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, 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 APRIL 30, 1998
- ---------------------------- -----------------------------
Common Stock, $.01 par value 9,979,975
<PAGE>
Form 10-Q
GEOSCIENCE CORPORATION
INDEX
PAGE NO.
Part I. Financial Information:
Item 1. Financial Information
Consolidated Balance Sheet March 31, 1998 (unaudited)
and December 31, 1997 ............................................. 1
Consolidated Statement of Income and Accumulated Earnings for
the Quarter Ended March 31, 1998 and 1997 (unaudited) ............. 2
Consolidated Statement of Cash Flows for the Quarter Ended
March 31, 1998 and 1997 (unaudited) ............................... 3
Consolidated Statement of Changes in Shareholders' Investment for
the Quarter Ended March 31, 1998 and 1997 (unaudited) ............. 4
Notes to Consolidated Financial Statements ............................ 5
Item 2. Management's Discussion and Analysis of Financial Condition
and Results of Operations ....................................... 6-7
Part II. Other Information: ............................................... 8
Signatures ................................................................. 8
<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)
<TABLE>
<CAPTION>
March 31, 1998 December 31, 1997
--------------------------------------
(unaudited)
--------------------------------------
<S> <C> <C>
ASSETS
Current assets:
Cash and cash equivalents $3,176 $799
Receivables 40,059 44,348
Inventories 54,850 54,940
Other 3,267 2,499
-----------------------------------
Total current assets 101,352 102,586
Property, plant and equipment, net 26,096 25,440
Long-term receivables 11,902 13,548
Other assets 6,452 6,616
-----------------------------------
Total
assets $145,802 $148,190
===================================
LIABILITIES
Current liabilities:
Notes payable and current
maturities of long-term debt $25,607 $29,832
Accounts payable 11,393 12,689
Unearned revenue 1,864 1,831
Taxes on income 4,818 4,210
Payable to Tech-Sym Corporation 8,468 9,823
Other accrued liabilities 8,951 7,483
-----------------------------------
Total current liabilities 61,101 65,868
Long-term debt 9,294 9,445
Other liabilities 1,120 1,110
-----------------------------------
Total liabilities 71,515 76,423
SHAREHOLDERS' INVESTMENT
Common stock - authorized 35,000,000 shares,
$.01 par value; issued 10,498,850 shares 105 105
Additional capital 44,893 44,893
Accumulated earnings 35,765 33,447
Common stock held in treasury,
at cost (519,000 shares) (6,314) (6,314)
Accumulated other comprehensive loss (162) (364)
-------------------------------------
Total shareholders' investment 74,287 71,767
-------------------------------------
Total liabilities and shareholders' investment $145,802 $148,190
=====================================
</TABLE>
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)
<TABLE>
<CAPTION>
For the Quarter
Ended March 31,
-----------------------------------
1998 1997
(unaudited)
-----------------------------------
<S> <C> <C>
Revenue $33,311 $23,330
Cost of revenue 20,051 15,324
-----------------------------------
Gross profit 13,260 8,006
Selling, general and administrative expenses 7,393 5,396
Research and development expense 1,901 1,713
Interest expense 755 413
Interest and other income, net (148) (131)
-----------------------------------
Income from continuing operations before income taxes 3,359 615
Provision for income taxes 1,041 191
-----------------------------------
Income from continuing operations 2,318 424
Discontinued operation
Loss from operations of CogniSeis net of applicable
income tax benefits of $289 (642)
-----------------------------------
Net income (loss) $2,318 ($218)
-----------------------------------
Accumulated earnings
Beginning of period 33,447 32,597
-----------------------------------
End of period $35,765 $32,379
===================================
Earnings (loss) per common share - basic and diluted
Continuing operations $0.23 $0.04
Discontinued operation (0.06)
-----------------------------------
Net income (loss) $0.23 ($0.02)
===================================
Average shares outstanding
Basic 9,980 10,225
Diluted 9,995 10,237
</TABLE>
The accompanying notes are an integral part of these consolidated financial
statements.
<PAGE>
Page 3 Form 10-Q
GEOSCIENCE CORPORATION
CONSOLIDATED STATEMENT OF CASH FLOWS
(IN THOUSANDS)
<TABLE>
<CAPTION>
For the Quarter
Ended March 31,
------------------------------------
1998 1997
(unaudited)
------------------------------------
<S> <C> <C>
Cash flows from operating activities:
Net income (loss) $2,318 ($218)
Adjustments to reconcile net income to net
cash provided by (used for) operating activities:
Depreciation and amortization 2,498 1,793
Change in operating assets and liabilities:
Receivables 4,175 (2,666)
Inventories 90 (1,957)
Other current assets (768) (442)
Long-term receivables 910 (1,122)
Other assets (357) (22)
Accounts payable (1,296) 1,076
Unearned revenue 33 722
Taxes on income 608 (1,606)
Other liabilities 1,680 (1,661)
Payable to Tech-Sym 605 218
------------------------------------
Net cash provided by (used for) operating activities 10,496 (5,885)
------------------------------------
Cash flows from investing activities:
Capital expenditures (2,633) (1,846)
------------------------------------
Net cash used for investing activities (2,633) (1,846)
------------------------------------
Cash flows from financing activities:
Net (payments) borrowings from Tech-Sym Corporation (1,960) 890
Net (payments) borrowings under line of credit agreements (4,258) 423
Proceeds from long-term debt 856 15
Payments on long-term debt (124) (142)
Purchase of treasury stock (1,445)
Proceeds from sale of notes receivable 7,848
------------------------------------
Net cash (used for) provided by financing activities (5,486) 7,589
------------------------------------
Net increase (decrease) in cash and cash equivalents 2,377 (142)
Cash and cash equivalents at beginning of period 799 1,306
------------------------------------
Cash and cash equivalents at end of period $3,176 $1,164
====================================
Non cash transactions:
Reduction in balance of notes receivable sold with recourse $850
</TABLE>
The accompanying notes are an integral part of these consolidated financial
statements.
<PAGE>
Page 4 Form 10-Q
GEOSCIENCE CORPORATION
CONSOLIDATED STATEMENT OF CHANGES IN SHAREHOLDERS' INVESTMENT
(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 2,318
Other comprehensive
income, net of tax
Foreign currency
translation adjustments 202
Total comprehensive income 2,520
------------------------------------------------------------------------------------------
Balance at March 31, 1998 10,499 $105 $44,893 $35,765 ($162) 519 ($6,314) $74,287
==========================================================================================
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 (218)
Other comprehensive
income (loss), net of tax
Foreign currency
translation adjustments (359)
Total comprehensive loss (577)
Acquisition of treasury shares 110 (1,445) (1,445)
------------------------------------------------------------------------------------------
Balance at March 31, 1997 10,498 $105 $44,877 $32,379 ($88) 350 ($4,491) $72,782
==========================================================================================
</TABLE>
The accompanying notes are an integral part of these consolidated financial
statements.
<PAGE>
Page 5 Form 10-Q
GEOSCIENCE CORPORATION
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 three months ended March 31, 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):
MARCH 31, 1998 DECEMBER 31, 1997
-------------- -----------------
Raw materials $15,448 $14,958
Work in progress 18,093 16,154
Finished goods 21,309 23,828
------- -------
$54,850 $54,940
======= =======
NOTE 3 - DISCONTINUED OPERATION
In the fourth quarter of 1997, the Company sold CogniSeis Development, Inc. As a
result, the operations for the three month period ended March 31, 1997 have been
reclassified to report separately the results of the discontinued operation.
Revenue from CogniSeis for the quarter ended March 31, 1997 was $5,823,000.
As reported in the 1997 GeoScience Annual Report on Form 10-K, the expected gain
on the sale has been deferred until estimates regarding certain provisions of
the sale agreement can be made with reasonable certainty.
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 dilutive potential shares the Company has outstanding for all periods
presented. Outstanding options to purchase 520,700 and 45,000 shares of common
stock were excluded from the computation of diluted earnings per share for the
three month period ended March 31, 1998 and 1997, respectively, because to do so
would have been anti-dilutive using the treasury stock method.
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.
<PAGE>
Page 6 Form 10-Q
GEOSCIENCE CORPORATION
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS
RESULTS OF OPERATIONS - QUARTER ENDED MARCH 31, 1998 COMPARED TO THE QUARTER
ENDED MARCH 31, 1997
Revenue for the quarter ended March 31, 1998 increased 43% to $33,311,000
compared to $23,330,000 for the quarter ended March 31, 1997. The increase in
revenue is primarily attributable to increased shipments of the 24-bit seismic
data acquisition module ("24-bit module"). The increased revenue for the first
quarter of 1998 is a result of the large backlog at December 31, 1997 of
$52,300,000 whereby customers placed orders in the third and fourth quarters of
1997 to take advantage of prices before the planned 1998 price increases and to
insure their place in the manufacturing cycle as demand for the product
increased. At March 31, 1998 sales backlog was in excess of $43,000,000.
The gross profit margin was 40% for the quarter ended March 31, 1998 compared to
34% for the same quarter in the prior year. The increase in the gross margin
percentage was a result of increased sales of the higher margin 24-bit module as
well as increased manufacturing efficiencies. Selling, general and
administrative expense increased $1,997,000 or 37% compared to the same quarter
in the prior year as a result of the increase in revenue as discussed above. As
a percentage of revenue, selling, general and administrative expense decreased
to 22% for the quarter ended March 31, 1998 from 23% for the quarter ended March
31, 1997. Research and development expense was $1,901,000 for the first quarter
of 1998 compared to $1,713,000 for the first quarter of 1997 as the Company
continues to invest in technologies and product development for the future.
Interest expense was $755,000 for the quarter ended March 31, 1998 compared to
$413,000 for the quarter ended March 31, 1997. The $342,000 or 83% increase in
interest expense was attributable to the increase in the level of borrowings to
support the expenditures for capital equipment and facilities and to finance the
growth in accounts receivable and inventories which increased throughout 1997.
Other income increased $17,000 or 13% to $148,000 for the quarter ended March
31, 1998 compared to $131,000 for the quarter ended March 31, 1997.
The effective tax rate for the quarter ended March 31, 1998 and 1997 was 31%.
During the fourth quarter of 1997, the Company sold its CogniSeis Development,
Inc. , subsidiary. As a result, there were no results from the discontinued
operation for the first quarter of 1998 compared to a loss from the discontinued
operation of $642,000 for the first quarter of 1997.
Net income for the quarter ended March 31, 1998 was $2,318,000 or $.23 per share
as compared to a net loss of $218,000 or $.02 per share for the quarter ended
March 31, 1997, reflecting the net effect of the items discussed above.
LIQUIDITY AND CAPITAL RESOURCES
As a result of improved earnings and the stabilization of inventory levels, the
Company is currently satisfying its working capital and capital expenditure
requirements through internally generated cash from operations. At March 31,
1998 the Company's working capital balance was $40,251,000 compared to
$36,718,000 at December 31, 1997. The increase in working capital is largely a
result of the decrease in the notes payable balance for which payments were made
during the first quarter of 1998. Cash provided by operations was $10,496,000
for the quarter ended March 31, 1998 as compared to cash used for operations of
$5,885,000 for the quarter ended March 31, 1997.
At March 31, 1998, the Company had short-term line of credit facilities
aggregating $30,373,000 of which $9,493,000 was available for additional
short-term borrowings. The Company had a working capital ratio of 1.66 to 1.0
and debt to total capitalization of 37%. The Company believes that its current
financial position and available line of credit facilities will provide adequate
sources of funds to meet foreseeable requirements.
<PAGE>
Page 7 Form 10-Q
GEOSCIENCE CORPORATION
Purchases of property, plant and equipment totaled $2,633,000 for the quarter
ended March 31, 1998 compared to $1,846,000 for the same quarter in the prior
year. The Company estimates that capital expenditures for property, plant and
equipment during the remainder of 1998 will be approximately $4,400,000. 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.
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 8 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: May 13, 1998 /s/ RICHARD F. MILES
Richard F. Miles, President
(principal executive officer)
Date: May 13, 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 SUMMARY FINANCIAL
INFORMATION EXTRACTED FROM GEO SCIENCE FORM 10-Q 1ST QUARTER 1998 AND IS
QUALIFIED IN ITS ENTIRETY BY REFERENCE TO SUCH FINANCIAL STATEMENTS.
</LEGEND>
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> 3-MOS
<FISCAL-YEAR-END> DEC-31-1998
<PERIOD-END> MAR-31-1998
<CASH> 3,176
<SECURITIES> 0
<RECEIVABLES> 40,059
<ALLOWANCES> 0
<INVENTORY> 54,850
<CURRENT-ASSETS> 101,352
<PP&E> 26,096
<DEPRECIATION> 0
<TOTAL-ASSETS> 145,802
<CURRENT-LIABILITIES> 61,101
<BONDS> 0
105
0
<COMMON> 0
<OTHER-SE> 0
<TOTAL-LIABILITY-AND-EQUITY> 145,802
<SALES> 33,311
<TOTAL-REVENUES> 0
<CGS> 20,051
<TOTAL-COSTS> 0
<OTHER-EXPENSES> 9,146
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 755
<INCOME-PRETAX> 3,359
<INCOME-TAX> 1,041
<INCOME-CONTINUING> 0
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 2,318
<EPS-PRIMARY> .23
<EPS-DILUTED> .23
</TABLE>
