<PAGE>
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
-------------------------
FORM 10-Q
(Mark One)
[X] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
For the Quarterly Period Ended June 30, 1996
-----------------
OR
[_] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15 (d) OF THE
SECURITIES EXCHANGE ACT OF 1934
For the transition period from __________ to __________
Commission File Number 0-23718
NUMAR Corporation
(Exact name of registrant as specified in its charter)
Pennsylvania 23-2750939
(State of Incorporation) (I.R.S. Employer
Identification Number)
508 Lapp Road
Malvern, Pennsylvania 19355
(Address and ZIP code of principal executive offices)
(610) 251-0116
(Registrant's telephone number including area code)
Not Applicable
(Former name, address or fiscal year, if changed since last report)
Indicate by check mark whether the Registrant (1) has filed all reports required
to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during
the preceding 12 months (or for such shorter period that the Registrant was
required to file such report(s), and (2) has been subject to such filing
requirements for the past 90 days.
Yes X No _____
-----
The number of shares outstanding of the Registrant's common stock, $0.01 par
value, as of June 30, 1996 was 8,371,554.
<PAGE>
INDEX
<TABLE>
<CAPTION>
Page
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<S> <C> <C>
ITEM 1. Financial Statements
Consolidated Balance Sheets
As of June 30, 1996 and December 31, 1995 1
Consolidated Statements of Operations 2
For the Three Months and Six Months
Ended June 30, 1996 and 1995
Consolidated Statements of Cash Flows 3
For the Six Months Ended June 30,
1996 and 1995
Notes to Consolidated Financial Statements 4
ITEM 2. Management's Discussion and Analysis of Financial
Condition and Results of Operations 6
ITEM 6. Exhibits and Reports on Form 8-K 7
Signatures 8
</TABLE>
<PAGE>
NUMAR CORPORATION AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
(in thousands)
<TABLE>
<CAPTION>
June 30, December 31,
1996 1995
----------- -----------
(Unaudited)
<S> <C> <C>
ASSETS
Current assets:
Cash and cash equivalents.................... $ 6,555 $ 6,323
Accounts receivable, less allowance
for doubtful accounts of $79,000 and
$79,000, respectively....................... 3,078 3,495
Prepaid expenses and other current assets.... 261 115
-------- --------
Total current assets................... 9,894 9,933
Well logging devices under construction and
supplies..................................... 4,445 4,310
Property and equipment, net.................... 16,973 15,519
Other assets, net.............................. 647 565
-------- --------
Total assets $ 31,959 $ 30,327
======== ========
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Current portion of loans payable............. $ 129 $ 86
Accounts payable............................. 1,308 1,130
Accrued expenses............................. 1,623 1,501
Deferred revenue............................. 3,652 1,889
Foreign taxes payable........................ 142 176
-------- --------
Total current liabilities 6,854 4,782
Deferred revenue............................... 6,096 5,667
Loans payable.................................. 162 204
Stockholders' equity:
Common shares; par value $.01 per share;
authorized, 50,000,000 shares; issued and
outstanding 8,371,554 and 8,273,460,
respectively............................... 84 83
Additional paid-in capital..................... 56,418 55,919
Accumulated deficit............................ (37,655) (36,302)
-------- --------
18,847 19,700
Employee subscriptions receivable.............. --- (26)
-------- --------
Total stockholders' equity............. 18,847 19,674
-------- --------
Total liabilities and stockholders'
equity................................ $ 31,959 $ 30,327
======== ========
</TABLE>
See accompanying notes to consolidated financial statements.
1
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NUMAR CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATIONS
(In thousands, except for share data)
<TABLE>
<CAPTION>
for the three months ended for the six months ended
June 30, June 30,
-------------------------- -------------------------
1996 1995 1996 1995
(Unaudited) (Unaudited)
<S> <C> <C> <C> <C>
Revenue............................................... $ 4,106 $ 1,825 $ 7,079 $ 3,454
Cost of sales and services............................ 2,758 1,930 4,899 3,626
Depreciation of field assets.......................... 933 501 1,845 902
---------- ---------- ---------- ----------
Gross profit (loss)............................... 415 (606) 335 (1,074)
General and administrative expenses................... 412 369 790 679
Research and development expenses..................... 503 411 973 780
---------- ---------- ---------- ----------
Loss from operations.............................. (500) (1,386) (1,428) (2,533)
Other income (expense)
Interest income..................................... 84 79 158 209
Interest expense.................................... (8) (10) (15) (17)
---------- ---------- ---------- ----------
Loss before income tax.......................... (424) (1,317) (1,285) (2,341)
Income tax expense.................................... 84 90 68 108
---------- ---------- ---------- ----------
Net loss........................................ $ ( 508) $ (1,407) $ (1,353) $ (2,449)
========== ========== ========== ==========
Net loss per share.............................. $(.06) $(.19) $(.16) $(.33)
========== ========== ========== ==========
Weighted average common shares outstanding............ 8,308,887 7,376,202 8,291,174 7,376,477
</TABLE>
See accompanying notes to consolidated financial statements.
2
<PAGE>
NUMAR CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
(in thousands)
<TABLE>
<CAPTION>
for the six months ended
June 30,
------------------------
1996 1995
---- ----
(Unaudited)
<S> <C> <C>
Cash flow from operating activities:
Net loss............................................ $(1,353) $(2,449)
Adjustments to reconcile net loss to
net cash used in operating activities:
Depreciation and amortization.................... 2,068 1,044
Provision for doubtful accounts.................. --- (75)
Changes in assets and liabilities which
provided (used) cash:
Receivables - trade.............................. 417 (664)
Prepaid expenses and other current assets........ (146) (74)
Other assets..................................... (102) (145)
Accounts payable................................. 178 (206)
Accrued expenses................................. 122 415
Deferred revenue................................. 2,192 1,102
Foreign taxes payable............................ (34) (4)
------- -------
Net cash provided by (used in) operating
activities.................................. 3,342 (1,056)
------- -------
Cash flows from investing activities:
Capital expenditures................................ (4,063) (5,752)
Well logging devices under construction and supplies (135) (787)
Proceeds from disposition of property and equipment. 561 186
Net cash used in investing activities......... ------- -------
(3,637) (6,353)
------- -------
Cash flows from financing activities:
Proceeds from (principal payment of) bank debt and
term loans......................................... 1 (60)
Principal payments on capital lease obligations..... --- (3)
Proceeds from issuing common shares................. 500 7
Repayment of employee subscription receivables...... 26 41
------- -------
Net cash provided by (used in) financing
activities................................... 527 (15)
------- -------
Cash and cash equivalents:
Net increase (decrease) in cash..................... 232 (7,424)
Balance, beginning of period........................ 6,323 9,264
------- -------
Balance, end of period.............................. $ 6,555 $ 1,840
======= =======
</TABLE>
See accompanying notes to consolidated financial statements.
3
<PAGE>
NUMAR CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
(1) General
The consolidated financial statements included herein have been prepared by
the Company, without audit, pursuant to the rules and regulations of the
Securities and Exchange Commission. The financial statements reflect all
adjustments which are, in the opinion of management, necessary to fairly present
such information. Although the Company believes the disclosures are adequate to
make the information presented not misleading, certain information and footnote
disclosures, including significant accounting policies, normally included in
financial statements prepared in accordance with generally accepted accounting
principles have been omitted pursuant to such rules and regulations. It is
suggested that these financial statements be read in conjunction with the
financial statements and the notes thereto included in Form 10-K filed with the
Securities and Exchange Commission on March 26, 1996.
(2) Agreement with Halliburton Energy Services
In March 1996, the Company entered into a licensing agreement with
Halliburton Energy Services, a Halliburton Company ("HES"), whereby NUMAR will
sell to HES MRIL logging equipment and license the use of that equipment by HES
to provide MRIL logging services to HES customers. Under the terms of the
agreement, in addition to purchasing the MRIL equipment, HES will pay to NUMAR a
licensing fee, and for five years thereafter, pay to NUMAR the higher of a
minimum monthly royalty or a certain percentage of MRIL revenue generated by
HES.
During the second quarter, NUMAR delivered to HES the first of five logging
units HES is committed to acquire from NUMAR in 1996.
(3) Well Logging Devices Under Construction and Supplies
Well logging devices under construction and supplies as of June 30, 1996
and December 31, 1995 are as follows (in thousands):
<TABLE>
<CAPTION>
June 30 December 31
1996 1995
---- ----
<S> <C> <C>
Supplies and components.................. $ 3,692 $ 3,596
Work-in-process.......................... 753 714
-------- -------
$ 4,445 $ 4,310
======== =======
(4) Property and Equipment
Property and equipment as of June 30, 1996 and December 31, 1995 are as
follows (in thousands):
<CAPTION>
June 30 December 31
1996 1995
---- ----
<S> <C> <C>
MRIL tools and related equipment......... $ 23,488 $20,610
Research equipment....................... 653 574
Computer equipment....................... 1,261 1,144
Other equipment and fixtures............. 2,316 2,036
-------- -------
27,718 24,364
Less accumulated depreciation (10,745) (8,845)
-------- -------
$ 16,973 $15,519
======== =======
</TABLE>
Depreciation expense (in thousands) for the three months and six months
ended June 30, 1996 and the year ended December 31, 1995 was $1,040, $2,048, and
$2,756, respectively.
4
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[CAPTION]
<TABLE>
(5) Other Assets
Other assets as of June 30, 1996 and December 31, 1995 are as follows (in
thousands):
June 30 December 31
1996 1995
---- ----
<S> <C> <C>
Patent costs and trademarks........... $ 614 $ 568
Equipment deposits.................... 101 4
Other................................. 34 75
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749 647
Less accumulated amortization......... (102) (82)
----- -----
$ 647 $ 565
===== =====
</TABLE>
(6) Deferred Revenue
During 1993, NUMAR entered into revenue-sharing agreements with two
wireline service companies, whereby NUMAR supplies these companies with certain
MRIL equipment. NUMAR retains ownership of all equipment provided under these
agreements. In consideration for entering into these contracts, NUMAR receives
non-refundable advances, based on equipment ordered by the wireline companies
and records these advances as deferred revenue. In addition, NUMAR sells certain
equipment to these wireline companies and receives funds in advance of
deliveries. These funds so received are recorded as advances or deferred
revenue.
<TABLE>
<S> <C>
Balance of deferred revenue
at December 31, 1995............. $ 7,556
Less amount recognized as revenue..... (1,325)
Plus funds received for additional
equipment........................ 3,517
-------
Balance of deferred revenue at
June 30, 1996.................... $ 9,748
=======
</TABLE>
(7) Subsequent Events
In July 1996, the Company signed a letter of intent with Sperry-Sun
Drilling Services ("SSDS"), a division of Dresser, Inc., to jointly develop and
market a version of NUMAR's MRIL tool for use as a Formation Evaluation While
Drilling ("FEWD") tool. The agreement calls for SSDS to fund a development
project to begin in the second half of 1996, the objective of which is to
develop a version of NUMAR's MRIL tool used in open-hole logging, for use
attached to the drill bit as an FEWD tool. This project will be managed by
NUMAR, with significant participation by SSDS. Further, the companies agreed to
a revenue-sharing agreement with respect to their joint marketing of the new
tool at the conclusion of the development project.
5
<PAGE>
Item 2. Management's Discussion and Analysis of Financial Condition and
Results of Operations
General
Management's discussion and analysis is the Company's analysis of its
financial performance and of significant trends which may impact its future
performance. It should be read in conjunction with the consolidated financial
statements of the Company and the related notes thereto.
Results of Operation
Revenue. Revenue for the second quarter of fiscal 1996 were $4.1
million, an increase of 125% compared to revenue of $1.8 million for the same
period in 1995. Total wireline services revenue for the second quarter of 1996
was $3.0 million compared to $1.8 million in the second quarter of 1995, an
increase of 69%. Domestic and international wireline services revenue increased
20% and 12% to $1.1 million and $749,000, respectively, in the second quarter of
1996 from the second quarter of 1995. Revenue from industry partners was $1.1
million in the second quarter of 1996 whereas revenue from similar sources was
$151,000 in the second quarter of 1995. Revenue from industry partners included
revenue from Halliburton Energy Services ("HES") for the first time. Also
included in revenue for the second quarter of 1996 was equipment sales of
$860,000, mostly sales to HES, revenue from engineering services of $169,000,
and revenue from rock sampling services of $112,000. Revenue from other than
wireline services in the second quarter of last year was $68,000.
Revenue for the first half of fiscal 1996 were $7.1 million, an
increase of 105% compared to revenue of $3.5 million for the same period in
1995. Total wireline services revenue for the first half of 1996 was $5.6
million compared to $3.1 million in the first half of 1995, an increase of 81%.
Domestic and international wireline services revenue increased 27% and 26% to
$2.3 million and $1.4 million, respectively, from the same period in 1995.
Revenue from industry partners for the first half of 1996 was $2.0 million
compared to $271,000 in the first half of 1995. Revenue in the first half of
1996 included equipment sales of $954,000, revenue from engineering services of
$219,000, and revenue from rock sampling services of $258,000. Revenue from
other than wireline services in the first half of 1995 was $329,000.
Gross profit. Gross profit for the second quarter of 1996 was
$415,000, compared to a gross loss of $606,000 for the second quarter of 1995.
This was due to the cost of sales and services, exclusive of depreciation,
increasing by 43% while revenue for the same period increased 125%. Included in
cost of sales and services for the second quarter of 1996 was $545,000 of cost
associated with equipment that was sold. In the second quarter of 1995, there
were no equipment sales. Wireline revenue increased 69% in the second quarter of
1996 compared to the second quarter of 1995, whereas costs of sales and services
including depreciation, other than the cost of equipment sold, increased by 29%
for the same period.
Gross profit for the first half of 1996 was $335,000 compared to a
loss of $1.1 million for the first half of 1995. This was due to the cost of
sales and services, exclusive of depreciation, increasing by 35% while revenue
for the same period increased 81%. Included in cost of sales and services for
the first half of 1996 was $602,000 of cost associated with equipment that was
sold, as compared to cost of equipment sold in the first half of 1995 of
$120,000. Wireline revenue increased 81% in the first half of 1996 compared to
the first half of 1995, whereas costs of sales and services including
depreciation, other than the cost of equipment sold, increased by 39% for the
same period. In that a large portion of costs are fixed, there is a great deal
of leverage in increased wireline revenue.
General and administrative expenses. General and administrative
expenses in the second quarter and the first half of 1996 were $412,000 and
$790,000, respectively, increases of 12% and 16% over the same periods in 1995.
This compares to revenue increases of 125% and 105% for the same periods.
Research and development expenses. Research and development expenses
in the second quarter and first half of 1996 were $503,000 and $973,000,
respectively, increases of 22% and 25%. Costs increases were due to research
activity relating to new wireline measurements expected to be introduced in the
fourth quarter of 1996 and increased spending on research relative to formation
evaluation while drilling (FEWD).
6
<PAGE>
Interest income. Interest income was $84,000 for the second quarter of
1996 and $158,000 for the first half of 1996 compared to $79,000 and $209,000
for the same periods in 1995. Interest in the first half of the year was less as
there was less than in the prior year average funds to invest, but income was
greater in the second quarter as significant funds were received from industry
partners as advances against equipment ordered and for equipment sold to
industry partners.
Net loss. Net loss as a result of the high rate of revenue growth as
compared to the rate of growth of cost and expenses decreased from $1.4 million
for the second quarter of 1995 and $2.5 million for the first half of 1995 to
$508,000 and $1.4 million for the same periods in 1996, an improvement of
$900,000 and $1.1 million, respectively.
Financial condition and liquidity. As of June 30, 1996, the Company
had cash on hand of $6.6 million and less than $300,000 of debt. The Company
believes that the cash on hand, contractual payments due from industry partners
to be delivered during the balance of the year, and its expected ability to
borrow, if needed, from financial institutions will be sufficient to fund its
operations and anticipated growth through the balance of 1996.
Item 6. Exhibits and Reports on Form 8-K
(a) Exhibits: None
(b) There were no reports filed on Form 8-K during the six months
ended June 30, 1996.
7
<PAGE>
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the
registrant has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.
NUMAR Corporation
By: /s/ Edward P. Delson
---------------------------
Edward P. Delson
Senior Vice President and
Chief Financial Officer
8
<TABLE> <S> <C>
<PAGE>
<ARTICLE> 5
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> 6-MOS
<FISCAL-YEAR-END> DEC-31-1995
<PERIOD-START> JAN-01-1996
<PERIOD-END> JUN-30-1996
<CASH> 6,555
<SECURITIES> 0
<RECEIVABLES> 3,157
<ALLOWANCES> 79
<INVENTORY> 0
<CURRENT-ASSETS> 9,894
<PP&E> 27,718
<DEPRECIATION> 10,745
<TOTAL-ASSETS> 31,959
<CURRENT-LIABILITIES> 6,854
<BONDS> 0
0
0
<COMMON> 84
<OTHER-SE> 18,763
<TOTAL-LIABILITY-AND-EQUITY> 31,959
<SALES> 7,079
<TOTAL-REVENUES> 7,079
<CGS> 6,744
<TOTAL-COSTS> 6,744
<OTHER-EXPENSES> 1,763
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 15
<INCOME-PRETAX> (1,285)
<INCOME-TAX> 68
<INCOME-CONTINUING> (1,353)
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (1,353)
<EPS-PRIMARY> (.16)
<EPS-DILUTED> 0
</TABLE>
