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, 1998
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 OCTOBER 31, 1998
- - --------------------------------- -------------------------------
Common Stock, $.01 par value 9,985,350
<PAGE>
Form 10-Q
GEOSCIENCE CORPORATION
INDEX
PAGE NO.
Part I. Financial Information:
Item 1. Financial Statements
Consolidated Balance Sheet September 30, 1998
(unaudited) and December 31, 1997 1
Consolidated Statement of Income and Accumulated
Earnings for the Three Months Ended September 30, 1998
and 1997 (unaudited) 2
Consolidated Statement of Income and
Accumulated Earnings for the Nine Months
Ended September 30, 1998 and 1997 (unaudited) 3
Consolidated Statement of Cash Flows for the
Nine Months Ended September 30, 1998 and 1997
(unaudited) 4
Consolidated Statement of Changes in
Shareholders' Investment for the Nine Months
Ended September 30, 1998 and 1997 (unaudited) 5
Notes to Consolidated Financial Statements 6-7
Item 2. Management's Discussion and Analysis of
Financial Condition and Results of Operations 8-10
Part II. Other Information:
Item 6. Exhibits and Reports to Form 8-K 11
Signatures 11
<PAGE>
Page 1 Form 10-Q
PART I. FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS
GEOSCIENCE CORPORATION
CONSOLIDATED BALANCE SHEET
(IN THOUSANDS, EXCEPT PAR VALUE AND NUMBER OF
SHARES)
September 30, December 31,
1998 1997
--------- ---------
(unaudited)
ASSETS
Current assets:
Cash and cash equivalents ..................... $ 804 $ 799
Receivables, net .............................. 42,381 44,348
Inventories, net .............................. 61,280 54,940
Other ......................................... 3,738 2,499
--------- ---------
Total current assets ................... 108,203 102,586
Property, plant and equipment, net ............ 29,306 25,440
Long-term receivables ......................... 7,468 13,548
Other assets .................................. 6,363 6,616
--------- ---------
Total assets ........................... $ 151,340 $ 148,190
========= =========
LIABILITIES
Current liabilities:
Notes payable and current
maturities of long-term debt ................. $ 25,483 $ 29,832
Accounts payable .............................. 14,838 12,689
Unearned revenue .............................. 3,914 1,831
Taxes on income ............................... 4,517 4,210
Payable to Tech-Sym Corporation ............... 6,342 9,823
Other accrued liabilities ..................... 3,200 7,483
--------- ---------
Total current liabilities .............. 58,294 65,868
Long-term debt .................................. 8,122 9,445
Other liabilities ............................... 1,111 1,110
--------- ---------
Total liabilities ...................... 67,527 76,423
SHAREHOLDERS' INVESTMENT
Common stock - authorized 35,000,000 shares,
$.01 par value; issued 10,504,350 and
10,498,850 shares ............................. 105 105
Additional capital .............................. 44,946 44,893
Accumulated earnings ............................ 45,170 33,447
Common stock held in treasury,
at cost (519,000 shares) ...................... (6,314) (6,314)
Accumulated other comprehensive loss ............ (94) (364)
--------- ---------
Total shareholders' investment ......... 83,813 71,767
--------- ---------
Total liabilities and shareholders'
investment ........................... $ 151,340 $ 148,190
========= =========
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
(IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)
For the Three Months
Ended September 30,
------------------------
1998 1997
(unaudited)
------------------------
Revenue .............................................. $ 24,666 $ 18,163
Cost of revenue ...................................... 14,373 12,579
-------- --------
Gross profit ................................... 10,293 5,584
Research and development expense ..................... 2,264 2,168
Selling, general and administrative expense .......... 5,134 5,213
Interest expense ..................................... 621 264
Interest and other expense, net ...................... 55 17
-------- --------
Income (loss) from continuing operations before
income taxes ........................................ 2,219 (2,078)
Provision (benefit) for income taxes ................. 687 (644)
-------- --------
Income (loss) from continuing
operations .................................... 1,532 (1,434)
Discontinued operation
Gain on sale of CogniSeis net of
applicable income tax expense of $273 ........ 614
-------- --------
Net income (loss) ................... $ 2,146 $ (1,434)
-------- --------
Accumulated earnings
Beginning of period ............................ 43,024 32,544
-------- --------
End of period .................................. $ 45,170 $ 31,110
======== ========
Earnings (loss) per common share - basic
and diluted
Continuing operations .......................... $ 0.15 $ (0.14)
Discontinued operation ......................... 0.06
-------- --------
Net income (loss) ........................... $ 0.21 $ (0.14)
======== ========
Average shares outstanding
Basic .......................................... 9,985 10,046
Diluted ........................................ 9,994 10,078
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
(IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)
For the Nine Months
Ended September 30,
------------------------
1998 1997
(unaudited)
------------------------
Revenue ............................................ $ 91,178 $ 64,815
Cost of revenue .................................... 53,863 41,211
-------- --------
Gross profit ................................. 37,315 23,604
Research and development expense ................... 5,988 5,965
Selling, general and administrative expense ........ 19,440 16,391
Interest expense ................................... 2,041 1,226
Interest and other income, net ..................... (94) (124)
-------- --------
Income from continuing operations before
income taxes ...................................... 9,940 146
Provision for income taxes ......................... 3,081 45
-------- --------
Income from continuing operations ............ 6,859 101
Discontinued operation
Loss from operations of CogniSeis
net of applicable income tax benefit of
$713 ........................................ 1,588
Gain on sale of CogniSeis net of
applicable income tax expense of $2,186 .... 4,864
-------- --------
Net income (loss) .................... $ 11,723 $ (1,487)
-------- --------
Accumulated earnings
Beginning of period .......................... 33,447 32,597
-------- --------
End of period ................................ $ 45,170 $ 31,110
======== ========
Earnings (loss) per common share - basic
and diluted
Continuing operations ........................ $ 0.69 $ 0.01
Discontinued operation ....................... 0.49 (0.16)
-------- --------
Net income (loss) ......................... $ 1.17 $ (0.15)
======== ========
Average shares outstanding
Basic ........................................ 9,982 10,123
Diluted ...................................... 10,013 10,197
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
(IN THOUSANDS)
For the Nine Months
Ended September 30,
-------------------
1998 1997
(unaudited)
-------------------
Cash flows from operating activities:
Net income (loss) ................................... $ 11,723 ($ 1,487)
Adjustments to reconcile net income (loss) to
net cash provided by (used for) operating
activities:
Depreciation and amortization ................... 6,317 6,363
Gain on sale of CogniSeis ....................... (4,864)
Sale of equipment under operating leases ........ 39 1,172
Loss on disposition of property, plant &
equipment ...................................... 5
Change in operating assets and liabilities:
Receivables, net ................................ (1,504) (670)
Inventories, net ................................ (6,340) (7,910)
Other current assets ............................ (1,239) (1,335)
Long-term receivables ........................... 12,703 (167)
Other assets .................................... 103 (808)
Accounts payable ................................ 2,149 (12)
Unearned revenue ................................ 2,083 675
Taxes on income ................................. 307 (2,813)
Payable to Tech-Sym ............................. 1,729 950
Other liabilities ............................... (4,506) (1,069)
-------- --------
Net cash provided by (used for) operating
activities ......................................... 18,705 (7,111)
-------- --------
Cash flows from investing activities:
Investment in joint ventures ........................ (337)
Acquisition of a product line ....................... (474)
Proceeds from disposition of property, plant &
equipment .......................................... 66
Capital expenditures ................................ (9,068) (6,581)
-------- --------
Net cash used for investing activities .............. (9,813) (6,581)
-------- --------
Cash flows from financing activities:
Net (payments) borrowings from Tech-Sym
Corporation ........................................ (5,210) 5,180
Net (payments) borrowings under line of credit
agreements ......................................... (3,390) 3,864
Proceeds from long-term debt ........................ 856 2,038
Payments on long-term debt .......................... (1,466) (888)
Purchase of treasury stock .......................... (3,268)
Proceeds from exercise of stock options ............. 53 16
Proceeds from sale of notes receivable .............. 7,848
-------- --------
Net cash (used for) provided by financing
activities .......................................... (9,157) 14,790
-------- --------
Effect of exchange rate changes on cash and cash
equivalents ......................................... 270 (563)
-------- --------
Net increase in cash and cash equivalents .............. 5 535
Cash and cash equivalents at beginning of period .... 799 1,306
-------- --------
Cash and cash equivalents at end of period .......... $ 804 $ 1,841
======== ========
Non Cash Transactions:
Reduction in balance of notes receivable sold
with recourse ...................................... $1,712
The accompanying notes are an integral part of these consolidated financial
statements.
<PAGE>
Page 5
Form 10-Q
GEOSCIENCE CORPORATION
CONSOLIDATED STATEMENT OF CHANGES IN SHAREHOLDERS' INVESTMENT
FOR THE NINE MONTHS ENDED SEPTEMBER 30, 1998 AND 1997
(UNAUDITED)
(IN THOUSANDS)
<TABLE>
<CAPTION>
Accumulated
Other Total
Common Stock Additional Accumulated Comprehensive Treasury Stock Shareholders'
Shares Amount Capital Earnings Income (Loss) Shares Amount Investment
-----------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Balance at December 31, 1997 . 10,499 $105 $44,893 $33,447 $ (364) 519 $(6,314) $71,767
Comprehensive income for 1998:
Net income .............. 11,723
Other comprehensive
income, net of tax
Foreign currency
translation adjustments ...... 270
Total comprehensive income ... 11,993
Exercise of stock options .... 5 53 53
-----------------------------------------------------------------------------------
Balance at September 30, 1998. 10,504 $105 $44,946 $45,170 $ (94) 519 $(6,314) $83,813
===================================================================================
Accumulated
Other Total
Common Stock Additional Accumulated Comprehensive Treasury Stock Shareholders'
Shares Amount Capital Earnings Income (Loss) Shares Amount Investment
-----------------------------------------------------------------------------------
Balance at December 31,1996 ......... 10,498 $ 105 $44,877 $32,597 $ 271 240 $(3,046) $74,804
Comprehensive income for
1997:
Net loss ....................... (1,487)
Other comprehensive
income (loss), net of tax
Foreign currency
translation adjustments ....... (563)
Total comprehensive loss ............ (2,050)
Exercise of stock options ........... 1 16 16
Acquisition of treasury
shares ............................. 279 (3,268) (3,268)
-----------------------------------------------------------------------------------
Balance at September 30, 1997 ....... 10,499 $ 105 $44,893 $31,110 $ (292) 519 $(6,314) $69,502
===================================================================================
</TABLE>
The accompanying notes are an integral part of these consolidated financial
statements.
<PAGE>
Page 6 Form 10-Q
GEOSCIENCE CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
NOTE 1 - BASIS OF PRESENTATION
The accompanying unaudited consolidated financial statements of GeoScience
Corporation and its subsidiaries (the "Company") have been prepared in
accordance with the instructions to Form 10-Q. Accordingly, they do not include
all of the information and footnotes required by generally accepted accounting
principles for complete financial statements and should be read in conjunction
with the financial statements and notes thereto appearing in the Company's
Annual Report on Form 10-K for the year ended December 31, 1997.
In the opinion of the Company's management ("Management") all adjustments
necessary for a fair presentation of the results of operations for all periods
reported have been included. Such adjustments consist only of normal recurring
items.
The consolidated statements of income for the nine months ended September 30,
1998 are not necessarily indicative of the results expected for the full year
ending December 31, 1998.
Certain prior year amounts have been reclassified to conform to the current year
presentation.
NOTE 2 - INVENTORIES
Inventories, which consist principally of electronic components are summarized
as follows (in thousands):
SEPTEMBER 30, 1998 DECEMBER 31, 1997
------------------ -----------------
Raw materials ............ $32,045 $14,958
Work in progress ......... 10,103 16,154
Finished goods ........... 19,132 23,828
------- -------
$61,280 $54,940
======= =======
NOTE 3 - DISCONTINUED OPERATION
In the fourth quarter of 1997, the Company sold CogniSeis Development,
Inc.("CogniSeis"). As a result, the operations for the quarter and nine month
period ended September 30, 1997 were reclassified to report separately the
results of the discontinued operation. Revenue from CogniSeis for the nine
months ended September 30, 1997 was $11,398,000. There was no revenue recognized
from CogniSeis in the quarter ended September 30, 1997.
During the second quarter of 1998, the purchaser confirmed its intent to elect
the early pay-out provision of the sales agreement, and on July 8, 1998, the
Company received payment on the note receivable related to the sale of
CogniSeis. The purchaser's election of the early pay-out provision of the sales
agreement eliminated uncertainty regarding the gain on the sale. During the
third quarter, the Company recognized a final net gain on the sale of $614,000.
The total gain on the sale of CogniSeis was $4,864,000, net of $2,186,000 income
tax expense.
NOTE 4 - PER SHARE DATA
Basic per share amounts have been computed based on the average number of common
shares outstanding. Diluted per share amounts reflect the increase in average
common shares outstanding that would result from the exercise of outstanding
stock options computed using the treasury stock method. Stock options are the
only potentially dilutive shares the Company has outstanding for all periods
presented. Outstanding options to purchase 564,000 and 384,550 shares of common
stock were excluded from the computation of diluted earnings per share for the
quarter ended September 30, 1998 and 1997, respectively, because to do so would
have been anti-dilutive using the treasury stock method. Outstanding options to
purchase 564,000 and 439,550 shares of common stock were excluded from the
computation of diluted earnings per share for the nine months ended September
30, 1998 and 1997, respectively, because to do so would have been anti-dilutive
using the treasury stock method.
<PAGE>
Page 7
Form 10-Q
GEOSCIENCE CORPORATION
NOTE 5 - COMPREHENSIVE INCOME
Effective January 1, 1998, the Company adopted Statement of Financial Accounting
Standards No. 130, REPORTING COMPREHENSIVE INCOME. This Statement establishes
standards for reporting and display of comprehensive income and its components.
Accumulated other comprehensive income (loss) by component is summarized in the
Consolidated Statement of Changes in Shareholders' Investment.
NOTE 6 - NEW PRONOUNCEMENTS
In June 1998, Statement of Financial Accounting Standards No. 133 (FAS 133),
ACCOUNTING FOR DERIVATIVE INSTRUMENTS AND HEDGING ACTIVITIES, was issued. FAS
133 is effective for fiscal years beginning after June 15, 1999, and establishes
accounting and reporting standards for derivative instruments. Adoption of FAS
133 is not expected to have a material effect on the Company's financial
position or operational results.
<PAGE>
Page 8
Form 10-Q
GEOSCIENCE CORPORATION
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS
RESULTS OF OPERATIONS - QUARTER ENDED SEPTEMBER 30, 1998 COMPARED TO THE QUARTER
ENDED SEPTEMBER 30, 1997
Revenue for the quarter ended September 30, 1998 increased 36% to $24,666,000
compared to $18,163,000 for the quarter ended September 30, 1997. The increase
in revenue is attributable to increased shipments of the 24-bit seismic data
acquisition module ("24-bit module"), onboard electronic systems and seismic
cables. The increased shipments are a result of customer orders placed in the
latter part of 1997 and throughout 1998.
The gross profit margin was 42% for the quarter ended September 30, 1998
compared to 31% for the same quarter in the prior year. The increase in the
gross margin percentage reflected the change in the mix of products shipped as
well as improved manufacturing efficiencies and cost reductions during the
period compared to the prior period. Expenditures for research and development
and selling, general and administrative operations were basically flat compared
to the same quarter in the prior year. As a percentage of revenue, research and
development expense decreased to 9% for the third quarter of 1998 compared to
12% for the third quarter of 1997. Selling, general and administrative expenses
decreased to 21% for the quarter ended September 30, 1998 from 29% for the
quarter ended September 30, 1997.
Interest expense was $621,000 for the quarter ended September 30, 1998 compared
to $264,000 for the quarter ended September 30, 1997. The $357,000 or 135%
increase in interest expense was caused by borrowings for additional capital
equipment and facilities and to finance the growth in accounts receivable and
inventories resulting from the growth of the Company. Other expense was
insignificant for the quarter ended September 30, 1998 and 1997.
Income from continuing operations for the quarter ended September 30, 1998 was
$1,532,000, or $.15 per diluted share, compared to a loss of $1,434,000, or $.14
per diluted share, for the quarter ended September 30, 1997.
The effective tax rate for the quarter ended September 30, 1998 and 1997 was
31%. During the fourth quarter of 1997, the Company sold its software
subsidiary, CogniSeis Development, Inc. There were no operating results from the
discontinued operation for the third quarters of 1998 and 1997. During the third
quarter of 1998, the Company recognized a final net gain of $614,000 on the sale
of CogniSeis which was deferred since the fourth quarter of 1997.
Net income for the quarter ended September 30, 1998 was $2,146,000, or $.21 per
diluted share, as compared to a loss of $1,434,000, or $.14 per diluted share,
for the quarter ended September 30, 1997, reflecting the net effect of the items
discussed above.
RESULTS OF OPERATIONS - NINE MONTHS ENDED SEPTEMBER 30, 1998 COMPARED TO THE
NINE MONTHS ENDED SEPTEMBER 30, 1997
Revenue for the nine month period ended September 30, 1998 increased 41% to
$91,178,000 compared to $64,815,000 for the nine month period ended September
30, 1997. The increase in revenue was primarily attributable to increased
shipments of the 24-bit module and onboard electronic systems. The increase in
shipments for the first nine months of 1998 was a result of the large backlog at
December 31, 1997 of $52,300,000 whereby customers placed orders in the latter
part of 1997 and continued customer demand for the Company's products during
1998.
The gross profit margin was 41% for the nine months ended September 30, 1998
compared to 36% for the same nine month period in the prior year. The increase
in the gross margin percentage was a result of increased shipments of the higher
margin 24-bit module as well as increased manufacturing efficiencies. Selling,
general and administrative expense increased $3,049,000 or 19% compared to the
same nine month period in the prior year as a result of the increase in expense
items directly associated with the increase in revenue discussed above. As a
percentage of revenue, selling, general and administrative expense decreased to
21% for the nine months ended September 30, 1998 from 25% for the nine month
period ended September 30, 1997. Expenditures for research and development were
essentially unchanged the first nine months of 1998 compared to the first nine
months of 1997. As a percentage of revenue, research and development expense
decreased to 7% for the nine months ended September 30, 1998 as compared to 9%
for the same prior year period.
Interest expense was $2,041,000 for the nine month period ended September 30,
1998 compared to $1,226,000 for the nine month period ended September 30, 1997.
The $815,000 or 66% increase in interest expense was attributable to the
increased borrowings for capital equipment and facilities and to finance the
higher levels of accounts receivable and inventories resulting from the
Company's
<PAGE>
Page 9
Form 10-Q
GEOSCIENCE CORPORATION
growth over last year. Other income was relatively unchanged for the nine months
ended September 30, 1998 compared to the nine months ended September 30, 1997.
Income from continuing operations for the nine months ended September 30, 1998
was $6,859,000, or $.69 per diluted share, as compared to $101,000, or $.01 per
diluted share, for the nine months ended September 30, 1997.
The effective tax rate for the nine month period ended September 30, 1998 and
1997 was 31%. During the fourth quarter of 1997, the Company sold its software
subsidiary, CogniSeis Development, Inc. There were no operating results from the
discontinued operation for the first nine months of 1998 compared to an
operating loss from the discontinued operation of $1,588,000 for the first nine
months of 1997. During the third quarter of 1998, the Company recognized a final
net gain of $614,000 on the sale of CogniSeis which was deferred since the
fourth quarter of 1997. The total gain recognized on the sale of CogniSeis was
$4,864,000 net of $2,186,000 income tax expense.
Net income for the nine month period ended September 30, 1998 was $11,723,000 or
$1.17 per diluted share as compared to a net loss of $1,487,000 or $.15 per
diluted share for the nine months ended September 30, 1997, reflecting the net
effect of the items discussed above.
LIQUIDITY AND CAPITAL RESOURCES
Continued improved earnings and the improved collection of account receivables
during the quarter and year to date, along with the collection of the note
receivable related to the sale of CogniSeis has enabled the Company to satisfy
its working capital and capital expenditure requirements while reducing total
debt that was outstanding at December 31, 1997. At September 30, 1998 the
Company's working capital balance was $49,909,000 compared to $36,718,000 at
December 31, 1997. Cash provided by operations was $18,705,000 for the nine
months ended September 30, 1998 as compared to cash used for operations of
$7,111,000 for the nine months ended September 30, 1997.
At September 30, 1998, the Company had short-term line of credit facilities
aggregating $30,422,000 of which $8,646,000 was available for additional
short-term borrowings. The Company had a working capital ratio of 1.86 to 1.0
and debt to total capitalization of 32%. The Company believes that its current
financial position and available line of credit facilities will provide adequate
sources of funds to meet foreseeable requirements.
Purchases of property, plant and equipment totaled $9,068,000 for the nine
months ended September 30, 1998 compared to $6,581,000 for the same period in
the prior year. The Company estimates that capital expenditures for property,
plant and equipment during the remainder of 1998 will be approximately
$4,000,000. Most of the anticipated capital expenditures are not subject to firm
commitments and the Company may modify its plans depending on future results of
operations or other factors.
YEAR 2000 (Y2K) COMPLIANCE
Many currently installed computer systems and software products are not capable
of distinguishing 21st century (Y2K) dates. As a result, computer systems and/or
software used by many companies in a wide variety of applications will
experience operating difficulties concurrent with the century change.
Significant uncertainty exists concerning the scope and magnitude of problems
associated with the century change.
The Company recognizes the need to ensure its operations will not be adversely
impacted by Y2K software failures, internally or externally, and has established
cross-functional project teams at each of its subsidiaries to address Y2K
issues. The project teams are coordinating the identification of and the
implementation of changes to computer hardware and software applications that
will attempt to ensure availability and integrity of their company's information
systems and the reliability of its operational systems and manufacturing
processes. The project teams are also coordinating the identification of
potential Y2K risks associated with the products and services their company
sells or has sold, and risks that could affect the business due to suppliers and
others they transact business with should these companies fail to comply with
Y2K requirements. Each subsidiary is also assessing the potential overall impact
of the impending century change on its business, results of operations and
financial position. The findings and resulting actions are being reviewed and
monitored by the Company to insure overall compliance.
<PAGE>
Page 10
Form 10-Q
GEOSCIENCE CORPORATION
Each subsidiary has reviewed its information technology and operational systems
and its manufacturing processes in order to identify those products, services or
systems for Y2K compliance. As a result, the Company has determined that each
subsidiary will be required to modify or replace certain information and
operational systems so they will be Y2K compliant. These modifications and
replacements are being, and will continue to be, made in conjunction with each
subsidiary's overall systems initiatives. Each subsidiary has reviewed or is
reviewing products previously sold and currently being sold or in design for
future sales for Y2K compliance. Products with Y2K non-compliance issues are
being identified and fixes/modifications, if any, are being developed.
Identified Y2K product issues will be resolved by year end 1999. During the
fourth quarter of 1998, each subsidiary will complete their communications with
suppliers, financial institutions and others with whom they do business to
address conversion-related issues. The subsidiaries, and therefore the Company,
cannot determine the complete status of Y2K compliance of its suppliers and
financial institutions or what additional costs, if any, might be required by
the Company until it completes the review of the responses received. Each
subsidiary's management believes that non-compliance by their suppliers will be
insignificant. However, failure of their financial institutions could have a
material effect on the Company's financial position or results of operations.
To date the Company has not incurred any material expenditures in connection
with identifying, evaluating or remediating Y2K compliance issues. The total
cost of Y2K compliance activities is estimated at less than $500,000 consisting
mainly of employee and consultant labor expended evaluating the Company's IT
systems, non-IT systems, products, and vendor Y2K issues, and is not
anticipated to be material to the Company's financial position or its results of
operations. Y2K compliance for the majority of the Company's U.S. enterprise
application was achieved with the implementation of new automated accounting and
finance systems in the third quarter of 1998. The same system will be
implemented in the first half of 1999 for the Company's foreign operations.
Neither the cost of this system, nor its implementation costs, are included in
the Company's estimate of Y2K remediating costs as the system was purchased
mainly for other business reasons.
The Company expects to complete its Y2K project during 1999. Based on available
information, the Company does not believe any material exposure to significant
business interruption exists as a result of Y2K compliance issues. Accordingly,
the Company has not adopted any formal contingency plan in the event its Y2K
project is not completed in a timely manner. These costs and the timing in which
the Company plans to complete its Y2K modification and testing processes are
based on management's best estimates. However, there can be no assurance that
the Company will identify and remediate all significant Y2K problems on a timely
basis, that remedial efforts will not involve significant time and expense, or
that such problems will not have a material adverse effect on the Company's
business, results of operations or financial position.
Forward-looking statements in this document are made pursuant to the safe harbor
provisions of the Private Securities Litigation Reform Act of 1995. Investors
are cautioned that all forward-looking statements involve risks and
uncertainties, including, without limitation, risks associated with the
uncertainty of market acceptance of the Company's products, limited number of
customers, as well as risks of downturns in economic conditions generally, risks
associated with competition and competitive pricing pressures, and other risks
detailed in the Company's filings with the Securities and Exchange Commission.
<PAGE>
Page 11
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 and 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, 1998 /s/ RICHARD F. MILES
Richard F. Miles, President
(principal executive officer)
Date: November 12, 1998 /s/ RAY F. THOMPSON
Ray F. Thompson, Vice President,
Treasurer, and Chief Financial
Officer
(principal financial officer)
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
THE FINANCIAL DATA SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED
FROM GEOSCIENCE CORPORATION FORM 10Q THIRD QUARTER 1998 AND IS QUALIFIED IN ITS
ENTIRETY BY REFERENCE TO SUCH FINANCIAL STATEMENTS.
</LEGEND>
<MULTIPLIER> 1000
<S> <C>
<PERIOD-TYPE> 9-MOS
<FISCAL-YEAR-END> DEC-31-1998
<PERIOD-END> SEP-30-1998
<CASH> 804
<SECURITIES> 0
<RECEIVABLES> 42,381
<ALLOWANCES> 0
<INVENTORY> 61,280
<CURRENT-ASSETS> 108,203
<PP&E> 29,306
<DEPRECIATION> 0
<TOTAL-ASSETS> 151,340
<CURRENT-LIABILITIES> 58,294
<BONDS> 0
0
0
<COMMON> 105
<OTHER-SE> 83,708
<TOTAL-LIABILITY-AND-EQUITY> 151,340
<SALES> 91,178
<TOTAL-REVENUES> 91,178
<CGS> 53,863
<TOTAL-COSTS> 79,291
<OTHER-EXPENSES> (94)
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 2,041
<INCOME-PRETAX> 9,940
<INCOME-TAX> 3,081
<INCOME-CONTINUING> 6,859
<DISCONTINUED> 4,864
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 11,723
<EPS-PRIMARY> 1.17
<EPS-DILUTED> 1.17
</TABLE>
