<PAGE> 1
EXHIBIT 13
Investor Information
<TABLE>
<CAPTION>
CORPORATE OFFICES DIRECTORS OFFICERS
<S> <C> <C>
508 West Wall, Suite 800 Paul H. Brown L. Decker Dawson
Midland, Texas 79701-5010 Sugar Land, Texas President
915/684-3000 Phone Management Consultant
915/684-3030 Fax Howell W. Pardue
[email protected] e-mail Calvis J. Clements Executive Vice President
http://www.dawson3d.com Lubbock, Texas
Retired Vice President of the Company Christina W. Hagan
ANNUAL MEETING Vice President/Chief Financial Officer
The Annual Meeting of L. Decker Dawson
Shareholders will be Midland, Texas Edward L. Huff
held January 23, 2001, at President of the Company Vice President
10:00 a.m. at The Petroleum Club
of Midland, 501 West Wall, Matthew P. Murphy Stephen C. Jumper
Midland, Texas 79701 Midland, Texas Vice President
Retired Banking Executive
10-K AVAILABLE C. Ray Tobias
A copy of Form 10-K, as filed Howell W. Pardue Vice President
with the Securities and Exchange Midland, Texas
Commission, may be obtained by Executive Vice President of the Company Paula G. Waldrop
contacting the Corporate Secretary Secretary
at the corporate offices listed above. Tim C. Thompson
Midland, Texas
REGISTRAR AND Management Consultant
TRANSFER AGENT
ChaseMellon Shareholder Services
Dallas, Texas
STOCK EXCHANGE LISTING
Nasdaq National Market System
Symbol: DWSN
INDEPENDENT PUBLIC ACCOUNTANTS
KPMG LLP
Midland, Texas
</TABLE>
COMMON STOCK INFORMATION
The Company's common stock trades on the Nasdaq Stock Market(R) under the symbol
DWSN. The table below represents the high and low sales prices for the period
shown.
<TABLE>
<CAPTION>
QUARTER ENDED HIGH LOW
------------- ---- ---
<S> <C> <C>
DECEMBER 31, 1998 $11.875 $6.625
MARCH 31, 1999 $ 9.250 $6.063
JUNE 30, 1999 $10.875 $7.500
SEPTEMBER 30, 1999 $12.438 $9.125
DECEMBER 31, 1999 $10.313 $7.656
MARCH 31, 2000 $10.813 $8.250
JUNE 30, 2000 $11.750 $9.000
SEPTEMBER 30, 2000 $11.625 $9.000
</TABLE>
As of November 27, 2000, the Company had approximately 249 common stockholders
of record as reported by the Company's transfer agent.
24
<PAGE> 2
<TABLE>
<CAPTION>
CONTENTS
<S> <C>
Financial Highlights ...................... 1
From the President ........................ 2
Tribute to Floyd B. "Pete" Graham ......... 6
Management's Discussion and Analysis ...... 8
Independent Auditors' Report .............. 11
Financial Statements ...................... 12
Notes to Financial Statements ............. 16
Investor Information ...................... 24
Common Stock Information .................. 24
</TABLE>
FINANCIAL HIGHLIGHTS
<TABLE>
<CAPTION>
Years Ended September 30
(in thousands, except per share amounts) 2000 1999 1998 1997 1996
---------------------------------------- -------- -------- -------- -------- --------
<S> <C> <C> <C> <C> <C>
Operating revenues $ 18,469 $ 24,198 $ 61,400 $ 48,227 $ 33,518
Net income (loss) $(11,135) $ (6,430) $ 6,628 $ 4,570 $ 1,888
Net income (loss) per common share $ (2.05) $ (1.19) $ 1.27 $ 1.09 $ .45
Weighted average equivalent common
shares outstanding 5,425 5,398 5,206 4,183 4,153
Total assets $ 49,781 $ 61,418 $ 71,459 $ 53,561 $ 41,909
Long term debt (less current maturities) $ -- $ -- $ -- $ 7,893 $ 4,857
Stockholders' equity $ 48,468 $ 59,468 $ 65,642 $ 37,545 $ 32,804
</TABLE>
1
<PAGE> 3
[PHOTO]
"REVENUES IN THE SEPTEMBER QUARTER EXCEED THOSE OF THE JUNE QUARTER BY 143
PERCENT."
[PHOTO]
left-right;
Paula G. Waldrop
Corporate Secretary
L. Decker Dawson
President
Christina W. Hagan
Vice President/CFO
DEAR SHAREHOLDER:
We are pleased to report the turn-around in the activity of your Company
that occurred in the fourth quarter of fiscal year 2000 ending September 30th.
Revenues in the September quarter exceed those of the June quarter by 143
percent and exceeded the 1999 September quarter by 19 percent. These dramatic
changes reflect a general improvement in petroleum industry demand for seismic
exploration services in response to improved prices received for crude oil and
natural gas.
Profitability remained elusive, however, due to lingering over-capacity in
the seismic services industry. If current trends continue, this condition should
correct during the coming year. History teaches that when the small percentage
of excess capacity is put to use, market prices for our services increase
quickly. Economics 101?
As reported previously, recent losses result from high depreciation charges
and our long-standing decision to retain key technical and professional
personnel, a decision that is now paying off as we have been able to quickly
regain operational efficiency in the fourth quarter. Losses in the year were
also exaggerated by income tax rules that disallow full recovery. We are fully
taxed on
----------
DAWSON GEOPHYSICAL COMPANY FROM THE PRESIDENT DAWSON GEOPHYSICAL COMPANY FROM
THE PRESIDENT
2
<PAGE> 4
[PHOTO]
"FIVE OF OUR SIX 3-D SEISMIC DATA ACQUISITION CREWS ARE AGAIN OPERATING."
[PHOTO]
left-right;
Frank D. Brown
Senior Geophysicist
C. Ray Tobias
Vice President
William J. Swinney
Data Acquisition Supervisor
the way up, but not fully credited on the way down. And I think they called it
the Tax Fairness Act.
Five of our six 3-D seismic data acquisition crews are again operating, and
the order book contains surveys that will extend this level of operations well
into calendar 2001. Our people's skills and effort have placed your Company as
the number two provider in the U.S. land market.
As evidence of our confidence in a brighter future, we have resumed capital
expenditures after an 18-month hiatus. In fiscal 2000, we invested $3,861,000 in
additional assets, primarily data channels and automotive replacements. Our
total channel count stands now at 20,000 which places us as a clear industry
leader in over-all channel count per crew. Advantages in high channel count are
clear: better data quality at lower cost.
For several quarters we have reported client-supported research concerning
the use of shear wave recording and processing for exploration and field
development purposes. We are pleased to say this effort is ongoing. The results
obtained to date are encouraging as we move forward with this next generation
seismic method. However, in all honesty, the more we learn, the more we need to
know. I believe that our industry as a whole is experiencing this quandary.
Theoretically, multi-component data, the simultaneous
----------
DAWSON GEOPHYSICAL COMPANY FROM THE PRESIDENT DAWSON GEOPHYSICAL COMPANY FROM
THE PRESIDENT
3
<PAGE> 5
[PHOTO]
"WE REMAIN PROUD OF THE CONTINUED COMMITMENT TO CLIENT SATISFACTION EXHIBITED
BY OUR HIGHLY COMPETENT AND EXPERIENCED WORKFORCE."
[PHOTO]
left-right;
Stephen C. Jumper
Vice President
Howell W. Pardue
Executive Vice President
collection of shear wave data along with traditional compressional wave data,
will yield a more compressive image of not only the subsurface structure, but
potentially fluid movement, porosity variation and fracture detection within a
formation. More must be learned about shear wave responses before a clear
breakthrough can be acknowledged.
The 3-D method employing primary waves has proved its ability to image
geologic structure and those structural and stratigraphic conditions that are
conducive to oil and gas accumulations. Accordingly, client companies can
evaluate the risks involved in primary wave 3-D exploration. As we move forward
with the incorporation of the two shear wave modes, additional undeterminable
risks are called for with the three component or 3-C approach: courage and faith
in the efficacy of this new technology. We continue to believe there is more
information obtainable from the seismogram that has yet to be derived. With the
3-D recording method in place as a building block, your Company is poised to
move enthusiastically into the next generation. As always, we are indeed
indebted to those petroleum industry clients that take additional risks in the
development of new technology.
We remain proud of the continued commitment to client satisfaction
exhibited by our highly competent and experienced
----------
DAWSON GEOPHYSICAL COMPANY FROM THE PRESIDENT DAWSON GEOPHYSICAL COMPANY FROM
THE PRESIDENT
4
<PAGE> 6
[PHOTO]
"WE ARE CONFIDENT IN OUR ABILITIES TO EXECUTE. OUR PASSION IS TO DO SO."
[PHOTO]
"left-right;
A. Mark Nelson
HSE Manager
Edward L. Huff
Vice President
K. Steve Forsdick
Data Acquisition Supervisor
workforce. This is a clear competitive advantage in our kind of business wherein
we must act as trusted partner and advisor in providing the seismic solutions to
exploration problems in strictest confidentiality.
The growth path we followed so long was drastically interrupted by events
beyond our control. These events have reversed, thankfully, and we are once
again committed to that path. We are confident in our abilities to execute. Our
passion is to do so.
Sincerely,
/s/ L. DECKER DAWSON
L. Decker Dawson
President
October 26, 2000
----------
DAWSON GEOPHYSICAL COMPANY FROM THE PRESIDENT DAWSON GEOPHYSICAL COMPANY FROM
THE PRESIDENT
5
<PAGE> 7
[PHOTO]
We are saddened beyond adequate expression in the recent death of our long
time friend and associate F. B. "Pete" Graham. Upon graduation from the
University of New Mexico in 1950, Pete began his career as a geophysicist with
Exxon in the Permian Basin. After a subsequent venture as a geophysical
consultant, and former client of our company, the Lea County, New Mexico native
became a member of the Dawson family in 1974 where he served as Executive Vice
President and Director. Following his retirement in July of 1999, Pete continued
to serve as Director.
Pete gave our company not only great depth of knowledge and experience in
geophysics, but perhaps more significantly, he gave us a corporate personality.
In the petroleum communities of New Mexico and West Texas, he was regarded as a
pillar, with a rare combination of folksy humor, great experience, intelligence
and integrity. He was a joy to be around, always seeing the brighter side,
always with a laugh and a million-dollar smile.
Our loss pales in comparison to the loss suffered by the Graham family.
Pete dearly loved, and was loved by, his family. They are, and will continue to
be, in our hearts and prayers. We are forever grateful for the contributions
Pete made to our company.
----------
TRIBUTE TO FLOYD B. "PETE" GRAHAM
6
<PAGE> 8
[GRAPHICS]
----------
MANAGEMENT'S DISCUSSION AND FINANCIAL STATEMENTS
7
<PAGE> 9
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
The following discussion should be read in conjunction with the Company's
financial statements. In addition, in reviewing the Company's financial
statements it should be noted that the Company's revenues directly relate to oil
and gas exploration and production activity, and fluctuations in the Company's
results of operations may occur due to weather, land use permitting and other
factors.
FORWARD LOOKING STATEMENTS
All statements other than statements of historical fact included in this
report, including without limitation, statements under "Management's Discussion
and Analysis of Financial Condition and Results of Operations" regarding the
Company's financial position, business strategy and plans and objectives of
management of the Company for future operations, are forward-looking statements
within the meaning of Section 27A of the Securities Act of 1933 and Section 21E
of the Securities Exchange Act of 1934. When used in this report, words such as
"anticipate", "believe", "estimate", "expect", "intend", and similar
expressions, as they relate to the Company or its management, identify
forward-looking statements. Such forward-looking statements are based on the
beliefs of the Company's management as well as assumptions made by and
information currently available to the Company's management. Actual results
could differ materially from those contemplated by the forward-looking
statements as a result of certain factors, including but not limited to
dependence upon energy industry spending, weather problems, inability to obtain
land use permits, the volatility of oil and gas prices, and the availability of
capital resources. Such statements reflect the current views of the Company with
respect to future events and are subject to these and other risks, uncertainties
and assumptions relating to the operations, results of operations, growth
strategy and liquidity of the Company. All subsequent written and oral
forward-looking statements attributable to the Company or persons acting on its
behalf are expressly qualified in their entirety by this paragraph. The Company
assumes no obligation to update any such forward-looking statements.
OVERVIEW
During the second half of fiscal 2000, demand for the Company's services
gradually improved in response to improved prices for crude oil and natural gas.
The lag appears to have been due to the petroleum industry's priority of
maximizing production to recover losses during the drop of oil and gas commodity
prices in 1999. The Company continues to face fierce pricing competition as
demand for services from the geophysical industry has not yet met the industry's
capacity. This situation has negatively impacted the Company's revenues and
earnings during the year.
FISCAL YEAR ENDED SEPTEMBER 30, 2000 VERSUS FISCAL YEAR ENDED SEPTEMBER 30, 1999
The Company's operating revenues decreased 23.7% from $24,198,000 to
$18,469,000 in fiscal year 2000. The Company began fiscal 2000 with four crews
operating. In March 2000, the crew count for the Company was reduced to two.
Beginning in June, the number of crews gradually increased until five were
operating at September 30, 2000. Demand for the Company's services appears to be
improving as requests for bids remain strong and revenues for the quarter ended
September 30, 2000 increased significantly as compared to the same quarter of
the prior year as well as the quarter ended June 30, 2000. Although production
was approximately the same in fiscal 2000 as in the prior year, the decrease in
revenues reflects continued severe price competition.
Operating expenses in fiscal 2000 were basically unchanged as compared to
fiscal 1999. Cost reduction measures, such as employee layoffs and salary
reductions, were implemented in January 1999; however, the Company retained key
field personnel in anticipation of increased demand. Accordingly, crews were
placed back into service in the last quarter of fiscal 2000 as demand required.
General and administrative expenses for fiscal 2000 totaled $2,126,000, a
decrease of $264,000 from fiscal 1999. The decrease primarily consists of an
adjustment made in the fourth quarter of fiscal year 2000 of $253,000 to reduce
the provision for doubtful accounts.
Depreciation for fiscal 2000 totaled $9,417,000, a decrease of $1,168,000
from fiscal 1999. Depreciation decreased as a result of a suspension of capital
expansion during fiscal 1999 due to industry conditions.
8
<PAGE> 10
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS (CONT.)
Total operating costs for fiscal 2000 totaled $33,251,000, a decrease of
4.8% from fiscal 1999 due to the factors described above. The 23.7% decrease of
revenues as compared to the 4.8% decrease of total operating costs for fiscal
2000 reflects the high proportion of relatively fixed total operating costs
(including personnel costs of active crews and depreciation costs) inherent in
the Company's business and fierce price competition in the bidding process for
geophysical services.
Income tax benefit for fiscal 2000 totaled $2,637,000, a decrease of
$762,000 from fiscal 1999. The decrease in income tax benefit is due to the
establishment of a valuation allowance in fiscal 2000 offset by an increase in
pretax loss. The Company's effective tax benefit rate is different from the
statutory rate of 34% primarily due to a valuation allowance of $1,848,000.
FISCAL YEAR ENDED SEPTEMBER 30, 1999 VERSUS FISCAL YEAR ENDED SEPTEMBER 30, 1998
The Company's operating revenues decreased 60.6% from $61,400,000 to
$24,198,000 in fiscal year 1999. Demand for the Company's services was
negatively impacted by low crude oil and natural gas prices. During the quarter
ended December 31, 1998, the Company reduced the number of operating crews from
six to three. The Company concluded fiscal 1999 operating four crews although
for a brief period of time during the quarter ended June 30, 1999 the Company
operated only one crew. In addition to the decrease in the number of operating
crews, the decrease in revenues reflects severe price competition.
Operating expenses decreased 45.5% in fiscal 1999 as compared to fiscal
1998 as a result of decreased demand for the Company's services. Additional cost
reduction measures, such as employee layoffs and salary reductions, were
implemented in January 1999. The Company reduced the number of employees from
377 at September 30, 1998 to 260 at September 30, 1999. The Company retained key
field personnel in anticipation of increased demand.
General and administrative expenses for fiscal 1999 totaled $2,390,000, an
increase of $459,000 from fiscal 1998. The increase primarily consists of a
provision for doubtful accounts of $300,000 recognized during September 30,
1999.
Depreciation for fiscal 1999 totaled $10,585,000, an increase of $1,113,000
from fiscal 1998. Depreciation increased as a result of capital expansion during
fiscal 1998.
Total operating costs for fiscal 1999 totaled $34,937,000, a decrease of
32.5% from fiscal 1998 due to the factors described above. The 60.6% decrease of
revenues as compared to the 32.5% decrease of total operating costs for fiscal
1999 reflects the high proportion of relatively fixed total operating costs
(including personnel costs of active crews and depreciation costs) inherent in
the Company's business and fierce price competition in the bidding process for
geophysical services.
Income tax benefit for fiscal 1999 totaled $3,399,000, an increase of
$7,196,000 from the total income tax expense of $3,797,000 for fiscal 1998. The
income tax benefit is due to loss before income taxes of $9,829,000 in fiscal
1999 as compared to income before income taxes of $10,425,000 in fiscal 1998.
The Company's effective tax rate for fiscal 1999 and 1998 was 35% and 36%,
respectively.
LIQUIDITY AND CAPITAL RESOURCES
Cash Flows
Net cash used in operating activities of $3,269,000 in fiscal 2000 as
compared to net cash provided by operations of $6,429,000 in fiscal 1999
primarily reflects the increase in the net loss of fiscal 2000 and the increase
in accounts receivable which occurred in the last quarter of fiscal 2000. The
decrease in deferred income taxes is a result of the reversal of temporary
differences due to depreciation and recognition of net operating loss carryback.
Net cash used in investing activities decreased to $1,247,000 from
$7,181,000 resulting from approximately $6,000,000 of collected accounts
receivable that were invested in U.S. Treasury securities during fiscal 1999. In
contrast, during fiscal 2000 approximately $2,500,000 of matured short-term
investments were used in operations.
The cash flows provided by financing activities for fiscal 2000 represent
the proceeds from the exercise of a stock option.
9
<PAGE> 11
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS (CONT.)
Capital Expenditures
The Company continually strives to supply market demand with
technologically advanced 3-D data acquisition recording systems and leading edge
data processing capabilities. Capital expenditures for fiscal 2000 consisted
primarily of data acquisition channels that became available late in the year as
a result of the idle capacity that exists in our industry. The Company maintains
equipment in and out of service in anticipation of increased demand of the
Company's services. In addition the Company continues to monitor the development
of the three component seismic approach. The Company believes that it is in
position to respond to demand for this technological advancement of the seismic
industry.
Capital Resources
The Company believes that its capital resources, including its short-term
investments, cash flow from operations, and relationships with financial
entities, are adequate to meet its current operational needs and finance capital
needs as determined by market demand and technological developments.
LITIGATION
The Company is a defendant in two lawsuits relating to a July 1995 accident
involving a van owned by the Company in which four Company employees died. The
Company believes that it has meritorious defenses to the claims asserted against
it in such suits. Further, while the plaintiffs seek damages in excess of the
Company's liability insurance policies, the Company believes that its liability
insurance should provide adequate coverage of the damages, if any, which may be
assessed against the Company in such litigation. Due to the uncertainties
inherent in litigation, no assurance can be given as to the ultimate outcome of
such suits or the adequacy or availability of the Company's liability insurance
to cover any such damages. A judgment awarding plaintiffs an amount
significantly exceeding the Company's available insurance coverage could have a
material adverse effect on the Company's financial condition, results of
operations and liquidity.
RECENTLY ANNOUNCED ACCOUNTING PRONOUNCEMENTS
In June 1998, the FASB issued SFAS No. 133 "Accounting for Derivative
Instruments and Hedging Activities" which establishes standards for derivative
instruments, including certain derivative instruments embedded in other
contracts, and for hedging activities. SFAS No. 133 requires that an entity
recognize all derivatives as either assets or liabilities in the statement of
financial position and measure those instruments at fair value. It establishes
conditions under which a derivative may be designated as a hedge and establishes
standards for reporting changes in the fair value of a derivative. The company
will adopt SFAS No. 133 as required by SFAS No. 137 "Deferral of the Effective
Date of the FASB Statement No. 133", effective October 1, 2000. Based on the
Company's preliminary assessment of the implications of this new statement, the
Company believes they have no freestanding or embedded derivative instruments
that would need to be accounted for under SFAS No. 133.
10
<PAGE> 12
INDEPENDENT AUDITORS' REPORT
[KPMG LOGO]
The Board of Directors and Stockholders
Dawson Geophysical Company:
We have audited the accompanying balance sheets of Dawson Geophysical
Company as of September 30, 2000 and 1999, and the related statements of
operations, stockholders' equity, and cash flows for each of the years in the
three-year period ended September 30, 2000. These financial statements are the
responsibility of the Company's management. Our responsibility is to express an
opinion on these financial statements based on our audits.
We conducted our audits in accordance with auditing standards generally
accepted in the United States of America. Those standards require that we plan
and perform the audits 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 Dawson Geophysical Company
as of September 30, 2000 and 1999, and the results of its operations and its
cash flows for each of the years in the three-year period ended September 30,
2000, in conformity with accounting principles generally accepted in the United
States of America.
KPMG LLP
November 1, 2000
11
<PAGE> 13
BALANCE SHEETS
September 30, 2000 and 1999
<TABLE>
<CAPTION>
2000 1999
------------ ------------
<S> <C> <C>
ASSETS
Current assets:
Cash and cash equivalents $ 509,000 $ 4,993,000
Short-term investments 11,025,000 13,547,000
Accounts receivable, net of allowance for doubtful accounts
of $300,000 in 2000 and $133,000 in 1999 6,567,000 5,567,000
Income taxes receivable 2,165,000 1,668,000
Prepaid expenses 200,000 466,000
------------ ------------
Total current assets 20,466,000 26,241,000
------------ ------------
Property, plant and equipment 73,132,000 71,706,000
Less accumulated depreciation (43,817,000) (36,529,000)
------------ ------------
Net property, plant and equipment 29,315,000 35,177,000
------------ ------------
$ 49,781,000 $ 61,418,000
============ ============
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Accounts payable $ 1,038,000 $ 778,000
Accrued liabilities:
Payroll costs and other taxes 253,000 506,000
Other 22,000 21,000
------------ ------------
Total current liabilities 1,313,000 1,305,000
------------ ------------
Deferred income taxes -- 645,000
Stockholders' equity:
Preferred stock--par value $1.00 per share;
5,000,000 shares authorized, none outstanding -- --
Common stock - par value $.33 1/3 per share;
10,000,000 shares authorized, 5,428,794
and 5,406,794 shares issued and outstanding
in 2000 and 1999, respectively 1,810,000 1,802,000
Additional paid-in capital 38,624,000 38,497,000
Retained earnings 8,034,000 19,169,000
------------ ------------
Total stockholders' equity 48,468,000 59,468,000
------------ ------------
Contingencies (see note 10)
$ 49,781,000 $ 61,418,000
============ ============
</TABLE>
See accompanying notes to the financial statements.
12
<PAGE> 14
STATEMENTS OF OPERATIONS
Years Ended September 30, 2000, 1999 and 1998
<TABLE>
<CAPTION>
2000 1999 1998
------------ ------------ ------------
<S> <C> <C> <C>
Operating revenues $ 18,469,000 $ 24,198,000 $ 61,400,000
Operating costs:
Operating expenses 21,708,000 21,962,000 40,326,000
General and administrative 2,126,000 2,390,000 1,931,000
Depreciation 9,417,000 10,585,000 9,472,000
------------ ------------ ------------
33,251,000 34,937,000 51,729,000
------------ ------------ ------------
Income (loss) from operations (14,782,000) (10,739,000) 9,671,000
Other income (expense):
Interest income 972,000 872,000 720,000
Interest expense -- -- (125,000)
Gain (loss) on disposal of assets (7,000) (5,000) 134,000
Other 45,000 43,000 25,000
------------ ------------ ------------
Income (loss) before income tax (13,772,000) (9,829,000) 10,425,000
Income tax benefit (expense):
Current 2,163,000 1,441,000 (2,607,000)
Deferred 474,000 1,958,000 (1,190,000)
------------ ------------ ------------
2,637,000 3,399,000 (3,797,000)
------------ ------------ ------------
Net income (loss) $(11,135,000) $ (6,430,000) $ 6,628,000
============ ============ ============
Net income (loss) per common share $ (2.05) $ (1.19) $ 1.27
============ ============ ============
Net income (loss) per common share-
assuming dilution $ (2.05) $ (1.19) $ 1.27
============ ============ ============
Weighted average equivalent common
shares outstanding 5,425,210 5,397,624 5,205,926
============ ============ ============
Weighted average equivalent common
shares outstanding-assuming dilution 5,425,210 5,397,624 5,232,007
============ ============ ============
</TABLE>
See accompanying notes to the financial statements.
13
<PAGE> 15
STATEMENTS OF CASH FLOWS
Years Ended September 30, 2000, 1999 and 1998
<TABLE>
<CAPTION>
2000 1999 1998
-----------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Cash flows from operating activities:
Net income (loss) $(11,135,000) $ (6,430,000) $ 6,628,000
Adjustments to reconcile net income (loss) to
net cash provided by operating activities:
Depreciation 9,417,000 10,585,000 9,472,000
Loss (gain) on disposal of assets 7,000 5,000 (134,000)
Non-cash interest income -- (32,000) (31,000)
Non-cash compensation 103,000 256,000 --
Deferred income tax (benefit) expense (474,000) (1,958,000) 1,190,000
Other 36,000 323,000 262,000
Change in current assets and liabilities:
Decrease (increase) in accounts receivable (1,000,000) 6,254,000 (3,097,000)
Decrease (increase) in prepaid expenses 266,000 (50,000) (128,000)
Increase in income taxes receivable (497,000) (618,000) (1,050,000)
Increase (decrease) in accounts payable 260,000 (988,000) (2,190,000)
Increase (decrease) in accrued liabilities (252,000) (918,000) 385,000
-----------------------------------------------------------------------------------------------------------
Net cash provided (used) by operating activities (3,269,000) 6,429,000 11,307,000
-----------------------------------------------------------------------------------------------------------
Cash flows from investing activities:
Proceeds from disposal of assets 112,000 29,000 287,000
Capital expenditures (3,861,000) (164,000) (19,959,000)
Proceeds from sale of short-
term investments 1,501,000 -- 5,993,000
Proceeds from maturity of short-
term investments 3,500,000 7,500,000 9,000,000
Investment in short-term investments (2,499,000) (14,546,000) (17,531,000)
-----------------------------------------------------------------------------------------------------------
Net cash used in investing activities (1,247,000) (7,181,000) (22,210,000)
-----------------------------------------------------------------------------------------------------------
Cash flows from financing activities:
Principal payments on debt -- -- (9,583,000)
Issuance of common stock -- -- 21,371,000
Proceeds from exercise of stock options 32,000 -- 86,000
-----------------------------------------------------------------------------------------------------------
Net cash provided by financing activities 32,000 -- 11,874,000
-----------------------------------------------------------------------------------------------------------
Net increase (decrease) in cash and cash equivalents (4,484,000) (752,000) 971,000
Cash and cash equivalents at beginning of year 4,993,000 5,745,000 4,774,000
-----------------------------------------------------------------------------------------------------------
Cash and cash equivalents at end of year $ 509,000 $ 4,993,000 $ 5,745,000
===========================================================================================================
</TABLE>
See accompanying notes to the financial statements.
14
<PAGE> 16
STATEMENTS OF STOCKHOLDERS' EQUITY
<TABLE>
<CAPTION>
COMMON STOCK
----------------------- ADDITIONAL
NUMBER PAID-IN RETAINED
OF SHARES AMOUNT CAPITAL EARNINGS TOTAL
----------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
Balance,
September 30, 1997 4,199,250 $ 1,400,000 $ 17,174,000 $ 18,971,000 $ 37,545,000
Issuance of common
stock 1,151,100 384,000 20,999,000 -- 21,383,000
Exercise of stock
options 10,650 3,000 83,000 -- 86,000
Net income -- -- -- 6,628,000 6,628,000
----------------------------------------------------------------------------------------------------------------
Balance,
September 30, 1998 5,361,000 1,787,000 38,256,000 25,599,000 65,642,000
Issuance of common
stock as compensation 45,794 15,000 241,000 -- 256,000
Net loss -- -- -- (6,430,000) (6,430,000)
----------------------------------------------------------------------------------------------------------------
Balance,
September 30, 1999 5,406,794 1,802,000 38,497,000 19,169,000 59,468,000
Issuance of common
stock as compensation 17,000 6,000 97,000 -- 103,000
Exercise of stock
option 5,000 2,000 30,000 -- 32,000
Net loss -- -- -- (11,135,000) (11,135,000)
----------------------------------------------------------------------------------------------------------------
Balance,
September 30, 2000 5,428,794 $ 1,810,000 $ 38,624,000 $ 8,034,000 $ 48,468,000
================================================================================================================
</TABLE>
See accompanying notes to the financial statements.
15
<PAGE> 17
NOTES TO FINANCIAL STATEMENTS
1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
Organization and Nature of Operations
Dawson Geophysical Company (the "Company"), which was incorporated in
Texas in 1952, has been listed and traded on the NASDAQ National Market System
("NMS") under the symbol "DWSN" since 1981.
The Company acquires and processes 3-D seismic data for major and
intermediate-sized oil and gas companies and independent oil operators who
retain exclusive rights to the information obtained. The Company's land-based
acquisition crews operate primarily in the southwestern United States, and data
processing is performed by geophysicists at the Company's computer center in
Midland, Texas.
Cash Equivalents
For purposes of the statements of cash flows, the Company considers demand
deposits, certificates of deposit and all highly liquid debt instruments
purchased with a maturity of three months or less to be cash equivalents.
Short-Term Investments
The Company accounts for its short-term investments in accordance with
Statement of Financial Accounting Standards No. 115, "Accounting for Certain
Investments in Debt and Equity Securities" (Statement 115). In accordance with
Statement 115, the Company has classified its investment portfolio consisting
of U.S. Treasury Securities as "available-for-sale" and records the net
unrealized holding gains and losses as accumulated comprehensive income in
stockholders' equity. The cost of short-term investments sold is based on the
specific identification method.
Fair Value of Financial Instruments
The carrying amounts for cash and cash equivalents, short-term
investments, accounts receivable, other current assets, accounts payable and
other current liabilities approximate fair value due to the short maturity of
these instruments.
Concentrations of Credit Risk
Financial instruments which potentially expose the Company to
concentrations of credit risk, as defined by Statement of Financial Accounting
Standards No. 105, consist primarily of trade accounts receivable and
short-term investments. The Company's sales are to customers whose activities
relate to oil and gas exploration and production. However, accounts receivable
are well diversified among many customers, and a significant portion of the
receivables are from major oil companies, which management believes minimizes
potential credit risk. The Company generally extends unsecured credit to these
customers; therefore, collection of receivables may be affected by the economy
surrounding the oil and gas industry. The Company closely monitors extensions
of credit and initiated an allowance for doubtful accounts in fiscal 1999 as a
result of the downturn in oil prices which occurred during the year and
negatively impacted the Company's clients. The Company invests primarily in
U.S. Treasury Securities which are a low risk investment.
Property, Plant and Equipment
Property, plant and equipment are carried at cost. Depreciation is
computed using the straight-line method. When assets are retired or otherwise
disposed of, the cost and related accumulated depreciation are removed from the
accounts, and any resulting gain or loss is reflected in the results of
operations for the period.
Impairment of Long-Lived Assets
The Company accounts for its long-lived assets in accordance with
Statement of Financial Accounting Standards No. 121, "Accounting for the
Impairment of Long-Lived Assets and for Long-Lived Assets to Be Disposed Of"
(Statement 121), which requires companies to assess their long-lived assets for
impairment. Statement 121 requires companies to review for impairment whenever
events or changes in circumstances indicate that the carrying amount of a
long-lived asset may not be recoverable. No provision was recorded in the
Statement of Operations for the years ended September 30, 2000, 1999 and 1998.
16
<PAGE> 18
NOTES TO FINANCIAL STATEMENTS (CONT.)
Revenue Recognition
Revenue from services is recorded as earned over the lives of the
respective contracts.
Income Taxes
The Company accounts for state and federal income taxes in accordance with
Statement of Financial Accounting Standards No. 109, "Accounting for Income
Taxes" (Statement 109). Under the asset and liability method of Statement 109,
deferred income taxes are recognized for the future tax consequences
attributable to differences between the financial statement carrying amounts of
existing assets and liabilities and their respective tax bases. Deferred tax
assets and liabilities are measured using enacted tax rates expected to apply
to taxable income in the years in which those temporary differences are
expected to be recovered or settled. Under Statement 109, the effect on
deferred taxes of a change in tax rates is recognized in income in the period
that includes the enactment date.
Use of Estimates in the Preparation of Financial Statements
Preparation of the accompanying financial statements in conformity with
generally accepted accounting principles requires management to make estimates
and assumptions that affect the reported amounts of assets and liabilities and
disclosure of contingent assets and liabilities at the date of the financial
statements and the reported amounts of revenues and expenses during the
reporting period. Actual results could differ from those estimates.
Stock-Based Compensation
The Company accounts for stock-based compensation in accordance with
Statement of Financial Accounting Standards No. 123, "Accounting For
Stock-Based Compensation" (Statement 123). Statement 123 allows a company to
adopt a fair value based method of accounting for a stock-based employee
compensation plan or to continue to use the intrinsic value based method of
accounting prescribed by Accounting Principles Board Opinion No. 25,
"Accounting For Stock Issued To Employees" (APB No. 25). The Company has chosen
to continue to account for stock-based compensation under APB No. 25 using the
intrinsic value method.
2. SHORT-TERM INVESTMENTS
Investment in securities, consisting entirely of U. S. Treasury
Securities, had a cost and market value of approximately $11,025,000 at
September 30, 2000 and $13,547,000 at September 30, 1999.
Short-term investments held at September 30, 2000 consisting of U.S.
Treasury Securities, have contractual maturities from December, 2000 through
March, 2002. Securities that mature after September 30, 2001 are expected to be
sold within one year and are properly classified as current assets.
3. PROPERTY, PLANT AND EQUIPMENT
Property, plant and equipment, together with annual depreciation rates,
consist of the following:
<TABLE>
<CAPTION>
SEPTEMBER 30
-----------------------------------------------------
2000 1999 RATES
-----------------------------------------------------
<S> <C> <C> <C>
LAND, BUILDING AND IMPROVEMENTS $ 1,303,000 $ 2,545,000 3 TO 12.5 PERCENT
MACHINERY AND EQUIPMENT 71,804,000 69,119,000 10 TO 20 PERCENT
EQUIPMENT IN PROCESS (a) 25,000 42,000 --
-----------------------------
$73,132,000 $71,706,000
=============================
</TABLE>
----------
(a) Equipment in process has not been placed into service and accordingly has
not been subject to depreciation.
17
<PAGE> 19
NOTES TO FINANCIAL STATEMENTS (CONT.)
4. STOCK OPTIONS
The Company's 1991 Incentive Stock Option Plan, which extended the 1981
Plan, provided options to purchase 150,000 shares of authorized but unissued
common stock of the Company. The option price is the market value of the
Company's common stock at date of grant. Options are exercisable 25% annually
from the date of the grant and the options expire five years from date of
grant.
The Company adopted the 2000 Incentive Stock Plan during fiscal 1999,
which extends the 1991 Plan and provides options to purchase 500,000 shares of
authorized but unissued common stock of the Company. In addition to the
conditions described above regarding the 1991 Plan, the 2000 Plan provides that
50,000 of the 500,000 shares of authorized but unissued common stock may be
awarded to officers, directors and employees of the Company for the purpose of
additional compensation.
The transactions under the Plans are summarized as follows:
<TABLE>
<CAPTION>
WEIGHTED NUMBER OF
AVERAGE PRICE OPTIONED SHARES
------------------------------------------------------------------
<S> <C> <C>
BALANCE AS OF SEPTEMBER 30, 1998 $ 17.91 52,000
GRANTED $ 6.50 166,000
CANCELLED OR EXPIRED $ 7.25 (10,000)
------------------------------------------------------------------
BALANCE AS OF SEPTEMBER 30, 1999 $ 9.32 208,000
EXERCISED $ 6.50 (5,000)
CANCELLED OR EXPIRED $ 13.10 (22,000)
------------------------------------------------------------------
BALANCE AS OF SEPTEMBER 30, 2000 $ 8.93 181,000
------------------------------------------------------------------
</TABLE>
Options for 57,750, 27,000 and 24,000 shares were exercisable with
weighted average exercise prices of $12.22, $18.40 and $12.27 as of September
30, 2000, 1999 and 1998, respectively.
Outstanding options at September 30, 2000 expire between September, 2002
and February, 2004 and have exercise prices ranging from $6.50 to $24.125.
Options for 166,000 shares were granted in fiscal year 1999. The expected
life of the options granted is five years. The weighted average fair value of
options granted during 1999 is $5.47. The fair value of each option grant is
estimated on the date of grant, using the Black-Scholes options pricing model.
The model assumed expected volatility of 120% and risk-free interest rate
of 4.8% for grants in 1999. As the Company has not declared dividends since it
became a public entity, no dividend yield was used. Actual value realized, if
any, is dependent on the future performance of the Company's common stock and
overall stock market conditions. There is no assurance the value realized by an
optionee will be at or near the value estimated by the
18
<PAGE> 20
NOTES TO FINANCIAL STATEMENTS (CONT.)
Black-Scholes model.
No compensation expense has been recorded for the Company's stock options
under the intrinsic value method. Had compensation cost for the 1991 Plan and
the 2000 Plan been determined based on the fair value at the grant dates for
awards made after September 30, 1995 under the 1991 Plan, the Company's net
income and earnings per share would have been reduced to the pro forma amounts
indicated below:
<TABLE>
<CAPTION>
YEAR ENDED YEAR ENDED
----------------------------------------------------------------------------------
SEPTEMBER 30, 2000 SEPTEMBER 30, 1999
<S> <C> <C> <C>
NET INCOME AS REPORTED $ (11,135,000) $ (6,430,000)
PRO FORMA $ (11,255,000) $ (6,510,000)
-------------------------------------------------------
EARNINGS PER SHARE AS REPORTED $ (2.05) $ (1.19)
PRO FORMA $ (2.07) $ (1.21)
-------------------------------------------------------
</TABLE>
Under the provisions of Statement No. 123, the pro forma disclosures above
indicate only the effects of stock options granted by the Company subsequent to
September 30, 1995. During this initial phase-in period, the pro forma
disclosures as required by Statement No. 123 are not representative of the
effects on reported net income for future years as options vest over several
years.
5. EMPLOYEE STOCK PURCHASE PLAN
The Company has an employee stock purchase plan to invest in the Company's
common stock for the benefit of eligible employees. Participants are entitled
to contribute a percentage, not to exceed 5%, of their bi-weekly salary to the
plan. On a bi-weekly basis, the Company matches the participants' contributions
and directs the purchase of shares of the Company's common stock. There are no
vesting requirements for the participants. The Company contributed $240,328,
$214,347 and $254,582 to the plan during 2000, 1999 and 1998, respectively.
6. INCOME TAXES
Income tax expense (benefit) attributable to income before extraordinary
item consists of:
<TABLE>
<CAPTION>
YEAR ENDED SEPTEMBER 30,
-------------------------------------------------
2000 1999 1998
----------- ----------- -----------
<S> <C> <C> <C>
CURRENT:
U.S. FEDERAL $(2,163,000) $(1,441,000) $ 2,349,000
STATE -- -- 258,000
-------------------------------------------------
(2,163,000) (1,441,000) 2,607,000
DEFERRED: U. S. FEDERAL (474,000) (1,958,000) 1,190,000
-------------------------------------------------
TOTAL $(2,637,000) $(3,399,000) $ 3,797,000
=================================================
</TABLE>
19
<PAGE> 21
NOTES TO FINANCIAL STATEMENTS (CONT.)
Income tax expense (benefit) varies from the amount computed by multiplying
income before taxes by the statutory income tax rate. The reasons for these
differences and the related tax effects are as follows:
<TABLE>
<CAPTION>
YEAR ENDED SEPTEMBER 30,
---------------------------------------------------
2000 1999 1998
----------- ------------ ----------
<S> <C> <C> <C>
EXPENSE (BENEFIT) COMPUTED AT STATUTORY RATES $(4,682,000) $(3,342,000) $3,545,000
EFFECT OF:
CHANGE IN VALUATION ALLOWANCE 1,848,000 -- --
STATE INCOME TAXES, NET OF FEDERAL
INCOME TAX BENEFIT -- -- 170,000
OTHER 197,000 (57,000) 82,000
----------- ----------- ----------
INCOME TAX EXPENSE (BENEFIT) $(2,637,000) $(3,399,000) $3,797,000
=========== =========== ==========
</TABLE>
<TABLE>
<CAPTION>
SEPTEMBER 30,
-------------------------------
2000 1999
----------- -----------
<S> <C> <C>
DEFERRED TAX ASSETS:
NET OPERATING LOSS CARRYFORWARDS $ 3,627,000 $ --
ALTERNATIVE MINIMUM TAX CREDIT CARRYFORWARDS 813,000 2,333,000
RECEIVABLES 102,000 45,000
OTHER 18,000 177,000
----------- -----------
TOTAL DEFERRED TAX ASSETS 4,560,000 2,555,000
LESS VALUATION ALLOWANCE (1,848,000) --
----------- -----------
TOTAL GROSS DEFERRED TAX ASSETS 2,712,000 2,555,000
----------- -----------
DEFERRED TAX LIABILITIES:
OTHER PROPERTY AND EQUIPMENT (2,707,000) (3,200,000)
OTHER (5,000) --
----------- -----------
TOTAL GROSS DEFERRED TAX LIABILITIES (2,712,000) (3,200,000)
----------- -----------
NET DEFERRED TAX ASSET (LIABILITY) $ -- $ (645,000)
=========== ===========
</TABLE>
A valuation allowance is provided when it is more likely than not that some
portion of the deferred tax assets will not be realized. Based on expectations
for the future, management has determined that taxable income of the Company
will not likely be sufficient to fully utilize available carryforwards prior to
their ultimate expiration. As such, the Company has recorded a valuation
allowance of $1,848,000 to reflect the realizability of its net deferred tax
assets. The amount of the valuation allowance could be reduced if estimates of
future taxable income during the carryforward period are increased.
As of September 30, 2000, the Company had a net operating loss carryforward
for U.S. federal income tax purposes of approximately $10,666,000, which is
available to offset future regular taxable income, if any. The net operating
loss carryforward expires in 2019. The Company has alternative minimum tax
credit carryforwards totaling $813,000 to offset regular income tax, which have
no scheduled expiration date.
20
<PAGE> 22
NOTES TO FINANCIAL STATEMENTS (CONT.)
7. NET INCOME (LOSS) PER COMMON SHARE
The Company accounts for earnings per share in accordance with Statement of
Financial Accounting Standards No. 128, "Earnings per Share" ("Statement 128").
Statement 128 replaced the calculation of primary and fully diluted earnings per
share with basic and diluted earnings per share. Unlike primary earnings per
share, basic earnings per share excludes any dilutive effects of options,
warrants and convertible securities. Diluted earnings per share is very similar
to the previously reported fully diluted earnings per share. All earnings per
share amounts for all periods have been presented, and when appropriate,
restated to conform to the Statement 128 requirements.
The following table sets forth the computation of basic and diluted net
income per common share:
<TABLE>
<CAPTION>
2000 1999 1998
------------- ------------- ------------
<S> <C> <C> <C>
NUMERATOR:
NET INCOME (LOSS) AND NUMERATOR FOR BASIC AND DILUTED
NET INCOME (LOSS) PER COMMON SHARE-INCOME
AVAILABLE TO COMMON STOCKHOLDERS $(11,135,000) $(6,430,000) $6,628,000
============= ============= ============
DENOMINATOR:
DENOMINATOR FOR BASIC NET INCOME (LOSS) PER COMMON
SHARE-WEIGHTED AVERAGE COMMON SHARES 5,425,210 5,397,624 5,205,926
EFFECT OF DILUTIVE SECURITIES-EMPLOYEE STOCK OPTIONS -- -- 26,081
------------- ------------- ------------
DENOMINATOR FOR DILUTED NET INCOME (LOSS) PER COMMON
SHARE-ADJUSTED WEIGHTED AVERAGE COMMON SHARES
AND ASSUMED CONVERSIONS 5,425,210 5,397,624 5,232,007
============= ============= ============
NET INCOME (LOSS) PER COMMON SHARE $ (2.05) $ (1.19) $ 1.27
============= ============= ============
NET INCOME (LOSS) PER COMMON SHARE-ASSUMING DILUTION $ (2.05) $ (1.19) $ 1.27
============= ============= ============
</TABLE>
Employee stock options to purchase shares of common stock were outstanding
during fiscal year 2000 but were not included in the computation of diluted net
loss per share because either (i) the employee stock options exercise price was
greater than the average market price of the common stock of the Company, or
(ii) the Company had a net loss from continuing operations and, therefore, the
effect would be antidilutive.
8. STATEMENT OF CASH FLOWS
The Company paid current and estimated tax payments of $3,533,000 in 1998.
Payments of interest were $125,000 in 1998.
9. MAJOR CUSTOMERS
The Company operates in only one business segment, contract seismic data
acquisition and processing services. During each of 1999 and 1998, sales to only
one customer, which was not the same customer each year, exceeded 10% of
operating revenue. The percentage of sales to these customers in 1999 and 1998
were 30.9% and 16.7%, respectively. During 2000, sales to no customer exceeded
10% of operating revenue.
21
<PAGE> 23
NOTES TO FINANCIAL STATEMENTS (CONT.)
10. CONTINGENCIES
The Company is a defendant in two lawsuits pending in the 112th and 83rd
District Courts of Pecos County, Texas (respectively, Cause No. 8812, Ernestine
Bernal, et al. vs. Javier Antonio Orona, et al.; and Cause No. P5565-83-CV,
Carla Jaquez, et al. vs. Javier Antonio Orona, et al.) relating to a July 1995
accident involving a van owned by the Company which was used to transport
employees to various job sites and a non-Company owned vehicle. The accident
resulted in the deaths of four Company employees who were passengers in such
van. The Company is one of several named defendants in such suits. Other named
defendants include the estate of the deceased driver of such van who was an
employee of the Company, the driver of such non-Company owned vehicle who was
then an employee of the Company, the owner of such vehicle, and Ford Motor
Company, the manufacturer of the Company van involved in such accident. In
general, the claims against the Company include allegations of negligence, gross
negligence and/or intentional tort as a result of, among other things, the
Company's alleged failure to provide safe transportation for its employees and
to properly select, train and supervise the deceased driver of such van. The
plaintiffs in such suits are seeking actual damages from the defendants of $15.5
million, additional unspecified actual damages, pre-judgment and post-judgment
interest and costs of suit as well as exemplary and punitive damages in an
amount not to exceed four times the amount of actual damages. The Company
believes that it has meritorious defenses to the claims asserted against it in
such suits, and it intends to continue to vigorously defend itself against such
claims. In addition, the Company believes that it has approximately $11 million
of liability insurance coverage to provide against an unfavorable outcome. Such
suits are currently pending trial, and the Company's motion for summary judgment
in Cause No. 8812 has been denied. A trial date has been set both in Cause No.
8812 and consolidated Cause No. P5565-83-CV for March 26, 2001. Due to the
uncertainties inherent in litigation, no assurance can be given as to the
ultimate outcome of such suits or the adequacy or availability of the Company's
liability insurance to cover the damages, if any, which may be assessed against
the Company in such suits. A judgment awarding plaintiffs an amount
significantly exceeding the Company's available insurance coverage could have a
material adverse affect on the Company's financial condition, results of
operations and liquidity.
The Company is party to other legal actions arising in the ordinary course
of its business, none of which management believes will result in a material
adverse effect on the Company's financial position or results of operation, as
the Company believes it is adequately insured.
On February 18, 1998 the Company entered into a five year, non-cancellable
operating lease for office space. Future minimum lease commitments under the
lease at September 30 of each year are $142,716 through 2002, declining to
$107,037 in 2003.
11. RIGHTS AGREEMENT
On July 13, 1999, the Board of Directors of the Company authorized and
declared a dividend to the holders of record on July 23, 1999 of one Right (a
"Right") for each outstanding share of the Company's common stock. When
exercisable, each Right will entitle the holder to purchase one one-hundredth of
a share of a Series A Junior Participating Preferred Stock, par value $1.00 per
share, of the Company (the "Preferred Shares") at an exercise price of $50.00
per Right. The rights are not currently exercisable and will become exercisable
only if a person or group acquires beneficial ownership of 20% or more of the
Company's outstanding common stock or announces a tender offer or exchange
offer, the consummating of which would result in attaining the triggering
percentage. The Rights are subject to redemption by the Company for $.01 per
Right at any time prior to the tenth day after the first public announcement of
a triggering acquisition.
If the Company is acquired in a merger or other business combination
transaction after a person has acquired beneficial ownership of 20% or more of
the Company's common stock, each Right will entitle its holder to purchase, at
the Right's then current exercise price, a number of the acquired Company's
shares of common stock having a market value of two times such price. In
addition, if a person or group acquires beneficial ownership of 20% or more of
the Company's common stock, each Right will entitle its holder (other than the
acquiring person or group) to purchase, at the Right's then current exercise
price, a number of the Company's shares of common stock having a market value of
two times the exercise price.
22
<PAGE> 24
NOTES TO FINANCIAL STATEMENTS (CONT.)
Subsequent to the acquisition by a person or group of beneficial ownership
of 20% or more of the Company's common stock and prior to the acquisition of
beneficial ownership of 50% or more of the Company's common stock, the Board of
Directors of the Company may exchange the Rights (other than Rights owned by
such acquiring person or group, which will have become null and void and
nontransferable), in whole or in part, at an exchange ratio of one share of the
Company's common stock (or one one-hundredth of a Preferred Share) per Right.
The Rights dividend distribution was made on July 23, 1999, payable to
shareholders of record at the close of business on that date. The Rights will
expire on July 23, 2009.
12. RECENTLY ANNOUNCED ACCOUNTING PRONOUNCEMENTS
In June, 1998, the FASB issued SFAS No. 133 "Accounting for Derivative
Instruments and Hedging Activities" which establishes standards for derivative
instruments, including certain derivative instruments embedded in other
contracts, and for hedging activities. SFAS No. 133 requires that an entity
recognize all derivatives as either assets or liabilities in the statement of
financial position and measure those instruments at fair value. It establishes
conditions under which a derivative may be designated as a hedge and establishes
standards for reporting changes in the fair value of a derivative. The Company
will adopt SFAS No. 133, as required by SFAS 137 "Deferral of the Effective Date
of the FASB Statement No. 133", effective October 1, 2000. Based on the
Company's preliminary assessment of the implications of this new statement, the
Company believes they have no freestanding or embedded derivative instruments
that would need to be accounted for under SFAS 133.
13. QUARTERLY FINANCIAL DATA (UNAUDITED)
<TABLE>
<CAPTION>
QUARTER ENDED
-----------------------------------------------------------------------
DECEMBER 31 MARCH 31 JUNE 30 SEPTEMBER 30
-----------------------------------------------------------------------
<S> <C> <C> <C> <C>
FISCAL 2000:
OPERATING REVENUES $ 4,893,000 $ 4,275,000 $ 2,712,000 $ 6,589,000
LOSS FROM OPERATIONS $(3,863,000) $(3,970,000) $(4,177,000) $(2,772,000)
NET LOSS $(2,399,000) $(3,020,000) $(3,168,000) $(2,548,000)
NET LOSS PER COMMON SHARE $ (.44) $ (.55) $ (.58) $ (.47)
NET LOSS PER COMMON SHARE
ASSUMING DILUTION $ (.44) $ (.55) $ (.58) $ (.47)
FISCAL 1999:
OPERATING REVENUES $ 8,018,000 $ 6,053,000 $ 4,575,000 $ 5,552,000
LOSS FROM OPERATIONS $(1,672,000) $(2,447,000) $(3,091,000) $(3,529,000)
NET LOSS $ (974,000) $(1,461,000) $(1,890,000) $(2,105,000)
NET LOSS PER COMMON SHARE $ (.18) $ (.27) $ (.35) $ (.39)
NET LOSS PER COMMON SHARE
ASSUMING DILUTION $ (.18) $ (.27) $ (.35) $ (.39)
</TABLE>
23
