Back to GetFilings.com
-----------------------------------------------------------------------------
U.S. Securities and Exchange Commission
Washington, D.C. 20549
--------------------------
Form 10-K
(Mark One)
[ X ] ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
For the fiscal year ended December 31, 2000.
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
For the transition period from ____________ to ____________
Commission File No. 0-10634
---------------------------
Mining Services International Corporation
(Exact name of registrant as specified in its charter)
Utah 87-0351702
(State or other jurisdiction of incorporation or (I.R.S. Employer
organization) Identification No.)
8805 South Sandy Parkway
Sandy, Utah 84070-6408
(Address of principal executive offices, zip code)
Registrant's telephone number, including area code: (801) 233-6000
---------------------------
Securities registered pursuant to Section 12(b) of the
Act: None Securities registered pursuant to Section
12(g) of the Act:
Title of class
---------------
Common Stock, $0.001 Par Value
---------------------------
Check whether the Registrant (1) has filed all reports required to be
filed by Section 13 or 15(d) of the Securities 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 requirements for
the past 90 days. Yes X No ___
Check if disclosure of delinquent filers pursuant to Item 405 of
Regulation S-K is not contained herein, and will not be contained, to the best
of registrant's knowledge, in definitive proxy or information statements
incorporated by reference in Part III of this Form 10-K or any amendment to this
Form 10-K. [X ]
Based on the closing sales price of April 12, 2001, the aggregate
market value of the Common Stock held by non-affiliates was $5,229,795
(3,228,269 shares estimated to be held by non-affiliates). Shares of the Common
Stock controlled by each officer and director and by each person who may be
deemed to be an affiliate of the registrant have been excluded.
The number of shares outstanding of the registrant's par value $0.001
Common Stock as of April 12, 2001 was 7,314,260.
---------------------------
-----------------------------------------------------------------------------
Mining Services International Corporation
Table of Contents
Part I Page No.
--------
Item 1. Business 1
Item 2. Properties 6
Item 3. Legal Proceedings 7
Item 4. Submission of Matters to a Vote of Security Holders 7
Part II
Item 5. Market for Registrant's Common Equity and Related
Stockholder Matters 7
Item 6. Selected Financial Data 8
Item 7. Management's Discussion and Analysis of Financial Condition 8
and Results of Operation
Item 7A. Quantitative and Qualitative Disclosure about Market Risk 12
Item 8. Financial Statements and Supplementary Data F1
Item 9. Changes in and Disagreements with Accountants on Accounting
and Financial Disclosure 13
Part III
Item 10. Directors and Executive Officers of the Registrant 13
Item 11. Executive Compensation 15
Item 12. Security Ownership of Certain Beneficial Owners and
Management 18
Item 13. Certain Relationships and Related Transactions 19
Part IV
Item 14. Exhibits, Financial Statement Schedules, and Reports on
Form 8-K 20
PART I
Item 1. Business
General
Mining Services International Corporation ("MSI" or the "Company") is a
Utah corporation organized in 1979. The Company's primary products and services
include the manufacture, licensing and supply of commercial explosives used in
mining and construction throughout the world. In addition, its wholly owned
subsidiary, Nevada Chemicals, Inc. ("NCI"), owns a 50% interest in Cyanco
Company ("Cyanco"), an unincorporated joint venture with Degussa Corporation,
which manufactures and sells liquid sodium cyanide used in the extraction of
gold from gold deposits in the western United States.
Recent Business Developments
The Company's business development strategy is to grow as a worldwide
supplier of niche chemical products and services. Recent developments in the
Company's business are described below:
Sale of Explosives Business: The Company's management has been
evaluating the operations and business of the Company and quantifying the
potential and prospects associated with each of its investments in both sodium
cyanide and explosives. Accordingly on November 30, 2000 the Company entered
into an Asset Purchase Agreement to sell its explosives business to Union
Espanola de Explosivos S.A., ("UEE") subject to share holders' approval and
other conditions. The following is a brief summary of the terms of the
explosives business sale to UEE.
* The Company is selling nearly all of its explosives operations,
including physical assets, contractual rights, accounts
receivable, customer relationships, licensing agreements,
intellectual property, and the name "Mining Services
International" to UEE.
* As consideration for the purchase of the Company's explosives
business, UEE will pay the Company cash at the closing of the
transaction and will assume all liabilities of the Company
associated with the explosives business existing at the date of
closing, including a note payable of approximately $1 million to
the Company for funds advanced to the Explosives business by the
sodium cyanide operations of the Company. The purchase price is
subject to adjustment and UEE has the right to offset any
reductions in the purchase price arising from the contractual
adjustments or any indemnification obligations of the Company
against the amounts otherwise payable under the terms of the note
payable by it.
* UEE will make employment offers to all of the Company's employees
working within the explosives business, including the majority of
the Company's management, and the Company expects that nearly all
of its explosives business employees will become employees of
UEE.
* The Company will adopt a deferred compensation plan for its
management-level employees, which will be assumed by UEE on
completion of the sale.
* Seven members of the current management of the Company will
collectively acquire a 13.5% interest in the subsidiary formed by
UEE to purchase thee. In order to provide some financing to the
Company's executives who will be purchasing shares in the new
explosives company, the Company has agreed to buy back certain
shares of the Company currently held by the executives.
* Dr. John Day, the current president and chief executive officer
of the Company will remain in those positions with the Company
but will also enter into a three-year consulting agreement with
UEE pursuant to which he will initially devote between 77 and 123
hours per month to UEE, decreasing over the term of the agreement
to approximately 77 hours per month.
* The Company will be prohibited from competing in the explosives
industry for a period of seven years subsequent to the closing,
other than continuing operations through its West Africa
Chemicals joint venture on a scale similar to the current
operations.
* The Company will retain its Cyanco joint venture interest, which
will remain fully staffed with approximately 30 full-time
employees, the real property and improvements at which its
corporate facilities are located, and its 50% interest in West
Africa Chemicals, Ltd. The Company will lease its corporate
facilities to a UEE subsidiary at a rent based on rents for
similar properties in the surrounding locality.
1
* In connection with the sale of the explosives business to UEE,
the Company will need to change its corporate name.
The explosives industry has been undergoing significant consolidation,
and all of the major competitors of the Company are significantly larger than
the Company and have access to greater resources. The Company's board of
directors have concluded that in order to remain competitive, the Company's
explosives business would have to be significantly expanded. However, such
expansion requires a major capital expenditure or a merger with, or acquisition
of, other entities involved in the explosives industry. The Company explored a
number of alternatives, including acquiring complementary businesses, seeking
financing to fund the growth of the Company's explosives business, and using
internally generated funds and newly developed products to expand the explosives
business. Historically, the Company has been able to use the excess cash flow
generated by its sodium cyanide business to provide support in expanding the
explosives business. However, as the gold mining industry has slowed as a result
of persistent low gold prices, this business, while remaining profitable, has
decreased, reducing the cash available to the Company from this source. At the
same time, the trading price for the common stock of the Company has remained
low, making it difficult to negotiate an acquisition or seek equity funding
without significantly diluting the interests of existing shareholders.
Consequently, the Company has been unable to expand the explosives business on
acceptable terms. The sale of the Company's explosives business will
significantly narrow the focus of the Company. Following the sale, should it be
consummated, the Company will be primarily dependent upon the results of its
Cyanco joint venture and related cyanide technology owned by the Company.
Developments regarding Cyanco: During 1999 and 2000, worldwide gold
prices continued to be depressed, ranging between $250.00 and $320.00 per ounce.
Gold production in the Company's market area should remain relatively stable for
the foreseeable future as long as gold prices do not deteriorate. Gross margins
from sodium cyanide operations have been and are likely to remain depressed in
the short-run, however world-wide pricing has begun to strengthen from some
decrease in supply caused from plant closures and cut backs, which should
eventually provide improvement in the Nevada market. In addition, prices during
2000 increased to reflect increases in prices of raw materials such as natural
gas, ammonia and caustic soda. During the first quarter of 2000, Cyanco
successfully acquired the right to supply 100% of the cyanide requirements to a
large gold producer in Nevada, increasing its annual production by approximately
10,000,000 pounds. Cyanco continues to position itself as the low-cost producer
in its market area and made strides in technological development to increase its
freight logical market.
On December 19, 2000, the Company was issued a patent for the
production and shipping of certain metal cyanide salts, which may have the
effect of allowing the Company and Cyanco to extend its freight logical market
by providing a "wet cake" product in addition to its liquid product. Further
research and development of this product is being undertaken by the Company and
Cyanco.
Other Developments regarding Explosives Business:
-------------------------------------------------
During 2000, the Company continued to develop and secure partnering
arrangements for its explosives business worldwide, to develop its accessories
and EMGEL(R) packaged explosives products, and to secure major customers in the
United States and Canada. In September 1999, MSI acquired a 51% interest in
Tennessee Blasting Services, L.L.C. ("TBS"), a joint venture engaged in drilling
and blasting services in the Tennessee tri-city areas of Nashville, Knoxville
and Chattanooga. The joint venture more than achieved its revenue goal of
$7,000,000, but due to various circumstances had a loss of approximately $1.5
million during its first full year of operations. Management has changed its
immediate focus from revenue growth to cost containment and strategic marketing
changes in an attempt to make TBS profitable.
On December 9, 1998, MSI acquired a 100% interest in Green Mountain
Explosives, Inc. ("GME"), an explosives distribution and blasting services
company operating in the New England market. Its 2000 annual sales were
approximately $11.1 million compared to 1999 sales of approximately $8.6 million
and the Company believes revenues will continue to grow and represent a major
enhancement to the Company's U.S. market penetration into distribution, serving
as an outlet of its manufactured products and services.
In 1998, MSI also acquired 100% interest in O'Brien Design Associates,
Inc. ("ODA"), a company located in Charlestown, Rhode Island, which owns
technology and facilities for the production of certain explosive accessories.
During 1999, ODA completed its shock tube production plant and largely completed
its first detonating cord plant in 2000 and began production. The addition of
the accessories products to MSI's product line allows MSI to garner better
revenue and gross margin from existing accounts and provides strategic
advantages as it continues to supply full line explosives, drilling and blasting
services to its worldwide customer base.
During 1998, the Company entered into a joint venture with Norsk Hydro,
the largest fertilizer producer in the world, with whom the Company also has a
joint venture in Colombia, to produce and service bulk explosives operations in
the Kovdor Mining District in Russia. Norsk Hydro purchases fertilizer raw
materials mined at Kovdor, thus providing reasonable assurance that the
Company's joint venture will be able to achieve repatriation of earnings and
2
convertibility of local currency to U.S. dollars. The plant was completed in
June 2000 and beginning in July produced sales of over $1,000,000 by December.
The Plant is continuing to exceed initial production goals and should produce
approximately 7,000 tons of explosives during 2001.
The Company has committed to continue operations in Uzbekistan through
Turon-MSI Ltd ("Turon-MSI"), its 51% owned joint venture, without committing any
new capital investment, and the leading Uzbekistan gold mining enterprise has
committed to the joint venture that it will assist Turon-MSI in acquiring US
dollar conversion for raw materials. During 2000 it substantially lived up to
this commitment. The ability to convert local currency to dollars will enable
Turon-MSI to continue its operations. Assuming US dollar conversion continues
for raw material imports, Turon-MSI should be able to complete its contracts to
supply approximately 10,000 tons of explosives in 2001. The Company reports
results from the joint venture on a cash basis when profits are repatriated;
however, to date no profits have been able to be repatriated. Because of the
large future potential in having an established platform for growth in the
Central Asia mining area, the Company has determined to continue operations so
long as no significant external cash is needed to continue the operations.
The MSI and Norsk Hydro joint venture in Colombia produced explosives
during 1998 to support the mining of approximately four million metric tons of
coal. Production significantly decreased during 1999 due to curtailed mining
(approximately 1 million tons of coal compared to over three million tons of
coal in previous years), reflecting lower coal prices in Europe where much of
the Colombian coal is marketed. During late 1999 and 2000, however, the
Company's major coal customer achieved better prices and commitments for its
coal which will allow the Colombian customer to continue investing in less
expensive transportation and port facilities via railroad. During the second
half of 2000 coal production increased to an annualized level of three million
tons with the possibility of increasing its long-term output to 7 - 10 million
tons by 2003. For 2001 production levels should continue at or above the same
rate as experienced during the last half of 2000.
During 2000, the Company's operations in Ghana, a 50/50 joint venture
with Bulk Mining Explosives from South Africa, continued to decline consistent
with the decline in gold production in Ghana as a result of low gold prices.
Production was curtailed in the last half of the year. Accordingly, the Company
is considering several options at the present time, including sale of its Ghana
operations. As stated above, the Ghana operations are not part of the Asset
Purchase Agreement with UEE.
Description of Business and Products
Products and Markets: The Company, through its subsidiaries, licensees
and joint ventures, primarily services the surface mining and construction
industries. The Company's products are divided into explosives and related
products and liquid sodium cyanide.
Sodium Cyanide: The Company's joint venture with Degussa Corporation
for producing and marketing liquid sodium cyanide from the Winnemucca, Nevada
plant has concentrated on quality and service. There are principally two types
of products marketed to gold mines for the leaching process: (1) a solid
"briquette" sodium cyanide product which requires handling and physical
dissolution before use and (2) the type provided by Cyanco, a liquid sodium
cyanide which provides for greater personal and environmental safety and comes
ready-to-use for the mining customer. The manufacturing cost for the liquid
product is substantially lower than for the solid products when handling and
chemical adjustment costs are taken into account.
Since the liquid product is shipped by truck from the plant to the mine
site in a solution of about 30% sodium cyanide and 70% water, freight costs are
very significant and shipping must be managed carefully both in terms of safety
and environmental protection. Cyanco has contracted this service with an Omaha,
Nebraska company on a month-to-month basis which utilizes dedicated equipment
specifically designed for Cyanco. Cyanco is negotiating a new long-term freight
contract, which hopefully will be concluded during the second quarter of 2001.
There are two competitors in the western liquid market (see discussion
under "Competition"). One of Cyanco's advantages over its competitors is that it
is the only producer of liquid sodium cyanide which is manufactured completely
from raw materials at its plant in the gold district. Other competitors either
ship liquid product by rail to a transfer facility and then on to the mines by
truck or tanker or they ship solid products from distant plants to special tanks
or tankers where the product is dissolved before being discharged into mine site
vessels. The Company believes that its competitors are limited in their ability
to react quickly to changes in the market and to technological changes. Cyanco
is positioned to efficiently take advantage of these changes.
3
Explosives: The Company's products are used in the blasting operations
of surface mines in base and precious metals, coal and industrial minerals and
construction projects. The explosive products are divided into three major
categories: (1) Bulk explosives including HEF(R), a proprietary oil-in-water
emulsified oxidizer which enhances the quality and control of the explosion or
blast in order to produce more consistent breakage of ore; and ammonium nitrate
prill, acquired from third parties, used with HEF(R) and in ANFO, a common
explosive blasting agent used in surface boreholes which is made from a mixture
of ammonium nitrate prill and diesel fuel; (2) explosives accessories, such as
shock tube initiation systems and detonating cord which will be manufactured
from new plant facilities in Rhode Island and Connecticut in 2001; and (3)
packaged explosives (EMGEL(R)) which are currently being manufactured at the
Company's West Virginia Plant. In September 1993, the Company was granted a
patent on the compositions and methods used to formulate EMGEL(R) which is a
water-in-oil type emulsion explosive produced by emulsifying a water solution of
oxidizer salts into a blend of oils. The emulsion is then packaged into small
polyethylene cartridges or "chubs" and larger "shot" bags using special form and
fill machines. A variety of cartridge diameters and lengths can be produced. As
the emulsion is being loaded into the cartridges and bags, a trace quantity of a
cross-linking chemical is added to the composition which reacts and polymerizes
or crosslinks the entire mass into a soft, rubber-like material. The uniquely
crosslinked emulsion is stable and the package or cartridge and bags can be
punctured or split without product spills. This significantly improves the
handling characteristics of the explosive and provides additional safety in
transportation, storage and use.
With the addition of packaged explosives and accessories, the Company
has strengthened its position for worldwide market production. With both HEF(R)
and EMGEL(R), the Company is able to joint venture the technology and
manufacturing plants on a relatively small scale and enter markets where locally
produced explosive products have been unavailable due to cost or inadequate
infrastructure. With the technology and facilities know-how acquired from ODA,
the Company will also be positioned to supply its own explosives accessories to
certain niche markets in the U.S. and around the world.
In the U.S. and Canadian markets, the Company markets and services mine
and construction sites directly for its own account. The U.S. markets are
concentrated in New England, the West Virginia coal belt, the Wyoming, Montana
and Colorado coal belts, western U.S. surface gold operations, principally in
Nevada, industrial minerals in California and now in the Tennessee area.
Aggregates, tar sands and coal mining operations in western and central Canada
are also major markets where the Company markets for its own account.
The Company has traditionally licensed its HEF(R) technology directly
to mines or to explosive manufacturers or supply companies in foreign markets.
Currently, the Company has licensees in South Africa for sub-equatorial Africa,
Namibia, India and Korea.
Dependence on Customers: Since most of MSI's explosive and cyanide
customers are large surface mining companies, the number of companies it
services is relatively small compared to those of a wholesale distribution or
retail business. A net loss of such customers, which is not expected to occur,
could adversely affect 2001 sales. In most cases the Company has long-term
contracts with such customers. With the addition of accessories and packaged
products, MSI's customer base in explosives is increasingly made up of a larger
base of smaller customers, particularly in those areas focusing on building
materials and construction.
Patents, Trademarks and Licenses: The Company is the holder of six U.S.
patents, four of which relate to the composition and control of its HEF(R) and
EMGEL(R) emulsion products and two of which relate to methods of delivery of
explosives products at the mine site. These patents, which are not deemed
material to the Company's ability to compete in the explosives business, expire
at various dates beginning in 2004 and ending in 2013. The Company has obtained
similar patents in several foreign countries and has licensed all or parts of
its technology to manufacture HEF(R) and EMGEL(R) to companies in South Africa,
Namibia, India and Korea.
The composition of E-21 and the other emulsifier formulations upon
which the Company's HEF(R) emulsion products are based are proprietary
ingredients and are deemed important trade secrets by the Company. The Company
has also trademarked HEF(R) as a component of its bulk blasting agent and
EMGEL(R) as its crosslinked packaged emulsion explosive. The trademarks are
registered in the United States, Canada, South Africa and several other foreign
countries.
In March 1989, Cyanco obtained from Mitsubishi Gas Chemical Company,
Inc. ("Mitsubishi"), a Japanese corporation, in consideration of payment of a
one-time licensee fee, a perpetual license of a patented process and related
technical information covering the manufacture of hydrogen cyanide for use in
the manufacture of liquid sodium cyanide at the Cyanco plant. The license is a
nonexclusive, nonsublicensable and nontransferable right to use the technology
at the Cyanco plant, which is deemed materially important to the plant's
operation. The Mitsubishi license also provides the right to Cyanco for other
licenses for purposes of expansion at a reduced rate.
4
On December 19, 2000, the Company was issued a patent for the
production and shipping of certain metal cyanide salts which may have the effect
of allowing the Company and Cyanco to extend its freight logical market by
providing a "wet cake" product in addition to its liquid product.
Research and Development: Expenditures for technical research and
development for the fiscal years ended December 31, 2000, 1999 and 1998 were
$686,000, $805,000 and $587,000, respectively. The Company actively conducts
research on product improvement and development. The expenditures in each of the
years ending December 31, 2000, 1999 and 1998 were primarily related to the
Company's explosives business. There has not been any customer-sponsored
research and development.
Raw Materials: The Company has not experienced significant difficulty
in obtaining necessary raw materials used in the manufacture of its explosives
products and does not expect significant difficulty in obtaining raw materials
in the future except temporarily where import restrictions may occur due to lack
of convertibility of local currency to hard currency or other foreign political
or economic factors which may occur in countries experiencing capital shortages
or devaluations. The Company must compete with the agricultural market for a
major portion of its raw materials (ammonium and calcium nitrate). The supplies
of these products have been adequate in past years to meet the needs of
industrial as well as agricultural users. The Company has ensured its supply of
needed materials by entering into several supply agreements with the
manufacturers of these raw materials. The Company does not deem any of the
supply agreements to be a contract upon which its explosives business is
substantially dependent.
Long-term contracts for the raw materials required for the production
of liquid sodium cyanide by Cyanco have been obtained. Cyanco has entered into
long-term transportation agreements with Paiute Pipeline and Northwest Pipeline
for transportation services of natural gas to the Cyanco facility. Cyanco had
difficulty in obtaining other raw materials and during the recent energy related
events of the 2000-2001 winter, but Cyanco was able to supply its customers
without interruption. Alternative sources of supply are available for raw
materials at competitive prices.
Competition: The manufacture and sale of explosives and related
services and equipment is a highly competitive business. The continuing
cost-cutting measures implemented by owners of mines as the mining industry
consolidates places growing emphasis on lowering explosive prices. This emphasis
continues to adversely affect gross profit margins. The Company, in its efforts
to develop, manufacture and sell its products, is competing with a number of
companies having greater financial resources and more well established global
relationships in the industry than it does. The Company believes that ORICA,
formerly ICI Explosives, Austin Powder and Dyno Nobel Group are significant
competitors in the industry. Although the competitive position of the Company is
not relatively significant, the Company believes its bulk explosives and
packaged products have a number of advantages in product performance and safety
over products of its competitors (see "Products and Markets"). As the large
mining companies continue consolidating, the Company's strategy is to focus on
niche markets, providing full service and added value to the end users.
Historically the explosives business has experienced low margins and as
consolidation in the Industry continues, pressure on margins is expected to
increase.
The Cyanco plant represents one of two sources of delivered liquid
sodium cyanide in the Western United States. The world market for sodium cyanide
briquette or dry form is dominated by E.I. DuPont Nemours ("DuPont"). There
continue to be opportunities in the worldwide market for liquid sodium cyanide,
however, currently supply of dry product, worldwide, appears to be in balance.
Domestically, Cyanco's product competes with DuPont and also with FMC which
markets delivered liquid sodium cyanide. The Company believes that the important
competitive factors in the liquid sodium cyanide market are location, service
and quality. However, as gold prices have declined and Cyanco's innovations in
the marketplace have taken effect, liquid sodium cyanide price has become a
significant competitive factor. Cyanco expects that efforts to gain market share
during this period of lower gold prices may continue to keep product prices at
low levels during 2001 in the Nevada market, however, prices have risen in the
first quarter of 2001 to reflect higher costs of raw materials. Significant
gains in gross margin have not been obtainable to date.
Employees: The Company employs 107 full time employees in its direct
explosives operations. Employment at joint ventures include 28 permanent
employees at the Cyanco Plant in Winnemucca, Nevada, 16 local employees in
Colombia, 7 local employees in Ghana, 58 local employees in Uzbekistan and 50
employees at Tennessee Blasting Services, LLC, and approximately 12 employees in
Kovdor, Russia. In Canada and Uzbekistan, employees belong to labor unions. The
Company and its joint ventures consider relations with their employees to be
positive.
Environmental Regulation: The Company is subject to federal, state and
local laws regulating the protection of the environment in the handling, storage
and shipment of explosives materials. To date, except as noted below, compliance
with these regulations has not required material expenditures and has not
materially affected earnings or the competitive position of the Company. In
preparation for the manufacture and sale of liquid sodium cyanide at the Cyanco
5
plant, Cyanco incurred material capital expenditures relating to compliance with
environmental laws and regulations, including expenditures required for
specialty trucks and tankers and development of an emergency response plan in
the event of a spill of hazardous materials. Cyanco's operations are designed
such that no hazardous waste is created during the manufacture of its product.
The Company and Cyanco will continue to be subject to environmental laws, rules
and regulations in their respective operations. Compliance with such laws, rules
and regulations on an ongoing basis is not expected to require additional
material expenditures.
Item 2: Properties
The corporate offices of the Company, built in 1997, are located at
8805 South Sandy Parkway, Sandy, Utah. The corporate facilities, consisting of
1.8 acres, an office building and adjacent research and laboratory facilities,
were constructed by the Company at a cost of approximately $1.2 million. If the
proposed sale to UEE is completed this facility will be leased to a UEE
subsidiary at market rates.
Cyanco is the owner of approximately six hundred and forty (640) acres
located near Winnemucca, in Humboldt County, Nevada, upon which the Cyanco plant
is located. The Cyanco plant was expanded in 1997 to include a backup production
facility having a capacity equal to the capacity of the preexisting facility.
The combined capacity of the Cyanco plant is now at least 85 million pounds per
year.
All of the following facilities associated with the explosives
business, except for the facilities associated with the Ghana operations, will
be transferred to UEE in the event that the transaction is completed:
The Company manufactures HEF(R) and EMGEL(R) for sale to its mine
customers at facilities located on mine sites or adjacent to mine sites,
typically under leases tied to supply agreements. Joint venture facilities in
Colombia, Uzbekistan and Ghana are located on mine production facilities of a
major customer or leased from third parties. During 2000 construction of the
plant facilities for the Kovdor operation in Russia was completed. The facility
is located on mine property owned by the project's contract customer. The land
owners normally supply water, sewer, electricity and other infrastructure.
The Company leases a 640 acre site in Tooele County, Utah, which is
equipped with a fully developed test range and explosives magazine facility. The
Company currently leases the property on a year to year basis. The rent on the
property is approximately $16,000 per year. The Company also rents on a month to
month basis approximately 422 acres in Boone County, West Virginia that it uses
for manufacturing commercial explosives and emulsions. Rent on the property is
approximately $1,800 per month.
ODA owns the lot, office and facilities located at its principal place
of business at 366 Ross Hill Road, Charlestown, Rhode Island. In addition,
during 1999, ODA leased land for 15 years at $2,000 per month and has a 8,400
square foot manufacturing facility for its accessories business in Moosup,
Connecticut. It also has adequate access to magazines and testing facilities for
its explosives accessories products.
GME built its corporate offices during 1998 at a cost of approximately
$240,000, consisting of land, office building and other improvements, located at
Gold Lodge Avenue, Auburn, New Hampshire. It also rents and owns various
magazines near market areas for storage of explosives. The Company entered into
a long-term lease arrangement during 2000 to accommodate its needs for
explosives magazines. The magazine area of approximately 194 acres is located in
the immediate vicinity of the corporate offices. The annual lease rate for the
magazine is $30,000.
TBS leases approximately 1,000 square feet of office space in Jacksboro
and Nashville, Tennessee at an annual rate of $5,400. It also leases magazines
in areas convenient to its markets in eastern and middle Tennessee.
The property and facilities of the Company and its joint ventures,
including Cyanco are deemed adequate and suitable for their respective
operations.
6
Item 3: Legal Proceedings
There are no legal proceedings against the Company other than those of
a routine and immaterial nature.
Item 4: Submission of Matters to a Vote of Security Holders
There were no matters submitted to a vote of security holders during
the fourth quarter of the fiscal year.
PART II
Item 5: Market for the Registrant's Common Stock and Related Stockholder Matters
(a) Price Range of Common Stock. The common stock of
the Company is currently listed on the Nasdaq National Market ("NNM"),
under the symbol "MSIX." The following table sets forth the approximate
range of high and low closing prices for the common stock of the
Company during the periods indicated. The quotations presented reflect
inter-dealer prices, without retail markup, markdown, or commissions,
and may not necessarily represent actual transactions in the common
stock.
Closing Prices
--------------
High Low
---- ---
2000 First Quarter $3.687 $2.25
Second Quarter $2.75 $1.625
Third Quarter $2.75 $1.375
Fourth Quarter $2.25 $1.187
1999 First Quarter $7.38 $4.63
Second Quarter $5.63 $4.13
Third Quarter $4.63 $2.13
Fourth Quarter $4.50 $2.00
On April 12, 2001, the closing quotation for the common stock on
NNM was $1.62. As reflected by the high and low prices on the foregoing
table, the trading price of the Common Stock of the Company can be
volatile with dramatic changes over short periods. The trading price
may reflect market reaction to perceived changes in the industry in
which the Company sells products and services, the direction and
results of research and development efforts, and many other factors.
Investors are cautioned that the trading price of the common stock can
change dramatically based on changing market perceptions that may be
unrelated to the Company and its activities.
(b) Approximate number of equity security holders.
The approximate number of record holders of the Company's Common Stock
as of April 12, 2001 was 560 which does not include shareholders whose
stock is held through securities position listings.
(c) Dividends. The Company paid no dividends for the year
ended December 31, 2000. The Company paid cash dividends of $180,986 or
$.025 per share on December 15, 1999 and $184,590 or $.025 per share on
December 21, 1998. Payment of dividends is within the discretion of the
Company's Board of Directors and there are no material restrictions
that limit the ability to pay dividends on the Common Stock of the
Company.
7
Item 6: Selected Financial Data
The following consolidated selected financial data as of and for each
of the fiscal years in the five year period ending December 31, 2000 were
derived from audited financial statements of the Company and its consolidated
subsidiaries. The financial statements as of and for each of the fiscal years in
the five year period were audited by Tanner + Co., independent public
accountants. The data set forth should be read in conjunction with the
"Management Discussion and Analysis of Financial Condition and Results of
Operations" and the Company's Consolidated Financial Statements and related
Notes.
Year Ended December 31,
--------------------------------------------------------------------------
Operation Results Data: 2000 1999 1998 1997 1996
---- ---- ---- ---- ----
Operating revenues 39,130,000 30,608,000 29,865,000 26,969,000 25,172,000
Income (loss) from operations (5,715,000) (1,209,000) 5,819,000 6,400,000 6,084,000
Net income (loss) (4,031,000) 725,000 3,872,000 5,008,000 4,545,000
Earnings (loss) per common
share diluted (.55) .10 .52 .66 .60
Cash dividends declared
per common share - .025 .025 .020 .015
Balance Sheet Data
Total assets 34,806,000 34,461,000 31,919,000 24,701,000 19,846,000
Long-term debt 1,756,000 4,475,000 1,213,000 - 714,000
Stockholder's equity 20,245,000 24,351,000 24,077,000 20,605,000 15,769,000
Item 7: Management's Discussion and Analysis of Financial Condition and Results
of Operation
Results of Operations
Because of the significance of investment by the Company in joint
ventures ("JV" or "JV's") which are not consolidated, but accounted for under
the equity method, the following comparative schedule is prepared to clarify and
demonstrate the impact of JV operations underlying the Consolidated Revenue of
the Company during the periods ending December 31, 2000, 1999 and 1998. As
demonstrated below, the Company manages significantly more sales than is
reported in "Consolidated Revenue."
Non Consolidated Amount MSI's MSI's
Joint Venture Joint Venture Equity Included in Non-JV Consolidated
Sales Net Income MSI MSI Revenue Revenue Revenue
------------------ ------------- ------ ----------- ----------------- -------------
2000 $28,429,000 $4,488,000 50% $2,244,000 $36,886,000 $39,130,000
1999 $21,585,000 $5,022,000 50% $2,511,000 $28,097,000 $30,608,000
1998 $37,353,000 $9,978,000 50% $4,989,000 $24,876,000 $29,865,000
2000 vs. 1999
-------------
Revenues increased 28% from $30.6 million in 1999 to $39.1 million in
2000 as net sales increased $9.1 million for the period, resulting primarily
from an increase in the revenues of TBS and GME of $6.2 million and $2.5
million, respectively. However, the loss from operations increased $4.5 million
8
from $1.2 million for the year ended December 31, 1999 to $5.7 million for the
year ended December 31, 2000 as operating performance weakened by $2.1 million
for the same period and as the Company recognized an estimated impairment of its
explosives business assets of $5 million in connection with the proposed
transaction with UEE, which represented a $2.4 million increase from the $2.6
million impairment the Company recognized during the year ended December 31,
1999 on its joint ventures in Ghana and Uzbekistan.
The increase in TBS revenues of $6.2 million during the year ended
December 31, 2000 as compared to the year ended December 31, 1999 is reflective
of the consolidation of a full year of operating results at TBS in 2000 versus
the four-month start-up period consolidated in 1999. While TBS was able to
achieve its revenue goals, difficulties in managing its costs resulted in a net
loss to the Company's consolidated operating results of $1.1 million, including
general and administrative expenses attributable to TBS. Management does not
expect improvement in TBS's performance until organizational changes made in the
first quarter of 2001 have sufficient time to take effect, concurrent with TBS's
emergence from the traditional winter low-point of the construction industry's
yearly cycle. The $2.5 million or 29% increase in the revenues of GME for the
year ended December 31, 2000 compared to the year ended December 31, 1999 is
primarily the result of increased market penetration. The Company's Canadian
operation increased revenues nearly $600,000 or 21% from $2.8 million for the
year ended December 31, 1999 to $3.4 million for the year ended December 31,
2000 as its primary customer increased production.
After adding the general and administrative expenses of TBS and GME to
total Cost of Sales for the respective years, gross margin on Net Sales and
Royalties decreased $1.3 million for the year ended December 31, 2000 as
compared to the year ended December 31, 1999. The $1.3 million decrease consists
primarily of the $1.1 million increase in the loss from TBS when comparing 1999
to 2000. Additionally, the contribution from Royalties decreased approximately
$200,000 or 26% for the year ended December 31, 2000 as compared to the year
ended December 31, 1999. Increasing competition in the bulk explosives market in
the Western U.S. has added pressure to already small margins resulting in a
$700,000 decrease in contribution from the Company's Western U.S. division for
the year ended December 31, 2000 as compared the same period in 1999. This
decrease in contribution for the period was essentially offset by the combined
increase in contribution from GME and from the Company's Eastern U.S. and
Canadian divisions. For the year ended December 31, 2000 as compared to the
prior period, the increase in equity in earnings from CMS and EMS of $411,000
and $121,000, respectively, combined with a decrease in the equity loss from WAC
of $181,000 was not enough to offset the decrease in equity in earnings from
Cyanco of $980,000, resulting in a net decrease in equity in earnings for the
period of $267,000.
The general and administrative expenses of the Company increased from
$2.89 million for the year ended December 31, 1999 to $4.55 million for the year
ended December 31, 2000, for an increase of $1.66 million. In analyzing the
gross margin results of the Company's explosives operating units, the general
and administrative expenses of GME and TBS were considered components of the
direct contribution from those operating units. However, for purposes of
financial statement disclosure, general and administrative expenses for the
Company include the general and administrative expenses of GME and TBS. The $1.1
million of general and administrative expenses of GME for the year ended
December 31, 2000 remained relatively static, increasing 5% or $54,000, as
compared to 1999. However, the general and administrative expenses of TBS
increased $1.03 million from $240,000 for the year ended December 31, 1999 to
$1,270,000 for the year ended December 31, 2000. The increase in the general and
administrative expenses of TBS during the period is primarily attributable to
the consolidation of a full year of TBS operating results as compared to the
four months consolidated in 1999. However, the $1.03 million increase also
includes $350,000 of bad debt expense reflecting the inability of TBS to fully
manage its dramatic growth during the year ended December 31, 2000. Excluding
the results of TBS and GME, general and administrative expenses increased
$570,000 during the year ended December 31, 2000 compared to the prior year.
Approximately $250,000 of the increase is attributable to increased professional
fees and travel expenses related to the UEE transaction. An increase in fees
paid to the Company's Board of Directors accounted for $103,000 of the increase.
Additionally, bad debt expense unrelated to TBS increased $85,000 over the prior
period.
Other expenses, which consist primarily of interest expense, increased
$193,000 or 102% during the year ended December 31, 2000 as compared to the year
the ended December 31, 1999 as a result of increased borrowings to fund the cash
operating losses of the Company. The Company recognized a benefit for income
taxes of $1.57 million with an effective tax rate of 24% for the year ended
December 31, 2000 compared to a benefit of $550,000 and an effective tax rate of
38.6% for the year ended December 31, 1999. The difference between the statutory
rate and the 24% effective tax rate for the year ended December 31, 2000 is
primarily attributable to the recognition of the difference between the book and
tax basis of assets expected to be sold in the transaction with UEE.
9
1999 vs 1998
------------
Consolidated revenues increased in 1999 by only 2%; however, the slight
change included a $3.3 million or 14% increase in net sales offset by a $2.5
million or 50% decrease in equity earnings of joint ventures. The increase in
net sales consisted primarily of an increase in sales from GME of $7.6 million
and TBS of $1.5 million, largely offset by a decrease in the sales of the
Company's remaining US, Canadian and foreign joint venture explosives operations
of $5.4 million. Most of the $2.5 million decrease in equity earnings of joint
ventures was attributable to a decrease in Cyanco's 1999 earnings, with the
remainder of the decrease resulting from the decrease in equity in the earnings
of Turon-MSI and Cayman Mining Services Limited ("CMS").
Expectations of increased net sales in 1999 were realized with the
acquisition of GME and subsequently the establishment of TBS. However, the
Company's plans to offset the expected loss of revenues from the completed dam
project in California were delayed until several new projects in the Company's
western division were brought on line in the first half of 2000. Cyanco's
contribution to equity in earnings of joint ventures decreased as volumes and
prices for sodium cyanide fell in 1999 in response to the lowest gold prices in
20 years. Because of gold market conditions, the Company was able to negotiate
the elimination of deferred royalty obligations it had with respect to its
interest in Cyanco resulting in an extraordinary gain for the Company of $1.6
million, net of taxes.
The loss from operations for the year ended December 31, 1999 of $1.2
million represents a $7 million decrease from the $5.8 million income from
operations experienced during the same period in 1998. The $7 million decrease
is attributable to the decrease in equity in earnings of Cyanco as explained
above, combined with a net decrease in contribution from the Company's
explosives operations of $2 million, and the recognition of an impairment of
assets of $2.6 million.
As a result of the completion of the dam project in California in the
early part of 1999, combined with decreased coal production by customers in
Canada and Colombia, contribution from the Company's western US and Canadian
explosives divisions and the Company's Colombian joint venture decreased by a
total of $1.7 million when comparing 1999 to 1998. The inability of the
Company's joint venture in Uzbekistan to purchase raw materials resulted in a
decrease in production. Consequently, contribution from Turon-MSI decreased
$400,000 in 1999 as compared to 1998. In analyzing the results of the Company's
explosives operating units above, the general and administrative expenses of GME
and TBS were considered components of the direct contribution from those
operating units. However, for purposes of financial statement disclosure,
general and administrative expenses for the Company include the general and
administrative expenses of GME and TBS, which represent $1.3 million of the $1.6
million increase in general and administrative expenses in 1999 as compared to
1998. Although intensified effort toward product improvement contributed to the
1999 increase in research and development costs, the establishment of a more
resilient packaged emulsion product allowed the Company to reduce losses from
its West Virginia plant by approximately $200,000, and strengthened expectations
of realizing long-term benefit from the research through increased revenues from
packaged emulsions
In 1999, the impairment of assets represents a write-off of $2.6
million of the Company's investments in West Africa Chemicals Limited (WAC) and
Turon-MSI of $800,000 and $1.8 million, respectively, including a $700,000 note
receivable from WAC. Although the Company expects to receive payment for raw
materials and supplies it sells to its joint venture in Uzbekistan, due to
deteriorating conditions observed in the later part of 1999 the Company
considered the probability of converting profits from Turon-MSI into hard
currency to be remote. Additionally, depressed gold prices and an oversupply of
explosives products in Ghana have deterred WAC in obtaining market share
sufficient to sustain profitable operations in the long-term and have combined
to cause continuing losses. Accordingly, the Company determined in the last
quarter of 1999 that it was necessary to write off the respective investments.
Future recognition of income or loss from these equity method joint ventures
will occur as cash is either received or disbursed.
. The Company incurred interest expense of $190,000 versus $153,000 of
interest income that the Company earned in 1998.
10
Liquidity and Financial Resources
The Company's current ratio decreased from 3.57 to 1 as of December 31,
1999 to 1.19 to 1 as of December 31, 2000. Current assets increased $3.15
million as of December 31, 2000 compared to December 31, 1999 as NCI retained a
$1 million distribution it had received from Cyanco, taking an initial step
toward a potential future separation between the explosives business and the
cyanide business, and as net accounts receivable increased $1.48 million or 23%.
Inventories also increased $441,000 during the period. The increase in net
accounts receivable was principally due to the recognition by the Company of an
income tax receivable of $1.1 million resulting from the 2000 and 1999 net
operating losses, as well as the change to full-scale operations at TBS by
December 31, 2000 versus start-up operations existing at December 31, 1999.
Additionally, accounts receivable from CMS decreased approximately $400,000 as
the Company was reimbursed for expenditures it had made to procure equipment
leased by EMS from MCR, and as payments were received from Turon-MSI for
previous raw material shipments decreasing accounts receivable by $600,000.
Accounts receivable due from EMS increased $350,000.
Current liabilities increased just over $8 million from $2.73 million
as of December 31, 1999 to $10.75 million as of December 31, 2000. $3.6 million
of the increase was created as the Company delayed certain payments and, again,
as TBS moved from start-up operations during the last quarter of 1999 to
full-scale operations by the end of 2000. Current liabilities were also affected
by the increase in the Current Portion of Long-Term Debt. In September 1999, the
Company entered into a revolving line of credit agreement ("LOC") that expires
in August 2001. It had been the Company's expectation to extend the LOC at the
end of the third quarter 2000 to mature in August 2002. However, due to the
Company's marginal performance in the later part of 1999 and during 2000, the
Company will likely convert this commercial bank borrowing to an asset-based
borrowing in advance of the LOC's August 2001 maturity. Management believes that
the bank will agree to the refinancing. However, because the Company was not
able to extend the LOC, the entire balance of the loan has been reclassified as
a current liability. The Company had $4.2 million owing on its LOC as of
December 31, 2000. The Company had utilized up to $4.4 million of its LOC during
the year ended December 31, 2000. Due to conditions of default existing as of
September 30 and December 31, 2000, the bank increased the LOC rate of interest
from prime minus 1% to prime plus 0.25%.
The reclassification of the Current Portion of Long Term Debt, as well
as the Company's poor operating performance during 2000, have resulted in
technical defaults under the credit agreement. Management believes that the bank
will be willing to continue the financing relationship and waive the default.
The Company is currently in negotiations with the bank regarding the refinancing
and a decision by the bank was not available at the time of filing this report,
however, there is no assurance that the refinancing will be approved by the
bank.
The increase in the use of the Company's borrowing capacity has been
the result of poor operating performance, particularly at TBS. Rapid growth at
TBS resulted in the recognition that over $350,000 of its accounts would not
likely be collected. Accordingly, TBS wrote-off $150,000 of accounts receivable
against bad debt expense and reserved an additional $200,000 in the allowance
for doubtful accounts. Even though changes to the organization and the
capitalization of the joint venture are currently being negotiated and
management expects TBS's performance to improve during the second quarter of
2001, the losses sustained by TBS during the first quarter along with the
untimely collection on some of its accounts have left the future of the joint
venture uncertain if the Company elects not to fund TBS's excess cash flow
requirements. Reserves established against the Company's investment in TBS in
connection with the Company's recognition of impairment against its explosives
assets are deemed by management to be adequate.
Although the Company experienced a loss of $4 million during 2000, much
of the loss is the consequence of the establishment of non-cash reserves;
accordingly, the Company recognized net cash provided by operating activities of
$2.8 million. The Company increased its loans to CMS in the amount of $500,000
to fund operating growth during the year ended December 31, 2000. Additionally,
the Company made capital equipment acquisitions of $2.9 million during the year,
including $925,000 of accessories production equipment at ODA, $484,000 of
equipment related to the Company's joint venture in Russia, $650,000 for the
improvement of a magazine site at GME, and the purchase of 2 drills at TBS for
approximately $550,000.
Certain future expectations for the Company are materially dependent on
whether the Company can implement its business plan to sell the explosives
operations to UEE and utilize the proceeds in developing its other lines of
business. The sale of the explosives business to UEE is subject to a number of
conditions, including approval by the Company's shareholders, and there can be
no assurance it will be completed. In the event that the UEE transaction is not
completed and other possible transactions to sell the explosives business can
not be achieved, the Company's current capital structure may need to be revised
to provide for the anticipated growth requirements for both the explosives and
the cyanide lines of products or the Company may be in the position of
curtailing certain business activities in order to properly support the
long-term growth of the Company.
11
Inflation and Other Comments
The amounts presented in the financial statements do not provide for
the effect of inflation on the Company's operations or its financial position.
Amounts shown for property, plant and equipment and for costs and expenses
reflect historical cost and do not necessarily represent replacement cost or
charges to operations based on replacement cost. The Company's operations,
together with other sources, are intended to provide funds to replace property,
plant and equipment as necessary. Net income would be lower than reported if the
effects of inflation were reflected either by charging operations with amounts
that represent replacement costs or by using other inflation adjustments.
Because of inflation associated with the economies of underdeveloped
countries where the Company invests, there exists a substantial risk that the
value of investments in those jurisdictions may continue to erode. Additionally,
as has been the case with the Company's investment in Uzbekistan, the internal
balance of payment and capital shortages in some of those countries may limit
the ability to convert local currencies into hard currency necessary for
importing raw materials or remitting profits. Management intends to use
appropriate transfer pricing, investments in hedges, loans and other credit
facilities where practical and available to minimize the risks inherent in doing
business in these countries. The Company continues to pursue its policy of
investing with government entities or stable international and U.S. companies as
its partners to help insure its long-term success. To date, the Company has not
utilized any hedging activities to minimize exchange risks.
Within this Annual Report filed on Form 10-K, including this Item 7,
there are forward-looking statements made in an effort to inform the reader of
management's expectations of future events. These expectations are subject to
numerous factors and assumptions, any one of which, could have a material effect
on current expectations. These factors which may impact future results include,
but are not limited to, changes in world supply and demand for commodities,
particularly gold and coal, political, environmental, economic and financial
risks, especially those associated with underdeveloped and developing countries,
changes in demand for construction activities, major changes in technology which
could affect the mining industry as a whole or which could affect explosives and
sodium cyanide specifically, competition, the continued availability of highly
qualified technical and other professional employees of the Company who can
successfully manage the ongoing change and growth. The Company believes it is
taking appropriate actions in order to address these and other factors
previously disclosed; however, the actual results could materially differ from
those indicated in the statements made.
Item 7A: Quantitative and Qualitative Disclosure About Market Risk
The Company is exposed to market risk from changes in foreign currency
and interest rates. The Company manufactures and sells some of its products in
Colombia, Ghana, Uzbekistan and Canada. It also purchases products for raw
materials and for resale from additional foreign markets such as Australia and
India. In addition, the Company licenses its technology in other foreign
countries such as South Africa, India, Korea, and Namibia. Approximately 13% of
the Company's consolidated revenue is generated from foreign markets; however,
as explained in the Management's Discussion and Analysis of Operation, the
Company's sales in joint ventures are not reported in consolidated revenues and
the percentage of the Company's business in foreign countries will likely remain
significant. The Company manages its risk of foreign currency rate changes by
maintaining foreign currency bank accounts in currencies in which it regularly
transacts business and by maintaining hard currency accounts to which dollar
denominated contracts are credited. Most of the sales and purchase contracts are
denominated in US dollars except in Ghana and Uzbekistan where the investments
have now been written off. None of the license royalty payment obligations are
denominated in US dollars and are thus subject to the risks of currency rate
changes. All excess cash balances are immediately transferred to US dollar
accounts to the extent possible. Option contracts to hedge foreign currency
transactions are not used by the Company. The Company does not enter into
derivative contracts for trading in speculative purposes. Changes in the
currency rate are not expected to have a material impact on the Company's
results of operations currently. Sales contracts related to the Company's joint
venture in Russia are paid in local currency, though pegged to a dollar
12
denominated price. Although the amounts recognized for 2000 are not material to
the Company's financial statements, it is likely that sales receipts and leasing
contract receipts may be subject to significant time delay in converting them
from local currency to US dollars. Accordingly, equity in earnings from that
joint venture may be subjected to more currency exchange risk than is
experienced by the Company in other foreign joint ventures. It is not expected
that currency rate hedging transactions will be used in 2001.
The Company's cash equivalents and short-term investments and its
outstanding debt bear variable interest rates. The rates are adjusted to market
conditions. Changes in the market rate affects interest earned and paid by the
Company. The Company does not use derivative instruments to offset the exposure
to changes in interest rates. Changes in the interest rates are not expected to
have a material impact on the Company's results of operations.
Item 8: Financial Statements
The Financial Statements of the Company called for by this Item are
contained in a separate section of this report. See "Index to Financial
Statements" on Page F-1.
Item 9: Changes in and Disagreements with Accountants on Accounting and
Financial Disclosure
None.
PART III
Item 10: Directors and Executive Officers of the Registrant
(a) Information regarding the Board of Directors.
Nathan L. Wade, 72, has been a Director of the Company since June 1989.
Since 1953, Mr. Wade has been a Director and principal owner of Nate Wade
Subaru, a Salt Lake City, Utah automobile dealership for new and used
automobiles. Mr. Wade was appointed Chairman of the Board on January 21, 2000.
M. Garfield Cook, 60, was appointed to the Board of Directors of the
Company on April 4, 2000 and on April 25, 2000 was appointed as Co-Chairman of
the Board. From 1972 to 1989 Mr. Cook was President and Chief Executive Officer
of IRECO Chemicals, an industrial explosives company with about 1700 employees
serving the natural resource industry worldwide. He has served on the boards of
a number of corporations involved in the explosives and mining industry. He is
also a past Chairman of the Institute of Makers of Explosives in Washington,
D.C. From 1988 to 1995 Mr. Cook was Chairman of Non-Invasive Medical Technology
Corporation (NMT) involved in developing and producing specialized medical
devices, and from 1991 to 1995 he also served as Chairman of In-Line Diagnostics
Corporation (IDC), an affiliate of NMT. Mr. Cook has been a private investor
since 1995 and has served in executive positions with several civic
organizations in Salt Lake City. Mr. Cook is a 1966 graduate of the University
of Utah with a B.S. degree in Physics.
Dr. John T. Day, 61, has been President and Chief Executive Officer of
the Company since April 1993. He was one of the founders of the Company and from
1979 to 1993 was Executive Vice President with responsibility for plant design,
operations, equipment design and construction, and new product development. Dr.
Day was appointed a member of the Board of Directors on November 10, 1986 and
was appointed the Chief Executive Officer of the Company in 1993. Dr. Day
obtained a B.S. degree in Chemical Engineering from the University of Utah in
1964 and obtained a Sc.D. degree from MIT in 1972.
James E. Solomon, 51, C.P.A., was appointed a director of the Company
in March 2000. He is managing partner at Red Rock Investors, LLC, a venture
capital firm. Mr. Solomon specializes in maximizing value for small to mid-size
companies. He was formerly a financial manager at Exxon Corporation from 1972 to
1980. From 1980 to 1983 Mr. Solomon was Vice President of Farm Management
Company, one of the world's largest agricultural companies. Currently Mr.
Solomon is an Adjunct Professor at the Graduate School of Business at the
University of Utah.
13
James W. Sight, 45, was appointed a director of the Company on April 4,
2000. Mr. Sight graduated from the Wharton School of Finance in 1977. Mr. Sight
is an investor and financial consultant. He currently serves on the Boards of
Directors of US Home (NYSE), Westmoreland Coal (AMEX) and United Recycling
Industries.
Bryan Bagley, 37, was appointed a director of the Company on June 28,
2000. Since November 1991, Mr. Bagley has been a market maker for Wilson-Davis &
Company. From April 1990 through November 1991, Mr. Bagley was a trader for
Covey & Co. Previously he was a securities trader for Bagley Securities for four
years and in the late 1980's was a stockbroker for Wilson-Davis & Co. Mr. Bagley
graduated from the University of Utah in 1987 with a Bachelor of Science degree
in Economics.
Frances Flood, 44, was appointed a director of the Company on June 28,
2000. Ms. Flood is the President, Chief Executive Officer and Chairman of
Gentner Communications Corp. Ms. Flood joined Gentner in October 1996 as the
Vice President of Sales and Marketing. Prior to joining Gentner, Ms. Flood was
Area Director of Sales and Marketing for Ernst & Young, LLP, an international
accounting and consulting firm. She graduated from Thomas Edison State College
with a BS/BA degree in Banking and Finance.
(b) Information regarding Executive Officers:
In addition to Dr. Day, certain information is furnished with respect
to the following executive officers of the Company:
Richard M. Clayton, 59, was first employed by the Company from 1981 to
1983. Mr. Clayton joined the Company again in 1986 as Director of Marketing and
was appointed Vice President in 1991. Prior to joining the Company, Mr. Clayton
held key management and marketing positions with Texaco Petroleum Corporation
and Nitrate Services Corporation, an explosives company.
David P. Reddick, 44, has been employed by the Company since 1985 as
Director of Operations. In 1991 Mr. Reddick was appointed Vice President. Prior
to joining the Company, Mr. Reddick was associated with Cyprus Minerals in
operations management. Mr. Reddick obtained a B.S. degree in Resource Economics
from the University of California at Berkeley.
Duane W. Moss, 53, has been employed by the Company since December
1994, initially as Chief Financial Officer and Legal Counsel. Mr. Moss was
appointed Secretary of the Company in 1999 and in 2000 was named Senior Vice
President and General Counsel. Prior to joining the Company, Mr. Moss was a
self-employed financial and legal consultant and from 1989 to 1992 was the
Secretary, Treasurer and Chief Financial Officer of Alta Gold Co. Early in his
career, Mr. Moss was a Certified Public Accountant and senior tax professional
with Arthur Andersen & Co. Mr. Moss obtained a Juris Doctorate in 1976 and a
B.A. degree in Accounting in 1973 from the University of Utah.
Douglas W. Later, 48, has been employed by the Company since September
1998 as Assistant to the President. Due to the retirement of Dr. Lex L. Udy, Dr.
Later was appointed to manage the research and development activities of the
Company and the manufacturing of its packaged explosives products. During 2000
Mr. Later was named as a Vice President of the Company. From 1989 to 1998 Dr.
Later was president of Mountain States Analytical, a testing and research
laboratory. Dr. Later has eighteen years experience in the chemicals industry
and management of operations. He received his bachelor's degree in Chemistry in
1978 and a Ph.D. in analytical chemistry in 1982 from Brigham Young University.
Wade L. Newman, CPA, 42, has been employed by the Company since
February 1999 as the Company's Controller and during 2000 was named Vice
President and Chief Financial Officer. Mr. Newman was Vice President and CFO,
Secretary and Treasurer of Recovery Corporation from 1991 to 1999 and was with
Ernst & Young from 1985 to 1991 having served as a Manager in the audit
department. Mr. Newman received a Bachelor's degree in Accounting from Brigham
Young University in 1985.
14
(c) Section 16(a) Beneficial Ownership Reporting Compliance
------------------------------------------------------------
Section 16(a) of the Securities Exchange Act of 1934, as amended (the
"Exchange Act") requires the Company's executive officers and directors and
persons who own more than ten percent of a registered class of the Company's
stock, to file reports of initial ownership and changes in ownership with the
Securities and Exchange Commission (the "SEC"). Executive officers, directors
and persons who own more than ten percent of the Company's stock, are required
by SEC regulations to furnish the Company with copies of all Section 16(a) forms
they file. Based solely on a review of the copies of such forms furnished to the
Company and written representations from the Company's executive officers and
directors, the Company noted that all required forms, including amendments
thereto, were timely filed during the past fiscal year. The Company issues
monthly reminders to each executive and director of the Company to help ensure
timely filing of reports promulgated under Section 16(a) of the Exchange Act.
Item 11: Executive Compensation
Set forth below is information concerning the annual and long-term
compensation for services in all capacities to the Company and its affiliates
paid to (i) the Chief Executive Officer, (ii) the other most highly compensated
executive officers of the Company who were paid in excess of $100,000 (together
with the Chief Executive Officer, the "Named Executive Officers") and (ii)
Directors of the Company.
Compensation of Executive Officers
- ----------------------------------
The following table summarizes compensation received by the Named
Executive Officers of the Company for the three fiscal years ended December 31,
2000, 1999 and 1998.
Annual Compensation
-------------------
Name and Position Other Annual All Other
Salary Bonus Compensation Compensation
Year $ $(1) $(2) $(3)
- ------------------------ ---------- ----------------- ----------------- ----------------- -----------------
Dr. John T. Day 2000 175,000 0 14,452 4,155
President and Chief 1999 175,000 100,000 19,123 7,477
Executive Officer 1998 120,000 132,000 20,601 3,600
Duane W. Moss 2000 115,000 0 8,056 5,573
Sr. V.P. General 1999 100,000 10,000 4,550 3,087
Counsel and Secretary 1998 80,000 10,000 6,110 2,255
Dr. Douglas W. Later 2000 112,500 0 3,844 2,446
V.P. Technology & 1999 99,756 0 4,195 0
Services 1998 N/A N/A N/A N/A
Richard M. Clayton 2000 104,250 0 3,046 2,186
V.P. Marketing 1999 95,832 0 4,546 2,690
1998 77,700 12,500 9,542 2,331
David P. Reddick 2000 102,635 0 4,781 1,380
V.P. Operations 1999 93,500 0 5,423 2,866
1998 73,500 0 4,350 2,760
(1) Includes all cash and non-cash bonuses paid on a discretionary basis by the
Board of Directors as recommended by the Compensation Committee. In the
case of Dr. Day, the 1999 grant of a $100,000 bonus was not paid in 1999,
but was used to retire debt and accrued interest in 2000 and to exercise
the right to purchase his company vehicle pursuant to the Company's vehicle
policy.
(2) Includes life and disability insurance premiums and tax services paid on
behalf of Dr. Day and medical reimbursement payments, office and automobile
allowances and personal mileage on company-owned vehicles on the part of
other Named Executive Officers.
15
(3) Includes matching contributions made by the company on behalf of the Named
Executive Officers pursuant to the Mining Services International Profit
Sharing 401(k) Plan (the "Plan").
Option Grants in Last Fiscal Year
During 2000 each of the Directors, including Dr. Day, received stock
options for the Company's common stock in the amount of 39,500 options at an
exercise price of $1.437 per option, exercisable beginning on the day of grant,
August 2, 2000, for a period of five years. In addition each of the Named
Executive Officers and Wade Newman, CFO of the Company, received 10,000 options
for the Company's common stock at an exercise price of $2.313 per option,
exercisable beginning on the day of grant, April 25, 2000, for a period of three
years. The options granted to the directors and officers of the Company were
approved by the Board of Directors pursuant to the 1987 Stock Option Plan. The
following table sets for the information regarding Executive Officers:
- ----------------------------------------------------------------- ------------------------------------------- --------------
Individual Grants Potential realizable value at assumed Alternative
annual rates of stock price appreciation to (f) and
for option term (g): grant
date value
- ----------------------------------------------------------------- ------------------------------------------- --------------
Name Number of Percent of Exercise or Expiration Grant date
securities total base price Date present
underlying Options ($/Sh) 5% ($) 10%(f) value $
options granted to
granted employees in
(a) (b) fiscal year (d) (e) (f) (g) (h)*
(c)
- ------------------------ -------------- -------------- -------------- -------------- ------------ ----------- --------------
John T. Day 39,500 40% 1.437 8/1/2005 14,180 28,400 28,835
10,000 10% 2.313 4/24/2003 3,470 6,940 7,300
- ------------------------ -------------- -------------- -------------- -------------- ------------ ----------- --------------
Duane W. Moss 10,000 10% 2.313 4/24/2003 3,470 6,940 7,300
- ------------------------ -------------- -------------- -------------- -------------- ------------ ----------- --------------
Douglas W. Later 10,000 10% 2.313 4/24/2003 3,470 6,940 7,300
- ------------------------ -------------- -------------- -------------- -------------- ------------ ----------- --------------
Richard M. Clayton 10,000 10% 2.313 4/24/2003 3,470 6,940 7,300
- ------------------------ -------------- -------------- -------------- -------------- ------------ ----------- --------------
David P. Reddick 10,000 10% 2.313 4/24/2003 3,470 6,940 7,300
- ------------------------ -------------- -------------- -------------- -------------- ------------ ----------- --------------
Wade Newman 10,000 10% 2.313 4/24/2003 3,470 6,940 7,300
- ------------------------ -------------- -------------- -------------- -------------- ------------ ----------- --------------
*The Black-Scholes option pricing model was used
16
Aggregated Option/SAR Exercises and Fiscal Year End Option/SAR Value
- --------------------------------------------------------------------
The following table sets forth the aggregate value of unexercised
options to acquire shares of the Common Stock held by the Named Executive
Officers on December 31, 2000 and the value realized upon the exercise of
options by the Named Executive Officers during the fiscal year ended December
31, 2000, of which there were none. There are no stock appreciation rights
issued under the Plan.
Number of Value of Unexercised
Shares Unexercised In-the-Money Options/SARs
Acquired Options/SARs at FY-End ($)(1)
On Value At FY-End (#) Exercisable/Unexercisable
Name Exercise Realized Exercisable/Unexercisable
- ---------------------------- ----------- ----------- ----------------------------- ----------------------------
Dr. John T. Day None 49,500 0 $0.00 $0.00
President and Chief
Executive Officer
Duane W. Moss None 49,849 53,132 $0.00 $0.00
Sr. VP and General Counsel
Dr. Doug Later None 15,000 0 $0.0 $0.00
VP Technology & Services
Richard M. Clayton None 49,849 53,132 $0.0 $0.00
VP Sales & Marketing
David P. Reddick None 76,415 53,132 $0.0 $0.00
VP Operations
(1) Reflects the difference between the exercise price of the options granted
and the value of the Common Stock on December 31, 2000. The closing price
of the Common Stock on December 31, 2000, as reported by NASDAQ was $1.3438
per share. The options granted are subject to risks of forfeiture and a
vesting schedule. In the case of Mr. Moss, Mr. Clayton and Mr. Reddick
13,283 options may vest to each of them each year on the anniversary date
of the option grant, subject to Board of Directors approval.
17
Compensation of Directors
- -------------------------
There were fourteen (14) regular meetings of the Board of Directors
held during 2000. All of the applicable Directors were personally in attendance
or were present via teleconferencing at all of the meetings during the year.
Both Mr. Bagley and Ms. Flood were appointed to the Board on June 28, 2000.
During 2000 each non-employee director received a $7,200 annual fee
payable ratably in monthly payments of $600.00. In addition, the non-employee
directors receive one thousand dollars per board meeting attended and are
reimbursed for time spent on extra approved Board assignments at a per-diem rate
of one thousand dollars per day. During 2000, the following directors received
compensation for extra approved Board assignments: Garfield Cook $5,000, James
E. Solomon $12,000 and James Sight $7,000.
Item 12: Security Ownership of Certain Beneficial Owners and Management
The following tabulation shows as of April 12, 2001 the number of
shares of the Company's common stock, par value $0.001, owned beneficially by:
(a) all persons known to be the holders of more than five percent (5%) of the
Company's voting securities, (b) Directors, (c) named Executive Officers and (d)
all Officers and Directors of the Company as a group:
Amount and Natures of
Beneficial ownership (1)
------------------------
Name and Address of Beneficial Owner Shares Percent
E. Bryan Bagley -------------------------------------- 2,111,034(2) 27.1%
1470 Arlington Dr.
Salt Lake City, UT 84103
Dr. John T. Day ------------------------------------ 600,804(8) 7.7%
5 Dawn Hill
Sandy, Utah 84092
Edward N. Bagley Estate ------------------------------ 583,280 7.8%
8987 St. Ives Drive
Los Angeles, California 90069
Lex L. Udy ------------------------------------- 560,906(3) 7.2%
4597 Ledgemont Drive
Salt Lake city, Utah 84124
Nathan L. Wade ----------------------------------- 262,822(4) 3.4%
1207 South Main Street
Salt Lake City, Utah 84111
Duane W. Moss --------------------------------------- 85,593(5) 1.1%
7952 So. Siesta Drive
Sandy, UT 84093
David P. Reddick ----------------------------------- 115,018(7) 1.5%
140 Mather Road
McCall, Idaho 83638
All Officers and Directors
as a group (12 persons) ------------------------------ 3,429,418(6) 44.0%
- --------------------------------------------------------------------------------
(1) Unless otherwise indicated, each person identified in the table has sole
voting and investment power with respect to the Company's common stock
beneficially owned by such person. The total number of outstanding shares
included in the computation of percentages is 7,314,260 plus 487,613
options which are exercisable or become exercisable by executives and
directors within 60 days. The directors of the Company not named above, M.
Garfield Cook, James Solomon, James W. Sight and Frances Flood do not own
shares in the Company. Richard M. Clayton and Douglas W. Later individually
own significantly less than 1% of the outstanding shares of the Company.
18
(2) Includes 1,883,287 shares held by the BLA Irrevocable Investment Trust of
]which Mr. Bagley is a co-Trustee with his adult sister, Lisa Higley, who
lives in Colorado.
(3) Includes shares owned solely by Dr. Udy's wife and shares in a family
limited partnership.
(4) Includes shares held by a partnership of which Mr. Wade is a partner,
shares held in an IRA account for the benefit of Mr. Wade's spouse and
shares held by Mr. Wade's family members residing in his home; also
included are 39,500 options currently exercisable by Mr. Wade
(5) Includes options for 49,849 shares which are presently exercisable or will
become exercisable within 60 days.
(6) Includes shares controlled by Mr. Bagley as co-trustee of the BLA
Irrevocable Investment Trust and includes 487,613 options for shares which
are currently exercisable or which become exercisable by the directors and
executive officers of the Company within 60 days. Also included are shares
representing less than 1% owned by executive officers of the company,
including Mr. Clayton 13,298 shares, Dr. Later 5,000 shares and Mr. Newman
3,000 shares.
(7) Includes options for 76,415 shares which are presently exercisable or will
become exercisable within 60 days.
(8) Includes options for 49,500 shares which are presently exercisable or will
become exercisable within 60 days.
Item 13: Certain Relationships and Related Transactions
On April 10, 1998, the Company provided John T. Day a five-year loan of
$75,000 at LIBOR 30-day rate plus 1% adjusted annually on the anniversary date.
Interest is payable annually with principal due on the date of maturity. The
loan is secured with shares of Company stock owned by Dr. Day. As of December
31, 2000 the amount of the loan outstanding was $28,060.82 with accrued interest
of $4,280.82.
19
PART IV
Item 14: Exhibits, Financial Statement Schedules, and Reports on Form 8-K
1. a. The consolidated financial statements for the fiscal year ended
2000 of the Company and the report of independent certified
public accountants required in Part II, Item 8 are included on
pages F-1 to F-27.
b. Also included as financial statement schedules to the Annual
Report on Form 10-K as Exhibit 99 are:
The financial statements for the fiscal year ended 2000 of
Cyanco, a significant subsidiary reported on the equity method,
and the report of independent certified public accountants.
c. No other required financial statement schedules are listed
because they are not applicable or the required information is
shown in the Company's financial statements or notes thereto.
2. Exhibits:
3.2 Amendment to Articles of Incorporation to reflect the
one-for-five reverse stock split which became effective June 15,
1987 (Incorporated by reference from the Form 10-KSB Report filed
by the Company for the fiscal year ended December 31, 1987.)
Articles of Incorporation (Incorporated herein by reference from
Form 10-KSB filed by the Company for the fiscal year ended
December 31, 1985.)
3.4 Bylaws of the Corporation as amended March 1, 1988. (Incorporated
by reference from the 10-KSB Report filed by the Company for the
fiscal year ended December 31, 1987.) Bylaws of the Corporation
(Incorporated herein by reference from Form 10-KSB Report filed
by the Company for the fiscal year ended December 31, 1985.)
3.5 Bylaws of the Corporation as amended May 19, 1999.
4.1 1988 Nonqualified Stock Option Plan. (Incorporated by reference
from the Form 10-KSB Report filed by the Company for the fiscal
year ended December 31, 1987.)
4.2 Amendments to 1988 Nonqualified Stock Option Plan. (Incorporated
by reference from the Form S-8 Report filed by the Company on
July 7, 1997.)
4.3 Amended 1988 Nonqualified Stock Option Plan, amended as of May
19, 1999.
10.1 Joint venture (shareholder) agreement between the Company and
Norsk Hydro for joint venture in Colombia. (Incorporated by
reference from the Form 10-KSB Report filed by the Company for
the fiscal year ended December 31, 1996.)
10.2 Joint venture (shareholder) agreement between the Company and
Omnia Group via Chemical Holding International Limited.
(Incorporated by reference from the Form 10-KSB Report filed by
the Company for the fiscal year ended December 31, 1996.)
10.3 Extension of license agreement with Bulk Mining Explosives via
Dawn Holding Company. (Incorporated by reference from the Form
10-KSB Report filed by the Company for the fiscal year ended
December 31, 1996.)
10.4 Asset Purchase Agreement dated November 30, 2000 entered into by
and between the Company and UEE (this filing)
21 List of Subsidiaries
99 The financial statements for the fiscal year ended 2000 of
Cyanco, a significant subsidiary reported on the equity method,
and the report of independent certified public accountants.
3. Reports on Form 8-K
No reports on Form 8-K have been filed during the quarter ended
December 31, 2000.
20
SIGNATURES
Section 13 or 15(d) 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.
MINING SERVICES INTERNATIONAL CORPORATION
/s/ John T. Day
----------------------
John T. Day, President
Date: March 30, 2000
In accordance with the Exchange Act, this report has been signed below
by the following persons on behalf of the registrant and in the capacities and
on the dates indicated.
Signatures Capacity in Which Signed Date
- --------------------------------------------------------------------------------
/S/ Nathan L. Wade Co-Chairman of the Board of Directors April 17, 2001
Nathan L. Wade
/S/ Garfield Cook Co-Chairman of the Board of Directors April 17, 2001
Garfield Cook
/S/ John T. Day President, Chief Executive Officer April 17, 2001
John T. Day and Director (Principal Executive Officer)
/S/ Bryan Bagley Director April 17, 2001
Bryan Bagley
/S/ James Sight Director April 17, 2001
James Sight
/S/ James Solomon Director April 17, 2001
James Solomon
/S/ Fran Flood Director April 17, 2001
Fran Flood
/S/ Duane W. Moss General Counsel and Secretary April 17, 2001
Duane W. Moss
/S/ Wade Newman Vice President and Chief Financial April 17, 2001
Wade Newman Officer and Principal Accounting Officer
21
MINING SERVICES INTERNATIONAL CORPORATION
Consolidated Financial Statements
December 31, 2000 and 1999
MINING SERVICES INTERNATIONAL CORPORATION
Index to Consolidated Financial Statements
- --------------------------------------------------------------------------------
Page
----
Independent Auditors' Report F-2
Consolidated balance sheet F-3
Consolidated statement of operations F-4
Consolidated statement of stockholders' equity F-5
Consolidated statement of cash flows F-7
Notes to consolidated financial statements F-8
- --------------------------------------------------------------------------------
F-1
INDEPENDENT AUDITORS' REPORT
To the Board of Directors and Stockholders
of Mining Services International Corporation
We have audited the consolidated balance sheet of Mining Services International
Corporation and Subsidiaries as of December 31, 2000 and 1999, and the related
consolidated statements of operations, stockholders' equity, and cash flows for
the years ended December 31, 2000, 1999, and 1998. These consolidated financial
statements are the responsibility of the Company's management. Our
responsibility is to express an opinion on these consolidated financial
statements based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audits provide a reasonable basis for our opinion.
In our opinion, the consolidated financial statements referred to above present
fairly, in all material respects, the financial position of Mining Services
International Corporation and Subsidiaries as of December 31, 2000 and 1999, and
the results of their operations and their cash flows for the years ended
December 31, 2000, 1999, and 1998 in conformity with generally accepted
accounting principles.
TANNER + CO.
Salt Lake City, Utah
April 12, 2001
F-2
MINING SERVICES INTERNATIONAL CORPORATION
Consolidated Balance Sheet
(In thousands, except share amounts)
December 31,
- ----------------------------------------------------------------------------------------------------------
Assets 2000 1999
------
-----------------------------------
Current assets:
Cash $ 2,113 $ 975
Receivables, net 7,971 6,495
Inventories 2,248 1,807
Prepaid expenses 212 112
Current portion of related party notes receivable 250 250
-----------------------------------
Total current assets 12,794 9,639
Investment in and advances to joint ventures 12,886 12,846
Property, plant and equipment, net 7,647 9,165
Goodwill, net - 2,018
Related party notes receivable 1,086 633
Other assets 393 160
-----------------------------------
$ 34,806 $ 34,461
-----------------------------------
- ----------------------------------------------------------------------------------------------------------
Liabilities and Stockholders' Equity
------------------------------------
Current liabilities:
Accounts payable and accrued expenses $ 5,901 $ 2,257
Current portion of long-term debt 4,850 473
-----------------------------------
Total current liabilities 10,751 2,730
Long-term debt 1,756 4,475
Deferred income taxes 2,054 2,408
-----------------------------------
Total liabilities 14,561 9,613
-----------------------------------
Minority interest - 497
-----------------------------------
Commitments and contingencies - -
Stockholders' equity:
Common stock, $.001 par value, 500,000,000 shares
authorized 7,314,260 shares issued and outstanding 7 7
Capital in excess of par value 5,312 5,312
Cumulative foreign currency translation adjustments (456) (381)
Retained earnings 15,382 19,413
-----------------------------------
Total stockholders' equity 20,245 24,351
-----------------------------------
$ 34,806 $ 34,461
-----------------------------------
- ----------------------------------------------------------------------------------------------------------
See accompanying notes to consolidated financial statements.
F-3
MINING SERVICES INTERNATIONAL CORPORATION
Consolidated Statement of Operations
(In thousands, except share amounts)
Years Ended December 31,
- ----------------------------------------------------------------------------------------------------------
2000 1999 1998
-----------------------------------------------------
Revenue:
Net sales $ 35,889 $ 26,752 $ 23,414
Royalties 892 1,154 1,345
Equity in earnings of joint ventures 2,244 2,511 4,989
Other income 105 191 117
-----------------------------------------------------
39,130 30,608 29,865
-----------------------------------------------------
Costs and expenses:
Costs of sales 34,619 25,497 22,128
General and administrative 4,550 2,893 1,331
Research and development 686 805 587
Impairment of assets 4,990 2,622 -
-----------------------------------------------------
44,845 31,817 24,046
-----------------------------------------------------
Income (loss) from operations (5,715) (1,209) 5,819
Interest expense (509) (211) (16)
Other income 126 21 169
-----------------------------------------------------
Income (loss) before (provision) benefit for
income taxes, minority interest, and
extraordinary item (6,098) (1,399) 5,972
-----------------------------------------------------
Benefit (provision) for income taxes:
Current 1,216 426 (1,790)
Deferred 354 124 (310)
-----------------------------------------------------
1,570 550 (2,100)
-----------------------------------------------------
Income (loss) before minority interest and
extraordinary item (4,528) (849) 3,872
Minority interest in (income) loss 497 (25) -
-----------------------------------------------------
Income (loss) before extraordinary item (4,031) (874) 3,872
Extraordinary item - extinguishment of deferred
obligation - 1,599 -
-----------------------------------------------------
Net income (loss) $ (4,031) $ 725 $ 3,872
-----------------------------------------------------
Earnings (loss) per common share-basic $ (.55) $ .10 $ .53
-----------------------------------------------------
Earnings (loss) per common share-diluted $ (.55) $ .10 $ .52
-----------------------------------------------------
- ----------------------------------------------------------------------------------------------------------
See accompanying notes to consolidated financial statements.
F-4
MINING SERVICES INTERNATIONAL CORPORATION
Consolidated Statement of Stockholders' Equity
(In thousands, except share amounts)
Years Ended December 31, 2000, 1999, and 1998
- ----------------------------------------------------------------------------------------------------------
Cumulative
Capital in Foreign
Excess Currency
Common Stock of Par Translation Retained
Shares Amount Value Adjustments Earnings Total
-------------------------------------------------------------------------------
Balance at
January 1, 1998 7,353,344 $ 7 $ 5,416 $ - $ 15,182 $ 20,605
Comprehensive net income
calculation:
Net income - - - - 3,872 3,872
Other comprehensive
income-foreign currency
translation adjustment, net - - - 242 - 242
-----------
Comprehensive income 3,630
-----------
Shares issued for:
Exercise of stock options 33,407 - 119 - - 119
Acquisition of subsidiary 28,009 - 302 - - 302
Acquisition and retirement of
common stock 75,000 - 394 - - 394
Cash dividends paid - - - - (185) (185)
-------------------------------------------------------------------------------
Balance at
December 31, 1998 7,339,760 7 5,443 (242) 18,869 24,077
Comprehensive net income
calculation:
Net income - - - - 725 725
Other comprehensive
income-foreign currency
translation adjustment, net
- - - (139) - (139)
-----------
Comprehensive income 586
-----------
Acquisition and retirement of
common stock 25,500 - 131 - - 131
Cash dividends paid - - - - (181) (181)
-------------------------------------------------------------------------------
- ----------------------------------------------------------------------------------------------------------
See accompanying notes to consolidated financial statements.
F-5
MINING SERVICES INTERNATIONAL CORPORATION
Consolidated Statement of Stockholders' Equity
(In thousands, except share amounts)
Continued
- ----------------------------------------------------------------------------------------------------------
Cumulative
Capital in Foreign
Excess Currency
Common Stock of Par Translation Retained
Shares Amount Value Adjustments Earnings Total
-------------------------------------------------------------------------------
Balance at
December 31, 1999 7,314,260 7 5,312 (381) 19,413 24,351
Comprehensive net income
calculation:
Net loss - - - - (4,031) (4,031)
Other comprehensive
income-foreign currency
translation adjustment, net - - - (75) - (75)
-----------
Comprehensive loss - - - - - (4,106)
-----------
-------------------------------------------------------------------------------
Balance at
December 31, 2000 7,314,260 $ 7 $ 5,312 $ (456) $ 15,382 $ 20,245
-------------------------------------------------------------------------------
- ----------------------------------------------------------------------------------------------------------
See accompanying notes to consolidated financial statements.
F-6
MINING SERVICES INTERNATIONAL CORPORATION
Consolidated Statement of Cash Flows
(In Thousands)
Years Ended December 31,
- ----------------------------------------------------------------------------------------------------------
2000 1999 1998
----------------------------------------------
Cash flows from operating activities:
Net income (loss) $ (4,031) $ 725 $ 3,872
Adjustments to reconcile net income (loss) to net cash
provided by operating activities:
Depreciation and amortization 1,595 1,318 797
Provision and reserves for losses on assets 222 66 147
Loss (gain) on disposal of equipment 1 (11) (14)
Stock compensation expense - 37
Distributed (undistributed) earnings of joint
ventures (245) 1,490 (11)
Impairment of assets 4,990 2,622 -
Extraordinary item - extinguishment of deferred
obligation - (2,422) -
Deferred income taxes (354) (124) 305
(Increase) decrease in:
Receivables (1,711) (692) (1,735)
Inventories (441) (86) 320
Prepaid expenses (100) 8 185
Other assets (233) 61 157
Increase (decrease) in:
Accounts payable and accrued expenses 3,644 (686) (174)
Minority interest (497) 25 -
----------------------------------------------
Net cash provided by
operating activities 2,840 2,294 3,886
----------------------------------------------
Cash flows from investing activities:
Proceeds from the sale of plant and equipment 35 62 74
Increase in notes receivable (500) (58) (475)
Payments on note receivable 47 100 250
Purchase of plant and equipment (2,945) (3,971) (1,189)
(Investment in) retainment from joint ventures 3 (507) (1,196)
Net cash paid in acquisition - - (2,399)
Capital contribution from minority interest - 472 -
----------------------------------------------
Net cash used in
investing activities (3,360) (3,902) (4,935)
----------------------------------------------
Cash flows from financing activities:
Proceeds from long-term debt 2,241 3,890 700
Payments on long-term debt (583) (1,309) -
Retirement of common stock - (131) (394)
Cash dividend paid - (181) (185)
Issuance of common stock - - 82
----------------------------------------------
Net cash provided by
financing activities 1,658 2,269 203
----------------------------------------------
Net increase (decrease) in cash 1,138 661 (846)
Cash, beginning of year 975 314 1,160
----------------------------------------------
Cash, end of year $ 2,113 $ 975 $ 314
----------------------------------------------
- ----------------------------------------------------------------------------------------------------------
See accompanying notes to consolidated financial statements.
F-7
MINING SERVICES INTERNATIONAL CORPORATION
Notes to Consolidated Financial Statements
(In thousands, except share amounts)
December 31, 2000, 1999, and 1998
- --------------------------------------------------------------------------------
1. Organization Organization
and Mining Services International Corporation (the Company)
Significant and its wholly owned subsidiaries, MSI Chemicals Ltd.
Accounting (MSIC), Central Asia Chemicals LTD (CAC), O'Brien Design
Policies Associates, Inc.(ODA) which the Company acquired
effective October 30, 1998, Green Mountain Explosives,
Inc. (GME) which the Company acquired effective December
9, 1998, MSI Russia, L.L.C. (MSIR) which the Company
organized effective October 16, 1998, and MSI
International Holding Company, Ltd. (MSI IHC), are
primarily engaged in the development, manufacture and
sale of bulk explosives and related support and
services. In addition, Nevada Chemicals, Inc., also a
wholly-owned subsidiary, has a fifty percent interest in
Cyanco Company (Cyanco), a non-corporate joint venture,
which is engaged in the manufacture and sale of liquid
sodium cyanide. The Company also owns 51% of Tennessee
Blasting Services, L.L.C (TBS), which was established
September 1, 1999. TBS provides drilling, blasting and
explosives resale services and its accounts are included
in the Company's consolidated financial statements,
including accounts which represent the minority
interest. During the fourth quarter of 2000, TBS reached
a deficit in stockholder equity and as such the Company
reduced the minority interest to $0. Since that time,
the Company has recorded 100% of the results of TBS
operations. The financial statements reflect the
investment in joint ventures of which the Company owns a
50% or less interest under the equity method of
accounting. Summarized financial information for these
joint ventures is included in note 15.
The acquisitions of ODA and GME were accounted for as
purchase transactions.
- --------------------------------------------------------------------------------
F-8
MINING SERVICES INTERNATIONAL CORPORATION
Notes to Consolidated Financial Statements
(In thousands, except share amounts)
Continued
- --------------------------------------------------------------------------------
1. Organization Organization - Continued
and The Company has an agreement with Production Association
Significant "Ammofos" of Almalyk, the Republic of Uzbekistan (PAA),
Accounting a government owned chemical producer. The Agreement
Policies creates a joint venture with the Company and PAA which
Continued operates under a limited liability enterprise organized
under Uzbekistan laws. The enterprise is called
Turon-MSI Ltd., in which MSI holds a 51% interest
through MSI IHC and PAA holds a 49% interest. MSI has
committed to supply plant and equipment along with its
technological know-how in return for its interest in the
joint venture and PAA has committed to provide the
infrastructure of the plant. Effective December 28,
1999, MSI transferred its ownership of Turon - MSI Ltd.
to MSI IHC. Due to inability to date of obtaining
conversion of profits to hard currency, the Company
determined in the fourth quarter of 1999 to write-off
its investment in Turon - MSI. The Company only
recognizes income or loss as cash is either received or
disbursed.
MSIR owns a 50% interest in Eastern Mining Services Ltd.
(EMS), a Russian company registered in Moscow, to
manufacture and deliver bulk explosives in the Kovdor
mining district in Russia.
The Company owns a 50% interest in a joint venture in
Grand Cayman called Cayman Mining Services Limited
(CMS). CMS owns virtually all of Colombia Mining Supply
and Services Limited (SSMC), a Colombia- based company,
which has an agreement to manufacture and supply mining
explosives in Colombia. CMS also owns 100% of Mining
Capital Resources Ltd., which leases plant and equipment
to EMS for its Russian operations.
The Company also has a joint venture to manufacture and
supply explosives in West Africa. The joint venture
operates as a Ghanaian company called West Coast
Explosives Limited (WCE). WCE is wholly owned by West
Africa Chemicals Limited (WAC), a Mauritius company
owned 50% by the Company. In the fourth quarter of 1999,
the Company wrote-off its investment in WAC, including a
note receivable, due to the unlikelihood of realizing
profits in this market where explosives supply now
exceeds demand. Similar to its investment in Turon -
MSI, Ltd., the Company will only recognize income or
loss as cash is either received or disbursed.
- --------------------------------------------------------------------------------
F-9
MINING SERVICES INTERNATIONAL CORPORATION
Notes to Consolidated Financial Statements
(In thousands, except share amounts)
Continued
- --------------------------------------------------------------------------------
1. Organization Organization - Continued
and On November 30, 2000 the Company entered into an Asset
Significant Purchase Agreement to sell its explosives business.
Accounting Pursuant to such agreement, the Company will sell
Policies substantially all of the assets, subsidiaries and
Continued certain joint venture interests of the explosives
manufacturing, services and supply business. The Company
will maintain its investment in the corporate office
building, Cyanco and WAC (see note 8).
Principles of Consolidation
The consolidated financial statements include the
accounts of the Company, and its consolidated
subsidiaries. All significant intercompany balances and
transactions have been eliminated.
Cash Equivalents
For purposes of the statement of cash flows, cash
includes all cash and investments with original
maturities to the Company of three months or less.
Inventories
Inventories are recorded at the lower of cost or market,
cost being determined on a first-in, first-out (FIFO)
method.
Property, Plant and Equipment
Property, plant and equipment are recorded at cost, less
accumulated depreciation. Depreciation and amortization
on capital leases and property, plant and equipment are
determined using the straight-line method over the
estimated useful lives of the assets or terms of the
lease. Expenditures for maintenance and repairs are
expensed when incurred and betterments are capitalized.
Gains and losses on sale of property, plant and
equipment are reflected in net income.
- --------------------------------------------------------------------------------
F-10
MINING SERVICES INTERNATIONAL CORPORATION
Notes to Consolidated Financial Statements
(In thousands, except share amounts)
Continued
- --------------------------------------------------------------------------------
1. Organization Goodwill
and Goodwill reflects the excess of the costs of purchasing
Significant GME over the fair value of the related net assets at the
Accounting date of acquisition, and is being amortized on the
Policies straight-line basis over 10 years. Amortization of
Continued goodwill began January 1, 1999. Amortization expense
totaled $224, $225 and $0 in 2000, 1999 and 1998,
respectively. On November 30, 2000 the Company entered
into an asset purchase agreement for the sale of its
explosives business. As a result of the proposed
transaction the Company has recognized an impairment
against assets related to its explosives business and
has eliminated all unamortized goodwill as of December
31, 2000 (see Note 8).
Other Assets
Certain items included in other assets are amortized
over five years using the straight-line method.
Amortization expense totaled $4, $4, and $4, in 2000,
1999, and 1998, respectively.
Translation of Foreign Currencies
The cumulative effect of currency translation
adjustments are included in stockholders' equity. These
items represent the effect of translating assets and
liabilities of the Company's foreign operations.
Generally for joint ventures, unrealized gains and
losses resulting from translating foreign companies'
assets and liabilities into U.S. dollars are accumulated
in an equity account on the joint venture's balance
sheet, which is reported using the equity method, until
such time as the company is sold or substantially or
completely liquidated. Translation gains and losses
relating to operations of companies where hyperinflation
exists are included in equity in earnings from joint
ventures.
Revenue Recognition
Revenue is recognized upon shipment of product or
performance of services.
Income Taxes
Deferred income taxes are provided in amounts sufficient
to give effect to temporary differences between
financial and tax reporting, principally related to
depreciation and undistributed earnings from
foreign-based joint ventures, which qualify under
certain tax deferral treatment.
- --------------------------------------------------------------------------------
F-11
MINING SERVICES INTERNATIONAL CORPORATION
Notes to Consolidated Financial Statements
(In thousands, except share amounts)
Continued
- --------------------------------------------------------------------------------
1. Organization Earnings Per Common Share
and The computation of earnings per common share is based on
Significant the weighted average number of shares outstanding during
Accounting the year.
Policies
Continued The computation of earnings per common share assuming
dilution is based on the weighted average number of
shares outstanding during the year plus the weighted
average common stock equivalents which would arise from
the exercise of stock options outstanding using the
treasury stock method and the average market price per
share during the year.
Concentration of Credit Risk
Financial instruments which potentially subject the
Company to concentration of credit risk consist
primarily of trade receivables. In the normal course of
business, the Company provides credit terms to its
customers. Accordingly, the Company performs ongoing
credit evaluations of its customers and maintains
allowances for possible losses which, when realized,
have been within the range of management's expectations.
The Company's customer base consists primarily of mining
companies. Although the Company is directly affected by
the well-being of the mining industry, management does
not believe significant credit risk exists at December
31, 2000.
The Company maintains its cash in bank deposit accounts
which, at times, may exceed federally insured limits.
The Company has not experienced any losses in such
accounts and believes it is not exposed to any
significant credit risk on cash and cash equivalents.
Use of Estimates in the Preparation of Financial
Statements
The preparation of financial statements in conformity
with generally accepted accounting principles requires
management to make estimates and assumptions that affect
the reported amounts of assets and liabilities and
disclosure of contingent assets and liabilities at the
date of the financial statements and the reported
amounts of revenues and expenses during the reporting
period. Actual results could differ from those
estimates.
- --------------------------------------------------------------------------------
F-12
MINING SERVICES INTERNATIONAL CORPORATION
Notes to Consolidated Financial Statements
(In thousands, except share amounts)
Continued
- --------------------------------------------------------------------------------
1. Organization Reclassification
and Certain amounts in the 1999 and 1998 consolidated
Significant financial statements have been reclassified to conform
Accounting with classifications adopted in the current year.
Policies
Continued
2. Detail of
Certain
Balance
Sheet
Accounts December 31,
-----------------------------
2000 1999
-----------------------------
Receivables:
Trade receivables $ 6,051 $ 4,938
Income tax refund receivable 1,110 -
Related party receivables (see Note 10) 920 1,653
Other 215 117
Less allowance for doubtful accounts (325) (103)
-----------------------------
$ 7,971 $ 6,605
-----------------------------
Inventories:
Raw materials $ 761 $ 737
Finished goods 1,487 1,070
-----------------------------
$ 2,248 $ 1,807
-----------------------------
Accounts payable and accrued expenses:
Trade payables $ 4,757 $ 1,422
Accrued expenses 1,144 835
-----------------------------
$ 5,901 $ 2,257
-----------------------------
- --------------------------------------------------------------------------------
F-13
MINING SERVICES INTERNATIONAL CORPORATION
Notes to Consolidated Financial Statements
(In thousands, except share amounts)
Continued
- --------------------------------------------------------------------------------
3. Property, Property, plant and equipment consists of the following:
Plant and
Equipment December 31,
--------------------------
2000 1999
--------------------------
Plant equipment and fixtures $ 8,761 $ 9,501
Support equipment and fixtures 5,319 5,586
Office equipment and fixtures 370 537
Vehicles 546 642
Land 107 107
--------------------------
15,103 16,373
Less accumulated depreciation
and amortization (7,456) (7,208)
--------------------------
$ 7,647 $ 9,165
--------------------------
4. Related Notes receivable are comprised of the following:
Party Notes
Receivable December 31,
--------------------------
2000 1999
--------------------------
Unsecured note receivable
from CMS, in annual
installments of $250 and
semi-annual interest
payments at the rate of
1.5% above the six-month
LIBOR $ 1,250 $ 750
Notes receivable from
officers of the Company
secured by stock, interest
payments due annually at 1%
above the three-month LIBOR,
principal due in full
April 2003 and June 2004 86 133
-------------------------
1,336 883
Less current portion (250) (250)
-------------------------
$ 1,086 $ 633
-------------------------
- --------------------------------------------------------------------------------
F-14
MINING SERVICES INTERNATIONAL CORPORATION
Notes to Consolidated Financial Statements
(In thousands, except share amounts)
Continued
- --------------------------------------------------------------------------------
5. Long-Term Long-term debt is comprised of the following:
Debt
December 31,
--------------------------
2000 1999
--------------------------
Line of credit agreement,
secured by a blanket lien
on all assets, which allows
the Company to borrow a
maximum amount of $4,500 at
the bank's prime rate plus
.25%, due August 31, 2001.
At December 31, 2000 the
Company was not in
compliance with certain
loan covenants related to
financial ratios and is
therefore technically in
default with the line of
credit $ 4,195 $ 2,916
Notes payable to financial
institutions, due in monthly
installments of $37,
including interest ranging
from 7.35% to 9.75%, secured
by property 1,230 563
Unsecured performance
deposit payable to a company,
due in monthly installments
of $16, including imputed
interest at 7%, due on
December 9, 2003 503 649
Notes payable to individuals,
due in monthly installments
of $13, including interest at
12%, secured by property and
equipment, due December 9,
2003 402 507
Construction loan payable
in monthly installments of
$2, including interest at
8.15%, secured by property,
due April 10, 2004 230 241
Unsecured non-compete
agreement payable to an
individual, due in monthly
installments of $1, including
imputed interest at 7%, due
December 9, 2003 36 47
- --------------------------------------------------------------------------------
F-15
MINING SERVICES INTERNATIONAL CORPORATION
Notes to Consolidated Financial Statements
(In thousands, except share amounts)
Continued
- --------------------------------------------------------------------------------
5. Long-Term Mortgage note payable to an
Debt individual, due in annual
Continued installments of $2,
including interest at 10%,
due October 13, 2003 10 13
-------------------------
Loan payable to a Company,
due in monthly
installments of $2,
including interest at 9.5%,
secured by property, due
August 1, 2000 - 12
-------------------------
6,606 4,948
Less current portion (4,850) (473)
-------------------------
$ 1,756 $ 4,475
-------------------------
Future maturities of long-term debt are as follows:
Year Ending December 31: Amount
------------------------ -----------------
2001 $ 4,850
2002 714
2003 711
2004 318
2005 13
-----------------
$ 6,606
-----------------
- --------------------------------------------------------------------------------
F-16
MINING SERVICES INTERNATIONAL CORPORATION
Notes to Consolidated Financial Statements
(In thousands, except share amounts)
Continued
- --------------------------------------------------------------------------------
6. Operating During the year ended December 31, 2000, the Company
Leases leased certain vehicles, property, and equipment under
various non-cancelable operating leases. Lease expense
relating to the operating leases was approximately $245,
$160 and $10 for the years ended December 31, 2000, 1999
and 1998, respectively. Future minimum lease payments
are as follows:
Year Ending December 31: Amount
------------------
2001 $ 194
2002 122
2003 62
------------------
$ 378
------------------
7. Income The current provision for income taxes represents U.S.
Taxes federal income taxes, taxes withheld on royalties and
other foreign income taxes.
The benefit (provision) for income taxes is different
than amounts which would be provided by applying the
statutory federal income tax rate to (loss) income
before benefit (provision) for income taxes for the
following reasons:
Years Ended December 31,
-------------------------------------------
2000 1999 1998
-------------------------------------------
Federal income tax benefit
(provision) at statutory rate $ 2,073 $ 476 $ (2,030)
Goodwill (420) - -
Life insurance and meals (23) 6 (12)
Other (60) 68 (58)
-------------------------------------------
$ 1,570 $ 550 $ (2,100)
-------------------------------------------
- --------------------------------------------------------------------------------
F-17
MINING SERVICES INTERNATIONAL CORPORATION
Notes to Consolidated Financial Statements
(In thousands, except share amounts)
Continued
- --------------------------------------------------------------------------------
7. Income Deferred tax assets (liabilities) are comprised of the
Taxes following:
Continued
December 31,
----------------------------
2000 1999
----------------------------
Depreciation and amortization $ (3,311) $ (2,912)
Deferred income (556) (216)
Write-down of impaired assets 1,151 600
Foreign tax credit carryforward 438 120
Other 224 -
----------------------------
$ (2,054) $ (2,408)
----------------------------
8. Impairment Pursuant to the Asset Purchase Agreement, the Company
of Assets will sell substantially all of the assets, subsidiaries
and certain joint venture interests of the explosives
manufacturing, services and supply business. The Company
will maintain its investment in Cyanco and WAC. Based on
the estimated sales proceeds and the net book value of
the assets to be sold it was determined that the Company
would recognize a loss of approximately $4.99 million
upon the sale. Accordingly, as of December 31, 2000, the
Company recognized an estimated impairment of $1,794
related to goodwill, $3,086 related to property plant
and equipment, and $110 related to its investment in and
advances to joint ventures.
During the year ended December 31, 1999, the Company
evaluated the carrying value of its investments in and
advances to joint ventures based upon projected future
cash flows. Based on this evaluation the Company
recorded an aggregate non-cash expense for the
impairment as follows:
Investment in and advances to foreign
joint ventures $ 1,922
Related party notes receivable from foreign
joint ventures 700
--------------
$ 2,622
--------------
At December 31, 1999, equity in earnings of joint
ventures included approximately $140 of interest income
relating to the impairment.
- --------------------------------------------------------------------------------
F-18
MINING SERVICES INTERNATIONAL CORPORATION
Notes to Consolidated Financial Statements
(In thousands, except share amounts)
Continued
- --------------------------------------------------------------------------------
9. Supplemental During the year ended December 31, 1998, officers and
Cash Flow shareholders retired common stock with a market value of
Information $1,091 in order to exercise stock options, pay notes
receivable, related interest, and advances.
Actual amounts paid for interest and income taxes are as
follows:
Years Ended December 31,
-----------------------------------------------------
2000 1999 1998
-----------------------------------------------------
Interest $ 509 $ 211 $ 16
-----------------------------------------------------
Income taxes $ 127 $ 801 $ 1,965
-----------------------------------------------------
10. Related Party The Company performs certain functions for Cyanco for
Transactions which it receives a fee. The fee is offset against costs
of sales. Fees totaled $342, $287 and $326, for the
years ended December 31, 2000, 1999, and 1998,
respectively.
At December 31, 2000 and 1999, the Company had
receivables of $920 and $1,653, respectively, from joint
ventures (see Notes 1 and 2).
As of December 31, 2000 and 1999, the Company had notes
receivable from joint ventures of $1,250 and $750,
respectively (see Note 4).
As of December 31, 2000 and 1999, the Company had notes
receivable from officers of the Company for $86 and$133,
respectively (see Note 4).
For the years ended December 31, 2000, 1999 and 1998,
the Company recognized interest income of $105, $191,
and $117, respectively, related to notes receivable from
joint ventures.
During the years ended December 31, 2000, 1999 and 1998,
the Company recognized revenues of approximately $709,
$206, and $686, respectively, from joint ventures,
related to royalties, services provided, and the sale of
manufacturing products.
- --------------------------------------------------------------------------------
F-19
MINING SERVICES INTERNATIONAL CORPORATION
Notes to Consolidated Financial Statements
(In thousands, except share amounts)
Continued
- --------------------------------------------------------------------------------
11. Major Sales to major customers which exceeded 10% of net sales
Customers are as follows:
and Foreign
Operations Years Ended December 31,
---------------------------------------
2000 1999 1998
---------------------------------------
Company A $ 6,612 $ 4,638 $ -
Company B $ - $ - $ 4,844
Company C $ - $ - $ 3,855
Company D $ - $ - $ 2,781
Management believes that the loss of any one customer
would not have a material adverse effect on the
Company's consolidated operations.
The Company has operations in the United States, Canada,
other foreign locations, and equity in earnings of joint
ventures. The following is a summary of operations by
geographic region:
Years Ended December 31,
---------------------------------------
2000 1999 1998
---------------------------------------
Revenue:
United States $ 32,421 $ 23,253 $ 18,648
Canada 3,444 2,849 4,134
Other foreign locations 1,021 1,995 2,094
Equity in earnings of JV 2,244 2,511 4,989
---------------------------------------
Total revenues $ 39,130 $ 30,608 $ 29,865
---------------------------------------
- --------------------------------------------------------------------------------
F-20
MINING SERVICES INTERNATIONAL CORPORATION
Notes to Consolidated Financial Statements
(In thousands, except share amounts)
Continued
- --------------------------------------------------------------------------------
11. Major
Customers
and Foreign
Operations
Continued Years Ended December 31,
---------------------------------------
2000 1999 1998
---------------------------------------
Income (loss) from
Operations:
United States $ 1,282 $ 1,119 $ 1,580
United States impairment of
assets (4,880) - -
Canada 496 381 660
Other foreign (197) (326) 204
Equity in earnings of JV 2,244 2,511 4,989
JV impairment of assets (110) (2,622) -
Corporate Expenses (4,550) (2,272) (1,614)
---------------------------------------
Total income (loss) from
operations $ (5,715) $ (1,209) $ 5,819
---------------------------------------
December 31,
---------------------------
2000 1999
---------------------------
Identifiable Assets:
United States $ 19,074 $ 17,456
Canada 858 876
Other foreign 1,893 3,283
Investments/advances to JV's 12,886 12,846
---------------------------
Total identifiable assets $ 34,711 $ 34,461
---------------------------
- --------------------------------------------------------------------------------
F-21
MINING SERVICES INTERNATIONAL CORPORATION
Notes to Consolidated Financial Statements
(In thousands, except share amounts)
Continued
- --------------------------------------------------------------------------------
12. Non-Qualified Under the 1987 Non-Qualified Stock Option Plan (the
Stock Option Option Plan), as amended in 1988, 1990, 1992, 1993, 1998
Plan and 1999, a maximum of 1,315,130 shares were made
available for granting of options to purchase common
stock at prices generally not less than the fair market
value of common stock at the date of grant. Under the
Option Plan, grants of non-qualified options may be made
to selected officers and key employees without regard to
any performance measures. The options may be immediately
exercisable or may vest over time as determined by the
Board of Directors. However, the maximum term of an
option may not exceed ten years. Options may not be
transferred except by reason of death, with certain
exceptions, and termination of employment accelerates
the expiration date of any outstanding options to 30
days from the date of termination.
Information regarding the Option Plan is summarized
below:
Number of Option Price
Options Per Share
---------------------------------
Outstanding at January 1, 1998 360,609 $ 1.38 -11.30
Granted 46,950 2.96 -11.30
Exercised (33,266) 5.00 - 7.56
Expired (14,546) 4.12 - 5.00
---------------------------------
Outstanding at December 31, 1998 359,747 1.38 -11.30
Granted 7,500 3.00 - 5.06
Exercised (5,500) 4.72 - 5.06
Expired (9,000) 2.26 - 5.22
---------------------------------
Outstanding at December 31, 1999 352,747 1.38 -11.30
Granted 376,000 1.44 - 2.31
Exercised - -
Expired - -
---------------------------------
Outstanding at December 31, 2000 728,747 $ 1.38 -11.30
---------------------------------
- --------------------------------------------------------------------------------
F-22
MINING SERVICES INTERNATIONAL CORPORATION
Notes to Consolidated Financial Statements
(In thousands, except share amounts)
Continued
- --------------------------------------------------------------------------------
12. Non-Qualified Options exercisable and available for future grant are
Stock Option as follows:
Plan
Continued
December 31,
-------------------------------------------
2000 1999 1998
-------------------------------------------
Options exercisable 524,510 113,815 76,816
Options available for grant 93,960 469,960 230,261
13. Stock-Based The Company has adopted the disclosure-only provisions
Compensation of Statement of Financial Accounting Standards (SFAS)
No. 123, Accounting for Stock-Based Compensation.
Accordingly, no compensation cost has been recognized in
the financial statements. Had compensation cost for the
Company's stock option plans been determined based on
the fair value at the grant date consistent with the
provisions of SFAS No. 123, the Company's net earnings
and earnings per share would have been reduced to the
pro forma amounts indicated below:
Years Ended December 31,
-----------------------------------------
2000 1999 1998
-----------------------------------------
Net Income - as reported $ (4,031) $ 725 $ 3,872
Net Income - pro forma $ (4,393) $ 622 $ 3,961
Diluted earnings per share -
as reported $ (.55) $ .10 $ .52
Diluted earnings per share -
pro forma $ (.60) $ .08 $ .51
-----------------------------------------
- --------------------------------------------------------------------------------
F-23
MINING SERVICES INTERNATIONAL CORPORATION
Notes to Consolidated Financial Statements
(In thousands, except share amounts)
Continued
- --------------------------------------------------------------------------------
13. Stock-Based The fair value of each option grant is estimated at the
Compensation date of grant using the Black-Scholes option pricing
Continued model with the following assumptions:
December 31,
----------------------------------------
2000 1999 1998
----------------------------------------
Expected dividend yield $ .01 $ .02 $ .02
Expected stock price volatility 53% 52% 33%
Risk-free interest rate 6% 6% 5%
Expected life of options 3-5 years 0 - 3 years 3 years
----------------------------------------
The weighted average fair value of options granted
during 2000, 1999, and 1998 are $.73, $.28 and $1.20,
respectively.
The following table summarizes information about stock
options outstanding at December 31, 2000:
Options Outstanding Options Exercisable
-----------------------------------------------------------------
Weighted
Average
Number Remaining Weighted Number Weighted
Range of Outstanding Contractual Average Exercisable Average
Exercise at Life Exercise at Exercise
Prices 12/31/00 (Years) Price 12/31/00 Price
- -------------------------------------------------------------------------------
$1.38 - 2.96 389,283 4.18 $ 1.60 389,283 1.60
3.00 - 4.09 299,214 4.38 3.64 94,977 3.28
5.00 - 11.30 40,250 1.09 5.07 40,250 5.07
- -------------------------------------------------------------------------------
$1.38 - 11.30 728,747 4.11 $ 4.91 524,510 2.19
- -------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
F-24
MINING SERVICES INTERNATIONAL CORPORATION
Notes to Consolidated Financial Statements
(In thousands, except share amounts)
Continued
- --------------------------------------------------------------------------------
14. Earnings Per Financial accounting standards require companies to
Share present basic earnings per share (EPS) and diluted
earnings per share along with additional informational
disclosures. Information related to earnings per share
is as follows:
Years Ended December 31,
---------------------------------------
2000 1999 1998
---------------------------------------
Basic EPS:
Net income (loss) available to
common $ (4,031) $ 725 $ 3,872
stockholders
---------------------------------------
Weighted average common 7,314,000 7,324,000 7,368,000
shares
---------------------------------------
Net income (loss) per share $ (.55) $ .10 $ .53
---------------------------------------
Diluted EPS:
Net income (loss) available to
common $ (4,031) $ 725 $ 3,872
stockholders
---------------------------------------
Weighted average common 7,314,000 7,375,000 7,492,000
shares
---------------------------------------
Net income (loss) per share $ (.55) $ .10 $ .52
---------------------------------------
- --------------------------------------------------------------------------------
F-25
MINING SERVICES INTERNATIONAL CORPORATION
Notes to Consolidated Financial Statements
(In thousands, except share amounts)
Continued
- --------------------------------------------------------------------------------
15. Significant
Unconsolidated
Affiliates
Summarized financial information for significant
unconsolidated affiliates of the Company, are as
follows:
December 31,
---------------------------------------------
2000 1999 1998
---------------------------------------------
Result for year:
Gross revenues $ 28,429 $ 21,585 $ 37,353
Gross profit $ 7,286 $ 7,449 $ 14,365
Net income $ 4,488 $ 5,385 $ 9,978
Year-end financial
position:
Current assets $ 10,344 $ 5,545 $ 10,415
Non-current assets $ 19,766 $ 20,893 $ 24,998
Current liabilities $ 5,170 $ 3,024 $ 4,256
Non-current liabilities $ 2,655 $ 1,500 $ 5,323
16. Profit Sharing The Company has a defined contribution profit sharing
Plan plan, which is qualified under Section 401(K) of the
Internal Revenue Code. The plan provides retirement
benefits for employees meeting minimum age and service
requirements. Participants may contribute a percentage
of their gross wages, subject to certain limitations.
The plan provides for discretionary matching
contributions, as determined by the Board of Directors,
to be made by the Company. The discretionary amount
contributed to the plan by the Company for the years
ended December 31, 2000, 1999, and 1998 was $80, $79,
and $48, respectively.
17. Fair Value of The Company's financial instruments consist of cash,
Financial receivables, payables, and notes payable the carrying
Instruments amount of cash, receivables, and payables approximates
fair value because of the short-term nature of these
items. The carrying amount of the notes payable
approximates fair value as the individual borrowings
bear interest at floating market interest rates.
- --------------------------------------------------------------------------------
F-26
MINING SERVICES INTERNATIONAL CORPORATION
Notes to Consolidated Financial Statements
(In thousands, except share amounts)
Continued
- --------------------------------------------------------------------------------
18. Commitments The Company is subject to various claims and legal
and proceedings arising in the ordinary course of business
Contingencies activities. In addition, the Company and certain
directors of the Company have been named in complaints
related to: alleged violations of laws and fiduciary
duties related to the voting of shares, decisions
regarding certain corporate transactions and the
adoption of the Stock Rights Plan. The Company believes
that this litigation may have a material affect on the
Company's governance issues and may be costly to
litigate, but the Company does not believe the damage
claims of this litigation or any other pending matters
will materially impact the financial condition of the
Company.
19. Extraordinary During the year ended December 1999, Cyanco negotiated
Item the extinguishment of a deferred royalty obligation.
Accordingly, the Company paid $58 in cash to terminate
the indemnification of Cyanco under the deferred royalty
agreement. The result was an extraordinary gain of
$1,599 after providing for income taxes of $823.
- --------------------------------------------------------------------------------
F-27