<PAGE> 1
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 8-K
CURRENT REPORT
Pursuant to Section 13 or 15(d) of the
Securities Exchange Act of 1934
Date of Report: May 28, 1998
VENTURE SEISMIC LTD.
- ------------------------------------------------------------------------------
(Exact name of registrant as specified in charter)
ALBERTA, CANADA
- ------------------------------------------------------------------------------
(State or other jurisdiction of incorporation)
<TABLE>
<S> <C>
0-270270 N/A
- ------------------------ ---------------------------------
(Commission File Number) (IRS Employer Identification No.)
3110 - 80th Avenue S.E. Calgary, Alberta T2C 1J3
- -------------------------------------------------------------------------------
(Address of principal executive offices) (Zip code)
</TABLE>
Registrant's telephone number including area code: (403) 777-9070
--------------
<PAGE> 2
Item 7. Financial Statements, Pro Forma Financial Information and Exhibits
a) Financial statements of Business acquired
Continental Holdings Ltd. balance sheet as at December 31, 1997 and
1996 and the statements of income and retained earnings and cash flows
for each of the years in the three year period ended December 31, 1997
and Auditors' Report thereon.
b) Pro Forma Financial Information
1) Pro forma consolidated balance sheet (unaudited) as at September
30, 1997 combining the audited balance sheet of Venture Seismic
Ltd. and Continental Holdings Ltd. as at September 30, 1997 and
December 31, 1997, respectively.
2) Pro forma consolidated income statement (unaudited) combining the
income statement of Venture Seismic Ltd. for the year ended
September 30, 1997 with the income statement of Continental
Holdings Ltd. for the year ended December 31, 1997.
3) Pro forma interim consolidated income statement (unaudited)
combining the income statement of Venture Seismic Ltd. for the six
months ended March 31, 1998 with the income statement of
Continental Holdings Ltd. for the six months ended December 31,
1997.
Exhibits
<TABLE>
<S> <C>
10.31* Securities Purchase Agreement dated March 27, 1998, by and
among the Registrant, Continental Holdings Ltd.
("Continental") and the Shareholders of Continental.
10.32* Credit Agreement, dated March 27, 1998, between the
Registrant and Continental Holdings Ltd.
10.33* General Security Agreement, dated March 27, 1998, between
the Registrant and Continental Holdings Ltd.
10.34* Form of Employment Agreement between the Registrant and Mr.
Stinn, dated March 27, 1998.
23.1 Consent of Ernst & Young, Chartered Accountants.(1)
23.2 Consent of Meyers Norris Penny & Co., Chartered
Accountants.(1)
</TABLE>
- -----------------
* Incorporated by reference to the Company's Registration Statement on Form
S-3 (File No. 333-45681).
(1) To be filed with the Company's Registration Statement on Form S-3 (File
No. 333-45681)
Signature
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 hereto duly authorized.
Venture Seismic Ltd.
/s/ Gregory B. Wiebe
- ---------------------------
By: Gregory B. Wiebe
Chief Financial Officer
May 28, 1998
<PAGE> 3
AUDITORS' REPORT
To the Shareholders of
CONTINENTAL HOLDINGS LTD.
We have audited the balance sheet of CONTINENTAL HOLDINGS LTD. as at December
31, 1997 and the statements of income and retained earnings and cash flows for
the year then ended. These financial statements are the responsibility of the
company's management. Our responsibility is to express an opinion on these
financial statements based on our audit.
We conducted our audit in accordance with generally accepted auditing standards.
Those standards require that we plan and perform an audit to obtain reasonable
assurance whether the financial statements are free of material misstatement.
An audit includes examining, on a test basis, evidence supporting the amounts
and disclosures in the financial statements. An audit also includes assessing
the accounting principles used and significant estimates made by management, as
well as evaluating the overall financial statement presentation.
In our opinion, these financial statements present fairly, in all material
respects, the financial position of the company as at December 31, 1997 and the
results of its operations and the changes in its financial position for the year
then ended in accordance with accounting principles generally accepted in
Canada.
The financial statements as at December 31, 1996 and for each of the years in
the two year period ended December 31, 1996 were audited by other auditors who
expressed an opinion without reservation on those financial statements in their
report dated February 19, 1997.
Calgary, Canada /s/ ERNST & YOUNG
March 26, 1998 Chartered Accountants
(except for note
13 which is as
of May 26, 1998)
<PAGE> 4
AUDITORS' REPORT
To the Shareholders of
CONTINENTAL HOLDINGS LTD.
We have audited the balance sheet of CONTINENTAL HOLDINGS LTD. as at December
31, 1996 and the statements of income and retained earnings and cash flows for
each of the years in the two year period then ended. These financial statements
are the responsibility of the company's management. Our responsibility is to
express an opinion on these financial statements based on our audit.
We conducted our audit in accordance with generally accepted auditing standards.
Those standards require that we plan and perform an audit to obtain reasonable
assurance whether the financial statements are free of material misstatement. An
audit includes examining, on a test basis, evidence supporting the amounts and
disclosures in the financial statements. An audit also includes assessing the
accounting principles used and significant estimates made by management, as well
as evaluating the overall financial presentation.
In our opinion, these financial statements present fairly, in all material
respects, the financial position of the Company as at December 31, 1996 and the
results of its operations and the changes in financial position for each of the
years in the two year period then ended in accordance with accounting principles
generally accepted in Canada.
Calgary, Canada /s/ Meyers Norris Penny & Co.
February 19, 1997 Chartered Accountants
<PAGE> 5
CONTINENTAL HOLDINGS LTD.
BALANCE SHEET
(in U.S. Dollars)
As at December 31
ASSETS
<TABLE>
<CAPTION>
1997 1996
$ $
--------- ---------
<S> <C> <C>
CURRENT [NOTE 5]
Cash 1,690,102 230,400
Accounts receivable 1,256,029 1,311,004
Inventory 344,047 161,561
Prepaid expenses and deposits 56,013 6,149
--------- ---------
3,346,191 1,709,114
INVESTMENT [NOTE 2] 72,966 72,966
DEFERRED INCOME TAXES [NOTE 9] 100,052 --
CAPITAL ASSETS [NOTES 3 AND 5] 2,226,983 3,433,231
--------- ---------
5,746,192 5,215,311
========= =========
</TABLE>
<PAGE> 6
CONTINENTAL HOLDINGS LTD.
LIABILITIES AND SHAREHOLDERS' EQUITY
<TABLE>
<CAPTION>
1997 1996
$ $
--------- ---------
<S> <C> <C>
CURRENT
Accounts payable and accrued liabilities 1,828,424 3,528,761
Income taxes payable 1,141,858 --
Due to shareholders, non-interest bearing with
no fixed terms of repayment 488,535 97,066
Current portion of long term debt [note 5] 213,895 1,029,558
--------- ---------
3,672,712 4,655,385
--------- ---------
DUE TO RELATED COMPANY [NOTE 4] -- 269,661
--------- ---------
DEFERRED LEASE EXPENSE [NOTE 8] 337,939 --
--------- ---------
LONG TERM DEBT [NOTE 5] 8,923 176,670
--------- ---------
COMMITMENTS [NOTE 8]
SHAREHOLDERS' EQUITY
Share capital [note 6] 14,914 14,914
Retained earnings 1,711,704 98,681
--------- ---------
1,726,618 113,595
--------- ---------
5,746,192 5,215,311
========= =========
</TABLE>
See accompanying notes
On behalf of the Board:
<TABLE>
<S> <C> <C>
/s/ ROY SELF /s/ LES STINN
Director Director
</TABLE>
<PAGE> 7
CONTINENTAL HOLDINGS LTD.
STATEMENT OF INCOME AND RETAINED EARNINGS
(in U.S. Dollars)
For the year ended December 31
<TABLE>
<CAPTION>
1997 1996 1995
$ $ $
--------- --------- ---------
<S> <C> <C> <C>
REVENUE 9,609,915 8,485,092 5,095,856
DIRECT EXPENSES 5,631,075 6,171,258 4,047,221
--------- --------- ---------
3,978,840 2,313,834 1,048,635
--------- --------- ---------
EXPENSES
General and administration 908,638 1,938,607 469,800
Depreciation 620,255 476,564 38,134
Interest - other 9,809 62,146 --
Interest - long term 42,760 56,257 8,570
--------- --------- ---------
1,581,462 2,533,574 516,504
--------- --------- ---------
INCOME (LOSS) FROM OPERATIONS 2,397,378 (219,740) 532,131
--------- --------- ---------
OTHER INCOME
Interest 26,759 28,541 44,311
Foreign exchange gain 143,249 1,823
Gain on disposal of capital assets 30,000 144,136 --
Gain on sale of investments 93,074 878 405,867
--------- --------- ---------
293,082 175,378 450,178
--------- --------- ---------
INCOME (LOSS) BEFORE INCOME TAXES 2,690,460 (44,362) 982,309
--------- --------- ---------
INCOME TAXES [NOTE 7]
Current 1,177,489 (4,401) 277,783
Deferred (100,052) (124,042) 124,042
--------- --------- ---------
1,077,437 (128,443) 401,825
--------- --------- ---------
NET INCOME FOR THE YEAR 1,613,023 84,081 580,484
RETAINED EARNINGS, BEGINNING OF YEAR 98,681 907,776 327,292
DIVIDENDS -- (125,493) --
PREMIUM ON REDEMPTION OF SHARES [NOTE 6] -- (767,683) --
--------- --------- ---------
RETAINED EARNINGS, END OF YEAR 1,711,704 98,681 907,776
========= ========= =========
</TABLE>
See accompanying notes
<PAGE> 8
CONTINENTAL HOLDINGS LTD.
STATEMENT OF CASH FLOWS
(in U.S. Dollars)
For the year ended December 31
<TABLE>
<CAPTION>
1997 1996 1995
$ $ $
---------- ---------- --------
<S> <C> <C> <C>
CASH PROVIDED BY (USED IN):
OPERATING ACTIVITIES
Net income for the year 1,613,023 84,081 580,484
Items not involving cash
Depreciation 620,255 476,564 38,134
Deferred lease expense 337,939 -- --
Deferred income taxes (100,052) (124,042) 124,042
Gain on disposal of capital assets (30,000) (144,136) --
Gain on sale of investments (93,074) (878) (405,867)
---------- ---------- --------
2,348,091 291,589 336,793
Net change in non-cash working capital
[note 10] (735,854) 1,173,971 558,854
---------- ---------- --------
1,612,237 1,465,560 895,647
---------- ---------- --------
FINANCING ACTIVITIES
Repayment of long term debt (1,031,634) (384,363) (116,706)
Issuance of long term debt 48,224 1,538,320 --
Repayment of shareholders' advances (97,066) -- (5,742)
Advances from shareholders 488,535 97,066 --
Advances from (to) related company (269,661) 269,661 --
Issuance of share capital 523,519 -- --
Redemption of share capital (523,519) (26) --
Premium on redemption of common shares -- (767,683) --
---------- ---------- --------
(861,602) 752,975 (122,448)
---------- ---------- --------
INVESTING ACTIVITIES
Additions to capital assets (369,100) (3,743,724) (196,179)
Proceeds on disposal of capital assets 985,093 270,417 --
Increase in investments -- -- (603,312)
Proceeds on disposal of investments 93,074 639,202 649,470
---------- ---------- --------
709,067 (2,834,105) (150,021)
---------- ---------- --------
DIVIDENDS -- (125,493) --
---------- ---------- --------
INCREASE (DECREASE) IN CASH 1,459,702 (741,063) 623,178
CASH, BEGINNING OF YEAR 230,400 971,463 348,285
---------- ---------- --------
CASH, END OF YEAR 1,690,102 230,400 971,463
========== ========== ========
</TABLE>
See accompanying notes
<PAGE> 9
CONTINENTAL HOLDINGS LTD.
NOTES TO FINANCIAL STATEMENTS
(in U.S. Dollars)
December 31, 1997
1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
These financial statements of Continental Holdings Ltd. ("Continental" or the
"Company") have been prepared in accordance with accounting principles generally
accepted in Canada, consistently applied. Because a precise determination of
many assets and liabilities is dependent upon future events, the preparation of
financial statements for a period necessarily involves the use of estimates and
approximations which have been made using careful judgment. The financial
statements have, in management's opinion, been properly prepared within
reasonable limits of materiality and within the framework of the significant
accounting policies summarized below.
REVENUE RECOGNITION AND WORK-IN-PROGRESS
The percentage of completion method is followed to recognize revenue on
contracts. Under this method, revenue is recognized over the period of the
contract in the proportion that costs incurred to date bear to total estimated
costs. When a loss is foreseen on completion of a contract, an allowance for
the loss is provided in the accounts. Unbilled work-in-progress on contracts
not sufficiently underway to warrant revenue recognition is carried at the lower
of cost and net realizable value.
The Company recognizes revenue from the sale of non-exclusive seismic data when
sale of the data to third parties has occurred.
INVENTORY
Inventory of fuel, supplies and consumables are valued at the lower of cost,
determined on a first in, first out basis, and net realizable value.
CAPITAL ASSETS AND DEPRECIATION
Capital assets are recorded at cost. Depreciation is applied on a declining
balance basis at rates designed to amortize the cost of the assets over their
estimated economic useful lives as follows:
<TABLE>
<S> <C>
Computer equipment 30%
Office equipment 20%
Seismic equipment 20% - 30%
</TABLE>
1
<PAGE> 10
CONTINENTAL HOLDINGS LTD.
NOTES TO FINANCIAL STATEMENTS
(in U.S. Dollars)
December 31, 1997
INCOME TAXES
The Company follows the deferral method of tax allocation in accounting for
income taxes under which the income tax provision is based on the income
reported in the accounts. Under this method, provision is made for income taxes
deferred principally as a result of accruing lease expenses which are not
deductible for income tax purposes until paid, claiming depreciation for tax
purposes which differs from that provided in the accounts and the deferral of
profits for income tax purposes where a portion of the selling price of seismic
property is due after the end of the period.
FOREIGN CURRENCY TRANSLATION
The Company's functional (measurement) currency is the U.S. dollar. It
translates foreign currency transactions into U.S. dollars using the average
exchange rates for the year for items included in the income statement, year end
exchange rates for monetary assets and liabilities and historical rates for
non-monetary assets and liabilities. Translation gains or losses are included
in income for the year.
FINANCIAL INSTRUMENTS
The Company has financial instruments consisting of cash, accounts receivable,
accounts payable and accrued liabilities, long term debt and due to
shareholders. The carrying value of these instruments approximates fair value
unless otherwise stated.
INVESTMENTS
Investments are carried at the lower of cost and market. Write downs occur when
there has been a permanent decline in value.
2
<PAGE> 11
CONTINENTAL HOLDINGS LTD.
NOTES TO FINANCIAL STATEMENTS
(in U.S. Dollars)
December 31, 1997
2. INVESTMENT
<TABLE>
<CAPTION>
1997 1996
$ $
------ ------
<S> <C> <C>
ICE Drilling Enterprises Inc., 200,000 common shares, at cost 72,966 72,966
====== ======
</TABLE>
3. CAPITAL ASSETS
<TABLE>
<CAPTION>
1997
-----------------------------------------
ACCUMULATED NET
COST DEPRECIATION BOOK VALUE
$ $ $
--------- ------------ ----------
<S> <C> <C> <C>
Computer equipment 18,246 10,644 7,602
Office equipment 10,632 6,501 4,131
Seismic equipment 3,186,000 970,750 2,215,250
--------- -------- ----------
3,214,878 987,895 2,226,983
========= ======== ==========
</TABLE>
<TABLE>
<CAPTION>
1996
-----------------------------------------
ACCUMULATED NET
COST DEPRECIATION BOOK VALUE
$ $ $
--------- ------------ ----------
<S> <C> <C> <C>
Computer equipment 15,660 8,174 7,486
Office equipment 11,101 6,294 4,807
Seismic equipment 3,921,334 500,396 3,420,938
--------- -------- ----------
3,948,095 514,864 3,433,231
========= ======== ==========
</TABLE>
4. DUE TO RELATED COMPANY
Amounts due to a related company were non-interest bearing and had no specific
terms of repayment. The companies are related through common shareholdings.
Management had determined that no significant amounts would be repaid on these
accounts in 1996 and accordingly, the amounts were classified as a long term
liability.
3
<PAGE> 12
CONTINENTAL HOLDINGS LTD.
NOTES TO FINANCIAL STATEMENTS
(in U.S. Dollars)
December 31, 1997
5. LONG TERM DEBT
<TABLE>
<CAPTION>
1997 1996
$ $
-------- ----------
<S> <C> <C>
Term loan bearing interest at 9%, repayable in monthly
instalments of $13,800 including interest, due April
1998. A general security agreement and certain
property owned by a related company, have been
pledged as collateral. 54,724 206,169
Note payable bearing interest at 9%, repayable in
monthly instalments of $30,602 plus interest, due
April 1998. Certain seismic equipment has been
pledged as collateral. 130,792 490,230
Conditional sales agreement bearing interest at 6.7%,
repayable in monthly instalments of $2,465 including
interest, due April 1999. 37,302 --
Note payable -- 509,829
-------- ----------
222,818 1,206,228
Less current portion (213,895) (1,029,558)
-------- ----------
8,923 176,670
======== ==========
</TABLE>
Principal repayments are as follows:
<TABLE>
<CAPTION>
$
-------
<S> <C>
1998 213,895
1999 8,923
-------
222,818
=======
</TABLE>
4
<PAGE> 13
CONTINENTAL HOLDINGS LTD.
NOTES TO FINANCIAL STATEMENTS
(in U.S. Dollars)
December 31, 1997
6. SHARE CAPITAL
<TABLE>
<CAPTION>
1997 1996
$ $
------ ------
<S> <C> <C>
AUTHORIZED
Unlimited number of Classes "A" and "B" voting common shares
and an unlimited number of Class "C" and Class "C II"
non-voting preferred shares.
ISSUED:
502 Class "B" common shares 366 366
538 Class "C" preferred shares 14,548 14,548
------ ------
14,914 14,914
====== ======
</TABLE>
During 1996, 36 Class "B" common shares were transferred to 684733 Alberta Ltd.,
a related company and redeemed for $767,709. This transaction was completed
under Section 85(1) of the Canadian Income Tax Act and resulted in a premium
paid on the redemption in the amount of $767,683.
In 1997, the Company issued 748 Class C II preferred shares for cash
consideration of $523,519 and redeemed the shares during the year for an
aggregate redemption price of $523,519 consisting of cash of $34,984 and a
$488,535 note payable to the shareholders.
5
<PAGE> 14
Continental Holdings Ltd.
NOTES TO FINANCIAL STATEMENTS
(in U.S. Dollars)
December 31, 1997
7. INCOME TAXES
Income tax expense varies from the amounts that would be computed by applying
the combined Canadian federal and provincial income tax rate for each of the
periods due to the following differences:
<TABLE>
<CAPTION>
1997 1996 1995
$ $ $
--------- -------- -------
<S> <C> <C> <C>
Corporate tax rate 44.6% 44.6% 44.48%
========= ======== =======
Provision for (recovery of) income taxes at
statutory tax rate 1,199,945 (19,786) 436,931
Increase (decrease) in income taxes due to:
Small business deduction (36,903) -- (36,483)
Non-taxable portion of
capital gain (41,245) (16,056) --
Other (44,360) (92,601) 1,377
--------- -------- -------
1,077,437 (128,443) 401,825
========= ========= =======
</TABLE>
8. COMMITMENTS
The Company has entered into several operating lease agreements for a vessel,
seismic equipment and office premises. The annual minimum lease payments are as
follows:
<TABLE>
<CAPTION>
$
---------
<S> <C>
1998 1,590,345
1999 1,672,205
2000 563,932
---------
3,826,482
=========
</TABLE>
In addition, there is a $250,000 lien on certain of the seismic equipment on the
vessel.
Under the vessel lease, the Company is responsible for restoring the vessel to
its original condition at the end of the lease. The Company is accruing
deferred lease expense of $16,092 per month based on management's current
estimate of the expected restoration costs of approximately $1.0 million.
6
<PAGE> 15
Continental Holdings Ltd.
NOTES TO FINANCIAL STATEMENTS
(in U.S. Dollars)
December 31, 1997
9. DIFFERENCES BETWEEN CANADA AND UNITED STATES ACCOUNTING PRINCIPLES
There were no significant differences in net income for the years ended December
31, 1997, 1996 and 1995 and in retained earnings as at December 31, 1997, 1996
and 1995 under Canadian and United States accounting principles.
The Company paid interest of $52,569, $118,403 and $9,521 for the years ended
December 31, 1997, 1996 and 1995, respectively.
The Company paid income taxes of $Nil, $275,358, and $20,743 for the years ended
December 31, 1997, 1996 and 1995, respectively.
Operating lease expenses of $1,706,797, $3,194,239, and $1,346,520, were
included in income for the years ended December 31, 1997, 1996 and 1995,
respectively.
Included in accounts payable and accrued liabilities is accrued liabilities in
the amounts of $844,106, $1,413,347 and $219,177 as at December 31, 1997, 1996
and 1995, respectively.
Included in the 1997 redemption of share capital on the Statement of Cash Flows
is $488,535 relating to the issuance of a note payable to shareholders.
For the United States basis of accounting, the Company has adopted FAS 109
"Accounting for Income Taxes" on a prospective basis, effective September 1,
1993. FAS 109 requires companies to recognize deferred tax assets and
liabilities for the expected future tax consequences, based on enacted rates, of
existing differences between financial reporting and tax reporting basis of
assets and liabilities. These provisions also require the Company to establish
a valuation allowance for deferred tax assets where the recovery of these assets
is uncertain.
The deferred tax asset (liability) relates to the following:
<TABLE>
<CAPTION>
1997 1996
$ $
------- ----
<S> <C> <C>
Deferred lease expense 150,429 --
Capital assets (50,377) --
------- ----
100,052 --
Valuation allowance -- --
------- ----
100,052 --
======= ====
</TABLE>
7
<PAGE> 16
Continental Holdings Ltd.
NOTES TO FINANCIAL STATEMENTS
(in U.S. Dollars)
December 31, 1997
10. NET CHANGE IN NON-CASH WORKING CAPITAL
<TABLE>
<CAPTION>
1997 1996 1995
$ $ $
---------- --------- ---------
<S> <C> <C> <C>
Accounts receivable 54,975 (791,677) (507,724)
Inventory (182,486) (161,562) --
Prepaid expenses and deposits (49,864) 93,869 25,711
Accounts payable and accrued liabilities (1,700,337) 2,311,854 783,827
Income taxes payable 1,141,858 (278,513) 257,040
---------- --------- ---------
(735,854) 1,173,971 558,854
========== ========= =========
</TABLE>
11. COMPARATIVE FIGURES
Certain comparative figures have been reclassified to conform with the current
year's presentation.
12. MAJOR CUSTOMER INFORMATION
The Company operates in only one business segment, marine seismic data
acquisition services. Revenue from individual customers representing 10% or
more of revenue was:
<TABLE>
<CAPTION>
1997 1996 1995
% % %
---- ---- ----
<S> <C> <C> <C>
Customer A 28 15 --
Customer B 17 -- --
Customer C 15 60 31
Customer D 14 -- --
Customer E 11 25 24
Customer F 11 -- --
Customer G -- -- 15
Customer H -- -- 30
---- ---- ----
96 100 100
==== ==== ====
</TABLE>
8
<PAGE> 17
Continental Holdings Ltd.
NOTES TO FINANCIAL STATEMENTS
(in U.S. Dollars)
December 31, 1997
The Company's sales are to customers in the oil and gas industry for the
acquisition of marine seismic data, which results in a concentration of credit
risk. The Company generally extends unsecured credit to these customers and,
therefore, the collection of these receivables may be affected by changes in
economic or other conditions and may accordingly impact the Company's overall
credit risk. Management believes the risk is mitigated by the size, reputation
and diversified nature of the companies to which they extend credit.
Approximately 100%, 99% and 99% of accounts receivable at December 31, 1997,
1996 and 1995, respectively, were represented by two, one and one customer,
respectively.
13. SUBSEQUENT EVENTS
Subsequent to December 31, 1997, the Company:
(i) entered into an agreement in principal to lease a second vessel for a five
year term at an initial annual cost of $2.7 million and increasing to $3.1
million by the end of the lease term. In addition, the Company will be
required to purchase capital assets at an estimated cost of $10 million to
equip and refurbish the vessel;
(ii) entered into a credit agreement with Venture Seismic Ltd. whereby $4
million was loaned to the Company, payable in quarterly installments of
principal and interest commencing December 1, 1999 and bearing interest at
the prime lending rate of the Royal Bank of Canada plus 1%; and
(iii) entered into an agreement in principal for a loan of $3 million payable in
quarterly installments of principal and interest over five years and
bearing interest at 8.75%.
9
<PAGE> 18
VENTURE SEISMIC LTD.
PRO FORMA CONSOLIDATED FINANCIAL INFORMATION
(Unaudited)
The following unaudited pro forma consolidated financial information has been
prepared giving effect to the consummation of the Proposed Acquisition (the
"Proposed Acquisition") of Continental Holdings Ltd. ("Continental") by Venture
Seismic Ltd. ("Venture" or the "Company") in accordance with the terms of a
securities purchase agreement dated March 27, 1998 and the exercise of 1,513,690
of the Company's Redeemable Warrants (the "Warrant Exercise"). The pro forma
consolidated balance sheet gives effect to the Proposed Acquisition and the
Warrant Exercise as if the transactions had occurred on September 30, 1997. The
pro forma consolidated statements of income for the year ended September 30,
1997 and the six months ended March 31, 1998 gives effect to the Proposed
Acquisition as if it had occurred on October 1, 1996 and October 1, 1997,
respectively.
The Proposed Acquisition has been accounted for as a purchase. The excess of the
purchase price over the fair value of the net assets acquired is recognized as
goodwill and is being amortized over fifteen years.
The pro forma financial information is not necessarily indicative of the results
of operations or of the financial position which would have been attained had
the Proposed Acquisition and the Warrant Exercise been consummated at any of the
foregoing dates or which may be attained in the future. The pro forma financial
information should be read in conjunction with the historical financial
statements of Venture and Continental. In the opinion of management of Venture,
these pro forma consolidated financial statements include all adjustments
necessary for fair presentation.
<PAGE> 19
VENTURE SEISMIC LTD.
PRO FORMA CONSOLIDATED BALANCE SHEET
AS AT SEPTEMBER 30, 1997
(U.S. Dollars)
(Unaudited)
<TABLE>
<CAPTION>
VENTURE CONTINENTAL PRO FORMA
SEPTEMBER 30, DECEMBER 31, PRO FORMA CONSOLIDATED
1997 1997 ADJUSTMENTS BALANCE SHEET
$ $ $ $
------------- ------------ ----------- -------------
<S> <C> <C> <C> <C>
ASSETS
CURRENT
Cash 68,066 1,690,102 (500,000)(a) 10,140,168
(200,000)(a)
9,082,000 (c)
Accounts receivable 2,586,688 1,256,029 3,842,717
Work-in-progress 521,594 -- 521,594
Inventory -- 344,047 344,047
Other receivables 297,707 -- 297,707
Prepaid expenses 204,276 56,013 260,289
---------- --------- ----------
3,678,331 3,346,191 15,406,522
INVESTMENTS -- 72,966 72,966
DEFERRED INCOME TAXES -- 100,052 100,052
CAPITAL ASSETS 17,383,026 2,226,983 19,610,009
INTANGIBLE ASSETS 1,554,503 -- 11,933,382(a) 13,487,885
---------- --------- ----------
22,615,860 5,746,192 48,677,434
========== ========= ==========
LIABILITIES AND SHAREHOLDERS' EQUITY
CURRENT
Accounts payable and accrued
liabilities 1,036,147 1,828,424 2,864,571
Due to shareholders -- 488,535 488,535
Deferred revenue 800,000 -- 800,000
Income taxes payable 118,708 1,141,858 1,260,566
Current portion of long term debt 6,580,703 213,895 6,794,598
---------- --------- ----------
8,535,558 3,672,712 12,208,270
---------- --------- ----------
ACQUISITION INSTALLMENT PAYMENT -- -- 1,000,000(a) 1,000,000
---------- --------- ----------
DEFERRED LEASE EXPENSE -- 337,939 337,939
---------- --------- ----------
LONG TERM DEBT 3,746,490 8,923 3,755,413
---------- --------- ----------
DEFERRED INCOME TAXES 674,076 -- 674,076
---------- --------- ----------
SHAREHOLDERS' EQUITY
Share capital 7,671,366 14,914 (14,914)(a) 28,713,366
11,960,000 (a)
9,082,000 (c)
Retained earnings 1,949,549 1,711,704 (1,711,704)(a) 1,949,549
Cumulative translation adjustment 38,821 -- 38,821
---------- --------- ----------
9,659,736 1,726,618 30,701,736
---------- --------- ----------
22,615,860 5,746,192 48,677,434
========== ========= ==========
</TABLE>
See accompanying notes to Pro Forma Consolidated Financial Statements.
<PAGE> 20
VENTURE SEISMIC LTD.
PRO FORMA CONSOLIDATED INCOME STATEMENT
YEAR ENDED SEPTEMBER 30, 1997
(U.S. Dollars)
(Unaudited)
<TABLE>
<CAPTION>
VENTURE CONTINENTAL PRO FORMA
YEAR ENDED YEAR ENDED CONSOLIDATED
SEPTEMBER 30, DECEMBER 31, PRO FORMA INCOME
1997 1997 ADJUSTMENTS STATEMENT
$ $ $ $
------------- ------------ ----------- ------------
<S> <C> <C> <C> <C>
REVENUES 27,132,227 9,609,915 36,742,142
DIRECT EXPENSES 19,796,462 5,631,075 25,427,537
---------- --------- ----------
GROSS MARGIN 7,335,765 3,978,840 11,314,605
---------- --------- ----------
EXPENSES
General and administrative 1,828,464 187,138 2,015,602
Discretionary management bonus (note d) -- 721,500 721,500
Depreciation 2,363,398 620,255 2,983,653
Amortization of goodwill 166,320 -- 796,000(b) 962,320
---------- --------- ----------
4,358,182 1,528,893 6,683,075
---------- --------- ----------
INCOME FROM OPERATIONS 2,977,583 2,449,947 4,631,530
---------- --------- ----------
OTHER INCOME (EXPENSE)
Gain on sale of capital assets 80,372 30,000 110,372
Gain on sale of investments -- 93,074 93,074
Interest and other income 42,689 26,759 69,448
Interest expense (669,938) (52,569) (722,507)
Foreign exchange gain -- 143,249 143,249
---------- --------- ----------
(546,877) 240,513 (306,364)
---------- --------- ----------
INCOME BEFORE INCOME TAXES 2,430,706 2,690,460 4,325,166
---------- --------- ----------
INCOME TAXES (RECOVERY)
Current 90,000 1,177,489 1,267,489
Deferred 886,000 (100,052) 785,948
---------- --------- ----------
976,000 1,077,437 2,053,437
---------- --------- ----------
NET INCOME FOR THE YEAR 1,454,706 1,613,023 2,271,729
========== ========= ==========
BASIC EARNINGS PER SHARE .47 .44
---------- ----------
FULLY DILUTED EARNINGS PER SHARE .31 .33
---------- ----------
DILUTED EARNINGS PER SHARE .39 .39
---------- ----------
Weighted average number of common shares
-- basic 3,111,000 2,080,000(a) 5,191,000
---------- ----------
Weighted average number of common
shares - fully diluted 5,280,000 2,080,000(a) 7,360,000
---------- ----------
Weighted average number of common shares
-- diluted 4,660,000 2,080,000(a) 6,740,000
---------- ----------
</TABLE>
See accompanying notes to Pro Forma Consolidated Financial Statements.
<PAGE> 21
VENTURE SEISMIC LTD.
PRO FORMA CONSOLIDATED INCOME STATEMENT
SIX MONTHS ENDED MARCH 31, 1998
(U.S. Dollars)
(Unaudited)
<TABLE>
<CAPTION>
VENTURE CONTINENTAL
SIX MONTHS SIX MONTHS PRO FORMA
ENDED ENDED CONSOLIDATED
MARCH 31, DECEMBER 31, PRO FORMA INCOME
1998 1997 ADJUSTMENTS STATEMENT
$ $ $ $
------------- ------------ ----------- ------------
<S> <C> <C> <C> <C>
REVENUES 21,706,425 4,719,483 26,425,908
DIRECT EXPENSES 15,906,769 3,011,388 18,918,157
---------- --------- ----------
GROSS MARGIN 5,799,656 1,708,095 7,507,751
---------- --------- ----------
EXPENSES
General and administrative 1,100,621 247,605 1,348,226
Discretionary management bonus (note d) -- 721,500 721,500
Depreciation 1,540,928 310,384 1,851,312
Amortization of goodwill 89,160 -- 398,000(b) 487,160
---------- --------- ----------
2,730,709 1,279,489 4,408,198
---------- --------- ----------
INCOME FROM OPERATIONS 3,068,947 428,606 3,099,553
---------- --------- ----------
OTHER INCOME (EXPENSE)
Gain on sale of capital assets 32,870 -- 32,870
Interest and other income 88,600 14,816 103,416
Interest expense (589,322) (17,080) (606,402)
Foreign exchange gain -- 88,331 88,331
---------- --------- ----------
(467,852) 86,067 (381,785)
---------- --------- ----------
INCOME BEFORE INCOME TAXES 2,601,095 514,673 2,717,768
---------- --------- ----------
INCOME TAXES (RECOVERY)
Current 616,834 254,458 871,292
Deferred 434,681 (62,829) 371,852
---------- --------- ----------
1,051,515 191,629 1,243,144
---------- --------- ----------
NET INCOME FOR THE PERIOD 1,549,580 323,044 1,474,624
========== ========= ==========
BASIC EARNINGS PER SHARE .36 .23
---------- ----------
FULLY DILUTED EARNINGS PER SHARE .25 .18
---------- ----------
DILUTED EARNINGS PER SHARE .35 .23
---------- ----------
Weighted average number of common shares
-- basic 4,312,000 2,080,000(a) 6,392,000
---------- ----------
Weighted average number of common shares
-- fully diluted 6,190,000 2,080,000(a) 8,270,000
---------- ----------
Weighted average number of common shares
-- diluted 4,456,000 2,080,000(a) 6,536,000
---------- ----------
</TABLE>
See accompanying notes to Pro Forma Consolidated Financial Statements.
<PAGE> 22
VENTURE SEISMIC LTD.
NOTES TO PRO FORMA CONSOLIDATED FINANCIAL STATEMENTS
(U.S. Dollars)
For the periods ended September 30, 1997 and March 31, 1998 (Unaudited)
The accompanying pro forma consolidated financial statements have been prepared
to reflect certain adjustments to the historical financial statements of Venture
Seismic Ltd. (the "Company" or "Venture") and Continental Holdings Ltd.
("Continental") to give effect to the consummation of the Proposed Acquisition
(the "Proposed Acquisition") of 100 percent of the share capital of Continental
by Venture in accordance with a securities purchase agreement dated March 27,
1998 and the exercise of 1,513,690 of the Company's Redeemable Warrants (the
"Warrant Exercise"). The pro forma consolidated balance sheet as at September
30, 1997, which was derived from the audited balance sheets of Venture and
Continental as at September 30, 1997 and December 31, 1997, respectively, gives
effect to the Proposed Acquisition and the Warrant Exercise as if it had
occurred on September 30, 1997. The pro forma consolidated income statement for
the year ended September 30, 1997, which was derived from the audited income
statements of Venture and Continental for their fiscal years ended September 30,
1997 and December 31, 1997, respectively, gives effect to the Proposed
Acquisition as if it had occurred on October 1, 1996. The pro forma consolidated
income statement for the six months ended March 31, 1998, which was derived from
the unaudited interim income statements of Venture and Continental for the six
month periods ended March 31, 1998 and December 31, 1997, respectively, gives
effect to the Proposed Acquisition as if it had occurred on October 1, 1997. The
pro forma adjustments are based on currently available information and certain
estimates and assumptions, and therefore the actual adjustments made to effect
the transactions may differ from the pro forma adjustments.
1. UNAUDITED PRO FORMA CONSOLIDATED FINANCIAL STATEMENTS
The following pro forma adjustments are reflected in the pro forma consolidated
balance sheet as at September 30, 1997 and the pro forma consolidated statement
of income for the year ended September 30, 1997 and the six months ended March
31, 1998.
a) the Proposed Acquisition for $500,000 in cash; 2,080,000 Venture common
shares valued at $5.75 per share; $200,000 of estimated direct acquisition
costs and a $1,000,000 installment payment due January 1, 1999 bearing
interest at bank prime plus 1%. The assigned fair value of net assets
acquired is:
<TABLE>
<CAPTION>
$
----------
<S> <C>
Working capital deficiency (326,521)
Long term debt (8,923)
Investments 72,966
Deferred lease expense (337,939)
Deferred income taxes 100,052
Capital assets 2,226,983
----------
1,726,618
Excess of cost over net tangible assets acquired, assigned
to goodwill 11,933,382
----------
13,660,000
==========
</TABLE>
b) Adjustment to reflect the annual amortization of goodwill, resulting from
the proposed acquisition, over a 15 year estimated useful life.
1
<PAGE> 23
VENTURE SEISMIC LTD.
NOTES TO PRO FORMA CONSOLIDATED FINANCIAL STATEMENTS
(U.S. Dollars)
For the periods ended September 30, 1997 and March 31, 1998 (Unaudited)
c) Adjustment to reflect the exercise from November 10, 1997 to January 5, 1998
of 1,513,690 of Venture's Redeemable Warrants for aggregate proceeds of
approximately $9,082,000 and the issuance of 1,513,690 Venture common
shares.
d) The pro forma consolidated financial statements do not reflect adjustments
for the elimination of a discretionary management bonus of $721,500 to the
existing owners of Continental, an increase of $101,000 for management
compensation to reflect compensation levels of employment agreements entered
into in conjunction with the Proposed Acquisition and the additional tax
expense of $276,700 resulting from the above adjustments using Venture's
Canadian statutory tax rate of 44.6%. The discretionary management bonus
recorded in 1997 does not reflect the economic value of management services
provided but instead is a common tax planning transaction for Canadian
private companies. Had the above adjustments been reflected in the pro forma
consolidated financial statements for the year ended September 30, 1997, net
income for the year would have been $2,615,529 and Basic, Fully Diluted and
Diluted Earnings Per Share would have been $.50, $.38 and $.44,
respectively. Had the above adjustments been reflected in the pro forma
consolidated financial statements for the six months ended March 31, 1998,
net income for the year would have been $1,818,424 and Basic, Fully Diluted
and Diluted Earnings Per Share would have been $.28, $.22 and $.28,
respectively.
2
