<PAGE> 1
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-Q/A
----------------------------------------------------
(Mark One)
[X] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF
THE SECURITIES EXCHANGE ACT OF 1934
FOR THE QUARTERLY PERIOD ENDED SEPTEMBER 30, 1997
OR
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF
THE EXCHANGE ACT OF 1934
For the transition period from _____ to _____
Commission file number 1-19971
---------------------------------------
UNIVERSAL SEISMIC ASSOCIATES, INC.
(Exact name of Registrant in its Charter)
DELAWARE 76-0256086
(State or Other Jurisdiction of (IRS Employer Identification No.)
Incorporation or Organization)
16420 PARK TEN PLACE, SUITE 300
HOUSTON, TEXAS 77084-5051
(Address of Principal Executive Offices) (Zip Code)
(281) 578-8081
(Issuer's Telephone Number)
-----------------------------------------
Check whether the issuer (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 No X
--- ---
State the number of shares outstanding of each of the issuer's classes
of common stock, as of the latest practicable date. 5,234,109 shares of Common
Stock, $.0001 par value, were outstanding as of November 10, 1997.
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<PAGE> 2
UNIVERSAL SEISMIC ASSOCIATES, INC. AND SUBSIDIARIES
QUARTERLY REPORT ON FORM 10-Q/A
TABLE OF CONTENTS
PAGE
PART I. FINANCIAL INFORMATION ----
Item 1. Unaudited Consolidated Financial Statements
Consolidated Balance Sheets at September 30, 1997 and
June 30, 1997............................................... 3
Consolidated Statements of Operation for the three months
ended September 30, 1997 and 1996........................... 4
Consolidated Statements of Stockholders' Equity for the three
months ended September 30, 1997 and the year ended
June 30, 1997............................................... 5
Consolidated Statements of Cash Flows for the three months
ended September 30, 1997 and 1996........................... 6
Notes to Consolidated Financial Statements.................... 7
Item 2. Management's Discussion and Analysis of Financial Condition
and Results of Operations...................................... 11
PART II. OTHER INFORMATION
Item 1. Legal Proceedings............................................... 14
Item 2. Changes in Securities........................................... 14
Item 3. Defaults Upon Senior Securities................................. 14
Item 4. Submission of Matters to a Vote of Security Holders............. 14
Item 5. Other Information............................................... 14
Item 6. Exhibits and Reports on Form 8-K................................ 14
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<PAGE> 3
PART I
ITEM 1. UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS
The Company's Quarterly Report on Form 10-Q as filed with the
Securities and Exchange Commission for the quarters ended September 30, 1997 and
1996, is hereby amended by this Form 10-Q/A to reflect the quarterly restatement
and reclassification of the Company's financial statements for the periods then
ended. Except as otherwise indicated herein, statements as to current and
present conditions are as of November 14, 1997, the date of the filing of the
Company's Report on Form 10-Q. Reference is also made to Form 10-KSB/A for the
year ended June 30, 1997, which reflects the restatement of the consolidated
financial statements for fiscal years 1997 and 1996. (See Note 3 to the
Consolidated Financial Statements.)
UNIVERSAL SEISMIC ASSOCIATES, INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS (UNAUDITED)
<TABLE>
<CAPTION>
SEPTEMBER 30, JUNE 30,
ASSETS 1997 1997
---- ----
<S> <C> <C>
Current assets:
Cash and cash equivalents $ 698,808 $ 1,859,677
Accounts receivable, net 5,580,211 5,579,876
Costs and estimated earnings in excess of billings on uncompleted contracts 1,551,878 702,066
Prepaid expenses and other current assets 430,620 498,982
------------ ------------
Total current assets 8,261,517 8,640,601
Property and equipment, net:
Seismic property and equipment 15,218,734 15,896,535
Oil and gas properties, full cost method 6,725,518 6,881,115
------------ ------------
Total property and equipment, net 21,944,252 22,777,650
Other assets:
Goodwill, net 588,983 601,694
Other 192,474 228,088
------------ -----------
781,457 829,782
Total assets $30,987,226 $32,248,033
=========== ===========
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Current portion of long-term obligations $19,074,264 $ 1,423,859
Billings in excess of costs and estimated earnings on uncompleted contracts 888,581 499,916
Accounts payable 5,343,943 5,912,647
Accrued and other current liabilities 1,906,182 2,431,164
------------- ------------
Total current liabilities 27,212,970 10,267,586
Long-term obligations, net of current maturities 562,886 16,729,140
------------- ------------
Total liabilities 27,775,856 26,996,726
------------- ------------
Commitments and contingencies
Stockholders' equity:
Common stock, $.0001 par value; 20,000,000 shares authorized; 5,239,109 shares
issued and 5,234,109 shares outstanding at September 30, 1997 and June 30, 1997 523 523
Additional paid in capital 17,105,444 17,105,444
Accumulated deficit (13,874,597) (11,834,660)
Less: Treasury stock, at cost; 5,000 shares (20,000) (20,000)
------------- -------------
Total stockholders' equity 3,211,370 5,251,307
------------- -------------
Total liabilities and stockholders' equity $30,987,226 $32,248,033
============= =============
</TABLE>
See accompanying notes to financial statements.
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<PAGE> 4
UNIVERSAL SEISMIC ASSOCIATES, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATIONS (UNAUDITED)
<TABLE>
<CAPTION>
THREE MONTHS ENDED SEPTEMBER 30,
--------------------------------
1997 1996
---- ----
<S> <C> <C>
Operating revenues:
Data acquisition $ 8,728,020 $ 8,536,998
Data processing 302,336 414,581
Oil and gas production 152,294 -
----------- -----------
Total operating revenues 9,182,650 8,951,579
----------- -----------
Operating expenses:
Cost of data acquisition 9,127,552 8,085,707
Cost of data processing 200,159 192,359
Oil and gas operating 41,813 -
Selling, general and administrative 639,456 553,046
Depreciation, depletion and amortization 816,294 761,005
----------- -----------
Total operating expenses 10,825,274 9,592,117
----------- -----------
Total operating loss (1,642,624) (640,538)
Interest expense, net of capitalized interest (406,338) (348,210)
Other income, net 9,025 2,304
----------- -----------
Net loss $(2,039,937) $ (986,444)
=========== ============
Net loss per share $ (0.39) $ (0.23)
=========== ============
Weighted average common shares outstanding 5,234,109 4,364,895
=========== ============
</TABLE>
See accompanying notes to financial statements.
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<PAGE> 5
UNIVERSAL SEISMIC ASSOCIATES, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY
FOR THE THREE MONTHS ENDED SEPTEMBER 30, 1997 AND
THE YEAR ENDED JUNE 30, 1997 (UNAUDITED)
<TABLE>
<CAPTION>
ADDITIONAL TOTAL
COMMON STOCK TREASURY STOCK PAID IN ACCUMULATED STOCKHOLDERS'
------------ --------------
SHARES AMOUNT SHARES AMOUNT CAPITAL DEFICIT EQUITY
------ ------ ------ ------ ------- ------- ------
<S> <C> <C> <C> <C> <C> <C> <C>
Balance June 30, 1996 4,278,147 $ 428 5,000 $(20,000) $ 13,553,317 $ (6,310,497) $ 7,223,248
Net loss (5,524,163) (5,524,163)
Exercise of stock
options 15,000 1 51,249 51,250
Exercise of convertible
and exchangeable note 940,962 94 3,500,878 3,500,972
--------- ------ ------ --------- ------------ ------------ -----------
Balance June 30, 1997 5,234,109 523 5,000 (20,000) 17,105,444 (11,834,660) 5,251,307
Net loss for three months
ended September 30, 1997 (2,039,937) (2,039,937)
--------- ------ ------ --------- ------------ ------------ -----------
Balance September 30, 1997 5,234,109 $ 523 5,000 $(20,000) $ 17,105,444 $(13,874,597) $ 3,211,370
========= ====== ====== ========= ============ ============ ===========
</TABLE>
See accompanying notes to financial statements.
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<PAGE> 6
UNIVERSAL SEISMIC ASSOCIATES, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS (UNAUDITED)
<TABLE>
<CAPTION>
THREE MONTHS ENDED SEPTEMBER 30,
--------------------------------
1997 1996
---- ----
<S> <C> <C>
Cash flows from operating activities:
Net income (loss) $(2,039,937) $ (986,444)
Adjustments to reconcile net (loss) to net cash provided by (used in)
operating activities:
Depreciation, depletion and amortization 816,294 761,005
Loss on disposal of assets 28,542 --
Changes in operating assets and liabilities:
Accounts receivable, net (335) 1,105,531
Costs and estimated earnings in excess of billings on uncompleted
contracts (849,812) 800,871
Prepaid expenses and other current assets 202,807 160,835
Accounts payable (568,704) 1,407,945
Billings in excess of costs and estimated earnings on uncompleted
contracts 388,665 (1,125,477)
Accrued and other current liabilities 1,355,018 (84,523)
Other assets 10,865 (201,696)
----------- ----------
Net cash (used in) provided by operating activities (656,597) 1,838,047
----------- ----------
Cash flows from investing activities:
Capital expenditures (1,011,227) (2,035,052)
Proceeds from sale of assets 1,012,500 680,625
Proceeds from receivable from stockholder - 28,440
----------- ----------
Net cash provided by (used in) investing activities 1,273 (1,325,987)
----------- ----------
Cash flows from financing activities:
Proceeds from debt and obligations 6,177,887 8,489,495
Payments on debt and obligations (6,683,432) (9,147,725)
Proceeds from issuance of common stock, net - 38,750
----------- ----------
Net cash (used in) financing activities (505,545) (619,480)
----------- ----------
Net decrease in cash and cash equivalents (1,160,869) (107,420)
Cash and cash equivalents at beginning of period 1,859,677 982,431
----------- ----------
Cash and cash equivalents at end of period $ 698,808 $ 875,011
=========== ==========
Supplemental disclosures:
Cash paid for interest 92,124 392,954
Prepaid expenses financed by notes payable 109,696 93,222
Conversion of long-term obligations to common stock - 3,500,972
Stockholder litigation settlement financed by note payable 1,880,000 -
</TABLE>
See accompanying notes to financial statements.
6 of 15
<PAGE> 7
UNIVERSAL SEISMIC ASSOCIATES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(UNAUDITED)
1. GENERAL
The consolidated financial statements of Universal Seismic Associates,
Inc. and Subsidiaries (the "Company") included herein have been
prepared by the Company, without audit, pursuant to the rules and
regulations of the Securities and Exchange Commission. Certain
information and footnote disclosures normally included in financial
statements prepared in accordance with generally accepted accounting
principles have been condensed or omitted pursuant to such rules and
regulations, although the Company believes that the disclosures are
adequate to make the information presented not misleading. These
financial statements should be read in conjunction with the
consolidated financial statements and the notes thereto included in the
Company's amended Annual Report on Form 10-KSB/A filed with the
Securities and Exchange Commission for the fiscal year ended June 30,
1997. In the opinion of the Company, all adjustments, consisting only
of normal recurring adjustments, necessary to present fairly the
financial position as of September 30, 1997, the results of operations
and statements of cash flows for the three months ended September 30,
1997 and 1996, and stockholders' equity for the three months ended
September 30, 1997, have been included.
The interim results are not necessarily indicative of results of
operations for the full fiscal year ending June 30, 1998.
2. LIQUIDITY AND OPERATING LOSSES
The accompanying consolidated financial statements have been prepared
assuming that the Company will continue as a going concern. As more
fully explained below, the Company has incurred continuing losses from
operations of $4,239,383 and $429,877 for the years ended June 30, 1997
and 1996, respectively, and these losses have continued during the
three months ended September 30, 1997, with an operating loss of
$1,642,624. In addition, the Company had an accumulated deficit and a
net working capital deficiency of $13,874,597 and $18,951,453,
respectively, as of September 30, 1997. All debt due to the Company's
major debtholder, RIMCO (defined below), has been classified as current
maturities as of September 30, 1997.
As of September 30, 1997, the Company had a cash balance of $698,808.
If losses from operations continue (as is anticipated), the Company
believes this cash, along with anticipated cash flow from its seismic
and exploration and production operations and funds available under its
credit facilities, will not be adequate for its overall working capital
requirements. The Company believes that it can generate substantial
cash flow from its oil and gas properties if it had sufficient funding
for its drilling program. Future cash flows are subject to a number of
uncertainties, particularly the condition of the oil and gas industry
and related seismic activity in the Company's markets. Liquidity of the
Company should be considered in light of the significant fluctuations
in demand that may be experienced by seismic data acquisition
contractors and exploration and production owners as rapid changes in
oil and gas producers' expectations and budgets occur. These
7 of 15
<PAGE> 8
fluctuations can rapidly impact the Company's liquidity as supply and
demand factors directly affect utilization and contract revenues, which
are primary determinants of cash flow from the Company's operations.
As of September 30, 1997, the Company was in default on certain
covenants of its financing agreements with RIMCO Partners, L.P., RIMCO
Partners II, L.P., RIMCO Partners III, L.P. and RIMCO Partners IV, L.P.
(collectively, "RIMCO"). RIMCO has waived such defaults and principal
and interest payment covenants through July 1, 1998. The Company is
negotiating an extension of this waiver and a debt-to-equity exchange
with RIMCO whereby the indebtedness to RIMCO, including accrued
interest, would be converted into equity and subordinated debt. In the
original agreement with RIMCO, which was executed on February 9, 1998
and expired on June 1, 1998, $15,000,000 was to be converted into
common stock of the Company and the balance into convertible
subordinated notes. The shares to be issued in the conversion were to
be tied to the average price of the Company's common stock for the
30-day period prior to receiving stockholder approval. As of June 30,
1998, the Company was indebted to RIMCO under the various financing
agreements for $22,168,899 principal and $1,896,450 accrued interest.
As of September 30, 1997, the Company was also in default under certain
provisions of its financing agreement for its trade receivables and was
unsuccessful in obtaining a waiver. The Company received advances under
the agreement until November 30, 1997, at which time, at the Company's
request, the agreement was terminated.
The above factors raise substantial doubt about the Company's ability
to continue as a going concern. The financial statements do not include
any adjustments relating to the recoverability and classification of
assets carrying amounts or the amount and classification of liabilities
that might result should the Company be unable to continue as a going
concern.
3. RESTATEMENT AND RECLASSIFICATIONS
In its June 30, 1997 Form 10-KSB/A, the Company restated and
reclassified its financial statements for the fiscal years ended June
30, 1997 and 1996. In addition, unaudited quarterly financial data for
fiscal 1997, 1996 and the quarter ended September 30, 1997, have also
been restated and reclassified. All information presented in this
Report on Form 10-Q/A includes all such restatements and
reclassifications.
In February 1998, the Company's independent accountants (Coopers &
Lybrand L.L.P.), who had issued opinions on the financial statements
for the years ended June 30, 1997 and 1996, resigned and stated that
their opinions with respect to the financial statements for those years
should no longer be relied upon. In March 1998, the Company engaged
Arthur Andersen LLP as its independent public accountants to perform
the necessary audits to issue new auditors' reports on the financial
statements for fiscal 1997 and 1996.
As a result of a comprehensive review begun by the Company in December
1997, and the audits performed by new independent public accountants,
it was determined that certain adjustments and reclassifications were
necessary to fairly state the financial statements for the years ended
June 30, 1997, 1996, and the quarter ended September 30, 1997 and
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<PAGE> 9
all respective quarterly data. These adjustments principally relate to
the timing for recognition of contract revenue and associated costs
under percentage of completion accounting and to certain costs which
were expensed as cost of data acquisition but should have been recorded
as capitalized oil and gas properties. In addition, it was determined
that the gain on the sale of oil and gas properties previously reported
of $559,461 in fiscal 1997, should not have been recognized in income
but instead recorded as a reduction of oil and gas properties in
accordance with full cost accounting. The following is a summary of the
adjustments and the related impact on the statement of operations for
the three-month period ended September 30, 1997 and 1996:
<TABLE>
<CAPTION>
RESTATEMENTS FOR THREE
MONTHS ENDED
SEPTEMBER 30,
-------------------------------
1997 1996
---- ----
<S> <C> <C>
Data acquisition revenues $ (735,868) $ 1,543,975
Cost of data acquisition (572,985) (1,237,926)
Interest expense 30,439 18,042
Gain on sale of oil and gas property - (559,461)
----------- ------------
Net adjustments (1,278,414) (235,370)
Net loss previously reported (761,523) (751,074)
----------- ------------
Restated net loss for periods $(2,039,937) $ (986,444)
=========== ============
</TABLE>
The net financial impact of these adjustments increases the net loss
previously reported for the three months ended September 30, 1997 by
$1,278,414 to $2,039,937 and increases the net loss previously reported
for the three months ended September 30, 1996 by $235,370 to $986,444.
4. DEBT AND FINANCING ARRANGEMENTS
A summary of the Company's debt and obligations at the respective dates
is presented below:
<TABLE>
<CAPTION>
SEPTEMBER 30, JUNE 30,
1997 1997
------------- -------------
<S> <C> <C>
Notes and obligations due RIMCO $ 18,116,320 $ 16,108,995
Operating lease for equipment not
expected to be utilized in the
future 900,772 929,191
Other notes payable 620,058 1,114,813
------------- -------------
19,637,150 18,152,999
Less current maturities (19,074,264) (1,423,859)
------------- -------------
Total long-term debt $ 562,886 $ 16,729,140
============= =============
</TABLE>
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<PAGE> 10
On August 6, 1997, the Company borrowed an additional $2,000,000 from
RIMCO under a 12% Senior Secured General Obligation Note, secured by
the Company's seismic equipment, with interest payable monthly
(extended to July 1, 1998) and principal due December 1, 1999. The
proceeds were used to fund the shareholder lawsuit settlement described
in Note 7.
On November 3, 1997, the Company entered into two additional financing
agreements with RIMCO for $2,144,000 and $1,730,383, respectively,
under revolving credit facilities and issued 12% Senior Secured General
Obligation Notes with interest payable monthly and principal due
December 1, 1999. The proceeds from the $2,144,000 facility will be
used for working capital and the notes are secured by the Company's
seismic equipment. The proceeds from the $1,730,383 facility will be
used to expand the Company's oil and gas exploration activities and the
notes are secured by the Company's oil and gas properties.
RIMCO has waived defaults under the covenants in its various financing
agreements until July 1, 1998. (See Note 2 to the Consolidated
Financial Statements for further discussion.)
The Company had a $5,000,000 revolving line of credit with a financial
institution for the financing of its trade receivables. The agreement
provided that the Company must maintain a minimum net worth of
$3,000,000 and annual earnings before interest, taxes, depreciation and
amortization of at least $500,000, plus certain other covenants. The
Company was not in compliance with certain provisions of the agreement
but received advances until November 30, 1997, at which time, at the
Company's request, the agreement was terminated.
5. EARNINGS (LOSS) PER SHARE
The net loss per share in the accompanying financial statements was
computed pursuant to Accounting Principles Board Opinion No. 15 and is
the same that would be required for basic earnings per share under
Statement of Financial Accounting Standards No. 128, Earnings Per Share
("SFAS 128") which became effective for fiscal periods ending after
December 15, 1997, whereby earnings per share is determined using only
the weighted average shares outstanding. The Company also has
outstanding stock options and warrants that would not be included in
the computation of diluted earnings per share under SFAS 128 because to
do so would be anti-dilutive.
6. COMMITMENTS AND CONTINGENCIES
The Company is involved in various claims and legal actions arising in
the ordinary course of business. In the opinion of management, the
ultimate disposition of these matters will not have a material adverse
effect on the Company's consolidated financial position. The resolution
in any reporting period of one or more of these matters in a manner
adverse to the Company could have a material impact on the Company's
results of operations and cash flows for that period.
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<PAGE> 11
7. SHAREHOLDER LITIGATION
The Company was involved in an aborted merger earlier in fiscal 1997
that led to a proxy fight with a group of shareholders that styled
themselves "The Universal Seismic Stockholders' Protective Committee"
(the "Stockholders' Committee"). The proxy fight was resolved at the
reconvened Annual Meeting of Shareholders on February 11, 1997, at
which time management's slate of directors was reelected and all of the
Stockholders' Committee's proposals were defeated.
Thereafter, Michael T. Kanarellis, one of the members of the
Stockholders' Committee, submitted letters to various members of the
Audit Committee of the Company, alleging that "the Company's financial
statements for the fiscal year ended June 30, 1996 and the fiscal
quarters ended September 30, 1996 and December 31, 1996 were false and
materially misstated" and alleging certain specific items of
misstatement. The Stockholders' committee also filed a suit against the
Company and its directors styled "The Universal Seismic Associates,
Inc. Stockholders' Protective Committee, Michael T. Kanarellis, and
Robert J. Kecseg Vs. Michael J. Pawelek, Ronald L. England, Calvin G.
Cobb, Gary Milavec, Steven Oakes, Rick Trapp, RIMCO Associates, L.P.,
Resource Investors Management Company, L.P. and Universal Seismic
Associates, Inc.", in the United States District Court (the "Court") in
Delaware. All parties entered into a Stipulation of Settlement which
was tendered to the Court on August 7, 1997, whereby RIMCO agreed to
purchase all of the shares of the Company's common stock owned by the
Stockholders' Committee for an aggregate purchase price of $650,000, or
$3.17 per share. Also in connection with the settlement, RIMCO entered
into a $2,000,000 loan agreement with the Company, with the proceeds
being used to fund the immediate costs of settlement and to pay other
expenses associated with the lawsuit. The settlement was approved by
the Court on October 1, 1997, at which time the Court entered judgment
dismissing all claims with prejudice. The Company believes that it will
recover a substantial portion of its costs of settlement and expenses
associated with the lawsuit from its directors' and officers' liability
insurance carrier. As of January 30, 1998, the Company had received a
settlement of $1,245,000 and is pursuing additional recovery.
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS
THREE MONTHS ENDED SEPTEMBER 30, 1997 COMPARED TO THREE MONTHS ENDED
SEPTEMBER 30, 1996
OPERATING REVENUES AND EXPENSES
As explained more fully in Note 3 to the Consolidated Financial
Statements, the Company has restated and reclassified its financial statements
for the fiscal years ended June 30, 1997 and 1996, as well as the quarterly
results for the three months ended September 30, 1997 and 1996. All such
restatements and reclassifications are reflected in the following management's
discussion and analysis.
Operating Revenues. Operating revenues totaling $9,182,650, for the
three-month period ended September 30, 1997, represent an increase of
approximately 3% over revenues of
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<PAGE> 12
$8,951,579 for the same three-month period ended September 30, 1996. Data
acquisition revenues for the three-month period in 1997, increased by
approximately 2%, to $8,728,020. Data processing revenues for the three-month
period ended September 30, 1997, totaling $302,336, decreased approximately 27%
from revenues of $414,581 for the three-month period ended September 30, 1996
because the Company was unable to maintain the previous year's levels of data
processing backlog. Oil and gas revenues for the three-month period ended
September 30, 1997 were $152,294 versus none for the comparable prior-year
period. The Company began receiving initial revenues on oil and gas properties
in May and June of 1997 with substantially all revenues coming from natural gas
sales. The Company does expect oil and gas revenues to increase in fiscal 1998,
although such increase is likely to be limited because the Company currently
lacks sufficient financing resources to fully develop its oil and gas
properties.
Operating Expenses. Operating expenses of $10,825,274 for the
three-month period ended September 30, 1997, represent an increase of
approximately 13% over operating expenses of $9,592,117 for the same period in
1996. Costs of data acquisition increased by approximately 13%, from $8,085,707
for the three-month period in 1996 to $9,127,552 for the same period ended
September 30, 1997. This increase was related to the larger projects the Company
was involved in which had weather delays and terrain problems. Cost of data
processing increased approximately 4% for the three-month period, from $192,359
in 1996 to $200,159 in 1997. Oil and gas operating expenses for the three-month
period ended September 30, 1997 were $41,813 versus none for the comparable
prior-year period.
Selling, General and Administrative Expenses. Selling, general and
administrative expenses increased approximately 16%, from $553,046 in 1996 to
$639,456 in 1997. This increase is attributable to increased consulting, legal
and accounting costs.
Depreciation, depletion and amortization. Depreciation, depletion and
amortization increased approximately 7%, from $761,005 in 1996 to $816,294 in
1997, due to depreciation, depletion and amortization expense of $49,674 related
to the Company's oil and gas properties incurred in the current-year period.
Interest Expense. Interest expense increased approximately 17% from
$348,210 for the three-month period ended September 30, 1996 to $406,338 for the
same period ended September 30, 1997. The increased interest resulted primarily
from additional working capital financing.
Income Taxes. At the current time the Company has significant net
operating loss carryforwards of approximately $14,145,000 available to offset
future federal taxable income which will expire if not used in fiscal years 2007
through 2012. Therefore, no income tax provision has been reflected in the
accompanying financial statements.
Net Loss. The Company reported a net loss of $2,039,937 for the three
months ended September 30, 1997, as compared to a net loss of $986,444 for the
same prior-year period. The current period net loss was primarily the result of
negative margins from data acquisition activities combined with indirect
overhead, depreciation and interest expenses. Although the Company is attempting
to reduce its operating losses by increasing data acquisition marketing efforts,
improving Company and crew management and staffing and otherwise attempting to
increase the efficiency of its seismic crews, it is anticipated that operations
will continue to be conducted at a loss in the near term.
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<PAGE> 13
LIQUIDITY AND CAPITAL RESOURCES
For the three months ended September 30, 1997, cash and cash
equivalents decreased by $1,160,869 to $698,808. Cash provided by investing
activities of $1,273 includes investments in oil and gas properties of $906,527,
$27,800 for data processing equipment and upgrades, with the balance of $76,900
used for miscellaneous data acquisition equipment, less $1,012,500 received from
the sale of an interest in one of the Company's major oil and gas properties.
In August 1997, the Company borrowed an additional $2,000,000 from
RIMCO. The proceeds were utilized to fund the shareholder litigation settlement
and legal and accounting fees incurred as of a result of such litigation. The
Company expects to recover a substantial portion of its costs of the settlement
and expenses associated with the lawsuit from its directors' and officers'
liability insurance carrier. As of January 30, 1998, the Company received a
partial settlement of $1,245,000 and is pursuing additional recovery.
The Company's accounts payable balance decreased by $568,704 during the
three-month period ended September 30, 1997. This decrease can be attributed to
the Company's continuing efforts to reduce payables. The Company had
approximately $1,579,000 of receivables over 90 days old as of September 30,
1997 for which adequate reserves have been provided.
The accompanying consolidated financial statements have been prepared
assuming that the Company will continue as a going concern. As more fully
explained below, the Company has incurred continuing losses from operations of
$4,239,383 and $429,877 for the years ended June 30, 1997 and 1996,
respectively, and these losses have continued during the three months ended
September 30, 1997, with an operating loss of $1,642,624. In addition, the
Company has an accumulated deficit and a net working capital deficiency of
$13,874,597 and $18,951,453, respectively, as of September 30, 1997. All debt
due to the Company's major debtholder, RIMCO, has been classified as current
maturities as of September 30, 1997.
As of September 30, 1997, the Company had a cash balance of $698,808.
If losses from operations continue (as is anticipated), the Company believes
this cash, along with anticipated cash flow from its seismic and exploration and
production operations and funds available under its credit facilities, will not
be adequate for its overall working capital requirements. The Company believes
that it can generate substantial cash flow from its oil and gas properties if it
had sufficient funding for its drilling program. Future cash flows are subject
to a number of uncertainties, particularly the condition of the oil and gas
industry and related seismic activity in the Company's markets. Liquidity of the
Company should be considered in light of the significant fluctuations in demand
that may be experienced by seismic data acquisition contractors and exploration
and production owners as rapid changes in oil and gas producers' expectations
and budgets occur. These fluctuations can rapidly impact the Company's liquidity
as supply and demand factors directly affect utilization and contract revenues,
which are primary determinants of cash flow from the Company's operations.
Reference is made to Note 2 to the Consolidated Financial Statements
for further discussion of defaults under the RIMCO financing agreements.
13 of 15
<PAGE> 14
SUBSEQUENT EVENTS
Reference is made to Note 2 and Note 3 to the Consolidated Financial
Statements for a discussion relating to subsequent events regarding liquidity
and continuing operating losses and the restatement and reclassification of the
financial statements.
PART II
OTHER INFORMATION
ITEM 1. LEGAL PROCEEDINGS
None
ITEM 2. CHANGES IN SECURITIES
None
ITEM 3. DEFAULT UPON SENIOR SECURITIES
As of September 30, 1997, the Company was in default on certain
covenants of its RIMCO financing agreements and RIMCO has waived such defaults
and principal and interest payment covenants through July 1, 1998. (See Note 2
to the Consolidated Financial Statements.) In addition, the Company was not in
compliance with certain provisions of the $5,000,000 revolving line of credit
with a financial institution for the financing of its trade receivables and has
been unsuccessful in obtaining a waiver; however, the Company received advances
under the agreement until it was terminated November 30, 1997, at the Company's
request.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
None
ITEM 5. OTHER INFORMATION
On November 11, 1997, the Company announced that Joe T. Rye was
appointed President and Chief Executive Officer on an interim basis succeeding
Michael J. Pawelek, who will serve as Executive Vice President of the Company
and President of the Company's oil and gas subsidiary, UNEXCO, Inc. Also
appointed by the Board was Stephen H. Wood as Vice President - Seismic
Operations.
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K
None
14 of 15
<PAGE> 15
SIGNATURES
In accordance with the requirements of the Securities Exchange Act of
1934, the registrant caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.
UNIVERSAL SEISMIC ASSOCIATES, INC.
/S/ JOE T. RYE
DATE: JULY 23, 1998 PRESIDENT/CHIEF EXECUTIVE OFFICER
15 of 15
<PAGE> 16
Index to Exhibit
Exhibit Description
------- -----------
27 Financial Data Schedule
<TABLE> <S> <C>
<ARTICLE> 5
<S> <C>
<RESTATED>
<PERIOD-TYPE> 3-MOS
<FISCAL-YEAR-END> SEP-30-1997
<PERIOD-START> JUL-01-1997
<PERIOD-END> SEP-30-1997
<CASH> 698,808
<SECURITIES> 0
<RECEIVABLES> 7,132,089
<ALLOWANCES> 0
<INVENTORY> 0
<CURRENT-ASSETS> 8,261,517
<PP&E> 21,944,252
<DEPRECIATION> 0
<TOTAL-ASSETS> 30,987,226
<CURRENT-LIABILITIES> 27,212,970
<BONDS> 562,886
0
0
<COMMON> 523
<OTHER-SE> 3,210,847
<TOTAL-LIABILITY-AND-EQUITY> 30,987,226
<SALES> 9,182,650
<TOTAL-REVENUES> 9,182,650
<CGS> 0
<TOTAL-COSTS> 10,185,818
<OTHER-EXPENSES> 630,431
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 406,338
<INCOME-PRETAX> (2,039,937)
<INCOME-TAX> 0
<INCOME-CONTINUING> (2,039,937)
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (2,039,937)
<EPS-PRIMARY> (.39)
<EPS-DILUTED> 0
</TABLE>
