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, 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: 99,300,878 shares.
The registrant has only one class of common stock.
EARTH SEARCH SCIENCES, INC.
FORM 10-Q
(Unaudited)
QUARTER ENDED SEPTEMBER 30, 1999
PART I
FINANCIAL INFORMATION
TABLE OF CONTENTS
Item 1. Consolidated Financial Statements Page
Consolidated Balance Sheet
as of September 30, 1999 and March 31, 1999. 3
Consolidated Statement of Operations for the
Three and Six Months Ended September 30, 1999 and 1998. 4
Consolidated Statement of Cash Flows for the
Six Months Ended September 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
Earth Search Sciences, Inc.
Consolidated Balance Sheet
- ----------------------------------------------------------------------------------------------------------------------------
September 30, March 31,
1999 1999
-------------- -------------
Assets
Current assets:
Cash $ 80 $ 47,642
Other current assets 390,631 120,995
------------- -------------
Total current assets 390,711 168,637
Property and equipment 3,823,596 3,873,282
Other long-term assets - -
------------- -------------
Total assets $ 4,263,993 $ 3,992,233
============== =============
Liabilities and shareholders' deficit Current liabilities:
Note payable $ 64,125 $ 450,125
Accounts payable and accrued expenses 752,498 552,061
Accrued interest 261,627 236,259
Unearned revenue - 40,000
-------------- -------------
Total current liabilities 1,078,250 1,278,445
Long-term liabilities
Shareholder loans 1,411,302 372,322
Capital lease obligation 2,756,862 2,514,378
Deferred officers' compensation 1,928,483 1,707,380
Minority interest 2,000,000 2,000,000
-------------- -------------
Total liabilities 9,174,897 7,872,525
-------------- -------------
Redeemable common stock, $.001 par value, 725,914 shares
issued and outstanding September 30 and March 31, 1999, respectively 117,845 117,845
-------------- -------------
Nonredeemable shareholders' deficit
Series A preferred stock; 200,000 shares authorized,
issued and outstanding at September 30 and March 31, 1999 1,000,000 1,000,000
Common stock, $.001 par value; 200,000,000 shares authorized;
99,300,878 and 97,411,367shares respectively, issued and outstanding 99,300 97,411
Additional paid-in capital 11,701,488 11,459,081
Treasury stock (200,000) (200,000)
Retained deficit (17,629,537) (16,354,629)
-------------- -------------
(5,028,749) (3,998,137)
-------------- -------------
Total liabilities and shareholders' deficit $ 4,263,993 $ 3,992,233
============== =============
Earth Search Sciences, Inc.
Consolidated Statement of Operations
- --------------------------------------------------------------------------------------------------
For the Three Months For the Six Months
Ended September 30 Ended September 30
1999 1998 1999 1998
------------ ----------- ------------ ------------
Revenue: $ 238,317 $ 213,384 $ 340,101 $ 463,654
Cost of services provided (225,353) (137,184) (299,396) (278,632)
----------- ----------- ------------ ------------
Gross margin 12,964 76,200 40,705 185,022
Expenses:
General and administrative 471,275 351,580 846,476 728,229
----------- ----------- ------------ ------------
471,275 351,580 846,476 728,229
Loss from operations (458,311) (275,380) (805,771) (543,207)
Interest income - - - -
Interest expense (267,767) (174,631) (469,137) (352,227)
Other expense - - - (17,442)
----------- ----------- ------------ ------------
Loss extraordinary item (726,078) (450,011) (1,274,908) (912,876)
Extraordinary item - - - (115,023)
----------- ----------- ------------ ------------
Net loss $ (726,078) $ (450,011) $ (1,274,908) $ (1,027,899)
=========== =========== ============ ============
Shares applicable to basic
and diluted loss per shares 98,610,500 88,470,125 98,355,500 89,495,698
Basic and diluted loss per share $ (0.01) $ (0.01) $ (0.01) $ (0.01)
Earth Search Sciences, Inc.
Consolidated Statement of Cash Flows
- ---------------------------------------------------------------------------------------------------------------------------------
For the Six Months
Ended September 30,
1999 1998
------------ ------------
Cash flows from operating activities:
Net income $ (1,274,908) $ (1,027,899)
Adjustments to reconcile net loss to net cash used in
operating activities:
Issuance of common stock for services and interest expense 244,297 122,887
Extraordinary items - 115,023
Depreciation 138,313 137,862
Amortization of lease discount 242,484 242,647
Changes in assets and liabilities:
Other current assets (269,636) (85,969)
Accounts payable and accrued liabilities 200,437 14,069
Accrued liabilities 25,368 (18,158)
Unearned revenue (40,000) (24,937)
Deferred officers' compensation 221,103 173,384
------------ ------------
Net cash provided by operating activities (512,542) (351,091)
------------ ------------
Cash flows from investing activities:
Capital expenditures (188,000) (47,392)
Advance deposits - 280,000
------------ ------------
Net cash used by investing activities (188,000) 232,608
------------ -------------
Cash flows from financing activities:
Repayment of notes payable (386,000) (10,681)
Proceeds from shareholder loans 1,482,192 191,500
Repayments of shareholder loans (443,212) (93,240)
Issuance of common stock - 63,000
------------ ------------
Net cash provided from financing activities 652,980 150,579
------------ ------------
Net increase (decrease) in cash (47,562) 32,096
Cash at beginning of period 47,642 42,600
------------ ------------
Cash at end of period $ 80 $ 74,696
============ ============
PAGE>
EARTH SEARCH SCIENCES, INC
SELECTED NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
September 30, 1999 (unaudited)
CONDENSED FINANCIAL STATEMENTS
The consolidated statement of financial position as of September 30,
1999 and the consolidated statements of operations for the three and six months
ended September 30, 1999 and cash flow for the six months ended September 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 September 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 and six months ended September 30, 1999 are not necessarily
indicative of the operating results to be expected for the full fiscal year.
REVENUE
The Company recognized $238,317 in revenue during the second 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 September 30, 1999 and 1998,
the weighted average number of these shares outstanding is 98,355,500 and
89,495,698 shares, respectively.
ISSUANCE OF COMMON STOCK
During the three months ended September 30, 1999, the Company issued
1,500,000 shares of common stock.
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 September 30, 1999, the Company recognized
$238,317 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
Tremendous growth in Earth Search Sciences, Inc.'s hyperspectral
surveying capabilities during the second quarter was mirrored by a significantly
larger customer base and wider geographic scope in our survey operations.
Broader awareness and acceptance of PROBE 1 hyperspectral mapping has been
generated through research and pilot projects and presentations by researchers
at scientific meetings.
After more than 3 months manufacturer delays, ESSI took delivery of a
second PROBE 1 system in mid-summer thereby doubling our capacity. With two
systems, we are now capable of surveying in widely separated areas at the same
time or surveying one area twice as fast. Another capability of using two
systems is in a critical research field whereby the atmosphere's hyperspectral
signature can be better determined using subtle differences between
geosynchronous ground level plus high and low altitude collections.
Survey collections with the original PROBE 1 system during the quarter
were made throughout the United States and Canada. ESSI continued to extend
hyperspectral exploration into remote corners of the world with surveys in the
high Arctic islands only 900 miles from the North Pole.
The inaugural mission for the second PROBE 1 was over the equatorial
cloud forests of Rwanda, which are home to the mountain gorillas studied by the
late Dian Fossey. National Geographic, in association with The Dian Fossey
Gorilla Fund International, filmed the first scientific studies of the mountain
gorillas in years which were possible only after the cessation of hostilities in
the area. ESSI's PROBE 1 surveys role in quickly mapping the Parc des Volcans as
part of this renewed research is featured in the half hour National Geographic
television show slated for airing on CNBC on December 10.
This quarter, ESSI added to the record it set last year for commercial
hyperspectral collections above 25,000 in the high Andes by surveying in the
high Arctic and in the equatorial cloud forest. Similarly ESSI personnel and
their associates have been working towards opening up additional commercial
opportunities through applied analysis, new collection venues, and new
processing systems.
While the Company seeks to avoid forward-looking statements and
projections, it is factual to state that an agreement with Noranda, which is in
its second year calls for expenditures of $2,000,000. While this amount is
optional, it is a condition for maintaining the license agreement. 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.
Noranda is finalizing plans for surveys on two continents to be undertaken in
early 2000. These surveys should meet the client's second year cash flow
commitments under a contract extension.
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 first quarter 2000 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 is 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.
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: November 15, 1999 /s/ Larry F. Vance
---------------------------------
Larry F. Vance
Chairman of the Board