UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
(Mark one) FORM 10-Q
[ X ] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15 (d)
OF THE SECURITIES EXCHANGE ACT OF 1934
For the Quarterly Period Ended August 31, 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
NORTON DRILLING SERVICES, INC.
(Formerly 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:
Former name was DSI Industries, Inc.
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 latest practicable date.
Class Outstanding at September 30, 1997
Common stock, par value $.01 per share 23,466,989 shares
Page 1 of 31
NORTON DRILLING SERVICES, INC. AND SUBSIDIARIES
Page No.
PART I - Financial Information:
Item 1. Financial Statements:
Unaudited Consolidated Balance Sheets................................3
Unaudited Consolidated Statements of Income..........................4
Unaudited Consolidated Statements of Stockholders' Equity............6
Unaudited Consolidated Statements of Cash Flows......................7
Notes to Unaudited Consolidated Financial Statements.................9
Item 2. Management's Discussion and Analysis of Financial Condition and
Results of
Operations..............................................................13
Part II - Other Information ............................................17
Item 1. Legal Proceedings...............................................17
Item 5. Other Information...............................................17
Item 6. Exhibits and Reports on Form 8K.................................18
Signatures .............................................................19
Page 2 of 31
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.
NORTON DRILLING SERVICES, INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
(Unaudited)
August 31, November 30,
1997 1996
Current assets:
Cash and cash equivalents $ - - $ 774,226
Accounts receivable , trade, less allowance
for doubtful accounts of $278,053 6,254,778 4,571,323
Costs and estimated earnings in excess of
billings on uncompleted contracts 693,353 711,355
Note receivable 138,000 - -
Insurance proceeds recoverable - - 153,586
Prepaid expenses and other current assets 372,801 212,625
----------- -----------
Total current assets 7,458,932 6,423,115
Property and equipment, at cost, net of
accumulated depreciation 9,329,833 8,508,540
Goodwill, net of accumulated amortization 1,340,882 1,412,327
Security deposits 143,991 128,991
----------- -----------
Total assets $18,273,638 $16,472,973
=========== ===========
Current liabilities:
Book cash overdraft $ 7,547 $ - -
Current maturities of notes payable 2,050,586 1,520,964
Accounts payable 4,843,549 4,986,701
Billings in excess of costs of uncompleted
contracts - - 15,293
Accrued expenses and other current
liabilities 1,099,283 1,391,915
Net liabilities of discontinued operations 105,831 538,357
----------- -----------
Total current liabilities 8,106,796 8,453,230
----------- -----------
Notes payable, less current maturities 3,271,991 3,362,755
----------- -----------
Commitments and contingencies - - - -
Stockholders' equity:
Common stock-par value $.01;
authorized-100,000,000 shares,
issued-24,668,936 and 23,893,365, respectively
outstanding-23,464,989 and 22,810,269 shares,
respectively 246,689 238,934
Additional paid-in capital 10,013,502 9,716,928
Accumulated deficit ( 3,146,397) (5,212,226)
----------- -----------
7,113,794 4,743,636
Less treasury stock, at cost ( 218,943) ( 86,648)
----------- -----------
Total stockholders' equity 6,894,851 4,656,988
----------- -----------
Total liabilities and stockholders' equity $18,273,638 $16,472,973
=========== ===========
The accompanying notes are an integral part of these unaudited consolidated
financial statements.
Page 3 of 31
NORTON DRILLING SERVICES, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF INCOME
(Unaudited)
For the nine months ended For the three months ended
August 31, August 31, August 31, August 31,
1997 1996 1997 1996
------------ ----------- ----------- -----------
Operating revenues:
Contract drilling revenues $25,346,857 $18,536,171 $10,336,665 $ 7,293,643
Other 6,159 48,996 2,921 2,262
----------- ----------- ----------- -----------
Total operating revenues 25,353,016 18,585,167 10,339,586 7,295,905
----------- ----------- ----------- -----------
Operating costs and expenses:
Direct drilling costs 21,017,510 16,241,816 7,277,982 6,469,033
General and administrative 819,822 806,118 284,373 258,771
Depreciation, depletion and
amortization 1,520,105 962,253 561,450 320,751
Other 4,915 13,229 1,563 4,159
----------- ----------- ----------- -----------
Total operating costs
and expenses 23,362,352 18,023,416 8,125,368 7,052,714
----------- ----------- ----------- -----------
Operating income 1,990,664 561,751 2,214,218 243,191
----------- ----------- ----------- -----------
Other income (expense):
Net gain on sale of assets 243,304 123,801 33,509 11,520
Interest expense ( 421,213) ( 275,438) ( 156,699) ( 80,379)
----------- ----------- ----------- -----------
Total other expense, net ( 177,909) ( 151,637) ( 123,190) ( 68,859)
----------- ----------- ----------- -----------
Income before provision for
income taxes 1,812,755 410,114 2,091,028 174,332
Income tax provision - - - - - - - -
----------- ------------ ---------- -----------
Income from continuing
operations 1,812,755 410,114 2,091,028 174,332
----------- ------------ ---------- -----------
Discontinued operations:
Adjustment to provision for
loss on disposal credited 253,074 2,115,007 228,074 2,115,007
----------- ------------ ---------- -----------
Income from discontinued
operations 253,074 2,115,007 228,074 2,115,007
----------- ------------ ---------- -----------
Net income $ 2,065,829 $ 2,525,121 $2,319,102 $ 2,289,339
=========== ============ ========== ===========
The accompanying notes are an integral part of these unaudited consolidated
financial statements.
Page 4 of 31
NORTON DRILLING SERVICES, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF INCOME
(Unaudited)
(Continued)
For the nine months ended For the three months ended
August 31, August 31, August 31, August 31,
1997 1996 1997 1996
------------ ---------- ----------- ----------
Per share data:
Primary:
Income from continuing
operations $0.08 $0.02 $0.09 $0.01
Income from discontinued
operations 0.01 0.09 0.01 0.09
----- ----- ----- -----
Net income $0.09 $0.11 $0.10 $0.10
===== ===== ===== =====
Assuming full dilution:
Income from continuing
operations $0.08 $0.02 $0.08 $0.01
Income from discontinued
operations 0.01 0.09 0.01 0.09
----- ----- ----- -----
Net income $0.09 $0.11 $0.09 $0.10
===== ===== ===== =====
Weighted average number of
common shares outstanding
Primary 23,073,452 23,550,713 23,297,044 22,869,133
========== ========== ========== ==========
Assuming full dilution 24,794,984 23,550,713 25,108,358 22,869,133
========== ========== ========== ==========
The accompanying notes are an integral part of these unaudited
consolidated financial statements.<PAGE>
Page 5 of 31
NORTON DRILLING SERVICES, 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 - - $ - -
Purchase of 1,083,096 shares of
treasury stock - - - - 1,083,096 ( 86,648)
Net income for the nine months
ended August 31, 1996 - - - - - - - -
---------- -------- --------- ---------
Balance August 31, 1996 23,893,365 $238,934 1,083,096 $( 86,648)
========== ======== ========= =========
Balance November 30, 1996 23,893,365 $238,934 1,083,096 $( 86,648)
Shares issued in satisfaction of
liabilities 396,071 3,960 - - - -
Exercise of stock options 379,500 3,795 120,851 (132,295)
Net income for the nine months
ended August 31, 1997 - - - - - - - -
---------- -------- --------- ---------
Balance August 31, 1997 24,668,936 $246,689 1,203,947 $(218,943)
========== ======== ========= =========
Retained
Additional Earnings/ Total
Paid in Accumulated Stockholders'
Capital (Deficit) Equity
Balance, November 30, 1995 $ 9,716,928 $ (8,643,168) $ 1,312,694
Purchase of 1,083,096 shares of
treasury stock - - - - (86,648)
Net income for the nine months
ended August 31, 1996 - - 2,525,121 2,525,121
----------- ----------- ----------
Balance August 31, 1996 $ 9,716,928 $(6,118,047) $3,751,167
=========== =========== ==========
Balance November 30, 1996 $ 9,716,928 $(5,212,226) $4,656,988
Shares issued in satisfaction of
liabilities 162,389 - - 166,349
Exercise of stock options 134,185 - - 5,685
Net income for the nine months
ended August 31, 1997 - - 2,065,829 2,065,829
----------- ----------- ----------
Balance August 31, 1997 $10,013,502 $(3,146,397) $6,894,851
=========== =========== ==========
The accompanying notes are an integral part of these unaudited consolidated
financial statements.
Page 6 of 31
NORTON DRILLING SERVICES, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
(Unaudited)
For the nine months ended For the three months ended
August 31, August 31, August 31, August 31,
1997 1996 1997 1996
----------- ---------- ---------- -----------
Cash flows from operating activities:
Net income $ 2,065,829 $2,525,121 $2,319,102 $ 2,289,339
Adjustments to reconcile net
income to net cash provided
by operating activities:
Adjustment to provision for loss
on disposal credited ( 253,074) (2,115,007) ( 228,074) (2,115,007)
Depreciation, depletion and
amortization 1,520,105 962,253 561,450 320,751
Gain on sale of assets ( 243,304) ( 123,801) ( 33,509) ( 11,520)
Increase (decrease) in cash flows
as a result of changes in operating
asset and liability account balances:
(Increase) decrease in accounts
receivable-trade (1,683,455) ( 706,613) (1,007,494) 326,935
Decrease in insurance proceeds
recoverable 153,586 682,661 155,555 21,477
(Increase) decrease in net costs
and estimated earnings in excess
of billings on uncompleted
contracts 2,709 ( 845,062) ( 15,098) ( 878,755)
(Increase) decrease in prepaid
expenses and other current
assets ( 160,176) 90,330 ( 294,139) ( 35,082)
(Increase) decrease in security
deposits ( 15,000) 68,832 ( 15,000) 34,454
Increase (decrease) in accounts
payable ( 143,152) ( 31,610) ( 462,501) 107,644
Increase (decrease) in accrued
expenses and other current
liabilities ( 126,283) 177,174 ( 96,151) 44,170
---------- ---------- ---------- ---------
Net cash provided by continuing
operations 1,117,785 684,278 884,141 104,406
Net cash used in discontinued
operations ( 179,452) ( 40,000) ( 143,960) ( 40,000)
---------- ---------- ---------- ----------
Net cash provided by operating
activities 938,333 644,278 740,181 64,406
---------- ---------- --------- ----------
Cash flows from investing activities:
Increase in note receivable ( 138,000) - - ( 138,000) - -
Proceeds from sale of property
and equipment 282,379 230,749 41,638 14,356
Acquisition of property and
equipment (2,150,682) ( 963,381) ( 317,836) ( 418,064)
---------- --------- --------- ---------
Net cash used in investing
activities (2,006,303) ( 732,632) ( 414,198) ( 403,708)
---------- --------- --------- ---------
The accompanying notes are an integral part of these unaudited consolidated
financial statements.<PAGE>
Page 7 of 31
NORTON DRILLING SERVICES, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
(Unaudited)
(Continued)
For the nine months ended For the three months ended
August 31, August 31, August 31, August 31,
1997 1996 1997 1996
----------- ---------- ---------- ----------
Cash flows from financing activities:
Increase in book cash overdraft 7,547 - - 7,547 - -
Proceeds from notes payable 727,118 1,503,300 227,118 1,387,300
Proceeds from (repayments of)
revolving line of credit, net 365,000 ( 650,000) ( 450,000) ( 475,000)
Repayments of notes payable ( 811,606) ( 541,965) ( 289,338) ( 248,094)
Exercise of stock options 5,685 - - 5,685 - -
Purchase of treasury stock - - ( 86,648) - - ( 86,648)
---------- ----------- --------- ----------
Net cash provided by (used in)
financing activities 293,744 224,687 ( 498,988) 577,558
---------- ----------- --------- -----------
Net increase (decrease) in cash
and cash equivalents ( 774,226) 136,333 ( 173,005) 238,256
Cash and cash equivalents at
beginning of period 774,226 283,055 173,005 181,132
---------- ---------- ---------- ----------
Cash and cash equivalents at
end of period $ - - $ 419,388 $ - - $ 419,388
========== ========== ========== ==========
Supplemental disclosures of cash flow information:
Cash paid during the period:
Interest $ 411,213 $ 276,980 $ 172,268 $ 98,456
========= ========= ========= ==========
Income taxes $ 38,081 $ 1,349 $ 17,015 $( 11,787)
========= ========= ========= ==========
Supplemental Schedule of Non-cash Investing
and Financing Activities:
During the nine month periods ending August 31, 1997 and 1996, the
Company acquired property and equipment in connection with capital lease
arrangements in the amounts of $158,346 and $343,049, respectively. During
the three month periods ending August 31, 1997 and 1996, the Company
acquired property and equipment in connection with capital lease
arrangements in the amounts of $74,459 and $239,749, respectively.
In March, 1997, 396,071 shares of common stock were issued in satisfaction
of outstanding liabilities of the Drilling Segment in the amount of
$166,349.
During the three and nine month periods ended August 31, 1997, 379,500
stock options issued under the Company's 1989 Stock Option Plan
were converted in which 258,649 shares of the Company's common stock
were issued to option holders and 120,851 shares of common stock were
surrendered by option holders to the Company in lieu of cash payment of
the exercise price.
The accompanying notes are an integral part of these unaudited consolidated
financial statements.
Page 8 of 31
NORTON DRILLING SERVICES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
1. PREPARATION OF CONSOLIDATED FINANCIAL STATEMENTS
The consolidated financial statements include the accounts of Norton
Drilling Services, Inc. (formerly DSI Industries, Inc.), and its wholly-owned
subsidiary, Norton Drilling Company as continuing operations. In addition,
the accounts of the Company's wholly-owned subsidiaries, Lobell Corporation and
Sunny's Plants, Inc. (through July 22, 1996 at which time Sunny's Plants, Inc.
was sold), are reflected as discontinued operations.
In the opinion of the Company, the accompanying consolidated balance
sheet as of August 31, 1997 and the consolidated statements of income,
stockholders' equity, and cash flows for the three and nine months ended
August 31, 1997 and 1996 include all adjustments (consisting only of
normal recurring adjustments) necessary to present fairly the financial
position as of August 31, 1997, and the results of operations and cash
flows for the three and nine months ended August 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 nine months ended August
31, 1997 are not necessarily indicative of the results of operations for
the entire year.
Certain reclassifications have been made to the 1996 financial
statements in order for them to conform with the 1997 presentation.
2. NET INCOME PER COMMON SHARE
Net income per common share of stock has been computed using the
weighted average number of common shares outstanding during the three
and nine month periods ended August 31, 1997 and 1996.
Primary net income 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 nine month periods
ended August 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 discussed above plus
the increased number of shares that would be outstanding assuming conversion
of the subordinated convertible notes payable to affiliates discussed in Note
4 herein. The weighted average number of common shares outstanding assuming
full dilution for the three and nine month periods ended August 31, 1996 do
not include these additional shares as they were not dilutive.
Page 9 of 31
3. DISCONTINUED OPERATIONS
On August 18, 1994, the Company 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, the Company may cause the segment to seek
protection from the landlord under bankruptcy 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, the Company discontinued the Nursery
Segment due to significant operating losses incurred by that segment
beginning in 1994.
In August, 1995 the Nursery Segment and the Company 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
the Company for its liabilities to certain other creditors in an amount
not to exceed $404,000. The Company 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. The Company will remain
liable as guarantor for this indebtedness until the purchaser has fully
satisfied this obligation.
On July 22, 1996, the Company 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 the Company. 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 the Company, in consideration of certain releases and the
payment by the Company to the Buyer of $10,000. Furthermore, certain
Directors and Officers of the Company resigned from their respective
positions as Directors and Officers of Sunny's and it's subsidiaries and
the Company received certain releases
Page 10 of 31
The net liabilities of the discontinued operations are as follows:
August 31, November 30,
1997 1996
Notes payable and capital lease obligations $ - - $ 395,074
Accounts payable and other liabilities 25,000 50,000
Estimated loss on disposal of segments 80,831 93,283
--------- ----------
Net liabilities of discontinued segments $ 105,831 $ 538,357
========= ==========
4. RELATED PARTY TRANSACTIONS
During May, 1993 a former officer of the Drilling Segment and an
officer/director of the Company, advanced $500,000 ($90,000 and
$410,000, respectively) to the Drilling Segment 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 nine months ending
August 31, 1997 and 1996, respectively. The notes are convertible into
the Company's common stock at $0.44 per share for an aggregate 1,136,364
shares of the Company's common stock.
In the year ended November 30, 1995, two officers/directors of the
Company, a corporation owned by an officer/director of the Company, and
one former officer of the Drilling Segment, along with the Drilling
Segment, participated in a joint venture in three wells. The joint
venture contracted with the Drilling Segment to drill, equip, and
operate the three wells and incurred costs totaling $41,999 and $64,742
for the nine months ending August 31, 1997 and 1996, respectively.
In April, 1996, the Drilling Segment sold substantially all of its
interest in the joint venture to a corporation in which the two
directors of the Company, the corporation owned by a director of the
Company and the former officer of the Drilling Segment, are
stockholders. The sales price of the interest sold was $200,000 and the
Drilling Segment realized a gain on the sale of the interest of
approximately $117,000. The corporation's pro rata share of the costs
for the nine month period ending August 31, 1997 were $13,440 of which
$1,909 was outstanding at August 31, 1997.
Each joint venture participant was liable for their pro rata share
of the costs incurred. The Drilling Segment's share was $840 and $17,769
for the nine months ending August 31, 1997 and 1996, respectively. The
aggregate costs to be borne by the five related parties mentioned above
was $17,639 and $32,037 for the nine months ending August 31, 1997 and
1996, respectively. The amounts due from related parties at August 31,
1997 and 1996 were $2,505 and $3,952, respectively.
In August, 1997 the corporation to which the Drilling Segment sold
its interest in the joint venture mentioned above, sold to the Drilling
Segment drilling equipment at a cost of approximately $168,000.
Page 11 of 31
Through November 30, 1996, four employees of the Drilling Segment
(the "Forebearing Employees"), three of which are directors of the
Company, had not been paid an aggregate of $266,350 to which they were
entitled under their employment agreements with the Company. At a
meeting of the Board of Directors on February 23, 1997, the officers of
the Company were authorized and directed to take all action necessary to
issue to the Forebearing Employees common stock worth $166,350 in
partial satisfaction of the unpaid amounts. The number of shares to be
issued was to be determined upon receipt by the Company of a letter from
a recognized valuation expert opining as to the fair market value of the
price of the common stock to be received. Upon receipt of such letter on
March 23, 1997, 396,071 shares were issued to the Forebearing Employees
as directed.
On March 1, 1997, the Company, 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.
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.
The Board also authorized the issuance of warrants to an
officer/director of the Company as compensation for the individual
personally guaranteeing certain obligations of the Drilling Segment.
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.
During the three and nine month periods ended August 31, 1997, options for
379,500 shares of the Company's common stock were exercised. The exercise
prices ranged from $0.125 to $0.560 per share. No options were exercised
during the three and nine month periods ended August 31, 1996.
Page 12 of 31
<PAGE>
Item 2. Managements Discussion and Analysis of Financial Condition and
Results of Operations
Liquidity and Capital Resources
As of August 31, 1997, the Company had a working capital deficiency of
approximately $648,000 and a book cash overdraft of approximately $8,000 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
nine months ended August 31, 1997, operations provided approximately $938,000
in cash flows and the Company's financing activities provided approximately
$294,000. For the nine months ending August 31, 1996, operations provided
approximately $644,000 in cash flows and the Company's financing activities
provided approximately $225,000. The use of funds in the nine month period
ending August 31, 1997 was mainly attributable to the acquisition of property
and equipment. The increase in funds for the nine month period ending August
31, 1996, was mainly attributable to proceeds from notes payable.
Significant expenditures of the Company primarily consist of the Drilling
Segment's continual acquisition of replacement drilling equipment, such as
drill collars, drill pipe, engines and transportation equipment to adequately
maintain the operating status of the drilling fleet. Such expenditures for
the nine months ending August 31, 1997 and 1996, approximate $2,151,000 and
$963,000, respectively. Capital expenditures increased in the current nine
month period as compared to the nine month period in the prior year due to
the upgrading of two rigs which occurred in the first few months of this
fiscal year. The Drilling Segment anticipates capital expenditures of
approximately $3,250,000 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. The inherent macroeconomic risks associated with
the oil and gas industry, such as the volatility of oil and gas prices, could
adversely affect the Registrant's operations.
Results of Continuing Operations
Comparison of the nine months ended August 31, 1997 and 1996
For the nine months ended August 31, 1997 contract drilling revenues were
approximately $25,347,000 as compared to $18,536,000 for the nine months
ended August 31, 1996, an increase of $6,811,000 or 36.7%. Average rig
utilization was 90.9% in the nine months ended August 31, 1997 compared to
71.2% in the nine months ended August 31, 1996. The increase in drilling
revenues was due to an increase in drilling rig utilization and an increase
in drilling rates brought on by an increase in demand for drilling services.
Direct job and rig costs for the nine months ended August 31, 1997 were
approximately $21,018,000 or 82.9% of contract drilling revenues as compared
to $16,242,000 or 87.6% of contract drilling revenues for the nine months
ended August 31, 1996. Direct job and rig costs increased due to the
increased amount of work performed, but decreased as a percentage of
revenues due to increased drilling rates.
General and administrative expenses were approximately $820,000 for the
nine months ended August 31, 1997 as compared to $806,000 for the nine months
ended August 31, 1996. The increase in general and administrative expenses
was due to the hiring of an additional office employee and an increase in
other salaries as provided for in employment contracts relative to the
Drilling Segment.
Page 13 of 31
Depreciaton, depletion and amortization for the nine months ended August
1, 1997 and 1996 was approximately $1,520,000 and $962,000, respectively. The
increase was due to large capital expenditures made in the first four months
of the year.
Interest expense was approximately $421,000 in the nine month period
ending August 31, 1997 as compared to approximately $275,000 in the nine
month period ended August 31, 1996. The increase in interest expense was due
to an increase in borrowings in order to fund equipment acquisitions.
In the nine months ended August 31, 1997, income from continuing
operations was approximately $1,813,000 as compared to income of
approximately $410,000 in the nine months ended August 31, 1996. The
increase in income was due mainly to the increase in drilling revenues and
gross profit percentage.
In the nine months ended August 31, 1997, the Company reported income from
discontinued operations of approximately $253,000 as compared to
approximately $2,115,000 for the nine months ended August 31, 1996. This
income in the nine months ended August 31, 1997 was attributable to
management's revision of its initial estimates made to reserve for the
ultimate loss to be incurred in the disposal of the Nursery Segment.
The income in the prior year came from the sale of the Nursery Segment to a
third party which resulted in the Company being able to write off a large
number of unsecured liabilities relative to that segment.
Comparison of the three months ended August 31, 1997 and 1996
For the three months ended August 31, 1997 contract drilling revenues were
approximately $10,337,000 as compared to $7,294,000 for the three months
ended August 31, 1996, an increase of $3,043,000 or 41.7%. Average rig
utilization was 97.5% in the three months ended August 31, 1997 compared to
87.1% in the three months ended August 31, 1996. The increase in drilling
revenues was due to an increase in rig utilization and an increase in
drilling rates brought on by an increase in demand for drilling services.
Direct job and rig costs for the three months ended August 31, 1997 were
approximately $7,278,000 or 70.4% of contract drilling revenues as compared
to $6,469,000 or 88.7% of contract drilling revenues for the three months
ended August 31, 1996. Drilling costs increased due to the increase in rig
utilization, but decreased as a percent of revenues due to an increase in
drilling rates.
General and administrative expenses were approximately $284,000 for the
three months ended August 31, 1997 as compared to $259,000 for the three
months ended August 31, 1996. The increase in general and administrative
expenses was due to the hiring of an additional office employee and an
increase in other salaries as provided for in employment contracts relative
to the drilling segment.
Interest expense was approximately $157,000 in the three month period
ended August 31, 1997 compared to $80,000 for the three months ended August
31, 1996, an increase of $77,000. The increase in interest expense was due to
an increase in borrowings in order to fund equipment acquisitions.
In the three months ended August 31, 1997, income from continuing
operations was approximately $2,091,000 as compared to $174,000 in the three
months ended August 31, 1996. The increase in income was due mainly to the
increase in drilling revenues and gross profit percentage.
In the three months ended August 31, 1997, the Company reported income
from discontinued operations of approximately $228,000 as compared to
approximately $2,115,000 for the three months ended August 31, 1996. This
Page 14 of 31
income in the three months ended August 31, 1997 was attributable to
management's revision of its initial estimates made to reserve for the
ultimate loss to be incurred in the disposal of the Nursery Segment.
The income in the prior year came from the sale of the Nursery Segment to a
third party which resulted in the Company being able to write off a large
number of unsecured liabilities relative to that segment.
Volatility of Oil and Natural Gas Prices
The Company's revenue, profitability and future rate of growth are
substantially dependent upon prevailing prices for oil and gas. Historically,
oil and gas prices and markets have been extremely volatile. Prices are
affected by market supply and demand factors as well as actions of state and
local agencies, the United States and foreign governments and international
cartels. All of these factors are beyond the control of the Company. Any
significant or extended decline in oil and/or gas prices could have a
material adverse effect on the Company's financial condition and results of
operations.
Recent Accounting Standards
In February 1997, the Financial Accounting Standards Board ("FASB") issued
Statement of Financial Accounting Standards ("SFAS") No. 128, "Earnings Per
Share" effective for periods ending after December 15, 1997. SFAS No. 128
specifies the computation, presentation and disclosure requirements for
earnings per share ("EPS"). Some of the changes made to current EPS standards
include: (1) eliminating the presentation of Primary EPS and replacing it
with Basic EPS, with the primary difference being that common stock
equivalents are not considered in computing Basic EPS, (2) eliminating the
modified treasury stock method and the three percent materiality provisions,
and (3) revising the contingent share provisions and the supplemental EPS
data requirements. SFAS No. 128 requires dual presentation of Basic and
Diluted EPS on the face of the income statement, as well as a reconciliation
of the numerator and denominator used in the two computations of EPS. Basic
EPS is defined as net income from continuing operations divided by the
weighted average number of common shares outstanding without the
consideration of common stock equivalents which may be dilutive to EPS. SFAS
No. 128 will be adopted by the Company during the quarter ending February 28,
1998 in its 1998 fiscal year.
In February 1997, the FASB issues SFAS No. 129, "Disclosure of Information
about Capital Structure". SFAS No. 129 establishes certain standards for
disclosing information about an entity's capital structure. SFAS No.129 will
be adopted by the Company during its fiscal year ending November 30, 1998.
The Company does not anticipate a change in its disclosures as a result of
the adoption of SFAS No. 129.
The FASB issued SFAS No. 130, "Reporting Comprehensive Income" which
establishes standards for reporting and the presentation of comprehensive
income and its components (revenues, expenses, gains and losses) in a full
set of general-purpose financial statements. SFAS No. 130 requires that all
items that are required to be recognized under accounting standards as
components of comprehensive income be reported in a financial statement that
is displayed with the same prominence as other financial statements. SFAS No.
130 requires that an enterprise (1) classify items of other comprehensive
income by their nature in a financial statement (2) display the accumulated
balance of other comprehensive income separately from retained earnings and
additional paid-in capital in the equity section of a statement of financial
position. SFAS No. 130 is effective for fiscal years beginning after December
15, 1997 and will be adopted by the Company during the quarter ending
February 28, 1999 in the Company's 1999 fiscal year.
The FASB issued SFAS No. 131, "Disclosures About Segments of an Enterprise
and Related Information". SFAS No. 131 establishes revised guidelines for
determining an entity's operating segments and the type and level of
Page 15 of 31
financial information to be disclosed. SFAS No. 131 is effective for fiscal
years beginning after December 15, 1997 and will be adopted by the Company
during the quarter ending February 28, 1999 in the Company's 1999 fiscal
year.
Cautionary Statement for Purposes of the "Safe Harbor" Provisions of the
Private Securities Litigation Reform Act of 1995
"Management's Discussion and Analysis of Financial Condition and Results
of Operations" included in Item 2 of this report contains forward-looking
statements which are made pursuant to the "safe harbor" provisions of The
Private Securities Litigation Reform Act of 1995. These statements include,
without limitation, statements relating to: liquidity; financing of
operations; continued volatility of oil and natural gas prices; estimates of,
and budgets for, capital expenditures for modifications and upgrades to
certain of the Company's drilling rigs and for maintenance of its contract
drilling fleet during fiscal year 1997; sources and sufficiency of funds
required for immediate capital needs; and such other matters. The words
"believes," "plans," "intends," "expected" or "budgeted" and similar
expressions identify forward-looking statements. The forward-looking
statements are based on certain assumptions and analyses made by the Company
in light of its experience and its perception of historical trends, current
conditions, expected future developments and other factors it believes are
appropriate in the circumstances. The Company does not undertake to update,
revise or correct any of the forward-looking information. Factors that could
cause actual results to differ materially from the Company's expectations
expressed in the forward-looking statements include, but are not limited to,
the following: intense competition in the contract drilling industry;
volatility of oil and natural gas prices; market conditions for contract
drilling services; continuation of severe drill-pipe shortage; operational
risks (such as blow outs, fires and loss of production); labor shortage,
primarily qualified drilling rig personnel; insurance coverage limitations
and requirements; potential liability imposed by government regulation of the
contract drilling industry (including environmental regulation); and the
substantial capital expenditures required to fund its operations.
Page 16 of 31
PART II-OTHER INFORMATION
Item 1. Legal Proceedings
On November 15, 1995, Colonial Pacific Leasing Corporation ("Colonial")
obtained a judgment against Sunny's Plants, Inc. and DSI Industries, Inc.
("DSI"), as guarantor, in the amount of $360,230.40 plus attorney's fees,
cost and interest. The judgment arose from the breach of an equipment lease.
Pursuant to a complete settlement and release agreement entered into on
August 29, 1997, by and between DSI and Colonial, DSI paid to Colonial
$275,000 at execution. Colonial accepted the $275,000 in full and final
settlement of the judgment, caused a bill of sale to be made to DSI for the
equipment made subject of the judgment and released and discharged DSI of all
liabilities arising out the judgment.
Item 5. Other Information
The Annual Meeting of the Stockholders of DSI Industries, Inc. was held
on September 25,1997. The following table sets forth a summary of how the
23,359,714 shares voted at the Annual Meeting on the various proposals voted
upon and adopted at the Annual Meeting. For the election of directors, the
following individuals were elected as directors to serve until the next
annual meeting of stockholders and until their successors were duly elected
and qualified.
Matters Voted Upon For Withheld
1. To elect directors.
Larry Adkins 20,059,771 11,640
Carl Beach 20,059,771 11,640
Kevin Lewis 20,059,771 11,640
S. Howard Norton, III 19,102,771 968,640
John W. Norton 19,104,771 966,640
Sherman H. Norton, Jr. 19,432,771 638,640
For Against Abstain
2. To approve a proposed amendment
to the Company's Certificate of
Incorporation to change the name of the
Company from DSI Industries, Inc. to
Norton Drilling Services, Inc. 19,981,911 49,750 89,750
3. To adopt the DSI Industries,
Inc. 1997 Stock Option Plan. 18,211,764 1,667,897 241,750
4. To ratify the selection of
Robinson Burdette Martin and Cowan, L.L.P.
as independent auditors of the Company
for the fiscal year commencing December
1, 1996. 20,023,211 27,000 71,200
Page 17 of 31
Item 6. Exhibits and Reports on Form 8-K
(a) Exhibits
Exhibit No. Name Page
11.1 Statement re computation of per share
earnings 20
10.42 Certificate of Amendment to Certificate
of Incorporation of Norton Drilling
Services, Inc. (f/k/a DSI Industries, Inc.) 21
10.43 DSI Industries, Inc. 1997 Stock Option Plan 22
27 Financial Data Schedule 32
(b) Reports on Form 8-K
None
Page 18 of 31
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.
NORTON DRILLING SERVICES, INC.
Dated: October 14, 1997 By:/s/ Sherman H. Norton, Jr.
Sherman H. Norton, Jr.
Chairman, Chief Executive Officer and President
Dated: October 14, 1997 By:/s/ David W. Ridley
David Ridley, Chief Financial Officer
(Principal Financial and Accounting Officer)
Page 19 of 31
EXHIBIT 11.1
NORTON DRILLING SERVICES, INC. AND SUBSIDIARIES
STATEMENT RE COMPUTATION OF PER SHARE EARNINGS
For the nine months ended For the three months ended
August 31, August 31, August 31, August 31,
1997 1996 1997 1996
---------- ---------- ---------- ----------
PRIMARY EARNINGS PER SHARE
Income from Continuing
Operations $1,812,755 $ 410,114 $2,091,028 $ 174,332
Income from Discontinued
Operations 253,074 2,115,007 228,074 2,115,007
---------- ---------- ---------- ----------
Net income $2,065,829 $2,525,121 $2,319,102 $2,289,339
========== ========== ========== ==========
Shares:
Weighted average number of shares
outstanding 23,073,452 23,550,713 23,297,044 22,869,133
Add-Dilutive effect of
outstanding options (as
determined by the
application of the
treasury stock method) 381,339 - - 548,944 35,897
---------- ---------- ---------- ----------
Weighted average number of
shares outstanding, as
adjusted 23,454,791 23,550,713 23,845,988 22,905,030
========== ========== ========== ==========
Income from Continuing
Operations: Primary $ 0.077287(a)$ 0.017414(a)$ 0.087689(a)$ 0.007611(a)
Income from Discontinued
Operations: Primary 0.010790(a) 0.089806(a) 0.009564(a) 0.092338(a)
---------- ---------- ---------- ----------
Net income per share:
Primary $ 0.088077(a)$ 0.107220(a)$ 0.097253(a)$ 0.099949(a)
========== ========== ========== ==========
ASSUMING FULL DILUTION
Income from Continuing
Operations $1,812,755 $ 410,114 $2,091,028 $ 174,332
Add-Interest on
convertible debt 31,507 30,938 10,625 10,313
---------- ---------- ---------- ----------
1,844,262 441,052 2,101,653 184,645
Income from Discontinued
Operations 253,074 2,115,007 228,074 2,115,007
---------- ---------- ---------- ----------
Net Income $2,097,336 $2,556,059 $2,329,727 $2,299,652
========== ========== ========== ==========
Shares:
Weighted average number
of shares outstanding 23,073,452 23,550,713 23,297,044 22,869,133
Add-Dilutive effect of
outstanding options (as
determined by the
applicaton of the
treasury stock method) 585,168 33,511 674,950 35,897
Add-Dilutive effect of
convertible debt 1,136,364 1,136,364 1,136,364 1,136,364
---------- ---------- ---------- ----------
Weighted average number
of shares outstanding,
as adjusted 23,794,984 24,720,588 25,108,358 24,041,394
========== ========== ========== ==========
Income from Continuing
Operations: Assuming full
dilution $ 0.077506 $ 0.017841(a)$ 0.083703 $ 0.007680(a)
Income from Discontinued
Operations: Assuming full
dilution $ 0.010636 $ 0.085557(a)$ 0.009084 $ 0.087974(a)
---------- ---------- ---------- ----------
Net income per share:
Assuming full dilution $ 0.088142 $ 0.103398(a)$ 0.092787 $ 0.095654(a)
========== ========== ========== ==========
(a) This calculation is submitted in accordance with Regulation S-K item 601(b)
(11) although not required by footnote 2 to paragraph 14 of APB Opinion No.
15 because it results in dilution of less than 3%.
Page 20 of 31
CERTIFICATE OF AMENDMENT TO
CERTIFICATE OF INCORPORATION OF
NORTON DRILLING SERVICES, INC.
(f/k/a DSI INDUSTRIES, INC.)
Under Section 242 of the General Corporation Law of the State of Delaware
The undersigned DOES HEREBY CERTIFY as follows:
FIRST: The name of the Corporation is DSI INDUSTRIES, INC., (hereinafter
called the "Corporation").
SECOND: The Certificate of Incorporation of the Corporation is hereby
amended to change the name of the Corporation.
THIRD: Article FIRST of the Certificate of Incorporation of the Corporation
is hereby amended to read as follows in its entirety:
FIRST: The name of the Corporation is NORTON DRILLING SERVICES, INC.,
(hereinafter called the "Corporation").
FOURTH: That such Certificate of Incorporation was filed with the Secretary
of State on December 21, 1983 and the name of the Corporation at that time was
Diagnostic Sciences, Inc.
FIFTH: That this Amendment was adopted by the directors and by a majority of
the stockholders of the Corporation pursuant to Section 242 of the General
Corporation Law of the State of Delaware.
IN WITNESS WHEREOF, this Certificate of Amendment of the Certificate of
Incorporation of the Corporation has been signed, and the statements made
herein affirmed as true under the penalties of perjury, this 25 day of
September, 1997.
/s/ S. Howard Norton /s/Sherman H. Norton, Jr.
- ---------------------------- ---------------------------------
S. Howard Norton, Secretary Sherman H. Norton, Jr., President
Page 21 of 31
1997 STOCK OPTION PLAN
OF DSI INDUSTRIES, INC.
1. Purpose. Types of Awards. Construction. The purpose of the 1997 Stock
Option Plan of DSI Industries, Inc. (the "Plan") is to afford an incentive to
executive officers, other employees and non-employee directors and consultants
of DSI Industries, Inc., a Delaware corporation (the "Company"), or any
Subsidiary (as defined below), to acquire a proprietary interest in the
Company, to continue as employees or non-employee directors (as the case may
be), to increase their efforts on behalf of the Company and to promote the
success of the Company's business. To further such purposes the Committee as
deemed below may grant stock options, stock appreciation rights and restricted
stock. The provisions of the Plan are intended to satisfy the requirements of
Section 16(b) of the Securities Exchange Act of 1934, and shall be interpreted
in a manner consistent with the requirements thereof, as now or hereafter
construed, interpreted and applied by regulations, rulings and cases.
2. Definitions. As used in this Plan, the following words and phrases shall
have the meanings indicated:
(a) "Agreement" shall mean an agreement entered into between the Company
and a Grantee in connection with an award under the Plan.
(b) "Board" shall mean the Board of Directors of the Company.
(c) "Code" shall mean the Internal Revenue Code of 1986, as amended from
time to time, and any reference to a section of the Code or regulation
promulgated thereunder shall also refer to any successor of such section or
regulation.
(d) "Committee" shall mean a committee established by the Board to
administer the Plan, the composition of which shall at all times satisfy the
provisions of Rule 16b-3 under the Exchange Act.
(e) "Common Stock" shall mean shares of common stock, par value $.01 per
share, of the Company.
(f) "Company" shall mean DSI Industries, Inc., a corporation organized
under the laws of the State of Delaware, or any successor corporation.
(g) "Disability" shall mean a Grantee's inability to perform his duties
with the Company or any Subsidiary for more than six consecutive months by
reason of any medically determinable physical or mental impairment, as
determined by a physician selected by the Grantee and acceptable to the
Company.
(h) "Exchange Act" shall mean the Securities Exchange Act of 1934, as
amended from time to time, and as now or hereafter construed, interpreted and
applied by regulations, rulings and cases, and any reference to a section of
the Exchange Act or rule or regulation promulgated thereunder shall also refer
to any successor of such section, rule or regulation..
(i) "Fair Market Value" per share as of a particular date shall mean (i)
the average high and low trading prices per share of Common Stock on the
national securities exchange on which the Common Stock is principally traded
for the last preceding date on which there was a sale of such Common Stock on
such exchange, or (ii) if the shares of Common Stock are then traded in an
over-the-counter market, the average high and low trading prices per share of
Common Stock in such over-the-counter market for the last preceding date on
which there was a sale of such Common Stock in such market, or (iii) if the
shares of Common Stock are not then listed on a national securities exchange
or traded in an over-the-counter market, such value as the Committee, in its
sole discretion, shall determine.
Page 22 of 31
(j) "Grantee" shall mean a person who receives a grant of Options, Stock
Appreciation Rights or Restricted Stock under the Plan.
(k) "Incentive Stock Option" shall mean any option intended to be, and
designated as, an incentive stock option within the meaning of Section 422 of
the Code.
(1) "Insider" shall mean a Grantee who is subject to the reporting
requirements of Section 16(a) of the Exchange Act.
(m) "Option" or "Options" shall mean a grant to a Grantee of an option or
options to purchase shares of Common Stock. Options granted by the Committee
to an employee Grantee pursuant to the Plan shall constitute either Incentive
Stock Options or Nonqualified Stock Options. Options granted to any consultant
or non-employee director shall be Nonqualified Stock Options.
(n) "Option Price" shall mean the exercise price of an Option per share of
Common Stock covered by the Option.
(o) "Option Term" shall mean the period (determined at the Option's grant)
from its date of grant to the last date on which it can be exercised. The
Option Term of any Incentive Stock Option or any Option granted to any
consultant or non-employee director shall not be longer than ten (10) years.
The Option Term of any Incentive Stock Option granted to a Ten Percent
Stockholder shall not be longer than five (5) years.
(p) "Plan" means this 1997 Stock Option Plan of DSI Industries, Inc., as
amended from time to time.
(q) "Retirement" shall mean a Grantee's retirement in accordance with the
terms of any pension or retirement plan adopted by the Company (or any
Subsidiary), if any, as the case may be, on the normal retirement date
prescribed from time to time by the Company or such Subsidiary.
(r) "Rule 16b-3" shall mean Rule 16b-3, as from time to time in effect,
promulgated by the Securities and Exchange Commission under Section 16 of the
Exchange Act, including any successor to such Rule.
(s) "Stock Appreciation Right" shall mean the right, granted to a Grantee
under Section 9, to be paid an amount measured by the appreciation in the Fair
Market Value of Common Stock from the date of grant to the date of exercise of
the right, with payment to be made in cash or Common Stock as specified in the
award or determined by the Committee.
(t) "Subsidiary" shall be as defined in Section 424(f) of the Code and
shall include a subsidiary of any subsidiary.
(u) "Ten Percent Stockholder" shall mean an employee Grantee who, at the
time an Incentive Stock Option is granted to such Grantee, owns stock
possessing more than ten percent (10%) of the total combined voting power of
all classes of stock of the employer corporation or of its parent or
subsidiary corporation.
3. Administration. The Plan shall be administered by the Committee. The
Committee shall have the authority in its discretion, subject to and not
inconsistent with the express provisions of the Plan, to administer the Plan
and to exercise all the powers and authorities either specifically granted to
it under the Plan or necessary or advisable in the administration of the Plan,
including, without limitation, the authority to grant Options, Stock
Appreciation Rights and Restricted Stock; to determine which Options shall
constitute Incentive Stock Options and which Options shall constitute
Nonqualified Stock Options; to determine the purchase price of the shares of
Common Stock covered by each Option; to determine the persons to whom, and the
time or times at which awards shall be granted; to determine the number of
Page 23 of 31
shares to be covered by each award; to interpret the Plan; to prescribe, amend
and rescind rules and regulations relating to the Plan; to determine the terms
and provisions of the Agreements (which need not be identical) and to cancel
or suspend awards, as necessary; and to make all other determinations deemed
necessary or advisable for the administration of the Plan.
The Committee may delegate to one or more of its members or to one or more
agents such administrative duties as it may deem advisable, and the Committee
or any person to whom it has delegated duties as aforesaid may employ one or
more persons to render advice with respect to any responsibility the Committee
or such person may have under the Plan. All decisions, determination and
interpretations of the Committee shall be final and binding on all Grantees of
any awards under this Plan. The Board shall fill all vacancies, however
caused, in the Committee. The Board may from time to time appoint additional
members to the Committee, and may at any time remove one or more Committee
members and substitute others. One member of the Committee shall be selected
by the Board as chairman. The Committee shall hold its meetings at such times
and places as it shall deem advisable. All determinations of the Committee
shall be made by a majority of its members either present in person or
participating by conference telephone at a meeting or by written consent. The
Committee may appoint a secretary and make such rules and regulations for the
conduct of its business as it shall deem advisable, and shall keep minutes of
its meetings.
No member of the Board or Committee shall be liable for any action taken
or determination made in good faith with respect to the Plan or any award
granted hereunder.
4. Eligibility. Awards may be granted to executive officers and other key
employees, including officers and directors who are employees, and to
non-employee directors of and consultants to the Company, except as proscribed
by the Exchange Act or the Code. In determining the employees to whom awards
shall be granted and the number of shares to be covered by each award, the
Committee shall take into account the duties of the respective employees,
their present and potential contributions to the success of the Company and
such other factors as the Committee shall deem relevant in connection with
accomplishing the purpose of the Plan.
5. Stock. The maximum number of shares of Common Stock reserved for the grant
of awards under the Plan shall be 1,150,000 shares, subject to adjustment as
provided in Section 11 hereof. Such shares may, in whole or in part, be
authorized but unissued shares or shares that shall have been or may be
reacquired by the Company. For purposes of this Section 5, where the exercise
price of an Option is paid in Common Stock pursuant to Section 6(d) of the
Plan, only the net number of additional shares issued and which remain
outstanding in connection with such exercise shall be deemed "issued" for
purposes of the Plan.
If any outstanding award under the Plan should, for any reason expire, be
canceled or be forfeited (other than in connection with the exercise of a
Stock Appreciation Right), without having been exercised in full, the shares
of Common Stock allocable to the unexercised, canceled or terminated portion
of such award shall (unless the Plan shall have been terminated) become
available for subsequent grants of awards under the Plan; provided, however,
that, in the case of the cancellation or forfeiture of Restricted Stock with
respect to which dividends have been paid or accrued, the number of shares
with respect to such Restricted Stock shall not be available for subsequent
grants hereunder unless, in the case of shares with respect to which dividends
were accrued but unpaid, such dividends are also canceled or forfeited.
6. Terms and Conditions of Options. Each Option granted pursuant to the Plan
shall be evidenced by a written agreement between the Company and the Grantee
(the "Option Agreement"), in such form and containing such terms and
Page 24 of 31
conditions as the Committee shall from time to time approve, which Option
Agreement shall comply with and be subject to the following terms and
conditions, unless otherwise specifically provided in such Option Agreement.
(a) Number of Shares. Each Option Agreement shall state the number of
shares of Common Stock to which the Option relates.
(b) Type of Option. Each Option Agreement shall specifically state that
the Option constitutes an Incentive Stock Option or a Nonqualified Stock
Option.
(c) Option Price. Each Option Agreement shall state the Option Price,
which, in the case of an Incentive Stock Option, shall not be less than one
hundred percent (100%) of the Fair Market Value of a share of Common Stock
covered by the Option on the date of grant, and in any case shall not be less
than the par value of a share of the Common Stock covered by the Option. The
Option Price shall be subject to adjustment as provided in Section 11 hereof.
The date as of which the Committee adopts a resolution expressly granting an
Option shall be considered the day on which such Option is granted.
(d) Medium and Time of Payment. Payment of the Option Price may be made
(as determined by the Board) (i) in cash, (ii) by certified check or bank
cashier's check payable to the order of the Company in the amount of such
Option Price, or, if permitted by the Committee: (iii) by promissory note
issued by the Grantee in favor of the Company in an amount equal to such
Option Price and payable on terms prescribed by the Committee and which
provides for the payment of interest at a fair market rate, as determined by
the Committee, (iv) by delivery of capital stock to the Company having a Fair
Market Value (determined on the date of exercise) equal to the Option Price,
(v) by agreeing with the Company to cancel a portion of the exercisable
Options issued hereunder to such Grantee having a value (measured as the
difference between the current Fair Market Value (determined on the date of
exercise) and the Option Price of the Common Stock subject to such portion)
equal to the Option Price; or (vi) by any combination of the methods of
payment described in (i) through (v) above.
(e) Term and Exercisability of Options. Each Option Agreement shall
provide the exercise schedule for the Option as determined by the Committee;
provided, however, that the Committee shall have the authority to accelerate
the exercisability of any outstanding Option at such time and under such
circumstances as it, in its sole discretion, deems appropriate. Each Option
Agreement shall provide an Option Term which shall be ten (10) years from the
date of the grant of the Option, unless otherwise provided in Section 2 hereof
or otherwise determined by the Committee. The Option Term shall be subject to
earlier expiration as provided in Sections 6(f )and 6(g) hereof. An Option may
be exercised, as to any or all full shares of Common Stock as to which the
Option has become exercisable, by written notice delivered in person or by
mail to the Secretary of the Company, specifying the number of shares of
Common Stock with respect to which the Option is being exercised.
(f) Termination of Employee Grantee. Except as provided in this Section
6(f) and in Section 6(g) hereof, an Option granted to an employee of the
Company or a Subsidiary thereof may be exercised only if the employee Grantee
is then in the employ of the Company or a Subsidiary thereof (or a corporation
issuing or assuming the Option in a transaction to which Section 424(a) of the
Code applies (or a parent or subsidiary corporation of such corporation)), and
the Grantee has remained continuously so employed since the date of grant of
the Option. In the event that the employment of an employee Grantee shall
terminate (other than by reason of death, Disability or Retirement), all
Options of such Grantee that are exercisable on the date of such termination
shall continue to be exercisable for three months after the date of such
termination (or such longer period as the Committee shall prescribe in the
case of Nonqualified Stock Options). Notwithstanding the foregoing provisions
Page 25 of 31
of this Section 6(f), no Option may be exercised later than the expiration of
its Option Term. To the extent that any Option is not exercisable on the date
of such termination of employment, its Option Term shall expire on such date.
(g) Termination of Employee Grantee by Death, Disability or Retirement. If
an employee Grantee shall die while employed by the Company or a Subsidiary
thereof, or within three months after the date of termination of such
Grantee's employment (or within such longer period as the Committee may have
provided for exercise of the Grantee's Options after termination of the
Grantee's employment pursuant to Section 6(f) hereof, or if the employee
Grantee's employment shall terminate by reason of Disability, all Options
theretofore granted to such Grantee (to the extent such Options are
exercisable on the date the Grantee's employment is terminated by such death
or Disability) may be exercised by the Grantee or by the Grantee's estate or
by a person who acquired the right to exercise such Options by bequest or
inheritance or otherwise by reason of death or Disability of the Grantee, at
any time within six months after the death or Disability of the Grantee. In
the event that an Option granted hereunder shall be exercised by the legal
representatives of a deceased or Disabled Grantee, written notice of such
exercise shall be accompanied by a certified copy of letters testamentary or
equivalent proof of the right of such legal representatives to exercise such
Option. In the event that the employment of an employee Grantee shall
terminate on account of such Grantee's Retirement, all Options of such Grantee
(to the extent such Options are exercisable on the date of the Grantee's
retirement) may be exercised at any time within three months after the date of
such Retirement. Notwithstanding the foregoing provisions of this Section
6(g), no Option may be exercised later than the expiration of its Option Term.
To the extent that any Option is not exercisable on the date of such
termination of employment by reason of death, Disability or Retirement, its
Option Term shall expire on such date.
(h) Other Provisions. The Option Agreements evidencing awards under the
Plan shall contain such other terms and conditions not inconsistent with the
Plan as the Committee may determine.
7. Nonqualified Stock Options. Options granted pursuant to this Section 7 are
intended to constitute Nonqualified Stock Options and shall be subject only to
the general terms and conditions specified in Section 6 hereof. At the
discretion of the Committee, the early termination provisions contained in
Section 6 hereof may be waived by the Committee as evidenced by their
exclusion from any Option Agreement.
8. Incentive Stock Options. Options granted pursuant to this Section 8 are
intended to constitute Incentive Stock Options and shall be subject to the
following special terms and conditions, in addition to the general terms and
conditions specified in Section 6 hereof.
(a) Value of Shares. The aggregate Fair Market Value (determined as of the
date the Incentive Stock Option is granted) of the shares of Common Stock with
respect to which Incentive Stock Options granted under this Plan (and all
other plans of an employee Grantee's employer corporation and its parent and
subsidiary corporations) become exercisable for the first time by the Grantee
during any calendar year shall not exceed $100,000. To the extent that the
grant of an Option results in the aggregate Fair Market Value (determined at
the time of grant) of the Common Stock (or other capital stock of the Company
or any subsidiary) with respect to which Incentive Stock Options are
exercisable for the first time by a Grantee during any calendar year (under
all plans of the Company and subsidiary corporations) to exceed $100,000, such
Option shall be treated as a Nonqualified Stock Option to the extent of such
excess. The provisions of this subsection shall be construed and applied in
accordance with Section 422(d) of the Code and the regulations, if any,
promulgated thereunder. Nothing contained in the Plan shall be construed to
limit the right of the Committee to grant an Incentive Stock Option and a
Page 26 of 31
Nonqualified Stock Option concurrently under a single stock option Agreement
so long as each Option is clearly identified as to its status.
(b) Ten Percent Stockholder. In the case of an Incentive Stock Option
granted to a Ten Percent Stockholder, (i) the Option Price shall not be less
than one-hundred-ten percent (110%) of the Fair Market Value of a share of
Common Stock on the date of grant of such Incentive Stock Option, and (ii) the
Option Term shall not exceed five (5) years from the date of grant of such
Incentive Stock Option.
(c) Disqualifying Dispositions of Incentive Stock Options. If Common
Stock acquired upon exercise of any Incentive Stock Option is disposed of in a
disposition that, under Section 422 of the Code, disqualifies the Grantee from
the application of Section 421(a) of the Code, the Grantee immediately before
such disposition of Common Stock shall comply with any requirements imposed by
the Company in order to enable the Company to secure the related income tax
deduction to which it is entitled in such event.
9. Stock Appreciation Rights. The Committee shall have authority to grant a
Stock Appreciation Right to the employee Grantee of any Option under the Plan
with respect to all or some of the shares of Common Stock covered by such
related Option. A Stock Appreciation Right shall, except as provided in this
Section 9, be subject to the same terms and conditions as the related Option.
Each Stock Appreciation Right granted pursuant to the Plan shall be evidenced
by a written Agreement between the Company and the Grantee in such form as the
Committee shall time to time approve.
(a) Time of Grant. A Stock Appreciation Right may be granted either at the
time of grant, or at any time thereafter during the term of the Option;
provided, however, that Stock Appreciation Rights related to Incentive Stock
Options may only be granted at the time of grant of the related Option.
(b) Payment. A Stock Appreciation Right shall entitle the holder thereof,
upon exercise of the Stock Appreciation Right or any portion thereof, to
receive payment of an amount computed pursuant to Section 9(d).
(c) Exercise. A Stock Appreciation Right shall be exercisable at such time
or times and only to the extent that the related Option is exercisable, and
will not be transferable except to the extent the related Option may be
transferable. A Stock Appreciation Right granted in connection with an
Incentive Stock Option shall be exercisable only if the Fair Market Value of a
share of Common Stock on the date of exercise exceeds the purchase price
specified in the related Incentive Stock Option.
(d) Amount Payable. Upon the exercise of a Stock Appreciation Right, the
Grantee shall be entitled to receive an amount determined by multiplying (i)
the excess of the Fair Market Value of a share of Common Stock on the date of
exercise of such Stock Appreciation Right over the Option Price under the
related Option, by (ii) the number of shares of Common Stock as to which such
Stock Appreciation Right is being exercised. Notwithstanding the foregoing,
the Committee may limit in any manner the amount payable with respect to any
Stock Appreciation Right by including such a limit at the time it is granted.
(e) Treatment of Related Options and Stock Appreciation Rights Upon
Exercise. Upon the exercise of a Stock Appreciation Right, the related Option
shall be canceled to the extent of the number of shares of Common Stock as to
which the Stock Appreciation Right is exercised and upon the exercise of an
Option granted in connection with a Stock Appreciation Right, the Stock
Appreciation Right shall be canceled to the extent of the number of shares of
Common Stock as to which the Option is exercised or surrendered.
(f) Method of Exercise. Stock Appreciation Rights shall be exercised by a
Grantee only by a written notice delivered in person or by mail to the
Page 27 of 31
Secretary of the Company, specifying the number of shares of Common Stock with
respect to which the Stock Appreciation Right is being exercised. If requested
by the Committee, the Grantee shall deliver the Agreement evidencing the Stock
Appreciation Right being exercised and the Option Agreement evidencing any
related Option to the Secretary of the Company who shall endorse thereon a
notation of such exercise and return such Agreements to the Grantee.
(g) Form of Payment. Payment of the amount determined under Section 9(d),
may be made solely in whole shares of Common Stock in a number determined
based upon their Fair Market Value on the date of exercise of the Stock
Appreciation Right or, alternatively, at the sole discretion of the Committee,
solely in cash, or in a combination of cash and shares of Common Stock as the
Committee deems advisable. If the Committee decides to make full payment in
shares of Common Stock, and the amount payable results in a fractional share,
payment for the fractional share will be made in cash. Notwithstanding the
foregoing, to the extent required by Rule 16b-3 no payment in the form of cash
may be made upon the exercise of a Stock Appreciation Right pursuant to
Section 9(d) to an Insider, unless the exercise of such Stock Appreciation
Right is made during the period beginning on the third business day and ending
on the twelfth business day following the date of release for publication of
the Company's quarterly or annual statements of earnings.
10. Restricted Stock. The Committee may award shares of Restricted Stock to
any eligible employee. Each award of Restricted Stock under the Plan shall be
evidenced by a written Agreement between the Company and the Grantee, in such
form as the Committee shall from time to time approve, and shall comply with
the following terms and conditions (and with such other terms and conditions
not inconsistent with the terms of this Plan as the Committee, in its
discretion, shall establish):
(a) Number of Shares. Each Agreement shall state the number of shares of
Restricted Stock to be subject to an award.
(b) Restrictions. Shares of Restricted Stock may not be sold, assigned,
transferred, pledged, hypothecated or otherwise disposed of, except by will or
the laws of descent and distribution, for such period as the Committee shall
determine from the date on which the award is granted (the "Restricted
Period"). The Committee may also impose such other restrictions and conditions
on the shares as it deems appropriate including the satisfaction of
performance criteria. Certificates for shares of stock issued pursuant to
Restricted Stock awards shall bear an appropriate legend referring to such
restrictions, and any attempt to dispose of any such shares of stock in
contravention of such restrictions shall be null and void and without effect.
During the Restricted Period, such certificates shall be held in escrow by an
escrow agent appointed by the Committee. In determining the Restricted Period
of an award, the Committee may provide that the foregoing restrictions shall
lapse with respect to specified percentages of the awarded shares on
successive anniversaries of the date of such award.
(c) Forfeiture. Subject to such exceptions as may be determined by the
Committee, if the Grantee's continuous employment with the Company or any
Subsidiary shall terminate for any reason prior to the expiration of the
Restricted Period of an award, any shares remaining subject to restrictions
(after taking into account the provisions of Section 10(e) hereof shall
thereupon be forfeited by the Grantee and transferred to, and reacquired by,
the Company or a Subsidiary at no cost to the Company or Subsidiary.
(d) Ownership. During the Restricted Period the Grantee shall possess all
incidents of ownership of such shares, subject to Section 10(b) hereof,
including the right to receive dividends with respect to such shares and to
vote such shares.
(e) Accelerated Lapse of Restrictions. The Committee shall have the
Page 28 of 31
authority (and the Agreement may, but need not, so provide) to cancel all or
any portion of any outstanding restrictions prior to the expiration of the
Restricted Period with respect to any or all of the shares of Restricted Stock
awarded on such terms and conditions as the Committee shall deem appropriate.
11. Effect of Certain Changes. In the event of any extraordinary dividend,
stock dividend, recapitalization, merger, consolidation, stock split, warrant
or rights issuance, or combination or exchange of such shares, or other
similar transactions, the number of shares of Common Stock available for
awards, the number of such shares covered by outstanding awards, and the price
per share of Options or the applicable market value of Stock Appreciation
Rights shall be equitably adjusted by the Committee to reflect such event and
preserve the value of such awards; provided, however, that any fractional
shares resulting from such adjustment shall be eliminated. If the Company
shall be reorganized, consolidated, or merged with another corporation, or if
all or substantially all of the assets of the Company shall be sold or
exchanged, a Grantee shall at the time of issuance of the stock under such a
corporate event, be entitled to receive upon the exercise of his award the
same number and kind of shares of stock or the same amount of property, cash
or securities as he would have been entitled to receive upon the occurrence of
any such corporate event as if he had been, immediately prior to such event,
the holder of the number of shares covered by his award and that his award
shall have been fully vested at the time of such event; provided, however,
that in any of such events the Committee shall have the discretionary power to
take any action necessary or appropriate to prevent Incentive Stock Options
granted hereunder from being disqualified as Incentive Stock Options. Any
adjustment under this Section shall apply proportionately to only the
unexercised portion of any award granted hereunder. If fractions of a share
would result from any such adjustment, the adjustment shall be revised to the
next lower whole number of shares.
12. Surrender and Exchange of Awards. The Committee may permit the voluntary
surrender of all or a portion of any Option granted under the Plan to an
employee or any option granted under any other plan, program or arrangement of
the Company or any Subsidiary ("Surrendered Option"), to be conditioned upon
the granting to the employee Grantee of a new Option for the same number of
shares of Common Stock as the Surrendered Option, or may require such
voluntary surrender as a condition precedent to a grant of a new Option to
such Grantee. Subject to the provisions of the Plan, such new Option may be an
Incentive Stock Option or a Nonqualified Stock Option and shall be exercisable
at the price, during such period and on such other terms and conditions as are
specified by the Committee at the time the new Option is granted. The
Committee may also grant Restricted Stock in exchange for Surrendered Options
to any holder of such Surrendered Option.
13. Period During Which Awards May Be Granted. Awards may be granted pursuant
to the Plan from time to time within a period of ten (10) years from the date
the Plan is adopted by the Board, or the date the Plan is approved by the
stockholders of the Company, whichever is earlier.
14. Nontransferability of Awards. Awards may be granted under the Plan shall
not be transferable otherwise than by will or by the laws of descent and
distribution, and awards may be exercised or otherwise realized, during the
lifetime of the Grantee, only by the Grantee or by his guardian or legal
representative. No award granted under the Plan shall be subject to
execution, attachment or other process.
15. Approval of Shareholders. The Plan shall take effect as of the date
determined by the Board in its adoption of the Plan but the Plan (and any
grants of awards made prior to the shareholder approval described in this
sentence shall be subject to the approval of the holder(s) of a majority of
the issued and outstanding shares of voting securities of the Company entitled
to vote, which approval must occur within twelve months of the date the Plan
Page 29 of 31
is adopted by the Board.
16. Agreement by Employee Grantee Regarding Withholding Taxes. If the
Committee shall so require, as a condition of exercise of an Option or Stock
Appreciation Right or the expiration of the Restricted Period (each a "Tax
Event"), each employee Grantee shall agree that, no later than the date of the
Tax Event, the Grantee will pay to the Company or make arrangements
satisfactory to the Committee regarding payment of any federal, state or local
taxes of any kind required by law to be withheld upon the Tax Event.
Alternatively, the Committee may provide that an employee Grantee may elect,
to the extent permitted or required by law, to have the Company deduct
federal, state and local taxes of any kind required by law to be withheld upon
the Tax Event from any payment of any kind due to the Grantee. The withholding
obligation may be satisfied by the withholding or delivery of Common Stock.
17. Amendment and Termination of the Plan.
(a)The Board at any time and from time to time may suspend, terminate,
modify or amend the Plan; provided, however, that an amendment which requires
stockholder approval in order for the Plan to continue to comply with Rule
16b-3 or any other law, regulation or stock exchange requirement shall not be
effective unless approved by the requisite vote of stockholders. Except as
provided in Section 11 hereof, no suspension, termination, modification or
amendment of the Plan may adversely affect any award previously granted,
unless the written consent of the Grantee is obtained.
(b) The Plan may from time to time be terminated, modified or amended by
the affirmative vote of the holders of a majority of the shares of the
Company's Common Stock present, or represented, and entitled to vote at a
meeting of stockholders duly held in accordance with applicable state law.
(c) The Board of the Company may at any time terminate the Plan or from
time to time make such modifications or amendments of the Plan as it may deem
advisable; provided, however, that the Board shall not (i) modify or amend the
Plan in any way that would disqualify any Option issued pursuant to the Plan
as an Incentive Stock Option, or (ii) without approval by the affirmative vote
of the holders of a majority of the shares of the Company's Common Stock
present, or represented, and entitled to vote at a meeting of stockholders
duly held in accordance with applicable state law increase (except as provided
by Section 11) the maximum number of Common Shares as to which awards may be
granted under the Plan or change the class of persons eligible to receive
award under the Plan.
(d) No termination, modification or amendment of the Plan may adversely
affect the rights conferred by any awards without the consent of the Grantee
thereof.
18. Rights as a Shareholder. Except as provided in Section 10(d) hereof, a
Grantee of an award (or any individual acquiring rights under such award from
the Grantee) shall have no rights as a shareholder with respect to any shares
covered by the award until the date of the issuance of a stock certificate for
such shares to the Grantee (or such individual). No adjustment shall be made
for dividends (ordinary or extraordinary, whether in cash, securities or other
property) or distribution of other rights for which the record date is prior
to the date such stock certificate is issued, except as provided in Section 11
hereof.
19. No Rights to Employment. Nothing in the Plan or in any award granted or
Agreement entered into pursuant hereto shall confer upon any Grantee the right
to continue in the employ of, or a consultant relationship with, the Company
or any Subsidiary or to be entitled to any remuneration or benefits not set
forth in the Plan or such Agreement or to interfere with or limit in any way
the right of the Company or any such Subsidiary to terminate such Grantee's
Page 30 of 31
employment. Awards granted under the Plan shall not be affected by any change
in duties or position of a Grantee as long as such Grantee continues to be
employed by, or in a consultant relationship with, the Company or any
Subsidiary.
20. Beneficiary. A Grantee may file with the Committee a written designation
of a beneficiary on such form as may be prescribed by the Committee and may,
from time to time, amend or revoke such designation. If no designated
beneficiary survives the Grantee, the executor or administrator of the
Grantee's estate shall be deemed to be the Grantee's beneficiary.
21. Governing Law. The Plan and all determinations made and actions taken
pursuant hereto shall be governed by the laws of the State of Delaware.
22. Effective Date and Duration of the Plan. This Plan shall be effective as
of the date determined by the Company, subject to the approval of the Plan by
the stockholders of the Company, and shall terminate on the tenth anniversary
of such date, unless earlier terminated pursuant to Section 17 hereof. No
awards shall be granted after termination of the Plan.
23. Leave of Absence. For purposes of the Plan, an individual who is on
military or sick leave or other bona fide leave of absence (such as temporary
employment by the United States or any state government) shall be considered
as remaining in the employ of the Company or of a subsidiary corporation, if
any, for 90 days or such longer period as shall be determined by the
Committee.
24. Further Conditions of Exercise.
(a) Unless prior to the exercise of an award, the Common Stock issuable
upon such exercise are the subject of a registration statement filed with the
Securities and Exchange Commission pursuant to the Securities Act of 1933, as
amended (the "Securities Act"), and there is then in effect a prospectus filed
as part of such registration statement meeting the requirements of Section
10(a)(3) of the Securities Act, the acceptance of such award and the notice of
exercise with respect to such award shall be accompanied by a representation
or agreement deemed hereunder to have been made by the Grantee to the Company
to the effect that such shares are being acquired for investment only and not
with a view to the resale or distribution thereof, or such other documentation
as may be required by the Company, unless, in the opinion of counsel to the
Company, such representation, agreement or documentation is not necessary to
comply with the Securities Act.
(b) Anything in subsection (a) of this Section 24 to the contrary
notwithstanding, the Company shall not be obligated to issue or sell any
Common Stock until they have been listed on each securities exchange on which
the Common Stock may then be listed and until and unless, in the opinion of
counsel to the Company, the Company may issue such shares pursuant to a
qualification or an effective registration statement, or an exemption from
registration, under such state and federal laws, rules or regulations as such
counsel may deem applicable. The Company shall use reasonable efforts to
effect such listing, qualification and registration, as the case may be.
Page 31 of 31
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM FORM 10-Q
FOR THE QUARTERLY PERIOD ENDED AUGUST 31, 1997 (BALANCE SHEET AND STATEMENT OF
INCOME) AND IS QUALIFIED IN ITS ENTIRETY BY REFERENCE TO SUCH FORM 10-Q.
</LEGEND>
<S> <C>
<PERIOD-TYPE> 9-MOS
<FISCAL-YEAR-END> NOV-30-1996
<PERIOD-END> AUG-31-1997
<CASH> 0
<SECURITIES> 4,607
<RECEIVABLES> 6,532,831
<ALLOWANCES> 278,053
<INVENTORY> 0
<CURRENT-ASSETS> 7,458,932
<PP&E> 15,586,162
<DEPRECIATION> 6,256,329
<TOTAL-ASSETS> 18,273,638
<CURRENT-LIABILITIES> 8,106,796
<BONDS> 0
0
0
<COMMON> 246,689
<OTHER-SE> 6,648,162
<TOTAL-LIABILITY-AND-EQUITY> 18,273,638
<SALES> 0
<TOTAL-REVENUES> 25,353,016
<CGS> 0
<TOTAL-COSTS> 21,017,510
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 421,213
<INCOME-PRETAX> 1,812,755
<INCOME-TAX> 0
<INCOME-CONTINUING> 1,812,755
<DISCONTINUED> 253,074
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 2,065,829
<EPS-PRIMARY> 0.09
<EPS-DILUTED> 0.09
</TABLE>
