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 March 31, 1997
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, Suite 210, 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 April 30, 1997
- ---------------------------- -----------------------------
Common Stock, $.01 par value 10,147,600
<PAGE>
Form 10-Q
GeoScience Corporation
INDEX
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Page No.
--------
Part I. Financial Information:
Consolidated Balance Sheet March 31, 1997
and December 31, 1996 1
Consolidated Statement of Income and Accumulated
Earnings for Three Months Ended March 31,
1997 and 1996 2
Consolidated Statement of Cash Flows for the
Three Months Ended March 31, 1997 and 1996 3
Notes to Consolidated Financial Statements 4-5
Management's Discussion and Analysis of Financial
Condition and Results of Operations 6-8
Part II. Other Information:
Item 6. Exhibits and Reports on Form 8-K 9
Signatures 9
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Page 1 Form 10-Q
PART I. FINANCIAL INFORMATION
Item 1. Financial Statements
GeoScience Corporation
Consolidated Balance Sheet
March 31, 1997 December 31, 1996
-------------- -----------------
(stated in thousands)
Assets
Current assets:
Cash and cash equivalents $1,164 $1,306
Receivables 33,459 30,793
Inventories 48,392 45,845
Other 3,074 2,632
-------- --------
Total current assets 86,089 80,576
Property, plant and equipment 25,714 25,093
Long-term receivables 3,173 9,899
Other assets 7,712 8,258
-------- --------
Total assets $122,688 $123,826
======== ========
Liabilities
Current liabilities:
Notes payable and current
maturities of long-term debt $16,708 $16,197
Accounts payable 9,412 8,336
Unearned revenue 3,954 3,232
Taxes on income 1,390 2,813
Payable to Tech-Sym Corporation 6,234 5,126
Other accrued liabilities 7,044 8,009
-------- --------
Total current liablilites 44,742 43,713
Long-term debt 4,405 4,620
Other liabilities and deferred credits 352 689
-------- --------
Total liabilities 49,499 49,022
Shareholders' Investment
Common stock - authorized 35,000,000
shares, $.01 par value; issued
10,497,600 shares 105 105
Additional capital 44,877 44,877
Accumulated earnings 32,786 32,597
Common stock held in treasury
at cost (350,000 and 240,000 shares) (4,491) (3,046)
Cumulative translation adjustments (88) 271
-------- --------
Total shareholders' investment 73,189 74,804
-------- --------
Total liabilities and
shareholders' investment $122,688 $123,826
======== ========
The accompanying notes are an integral part of these consolidated
financial statements.
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Page 2 Form 10-Q
GeoScience Corporation
Consolidated Statement of Income and
Accumulated Earnings
For the Three Months
Ended March 31,
------------------------------
1997 1996
(stated in thousands except
for per share amounts)
Revenue:
Equipment sales $23,902 $20,269
Software sales 1,971 2,459
Maintenance and other 3,280 2,022
--------- ---------
29,153 24,750
Cost of revenue:
Cost of equipment sales 15,542 12,421
Cost of software sales 123 335
Cost of maintenance and other 1,513 675
--------- ---------
17,178 13,431
--------- ---------
Gross profit 11,975 11,319
--------- ---------
Expenses:
Selling, general and administrative
expenses 8,108 6,713
Research and development expense 3,246 3,491
Interest expense 495 601
Interest and other income, net (148) (36)
--------- ---------
11,701 10,769
--------- ---------
Income from operations
before income taxes 274 550
Provision for income taxes 85 176
--------- ---------
Net income 189 374
Accumulated earnings:
Beginning of period 32,597 28,930
--------- ---------
End of period $32,786 $29,304
========= =========
Earnings per common share:
Net income $ .02 $ .04
===== =====
The accompanying notes are an integral part of these consolidated
financial statements.
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Page 3 Form 10-Q
GeoScience Corporation
Consolidated Statement of Cash Flows
For the Three Months
Ended March 31,
--------------------
1997 1996
(stated in thousands)
Cash flows from operating activities:
Net income $189 $374
Adjustments to reconcile net income to net
cash provided by (used for) operating activities:
Depreciation and amortization 1,793 1,635
Change in operating assets and liabilities:
Receivables (2,666) (2,721)
Inventories (2,547) (2,435)
Other current assets (442) 1,459
Long-term receivables 6,726 251
Other assets (22) (1,398)
Accounts payable 1,076 (3,586)
Unearned revenue 722 (217)
Taxes on income (1,423) 95
Other liabilities (1,302) 662
Payable to Tech-Sym 218 1,497
----- -----
Net cash provided by (used for)
operating activities 2,322 (4,384)
----- -----
Cash flows from investing activities:
Capital expenditures (1,846) (2,504)
----- -----
Net cash provided by (used for)
investing activities (1,846) (2,504)
----- -----
Cash flows from financing activities:
Net borrowings from Tech-Sym Corporation 890 4,404
Net borrowings (payments) under
line of credit agreements 423 1,329
Proceeds from long-term debt 15
Payments on long-term debt (142) (132)
Purchase of treasury stock (1,445)
Other (359)
----- -----
Net cash provided by (used for)
financing activities (618) 5,601
----- -----
Net increase (decrease) in
cash and cash equivalents (142) (1,287)
Cash and cash equivalents at beginning of period 1,306 1,668
------ ------
Cash and cash equivalents at end of period $1,164 $381
====== ======
Cash flow from operating activities include:
Interest paid $428 $414
Income taxes paid 1,621
The accompanying notes are an integral part of these consolidated
financial statements.
<PAGE>
Page 4 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 periods ended Mach 31, 1997 and 1996 and should be read in conjunction
with the financial statements and the notes thereto for the year ended
December 31, 1996, included in the Company's annual report. 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 $48,392,000 at March 31, 1996, include raw materials of
$13,686,000 and work-in-process and finished goods of $34,706,000.
3. Shares of common stock of the Company have been reserved at March 31, 1997
for issuance as follows:
1,500,000 shares for issuance upon exercise of options granted or to be
granted under the 1996 Equity Incentive 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
month periods ended March 31, 1997 and 1996 was equivalent to an effective
rate of 31% and 32%, respectively, 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 (10,225,000 and 7,900,000 for the three
months ended March 31, 1997 and 1996, respectively).
6. In 1997, Statement of Financial Accounting Standards No. 128 (FAS 128),
Earnings per Share was issued. FAS 128 is effective for earnings per share
calculations for periods ending after December 15, 1997. At that time, the
Company will be required to change the method currently used to compute
earnings per share and to restate all prior periods. Adoption of FAS 128 is
not expected to have a material effect on
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Page 5 Form 10-Q
GeoScience Corporation
Notes to Consolidated Financial Statements
the Company's financial position or operational results.
7. 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 and April 28, 1997, the Board authorized increases in the stock
repurchase plan of 150,000 and 200,000 shares, respectively, with a revised
maximum amount of 600,000 shares. As of May 13, 1997, the Company had
purchased 435,000 shares of its common stock since the inception of the
plan.
<PAGE>
Page 6 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 provided by operating activities for the three
months ended March 31, 1997, primarily resulted from the reduction of long-term
receivables due from customers. 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 March 31, 1997, the Company had unused committed lines of credit which
aggregated $6,403,000.
After working capital, the chief use of the Company's funds has normally been
capital expenditures. Capital expenditures for property, plant and equipment
were $1,846,000 and $2,504,000 for the three months ended March 31, 1997 and
1996, 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
Three Months
Ended March 31,
1997 and 1996
--------------
Increase(Decrease)
(stated in thousands)
Sales $ 4,403
Costs and expenses 4,679
------
Income from operations
before income taxes (276)
Provision for income taxes (91)
------
Net Income $ (185)
======
<PAGE>
Page 7 Form 10-Q
GeoScience Corporation
Management's Discussion and Analysis of Financial Condition and Results of
Operations - Continued
COMPARISON OF THREE MONTHS ENDED MARCH 31, 1997 AND 1996:
Revenue for the quarter ended March 31, 1997 increased 18% to $29,153,000 from
$24,750,000 for the year earlier period. Costs and expenses increased 19% to
$28,879,000 from $24,200,000, which resulted in a 50% decrease in income before
income taxes to $274,000 from $550,000 in the like quarter of the previous year.
The 18% increase in revenue was the result of (i) increased sales of equipment
($3,633,000 or 18%) due primarily to increased shipments of marine seismic
cables, and (ii) increased maintenance and other revenue ($1,258,000 or 62%)
resulting from contract awards to provide technical data services to potential
bidders on upcoming oil exploration leases. These increases more than offset the
$488,000 or 20% reduction in software revenue that resulted from certain
customers delaying the placement of their orders.
Cost of revenue increased $3,747,000 or 28% to $17,178,000 from $13,431,000 for
the quarter ended March 31, 1997. This increase was due to (i) the general
increase in equipment sales and (ii) to a significant shift in the product mix
of the revenue for the current quarter as compared to the year ago period. The
product mix for the quarter included larger equipment shipments of marine
seismic cables, which traditionally carry lower profit margins than the
electronics portion of the data acquisition systems equipment, and lower
shipments of software products, which generally have a very low cost of revenue
in comparison to both equipment products and maintenance and other services.
Selling, general and administrative expenses increased $1,395,000 or 21% to
$8,108,000 from $6,713,000 for the quarter. This increase was primarily due to
(i) higher commissions during the period primarily due to a large international
sale, (ii) increased royalties due to the general increase in equipment sales
during the period, and (iii) increased accruals for potential bad debt write
offs. Research and development expense for the quarter decreased $245,000 or 7%
to $3,246,000 from $3,491,000 from the year ago period. This decrease reflected
the cost cutting measures initiated during the second half of 1996 within the
software business area, as well as a reduction in field testing expenses related
to the Polyseis products in the equipment business segment.
Interest expense decreased $106,000 or 18% to $495,000 from $601,000 as compared
to the prior year period as a result of the reduction of interest bearing debt
due to the proceeds from the Company's initial public offering that was
completed in
<PAGE>
Page 8 Form 10-Q
GeoScience Corporation
Management's Discussion and Analysis of Financial Condition and Results of
Operations - Continued
the second quarter of 1996. Other income, net, increased $112,000 from the like
period in 1996 due to interest earnings on interest bearing receivables during
the period.
The Company's software subsidiary, CogniSeis Development, Inc., posted a first
quarter loss of $1,087,000. The Company is soliciting offers to acquire the
subsidiary and intends to sell it if the price and terms of an offer reflect the
intrinsic value and profit making potential of the subsidiary and its product
lines.
<PAGE>
Page 9 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.
(b) Reports on Form 8-K
None
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: May 14, 1997 /s/ RICHARD F. MILES
--------------------
Richard F. Miles, President
(principal executive officer)
Date: May 14, 1997 /s/ RAY F. THOMPSON
--------------------
Ray F. Thompson, Vice-
President and Treasurer
(principal financial officer)
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