UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
_________________
FORM 10-Q
[ X ] Quarterly report under Section 13 or 15 (d) of the Securities
Exchange Act of 1934
FOR THE QUARTERLY PERIOD ENDED JUNE 30, 1998
----------------
OR
[ ] Transition report under section 13 or 15 (d) of the Exchange Act
COMMISSION FILE NUMBER 0-14136
CASMYN CORP.
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(Exact name of registrant as specified in Charter)
COLORADO
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(State or other jurisdiction of incorporation)
84-0987840
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(IRS Employer Identification No.)
1500 WEST GEORGIA STREET, SUITE 1800
VANCOUVER, BC, CANADA V6G 2Z6
(604) 601-5200
----------------
(Address and Telephone Number of Principal Executive Offices)
Check whether the issuer (1) filed all reports required to be filed by
section 13 or 15 (d) of the Exchange Act during the past 12 months (or for such
shorter period that the registrant was required to file such reports), and (2)
has been subject to such filing requirements for the past 90 days. Yes [ X
] No [ ].
As of August 12, 1998, 218,340,018 shares of the issuer's common stock were
outstanding.
This report contains 20 pages.
<PAGE>
CASMYN CORP.
FORM 10-Q
INDEX
Page
PART I. Financial Information: No.
----
Condensed Consolidated Balance Sheets - June 30, 1998
and September 30, 1997 3
Condensed Consolidated Statements of Operations - Three Months
and Nine Months ended June 30, 1998 and 1997 4
Condensed Consolidated Statements of Cash Flows - Nine Months
ended June 30, 1998 and 1997 5
Notes to Condensed Consolidated Financial Statements 7
Management's Discussion and Analysis of Financial
Condition and Results of Operations 13
PART II. Other Information:
Item 6 - Exhibits and Reports on Form 8-K 20
Signatures 20
<PAGE>
<TABLE>
<CAPTION>
CASMYN CORP.
CONDENSED CONSOLIDATED BALANCE SHEETS
ASSETS
------
JUNE 30, SEPTEMBER 30,
1998 1997
(UNAUDITED) (AUDITED)
------------ ---------------
<S> <C> <C>
CURRENT ASSETS:
Cash and cash equivalents $ 4,992,920 $ 18,185,515
Restricted cash - 5,074,659
Marketable securities 1,760,343 2,096,704
Accounts receivable, net 728,886 511,135
Inventories 744,788 751,299
Prepaid expenses and other assets 74,312 247,560
------------ ------------
Total current assets 8,301,249 26,866,872
INVESTMENT IN AND ADVANCES TO AFFILIATES 1,422,000 4,574,368
PROPERTY AND EQUIPMENT, NET 19,807,339 16,676,347
OTHER ASSETS 125,954 155,792
------------ ------------
TOTAL ASSETS $ 29,656,542 $ 48,273,379
============ ===============
</TABLE>
<TABLE>
<CAPTION>
LIABILITIES AND STOCKHOLDERS' EQUITY
------------------------------------
<S> <C> <C>
CURRENT LIABILITIES:
Accounts payable $ 815,407 $ 1,108,944
Accrued taxes from acquisition 560,799 792,801
Accrued liabilities 140,690 2,156,704
Line of credit - 4,966,160
Current portion of long-term debt - 58,418
---------------- -----------------
Total current liabilities 1,516,896 9,083,027
DIVIDEND PAYABLE 1,422,000 4,574,368
---------------- -----------------
Total Liabilities 2,938,896 13,657,395
---------------- -----------------
MINORITY INTEREST 21,514 144,220
---------------- -----------------
STOCKHOLDERS' EQUITY:
Preferred stock, $.10 par value; 20,000,000 shares
authorized; 1,082,840 and 1,406,962 shares issued 108,284 140,697
and outstanding; liquidation preference $27,071,000
Common stock, $.04 par value; 300,000,000 shares
authorized; 218,335,514 and 13,376,714 shares issued
and outstanding 8,733,421 535,069
Additional paid-in capital 70,262,772 66,486,227
Accumulated deficit ( 45,994,427) ( 28,453,840)
Foreign currency translation adjustment ( 3,469,326) ( 3,328,954)
Treasury stock-at cost, 583,937 and 181,437 shares ( 2,944,592) ( 907,435)
---------------- -----------------
Total Stockholders' Equity 26,696,132 34,471,764
---------------- -----------------
TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY $ 29,656,542 $ 48,273,379
================ =================
<FN>
SEE ACCOMPANYING NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS.
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
CASMYN CORP.
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
FOR THE THREE MONTHS AND NINE MONTHS ENDED JUNE 30, 1998 AND 1997
(UNAUDITED)
FOR THE THREE MONTHS FOR THE NINE MONTHS
ENDED JUNE 30, ENDED JUNE 30,
1998 1997 1998 1997
--------------------------- ---------------------------
<S> <C> <C> <C> <C>
REVENUES:
Precious metals $ 1,240,077 $ 1,025,537 $ 3,441,483 $ 2,522,688
Cost of production 868,028 1,011,879 2,509,168 2,896,373
------------- -------------- -------------- -------------
GROSS PROFIT (LOSS) 372,039 13,658 932,315 ( 373,685)
------------- -------------- -------------- -------------
COSTS AND EXPENSES:
General and administrative
expenses 261,840 358,004 1,175,167 1,074,013
Compensatory stock option
expense - - - 83,085
Professional services 521,919 90,340 705,465 249,751
Depreciation, depletion and
amortization 209,758 69,594 517,724 294,457
Mineral exploration expense 64,642 72,163 201,980 491,256
Mergers and acquisitions - 30,182 59,185 204,414
------------- -------------- -------------- -------------
1,058,159 620,283 2,659,521 2,396,976
------------- -------------- -------------- -------------
LOSS FROM OPERATIONS ( 686,120) ( 606,625) (1,727,206) (2,770,661)
------------- -------------- -------------- -------------
OTHER INCOME (EXPENSE):
Equity in net loss of affiliate - ( 234,024) - ( 791,734)
Minority interest in net loss of
consolidated subsidiary 41,162 - 122,705 -
Interest income, net 162,426 125,179 737,979 110,561
Gain on sale of investment - - - 126,000
Write down of investment ( 3,152,368) - (3,152,368) -
Other income (expense), net 204,771 ( 19,702) (4,734,377) 5,446
------------- -------------- -------------- -------------
Other income (expense), net (2,744,009) ( 128,547) ( 7,026,061) ( 549,727)
------------- -------------- -------------- -------------
NET LOSS $( 3,430,129) $ ( 735,172) $ (8,753,267) $ (3,320,388)
============= ============== ============== =============
BASIC LOSS PER COMMON SHARE
Net Loss $( 3,430,129) $ ( 735,172) $ (8,753,267) $ (3,320,388)
Less: dividends on
convertible preferred stock (529,925) - (1,755,500) -
Less: amortization of
discount on convertible
preferred stock (2,966,567) ( 963,704) (7,031,820) ( 963,704)
------------- -------------- -------------- -------------
NET LOSS APPLICABLE TO
COMMON SHARES $ (6,926,621) $( 1,698,876) $ (17,540,587) $ (4,284,092)
============= ============== ============== =============
NET LOSS PER COMMON SHARE $ (0.04) $ (0.13) $ (0.24) $ (0.33)
============= ============== ============== =============
WEIGHTED AVERAGE COMMON
SHARES OUTSTANDING 171,066,305 13,337,535 72,170,982 12,879,210
============= ============== ============== =============
<FN>
SEE ACCOMPANYING NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS.
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
CASMYN CORP.
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
FOR THE NINE MONTHS ENDED JUNE 30, 1998 AND 1997
(UNAUDITED)
<S> <C> <C>
---------------- ---------------
1998 1997
---------------- ---------------
CASH FLOWS FROM OPERATING ACTIVITIES:
Net loss $ (8,753,267) $ (3,320,388)
Adjustments to reconcile net loss to net cash
used in operating activities:
Depreciation, depletion and amortization 517,724 294,457
Equity in net loss of affiliate - 791,734
Compensatory stock option expense - 83,085
Amortization of debt issue costs - 30,000
Gain on sale of investment - ( 126,000)
Write down of investment 3,152,368 -
Minority interest in net loss of consolidated subsidiary (122,706) -
Other non-cash expense - 258,617
Increase in accounts receivable ( 217,751) ( 1,194,705)
(Increase) decrease in inventories 6,511 ( 430,600)
Decrease (increase) in prepaid expenses and other assets 203,086 ( 225,971)
Decrease in accounts payable (293,537) ( 43,375)
Decrease in accrued liabilities ( 2,248,016) ( 311,774)
Decrease in amounts due from related parties - ( 12,364)
--------------- ---------------
Net cash used in operating activities (7,755,588) ( 4,207,284)
--------------- ---------------
CASH FLOWS FROM INVESTING ACTIVITIES:
Proceeds from sale of assets - 900,000
Decrease in long-term deposits - ( 72,745)
Investment in and advances to affiliates - ( 2,186,578)
Investment in marketable securities - ( 6,040,939)
Proceeds from sale of marketable securities 336,361 -
Purchase of property and equipment ( 3,648,716) ( 7,739,754)
--------------- ---------------
Net cash used in investing activities ( 3,312,355) ( 15,140,016)
---------------- ---------------
CASH FLOWS FROM FINANCING ACTIVITIES:
Private placement of common stock and units - 1,410,500
Issuance of common stock for exercise of stock options 2,796 236,862
Private placement of convertible preferred stock - 16,751,389
Proceeds (repayment) of line of credit (4,966,160) 5,252,619
Decrease (increase) in restricted cash 5,074,659 (5,000,000)
Purchase of treasury stock ( 2,037,157) -
Repayments of long-term debt ( 58,418) ( 189,045)
--------------- ---------------
Net cash (used in) provided by financing activities ( 1,984,280) 18,462,325
--------------- ---------------
EFFECT OF EXCHANGE RATE CHANGES ON CASH AND CASH
EQUIVALENTS ( 140,372) 2,417
---------------- ---------------
NET (DECREASE) INCREASE IN CASH AND CASH EQUIVALENTS (13,192,595) ( 882,558)
CASH AND CASH EQUIVALENTS, BEGINNING OF PERIOD 18,185,515 4,046,194
--------------- ---------------
CASH AND CASH EQUIVALENTS, END OF PERIOD $ 4,992,920 $ 3,163,636
================ ===============
(CONTINUED)
<FN>
SEE ACCOMPANYING NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
CASMYN CORP.
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
FOR THE NINE MONTHS ENDED JUNE 30, 1998 AND 1997
----------- -----------
1998 1997
---------- ----------
<S> <S> <S>
CASH PAID FOR INTEREST $ 368,563 $ 134,060
========== ==========
NON-CASH INVESTING AND FINANCING ACTIVITIES:
Issuance of common stock for services $ - $ 226,561
Issuance of common stock for payment of interest - 88,699
Conversion of debenture to common stock and
preferred stock to common stock - 5,000,000
Decrease in other assets and decrease in additional
paid in capital to reclassify unamortized debt
issue costs for debt converted to preferred stock
and common stock - 200,000
Conversion of preferred stock to common stock 8,156,122 -
Issuance of preferred stock dividend 1,755,500 -
Amortization of discount on convertible preferred
stock 7,031,820 963,704
Accrued dividend on convertible preferred stock
- 356,728
Reduction of payable to joint venture and
investment in joint venture - 623,000
</TABLE>
<PAGE>
CASMYN CORP.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
1. BASIS OF PRESENTATION AND SIGNIFICANT ACCOUNTING POLICIES
The accompanying condensed consolidated financial statements are unaudited;
however, in the opinion of management, such statements include all adjustments
(which are of a normal, recurring nature) necessary for a fair statement of the
results for the interim periods. The financial statements included herein have
been prepared by Casmyn Corp. (the "Company") pursuant to the rules and
regulations of the Securities and Exchange Commission. Certain information and
footnote disclosures normally included in financial statements prepared in
accordance with generally accepted accounting principles have been condensed or
omitted pursuant to such rules and regulations, although the Company believes
that the disclosures included herein are adequate to make the information not
misleading.
The organization and business of the Company, accounting policies followed by
the Company and other information are contained in the notes to the Company's
consolidated financial statements filed as part of the Company's September 30,
1997 Form 10-K. The Form 10-K should be read in conjunction with this quarterly
report.
INCOME (LOSS) PER SHARE
The Company adopted the provisions of Statement of Financial Accounting
Standards No. 128 ("SFAS 128") in the quarter ended December 31, 1997 and has
calculated the basic loss per share information as prescribed by SFAS 128. The
calculation of the diluted earnings per share has been omitted as the assumed
conversion, exercise or contingent issuance of securities would have an
antidilutive effect on earnings per share.
RECENTLY ISSUED ACCOUNTING STANDARDS
The FASB recently issued Statement of Financial Accounting Standards No. 130
("SFAS 130"), Reporting Comprehensive Income, which is effective for fiscal
years beginning after December 15, 1997. SFAS 130 establishes standards for
reporting and displaying comprehensive income and its components in a full set
of general-purpose financial statements. The Company will adopt the new
statement for its fiscal year beginning October 1, 1998, and does not anticipate
that adoption will have a significant impact on its consolidated financial
statements. Under the new statement the Company will report the change in the
foreign currency translation adjustment as a component of comprehensive income.
The FASB recently issued Statement of Financial Accounting Standard No. 131
("SFAS 131"), Disclosure About Segments of an Enterprise and Related
Information, which is also effective for fiscal years beginning after December
15, 1997. SFAS 131 establishes standards for segment reporting in the financial
statements. It also establishes standards for related disclosures about
products and services, geographic areas and major customers. The Company will
adopt the new statement for its fiscal year beginning October 1, 1998, and does
not anticipate that providing required disclosures will result in significantly
different information from that which is currently being disclosed.
<PAGE>
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.
FOREIGN CURRENCY TRANSLATION
Prior to September 30, 1997, the functional currency of the Company's Zimbabwe
operations had been the Zimbabwean dollar. Accordingly, balance sheet accounts
were translated to US dollars using current exchange rates in effect at the
balance sheet date while revenue and expense accounts were translated using the
weighted average exchange rate during the reported period. The gains or losses
resulting from such translation were recorded in the foreign currency
translation adjustment account included as part of stockholders' equity. During
the quarter ended December 31, 1997, the Zimbabwean currency experienced
devaluation in excess of 40%. This level of devaluation is expected to have
significant impacts on Zimbabwe's annual rate of inflation such that the country
may be classified as highly inflationary. As a result, the US dollar has been
adopted as the functional currency for the Company's Zimbabwe operations,
effective October 1, 1997. Pre-existing non-monetary assets and liabilities are
measured using exchange rates in effect as at October 1, 1997 and any gains or
losses from holding monetary assets and liabilities are reflected in the
statement of operations for the period. Amortization and charges related to
non-monetary items are recorded using exchange rates at the time such items
arose. Other revenue and expense accounts continue to be translated using the
weighted average exchange rate during the reported period.
2. RESTRICTED CASH
As at year end September 30, 1997, the Company had $5,074,659 of restricted cash
(including accrued interest of $74,659) which was deposited with two financial
institutions under the Company's guarantee of short term loans to unrelated
third parties. Under agreements with the unrelated third parties, the loans were
secured by certain investment accounts, which contained common shares of the
Company. During the second quarter of 1998, the significant decline in the
Company's share price had created an impairment in the value of the security.
As a result, the lenders of the loans proceeded to call the guarantee provided
by the Company resulting in a loss of $4,978,424 to the Company.
3. COMMITMENTS AND CONTINGENCIES
(i) Agreement
On February 16, 1998, the Company entered into an agreement with Salomon
Brothers Inc. and Smith Barney Inc. ( collectively, "Salomon Smith Barney") to
render certain financial advisory and investment banking services to the
Company. Included in the services to be provided was advice on strategic
alternatives and implementation of the proposed restructuring of the First
Convertible Preferred Stock (" the Preferred Stock Restructuring"). The Company
paid a retainer fee of $150,000 on execution of the agreement and must pay
additional monthly fees of $40,000. In addition, the Company may be liable for
a success fee of $1,000,000 plus 7.5% of the post restructuring Total Enterprise
Value ("TVE") if the TVE of the Company is between $30,000,000 and $75,000,000
and 10% of the TVE in excess of $75,000,000. ; and an additional $1,000,000 if
the average closing stock price, before adjusting for stock splits is greater
than $1.00 per share plus $100,000 for every $0.25 the per share stock price
exceeds $1.00.
The TVE of the Company referred to in the previous paragraph is a defined term
in the agreement with Salomon Smith Barney which means the market values of all
sources of capital used to fund the assets of the
Company including, but not limited to, all forms of debt, preferred securities,
warrants, stock purchase rights, convertible securities, minority interest, all
<PAGE>
forms of equity including common equity and dividends or distributions paid
after January 31, 1998, less cash.
The Company terminated the agreement with Solomon Smith Barney in April, 1998,
as a successful restructuring agreement was not negotiated with the Preferred
Stockholders. The Company intends to contest any claim for payment of any
success fee although no assurance can be given that the Company will prevail
in its position.
(ii) Sale of Subsidiary
On May 11, 1998, the Company reached an agreement in principle for the sale of
its equity interest in Casmyn International Inc., a 55% owned subsidiary, to
WaterPur International Inc. Documentation and finalization of the transaction
is still subject to negotiation.
(iii) Preferred Stock Restructuring
On May 6, 1998, the Company presented a new proposal to the Company's
Convertible Preferred Shareholders seeking approval for a revised restructuring
proposal as follows:
(1) To establish a fixed conversion price of $0.04 per Common Share for all
conversion notices received after the proposal is approved by the
Preferred Shareholders;
(2) To grant to the Preferred Shareholders voting rights on an as converted
basis, subject to approval by the Company's Common Shareholders;
and
(3) To permit the Company to redeem the Preferred Stock at the following
redemption prices plus accrued and unpaid dividends, if redeemed
during the twelve months beginning January 1, 1998 - $25; 1999
- $32.50; 2000-$35; 2001-$40; and $40 per share thereafter.
On May 18, 1998, the Preferred Shareholders approved the restructuring
proposal. The Company intended to send out a proxy statement to its Common
Shareholders seeking their approval of the above voting rights for the Preferred
Shareholders and a fifty-to-one reverse split of the Common Stock. However, the
Company received notification from NASDAQ that it was in default of certain
requirements. The Company requested a hearing with NASDAQ and pending the
results of the heaing it postponed obtaining approval from the Common
Shareholders. As the hearing was not completed within 60 days following the
Preferred Shareholder approval the fixed conversion price is no longer in
effect.
On August 1, 1998, the Company announced the resignation of Mr. Hanif Dahya and
Mr. Sandro Kunzle from the Board of the Directors, and the appointment of Mr.
Alexander L. Cappello and Mr. Mark Zucher to the Board of Directors.
<PAGE>
4. SUMMARY OF STOCKHOLDERS' EQUITY TRANSACTIONS
(Unaudited)
<TABLE>
<CAPTION>
During the nine months ended June 30, 1998, the Company has recorded the following activity in its stockholders'
equity accounts:
<S> <C> <C> <C> <C>
Number of Common Shares Number of Preferred Shares
Common Stock Preferred Stock
Description
Balances September 30, 1997 13,376,714 $ 535,069 1,406,962 $ 140,697
Exercise of stock options 69,923 2,796 - -
Preferred stock dividend - - 70,220 7,021
Conversion of preferred shares 204,888,877 8,195,556 ( 394,342) ( 39,434)
Conversion discount on
convertible preferred stock - - - -
Decrease in Dividend Payable - - - -
Purchase of treasury stock - - - -
Foreign currency
translation adjustment - - - -
Net loss - - - -
----------------------- ------------- --------------------------- -----------------
Balances at June 30, 1998 218,335,514 $ 8,733,421 1,082,840 $ 108,284
======================= ============= =========================== =================
</TABLE>
<TABLE>
<CAPTION>
<S> <C> <C> <C>
Foreign Currency Translation Adjustment
Additional Paid-in Capital
Accumulated Deficit
Description
Balances September 30, 1997 $ 66,486,227 $ (28,453,840) $ (3,328,954)
Exercise of stock options - - -
Preferred stock dividend 1,748,479 ( 1,755,500) -
Conversion of preferred shares ( 8,156,122) - -
Conversion discount on
convertible preferred stock 7,031,820 ( 7,031,820) -
Decrease in Dividend Payable 3,152,368 - -
Purchase of treasury stock - - -
Foreign currency
translation adjustment - - (140,372)
Net loss - (8,753,267) -
---------------------------- --------------------- -----------------------------------------
Balances at June 30, 1998 $ 70,262,772 $ (45,994,427) $ (3,469,326)
============================ ===================== =========================================
</TABLE>
<TABLE>
<CAPTION>
<S> <C> <C>
Treasury Stock Total Stockholders' Equity
Description
Balances September 30, 1997 $ ( 907,435) $ 34,471,764
Exercise of stock options - 2,796
Preferred stock dividend - -
Conversion of preferred shares - -
Conversion discount on
convertible preferred stock - -
Decrease in Dividend Payable - 3,152,368
Purchase of treasury stock ( 2,037,157) ( 2,037,157)
Foreign currency
translation adjustment - (140,372)
Net loss - (8,753,267)
---------------- ---------------------------------------
Balances at June 30, 1998 $ ( 2,944,592) $ 26,696,132
================ =======================================
</TABLE>
<PAGE>
5. IMPAIRMENT IN VALUE OF INVESTMENT
Effective September 30, 1997, the Company completed a settlement with WPUR
whereby the Company received 5,082,626 shares of WPUR Convertible Preferred
Stock in exchange for $4,574,368 in amounts owed to the Company. These amounts
arose principally from working capital advances from the Company to WPUR and for
services provided to WPUR by the Company. The determination of the number of
Convertible Preferred shares was based upon the market value of WPUR common
stock at September 30, 1997. In addition to the debt settlement, the Company
exchanged its 5,634,756 common shares of WPUR (approximately 31.2% of the
outstanding shares of WPUR) for 2,817,378 Convertible Preferred shares of WPUR.
These transactions resulted in the Company owning 7,900,004 Convertible
Preferred shares of WPUR.
Also, effective September 30, 1997, the Company's Board of Directors announced
the spin-off to its shareholders of all the 7,900,004 Convertible Preferred
Shares received by the Company in the Restructuring to the common and preferred
shareholders of the Company of record on October 15, 1997. The Company must
receive regulatory approval prior to distribution of these Convertible Preferred
Shares. At September 30, 1998, there was an investment in WPUR and a
corresponding dividend payable of $4,574,368.
For the quarter ended June 30, 1998, due to a significant and prolonged decrease
in the market value of WPUR's common stock, management determined there was
an impairment in the value of its investment in WPUR. Thus, the Investment
in WPUR has been written down to market value of approximately $1,422,000
resulting in a writedown of $3,152,368. The corresponding dividend payable has
also been decreased by $3,152,368 to $1,422,000 in order to reflect the decrease
in value of the investment.
6. SHORT TERM BORROWINGS
On June 9, 1998, the bank exercised its right under the Facility Agreement to
require immediate repayment of the outstanding balance. On June 11, 1998, the
Company paid $4,966,160 to the bank, thereby discharging its liability. The
assets held in its Pledge Collateral account were subsequently liquidated. The
Company has no further liability to the bank.
7. SUBSEQUENT EVENTS
(i) On July 31, 1998, the Company received a notice from NASDAQ that the
NASDAQ Listings Qualifications Panel "the Panel" has made a determination to
delist the Company's Common Stock from The NASDAQ Stock Market effective the
close of business, July 31, 1998. The Panel made its decision to delist
based on its lack of confidence in the Company's ability to meet and maintain a
minimum $1.00 per share bid price subsequent to putting into effect the proposed
reverse stock split. The Panel also noted that the Company does not currently
meet the market maker requirement for trading of its shares.
The NASDAQ Listing and Hearing Review Council "Listing Council" may, on its
motion, determine to review any Panel decision within 45 calendar days after the
issuance of the written decision. If the Listing Council elects to review this
decision it may affirm, modify, reverse, dismiss, or remand the decision of the
Panel. The Company has 15 days from the date of the delisting decision to
<PAGE>
request the Listing Council review its decision, which the Board of Directors
has determined to do.
The Company has no assurance that it will be relisted on NASDAQ. In the
interim the securities of the Company may be eligible to trade on the Over the
Counter ("OTC") Bulletin Board.
(ii) Pursuant to Section 1.4 of the Preferred Stock Investment Agreements,
the Company shall pay the investor (preferred shareholder) a penalty in cash of
an amount equal to 3% of the total Purchase Price of Shares and any Registrable
Securities then held by the Investor during any period in excess of thirty days
that the Common Stock of the Company is not listed and traded on NASDAQ or on a
national securities exchange. The payment must be made not later than five
business days after the end of the 30-day period with respect to which such
payment is due and if not so paid the Preferred Shares shall be redeemable at
the option of the holder at their liquidation preference divided by 100% less
the Applicable Percentage set forth in Schedule I of the Preferred Stock
Investment Agreements (See the September 30, 1997 Form 10-K, Exhibits 10.10 &
10.11).
Given that the Company's Common Shares have been officially delisted from
NASDAQ on July 31, 1998, a penalty of $ 810,000 maybe payable on September 4,
1998. The Company is engaged in discussions with certain holders of the
Company's Preferred Stock to obtain a waiver of the penalty arising from the
delisting. However, there are no assurances that the Company will be able to
obtain such a waiver.
8. COMPARATIVE NUMBERS
Certain amounts in the prior year financial statements have been
reclassified for comparative purposes.
<PAGE>
MANAGEMENT'S DISCUSSION AND ANALYSIS
OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
SPECIAL NOTE CONCERNING FORWARD-LOOKING STATEMENTS
Certain of the foregoing information constitutes "forward looking statements"
within the meaning of the Private Securities Litigation Reform Act of 1995. Such
forward-looking statements, including but not limited to those with respect to
the price of gold, estimated future production, estimated cost of future
production, acquisition opportunities and permitting time lines, involve unknown
risks, uncertainties, and other factors which may cause thee actual results,
performance or achievements of the Company to be materially different from any
future results, performance or achievements expressed or implied by such
forward-looking statements. Such factors include, among others, the actual
price of gold, development and mining activities, the implementation of
cost-cutting measures, fluctuations in exchange rates, as well as those factors
discussed in the Company's Annual Report in Form 10-K filed with Securities and
Exchange Commission for the year ended September 30, 1997
OVERVIEW
The business activities of the Company center around mineral resource
development. Until December 31, 1997, the Company's primary focus has been the
acquisition and exploration of precious mineral resource properties in Zimbabwe,
Zambia and South Africa. The Company is presently focusing on the mining
operations located in Zimbabwe.
In response to the recent decline in gold prices, the Board of Directors adopted
a policy to preserve the Company's cash resources and capital base while
maintaining its gold production at a sustainable profit. The most immediate
effects of this policy is a significant reduction in such expenses as
exploration and mergers & acquisitions (M&A).
RESULTS OF OPERATIONS
NINE MONTHS ENDED JUNE 30, 1998 COMPARED TO THE NINE MONTHS ENDED JUNE 30, 1997
Revenues for the nine months ended June 30, 1998 were $3,441,483 representing
sales of approximately 11,585 ounces of gold produced in Zimbabwe compared to
$2,522,688 for the nine month period ended June 30, 1997 representing the sale
of approximately 7,277 ounces of gold. The increase in gold production during
the current period over the same period in 1997 was consistent with the
Company's overall plan to increase production. The Company anticipates a
continued increase in its gold output for the remainder of the fiscal year. The
average selling price of gold for the nine months ended June 30, 1998, was $297
per ounce compared to an average price of $347 per ounce during the nine months
ended June 30, 1997.
The overall increase in production of 4,308 ounces of gold (59%) during the nine
months ended June 30, 1998 compared to the same period in 1997 resulted in
increased revenues of approximately $1,280,000. This was offset by a decrease
in the price of gold of $50 per ounce or $362,000. The net effect is that gold
sales increased by approximately $918,000.
The cost of production incurred for mineral operations amounted to $2,509,168
(or approximately $217 per ounce of gold produced) for the nine months ended
June 30, 1998 compared to $2,896,373 (or approximately $398 per ounce of gold
produced) for the same period ended June 30, 1997. The cost of production for
the nine months ended June, 30, 1997 included significant start-up costs from
the first year of operations. The significantly lower average cost of
production during the the nine months ended
<PAGE>
June 30, 1998 is a result of improved operating techniques, the
implementation of a cost reduction program and the Company's decision, in
response to the recent decline in gold prices, to extract gold from
surface ores and tailings that require lower processing costs. The Company
believes this strategy should allow it to continue its mining operations on a
profitable basis in the foreseeable future.
General and administrative (G&A) expenses were $1,175,167 for the nine months
ended June 30, 1998, compared to $1,074,013 for the nine months ended June 30,
1997, a net increase of $101,154 which is due to a number of items. The investor
relations expense decreased $64,946 during the nine months ended June 30, 1998
compared to the nine months ended June 30, 1997 as the Company had incurred
expenses related to the preferred stock financing in 1997. Travel expenses
decreased $163,373 during the nine months ended June 30, 1998 compared to the
same period ended June 30, 1997. Travel expenses during the nine months ended
June 30, 1997, included a tour of the Zimbabwe mining operations for a group of
twelve mining analysts, as part of the due diligence process for the preparation
of independent research reports, and increased travel between South Africa,
Zambia and Zimbabwe. Insurance expense decreased $20,988 during the current
period mainly due to consolidation of the Company's world-wide insurance
coverage. The Company continued to absorb G&A costs attributable to activities
related to Casmyn International Inc., (CII) a 55% owned subsidiary, which was
formed during 1997 to explore business opportunities in the Commonwealth of
Independent States (CIS). CII incurred $248,062 in G&A comprised primarily of
travel and salary expenses incurred for staff in the CIS during the nine-month
period ended June 30, 1998. These expenses are not expected to recur in future
quarters due to the proposed sale of the Company's interest in CII. Salaries
and wages increased $162,948 during the nine months ended June 30, 1998 compared
to the same period in 1997 due to adjustments to salary levels.
There was no compensatory stock option expense for the nine months ended June
30, 1998, compared to $83,085 for the nine months ended June 30, 1997.
Compensatory stock options, which are granted to senior staff, are vested over a
predetermined period. There were no options granted or vested during the
current period.
Professional services expenses, consisting of consulting, accounting, audit and
tax and legal expenses increased significantly by $455,714 in the nine months
ended June 30, 1998, compared to the nine months ended June 30, 1997, primarily
due to $320,094 in consulting fees for Solomon Smith Barney in connection with
the attempted Preferred Stock Restructuring. These fees were capitalized as
deferred charges in the previous quarter ended March 31, 1998. Legal fees
increased $162,131 primarily due to costs associated with the Preferred Stock
Restructuring and related to NASDAQ issues. Accounting fees decreased a net
$34,458 due reduced acquisition and financing activities by the Company for
the nine months ended June 30, 1998 compared to the same period ended in 1997.
Mineral exploration expenses decreased $289,276 during the nine months ended
June 30, 1998, compared to the same period ended June 30, 1997. In addition,
expenses related to mergers and acquisitions decreased $145,229 during the nine
months ended June 30, 1998 compared to the same period ended June 30, 1997.
These significant decreases reflect the Board's decision to reduce expenses for
exploration and M&A.
With respect to non-operating activities, the Company no longer accrued a loss
from WaterPur International Inc. ("WaterPur") as a result of divesting its debt
and equity holdings in WaterPur at September 30, 1997. The Company consolidates
the financial results of CII, a 55% owned subsidiary, which incurred a loss of
$272,678 for the nine months ended June 30, 1998. Accordingly, minority
interest's share of the Subsidiary's loss amounted to $122,705 (or 45%). During
the nine months ended June 30, 1998, the Company earned investment income of
$737,979 from its cash and marketable securities balances compared to an
interest income of $110,561 during the same period in 1997. The increase of
<PAGE>
$627,418 in interest revenue is due to higher cash balances in the Company
during the nine months ended June 30, 1998, as a result of the Preferred Stock
financings completed during 1997.
Included in the Other Income (Expense) account is a foreign exchange gain of
approximately $256,000 and a restricted cash drawdown for a loan guarantee loss
of $4,978,424. The loss related to a guarantee provided by the Company for
certain unrelated third parties' short term loans. The loans were advanced to
the third parties in May 1997 by two independent financial institutions and were
secured by certain investment accounts, which contained common shares of the
Company. During the second quarter of 1998, the significant decline in the
Company's share price had created an impairment in the value of the security.
As a result, the lenders of the loans proceeded to call the guarantee provided
by the Company resulting in a loss to the Company.
Also included in Other Income (Expense) is a write down in the value of the
Company's Investment in WPUR Convertible Preferred Shares. Due to a significant
and prolonged decrease in the market value of WPUR's common stock, management
has determined there to be an impairment in the value of its investment in WPUR.
Thus, the Investment in WPUR has been written down to market value of
approximately $1,422,000 resulting in a writedown of $3,152,368. The
corresponding dividend payable has also been decreased by $3,152,368 to
$1,422,000 in order to reflect the decrease in value of the investment (See Note
5 in the Notes to Condensed Financial Statements for further details) .
THREE MONTHS ENDED JUNE 30, 1998 COMPARED TO THE THREE MONTHS ENDED JUNE 30,
1997
Revenues for the three months ended June 30, 1998 were $1,240,077 representing
the sale of approximately 4,190 ounces of gold produced in Zimbabwe compared to
$1,025,537 for the three month period ended June 30, 1997 representing the sale
of approximately 2,977 ounces of gold produced. As discussed above, the
increase in gold output was the result of the Company's program to increase
product. The average selling price of gold for the three months ended June 30,
1998 was $296 per ounce compared to an average selling price of $345 per ounce
in the three months ended June 30, 1997.
The overall increase in production of 1,213 ounces of gold (41%) during the
three months ended June 30, 1998 compared to the same period in 1997 resulted in
increased revenues of approximately $359,000. This was offset by a decrease in
the price of gold of $49 per ounce or $145,000. The net effect is that gold
sales increased by approximately $214,000.
Costs associated with mineral operations amounted to $868,028 (or approximately
$207 per ounce of gold) for the three months ended June 30, 1998 compared to
$1,011,879 (or approximately $340 per ounce of gold) for the same period in
1997, a decrease of $143,851 (or 14%). The cost of production for the three
months ended June, 30, 1997 included significant start-up costs. The
significantly lower average cost of production during the three months ended
June 30, 1998 is the result of improved operating techniques, the
implementation of a cost reduction program and the Company's decision, in
response to the recent decline in gold prices, to extract gold from surface ores
and tailings that require lower processing costs. The Company believes this
strategy should allow it to continue its mining operations on a profitable basis
in the foreseeable future.
General and administrative expenses (G&A) were $261,840 for the three months
ended June 30, 1998, compared to $358,004 for the three months ended June 30,
1997, a decrease of $96,164 (27%). Certain expenses have shown significant
decreases, partly due to the Company's efforts to reduce costs. The investor
<PAGE>
relations expense and conference and seminars decreased by $110,989 and
$28,561 respectivily during the three months ended June 30, 1998 compared to the
three months ended June 30, 1997 as the Company had incurred expenses related to
the Preferred Stock financing in 1997. Travel expenses decreased $37,697
during the three months ended June 30, 1998 compared to the same period ended
June 30, 1997 primarily due to less travel to Africa. The Company continued to
absorb G&A costs attributable to activities related to CII, a 55% owned
subsidiary, which was formed during 1997 to explore business opportunities in
the CIS. CII incurred $68,726 in G&A comprised primarily of travel and salary
expenses incurred for staff in the CIS during the three month period ended June
30, 1998. These expenses are not expected to recur in future quarters due to
the proposed sale of the Company's interest in CII. Salaries and wages
increased $31,802 during the three months ended June 30, 1998 compared to the
same period in 1997 due to adjustments to salary levels.
Professional services expenses, consisting of consulting, accounting, audit and
tax and legal expenses increased significantly by $431,579 in the three months
ended June 30, 1998, compared to the three months ended June 30, 1997, primarily
due to $320,094 in consulting fees for Solomon Smith Barney related to the
attempted Preferred Stock Restructuring. These fees were capitalized as deferred
charges in the previous quarter ended March 31, 1998. Legal fees increased by
$93,501 primarily due to costs associated with the Preferred Stock Restructuring
and related to NASDAQ issues. Accounting fees increased a net $30,895 during
the quarter ended June 30, 1998 compared to the same period in 1997 due to a
special audit performed during the attempt to effect the Preferred Stock
Restructuring.
With respect to non-operating activities for the three months ended June 30,
1998, minority interest share of CII's loss amounted to $41,162 representing a
45% share of the total CII loss of $91,471.
Included in Other Income (Expense) is a write down in the value of the
Company's Investment in WPUR Convertible Preferred Shares. Due to a significant
and prolonged decrease in the market value of WPUR's common stock, management
has determined there to be an impairment in the value of its investment in WPUR.
Thus, the Investment in WPUR has been written down to market value of
approximately $1,422,000 resulting in a writedown of $3,152,368. The
corresponding dividend payable has also been decreased by $3,152,368 to
$1,422,000 in order to reflect the decrease in value of the investment (See Note
5 in the Notes to Condensed Financial Statements for further details) .
The Company earned investment income of $162,426 from its cash and marketable
securities balances compared to an interest income of $125,179 during the same
period in 1997. Included in the Other Income (Expense) account was a foreign
exchange gain of approximately $256,000 for the three months ended June 30,
1998 compared to the same period in 1997.
CAPITAL RESOURCES AND LIQUIDITY
At June 30, 1998, the Company had a net working capital balance of $6,784,353.
Management anticipates that the net use of cash will diminish in Zimbabwe as the
current mining operations have attained profitability during the third quarter
ended June 30, 1998. As at June 30, 1998, the Company spent approximately
$3,600,000 on the current phase of expansion and anticipates spending
approximately $700,000 during the remainder of the fiscal year ended September
30, 1998, on capital expenditures related to refurbishing and construction of
mining and mineral processing facilities, as well as on projects related to
power supply, water supply and housing. In addition, the Company must pay
approximately $500,000 in September 1998, as the final payment for property and
<PAGE>
related equipment purchased in 1996 for the Zimbabwe mining operations. The
Company will use current cash and cash equivalents to fund 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
discussed previously, the Company has adopted a policy to reduce expenses for
exploration mergers & acquisitions, and travel expenses until improvements in
gold prices occur. As a result, future cash requirements for such activities
are expected to be lower than in prior periods.
During the nine months ended June 30, 1998 with respect to non-recurring use of
cash, the Company used $2,037,157 to purchase 405,500 shares of its common stock
and used $4,978,424 in connection with a restricted cash drawdown for a loan
guarantee loss.
Net Cash Used in Operating Activities. Net cash used in operating activities
was $7,755,588 for the nine months ended June 30, 1998. The amount included a
restricted cash drawdown for a loan guarantee loss of $4,978,424 and was net of
a charge of $517,724 related to such non-cash items as depreciation, depletion &
amortization. Included in operating, activities was a write down of $3,152,368
due to a decrease in the market value of the investment. Use of cash as a
result of changes in working capital accounts during the current period
included: an increase of $217,751 in accounts receivable in Zimbabwe;
and decrease $2,248,016, primarily due to accounts payable payments for
certain marketable securities purchased in September, 1997. Other working
capital accounts involved a net cash use of $83,940.
Net Cash Used in Investing Activities. Net cash used in investing activities
was $3,312,355 for the nine months ended June 30, 1998 due to the purchase of
property and equipment of $3,648,716 primarily at the Zimbabwe mining
properties. In addition, the Company received proceeds of $336,361 from the
sale of marketable securities as part of its on-going portfolio investment
activities.
Net Cash Used in Financing Activities. Net cash used in financing activities
was $1,984,280 for the nine months ended June 30, 1998. The Company received
$5,074,659 from the release of the restricted cash account, which was set up as
collateral for its guarantee in connection with certain unrelated third parties'
loans. As discussed previously, the Company recorded a corresponding loan
guarantee loss of $4,978,424 during the second quarter. The Company used
$2,037,157 to buy back its common shares during the first three months in 1998.
In addition, the Company paid $4,966,160 to the bank to repay the full amount of
the Credit Facility.
OTHER
On February 16, 1998 the Company entered into an agreement with Salomon Brothers
Inc. and Smith Barney Inc. ( collectively, "Salomon Smith Barney") to render
certain financial advisory and investment banking services to the Company.
Included in the services to be provided was advice on strategic alternatives and
implementation of the proposed restructuring of the First Convertible Preferred
Stock. The Company paid a retainer fee of $150,000 on execution of the agreement
and must pay additional monthly fees of $40,000. In addition, the Company may
be liable for a success fee of $1,000,000 plus 7.5% of the post restructuring
Total Enterprise Value ("TVE") ("the Preferred Stock Restructuring") of the
Company is between $30,000,000 and $75,000,000 and 10% of the TVE in excess of
$75,000,000. An additional $1,000,000 if the average closing stock price,
before adjusting for stock splits is greater than $1.00 per share plus $100,000
for every $0.25 the per share stock price exceeds $1.00.
The TVE of the Company referred to in the previous paragraph is a defined term
in the agreement with Salomon Smith Barney which means the market values of all
sources of capital used to fund the assets of the Company including, but not
<PAGE>
limited to, all forms of debt, preferred securities, warrants, stock purchase
rights, convertible securities, minority interest, all forms of equity including
common equity and dividends or distributions paid after January 31, 1998, less
cash.
The Company terminated the agreement with Solomon Smith Barney in April, 1998,
as a successful restructuring agreement was not negotiated with the Preferred
Stockholders. The Company intends to contest any claim for payment of any
success fee although no assurance can be given that the Company will prevail in
its position.
Preferred Stock Restructuring
On May 6, 1998, the Company presented a new proposal to the Company's
Convertible Preferred Shareholders seeking approval for a revised restructuring
proposal as follows:
(1) To establish a fixed conversion price of $0.04 per Common Share for all
conversion notices received after the proposal is approved by the Preferred
Shareholders;
(2) To grant to the Preferred Shareholders voting rights on an as converted
basis, subject to approval by the Company's Common Shareholders; and
(3) To permit the Company to redeem the Preferred Stock at the following
redemption prices plus accrued and unpaid dividends, if redeemed during the
twelve months beginning January 1, 1998 - $25; 1999 - $32.50; 2000-$35;
2001-$40; and $40 per share thereafter.
On May 18, 1998, the Preferred Shareholders approved the restructuring
proposal. The Company intended to send out a proxy statement to its Common
Shareholders seeking their approval of the above voting rights for the Preferred
Shareholders and a fifty-to-one reverse split of the Common Stock.
<PAGE>
However, the Company received notification from NASDAQ that it was in default of
certain requirements. The Company requested a hearing with NASDAQ and pending
the results of the heaing it postponed obtaining approval from the Common
Shareholders. As the hearing was not completed within 60 days following the
Preferred Shareholder approval the fixed conversion price is no longer in
effect.
NASDAQ Listing
On July 31, 1998, the Company received a notice from NASDAQ that the NASDAQ
Listings Qualifications Panel "the Panel" has made a determination to delist the
Company's Common Stock from The NASDAQ Stock Market effective with the close of
business, July 31, 1998. The Panel made its decision to delist based on its
lack of confidence in the Company's ability to meet and maintain a minimum
$1.00 per share bid price subsequent to putting into effect the proposed reverse
stock split. The Panel also noted that the Company does not currently meet the
market maker requirement for trading of its shares.
The NASDAQ Listing and Hearing Review Council "Listing Council" may, on its
motion, determine to review any Panel decision within 45 calendar days after the
issuance of the written decision. If the Listing Council determines to review
this decision it may affirm, modify, reverse, dismiss, or remand the decision to
the Panel. The Company has 15 days from the date of the delisting decision to
request the Listing Council review its decision, which the Board has determined
to do.
The Company has no assurance that it will be relisted on NASDAQ. In the interim
the securities of the Company may be eligible to trade on the Over the Counter
("OTC") Bulletin Board.
<PAGE>
Pursuant to Section 1.4 of the Preferred Stock Investment Agreements, the
Company shall pay the Investor (preferred shareholder) a penalty in cash of an
amount equal to 3% of the total Purchase Price of Shares and any Registrable
Securities then held by the Investor during any period in excess of thirty days
that the Common Stock of the Company are not listed and traded on NASDAQ or on a
national securities exchange. The payment must be made not later than five
business days after the end of the 30-day period with respect to which such
payment is due and if not so paid the Preferred Shares shall be redeemable at
the option of the holder at their liquidation preference divided by 100% less
the Applicable Percentage set forth in Schedule I of the Preferred Stock
Investment Agreements (See the September 30, 1997 Form 10-K, Exhibits 10.10 &
10.11).
Given that the Company's Common Shares have been officially delisted from NASDAQ
on July 31, 1998, a penalty of $ 810,000 maybe payable on September 4, 1998.
The Company is engaged in discussions with certain holders of the Company's
Preferred Stock to obtain a waiver of the penalty arising from the delisting.
However, there are no assurances that the Company will be able to obtain such a
waiver.
Sale of Subsidiary
On May 11, 1998, the Company reached an agreement in principle for the sale of
its equity interest in Casmyn International Inc., a 55% owned subsidiary to
WaterPur International Inc. Documentation and finalization of the transaction is
still subject to negotiation.
Short Term Borrowings
On June 9, 1998, the bank exercised its right under the Facility Agreement to
require immediate repayment of the outstanding balance. On June 11, 1998, the
Company paid $4,966,160 to the bank, thereby discharging its liability. The
assets held in the Pledge Collateral account were subsequently liquidated. The
Company has no further liability to the bank.
Directors
On August 1, 1998, the Company announced the resignation of Mr. Hanif Dahya and
Mr. Sandro Kunzle from the Board of the Directors, and the appointment of Mr.
Alexander L. Cappello and Mr. Mark Zucher to the Board of Directors.
<PAGE>
PART II. OTHER INFORMATION
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K
A. Exhibits
none
Exhibit 27 -- FINANCIAL DATA SCHEDULE (EDGAR only)
B. Forms 8-K
none
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the
registrant has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.
Casmyn Corp.
/s/ Debbie Barfurth-Wood
August 14, 1998 By _____________________________
Debbie Barfurth-Wood, Controller
(Duly authorized and Principal Accounting Officer)
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