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UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-K/A
Amendment No. 1
[X] ANNUAL REPORT UNDER SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE
ACT OF 1934
FOR THE FISCAL YEAR ENDED SEPTEMBER 30, 1996
OR
[_] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
FOR THE TRANSITION PERIOD FROM .............. TO................
COMMISSION FILE NUMBER 0-14136
CASMYN CORP.
(Exact name of Company as specified in its charter)
COLORADO 84-0987840
State or other jurisdiction of (I.R.S. Employer
incorporation or organization Identification no.)
1335 GREG STREET, UNIT 104, SPARKS, NEVADA 89431
(Address of principal executive offices) (Zip Code)
Registrant's telephone number, including area code: (702) 331-5524
Securities registered pursuant to Section 12(b) of the Act: None
Securities registered pursuant to Section 12(g) of the Act:
TITLE OF CLASS: COMMON STOCK, $0.04 PAR VALUE
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Check whether issuer (1) has filed all reports required to be filed by
Section 13 or 15(d) of the Securities Exchange Act during the preceding 12
months (or for such shorter period that the Company was required to file such
reports), and (2) has been subject to such filing requirements for the past 90
days. Yes [X] No [_]
Check if disclosure of delinquent filers pursuant to Item 405 of
regulation S-K is not contained herein and will not be contained, to the best of
Company's knowledge, in definitive proxy or information statements incorporated
by reference in Part III of this Form 10-K or any amendment to this Form 10-K.
[X]
The aggregate market value of the common stock held by non-affiliates of
the Company as of December 17, 1996 was approximately $83,116,000 (8,985,598
shares at $9.25 per share).
As of December 17, 1996 there were 12,528,469 shares of common stock
outstanding, par value $.04 per share.
Documents Incorporated By Reference: None
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PART I
ITEM 1: DESCRIPTION OF BUSINESS
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The discussions contained in this 10-K contain various "forward looking
statements" within the meaning of Section 27A of the Securities Act of 1933, as
amended, and Sections 21E of the Securities Exchange Act of 1934, as amended,
which represents the Company's expectations or beliefs concerning future events,
including statements regarding the calculated mineral reserves located at the
Company's mining properties in Zimbabwe and the ability of the Company to secure
additional debt and/or equity financing to fund future expansion and operations.
In addition, statements containing expressions such as "believes,"
"anticipates," "plans" or "expects" used in the Company's periodic reports filed
with the SEC are intended to identify forward-looking statements. The Company
cautions that these and similar statements included in this and in previously
filed periodic reports are further qualified by important factors that could
cause actual results to differ materially from those in the forward-looking
statement, including, without limitation, the following: political and economic
instability in international markets; the effect of economic conditions; the
effect of regulatory and governmental actions; fluctuations in world gold
prices, exchange rates, tariffs and other barriers.
HISTORY OF THE COMPANY
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Casmyn Corp. ("Casmyn" or the "Company", which term shall include, unless the
context so requires, its subsidiaries) was originally incorporated under the
laws of the State of Colorado on December 4, 1984, as Fintech, Inc. In November,
1985, the Company completed its initial public offering of securities. On
November 29, 1991, the Company changed its name from Fintech, Inc. to Summa
Metals Corporation. On March 31, 1994, Amyn Dahya, an individual, acquired
2,400,000 shares (74% of the voting securities of the Company at that time) from
certain officers, directors and shareholders. The Company was in the development
stage from its inception until August 1994 when it purchased for approximately
$150,000 all of the common stock of Casmyn USA, Inc., a Nevada corporation, from
Dahya Holdings, Inc., a related party. On September 14, 1994 the Company changed
its name from Summa Metals Corporation to Casmyn Corp. Prior to 1994, the
Company's principal business was performing contract research and development
services for the mining and environmental industries.
The Company currently operates through the following active subsidiaries:
<TABLE>
<CAPTION>
JURISDICTION
OF
ENTITY ORGANIZATION BUSINESS PURPOSE
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<S> <C> <C>
Casmyn Mining Corporation Nevada Mining exploration - South Africa
Casmyn Mining Zimbabwe [Private] Ltd. Zimbabwe Mining operations - Zimbabwe
Casmyn Gold Corporation Bahamas Gold acquisition and export
Copperbelt Associates Limited. Zambia Mining exploration - Zambia
Auromar Development Corporation Canada Mining exploration - South Africa
</TABLE>
BUSINESS - GENERAL
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Since the acquisition of the majority ownership of the Company by Mr. Dahya in
1994, the business activities of the Company have centered around mineral
resource development. The primary focus to date has been the acquisition and
exploration of precious and base metal resource properties in Zimbabwe, Zambia
and South Africa and precious stones in South Africa, and research and
development related to minerals testing, process engineering and environmental
technologies.
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On May 13, 1995 the Company obtained an option to acquire 100% of the shares of
a group of private mining companies in Zimbabwe. After extensive geological and
engineering review of the properties the Company exercised its option on January
31, 1996. The Company acquired 100% of the shares of a group of five (5) private
mining companies (the "Zimbabwe Companies"): Matabeleland Minerals (Private)
Limited, Greenhorn Mines (Private) Limited, Morven Mining (Private) Limited,
Motapa Minerals (Private) Limited and Turk Mines (Private) Limited. The Zimbabwe
Companies own a 100% interest in mining claims controlling gold and silver
mineral rights on properties that lie within the Bubi Greenstone Belt, Zimbabwe
and the mines contain numerous shafts, mining equipment and mineral processing
mills with a total capacity of 2,000 metric tons per day (in a combination of
milling and dump retreatment capacity). There are no underlying royalties
payable on any gold production from these properties. The Company has commenced
gold production as well as completed the first phase of a capital expenditure
program to upgrade and retrofit various mine facilities.
Also on January 31, 1996, the Company purchased the assets of the Dawn Mine
property in Zimbabwe from Olympus Gold Mines Limited for approximately $455,000
(Zim $4,250,000). The group of mines making up the Dawn Mine property had
produced over 340,000 ounces of gold at an average grade of 0.48 ounces of gold
per tonne. The Dawn Mine is located in close proximity (eleven kilometers) to
the Turk mine and mill and will be operated under a mine plan which includes the
Turk mine and other mining properties in the area owned by the Company.
In addition, Casmyn has an exploration license covering property in the Zambia
copper belt where exploration is currently on-going. This property is adjacent
to some of the largest copper mining operations in the world. Previous
exploration at the Casmyn controlled property has yielded ore grade drill
intercepts of copper together with uranium and cobalt. The Company has completed
a ground and airborne geophysical program and is currently drilling several
targets identifed by the geophysical surveys.
The Company is conducting a diamond exploration program in the Schweizer
Property in South Africa, where the Company has acquired a 100% interest in
options on certain mineral properties located approximately 140 miles from the
Kimberly diamond mining area. Historically, there has been mining of diamonds in
the alluvial gravels in the area currently under option by the Company. The
Company has conducted research on indicator minerals that are normally found in
such diamond operations. These indicator minerals suggest the potential presence
of a diamondiferous kimberlite pipe or a cluster of pipes in close proximity to
the properties under option. The Company is undertaking an exploration program
in this area directed at identifying potential locations of kimberlite pipes.
The exploration program consists of geophysical studies which include gravity
and magnetic surveys and soil sampling. To date, no kimberlite pipe(s) have been
discovered and there is no assurance that such pipe(s) will be discovered.
Effective August 12, 1996, pursuant to approval of a Plan of Arrangement by the
Supreme Court of British Columbia, Canada, the Company acquired approximately
7,023,000 common shares of Auromar Development Corporation ("Auromar", 100% of
the outstanding common stock) in exchange for 2,701,103 common shares of the
Company. This transaction has been accounted for as a purchase with the purchase
price of the net assets (principally mineral property options) being recorded at
predecessor cost prior to their acquisition by Auromar. The acquisition of
Auromar provides the Company with full control of the Schweizer-Reneke
exploration program. The Company believes that such control will facilitate
negotiations with major mining companies in the development of this program
should exploration success be achieved.
The Company has positioned itself in the environmental industry through an
equity investment in Vector Environmental Technologies, Inc. ("VETI") which is
engaged in the development, manufacture, sales and management of water treatment
equipment and facilities. VETI's shares are traded on the NASD Bulletin Board.
On June 29, 1995, the Company acquired a controlling interest in VETI through
the acquisition of 3,000,000 convertible preferred shares, in exchange for
approximately $2,400,000 in liabilities owing to the Company. On September 29,
1995, the Company purchased an additional 1,000,000 preferred shares of
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VETI at $2.00 per share. On September 30, 1996, the Company elected to convert
its preferred shares into common shares of VETI, resulting in the Company owning
approximately 24.3% of VETI. Also, during the fourth quarter of 1996, the
Company exchanged 425,750 shares of Auromar common stock for 1,532,700 shares of
VETI restricted common stock, resulting in the Company increasing its percentage
ownership in VETI to approximately 30.8%. This investment is accounted for using
the equity method. VETI is also related to the Company through certain common
officers, directors and significant stockholders.
VETI operates through its 95% owned subsidiary, Vector Venture Corp. ("VVC"),
and various wholly owned subsidiaries: Vector Venture Corp. which holds certain
technologies and licenses; Vector Manufacturing Corp. ("VMC"), which provides
purchasing and manufacturing services; Vector Vietnam, Ltd., which holds and
manages Vietnamese operations; Alpine Water Purification, Inc., which markets
consumer water treatment equipment; STOX Systems, Inc., which markets hazardous
materials storage systems; CGL Technologies, Inc., which performs research and
development of water purification technologies; Vector India, which was formed
to develop business in India; and Vector Water Technologies, which markets water
purification systems in the United Arab Emirates.
OTHER TRANSACTIONS
On May 24, 1996, the Company entered into a Stock Purchase Agreement to exchange
shares with WestAmerica Corporation ("WACC"), an oil and gas and exploration
company, whereby the Company received 5,680,514 common shares of WACC
(approximately a 65% interest) in exchange for 606,061 shares of the Company's
common stock. On September 30, 1996, the Company and WACC agreed to cancel the
transaction and have returned the respective shares to each party.
On September 29, 1995, the Company completed a private placement of 714,286
units for net proceeds of $4,750,009. Each unit consists of one share of Common
Stock of the Company, plus one warrant; two warrants, plus $8.50, will entitle
the holder to purchase one share of the Company's Common Stock. All warrants
expire on October 1, 1997. Also, during the year ended September 30, 1995, the
Company completed private placements of 405,000 shares of its common stock for
net proceeds of $2,252,850. VETI completed private placements of 1,500,000
shares of its common stock during the year ended September 30, 1995 for net
proceeds of $3,375,000. At September 30, 1995, $7,125,002 of these amounts was
included in Common Stock subscriptions receivable. All of the subscriptions
receivable were collected subsequent to September 30, 1995.
On March 29, 1996, the Company completed a private placement of 750,000 units
for net proceeds of $8,745,683. Each unit consists of one share of the Company's
restricted common stock, plus one warrant; two warrants, plus $13.00, will
entitle the holder to purchase one share of the Company's common stock. These
warrants expire two years from the date of issue.
On September 11, 1996, the Company completed a private placement of 409,091
units for net proceeds of $4,230,000. Each unit consists of one share of the
Company's common stock, plus one warrant; two warrants, plus $11.00, will
entitle the holder to purchase one share of the Company's common stock. These
warrants expire two years from the date of issue.
On November 8, 1996, the Company completed a private placement of 155,000 units
for net proceeds of $1,410,500. Each unit consists of one share of the Company's
common stock, plus one warrant; two warrants, plus $10.00 will entitle the
holder to purchase one share of the Company's common stock. These warrants
expire two years from the date of issue.
On May 7, 1996, the Company entered into a 50:50 joint venture with Newgold
Incorporated ("Newgold"), a public company listed on the NASD Bulletin Board,
for the development of the Relief Canyon Mine located in Pershing County,
Nevada. The Company has contributed $775,000 against a total commitment of
$1,398,000 for its 50% interest in the venture. Subsequent to September 30,
1996, the Company sold its interest back to Newgold for $900,000 and 1,000,000
restricted common shares of Newgold common stock and a release from the $623,000
balance of its commitment.
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MINERAL RESOURCE DEVELOPMENT
GLOSSARY OF MINING TERMS AND DEFINITIONS
Presented below are the definitions of various mining terms:
KIMBERLITE PIPES - geologic structures containing mantle derived material that
may be diamond bearing.
INDICATOR MINERALS - minerals such as garnets, ilmenites, chromites and chrome
diopside that are found in soil sampling that are indicative of the presence of
kimberlitic materials.
MINERALIZED DEPOSIT - a mineralized body which has been physically delineated by
drilling, underground work, surface trenching and other workings or drill holes
to contain a sufficient amount of mineralized material with an average grade
sufficient to warrant further evaluation. Such deposit does not qualify as a
commercially mineable (or viable) ore body until technical, economic and legal
factors have been sufficiently satisfied to classify the mineralized material as
a reserve.
RESERVE - That part of a mineral deposit which could be economically and legally
extracted or produced at the time of the reserve determination.
PROVEN (MEASURED) RESERVES - Reserves for which (a) quantity is computed from
dimensions revealed in outcrops, trenches, workings or drill holes; grade and/or
quality are computed from the results of detailed sampling and (b) the sites for
inspection, sampling and measurement are spaced so closely and the geologic
character is so well defined that size, shape, depth and mineral content of
reserves are well established.
PROBABLE (INDICATED) RESERVES - Reserves for which quantity and grade and/or
quality are computed from information similar to that used from proven
(measured) reserves, but the sites for inspection, sampling, and measurement are
farther apart or are otherwise less adequately spaced. The degree of assurance,
although lower than that for proven (measured) reserves, is high enough to
assume continuity between points of observation.
TONNE - Refers to metric ton and is equal to 1.102 short tons or 2,204.622
pounds.
MINING ACTIVITIES
Casmyn is responsible for exploration and mining activities in Zimbabwe through
its wholly owned subsidiary, Casmyn Mining Zimbabwe [Private], Ltd.; exploration
in Zambia through its wholly owned subsidiary, Copperbelt Associates Limited;
and exploration in South Africa through its wholly owned subsidiary, Casmyn
Mining Corporation. The primary business activities of these subsidiaries are
described below.
ZIMBABWE GOLD PROPERTIES
Casmyn Mining Zimbabwe [Private] Ltd. was organized and incorporated in Zimbabwe
to acquire mineral properties and mining operations as described below. The
Company's objectives in the acquisition of these properties and operations are
the exploration, development and production of gold resources. The Company is
approaching its exploration and development activities so as to balance
exploration and proving of reserves with the development of mining and
processing capacity to maintain an optimum mine life. In this connection the
Company has spent in excess of $16.5 million through December 31, 1996 in the
purchase and development of these properties.
As indicated above, on January 31, 1996, the Company acquired 100% of the shares
of the Zimbabwe Properties. The total consideration for this acquisition was
$4,071,415 (Zim $37,986,300) cash plus applicable taxes of $993,660 (Zim
$9,496,575) to be paid upon assessment of said taxes as
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defined in the terms of the Memorandum of Agreement. The amount of consideration
is subject to certain adjustments. The funds used to conclude this acquisition
were obtained from Company bank accounts. Those funds originated from a
combination of private placements of Company Common Stock and from proceeds of a
convertible debenture.
The purchase price was determined as a result of arm's length negotiations
between E.W.B. Properties (Private) Limited and the Company. The principal
factors considered in the determination of the consideration given for the
Zimbabwe Companies include: i) the tangible and intangible asset values of the
businesses acquired including primarily gold reserves; ii) the potential for
increasing gold production of the Zimbabwe Companies; and, iii) the expected
future operations and related contributions that the companies are expected to
make to the total value of the Company. The shafts, mining equipment and mineral
processing mills acquired in this transaction were used by the Zimbabwe
Companies for the purpose of mining and processing gold. It is the intention of
the Company to continue such use.
Through the acquisition of the Zimbabwe Companies, the Company owns a 100%
interest in 18 past producing gold mines that have produced in excess of
1,000,000 ounces of gold since mining commenced in the early 1900's. The
Company believes that through the modernization of the physical plant and
implementation of advanced mining technologies significant increases in gold
recovery can be realized. In addition, the Company is expanding its gold
reserves through the application of advanced exploration techniques.
Independent consultants have calculated that the Company has in excess of
1,020,000 ounces of proven and probable gold reserves for the mines owned by
the Company (See Item 2 "Description of Property"). As of September 30, 1996,
the Company was operating three (the Turk, Dawn and Lonely Mines) of the 18
mines acquired.
The Company's first phase of expansion of the physical plant at a cost of
approximately $12 million has been completed. This phase consisted of: i) mill
refurbishing; ii) installation of a new crushing plant; iii) new leach and gold
recovery circuits; iv) refurbishing three existing shafts at the Turk Mine; v)
sinking a new shaft at the Turk Mine western extension; vi) new tailings
reprocessing plants at the Turk and Lonely Mines; vii) housing and
infrastructure; and, viii) preparation of new tailings disposal sites.
Also, on January 31, 1996, the Company purchased the assets of the Dawn Mine
property in Zimbabwe from Olympus Gold Mines Limited for approximately $455,000
(Zim $4,250,000). The group of mines making up the Dawn Mine property had
produced over 340,000 ounces of gold at an average grade of 0.48 ounces (14.9
grams per tonne) of gold per tonne. The Dawn Mine is located in close proximity
(eleven kilometers) to the Turk Mine and mill and will be operated under a mine
plan which includes the Turk Mine and other mining properties in the area owned
by the Company.
On August 1, 1996, an option agreement was concluded on the "Elumba and Up To
Date" gold mining properties which are within 5 kilometers of the Turk Mine and
mill and were past producers of gold and silver.
On December 20, 1996, the Company acquired an option to purchase, on or before
March 1, 1997, the assets of the Teutonic Mine property in Zimbabwe for
approximately $770,000 (Zim $8,000,000). The Teutonic Mine produced over
133,000 ounces of gold at an average grade of 0.66 ounces (20.5 grams per
tonne) of gold per tonne. The Teutonic Mine is located approximately 120
kilometers from the Turk Mine and other mining properties in the area owned by
the Company.
ZAMBIAN COPPERBELT
During the fiscal year ended September 30, 1996, the Company purchased 100% of
the common shares of Copperbelt Associates Limited for $65,700 thereby acquiring
full interest in a prospecting license covering an area of approximately 4,388
square kilometers at the Luswishi Property located in the Zambian Copperbelt.
Earlier work, including drilling in the area covered by the prospecting license,
has shown the presence of copper,
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uranium and cobalt. The Company has commenced a drilling and exploration program
aimed at proving economically viable mining reserves on this property position.
It is not the Company's intention to become a copper mining operating company.
Any success from the current exploration program will result in the Company
obtaining a joint venture partner(s) to develop the property.
SOUTH AFRICA
Casmyn Mining Corporation, a Nevada corporation with a branch operation in South
Africa, is conducting mineral exploration programs in various areas of South
Africa, primarily the Schweizer Property where the Company holds a 100% interest
in options on certain mineral properties located in the Schweizer-Reneke area of
South Africa. The acquisition of Auromar provided the Company with full control
of the Schweizer-Reneke program. The Company believes that such control will
facilitate negotiations with major mining companies in the development of this
program. These properties are located approximately 220 kilometers from the
Kimberly diamond mining area. Any success from exploration will result in the
Company seeking to obtain joint venture partner(s) to develop the property.
There has been significant mining of diamonds in the alluvial gravels in the
area currently under option by the Company. The Company has conducted
research on indicator minerals that are normally found in such diamond
operations. These indicator minerals suggest the potential presence of a
diamondiferous kimberlite pipe or a cluster of pipes within close proximity to
the properties under option. The Company is undertaking an exploration program
in this area directed at discovering diamond bearing kimberlite pipes. The
exploration program consists of geophysical studies which include gravity and
magnetic surveys and soil sampling. To date no kimberlite pipe(s) have been
discovered and there is no assurance that such pipe(s) will be discovered.
INDUSTRY OVERVIEW AND CERTAIN FACTORS RELATING TO THE COMPANY'S PROPERTIES
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Competition
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Competition includes large established mining companies having substantial
capabilities and greater financial and technical resources than the Company.
Therefore, the Company may be unable to acquire future potential mining
properties on terms it considers acceptable. The Company also competes with
other mining companies in the recruitment and retention of qualified employees.
The Company's smaller size and broad strategic objectives, however, may provide
the Company with increased flexibility and certain strategic advantages over its
competitors in developing countries. Most mining companies in Zimbabwe are
small owner operated mines with limited capital and expertise.
Government Approval/Regulations
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The mining operations of the Company, through its wholly-owned subsidiaries
Casmyn Mining Corporation and Casmyn Mining Zimbabwe [Private] Ltd., are
conducted primarily through its offices located in South Africa and Zimbabwe.
Casmyn Mining Corporation is qualified to do business in South Africa and, as
such, is subject to the laws of that country, which includes permits to allow
the Company to conduct exploration activities on optioned properties. Casmyn
Mining Zimbabwe [Private] Ltd. received approval from the Zimbabwe Investment
Centre to carry out exploration and mining activities and from the Zimbabwe
Reserve Bank to purchase 100% of the five mining companies in Zimbabwe.
Compliance With Environmental Laws
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The mining operations of the Company in South Africa are directed at determining
the presence of economically viable mineral deposits on properties under option.
It is the Company's intention, once such mineral deposits are discovered, to
identify a joint venture partner to develop and operate the mining properties.
Under the South Africa Minerals Act, 1991, the Company and/or its joint venture
partner are responsible for development of an environmental impact assessment
and an environmental
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management program for the proposed mining venture which must be approved prior
to the start of exploration and/or mining operations. The cost of environmental
compliance relating to mineral development is estimated by management to be
immaterial as of September 30, 1996 due to the nature of the Company's
exploration activities. At September 30, 1996, the Company was not actively
involved in mining. On January 31, 1996, the Company acquired various gold
mining properties and processing facilities in Zimbabwe and has begun mining and
processing gold at those facilities. The Company believes that it is in
compliance with the environmental laws of Zimbabwe.
Risk of Development, Construction and Mining Operations
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Should the Company, alone or with a joint venture partner, decide to proceed
with development of a mineral resource property, the ability to meet cost
estimates and construction and production time estimates cannot be assured.
Technical considerations, delay in obtaining governmental approvals, inability
to obtain financing or other factors could cause delays in developing mineral
resource properties.
The businesses of gold and/or diamond, copper, cobalt and uranium mining are
subject to a variety of risks and hazards, including environmental hazards,
industrial accidents, flooding and the discharge of toxic chemicals. The
Company has obtained insurance in amounts it considers to be adequate to protect
itself against certain of these risks of mining and processing. However, the
Company may become subject to liability for certain hazards for which it cannot
obtain insurance or which it may elect not to obtain insurance against because
of premium costs or other reasons.
Exploration Programs
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A major part of the Company's business is the exploration of its existing
properties and the evaluation and pursuit of potential new prospects in the
exploration stage. Substantial expenditures may be incurred in an attempt to
establish the economic feasibility of mining operations by identifying mineral
deposits and establishing reserves through drilling and other techniques,
designing facilities and planning mining operations. The economic feasibility of
a project depends on numerous factors, including the cost of mining and
production facilities required to extract the desired minerals, the total
mineral deposits that can be mined using a given facility and the market price
of the minerals at the time of sale. There is no assurance that existing or
future exploration programs or acquisitions will result in the identification of
deposits that can be mined profitably.
The Company generally acquires the rights to explore for mineral resources on
various parcels of land through option agreements negotiated with the property
owner. The agreements generally have a term of one year with the right to extend
on a year to year basis. The Company is in the process of determining the
potential for economically viable mineral resources on properties under option
and will either renew or cancel options based upon this determination.
Market Factors and Volatility
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Active international markets have histroically exisited for gold. There has been
an active market for diamonds, copper, cobalt and uranium which are of a
commodity nature. As such, the Company anticipates no barriers to the sale of
these minerals. Prices of certain minerals have fluctuated widely, particularly
in recent years, and are affected by numerous factors beyond the control of the
Company. Future mineral prices cannot be accurately predicted. A significant
decline in the price of gold being produced or expected to be produced by the
Company could have a material adverse effect on the Company.
Need for Additional Financing
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To achieve the full potential of continued exploration, development and
production of the Company's mineral properties, including the purchase of
additional properties, the exercise/extension of options on properties
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and construction of mining facilities are likely to require substantial
additional financing, and there is no assurance that the Company will be able to
secure such financing on acceptable terms.
Patents, Copyrights and Licenses
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The Company holds patents on a continuous grind-leach process for gold ore grade
evaluation.
Employees
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The Company and its subsidiaries currently have approximately five-hundred-fifty
(550) employees. Approximately five hundred (500) of these employees are mine
workers who are covered by Zimbabwe government and Chamber of Mines labor
agreements. The balance of employees are management and professional staff who
are not subject to any collective bargaining agreements or union affiliations.
Management believes that relations between management and employees are
considered good.
Certain Tax Considerations
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The Company is predominantly invested in foreign subsidiaries. Those
subsidiaries are subjected to taxes imposed on them in the foreign jurisdictions
in which they operate and in which they are organized. Further, their income is
subject to US federal and state income taxes when distributed, deemed
distributed or otherwise attributed to, the Company, which is a US corporation.
Complex US tax rules apply for purposes of determining the calculation of those
US taxes, the availability of a credit for any foreign taxes imposed on the
foreign subsidiaries or the Company and the timing of the imposition of US tax.
Normally, all foreign income earned by a US multinational eventually will be
subject to US tax. Income earned by a foreign branch of a US company is taxable
currently in the United States, and income earned by a foreign subsidiary could
be subject to US tax either in the year distributed to the US as a dividend or
in the year earned by means of Subpart F, foreign personal holding company or
other federal tax rules requiring current recognition of certain income earned
by foreign subsidiaries.
Income earned in foreign countries often is subject to foreign income taxes. In
order to relieve double taxation, the US federal tax law generally allows US
corporations a credit against their US tax liability in the year the foreign
earnings become subject to US tax in the amount of the foreign taxes paid on
those earnings. The credit is limited, however, under complex limitation rules,
to, in general, the US (pre-credit) tax imposed on the US corporation's foreign
source income. Further, complex rules exist for allocating and apportioning
interest, research and development expenses and certain other expense deductions
between US and foreign sources. Limiting provisions of the source rules decrease
the amount of foreign source income many US multinationals can generate. Reduced
foreign source income results in a smaller foreign tax credit limitation, as the
limitation is based on the ratio of foreign source net income to total net
income.
These rules can prevent US multinationals from crediting all of the foreign
taxes they pay. To the extent that foreign taxes are not creditable, foreign
source income bears a tax burden higher than the US tax rate.
General Political Risks
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The Company is actively engaged in exploration and production activities in
Zimbabwe, Zambia and South Africa. The political situation in these countries
introduces a certain degree of risk. The governments exercise control over
exploration licensing, gold and other mineral sales and exporting, which may
impact on the Company's ability to carry out exploration, development and other
mining activities.
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OTHER
WATER TREATMENT AND PURIFICATION
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Vector Environmental Technologies, Inc.
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As mentioned above, the Company owns approximately 30.8% of the issued and
outstanding common stock of VETI. VETI's principal business is to develop or
acquire leading edge environmental technologies for rapidly expanding global
markets in water treatment and purification. The corporate goal is to build VETI
into a major multinational corporation with a strong technical foundation,
capable of providing lasting solutions which address short, medium and long-term
water related environmental issues.
VETI's current focus is primarily in the area of water treatment and
purification. VETI's Diamond Rain/TM/ water purification systems are designed to
purify water from rivers, lakes and other water sources using a combination of
filtration, adsorption and microbial destruction processes to produce safe and
healthy drinking water, with technical and economic efficiency that is required
for conditions which exist in developing nations. The MCV process, used in many
Diamond Rain/TM/ systems, was the recipient of the NASA Invention of the Year
and Commercial Invention of the Year Awards in April, 1994.
During 1996, VETI's primary market focus was in Vietnam. However, VETI is in the
process of developing programs in India, Ghana and the United States.
Vector Vietnam Ltd. ("VVL", a wholly owned subsidiary of VETI)
- --------------------------------------------------------------
VVL markets the full range of VETI's water treatment and purification equipment,
products and services throughout the country of Vietnam. The primary markets
currently addressed by VVL include: the sale of personal and household water
purification systems to both the retail and wholesale markets; the sale and
lease of water purification systems to schools and hospitals; the sale of
purified water and water products through company and operator owned retail
water stores; the development and operation of water bottling plants and sale of
bottled water; and the installation and management of water supply plants for
rural and semi-urban communities.
-10-
<PAGE>
ITEM 2. DESCRIPTION OF PROPERTY
ZIMBABWE
The Company owns 100% of 18 past producing gold mines in Zimbabwe covering
approximately 1,200 hectares (2,965 acres) in the Bubi Greenstone belt in
central Zimbabwe (See Figure 1, Page 17). These properties have produced in
excess of 1,000,000 ounces of gold since mining commenced in the early 1900's
(See Figure 2, Page 18). Within the Company's properties, several producing
mines exist, the largest of which is the Turk Mine with historical production in
excess of 400,000 ounces of gold. In addition, the Company is presently
conducting mining operations at the Lonely and Dawn Mines.
TURK MINE
- ---------
The Turk Mine is located approximately 55 km north of Bulawayo, Zimbabwe. A
single lane paved road accesses the mine and a national power grid parallels the
road. The Turk Mine is a typical Archean shear hosted lode gold vein deposit
that has been partially exploited down to 800 meters. Historical grades are
approximately .175 ounces (6 grams per tonne (or "g/t") over widths averaging 2
meters in a series of multiple vein sets. The mine has been dewatered down to
the 360 meter level and current rehabilitation and development work is being
concentrated in the first 140 meters. A diamond drilling program by the Company
late in 1995 identified a new discovery to the west of the previous development.
Detailed surface and underground drilling and underground drifting along these
new extensions is being carried out on several levels between 25 and 350 meters
below surface.
The current proven reserves at the Turk Mine are about 90,000 tonnes grading 9.4
g/t for a contained gold reserve of approximately 27,000 ounces. The Company has
calculated a probable reserve of an additional 3.3 million tonnes of
approximately 7.0 g/t gold. This probable reserve would add an additional
742,000 contained ounces of gold. The Turk Mine has a combination of open pit
oxide, underground sulphide and surface mill tailings as its ore sources.
EXISITING INFASTRUCTURE - The Turk Mine consists of managers and workers'
houses; mine offices, work shops, mill buildings, thickener tanks and water
reservoirs; 330 tonne and 75 tonne per day mills and associated crusher
circuits; four compressors, carbon in pulp (CIP) tanks; tailings dams; three
operational shafts and a fleet of earthmoving equipment.
REFURBISHMENT AND CONSTRUCTION - The Company has completed or currently has in
process the following projects at the Turk Mine:
i) Additional offices and mine worker and manager housing
ii) New 1,500 tonne per day CIP circuit; new sluicing bays for dump
retreatment and refurbishment of old CIP tanks
iii) New 2,000 tonne per day tailings facility
iv) Refurbished mill and crushing circuits and new coarse gold circuits
v) Refurbished underground pumping; increased surface boreholes for
water supply; new back-up generators and new compressors
vi) New 300 sample per day assay lab and geochemical lab
vii) Refurbished two vertical and one incline shaft
viii) Currently sinking a new vertical shaft
-11-
<PAGE>
EXPLORATION AND DEVELOPMENT - The Company has either completed or currently has
in progress the following exploration and development projects at the Turk Mine:
i) Four surface core drills and six underground core drills during 1996
delineated underground sulphide ore zones, continuing surface and
underground core drilling and underground development in 1997
ii) Underground primary and secondary development on underground sulphide
ore zones on levels between 25 meters and 350 meters below the
surface
iii) New shaft sinking on Armenian shaft from surface to 60 meters below
surface and continuing to 150 meters below surface
iv) Several hundred meters of trenching of open pit oxide ore and related
metallurgical test work
v) Development of two open pits in oxide ore
vi) Augering and metallurgical test work on old mill tailings dumps
vii) Re-mapping and sampling of old underground workings
viii) Exploration drives and cross-cuts on multiple underground levels
LONELY MINE
- -----------
The Lonely Mine is located 30 km north of the Turk Mine and is located on the
national electric power grid. The Company has the surface rights to the mine
that includes 1.8 million metric tons of mill tailings grading 1.5 to 2.0 g/t
gold. The Company has recently installed a new 1,500 Tonne per day CIP
processing facility to recover gold from tailings. This CIP facility can be
easily disassembled and moved to another site at the end of operations at the
Lonely minesite.
EXISITING INFASTRUCTURE - The Lonely Mine consists of a mine shaft, hoist and
headframe with a CIP circuit and tailings dam.
REFURBISHMENT AND CONSTRUCTION - The Company has completed or currently has in
progress the following projects at the Lonely Mine:
i) New 1,500 tonne per day CIP circuit and tailings facility
ii) Refurbished headframe and hoist for the mine shaft
iii) New underground water pumps
iv) New workers' and managers' housing and offices
v) New back-up electrical generators and compressors
vi) New surface boreholes for water
EXPLORATION AND DEVELOPMENT - In 1996, the Company completed augering and bulk
sampling of the mill tailings dumps and related metallurgical test work.
DAWN MINE
- ---------
The Dawn Mine is located 42 km north of Bulawayo accessed via an all weather tar
road and is located on the national electric power grid. The group of mines
making up the Dawn Mine property has produced over 340,000 ounces of gold at an
average grade of 0.48 ounces of gold per tonne since mining operations began.
Underground sulphide, which is trucked to the Turk Mine mill and surface mill
tailings dumps, are processed at the Dawn Mine site.
EXISITING INFASTRUCTURE - The Dawn Mine consists of mine shafts and headframes,
tailings dams, thickener tanks, mine offices, workshops, mill buildings and
manager and worker housing.
REFURBISHMENT AND CONSTRUCTION - The Company has completed or currently has in
process the following projects at the Dawn Mine:
-12-
<PAGE>
i) Carbon regeneration and elution plant
ii) Dawn Mine shaft refurbished to the second level
iii) Upgraded water supply, underground pumps and surface boreholes
EXPLORATION AND DEVELOPMENT - In 1996, the Company conducted surface core
drilling and underground development of sulphide ore zones. Further drilling and
underground development is scheduled to continue in 1997.
CHARLIESONA MINE
- ----------------
The Charliesona Mine is located 6 kilometers northwest of the Turk Mine on an
all weather road and is located on the national electric power grid. The ore
sources for the Charliesona Mine are open pit oxide, underground sulphide and
surface mill tailings dumps.
EXISITING INFASTRUCTURE - The Charliesona Mine consists of three vertical mine
shafts with headgear and hoists, a mill building with a 100 tonne per day ball
mill, crusher circuit, water reservoir, CIP tanks, flotation cells and vat leach
tanks.
REFURBISHMENT AND CONSTRUCTION - The Company has completed or currently has in
progress the following projects at the Charliesona Mine:
i) New CIP circuit and tailings facility under construction
ii) Ball mill and crushing circuit currently being refurbished
EXPLORATION AND DEVELOPMENT - In 1996, the Company completed surface trenching,
percussion drilling, underground development, geological mapping, sampling of
tailings dumps and metallurgical test work. Further work in these areas is
scheduled to continue in 1997.
DING DONG, SANDY, PETER PAN AND MOTAPA MINES
- --------------------------------------------
All of these properties are on the national electric power grid and within
close proximity of the Turk Mine. The ore sources for these mines consist of
open pit oxide and underground sulphide mineral deposits.
EXISITING INFASTRUCTURE - These mines consist of vertical and incline mine
shafts, surface excavations and boreholes for water. There is a crushing circuit
and vat leach tanks at the Peter Pan Mine.
REFURBISHMENT AND CONSTRUCTION - The Company has completed or currently has in
progress the following projects at the mines:
i) Refurbishment of the incline shaft at the Peter Pan Mine
ii) New surface boreholes for water at the Sandy Mine
iii) Surface excavations for bulk sampling at the Sandy Mine
EXPLORATION AND DEVELOPMENT - At certain of these mines in 1996, the Company
completed surface trenching, core and precussion drilling, underground
development and shaft sinking, surface and geological mapping, sampling and
metallurgical test work. Further work in these areas is scheduled to continue in
1997.
GEOLOGY
The regional geology of the area of the mines comprises metasediments,
metavolcanics and serpentinite of the Bulawayan Group as shown on the simplified
geological map of Zimbabwe (See Figure 3, Page 19). The gold mineralization is
greenstone type hosted quartz veins or shear zones.
-13-
<PAGE>
RESERVES
The tables presented below set forth the Company's interest in estimated proven
and probable reserves of contained ounces of gold in place at each property.
These estimates have been prepared by Mr. P. Bekker, Consulting Geologist, an
independent mineral consultant.
TABLE 1 - PROVEN RESERVES
<TABLE>
<CAPTION>
GRAMS PER CONTAINED
LOCATION TONNES TONNE OUNCES Au
- -----------------------------------------------------------------------------------
<S> <C> <C> <C>
TURK MINE:
1 - 16 Level -Sulphides 89,910 9.42 27,230
Oxides 229,506 1.59 11,732
Tailings Dump A 310,000 1.14 11,362
Tailings Dump B 465,000 1.30 19,435
Tailings Dump C 240,000 1.35 10,417
Tailings Dump D 1,320,000 0.97 41,166
DAWN MINE:
Sulphide 3,851 4.50 557
Tailings Dump - high grade 84,300 2.01 5,448
Tailings Dump - low grade 60,000 0.79 1,524
CHARLIESONA MINE:
Oxides 113,750 1.71 6,254
Tailings Dump A 95,000 0.85 2,596
Tailings Dump D 35,000 0.82 923
PETER PAN MINE:
Oxides 30,000 1.30 1,254
DING DONG MINE:
Sulphides 17,200 11.60 6,417
SANDY MINE:
Oxides 1,158,965 1.06 39,498
LONELY MINE:
Tailings Dump A 425,000 0.87 11,888
Tailings Dump C 435,000 0.86 12,028
Tailings Dump D 615,000 1.06 20,959
---------
TOTAL PROVEN RESERVES 230,688
=========
</TABLE>
-14-
<PAGE>
TABLE 2 - PROBABLE RESERVES
<TABLE>
<CAPTION>
GRAMS PER CONTAINED
LOCATION TONNES TONNE OUNCES Au
- -------------------------------------------------------------------------------------------
<S> <C> <C> <C>
TURK MINE:
1 - 16 Level - sulphides 2,533,680 7.60 619,099
Pillars 13 - 28 Level - sulphides 750,000 5.10 122,978
DAWN MINE:
Sulphides 28,241 9.74 8,844
Tailings Dump - high grade 32,760 1.21 1,274
CHARLIESONA MINE:
Crushed oxide 100,000 1.00 3,215
PETER PAN MINE:
Sulphides 164,245 4.86 25,664
DING DONG MINE:
Sulphides 37,291 7.14 8,560
--------
TOTAL PROBABLE RESERVES 789,634
========
</TABLE>
GOLD RECOVERY RATES
The recovery of gold from the Company's in-place contained gold reserves has
been measured and it varies by location and type of material. Gold recoveries
resulting from the different mining methods and benefication processes are as
follows: milled oxide gold recovery rates range from 90% to 92%; sulphide gold
recovery rates are between 80% and 90%; heap leach oxide gold recovery rates are
65% to 70%; and retreatment tailings (dump) gold recovery rates range from 49%
to 68%.
In addition to the proven and probable reserves, a substantial amount of
mineralized deposits are being evaluated which will be confirmed by independent
consultants prior to being categorized as proven or probable reserves.
ZAMBIA
LUSWISHI DOME
In January 1996, the Company acquired 100% of a three year prospecting license
covering an area of approximately 4,388 square kilometers within the Zaire-
Zambia Copperbelt in Zambia (See Figure 4, Page 20). Included in the area under
license is the Luswishi Dome project which is targeting a large tonnage copper-
cobalt-uranium mineral deposit. The Company has commenced a drilling and
exploration program aimed at proving economically viable mining reserves on this
property position.
SOUTH AFRICA
SCHWEIZER PROPERTY
The Company holds a 100% interest in options on certain mineral properties
located in the Schweizer-Reneke area of South Africa. These properties are
located approximately 220 kilometers from the Kimberly diamond mining area.
-15-
<PAGE>
FACILITIES
The Company maintains offices in Sparks, Nevada and Vancouver, Canada in office
space which is currently occupied under month-to-month leases at a cost of
approximately $4,100 and $7,600 per month respectively. The Sparks, Nevada
operations occupy a portion of a 8,000 square foot unit which includes office
and laboratory facilities which are shared with certain related companies. Those
companies reimburse the Company for a portion of the monthly rent. The Vancouver
offices, which are also shared with VETI, occupy 6,036 square feet in a high
rise office building. These facilities are adequate for the current level of
operations and sufficient office and laboratory space is conveniently located to
support future growth.
Casmyn Mining Corporation, South Africa is located in Pretoria, South Africa in
office space which is currently occupied on a month-to-month basis at a cost of
approximately $1,000 per month. Casmyn Mining Zimbabwe [Private] Ltd., is
located near Bulawayo, Zimbabwe in office space and facilities owned by Casmyn
Mining Zimbabwe [Private] Ltd.
-16-
<PAGE>
FIGURE 1
CASMYN ACTIVITY IN ZIMBABWE
This is a map showing the country of Zimbabwe in relation to the continent of
Africa, the Greenstone Belt of Zimbabwe, the location of the Company's mining
properties and certain other mines in the area showing total historical gold
production in ounces and recovered gold grade per ton.
17
<PAGE>
FIGURE 2
MINE PRODUCTION STATISTICS
This is a chart showing the Company's Zimbabwe mines along with competing mines
in the area along with total gold production in ounces and recovery grade of
gold in ounces per ton.
18
<PAGE>
FIGURE 3
LOCALITY AND GEOLOGICAL MAPS
This is a map depicting the geological formations in the country of Zimbabwe
and the location of the Company's mines in relation to those formations.
19
<PAGE>
FIGURE 4
ZAMBIAN COPPER PROJECT
This is a map showing the location of major copper producers in Zambia relative
to granite domes and the location of the area covered by the Company's
prospecting license.
20
<PAGE>
ITEM 3. LEGAL PROCEEDINGS
The Company is not a party to any material litigation, whether pending or
threatened, to which it is or may become a party.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
None
-21-
<PAGE>
PART II
ITEM 5. MARKET FOR COMMON EQUITY AND RELATED STOCKHOLDER
MATTERS
The Registrant's Common stock is publicly traded in the over-the-counter market
and is listed on the Bulletin Board maintained by members of the National
Association of Securities Dealers, Inc. under the symbol "CMYN". For the six
fiscal quarters prior to April 1994, there was no established public trading
market for the Company's common stock. The following table sets forth the
range of approximate high and low bid quotations since March 31, 1994, which
represent prices between dealers, do not include retail markups, markdowns or
commissions and may not represent actual transactions. The prices are based
upon information obtained from the National Daily Quotation Service published by
the National Daily Quotation Bureau, Inc.
<TABLE>
<CAPTION>
============================================================
High Low
============================================================
<S> <C> <C>
Quarter from April 1, 1994 $13.00 $ .95
to June 30, 1994
- ------------------------------------------------------------
Quarter from July 1, 1994 $13.50 $8.125
to September 30, 1994
============================================================
Quarter from October 1, 1994 $9.687 $ 7.75
to December 31, 1994
============================================================
Quarter from January 1, 1995 $ 8.00 $ 7.00
to March 31, 1995
============================================================
Quarter from April 1, 1995 $ 8.50 $ 6.00
to June 30, 1995
- ------------------------------------------------------------
Quarter from July 1, 1995 $ 9.00 $ 6.00
to September 30, 1995
- ------------------------------------------------------------
Quarter from October 1, 1995 $21.50 $ 8.00
to December 31, 1995
- ------------------------------------------------------------
Quarter from January 1, 1996 $20.00 $16.00
to March 31, 1996
- ------------------------------------------------------------
Quarter from April 1, 1996 $18.00 $15.00
to June 30, 1996
- ------------------------------------------------------------
Quarter from July 1, 1996 $16.50 $13.00
to September 30, 1996
============================================================
</TABLE>
On December 17, 1996, the closing bid quotation for the Company's common stock
was $ 9.25 per share. However, there is no assurance that a market in the
Company's securities will continue. As of December 17, 1996, there were 953
shareholders of record of the Company's common stock (including brokerage firms
and/or other nominees who may hold shares for multiple investors).
Holders of common stock are entitled to receive dividends if, as and when
declared by the Board of Directors out of funds legally available subject to the
dividend and liquidation rights of any preferred stock that may be issued.
-22-
<PAGE>
The Company has never paid cash dividends on its stock and does not anticipate
doing so in the foreseeable future. Rather, the Company has determined to
utilize any earnings in the expansion of its business. Such policy is subject to
change, based on current industry and market conditions, as well as other
factors beyond the control of the Company.
-23-
<PAGE>
ITEM 6. SELECTED FINANCIAL INFORMATION
The selected consolidated historical financial data presented below as of and
for the years ended September 30, 1993, 1994, 1995 and 1996 are derived from the
Company's audited consolidated financial statements. The data set forth below
should be read in conjunction with the consolidated financial statements of the
Company and the notes thereto and "Management's Discussion and Analysis of
Financial Condition and Results of Operations" appearing elsewhere herein
(amounts in $000's except per share amounts).
<TABLE>
<CAPTION>
YEAR YEAR YEAR YEAR
ENDED ENDED ENDED ENDED
SEPTEMBER 30, SEPTEMBER 30, SEPTEMBER 30, SEPTEMBER 30,
1993(1) 1994 1995 1996(2)
-----------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
STATEMENT OF OPERATIONS DATA:
Revenues $ 75 $ 601 $ 382 $ 630
-----------------------------------------------------------------------------------
Costs and expenses:
Mineral operations - - - 959
Cost of water purification revenues 1 603 490 -
General and administrative
expense 1,076 3,224 3,908 2,696
Compensatory stock option
expense - - 955 364
Depreciation, depletion and
amortization 80 39 99 232
Mineral exploration expense - - 1,010 423
Research and development 85 15 185 -
Mergers and acquisitions - - 135 482
Write down of assets 399 908 - 673
-----------------------------------------------------------------------------------
Total costs and
expenses 1,641 4,789 6,782 5,829
-----------------------------------------------------------------------------------
Loss from operations (1,566) (4,188) (6,400) (5,199)
-----------------------------------------------------------------------------------
Other income (expense):
Equity in net loss of affiliate(2) - - - (3,178)
Minority interest in net loss
of consolidated subsidiary 1,302 4,581 3,502 -
Gain (loss) on sale of
investments (14) 253 (150) -
Other income (expense) (16) 45 (27) 56
-----------------------------------------------------------------------------------
Other income (expense),
net 1,272 4,879 3,325 (3,122)
-----------------------------------------------------------------------------------
Income (loss) from continuing
operations (294) 691 (3,075) (8,321)
Gain (loss) from discontinued
operations (292) (644) 33 -
-----------------------------------------------------------------------------------
Net income (loss) $ (586) $ 47 $(3,042) $(8,321)
===================================================================================
Income (loss) per common share:
Income (loss) from continuing $(0.09) $ 0.14 $ (0.40) $ (1.16)
operations
Income (loss) from
discontinued operations (0.09) (0.13) - -
-----------------------------------------------------------------------------------
Net income (loss) $(0.18) $ 0.01 $ (0.40) $ (1.16)
===================================================================================
Weighted average number of
common shares outstanding 3,244 4,946 7,651 7,149
===================================================================================
</TABLE>
SUPPLEMENTAL LOSS PER SHARE INFORMATION - Had the 2,707,000 preferred shares
been outstanding as common for the entire fiscal year ended September 30, 1996,
the weighted average common shares outstanding would have been 9,604,272 and the
loss per common share would have been $(0.87).
SUPPLEMENTAL FINANCIAL INFORMATION - Had the Company converted the preferred
shares it held as an investment in VETI to common shares at the beginning of the
current fisal year, the net loss and earnings per share for the year ended
September 30, 1996 would have been as follows:
<TABLE>
<S> <C>
Net loss $(6,700)
Net loss per share $ (0.94)
</TABLE>
<TABLE>
<CAPTION>
SEPTEMBER 30, SEPTEMBER 30, SEPTEMBER 30, SEPTEMBER 30,
1993(1) 1994 1995 1996(2)
------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
BALANCE SHEET DATA:
Total assets $2,309 $3,369 $14,316 $22,317
Long term debt 207 110 5,071 5,071
Stockholders' equity (deficit) (507) 2,214 8,144 13,193
</TABLE>
Note (1): The Company was inactive during the year ended September 30, 1992,
therefore consolidated financial data for that period has been omitted.
Note (2): Consolidated financial statements for fiscal years prior to fiscal
1996 include financial statements of VETI and its subsidiaries on a consolidated
basis due to the Company acquiring a controlling voting interest in VETI in
fiscal year 1995 and accounting for the acquisition of the investment in VETI as
a combination of entities under common control. Effective September 30, 1996,
the Company reduced its voting interest in VETI and as of that date has recorded
its investment in VETI using the equity method. The consolidated statements of
operations for fiscal year 1996 reflects an equity method presentation
retroactive to the beginning of the year.
-24-
<PAGE>
ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS
OVERVIEW
During the years ended September 30, 1996, 1995 and 1994, the Company operated
in two business segments: mineral resource development ("mining") and water
purification systems ("water purification") through its investment in VETI. See
Note 2 of Notes and the Consolidated Financial Statements.
During fiscal years 1996 and 1995, the business activities of the Company have
centered around mineral resource development. The primary focus to date has
been the acquisition and exploration of precious mineral resource properties in
Zimbabwe, Zambia and South Africa and research and development related to
minerals testing, process engineering and environmental technologies. In
addition, the Company has positioned itself in the environmental industry
through an equity investment in VETI. VETI is currently focused primarily on
the development, manufacture, sales and management of water treatment equipment
and facilities.
Effective September 30, 1996, the Company reduced its voting interest in VETI as
a result of converting VETI perferred stock, which had voting rights per share
equivalent to four (4) VETI common shares, to common shares of VETI. Therefore,
as of September 30, 1996, the investment in VETI has been recorded in the
consolidated balance sheet using the equity method of accounting and this method
of accounting will be applied prospectively. The Company has elected, however,
to provide a consolidated statement of operations for the year ended September
30, 1996 which reflects an equity method presentation retroactive to the
beginning of the year. The consolidated financial statements as of September 30,
1995 and for the years ended September 30, 1995 and 1994 have not been restated.
As a result, the consolidated financial statements for the years ended September
30, 1996 are not readily comparable to those for the years ended September 30,
1995 and 1994.
Due to the operating losses of the Company or the availability of net operating
loss carryforwards, there were no provisions for income taxes recorded in the
consolidated financial statements for the years ended September 30, 1996, 1995
and 1994.
RESULTS OF OPERATIONS
YEAR ENDED SEPTEMBER 30, 1996 COMPARED TO THE YEAR ENDED SEPTEMBER 30, 1995
As discussed above, the consolidated financial statements of the Company for
fiscal years 1996 and 1995 are not comparable due to the change from
consolidation to the equity method of accounting for the investment in VETI.
The following table is presented for the year ended September 30, 1995 to assist
in the discussion of results of operations.
-25-
<PAGE>
<TABLE>
<CAPTION>
1995 1996
---------------------------------------------- ------------
Consolidated Amounts Consolidated Consolidated
With Attributable Without Without
VETI to VETI VETI VETI
---------------------------------------------- ------------
<S> <C> <C> <C> <C>
REVENUES:
Precious metals $ - $ - $ - $ 630,481
Water purification 382,158 382,158 - -
-------------------------------------------- -----------
Total revenues 382,158 382,158 - 630,481
-------------------------------------------- -----------
Costs and expenses:
Mineral operations - - - 958,561
Cost of water purification revenues 489,589 489,589 - -
General and administrative expenses 3,908,099 2,471,492 1,436,607 2,696,135
Compensatory stock option expense 955,100 99,500 855,600 364,560
Depreciation, depletion and amortization 98,805 32,272 66,533 232,019
Mineral exploration expense 1,010,334 - 1,010,334 423,717
Research and development 185,053 185,053 - -
Write down of assets - - - 672,560
Mergers and acquisitions 134,749 - 134,749 482,339
-------------------------------------------- -----------
Total costs and expenses 6,781,729 3,277,906 3,503,823 5,829,891
============================================ ===========
Loss from operations $(6,399,571) $(2,895,748) $(3,503,823) $(5,199,410)
============================================ ===========
</TABLE>
Revenues for the year ended September 30, 1996, were $630,481 representing sales
of gold produced in Zimbabwe. There were no gold sales in 1995. During the year
ended September 30, 1996, the Zimbabwe mining properties were being updated and
improved through a continuing major capital improvement program. As a result,
the mines have only been operated on a very limited basis since acquisition of
the properties on January 31, 1996. Due to these low operating levels the fixed
and variable mineral operations expenses of $958,561 related to the production
of gold exceeded the revenues from gold sales by $328,080.
Total costs and expenses excluding the $958,561 related to gold production were
$4,871,330 for the year ended September 30, 1996, compared to $3,503,823 for the
year ended September 30, 1995, an increase of $1,367,507.
General and administrative expenses were $2,696,135 in 1996 compared to
$1,436,607 in 1995, an increase of $1,259,528. This increase includes an
increase in compensation expense, both direct and through consultants, of
$822,514 due to the continued expansion of operations worldwide. Expenses
related to professional services, primarily audit and legal increased by
$185,505 in 1996 compared to 1995 primarily due to costs incurred in relation to
filing an S-1 registration statement in September 1996. Travel related expenses
increased $129,935 in 1996 compared to 1995 due mainly to increased travel to
and between South Africa, Zimbabwe and Zambia related to the Company's
operations in those countries. Other general and administrative expenses
increased $121,574 in 1996 due to continued growth and expansion of the Company.
Compensatory stock option expense was $364,560 in 1996 compared to $855,600 in
1995, a decrease of $491,040. The decrease is due to the granting of the options
in 1995 and the vesting of such options which dictated the year in which the
expense was recognized. No compensatory options were issued in 1996.
-26-
<PAGE>
Depreciation, depletion and amortization expense increased from $66,533 in 1995
to $232,019 in 1996, an increase of $165,486. This increase is due to the
acquisition of the property and equipment in Zimbabwe and the related gold
production in 1996.
Mineral exploration expenses decreased from $1,010,334 in 1995 to $423,717 in
1996, a decrease of $586,617, due to reduced exploration costs and land fees on
various mineral properties under option to the Company in South Africa and
emphasis placed on the start up of limited gold production at the Zimbabwe
mines.
The Company recorded a write down of assets of $672,560 in 1996 to reserve
against advances it had made to certain parties in Ghana pursuant to contracts
to purchase unrefined gold. The write down was recorded due to the
uncertainties that exist because of disputes and litigation surrounding the
failure of the sellers to deliver the gold to the Company as required by the
contracts. The Company is currently pursuing various options to recover the
amounts advanced, and the Company believes that it will ultimately be successful
in recovering either gold or the advances made under the contracts.
Merger and acquisition related expenses increased $347,590 in 1996 to $482,339
due to the Company's increase in developing new business opportunities around
the world. These activities included the merger with Auromar, the temporary
acquisition of WestAmerica Corporation, the Relief Canyon joint venture and
other investment opportunities that the Company has evaluated during the year.
Total other income (expense), net was $(3,121,916) for the year ended September
30, 1996, compared to $3,324,714 for the year ended September 30, 1995. The
principal reason for the total difference of $6,446,630 is due to the lack of
comparability between years due to consolidation of VETI in fiscal 1995 versus
consolidating the results of operations of VETI in an equity method presentation
in fiscal 1996. In addition, minority interest in net loss of VETI of $3,502,401
(an other income item) was recorded in the consolidation in fiscal 1995 since
minority common stockholders' equity of VETI was available to allocate VETI
losses to. Once VETI minority common stockholders' equity was eliminated
through allocation of VETI losses in fiscal 1996, all VETI losses were allocated
in consolidation to Casmyn's preferred stockholders' equity, resulting in
reporting equity in net loss of affiliate of $(3,177,953) (an other expense
item). Exclusive of amounts reported relating to VETI, total other income
(expense) was $56,037 in fiscal 1996 compared to $(177,687) in fiscal 1995, an
increase of $233,724. The principal reason for this total increase was a loss on
the sale of investments of $150,000 recorded in 1995 that did not occur in 1996.
In addition, interest income earned on short term investments made by the
Company and other income, offset by interest expense and other miscellaneous
expenses, were $83,724 lower in 1996 compared to 1995.
In 1995 a subsidiary of VETI discontinued its metal fabrication segment,
resulting in a net gain from discontinued operations of $32,429.
The Company anticipates that, in the short term, expenditures related to
upgrading the newly acquired mining properties in Zimbabwe will exceed revenues
derived from the sale of gold from the mines. The Company is in the process of
preparing a capital improvement budget for the Zimbabwe properties.
Additionally, the Company anticipates that expense levels experienced in the
year ended September 30, 1996 relating to active exploration programs in various
countries will continue for the foreseeable future. The Company charges to
expense all mineral resource exploration and development costs until the mineral
property to which they relate is determined to have resources for which recovery
is economically feasible. Costs are then capitalized until the mineral property
to which they relate is placed into production, sold, abandoned or written down
where there is an impairment in value. Capitalized costs are to be charged to
future operations on a unit-of-production basis. The Company estimates that
total proven and probable gold reserves at the Zimbabwe Properties are
approximately 1,020,000 ounces (See Item 2 "Description of Property").
Independent engineering studies are currently underway which may cause this
estimate to change. The gold occurs in sulfides, oxides and old mill tailings.
-27-
<PAGE>
YEAR ENDED SEPTEMBER 30, 1995 COMPARED TO THE YEAR ENDED SEPTEMBER 30, 1994
Revenues for the year ended September 30, 1995, were $382,158 compared to
$600,714 for the year ended September 30, 1994. The $218,556 decrease was due
primarily to a decrease of $34,383 from assaying and minerals testing services
and a decrease of $184,173 from sales of water purification products. The
decrease in assaying and minerals testing was due to discontinuance of those
services. The decrease in sales of water purification products was the result of
sales efforts being directed to market analysis and new product design and
testing thereby reducing sales volume.
Costs and expenses were $6,781,729 for the year ended September 30, 1995,
compared to $4,789,219 for the year ended September 30, 1994, an increase of
$1,992,510. $1,010,334 of this increase was due to land fees and exploration
costs relating to active exploration programs presently under way on various
mineral properties that are under option to the Company. Selling, general and
administrative expenses increased $683,474 to $3,908,099 as a result of an
increase in advertising and marketing costs of $260,071 due to various programs
relating to the introduction of the Company's water purification systems in the
U.S. and foreign markets. Other general and administrative expenses increased
$423,403 for the year ended September 30, 1995 compared to the year ended
September 30, 1994 due primarily to increased professional and consulting
expenses. Compensatory stock option expense increased to $955,100 for the year
ended September 30, 1995 due to the granting of non-qualified stock options
during the year. Mergers and acquisitions expenses increased to $134,749 for the
year ended September 30, 1995 due to expenses incurred relating to the
acquisition of the Zimbabwe mining properties. The above increases were offset
by a decrease in the cost of water purification revenues of $113,089 to $489,589
for the year ended September 30, 1995 as a result of the corresponding decrease
in sales volume and a decrease in write down of assets of $908,059 because no
such transactions occurred during the year ended September 30, 1995.
Other income, exclusive of minority interest, decreased by $476,325 in the
fiscal year ended September 30, 1995, compared to the fiscal year ended
September 30, 1994, due mainly to gains on the sale of investments in related
parties of $253,218 that were realized in 1994, with a loss on sale in
investments in related parties of $150,000 in 1995. Minority interest in the
net loss of consolidated subsidiary decreased $1,078,293 to $3,502,401 for the
fiscal year ended September 30, 1995.
The Company discontinued its metal fabrication business segment in fiscal 1995
recognizing a loss from discontinued operations in the year ended September 30,
1995 of $77,354 compared to a loss of $643,767 for the year ended September 30,
1994. A gain of $109,783 was recognized on the disposal of certain metal
fabrication equipment during 1995.
CAPITAL RESOURCES AND LIQUIDITY
At September 30, 1996, the Company's working capital was $737,106, including
$4,046,194 in cash and cash equivalents. The Company has acquired certain
mineral properties in Zambia and South Africa and on January 31, 1996 concluded
the acquisition of certain mining properties and assets in Zimbabwe for
$4,526,415 cash plus applicable taxes of $993,660 to be paid upon assessment,
subject to certain adjustments.
Management anticipates that the net use of cash by operations will increase
during the foreseeable future due to expenditures on mineral resource
development projects in South Africa, mineral exploration and facility upgrades
at the Zimbabwe mining properties and a mineral exploration program currently
underway in Zambia. The Company will use current cash and cash equivalents to
fund the on-going projects in the short term and anticipates that it will be
able to secure additional debt and/or equity financing to fund longer term
projects although there can be no assurance that any such financing will be
secured or the amounts thereof. As evidence of the Company's ability to secure
debt and/or equity financing, on July 19, 1995 the Company placed a $5,000,000,
2.5%, unsecured Convertible Debenture, due July 31, 2000, ("Debenture") with
Societe Generale, Paris, France ("Holder"). Interest is payable semi-annually
commencing January 31, 1996, which, at the election of the Company, may be paid
through the issuance of shares of common stock of the Company. Additionally, in
the year ended September 30, 1996 the Company has received $12,975,683, net of
commissions and other expenses related to the transactions, through issuance of
1,159,091 units, consisting of warrants and shares of restricted common stock in
exempt private transactions.
-28-
<PAGE>
Additionally, on November 8, 1996, the Company completed a private placement of
155,000 units for total net proceeds of $1,410,500. During the fiscal year ended
September 30, 1995, the Company completed private placements of 405,000 Common
Shares and 714,286 units for total net proceeds of $7,002,859, and completed
placement of a $5,000,000, 2.5%, unsecured, convertible debenture for net
proceeds of $4,700,000 (See Notes to the Consolidated Financial Statements).
Additionally, during the year ended September 30, 1995, VETI completed private
placements of 500,000 common shares and 1,000,000 units for total net proceeds
of $3,375,000. During the fiscal year ended September 30, 1994, the Company
completed a private placement of 378,055 shares of common stock for net proceeds
of $1,908,000.
Net Cash Used in Operating Activities. Net cash used in operating activities was
$2,775,931 for the year ended September 30, 1996 due to net loss (before
depreciation and other non-cash expenses) of $3,693,342 which was due primarily
to the increased expenses related to the Zimbabwe mining operations and
increased consulting and compensation expenses, net cash provided by operations
of $35,473 from decreases of accounts receivable and inventory in the Zimbabwe
operation, net cash used in operations of $190,980 from increases in amounts due
from related parties and other assets, and net cash provided by operations of
$1,072,898 due to increases in accounts payable and accrued liabilities. Net
cash used in operating activities was $5,996,061 for the year ended September
30, 1995 and $4,476,585 for the year ended September 30, 1994, an increase of
$1,519,476. The increase in net cash used in operating activities in 1995 was
due principally to the increase in the net loss (before depreciation and other
non-cash expenses) of $1,243,071 because of active exploration programs
conducted on mineral properties and increased costs and expenses relating to
sales of water purification systems.
Net Cash Used in Investing Activities. Net cash used in investing activities was
$15,229,727 for the year ended September 30, 1996 due to the purchase of certain
businesses in Zimbabwe, the development of certain mineral properties and assets
in Zimbabwe, purchases of property and equipment at the Zimbabwe mining
properties and investments in VETI, and the Relief Canyon joint venture. During
the year ended September 30, 1995, the Company received $1,487,538 from the sale
of investments, and $209,324 from the sale of assets; this was offset by an
increase in investments in and advances to affiliates of $650,000, and $239,749
that was used to purchase property and equipment. These transactions resulted in
net cash provided by investing activities of $807,113. In the year ended
September 30, 1994, proceeds from the sale of investments and assets of
$1,368,220 were the major source of cash from investing activities, offset by an
increase in investments in and advances to affiliates of $626,120, and the
purchase of property and equipment of $142,530. These transactions resulted in
net cash provided by investing activities of $599,570.
Net Cash Provided by Financing Activities. Net cash provided by financing
activities was $17,774,060 for the year ended September 30, 1996 due to the
Company receiving $17,725,685 from the collection of funds, net of costs, from
private placements of common stock and $200,400 received from the exercise of
stock options, offset by the repayment of long-term debt of $152,025. As
discussed above, during the year ended September 30, 1995, the Company received
$4,700,000 (net of debt issuance costs) from the placement of a debenture,
$3,060,712 from the issuance of common stock of the Company and $1,326,564 from
the issuance of VETI and VVC common stock, offset by repayment of long-term debt
of $42,609, resulting in net cash provided by financing activities of
$9,044,667. During the year ended September 30, 1994, the Company received
$1,100,000 from the issuance of common stock of the Company and $3,080,820 from
the issuance of VETI and VVC common stock, offset by repayment of long-term debt
of $107,003, resulting in net cash provided by financing activities of
$4,073,817.
INFLATION AND CHANGING PRICES
The Company's consolidated financial statements are prepared on a historical
cost basis of accounting, and as such do not recognize changes in purchasing
power. In addition, since the gold production at the Company's Zimbabwe mining
properties have only been in limited production, operations have not been
materially affected by trends in the price of gold or inflation.
The Company's gold mining operations are located in Zimbabwe which is considered
to be a desirable location. All of the Company's gold production is sold to the
Zimbabwe government refinery at the current world gold spot price as quoted in
Zurich, Switzerland. All gold sales are settled in U.S. dollars. The spot gold
price at January 7, 1997 was $358.40 per ounce while the 400 day moving average
spot gold price was $386.60 per ounce.
Operating costs will be affected in part (primarily labor costs) by local
inflation rates. Inflation in Zimbabwe has been relatively stable in recent
years and was 23.0% (estimated), 23.7% and 24.3% for the calendar years ended
1996, 1995 and 1994 respectively. The rate on foreign exchange has typically
dropped in line with the inflation rate and as such, since the Company settles
its gold sales in U.S. dollars, most of the negative impact of inflation is
offset.
-29-
<PAGE>
ITEM 8. FINANCIAL STATEMENTS
The following financial statements are filed as part of this Report:
<TABLE>
<CAPTION>
Page
----
<S> <C>
I. Consolidated Financial Statements of Casmyn Corp.
Independent Auditors' Report.......................................... 31
Consolidated Balance Sheets as of September 30, 1996 and 1995 ........ 32
Consolidated Statements of Operations for the
Years Ended September 30, 1996, 1995 and 1994........................ 33
Consolidated Statements of Stockholders' Equity (Deficiency)
for the Years Ended September 30, 1996, 1995 and 1994 ............... 34
Consolidated Statements of Cash Flows for the Years
Ended September 30, 1996, 1995 and 1994.............................. 35
Notes to the Consolidated Financial Statements........................ 37
II. Consolidated Financial Statements of Vector Environmental
Technologies, Inc.
Independent Auditors' Report.......................................... 48
Consolidated Balance Sheets as of September 30, 1996 and 1995 ........ 49
Consolidated Statements of Operations for the
Years Ended September 30, 1996, 1995 and 1994........................ 50
Consolidated Statements of Stockholders' Equity (Deficiency)
for the Years Ended September 30, 1996, 1995 and 1994................ 51
Consolidated Statements of Cash Flows for the Years
Ended September 30, 1996, 1995 and 1994.............................. 52
Notes to the Consolidated Financial Statements........................ 53
</TABLE>
-30-
<PAGE>
INDEPENDENT AUDITORS' REPORT
To the Board of Directors and Stockholders of Casmyn Corp.
We have audited the accompanying consolidated balance sheets of Casmyn Corp. and
subsidiaries (collectively, the "Company") as of September 30, 1996 and 1995,
and the related consolidated statements of operations, stockholders' equity
(deficiency), and cash flows for each of the three years in the period ended
September 30, 1996. These financial statements are the responsibility of the
Company's management. Our responsibility is to express an opinion on these
financial statements based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audits provide a reasonable basis for our opinion.
In our opinion, such consolidated financial statements present fairly, in all
material respects, the financial position of Casmyn Corp. and subsidiaries as of
September 30, 1996 and 1995, and the results of their operations and their cash
flows for each of the three years in the period ended September 30, 1996 in
conformity with generally accepted accounting principles.
As discussed in Note 1 to the consolidated financial statements, during the year
ended September 30, 1996, the Company reduced its voting interest in Vector
Environmental Technologies, Inc. and changed its method of accounting for this
investment from consolidation to the equity method.
Deloitte & Touche LLP
Reno, Nevada
December 21, 1996
-31-
<PAGE>
CASMYN CORP.
CONSOLIDATED BALANCE SHEETS
<TABLE>
<CAPTION>
SEPTEMBER 30, 1996 SEPTEMBER 30, 1995
- -----------------------------------------------------------------------------------
ASSETS
------
CURRENT ASSETS:
<S> <C> <C>
Cash and cash equivalents $ 4,046,194 $ 4,938,945
Common stock subscriptions receivable - 7,125,002
Accounts receivable, net of allowance
of $88,837 and $0 210,748 33,872
Inventories 517,837 312,069
Prepaid expenses and other assets 15,295 653,518
---------------------------------
Total current assets 4,790,074 13,063,406
INVESTMENT IN AND ADVANCES TO AFFILIATES 2,748,031 204,227
PROPERTY AND EQUIPMENT, NET 14,101,782 510,921
DUE FROM RELATED PARTIES, NET 211,708 58,451
OTHER ASSETS 465,544 478,656
---------------------------------
TOTAL ASSETS $22,317,139 $14,315,661
=================================
- -----------------------------------------------------------------------------------
LIABILITIES AND STOCKHOLDERS' EQUITY
- ------------------------------------
CURRENT LIABILITIES:
Accounts payable $ 2,024,973 $ 392,025
Accrued taxes from acquisition 993,660 -
Payable to joint venture 623,000 -
Accrued liabilities 303,864 182,617
Current portion of long-term debt 107,471 27,462
---------------------------------
Total current liabilities 4,052,968 602,104
LONG-TERM DEBT 71,230 71,298
CONVERTIBLE DEBT 5,000,000 5,000,000
---------------------------------
Total Liabilities 9,124,198 5,673,402
---------------------------------
MINORITY INTEREST - 498,663
---------------------------------
COMMITMENTS AND CONTINGENCIES
STOCKHOLDERS' EQUITY:
Preferred stock, $.10 par value; 20,000,000
shares authorized; none outstanding - -
Common stock, $.04 par value; 300,000,000
shares authorized; 12,512,133 and 8,604,637
shares issued and outstanding 500,485 344,185
Additional paid-in capital 25,735,368 11,859,844
Accumulated deficit (12,389,109) (4,067,783)
Foreign currency translation adjustment (653,803) 7,350
---------------------------------
Total stockholders' equity 13,192,941 8,143,596
---------------------------------
TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY $22,317,139 $14,315,661
=================================
</TABLE>
The accompanying notes are an integral part of these consolidated financial
statements
-32-
<PAGE>
CASMYN CORP.
CONSOLIDATED STATEMENTS OF OPERATIONS
FOR THE YEARS ENDED SEPTEMBER 30, 1996, 1995 AND 1994
<TABLE>
<CAPTION>
=========================================================================================
1996 1995 1994
- -----------------------------------------------------------------------------------------
<S> <C> <C> <C>
REVENUES:
Precious metals $ 630,481 $ - $ -
Water purification - 382,158 566,331
Consulting and management fees - - 34,383
---------------------------------------------
630,481 382,158 600,714
---------------------------------------------
COSTS AND EXPENSES:
Mineral operations 958,561 - -
Cost of water purification revenues - 489,589 602,678
General and administrative expenses 2,696,135 3,908,099 3,224,625
Compensatory stock option expense 364,560 955,100 -
Depreciation, depletion and amortization 232,019 98,805 38,563
Mineral exploration expense 423,717 1,010,334 -
Write down of assets 672,560 - 908,059
Research and development - 185,053 15,294
Mergers and acquisitions 482,339 134,749 -
---------------------------------------------
5,829,891 6,781,729 4,789,219
---------------------------------------------
LOSS FROM OPERATIONS (5,199,410) (6,399,571) (4,188,505)
---------------------------------------------
OTHER INCOME (EXPENSE):
Equity in net loss of affiliate (3,177,953) - -
Minority interest in net loss of
consolidated subsidiary - 3,502,401 4,580,694
Gain (loss) on sale of investments - (150,000) 253,218
Interest income (expense), net 47,463 (44,863) 49,871
Other income (expense), net 8,574 17,176 (4,451)
---------------------------------------------
Other income (expense), net (3,121,916) 3,324,714 4,879,332
---------------------------------------------
INCOME (LOSS) FROM CONTINUING OPERATIONS (8,321,326) (3,074,857) 690,827
---------------------------------------------
DISCONTINUED OPERATIONS:
Loss from discontinued operations - (77,354) (643,767)
Gain on disposal of discontinued operations - 109,783 -
---------------------------------------------
Gain (loss) from discontinued operations - 32,429 (643,767)
---------------------------------------------
NET INCOME (LOSS) $ (8,321,326) $ (3,042,428) $ 47,060
=============================================
- -----------------------------------------------------------------------------------------
INCOME (LOSS) PER COMMON SHARE:
Income (loss) from continuing operations $ (1.16) $ (0.40) $ 0.14
Income (loss) from discontinued operations - - (0.13)
---------------------------------------------
NET INCOME (LOSS) $ (1.16) $ (0.40) $ 0.01
=============================================
WEIGHTED AVERAGE COMMON SHARES
OUTSTANDING 7,148,742 7,651,336 4,946,454
=============================================
- -----------------------------------------------------------------------------------------
</TABLE>
The accompanying notes are an integral part of these consolidated financial
statements
-33-
<PAGE>
CASMYN CORP.
CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY (DEFICIENCY)
FOR THE YEARS ENDED SEPTEMBER 30, 1996, 1995 AND 1994
<TABLE>
<CAPTION>
Foreign Total
Number Additional Currency Stockholders'
of Common Common Preferred Paid-in Accumulated Translation Equity
Shares Stock Stock Capital Deficit Adjustment (Deficiency)
- -----------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C>
BALANCES AT SEPTEMBER 30,
1993 3,244,296 $ 129,765 $ - $ 435,876 $( 1,072,415) $ - $ (506,774)
------------------------------------------------------------------------------------------------------
Adjustment to reflect
acquisition of Casmyn USA,
Inc., under accounting for
companies under common
control - - - (149,990) - - (149,990)
Issuance of shares in
exchange for investment in
related party 3,500,000 140,000 - 10,000 - - 150,000
Issuance of shares in
exchange for options to
purchase mineral rights 325,000 13,000 - 184,227 - - 197,227
Private placement 378,055 15,122 - 1,892,878 - - 1,908,000
Gain on sale of investment in
related party - - - 568,424 - - 568,424
Net income - - - - 47,060 - 47,060
------------------------------------------------------------------------------------------------------
BALANCES AT SEPTEMBER 30,
1994 7,447,351 297,887 - 2,941,415 (1,025,355) - 2,213,947
------------------------------------------------------------------------------------------------------
Issuance of shares for
consulting services 38,000 1,520 - 188,480 - - 190,000
Private placements 405,000 16,200 - 2,236,650 - - 2,252,850
Private placement of units 714,286 28,578 - 4,721,431 - - 4,750,009
Gain on sale of investment in
related party - - - 916,268 - - 916,268
Issuance of compensatory
stock options - - - 1,220,160 - - 1,220,160
Less: deferred compensation - - - (364,560) - - (364,560)
Foreign currency translation
adjustment - - - - - 7,350 7,350
Net loss - - - - (3,042,428) - (3,042,428)
----------------------------------------------------------------------------------------------------
BALANCES AT SEPTEMBER 30,
1995 8,604,637 344,185 - 11,859,844 (4,067,783) 7,350 8,143,596
----------------------------------------------------------------------------------------------------
Conversion to preferred stock (2,707,000) (108,280) 270,700 (162,420) - - -
Private placement of units 1,159,091 46,364 - 12,929,319 - - 12,975,683
Shares issued in lieu of
interest 7,302 292 - 120,600 - - 120,892
Deferred compensation - - - 364,560 - - 364,560
Issuance of compensatory
stock options - - - 576,250 - - 576,250
Less: deferred compensation - - - (576,250) - - (576,250)
Exercise of stock options 40,000 1,600 - 198,800 - - 200,400
Acquisition of WestAmerica 606,061 24,243 - 6,755,459 - - 6,779,702
Rescission of acquisition of
WestAmerica (606,061) (24,243) - (6,755,459) - - (6,779,702)
Conversion to common stock 2,707,000 108,280 (270,700) 162,420 - - -
Acquisition of Auromar 2,701,103 108,044 - 262,245 - - 370,289
Foreign currency translation
adjustment - - - - - (661,153) (661,153)
Net loss - - - - (8,321,326) - (8,321,326)
-----------------------------------------------------------------------------------------------------
BALANCES AT SEPTEMBER 30,
1996 12,512,133 $ 500,485 $ - $ 25,735,368 $ (12,389,109) $ (653,803) $13,192,941
=====================================================================================================
</TABLE>
The accompanying notes are an integral part of these consolidated financial
statements
-34-
<PAGE>
CASMYN CORP.
CONSOLIDATED STATEMENTS OF CASH FLOWS
FOR THE YEARS ENDED SEPTEMBER 30, 1996, 1995 AND 1994
<TABLE>
<CAPTION>
---------------------------------------------
1996 1995 1994
---------------------------------------------
<S> <C> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
Net income (loss) $ (8,321,326) $(3,042,428) $ 47,060
Adjustments to reconcile net income (loss) to
net cash used in operating activities:
Depreciation, depletion and amortization 232,019 101,555 71,290
Equity in net loss of affiliate 3,177,953 - -
Minority interest in net loss of consolidated subsidiary - (3,502,401) (4,580,694)
Write down of assets 672,560 - 908,059
(Gain) loss on sale of investments - 150,000 (253,218)
Gain on sale of assets - (109,783) -
Compensatory stock option expense 364,560 955,100 -
Amortization of debt issue costs 60,000 10,000 -
Other non-cash expense 120,892 390,000 2,617
(Increase) decrease in accounts receivable (210,748) 102,834 (54,309)
Decrease in inventories 246,221 140,460 58,349
Increase in prepaid expenses and other assets (126,891) (730,891) (273,941)
Increase in accounts payable 820,616 15,432 162,273
Increase (decrease) in accrued liabilities 252,282 (32,527) -
Increase in amounts due from related parties (64,069) (443,412) (564,071)
---------------------------------------------
Net cash used in operating activities (2,775,931) (5,996,061) (4,476,585)
---------------------------------------------
CASH FLOWS FROM INVESTING ACTIVITIES:
Purchases of businesses, net of cash acquired * (4,354,428) - -
Decrease in cash due to change in accounting for
investment in VETI** (459,708) - -
Proceeds from sale of investments in related parties - 1,487,538 1,366,220
Proceeds from sale of assets - 209,324 2,000
Increase in other assets (139,099) - -
Increase in investment in and advances to affiliates (3,190,567) (650,000) (626,120)
Purchase of property and equipment (7,085,925) (239,749) (142,530)
---------------------------------------------
Net cash (used in) provided by investing activities (15,229,727) 807,113 (599,570)
---------------------------------------------
CASH FLOWS FROM FINANCING ACTIVITIES:
Issuance of common stock 17,725,685 3,060,712 1,100,000
Issuance of common stock for exercise of stock options 200,400 - -
Issuance of VETI and VVC common stock - 1,326,564 3,080,820
Proceeds from convertible debt - 5,000,000 -
Repayments of long-term debt (152,025) (42,609) (107,003)
Payment of debt issue costs - (300,000) -
---------------------------------------------
Net cash provided by financing activities 17,774,060 9,044,667 4,073,817
---------------------------------------------
Foreign currency translation adjustment (661,153) 7,350 -
---------------------------------------------
NET INCREASE (DECREASE) IN CASH AND CASH EQUIVALENTS (892,751) 3,863,069 196,802
CASH AND CASH EQUIVALENTS, BEGINNING OF YEAR 4,938,945 1,075,876 879,074
---------------------------------------------
CASH AND CASH EQUIVALENTS, END OF YEAR $ 4,046,194 $ 4,938,945 $ 1,075,876
=============================================
</TABLE>
(CONTINUED)
The accompanying notes are an integral part of these consolidated financial
statements
-35-
<PAGE>
CASMYN CORP.
CONSOLIDATED STATEMENTS OF CASH FLOWS
FOR THE YEARS ENDED SEPTEMBER 30, 1996, 1995 AND 1994
(CONTINUED)
<TABLE>
<CAPTION>
--------------------------------------------
1996 1995 1994
--------------------------------------------
<S> <C> <C> <C>
CASH PAID FOR INTEREST $ 147,169 $ 12,605 $ 22,521
============================================
NONCASH INVESTING AND FINANCING ACTIVITIES:
Issuance of common stock for subscriptions receivable $ - $ 7,125,002 $808,000
Transfer of equipment to related parties - (36,641) -
Issuance of common stock for services - 390,000 -
Issuance of common stock for payment of interest 120,892 - -
Issuance of common stock for mineral properties - - 197,227
Increase in due to related parties and decrease in additional
paid-in capital for acquisition of Casmyn USA, Inc. - - 149,990
Investment in related party received for repayment of debt - - 173,046
Issuance of common stock for investment in related party - - 150,000
Acquisition of equipment with notes payable - - 24,302
Exchange of investment in Auromar for investment in VETI 204,227 - -
Conversion of common stock to preferred stock 270,700 - -
Conversion of preferred stock to common stock 270,700 - -
Issuance of common stock to acquire WestAmerica 6,779,702 - -
Rescission of acquisition of WestAmerica 6,779,702 - -
Property and equipment purchased through issuance of
accounts payable and accrued liabilities 1,036,527 - -
Decrease in investment in VETI and increase in advances
to VETI for dividends on preferred stock 237,500 - -
- ---------------------------------------------------------------------------------------------------------------------------
* PURCHASE OF BUSINESSES, NET OF CASH ACQUIRED:
Working capital, other than cash $ (108,227)
Mineral properties (4,945,600)
Property and equipment (896,516)
Accrued taxes from acquisition 993,660
Stock issued 370,289
Capital lease obligations 231,966
-----------
Net cash used to acquire businesses $(4,354,428)
===========
**Impact on the Company's 1996 consolidated balance sheet resulting from the
change from consolidation to the equity method of accounting for the
investment in VETI:
Current assets $ 439,673
Investment in and advances to affiliates (654,853)
Property and equipment, net 141,688
Other assets 3,024
Current liabilities (389,240)
-----------
Decrease in cash due to change in accounting for investment in VETI $ (459,708)
===========
</TABLE>
-36-
<PAGE>
CASMYN CORP.
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
1. SIGNIFICANT ACCOUNTING POLICIES
ORGANIZATION
Casmyn Corp. ("Casmyn" or the "Company") was incorporated in Colorado on
December 4, 1984. Casmyn was in the development stage from its inception through
August 1994 when it purchased for approximately $150,000 all of the common stock
of Casmyn USA, Inc. ("Casmyn USA") from Dahya Holdings, Inc., a related party.
Casmyn USA's principal business was performing contract research and development
services, primarily for related parties. The acquisition of Casmyn USA has been
accounted for as a combination of entities under common control, which is a
method similar to a pooling of interests. Therefore, the accompanying
consolidated financial statements include assets and liabilities of Casmyn USA
at their historical cost and operations of Casmyn USA for all years presented.
Effective August 12, 1996, pursuant to approval of a Plan of Arrangement by the
Supreme Court of British Columbia, Canada, the Company acquired 100% of the
outstanding common stock of Auromar Development Corporation ("Auromar", See Note
4).
Casmyn also has the following wholly owned subsidiaries: Casmyn Mining
Corporation, which serves as a holding company for the Company's mining
operations and which is actively exploring for mineral resources in South
Africa; Casmyn Zimbabwe (Private) Ltd., which acquired and is conducting mining
operations in Zimbabwe; Copperbelt Associates, Limited, which is actively
exploring for mineral resources in Zambia; Casmyn Technologies, Ltd., which
conducts research and development of water purification technology; Casmyn
Desalco, Ltd., which conducts research and development on desalinization
projects; and Vector South Africa, Ltd., which is licensed in South Africa to
sell water purification systems.
On June 29, 1995, the Company acquired an equity interest in Vector
Environmental Technologies, Inc. ("VETI") through the acquisition of 3,000,000,
5%, cumulative, convertible, voting preferred shares of VETI ("Preferred
Shares"), in exchange for approximately $2,400,000 in debts owing to the
Company. On September 29, 1995, Casmyn purchased an additional 1,000,000
Preferred Shares of VETI at $2.00 per share. VETI is related to Casmyn through
the existence of certain common officers, directors and significant
stockholders. Under the terms of the Preferred Shares, effective September 30,
1996, the Company converted these Preferred Shares into common stock of VETI,
resulting in the Company owning approximately 24.3% of the common stock of VETI.
During the fourth quarter of fiscal 1996, the Company exchanged 425,750 common
shares of Auromar held as an investment for 1,532,700 restricted common shares
of VETI, thereby increasing its percentage ownership in VETI to approximately
30.8% at September 30, 1996.
VETI operates through its 95% owned subsidiary, Vector Venture Corp. ("VVC"),
and various wholly owned subsidiaries: Vector Venture Corp., which holds certain
technologies and licenses; Vector Manufacturing Corp. ("VMC"), which provides
purchasing and manufacturing services; Vector Vietnam, Ltd., which holds and
manages Vietnamese operations; Alpine Water Purification, Inc., which markets
consumer water treatment equipment; STOX Systems, Inc., which markets hazardous
materials storage systems; CGL Technologies, Inc., which performs research and
development of water purification technologies; Vector India, which was formed
to develop business in India; and Vector Water Technologies, which markets water
purification systems in the United Arab Emirates.
BASIS OF PRESENTATION
Consolidated financial statements for the fiscal years ended September 30, 1994
and 1995 and subsequent interim quarterly periods in fiscal 1996 included the
financial statements of VETI on a consolidated basis due to the Company having a
voting controlling interest in VETI and accounting for the acquisition of its
investment in VETI as a combination of entities under common control. This
voting controlling interest arose through the provisions of the Preferred Shares
held by the Company, whereby each Preferred Share was entitled to the equivalent
of four (4) common share votes. Effective September 30, 1996, the Company
converted these Preferred Shares into common shares and thereby relinquished its
voting control of VETI. Therefore, as of September 30, 1996, the investment in
VETI has been recorded in the consolidated balance sheet using the equity method
of accounting and this method of accounting will be applied prospectively from
that date. The consolidated statement of operations for the year ended September
30, 1996 reflects an equity method presentation retroactive to the beginning of
the year. The consolidated financial statements as of September 30, 1995 and for
the years ended September 30, 1995 and 1994 have not been restated.
-37-
<PAGE>
PRINCIPLES OF CONSOLIDATION
The consolidated financial statements include the accounts of Casmyn and its
wholly owned and controlled subsidiaries (collectively, the "Company"). All
intercompany transactions and balances have been eliminated in consolidation.
DISCONTINUED OPERATIONS
In 1995, VMC discontinued its metal fabrication segment. The results of the
metal fabrication segment have been reported separately as discontinued
operations in the accompanying consolidated statements of operations for the
years ended September 30, 1995 and 1994. Sales for the metal fabrication segment
were $12,379 and $519,167 during the years ended September 30, 1995 and 1994.
CASH AND CASH EQUIVALENTS
For purposes of the consolidated statements of cash flows, the Company considers
all short-term investments with a maturity of three months or less at the date
of purchase to be cash equivalents. As of September 30, 1996 and 1995, bank
balances held in excess of Federally insured limits were $576,646 and $1,085,516
respectively.
INVENTORIES
Inventories at September 30, 1996 consist principally of mining supplies and are
stated at the lower of cost or market. Cost is determined on a weighted average
basis. Inventories at September 30, 1995 are stated at the lower of cost or
market. Cost is determined using the first-in first-out method. Cost includes
material, labor and manufacturing overhead costs.
PROPERTY AND EQUIPMENT
Mineral properties - Mineral properties are stated at acquisition cost. Mineral
exploration and development costs are expensed as incurred. When it has been
determined that a mineral property can be economically developed, the costs
incurred to develop such property, including costs to further delineate the ore
body, are capitalized. Acquisition and capitalized costs are charged to future
operations using a unit-of-production method over the estimated life of the ore
body. If a property is determined not to be commercially feasible, unrecoverable
costs are expensed in the year such determination is made. On-going development
expenditures to maintain production are generally charged to operations as
incurred.
When the Company enters into agreements for the acquisition of interests in
mineral properties that provide for periodic payments, such amounts are not
recorded as a liability since they are payable entirely at the Company's
discretion. Such payments, when made, are recorded as mineral exploration
expense. If payments are not made, such non-payment will result in the write-
off of the related investment in mineral properties.
Buildings - Buildings are depreciated on a straight-line basis over their
estimated useful lives of forty years.
Other property and equipment - Other property and equipment are recorded at cost
and are depreciated or amortized on a straight-line basis over their estimated
useful lives of three to seven years.
REVENUE RECOGNITION
Revenue from sale of gold production is recognized when products are delivered
to the buyer. Revenues from sale of water purification equipment is recognized
when goods are shipped to customers.
INCOME (LOSS) PER SHARE
Income (loss) per common share is computed on the basis of the weighted average
number of shares outstanding and common stock equivalents when dilutive. If the
preferred stock had been outstanding as common stock during the entire fiscal
year, the loss per share for fiscal 1996 would have been $(0.87).
FOREIGN CURRENCY TRANSLATION
The financial position and results of operations of the Company's foreign
subsidiaries are measured using local currency as the functional currency.
Assets and liabilities of these subsidiaries are translated at the exchange rate
in effect at each year end. Statement of operations accounts are translated at
the average rate of exchange prevailing during the year. Translation
adjustments arising from differences in exchange rates from period to period are
included in the accumulated foreign currency translation adjustments account in
stockholders' equity.
USE OF ESTIMATES
-38-
<PAGE>
The preparation of financial statements in conformity with generally accepted
accounting principles requires management to make estimates and assumptions that
affect the reported amounts of assets and liabilities at the date of the
financial statements and the reported amounts of revenues and expenses during
the reporting period. Actual results could differ from those estimates.
RECLASSIFICATIONS
Certain amounts in the 1995 and 1994 consolidated financial statements and notes
have been reclassified to conform with the 1996 presentation.
FAIR VALUE OF FINANCIAL INSTRUMENTS
The Company believes, based upon current information that the carrying value of
the Company's cash and cash equivalents, accounts receivable and accounts
payable approximates fair value due to the short maturity of those instruments.
The fair value of amounts due from related parties is not determinable because
of the related party nature of the amounts. The Company estimates the fair value
of its long-term debt approximates its carrying value because interest rates on
the debt approximate market rates. It is not practicable to estimate the fair
value of the convertible debt as there were no quoted market prices for the same
or similar issues.
RECENTLY ISSUED ACCOUNTING STANDARDS
The Financial Accounting Standards Board ("FASB") issued SFAS No. 121
"Accounting for the Impairment of Long-Lived Assets and for Long-Lived Assets to
be Disposed Of" in March 1995. This statement, effective for the Company's
fiscal year ending September 30, 1997, requires that long-lived assets and
certain identifiable intangibles to be held and used by an entity be reviewed
for impairment whenever events or changes in circumstances indicate that the
carrying amount of an asset may not be recoverable. Management believes the
adoption of SFAS No. 121 will not have a significant effect on the financial
position or results of operations of the Company.
The FASB issued SFAS No. 123 "Accounting for Awards of Stock-Based Compensation
to Employees" in October, 1995. This statement, effective for the Company's
fiscal year ending September 30, 1997, establishes financial accounting and
reporting standards for stock-based employee compensation plans and for
transactions where equity securities are issued for goods and services. This
Statement defines a fair value based method of accounting for an employee stock
option or similar equity instrument and encourages all entities to adopt that
method of accounting for all of their employee stock compensation plans.
However, it also allows an entity to continue to measure compensation cost for
those plans using the intrinsic value based method of accounting prescribed by
APB Opinion No. 25, "Accounting for Stock Issued to Employees." Management's
current intention is to continue to follow APB Opinion No. 25 and therefore it
believes that if SFAS No. 123 had been adopted at September 30, 1996, it would
not have had a significant effect on the financial position or results of
operations of the Company.
2. BUSINESS SEGMENTS
After discontinuing its metal fabrication business segment, the Company has
operated principally in two business segments: mineral resource development
("mining") and development and sale of environmental technologies, principally
water purification systems ("water purification"). During the year ended
September 30, 1996, the Company operated in water purification through its
equity investment in VETI. The Company's primary focus has been mineral resource
development. During fiscal 1996 the Company acquired gold producing properties
in Zimbabwe (See Note 4) which commenced operations on a limited basis in April
1996. Throughout fiscal 1996 most of the gold processing operations were shut
down during a plant modernization and expansion program, the first phase of
which was substantially completed in September 1996. The Company's mining
operations are based in Africa (Zimbabwe and South Africa).
-39-
<PAGE>
<TABLE>
<CAPTION>
Water Corporate
(in thousands) Mining Purification and Other Consolidated
- -----------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
1996 (See Note 1)
Revenues $ 630 $ - $ - $ 630
Loss from operations (2,690) - (2,509) (5,199)
Equity in net loss of affiliate - (3,178) - (3,178)
Identifiable assets 15,454 2,747 4,116 22,317
Depreciation, depletion and amortization 196 - 36 232
Capital expenditures 13,832 - 133 13,965
- -----------------------------------------------------------------------------------------------------------------
1995
Revenues $ - $ 382 $ - $ 382
Loss from operations (1,314) (3,268) (1,818) (6,400)
Identifiable assets 4,259 5,486 4,571 14,316
Depreciation, depletion and amortization 28 35 36 99
Capital expenditures 138 91 11 240
- -----------------------------------------------------------------------------------------------------------------
1994
Revenues $ - $ 566 $ 35 $ 601
Loss from operations (68) (3,172) (949) (4,189)
Identifiable assets 216 1,243 1,910 3,369
Depreciation, depletion and amortization - 9 30 39
Capital expenditures 208 96 60 364
- -----------------------------------------------------------------------------------------------------------------
</TABLE>
The Company has operations based in North America and Africa, and in Asia
through its equity investment in VETI. The table below presents information as
to the Company's operations by geographic region.
<TABLE>
<CAPTION>
(in thousands) Africa North America Asia Consolidated
- --------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
1996 (See Note 1)
Revenues $ 630 $ - $ - $ 630
Loss from operations (2,175) (3,024) - (5,199)
Equity in net loss of affiliate - (2,172) (1,006) (3,178)
Identifiable assets 14,056 8,261 - 22,317
- --------------------------------------------------------------------------------------------------------------------
1995
Revenues $ - $ 236 $ 146 $ 382
Loss from operations (1,315) (4,963) (122) (6,400)
Identifiable assets 4,259 9,753 304 14,316
- --------------------------------------------------------------------------------------------------------------------
1994
Revenues $ - $ 601 $ - $ 601
Loss from operations (68) (4,062) (59) (4,189)
Identifiable assets 216 3,142 11 3,369
- --------------------------------------------------------------------------------------------------------------------
</TABLE>
3. INVESTMENT IN AND ADVANCES TO AFFILIATES
The Company's investment in and advances to affiliates at September 30, 1996 and
1995 include the following:
<TABLE>
<CAPTION>
1996 1995
--------------------------
<S> <C> <C>
Investment in VETI $1,034,604 $ -*
Advances to VETI 1,712,421 -*
Other 1,006 204,227
-------------------------
Total $2,748,031 $ 204,227
=========================
</TABLE>
* Eliminated in consolidation
The advances to VETI bear interest at 9% per annum and are due one year from the
date of the advance. The Company does not expect significant repayment of the
advances from VETI during the year ending September 30, 1997; therefore, the
advances are recorded as non-current.
Upon conversion of VETI Preferred Shares to common stock (see Note 1), preferred
stock dividends in arrears receivable from VETI were $237,500. The Company
decreased the investment in VETI by $237,500 and increased the advances from
VETI by $237,500.
-40-
<PAGE>
As discussed in Note 1, the Company reduced its voting interest in VETI as a
result of converting VETI Preferred Stock to common stock. As of September 30,
1996, the Company has recorded its investment in VETI using the equity method
and will apply this method of accounting prospectively from that date. The
consolidated statement of operations for the year ended September 30, 1996
reflects an equity method presentation retroactive to the beginning of the year.
Summarized financial information of VETI as of September 30, 1996 and the year
then ended is as follows:
<TABLE>
<S> <C>
Sales $ 1,017,071
Loss from operations (4,091,717)
Net loss (3,962,346)
Current assets $ 2,645,458
Non-current assets 2,432,350
-----------
$ 5,077,808
===========
Current liabilities $ 2,659,276
Stockholders' equity 2,418,532
-----------
$ 5,077,808
===========
</TABLE>
4. ACQUISITIONS
ZIMBABWE
Effective January 31, 1996, in accordance with the terms and conditions of a
formal Purchase Agreement concluded in August 1995, the Company completed the
acquisition of 100% of the shares of a group of five (5) private mining
companies controlled by the Muir Family in Zimbabwe through E.W.B. Properties
(Private) Limited ("EWB"). The total consideration for this acquisition was
$4,071,415 plus applicable taxes estimated at $993,660. The acquisition includes
mining claims on several producing gold mining properties covering approximately
2,965 acres in the Bubi Greenstone Gold Belt of Zimbabwe. These properties
include infrastructure, mining and milling equipment. This acquisition was
accounted for using the purchase method. The purchase price has been allocated
to the net assets as follows:
<TABLE>
<CAPTION>
<S> <C>
Mineral properties $4,293,373
Property and equipment 892,074
Working capital 111,594
Capital lease obligations (231,966)
Accrued taxes from acquisition (993,660)
----------
$4,071,415
==========
</TABLE>
Also on January 31, 1996, the Company completed the acquisition of a 100%
interest in the Dawn Mine property from Olympus Gold Mines Ltd. in Zimbabwe for
approximately $455,000. The Dawn Mine is adjacent to the mines acquired in the
EWB transaction. The purchase price has been allocated to mineral properties.
ZAMBIA
During the fiscal year ended September 30, 1996, the Company purchased 100% of
the common shares of Copperbelt Associates Limited for $65,700. That company's
only asset is a prospecting license covering certain properties in the Zambian
Copperbelt. The purchase price of $65,700 was allocated to the prospecting
license and recorded in mineral properties.
AUROMAR DEVELOPMENT CORPORATION
Effective August 12, 1996, pursuant to approval of a Plan of Arrangement by the
Supreme Court of British Columbia, Canada, the Company acquired approximately
7,023,000 common shares of Auromar in exchange for approximately 2,701,000
common shares of the Company. This transaction has been accounted for as a
purchase. The principal asset of Auromar was a 50% option in certain mineral
properties in South Africa, which has been recorded at predecessor cost prior to
its acquisition by Auromar. The Company had previously acquired the other 50% in
the mineral properties (See Note 6). The purchase price has been allocated to
the net assets as follows:
-41-
<PAGE>
<TABLE>
<S> <C>
Working capital (including cash acquired of $171,987) $169,620
Property and equipment 4,442
Mineral properties 196,227
--------
$370,289
========
</TABLE>
The Company had previously purchased 1,000,000 shares of common stock of
Auromar, in exchange for 3,500,000 restricted common shares of the Company. The
investment was valued at $150,000 based upon the Company's approximately 21%
share of the historical cost basis of the net assets of Auromar. From April 25,
1994 through September 30, 1994, the Company purchased in the open market an
additional 44,600 shares of Auromar common stock and sold 152,500 shares of
Auromar common stock in the open market at a gain of $568,424. During the fiscal
year ended September 30, 1995, the Company sold 466,350 shares of Auromar common
stock in the open market at a gain of $916,268. Because of the intent to merge
with Auromar, the gains on sale of Auromar stock have been recorded as an
increase to additional paid-in capital. During the fourth quarter of 1996, the
Company exchanged the remaining 425,750 common shares of Auromar for 1,532,700
restricted common shares of VETI. The VETI shares were recorded at the book
value of the Auromar shares.
The following summary unaudited pro-forma consolidated results of operations
give effect to the above acquisitions as though they had occurred on October 1,
1994.
<TABLE>
<CAPTION>
Years ended September 30 1996 1995
- ------------------------ -------- --------
<S> <C> <C>
(In thousands except per share amounts)
Revenues $ 1,503 $ 2,723
Net loss (8,269) (2,767)
Loss per common share $ (.84) $ (.27)
------- -------
</TABLE>
The unaudited pro-forma information is not necessarily indicative either of
results of operation that would have occurred had the purchases been made on
October 1, 1994, or future results of operations of the combined companies.
5. WRITE DOWN OF ASSETS
As part of its efforts to expand mining activities to Ghana, the Company entered
into contracts to purchase unrefined gold from certain parties during the year
ended September 30, 1996, for final refining and sale at the Royal Canadian Mint
in Ottawa, Canada. The Company was required to advance funds under the contracts
and paid a total of $672,560 to the sellers. The Company has not received
shipment of the gold as stipulated in the contracts and disputes and litigation
have arisen between the parties. The Company believes that it will ultimately be
successful in recovering the gold or the advances made under the contracts.
However, because of the uncertainties related to this matter, the Company has
fully reserved the advances made and recorded a loss on write down of assets of
$672,560 in 1996.
VETI through its subsidiary, Vector Venture Corporation ("VVC")sought to
acquire PERM Pelican, Inc. ("PERM") under an agreement dated March 10, 1993,
however VVC's relationship with the seller of PERM deteriorated to the point
where the VVC was unable to complete the acquisition. Consequently, on August
25, 1994 VVC commenced legal proceedings against PERM, the seller and certain
principals of PERM. Due to the uncertainty regarding the ability of the Company
to recover its investment in and advances to PERM, VETI wrote off $758,059 in
the fiscal year ended September 30, 1994.
On November 29, 1991, prior to the current ownership of Casmyn, the Company
purchased mineral properties in exchange for 2,400,000 of its restricted common
shares. The purchase was recorded at $150,000, which represented the estimated
predecessor cost of such properties. The Company did not develop these
properties, and per the purchase agreement, the mineral properties reverted back
to the original owners on April 1, 1994. Accordingly, the Company has written
off the $150,000 as loss on write down of assets in the fiscal year ended
September 30, 1994.
-42-
<PAGE>
6. PROPERTY AND EQUIPMENT
Property and equipment consists of the following at September 30:
<TABLE>
<CAPTION>
1996 1995
---------------------------
<S> <C> <C>
Mineral properties $ 6,041,524 $ 197,227
Joint venture mineral properties (Note 13) 1,398,000 -
Buildings 1,133,665 -
Mining production equipment 5,074,163 -
Furniture, fixtures and office equipment 257,803 257,385
Leasehold improvements 63,004 36,207
Automotive equipment - mining 490,171 115,604
---------------------------
Total 14,458,330 606,423
Accumulated depreciation, depletion and
amortization (356,548) (147,959)
---------------------------
Net property and equipment 14,101,782 458,464
Construction in progress - 52,457
---------------------------
Total property and equipment, net $14,101,782 $ 510,921
===========================
</TABLE>
On April 24, 1994, the Company entered into an agreement to acquire a three-year
option to purchase certain mineral rights in South Africa from Diamond Fontein
International, Ltd. ("DFI"), a related party. Consideration for the option was
the issuance of 25,000 common shares at par value ($.04) or $1,000.
On August 4, 1994 and August 8, 1994, the Company acquired a 50% interest in
certain mineral properties located in the Schweizer-Reneke region of South
Africa and a 100% interest in certain properties located in the Schweizer-Reneke
and Northern Transvaal regions of South Africa from DFI by the issue of 300,000
common shares valued at $196,227, which is the historical cost incurred by DFI
relative to acquisition of the mineral rights. Effective August 12, 1996 the
Company acquired Auromar (See Note 4), which owns the option to acquire the
remaining 50% interest in certain of the mineral properties located in the
Schweizer-Reneke region. This interest was also valued at $196,227.
7. RELATED PARTY TRANSACTIONS
The Company conducts business with various companies that are related through
the existence of certain common officers, directors and significant
stockholders. As a result of these related party transactions, cash advances
from and to the Company and other transactions, the Company had a net amount due
from related parties at September 30, 1996 and 1995 of $211,708 and $58,451
respectively. These amounts are non-interest bearing and contain no formal
repayment terms. During the year ended September 30, 1996 the Company paid
approximately $602,000 for capital expenditures to a company of which a director
of Casmyn Mining Zimbabwe (Private) Ltd. was also a director.
During the year ended September 30, 1996 the Company paid $74,456 to a related
party for consulting services related to various Company programs and
activities.
During 1995, the Company sold 250,000 shares of VETI common stock at a loss of
$150,000.
Substantially all of the gain on sale of investments in the year ended September
30, 1994 arose from the sale of securities of related parties to unrelated
parties.
8. LONG-TERM AND CONVERTIBLE DEBT
Long-term debt consists of the following at September 30:
<TABLE>
<CAPTION>
1996 1995
--------------------------
<S> <C> <C>
Capital leases $178,701 $ -
Long-term debt repaid in 1996 - 98,760
--------------------------
Total 178,701 98,760
Less current portion 107,471 27,462
--------------------------
Long-term portion $ 71,230 $71,298
==========================
</TABLE>
-43-
<PAGE>
Annual maturities under capital leases are as follows:
<TABLE>
<S> <C>
1997 $ 154,544
1998 79,059
---------
233,603
Less amount representing interest (54,902)
---------
Present value of net minimum lease payments 178,701
Less current portion (107,471)
---------
Long-term portion $ 71,230
=========
</TABLE>
On July 19, 1995 the Company placed a $5,000,000, 2.5%, unsecured, convertible
debenture due July 31, 2000 ("Debenture") with Societe Generale, Paris, France
("Holder"). Interest is payable semi-annually commencing January 31, 1996,
which, at the election of the Company, may be paid through the issuance of
common shares of the Company. The debenture provides for conversion to common
stock of the Company at $6.00 per share for the first two years after issuance,
increasing to $6.50 during the third year, $7.00 during the fourth year and
$7.50 during the fifth year. Under the terms of the debenture, the Company is
obligated, upon the election of the Holder, to issue additional shares of its
common stock upon completion of the merger with Auromar such that the Holder
would maintain its relative ownership interest in the Company upon conversion of
the debentures. If elected by the Holder, under this provision, the Company
would be required to issue 237,218 additional shares. The net proceeds from this
debenture were $4,700,000 after deducting $300,000 in costs relating to the
placement.
9. STOCKHOLDERS' EQUITY
COMMON STOCK
On September 14, 1994, the Company completed a private placement of 378,055
shares of common stock for net proceeds of $1,908,000. During the year ended
September 30, 1995, the Company completed private placements for a total of
405,000 shares of common stock for net proceeds of $2,252,850. On September 29,
1995, the Company completed a private placement of 714,286 units for net
proceeds of $4,750,009. Each unit consists of one common share of the Company,
plus one warrant; two warrants, plus $8.50, will entitle the holder to purchase
one share of the Company's common stock. All warrants expire on October 1, 1997.
VETI completed a private placement of 1,000,000 units in September 30, 1995, for
net proceeds of $2,375,000 (see Note 12). At September 30, 1995, $7,125,002 of
these amounts were included in common stock subscriptions receivable. The
subscriptions receivable were collected subsequent to September 30, 1995.
On March 29, 1996, the Company completed a private placement of 750,000 units
for net proceeds of $8,745,683. Each unit consists of one share of the
Company's restricted common stock, plus one warrant. Two warrants, plus $13.00,
will entitle the holder to purchase one share of the Company's common stock.
The warrrants are exercisable for a period of two years.
On September 11, 1996, the Company completed a private placement of 409,091
units for net proceeds of $4,230,000. Each unit consists of one share of the
Company's restricted common stock plus one warrant, two warrants plus $11.00
will entitle the holder to purchase one share of the Company's common stock.
The warrants are exercisable for a period of two years.
On November 8, 1996, the Company completed a private placement of 155,000 units
for net proceeds of $1,410,500. Each unit consists of one share of the Company's
restricted common stock plus one warrant; two warrants plus $10.00 will entitle
the holder to purchase one share of the Company's common stock. The warrants are
exercisable for a period of two years.
PREFERRED STOCK
The Company has authorized 20,000,000 shares of $.10 par value preferred stock.
The Board of Directors is vested with the authority to divide the preferred
shares into series and determine the relative rights and preferences at the time
of issuance of the series.
-44-
<PAGE>
On August 30, 1996, the Company converted 2,707,000 Series A preferred shares
into 2,707,000 common shares. These preferred shares were originally issued on
October 3, 1995, when the Company converted 2,707,000 of its common shares held
directly or beneficially by the Company's President, Chief Executive Officer and
Chairman of the Board, into 2,707,000 Series A preferred shares. Each share of
Series A preferred stock was convertible, at the holder's option into one share
of common stock and was entitled to the equivalent of five (5) common share
votes.
COMPANY STOCK OPTIONS
During 1995, the Company adopted an Incentive Stock Option Plan (ISOP) which
provides that a maximum of 800,000 options to purchase the Company's common
stock may be granted to officers, employees and advisors of the Company. Options
granted under the ISOP are intended to qualify as incentive stock options under
the Economic Recovery Tax Act of 1981 (the "1981 Act") as amended by the Tax
Reform Act of 1986.
As of September 30, 1995, options to purchase 765,000 shares of common stock
were granted under the ISOP. All options granted under the ISOP through
September 30, 1995, have an exercise price of $5.00 per share which was equal to
the market price per share on the date of grant. All options granted through
September 30, 1995 are exercisable for a term of five (5) years from the date of
vesting and vest at the rate of 25% per year over a period of four years. During
the year ended September 30, 1996, options to purchase 75,000 shares were
granted under the ISOP at prices ranging from $7.00 to $10.00 per share. These
options are exercisable for a term of five (5) years from the date of vesting
and vest on varying terms of periods up to six (6) years. Certain of these
options are compensatory and will result in total compensation of $576,250, of
which none has been recorded as compensation expense during 1996. During the
year ended September 30, 1996, 170,000 options were canceled.
During 1995, the Company also adopted a non-qualified Stock Option Plan (SOP),
which grants options to purchase a maximum of 250,000 shares of the Company's
common stock at a price of $0.04 per share to officers, employees and advisors
of the Company. Options granted under the Plan are not intended to qualify as
incentive stock options under the 1981 Act.
As of September 30, 1995, options to purchase 246,000 shares of common stock
were granted under the SOP. All options granted under the SOP in fiscal 1995
were compensatory and resulted in total compensation of $1,220,160, of which
$855,600 was recorded as compensation expense during 1995, and $364,560 which
has been recorded as compensation expense for the year ended September 30, 1996.
With the exception of 50,000 options that completely vested on the date of
grant, the options vest over a one (1) year period with 50% vesting at the grant
date and 50% on the first anniversary of the grant date.
During the year ended September 30, 1996, options to purchase 1,000,000 shares
of the Company's common stock at $7.00 per share were granted to the Company's
president. These options vest over a two year period with one-third vesting at
the grant date, and one-third on each of the anniversaries of the grant date.
These options expire five years from the date of vesting. In addition, options
to purchase 25,000 shares of the Company's common stock at $7.00 were granted to
a consultant to the Company, these options were exercised during the year ended
September 30, 1996. The option price for these grants was equal to the market
price at the date of the grants.
A summary of stock option activity under plans follows:
<TABLE>
<CAPTION>
Number Option Price
of Shares Per Share
--------- ---------------
<S> <C> <C>
Granted during 1995 1,011,000 $0.04 to $5.00
--------- ---------------
Outstanding at September 30, 1995 1,011,000 $0.04 to $5.00
Granted (vested and non-vested) 1,100,000 $7.00 to $10.00
Canceled (170,000) $5.00
Exercised (40,000) $0.04 to $7.00
--------- ---------------
Outstanding at September 30, 1996 1,901,000 $0.04 to $10.00
========= ===============
Vested and exercisable at September 30, 1996 752,250 $0.04 to $7.00
========= ==============
</TABLE>
VETI STOCK OPTIONS
During 1995, VETI adopted a qualified Incentive Stock Option Plan (V-ISOP) which
provides that a maximum of 700,000 options to purchase VETI's common stock may
be granted to officers, employees and advisors of VETI. Options granted under
the V-ISOP are intended to qualify as incentive stock options under the 1981
Act.
In 1995, options to purchase 606,000 shares of common stock were granted under
the V-ISOP with an exercise price of $1.00 per share which represents the
market price per share on the date of grant. In 1996, options to purchase 10,000
shares of common stock were granted under the V-ISOP with an exercise price of
$1.00 per share which represents the market price per share on the date of the
grant. All options granted are exercisable for a period of ten (10) years and
vest over a three year period.
VETI also adopted a non-qualified Stock Option Plan (V-SOP), which grants
options to purchase a maximum of 500,000 shares of VETI's common stock to
officers, key employees and advisors of the Company. Options granted under the
Plan are not intended to qualify as incentive stock options under the 1981 Act.
In 1995, options to purchase 480,000 shares of common stock at a price of $.01
to $3.00 per share were granted under the V-SOP. In 1996, options to purchase
175,000 shares of common stock at prices ranging from $1.00 to $2.00 per share
were granted under the V-SOP. With the exception of 150,000 options that
completely vested on the date of grant, the options vest on varying terms of
periods up to three years. Certain of these options are compensatory in nature
and resulted in total compensation expense of $99,500 during the year ended
September 30, 1995.
Prior to September 30, 1994, VETI had granted options to purchase up to a total
of 1,350,000 shares of its common stock. These options are not intended to
qualify as incentive stock options under the 1981 Act. Included in these
options are options to purchase up to 1,000,000 shares at $1.00 granted to the
Chief Executive Officer of VETI and the Company, under an employment agreement.
This agreement provides that 25% of such options were vested immediately with
the remaining 75% to vest based on the achievement of defined sales goals.
-45-
<PAGE>
A summary of stock option activity under VETI plans follows:
<TABLE>
<CAPTION>
Number Option Price
of Shares Per Share
--------- --------------
<S> <C> <C>
Outstanding at September 30, 1994 1,350,000 $1.00
Granted (vested and non-vested) 1,086,000 $0.01 to $3.00
Canceled - -
Exercised - -
--------- --------------
Outstanding at September 30, 1995 2,436,000 $0.01 to $3.00
Granted (vested and non-vested) 185,000 $1.00 to $2.00
Canceled (267,000) $1.00
Exercised (33,500) $1.00
--------- --------------
Outstanding at September 30, 1996 2,320,500 $0.01 to $3.00
========= ==============
Exercisable at September 30, 1996 1,312,420 $0.01 to $3.00
========= ==============
</TABLE>
10. INCOME TAXES
The Company adopted Statement of Financial Accounting Standards No. 109,
"Accounting for Income Taxes," ("FAS 109") effective October 1, 1993. The
statement requires that deferred income taxes reflect the tax consequences on
future years of differences between the tax bases of assets and liabilities and
their bases for financial reporting purposes. In addition, FAS 109 requires the
recognition of future tax benefits, such as net operating loss carryforwards, to
the extent that realization of such benefits are more likely than not. There
was no cumulative effect of this accounting change at the time of adoption.
A reconciliation of the income tax benefit (provision) with amounts determined
by applying the statutory U.S. Federal income tax rate to the consolidated
income (loss) before income taxes is as follows:
<TABLE>
<CAPTION>
1996 1995 1994
------------------------------------------------------------
<S> <C> <C> <C>
Tax benefit (provision) at U.S. statutory rate $ 2,912,464 $ 1,064,850 $ (16,471)
Effect of graduated rates - - 9,412
Operating losses with no current tax benefit (2,910,437) (1,016,968) -
Other (2,027) (47,882) (7,059)
------------------------------------------------------------
Total $ - $ - $ -
============================================================
</TABLE>
The Company's deferred tax items as of September 30 are as follows:
<TABLE>
<CAPTION>
1996 1995
-------------- -------------
<S> <C> <C>
DEFERRED TAX ASSETS:
Difference between book and tax gain on stock sale $ 581,960 $ -
Difference between book and tax basis of property 7,341 15,248
Net operating loss carryforwards 1,231,439 2,828,344
Capitalized organization and start-up costs 181,515 36,311
Foreign loss carryforwards 412,800 -
Capitalized exploration costs 360,942 74,987
Other 13,129 5,787
------------ -----------
Total deferred tax assets 2,789,126 2,960,677
DEFERRED TAX LIABILITIES - -
VALUATION ALLOWANCE (2,789,126) (2,960,677)
------------ -----------
NET DEFERRED TAX ASSETS $ - $ -
============ ===========
</TABLE>
The Company and certain of its subsidiaries do not file consolidated tax
returns. The various subsidiaries have losses that may be carried forward to
reduce future years' taxable income; however, these losses may not qualify for
use under the current Internal Revenue Code due to tax rules concerning
ownership changes or because they were not generated within the United States.
Federal operating loss carryforwards amounted to approximately $4,100,000 at
September 30, 1996, and expire in various years through 2011.
11. OPERATING LEASES
The Company has obligations under operating leases for offices and facilities.
Minimum annual lease payments are as follows:
<TABLE>
<S> <C>
1997 $68,614
1998 39,962
</TABLE>
Related rental expense was $48,381, $93,197 and $85,938 for the years ended
September 30, 1996, 1995 and 1994 respectively.
-46-
<PAGE>
12. MINORITY INTEREST
Activity in the minority interest for the years ended September 30, 1994 and
1995, is as follows:
<TABLE>
<CAPTION>
<S> <C>
BALANCE SEPTEMBER 30, 1993 $ 1,499,874
Minority interest in net loss (4,580,694)
Private placement - VETI 1,062,443
Warrant exercise - VVC 312,250
Private placement - VVC 1,706,127
-----------
BALANCE SEPTEMBER 30, 1994 -
Minority interest in net loss (3,502,401)
Common shares issued for services - VETI 200,000
Private placements - VETI (Note 9) 3,375,000
Compensatory stock options (Note 9) 99,500
Warrant exercise - VVC 326,564
-----------
BALANCE SEPTEMBER 30, 1995 $ 498,663
===========
</TABLE>
On September 29, 1995, VETI completed a private placement of 1,000,000 units
with each unit consisting of one common share of VETI plus one warrant; two
warrants plus $3.00 will entitle the holder to purchase one share of VETI's
common stock. The warrants expire on October 1, 1997.
13. RELIEF CANYON JOINT VENTURE
On May 7, 1996, the Company entered into a 50:50 joint venture with Newgold
Incorporated ("Newgold"), a private company based in Reno, Nevada, for the
development of the Relief Canyon Mine located in Pershing County, Nevada. The
Company committed to contribute $1,398,000 for its 50% interest in the venture.
As of September 30, 1996, the Company had contributed approximately $775,000
toward its 50% interest in this venture and had recorded the remaining $623,000
commitment as a payable to joint venture. The Company has recorded this
investment as an addition to mineral properties (see Note 6). In September 1996,
the Company agreed with Newgold, subject to certain approvals, to sell its
interest back to Newgold in exchange for $900,000 cash and 1,000,000 restricted
common shares of Newgold. Subsequent to September 30, 1996, the Company sold its
interest back to Newgold for $900,000 cash, 1,000,000 restricted shares of
Newgold common stock and a release from the remaining $623,000 of its
commitment.
14. WESTAMERICA TRANSACTION
On May 24, 1996, the Company issued 606,061 common shares in exchange for
5,680,514 common shares of WestAmerica Corporation ("WestAmerica"),
approximately a 65% interest in WestAmerica. The shares acquired were subject
to a repurchase agreement by WestAmerica and were placed in a voting trust
controlled by an officer and director of WestAmerica. The transaction was
valued at approximately $6,970,000, which was calculated based upon an $11.50
per common share value for the Company's common stock. This value reflected a
discount from recent similar sized transactions to compensate for the restricted
nature of the shares issued in the transaction. On September 30, 1996, the
Company and WestAmerica agreed to cancel the transaction and have returned the
respective shares to each party.
-47-
<PAGE>
INDEPENDENT AUDITORS' REPORT
To the Board of Directors and Stockholders of Vector Environmental Technologies,
Inc.
We have audited the accompanying consolidated balance sheets of Vector
Environmental Technologies, Inc. and subsidiaries (collectively, the "Company")
as of September 30, 1996 and 1995, and the related consolidated statements of
operations, stockholders' equity (deficiency), and cash flows for each of the
three years in the period ended September 30, 1996. These financial statements
are the responsibility of the Company's management. Our responsibility is to
express an opinion on these financial statements based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audits provide a reasonable basis for our opinion.
In our opinion, such consolidated financial statements present fairly, in all
material respects, the financial position of Vector Environmental Technologies,
Inc. and subsidiaries as of September 30, 1996 and 1995, and the results of
their operations and their cash flows for each of the three years in the period
ended September 30, 1996, in conformity with generally accepted accounting
principles.
Deloitte & Touche LLP
Reno, Nevada
December 21, 1996
-48-
<PAGE>
VECTOR ENVIRONMENTAL TECHNOLOGIES, INC.
CONSOLIDATED BALANCE SHEETS
<TABLE>
<CAPTION>
- ---------------------------------------------------------------------------------------------------------
SEPTEMBER 30, SEPTEMBER 30,
1996 1995
- ---------------------------------------------------------------------------------------------------------
ASSETS
------
CURRENT ASSETS:
<S> <C> <C>
Cash and cash equivalents $ 77,553 $ 459,707
Restricted investments 250,000 -
Stock subscriptions receivable - 4,375,000
Accounts receivable 232,802 17,452
Inventories 2,026,141 312,069
Other assets 58,962 102,652
----------------------------------
Total current assets 2,645,458 5,266,880
INVESTMENT IN AFFILIATES 1,715,950 -
PROPERTY AND EQUIPMENT, NET 674,157 141,689
OTHER ASSETS 42,243 77,890
----------------------------------
TOTAL ASSETS $ 5,077,808 $5,486,459
==================================
- ---------------------------------------------------------------------------------------------------------
LIABILITIES AND STOCKHOLDERS' EQUITY
- ------------------------------------
CURRENT LIABILITIES:
Accounts payable $ 437,977 $ 228,202
Accrued liabilities 213,447 161,034
Due to related parties, net 1,772,852 220,045
Line of credit 235,000 -
----------------------------------
Total current liabilities 2,659,276 609,281
----------------------------------
COMMITMENTS AND CONTINGENCIES
STOCKHOLDERS' EQUITY:
5% Cumulative convertible preferred stock, $.00001 par value;
10,000,000 shares authorized; 0 and 4,000,000 shares
issued and outstanding, liquidation preference
$0 and $4,037,500 - 40
Common stock, $.005 par value; 25,000,000 shares
authorized; 18,035,966 and 12,444,766 shares issued and
outstanding 90,180 62,224
Additional paid-in capital 17,962,534 16,249,250
Accumulated deficit (15,643,692) (11,443,846)
Foreign currency translation adjustment 9,510 9,510
----------------------------------
Total stockholders' equity 2,418,532 4,877,178
----------------------------------
TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY $ 5,077,808 $ 5,486,459
==================================
</TABLE>
The accompanying notes are an integral part of these consolidated financial
statements
-49-
<PAGE>
VECTOR ENVIRONMENTAL TECHNOLOGIES, INC.
CONSOLIDATED STATEMENTS OF OPERATIONS
FOR THE YEARS ENDED SEPTEMBER 30, 1996, 1995 AND 1994
<TABLE>
<CAPTION>
===============================================================================================================
1996 1995 1994
- ---------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
SALES $ 1,017,071 $ 382,158 $ 566,331
COST OF GOODS SOLD 856,550 489,589 602,678
-----------------------------------------------
GROSS PROFIT (LOSS) 160,521 (107,431) (36,347)
-----------------------------------------------
COSTS AND EXPENSES:
Selling, general and administrative expense 3,440,258 2,944,669 2,813,879
Depreciation and amortization 136,089 32,272 9,244
Research and development 675,891 185,053 484,520
Write down of assets - - 758,059
-----------------------------------------------
Total cost and expenses 4,252,238 3,161,994 4,065,702
-----------------------------------------------
LOSS FROM OPERATIONS (4,091,717) (3,269,425) (4,102,049)
OTHER INCOME (EXPENSE) 129,371 (128,805) 28,522
-----------------------------------------------
LOSS FROM CONTINUING OPERATIONS (3,962,346) (3,398,230) (4,073,527)
-----------------------------------------------
DISCONTINUED OPERATIONS:
Loss from discontinued operations - (77,354) (643,767)
Gain on disposal of discontinued operations - 109,783 -
-----------------------------------------------
INCOME (LOSS) FROM DISCONTINUED OPERATIONS - 32,429 (643,767)
-----------------------------------------------
NET LOSS $ (3,962,346) $ (3,365,801) $(4,717,294)
===============================================
- ---------------------------------------------------------------------------------------------------------------
INCOME (LOSS) PER COMMON SHARE:
Net loss from continuing operations $ (3,962,346) $ (3,398,230) $(4,073,527)
Dividends on cumulative preferred stock (200,000) (37,500) -
-----------------------------------------------
Net loss from continuing operations applicable to common
shares $ (4,162,346) $ (3,435,730) $(4,073,527)
===============================================
Loss per common share from continuing operations $(0.33) $(0.31) $(0.41)
Loss per common share from discontinued operations - - (0.06)
-----------------------------------------------
NET LOSS PER COMMON SHARE $(0.33) $(0.31) $(0.47)
===============================================
WEIGHTED AVERAGE COMMON SHARES OUTSTANDING 12,480,178 11,032,179 10,044,907
===============================================
- ---------------------------------------------------------------------------------------------------------------
</TABLE>
The accompanying notes are an integral part of these consolidated financial
statements
-50-
<PAGE>
VECTOR ENVIRONMENTAL TECHNOLOGIES, INC.
CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY (DEFICIENCY)
FOR THE YEARS ENDED SEPTEMBER 30, 1996, 1995, and 1994
<TABLE>
<CAPTION>
Foreign Total
Number Number Additional Currency Stockholders'
of Common of Preferred Common Preferred Paid-in Accumulated Translation Equity
Shares Shares Stock Stock Capital Deficit Adjustment (Deficiency)
- ------------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
BALANCES AT SEPTEMBER 30,
1993 9,376,400 - $46,882 $ - $ 4,599,661 $ (3,360,751) $ (4,118) $ 1,281,674
--------------------------------------------------------------------------------------------------------
VETI private placement 404,135 - 2,021 - 1,060,422 - - 1,062,443
VVC private placement 391,396 - 1,957 - 1,704,170 - - 1,706,127
VVC warrant exercise 166,625 - 833 - 311,417 - - 312,250
Issuance of shares for
acquisition of assets 325,000 - 1,625 - 248,891 - - 250,516
Issuance of shares for
services 600,000 - 3,000 - 7,000 - - 10,000
Purchase of treasury shares (640,000) - (3,200) - (51,800) - - (55,000)
Foreign currency
translation adjustment - - - - - - 12,842 12,842
Net loss - - - - - (4,717,294) - (4,717,294)
--------------------------------------------------------------------------------------------------------
BALANCES AT SEPTEMBER 30,
1994 10,623,556 - 53,118 - 7,879,761 (8,078,045) 8,724 (136,442)
--------------------------------------------------------------------------------------------------------
Private placement 500,000 - 2,500 - 997,500 - - 1,000,000
Private placement of
units 1,000,000 - 5,000 - 2,370,000 - - 2,375,000
Issuance of shares for
services 100,000 - 500 - 199,500 - - 200,000
Exercise of VVC warrants 221,210 - 1,106 - 324,554 - - 325,660
Issuance of compensatory
stock options - - - - 99,500 - - 99,500
Preferred stock:
Issued for retirement
of debt - 3,000,000 - 30 2,378,445 - - 2,378,475
Issued for cash - 1,000,000 - 10 1,999,990 - - 2,000,000
Foreign currency
translation adjustment - - - - - - 786 786
Net loss - - - - - (3,365,801) - (3,365,801)
--------------------------------------------------------------------------------------------------------
BALANCES AT SEPTEMBER 30,
1995 12,444,766 4,000,000 62,224 40 16,249,250 (11,443,846) 9,510 4,877,178
--------------------------------------------------------------------------------------------------------
Issuance of shares for
services 25,000 - 125 - 24,875 - - 25,000
Exercise of stock options 33,500 - 167 - 33,333 - - 33,500
Conversion to common 4,000,000 (4,000,000) 20,000 (40) (19,960) - - -
Shares issued in Exchange
for investment in
affiliated company 1,532,700 - 7,664 - 1,525,036 - - 1,532,700
Collection of subscription
receivable - - - - 150,000 - - 150,000
Foreign currency
translation adjustment - - - - - - - -
Net loss - - - - - (3,962,346) - (3,962,346)
Dividend declared on
convertible preferred
stock - - - - - (237,500) - (237,500)
--------------------------------------------------------------------------------------------------------
BALANCES AT SEPTEMBER 30,
1996 18,035,966 - $90,180 $ - $17,962,534 $(15,643,692) $9,510 $ 2,418,532
========================================================================================================
</TABLE>
The accompanying notes are an integral part of these consolidated financial
statements
-51-
<PAGE>
VECTOR ENVIRONMENTAL TECHNOLOGIES, INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS
FOR THE YEARS ENDED SEPTEMBER 30, 1996, 1995 AND 1994
<TABLE>
<CAPTION>
-------------------------------------------------------
1996 1995 1994
-------------------------------------------------------
<S> <C> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
NET LOSS $(3,962,346) $(3,365,801) $(4,717,294)
ADJUSTMENTS TO RECONCILE NET LOSS TO NET CASH
USED IN OPERATING ACTIVITIES:
Depreciation, depletion and amortization 136,089 35,022 41,971
(Gain) loss on sale of assets - (109,783) 2,617
Write down of assets - - 758,059
Other non-cash expense 25,000 299,658 10,000
(Increase) decrease in accounts receivable (215,350) 110,334 (54,309)
(Increase) decrease in inventories (1,714,072) 140,460 58,349
(Increase) decrease in prepaid expenses and other assets 43,690 (74,043) 122,316
Increase (decrease) in accounts payable and accrued liabilities 262,188 (36,664) 189,262
Increase in amounts due to related parties 1,315,307 985,608 294,554
-------------------------------------------------------
Net cash used in operating activities (4,109,494) (2,015,209) (3,294,475)
-------------------------------------------------------
CASH FLOWS FROM INVESTING ACTIVITIES:
Purchase of investment in affiliate (33,250) - -
Proceeds from sale of assets - 191,709 2,000
Increase in restricted investments (250,000) - -
Investment in and advances to affiliate - - (508,343)
(Increase) decrease in other assets 35,647 - (55,533)
Purchase of property and equipment (668,557) (90,710) (95,811)
-------------------------------------------------------
Net cash provided by (used in) investing activities (916,160) 100,999 (657,687)
-------------------------------------------------------
CASH FLOWS FROM FINANCING ACTIVITIES:
Issuance of common stock 2,375,000 1,000,000 1,062,443
Issuance of preferred stock 2,000,000 - -
Issuance of VVC common stock - 325,660 2,018,377
Issuance of common stock for exercise of stock options 33,500 - -
Proceeds from note payable to related party - - 1,100,000
Purchase of treasury stock - - (55,000)
Increase in line of credit 235,000 - -
-------------------------------------------------------
Net cash provided by financing activities 4,643,500 1,325,660 4,125,820
-------------------------------------------------------
Effect of exchange rate changes on cash and cash
equivalents - 786 12,842
-------------------------------------------------------
NET INCREASE (DECREASE) IN CASH AND CASH EQUIVALENTS (382,154) (587,764) 186,500
CASH AND CASH EQUIVALENTS, BEGINNING OF PERIOD 459,707 1,047,471 860,971
-------------------------------------------------------
CASH AND CASH EQUIVALENTS, END OF PERIOD $ 77,553 $ 459,707 $ 1,047,471
=======================================================
CASH PAID FOR INTEREST $ 41,037 $ - $ -
=======================================================
NONCASH INVESTING AND FINANCING ACTIVITIES:
Issuance of common stock for subscription receivable $ - $ 2,375,000 $ -
Issuance of preferred stock for repayment
of debt to related party - 2,378,475 -
Issuance of preferred stock for subscriptions receivable - 2,000,000 -
Issuance of common stock for services 25,000 200,000 10,000
Issuance of common stock to acquire assets - - 250,516
Issuance of common stock for investment in affiliate 1,532,700 - -
Receipt of investment in affiliate for repayment of
subscription receivable 150,000 - -
Increase in due to related party for dividends on preferred stock 237,500 - -
Conversion of preferred stock to common stock 20,000 - -
- -------------------------------------------------------------------------------------------------------------------------------
</TABLE>
The accompanying notes are an integral part of these consolidated financial
statements
-52-
<PAGE>
VECTOR ENVIRONMENTAL TECHNOLOGIES, INC.
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
1. SIGNIFICANT ACCOUNTING POLICIES
ORGANIZATION
Vector Environmental Technologies, Inc. ("VETI" or the "Company") was
incorporated in Delaware on April 3, 1987. The Company operates through its 95%
owned subsidiary, Vector Venture Corp. ("VVC"), and various wholly owned
subsidiaries: Vector Venture Corp. which holds certain technologies and
licenses; Vector Manufacturing Corp. ("VMC") which provides purchasing and
manufacturing services; Vector Vietnam, Ltd., which holds and manages Vietnamese
operations; Alpine Water Purification, Inc., which markets consumer water
treatment equipment; STOX Systems, Inc., which markets hazardous materials
storage systems; CGL Technologies, Inc., which performs research and development
of water purification technologies; Vector India which was formed to develop
business in India; and Vector Water Technologies which markets water
purification systems in the United Arab Emirates.
On June 19, 1995, the Company completed the acquisition of 8,670,618 shares of
VVC common stock (approximately 95%) through the issuance of the same number of
shares of Company common stock. VVC is related to the Company through the
existence of certain common officers, directors and significant stockholders.
Therefore, the investment in VVC has been accounted for as a combination of
entities under common control, which is a method similar to a pooling of
interests. The accompanying consolidated financial statements include assets
and liabilities of VVC at their historical cost and operations of VVC for all
periods presented.
On June 29, 1995, VETI issued 3,000,000 5%, cumulative, convertible, voting
preferred shares ("Preferred Shares") in exchange for approximately $2,400,000
in debts owed by VETI to Casmyn Corp. ("Casmyn"). On September 29, 1995, Casmyn
purchased an additional 1,000,000 Preferred Shares of VETI preferred stock at
$2.00 per share. VETI is related to Casmyn through the existence of certain
officers, directors and significant stockholders. Each Preferred Share was
convertible, at Casmyn's option, into one share of VETI common stock. The
provisions of the Preferred Shares gave Casmyn effective voting control of VETI
with a 56.25% voting majority. Effective September 30, 1996, Casmyn converted
these Preferred Shares into common shares thereby relinquishing voting control
over VETI. The conversion of the preferred shares into common shares resulted in
Casmyn holding a 24.3% equity interest in the Company. During the fourth quarter
of 1996, VETI issued 1,532,700 of its restricted common shares to Casmyn in
exchange for 425,750 shares of Auromar Development Corporation ("Auromar")
common stock, held as an investment by Casmyn, thereby increasing Casmyn's
percentage ownership in the Company to approximately 30.8% at September 30,
1996.
PRINCIPLES OF CONSOLIDATION
The consolidated financial statements include the accounts of VETI and its
wholly or majority owned subsidiaries (collectively, the "Company"). All
intercompany transactions and balances have been eliminated in consolidation.
DISCONTINUED OPERATIONS
In 1995, VMC discontinued its metal fabrication business segment. The results of
the metal fabrication segment have been reported separately as discontinued
operations in the accompanying consolidated statements of operations for the
years ended September 30, 1995 and 1994. Sales for the metal fabrication segment
were $12,379 and $519,167 for the years ended September 30, 1995 and 1994,
respectively. After discontinuing its metal fabrication segment, the Company has
operated principally in one business segment, the development and sale of
environmental technologies, principally water purification.
-53-
<PAGE>
CASH AND CASH EQUIVALENTS
For purposes of the consolidated statements of cash flows, the Company considers
all short-term investments with a maturity of three months or less at the date
of purchase to be cash equivalents. As of September 30, 1996 and 1995, bank
balances held in excess of Federally insured limits were $99,217 and $267,895,
respectively.
RESTRICTED INVESTMENTS
At September 30, 1996, the Company had $250,000 of cash invested in short term
money market funds that represents collateral for outstanding borrowings under a
line of credit (see Note 5). The investments are stated at cost which
approximates market.
PROPERTY AND EQUIPMENT
Property and equipment are recorded at cost and are depreciated or amortized on
a straight-line basis over their estimated useful lives of three to seven years.
INVESTMENT IN AFFILIATES
The investment in affiliates consists principally of the Company's investment in
the common stock of Casmyn Corp. Such common shares were acquired when the
Auromar shares owned by the Company were exchanged for Casmyn common shares in
the merger between Auromar and Casmyn. Other shares were obtained from
collection of a $150,000 stock subscription receivable.
REVENUE RECOGNITION
Revenues from sale of water purification equipment are recognized when goods are
shipped to customers.
INCOME (LOSS) PER SHARE
Income (loss) per common share is computed on the basis of the weighted average
number of shares outstanding and common stock equivalents when dilutive.
INVENTORIES
Inventories are stated at the lower of cost or market. Cost is determined using
the first-in, first-out method. Cost includes material, labor and manufacturing
overhead costs. Inventories at September 30, were composed of the
following:
<TABLE>
<CAPTION>
1996 1995
---- ----
<S> <C> <C>
Raw materials $1,081,054 $ 77,989
Finished Goods 945,087 234,080
---------- --------
$2,026,141 $312,069
========== ========
</TABLE>
FOREIGN CURRENCY TRANSLATION
The financial position and results of operations of the Company's foreign
subsidiaries are measured using local currency as the functional currency.
Assets and liabilities of these subsidiaries are translated at the exchange rate
in effect at each year end. Income statement accounts are translated at the
average rate of exchange prevailing during the year. Translation adjustments
arising from differences in exchange rates from period to period are included in
the accumulated foreign currency translation adjustments account in
stockholders' equity.
USE OF ESTIMATES
The preparation of financial statements in conformity with generally accepted
accounting principles requires management to make estimates and assumptions that
affect the reported amounts of assets and liabilities at the date of the
financial statements and the reported amounts of revenues and expenses during
the reporting period. Actual results could differ from those estimates.
RECLASSIFICATIONS
Certain amounts in the 1995 and 1994 consolidated financial statements and notes
have been reclassified to conform with the 1996 presentation.
FAIR VALUE OF FINANCIAL INSTRUMENTS
The Company believes, based upon current information, that the carrying value of
the Company's cash and cash equivalents, restricted investments, accounts
receivable and accounts payable approximates fair value due to the short
maturity of those instruments. The fair value of amounts due to related parties
is not determinable because of the related party nature of the amounts. The
Company estimates the fair value of its line of credit approximates its carrying
value because interest rates on the line of credit approximate market rates.
RECENTLY ISSUED ACCOUNTING STANDARDS
The Financial Accounting Standards Board ("FASB") issued SFAS No. 121
"Accounting for the Impairment of Long-Lived Assets and for Long-Lived Assets to
be Disposed Of" in March 1995. This statement, effective for the Company's
fiscal year ending September 30, 1997, requires that long-lived assets and
certain identifiable intangibles to be held and used by an entity be reviewed
for impairment whenever events or changes in circumstances indicate that the
carrying amount of an asset may not be recoverable. Management believes the
adoption of SFAS No. 121 will not have a significant effect on the financial
position or results of operations of the Company.
The FASB issued SFAS No. 123 "Accounting for Awards of Stock-Based Compensation
to Employees" in October, 1995. This statement, effective for the Company's
fiscal year ending September 30, 1997, establishes financial accounting and
reporting standards for stock-based employee compensation plans and for
transactions where equity securities are issued for goods and services. This
Statement defines a fair value based method of accounting for an employee stock
option or similar equity instrument and encourages all entities to adopt that
method of accounting for all of their employee stock compensation plans.
However, it also allows an entity to continue to measure compensation cost for
those plans using the intrinsic value based method of accounting prescribed by
APB Opinion No. 25, "Accounting for Stock Issued to Employees." Management's
current intention is to continue to follow APB Opinion No. 25 and therefore
believes that if SFAS No. 123 had been adopted at September 30, 1996, it would
not have had a significant effect on the financial position or results of
operations of the Company.
-54-
<PAGE>
2. BUSINESS SEGMENTS
The Company operates in one business segment, the development and sale of
environmental technologies, principally water purification systems. The Company
has operations based in North America, Asia and the Middle East. The table below
presents information as to the Company's operations by geographic region.
<TABLE>
<CAPTION>
Year ended Year ended Year ended
September 30, September 30, September 30,
1996 1995 1994
------------ ------------- -------------
<S> <C> <C> <C>
SALES
North America $ 198,565 $ 236,533 $ 566,331
Asia 602,942 145,625 -
Middle East 215,564 - -
----------- ----------- -----------
Total $ 1,017,071 $ 382,158 $ 566,331
=========== =========== ===========
LOSS FROM OPERATIONS
North America $(2,897,854) $(3,147,141) $(4,043,123)
Asia (1,151,063) (122,284) (58,926)
Middle East (42,800) - -
----------- ----------- -----------
Total $ 4,091,717 $(3,269,425) $(4,102,049)
=========== =========== ===========
IDENTIFIABLE ASSETS
North America $ 3,062,382 $ 5,182,077 $ 1,891,853
Asia 1,783,994 304,382 10,359
Middle East 231,432 - -
----------- ----------- -----------
Total $ 5,077,808 $ 5,486,459 $ 1,902,212
=========== =========== ===========
</TABLE>
3. PROPERTY AND EQUIPMENT
Property and equipment consist of the following at September 30, 1996:
<TABLE>
<CAPTION>
1996 1995
-------- --------
<S> <C>
Equipment $797,694 $119,237
Leasehold improvements 10,812 10,812
-------- --------
Total 808,506 130,049
Accumulated depreciation and amortization (134,349) (40,817)
-------- --------
Net property and equipment 674,157 89,232
Construction in progress - 52,457
-------- --------
Total Property and Equipment $674,157 $141,689
======== ========
</TABLE>
4. RELATED PARTY TRANSACTIONS
The Company conducts business with various companies that are related through
the existence of certain common officers, directors and significant
stockholders. These related parties include Casmyn, Dahya Holdings, Inc. and
Casmyn Research and Engineering, Ltd. ("CRE").
The Company utilizes research, technical and management services provided by
Casmyn to develop commercial applications for water purification technologies.
Casmyn bills the Company for these services at rates approximating cost
recovery. Casmyn billed the Company $285,730, $223,677 and $930,093 for these
services for the years ended September 30, 1996, 1995 and 1994.
The Company incurred interest expense to Casmyn of $39,536, $131,629 and $32,907
for the years ended September 30, 1996, 1995 and 1994 respectively.
-55-
<PAGE>
As a result of these related party transactions, cash advances from and to the
Company and other transactions, the Company had a net amount due to related
parties at September 30, 1996 of $1,772,852, including $1,712,421 at September
30, 1996 due to Casmyn which bears interest at 9% per annum and is due one year
from the date of the advance.
5. LINE OF CREDIT
In June 1996, the Company entered into a $250,000 revolving credit agreement
with a bank. Under the terms of the agreement, the interest rate on funds
borrowed is determined based upon an index that varies with the bank's prime
lending rate, 8.25% at September 30, 1996. Borrowings under the line of credit
are collateralized by the Company's money market funds (restricted investments)
which are invested with the banking institution. The amounts borrowed are due
upon demand by the financial institution and require monthly payment of accrued
interest.
6. STOCKHOLDERS' EQUITY
COMMON STOCK
In October 1993, VVC issued 165,000 shares of its common stock for 100% of the
issued and outstanding shares of P.E.R.M. Pelican Inc. ("PERM" see Note 8).
In January 1994, in connection with the private placement of 404,135 shares of
common stock, the Company's Chief Executive Officer ("CEO") agreed with certain
private investors to decrease his ownership of the Company's common stock.
Accordingly, as an inducement for private investment in the Company, the Company
acquired 640,000 shares of common stock from the CEO for $55,000, the price paid
by the CEO.
On June 6, 1994, the Company exchanged 160,000 shares of its common stock for
all the issued and outstanding capital stock of Alpine Water Purification, Inc.
("Alpine") in a transaction accounted for as a purchase. Alpine is involved
in the design, development and marketing of technologically advanced household
water purification systems internationally and holds a patent pending on a water
disinfection device.
During the year ended September 30, 1995, the Company completed a private
placement for 500,000 shares of common stock for net proceeds of $1,000,000.
VVC issued 221,210 shares of common stock for the exercise of warrants for net
proceeds of $325,660.
On September 29, 1995, the Company completed a private placement of 1,000,000
units for net proceeds of $2,375,000. Each unit consists of one common share of
the Company plus one warrant; two warrants plus $3.00 will entitle the holder to
purchase one share of the Company's common stock. All warrants expire on October
1, 1997. At September 30, 1995 these amounts were included in stock subscription
receivable. The subscription receivable were collected subsequent to September
30, 1995.
During the fourth quarter of 1996, VETI issued 1,532,700 of its restricted
common shares to Casmyn in exchange for 425,750 shares of Auromar Development
Corporation ("Auromar") common stock. The Company recorded these shares at a
value of $1,532,700 or $1.00 per share. This value reflects a discount from the
price at which VETI common shares were trading on the NASD Bulletin Board on the
date of the transaction. This transaction along with the conversion by Casmyn of
preferred stock (see below) resulted in Casmyn increasing its percentage
ownership of the Company to approximately 30.8% at September 30, 1996.
PREFERRED STOCK
The Company's Series A preferred stock may be converted at the option of the
holder to common stock on a one-for-one basis (subject to adjustment pursuant to
certain common stock transactions), has a $.05 per share cumulative dividend
rate, and has a liquidation preference equal to $1.00 per share plus all unpaid
dividends. Holders of a share of Series A preferred stock are entitled to the
equivalent of four (4) common share votes.
On June 29, 1995, the Company sold a voting controlling interest to Casmyn Corp.
("Casmyn"), a company related through certain common officers, directors and
significant stockholders through the issuance of 3,000,000 Series A preferred
shares of the Company, in exchange for $2,378,475 in debts owed by the Company.
On September 29, 1995, the Company sold Casmyn an additional 1,000,000 Series A
preferred shares at $2.00 per share for net proceeds of $2,000,000. At September
30, 1995 the $2,000,000 was included in subscriptions receivable and was
collected subsequent to September 30, 1995. At September 30, 1995, Casmyn had
effective voting control of the Company with a 56.25% voting interest.
Pursuant to the terms of the preferred stock, effective September 30, 1996,
Casmyn converted 4,000,000 shares of preferred stock into common stock of the
Company. Upon conversion of preferred stock to common stock, preferred stock
dividends in arrears payable to Casmyn were $237,500. The Company recorded the
dividend and increased the amounts payable to Casmyn by $237,500 (see Note 4).
STOCK OPTIONS
During 1995, the Company adopted a qualified Incentive Stock Option Plan (V-
ISOP) which provides that a maximum of 700,000 options to purchase the Company's
common stock may be granted to officers, employees and advisors of the Company.
Options granted under the V-ISOP are intended to qualify as incentive stock
options under the Economic Recovery Tax Act of 1981 (the "1981 Act") as amended
by the Tax Reform Act of 1986.
In 1995, options to purchase 606,000 shares of common stock were granted under
the V-ISOP with an exercise price of $1.00 per share which represents the market
price per share on the date of grant. In 1996, options to purchase 10,000 shares
of common stock were granted under the V-ISOP with an exercise price of $1.00
per share which represents the market price per share on the date of the grant.
All options granted are exercisable for a period of ten (10) years and vest over
a three year period.
-56-
<PAGE>
The Company also adopted a non-qualified Stock Option Plan (V-SOP), which grants
options to purchase a maximum of 500,000 shares of the Company's common stock to
officers, key employees and advisors of the Company. Options granted under the
Plan are not intended to qualify as incentive stock options under the 1981 Act.
In 1995, options to purchase 480,000 shares of common stock at a price of $.01
to $3.00 per share were granted under the V-SOP. In 1996, options to purchase
175,000 shares of common stock at prices ranging from $1.00 to $2.00 per share
were granted under the V-SOP. With the exception of 150,000 options that
completely vested on the date of grant, the options vest on varying terms of
periods up to three years. Certain of these options are compensatory in nature
and resulted in total compensation expense of $99,500 during the year ended
September 30, 1995.
Prior to September 30, 1994, the Company had granted options to purchase up to a
total of 1,350,000 shares of its common stock. These options are not intended
to qualify as incentive stock options under the 1981 Act. Included in these
options are options to purchase up to 1,000,000 shares at $1.00 granted to the
Chief Executive Officer of the Company, under an employment agreement. This
agreement provides that 25% of such options were vested immediately with the
remaining 75% to vest based on the achievement of defined sales goals.
A summary of stock option activity under Company plans follows:
<TABLE>
<CAPTION>
Number Option Price
of Shares Per Share
--------- -------------
<S> <C> <C>
Outstanding at September 30, 1994 1,350,000 $1.00
Granted (vested and non-vested) 1,086,000 $.01 to $3.00
Canceled 0 0
Exercised 0 0
--------- -------------
Outstanding at September 30, 1995 2,436,000 $.01 to $3.00
Granted (vested and non-vested) 185,000 $1.00 to $2.00
Canceled (267,000) $1.00
Exercised (33,500) $1.00
--------- -------------
Balance at September 30, 1996 2,320,500 $.01 to $3.00
========= =============
Exercisable at September 30, 1996 1,312,420 $.01 to $3.00
========= =============
</TABLE>
7. INCOME TAXES
The Company adopted Statement of Financial Accounting Standards No. 109,
"Accounting for Income Taxes," ("FAS 109") effective June 1, 1993. The
statement requires that deferred income taxes reflect the tax consequences on
future years of differences between the tax bases of assets and liabilities and
their bases for financial reporting purposes. In addition, FAS 109 requires the
recognition of future tax benefits, such as net operating loss carryforwards, to
the extent that realization of such benefits are more likely than not. There
was no cumulative effect of this accounting change at the time of adoption.
A reconciliation of the income tax benefit (provision) with amounts determined
by applying the statutory U.S. Federal income tax rate to the consolidated
income (loss) before income taxes is as follows for the year ended September 30:
<TABLE>
<CAPTION>
1996 1995 1994
----------- ----------- -----------
<S> <C> <C> <C>
Tax benefit at U.S. statutory rate $ 1,390,000 $ 1,180,000 $ 1,650,000
Operating losses with no current tax benefit (1,390,000) (1,180,000) (1,650,000)
----------- ----------- -----------
Total $ - $ - $ -
=========== =========== ===========
</TABLE>
-57-
<PAGE>
The Company's deferred tax items as of September 30 are as follows:
<TABLE>
<CAPTION>
1996 1995
---------- -----------
<S> <C> <C>
DEFERRED TAX ASSETS:
Net operating loss carryforwards $ 3,051,000 $ 2,140,000
Other 28,000 10,000
----------- -----------
Total deferred tax assets 3,079,000 2,150,000
Deferred tax liabilities - -
Valuation allowance (3,079,000) (2,150,000)
----------- -----------
Net deferred tax assets $ - $ -
=========== ===========
</TABLE>
As of September 30, 1996 the Company has net domestic operating loss
carryfowards for income tax purposes of approximately $8,700,000 expiring in
years through 2011. These losses may not qualify for use under the current
Internal Revenue Code due to tax rules concerning ownership changes. Because the
future benefits of these loss carryforwards are not considered to be more likely
than not, such benefits are fully offset by a valuation allowance.
8. OPERATING LEASES
The Company has obligations under operating leases for offices and facilities.
Minimum annual lease payments are as follows:
<TABLE>
<S> <C>
1997 $170,458
1998 85,842
1999 6,900
2000 6,900
2001 6,900
Thereafter 89,700
--------
</TABLE>
Related rental expense was $156,857, $60,685 and $62,906 for the years ended
September 30, 1996, 1995 and 1994 respectively.
9. WRITE DOWN OF ASSETS
The Company through its subsidiary, VVC, sought to acquire PERM Pelican, Inc.
("PERM") under an agreement dated March 10, 1993, however VVC's relationship
with the seller of PERM deteriorated to the point where VVC was unable to
complete the acquisition. Consequently, on August 25, 1994 VVC commenced legal
proceedings against PERM, the seller and certain principals of PERM. Due to the
uncertainty regarding the ability of the Company to recover its investment in
and advances to PERM, VETI wrote off $758,059 in the fiscal year ended September
30, 1994.
-58-
<PAGE>
ITEM 9. CHANGES AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND FINANCIAL
DISCLOSURE
The Company's independent accountant is Deloitte & Touche LLP, who has been the
Registrant's independent public accountant since December 23, 1994. Effective
December 23, 1994, the Company dismissed its prior certifying accountants,
Albright, Persing & Associates, Ltd. The decision to change accountants was
approved by the Company's Board of Directors.
None of the "reportable events" described in Item 304 (a) (1) (ii) or (iv)
occurred with respect to the Company within the last two fiscal years, or the
subsequent interim period to date hereof.
-59-
<PAGE>
PART III
ITEM 10. DIRECTORS, EXECUTIVE OFFICERS, PROMOTERS AND CONTROL
PERSONS OF THE COMPANY
Certain information about the directors and executive officers of the Company is
contained in the following table.
<TABLE>
<CAPTION>
NAME AGE POSITION
- -------------------------------------------------------------------------------
<S> <C> <C>
Amyn S. Dahya 40 President, Chief Executive Officer and
Chairman of the Board
Hanif Dahya 42 Vice Chairman of the Board
Edmund de Rothschild, C.B.E. 80 Director *
Dr. Arthur B. Laffer Director *
Sandro Kunzle 42 Director
Douglas C. Washburn 51 Vice President, Treasurer and Secretary
Dr. Gregory J. Gosson 41 Managing Director of Mining
Dennis E. Welling 50 Controller
</TABLE>
* Effective January 8, 1997
BACKGROUND OF OFFICERS AND DIRECTORS OF THE COMPANY
- ---------------------------------------------------
AMYN S. DAHYA. Mr. Dahya has extensive international experience in project
development, engineering, joint ventures, and finance. Prior to joining the
Company in 1993, he held senior positions with Davy McKee, an international
engineering firm and in 1987 he founded Casmyn Group of Companies specializing
in mineral and environmental engineering, which he has developed for the last
nine (9) years. Mr. Dahya serves on the Board of Directors of several
companies, including Diamond Fontein International, Vector Venture Corp., and
VETI where he also holds executive management positions.
HANIF DAHYA. Mr. Dahya is a graduate from Harvard Business School (MBA) with an
undergraduate degree in (BSc) in Production Engineering from Loughborough
University, UK. He has built a distinguished career on Wall Street and has
held senior positions with high profile investment banks including E F Hutton,
L F Rothschild Mortgage Corp. (CEO) and Union Bank of Switzerland (managing
Director -- UBS Securities). He is currently a partner at Sandler, O'Neil, a
Wall Street investment bank. His experience includes multi-million dollar
financings and bond issues. Mr. Dahya provides strategic direction with respect
to the Company's financial planning and growth, which is primarily focused on
the expansion of operations and the acquisition and development of producing
mining properties.
EDMUND DE ROTHSCHILD. Mr. Edmund de Rothschild brings to Casmyn extensive
merchant banking experience. He has built a very distinguished career in the
international business community through his directorship positions with N. M.
Rothschild & Sons Limited, Rothschild Continuation Holdings, Exbury Enterprises
Ltd., among others. Mr. Rothschild was Chairman of N.M. Rothschild & Sons
between 1970 - 1975. He has also served on numerous boards such as The Sun
Alliance & London Insurance Company, Dunhill Ltd., Tokyo Pacific Holdings, etc.
He was British Government Trustee for Freedom from Hunger
-60-
<PAGE>
Campaign and Government Chairman of British National Export Council for Asia in
1970/71. Mr. de Rothschild has been involved in many charities, including the
Royal National Pension Fund for Nurses, Council of Christians and Jews, ex-
service charities and various gardening charities. Exbury, his home, features a
famous garden which is open to the public and is a part of his Charitable
Foundation. He has an Hon. LL.D (University of Newfoundland), Hon. D.Sc
(Salford), Order of the Sacred Treasure, 1st Class (Japan). Mr. de Rothschild
brings to Casmyn extensive expertise in the areas of corporate finance, business
development and strategic planning. On January 1, 1997, Mr. de Rothschild was
honoured with the title of Commander of the Order of the British Empire
(C.B.E.).
DR. ARTHUR B. LAFFER. Dr. Arthur Laffer is the founder and Chairman of A. B.
Laffer, V. A. Canto & Associates, an economic research and financial consulting
firm. Dr. Laffer presently sits on the Board of Directors of Nicholas Applegate
Mutual Funds, US Filter Corp., MasTec Inc. and Coinmach Corp. He has sat on the
Board of Directors of the American Council for Capital Formation, Pepperdine
University. In addition, he has taught at Pepperdine University, University of
Southern California and University of Chicago. Dr. Laffer was the Chief
Economist at the White House Office of Management and Budget from 1970 to 1972.
He has also been a consultant to the United States Secretaries of Treasury and
Defense and a member of President Reagan's Economic Policy Advisory Board. He
was listed in "A Dozen Who Shaped the `80's" in the Los Angeles Times, and in "A
Gallery of the Greatest People Who Influenced Daily Business" in the Wall Street
Journal. Dr. Laffer received a BA in Economics from Yale University and an MBA
and PHD in Economics from Stanford University. Dr. Laffer brings to Casmyn a
strong background in the areas of corporate finance, business development and
strategic planning.
SANDRO KUNZLE. Mr. Kunzle has over 23 years of international banking and
finance experience. During his career, Mr. Kunzle has held senior positions
with several Swiss banks and financial institutions. He currently holds the
position of Managing Director of Witra Inc., an investment firm based in
Switzerland. His expertise in international finance and venture capital adds
significant experience to the Company's international business development
efforts.
DOUGLAS C. WASHBURN. Mr. Washburn holds a MBA/CPA and brings twenty-four (24)
years of financial management experience to the Company. Prior to joining the
Company in 1993 he was a principal at Washburn Partners, a financial consulting
firm, from 1990 to 1993. Between 1980 and 1990, he was Vice President and
Controller of Armco Financial Corporation, a $1 billion multinational merchant
bank and its successor Glenfed Financial Corporation. Through his background he
brings to the Company expertise in areas of international finance, planning,
taxation, accounting and management information systems.
DR. GREGORY G. GOSSON. Dr. Gosson is the Managing Director of Mining for Casmyn
Mining Corporation and is overseeing the Company's exploration activities from
the Pretoria, South Africa office. Dr. Gosson has been involved in the mining
industry since 1977 and has managed projects in Canada, the U.S.A., the
Caribbean, South East Asia, New Zealand, and most recently in South Africa.
Prior to joining Casmyn, Dr. Gosson was Chief Geologist for Plexus Resources in
the U.S.A. He is a graduate of Queen's University, Canada and obtained his
Ph.D. in Geology from Victoria University, New Zealand. Dr. Gosson has been
managing Casmyn's property acquisitions and exploration efforts in South Africa
for the past three years. His experience in base and precious metal deposits,
precious stones, coal, and the oil and gas industry will be instrumental in
identifying and developing mining opportunities for Casmyn worldwide.
DENNIS E. WELLING. Mr. Welling, a CPA, currently serves as Controller. He has
twenty-four (24) years internal and external audit and controlling experience,
including positions with Deloitte & Touche, Armco Steel Corporation and Glenfed
Financial Corporation. He has significant management information systems
experience in the mining, manufacturing and financial services sectors.
-61-
<PAGE>
ITEM 11. EXECUTIVE COMPENSATION
In 1994, upon Mr. Dahya's acquisition of a controlling interest in the Company,
the organizational structure of the Company was reconstituted to implement the
development of mineral resources and environmental technologies
At this time the Company has no compensation committee, or other board committee
performing equivalent functions, the Company's full Board of Directors
participates in and approves all deliberations concerning executive officer
compensation.
The information contained herein does not include any compensation paid or
accrued by VETI with respect to such services provided to VETI by officers of
the Company.
The following is a Summary Compensation Table disclosing annual compensation
over $100,000 paid to the executive officers of Registration and/or Option/SAR
Grants during the last fiscal year:
SUMMARY COMPENSATION TABLE
(INCLUDES COMPENSATION PAID BY THE COMPANY)
<TABLE>
<CAPTION>
ANNUAL COMPENSATION LONG-TERM COMPENSATION
===========================================================================================
AWARDS PAYOUTS
====================================================================================================================================
FISCAL OTHER RESTRICTED ALL OTHER
NAME AND YEAR ANNUAL STOCK OPTIONS/ LTIP COMPEN-
PRINCIPAL POSITION ENDING SALARY BONUS COMP. AWARD(S) SAR'S (1) PAYOUTS SATION
- ------------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Amyn Dahya, 1996 $150,000 $267,700 None 0 1,000,000
President 1995 $150,000 None None 0 0
and CEO 1994 $150,000 None None 0 0 None None
====================================================================================================================================
</TABLE>
(1) In October 1995 Mr. Dahya was granted an option to purchase 1,000,000
shares of the Company's Common Stock at an exercise price of $7.00 per share
for a period of 5 years, expiring on September 30, 2000, these options vest
over a two year period with ont-third vesting at grant date, and one-third on
each of the anniversaries of the grant date. As of January 13, 1997 none of
these Options have been exercised.
No compensation is currently paid to non-employee directors.
All other executive officers of the Company listed above received a combined
annual cash compensation of $87,525 for the fiscal year ended September 30,
1996. In addition, the Company pays a portion of each employee's health
insurance premium.
There are no employment contracts, proposed termination of employment or change-
in-control arrangements between the Company and any of its directors or
executive officers.
-62-
<PAGE>
OPTION/SAR GRANTS IN LAST FISCAL YEAR
-------------------------------------
<TABLE>
<CAPTION>
===================================================================================================================================
POTENTIAL REALIZABLE VALUE AT
ASSUMED ANNUAL RATES OF STOCK
PRICE APPRECIATION FOR OPTION
INDIVIDUAL GRANTS TERM
- -----------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
NO. OF % OF TOTAL
SECURITIES OPTIONS/SAR'S
UNDERLYING GRANTED TO EXERCISE OF
NAME AND POSITION OPTION/SAR'S EMPLOYEES BASE PRICE EXPIRATION
GRANTED IN FISCAL YEAR ($/SHARE) DATE 5% ($) 10% ($)
===================================================================================================================================
Amyn S.Dahya,
President and CEO 1,000,000 100% $7.00 10/2002 $2,450,952 $5,765,241
===================================================================================================================================
</TABLE>
No other benefits, salaries, bonuses, stock options, grants, SAR's or
compensation have been paid or given to executive officers during the last
fiscal year and it is not anticipated that any will be in the foreseeable
future.
The following table lists the aggregated Option/SAR exercises during the last
fiscal year by directors and officers of the company and the fiscal year end
option/SAR values of both the exercised and unexercised option/SAR grants:
AGGREGATED OPTION/SAR EXERCISES IN LAST FISCAL YEAR AND
FISCAL YEAR END OPTION/SAR VALUES
CASMYN
- ------
<TABLE>
<CAPTION>
Number of Securities Value of Unexercised In-
Underlying Unexercised the-Money options
options at Sept. 30, 1996 at Sept. 30, 1996
Shares Value Exercisable / Exercisable / Unexercisable
Name Acquired Realized Unexercisable ($000's)
===================================================================================================================================
<S> <C> <C> <C> <C>
Amyn S. Dahya 0 0 333,333/666,667 $1,833/$3,667
Douglas C. Washburn 0 0 37,500/37,500 $ 405/$282
Dennis E. Welling 0 0 17,500/17,500 $ 181/$131
Dr. Gregory G. Gosson 0 0 37,500/112,500 $ 237/$263
===================================================================================================================================
</TABLE>
VETI
- ----
<TABLE>
<CAPTION>
- --------------------------------------------------------------------------------------------------------------------------
Number of Securities Value of Unexercised In-
Underlying Unexercised the-Money options
options at Sept. 30, 1996 at Sept. 30 1996
Shares Value Exercisable/ Exercisable / Unexercisable
Name Acquired Realized Unexercisable ($000's)
- --------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Amyn S. Dahya 0 0 250,000/750,000 $125/$375
Douglas C. Washburn 0 0 26,800/13,200 $13/$7
Dennis E. Welling 0 0 26,800/13,200 $13/$7
- --------------------------------------------------------------------------------------------------------------------------
</TABLE>
LONG TERM INCENTIVE PLANS - AWARDS IN LAST FISCAL YEAR
To date, none of the foregoing options have been exercised.
None of the other directors or executive officers of the Company hold options to
purchase shares of the Company's Common Stock.
-63-
<PAGE>
EMPLOYEE STOCK OPTION PLAN
- --------------------------
During 1995, the Company adopted an Incentive Stock Option Plan (ISOP) which
provides that a maximum of 800,000 options to purchase the Company's common
stock may be granted to officers and employees of the Company. Options granted
under the ISOP are intended to qualify as incentive stock options under the
Economic Recovery Tax Act of 1981 (the "1981 Act") as amended by the Tax Reform
Act of 1986.
The ISOP is administered by the Board of Directors through a committee presently
consisting of two members of the Board (Committee). The Committee determines
which persons receive options, the number of shares that may be purchased under
each option, vesting provisions, option terms and exercise price. Options
granted under the ISOP are require to have an exercise price equal to or greater
than the market price of the Company's Common Shares at the grant date. In the
event an optionee voluntarily terminates his relationship with the Company, he
has the right to exercise his accrued options within 3 months of such
termination. However, the Company may redeem any accrued options held by an
optionee by paying the difference between the option price and the then fair
market value. If an optionee's relationship is involuntarily terminated, other
than because of death, he also has the right to exercise the accrued options
within thirty (30) days of such termination. Upon death, his estate or heirs
have one year to exercise his accrued options.
Options granted under the ISOP are not transferable other than by will or by the
laws of descent and distribution. The ISOP provides that the number of shares
and the option price will be adjusted on a pro-rata basis for stock splits and
stock dividends.
Options must be granted within five (5) years from the effective date of the
ISOP. As of September 30, 1995, options to purchase 765,000 shares of common
stock were granted under the ISOP. All options granted under the ISOP through
September 30, 1995, have an exercise price of $5.00 per share which was equal to
the market price per share on the date of grant. All options granted through
September 30, 1995 are exercisable for a term of five (5) years from the date of
vesting and vest at the rate of 25% per year over a period of four years. During
the year ended September 30, 1996, options to purchase 75,000 shares were
granted under the ISOP at prices ranging form $7.00 to $10.00 per share. These
options are exercisable for a term of five (5) years form the date of vesting
and vest on varying terms of periods up to six (6) years. Certain of these
options are compensatory and will result in total compensation of $576,250, of
which none has been recorded as compensation expense during 1996. During the
year ended September 30, 1996, 170,000 options were canceled.
During 1995 the Company also adopted a non-qualified Stock Option Plan (SOP),
which grants five year options to purchase a maximum of 250,000 shares of the
Company's common stock at a price of $0.04 per share to officers and key
employees of the Company. Options granted under the Plan are not-intended to
qualify as incentive stock options under the Economic Recovery Tax Act of 1981
(the "1981 Act") as amended by the Tax Reform Act of 1986.
As of September 30, 1996, options to purchase up to 246,000 shares of common
stock were granted under the SOP. With the exception of 50,000 options granted
to a former officer, who's options vest 100% on the grant date, the options vest
to the optionee over a one (1) year period with 50% vesting at the grant date
and 50% on the first anniversary of the grant date. Options granted under the
SOP are compensatory in nature and result in total compensation expense of
approximately $1,220,160, of which $855,600 was recorded as compensation expense
during 1995 and $364,560 was recorded as expense for the year ended September
30, 1996.
The SOP is administered by the Board of Directors through a committee presently
consisting of all three members of the Board which determines which persons
receive options under the SOP, the number of shares that may be purchased under
each option and the vesting period. The term of all options is five (5) years
and all options must be granted within five (5) years from the effective date of
the Plan.
Options granted under the Plan are not transferable other than by will or by the
laws of descent and distribution. The Option Plan provides that the number of
shares and the option price will be adjusted on a pro-rata basis for stock
splits and stock dividends.
During the year ended September 30, 1996 options to purchase 1,000,000 shares of
the Company's common stock at $7.00 per share were granted to the Company's
president. These options vest over a two year period with one-third vesting at
the grant date, and one-third on each of the anniversaries of the grant date.
These options expire five years from the date of vesting. In addition, options
to purchase 25,000 shares of the Company's common stock at $7.00 were granted to
a consultant to the Company, these options were exercised during the year ended
September 30, 1996. The option price for these grants was equal to the market
price at the date of the grants.
During 1995, VETI adopted a qualified Incentive Stock Option Plan (V-ISOP)
which provides that a maximum of 700,000 options to purchase its common stock
may be granted to officers, employees and advisors of VETI. Options granted
under the V-ISOP are intended to qualify as incentive stock options under the
Economic Recovery Tax Act of 1981 (the "1981 Act") as amended by the Tax Reform
Act of 1986.
In 1995, options to purchase 606,000 shares of VETI's common stock were granted
under the V-ISOP with an exercise price of $1.00 per share which represents the
market price per share on the date of grant. In 1996, options to purchase 10,000
shares of common stock were granted under the V-ISOP with an exercise price of
$1.00 per share which represents the market price per share on the date of the
grant. All options granted are exercisable for a period of ten (10) years and
vest over a three year period.
VETI also adopted a non-qualified Stock Option Plan (V-SOP), which grants
options to purchase a maximum of 500,000 shares of the Company's common stock to
officers, key employees and advisors of the Company. Options granted under the
Plan are not intended to qualify as incentive stock options under the 1981 Act.
In 1995, options to purchase 480,000 shares of VETI's common stock at a price of
$.01 to $3.00 per share were granted under the V-SOP. In 1996, options to
purchase 175,000 shares of common stock at prices ranging from $1.00 to $2.00
per share were granted under the V-SOP. With the exception of 150,000 options
that completely vested on the date of grant, the options vest on varying terms
of periods up to three years. Certain of these options are compensatory in
nature and resulted in total compensation expense of $99,500 during the year
ended September 30, 1995.
Prior to September 30, 1994, VETI had granted options to purchase up to a total
of 1,350,000 shares of its common stock. These options are not intended to
qualify as incentive stock options under the 1981 Act. Included in these options
are options to purchase up to 1,000,000 shares at $1,00 granted to the Chief
Executive Officer of VETI, under an employment agreement. This agreement
provides that 25% of such options were vested immediately with the remaining 75%
to vest based on the achievement of defined sales goals.
-64-
<PAGE>
The only other benefit plan offered at the present or during 1996 involves a
major medical plan which is made available to all employees on a non-
discriminatory basis, the Company currently maintains no other stock option
plans, no plan which would termed a "Long-Term Incentive Plan" as explained in
Item 402 (a)(6)(iii) of the U.S. Securities and Exchange Act, nor any benefit
plan which would give rise to "Long Term Compensation" as defined in Item
402(b)(iv) of the U.S. Securities and Exchange Act, except as described above.
INDEMNIFICATION OF DIRECTORS AND EXECUTIVE OFFICERS
- ---------------------------------------------------
Pursuant to the By-Laws of the corporation, the Company has agreed to indemnify
an officer or director who is made a party to any proceeding, including a law
suit, because of his/her position, if he/she acted in good faith and in a manner
he/she reasonably believed to be in the best interest of the corporation and, in
certain cases, may advance expenses incurred in defending any such proceeding.
To the extent that the officer or director is successful on the merits in any
such proceeding as to which such person is to be indemnified, the Company must
indemnify him/her against all expenses incurred, including attorney's fees.
With respect to a derivative action, indemnity may be made only for expenses
actually and reasonably incurred in defending the proceeding, and if the officer
or director is judged liable, only by a court order. The indemnification is
intended to be to the fullest extent permitted by Colorado law.
Insofar as indemnification for liabilities arising under the Securities Act of
1933, as amended, may be permitted to officers, directors or persons controlling
the Company, pursuant to the foregoing provisions, the Company has been informed
that, in the opinion of the Securities and Exchange Commission, such
indemnification is against public policy as expressed in said Act and is,
therefore, unenforceable.
COMPLIANCE WITH SECTION 16(a) OF THE SECURITIES EXCHANGE ACT OF 1934
- --------------------------------------------------------------------
Based solely on a review of Forms 3 and 4 and amendments thereto furnished to
the Company during its most recent fiscal year and certain written
presentations, no person who was a director, officer, or beneficial owner of
more than 10% of the Company's common stock failed to file on a timely basis
reports required by Section 16(a) of the Exchange Act during the most recent
fiscal year.
-65-
<PAGE>
ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT
The following information table sets forth certain information regarding the
Company's common stock owned on December 17, 1996 by (1) any person (including
any "group") who is known by the Company to own beneficially more than 5% of its
outstanding common stock, (2) each director and officer, and (3) all officers
and directors as a group.
<TABLE>
<CAPTION>
==================================================================================================
NAME AND ADDRESS OF SHARES OF COMMON STOCK PERCENT OF COMMON STOCK
BENEFICIAL OWNER OWNED OUTSTANDING **
==================================================================================================
<S> <C> <C>
AMYN DAHYA
1335 GREG ST. #104 3,691,694 (1) 27.7%
SPARKS, NV. 89431
- --------------------------------------------------------------------------------------------------
HANIF DAHYA
5 BEECHWOOD ROAD NIL --
ALLENDALE, NEW JERSEY
07401
- --------------------------------------------------------------------------------------------------
SANDRO KUNZLE
TENUTA AIA VECCHIA NIL --
58029 SASSOFORTINO (GR)
ITALY
- --------------------------------------------------------------------------------------------------
BISMILLAH CHILDREN'S 1,807,750 (2) 14.3%
FOUNDATION LTD.
1335 GREG ST. #104
SPARKS, NV. 89431
- --------------------------------------------------------------------------------------------------
SOCIETE GENERALE 2,902,701 (3) 20.5%
17 COURS VALNY
LA DEFENSE
CEDEX
PARIS, FRANCE
- --------------------------------------------------------------------------------------------------
ALL OFFICERS AND DIRECTORS
OF THE COMPANY AS A 3,884,121 29.1%
GROUP (6 PERSONS)
==================================================================================================
</TABLE>
- --------------------------------------
** Based upon 12,667,311 common shares outstanding at December 17, 1996 and
assumes conversion of outstanding stock options and warrants that are currently
exercisable.
(1) At December 31, 1996, Mr. Amyn Dahya held 1,992,000 common shares of the
Company, in addition 1,032,694 common shares of the Company were owned or
controlled by Dahya Holdings, Inc. ("DHL"), a foreign corporation, of which
Mr. Amyn Dahya is an officer and director. Mr. Mansoor Dahya, an uncle to
Mr. Amyn Dahya, is the majority shareholder of Dahya Holdings, Inc. and
holds 91% of the outstanding voting stock of DHL. As indirect shareholders,
Messrs. Amyn Dahya and Mansoor Dahya have shared voting and investment power
in and to these shares. Also at December 31, 1996, Mr. Dahya had a total of
667,000 exercisable options to purchase common stock of the Company at $7.00
per share.
(2) Bismillah Children's Foundation Ltd. is a non-profit/charitable foreign
corporation of which Mr. Amyn Dahya is a Trustee and Director. Bismillah is
managed by a five (5) member Board of
-66-
<PAGE>
Trustees. Mr. Dahya and his wife are two of the five Trustees. A majority
vote is required for the Board to take any actions on behalf of the
Foundation.
(3) Includes 1,427,679 common shares held at December 31, 1996 and 641,689
exercisable common stock warrants and 833,333 common shares assuming the
conversion of the $5,000,000 convertible debenture.
ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
Vector Environmental Technologies, Inc. and Subsidiaries
- --------------------------------------------------------
The Company shares officers, personnel and facilities with VETI and accordingly
actual costs related to these officers and personnel and facilities are shared
on a pro-rata basis. In addition, at December 31, 1995, Dahya Holding Limited
("DHL") held approximately a 14% interest in VETI.
The Company employs several scientists, technologists and engineers experienced
in the fields of environmental protection, water purification, treatment of
effluents from mineral processing operations, and pollution control of water.
VETI, is utilizing the Company's infrastructure in order to develop commercial
applications for water purification technologies developed by the Company. The
Company provides research and development services to VETI as required. In
addition, the Company provides technical staff to VETI as required. The Company
bills VETI for the services of its technical staff at a rate which approximates
cost recovery. During the year ended September 30, 1996, the Company billed
VETI $285,730 for such services.
Diamond Fontein International, Ltd.
- -----------------------------------
Diamond Fontein International, Ltd., with whom the Company has entered into
various transactions is a wholly owned subsidiary of DHL.
Casmyn Research and Engineering
- -------------------------------
Casmyn Research and Engineering ("CRE") a Canadian corporation is a wholly owned
subsidiary of DHL. During 1996 the Company paid CRE $74,456 for consulting
services related to various Company programs and activities.
-67-
<PAGE>
PART IV
ITEM 14. EXHIBITS AND REPORTS ON FORM 8-K
(a) 3. Exhibits
---------
3.1 Registrant's amended and restated articles of incorporation (1)
3.2 Registrant's By-Laws (1)
10. Material Contracts
------------------
10.1 Matabeland Minerals, Private Limited, Zimbabwe purchase
agreement (2)
10.2 Casmyn Corp. 1995 Incentive Stock option Plan (3)
10.3 Casmyn Corp. 1995 Non-Qualified Stock Option Plan (3)*
10.4 Societe Generale $5 million Subscription Agreement Casmyn
(4)
10.5 Societe Generale $5 million convertible Debenture (3)
10.6 Subscription Agreement for the sale of 750,000 units (5)
10.7 Stock purchase Agreement between Casmyn Corp. and
WestAmerica (6)
10.8 Subscription Agreeement for the sale of 409,091 units (7)
10.9 Sale Agreement - Newgold Incorporated**
11. Statement re: computation of per share earnings (computation can be
determined from the material contained in this report)
21. Subsidiaries of the Registrant (see Item 1 - Description of Business)
27. Financial Data Schedule
- --------------------------------------------------------------------------------
(1) Previously filed with the commission on Form 10-KSB for the fiscal year
ended September 30, 1994 and incorporated herein by reference.
(2) Previously filed with the commission on Form 8-K dated February 15, 1996
and incorporated herein by reference.
(3) Previously filed with the commission on Form 10-KSB for the fiscal year
ended September 30, 1995, and incorporated herein by reference.
(4) Previously filed with the commission on From 8-K dated September 29, 1995
and incorporated herein by reference.
(5) Previously filed with the commission on Form 8-K dated April 3, 1996 and
incorporated herein by reference.
(6) Previously filed with the commission on From 8-K dated July 18, 1996 and
incorporated herein by reference.
(7) Previously filed with the commission on Form 8-K dated September 18, 1996
and incorporated herein by reference.
* Compensatory plan, agreement or arrangement
** Filed herein.
(b) Reports on Form 8-K
-------------------
September 18, 1996 The Company reported the placement of 409,091 common share
- ------------------
through an offshore subscription agreement dated September 11, 1996.
-68-
<PAGE>
July 18, 1996 The Company reported the acquisition of 5,680,514 shares of
- -------------
restricted common stock of WestAmerica Corporation in exchange for 606,061
shares of restricted Company common stock. The report includes pro forma
financial statements prepared to show the effect of the acquisition.
-69-
<PAGE>
SIGNATURES
In accordance with Section 13 or 15(d) of the Securities Exchange Act of 1934,
the Company has duly caused this report to be signed on its behalf of the
undersigned, thereunto duly authorized.
CASMYN CORP.
By: /s/ Amyn S. Dahya 1/13/97
----------------------- -----------
Amyn S. Dahya, President and
Chief Executive Officer
Pursuant to the requirements of the Securities Exchange Act of 1934, this report
has been signed below by the following persons on behalf of the Company and in
the capacities on the date indicated.
<TABLE>
<CAPTION>
Signature Title Date
- ----------------------------------------------------------------------------
<S> <C> <C>
/s/ Amyn S. Dahya President, Chief Executive Officer 1/13/97
- -------------------------- -------
Amyn S. Dahya and Chairman of the Board
/s/ Hanif S. Dahya Director 1/13/97
- -------------------------- -------
Hanif S. Dahya (Vice Chairman of the Board)
/s/ Sandro Kunzle Director 1/13/97
- -------------------------- -------
Sandro Kunzle
/s/ Douglas C. Washburn Vice President - Secretary, Treasurer 1/13/97
- -------------------------- -------
Douglas C. Washburn (Principal Financial Officer)
/s/ Dennis E. Welling Controller 1/13/97
- -------------------------- -------
Dennis E. Welling (Principal Accounting Officer)
</TABLE>
-70-
<PAGE>
AGREEMENT FOR PURCHASE AND SALE OF ASSETS
-----------------------------------------
THIS AGREEMENT is made and entered into this 18th day of October, 1996, by and
between CASMYN CORP., a Colorado corporation ("Seller") and NEWGOLD, INC., a
Nevada Corporation ("Buyer").
W I T N E S S E T H:
This Agreement is made and entered into with reference to the following
facts:
A. Seller is a Member of Relief Canyon, Ltd., a Nevada Limited Liability
Company (the "Company"), which owns 100% of that certain mining property in the
State of Nevada known as the Relief Canyon Mine (the "Property").
B. Buyer is a Member of the Company.
C. Seller desires to sell to Buyer, and Buyer desires to purchase from
Seller, Seller's interests and membership in the Company and Property upon the
terms and conditions hereinafter set forth.
NOW, THEREFORE, in consideration of the mutual covenants and promises
hereinafter set forth, and other good and valuable consideration, receipt of
which is hereby acknowledged, it is agreed by the parties as follows:
1. Sale of Assets. Seller shall sell and Buyer shall purchase, free and
--------------
clear of all liens and encumbrances, Seller's interests and membership in the
Company and Property.
2. Purchase Price. The purchase price for Seller's interests and
--------------
membership shall be the sum of Nine Hundred Thousand Dollars U.S.
($900,000.00), plus 1,000,000 fully paid and non-assessable restricted shares of
Common Stock of Newgold, Inc. The cash portion of the purchase price shall be
paid in cash to Seller and a stock certificate shall be delivered to Seller at
the time of Closing.
As additional consideration, Buyer shall waive all of Seller's obligations
under that certain Agreement between the parties, dated April 26, 1996,
including the obligation to pay an additional $623,000.
3. Warranties of Seller. Seller represents and warrants to Buyer as
--------------------
follows:
(a) It has not entered into any other contracts to sell, mortgage, or
assign its interests and membership in the Company or the Property.
(b) It has full corporate power and authority to enter into this
Agreement.
<PAGE>
(c) As of the date of closing, Seller's interests and Membership in
the Corporation and the Property shall be free and clear of all liens,
encumbrances, chattel mortgages or conditional sales contracts.
4. Closing. The transaction evidenced by this Agreement shall close
-------
within sixty (60) days after entry of an Order by the U.S. Bankruptcy Court,
Western District of New York, confirming a Plan of Reorganization in the Chapter
11 bankruptcy proceedings of Warehouse Auto Centers, Inc. ("WAC"), Case No 95-
21279, wherein Newgold, Inc. is merging with WAC and raising the sum of
$5,000,000 through the sale of Debtor Certificates. Closing of this Agreement
is contingent upon Buyer acquiring use of the proceeds of the Debtor
Certificates sold in said bankruptcy.
5. Obligations Upon Closing. At the closing:
------------------------
(a) Seller shall deliver to Buyer an Assignment in the form of Exhibit
"A" attached hereto, transferring all of its right, title and interest in and to
its interest and Membership in the Company;
(b) Seller shall deliver to Buyer a Quitclaim Deed to the Property.
(c) Buyer shall deliver to Seller the sum of Nine Hundred Thousand
Dollars U.S. ($900,000.00).
(d) Buyer shall also deliver to Seller a stock certificate for
1,000,000 fully paid and non-assessable restricted shares of Common Stock of
Newgold, Inc. Buyer agrees to commence registration of such shares within six
(6) months of Buyer's listing on the NASDAQ Bulletin Board.
6. Indemnity by Seller. Seller shall indemnify Buyer against any loss,
-------------------
damage, cost or expense that buyer shall incur or suffer as a result of the
breach, untruth or inaccuracy of any promise, agreement, covenant, warranty or
representation made by Seller herein and for the benefit of Buyer.
7. Indemnity of Buyer. Buyer shall indemnify Seller against any loss,
------------------
damage, cost or expense that Seller shall incur or suffer as a result of the
breach, untruth or inaccuracy of any promise, agreement, covenant, warranty or
representation made by Buyer herein to and for the benefit of Seller.
8. Broker's Fees. The parties warrant to and with each other that the
-------------
transaction evidenced by this Agreement was initiated, negotiated and completed
by the parties hereby directly, as principals, and without the intervention of
any broker, dealer, agent or finder, except for IBK Capital Corp., which served
as a broker for Seller and Seller shall be responsible for fees payable to IBK
Capital Corp. Each party agrees to indemnify and hold the other party harmless
from and against any loss, damage, cost or expense, including without
limitation, attorneys' fees and litigation expenses, resulting from any breach
or breaches of the foregoing warranty.
<PAGE>
9. Miscellaneous.
-------------
(a) Time. Time is of the essence of this Agreement and in the
----
performance and enforcement of each of the promises, covenants, representations
and warranties of the parties contained herein. For the purpose of computing
any period of time prescribed herein or relating hereto, the first day shall be
excluded. If the period of time is six (days) or more, weekends and public
holidays shall be included. An act required to be performed on a day shall be
performed at or before the close of business on such day. If an act required to
be performed on a certain day and such day is not a regular business day, the
time of performance or measurement shall be extended to and including the next
regular business day.
(b) Entire Agreement. This Agreement constitutes the entire agreement
----------------
of the parties and all prior rights, negotiations and representations are merged
herein.
(c) Binding Effects. This Agreement shall inure to the benefit of,
---------------
and be binding upon, the parties and their several successors in interested in
any capacity.
(d) Applicable Law. This Agreement shall be construed in accordance
--------------
with the laws of the State of Nevada.
(e) Notices. Any notice or notices which any party hereto deems
-------
necessary, useful or convenient to give to any other party or parties hereto, at
any time and from time to time, shall be in writing and shall be personally
served upon or mailed to the parties at the following addresses:
To Seller at: 1335 Greg Street, Suite 104
Sparks, Nevada 89431
To Buyer at: 5190 Neil Road, Suite 320
Reno, Nevada 89502
In addition, copies of any notice shall also be sent to:
Michael J. Morrison, Esq.
1025 Ridgeview Drive, Suite 400
Reno, Nevada 89509
(f) Attorneys' Fees and Costs. If any legal action or any arbitration
-------------------------
or other proceeding is brought for the enforcement of this Agreement or because
of an alleged dispute, breach, default or misrepresentation in connection with
any of the provisions of this Agreement, the successful or prevailing party
shall be entitled to recover reasonable attorney's fees and other costs incurred
in that action or proceeding, in addition to any other relief to which he may be
entitled.
(g) Counterparts. This Agreement may be executed in any number of
------------
counterparts, each of which shall be deemed to constitute but one and the same
instrument.
<PAGE>
(h) Captions. Article and paragraph captions contained in this
--------
Agreement are inserted only a matter of convenience and reference. Said
captions shall not be construed to define, limit, restrict, extend or describe
this Agreement or the intent of any provision hereof.
(i) Gender and Number. Whenever used in this Agreement and as
-----------------
required by the context of the transaction, the single number shall include the
plural, the plural number shall include the singular, and masculine gender shall
include the feminine and neuter.
(j) Form of Association. As required by the context, the term
-------------------
"person" shall include individuals, partnerships, limited partnerships,
corporations, estates and trusts.
(k) Waiver of Conflict. The parties waive any and all conflicts which
------------------
may exist or arise as a result of this Agreement being prepared, at the mutual
request of the parties, by Michael J. Morrison, Esq., who represents both
parties in unrelated legal matters.
IN WITNESS WHEREOF, the parties hereto have executed this Agreement the day
and year first above written.
CASMYN CORP., a Colorado NEWGOLD, INC., a Nevada
corporation - "Seller" corporation - "Buyer"
By: /s/ Douglas C. Washburn By: /s/ A. Scott Dockter
----------------------- --------------------
Douglas C. Washburn, A. Scott Dockter
Its Secretary/Treasurer Its President
<PAGE>
ASSIGNMENT
----------
By this instrument dated October 18, 1996, for the sum of Nine Hundred
Thousand Dollars U.S. ($900,000.00) and other valuable consideration, receipt of
which is hereby acknowledged, CASMYN CORP., a Colorado corporation, does hereby
assign, transfer and deliver to NEWGOLD, INC., a Nevada corporation, all of its
right, title and interest in and to its interest in Relief Canyon, Ltd., a
Nevada limited liability company (the "Corporation"), together with any and all
assets (tangible or intangible) or holdings or property belonging to the
Corporation, or to be assigned to the Corporation in the future, along with any
interest it may have in any and all agreements entered into by or on behalf of
the Corporation.
By this transfer, CASMYN CORP. expressly acknowledges that it has no
further right, title or interest, directly or indirectly, in or to the
Corporation, or any of its assets, properties or agreements, and claims no such
right by or through the laws of the State of Nevada or any other jurisdiction.
Witness my hand this _____ day of _______________, 1996.
CASMYN CORP., a Colorado corporation
By: ___________________________________________
Douglas C. Washburn, Secretary/Treasurer
EXHIBIT "A"
-----------
<TABLE> <S> <C>
<PAGE>
<ARTICLE> 5
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> 12-MOS
<FISCAL-YEAR-END> SEP-30-1996
<PERIOD-START> OCT-01-1995
<PERIOD-END> SEP-30-1996
<CASH> 880
<SECURITIES> 3,166
<RECEIVABLES> 211
<ALLOWANCES> 0
<INVENTORY> 518
<CURRENT-ASSETS> 4,790
<PP&E> 14,458
<DEPRECIATION> (357)
<TOTAL-ASSETS> 22,317
<CURRENT-LIABILITIES> 4,053
<BONDS> 5,000
0
0
<COMMON> 500
<OTHER-SE> 12,693
<TOTAL-LIABILITY-AND-EQUITY> 22,317
<SALES> 630
<TOTAL-REVENUES> 630
<CGS> 959
<TOTAL-COSTS> 5,830
<OTHER-EXPENSES> 3,122
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 272
<INCOME-PRETAX> (8,321)
<INCOME-TAX> 0
<INCOME-CONTINUING> (8,321)
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (8,321)
<EPS-PRIMARY> (1.16)
<EPS-DILUTED> (1.16)
</TABLE>
