<PAGE> 1
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 February 28, 1998
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 0-18656
PONDER INDUSTRIES, INC.
(Exact name of registrant as specified in its charter)
Delaware 75-2268672
(State or other jurisdiction of (IRS Employer
Incorporation or organization) Identification No.)
5005 Riverway Drive, Suite 550
Houston, Texas 77056
(Address of principal executive offices, zip code)
(713) 965-0653
(Registrant's telephone number, including area code)
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 reports), and (2) has been subject to such filing
requirements for the past 90 days.
Yes [X] No [ ]
Indicate the number of shares outstanding of each of the issuer's classes of
common stock as of the latest practicable date.
Class Outstanding at March 31, 1998
---------------------------- -----------------------------
Common Stock, $.01 par value 44,405,828
<PAGE> 2
PONDER INDUSTRIES, INC., AND SUBSIDIARIES
INDEX
<TABLE>
<CAPTION>
Page
----
PART I FINANCIAL INFORMATION (Unaudited)
<S> <C> <C>
Item 1: Condensed Consolidated Balance Sheets as of February 28, 1998,
and August 31, 1997 3
Condensed Consolidated Statements of Operations for the Three
Months and Six Months Ended February 28, 1998 and 1997 5
Condensed Consolidated Statements of Cash Flows for the Six Months
Ended February 28, 1998 and 1997 6
Notes to Condensed Consolidated Financial Statements 8
Item 2: Management's Discussion and Analysis of Financial Condition and
Results of Operations 11
PART II OTHER INFORMATION
Item 1: Legal Proceedings 15
Item 2: Changes in Securities 15
Item 3: Defaults Upon Senior Securities 15
Item 4: Submission of Matters to a Vote of Security Holders 15
Item 5: Other Information 15
Item 6: Exhibits and Reports on Form 8-K 16
</TABLE>
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<PAGE> 3
PONDER INDUSTRIES, INC., AND SUBSIDIARIES
CONDENSED CONSOLIDATED BALANCE SHEETS
(In Thousands, Except Share Information)
<TABLE>
<CAPTION>
February 28, August 31,
ASSETS 1998 1997
------------ ----------
(Unaudited)
CURRENT ASSETS:
<S> <C> <C>
Cash and cash equivalents $ 119 $ 4
Receivables, net 5,240 4,134
Parts and supplies 5,205 2,622
Available for sale securities 1,000 800
Prepaid expenses and other 479 46
-------- --------
Total current assets 12,043 7,606
-------- --------
PROPERTY AND EQUIPMENT 37,316 31,383
Less- Accumulated depreciation and amortization (15,334) (14,278)
-------- --------
21,982 17,105
-------- --------
OTHER ASSETS 236 122
DEFERRED ASSETS, net 61 423
GOODWILL, net 1,322 1,361
-------- --------
1,619 1,906
-------- --------
TOTAL ASSETS $ 35,644 $ 26,617
======== ========
</TABLE>
The accompanying notes are an integral part of these
condensed consolidated financial statements.
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<PAGE> 4
PONDER INDUSTRIES, INC., AND SUBSIDIARIES
CONDENSED CONSOLIDATED BALANCE SHEETS
(In Thousands, Except Share Information)
<TABLE>
<CAPTION>
February 28, August 31,
LIABILITIES AND STOCKHOLDERS' EQUITY 1998 1997
------------ -----------
(Unaudited)
CURRENT LIABILITIES:
<S> <C> <C>
Current maturities of long-term debt $ 1,909 $ 1,899
Accounts and notes payable, trade 3,658 5,562
Accrued liabilities and other 1,324 2,203
-------- --------
Total current liabilities 6,891 9,664
-------- --------
LONG-TERM DEBT, less current maturities 6,201 7,458
-------- --------
OTHER LONG-TERM LIABILITIES 53 765
-------- --------
DEFERRED TAXES PAYABLE 825 881
-------- --------
CONVERTIBLE DEBENTURES -- 6,380
-------- --------
COMMITMENTS AND CONTINGENCIES (Note 3)
STOCKHOLDERS' EQUITY:
Common stock, $.01 par value, authorized
50,000,000 shares, issued 44,378,477
shares and 17,571,021 shares at
February 28, 1998, and August 31, 1997,
respectively 444 176
Additional paid-in capital 46,362 25,307
Cumulative foreign currency translation
adjustment 115 49
Accumulated deficit (25,081) (23,696)
Note receivable for common stock (66) (66)
Deferred compensation -- (1)
Unrealized loss on available for sale
securities (100) (300)
-------- --------
Total stockholders' equity 21,674 1,469
-------- --------
TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY $ 35,644 $ 26,617
======== ========
</TABLE>
The accompanying notes are an integral part of these
condensed consolidated financial statements.
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<PAGE> 5
PONDER INDUSTRIES, INC., AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
(Unaudited)
(In Thousands, Except Share Information)
<TABLE>
<CAPTION>
Three Months Six Months
Ended February 28 Ended February 28
1998 1997 1998 1997
------------ ------------ ------------ ------------
<S> <C> <C> <C> <C>
TOOL RENTALS $ 4,191 $ 4,392 $ 8,261 $ 9,036
SALES OF TOOLS AND PARTS 785 856 1,816 1,353
------------ ------------ ------------ ------------
Tool rentals and sales 4,976 5,248 10,077 10,389
------------ ------------ ------------ ------------
COST OF TOOL RENTALS 1,650 1,982 3,156 3,890
COST OF TOOLS AND PARTS SOLD 375 295 683 589
------------ ------------ ------------ ------------
Costs of service and sales 2,025 2,277 3,839 4,479
------------ ------------ ------------ ------------
Gross profit 2,951 2,971 6,238 5,910
------------ ------------ ------------ ------------
EXPENSES:
Operating 2,403 2,819 4,690 5,140
General and administrative 1,068 1,693 2,015 2,850
------------ ------------ ------------ ------------
3,471 4,512 6,705 7,990
------------ ------------ ------------ ------------
Operating income (loss) (520) (1,541) (467) (2,080)
OTHER INCOME (EXPENSE):
Interest, net (470) (565) (913) (919)
Gain (loss) on disposal of assets (12) 48 (47) 48
Other 41 6 42 17
------------ ------------ ------------ ------------
NET INCOME (LOSS) $ (961) $ (2,052) $ (1,385) $ (2,934)
============ ============ ============ ============
BASIC AND DILUTED LOSS PER SHARE $ (.03) $ (.17) $ (.05) $ (.24)
============ ============ ============ ============
WEIGHTED AVERAGE COMMON SHARES OUTSTANDING
32,549,416 12,352,524 30,584,613 12,298,187
============ ============ ============ ============
</TABLE>
The accompanying notes are an integral part of these
condensed consolidated financial statements.
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<PAGE> 6
PONDER INDUSTRIES, INC., AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(Unaudited)
(In Thousands)
<TABLE>
<CAPTION>
Six Months
Ended February 28
--------------------------
1998 1997
-------- --------
CASH FLOWS FROM OPERATING ACTIVITIES:
<S> <C> <C>
Net loss $ (1,385) $ (2,934)
Adjustments to reconcile net loss to net cash
used in operating activities-
Depreciation and amortization 1,099 1,137
(Gain) loss on disposal of assets 47 (48)
Deferred compensation expense 1 55
Noncash interest expense 48 507
Net change in operating assets and liabilities-
Receivables 352 (1,544)
Parts and supplies (388) (398)
Prepaid expenses and other (403) 271
Accounts and notes payable, trade (2,154) 2,535
Accrued liabilities and other (1,132) (1,013)
-------- --------
Net cash used in operating activities (3,915) (1,432)
-------- --------
CASH FLOWS FROM INVESTING ACTIVITIES:
Purchases of property and equipment (684) (3,215)
Acquisition of businesses, net of cash acquired (7,567) --
Proceeds from asset sales 28 167
Investment in joint venture -- (115)
-------- --------
Net cash used in investing activities (8,223) (3,163)
-------- --------
CASH FLOWS FROM FINANCING ACTIVITIES:
Principal payments of long-term debt (10,051) (7,931)
Proceeds from long-term debt borrowings 8,804 12,162
Sale of common stock 11,000 --
Proceeds from Senior Convertible Notes 2,500 --
-------- --------
Net cash provided by financing activities 12,253 4,231
-------- --------
CASH AND CASH EQUIVALENTS:
Increase (decrease) 115 (364)
Beginning of period 4 398
-------- --------
End of period $ 119 $ 34
======== ========
</TABLE>
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<PAGE> 7
<TABLE>
<CAPTION>
Six Months
Ended February 28
----------------------
1998 1997
--------- ---------
<S> <C> <C>
SUPPLEMENTAL DISCLOSURES OF CASH FLOW INFORMATION:
Cash paid during the period for-
Interest $ 915 $ 398
========= =========
Income taxes $ -- $ --
========= =========
SUPPLEMENTAL DISCLOSURES OF NONCASH INVESTING AND
FINANCING ACTIVITIES:
Common stock issued in connection with debenture conversions $ 6,713 $ 739
========= =========
Common stock issued in connection with conversion of Senior Notes $ 2,298 $ --
========= =========
Common stock contributed to 401(k) plan $ 123 $ --
========= =========
Assets acquired in connection with acquisitions $ 2,470 $ 845
========= =========
Liabilities assumed in connection with acquisitions $ 1,470 $ 845
========= =========
Common stock issued in connection with acquisitions $ 1,000 $ 19
========= =========
Asset contributed in connection with joint venture $ -- $ 195
========= =========
Capital lease obligation incurred $ -- $ 136
========= =========
Deferred compensation accrued for stock option grants $ -- $ 91
========= =========
</TABLE>
The accompanying notes are an integral part of these
condensed consolidated financial statements.
-7-
<PAGE> 8
PONDER INDUSTRIES, INC., AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
(In Thousands, Except Share Information)
1. BASIS OF PRESENTATION:
The condensed consolidated financial statements included herein have been
prepared by Ponder Industries, Inc., and subsidiaries (collectively referred to
as the Company), without audit, pursuant to the rules and regulations of the
Securities and Exchange Commission. However, all adjustments have been made to
the accompanying financial statements which are, in the opinion of the Company's
management, necessary for a fair presentation of the Company's financial
position, results of operations and cash flows for the periods covered. Certain
information and footnote disclosures normally included in financial statements
prepared in accordance with generally accepted accounting principles have been
condensed or omitted pursuant to such rules and regulations, although the
Company believes that the disclosures are adequate to make the information
presented herein not misleading. These consolidated financial statements should
be read in conjunction with the consolidated financial statements and the notes
thereto included in the Company's latest Annual Report on Form 10-K.
In February 1997, the Financial Accounting Standards Board (FASB) issued
Statement of Financial Accounting Standards (SFAS) No. 128, "Earnings Per
Share." SFAS No. 128 replaces the presentation of Primary Earnings Per Share
(EPS) with Basic EPS and requires dual presentation of Basic and Diluted EPS on
the face of the consolidated statements of operations. Basic EPS excludes
dilution and is computed by dividing income (loss) available to common
stockholders by the weighted-average number of common shares outstanding for the
period. Diluted EPS reflects the potential dilution that could occur if
securities or other contracts to issue common stock were exercised or converted
into common stock or resulted in the issuance of common stock that then shared
in the earnings of the Company. SFAS No. 128 is effective for financial
statements issued after December 15, 1997, and, accordingly, the accompanying
financial statements reflect the adoption of SFAS No. 128. As the Company had a
net loss for the three months and six months ended February 28, 1998 and 1997,
Diluted EPS equals Basic EPS as potentially dilutive common stock equivalents
are antidilutive in loss periods. Prior period EPS data has been restated as
required by SFAS No. 128.
The preparation of financial statements in conformity with generally accepted
accounting principles requires management to make estimates and assumptions that
affect the reported amounts of assets and liabilities and disclosure of
contingent assets and liabilities at the date of the financial statements and
the reported amounts of revenues and expenses during the reporting period.
Actual results could differ from those estimates.
Certain reclassifications have been made to prior period balances to conform
with current period presentation.
2. LONG-TERM DEBT:
See Note 4 for a description of Senior Convertible Notes placed in October 1997.
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<PAGE> 9
PONDER INDUSTRIES, INC., AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (Continued)
At August 31, 1997, the Company had borrowed approximately $7,300 under a
$10,000 financing agreement with KBK Financial, Inc. (KBK). In January 1998, the
Company voluntarily repaid approximately $1.5 million of the borrowings under
this financing agreement with a portion of the proceeds from the $11,000 equity
placement described in Note 4. The financing agreement requires compliance with
various financial covenants. As a result of continued losses, the Company was
not in compliance with certain covenants at August 31, 1997. In January 1998,
the Company and KBK amended certain of the covenants governing the financing
agreement which has allowed the Company to classify a substantial portion of the
indebtedness due this financial institution as long-term at August 31, 1997. The
amended covenants provide that the Company must maintain a debt service coverage
ratio, as defined and amended, of not less than 1.0 to 1.0 as of the fiscal
quarter ended February 28, 1998, and 1.25 to 1.0 as of the end of each fiscal
quarter thereafter. The debt service coverage ratio requirement for the quarter
ended November 30, 1997, was waived. The Company must also maintain a tangible
net worth, as defined and amended, of not less than $8,500 as of the fiscal
quarter ended November 30, 1997, and $18,000 as of the end of each fiscal
quarter thereafter. For the fiscal quarter ended February 28, 1998, the Company
did not achieve the required minimum debt service coverage ratio. The Company
has received a waiver of the debt service coverage ratio requirements for the
quarter ended February 28, 1998 and the quarter ending May 31, 1998.
3. CONTINGENCIES:
In 1996, the Company sued its placement agent and its principal and related
entities (the placement agent) in the Company's 1996 convertible debenture
offering and the debenture holders in the United States District Court for the
Western District of New York. In mid-1997, the Company settled with all of the
debenture holders, and the judge ordered the case against the placement agent
transferred to the United States District Court for the Northern District of
Georgia. In response, in September 1997, a case was filed against the Company in
Georgia State Court, which the Company removed to the United States District
Court for the Northern District of Georgia, Atlanta Division, by the placement
agent alleging that, in connection with such offering, the Company tortiously
interfered with its business relationships, breached a Proprietary Information,
Non-Circumvention and Indemnification Agreement between the Company and the
placement agent, defamed the placement agent and engaged in conduct giving rise
to an indemnification in favor of the placement agent. The federal court has now
consolidated the two lawsuits. The Company is seeking unspecified millions of
dollars in actual and punitive damages from the placement agent, and the
placement agent seeks actual damages in an amount not less than $1,000 per
breach, exemplary damages in an amount not less than $2,500, interest, costs and
attorney's fees. Although no assurances can be given, the Company believes it
has meritorious claims against the placement agent which it intends to prosecute
vigorously and that it has meritorious defenses to the above action and intends
to defend itself vigorously.
The Company is also a party to additional claims and legal proceedings arising
in the ordinary course of business. The Company believes it is unlikely that the
final outcome of any of the claims or proceedings to which the Company is a
party, including those described above, would have a material adverse effect on
the Company's financial statements; however, due to the inherent uncertainty of
litigation, the range of possible loss, if any, cannot be estimated with a
reasonable degree of precision and there can be no assurance that the resolution
of any particular claim or proceeding would not have an adverse effect on the
Company's results of operations for the interim period in which such resolution
occurred.
4. EQUITY TRANSACTIONS:
In September 1997, the Company reached a settlement with those convertible
debenture holders who had not previously converted their debentures. During the
three months ended November 30, 1997, approximately $7,060 of convertible
debentures, including accrued interest, were converted into 10,633,333 shares of
the Company's common stock. The Company also issued to such debenture holders
five-year warrants to purchase 957,000 shares of the Company's common stock at
$1 per share.
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<PAGE> 10
PONDER INDUSTRIES, INC., AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (Continued)
In October 1997, the Company completed a private placement of $2,500 Senior
Convertible Notes (Senior Notes) and warrants to purchase 4 million shares of
the Company's common stock at a purchase price of $.625 per share. The warrants
expire on January 1, 2001. In January 1998, the Senior Notes were converted into
4 million shares of the Company's common stock concurrent with the equity
placement described below.
In January 1998, the Company completed an equity placement with affiliates of
the purchasers of the Senior Notes described above. The equity placement
consisted of the sale of 11 million shares of the Company's common stock at $1
per share.
5. ACQUISITION:
In January 1998, the Company acquired all of the outstanding stock of Fishing
Tools, Inc. (FTI), for $6,500 cash and the issuance of approximately 645,000
shares of the Company's common stock valued at $1,000. The cash consideration
was provided through the equity placement described in Note 4. The results of
operations of FTI have been included in the consolidated statements of
operations since January 12, 1998. The FTI acquisition was recorded using the
purchase method of accounting. The following unaudited pro forma information has
been prepared assuming that the FTI acquisition had taken place on September 1,
1997. The unaudited pro forma information includes adjustments to reflect the
effect on depreciation expense of recording the fair value of property and
equipment acquired in the FTI acquisition:
<TABLE>
<CAPTION>
Three Months Ended Six Months Ended
February 28, 1998 February 28, 1998
----------------- -----------------
(Unaudited)
<S> <C> <C>
Sales $ 5,269 $ 11,968
Cost of sales 2,289 5,458
-------- --------
Gross profit $ 2,980 $ 6,510
======== ========
Net loss $ (1,107) $ (1,661)
======== ========
Net loss per share $ (.03) $ (.05)
======== ========
</TABLE>
The unaudited pro forma information is not necessarily indicative of the results
that would have occurred had the FTI acquisition actually taken place on
September 1, 1997, nor does such information purport to project the results of
operations for any future date or period.
6. SUBSEQUENT EVENT:
In March 1998, the Company signed a letter of intent to purchase COT Oil Tool,
Inc. (COT), for approximately $2,200 in cash and $700 in Company common stock.
COT operates three locations in Texas, specializing in a wide variety of fishing
and rental tools for the oil field industry. The closing of this acquisition is
anticipated to be completed in May 1998.
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<PAGE> 11
PONDER INDUSTRIES, INC., AND SUBSIDIARIES
MANAGEMENT'S DISCUSSION AND ANALYSIS
OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
This Quarterly Report on Form 10-Q contains certain "forward-looking" statements
as such term is defined in the Private Securities Litigation Reform Act of 1995
and information relating to Ponder Industries, Inc. (the Company), and its
subsidiaries that are based on the beliefs of the Company's management as well
as assumptions made by and information currently available to the Company's
management. When used in this report, the words "anticipate," "believe,"
"estimate," "expect" and "intend" and words or phrases of similar import, as
they relate to the Company or its subsidiaries or Company management, are
intended to identify forward-looking statements. Such statements reflect the
current risks, uncertainties and assumptions related to certain factors
including, without limitations, competitive factors, general economic
conditions, customer relations, relationships with vendors, the interest rate
environment, governmental regulation and supervision, seasonality, distribution
networks, product introductions and acceptance, technological change, changes in
industry practices, one-time events and other factors described herein and in
the Company's other filings with the Securities and Exchange Commission. Based
upon changing conditions, should any one or more of these risks or uncertainties
materialize, or should any underlying assumptions prove incorrect, actual
results may vary materially from those described herein as anticipated,
believed, estimated, expected or intended. The Company does not intend to update
these forward-looking statements.
The following discussion is included to describe the Company's financial
position and results of operations for the three-month and six-month periods
ended February 28, 1998 and 1997. The condensed consolidated financial
statements and notes thereto contain detailed information that should be
referred to in conjunction with this discussion.
BUSINESS REVIEW
Ponder is an international oil field service and rental tool company that
specializes in the use of fishing tools for the recovery of unwanted
obstructions in oil and gas wells. The Company also rents specialized oil field
equipment such as pressure control equipment, tools, pipe, tubing and whipstocks
used in the drilling, completion and workover of wells. Ponder currently has 21
locations domestically and 2 international locations serving the North Sea area.
Demand for the Company's services and rentals depends primarily on the number of
oil and gas wells being drilled, the depth and drilling conditions of such wells
and the level of workover activity. Drilling and workover activity is largely
dependent on the prices for oil and natural gas. Demand for oil and natural gas
allowed for higher prices in 1997 and 1996 than the average prices for the past
several years. However, oil prices, and to a lesser extent, natural gas prices,
have recently declined. The Company is unable to predict the duration of such
price declines or the impact that such declines may have on the Company's future
results of operations.
LIQUIDITY AND CAPITAL RESOURCES
In April 1996, the Company raised approximately $10 million, net of fees, by
issuing 8 percent convertible debentures. In August 1996, a case was filed in
U.S. District Court alleging that the Company breached an obligation to convert
certain of the debentures. In September 1997, the Company reached a settlement
whereby those convertible debenture holders who had not previously converted
their debentures with the Company agreed to convert the then outstanding
debenture debt of approximately $7,060,000, including accrued interest, into
10,633,333 shares of the Company's common stock. The conversion of the
debentures increased the Company's equity by approximately $6.7 million.
-11-
<PAGE> 12
In November 1996, the Company completed a $10 million financing agreement with
KBK Financial, Inc. (KBK). The agreement includes a $4 million Revolving
Receivable Facility, a $2.5 million Revolving Credit Note and a $3.5 million
Term Note (the Notes). The Receivable Facility is a two-year facility that is
based on accounts receivable and will be utilized for short-term liquidity
needs. The $2.5 million Revolving Credit Note is a five-year facility, based on
inventory and equipment, and these funds were used to acquire capital assets to
expand the Company's business. The $3.5 million Term Note is a five and one-half
year note, interest only through May 1997 and amortizes over the remaining five
years, collateralized by equipment. The funds were used to pay off existing bank
debt of approximately $3 million with the balance being used to fund operations
and acquire capital equipment. At February 28, 1998, and August 31, 1997, the
Company had borrowed approximately $6.3 million and $7.3 million, respectively,
under the Notes. The Notes require compliance with various covenants, including
the maintenance of a defined debt service coverage ratio and a defined tangible
net worth. As a result of continued losses primarily related to the Company's
expansion program, the Company was in technical default of the Notes at August
31, 1997. In January 1998, the Company and the financial institution amended
certain of the covenants governing the Notes which has allowed the Company to
classify a substantial portion of the indebtedness due this financial
institution as long term at August 31, 1997. The amendments were based on the
Company's estimates of its level of operations supported by oil prices in the
$18 to $20 per barrel range. Declines in oil prices to the $13 to $14 per barrel
range, inclement weather and a decline in rig activity resulted in operations
below the Company's expectations for the current fiscal quarter. As a result,
the Company did not achieve a required minimum debt service coverage ratio for
the fiscal quarter ended February 28, 1998. The Company has received a waiver
of the debt service coverage ratio requirements for the quarter ended February
28, 1998 and the quarter ending May 31, 1998. See Note 2 of notes to condensed
consolidated financial statements.
A $2,500,000 bridge loan was obtained in October 1997 from White Owl Capital
Partners (White Owl) and certain others with the intention of providing
additional capital for acquisitions and expansion of the Company's business. The
Company, in January 1998, acquired all of the outstanding stock of Fishing
Tools, Inc. (FTI), for $6,500,000 cash and the issuance of approximately 645,000
shares of the Company's common stock valued at $1,000,000. The Company paid
approximately $800,000 of assumed indebtedness of FTI. FTI has historically been
a profitable company with positive cash flow. FTI has significant offshore
operations which are less effected by temporary oil price fluctuations and the
acquisition is anticipated to have a positive impact on the Company's future
income and cash flow. The cash consideration for the acquisition was provided
through an equity placement with affiliates of White Owl. The equity placement
consisted of the sale of 11 million shares of the Company's common stock at $1
per share. Concurrent with this equity placement, the bridge loan was converted
into 4 million shares of the Company's common stock. The transactions have
increased the Company's equity to approximately $21,700,000 and provided
stronger liquidity ratios. See Note 4 of notes to condensed consolidated
financial statements.
At February 28, 1998, and August 31, 1997, the Company had working capital
(deficit) of approximately $5.2 million and $(2.1) million, respectively. The
current ratio was approximately 1.75 to 1.0 at February 28, 1998, compared to
.79 to 1.0 at August 31, 1997. The Company's total debt (assuming conversion of
the convertible debentures at August 31, 1997) as a percent of total
capitalization was 27 percent at February 28, 1998, compared to 53 percent at
August 31, 1997.
The Company currently has a proposal from its present lender and another
potential lender to increase its available facility and decrease interest rates.
If the Company were to refinance its current Notes with another lender, it is
anticipated that an extraordinary loss of approximately $240,000 would be
recognized associated with a prepayment penalty. While management believes that
it will be able to increase its debt facilities and reduce interest rates, there
are no assurances that the Company will be able to refinance its current
indebtedness nor that it will be able to obtain an increase in available
facilities or achieve a reduction in interest rates.
-12-
<PAGE> 13
RESULTS OF OPERATIONS
COMPARISON OF THE THREE MONTHS
ENDED FEBRUARY 28, 1998 AND 1997
A net loss of $961,000, or $.03 per share, was recorded for the three months
ended February 28, 1998, as compared to a net loss of $2,052,000, or $.17 per
share, for the same period of the prior year.
Revenues were approximately $5.0 million and $5.2 million for the three months
ended February 28, 1998 and 1997, respectively. Costs of service and sales
decreased $252,000, or 11 percent, to $2,025,000 for the three months ended
February 28, 1998, from $2,277,000 for the same period of the prior year and
operating expenses decreased $416,000, or 15 percent, to $2,403,000 from
$2,819,000. The decrease in costs of service and sales relates primarily to the
Company's decision to utilize salaried fishing tool operators rather than
commissioned operators. Commissions are reflected as a component of costs of
service and sales while salaries are reflected as operating expenses. Operating
expenses declined, however, reflecting the increase in salaried fishing tool
operators which was more than offset by a reduction in other operating personnel
and expenses and the closing of two of its unsuccessful operating locations in
the third quarter of fiscal 1997. The Company's gross profit margin was 60
percent for the three months ended February 28, 1998, as compared to 57 percent
for the same period of the prior year. Operating expenses, as a percentage of
sales, were 48 percent for the three months ended February 28, 1998, as compared
to 54 percent for the same period of the prior year.
General and administrative expenses decreased $625,000, or 37 percent, to
$1,068,000 for the three months ended February 28, 1998, as compared to
$1,693,000 for the same period of the prior year. In April 1997, the Company
commenced a major cost reduction program which included a reduction in
administrative personnel and related expenses, the sale of certain nonproductive
equipment to reduce debt, resolving the litigation involving its convertible
debenture holders and substantially reducing general and administrative
expenses.
Interest expense, net, decreased $95,000 to $470,000 for the three months ended
February 28, 1998, as compared to $565,000 for the same period of the prior
year. The decrease is due primarily to an increase in average indebtedness
outstanding during the three months ended February 28, 1998, as compared to the
three months ended February 28, 1997, which was more than offset by a savings of
noncash interest and debt issue cost amortization expense of approximately
$249,000 related to the Company's convertible debentures outstanding during the
three months ended February 28, 1997, which were converted into shares of the
Company's common stock in September 1997 as previously discussed.
COMPARISON OF THE SIX MONTHS
ENDED FEBRUARY 28, 1998 AND 1997
A net loss of $1,385,000, or $.05 per share, was recorded for the six months
ended February 28, 1998, as compared to a net loss of $2,934,000, or $.24 per
share, for the same period of the prior year.
Revenues were approximately $10.1 million and $10.4 million for the six months
ended February 28, 1998 and 1997, respectively. Costs of service and sales
decreased $640,000, or 14 percent, to $3,839,000 for the six months ended
February 28, 1998, from $4,479,000 for the same period of the prior year and
operating expenses decreased $450,000, or 9 percent, to $4,690,000 from
$5,140,000. The decrease in costs of service and sales relates primarily to the
Company's decision to utilize salaried fishing tool operators rather than
commissioned operators. Commissions are reflected as a component of costs of
service and sales while salaries are reflected as operating expenses. Operating
expenses decreased, however, reflecting the increase
-13-
<PAGE> 14
in salaried fishing tool operators which was more than offset by a reduction in
other operating personnel and expenses and the closing of two of its
unsuccessful operating locations in the third quarter of fiscal 1997. The
Company's gross profit margin was 62 percent for the six months ended February
28, 1998, as compared to 57 percent for the same period of the prior year.
Operating expenses, as a percentage of sales, were 47 percent for the six months
ended February 28, 1998, as compared to 49 percent for the same period of the
prior year.
General and administrative expenses decreased $835,000, or 29 percent, to
$2,015,000 for the six months ended February 28, 1998, as compared to $2,850,000
for the same period of the prior year. In April 1997, the Company commenced a
major cost reduction program which included a reduction in administrative
personnel and related expenses, the sale of certain nonproductive equipment to
reduce debt, resolving the litigation involving its convertible debenture
holders and substantially reducing general and administrative expenses.
Interest expense, net, remained relatively unchanged at $913,000 for the six
months ended February 28, 1998, as compared to $919,000 for the same period of
the prior year. This is due primarily to an increase in average indebtedness
outstanding during the six months ended February 28, 1998, as compared to the
six months ended February 28, 1997, which was substantially offset by a savings
of noncash interest and debt issue cost amortization expense of approximately
$521,000 related to the Company's convertible debentures outstanding during the
six months ended February 28, 1997, which were converted into shares of the
Company's common stock in September 1997 as previously discussed.
-14-
<PAGE> 15
PONDER INDUSTRIES, INC., AND SUBSIDIARIES
PART II - OTHER INFORMATION
Item 1. Legal Proceedings - For a description of legal proceedings against
the Company, see Note 3 of the notes to condensed consolidated
financial statements included herein.
Item 2. Changes in Securities
(a) Not applicable.
(b) Not applicable.
(c) Pursuant to a Stock Purchase Agreement dated January 12, 1998,
among Ponder Industries, Inc., Robert W. Gerdes, Sr., Reggie W.
Hanberry and Brian J. Sokol, the Company issued an aggregate of
644,496 shares of common stock, $.01 par value (Common Stock),
of the Company. The shares of Common Stock were not registered
under the Securities Act of 1933, as amended (the Securities
Act), pursuant to the exemptions of such registration provided
under Section 4(2) of the Securities Act. The Company issued
such shares of Common Stock as part of the consideration paid
by the Company in acquiring all of the outstanding shares of
capital stock of Fishing Tools, Inc.
Pursuant to a Securities Purchase and Exchange Agreement (the
Purchase Agreement) dated January 12, 1998, among Ponder
Industries, Inc., White Owl Investors L.L.C., Somerset Capital
Partners, White Owl Capital Partners, Arvid Sanger, Antony T.F.
Lundy and Karl Bandtel, the Company issued to White Owl Investors
L.L.C. 11,000,000 shares of Common Stock for an aggregate
purchase price of $11,000,000. In addition, and pursuant to the
terms of the Purchase Agreement, the Company issued to White Owl
Capital Partners, Arvid Sanger, Antony T.F. Lundy and Karl
Bandtel an aggregate of 4,000,000 shares of Common Stock in
exchange for the conversion of an aggregate of $2,500,000 of
convertible promissory notes collectively held by White Owl
Capital Partners, Arvid Sanger, Antony T.F. Lundy and Karl
Bandtel. The shares of Common Stock issued pursuant to the
Purchase Agreement were not registered under the Securities Act
pursuant to the exemptions of such registration provided under
Section 4(2) of the Securities Act. The Company relied upon
certain representations and warranties of the Purchasers (as
that term is defined in the Purchase Agreement), including,
among others, that the Purchasers are each accredited investors
as that term is defined in Rule 501(a) of Regulation D
promulgated under the Securities Act), and that the Common Stock
was acquired solely for each Purchaser's own account for
investment and not with a view to distribution. In connection
with the terms of the Purchase Agreement, the Company granted
certain registration rights to the Purchasers pursuant to a
Joinder Agreement dated January 12, 1998.
Item 3. Defaults Upon Senior Securities
Item 4. Submission of Matters to a Vote of Security Holders - None
Item 5. Other Information - None
-15-
<PAGE> 16
Item 6. Exhibits and Reports on Form 8-K
(a) Exhibits
2.1 Stock Purchase Agreement dated January 12, 1998, among
Ponder Industries, Inc., Robert W. Gerdes, Sr., Reggie W.
Hanberry and Brian J. Sokol. (Incorporated herein by
reference herein to Exhibit 2.1 to the Company's Current
Report on Form 8-K dated January 27, 1998.)
4.1 Joinder Agreement dated January 12, 1998, among Ponder
Industries, Inc., White Owl Investors L.L.C., Somerset
Capital Partners, White Owl Capital Partners, Arvid Sanger,
Antony T.F. Lundy and Karl Bandtel. (Incorporated herein by
reference herein to Exhibit 4.1 to the Company's Current
Report on Form 8-K dated January 27, 1998.)
10.1 Securities Purchase and Exchange Agreement dated January 12,
1998, among Ponder Industries, Inc., White Owl Investors
L.L.C., Somerset Capital Partners, White Owl Capital
Partners, Arvid Sanger, Antony T.F. Lundy and Karl Bandtel.
(Incorporated herein by reference herein to Exhibit 10.1 to
the Company's Current Report on Form 8-K dated January 27,
1998.)
*11- Computation of Earnings (Loss) Per Share.
*27- Financial Data Schedule.
(b) Reports on Form 8-K
Form 8-K filed January 27, 1998, reporting the acquisition of
Fishing Tools, Inc.
Form 8-K/A filed March 27, 1998, providing the financial
statements and pro forma financial information of Fishing Tools,
Inc.
- - ---------------
* Filed herewith
-16-
<PAGE> 17
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.
PONDER INDUSTRIES, INC.
By /s/ Eugene L. Butler
--------------------------
Eugene L. Butler
President, Chief Executive
Officer and Chairman of
the Board of Directors
By /s/ Gerald A. Slaughter
--------------------------
Gerald A. Slaughter
Senior Vice President and
Chief Financial Officer
Dated: April 14, 1998
-17-
<PAGE> 18
INDEX TO EXHIBITS
EXHIBIT
NUMBER DESCRIPTION
Exhibit 11 Computation of Earnings (Loss) per share
Exhibit 27 Financial Data Schedule
<PAGE> 1
EXHIBIT 11
PONDER INDUSTRIES, INC., AND SUBSIDIARIES
COMPUTATION OF EARNINGS (LOSS) PER SHARE
(In Thousands, Except Share Information)
<TABLE>
<CAPTION>
Three Months Ended Six Months Ended
February 28 February 28
------------------------------- --------------------------------
1998 1997 1998 1997
------------ ------------ ------------ ------------
<S> <C> <C> <C> <C>
COMPUTATION OF BASIC LOSS PER SHARE:
Net loss $ (961) $ (2,052) $ (1,385) $ (2,934)
============ ============ ============ ============
WEIGHTED AVERAGE NUMBER OF SHARES OF COMMON
STOCK OUTSTANDING
32,549,416 12,352,524 30,584,613 12,298,187
============ ============ ============ ============
BASIC LOSS PER COMMON SHARE $ (.03) $ (.17) $ (.05) $ (.24)
============ ============ ============ ============
COMPUTATION OF DILUTED LOSS PER SHARE:
Net loss $ (961) $ (2,052) $ (1,385) $ (2,934)
Interest and debt issue cost amortization
expense not incurred upon assumed
conversion of Senior Notes (1998)
and convertible debentures (1997) 32 249 48 521
------------ ------------ ------------ ------------
Net loss applicable to common stockholders
used for computation $ (929) $ (1,803) $ (1,337) $ (2,413)
============ ============ ============ ============
Weighted average number of shares of common
stock outstanding
32,549,416 12,352,524 30,584,613 12,298,187
Weighted average incremental shares outstanding
upon assumed conversion of options and warrants 3,893,756 17,832 2,868,561 18,865
Weighted average incremental shares outstanding
upon assumed conversion of senior notes (1998)
and convertible debentures (1997) 2,088,889 4,692,983 1,701,658 4,512,500
------------ ------------ ------------ ------------
WEIGHTED AVERAGE COMMON SHARES AND COMMON SHARE
EQUIVALENTS USED FOR COMPUTATION
38,532,061 17,063,339 35,154,832 16,829,552
============ ============ ============ ============
DILUTED LOSS PER COMMON SHARE AND COMMON SHARE
EQUIVALENT
$ (.02)(a) $ (.11)(a) $ (.04)(a) $ (.14)(a)
============ ============ ============ ============
</TABLE>
(a) This calculation is submitted in accordance with Item 601(b)(11) of
Regulation S-K although it is not required by SFAS No. 128 because it is
antidilutive.
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM PONDER
INDUSTRIES, INC.'S CONDENSED CONSOLIDATED BALANCE SHEET AS OF FEBRUARY 28, 1998,
AND ITS CONDENSED CONSOLIDATED STATEMENT OF OPERATIONS FOR THE SIX MONTHS THEN
ENDED AND IS QUALIFIED IN ITS ENTIRETY BY REFERENCE TO SUCH FINANCIAL
STATEMENTS.
</LEGEND>
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> 6-MOS
<FISCAL-YEAR-END> AUG-31-1998
<PERIOD-END> FEB-28-1998
<CASH> 119
<SECURITIES> 1,000
<RECEIVABLES> 5,976
<ALLOWANCES> 736
<INVENTORY> 5,205
<CURRENT-ASSETS> 12,043
<PP&E> 37,316
<DEPRECIATION> 15,334
<TOTAL-ASSETS> 35,644
<CURRENT-LIABILITIES> 6,891
<BONDS> 6,201
0
0
<COMMON> 444
<OTHER-SE> 21,230
<TOTAL-LIABILITY-AND-EQUITY> 35,644
<SALES> 10,077
<TOTAL-REVENUES> 10,077
<CGS> 3,839
<TOTAL-COSTS> 10,544
<OTHER-EXPENSES> 5
<LOSS-PROVISION> 30
<INTEREST-EXPENSE> 913
<INCOME-PRETAX> (1,385)
<INCOME-TAX> 0
<INCOME-CONTINUING> (1,385)
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (1,385)
<EPS-PRIMARY> (.05)
<EPS-DILUTED> (.05)
</TABLE>
