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SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
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FORM 10-K/A
AMENDMENT NO. 1 TO FORM 10-K
(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.
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[DELOITTE & TOUCHE LLP LETTERHEAD]
INDEPENDENT AUDITORS' REPORT
To the Stockholders of
DG Seis Overseas Limited, MD Seis Geophysical Co. Ltd,
and Seismic Technology, Inc.:
We have audited the accompanying combined balance sheet of DG Seis Overseas
Limited and MD Seis Geophysical Co. Ltd and Seismic Technology, Inc., all of
which are under common ownership and management and are a development stage
group, (collectively the "Companies"), as of December 31, 1994, and the
related combined statements of operations, stockholders' equity, and cash
flows for the period from April 1, 1994 (date of inception) to December 31,
1994. These financial statements are the responsibility of the Companies'
management. Our responsibility is to express an opinion on these financial
statements based on our audit.
We conducted our audit in accordance with generally accepted auditing
standards. Those standards require that we plan and perform 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 audit provides a reasonable basis
for our opinion.
In our opinion, such financial statements present fairly, in all material
respects, the combined financial position of the Companies as of December 3l,
1994, and the combined results of their operations and their combined cash
flows for the period from April 1, 1994 (date of inception) to December 31,
1994 in conformity with generally accepted accounting principles.
The accompanying combined financial statements have been prepared assuming
that the Companies will continue as a going concern. The Companies are
development stage enterprises engaged in obtaining, developing and marketing
seismic acquisition and processing services in the former Soviet Union. As
discussed in Note 1 to the combined financial statements, the deficiency in
working capital and lack of long-term financing at December 31, 1994 and the
Companies' operating losses since inception raise substantial doubt about
their ability to continue as a going concern. Management's plans concerning
these matters are also described in Note 1. The financial statements do not
include any adjustments that might result from the outcome of these
uncertainties.
/s/ DELOITTE & TOUCHE LLP
March 10, 1995
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DG SEIS GROUP
(A Development Stage Group)
COMBINED BALANCE SHEET,
DECEMBER 31,1994
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<TABLE>
<S> <C>
ASSETS
CURRENT ASSETS:
Cash $ 95,601
Receivables:
Trade 104,902
Other 3,428
Due from affiliates (Note 4) 828,413
Prepayments and other 668,401
-----------
Total current assets 1,700,745
-----------
PROPERTY AND EQUIPMENT 5,207,308
Less accumulated depreciation 926,646
-----------
Property and equipment, net 4,280,662
-----------
ADVANCES TO EQUITY INVESTEE (Notes 3 and 7) 11,599,050
OTHER ASSETS (Note 1) 1,005,000
-----------
TOTAL $18,585,457
===========
LIABILITIES AND STOCKHOLDERS' EQUITY
CURRENT LIABILITIES:
Accounts payable - trade $ 2,063,265
Due to affiliates (Note 4) 796,738
Deferred revenue 1,150,762
Accrued expenses 282,502
Short-term note payable to affiliate (Note 3) 9,273,443
-----------
Total current liabilities 13,566,710
-----------
STOCKHOLDERS' EQUITY:
Contributed capital (Note 1) 7,343,475
Accumulated deficit (2,324,728)
-----------
Total stockholders' equity 5,018,747
-----------
TOTAL $18,585,457
===========
</TABLE>
See notes to financial statements.
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DG SEIS GROUP
(A Development Stage Group)
COMBINED STATEMENT OF OPERATIONS
FOR THE PERIOD FROM APRIL 1, 1994
(DATE OF INCEPTION) TO DECEMBER 31,1994
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<TABLE>
<S> <C>
REVENUE:
Data processing $ 382,147
Data licensing - net (Note 4) 328,467
Interest 67,002
Gain on sale of assets 16,458
Other 79,178
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Total revenue 873,252
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COSTS AND EXPENSES:
Operating 1,646,523
Depreciation 948,086
Selling, general and administrative 437,109
Interest 100,002
Equity in loss of equity investee 66,260
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Total expenses 3,197,980
-----------
NET LOSS $(2,324,728)
===========
</TABLE>
See notes to financial statements.
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DG SEIS GROUP
(A Development Stage Group)
COMBINED STATEMENT OF STOCKHOLDERS' EQUITY
FOR THE PERIOD FROM APRIL 1, 1994
(DATE OF INCEPTION) TO DECEMBER 31,1994
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<TABLE>
<CAPTION>
MD Seis
International MD Seis
Digicon Inc. Ltd. JV Total
<S> <C> <C> <C> <C>
DG SEIS OVERSEAS LIMITED:
- -------------------------
Contributions (Note 1):
Cash $ 448,898 $ 448,898
Expense reimbursement 1,488,860 1,488,860
Property and equipment $ 25,000 25,000
Net loss (475,432) (643,751) (1,119,183)
---------- --------- ---------- -----------
Balance, December 31, 1994 1,462,326 (618,751) 843,575
---------- --------- ---------- -----------
SEISMIC TECHNOLOGY, INC.:
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Contributions (Note 1):
Cash 87,577 87,577
Expense reimbursement 71,635 71,635
Property and equipment 353,950 353,950
Dividends (Note 4) (200,000) (200,000)
Transfers between owners 100,000 (100,000)
Net loss (15,722) (15,721) (31,443)
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Balance, December 31, 1994 43,490 238,229 281,719
---------- --------- ---------- -----------
MD SEIS GEOPHYSICAL CO. LTD.:
- -----------------------------
Contributions (Notes 1 and 6):
Cash 271,055 271,055
Expense reimbursement 245,500 245,500
Leasehold rights to property
and equipment $3,546,000 3,546,000
Other assets 1,005,000 1,005,000
Net loss (587,051) (587,051) (1,174,102)
---------- --------- ---------- -----------
Balance, December 31, 1994 (70,496) 3,963,949 3,893,453
---------- --------- ---------- -----------
TOTAL $1,435,320 $(380,522) $3,963,949 S 5,018,747
========== ========= ========== ===========
</TABLE>
See notes to financial statements.
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<PAGE> 6
DG SEIS GROUP
(A Development Stage Group)
COMBINED STATEMENT OF CASH FLOWS
FOR THE PERIOD FROM APRIL 1, 1994
(DATE OF INCEPTION) TO DECEMBER 31,1994
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<TABLE>
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CASH FLOWS FROM OPERATING ACTIVITIES:
Net loss $ (2,324,728)
Adjustments to reconcile net loss to net cash provided by
operating activities:
Depreciation 948,086
Equity in loss of equity investee 66,260
Expense reimbursement by stockholders 1,805,995
Gain on disposition of property and equipment (16,458)
Changes in operating assets/liabilities:
Accounts receivable (108,330)
Prepayments and other (668,401)
Accounts payable - trade 2,063,265
Accrued expenses 282,502
Deferred revenue 1,150,762
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Net cash provided by operating activities 3,198,953
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CASH FLOWS FROM FINANCING ACTIVITIES:
Borrowings from short-term note payable to affiliate 9,273,443
Capital contributions 807,530
Increase in due from affiliates (828,413)
Increase in due to affiliates 796,738
------------
Net cash provided by financing activities 10,049,298
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CASH FLOWS FROM INVESTING ACTIVITIES:
Purchase of property and equipment (1,497,266)
Sale of property and equipment 9,926
Advances to equity investee (11,665,310)
------------
Net cash used by investing activities (13,152,650)
------------
CHANGE IN CASH 95,601
CASH, BEGINNING OF PERIOD 0
------------
CASH END OF PERIOD $ 95,601
============
</TABLE>
See notes to financial statements.
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DG SEIS GROUP
(A Development Stage Group)
NOTES TO COMBINED FINANCIAL STATEMENTS
FOR THE PERIOD FROM APRIL 1, 1994
(DATE OF INCEPTION) TO DECEMBER 31,1994
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1. ORGANIZATION
DG Seis Group (the "Group") is comprised of three corporate entities: DG
Seis Overseas Limited ("DG Seis"), a Cyprus limited liability company,
Seismic Technology Inc. ("STI"), a Delaware corporation, and MD Seis
Geophysical Co. Ltd ("MD Geophysical"), a Russian registered joint stock
company. The three entities commenced operations on April 1, 1994. DG
Seis was formed October 15, 1993; STI on December 15, 1993; and MD Seis
Geophysical on March 22, 1994. The stockholders of the Companies
("Stockholders"), their capital contributions required by the Corporate
Operating Agreement (the "Agreement"), and proportionate ownership
percentages following August 25, 1994 (for the period April 1, 1994 to
August 25, 1994 Digicon Inc.'s ownership of DG Seis was 25%) are as
follows:
<TABLE>
<CAPTION>
MD Seis
Digicon International MD Seis
Inc. Ltd. JV
<S> <C> <C> <C>
DG Seis 50% 50%
STI 50% 50%
MD Geophysical 50% 50%
Capital Contributions $2,613,525 $378,950 $4,551,000
</TABLE>
Capital stock was issued to the Stockholders in accordance with the
Agreement in exchange for cash and agreed-upon value of property,
organization costs, and expense reimbursements. Property and equipment
contributed to the Group was recorded at its estimated fair value on
April 1, 1994 (see Note 5). Leasehold rights to property and equipment
and other assets contributed to the Group were recorded at the carrying
value of MD Sels JV. The Group has the right to use this equipment
which includes a recording system and other equipment provided by MD
Seis JV at nominal cost over the next 10 years. The Group has all
customary ownership rights to the system and other equipment except for
actual possession of the title. There are no restrictions regarding its
use, operational location, or assignment or subletting privileges. The
leasehold rights to property and equipment is reflected in property and
equipment in the combined balance sheet; components of the leasehold
rights to property and equipment are being depreciated over a range of
2-5 years. Leasehold rights to property and equipment had a net
carrying value of $2,669,197 as of December 31, 1994.
Digicon has agreed to guarantee certain liabilities of the Group and has
a remaining $386,475 to contribute to the Group for a total contribution
of $3,000,000. The net loss for the period from April 1, 1994 to
December 31, 1994 was allocated in proportion to ownership percentages,
as provided for in the Agreement.
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The Group was formed to provide seismic land and marine acquisition and
data processing services within the former Soviet Union. The Group,
which consists of development stage entities, has devoted substantially
all of their efforts to establishing the business, including obtaining
adequate financing, providing acquisition and data processing services,
and assessing market demand. The Group will remain in the development
stage until adequate financing is secured and sufficient customer demand
for the seismic data products are established.
In order for the Companies to continue as a going concern, adequate
financing must be obtained to satisfy the short term note payable to MD
Seis International Limited ("MD Seis Ltd.") in June 1995. Management is
currently pursuing several financing alternatives with outside third
parties to retire the short term note and to provide working capital for
operations. Management is confident that one or more of these
alternatives will provide sufficient funds to allow its continuance.
2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
The accompanying financial statements include the accounts and
operations of the Companies since inception. The Group has a 49%
ownership in Caspian Geophysical ("Caspian"), which is accounted for
under the equity method of accounting (see Note 7). All material
intercompany balances and transactions have been eliminated in
combination.
Translation of Foreign Currencies - The Group has determined that the
U.S. dollar is their functional currency. Property and equipment (and
related depreciation) are translated into U.S. dollars at the exchange
rates in effect at the time of their 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.
Revenues - Revenues from data acquisition and data process services are
recorded based on contractual rates 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 a percentage of
completion method. Deferred revenue represents the portion of contract
payments received in advance of services being performed.
Mobilization Cost - Transportation and make-ready expenses of seismic
operations prior to commencement of business are deferred and amortized
over the period of expected operations. Mobilization costs of
approximately $590,000 are shown as a prepaid expense. There was no
amortization in 1994.
Depreciation - Depreciation is computed using the straight-line method
based on estimated useful lives (in years) as follows:
Seismic equipment 3-5
Data processing equipment 5
Leasehold improvements and other 3-4
Expenditures for 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.
Income Taxes - The Group accounts for income taxes under Statement of
Financial Accounting Standards ("SFAS") No. 109, "Accounting for Income
Taxes."
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3. SHORT TERM NOTE PAYABLE TO AFFILIATE
In December 1994, a short term note was obtained from a third party by
MD Seis Ltd. of which up to approximately $14.5 million will be loaned
to the Group. As of December 31, 1994, MD Seis Ltd. has loaned the
Group $9,273,443. The 11% note to MD Seis Ltd. is due in June 1995.
Accrued interest payable on the note at December 31, 1994 was $113,014
and is included in the amount due to affiliates discussed in Note 4.
The Group loaned substantially all of its proceeds from the note payable
to Caspian to finance upgrades to Caspian's seismic vessels (see Note
4). Payment terms and the interest rate through December 31, 1994 for
this loan are subject to negotiation. However, the interest rate is
guaranteed at a minimum rate of 11%, which has been reflected in the
combined statement of operations. This loan is due in June of 1995.
4. RELATED PARTY TRANSACTIONS
During 1994 the Group distributed property and equipment with a net book
value of $180,000 as a dividend to Digicon. A gain on the distribution
of $20,000 was recorded in the combined statement of operations since
the property was valued at $200,000.
The Group loaned Caspian approximately $11 minion to upgrade a seismic
vessel.
MD Seis JV contributed licensing rights having an estimated fair value
of $1,005,000, which provide for a 40% interest in future sales of
certain 3D seismic data. The data is the property of an affiliated
party and relates to oil producing areas in the West Siberian basin of
Russia.
The amounts due to/from affiliates, other than the note payable
previously described, were as follows:
An affiliated party, Central Geophysical Exploration ("CGE") has a
contract with the Group to market licensed data. CGE also has a
ownership interest in MD Seis JV. Once a sale is made by the Group, they
remit the net proceeds to CGE and the owners of the data. Under this
contract, data licensing revenue of approximately $170,000 is reflected
in the combined statement of operations. The payable to CGE and others
represents the net proceeds due to CGE and the data owners. The amount
due to directors represents an accrual for salaries and reimbursable
expenses. The amounts due to MD Seis Ltd. include interest and amounts
related to the purchase of geophysical equipment. The amounts due from
MD Seis L.C., USA (MD Seis USA) (an entity owned by the same
stockholders of MD Seis JV and MD Seis Ltd.) and MD Seis JV represent
receivables for reimbursable expenses.
<TABLE>
<S> <C>
MD Seis USA $160,000
MD Seis JV 668,413
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Due from affiliates $828,413
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MD Seis Ltd. $293,054
CGE and others 434,543
Directors 69,141
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Due to affiliates $796,738
========
</TABLE>
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5. INCOME TAXES
The Group accounts for income taxes under SFAS No. 109, "Accounting for
Income Taxes." SFAS No. 109, among other things, (i) requires the
liability method be used in computing deferred taxes on all temporary
differences between book and tax bases of assets and liabilities other
than goodwill; (ii) requires that deferred tax liabilities and assets be
adjusted for an enacted change in tax laws or rates and (iii) prohibits
net-of-tax accounting and reporting. STI is the only entity in DG Group
that is subject to U.S. income taxes. As of December 31, 1994 no
deferred income taxes existed as financial reporting and federal income
tax bases of assets and liabilities are the same. The Group had net
operating loss carryforwards of $31,443 that have not been recognized
due to uncertainty of realization.
6. COMMITMENTS
Leases - The Companies entered into an agreement to lease certain
components of a recording system for six months, with the lease expiring
in June 1995. Such lease is accounted for as an operating lease.
Minimum future rental payments under noncancellable operating leases at
December 31, 1994 are $243,600 for 1995. Rent expense for 1994 was
$48,720.
7. INVESTMENT IN EQUITY INVESTEE
Summarized unaudited financial information of the Companies' 49% owned
affiliate at December 31, 1994 is presented below:
<TABLE>
<S> <C>
Balance Sheet:
Current assets $ 30,000
Property, plant and equipment, net 85,362
Vessel under construction 19,463,404
Other noncurrent assets 864,175
Current liabilities 8,861,854
Due to DG Seis 11,616,310
Owners' equity (deficit) (35,223)
Statement of Operations:
Operating expenses 135,223
Net loss 135,223
Net loss distributed to the Companies 66,260
</TABLE>
Caspian is an Azerbaijan joint venture company in which the Group holds
a 49% interest. The 51 % partner is Kaspmorneftegeofizrazvedka
("KMNGR"), a geophysical trust of the State Oil Company of the
Azerbaijan Republic ("SOCAR"). The business of Caspian is to equip and
operate seismic vessels in the Caspian Sea.
In 1994 Caspian signed a long term charter agreement for a KMNGR vessel
(M/V Baki) and has invested approximately $19 million in its upgrading
and re-equipping. The M/V Baki commenced seismic operations in March
1995.
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