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SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
______________________
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 JANUARY 31, 1995
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 1-7427
DIGICON INC.
(Exact name of registrant as specified in its charter)
DELAWARE 76-0343152
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
3701 KIRBY DRIVE, SUITE #112, HOUSTON, TEXAS 77098
(Address of principal executive offices) (Zip Code)
REGISTRANT'S TELEPHONE NUMBER, INCLUDING AREA CODE (713) 526-5611
NO CHANGES
(Former name, former address and former fiscal year,
if changed since last report)
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
--- ---
APPLICABLE ONLY TO ISSUERS INVOLVED IN BANKRUPTCY PROCEEDINGS DURING
THE PRECEDING FIVE YEARS:
Indicate by check mark whether the registrant has filed all documents
and reports required to be filed by Sections 12, 13 or 15 (d) of the Securities
Exchange Act of 1934 subsequent to the distribution of securities under a plan
confirmed by a court. Yes X No
--- ---
APPLICABLE ONLY TO CORPORATE ISSUERS:
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 MARCH 10, 1995
Common Stock, $.01 par value 11,134,939
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DIGICON INC. AND SUBSIDIARIES
INDEX
<TABLE>
<CAPTION>
Page
Number
------
<S> <C> <C>
PART I. Financial Information
Item 1. Financial Statements
Consolidated Balance Sheets -
January 31, 1995 and July 31, 1994 1
Statements of Consolidated Operations -
For the Three and Six Months Ended January 31, 1995 and 1994 3
Consolidated Statements of Cash Flows -
For the Six Months Ended January 31, 1995 and 1994 4
Notes to Consolidated Financial Statements 7
Item 2. Management's Discussion and Analysis
of Financial Condition and Results of Operations 12
PART II. Other Information
Item 1. Legal Proceedings 21
Item 2. Changes in Securities 21
Item 4. Submission of Matters to a Vote of Security Holders 21
Item 6. Exhibits and Reports on Form 8-K 22
</TABLE>
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PART I. FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS
DIGICON INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
<TABLE>
<CAPTION>
(Unaudited)
January 31, July 31,
1995 1994
----------- --------
(In thousands of dollars)
<S> <C> <C>
ASSETS
Current Assets:
Cash $ 2,719 $ 8,365
Restricted cash investments 752 320
Accounts and notes receivable (net of allowance for
doubtful accounts: January, $613, July, $701) 36,360 30,427
Accounts and note receivable from FSU joint venture,
current portion 975 443
Materials and supplies inventory (net of reserves:
January, $68; July, $68) 1,692 5,410
Prepayments and other 6,988 4,692
-------- --------
Total current assets 49,486 49,657
Property and equipment:
Seismic equipment 45,644 48,622
Data processing equipment 28,024 27,795
Seismic ships 8,291
Leasehold improvements and other 29,763 30,809
-------- --------
Total 103,431 115,517
Less accumulated depreciation 60,499 66,625
-------- --------
Property and equipment -- net 42,932 48,892
Proprietary seismic data 25,980 19,638
Investment in FSU joint ventures 11,369 8,478
Goodwill (net of accumulated amortization:
January, $955; July, $743) 3,290 3,502
Other assets 1,438 802
Note receivable from FSU joint venture 705 887
-------- --------
Total $135,200 $131,856
======== ========
</TABLE>
_________
See Notes to Consolidated Financial Statements.
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<TABLE>
<CAPTION>
(Unaudited)
January 31, July 31,
1995 1994
----------- --------
(In thousands of dollars)
<S> <C> <C>
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Short-term related party loans $ 1,673 $ 2,695
Current maturities of long-term debt 7,129 6,166
Accounts payable - trade 19,530 23,740
Accrued interest 424 293
Other accrued liabilities 12,828 9,205
Income taxes payable 1,599 1,406
-------- --------
Total current liabilities 43,183 43,505
Non-current liabilities:
Long-term debt-less current maturities 24,077 23,922
Deferred credits 5,123 5,538
Other non-current liabilities 534 341
-------- --------
Total non-current liabilities 29,734 29,801
Stockholders' equity:
Common stock, $.01 par value; January - authorized:
20,000,000 shares; issued: 11,134,939 shares; July -
authorized: 60,000,000 shares; issued: 31,352,273 shares 111 314
Additional paid-in capital 71,866 69,366
Accumulated deficit from August 1, 1991
($139,751 deficit eliminated in quasi-reorganization
on July 31, 1991) (9,694) (11,130)
-------- --------
Stockholders' equity 62,283 58,550
-------- --------
Total $135,200 $131,856
======== ========
</TABLE>
_________
See Notes to Consolidated Financial Statements
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DIGICON INC. AND SUBSIDIARIES
STATEMENTS OF CONSOLIDATED OPERATIONS
UNAUDITED
(In thousands, except per share amounts)
<TABLE>
<CAPTION>
Three Months Ended Six Months Ended
January 31, January 31,
----------------------- -----------------------
1995 1994 1995 1994
------- ------- ------- -------
<S> <C> <C> <C> <C>
Revenues $30,266 $30,475 $62,266 $62,749
Costs and expenses:
Operating expenses 22,701 25,708 47,709 52,013
Depreciation and amortization 3,453 3,560 6,846 6,934
Selling, general and administrative 1,058 1,716 2,164 2,796
Interest 1,331 587 2,501 1,175
Equity in (earnings) loss of 50% or less-
owned companies and joint ventures 279 (6) 640 (10)
Other - net 298 (355) (74) (380)
------- ------- ------- -------
Total costs and expenses 29,120 31,210 59,786 62,528
------- ------- ------- -------
Income (loss) before provision for
income taxes 1,146 (735) 2,480 221
Provision for income taxes 317 247 1,044 486
------- ------- ------- -------
Net income (loss) $ 829 $ (982) $ 1,436 $ (265)
======= ======= ======= =======
Income (loss) per share of common stock $ .07 $ (.10) $ .13 $ (.03)
======= ======= ======= =======
Weighted average shares (includes
common stock only) 11,135 9,426 11,046 9,426
======= ======= ======= =======
Cash dividends None None None None
======= ======= ======= =======
</TABLE>
_________
See Notes to Consolidated Financial Statements.
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DIGICON INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
UNAUDITED
<TABLE>
<CAPTION>
Six Months Ended January 31,
1995 1994
-------- --------
(In thousands of dollars)
<S> <C> <C>
Operating activities:
Net income (loss) $ 1,436 $ (265)
Non-cash items included in income (loss):
Income taxes added to paid-in capital 10
Depreciation and amortization 6,846 6,934
Gain on disposition of assets (87) (369)
Equity in (earnings) loss of 50% or less-owned
companies and joint ventures 640 (10)
Write-down of proprietary seismic data to market 198 259
Restructuring charges (537)
Amortization of warrants issued with short-term related
party loans 27
Change in operating assets/liabilities:
Accounts and notes receivable (2,678) (1,545)
Accounts and note receivable from FSU joint venture 59
Materials and supplies inventory 93 1,138
Prepayments and other (2,296) (1,045)
Proprietary seismic data (6,540) (5,468)
Other 207 117
Accounts payable - trade (5,403) (5,644)
Accrued interest 131 61
Other accrued liabilities 2,291 4,367
Income taxes payable 193 181
Deferred credits (415) (1,001)
Other non-current liabilities 83
------- ------
Total cash used by operating activities (5,752) (2,280)
Financing activities:
Borrowings of short-term related party debt 30 3,234
Payments of short-term related party debt (1,052)
Payments of long-term debt (2,505) (1,723)
Net borrowings (payments) under credit agreements 2,534 (1,054)
Common stock issue costs (39)
------- ------
Total cash provided by (used in) financing activities (1,032) 457
</TABLE>
_________
See Notes to Consolidated Financial Statements.
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DIGICON INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS (CONTINUED)
UNAUDITED
<TABLE>
<CAPTION>
Six Months Ended January 31,
1995 1994
-------- --------
(In thousands of dollars)
<S> <C> <C>
Investing activities:
Purchase of property and equipment $(1,757) $(2,990)
Sale of property and equipment 1,095 897
(Increase) decrease in restricted cash investments (432) 308
Investment in FSU joint ventures (807)
Sale to Syntron, Inc.:
Inventories and technologies 1,591
Property and equipment 1,409
------- -------
Total cash provided by (used in) investing activities 1,099 (1,785)
Currency (gain) loss on foreign cash 39 (92)
------- -------
Change in cash and cash equivalents (5,646) (3,700)
Beginning cash and cash equivalents balance 8,365 5,402
------- -------
Ending cash and cash equivalents balance $2,719 $1,702
======= =======
</TABLE>
_________
See Notes to Consolidated Financial Statements.
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DIGICON INC. AND SUBSIDIARIES
SUPPLEMENTARY SCHEDULES TO CONSOLIDATED STATEMENTS OF CASH FLOWS
UNAUDITED
<TABLE>
<CAPTION>
Six Months Ended January 31,
1995 1994
-------- --------
(In thousands of dollars)
<S> <C> <C>
Schedule of non-cash investing and financing activities:
Increase in property and equipment due to:
Execution of capital leases and notes $ 843 $223
Accounts payable - trade 257 464
Increase (decrease) in investment in FSU joint ventures:
Common stock issued 2,309
Accounts and note receivable from FSU joint venture (409)
Other accrued liabilities 841
Long-term debt 245
Sale of inventories, property and equipment, and
technologies to Syntron, Inc.:
Accounts and notes receivable 3,255
Inventories (2,034)
Other assets - deferred credits receivable 857
Accounts payable - trade 957
Other accrued liabilities - deferred gain 1,011
Other non-current liabilities - deferred gain 110
Supplemental disclosures of cash flow information:
Cash paid during the six months ended for:
Interest -
Secured term loan 312 293
Revolving credit facilities 930 169
Secured short-term related party loans 72
Equipment purchase obligations and
unsecured notes payable 560 507
Other 534 110
Income taxes 826 984
</TABLE>
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DIGICON INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
UNAUDITED
1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
OPINION OF MANAGEMENT
In the opinion of Management, the accompanying unaudited consolidated
financial statements contain all adjustments necessary to present
fairly the financial position of Digicon Inc. and subsidiaries at
January 31, 1995, and the results of its operations for the three and
six month periods and its cash flows for the six month periods ended
January 31, 1995 and 1994. The results of operations for any interim
period are not necessarily indicative of the results to be expected
for a full year, as such results could be affected by changes in
demand for geophysical services and products, which is directly
related to the level of oil and gas exploration and development
activity. Governmental actions, foreign currency exchange rate
fluctuations, seasonal factors, weather conditions and equipment
problems also could impact future operating results.
INCOME (LOSS) PER SHARE
Weighted average shares and primary income (loss) per share have been
restated for all periods presented to reflect the effect of a one for
three reverse stock split consummated on January 17, 1995. See Note 9.
Primary loss per share is computed based on the weighted average
number of shares of common stock. Primary income per share is computed
based on the weighted average number of shares of common stock plus
common stock equivalents. Common stock equivalents include stock
options and warrants. Shares issuable upon the conversion of stock
options and warrants were disregarded since the treasury stock method
of calculation produced no incremental shares.
Fully diluted income per share is not presented since common stock
equivalents had no dilutive effect or due to net losses.
2. SHORT-TERM RELATED PARTY LOANS
The short-term related party loans are secured on a subordinated basis
by a majority of the assets of the Company. Interest is payable at
prime plus 3% through January 26, 1995 and at prime plus 6% thereafter
(14.5% at January 31, 1995). The loans are subject to mandatory
prepayment from a portion of the proceeds of certain specified
transactions, if and when such transactions occur, and beginning
January 26, 1995, out of excess cash flow (as defined in the loan
agreement) earned during the period beginning August 1, 1994. As of
January 31, 1995, there was no excess cash flow as defined. As further
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consideration for the facility, the Company issued 120,000 common
stock purchase warrants (as adjusted for the one for three reverse
stock split consummated on January 17, 1995) expiring July 26, 1999
with an exercise price of $4.50.
3. LONG-TERM DEBT
The Company's long-term debt is as follows:
<TABLE>
<CAPTION>
January 31, July 31,
1995 1994
----------- --------
(In thousands of dollars)
<S> <C> <C>
Revolving credit agreement due April 1997, at prime plus
3% (11.5% at January 31, 1995) $ 15,000 $ 12,446
Secured term loan due June 1997, at 10.75% 6,000 6,000
Secured Indonesian Rupiah revolving credit agreement
due September 1995, at 19% 902 922
Unsecured notes maturing through January 1995, at 10% 35
Equipment purchase obligations maturing through
September 1998, at an average rate of 10.91%
at January 31, 1995 9,277 10,605
Real estate note maturing April 1995, at prime
plus 1.25% (9.75% at January 31, 1995) 27 80
-------- --------
Total 31,206 30,088
Less current maturities 7,129 6,166
-------- --------
Due after one year $ 24,077 $ 23,922
======== ========
</TABLE>
The revolving credit agreement is with a finance company and provides
a revolving credit facility of up to $15,000,000 through April 11,
1997. The lender has agreed to increase the facility to $17,000,000
for a six month period ending on September 15, 1995. Advances under
the agreement are limited by a borrowing formula and are secured by a
majority of the assets of the Company. The agreement limits, among
other things, the Company's right, without consent of the lender, to
take certain actions, including creating indebtedness, prohibits
paying certain dividends and requires the Company to maintain certain
financial ratios. The agreement also provides for the deposit of
collections of certain of the Company's accounts receivable into cash
collateral accounts and for the repayment of outstanding advances and
monthly interest with such proceeds. Amounts applied against
outstanding advances are available for reborrowing upon presentation
of evidence of adequate borrowing base coverage.
The secured term loan is due June 30, 1997, with interest at 10.75%
payable quarterly. Principal payments of $1,500,000 are due June 30,
1995 and June 30, 1996, and all
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remaining unpaid principal is due June 30, 1997. The note agreement
limits, but does not prohibit, the Company's ability to pay dividends
and to incur indebtedness for borrowed money and requires the Company
to maintain certain financial ratios. At January 31, 1995, the Company
was not in compliance in respect to the debt coverage ratio required
under the agreement; however, the Company has obtained a waiver for
the quarter ended January 31, 1995. In April 1994, in conjunction with
the execution of the revolving credit agreement, the lender was
granted a security interest in a majority of the Company's equipment.
In connection with the original sale of the notes, the Company issued
113,333 common stock purchase warrants (as adjusted for the one for
three reverse stock split consummated on January 17, 1995) to the
lender.
The secured Indonesian Rupiah revolving credit facility in the amount
of two billion Rupiahs is the obligation of P.T. Digicon Mega Pratama,
a consolidated subsidiary of the Company, and provides working capital
and certain bank guarantees for its Indonesian operations. The
facility expires in September 1995, and is secured by substantially
all of the assets of P.T. Digicon Mega Pratama.
The unsecured notes payable represented agreements executed in
settlement of certain unsecured obligations.
The Company's equipment purchase obligations represent installment
loans and capitalized lease obligations primarily related to computing
and seismic equipment.
The real estate note is secured by land and a building and is payable
in installments of $8,987 per month plus interest through April 1995.
4. OTHER - NET
Other - net consists of the following:
<TABLE>
<CAPTION>
Three Months Ended Six Months Ended
January 31, January 31,
------------------------- -------------------------
1995 1994 1995 1994
---------- --------- --------- ---------
(In thousands of dollars) (In thousands of dollars)
<S> <C> <C> <C> <C>
Net foreign currency exchange (gains)
losses $ 84 $ (58) $ 91 $ 15
Net (gains) losses on disposition of
property and equipment 262 (284) (87) (369)
Interest income (48) (17) (85) (36)
Other 4 7 10
----- ------ ----- ------
Other - net $ 298 $ (355) $ (74) $ (380)
===== ====== ===== ======
</TABLE>
5. RESTRICTED CASH
Restricted cash represents amounts pledged as collateral on certain
bank guarantees.
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6. SALE OF INVENTORIES, ASSETS AND TECHNOLOGIES
On August 31, 1994, the Company entered into a series of agreements
with Syntron, Inc. ("Syntron") that provided for the sale of certain
assets, inventories, and technologies by the Company to Syntron and
the assumption of certain liabilities by Syntron. The sale price was
$7,500,000 payable in cash of $3,000,000 and $4,500,000 in credits to
be applied against future purchases by the Company in accordance with
contract terms. The agreements also provide that for a period of
three years, Syntron will be the sole supplier to the Company of
certain acquisition, monitoring, and recording equipment that is
competitively priced, deliverable on a timely basis and is
technologically competitive. In addition, the Company has agreed to
lease back certain marine and land recording equipment from Syntron
for a period of up to thirty-six months with minimum lease terms
ranging from 71/2 to 171/2 months.
The difference between the sale price and the net book value of the
net assets sold after discounting the credits by 1/2% was a $1,121,000
gain which will be recognized ratably over the average minimum lease
term.
7. INVESTMENT IN FSU JOINT VENTURES
During the year ended July 31, 1994, the Company entered into an
agreement with MD Seis International Ltd. to focus on emerging
geophysical opportunities throughout the former Soviet Union ("FSU").
In connection with the agreement, the Company placed 5,431,615 shares
of its old common stock in escrow to be distributed in three stages
upon the execution and completion of certain conditions.
The first stage was completed on April 1, 1994 and the Company
exchanged 3,072,950 shares of old common stock valued at $2.375 per
share, or $7,298,256, and a $1,000,000 cash commitment in return for a
50% interest in MD Seis Geophysical Co., Ltd. (a Russian joint stock
company) and Seismic Technology, Inc. (a Delaware corporation), a 25%
interest in DG Seis Overseas, Ltd. (a Republic of Cyprus limited
liability company) and a 10% indirect interest in Caspian Geophysical
(an Azerbaijani joint venture). The second stage of the agreement was
completed on August 25, 1994, and the Company increased its ownership
interest to 50% in DG Seis Overseas, Ltd. and to a 20% indirect
interest in Caspian Geophysical by exchanging 2,052,543 shares of old
common stock valued at $1.125 per share, or $2,309,111, and an
additional $2,000,000 cash commitment. In addition, the Company has
agreed to guarantee certain liabilities of the joint ventures. After
adjustment for the one for three reverse stock split consummated on
January 17, 1995, MD Seis owns 1,708,497 shares of common stock.
The investments are being accounted for under the equity method. The
excess value of the purchase price over the fair value of the net
assets acquired in the amount of $9,292,000 is being amortized over a
twenty-year period. Amortization expense for the three and six months
ended January 31, 1995 was $120,000 and $240,000, respectively.
Both parties have agreed not to pursue stage three and all remaining
shares of old common stock were released back to the Company.
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8. RESTRUCTURING CHARGES
In response to operating losses and tightening cash flow during the
year ended July 31, 1994, management made a decision to restructure
its operations and revalue certain assets during that period and as a
result incurred $9,116,000 in total expenses. Included in the
$9,116,000 was $6,523,000 for the write-off/reserve for the impairment
of assets to their net realizable value. A portion of the write-off
pertained to marine ($2,437,000) and land ($552,000) acquisition
assets related to decommissioned marine vessels and stacked land
crews. The write-off/reserve for impairment of assets also included
the write-down of certain other marine and land acquisition assets
that were not a direct result of the restructuring program
($1,048,000). In addition, the Company wrote-down data processing
equipment ($2,056,000) particularly in the Far East, based on a
declining market, and Indonesian proprietary data since the Company's
license to sell such data was not extended by the Indonesian
government ($430,000). Also included in the $9,116,000 were accrued
restructuring charges of $1,363,000 of which $1,226,000 related to
severance costs for a 10% reduction in the Company's workforce and
$137,000 related to the consolidation of certain offices.
Approximately $1,123,000 of these amounts had been paid as of January
31, 1995 and the Company estimates that all remaining liabilities in
the amount of $240,000 will be paid during fiscal 1995. The remaining
costs of $1,230,000 were included in other operating expenses and
included non-recurring expenses associated with certain contract
liabilities and other impaired assets.
9. REVERSE STOCK SPLIT
On December 14, 1994, shareholders approved a one for three reverse
stock split (the "Reverse Split") to holders of record on January 17,
1995, with no change in par value. On January 17, 1995, there were
33,404,816 shares of common stock outstanding which were converted
into approximately 11,134,939 shares of new common stock. The net
effect of these transactions are a charge to common stock and a credit
to additional paid-in- capital of approximately $223,000.
On January 17, 1995, there were 1,363,636 publicly traded common stock
purchase warrants expiring on July 5, 1996 with an exercise price of
$6.00 per share. In connection with the Reverse Split and as required
by the American Stock Exchange, the publicly traded warrants were
converted, effective January 17, 1995, into approximately 454,545 new
common stock purchase warrants with an exercise price of $18.00. Also
on January 17, 1995, there were 340,000 common stock purchase warrants
expiring on June 29, 1997 with an exercise price of $2.00 per share
which were adjusted in connection with the Reverse Split to represent
113,333 shares of new common stock issuable upon exercise of these
warrants at an exercise price of $6.00. Additionally, there were
1,975,000 and 600,000 shares of common stock authorized under the 1992
Employee Nonqualified Stock Option Plan and 1992 Non-Employee Director
Stock Option Plan, respectively. In connection with the Reverse Split,
these authorized shares were decreased to approximately 658,000 and
200,000 authorized shares of new common stock under the Employee Plan
and Director Plan, respectively, and the exercise prices were tripled.
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ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
OVERVIEW
The seismic industry and its role in petroleum exploration, development and
production has changed substantially during recent years. Wider applications of
seismic technology have strongly shifted the emphasis to three dimensional
("3D") surveys, and the greater precision and improved subsurface resolution
obtainable from 3D seismic data have enabled oil companies to utilize these
surveys to find new fields and to delineate more accurately existing fields and
to augment their reservoir management and production monitoring techniques. It
has been demonstrated that the enhanced subsurface resolution obtainable from
3D studies has been a key factor in improving success ratios and lowering
finding and field extension costs for the oil industry during the past several
years.
The increased use of 3D seismic technology for development and production
activities coupled with strengthening oil and gas prices contributed to seismic
spending increases from 1988 to 1993, a period during which 3D surveys became
the predominant practice offshore. In addition, the demand for land/transition
zone 3D surveys has increased during the past two years. However, during
calendar 1993, delayed offshore concession awards and tax changes in certain
foreign countries, coupled with oil company budget shifts, reduced demand for
marine surveys and, as a consequence, excess capacity developed in the marine
geophysical market. The Company responded to these changes by shifting its
geographic emphasis to the Western Hemisphere, by allocating substantial
resources to build its land/transition zone business and by reducing the number
of vessels in operation. The Company has reduced its fleet from nine to five
vessels and is presently utilizing 80% of the fleet in Gulf of Mexico 3D
operations. As a result of recent strengthening in the Far East marine market,
one vessel will be mobilized from the Gulf to Australia where it will begin
working on a 2D survey in the fourth quarter. International operations
accounted for 55% of revenues in 1994, down from 77% in 1993 and 87% in 1992.
In the first half of fiscal 1995, international operations accounted for 52% of
total revenues. In addition, as a result of further reductions in oil company
budgets which have reduced the amount of single customer contract work
available, and the relatively large number of oil companies presently active in
the Gulf of Mexico, the Company has shifted its emphasis to acquiring 3D data
for its own library, where the potential exists for enhanced profitability
resulting from multiple sales of each data set. However, recent weakness in
domestic prices for natural gas has limited Gulf of Mexico activity somewhat
and the Company's investment in domestic speculative surveys during the
remainder of 1995 is expected to be reduced.
To emphasize its expanded focus on the land/transition zone market, in October
1992, the Company added three domestic land/transition zone crews and
subsequently further increased its onshore presence through the addition of
three crews utilizing advanced-technology high capacity I/O System Two
equipment. A total of five land crews are currently in operation, three
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in the United States and two in South America. A third South American crew will
begin work in the fourth quarter. As a result of this onshore focus, the
Company's land revenues increased from approximately $3.1 million in fiscal
1992 to $38.5 million in fiscal 1994. In the first half of fiscal 1995,
primarily as a result of stacking the Company's transition zone crew in
Australia, land revenues decreased 8% from last year, but are expected to
increase during the remainder of 1995 due to additional capacity in South
America. At July 31, 1994, the Company's backlog of commitments for services
was $84,500,000, compared with $77,800,000 at July 31, 1993. At January 31,
1995, backlog expanded further to $89,761,000. At January 31, 1995, 47% of the
Company's backlog was represented by contracts for land data acquisition, 31%
by contracts for marine data acquisition and 22% by contracts for data
processing.
During 1995, the Company expects to spend approximately $13-15 million for
capital expenditures and approximately $2.8 million for research and
development activities. The majority of capital spending in 1995 will be for
various vessel upgrades and additional data acquisition and processing
equipment necessary to maintain existing levels of operation. In addition, as
previously mentioned, a new I/O crew has been added in South America and an
additional crew is being considered to replace obsolete domestic equipment. A
substantial majority of the funding for the capital expenditures will be
provided by vendor financing arrangements. Further additions to capacity will
be considered only if increased market demand is evident and financing is
available. In fiscal 1995, the Company also expects to invest approximately $17
million in its data library. In addition, and as discussed further below, the
Company is committed to invest up to $2 million in working capital (of which
approximately $1.75 million has been spent to date) plus loan guaranties in its
FSU joint ventures.
During 1994, in conjunction with certain changes in senior management, the
Company initiated a comprehensive program designed to restructure each of the
Company's geographic and operational lines of business with the objective of
restoring profitability to its operations. These actions included personnel
reductions, office consolidations, vessel deactivations and redeployments and
the movement to outsource certain costly manufacturing and research and
development activities historically performed "in-house". The implementation of
this program has resulted in cost savings which have increased to approximately
$800,000 per month beginning in the second quarter of fiscal 1995.
During the past year, the industry has focused on developing market
opportunities in the former Soviet Union ("FSU"). As a vehicle for entering
these markets, the Company, in partnership with MD Seis International Ltd. ("MD
Seis" or the "MD Seis Group"), has formed several joint venture companies which
are actively pursuing geophysical contracts in the FSU. Three of the joint
venture companies, DG Seis Overseas, Ltd. ("DG Seis"), Seismic Technology, Inc.
and MD Seis Geophysical Co., Ltd. are currently owned 50/50 by Digicon and MD
Seis. The Company also currently owns a 20% indirect interest in a fourth joint
venture company, Caspian Geophysical. The majority partner in Caspian
Geophysical is the offshore geophysical unit of the State Oil Company of the
Azerbaijan Republic ("SOCAR"). The MD Seis Group has been active in the FSU for
a number of years and is controlled by several individuals and entities
including Lukoil, the largest joint stock oil company in Russia, and Central
Geophysical
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Expedition, a division of the former Ministry of Oil and Gas Industry of the
USSR which now functions as the principal geoscience center for the Russian
Federation's petroleum industry.
In exchange for its interest in the four joint venture companies, the Company
has issued to MD Seis, a total of 5,125,493 old shares of common stock and has
committed to contribute up to $3 million of cash plus loan guaranties to fund
the start-up costs of the joint ventures. After adjustment for the one for
three reverse stock split consummated on January 17, 1995, MD Seis owns
1,708,497 shares of common stock. As of the date of this report on Form 10-Q,
the Company has invested approximately $2.75 million of cash in the ventures
and has issued guaranties of venture indebtedness totaling $3,380,000. MD Seis
has contributed to the joint venture companies its existing asset base, which
includes seven land crews currently operating in the FSU, data processing
equipment and a library of FSU seismic data covering 410 square kilometers.
Caspian Geophysical has leased the vessel, M/V Baki, formerly the Academic
Nalivkin, from SOCAR under a long-term charter agreement. Under the supervision
of Company personnel, the vessel has been upgraded to state-of-the-art 3D
technology and is presently in the Caspian Sea where it is working on a 16,000
km project sponsored by several major oil companies. DG Seis has been awarded a
contract to acquire data offshore Kazakhstan by a consortium of primarily
western oil companies during portions of 1995 and 1996. A second vessel is
planned for Kazakhstan operations beginning this Spring. In addition, work has
begun on a large 3D land contract in Western Siberia covering three years of
seasonal work.
On August 31, 1994, the Company sold its cable and canister manufacturing and
repair facility and certain of its marine and land data acquisition equipment,
related data acquisition technology and associated inventory to Syntron, Inc.
("Syntron"). In connection with the transaction, the Company's marine and land
engineering groups, totaling 37 people, were transferred to Syntron. The total
sales price was $7,500,000, of which $3,000,000 was received in cash at
closing, with the remainder payable in credits to be applied against future
purchases of advanced technology digital recording equipment manufactured by
Syntron. Depending on market conditions during the next 24 months, the Company
expects to upgrade its vessels to Syntron equipment valued, in total, at
approximately $21 million. Syntron has agreed to finance a significant portion
of the purchase price of this equipment. Prior to upgrading its vessels with
Syntron equipment, the Company will lease back from Syntron certain equipment
currently in use which was sold pursuant to this transaction, at rates
approximating the depreciation charges previously being recognized on such
equipment. See Note 6 to the Consolidated Financial Statements.
FINANCIAL CONDITION, LIQUIDITY AND CAPITAL RESOURCES
In the first half of fiscal 1995, the Company's stockholders' equity increased
to $62,283,000 from $58,550,000 at July 31, 1994, while total liabilities
declined by $389,000. During the first quarter of 1995, an additional
$2,309,000 of common stock was issued with respect to the formation of the FSU
joint venture companies. At January 31, 1995, funded debt measured as a
percentage of total capitalization (stockholders' equity plus funded debt)
declined to 34% compared with 36% at July 31, 1994.
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For financial reporting purposes, the Company has previously accrued income
taxes in respect of its marine data collection operations in Mexico during
fiscal 1992 and 1993 based on the amount of income taxes withheld by its
client, the state owned oil company. The Company believes that the income taxes
withheld (which total approximately $2,600,000) far exceed the taxes, if any,
which are due by the Company in respect of its operations in Mexico. In
September 1992, the Company filed suit to recover all income taxes withheld,
and on June 3, 1993, the Company was notified that the tax court in Mexico had
issued a ruling which appears to support the Company's claim for recovery. Both
the Mexican tax authorities and the Company sought clarification of the ruling
from the appellate court in Mexico, and based on the appellate court's ruling
in November 1993, it appears that the Company's position has again been
supported.
Based on the court rulings, the Company is continuing proceedings necessary to
enforce compliance with the court rulings and recover the income taxes
withheld. Although the court rulings are a favorable development, there is no
assurance that the Company will recover any significant portion of the withheld
taxes or, if such recovery is made, as to the timing of receipt. The Company
intends to continue to seek recovery of the withheld taxes but does not
presently intend to reflect any anticipated refunds thereof as a reduction in
income taxes until such time, if ever, that the excess amounts withheld are
received.
The Company has required increased amounts of working capital to support its
operations and its capital expenditure and research and development programs.
The Company has a significant presence (55% of fiscal 1994 revenues) outside of
the United States, where operations typically require greater amounts of
working capital than similar domestic activities, as the average collection
period for foreign receivables is generally longer than for comparable domestic
accounts. In addition, the Company has increased its participation in
non-exclusive data surveys and has significantly expanded its library of
proprietary data. Because of the lead time between survey execution and sale,
non-exclusive surveys generally require greater amounts of working capital than
contract work. Depending on the timing of future sales of the data and the
collection of the proceeds from such sales, the Company's near-term liquidity
will likely continue to be affected; however, the Company believes that these
non- exclusive surveys have good long-term sales, earnings and cash flow
potential.
During the past two years, the Company has updated and increased its data
processing capabilities, invested significant capital to outfit a new seismic
vessel and has, more recently, allocated significant resources to its
land/transition zone activities. In fiscal 1993 and 1994, the Company spent a
total of $51 million for new capital equipment and invested approximately $9.1
million in its research and development efforts. The Company's anticipated
capital expenditures for fiscal 1995 of approximately $13-15 million provide
primarily for the maintenance of existing levels of capacity, a major upgrade
to one vessel's acquisition system and the addition of one land crew, with a
second crew being considered depending on market conditions and the
availability of financing. Further additions to capacity will be dependent upon
oil company demand for geophysical services and the availability of funding.
The Company's internal sources of liquidity are cash balances ($2,719,000 at
January 31, 1995) and cash flow from operations (expected to be positive for
the remainder of the fiscal year ended
15
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July 31, 1995), and its external sources include the unutilized portion of its
working capital facility described below (approximately $3,500,000 at the date
of this Form 10-Q), equipment purchase obligations, asset dispositions and
trade credit. To provide additional working capital, in April 1994, the Company
obtained a three year, $15 million revolving credit facility from a commercial
finance company. The facility provides for borrowings of up to 80% of the
majority of the Company's domestic and foreign receivables at an interest rate
of three percent over the prime rate and is secured by most of the Company's
world-wide assets. In March 1995, the lender agreed to increase the facility to
$17 million for a six month period ending September 15, 1995.
To provide additional funding to enable the Company to continue to add to its
Gulf of Mexico data library, on July 26, 1994, the Company and a lending group
comprised of three significant stockholders of the Company, entered into a
short- term bridge loan agreement. The agreement provided for $3,000,000 of
advances, of which $2,725,000 was borrowed, secured on a subordinated basis by
the majority of the Company's assets. The loan was subsequently extended until
July 26, 1995. Interest was initially payable at the rate of three percent
over prime and was increased to six percent over prime on January 26, 1995. In
addition, the lenders were issued 120,000 5-year warrants (as adjusted for the
one for three reverse stock split consummated on January 17, 1995) to purchase
shares of common stock at $4.50 per share. Advances under the agreement are
repayable on or before July 26, 1995, and mandatory prepayments are required
from a portion of the net proceeds received from certain specified transactions
if and when such transactions are completed. The remaining balance of the
facility ($1,673,000) is payable monthly to the extent of the Company's excess
cash flow (as defined in the loan agreement) earned during the period beginning
August 1, 1994.
The Company is holding discussions with several groups with respect to
additional transactions which would further enhance its liquidity. Such
transactions could include the disposition of non-productive assets and the
formation of additional alliances to share the costs of the acquisition of data
or other corporate and operational functions. The Company is also considering
proposals which would reduce the amount of working capital employed in its FSU
ventures. Discussions on transactions aimed at increasing liquidity are
ongoing, but there can be no assurance that they can be successfully completed.
The Company believes that as a result of certain cash generating and
expenditure reducing transactions concluded in the past twelve months,
including, as previously discussed, the Company's restructuring and expense
reduction program, the expanded revolving credit agreement, the sale of assets
and transfer of certain research functions to Syntron, the short-term bridge
loan, deferral of payables and asset dispositions, it has strengthened its
working capital position. Absent a deterioration in the Company's markets, the
Company believes that it possesses sufficient liquidity to continue operations
on a satisfactory basis. However, if additional working capital were to become
necessary as a result of deterioration in demand for or pricing of the
Company's services, and if additional financing were not available, the
Company's operating results and financial condition would be adversely
affected.
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RESULTS OF OPERATIONS
THREE MONTH PERIOD ENDED JANUARY 31, 1995
Resulting primarily from improved data processing operations, increased sales
from the Company's library of proprietary data and a reduction in operating
expenses, the Company's operations improved during the second quarter compared
with the second quarter of the prior year. Net income was $829,000 or $.07 per
share in the current quarter as compared to a net loss of $982,000 or $.10 per
share (as adjusted for the one for three reverse stock split) in the prior
year's quarter. Although revenues decreased slightly ($209,000), profit margins
increased from 16% in the prior year's quarter to 25% in the current quarter
and total costs and expenses decreased $2,090,000 or 7% on a comparable quarter
basis.
Data processing revenues increased $1,960,000 or 29% during the quarter. The
increase was mainly attributable to the installation of additional capacity
provided by massively parallel data processing systems in the Company's centers
in Houston and Singapore. In addition, the Company was awarded a new processing
contract at its Assen, Holland center. The Company expects revenues to continue
to improve in these centers and plans to introduce a new land software product
during the current fiscal year which should further increase data processing
revenues. The improved revenues from these centers were partially offset by
lower revenues in soft European and Indonesian markets. The Company expects the
European market to improve in the future. However, the Indonesian market has
been depressed for some time and the Company will continue to scale back its
operations in that area.
Revenues of $4,800,000 from the sale of proprietary data (non-exclusive
surveys) doubled during the current quarter compared to the prior year.
Revenues attributable to the sale of proprietary data has increased from 8% of
total revenues in the prior year's quarter to 16% of total revenues during the
current quarter. The increase is primarily attributable to the sale of data
collected in non-exclusive surveys in the Gulf of Mexico and in the North Sea.
The Company expects revenues from the sale of proprietary data to continue to
improve during the third quarter, as additional surveys are completed and
available for sale.
Marine revenues from contract work decreased approximately $2,400,000 or 24%
during the second quarter of 1995. The Company derigged one of its seismic
vessels in April 1994 which contributed to lower current quarter revenues. In
addition, during the first quarter of 1995, the Company mobilized a vessel
which operated on funded surveys in the North Sea in the prior year, to the
Gulf of Mexico to join three of its other vessels in collecting non-exclusive
surveys in the area. The Company continues to operate a vessel in the Far East
where improved market conditions along with exceptional weather doubled
revenues in the second quarter of 1995.
The Company plans to mobilize another vessel to the Far East in March 1995,
where it will perform a 2D contract beginning in the fourth quarter. The
Company expects marine revenues in the third quarter to remain flat due to the
mobilization of the vessel to the Far East.
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Land revenues for the second quarter of 1995 declined approximately $2,000,000
or 18%. The decrease was mainly attributable to two of the Company's four North
American land crews which were idle for the majority of the second quarter of
1995 primarily due to inclement weather. During the third quarter, the Company
anticipates that revenues from its North American operations will improve.
Revenues from the two South American crews during the second quarter of 1995
were consistent with last year. The crew that operated in Bolivia in the prior
year assisted in Argentina during the current year's quarter on a large 3D job
and will return to Bolivia during the third quarter to complete a new 2D
contract. During January 1995, the Company began mobilization of a new I/O
System Two crew to South America that will perform a large contract in
Argentina. With the additional crew in place, the Company expects its revenues
from South America to improve during the third quarter.
Operating expenses for the second quarter of 1995 decreased $3,007,000 or 12%
from the second quarter of 1994. The decrease in expenses resulted primarily
from a major restructuring program implemented during the prior fiscal year.
The program included the write-off /reserve for impairment of assets to their
net realizable value, a reduction in the work force, and the consolidation of
certain offices in all operations. Furthermore, in September 1994, the Company
sold the inventories, assets and technologies related to its manufacturing
operations to Syntron Inc. and transferred the related personnel. The Company
estimates that the savings from this program is approximately $800,000 per
month. The remaining decreases relate primarily to the derigging of the seismic
vessel as discussed above.
Selling, general and administrative expense decreased $658,000 during the
current quarter compared to the prior quarter. The prior quarter included an
accrual of $607,000 in benefits payable over a five year period under an
employment contract with a former officer. Primarily as a result of increased
borrowings of working capital facilities and equipment financing and higher
interest rates, interest expense increased $744,000 during the current quarter.
As previously discussed, in April 1994, the Company acquired interests in four
joint ventures that operate in the former Soviet Union. In acquiring these
interests, the Company exchanged common stock and cash commitments valued in
excess of the fair market value of the net assets received. The excess value is
being amortized over a twenty-year period and the Company has recorded $120,000
of amortization expense during the current quarter. The joint ventures are in
the start-up phase and the Company recorded $307,000 of equity losses during
the current quarter. The joint ventures have been awarded several marine and
land acquisition contracts scheduled to begin during the first half of calendar
1995, and the Company expects the joint ventures to begin recognizing revenues
in the current fiscal year.
Other - net for the current quarter consists mainly of losses incurred on the
sale of a stacked seismic vessel and on cables damaged during a survey. The
current year quarter also includes net currency losses mostly attributable to
the decline in value of the pound sterling. The prior year quarter includes a
gain on the sale of certain seismic equipment. Current quarter income taxes
relate primarily to operations in the Far East based on increased marine
revenues as discussed above. Income taxes in the prior year related primarily
to operations in South America.
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SIX MONTH PERIOD ENDED JANUARY 31, 1995
During the first six months of fiscal 1995, the Company's net income was
$1,436,000 or $.13 per share compared to a net loss of $265,000 or $.03 per
share (as adjusted for the one for three reverse stock split) in the comparable
period of the prior year. Although revenues decreased slightly ($483,000),
profit margins increased from 17% in the prior year's period to 23% in the
current year and total costs and expenses decreased $2,742,000 or 4% in the
current year.
Processing revenues increased $3,237,000 or 23% over the same period in 1994.
The increase is mainly attributable to the installation of additional capacity
in Houston and Singapore and the availability of additional marine data in the
Gulf of Mexico. In addition, the Company was awarded a processing contract at
its Assen, Holland center. The improved revenues from these centers were
partially offset by lower revenues in European and Indonesian markets.
Revenues from the sale of proprietary data increased $816,000 or 12% during the
current year. The increase is primarily attributable to the sale of data
collected in non-exclusive surveys in the Gulf of Mexico and in the North Sea.
Marine contract revenues decreased approximately $2,785,000 or 13% during the
six month period. The Company derigged two of its seismic vessels in September
1993 and April 1994, respectively. In addition, during the first quarter of
1995 the Company mobilized a vessel which operated on funded surveys in the
North Sea in the prior year to the Gulf of Mexico to join three other vessels
in collecting non-exclusive surveys in the area. These decreases were partially
offset by significantly improved performance by the Company's vessel in the Far
East which benefitted from improved market conditions.
Land revenues for the six months ended January 31, 1995 declined approximately
$1,637,000 or 8% from the same period in the prior year. The decrease was
mainly attributable to reduced domestic land revenues and the elimination of
the Australian crew. Offsetting these reductions was a 37% increase in revenues
earned by the South American crews.
Operating expenses during the six months ended January 31, 1995 decreased
$4,304,000 or 8%. As a result, profit margins improved from 17% in the prior
year to 23% in the current period. The decrease in expenses resulted primarily
from the previously mentioned restructuring program implemented beginning in
the prior fiscal year. The remaining decreases relate primarily to derigging
two seismic vessels as discussed above.
Depreciation and amortization expense declined slightly during the current year
as decreases in charges related to the restructuring program and the derigging
of the seismic vessels were offset by an increase in charges on new asset
purchases and amortization on the FSU joint ventures discussed below. Selling,
general and administrative expense decreased $632,000 during the current period
compared to the prior year period. The prior year period included an accrual of
$607,000 in benefits payable over a five year period due under an employment
contract with a
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former executive of the Company. Primarily as a result of increased borrowings
in working capital facilities and equipment financing and higher interest
rates, interest expense increased $1,326,000 during the current six month
period.
As previously discussed, in April 1994, the Company acquired interests in four
joint ventures that operate in the former Soviet Union. In acquiring these
interests, the Company exchanged common stock and cash commitments valued in
excess of the fair market value of the net assets received. The excess value is
being amortized over a twenty-year period and the Company has recorded $240,000
of amortization expense during the current six-month period. The joint ventures
are in the start-up phase and the Company has recorded $662,000 of equity
losses during the current year.
Other - net for the current year period consists primarily of losses incurred
on the sale of a stacked seismic vessel and on cables damaged during a survey
offset by a gain on the sale of a second seismic vessel. The current year
period also includes net currency losses mostly attributable to the decline in
value of the pound sterling. The prior year period includes a gain on the sale
of certain seismic equipment. The increase in current year income taxes relate
primarily to operations in the Far East based on increased marine revenues as
discussed above and a charge relating to a tax assessment rendered in Jakarta.
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PART II. OTHER INFORMATION
Item 1. Legal Proceedings
As of March 10, 1995, the Company was not a party to, nor was its property the
subject of, any material pending legal proceedings, as defined by relevant
rules and regulations of the Securities and Exchange Commission.
Item 2. Changes in Securities
Common Stock, $.01 Par Value - The Company's stockholders have approved the
conversion of each share of old common stock into 1/3 share of new common
stock. See Item 4. Submission of Matters to a vote of Security Holders.
Warrants to Purchase Common Stock - As a result of the Reverse Split (defined
below) and the anti-dilution provisions of the Company's Warrant Agreement
dated July 1, 1991, each old warrant expiring on July 5, 1996 has been
converted, effective January 17, 1995, into a new warrant that reflects the
economic effect of the Reverse Split. Therefore, the old warrants have been
converted into new warrants, expiring on July 5, 1996, that represent 1/3 of
the shares issuable upon exercise of the old warrants. The new warrants have an
exercise price of $18.00 (three times the exercise price of the old warrants).
Following January 17, 1995 and pursuant to an American Stock Exchange
requirement, the Company began distributing to each warrant holder upon
surrender of the certificates for the old warrants to Chemical Shareholder
Services Group, Inc., as exchange agent, a certificate for the number of whole
new warrants into which the old warrants have been converted. All fractional
interests in the new warrants resulting from the Reverse Split have been or
will be settled in cash on the basis of the average of the closing bid and
asked prices of the old warrants on the American Stock Exchange on January 16,
1995 ($ .125).
Item 4. Submission of Matters to a Vote of Security Holders
The Company's annual meeting of stockholders was held on December 14, 1994.
Common stockholders of record on November 9, 1994 were entitled to vote. The
following matters were voted on by the Company's stockholders at the meeting:
1. Each of the eight directors nominated for the board of directors were
elected by the stockholders.
2. The stockholders approved an amendment to the Company's Certificate of
Incorporation (the "Recapitalization") pursuant to which (i) each
presently outstanding share of common stock,
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par value $.01 per share, of the Company ("Old Digicon Shares") has
been converted, effective January 17, 1995, into 1/3rd share of new
common stock, par value $.01 per share (the "Reverse Split"), of
the Company as so recapitalized ("New Digicon Shares"), (ii) all
fractional interests in New Digicon Shares resulting from the
Recapitalization have been or will be settled in cash on the basis of
the last sale price of the Old Digicon Shares on the American Stock
Exchange on January 16, 1995 ($1.25), (iii) following January 17,
1995, the Company began distributing to each stockholder upon
surrender of the certificates for Old Digicon Shares to Chemical
Shareholder Services Group, Inc., as exchange agent, a certificate for
the number of whole New Digicon Shares into which the Old Digicon
Shares have been converted in the Recapitalization, and (iv) the
number of shares of common stock authorized for issuance by the board
of directors has been reduced to 20,000,000 New Digicon Shares from
the 60,000,000 Old Digicon Shares previously authorized. Stockholders
holding 21,633,375 shares voted to affirm the matter and 572,367
negative votes were cast.
3. The stockholders approved, by a vote of 21,705,323 to 415,131, the
grant by the Company to certain affiliated parties of warrants to
purchase up to a number of shares approximating 1.1% of the Company's
outstanding common stock. The warrants initially evidenced the right to
purchase up to approximately 360,000 shares of common stock at an
exercise price of $1.50 per share at any time prior to their expiration
on July 26, 1999. Both the number of shares purchasable under and the
exercise price of the warrants are subject to adjustment in the event
of subdivisions, combination or any reclassification of the common
stock. Accordingly, because of the Reverse Split, the warrants
presently evidence the right to purchase up to 120,000 shares of new
common stock at an exercise price of $4.50.
Item 6. Exhibits and Reports on Form 8-K
a) Exhibits filed with this report:
11) Computation of income (loss) per common and common equivalent
share for the three and six months ended January 31, 1995 and
1994.
b) Reports on Form 8-K
1) Form 8-K Report was filed as of January 17, 1995 with respect
to a one for three reverse split of the Company's outstanding
common stock which was approved by the Company's stockholders
at the 1994 Annual Meeting held on December 14, 1994.
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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.
DIGICON INC.
----------------------------------
(Registrant)
Date: March 13, 1995 Stephen J. Ludlow
-------------- ----------------------------------
Stephen J. Ludlow
(President)
Date: March 13, 1995 Richard W. McNairy
-------------- ----------------------------------
Richard W. McNairy
(Principal Financial Officer)
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INDEX TO EXHIBITS
EXHIBIT
- -------
11) Computation of income (loss) per common and common equivalent share
for the three and six months ended January 31, 1995 and 1994.
<PAGE> 1
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EXHIBIT 11
COMPUTATION OF INCOME (LOSS)
PER COMMON AND COMMON EQUIVALENT SHARE (a)
(In thousands, except per share amounts)
<TABLE>
<CAPTION>
Three Months Ended Six Months Ended
January 31, January 31,
--------------------- ---------------------
1995 1994 1995 1994
------ ----- ------ -----
<S> <C> <C> <C> <C>
PRIMARY INCOME (LOSS) PER SHARE:
Weighted average shares of common stock
outstanding 11,135 9,426 11,046 9,426
====== ===== ====== =====
Primary income (loss) per share $ .07 $(.10) $ .13 $(.03)
====== ===== ====== =====
FULLY DILUTED INCOME (LOSS) PER
SHARE:
Weighted average shares of common stock
outstanding 11,135 9,426 11,046 9,426
Shares issuable from assumed conversion of
stock options and warrants (treasury stock
method)
------ ----- ------ -----
Weighted average shares of common stock
outstanding, as adjusted 11,135 9,426 11,046 9,426
====== ===== ====== =====
Fully diluted income (loss) per share (b) $ .07 $(.10) $ .13 $(.03)
====== ===== ====== =====
NET INCOME (LOSS) FOR PRIMARY AND
FULLY DILUTED COMPUTATION:
Net income (loss) $ 829 $(982) $1,436 $(265)
====== ===== ====== =====
</TABLE>
___________
(a) Weighted average shares of common stock for all periods presented have
been restated to reflect the effect of a one for three reverse stock split
consummated on January 17, 1995.
(b) This calculation is submitted in accordance with Regulation S-K item
601(b)(11) although stock options and warrants had no dilutive effect.
