______________________________________________________________________________
U.S. Securities and Exchange Commission
Washington, D.C. 20549
________________________________________
Form 10-QSB
(Mark One)
[X] QUARTERLY REPORT UNDER SECTION 13 OR 15(D) OF THE
SECURITIES EXCHANGE ACT OF 1934
For the quarterly period ended June 30, 1997.
[ ] TRANSITION REPORT UNDER SECTION 13 OR 15(D) OF THE
EXCHANGE ACT
For the transition period from _______________ to ____________.
Commission file number 0-10634
_____________________________
Mining Services International Corporation
(Exact Name of Small Business issuer as specified in its charter)
Utah 87-0351702
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
8805 South Sandy Parkway
Sandy, Utah 84070-6408
(Address of principal executive offices)
Issuers telephone number: (801) 233-6000
_______________________
Check whether the issuer (1) 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.
Yes X No
----- -----
State the number of shares outstanding of each of the issuer's classes
of common equity, as of the latest practicable date: July 28, 1997; 7,383,059.
Transitional Small Business Disclosure Format (check one):
Yes No X
----- -----
______________________________________________________________________________
<PAGE>
INDEX
PART I. FINANCIAL INFORMATION
Page Number
Item 1 Financial Statements
Consolidated Balance Sheet as of June 30, 1997.............. 1
Consolidated Statement of Operations for the 3 months ended
June 30, 1997 and June 30, 1996. . . . . . . . . . . . . . . 2
Consolidated Statement of Operations for the 6 months ended
June 30, 1997 and June 30, 1996. . . . . . . . . . . . . . . 3
Consolidated Statement of Cash Flows for the 6 months ended
June 30, 1997 and June 30, 1996. . . . . . . . . . . . . . . 4
Notes to Financial Statements . . . . . . . . . . . . . . . 5
Item 2 Management's Discussion and Analysis of Financial Condition
and Results of Operations .................................. 7
PART II. OTHER INFORMATION
Item 13 Exhibits and Reports on Form 8-K............................ 9
<PAGE>
PART I. FINANCIAL INFORMATION
Item 1. Financial Statements
MINING SERVICES INTERNATIONAL CORPORATION
Consolidated Balance Sheet
June 30, 1997
ASSETS (Unaudited)
------ -------------------
Current assets:
Cash $ 257,000
Receivable, net 3,408,000
Inventories 1,176,000
Prepaid expenses 60,000
-------------------
Total current assets 4,901,000
Property, plant and equipment, net 4,614,000
Investments in joint ventures 12,847,000
Other assets 182,000
-------------------
$ 22,544,000
===================
LIABILITIES AND SHAREHOLDERS' EQUITY
------------------------------------
Current liabilities:
Accounts payable and accrued expenses $ 2,309,000
Bank line of credit 440,000
-------------------
Total current liabilities 2,749,000
Deferred income taxes 1,497,000
-------------------
Total liabilities 4,246,000
-------------------
Shareholders' equity:
Common stock, $.001 par value; 500,000,000 shares
authorized; 7,383,059 shares issued 7,000
Capital in excess of par value 6,233,000
Notes receivable from exercise of options (718,000)
Retained earnings 12,776,000
-------------------
Total Shareholders' equity 18,298,000
-------------------
$ 22,544,000
===================
See accompanying notes to financial statements
Page 1
<PAGE>
MINING SERVICES INTERNATIONAL CORPORATION
Consolidated Statement of Operations
(Unaudited)
3 months ended 3 months ended
6/30/97 6/30/96
--------------- --------------
Revenues:
Net sales $ 4,779,000 $ 4,229,000
Royalties and license fee income 486,000 291,000
Equity in earnings from joint ventures 1,615,000 1,424,000
--------------- --------------
6,880,000 5,944,000
Cost and expenses:
Cost of sales, royalties and license fees 4,851,000 4,164,000
General and administrative 353,000 347,000
Research and development 122,000 185,000
--------------- --------------
5,326,000 4,696,000
--------------- --------------
Income from operations 1,554,000 1,248,000
Other income (expense) 2,000 38,000
--------------- --------------
Income before provision for income taxes 1,556,000 1,286,000
Provision for income taxes 229,000 261,000
--------------- --------------
Net income $ 1,327,000 $ 1,025,000
=============== ==============
Earnings per common and common
equivalent share $ .17 $ .18
=============== ==============
Weighted average number of common and common 7,627,928 5,812,863
equivalent shares =============== ==============
See accompanying notes to financial statements
Page 2
<PAGE>
MINING SERVICES INTERNATIONAL CORPORATION
Consolidated Statement of Operations
(Unaudited)
6 months ended 6 months ended
6/30/97 6/30/96
--------------- --------------
Revenues:
Net sales $ 9,813,000 $ 8,822,000
Royalties and license fee income 872,000 709,000
Equity in earnings from joint ventures 3,090,000 2,264,000
--------------- --------------
13,775,000 11,795,000
Cost and expenses:
Cost of sales, royalties, and license fees 9,635,000 8,644,000
General and administrative 681,000 561,000
Research and development 261,000 386,000
--------------- --------------
10,577,000 9,591,000
--------------- --------------
Income from operations 3,198,000 2,204,000
Other income (expense) 36,000 66,000
--------------- --------------
Income before provision for income taxes 3,234,000 2,270,000
Provision for income taxes 778,000 557,000
--------------- --------------
Net income $ 2,456,000 $ 1,713,000
=============== ==============
Earnings per common and common
equivalent share $ .32 $ .29
Weighted average number of common and common 7,627,928 5,812,863
equivalent shares =============== =============
See accompanying notes to financial statements
Page 3
<PAGE>
MINING SERVICES INTERNATIONAL CORPORATION
Consolidated Statement of Cash Flows
(Unaudited)
6 months ended 6 months ended
6/30/97 6/30/96
--------------- --------------
Cash flows from operating activities:
Net income $ 2,456,000 $ 1,713,000
Adjustments to reconcile net income to
net cash provided by
Operating activities:
Depreciation and amortization 301,000 279,000
Gain on disposal of equipment (30,000) -
Undistributed earnings in joint ventures (1,090,000) (1,263,000)
Change in assets and liabilities:
(Increase) decrease in accounts
receivable (819,000) (392,000)
(Increase) decrease in inventories (52,000) (102,000)
(Increase) decrease in prepaid expenses 76,000 72,000
(Increase) decrease in other assets (12,000) 26,000
Increase in accounts payable and
accrued expenses 443,000 730,000
Increase in deferred gain on
sale/leaseback - (84,000)
--------------- --------------
Net cash provided by operating
activities 1,273,000 979,000
--------------- --------------
Cash flows from investing activities:
Proceeds from sale of assets 450,000 50,000
Purchase of plant and equipment (1,767,000) (495,000)
Investment in joint ventures (231,000) (885,000)
--------------- --------------
Net cash used in investing activities (1,548,000) (1,330,000)
--------------- --------------
Cash flows from financing activities:
Issuance of common stock 3,000 79,000
Payment received on notes receivable
from exercise of options 71,000 634,000
Net proceeds from operating line of credit 293,000 -
Payments on equipment leases (567,000) (371,000)
--------------- --------------
Net cash provided by, used in
financing activities (200,000) 342,000
--------------- --------------
Net increase (decrease) in cash (475,000) (9,000)
Cash, beginning of year 732,000 809,000
--------------- --------------
Cash, end of second quarter $ 257,000 $ 800,000
=============== ==============
See accompanying notes to financial statements
Page 4
<PAGE>
MINING SERVICES INTERNATIONAL
Notes to Consolidated Financial Statements
(Unaudited)
NOTE 1: BASIS OF PRESENTATION
The financial information included herein is unaudited; however, such
information reflects all adjustments, which are, in the opinion of management,
necessary for a fair statement of results for the interim periods.
These consolidated financial statements are presented in accordance
with the requirements for Form 10-QSB and consequently may not include all
the disclosures normally required by the generally accepted accounting
principles or those normally made in the annual 10-KSB filing. Financial
information relating to debts, interest expense, and depreciation contained
in the Management's Discussion and Analysis of Financial Condition and Results
of Operations are incorporated by reference into these notes. Certain
accounts in the 1996 financial statements have been reclassified to conform
with the current period presentation in 1997.
The results of operations for the three-month period and six-month
period ended June 30, 1997 are not necessarily indicative of the results to
be expected for the full year.
NOTE 2: SIGNIFICANT ACCOUNTING POLICIES
The financial statements reflect the investment in joint ventures of
which the Company owns 50% or less under the equity method of accounting and
the equity net income from joint ventures is reported in revenue from
operations.
Combined financial information for significant joint ventures reported
in the financials under the equity method of accounting is summarized on a 100%
basis as follows:
For the Six-month Period For the Three-month Period
Ending June 30, Ending June 30,
Results for the Quarter 1997 1996 1997 1996
Gross Revenue $19,234,170 $ 13,623,000 $ 9,306,000 $ 7,877,000
Gross Profit $ 6,027,742 $ 4,350,000 $ 3,093,742 $ 2,686,000
Net Income $ 6,180,000 $ 4,526,000 $ 3,230,000 $ 2,846,000
Distributed Net
Income $ 4,000,000 $ 2,000,000 $ 2,000,000 $ 2,000,000
Undistributed Net
Income $ 2,180,000 $ 2,526,000 $ 1,230,000 $ 846,000
The joint ventures report "gross profit" as income from operations.
"Net Income" exceeds "gross profit" due primarily to interest income on cash
invested in short-term investments.
Page 5
<PAGE>
The provision for income taxes is different than amounts, which would
be provided by applying the statutory federal income tax rate to income before
provision for income taxes for the following reasons:
For the Six-month period For the Three-month period
ending June 30, ending June 30,
Results for the Quarter 1997 1996 1997 1996
Federal income tax
provision at statutory
rate $1,132,000 $ 795,000 $545,000 $ 450,000
Option exercise expense
and other related
permanent differences $ (366,000) $ (28,000) $(366,000) $ (21,000)
Net book/tax depreciation
difference and
utilization of
carryforwards $ 12,000 $ (210,000) $ 50,000 $(168,000)
----------- ----------- ----------- ----------
Total $ 778,000 $ 557,000 $ 229,000 $ 261,000
=========== ========== =========== ==========
The deferred tax liability is comprised of the following:
Depreciation $ 2,065,000
Alternative minimum tax carryforward (252,000)
Investment and foreign tax credit carryforwards (316,000)
Other -
----------------
Deferred Tax $ 1,497,000
================
Page 6
<PAGE>
Item 2 Management's Discussion and Analysis of Financial Condition and
Results of Operations
The following is management's discussion and analysis of certain
significant factors which have affected the Company's financial position and
operating results during the periods included in the accompanying consolidated
financial statements of June 30, 1997.
Second Quarter 1997 vs. 1996
- ----------------------------
Income before provision for income taxes for the three months ended
June 30, 1997 increased $270,000 or 21% over income before provision for
income taxes for the same three-month period in 1996 primarily due to increased
equity earnings from joint ventures reported under the equity method and
increased royalties and license fee income. During the quarter a technology
license and service agreement was reached with Hanwha Corporation from the
Republic of Korea from which the company will receive $400,000 in the first
year and quarterly payments over ten years with an estimated value of the
contract of $1.2 million.
Total revenues for the Company increased $936,000 or 16% comparing the
second quarter of 1997 with the second quarter of 1996. Operating margins
increased about 2% during the same period due primarily to increased equity
earnings from joint ventures reported in revenue. Royalties and license fee
income increased 67% in the second quarter of 1997 compared to the second
quarter of 1996 primarily due to initial payments from Hanwha Corporation and
certain technology fees received from the Colombia joint venture.
Research and development costs have decreased $63,000 in comparing the
second quarter of 1997 with the second quarter of 1996 as efforts have
temporarily shifted from research and development to start-up activities.
Six-months ended June 30, 1997 vs. 1996
- ---------------------------------------
Income before provision for income taxes for the six months ended June
30, 1997 increased $964,000 or 42% over income before provision for income
taxes for the same six month period in 1996 primarily due to increased equity
earnings from the Cyanco and Colombia joint ventures and increased royalties
and license fee income from international activities.
Total revenues for the Company increased $1,980,000 or 17% comparing
the first six-months of 1997 with the first six-months of 1996 while operating
margins increased $994,000 representing an increase in the operating margin of
approximately 4.5%, from 18.7% to 23.2%. This change in operating margin is
due to increasing equity income from joint ventures in relation to sales and
royalty/license fee income.
General and administrative expenses increased $120,000 from the first
six-months of 1997 compared to the first six-months of 1996 due to increased
accrued expenses related to employee costs. Research and Development costs
have decreased $125,000 comparing the first six-months of 1997 with the first
six-months of 1996 as efforts have temporarily shifted from research and
development to start-up activities.
Page 7
<PAGE>
Cyanco should continue expanding sales to fill increased capacity
through marketing efforts and growth in existing accounts. The Colombian joint
venture is expected to add significant growth to revenues and income during
1997. EMGEL? sales have steadily increased since the first of the year and are
expected to continue to increase sales and gross margin for the second half of
1997. Several of the existing bulk accounts are expected to increase the usage
of MSI's proprietary explosives. During 1997 the Company will continue to
seek investments in joint ventures and expanding operations in various market
niches throughout the world in both explosives and cyanide.
Liquidity and Capital Resources
- -------------------------------
The primary source for the Company's financial resources is from
operations. The Company has a revolving line of credit with its bank in Salt
Lake City, Utah in the amount of $2,000,000 bearing interest at the bank's
prime rate, an equipment line of credit of $1,000,000 bearing interest at the
bank's prime rate secured by equipment, and a working capital line of credit
for $500,000 at the bank's prime rate secured by the new corporate office
building. As of August 7, 1997, the Company has no balance owing on any of its
lines of credit. During the second quarter the revolving line of credit was
utilized up to $671,000. Interest expense for the first six-months of 1997 was
$25,000 compared to $36,000 in the first six-months of 1996. The $819,000
increase in accounts receivable is due primarily to the receivables created
from the sales of equipment, supplies, and services to the Colombia joint
venture and increased product sales. Accounts payable increased $443,000 and
was primarily related to accruals for the expansion in the West Virginia
facility and for employment related costs. Capital expenditures for the
six-months ended June 30, 1997 was $1,998,000 compared to $1,380,000 for the
same period in 1996, an increase of $618,000 due primarily to the construction
of corporate offices and continued investment in joint ventures. Property,
plant and equipment at June 30, 1997 was $10,514,000 compared to $9,161,000 at
June 30, 1996. Accumulated depreciation at June 30, 1997 was $5,900,000
compared to $6,205,000 at June 30, 1996.
In management's opinion, the capital resources of the Company are
adequate to finance its business activity in the short term as well as the
long term assuming the current political, financial, and economic environment
continues. In the long term, the results of operations and the liquidity of
the Company's resources could be impacted by factors such as political risks,
capital availability, changes in taxation, inflation, and foreign exchange.
Consequently, the Company cannot determine the ultimate effect that current
products and strategies will have on long-term net sales, earnings, or stock
price.
Page 8
<PAGE>
PART II. OTHER INFORMATION
Item 13: Exhibits and Reports on Form 8-K
No reports on Form 8-K have been filed during the quarter ended
June 30, 1997 or during the period covered by this report. No additional
exhibits have been filed as part of this report.
Page 9
<PAGE>
SIGNATURES
In accordance with the requirements of the Exchange Act, the registrant
caused this report to be signed on its behalf by the undersigned thereunto duly
authorized.
MINING SERVICES INTERNATIONAL CORPORATION
-----------------------------------------
(Registrant)
/s/ Lex L. Udy
------------------------------
August 8, 1997 Lex L. Udy
-----------------------
(Date) Vice Chairman and Secretary
/s/ Duane W. Moss
------------------------------
Chief Financial Officer
<PAGE>
SIGNATURES
In accordance with the requirements of the Exchange Act, the registrant
caused this report to be signed on its behalf by the undersigned thereunto duly
authorized.
MINING SERVICES INTERNATIONAL CORPORATION
-----------------------------------------
(Registrant)
/s/ Lex L. Udy
------------------------------
August 8, 1997 Lex L. Udy
-----------------------
(Date) Vice Chairman and Secretary
/s/ Duane W. Moss
------------------------------
Chief Financial Officer
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM THE
FINANCIAL STATEMENTS OF THE COMPANY AS FILED IN ITS 10-QSB (ITEM 1) FOR THE
QUARTER ENDED JUNE 30, 1997 AND IS QUALIFIED IN ITS ENTIRETY BY REFERENCE TO
SUCH FINANCIAL STATEMENTS.
</LEGEND>
<S> <C>
<PERIOD-TYPE> 6-MOS
<FISCAL-YEAR-END> DEC-31-1997
<PERIOD-END> JUN-30-1997
<CASH> 257,000
<SECURITIES> 0
<RECEIVABLES> 3,420,000
<ALLOWANCES> 12,000
<INVENTORY> 1,176,000
<CURRENT-ASSETS> 4,901,000
<PP&E> 10,514,000
<DEPRECIATION> 5,900,000
<TOTAL-ASSETS> 22,544,000
<CURRENT-LIABILITIES> 2,749,000
<BONDS> 440,000
0
0
<COMMON> 7,000
<OTHER-SE> 18,291,000
<TOTAL-LIABILITY-AND-EQUITY> 22,544,000
<SALES> 9,813,000
<TOTAL-REVENUES> 13,775,000
<CGS> 9,635,000
<TOTAL-COSTS> 10,577,000
<OTHER-EXPENSES> (36,000)
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 25,000
<INCOME-PRETAX> 3,234,000
<INCOME-TAX> 778,000
<INCOME-CONTINUING> 2,456,000
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 2,456,000
<EPS-PRIMARY> 0.33
<EPS-DILUTED> 0.32
</TABLE>
