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 March 31, 1997
______TRANSITION REPORT PURSUANT TO 13 OR 15(d) OF THE EXCHANGE ACT OF 1934
For the transition period from ________ to ________
Commission File Number: 0-6088
EARTH SCIENCES, INC.
------------------------------------
(Exact name of small business issuer as specified in its charter)
Colorado 84-0503749
-----------------------------------------------------------
(State of other jurisdiction (I.R.S. Employer
of incorporation or organization) Identification No.)
910 12th Street, Golden, Colorado 80401
---------------------------------------------------------
(Address of principal executive offices) (Zip Code)
(303)279-7641
------------------------
(Issuer's telephone number)
Not Applicable
------------------------------------------------
(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 May 9, 1997: 8,620,051 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
March 31, 1997
UNAUDITED
Assets (amounts in thousands)
Current assets:
Cash, and cash equivalents $ 1,163
Receivables 7
Prepaid expenses and other 1,623
------
Total current assets 2,793
Property, plant and equipment, at cost 18,023
Less accum. depreciation and amortization (5,040)
------
Net property and equipment 12,983
Other assets 1,966
------
$17,742
======
Liabilities and Stockholders' Equity
Current liabilities:
Notes payable and current installments of
long-term debt $ 309
Accounts payable 327
Accrued expenses 75
------
Total current liabilities 711
Long-term liabilities:
Deferred revenues 9,382
Long-term debt, excluding current installments 161
Convertible debentures 3,347
Other liabilities 391
------
13,281
Stockholders' equity:
Common stock $.01 par value 86
Additional paid-in capital 8,787
Retained deficit (3,179)
Cumulative translation adjustments (1,943)
Treasury stock (1)
------
Total stockholders' equity 3,750
------
$17,742
======
See accompanying notes.
<PAGE>
Earth Sciences, Inc. and Subsidiaries
Consolidated Statements of Operations
Three Months Ended March 31, 1997 and 1996
UNAUDITED
1997 1996
(amounts in thousands)
REVENUES:
Royalty income $ - 207
Other 40 8
----- -----
40 215
----- -----
EXPENSES:
Operating 126 83
General and administrative 137 94
Interest expense 196 17
Depreciation and amortization 39 57
----- -----
498 251
----- -----
Net loss $(458) (36)
===== =====
Net loss per common share $ (.05) (.01)
===== =====
Weighted average common
shares outstanding 8,537,000 6,355,000
========= =========
Earth Sciences, Inc. and Subsidiaries
Consolidated Statements of Accumulated Deficit
Three Months Ended March 31, 1997 and 1996
UNAUDITED
1997 1996
(amounts in thousands)
Retained deficit as of January 1 $ (2,721) (2,713)
Net loss for the period (458) (36)
----- -----
Retained deficit as of March 31 $ (3,179) (2,749)
===== =====
See accompanying notes.
<PAGE>
Earth Sciences, Inc. and Subsidiaries
Consolidated Statements of Cash Flows
For the Three Months Ended March 31, 1997 and 1996
UNAUDITED
1997 1996
(amounts in thousands)
Cash flows from operating activities:
Cash received from customers $ 112 286
Cash paid to suppliers and employees (206) (188)
Dividends and interest received 47 4
Interest paid (4) (6)
----- -----
Net cash provided (used) by operating
activities (51) 96
Cash flows from investing activities:
Notes receivable funded (50) (70)
Capital expenditures (816) (11)
Increase in payables related to capital
expenditures 132 -
Sale of marketable securities - 285
Increase in other assets (987) -
----- -----
Net cash provided (used) by investing
activities (1,721) 204
Cash flows from financing activities:
Payments on notes and long-term debt (2) (2)
Proceeds from issuance of common stock 42 -
Net proceeds from convertible debentures 2,309 -
----- -----
Net cash provided (used) by financing
activities 2,349 (2)
----- -----
Net increase (decrease) in cash and cash
equivalents 577 298
Cash and cash equivalents at beginning of period 586 262
----- -----
Cash and equivalents at end of period $1,163 560
===== =====
Reconciliation of net loss to net cash provided by operating activities:
Net loss $ (458) (36)
Adjustments to reconcile net loss to net cash
used in operations:
Depreciation and amortization 39 57
(Increase) decrease in receivables 94 74
(Increase) decrease in other assets 25 (2)
Increase in payables 61 3
Non-cash interest expense on convertible
debentures 188 -
----- -----
Net cash provided (used) by operating activities $ (51) 96
===== =====
See accompanying notes.
<PAGE>
Earth Sciences, Inc. and Subsidiaries
Notes to Consolidated Financial Statements (Unaudited)
March 31, 1996
(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.
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS
Liquidity and Capital Resources
Management believes that existing working capital and recent convertible
debentures are sufficient to fund revamp construction and start up activities
at Calgary and planned operations until positive cash flow is achieved in
Calgary, which is anticipated in the 4th quarter of 1997. The achievement of
such positive cash flow is dependent upon several factors including
commercialization of the purification process, success in marketing product
and 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, exercise of the Yankee Option, 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 evaluated to fund such requirements. In March and
April 1997, Registrant issued $3,645,000 of 4% convertible debentures and
received a net proceeds of $3,316,000.
Based on current estimates, the Calgary facility will require an additional
approximately Can. $2 million to finalize revamp construction and re-start
the plant for the production of purified phosphate products, planned for late
May 1997. Registrant expects to finance those requirements from existing
working capital and the convertible debentures sold in April 1997.
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 $51,000 for the first quarter
of 1997 as compared to $96,000 for the same period in 1996. Cash flows from
investing activities included funding of a note receivable of $50,000,
capital expenditures of $816,000, increase in payables related to capital
expenditures of $132,000 and an increase in other assets of $987,000. Cash
flows from financing activities included repayments on notes and long-term
debt of $2,000, proceeds from issuance of common stock of $42,000 and
proceeds from convertible debentures of $2,309,000.
Results of Operations
Registrant recognized $207,000 in revenue from the production and sale of
gold and silver from its royalty in the San Luis gold mine in the first
quarter of 1996. Production from the mine ended in November 1996.
Operating expenses as well as general and operating expenses increased
significantly in the 1st quarter of 1997 as compared to 1996 as staff and
activities related to the Calgary facility expanded and Registrant increased
investor relations activity.
Based on a recently adopted position of the SEC staff, the discount on
convertible debt issued at a discount from market in substance represents
additional yield to the investor and is to be recognized as interest expense
over the period from the issuance of the debt until it may be converted. The
application of this position significantly impacts interest expense
recognized by Registrant. For the 1st quarter of 1997, interest expense
includes a total of $188,000, which represents the recognition of a portion
of the 25% discount upon conversion to the market of $2,760,000 of
convertible debentures issued in March 1997. Interest expense of $732,000 is
expected to be recognized in the 2nd Quarter of 1997 from these debentures
plus an additional $312,000 from $935,000 of convertible debentures issued in
April 1997. 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.
PART II. OTHER INFORMATION
Item 1. Legal Proceedings
Reported in Item 3 of Registrant's 1996 Form 10-KSB.
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
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.
Registrant
Date: May 14, 1997 /s/ Mark H. McKinnies
Mark H. McKinnies
President and Chief Financial Officer
<TABLE> <S> <C>
<ARTICLE> 5
<MULTIPLIER> 1000
<S> <C>
<PERIOD-TYPE> 3-MOS
<FISCAL-YEAR-END> DEC-31-1997
<PERIOD-END> MAR-31-1997
<CASH> 1163
<SECURITIES> 0
<RECEIVABLES> 7
<ALLOWANCES> 0
<INVENTORY> 0
<CURRENT-ASSETS> 2793
<PP&E> 18023
<DEPRECIATION> 5040
<TOTAL-ASSETS> 17742
<CURRENT-LIABILITIES> 711
<BONDS> 161
0
0
<COMMON> 86
<OTHER-SE> 3750
<TOTAL-LIABILITY-AND-EQUITY> 17742
<SALES> 0
<TOTAL-REVENUES> 40
<CGS> 0
<TOTAL-COSTS> 302
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 196
<INCOME-PRETAX> (458)
<INCOME-TAX> 0
<INCOME-CONTINUING> (458)
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (458)
<EPS-PRIMARY> (.05)
<EPS-DILUTED> (.05)
</TABLE>
