----------------------------------------------------------------------
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, 1999.
[ ] 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 10, 1999 was 7,339,760.
-------------------------------------------------------------------------
<PAGE>
<TABLE>
<CAPTION>
Mining Services International Corporation
Index
Page No.
Part I Financial Information
<S> <C> <C>
Item 1. Consolidated Balance Sheet (Condensed) March 31, 1999 and 1
December 31, 1998.
Consolidated Statement of Operations (Condensed) for the three 2
months ended March 31, 1999 and March 31, 1998.
Consolidated Statement of Cash Flows (Condensed) for the three 3
months ended March 31, 1999 and March 31, 1998.
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
</TABLE>
<PAGE>
PART I. FINANCIAL INFORMATION
Financial Statements
<TABLE>
<CAPTION>
MINING SERVICES INTERNATIONAL CORPORATION
Consolidated Balance Sheet (Condensed)
March 31, 1999 December 31,1998
ASSETS (Unaudited)
Current assets:
<S> <C> <C>
Cash $ 236,000 $ 314,000
Receivables, net 6,738,000 6,050,000
Inventories 1,677,000 1,721,000
Prepaid expenses 181,000 126,000
Current portion of related party notes receivable 435,000 435,000
------------------------ ----------------------
Total current assets 9,267,000 8,646,000
Investments in and advances to joint ventures 13,632,000 13,371,000
Property, plant and equipment, net 6,809,000 6,248,000
Goodwill 2,187,000 2,243,000
Related party notes receivable 1,190,000 1,190,000
Other assets 222,000 221,000
------------------------ ----------------------
$ 33,307,000 $ 31,919,000
======================== ======================
LIABILITIES AND SHAREHOLDERS' EQUITY
Current liabilities:
Accounts payable and accrued expenses $ 3,894,000 $ 2,943,000
Current portion of long-term debt 927,000 1,154,000
------------------------ ----------------------
Total current liabilities 4,821,000 4,097,000
Long-term debt 1,389,000 1,213,000
Deferred income taxes 2,532,000 2,532,000
------------------------ ----------------------
Total liabilities 8,742,000 7,842,000
------------------------ ----------------------
Stockholders' equity:
Common stock, $.001 par value; 500,000,000 shares
authorized; 7,339,760 shares issued 7,000 7,000
Capital in excess of par value 5,443,000 5,443,000
Cumulative foreign currency translation adjustments (242,000) (242,000)
Retained earnings 19,357,000 18,869,000
------------------------ ----------------------
Total stockholders' equity 24,565,000 24,077,000
------------------------ ----------------------
$ 33,307,000 $ 31,919,000
======================== ======================
See accompanying notes to financial statements
Page 1
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
MINING SERVICES INTERNATIONAL CORPORATION
Consolidated Statement of Cash Operations (Condensed)
(Unaudited)
3 months ended 3 months ended
3/31/99 3/31/98
------------------------ ----------------------
Revenues:
<S> <C> <C>
Net sales $ 6,369,000 $ 5,337,000
Royalties 270,000 449,000
Equity in earnings from joint ventures 927,000 1,063,000
------------------------ ----------------------
7,566,000 6,849,000
Cost and expenses:
Cost of sales 6,082,000 5,250,000
General administrative 578,000 303,000
Research and development 98,000 117,000
------------------------ ----------------------
6,758,000 5,670,000
------------------------ ----------------------
Income from operations 808,000 1,179,000
Other income (expense), net (69,000) 9,000
------------------------ ----------------------
Income before provision for income taxes 739,000 1,188,000
Provision for income taxes 251,000 392,000
------------------------ ----------------------
Net income $ 488,000 $ 796,000
======================== ======================
Weighted Average number of shares outstanding
Basic 7,368,000 7,352,000
======================== ======================
Diluted 7,493,000 7,570,000
======================== ======================
Net Income per Share
Basic $ .07 $ .11
======================== ======================
Diluted $ .07 $ .11
======================== ======================
See accompanying notes to financial statements
Page 2
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
MINING SERVICES INTERNATIONAL CORPORATION
Consolidated Statement of Cash Flows (Condensed)
(Unaudited)
3 months ended 3 months ended
3/31/99 3/31/98
------------------------ ----------------------
Cash flows from operating activities:
<S> <C> <C>
Net income $ 488,000 $ 796,000
Adjustments to reconcile net income to net cash
provided by operating activities:
Depreciation and amortization 281,000 184,000
Stock compensation expense 0 3,000
Gain on disposal of equipment (4,000) 0
Distributed/(undistributed) earnings in joint ventures 73,000 (63,000)
Change in assets and liabilities:
(Increase) decrease in accounts receivable (688,000) 609,000
(Increase) decrease in inventories 44,000 (114,000)
(Increase) decrease in prepaid expenses (55,000) 7,000
(Increase) decrease in other assets (1,000) 44,000
Increase (decrease) in accounts payable and accrued expenses 951,000 (54,000)
------------------------ ----------------------
1,089,000 1,412,000
------------------------ ----------------------
Cash flows from investing activities:
Proceeds from sale of plant and equipment 47,000 0
Purchase of plant and equipment (829,000) (176,000)
Investment in joint ventures (334,000) (321,000)
------------------------ ----------------------
Net cash used in investing activities (1,116,000) (497,000)
------------------------ ----------------------
Cash flows from financing activities:
Net proceeds from operating line of credit 18,000 0
Proceeds from issuance of long-term debt 250,000 0
Payments on long-term debt (319,000) 0
------------------------ ----------------------
Net cash used in financing activities (51,000) 0
------------------------ ----------------------
Net increase (decrease) in cash (78,000) 915,000
Cash, beginning of period 314,000 1,160,000
Cash, end of first period $ 236,000 $ 2,075,000
======================== ======================
See accompanying notes to financial statements
Page 3
</TABLE>
<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,
1999 included herein is unaudited and the December 31, 1998 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,
1999 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, 1999 and 1998. As demonstrated in the schedule, the Company's
consolidated Revenue includes its share of equity in earnings from JV's:
<TABLE>
<CAPTION>
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
<S> <C> <C> <C> <C> <C> <C>
1st Qtr 1999 $7,501,000 $1,854,000 50% $ 927,000 $6,639,000 $7,566,000
1st Qtr 1998 $7,720,000 $2,126,000 50% $ 1,063,000 $5,886,000 $6,849,000
Note: MSI does not consolidate revenues from 50% or less controlled joint ventures
</TABLE>
NOTE 3: INVENTORIES
Inventories at March 31, 1999 and December 31, 1998 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, 1999 and December 31,
1998 are as follows:
<TABLE>
<CAPTION>
March 31, 1999 December 31, 1998
--------------------- -----------------
<S> <C> <C>
Raw Materials $ 674,000 $ 707,000
Finished Goods $ 1,005,000 $ 1,014,000
--------------------- ---------------
$ 1,679,000 $ 1,721,000
===================== ===============
</TABLE>
Page 4
<PAGE>
Item 2 Management's Discussion and Analysis of Financial Condition and
Results of Operations
Three-months ended March 31, 1999 vs. 1998
Net income from operations decreased $371,000 or 32% in the first
quarter of 1999 compared to the first quarter of 1998. Compared to the same
period in 1998, net income from U.S. explosives operations decreased $171,000
primarily due to Green Mountain Explosives, Inc. (GME), a wholly owned
subsidiary acquired in December 1998. Normal seasonal effects and poor weather
conditions in the North Eastern U.S. during the period delayed much of the
construction activity from which GME generates revenues. The results of GME
operations are expected to improve, and it is anticipated that the loss of
income during the period will be regained in the 2nd and 3rd quarter of 1999.
GME revenues for April alone are expected to approach $900,000. Income from the
Company's Colombian joint venture decreased $156,000 as continued lower coal
prices caused the joint venture's largest customer to curtail production for
spot market sales until rail and port facilities are completed to facilitate
economic transportation. Income from royalties decreased $179,000 or 40%. The
majority of the decrease in royalty income occurred because of a transition in a
contract with a South Korean company. The contract contained higher start-up
related revenues, occurring in 1st quarter 1998, which transitioned to lower
revenues related to a steady state of production during the 1st quarter of 1999.
Royalty income was also affected by the decrease in production from other
licensees.
Net sales revenue increased by $1,032,000 or 19% for the three months
ended March 31, 1999 compared to the same period in 1998. This increase was
primarily related to 1st quarter revenues from GME of $1,019,000. Of the
$275,000, or 91% increase in general administrative expenses, $246,000 or 81% of
the increase from the prior period consists of the administrative expenses of
GME. Other expenses increased from the prior period by $78,000. The increase
consists primarily of an increase in exchange losses of $40,000 and an increase
in interest expense of $40,000 due primarily to the acquisition of GME.
Liquidity and Capital Resources
The Company had $680,000 owing on its line of credit at March 31, 1999.
During the three months ended March 31, 1999, the Company had utilized as much
as $1,199,000 of its line of credit. Interest expense related to the line of
credit was $8,000 for the period compared to no interest expense for the same
period in 1998. The line of credit was primarily used to increase the Company's
investment in its Kovdor, Russia joint venture and to fund the construction of
the manufacturing facility of its wholly owned subsidiary, O'Brien Design
Associates, Inc.
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)
/s/ Lex L. Udy
-----------------------------
May 15,1999 Lex L. Udy
(Date) Vice Chairman and Secretary
/s/ Duane W. Moss
-----------------------------
Duane W. Moss
Chief Financial Officer
Page 7
<PAGE>
<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, 1999 AND IS QUALIFIED IN ITS ENTIRETY BY REFERENCE TO
SUCH FINANCIAL STATEMENTS.
</LEGEND>
<S> <C>
<PERIOD-TYPE> 3-MOS
<FISCAL-YEAR-END> DEC-31-1999
<PERIOD-END> MAR-31-1999
<CASH> 236,000
<SECURITIES> 0
<RECEIVABLES> 6,775,000
<ALLOWANCES> 37,000
<INVENTORY> 1,677,000
<CURRENT-ASSETS> 9,267,000
<PP&E> 13,646,000
<DEPRECIATION> 6,837,000
<TOTAL-ASSETS> 33,307,000
<CURRENT-LIABILITIES> 4,821,000
<BONDS> 1,389,000
0
0
<COMMON> 7,000
<OTHER-SE> 24,558,000
<TOTAL-LIABILITY-AND-EQUITY> 33,307,000
<SALES> 6,369,000
<TOTAL-REVENUES> 7,566,000
<CGS> 6,082,000
<TOTAL-COSTS> 6,758,000
<OTHER-EXPENSES> 69,000
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 0
<INCOME-PRETAX> 739,000
<INCOME-TAX> 251,000
<INCOME-CONTINUING> 488,000
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 488,000
<EPS-PRIMARY> 0.07
<EPS-DILUTED> 0.07
</TABLE>
