SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-Q
QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(D) OF THE SECURITIES
EXCHANGE ACT OF 1934
For the quarterly period ended: June 30, 1999
Commission File No. 0-19566
EARTH SEARCH SCIENCES, INCORPORATED
(Exact Name of Registrant as Specified in its Charter)
Utah 87-0437723
(State or other Jurisdiction of (IRS Employer ID)
Incorporation or Organization)
502 North 3rd Street, #8 McCall, Idaho 83638
(Address of Principal Executive Offices, Including Zip Code)
Registrant's telephone number, including area code: (208) 634-7080
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 and Exchange Act of 1934
during the preceding 12 months (or for such shorter period that the Registrant
was required to file such reports), and (2) has been subject to such filing
requirement for the past 90 days. Yes X No
The number of shares outstanding of each of the registrant's classes of common
stock, as of the close of the period, covered by this report: 98,525,878 shares.
The registrant has only one class of common stock.
<PAGE>
EARTH SEARCH SCIENCES, INC.
FORM 10-Q
(Unaudited)
QUARTER ENDED JUNE 30, 1999
PART I
FINANCIAL INFORMATION
TABLE OF CONTENTS
Item 1. Consolidated Financial Statements Page
Consolidated Balance Sheet
as of June 30, 1999 and March 31, 1999. 3
Consolidated Statement of Operations for the
Three Months Ended June 30, 1999 and 1998. 4
Consolidated Statement of Cash Flows for the
Three Months Ended June 30, 1999 and 1998. 5
Selected Notes to Consolidated Financial
Statements. 6
Item 2. Management's Discussion and Analysis of
Financial Condition and Results of Operations 7-8
PART II
OTHER INFORMATION REQUIRED
Item 1. Legal Proceedings 9
Item 2. Changes in Securities 9
Item 3. Defaults Upon Senior Securities 9
Item 4. Submission of Matters of a Vote of Security Holders 9
Item 5. Other information 9
Item 6. Exhibits and Reports on Form 8-K 9
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<TABLE>
<CAPTION>
Earth Search Sciences, Inc.
Consolidated Balance Sheet
- ----------------------------------------------------------------------------------------------------------------------------
<S> <C> <C>
June 30, March 31,
1999 1999
--------------------- ---------------------
Assets
Current assets:
Cash $ 77,355 $ 47,642
Other current assets 182,398 120,996
--------------------- ---------------------
Total current assets 259,752 168,637
Property and equipment 3,754,231 3,823,596
Other long-term assets - -
--------------------- ---------------------
Total assets 4,013,983 3,992,233
===================== =====================
Liabilities and shareholders' deficit Current liabilities:
Notes payable $ 450,125 $ 450,125
Accounts payable and accrued expenses 595,005 552,061
Accrued interest 258,793 236,259
Unearned revenue 30,000 40,000
--------------------- ---------------------
Total current liabilities 1,333,923 1,278,445
Long-term liabilities
Shareholder loans 627,704 372,322
Capital lease obligation 2,635,620 2,514,378
Deferred officers' compensation 1,814,946 1,707,380
Minority interest 2,000,000 2,000,000
--------------------- ---------------------
Total liabilities 8,412,193 7,872,525
Redeemable common stock, $.001 par value, 725,914 shares
issued and outstanding June 30 and March 31, 1999 117,845 117,845
Nonredeemable shareholders' deficit
Series A preferred stock; 200,000 shares authorized,
issued and outstanding at June 30 and March 31, 1999 1,000,000 1,000,000
Common stock, $.001 par value; 200,000,000 shares
authorized; 97,800,878 and 97,411,367 shares
respectively, issued and outstanding 97,800 97,411
Additional paid-in capital 11,489,988 11,459,081
Treasury stock (200,000) (200,000)
Retained deficit (16,903,843) (16,354,629)
--------------------- ---------------------
(4,516,055) (3,998,137)
Total liabilities and shareholders' deficit $ 4,013,983 $ 3,992,233
==================== ===================
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Earth Search Sciences, Inc.
Consolidated Statement of Operations
- ----------------------------------------------------------------------------------------------------------------
<S> <C> <C>
For the Three Months
Ended June 30,
1999 1998
------------------ ----------------
Revenue $ 101,784 $ 250,000
Costs of services provided (74,043) (141,448)
------------------ ----------------
Gross margin 27,741 108,552
Expenses:
General and administrative 375,201 376,649
----------------- ----------------
375,201 376,649
Loss from operations (347,460) (267,827)
Interest income - -
Interest expense (Note 5 and 6) (201,370) (177,596)
Other expense - (17,442)
----------------- ----------------
Loss before minority interest (548,830) (462,865)
Minority interest in losses of consolidated subsidiaries - -
Loss before extraordinary item (548,830) (462,865)
Extraordinary item - (115,023)
Net loss $ (548,830) $ (577,888)
================ ===============
Shares applicable to basic and diluted loss per share 98,327,779 88,308,696
Basic and diluted loss per share $ (0.006) $ (0.01)
<PAGE>
Earth Search Sciences, Inc.
Consolidated Statement of Cash Flows
- -------------------------------------------------------------------------------------------------------------------------
For the Three Months
Ended June 30,
1999 1998
------------------- ----------------
Cash flows from operating activities:
Net Income $ (548,830) $ (577,888)
Adjustments to reconcile net loss to net cash
used in operating activities:
Issuance of common stock for services
and interest expense 30,912 102,729
Extraordinary items - 115,023
Depreciation 69,365 68,931
Amortization of lease discount 121,242 121,323
Changes in assets and liabilities:
Other Assets (61,402) (60,871)
Accounts payable 42,944 (21,961)
Accrued liabilities 22,534 (11,281)
Unearned revenue (10,000) (32,000)
Deferred officers compensation 107,566 112,877
----------------- ---------------
Net cash provided by operating activities (225,669) (183,118)
------------------ --------------
Cash flows from investing activities:
Capital expenditures - (11,239)
Advance deposits - -
----------------- ---------------
Net cash used by investing activities - (11,239)
----------------- ---------------
Cash flows from financing activities:
Repayment of notes payable - (10,681)
Proceeds from shareholder loans 255,382 191,500
Repayments of shareholder loans - (33,500)
Issuance of common stock - 58,000
Net cash provided from financing activities 255,382 205,319
----------------- ----------------
Net increase (decrease) in cash 29,713 10,962
Cash at beginning of period 47,642 42,600
----------------- ----------------
Cash at end of period $ 77,355 $ 53,562
================= ================
</TABLE>
<PAGE>
EARTH SEARCH SCIENCES, INC
SELECTED NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
June 30, 1999 (unaudited)
CONDENSED FINANCIAL STATEMENTS
The consolidated statement of financial position as of June 30, 1999
and the consolidated statements of operations and cash flow for the three months
ended June 30, 1999, and 1998, have been prepared by the Company without audit.
In the opinion of management, all adjustments (which include only normal
recurring adjustments) have been made that are necessary to present fairly the
financial position, results of operation, and cash flows at June 30, 1999 and
1998.
Certain information and footnote disclosures normally included in
financial statements prepared in accordance with generally accepted accounting
principals have been condensed or omitted. It is suggested that these financial
statements be read in conjunction with the financial statements and notes
thereto in the Company's form 10-K for March 31, 1999. The results of operation
for the three months ended June 30, 1999 are not necessarily indicative of the
operating results to be expected for the full fiscal year.
REVENUE
The Company recognized $101,784 in revenue during the third quarter for
remote sensing services performed.
NOTES AND ACCOUNTS PAYABLE
Notes payable consist of unsecured promissory notes with rights of
conversion. The terms of these debt instruments are typically for an initial
period of ninety days or one year and are renewable at maturity for one year.
The notes bear interest at rates ranging from 4.5% to 12.5%. Holders of the
notes have the right to convert the principal amount plus interest into
restricted shares of the Company common stock, subject to the terms in the
promissory notes.
LOSS PER COMMON SHARE
Loss per common share is based on the weighted average number of shares
outstanding during each period. For period ended June 30, 1999 and 1998, the
weighted average number of these shares outstanding is 98,327,779 and 88,308,696
shares, respectively.
ISSUANCE OF COMMON STOCK
During the three months ended June 30, 1999, the issued 88,597 shares
of common stock for services rendered.
<PAGE>
MANAGEMENT'S DISCUSSION AND ANALYSIS
OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
Management's Discussion and Analysis of Financial Condition and Results
of Operations ("MD&A") contains "forward-looking statements" within the meaning
of Section 27A of the Securities Act and Section 21E of the Exchange Act. All
statements, other than statements of historical facts, included in this MD&A
regarding the Company's financial position, business strategy and plans and
objectives of management of the Company for future operations are
forward-looking statements. These forward-looking statements are subject to
risks and uncertainties that could cause actual results to differ materially
from those contemplated in such forward-looking statements, including those
described below. Investors are cautioned not to place undue reliance on these
forward-looking statements, which speak only as of the date hereof. The Company
undertakes no obligation to release publicly any revisions to these
forward-looking statements to reflect events or circumstances after the date
hereof or to reflect the occurrence of unanticipated events.
MATERIAL CHANGES IN FINANCIAL CONDITION
During the quarter ended June 30, 1999, the Company recognized $101,784
in revenue. However, the Company's obligations increased. The large operating
payables and short-term notes create a substantial working capital deficiency.
RESULTS OF OPERATIONS
The Company initiated work on its EOCAP contract with NASA to map
Yellowstone National Park. Earth Search is a subcontractor to Yellowstone
Ecosystems Studies (Y.E.S.). Earth Search management attended a kick-off meeting
following contract award for purposes of planning the upcoming mission to map
riparian habitat. NASA reported previously that its high altitude mapping in
prior years indicated the potential for utilizing hyperspectral imagery to
distinguish between various tree species and vegetation types important in the
food chain of Yellowstone's wildlife. Earth Search will collect imagery at lower
altitudes, which means higher resolution imagery can be collected. It is
anticipated that with the increased resolution obtained utilizing the Earth
Search Probe-1 technology that Yellowstone's scientists responsible for tracking
seasonal variability of plant species and, hence, food supplies will be able to
gain increased insight into environmental conditions affecting the health and
well being of the Park's wildlife. The ability of the Probe-1 technology to
differentiate between tree and plant species suggests a new and more economical
method for characterizing habitat.
The Company concluded a memorandum of agreement with Boeing that
included the use of a unique Boeing aircraft possessing exceptional slow flight
characteristics to be used in a variety of applications, the first being the
flight over Yellowstone National Park as part of a NASA/Yellowstone Ecosystems
Studies (Y.E.S.) project utilizing ESSI's Probe-1 hyperspectral imaging
technology to collect one meter data to be utilized in addressing riparian
issues. Several test flights were performed during the period using the Probe
technology onboard the Boeing heliocourier aircraft. More missions are planned,
including a revisit of the park in August.
While the Company seeks to avoid forward-looking statements and
projections, it is factual to state that the contract backlog includes an
agreement with Noranda, which at present, is in its second year of
implementation. As such, this contract calls for expenditures by Noranda for FY
2000 of $2,000,000. While this amount is optional, it is a condition for
maintaining exclusivity in mineral exploration and as such Earth Search
management has treated the agreement as central in its business planning and
revenue forecasting. The first year's contract performance revenues were
approximately $750,000 which was consistent with the aforementioned agreement.
Earth Search management documents that the base contract is for three years and
that revenue expenditures projected in the contract are a condition by which
Noranda anticipates maintaining exclusivity. While there are many factors that
may impact the projected revenues for a given year such as weather delays or
acts of war in a specific global location, or flooding, forest fires, etc.; all
of which may impact imagery collection, Earth Search management is not aware of
any circumstance at this time which would adversely impact the mapping campaign
for Noranda.
The Company concluded a memorandum of understanding with Booze-Allen &
Hamilton aimed at the collection, marketing, and distribution of Probe-1 data on
a global basis.
Earth Search continues to capitalize on the Company's experience with
Probe-1 in the mapping of environmental and agricultural issues. The Company
also continues to expand on its ability to identify weed and other plant species
through the use of its Probe-1 hyperspectral imaging instrument. Weeds are a
major economic problem in the West (and elsewhere) because they inhibit
agricultural, forestry, and grazing productivity. Weed intrusion mapping is
essential to the eradication of the problem and the Probe-1 results to date
clearly demonstrate the Company's capability to map and identify noxious weeds
from an airborne platform.
Several proposals have been developed to partner with private industry,
universities and state and Federal agencies to develop, package and deliver
competitive advanced technology products and services. This approach provides
solutions to critical environmental restoration and waste management problems,
while furthering national business and technology goals.
The Company continues to explore funding alternatives to continue
research and development efforts on future generations of the instrument and to
finance the working capital necessary to develop the commercial and governmental
applications for the Probe-1's. This will result in the conversion of the
Company to a revenue producing company smoothly and effectively. There can be no
assurance that the Company will be successful in raising the required capital,
and failure to do so could have a material adverse effect on the prospects of
the Company.
OUTLOOK
Earth Search plans to use the Internet and a broad band imagery
distribution system to market its imagery. The Company has collected and
continues to collect imagery from around the globe. This imagery represents an
asset that can be sold over and over to multiple end users. The Company is
preparing for a mid-1999 launch of a direct channel, multi-media imagery
supermarket on the Internet that will have the capability to individually
customize data packages for customers. The e-commerce content provider will be
called TerraNet, Inc., and will be a wholly owned subsidiary of Earth Search
Sciences, Inc. Its site on the world wide web will be www.general-imaging.com.
The Company continues to increase its involvement in the mineral
exploration and environmental areas, using the results of its research and
development over the last five years in remote sensing. By attempting to obtain
equity funding, the Company anticipates developing instruments to include
hand-held, airborne and satellite spectrometers and to acquire revenue-producing
companies in the natural resources and environmental monitoring field.
Through teaming with other firms, the Company will identify possible
technology applications for remote sensing. Management intends to pursue
additional markets for its imagery databases, which would generate operating
revenues and adequate cash flows.
SUBSEQUENT EVENTS
Subsequent to the quarter ended June 30, 1999, the Company secured the second
Probe-1 instrument and it has been mobilized to its first mission.
<PAGE>
PART II
OTHER INFORMATION REQUIRED
Item 1. Legal Proceeding None
Item 2. Changes in Securities None
Item 3. Defaults Upon Senior Securities None
Item 4. Submission of Matters to a Vote of Security Holder None
Item 5. Other Information None
Item 6. Exhibits and Reports on Form 8-K None
SIGNATURE
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.
EARTH SEARCH SCIENCES, INC.
Date: August 16, 1999 /s/ John W. Peel
------------------------------
John W. Peel
Chief Executive Officer
<PAGE>
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM THE
CONSOLIDATED BALANCE SHEETS AND CONSOLIDATED STATEMENTS OF OPERATION OF THE
COMPANY'S FORM 10-K, WHICH IS ATTACHED, AND IS QUALIFIED IN ITS ENTIRETY BY
REFERENCE TO SUCH FINANCIAL STATEMENTS.
</LEGEND>
<CIK> 0000752634
<NAME> EARTH SEARCH SCIENCES, INC.
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<S> <C>
<PERIOD-TYPE> 3-MOS
<FISCAL-YEAR-END> MAR-31-2000
<PERIOD-START> APR-01-1999
<PERIOD-END> JUN-30-1999
<CASH> 259,752
<SECURITIES> 0
<RECEIVABLES> 22,245
<ALLOWANCES> 0
<INVENTORY> 0
<CURRENT-ASSETS> 259,752
<PP&E> 3,754,231
<DEPRECIATION> 69,365
<TOTAL-ASSETS> 4,013,983
<CURRENT-LIABILITIES> 1,333,923
<BONDS> 0
117,845
200,000
<COMMON> 97,800
<OTHER-SE> (5,416,855)
<TOTAL-LIABILITY-AND-EQUITY> 4,013,983
<SALES> 101,784
<TOTAL-REVENUES> 101,784
<CGS> (74,043)
<TOTAL-COSTS> (347,460)
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<INTEREST-EXPENSE> (201,370)
<INCOME-PRETAX> (548,830)
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