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 JUNE 30, 1999
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OR
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15 (d) OF THE SECURITIES
EXCHANGE ACT OF 1934
FOR THE TRANSITION PERIOD FROM TO .
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COMMISSION FILE NUMBER 0-28422
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GEOSCIENCE CORPORATION
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(Exact name of Registrant as specified in its charter)
NEVADA 76-0497775
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(State or other jurisdiction of (I.R.S. employer
incorporation or organization) Identification No.)
10500 WESTOFFICE DRIVE, SUITE 200, HOUSTON, TEXAS 77042
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(Address of principal executive offices) Zip Code
REGISTRANT'S TELEPHONE NUMBER, INCLUDING AREA CODE: (713) 780-1881
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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 JULY 30, 1999
- ---------------------------- ----------------------------
Common Stock, $.01 par value 9,985,350
<PAGE>
FORM 10-Q
GEOSCIENCE CORPORATION
TABLE OF CONTENTS
PAGE NO.
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Part I. Financial Information
Item 1. Financial Statements
Consolidated Balance Sheet June 30, 1999 (unaudited)
and December 31, 1998 1
Consolidated Statement of Income for the quarter ended
June 30, 1999 and 1998, (unaudited) 2
Consolidated Statement of Income for the six months ended
June 30, 1999 and 1998, (unaudited) 3
Consolidated Statement of Cash Flows for the six months ended
June 30, 1999 and 1998, (unaudited) 4
Consolidated Statement of Changes in Shareholders' Investment
for the six months ended June 30, 1999 and 1998, (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 4. Submission of Matters to Vote of Security Holders 11
Item 6. Exhibits and Reports on Form 8-K 11
Signatures 11
<PAGE>
PART I. FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS
GEOSCIENCE CORPORATION
CONSOLIDATED BALANCE SHEET
(IN THOUSANDS, EXCEPT PAR VALUE AND NUMBER OF SHARES)
JUNE 30, DECEMBER 31,
1999 1998
-----------------------------
(UNAUDITED)
-----------------------------
ASSETS
Current assets
Cash and cash equivalents .................. $ 1,179 $ 659
Receivables, net ........................... 27,206 35,332
Inventories, net ........................... 36,869 65,046
Other ...................................... 2,796 6,162
--------------------------
Total current assets .................... 68,050 107,199
Property, plant and equipment, net ............... 24,510 28,334
Long-term receivables, net ....................... 10,538 9,566
Deferred tax asset ............................... 12,674 5,023
Other assets ..................................... 4,640 728
--------------------------
Total assets ............................ $ 120,412 $ 150,850
==========================
LIABILITIES
Current liabilities
Notes payable and current maturities
of long-term debt ........................ $ 27,814 $ 29,883
Accounts payable ........................... 8,492 14,471
Unearned revenue ........................... 478 287
Taxes on income ............................ 372 1,621
Payable to Tech-Sym Corporation ............ 5,825 10,423
Other accrued liabilities .................. 9,400 8,382
--------------------------
Total current liabilities ............... 52,381 65,067
Long-term debt ................................... 5,455 5,413
Other liabilities and deferred credits ........... 702 780
--------------------------
Total liabilities ....................... 58,538 71,260
SHAREHOLDERS' INVESTMENT
Common stock - authorized 35,000,000 shares,
$.01 par value; issued 10,504,350 shares ....... 105 105
Additional capital ............................... 44,946 44,946
Accumulated earnings ............................. 23,786 40,956
Accumulated other comprehensive loss ............. (649) (103)
Common stock held in treasury,
at cost (519,000 shares) ....................... (6,314) (6,314)
--------------------------
Total shareholders' investment .......... 61,874 79,590
--------------------------
Total liabilities and shareholders'
investment ............................ $ 120,412 $ 150,850
==========================
The accompanying notes are an integral part of these
consolidated financial statements.
1
<PAGE>
GEOSCIENCE CORPORATION
CONSOLIDATED STATEMENT OF INCOME
(IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)
(UNAUDITED)
FOR THE QUARTER
ENDED JUNE 30,
-----------------------
1999 1998
-----------------------
Revenue .............................................. $ 27,575 $ 33,201
Cost of revenue ...................................... 47,140 19,439
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Gross margin ................................... (19,565) 13,762
Expenses
Company-sponsored product development .............. 2,015 1,823
Selling, general and administrative expense ........ 6,662 6,913
Interest expense ................................... 563 665
Interest and other income, net ..................... (407) (1)
-----------------------
(Loss) income from continuing operations
before income taxes .......................... (28,398) 4,362
(Benefit) provision for income taxes ................. (8,663) 1,353
-----------------------
(Loss) income from continuing operations ....... (19,735) 3,009
Discontinued operation
Gain on sale of CogniSeis net of applicable
income tax expense of $1,913.................. 4,250
-----------------------
Net (loss) income .............................. $(19,735) $ 7,259
=======================
(Loss) earnings per common share
Continuing operations
Basic .......................................... $ (1.98) $ .30
Diluted ........................................ (1.98) .30
Discontinued operation
Basic .......................................... .43
Diluted ........................................ .42
Net (loss) income
Basic .......................................... (1.98) .73
Diluted ........................................ (1.98) .72
Weighted average common shares outstanding
Basic .......................................... 9,985 9,982
Diluted ........................................ 9,985 10,028
The accompanying notes are an integral part of
these consolidated financial statements.
2
<PAGE>
GEOSCIENCE CORPORATION
CONSOLIDATED STATEMENT OF INCOME
(IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)
(UNAUDITED)
FOR THE SIX MONTHS
ENDED JUNE 30,
-----------------------
1999 1998
-----------------------
Revenue ............................................ $ 57,717 $ 66,512
Cost of revenue .................................... 66,001 39,490
-----------------------
Gross margin ................................. (8,284) 27,022
Expenses
Company-sponsored product development ............ 4,421 3,724
Selling, general and administrative expense ...... 13,604 14,306
Interest expense ................................. 1,411 1,420
Interest and other income, net ................... (3,040) (149)
-----------------------
(Loss) income from continuing operations
before income taxes ........................ (24,680) 7,721
(Benefit) provision for income taxes ............... (7,510) 2,394
-----------------------
(Loss) income from continuing operations ..... (17,170) 5,327
Discontinued operation
Gain on sale of CogniSeis net of
applicable income tax expense of $1,913 .... 4,250
-----------------------
Net (loss) income ............................ $(17,170) $ 9,577
=======================
(Loss) earnings per common share
Continuing operations
Basic ........................................ $ (1.72) $ .53
Diluted ...................................... (1.72) .53
Discontinued operation
Basic ........................................ .43
Diluted ...................................... .43
Net (loss) income
Basic ........................................ (1.72) .96
Diluted ...................................... (1.72) .96
Weighted average common shares outstanding
Basic ........................................ 9,985 9,981
Diluted ...................................... 9,985 10,012
The accompanying notes are an integral part of
these consolidated financial statements.
3
<PAGE>
GEOSCIENCE CORPORATION
CONSOLIDATED STATEMENT OF CASH FLOWS
(IN THOUSANDS)
(UNAUDITED)
FOR THE SIX MONTHS
ENDED JUNE 30,
---------------------
1999 1998
---------------------
Cash flows from operating activities
Net (loss) income ................................... $(17,170) $ 9,577
Adjustments to reconcile net income to net
cash provided by (used for) operating
activities
Provision for inventory write-down .............. 23,900
Provision for bad debt .......................... 1,500
Provision for warranty claims ................... 1,700
Provision for goodwill write-down ............... 200
Merger termination settlement ................... (3,000)
Deferred income taxes ........................... (8,001)
Depreciation and amortization ................... 4,471 4,039
Gain on sale of CogniSeis ....................... (4,250)
Change in operating assets and liabilities
Receivables ..................................... 6,626 5,621
Inventories ..................................... 7,656 3,998
Other current assets ............................ (1,385) (1,993)
Long-term receivables ........................... (2,546) 2,181
Other assets .................................... 494 (264)
Accounts payable ................................ (5,979) (5,817)
Unearned revenue ................................ 191 (488)
Taxes on income ................................. (1,249) 1,059
Payable to Tech-Sym ............................. (2,628) 1,194
Other liabilities ............................... (1,174) 4,991
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Net cash provided by operating activities .. 3,606 19,848
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Cash flows from investing activities
Capital expenditures ................................ (3,817) (9,540)
Investment in joint ventures ........................ (337)
Acquisition of a product line ....................... (474)
Other ............................................... 13
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Net cash used for investing activities ..... (3,804) (10,351)
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Cash flows from financing activities
Net payments to Tech-Sym Corporation ................ (1,970) (1,610)
Net payments under line of credit agreements ........ (372) (5,994)
Proceeds from long-term debt ........................ 806 863
Payments on long-term debt .......................... (746) (1,109)
Proceeds from exercise of stock options ............. 41
Merger termination proceeds (Note 6) ................ 3,000
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Net cash provided by (used for)
financing activities ..................... 718 (7,809)
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Net increase in cash and cash equivalents .............. 520 1,688
Cash and cash equivalents at beginning of period .... 659 799
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Cash and cash equivalents at end of period .......... $ 1,179 $ 2,487
=====================
Non Cash Transactions
Reduction in balance of notes receivable
sold with recourse ................................ $ 1,574 $ 1,712
The accompanying notes are an integral part of
these consolidated financial statements.
4
<PAGE>
GEOSCIENCE CORPORATION
CONSOLIDATED STATEMENT OF CHANGES IN SHAREHOLDERS' INVESTMENT
FOR THE SIX MONTHS ENDED JUNE 30, 1999 AND 1998 (UNAUDITED)
(IN THOUSANDS)
<TABLE>
<CAPTION>
ACCUMULATED
OTHER TOTAL
COMMON STOCK ADDITIONAL ACCUMULATED COMPREHENSIVE TREASURY STOCK SHAREHOLDERS'
SHARES AMOUNT CAPITAL EARNINGS LOSS SHARES AMOUNT INVESTMENT
-------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Balance at December 31, 1998 .......... 10,504 $105 $44,946 $40,956 $(103) 519 $(6,314) $79,590
Comprehensive loss for 1999
Net loss ........................... (17,170)
Other comprehensive
loss, net of tax
Foreign currency
translation adjustments ..... (546)
Total comprehensive loss ... (17,716)
-------------------------------------------------------------------------------------
Balance at June 30, 1999 .............. 10,504 $105 $44,946 $23,786 $(649) 519 $(6,314) $61,874
=====================================================================================
<CAPTION>
ACCUMULATED
OTHER TOTAL
COMMON STOCK ADDITIONAL ACCUMULATED COMPREHENSIVE TREASURY STOCK SHAREHOLDERS'
SHARES AMOUNT CAPITAL EARNINGS INCOME (LOSS) SHARES AMOUNT INVESTMENT
-------------------------------------------------------------------------------------
Balance at December 31, 1997 .......... 10,499 $105 $44,893 $33,447 $(364) 519 $(6,314) $71,767
Comprehensive income for 1998
Net income ......................... 9,577
Other comprehensive
income, net of tax
Foreign currency
translation adjustments ..... 63
Total comprehensive income . 9,640
Exercise of stock options ............. 4 41 41
-------------------------------------------------------------------------------------
Balance at June 30, 1998 .............. 10,503 $105 $44,934 $43,024 $(301) 519 $(6,314) $81,448
=====================================================================================
</TABLE>
The accompanying notes are an integral part of
these consolidated financial statements.
5
<PAGE>
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 Form
10-K for the year ended December 31, 1998.
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 of normal recurring items,
as well as unusual charges in the second quarter for inventory write-downs
consisting of inventory reserves of $16,600,000 for excess and obsolete
inventory, $4,200,000 for excess purchase commitments and $3,100,000 for excess
inventory held for lease. The usual charges also included $1,500,000 in reserves
for doubtful accounts, $1,700,000 in reserves for warranty claims and a $200,000
write-off of impaired goodwill (See Management's Discussion and Analysis).
The consolidated statements of income for the six months ended June 30,
1999 are not necessarily indicative of the results expected for the full year
ending December 31, 1999.
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):
JUNE 30, 1999 DECEMBER 31, 1998
--------------- -----------------
Raw materials ............................ $ 29,871 $ 33,819
Work in progress ......................... 5,091 14,388
Finished goods ........................... 26,814 26,426
--------------- -----------------
61,776 74,633
Less reserve ............................. (24,907) (9,587)
--------------- -----------------
$ 36,869 $ 65,046
=============== =================
NOTE 3 - PER SHARE DATA
Basic per share amounts are 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. Due to the
Company's operational losses, diluted earnings per share presented on the
Consolidated Statement of Income for the quarter and six months ended June 30,
1999, do not reflect any effect from outstanding stock options because to do
so would have been anti-dilutive. Outstanding stock options for the quarter and
six months ended June 30, 1999 were 988,975. The Company had 518,250 and 528,250
outstanding options that were anti-dilutive and were excluded from the
computation of diluted earnings per share for the quarter and six months ended
June 30, 1998, respectively.
NOTE 4 - RECENT PRONOUNCEMENTS
In June 1999, the Financial Accounting Standards Board issued Statement of
Financial Accounting Standards No. 137 ("FAS 137") ACCOUNTING FOR DERIVATIVE
INSTRUMENTS AND HEDGING ACTIVITIES which delayed implementation and the
effective date of FAS 133 until after June 15, 2000.
6
<PAGE>
GEOSCIENCE CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
In June 1998, the Financial Accounting Standards Board issued Statement of
Financial Accounting Standards No. 133 ("FAS 133") ACCOUNTING FOR DERIVATIVE
INSTRUMENTS AND HEDGING ACTIVITIES. FAS 133 is effective for fiscal years
beginning after June 15, 1999 and establishes accounting and reporting standards
for derivative instruments. The Company has historically not engaged in
significant derivative instrument activity. Adoption of FAS 133 is not expected
to have a material effect on the Company's financial position or operational
results.
NOTE 5 - SEGMENT INFORMATION
The Company manages its business primarily on a product basis; the Company
has one reportable segment. The Company's reportable segment is comprised of
operations in the United States, Europe and Asia. The reportable segment
provides products and services as described in the Company's Form 10-K for the
year ended December 31, 1998. The accounting policies of the segment are those
described in Note 1 to Notes to the Consolidated Financial Statements included
in that Form 10-K.
NOTE 6 - MERGER AND TERMINATION
In December 1998, the Boards of Directors of the Company and Tech-Sym
Corporation (holder of 79.12% of outstanding common shares of the Company)
committed to a plan to seek a strategic merger partner for the Company. On
January 18, 1999, the Company and Tech-Sym signed an agreement to merge the
Company with a third party, subject to stockholder and regulatory approval.
The Company, Tech-Sym and the third party subsequently terminated the
proposed merger. During the quarter ended March 31, 1999, the third party paid
the Company $3,000,000 in connection with such termination. The merger
termination fee, net of transactional expenses, was recorded as other income.
The Company and Tech-Sym continue to pursue opportunities to combine the
Company's operations with a strategic partner.
7
<PAGE>
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS
Budget reductions implemented at the end of 1998 by oil and gas exploration
companies hindered bookings for the first half of 1999. The Company's backlog
decreased from $37,500,000 at December 31, 1998 to approximately $4,800,000 at
June 30, 1999. The Company embarked on a major cost reduction program in the
first six months of 1999 in response to the difficult market conditions. The
program included a reduction in personnel levels through attrition and layoffs,
planned reductions in levels of research and development spending and additional
cost controls in all departments. The continuing softness of seismic market
activity has created excess capacity, accelerated obsolescence of certain
products and increased the risk associated with collecting on certain foreign
accounts receivables. The impact of these conditions on the Company's financial
results is discussed below. Management anticipates the Company will incur
additional operational losses and charges in the quarter ending September 30,
1999 due to the continued weakness in the seismic equipment market during that
period. While the price of oil has recovered from its previous lows, sizable
time lags are expected before seismic equipment manufacturers realize an upturn
in sales.
RESULTS OF OPERATIONS - QUARTER ENDED JUNE 30, 1999 COMPARED TO THE QUARTER
ENDED JUNE 30, 1998
Revenue for the quarter ended June 30, 1999 decreased 17% to $27,575,000
compared to $33,201,000 for the quarter ended June 30, 1998. The decrease in
revenue is attributable to the lower activity in the seismic industry due to
budget cutbacks for 1999 by oil and gas exploration companies in response to
depressed oil prices during 1998. The gross margin decreased to a negative 71%
of revenue for the quarter ended June 30, 1999 compared to a positive 41% for
the same quarter in the prior year. The decrease in the gross margin percentage
reflects unusual charges totaling $23,900,000 for additional reserves for
inventory write-downs due to the continued soft demand for seismic equipment,
which created excess capacity within our customer installed base and accelerated
the obsolescence of certain current generation products. The Company's planned
introduction of new products also contributed to the obsolescence. Unfavorable
manufacturing costs due to excess capacity and a change in the mix of products
shipped during the period also contributed to the decrease in the gross margin.
Shipments of data collection modules, which generally carry higher margins than
the Company's other products, decreased $6,016,000 to $7,964,000 in the current
period from $13,980,000 in the comparative period in 1998.
Research and development expenditures were $192,000 greater than the same
quarter last year. The Company, while reducing the level of expenditures from
that of the third and fourth quarters of 1998, continues to invest in research
and development projects such as solid streamer cables and next generation
recording systems and data collection modules that have reservoir monitoring
applications and that the Company believes are most opportune for increasing
future revenue and profit.
Selling, general and administrative expenses for the quarter, while
including unusual charges of employee severance pay of $400,000, goodwill
write-off of $200,000 and additional reserves for doubtful accounts of
$1,500,000, decreased $251,000 from the prior year quarter as a result of cost
control measures implemented in response to the seismic market conditions, and
lower royalty expenses resulting from reduced shipments of data collection
modules.
Interest expense was $563,000 for the quarter ended June 30, 1999 compared
to $665,000 for the quarter ended June 30, 1998. The $102,000 or 15% decrease
relates to the timing of advances and payments on the Company's line of credit
along with a decrease in the LIBOR rate in the current quarter compared to the
prior year quarter. Other income was $406,000 greater for the quarter ended June
30, 1999 when compared to the same quarter in the prior year. The increase was
primarily a result of favorable foreign currency transactions in the current
quarter compared to the same quarter in the prior year. Additionally, the
Company's interest income from notes receivable on products sold increased
$265,000 from the comparative period in 1998 due to an increase in the balance
of interest bearing notes receivable.
The effective tax rate for the quarters ended June 30, 1999 and 1998 was
31%.
There were no results from discontinued operations in the current quarter,
whereas during the second quarter of 1998, the Company realized and recognized a
net gain of $4,250,000 on the 1997 sale of CogniSeis Development, Inc., which
had been deferred from the fourth quarter of 1997.
Net loss for the quarter ended June 30, 1999 was $19,735,000 or $1.98 per
diluted share as compared to net income of $7,259,000 or $.72 per diluted share
for the quarter ended June 30, 1998, reflecting the net effect of the items
discussed above.
8
<PAGE>
RESULTS OF OPERATIONS - SIX MONTHS ENDED JUNE 30, 1999 COMPARED TO THE SIX
MONTHS ENDED JUNE 30, 1998
Revenue for the six months ended June 30, 1999 decreased 13% to $57,717,000
compared to $66,512,000 for the six months ended June 30, 1998. The decrease in
revenue is attributable to the lower activity in the seismic industry due to
budget cutbacks by oil and gas exploration companies as discussed in the Results
of Operations - Quarter Ended June 30, 1999. Revenue for the current period
included $3,500,000 for upward repricing of a customer's order due to its
failure to meet volume commitments. The gross margin decreased to a negative 14%
of revenue for the six months ended June 30, 1999 compared to a positive 41% for
the same period in the prior year. The decrease in the gross margin percentage
reflects the unusual charges discussed in the Results of Operations - Quarter
Ended June 30, 1999, as well unfavorable manufacturing costs due to excess
capacity and a change in the mix of products shipped during the period.
Shipments of data collection modules, which generally carry higher margins than
the Company's other products, decreased $5,841,000 to $20,296,000 in the
current period from $26,137,000 in the comparative period in 1998.
Research and development expenditures increased $697,000 over the same six
months of 1998 reflecting the Company's commitment to the development of
projects that it believes are most opportune for increasing future revenue and
profit as previously discussed in Results of Operations - Quarter Ended June 30,
1999.
Selling, general and administrative expenses, while including unusual
charges for employee severance pay of $700,000, goodwill write-off of $200,000
and additional reserves for doubtful accounts of $1,500,000, decreased $702,000
as a result of cost control measures introduced in the first half of 1999 in
response to the current seismic market conditions and lower royalty expenses due
to reduced shipments of data collection modules.
Interest expense was relatively flat for the six months ended June 30, 1999
compared to the six months ended June 30, 1998. Other income was $3,040,000 for
the six months ended June 30, 1999 compared to $149,000 for the same six months
in the prior year. The increase primarily resulted from the settlement received,
net of transactional expenses, related to the termination of the merger
agreement discussed in Note 6. The Company experienced favorable foreign
currency transactions in the six months ended June 30, 1999 compared to the same
period in the prior year. Additionally, the Company's interest income from notes
receivable on products sold increased $522,000 from the comparative period in
1998 due to an increase in the balance of interest bearing notes receivable.
The effective tax rate for the six months ended June 30, 1999 and 1998 was
31%.
There were no results from discontinued operations in the current six month
period, whereas during the same period last year the Company realized and
recognized a net gain of $4,250,000 on the 1997 sale of CogniSeis Development,
Inc., which had been deferred from the fourth quarter of 1997.
Net loss for the six months ended June 30, 1999 was $17,170,000 or $1.72
per diluted share as compared to net income of $9,577,000 or $.96 per diluted
share for the six months ended June 30, 1998, reflecting the net effect of the
items discussed above.
LIQUIDITY AND CAPITAL RESOURCES
During the current six month period, the Company satisfied its working
capital and capital expenditure requirements through collections on receivables,
borrowings on its line of credit facilities, advances from Tech-Sym and proceeds
from the settlement related to the terminated merger agreement. The Company
reduced its outstanding accounts receivable balances by $6,626,000 through
improved collections and its gross inventory by $7,300,000 through shipments
during the period. At June 30, 1999 the Company's working capital balance of
$15,669,000 compared to $42,132,000 at December 31, 1998, reflected the use of
cash to pay off debts, and the unusual charges for additional reserves against
excess and obsolete inventory, as well as doubtful accounts as discussed above.
Cash provided by operations was $3,606,000 and $19,848,000 for the six months
ended June 30, 1999 and 1998, respectively. Purchases of property, plant and
equipment totaled $3,817,000 for the six months ended June 30, 1999 compared to
$9,540,000 for the same period in the prior year. At June 30, 1999, the Company
had short-term line of credit facilities aggregating $29,181,000 of which
$4,235,000 was available for additional short-term borrowings. The Company had a
working capital ratio of 1.3 to 1.0 and debt to total capitalization of 35%.
9
<PAGE>
The Company and Tech-Sym Corporation, the majority (79.12%) shareholder of
the Company, have jointly investigated the benefits of consolidating cash
management functions under a single credit facility. During the quarter ended
June 30, 1999, several banks were solicited to provide proposals for a
consolidated Tech-Sym credit facility. Two proposals were received, and after
review of the proposed terms and costs, the Company and Tech-Sym selected the
proposal offered by Bank of America. Tech-Sym signed an expression of interest
with Bank of America and notified our current bank, Wells Fargo Bank. Bank of
America subsequently decided not to go forward with its proposal. As a result of
their decision, we were forced to seek extensions of the current credit
facilities with Wells Fargo Bank, which were granted until September 13, 1999,
with certain restrictions on additional debt and intercompany cash transactions.
As the Company has not commenced substantive discussions with any banks relating
to new or replacement credit facilities, there can be no assurance that we will
be able to obtain such credit facilities or whether acceptable terms for such
facilities will be offered by any bankers. We are evaluating our options and
believe that new credit facilities will be obtained from Wells Fargo Bank or we
will establish replacement credit facilities with another bank. If we are
successful in obtaining new credit facilities, the terms of such facilities may
provide for higher interest rates or more restrictive terms than our existing
facilities. Furthermore, although we have borrowed from Tech-Sym in the past to
fund working capital requirements, there can be no assurance that Tech-Sym will
make further advances to the Company. If we are unable to obtain adequate credit
facilities, our ability to support our working capital requirements after the
September 13, 1999 expiration date will be adversely affected.
YEAR 2000 COMPLIANCE
As reported in the Company's Form 10-K for the year ended December 31,
1998, the Company is continuing its efforts to insure Y2K software failures,
internally or externally, will not have an adverse effect on its financial
position or results of operations. Cross-functional project teams, established
during 1998 at each subsidiary, continue to review and assess the various
factors surrounding the Y2K issues. The Company estimates the total cost of Y2K
compliance activities will be less than $500,000 and the amount expended to date
is less than $250,000.
The Company expects to complete its Y2K project during 1999. Based on
available information, the Company believes that it has addressed all potential
areas of exposure and believes no 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.
10
<PAGE>
PART II. OTHER INFORMATION
ITEM 4. SUBMISSION OF MATTERS TO VOTE OF SECURITY HOLDERS
The Company held its 1999 Annual Meeting of Stockholders on May 10,
1999. At this meeting, the shareholders voted on the following
matters:
(a) Election of Class III Directors
FOR WITHHELD
--------- --------
Wendell W. Gamel 9,502,838 43,221
Ray F. Thompson 9,502,838 43,221
(b) Ratification of the Appointment of PricewaterhouseCoopers LLP as
Independent Public Accountants
FOR AGAINST WITHHELD
--------- -------- --------
9,512,856 14,690 18,513
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 these reports.
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: August 16, 1999 /S/ RICHARD F. MILES
-------------------------------
Richard F. Miles, President
(principal executive officer)
Date: August 16, 1999 /S/ RAY F. THOMPSON
-------------------------------
Ray F. Thompson, Vice President
and Chief Financial Officer
(principal financial officer)
11
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
THE FINANCIAL DATA SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED
FROM GEOSCIENCE CORPORATION FORM 10Q SECOND QUARTER 1999 AND IS QUALIFIED
IN ITS ENTIRETY BY REFERENCE TO SUCH FINANCIAL STATEMENTS.
</LEGEND>
<MULTIPLIER> 1000
<S> <C>
<PERIOD-TYPE> 6-MOS
<FISCAL-YEAR-END> DEC-31-1999
<PERIOD-END> JUN-30-1999
<CASH> 1,179
<SECURITIES> 0
<RECEIVABLES> 30,921
<ALLOWANCES> 3,715
<INVENTORY> 36,869
<CURRENT-ASSETS> 68,050
<PP&E> 49,970
<DEPRECIATION> 25,460
<TOTAL-ASSETS> 120,412
<CURRENT-LIABILITIES> 52,381
<BONDS> 0
0
0
<COMMON> 105
<OTHER-SE> 61,769
<TOTAL-LIABILITY-AND-EQUITY> 120,412
<SALES> 57,717
<TOTAL-REVENUES> 57,717
<CGS> 66,001
<TOTAL-COSTS> 84,026
<OTHER-EXPENSES> (3,040)
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 1,411
<INCOME-PRETAX> (24,680)
<INCOME-TAX> (7,510)
<INCOME-CONTINUING> (17,170)
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (17,170)
<EPS-BASIC> (1.72)
<EPS-DILUTED> (1.72)
</TABLE>
