UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
Form 10-Q/A
(Mark One)
QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15 (d)
(x) OF THE SECURITIES EXCHANGE ACT OF 1934
For the Quarterly Period Ended August 31, 1995
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 other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
5211 Brownfield Highway, Suite 230, Lubbock, TX 79407
(Address of principal executive offices) (zip code)
Registrant's telephone number, including area code (806) 785-8400
(Former name, former address and former fiscal year, if changed
since last report)
Indicate by check mark whether the registrant (1) has filed
all reports required to be filed by Section 13 or 15(d) of the
Securities 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 No X
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 12, 1995
Common stock, par value 23,693,365 shares
$.01 per share
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DSI INDUSTRIES, INC. AND SUBSIDIARIES
August 31, 1995
(Unaudited)
I N D E X
Page No.
PART I - Financial Information:
Item 1. Financial Statements:
Condensed Consolidated Balance Sheets
as at August 31, 1995 and November 30, 1994. . . . . . . . .3-4
Condensed Consolidated Statements of Operations
For the Nine and Three Months Ended August 31, 1995 and 1994 . 5
Condensed Consolidated Statements of Stockholders' Equity
For the Nine and Three Months Ended August 31, 1995 and 1994. 6
Condensed Consolidated Statements of Cash Flows
For the Nine and Three Months Ended August 31, 1995 and 1994. .7
Notes to Condensed Consolidated Financial Statements. . . . 9-12
Item 2. Management's Discussion and Analysis of
Financial Condition and Results of Operations . .13-16
PART II - Other Information. . . . . . . . . . . . . . . . .16-17
Signatures. . . . . . . . . . . . . . . . . . . . . . . . . . 18
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<PAGE>
DSI INDUSTRIES, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED BALANCE SHEETS
(Unaudited)
A S S E T S
August 31, November 30,
1995 1994
Current Assets:
Cash and cash equivalents $ 49,000 $ 76,000
Accounts receivable - trade, less
allowance for doubtful accounts
of $6,000 2,669,000 2,945,000
Litigation receivable - 234,000
Costs and estimated earnings in excess
of billings on uncompleted contracts 733,000 190,000
Prepaid and deferred income tax 7,000 13,000
Prepaid expenses & other current assets 672,000 265,000
Total current assets 4,130,000 3,723,000
Property, plant and equipment - at cost,
less accumulated depreciation and
amortization:
Property, plant and equipment 7,102,000 7,283,000
Equipment held under capital leases 318,000 171,000
Total property, plant and equipment 7,420,000 7,454,000
Other assets:
Goodwill, net of accumulated amortization 1,531,000 1,603,000
Security deposits 191,000 226,000
Sundry and other assets - 1,000
Total other assets 1,722,000 1,830,000
Total Assets $13,272,000 $13,007,000
See notes to condensed consolidated financial statements.
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DSI INDUSTRIES, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED BALANCE SHEETS
(Unaudited)
LIABILITIES AND STOCKHOLDERS' EQUITY
August 31, November 30,
1995 1994
Current Liabilities:
Notes payable - bank and others $ 750,000 $ 619,000
Current maturities of long-term
obligations:
Notes and mortgages 2,031,000 173,000
Capital lease obligations 104,000 101,000
Accounts payable 3,535,000 4,122,000
Accrued expenses and other current
liabilities 756,000 874,000
Billings in excess of costs on
uncompleted contracts -0- 19,000
Net liabilities of discontinued
operations 1,789,000 1,940,000
Total current liabilities 8,965,000 7,848,000
Long-term obligations:
Notes and mortgages 253,000 1,060,000
Capital lease obligations 80,000 27,000
Affiliates 500,000 500,000
Total long-term obligations 833,000 1,587,000
Commitments and contingencies - -
Stockholders' equity:
Common stock - $.01 par value
Authorized - 100,000,000 shares
Issued and outstanding-
22,610,269 shares 226,000 226,000
Additional paid-in capital 9,595,000 9,595,000
Retained earnings (6,347,000) (6,249,000)
Total stockholders' equity 3,474,000 3,572,000
Total Liabilities and Stockholders'
Equity $13,272,000 $13,007,000
See notes to condensed consolidated financial statements.
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DSI INDUSTRIES, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
(Unaudited)
For the Nine Months For the Three Months
Ended August 31, Ended August 31,
1995 1994 1995 1994
Continuing operations:
Revenues $15,324,000 $14,646,000 $ 5,792,000 $ 5,678,000
Direct and indirect
job and rig costs 13,669,000 13,070,000 5,015,000 5,115,000
Selling, general and
administrative
expenses 612,000 539,000 221,000 82,000
Depreciation and
amortization 810,000 848,000 270,000 283,000
Amortization of Goodwill 71,000 71,000 23,000 24,000
Interest expense 275,000 196,000 109,000 1,000
Total costs and
expenses 15,437,000 14,724,000 5,638,000 5,505,000
Income (loss) from
continuing operations
before provision for
income taxes ( 113,000) ( 78,000) 154,000 173,000
Provision (credit) for
income taxes ( 15,000) ( 6,000) 48,000 80,000
Income (loss) from
continuing operations ( 98,000) ( 72,000) 106,000 93,000
Discontinued operations:
(Loss) from discontinued
operations, net of
income tax - ( 2,410,000) - ( 2,745,000)
Net income (loss) $( 98,000) $( 2,482,000) $ 106,000 $( 2,652,000)
Per share data:
Income (Loss) from
continuing
operations $(0.00) $(0.00) $ 0.00 $0.00
(Loss) from discontinued
operations 0.00 (0.11) 0.00 (0.12)
Net income (loss) $(0.00) $ (0.11) $ 0.00 $ (0.12)
Weighted average number
of common shares
outstanding: 22,610,269 22,514,257 22,610,269 22,514,257
See notes to condensed consolidated financial statements.
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<PAGE>
DSI INDUSTRIES, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY
FOR THE NINE MONTHS ENDED AUGUST 31, 1995 AND 1994
(Unaudited)
Paid-in
Capital in Retained
Common Stock Excess of Earnings Stockholders'
Shares Par Value Par Value (Deficit) Equity
Balance at
November 30, 1994 22,610,269 $226,000 $9,595,000 $(6,249,000) $ 3,572,000
Net (loss) for the
nine months ended
August 31, 1995 - - - ( 98,000) ( 98,000)
Balance at
August 31, 1995 22,610,269 $226,000 $9,595,000 $(6,347,000) $ 3,474,000
Balance at
November 30, 1993 22,418,250 $224,000 $9,412,000 $ 251,000 $ 9,887,000
Exercise of stock
options 27,000 - 6,000 - 6,000
Shares issued to purchase
minority interest in
subsidiary 165,019 2,000 176,000 - 178,000
Net (loss) for the
nine months ended
August 31, 1994 - - - (2,482,000) (2,482,000)
Balance at
August 31, 1994 22,610,269 $226,000 $9,594,000 $(2,231,000) $7,589,000
See notes to condensed consolidated financial statements.
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DSI INDUSTRIES, INC.
AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(Unaudited)
For the Nine Months For the Three Months
Ended August 31, Ended August 31,
1995 1994 1995 1994
Cash flows from operating activities
Net income (loss) from
continuing operations $( 98,000) $( 72,000) $ 106,000 $ 93,000
Adjustments to reconcile
net income to net cash
provided by operating
activities:
Depreciation and
amortization 881,000 919,000 293,000 306,000
Increase (decrease) in
cash flows as a result
of changes in asset
and liability account
balances:
Accounts receivable 276,000 1,921,000 ( 108,000) ( 176,000)
Litigation receivable 234,000 - - -
Costs & estimated earnings
in excess of billings
on uncompleted
contracts ( 562,000) ( 330,000) ( 387,000) ( 508,000)
Prepaid expenses,
income taxes and
other current assets ( 401,000) 48,000 ( 584,000) ( 26,000)
Refund on security
deposits 36,000 36,000 -0- -0-
Accounts payable ( 587,000) (1,220,000) 517,000 916,000
Accrued expenses and
other current
liabilities ( 118,000) ( 242,000) ( 51,000) ( 350,000)
Total adjustments ( 241,000) 1,132,000 ( 320,000) 162,000
Net cash provided by
(used in) operating
activities ( 339,000) 1,060,000 ( 214,000) 255,000
Cash flows from investing activities:
Investment in wells ( 136,000) - ( 13,000) -
Acquisition of property,
plant and equipment ( 640,000) ( 349,000) ( 150,000) ( 178,000)
Net cash (used in)
investing activities ( 776,000) ( 349,000) ( 163,000) ( 178,000)
(Continued)
See notes to condensed consolidated financial statements.
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DSI INDUSTRIES, INC.
AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(Unaudited)
(Continued)
For the Nine Months For the Three Months
Ended August 31, Ended August 31,
1995 1994 1995 1994
Cash flows from financing activities:
Proceeds from notes and
capital lease
obligations 1,757,000 323,000 160,000 267,000
Repayments of notes and
capital lease
obligations ( 519,000) ( 322,000) ( 208,000) ( 160,000)
Net cash provided by
(used in) financing
activities 1,238,000 1,000 ( 48,000) ( 107,000)
Cash flows provided by
(used in) discontinued
operations, net ( 150,000) ( 646,000) 30,000 253,000
Net increase (decrease)
in cash ( 27,000) 66,000 (395,000) ( 69,000)
Cash at beginning of period 76,000 68,000 444,000 202,000
Cash at end of period $ 49,000 $ 134,000 $ 49,000 $ 133,000
Supplemental Disclosure of Cash Flows Information
Cash paid during the periods
Interest 259,000 193,000 101,000 65,000
Income taxes 20,000 4,000 2,000 -0-
Equipment acquired
under capital leases 125,000 6,000 -0- -0-
See notes to condensed consolidated financial statements.
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DSI INDUSTRIES, INC. AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
August 31, 1995
(Unaudited)
Note 1 - REALIZATION OF ASSETS - GOING CONCERN
The accompanying consolidated financial statements have been prepared in
conformity with generally accepted accounting principles, which contemplate
continuation of the Company as a going concern. The Company, in particular it's
nursery and magnetic resonance imaging (MRI) segments, have sustained
substantial losses from operations. The Board of Directors on August 18, 1994
discontinued it's MRI segment due to the segment's recurring losses. The Board
discontinued its nursery segment due to the significant losses incurred
commencing in the third quarter of 1994 through April 6, 1995, the date the
Board of Directors voted to discontinue the segment. The accompanying condensed
consolidated financial statements as at and for the nine months ended August 31,
1995 reflect these segments as discontinued operations. The condensed
consolidated statements of operations for the nine months ended August 31, 1995
have been restated to reflect these segments as discontinued operations.
The accompanying condensed consolidated financial statements reflect a
working capital deficiency of $4,835,000 at August 31, 1995 of which $3,046,000
is attributable to DSI Industries, Inc. (DSI) and its remaining operating
subsidiary, Norton Drilling Company (Norton). The estimated liabilities of the
discontinued segments exceed the assets of these segments by $1,789,000. DSI
Industries, Inc. is a holding company and accordingly does not receive any
revenues. All of DSI's costs and expenses have previously been funded by
charging the operating segments management fees. As management fees will be
diminished due to the discontinuance of two segments, DSI will require funding
for its expenses as well as the liabilities of its two discontinued segments
from Norton.
Norton's agreements with its secured creditors prohibit virtually any
loans, dividends, advances, guarantee of indebtedness or payments to DSI or its
subsidiaries. Norton at November 30, 1994 and August 31, 1995 was in violation
of some of the restrictive covenants with these secured creditors. Although the
secured creditors have verbally informed Norton's management that they have
waived compliance with those specific covenants and will forebear from enforcing
any of the remedies they have under the terms of these agreements, the secured
creditors have stated that such waivers and forbearance may not continue.
Management is of the opinion that it's continuing oil and gas contract drilling
subsidiary (Norton) is 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 raise substantial doubt concerning the ability of DSI and its operating
subsidiary (Norton) to realize their assets and pay their liabilities as they
mature in the ordinary course of business. Unless management's current
negotiations with its creditors of the discontinued segments to restructure the
debts are successful, DSI may have to cause these subsidiaries to seek
protection from its creditors in bankruptcy court. 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 from their creditors.
These conditions, among others, raise substantial doubt about the
Company's ability to continue as a going concern. The accompanying condensed
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 the Company be unable to
continue as a going concern.
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NOTE 2 - PREPARATION OF CONDENSED CONSOLIDATED FINANCIAL STATEMENTS.
In the opinion of the Company, the accompanying unaudited condensed
consolidated balance sheet as at August 31, 1995 and the unaudited condensed
consolidated statements of operations, stockholders' equity, and cash flows for
the three and nine months ended August 31, 1995 and 1994, include all
adjustments (consisting only of normal recurring adjustments) necessary to
present fairly the financial position as at August 31, 1995, the results of
operations for the three and nine months ended August 31, 1995 and 1994, changes
in stockholders' equity for the nine months ended August 31, 1995 and 1994, and
cash flows for the three and nine months ended August 31, 1995 and 1994. The
accompanying condensed consolidated balance sheet as at November 30, 1994 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.
NOTE 3 - NET INCOME PER COMMON SHARE
The computation of income (loss) per common and common equivalent share
for the three and nine months ended August 31, 1995 and 1994 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, 1995 and 1994, were not dilutive.
NOTE 4 - REFERENCE TO THE NOVEMBER 30, 1994 AUDITED FINANCIAL STATEMENTS
See Company's notes to consolidated financial statements included in the
annual report for disclosures of significant accounting policies and other
pertinent disclosures which have not materially changed.
NOTE 5 - DISCONTINUED OPERATIONS
On August 18, 1994, the Board of Directors of DSI determined to
discontinue its MRI segment in light of its recurring losses. The financial
statements for 1994 reflect a charge to operations of $750,000 for the estimated
loss to be incurred in disposing of this segment. On April 6, 1995, the Board
of Directors of DSI discontinued its nursery segment due to its significant
losses incurred during the third quarter of 1994 through April 6, 1995. The
accompanying financial statements for 1994 retroactively reflect the Board'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. The
results of the MRI and Nursery segments for the three and nine months ended
August 31 1994 have been restated to present these segments as discontinued
operations and are summarized as follows:
Nine Months Three Months
Ended 8-31-94 Ended 8-31-94
Revenues $9,620,000 $2,116,000
Costs and expenses 13,733,000 7,015,000
(Loss) before income taxes (4,113,000) (4,899,000)
(Credit) for income taxes (1,703,000) (2,154,000)
$ (2,410,000) $ (2,745,000)
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NOTE 5 - DISCONTINUED OPERATIONS (CONTINUED)
The net liabilities of the discontinued operations at August 31, 1995 are
as follows:
Current assets $ 1,156,000
Property assets and capital leases 6,853,000
Other assets 107,000
$ 8,116,000
Secured indebtedness $ 4,495,000
Cash overdraft -0-
Accounts payable and other liabilities 3,092,000
Estimated loss on disposal of segment 2,318,000
9,905,000
Net liabilities of discontinued segments $ 1,789,000
In August, 1995 the Nursery segment and the registrant 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 $5,203,000 in exchange for extinguishment of $1,326,000 in secured debt
plus assumption by the purchaser of a $330,000 note payable and the purchaser's
guarantee to indemnify the segment and the registrant for its liabilities to
certain other creditors in an amount not to exceed $404,000. The bank has
released the registrant 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 $2,104,000 which was
collaterlized by the segment's real property which had a basis of $1,465,000.
The segment will remain liable for this indebtedness until the purchaser has
repaid the obligation and interest theron in full. The registrant will continue
to guarantee this indebtedness until it is repaid in full.
The remaining net liabilities of both the discontinued magnetic resonance
imaging segment and the nursery segment at August 31, 1995 (retroactively
reflecting the September 6, 1995 conveyance described above) are as follows:
Current Assets $ 46,000
Property Assets 505,000
Other Assets 330,000
881,000
Secured Debt 672,000
Accounts Payable and Other Current Liabilities 2,952,000
3,624,000
Net liabilities of Discontinued Segments $2,743,000
NOTE 6 - RELATED PARTY TRANSACTIONS
(i) Continuing Operations:
As part of the May 1993 debt restructuring of Norton Drilling Company, The
Chairman of the Board of Directors and another officer of Norton lent this
segment $410,000 and $90,000, respectively. These notes are convertible into the
Company's common stock at $0.44 per share for an aggregate of 1,136,364 shares
through May 13, 1998 which is when the notes are payable. Interest charged to
operations during the nine months ended August 31, 1995 and 1994 amounted to
$48,000 and $35,000, respectively. On December 6, 1993 an entity in which these
two officers have ownership interest loaned Norton $62,000 which was repaid on
December 28, 1993 with interest of $238.
During the nine months ended August 31, 1995 three officers and a
corporation owned by an officer of the drilling segment, along with the drilling
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segment, participated in a joint venture in three wells. The joint venture
contracted with the company to drill and equip the three wells and incurred
costs totalling $701,000 through August 31, 1995. Each joint venture participant
was liable for their pro rata share of the costs incurred. Norton Drilling
Company's share was $195,000. The aggregate amount of costs to be borne by the
four related parties mentioned above was $78,000 of which $26,000 was
outstanding at August 31, 1995.
(ii) Discontinued Operations:
(a) Medical Segment:
This segment's revenues were derived from one customer, one of whose
principals is a stockholder and former director of DSI. Revenue from this
affiliate for the nine months ended August 31, 1995 and August 31, 1994 was
$111,000 and $382,000, respectively. At August 31, 1995 and 1994 there were no
accounts receivable from this affiliate as all assets had been confiscated by
the landlord as payment for rent in arrerage.
(b) Nursery Segment:
During the nine months ended August 31, 1994, a corporation owned by an
officer of this segment constructed shadehouses, rented construction equipment,
and performed other property additions for this segment in the amount of
$257,000 and also constructed shadehouses in the amount of $400,000 in two sale
and leaseback transactions. At August 31, 1995 the corporation was owed $16,000
by this segment. Two Directors of this segment own a company which sold $945,000
of plants to the segment in the first nine months of 1994 and rented equipment
to this segment for $28,000. This segment sold $385,000 of raw materials during
the period to this related party. At August 31, 1995 this company was owed
$135,000 by this segment which is included in net liabilities of discontinued
segments on the balance sheet. This corporation on June 8, 1995 accepted an
offer to convert the indebtedness into common stock of DSI. Upon the conversion,
which took place in October 1995, such corporation received 1,083,096 shares of
common stock of DSI (based on a conversion price of $0.125 per share) and all
such indebtedness of this Segment to such corporation was extinguished. The
conversion price was determined by a committee of independent directors of DSI
based upon, among other things, the price of the Common Stock on October 12,
1994, the date the offer of conversion was tendered by DSI to such corporation.
Another Director, who works for another corporation, lent the segment
$50,000 on February 25,1994 of which $25,000 is still outstanding at August 31,
1995.
A partnership in which a Director is a general partner repaid a portion
of a payable to this segment in December 1993. During 1994, this note receivable
was transferred to DSI as payment of a dividend. This note receivable was used
by DSI as a payment for a consulting agreement obligation to this partnership
in the same amount. During the quarter ended February 28, 1995, two entities
controlled by this Director of DSI advanced $9,819 to Sunny's which had been
completely paid off by August 31, 1995.
During the nine months ended August 31, 1995 and officer and director of
DSI lent to this segment $2,000. $1,700 of the balance was repaid during this
current quarter.
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ITEM 2 - MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS.
Recent Developments
As described in Note 5, the nursery segment was discontinued in April 1995 and
the MRI segment in August 1994.
On August 31, 1995, the three subsidiaries of the registrant's discontinued
Nursery segment, Sunshine Botanicals, Inc., Sunny's Plants, Inc., and
Interiorplant Supply, Inc., and, together with Sunshine and Sunny's, the
("Nursery Corporations"), entered into an agreement, dated as of August 24,
1995, relating to the purchase of loan documents and collateral with NationsBank
of Florida, N.A. (the "Bank") and Tuttle's Design-Build, Inc. ("Tuttle")
In accordance with the agreement, on September 6, 1995, the Nursery Corporations
surrendered to the Bank (a) certain real property and improvements as to which
the bank had mortgage liens and (b) certain personal property encumbered by the
Bank's first priority security interest. Such real and personal property
constituted substantially all of the property of the Nursery
Corporations. Also in accordance with the agreement, the Bank sold its lien
position with respect to such property and the business conducted by the Nursery
Corporations to Tuttle Design-Build, Inc.
On September 6, 1995, Tuttle foreclosed on such lien position and all of the
obligations of the Nursery Corporations under such loan documents, including the
obligation to repay an aggregate of $1,326,381.84 then due, were terminated.
In consideration of the registrant authorizing the Nursery Subsidiaries to enter
into the agreement, the registrant received the following:
(a) A release from its guaranty of the obligations of the Nursery
Corporations to the Bank;
(b) The agreement by Tuttle to (i) indemnify the registrant for any
liability related to the registrant's guaranty of the loan obligations in
the amount of $2.3 million owed by the Nursery Corporations to Farm Credit
of South Florida, ACA ("Farm Credit") and (ii) upon the earlier of five
years or the consummation of an initial public offering by Tuttle, cause
Farm Credit to release the registrant from its guaranty of the loan
obligation of the Nursery Corporations.
(c) The agreement by Tuttle: (i) to assume the obligations of the
registrant under a note issued by the registrant having a principal amount
of $300,000; (ii) to pay up to $138,000 in connection with any settlement
arranged by the registrant as guarantor of certain equipment lease
obligations of the Nursery Corporations; (iii) to use its reasonable best
efforts to obtain the release of the registrant as guarantor of certain
leases of the Nursery Corporations, including the payment of up to
$126,000 in connection therewith; and (iv) to indemnify the registrant for
any liability incurred by it as guarantor of certain lease obligations of
the Nursery Corporations.
(d) The agreement by Tuttle to indemnify the registrant against liability
related to, and to pay, up to $140,000 of the trust portion of Sunny's
payroll taxes which are due and owing.
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Drilling Segment
The segment's results of operations are tabulated as follows:
For the Quarter Ended $ Change % Change
8-31-95 8-31-94
Revenues $ 5,792,000 $ 5,678,000 114,000 2.0%
Direct job & rig 5,015,000 5,115,000 (100,000) (2.0%)
Gen. & Admin. 221,000 82,000 139,000 169.5%
Depreciation 270,000 283,000 (13,000) (4.6%)
Amortization 23,000 24,000 1,000 4.2%
Interest (Net) 109,000 1,000 108,000 108.0%
Pre-tax Income 154,000 173,000 (19,000) (11.0%)
The Drilling Segment's revenues for the quarter ended August 31, 1995 were
$5,792,000, an increase of $114,000 or 2.0%, compared to revenues of $5,678,000
for the same quarter last year. An increase in the number of rigs operating was
the reason for the increase in revenues for the quarter.
The Drilling Segment's direct job and rig expenses for the quarter ended August
31, 1995 were $5,015,000 (86.6% of revenues), a decrease of $100,000 or 2.0%,
compared to $5,115,000 (90.1% of revenues) for the same quarter last year.
General and administration expenses for the quarter ended August 31, 1995 were
$221,000 (3.8% of revenues), an increase of $139,000 or 169.5%, compared to
$82,000 (1.4% of revenues) for the same quarter last year. The increase is due
to an increase in allocation of costs incurred by the Parent corporation which
in prior years were allocated among all three subsidiaries. Since the drilling
Segment is now the only operating subsidiary, all the Parent's expenses are
now allocated to it. The increase was also due to increased salaries for certain
officers of the segment which are set by employment contracts with such
officers. Furthermore, in the current quarter the segment paid for some outside
consulting work to assist the segment in controlling costs and providing for
more efficiency in its operations.
Depreciation for the quarter ended August 31, 1995 was $270,000 (4.7% of
revenues), a decrease of $13,000 or 4.6%, compared to $283,000 (5.0% of
revenues) for the same period last year.
Amortization of goodwill for the quarter ended August 31 1995 remained constant.
Net interest expenses for the quarter ended August 31, 1995 were $109,000 (2.0%
of revenues) an increase of $108,000 or 108.0% compared to $1,000 (0.0% of
revenues) for the same quarter last year. The increase in interest expenses for
the quarter was due to additional borrowings in this fiscal year and an increase
in interest rates. Prior year interest expense was abnormally low due to the
write off of accrued interest of the Parent for the settlement of a liability.
Net income before taxes for the quarter ended August 31, 1995 was $154,000 (2.7%
of revenues), a decrease of $19,000 or 11.0%, compared to income of $173,000
(3.0% of revenues) for the same quarter last year.
For the Nine Months Ended $ Change % Change
8-31-95 8-31-94
Revenues $ 15,324,000 $14,646,000 678,000 4.6%
Direct job & rig 13,669,000 13,070,000 599,000 4.6%
Gen. & Admin. 612,000 539,000 73,000 13.5%
Depreciation 810,000 848,000 (38,000) (4.5%)
Amortization 71,000 71,000 -0- -0-
Interest (Net) 275,000 196,000 79,000 40.3%
Pre-tax (Loss) (113,000) (78,000) (35,000) (44.9%)
14 of 18
The Drilling Segment's revenues for the nine months ended August 31, 1995 were
$15,324,000, an increase of $678,000 or 4.6%, compared to revenues of
$14,646,000 for the same nine months last year. An increase in rig activity in
the second quarter of this year was the main reason for the increase in
revenues.
The Drilling Segment's direct job and rig expenses for the nine months ended
August 31, 1995 were $13,669,000 (89.2% of revenues), an increase of $599,000
or 4.6%, compared to $13,070,000 (89.2% of revenues) for the same period last
year. The increase in direct job and rig expenses was due to the increase in rig
activity.
General and administration expenses for the nine months ended August 31, 1995
were $612,000 (4.0% of revenues), an increase of $73,000 or 13.5%, compared to
$539,000 (3.7% of revenues) for the same period last year. The increase is due
to the increase in allocation of costs incurred by the Parent corporation which
in prior years were allocated among all three subsidiaries. Since the drilling
Segment is now the only operating subsidiary, all the Parent's expenses are now
allocated to it.
Depreciation for the nine months ended August 31, 1995 was $810,000 (5.3% of
revenues), a decrease of $38,000 or 4.5%, compared to $848,000 (5.8% of
revenues) for the same period last year.
Amortization of goodwill for the nine months ended August 31, 1995 and 1994
remained constant at $71,000.
Net interest expenses for the nine months ended August 31, 1995 were $275,000
(1.8% of revenues) an increase of $79,000 or 40.3% compared to $196,000 (1.3%
of revenues) for the same period last year. The increase in interest expenses
was due to additional borrowing of approximately $1,238,000 in this fiscal year
and an increase in interest rates.
Net (loss) before taxes for the nine months ended August 31, 1995 was $(113,000)
(0.1% of revenues), an increase in loss of $(35,000) or 44.9%, compared to a
loss of $(78,000) (0.1% of revenues) for the same period last year.
Discontinued Operations
Comparisons of the quarter ended August 31, 1995 and 1994 for the magnetic
imaging segment is deemed not meaningful as this segment has ceased all
operations. The Board of Directors of DSI determined to discontinue the nursery
segment in April 1995, therefore, comparison of the quarters ended August 31,
1995 and 1994 for this segment are deemed not meaningful. During the current
quarter this segment was winding down its operations and the segment was unable
to replace inventory due to its precarious financial condition. See also the
discussion in note 5.
Liquidity and Financial Resources
As discussed in Note 1, the Company has a working capital deficiency of
$4,835,000 at August 31, 1995 and may have to seek bankruptcy protection from
the creditors of its discontinued segments and/or its remaining operating
segment, Norton Drilling Company, and/or all of the entities. Management is of
the opinion that Norton's agreement with its lenders are adequate to finance its
operating requirements for the next twelve months (including the corporate
expenses of DSI), unless Norton is required to fund the liabilities of the
discontinued segments. Management is of the opinion that it could obtain a
severely limited amount of credit to finance a small amount of the discontinued
segment's obligations but not all of these obligations.
15 of 18
The future cash requirements of the continuing operations will be
generated from it's operations and present bank lines of credit. The Drilling
Segment has a short-term line of credit which is currently $750,000 and was
renewed July 1, 1995 for an additional nine months. The Drilling Segment also
has some term loans which are payable monthly with final payments of $ 1,619,000
due on April 1, 1996. The bank has an option to terminate these lines at any
time and demand payment in full. Informal discussions between management and
its lenders have been held and management believes its lenders will continue
their lines of credit providing that Norton is not adversely affected by the
disposal of the net liability of the nursery and magnetic resonance imaging
segments.
PART II
OTHER INFORMATION
Item 1. Legal Proceedings
The MRI Segment (Lobell) leased its real property under an operating
lease. DSI and Lobell were previously engaged in litigation with the landlord.
The matter was adjudicated in 1994 and at November 30, 1994 the landlord is owed
$68,600 in net arrearage and settlement costs. In December 1994, Lobell again
ceased making its lease payments and the landlord in March 1995 evicted Lobell
from the premises. The landlord has entered a judgment against DSI in the amount
of $115,000 for unpaid rent. The landlord also placed a lien on all assets of
Lobell and confiscated approximately $50,000 of Lobell's assets as partial
payment for rent arrearage. Management believes it will be able to negotiate
an agreement with landlord in full settlement for all amounts owed to the
landlord from the proceeds of the disposition of the Segment's assets. Should
the proceeds from such disposal prove not to be sufficient for the landlord,
then DSI will most likely have Lobell seek protection from its creditors under
the bankruptcy laws of the United States.
The MRI Segment leased its magnetic resonance imaging machine under a
capital lease. At November 30, 1994, the present value of the future minimum
lease proceeds aggregated $655,209. Management believes that its estimate of
future losses to be incurred in disposing of this segment of $750,000 is
adequate to provide any shortfall in the sales price and the lease payments. The
lessor of the magnetic resonance imaging machine has obtained a judgment by
confession of $875,000.
The Nursery Segment leases equipment and real property under non
cancellable operating and capital leases. A lessor of a shadehouse under a
capital lease has initiated litigation against Sunny's for full payment of the
lease rental as the segment was in arrears in payment. DSI is a guarantor of
such lease obligation.
The corporations comprising Nursery Segment are defendants in numerous
actions seeking payment of past liabilities owed to suppliers, landlords,
lessors and other creditors of the segment. Management of the Segment has been
able to arrange payment terms with some of the litigants or has been successful
in having the litigants stay their actions until the segment could be sold or
otherwise disposed. See Recent Developments in Item 2-Managements Discussion and
Analysis of Financial Condition and Results of Operations. Additionally, any
three of the creditors who have already obtained judgments against this
Segment's subsidiaries might join together and force Sunny's and its
subsidiaries into involuntary bankruptcy.
Amoco Production Company commenced a legal action against Norton Drilling
Company in connection with services rendered in 1993 and 1994. The action was
brought in District Court in Hockley County, Texas on April 6, 1995 and seeks
damages in the amount of $284,000. Norton Drilling Company has filed a
countersuit and the management of this segment believes that the allegations are
without merit.
16 of 18
Item 2. Changes in Securities
Not applicable.
Item 3. Defaults Upon Senior Securities
Not applicable.
Item 4. Submission of Matters to Vote of Security Holders
Not applicable.
Item 5. Other Information
Not applicable.
Item 6. Exhibits and Reports
(a) Exhibits:
27. Financial data schedule.
17 of 18<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.
Date: November 2, 1995 /s/ Sherman H. Norton, Jr.
Sherman H. Norton, Jr.
Chairman and Chief Executive Officer
Date: November 2, 1995 /s/David W. Ridley
David Ridley
Chief Financial Officer
18 of 18
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
This schedule contains summary financial information extracted from Form 10-Q
for the quarterly period ended August 31, 1995 (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-30-1994
<PERIOD-END> AUG-31-1995
<CASH> 49,000
<SECURITIES> 4,600
<RECEIVABLES> 2,675,000
<ALLOWANCES> 6,000
<INVENTORY> 0
<CURRENT-ASSETS> 4,130,000
<PP&E> 11,365,000
<DEPRECIATION> 3,945,000
<TOTAL-ASSETS> 13,272,000
<CURRENT-LIABILITIES> 8,965,000
<BONDS> 0
0
0
<COMMON> 226,000
<OTHER-SE> 3,248,000
<TOTAL-LIABILITY-AND-EQUITY> 3,474,000
<SALES> 0
<TOTAL-REVENUES> 15,324,000
<CGS> 0
<TOTAL-COSTS> 13,669,000
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 275,000
<INCOME-PRETAX> (113,000)
<INCOME-TAX> (15,000)
<INCOME-CONTINUING> (98,000)
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (98,000)
<EPS-PRIMARY> 0.00
<EPS-DILUTED> 0.00
</TABLE>
