Item 1. Business. - ------- ---------
Development of Business
American Nuclear Corporation, the Company, was incorporated in 1955 as one of the first uranium exploration companies formed after the commercial importance of uranium as a source of energy and fuel was realized. The Company acquired uranium mining properties by locating mining claims and purchasing other mining claims.
Uranium Mining for Atomic Energy Commission and Others
Starting in 1959 the Company was engaged, with its partner, Federal Resources Corporation, in mining and milling uranium concentrates in the Gas Hills area in central Wyoming for sale to the U.S. Atomic Energy Commission and various utilities that supply electricity. The mining was conducted by open pit surface mining, a method of mining that is subsequently described in this report under Item 2, Properties. The mill was also operated on a custom basis to mill uranium ores for other uranium producers. The Atomic Energy Commission discontinued purchases in 1971 when its inventory goals and strategic plans were met and a United States uranium industry had been created. The partnership continued to operate its mill for producing its own properties and custom milling of uranium ores for other producers for sales to commercial users.
Expansion of Uranium Industry in the 1970's
The modern uranium industry was shaped in the 1970s in response to growth in nuclear power generation by utilities. The embargoes of imports of foreign oil in the early 1970s caused an energy crisis in the United States and resulted in increased construction of nuclear power plants and plans for more plants. Demand for uranium increased significantly from spot prices for short-term deliveries of less than $10 per pound of uranium concentrate in 1971 to more than $40 per pound by 1978.
Tennessee Valley Authority Agreements
In 1972 the Company entered into an arrangement with the Tennessee Valley Authority (TVA), an agency wholly owned by the United States, for the joint acquisition of uranium properties to be produced for use by TVA to fuel its nuclear power plants. In 1973 Federal American Partners leased its mining properties to TVA. From 1979 through 1982, the partnership mined its properties and milled its ores for TVA. In the late 1970's annual production reached a level of 1.2 million pounds of uranium concentrates per year. TVA discontinued the operations in 1982 because world-wide production of uranium concentrates exceeded demand and it cost less to purchase from inventoried uranium stocks than to mine and mill. A total of 14.5 million pounds of uranium concentrates had been produced through the mill over its operating life.
Termination of Tennessee Valley Authority Agreements
In 1984 the Company acquired the uranium mill and associated lands from the partnership, and it also acquired approximately one- half of the uranium lands it had jointly held and explored with TVA. Today these lands remain the base of the Company's approximately 14,800 acres of uranium properties that are being offered for sale. Please see Item 7, "Liquidity and Capital Resources" section of this report for more detail.
In 1984 TVA also placed approximately $3.8 million cash in a $4.1 million reclamation bond fund with the Wyoming Department of Environmental Quality (DEQ) to assure the DEQ and the U.S. Nuclear Regulatory Commission (NRC) that the reclamation obligations of TVA, the Company and the partnership for the mill site would ultimately be performed. The fund is the property of the Company, but withdrawal remains subject to the surety provisions for the benefit of the state of Wyoming. Starting in 1984, the Company received the interest earnings and capital gains from the reclamation fund. The Company began reclamation of the land at the mill site in 1984. TVA also entered into a management agreement with the Company under which, in exchange for management fees, the Company closed the mining operations, returned leased mining equipment, and sold the other mining equipment for TVA's account. The Company's entire financial obligation to TVA for the Company's cost of acquiring and exploring its interests in the uranium properties was eliminated.
Status of Uranium Business
Since the Tennessee Valley Authority terminated its mining activities in 1982 that were conducted through the Company's partnership called Federal American Partners, the Company has not been engaged in mining or milling uranium. The Company has identified significant quantities of uranium resources in the ground among its uranium properties that may be amenable to mining by in situ mining methods. In situ mining is less expensive than the open pit mining methods previously employed. The market for uranium remains depressed, however, and it would not be economically feasible to mine the Company's uranium properties at current prices. Imports of foreign uranium at low prices, especially from Russia and Canada, have continued to dampen prices. In 1993, spot prices for short-term deliveries of uranium were approximately $9.50 per pound. For a more complete discussion of the uranium properties, see Item 2, Properties.
Reclamation of Mill Site and Tailings Ponds
Based upon the Company's determination that use in the future of its uranium processing mill would not comply with the revised licensing requirements of the NRC, the Company began demolition of the mill in 1988 and completed that work in 1989. Since then the Company has undertaken substantial reclamation work on the mill site as required by the NRC and the DEQ. The mill and associated buildings have been dismantled and the building materials buried in one of the two adjacent tailings ponds where the processed ores produced by the mill (mill tailings) were impounded after milling. The mill tailings in the two impoundments have been graded by earth moving equipment into mounds covering approximately 40 and 80 acres
respectively. A cover of native earth has been placed over the mounds of mill tailings, and the tailings piles are being allowed to settle and compact naturally. The remaining reclamation work consists of filling and shaping the side slopes of the tailings piles to such a grade as to preclude soil erosion and exposure of the tailings, placing a final cover of earth over the tailings to limit emission of radon gas into the atmosphere to meet Environmental Protection Agency (EPA) standards, and revegetating and fencing the site. In 1992 the Company submitted to the NRC an alternate design to its original reclamation plan in order to meet new NRC criteria for long term stability of the tailings impoundments. The principal modification the Company has proposed to the NRC utilizes a rock mulch for erosion protection instead of native vegetation. Due to delay by the NRC in responding to the proposed reclamation design, the Company has requested the NRC to extend by one year the requirement for placing radon barrier material on tailings impoundment number 2 by December 31, 1994. The NRC is not expected to respond to the Company's request until mid 1994. If the NRC does not grant the requested extension, the Company may be unable to complete the required work in the limited time remaining after the NRC approves the reclamation design.
Reclamation work will continue at minimal levels until the NRC approves a new design. At that time the Company expects the reclamation process to continue at an active level until approximately 1997. Thereafter environmental monitoring and ongoing reclamation obligations at reduced levels of activity are expected to continue for at least five additional years until the reclamation requirements for stabilization of the tailings are deemed satisfied by the NRC, DEQ and EPA. At that time the site will be transferred to the Department of Energy or State of Wyoming as required by law.
Byproduct Material Disposal
Starting in 1990 the Company shifted most of its efforts to a new, developing industry of byproduct material disposal. The byproduct material consists of waste generated from ores processed by others for their uranium or thorium content. Federal regulations require the generators of these low level radioactive materials to dispose of them in licensed depositories.
In part because the Company's mill site is undergoing reclamation work to stabilize the mill tailings, which are low level radioactive materials, the NRC initially granted permission in the fall of 1990 for the Company to accept byproduct materials totaling 1,100 cubic yards from four generators under four specific waste disposal contracts. After the NRC authorized receipt of the initial byproduct material, the NRC amended the Company's license in September of 1991 to authorize it to receive and dispose of an additional 12,500 cubic yards of material from other sources.
The material terms of the disposal contracts already completed, as well as the proposed terms of any future contracts, require the generator of the byproduct materials to deliver them to the Company's mill site. The contracts require the generator to pay the contract charges for each shipment of materials, usually within thirty days after delivery of a shipment.
The byproduct material is placed on the surface of the mill tailings impoundment number 1, compacted and covered with an interim cover of native soils. The addition of the byproduct materials reduces the volume of earthen fill material that must be placed on the mill tailings to meet the reclamation design requirements.
Byproduct material is expected to originate at past and present uranium mining and milling locations owned by others throughout the western region of the United States. There has been no readily available outlet for disposal of these types of waste, and the availability of the Company's reclamation project for such disposal is consistent with federal policy to limit proliferation of small disposal sites.
Based upon income received on account of the initial five contracts, the Company generated revenue of $322,624, $318,814, and $120,352 from operations in 1993, 1992, and 1991, respectively. Additional materials will be delivered under one of the existing contracts during 1994 that will utilize a $16,500 prepayment already received during January 1994.
Marketing of Disposal Contracts
The additional licensed space remaining available for disposal of byproduct materials at December 31, 1993 could be sold and used in a single season. That is not likely, however, because the Company has previously experienced difficulty in obtaining disposal contracts. While the Company has identified and solicited disposal contracts from other parties who hold byproduct materials in quantities that exceed its permitted volume and that must eventually be relocated to licensed disposal sites, few of the generators face short-term deadlines for disposing of their material. Their reluctance to incur the costs of transportation and disposal any earlier than necessary and the continuing lack of a federal deadline for disposal are the primary reasons that the Company has not obtained as many disposal contracts as expected.
The Company believes its permitted disposal space will not be available if not utilized by the end of 1995 because the approved reclamation plans call for work during 1996 to close the site during that year. In order to generate revenues and to improve upon its own marketing efforts, the Company granted exclusive marketing rights to American Ecology Corporation (AEC) during September 1993 for 10,000 cubic yards of the Company's permitted disposal space. AEC operates low level radioactive waste disposal facilities and is engaged in other waste management business and services. Net profits from any disposal contract revenues are to be shared equally by the Company and AEC. AEC paid $202,500 when the contract was executed as an advance to the Company against its share of potential disposal revenues. A second advance by AEC in the same amount was not paid when expected in February 1994. AEC's position is that the second advance was not due then because the NRC did not by that date issue its policy allowing for the co-disposal of byproduct materials together with similar materials containing low level radioactive waste. Instead the NRC plans to consider applications for disposal of such similar materials at byproduct material sites on a case by case basis. AEC has not procured any contracts with generators of such materials. The Company will submit an application to the NRC for its consent to dispose of these similar materials in the
Company's permitted space after a contract is obtained. The NRC is not expected to act on any application until at least several months after its submittal. There are no assurances that AEC will produce any disposal contracts or pay any additional money for disposal or that NRC approval of disposal of any materials will be obtained. If AEC does not recover its advance deposit of $202,500 from disposal revenues generated through the Company's disposal services, AEC is entitled to receive shares of the Company's common stock. The stock would be issued at the rate of the stocks' average of the thirty day trailing closing sales price at the time of exercise.
Abandonment of Efforts to License Commercial Byproduct Disposal
During 1993 the Company abandoned its efforts to obtain licenses from the NRC and DEQ to establish a commercial byproduct disposal business near its mill site that is undergoing reclamation. In order to complete the required environmental studies, continue to pursue its license applications, and take other steps for opening such a business, the Company sought to raise $5 million to $8 million through private placements of its common stock. When this effort proved unsuccessful in mid-1993, the Company terminated further efforts to enter the commercial byproduct disposal business.
Business Focus
The Company has not realized adequate revenues from its byproduct disposal business to fund its operations, and since 1991 has relied for a large part on its operating capital upon loans by Cycle Resource Investment Corporation (CRIC), holder of approximately 30 percent of the Company's outstanding stock. The Company has been unable to obtain additional loans from CRIC or any other source. The Company's efforts to raise capital by placement of its common stock have not been successful. The Company has not been able to obtain joint ventures or long term supply contracts for exploitation of its uranium properties in the future when market prices for uranium are expected to be higher.
In order to repay its loan to CRIC and to raise additional capital to continue its reclamation work over the next several years as required by law, the Company has offered its uranium properties for sale at the highest price received. Several prospective buyers have expressed interest in purchasing the uranium properties, but no purchase offers have been received. The Company expects to receive purchase offers in the spring of 1994 and to submit the best offer it receives to a vote of its shareholders at the 1994 meeting of shareholders. There are no assurances that the properties will be sold during 1994 or if sold, that the purchase price or terms will be adequate to meet the Company's needs, either short-term or long-term.
Upon a sale of its uranium properties, the Company will retain its byproduct disposal operations through 1995 and continue to be obligated for long-term reclamation work associated with the mill site. Unless firm contracts for disposal made during the remainder of 1994 and 1995 substantially increase over the past levels or the sale of uranium properties produces more proceeds that the amount required to repay the CRIC loans, neither of which is assured, the Company's activities will be restricted to its limited cash, if any. The Company intends to pursue its reclamation obligations. If the Company is unable, for lack of funds or otherwise, to continue
reclamation work on a schedule that meets the deadlines or milestones fixed by the NRC, the agencies could take possession of the reclamation bond fund to complete the work. If the bond fund were inadequate to complete reclamation and to establish an additional fund to assure long-term stabilization of the mill tailings, the agencies could seek judgments against the Company.
Changes in Fiscal Year
Effective December 31, 1991, the Company changed its fiscal year end from May 31 to December 31 to better match the seasonal nature of its business operations. The byproduct disposal business involves earth moving. Drilling for uranium and other maintenance of mining claims also requires field work. These activities start after the ground has thawed and dried in the spring, and they are concluded before the harshest winter months. A fiscal year that is the same as the calendar year, therefore, better reflects a complete business cycle and will enable application of revenues from operations conducted early in the year to expenses incurred that year.
Financial Information About Industry Segments
Beginning with the seven-month period from June 1 to December 31, 1991, the Company entered into the business of uranium byproduct material disposal. Between 1982 and that time, the Company's only business was winding down its former mining operations with the partnership and TVA, its reclamation activities, and the maintenance of its uranium properties with the intent of eventually producing uranium concentrate. See Note 1 to the financial statements included in Item 14 of this report.
The Company has no foreign operations or export sales. It has not segregated its business activities into geographic areas within the United States except to the extent that its operations are located within Wyoming.
Other Business Factors
The Company's byproduct materials disposal business activities are highly regulated. The presently licensed disposal activities are subject to NRC and DEQ licensing authority and jurisdiction.
The Company has a restricted cash deposit of approximately $3.0 million with the Wyoming DEQ to cover the ultimate reclamation costs of its mill site. The Company, DEQ and NRC have estimated that the actual costs remaining for reclamation are approximately between $2.7 and $3 million. There is always some risk that the regulations may be changed and that the amount required to perform the reclamation under such new regulations may increase. Based upon discussions with representatives of the agencies about potential changes and also based on current contract prices obtained by third parties for similar reclamation work in the area, the Company believes any potential increases would be in the range of 10 to 15 percent and that they could be offset by either byproduct disposal revenue or the interest earned on the $3 million reclamation deposit.
Employees
As of December 31, 1993, the Company had four full-time employees.
Item 2.
Item 2. Properties
In addition to the mill site under reclamation that is also used for uranium byproduct material disposal as previously described in this report, the Company holds uranium properties that may be developed for the production and sale of uranium concentrates if justified by future price increases. The properties primarily consist of blocks of unpatented mining claims located on the public domain of the United States in the Gas Hills area of central Wyoming. During 1993 the Company discontinued this business segment and began actively marketing the properties for sale to the highest bidder.
Peach Properties
The Company's principal uranium holdings are the Peach properties which cover approximately 2,700 acres. They are composed of a several contiguous groups of unpatented mining claims located in the Gas Hills area of Central Wyoming. A valuable mineral deposit has been delineated by extensive development drilling, and both open pit and underground mine plans have been prepared for possible future use. The properties may also be suitable for mining by in situ mining techniques, and the Company has previously performed preliminary studies of the suitability of the deposit for production by this mining method. Mining by any method requires an increase in the price for uranium concentrates, a long term supply contract, and financing for the project, none of which are now available to the Company.
The Peach properties are subject to a mortgage dated May 20, 1991 by which the Company mortgaged its properties to Cycle Resource Investment Corporation (CRIC), the mortgagee and a shareholder of the Company. The principal balance of the CRIC mortgage as of December 31, 1993 was $2,031,200. Since cash flow was not sufficient to repay the note on the August 31, 1993 due date, CRIC and the Company signed a forbearance agreement extending the notes to June 30, 1994. Upon default, CRIC could foreclose on the Peach properties if it so decides. NUKEM, Inc. owns 100 percent of CRIC which in turn owns 30% of the Company's common stock. NUKEM, Inc. is a New York corporation located in Stamford, Connecticut, that is a wholly owned subsidiary of NUKEM, GmbH, a German corporation located in Alzenau, Germany that in turn is a wholly owned subsidiary of RWE AG, a Germany corporation. RWE is publicly held, and is the largest electric generating utility in Germany and the eighth largest in the world. It is also a worldwide conglomerate active in the production and marketing of petroleum products, coal, uranium, chemicals, and electrical generating equipment. RWE also is active in waste processing and environmental protection and reclamation services.
Sweetwater Properties
The Sweetwater properties cover approximately 9,700 acres of unpatented mining claims that are located adjacent to the Peach properties on the Sweetwater Plateau, a topographic feature in the
southern Gas Hills uranium area. Wide-spaced drilling conducted on the Sweetwater properties has disclosed uranium in numerous drill holes. The Company has retained the Sweetwater properties in anticipation of future favorable market conditions for uranium concentrates from the properties.
Other Gas Hills Uranium Properties
The Company also owns varying undivided interests, ranging from 13% to 100% undivided interests as tenants in common in unpatented mining claims covering approximately 3,100 acres in the Gas Hills area near the Peach and Sweetwater properties. Mineralization has been found by drilling on some of these properties. Sufficient drilling has not been performed on these properties to assess the extent of the mineralization, that is, evidence of uranium minerals, or to determine if the properties can be economically produced.
Nature of Title to Mining Claims
Acquisition of mining claims on those parts of the public domain not reserved or withdrawn by the government from location of claims is a right granted by the federal mining law. Explorers for minerals such as uranium are entitled to go upon the land and search for minerals. To initiate mining claims, a locator establishes or locates single claims as a contiguous block of claims by marking the boundaries upon the surface, posting notices of the claims upon the surface, and recording notices in the local county records as well as filing them with the Bureau of Land Management office in the state in which they are located.
Upon location, a person searching for uranium by exploratory drilling or other geological methods is entitled to exclusive possession of the land encompassed by the claim or block of claims. Upon discovery of a valuable mineral deposit, the possessory right ripens into a vested interest in real property. Mining claims are interests in real property that may be sold and conveyed.
A rival locator is entitled by law to contest the validity of another's claims. The rival or junior location may show it has better possessory rights or vested property rights by proving in a judicial proceeding that the senior claimant has not met the requirements for establishing or maintaining the claim or block of claims, and that the rival locator has the better right by virtue of its own entry onto the lands, relocation of the land for its own claims, and either continuous possession while in pursuit of discovery or actual discovery of a valuable mineral deposit.
The Company and other owners of mining claims have no obligation to seek a patent from the government, that is, an instrument conveying the government's record title. Without a patent, a locator or subsequent owner of unpatented mining claims is entitled to mine them and remove and sell the minerals without payment of a royalty or other charges to the government. If a patent is obtained from the United States, the entire record and beneficial interest vests in the patentee, and the claims are no longer subject to defeasance by either the government or a rival locator.
Some of the Company's unpatented mining claims were located by it in the 1950s and 1960s. Other of its claims were acquired from other locators in the 1970s. All the Company's mining claims, like those previously mined for its benefit, are unpatented. The Company has no intention to seek patents to its mining claims at this time. In March 1993 the Department of the Interior placed a moratorium upon issuance of patents pending resolution of proposed changes in the federal mining law.
Mining Claim Rental Fees and Royalties
According to a federal law adopted in 1992, in order to maintain title to mining claims after their location, an owner must pay annual rental fees of $100 per claim to the Department of the Interior. Upon failure to pay a filing fee, the Bureau of Land Management declares the claim void and terminated.
Proposed amendments to the mining law now pending in Congress are expected to include imposition of a royalty on production of minerals. The royalty rates being debated in Congress range up to eight percent of gross proceeds, a rate that would make mining uneconomic in many cases.
Abandonment of Mining Claims
On August 31, 1993 the Company abandoned, through non-payment of the $200 per claim annual fees due on that date for 1993 and 1994, 870 mining claims with a remaining book value of $543,826. The claims abandoned represented approximately 54% of the Company's mineral acreage and approximately 5% of its remaining investment. During December 1993 a mineral property impairment of $3 million for the remaining mining claims was recorded. This represents a 31% reduction of the property valuation. During 1992 there were no property abandonments or mineral property impairments, while during 1991 the Company recorded abandonments of $115,212 and mineral property impairments of $3,180,000.
Mining Methods
A uranium deposit, once identified and developed, may be produced and the minerals extracted by one of three mining methods. These are surface mining, underground mining, and in situ solution mining.
Surface mining by the open pit method is generally used for ore bodies located within approximately 500 feet of the surface. Open pit mining requires removal and saving of the topsoil for later reclamation, removal of the dirt and rock overlying the mineral deposit, digging a pit into the earth to expose the mineral deposit, mining the ore by heavy shovels which load it into large trucks for hauling to an uranium processing mill where the uranium concentrates are extracted, and reclaiming the spent ores, called mill tailings, as well as the open pit, to stabilized conditions consistent with pre-mining uses.
Mineral deposits found at depths greater than 500 feet are traditionally mined by underground mining methods. A large shaft is bored from the surface down to the mineral deposit. From there tunnels are bored laterally and perhaps vertically through the deposit. The ore is loaded onto railroad cars located underground, hauled to the shaft, lifted by hoists to the surface, and transported to a mill for processing.
In situ solution mining methods are often referred to as in situ leach or ISL mining. In the ISL process, groundwater fortified with solubilizing agents such as sodium bicarbonate (baking soda), for example, are injected into an ore body through a series of injection drill holes. The solutions penetrate the ore body and dissolve the uranium. The mineralized solutions are pumped to the surface through a recovery well for additional processing to extract the uranium concentrates. Solution mining is less labor and capital intensive than the traditional surface mining and underground shaft operations. The expense of licensing, constructing and operating a large uranium processing mill can be avoided because a less complex and less costly precipitation unit is adequate to separate the uranium concentrates from the solutions. ISL mining also usually requires less expense for reclamation because no open pits or large shafts are excavated and smaller quantities of processed waste comparable to mill tailings are produced. ISL processes are generally suitable for ore bodies not much deeper than 2,000 feet which are found in permeable underground formations that the solutions can penetrate, and that have confining layers of rock above and below the ore zone to concentrate the solutions in the ore body.
Because of the current low market price for short-term deliveries of uranium concentrates, approximately $9.50 a pound, the Company has been unable to commence mining. The future demand for uranium, and consequently the future price, is susceptible to a number of variables. The principal factors are importation of low- priced uranium, market requirements of nuclear power generators located around the world, and stockpiles of uranium concentrates, both domestic and foreign. As inventories of uranium concentrates are depleted, the need for uranium production should increase. The inventory of uranium available to the nuclear power industry has been declining, and the Company anticipates an eventual increase in uranium prices.
Market for Uranium
Most of the former uranium producers in the United States have suspended operations because of the current low market price of uranium. The current market for sales of uranium is being filled in large part by inventories of domestic concentrates and imported foreign concentrates. Some U.S. uranium producers are positioning themselves for production because world-wide inventories of uranium concentrates are declining. If current conditions persist, the established consumption level of uranium will exceed the available inventories and current annual production in several years, and demand for uranium may increase as a result of reduced supplies. New production typically requires three to five years of mine and mill permitting. New production can be expected from other producers, both domestic and foreign, to meet increases in demand.
The principal market for uranium concentrates consists of utility companies throughout the United States and other countries. The principal market for lands containing uranium which has not been mined, non-producing uranium properties, primarily consists of other mining companies, foreign utilities, and to a lesser extent, utility companies throughout the United States. Some of the utility companies purchase non-producing properties to assure themselves of a supply of uranium for their nuclear reactors. The Company's non- producing uranium properties consist of mining claims that may or may not have proven uranium deposits. Generally, the more a mineral bearing property is developed by drilling the more defined the ore body becomes, and in turn, the more valuable the property becomes. Only close-spaced drilling is adequate to permit reliable quantification of the grade and extent of uranium deposits. The Company's drilling in many cases is not sufficiently close-spaced to permit such quantification.
Marketing of non-producing uranium properties as well as uranium concentrates occurs through privately negotiated contracts, by open bid, or both. Uranium brokers may seek buyers and sellers of either uranium properties or concentrates for a commission. There are only a couple of brokers internationally that list uranium properties for sale, and the Company maintains contact with them although its properties are not currently listed through them for sale. There are only a few sales of uranium properties every several years, and each sale is unique.
Because of the immediate cash needs of the Company and the long term nature of uranium production and the associated risks involved, the Company must liquidate all or a portion of its uranium properties to continue operations and repay its debt obligations. The Company decided during 1993 to offer its properties for sale and hopes to sell them by June 1994. There are no assurances as to the selling price, terms of sale, or a sale completion date. Please see Item 7, "Liquidity and Capital Resources," in this report for additional details.
Item 3.
Item 3. Legal Proceedings. - ------ -----------------
There are no legal proceedings pending against the Company or its properties.
Item 4.
Item 4. Submission of Matters to a Vote of Security Holders. - ------ -------------------------------------------
No matters for decision were submitted to a vote of shareholders during the last calendar quarter of the year ended December 31, 1993.
PART II -------
Item 5.
Item 5. Market For Registrant's Common Equity and Related Stockholder Matters. - ------ -----------------------------------------
(a) Through January 1994 the common stock of the Company was traded over-the-counter on the NASDAQ national market system under the symbol ANUC. Effective February 1, 1994 the Company's common stock is being traded on the NASDAQ small cap market under the ANUC symbol. The range of high and low sales prices of the stock for each calendar quarter period during the past three years, as quoted by the National Association of Securities Dealers, Inc., are given in the following table, except that high and bid quotation prices are given for the first and second quarters of 1992 and the four quarters for 1991. The over-the-counter market quotations reflect inter-dealer prices, without retail mark-up, mark-down, or commission, and may not necessarily represent actual transactions.
The low and high prices for the stock on March 11, 1994 were $.16 and $.16.
(b) Based solely upon the number of record holders, the approximate number of stockholders of the common stock of the Company as of March 11, 1994 was 1734.
(c) No dividends have been declared with respect to the common stock during the fiscal years ended December 31, 1993 and 1992, the seven-month period ended December 31, 1991, or the previous fiscal year ended May 31, 1991.
4. NOTES PAYABLE TO STOCKHOLDER
The Company has notes payable with Cycle Resource Investment Corporation (CRIC), a major shareholder of the Company. The notes payable are collateralized by a security interest in substantially all of the Company's assets. The notes bear interest at 3% over prime of a New York bank (9.5% at December 31, 1993). Balances are as follows:
Average short-term borrowings were $1,871,875, $1,227,897, $554,000 and $358,000 with weighted-average interest rates of 9.50%, 9.54%, 11.67% and 10.96% for the year ended December 31, 1993 and 1992, and for the seven months ended December 31, 1991 and the fiscal year ended May 31, 1991. The maximum borrowed during each period was $2,031,200, $1,619,506, $737,000 and $448,000 for the years ended December 31, 1993 and 1992, for the seven months ended December 31, 1991 and the fiscal year ended May 31, 1991.
5. BYPRODUCT MATERIAL DISPOSAL CONTRACTS
The Company abandoned its efforts to develop a long-term commercial disposal business and charged the associated costs of $236,866 to expense during 1993. The Company has continued its short term disposal operations and entered into certain byproduct material disposal contracts and received advance payments related to the future performance of these services. The advance payments are recorded as deferred revenue and will be recognized as revenue when the Company takes delivery of the byproduct material.
6. INCOME TAXES
The Company adopted Statement 109, Accounting for Income Taxes, as of January 1, 1993. There was no cumulative effect of this change in accounting for income taxes. Prior years' financial statements have not been restated to apply the provisions of Statement 109.
The tax effects of the temporary differences that give rise to significant portions of the deferred tax assets and deferred tax liabilities at December 31, 1993 are presented below. The valuation increased approximately $1.2 million during 1993.
Deferred tax assets: Net operating loss carry forward $ 3,600,000 Estimated reclamation costs 400,000 Tax credit carry forwards 240,000
----------- Total gross deferred tax assets 4,240,000 Less valuation allowance (2,710,000) ----------- Net deferred tax assets $ 1,530,000
Deferred tax liabilities: Mining properties $(1,530,000) ----------- Net deferred taxes -0- ===========
At December 31, 1993 the Company had approximately $12.0 million of net operating loss carryovers which expire during 1997 through 2008. The Company also has investment tax and new jobs credit carryovers of approximately $40,000 and $200,000, respectively, which are available to be offset against future income taxes through 1999. The future utilization of both net operating loss and credit carry- overs are subject to rules and regulations of the internal revenue service that could be significant.
7. STOCKHOLDERS' EQUITY
The Company has authorized 25,000,000 shares of $.04 par value common stock. Changes in common stock issued and outstanding during the fiscal year ended May 31, 1991, the seven months ended December 31, 1991 and the years ended December 31, 1992 and 1993 were as follows:
Redeemable Preferred Stock --------------- The Company has authorized 15,000,000 shares of $1 par value Series A preferred stock with a liquidation value of $10.00 per share. There were no outstanding preferred shares during the periods ended December 31, 1993, 1992, 1991 or May 31, 1991.
Stock Warrants -------------
The Company has warrants outstanding for the purchase of 49,020 shares of common stock, exercisable at $0.875 per share, expiring August 26, 1994.
Employee Stock Ownership Plan ------------------------------ The Company had an Employee Stock Ownership Plan (ESOP) for the benefit of its employees. Contributions to the Plan were made at the Company's discretion. On March 6, 1992 the Board of Directors resolved to terminate the ESOP and replace it with a money purchase plan. The money purchase plan received approval by a vote of the shareholders on June 17, 1992. During the years ended December 31, 1992, and May 31, 1991, the Company made contributions to the Plan of 5,272 and 6,851 shares of the Company's common stock. No provision for contributions was made during the seven months ended December 31, 1991. At December 31, 1993 the Plan held 14,958 shares of the Company's common stock for the account of participating employees.
Non-qualified Stock Options -------------------------- At December 31, 1993, an option for 257,750 shares of common stock is held by the Company's former president. This option is exercisable in whole or in part at $1.5761 a share and expires on September 9, 1996.
At December 31, 1993, options covering 26,546 shares of common stock are held by current directors, officers, and key employees. An additional 311,243 are held by former directors and officers. These 337,789 shares are exercisable in whole or in part at varying prices from $0.5886 to $1.8834 per share with expiration dates ranging through 1996.
There were no options exercised during the four years and seven months ended December 31, 1993.
1992 Incentive Stock Option Plan --------------------------------
During June 1992 the shareholders adopted a 1992 Incentive Stock Option Plan (herein ISOP), under which up to 1,000,000 shares of the Company's $0.04 par value common stock have been reserved for granting to employees. The ISOP is intended to meet the requirements of Section 422A of the Internal Revenue Code. Option prices will be no less than the fair market value or 110 percent of fair market value, in certain situations. The term of an option shall be for a period of no longer than ten years from the date of the grant of the option. The ISOP expires on its term anniversary date and will be administered by the compensation committee of the board of directors.
During December 1993 options for 120,000 shares that were granted during June 1992 were voluntarily forfeited by the employees. As of December 31, 1993 there were no stock options outstanding under this 1992 Incentive Stock Option Plan. 1992 Stock Option Plan In Lieu of Directors Fees ------------------------------------------------
The 1992 Stock Option Plan In Lieu of Directors Fees was approved by the shareholders in June 1992 and authorizes each non- employee director to elect to receive stock options for service during the previous year rather than to receive cash compensation. The plan would provide each director through an option to buy such number of shares of the Company's stock, at a discount of 37% of the fair market price on the date of grant. The plan is administered by the compensation committee of the Board of Directors. Directors would be entitled to such options only after having served for a full year as a director, and only if they are not regular, full-time employees of the Company.
The plan required eligible directors to make an irrevocable election in June of each year whether to receive options, and if so, the number of shares subject to the option and the exercise price are fixed according to the pre-established formula based upon the market price for the stock six months later in January of the next year.
As of December 31, 1993, options for 13,546 shares were outstanding. The options were exercisable until January 12, 1994 at a price of $.5906 per share. These options were not exercised. This plan was terminated by the Board of Directors on January 13, 1994 because the extremely low price of the Company's common stock resulted in the granting options in amounts which were considered excessive by the Board of Directors.
Money Purchase Pension Plan ---------------------------
During 1992 the Company adopted a Money Purchase Pension Plan (herein "Plan"), with a plan year ending each December 31, whereby the Company contributes to all participants. Generally, participants are all full-time Company employees that are at least 21 years of age and have one year of service. The Plan is integrated with the Company's contributions under the Federal Social Security Act (social security taxes). As a result, annual required Plan contributions are between 9.5% and 15% of participants' compensation. Employer contributions vest at the rate of 20% per year beginning at the end of the first year of service. The Company accrued contributions of $26,572 and $39,270 for 1993 and 1992, respectively.
Confidential Private Placement Memorandum -----------------------------------------
The Company offered, by a private placement, on a best efforts basis 4,761,905 shares ($5,000,000) minimum, 7,619,048 shares ($8,000,000) maximum, of its restricted $0.04 par value common stock at a price of $1.05 per share.
The offering began on January 25, 1993 and continued through June 25, 1993. This confidential private placement memorandum was unsuccessful and terminated on June 25, 1993. Because of this failure to raise additional capital the Company was forced to abandon its efforts towards obtaining a commercial byproduct disposal license. The employment contract between the Company and its then President, Stephen A. Carpenter, was terminated on August 1, 1993.
8. COMMITMENTS
Operating Leases ----------------
The Company leases its office space on a month to month basis under an operating lease which expired in November of 1993. At December 31, 1993 there were no annual lease commitments for 1994 or beyond.
Rent expense, included in general and administrative expenses, was $20,481, $17,046, $11,867, and $18,738 years ended December 31, 1993 and 1992, for the seven months ended December 31, 1991 and the fiscal year ended May 31, 1991, respectively.
Capitalized Lease Obligations ----------------------------- The Company leases one piece of dirt moving equipment and one vehicle under noncancellable capitalized lease obligations which expire in June 1997 and June 1994, respectively. At December 31, 1993 the Company has capitalized costs of approximately $100,000 and recorded accumulated amortization of $31,000. The following is a schedule of future minimum lease payments on capitalized lease obligations as of December 31, 1993.
1994 23,324 1995 20,424 1996 20,424 1997 10,212 --------
Total minimum lease payments 74,384 Less amount representing interest 10,584 --------
Present value of minimum lease payments 63,800
Current maturities of capitalized lease obligations 18,302 --------
Noncurrent capitalized lease obligations $ 45,498 ========
Employment Agreements ---------------------
The Company had no employment contracts with any of its employees at December 31, 1993.
9. SUBSEQUENT EVENTS
On January 28, 1994 the Company was notified by the NASDAQ surveillance committee that effective February 1, 1994 its common stock would no longer be traded on the National Over the Counter exchange but would be traded on the NASDAQ small cap market.