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 February 28, 1998
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.
(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 latest practicable date.
Class Outstanding at April 4, 1997
Common stock, par value $.01 per share 25,844,799 shares
Page 1 of 16
<PAGE>
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 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...................................................11
Part II - Other Information ............................................14
Item 1. Legal Proceedings ..............................................14
Item 6. Exhibits and Reports on Form 8-K................................14
Signatures .............................................................15
Page 2 of 15
<PAGE>
PART I - FINANCIAL INFORMATION
Item 1. Financial Statements
The following financial statements include all adjustments which in
managements'opinion are necessary in order to make the financial statements
not misleading.
NORTON DRILLING SERVICES, INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
(Unaudited)
February 28, November 30,
1998 1997
----------- ------------
Current assets:
Cash and cash equivalents $ 261,488 $ 277,097
Accounts receivable, trade, less allowance for
doubtful accounts of $242,183 and $220,075,
respectively 6,778,599 6,153,958
Costs and estimated earnings in excess of
billings on uncompleted contracts 680,110 1,008,756
Prepaid expenses and other current assets 323,925 434,996
----------- -----------
Total current assets 8,044,122 7,874,807
Property and equipment, at cost, net of
accumulated depreciation 10,306,157 10,351,456
Goodwill, net of accumulated amortization 1,293,252 1,317,067
Note receivable, net of current maturities 70,488 75,764
Security deposits 143,991 143,991
----------- -----------
Total assets $19,858,010 $19,763,085
=========== ===========
Current liabilities:
Current maturities of notes payable $ 816,274 $ 2,403,986
Accounts payable 4,055,857 3,978,868
Billings is excess of costs of uncompleted
contracts - - 12,228
Accrued expenses and other current liabilities 1,456,296 1,885,352
Net liabilities of discontinued operations 96,257 104,953
----------- -----------
Total current liabilities 6,424,684 8,385,387
----------- -----------
Long-term liabilities
Notes payable, less current maturities 3,554,036 2,633,802
Deferred income taxes 1,252,046 942,267
----------- -----------
Total long-term liabilities 4,806,082 3,576,069
----------- -----------
Commitments and contingencies - - - -
Stockholders' equity:
Common stock-par value $.01;
authorized-100,000,000 shares;
issued-25,844,799 and 25,841,799 shares at
February 28, 1998 and November 30, 1997,
respectively;
outstanding-24,639,346 and 24,636,346 shares
at February 28, 1998 and November 30, 1997,
respectively 258,448 258,418
Additional paid-in capital 10,519,320 10,518,132
Accumulated deficit ( 1,925,897) ( 2,750,294)
----------- -----------
8,851,871 8,026,256
Less treasury stock, at cost ( 224,627) ( 224,627)
----------- -----------
Total stockholders' equity 8,627,244 7,801,629
----------- -----------
Total liabilities and stockholders'
equity $19,858,010 $19,763,085
=========== ===========
The accompanying notes are an integral part of these unaudited consolidated
financial statements.<PAGE>
Page 3 of 15
NORTON DRILLING SERVICES, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATIONS
(Unaudited)
For the three months ended
--------------------------
February 28, February 28,
1998 1997
------------- ------------
Operating revenues:
Contract drilling revenues $ 9,507,887 $ 6,958,785
Other 2,122 1,346
----------- -----------
Total operating revenues 9,510,009 6,960,131
----------- -----------
Operating costs and expenses:
Direct drilling costs 7,066,484 6,327,599
General and administrative 454,880 316,310
Depreciation, depletion and amortization 750,029 377,874
Other 2,843 1,419
----------- -----------
Total operating costs and expenses 8,274,236 7,023,202
----------- -----------
Operating income (loss) 1,235,773 ( 63,071)
----------- -----------
Other income (expense):
Net gain on sale of assets 211,856 134,830
Interest expense ( 123,332) ( 116,925)
----------- -----------
Total other income (expense), net 88,524 17,905
----------- -----------
Income (loss) before provision for income taxes 1,324,297 ( 45,166)
----------- -----------
Income tax expense
Current 190,121 - -
Deferred 309,779 - -
----------- -----------
499,900 - -
----------- -----------
Net income (loss) $ 824,397 $( 45,166)
=========== ===========
Per share data:
Basic
Net income (loss) $0.03 $(0.00)
===== =======
Diluted
Net income (loss) $0.03 $(0.00)
===== =======
Weighted average number of common shares outstanding
Basic 24,637,813 22,832,273
========== ==========
Diluted 25,175,049 22,832,273
========== ==========
The accompanying notes are an integral part of these unaudited
consolidated financial statements.
Page 4 of 15
<PAGE>
NORTON DRILLING SERVICES, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY
Common Stock Treasury Stock
---------------------- --------------------
Shares Par Value Shares Cost
---------- --------- --------- ---------
Balance, November 30, 1996 23,893,365 $ 238,934 1,083,096 $( 86,648)
Net loss for the three months
ended February 28, 1997 - - - - - - - -
---------- --------- --------- ---------
Balance, February 28, 1997 23,893,365 $ 238,934 1,083,096 $( 86,648)
========== ========= ========= =========
Balance, November 30, 1997 25,841,799 $ 258,418 1,205,453 $(224,627)
Exercise of stock options 3,000 30 - - - -
Net income for the three months
ended February 28, 1998 - - - - - - - -
---------- --------- --------- ---------
Balance, February 28, 1998 25,844,799 $ 258,448 1,205,453 $(224,627)
========== ========= ========= =========
Additional Total
Paid-in Accumulated Stockholders'
Capital Deficit Equity
----------- ------------ -----------
Balance, November 30, 1996 $ 9,716,928 $(5,212,226) $ 4,656,988
Net loss for the three months
ended February 28, 1997 - - ( 45,166) ( 45,166)
----------- ----------- -----------
Balance, February 28, 1997 $ 9,716,928 $(5,257,392) $ 4,611,822
=========== =========== ===========
Balance, November 30, 1997 $10,518,132 $(2,750,294) $ 7,801,629
Exercise of stock options 1,188 - - 1,218
Net income for the three months
ended February 28, 1998 - - 824,397 824,397
----------- ----------- -----------
Balance, February 28, 1998 $10,519,320 $(1,925,897) $8,627,244
=========== =========== ==========
The accompanying notes are an integral part of these unaudited consolidated
financial statements.
Page 5 of 15
NORTON DRILLING SERVICES, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
For the three months ended
--------------------------
February 28, February 28,
1998 1997
------------ ------------
Cash flows from operating activities:
Net income (loss) $ 824,397 $( 45,166)
Adjustments to reconcile net income
(loss) to net cash provided by operating
activities:
Depreciation, depletion and amortization 750,029 377,874
Gain on sale of assets ( 211,856) ( 134,830)
Deferred income tax expense 309,779 - -
Increase (decrease) in cash flows as a
result of changes in operating asset
and liability account balances:
(Increase) decrease in accounts
receivable-trade ( 624,641) 415,004
Decrease in insurance proceeds recoverable - - 46,327
(Increase) decrease in net costs and
estimated earnings in excess of billings
on uncompleted contracts 316,418 ( 26,080)
Decrease in prepaid expenses and other
current assets 111,071 77,060
Increase (decrease) in accounts payable 76,989 ( 347,831)
Decrease in accrued expenses and other
current liabilities ( 429,056) ( 180,924)
---------- ----------
Net cash provided by continuing operations 1,123,130 181,434
Net cash used in discontinued operations ( 8,696) ( 35,439)
---------- ----------
Net cash provided by operating activities 1,114,434 145,995
========== ==========
Cash flows from investing activities:
Collections on note receivable 5,276 - -
Proceeds from sale of property and equipment 246,707 134,830
Acquisition of property and equipment ( 664,221) (1,103,325)
---------- ----------
Net cash used in investing activities ( 412,238) ( 968,495)
---------- ----------
Cash flows from financing activities:
Proceeds from notes payable 4,114,754 500,000
Proceeds from (repayments of) revolving
line of credit, net (1,465,000) 165,000
Repayments of notes payable (3,368,777) ( 371,441)
Exercise of stock options 1,218 - -
---------- ----------
Net cash provided by (used in) financing
activities ( 717,805) 293,559
---------- ----------
Net decrease in cash and cash equivalents ( 15,609) ( 528,941)
Cash and cash equivalents at beginning of period 277,097 774,226
---------- -----------
Cash and cash equivalents at end of period $ 261,488 $ 245,285
========== ===========
(Continued)
The accompanying notes are an integral part of these unaudited consolidated
financial statements.
Page 6 of 15
NORTON DRILLING SERVICES, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
(Continued)
For the three months ended
--------------------------
February 28, February 28,
1998 1997
------------ ------------
Supplemental disclosures of cash flows information:
Cash paid during the period:
Interest $ 162,332 $ 106,754
========== ===========
Income taxes $ 479,457 $ - -
========== ===========
Supplemental Schedule of Non-cash Investing
and Financing Activities:
During the periods ending February 28, 1998 and February 28, 1997, we
acquired property and equipment in connection with borrowings in the
amounts of $51,546 and $26,732, respectively.
The accompanying notes are an integral part of these unaudited consolidated
financial statements.
Page 7 of 15
NORTON DRILLING SERVICES, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
1. PREPARATION OF CONSOLIDATED FINANCIAL STATEMENTS
In our opinion, the accompanying consolidated balance sheet as of
February 28, 1997 and the condensed consolidated statements of
operations, stockholders' equity, and cash flows for the three months
ended February 28, 1998 and February 28, 1997 include all adjustments
(consisting only of normal recurring adjustments and accruals) considered
necessary to present fairly the financial position as of February 28,
1998, the results of operations and cash flows for the three months ended
February 28, 1998 and February 28, 1997. The accompanying consolidated
balance sheet as of November 30, 1997 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 months ended February 28,
1998 are not necessarily indicative of the results of operations for the
entire year.
2. EARNINGS PER SHARE
We adopted the provision of Statement of Financial Accounting
Standards ("SFAS") No. 128 "Earnings per Share" during the quarter ended
February 28, 1998. This standard amends Accounting Principles Board
("APB") Opinion No. 15 "Earnings per Share" and requires the presentation
of basic and diluted earnings per share versus primary and fully diluted
earnings per share which had been required by APB Opinion No. 15.
Earnings per share for the quarter ended February 28, 1997 has been
restated to conform with the requirements of SFAS No. 128. The adoption
of this new standard did not have a material effect to us for the
quarters ended February 28, 1998 and 1997.
Basic earnings per share ("EPS") has been computed using the weighted
average number of common shares outstanding during the three month period
ending February 28, 1998 and February 29, 1997.
Diluted EPS has been computed based on the weighted average number of
common shares outstanding during the three month period ending February
28, 1998 and February 28, 1997 and on the net additional number of shares
which would be issuable upon the exercise of stock options, assuming that
we used the proceeds received to purchase additional shares at market
value as well as the additional shares issuable relative to convertible
debt.
A reconciliation of the numerator and denominator of the Basic EPS
calculation to that used to determine Diluted EPS is as follows:
For the three months
ended February 28,
---------------------
1998 1997
--------- --------
Earnings Available to Common Stockholders:
Basic $824,397 $(45,166)
Add interest on convertible debt - - 10,313
-------- --------
Diluted $824,397 $(34,853)
======== ========
Page 8 of 15
2. EARNINGS PER SHARE (Continued)
For the three months
ended February 28,
---------------------
1998 1997
--------- --------
Weighted average shares outstanding:
Basic 24,637,813 22,832,273
Add:
Additional shares issuable upon exercise
of stock options and warrants 537,236 - -
Additional shares issuable upon
conversion of convertible debt - - - -
---------- ----------
Diluted 25,175,049 22,832,273
========== ==========
3. RELATED PARTY TRANSACTIONS
On May 19, 1993 a former officer of Norton advanced $90,000 and a
director/former officer of NDSI advanced $410,000 to Norton in the form
of unsecured demand notes. These notes required interest equal to
Norton's primary lending institution's prime rate. The notes were
convertible into our common stock at $0.44 per share for a total
1,136,363 shares. The Conversion Price was determined by our Board of
Directors at its meeting on May 19, 1993, at a premium over the average
of the bid and ask price of the shares of common stock at the close of
business on May 18, 1993. On November 13, 1997, the two individuals
exercised their option to convert the notes into our common stock.
Interest charged to operations on the notes payable was approximately
$10,000 for the three months ending February 28, 1997.
In the year ended November 30, 1995, the three individuals and the
corporation mentioned above, 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 $6,353 and $25,460 for the three months ending
February 28, 1998 and February 28, 1997, respectively.
In April, 1996, Norton sold substantially all of its interest in the
joint venture to a corporation in which the two directors of NDSI, the
corporation owned by a director of NDSI 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 three
month period ending February 28, 1998 were approximately $2,000 of which
approximately $600 was outstanding at February 28, 1998.
Each joint venture participant was liable for their pro rata share of
the costs incurred. The aggregate costs to be borne by the five related
parties mentioned above was $2,668 and $10,693 for the three months
ending February 28, 1998 and February 28, 1997 respectively. The amounts
due from related parties at February 28, 1998 and February 28, 1997 were
approximately $800 and $10,000, respectively.
Page 9 of 15
4. COMMON STOCK
Through November 30, 1996, four employees of Norton , three of which
are our directors, had not been paid a total of $266,350 to which they
were entitled under their employment agreements with us. At a meeting of
our Board of Directors on February 23, 1997, the officers of NDSI were
directed to take all action necessary to issue to these four employees
396,071 shares of common stock worth $166,349 in partial satisfaction of
the unpaid amounts. The number of shares that was issued was based upon a
valuation of a recognized valuation expert opining as to the fair market
value of the price of the common stock to be received.
5. OPTIONS AND WARRANTS
On February 23, 1997 our Board of Directors issued options to
purchase 130,000 shares of our common stock to four of our directors in
accordance with the our 1989 Stock Option Plan at an exercise price of
$0.56 per share.
On February 6, 1998, the compensation committee of our board of
directors awarded options to purchase 752,000 shares of our common stock
at $1.50 per share under our 1997 Stock Option Plan. The Board of
Directors approved these awards at its meeting on February 24,1998. These
options were awarded to various employees of Norton. No compensation cost
was recorded in connection with this award.
On February 23, 1997, our Board of Directors authorized the issuance
of warrants to purchase our common stock to a director/former officer as
consideration for the individual personally guaranteeing certain
obligations of Norton. A warrant was issued for guarantees related to
obligations entered into through August 1996 and allows this person to
purchase 640,000 shares of common stock at the exercise price of $0.50
per share. A second warrant was issued for guarantees related to
obligations entered into in January 1997 and allows this person to
purchase 17,024 shares of common stock at $0.78 per share.
None of the above-mentioned warrants have been exercised and all
remained outstanding at February 28, 1998.
6. NOTES PAYABLE
Norton Drilling Company ("Norton") entered into two borrowing
arrangements with a bank on February 17, 1998. The first was a demand
note payable in the amount of $4,500,000. This note bears interest at
2.0% above the Wall Street Journal prime rate and calls for monthly
payments of $53,750 plus accrued interest beginning March 1, 1998 through
maturity on February 1, 2005.
The second arrangement is a revolving line of credit with a borrowing
facility of $3,000,000. This line of credit requires monthly payments of
interest only at 1.0% above the Wall Street Journal prime rate with
remaining principal and interest due at maturity on April 1, 1999.
Both of the above notes are collateralized by accounts receivable and
general intangibles as well as thirteen drilling rigs and related
equipment. In addition a master loan agreement was entered into with this
bank which contains certain restrictive covenants. The most significant
of which is that Norton maintain a minimum net worth of $8,000,000.
Page 10 of 15
Item 2. Managements Discussion and Analysis of Financial Condition and
Results of Operations
Liquidity and Capital Resources
As of February 28, 1998, we had working capital of approximately
$1,619,000 and cash and cash equivalents of approximately $261,000 as
compared to a working capital deficiency of approximately $511,000 and
cash and cash equivalents of approximately $277,000 at November 30, 1997.
For the three months ending February 28, 1997, operations provided
approximately $1,114,000 in cash flows and our financing activities used
approximately $718,000. For the three months ended February 28, 1997,
operations provided approximately $146,000 in cash flows and our
financing activities provided approximately $294,000. The use of funds in
the three month period ending February 28, 1997 was mainly attributable
to the acquisition of property and equipment. The use of funds in the
three month period ending February 28, 1998 was mainly attributable to
the repayment of notes payable and the revolving line of credit.
Significant expenditures of NDSI 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 three months ending February 28, 1998 and February
28, 1997, approximate $664,000 and $1,103,000, respectively. Capital
expenditures decreased in the current three month period as compared to
the three month period in the prior year. This was because in the period
ending February 28, 1997 the Drilling Segment incurred significant
expenditures for the purchase of drill pipe and general upgrading of two
rigs. The Drilling Segment anticipates capital expenditures of
approximately $2,750,000 for fiscal 1998 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, our anticipated level of capital expenditures may
fluctuate commensurate with the volatility of the industry.
We believe that cash flows from operations and borrowings should be
sufficient to fund operations and adequately service our debt for the
next twelve months. The risks associated with the oil and gas industry,
such as the volatility of oil and gas prices, could adversely affect our
operations.
Comparison of the three months ended February 28, 1998 and February
28, 1997
For the three months ended February 28, 1998 contract drilling
revenues were approximately $9,508,000 as compared to $6,959,000 for the
three months ended February 28, 1997, an increase of $2,549,000 or 36.6%.
Average rig utilization was 92.2% in the three months ended February 28,
1998 compared to 80.4% in the three months ended February 28, 1997. The
increase in drilling revenues was due to an increase in drilling rig
utilization and an increase in rig rates.
Direct drilling costs for the three months ended February 28, 1998
were approximately $7,066,000 or 74.3% of contract drilling revenues as
compared to $6,328,000 or 90.9% of contract drilling revenues for the
three months ended February 28, 1997. The increase in costs was primarily
attributable to the increase in the number of rigs which Norton was
operating. Direct rig and job costs decreased as a percentage of revenues
because the rates Norton charged for the use of its drilling rigs
increased more than its costs associated with those rigs.
Page 11 of 15
General and administrative expenses were approximately $455,000 for
the three months ended February 28, 1998 as compared to approximately
$316,000 for the three months ended February 28, 1997. The increase in
general and administrative expenses was due to the hiring of and
additional office employee, increases in officers salaries according to
employment agreements and an increase in the amount reserved for
uncollectible on trade accounts receivable.
Interest expense was approximately $123,000 and $117,000 in the three
months ended February 28, 1998 and February 28, 1997, respectively. The
increase in interest expense was due to an increase in borrowings over
the past year.
In the three months ended February 28, 1998, net income before income
taxes was approximately $1,324,000 as compared to a loss of approximately
$45,000 in the three months ended February 28, 1997. The increase in net
income was due mainly to increased drilling revenues and a reduction of
costs as a percentage of drilling revenues.
Volatility of Oil and Natural Gas Prices
Our revenue, profitability and future rate of growth are substantially
dependent upon prevailing prices for oil and gas. In recent years, 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 our control. Any
significant or extended decline in oil and/or gas prices could have a
material adverse effect on our financial condition and results of
operations. The price of oil rose to a six-year high of $25.75 per barrel
in January 1997, and fell to a ten-year low of $11.00 per barrel in March
1998. These low oil prices have adversely impacted our operations. Should
oil prices remain at these levels or continue to decline or natural gas
prices decline, our operations could be further adversely affected.
Market Conditions for Contract Drilling Services
The contract drilling business has experienced increased demand for
drilling services due to higher oil and gas prices. However, the market
for onshore contract drilling services has generally been depressed since
mid-1982, when crude oil and natural gas prices began to weaken. A
particularly sharp decline in demand for contract drilling services
occurred in 1986 because of the world-wide collapse in oil prices (to
approximately $10.00 per Bbl in April 1986). Since this time and except
during the occasional upturns, there have been substantially more
drilling rigs available than necessary to meet demand in most operating
and geographic segments of the domestic drilling industry. As a result,
drilling contractors have had difficulty sustaining profit margins.
Reactivation of onshore drilling rigs or new construction of drilling
rigs could also adversely affect rig utilization rates and pricing even
in an environment of higher oil and natural gas prices and increased
drilling activity. We cannot predict either the future level of demand
for contract drilling services or future conditions in the contract
drilling industry.
Recent Accounting Standards
The Financial Accounting Standards Board ("FASB") issued Statment of
Financial Accounting Standards ("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
Page 12 of 15
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 us during the quarter ending
February 28, 1999 in our 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 financial information to be disclosed. SFAS No. 131 is
effective for fiscal years beginning after December 15, 1997 and will be
adopted by us during the quarter ending February 28, 1999 in our 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 13 of 15
PART II-OTHER INFORMATION
Item 1. Legal Proceedings
On January 6, 1998, a judgment was rendered in favor of Norton against
one of its customers for non-payment on account. The judgment awarded
Norton approximately $464,000 plus pre-judgment interest of approximately
$84,000. Interest on the judgment will continue to accrue at the rate of
18% until paid. The customer requested a new trial which was denied on March
22, 1998. The judgment was then appealed by the customer in April, 1998.
Item 6. Exhibits and Reports on Form 8-K
(a) Exhibits
Exhibit No. Name
27 Financial Data Schedule for the period ending
February 28, 1998
27.1 Restated Financial Data Schedule for the fiscal
year ending November 30, 1996
(b) Reports on Form 8-K
None
Page 14 of 15
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: April 14, 1998 By:/S/ Sherman H. Norton, Jr.
Sherman H. Norton, Jr.
Chairman of the Board
Dated: April 14, 1998 By:/s/ David W. Ridley
David Ridley, Chief Financial Officer
(Principal Financial and Accounting Officer)
Page 15 of 15
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM FORM 10-Q
FOR THE QUARTERLY PERIOD ENDED FEBRUARY 28, 1998 (BALANCE SHEET AND STATEMENT OF
INCOME) AND IS QUALIFIED IN ITS ENTIRETY BY REFERENCE TO SUCH FORM 10-Q.
</LEGEND>
<S> <C>
<PERIOD-TYPE> 3-MOS
<FISCAL-YEAR-END> NOV-30-1998
<PERIOD-END> FEB-28-1998
<CASH> 261,488
<SECURITIES> 4,607
<RECEIVABLES> 6,778,599
<ALLOWANCES> 242,183
<INVENTORY> 0
<CURRENT-ASSETS> 8,044,122
<PP&E> 17,534,652
<DEPRECIATION> 7,228,495
<TOTAL-ASSETS> 19,858,010
<CURRENT-LIABILITIES> 6,424,684
<BONDS> 0
0
0
<COMMON> 258,448
<OTHER-SE> 8,368,796
<TOTAL-LIABILITY-AND-EQUITY> 19,858,010
<SALES> 0
<TOTAL-REVENUES> 9,510,009
<CGS> 0
<TOTAL-COSTS> 7,066,484
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 123,332
<INCOME-PRETAX> 1,324,297
<INCOME-TAX> 499,900
<INCOME-CONTINUING> 824,397
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 824,397
<EPS-PRIMARY> 0.03
<EPS-DILUTED> 0.03
</TABLE>
<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>
<RESTATED>
<S> <C>
<PERIOD-TYPE> 12-MOS
<FISCAL-YEAR-END> NOV-30-1996
<PERIOD-END> NOV-30-1996
<CASH> 774,226
<SECURITIES> 4,607
<RECEIVABLES> 4,571,323
<ALLOWANCES> 278,053
<INVENTORY> 0
<CURRENT-ASSETS> 6,423,115
<PP&E> 13,479,467
<DEPRECIATION> 4,970,927
<TOTAL-ASSETS> 16,472,973
<CURRENT-LIABILITIES> 8,453,230
<BONDS> 0
0
0
<COMMON> 238,934
<OTHER-SE> 4,418,054
<TOTAL-LIABILITY-AND-EQUITY> 16,472,973
<SALES> 0
<TOTAL-REVENUES> 26,731,874
<CGS> 0
<TOTAL-COSTS> 23,495,747
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 393,786
<INCOME-PRETAX> 537,895
<INCOME-TAX> 0
<INCOME-CONTINUING> 537,895
<DISCONTINUED> 2,893,047
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 3,430,942
<EPS-PRIMARY> .15
<EPS-DILUTED> .14
</TABLE>
