----------------------------------------------------------------------
U.S. Securities and Exchange Commission
Washington, D.C. 20549
--------------------------
Form 10-Q
(Mark One)
[ X ] QUARTERLY REPORT UNDER SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934 [Fee Required] For the
quarterly period ended March 31, 1998.
[ ] TRANSITION REPORT UNDER SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934 [No Fee Required] For the
transition period from ____________ to ____________
Commission File No. 0-10634
---------------------------
Mining Services International Corporation
(Exact Name of Registrant as Specified in Its Charter)
Utah 87-0351702
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
8805 South Sandy Parkway
Sandy, Utah 84070-6408
(Address of principal executive offices, zip code)
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 ___
The number of shares outstanding of the registrant's par value $0.001
Common Stock as of May 8, 1998 was 7,353,985.
-------------------------------------------------------------------------
<PAGE>
Mining Services International Corporation
Index
Page No.
Part I Financial Information
Item 1. Consolidated Balance Sheet (Condensed) March 31, 1998 and 1
December 31, 1997.
Consolidated Statement of Operations (Condensed) for the 2
three months ended March 31, 1998 and March 31, 1997.
Consolidated Statement of Cash Flows (Condensed) for the 3
three months ended March 31, 1998 and March 31,1997.
Condensed Notes to the consolidated financial statements 4
Item 2. Management's Discussion and Analysis of Financial Condition 5
and Results of Operations
Part II Other Information
Item 6. Exhibits and Reports on Form 8-K 6
<PAGE>
PART I. FINANCIAL INFORMATION
Financial Statements
MINING SERVICES INTERNATIONAL CORPORATION
Consolidated Balance Sheet (Condensed)
<TABLE>
<S> <C> <C>
March 31, 1998 December 31,1997
ASSETS (Unaudited)
------------------- -----------------------
Current assets:
Cash $ 2,075,000 $ 1,160,000
Receivables, net 3,623,000 4,232,000
Inventories 944,000 830,000
Prepaid expenses 132,000 139,000
Current portion of notes receivable from joint ventures 435,000 435,000
------------------- -----------------------
Total current assets 7,209,000 6,796,000
Property, plant and equipment, net 4,114,000 4,122,000
Investments in joint ventures 12,832,000 12,448,000
Notes receivable from joint ventures 965,000 965,000
Other assets 326,000 370,000
------------------- -----------------------
$ 25,446,000 24,701,000
=================== =======================
LIABILITIES AND SHAREHOLDERS' EQUITY
Current Accounts payable and accrued expenses $ 1,820,000 1,874,000
Deferred income taxes 2,222,000 2,222,000
------------------- -----------------------
Total liabilities 4,042,000 4,096,000
------------------- -----------------------
Shareholders' equity:
Common stock, $.001 par value; 500,000,000 shares
authorized; 7,353,985 shares issued 7,000 7,000
Capital in excess of par value 5,419,000 5,416,000
Retained earnings 15,978,000 15,182,000
------------------- -----------------------
Total Shareholders' equity 21,404,000 20,605,000
------------------- -----------------------
$ 25,446,000 $ 24,701,000
=================== =======================
</TABLE>
See accompanying notes to financial statements
Page 1
<PAGE>
MINING SERVICES INTERNATIONAL CORPORATION
Consolidated Statement of Operations (Condensed)
(Unaudited)
<TABLE>
<S> <C> <C>
3 months ended 3 months ended
3/31/98 3/31/97
------------------ -------------------
Revenues:
Net sales $ 5,337,000 $ 4,884,000
Royalties and license fee income 449,000 386,000
Equity in earnings from joint ventures 1,063,000 1,475,000
------------------ -------------------
6,849,000 6,745,000
Cost and expenses:
Cost of sales, royalties, and license fees 5,250,000 4,634,000
General and administrative 303,000 328,000
Research and development 117,000 139,000
------------------ -------------------
5,670,000 5,101,000
------------------ -------------------
Income from operations 1,179,000 1,644,000
Other income (expense), net 9,000 34,000
------------------ -------------------
Income before provision for income taxes 1,188,000 1,678,000
Provision for income taxes 392,000 549,000
------------------ -------------------
Net income $ 796,000 $ 1,129,000
================== ===================
Weighted Average number of shares outstanding
Basic 7,352,000 7,267,000
================== ===================
Diluted 7,570,000 7,666,000
================== ===================
Net Income per Share
Basic $ .11 $ .16
================== ===================
Diluted $ .11 $ .15
================== ===================
</TABLE>
See accompanying notes to financial statements
Page 2
<PAGE>
MINING SERVICES INTERNATIONAL CORPORATION
Consolidated Statement of Cash Flows (Condensed)
(Unaudited)
<TABLE>
<S> <C> <C>
3 months ended 3 months ended
3/31/98 3/31/97
------------------- -------------------
Cash flows from operating activities:
Net income $ 796,000 $ 1,129,000
Adjustments to reconcile net income to net cash provided by operating
activities:
Depreciation and amortization 184,000 142,000
Stock compensation expense 3,000 0
Gain on disposal of equipment 0
(35,000)
Undistributed earnings in joint ventures (63,000) (475,000)
Change in assets and liabilities:
(Increase) decrease in accounts receivable 609,000 19,000
(Increase) decrease in inventories (114,000) (122,000)
(Increase) decrease in prepaid expenses 7,000 48,000
(Increase) decrease in other assets 44,000 9,000
Increase (decrease) in accounts payable and accrued expenses (54,000) 838,000
------------------- -------------------
Net cash provided by operating activities 1,412,000 1,553,000
------------------- -------------------
Cash flows from investing activities:
Proceeds from the sale of plant and equipment 0 41,000
Purchase of plant and equipment (176,000) (870,000)
Investment in joint ventures (321,000) (179,000)
------------------- -------------------
Net cash used in investing activities (497,000) (1,008,000)
------------------- -------------------
Cash flows from financing activities -
payments on long-term debt 0 (24,000)
------------------- -------------------
Net increase in cash 915,000 521,000
Cash, beginning of period 1,160,000 732,000
------------------- -------------------
Cash, end of period $ 2 ,075,000 $ 1,253,000
=================== ===================
</TABLE>
See accompanying notes to financial statements
Page 3
<PAGE>
MINING SERVICES INTERNATIONAL
Notes to Consolidated Financial Statements
(Unaudited)
NOTE 1: BASIS OF PRESENTATION
The interim financial information for the three months ended March 31,
1998 included herein is unaudited and the December 31,1997 Balance Sheet is
derived from audited financial statements; 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-Q and consequently may not include all the
disclosures normally required by the generally accepted accounting principles or
those normally made in the annual 10-K filing. Financial information relating to
depreciation contained in the Management's Discussion and Analysis of Financial
Condition and Results of Operations are incorporated by reference into these
notes.
The results of operations for the three-month period ended March 31,
1998 are not necessarily indicative of the results to be expected for the full
year.
NOTE 2: SIGNIFICANT ACCOUNTING POLICIES
Because of the increasing investment of the Company in joint ventures
("JV" or "JV's") which are not consolidated, but accounted for under the equity
method, the following comparative schedule is prepared to clarify and
demonstrate the Consolidated Revenue of the Company during the periods ending
March 31, 1998 and 1997. As demonstrated in the schedule, the Company's
consolidated Revenue includes its share of equity in earnings from JV's:
<TABLE>
<S> <C> <C> <C> <C> <C> <C>
Non Consolidated Amount MSI's MSI's
Joint Venture Joint Venture Equity Included in Non-JV Consolidated
Sales Net Income MSI MSI Revenue Revenue Revenue
1st Qtr 1998 $ 7,720,000 $ 2,074,000 50% $1,037,000 $ 5,812,000 $ 6,849,000
1st Qtr 1997 $ 9,306,000 $ 2,950,000 50% $1,475,000 $ 5,270,000 $ 6,745,000
Note: MSI does not consolidate revenues from 50% or less controlled joint ventures
</TABLE>
NOTE 3: INVENTORIES
Inventories at March 31, 1998 and December 31, 1997 have been recorded
at the lower of cost or market, cost being determined on the first in first out
(FIFO) method. The composition of inventories at March 31, 1998 and December 31,
1997 are as follows:
<TABLE>
<S> <C> <C>
March 31, 1998 December 31,1997
----------------------- ----------------------
Raw Materials $ 542,000 $ 407,000
Finished Goods $ 402,000 $ 423,000
----------------------- ----------------------
$ 944,000 $ 830,000
======================= ======================
</TABLE>
Page 4
<PAGE>
Item 2 Management's Discussion and Analysis of Financial Condition and Results
of Operations
Three-months ended March 31, 1998 vs. 1997
Net income from operations decreased $465,000 or 28% in the first
quarter of 1998 compared to the first quarter of 1997. In the same period
comparisons, income from the cyanide joint venture decreased $409,000 with
reduced cyanide revenues of $2,473,000 primarily due to reduction of cyanide
prices and volume as the gold mines high graded their ore deposits to reduce
operating costs in response to lower gold prices. Revenues from explosives
increased $542,000, or 9%, comparing the first quarters of 1998 to 1997. Net
income associated with explosives operations, comparing the same periods,
increased by $187,000 which was offset by increased international marketing
costs of approximately $30,000 and a decrease of $200,000 due to development at
the West Virginia EMGEL(R) plant. The increased costs at the West Virginia Plant
are expected to be recovered as profitable operations are reached beginning in
the 2nd or 3rd quarter of 1998. The plant should achieve better efficiencies as
capacity is reached to meet the demand due to significant acceptance of the
EMGEL(R) product line in the eastern coal and construction markets. During March
and April 1998, for example, the West Virginia operation operated at just below
breakeven.
The joint ventures in explosives increased revenues by $887,000 or 73%
comparing the three months ended March 31, 1998 to the same period in 1997. The
Company expects continued revenue growth and income contributions from
explosives in the U.S. and international joint ventures during 1998 assuming
world economies remain stable or continue to improve. Recent progress with
railroads in Colombia for coal export should have a positive long-term impact on
the Company's joint venture there. Monthly production in Uzbekistan more than
doubled from March to April during 1998 reaching about 900 tons or $425,000 of
revenue. Assuming continued capital availability in Uzbekistan, production
should continue to increase in 1998. The Company also expects the cyanide
business to increase during the remainder of 1998 assuming gold prices remain
sufficiently stable or increase. The Company's joint venture is prepared to
aggressively market its product to reach plant capacity.
Liquidity and Capital Resources
The Company continues to strengthen its financial position during the
first quarter of 1998. During May 1998 the Company renewed its revolving line of
credit with its bank in Salt Lake City, Utah in the amount of $2,250,000 bearing
interest at the bank's prime rate less 3/4 % or LIBOR plus 2.2% and an equipment
line of credit of $1,250,000 bearing interest at the bank's prime rate less 3/4%
or LIBOR plus 2.2% secured by equipment. $1,000,000 of the revolving line of
credit is available to be used for the increasing demand for Letters of Credit
internationally. On May 8, 1998, the Company has no balance owing on any of its
lines of credit. During the first quarter the revolving line of credit was not
utilized. There was no interest expense for the first three months of 1998
compared to $12,000 in the first three months of 1997.
Net increase in cash was $915,000 for the quarter ended March 31, 1998
compared to $521,000 for the same period in 1997 or an increase of $394,000.
However, the Company expects to utilize much of its cash resources in several
international transactions during the remainder of 1998. Property, plant and
equipment at March 31, 1998 was $10,338,000 compared to $9,684,000 at March
31,1997. Accumulated depreciation at March 31, 1998 was $6,224,000 compared to
$5,761,000 at March 31, 1997.
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 5
<PAGE>
PART II. OTHER INFORMATION
Item 6: Exhibits and Reports on Form 8-K
No reports on Form 8-K have been filed during the quarter ended March
31, 1998 or during the period covered by this report. No additional exhibits
have been filed as part of this report.
Page 6
<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)
May 15,1998 /s/ Lex L. Udy
------------------ --------------------------------
(Date) Lex L. Udy
Vice Chairman and Secretary
/s/ Duane W. Moss
-------------------------------
Duane W. Moss
Chief Financial Officer
Page 7
<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-Q (ITEM 8) FOR THE
QUARTER ENDED MARCH 31, 1998 AND IS QUALIFIED IN ITS ENTIRETY BY REFERENCE TO
SUCH FINANCIAL STATEMENTS.
</LEGEND>
<S> <C>
<PERIOD-TYPE> 3-MOS
<FISCAL-YEAR-END> DEC-31-1998
<PERIOD-END> MAR-31-1998
<CASH> 2,075,000
<SECURITIES> 0
<RECEIVABLES> 3,635,000
<ALLOWANCES> 12,000
<INVENTORY> 944,000
<CURRENT-ASSETS> 7,209,000
<PP&E> 10,338,000
<DEPRECIATION> 6,224,000
<TOTAL-ASSETS> 25,446,000
<CURRENT-LIABILITIES> 1,820,000
<BONDS> 0
0
0
<COMMON> 7,000
<OTHER-SE> 21,397,000
<TOTAL-LIABILITY-AND-EQUITY> 25,446,000
<SALES> 5,337,000
<TOTAL-REVENUES> 6,849,000
<CGS> 5,250,000
<TOTAL-COSTS> 5,670,000
<OTHER-EXPENSES> (9,000)
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 0
<INCOME-PRETAX> 1,188,000
<INCOME-TAX> 392,000
<INCOME-CONTINUING> 796,000
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 796,000
<EPS-PRIMARY> 0.11
<EPS-DILUTED> 0.11
</TABLE>
