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: September 30, 2000
Commission File No. 0-19566
EARTH SEARCH SCIENCES, INCORPORATED
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(Exact Name of Registrant as Specified in its Charter)
Utah 87-0437723
(State or other Jurisdiction of (IRS Employer ID)
Incorporation or Organization)
1729 Montana Highway 35, Kalispell, MT 59901
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(Address of Principal Executive Offices, Including Zip Code)
Registrant's telephone number, including area code: (406) 751-5200
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: 130,134,420
shares. The registrant has only one class of common stock.
EARTH SEARCH SCIENCES, INC.
FORM 10-Q
(Unaudited)
QUARTER ENDED SEPTEMBER 30, 2000
PART I
FINANCIAL INFORMATIONTABLE OF CONTENTS
Item 1. Consolidated Financial Statements Page
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Consolidated Balance Sheet
as of September 30 and March 31, 2000. 3
Consolidated Statement of Operations for the Three
and Six Months Ended September 30, 2000 and 1999. 4
Consolidated Statement of Cash Flows for the
Three Months Ended September 30, 2000 and 1999. 5
Selected Notes to Consolidated Financial Statements. 6-7
Item 2. Management's Discussion and Analysis of Financial Condition
and Results of Operations 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
Earth Search Sciences, Inc.
Consolidated Balance Sheet (unaudited)
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September 30, March 31,
2000 2000
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Assets
Current assets:
Cash $ 2,602,082 $ 6,119,562
Other current assets, net 584,980 803,682
-------------- --------------
Total current assets 3,187,062 6,923,244
Property and equipment, net 15,027,726 12,608,986
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Total assets $ 18,214,788 $ 19,532,230
============== ==============
Liabilities and shareholders' equity Current liabilities:
Notes payable $ 2,641,012 $ 2,687,212
Accounts payable and accrued expenses 6,473,542 6,287,548
Accrued interest 604,945 356,962
Capital lease obligation 3,000,000 3,000,000
Unearned revenue 200,000 -
-------------- --------------
Total current liabilities 12,919,499 12,331,722
Long-term liabilities:
Shareholder loans 459,844 459,844
Deferred officers' compensation 2,093,738 2,037,846
Minority interest 2,163,038 2,017,428
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Total liabilities 17,636,119 16,846,840
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Redeemable common stock, $.001 par value, 134,160 shares
issued and outstanding 21,734 21,734
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Nonredeemable shareholders' equity
Series A preferred stock; 200,000 shares authorized,
issued and outstanding at June 30 and March 31, 2000, respectively 1,000,000 1,000,000
Common stock, $.001 par value; 200,000,000 shares authorized;
130,000,260 and 126,402,044 shares respectively, issued and outstanding 130,000 126,402
Additional paid-in capital 23,820,137 22,906,866
Common stock subscribed - 363,000
Treasury stock (200,000) (200,000)
Accumulated deficit (24,193,202) (21,532,612)
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Total shareholders' equity 556,935 2,663,656
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Total liabilities and shareholders' equity $ 18,214,788 $ 19,532,230
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The accompanying notes are an integral part of these financials statements
Earth Search Sciences, Inc.
Consolidated Statement of Operations (unaudited)
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For the Three Months For the Six Months
Ended September 30 Ended September 30
2000 1999 2000 1999
------------ ------------ ------------ ------------
Revenue $ 259,863 $ 238,317 $ 722,877 $ 340,101
Cost of services provided (325,898) (225,353) (1,307,262) (299,396)
------------ ------------ ------------ -------------
Gross margin (66,035) 12,964 (584,385) 40,705
Expenses:
General and administrative 1,000,672 471,275 1,903,606 846,476
------------ ------------ ------------- -------------
Loss from operations (1,066,707) (458,311) (2,487,991) (805,771)
Interest income 28,446 - 77,780 -
Interest expense (258,196) (267,767) (393,769) (469,137)
------------ ------------ ------------- -------------
Loss before minority interest (1,296,457) (726,078) (2,803,980) (1,274,908)
Minority interest in losses of consolidated
subsidiaries 71,115 - 143,391 -
------------ ------------ ------------- -------------
Net loss $ (1,225,342) $ (726,078) $ (2,660,589) $ (1,274,908)
============ ============ ============= =============
Shares applicable to basic and diluted loss
per shares 130,112,623 98,610,500 128,920,483 98,355,500
Basic and diluted loss per share $ (0.009) $ (0.007) $ (0.021) $ (0.013)
The accompanying notes are an integral part of these financials statements
Earth Search Sciences, Inc.
Consolidated Statement of Cash Flows (unaudited)
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For the Six Months
Ended September 30,
2000 1999
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Cash flows from operating activities:
Net loss $ (2,660,589) $ (1,274,908)
Adjustments to reconcile net loss to net cash used in
operating activities:
Issuance of common stock for services and interest expense 53,958 244,297
Non cash compensation expense 7,312 -
Loss attributed to minority interest (143,391) -
Depreciation 268,957 138,313
Amortization of lease discount - 242,484
Changes in assets and liabilities:
Other current assets 218,702 (269,636)
Accounts payable and accrued liabilities 185,994 200,437
Accrued liabilities 247,983 25,368
Unearned revenue 200,000 (40,000)
Deferred officers' compensation 55,892 221,103
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Net cash used in operating activities (1,565,182) (512,542)
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Cash flows from investing activities:
Purchases of property and equipment (2,624,212) (188,000)
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Net cash used in investing activities (2,624,212) (188,000)
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Cash flows from financing activities:
Repayment of notes payable (25,000) (386,000)
Proceeds from shareholder loans - 1,482,192
Issuance of common stock for cash 407,913 -
Repayment of shareholder loans - (443,212)
Proceeds from subsidiary stock sales 289,001 -
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Net cash provided by financing activities 671,914 652,980
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Net (decrease) increase in cash (3,517,480) (47,562)
Cash at beginning of period 6,119,562 47,642
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Cash at end of period $ 2,602,082 $ 80
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The accompanying notes are an integral part of these financials statements
Earth Search Sciences, Inc.
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SELECTED NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
September 30, 2000 (unaudited)
Note 1 Summary of Operations and Significant Accounting Policies
The consolidated balance sheet as of September 30, 2000, and the
consolidated statements of operations and cash flows for the three and six
months ended September 30, 2000, and 1999, 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 September
30, 2000 and 1999.
Certain information and footnote disclosures normally included in
financial statements prepared in accordance with generally accepted accounting
principals have been condensed or omitted. These financial statements and notes
thereto should be read in conjunction with the Company's Form 10-K for March 31,
2000. The results of operation for the three and six months ended September 30,
2000 are not necessarily indicative of the operating results to be expected for
the full fiscal year.
Going concern
The Company is experiencing working capital deficiencies because it has
incurred operating losses. The Company has operated with funds received from the
sale of its common stock and the issuance of notes. The ability of the Company
to continue as a going concern is dependent upon continued debt or equity
financings until or unless the Company is able to generate operating revenues to
sustain ongoing operations. The Company plans to increase the number of revenue
producing services through the use of additional hyperspectral instruments and
thereby continue as a going concern.
New accounting pronouncements
In April 2000, Financial Accounting Standards Board Interpretation No.
FIN 44, "Accounting for Certain transactions involving stock compensation, an
interpretation of APB opinion No. 25", was issued. FIN 44 clarifies and modifies
APB opinion 25, "Accounting for stock issued to employees." FIN 44 was effective
for the Company in the second quarter of fiscal year 2001. The implementation of
the interpretation did not have a material impact on our financial condition or
results of operations.
Statement of Financial Accounting Standards No. 133 "Accounting for
Certain Derivate Instruments and Certain Hedging Activities", effective for the
Company during the first quarter of 2002, provides accounting and reporting
standards for derivative instruments, including certain derivative instruments
embedded in other contracts, and for hedging activities. The implementation of
the standard is not expected to have a material impact on our financial
condition or results of operations.
In December 1999, the Securities and Exchange Commission issued Staff
Accounting Bulletin (SAB) No. 101 "Revenue Recognition in Financial Statements".
The SAB summarizes certain staff views in applying generally accepted accounting
principles to revenue recognition in financial statements. Adoption is currently
required in Fiscal 2002, and early adoption is permitted. The Company does not
expect this bulletin to have a material affect on its results of operations,
financial condition or cash flows.
Note 2 Operating Segment and Geographic Information
Business Segment Information
Airborne
Hyperspectral Satellite
Services Development Other Industries Combined
Revenue
Second Quarter fiscal 2001 $ 259,863 $ - $ - $ 259,863
First six months of fiscal 2001 289,863 433,014 - 722,877
Loss from Operations
Second Quarter fiscal 2001 (610,635) (644,369) (180,243) (1,435,247)
First six months of fiscal 2001 (1,435,001) (832,852) (392,736) (2,660,589)
Total Assets
At September 30, 2000 $ 5,670,539 $ 11,847,655 $ 696,594 $ 18,214,788
At June 30, 2000 6,072,500 11,845,814 636,735 18,555,049
For the first six months of fiscal 2000, all operating results are from Airborne Hyperspectral Services.
Earth Search Sciences, Inc.
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MANAGEMENT'S DISCUSSION AND ANALYSIS
OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
RESULTS OF OPERATIONS
Included in the financial statements of the Company for the first and
second quarter of 2001 is Space Technology Development Corporation (STDC), which
was acquired on December 21, 1999. The STDC acquisition falls under the DUAP
with the Navy. Earth Search Sciences, Inc. has made all milestone payments to
date.
In the second quarter of 2001, the Company continued to pursue its
strategic plan to survey areas of interest for its own use. Areas of interest to
the Company surveyed with the Company's remote sensing instruments in the second
quarter of 2001 included potential hydrocarbon and mineral properties. Third
party contracts for hyperspectral surveys included applications in mineral and
hydrocarbon exploration, gas and emission leak detection, vegetal class mapping,
and environmental base lining and monitoring.
In the third quarter, the company is performing a significant survey in
the southern hemisphere for a group of mineral exploration companies.
Revenue, costs of services provided, and general and administrative
expenses for the six months ended September 30, 2000 include $433,014,
$1,089,865 and $227,959, respectively, from STDC.
General and administrative expenses increased in the first six months
of fiscal 2001 compared with the prior year as a result of the Company adding
staff necessary to pursue its business plans.
LIQUIDITY AND CAPITAL RESOURCES
Net cash decreased in the second quarter of 2001 due mainly to capital
expenditures, salaries and overhead. Capital expenditures in 2001 were primarily
for payments for an aircraft and hyperspectral instruments.
In the six months ended September 30, 2000, the Company raised $289,001
by selling stock in its subsidiaries Terranet, Petro Probe and Eco Probe.
The Company is experiencing working capital deficiencies because it has
incurred operating losses. The Company has operated with funds received from the
sale of its common stock and the issuance of notes. The ability of the Company
to continue as a going concern is dependent upon continued debt or equity
financings until or unless the Company is able to generate operating revenues to
sustain ongoing operations. The Company plans to increase the number of revenue
producing services through the use of additional hyperspectral instruments and
thereby continue as a going concern.
FUTURE OPERATIONS
In the future, the Company intends to continue to perform remote
sensing surveys for third parties in the mineral, hydrocarbon, forestry and
environmental areas. In addition, the Company intends to continue to perform
remote sensing surveys for its own use with applications in mineral and
hydrocarbon exploration.
Earth Search Sciences, Inc.
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PART II
OTHER INFORMATION REQUIRED
Item 1. Legal Proceedings 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: November 14, 2000 /s/ Larry F. Vance
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Larry F. Vance
Chairman and Director