stock as set forth herein as the total consideration for
the assets being sold by HAH.
18. The closing date for the purchase and sale of the assets will be no
later than the 31st day of July, 1995; unless mutually extended in writing by
both HAH and HRI.
19. HRI will secure a surety bond in the amount of $50,000.00 or other type
of bond satisfactory with the state of West Virginia to replace the bond
covering the above aforementioned wells of HAH held by the State of West
Virginia and all needed insurance coverages to protect the public, employees and
agents of HRI. In Witness whereof the parties have executed the Agreement as of
the date first stated above.
ATTEST HUGHES RESOURCES, INC.
_____________________ /s/ James R. Ray
-----------------------------
By its President
ATTEST HAH PETROLEUM, INC.
_____________________ /s/ Robin J. Cook
-----------------------------
By its President
<PAGE>
BILL OF SALE
This Bill of Sale made as of the 31st day of July, 1995; by and between HAH
Petroleum, Inc., a West Virginia corporation, hereinafter "Seller" with offices
at Smithville, West Virginia and Hughes Resources, Inc., a Nevada corporation,
with offices at 8283 N. Hayden, Scottsdale, Az. 85258, hereinafter "Buyer".
Seller and Buyer acknowledge that there is good and sufficient
consideration for Seller to sell and for Buyer to buy. Seller sells and
transfers possession of the following personal property.
The personal property and appurtenant equipment set forth on Exhibit "A"
attached hereto and made a pert hereof as though set forth verbatim herein.
The Seller warrants that it owns this personal property and that it has the
authority to sell the personal property to the Buyer.
Seller, also, warrants that the property is sold free and clear of all
liens, indebtedness, liabilities, except those set forth below: None
The Seller, further, warrants that the personal property being sold is in
good working condition as of this date.
Signed and Delivered to the Buyer on the above date.
Seller:
/s/ Robin J. Cook
------------------------------
by its President
Buyer:
Hughes Resources, Inc.
/S/ James R. Ray
------------------------------
by its President
AFFIDAVIT OF TITLE
This Affidavit of Title is made on July 31, 1995 between HAH Petroleum,
Inc., Seller of Smithville, West Virginia, State of West Virginia, for Hughes
Resources, Inc., Buyer of 8283 N. Hayden Road, Scottsdale, Az.
1. Seller certifies that it is now in possession of and is the absolute
owner of the following property:
As set forth in Exhibit "A"
2. Seller also states that its possession has been undisputed and that
Seller knows of no fact or reason that may prevent transfer of this property to
the Buyer.
3. Seller also states that no liens, debts, or lawsuits exist regarding
this property, except the following:
None
4. Seller finally states that it has full power to transfer full title to
this property to the Buyer.
s/ Robin J. Cook__________
(Signature of Seller)
By: HAH Petroleum, Inc.
State of West Virginia
County of Ritchie
On the 31st day of July 1995, Robin J. Cook personally came before me and,
being duly sworn, did state that he is the person described in the above
document and that he signed the above document in my presence
s/ Dave C. Zoller________
Notary Public for the County of Ritchie
State of West Virginia
My commission expires June 17, 1999
<PAGE>
EXHIBIT A
All pipelines associated with the wells purchased from HAH Petroleum, Inc.
to transport gas produced from those wells. One of the pipelines is locally
known as the Panther Gas Gathering System", such pipelines are principally
located in Ritchie County, West Virginia.
AGREEMENT FOR PURCHASE AND SALE OF STOCK
THIS AGREEMENT is entered into Dallas, Texas as of this 31st day of
January, 1996 between JAMES HUGHES, an individual residing in Bon Weir, Texas,
or his assigns, hereinafter referred to as the Purchaser, and HUGHES RESOURCES,
INC., a Nevada Corporation, hereinafter referred to as the Seller.
RECITALS
A. The Seller is the owner of approximately one hundred (100%) percent of
the issued and outstanding capital stock, both common and preferred, of HUGHES
WOOD PRODUCTS, INC., a Texas Corporation, hereinafter referred to as the
Corporation.
B. The Seller desires to sell to the Purchaser, and the Purchaser desires
to purchase from the Seller all of the issued and outstanding capital stock,
both common and preferred of the Corporation owned by the Seller upon the terms
and condtitons contained herein.
THEREFORE, in consideration of the mutual promises and conditions herein
contained, the
parties agree as follows:
AGREEMENT
(1) Subject to the terms and conditions of this Agreement, the Seller
agrees to sell, transfer and assign to the Purchaser, and the Purchaser agrees
to purchase, at the Closing, as hereinafter defined, one hundred (100%) percent
of the issued and putstanding shares of Common Stock and one hundred (100%)
percent of the issued and outstanding shares of Preferred Stock of the
Corporation constituting all of the issued and outstanding shares of capital
stock of the Corporation owned by the Seller. At the closing, the Seller shall
deliver to the Purchaser a certificate or certificates evidencing hte exact
number of the Corporation's stock owned by Seller but not less than one hundred
(100%) percent, in form ready for transfer and duly endorsed to the Purchaser.
At the closing, and from time to time thereafter, the Seller shall execute and
deliver such other documents and instruments and take such other actions, as the
Purchaser may reasonably request, in order more fully to vest in the Purchaser
and perfect his title to (a) all right, title and interest in and to the one
hundred (100%) percent interest in the Coproratinon's stock and, (b) any and all
other right, title and interest, claim or demand of any kind which the Seller
may have in, to or upon any of the properties, assets, or business of the
Corporation, except as set forth herein. PURCHASE PRICE (2) The total price to
be paid by the Purchaser to the Seller for one hundred (100%) percent of the
shares of Common and Preferred Stock of the Corporation owned by the Seller
being sold hereunder shall be Two million, three hundred thirty thousand, one
hundred and twenty-one ($2,330,121) dollars (determined as of October 31, 1995
to be revised upon the completion of the quarterly accounting as of January 31,
1996). PAYMENT OF PURCHASE PRICE (3) The purchase price described in Paragraph 2
hereof shall be paid as follows: (a) The Purchaser shall deliver to Seller an
assignment of all right and title to the 49 oilwells in West Virginia described
in Exhibit "A" which is attached hereto and and incorporated herein by reference
as if set forth verbatim on closing date.
Simultaneously with closing the following procedures will also accur:
(b) The Purchaser agrees to transfer the items listed in Exhibit "B" which
is attached hereto and incorporated herein by reference as if set forth herein
verbatim, to Resources Development, Inc. or any business organization or person
designated by Seller.
(c) The Seller agrees to assume and/or liquidate the liabilities (including
the accounts payable, notes, debt obligations, mortgages, capital leases, etc.)
listed in Exhibit "C" which is attached hereto and incorporated herein by
reference as if set forth verbatim, from Hughes Wood Products, Inc.
(d) The Seller agrees to assume the operating lease listed in Exhibit "D"
which is attached hereto and incorporated herein by reference as if set forth
herein verbatim from Hughes Wood Products, Inc.
THE CLOSING AND THE CLOSING DATE
(5) The Seller represents and warrants to the Purchaser as follows:
Title to the Corporation's Stock
(a) The Seller has good, absolute and marketable title to a one hundred
(100%) percent position in the Corporation's Stock, free and clear of all liens,
claims, ecumbrances and restrictions of every kind. The Seller has the complete
and unrestricted right, power, and authority to sell, transfer and assign the
herin referenced stock of the Corporation pursuant to this Agreement. The
delivery of the Seller's stock in the Corporation to the Purchaser as herein
contemplated will vest in the Purchaser good, absolute and marketable title to
all of the Corporation's stock owned by Seller, free and clear of all liens,
claims, encumbrances and restrictions of every kind.
Organization
(b) The Corporation is a duly organized and validly existing Corporation in
good standing with all requisite corporate power and authority to carry on its
business as presently conducted under the laws of the State of Texas. The
Corporation has one wholly owned subsidiary, HOUSTON WOODTECH, INC., and has no
direct or indirect equity interest in any other firm, corporation or business
enterprise.
(c) The Purchaser is aware of the current state of litigation including
suits, arbitration, or other legal, administrative or other governmental
proceedings pending or threatened against the Corporation, its properties,
assets, or business. Purchaser will at closing give Seller an
Indemnification/Hold Harmless agreement for all pending threatened litigation
concerning the Corporation.
(d) The business and operation of the Corporation have been and are being
conducted in accordance with all applicable laws, rules and regulations of all
authorities, except those which do not (either individually or in the aggregate)
materially and adversely affect the Corporation or its properties, assets,
business or prospects. Performance of this agreement will not result in any
breach of or constitute a default under, or result in the imposition of any lien
or encumbrance upon any property of the Corporation under any arrangement,
agreement, or other instrument to which the Corporation or the Seller is bound
or affected, except with regards to the debt covenants with Agriculture
Production Credit Association and Community Bank (reference is made to Paragraph
(6)(a) and will not violate the Articles of Incorporation, as amended or the
Bylaws of the Corporation. Corporation is not in violation of its Articles of
Incorporation as amended, its Bylaws or any indebtness, mortgage, contract,
lease or other agreement or commitment except as noted herein.
Title to Properties and Assets
(e) The Corporation has good, absolute and marketable title to all its
properties and assets subject to the existing mortgage to Agriculture Production
Credit Association and Community Bank.
(f) To the best of the Seller's knowledge and belief, the Corporation owns,
possesses and has good title to all copyrights, trademark, trademark rights,
patents, patent rights and licenses necessary in the conduct of its business as
provided to and acknowledged by the Purchaser in the Due Diligence Package under
the sections addressing these issues. To the best of the Seller's knowledge and
belief, the Corporation is not infringing upon or otherwise acting adversely to
the rights of any person under, or in respect to, and copyrights, trademarks,
trademark rights, patents, patent rights or licenses owned by any person or
persons, there is not such calim or pending or threatened action with respect
thereto. The Corporation has the unrestricted right to use all trade secrets,
customer lists, manufacturing and other processes incident to the manufacture,
use or sale of any and all products presently sold by it.
Records
(g) The respective books of account and minute books of the Corporation are
complete and correst and reflect all those transactions involving its business
which properly should have been set forth in such books.
OTHER MATTERS
(6) (a) The Purchaser gives up all right, title and interest in the
property of the Corporation listed in Exhibit "B" which is attached hereto and
incorporated herein by reference as if set forth herein verbatim. Said property
shall remain the property of the Seller unless the Seller is unable to liquidate
the debts with Agriculture Production Credit Association and Community Bank
within 60 days or substitute collateral on said debts within 30 days of the
execution of this Agreement. If Seller is unable to liquidate said debts or
substitute collateral as agreed to, thereby releasing the Personal guarantee of
the Purchaser, the the Seller agrees to give up all rights, title and interest
to the property of the Corporation listed in Exhibit "B" and 100% of the stock
of Houston Woodtech, Inc. Such rights, title and inerest shall revert back to
the Corporation along with the liabilities listed in Exhibit"C" and the
operating lease listed in Ehxibit "D". Additionally, the Corporation will assume
the debt of Agriculture Prodiction Credit currently owed by the Seller. If such
a situation occurs, the Seller warrants that the purchase price of the
Corporation is fully satisfied by payment under section (3)(a) of this
agreement. Also, the Seller will be reimbursed for any increase in the net
equity if the operations referred to in paragraph (3)(b), (3)(c), (3)(d) and
Houston Woodtech, Inc. over a reasonable period of time through orderly
liquidation of assets but no longer than 90 days.
(b) The Seller agrees to indemnify and hold Purchaser harmless from legal
action which arises from any and all known acts and omissions that Purchaser
performed or failed to perform as an officer or director of the Seller, except
when the legal action is brought by a government regulatory agency.
(c) The Purchaser shall be retained as a consultant on the transfer of the
stock and assets listed in Exhibit"B" for a period of one year. As a consulting
fee, Purchaser shall be paid one hundred fifty thousand ($150,000) dollars over
that one year period, payable monthly.
(d) The Seller further agrees to indemnify and hold Purchaser harmless
fromall legal actions which may occur due to his personal guarantees of
Corporate debt to Agriculture Production Crdit Association and Community Bank.
(e) The Corporation shall transfer any right, title and interest that it
may have in Houston Woodtech, Inc. or its stock to Resources Development,
Inc.,or to any business entity or person designated by Seller.
(f) Purchaser agrees that Seller will be permitted to send two persons to
be designated by Seller, to the Corporation's headquarters in Newton, Texas to
begin process of the transfer of assets.
(g) Purchaser agrees that he will not hire any employee of the Corporation
unless the facility at which he works is remaining with the Corporation, or as
agreed to by the Seller, or if employee is terminated by Seller or for a 90 day
period from the date of the execution of this agreement.
(h) Purchaser agrees to sell to Seller poles ordered by Seller at
Purchaser's cost plus ten (10%) percent to be delivered within normal U.S.
Industry standards,
(i) All computations herein are as of October 31, 1995 for the ourchase
price, asset values, liability values and subsidiary value (Houston Woodtech,
Inc.) contained in this Agreement and all attached exhibits. Final computations
will be performed as of January 31, 1996 upon completion of the quarterly
accounting.
(j) The Purchaser agrees to indemnify and hold Seller harmless from any
payroll tax liabilities of the Corporation both assessed and unassessed as of
the date of the execution of this agreement and future liabilities.
COVENANT NOT TO COMPETE
(7) Purchaser agrees that, for three (3) years following the Closing date,
neither he or the Corporation will, directly or indirectly, enter into or engage
generally in direct competition with the Seller in the manufacturing and
treating of softwood (pine) business, either as an individual on his own or as a
partner or joint venturer, or an employee or agent for any person, or as an
officer, director, or shareholder of otherwise. This covenant on the part if
Purchaser shall be construed as an agreement independent of any other provision
of this Agreement, an the existence of any claim or cause if action of the
Purchaser against the Seller, whether predicated on this Agreement or otherwise,
shall not constitute a defense to the enforcement by the Seller of this
covenant. (8) Seller agrees that, for three (3) years following the closing
date, it will not, directly or indirectly, enter into or engage generally, in
direct competition with the Purcaser or the Corporation in the areas of business
retained by the Corporation, either as an individual on its own or as a partner
or joint venturer, or as an employee or agent for any person,, or as an officer,
director, shareholder or otherwise. This covenant on the part of the Seller
shall be construed as an agreement independent of any other provision of this
Agreement; and the existence of any claim or cause of action of the Seller
against the Purchaser, whether predicated on this Agreement or otherwise, shall
not constitute a defense to the enforcement by the Purchaser of this covenant.
DOCUMENTS
(9) The Purchaser and Seller agree to provide the other party with any and
all documents required to complete the transfer herein set out.
RESIGNATION AS DIRECTOR AND OFFICER
(10) The Purchaser shall have delivered to the Seller his written
resignation as a director and officer of the Seller on or before the closing
date.
ENTIRE AGREEMENT
(11) The foregoing constitutes the entire agreement and understanding of
the parties on the subject hereof and supersedes all prior agreements and
understandings related to the subjest matter hereof.
JAMES HUGHES
PURCHASER
s/ James E. Hughes
HUGHES RESOURCES, INC.
SELLER
BY:s/ James R. Ray
TITLE:PRESIDENT
1
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