Form 10-Q
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
[X] QUARTERLY REPORT PURSUANT TO SECTION 13 or 15(d) OF THE SECURITIES EXCHANGE
ACT OF 1934 FOR THE QUARTERLY PERIOD ENDED SEPTEMBER 30, 1996
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 0-28422
GEOSCIENCE CORPORATION
(Exact name of Registrant as specified in its charter)
NEVADA 76-0497775
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
10500 WESTOFFICE DRIVE, HOUSTON, TEXAS 77042
(Address of principal executive offices) Zip Code
REGISTRANT'S TELEPHONE NUMBER, INCLUDING AREA CODE: 713/780-1881
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, and (2) has been subject to such filing requirements
for the past 90 days.
Yes [ X ] No [ ]
Indicate the number of shares outstanding of each of the issuer's classes of
common stock, as of the latest practicable date.
COMMON OUTSTANDING AT OCTOBER 31, 1996
- ---------------------------- -------------------------------
Common Stock, $.01 par value 10,267,600
<PAGE>
GeoScience Corporation Form 10-Q
INDEX
-----
Page No.
--------
Part I. Financial Information:
Consolidated Balance Sheet September 30, 1996
and December 31, 1995 ............................................... 1
Consolidated Statement of Income and Accumulated
Earnings for Three Months Ended September 30,
1996 and 1995 ....................................................... 2
Consolidated Statement of Income and Accumulated
Earnings for Nine Months Ended September 30,
1996 and 1995 ....................................................... 3
Consolidated Statement of Cash Flows for the
Nine Months Ended September 30, 1996 and 1995 ....................... 4
Notes to Consolidated Financial Statements ............................ 5-6
Management's Discussion and Analysis of Financial
Condition and Results of Operations ................................. 7-9
Part II. Other Information:
Item 6. Exhibits and Reports on Form 8-K ............................. 10
Signatures .............................................................. 10
<PAGE>
Page 1 Form 10-Q
PART I. FINANCIAL INFORMATION
Item 1. Financial Statements
GeoScience Corporation
Consolidated Balance Sheet
September 30, 1996 December 31, 1995
------------------ -----------------
(stated in thousands)
Assets
Current assets:
Cash and cash equivalents .............. $ 977 $ 1,668
Receivables ............................ 36,602 28,291
Inventories ............................ 41,371 32,916
Other .................................. 1,210 2,508
--------- --------
Total current assets ............. 80,160 65,383
Property, plant and equipment ............ 25,372 22,550
Long-term receivables .................... 5,048 2,990
Other assets ............................. 10,405 7,967
--------- --------
Total assets ..................... $ 120,985 $ 98,890
========= ========
Liabilities
Current liabilities:
Notes payable and current
maturities of long-term debt .......... $ 10,381 $ 11,681
Accounts payable ....................... 15,054 11,370
Unearned revenue ....................... 2,840 5,897
Taxes on income ........................ 1,966 482
Payable to Tech-Sym Corporation ........ 4,108 23,554
Other accrued liabilities .............. 8,019 6,238
--------- --------
Total current liablilites ........ 42,368 59,222
Long-term debt ........................... 4,826 5,386
Other liabilities and deferred credits ... 1,266 1,014
--------- --------
Total liabilities ................ 48,460 65,622
Shareholders' Investment
Common stock - authorized 35,000,000
shares, $.01 par value; issued
10,497,600 and 7,900,000 shares ......... 105 1
Additional capital ....................... 44,830 4,553
Accumulated earnings ..................... 30,670 28,930
Common stock held in treasury
at cost (215,000 shares) ................ (2,759)
Cumulative translation adjustments ....... (321) (216)
--------- --------
Total shareholders' investment ... 72,525 33,268
--------- --------
Total liabilities and
shareholders' investment ........ $ 120,985 $ 98,890
========= ========
The accompanying notes are an integral part of these consolidated
financial statements.
<PAGE>
Page 2 Form 10-Q
GeoScience Corporation
Consolidated Statement of Income and
Accumulated Earnings
For the Three Months
Ended September 30,
--------------------------
1996 1995
(stated in thousands except
for per share amounts)
Revenue:
Equipment sales ................................ $ 28,149 $ 18,442
Software sales ................................. 2,745 2,742
Maintenance and other .......................... 2,043 2,018
-------- --------
32,937 23,202
Cost of revenue:
Cost of equipment sales ........................ 18,830 10,962
Cost of software sales ......................... 323 348
Cost of maintenance and other .................. 620 606
-------- --------
19,773 11,916
-------- --------
Gross profit .............................. 13,164 11,286
-------- --------
Expenses:
Selling, general and administrative
expenses ..................................... 7,508 5,365
Research and development expense ............... 3,220 3,100
Interest expense ............................... 944 226
Interest and other income, net ................. (195) (65)
-------- --------
11,477 8,626
-------- --------
Income from continuing
operations before income taxes ........... 1,687 2,660
Provision for income taxes ....................... 549 809
-------- --------
Income from continuing operations ......... 1,138 1,851
Discontinued operations:
Loss from operations of discontinued
Syntron Pressure Controls division
less applicable income tax benefits ........... (121)
-------- --------
Net income ................................ 1,138 1,730
Accumulated earnings:
Beginning of period .......................... 29,532 25,957
-------- --------
End of period ................................ $ 30,670 $ 27,687
======== ========
Earnings per common share:
Income from continuing operations ............ $ .11 $ .24
Loss from discontinued operations ............ (.02)
-------- --------
Net income ................................ $ .11 $ .22
======== ========
The accompanying notes are an integral part of these consolidated
financial statements.
<PAGE>
Page 3 Form 10-Q
GeoScience Corporation
Consolidated Statement of Income and
Accumulated Earnings
For the Nine Months
Ended September 30,
--------------------------
1996 1995
(stated in thousands except
for per share amounts)
Revenue:
Equipment sales ................................ $ 69,482 $ 46,081
Software sales ................................. 7,414 6,803
Maintenance and other .......................... 6,191 5,574
-------- --------
83,087 58,458
Cost of revenue:
Cost of equipment sales ........................ 44,254 26,999
Cost of software sales ......................... 1,002 837
Cost of maintenance and other .................. 1,967 2,218
-------- --------
47,223 30,054
-------- --------
Gross profit .............................. 35,864 28,404
-------- --------
Expenses:
Selling, general and administrative
expenses ..................................... 21,782 15,332
Research and development expense ............... 10,256 9,066
Interest expense ............................... 2,119 713
Interest and other income, net ................. (866) (849)
-------- --------
33,291 24,262
-------- --------
Income from continuing
operations before income taxes ........... 2,573 4,142
Provision for income taxes ....................... 833 1,298
-------- --------
Income from continuing operations ......... 1,740 2,844
Discontinued operations:
Loss from operations of discontinued
Syntron Pressure Controls division
less applicable income tax benefits ........... (543)
Loss on disposal of Syntron Pressure
Controls division less applicable
income tax benefits .......................... (144)
-------- --------
Net income ................................ 1,740 2,157
Accumulated earnings:
Beginning of period .......................... 28,930 25,530
-------- --------
End of period ................................ $ 30,670 $ 27,687
======== ========
Earnings per common share:
Income from continuing operations ............ $ .19 $ .36
Loss from discontinued operations ............ (.09)
-------- --------
Net income ................................ $ .19 $ .27
======== ========
The accompanying notes are an integral part of these consolidated
financial statements.
<PAGE>
Page 4 Form 10-Q
GeoScience Corporation
Consolidated Statement of Cash Flows
For the Nine Months
Ended September 30,
--------------------
1996 1995
(stated in thousands)
Cash flows from operating activities:
Net income ............................................ $ 1,740 $ 2,157
Adjustments to reconcile net income to net
cash provided by (used for) operating activities:
Depreciation and amortization ...................... 5,140 4,335
Change in operating assets and liabilities:
Receivables ........................................ (8,311) (2,776)
Inventories ........................................ (8,455) (9,797)
Accounts payable and taxes on income ............... 5,168 842
Unearned revenue and
other accrued liabilities ......................... (1,276) 8,779
Long-term receivables and other assets ............. (6,011) (889)
Other .............................................. 1,445 (113)
-------- -------
Net cash provided by (used for)
operating activities ................................ (10,560) 2,538
-------- -------
Cash flows from investing activities:
Capital expenditures .................................. (6,447) (6,288)
-------- -------
Net cash provided by (used for)
investing activities ............................... (6,447) (6,288)
-------- -------
Cash flows from financing activities:
Net borrowings (payments) under
line of credit agreements ............................ (1,316) 1,985
Proceeds from long-term debt .......................... 24 989
Payments on long-term debt ............................ (568) (223)
Payable to Tech-Sym Corporation ....................... (19,446)
Proceeds from issuance of common stock ................ 40,381
Cash paid to acquire treasury stock ................... (2,759)
-------- -------
Net cash provided by financing activities ............. 16,316 2,751
-------- -------
Net increase (decrease) in
cash and cash equivalents ............................. (691) (999)
Cash and cash equivalents at beginning of period ...... 1,668 1,884
-------- -------
Cash and cash equivalents at end of period ............ $ 977 $ 885
======== =======
Cash flow from operating activities include:
Interest paid ......................................... $ 912 $ 272
Income taxes paid ..................................... 130
The accompanying notes are an integral part of these consolidated
financial statements.
<PAGE>
Page 5 Form 10-Q
GeoScience Corporation
Notes to Consolidated Financial Statements
1. The unaudited consolidated financial statements include the accounts of
GeoScience Corporation and its subsidiaries ("the Company") for the three
month and nine month periods ended September 30, 1996 and 1995 and should
be read in conjunction with the financial statements and the notes thereto
for the year ended December 31, 1995, included in the Company's
Registration Statement on Form S-1, as filed with the Securities and
Exchange Commission on May 17, 1996, as amended (Registration No. 33-2986).
In the opinion of management, all adjustments (consisting of normal
recurring accruals) necessary for a fair presentation of these unaudited
statements have been included. Such financial results, however, should not
be construed as necessarily indicative of future earnings.
2. Inventories are valued at the lower of cost or market. Cost is determined
on the first-in, first-out method. Inventories (principally electronic
parts) which aggregated $41,371,000 at September 30, 1996, include raw
materials of $7,131,000 and work-in-process and finished goods of
$34,240,000.
3. Shares of common stock of the Company have been reserved at September 30,
1996 for issuance as follows:
1,500,000 shares for issuance upon exercise of options granted or to
be granted under the 1996 Stock Option Plan of the Company.
4. The Company provides deferred income taxes for temporary differences
arising when revenues or expenses are recognized in different periods for
financial and tax reporting purposes.
Provision for federal income taxes for the three and nine month periods
ended September 30, 1996 and 1995 was equivalent to an effective rate of
32% of earnings before income taxes. The difference between the effective
rate and the U.S. statutory rate is due principally to tax benefits of
foreign sales and research and development credits.
5. Earnings per common share are based on the weighted average number of
shares outstanding during each period (10,437,000 and 7,900,000 for the
three months ended September 30, 1996 and 1995, respectively, and 9,179,000
and 7,900,000 for the nine month period ended September 30, 1996 and 1995,
respectively).
<PAGE>
Page 6 Form 10-Q
6. Effective August 14, 1996 the Board of Directors authorized the Company to
repurchase up to 250,000 shares of its common stock. Effective October 17,
1996, the Board authorized a 150,000 share increase in the stock repurchase
plan, with a revised maximum amount of 400,000 shares. The Company has
purchased 230,000 shares of its common stock since the inception of the
plan.
<PAGE>
Page 7 Form 10-Q
GeoScience Corporation
Management's Discussion and Analysis of Financial Condition
and Results of Operations
LIQUIDITY AND CAPITAL RESOURCES:
The Company has financed its operations from internally generated cash,
intercompany loans from Tech-Sym Corporation and borrowings under the Company's
revolving credit facilities. Cash used for operating activities for the nine
months ended September 30, 1996,was expended primarily for increased inventories
necessary to support the higher revenue and for increased receivables resulting
from the higher revenue. Effective May 17, 1996, the Company completed its
initial public offering of common stock of 2,597,600 shares. The net proceeds to
the Company were $40.5 million of which $13.0 million was used to pay
indebtedness of revolving credit facilities and the balance used to pay amounts
due Tech-Sym.
At September 30, 1996, the Company had unused committed lines of credit which
aggregated $6,628,000.
After working capital, the chief use of the Company's funds has normally been
capital expenditures. Capital expenditures for property, plant and equipment
were $6,447,000 and $6,288,000 for the nine months ended September 30, 1996 and
1995, respectively.
RESULTS OF OPERATIONS:
The following is management's discussion and analysis of certain significant
factors which have affected the Company's earnings during the periods included
in the accompanying consolidated statements of income. A summary of the period
to period changes in the principal items included in the consolidated statements
of income is shown below:
Comparison of Comparison of
Three Months Nine Months
Ended September 30, Ended September 30,
1996 AND 1995 1996 AND 1995
------------------ -------------------
Increase(Decrease)
(stated in thousands)
Sales ................................. $ 9,735 $ 24,629
Costs and expenses .................... 10,708 26,198
-------- --------
Income from
continuing operations
before income taxes .................. (973) (1,569)
Provision for income taxes ............ 260 465
-------- --------
Income from
continuing operations ................ (713) (1,104)
Discontinued operations ............... 121 687
-------- --------
Net Income ............................ $ (592) $ 417
======== ========
<PAGE>
Page 8 Form 10-Q
GeoScience Corporation
Management's Discussion and Analysis of Financial Condition
and Results of Operations - Continued
COMPARISON OF THREE MONTHS ENDED SEPTEMBER 30, 1996 AND 1995:
Revenue for the quarter ended September 30, 1996 increased 42% while costs and
expenses increased 52% which resulted in a decrease in income in continuing
operations before income taxes of 37% from the like quarter of the previous
year. This 42% increase in revenue was the result of increased sales of
equipment ($9,707,000 or 53%) due primarily to shipments of the new 24-bit
digital acquisition systems. Software sales and maintenance and other revenue
was essentially even with the year earlier period.
Cost of revenue increased 66% while selling, general and administrative expense
increased 40% for the quarter ended September 30, 1996 as compared to the third
quarter of 1995. The increase in cost of revenue was primarily due to (i) costs
associated with increased sales, (ii) increased manufacturing cost of the new
24-bit module over the standard 16-bit module, and (iii) a larger mix of cable
product sales which have lower margins. Selling, general and administrative
expense increased due primarily to the addition of selling, general and
administrative expenses of Photon Systems Ltd., which was acquired effective
September 1995, as well as royalties on increased equipment sales. Research and
development expense was basically unchanged for the quarter ended September 30,
1996 as compared to the like quarter of 1995 due to the receipt of a $343,000
credit from the Canadian taxing authority which pertained to prior years.
Without this credit, research and development expense would have increased 15%
over the similar period of 1995. Interest expense increased for the quarter
primarily due to borrowing required to support the increase in sales. Interest
and other income increased as a result of earnings on long-term receivables
during the quarter. The provision for income tax rate was essentially the same
for both periods. Syntron's Pressure Control division was sold effective June
15, 1995.
<PAGE>
Page 9 Form 10-Q
GeoScience Corporation
Management's Discussion and Analysis of Financial Condition
and Results of Operations - Continued
COMPARISON OF NINE MONTHS ENDED SEPTEMBER 30, 1996 AND 1995:
Revenue for the nine month period ended September 1996 increased 42% while costs
and expenses increased 48% which resulted in a decrease in income from
continuing operations before income taxes of 62%. The 42% increase in revenue
was the result of (i) increased equipment sales ($23,401,000 or 51%), (ii)
increased software sales ($611,000 or 9%) and (iii) increase revenue in
maintenance and other ($617,000 or 11%). The increase in equipment sales was due
to the same reason discussed in the quarterly comparisons. The increase in the
other two areas was due primarily to the acquisition of Photon Systems, Ltd.
effective September 1995.
Cost of revenue increased 57% while selling, general and administrative expense
increased 42% for the period ended September 30, 1996 as compared to the same
period of 1995. The reasons for the increase in cost of revenue were essentially
the same as the reasons for the quarterly comparisons. The increase in selling,
general and administrative expense of 42% compares favorably to the 42% increase
in revenue. Research and development expense increased 13% for the nine month
period. The increase would have been 17% except for credit received as discussed
in the quarterly comparisons. Interest expense increased for the nine month
period due to additional borrowing required to support the increase in sales.
Interest and other income was essentially the same for both periods. See note 4
of the Notes to the Consolidated Financial Statements contained on page 5 of the
report for income tax information.
<PAGE>
Page 10 Form 10-Q
GeoScience Corporation
PART II. OTHER INFORMATION
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K
(a) There are no exhibits to this report except for Exhibit 27 - Financial
Data Schedule which is deemed not to be filed for purposes of
liability under the federal securities laws.
No financial statements were filed as a part of this report.
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934 the
Registrant has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.
GEOSCIENCE CORPORATION
Registrant
Date: November 12, 1996 /s/ RICHARD F. MILES
Richard F. Miles, President
Date: November 12, 1996 /s/ RAY F. THOMPSON
Ray F. Thompson, Vice President and Chief
Financial Officer
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<CASH> 977
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<ALLOWANCES> 0
<INVENTORY> 41,371
<CURRENT-ASSETS> 80,160
<PP&E> 25,372
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