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, 1997
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 3, 1997
Common stock, par value $.01 per share 23,206,340 shares
Page 1 of 25
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...................................................12
Part II - Other Information ............................................14
Item 6. Exhibits and Reports on Form 8K.................................14
Signatures .............................................................15
Page 2 of 25
PART I - FINANCIAL INFORMATION
Item 1. Financial Statements
The following financial statements include all adjustments which in
management's 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,
1997 1996
Current assets: ----------- -------------
Cash and cash equivalents $ 173,005 $ 774,226
Accounts receivable , trade, less allowance
for doubtful accounts of $278,053 5,247,284 4,571,323
Costs and estimated earnings in excess of
billings on uncompleted contracts 678,255 711,355
Insurance proceeds recoverable 155,555 153,586
Prepaid expenses and other current assets 78,662 212,625
----------- -----------
Total current assets 6,332,761 6,423,115
Property and equipment, at cost, net of
accumulated depreciation 9,483,302 8,508,540
Goodwill, net of accumulated amortization 1,364,697 1,412,327
Security deposits 128,991 128,991
----------- -----------
Total assets $17,309,751 $16,472,973
=========== ===========
Current liabilities:
Current maturities of notes payable $ 2,349,232 $ 1,520,964
Accounts payable 5,306,050 4,986,701
Billings in excess of costs of uncompleted
contracts - - 15,293
Accrued expenses and other current
liabilities 1,195,434 1,391,915
Net liabilities of discontinued operations 477,865 538,357
----------- -----------
Total current liabilities 9,328,581 8,453,230
----------- -----------
Notes payable, less current maturities 3,411,106 3,362,755
----------- -----------
Commitments and contingencies - - - -
Stockholders' equity:
Common stock-par value $.01;
authorized-100,000,000 shares,
issued-24,289,436 and 23,893,365, respectively
outstanding-23,206,340 and 22,810,269 shares,
respectively 242,894 238,934
Additional paid-in capital 9,879,317 9,716,928
Accumulated deficit (5,465,499) (5,212,226)
----------- -----------
4,656,712 4,743,636
Less treasury stock, at cost ( 86 648) ( 86,648)
----------- -----------
Total stockholders' equity 4,570,064 4,656,988
----------- -----------
Total liabilities and stockholders' equity $17,309,751 $16,472,973
=========== ===========
The accompanying notes are an integral part of these unaudited consolidated
financial statements.
Page 3 of 25
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,
1997 1996 1997 1996
----------- ----------- ---------- -----------
Operating revenues:
Contract drilling revenues $15,010,192 $11,242,528 $8,051,407 $ 6,376,589
Other 3,238 46,734 1,892 22,855
----------- ----------- ---------- -----------
Total operating revenues 15,013,430 11,289,262 8,053,299 6,399,444
----------- ----------- ---------- -----------
Operating costs and expenses:
Direct drilling costs 13,739,528 9,772,783 7,411,929 5,552,034
General and administrative 535,449 547,347 219,139 268,678
Depreciation, depletion and
amortization 958,655 641,502 580,781 320,752
Other 3,352 9,070 1,933 6,931
----------- ---------- ---------- -----------
Total operating costs
and expenses 15,236,984 10,970,702 8,213,782 6,148,395
----------- ---------- ---------- -----------
Operating income (loss) ( 223,554) 318,560 ( 160,483) 251,049
----------- ---------- ---------- -----------
Other income (expense):
Net gain on sale of assets 209,795 112,281 74,965 101,057
Interest expense ( 264,514) ( 195,059) ( 147,589) ( 95,955)
----------- ---------- ---------- -----------
Total other income
(expense), net ( 54,719) ( 82,778) ( 72,624) 5,102
----------- ---------- ---------- -----------
Income (loss) before provision for
income taxes and discontinued
operations ( 278,273) 235,782 ( 233,107) 256,151
Income taxes - - - - - - - -
------------ --------- ----------- ----------
Income (loss) from continuing
operations ( 278,273) 235,782 ( 233,107) 256,151
Adjustment to provision for loss on
disposal credited 25,000 - - 25,000 - -
----------- --------- ---------- ----------
Net income (loss) $( 253,273)$ 235,782 $( 208,107) $ 256,151
=========== =========== ========== ===========
Per share data:
Primary
Net income (loss) $(0.01) $0.01 $(0.01) $ 0.01
====== ===== ====== ======
Assuming full dilution
Net income (loss) $(0.01) $0.01 $(0.01) $ 0.01
====== ===== ====== ======
Weighted average number of
common shares outstanding
Primary 24,043,524 23,693,365 24,190,418 22,693,365
========== ========== ========== ==========
Assuming full dilution 24,043,524 23,693,365 24,190,418 22,693,365
========== ========== ========== ==========
The accompanying notes are an integral part of these unaudited
consolidated financial statements.
Page 4 of 25
DSI INDUSTRIES, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY
(Unaudited)
Common Stock Treasury Stock
-------------------- ---------------------
Shares Par Value Shares Par Value
---------- --------- --------- ----------
Balance, November 30, 1995 23,893,365 $238,934 - - $ - -
Net income for the six months
ended May 31, 1996 - - - - - - - -
---------- -------- --------- ---------
Balance May 31, 1996 23,893 365 $238,934 - - $ - -
========== ======== ========= =========
Balance November 30, 1996 23,893,365 $238,934 1,083,096 $(86,648)
Shares issued in satisfaction of
liabilities 396,071 3,960 - - - -
Net loss for the six months
ended May 31, 1997 - - - - - - - -
---------- -------- --------- --------
Balance May 31, 1997 24,289,436 $242,894 1,083,096 $(86,648)
========== ======== ========= ========
Retained
Additional Earnings/ Total
Paid in Accumulated Stockholders'
Capital (Deficit) Equity
---------- ------------ ------------
Balance, November 30, 1995 $9,716,928 $ (8,643,168) $ 1,312,694
Net income for the six months
ended May 31, 1996 - - 235,782 235,782
---------- ----------- ----------
Balance May 31, 1996 $9,716,928 $(8,407,386) $1,548,476
========== =========== ==========
Balance November 30, 1996 $9,716,928 $(5,212,226) $4,656,988
Shares issued in satisfaction of
liabilities 162,389 - - 166,349
Net loss for the six months
ended May 31, 1997 - - ( 253,273) ( 253,273)
---------- ----------- ----------
Balance May 31, 1997 $9,879,317 $(5,465,499) $4,570,064
========== =========== ==========
The accompanying notes are an integral part of these unaudited consolidated
financial statements.
Page 5 of 25
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,
1997 1996 1997 1996
----------- ------------ ----------- ------------
Cash flows from operating activities:
Net income (loss) $( 253,273) $ 235,782 $( 208,107) $ 256,151
Adjustments to reconcile net
income (loss) to net cash provided
by (used in) operating activities:
Adjustment to provision for loss
on disposal credited ( 25,000) - - ( 25,000) - -
Depreciation, depletion and
amortization 958,655 641,502 580,781 320,752
Gain on sale of assets ( 209,795) ( 112,281) ( 74,965) ( 101,057)
Increase (decrease) in cash flows
as a result of changes in operating
asset and liability account balances:
Increase in accounts receivable
-trade ( 675,961) (1,033,548) (1,090,965) (1,253,204)
(Increase) decrease in insurance
proceeds recoverable ( 1,969) 661,184 ( 48,296) - -
(Increase) decrease in net costs
and estimated earnings in excess
of billings on uncompleted
contracts 17,807 33,693 43,887 ( 172,191)
Decrease in prepaid expenses and
other current assets 133,963 125,412 56,903 67,279
Refund of security deposits - - 34,378 - - 34,378
Increase (decrease) in accounts
payable 319,349 ( 139,254) 667,180 641,503
Increase (decrease) in accrued
expenses and other current
liabilities ( 30,132) 133,004 150,793 165,363
---------- ---------- ---------- ----------
Net cash provided by (used in)
continuing operations 233,644 579,872 52,211 ( 41,026)
Net cash used in discontinued
operations ( 35,492) - - ( 53) - -
---------- ---------- ---------- ----------
Net cash provided by (used in)
operating activities 198,152 579,872 52,158 ( 41,026)
---------- ---------- ---------- ----------
Cash flows from investing activities:
Proceeds from sale of property
and equipment 240,741 216,393 105,911 205,169
Acquisition of property and
equipment (1,832,846) ( 545,317) ( 729,522) ( 264,243)
---------- ---------- ---------- ----------
Net cash used in investing
activities (1,592,105) ( 328,924) ( 623,611) ( 59,074)
---------- ---------- ---------- ----------
The accompanying notes are an integral part of these unaudited consolidated
financial statements.
Page 6 of 25
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,
1997 1996 1997 1996
----------- ------------ ------------ ------------
Cash flows from financing activities:
Proceeds from notes payable 500,000 116,000 - - 116,000
Proceeds from (repayments of)
revolving line of credit, net 815,000 ( 175,000) 650,000 125,000
Repayments of notes payable ( 522,268) ( 293,871) ( 150,827) ( 125,823)
---------- ---------- ---------- ----------
Net cash provided by (used in)
financing activities 792,732 ( 352,871) 499,173 115,177
---------- ---------- ---------- ----------
Net increase (decrease) in cash
and cash equivalents ( 601,221) ( 101,923) ( 72,280) 15,077
Cash and cash equivalents at
beginning of period 774,226 283,055 245,285 166,055
---------- --------- ---------- ---------
Cash and cash equivalents at
end of period $ 173,005 $ 181,132 $ 173,005 $ 181,132
========== ========== ========== ==========
Supplemental disclosures of cash flows information:
Cash paid during the period:
Interest $ 238,945 $ 178,524 $ 132,191 $ 100,818
========== ========== ========== ==========
Income taxes $ 21,066 $ 13,136 $ 21,066 $ 13,136
========== ========== ========== ==========
Supplemental Schedule of Non-cash Investing
and Financing Activities:
During the periods ending May 31, 1997 and 1996, the Company acquired
property and equipment in connection with capital lease arrangements in
the amount of $83,887 and $103,300, respectively.
In March, 1997, 396,071 shares of common stock were issued in satisfaction
of outstanding liabilities of Norton in the amount of $166,349.
The accompanying notes are an integral part of these unaudited consolidated
financial statements.
Page 7 of 25
DSI INDUSTRIES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
1. PREPARATION OF CONSOLIDATED FINANCIAL STATEMENTS
In the opinion of the Company, the accompanying consolidated balance
sheet as of May 31, 1997 and the consolidated statements of operations,
stockholders' equity, and cash flows for the three and six months ended
May 31, 1997 and 1996 include all adjustments (consisting only of normal
recurring adjustments) necessary to present fairly the financial position
as of May 31, 1997, the results of operations and cash flows for the three
and six months ended May 31, 1997 and 1996. The accompanying consolidated
balance sheet as of November 30, 1996 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 three and six months ended May 31,
1997 are not necessarily indicative of the results of operations for the
entire year.
Certain reclassifications have been made to the 1996 consolidated
financial statements in order for them to conform with the 1997 presentation.
2. INCOME (LOSS) PER COMMON SHARE
Net income (loss) per common share of stock has been computed using the
weighted average number of common shares outstanding during the six and three
month periods ended May 31, 1997 and 1996.
Primary net income (loss) per common and common equivalent share has been
computed based on the weighted average number of common shares outstanding
during the period and on the net additional number of shares which would be
issuable upon the exercise of warrants and stock options, assuming that the
Company used the proceeds received to purchase shares of treasury stock.
Common stock equivalents are not included in the outstanding shares
computation for the three and six month periods ended May 31, 1997 and 1996
as they were not dilutive.
Fully diluted earnings per share amounts are based on the weighted average
number of common and common equivalent shares plus the increased number of
shares that would be outstanding assuming conversion of the subordinated
convertible notes payable to affiliates. Weighted average number of common
shares outstanding assuming full dilution for the three and six month
periods ended May 31, 1997 and 1996 do not include these additional shares
as they were not dilutive.
3. DISCONTINUED OPERATIONS
On August 18, 1994, DSI discontinued the MRI Segment due to recurring
losses experienced by the segment. The remaining net liabilities of the
segment relate to claims filed by the segment's former landlord for past
due rent. Management is currently of the opinion that if negotiations with
the former landlord are not successful in settling their obligations, DSI
may cause the segment to seek protection from the landlord under bankruptcy
Page 8 of 25
DSI INDUSTRIES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
(Continued)
3. DISCONTINUED OPERATIONS (Continued)
proceedings. It is possible that final settlement will result in the payment
of significantly less than amounts currently recorded as liabilities which
could result in a gain realized in the reversal of such recorded liabilities.
Management's estimate of the potential gain is between approximately $25,000
and $40,000.
Effective November 30, 1994, DSI discontinued the Nursery Segment due to
significant operating losses incurred by that segment beginning in 1994.
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 the assets 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. DSI has received a release
from its guarantee of the obligation to the bank as well as its obligation
for the $330,000 note payable.
The agreement with the other secured bank required the purchaser to repay
the outstanding balance of a mortgage note which was collateralized by the
segment's real property. DSI will remain liable as guarantor for this
indebtedness until the purchaser has fully satisfied this obligation.
On July 22, 1996, DSI effected the closing of a stock purchase agreement
("Purchase Agreement") dated as of July 19, 1996, by and between a third
party purchaser ("Buyer") and DSI. Pursuant to or in accordance 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. Furthermore, certain Directors and
Officers of DSI resigned from their respective positions as Directors and
Officers of Sunny's and it's subsidiaries and DSI received certain releases.
The net liabilities of the discontinued operations are as follows:
May 31, November 30,
1997 1996
---------- -----------
Notes payable and capital lease obligations $ 365,074 $ 395,074
Accounts payable and other liabilities 25,000 50,000
Estimated loss on disposal of segments 87,791 93,283
---------- ----------
Net liabilities of discontinued segments $ 477,865 $ 538,357
========== ==========
Page 9 of 25
DSI INDUSTRIES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
(Continued)
4. RELATED PARTY TRANSACTIONS
During May, 1993 a former officer of the Drilling Segment (Norton), and an
officer/director of DSI, advanced $500,000 ($90,000 and $410,000,
respectively) to Norton in the form of unsecured demand notes, bearing
interest equal to the entity's primary lending institution's prime rate.
Interest charged to operations on the notes payable was approximately $20,000
and $22,000 for the six months ending May 31, 1997 and 1996, respectively.
The 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.
In the year ended November 30, 1995, two officers/directors of DSI, a
corporation owned by an officer/director of DSI, and one former officer of
Norton, along with the Drilling Segment, participated in a joint venture in
three wells. The joint venture contracted with Norton to drill, equip, and
operate the three wells and incurred costs totaling approximately $36,035
and $53,704 for the six months ending May 31, 1997 and 1996, respectively.
In April, 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 former officer of Norton, 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 $117,000. The corporation's pro
rata share of the costs for the six month period ending May 31, 1997 were
approximately $11,531 of which approximately $2,080 was outstanding at May
31, 1997.
Each joint venture participant was liable for their pro rata share of the
costs incurred. Norton's share was $721 and $16,579 for the six months ending
May 31, 1997 and 1996, respectively. The aggregate costs to be borne by the
five related parties mentioned above was $15,135 and $7,050 for the six months
ending May 31, 1997 and 1996, respectively. The amounts due from related
parties at May 31, 1997 and 1996 were approximately $2,920 and $6,748,
respectively.
5. OPTIONS AND WARRANTS
On February 23, 1997 the Board of Directors issued 130,000 options to four
directors of the Company in accordance with the Company's 1989 Stock Option
Plan at an exercise price of $0.56 per share.
Page 10 of 25
DSI INDUSTRIES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
(Continued)
5. Options and Warrants (Continued)
The Board also authorized the issuance of warrants to an officer/director
of DSI as compensation for the individual personally guaranteeing certain
obligations of Norton. Three warrants have been issued for this purpose. The
first warrant was issued for guarantees related to obligations entered into
in August 1996 and allows the officer/director to purchase 640,000 shares of
common stock at the exercise price of $0.50 per share. The second warrant
was issued for guarantees related to obligations entered into in January
1997 and allows the officer/director to purchase 17,024 shares of common
stock at $0.78 per share. These two warrants were issued on February 23,
1997. A third warrant was issued on April 1, 1997 for guarantees related
to obligations entered into on April 1, 1997 and allows the officer/director
to purchase 32,000 shares of common stock at $0.625 per share.
On May 21, 1997, the Board of Directors issued 20,000 options to two
directors of the Company in accordance with the Company's 1989 Stock Option
Plan at an exercise price of $0.63 per share.
6. COMMITMENTS AND CONTINGENCIES
On March 1, 1997, DSI, through its subsidiary Norton Drilling Company,
entered into a five-year employment contract with Sherman H. Norton, Jr.
which effectively replaced a previous employment contract the Company had
with Mr. Norton. The new contract provides for an annual salary of $153,500.
The provisions of the new contract are the same as the prior contract except
for the amount of annual salary.
7. NOTES PAYABLE
Norton was in violation of certain covenants of its debt agreements with
The Plains National Bank of West Texas at May 31, 1997. Norton has received
a waiver of such violations by the lender for 120 days. Management is of the
opinion that it will be able to cure the violations within the 120 day period.
8. SUBSEQUENT EVENTS
As stated in Note 3, DSI remains liable as guarantor of a mortgage note
until the purchaser has fully satisfied the obligation. On July 3, 1997,
DSI was notified by the lender that the payments due June 1, 1997 and July
1, 1997 amounting to approximately $48,000 total had not been paid by the
purchaser. The lender indicated that if all amounts due were not paid in full
by July 18, 1997 the loan will be forwarded to the lender's attorney to begin
foreclosure and collection proceedings. The unpaid balance of the obligation
at July 7, 1997 was approximately $1,932,000.<PAGE>
Page 11 of 25
Item 2. Managements Discussion and Analysis of Financial Condition and
Results of Operations
Liquidity and Capital Resources
As of May 31, 1997, DSI had a working capital deficiency of
approximately $2,996,000 and cash and cash equivalents of approximately
$173,000 as compared to a working capital deficiency of approximately
$2,030,000 and cash and cash equivalents of approximately $774,000 at
November 30, 1996. For the six months ended May 31, 1997, operations
provided approximately $198,000 in cash flows and DSI's financing
activities provided approximately $793,000. For the six months ending May
31, 1996, operations provided approximately $580,000 in cash flows and
DSI's financing activities used approximately $353,000. The use of funds
in the six month period ending May 31, 1997 was mainly attributable to
the acquisition of property and equipment. The use of funds in the six
month period ending May 31, 1996 was attributable to the repayment of
notes payable and the revolving line of credit and the acquisition of
property and equipment.
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 ending May 31, 1997 and 1996, approximate
$1,833,000 and $545,000, respectively. Capital expenditures increased in
the current six month period as compared to the six month period in the
prior year due to the upgrading of two rigs. The Drilling Segment
anticipates capital expenditures of approximately $2,500,000 for fiscal
1997 to be funded from existing bank credit lines and cash flows from
operations. 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.
Comparison of the six months ended May 31, 1997 and 1996
For the six months ended May 31, 1997 total operating revenues were
approximately $15,013,000 as compared to $11,289,000 for the six months
ended May 31, 1996, an increase of $3,724,000 or 33.0%. Average rig
utilization was 89.4% in the six months ended May 31, 1997 compared to
63.1% in the six months ended May 31, 1996. The increase in drilling
revenues was due to an increase in drilling rig utilization.
Page 12 of 25
Direct drilling costs for the six months ended May 31, 1997 were
approximately $13,740,000 or 91.5% of contract drilling revenues as
compared to $9,773,000 or 86.6% of contract drilling revenues for the six
months ended May 31, 1996. The increase in direct drilling costs as a
percent of revenues was due to an inability to complete contracts in the
amount of time estimated when the work was bid out, rising costs and an
inability to raise prices on some contracts as costs were rising.
General and administrative expenses were approximately $535,000 for
the six months ended May 31, 1997 as compared to approximately $547,000
for the six months ended May 31, 1996. The decrease in general and
administrative expenses was due to a revision in the estimated amount of
professional fees owed of approximately $68,000. Otherwise, general and
administrative expenses increased due to additional office personnel and
an increase in consulting fees relative to litigation defense.
Depreciation, depletion and amortization for the six months ended May
31, 1997 and 1996 was approximately $959,000 and $642,000, respectively.
The increase is due to large capital expenditures made in the first four
months of the year.
Interest expense was approximately $265,000 and $195,000 in the six
months ended May 31, 1997 and 1996, respectively. The increase in
interest expense was due to an increase in borrowings, mainly on the line
of credit.
In the six months ended May 31, 1997, net loss from continuing
operations was approximately $278,000 as compared to net income of
approximately $236,000 in the six months ended May 31, 1996. The
decrease in earnings was due mainly to the increase in direct drilling costs
as a percentage of drilling revenues.
In the six months ended May 31, 1997, the Company recognized a credit
adjustment to the provision for loss on disposal of discontinued
operations of $25,000 as compared to $-0- for the six months ended May
31, 1996.
Comparison of the three months ended May 31, 1997 and 1996
For the three months ended May 31, 1997 total operating revenues were
approximately $8,053,000 as compared to $6,399,000 for the three months
ended May 31, 1996, an increase of $1,654,000 or 25.8%. Average rig
utilization was 94.7% in the three months ended May 31, 1997 compared to
63.6% in the three months ended May 31, 1996. The increase in drilling
revenues was due to an increase in drilling rig utilization.
Direct drilling costs for the three months ended May 31, 1997 were
approximately $7,412,000 or 92.0% of contract drilling revenues as
compared to $5,552,000 or 86.8% of contract drilling revenues for the
three months ended May 31, 1996. The increase in direct drilling costs as
a percent of revenues was due to inability to complete contracts in the
amount of time estimated when the work was bid out, rising costs and an
inability to raise prices on some contracts as costs were rising.
General and administrative expenses were approximately $219,000 for
the three months ended May 31, 1997 as compared to approximately $269,000
Page 13 of 25
for the three months ended May 31, 1996. The decrease in general and
administrative expenses was due to a revision in the estimated amount of
professional fees owed of approximately $68,000. Otherwise, general and
administrative expenses increased due to additional office personnel.
Depreciation, depletion and amortization for the three months ended
May 31, 1997 and 1996 was approximately $581,000 and $321,000,
respectively. The increase is due to large capital expenditures made
during the period.
Interest expense was approximately $148,000 and $96,000 in the three
months ended May 31, 1997 and 1996, respectively. The increase in
interest expense was due to an increase in borrowings, mainly on the line
of credit.
In the three months ended May 31, 1997, net loss from continuing
operations was approximately $233,000 as compared to net income of
approximately $256,000 in the three months ended May 31, 1996. The
decrease in earnings was due mainly to the increase in direct drilling
costs as a percentage of drilling revenues and to an increase in
depreciation.
In the three months ended May 31, 1997, the Company recognized a
credit adjustment to the provision for loss on disposal of discontinued
operations of $25,000 as compared to $-0- for the three months ended May
31, 1996.
PART II-OTHER INFORMATION
Item 6. Exhibits and Reports on Form 8-K
(a) Exhibits
Exhibit No. Name Page
10.41 Form of Warrant from DSI Industries, Inc.
to Sherman H. Norton, Jr. dated as of April
1, 1997 16
27. Financial Data Schedule
(b) Reports on Form 8-K
None
Page 14 of 25
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, 1997 By:/S/ Sherman H. Norton, Jr.
Sherman H. Norton, Jr.
Chairman, Chief Executive Officer and President
Dated: July 15, 1997 By:/s/ David W. Ridley
David Ridley, Chief Financial Officer
(Principal Financial and Accounting Officer)
Page 15 of 25
Exhibit 10.41
THE WARRANT REPRESENTED HEREBY AND THE STOCK OR OTHER SECURITIES ISSUABLE
UPON THE EXERCISE HEREOF HAVE NOT BEEN REGISTERED UNDER THE SECURITIES
ACT OF 1933, AS AMENDED (THE "ACT"), OR ANY STATE SECURITIES LAWS AND
NEITHER SUCH WARRANT NOR THE STOCK OR OTHER SECURITIES ISSUABLE UPON THE
EXERCISE HEREOF NOR ANY INTEREST THEREIN MAY BE TRANSFERRED IN THE
ABSENCE OF SUCH REGISTRATION OR AN EXEMPTION THEREFROM UNDER SUCH ACT AND
SUCH LAWS AND THE RULES AND REGULATIONS THEREUNDER.
WARRANT TO PURCHASE SHARES
OF COMMON STOCK OF DSI INDUSTRIES, INC.
This certifies that Sherman H. Norton, Jr. ("Holder"), for value
received, is entitled to purchase from DSI Industries, Inc., a Delaware
corporation (the "Company"), thirty-two thousand (32,000) fully paid and
nonassessable shares of (Common Stock, par value $0.01 per share of the
Company (the "Common Stock"), at a price of $0.625 per share, as adjusted
pursuant to Section 3 below (the "Stock Purchase Price"), at any time or
from time to time on or after the Commencement Date (as defined below) but
not later than 5:00 p.m. (Lubbock, Texas time) on the Expiration Date (as
defined below), upon surrender to the Company at its principal office at
5211 Brownfield Highway, Suite 230, Lubbock, Texas 79407 (or at such other
location as the Company may advise Holder in writing) of this Warrant with
the Form of Stock Subscription attached hereto as Exhibit A duly filled in
and signed and upon payment of the aggregate Stock Purchase Price for the
number of shares for which this Warrant is being exercised determined in
accordance with the provisions hereof (the "Aggregate Stock Purchase
Price"), in cash, by certified or official bank check, by wire transfer, or
by any combination of the foregoing, as Holder may elect, in its sole
discretion. In leiu of paying the Aggregate Stock Purchase Price upon
exercise of this Warrant, for so long as the Common Stock is publicly
traded, Holder may elect a "cashless exercise" in which event Holder will
receive upon exercise of this Warrant a reduced number of shares of Common
Stock equal to (i) the number of Shares of Common Stock that would be
issuable pursuant to this warrant upon payment of the Aggregate Stock
Purchase Price minus (ii) the number of shares of Common Stock that have an
aggregate fair market value equal to the Aggregate Stock Purchase Price. For
purposes of the preceding sentence, the fair market value of a share of
Common Stock shall mean the last reported sale price of the Common Stock on
the last business day preceding the date of exercise. The Stock Purchase
Price and the number of shares purchasable hereunder are subject to
adjustment as provided in Section 3 of this Warrant. "Commencement Date"
means April 1, 1997. "Expiration Date" means April 1, 2002.
This Warrant is subject to the following terms and conditions;
1. Exercise; Issuance of Certificates; Payment for Shares. This
Warrant is exercisable at the option of Holder at any time or from time to
time on or after the Commencement Date but not later than the Expiration
Date for all or a portion of the shares of Common Stock which may be
purchased hereunder. Upon exercise of this Warrant, the Company shall issue
and deliver to Holder shares of Common Stock. The Company agrees that the
shares of Common Stock to be purchased under this Warrant shall be and are
deemed to be issued to Holder as the record owner of such shares as of the
close of business on the date on which this Warrant shall have been
surrendered and payment made for such shares. Subject to the provisions of
Section 2, certificates for the shares of Common Stock so purchased,
together with any other securities or property to which Holder is entitled
upon such exercise, shall be delivered to Holder by the Company or the
Company's transfer agent at the Company's expense within a reasonable time
(but in no event more than ten days) after the rights represented by this
warrant have been exercised. Each stock certificate so delivered shall be
in such denominations and classes of Common Stock as may be requested by
Holder and shall be registered in the name of Holder or such other name as
Page 16 of 25
shall be designated by Holder, subject to the limitations contained in this
Section 1, Section 2 and Section 6. If, upon exercise of this Warrant, fewer
than all of the shares of Common Stock evidenced by this Warrant are
purchased prior to the Expiration Date, one or more new warrants
substantially in the form of, and on the terms in, this Warrant will be
issued for the remaining number of shares of Common Stock not purchased upon
exercise of this Warrant.
2. Shares to be Fully Paid: Reservation of Shares The Company
covenants and agrees that all shares of Common Stock which may be issued
upon the exercise of the rights represented by this Warrant (the "Warrant
Shares") will be, upon payment of the Stock Purchase Price therefor and
issuance thereof, duly authorized, validly issued, fully paid and
nonassessable and free from all preemptive rights of any stockholder and
free of all taxes, liens and charges with respect to the issue thereof. The
Company further covenants and agrees that during the period within which the
rights represented by this Warrant may be exercised, the Company will at all
times have authorized and reserved, for the purpose of issue or transfer
upon exercise of the subscription rights evidenced by this Warrant, a
sufficient number of shares of authorized but unissued Common Stock for such
exercise. The Company will take all such action as may be necessary to
assure that such shares of Common Stock may be issued as provided herein
without violation of any applicable law or regulation, or of any requirement
of any securities exchange or automated quotation system upon which the
Common Stock may be listed.
3. Adjustment of Stock Purchase Price and Number of Shares. The Stock
Purchase Price and the number of shares purchasable upon the exercise of
this Warrant shall be subject to adjustment from time to time upon the
occurrence of certain events described in this Section 3. Upon each
adjustment of the Stock Purchase Price, the holder of this Warrant shall
thereafter be entitled to purchase, at the Stock Purchase Price resulting
from such adjustment, the number of shares obtained by multiplying the Stock
Purchase Price in effect immediately prior to such adjustment by the number
of shares purchasable pursuant hereto immediately prior to such adjustment,
and dividing the product thereof by the Stock Purchase Price resulting from
such adjustments.
3.1 Subdivision or Combination of Common Stock. In case the Company
shall at any time subdivide its outstanding shares of Common Stock into a
greater number of shares, the Stock Purchase Price in effect immediately
prior to such subdivision shall be proportionately reduced, and the number
of shares issuable upon exercise of this Warrant shall be proportionately
increased. Conversely, in case the outstanding shares of Common Stock of the
Company shall be combined into a smaller number of shares, the Stock
Purchase Price in effect immediately prior to such combination shall be
proportionately increased and the number of shares issuable upon exercise
of this Warrant shall be proportionately reduced.
3.2 Certain Dividends and Distributions. In case the Company shall at
any time declare or pay a dividend upon its Common Stock payable in shares
of Common Stock, the Stock Purchase Price in effect immediately prior to
such dividend shall be proportionately reduced and the number of shares
issuable upon exercise of this Warrant shall be proportionately increased.
In case the Company shall at any time declare or pay a dividend or other
distribution on its Common Stock payable in cash or in evidences of
indebtedness, shares of stock or other securities or property (other than
in Common Stock or "Convertible Securities," as defined in Section 3.3.1(a))
or in rights, warrants or options to subscribe for or purchase evidences of
indebtedness, shares of stock or other securities or property (other than
"Options," as defined in Section 3.3.1(b)), the Stock Purchase Price in
effect immediately prior to such dividend or other distribution shall be
reduced by the fair market value of such dividend or other distribution
applicable to one share of Common Stock.
Page 17 of 25
3.3 Dilutive Issuances. If the Company shall sell or issue (or shall
be deemed pursuant to Section 3.3.2.3 to sell or issue) at any time after
the date of this Warrant and prior to the termination or expiration of this
Warrant, shares of Common Stock without consideration or for consideration
per share less than the Stock Purchase Price in effect on the date of and
immediately prior to such sale or issuance, then, upon such sale or issuance
(or deemed sale or issuance), such Stock Purchase Price shall be reduced
concurrently with such sale or issuance to a Stock Purchase Price
(calculated to the nearest cent) determined by dividing
(a) an amount equal to (i) the total number of shares of Stock
Outstanding (as defined by law) immediately prior to such sale or issuance
multiplied by the Stock Purchase Price, plus (ii) the aggregate of the
amount of all consideration, if any, received or deemed received pursuant
to subsection 3.3.2.3 by the Company for such sale or issuance, by
(b) the total number of shares of Stock Outstanding immediately after
such sale or issuance.
No adjustment in the Stock Purchase Price shall be made in respect of the
sale or issuance (or deemed sale or issuance) of additional Stock unless the
consideration per share for such additional Stock sold or issued (or deemed
to be sold or issued) by the Company is less than the Stock Purchase Price
in effect on the date of, and immediately prior to, such sale or issuance.
No adjustment in the Stock Purchase Price shall be made which would increase
the Stock Purchase Price in effect immediately prior to such adjustment,
except as provided in Section 3.3.3 and 3.3.4.
3.3.1 Definitions. For purposes of this Section 3.3, the following
definitions shall apply:
(a) "Convertible Securities" shall mean any indebtedness, shares
of stock or other securities convertible into or exchangeable for Common
Stock.
(b) "Options"" shall mean any rights, warrants or options to
subscribe for or purchase Common Stock or Convertible Securities.
(c) "Stock Outstanding" shall mean the aggregate of all Common
Stock outstanding and all Common Stock previously deemed issued pursuant to
Section 3.3.2.3 at a price which was less than the Stock Purchase Price in
effect on the date of and immediately prior to such issuance, and as a
result of which the Stock Purchase Price was reduced.
3.3 2 Other Rules. For the purposes of this Section 3.3, the following
provisions also shall be applicable:
3.3.2.1 Cash Consideration. In case of the issuance or sale of
additional Common Stock for cash, the consideration received by the Company
therefor shall be deemed to be the amount of cash received by the Company
for such shares (or, if such shares are offered by the Company for
subscription, the subscription price, or, if such shares are sold to
underwriters or dealers for public offering without a subscription offering,
the public offering price), without deducting therefrom any compensation or
discount paid or allowed to underwriters or dealers or others performing
similar services or for any expenses incurred in connection therewith, but
excluding amounts paid or payable by the Company for interest or dividends
accrued at the time of such issuance or sale. In the case of the issuance
or sale for cash of units consisting of shares of Common Stock and warrants,
the portion of the consideration received by the Company for the unit
allocated to the warrant shall equal the value of the warrant ascribed
thereto pursuant to the Black Scholes method of valuation and the balance
of the consideration shall be allocated to the Common Stock.
Page 18 of 25
3.3.2.2 Non-Cash Consideration. In case of the issuance (otherwise
than upon conversion or exchange of Convertible Securities) or sale of
additional Common Stock Options or Convertible Securities for a
consideration other than cash or a consideration a part of which shall be
other than cash, the fair market value of such consideration as determined
by the Board of Directors of the Company in the good faith exercise of its
reasonable business judgment, irrespective of the accounting treatment
thereof, shall be deemed to be the value, for purposes of this Section 3,
of the consideration other than cash received by the Company for such
securities.
3.3.2.3 Options and Convertible Securities. In case the Company shall,
at any time after the date of this Warrant, in any manner issue or grant any
Options or any Convertible Securities or shall fix a record date for the
determination of holders of any class of securities entitled to receive any
such Options or Convertible Securities, then the total maximum number of
shares of Common Stock issuable upon the exercise of such Options or upon
conversion or exchange of the total maximum amount of such Convertible
Securities at the exercise such Convertible Securities first become
convertible or exchangeable shall (as of the date of issue or grant of such
Options or, in the case of the issue or sale of Convertible Securities, as
of the date of such issue or sale or, in the case such a record date shall
have been fixed, as of the close of business on such record date) be deemed
to be issued and to be outstanding for the purpose of this Section 3.3
(except that shares of Common Stock shall not be deemed to have been issued
and to be outstanding unless the consideration per share (determined
pursuant to this Section 3.3) of such shares of Common Stock would be less
than the Stock Purchase Price in effect on the date of and immediately prior
to such issuance, or such record date, as the case may be), and to have been
issued for the sum of the amount (if any) paid for such Options or
Convertible Securities and the minimum additional amount (if any) payable
upon the exercise of such Options or upon conversion or exchange of such
Convertible Securities at the time such Convertible Securities first become
convertible or exchangeable; provided that, subject to the provisions of
Section 3.3.3, no further adjustment of the Stock Purchase Price shall be
made upon the actual issuance of any such Common Stock or upon the exercise
of any such Option or upon the conversion or exchange of any such
Convertible Securities.
3.3.3 Change in Option Price or Conversion Rate. If the purchase price
provided for in any Option referred to in subsection 3.3.2.3, or the
additional consideration (if any) payable upon the conversion or exchange
of any Convertible Securities referred to in subsection 3.3.2.3, or the rate
at which any Convertible Securities referred to in subsection 3.3.2.3 are
convertible into or exchangeable for shares of Common Stock, shall change
at any time (including changes under or by reason of provisions designed to
protect against dilution), then the Stock Purchase Price in effect at the
time of such event shall forthwith be readjusted to the Stock Purchase Price
that would have been in effect at such time had such Options or Convertible
Securities still outstanding provided for such changed purchase price,
additional consideration or conversion rate, as the case may be, at the time
initially granted, issued or sold; provided that if such readjustment is an
increase in the Stock Purchase Price, such readjustment shall not exceed the
amount (as adjusted by Sections 3.1, 3.2 and 3.3) by which the Stock
Purchase Price was decreased pursuant to Section 3.3 upon the issuance of
the Option or Convertible Security.
3.3.4 Termination of Option or Conversion Rights. In the event of the
termination or expiration of any right to purchase Common Stock under any
Option granted after the date of this Warrant or of any right to convert or
exchange Convertible Securities issued after the date of this Warrant, the
Stock Purchase Price shall, upon such termination, be readjusted to the
Page 19 of 25
Stock Purchase Price that would have been in effect at the time of such
expiration or termination had such Option or Convertible Security, to the
extent outstanding immediately prior to such expiration or termination,
never been issued, and the shares of Common Stock issuable thereunder shall
no longer be deemed to be Stock Outstanding; provided, that if such
readjustment is an increase in the Stock Purchase Price, such readjustment
shall not exceed the amount (as adjusted by Sections 3.1, 3.2 and 3.3) by
which the Stock Purchase Price was decreased pursuant to Section 3.3 upon
the issuance of the Option or Convertible Security.
3.3.5 No Impairment. The Company will not by amendment of its
Certificate of Incorporation or through any reorganization, transfer of
assets, merger, dissolution, issue or sale of securities or any other
action, avoid or seek to avoid the observance or performance of any of the
terms to be observed or performed under this Section 3.3 by the Company, but
will at all times in good faith assist in the carrying out of all the
provisions of this Section 3.3 and in the taking of all such action as may
be necessary or appropriate in order to protect the rights of the holders
of this Warrant against impairment. If any event shall occur as to which the
provisions of this Section 3 shall not be strictly applicable, but with
respect to which the failure to make any adjustment to the Stock Purchase
Price and the number of shares purchasable upon exercise of this Warrant
would not fairly protect the purchase rights represented by the Warrant in
accordance with the intent and principles of this Section 3, upon request
of the Holder and at the expense of the Company, the Company shall appoint
a firm of independent public accountants reasonably acceptable to the Holder
which shall give its opinion upon the adjustments, if any, consistent with
the intent and principles established in this Section 3 necessary to
preserve without dilution the purchase rights represented by this Warrant;
provided, however, if such accountants shall agree that the adjustments
initially proposed by the Company were correct, then such Holder shall pay
the reasonable fees and expenses of such accountants. Upon receipt of such
opinion, the Company will promptly mail a copy thereof to the Holder and
shall make the adjustments (if any) deserved therein.
3.4 Excluded Events. Notwithstanding anything in this Section 3 to the
contrary, the Stock Purchase Price shall not be adjusted by reason of shares
of Common Stock issued or issuable:
(A) to officers, directors or employees of, or consultants to, the
Company pursuant to stock options outstanding on the date hereof or stock
options granted after the date hereof on terms approved by the Board of
Directors of the Company; and
(B) upon the exercise of any warrants issued to the Holder.
3.5 Notice of Adjustment. Upon any adjustment of the Stock Purchase
Price or any increase or decrease in the number of shares purchasable upon
the exercise of this Warrant, the Company shall give written notice thereof,
by first class mail postage prepaid, addressed to the registered holder of
this Warrant at the address of such holder as shown on the books of the
Company. The notice shall be signed by the Company's chief financial officer
and shall state the effective date of the adjustment and the Stock Purchase
Price resulting from such adjustment and the increase or decrease if any,
in the number of shares purchasable at such price upon the exercise of this
Warrant, setting forth in reasonable detail the method of calculation and
the facts upon which such calculation is based.
3.6 Other Notices. If at any time;
(a) the Company shall propose to declare any cash dividend upon its
Common Stock;
Page 20 of 25
(b) the Company shall propose to declare or make any
dividend or other distribution to the holders of its Common Stock, whether
in cash, property or other securities;
(c) the Company shall propose to effect any reorganization or
reclassification of the capital stock of the Company or any consolidation
or merger of the Company with or into another corporation or any sale, lease
or conveyance of all or substantially all of the assets of the Company; or
(d) the Compamy shall propose to effect a voluntary or involuntary
dissolution, liquidation or winding-up of the Company;
then, in any one or more of said cases, the Company shall give, by
certified or registered mail, postage prepaid, addressed to the holder of
this Warrant at the address of such holder as shown on the books of the
Company, (i) at least 30 days' prior written notice of the date on which the
books of the Company shall close or a record shall be taken for such
dividend or distribution or for determining rights to vote in respect of any
such reorganization, reclassification, consolidation, merger, sale, lease,
conveyance, dissolution, liquidation or winding-up, and (ii) in the case of
any such reorganization, reclassification, consolidation, merger, sale,
lease, conveyance, dissolution, liquidation or winding-up, at least 30 days'
written notice of the date when the same shall take place. Upon the
occurrence of an event described in clause (c), the holder of this Warrant
shall be entitled thereafter to receive upon exercise of this Warrant the
kind and amount of shares of stock or other securities or assets, which the
holder would have been entitled to receive after the occurrence of such
event had this Warrant been exercised immediately prior to such event; and
in any such case, appropriate provision shall be made with respect to the
rights and interests of the holder to the end that the provisions of this
Warrant (including, without limitation, provisions with respect to changes
in and adjustments of the Stock Purchase Price and the number of shares
purchasable upon the exercise of this Warrant, and provisions relating to
the receipt by the holder of nonvoting stock convertible into voting stock)
shall thereafter be applicable, as nearly as may be, in relation to any
shares of stock, or other securities or assets, thereafter deliverable upon
the exercise of this Warrant. The Company will not effect any of the
transactions described in clause (c) above unless, prior to the consummation
thereof, each person (other than the Company) that may be required to
deliver any cash, stock, securities or other assets upon the exercise of
this Warrant as provided herein shall assume, by written instrument
delivered to, and reasonably satisfactory to, the holder of this Warrant,
(x) the obligations of the Company under this Warrant (and if the Company
shall survive the consummation of any such transaction, such assumption
shall be in addition to, and shall not release the Company from, any
continuing obligations of the Company under this Warrant) and (y) the
obligation to deliver to such holder such cash, stock, securities or other
assets as such holder may be entitled to receive in accordance with the
provisions of this Section 3. The provisions of this Section 3.6 shall
similarly apply to successive transactions.
4. Issue Tax The issuance of certificates for shares of Common Stock
upon the exercise of this Warrant shall be made without charge to the holder
for any issue tax in respect thereon provided, however, that the Company
shall not be required to pay any tax which may be payable in respect of any
transfer involved in the issuance and delivery of any certificate in a name
other than that of the then holder of the Warrant being exercised.
5. No Voting Rights Limitation of Liability. Nothing contained in this
Warrant shall be construed as conferring upon Holder the right to vote or
to consent or to receive notice as a stockholder in respect of meetings of
stockholders for the election of directors of the Company or any other
matters or any rights whatsoever as a stockholder of the Company. No
Page 21 of 25
provisions hereof, in the absence of affirmative action by Holder to
purchase shares of Common Stock, and no mere enumeration herein of the
rights or privileges of Holder, shall give rise to any liability of Holder
for the Stock Purchase Price or as a stockholder of the Company whether such
liability is asserted by the Company or by its creditors.
6. Restrictions on Transferability of Securities: Compliance With
Securities Act.
6.1 Restrictions on Transferability. This Warrant and the Warrant
Shares (collectively, the "Securities"), shall not be transferable in the
absence of registration under the Act or an exemption therefrom under such
Act.
6.2 Restrictive Legend. Each certificate representing the Securities
or any other securities issued in respect of the Securities upon any stock
split, stock dividend, recapitalization, merger, consolidation or similar
event, shall (unless otherwise permitted by the provisions of the
Shareholders Agreement) be stamped or otherwise imprinted with a legend
substantially in the following form (in addition to any legend required
under applicable state securities laws):
THE SECURITIES REPRESENTED HEREBY HAVE NOT BEEN REGISTERED UNDER THE
SECURITIES ACT OF 1933, AS AMENDED ("ACT"), OR ANY STATE SECURITIES LAWS AND
NEITHER SUCH SECURITIES NOR ANY INTEREST THEREIN MAY BE TRANSFERRED IN THE
ABSENCE OF SUCH REGISTRATION OR AN EXEMPTION THEREFROM UNDER SUCH ACT AND
SUCH LAWS AND THE RULES AND REGULATIONS THEREUNDER.
6.3 Effect of Transfer. Subject to the provisions of Section 6.1
hereof, Holder may transfer all or any portion of this Warrant by
surrendering this Warrant to the Company together with a completed
assignment in the form attached hereto as Exhibit B. Upon such surrender,
the Company shall deliver a new Warrant or Warrants to the person or persons
entitled thereto and, if applicable, shall deliver to Holder a new Warrant
evidencing the right of Holder to purchase the balance of the Warrant Shares
subject to purchase hereunder. The term "Holder" as used herein shall
include any transferee to whom this Warrant has been transferred in
accordance with this Section 6.3.
6.4 Registration. The Company will use its reasonable best efforts,
upon the written request of the Holder, to register, as promptly as
practicable, the shares of Common Stock received by the Holder upon exercise
of this Warrant.
7. Modification and Waiver. This Warrant and any provision hereof may
be changed, waived, discharged or terminated only by an instrument in
writing signed by the party against which enforcement of the same is sought.
8. Notices. Any notice, request or other document required or
permitted to be given or delivered to Holder or the Company shall be
personally delivered, sent by telecopier (receipt confirmed), sent by
recognized overnight delivery service or sent by certified or registered
mail, postage prepaid, to Holder at its address as shown on the books of the
Company or to the Company at the address indicated therefor in the first
paragraph of this Warrant. Any notice given by personal delivery or by
telecopier shall be deemed given on the date of delivery, any notice sent
by recognized overnight courier service shall be deemed delivered on the
second following business day, and any notice given by certified or
registered mail shall be deemed given five days after registration or
certification thereof, as the case may be.
9. Descriptive Headings. Governing Law and Jurisdiction. The
descriptive headings of the several sections and paragraphs of this Warrant
Page 22 of 25
are inserted for convenience only and do not constitute a part of this
Warrant. This Warrant shall be construed and enforced in accordance with,
and the rights of the parties shall be governed by, the laws of the State
of Delaware, without giving effect to rules governing conflicts of law. Any
judicial proceeding involving any dispute, controversy or claim arising out
of or relating to this Warrant may be brought in a court located in the
Lubbock, Texas, and each of the Company and Holder (i) unconditionally
accepts the non-exclusive jurisdiction of such courts and any related
appellate court and irrevocably agrees to be bound by any judgment rendered
thereby, (ii) irrevocably waives any objection it may now or hereafter have
as to the venue of any such proceeding brought in such a court or that such
a court is an inconvenient forum and (iii) waives personal service of any
and all process upon it, and consents that all such service of process be
made by registered or certified mail, return receipt requested, directed to
it at its address set forth in the Purchase Agreement. Each of the Company
and Holder hereby waives trial by jury in any judicial proceeding to which
it is a party.
10. Lost Warrants or Stock Certificates. The Company represents and
varrants to, and agrees with, Holder that upon receipt of evidence
reasonably satisfactory to the Company of the loss, theft, destruction, or
mutilation of any Warrant or stock certificate and, in the case of any such
loss, theft or destruction, upon receipt of an indemnity, or in the case of
any such mutilation, upon surrender and cancellation of such Warrant or
stock certificate, the Company at its expense will make and deliver a new
Warrant or stock certficate, of like tenor, in lieu of the lost, stolen,
destroyed or mutilated Warrant or stock certificate.
11. Fractional Shares. No fractional shares shall be issued upon
exercise of this Warrant. The Company shall, in lieu of issuing any
fractional share, pay Holder a sum in cash equal to such fraction multiplied
by the fair market value of the Common Stock.
IN WITNESS WHEREOF, the Company has caused this Warrant to be
executed by a duly authorized officer this 2nd day of April, 1997.
DSI INDUSTRIES, INC.
By: _______________________________
Page 23 of 25
<PAGE>
EXHIBIT A
FORM OF STOCK SUBSCRIPTION
(To be signed only upon exercise of Warrant)
To: ___________________________
The undersigned, the holder of the accompanying Warrant, hereby
irrevocably
elects, to exercise the purchase right represented by such Warrant for [,
and to purchase thereunder,] ___________________ (__________) shares of
Common Stock (the "Common Stock"), of DSI Industries, Inc. (the
"Company") [and herewith makes payment of
_________________________Dollars($__________) therefor [by certified
check or official bank check or wire transfer]] [and hereby elects a
cashless exercise as provided in the Warrant] and requests that
certificates for [__________________( ) shares of Common Stock
be issued in the name of, and delivered to,
___________________________________________________,whose address is
_____________________________________
_________________.
The undersigned represents, unless the sale of the Common Stock
has been registered under the Securities Act of 1933, as amended (the
"Securities Act"), that the undersigned is acquiring such Common Stock for
its own account for investment and not with a view to or for sale in
connection with any distribution thereof (except for any resale pursuant to
a Registration Statement under the Securities Act).
DATED: ____________________
_________________________________________
(Signature must conform in all respects to
name of holder as specified on the face of the Warrant)
_________________________________________
_________________________________________
(Address)
Page 24 of 25
EXHIBIT B
FORM OF ASSIGNMENT
(To be executed by the registered Holder if such Holder desires to transfer
the attached Warrant,)
FOR VALUE RECEIVED, _____________________________hereby sells,
assigns, and transfers unto ________________________________ a Warrant to
purchase__________shares of Common Stock of DSI Industries, Inc. (the
"Company"), together with all right, title, and interest therein, and does
hereby irrevocably constitute and appoint____________________attorney to
transfer such Warrant on the books of the Company, with full power of
substitution.
The undersigned represents, unless the sale of this Warrant has
been registered under the Securities Act of 1933, as amended (the
"Securities Act"), that the undersigned is acquiring such Warrant for its
own account for investment and not with a view to or for sale in connection
with any distribution thereof (except for any resale pursuant to a
Registration Statement under the Securities Act).
Dated: _____________________
Signature: __________________________
Page 25 of 25
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
This schedule contains summary financial information extracted from Form 10-K
for the fiscal year ended November 30, 1996 (Balance Sheet and Statement of
Operations) and is qualified in its entirety by reference to such Form 10-K.
</LEGEND>
<S> <C>
<PERIOD-TYPE> 6-MOS
<FISCAL-YEAR-END> NOV-30-1996
<PERIOD-END> MAY-31-1997
<CASH> 173,005
<SECURITIES> 4,607
<RECEIVABLES> 5,525,337
<ALLOWANCES> 278,053
<INVENTORY> 0
<CURRENT-ASSETS> 6,332,761
<PP&E> 15,148,431
<DEPRECIATION> 5,730,451
<TOTAL-ASSETS> 17,309,751
<CURRENT-LIABILITIES> 9,328,581
<BONDS> 0
0
0
<COMMON> 242,894
<OTHER-SE> 4,327,170
<TOTAL-LIABILITY-AND-EQUITY> 4,570,064
<SALES> 0
<TOTAL-REVENUES> 15,013,430
<CGS> 0
<TOTAL-COSTS> 15,236,984
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 264,514
<INCOME-PRETAX> (278,273)
<INCOME-TAX> 0
<INCOME-CONTINUING> (278,273)
<DISCONTINUED> 25,000
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (253,273)
<EPS-PRIMARY> (.01)
<EPS-DILUTED> (.01)
</TABLE>
