U.S. SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-KSB/A
Amendment #2 to Items 1, 2 and 13
ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d)
OF THE SECURITIES EXCHANGE ACT OF 1934
For the fiscal year ended December 31, 1996
Commission File Number: 0-6088
Earth Sciences, Inc.
(Name of small business issuer in its charter)
Colorado 84-0503749
(State of incorporation) (IRS Employer Identification
No.)
910 12th Street, Golden, Colorado 80401
(Address of principal executive offices, including Zip Code)
(Registrant's telephone number, including area code): (303) 279-7641
Securities registered under Section 12(g) of the Exchange Act:
Common Stock, one cent par value
Title of class
Check whether the issuer (1) has filed all reports required to be filed by
Section 13 or 15(d) of the Exchange Act during the past 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.
[X] Yes [ ] No
Check if there is no disclosure of delinquent filers in response to Item 405
of Regulation S-B contained in this form, and no disclosure will 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-KSB or any
amendment to this Form 10-KSB. [X]
State issuer's revenues for its most recent fiscal year. $ 798,000
State the aggregate market value of the voting stock held by nonaffiliates
computed by reference to the price at which the stock was sold, or the average
bid and asked prices of such stock, as of a specified date within the past 60
days. As of March 21, 1997 was $21,125,000.
Number of shares outstanding of registrant's Common Stock, one cent par value
as of March 7, 1997 - 8,577,951.
DOCUMENTS INCORPORATED BY REFERENCE
The following documents are incorporated by reference into PART I, Item 2 of
this Form 10-KSB:
1974 through 1979, 1981, 1986 and 1988 Forms 10-K of Registrant
Transitional Small Business Disclosure Format: Yes __ No X
<PAGE>
PART I
Item 1. Description of Business
(a) Business Development.
Earth Sciences, Inc. ("ESI" or "Registrant", which term includes its wholly
owned subsidiaries unless otherwise indicated) is a diversified mineral
exploration and development company with planned production of purified
phosphate products in Calgary. ESI was incorporated under the name of
Colorado Central Mines, Inc. in Colorado in 1957. During 1996, ESI (1)
continued with activities leading to production of purified phosphate products
at its solvent extraction facility in Calgary, Alberta, Canada; (2) settled
certain indebtedness with Alberta Treasury and negotiated an option to settle
the $9.4 million deferred revenue liability both associated with the Calgary
facility; (3) continued exploration activities for gold resources in Venezuela
including its land contract covering approximately 1200 acres; (4) aquired an
interest and commenced exploration work on the Cerro Gordo gold/silver
property in Inyo County, California, and (5) maintained its position in
several mining deposits and prospects in the Western US including its royalty
position in the San Luis gold mine which completed mining in October 1997 and
produced approximately 52,000 ounces of gold in 1996. Thus far in 1997, ESI
has signed a letter of intent to acquire a majority equity interest in ADA
Environmental Solutions LLC. These activities are described in the succeeding
paragraphs of this Item 1(a) and below in Item 1(b).
ESI's solvent extraction facility in Calgary, Alberta, recovered uranium from
phosphoric acid during the period from 1983 through 1987. Uranium oxide
production was suspended in the fall of 1987 when the adjacent fertilizer
plant from which the facility received its feed stock suspended operations.
The contract under which the uranium was sold was modified in 1990 to allow
unrestricted alternative use of the facility. An in-house feasibility study,
completed in 1995, confirmed the technical and financial feasibility of
conversion of the facility for the production of purified phosphate products.
Revamp of the facility to allow such production is currently underway. Start-
up activities are expected to commence in March 1997 with product expected to
be available for sale in May 1997. There can be no assurances that the
Company will be able to maintain the expected schedule.
In November 1996, ESI reached agreements in principal with Yankee Atomic
Electric Company and Vermont Yankee Nuclear Power Corporation (the "Yankee
Companies") to purchase a 270 day option for $100,000 to terminate their
deferred revenue position in the Calgary facility. As of December 31, 1996,
the consolidated financial statements of ESI reported Deferred Revenues of
$9,382,000 which represents prepayments by the Yankee Companies for uranium.
Under the terms of the option, if exercised, ESI would pay the Yankee
Companies $1,150,000 and grant them a 10 year non-cost bearing net profits
royalty on activities at the Calgary facility. Payments to the Yankee
Companies would be capped at a total of $6 million, excluding the $100,000
option payment, and ESI could purchase the royalty interest for $3 million
plus $50,000 per year after the exercise date to a total of not more than
$3,250,000. The definitive document for this agreement was signed in January
1997.
In December 1996, ESI reached a final settlement with the Alberta Treasury
("AT") concerning certain indebtedness related to the Calgary facility. As of
November 30, 1996, ESI had recorded principal and accrued interest totaling
$600,000 payable to AT. ESI obtained a complete release from the indebtedness
and all claims against the Calgary facility by payment to AT of $76,000.
In July 1996, ESI entered into an agreement with Martin Trost Associates
("MTA"), a Colorado joint venture which will allow it to earn up to an 80
percent working interest in the Cerro Gordo property in Inyo County,
California. The property covers 80 patented and unpatented mining claims.
The agreement provides for ESI to arrange financing of up to $4.2 million to
place the "H" area into production to earn an 80% working interest in the
property. Evaluation of a 4 hole drilling program conducted in December is in
progress to determine further action on the property. See Item 2(f) below.
On November 15, 1996, ESI received notice from Battle Mountain Gold Comapny
("BMGC") that they had completed mining at the San Luis project at the end of
October and that reclamation activities were continuing with an expected
completion date toward the end of March, 1997.
1
<PAGE>
In March 1997, ESI issued $2,510,000 of 4% convertible debentures (the
"Debentures") for which ESI received net proceeds of approximately
$2,309,000. Interest is payable quarterly. The Debentures are convertible at
any time following 45 days after the issuance thereof and are all
automatically convertible on March 31, 1999. The Debentures are convertible
into shares of common stock based on a 25% discount from the market price of
the common stock at the time of conversion, but not in excess of $3.25 per
share. ESI is required to register the shares underlying the Debentures, and
may repurchase the Debentures at a 25% premium under certain circumstances.
On February 18, 1997, ESI signed a Letter of Intent to acquire a majority
equity position in ADA Environmental Solutions LLC through a combination of
stock and cash. The closing of the acquisition, scheduled for April 30, 1997,
is subject to a number of preconditions, including the negotiation and
execution of definitive documentation.
During 1996, through ESI's Venezuelan company, ESIGEO, formed by ESI in joint
venture with GEO C.A. ("GEO"), ESI continued gold exploration and development
activities in Venezuela. ESI also owns 49% of another company, Minera Antabari
C.A. ("Antabari"), which received a contract on a 1200 acre site on the Guyana
Shield in March 1992. To date, geologic mapping, geochemistry of drainages,
soils and old workings, and detailed trenching and pitting of several
mineralized zones has been performed. ESIGEO is discussing further
exploration work at this contract area with third parties. Three other
contracts were filed for in 1994 and refiled in 1995 with the Venezuelan
Ministry of Energy and Mines ("MEM"). ESIGEO is awaiting response from MEM on
these filings. ESI reached agreement in 1996 with certain shareholders in GEO
and Antabari to acquire their holdings in exchange for 20,000 shares of stock.
When the transference of shares is completed in 1997, ESI will have a 67%
ownership of GEO, and an effective 83% ownership of Antabari and ESIGEO.
Several other sites with existing MEM concessions are being evaluated, and
ESIGEO is negotiating with the current concession holders to obtain rights to
further explore these areas. In 1997 ESIGEO expects to conduct surface
exploration on the concessions, currently filed for, when they are granted,
and other areas, if any, obtained from ongoing negotiations.
(b) Business of Issuer.
Registrant is a diversified mineral exploration and development company with
planned production of purified phosphate products in Calgary. Registrant owns
the San Luis gold mine; a processing facility in Calgary, Alberta, Canada
which recovered uranium oxide from phosphoric acid and for which the
production of purified phosphate products is being pursued; alunite properties
which contain alumina, sulfur and potash; other domestic properties containing
gold, vanadium and phosphate; and controls prospects containing copper,
molybdenum, silver, lead and zinc.
Registrant through its 49% ownership in Minera Antabari C.A. ("Antabari") and
its 50% ownership in Recursos Minerales ESIGEO C.A. ("ESIGEO") is exploring,
evaluating, acquiring and plans to develop gold resources in Venezuela.
San Luis Gold Mine
As a result of transactions in 1987, ESI (1) sold its working interest in the
San Luis gold mine to BMGC, (2) acquired the underlying property and (3)
through a lease of the property to BMGC, has a 3 1/2% gross royalty on future
production from the mine. Mining and milling activities were completed by BMGC
in 1996.
During 1996 approximately 52,400 ounces of gold and 28,000 ounces of silver
were produced by BMGC from the property, as compared to 72,700 ounces of gold
and 32,000 ounces of silver in 1995. ESI recognized $692,000 in revenue from
that production in 1996, as compared to $978,000 in 1995. ESI recognized cash
flow of approximately $720,000 from its royalty interest in 1996. ESI does
not expect to recognize any significant royalty revenue from the San Luis mine
in 1997 or thereafter.
Calgary Solvent Extraction Facility
In 1996, ESI continued activities for production of purified phosphate
products at the facility. The planned schedule to re-start the facility in
Calgary, Alberta to produce purified phosphoric acid (PPA) and by-products
targets production commencing in May 1997 assuming the planned construction
and start-up schedule can be maintained. Earth Sciences Extraction Company
("ESEC"), a wholly-owned Canadian limited partnership of ESI, intends to
produce PPA at its solvent extraction facility in Calgary, Alberta. The
facility, with modification, is expected to have the capacity to produce
2
<PAGE>
in excess of 80,000 tons of P2O5 per year in the form of PPA and recover other
valuable constituents available in the feedstock.
ESEC's Facility
The phosphoric acid treatment facility has been maintained on a standby basis
since its uranium recovery operations were suspended in 1987 when the adjacent
fertilizer plant, which had supplied feedstock, suspended operations. Certain
contractual restraints and lower uranium prices have made the stand-alone
recovery of uranium from other feedstock sources uneconomic. ESEC is
modifying the facility to purify superphosphoric acid ("SPA") to a technical
grade PPA and manufacture by-products. The SPA feedstock is to be purchased
from producers in Idaho and Florida for which supply contracts with Agrium
Inc. and Farmland Industries, Inc. have been negotiated. In the future, it is
anticipated that phosphate rock from an open pit deposit owned by ESI may be
processed under a tolling arrangement to provide feedstock for the Calgary
plant. (See Item 2(a) below).
Market for Purified Phosphoric Acid
Phosphorus in the form of purified phosphoric acid, H3PO4 (PPA), is a basic
commercial chemical essential to a broad variety of industrial and consumer
applications. PPA is an important inorganic acid used in foods, cola
beverages, cleaning solutions, fertilizers, fire retardants and metal
treatments, among other uses. At present ESEC would compete with four North
American PPA producers in the 700,000 ton P2O5 industrial market where 200,000
tons P2O5 of direct consumption PPA is sold. ESEC would be the sole producer
in Canada, and would be the only producer in western North America. ESEC's
targeted market segments include those where growth is 10% or more per year,
where the predominate users are in ESEC's freight advantage area, and the
large Minneapolis/Chicago area market. In the first year of production ESEC
expects to enter the North American PPA market by matching other producers'
quality but with lower prices. It is anticipated that cost advantages would
be realized from the use of less expensive purification through solvent
extraction and lower freight costs. It is anticipated that by-products would
be sold in local markets, which ESEC believes are large enough to absorb the
volume without being disrupted. All of the facility's production is being
marketed through an agreement dated January 1, 1997 with Twin-Kem
International, Inc., a Colorado corporation ("TKI") whose principals have over
60 years of combined experience in the marketing and distribution of
industrial and agricultural chemicals. The agreement is for an automatically
renewing one-year term where TKI will receive a commission of between $2.00-
$5.00 per ton of product sold. A prepayment of $100,000 toward such
commission, consisting of 50% cash and 50% stock was made to TKI. There can be
no assurances that actual sales recognized by ESEC will equal the anticipated
volumes.
Solvent Extraction Process
It is anticipated that the facility will produce PPA using an environmentally
clean solvent extraction process employing tributyl phosphate with a kerosene
diluent. The basic process is well established in the industry and believed
by ESEC to be free of patent conflicts. The ESEC process has been verified
for anticipated ESEC feedstocks by numerous laboratory bench tests and
continuous recycle pilot plant runs. The studies show that a competitive PPA
can be produced from any fertilizer grade phosphoric acid feedstock with
extraction efficiencies of 70 to 90%. The remaining material will be sold in
local market for its contained phosphate values. ESEC believes that no
significant waste will be generated at the ESEC facility.
Production Plan and Operating Costs
ESEC intends to start production in 1997 at the rate of 10,000 tons P2O5 per
year of technical grade PPA, carrying 54.4% P2O5, or 18,400 tons of product
acid. Associated with the PPA will be the production of 2,800 tons of P2O5
contained in other material.
Future Potential
The upside potential of the ESEC facility in Calgary is substantial.
Management believes relatively minor changes would have to be made to increase
the output from 10,000 tons to 80,000 tons P2O5 per year. In addition, the
unextracted portion of the feedstock or "raffinate" contains a large number of
valuable elements in high concentrations, including uranium, vanadium,
yttrium, scandium and the rare earths. The technology for recovery of these
elements is available. The plant has a good deal of additional equipment
including a second solvent extraction circuit that could possibly be utilized
for that purpose. ESEC intends to pursue these recovery opportunities in
earnest after the commencement of PPA production.
3
<PAGE>
Venezuelan Gold Activities
ESI's Venezuelan joint venture with GEO commenced initial exploration
activities in the fall of 1988. No proven commercially viable reserves have
been discovered on the properties discussed.
In order to facilitate the development of the Company's various expected land
concessions in Venezuela, the Venezuelan corporate structure was reorganized
in 1994 by forming a holding company called Recursos Minerales ESIGEO C.A.
("ESIGEO") that is controlled equally by ESI and its Venezuelan partners, GEO
C.A. ("GEO"). It is anticipated that each new land concession will be placed
in a separate entity, owned and controlled by ESIGEO. ESI reached agreement in
1996 with certain shareholders in GEO and Antabari to acquire their holdings
in exchange for 20,000 shares of stock. When the transference of shares is
completed in 1997, ESI will have a 67% ownership of GEO, and an effective 83%
ownership of Antabari and ESIGEO. The joint company will continue in the
manner in which ESI has conducted exploration for thirty years. That is to
define and acquire land positions in key areas that have a high probability of
being within the heart of future mining districts. After minimal work to
define mineral potential, these prospects are then sold to major mining
companies for a cash payment and a royalty on future production. To
facilitate this approach, each land concession is to be held in a separate
company, wholly-owned by ESIGEO, which can be sold without additional
regulatory review and delay. The goal of ESIGEO in Venezuela is to enter into
several such agreements with major gold producers within the next several
years.
The decree which empowered the Corporacion Venezolana de Guyana ("CVG") to
issue land contracts in the Guyana Shield has been determined to be illegal by
the Venezuelan courts. The Ministry of Energy and Mines ("MEM") is expected
to issue concessions to replace the over 450 existing CVG contracts after a
study commissioned to evaluate the existing contracts' status is complete and
final legislative action annuls the rights granted CVG. The SAMI land
contract is included in this category and it is anticipated that its terms
will improve as the new concession terms will be more favorable. The three
applications for new land contracts discussed below are included with some 300
other unacted-upon requests that have accumulated with CVG since March 1994,
when CVG stopped signing contracts. New applications to MEM have been made
for these three areas and assurances have been obtained that they will receive
priority when they are ultimately considered. Due to political complexities
of coordinating land use between MEM and designated regions and states, it is
uncertain when these new applications will be acted upon.
SAMI Area Contract
In 1991, ESI and GEO formed Antabari, a Venezuelan company of which ESI owns
49%. In November 1991, Antabari filed for a contract with CVG for 488
hectares to be explored and exploited for gold. The area, called SAMI for San
Miguel, is located southeast of the town of Upata, Bolivar state, Venezuela in
the open country of the savannas, and is readily accessible from established
roads. The contract, which was issued in March 1992, provides a two year
period for exploration work and to prepare a plan for exploitation. An
extension has been granted to complete further exploration work. The contract
requires certain financial guarantees with regard to exploration and
reclamation, and requires that the area be reduced by one-half at the end of
the exploration period.
Antabari has performed geologic mapping, geochemistry of drainages, soils and
old workings, and trenching of several mineralized zones. One such zone has a
continuity of over 600 feet with a width of 40 feet and has yielded values of
up to 1.6 ounces per ton of gold. Additional sampling and analysis from
extensive pitting show a large (8 acre) anomalous gold area, clearly open to
the north and east. Drilling and further sampling will be necessary to
determine the potential of the area. ESIGEO is evaluating this next phase
and/or a sale to third parties at this time.
New Filings
In 1994, formal applications were made to CVG, which in 1995 have been renewed
in applications to MEM, to acquire exclusive mineral exploration rights on
three new land areas located in the Bolivar state in southeastern Venezuela.
ESI has been advised that ESIGEO's filings establish priority for the areas
sought. The Company is very optimistic about the potential these areas hold
for further gold exploration and exploitation. The areas were first
identified as potential targets through regional geochemistry that defined
anomalous occurrences of gold and associated minerals, and legends of past
4
<PAGE>
production by primitive methods which have historically been key to
exploration in remote areas. Queries of natives and sampling of stream
sediments has allowed selection of the best targets from a 130 square km area
that was investigated.
Apicharai
The first concession area covering 500 hectares (approx. 1200 acres), is known
as Apicharai, located about 165 km from the town of La Paragua. This small
tributary to the Antabari river has a history of panning and small scale
hydraulic mining. Apicharai has an abundance of thick quartz veins in the
drainage and gold is commonly visible. The mineralization of Apicharai is
typically associated with the quartz veining in acidic pyroclastics. One 80
meter zone on the river is panned every year by the natives after the rainy
season. The gold particles commonly run 0.5mm and angular quartz is dominate
in the creek sediments. As a result of the stream sediment sampling, an area
has been selected for further work where the source of the gold mineralization
is likely to be located.
Man-cai
The second concession area, known as Man-cai, covers 500 hectares, is located
in a remote area near the Brazilian border accessible by boat from the La
Paragua river. Sampling and estimates of alluvial-colluvial material show that
there is another 50-100 kilos available in a very small area. It is believed
that this gold can be easily recovered with portable equipment. The source
rock may hold significant potential and will be targeted early on in the
further exploration program. Considerable pyrite exists in the volcanic host
rock and upstream, out of the rhyolite, gold is at background levels, helping
to define the source material. The existence of easily obtainable gold in the
surface material and the boundary definition of the source rock make this an
excellent target for significant gold mineralization.
Manaima
The third concession area, known as Manaima, also covers 500 hectares and is
located 50 Km from the town of La Paragua. This is an area rich in history of
small primitive mining operations. The hydrothermal mineralization on the
property is associated with a fault zone where gold is typically found with
copper and manganese.
Specific work programs are being formalized for initial detailed exploration
of the above mentioned areas. The plans provide for the building of an
airstrip to facilitate access and transportation of equipment into Apicharai,
Man-cai and other prospects. Access is now being accomplished via river
routes.
The primary objectives of the 1997 plans are to determine as quickly as
possible the nature and extent of gold mineralization on the anticipated new
land concessions and to continue to define those additional areas where future
filings will be made. Activities will include surface geochemistry, geologic
mapping and trenching.
ADA Environmental Solutions
On February 18, 1997, ESI signed a Letter of Intent to acquire a majority
equity position in ADA Environmental Solutions LLC ("ADA") through a
combination of stock and cash. The acquisition was prompted by synergism
involving products to be produced by the solvent extraction facility in
Calgary. These products will be utilized by ADA in a new proprietary
technology designed to reduce particulate emissions from plants burning low-
sulfur coal. It is expected that the 1990 Clean Air Act Amendments will
result in 600 to 800 coal-fired boilers switching to low-sulfur coal by the
year 2000. ADA anticipates entering this market with its proprietary non-toxic
chemical conditioner which offers both technical and economic advantages over
the hazardous chemicals currently being used. The closing of the acquisition,
scheduled for April 30, 1997, is subject to a number of preconditions,
including the negotiation and execution of definitive documentation. ADA
estimates that a capital budget of approximately $1.6 million will be required
to achieve a commercially viable status.
The Letter of Intent provided for (i) an immediate cash payment of $400,000
for a 4.8% equity interest, (ii) a combination of $500,000 in cash and $1.6
million in notes to be paid at the scheduled closing, for the acquisition of
an additional 46.2% interest in ADA, and (iii) an option to acquire the
remaining equity interests (49%) in ADA during the six months following May 1,
1998 for issuance of stock valued at approximately $5.8 million. In addition,
the principals of ADA will have an option to require ESI to sell its 51%
interest in ADA for the price paid by ESI plus interest in the event ESI does
not exercise its option.
5
<PAGE>
Mineral Properties and Other Business Matters
During 1996 Registrant maintained its ownership position in the several
mineral interests it holds. The mineral interests maintained by Registrant
include significant resource interests in alumina, gold, vanadium, potash and
sulfur, and prospects for copper/molybdenum and silver (see Item 2 below).
Raw materials, as the term is generally used, are not essential to
Registrant's mineral acquisition and development activities performed for its
own account. However, Registrant's commercialization of its properties is
dependent upon securing adequate supplies of energy and water. The planned
production of PPA at the Calgary facility will require adequate supplies of
SPA feedstock. Adequate supplies of this material are currently available in
the required quantities and at reasonable prices. There can be no assurance
that such availability will continue in the future.
Registrant holds no patents, licenses, franchises or land contract which it
considers material in light of its other assets. However, Registrant holds
for itself, and in association with others, Federal Potassium Prospecting
Permits, State Potash and Alunite Leases, Federal Potassium Preference Right
Leases and Applications, Federal Phosphate Prospecting Permits, Federal
Phosphate Leases, State Phosphate Leases, fee mineral rights and other
exploration and mineral interests which are the basis for Registrant to
explore and develop the properties subject thereto. In certain instances such
mineral interests give preferential leasing rights to Registrant upon location
and demonstration to the US Geological Survey Conservation Division that the
deposit is a "valuable, workable deposit in commercial quantities".
Registrant also holds certain of its mineral properties by means of
"unpatented" lode and placer mining claim locations. Unpatented mining claims
require compliance with certain Federal and State laws in order to maintain
mineral interests thereon. Legislation enacted in October 1992 requires a
$100 per claim rental charge on all unpatented mining claims.
Numerous and in some regards conflicting bills have been introduced and are
now pending in the US Congress which would supplant or radically alter the
provisions of the US Mining Law of 1872, under which npatented mining claims
are located. If enacted, such legislation could substantially increase the
cost of holding unpatented mining claims and could impair the ability of
companies to develop mineral resources on unpatented mining claims. Under the
terms of these bills, the ability of companies to obtain patents on unpatented
mining claims would be nullified or substantially impaired, and most contain
provisions for the payment of royalties to the federal government in respect
of production from unpatented mining claims, which could adversely affect the
potential for unpatented mining claims. Registrant's financial performance
could therefore be affected adversely by passage of such legislation. Pending
possible reform of the Mining Law of 1872, Congress has put in place a
moratorium which prohibits acceptance or processing of most mineral patent
applications. It is not possible to predict whether any change in the Mining
Law of 1872 will, in fact, be enacted or, if enacted, the form the changes may
take.
The activities of Registrant performed for its own account are not seasonal,
although winter weather may limit certain activities.
Registrant's mineral exploration and property acquisition activities are not
dependent upon one or a few major customers. The search for and
commercialization of economic mineral deposits is highly competitive. Large
companies having greater financial resources than Registrant and many small
mining companies are active in acquiring, evaluating and developing mineral
resource prospects in the western United States and Venezuela.
Registrant spent approximately $109,000 and $183,000 on research and
development activities related to the Calgary extraction facility during 1996
and 1995, respectively.
United States Federal and state environmental laws and regulations potentially
applicable to mining exploration, development and operations of Registrant
include: (a) the assessment of environmental impacts pursuant to the National
Environmental Policy Act and its state counterparts; (b) the Endangered
Species Act and any comparable state laws; (c) water quality laws and
regulations which address impacts on waters of the United States or a state;
(d) solid, and possibly hazardous, waste laws and regulations to the extent
that waste is generated as a result of activities on the property; (e) air
quality laws and regulations if air emissions result from site operations; and
(f) mined land operational and reclamation requirements. In addition to the
imposition of requirements which may impact operations, a number of these
environmental laws and regulations impose permitting requirements related both
to the initiation of certain mining
6
<PAGE>
activities as well as to the ongoing operation once mining commences. Local
regulations in the U.S. typically are land use related rather than
environmental. Although environmental regulatory costs to date and those
expected in 1997 are not significant, they may become substantial in the
future. Such costs are considered a part of the ordinary costs of
Registrant's business.
As of December 31, 1996 Registrant employed 5 personnel at its Golden,
Colorado, offices and 14 fulltime at the Calgary facility. In addition, other
personnel were employed on a contract basis for specific project tasks.
Item 2. Description of Property. (1)
Registrant owns, controls and participates with others in mineral property
interests and mineral property exploration and development programs in
California, Colorado, Idaho, Montana, Nevada, Utah, and Venezuela. The
following property descriptions contain deposit references according to the
indicated definitions, although it has not been proven that any of these
deposits, except the San Luis gold mine, are commercially viable. In-house
studies for several of the undeveloped properties indicate technical and
economic feasibility. The following is summary information regarding
Registrant's principal properties.
(See footnotes at the bottom of page 7)
(a)Vanadium/Phosphate Property near Paris and Bloomington, Idaho
See Item 3(f), 1975-1977 Forms 10-K for the property acquisition, property
rights, property description and exploration program prior to 1979. See Item
1(c) 1981 Form 10-K concerning Registrant's sale and option of its interests
on the properties in January, 1981. Registrant reacquired all of the
interests in the properties from the Conda Partnership in
1992.
To date, drill testing on the southern portion of the deposit show tonnage of
approximately 53 million tons of mineralized material. The grade of the upper
bed material of the block is calculated to be 25% P2O5 over a thickness of 9
feet and the grade of the lower (main) bed material is calculated to be 30%
P2O5 over a 6 foot thickness.
Metallurgical test work on the vanadium bed has resulted in a patent being
issued to Registrant regarding the extraction techniques which were developed
as a result of such work. Economic feasibility calculations show that
production of vanadium from the property is commercially feasible. Registrant
is investigating plans for development of the property, however there can be
no assurance that marketing and financing arrangements can be obtained. In
1993, Registrant negotiated an arrangement with a third party to allow a minor
amount of phosphate ore to be removed from the outcrop on a portion of one of
its properties held in fee interest. That party obtained permits in 1994 to
mine 3,000 tons from the property but no mining has yet taken place. This
deposit may provide a source for the intended purified phosphoric acid
production at the Calgary facility (See Item 1(a) above).
(b) San Luis Gold Mine.
See Item 3(h) 1975 Form 10-K for a description of the property.
See Item 1(c)(1) 1988 Form 10-K and above concerning Registrant's sale to
BMGC, other related transactions in 1987 and BMGC development work.
Registrant owns the 800 acre site on which the mine is located, has leased the
property to BMGC, and received a 3 1/2% gross royalty from all production.
Mining and milling activities were completed by BMGC in 1996 and Registrant
does not expect any significant revenue in 1997 or thereafter. BMGC commenced
mining operations in early 1991.
Production during the period from 1991 through 1996 was as follows:
Year Ounces of Gold Ounces of Silver
1991 31,500 21,600
1992 55,600 21,000
1993 72,800 27,000
1994 72,700 19,400
1995 72,700 31,800
1996 52,400 28,000
(c) Alunite Resources.(2)
Alunite is a source of alumina (the raw material of aluminum), potassium
sulfate fertilizer, sulfuric acid and sulfur.
____________________________________________________________
(1) Mineral Deposit or Mineralized Material is a mineralized body which has
been delineated by appropriately spaced drilling and/or underground sampling
to support a sufficient tonnage and average grade of metal(s). Such a deposit
does not qualify as a reserve, until a comprehensive evaluation based upon
unit cost, grade, recoveries, and other material factors conclude legal and
economic feasibility.
(2) Acquisition of Federal alunite mineral rights is accomplished through
Federal Potassium Preference Right Leases issued under Section 4 of the
Leasing Act of February 7, 1927.
7
<PAGE>
(1) "LC" Alunite Property.
See Item 3(b)(1), 1974 and 1975 Forms 10-K and Item 3(h), 1976 and 1977 Forms
10-K for property description, property rights and exploration work in prior
years. Results of exploration work to date show a total of 61.1 million tons
of
mineralized material. The grade of the material is calculated to average
approximately 39.6% alunite (approximately 14.7% alumina).
In 1978, Registrant applied for a Preference Right Lease for potassium on
the property (a "PRLA"), in 1979 submitted the "initial showing" required in
the lease application and in 1982 submitted the operating plan for an
environmental impact assessment. Approval of the project was recommended by a
Bureau of Land Management advisory panel. However, in 1985 a Congressional
resolution suspended all Preference Right Lease activity in Wilderness Study
Areas. Until further Congressional action is taken, progress on the project
will be restricted. In 1991, Registrant received notice from the Department
of Interior that the Bureau of Land Management considers the PRLA as a valid
existing right with respect to any future wilderness designation. Registrant
relinquished its 48 unpatented mining claims covering the alunite property in
1993.
(2)"NG" Property and Other Utah Alunite Interests.
See Item 3(a)(1), (2), (3), (4) and (5), 1974-1979 Forms 10-K for NG Property
and other Utah alunite interest descriptions, property rights and exploration
programs prior to 1978.
ESI was granted Preference Right leases on the ten principal tracts that
comprise the NG deposit on January 13, 1983. The leases were assigned to the
Alumet Partnership effective February 1, 1983. Alumet assigned its Utah
alunite interests back to ESI in December, 1986 (See item 1(c)(1) 1986 Form 10-
K). ESI relinquished a portion of the leases, reducing the acreage under
lease to 680 acres. All required lease payments were made in 1996.
Results of exploration and drilling programs on the properties to date show
129 million tons of mineralized material with a grade calculated to be 37.9%
alunite (approximately 14.03% alumina) with an additional 287 million tons of
mineralized material with average grades calculated to range from 33.5% to
39.4% alunite (approximately 12.4% to 14.6% alumina).
(d) Calgary Solvent Extraction Facility.
Registrant owns a hydrometallurgical solvent extraction facility which was
used to extract uranium from phosphoric acid from June 1983 through September
1987, when the adjacent phosphoric acid fertilizer plant supplying feed stock
shut down. (See Item 1(a) and 1(b) above). The facility occupies a 20,000
square foot building and is located in southeast Calgary, Alberta on a 12 acre
site leased from the adjacent fertilizer plant.
(e) Emigrant Property.
In 1987 Registrant acquired fee ownership of two patented lode mining claims
in the Emigrant Peak area, Park County, Montana containing approximately 38
acres. Registrant also owns two other patented placer claims containing 37
acres and holds 13 unpatented mining claims in the same area. This block of
contiguous mining claims contains copper, molybdenum, gold, silver, lead and
zinc mineralization which has not yet been fully delineated. All necessary
payments were made to hold the unpatented claims in 1996.
During 1992, a third party conducted limited geochemical sampling, geological
mapping and a remote sensing study using Landsat Thematic Mapper data and
image enhancements. One core hole was subsequently drilled to a depth of 588
feet. In 1993, an additional four reverse circulation holes were drilled on
the property totaling 950 feet. Analysis of samples from the drilling helped
to define the southwest boundaries of a breccia pipe containing gold, silver,
copper, zinc and lead mineralization. Based on the drilling performed a
deposit of from 750,000 to 1.5 million tons of mineralized material can be
delineated with current metal values of over $15 per ton.
(f) Cerro Gordo Property.
In July 1996, Registrant entered into an agreement with Martin Trost
Associates ("MTA"), a Colorado joint venture which will allow it to earn up to
an 80 percent working interest in the Cerro Gordo property in Inyo County,
California. The agreement provides for Registrant to arrange financing of up
to $4.2 million to place the "H" area, or principal mineralized zone, into
production to earn an 80% working interest in the property. No schedule has
yet been established
8
<PAGE>
for the Company's arrangement of financing. The Company is obligated to fund
the costs of all joint venture activities up to the agreed $4.2 million or
until the joint venture achieves cash flow. Nevertheless, the Company may
cease funding activities upon 30 days notice, without further obligation. In
the event of such cessation in funding, Registrant would retain its working
interest earned at that time and may chooses to fund further requirements to
maintain such interest, or suffer dilution of that interest. MTA acquired a
mineral lease in August 1995 on 75 unpatented and 5 patented claims. Terms of
the lease are a 5% net smelter royalty and annual payments averaging $36,000
per year. Two patented claims lie within the claim block and are currently
held by third parties.
The Cerro Gordo property lies in the Inyo Mountains east of Owens Lake and
west of Death Valley at an elevation of approximately 7800 feet. Access is
by an existing, county maintained, gravel road. Temperatures are moderate
with limited snowfall during the months of January and February. The property
is approximately equidistant from Reno and Las Vegas, Nevada and Los Angles,
California.
Based on 36,000 feet of past drilling and old underground workings,
gold/silver mineralization has been demonstrated along a NW-SE mineralized
trend stretching 8,000 feet long and 5,600 feet wide. The mineralized area
appears zoned with a lead/zinc/silver/tungsten core trending outward to the
west to a gold/silver zone. The large areal extent of the gold/silver
mineralization may lend itself to the discovery of a significant gold mine.
Evaluation of a 4 hole drilling program conducted in December is in progress
to determine further action on the property. There is no assurance that a
commercially viable ore body exists in this property until further and
appropriate geological work is done and economic feasibility studies based
upon such work are concluded.
9
<PAGE>
PART III
Item 13. Exhibits and Reports on Form 8-K.
(a) Exhibits and Index of Exhibits (all exhibits are incorporated by
reference except Exhibit 27 which was filed electronically; Exhibits 3.1, 4.3,
and 10.5 through 10.9 which were filed as exhibits to Registrant's original
1996 Form 10-KSB, and Exhibit 10.10 which is filed herewith; all other such
Exhibits were filed as Exhibits to Registrant's 1993 Form 10KSB).
No. Description
3.1 Articles of Incorporation, as amended and restated.
3.2 By-laws.
4.1 Agreement for Conversion Rights dated July 31, 1991.
4.2 Conversion Agreement dated June 23, 1993.
4.3 Form of Convertible Debenture due March 31, 1999.
10.1 Uranium Extraction Agreement dated May 14, 1976 between Registrant
and Western Co-operative Fertilizers, Limited.
10.2 Lease dated April 3, 1978 between Western Co-operative Fertilizers,
Limited and ESI Resources, Ltd.
10.3 Mining Lease dated October 1, 1987 between Registrant and Battle
Mountain Gold Company.
10.4 Letter of Intent - Gold Joint Venture in Venezuela dated December
31, 1987 between Registrant and GEO C.A.
10.5 Cerro Gordo Letter Agreement dated September 1, 1996 between
Registrant and Martin Trost Associates.
10.6 Option Agreement dated January 20, 1997 between Registrant and
Yankee Atomic Electric Company and Vermont Yankee Nuclear Power
Corporation.
10.7 Letter of Intent among ADA Environmental Solutions LLC, ADA-ES, Inc.
their respective members and shareholders and Registrant.
10.8 Securities Purchase Agreement dated March 21, 1997.
10.9 Registration Rights Agreement dated March 21, 1997.
10.10 Independent Contractor Agreement dated January 1, 1997 between
Regiatrant and Twin-Kem International, Inc.
21.1 Subsidiaries of Registrant.
27 Financial Data Schedule.
(b) Reports on Form 8-K. None.
15
<PAGE>
SIGNATURES
In accordance with Section 13 or 15(d) of the Exchange Act, the Registrant has
duly caused this report to be signed on its behalf by the undersigned,
thereunto duly authorized.
Earth Sciences, Inc.
(Registrant)
By /s/ Mark H. McKinnies /s/ Duane N. Bloom
Mark H. McKinnies, President Duane N. Bloom, Member of
and Principal Financial Officer Executive Committee
Date July 10, 1997 July 10, 1997
In accordance with the Exchange Act, this report has been signed below by the
following persons on behalf of the Registrant and in the capacities and on the
dates indicated.
/s/ Ramon E. Bisque /s/ Robert H. Lowdermilk
Ramon E. Bisque Robert H. Lowdermilk
Chairman of The Board of Directors Director
July 10, 1997 July 10, 1997
Date Date
/s/Duane N. Bloom /s/ Mark H. McKinnies
Duane N. Bloom, Director Mark H. McKinnies, Director
July 10, 1997 July 10, 1997
Date Date
16
<PAGE>
Exhibit 10.10
INDEPENDENT CONTRACTOR AGREEMENT
This Agreement is made effective as of January 1, 1997, by and between Earth
Sciences, Inc., of 910 12th Street, Golden, Colorado 80401, and Twin-Kem
International, Inc., of 4220 S. Allison Street, Lakewood, Colorado 80235.
In this Agreement, the party who is contracting to receive services shall be
referred to as "ESI" , and the party who will be providing the services shall
be referred to as "Twin-Kem".
Twin-Kem has a background in Chemical Marketing and is willing to provide
services to ESI based on this background.
ESI desires Twin-Kem to develop a sustained market for its purified phosphate
produce.
Therefore, the parties agree as follows:
1. DESCRIPTION OF SERVICES. Beginning on January 1, 1997, Twin-Kem will
provide the following services, (collectively, the "Services"): co-ordinate
the marketing of the entire production of the Calgary Plant which currently
consists of Purified Phosphoric Acid (PPA) and Raffinate in the North American
and International markets. Twin-Kem will use its best efforts to move the
plant's output on a timely basis.
2. PERFORMANCE OF SERVICES. The manner in which "the Services" are to be
performed and the specific hours to be worked by Twin-Kem shall be determined
by Twin-Kem. ESI will rely on Twin-Kem to work as many hours as may be
reasonably necessary to fulfill Twin-Kem's obligations under this Agreement.
3. PAYMENT. ESI will pay an initiating contract fee to Twin-Kem for "the
Services" consisting of: $50,000.00 cash plus 18,520 shares of ESI $0.01 par
value common stock. In addition, ESI will pay Twin-Kem a commission of $5.00
per ton on PPA based products and $2.50 per ton on Raffinate sold. However,
initially the commission rate will be adjusted to $4.00 per ton PPA and $2.00
per ton Raffinate, until the dollar reduction in PPA and Raffinate offset the
initial cash payment. Then they will return to above levels. This commission
shall be payable monthly, no later than the last day of the month following
the period during which "the Services" were performed. Upon termination of
this Agreement, payments under this paragraph shall cease; provided, however,
that Twin-Kem shall be entitled to payments for periods or partial periods
that occurred prior to the date of termination and for which Twin-Kem has not
yet been paid. This fee may be periodically adjusted, as agreed, by both
parties. All funds are in US dollars.
4. EXPENSE REIMBURSEMENT. Twin-Kem shall be responsible for its marketing
expenses. However, Twin-Kem shall be entitled to reimbursement from ESI for
all "out-of-pocket" expenses where ESI asks Twin-Kem to do work outside the
scope of this agreement.
5. TECHNICAL SUPPORT SERVICES. ESI will provide the following support
services for the benefit of Twin-Kem: samples, literature, MSDS sheets, spec.
sheets, and lab support. Twin-Kem will support the development of technical
data sheets, MSDS sheets and other technical information.
6. MARKETING SUPPORT SERVICES. ESI will be responsible for the following:
pricing, invoices, receivables, and freight. Twin-Kem will assist in
establishing appropriate information such as competitive pricing, invoice,
receivable and freight systems, and web page development. Some of the above
may fall under new projects and need ESI approval.
7. MARKETING REPORTS. Twin-Kem will regularly submit call reports and
maintain other reports and records to keep ESI current on marketing
developments and progress.
8. PRODUCT LIABILITY INSURANCE. ESI will add Twin-Kem as a co-insured
attached to ESI's liability policy in the amount of $1,000,000.00.
9. NEW PROJECT APPROVAL. Twin-Kem and ESI recognize that Twin-Kem's services
may include working on various projects for ESI. Twin-Kem will submit a
proposal and fee schedule and obtain the approval of ESI prior to the
commencement of any such projects.
1
<PAGE>
10. TERM/TERMINATION. This Agreement shall be effective for a period of one
year and shall automatically renew for successive terms of the same duration,
unless either party provides 90 days written notice to the other party prior
to the termination of the applicable initial term or renewal term.
Nevertheless, in the event that Twin-Kem fails or is unable to perform the
obligations of this agreement, ESI has the right to terminate this agreement
with 30 days written notice.
11. RELATIONSHIP OF PARTIES. It is understood by the parties that Twin-Kem
is an independent contractor and not an employee of ESI. ESI will not provide
fringe benefits, including health insurance benefits, paid vacation, or any
other employee benefits to Twin-Kem.
12. DISCLOSURE. Twin-Kem is required to disclose any outside activities or
interests, including ownership or participation in the development of prior
inventions, that conflict or may conflict with the best interests of ESI.
Prompt disclosure is required under this paragraph if the activity or interest
is related, directly or indirectly, to:
- any activity that Twin-Kem may be involved with on behalf of ESI.
13. EMPLOYEES. Twin-Kem's employees, if any, who perform services for ESI
under this Agreement shall also be bound by the provisions of this Agreement.
Ron Johnson and Rod Johnson shall remain as officers of Twin-Kem in their
present capacity.
14. ASSIGNMENT. Twin-Kem's obligations under this Agreement may not be
assigned or transferred to any other person, firm, or corporation without the
prior written consent of ESI.
15. CONFIDENTIALITY. Twin-Kem recognizes that ESI has and will have the
following information:
- inventions
- process information
- trade secrets
and other proprietary information (collectively, "Information") which are
valuable, special and unique assets of ESI. Twin-Kem agrees that Twin-Kem
will not at any time or in any manner, either directly or indirectly, use any
"Information" for Twin-Kem's own benefit, or divulge, disclose, or communicate
in any manner any "Information" to any third party without the prior written
consent of ESI. Twin-Kem will protect the "Information" and treat it as
strictly confidential. A violation of this paragraph shall be a material
violation of this Agreement.
16. CONFIDENTIALITY AFTER TERMINATION. This confidentiality provisions of
this Agreement shall remain in full force and effect after the termination of
this Agreement.
17. RETURN OF RECORDS. Upon termination of this Agreement, Twin-Kem shall
deliver all records, notes, data, memoranda, models, and equipment of any
nature that are in Twin-Kem's possession or under Twin-Kem's control and that
are ESI's property or relate to ESI's business.
18. NOTICES. All notices required or permitted under this Agreement shall be
in writing and shall be deemed delivered when delivered in person or deposited
in the United States mail, postage prepaid, addressed as follows:
IF for ESI:
Earth Sciences, Inc.
Mark H. McKinnies
President
910 12th Street
Golden, Colorado 80401
IF for Twin-Kem:
Twin-Kem International, Inc.
Ron Johnson
Chairman of the Board
4220 S. Allison Street
Lakewood, Colorado 80235
2
<PAGE>
Such addresses may be changed from time to time by either party by providing
written notice to the other in the manner set forth above.
19. ENTIRE AGREEMENT. This Agreement contains the entire agreement of the
parties and there are no other promises or conditions in any other agreement
whether oral or written. This Agreement supersedes any prior written or oral
agreements between the parties.
20. AMENDMENT. This Agreement may be modified or amended if the amendment is
made in writing and is signed by both parties.
21. SEVERABILITY. If any provision of this Agreement shall be held to be
invalid or unenforceable for any reason, the remaining provisions shall
continue to be valid and enforceable. If a court finds that any provision of
this Agreement is invalid or unenforceable, but that by limiting such
provision it would become valid and enforceable, then such provision shall be
deemed to be written, construed, and enforced as so limited.
22. WAIVER OF CONTRACTUAL RIGHT. The failure of either party to enforce any
provision of this Agreement shall not be construed as a waiver or limitation
of that party's right to subsequently enforce and compel strict compliance
with every provision of this Agreement.
23. APPLICABLE LAW. This Agreement shall be governed by the laws of the
State of Colorado.
Party receiving services:
Earth Sciences, Inc.
By:_/s/ Mark H. McKinnies_________
Mark H. McKinnies, President
Party providing services:
Twin-Kem International, Inc.
By:_/s/ Ronald B. Johnson____________
Ron Johnson, Chairman of the Board
3
<PAGE>
