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UNITED STATES SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-Q
[X] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF
THE SECURITIES ACT OF 1934
For the quarterly period ended December 31, 1998
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF
THE SECURITIES ACT OF 1934
For the transition period from ________ to _________
Commission file number: 0-14136
Casmyn Corp.
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(Exact name of registrant as specified in its charter)
Colorado 84-0987840
------------------------------- ----------------------
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification Number)
28720 Canwood Street, Suite 207
Agoura Hills, California 91301
---------------------------------------- ----------
(Address of principal executive offices) (Zip Code)
(818) 879-6501
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(Registrant's telephone number, including area code)
1500 West Georgia Street, Suite 1800
Vancouver, British Columbia, Canada V6G 2Z6
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(Former name, former address and former fiscal year,
if changed since last report.)
Indicate by check mark whether the registrant (1) has filed all
reports required to be filed by Section 13 or 15(d) of the Securities
Exchange Act of 1934 during the preceding 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 April 15, 1999, the Company had 223,176,502 shares of common
stock issued and outstanding.
Documents incorporated by reference: None.
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CASMYN CORP. AND SUBSIDIARIES
INDEX
PART I. FINANCIAL INFORMATION
Item 1. Financial Statements
Consolidated Balance Sheets (Unaudited) - December 31,
1998 and September 30, 1998
Consolidated Statements of Operations (Unaudited) -
Three Months Ended December 31, 1998 and 1997
Consolidated Statements of Comprehensive Income
(Unaudited) - Three Months Ended December 31, 1998 and
1997
Consolidated Statements of Cash Flows (Unaudited) -
Three Months Ended December 31, 1998 and 1997
Notes to Consolidated Financial Statements (Unaudited) -
Three Months Ended December 31, 1998 and 1997
Item 2. Management's Discussion and Analysis of Financial
Condition and Results of Operations
Item 3. Quantitative and Qualitative Disclosures about Market
Risk
PART II. OTHER INFORMATION
Item 2. Changes in Securities and Use of Proceeds
Item 3. Defaults Upon Senior Securities
Item 6. Exhibits and Reports on Form 8-K
SIGNATURES
2
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Casmyn Corp. and Subsidiaries
Consolidated Balance Sheets (Unaudited)
<TABLE>
<CAPTION>
December 31, September 30,
1998 1998
---------- ----------
<S> <C> <C>
ASSETS
CURRENT
Cash and cash equivalents $ 3,693,004 $ 4,356,200
Marketable securities 1,363,786 1,588,536
Accounts receivable 282,937 301,456
Inventories (Note 1) 640,964 643,135
Prepaid expenses and other
current assets 7,556 20,830
---------- ----------
5,988,247 6,910,157
---------- ----------
PROPERTY AND EQUIPMENT 20,350,035 20,214,581
Less accumulated
depreciation, depletion
and amortization (2,354,258) (2,053,079)
---------- ----------
17,995,777 18,161,502
---------- ----------
Other assets 3,744 23,262
---------- ----------
$23,987,768 $25,094,921
========== ==========
</TABLE>
(continued)
3
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Casmyn Corp. and Subsidiaries
Consolidated Balance Sheets (Unaudited) (continued)
<TABLE>
<CAPTION>
December 31, September 30,
1998 1998
---------- ----------
<S> <C> <C>
LIABILITIES
CURRENT
Accounts payable $ 521,374 $ 518,823
Accrued liabilities 670,332 893,236
Preferred Stock repurchase
obligation (Note 2) 642,248
Preferred Stock penalty (Note 2) 1,485,498 839,737
---------- ----------
3,319,452 2,251,796
---------- ----------
PREFERRED STOCK (Note 2) 20,296,557 44,440,451
---------- ----------
STOCKHOLDERS' EQUITY (DEFICIENCY)
Preferred stock, $0.10 par value
Authorized - 20,000,000 shares
Issued and outstanding -
495,236 shares at December 31,
1998 and 1,084,347 shares at
September 30, 1998 (Liquidation
preference - $20,296,557 at
December 31, 1998 and $44,440,451
at September 30, 1998) (Note 2)
Common stock, $0.04 par value
Authorized - 300,000,000 shares
Issued and outstanding -
223,176,502 shares at December
31, 1998 and 217,751,710 shares
at September 30, 1998 (Note 2) 8,927,060 8,710,068
Additional paid-in capital 54,549,559 29,272,294
Accumulated deficit (59,357,091) (55,866,898)
Accumulated other comprehensive
income (Note 1) (3,747,769) (3,712,790)
---------- ----------
371,759 (21,597,326)
---------- ----------
$23,987,768 $25,094,921
========== ==========
</TABLE>
See accompanying notes to consolidated financial statements.
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Casmyn Corp. and Subsidiaries
Consolidated Statements of Operations (Unaudited)
<TABLE>
<CAPTION>
Three Months Ended December 31,
-------------------------------
1998 1997
----------- -----------
<S> <C> <C>
REVENUE
Gold sales $ 978,830 $ 977,030
--------- ---------
COSTS AND EXPENSES
Mineral production 660,964 649,186
General and administrative
expenses 297,173 536,339
Professional services 45,467 36,401
Compensatory stock options 4,331
Depreciation, depletion and
amortization 300,735 157,275
Mineral exploration expense 4,625 129,665
--------- ---------
1,313,295 1,508,866
--------- ---------
LOSS FROM OPERATIONS (334,465) (531,836)
--------- ---------
OTHER INCOME (EXPENSE)
Minority interest in net
loss of consolidated
subsidiary 40,143
Loss on foreign currency
translation (4,967) (76,626)
Interest income, net 109,489 301,669
Loss on short-term
investments (20,979)
--------- ---------
83,543 265,186
--------- ---------
NET LOSS $ (250,922) $ (266,650)
========= =========
</TABLE>
(continued)
5
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Casmyn Corp. and Subsidiaries
Consolidated Statements of Operations (Unaudited) (continued)
<TABLE>
<CAPTION>
Three Months Ended December 31,
-------------------------------
1998 1997
----------- -----------
<S> <C> <C>
NET LOSS APPLICABLE TO COMMON
STOCKHOLDERS
Net loss $ (250,922) $ (266,650)
Less:
Dividends on Preferred
Stock (Note 2) (245,100) (686,425)
Amortization of discount
on Preferred Stock
(Note 2) (809,907) (2,168,593)
Preferred Stock penalty
(Note 2) (2,184,259)
--------- ---------
NET LOSS APPLICABLE TO COMMON
STOCKHOLDERS ($3,490,188) ($3,121,668)
========= =========
LOSS PER COMMON SHARE - BASIC
AND DILUTED (Note 1) ($0.02) ($0.23)
==== ====
WEIGHTED AVERAGE NUMBER OF
COMMON SHARES OUTSTANDING 217,751,710 13,552,060
=========== ==========
</TABLE>
See accompanying notes to consolidated financial statements.
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Casmyn Corp. and Subsidiaries
Consolidated Statements of Comprehensive Income (Unaudited)
<TABLE>
<CAPTION>
Three Months Ended December 31,
-------------------------------
1998 1997
----------- ----------
<S> <C> <C>
NET LOSS $ (250,922) $ (266,650)
Other comprehensive income
(Note 1):
Foreign currency translation
adjustment (Note 1) (34,979) 205,446
--------- ---------
COMPREHENSIVE INCOME (LOSS) $ (285,901) $ (61,204)
========= =========
</TABLE>
See accompanying notes to consolidated financial statements.
7
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Casmyn Corp. and Subsidiaries
Consolidated Statements of Cash Flows (Unaudited)
<TABLE>
<CAPTION>
Three Months Ended December 31,
-------------------------------
1998 1997
----------- -----------
<S> <C> <C>
OPERATING ACTIVITIES
Net loss $ (250,922) $ (266,650)
Adjustments to reconcile
net loss to net cash
used in operating
activities:
Depreciation, depletion
and amortization 300,735 157,275
Foreign exchange loss 4,967 76,626
Minority interest in net
loss of consolidated
subsidiary (40,143)
Compensatory stock option
expense 4,331
Loss on short-term
investments 20,979
Changes in operating
assets and liabilities:
(Increase) decrease in:
Accounts receivable 18,519 (422,115)
Inventories 2,171 (133,929)
Prepaid expenses and
other current assets 13,274 225,368
Other assets 19,518 19,837
Increase (decrease) in:
Accounts payable 2,551 (104,052)
Accrued liabilities (222,904) 24,636
--------- ----------
Net cash used in operating
activities (86,781) (463,147)
--------- ----------
INVESTING ACTIVITIES
Purchase of property and
equipment (135,010) (988,781)
Purchase of marketable
securities (2,053,343)
Proceeds from disposition
of marketable securities 203,771 43,361
--------- ----------
Net cash provided by (used
in) investing activities 68,761 (2,998,763)
--------- ----------
</TABLE>
(continued)
8
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Casmyn Corp. and Subsidiaries
Consolidated Statements of Cash Flows (Unaudited) (continued)
<TABLE>
<CAPTION>
Three Months Ended December 31,
-------------------------------
1998 1997
----------- -----------
<S> <C> <C>
FINANCING ACTIVITIES
Increase in restricted cash (14,533)
Repayments of long-term debt (58,418)
Reduction in line of credit (56,104)
Exercise of stock options 1,597
Purchase and retirement of
common stock (2,037,157)
Purchase and retirement of
Preferred Stock (605,224)
--------- ----------
Net cash used in financing
activities (605,224) (2,164,615)
--------- ----------
Effect of exchange rate changes
on cash and cash equivalents (39,952) (71,816)
--------- ----------
CASH AND CASH EQUIVALENTS:
Net decrease (663,196) (5,698,341)
At beginning of period 4,356,200 18,185,515
--------- ----------
At end of period $3,693,004 $12,487,174
========= ==========
</TABLE>
See accompanying notes to consolidated financial statements.
9
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Casmyn Corp. and Subsidiaries
Notes to Consolidated Financial Statements (Unaudited)
Three Months Ended December 31, 1998 and 1997
1. Organization and Basis of Presentation
Basis of Presentation - The accompanying consolidated financial statements
include the operations of Casmyn Corp. and its wholly-owned and controlled
subsidiaries (the "Company"). All intercompany accounts and transactions
have been eliminated on consolidation. The consolidated financial
statements have been prepared in accordance with generally accepted
accounting principles in the United States.
Business - Substantially all of the Company's assets and operations are
concentrated on mineral resource development. Subsequent to September 30,
1998, the Company has been focusing on its gold mining operations in
Zimbabwe.
Foreign Currency Translation - Effective October 1, 1997, the United
States dollar was adopted as the functional currency for the Company's
operations in Zimbabwe. Non-monetary assets and liabilities are translated
into United States dollars at historical rates, which for the pre-existing
balances was the rate in effect at October 1, 1997 of approximately
US$1.00 = ZIM$13.00. Amortization and other charges related to
non-monetary items are translated into United States dollars using the
same exchange rate. Revenue and expense accounts continue to be translated
using the weighted average exchange rate prevailing during the reporting
period. The average exchange rate for the three months ended December 31,
1998 was approximately US$1.00 = ZIM$38.00. Translation adjustments
arising from the Zimbabwe operations are reflected in the statement of
operations.
The Company's operations outside the United States, other than in
Zimbabwe, are measured using the respective local currency as the
functional currency. Assets and liabilities of these operations are
translated into United States dollars at the weighted average rate of
exchange prevailing during each period. Translation adjustments arising
from differences in exchange rates from period to period are reflected in
the accumulated foreign currency translation adjustment account, which is
included as a component of other comprehensive income in stockholders'
equity (deficiency).
Comments - The accompanying consolidated financial statements are
unaudited, but in the opinion of management of the Company, contain all
adjustments, which include normal recurring adjustments, necessary to
present fairly the financial position at December 31, 1998, results of
operations for the three months ended December 31, 1997 and 1998,
comprehensive income for the three months ended December 31, 1997 and
1998, and cash flows for the three months ended December 31, 1997 and
1998. The consolidated balance sheet as of September 30, 1998 is derived
from the Company's audited financial statements.
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Certain information and footnote disclosures normally included in
financial statements that have been prepared in accordance with generally
accepted accounting principles have been condensed or omitted pursuant to
the rules and regulations of the Securities and Exchange Commission,
although management of the Company believes that the disclosures contained
in these financial statements are adequate to make the information
presented therein not misleading. For further information, refer to the
consolidated financial statements and the notes thereto included in the
Company's Annual Report on Form 10-K for the fiscal year ended September
30, 1998, as filed with the Securities and Exchange Commission.
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. The most significant estimates used by management in
preparing the accompanying consolidated financial statements include
estimates of future gold prices, recoverable reserves and estimated
capital costs, which are utilized to assess the carrying value of the
Company's mineral properties, plant and equipment and to calculate
depreciation and depletion charges.
The results of operations for the three months ended December 31, 1998 are
not necessarily indicative of the results of operations to be expected for
the full fiscal year ending September 30, 1999.
Inventories - Inventories consist of mining supplies.
Reclassification - Certain prior period amounts have been reclassified to
conform to the current year presentation.
Other Comprehensive Income - The foreign currency translation adjustment
is the only component of other comprehensive income.
Loss per Share - Basic earnings per share are calculated by dividing net
income (loss) by the weighted average number of common shares outstanding
during the period. Diluted earnings per share reflects the potential
dilution that would occur if securities or other contracts to issue shares
of common stock, including stock options, warrants and convertible
preferred stock, were exercised or converted into shares of common stock.
These potentially dilutive securities were anti-dilutive during the three
months ended December 31, 1997 and 1998. Basic and diluted earnings per
share are the same for all periods presented.
2. Stockholders' Equity (Deficiency)
Common Stock - During the three months ended December 31, 1997, the
Company repurchased and retired 402,500 shares of common stock for
$2,037,157.
11
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During the three months ended December 31, 1998, the Company issued
5,424,792 shares of common stock upon conversion of 260 shares of First
Convertible Preferred Stock (the "Preferred Stock").
Preferred Stock - During the three months ended December 31, 1997 and
1998, the Company issued 27,457 shares and 9,804 shares, respectively, of
Preferred Stock as the quarterly payment of the 8% annual dividend on the
Preferred Stock. The aggregate value of such shares of Preferred Stock of
$686,425 and $245,100 for the three months ended December 31, 1997 and
1998, respectively, was recorded at the stated value of $25.00 per share.
During the three months ended December 31, 1998, the Company repurchased
and retired 598,655 shares of Preferred Stock for $1,247,472, resulting in
an increase to stockholders' equity (deficiency) of $26,083,215 as a
result of the waiver by the sellers of the Preferred Stock of a penalty of
$1,538,498 and the liquidation preference of $24,544,717.
The Preferred Stock Investment Agreement dated April 11, 1997 and the
Preferred Stock Investment Agreement dated September 2, 1997 (the
"Investment Agreements") specify that the Preferred Stock is convertible
into common stock at a discount to the common stock price ranging from
8.5% to 39%, depending on the date on which such shares were converted.
The discount is considered to be an additional Preferred Stock dividend.
Accordingly, during the three months ended December 31, 1997 and 1998, the
Company recorded a charge to accumulated deficit and a corresponding
increase to additional paid-in capital of $2,168,593 and $809,907,
respectively. The Company completed the recognition of this additional
Preferred Stock dividend during October 1998.
Pursuant to the Investment Agreements, a technical default occurred when
the Company's common stock was delisted from the NASDAQ SmallCap Market on
July 31, 1998. The Company may be obligated to pay the holders of the
Preferred Stock a cash penalty of 3% of the total purchase price of the
Preferred Stock during any period in excess of 30 days that the Company's
common stock is not listed and traded on NASDAQ or a national securities
exchange. The Investment Agreements provide the holders of the Preferred
Stock with the opportunity to have their shares redeemed by the Company at
the adjusted liquidation preference plus accrued but unpaid dividends if
the 3% penalty is not paid within 30 days of when due. The Company
believes that the exercise of such rights by the holders of the Preferred
Stock would be subject to legal challenge by the Company.
Since the Company's common stock was delisted from NASDAQ on July 31,
1998, the Company has recorded a penalty of $3,023,996 through December
31, 1998, which has not been paid. As a result of the repurchase or
conversion of 618,863 shares of Preferred Stock through December 31, 1998,
such stockholders have waived the right to claim their proportionate share
of the penalty, thus reducing the corresponding potential penalty
obligation to $1,485,498 at December 31, 1998.
The Company is currently engaged in discussions with the holders of the
remaining shares of Preferred Stock regarding various matters,
12
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including a waiver of the penalty and of their rights to require the
Company to redeem their shares of Preferred Stock. There can be no
assurances that the Company will be able to obtain a waiver or that the
holders of the Preferred Stock will not exercise their rights to require
the Company to redeem their shares. Should the holders of the Preferred
Stock demand payment of the cash penalty or exercise their rights to
require the Company to redeem their shares, and should the Company not
prevail in its challenge to any such asserted rights, the Company may be
forced to file for protection under the United States Bankruptcy Code.
Since the right to require the Company to redeem these shares of Preferred
Stock outstanding at September 30, 1998 and December 31, 1998 is outside
the control of the Company, the carrying value of the Preferred Stock at
such dates has been recorded in the consolidated financial statements at
their maximum liquidation preference of $44,440,451 and $20,296,557,
respectively, and such shares have been reclassified out of the
shareholders' equity (deficiency) section of the consolidated balance
sheet. As a result of the repurchase or conversion of 618,863 shares of
Preferred Stock through December 31, 1998, such shareholders have waived
the right to claim their proportionate share of the liquidation
preference, thus reducing the maximum liquidation preference, and the
corresponding potential redemption obligation, to $20,296,557 at December
31, 1998.
Although the consolidated financial statements have been prepared on the
basis of accounting principles applicable to a going concern, the rights
of the holders of the Preferred Stock to require the Company to redeem
their shares creates uncertainty with respect to the validity of this
assumption. If the going concern assumption was determined to not be
appropriate for these consolidated financial statements, then adjustments
may be necessary to the carrying values of assets and liabilities, the
reported net loss and the balance sheet classifications used, and their
adjustments may be material.
Stock Option - Effective January 18, 1999, the Board of Directors of the
Company granted the Company's President and Chief Executive Officer an
option to purchase 75,807 shares of Preferred Stock at an exercise price
of $2.00 per share, which the Board of Directors believes approximates
fair market value at the grant date. The stock option is exercisable
immediately through December 23, 1999, and is subject to annual renewal if
not terminated by the Board of Directors.
3. Commitments and Contingencies
On February 16, 1998, the Company entered into an agreement with a
financial advisor to render certain financial advisory and investment
banking services to the Company. The services to be provided included
advice on strategic alternatives and implementation of the proposed
restructuring of the Preferred Stock. Efforts to restructure the Preferred
Stock through the assistance of the financial advisor were terminated
during April 1998. Nonetheless, should the Company complete a
restructuring of
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the Preferred Stock within two years from the termination date, the
financial advisor may assert that the structure or method of such
restructuring entitles it to a success fee of $1,000,000 plus potential
additional amounts based on the post-restructuring enterprise value or
trading price of the Company's common stock as stated in the agreement.
If a restructuring were to occur, the Company does not believe that the
financial advisor would be entitled to this fee. Although the Company
would vigorously contest any claim by the financial advisor for payment,
there can be no assurances that the Company would be successful in this
regard.
The Company has recently been advised of the results of an examination
report prepared by the Internal Revenue Service with respect to certain
transactions during 1994 between the Company and a former officer of the
Company. The findings, which indicate a tax liability of approximately
$2,000,000, including penalties and interest, are preliminary in nature.
The Company intends to contest this matter, and is currently in the
process of preparing its response. As this matter is in an early stage,
its ultimate resolution is not determinable at this time.
Pursuant to severance agreements dated March 23, 1998, certain employees
of the Company are entitled to compensation in the event that their
employment is terminated as a result of a change in control. Under the
terms of the severance agreements, the Company may be liable to pay
severance payments of up to $525,000 and employee benefits for 18 months
after the date of termination, and all legal fees and expenses incurred as
a result of such termination. The severance agreements expire on May 31,
1999.
On October 1, 1998, the Company entered into a services agreement with a
company controlled by a director and former President of the Company for
the services of that director. The agreement provides for annual payments
of $100,000, and is for a term of one year commencing October 1, 1998. The
agreement continues indefinitely thereafter, and can be terminated by
either party with thirty days notice.
4. WaterPur International Inc.
Effective September 30, 1997, the Company restructured its investment in
an affiliated public company, WaterPur International Inc. ("WaterPur"),
and received an aggregate of 7,900,004 shares of convertible preferred
stock of WaterPur. Also effective September 30, 1997, the Company's Board
of Directors approved the spin-off of the 7,900,004 shares of convertible
preferred stock to the common and preferred stockholders of the Company of
record on October 15, 1997, subject to compliance with regulatory
requirements. Accordingly, at September 30, 1997, the Company had an
investment in WaterPur of $4,574,368, and a corresponding dividend
payable.
During the fiscal year ended September 30, 1998, due to a significant and
prolonged decrease in the market value of WaterPur's common stock,
WaterPur's inability to repay amounts borrowed from the Company, and
WaterPur's continuing need for
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additional loans, management of the Company determined that there had
been an impairment in the value of the investment in WaterPur, and wrote
off the entire investment in WaterPur. The corresponding dividend
payable has also been reduced to zero as a result of the write-off.
During the fiscal year ended September 30, 1998, the Company began
implementation of a plan to separate the operations, personnel and
executive management of the Company and WaterPur, which had been
substantially completed by December 31, 1998. In December 1998, the Board
of Directors determined not to effect the spin-off of the Company's
preferred stock investment in WaterPur for several reasons, including
WaterPur's inability to obtain regulatory approval to date and in the
foreseeable future, and WaterPur's inability to complete its annual audit
and to make other securities filings on a timely basis. As a result of
WaterPur's being unable to accomplish certain actions and fulfill certain
obligations to the Company, including the repayment of various advances,
the Company is reviewing its options with respect to these matters.
15
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ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS
Cautionary Statement Pursuant to Safe Harbor Provisions of the Private
Securities Litigation Reform Act of 1995:
This Quarterly Report on Form 10-Q for the quarterly period ended December
31, 1998 contains "forward-looking statements" within the meaning of the
Federal securities laws. These forward-looking statements include, but are
not limited to, statements concerning the Company's expectations regarding
the price of gold, estimated future production, estimated future production
costs, currency, political and economic risks, exploration plans, and other
statements of expectations, beliefs, future plans and strategies, anticipated
events or trends, and similar expressions concerning matters that are not
historical facts. The forward-looking statements in this Quarterly Report on
Form 10-Q for the quarterly period ended December 31, 1998 are subject to
risks and uncertainties that could cause actual results to differ materially
from those results expressed in or implied by the statements contained herein.
Recent Developments:
During August 1998, the Board of Directors was reconfigured, with two members
resigning and four new directors being appointed. On October 1, 1998, Amyn S.
Dahya resigned as President and Chief Executive Officer and was replaced by
Mark S. Zucker, one of the new directors. New management commenced a
comprehensive review and evaluation of the Company's existing capital
structure and business operations, with the objective of maximizing value for
all of the Company's equity holders. In this regard, during the three months
ended December 31, 1998, the Company purchased and retired 598,655 shares of
Preferred Stock for $1,247,472, resulting in an increase to stockholders'
equity (deficiency) of $26,083,215 as a result of the waiver by the sellers
of the Preferred Stock of a penalty of $1,538,498 and the liquidation
preference of $24,544,717.
During the three months ended December 31, 1998, the Company also began the
implementation of a plan to streamline its operations worldwide, divest its
interests in all non-core businesses, and focus its efforts on its mining
operations in Zimbabwe. In this regard, the Company has implemented programs
to evaluate ways to improve production and achieve production efficiencies,
increase gold reserves, reduce capital expenditures and operating costs,
maximize operating profits and operating cash flows, and evaluate future
opportunities. The Company has reduced its executive management and corporate
staff from seven to three people, eliminating standard employee benefits and
utilizing part-time personnel as necessary. During this period, the Company
closed its expensive corporate and administrative offices in Vancouver,
British Columbia, Canada, significantly reducing occupancy costs, as well as
travel and various other corporate expenses.
Overview:
The Company's short-term plan is to produce gold from the tailings dumps and the
surface materials, and to delay accessing underground production until gold
prices increase to a level that can justify the
16
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requisite capital expenditures. The Company anticipates that revenues from
gold sales from its Zimbabwe mining operations will exceed mine operating
expenditures, excluding depreciation, depletion and amortization, during the
fiscal year ending September 30, 1999, based on current gold prices, currency
exchange rates, and the continued ability of the Company to deliver and
process ore at its mills. However, the Company expects that gold production
for the fiscal year ending September 30, 1999 will be approximately 12,500
ounces, as compared to 15,378 ounces produced during the fiscal year ended
September 30, 1998. This expected decrease in gold production of
approximately 20% is a result of a continuing decrease in the gold grade of
the tailings dumps which the Company has been mining, as well as the
Company's current expectation that certain mining operations may have to be
reduced or temporarily shut down in mid to late 1999 as a result of a lack of
available water supplies. The Company is currently developing plans for 1999
and beyond with respect to the development of its mining properties and the
related capital improvement budgets. Over the near term, the Company intends
to focus on the development of its existing properties, while minimizing
capital expenditures funded directly by the Company. Although the Company
does not currently expect to engage in any significant property acquisition
or exploration activities, it will consider acquisition or exploration
opportunities on a case by case basis. The Company expects that continued
development of its existing mining properties will result in periodic
adjustments to the Company's gold reserves.
The Company currently expects that economically viable gold production from
the Dawn mine and the Lonely mine will terminate during late 1999. These
mines represent approximately one-third of the Company's current gold
production, but do not represent a significant portion of the Company's
current proven and probable gold reserves. It will be necessary to replace
this production in order to maintain the economies of scale necessary to
profitably produce gold at current gold prices. The Company is evaluating
several short-term options to replace such production, including employing
certain production techniques and entering into contracts with other tailings
dumps, which could extend the lives of these mines by up to an additional two
years. To expand gold production over the next few years from surface or
underground mine development, the Company is evaluating the feasibility of
accessing its proven and probable gold reserves at the Turk mine. A major
development of the Turk mine is estimated to require capital expenditures of
approximately $3,000,000 to $5,000,000 over a period of three years. Any such
plan that the Company may adopt will require several months of planning and
lead-time prior to its implementation. Given the current financial resources
available to the Company, as well as the external factors that affect the
values and financing of mineral producing properties in third-world
countries, there can be no assurances that the Company would be able to
obtain the required capital on a timely and cost effective basis, should the
Company decide to implement a major mine development program. As an
alternative to funding the direct development of the mine, the Company may
also consider a joint venture or sale of its mining assets in order to
preserve its capital and maximize shareholder value. However, there can be no
assurances that the Company would be successful in forming such a joint
venture or completing such a sale.
17
<PAGE>
Consolidated Results of Operations - Three Months Ended December 31, 1998 and
1997:
Revenues for the three months ended December 31, 1998 were $978,830,
reflecting the sale of 3,349 ounces of gold. Revenues for the three months
ended December 31, 1997 were $977,030, reflecting the sale of 3,357 ounces of
gold. The average selling price of gold for the three months ended December
31, 1998 was approximately $292 per ounce, as compared to $291 for the three
months ended December 31, 1997. Mineral operations expenses related to gold
production for the three months ended December 31, 1998 were $660,964 or
67.5% of revenues, as compared to $649,186 or 66.4% of revenues for the three
months ended December 31, 1997. The average direct production cash cost per
ounce of gold was $197 in 1998 as compared to $193 in 1997.
General and administrative expenses were $297,173 for the three months ended
December 31, 1998, as compared to $536,339 for the three months ended
December 31, 1997, a decrease of $239,166 or 44.6%. General and
administrative expenses decreased in 1998 as compared to 1997 as a result of
the effect of new management's cost reduction efforts, which included, among
other things, a reduction in personnel and personnel related costs, as well
as reductions in various other general and administrative expense categories.
Professional services expenses were $45,467 for the three months ended
December 31, 1998, as compared to $36,401 for the three months ended December
31, 1997, an increase of $9,066 or 24.9%, as a result of an effort by new
management to evaluate the Company's past involvement and present position
with regard to various transactions.
Depreciation, depletion and amortization expense was $300,735 for the three
months ended December 31, 1998, as compared to $157,275 for the three months
ended December 31, 1997, an increase of $143,460 or 91.2% reflecting
additions to property, plant and equipment during 1998.
Mineral exploration expense was $4,625 for the three months ended December
31, 1998, as compared to $129,665 for the three months ended December 31,
1997, a decrease of $125,040 or 96.4%, primarily as a result of the Company
reducing its exploration efforts to concentrate on developmental mining
activities.
Loss from operations was $334,465 for the three months ended December 31,
1998, as compared to a loss from operations of $531,836 for the three months
ended December 31, 1997.
Total other income, net was $83,543 for the three months ended December 31,
1998, as compared to $265,186 for the three months ended December 31, 1997, a
decrease of $181,643 or 68.5%, primarily as a result of a reduction in
interest income due to lower cash balances in 1998 as compared to 1997.
Net loss was $250,922 for the three months ended December 31, 1998, as
compared to a net loss of $266,650 for the three months ended December 31,
1997.
The Company recognized Preferred Stock dividends of $245,100 for the three
months ended December 31, 1998, as compared to $686,425 for the
18
<PAGE>
three months ended December 31, 1997, reflecting the reduction in the
outstanding shares of Preferred Stock in 1998 as compared to 1997. The
Company recognized the amortization of discount on Preferred Stock, which is
reflected as a return to the preferred stockholders and as an increase in the
loss to common stockholders, of $809,907 for the three months ended December
31, 1998, as compared to $2,168,593 for the three months ended December 31,
1997, reflecting the reduction in outstanding shares of Preferred stock in
1998 as compared to 1997. During the three months ended December 31, 1998,
the Company recognized a Preferred Stock penalty of $2,184,259 relating to
the delisting of the Company's common stock from NASDAQ on July 31, 1998.
Net loss applicable to common stockholders was $3,490,188 for the three
months ended December 31, 1998, as compared to a net loss applicable to
common stockholders of $3,121,668 for the three months ended December 31,
1997.
Consolidated Financial Condition - December 31, 1998:
Liquidity and Capital Resources:
The Company's cash and cash equivalents were $3,693,004 at December 31, 1998,
as compared to $4,356,200 at September 30, 1998, a decrease of $663,196,
primarily as a result of the cash utilized to repurchase shares of Preferred
Stock. As of December 31, 1998, the Company's working capital was $2,668,795,
as compared to $4,658,361 at September 30, 1998, a decrease of $1,989,566,
respectively, primarily as a result of the repurchase of shares of Preferred
Stock and the recognition of the Preferred Stock penalty. As a result, the
Company's current ratio was 1.8:1 at December 31, 1998, as compared to 3.1:1
at September 30, 1998.
Operating. The Company's operations utilized cash resources of $86,781 during
the three months ended December 31, 1998, as compared to $463,147 for the
three months ended December 31, 1997, reflecting a reduction in cash
resources utilized to support mining operations and related administrative
costs in Zimbabwe, and reduced general and administrative expenses.
The Company's working capital resources consist primarily of cash and cash
equivalents, marketable securities, and the net cash generated from the
production and sale of gold. The Company anticipates that its working capital
resources are adequate to fund operating expenditures during the remainder of
the fiscal year ending September 30, 1999, excluding any major capital
expenditures, the payment of a cash penalty to the holders of the Preferred
Stock, or the redemption of the Preferred Stock at the maximum redemption
obligation resulting from the technical default that occurred on July 31,
1998.
Investing. During the three months ended December 31, 1998, the Company
generated net cash from investing activities of $68,761, which consisted of
the proceeds from the disposition of marketable securities of $203,771, which
was offset in part by the purchase of property and equipment of $135,010.
During the three months ended December 31, 1997, the Company utilized net
cash in investing activities of $2,998,763, which consisted primarily of the
purchase of marketable securities of $2,053,343 and the purchase of property
and equipment of
19
<PAGE>
$988,781. As of December 31, 1998, the Company did not have any significant
outstanding commitments for capital expenditures.
Financing. During the three months ended December 31, 1998, the Company
utilized net cash in financing activities of $605,224 to repurchase and
retire shares of Preferred Stock. During the three months ended December 31,
1997, the Company utilized net cash in financing activities of $2,164,615,
primarily to repurchase common shares aggregating $2,037,157.
Inflation and Currency Matters:
Foreign operations are subject to certain risks inherent in conducting
business abroad, including price and currency exchange controls, and
fluctuations in the relative value of currencies. Changes in the relative
value of currencies occur periodically and may, in certain instances,
materially affect the Company's results of operations.
The Company is required to sell its gold production from its mining
operations in Zimbabwe to the Reserve Bank of Zimbabwe at the spot 2:00 p.m.
London price on the day of delivery. Settlement of gold sales are in Zimbabwe
dollars at the equivalent of the United States gold trading rate on the date
of sale. The spot gold price on February 1, 1999 was $286.15 per ounce.
Approximately 80% of the Company's mine operating costs incurred in Zimbabwe
are United States dollar based. The remaining 20% of mine operating costs
incurred in Zimbabwe are denominated in Zimbabwe dollars, and are
periodically subject to significant increases mandated by the Zimbabwe
government, including costs such as wages and utilities, which are two of the
major operating costs of the Company's mines.
Operating costs are affected in part by inflation rates in Zimbabwe.
Inflation in Zimbabwe was approximately 40% in 1998. The Zimbabwe dollar fell
approximately 60% against the United States dollar during 1998.
In response to this situation, the government of Zimbabwe is considering
several actions, including reintroducing exchange controls, pegging the
exchange rate at below free market rates, and banning remittance of profits
from Zimbabwe. On an unofficial basis, the government of Zimbabwe has also
recently implemented policies designed to restrict the ability of companies
to convert Zimbabwe dollars into foreign currencies and transfer such amounts
out of Zimbabwe. Subject to the terms of intercompany loan agreements
approved by the Reserve Bank of Zimbabwe, the Company is currently able to
convert Zimbabwe dollars into United States dollars and transfer such amounts
to the United States, although there can be no assurances that the Company
will be able to continue to do so in the future.
Year 2000 Issue:
The Year 2000 Issue results from the fact that certain computer programs have
been written using two digits rather than four digits to designate the
applicable year. Computer programs that have sensitive software may recognize
a date using "00" as the year 1900 rather than
20
<PAGE>
the year 2000. This could result in a system failure or miscalculations
causing disruptions of operations, including, among other things, a temporary
inability to process transactions, send invoices or engage in similar normal
business activities. Based on a recent internal assessment, the Company does
not believe that the cost to modify its existing software and/or convert to
new software will be significant.
New Accounting Pronouncements:
In June 1997, the Financial Accounting Standards Board issued Statement No.
130, "Reporting Comprehensive Income" ("SFAS No. 130"), which is effective
for financial statements issued for fiscal years beginning after December 15,
1997. SFAS No. 130 establishes standards for the reporting and display of
comprehensive income, its components and accumulated balances in a full set
of general purpose financial statements. SFAS No. 130 defines comprehensive
income to include all changes in equity except those resulting from
investments by owners and distributions to owners. Among other disclosures,
SFAS No. 130 requires that all items that are required to be recognized under
current accounting standards as components of comprehensive income be
reported in a financial statement that is presented with the same prominence
as other financial statements. The Company adopted SFAS No. 130 for its
fiscal year beginning October 1, 1998. Adoption of SFAS No. 130 did not have
a material effect on the Company's financial statement presentation and
disclosures. Under SFAS No. 130, the Company reports the foreign currency
translation adjustment as a component of comprehensive income.
In June 1997, the Financial Accounting Standards Board issued Statement No.
131, "Disclosures about Segments of an Enterprise and Related Information"
("SFAS No. 131"), which supersedes SFAS No. 14, "Financial Reporting for
Segments of a Business Enterprise", and which is effective for financial
statements issued for fiscal years beginning after December 15, 1997. SFAS
No. 131 establishes standards for the way that public companies report
information about operating segments in annual financial statements and
requires reporting of selected information about operating segments in
interim financial statements issued to the public. SFAS No. 131 also
establishes standards for disclosures by public companies regarding
information about their major customers, operating segments, products and
services, and the geographic areas in which they operate. SFAS No. 131
defines operating segments as components of an enterprise about which
separate financial information is available that is evaluated regularly by
the chief operating decision maker in deciding how to allocate resources and
in assessing performance. SFAS No. 131 requires comparative information for
earlier years to be restated. The Company adopted SFAS No. 131 for its fiscal
year beginning October 1, 1998. Application of SFAS No. 131 to interim
periods in the initial year of adoption is not required. The Company does not
anticipate that adoption of SFAS No. 131 will have a material effect on its
financial statement presentation and disclosures.
In February 1998, the Financial Accounting Standards Board issued Statement
No. 132, "Employers' Disclosures about Pensions and Other Postretirement
Benefits" ("SFAS No. 132"), which is effective for financial statements
issued for fiscal years beginning after December
21
<PAGE>
15, 1997. SFAS No. 132 revises employers' disclosures about pension and other
postretirement benefit plans. SFAS No. 132 requires comparative information
for earlier years to be restated. The Company adopted SFAS No. 132 for its
fiscal year beginning October 1, 1998. The Company does not expect that
adoption of SFAS No. 132 will have a material effect on its financial
statement presentation and disclosures.
In June 1998, the Financial Accounting Standards Board issued Statement No.
133, "Accounting for Derivative Instruments and Hedging Activities" ("SFAS
No. 133"), which is effective for financial statements for all fiscal
quarters of all fiscal years beginning after June 15, 1999. SFAS No. 133
standardizes the accounting for derivative instruments, including certain
derivative instruments embedded in other contracts, by requiring that an
entity recognize those items as assets or liabilities in the statement of
financial position and measure them at fair value. SFAS No. 133 also
addresses the accounting for hedging activities. The Company will adopt SFAS
No. 133 for its fiscal year beginning October 1, 1999, and does not
anticipate that its adoption will have a material effect on the Company's
financial statement presentation and disclosures.
22
<PAGE>
ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
As of September 30, 1998 and December 31, 1998, the Company had an investment
in marketable securities which consisted of United States government-backed
mortgage securities of $1,588,536 and $1,371,804, respectively, bearing
interest at 8% per annum, with an effective yield of approximately 7.7% per
annum. Such investment is stated at market value, which approximates cost.
This investment is the only investment of the Company whose market value is
sensitive to changes in interest rates. The Company expects that the
investment will be fully liquidated by December 2001. Although changes in
short-term interest rates could affect the interim market value of this
investment, the Company does not expect to incur any loss, since the
investment is backed by the United States government and the Company intends
to hold this investment to maturity.
As a result of the Company's assets and operations being concentrated in
Zimbabwe, the Company is subject to substantial foreign currency exchange
risk. The significant devaluation of the Zimbabwe dollar against the United
States dollar during the past few years has had, and continues to have, a
material adverse effect on the Company's consolidated financial position,
results of operations and cash flows. The Company made its investment in its
Zimbabwe assets and operations when the conversion rate of the United States
dollar to the Zimbabwe dollars was approximately 1:13. At December 31, 1998,
as a result of several factors, including significant inflation in Zimbabwe
in 1997 and 1998, the conversion rate of the United States dollar to the
Zimbabwe dollar was approximately 1:38. As a result, the Company's operations
in Zimbabwe at current levels are profitable when measured in Zimbabwe
dollars, but are not profitable when measured in United States dollars, as a
result of the calculation of depreciation, depletion and amortization at
historical conversion rates and the calculation of revenues and expenses at
current conversion rates.
Due to the unique nature of the Company's Preferred Stock repurchase
obligation and Preferred Stock penalty, the Company is unable to determine a
market value for such obligations or their sensitivity to any external
parameters.
The Company is required to sell its gold production from its mining
operations in Zimbabwe to the Reserve Bank of Zimbabwe at the spot 2:00 p.m.
London price on the day of delivery. Accordingly, the Company's revenues from
the sale of its gold production is directly linked to the price of gold in
world commodity trading markets. Furthermore, should the price of gold drop
significantly, it may not be commercially feasible for the Company to
continue to operate certain of its properties in the short-term. Under such
circumstances, the Company may also be required to recognize a charge to
operations to reflect a permanent impairment in the carrying value of its
mineral properties and other assets related to gold production.
23
<PAGE>
PART II. OTHER INFORMATION
ITEM 2. CHANGES IN SECURITIES AND USE OF PROCEEDS
(c) Sales of Equity Securities
During the three months ended December 31, 1998, the Company issued
5,424,792 shares of common stock upon conversion of 260 shares of
Preferred Stock. The shares of common stock were issued without
registration in reliance upon the exemption afforded by Section 4(2) of
the Securities Act of 1933, as amended, and Regulation D promulgated by
the Securities and Exchange Commission thereunder, based on certain
representations made to the Company by the converting stockholder. The
stockholder is an investment fund that had originally purchased the
shares of Preferred Stock in the Company's 1997 private placement.
During the three months ended December 31, 1998, the Company issued
9,804 shares of Preferred Stock as the quarterly payment of the 8%
annual dividend on the Preferred Stock. The aggregate value of such
shares of Preferred Stock of $245,100 was recorded at the stated value
of $25.00 per share. The shares of Preferred Stock were issued without
registration in reliance upon the exemption afford by Section 4(2) of
the Securities Act of 1933, as amended, and Regulation D promulgated by
the Securities and Exchange Commission thereunder, based on certain
representations made to the Company by the stockholders. The
stockholders were investors that had originally purchased the shares of
Preferred Stock in the Company's 1997 private placement.
ITEM 3. DEFAULTS UPON SENIOR SECURITIES
(b) Material Delinquency with Respect to Preferred Stock
Pursuant to the Investment Agreements, a technical default occurred
when the Company's common stock was delisted from the NASDAQ SmallCap
Market on July 31, 1998. The Company may be obligated to pay the
holders of the Preferred Stock a cash penalty of 3% of the total
purchase price of the Preferred Stock during any period in excess of 30
days that the Company's common stock is not listed and traded on NASDAQ
or a national securities exchange. The Investment Agreements provide
the holders of the Preferred Stock with the opportunity to have their
shares redeemed by the Company at the adjusted liquidation preference
plus accrued but unpaid dividends if the 3% penalty is not paid within
30 days of when due. The Company believes that the exercise of such
rights by the holders of the Preferred Stock would be subject to legal
challenge by the Company.
Since the Company's common stock was delisted from NASDAQ on July 31,
1998, the Company has recorded a penalty of $3,023,996 through December
31, 1998, which has not been paid. As a result of the repurchase or
conversion of 618,863 shares of Preferred Stock through December 31,
1998, such stockholders have waived
24
<PAGE>
the right to claim their proportionate share of the penalty, thus
reducing the corresponding potential penalty obligation to $1,485,498
at December 31, 1998.
The Company is currently engaged in discussions with the holders of the
remaining shares of Preferred stock regarding various matters,
including a waiver of the penalty and of their rights to require the
Company to redeem their shares of Preferred Stock. There can be no
assurances that the Company will be able to obtain a waiver or that the
holders of the Preferred Stock will not exercise their rights to
require the Company to redeem their shares. Should the holders of the
Preferred Stock demand payment of the cash penalty or exercise their
rights to require the Company to redeem their shares, and should the
Company not prevail in its challenge to any such asserted rights, the
Company may be forced to file for protection under the United States
Bankruptcy Code.
Since the right to require the Company to redeem these shares of
Preferred Stock outstanding at September 30, 1998 and December 31, 1998
is outside the control of the Company, the carrying value of the
Preferred Stock at such dates has been recorded in the consolidated
financial statements at their maximum liquidation preference of
$44,440,451 and $20,296,557, respectively, and such shares have been
reclassified out of the shareholders' equity (deficiency) section of
the consolidated balance sheet. As a result of the repurchase or
conversion of 618,863 shares of Preferred Stock through December 31,
1998, such shareholders have waived the right to claim their
proportionate share of the liquidation preference, thus reducing the
maximum liquidation preference, and the corresponding potential
redemption obligation, to $20,296,557 at December 31, 1998.
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K
(a) Exhibits:
27 Financial Data Schedule (electronic filing only)
(b) Reports on Form 8-K:
Three Months Ended December 31, 1998 - None
25
<PAGE>
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.
------------------------
(Registrant)
/s/ MARK S. ZUCKER
DATE: May 11, 1999 By: ________________________
Mark S. Zucker
President and Chief
Executive Officer
/s/ ROBERT N. WEINGARTEN
DATE: May 11, 1999 By: ________________________
Robert N. Weingarten
Chief Financial Officer
26
<TABLE> <S> <C>
<PAGE>
<ARTICLE> 5
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM THE
CONSOLIDATED FINANCIAL STATEMENTS INCLUDED IN THE COMPANY'S QUARTERLY REPORT ON
FORM 10-Q FOR THE QUARTERLY PERIOD ENDED DECEMBER 31, 1998, AND IS QUALIFIED IN
ITS ENTIRETY BY REFERENCE TO SUCH FINANCIAL STATEMENTS.
</LEGEND>
<S> <C>
<PERIOD-TYPE> 3-MOS
<FISCAL-YEAR-END> SEP-30-1999
<PERIOD-START> OCT-01-1998
<PERIOD-END> DEC-31-1998
<CASH> 3,693,004
<SECURITIES> 1,363,786
<RECEIVABLES> 282,937
<ALLOWANCES> 0
<INVENTORY> 640,964
<CURRENT-ASSETS> 5,988,247
<PP&E> 20,350,035
<DEPRECIATION> 2,354,258
<TOTAL-ASSETS> 23,987,768
<CURRENT-LIABILITIES> 3,319,452
<BONDS> 0
0
20,296,557
<COMMON> 8,927,060
<OTHER-SE> (8,555,301)
<TOTAL-LIABILITY-AND-EQUITY> 23,987,768
<SALES> 978,830
<TOTAL-REVENUES> 978,830
<CGS> 660,964
<TOTAL-COSTS> 660,964
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 0
<INCOME-PRETAX> (250,922)
<INCOME-TAX> 0
<INCOME-CONTINUING> (250,922)
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (250,922)<F1>
<EPS-PRIMARY> (.02)
<EPS-DILUTED> (.02)
<FN>
<F1>NET LOSS FOR THE THREE MONTHS ENDED DECEMBER 31, 1998 OF $250,922, LESS
DIVIDENDS ON THE PREFERRED STOCK OF $245,100, LESS AMORTIZATION OF DISCOUNT ON
THE PREFERRED STOCK OF $809,907, LESS THE PREFERRED STOCK PENALTY OF
$2,184,259, RESULTS IN A NET LOSS APPLICABLE TO COMMON STOCKHOLDERS OF
$3,490,188.
</FN>
</TABLE>
