________________________________________________________________________________
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, 2001
[ ] 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
___________________________
Nevada Chemicals, Inc.
(Exact name of registrant as specified in its charter)
Utah 87-0351702
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
9149 So. Monroe Plaza Way, Suite B
Sandy, Utah 84070
(Address of principal executive offices, zip code)
Registrant's telephone number, including area code: (801) 984-0228
___________________________
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 March 15, 2002, the aggregate
market value of the Common Stock held by non-affiliates was $6,810,657
(3,219,723 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 March 15, 2002 was 7,210,069.
___________________________
Nevada Chemicals, Inc.
Table of Contents
Page No.
--------
Part I
Item 1. Business 1
Item 2. Properties 3
Item 3. Legal Proceedings 4
Item 4. Submission of Matters to a Vote of Security Holders 4
Part II
Item 5. Market for Registrant's Common Equity and Related
Stockholder Matters 5
Item 6. Selected Financial Data 6
Item 7. Management's Discussion and Analysis of Financial Condition
and Results of Operation 7
Item 7A. Quantitative and Qualitative Disclosure about Market Risk 9
Item 8. Financial Statements and Supplementary Data 9
Item 9. Changes in and Disagreements with Accountants on Accounting
and Financial Disclosure 10
Part III
Item 10. Directors and Executive Officers of the Registrant 10
Item 11. Executive Compensation 12
Item 12. Security Ownership of Certain Beneficial Owners and
Management 14
Item 13. Certain Relationships and Related Transactions 15
Part IV
Item 14. Exhibits, Financial Statement Schedules, and Reports on
Form 8-K 15
PART I
Item 1. Business
General
Nevada Chemicals, Inc. (the "Company") (formerly Mining Services
International Corporation) is a Utah corporation organized in 1979. Through
November 15, 2001, the Company was engaged in two businesses, the development,
manufacture and sale of bulk explosives and related support and services, and
the manufacture and distribution of sodium cyanide for the extraction of
precious metals. On November 15, 2001, the Company completed the sale of the
assets, subsidiaries and certain joint venture interests of its explosives
business (the "Explosives Business") to Union Espanola de Explosivos S.A. and
certain of its subsidiaries ("UEE"). In connection with this transaction, the
name of the Company was changed from Mining Services International Corporation
to Nevada Chemicals, Inc.
The Company retained its fifty percent interest in Cyanco Company
("Cyanco"), a non-corporate joint venture engaged in the manufacture and sale of
liquid sodium cyanide, which is held through the Company's wholly owned
subsidiary, Winnemucca Chemicals, Inc. ("Winnemucca Chemicals"). The Company
also retained its interest in 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. The
joint venture has operated at a net loss from its inception in 1997, and the
Company has written off its investment in WAC due to the unlikelihood of
realizing profits in this market where the supply of explosives now exceeds
demand. The Company and its joint venture partner in WAC are currently seeking a
buyer for the assets of the joint venture, and it is expected that the proceeds
from the sale of such assets will exceed the liabilities of the joint venture.
Following the sale of the Explosives Business, the primary business of
the Company is based on the Company's Cyanco joint venture. In addition, the
Company receives income from the lease of its office building to a subsidiary of
UEE, principal and interest on short and long term notes receivable from UEE and
its subsidiaries, and short-term investment income on the proceeds from the sale
of the Explosives Business until such time as the Company's Board of Directors
determines alternate uses of such proceeds. The following discussion focuses on
the current business activities of the Company. For a discussion of the
Company's discontinued Explosives Business see the Company's annual report on
Form 10-K for the year ended December 31, 2000.
Cyanco Joint Venture Interest
Cyanco is a 50/50 joint venture between the Company and Degussa
Corporation, a wholly owned subsidiary of Degussa A.G., a German company
("Degussa"), that produces and markets liquid sodium cyanide from its
Winnemucca, Nevada plant. Cyanco services the Western U.S. gold mining area,
primarily located in Nevada, selling sodium cyanide for use in leaching precious
metals in mining operations. 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 to the mining customer ready
to use. The manufacturing cost for the liquid product is substantially lower
than for solid product when drying, handling, re-dissolution and chemical
adjustment costs at the mine site 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 for
liquid sodium cyanide are significant and shipping must be managed carefully,
both in terms of cost and safety and environmental protection. Cyanco has a five
year contract for this service with an Omaha, Nebraska company which utilizes
dedicated equipment specifically designed for Cyanco.
1
With the 1998 addition of a second production unit, Cyanco has an
annual liquid sodium cyanide production capacity of approximately 85 million
pounds. The Company has primary responsibility for Cyanco's production and
delivery, and Degussa has primary responsibility for the joint venture's
marketing and sales activities.
Since 1998, worldwide gold prices have continued to be depressed,
ranging between $250.00 and $320.00 per ounce. As of March 15, 2002, the spot
trading price for an ounce of gold was approximately $290. If gold prices do not
further deteriorate, gold production in Cyanco's market area should remain
relatively stable for the foreseeable future.
Competition and Purchase of FMC Sodium Cyanide Business
Cyanco has represented one of three sources of delivered liquid sodium
cyanide in the Western United States. The world market for briquette or dry-form
sodium cyanide is dominated by E.I. DuPont Nemours ("DuPont"). There continue to
be opportunities in the worldwide market for liquid sodium cyanide, although the
worldwide supply of dry product currently exceeds demand. Domestically, Cyanco
has competed with DuPont and also with FMC Corporation ("FMC"), which has
marketed and delivered liquid sodium cyanide in the same geographic area as
Cyanco.
In March 2002 Cyanco announced that it had reached agreement with FMC
to purchase the commercial and certain distribution assets related to FMC's
sodium cyanide business. As a result of this transaction, FMC will exit the
business, ending its 12-year role as a supplier of sodium cyanide to the Nevada
gold mining industry. Cyanco will assume FMC's on-going contractual obligations
under its existing sodium cyanide contracts and is expected to begin supplying
these customers on April 1, 2002. The FMC supply contracts acquired by Cyanco
are with several key Nevada gold mining operations. According to Cyanco
estimates, the business purchased represents approximately 25,000 tons of
additional sodium cyanide business for Cyanco during the lifetime of the
contracts. In addition to the transferred contracts, Cyanco purchased certain
equipment including distribution tank trailers and storage tanks.
As a result of the FMC transaction, Cyanco will compete primarily with
DuPont to supply sodium cyanide to the Nevada gold mining industry. The Company
believes that the important competitive factors in the sodium cyanide market are
location, service and quality. However, as gold prices have declined and
Cyanco's innovations in the marketplace have taken effect, the price of sodium
cyanide has become a significant competitive factor. Cyanco has had to meet
competitive demands and has been able to achieve results by being creative and
service-oriented.
Dependence on Customers
Since most of Cyanco's cyanide customers are large mining companies,
the number of companies it services is relatively small compared to those of a
wholesale distribution or retail business. A loss of one or more customers could
adversely affect future sales. Such a loss can occur either from the customer
switching to another source or from the customer electing to close or suspend a
mining operation. However, such losses are not expected to occur, since these
customers have lower than average operating costs to produce gold, which should
allow them to continue producing gold in the present market.
Patents, Trademarks and Licenses
In March 1989, Cyanco obtained from Mitsubishi Gas Chemical Company,
Inc., a Japanese corporation, in consideration for payment of a one-time license
fee, a perpetual license for 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, and is materially important to the plant's operation.
Although the Company has historically conducted research on product improvement
and development, the Company's research and development expenditures in each of
the past three years were primarily related to the discontinued Explosives
Business. However, the Company developed a patent issued during 2000 for the
2
production and transportation of a "wet-cake" cyanide product which may be used
by Cyanco in expanding its freight logical market. There has not been any
customer-sponsored research and development.
Raw Materials
Cyanco has historically not experienced significant difficulty in
obtaining necessary raw materials used in the manufacture of its products. In
the present environment, raw material availability could be impacted for short
periods of time, but Cyanco does not expect significant difficulty in obtaining
raw materials for the longer term. Cyanco must compete with other markets for a
major portion of its raw materials (ammonia, caustic soda, natural gas and
electricity). The supplies of these products have been adequate in past years to
meet the needs of industrial as well as agricultural users. Cyanco has entered
into long-term contracts for transportation of natural gas to the Cyanco
facility. Cyanco has not had significant difficulty in obtaining the other
necessary raw materials since there are alternative sources of supply. It is
Cyanco's intent wherever possible to pass short-term raw material price
fluctuations on to its client base in order to maintain profitability.
Employees
The Company currently employs two individuals and one part-time
consultant at its corporate offices. Cyanco has 28 employees at its plant in
Winnemucca, Nevada and the Company's WAC joint venture has one local employee.
The Company and the joint ventures in which it participates consider relations
with their employees to be positive.
Environmental Compliance
Cyanco is subject to federal, state and local laws regulating the
protection of the environment in the handling, storage and shipment of sodium
cyanide and related raw materials. In preparation for the manufacture and sale
of liquid sodium cyanide at the Cyanco 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 hazardous materials spill.
Cyanco's operations are designed such that no liquid discharge is created during
the manufacture of its product. Compliance with such laws, rules and regulations
on a ongoing basis is not expected to require additional material capital
expenditures in the short-term.
Other Governmental Regulations
Cyanco is subject to various governmental authorities with respect to
transportation and handling of hazardous materials. In addition, it is subject
to OSHA's Process Safety Management program at the Winnemucca plant. Cyanco has
implemented compliance programs, which the Company believes addresses the
program objectives and guidelines. Cyanco is regularly inspected by Nevada's
regulatory agencies to monitor compliance to Nevada's Chemical Accident
Prevention Program (CAPP).
Item 2. Properties
The Company's fully furnished corporate facilities are currently leased
to UEE for a period of one year from the sale of the Explosives Business on
November 15, 2001. These facilities were constructed in 1997 and are located at
8805 South Sandy Parkway, Sandy, Utah. They consist of 1.8 acres, an office
building and adjacent research and laboratory facilities, constructed by the
Company at a cost of approximately $1.2 million.
The Company currently leases office facilities located at 9149 South
Monroe Plaza Way, Sandy, Utah under a one year lease agreement, with an option
to renew for one additional year.
The property and facilities of Cyanco are deemed adequate and suitable
for its operations.
3
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
On November 8, 2001 a special meeting of shareholders was held to
consider the approval of the sale of the Explosives Business and to amend the
Company's articles of incorporation to change the Company's name to "Nevada
Chemicals, Inc." immediately following the consummation of the sale. The results
of the shareholder vote were as follows:
For Against Abstain
- ----------------------------------------------- ---------------- ------------------- -------------------
Sale of Explosives Business 4,851,470 11,292 2,640
Amendment of articles of incorporation to
change name to Nevada Chemicals, Inc. 4,854,720 9,054 4,528
- ----------------------------------------------- ---------------- ------------------- -------------------
On December 28, 2001 the Annual Meeting of Shareholders was held. The
shareholders voted, either in person or by proxy, to elect five directors to
serve until the next Annual Meeting of Shareholders or until their successors
shall be elected and duly qualified and to ratify the appointment of Tanner +
Co. to be the Company's independent public accountants for the year ending
December 31, 2001. The five directors nominated were Nathan L. Wade, Dr. John T.
Day, James E. Solomon, E. Bryan Bagley, and Frances M. Flood. The results of the
shareholder vote were as follows:
For Against Abstain
- ----------------------------------------------- ---------------- ------------------- -------------------
Election of slate of directors 5,909,886 none 1,485
Ratification of the appointment of Tanner +
Co. as independent public accountants 5,909,886 250 1,235
- ----------------------------------------------- ---------------- ------------------- -------------------
4
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 "NCEM." 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
---- ---
2001 First Quarter $2.88 $1.34
Second Quarter $1.75 $1.00
Third Quarter $1.40 $ .90
Fourth Quarter $2.08 $1.10
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
On March 15, 2002, the closing quotation for the common stock on
NNM was $1.96. 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 imbalances in the supply and demand for shares of the
Company, market reaction to perceived changes in the industry in which
the Company sells products and services, general economic conditions,
and 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 March 15,
2002 was 570, which does not include shareholders whose stock is held
through securities position listings.
(c) Dividends. The Company paid no dividends for the years ended
December 31, 2001 and 2000. The Company paid cash dividends of $180,986
or $.025 per share on December 15, 1999. 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. Future dividend payments will be at the
discretion of the Company's Board of Directors.
5
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 ended December 31, 2001 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 below should be read in conjunction with the
"Management's Discussion and Analysis of Financial Condition and Results of
Operations" and the Company's Consolidated Financial Statements and related
Notes thereto.
Year Ended December 31,
(in thousands except per share amounts)
-------------------------------------------------------------------------
2001 2000 1999 1998 1997
Results of Operations Data (1):
Operating revenues $ 2,533 $ 2,066 $ 2,880 $ 5,101 $ 6,827
Income from continuing
operations before extraordinary
item 1,007 795 817 2,801 4,449
Extraordinary item - - 1,599 - -
Income (loss) from discontinued
operations (821) (4,826) (1,691) 1,071 559
Net income (loss) 186 (4,301) 725 3,872 5,008
Earnings (loss) per common
share - diluted:
Income from continuing
operations before extraordinary
item $ 0.14 $ 0.11 $ 0.11 $ 0.38 $ 0.59
Extraordinary item - - 0.22 - -
Income (loss) from discontinued
operations (0.11) (0.66) (0.23) 0.14 0.07
Net income (loss) 0.03 (0.55) 0.10 0.52 0.66
Cash dividends declared per
per common share $ - $ - $ 0.025 $ 0.025 $ 0.020
Balance Sheet Data:
Total Assets $23,661 $22,590 $29,986 $30,706 $24,701
Long-term debt - - - - -
Stockholders' equity 20,314 20,245 24,351 24,077 20,605
(1) The sale of the Explosives Business is accounted for as a discontinued
operation, and accordingly, amounts in the financial statements and related
notes for all periods have been restated to reflect discontinued operations
accounting, including offsetting long-term debt and other liabilities assumed in
the sale against the net assets sold on the consolidated balance sheet.
6
Item 7. Management's Discussion and Analysis of Financial Condition and Results
of Operations
Overview
On November 8, 2001, the shareholders of the Company approved the sale
of the Explosives Business pursuant to an Asset Purchase Agreement between the
Company and UEE. The Company entered into the agreement on November 30, 2000 and
consummated the sale on November 15, 2001. The sale of the Explosives Business
is accounted for as a discontinued operation, and accordingly, the operating
results for the Explosives Business in the accompanying financial statements
have been presented as discontinued operations for all periods presented.
Continuing operations reported in the statements of operations for all
periods presented consist primarily of the Company's proportionate share of the
operating results from its 50% interest in Cyanco, management fee income from
Cyanco, amounts from its 50% interest in WAC, and corporate overhead, costs and
expenses. Since the Company does not own more than 50% of Cyanco, the financial
statements of Cyanco are not consolidated with the financial statements of the
Company. Separate financial statements of Cyanco are included in this report as
Exhibit 99.
The following discussion of results of operations includes only
continuing operations. For discussions of historical results of operations of
the discontinued Explosives Business, refer to the Company's Annual Report on
Form 10-K for the year ended December 31, 2000 and Quarterly Reports on Form
10-Q for the quarters ended March 31, 2001 and June 30, 2001.
Results of Operations
2001 vs. 2000
Equity in earnings of joint ventures, consisting primarily of the
Company's equity in earnings of Cyanco, increased $356,000 or 21% for the year
ended December 31, 2001 compared to equity in earnings reported for the year
ended December 31, 2000. The increase in equity in earnings of Cyanco is the
result of increases in both volume and prices in 2001 compared to 2000.
Management fees from Cyanco increased $101,000 or 30% for 2001 compared to 2000,
because of increased Cyanco revenues.
Total costs and expenses increased $53,000 or 6% in 2001 compared to
2000, with the increase due to costs of relocating to the Company's new office
facilities in December 2001, increases in the cost of managing the Cyanco joint
venture, and cost of administering the post-closing transition of the sale of
the Explosives Business.
2000 vs. 1999
Equity in earnings of joint ventures, consisting primarily of the
Company's equity in earnings of Cyanco, decreased $798,000 or 32% for the year
ended December 31, 2000 compared to equity in earnings reported for the year
ended December 31, 1999. The decrease in equity in earnings of joint ventures is
the result of losses from WAC and a decrease in net earnings from Cyanco.
Management fees from Cyanco increased $55,000 or 19% for 2000 compared to 1999,
because of increased Cyanco revenues.
Total costs and expenses decreased $587,000 or 38% in 2000 compared to
1999, with the decrease due primarily to a loss from impairment of WAC assets of
$776,000 in 1999. The WAC joint venture has operated at a loss since inception
in 1997, and in 1999, the Company wrote off its investment in the joint venture.
The Company and its joint venture partner are currently seeking a buyer for the
assets of this joint venture. The increase in other costs and expenses is due
primarily to increases in the cost of managing the Cyanco joint venture.
7
Liquidity and Capital Resources
- -------------------------------
As part of the purchase price of the Explosives Business, UEE assumed
all long-term debt of the Company. Therefore, at December 31, 2001 current
liabilities of the Company consisted only of trade accounts payable of $665,000
and accrued expenses of $1,208,000. Long-term liabilities consisted only of
deferred income taxes of $1,474,000. Current assets totaled $8, 898,000
including cash of $7,011,000. The Company received cash of $6,350,000 from the
sale of the Explosives Business in November 2001.
Cash in excess of short-term operating needs has been invested
primarily in interest bearing investment accounts with maturities ranging from
30 days to one year. The Board of Directors of the Company is currently
evaluating alternative uses for the cash of the Company, including optimizing
short-term investment results, diversification of the Company's business,
further investment in Cyanco and its expanding operations, distributions to
shareholders and other strategies.
Net cash used in operating activities for the year ended December 31,
2001 was $(791,000) compared to net cash provided by operations of $840,000 for
the year ended December 31, 2000. This decrease is due primarily to the
significant expenses paid in 2001 in connection with the sale of the Explosives
Business.
Net cash provided by investing activities for the year ended December
31, 2001 was $6,536,000 compared to net cash used in investing activities of
$(1,360,000) for the year ended December 31, 2000. This increase is principally
due to the net cash realized from the sale of the Explosives Business in 2001of
$5,203,000 ($6,350,000 received net of $1,147,000 included in net assets sold).
In addition, the Company purchased property and equipment totaling $(2,945,000)
in 2000 compared to $(542,000) in 2001 as such purchases were limited in 2001
pending the completion of the sale of the Explosives Business.
Net cash used in financing activities for the year ended December 31,
2001 was $(847,000) compared to net cash provided by financing activities of
$1,658,000 for the year ended December 31, 2000. The net cash used in financing
activities in 2001 consisted of $(519,000) used to purchase treasury stock and
$(328,000) net reduction of debt. Substantially all of the purchase of treasury
stock in 2001 was from former officers and employees as part of the sale of the
Explosives Business. Net cash provided by financing activities for the year
ended December 31, 2000 was $1,658,000 resulting entirely of net increases in
debt. As indicated above, all long-term debt was assumed by UEE in the sale of
the Explosives Business in November 2001.
In order to complete the assignment to a UEE subsidiary of a lease for
property leased by the Company as of the closing date of the sale of the
Explosives Business (November 15, 2001), the Company agreed to clean up,
remediate and repair the contamination caused to the property by the Explosives
Business. Included in accrued expenses at December 31, 2001 are amounts that the
Company believes will be sufficient to cover remaining testing and cleanup
costs. However, there can be no assurance that such costs will not exceed the
current estimate.
The Company has retained all contingent liabilities relating to an
ongoing audit by the Canada Customs and Revenue Agency (CCRA) of previously
filed tax returns in Canada. In the initial phase of the audit, CCRA has taken a
position on certain matters different than that taken by the Company. The
Company, based on consultation with its professional tax advisors in Canada,
believes that the facts and circumstances support the position taken by the
Company. The Company believes that amounts accrued and included in income taxes
payable at December 31, 2001 are adequate for the resolution of the audit by
CCRA. However, there can be no assurance that such costs will not exceed the
current estimate.
Forward Looking Statements
Within this Annual Report on Form 10-K, including the discussion in
this Item 7, there are forward-looking statements made in an effort to inform
the reader of management's expectation of future events. These expectations are
subject to numerous factors and assumptions, any one on which, could have a
material effect on future results. The factors which may impact future operating
8
results include, but are not limited to, decisions made by Cyanco's customers as
to the continuation, suspension, or termination of mining activities in the area
served by Cyanco, changes in world supply and demand for commodities,
particularly gold, political, environmental, regulatory, economic and financial
risks, major changes in technology which could affect the mining industry as a
whole or which could affect sodium cyanide specifically, competition, and the
continued availability of qualified technical and other professional employees
of the Company and Cyanco. The Company believes it is taking appropriate actions
in order to address these and other factors previously disclosed; however, the
actual results could differ materially from those indicated in the statements
made.
Item 7A. Quantitative and Qualitative Disclosures About Market Risk.
Prior to the sale of the Explosives Business, the Company was exposed
to market risk from changes in foreign currency and implemented certain
procedures to minimize such risk. However, after the sale, the Company is
currently not exposed to material risks from changes in foreign currency, and
does not hold any investments specifically to hedge against foreign currency
fluctuations.
All debt with variable interest rates was assumed by UEE in the sale of
the Explosives Business.
A significant portion of the Company's cash equivalents and short-term
investments bear variable interest rates that are adjusted to market conditions.
Changes in market rates will affect interest earned on these instruments.
However, the Company does not utilize derivative instruments to offset the
exposure to interest rates. The cash equivalents and short-term investments are
placed in a variety of products with different institutions. Changes in the
interest rates are not expected to have a material impact on the Company's
results of operations.
Item 8. Financial Statements and Supplementary Data.
The financial statements of the Company and of Cyanco required by this
Item are contained in a separate section of this report. See "Index to Financial
Statements" on Page F-1 and the separate financial statements of Cyanco included
as Exhibit 99.
The following table presents quarterly financial data for each of the
four quarters in the years ended December 31, 2001 and 2000. The amounts have
been restated for periods prior to the sale of the Explosives Business on
November 15, 2001 to report operating results using discontinued operations
accounting.
9
2001 2000
Amounts in thousands Q1 Q2 Q3 Q4 Q1 Q2 Q3 Q4
Revenues $ 318 $ 549 $ 860 $ 806 $ 674 $ 499 $ 599 $ 294
Net income from
continuing operations 57 265 292 393 454 205 244 (108)
Income (loss) from
discontinued operations (457) 129 (938) 445 (654) 33 34 (4,239)
Net income (loss) (400) 394 (646) 838 (200) 238 278 (4,347)
Earnings (loss) per common
share - diluted:
Continuing operations $ 0.01 $ 0.04 $ 0.04 $ 0.06 $ 0.06 $ 0.03 $ 0.04 $(0.01)
Discontinued operations (0.06) 0.01 (0.13) 0.06 (0.09) - - (0.58)
Net income (loss) (0.05) 0.05 (0.09) 0.12 (0.03) 0.03 0.04 (0.59)
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.
All directors are elected at each annual meeting of the Company to
terms of one year or until the next annual meeting. Set forth below is the name
and age of each of the directors, the positions they hold with the Company, the
period during which they have been affiliated with the Company, and certain
other biographical information.
E. Bryan Bagley, 38, was appointed a director on June 28, 2000. Since
November 1991, Mr. Bagley has been a market maker for Wilson-Davis & Company, 39
W. Market Street, Salt Lake City, Utah 84111. Prior to his current position, he
was a securities trader for over ten years with increasing responsibilities at
Covey & Co., Bagley Securities and Wilson-Davis & Company. Mr. Bagley graduated
from the University of Utah in 1987 with a Bachelor of Science degree in
Economics. Mr. Bagley was appointed Chairman of the Board of Directors on
December 28, 2001.
Nathan L. Wade, 73, has been a director since June 1989. Since 1953,
Mr. Wade has been a director and principal owner of Nate Wade Subaru, 1207 South
Main, Salt Lake City, Utah 84111, a Utah automobile dealership for new and used
automobiles. Mr. Wade was appointed Chairman of the Board of Directors on
January 21, 2000 and served in such capacity until December 28, 2001.
Dr. John T. Day, 62, has been our President and Chief Executive Officer
since April 1993. He was one of our founders 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 to our Board of Directors on November 10, 1986. Dr. Day obtained a
10
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, 52, CPA, was appointed a director in March 2000. Mr.
Solomon is owner and chief executive officer of Solomon Advisory Services, a
firm that specializes in maximizing value for small to mid-size companies. Mr.
Solomon 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. Since 1983, Mr. Solomon has
been self-employed and is an Adjunct Professor at the Graduate School of
Business at the University of Utah and serves as a director of TruDynamics
International, Inc., a company based in Scottsdale, Arizona, as well as Yearbook
Interactive, Inc., a company based in Salt Lake City, Utah.
Frances M. Flood, 45, was appointed as one of our directors on June 28,
2000. Since June of 1998, Ms. Flood has served as Chief Executive Officer and a
director of ClearOne Communications, a publicly-held corporation. Ms. Flood
joined ClearOne in October of 1996 as Vice-President of Sales and Marketing and,
prior to her current positions, served as President of ClearOne since December
of 1997. Prior to joining ClearOne, Ms. Flood was Area Director of Sales and
Marketing for Ernst & Young, LLP, an international accounting and consulting
firm. Ms. Flood graduated from Thomas Edison State College with a BSBA degree in
Banking and Finance. Ms. Flood also serves as a director of Sound Tube, a
privately-held company based in Park City, Utah.
(b) Information regarding Executive Officers.
In addition to Dr. Day, currently the only executive officer is Dennis
P. Gauger, CPA, Chief Financial Officer.
Mr. Gauger, 50, is a licensed Certified Public Accountant in Utah and
Nevada. He has served several public and private companies as a financial
executive, corporate troubleshooter and consultant. Mr. Gauger worked for
Deloitte & Touche LLP, an international accounting and consulting firm, for 22
years, including 9 years as an accounting and auditing partner, where he
directed domestic and international firm interactions with senior executive
management, audit committees, and boards of directors. He has an extensive
background in SEC accounting and reporting, initial public offerings, mergers
and acquisitions, technical accounting issues, financing and operations. He has
experience in several industries, including manufacturing, high technology,
software, internet, retail and distribution, financial services, hospitality,
mining and real estate.
(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 believes that all forms required by Section 16(a),
including amendments thereto, were timely filed. 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.
11
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
for the fiscal years ended December 31, 2001, 2000 and 1999 paid to the Chief
Executive Officer. In addition, information is also included for two additional
officers who are no longer officers of the Company but were paid in excess of
$100,000 during the period of their employment in the fiscal year ended December
31, 2001, which ended November 15, 2001 (together with the Chief Executive
Officer, the "Named Executive Officers"). In connection with the sale of the
Explosives Business to UEE on November 15, 2001, all executive officers other
than Dr. Day terminated their employment with the Company and surrendered to the
Company all previously issued stock options.
Compensation of Executive Officers
The following table summarizes compensation received by the Named
Executive Officers for the three fiscal years ended December 31, 2001, 2000 and
1999.
Other Annual Stock Underlying All Other
Salary Bonus Compensation Awards Options Compensation
Name and Position Year $ $ (1) $ (2) $ # $ (3) (4)
Dr. John T. Day 2001 175,000 - 21,861 - 30,000 3,600
President and Chief 2000 175,000 - 14,452 - 49,500 4,155
Executive Officer 1999 175,000 100,000 19,123 - - 7,477
Duane W. Moss 2001 108,761 - 2,201 - - 110,722
Senior Vice President, 2000 115,000 - 8,056 - 10,000 5,573
General Counsel and 1999 100,000 10,000 4,550 - - 3,087
Secretary
David P. Reddick 2001 99,426 - 5,377 - - 97,137
Vice President of 2000 102,635 - 4,781 - 10,000 1,380
Operations 1999 93,500 - 5,423 - - 2,866
(1) Includes all cash and non-cash bonuses paid on a discretionary basis by
the Board of Directors as recommended by the Compensation Committee of
the Board of Directors. In the case of Dr. Day, the grant of a $100,000
bonus was not paid in 1999, but was paid in 2000; the right to payment
was solely at the discretion of Dr. Day.
(2) Includes life and disability insurance premiums paid on behalf of Dr.
Day and medical reimbursement payments and personal mileage on
company-owned vehicles on the part of the Named Executive Officers.
(3) Includes matching contributions made by the company on behalf of the
Named Executive Officers pursuant to the Company's Profit Sharing
401(k) Plan (the "Plan").
(4) Includes amounts paid to Mr. Moss and Mr. Reddick to purchase their
shares of common stock of the Company of $107,212 and $95,916,
respectively.
12
Option/SAR Grants in Last Fiscal Year
The following table sets forth certain information concerning stock
options granted during 2001 to the Named Executive Officers.
Potential Realizable
Value at Assumed
Annual Rates of Stock
Price Appreciation
Individual Grants For Option Term
- ---------------------------------------------------------------------------------- ------------------------
% of Total
Number of Options/SARs
Securities Granted to
Underlying Employees Exercise or Grant Date
Options/SARs In Fiscal Base Price Expiration Present Value
Name Granted Year (1) $/Share Date 5% ($) 10% ($) $
- ---------------------------------------------------------------------------------------------------------------------------
Dr. John T. Day 30,000 100.00 1.21 11/19/06 46,329 58,462 13,500
(1) A total of 170,000 options were granted in 2001 to Directors of the
Company. Dr. Day is the only employee who is also a Director.
Aggregated Option/SAR Exercises in Last Fiscal Year and
Fiscal Year End Option/SAR Values
The following table sets forth the aggregate value of unexercised
options to acquire shares of common stock held by the Named Executive Officers
on December 31, 2001. There were no options exercised by the Named Executive
Officers during the fiscal year ended December 31, 2001.
Number of Value of
Securities Underlying Unexercised
Unexercised In-the-Money
Shares Options/SARs Options/SARs
Acquired on Value at FY-End (#) at FY-End ($)
Exercise Realized Exercisable/ Exercisable/
Name # $ Unexercisable Unexercisable (1)
- ---------------------------------------------------------------------------------------------------
Dr. John T. Day - - 79,500 / - 16,034 / -
(1) Reflects the difference between the exercise price of the options
granted and the value of the common stock on December 31, 2001. The
closing price of the common stock on December 31, 2001, as reported by
NASDAQ was $1.57.
Compensation of Directors
During 2001, the non-employee directors each received monthly payments
of $600 as compensation for serving on the Board of Directors, or $7,200 for a
full year of service. In addition, the non-employee directors receive $1,000 per
Board meeting attended and are reimbursed for time spent on extra Board-approved
assignments at a per-diem rate of $1,000 per day. During 2001 no per diem
compensation was paid to the current directors. Employee members of the Board of
Directors receive no additional compensation for attendance at meetings of the
Board of Directors.
13
Former directors, James W. Sight and Garfield Cook, chose not to stand
for election to the Company's Board of Directors for the year 2001. For
outstanding service as outside independent directors, the Board awarded these
two individuals a bonus for their nearly two years of service to the Company.
Garfield Cook served as co-chairman of the Board, directed the review of the BLA
Trust litigation and served as lead negotiator with the managers who were
terminated in connection with the sale of the Company's Explosives Business. Mr.
Cook received a total of $103,000, or an average of $51,500 per year. James
Sight served as the lead negotiator in the sale of the Explosives Business to
UEE and he received a total of $160,000, or approximately $80,000 per year for
his services. The negotiations with UEE extended over 18 months. These gentlemen
also surrendered to the Company the stock options previously granted to them.
On November 19, 2001, the Board of Directors approved the issuance of
40,000 stock options each to Mr. Solomon and Ms. Flood and 30,000 stock options
each to Messrs. Wade, Day and Bagley. The options have an exercise price of
$1.21, equal to the market price existing on the date of grant, and are
immediately exercisable for a period of five years.
Item 12. Security Ownership of Certain Beneficial Owners and Management.
The following tabulation shows, as of March 15, 2002, the number of
shares of common stock, par value $0.001, owned beneficially by: (a) all persons
known to be the holders of more than five percent (5%) of voting securities, (b)
Directors, (c) Named Executive Officers and (d) all of our Officers and
Directors as a group:
Amount and
Natures of
Beneficial ownership (1)
------------------------
Name and Address of Beneficial Owner Shares Percent
E. Bryan Bagley ----------------------------- 2,141,034(2) 28.2%
1470 Arlington Dr.
Salt Lake City, UT 84103
Dr. John T. Day --------------------------- 618,304(3) 8.1%
5 Dawn Hill
Sandy, Utah 84092
Edward N. Bagley Estate --------------------- 583,280 7.7%
8987 St. Ives Drive
Los Angeles, California 90069
Dr. Lex L. Udy ---------------------------- 560,906(4) 7.4%
4597 Ledgemont Drive
Salt Lake City, Utah 84124
Nathan L. Wade -------------------------- 292,822(5) 3.9%
1207 South Main Street
Salt Lake City, Utah 84111
All Officers and Directors
as a group (6 persons) ---------------------- 3,211,160(6) 42.3%
________________________________________________________________________________
14
(1) Unless otherwise indicated, each person identified in the table
has sole voting and investment power with respect to the common
stock beneficially owned by such person. The total number of
outstanding shares included in the computation of percentages is
7,210,069, plus 377,500 options which are exercisable by
executives and directors within 60 days. The current directors and
officers of the Company not named above, James Solomon, Frances
Flood, and Dennis Gauger, Chief Financial Officer, do not own
shares in the Company. All of the officers serving the Company
during 2001, with the exception of Dr. John T. Day, were
terminated as part of the sale of the explosives business to UEE
on November 15, 2001. These officers have relinquished all rights
to the stock options previously granted.
(2) Includes 1,883,287 shares held by the BLA Irrevocable Investment
Trust of which Mr. Bagley is a co-Trustee with a sister, Lisa
Higley, and 69,500 options currently exercisable by Mr. Bagley.
(3) Includes 79,500 options currently exercisable by Dr. Day.
(4) Includes shares owned solely by Dr. Udy's wife and shares in a
family limited partnership.
(5) 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 69,500 options currently
exercisable by Mr. Wade.
(6) Includes 79,500 options currently exercisable by each of Directors
James Solomon and Frances Flood.
Item 13. Certain Relationships and Related Transactions.
On April 10, 1998, the Company provided Dr. John T. Day a five-year
loan of $75,000 at LIBOR 30-day rate plus 1% adjusted annually each year on the
anniversary date. Interest is payable annually with principal due on the date of
maturity. The loan is secured with shares of common stock of the Company owned
by Dr. Day, and the outstanding principal balance on the loan as of December 31,
2001 was $22,097, with accrued interest of $168.
PART IV
Item 14. Exhibits, Financial Statement Schedules, and Reports on Form 8-K.
(a) The following documents are filed as a part of this report:
1. The audited financial statements of the Company and the
report of independent certified public accountants required
in Part II, Item I are included on pages F-1 to F-23.
2. Also included as financial statement schedules to this
Annual Report on Form 10-K as Exhibit 99 are the audited
financial statements of Cyanco, a significant subsidiary
reported on the equity method, and the report of
independent certified public accountants. 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.
3. Exhibits:
3.1 Amendment to Articles of Incorporation to reflect
the one-for-five reverse stock split which became
effective June 15, 1987 (Incorporated herein by
reference from the Form 10-KSB 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.
3.2 Amendment to Articles of Incorporation to reflect
the name change to Nevada Chemicals, Inc. (this
filing).
15
3.3 Bylaws of the Corporation as amended May 19, 1999
(Incorporated herein by reference from the Form
10-K/A filed by the Company for the fiscal year
ended December 31, 2000).
4.1 Amended 1988 Nonqualified Stock Option Plan,
amended as of May 19, 1999 (Incorporated by
reference from the Form 10-K/A filed by the Company
for the fiscal year ended December 31, 2000).
10.1 Asset Purchase Agreement dated November 30, 2000,
as amended, (Incorporated herein by reference from
the Company's Definitive Proxy Statement on Form
14A filed by the Company on October 9, 2001).
21 List of Subsidiaries (this filing).
99 The financial statements for the fiscal year ended
December 31, 2001 of Cyanco, a significant
subsidiary reported on the equity method, and the
report of independent certified public accountants
(this filing).
(b) The Company filed a report on Form 8-K on November 30, 2001
reporting the sale of its Explosives Business to UEE.
16
SIGNATURES
Pursuant to the requirements of 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.
NEVADA CHEMICALS, INC.
/S/ John T. Day
----------------------
John T. Day, President
Date: March 29, 2002
Pursuant to the requirements of the Securities Exchange Act of 1934,
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/ Bryan Bagley Chairman of the Board of Directors March 29, 2002
- --------------------------
Bryan Bagley
/S/ John T. Day President, Chief Executive Officer March 29, 2002
- -------------------------- and Director (Principal Executive Officer)
John T. Day
/S/ James Solomon Director March 29, 2002
- --------------------------
James Solomon
/S/ Nathan L. Wade Director March 29, 2002
- --------------------------
Nathan L. Wade
/S/ Frances Flood Director March 29, 2002
- --------------------------
Frances Flood
/S/ Dennis P. Gauger Chief Financial Officer and Principal March 29, 2002
- -------------------------- Accounting Officer
Dennis P. Gauger
17
NEVADA CHEMICALS, INC.
(Formerly Mining Services International Corporation)
Consolidated Financial Statements
December 31, 2001 and 2000
NEVADA CHEMICALS, INC.
(Formerly 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-6
Notes to consolidated financial statements F-7
- --------------------------------------------------------------------------------
F-1
INDEPENDENT AUDITORS' REPORT
To the Board of Directors and Stockholders
of Nevada Chemicals, Inc.
We have audited the consolidated balance sheet of Nevada Chemicals, Inc. and
Subsidiaries (formerly Mining Services International Corporation) as of December
31, 2001 and 2000, and the related consolidated statements of operations,
stockholders' equity, and cash flows for the years ended December 31, 2001,
2000, and 1999. 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
of the United States of America. 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 Nevada Chemicals,
Inc. and Subsidiaries as of December 31, 2001 and 2000, and the results of their
operations and their cash flows for the years ended December 31, 2001, 2000, and
1999 in conformity with accounting principles generally accepted in the United
States of America.
TANNER + CO.
Salt Lake City, Utah
February 25, 2002
F-2
NEVADA CHEMICALS, INC.
(Formerly Mining Services International Corporation)
Consolidated Balance Sheet
(In thousands, except share amounts)
December 31,
- ----------------------------------------------------------------------------------------------------------
Assets 2001 2000
------ -----------------------------------
Current assets:
Cash $ 7,011 $ 952
Receivables 1,348 1,649
Prepaid expenses 49 9
Current portion of notes receivable 490 -
-----------------------------------
Total current assets 8,898 2,610
Investment in and advances to joint ventures 12,603 11,541
Property, plant and equipment, net 950 947
Notes receivable 965 86
Other assets 245 122
Net assets of discontinued operations - 7,284
-----------------------------------
$ 23,661 $ 22,590
-----------------------------------
- ----------------------------------------------------------------------------------------------------------
Liabilities and Stockholders' Equity
------------------------------------
Current liabilities - accounts payable and accrued expenses $ 1,873 $ 291
Deferred income taxes 1,474 2,054
-----------------------------------
Total liabilities 3,347 2,345
-----------------------------------
Commitments and contingencies - -
Stockholders' equity:
Common stock, $.001 par value, 500,000,000 shares
authorized 7,314,260 shares issued 7 7
Capital in excess of par value 5,312 5,312
Cumulative foreign currency translation adjustments - (456)
Retained earnings 15,568 15,382
Treasury stock, 102,391 shares at cost in 2001 (573) -
-----------------------------------
Total stockholders' equity 20,314 20,245
-----------------------------------
$ 23,661 $ 22,590
-----------------------------------
- ----------------------------------------------------------------------------------------------------------
See accompanying notes to consolidated financial statements. F-3
NEVADA CHEMICALS, INC.
(Formerly Mining Services International Corporation)
Consolidated Statement of Operations
(In thousands, except share amounts)
Years Ended December 31,
- ----------------------------------------------------------------------------------------------------------
2001 2000 1999
-------------------------------------------
Revenue:
Management fee from joint venture $ 443 $ 342 $ 287
Equity in earnings of joint ventures 2,063 1,707 2,505
Other 27 17 88
-------------------------------------------
2,533 2,066 2,880
-------------------------------------------
Costs and expenses:
Cost of revenue 149 144 73
General and administrative 866 818 700
Impairment of assets - - 776
-------------------------------------------
1,015 962 1,549
-------------------------------------------
Income from continuing operations 1,518 1,104 1,331
Other income, net 86 - -
-------------------------------------------
Income from continuing operations before income taxes
and extraordinary item 1,604 1,104 1,331
Provision for income taxes 597 309 514
-------------------------------------------
Income from continuing operations before extraordinary item 1,007 795 817
Extraordinary item - extinguishment of deferred obligation - - 1,599
-------------------------------------------
Net income from continuing operations 1,007 795 2,416
Discontinued operations:
Loss from discontinued operations of explosives
business, net of income tax benefit of $214 in 2001,
$1,879 in 2000 and $1,064 in 1999 (365) (4,826) (1,691)
Loss on disposal of explosives business, including
income taxes of $301 (456) - -
-------------------------------------------
Net income (loss) $ 186 $ (4,031) $ 725
-------------------------------------------
Earnings (loss) per common share - basic:
Continuing operations before extraordinary item $ .14 $ .11 $ .11
Extraordinary item - - .22
Discontinued operations (.11) (.66) (.23)
-------------------------------------------
Total $ .03 $ (.55) $ .10
-------------------------------------------
Earnings (loss) per common share - diluted:
Continuing operation before extraordinary item $ .14 $ .11 $ .11
Extraordinary item - - .22
Discontinued operations (.11) (.66) (.23)
-------------------------------------------
Total $ .03 $ (.55) $ .10
-------------------------------------------
Weighted average number of shares outstanding:
Basic 7,301,000 7,314,000 7,324,000
Diluted 7,333,000 7,314,000 7,375,000
- ----------------------------------------------------------------------------------------------------------
See accompanying notes to consolidated financial statements. F-4
NEVADA CHEMICALS, INC.
(Formerly Mining Services International Corporation)
Consolidated Statement of Stockholders' Equity
(In thousands, except share amounts)
Years Ended December 31, 2001, 2000, and 1999
- ---------------------------------------------------------------------------------------------------------
Cumulative
Capital in Foreign
Excess Currency
Common Stock of Par Translation Retained Treasury
Shares Amount Value Adjustments Earnings Stock Total
-----------------------------------------------------------------------------
Balance at
January 1, 1999 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)
-----------------------------------------------------------------------------
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
Comprehensive net income
calculation:
Net income - - - - 186 - 186
Other comprehensive
income-foreign currency
translation adjustment,
net - - - 456 - - 456
----------
Comprehensive income - - - - - - 642
----------
Purchase of treasury stock - - - - - (573) (573)
-----------------------------------------------------------------------------
Balance at
December 31, 2001 7,314,260 $ 7 $ 5,312 $ - $ 15,568 $ (573) $ 20,314
-----------------------------------------------------------------------------
- ---------------------------------------------------------------------------------------------------------
See accompanying notes to consolidated financial statements. F-5
NEVADA CHEMICALS, INC.
(Formerly Mining Services International Corporation)
Consolidated Statement of Cash Flows
(In Thousands)
Years Ended December 31,
- ----------------------------------------------------------------------------------------------------------
2001 2000 1999
----------------------------------------------
Cash flows from operating activities:
Net income (loss) $ 186 $ (4,031) $ 725
Adjustments to reconcile net income (loss) to net cash
(used in) provided by operating activities:
Depreciation and amortization 941 1,595 1,318
Provision and reserves for losses on assets - 222 66
Loss on sale of discontinued explosives business 456 - -
Loss (gain) on disposal of property, plant and (223) 1 (11)
equipment
Undistributed earnings of joint ventures (3,276) (2,245) (2,510)
Impairment of assets - 4,990 2,622
Extraordinary item - extinguishment of deferred
obligation - - (2,422)
Recognition of cumulative foreign currency
translation adjustment 456 - -
Deferred income taxes (580) (354) (124)
(Increase) decrease in:
Receivables 161 (1,711) (692)
Inventories 94 (441) (86)
Prepaid expenses (45) (100) 8
Other assets (131) (233) 61
Increase (decrease) in:
Accounts payable and accrued expenses 1,170 3,644 (686)
Minority interest - (497) 25
----------------------------------------------
Net cash (used in) provided by
operating activities (791) 840 (1,706)
----------------------------------------------
Cash flows from investing activities:
Net cash received from sale of discontinued explosives
business 5,203 - -
Proceeds from the sale of property, plant and equipment 253 35 62
Increase in notes receivable - (500) (58)
Payments on note receivable 180 47 100
Purchase of property, plant and equipment (542) (2,945) (3,971)
Distributions from joint ventures 1,442 2,000 4,000
Investment in joint venture - 3 (507)
Capital contribution from minority interest - - 472
----------------------------------------------
Net cash provided by (used in)
investing activities 6,536 (1,360) 98
----------------------------------------------
Cash flows from financing activities:
Proceeds from long-term debt 250 2,241 3,890
Payments on long-term debt (578) (583) (1,309)
Acquisition and retirement of common stock - - (131)
Cash dividend paid - - (181)
Purchase of treasury stock (519) - -
----------------------------------------------
Net cash (used in) provided by
financing activities (847) 1,658 2,269
----------------------------------------------
Net increase in cash 4,898 1,138 661
Cash, beginning of year 2,113 975 314
----------------------------------------------
Cash, end of year $ 7,011 $ 2,113 $ 975
----------------------------------------------
- ----------------------------------------------------------------------------------------------------------
See accompanying notes to consolidated financial statements. F-6
NEVADA CHEMICALS, INC.
(Formerly Mining Services International Corporation)
Notes to Consolidated Financial Statements
(In thousands, except share amounts)
December 31, 2001, 2000, and 1999
- --------------------------------------------------------------------------------
1. Organization Organization
and Through November 15, 2001, Nevada Chemicals, Inc. (the
Significant Company), formerly Mining Services International
Accounting Corporation, and its wholly owned and majority owned
Policies subsidiaries were primarily engaged in the development,
manufacture and sale of bulk explosives and related
support and services. On November 15, 2001, the Company
closed the sale of the assets, subsidiaries and certain
joint venture interests of its explosives business (the
Explosives Business) to Union Espanola de Explosivos
S.A. and certain of its subsidiaries (UEE). In
connection with this transaction, the name of the
Company was changed to Nevada Chemicals, Inc.
Winnemucca Chemicals, Inc. (Winnemucca Chemicals), a
wholly owned subsidiary of the Company, has a fifty
percent interest in Cyanco Company (Cyanco), a
non-corporate joint venture engaged in the manufacture
and sale of liquid sodium cyanide. Subsequent to the
sale of the Explosives Business, the Company will
continue to own and operate its interest in Cyanco. The
Company accounts for its investment in Cyanco using the
equity method of accounting. Summarized financial
information for Cyanco is included in Note 12.
In addition, the Company retained its interest in 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
continuing sustained losses and the unlikelihood of
realizing profits in this market where explosives supply
now exceeds demand. The Company will only recognize
income or loss from this investment as cash is either
received or disbursed.
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.
- --------------------------------------------------------------------------------
F-7
NEVADA CHEMICALS, INC.
(Formerly Mining Services International Corporation)
Notes to Consolidated Financial Statements
(In thousands, except share amounts)
Continued
- --------------------------------------------------------------------------------
1. Organization Cash Equivalents
and For purposes of the statement of cash flows, cash
Significant includes all cash and investments with original
Accounting maturities to the Company of three months or less.
Policies
Continued 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.
Translation of Foreign Currencies
Prior to the sale of the Explosives Business, the
cumulative effect of currency translation adjustments
was 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 were
accumulated in an equity account on the joint venture's
balance sheet, which was reported using the equity
method, until such time as the joint venture is sold or
substantially or completely liquidated. Translation
gains and losses relating to operations of joint
ventures where hyperinflation exists were included in
equity in earnings from joint ventures.
Subsequent to the sale of the Explosives Business, the
Company had no material foreign operations.
Revenue Recognition
The Company's revenues consist mainly of earnings from
Cyanco based on the equity method of accounting and
management fees from Cyanco. Equity from earnings in
Cyanco is based on the Company's 50% ownership in Cyanco
and is calculated and recognized at the end of each
month. Management fees from Cyanco are recognized
monthly based on a management agreement with Cyanco.
- --------------------------------------------------------------------------------
F-8
NEVADA CHEMICALS, INC.
(Formerly Mining Services International Corporation)
Notes to Consolidated Financial Statements
(In thousands, except share amounts)
Continued
- --------------------------------------------------------------------------------
1. Organization Income Taxes
and Deferred income taxes are provided in amounts sufficient
Significant to give effect to temporary differences between
Accounting financial and tax reporting, principally related to
Policies depreciation and undistributed earnings from joint
Continued ventures, which qualify under certain tax deferral
treatment.
Earnings Per Common Share
The computation of earnings per common share is based on
the weighted average number of shares outstanding during
the year.
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. For 2000, common stock
equivalents were not included in the diluted earnings
(loss) per share calculation because the effect would
have been anti-dilutive.
The shares used in the computation of the Company's
basic and diluted earnings (loss) per share are
reconciled as follows:
2001 2000 1999
----------------------------------------
Weighted average number of shares
outstanding - basic 7,301,000 7,314,000 7,324,000
Dilutive effect of stock options 32,000 - 51,000
----------------------------------------
Weighted average number of shares
outstanding, assuming dilution 7,333,000 7,314,000 7,375,000
----------------------------------------
Concentration of Credit Risk
At December 31, 2001, financial instruments which
potentially subjected the Company to concentration of
credit risk consisted primarily of cash and receivables.
Receivables consisted primarily of amounts on deposit or
receivable from United States or Canadian federal tax
authorities. Management does not believe significant
credit risk exists for these receivables at December 31,
2001.
- --------------------------------------------------------------------------------
F-9
NEVADA CHEMICALS, INC.
(Formerly Mining Services International Corporation)
Notes to Consolidated Financial Statements
(In thousands, except share amounts)
Continued
- --------------------------------------------------------------------------------
1. Organization The Company maintains its cash in bank deposit accounts
and which, at times, may exceed federally insured limits.
Significant The Company has not experienced any losses in such
Accounting accounts and believes it is not exposed to any
Policies significant credit risk on cash and cash equivalents.
Continued
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.
Reclassification
Certain amounts in the 2000 and 1999 consolidated
financial statements have been reclassified to conform
with classifications adopted in the current year.
2. Sale of Sale of Explosives Business
Explosives On November 8, 2001, the shareholders of the Company
Business voted in favor of the sale of the Company's Explosive
Business pursuant to an Asset Purchase Agreement between
the Company and UEE. The Company entered into the
agreement on November 30, 2000 and consummated the sale
on November 15, 2001. As a result, the Explosives
Business is accounted for as a discontinued operation,
and accordingly, amounts in the financial statements and
related notes for all periods shown have been restated
to reflect discontinued operations accounting.
Summarized operating results of the Explosives Business
are shown in the table below.
- --------------------------------------------------------------------------------
F-10
NEVADA CHEMICALS, INC.
(Formerly Mining Services International Corporation)
Notes to Consolidated Financial Statements
(In thousands, except share amounts)
Continued
- --------------------------------------------------------------------------------
2. Sale of As consideration for the Explosives Business, subject to
Explosives certain adjustments, (i) the Company received $6.35
Business million cash; (ii) UEE and its subsidiaries assumed
Continued notes and accrued interest payable to the Company
totaling approximately $1.3 million, the first of which,
in the principal amount of $1.0 million, will be paid in
equal annual installments over five years beginning in
July of 2002, and the second of which, in the principal
amount of $200, was paid in January 2002; (iii) UEE
assumed essentially all of the Company's liabilities
associated with the Explosives Business in the
approximate amount of $13.6 million. Expenses of the
sale were approximately $1.8 million, including $431
recognition of foreign currency translation adjustment.
After giving effect to an estimated $301 income tax
provision from the sale, the Company recognized a loss
from the sale of $456.
Operating results of the disposed Explosives Business
are as follows:
2001 2000 1999
-----------------------------------------------
Revenues $ 36,945 $ 37,064 $ 27,728
-----------------------------------------------
Costs and expenses:
Cost of sales 34,099 34,475 25,424
General and administrative 3,123 3,732 2,193
Impairment of assets - 4,990 1,846
Other expenses 302 1,069 995
-----------------------------------------------
37,524 44,266 30,458
-----------------------------------------------
Loss before income taxes
and minority interest (579) (7,202) (2,730)
Income tax benefit 214 1,879 1,064
-----------------------------------------------
Loss before minority interest (365) (5,323) (1,666)
Minority interest in (income)
loss - 497 (25)
-----------------------------------------------
Net loss $ (365) $ (4,826) $ (1,691)
-----------------------------------------------
- --------------------------------------------------------------------------------
F-11
NEVADA CHEMICALS, INC.
(Formerly Mining Services International Corporation)
Notes to Consolidated Financial Statements
(In thousands, except share amounts)
Continued
- --------------------------------------------------------------------------------
2. Sale of As part of the sale of the Explosives Business, the
Explosives Company purchased a total of 101,191 shares of its
Business common stock from certain of its former officers and
Continued employees for total consideration of $571.
Impairment of assets related to discontinued operations:
o Based on the estimated sales proceeds and the net
book value of the assets to be sold at the time the
Asset Purchase Agreement with UEE was signed, it was
determined that the Company would recognize a loss of
approximately $4,990 upon the sale. Accordingly, as
of December 31, 2000, based upon SFAS 121, 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.
o During the year ended December 31, 1999, the Company
evaluated the carrying value of certain investments
in and advances to joint ventures of the Explosives
Business based upon projected future cash flows, the
circumstances and location of its investments and its
ability to recover its investments in cash or any
other negotiable asset. Based on this evaluation and
in accordance with SFAS 121, the Company recorded an
aggregate non-cash expense of $1,846 for the
impairment of investment in and advances to foreign
joint ventures.
Net assets of discontinued operations as of December 31,
2000 consisted of the following:
Cash $ 1,161
Receivables, net 6,322
Inventories 2,248
Other assets 1,724
Investments in and advances to joint
ventures 1,345
Property, plant and equipment, net 6,700
Accounts payable and accrued expenses (5,610)
Notes payable (6,606)
------------
Net assets of discontinued operations $ 7,284
------------
- --------------------------------------------------------------------------------
F-12
NEVADA CHEMICALS, INC.
(Formerly Mining Services International Corporation)
Notes to Consolidated Financial Statements
(In thousands, except share amounts)
Continued
- --------------------------------------------------------------------------------
3. Detail of
Certain
Balance
Sheet
Accounts December 31,
-----------------------------
2001 2000
-----------------------------
Receivables:
Trade receivables $ - $ 498
Income tax refunds receivable 1,240 1,014
Related party receivables (see Note 9) 37 73
Other 71 64
-----------------------------
$ 1,348 $ 1,649
-----------------------------
Accounts payable and accrued expenses:
Trade payables $ 665 $ 291
Income taxes payable (see Note 15) 924 -
Other accrued expenses (see Note 15) 284 -
-----------------------------
$ 1,873 $ 291
-----------------------------
4. Notes Notes receivable are comprised of the following at
Receivable December 31:
2001 2000
--------------------------
Note receivable from UEE, in annual
installments of $200 plus interest at 8.5% $ 1,000 $ -
Note receivable from a subsidiary of UEE,
paid in full in January 2002 with interest at
a defined average rate 200 -
Note receivable from a subsidiary of UEE,
monthly installments of $10 including
interest at 6.5% 229 -
- --------------------------------------------------------------------------------
F-13
NEVADA CHEMICALS, INC.
(Formerly Mining Services International Corporation)
Notes to Consolidated Financial Statements
(In thousands, except share amounts)
Continued
- --------------------------------------------------------------------------------
4. Notes
Receivable
Continued
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 26 86
--------------------------
1,455 86
Less current portion (490) -
--------------------------
$ 965 $ 86
--------------------------
5. Property, Property, plant and equipment consists of the following:
Plant and
Equipment December 31,
--------------------------
2001 2000
--------------------------
Buildings, plant equipment and fixtures $ 942 $ 942
Office equipment and fixtures 20 3
Vehicles 34 42
Land 107 107
--------------------------
1,103 1,094
Less accumulated depreciation
and amortization (153) (147)
--------------------------
$ 950 $ 947
--------------------------
6. Income The current provision for income taxes represents U.S.
Taxes federal income taxes, taxes withheld on royalties and
other foreign income taxes.
- --------------------------------------------------------------------------------
F-14
NEVADA CHEMICALS, INC.
(Formerly Mining Services International Corporation)
Notes to Consolidated Financial Statements
(In thousands, except share amounts)
Continued
- --------------------------------------------------------------------------------
6. Income The benefit (provision) for income taxes is different
Taxes than amounts which would be provided by applying the
Continued statutory federal income tax rate to income from
continuing operations before income taxes for the
following reasons:
Years Ended December 31,
-------------------------------------------
2001 2000 1999
-------------------------------------------
Federal income tax
(provision) at statutory rate $ (593) $ (408) $ (492)
Life insurance and meals (4) (23) (22)
Other - 122 -
-------------------------------------------
$ (597) $ (309) $ (514)
-------------------------------------------
Total income tax benefit (provision) consists of the
following:
Current $ (1,177) $ (663) $ (638)
Deferred 580 354 124
-------------------------------------------
$ (597) $ (309) $ (514)
-------------------------------------------
Deferred tax assets (liabilities) are comprised of the
following:
December 31,
----------------------------
2001 2000
----------------------------
Depreciation and amortization $ (3,049) $ (3,311)
Deferred income - (556)
Write-down of impaired assets - 1,151
Foreign tax credit carryforward 1,575 438
Other - 224
----------------------------
$ (1,474) $ (2,054)
----------------------------
- --------------------------------------------------------------------------------
F-15
NEVADA CHEMICALS, INC.
(Formerly Mining Services International Corporation)
Notes to Consolidated Financial Statements
(In thousands, except share amounts)
Continued
- --------------------------------------------------------------------------------
7. Impairment During the year ended December 31, 1999, the Company
of Assets evaluated the carrying value of its investments in and
advances to the WAC joint venture based upon projected
future cash flows, the circumstances and location of its
investments and its ability to recover its investments
in cash or any other negotiable asset. Based on this
evaluation, and in accordance with SFAS 121, the Company
recorded an aggregate non- cash expense for the
impairment as follows:
Investment in and advances to foreign
joint ventures $ 76
Related party notes receivable from foreign
joint ventures 700
--------------
$ 776
--------------
8. Supplemental Actual amounts paid for interest and income taxes are as
Cash Flow follows:
Information
Years Ended December 31,
-----------------------------------------------------
2001 2000 1999
-----------------------------------------------------
Interest $ 519 $ 509 $ 211
-----------------------------------------------------
Income taxes $ 508 $ 127 $ 801
-----------------------------------------------------
During the year ended December 31, 2001:
o The Company reclassified accounts receivable of $229
to a note receivable due from UEE
o The Company reclassified interest receivable of $110
which was previously recorded as part of a note
receivalbe from UEE to accounts receivable
o In connection with the sale of its Explosives
Business the Company repurchased common stock from a
former officer in exchange for partial repayment of a
note receivable of $54
- --------------------------------------------------------------------------------
F-16
NEVADA CHEMICALS, INC.
(Formerly Mining Services International Corporation)
Notes to Consolidated Financial Statements
(In thousands, except share amounts)
Continued
- --------------------------------------------------------------------------------
8. Supplemental o The Company paid certain accrued expenses to an
Cash Flow officer in exchange for forgiveness of a note
Information receivable of $6
Continued
o The Company sold equipment to a joint venture in
exchange for accounts receivable of $125
o As described in Note 2, the Company sold its
Explosives Business to UEE. The following table
summarizes the assets and liabilities sold,
consideration received, and loss recognized on the
sale:
Assets Sold and Liabilities Assumed by UEE
--------------------------------------------------------
Receivables, net $ 6,468
Inventories 2,154
Other current assets 208
Investments in and advances to joint ventures 2,117
Property, plant and equipment, net 6,143
Notes receivable from joint ventures 1,070
Other assets 279
Accounts payable and accrued expenses (7,340)
Notes payable (6,278)
-----------------
Net assets sold 4,821
Consideration Received
--------------------------------------------------------
Notes receivable and accrued interest received 1,310
Net cash received (net of $1,147 sold) 5,203
-----------------
Gain before expenses of
sale and income tax effect 1,692
Expenses directly related to the sale (1,847)
Provision for income taxes (301)
-----------------
Loss recognized on sale $ (456)
-----------------
- --------------------------------------------------------------------------------
F-17
NEVADA CHEMICALS, INC.
(Formerly Mining Services International Corporation)
Notes to Consolidated Financial Statements
(In thousands, except share amounts)
Continued
- --------------------------------------------------------------------------------
9. Related Party The Company performs certain functions for Cyanco for
Transactions which it receives a fee. Fees totaled $443, $342 and
$287 for the years ended December 31, 2001, 2000, and
1999, respectively.
At December 31, 2001 and 2000, the Company had
receivables of $36 and $33, respectively, from Cyanco,
$1 and $23, respectively from employees, and $0 and $17,
respectively, from WAC.
As of December 31, 2001 and 2000, the Company had notes
receivable from officers of the Company of $26 and $86,
respectively (see Note 4).
As compensation for services rendered in connection with
the sale of the Explosives Business, the Company agreed
to pay $160 and $103 to two board members. $50 was paid
to one board member in 2001 and the remaining amounts
were paid in January 2002.
10. 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.
In connection with the sale of the Explosive Business to
UEE on November 15, 2001, substantially all employees
terminated their employment with the Company and
surrendered to the Company all previously issued stock
options. The Company's president and CEO and continuing
members of the board of directors retained their stock
options.
- --------------------------------------------------------------------------------
F-18
NEVADA CHEMICALS, INC.
(Formerly Mining Services International Corporation)
Notes to Consolidated Financial Statements
(In thousands, except share amounts)
Continued
- --------------------------------------------------------------------------------
10. Non-Qualified Information regarding the Option Plan is summarized
Stock Option below:
Plan
Continued Number of Option Price
Options Per Share
--------------------------------
Outstanding at January 1, 1999 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
Granted 170,000 1.21
Exercised - -
Expired / Forfeited (521,247) 1.38 - 11.30
--------------------------------
Outstanding at December 31, 2001 377,500 $ 1.21 - 2.31
--------------------------------
Options exercisable and available for future grant are
as follows:
December 31,
-------------------------------------------
2001 2000 1999
-------------------------------------------
Options exercisable 377,500 524,510 113,815
Options available for grant 445,207 93,960 469,960
- --------------------------------------------------------------------------------
F-19
NEVADA CHEMICALS, INC.
(Formerly Mining Services International Corporation)
Notes to Consolidated Financial Statements
(In thousands, except share amounts)
Continued
- --------------------------------------------------------------------------------
11. 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,
-----------------------------------------
2001 2000 1999
-----------------------------------------
Net Income - as reported $ 186 $ (4,031) $ 725
Net Income - pro forma $ 110 $ (4,393) $ 622
Diluted earnings per share -
as reported $ .03 $ (.55) $ .10
Diluted earnings per share -
pro forma $ .02 $ (.60) $ .08
-----------------------------------------
The fair value of each option grant is estimated at the
date of grant using the Black-Scholes option pricing
model with the following assumptions:
December 31,
----------------------------------------
2001 2000 1999
----------------------------------------
Expected dividend yield $ - .01 $ .02
Expected stock price volatility 62% 53% 52%
Risk-free interest rate 4.66% 6% 6%
Expected life of options 2 years 3-5 years 0 - 3 years
----------------------------------------
The weighted average fair value of options granted
during 2001, 2000, and 1999 are $.45, $.73, and $.28,
respectively.
- --------------------------------------------------------------------------------
F-20
NEVADA CHEMICALS, INC.
(Formerly Mining Services International Corporation)
Notes to Consolidated Financial Statements
(In thousands, except share amounts)
Continued
- --------------------------------------------------------------------------------
11. Stock-Based The following table summarizes information about stock
Compensation options outstanding at December 31, 2001:
Continued
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
- -------------------------------------------------------------------------------
$ 2.31 10,000 1.32 $ 2.31 10,000 $ 2.31
1.44 197,500 3.59 1.44 197,500 1.44
1.21 170,000 4.89 1.21 170,000 1.21
- -------------------------------------------------------------------------------
$1.21 - 2.31 377,500 4.11 $ 1.36 377,500 $ 1.36
- -------------------------------------------------------------------------------
12. Significant Summarized financial information of Cyanco, a
Unconsolidated significant unconsolidated affiliate of the Company, are
Affiliates as follows:
December 31,
---------------------------------------------
2001 2000 1999
---------------------------------------------
Results for year:
Gross revenues $ 29,767 $ 22,961 $ 19,346
Gross profit $ 5,905 $ 4,747 $ 6,609
Net income, before
extraordinary item $ 4,126 $ 3,415 $ 5,366
Year-end financial
position:
Current assets $ 7,831 $ 5,161
Non-current assets $ 16,946 $ 17,892
Current liabilities $ 1,746 $ 2,148
Non-current liabilities - -
- --------------------------------------------------------------------------------
F-21
NEVADA CHEMICALS, INC.
(Formerly Mining Services International Corporation)
Notes to Consolidated Financial Statements
(In thousands, except share amounts)
Continued
- --------------------------------------------------------------------------------
13. 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, 2001, 2000, and 1999 was $106, $80,
and $79, respectively.
14. Fair Value of The Company's financial instruments consist of cash,
Financial receivables, notes receivable, and payables. The
Instruments carrying amount of cash, receivables, and payables
approximates fair value because of the short- term
nature of these items. The carrying amount of the notes
receivable approximates fair value as the individual
borrowings bear interest which approximate market rates.
15. Commitments In connection with the sale of the Explosives Business,
and any receivables, less an agreed upon reserve of $153,
Contingencies that have not been collected within 240 days of the
closing date (November 15, 2001) will be offset against
the Company's note receivable from UEE in the reverse
order of maturity. Based on the Explosives Business'
history of receivables collection, the Company does not
expect such receivables required to be offset against
the note receivable to be significant. The Company will
aggressively pursue collection of any receivables offset
pursuant to this agreement.
In order to complete the assignment to a UEE subsidiary
of a lease for property leased by the Company as of the
closing date of the sale of the Explosives Business
(November 15, 2001), the Company agreed to clean up,
remediate and repair the contamination caused to the
property by the Explosives Business. Based on initial
testing performed by an engineering firm, the Company
believes that amounts accrued at December 31, 2001 will
be sufficient to cover remaining testing and cleanup
costs. However, there can be no assurance that such
costs will not exceed the current estimate.
- --------------------------------------------------------------------------------
F-22
NEVADA CHEMICALS, INC.
(Formerly Mining Services International Corporation)
Notes to Consolidated Financial Statements
(In thousands, except share amounts)
Continued
- --------------------------------------------------------------------------------
15. Commitments The Company has retained all contingent liabilities
and relating to the current ongoing audit by the Canada
Contingencies Customs and Revenue Agency (CCRA) of previously filed
Continued tax returns in Canada. In the initial phase of the
audit, CCRA has taken a position on certain matters
different than that taken by the Company. The Company,
based on consultation with its professional tax advisors
in Canada, believes that the facts and circumstances
support the position taken by the Company. The Company
believes that amounts accrued and included in income
taxes payable at December 31, 2001 are adequate for the
resolution of the audit by CCRA. However, there can be
no assurance that such costs will not exceed the current
estimate.
16. Extraordinary During the year ended December 1999, the Company
Items negotiated 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-23