U.S. SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-KSB/A
Amendment #1 to Items 1, 2, 6, 7, and 12
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.
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(Name of small business issuer in its charter)
Colorado 84-0503749
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(State of incorporation) (IRS Employer Identification No.)
910 12th Street, Golden, Colorado 80401
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(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
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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
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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.
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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 restart 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 in excess of 80,000
tons of P2O5 per year in the form of PPA and recover other valuable constituents
available in the feedstock.
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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
capture approximately 5% of 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 with Twin-Kem International, Inc., a Colorado corporation
whose principals have over 60 years of combined experience in the marketing and
distribution of industrial and agricultural chemicals. 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. An 8% per year growth is anticipated in tonnage
sales.
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 feed stock 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.
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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 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
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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.
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Man-cai
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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. Unconfirmed verbal reports are that 100 kilos of gold were taken by
primitive methods from an area of only a few hectares. 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
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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 capturing
approximately 15% of 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 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.
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.
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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 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.
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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.
(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 34 million tons of phosphate rock classified as Measured Reserves,
with an additional 19 million tons of phosphate rock classified as Indicated
Reserves. 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
- ----------------------------------------
1 For purposes of this Item, the term "Measured Reserves" and "Indicated
Reserves" shall have the meaning as adopted by the US Geological Survey and the
US Bureau of Mines, as follows: Measured Reserves are reserves for which tonnage
is computed from dimensions revealed in outcrops, trenches, workings and drill
holes, and for which the grade is computed from results of detailed sampling.
The sites for inspection, sampling and measurement are so closely spaced, and
the geologic character is defined so well, that the size, shape, and mineral
content are well established. The computed tonnage and grade are judged to be
accurate within limits which are stated, and no such limit is judged to differ
from the computed tonnage or grade by more than 20%. Indicated Reserves are
reserves from which the tonnage and grade are computed partly from specific
measurements, samples, or production data, and partly from projections, for a
reasonable distance, on geologic evidence. The sites available for inspection,
measurement, and sampling are too widely or otherwise inappropriately spaced to
outline the reserve completely or to establish its grade throughout.
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>
Alunite is a source of alumina (the raw material of aluminum), potassium sulfate
fertilizer, sulfuric acid and sulfur.
(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
material classified as Measured or Indicated Reserves. 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 material classified as Measured Reserves, with a grade
calculated to be 37.9% alunite (approximately 14.03% alumina) with an additional
287 million tons classified as Indicated Reserves 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 material classified as Measured and Indicated Reserves
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.
8
<PAGE>
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
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 choose 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.
9
<PAGE>
PART II
Item 6. Management's Discussion and Analysis of Financial Condition and Results
of Operations.
This Annual Report may contain forward-looking statements within the meaning of
Section 27A of the Securities Act of 1933. Such forward-looking statements may
be found in this section under and under "Description of Business," "Management'
Discussion and Analysis of Financial of Financial Condition and Results of
Operations." Actual events or results could differ materially from those
discussed in the forward-looking statements as a result of various factors.
Liquidity and Capital Resources
Management believes that existing working capital and recent private placements
of stock and convertible debentures are sufficient to fund revamp construction
and start up activities at Calgary and planned operations until positive casflow
is achieved in Calgary, which is anticipated in the 4th quarter of 1997. The
achievement of such positive cash flow is dependent upon several factors
including commercialization of the purification process, success in marketing
product and competition, any of which could delay or frustrate such achievement.
Additional funds may be required to meet the further obligations associated with
the ADA acquisition, exercise of the Yankee Option, further exploration work on
the Cerro Gordo property, and any expanded exploration activities in Venezuela
(see Item 1(b) above). Private placements of common stock, convertible
debentures and bank borrowings may be evaluated to fund such requirements.
The agreement with MTA on the Cerro Gordo property provides for Registrant to
arrange financing of up to $4.2 million to place the principal mineralized zone
into production to earn an 80% working interest in the property. No schedule
has yet been established 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. Neverthe-
less, 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 choose to fund
further requirements to maintain such interest, or suffer dilution of that
interest. Private placements of common stock, convertible debentures,
bank borrowings and other alternatives may be evaluated to fund such
requirements. Registrant received a net of $1,954,000 from Regulation S
offerings and private placements of its common stock in 1996 and a net of
$2,309,000 from the issuance of convertible debentures in the first quarter
of 1997 (see Item 1(a) above).
Based on current estimates, the Calgary facility will require an additional
approximately Can. $3 million (U.S. $2.2 million) to finalize revamp
construction and re-start the plant for the production of purified phosphate
products, planned for Spring 1997. Registrant expects to finance those
requirements from existing working capital and the convertible debentures
sold in March 1997.
10
<PAGE>
Registrant is funding the majority of cash costs of the Venezuelan gold
exploration activities. Activities planned on the existing contract and on those
concessions expected to be acquired in the future can be met through existing
working capital. Registrant plans to raise the additional capital, if and when
needed, through further private placements of stock, convertible debentures
and/or joint venture arrangements, if appropriate.
Cash flow provided by (used in) operations totaled $(233,000) for 1996 versus
$336,000 for 1995. Cash flow from investing activities for 1996 included funding
and collections on notes receivable of $70,000, capital expenditures of $736,000
and the net purchase of marketable securities $660,000. Cash flow from financing
activities in 1996 consisted of payments on notes payable and long-term debt of
$9,000, proceeds from the issuance of stock of $1,055,000 and proceeds from
convertible debentures of $899,000.
Results of Operations
In 1991, royalty income from the San Luis gold mine commenced. Registrant
recognized $692,000 and $978,000 in revenue from the production and sale of gold
and silver from the property in 1996 and 1995, respectively. Production from the
mine ended in November 1996. Rental income increased slightly in 1996 due to
increased charges to tenants. Other income increased in 1996 due to an
increase in interest income earned from investment of funds on hand.
Operating expenses increased significantly in 1996 as staff and activities
related to the Calgary facility expanded, whereas research and development work
related to the Calgary facility decreased from $183,000 in 1995 to $109,000 in
1996. General and administrative expenses rose significantly in 1996 also as a
result of adding staff in Calgary for construction and start-up activities and
an aggressive investor relations program that commenced in 1996.
Registrant's interest expense totaled approximately $82,000 for both 1996 and
1995. Interest expense includes approximately $40,000 in 1996 and $45,000 in
1995 from the consolidation of the Canadian subsidiary's results. Registrant
will be required to recognize $188,000 in interest expense in the 1st quarter
and $649,000 in the 2nd quarter of 1997 as a result of the convertible
debentures issued in March 1997.
Extraordinary gain from debt extinquishment recognized in 1996 represents the
difference between the recorded liabilities at the time of settlement with
Alberta Treasury of approximately $600,000 and the settlement payment of
$76,000, net of income taxes of $159,000.
Item 7. Financial Statements.
Index to Financial Statements
Independent Auditor's Report
Financial Statements:
Earth Sciences, Inc. and Subsidiaries
Consolidated Balance Sheet, December 31, 1996
Consolidated Statements of Operations,
For the Years Ended December 31, 1996 an 1995
Consolidated Statement of Stockholders' Equity,
For the Period from January 1, 1995 to December 31, 1996
Consolidated Statements of Cash Flows,
For the Years Ended December 31, 1996 and 1995
Notes to Consolidated Financial Statements
11
<PAGE>
Earth Sciences, Inc. and Subsidiaries
Consolidated Financial Statements
December 31, 1996 and 1995
<PAGE>
INDEX TO FINANCIAL STATEMENTS
PAGE
----
Independent Auditor's Report........................................... F-2
Consolidated Balance Sheet - December 31, 1996......................... F-3
Consolidated Statements of Operations -
For the Years Ended December 31, 1996 and 1995....................... F-4
Consolidated Statements of Changes in Stockholders' Equity -
For the Years Ended December 31, 1996 and 1995....................... F-5
Consolidated Statements of Cash Flows - For the
Years Ended December 31, 1996 and 1995............................... F-6
Notes to Consolidated Financial Statements............................. F-7
F-1
<PAGE>
INDEPENDENT AUDITOR'S REPORT
To the Board of Directors and Stockholders
Earth Sciences, Inc. and subsidiaries
Golden, Colorado
We have audited the accompanying consolidated balance sheet of Earth Sciences,
Inc. and subsidiaries as of December 31, 1996, and the related consolidated
statements of operations, changes in stockholders' equity and cash flows for the
years ended December 31, 1996 and 1995. These consolidated financial statements
are the responsibility of the Company's management. Our responsibility is to
express an opinion on these consolidated financial statements based on our
audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audits provide a reasonable basis for our opinion.
In our opinion, the consolidated financial statements referred to above present
fairly, in all material respects, the financial position of Earth Sciences, Inc.
and subsidiaries as of December 31, 1996, and the results of their operations
and their cash flows for the years ended December 31, 1996 and 1995, in
conformity with generally accepted accounting principles.
HEIN + ASSOCIATES LLP
Denver, Colorado
February 3, 1997
F-2
<PAGE>
EARTH SCIENCES, INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEET
DECEMBER 31, 1996
ASSETS
------
CURRENT ASSETS:
Cash and cash equivalents $ 586,000
Marketable securities 1,135,000
Receivables 101,000
Prepaid expenses and other 217,000
------------
Total current assets 2,039,000
PROPERTY, PLANT AND EQUIPMENT, at cost 17,198,000
Less accumulated depreciation and amortization (5,043,000)
------------
Net property, plant and equipment 12,155,000
------------
OTHER ASSETS 207,000
------------
TOTAL ASSETS $ 14,401,000
============
LIABILITIES AND STOCKHOLDERS' EQUITY
------------------------------------
CURRENT LIABILITIES:
Accounts payable $ 151,000
Note payable - related party 58,000
Other current liabilities 69,000
------------
Total current liabilities 278,000
LONG-TERM LIABILITIES:
Extraction plant liability 9,382,000
Long-term debt from related parties 167,000
Accrued decommissioning liability 220,000
Other liabilities 174,000
-----------
9,943,000
COMMITMENTS AND CONTINGENCIES (Notes 2, 3, 7, and 8) --
STOCKHOLDERS' EQUITY:
Common stock, $.01 par value; 25,000,000
shares authorized;
8,449,000 shares issued 84,000
Additional paid-in capital 8,645,000
Accumulated deficit (2,721,000)
Cumulative translation adjustments (1,828,000)
------------
Total stockholders' equity 4,180,000
------------
TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY $ 14,401,000
============
See accompanying notes to these consolidated financial statements.
F-3
<PAGE>
<TABLE>
<CAPTION>
EARTH SCIENCES, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATIONS
FOR THE YEARS ENDED
DECEMBER 31,
------------------------------
1996 1995
----------- -----------
<S> <C> <C>
REVENUES:
Royalty income $ 692,000 $ 978,000
Rental income 19,000 18,000
Other income 87,000 47,000
----------- -----------
Total revenues 798,000 1,043,000
EXPENSES:
Operating 505,000 146,000
General and administrative 380,000 260,000
Research and development 109,000 183,000
Depletion, depreciation and amortization 260,000 234,000
Interest 82,000 82,000
----------- -----------
Total expenses 1,336,000 905,000
----------- -----------
INCOME (LOSS) BEFORE EXTRAORDINARY ITEMS AND TAXES (538,000) 138,000
INCOME TAX BENEFIT 159,000 --
----------- -----------
INCOME (LOSS) BEFORE EXTRAORDINARY GAIN (379,000) 138,000
----------- -----------
EXTRAORDINARY GAIN FROM DEBT EXTINGUISHMENT,
(net of income tax of $159,000) $ 371,000 --
----------- -----------
NET INCOME (LOSS) $ (8,000) $ 138,000
=========== ===========
NET INCOME (LOSS) PER COMMON SHARE:
Before extraordinary item $ (.05) $ .02
Extraordinary Gain .05 --
----------- -----------
Net Income (Loss) Per Common Share $ -- $ .02
=========== -----------
WEIGHTED AVERAGE COMMON SHARES OUTSTANDING 7,186,000 6,382,000
=========== ==========
See accompanying notes to these consolidated financial statements.
F-4
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
EARTH SCIENCES, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CHANGES IN STOCKHOLDERS' EQUITY
FOR THE YEARS ENDED DECEMBER 31, 1996 AND 1995
COMMON STOCK Additional Cumulative
------------------------- Paid-in Accumulated Translation
Shares Amount Capital Deficit Adjustments
------ ------ ------- ------- -----------
<S> <C> <C> <C> <C> <C>
BALANCES, January 1, 1994 6,354,000 $ 64,000 $ 6,390,000 $(2,851,000) $(2,056,000)
Net income -- -- -- 138,000 --
Foreign currency translation -- --
adjustment -- -- -- -- 261,000
----------- ----------- ----------- ----------- -----------
BALANCES, December 31, 1995 6,354,000 64,000 6,390,000 (2,713,000) (1,795,000)
Debt converted to common stock 883,000 8,000 891,000 -- --
Related party debt converted to common
stock 210,000 2,000 111,000 -- --
Stock issued for cash, net of related costs 899,000 9,000 1,046,000 -- --
Stock issued for services 100,000 1,000 135,000 -- --
Stock options issued for services -- -- 64,000 -- --
Stock issued to employees for bonuses 3,000 -- 8,000 -- --
Net loss -- -- -- (8,000) --
Foreign Currency translation adjustment -- -- -- -- (33,000)
----------- ----------- ----------- ----------- -----------
BALANCES, December 31, 1996 8,449,000 $ 84,000 $ 8,645,000 $(2,721,000) $(1,828,000)
=========== =========== =========== =========== ===========
See accompanying notes to these consolidated financial statements.
F-5
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
EARTH SCIENCES, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
FOR THE YEARS ENDED
DECEMBER 31,
----------------------------------
1996 1995
------------ -----------
<S> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
Net income (loss) $ (8,000) $ 138,000
Adjustments to reconcile net income (loss) to net cash provided by (used in)
operating activities:
Depletion, depreciation and amortization 260,000 234,000
Gain on settlement of debt, net of income taxes (371,000) --
Income tax benefit (159,000)
Expenses paid with stock 208,000 --
Changes in operating assets and liabilities:
(Increase) decrease in:
Receivables 116,000 (85,000)
Other assets (387,000) (13,000)
Purchase of marketable securities (3,084,000) (190,000)
Sale of marketable securities 2,424,000 --
Increase (decrease) in:
Accounts payable 145,000 6,000
Other liabilities (37,000) 56,000
----------- -----------
Net cash provided by (used in) operating activities (893,000) 146,000
CASH FLOWS FROM INVESTING ACTIVITIES:
Collections on notes receivable 70,000 130,000
Notes receivable funded (70,000) (130,000)
Capital expenditures (736,000) (25,000)
----------- -----------
Net cash used in investing activities (736,000) (25,000)
CASH FLOWS FROM FINANCING ACTIVITIES:
Payments on notes payable and long-term debt (9,000) (181,000)
Proceeds from issuance of common stock 1,055,000 --
Proceeds from convertible debentures 899,000 --
----------- -----------
Net cash provided by (used in) financing activities 1,945,000 (181,000)
EFFECT OF EXCHANGE RATE CHANGES ON CASH 8,000 (1,000)
----------- -----------
INCREASE (DECREASE) IN CASH 324,000 (61,000)
CASH AND CASH EQUIVALENTS, beginning of year 262,000 323,000
----------- -----------
CASH AND CASH EQUIVALENTS, end of year $ 586,000 $ 262,000
=========== ===========
SUPPLEMENTAL SCHEDULE OF CASH FLOW INFORMATION:
Cash payments for interest $ 40,000 $ 37,000
=========== ===========
Conversion of notes payable $ 1,012,000 $ -
=========== ===========
Stock and options issued for investor relations $ 200,000 $ -
=========== ===========
Purchase of property and equipment for debt $ 125,000 $ -
=========== ===========
Stock issued for payment of employee bonuses $ 8,000 $ -
=========== ===========
See accompanying notes to these consolidated financial statements
F-6
</TABLE>
<PAGE>
EARTH SCIENCES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
1. SUMMARY OF NATURE OF OPERATIONS AND SIGNIFICANT ACCOUNTING POLICIES:
--------------------------------------------------------------------
Nature of Operations - The accompanying consolidated financial statements
include the accounts of Earth Sciences, Inc. (ESI) and its wholly-owned
subsidiaries, ESI Chemicals, Inc. (ESIC) and ESI Resources Limited (ESIR).
ESIC has been a dormant subsidiary since 1983. ESIR's only asset is its
investment in its wholly-owned subsidiary, Earth Sciences Extraction
Company (ESEC). All significant intercompany transactions have been
eliminated. Collectively, these entities are referred to as the Company.
The Company is principally engaged in natural resources exploration,
research and development and planned production in the second quarter of
1997 of purified phosphate products in Calgary, Alberta.
Cash Equivalents - For purposes of the statement of cash flows, the Company
considers all highly liquid debt instruments with original maturities of
three months or less to be cash equivalents. At December 31, 1996, cash
equivalents consisted of money market instruments in the amount of
$520,000, which are not FDIC insured.
Marketable Securities - Marketable securities consist of government backed
debt securities, corporate stock and bonds and certificates of deposits,
which mature within one year or less. The securities are classified as
trading securities, as defined in Financial Accounting Standards (FAS) 115,
and are stated at market, which approximates cost at December 31, 1996.
Property, Plant and Equipment - Property, plant and equipment is stated at
cost and includes a solvent extraction facility. Depreciation on the
facility and its equipment, while it was in production, was generally
provided using the units of production method based on estimated production
over the life of the contract. Depreciation on the solvent extraction
facility while not in operation is being computed at 1% per year (see Note
2). Depreciation on other assets is provided using the straight-line method
based on estimated useful lives ranging from 3 to 20 years. Depletion of
producing mineral properties is computed using the unit of production
method based on proved and probable reserves. Maintenance and repairs
are charged to operations as incurred. When assets are retired, or
otherwise disposed of, the property accounts are relieved of costs and
accumulated depreciation and any resulting gain or loss is credited or
charged to income.
Deferred Exploration and Development Costs - Land and mineral properties,
including related deferred exploration and development costs, are carried
at cost.
The Company follows the policy of capitalizing all direct costs, including
labor, related to the exploration and development of properties held or
controlled by the Company, which, in the opinion of management, have a
continuing value.
Impairment of Long-Lived Assets - In fiscal 1996, the Company adopted FAS
121 "Impairment of Long- Lived Assets." In the event that facts and
circumstances indicate that the cost of assets or other assets may be
impaired, an evaluation of recoverability would be performed. If an
evaluation is required, the estimated future undiscounted cash flows
associated with the asset would be compared to the asset's carrying amount
F-7
<PAGE>
EARTH SCIENCES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
to determine if a write-down to market value or discounted cash flow value
is required. Adoption of FAS 121 had no effect on the December 31, 1996
financial statements.
Extraction Plant Liability - Extraction plant liability represent non-
interest bearing prepayments from Vermont Yankee Nuclear Power Corp.
and Yankee Atomic Electric Company (the Yankee Companies) for future
production and delivery of uranium (see Note 2).
Income Taxes - The Company accounts for income taxes under the liability
method of SFAS No. 109, whereby current and deferred tax assets and
liabilities are determined based on tax rates and laws enacted as of the
balance sheet date. Deferred tax expense represents the change in the
deferred tax asset/liability balance.
Foreign Currency Translation - The accounts of ESEC are maintained in
Canadian dollars, its functional currency. Assets and liabilities are
translated into U.S. dollars at the current exchange rate, and earnings or
losses are translated at the average exchange rate for the year; resulting
translation adjustments are recorded as a separate component of
stockholders' equity. Transactional gains and losses are recorded in the
statement of operations.
Royalty Income - Royalty income represents the Company's 3.5% gross royalty
in production from the San Luis gold mine. The mine is leased to and
operated by a third party. During the years ended December 31, 1996 and
1995, the Company had $638,000 and $978,000 in royalty income, which
represented 86% and 94% of the Company's revenues, respectively. The ore
reserves at San Luis gold mine were depleted in the fourth quarter of 1996.
Research and Development Costs - Research and development costs are charged
to operations in the period incurred.
Net Income (Loss) Per Share - Net income (loss) per common share is
calculated based upon the weighted average number of shares outstanding
during the years ended December 31, 1996 and 1995. In 1996, convertible
debt, stock options, and warrants have not been included in the calculation
of net loss per share, as the result is anti-dilutive. In 1995, convertible
debt, stock options, and warrants have been included in the calculation of
net income per share as the result is dilutive. Income per common share,
assuming full dilution, approximates primary income per common share.
Stock-Based Compensation - In fiscal 1996, the Company adopted Financial
Accounting Standards Board "Accounting for Stock-Based Compensation" (FAS
123). FAS 123 encourages, but does not require, companies to recognize
compensation expense for grants of stock, stock options, and other equity
instruments to employees based on fair value. Companies that do not adopt
the fair value accounting rules must disclose the impact of adopting the
new method in the notes to the financial statements. Transactions in equity
instruments with non-employees for goods or services must be accounted for
on the fair value method. The Company has elected not to adopt the fair
value accounting prescribed by FAS 123 for employees, and is subject only
to the disclosure requirements prescribed by FAS 123.
F-8
<PAGE>
EARTH SCIENCES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
Use of Estimates - The preparation of the Company's consolidated financial
statements in conformity with generally accepted accounting principles
requires the Company's management to make estimates and assumptions that
affect the amounts reported in these financial statements and accompanying
notes. Actual results could differ from those estimates. The Company makes
significant assumptions concerning the decommissioning cost of its solvent
extraction facility, the realizability of its investment in its extraction
facility and land and mineral properties, and the ultimate liabilities
associated with asserted claims (see Note 8). Due to the uncertainties
inherent in the estimation process and the significance of these costs, it
is at least reasonably possible that the Company's estimates in connection
with these items could be further materially revised within the next year.
2. EARTH SCIENCES EXTRACTION COMPANY (ESEC):
-----------------------------------------
In 1978, ESI entered into a 20-year sales agreement with the Yankee
Companies, covering substantially all of the uranium produced from ESEC's
solvent extraction facility. During the period from 1980 through 1987, the
Yankee Companies made required prepayments for uranium under the agreement
related to debt service on a term loan, which were in excess of uranium
production from the facility and which accumulated as a prepayment
balance and were recorded as deferred revenues.
In September 1987, ESEC suspended operations due to the suspension of
fertilizer manufacturing operations at an adjacent facility that provided
feedstock to ESEC. In May 1990, ESI and the Yankee Companies agreed to
modify the long-term sales agreement to allow ESEC to develop alternative
uses at the facility with the provision that certain royalties or net
profits from the facility be paid to the Yankee Companies, and provide for
repayment of any remaining prepayment balance over a seven year period with
interest accruing as of January 1, 2005 at 8.50% and with repayment
commencing no earlier than December 31, 2004. Accordingly, the Company
reclassified deferred revenue totaling $9,382,000 as an extraction plant
liability. The extraction plant liability is collateralized by the
solvent extraction facility, certain underlying agreements, the land
lease where the facility is located, and certain leases held by the
Company in Idaho. ESI is a co-obligor of this liability.
In November 1996, the Company reached agreement in principal with the
Yankee Companies to purchase a 270-day option (the "Option") for $100,000
to terminate their deferred revenue position in the Calgary facility. Under
the terms of the option, if exercised, the Company 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 the Company could purchase the royalty interest for $3
million plus $50,000 per year after the exercise date for a total of not
more than $3,250,000. The definitive documents for this agreement were
signed in January 1997.
At December 31, 1996, the Company's consolidated balance sheet included
assets with a remaining net book value of approximately $9,732,000 that
relates to the extraction facility, consisting of other current assets of
$28,000 and the extraction facility with a net carrying basis of
$9,704,000, and approximately $9,382,000 of extraction plant liability
related to the long-term sales contract for output from the facility and
$221,000 in accrued decommissioning costs. The recovery of the Company's
investment in these assets and its ability to fulfill the terms of its
agreement with the Yankee Company, is dependent upon future operations of
the facility, a sale
F-9
<PAGE>
EARTH SCIENCES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
of such assets or exercise of the Option. The Company currently is
modifying the extraction facility for the production of purified phosphate
products and expects to be in production in the second quarter of 1997.
3. PROPERTY, PLANT AND EQUIPMENT:
------------------------------
Property, plant and equipment as of December 31, 1996 is summarized as
follows:
Extraction facility $14,494,000
San Luis Land and mineral property 577,000
Land and mineral properties, including deferred
exploration and development costs (a) 1,518,000
Building and other equipment 609,000
-----------
$17,198,000
===========
- ---------
(a) These land and mineral properties are not in production. The recovery of
the Company's investment in these assets is dependent upon future
production from such assets or a sale of the Company's interests therein.
The Company's mineral properties include patented and unpatented mining
claims; the latter requiring annual rental fees to maintain possessory
titles. Certain bills have been introduced to in both houses of United
States which could adversely effect the potential for development of
existing unpatented mining claims and the economics of operating mines on
Federal unpatented mining claims if enacted. All of these bills are in the
early stages of the legislative process and it is not possible to predict
whether any change in the mining laws will be enacted or if enacted, the
form the changes may take. In addition, the Company leases or has options
to lease various other claims. Such leases are cancelable at the option of
the Company.
4. LONG-TERM DEBT:
---------------
December 31,
1996
Related Parties: ------------
----------------
Note payable to stockholder at 9%. Principal and
accrued interest payments are due in 1998 and
convertible to common stock at $.54 per share. $27,000
Notes payable to officers/directors at 8%, with
quarterly payments of interest and principal of
$250 and the balance due October 31, 1998,
collateralized by real property. 9,000
F-10
<PAGE>
EARTH SCIENCES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
Notes payable to officers/directors at 9%,
principal and interest payments are due January 1,
1998. However, a $58,000 note payable to an
officer/director has been classified as current,
as the Company lent the officer/director a similar
amount subsequent to December 31, 1996. The notes
are collateralized by a mining property. Principal
and accrued interest are convertible to common
stock at $.54 per share. 189,000
--------
$225,000
========
Future maturities of notes payable and long-term debt are as follows:
1997 $ 58,000
1998 167,000
--------
$225,000
========
During 1996, the Company settled a note payable and related accrued
interest totaling $605,000 with the Province of Alberta for approximately
$75,000 in cash. As a result, the Company recorded a extraordinary gain on
debt extinguishment of $371,000 in 1996, net of income tax expense of
$159,000.
5. INCOME TAXES:
-------------
Deferred tax assets (liabilities) are comprised of the following at
December 31, 1996:
CANADIAN
SUBSIDIARY U.S.
OPERATIONS Operations
---------- ----------
Deferred assets (liabilities):
Net operating loss carryforward $ 405,000 $ 1,122,000
Tax credit carryforwards 80,000 13,000
Depreciation differences 671,000 13,000
Mining properties basis differences -- 364,000
Deferred revenue 3,114,000 --
Other 140,000 115,000
----------- -----------
Net deferred tax assets 4,410,000 1,627,000
Less valuation allowance (4,410,000) (1,627,000)
----------- -----------
Net deferred tax assets $ -- $ --
=========== ===========
F-11
<PAGE>
EARTH SCIENCES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
The valuation allowance increased $372,000 for the Canadian subsidiary
operations and decreased $356,000 for U.S. operations since December 31,
1995.
The Company's actual effective income tax rate differs from the U.S.
Federal corporate income tax rate of 34% as follows for the year ended
December 31, 1996:
Tax at statutory rate $ 2,000
Non-deductible expenses:
Equity in loss of foreign subsidiary 107,000
Other 4,000
Reduction in valuation allowance due to usage of NOL
carryforward and temporary differences utilized (113,000)
--------
Tax at effective tax rate $ -
========
The Company has remaining U.S. a net operating loss carryforward at
December 31, 1996 of approximately $3,000,000, which if not utilized to
reduce taxable income in future periods, will expire in the years 1996
through 2007. In addition, the Company has $13,000 of alternative minimum
tax credit which is available to offset future U.S. regular tax liability.
The net operating loss carryforward related to the Canadian subsidiary and
operations is $799,000 (U.S.). The Canadian investment tax credit
carryforward for this subsidiary is $80,000 (U.S.).
6. STOCKHOLDERS' EQUITY:
---------------------
The Company has reserved 125,000 shares for awards under a stock bonus plan
established in 1978. As of December 31, 1996, 69,900 shares remain
available for award under the plan.
During 1996, the Company received net proceeds of $899,000 and $1,055,000
from offerings of convertible debt and common stock, respectively. The
convertible debt was subsequently converted to common stock during 1996.
Certain officers/directors also converted notes payable, totaling
approximately $113,400 to shares of common stock under terms of their
notes, and were issued a total of 210,060 shares.
In August 1996, the Company engaged an entity to provide the Company
investor relation services over a five-year period. In addition to certain
cash payments, the Company issued options to the entity to purchase 300,000
shares of common stock at prices ranging from $2.00 to $4.00. The options
expire at the rate of 60,000 per year over each of the following three
years with the remaining 120,000 expiring in 2001. The cash payments and
related expense associated with the option grants are being expensed over
the expected period the services will be performed, the majority of which
is during the first year of the contract.
F-12
<PAGE>
EARTH SCIENCES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
The following is a table of options issued during 1996 and 1995:
<TABLE>
<CAPTION>
Weighted
Average
Employees Non-employee Exercise
Options Options Price
--------- ------------ --------
<S> <C> <C> <C>
OPTIONS OUTSTANDING, January 1, 1995 75,000 -- $1.25
Options granted 75,000 10,000 $1.33
-------- --------- -------
OPTIONS OUTSTANDING, December 31, 1995 150,000 10,000 $1.29
Options granted:
Officers 250,000 -- $1.69
Consultants -- 29,000 $1.69
Investor relations -- 60,000 $2.00
Investor relations -- 120,000 $2.60
Investor relations -- 120,000 $3.60
-------- --------- -------
OPTIONS OUTSTANDING, December 31, 1996 400,000 339,000 $2.09
======== ========= =======
</TABLE>
For all options granted during 1996 and 1995, the weighted average market
price of the Company's common stock on the grant date was approximately
equal to the weighted average exercise price. The weighted average
remaining contractual life for all options and warrants as of December 31,
1996 was approximately 2.3 years. At December 31, 1996, all options were
exercisable. If not previously exercised, options outstanding at December
31, 1996, will expire as follows:
Weighted
Average
Number of Exercise
Year Shares Price
---- --------- ---------
1997 135,000 $1.58
1998 135,000 $1.79
1999 339,000 $1.89
2000 10,000 $1.50
2001 120,000 $3.60
-------
739,000
=======
F-13
<PAGE>
EARTH SCIENCES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
Pro Forma Stock-Based Compensation Disclosures - The Company applies APB
Opinion 25 and related interpretations in accounting for its stock options
and warrants which are granted to employees. Accordingly, no compensation
cost has been recognized for grants of options and warrants to employees
since the exercise prices were not less than the fair value of the
Company's common stock on the grant dates. Had compensation cost been
determined based on an estimate of the fair value consistent with the
method of FAS 123 at the grant dates for awards under those plans, the
Company's net income and earnings per share would have been reduced to the
pro forma amounts indicated below.
Year Ended December 31,
------------------------
1996 1995
--------- ---------
Net income (loss) applicable to common stockholders:
As reported $ (8,000) $138,000
Pro forma $(255,000) $ 83,000
Net income (loss) per common share:
As reported $ - $ .02
Pro forma $ (.04) $ .01
The fair value of each employee option and warrant granted in 1996 and 1995
was estimated on the date of grant using the Black-Scholes option-pricing
model with the following weighted average assumptions:
Year Ended December 31,
--------------------------
1996 1995
------- -------
Expected volatility 67% 74%
Risk-free interest rate 5.7% 5.7%
Expected dividends - -
Expected terms (in years) 3 3
7. PROFIT SHARING RETIREMENT PLAN:
-------------------------------
Effective January 1, 1988, the Company formed a defined contribution and
401(k) plan to cover all eligible employees. The Company paid $30,196 and
$28,715 as the contributions for 1996 and 1995, respectively based on 10%
of the eligible employees' annual compensation. In 1996 and 1995, the
Company also matched 401(K) employee contributions up to 5% of gross
salary, totaling $15,098 and $14,358, respectively.
F-14
<PAGE>
EARTH SCIENCES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
8. CONTINGENCIES:
--------------
In 1993, a lawsuit was filed in the United States District Court for the
Northern District of California against ESIC by Volvo GM Heavy Truck
Corporation. The claim concerns contamination at a property in Oakland,
California previously owned by a predecessor of ESIC. HM Holdings, Inc., a
prior property owner, is also a defendant in the action. The complaint
seeks recovery of response costs, damages, and injunctive and regulatory
relief. A court ordered mediation took place in January 1997 which led to a
settlement in principle involving all the parties. Drafts of the settlement
agreements are in process of being prepared, and if the final settlement is
executed with the terms and conditions contained in the agreement in
principle, it will not have a material effect on the Company.
9. RELATED PARTY:
--------------
During 1995 and 1996, the Company made loans to an officer/director
totaling $130,000 at an interest rate of 8%. Not more than $70,000 was
outstanding at any one time and these loans, and the related interest, were
paid back to the Company during the year. The loans were collateralized by
amounts owing Subsequent to year-end, the Company loaned the same
officer/director $50,000 at 8% interest. This loan is collateralized by
amounts owing to the officer/director from the Company (see Note 4).
10. FAIR VALUE OF FINANCIAL INSTRUMENTS (FAS 107):
----------------------------------------------
The estimated fair values for financial instruments under FAS 107,
Disclosures about Fair value of Financial Instruments, are determined at
discrete points in time based on relevant market information. These
estimates involve uncertainties and cannot be determined with precision.
The estimated fair values of the Company's financial instruments which
differ from their recorded values, as measured on December 31, 1996 and
1995, are as follows:
December 31, 1996
-----------------
Carrying Fair
Amount Value
----------- ----------
Long-term debt $ 225,000 $ 213,000
Extraction plant liability 9,382,000 4,250,000
The following methods and assumptions were used to estimate the fair value
of each class of financial instrument:
Long-Term Debt - The fair value is difficult to estimate as loans are from
related parties. However, fair value was estimated using an effective
borrowing rate of 15%.
F-15
<PAGE>
EARTH SCIENCES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
Extraction Plant Liability - The fair value is estimated based on the total
payments which would be required for terminate the extraction plant
liability as of December 31, 1996.
11. CONCENTRATIONS OF CREDIT RISK:
------------------------------
Credit risk represents the accounting loss that would be recognized at the
reporting date if counterparties failed completely to perform as
contracted. Concentrations of credit risk (whether on or off balance sheet)
that arise from financial instruments exist for groups of customers or
counterparties when they have similar economic characteristics that would
cause their ability to meet contractual obligations to be similarly
effected by changes in economic or other conditions described below. In
accordance with FASB Statement No. 105, Disclosure of Information about
Financial Instruments with Off-Balance-Sheet Risk and Financial Instruments
with Concentrations of Credit Risk, the credit risk amounts shown do not
take into account the value of any collateral or security. Financial
instruments that subject the Company to credit risk consist principally of
money market instruments, receivables, and investments, which includes U.S.
Treasury bills, Certificates of Deposits, corporate bonds, and preferred
stock.
All of the Company's royalty income for the years ended December 31, 1996
and December 31, 1995 was generated from one customer. The Company will no
longer receive royalty income from this customer as the mining operations
related to the royalty income ceased in the fourth quarter of 1996. This
customer also is responsible for a substantial portion of the Company's
receivables.
At December 31, 1996, receivables totaled $101,000. For the years ended
December 31, 1996 and 1995, the Company had no bad debts. The Company
believes that no allowance for doubtful accounts is considered necessary.
12. SUBSEQUENT EVENTS:
------------------
In January 1997, the Company issued an additional 18,520 shares of common
stock in return for marketing services. Certain officers of the Company
also converted an additional $37,809 in debt to 70,020 in common stock. The
Company also issued an additional 20,000 shares of common stock to an
existing stockholder for net proceeds of $41,720.
In February, the Company signed a letter of intent to buy an environmental
services entity (ESE). 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 ESE, and
(iii) an option to acquire the remaining equity interests (49%) in the ESE
during the six months following May 1, 1998 for issuance of stock valued at
approximately $5.8 million. In addition, the principals of the acquired
company will have an option to require the Company to sell its 51% interest
in ESE for the price paid by ESI plus interest in the event ESI does not
exercise its option.
F-16
<PAGE>
EARTH SCIENCES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
In March 1997, the Company issued $2,510,000 of 4% convertible debentures
(the "Debentures") for which the Company 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 market
price of the common stock at the time of conversions, but not in excess of
$3.25 per share. The Company will record a deferred financing cost of
approximately $837,000, which represents the difference between fair market
value of the common stock on the date the Debentures were sold and the
conversion price. The deferred financing cost will be amortized over a 45
day period, which represents the period ending on the first date the
Debentures can be converted to common stock. The Company is required to
register the shares underlying the Debentures. The Company may repurchase
the Debentures at a 25% premium if, for two or more trading days in any
five trading day period, the market price per common share is less than
$1.50. The proceeds of the Debentures are intended to be primarily
utilized to finance a portion of the construction and operating capital
associated with the modification and re-opening of the Company's
Canadian extraction facility (the "Facility"). The converted Facility
is expected to produce purified phosphate products.
13. BUSINESS SEGMENT INFORMATION:
-----------------------------
The Company has identified its principal business segments as natural
resource exploration and development and ownership of a solvent extraction
facility. These segments are shown in the accompanying table as ESI and
ESIR, respectively. ESIR is located in Canada.
F-17
<PAGE>
<TABLE>
<CAPTION>
EARTH SCIENCES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
Depletion,
Inter- Net Depreciation
TOTAL Segment Income Identifiable and Capital
REVENUE Revenue Revenue (Loss) Assets Amortization Expenditures
----------- -------------- ----------- ----------- ------------ ------------ ------------
<S> <C> <C> <C> <C> <C> <C> <C>
1996:
- -----
ESI $ 2,167,000 $ 1,369,000 $ 798,000 $ 130,000 $ 4,207,000 $ 122,000 $ 89,000
ESIR -- -- -- (138,000) 10,194,000 138,000 647,000
----------- ----------- ----------- ----------- ----------- ----------- -----------
Total $ 2,167,000 $ 1,369,000 $ 798,000 $ (8,000) $14,401,000 $ 260,000 $ 736,000
=========== =========== =========== =========== =========== =========== ===========
1995:
- -----
ESI $ 1,063,000 $ 20,000 $ 1,043,000 $ 422,000 $ 2,983,000 $ 97,000 $ 17,000
ESIR -- -- -- (284,000) 9,732,000 137,000 9,000
----------- ----------- ----------- ----------- ----------- -----------
Total $ 1,063,000 $ 20,000 $ 1,043,000 $ 138,000 $12,715,000 $ 234,000 $ 26,000
=========== =========== =========== =========== =========== =========== ===========
</TABLE>
F-18
<PAGE>
PART III
Item 12. Certain Relationships and Related Transactions.
(a) At various times during 1996 and 1995, Dr. Bisque borrowed a total of
$70,000 and $130,000, respectively, from Registrant at an interest rate of 8%.
Not more than $85,000 was outstanding at any one time in 1995 and these loans
were paid back to Registrant prior to each year end. All of the amounts borrowed
were collateralized by amounts owing to Dr. Bisque by Registrant and were made
available from funds that would have otherwise only earned Registrant
approximately 5%.
In 1991, the Registrant converted a total of $366,000 of deferred salaries
payable to Mssrs. Bisque, Bloom and McKinnies to notes payable bearing interest
at 9%, payable on demand, and granted them rights to convert such notes payable
to shares of common stock at the then current market price of $.54 per share.
The notes are collateralized by a mining property. From year to year, Mssrs.
Bisque, Bloom and McKinnies have agreed not to demand payment during the current
year. As of December 31, 1996, $189,000 remained outstanding under the notes.
14
<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 June 10, 1997 June 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
June 10, 1997 June 10, 1997
- -------------- --------------
Date Date
/s/Duane N. Bloom /s/ Mark H. McKinnies
- ---------------------------------- -----------------------------------
Duane N. Bloom, Director Mark H. McKinnies, Director
June 10, 1997 June 10, 1997
- -------------- --------------
Date Date
16
