______________________________________________________________________________
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 September 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: October 15, 1997;
7,345,036.
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 September 30, 1997..............1
Consolidated Statement of Operations for the 3 months
ended September 30, 1997 and September 30, 1996..................2
Consolidated Statement of Operations for the 9 months
ended September 30, 1997 and September 30, 1996..................3
Consolidated Statement of Cash Flows for the 9 months
ended September 30, 1997 and September 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
September 30, 1997
ASSETS (Unaudited)
--------------
Current assets:
Cash $ 481,000
Receivables, net 3,234,000
Inventories 1,154,000
Prepaid expenses 190,000
--------------
Total current assets 5,059,000
Property, plant and equipment, net 4,003,000
Investments in joint ventures 14,865,000
Other assets 182,000
--------------
$ 24,109,000
==============
LIABILITIES AND SHAREHOLDERS' EQUITY
------------------------------------
Current liabilities:
Accounts payable and accrued expenses $ 2,326,000
Bank line of credit 180,000
--------------
Total current liabilities 2,506,000
Deferred income taxes 2,017,000
--------------
Total liabilities 4,523,000
--------------
Shareholders' equity:
Common stock, $.001 par value; 500,000,000 shares
authorized; 7,345,036 shares issued 7,000
Capital in excess of par value 5,397,000
Retained earnings 14,182,000
--------------
Total Shareholders' equity 19,586,000
--------------
$ 24,109,000
==============
See accompanying notes to financial statements
Page 1
<PAGE>
MINING SERVICES INTERNATIONAL CORPORATION
Consolidated Statement of Operations
(Unaudited)
3 months ended 3 months ended
9/30/97 9/30/96
--------------- ----------------
Revenues:
Net sales $ 4,612,000 $ 5,064,000
Royalties and license fee income 434,000 568,000
Equity in earnings from joint ventures 2,111,000 1,489,000
--------------- ----------------
7,157,000 7,121,000
Cost and expenses:
Cost of sales, royalties, and
license fees 4,762,000 4,666,000
General and administrative 271,000 376,000
Research and development 129,000 57,000
--------------- ----------------
5,162,000 5,099,000
--------------- ----------------
Income from operations 1,995,000 2,022,000
Other income (expense) 6,000 (193,000)
--------------- ----------------
Income before provision for income
taxes 2,001,000 1,829,000
Provision for income taxes 595,000 477,000
--------------- ----------------
Net income $ 1,406,000 $ 1,352,000
=============== ===============
Earnings per common and common
equivalent share $ .19 $ .21
Weighted average number of common and
common equivalent shares 7,587,617 6,385,000
=============== ===============
See accompanying notes to financial statements
Page 2
<PAGE>
MINING SERVICES INTERNATIONAL CORPORATION
Consolidated Statement of Operations
(Unaudited)
9 months ended 9 months ended
9/30/97 9/30/96
--------------- ----------------
Revenues:
Net sales $ 13,789,000 $ 13,888,000
Royalties and license fee income 1,305,000 1,277,000
Equity in earnings from joint ventures 5,463,000 3,752,000
--------------- ----------------
20,557,000 18,917,000
Cost and expenses:
Cost of sales, royalties and
license fees 14,024,000 13,310,000
General and administrative 952,000 937,000
Research and development 388,000 443,000
--------------- ----------------
15,364,000 14,690,000
--------------- ----------------
Income from operations 5,193,000 4,227,000
Other income (expense) 42,000 (127,000)
--------------- ----------------
Income before provision for income
taxes 5,235,000 4,100,000
Provision for income taxes 1,373,000 1,034,000
--------------- ----------------
Net income $ 3,862,000 $ 3,066,000
=============== ================
Earnings per common and common
equivalent share $ .51 $ .48
Weighted average number of common
and common equivalent shares 7,587,617 6,385,000
equivalent shares
=============== ================
See accompanying notes to financial statements
Page 3
<PAGE>
MINING SERVICES INTERNATIONAL CORPORATION
Consolidated Statement of Cash Flows
(Unaudited)
9 months ended 9 months ended
9/30/97 9/30/96
--------------- ----------------
Cash flows from operating activities:
Net income $ 3,862,000 $ 3,066,000
Adjustments to reconcile net income to
net cash provided by
Operating activities:
Depreciation and amortization 478,000 424,000
Net (retirements) issuance of
common stock (44,000) 44,000
Gain on disposal of equipment (32,000) -
Undistributed earnings in joint
ventures (2,041,000) (2,752,000)
Change in assets and liabilities:
(Increase) decrease in accounts
receivable (645,000) (102,000)
(Increase) decrease in inventories (30,000) (127,000)
(Increase) decrease in prepaid
expenses (54,000) 50,000
(Increase) decrease in other assets (12,000) (7,000)
Increase (decrease) in accounts
payable and accrued expenses 410,000 141,000
Increase (decrease) in deferred
income taxes 570,000 93,000
Increase (decrease) in deferred gain
on sale/leaseback - (84,000)
--------------- ----------------
Net cash provided by operating
activities 2,462,000 746,000
--------------- ----------------
Cash flows from investing activities:
Proceeds from sale of assets 451,000 270,000
Purchase of plant and equipment (1,333,000) (591,000)
Investment in joint ventures (1,297,000) (1,519,000)
--------------- ----------------
Net cash used in investing activities (2,179,000) (1,840,000)
--------------- ----------------
Cash flows from financing activities:
Net proceeds from operating line of
credit 33,000 802,000
Payments on equipment leases (567,000) (392,000)
--------------- ----------------
Net cash provided by, used in
financing activities (534,000) 410,000
--------------- ----------------
Net increase (decrease) in cash (251,000) (684,000)
Cash, beginning of period 732,000 809,000
--------------- ----------------
Cash, end of third period $ 481,000 $ 125,000
=============== ================
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 nine-month
period ended September 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 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 Nine-month Period For the Three-month Period
Ending September 30, Ending September 30,
Results for the Quarter 1997 1996 1997 1996
Gross Revenue $29,266,000 $22,618,000 $10,098,000 $8,995,000
Gross Profit $15,516,000 $ 7,174,000 $ 5,624,000 $2,824,000
Net Income $ 9,959,000 $ 7,505,000 $ 3,812,000 $2,979,000
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.
A change in estimate affecting depreciation of plant and equipment on
the books of Cyanco was made in connection with expanded market projections
and production capacity from a basis of 533 million lbs. to 1,148 million lbs.
Page 5
<PAGE>
The provision for income taxes is different than that 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 Nine-month period For the three-month period
ending September 30, ending September 30,
Results for the Quarter 1997 1996 1997 1996
Federal income tax
provision at statutory
rate $ 1,780,000 $ 1,394,000 $ 680,000 $ 622,000
Option exercise expense
and other related
permanent differences $ (240,000) $ (136,000) - $ (115,000)
Net book/tax depreciation
difference and utilization
of carryforwards $ (167,000) $ (224,000) $ (85,000) $ (30,000)
------------ ------------ ----------- -----------
Total $ 1,373,000 $ 1,034,000 $ 595,000 $ 477,000
============ ============ =========== ===========
The deferred tax liability is comprised of the following:
Depreciation $ 2,229,000
Investment and foreign tax credit
carryforwards (212,000)
Other -
--------------
Deferred Tax $ 2,017,000
==============
Page 6
<PAGE>
Item 2 Management's Discussion and Analysis of Financial Condition and
Results of Operations
Nine-months ended September 30, 1997 vs. 1996
- ---------------------------------------------
Income before provision for income taxes for the nine months ended
September 30, 1997 increased $1,135,000 or 28% over income before provision
for income taxes for the nine month period in 1996. Income from operations
increased $966,000 or 23%. The increase in joint venture equity earnings of
$1,711,000 or 46% reflects the addition of earnings from the operations in
Colombia as well as increased earnings at Cyanco. Operating gross margins in
explosives decreased in the U.S. and Canadian market from 12% during the first
nine months of 1996 to 7% in the same period for 1997. This decrease is due
primarily to a significant increase in operating costs at the West Virginia
HEFr and EMGELr plant due to a build up of operating capacity and the
debugging of the expanded EMGELr plant. In addition, the costs associated
with the loss of a major customer during the first half of 1997 added to the
negative impact on gross margins in West Virginia. A return to normal
operating margins in the U.S. explosives market is expected to be achieved in
early 1998. Most of the decrease in research and development costs of
$55,000, comparing the first nine months of 1997 with the first nine months of
1996, can be attributed to the increased use of technical personnel during the
debugging of the EMGELr plant in West Virginia instead of other research and
development projects.
Revenues from explosives for the remainder of 1997 should remain
relatively stable based on results for the first nine months of 1997 and
should continue to increase long term. It is anticipate that gross margins
should improve and equity earnings from joint ventures including Cyanco and
Colombia should continue to show growth as they expand production and increase
market share.
Despite currently depressed gold prices, Cyanco, should continue to
significantly increase its production and net income during 1998 since its
major customers have low-cost mines and it continues to increase its market
share being the low-cost producer in the Nevada gold market. Cyanco is
strategically positioned to successfully compete for cyanide production during
a depressed gold market. In management's opinion, however, the current
decrease in gold prices could have a negative impact on unhedged marginal gold
mines and new greenfield development in Nevada which may decrease the rate of
overall growth in gold production and sodium cyanide usage should declining
prices continue long term.
Third Quarter 1997 vs. 1996
- ---------------------------
Income before income taxes for the quarter ended September 30, 1997
Page 7
<PAGE>
increased $172,000 over the same quarter of 1996 due primarily to the change
in "other income." The increase in earnings from joint ventures reported on
the equity method of $622,000 (due to earnings from Cyanco and Colombia joint
ventures) was offset by a gross margin decrease in the U.S. and Canadian
explosives business of $682,000 comparing the third quarter of 1997 to that of
1996. The decrease in gross margin was partially explained in the discussion
of the nine month period above; however, in the third quarter of 1997 net
sales and royalty/license fee revenues decreased by $586,000 compared to the
third quarter of 1996. It is expected that revenues from royalties and
license fees will continue to be stable or will slightly decrease in the near
future as the company's equity strategy replaces the licensing business. The
majority of royalty income comes from contracts in Africa for which royalty
rates were decreased beginning in late 1996. Royalty income should remain
stable if usage of explosives continues to increase at historical rates.
Third Quarter 1997 sales in Canada decreased by $672,000 compared to the same
quarter in 1996, half of which was due to the closure of the Afton Mine.
Sales increases in the Western U.S. and in West Virginia for the comparitive
three month period largely offset the decreases in Canada. It is not expected
that revenues from Canada will significantly increase in the near future
unless major raw material factors change. However, it is expected that sales
will continue to increase in the Western U.S. and Eastern U.S. markets.
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 November 10, 1997, the Company has no balance owing on any
of its lines of credit. During the third quarter the revolving line of credit
was utilized up to $789,000. Interest expense for the first nine months of
1997 was $32,000 compared to $56,000 in the first nine months of 1996. The
$645,000 increase in accounts receivable is due primarily to the receivables
created from the sales of equipment, supplies, and services to the Colombia
joint venture, increased product sales in the U.S. and slow paying royalties.
Accounts payable increased $410,000 and was primarily related to accruals for
the expansion in the West Virginia facility and for employment related costs.
Capital expenditures for the nine months ended September 30, 1997 was
$2,630,000 compared to $2,110,000 for the same period in 1996, an increase of
$520,000 due primarily to the construction of corporate offices and continued
investment in joint ventures. Property, plant and equipment at September 30,
1997 was $10,046,000 compared to $8,136,000 at September 30, 1996. Accumulated
depreciation at September 30, 1997 was $6,043,000 compared to $5,927,000 at
September 30, 1996.
In management's opinion, the capital resources of the Company are
adequate to finance its business activity 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
September 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
-----------------------------
November 13, 1997 Lex L. Udy
-------------------- Vice Chairman and Secretary
(Date)
/s/ Duane W. Moss
-----------------------------
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 SEPTEMBER 30, 1997 AND IS QUALIFIED IN ITS ENTIRETY BY REFERENCE
TO SUCH FINANCIAL STATEMENTS.
</LEGEND>
<S> <C>
<PERIOD-TYPE> 9-MOS
<FISCAL-YEAR-END> DEC-31-1997
<PERIOD-END> SEP-30-1997
<CASH> 481,000
<SECURITIES> 0
<RECEIVABLES> 3,246,000
<ALLOWANCES> 12,000
<INVENTORY> 1,154,000
<CURRENT-ASSETS> 5,059,000
<PP&E> 10,046,000
<DEPRECIATION> 6,043,000
<TOTAL-ASSETS> 24,109,000
<CURRENT-LIABILITIES> 2,506,000
<BONDS> 180,000
0
0
<COMMON> 7,000
<OTHER-SE> 19,579,000
<TOTAL-LIABILITY-AND-EQUITY> 24,109,000
<SALES> 13,789,000
<TOTAL-REVENUES> 20,557,000
<CGS> 14,024,000
<TOTAL-COSTS> 15,364,000
<OTHER-EXPENSES> (42,000)
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 32,000
<INCOME-PRETAX> 5,235,000
<INCOME-TAX> 1,373,000
<INCOME-CONTINUING> 3,862,000
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 3,862,000
<EPS-PRIMARY> .52
<EPS-DILUTED> .51
</TABLE>
