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 May 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 July 5, 1996
Common stock, par value $.01 per share 22,610,269 shares
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
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)
May 31, November 30,
1996 1995
Current assets:
Cash and cash equivalents $ 181,132 $ 283,055
Accounts receivable , trade, less allowance
for doubtful accounts of $90,000 3,204,735 2,171,187
Costs and estimated earnings in excess of
billings on uncompleted contracts 484,836 518,529
Insurance proceeds recoverable 21,477 682,661
Prepaid expenses and other current assets 107,672 233,007
Total current assets 3,999,852 3,888,439
Property and equipment, at cost, net of
accumulated depreciation 7,257,946 7,410,612
Goodwill, net of accumulated amortization 1,459,957 1,507,587
Security deposits 163,367 197,745
Other assets - - 78
Total assets $12,881,122 $13,004,461
Current liabilities:
Current maturities of notes payable $ 2,213,350 $ 2,661,391
Accounts payable 3,818,260 3,957,514
Accrued expenses and other current
liabilities 927,088 794,084
Net liabilities of discontinued operations 3,515,040 3,515,040
Total current liabilities 10,473,738 10,928,029
Notes payable, less current maturities 858,907 763,738
Commitments and contingencies - - - -
Stockholder's equity:
Common stock-par value $.01; authorized-
100,000,000 shares, issued and
outstanding-23,693,365 shares 236,934 236,934
Additional paid-in capital 9,718,928 9,718,928
Accumulated deficit (8,407,385) (8,643,168)
Total stockholders' equity 1,548,477 1,312,694
Total liabilities and stockholder's equity $12,881,122 $13,004,461
The accompanying notes are an integral part of these unaudited consolidated
financial statements.
DSI INDUSTRIES, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATIONS
(Unaudited)
For the six months ended For the three months ended
May 31, May 31, May 31, May 31,
1996 1995 1996 1995
Operating revenues:
Contract drilling revenues $11,242,528 $ 9,531,575 $6,376,589 $ 4,852,753
Other 46,734 5,250 22,855 2,129
Total operating revenues 11,289,262 9,536,825 6,399,444 4,854,882
Operating costs and expenses:
Direct drilling costs 9,772,783 8,648,282 5,552,034 4,639,386
General and administrative 547,347 391,080 268,678 195,545
Depreciation, depletion and
amortization 641,502 587,324 320,752 293,662
Other 9,070 25,236 6,931 23,320
Total operating costs and expenses 10,970,702 9,651,922 6,148,395 5,151,913
Operating income (loss) 318,560 ( 115,097) 251,049 ( 297,031)
Other income (expense):
Net gain on sale of assets 112,281 13,784 101,057 11,157
Interest expense ( 195,059) ( 166,219)( 95,955) ( 102,853)
Total other expense, net ( 82,778) ( 152,435) 5,102 ( 91,696)
Income (loss) before provision for
income taxes 235,782 (267,532) 256,151 ( 388,727)
Income tax credit - - ( 62,995) - - ( 75,000)
Net income (loss) $ 235,782 $( 204,537)$ 256,151 $( 313,727)
Per share data:
Net income (loss) $0.01 $(0.01) $0.01 $(0.01)
Weighted average number of
common shares outstanding 23,693,365 22,610,269 22,693,365 22,610,269
The accompanying notes are an integral part of these unaudited
consolidated financial statements.
DSI INDUSTRIES, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY
(Unaudited)
Retained
Additional Earnings\ Total
Common Stock Paid in Accumulated Stockholders'
Shares Par Value Capital Deficit Equity
Balance,
November 30, 1994 22,610,269 $226,103 $9,594,372 $(6,248,784) $3,571,686
Net loss for the six
months ended
May 31, 1995 - - - - - - ( 204,537) ( 204,537)
Balance,
May 31, 1995 22,610,269 $226,103 $9,594,372 $(6,453,321) $3,367,149
Balance,
November 30, 1995 22,693,365 $236,934 $9,718,928 $(8,643,168) $1,312,694
Net income for the six
months ended
May 31, 1996 - - - - - - 235,782 235,782
Balance,
May 31, 1996 22,693,365 $236,934 $9,718,928 $(8,407,386) $1,548,476
The accompanying notes are an integral part of these unaudited consolidated
financial statements.
DSI INDUSTRIES, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
(Unaudited)
For the six months ended For the three months ended
May 31, May 31, May 31, May 31,
1996 1995 1996 1995
Cash flows from operating activities:
New income (loss) $ 235,782 $( 204,537)$ 256,151 $( 313,727)
Adjustments to reconcile net
income (loss) to net cash used
in operating activities of
continuing operations:
Depreciation, depletion and
amortization 641,502 587,324 320,752 293,662
Net gain on sale of assets ( 112,281) ( 13,784) ( 101,057) ( 11,157)
Increase (decrease) in cash flows
as a result of changes in operating
asset and liability account balances:
Accounts receivable-trade (1,033,548) 384,044 (1,253,204) ( 163,492)
Insurance proceeds recoverable 661,184 - - - - - -
Litigation proceeds recoverable - - 233,479 - - - -
Net costs and estimated earnings
in excess of billings on uncompleted
contracts 33,693 ( 175,466) ( 172,191) 262,422
Prepaid expenses and other current
assets 125,412 183,425 67,279 107,073
Refund of security deposits 34,378 36,202 34,378 36,202
Accounts payable ( 139,254) (1,103,971) 641,503 139,364
Accrued expenses and other current
liabilities 133,004 ( 66,275) 165,363 56,115
Net cash provided by (used in)
continuing operations 579,872 ( 139,559) ( 41,026) 406,462
Net cash used in discontinued
operations - - ( 180,000) - - ( 72,000)
Net cash provided by (used in)
operating activities 579,872 ( 319,559) ( 41,026) 334,462
Cash flows from investing activities:
Proceeds from sale of property
and equipment 216,393 13,784 205,169 11,157
Acquisition of property and
equipment ( 545,317) ( 613,029) ( 264,243) ( 439,016)
Net cash used in investing
activities ( 328,924) ( 599,245) ( 59,074) ( 427,859)
Cash flows from financing activities:
Proceeds from notes payable 116,000 952,266 116,000 650,266
Proceeds from (repayments of)
revolving line of credit, net( 175,000) 645,000 125,000 - -
Repayments of notes payable ( 293,871) ( 311,115) ( 125,823) ( 161,514)
Net cash provided by (used in)
financing activities ( 352,871) 1,286,151 115,177 488,752
The accompanying notes are an integral part of these unaudited consolidated
financial statements.
DSI INDUSTRIES, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
(Unaudited)
(Continued)
For the six months ended For the three months ended
May 31, May 31, May 31, May 31,
1996 1995 1996 1995
Net decrease in cash and cash
equivalents ( 101,923) 367,347 15,077 395,355
Cash and cash equivalents at
beginning of period 283,055 76,342 166,055 48,334
Cash and cash equivalents at
end of period $ 181,132 $ 443,689 $ 181,132 $ 443,689
Supplemental disclosures of cash flows information:
Cash paid during the period:
Interest $ 178,524 $ 105,552 $ 100,818 $ 52,959
Income taxes $ 13,136 $ 18,000 $ 13,136 $ 10,000
Supplemental Schedule of Non-cash Investing
and Financing Activities:
During the periods ending May 31, 1996 and 1995, the Company acquired
property and equipment in connection with capital lease arrangements in
the amount of $103,300 and $125,265, respectively.
The accompanying notes are an integral part of these unaudited consolidated
financial statements.
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 $6,474,000 at May 31, 1996 of which
approximately $2,959,000 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
$3,515,040. 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. At May 31, 1996, Norton was in violation of some of the
restrictive covenants with these secured creditors. Waiver by the lender of
such violations has been received through May 1, 1996. On March 27, 1996,
Norton received extensions until July 1, 1996 on all its obligations which
originally matured April 1, 1996. 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.
2. PREPARATION OF CONSOLIDATED FINANCIAL STATEMENTS
In the opinion of the Company, the accompanying consolidated balance
sheet as of May 31, 1996 and the condensed consolidated statements of
operations, stockholders' equity, and cash flows for the six and three
months ended May 31, 1996 and 1995 include all adjustments (consisting only
of normal recurring adjustments) necessary to present fairly the financial
position as of May 31, 1996, the results of operations and cash flows for
the six and three months ended May 31, 1996 and 1995. 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 six and three months ended May 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 six and three months ended May 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 May 31, 1996 and 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 lessee, 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 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.
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 but DSI remains liable as guarantor for the
$330,000 note payable until the purchaser has fully satisfied the
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 numerous
creditors as well as the estimated future costs and expenses of disposal.
Management is currently of the opinion that if negotiations with such
creditors are not successful in settling the segment's obligations, DSI will
cause the segment to seek protection from the creditors under bankruptcy
proceedings. Should such protection be perfected, extinguishment of the
liabilities could occur without payment which would result in a significant
gain realized in the reversal of the reserve for loss. Management's
estimate of the potential gain is between approximately $1,979,000 and
$2,862,000.
There can be no certainty that any or all of the possible gains in the
MRI Segment or 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
DSI INDUSTRIES, INC. AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
(Continued)
4. DISCONTINUED OPERATIONS (Continued)
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 May 31, 1996 and
November 30, 1995 are as follows:
May 31, November 30,
1996 1995
Notes payable $1,106,207 $1,106,207
Accounts payable and other liabilities 2,253,833 2,253,833
Estimated loss on disposal of segments 155,000 155,000
3,515,040 3,515,040
Net consolidated liabilities of
discontinued segments $3,515,040 $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.
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 $22,000 and $34,000 for
the six months ended May 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 $774,000 through May 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 $85,000 of
which approximately $2,000 and $11,000 was outstanding at May 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
DSI INDUSTRIES, INC. AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
(Continued)
5. RELATED PARTY TRANSACTIONS (Continued)
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.
6. SUBSEQUENT EVENTS
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.
Item 2. Managements Discussion and Analysis of Financial Condition and
Results of Operations
Liquidity and Capital Resources
As of May 31, 1996, DSI had a working capital deficiency of
approximately $6,474,000 and cash and cash equivalents of approximately
$181,000 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 six months ended May 31, 1996, DSI provided
approximately $580,000 from operations and used approximately $353,000
in its financing activities. For the six months ended May 31, 1995, DSI
used approximately $320,000 in operations and provided approximately
$1,286,000 in its financing activities. The increase in the funds
provided by operations is mainly attributable to an increase in the
amount of accounts payable outstanding at May 31, 1996 as compared to
November 30, 1995.
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 six months ended May 31, 1996 and May 31, 1995
approximate $545,000, and $613,000, respectively. Capital expenditures
decreased in the current six month period as compared to the six month
period in the prior year due to a decrease in the purchase of engines
used on the drilling rigs. The Drilling Segment anticipates capital
expenditures of approximately $1,500,000 for fiscal 1996 to be funded
from new and existing bank credit lines, cash flow 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
(if available) 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 six months ended May 31, 1996 and 1995
For the six months ended May 31, 1996 contract drilling revenues
were approximately $11,243,000 as compared to $9,532,000 for the six
months ended May 31, 1995, an increase of $1,711,000 or 18.0%. Average
rig utilization was 63.1% in the six months ended May 31, 1996 compared
to 57.8% in the six months ended May 31, 1995. The increase in drilling
revenues was due to an increase in the total number of wells drilled and
an increase in the number of wells drilled on a turnkey basis. Revenues
from turnkey contracts are usually for larger dollar amounts than either
footage or daywork contracts. In the six months ended May 31, 1996 eleven
wells were drilled under turnkey contracts, whereas in the six months
ended May 31, 1995 only five wells were drilled under such contracts.
Direct job and rig costs for the six months ended May 31, 1996 were
approximately $9,773,000 or 86.9% of contract drilling revenues as
compared to $8,648,000 or 90.7% of contract drilling revenues for the six
months ended May 31, 1995. In the six months ended May 31, 1996, Norton
drilled 140 wells as compared to 96 in the six months ended May 31, 1995.
Also, savings on drill bit prices have contributed to the reduction in
direct drilling costs.
General and administrative expenses were approximately $547,000
for the six months ended May 31, 1996 as compared to $391,000 for the six
months ended May 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 $195,000 in the six month period
ended May 31, 1996 compared to $166,000 for the six months ended May 31,
1995, an increase of $29,000. The current year increase is attributable
to an increase in the amount of debt borrowings to pay for equipment
purchases, liabilities of the Registrant and vendor accounts payable.
In the six months ended May 31, 1996, income before income taxes
was approximately $236,000 as compared to a loss of approximately
$268,000 in the six months ended May 31, 1995. The increase in net
income was due two main factors. First Norton realized a gain on sale of
assets in the current period of approximately $112,000. Second the
increase in rig utilization and number of wells drilled has allowed the
drilling segment operate above its breakeven point and thus realize some
economies of scale.
Comparison of the three months ended May 31, 1996 and 1995
For the three months ended May 31, 1996 contract drilling revenues were
approximately $6,377,000 as compared to $4,853,000 for the three months ended
May 31, 1995, an increase of $1,524,000 or 31.4%. Average rig utilization was
63.6% in the three months ended May 31, 1996 compared to 58.6% in the three
months ended May 31, 1995. The increase in drilling revenues was due to an
increase in the number of wells drilled. Also, there were more wells drilled
during the current three months under a turnkey basis than in the previous
year. Turnkey contracts are usually for larger dollar amounts than either
footage or daywork contracts. In the three months ended May 31, 1996 eleven
wells were drilled under turnkey contracts, whereas in the three months ended
May 31, 1995 only three wells were drilled under turnkey contracts.
Direct job and rig costs for the three months ended May 31, 1996 were
approximately $5,552,000 or 87.1% of contract drilling revenues as compared
to $4,639,000 or 95.6% of contract drilling revenues for the three months
ended May 31, 1995. As more wells are drilled, and specifically more wells per
rig, economies of scale are achieved and labor costs per dollar of revenue
decreased. Also, as more turnkey wells were drilled, Norton realized more
revenue per job without an increase in labor costs. Norton drilled 78 wells
in the three months ended May 31, 1996 as compared to 38 in the three months
ended May 31, 1995. Also, savings on drill bit prices have contributed to the
reduction in direct drilling costs.
General and administrative expenses were approximately $269,000 for the
six months ended May 31, 1996 as compared to $196,000 for the three months
ended May 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 $96,000 in the three month period
ended May 31, 1996 compared to $103,000 for the three months ended May 31,
1995, a decrease of $7,000. The decrease is attributable to the normal paydown
of debt over the last year.
In the three months ended May 31, 1996, income before income taxes was
approximately $256,000 as compared to a loss of approximately $389,000 in the
three months ended May 31, 1995. The increase in net income was due two main
factors. First Norton realized a gain on sale of assets in the current period
of approximately $101,000. Second the increase in rig utilization and number
of wells drilled has allowed the drilling segment operate above its breakeven
point and thus realize some economies of scale.
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
Not applicable
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: July 15, 1996 By: /s/ Sherman H. Norton, Jr.
Sherman H. Norton, Jr.
Chairman, Chief Executive Officer and President
Dated: July 15, 1996 By: /s/ David Ridley
David Ridley, Chief Financial Officer
(Principal Financial and Accounting Officer)
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM (A) Form
10-Q for the Quarterly period ended May 31, 1996 (Balance Sheet & Statement of
Income) AND IS QUALIFIED IN ITS ENTIRETY BY REFERENCE TO SUCH (B) Form 10-Q
</LEGEND>
<S> <C>
<PERIOD-TYPE> 6-MOS
<FISCAL-YEAR-END> NOV-30-1995
<PERIOD-END> MAY-31-1996
<CASH> 181,132
<SECURITIES> 0
<RECEIVABLES> 3,204,735
<ALLOWANCES> 90,000
<INVENTORY> 0
<CURRENT-ASSETS> 3,999,852
<PP&E> 11,976,478
<DEPRECIATION> 4,718,532
<TOTAL-ASSETS> 12,881,122
<CURRENT-LIABILITIES> 10,473,738
<BONDS> 0
0
0
<COMMON> 236,934
<OTHER-SE> 1,311,543
<TOTAL-LIABILITY-AND-EQUITY> 12,881,122
<SALES> 0
<TOTAL-REVENUES> 11,289,262
<CGS> 0
<TOTAL-COSTS> 10,970,702
<OTHER-EXPENSES> 82,778
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 195,059
<INCOME-PRETAX> 235,782
<INCOME-TAX> 0
<INCOME-CONTINUING> 235,782
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 235,782
<EPS-PRIMARY> .01
<EPS-DILUTED> .01
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