<PAGE> 1
===============================================================================
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
---------------------
FORM 10-K/A-3
(Mark One)
/X/ ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
FOR THE FISCAL YEAR ENDED JULY 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)
<TABLE>
<S> <C>
DELAWARE 76-0343152
(STATE OR OTHER JURISDICTION OF (I.R.S. EMPLOYER
INCORPORATION OR ORGANIZATION) IDENTIFICATION NUMBER)
3701 KIRBY DRIVE, SUITE #112
HOUSTON, TEXAS 77098
(ADDRESS OF PRINCIPAL EXECUTIVE OFFICES) (ZIP CODE)
</TABLE>
REGISTRANT'S TELEPHONE NUMBER, INCLUDING AREA CODE (713) 526-5611
Securities registered pursuant to Section 12(b) of the Act:
<TABLE>
<CAPTION>
TITLE OF EACH CLASS NAME OF EACH EXCHANGE ON WHICH REGISTERED
------------------- -----------------------------------------
<S> <C>
Common Stock, $.01 Par Value American Stock Exchange
Warrants to purchase Common Stock American Stock Exchange
</TABLE>
Indicate by check mark whether the registrant (1) has filed all reports
required to be filed by Section 13 or 15(d) of the Securities Exchange Act of
1934 during the preceding 12 months (or for such shorter period that the
registrant was required to file such reports), and (2) has been subject to such
filing requirements for the past 90 days. YES X NO
--- ---
Indicate by check mark if disclosure of delinquent filers pursuant to Item
405 of Regulation S-K is not contained herein, and will not be contained, to the
best of registrant's knowledge, in definitive proxy or information statements
incorporated by reference in Part III of this Form 10-K or any amendment to this
Form 10-K. /X/
The aggregate market value of the registrant's voting stock held by
nonaffiliates of the registrant was $44,462,000 as of September 29, 1995.
APPLICABLE ONLY TO REGISTRANTS 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
--- ---
The number of shares of the Company's common stock, $.01 par value,
outstanding at September 29, 1995 was 11,134,939.
The registrant's proxy statement to be filed in connection with the
registrant's 1995 Annual Meeting of Stockholders is incorporated by reference
into Part III of this report.
===============================================================================
<PAGE> 2
TABLE OF CONTENTS
FORM 10-K/A-3
<TABLE>
<CAPTION>
PAGE
ITEM NUMBER
------
<S> <C> <C>
PART IV
14 Exhibits, Financial Statement Schedules and Reports on Form 8-K................. 46
Signatures...................................................................... 49
</TABLE>
<PAGE> 3
PART IV
ITEM 14. EXHIBITS, FINANCIAL STATEMENT SCHEDULES, AND REPORTS ON FORM 8-K
CONSOLIDATED FINANCIAL STATEMENTS
<TABLE>
<CAPTION>
PAGE
NUMBER
------
<S> <C>
Independent Auditors' Report........................................................... 18
Consolidated Statements of Operations For the Three Years Ended July 31, 1995.......... 19
Consolidated Balance Sheets -- July 31, 1995 and 1994.................................. 20
Consolidated Statements of Cash Flows For the Three Years Ended July 31, 1995.......... 21
Consolidated Statements of Changes in Stockholders' Equity For the Three Years Ended
July 31, 1995........................................................................ 23
Notes to Consolidated Financial Statements............................................. 24
</TABLE>
FINANCIAL STATEMENT SCHEDULES
Separate audited Combined Financial Statements of DG Seis Overseas Limited,
MD Seis Geophysical Co. Ltd. and Seismic Technology, Inc. as of December 31,
1994 and for the period from April 1, 1994 (date of inception) to December 31,
1994.
Separate audited financial statements of P.T. Digicon Mega Pratama as of
July 31, 1995 and 1994 and for the three years ended July 31, 1995.
All other financial statement schedules are omitted for the reason that
they are not required or are not applicable, or the required information is
shown in the financial statements or the notes thereto.
FORM 8-K REPORTS DURING THE QUARTER ENDED JULY 31, 1995
Form 8-K Report was filed as of June 6, 1995 with respect to the sale of
the Company's joint venture interests in the former Soviet Union.
46
<PAGE> 4
EXHIBIT INDEX
<TABLE>
<CAPTION>
EXHIBIT
- -----------
<S> <C>
3-A) -- Restated Certificate of Incorporation (with Amendments) of Digicon Inc.
dated December 17, 1992. (Exhibit 3-A to Digicon's Annual Report on Form
10-K for the year ended July 31, 1994.)
3-B) -- Certificate of Ownership and Merger of New Digicon Inc. and Digicon Inc.
(Exhibit 3-B to Digicon's Registration Statement No. 33-43873, dated
November 12, 1991, is incorporated herein by reference).
3-C) -- By-laws of New Digicon Inc. dated June 24, 1991 (Exhibit 3-I to
Digicon's Form 10-K Report for the year ended July 31, 1991, is
incorporated herein by reference).
3-D) -- Certificate of Amendment of Certificate of Incorporation of Digicon Inc.
dated February 6, 1992. (Exhibit 3-D to Digicon's Annual Report on Form
10-K for the year ended July 31, 1994.)
4-A) -- Specimen Digicon Inc. common stock certificate (Exhibit 4.1 to Digicon's
Amendment No. 3 to Registration Statement No. 33-40197, dated June 7,
1991, is incorporated herein by reference).
10-A) -- Employment Agreement dated September 1, 1992, between Digicon Inc. and
Edward R. Prince, Jr. (Exhibit 10-A to Digicon's Amendment No. 3 to
Registration Statement No. 33-54384, dated December 17, 1992).
10-B) -- Employment Agreement dated September 1, 1992, between Digicon Inc. and
Larry E. Lenig, Jr. (Exhibit 10-B to Digicon's Amendment No. 3 to
Registration Statement No. 33-54384, dated December 17, 1992).
10-C) -- Employment Agreement dated as of May 19, 1988, by and between Digicon
Inc. and David R. Steetle as supplemented by letter agreements dated
January 5, 1990 and June 12, 1990. (Exhibit 10-C to Digicon's
Registration Statement No. 33-43873, dated November 12, 1991).
10-D) -- Employment Agreement dated October 29, 1992, between Digicon Inc. and
Stephen J. Ludlow (Exhibit 10-D to Digicon's Amendment No. 3 to
Registration Statement No. 33-54384, dated December 17, 1992).
10-E) -- Salary Continuation Agreement executed by Nicholas A. C. Bright, Richard
W. McNairy and Allan C. Pogach. (Exhibit 10-E to Digicon's Annual Report
on Form 10-K for the year ended July 31, 1994.)
10-F) -- Registration Rights Agreement dated June 7, 1991, by and among Digicon,
Quantum Fund N.V., Jupiter & Associates, ATID II Investors Limited
Partnership and certain holders of common stock. (Exhibit 10-F to
Digicon's Registration Statement No. 33-43873, dated November 12, 1991).
10-G) -- Warrant Agreement (Exhibit 10.20 to Digicon's Amendment No. 5 to
Registration Statement No. 33-40197, dated June 21, 1991, is
incorporated herein by reference).
10-H) -- Funding and Stockholders' Agreement dated as of April 9, 1991 (Exhibit
10.23 to Digicon's Amendment No. 3 to Registration Statement No.
33-40197, dated June 7, 1991, is incorporated herein by reference).
10-I) -- Note Purchase Agreement dated June 29, 1992, between Digicon and
Hanseatic Corporation, as Agent. (Exhibit 10-O to Digicon's Annual
Report on Form 10-K for the year ended July 31, 1992).
10-J) -- Warrant Agreement dated June 29, 1992, between Digicon and Hanseatic
Corporation, as Agent. (Exhibit 10-P to Digicon's Annual Report on Form
10-K for the year ended July 31, 1992).
</TABLE>
47
<PAGE> 5
<TABLE>
<CAPTION>
EXHIBIT
- -----------
<C> <S> <C>
10-K) -- Registration Rights Agreement dated June 29, 1992, between Digicon and
Hanseatic Corporation, as Agent. (Exhibit 10-Q to Digicon's Annual
Report on Form 10-K for the year ended July 31, 1992).
10-L) -- Memorandum of Agreement dated August 13, 1992, between Digicon and Mobil
Tankships (U.S.A.) with respect to the purchase and sale of the M/V
MOBIL SEARCH. (Exhibit 10-R to Digicon's Annual Report on Form 10-K for
the year ended July 31, 1992).
10-M) -- Asset Purchase Agreement dated August 31, 1994, between Syntron, Inc.
and Digicon Geophysical Corp., Euroseis, Inc., Digicon/GFS Inc., and
Digicon Inc. (Exhibit 10-M to Digicon's Annual Report on Form 10-K for
the year ended July 31, 1994.)
10-N) -- Loan and Security Agreement dated April 11, 1994, between Foothill
Capital Corporation and Digicon Inc., Digicon Geophysical Corp.,
Digicon/GFS Inc., Digital Exploration Ltd. and Digicon Exploration Ltd.
(Exhibit 10-N to Digicon's Annual Report on Form 10-K for the year ended
July 31, 1994.)
10-O) -- Loan and Security Agreement dated July 26, 1994, between Digicon Inc.,
Digicon Geophysical Corp., Digicon/GFS Inc., Digital Exploration Ltd.
and Digicon Exploration, Ltd. and Soros Capital, L.P., CCF Jupiter L.P.
and Jupiter Management Co., Inc. (Exhibit 10-O to Digicon's Annual
Report on Form 10-K for the year ended July 31, 1994.)
10-P) -- Fixed Loan Agreement dated May 13, 1992, by and between P.T. Digicon
Mega Pratama and Lippobank. (Exhibit 10-W to Digicon's Amendment No. 3
to Registration Statement No. 33-54384, dated December 17, 1992).
10-Q) -- 1992 Employee Nonqualified Stock Option Plan. (Exhibit 10-S to Digicon's
Amendment No. 3 to Registration Statement No. 33-54384, dated December
17, 1992).
10-R) -- 1992 Non-Employee Director Stock Option Plan. (Exhibit 10-T to Digicon's
Amendment No. 3 to Registration Statement No. 33-54384, dated December
17, 1992.)
10-S) -- Stock Purchase Agreement dated June 6, 1995 by and among Digicon Inc.
and MD Seis International relating to the sale, by the Company, of its
interests in certain joint ventures established to pursue business
opportunities in the former Soviet Union. (Exhibit 10-a to Digicon's
Quarterly Report on Form 10-Q for the quarter ended April 30, 1995.)
11) -- Computation of Income (Loss) Per Common and Common Equivalent Share.
21) -- Subsidiaries of Registrant.
27) -- Financial Data Schedule for the period ended July 31, 1995.
</TABLE>
48
<PAGE> 6
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the
Registrant has duly caused this amendment be signed on its behalf by the
undersigned, thereunto duly authorized, on the 19th day of August, 1996.
DIGICON INC.
By: /s/ Richard W. McNairy
--------------------------------------
Richard W. McNairy
(Vice President and Chief
Financial Officer)
49
<PAGE> 7
INDEPENDENT AUDITORS' REPORT
P.T. Digicon Mega Pratama:
We have audited the accompanying balance sheets of P.T. Digicon Mega
Pratama (an 80% owned joint venture of Digicon Inc.) as of July 31, 1995 and
1994, and the related statements of operations, cash flows and changes in
stockholders' deficit for each of the three years in the period ended July 31,
1995 (all expressed in U.S. dollars). 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 audits.
We conducted our audits in accordance with auditing standards generally
accepted in the United States of America. Those standards require that we plan
and perform the audit to obtain reasonable assurance about 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. We believe that our audits provide a
reasonable basis for our opinion.
In our opinion, such financial statements present fairly, in all material
respects, the financial position of the Company at July 31, 1995 and 1994, and
the results of its operations and its cash flows for each of the three years in
the period ended July 31, 1995 in conformity with accounting principles
generally accepted in the United States of America.
DELOITTE & TOUCHE LLP
Houston, Texas
August 16, 1996
<PAGE> 8
P.T. DIGICON MEGA PRATAMA
STATEMENTS OF OPERATIONS
FOR THE YEARS ENDED JULY 31, 1995, 1994 AND 1993
(IN THOUSANDS OF DOLLARS)
<TABLE>
<CAPTION>
1995 1994 1993
------- ------- -------
<S> <C> <C> <C>
REVENUES...................................................... $ 1,443 $ 2,518 $11,012
COSTS AND EXPENSES:
Operating expenses:
Cost of services......................................... 3,571 4,028 10,776
Restructuring charges.................................... 1,339
Loss on abandonment of seismic data processing operations... 1,797
Depreciation and amortization............................... 430 1,065 1,779
Interest.................................................... 192 206 167
Other....................................................... 4 (32) 351
------- ------- -------
Total............................................... 5,994 6,606 13,073
------- ------- -------
Loss before provision for (benefit from) income taxes......... (4,551) (4,088) (2,061)
Provision for (benefit from) income taxes..................... 359 (36)
------- ------- -------
NET LOSS...................................................... $(4,910) $(4,088) $(2,025)
======= ======= =======
</TABLE>
See Notes to Financial Statements
<PAGE> 9
P.T. DIGICON MEGA PRATAMA
BALANCE SHEETS
JULY 31, 1995 AND 1994
(IN THOUSANDS, EXCEPT FOR PAR VALUE AND NUMBER OF SHARES)
<TABLE>
<CAPTION>
1995 1994
-------- --------
<S> <C> <C>
ASSETS
Current assets:
Cash................................................................ $ 42 $ 342
Accounts receivable (net of allowance for doubtful accounts: 1995,
$41;
1994, $48)....................................................... 1,412 2,236
Prepayments and other............................................... 38 156
-------- --------
Total current assets........................................ 1,492 2,734
Property and equipment:
Data processing software............................................ 1,436
Data processing equipment........................................... 1,368
Leasehold improvements and other.................................... 318
-------- --------
Total....................................................... 3,122
Less accumulated depreciation and amortization................... 1,529
-------- --------
Property and equipment -- net............................... 1,593
Proprietary seismic data.............................................. 468 1,138
-------- --------
Total....................................................... $ 1,960 $ 5,465
======== ========
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Current maturities of long-term debt................................ $ 894
Accounts payable -- trade........................................... 245 $ 1,577
Other accrued liabilities........................................... 53 279
Reserve for restructuring........................................... 391
-------- --------
Total current liabilities................................... 1,192 2,247
Non-current liabilities:
Reserve for loss on abandonment of seismic data processing
operations ...................................................... 635
Long-term debt...................................................... 922
Advances from Digicon............................................... 12,439 9,692
-------- --------
Total non-current liabilities............................... 13,074 10,614
Commitments and contingent liabilities (Note 11)
Stockholders' deficit:
Common stock, $10 par value; authorized and issued, 257,560
shares........................................................... 2,576 2,576
Accumulated deficit................................................. (14,882) (9,972)
-------- --------
Total stockholders' deficit................................. (12,306) (7,396)
-------- --------
Total....................................................... $ 1,960 $ 5,465
======== ========
</TABLE>
See Notes to Financial Statements
<PAGE> 10
P.T. DIGICON MEGA PRATAMA
STATEMENTS OF CASH FLOWS
FOR THE YEARS ENDED JULY 31, 1995, 1994 AND 1993
(IN THOUSANDS OF DOLLARS)
<TABLE>
<CAPTION>
1995 1994 1993
------- ------- -------
<S> <C> <C> <C>
OPERATING ACTIVITIES:
Net loss....................................................... $(4,910) $(4,088) $(2,025)
Non-cash items included in net loss:
Restructuring charges....................................... 1,339
Loss on abandonment of seismic data processing operations... 1,797
Depreciation and amortization............................... 430 1,065 1,779
(Gain) loss on disposition of property and equipment........ (4) (35) 235
Write-down of proprietary seismic data...................... 440
Change in operating assets/liabilities:
Accounts receivable......................................... 824 786 (296)
Prepayments and other....................................... 118 168 178
Proprietary seismic data.................................... 230 (168) (960)
Accounts payable -- trade................................... (1,332) (920) 1,017
Other accrued liabilities................................... (224) 261 (18)
Income taxes payable........................................ (55) 785
Reserve for restructuring................................... (391)
Other non-current liabilities............................... (175)
------- ------- -------
Total cash provided (used) by operating activities..... (3,022) (1,647) 520
FINANCING ACTIVITIES:
Payment of long-term debt...................................... (28) (1,479)
Borrowing of long-term debt ................................... 922
Advances from Digicon.......................................... 2,745 648 2,678
------- ------- -------
Total cash provided by financing activities............ 2,717 1,570 1,199
INVESTING ACTIVITIES:
Purchase of property and equipment............................. (14) (1,607)
Sale of property and equipment................................. 5 76
------- ------- -------
Total cash provided (used) by investing activities..... 5 62 (1,607)
------- ------- -------
Change in cash and cash equivalents............................ (300) (15) 112
Beginning cash and cash equivalents balance.................... 342 357 245
------- ------- -------
Ending cash and cash equivalents balance....................... $ 42 $ 342 $ 357
======= ======= =======
SUPPLEMENTAL INFORMATION:
Cash paid for:
Interest.................................................... 192 203 181
Income taxes................................................ 359 127
Non-cash financing and investing activities:
Purchase (sale) of property and equipment by advances
from Digicon.............................................. (1,580) 1,328
</TABLE>
See Notes to Financial Statements
<PAGE> 11
P.T. DIGICON MEGA PRATAMA
STATEMENTS OF CHANGES IN STOCKHOLDERS' DEFICIT
FOR THE YEARS ENDED JULY 31, 1995, 1994 AND 1993
(IN THOUSANDS, EXCEPT FOR NUMBER OF SHARES)
<TABLE>
<CAPTION>
COMMON STOCK
ISSUED
-----------------
PAR ACCUMULATED
SHARES VALUE DEFICIT TOTAL
------- ------ -------- --------
<S> <C> <C> <C> <C>
BALANCE, AUGUST 1, 1992.............................. 257,560 $2,576 $ (3,859) (1,283)
Net loss............................................. (2,025) (2,025)
------- ------ -------- --------
BALANCE, JULY 31, 1993............................... 257,560 2,576 (5,884) (3,308)
Net loss............................................. (4,088) (4,088)
------- ------ -------- --------
BALANCE, JULY 31, 1994............................... 257,560 2,576 (9,972) (7,396)
Net loss............................................. (4,910) (4,910)
------- ------ -------- --------
BALANCE, JULY 31, 1995............................... 257,560 $2,576 $(14,882) $(12,306)
======= ====== ======== ========
</TABLE>
See Notes to Financial Statements
<PAGE> 12
P.T. DIGICON MEGA PRATAMA
NOTES TO FINANCIAL STATEMENTS
FOR THE YEARS ENDED JULY 31, 1995, 1994 AND 1993
1. ORGANIZATION AND OPERATION
P.T. Digicon Mega Pratama ("the Company") was organized on June 7, 1984 as
a joint venture enterprise under the framework of the Foreign Capital Investment
Law No. 1 of 1967 of the Republic of Indonesia. The Company acquires and
processes seismic data in Indonesia.
The Company is indirectly owned 80% by Digicon Inc. (including its
consolidated subsidiaries, "Digicon"), a publicly-held Delaware corporation, and
20% by P.T. Mega Pratama Citra ("Citra"), an Indonesian limited liability
company. The board of directors, controlled by Digicon, and the board of
commissioners, controlled by Citra, oversee the business activities of the
Company. Digicon allocates the cost of certain general and administrative
expenses and charges operating expenses to the Company. Accordingly, the
accompanying financial statements of the Company may not necessarily reflect the
results of operations and financial position that would have existed had the
Company operated as an unaffiliated enterprise. (See Note 5).
2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
USE OF ESTIMATES
The preparation of financial statements in conformity with generally
accepted accounting principles requires management to make estimates and
assumptions that affect the reported amounts of assets and liabilities and
disclosure of contingent assets and liabilities at the date of the financial
statements and the reported amounts of revenues and expenses during the
reporting period. Actual results could differ from those estimates.
TRANSLATION OF FOREIGN CURRENCIES
The Company has determined that the U.S. dollar is its functional currency.
Property and equipment (and related depreciation) is translated into U.S.
dollars at the exchange rates in effect at the time of its acquisition. Other
assets and liabilities are translated at year-end rates. Operating results
(other than depreciation) are translated at the average rates of exchange
prevailing during the year. Remeasurement gains and losses are included in the
determination of net income and are reflected as part of other costs and
expenses. (See Note 10.)
REVENUES
Revenues from data acquisition and data processing services are recorded as
revenues based on contractual rates set forth in the related contract if the
contract provides a separate rate for each segment. If the contract only
provides a rate for the overall service, revenue is recognized based on the
percentage of the work effort completed compared with the total work effort
involved in the contract.
DEPRECIATION
Provision for depreciation and amortization is computed using the
straight-line method based on estimated useful lives as follows:
<TABLE>
<CAPTION>
AVERAGE
YEARS
----
<S> <C>
Data processing software.............................. 5
Data processing equipment............................. 5
Leasehold improvements and other...................... 3-10
</TABLE>
<PAGE> 13
P.T. DIGICON MEGA PRATAMA
NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)
Expenditures for routine repairs and maintenance are charged to expense as
incurred; expenditures for additions and improvements are capitalized and
depreciated over the estimated remaining life of the related asset. The net gain
or loss on items of property and equipment retired or disposed of is included as
part of other costs and expenses. (See Note 10.)
ACCOUNTS RECEIVABLE
Included in accounts receivable at July 31, 1995 and 1994 are unbilled
amounts of approximately $123,000 and $232,000, respectively. Such amounts are
either not billable to the customer at July 31 in accordance with the provisions
of the contract and generally will be billed in one to four months or are
currently billable and will be invoiced in the next monthly statement cycle.
PROPRIETARY SEISMIC DATA
The Company collects and processes certain seismic data for its own account
to which it retains all ownership rights and which it resells to clients on a
non-transferable, non-exclusive basis. The Company may obtain precommitted sales
contracts to help fund the cash requirements of these surveys which generally
last from 5 to 7 months. The Company capitalizes the unfunded portion using an
estimated sales method. Under that method the amount capitalized equals actual
costs incurred less costs attributed to the precommitted sales contracts based
on the percentage of total estimated costs to total estimated sales multiplied
by actual sales. The cost of proprietary seismic data is charged to operations
in the period sales occur based on the percentage of total estimated costs to
total estimated sales multiplied by actual sales. The Company periodically
reviews the carrying value of proprietary seismic data to assess whether there
has been a permanent impairment of value and records losses in periods the total
estimated costs exceeds total estimated sales or in periods that it is
determined that sales would not be sufficient to cover the carrying value of the
asset. In general, costs are expected to be recovered from sales over a period
of less than 5 years.
INCOME TAXES
In February 1992, the Financial Accounting Standards Board ("FASB") issued
Statement of Financial Accounting Standards No. 109 ("SFAS 109"), "Accounting
for Income Taxes", which requires the use of the "liability method" in place of
the previously required "deferred method". Under the liability method, deferred
income taxes reflect the net tax effects of (a) temporary differences between
the carrying amounts of assets and liabilities for financial reporting purposes
and the amounts used for income tax purposes, and (b) operating loss and tax
credit carryforwards. SFAS 109 allows recognition of all or a portion of
benefits from the utilization of net operating loss carryforwards as deferred
tax assets if realization is "more likely than not". In periods of changing
income tax rates, the liability method will cause fluctuations in net income of
companies with deferred taxes. The Company adopted SFAS 109 effective August 1,
1993. The adoption of this standard did not result in a cumulative effect
adjustment to equity or income for the year ended July 31, 1994. Recognition is
given in the accompanying balance sheets to the future income tax benefits of
loss carryforwards only to the extent that they can be used to offset existing
deferred taxes.
NEW ACCOUNTING PRONOUNCEMENTS NOT YET ADOPTED
In March 1995, the FASB issued SFAS No. 121 "Accounting for Impairment of
Long-Lived Assets and for Long-Lived Assets to Be Disposed Of." This statement
establishes accounting standards for the impairment of long-lived assets,
certain identifiable intangibles, and goodwill related to those assets to be
held and used and for long-lived assets and certain identifiable intangibles to
be disposed of. This statement is effective for financial statements with fiscal
years beginning after December 15, 1995. The Company will be required to
implement this statement for the fiscal year 1997. Implementation of this
pronouncement is not expected to have a material effect on the Company's
financial statements.
<PAGE> 14
P.T. DIGICON MEGA PRATAMA
NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)
3. WRITE-OFF OF ASSETS AND RESTRUCTURING CHARGES
In response to continuing operating losses which adversely impacted the
Company's liquidity, in April 1994 management made a decision to restructure its
operations and revalue certain assets and, accordingly, incurred $1,339,000 in
total expenses relating to such decision. Included in the $1,339,000 is $948,000
for the write-off for the impairment of data processing equipment and software
($858,000) and proprietary seismic data ($90,000) to their net realizable value.
The remaining costs are restructuring charges of $391,000 which relate to
severance costs for a reduction in the Company's workforce of 40 employees.
Employees to be terminated are from the seismic data processing operation. As of
July 31, 1995, all employees contemplated in the restructuring charge have been
terminated and all related severance costs have been paid.
4. ABANDONMENT OF SEISMIC DATA PROCESSING OPERATIONS
As a result of continuing operating losses subsequent to the restructuring
(see Note 3) and continued decline in the demand for seismic data processing
services in the Indonesian marketplace, during July 1995 management committed
the Company to an abandonment of the Company's seismic data processing
operations. In order to meet existing customer commitments and to provide for
the orderly shutdown of the operation, the abandonment is expected to be
completed by February 1997 which coincides with the expiration of the lease
agreement for the Company's data processing facility. At that time the office
will be vacated, all remaining data processing employees will be terminated and
data processing and related equipment and software will be scrapped. Digicon
will continue to provide financial support to the Company so that the Company
can continue as a financially viable entity. Because the abandonment did not
contemplate consummation within one year, the loss on abandonment has been
estimated in accordance with the provisions of Accounting Principles Bulletin
No. 30 "Reporting the Results of Operations -- Reporting the Effects of Disposal
of a Segment of a Business, and Extraordinary, Unusual and Infrequently
Occurring Events and Transactions" but has been reported as a separate component
of continuing operations in the statement of operations.
In connection with the abandonment, provision has been made for employee
severance ($450,000), office restoration as required by the lease agreement
($130,000), estimated losses from operations until the date of abandonment
($55,000) and impairment of fixed assets ($1,162,000). Approximately $770,000 of
the impairment relates to software sold by Digicon to the Company for which
there was intercompany profit. Accordingly, impairment of $770,000 by the
Company is eliminated by Digicon in the recognition of Digicon's equity in the
loss of the Company.
During the years ended July 31, 1995, 1994 and 1993, the seismic data
processing operations generated revenues of $878,000, $1,941,000 and $1,752,000,
respectively.
<PAGE> 15
P.T. DIGICON MEGA PRATAMA
NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)
5. RELATED PARTY TRANSACTIONS
The Company is party to transactions with Digicon and Citra in the normal
course of business. A summary of such transactions is as follows:
<TABLE>
<CAPTION>
YEARS ENDED JULY 31,
---------------------------
1995 1994 1993
---- ------- ------
<S> <C> <C> <C>
(IN THOUSANDS OF DOLLARS)
Digicon to (from) the Company:
Administrative allocations(a)............................ $140 $ 539 $1,191
Managerial and operational support charges(b)............ (87) 108 1,332
Seismic data acquisition and processing personnel
charges(b)............................................. 460 489 650
Risk management insurance allocations(c)................. 69 67 141
Seismic equipment repair and maintenance charges......... 7 9 209
Seismic equipment rentals................................ (234) (85)
Seismic data processing services......................... 18 91 324
Seismic equipment sales(d)............................... (1,580) (108)
Seismic data processing software purchase................ 1,436
</TABLE>
- ---------------
(a) Allocated based upon ratio of the Company's non-affiliate revenue to
combined Digicon and Company non-affiliate revenue.
(b) Charges based upon personnel salary cost.
(c) Allocated on the basis of the Company's proportionate share of the total
premium base.
(d) Sales made at net book value.
Advances from Digicon of $12,439,000 and $9,692,000 at July 31, 1995 and
1994, respectively, have no formal repayment terms and do not bear interest.
The Company maintains its bank accounts with an institution controlled by
one of the shareholders of Citra and borrowed funds from such institution. (See
Note 7). Interest expense on such borrowings totaled $192,000, $206,000 and
$167,000 for the years ended July 31, 1995, 1994 and 1993, respectively.
The Company subleases office space to a company controlled by one of the
shareholders of Citra. (See Note 11).
6. ACCOUNTS RECEIVABLE
Accounts receivable consists of the following:
<TABLE>
<CAPTION>
AS OF JULY 31,
------------------
1995 1994
------ ------
<S> <C> <C>
(IN THOUSANDS
OF DOLLARS)
Trade accounts receivable, net.................... $ 746 $ 591
Unbilled receivables.............................. 123 232
Employee receivables.............................. 34 87
Income tax refund receivable...................... 426 1,035
VAT tax receivable................................ 83 291
----- -----
$1,412 $2,236
===== =====
</TABLE>
<PAGE> 16
P.T. DIGICON MEGA PRATAMA
NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)
7. LONG-TERM DEBT
The Company has a 2 billion Indonesian rupiah floating rate loan with a
commercial bank due September 15, 1995. Interest on the loan is payable monthly.
At July 31, 1995, the interest rate was 19.5%. The loan was collateralized by
all of the Company's accounts receivable and inventories and was guaranteed by
Digicon. All amounts due under the loan were repaid during September 1995.
8. OTHER ACCRUED LIABILITIES
Other accrued liabilities consist primarily of payroll tax withholdings.
9. INCOME TAXES
The components of the provision for (benefit from) income tax expense is as
follows:
<TABLE>
<CAPTION>
YEARS ENDED JULY 31,
-----------------------
1995 1994 1993
---- ---- -----
(IN THOUSANDS OF
DOLLARS)
<S> <C> <C> <C>
Current............................................. $359 $ 120
Deferred............................................ (156)
---- ---- -----
Total..................................... $359 $ 0 $ (36)
==== ==== =====
</TABLE>
At July 31, 1995 the Company had net operating loss carryforwards of
approximately $3,600,000 which expire in the years 1998 through 1999.
The provision for (benefit from) income taxes differs from the amount
computed by applying the statutory income tax rate of 35% for each of the three
years ended July 31, 1995 because no benefit has been recognized for the
operating loss carryforwards and in 1995, the Company was assessed $359,000 of
additional income taxes for its 1992 tax year.
Deferred income taxes and benefits are provided for differences between the
financial statement carrying amount of existing assets and liabilities and their
respective tax basis. Significant deferred tax assets included net operating
loss carryforwards and significant deferred tax liabilities included the book
and tax basis differences of property and equipment. No financial statement
recognition has been given to the net deferred tax asset at July 31, 1995 or
1994.
10. OTHER COSTS AND EXPENSES
Other costs and expenses consist of the following:
<TABLE>
<CAPTION>
YEARS ENDED JULY 31,
-----------------------
1995 1994 1993
--- ---- ----
<S> <C> <C> <C>
(IN THOUSANDS
OF DOLLARS)
Net foreign currency exchange losses................ $ 8 $ 3 $116
Net loss (gain) on disposition of property and
equipment......................................... (4) (35) 235
---- ---- -----
Total..................................... $ 4 $(32) $351
==== ==== =====
</TABLE>
11. COMMITMENTS AND CONTINGENT LIABILITIES
Total rentals of vessels, equipment and office facilities charged to
operations amounted to $378,000, $558,000 and $2,073,000 for the years ended
July 31, 1995, 1994 and 1993, respectively.
<PAGE> 17
P.T. DIGICON MEGA PRATAMA
NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)
Minimum rentals payable under the Company's operating lease for office
space, net of sublease income of $76,000 and $76,000 for the years ended July
31, 1996 and 1997, respectively, is as follows:
<TABLE>
<CAPTION>
FISCAL MINIMUM
YEAR RENTALS
------ -------
(IN THOUSANDS
OF DOLLARS)
<S> <C>
1996................................................ $282
1997................................................ 119
</TABLE>
12. EMPLOYEE BENEFITS
Certain of the Company's employees are eligible to participate in the
Digicon 401(k) plan. Such employees are permitted to make contributions of up to
10% of their salary to a maximum of $9,240 per year. Generally, Digicon will
contribute an amount equal to one-half of the employees contribution up to
$6,000 or 6% of the employee's salary (whichever is less); however if Digicon's
consolidated pre-tax income for any fiscal year is less than the amount required
to be contributed, Digicon may elect to reduce its contribution, but in no event
may Digicon reduce the total contribution to less then 25% of the employee
contribution. Employer matching contributions charged to the Company during the
years ended July 31, 1995, 1994 and 1993 were approximately $17,000, $23,000 and
$18,000, respectively.
