ITEM 1. BUSINESS
THE COMPANY
Maynard Oil Company is a Delaware corporation which was organized in 1971 to continue the oil and gas operations conducted on an individual basis by its founders, including Mr. James G. Maynard, its Chairman of the Board and Chief Executive Officer. The Company's principal executive office is located at 8080 N. Central Expressway, Suite 660, Dallas, Texas 75206, and its telephone number is (214) 891-8880. Unless the context requires otherwise, as used herein the term "Company" refers to Maynard Oil Company and its subsidiaries.
The Company's principal line of business is the production and sale of, and exploration and development of, crude oil and natural gas. The Company's oil and gas operations are conducted exclusively in the United States, primarily in the states of Texas and Oklahoma.
RECENT ACQUISITION ACTIVITIES
Since January 1, 1995, the Company has purchased two sizable groups of producing oil and gas properties.
In March, 1995, the Company purchased 200 producing wells located in the Permian Basin of West Texas from a major oil company for total cash consideration $10,500,000. The Company utilized $1,000,000 from its own cash resources and financed the balance, $9,500,000, through an amended term loan arrangement with Bank One, Texas. Total proved reserves were estimated to be .99 million barrels of oil and 6.5 billion cubic feet of gas (BCF).
During September, 1995 one prospect acquired in March was sold generating proceeds of $2,985,935 and a gain of $817,794.
On December 21, 1995, the Company purchased an interest in 250 producing wells in the Garza Field of West Texas for cash consideration of $18,750,000. The Company provided $5,750,000 from its own cash resources and entered into a new term loan arrangement with Bank One, Texas for the balance. Total proved reserves were estimated to be 2.46 million barrels of oil and .3 BCF of gas.
The new bank loan agreement, entered into on December 20, 1995 in connection with the Garza acquisition, provides for the repayment of the outstanding $26,062,500 over a five year period with a maturity date of January 1, 2001. (See Note 4 of the Notes to the Consolidated Financial Statements). The Company has certain significant properties remaining unmortgaged, and consequently, has further borrowing capacity available for future projects.
OIL AND GAS OPERATIONS
The Company is an independent oil and gas company, engaged primarily in the production and exploration phases of the oil and gas business. Company operations include acquiring, exploring, developing, and operating crude oil and natural gas properties.
The Company seeks to accomplish its overall goal of increasing hydrocarbon reserves and cash flow by selectively acquiring and exploiting producing oil and gas properties. When possible, the Company acquires producing properties on which it can act as operator, and thus, supervise production and development activities.
As mentioned in the 1994 annual report, the Company has invested approximately $30.1 million in seven acquisitions over the preceding five years, which has added estimated proved reserves of 4.6 million barrels of oil and 2.1 billion cubic feet (BCF) of natural gas. During 1995, the Company was successful in consummating two other producing property acquisitions, investing $29.25 million and adding estimated proved reserves of 3.45 million barrels of oil and 6.8 BCF of natural gas.
The availability of a ready market for the sale of oil and gas from the Company's wells depends on numerous factors beyond the control of the Company, including the amount of domestic production, the importation of oil, the proximity of the Company's property to natural gas pipelines and the capacity of such pipelines, the market for other competitive fuels, fluctuations in seasonal demand, and governmental regulations relative to hydrocarbon production and pricing. The production of oil and gas is also subject to the laws of supply and demand, and therefore, is subject to purchaser cutbacks and price reductions during periods of oversupply. At December 31, 1995 almost 74% of the Company's estimated proved reserves, as well as 68% of the Company's 1995 production, were attributable to crude oil and condensate on a net equivalent barrel basis (net equivalent barrel "NEB" uses a conversion ratio of six thousand cubic feet of gas (MCF) to one net equivalent barrel of oil) and consequently, the Company is primarily impacted by oil markets.
The market price for natural gas has fluctuated significantly from month to month and year to year for the past several years. The Company cannot predict gas price movements with any certainty.
During the year ended December 31, 1995, three customers, Total Petroleum, Koch Industries, and Ashland Inc., accounted for approximately 21%, 18%, and 14%, respectively, of total consolidated oil and gas revenues. The Company does not believe it would be adversely affected by the loss of any of its oil or gas purchasers.
Except for curtailed exploration and production activity occasionally experienced in severe weather and normal curtailments of gas sales in summer months, the Company does not consider its business to be seasonal and does not carry significant amounts of inventory.
During 1995, a total of twenty-four wells were drilled, five exploratory wells, twelve development wells, and seven water injection wells to service waterflood operations. Below is a brief description of the work completed during the year and the results thereof.
Fullerton Field, Andrews County, Texas - this area represented the most significant development activity for the second succeeding year. Five successful development oil wells were drilled in a secondary recovery project which is owned 100% by the Company. Current production exceeds 400 barrels of oil per day.
Of the remaining seven development wells, two were horizontal wells drilled in the Medrano Field in Caddo County, Oklahoma and one was a horizontal development well offsetting a 1995 exploratory discovery in Stephens County, Texas. A gas well was added in the Destino Field in Duval County, Texas and two infill wells were drilled in the Claytonville Unit located in Fisher County, Texas. The seventh development well was testing commercial quantities of gas at year end in the Knox Field of Grady County, Oklahoma, where the Company owns a 10% working interest.
The Company's 1995 exploratory drilling was accomplished on plays generated from three dimensional seismic projects. Three of the five exploratory tests resulted in successful oil wells. The Hankins #1 and the Fisher #1 were drilled in the Hardeman Basin area, where the Company has been active for the last two years. The Hankins #1, located in Jackson County, Oklahoma, resulted in a flowing oil well producing 160 barrels of oil per day (BOPD). The Fisher #1, located in Hardeman County, Texas, is currently pumping 62 BOPD. Maynard owns a 25% and 18.75% working interest, respectively, in these two wells. The third successful exploratory well, the County Line #1, was drilled in Stephens County, Texas and is flowing 150 BOPD and 1.2 million cubic feet of gas per day. The Company owns a 12.5% working interest in this well.
GENERAL
The oil and gas business involves intense competition in all of its phases and, because of its size, the Company is not a significant competitive factor in the industry. In its efforts to acquire property rights, the Company competes with many companies having access to substantially greater financial resources and larger technical staffs.
The Company's oil and gas exploration effort often involves exploratory drilling on unproven acreage involving high risks. There is no assurance that any oil or gas production will be obtained, or that such production, if obtained, will be profitable. The cost of drilling, completing and operating wells is often uncertain. Drilling may be curtailed or delayed as a result of many factors, including title problems, weather conditions, delivery delays, and shortages of pipe and equipment.
The Company's operations are subject to potential hazards, inherent in the exploration for and production of hydrocarbons, including blowouts and fires. These and other events can cause a suspension of drilling operations, severe damage to equipment or surrounding property, personal injury, and perhaps even a loss of life. The Company may be subject to liability for pollution and other damages and is subject to statutes and regulations relating to environmental and other matters. While the Company maintains insurance against certain of these risks, there are certain risks against which it cannot insure, or which it may elect not to insure due to premium costs, or for other reasons. Substantial uninsured liabilities to third parties may be incurred.
The oil and gas operations of the Company are subject to local, state and Federal environmental regulations. To date, compliance with these regulations by the Company has had no material effect on the Company's capital expenditures. The Company is unable to assess or predict at this time the impact that compliance with such environmental regulations may have on its future capital expenditures, earnings and competitive position. The Company presently estimates that it will not make any material capital expenditures for environmental control facilities for its fiscal year ending December 31, 1996.
Many facets of the Company's operations are subject to governmental regulations. All of the Company's oil and gas properties are located in states in which oil and gas production is regulated by state production and conservation laws and regulations. These laws and regulations in many instances also require permits for the drilling of wells, the spacing of wells, prevention of waste, conservation of oil and natural gas and various other requirements.
The Company's activities are subject to taxation at all levels of government, including taxes on income, severance of minerals, and payroll. Laws governing taxation, protection of the environment, crude oil and natural gas operations and production, and other crucial areas are all subject to modification at any time.
At March 18, 1996, the Company employed approximately 37 persons, including one geologist and five petroleum engineers.
ITEM 2.

ITEM 2. PROPERTIES
The Company's executive offices are presently located at 8080 N. Central Expressway, Suite 660, Dallas, Texas occupying approximately 11,300 square feet of space under a lease agreement which expires in April, 2000.
The Company's principal property holdings consist of leasehold interests in oil and gas properties located in the United States, primarily in Oklahoma and Texas. The leaseholds are continued in force so long as production from lands under lease is maintained. The Company believes that it has satisfactory title to its oil and gas properties. Such properties are subject to customary royalty interests, liens incident to operating agreements, liens for current taxes, and other burdens and minor encumbrances, easements, and restrictions. The Company believes that such burdens do not materially detract from the value of the properties or materially interfere with their use in the operation of the Company's business. The Company has pledged certain of its oil and gas properties to secure its term loan.
ESTIMATED PROVED RESERVES, FUTURE NET REVENUES AND PRESENT VALUE
Reflected below are the estimated quantities of proved developed and undeveloped reserves of crude oil and natural gas owned by the Company as of December 31, 1995, 1994, and 1993. Such reserve information has been prepared by the Company's staff of petroleum engineers and audited by the independent petroleum consulting firm of Netherland, Sewell, and Associates, Inc. No reserve reports with respect to the Company's proved net oil or gas reserves were filed with any Federal authority or agency during the fiscal year ended December 31, 1995.
The following table summarizes the future net revenues, using current prices and costs as of the dates indicated, as well as the present value, discounted at 10%, of such future net revenues from estimated production of proved reserves of crude oil and natural gas as of December 31, 1995, 1994, and 1993. Oil and gas prices used in the tabulation of the amounts below are based on the price received for each lease at December 31, of the appropriate year. The weighted average prices at December 31, 1995, 1994, and 1993 respectively, used in the estimates were $18.13, $16.06, and $11.36 per barrel of oil and $1.65, $1.62, and $2.22 per mcf of natural gas. Lease and well operating costs are based upon actual operating expense records.
PRODUCTION, SALES PRICES AND COSTS
The following table sets forth the Company's net oil and gas production, average sales prices and production costs for the three years ended December 31, 1995.
December 31 --------------------------------- 1995 1994 1993 ---- ---- ---- Production: Oil (MB) 957.9 558.3 557.7 Gas (MMCF) 2,720.4 2,390.3 2,717.2
Average Sales Prices: Oil (per BBL) $16.98 $15.47 $16.15 Gas (per MCF) $ 1.57 $ 1.94 $ 2.16
Average Production Costs: Per net equivalent barrel of oil (1)(2) $ 5.98 $ 5.20 $ 5.37
(1) Six MCF of gas equals one net equivalent barrel ("NEB"). (2) Production costs include severance and advalorem taxes, if applicable, and lease operating expenses including workover costs.
PRODUCTIVE WELLS AND ACREAGE
As of December 31, 1995, the Company owned an interest in approximately 1,273 gross (330.3 net) wells, of which 1,208 gross (310.3 net) are oil wells and 65 gross (20.0 net) are gas wells, located on approximately 42,093 gross (24,411 net) producing acres.
UNDEVELOPED ACREAGE
The following table sets forth the Company's gross and net undeveloped acreage as of December 31, 1995.
Undeveloped Acreage ------------------ Gross Net ----- ----- Colorado . . . . . . . . . . . . . . . 80 10 Louisiana . . . . . . . . . . . . . . . 80 40 North Dakota . . . . . . . . . . . . . 62 4 Oklahoma . . . . . . . . . . . . . . . 2,558 619 Texas . . . . . . . . . . . . . . . . . 9,408 3,307 Wyoming . . . . . . . . . . . . . . . . 2,256 794 ------ -----
Total 14,444 4,774 ====== =====
DRILLING ACTIVITY
The following table sets forth the results of the Company's drilling activity during the three years ended December 31, 1995.
At March 18, 1996 the Company had two gross (2.00 net) development wells in the process of being drilled.
ITEM 3.

ITEM 3. LEGAL PROCEEDINGS
The Company is a defendant in minor lawsuits that have arisen in the ordinary course of business. The Company does not expect any of these to have a material adverse effect on the Company's consolidated financial position.
ITEM 4.

ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS.
None.
EXECUTIVE OFFICERS OF THE REGISTRANT
Information with respect to the Company's executive officers as of March 18, 1996, is set forth in the table below.
Name Position Age Since ----- -------- --- -----
James G. Maynard Chairman of the Board, 69 1971 Chief Executive Officer and Treasurer
Glenn R. Moore President and Chief 58 1982 Operating Officer
L. Brent Carruth Vice President of 62 1984 Operations
Kenneth W. Hatcher Vice President of 52 1983 Finance
Linda K. Burgess Corporate Secretary 47 1984 and Controller
Mr. Maynard has been a director since 1971 and engaged in oil and gas exploration as an independent operator and private investor for the past 40 years.
Mr. Moore has over 30 years experience in domestic and foreign oil and gas exploration and production. Prior to joining the Company in November, 1982, Mr. Moore served as President of Shannon Oil and Gas, Inc. and Hanover Petroleum Corporation.
Mr. Carruth has over 30 years of petroleum engineering experience. Prior to joining the Company in January, 1984, he served for one year as Vice President of Operations of Cordova Resources. Preceding that, Mr. Carruth was a petroleum consultant for three years and served as Manager of Engineering of Texas Pacific Oil Company for eight years.
Mr. Hatcher has over 25 years of finance and accounting experience in the oil and gas industry and is a Certified Public Accountant. Prior to joining the Company in February, 1983, Mr. Hatcher served as Controller and Vice President of Finance of Shannon Oil and Gas, Inc. for three years and as Controller and Vice President of Hanover Petroleum Corporation for four years.
Ms. Burgess has in excess of 20 years of oil and gas accounting experience. Prior to joining the Company in May, 1984, Ms. Burgess served as Controller for Trans-Western Exploration Inc. for four years and as Controller for Energy Resources Oil and Gas for three years.
Each officer's term of office expires on the date of the next annual meeting of the Board of Directors, or until his earlier resignation or removal. There are no family relationships among the executive officers listed, and there are no arrangements or understandings pursuant to which any of them were elected or appointed as officers.
PART II
ITEM 5.

ITEM 5. MARKET FOR THE REGISTRANT'S COMMON STOCK AND RELATED SECURITY HOLDER MATTERS.
The Company's Common Stock is traded in the over-the-counter market, NASDAQ trading symbol "MOIL". The high and low sales prices for each quarterly period during the two years ended December 31, 1995, were as follows:
As of March 18, 1996, the Company had approximately 1,050 shareholders of record.
The Company has not paid any dividends on its Common Stock in the past, nor does it plan to pay dividends in the foreseeable future. The Company's ability to pay dividends is currently restricted under its Loan Agreement with Bank One, Texas.
ITEM 6.

ITEM 6. SELECTED FINANCIAL DATA.
The following table summarizes certain selected financial data to highlight significant trends in the Company's financial condition and operating results for the periods indicated. The selected financial information presented should be read in conjunction with the consolidated financial statements and related notes appearing elsewhere in this Report and the Management's Discussion and Analysis set forth under Item 7

ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS.
LIQUIDITY ---------
Net cash provided by operating activities before changes in assets and liabilities increased 50% in 1995 to $9,870,251. Higher crude oil sales was the principal reason for this sharp rise in operating cash flow. In the fourth quarter of 1994 and in the second quarter of 1995, the Company was successful in consummating two significant property acquisitions, which were largely responsible for the substantial increases in oil production. 1995 operating cash flow was also favorably impacted by higher crude oil prices, lower exploration costs (which include dry holes and abandonments and lease rentals and seismic) and general and administrative costs, which was partially offset by higher lease operating and interest expense.
In March and December, 1995 the Company completed the acquisition of working interests in 200 and 250 producing properties, respectively, in the Permian Basin of West Texas. These two acquisitions were financed with $6.75 million of the Company's cash resources and $22.5 million in additional bank financing. Thus, total bank debt at the end of 1995 was $26.1 million. A restated loan agreement was put into place on December 20, 1995 in connection with the second property acquisition. This new loan has a term of five years with principal and interest to be paid quarterly and with a maturity date of January 1, 2001. The loan agreement allows the Company to choose between three interest rate options ranging from Bank One prime rate to its certificate of deposit rate to a LIBOR rate. The loan is secured by certain producing properties, but the Company also has significant groups of properties remaining unmortgaged should the opportunity arise to make additional property acquisitions.
CAPITAL RESOURCES -----------------
Net working capital at December 31, 1995 was a negative $370,000 compared to $4,079,000 at December 31, 1994. Negative working capital is attributable to the second property acquisition, which closed on December 20, 1995, and the current portion of long-term debt outstanding at that time. The Company's cash position grew over $300,000 during 1995 while significant amounts were spent on property acquisitions, development drilling, and debt repayment. The year end cash position was $6.1 million, and the Company believes it will generate sufficient cash in 1996 to support its debt service, fund its capital expenditure program, and pursue other acquisition candidates.
The Company's recent drilling and acquisition activities have increased its reserve base and its productive capacity and ultimately its potential cash flow. Each outstanding share of common stock is supported by 2.46 net equivalent barrels ("NEB") of oil compared with 1.8 and 1.3 NEB respectively, for the prior two years. Management of the Company intends to continue to acquire and develop oil and gas properties in its areas of activity as allowed by market conditions and financial ability.
RESULTS OF OPERATIONS YEAR ENDED DECEMBER 31, 1995 COMPARED TO DECEMBER 31, 1994 ----------------------------------------------------------
Net income for 1995 more than tripled 1994 levels, rising from $943,216 to $3,023,107, representing sixty two cents per share for 1995 versus nineteen cents per share in 1994.
This earnings increase was fueled by higher oil and gas revenues, which rose 55% to $20,710,243. Higher revenues were the result of a 72% increase in oil production and a 14% increase in natural gas production. These sharp increases reflect the late 1994 acquisition of waterflood properties in Carter and Stephens Counties, Oklahoma, and the March 1995 acquisition of Permian Basin properties in West Texas, as well as results from 1995 drilling activities.
In 1995, oil prices averaged $16.98 per barrel compared to $15.47 during 1994, a $1.51 per barrel increase. Natural gas prices experienced a 19% decline in 1995, from an average price of $1.94 per thousand cubic feet of gas sold (MCF) in 1994 to $1.57 per MCF in 1995. Natural gas prices reflect the country's mild weather conditions and excess domestic supply.
Lease operating expenses rose $3,472,960 in 1995. On a net equivalent barrel (NEB) basis, lifting costs rose seventy-eight cents per barrel in 1995 to $5.98 per barrel, reflecting higher costs associated with waterflood properties which were acquired in fourth quarter 1994 and first quarter 1995.
Exploration costs were 48% lower in 1995, totaling $609,279, versus $1,169,680 primarily due to reduced activity in the three dimensional seismic program, which the Company had utilized to establish exploratory drilling projects for the last two years.
Depletion and amortization expense grew almost 46% in 1995 to $6,879,672. This significant increase was principally attributable to the addition of properties in late 1994 and first quarter 1995, which added approximately $20 million to the Company's depletable costs.
The Company accounts for overhead charges billed to working interest owners, including the Company, as a reduction to general and administrative expenses. The Company's proportionate share of the amounts billed are included in lease operating expenses. Since the number of operated properties increased due to the recent acquisitions, the amounts billed out in 1995 resulted in a 45% reduction in general and administrative expenses from $1,676,228 to $925,822.
Other income (deductions) has been impacted by the Company's property acquisitions. Interest expense grew $844,702 in 1995 due to bank borrowings to finance the properties acquired. Additionally, a gain of $991,875 was generated for the year, the largest portion being realized when a newly acquired property was sold.
Income tax expense rose to $1,330,500 in 1995 from $252,482 in 1994, due primarily to improved earnings and additional state taxes arising from an audit assessment.
YEAR ENDED DECEMBER 31, 1994 COMPARED TO DECEMBER 31, 1993 CAPITAL RESOURCES AND LIQUIDITY ----------------------------------------------------------
At December 31, 1994 the Company had cash and short-term investments of $5,836,389, working capital of $4,078,580, property and equipment of $39,041,167 and total assets of $48,071,094. Cash and short-term investments decreased $6.6 million, working capital decreased $5.4 million and property and equipment increased $10.4 million between 1993 and 1994 as the Company invested its monies in oil and gas properties.
Over the last five years, management's strategy has been to purchase producing oil and gas properties, whose reserves can be enhanced with additional development work and to selectively participate in exploration activities. The funding for these activities has been provided by operating cash flows and bank financing. Net cash provided by operating activities for 1994 and 1993 was $5,696,279 and $6,737,745, while property and equipment expenditures over this same period were $15,373,776 and $6,065,590.
In December, 1994 the Company amended its term loan agreement in connection with a $9.5 million property acquisition, borrowing an additional $5 million. At year end 1994, the major properties not subject to mortgage under the amended term loan agreement and accordingly, available for future financing, were the Levelland, Fullerton, and the newly acquired Sholem-Alechem waterfloods.
RESULTS OF OPERATIONS YEAR ENDED DECEMBER 31, 1994 COMPARED TO DECEMBER 31, 1993 ----------------------------------------------------------
Income before cumulative effect of an accounting change rose $76,334, or 1 cent per share, during 1994 in spite of a decline in revenues. Oil and gas revenues for the 1994 year were $1,664,236 lower than a year ago due to a reduction in gas volumes sold and a drop in product pricing. Gas volumes declined 12%, oil prices 4%, and gas pricing 10%. Offsetting these revenue losses were cost reductions in every category except dry holes and abandonments, which increased $417,194, as the three dimensional seismic (3-D) program completed its shooting phase and entered the drilling phase ($332,320 was spent in 1994 on rentals and seismic compared with $1,309,158 in 1993). A total of ten exploratory wells were drilled based upon 3-D, resulting in three producers and seven dry holes compared with four dry holes a year ago.
The other cost category which declined significantly in 1994 was depreciation and amortization which dropped $1,130,776 due to reduced gas volumes and positive reserve revisions on certain properties. Thus, operating profit increased almost 10 fold over last year - $815,420 in 1994 versus $86,338 in 1993.
The other income (deductions) category was unfavorably impacted in the amount of $985,790. In 1993, the Company realized a $1.0 million dollar gain from the sale of gas processing rights which was non-recurring in 1994.
Current period income tax expense was $333,042 lower than a year ago, primarily due to lower taxable income.
ITEM 8.

ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA.
The information required by Item 8 is included on pages 19 through 36 of this Report.
ITEM 9.

ITEM 9. CHANGES IN AND DISAGREEMENTS ON ACCOUNTING AND FINANCIAL DISCLOSURE.
NONE
PART III
The information required by Part III (Items 10 through 13) is set forth in the Company's Proxy Statement for the annual meeting of stockholders to be held on May 21, 1996, and is incorporated herein by reference. Information with respect to the Company's executive officers as of March 18, 1996, is set forth commencing on pages 9 and 10 hereof under the caption "Executive Officers of the Registrant."
PART IV
ITEM 14.

ITEM 14. EXHIBITS, FINANCIAL STATEMENT SCHEDULES AND REPORTS ON FORM 8K
FINANCIAL STATEMENTS AND SCHEDULES
See Index to Consolidated Financial Statements and Schedules on page 18 of this Report.
REPORTS ON FORM 8-K
On January 4, 1996, the Company filed a Form 8-K with the Securities and Exchange Commission, as amended by Amendment No. 1 on Form 8-KA dated February 28, 1996 to report the acquisition of producing oil and gas properties. Pro forma financial information was included in the report, as amended.
EXHIBITS
3.1(a) Certificate of Incorporation, as amended, filed as Exhibit 3.1 to the Company's Annual Report on Form 10-K for its fiscal year ended December 31, 1980 (the "1980 Form 10-K"), and incorporated herein by reference.
(b) Certificate of Amendment of Certificate of Incorporation dated May 19, 1981, filed as Exhibit 3.1(b) to the Company's Annual Report on Form 10-K for its fiscal year ended December 31, 1981 (the "1981 form 10-K"), and incorporated herein by reference.
(c) Certificate of Amendment of Certificate of Incorporation dated May 22, 1987, filed as Exhibit 3.1 to the Company's Quarterly Report on Form 10-Q for the period ended June 30, 1987, and incorporated herein by reference.
(d) Certificate of Amendment of Certificate of Incorporation dated June 3, 1993, filed as Exhibit 3.1 to the Company's Quarterly Report on Form 10-Q for the period ended June 30, 1993, and incorporated herein by reference.
3.2(a) By-Laws, as amended, filed as Exhibit 3.2(b) to the 1981 Form 10-K and incorporated herein by reference.
(b) Amendment to the By-Laws, filed as Exhibit 3.2(b) to the 1981 Form 10-K and incorporated herein by reference.
(c) Amendment to the By-Laws, filed as Exhibit 3.2(c) to the Company's Annual Report on Form 10-K for its fiscal year ended December 31, 1984, and incorporated herein by reference.
(d) Amendment to the By-Laws, filed as Exhibit 3.2 to the Company's Quarterly Report on Form 10-Q for the period ended June 30, 1987, and incorporated herein by reference.
(e) Amendment to the By-Laws, filed as Exhibit 3.2 to the Company's Annual Report on Form 10-K for its fiscal year ended December 31, 1993 and incorporated herein by reference.
4.1 Credit agreement ($10,000,000 Term Facility) dated October 1, 1990 between Maynard Oil Company and First City, Texas - Dallas, filed as Exhibit 4.2 to the Company's Annual Report on Form 10-K for its fiscal year ended December 31, 1990, and incorporated herein by reference.
4.2 First Amendment to Loan Agreement dated November 19, 1991 between Maynard Oil Company and First City, Texas - Dallas, filed as Exhibit 4.2 to the Company's Annual Report on Form 10-K for its fiscal year ended December 31, 1992, and incorporated herein by reference.
4.3 Second Amendment to Loan Agreement, dated February 1, 1993 between Maynard Oil Company and Bank One, Texas, N.A. filed as Exhibit 4.1 to the Company's Quarterly Report on Form 10-Q for the period ended June 30, 1993, and incorporated herein by reference.
4.4 Third Amendment to Loan Agreement, dated December 22, 1994 between Maynard Oil Company and Bank One, Texas, N.A., filed as Exhibit 4.4 to the Company's Annual Report on Form 10-K for its fiscal year ended December 31, 1994, and incorporated herein by reference.
4.5 Fourth Amendment to Loan Agreement, dated March 29, 1995 between Maynard Oil Company and Bank One, Texas, N.A., filed as Exhibit 4.1 to the Company's Quarterly Report on Form 10-Q for the period ended March 31, 1995, and incorporated herein by reference.
*4.6 Restated Loan Agreement, dated December 20, 1995 between Maynard Oil Company and Bank One, Texas, N.A., filed herewith.
*10.1 1989 Stock Participation Plan, filed herewith.
*11.1 Computation of per share earnings, filed herewith.
*21.1 List of subsidiaries of the Company as of December 31, 1995, filed herewith.
*27 Financial Data Schedules, filed herewith.
___________________________ * Filed herewith
SIGNATURES
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.
MAYNARD OIL COMPANY
By \s\ James G. Maynard --------------------------- James G. Maynard Chairman of the Board
Date: March 29, 1996
Pursuant to the requirements of the Securities Exchange Act of 1934, this report has been signed below by the following persons in the capacities and on the date indicated in multiple counterparts with the same force and effect as if each person executing a separate counterpart has joined in execution of the same counterpart.
/s/ James G. Maynard Chairman of the Board, March 29, 1996 ------------------------ Chief Executive James G. Maynard Officer & Treasurer
/s/ Glenn R. Moore President and Chief March 29, 1996 ----------------------- Operating Officer Glenn R. Moore
/s/ Kenneth W. Hatcher Vice President of Finance March 29, 1996 ----------------------- (Principal Financial Kenneth W. Hatcher and Accounting Officer)
/s/ Robert B. McDermott Director March 29, 1996 ----------------------- Robert B. McDermott
/s/ Ralph E. Graham Director March 29, 1996 ---------------------- Ralph E. Graham
MAYNARD OIL COMPANY AND SUBSIDIARIES
Index to Consolidated Financial Statements and Schedules
Page ---- Financial Statements:
Report of Independent Accountants 19
Consolidated Balance Sheets - December 31, 1995 and 1994 20
Consolidated Statements of Income - Three years ended December 31, 1995 21
Consolidated Statements of Shareholders' Equity - Three years ended December 31, 1995 22
Consolidated Statements of Cash Flows - Three years ended December 31, 1995 23
Notes to Consolidated Financial Statements 24
Financial Statement Schedules for the Three years ended December 31, 1995
II - Valuation and Qualifying Accounts 36
All other schedules are omitted as the required information is inapplicable or the information is presented in the Consolidated Financial Statements or Notes thereto.
REPORT OF INDEPENDENT ACCOUNTANTS ---------------------------------
To the Board of Directors and Shareholders of Maynard Oil Company
In our opinion, the consolidated financial statements listed in the accompanying index present fairly, in all material respects, the financial position of Maynard Oil Company and its subsidiaries at December 31, 1995 and 1994, and the results of their operations and their cash flows for each of the three years in the period ended December 31, 1995, in conformity with generally accepted accounting principles. These financial statements are the responsibility of the Company's management; our responsibility is to express an opinion on these financial statements based on our audits. We conducted our audits of these statements in accordance with generally accepted auditing standards which require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements, assessing the accounting principles used and significant estimates made by management, and evaluating the overall financial statement presentation. We believe that our audits provide a reasonable basis for the opinion expressed above.
As discussed in Note 1, in 1993 the Company changed its method of accounting for income taxes.
Price Waterhouse LLP March 25, 1996 Dallas, Texas
MAYNARD OIL COMPANY AND SUBSIDIARIES Notes to Consolidated Financial Statements
(1) Summary of Significant Accounting Policies ------------------------------------------
Business Activity -----------------
The Company is engaged in the production and sale of and the acquisition, exploration and development of crude oil and natural gas in the Continental United States.
Principles of Consolidation ---------------------------
The consolidated financial statements include the accounts of Maynard Oil Company (Company) and its subsidiaries, all of which are wholly-owned. All significant intercompany balances and transactions have been eliminated in consolidation.
Property and Equipment ----------------------
The Company follows the "successful efforts" method of accounting for its costs of acquisition, exploration and development of oil and gas properties. Intangible drilling and development costs related to development wells and successful exploratory wells are capitalized, whereas the costs of exploratory wells which do not find proved reserves are expensed. Costs of acquiring unproved leases are evaluated for impairment until such time as the leases are proved or abandoned. All geological and geophysical costs not reimbursed are expensed as incurred.
Depreciation and amortization of producing properties is computed using the unit-of-production method based upon estimated proved recoverable reserves. Depreciation of other property and equipment is calculated by the straight-line method based upon estimated useful lives ranging from two to ten years.
Maintenance and repairs are charged to expense as incurred. Renewals and betterments are capitalized. When assets are sold, retired or otherwise disposed of, the applicable costs and accumulated depreciation and amortization are removed from the accounts, and the resulting gain or loss is recognized.
Overhead Reimbursement Fees ---------------------------
Overhead charges billed to working interest owners including the Company of $1,892,370, $805,982, and $681,389 for the three years ended December 31, 1995, respectively, have been classified as a reduction of general and administrative expenses in the accompanying Consolidated Statements of Income. The Company's working interest portion of the amounts billed are included in lease operating expenses.
Deferred Income Taxes ---------------------
Effective January 1, 1993 the Company adopted Statement of Financial Accounting Standards No. 109 (SFAS 109), "Accounting for Income Taxes", which changed the Company's method of accounting for income taxes from the deferred method to an asset and liability approach. SFAS 109 requires the recognition of deferred tax liabilities and assets (net of any required valuation allowance) for the expected future tax consequences, if any, of temporary differences between the financial statement balance and the tax basis of assets and liabilities. The cumulative effect of the change in accounting for income taxes was an increase in net income of $1,386,844. No valuation allowance was provided in determining the cumulative effect adjustment. This adjustment was primarily attributable to a reduction in the deferred tax liability, which was originally recorded when the tax rate was 46%.
Income per Common Share -----------------------
Income per common share is computed using the weighted average number of common shares outstanding during each year. The difference between primary and fully diluted earnings per share, which assumes the exercise of stock options in 1994 and 1993, was not significant. During 1995, all outstanding stock options were exercised, and consequently, primary and fully diluted earnings per share are the same for the current year.
Financial Instruments ---------------------
The carrying amounts of cash and cash equivalents, accounts receivable and accounts payable approximate fair value because of the short maturity of these instruments. The carrying amount of long-term debt, including the current portion, approximates fair value because the interest rate on this instrument changes with market interest rates.
Financial instruments, which potentially subject the Company to concentrations of credit risk, consist principally of cash and cash equivalents and accounts receivable. The Company places its cash and cash equivalents with high credit quality institutions. With respect to accounts receivable, these financial instruments primarily pertain to oil and gas sales and joint interest billings. These accounts receivable are due from small to mid-size companies engaged principally in oil and gas activities. The Company performs ongoing credit evaluations of its customers' financial condition and, generally, requires no collateral from its customers. Payment terms are on a short- term basis and in accordance with industry standards.
The Use of Estimates in Preparing Financial Statements ------------------------------------------------------
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, liabilities, revenues, expenses, disclosure of gain and loss contingencies at the date of the financial statements and reported amounts of revenues and expenses during the reporting period. Since estimates are made based on all information available at the time, it is reasonably possible that, in the near term, a change in an estimate may occur or that actual amounts may differ from estimated amounts.
Future Reporting Requirements -----------------------------
The Company has elected to postpone adoption of SFAS No. 121, Accounting for the Impairment of Long-Lived Assets and for Long-Lived Assets to be Disposed of until fiscal 1996. The effect of SFAS 121, which requires that long-lived assets be reviewed for impairment whenever events or changes in circumstances indicate that the carrying amount of an asset may not be recoverable, will not have a material impact on the Company's financial statements.
(2) Acquisitions and Dispositions (Reserve information is unaudited) ----------------------------------------------------------------
During 1995, the Company consummated two separate producing property acquisitions for a gross purchase price of $29,250,000. On March 29, 1995, the Company closed its acquisition of working interests in 200 producing wells in the Permian Basin of West Texas. Estimated proved reserves associated with this transaction approximated .99 million barrels of oil and 6.5 billion cubic feet of gas (BCF). Total consideration paid was $10,500,000.
On December 20, 1995, the Company closed the acquisition of working interests in 250 producing wells located in Garza County, Texas. Total consideration paid was $18,750,000, $13,000,000 of which was borrowed under a new term loan arrangement with Bank One, Texas. Proved reserves are estimated to be 2.46 million barrels of oil and .3 BCF of gas.
In December, 1994, the Company purchased working interests in one gas well and seven waterflood units in the Sholem Alechem area of Carter and Stephens Counties, Oklahoma for a gross purchase price of $9.5 million. Proved reserves associated with this purchase were 1.6 million barrels of oil and .8 BCF of gas.
The above acquisitions were accounted for as purchases, and their results of operations are included in the Consolidated Statements of Income from the closing dates, while their results of operations from the effective date through the closing date were recorded as purchase price adjustments.
The following table presents unaudited pro forma operating results as if the acquisitions had occurred on January 1, 1994.
Years ended December 31, ----------------------- 1995 1994 ---- ---- Amounts in thousands, except per share amounts Sales $26,062 $26,857 Income before cumulative effect of accounting change 3,568 1,921 Income per common share: Income before accounting change .73 .39
In September 1995, one prospect, which had been acquired in March, was sold after the Company received an unsolicited purchase offer. The economics were attractive, and the Company sold this prospect for $2,985,935 in cash proceeds realizing a gain of $817,794.
(3) Cash Flow Data --------------
Cash in excess of daily requirements is invested in marketable securities, consisting of repurchase agreements, certificates of deposit, and commercial paper, with maturities of three months or less. At December 31, 1995 and 1994, such investments totaled $6,300,000 and $6,150,000, respectively, and are considered to be cash equivalents, which are carried at the lower of cost or market.
Supplemental cash flow information for the three years ended December 31, 1995 is summarized as follows:
1995 1994 1993 ---- ---- ---- Cash paid (received): Interest expense $ 853,247 $ 175,319 $ 200,539 ======== ======== ========
Income taxes paid $ 121,674 $ 28,016 $ 643,662 ======== ======== ========
Income taxes refunded $ -- $(369,528) $ -- ======== ======== ========
(4) Long-term Debt --------------
Long-term debt at December 31, 1995 and 1994 is summarized as follows:
1995 1994 ---- ---- Term note due in 20 equal quarterly installments of $1,250,000 commencing April 1, 1996 plus one payment of $1,062,500 made January 1, 1996. Interest paid quarterly at varying rates. Secured by certain oil and gas properties with a net book value of $36,843,000. $26,062,500 -- Amended term note due in 16 equal quarterly installments commencing January 1,1995. Interest paid quarterly at varying rates. Secured by certain oil and gas properties. -- $7,000,000 Less current installments 4,812,500 1,750,000 ----------- ----------
Long-term debt $21,250,000 $5,250,000 =========== ==========
Effective December 21, 1995, the Company executed a new loan agreement with Bank One, Texas, increasing its outstanding loan from $13,062,500 to $26,062,500 in connection with the acquisition of producing properties discussed in Note 2. This new term loan agreement replaced a March, 1995 bank loan amendment, which had increased the outstanding loan amount from $7,000,000 to $16,062,500. The Company made scheduled loan repayments of $437,500 in January, 1995 and April, 1995 and $781,250 in July and October of 1995. Additionally, the Company prepaid $1,000,000 on September 1, 1995 after the sale of certain properties previously acquired.
The term note permits the Company to choose between three interest rate options and to specify what portion of the loan is covered by a specific interest rate option and the applicable funding period to which the interest rate option is to apply. The interest rate options are as follows:
(1) Bank's prime lending rate (2) Bank's certificate of deposit rate (3) London interbank eurodollar rate (Eurodollar)
At December 31, 1995, interest on the bank term loan was at a rate of approximately 7.21%.
The term note agreement contains restrictions related to working capital, net worth, and cash flow. Additionally, the debt agreement places certain limitations on the incurrence of additional debt and prohibits the payment of dividends.
(5) Employee Incentive Plans ------------------------
In August 1989, an employee incentive plan was adopted, whereby stock participation units might be granted to officers and key employees. Such stock participation units will entitle a participant to a cash payment following termination of employment in an amount equal to the excess, if any, of the fair market value of one share of the Company's common stock over a share price specified on the date of grant, multiplied by the number of vested units. The units vest over a five year period with 25% vesting after two years and the remainder in three equal annual installments. For the year ended December 31, 1989, 73,000 units were awarded to certain employees at a price of $4.50 per share of which 49,500 units remain outstanding at December 31, 1995, all of which are 100% vested. During August 1993, 52,000 additional units were awarded at $5.625 per share of which 13,000 units are vested. Earnings are charged over the life of the units for increases in stock prices (if any) over $4.50 per share and $5.625 per share. During the periods ended December 31, 1995 and 1993, operations were charged $76,183 and $1,484 respectively, in regard to the stock participation units granted in 1989. During 1995, operations were also charged $15,676 in regard to the units awarded in 1993. There were no such charges in 1994.
In March 1982, an employee incentive plan was adopted whereby stock options and stock appreciation rights might be granted to officers and key employees. A total of 281,517 shares were initially reserved for issuance. This plan terminated in March 1992 and no further grants may be made under this plan. The options became exercisable cumulatively in five equal installments, beginning on the first anniversary of the date of grant. The option price for shares granted pursuant to the plan was not less than the fair market value of the shares at the date of grant.
A summary of stock option activity for the 1982 plan for the past three years is as follows:
Number of Option Price Shares per Share ------- -------------
Outstanding at December 31, 1992 45,600 $4.50 to $6.50 Granted -0- -- Exercised -0- -- Cancelled (5,000) $4.75
Outstanding at December 31, 1993 40,600 $4.50 to $6.50 Granted -0- -- Exercised (11,500) $4.69 Cancelled (5,100) $4.50 to $6.50
Outstanding at December 31, 1994 24,000 $4.50 Exercised (24,000) $4.50
Outstanding at December 31, 1995 -0-
During September 1995, options for 24,000 shares were exercised. Common stock was credited for $2,400 and additional paid-in capital was credited for $105,600. The Company simultaneously repurchased and cancelled 23,500 of the shares exercised for $6.50 per share. Common stock was debited for $2,350 and retained earnings charged $150,400 in regard to the repurchased shares.
(6) Income Taxes ------------ Income tax expense (benefit) consists of the following:
Years ended December 31, -------------------------------------- 1995 1994 1993 ---- ---- ---- Federal Current $ 620,500 $(615,028) $ 461,840 Deferred 480,000 867,510 26,000 State 230,000 -- 97,684 ---------- --------- ---------
$1,330,500 $ 252,482 $ 585,524 ========== ========= =========
Income tax expense for the three years ended December 31, 1995 differs from the amount computed by applying the applicable U.S. corporate income tax rate of 34% to income before income taxes. The reasons for this difference are as follows:
Year ended December 31, --------------------------------- 1995 1994 1993 ---- ---- ----
Income tax expense at U.S. statutory rate $1,480,226 $ 406,537 $ 493,818 State income taxes 230,000 -- 97,684 Allowable depletion in excess of cost depletion (281,526) -- (188,700) Items not related to current year earnings (89,198) (294,528) 146,000 Net operating loss not utilized -- 88,000 -- Other items (9,002) 52,473 36,722 ---------- --------- --------- Income tax expense $1,330,500 $ 252,482 $ 585,524 ========== ========= =========
The components of the net deferred tax liability were as follows:
December 31, ------------------------------ 1995 1994 ---- ----
Depreciable assets $ 61,510 $ 29,210 Depletable assets 14,400 (6,100) Intangible drilling and development costs 2,542,600 2,115,400 Tax credit carryforwards (406,000) (406,000) ---------- ---------- Net deferred tax liability $2,212,510 $1,732,510
In November 1995 the Oklahoma State Tax Commission completed an examination of the 1990 through 1993 state income tax returns for Maynard Oil Company. Taxes on the adjustments amounted to $149,690. The Company had followed a three factor apportionment formula (sales, property, and payroll) as allowed and utilized by the majority of taxpayers in calculating their Oklahoma tax liability. However, the Oklahoma Tax Commission requires a separate accounting theory to calculate the state tax liability. Management believes it has made adequate provision for all income taxes and interest arising as a result of this examination.
As of December 31, 1995, the Company has alternative minimum tax credit carryforwards of approximately $406,000 available for Federal income tax purposes. No valuation allowance has been provided for this deferred asset.
(7) Employee Benefit Plans ----------------------
Effective January 1, 1985 the Company adopted a noncontributory defined contribution retirement plan for all full-time employees age 21 or older who have completed one year of service. The plan provides for a minimum annual contribution by the Company equal to 3% of an employee's base salary plus overtime compensation. At its discretion the Company may also make supplemental contributions to the plan. Under this plan, amounts equal to retirement plan expense are funded annually, which amounted to $40,777, $28,298, and $23,012, respectively, for the years ended December 31, 1995, 1994, and 1993. The contributions for the same three year period have been reduced by $1,818, $10,407, and $20,104, respectively, for forfeitures attributable to employees terminated in prior years.
Effective February 1, 1991, the Company adopted a profit sharing plan pursuant to Section 401 of the Internal Revenue Code, whereby participants may contribute a percentage of compensation. The Plan provides for a matching contribution by the Company equal to one-half of the employee's percentage contribution up to the first 10% of compensation for 1995, 1994, and 1993. During this same three year period, the Company's matching portion amounted to $59,579, $52,710, and 57,191, respectively.
(8) Major Customers ---------------
During the years ended December 31, 1995, and 1993, oil and gas sales to three customers, amounting to approximately $4,377,000, $3,746,000, and $2,946,000, and $4,356,000, $1,857,000, and $1,749,000, respectively, each accounted for more than 10% of total consolidated revenues. During the year ended December 31, 1994, oil and gas sales to two customers, amounting to approximately $5,166,000 and $1,500,000, each accounted for more than 10% of total consolidated revenues.
(9) Contingencies and Commitments -----------------------------
The Company is a defendant in certain non-environmental litigation arising from operations in the normal course of business. While it is not feasible to determine the outcome of these actions, it is the Company's opinion that the ultimate outcome of the litigation will have no material adverse effect in the financial position or results of operations of the Company.
The Company leases office space and certain equipment under various operating leases which expire over the next five years. All leases require the payment of taxes and insurance, and the office lease requires the Company to pay its pro rata share of increases in maintenance expense above that prevailing in base years. Management expects that in the normal course of business, leases will be renewed or replaced by other leases. The Company extended its office space lease, which was scheduled to terminate April 30, 1996, for an additional four years, such that the expiration date is now April 30, 2000. Rent expense for the three years ended December 31, 1995 was $298,371, $266,967, and $256,984, respectively.
Minimum payments for operating leases having initial or noncancellable terms in excess of one year are as follows:
1996 $ 245,186 1997 219,214 1998 207,063 1999 197,798 2000 58,531 ---------
Total minimum payments $ 927,792 =========
(10) Quarterly Financial Data (Unaudited) ------------------------------------
Summarized quarterly financial data for the years ended December 31, 1995 and 1994 is as follows:
During the fourth quarter of 1995, the Company recorded an impairment of $491,051 to unproved leasehold costs relating to the Company's three-dimensional seismic program. The effect of this impairment is included in Dry holes and abandonments on the Consolidated Statements of Income.
(11) Supplemental Oil and Gas Disclosures (Unaudited) ------------------------------------------------
Capitalized Costs -----------------
A summary of the Company's aggregate capitalized property and equipment costs relating to oil and gas exploration and development activities follows:
December 31, 1995 1994 ------------ ----------- Undeveloped leaseholds and royalties $ 124,924 $ 771,614 Producing properties 111,348,464 81,091,640 ------------ ----------- 111,473,388 81,863,254 Accumulated depreciation and amortization 48,807,308 43,002,143 ------------ -----------
Net capitalized costs $ 62,666,080 $38,861,111 ============ ===========
Costs Incurred --------------
A summary of costs incurred in oil and gas acquisition, exploration and development activities follows:
Years ended December 31, ------------------------ 1995 1994 1993 ---- ---- ---- Acquisition of properties Undeveloped $ 59,010 $ 293,472 $ 644,666 Proved 29,234,607 9,679,619 3,544,615 Exploration costs 413,632 1,473,571 1,609,065 Development costs 3,949,882 4,972,784 1,736,360 ----------- ----------- -----------
$33,657,131 $16,419,446 $7,534,706 =========== =========== ==========
Results of Operations ---------------------
The results of operations from oil and gas producing activities are as follows:
Years ended December 31, ------------------------------------ 1995 1994 1993 ---- ---- ----
Sales $20,710,243 $13,358,560 $15,022,796 Production costs (a) (8,443,466) (4,970,506) (5,430,105) Exploration expenses (661,319) (2,093,756) (2,777,119) Depreciation and amortization (6,801,115) (4,671,569) (5,790,825) ---------- ---------- ---------- 4,804,343 1,622,729 1,024,747 Income tax expense (1,535,000) (408,000) (382,000) ---------- ---------- ----------
Results of operations from oil and gas producing activities $3,269,343 $1,214,729 $ 642,747 ========== ========== =========
(a) Includes lifting costs, severance taxes and ad valorem taxes.
Oil and Gas Reserve Quantities ------------------------------
The following unaudited tables represent the Company's estimates of its proved oil and gas reserves. The Company emphasizes that reserve estimates are inherently imprecise and that estimates of new discoveries are more imprecise than those of producing oil and gas properties. Accordingly, the estimates are expected to change as future information becomes available. The estimates were evaluated by the Company's staff of petroleum engineers and audited by independent petroleum engineers. It is their opinions that the reserve quantity and present value information in the following tables complies with the applicable rules and regulations of the SEC. All of the Company's reserves are located within the United States.
Proved Developed and Oil Gas Undeveloped Reserves (Barrels) (MCF) -------------------- --------- ----------
Total as of December 31, 1992 3,507,995 16,933,100 Revisions of previous estimates (253,871) 1,354,522 Purchases of reserves 1,094,331 348,432 Extensions and discoveries 238,240 8,504 Production (557,704) (2,717,162) Sales of reserves in place (14,966) (68,756) --------- ----------
Total as of December 31, 1993 4,014,025 15,858,640 Revisions of previous estimates 310,471 290,761 Purchases of reserves 1,618,491 806,119 Extensions and discoveries 778,924 395,184 Production (558,295) (2,390,298) Sales of reserves in place (10,554) (8,946) --------- ----------
Total as of December 31, 1994 6,153,062 14,951,460 Revisions of previous estimates (113,124) (291,417) Purchases of reserves 3,399,040 7,951,973 Extensions and discoveries 455,693 969,038 Production (957,873) (2,720,441) Sales of reserves in place (64,283) (1,996,593) --------- ----------
Total as of December 31, 1995 8,872,515 18,864,020 ========= ==========
Proved Developed Reserves ------------------------- December 31, 1993 2,907,466 15,004,678 December 31, 1994 5,485,909 14,355,633 December 31, 1995 8,712,835 18,214,860
Standardized Measure --------------------
The standardized measure of discounted future cash flows from proved oil and gas reserves determined in accordance with rules prescribed by the Financial Accounting Standards Board is summarized as follows:
Years ended December 31, ----------------------------- 1995 1994 1993 (000's) (000's) (000's) ------- ------- -------
Future cash inflows $192,794 $123,865 $80,832 Future production costs (92,873) (61,969) (35,984) Future development costs (1,146) (2,166) (4,864) ------- ------- ------- 98,775 59,730 39,984 Future income tax expenses (14,464) (8,590) (4,413) ------- ------- ------- Future net cash flows 84,311 51,140 35,571 10% annual discount for estimated timing of cash flows (27,710) (16,929) (12,635) ------- ------- ------- Standardized measure of discounted future net cash flows $56,601 $34,211 $22,936 ======= ======= =======
The following are the principal sources of changes in the standardized measure of discounted future net cash flows.
Schedule II
MAYNARD OIL COMPANY AND SUBSIDIARIES Valuation and Qualifying Accounts Three Years Ended December 31, 1995
Charged to Beginning Cost and Ending Description Balance Expenses Deductions Balance ----------- ------- -------- ---------- -------
Allowance for Doubtful Accounts - (a) -------------------------------------
December 31, 1993 $ 43,000 -- -- $43,000 ======== ======= ======= =======
December 31, 1994 $ 43,000 -- -- $43,000 ======== ======= ======= =======
December 31, 1995 $ 43,000 -- -- $43,000 ======== ======= ======= =======
(a) Valuation account deducted in the balance sheet from trade accounts receivable.


ITEM 1. BUSINESS
(a) General Development of Business. Orion Financial, Ltd. (the "Company," formerly known as Orion Broadcast Group, Inc.), is a Colorado corporation formed on October 7, 1981. In May 1987, the Company, through Orion Financial Services Corporation, completed the acquisition and reorganization of FNRS Acquisition Corporation, formerly known as FN Acquisition, an indirect subsidiary of the Company, including the purchase of FN Realty Services ("FN Realty"), and the formation of FNRS Financial Corporation, both wholly-owned subsidiaries of FNRS Acquisition Corporation.
The principal activities of these corporations included providing loan servicing and collection, accounting, data processing and portfolio administration services to the real estate and finance industries.
On July 13, 1992, FNRS Financial Corporation, FN Realty Services, Inc., FNRS Acquisition Corporation, Orion Services Company, Orion Financial Services Corporation and Orion Broadcast of Rockford, Inc., all of which were direct or indirect subsidiaries of Orion Financial, Ltd., filed voluntary petitions in the United States Bankruptcy Court for the District of Colorado to reorganize under Chapter 11 of the Federal Bankruptcy laws.
Effective June 25, 1993, the Company sold to Thomas A. Breen, who is currently a director of the Company and who was previously the President of the Company, all of the outstanding common stock of Orion Broadcast of Rockford, Inc. and all of the outstanding common stock of Orion Services Company, for $10.00. As a result, the Company no longer has any operations. The Company is seeking to enter into a business combination that would provide the Company with operations. Although at this time the Company is investigating business combinations, the Company has not agreed upon any specific business combination.
(b) Financial Information About Industry Segments. The Company has no industry segments.
(c) Narrative Description of Business. The Company has no operations to describe.
(i) Products and Services. The Company has no operations.
(ii) Status of Product. There has been no public announcement of, nor has the Company otherwise made public information about, any new product or industry segment of the Company requiring the investment by the Company of a material amount of its total assets, or which is otherwise material to the Company's operations.
(iii) Raw Materials. The availability of raw materials is not applicable to the Company because the Company has no operations.
(iv) Patents, Trademarks and Licenses. Not applicable.
(v) Seasonality. The Company has no operations that could be seasonal in nature.
(vi) Working Capital Items. The Company has no operations and, therefore, has no need to carry any significant amount of inventory or accounts receivable or other items which would require a large amount of working capital.
(vii) Customer Dependence. The Company has no customers.
(viii) Backlog of Orders. The Company has no operations that would give rise to a backlog of orders.
(ix) Government Contracts. The Company has no government contracts.
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(x) Competition. The Company has no operations.
(xi) Research and Development. The Company has not engaged in any material research and development activities during its last three years.
(xii) Environmental Regulation. Compliance with federal, state and local provisions regulating the discharge of materials into the environment does not have any material effect on the capital expenditures, earnings and competitive positions of the Company.
(xiii) Employees. The Company currently has one part-time employee, Dean H. Boedeker, the Company's President, who receives compensation of $1,000 per month.
(d) Financial Information About Foreign and Domestic Operations and Export Sales. The Company has no operations.
ITEM 2.

ITEM 2. PROPERTIES
The Company has no properties.
ITEM 3.

ITEM 3. LEGAL PROCEEDINGS
The Company is not involved in any material pending legal proceedings.
ITEM 4.

ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
No matter was submitted to a vote of the Company's security holders during the Company's fiscal quarter ended June 30, 1995.
PART II
ITEM 5.

ITEM 5. MARKET FOR REGISTRANT'S COMMON EQUITY AND RELATED STOCKHOLDER MATTERS
(a) Market Information. The Company's common stock is traded in the over-the-counter market. The following table shows the range of high and low bid quotations for the common stock, for the periods indicated, as reported by the National Quotation Bureau, Inc. These quotations represent inter-dealer prices without adjustment for retail markup, markdown, or commission and may not necessarily represent actual transactions.
(b) Holders. As of March 8, 1996, the Company had approximately 1,029 holders of record of its no ------- par value common stock.
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(c) Dividends. The Company has not declared cash dividends on its common stock since its inception and the Company does not anticipate paying any dividends in the foreseeable future.
ITEM 6.

ITEM 6. SELECTED FINANCIAL DATA
The following is selected consolidated financial information concerning the Company. This information should be read in conjunction with the consolidated financial statements appearing elsewhere in this Annual Report.
ITEM 7.

ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
The Company has working capital of approximately $246,000 which should be sufficient for the Company to fund its obligations for the next 18 to 24 months provided the Company does not enter into a business combination that provides the Company with business operations. The Company's minimal cash position limits the Company in its future direction because it does not have the ability to raise additional funds through borrowings or equity offerings given its lack of business operations. The long term survivability of the Company depends on whether or not the Company is able to enter into a business combination that would provide the Company with successful business operations.
The Company was relieved of its major debt guaranty due to the sale of its subsidiaries in June 1993. At the time of the sale, the Company had guaranteed approximately $485,000 of a subsidiary's bank debt.
The Company has no material commitments for capital expenditures.
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Results of Operations
The Company had no significant operations during fiscal 1995, 1994 and 1993 other than occasional supervision of the bankruptcy proceedings of its subsidiaries. In January 1995, the Company received $208,000 from the settlement proceeds of a lawsuit in which FNRS Acquisition Corporation, a former subsidiary of the Company, was the plaintiff. The settlement proceeds were the only source of cash for the Company during fiscal 1995 and resulted in the Company realizing net income of $90,488 for fiscal 1995. The Company reported a loss of approximately $57,000 in fiscal 1994 and a loss of approximately $129,000 in fiscal 1993. The loss in fiscal 1994 was less than in fiscal 1993 because approximately $70,000 of the loss in fiscal 1993 was a one time loss that related to depreciation and writedown of obsolete computer equipment utilized by the bankrupt subsidiaries. Revenue in each fiscal year consisted of interest income on the remaining cash on hand.
On July 13, 1992, the subsidiaries of the Company filed for protection under Chapter 11 of the federal bankruptcy laws. The filings were precipitated by a breach of contract by the Resolution Trust Corporation with FNRS Financial Corp. These subsidiaries were sold to an officer of the Company for a nominal amount in June 1993.
Inflation
The effects of inflation of the Company's operations is not material and is not anticipated to have any material effect in the future.
ITEM 8.

ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
See Item 14(a) for a list of the Financial Statements included in this report following the signature page.
The supplementary financial information required by Item 302 of Regulation S-K does not apply to the Company.
ITEM 9.

ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND FINANCIAL DISCLOSURE
There were no changes in accountants or disagreements of the type required to be reported under this item between the Company and its independent accountants during the fiscal years ended June 30, 1995, and 1994.
PART III
ITEM 10.

ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT
(a) Identification of Directors
The present term of office of each director will expire at the next annual meeting of shareholders. The name, position with the Company, age of each director and the period during which each director has served are as follows:
There was no arrangement or understanding between any director or any other person pursuant to which any director was selected as such.
(b) Identification of Executive Officers.
Each executive officer will hold office until his successor duly is elected and qualified, until his resignation or until he shall be removed in the manner provided by the Company's Bylaws. The Company's executive officers, their ages, positions with the Company and periods during which they served are as follows:
There was no arrangement or understanding between any executive officer and any other person pursuant to which any person was selected as an executive officer.
(c) Identification of Certain Significant Employees.
Not applicable.
(d) Family Relationships.
Not applicable.
(e) Business Experience.
Background. The following is a brief account of the business experience during the past five years of each director and executive officer of the Company:
Name of Director or Officer Principal Occupation During the Last Five Years - ---------------- ------------------------------------------------
Thomas A. Breen Senior Vice President of WestStar Loan Servicing, Inc., which services loans, since January 1, 1995; President of Orion Broadcast of Rockford, Inc., a holding company which through its subsidiaries provides loan servicing, since June 1991; President of the Company from June 1991 to September 1993; Chief Financial Officer of the Company from January 1984 to September 1993; Secretary of the Company from May 1985 through June 1991; and director of the Company since July 1987.
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Dean H. Boedeker Director of the Company since 1981; Chairman of the Board of Directors of the Company since July 1991; President and Chief Executive Officer of the Company since September 1993; Senior Vice President or Vice President of R A F Financial Corporation, an investment banking firm, since March 1992; Secretary and Treasurer and a director of Diones, Broom, Battreall & Boedeker, Inc., an investment banking firm, from June 1985 to March 1992.
Donald W. Diones Director of the Company since 1981; Senior Vice President of Bigelow & Company, an investment banking firm, since May 1995; Senior Vice President of Dougherty Dawkins Strand & Bigelow, Incorporated, an investment banking firm, from October 1992 to May 1995; Senior Vice President of R A F Financial Corporation, an invest-ment banking firm, from March 1992 to October 1992; President and a director of Diones, Broom, Battreall & Boedeker, Inc., an investment banking firm, from June 1982 to March 1992.
William J. White Director of the Company since 1995; Chairman of Bigelow & Company, an investment banking firm, since May 1995 President and owner of First Denver Financial Corporation, a private investment firm, since April 1992; President of the Affiliated Capital Markets division of Affiliated National Bank Denver (now BankOne), a national bank, from June 1990 to April 1992.
Directorships.
No director of the Company is a director of an entity that has its securities registered pursuant to Section 12 of the Securities Exchange Act of 1934.
(f) Involvement in Certain Legal Proceedings.
No event required to be reported hereunder has occurred during the past five years.
(g) Promoters and Control Persons.
No event required to be reported hereunder has occurred during the past five years.
(h) Compliance With Section 16(a) of the Securities Exchange Act of 1934.
To the Company's knowledge, during the Company's fiscal year ended June 30, 1995, the only director, officer or more than 10% shareholder of the Company failed to timely file a Form 3, Form 4 or Form 5 was William J. White who was late in filing a Form 3.
ITEM 11.

ITEM 11. EXECUTIVE COMPENSATION
The following table provides certain information pertaining to the compensation paid by the Company and its subsidiaries for services rendered to Dean H. Boedeker, the President of the Company during the Company's fiscal year ended June 30, 1995. No executive officer of the Company was paid over $100,000 in compensation from the Company and its subsidiaries during the Company's fiscal year ended June 30, 1995.
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(1) Mr. Boedeker is entitled to $1,000 per month for serving as the President and Chief Executive Officer of the Company.
OPTION GRANTS IN LAST FISCAL YEAR
No options were granted by the Company to Dean H. Boedeker during the Company's fiscal year ended June 30, 1995.
FISCAL YEAR END OPTION VALUES
The following table sets forth information with respect to the unexercised options held by Dean H. Boedeker as of June 30, 1995.
(1) Value of unexercised in-the-money options is the market price of the underlying shares of common stock at June 30, 1995, less the exercise price of the options.
Mr. Boedeker did not exercise any options during the Company's fiscal year ended June 30, 1995.
Compensation of Directors--Standard Arrangement.
Directors of the Company who are not employees or officers receive $500.00 plus expense reimbursement for each Board of Directors meeting which they attend. The Chairman of the Board and President receives $1,000 per month, as a stipend for the services he performs.
Compensation of Directors--Other Arrangements.
None.
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Employment Contracts and Termination of Employment and Change-In-Control Arrangements.
There is no employment contract between the Company and Dean H. Boedeker or any compensatory plan or arrangement between the Company and Dean H. Boedeker.
ITEM 12.

ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT.
(a)(b) Security Ownership of Certain Beneficial Owners and Management.
The following table sets forth as of March 11, 1996, the number of shares of the Company's outstanding common stock beneficially owned by each of the Company's current directors and officers, sets forth the number of shares of the Company's common stock beneficially owned by all of the Company's current directors and officers as a group and sets forth the number of shares of the Company's common stock owned by each person who owned of record, or was known to own beneficially, more than 5% of the Company's outstanding shares of common stock:
(1) Each person has the sole voting and investment power over the shares indicated. (2) Includes 400,000 shares underlying a stock option. Dean H. Boedeker's address is 1700 Lincoln Street, 32nd Floor, Denver, Colorado 80203. (3) Includes 400,000 shares underlying a stock option. Thomas A. Breen's address is 116 North Maryland, Lower Level, Glendale, California 91206. (4) Includes 400,000 shares underlying a stock option. Donald W. Diones' address is 1401 Seventeenth Street, Suite 1300, Denver, Colorado 80202. (5) Includes shares underlying the stock options held by Messrs. Boedeker, Breen and Diones. (6) Includes 400,000 shares underlying a stock option. Thomas J. Bonomo's address is 388 Market Street, No. 900, San Francisco, California 94111.
(c) Changes in Control.
There are presently no arrangements of any kind which may at a subsequent date result in a change in control of the Company.
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ITEM 13.

ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
(a)(b) Transactions With Management and Others and Certain Business Relationships.
Effective June 25, 1993, the Company sold all the outstanding shares of common stock of Orion Broadcast of Rockford, Inc. and Orion Services Company to Thomas A. Breen, the former President and a current director of the Company. Orion Broadcast of Rockford, Inc. directly or indirectly held a controlling interest in Orion Financial Services Corporation, FNRS Acquisition Corporation, FNRS Financial Corporation and FN Realty Services, Inc. Because of the bankruptcy of FNRS Financial Corporation and FN Realty Services, Inc., the Board of Directors of the Company determined that there was no possible benefit to the Company in retaining any direct ownership of Orion Broadcast of Rockford, Inc. or its subsidiaries. The total amount paid by Thomas A. Breen for the shares was $10.00. In addition, the Company was released from the Company's guarantee of approximately $500,000 of debt owed by FNRS Financial Corporation. In addition, Thomas A. Breen agreed for a two year period to provide services to the Company in the connection with the preparation of financial records and statements and in connection with the Company's filing requirements under the federal securities laws.
At the same time, the Company entered into an agreement with Orion Broadcast of Rockford, Inc. pursuant to which the Company agreed to advance funds to enable Orion Broadcast of Rockford, Inc. to file lawsuits against certain persons who owed funds to Orion Broadcast of Rockford, Inc. In consideration for the advance of the funds, the Company agreed with Orion Broadcast of Rockford, Inc. that the Company would receive all amounts paid or advanced to collect on the debts and 50% of any amount over and above such amounts. The Company received a total of $1,000.
In addition, the Company entered into an agreement with FNRS Acquisition Corporation pursuant to which the Company agreed to advance funds or directly pay all costs and expenses of pursuing the litigation of FNRS Acquisition Corporation, against First Nationwide Financial Corporation and others. The Company's total obligation was $50,000, which the Company would be entitled to receive out of the proceeds of the litigation. The balance of the proceeds would be divided so that the Company would receive 80% of the first $100,000, 70% of the next $100,000, 60% of the next $100,000 and 50% of any balance. As a result of settlement of the lawsuits, the Company has received approximately $208,500.
PART IV
ITEM 14.

ITEM 14. EXHIBITS, FINANCIAL STATEMENT SCHEDULES, AND REPORTS ON FORM 8-K
(a)(1) Financial Statements.
Independent Auditor's Report Balance Sheets--As of June 30, 1995 and 1994 Statements of Operations--Years ended June 30, 1995, 1994, and 1993 Statement of Changes in Stockholders' Equity--For the Period from July 1, 1992 through June 30, 1995 Statements of Cash Flows--Years ended June 30, 1995, 1994, and 1993 Notes to Financial Statements
(a)(2) Financial Statement Schedules.
None.
(b) Current Reports on Form 8-K:
No Current Reports on Form 8-K were filed during the fiscal quarter ended June 30, 1995.
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(c) Exhibits.
Exhibit 3(A) Articles of Incorporation of Orion Financial, Ltd., as amended (incorporated by reference to Exhibit 3(A) to Orion Financial, Ltd.'s Annual Report on Form 10-K for the fiscal years ended June 30, 1993 and 1992.
Exhibit 3(B) Bylaws of Orion Financial, Ltd., as amended (incorporated by reference to Exhibit 3(B) to Orion Financial, Ltd.'s Annual Report on Form 10-K for the fiscal years ended June 30, 1993 and 1992.
Exhibit 10(A) Orion Financial, Ltd. 1991 Non-Qualified Stock Option Plan (incorporated by reference to Exhibit 10(A) to Orion Financial, Ltd.'s Annual Report on Form 10-K for the fiscal years ended June 30, 1993 and 1992.
Exhibit 10(B) Form of Option Agreement dated April 27, 1993 (incorporated by reference to Exhibit 10(B) to Orion Financial, Ltd.'s Annual Report on Form 10-K for the fiscal years ended June 30, 1993 and 1992.
Exhibit 10(C) Form of Amendment to Option Agreement dated September 27, 1993 (incorporated by reference to Exhibit 10(C) to Orion Financial, Ltd.'s Annual Report on Form 10-K for the fiscal years ended June 30, 1993 and 1992.
Exhibit 10(D) Agreement dated as of April 7, 1993, between the Company and Thomas A. Breen (incorporated by reference to Exhibit 10(D) to Orion Financial, Ltd.'s Annual Report on Form 10-K for the fiscal years ended June 30, 1993 and 1992.
Exhibit 10(E) Agreement dated as of April 7, 1993, between the Company and Orion Broadcast of Rockford, Inc. (incorporated by reference to Exhibit 10(E) to Orion Financial, Ltd.'s Annual Report on Form 10-K for the fiscal years ended June 30, 1993 and 1992.
Exhibit 10(F) Agreement dated as of April 7, 1993, between the Company and FNRS Acquisition Corporation (incorporated by reference to Exhibit 10(F) to Orion Financial, Ltd.'s Annual Report on Form 10-K for the fiscal years ended June 30, 1993 and 1992.
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SIGNATURES
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.
ORION FINANCIAL, LTD. a Colorado corporation
By /s/ Dean H. Boedeker ----------------------- Dean H. Boedeker President, Principal Executive Officer Chief Financial Officer, and Principal Accou ting Officer
Dated April 9, 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:
Date Name and Title Signature - ---- ---------------- ----------
April 9, 1996 Thomas A. Breen /s/ Thomas A. Breen Director ----------------------
April 9, 1996 Dean H. Boedeker /s/ Dean H. Boedeker Director ----------------------
April 9, 1996 Donald W. Diones /s/ Donald W. Diones Director -----------------------
April 9, 1996 William J. White /s/ William J. White Director -----------------------
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Orion Financial, Ltd.
Report on Audit of Financial Statements For the Years Ended June 30, 1995, 1994, and 1993
ORION FINANCIAL, LTD.
Page ----
Independent Auditor's Report................................................F-2
Balance Sheets - June 30, 1995 and 1994.....................................F-3
Statements of Operations - For the Years Ended June 30, 1995, 1994, and 1993........................................................F-4
Statement of Changes in Stockholders' Equity - For the Period from July 1, 1992 through June 30, 1995...............................F-5
Statements of Cash Flows - For the Years Ended June 30, 1995, 1994, and 1993.........................................................F-6
Notes to Financial Statements................................................F-7
INDEPENDENT AUDITOR'S REPORT
Board of Directors Orion Financial, Ltd. Denver, Colorado
We have audited the accompanying balance sheets of Orion Financial, Ltd. as of June 30, 1995 and 1994, and the related statements of operations, stockholders' equity and cash flows for each of the three years in the period ended June 30, 1995. These financial statements are the responsibility of the Company's management. Our responsibility is to express an opinion on these financial statements based on our audits.
We conducted our audits in accordance with generally accepted auditing standards. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements. An audit also includes assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall financial statement presentation. We believe that our audits provide a reasonable basis for our opinion.
In our opinion, the financial statements referred to above present fairly, in all material respects, the financial position of Orion Financial, Ltd., as of June 30, 1995 and 1994, and the results of its operations and its cash flows for each of the three years in the period ended June 30, 1995, in conformity with generally accepted accounting principles.
HEIN + ASSOCIATES LLP
Denver, Colorado February 8, 1996
See accompanying notes to these financial statements.
See accompanying notes to these financial statements.
See accompanying notes to these financial statements.
See accompanying notes to these financial statements.
ORION FINANCIAL, LTD.
NOTES TO FINANCIAL STATEMENTS
1. ORGANIZATION AND OPERATIONS:
Operations - Orion Financial, Ltd. (the Company) was incorporated in Colorado in 1981. Through June 25, 1993, the Company had the following wholly-owned subsidiaries: Orion Services Company (formerly Vehicle Resource Corporation or VRC), Orion Broadcast of Rockford, Inc. (Orion Rockford), and United Leasing Company (inactive). In 1987, Orion Rockford formed Orion Financial Services Corporation (Orion Financial), a 94% owned subsidiary, to enter into the acquisition of FNRS Acquisition Corporation (FNRS Acquisition). FNRS Acquisition acquired FN Realty Services, Inc. (FN Realty) and formed FNRS Financial Corporation (FNRS) in fiscal 1988. The operations of VRC were discontinued in fiscal 1990, while the operations of FN Realty were discontinued during fiscal 1991.
On July 13, 1992, all of the Company's active subsidiaries declared bankruptcy under Chapter 11 of the bankruptcy code. Effective June 25, 1993, the Company sold its entire interest in VRC and Orion Rockford to the former president of the Company (see Note 3). At present, the Company has no operations.
2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES:
Cash Equivalents - Cash equivalents are generally comprised of highly liquid instruments with original maturities of three months or less, such as money funds and certificates of deposit. These investments are stated at cost which approximates market value.
Furniture, Fixtures, and Equipment - Such amounts are stated at cost with depreciation computed principally using the straight-line method over the estimated useful lives of the assets, ranging from three to six years.
Net Income (Loss) Per Share - Net income (loss) per share has been computed based on the weighted average number of shares outstanding during the period. Stock options have been excluded from the computation because their effect would be anti-dilutive.
Income Taxes - The Company accounts for income taxes on the liability method, which requires recognition of deferred tax assets and liabilities for the expected future tax consequences of events that have been included in the financial statements or tax returns. Under this method, deferred tax assets and liabilities are determined based on the difference between the financial statements and tax bases of assets and liabilities using enacted tax rates in effect for the year in which the differences are expected to reverse.
Marketable Securities - Marketable securities consist of U.S. Treasury bills, which have been classified as trading securities. Trading securities are carried at market value (which approximates cost) at June 30, 1995.
ORION FINANCIAL, LTD.
NOTES TO FINANCIAL STATEMENTS
3. SALE OF SUBSIDIARIES:
On July 13, 1992, all of the Company's active subsidiaries declared bankruptcy under Chapter 11 of the bankruptcy code, due to, among other things, cash flow difficulties experienced after the loss of a major customer. The subsidiaries attempted to reorganize, but effective June 25, 1993, due to continuing losses, the Company sold its entire interest in the subsidiaries to the former president of the Company for a nominal amount and a release of the Company's guarantee on certain debt of FNRS. The transaction resulted in no gain or loss.
4. RESTRICTED CASH:
Restricted cash is comprised of collateral on a bond posted by the Company for FNRS. The bond was required by a state in which FNRS previously conducted business. FNRS has voluntarily withdrawn from doing business in this state and surrendered its license. The underlying bond was released in August 1994.
5. RELATED PARTY TRANSACTIONS:
On April 7, 1993, the Company entered into an agreement with FNRS Acquisition to advance it funds for a lawsuit it had brought against another party. The agreement limited such advances to a maximum of $50,000, of which $25,000 had been advanced at June 30, 1993. The Company was to be reimbursed for any advances made out of the proceeds of any settlement or judgment received, with proceeds in excess of advances allocated between the Company and FNRS Acquisition. The litigation was settled in January 1995, and the Company received approximately $208,000 from the settlement proceeds, resulting in a gain of approximately $129,000.
The Company paid approximately $8,000 in legal expenses on behalf of some of its former subsidiaries during fiscal 1993. The legal expenses related to the bankruptcies of the former subsidiaries.
The Company received $39,832 in repayments in July 1992 on amounts owed to it from VRC and Orion Rockford.
6. COMMITMENTS AND CONTINGENCIES:
The Company was named as a co-defendant in a lawsuit brought against FNRS by a former vendor, which alleged breach of contract. Damages were not specified. The claim was dismissed pending settlement of FNRS's bankruptcy, but if the claim is not disposed of in the bankruptcy settlement, it could be refiled. The Company believes it has valid defenses against this claim.
ORION FINANCIAL, LTD.
NOTES TO FINANCIAL STATEMENTS
7. STOCKHOLDERS' EQUITY:
The Company adopted an incentive stock option plan in 1984 reserving 312,500 shares of common stock for certain employees, officers, and directors. The exercise price was required to be at least the fair market value of the stock on the date of the grant, and the term of each option granted was not to be for more than ten years from the date of the grant. The plan expired in February 1994.
If options were granted to individuals owning more than ten percent (10%) of the outstanding common stock, the exercise price had to be at least one hundred ten percent (110%) of the fair market value of the stock on the date of the grant and the term for each option granted would not be for more than five years from the date of the grant.
On July 13, 1987, the Board of Directors of the Company granted a stock option under the 1984 stock option plan for 187,500 shares of the Company's common stock to a director and officer of the Company. The option was exercisable at $.72 per share with 62,500 options expiring in July 1992, 1993, and 1994. No options were exercised and they have all expired. In June 1991, the Board granted a stock option under the 1984 plan to an officer of the Company for 30,000 shares exercisable at $.47 per share through 2001. None of these options have been exercised.
On November 8, 1991, the Company adopted a 1991 Non-Qualified Stock Option Plan for the directors, officers and employees of the Company. Two million shares are reserved under this plan. The terms of each option granted will not be for more than ten years from date of grant, and no options can be granted under the plan after November 8, 2001. No options have been granted under this plan.
In April 1993, the Board of Directors of the Company granted stock options covering 2,000,000 shares of the Company's common stock, 400,000 shares each to four directors of the Company at that time (including the president of the Company), and 400,000 shares to an individual from the Company's legal counsel. The options are exercisable at $.03 per share through April 1998. None have been exercised to date.
The Company has authorized, but unissued, preferred stock which may be issued in series with such preferences as determined by the Company's Board of Directors.
ORION FINANCIAL, LTD.
NOTES TO FINANCIAL STATEMENTS
8. INCOME TAXES:
There was no provision for income taxes for the year ended June 30, 1995 due to the use of net operating loss carryforwards.
The amounts which give rise to the net deferred tax asset (liability) as of June 30, 1995, are as follows:
Net operating loss carryforward..... $ 450,000
Valuation allowance ................ (450,000) -------- Net deferred tax asset (liability).. $ -- =========
At June 30, 1995, the Company had net operating losses (NOL) carryforwards for income tax purposes of approximately $1,200,000 that will expire between 1997 and 2010. Upon the sale of the Company's subsidiaries in June 1993, a substantial portion of the NOL carryforwards were lost for use by the Company, as they had been incurred at the subsidiary level.
9. SUMMARIZED FINANCIAL INFORMATION OF SUBSIDIARIES:
Following are the results of operations of FNRS Acquisition:
Statement of Operations
EXHIBIT INDEX
Exhibit Description Page No. - ------- ----------- --------
3(A) Articles of Incorporation of Orion Financial, N/A Ltd., as amended (incorporated by reference to Exhibit 3(A) to Orion Financial, Ltd.'s Annual Report on Form 10-K for the fiscal years ended June 30, 1993 and 1992.
3(B) Bylaws of Orion Financial, Ltd., as amended N/A (incorporated by reference to Exhibit 3(B) to Orion Financial, Ltd.'s Annual Report on Form 10-K for the fiscal years ended June 30, 1993 and 1992.
10(A) Orion Financial, Ltd. 1991 Non-Qualified Stock N/A Option Plan (incorporated by reference to Exhibit 10(A) to Orion Financial, Ltd.'s Annual Report on Form 10-K for the fiscal years ended June 30, 1993 and 1992.
10(B) Form of Option Agreement dated April 27, 1993 N/A (incorporated by reference to Exhibit 10(B) to Orion Financial, Ltd.'s Annual Report on Form 10-K for the fiscal years ended June 30, 1993 and 1992.
10(C) Form of Amendment to Option Agreement dated N/A September 27, 1993 (incorporated by reference to Exhibit 10(C) to Orion Financial, Ltd.'s Annual Report on Form 10-K for the fiscal years ended June 30, 1993 and 1992.
10(D) Agreement dated as of April 7, 1993, between the N/A Company and Thomas A. Breen (incorporated by reference to Exhibit 10(D) to Orion Financial, Ltd.'s Annual Report on Form 10-K for the fiscal years ended June 30, 1993 and 1992.
10(E) Agreement dated as of April 7, 1993, between the N/A Company and Orion Broadcast of Rockford, Inc. (incorporated by reference to Exhibit 10(E) to Orion Financial, Ltd.'s Annual Report on Form 10-K for the fiscal years ended June 30, 1993 and 1992.
10(F) Agreement dated as of April 7, 1993, between the N/A Company and FNRS Acquisition Corporation (incorporated by reference to Exhibit 10(F) to Orion Financial, Ltd.'s Annual Report on Form 10-K for the fiscal years ended June 30, 1993 and 1992.