UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
(Mark one) FORM 10-Q
[ X ] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15 (d)
OF THE SECURITIES EXCHANGE ACT OF 1934
For the Quarterly Period Ended August 31, 1996
or
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF
THE SECURITIES EXCHANGE ACT OF 1934
For the transition period from to
Commission File Number 0-15784
DSI INDUSTRIES, INC.
(Exact Name of Registrant as Specified in its Charter)
Delaware 13-3273041
(State of Incorporation) (IRS Employer
Identification No.)
5211 Brownfield Highway
Suite 230 79407
Lubbock, Texas (Zip Code)
(Address of Principal Executive Offices)
Registrant's telephone number, including area code: (806) 785-8400
Former name, former address and former fiscal year, if changed since last
report: No Change
Indicate by check mark whether the registrant (1) has filed all reports
required to be filed by Section 13 or 15 (d) of the Securities Exchange Act of
1934 during the preceding 12 months (or for such shorter period that the
registrant was required to file such reports), and (2) has been subject to such
filing requirements for the past 90 days. Yes X No
Indicate the number of shares outstanding of each of the issuer's classes of
common stock, as of the practicable date.
Class Outstanding at October 8, 1996
Common stock, par value $.01 per share 22,610,269 shares
<PAGE>
DSI INDUSTRIES, INC. AND SUBSIDIARIES
Page No.
PART I - Financial Information:
Item 1. Financial Statements:
Unaudited Consolidated Balance Sheets................................3
Unaudited Consolidated Statements of Operations......................4
Unaudited Consolidated Statements of Stockholders' Equity............5
Unaudited Consolidated Statements of Cash Flows......................6
Notes to Consolidated Financial Statements...........................8
Item 2. Management's Discussion and Analysis of Financial Condition and
Results of Operations...................................................13
Part II - Other Information ............................................15
Item 6. Exhibits and Reports on Form 8K.................................15
Signatures .............................................................16
<PAGE>
PART I - FINANCIAL INFORMATION
Item 1. Financial Statements
The following financial statements include all adjustments which in
managements' opinion are necessary in order to make the financial statements
not misleading.
DSI INDUSTRIES, INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
(Unaudited)
August 31, November 30,
1996 1995
Current assets:
Cash and cash equivalents $ 419,388 $ 283,055
Accounts receivable, trade, less allowance
for doubtful accounts of $90,000 2,877,800 2,171,187
Costs and estimated earnings in excess of
billings on uncompleted contracts 1,363,591 518,529
Insurance proceeds recoverable - - 682,661
Prepaid expenses and other current assets 326,097 233,007
Total current assets 4,986,876 3,888,439
Property and equipment, at cost, net of
accumulated depreciation 7,702,616 7,410,612
Goodwill, net of accumulated amortization 1,436,142 1,507,587
Security deposits 128,991 197,745
Other assets - - 78
Total assets $14,254,625 $13,004,461
Current liabilities:
Current maturities of notes payable $ 724,324 $ 2,661,391
Accounts payable 3,925,904 3,957,514
Accrued expenses and other current
liabilities 971,258 794,084
Net liabilities of discontinued operations 1,360,033 3,515,040
Total current liabilities 6,981,519 10,928,029
Notes payable, less current maturities 3,521,939 763,738
Commitments and contingencies - - - -
Stockholders' equity:
Common stock-par value $.01; authorized-
100,000,000 shares, issued-23,693,365,
outstanding-22,610,269 and 23,693,365
shares, respectively 236,934 236,934
Additional paid-in capital 9,718,928 9,718,928
Accumulated deficit (6,118,047) (8,643,168)
3,837,815 1,312,694
Less treasury stock, at cost ( 86,648) - -
Total stockholders' equity 3,751,167 1,312,694
Total liabilities and stockholders' equity $14,254,625 $13,004,461
The accompanying notes are an integral part of these unaudited consolidated
financial statements.<PAGE>
DSI INDUSTRIES, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATIONS
(Unaudited)
For the nine months ended For the three months ended
August 31, August 31, August 31, August 31,
1996 1995 1996 1995
Operating revenues:
Contract drilling revenues $18,536,171 $15,206,741 $7,293,643 $ 5,675,166
Other 48,996 15,733 2,262 10,483
Total operating revenues 18,585,167 15,222,474 7,295,905 5,685,649
Operating costs and expenses:
Direct drilling costs 16,241,816 13,519,801 6,469,033 4,871,519
General and administrative 806,118 612,420 258,771 221,340
Depreciation, depletion and
amortization 962,253 880,987 320,751 293,663
Other 13,229 149,617 4,159 124,381
Total operating costs and
expenses 18,023,416 15,162,825 7,052,714 5,510,903
Operating income 561,751 59,649 243,191 174,746
Other income (expense):
Net gain on sale of assets 123,801 101,813 11,520 88,029
Interest expense ( 275,438) ( 274,829) ( 80,379) ( 108,610)
Total other expense, net ( 151,637) ( 173,016) ( 68,859) ( 20,581)
Income (loss) before provision for
income taxes 410,114 ( 113,367) 174,332 154,165
Income tax provision (credit) - - ( 15,186) - - 47,809
Income (loss) from continuing
operations 410,114 ( 98,181) 174,332 106,356
Gain on disposal of certain
discontinued operations 2,115,007 - - 2,115,007 - -
Net income (loss) $ 2,525,121 $( 98,181) $2,289,339 $ 106,356
Per share data:
Income (loss) from continuing
operations $0.02 $(0.00) $0.01 $0.00
Gain on disposal of certain
discontinued operations 0.09 - - 0.09 - -
Net income (loss) $0.11 $(0.00) $0.10 $0.00
Weighted average number of
common shares outstanding 23,350,713 22,610,269 22,669,133 22,610,269
The accompanying notes are an integral part of these unaudited
consolidated financial statements.<PAGE>
DSI INDUSTRIES, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY
(Unaudited)
Retained
Additional Earnings\
Common Stock Paid in Accumulated
Shares Par Value Capital Deficit
Balance, November 30, 1994 22,610,269 $226,103 $9,594,372 $(6,248,784)
Net loss for the nine
months ended August 31,
1995 - - - - - - ( 98,181)
Balance, August 31, 1995 22,610,269 $226,103 $9,594,372 $(6,346,965)
Balance, November 30, 1995 23,693,365 $236,934 $9,718,928 $(8,643,168)
Purchase of 1,083,096
shares of treasury stock - - - - - - - -
Net income for the nine
months ended August 31,
1996 - - - - - - 2,525,121
Balance, August 31, 1996 23,693,365 $236,934 $9,718,928 $(6,118,047)
Total
Treasury Stockholders'
Stock Equity
Balance, November 30, 1994 $ - - $3,571,691
Net loss for the nine
months ended August 31,
1995 - - ( 98,181)
Balance, August 31, 1995 $ - - $3,473,510
Balance, November 30, 1995 $ - - $1,312,694
Purchase of 1,083,096
shares of treasury stock ( 86,648) ( 86,648)
Net income for the nine
months ended August 31,
1996 - - 2,525,121
Balance, August 31, 1996 $( 86,648) $3,751,167
The accompanying notes are an integral part of these unaudited consolidated
financial statements.<PAGE>
DSI INDUSTRIES, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
(Unaudited)
For the nine months ended For the three months ended
August 31, August 31, August 31, August 31,
1996 1995 1996 1995
Cash flows from operating activities:
New income (loss) $2,525,121 $( 98,181) $ 2,289,339 $ 106,356
Adjustments to reconcile net
income (loss) to net cash used
in operating activities of
continuing operations:
Gain on disposal of certain
discontinued operations (2,115,007) - - (2,115,007) - -
Depreciation, depletion and
amortization 962,253 880,987 320,751 293,663
Net gain on sale of assets ( 123,801) ( 101,813) ( 11,520) ( 88,029)
Increase (decrease) in cash flows
as a result of changes in operating
asset and liability account balances:
Accounts receivable-trade ( 706,613) 275,919 326,935 ( 108,125)
Insurance proceeds recoverable 682,661 - - 21,477 - -
Litigation proceeds recoverable - - 233,479 - - - -
Net costs and estimated earnings
in excess of billings on uncompleted
contracts ( 845,062) ( 562,129) ( 878,755) ( 386,663)
Prepaid expenses and other current
assets 90,330 ( 401,373) ( 35,082) ( 584,798)
Refund of deposits and other
assets 68,832 36,202 34,454 - -
Accounts payable ( 31,610) ( 587,540) 107,644 516,431
Accrued expenses and other current
liabilities 177,174 ( 117,598) 44,170 ( 51,323)
Net cash provided by (used in)
continuing operations 684,278 ( 442,047) 104,406 ( 302,488)
Net cash used in discontinued
operations ( 40,000) ( 149,464) ( 40,000) 30,536
Net cash provided by (used in)
operating activities 644,278 ( 591,511) 64,406 ( 271,952)
Cash flows from investing activities:
Proceeds from sale of property
and equipment 230,749 101,813 14,356 88,029
Acquisition of property and
equipment ( 963,381) ( 776,020) ( 418,064) ( 162,991)
Net cash used in investing
activities ( 732,632) ( 674,207) ( 403,708) ( 74,962)
Cash flows from financing activities:
Proceeds from notes payable 1,503,300 1,412,000 1,387,300 459,734
Proceeds from (repayments of)
revolving line of credit,
net ( 650,000) 345,000 ( 475,000) ( 300,000)
Repayments of notes payable ( 541,965) ( 518,884) ( 248,094) ( 207,769)
Purchase of treasury stock ( 86,648) - - ( 86,648) - -
Net cash provided by (used in)
financing activities 224,687 1,238,116 577,558 ( 48,035)
The accompanying notes are an integral part of these unaudited consolidated
financial statements.<PAGE>
DSI INDUSTRIES, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
(Unaudited)
(Continued)
For the nine months ended For the three months ended
August 31, August 31, August 31, August 31,
1996 1995 1996 1995
Net increase (decrease) in cash
and cash equivalents 136,333 ( 27,602) 238,256 ( 394,949)
Cash and cash equivalents at
beginning of period 283,055 76,342 181,132 443,689
Cash and cash equivalents at
end of period $ 419,388 $ 48,740 $ 419,388 $ 48,740
Supplemental disclosures of cash flows information:
Cash paid (received) during the period:
Interest $ 276,980 $ 258,818 $ 98,456 $ 153,266
Income taxes $ 1,349 $ 20,035 $( 11,787) $ 2,035
Supplemental Schedule of Non-cash Investing
and Financing Activities:
The Company acquired property and equipment in connection with capital
lease arrangements in the following amounts:
$ 343,049 $ 125,265 $ 239,749 $ - -
The accompanying notes are an integral part of these unaudited consolidated
financial statements.
<PAGE>
DSI INDUSTRIES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
1. REALIZATION OF ASSETS - GOING CONCERN
The accompanying consolidated financial statements have been
prepared in contemplation of continuation of DSI Industries, Inc. ("DSI")
as a going concern. DSI, in particular its nursery and magnetic resonance
imaging segments, sustained substantial losses from operations for each
of the years ended November 30, 1995 and 1994. Management on August 18,
1994 discontinued its magnetic resonance imaging segment due to the
segment's recurring losses. Management discontinued the nursery segment
due to the significant losses incurred by it commencing in the third
quarter of 1994 through April 6, 1995, the date the Board of Directors
voted to discontinue the segment. The accompanying consolidated financial
statements reflect these segments as discontinued operations.
The accompanying consolidated financial statements reflect a working
capital deficiency of approximately $1,995,000 at August 31, 1996 of which
approximately $635,000 is attributable to DSI and its remaining operating
subsidiary, Norton Drilling Company ("Norton"). The estimated liabilities
of the discontinued segments exceed the assets of these segments by
$1,360,033. DSI is a holding company and accordingly does not generate
operating revenues. All costs and expenses of DSI have previously been
funded by charging the operating segments management fees. As management
fees have diminished due to the discontinuance of the aforementioned
segments, DSI will require increased funding from Norton for its expenses
as well as the extinguishment of the liabilities of the discontinued
segments.
Norton's agreements with its secured creditors prohibit virtually any
loans, dividends, advances, guarantee of indebtedness or payments to DSI or
its subsidiaries. Management is of the opinion that Norton will be able to
continue as a going concern if DSI is successful in restructuring the
indebtedness of its discontinued operations.
DSI's limited ability to obtain funds and its inability to obtain
adequate financing to meet its obligations and the obligations of its
discontinued segments raises substantial doubt concerning the ability of DSI
to realize the benefits of its assets and satisfy its liabilities as they
mature in the ordinary course of business. Unless management's
negotiations with the creditors of the discontinued segments to restructure
the debts are successful, DSI may have to cause these subsidiaries to seek
protection from their creditors under the bankruptcy laws of the United
States. Due to cross-corporate guarantees between DSI and its subsidiaries,
the possible filing of such petition in bankruptcy court could cause DSI,
and possibly Norton, to also seek protection in bankruptcy court.
These conditions, among others, raise substantial doubt about DSI's
ability to continue as a going concern. The accompanying consolidated
financial statements do not include any adjustments relating to the
recoverability and classification of asset carrying amounts or the amount
and classification of liabilities that might result should DSI be unable to
continue as a going concern.<PAGE>
2. PREPARATION OF CONSOLIDATED FINANCIAL STATEMENTS
In the opinion of the Company, the accompanying consolidated balance
sheet as of August 31, 1996 and the condensed consolidated statements of
operations, stockholders' equity, and cash flows for the nine and three
months ended August 31, 1996 and 1995 include all adjustments (consisting
only of normal recurring adjustments) necessary to present fairly the
financial position as of August 31, 1996, the results of operations and cash
flows for the nine and three months ended August 31, 1996 and 1995. Certain
reclassifications have been made to the 1995 statements of operations and
cash flows in order for them to conform to the 1996 presentation. The
accompanying consolidated balance sheet as of November 30, 1995 is presented
herein as unaudited, inasmuch as such balance sheet was prepared from the
balance sheet set forth in the audited consolidated financial statements and
does not reflect all disclosures and footnotes contained in those audited
consolidated financial statements.
The results of operations for the nine and three months ended August 31,
1996 are not necessarily indicative of the results of operations for the
entire year.
3. NET INCOME PER COMMON SHARE
The computation of net income (loss) per common and common equivalent
share for the nine and three months ended August 31, 1996 and 1995 is based
upon the weighted average number of outstanding common shares. Common stock
equivalents were not used in the computation as they were not dilutive in
either period. Fully diluted earnings per common share, which assumes the
conversion of the dilutive effect of stock options at August 31, 1996 and
1995 were not dilutive.
4. DISCONTINUED OPERATIONS
On August 18, 1994, DSI discontinued the MRI Segment due to recurring
losses experienced by the segment. Accordingly, management estimated future
costs and expenses to dispose of the segment resulting in a $750,000 charge
to operations in fiscal 1994. During 1995, certain assets and liabilities
considered in management's previous estimate were either foreclosed,
garnished or confiscated resulting in full or partial extinguishment of the
underlying liabilities. As a result, management revised its initial estimate
to consider final settlement of remaining obligations of the segment. Such
revisions resulted in a $668,200 credit to the provision for loss for the
discontinued segment. The remaining net liabilities of the segment relate
to claims filed by the segment's former landlord for past due rent and
obligations remaining under a capital lease obligation. Management is
currently of the opinion that if negotiations with the remaining creditors,
principally consisting of the former landlord and lessor, are not successful
in settling their obligations, DSI will cause the segment to seek protection
from the creditors under bankruptcy proceedings. It is possible that final
settlement will result in the payment of amounts significantly less than
amounts currently recorded as liabilities which would result in a
significant gain realized in the reversal of such recorded liabilities.
Management's estimate of the potential gain is between approximately $68,000
and $468,000.<PAGE>
4. DISCONTINUED OPERATIONS (Continued)
Effective November 30, 1994, DSI discontinued the Nursery Segment due to
significant operating losses incurred by that segment beginning in 1994. The
financial statements for 1994 retroactively reflected management's decision
to discontinue this segment and a charge to operations of $3,000,000 for the
estimated loss to be incurred in disposing of the segment and the estimated
losses incurred from November 30, 1994 through April 6, 1995.
In August, 1995 the Nursery Segment and DSI entered into agreements with
two of its secured creditors, both of whom are banks, and an unrelated third
party (purchaser) in which the purchaser acquired the collateralized debt
of one bank and immediately foreclosed on the debt. The segment surrendered
to the purchaser all of the assets collateralizing this indebtedness on
September 6, 1995. The purchaser took title to assets with a basis of
$4,265,000, before the 1994 writedown to net realizable value, in exchange
for extinguishment of $1,293,000 in collateralized debt plus assumption by
the purchaser of a $330,000 note payable and the purchaser's guarantee to
indemnify the segment and DSI for its liabilities to certain other creditors
in an amount not to exceed $404,000. The bank has released DSI from its
guarantee of this obligation.
The agreement with the other secured bank requires the purchaser to repay
the outstanding balance of a mortgage note in the amount of $2,128,000 which
was collateralized by the segment's real property which had a basis of
$1,465,000, before the 1994 writedown to net realizable value. DSI will
remain liable as guarantor for this indebtedness until the purchaser has
fully satisfied this obligation.
Upon completion of those transactions, an additional charge to operations
of $2,194,000 was made to reflect revised estimates of the ultimate loss to
be incurred in disposing of this segment. The additional charge was
primarily due to greater than expected losses from the final wind down of
operations of the segment and lower than expected net realized values of
property and equipment upon completion of the aforementioned transactions.
The remaining net liability includes significant amounts owed to several
creditors as well as the estimated future costs and expenses of disposal.
On June 6, 1996, the Company effected the closing of a Stock Purchase and
Settlement Agreement, by and between certain of the Company's former
directors and a corporation owned by these former directors and the Company
and all of its direct and indirect wholly-owned subsidiaries. The agreement
in part provided for indemnification to the Company from the former
directors for tax claims amounting to approximately $280,000. The Company
delivered $30,000 to be used to assist in the resolution of these tax
claims. The net effect of this transaction is included in operations under
the heading "gain on disposal of certain discontinued operations".<PAGE>
DSI INDUSTRIES, INC. AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
(Continued)
4. DISCONTINUED OPERATIONS (Continued)
On July 22, 1996, DSI effected the closing of a Stock Purchase Agreement
dated as of July 19, 1996, by and between an unrelated third party
(buyer)and DSI. Pursuant to or in accordance the with the agreement,
effective upon the closing, the buyer purchased all the outstanding shares
of common stock of Sunny's Plants, Inc., the sole stockholder of all the
capital stock of Sunshine Botanicals, Inc., Interior Plant Supply, Inc. and
Sunny's Trucking, Inc. from DSI in consideration of certain releases and the
payment by DSI to the buyer of $10,000. In addition, all the then directors
and officers of the corporations sold resigned from their respective
positions with those corporations. The credit to operations for the
transaction was approximately $1,875,000.
There can be no certainty that any or all of the possible gains in the
MRI Segment or the remaining possible gains in the Nursery Segment will ever
be realized. Their ultimate realization is dependent on a number of factors
including, but not limited to, the dissolution of the underlying
subsidiaries without liability or payment thereof extending to the
continuing operations of the Company, or the extinguishment of existing
liabilities under Federal bankruptcy laws. While management believes either
of the two courses of action will relieve the segments of their obligations
and result in gains, there can be no certainty of such due to potential
rights of creditors under applicable state laws and/or the intricacies of
meeting the technical requirements of Federal bankruptcy laws. Because of
the inherent problems which could arise under either course of action, the
outcome is subject to many issues which are outside the control of
management and therefore, the amount of liabilities that may be extinguished
and the possible resulting gain, if any, that would be recognized is
uncertain at this time.
The net liabilities of the discontinued operations at August 31, 1996 and
November 30, 1995 are as follows:
August 31, November 30,
1996 1995
Notes payable $ 918,640 $1,106,207
Accounts payable and other liabilities 286,393 2,253,833
Estimated loss on disposal of segments 155,000 155,000
1,360,033 3,515,040
Net consolidated liabilities of
discontinued segments $1,360,033 $3,515,040
As of January 26, 1996, the subsidiaries of DSI which comprise the
discontinued Nursery Segment were defendants in 24 actions seeking payment
of past liabilities owed to suppliers, lessors and other creditors of the
Nursery Segment. Such actions, in which damages aggregating in excess of
$611,000 are sought, have been brought in Dade, Orange, Palm Beach, Lake and
Broward counties in Florida. The Nursery Segment does not intend to contest
such claims.
<PAGE>
DSI INDUSTRIES, INC. AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
(Continued)
5. RELATED PARTY TRANSACTIONS
In conjunction with Norton's debt restructuring in May 1993, the
Chairman of the Board of Directors of DSI and another officer of Norton
advanced Norton $410,000 and $90,000, respectively. Interest charged to
operations on the notes payable was approximately $32,000 and $48,000 for
the nine months ended August 31, 1996 and 1995. These notes are convertible
into DSI's common stock at $0.44 per share for an aggregate 1,136,364 shares
of DSI's common stock.
During the year ended November 30, 1995, two directors of DSI, a
corporation owned by a director of DSI and an officer of Norton, along with
Norton, participated in a joint venture in three wells. The joint venture
contracted with Norton to drill and equip the wells and incurred costs
totalling approximately $788,000 through August 31, 1996. Each joint
venture participant was liable for their pro rata share of the costs
incurred. Norton's share was approximately $218,000. The aggregate costs to
be borne by the four related parties mentioned above was approximately
$87,000 of which approximately $300 and $11,000 was outstanding at August
31, 1996 and November 30, 1995, respectively.
During the period ending May 31, 1996, Norton sold substantially all
of its interest in the joint venture to a corporation in which the two
directors of DSI, the corporation owned by a director of DSI and the officer
of Norton previously mentioned, are stockholders. The sales price of the
interest sold was $200,000 and Norton realized a gain on the sale of the
interest of approximately $96,000. The corporation's pro rata share of the
costs from the date of sale to August 31, 1996 were approximately $4,000 of
which approximately $1,400 was outstanding at August 31, 1996.
6. PURCHASE OF TREASURY STOCK
On June 6, 1996, DSI effected the closing of a stock purchase and
settlement agreement dated as of May 30, 1996, by and between two directors
of DSI and a corporation owned by these two directors, DSI, the MRI segment
and the Drilling segment.
Pursuant to or in accordance with the agreement, effective upon the
closing, DSI purchased 1,083,096 shares of common stock, par value $0.01 per
share, of DSI from the corporation owned by the two directors of DSI for
approximately $87,000. The two directors resigned from the board of
directors of DSI and from all offices held by them with DSI and with any of
the DSI affiliates. In addition a third director resigned from the board of
directors of DSI. As a part of the agreement, DSI also delivered $30,000 to
be used to assist in the resolution of certain pending tax claims against
the Nursery Segment, and such to former directors.
<PAGE>
Item 2. Managements Discussion and Analysis of Financial Condition and
Results of Operations
Liquidity and Capital Resources
As of August 31, 1996, DSI had a working capital deficiency of
approximately $1,995,000 and cash and cash equivalents of approximately
$419,000 as compared to a working capital deficiency of approximately
$7,040,000 and cash and cash equivalents of approximately $283,000 at
November 30, 1995. For the nine months ended August 31, 1996, DSI
provided approximately $ 684,000 from continuing operations and provided
approximately $215,000 from its financing activities. For the nine months
ended August 31, 1995, DSI used approximately $442,000 in continuing
operations and provided approximately $1,238,000 from its financing
activities. The increase in the funds provided by operations was
attributable to the increase in net income, collections of insurance
proceeds on two claims, utilization of prepaid expenses and a lesser
reduction in accounts payable. Conversely, cash funds were used in
operations through an increase in accounts receivable.
Significant expenditures of DSI primarily consist of the Drilling
Segment's continual acquisition of replacement drilling equipment, such
as drill collars, drill pipe, engines and transportation equipment to
adequately maintain the operating status of the drilling fleet. Such
expenditures for the nine months ended August 31, 1996 and 1995
approximate $963,000, and $776,000, respectively. Capital expenditures
increased in the current nine month period as compared to the nine month
period in the prior year due to an increase in the purchase of drill pipe
and collars used on the drilling rigs. The Drilling Segment anticipates
capital expenditures of approximately $1,500,000 for fiscal 1996 to be
funded from new financing received in August 1996, cash flows from
operations and proceeds from sales of assets. Due to numerous
uncertainties regarding the availability, price and delivery of certain
drilling equipment, the Registrant's anticipated level of capital
expenditures may fluctuate commensurate with the volatility of the
industry.
Management believes that cash flows from operations and borrowings
should be sufficient to fund operations and adequately service the
Registrant's debt for the next twelve months. However, the ability of the
Registrant to perform under the existing terms of its debt agreements and
adequately extinguish certain other liabilities associated with its
discontinued segments is contingent upon the Registrant's ability to
successfully negotiate with its creditors (primarily creditors of the MRI
and Nursery Segments). Furthermore, the inherent macroeconomic risks
associated with the oil and gas industry, such as the volatility of oil
and gas prices, could adversely affect the Registrant's operations.
Results of Continuing Operations
Comparison of the nine months ended August 31, 1996 and 1995
For the nine months ended August 31, 1996 contract drilling revenues
were approximately $18,536,000 as compared to $15,207,000 for the nine
months ended August 31, 1995, an increase of $3,329,000 or 21.9%. Average
rig utilization was 71.2% in the nine months ended August 31, 1996
compared to 59.0% in the nine months ended August 31, 1995. The increase
in drilling revenues was due to an increase in drilling utilization and
the total number of wells drilled. In the nine months ended August 31,
1996 and 1995, 216 and 144 wells were drilled, respectively.
<PAGE>
Direct job and rig costs for the nine months ended August 31, 1996
were approximately $16,242,000 or 87.6% of contract drilling revenues as
compared to $13,520,000 or 88.9% of contract drilling revenues for the
nine months ended August 31, 1995.
General and administrative expenses were approximately $806,000
for the nine months ended August 31, 1996 as compared to $612,000 for the
nine months ended August 31, 1995. The increase in general and
administrative expenses was due to the hiring of an additional sales
representative, increases in other salaries as provided for in
employment contracts relative to the drilling segment and an increase in
professional fees.
Interest expense was approximately $275,000 in both nine month
periods ended August 31, 1996 and 1995.
In the nine months ended August 31, 1996, income before income taxes
and discontinued operations was approximately $410,000 as compared to a
loss of approximately $113,000 in the nine months ended August 31, 1995.
The increase in net income was due mainly to the increase in drilling
revenues and rig utilization.
Comparison of the three months ended August 31, 1996 and 1995
For the three months ended August 31, 1996 contract drilling revenues
were approximately $7,294,000 as compared to $5,675,000 for the three months
ended August 31, 1995, an increase of $1,619,000 or 28.9%. Average rig
utilization was 87.1% in the three months ended August 31, 1996 compared to
61.4% in the three months ended August 31, 1995. The increase in drilling
revenues was due to an increase in rig utilization and the number of wells
drilled. In the three months ended August 31, 1996 and 1995, the number of
wells drilled was 88 and 48, respectively.
Direct job and rig costs for the three months ended August 31, 1996 were
approximately $6,469,000 or 88.7% of contract drilling revenues as compared
to $4,872,000 or 85.9% of contract drilling revenues for the three months
ended August 31, 1995. Drilling costs as a percent of revenues increased due
to costs overruns on a job drilled on a footage basis in the current three
month period.
General and administrative expenses were approximately $259,000 for the
three months ended August 31, 1996 as compared to $221,000 for the three
months ended August 31, 1995. The increase in general and administrative
expenses was due to the hiring of an additional sales representative,
increases in other salaries as provided for in employment contracts relative
to the drilling segment and an increase in professional fees.
Interest expense was approximately $80,000 in the three month period
ended August 31, 1996 compared to $109,000 for the three months ended August
31, 1995, a decrease of $29,000. The decrease is attributable to a reduction
in interest rates and the payoff of some debt.
In the three months ended August 31, 1996, income before income taxes
and discontinued operations was approximately $174,000 as compared to $154,000
in the three months ended August 31, 1995. The increase in drilling revenues
was offset by cost overruns on a footage job, therefore, net income did not
change significantly.
<PAGE>
PART II-OTHER INFORMATION
Item 6. Exhibits and Reports on Form 8-K
(a) Exhibits
27. Financial Data Schedule
(b) Reports on Form 8-K
1. Closing of Stock Purchase and Settlement Agreement dated
June 6, 1996.
2. Closing of Stock Purchase Agreement dated July 22, 1996
3. Execution of a Security Agreement and a Guaranty Agreement
dated August 7, 1996. Financial statements included were a
Consolidated Balance Sheet as of July 31, 1996 and a
Consolidated Statement of Operations for the eight months
ended July 31, 1996.
<PAGE>
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the
Registrant has duly caused this report to be signed on its behalf by the
undersigned, thereunto duly authorized.
DSI INDUSTRIES, INC.
Dated: October 14, 1996 By:/S/ Sherman H. Norton, Jr.
Sherman H. Norton, Jr.
Chairman, Chief Executive Officer and President
Dated: October 14, 1996 By:/s/ David W. Ridley
David Ridley, Chief Financial Officer
(Principal Financial and Accounting Officer)
<PAGE>
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
This schedule contains summary financial information extracted from Form 10-Q
for the quarterly period ended August 31, 1996 (Balance Sheet and Statement of
Operations) and is qualified in its entirety by reference to such Form 10-Q.
</LEGEND>
<S> <C>
<PERIOD-TYPE> 9-MOS
<FISCAL-YEAR-END> NOV-30-1995
<PERIOD-END> AUG-31-1996
<CASH> 419,388
<SECURITIES> 4,607
<RECEIVABLES> 2,967,800
<ALLOWANCES> 90,000
<INVENTORY> 0
<CURRENT-ASSETS> 4,986,876
<PP&E> 12,659,892
<DEPRECIATION> 4,957,276
<TOTAL-ASSETS> 14,254,625
<CURRENT-LIABILITIES> 6,981,519
<BONDS> 0
0
0
<COMMON> 236,934
<OTHER-SE> 3,514,233
<TOTAL-LIABILITY-AND-EQUITY> 3,751,167
<SALES> 0
<TOTAL-REVENUES> 18,585,167
<CGS> 0
<TOTAL-COSTS> 16,241,816
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 275,438
<INCOME-PRETAX> 410,114
<INCOME-TAX> 0
<INCOME-CONTINUING> 410,114
<DISCONTINUED> 2,115,007
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 2,525,121
<EPS-PRIMARY> 0.11
<EPS-DILUTED> 0.11
</TABLE>
