SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-Q/A
QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(D) OF THE
SECURITIES EXCHANGE ACT OF 1934
For the quarterly period ended: September 30, 1996
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 (I.R.S. Employer Identi-
Incorporation or Organization) fication Number)
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
As of September 30, 1996, 67,941,993 shares of common stock were outstanding.
EARTH SEARCH SCIENCES, INC.
FORM 10-Q/A
(Unaudited)
QUARTER ENDED SEPTEMBER 30, 1996
PART I
FINANCIAL INFORMATION
TABLE OF CONTENTS
Item 1. Financial Statements Page
Consolidated Statement of Financial Position
as of September 30, 1996 and March 31, 1996. 1
Consolidated Statement of Operations for the
Three Months and the Six Months Ended
September 30, 1996 and 1995. 2
Consolidated Statement of Cash Flows for the
Six Months Ended September 30, 1996. 3
Selected Notes to Consolidated Financial
Statements. 4
Item 2. Management's Discussion and Analysis of
Financial Condition and Results of Operations 5
PART II
OTHER INFORMATION REQUIRED
Item 1. Legal Proceedings 6
Item 2. Changes in Securities 6
Item 3. Defaults Upon Senior Securities 6
Item 4. Submission of Matters of a Vote of
Security Holders 6
Item 5. Other information 6
Item 6. Exhibits and Reports on Form 8-K 6
EARTH SEARCH SCIENCES, INC.
(A Development Stage Company)
CONSOLIDATED BALANCE SHEET
September 30, March 31,
1996 1996
(unaudited)
ASSETS
Current assets:
Cash $ 46,031 $ 670,325
Prepaid expenses - -
--------- ----------
Total current assets 46,031 670,325
--------- ----------
Property and equipment 1,038,308 122,276
Deposit and their assets 77,725 129,776
--------- ----------
Total assets $ 1,162,064 $ 922,377
========== ==========
LIABILITIES AND STOCKHOLDERS' DEFICIT
Current liabilities:
Convertible Notes Payable 228,798 444,981
Accounts payable 189,847 188,818
Accrued payroll taxes 108,975 34,000
Accrued interest 316,579 314,277
Customer deposit 1,490,125 500,000
--------- ---------
Total current liabilities 2,334,324 1,482,076
--------- ----------
Long-term liabilities:
Shareholder loans 99,590 96,519
Deferred officers' compensation 608,329 592,560
Minority interest 90,928 47,130
--------- ---------
Total liabilities 798,757 2,218,285
--------- ---------
Commitments and contingencies
Stockholders' deficit:
Common stock $.001 par value; 200,000,000
shares authorized; 67,941,933 and
66,551,663 respectively, issued 67,942 66,551
Additional paid-in capital 4,758,768 4,320,920
Deficit accumulated during the development stage (6,797,727) (5,683,379)
---------- ----------
(1,971,017) (1,295,908)
Total liabilities and stockholders' deficit $ 1,162,064 $ 922,377
========== ==========
EARTH SEARCH SCIENCES, INC.
(A Development Stage Company)
CONSOLIDATED STATEMENT OF OPERATIONS
(unaudited)
For the Three Months For the Six Months
Ended September 30, Ended September 30,
1996 1995 1996 1995
------ ------ ------ -------
Revenue: $ - $ - $ - $ -
Expenses:
Exploration 91,135 15,796 121,165 41,961
Depreciation and
Amortization 7,000 4,800 12,000 9,600
General and
Administrative 423,266 1,310,964 940,647 1,435,603
---------- ---------- ---------- ----------
Loss from operations (521,401) (1,331,560) (1,073,812) (1,487,164)
Interest expense ( 21,602) (25,450) (40,536) (70,505)
---------- ---------- ---------- ----------
Net Loss $ (543,003) $(1,357,010) $(1,114,348) $(1,557,669)
========== ========== ========== ==========
Loss Per Common Share: $ (.01) $ (.03) $ (.02) $ (.03)
========== ========== ========== ==========
Weighed average shares
outstanding 67,843,027 49,995,499 67,495,445 49,995,499
========== ========== ========== ==========
EARTH SEARCH SCIENCES, INC.
(A Development Stage Company)
CONSOLIDATED STATEMENT OF CASH FLOWS
(Unaudited)
For the Six Months
Ended September 30,
1996 1995
Cash flows from operating activities:
Net Income $(1,114,348) $(1,557,119)
Adjustments to reconcile net loss to net cash
used in operating activities:
Common stock issued for services 92,597 0
Stock options issued 0 1,100,000
Loss from disposal of fixed assets 0 0
Depreciation and amortization 12,000 9,600
Change in long term other assets 52,051 (109,776)
Prepaids, deposits, etc. - 837
Change in liability accounts 1,112,372 246,092
---------- ----------
Net cash provided by (used in)operating activities 154,672 (310,996)
---------- ----------
Cash flow used in investing activities:
Capitol expenditures (928,032) 0
---------- ----------
Net cash used in investing activities (928,032) 0
---------- ----------
Cash flow provided (used in) financing activities:
Proceeds from notes payable 0 364,340
Repayment of notes payable 0 (2,000)
Proceed form issuance of shareholder notes payable 60,000 0
Repayment of shareholder loans (56,929) (52,000)
Proceeds form issuance of subsidiary common stock 145,995 0
---------- ----------
Net cash provided by financing activities 149,066 310,340
---------- ----------
Net decrease (increase)in cash and cash equivalents (624,294) (656)
Cash and cash equivalents at beginning of year 670,325 30,420
---------- ----------
Cash and cash equivalents at end of six months $ 46,031 $ 29,764
========== ==========
EARTH SEARCH SCIENCES, INC
A Development Stage Company
SELECTED NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
September 30, 1996 (unaudited)
CONDENSED FINANCIAL STATEMENTS
The consolidated statement of financial position as of September 30, 1996,
and the consolidated statements of operations for the three and six months ended
September 30, 1996 and cash flow for the six months ended September 30, 1996,
and 1995, 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, 1996. The statements of
loss for the three months and six months ended September 30, 1995 and the
statement of cash flows for the six months ended September 30, 1995 have been
reinstated to reflect adjustments arising from the audit of the Company's
financial statements for the year ended March 31, 1996. Such adjustments
resulted in recognition for $529,635 in additional expense. These expenses
primarily relate to compensation expense incurred from the grant of stock
options to certain officers.
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 conjuction with the auditied financial statements and notes thereto
included in the Company's form 10-K for the year ended March 31, 1996. The
results of operation for the six months ended September 30, 1996 are not
necessarily indicative of the operating results to be expected for the full
fiscal year.
NOTES PAYABLE
The Company historially obtained interim working capital by issuing
promissory notes with rights of conversion. The terms of these debts instruments
are for an initial period of ninety days but renewable every ninety days for one
year, and bear interest at 12.5% to 12.99%. Holders of the notes have the right
to convert the loan amount plus interest into restricted shares of the Company's
common stock, subject to the terms in the promissory notes. The Company issued
no new promissory notes during the three and six months ended September 30, 1996
CUSTOMER DEPOSITS
The Company has received $1,490,125 in deposits through its subsidiaries
for the sale of two airborne hyperspectral scanners which are currently in
production. These instruments are expected to be leased back to the Company in
"sale/leaseback" transactions. To date, the terms of the agreements have not
been formalized. As such, the deposits have been recorded as a current liability
at September 30, 1996.
LOSS PER COMMON SHARES
Loss per common share is based on the weighted average number of shares
outstanding during each period.
ADVANCE FROM SHAREHOLDERS
The company has continued in existence through the use of advances from
shareholders, primarily an officer and director of the Company and Universal
Search Technology owned by that same officer and director.
ISSUANCE OF COMMON STOCK
During the three months ended September 30, 1996, the Company issued
197,932 shares of its authorized but unissued common stock. The Company issued
22,500 shares valued at $2,400 for services rendered and 175,432 shares valued
at $44,168 for debt and accrued interest conversions.
MANAGEMENT'S DISCUSSION AND ANALYSIS
OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
Material Changes in Financial Condition
During the quarter ended September 30, 1996, the Company had no operating
revenues. The Company was required to obtain working capital through deposits
obtained from sale-leaseback transactions of its instruments. Aggregate amounts
received in the second quarter 1997 were approximately $490,125. In addition,
the Company's operating payables and accrued liabilities increased approximately
$16,289.
Management continues to find difficulty in raising required working
capital. If the company cannot raise working capital the Company will experience
a substantial hardship in reducing its operating payables and accrued
liabilities.
Results of Operations
The Company to better focus on commercial plans, formed a wholly owned
subsidiary, Earth Search Resources, Inc. ("ESR") and on June 1, 1996 hired Brian
C. Savage, formerly director of the investment banking mining group of Nesbitt
Burns Securities, Inc. in New York, as president of ESR and Vice
President-Resource Development of the Company. Mr. Savage's experience in the
mining industry and his investment banking background should provide the Company
with significant assistance in developing the commercial side of the business.
The Company continues to focuses on Kazakstan as a potential mineral active
site and is moving forward with its plans to conclude a joint remote sensing
mission with the Department of Energy, several national laboratories, several
large industrial partners and the Naval Research Laboratory. The mission was
originally planned for August of 1996 but delayed at the request of the
government of Kazakstan. It has since been rescheduled for June of 1997.
In June officers of the Company visited Kazakstan to start the field
evaluation process related to the mineral concession. In September Earth Search
signed a Memorandum of Agreement, non-compete and non-disclosure forms with
Falconbridge Ltd. (a $3 billion dollar annual revenue) a mining company
headquartered in Ontario Canada.
In September Earth Search, Falconbridge, Behre Dolbear and ASIT Corporation
spent 7 days on the concession in Kazakstan acquiring data and samples that will
allow Earth Search, Falconbridge and Behre Dolbear to formulate a exploration
policy for the next 5 years.
The Company continues to build relationships with the Kazakstani joint
stock company SEMTECH. We have just completed a new shareholder agreement that
spells out new distribution of equity and revenue from the mineral concession on
the Polygon. The Company also is in final preparations for submittal for a
complex license on the Polygon Resource concession. The complex license is the
critial step needed to prefect the Company's interests in the mineral
concession.
Earth Search recognizes that while Central Asia holds promise of mineral
rich deposits, there are risks associated with operating in the former Soviet
Union. Accordingly management has taken steps to diversify its exploration
activities to other locations worldwide.
Dr. Larry Lass, University of Idaho teamed with Earth Search Sciences on a
joint proposal to the Farm Bureau and won a contract to overfly the Snake River
Basin (Hell's Canyon) to prove the use of hyperspectral imagery for control and
eradication of Noxious weed intrusion. The results of that mission enable Earth
Search to determine the applicability of Probe 1 technology to this potentially
lucrative agricultural market.
On July 31, 1996, the Company signed a contract with Applied Signal and
Imaging Technology, Inc ("ASIT"), to jointly develop software packages that will
enable the Company to process the data it collects in near real time. The
Company contracted ASIT to develop a proprietary software package that will
deliver in the same time frame of our instrument Probe 1.
During the first quarter, the Company signed a Creative Research and
Development Agreement (CRADA) with the U.S. Army Cold Weather Laboratories and
the U.S. Navel Research Laboratories to fly the Navy's HYDICE Hyperspectral
instrument over a site in Idaho that because of its robust vegetation mineral
history, and water resources, ESSI was closer to utilize as an outdoor
laboratory collecting one (1) meter data over mineral, forestry, and water
targets that will be used by the Company to develop advancements on our next
generation of commercial instruments.
During the upcoming fiscal year, the Company, if funds are available, will
continue NASA research and development together with the development of
instruments that will be used in the Company's remote sensing endeavors, and the
mineral exploration and environmental fields. The Company is looking to acquire
revenue producing companies compatible with our systems approach to remote
sensing solutions.
The annual meeting of the shareholders of Earth Search Sciences, Inc., was
held on October 22, 1996. A Quorum was present and the following persons were
approved and elected as directors for the terms provided by the by laws: Larry F
Vance, John W Peel, Brian C Savage, Rory J Stevens and Tami J Story and the
appointment of Price Waterhouse LLP as the Company's independent Auditors
effective with the fiscal year ended March 31, 1996 was also approved.
Other
The company is in cooperation with an Idaho Department of Finance inquiry
into its transactions with Idaho based investors. Earth Search believes it may
have misunderstood certain state regulations in completing transactions with a
limited number of Idaho-based investors. The company is uncertain whether the
Idaho Department of Finance will file an action against Earth Search Sciences
once the inquiry is completed. However, the potential exists that the State of
Idaho Department of Finance could file a complaint seeking to prohibit any
future such transactions with Idaho investors without first completing a
registration. The State's options could also include an order to rescind the
transactions made so far.
Outlook
The milestone payments are current for the delivery of the first Probe 1
instrument which is currently scheduled for the first half of 1997, in time for
the scheduled date of the Kazakstani mission.
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: January 7, 1996 /s/ Larry F. Vance
---------------------- ----------------------
Larry Vance
CEO and Director
EXHIBIT INDEX
EXHIBIT METHOD OF FILING
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27. Financial Data Schedule . . . . . . . . . . Filed herewith electronically