8
U.S. Securities and Exchange Commission
Washington, D.C. 20549
FORM 10-QSB
(Mark One)
X QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
For the quarterly period ended June 30, 1997
__ TRANSITION REPORT PURSUANT TO 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT
OF 1934
For the transition period from ________ to __________
Commission File Number: 0-6088
EARTH SCIENCES, INC.
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(Exact name of small business issuer as specified in its charter)
Colorado 84-0503749
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(State of other jurisdiction of incorporation (I.R.S. Employer
or organization) Identification No.)
910 12th Street, Golden, Colorado 80401
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(Address of principal executive offices) (Zip Code)
(303)279-7641
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(Issuer's telephone number)
Not Applicable
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(Former name, former address and former fiscal year, if changed since
last report)
Check whether the issuer (1) filed all reported required to be filed by
Section 13 or 15(d) of the Exchange Act during the past 12 months (or for such
shorter period that the registrant was required to file such reports), and (2)
has been subject to such filing requirements for the past 90 days. Yes X ;
No_____
APPLICABLE ONLY TO CORPORATE ISSUERS:
Indicate the number of shares outstanding of each of the issuer's classes
of common stock, as of July 25, 1997: 8,784,227 Shares of Common Stock, one
cent par value.
Transitional Small Business Disclosure Format: Yes _____; No X
<PAGE>
FINANCIAL STATEMENTS
Earth Sciences, Inc. and Subsidiaries
Consolidated Balance Sheet
June 30, 1997
UNAUDITED
Assets (amounts in thousands)
Current assets:
Cash, and cash equivalents $ 492
Receivables 335
Inventories 786
Prepaid expenses and other 477
-----
Total current assets 2,090
Property, plant and equipment, at cost 20,103
Less accumulated depreciation and amortization (5,096)
------
Net property and equipment 15,007
Other assets 2,085
------
$19,182
=======
Liabilities and Stockholders' Equity
Current liabilities:
Convertible debentures $ 733
Accounts payable 124
Accrued expenses 513
-----
Total current liabilities 1,370
Long-term liabilities:
Extraction plant liability 9,382
Convertible debentures, excluding current installments 5,193
Other liabilities 566
------
15,141
Minority interest 252
Stockholders' equity:
Common stock $.01 par value 87
Additional paid-in capital 9,004
Retained deficit (4,803)
Cumulative translation adjustments (1,868)
Treasury stock (1)
-----
Total stockholders' equity 2,419
------
$ 19,182
======
See accompanying notes.
2
<PAGE>
Earth Sciences, Inc. and Subsidiaries
Consolidated Statements of Operations
Three and Six Months Ended June 30, 1997 and 1996
UNAUDITED
1997 1996
Qtr. 6 Mos. Qtr. 6 Mos.
(amounts in thousands, except per share and shares outstanding)
REVENUES:
Sales $ 235 235 - -
Royalty income - - 223 430
Other 51 91 23 31
--- --- --- ---
286 326 246 461
EXPENSES:
Cost of goods sold and operating 316 442 94 177
Selling, general and administrative 467 604 134 228
Interest expense 1,088 1,284 17 34
Depletion, depreciation and amort. 87 126 60 117
----- ----- --- ---
1,958 2,456 225 556
Minority interest in loss of subsidiary 48 48 - -
----- ----- ---- ----
Net loss $(1,624) (2,082) (59) (95)
===== ===== ==== ====
Net loss per common share $(.19) (.24) (.01) (.01)
=== === === ===
Weighted average common
shares outstanding 8,700,075 8,616,520 6,448,765 6,418,272
========= ========= ========= =========
- ------------------------------------------------------------------------------
Earth Sciences, Inc. and Subsidiaries
Consolidated Statements of Accumulated Deficit
Six Months Ended June 30, 1997 and 1996
UNAUDITED
1997 1996
(amounts in thousands)
Retained deficit as of January 1, $ (2,721) (2,713)
Net loss for the period (2,082) (95)
----- -----
Retained deficit as of June 30 $ (4,803) (2,808)
===== =====
See accompanying notes.
3
<PAGE>
Earth Sciences, Inc. and Subsidiaries
Consolidated Statements of Cash Flows
For the Six Months Ended June 30, 1997 and 1996
UNAUDITED
1997 1996
(amounts in thousands)
Cash flows from operating activities:
Net loss $ (2,082) (95)
Adjustments to reconcile net loss to net cash
used in operating activities:
Depletion, depreciation and amortization 126 117
Expenses paid with stock 23 -
Interest expense related to debt discount 1,232 -
Changes in operating assets and liabilities:
(Increase) decrease in:
Receivables (32) 61
Inventories (765) -
Other assets (641) 5
Purchase of marketable securities - (1,125)
Sale of marketable securities 1,135 -
Increase (decrease) in:
Accounts payable 393 (4)
Other liabilities (430) -
----- -----
Net cash used by operating activities (1,041) (1,041)
Cash flows from investing activities:
Collection on notes receivable 50 22
Notes receivable funded (50) (70)
Excess of cash over net assets paid
in acquisition of subsidiary (1,440) -
Capital expenditures (2,350) (13)
----- -----
Net cash used in investing activities (3,790) (61)
Cash flow from financing activities:
Proceeds from issuance of common stock 42 1,021
Proceeds from convertible debentures 4,695 -
----- -----
Net cash provided by financing activities 4,737 1,021
----- -----
Decrease in cash (94) (81)
Cash and cash equivalents at beginning of period 586 262
---- ----
Cash and equivalents at end of period $ 492 181
==== ====
See accompanying notes.
4
<PAGE>
Earth Sciences, Inc. and Subsidiaries
Notes to Consolidated Financial Statements (Unaudited)
June 30, 1997
(1) General
The accompanying consolidated financial statements were prepared in accordance
with generally accepted accounting principles and reflect all adjustments
which are, in the opinion of management, necessary for fair representation of
the financial results for the interim periods shown. Such statements should
be considered in conjunction with Registrant's 1996 Form 10-KSB, as amended.
(2) Acquisition of ADA Environmental Solutions
On April 30, 1997, Registrant acquired a 51% interest in ADA Environmental
Solutions LLC ("ADA") through the purchase of an additional 46.2% interest
from ADA. Registrant had previously purchased a 4.8% interest in ADA in
February 1997 by payment to ADA of $400,000. The 46.2% interest was purchased
by payment to ADA of $500,000 and a non-interest bearing promissory note in
the amount of $1,600,000. Registrant also obtained an option to acquire the
remaining 49% interest in ADA exercisable for a six month period commencing
May 1, 1998. The option is exercisable by issuance of 1,715,600 shares of
Registrant's common stock in exchange for all the outstanding stock of ADA-ES,
Inc., a Colorado corporation, whose only asset is the remaining 49% interest
in ADA.
The operating agreement of ADA provides that a member's percentage interest
for purposes of voting and ownership of assets is to be based on the ratio of
its capital contributions to the total capital contributions in ADA. In
accordance with such provisions, Registrant has an 83% voting and asset
ownership interest in ADA, but a 51% interest in ADA's net profits/losses.
The acquisition has been accounted for using the purchase method and the
accompanying consolidated financial statements include the results of ADA from
April 30, 1997. The following pro forma amounts show the results of
operations as if the above described acquisition had occurred on January 1,
1997. ADA had no significant operations for the 1st half of 1996.
Revenues $ 566,000
Net loss ($ 2,356,000)
Loss per share ($ .27)
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS
Liquidity and Capital Resources
Although management believes that existing working capital and proceeds from
recent sales of convertible debentures are sufficient to fund the finalization
of revamp construction and the conclusion of start-up activities at Calgary,
Registrant is currently pursuing additional funding of approximately $2.5
million to (1) provide increased storage capacity at Calgary, (2) provide
increased working capital for ADA and Calgary operations, and (3) allow
exercise of the Yankee option in the fourth quarter of this year. Positive
cash flow from Registrant's planned consolidated operations are anticipated to
be achieved in the 4th quarter of 1997. The achievement of such positive cash
flow is dependent upon several factors including successful commercialization
of the phosphate purification process in Calgary and ADA's flue gas
conditioning technology, success in marketing those products, and the effect
of competition, any of which could delay or frustrate such achievement.
Additional funds may be required to meet the further obligations associated
with the ADA acquisition, further exploration work on the Cerro Gordo
property, and any expanded exploration activities in Venezuela. Private
placements of common stock, convertible debentures and bank borrowings may be
5
<PAGE>
evaluated to fund such requirements. In March, April and June 1997,
Registrant issued $4,645,000 of convertible debentures and received net
proceeds of $4,298,000.
The Calgary facility is currently in the start-up phase for the production of
purified phosphate products, and met certain technical parameters to
demonstrate the capability of a planned initial annual production rate of
18,400 tons of product in late May 1997. Shake-down of various unit
operations is continuing and routine production is expected to be achieved
during the third quarter of 1997. Sales of products are keeping pace with the
current, less than routine, production.
ADA has received purchase orders for the first three full-scale commercial
applications of its proprietary air pollution control technology. Mississippi
Power and Wisconsin Power and Light have ordered units to be installed in the
next quarter of this year. Alabama Power Company is currently utilizing the
first commercial unit to abate particulate emissions during the peak summer
season. Based on the success of recent full-scale demonstrations, several
other utilities have requested bids and ADA-ES expects to sign additional
contracts this year. Contracts with the above mentioned companies are expected
to generate revenues of $3,000,000 in 1998.
Registrant is funding the majority of cash costs of the Venezuelan gold
exploration activities. Activities planned on the existing contract and on
those concessions expected to be acquired in the future can be met through
existing working capital. Registrant plans to raise the additional capital, if
and when needed, through further private placements of stock, convertible
debentures and/or joint venture arrangements, if appropriate.
Cash flows from operations totaled a deficit of $1,041,000 for the first half
of 1997 as compared to a deficit of $1,041,000 for the same period in 1996.
Cash flows from investing activities included funding of a note receivable of
$50,000, capital expenditures of $2,350,000, and payment in excess of net
assets associated with the ADA acquisition of $1,440,000. Cash flows from
financing activities include proceeds from issuance of common stock of $42,000
and proceeds from convertible debentures of $4,695,000.
Results of Operations
Registrant recognized sales totaling $235,000 for the 1st half of 1997 from
production at Calgary and ADA. No such amounts were recognized in 1996.
Registrant recognized $430,000 in revenue from the production and sale of gold
and silver from its royalty in the San Luis gold mine in the first half of
1996. Production from the mine ended in November 1996. Other income
increased from $31,000 in the 1st half of 1996 to $91,000 in the same period
in 1997 and includes rental income, which increased slightly from 1996 due to
increased charges to tenants, interest income earned from investment of funds
on hand, and $30,000 from settlement of legal action.
Cost of goods sold and operating expenses as well as selling, general and
administrative expenses increased significantly in the 1st half of 1997 as
compared to 1996 as the result of addition of ADA, increased staff and
activities related to the Calgary facility and Registrant's increased investor
relations activity.
Interest expense recognized in 1997 includes a $1,232,000 non-cash charge
representing the discount from market price the holders of certain convertible
debentures may recognize upon conversion of their debt to shares of
Registrant's common stock. Management of Registrant believes that the
proceeds received from the convertible debentures and the discount offered on
conversion of the debt is a fair representation of the net proceeds the
Registrant would otherwise expect to receive from an equity offering of a like
number of shares after consideration of all associated commissions, costs and
expenses.
6
<PAGE>
PART II. OTHER INFORMATION
Item 1. Legal Proceedings
Reported in Item 3 of Registrant's 1996 Form 10-KSB, as amended.
Item 2. Changes in Securities
None.
Item 3. Defaults upon Senior Securities
None.
Item 4. Submission of Matters to a Vote of Security Holders
None.
Item 5. Other Information
None.
Item 6. Exhibits and Reports on Form 8-K
(a) Exhibits - No change from Item 13 of Registrant's 1996 Form 10-KSB,
as amended and Item 7 of Registrant's April 30, 1997 Form 8-K.
Exhibit 27 - Financial Data Schedule (electronic filing only)
(b) Forms 8-K - Registrant filed a Form 8-K dated April 30, 1997
reporting the acquisition of an interest in ADA Environmental
Solutions LLC ("ADA"). Included in that filing were the December 31,
1996 audited financial statements of ADA.
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.
Earth Sciences, Inc.
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Registrant
Date: August 5, 1997 /s/ Mark H. McKinnies
------------------------
Mark H. McKinnies
President and Chief Financial
Officer
7
<PAGE>
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