U. S. SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-KSB/A
(Mark One)
[X] ANNUAL REPORT UNDER SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF
1934
For the fiscal year ended: January 31, 1997
[ ] TRANSITION REPORT UNDER SECTION 13 OR 15(d) of THE SECURITIES EXCHANGE ACT
OF 1934
For the Transition period from to
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Commission file number 0-17386
[GRAPHIC OMITTED]
FISCHER-WATT GOLD COMPANY, INC.
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(Name of small business issuer in its Charter)
Nevada 88-0227654
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(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
1621 North 3rd Street, Suite 1000
Coeur d'Alene, Idaho 83814
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(Address of principal executive offices) (Zip Code)
(Issuer's telephone number, including area code) 208-664-6757
Securities registered under Section 12(b) of the Exchange Act: NONE
Securities registered under Section 12(g) of the Exchange Act:
Common Stock, $0.001 Par Value
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(Title of Class)
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 [ ] No [ X ]
Check if there is no disclosure of delinquent filers in response to Item 405 of
Regulation S-B contained in this form, and no disclosure will be contained, to
the best of the registrant's knowledge, in definitive proxy or information
statements incorporated by reference in Part III of this Form 10-KSB or any
amendment to this Form 10-KSB. [ ]
The issuer's revenues for its most recent fiscal year were $4,390,000.
The aggregate market value of the voting stock held by non-affiliates as of May
1, 1997 (using the average of the Bid and Asked prices) was $9,847,634.
The number of Shares of Common Stock, $.001 par value, outstanding on May 1,
1997 was 32,314,760.
Documents Incorporated by Reference into this Report: None
Transitional Small Business Disclosure Format (check one) Yes [ ] No [ X ]
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PART I
Item 1. DESCRIPTION OF BUSINESS
Introduction
Fischer-Watt Gold Company, Inc.(collectively with its subsidiaries,
"Fischer-Watt" or the "Company"), was formed under the laws of the State of
Nevada in 1986. Fischer-Watt's primary business is mining and mineral
exploration, and to that end to own, acquire, improve, develop, sell, lease,
convey lands or mineral claims or any right, title or interest therein; and to
search, explore, prospect or drill for and exploit ores and minerals therein or
thereupon.
During the fiscal year ended January 31, 1997, no acquisitions were
completed by the Company. During the fiscal year ended January 31, 1996, the
Company completed two significant acquisitions. The first was the acquisition of
the Oronorte property in Colombia, South America, and the second was the
acquisition of Great Basin Management Co., Inc., in Reno, Nevada.
On August 28, 1995, the Company entered into an agreement with Greenstone
Resources Ltd., ("Greenstone") to acquire the Oronorte property in northern
Colombia, which includes the El Limon Mine, an underground gold mine, and the
rights to several exploration concessions effective August 24, 1995.
On October 20, 1995, the Company closed the acquisition from Greenstone.
All of the outstanding shares of Greenstone Resources of Colombia Ltd., a
Bermuda corporation were acquired. Greenstone Resources of Colombia Ltd., owns
61,540,000 shares of Compania Minera Oronorte S.A.("Oronorte"). The Company
completed the acquisition of 470,000 shares of Oronorte from Minas Santa Rosa, a
subsidiary of Greenstone. Also on such date, the Company completed the
acquisition of 2,800,000 shares of Oronorte from Dual Resources. This
significant acquisition resulted in the Company owning, directly or indirectly,
99.9% of Oronorte, which owns the El Limon Mine, a small underground gold mine
in the Department of Antioquia, Colombia. The Company assumed operational
control of Oronorte on August 24, 1995.
In exchange for the various interests in Oronorte, the Company conveyed to
Greenstone, all of its interests in Minerales de Copan S.A. de C.V., ("Copan")
which included shares and options to purchase shares totaling approximately
eight percent of Copan. Copan owns the San Andres Mine in Honduras.
Fischer-Watt's non-recourse debt to Greenstone of $115,000 was canceled in
connection with this conveyance.
On October 18, 1996, Fischer-Watt instituted a lawsuit against Greenstone
seeking payment of US $1,508,544 arising from a contractual obligation of
Greenstone to Fischer-Watt in connection with the acquisition of Oronorte (see
Item 3-Legal Proceedings).
On January 29, 1996, the Company acquired Great Basin Management Co., Inc.,
("GBM"). GBM is a 100% owner of Great Basin Exploration and Mining Co., Inc.,
("GBEM"), a mineral exploration company based in Reno, Nevada. GBM was acquired
through the merger of a wholly-owned subsidiary of the Company with GBM in which
4,125,660 shares of Fischer-Watt common stock were issued to the shareholders of
GBM. GBEM holds leases on several mineral properties in the Battle
Mountain-Eureka Trend in Nevada as well as additional exploration properties in
Nevada and California. Two of the Nevada properties, Red Canyon and the Tempo,
are in joint venture arrangements with other mining companies. A third property,
Coal Canyon, is currently being explored by the Company and a joint venture
partner is being sought. See Item 2-Description of Property.
On February 28, 1995, Tombstone Explorations Co.Ltd.("Tombstone"), a
Vancouver-based mining and exploration company entered into a letter agreement
with Fischer-Watt to purchase Fischer-Watt's interest in the Minas de Oro
property in Honduras. Minas de Oro was joint ventured with Kennecott Exploration
Company ("Kennecott") who had an 80 percent working interest. Tombstone agreed
to buy the Kennecott interest and to assume Fischer-Watt's $500,000 promissory
note to Kennecott, as well as Fischer-Watt's interest in the property. Under the
terms of the agreement, Tombstone paid Fischer-Watt $150,000 in cash and
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delivered for cancellation, Fischer-Watt's $500,000 promissory note to Kennecott
plus all accrued interest. The transaction closed on May 15, 1995. This sale
resulted in a gain of $641,000 and substantially reduced the Company's debt.
On November 2, 1993, the Company signed a letter of intent to be acquired
by Greenstone Resources Ltd. During the due diligence period, Greenstone
advanced funds to the Company for current operations. The proposed merger was
terminated by Greenstone in February 1994. In March 1994, Fischer-Watt accepted
an offer from Greenstone to acquire an option to purchase all of Fischer-Watt's
interests in the San Andres project in Honduras for a total purchase price of
$955,000 consisting of cash, cancellation of debt incurred pursuant to the
proposed merger and $700,000 worth of Greenstone common stock, valued at the
time of exercise. Greenstone exercised its option on October 31, 1994. Upon
exercise of the option, Greenstone was assigned Fischer-Watt's option to acquire
51% of Compania Minerales de Copan, S.A. de C.V. from Milner Consolidated Silver
Mines (25.5%) and North American Palladium Resources (25.5%) as well as all of
Fischer-Watt's other rights and interest in the San Andres project. Minerales de
Copan owns the San Andres project. As part of the option agreement, Fischer-Watt
negotiated a loan from Greenstone to provide all of the funds to purchase up to
nine percent of the shares of Compania Minerales de Copan S.A. de C.V.("Copan").
The loan was nonrecourse as to both principal and interest to the Company and
was to be repaid out of dividends, if any, from the Copan shares. The shares
were pledged to Greenstone as collateral for the loan which was due on or before
December 31, 1999. At August 24, 1995, this loan and the related accrued
interest obligation, totaling $115,000, were satisfied in conjunction with the
sale of the Company's interest in the Copan shares.
During fiscal 1997, the Company's only producing metals property was the El
Limon Mine in the Oronorte district in Colombia, South America. The Company
assumed control of operations in late August 1995 and has produced an average of
1,012 ounces of gold per month since the property was acquired, compared with an
historical average of 734 ounces per month. During the third quarter of the
fiscal year ended January 31, 1997, average monthly production reached a record
high of 1,262 ounces per month. This increase in production reflects the
implementation of a grade control program that was instituted under the
Company's management. Further improvement in grade will be realized when a new
slurry pumping system becomes fully operational. This system is currently being
installed and will be fully operational by the third quarter of fiscal 1998.
Installation of the system was delayed due to engineering and construction
difficulties. Production at the El Limon Mine was augmented by development ore
shipped from the Aurora vein at the end of the fiscal year. The ore was
contributing approximately 50 ounces of gold per month to production
Operations
Since the Company assumed operations of the El Limon Mine on August 24,
1995 and through December 31, 1996, the Company has produced 16,601 ounces of
gold (3,746 ounces in fiscal 1996 and 12,855 ounces in fiscal 1997) and 16,018
ounces of silver (3,500 ounces in fiscal 1996 and 12,518 ounces in fiscal 1997).
The selling prices the Company received averaged $386.62 and $384.49 per ounce
for gold and $5.19 and $5.34 per ounce for silver for fiscal 1997 and 1996,
respectively. The cash cost per ounce for gold for fiscal 1996 as previously
reported was $338.50. Recently the Company reevaluated its cash cost calculation
methodology. For fiscal 1996, the cash cost was calculated treating as a cash
cost of production all expenses associated with the Company's operations in
Colombia. The Company's revised calculation methodology does not treat all
expenses associated with the Company's operation in Colombia as a direct cost
related to production; but rather allocates an appropriate percentage to the
direct cost of production. Utilizing the revised cash cost calculation
methodology the cash cost per ounce of gold was $381.58 for fiscal 1996 and fell
to $302.70 in fiscal 1997. The revision in the Company's cash cost calculation
methodology was made in an effort to more closely conform to the Gold Institute
Production Cost Standard.
The Company sells most of its precious metal production to one customer.
However due to the nature of the precious metals market the Company is not
dependent upon this significant customer to provide a market for its products.
Although the Company could be directly affected by weakness in the precious
metals processing business, the Company monitors the financial condition of its
customer and considers the risk of credit loss to be remote.
Production from the El Limon Mine comes from a single vein with an average
dip of 42 degrees and an average width of 1.6 feet. The average grade of this
vein is 1.2 ounces of gold per tonne. Prior to the time that the company took
over the operation the average grade of the ore being sent to the plant for
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processing was only 0.36 ounces per tonne or 30 % of the available value of the
vein. It was apparent from this data that a study program which would identify
methods to improve the grade of the ore being sent to the processing plant was
necessary. Several steps have been taken already as a result of this grade
control program and more will follow. The actions which are already underway are
as follows:
The previous mining method required a minimum stoping width of 4.0 feet and
made it necessary for the miners to stand on a slippery slope of 42 degrees
while drilling the holes required to blast the ore and waste. These requirements
dictated that at a minimum the grade of the ore being sent to the processing
plant would be diluted by 60% and that the productivity of the miners would be
restricted. In fact the actual dilution of the ore was higher. Grade to the
processing plant of 0.36 ounces per tonne v.s. an available grade of 1.2 ounces
per tonne is a dilution of 70%. A new mining method has been designed and put
into operation which reduces the minimum stoping width to 3.0 feet and enables
the miners work down the 42 degree slope and stand on solid rock while drilling.
The vein at the El Limon Mine is a white, opaque quartz which normally
breaks into pieces two inches in diameter or smaller when blasted. However the
waste material surrounding the vein is a very dark colored metasediment which
normally breaks into much larger pieces. The difference in breaking size between
the ore material and the waste has been put to use underground by putting all of
the blasted material on a two inch grizzly (screen), separating the oversize
material and putting it back into mined out working places (stopes) for ground
support. Analysis of the sand size particles produced by blasting in the stopes
showed that they contain significant amounts of gold and a system has been
designed which will allow this fine material to be washed off of the larger
fragments of the ore and waste , collected in various sumps underground and on
surface and pumped to the processing plant. This washing system in addition to
recovering high grade fines allows for visual discernment of ore and waste and
manual separation as the material proceeds from underground to the processing
plant. Installation of this slurry pumping system which was designed to be done
in phases is approximately 50% complete and is anticipated to be fully
operational by September 1997.
The results of this grade control program to date have been impressive. As
stated previously the average feed grade prior to the company taking control of
the mine was 0.36 ounces per tonne the average grade presently is 0.57 ounces
per tonne. This is a 58% improvement in the grade of material delivered from the
mine.
The characteristics of the ore body, such as vein width and grade, have not
changed. The improved output is being accomplished by a two stage upgrading of
the mined ore where waste rock that became mixed in with the vein material
during the mining sequence is removed prior to the ore being milled. A large
percentage of this waste is now being removed while the ore is still
underground. The separation is based on the different breakage characteristics
of the ore and waste with the waste rock breaking into larger fragments than the
vein material. A second ore and waste separation is carried out on the surface.
This sorting is based on color since the waste rock is a uniform dark rock
compared to the lighter colored ore. These measures have resulted in the mill
feed being upgraded from an average of 0.57 ounces per tonne to 0.65 ounces per
tonne, an increase of 14 percent.
Since a significant portion of this ore-waste separation is carried out
underground, that waste is no longer being hoisted thereby creating hoisting
capacity for additional ore. In this way, mill throughput of the upgraded ore
has been maintained at around 2,000 tonnes per month. Color separation of ore
and waste will be carried out underground once installation of an ore washing
and slurry pumping system is fully completed. This is anticipated to be
completed by September 1997.
At the El Limon Mine, production has steadily increased during the year. In
January 1996, 651 ounces of gold were produced. By December 1996, production had
risen to 979 ounces of gold. These improved results stem form the new grade
control program, the introduction of new satellite ore sources, increased mill
recoveries and other operational improvements.
To reduce costs and improve efficiencies, personnel changes and realignment
are continuing to take place, a new cost control system has been introduced,
improved metal revenue enhancement program implemented and improved purchasing
procedures put in place at both the mine site and Medellin office.
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Mine Development
A change in the mining method at the El Limon Mine has increased
productivity in the stopes and development of a new level, Level 6, is underway.
The capacity of the locomotive ore cars, and mucking machines, assigned to Level
6 will be increased to improve the efficiency of development and production.
To augment production from the El Limon Mine, development of two other
properties, both under control of Oronorte, has begun. The first, the La Aurora
is approximately six kilometers south of El Limon Mine and is close to a
publicly maintained highway. The mine is being developed from two fronts. First,
a short adit has been constructed to intersect the vein. At the vein
intersection, a 40 meter internal shaft has been constructed and horizontal
drifting developed. This has proven the geological interpretation of the vein
and supplies approximately 150 tonne per month of development ore to the El
Limon Mine plant. Second, an access ramp is being constructed with rubber tired
mining equipment and has progressed approximately 230 meters. Completion of the
remaining 80 meters is projected for early in the second quarter of 1997. This
ramp will allow the La Aurora to be developed and operated utilizing low cost,
trackless, mining methods.
Development of the second property, the Juan Vara, has been temporarily
suspended in order to concentrate efforts on the La Aurora. The Juan Vara is
approximately two kilometers from the El Limon Mine processing plant. Earlier in
fiscal 1997, two diamond drill holes were completed from surface. One hole
intersected the vein at a depth of 80 meters below surface. At this point, the
vein is 0.4 meters with an assay grade of 43 grams of gold per tonne. The second
hole intersected a narrow vein but was stopped short of the main vein due to
mechanical problems with the drill rig.
The geometry of both the La Aurora and the Juan Vara vein in relation to
the surface topography suggest that they may be developed (if warranted) with
rubber tired mining equipment. A rehabilitated one cubic yard LHD vehicle has
been purchased in the United States and is now operating at the El Limon Mine.
Exploration
Exploration at the El Limon Mine is focused primarily on confirmation and
delineation of extensions of the El Limon Mine vein. An ongoing program of
drilling from selected locations on Level 5 has proven vein continuity both
horizontally and at depth. To the north, Level 5 development has exposed 120
meters of the vein with an average width of 0.5 meters and average grade of over
35 grams of gold per tonne. Drilling has confirmed the continuity of the vein on
Level 6. Geological mapping and reinterpretation of old operational maps,
indicated the possible existence of approximately 5,000 additional tonnes of
material with an average grade of 20 grams of gold per tonne on Level 0.
Previously mined areas are being reevaluated for possible additional reserves
and/or pillar extraction.
Surface drilling at El Carmen property is confirming the continuity of the
vein at depth. The drill core indicates the possibility of a disseminated gold
stockworks. The grade of this mineralization, while sub-economic, confirmed the
presence of a large stockwork associated with the high grade El Carmen vein.
Assays of this disseminated stockwork ranged between 0.2 grams of gold per tonne
to 0.5 grams of gold per tonne. If the grade in this system is found to improve
slightly along strike it could allow for its development by low cost surface
mining and heap leach processing methods.
On December 18, 1996, the Company announced the acquisition of the 200
hectare El Veinte property, located approximately 14 kilometers south of the El
Limon Mine. The El Veinte is viewed as having similar geology to the El Carmen.
Drilling at the El Veinte is planned following completion of work at the El
Carmen.
Fischer-Watt's exploration geologist, based out of the Medellin office,
continues the Colombian regional exploration program. A number of disseminated
gold mineralization prospects are being examined and management believes that
the renowned high grade northern Colombian gold fields can host open-pittable,
bulk minable deposits. To date, very little exploration has been carried out in
this part of Colombia for these deposits.
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In Nevada, Fischer-Watt's regional exploration program identified two new
gold properties, Amador and Water Canyon, which were acquired by claim staking
in fiscal 1997. Three Fischer-Watt properties were under joint venture to other
mining companies in fiscal 1997. Battle Mountain Gold continued to explore the
Red Canyon property in Eureka County in fiscal 1997 and is planning additional
work in fiscal 1998. Digger Resources continued its exploration of the Tempo
property in Lander County and is planning a fiscal 1998 exploration program.
Cominco American drilled a number of geophysical targets at the Company's
Afgan-Kobeh project in Eureka County in fiscal 1997, but withdrew from the joint
venture in December. The Afgan claims were subsequently returned to the lessor
and the Company is seeking a new joint venture partner for its Kobeh claim
block. The Company drilled three core holes in December 1996 at its Coal Canyon
property in Eureka County to test for down dip and strike extensions of
previously identified gold mineralization. The drilling successfully identified
gold in the feeder fault below known mineralization at a depth of 1,281 feet,
averaging 0.78 grams per tonne over 61 feet, and also encountered gold grades up
to 1.5 grams per tonne over 10 feet in the fault zone 600 feet along strike to
the northwest.
The Company acquired the Castle gold property, located in Esmeralda County,
from Kennecott Exploration in fiscal 1997. Kennecott had identified a drill
indicated resource containing between 1.5 million tons and 3.6 million tons
averaging 0.046 and 0.049 ounces gold per ton.
In California, the Company is actively exploring the Sacramento prospect
near Needles. This gold property was acquired in late fiscal 1997 from a
prospector and expanded by way of claim staking by the Company.
Regional exploration in Nevada will continue in fiscal 1998 and the Company
will seek joint venture partners to explore its existing properties in the
United States.
Recent Private Placements
On March 12, 1996 the Company announced that it had completed a $5 million
foreign offering conducted outside of the United States pursuant to Regulation
"S". These funds were used to finance capital equipment and working capital
needs for further development and expansion of Fischer-Watt's gold mining
operation in Colombia and its exploration and development activities in Colombia
and Nevada. This Regulation S offering consisted of the sale of 4,980,000 units
at $1.06 per unit. Each unit was composed of two shares of Fischer-Watt common
stock and one share purchase warrant. Each of these warrants entitles the holder
to purchase one additional share of Fischer-Watt common stock at an exercise
price of $.75 through February 28, 1998. These securities were not registered
under the Securities Act of 1933 and may not be offered or sold in the United
States absent registration or an applicable exemption from registration
requirements. As a part of this placement, 680,000 units were sold under a
subscription agreement and, as such, $721,000 is classified as capital stock
subscribed. As of May 1, 1997 none of the 680,000 shares have been issued.
Subsequent to year end, from March 11, 1997 through April 16, 1997, the
Company completed a private placement to accredited investors located in the
United States pursuant to Rule 506 of Regulation D under the Securities Act of
1933, as amended (the "1933 Act"). The estimated net proceeds from this offering
of $442,000 are to finance the Company's working capital requirements and needs
related to further development, expansion, and exploration of mining properties.
This Regulation D offering consisted of the sale of 459,000 units at $1.06 per
unit. Each unit was composed of two shares of Fischer-Watt common stock and one
share purchase warrant. Each of these warrants entitles the holder to purchase
one additional share of Fischer-Watt common stock at an exercise price of $.75
through February 17, 1999. These securities were not registered under the
Securities Act of 1933 and may not be offered or sold in the United States
absent registration or an applicable exemption from registration requirements.
Definitions
"Adit"
A nearly horizontal passage from the surface by which a mine is entered and
unwatered.
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"Dip"
The angle or direction of tilt of the vein or strata.
"Feasibility"
Completion of a detailed written evaluation of the technical, economic and
environmental feasibility of constructing and operating a mine. The evaluation
contains all information customarily required by institutional lenders in
determining whether to make debt financing available for a project of its type
and size, including capital and operating costs, environmental constraints,
water supplies, facilities for disposal of wastes and reclamation.
"Footwall"
The mass of rock beneath a fault plane, vein, lode or bed of ore.
"Force Majeure"
An event which is outside the control of the parties and cannot be avoided
by exercise of due care.
"Generative Exploration"
Exploration for mineral deposits in areas not previously recognized as
containing mineralization.
"Net Proceeds Interest"
Gross revenues from the sale of products, less operating, exploration and
development costs of the project, usually calculated on a cash basis.
"Net Smelter Return Royalty," or "NSR"
Royalty based on the net amount shown due by the smelter or other place of
sale as indicated by its return or settlement sheets, after payment of all
freight charges from the shipping point to the smelter, and after all smelter
charges have been deducted, but without deduction of any other charges.
"Participating Interest"
The percentage interest representing the operating ownership (cost and
revenues) of a participant in a joint venture agreement.
"Stope"
An excavation from which ore has been excavated in a series of steps.
Usually applied to highly inclined or vertical veins.
"Strike"
The course or bearing of the outcrop of an inclined bed or structure; the
direction of a horizontal line in the plane of an inclined stratum.
"Target"
The indicated location of a potential ore body. The location is indicated
by geologic data and concepts and includes a drilling plan (with specific drill
hole locations) that will test the accuracy of the geologic data and concepts by
penetrating the potential ore body. One property may contain several targets.
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"Tonne"
A unit of weight equal to 2,240 pounds. Also called a long ton, as
distinguished from short ton, a weight measurement equal to 2000 pounds.
"Winze"
A vertical or inclined opening or excavation, sunk underhand, connecting
two levels in a mine.
"Work Commitments"
Total amount of work to be performed on a property to satisfy the terms of
the agreement under which the property was acquired. It may be expressed in
total dollars to be spent on the property or the number of feet to be drilled on
the property.
Plan of Operation
The Company anticipates that it will, during fiscal 1998, continue to
improve its operations at Oronorte. This will include additional capital
expenditures for shaft rehabilitation and improved hoisting at the El Limon
Mine, processing plant improvements and expansion at the El Limon Mine, and
completion of the ramp and initial mine at the Aurora. In addition, the Company
plans to begin development of the El Carmen property in the Oronorte district,
continue the regional exploration program in Northern Colombia, and continue its
exploration efforts in the Battle Mountain-Eureka Trend in Nevada. The Company
intends to fund these expenditures through a combination of internally generated
cash flow and additional debt or equity financings. There can be no assurance,
however, that the Company will have available sufficient funds to conduct such
activities.
Fischer-Watt incurred a net loss of $3,378,000 in fiscal 1997, has an
accumulated deficit of $8,058,000, has a net working capital deficiency of
$1,038,000 and continues to experience negative cash flows from operations. The
Company did report net income in fiscal 1996, however this was principally the
result of realized gains on the sale of exchange of non-producing mineral
properties. These conditions raise substantial doubt about the Company's ability
to continue as a going concern.
Management believes that as the El Limon Mine gold property, held by
Oronorte is further developed and production levels increase, sufficient cash
flows will exist to fund the Company's mining operations and exploration and
development efforts in other areas. Management anticipates achieving levels of
production sufficient to fund the Company's operating needs by the end of fiscal
1998, and until then will fund operations with cash raised from future equity or
debt financings, the anticipated exercise of common stock warrants expiring in
August 1997 (see Note 9 to Financial Statements), and disposition of or joint
ventures with respect to mineral properties. Expenditures for exploration
projects may also be reduced, if necessary.
The ability of the Company to achieve its operating goals and thus positive
cash flows from operations is dependent upon the future market price of gold,
future capital raising efforts, and the ability to achieve future operating
efficiencies anticipated with increased production levels. Management's plans
will require additional financing, reduced exploration activity, or disposition
of or joint ventures with respect to mineral properties. While the Company has
been successful in these capital raising endeavors in the past, there can be no
assurance that its future efforts, and anticipated operating improvements will
be successful. The Company does not currently have adequate capital to continue
its contemplated business plan beyond the early part of the third quarter of
fiscal 1998. The Company is presently investigating all of the alternatives
identified above to meet its short-term liquidity needs. The Company believes
that it can arrange a transaction or transactions to meet its short-term
liquidity needs, however there can be no assurance that any such transactions
will be concluded or that if concluded they will be on terms favorable to the
Company.
Information About Industry Segments
Fischer-Watt operates in only one segment, mineral activities.
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Narrative Description of Business
Fischer-Watt has been engaged primarily in the location, acquisition,
exploration, development and production of precious metal mineral properties.
The search for precious metal deposits that can be profitably produced is
extremely high risk and development requires large capital outlays and
operational expertise.
The value of the Company's properties and exploration results may be
affected by the prices of precious metals, especially gold, and by the cost of
extracting the precious metals. During the calender year 1996, gold prices
averaged over $385 per ounce and fluctuated from a low of $365 to a high of
$418. The price of gold on May 1, 1997 was $339.25. During the last ten years,
gold prices have averaged $387 per ounce and stayed over $300 per ounce while
modern heap leach technologies have allowed lower grades of ore bodies to be
mined. For several years, this trend created a resurgence in the United States
of exploration activity for gold in the minerals industry. During the past
several years, this increase in activity has expanded to Latin America.
Gold is traded on the international commodities market, primarily through
the London Metals Exchange (LME). The price is controlled by a number of
factors, none of which can be influenced by Fischer-Watt.
The availability of mining prospects is dependent upon the Company's
ability to negotiate leases or concessions with property owners or to locate
claims pursuant to the General Mining Law of 1872. Bills recently passed and
currently being considered by the United States Congress to amend the federal
mining law could substantially impair the ability of the Company and other
companies to develop mineral resources on federal unpatented mining claims which
constitute one of the primary sources of mining properties in the United States.
Such bills contain provisions to eliminate or substantially impair the ability
of companies to obtain a patent on unpatented mining claims as well as
provisions for the payment of royalties to the Federal government.
Other than mining claims, leases, concessions and agreements, the Company
has no patents, trademarks, licenses or franchises material to its operations.
(See Item 2 - Description of Property).
All of the properties in which Fischer-Watt has an interest are accessible
throughout the year.
If mineralized deposits are discovered under claims or leases in which
Fischer-Watt owns an interest, the economic viability of the deposit may depend
upon numerous factors not within the Company's control, including the selling
price of minerals, the extent of other domestic production, proximity and
capacity of water and mills, and the effect of state, federal or foreign
government regulations.
No portion of the Company's business is subject to renegotiation of profits
or termination of contracts or sub-contracts at the election of the Government.
Competition in the Company's industry occurs almost exclusively in the
acquisition of mining properties because the market price for gold is determined
by market factors and conditions that are beyond the Company's control. The
exploration for, development of and acquisition of gold and other precious metal
properties are subject to intense competition. The principal methods of
competition include: (i) bonus payments at the time of lease acquisition, (ii)
delay rentals and advance royalty payments, (iii) the use of differential
royalty rates, (iv) the amount of annual rental payments, (v) exploration and
production commitments by the lessee and (vi) staking claims. Companies with
greater financial resources, larger staffs and labor forces, and more equipment
for exploration and development may be in a more advantageous position than the
Company to compete for such mineral properties. Management believes that
competition for acquiring mineral prospects will continue to be intense.
The mining industry, including Fischer-Watt, must follow certain local,
state and federal regulations imposed in each country where it operates to
maintain environmental quality. To the best knowledge of management, all the
Company's projects comply with present regulations and their compliance has not
resulted in any additional material capital and/or operating costs. The
Company's principal executive officer has been involved in the permitting of
mines throughout his career. He keeps abreast of applicable legislation
affecting the permitting process. Outside consultants are also available that
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specialize in the permitting process. In Colombia, the Company believes that it
is in full compliance with the regulations issued by the Environmental Ministry,
a newly created agency that oversees environmental regulations. It cannot be
known at this time what additional future laws and regulations might be adopted,
nor their effect, if any, on the Company.
At May 1, 1997, Fischer-Watt and subsidiaries have employees as shown
below:
Full-time Part-Time Total
Employees Employees Employees
--------- --------- ---------
United States 8 1 9
Foreign 44 0 44
-- -- --
Total 52 1 53
== == ==
In addition, the Company contracts with a labor cooperative at the El Limon
Mine that provides an hourly labor force of approximately 246 people. The labor
cooperative has been contracting with the El Limon Mine since April 1992. It is
currently operating under an extension of a one year contract that expired
January 15, 1997. Negotiations on a new contract have been held and a new
contract is expected to be executed in the near future. The Company does not
expect that the new contract will contain material changes from the previous
contract. Monthly pay ranges from $209 to $435 per month, per person. Benefits
which include health insurance, retirement, social security and vacation and
holidays run approximately 56% of annual pay.
Foreign Operations
All of the Company's current production and mining operations are derived
from its Colombian subsidiary. The Company plans to continue current exploration
efforts in South America and Mexico as well as in the western United States,
principally in Nevada.
The Company also owns interests in non-producing mineral concessions in
Mexico through its 65%- owned Mexican corporation, Minera Montoro S.A. de C.V.
("Montoro"). Montoro was incorporated in Mexico City, Mexico in October 1989.
The remaining 35% is owned by Jorge Ordonez, a director of the Company, and his
family and business associates.
At this time, management is unaware of any extraordinary risks associated
with the Company's present, or proposed, operations in these countries. Colombia
suffers social unrest including guerilla action. The guerilla situation is an
ongoing problem but the Company continuously evaluates security risks and makes
any appropriate adjustments. Inflation remains a problem as it slightly rose to
21.6% in 1996 from 20% in 1995. Hedging mechanisms may be available to mitigate,
to some extent, the effects of inflation. The Company does not presently employ
forward sales contracts or engage in any hedging activities, but is considering
applying hedging activities in the future. The government of Colombia imposes a
4% royalty on the production of gold and silver.
FINANCIAL INFORMATION RELATING TO THE COST BASIS OF FOREIGN AND DOMESTIC
MINERAL INTERESTS:
Year Ended January 31,
---------------------------------------
1997 1996 1995
---- ---- ----
United States .......... $2,030,000 $1,661,000 $ 304,000
Colombia ............... 2,066,000 1,488,000 --
Honduras ............... -- -- 174,000
---------- ---------- ---------
Mineral Interests ...... $4,096,000 $3,149,000 $ 478,000
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Item 2. DESCRIPTION OF PROPERTY
SUMMARY
The following is a description of the Company's mineral properties. The
Company holds interests in mineral properties located in Colombia and in the
United States in the states of Arizona, California, Nevada, as well as in
Mexico. The Company's interest in the properties varies on a property by
property basis. The nature and amount of the Company's interest in properties is
discussed in this item.
COLOMBIAN PROPERTIES
Oronorte, Department of Antioquia, Colombia
Oronorte is a mining company licensed to operate in Colombia. It is 99.95%
owned by Fischer-Watt and Fischer-Watt's wholly-owned subsidiaries. All of
Oronorte's mining licenses and permits were transferred to it from Greenstone in
1995. At this time, Oronorte holds a total of 29 mining concessions in the
Oronorte district comprising an area of 5,735 hectares. The following properties
are included in the Oronorte district.
1. El Limon Mine.
2. Juan Vara prospect.
3. La Aurora Mine.
4. El Carmen property.
5. El Veinte property.
At the present time, the El Limon Mine is in production and the La Aurora
Mine is in development. The El Carmen property is in an ongoing second stage
surface drilling program which is scheduled for completion by the end of fiscal
1998.
All of the properties are located in north central Colombia in the
Department of Antioquia. The first three properties are within 2 to 6 kilometers
of each other and have a common geological environment. The El Carmen property
is approximately 20 kilometers northeast of the El Limon Mine and has a
different geological environment.
Access to the El Limon Mine is by road from Medellin, approximately 160
kilometers to the southwest. The mine is on the main road leading from Bogota to
the port of Barranquilla on the Atlantic Ocean. It is a one day drive from the
mine to the port of Buenaventura on the Pacific coast where the Company ships
its concentrates to Japan. The closest airport is at El Bagre, one hour north of
the mine by road. It is serviced daily by four scheduled Twin Otter flights of
30 minutes from Medellin. El Bagre is a town of about 10,000 people and is
located on the Nechi river.
The mine is about 5 kilometers south of the town of Zaragoza which is also
on the Nechi river about 24 kilometers south of El Bagre. Travel between
Zaragoza and El Bagre can be by road or river.
The El Limon Mine facilities are connected to the government power grid.
Since the government rations power, the mine has installed two diesel powered
generators with outputs of 260 and 240 kw. There are periods of time when there
is insufficient power to operate all of the plant and mining equipment
simultaneously. During these periods, management has elected to run the mill,
one compressor, hoists and lighting. This means there is insufficient compressed
air and ventilation in the mine and work is impeded.
The town of Zaragoza is also connected to the national telephone network.
The mine is connected to this network via radio telephone. An office is
maintained in the town to allow the use of fax communications. During the
current year, a new telephone was installed on the property. It is connected by
satellite and phone calls can be made around the globe.
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The Juan Vara Vein is the strike extension of the El Limon Mine Vein and is
located approximately 2 kilometers south of El Limon Mine.
The Aurora Vein is located 6 kilometers south of the El Limon Mine. It has
the same strike as the El Limon Mine vein but is structurally situated
approximately 300 - 400 meters in the footwall.
The El Carmen property is located 20 kilometers northeast of the El Limon
Mine. It is the most northerly of a number of gold bearing quartz sulfide vein
systems known to occur between El Bagre and the town of Segovia, which lies 60
kilometers to the south.
The El Veinte property is located 14 kilometers south of the El Limon Mine.
It is viewed as having similar geology to the El Carmen.
History
The El Limon Mine was discovered by prospecting in 1939 and was operated on
a small scale until 1946 when lack of capital forced suspension of operations.
In 1947, G. Leland and H. Vom Stauffen examined the property for the Timmins
Group of Montreal. The company deemed the mine to be too small at that time to
mount an efficient operation. Leland and Vom Stauffen considered the project to
be economic and formed a partnership to exploit the mine by improving the
milling facilities. Proven reserves at the time were about 12,000 tonnes at 35
grams gold per tonne.
Choco - Pacifico leased the property in 1958 and drilled six holes, three
of which intersected a high grade section of the vein. Reserves were calculated
at 25,000 tonnes of 35 grams gold per tonne. Choco - Pacifico returned the
property to Vom Stauffen in 1962 when the parent decided to invest further in
the Segovia Mines and the Nechi Placers.
Vom Stauffen continued to operate the mine from 1962 to his death in 1975,
when his widow sold the mine to other investors who fought amongst themselves.
Grupo Minero Ltda. of Medellin and Oro Norte S.O.M. resolved the legal problems
and received clearance from the Mine Department to begin exploiting the deposit.
These companies lacked capital and know-how and were approached by Greenstone
with a proposal to purchase and operate the mine. The deposit was acquired by
Greenstone Resources in 1986 and placed into production in November 1990.
Following the acquisition by Greenstone, metallurgical testing, plant
re-design and additional exploration was undertaken.
Underground mine development was started in 1990. Since that time the work
has consisted of developing the main levels, deepening one shaft and installing
a production hoist, sinking a winze and installing a hoist, driving the stope
raises and mining the rooms. Some pillar recovery has been carried out.
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El Limon Mine Historical Production
Recovered Avg. Recovered Head
Calender Tonnes Troy Recovery Ounces Grade
Year Milled ounces Percent Per Tonne g/Tonne
-------- ------ --------- -------- --------- -------
1990* 2,040 365 90 0.180 6.19
1991 24,567 10,241 90 0.420 14.41
1992 17,302 7,679 90 0.450 15.34
1993 26,961 9,990 90 0.380 12.80
1994 23,011 7,510 91 0.324 11.10
1995 22,563 8,603 92 0.381 12.89
1996 23,088 12,855 90 0.542 18.72
* Two months' operation
As shown in the table, the head grade in 1996 increased by 45% to 18.72
grams of gold per tonne over 1995. This increase was the result of improved
grade control, improvements in the mining methods, and the purchase of
additional mining equipment.
Since September 1995, when Fischer-Watt took over the property, grade
control methods have improved. The average mill head from October 1995 to March
1996 was 17.6 grams of gold per tonne as compared to 12.89 grams of gold per
tonne for 1995. The average mill head grade for all of 1996 was 18.72 grams of
gold per tonne.
Proven and probable geological reserves at El Limon Mine and La Aurora as
of December 1996 stood at 99,414 tonnes at a grade of 16.00 grams of gold per
tonne. These reserves were calculated by Oronorte's resident geologist, and
reviewed and verified by Davy International, an independent industry consulting
firm. These diluted geological reserves are those tonnes that have been diluted
to include a mining height of 1.35 meters perpendicular to the dip of the vein.
Specific gravity of the vein is 2.65 and specific gravity of the waste is 2.80.
The minimum cut-off grade used is 9 grams of gold per tonne and the erratic high
values, higher than 100 grams of gold per tonne are cut to 100 grams of gold per
tonne while calculating the grades of these reserves. Initial reserve estimates
made in 1989, prior to the commencement of production, calculated the reserves
at 41,000 tonnes at 14.3 grams of gold per tonne. Since then, in addition to the
total current reserves, in excess of 136,000 tonnes have been mined over the
life of the mine. The nature of narrow, high grade hydrothermal gold veins such
as are present at El Limon Mine is that the relatively low reserve estimates are
due to the high cost of outlining these reserves too far ahead of the mining.
The calendar year 1997 mining plan calls for the mining and processing of
approximately 34,100 tonnes of ore and the recovery of approximately 18,400
ounces of gold (588,800 grams). It is anticipated that the development and
exploration work to be carried out at El Limon Mine during 1997 will more than
replace the reserves to be mined during 1997.
At the present time, Oronorte has a concentrate purchase and treatment
agreement with Dowa Mining Company, Ltd., Tokyo, Japan. The agreement is dated
March 12, 1996 and was for a duration of one year to December 31, 1996. It has
been extended for one year by mutual agreement.
El Limon Mine
A description of the mining and processing operations at El Limon Mine is
presented below.
Access to the mine is from an adit on Level 0 (Elev. 135 meters). Three
inclined winzes provide access to the lower levels. One of the winzes is being
enlarged and deepened to provide more rapid access to all levels.
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The mining method being used is inclined room and pillar with no filling.
The vein strikes north-south, dips 42 west and has an average thickness of 45
cm. With such a low dip, all broken ore is mechanically (or manually) mucked to
ore chutes.
Material from underground is transported to the surface, where, by
utilizing a crusher grizzly, a vibrating feeder, a jaw crusher and a vibrating
screen, it is sent to a cone crusher and fed to a ball mill.
From the ball mill, the material feeds to a pulsating jig. The jig
concentrate is processed in a furnace at the mine and poured into DORE bars. The
DORE is sold to a Colombian customer with payment normally received within two
business days. Jig overflow is fed through cyclones, then sent to flotation
tanks. It is then filtered and dried to produce a concentrate which is shipped
by truck to the port of Buenaventura on the Pacific coast. From there, it is
transported by ship to Japan for refining. All of the concentrates are sold to a
single refiner under a one year contract. The contract calls for payment of 90
percent of the estimated value of the shipment within three business days of
presentation of the invoice. Subject to final assays and adjustments, the
remaining amount is paid within 60 days of receipt of the shipment.
The mill recoveries average 90 percent, which is typical for the type of
metallurgical process used at the El Limon Mine.
The current "hourly paid" labor force are residents of the town of Zaragoza
and surrounding area. They are all members of a cooperative called
"Precooperativa de Trabajo Asociado de Zaragoza - Precoomizar Ltd." This
particular cooperative is one of the first being used in the Colombian mining
industry.
The cooperative concept, whereby the company contracts for its labor and
pays the cooperative which, in turn, pays the workers and is responsible for
benefits, is being encouraged by the Colombian government. The system being used
at El Limon Mine has brought peace to a formerly troubled labor situation.
The total number of persons employed by the Company, both directly and
indirectly, is shown below:
Mine Site
Company Employees 35
Precoomizar Employees 246
Contractors (average) 2
----
Subtotal 301
Medellin Office 9
----
Grand Total 310
====
Juan Vara Vein
The Juan Vara Vein has been trenched and a short adit was driven in the
vein. During fiscal 1996, two diamond drill holes were completed from surface.
One hole intersected the vein at a depth of 80 meters below surface. At this
point, the vein is 0.4 meters with an assay grade of 43 grams of gold per tonne.
The second hole intersected a narrow vein but was stopped short of the main vein
due to mechanical problems with the drill rig.
Aurora Vein
Primary access to the Aurora vein will be through a 300 meter long,
inclined ramp. This inclined ramp is expected to be completed by July 1997.
Production is expected to begin approximately 30 days later, after initial
development is completed. A 130 meter long drift has been excavated to access
the upper area of the vein. The area developed by the inclined shaft and the
adit is expected to be connected by the end of 1997. Development ore from this
vein is being shipped to the El Limon Mine mill. At the end of 1996, this ore
was contributing approximately 50 ounces of gold per month to production. This
magnitude of contribution is expected to continue through August 1997. It is
anticipated that beginning in September 1997 this production will contribute
approximately 255 ounces of gold per month to production.
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<PAGE>
El Carmen
The original recorded exploration work at El Carmen was completed by Dual
Resources, a Canadian company, with assistance from Greenstone. Dual Resources
acquired the property in 1987 and conducted a two phase program of trenching and
diamond drilling which established indicated reserves of 146,288 tonnes at a
recoverable grade of 11.0 grams of gold per tonne. These geological reserves
were reviewed in the field and accepted by Behre Dolbear and Company, Inc., an
independent industry consultant.
The El Carmen property is located approximately 20 kilometers northeast of
El Limon Mine. During the fourth quarter of 1996, an 80 meter long adit was
driven to intersect the vein. Two short cross cuts, one east and one west, were
driven on the vein. This confirmed the presence of the vein widths of 0.7 to 1.5
meters. The results of sampling have returned values between 17 and 42 grams of
gold per tonne. A 105 meter long, inclined diamond drill hole was recently
completed which intersected the vein at the anticipated location. The vein
intersection was 0.7 meters with a grade of 490 grams of gold per tonne. This
grade has been confirmed by Jacobs laboratory, an independent laboratory, in the
United States. A second drill hole is currently being drilled. In addition, gold
fire assays confirm the presence of disseminated stockwork mineralization with
values ranging between 0.2 and 0.5 gold grams per tonne. A quantitative
investigation for the presence of copper has not taken place at this time.
Regional Geology
The gold prospects and mines which make up the Oronorte properties lie in a
thick sequence of Paleozoic age metasediments within the Central Colombian
Cordillera. The main group of properties, which include the El Limon Mine and
the La Aurora and Juan Vara prospects, occur along 15 kilometers of strike on
the west side of the Otu fault. This major regional structure has a total strike
extent of approximately 120 kilometers in a direction of N20 degrees W S20
degrees E. A number of gold bearing quartz veins also occur on the east side of
the Otu Fault, including the Company's El Carmen prospect. The quartz gold veins
of the Oronorte area were formed from hydrothermal solutions produced by
Cretaceous age intrusions and their location is strongly influenced by the Otu
Fault.
The El Carmen prospect is the most northerly of a number of gold bearing
quartz-sulfide vein systems that occur in a quartz diorite batholith of Jurassic
age that intrudes the Paleozoic basement. Approximately 60 kilometers south, in
an identical geological setting, lies the Segovia district which currently
produces approximately 45,000-50,000 ounces of gold a year from underground
operations. This district has produced 4.3 million ounces of gold from
quartz-sulfide vein systems. One of the largest of these, the El Silencio Mine,
has worked a vein which extends at least 2 kilometers along strike and 1.3
kilometers down dip.
The geology of the Oronorte mines and deposits is described below.
El Limon Mine
The El Limon Mine deposit is a typical epithermal gold bearing quartz vein
of late Cretaceous age. Its strike direction is N5 degrees W and S5 degrees E
and the amount of dip varies from 35 degrees to 45 degrees towards the west. The
vein is continuous for more than 300 meters along strike between sections 4800N
and 5150N, extending from surface to Level 6 - 250 meters vertically below the
surface. The deposit is open at depth and along its strike direction.
Well defined mining contacts occur to the north and south on Levels 0, 1
and 3. On these levels, quartz vein grades decrease to less than 5 grams of gold
per tonne within a few meters along strike. This results in a decrease of mining
grade, over a 1.2 meter width, to less than 2-3 grams of gold per tonne from
10-20 grams of gold per tonne. However, surface quartz vein exposures and
underground drilling north and south of the mine indicate a continuation of the
gold mineralization regionally.
The vein is structurally continuous except for a series of reverse faults
with displacement ranging from 0.5 to 40 meters. There are two main fault planes
(Lionel & El Limon Mine) which have displaced the vein by 35 - 40 meters each in
a sinistral sense. Because of this displacement, level 2 has been structurally
eliminated from El Limon Mine.
15
<PAGE>
Gold Mineralization
Gold mineralization is related to sulfide content, predominantly pyrite,
with minor amounts of galena and sphalerite. Sulfide content ranges between 5
and 12% and is a reliable visual indicator of grade. The gold to silver ratio is
1:1. Generally, the sulfides occur as distinct bands 2-5 mm in thickness in the
upper half of the vein. The bands are relatively continuous over several meters.
Occasionally, the banded structure is replaced by a more irregular, patchy
sulfide distribution. There is no direct relation between internal structure and
grade. The presence of galena indicates improved gold values, even in zones with
a sulfide content well below the 5- 12% range. Drilling and development to date
indicate an increase in galena content with depth.
The grade in the north end has increased significantly. Over the past five
months (December 1996-April 1997), the undiluted stope grade of the vein on
Level 5 has averages 51.16 grams of gold per tonne over an average width of 0.35
meters. The average stope width during this same time period has been 1.2 meters
thereby producing a mining grade of 15.63 grams of gold per tonne. This mining
grade has been improved by 17% through grade control procedures resulting in a
grade fed to the mill of 18.4 grams of gold per tonne.
Juan Vara Vein
The Juan Vara vein is the strike extension of the El Limon Mine vein and is
located approximately 2 kilometers south. This vein has been trenched and a
short adit was driven in the vein. True width of the vein varies from 0.2 meters
to 0.4 meters and the gold grades are 33 grams of gold per tonne and 8 grams of
gold per tonne respectively. A ramp from the surface is underway for the
development of this vein to a depth of 60 meters. Work has been temporarily
halted in order to concentrate on the Aurora.
Aurora Vein
The Aurora vein is located 6 kilometers due south of the El Limon Mine. It
has the same strike as El Limon Mine but is structurally located approximately
300-400 meters in the footwall of the El Limon Mine. Its geological environment
is similar to the El Limon Mine vein.
The Aurora vein is a massive milky quartz vein dipping 45 degrees to the
west and cutting metasedimentary host rocks. The main sulfides are pyrite,
pyrrhotite, chalcopyrite, sphalerite and minor amounts of galena.
The sulfides constitute 3-5% of the total vein material and most of the
sulfides were concentrated towards the north end of the drift. The grade of the
vein is 16 grams of gold per tonne over a width of 40 centimeters for a strike
length of 40 meters from the north face. The grades from the south end of the
drift range from trace to 5 grams of gold per tonne over the vein width. The
concentration of sulfides in the south end is less than 1%.
In order to develop this vein, a 300 meter long ramp is being constructed.
Completion of the ramp is expected to be complete in the third quarter of fiscal
1998.
Domestic Properties
Annual filing fees of $100 per claim are required to continue the ownership
of an unpatented lode mining claim in the United States. An unpatented lode
mining claim gives the owner the right to mine the ore and to use its surface
for mining related activities. A patented mining claim conveys fee title to the
claimant (all surface and mineral rights). The Company is current for all
required fees and payments for all of its mining properties. If joint venture
partners are required to make these payments and fail to perform their
commitments, the Company would be in danger of losing its property position.
16
<PAGE>
Bills currently being considered by the United States Congress to amend the
federal mining law could substantially affect the ability of the Company and
other companies to develop mineral resources on federal unpatented mining claims
which constitute one of the primary sources of mining properties in the United
States. Such bills contain provisions to increase the filing and holding costs
of unpatented mining claims as well as provisions for the payment of royalties
to the federal government.
Because mining claims in the United States are self-initiated and
self-maintained, they possess some unique vulnerabilities not associated with
other types of property interests. It is extremely difficult to ascertain the
validity of unpatented mining claims from public real estate records; therefore,
it can be difficult to confirm that all of the requisite steps have been
followed for location and maintenance of a claim. If the validity of an
unpatented claim is challenged by the government or by a private party, the
claimant has the burden of proving the present economic feasibility of mining
minerals located thereon. Thus, it is conceivable that unpatented claims that
were valid when located could become invalid if challenged.
Serem Gatro Canada, Inc. ("Serem Gatro") sold GBEM to GBM in May 1995. As a
condition of that sale, a Participation Agreement between Serem Gatro and GBM
(the "Serem Gatro Agreement") gives Serem Gatro the right to participate in any
of the core properties including the Afgan-Kobeh, Coal Canyon, Red Canyon and
Tempo properties, as well as any new properties acquired within an area bounded
by Latitudes 39(degree) 15' N and 41(degree) 15' N and Longitudes 115(degree)
45' W and 118(degree) 00' W. Under the terms of the Serem Gatro Agreement, at
feasibility, Serem Gatro may elect to become a joint venture partner in any of
the core properties at a level of up to 40% and may elect to become a joint
venture partner in any newly acquired properties within the defined area at a
level of up to 10%. This back in right, if exercised, would reduce GBM's
interest in the property and would effectively require both Serem Gatro and GBM
to fund their proportionate share (based on their respective participation
interests) of all development costs, whether incurred prior or subsequent to
exercise of the back in right. Based upon the amount spent by each party on a
specific property up to the time of exercise of the back in right, this could
result in one of the parties having to fund all of the future development costs
until the amount of spending by both parties is in proportion to their
respective participation interests. As described below, the Serem Gatro
Agreement has been modified, with respect to certain properties.
Kobeh, Eureka County, Nevada
The Kobeh property, previously referred to as the "Afgan-Kobeh" property,
is located approximately 25 miles northwest of Eureka, Nevada in the northeast
corner of Kobeh Valley along the southern flank of the Roberts Mountains. Access
to the property is via paved US Highway 50 out of Eureka and then via a graded
county road.
The Company controls 171 unpatented lode claims (3,532 acres) which it
acquired through claim staking in 1992. The Company's claims are subject to a 1%
Net Smelter Royalty to the Lyle F. Campbell Trust, as described in a Royalty
Deed and Agreement between the Company and the Trust dated January 1, 1996. The
property is also burdened by a $2.00 per ounce production royalty to Golden
Regent Resources Ltd., as described by an exploration letter agreement dated
April 11, 1991 by and between GBEM and Golden Regent. The property is also
subject to the 40% back-in right by Serem Gatro.
The property was the subject of a joint venture between Cominco American ,
Inc. (Cominco) and GBEM. As of November 25, 1996 Cominco terminated its joint
venture agreement with the Company. As of December 27, 1996 the Company
terminated its lease agreement on the Afgan portion of the property with the
Lyle F. Campbell Trust. As a result, the Kim Chee claims, once a part of the
Afgan-Kobeh lease, are no longer in Company control. Federal claim rental
payments of $17,100 for 1996-97 were paid in August 1996 by the Cominco American
Inc. and a payment for 1997-98 of $17,100 is due on or before August 31, 1997.
In fiscal 1997, Cominco completed a Controlled Source-Audio Frequency
Magneto telluric (CS-AMT) geophysical survey over the Afgan-Kobeh joint venture
area to aid in finding subsurface faults and rock contacts. Eight holes were
drilled on the Kobeh block as a result of this survey. The northern most drill
holes on the Kobeh block encountered traces (-100ppb) of gold mineralization up
to 300 to 400 feet thick. The gold mineralization tapered off to the south where
drilling did not reach the altered rock formations.
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<PAGE>
Cominco drilled to the west of a series of resistivity anomalies discovered
by the Company, then Great Basin, in 1992. The Company thinks that this series
of resistivity anomalies represent the altered rock formations that Cominco did
not encounter during their drilling campaign. Therefore the Company believes
that these geophysical anomalies, and the rock formations interpreted to be in
the subsurface, remain viable targets to be explored.
Coal Canyon, Eureka County, Nevada
The Coal Canyon Property is located in the northern Simpson Park Range,
about 12 miles south southwest of the Cortez gold mine. Access to the property
is via paved highway from either Carlin or Eureka, and then by graded county
road, to a point just north of the property.
The Company controls approximately 1,680 acres of unpatented Federal lode
mining claims by way of a Mineral Lease Agreement between GBEM and H. Walter
Schull, dated February 19, 1991. The lease has been amended on four occasions.
The advanced royalty payment of $20,000 for 1997 was paid on January 15, 1997
and the lease requires a $200,000 work commitment for 1997. Federal claim rental
payments of $9,100 for 1996- 97 were paid in August 1996 and a payment for
1997-98 of $9,100 is due on or before August 31, 1997. The Mineral Lease
Agreement burdens the claims with a 4% Net Smelter Royalty at the start of
production, but also grants GBEM the irrevocable option, so long as the Mineral
Lease Agreement is in effect, to purchase the Property at any time prior to
February 18, 2090 for $5 million, adjusted for inflation, with all advanced
royalty payments credited toward the purchase price. The property is subject to
a back in right of up to 40% by Serem Gatro. The Coal Canyon property is not
committed to any joint venture or any other agreement.
The Coal Canyon property has been explored by several mining companies
under lease from the owner since the claims were staked in 1985. Geological
mapping and sampling identified several large areas of alteration in carbonate
rocks of the Roberts Mountains and Hanson Creek Formations adjacent to a major
NW trending fault, referred to locally as the Grouse Creek Fault. These areas of
alteration are coincident with variably anomalous amounts of gold, arsenic,
antimony and mercury in soil and rock samples. Gold mineralization was
identified and encountered in drilling in the southwest corner of the claim
group by one of the prior lease holders, who subsequently withdrew form their
lease. GBEM continued detailed examination and exploration of this gold zone and
other areas of alteration beginning in 1991. Reverse circulation and core
drilling of the Grouse Creek Fault Zone delineated widespread, low levels of
gold mineralization (-1.0 grams/tonne) in carbonate rocks and Eureka quartzite
adjacent to the fault zone and higher grade gold mineralization (1-2
grams/tonne) in altered porphyry dikes within the fault zone. Lower grade
mineralization also continues into the hanging wall mudstones and cherts of the
Valmy Formation to the west.
The Company continued its exploration of the property in fiscal 1997 by
drilling one deep, angled core hole beneath the best drill intercepted gold, to
test for continuation of that mineralization at depth in the Grouse Creek Fault
and in the footwall carbonate rocks, predicted to be Cambrian Harmony Formation.
The drill hole intercepted a thick, pyritic jasperoid in upper Hamburg dolomites
just below the Eureka Quartzite and intercepted altered, brecciated, pyritic
porphyry and Valmy mudstones in the fault zone at 1200' with gold values
averaging 0.79 grams/tonne over sixty feet. The hole was lost at 1500' in
altered porphyry and mudstone with anomalous gold values. Two angled core holes
were drilled at the northwest corner of the known gold mineralization to
intercept the strike extent of the fault zone where previous vertical drilling
had failed to do so. Both core holes intercepted the fault zone and encountered
brecciated, silicified and pyritic porphyry and brecciated mudstone in the
fault. Gold values reached a high of 1.6 grams per tonne in brecciated mudstone
along the edge of the fault. Results of the most recent drilling are being
evaluated. The Company is currently seeking a joint venture partner for the Coal
Canyon project.
Red Canyon, Eureka County, Nevada
Red Canyon is located approximately 35 miles northwest of Eureka in the
northwest corner of the Roberts Mountains, and about four miles southeast of the
Tonkin Springs gold mine. Access to the property is by way of paved highway from
Eureka and graded county road to the northern edge of the claim group at Tonkin
Springs.
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The property is currently the subject of a joint venture agreement between
the Company (20%) and Battle Mountain Gold Company (80%) ("BMG"). Hemlo Gold,
the previous operator of the joint venture, merged with BMG in 1996. The joint
venture is subject to the back-in right by Serem Gatro, as amended by the
November 30, 1995 subordination and back-in agreement between GBEM, Serem Gatro
and BMG which, if exercised, would leave the Company with a 9% working interest.
The joint venture leases approximately 4,750 acres of unpatented federal
lode claims from Edward L. Deveyns and David Ernst under a mining exploration
and lease agreement, dated July 10, 1992. Federal claim, lease and rental
payments of $23,700 for 1996-97 were paid by BMG. Federal claim, lease and
rental payments for 1997-98 totaling $23,700 are due on or before August 31,
1997. An advanced royalty payment of $50,000 was made by the Company's joint
venture partner on July 10, 1996.
Red Canyon has been explored by several mining companies since the claims
were originally staked in 1985. Gold mineralization was identified by rock and
soil sampling and verified by shallow, first pass, rotary drilling.
Since the property was acquired by GBEM in October 1991, geological,
geochemical and geophysical surveys have been used to target rotary and core
drill holes toward potential gold mineralization. Economic grades and widths of
gold mineralization were intersected by several GBEM drill holes and extensions
of that mineralization have been projected into untested areas.
During fiscal 1997, BMG completed compilation of previous work, conducted a
ground magnetometer survey and geologic mapping and sampling leading to the
drilling of 19 reverse circulation holes. Economic grades of gold mineralization
were intercepted in four of the holes. Encouraging results from additional
surface sampling and magnetic geophysical surveys were integrated into the
database.
As a result of the positive results of fiscal 1997, BMG has informed the
Company that it is planning to redouble their efforts this year. The planned
program calls for an additional 15 to 20 drill holes to test new target areas
and fill-in detailed magnetic geophysical surveys will be completed in areas of
significant gold mineralization.
During the term of the November 30, 1995, Mining Venture Agreement between
BMG and GBEM, the Mining Venture Agreement governs all rights and obligations of
Great Basin and Serem Gatro respecting the Red Canyon Property. In the event of
the failure to complete a feasibility study, or the incurring of $6 million in
venture expenses, then the Serem Gatro Agreement would be controlling under its
original terms. In the event that BMG completes its initial contribution and is
vested with an 80% participating interest with GBEM retaining the remaining 20%,
then the Serem Gatro Agreement becomes forever null and void and the
subordination and venture agreements would permanently control. At that point,
Serem Gatro can acquire up to 40% participating interest in the mining venture.
The first 11% of that interest must be conveyed by GBEM subject to other terms
and provisions which would govern if GBEM owns less than 11% and BMG would be
required to convey the other 29% or such lesser or greater interest as would be
necessary to meet the Serem Gatro exercise of its purchase right. The
subordination agreement to the Mining Venture Agreement contains a formula which
determines the purchase price for the interest purchased by Serem Gatro. Once
GBEM's participating interest falls below 5% but is greater than 0% then its
participating interest would be automatically converted to a 5% net proceeds
interest and GBM would be deemed to have withdrawn from the mining venture as a
participant.
Tempo, Lander County, Nevada
The Tempo Prospect is located approximately 17 miles northwest of the town
of Austin, Nevada, and the property is accessible by dirt road.
The Company's interest in the Tempo Property is pursuant to a mineral lease
agreement between the Lyle F. Campbell Trust and GBEM dated October 14, 1994.
The Company leases unpatented mining claims and has located other unpatented
mining claims totaling 7,670 acres. The Company is required to pay an advanced
minimum royalty of $40,000 in 1996, $80,000 in 1997, and $120,000 per annum
thereafter. A work commitment of $100,000 is required in 1996 and $200,000 per
annum thereafter. These advanced minimum royalty payments and work commitments
are presently the responsibility of the Company's joint venture partner and the
royalty payments can be taken in kind if production is achieved.
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Past activity on the property began with exploitation of a near surface
auriferous quartz vein at the Malloy mine. Available information on the Malloy
mine indicates past production was more than $5,000 but less than $100,000 total
gold value. Modern exploration activities by several companies from 1968 to 1988
focused on the north area of the property where widespread surface gold values
can be obtained in soils and rocks. Several unsuccessful drilling campaigns
followed that identified significant but sub-economic quantities of gold.
From 1986 to the present, exploration activities shifted to the southern
and central portions of the property where soil geochemical sampling identified
widespread gold anomalies. Follow-up drilling of these anomalies indicated
significant ore-grade gold mineralization. Field work by company geologists in
1995-96 involving over 5,200 feet of trench sampling and mapping has confirmed
the drill-identified gold mineralization intercepts and identified a previously
unknown area of gold mineralization.
The Tempo Lease has been committed to the Joint Venture Agreement between
GBEM and Digger Resources, Inc. ("Digger"), which became effective on or about
July 25, 1996 ("Tempo Venture"). The Tempo Venture vests Digger Resources Inc.
with an 80% participating interest and GBEM with a 20% participating interest in
the Tempo Property. Digger Resources Inc. is obligated to expend $1.5 million on
the Tempo Venture before December 31, 2000 or complete a feasibility study by
that date. Failure to perform either of these obligations would be deemed to be
a withdrawal by Digger Resources Inc. from the Tempo Venture.
Under the terms of the joint venture agreement, Digger acquired 80% of the
Company's interest in the Tempo property. Digger has also become operator of the
property. Should Serem Gatro exercise its option to acquire the maximum 40%
participation interest in the property, Digger would retain a 60% interest and
the Company would retain a 7.5% Net Proceeds Royalty. Under the terms of the
joint venture agreement, Digger has agreed to assume responsibility for advanced
minimum royalty payments and work commitments.
If a feasibility study is performed for the Tempo Venture, Serem Gatro has
a 90 day option to exercise its rights under the Serem Gatro Agreement. Serem
Gatro could elect to acquire up to a 40% participating interest and cause a
joint venture corporation to be formed to hold the Tempo Property. If Serem
Gatro elects to participate and acquire an interest in the Tempo Property, then
the Tempo Venture would terminate and the property would be held by the joint
venture corporation. Upon exercise of its option by Serem Gatro, GBEM would have
no further participating interest in the Tempo Property, but it would be
entitled to receive a 7.5% net proceeds royalty burdening Digger Resources
Inc.'s interest in the Tempo Property. At that time, Digger Resources Inc. would
be substituted as a party to the participation agreement in the place of GBEM,
Digger Resources Inc.'s interest in the joint venture corporation would be the
difference between 100% and the interest elected by Serem Gatro.
A program of exploration for the balance of fiscal 1997 is still in the
planning stage with Digger.
Work done at Tempo during fiscal 1997 included extensive compilation of all
available drill, rock, soil geochemical and geological data into a usable
format. Geologic mapping was completed over the most favorable ground. A soil
sampling program consisting of over 1,500 samples was completed in the late fall
with results pending.
As a result of the work done in fiscal 1997, several areas have been
identified as having excellent potential to host economic grades of bulk-minable
gold mineralization. A program is being designed combining new drilling,
trenching and mapping for the fiscal 1998 field season.
Amador, Lander County, Nevada
The prospect is located approximately six miles north of Austin, Nevada.
The property is accessible by dirt road maintained by the federal government.
High-voltage electrical power lines are located about three miles south of the
prospect.
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The Company controls 48 unpatented mining claims totaling 992 acres.
Federal claim holding payments of $100.00 per claim per annum are due on or
before August 31, 1997. The prospect is subject to a ten percent back-in right
by Serem Gatro pursuant to the Serem Gatro Agreement.
Portions of the property were staked by other mining companies during the
past ten to fifteen years. Surficial evidence indicates that a few widely spaced
drilling campaigns were undertaken on parts of the prospect with unknown
results. The previous operators have reclaimed their land disturbances and
abandoned their claim holdings.
The prospect contains outcrops of an altered intrusive porphyry rock with
quartz veins which assays of 0.7 gold grams per tonne over a sampling width of
25 meters.
There are numerous shallow prospect pits (less than 3' deep) throughout the
prospect area related to exploration in the Austin (Reese River) District from
1870 through 1930. Cumulative production figures available for the Amador and
Yankee Blade areas, immediately to the west and south of the prospect
respectively, indicate greater than $200,000 of ore was produced. Historically
the Austin District has yielded more than 20 million ounces of silver and
appreciable amounts of lead, copper, zinc and gold as co-products.
A program of geological mapping and geochemical sampling for fiscal 1998 is
still in the planning stage, subject to available funding.
Water Canyon, Lander County, Nevada
Water Canyon is located approximately 38 miles west of Eureka, Nevada in
the Simpson Park Range. The property is accessible via US Highway 50 from
Eureka, then northward on gravel roads maintained by the county. The final
access is by unimproved dirt tracks up the local drainages.
The Company controls 60 unpatented mining claims staked by the Company in
1996. Annual Federal rental fees of $100 per claim are due on or before August
31, 1997. The prospect is subject to a ten percent (10%) back-in right by Serem
Gatro pursuant to the Serem Gatro Agreement. There are no other underlying
leases or agreements associated with these claims.
Geologically, the claim group encompasses a large area of Ordovician Vinini
cherts, mudstones and minor limestones that have been altered and mineralized by
hydrothermal solutions along major north-south and east-west fault and fracture
zones. On the western edge of the claim block, the Vinini is obscured by early
Tertiary volcanic flows. A 0.5 square mile Tertiary dacite or rhyolite intrusive
occupies the eastern edge of the property. Numerous gold bearing breccia dikes
and porphyry dikes occupy fault and fracture zones within the pervasively
altered Vinini rocks.
The area encompassed by the Water Canyon claims has been staked and
explored by other mining companies or individuals in the past 15 years. Evidence
from reclaimed drill holes suggests that wide spaced, vertical reverse
circulation drilling was used to test outcropping mineralization, but with
unknown results.
A program of detailed geological mapping and soil and rock geochemical
sampling will be needed to evaluate the prospect area and develop drill targets.
A joint venture partner is being sought for this project.
Sacramento Mountains, San Bernardino County, California
The prospect is located 15 miles west of Needles, California. Access to the
prospect is by way of Interstate highway or other paved roads then via gravel
roads. Electrical power lines cross the prospect area. A railroad line is
located 8 miles east of the property. Needles is a regional railroad junction.
The property was brought to the attention of the Company by a prospector
(lessor) as a result of his labor in the area over several years. The company
staked 438 unpatented lode mining claims during November 1996, in three separate
blocks, totaling 9049 acres. The Company controls 445 unpatented lode mining
claims totaling 9193 acres overall. Federal claim holding fees of $100.00 per
claim are due by August 31, 1997.
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On October 8, 1996, the Company entered into a Letter of Agreement with the
prospector and paid the sum of $10,000 and 100,000 shares of common stock giving
the Company exclusive rights to lease and explore his property from October 8,
1996 until October 8, 1998. The prospect area as defined in the Letter of
Agreement encompasses six Townships covering the Sacramento Mountains; over 200
square miles (+128,000 acres). The Company is obligated to drill one hole to
bedrock or 1,000 feet, whichever comes first, in an area where previous mining
companies discovered significant gold mineralization.
Pre-1960's exploration on the prospect centered on underground mining of
gold-copper quartz veins and fault controlled replacement gold mineralization.
Since the 1960's the Sacramento Mountains area has been the site of numerous
exploration ventures, mostly concerned with exploration for large tonnages of
bulk-minable disseminated gold mineralization. Exploration efforts in the 1980's
identified several areas of highly anomalous gold concentrations within
favorable host lithologies. Many types of geologic ideas were proposed and drill
tested with sub-economic drill intercepts of gold mineralization encountered.
In December 1996, the Company completed a stream drainage geochemical
survey encompassing the majority of the Sacramento Mountains. Anomalous gold
values were detected from previously known gold-bearing source rocks and also
from several new localities within the prospect area.
A program of exploration by the Company for fiscal 1998 is planned to
follow-up the anomalous gold concentrations detected during the stream drainage
geochemical survey. A joint venture partner is being sought for the Sacramento
project.
Castle, Esmeralda County, Nevada
The Castle property is located approximately 22 miles west of Tonopah,
Nevada along the southern edge of the Monte Cristo Range. Access is by US
Highways 6 & 95, which passes just north of the property.
The Company acquired the property, consisting of 20 unpatented lode mining
claims, from Kennecott Exploration by way of a Mining Purchase Agreement dated
September 30, 1996. Subsequently, the Company staked an additional 30 unpatented
mining claims around the perimeter of the original property. There are no other
underlying agreements to burden the property.
Geologically, gold mineralization is hosted by Tertiary volcanic rocks that
lie unconformably over Ordovician Palmetto Formation. The gold is contained in
quartz veins and silicification associated with northeast trending range front
faults. The property was originally identified by a regional geophysical program
enacted by Kennecott, with subsequent discovery of gold mineralization by a
reverse circulation drilling program. Kennecott eventually drilled over 60
reverse circulation exploratory holes to define a geological resource that
ranges from 1.47 million tons averaging 0.049 ounces of gold per ton to 3.60
million tons averaging 0.046 ounces of gold per ton, using a 0.02 ounce per ton
cut off grade and a variable search radius for the calculations. The property is
about 1 mile south of the Boss mine, which produced about 630,000 tons of ore at
an average grade of 0.058 ounces per ton gold in the 1980's but is now idle.
Definition drilling is required to determine a more accurate estimate of
the actual resource, and to determine whether or not the property contains a
minable resource. Additional exploration drilling is required to test favorable
exploration trends and to further test existing mineralized drill holes that
were outside of the geological resource. The Company is currently seeking a
joint venture partner for the Castle property.
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MEXICAN PROPERTY
Minera Montoro Properties, Baja California, Mexico
During 1989, Fischer-Watt acquired a 49% interest in Minera Montoro S.A. de
C. V. ("Montoro"), a corporation duly incorporated in and authorized to conduct
business in Mexico. During the fiscal year ended January 31, 1996, that was
increased to 50%. Effective July 1996, the Company's interest was increased to
65%. Montoro holds a claim on two mineral interests in Mexico. In March 1994,
the Company, through Minera Montoro, formalized an agreement with Gatro South
America Holdings Limited ("Gatro")that was initiated in April 1993 to conduct a
generative exploration program in Baja California. Four properties were acquired
under the generative exploration program (El Arenoso, Alborada, Julio Cesar and
Sierra de Cobre). Under the terms of the agreement, Montoro would have received
a 2.5% net smelter return plus a $5,000,000 payment, per property, upon
commencement of commercial production. Except for El Arenoso, the other
properties have been dropped by Gatro.
The Company, through Montoro, conducted a geophysical exploration program
on its Cerrito property in December 1993. The results were encouraging and
Montoro executed an exploration and purchase option agreement with Minera
Cuicuilco S. A. de C. V., in October 1994. Minera Cuicuilco, a subsidiary of
Cyprus Amax Minerals Company, was the operator of the property. Under the terms
of the agreement, Montoro would receive a 3.0% net smelter return subject to a
$5,000,000 buy out. The original agreement called for accelerating annual work
commitments and annual payments to Montoro but preliminary drilling results were
disappointing and the agreement was amended to eliminate the work commitments
and annual payments. Cuicuilco has recently canceled its contract on this
property.
Montoro is currently undertaking a continuous review of meritorious Mexican
mineral properties and hopes to acquire worthy properties in the near future;
however, there can be no assurance that any properties will be acquired.
OTHER PROPERTIES
America Mine, San Bernardino County, California
The America Mine property is located near Ambo, California. The property
was assigned to BMR Gold Corporation ("BMR") of Vancouver in September 1989. In
October 1990, Palms Mining Company, a subsidiary of Nero, Inc., acquired part of
BMR's interest and became the operator of the property. Nero subsequently sold
its mineral properties and eventually the America Mine property was returned to
BMR.
The Company has a 50% net proceeds royalty interest in leased patented and
unpatented mining claims totaling approximately 1230 acres. BMR having the
option to purchase one-half of Fischer-Watt's interest for $500,000. The main
lease is continuous and requires $4,000 per month advance royalty payments, an
annual $100,000 work commitment and the payment of annual filing fees with
respect to unpatented claims, all of which are to be paid by BMR. The Company
has been advised that the filing fees to maintain the unpatented claims have
been paid for the current year.
Although the leased claims on the America Mine were located in 1903, only
small production was realized until 1979-1984, when approximately 343,000 tonnes
of ore grading 0.059 ounces per tonne gold were mined and heap leached.
Additional exploration by the claim owners identified additional resource
potential. Field work by the Company and others has identified additional areas
of potential mineralization similar to those that overlay the past productive
ore zone.
Since February 1988, various joint venture partners have drilled 308 holes
totaling over 117,000 feet. Palms Mining Company had been permitted by an
approved Plan of Operations and Reclamation Plan. Permitting for mining had been
initiated including air quality monitoring and other baseline studies. BMR, as
operator, has indicated that it is searching for a joint venture partner to
place the property into production. Reclamation costs are the responsibility of
BMR.
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Modoc, Imperial County, California
The Modoc is located at the southeast end of the Santa Rosa Mountains. The
Company had a joint venture agreement with Southwest Exploration, Inc., on a
portion of the property which provides for a 2.5% net smelter returns royalty
plus 15% of net profits, payable after capital investment has been repaid. In
June 1996, The Company received notice that the joint venture has been completed
and no payments were due the Company since the venture did not repay the capital
investment. All of the leases were assigned to Kennecott Exploration Company in
July 1994, subject to the Southwest Exploration venture. The assignment
agreement reserves a 2.5% net smelter return royalty to Fischer-Watt.
Tuscarora, Elko County, Nevada
Tuscarora is located within the Tuscarora Mining District 38 miles north of
Elko, Nevada.
Description of Title: This property consists of a 15% interest in the
Tuscarora Gold Mines Joint Venture ("TGM Venture"). The other venturer, Horizon
Resources Corp. ("Horizon"), is the operator. The Company is not committed to,
and does not intend to, provide any further financial support for the TGM
Venture.
The TGM venture is now inactive. The Company's interest in the TGM Venture
has been reserved due to the inactivity of the venture and unlikely prospect of
recovering its investment. Most of the reclamation is complete: the plant has
been dismantled and removed and the heap has been reclaimed. The pad and ponds
are scheduled to be reclaimed. While reclamation responsibilities were incurred
by and are the responsibility of the TGM Venture, the financial burden for these
costs is with Horizon since the Company has not guaranteed any obligations of
the TGM Venture nor is it otherwise committed to provide any further financial
support for the TGM Venture.
Oatman, Mohave County, Arizona
The Oatman holdings are situated in the Oatman Mining District in Mohave
County, Arizona. The claims are readily accessible by paved road. A source of
power is adjacent to the property.
The Company owns one patented mining claim and is the mineral claimant on
two unpatented lode mining claims totaling 42 acres. The property was leased to
Sun River Gold from January 1987 through March 1993 when the Company canceled
the lease due to non-payment of the annual advance royalty payments. Annual
filing fees of $200 are required to maintain the unpatented mining claims. The
property will require underground mining. The Company leased the property to La
Cuesta International ("La Cuesta"), a company formed by two ex-Fischer-Watt
geologists. The lease calls for La Cuesta to pay all holding costs associated
with the property. The Company retains a 3.0% net smelter royalty return subject
to a $500,000 maximum.
FINANCIAL COMMITMENTS
The Company's property interests require minimum payments to be made, or
work commitments to be satisfied, to maintain ownership of the property.
However, all of these payments may be avoided by timely forfeiture of the
related property interest. If the joint venture partner, or the Company, fails
to meet these commitments, the Company could lose its rights to explore, develop
or mine the property. The table below lists the various properties and the
required financial commitments.
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PROPERTY COMMITMENTS
For the year ending January 31, 1998
All of the Oronorte property group is held by licenses and mining permits.
No annual payments are required and work commitments are minimal, but they are
subject to a four percent production royalty tax to the government.
Lease Work J.V. Net
Property Payments Commitments Total Share FWG Cost
- -------- -------- ----------- ----- ----- --------
Amador ............. $ 5,000 $ -- $ 5,000 $ -- $ 5,000
America ............ 48,000 100,000 148,000 148,000 --
Castle ............. 5,400 -- 5,400 -- 5,400
Coal Canyon ........ 29,400 200,000 229,400 -- 229,400
Kobeh .............. 17,700 -- 17,700 -- 17,700
Modoc .............. 20,000 -- 20,000 -- --
Oatman ............. 200 -- 200 -- --
Red Canyon ......... 74,500 -- 74,500 -- --
Sacramento ......... 46,400 15,000 61,400 -- 61,400
Tempo .............. 118,500 200,000 318,500 318,500 --
Tuscarora .......... -- 2,000 2,000 2,000 --
Water Canyon ....... 6,200 -- 6,200 -- 6,200
Other .............. 3,000 -- 3,000 -- 3,000
-------- -------- -------- -------- --------
Total .............. $374,300 $571,000 $891,300 $563,200 $328,100
======== ======== ======== ======== ========
Item 3. LEGAL PROCEEDINGS
On October 18, 1996, Fischer-Watt Gold Company, Inc. commenced a legal
proceeding against Greenstone Resources Canada Ltd. and Greenstone Resources
Ltd. in Ontario Court (General Division) seeking payment of the sum of
$1,508,544 (U.S.) pursuant to Article 8.4 of an Agreement dated October 20, 1995
between the plaintiff and the defendants. Pursuant to Article 8.4 of the
Agreement dated October 20, 1995, liabilities of GRC and its subsidiaries,
including contingent liabilities, that exceeded $1,000,000 (U.S.) shall be
reimbursed by the defendants. The payment sought includes liquidated liabilities
in the amount of $308,544 (U.S.), and contingent unliquidated liabilities in the
amount of $1,200,000 (U.S.).
Oronorte is currently the defendant in several claims relating to labor
Contracts and employee terminations which occurred during a labor strike. This
strike and the resulting terminations took place during the former ownership of
Oronorte. The estimated amount of the claims against Oronorte totals
approximately $200,000. The Company is currently seeking to recover the
estimated amount of the claims from Greenstone in the legal proceeding described
above.
Item 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
No matters were submitted to a vote of security holders, through the
solicitation of proxies or otherwise, during the quarter ended January 31, 1997.
PART II
Item 5. MARKET FOR COMMON EQUITY AND RELATED STOCKHOLDER MATTERS
Market Information
The Company's common stock trades on the OTC Bulletin Board. The high and
low bid quotations were obtained from the National Association of Securities
Dealers, Inc. Trading and Market Services report. The quotations below reflect
inter-dealer prices without retail markup, markdown or commissions and may not
necessarily represent actual trades.
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HIGH BID LOW BID
Year Ended January 31, 1996 -------- -------
First Quarter $ .10 $ .03
Second Quarter .31 .03
Third Quarter .44 .13
Fourth Quarter .34 .09
Year Ended January 31, 1997
First Quarter $ .66 $ .28
Second Quarter .88 .41
Third Quarter .70 .38
Fourth Quarter .66 .38
Holders
As of May 1, 1997, the Company had 658 shareholders of record of its common
stock.
Cash Dividends
Since inception, the Company has not declared nor paid any cash dividends,
and does not anticipate paying cash dividends in the foreseeable future.
Changes in Securities
In February 1996, two consultants were each granted options to purchase
200,000 shares of common stock at $.37 per share (fair market value at the time
of grant) in consideration for promotional services rendered. These options
became exercisable on February 20, 1997 and expire five years after they become
exercisable. The securities were issued pursuant to the exemption from
registration provided by Section 4(2) of the Securities Act in a private
transaction to a sophisticated purchaser and are restricted from transfer unless
such transfer is registered under the Securities Act or made pursuant to an
exemption therefrom.
In February 1996, the Company issued a warrant to purchase 100,000 shares
of common stock in consideration for promotional services rendered. The warrant
is exercisable at $.31 per share at any time prior to January 10, 2001. The
securities were issued pursuant to the exemption from registration provided by
Section 4(2) of the Securities Act in a private transaction to a sophisticated
purchaser and are restricted from transfer unless such transfer is registered
under the Securities Act or made pursuant to an exemption therefrom.
In March 1996, the Company issued 50,000 shares of common stock and four
warrants to purchase 100,000 shares of common stock in consideration for banking
and promotional services rendered. The common stock issued had an estimated fair
market value of $17,762. The warrants are exercisable at $.28 per share at any
time prior to January 10, 2000. The securities were issued pursuant to the
exemption from registration provided by Section 4(2) of the Securities Act in a
private transaction to a sophisticated purchaser and are restricted from
transfer unless such transfer is registered under the Securities Act or made
pursuant to an exemption therefrom.
In June 1996, the Company issued 9,600 shares of common stock in
consideration for professional services rendered. The shares had an estimated
fair market value of $3,000. The securities were issued pursuant to the
exemption from registration provided by Section 4(2) of the Securities Act in a
private transaction to a sophisticated purchaser and are restricted from
transfer unless such transfer is registered under the Securities Act or made
pursuant to an exemption therefrom.
On November 1, 1996, a former employee was granted an option to purchase
50,000 shares of common stock at $.56 per share (fair market value at the time
of grant) as partial consideration for a severance agreement. The option becomes
exercisable on November 1, 1997 and expires on November 1, 2002. The securities
were issued pursuant to the exemption from registration provided by Section 4(2)
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<PAGE>
of the Securities Act in a private transaction to a sophisticated purchaser and
are restricted from transfer unless such transfer is registered under the
Securities Act or made pursuant to an exemption therefrom.
Item 6. MANAGEMENT'S DISCUSSION AND ANALYSIS OR PLAN OF OPERATION
Statements which are not historical facts contained in this report are
forward looking statements that involve risks and uncertainties that could cause
actual results to differ from projected results. Such forward-looking statements
include statements regarding expected commencement dates of mining or mineral
production operations, potential disposition of or joint ventures with respect
to mineral properties, projected quantities of future mining or mineral
production, and anticipated production rates, costs and expenditures, as well as
projected demand or supply for the products that FWG and/or FWG Subsidiaries
produce, which will affect both sales levels and prices realized by such
parties. Factors that could cause actual results to differ materially include,
among others, risks and uncertainties relating to general domestic and
international economic and political risks associated with foreign operations,
unanticipated ground and water conditions, unanticipated grade and geological
problems, metallurgical and other processing problems, availability of materials
and equipment, the timing of receipt of necessary governmental permits, the
occurrence of unusual weather or operating conditions, force majeure events,
lower than expected ore grades and higher than expected stripping ratios, the
failure of equipment or processes to operate in accordance with specifications
and expectations, labor relations, accidents, delays in anticipated start-up
dates, environmental costs and risks, the results of financing efforts and
financial market conditions, results of mineral properties disposition and joint
venture efforts, and other factors described herein and in FWG's quarterly
reports on Form 10-QSB. Many of such factors are beyond the Company's ability to
control or predict. Actual results may differ materially from those projected.
Readers are cautioned not to put undue reliance on forward-looking statements.
The Company disclaims any intent or obligation to update publicly these
forward-looking statements, whether as a result of new information, future
events or otherwise, except as required by applicable laws.
Liquidity and Capital Resources
Summary
Fischer-Watt incurred a net loss of $3,378,000 in fiscal 1997, has an
accumulated deficit of $8,058,000, has a net working capital deficiency of
$1,038,000 and continues to experience negative cash flows from operations. The
Company did report net income in fiscal 1996, however this was principally the
result of realized gains on the sale or exchange of non-producing mineral
properties. These conditions raise substantial doubt about the Company's ability
to continue as a going concern.
Management believes that as the El Limon Mine gold property held by
Oronorte is further developed and production levels increase, sufficient cash
flows will exist to fund the Company's mining operations and exploration and
development efforts in other areas. Management anticipates achieving levels of
production sufficient to fund the Company's operating needs by the end of fiscal
1998, and until then will fund operations with cash raised from future equity or
debt financings, the anticipated exercise of common stock warrants expiring in
August 1997 (see Note 9 to Financial Statements), and disposition of or joint
ventures with respect to mineral properties. Expenditures for exploration
projects may also be reduced, if necessary.
The ability of the Company to achieve its operating goals and thus positive
cash flows from operations is dependent upon the future market price of gold,
future capital raising efforts, and the ability to achieve future operating
efficiencies anticipated with increased production levels. Management's plans
will require additional financing, reduced exploration activity, or disposition
of or joint ventures with respect to mineral properties. While the Company has
been successful in these capital raising endeavors in the past, there can be no
assurance that its future efforts, and anticipated operating improvements will
be successful. The Company does not currently have adequate capital to continue
its contemplated business plan beyond the early part of the third quarter of
fiscal 1998. The Company is presently investigating all of the alternatives
identified above to meet its short-term liquidity needs. The Company believes
that it can arrange a transaction or transactions to meet its short-term
liquidity needs, however there can be no assurance that any such transactions
will be concluded or that if concluded they will be on terms favorable to the
Company.
27
<PAGE>
Short-Term Liquidity
As of May 1, 1997, the Company had $955,000 in cash and accounts payable of
$1,964,00.
On January 31, 1997, the Company's current ratio was .69:1 based on current
assets of $2,325,000 and current liabilities of $3,363,000. On January 31, 1996,
Fischer-Watt's current ratio was .51:1 based on current assets of $1,392,000 and
current liabilities of $2,714,000. The slight improvement in the current ratio
at January 31, 1997 resulted from an increase in cash and cash equivalents
associated with the March 1996 foreign stock offering, an increase in the
inventory balances and a decrease in the income taxes payable, all of which were
partially offset by a decrease in accounts receivable, and increases in the line
of credit and accounts payable associated with the operating mine.
A current ratio of less than 1:1 indicates that the Company does not have
sufficient cash and other current assets to pay its bills and other liabilities
incurred at the end of its fiscal year and due and payable within the next
fiscal year.
Fischer-Watt incurred a net loss of $3,378,000 in fiscal 1997, has an
accumulated deficit of $8,058,000, has a net working capital deficiency of
$1,038,000 and continues to experience negative cash flows from operations. The
Company did report net income in fiscal 1996, however this was principally the
result of realized gains on the sale or exchange of non-producing mineral
properties. These conditions raise substantial doubt about the Company's ability
to continue as a going concern.
Management believes that as the El Limon Mine gold property held by
Oronorte is further developed and production levels increase, sufficient cash
flows will exist to fund the Company's mining operations and exploration and
development efforts in other areas. Management anticipates achieving levels of
production sufficient to fund the Company's operating needs by the end of fiscal
1998, and until then will fund operations with cash raised from future equity or
debt financings, the anticipated exercise of common stock warrants expiring in
August 1997 (see Note 9 to Financial Statements), and disposition of or joint
ventures with respect to mineral properties. Expenditures for exploration
projects may also be reduced, if necessary.
The ability of the Company to achieve its operating goals and thus positive
cash flows from operations is dependent upon the future market price of gold,
future capital raising efforts, and the ability to achieve future operating
efficiencies anticipated with increased production levels. Management's plans
will require additional financing, reduced exploration activity, or disposition
of or joint ventures with respect to mineral properties. While the Company has
been successful in these capital raising endeavors in the past, there can be no
assurance that its future efforts, and anticipated operating improvements will
be successful. The Company does not currently have adequate capital to continue
its contemplated business plan beyond the early part of the third quarter of
fiscal 1998. The Company is presently investigating all of the alternatives
identified above to meet its short-term liquidity needs. The Company believes
that it can arrange a transaction or transactions to meet its short-term
liquidity needs, however there can be no assurance that any such transactions
will be concluded or that if concluded they will be on terms favorable to the
Company.
Subsequent to year end, from March 11, 1997 through April 16, 1997, the
Company conducted a private placement in the United States. The estimated net
proceeds from this offering of $442,000 are to finance the Company's working
capital requirements and needs related to further development, expansion, and
exploration of mining properties. This offering consisted of the sale of 459,000
units at $1.06 per unit. Each unit was composed of two shares of Fischer-Watt
common stock and one share purchase warrant. Each of these warrants entitles the
holder to purchase one additional share of Fischer-Watt common stock at an
exercise price of $.75 through February 28, 1999. These securities were not
registered under the Securities Act of 1933 and may not be offered or sold in
the United States absent registration or an applicable exemption from
registration requirements.
For information about the Company's current properties see Item 2
"Description of Property" above and Note 5 to Financial Statements.
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<PAGE>
During fiscal 1998, Fischer-Watt plans to spend up to $325,000 in capital
improvements at Oronorte and fund regional exploration activities in Nevada and
in Colombia.
Fischer-Watt's minimum annual lease and assessment work commitments (the
expenditure necessary to maintain its mineral leases and claims) is $891,000 for
fiscal 1998. The joint venture partners' scheduled share of this annual work
commitment is $563,000. This leaves $328,000 of commitments on properties not
presently in joint ventures, most of which is attributable to the Coal Canyon
property, on which the Company plans to conduct an exploratory drilling program
to fulfill these commitments. These commitments can be avoided without penalty
by timely abandonment of the related mineral property. The Company intends to
maintain its interests in only those leases, claims and concessions that it
believes have continuing economic merit. If the joint venture partner, or the
Company, fails to meet these commitments, the Company could lose its rights to
explore, develop or mine the property. (See Note 13 to Financial Statements.)
Pursuant to agreements among Greenstone, Dual Resources Ltd., and the
Company, Greenstone made a payment of $300,000 to Dual to acquire 2,800,000
shares of Oronorte common stock for the benefit of the Company. The Company's
obligation to repay Greenstone this $300,000 is evidenced by a note payable
which bears interest at the rate of 10% per annum. This note became payable, in
full, on June 20, 1996 at which time the Company withheld payment while
negotiating the settlement of amounts owed to the Company by Greenstone. (See
Part I-Item 3. Legal Proceedings)
Prior to its acquisition by the Company, GBEM, borrowed funds from Serem
Gatro Canada Inc. This loan was evidenced by a note. The note payable is for
monies lent and advanced to GBEM by SGC during the period April 1, 1995, to May
31, 1995, as provided under the share purchase agreement among Serem Gatro, GBEM
and GBM made as of May 31, 1995. The note was to be repaid not later than
September 30, 1995, and bears interest at 8%. Subsequent to year end, the
Company negotiated a settlement agreement with Serem Gatro. Pending the closing
of the agreement, the principal and accrued interest will be canceled in
exchanged for 185,624 shares of common stock.
Long-Term Liquidity
It is likely that the Company will need to supplement anticipated cash from
operations with future debt or equity financings and dispositions of or joint
ventures with respect to mineral properties to fully fund its future business
plan which includes exploration projects and property development. While the
Company has been successful in capital raising endeavors in the past, there can
be no assurance that its future efforts will be successful. There can be no
assurance that the Company will be able to conclude transactions with respect to
its mineral properties or additional debt or equity financings or that such
capital raising opportunities will be available on terms acceptable to the
Company, or at all.
At January 31, 1997 the Company had long term debt of $719,000 compared to
$-0- at January 31, 1996. During fiscal 1997, the Company delivered to Kennecott
Exploration Company a promissory note in the amount of $700,000, which bears
interest at an annual interest rate equal to the prime or base rate, or legal
rate, if less. Principal and interest are due on September 30, 1998 or at the
option of the Company, by issuance of 1,000,000 (one million) shares of the
Company's stock. The Company's option to issue shares in satisfaction of this
debt is subject to a limitation that Kennecott's ownership of Fischer-Watt
cannot exceed 10% of the outstanding voting common stock.
FISCAL 1997 COMPARED TO FISCAL 1996
The Company had net loss of $3,378,000 ($(.11) per share) compared to net
income of $1,031,000 ($.07 per share) in fiscal 1996. The most significant
reason for this change is the gain on sale of mineral interests in fiscal 1996
of $1,528,000. Most of this gain was realized from the sale of Minas de Oro
($641,000) and from the sale of the Copan shares ($887,000). There is no
comparable gain realized in fiscal 1997. Additionally, costs and expenses
increased by $2,329,000 from fiscal 1996 resulting from the prior year
acquisitions of Oronorte and GBEM, increased activity level of the Company and
the current year abandonment of the Afgan mineral interest property. A reserve
for foreign tax refunds of $219,000 was recorded in fiscal 1997, for which there
29
<PAGE>
were no comparable expenses during the prior year. Foreign currency exchange
losses of $202,000 were realized in fiscal 1997 as compared to a gain of
$307,000 in fiscal 1996. A gain on sale of assets of $206,000 was realized in
fiscal 1996, as compared to a $1,000 loss in fiscal 1997. Detailed discussions
of the above noted changes follow.
REVENUES
Sales of Precious Metals
During fiscal 1997, the Company had sales of precious metals of $4,390,000
representing 12,855 ounces of gold and 12,515 ounces of silver. Production costs
totaled $4,018,000 for a gain from mining of $372,000. During August of fiscal
1996, the Company assumed operational control of the Oronorte project. From
August through fiscal year end 1996, the Company had sales of precious metals of
$1,378,000 representing 3,746 ounces of gold and 3,500 ounces of silver.
Production costs totaled $1,478,000 for a loss from mining of $100,000. During
fiscal 1997, the average sales price per ounce of gold increased to $386.62 from
$384.49 in fiscal 1996, and the average production cost per ounce of gold
decreased to $312.56 from $394.55 in fiscal 1996. The improvement in production
cost per ounce relates to the operational efficiencies gained with increased
production levels and the implementation of cost cutting measures.
Sales of Mineral Properties
During fiscal 1997, no gain on sales of mineral interest was realized as
compared to a gain of $1,528,000 during fiscal 1996. The gain realized during
fiscal 1996 was comprised of the following two transactions:
On February 28, 1995, Tombstone Explorations Co. Ltd. ("Tombstone"), a
Vancouver-based mining and exploration company entered into a letter agreement
with the Company to purchase the Company's interest in the Minas de Oro property
in Honduras. Minas de Oro was joint ventured with Kennecott Exploration Company
("Kennecott") who had an 80 percent working interest. Tombstone agreed to buy
the Kennecott interest and to acquire the Company's $500,000 promissory note to
Kennecott, as well as the Company's interest in the property. Under the terms of
the agreement, Tombstone paid Fischer-Watt $150,000 in cash and assumed the
Company's $500,000 promissory note to Kennecott plus all accrued interest. The
transaction closed on May 15, 1995. This sale resulted in a gain of $641,000 and
substantially reduced the Company's debt which had been in default since 1992.
Effective August 28, 1995 the Company purchased the Oronorte property in
Colombia through its acquisition of a 99.9% interest in Oronorte, the owner of
the El Limon Mine, from Greenstone in exchange for Fischer-Watt's interests in
Compania Minerales de Copan S.A. de C.V., a Honduran corporation. Fischer-Watt's
$115,000 debt to Greenstone for the purchase of the Copan interests was also
canceled. A gain of $887,000, including cancellation of $115,000 debt, was
recognized on the sale of the Copan shares.
COSTS AND EXPENSES
Abandoned Mineral Interests
Unproven properties are considered fully or partially impaired, and are
fully or partially abandoned, at the earliest of the time that: geologic
mapping, surface sample assays or drilling results fail to confirm the geologic
targets involved at the time the property was acquired; a decision is made not
to perform the work commitments or to make the lease payments required to retain
the property; the Company discontinues its efforts to find a joint venture
partner to fund future exploration activities and has decided not to fund those
costs itself; or, the time the property interest terminates by contract or by
operation of law.
The cost of abandoned mineral interests increased from $267,000 in fiscal
1996 to $588,000 in fiscal 1997. During the fourth quarter of fiscal 1997, the
Company terminated its lease agreement on the Afgan portion of the "Afgan-Kobeh"
property, resulting in an abandonment of $580,000. Additionally, the Company
abandoned its interest in La Victoria with a $3,000 cost basis and its interest
in San Rafael with a $5,000 cost basis.
30
<PAGE>
During fiscal 1996, Rio Tinto with a cost basis of $22,000 was abandoned
resulting from a limited explorations program conducted at the end of fiscal
1995 and the beginning of fiscal 1996 that could not confirm earlier mineral
values. The Oatman property in Arizona was partially abandoned after an
independent evaluation indicated that it was unlikely that its cost would be
fully recovered based on the current mineral lease on the property. The $125,000
write down reduced its basis to $10,000. Tuscarora was partially abandoned in
the amount of $32,000 based on the results of the same independent evaluation
leaving the remaining basis at $45,000 which was then reserved in the fourth
quarter of fiscal 1996. The America Mine property was also reserved in the net
amount of $18,000 when the lessee, under which the Company maintains its 50% net
profits interest, was declared to be in default. If the underlying landowner is
successful in proving the default and regaining control of the property, the
Company's position could be eliminated. The Company also wrote down all of its
investment in Minera Montoro based on the uncertainty of recovering its
investment, and the La Victoria property in Honduras was abandoned in the amount
of $23,000 when another party, in competition with the Company, acquired
adjacent property positions which made the Company's land position uneconomical.
Abandonments are a natural result of the Company's ongoing program of
acquisition, exploration and evaluation of mineral properties. When the Company
determines that a property lacks continuing economic value, it is abandoned. It
cannot be determined at this time when or if any of the Company's current
property interests will be abandoned.
Selling, General and Administrative
Selling, general and administrative costs increased from $322,000 in fiscal
1996 to $1,722,000 in fiscal 1997. The increase of $1,400,000 primarily relates
to an increase in mining operation costs of $848,000, coupled with an increase
in accounting and legal fees of approximately $267,000 primarily associated with
the acquisitions of Oronorte and GBM, and the increasing activity level of the
Company. Corporate relations expenses increased approximately $69,000.
Additionally, the positions of Vice President, Chief Financial Officer, and Vice
President of Operations were added during the current fiscal year.
Foreign Exchange Gain (Loss)
The Company accounts for foreign currency translation in accordance with
the provisions of Statement of Financial Accounting Standards No. 52, "Foreign
Currency Translation" ("SFAS No.52"). The assets and liabilities of the
Colombian unit are translated at the rate of exchange in effect at the balance
sheet date. Income and expenses are translated using the weighted average rates
of exchange prevailing during the period. The related translation adjustments
are reflected in the accumulated translation adjustment section of shareholders'
equity. The Company recognized a currency exchange loss of $202,000 in the year
ended January 31, 1997 and a currency exchange gain of $307,000 in the year
ended January 31, 1996.
Exploration
Exploration costs increased from $3,000 in fiscal 1996 to $611,000 in
fiscal 1997. The increase is attributed to the acquisition of GBM on January 29,
1996, which resulted in one year of exploration related costs during fiscal 1997
as compared to no costs during fiscal 1996.
Other Income and Expenses
The Company has adopted Statement of Financial Accounting Standards ("SFAS
") No. 115 under which certain investments in equity securities are classified.
During fiscal year 1996, the Company disposed of 327,300 shares of Greenstone
stock resulting in a realized gain of $206,000. No comparable gain was realized
during fiscal year 1997, and the Company does not expect to acquire any trading
securities in the future.
Interest income increased from $1,000 in fiscal 1996 to $179,000 in fiscal
1997. This increase is due primarily to interest earned on the proceeds from the
November and March stock offerings.
31
<PAGE>
Interest expense increased from $74,000 in fiscal 1996 to $177,000 in
fiscal 1997. This increase is attributable to interest bearing debts associated
with the mining operation.
During fiscal 1997, the Company recorded a $219,000 reserve for foreign tax
refunds related to the mining operation. No such comparable expense was recorded
during the previous fiscal year.
The Company's tax provision increased from $93,000 or 8.3% of fiscal 1996
net income to $202,000 or 6.3% of fiscal 1997 net loss as a result of foreign
taxes of $201,000 on the Company's Colombian mining operations and a reduction
of $92,000 in federal and state taxes incurred on the 1996 income. The Company
also has $2.6 million of deferred tax assets primarily related to net operating
losses of the Company's domestic subsidiary for which a 100% valuation allowance
has been established. This valuation allowance reflects management's assessment
that it is more likely than not that these net operating losses will not be
realized based on historical operating results and change in control losses.
Commitments and Contingencies
Foreign companies operating in Colombia, South America, may be subject to
discretionary audit by the Colombian Government in respect of their monetary
exchange declarations. Any such audit by the Colombian Government must be
initiated within two years of filing an exchange declaration. While the Company
has not received any notice of intention from the Colombian Government to
conduct such an audit and the Company has no reason to believe that the
Colombian Government will conduct such an audit in respect of Greenstone
Resources of Colombia Limited (known as "Donna Ltd."), the Company has the right
to claim indemnity from Greenstone Resources Canada Limited pursuant to the
terms of agreements made regarding the acquisition of Greenstone of Colombia,
Ltd. and the Oronorte properties. (See Part I - Item 3. Legal Proceedings)
Oronorte is currently the defendant in several claims relating to labor
contracts and employee terminations which occurred during a labor strike. This
strike and the resulting terminations took place during the former ownership of
Oronorte. The estimated amount of the claims against Oronorte totals
approximately $200,000. In the event of an unfavorable outcome from Oronorte's
perspective, the Company would have the right to claim indemnity from Greenstone
Resources Canada Ltd. pursuant to the terms of the agreements related to the
acquisition of Greenstone of Colombia, Ltd. and Oronorte. (See Part I - Item 3.
Legal Proceedings)
In connection with the purchase of GRC, Greenstone agreed to reimburse the
Company for certain liabilities, including contingent liabilities, existing at
the date of purchase in excess of $1,000,000. At the present time, the Company
has paid or identified as current payables approximately $309,000 in excess of
the $1,000,000. Management is seeking to recover these excess liabilities from
Greenstone in accordance with the terms of the purchase agreement. (See Part I -
Item 3. Legal Proceedings)
The Company's property interests require minimum payments to be made, or
work commitments to be satisfied, to maintain ownership of the property not in
production. However, all of these payments may be avoided by timely forfeiture
of the related property interest. If the joint venture partner, or the Company,
fails to meet these commitments the Company could lose its rights to explore,
develop or mine the property.
Item 7. FINANCIAL STATEMENTS
See Index to Financial Statements attached hereto as page F-1.
Item 8. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND
FINANCIAL DISCLOSURE
Previously reported.
32
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PART III
Item 9. DIRECTORS, EXECUTIVE OFFICERS, PROMOTERS AND CONTROL PERSONS; COMPLIANCE
WITH SECTION 16 (a) OF THE EXCHANGE ACT
Directors and Executive Officers
The following table sets forth certain information as to all directors and
executive officers of Fischer-Watt:
Positions Held Directorship
Name Age With the Company Held Since
---- --- ---------------- ------------
George Beattie 69 Director August 27, 1993
Chairman of Board
Chief Executive Officer
President
Gerald D. Helgeson 63 Director March 14, 1994
Secretary
Anthony P. Taylor 55 Director June 2, 1994
Peter Bojtos 48 Director April 24, 1996
Vice Chairman
Vice President
James M. Seed 56 Director June 1, 1996
Jorge E. Ordonez 57 Director June 12, 1996
Michele D. Wood 31 Chief Financial Officer
Assistant Secretary
R.M. (Mike) Robb 56 Vice President of Operations
All of the above directors have been elected to serve until the next annual
meeting of stockholders and until their successors are elected. Directors are
elected by a plurality of the votes cast at the meeting by stockholders entitled
to vote at the meeting.
There are no family relationships by blood, marriage or adoption among any
of the officers or significant employees of the Company.
GEORGE BEATTIE
George Beattie, born November 22, 1927, has an Engineer of Mines degree
from the Colorado School of Mines. He has been active in the mineral industry
since 1960, working up from front line supervisory positions to Director of
Mining for Callahan Mining Corporation and General Manager, Western Mines for
United Nuclear Corp. In 1980, Mr. Beattie formed Mineral Advisors, Inc., a
consulting firm offering expertise in the development and management of mineral
projects. He is also recognized as an expert in the application of explosives,
and has served as a consultant for Western States Energy in the Pacific
Northwest. Mr. Beattie became Chief Executive Officer and Chairman of the Board
of Fischer-Watt Gold Company, Inc., on August 27, 1993. Mr. Beattie devotes all
of his business time to the affairs of the Company.
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<PAGE>
GERALD D. HELGESON
Gerald Helgeson was born in St. Cloud, Minnesota on October 3, 1933. After
graduating from the University of Minnesota in 1955, Mr. Helgeson founded Jack
Frost, Inc., which became the largest integrated poultry complex in the Upper
Midwest. In addition, Mr. Helgeson was a member of the Young President's
Organization. Mr. Helgeson is now semi-retired and resides in Fallbrook,
California and he presently belongs to the Los Angeles YPO Graduate Group. Mr.
Helgeson has been a director of the Company since March 14, 1994. Although Mr.
Helgeson was appointed Vice President of the Company in October 1995, he is not
an executive officer of the Company.
ANTHONY P. TAYLOR
Dr. Anthony Taylor, born June 29, 1941, was educated in England where he
obtained Bsc and Ph.D. degrees at the University of Durham and Manchester,
respectively.
He began his career with Cominco International Exploration in 1964 and
worked in England, Ireland, Mexico and Australia. In 1968 he joined the
Selection Trust organization and worked on western Australia nickel deposits
before moving to South Africa where, in 1975, he was appointed Manager-East
Shield with responsibility for exploration in the eastern half of the Republic.
There he was responsible for platinum, base metal and gold exploration which
resulted in two discoveries.
Transferred to the USA, Dr. Taylor became associated with the development
of the Alligator Ridge Mine. In 1979 he was promoted to Exploration Manager and,
later, General Manager, Exploration, in the USA for Selection Trust and,
subsequently, BP Minerals International. From 1990 to 1996, he served as
President and Director of Great Basin Exploration and Mining Company, a company
he formed in June 1990 to conduct grass roots exploration in North America on
behalf of overseas investors. Dr. Taylor was appointed a Director of
Fischer-Watt Gold Company in June 1994. Following the merger of Great Basin
Exploration and Mining with the Company, Dr. Taylor served as the Company's Vice
President, Exploration, until September 16, 1996.
JORGE E. ORDONEZ
Jorge Ordonez, born October 22, 1939 in Tulsa, Oklahoma, is a certified
professional engineer in Mexico who resides in Mexico City. He received his
degree in Geological Engineering from the Universidad Nacional Autonoma de
Mexico in Mexico City in 1962 and his Masters from Stanford University in 1965.
As President of Ordonez Profesional, S.C., Jorge Ordonez is a consultant to
World Bank, international and Mexican Mining Companies, and the Mexican
government. In addition to his affiliation with the Company, Mr. Ordonez is
presently Managing Director of Altos Hornos de Mexico, S.A. de C.V., Managing
Director of Grupo Gan, Mining Division, Managing Director of Minera Carbonifera
Rio Escondido, Vice President of Minera Montoro, S.A. and a member of the Board
of Directors of Hecla Mining Company (NYSE-USA).
The Mexican National Geology Award was awarded to Mr. Ordonez in 1989,
recognizing contributions made to the mining industry as an Academician with the
Mexican Academy of Engineering and in leading roles with the Mexican Silver
Council, the Silver Institute and the North America Society of Economic
Geologists. He has been a Director of Fischer-Watt Gold Company, Inc. Since June
5, 1996.
PETER BOJTOS
Peter Bojtos, P. Eng., was born on March 26, 1949 and received a Bachelor
of Science Honours degree in Geology from Leicester University, England. He has
an extensive background in the mining industry, with over 25 years in
exploration, production and corporate management. From August 1993 until 1995,
Mr. Bojtos was President and Chief Executive Officer of Greenstone Resources
Ltd..
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<PAGE>
From 1992 to August 1993 he was President and Chief Executive Officer of
Consolidated Nevada Goldfields Corporation. Mr. Bojtos held several key
positions, including Vice-President of Corporate Development, during his twelve
years with Kerr Addison Mines, Limited, including that of President of RFC
Resources and New Kelore Mines Ltd. He is also on the board of directors of
several Canadian resource companies.
Mr. Bojtos became a Vice President and Vice Chairman of the Board of
Directors of Fischer-Watt Gold Company, Inc., in April 1996.
JAMES M. SEED
James Seed was born on April 4, 1941. He was graduated from Brown
University in 1963 and received his MBA from Stanford University in 1965. He is
Chairman, President and Owner of The Astra Ventures Incorporated and The Astra
Projects Incorporated, privately owned land development companies focusing on
creating building sites in the Minneapolis suburban communities and a community
surrounding a Robert Trent Jones, II championship golf course. He has been with
these companies since 1979.
From November 1979 to May 1989, he was the President and Owner of Buffinton
Box Company. From February 1971 to November 1979, Mr. Seed was with Fleet
Financial Group, spending his last two years there as Treasurer of the
Corporation. Mr. Seed is a Commissioner of Rhode Island Investment Commission
and a Trustee of The Galaxy Funds, an $8.4 billion family of 33 mutual funds. He
was a Trustee of the Corporation, Brown University from 1984 to 1990.
Mr. Seed became a Director of Fischer-Watt Gold Company, Inc. on June 1,
1996.
MICHELE D. WOOD
Michele Wood, born August 4, 1965, has a Bachelor of Science degree from
the University of Idaho and is a certified public accountant in the State of
Idaho. Ms. Wood has held senior accounting positions with Hecla Mining Company,
Magnuson McHugh & Co.,P.A. and KPMG Peat Marwick. She has served on a contract
basis as the Company's Chief Financial Officer effective April 15, 1996 and in
that capacity was appointed the Company's principal financial and accounting
officer on September 20, 1996.
By appointment of President George Beattie and Action of the board, Ms.
Wood discontinued her independent contract and was employed by the Company as of
November 1, 1996. As an employee, she continues serving as Chief Financial
Officer. On December 3, 1996, Mrs. Wood was additionally appointed Assistant
Secretary of the Corporation.
R.M. (MIKE) ROBB
Mike Robb is an Idaho native born in Nampa on May 16, 1940. He earned his
Bachelor of Science from the University of Idaho in 1963 and continued his
Master's studies at the Universities of Arizona and New Mexico. A registered
Professional Engineer in five states, Mr. Robb's career experience spans thirty
years and includes managerial and consultant responsibilities in each of those
states as well as the countries of Iran, Spain, Panama, and Mexico. A partial
listing of corporate affiliations includes positions with Anaconda Company,
United Nuclear Corporation, Los Alamos Technical Associates, and Boliden
International Mining. Throughout these years, following active duty in Vietnam,
Mr. Robb served the Marine Corps Reserve until 1993 as Captain to Colonel.
Mr. Robb's affiliation with the Company began with independent consulting
assignments throughout the past eleven years. On January 20, 1997 he accepted
full time employment and was appointed Vice President of Operations on February
1, 1997.
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Compliance with Exchange Act Section 16(a)
Based solely upon a review of Forms 3, 4 and 5 and amendments thereto
furnished to the Company, the Company believes that:
1. Michele D. Wood, an Officer, has not filed one report indicating her
receipt of an option to purchase shares on a timely basis.
2. R.M.(Mike) Robb, an Officer, has not filed one report indicating his
receipt of an option to purchase shares on a timely basis.
Item 10. EXECUTIVE COMPENSATION
The following table present the compensation awarded to, earned by, or paid
to Mr. George Beattie, the Chief Executive Officer, of the Company, the only
executive officer whose total annual salary and bonus exceeds $100,000.
SUMMARY COMPENSATION TABLE
<TABLE>
<CAPTION>
Annual Compensation Long Term Compensation
Name and ------------------------- ----------------------
Principal Position Fiscal Year Salary $ Securities, underlying options/SARs
------------------ ----------- -------- -----------------------------------
<S> <C> <C>
George Beattie, 1997 100,000
President, CEO 1996 93,500
1995 80,000 500,000 shares
</TABLE>
The Company's chief executive officer is also a director. Directors receive
no cash compensation for their services except directors who are not employees
receive a communications allowance of $250 each six months. Over the past three
years non-employee directors have been issued stock options as compensation for
serving as a director, the exercise price of which was based on fair market
value of the stock as of the date of grant, vest after one year's service and
expire five years after vesting. Pursuant to this program Gerald D. Helgeson has
been granted options to purchase 400,000 shares of stock, Anthony P. Taylor has
been granted options to purchase 200,000 shares of stock, Peter Bojtos has been
granted options to purchase 100,000 shares of stock and Larry J. Buchanan, who
resigned as a director in June 1996 has been granted options to purchase 200,000
shares of stock. Continuance of this program is currently being evaluated.
Aggregated Option/SAR Exercises in Last Fiscal Year and Fiscal Year-end
Option/SAR Values:
<TABLE>
<CAPTION>
Number of Securities Underlying Unexercised Value of Unexercised In-the-Money
Options/SARs at January 31, 1997 Options/SARs at January 31, 1997
Name Exercisable/Unexercisable Exercisable/Unexercisable
---- ------------------------------------------- ---------------------------------
<S> <C> <C>
George Beattie 500,000/-0- $50,000/$-0-
</TABLE>
George Beattie is currently being paid at the rate of $100,000 per year on
the basis of a two year employment contract dated September 1, 1993 which has
been renewed and extended to September 1, 1997. Under the terms of the
employment contract, George Beattie was granted options on 500,000 shares at
$.20 per share which vest at the rate of 20,000 shares per month. In addition to
a monthly salary and stock options, a bonus may be paid at the discretion of the
Board of Directors. The agreement provides for termination on 30 days notice by
either party. In the event of termination of the contract by the Company, Mr.
Beattie would be entitled benefits of $500,000 payable at a rate of $100,000 per
year for five years.
36
<PAGE>
Item 11. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT
Security ownership of management and all beneficial owners of more than 5%
of the outstanding common stock as of May 1, 1997.
<TABLE>
<CAPTION>
Name and Address of Amount and nature of % of
beneficial owner beneficial ownership Class
------------------- -------------------- -----
<S> <C> <C>
U.S. World Gold Fund/ 4,000,000 shares 12.01%
U.S. Global Resources owned directly
7900 Callaghan Road Note 1
San Antonio, TX 78229
Kennecott Exploration Company 2,048,000 shares
P.O. Box 11248 owned directly 6.34%
Salt Lake City, UT 84147
CIBC Wood Gundy 2,040,000 shares
161 Bay Street, Sixth Floor owned directly
Toronto, Ontario M5J 258 Note 2 5.94%
Anthony P. Taylor 1,741,694 shares
1500 Kestrel Court owned directly,
Reno, NV 89509 Note 3 5.36%
James M. Seed 1,184,000 shares
Director owned directly and
Astra Ventures indirectly, Note 4 3.63%
One Citizen Plaza
Providence, RI 02903
Peter Bojtos 1,150,000 shares
Officer and Director owned directly and
2582 Taft Court indirectly, Note 5 3.51%
Lakewood, CO 80215
George Beattie 501,000 shares
Officer and Director owned directly,
1410 Cherrywood Drive Note 6 1.53%
Coeur d'Alene, ID 83814
Gerald D. Helgeson 400,000 shares
Officer and Director owned indirectly,
3770 Poppy Lane Note 7 1.22%
Fallbrook, CA 92028
Jorge E. Ordonez No shares
Director owned directly 0.0%
Av. Paseo de las Palmas
Torres Palmas
Lomas de Chapultepec
Mexico 11000 D.F. Mexico
Directors and Executive 4,976,694 shares
Officers as a Group owned directly,
(eight persons) and indirectly 14.55%
</TABLE>
37
<PAGE>
Note 1 - Together U.S. World Gold Fund and U.S. Global Resources, owns
3,000,000 shares directly, and warrants to purchase 1,000,000 shares.
Note 2 - CIBC Wood Gundy owns special warrants exercisable into 1,360,000
shares and warrants to purchase 680,000 shares.
Note 3 - Anthony P. Taylor owns 1,541,694 shares and options to purchase
200,000 shares.
Note 4 - James M. Seed owns 5,700 shares, and no options or warrants
directly, but various related trusts own 844,900 shares and own warrants to
purchase 333,400 shares.
Note 5 - Peter Bojtos owns 360,000 shares, warrants to purchase 180,000
shares, and options to purchase 100,000 shares. His wife owns 340,000 shares and
warrants to purchase 170,000 shares.
Note 6 - George Beattie owns 1,000 shares and options to purchase 500,000
shares.
Note 7 - Gerald D. Helgeson's wife owns options to purchase 400,000 shares.
Item 12. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
Larry Buchanan was a director of the Company from July 15, 1994 until June
5, 1996 in addition to being involved with various projects and companies that
are related to the Company's business. Dr. Buchanan received compensation as a
consulting geologist of $11,000 plus interest on overdue bills of $1,631 in
fiscal 1996. Dr. Buchanan is a Vice President of the firm Begeyge Minera Ltda.
("BG&G"), that received compensation of $13,000 for consulting geological
services in fiscal 1996. BG&G holds a royalty interest in the Minas de Oro
property in Honduras that the Company sold its interest in May, 1995. BG&G also
holds a royalty interest in the Rio Tinto, Honduras property in which the
Company incurred costs of $15,000 in the year ended January 31, 1996. The
Company abandoned the Rio Tinto interests during the first quarter of fiscal
1995. In addition, on June 1, 1995, for his services as a Director, Dr. Buchanan
received an option to purchase 100,000 shares of common stock of the Company at
an exercise price of $.0625 per share.
Jorge E. Ordonez became a Director of the Company on June 5, 1996 replacing
Mr. Buchanan. Mr. Ordonez has numerous interests and is a director of Hecla
Mining Company, which is also in the business of mining precious metals. Mr.
Ordonez is a principal shareholder in Minera Montoro S.A. de C.V. ("Montoro"), a
Mexican corporation. The Company holds a 65% interest in Montoro. During the
past two fiscal years no significant or material transactions have occurred
between the Company and Montoro.
Peter Bojtos became an officer and director of the Company on April 24,
1996. Mr. Bojtos had been engaged on August 25, 1995 by the Company, on a
non-exclusive basis as an independent contractor to raise funds for the Company
in the form of issuance of restricted common stock and warrants to purchase
additional shares. He was compensated in cash at the rate of 10% of the amount
raised. He was paid $81,000 for those services. Mr. Bojtos purchased 180,000
units of that offering under the same terms and conditions as the other
subscribers which consisted of 360,000 shares of restricted common stock and
warrants to purchase an additional 180,000 shares at any date prior to August
31, 1997 for $.30 per share. Lynn Bojtos, wife of Peter Bojtos, purchased an
additional 170,000 shares, under these same terms and conditions. In March of
1996, he was again engaged to raise funds for the Company. The Company completed
a $5 million foreign offering outside the United States pursuant to Regulation
"S". Mr. Bojtos was granted for services to the Company an option to purchase
100,000 shares of common stock of the Company after February 20, 1997 at an
exercise price of $.37 per share.
Anthony P. Taylor, a director of the Company since June 1994, an officer of
the Company during 1996, and an officer, director and major shareholder of GBM
when the Company acquired GBM through a merger that was completed on January 29,
1996 (see Note 2). As a result of the merger, Dr. Taylor received 1,541,694
shares of restricted Fischer-Watt common stock in exchange for his shares of
GBM. Following the merger of GBM with the Company, Dr. Taylor served as the
Company's Vice President, Exploration until September 16, 1996. Dr. Taylor
38
<PAGE>
received a Company vehicle with an estimated fair market value of $23,375, less
debt assumed of $15,638 during fiscal 1997. Dr. Taylor received compensation as
a consulting geologist of $13,200 in fiscal 1997. In addition, for his services
as a Director, since 1995 Dr. Taylor has received options to purchase 200,000
shares of common stock of the Company at an exercise price of $.0625 and $.72
per share.
On June 5, 1996, James M. Seed was appointed a director of the Company.
Prior to becoming a director, Mr. Seed and several entities affiliated with Mr.
Seed purchased 333,400 shares of an offering of restricted common stock and
warrants under the same terms and conditions as the other subscribers (see Note
7 of the Financial Statements set forth in Item 7 of this report).
Michele Wood, an officer of the Company since November 1, 1996 received
compensation of $51,125 for financial consulting services in fiscal 1997. In
addition, on November 1, 1996, Ms. Wood received an option to purchase 100,000
shares of common stock at an exercise price of $.56 per share.
R.M. (Mike) Robb, P.E. was hired by the Company on January 20, 1997 and
appointed to the position of Vice President of Operations on February 1, 1997.
Mr. Robb had served the Company as an exploration and due diligence consultant
intermittently during the prior ten years. Upon acceptance of the position of
the officer of the Company, Mr. Robb was granted an option to purchase 100,000
shares of the common stock of the Company at an exercise price of $.53 per
share.
Kennecott Exploration Company, who owns 2,048,000 shares of the Company's
common stock, loaned the Company $500,000 in March 1992. Kennecott had a joint
venture with the Company on the Minas de Oro property in Honduras. In May 1995,
both Kennecott and the Company sold their interests in the Minas de Oro property
to a third party. In connection with that sale, Fischer-Watt received $150,000
and the $500,000 debt and accrued interest owed to Kennecott was canceled. A
$641,000 gain on the sale of this property was recorded on the fiscal 1996
statement of operations. During fiscal 1997, the Company delivered to Kennecott
Exploration Company a promissory note in the amount of $700,000 for the purchase
of the Castle property (See Item 2-Description of Property). The promissory note
bears interest at an annual interest rate equal to the prime or base rate, or
legal rate, if less. Principal and interest are due on September 30, 1998 or at
the option of the Company, by issuance of 1,000,000 (one million) shares of the
Company's stock.
In November 1995, together U.S. World Gold Fund and US Global Resources
Fund (related parties) acquired 2,000,000 shares of common stock and warrants to
purchase 1,000,000 shares of common stock at $.30 per share at any time prior to
August 31, 1997, pursuant to the November 1995 private offering. The securities
were sold as units and were purchased at price of $.30 per unit, the same price
paid by other purchasers in such offering.
In March 1996, CIBC Wood Gundy acquired special warrants exercisable
(without payment of any further consideration) into 1,360,000 shares of common
stock and warrants to purchase 680,000 share of common stock at $.75 per share
any time prior to February 28, 1998, pursuant to the March 1996 foreign
offering. CIBC Wood Gundy paid $1.06 per special warrant, the equivalent price
paid by other purchasers in such offering.
39
<PAGE>
Item 13. EXHIBITS AND REPORTS ON FORM 8-K
(a) Exhibits
Exhibit Item 601
No. Category Exhibit
- ------- -------- -------
1 2 Mining Property Purchase Agreement dated September 30,
1996, between Fischer-Watt Gold Company, Inc. and
Kennecott Exploration Company ("KEC") whereby FWG
purchased mining claims owned by KEC in Esmeralda
County, Nevada, and, upon closing, delivered to KEC a
Promissory Note in the amount of $700,000 and filed as
Exhibit 6.2 to Form 10-QSB filed October 18, 1996 and
incorporated herein by reference.
2 2 Letter agreement dated October 14, 1996, between Steve
Van Ert and Fischer-Watt Gold Company, Inc. known as
the Sacramento Mountains Property and filed as Exhibit
7.2 to Form 10-QSB filed November 15, 1996 and
incorporated herein by reference.
3 3 By-Laws of the Corporation. Amended and restated. Filed
as Exhibit 3.3 to Form 10-QSB filed December 16,1996
and incorporated herein by reference.
4 10 Option effective June 1, 1996, whereby Fischer-Watt
Gold Company, Inc., grants Gerald D. Helgeson an option
to purchase 100,000 shares of Fischer-Watt restricted
common stock. Filed as Exhibit 31.10 to Form 10-KSB
filed September 26, 1996 and incorporated herein by
reference.
5 10 Option effective June 1, 1996 whereby Fischer-Watt Gold
Company, Inc., grants Anthony P. Taylor an option to
purchase 100,000 shares of Fischer-Watt restricted
common stock. Filed as Exhibit 32.10 to Form 10-KSB
filed September 26, 1996 and incorporated herein by
reference.
6 10 Option effective June 1, 1996 whereby Fischer-Watt Gold
Company, Inc., grants Peter Bojtos an option to
purchase 100,000 shares of Fischer-Watt restricted
common stock. Filed as Exhibit 33.10 to Form 10-KSB
filed September 26, 1996 and incorporated herein by
reference.
7 10 Joint Venture agreement dated July 25, 1996, and
Exhibit A to agreement, between Great Basin Exploration
and Mining, Inc. and Digger Resources, Inc. regarding
Tempo mineral property, Lander County, Nevada. Filed as
Exhibit 36.10 to Form 10-KSB filed September 26, 1996
and incorporated herein by reference.
8 10 Amendment to Mineral Lease between Walter Schull and
Mireille Schull and Great Basin Exploration and Mining
Company date July 31, 1996. Regarding the Coal Canyon
property and filed as Exhibit 47.10 to Form 10-QSB
filed October 18, 1996 and incorporated herein by
reference.
9 10 Promissory note date September 30, 1996, whereby
Fischer-Watt Gold Company, Inc. promises to pay
$700,000 to Kennecott Exploration Company, Inc. and
filed as Exhibit 48.10 to Form 10-QSB filed October 18,
1996 and incorporated herein by reference.
10 10 Letter terminating Afgan-Mineral Lease agreement dated
December 27, 1996, whereby Great Basin Exploration and
Mining Company, Inc. serves formal notice to Lyle F.
Campbell of termination of lease of Afgan Mineral
Prospect, Eureka County, Nevada, per Article 15B of
said lease.
40
<PAGE>
11 10 Employment Agreement effective November 1, 1996 between
Fischer-Watt Gold Company, Inc. and Michele D. Wood
whereby Fischer-Watt agrees to employ Ms. Wood for a
five-year period as Chief Financial Officer.
12 10 Option effective November 1, 1996, whereby Fischer-Watt
Gold Company, Inc. grants Michele D. Wood an option to
purchase 100,000 shares of restricted common stock.
13 10 Option effective February 1, 1997, whereby Fischer-Watt
Gold Company, Inc. grants Michael Robb an option to
purchase 100,000 shares of restricted common stock.
14 10 Amendment dated December 27, 1996, to Exhibit A of the
Tempo Mineral Lease between Great Basin Exploration and
Mining Company, Inc. and the Lyle F. Campbell Trust to
amend said Lease by inclusion of claims located in
T20N, R42E, and T21N, R42E, M.D.B.& M., Lander County,
Nevada as located between March 16 and 22, 1996 by
GBEM.
15 10 English translation of Labor Supply Agreement entered
into January 16, 1996, between Compania Minera
Oronorte, S.A. and "Precoomizar" (Precoperativa de
Trabajo Asociado Mineros de Zaragosa) in which the work
cooperative agrees to supply personnel for mining labor
and the Company accepts the cooperative as the sole
supplier of such personnel.
16 11 Statement regarding per share earnings for the year
ended January 31, 1997.
17 21 List of subsidiaries of Fischer-Watt Gold Company, Inc.
18 27 Financial Data Schedule for the year ended January 31,
1997.
(b) Reports on Form 8-K
During the quarter ended January 31, 1997, no reports on Form 8-K were
filed by the registrant.
41
<PAGE>
SIGNATURES
In accordance with Section 13 or 15(d) of the Exchange Act the Registrant
caused this Report to be signed on its behalf by the undersigned, thereunto duly
authorized.
FISCHER-WATT GOLD COMPANY, INC.
July 18, 1997 /s/ George Beattie
-----------------------------------
George Beattie
President, Chief Executive Officer,
(Principal Executive Officer),
Chairman of the Board and Director
In accordance with the Exchange Act, this Report has been signed below by
the following persons on behalf of the Registrant and in the capacities and on
the dates indicated.
Signature and Title Date
------------------- ----
/s/ Michele D. Wood
--------------------------------
Michele D. Wood July 18, 1997
Chief Financial Officer
and Assistant Secretary
(Principal Financial and
Accounting Officer)
/s/ Peter Bojtos
--------------------------------
Peter Bojtos July 18, 1997
Director, Vice President, and
Vice Chairman of the Board
/s/ Gerald D. Helgeson
--------------------------------
Gerald D. Helgeson July 18, 1997
Director and Secretary
/s/ James M. Seed
--------------------------------
James M. Seed July 18, 1997
Director
/s/ A. P. Taylor
--------------------------------
A. P. Taylor July 18, 1997
Director
/s/ Jorge Ordonez
--------------------------------
Jorge Ordonez July 18, 1997
Director
42
<PAGE>
- --------------------------------------------------------------------------------
Fischer-Watt Gold Company, Inc.
and Subsidiaries
Contents
Report of Independent Certified Public Accountants F-2
Financial Statements:
Consolidated Balance Sheet F-3-F-4
Consolidated Statements of Operations F-5
Consolidated Statement of Shareholders' Equity F-6
Consolidated Statements of Cash Flows F-7-F-8
Summary of Accounting Policies F-9-F-11
Notes to Consolidated Financial Statements F-12-F-31
F-1
<PAGE>
Report of Independent Certified Public Accountants
Board of Directors and Shareholders
Fischer-Watt Gold Company, Inc.
We have audited the accompanying consolidated balance sheet of Fischer-Watt Gold
Company, Inc. and subsidiaries as of January 31, 1997 and the related
consolidated statements of operations, shareholders' equity, and cash flows for
the years ended January 31, 1997 and 1996. These consolidated financial
statements are the responsibility of the Company's management. Our
responsibility is to express an opinion on these consolidated financial
statements based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audits provide a reasonable basis for our opinion.
In our opinion, the consolidated financial statements referred to above present
fairly, in all material respects, the consolidated financial position of
Fischer-Watt Gold Company, Inc. and subsidiaries as of January 31, 1997, and the
consolidated results of their operations and their cash flows for the years
ended January 31, 1997 and 1996 in conformity with generally accepted accounting
principles.
The accompanying financial statements have been prepared assuming that the
Company will continue as a going concern. As discussed in Note 1 to the
financial statements, the Company incurred a $3,378,000 net loss in fiscal 1997,
has an accumulated deficit of $8,058,000 and a net working capital deficiency of
$1,038,000, and continues to experience negative cash flows from operations.
These conditions raise substantial doubt about the Company's ability to continue
as a going concern. Management's plans in regard to these matters are also
described in Note 1. The financial statements do not include any adjustments
that might result from the outcome of this uncertainty.
/s/
BDO Seidman, LLP
Spokane, Washington
May 9, 1997
F-2
<PAGE>
Fischer-Watt Gold Company, Inc.
and Subsidiaries
Consolidated Balance Sheet
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
(Note 1)
January 31, 1997
- --------------------------------------------------------------------------------
<S> <C>
Assets
Current assets:
Cash and cash equivalents ....................................... $ 484,000
Certificate of deposit (Note 6) ................................. 525,000
Accounts receivable (Note 3) .................................... 260,000
Inventories (Note 4) ............................................ 977,000
Prepaid expenses and other ...................................... 79,000
----------
Total current assets .............................................. 2,325,000
----------
Mineral interests, net (Note 5) ................................... 4,096,000
----------
Property, plant and equipment:
Land and buildings (Note 6) ..................................... 499,000
Machinery and equipment ......................................... 1,849,000
Furniture and fixtures .......................................... 143,000
----------
2,491,000
Less accumulated depreciation ................................... 323,000
----------
Property, plant and equipment, net ................................ 2,168,000
----------
Foreign tax refunds, net of $219,000 reserve ...................... 435,000
Other assets ...................................................... 52,000
----------
Total-assets ...................................................... $9,076,000
=========
F-3
<PAGE>
Fischer-Watt Gold Company, Inc.
and Subsidiaries
Consolidated Balance Sheet
<CAPTION>
(Note 1)
January 31, 1997
- --------------------------------------------------------------------------------
<S> <C>
Liabilities and Shareholders' Equity
Current liabilities:
Accounts payable and accrued expenses ........................... $ 2,384,000
Notes payable (Note 6) .......................................... 979,000
----------
Total current liabilities ......................................... 3,363,000
----------
Long-term liabilities:
Convertible note payable to shareholder (Note 6) ................. 719,000
----------
Total liabilities ................................................. 4,082,000
----------
Commitments and Contingencies (Notes 10 and 13)
Shareholders' equity: (Notes 8 and 9)
Preferred stock, non-voting, convertible,
$2.00 par value, 250,000 shares
authorized; 0 shares outstanding .............................. --
Common stock, $0.001 par value, 50,000,000
shares authorized; 31,296,760 shares
outstanding ................................................... 31,000
Additional paid-in capital ...................................... 12,044,000
Capital stock subscribed ........................................ 721,000
Foreign currency translation adjustments ........................ 256,000
Accumulated deficit ............................................. (8,058,000)
----------
Total shareholders' equity ........................................ 4,994,000
----------
Total liabilities and shareholders' equity ........................ $ 9,076,000
==========
</TABLE>
See the accompanying summary of accounting policies
and notes to consolidated financial statements.
F-4
<PAGE>
- --------------------------------------------------------------------------------
Fischer-Watt Gold Company, Inc.
and Subsidiaries
Consolidated Statements of Operations
<TABLE>
<CAPTION>
Year ended January 31, 1997 1996
- --------------------------------------------------------------------------------
<S> <C> <C>
Sales of precious metals ....................... $ 4,390,000 $ 1,378,000
Costs applicable to sales ...................... 4,018,000 1,478,000
----------- -----------
Gain (loss) from mining ........................ 372,000 (100,000)
Gain on sales of mineral interests ............. -- 1,528,000
Costs and expenses:
Abandoned and impaired mineral interests ..... 588,000 267,000
Selling, general and administrative .......... 1,722,000 322,000
Exploration .................................. 611,000 3,000
----------- -----------
Income (loss) from operations .................. (2,549,000) 836,000
Other income (expense):
Gain (loss) on sale of assets ................ (1,000) 206,000
Interest income .............................. 179,000 1,000
Interest expense ............................. (177,000) (74,000)
Currency exchange gain (loss), net ........... (202,000) 307,000
Reserve for foreign tax refunds .............. (219,000) --
Other income (expense), net .................. (207,000) (152,000)
----------- -----------
Net income (loss) before taxes ................. (3,176,000) 1,124,000
Tax provision (Note 11) ........................ (202,000) (93,000)
----------- -----------
Net income (loss) .............................. $ (3,378,000) $ 1,031,000
=========== ===========
Earnings (loss) per share ...................... $ (.11) $ .07
Weighted average shares outstanding ............ 30,506,060 14,883,000
=========== ===========
</TABLE>
See the accompanying summary of accounting policies
and notes to consolidated financial statements.
F-5
<PAGE>
- --------------------------------------------------------------------------------
Fischer-Watt Gold Company, Inc.
and Subsidiaries
Consolidated Statement of Shareholders' Equity
<TABLE>
<CAPTION>
Common Stock Additional Capital
--------------------- Paid-in Stock
Shares Amount Capital Subscribed
------ ------ ---------- ----------
<S> <C> <C> <C> <C>
BALANCE,
February 1, 1995 ...................................................... 12,344,000 $ 12,000 $ 5,773,000 $ --
Issuance of common stock in
private placement, net of
$94,000 issue costs ................................................... 6,067,500 6,000 810,000 --
Issuance of common stock to
acquire subsidiary, net of
$21,000 issue costs (Note 2) .......................................... 4,125,660 5,000 1,208,000 --
Foreign currency
translation adjustments ............................................... -- -- -- --
Net income for the year ................................................. -- -- -- --
---------- -------- ---------- --------
BALANCE,
January 31, 1996 ...................................................... 22,537,160 23,000 7,791,000 --
Issuance of common stock in
private placement, net of
$368,000 issue costs .................................................. 8,600,000 8,000 4,182,000 --
Issuance of common
stock for exploration
rights ................................................................ 100,000 -- 50,000 --
Issuance of common
stock for services .................................................... 59,600 -- 21,000 --
Capital stock
subscribed ............................................................ -- -- -- 721,000
Foreign currency
translation adjustments ............................................... -- -- -- --
Net loss for the year ................................................... -- -- -- --
---------- -------- ---------- --------
BALANCE
January 31, 1997 ...................................................... 31,296,760 $ 31,000 $12,044,000 $ 721,000
========== ======== ========== ========
<PAGE>
<CAPTION>
Foreign Total
Currency Share-
Accumulated Translation holders'
Deficit Adjustments Equity
----------- ----------- --------
BALANCE
<S> <C> <C> <C>
February 1, 1995 ..................................................... $(5,711,000) $ -- $ 74,000
Issuance of common stock in
private placement, net of
$94,000 issue costs ................................................... -- -- 816,000
Issuance of common stock to
acquire subsidiary, net of
$21,000 issue costs (Note 2) .......................................... -- -- 1,213,000
Foreign currency
translation adjustments ............................................... -- 669,000 669,000
Net income for the year ................................................. 1,031,000 -- 1,031,000
---------- --------- ----------
BALANCE,
January 31, 1996 ...................................................... (4,680,000) 669,000 3,803,000
Issuance of common stock in
private placement, net of
$368,000 issue costs .................................................. -- -- 4,190,000
Issuance of common
stock for exploration
rights ................................................................ -- -- 50,000
Issuance of common
stock for services .................................................... -- -- 21,000
Capital stock
subscribed ............................................................ -- -- 721,000
Foreign currency
translation adjustments ............................................... -- (413,000) (413,000)
Net loss for the year ................................................... (3,378,000) -- (3,378,000)
---------- --------- ----------
BALANCE
January 31, 1997 ...................................................... $(8,085,000) $ 256,000 $ 4,994.000
========== ========= ==========
</TABLE>
See the accompanying summary of accounting policies
and notes to consolidated financial statements
F-6
<PAGE>
- --------------------------------------------------------------------------------
Fischer-Watt Gold Company, Inc.
and Subsidiaries
Consolidated Statements of Cash Flows
<TABLE>
<CAPTION>
Increase (Decrease) in Cash and Cash Equivalents
Year ended January 31, 1997 1996
- -----------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C>
Cash flows from operating activities:
Net income (loss) .................................................................... $(3,378,000) $ 1,031,000
Adjustments to reconcile net income (loss) to net
cash used in operating activities
Depreciation, depletion and amortization ......................................... 462,000 259,000
Stock issued for services ........................................................ 21,000 --
Abandoned and impaired mineral interests ......................................... 588,000 339,000
Gain on disposal of securities ................................................... -- (1,110,000)
Gain on sales of mineral interests ............................................... -- (641,000)
Other losses, net ................................................................ 1,000 1,000
Changes in assets and liabilities, net of business acquisitions:
Accounts receivable .............................................................. 83,000 (223,000)
Inventories ...................................................................... (372,000) (85,000)
Prepaid expenses and other assets ................................................ 20,000 (105,000)
Accounts payable, accrued expenses, and other .................................... (255,000) 403,000
---------- -----------
Net cash used in operating activities ................................................ (2,830,000) (131,000)
---------- -----------
See the accompanying summary of accounting policies
and notes to consolidated financial statements
F-7
<PAGE>
<CAPTION>
Increase (Decrease) in Cash and Cash Equivalents
Year ended January 31, 1997 1996
- -----------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C>
Cash flows from investing activities:
Investments in mineral interests ................................................... (949,000) (301,000)
Investments in plant and equipment ................................................. (915,000) (139,000)
Investment in certificate of deposit, net of fees .................................. (509,000) --
Proceeds from equipment sales ...................................................... 1,000 --
Proceeds from sales of securities .................................................. -- 582,000
Proceeds from sales of mineral interests ........................................... -- 150,000
Investments in securities .......................................................... -- (21,000)
Purchase of shares of consolidated
subsidiary, net of cash acquired (Note 13) ....................................... -- (489,000)
---------- -----------
Net cash used in investing activities ................................................ (2,372,000) (218,000)
---------- -----------
Cash flows from financing activities:
Proceeds from issuance of common stock in
private placement, net of stock issuance costs ................................... 4,190,000 816,000
Proceeds on issuance of special warrant (Note 8) ................................... 721,000 --
Borrowings on notes payable ........................................................ 509,000 28,000
Payments of stock issuance costs on
acquisition of subsidiary ........................................................ -- (21,000)
Repayment of notes payable ......................................................... -- (214,000)
---------- -----------
Net cash provided by financing activities ............................................ 5,420,000 609,000
---------- -----------
Net increase in cash and cash equivalents ............................................ 218,000 260,000
Cash and cash equivalents, beginning of year ......................................... 266,000 6,000
---------- -----------
Cash and cash equivalents, end of year ............................................... $ 484,000 $ 266,000
========== ===========
</TABLE>
See the accompanying summary of accounting policies
and notes to consolidated financial statements
F-8
<PAGE>
- --------------------------------------------------------------------------------
Fischer-Watt Gold Company, Inc.
and Subsidiaries
Summary of Accounting Policies
Business Activities Fischer-Watt Gold Company, Inc. ("Fischer-Watt" or the
"Company"), its subsidiaries, and joint ventures are
engaged in the business of mining and mineral
exploration. Operating activities of the Company
include locating, acquiring, exploring, developing,
improving, selling, leasing and operating mineral
interests, principally those involving precious metals.
The Company presently has mineral interests in two
broad geographical areas, namely North Central Colombia
and the Western United States. The Company's current
operational focus is its Oronorte properties, a
producing gold mine near Zaragosa, Colombia.
Principles The consolidated financial statements include the
of Consolidation accounts of Fischer-Watt, and its majority owned
subsidiaries. Ownership interests in corporations where
the Company maintains significant influence over but
not control of the entity are accounted for under the
equity method. Joint ventures involving non-producing
properties are accounted for at cost.
Cash and Cash For purposes of balance sheet classification and the
Equivalents statements of cash flows, the Company considers all
highly liquid investments purchased with an original
maturity of three months or less to be cash
equivalents.
Inventories Inventories consist of gold and silver produced by the
Company's Colombian mining operations, work in process,
raw materials used in the production process and
operating supplies. Gold and silver inventories are
stated at their selling prices reduced by the estimated
cost of disposal. Raw materials and operating supplies
used in the production process are stated at the lower
of cost or replacement value. Production expenses are
included in work in process inventories using an
average cost of production method and work in process
inventories are stated at their lower of cost or net
realizable value.
Mineral Interests The Company records its interest in mineral properties
and areas of geological interest at cost less expenses
recovered and receipts from exploration agreements.
Exploration development costs are deferred until the
related project is placed in production or abandoned.
Deferred costs are amortized over the economic life of
the related project following commencement of
production, by reference to the ratio of units produced
to total estimated production (estimated proven and
probable reserves), or written off if the mineral
properties or projects are sold or abandoned.
F-9
<PAGE>
- --------------------------------------------------------------------------------
Fischer-Watt Gold Company, Inc.
and Subsidiaries
Summary of Accounting Policies
Costs associated with pre-exploration, exploration, and
acquisition generally are deferred until a
determination is made as to the existence of
economically recoverable mineral reserves. If these
costs are incurred by the Company during a period
covered under a generative exploration program
agreement with a third party, they are expensed until
such time as the third party decides to either reject a
property identified during the exploration period or
proceed with further exploration of the property. If an
election to proceed occurs, future costs are
capitalized as incurred. Costs associated with
abandoned projects are expensed at the time of
abandonment.
Non-producing mineral interests are initially recorded
at acquisition cost. The cost basis of mineral
interests includes acquisition cost, bonus payments
made to attract a joint venture partner, and the cost
of exploration and development, less bonus payments
received on unproven properties and advance royalty
payments received.
Mineral interests in unproven properties are evaluated
on a quarterly basis for possible impairment.
Management evaluation considers all the facts and
circumstances known about each property including: the
results of drilling and other exploration activities to
date; the desirability and likelihood that additional
future exploration activities will be undertaken by the
Company or by others; the land holding costs including
work commitments, rental and royalty payments and other
lease and claim maintenance commitments; the expiration
date of the lease including any earlier dates by which
notice of intent to terminate the lease must be given
in order to avoid work commitments; the accessibility
of the property; the ability and likelihood of joint
venturing the property with others; and, if producing,
the cost and revenue of continued operations.
Unproven properties are considered fully or partially
impaired, and are fully or partially abandoned, at the
earliest of the time that: geologic mapping, surface
sample assays or drilling results fail to confirm the
geologic concepts involved at the time the property was
acquired; a decision is made not to perform the work
commitments or to make the lease payments required to
retain the property; the Company discontinues its
efforts to find a joint venture partner to fund
exploration activities and has decided not to fund
those costs itself; or the time the property interest
terminates by contract or by operation of law.
F-10
<PAGE>
- --------------------------------------------------------------------------------
Fischer-Watt Gold Company, Inc.
and Subsidiaries
Summary of Accounting Policies
Property, Plant & Property, plant, and equipment are stated at cost.
Equipment Depreciation on mining assets is provided by the units
of production method by reference to the ratio of units
produced to total estimated production (proven and
probable reserves). Depreciation on non-mining assets
is provided by the straight-line method over the
estimated service lives of the respective assets,
ranging from 2 to 20 years.
Stock-based The value of stock based awards is determined using the
Compensation intrinsic value method whereby compensation costs is
the excess of the quoted market prices of the stock at
grant date and other measurement date over the amount
an employee must pay to acquire the stock. In 1996 the
Company adopted, for footnote disclosure purposes only,
SFAS No. 123, "Accounting for Stock-Based
Compensation," which requires that companies measure
the cost of stock-based employee compensation at the
grant date based on the fair value of the stock option
and recognize this cost over the service period.
Revenue Sales revenue is recognized upon the production of
Recognition precious metals having a fixed monetary value. Precious
metal inventories are recorded at estimated net
realizable value, except in cases where there is no
immediate marketability at a quoted market price, in
which case they are recorded at the lower of cost or
net realizable value.
Gains on the sale of mineral interests includes the
excess of the net proceeds from sales over the
Company's net book value in that property. In
situations where a non-producing mineral interest is
exchanged for a producing mineral interest, the gain or
loss is the difference between the net book value of
the exchanged property and the fair market value of the
exchanged property or the property received, whichever
fair market value is more clearly determinable.
Generative exploration program fees, received as part
of an agreement whereby a third party agrees to fund a
generative exploration program in connection with
mineral deposits in areas not previously recognized as
containing mineralization in exchange for the right to
enter into a joint venture in the future to further
explore or develop specifically identified prospects,
are recognized as revenue in the period earned.
F-11
<PAGE>
- --------------------------------------------------------------------------------
Fischer-Watt Gold Company, Inc.
and Subsidiaries
Summary of Accounting Policies
Bonus payments on proven properties, received as an
incentive to enter into a joint exploration and
development agreement, are recognized as revenue when
received. For unproven properties, bonus payments
received are first applied as a reduction of the cost
basis of the property with any excess being recognized
as revenue.
Foreign Currency The Company accounts for foreign currency translation
Translation in accordance with the provisions of Statement of
Financial Accounting Standards No. 52, "Foreign
Currency Translation" ("SFAS No. 52"). The assets and
liabilities of the Company's foreign subsidiary are
translated at the rate of exchange in effect at the
balance sheet date. Income and expenses are translated
using the weighted average rates of exchange prevailing
during the period which the foreign subsidiary was
owned. The related translation adjustments are
reflected in the accumulated translation adjustment
section of shareholders' equity.
Earnings Per Share The primary earnings per common share was computed by
dividing the net income or loss by the weighted average
number of common stock shares outstanding for each
period presented. Shares issuable upon exercise of
outstanding stock options and warrants have been
excluded from the computation as their effect on
earnings per share would be anti-dilutive in 1997 and
would be less than 3% in 1996.
Environmental and The Company currently has no active reclamation
Reclamation Costs projects, but expenditures relating to ongoing
environmental and reclamation programs would either be
expensed as incurred or capitalized and depreciated
depending on the status of the related mineral property
and their future economic benefits. The recording of
provisions generally commences when a reasonably
definitive estimate of cost and remaining project life
can be determined.
Income Taxes The Company accounts for income taxes in accordance
with the provisions of Statement of Financial
Accounting Standards No. 109, "Accounting for Income
Taxes" ("SFAS 109"). SFAS 109 requires the recognition
of deferred income taxes to provide for temporary
differences between the financial reporting and tax
basis of assets and liabilities. Deferred taxes are
measured using enacted tax rates in effect in the years
in which the temporary differences are expected to
reverse.
F-12
<PAGE>
- --------------------------------------------------------------------------------
Fischer-Watt Gold Company, Inc.
and Subsidiaries
Summary of Accounting Policies
Concentration of The Company sells most of its precious metal production
Credit Risk to one customer. However, due to the nature of the
precious metals market, the Company is not dependent
upon this significant customer to provide a market for
its products. Although the Company could be directly
affected by weakness in the precious metals processing
business, the Company monitors the financial condition
of its significant customer and considers the risk of
loss to be remote.
Estimates The preparation of financial statements in conformity
with generally accepted accounting principles requires
management to make estimates and assumptions that
effect the reported amounts of assets and liabilities
and disclosure of contingent 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.
Fair Value of The carrying amount reported in the balance sheets for
Financial cash and cash equivalents, certificates of deposit,
Instruments accounts receivables, accounts payable and accrued
expenses approximate fair value because of the
immediate or short-term maturity of these financial
instruments. The fair value of long-term debt
approximates its carrying value as the stated or
discount rates of the debt reflect recent market
conditions.
New Accounting Statement of Financial Accounting Standards No. 128,
Pronouncements "Earnings per Share" ("SFAS No. 128") issued by the
Financial Accounting Standards Board ("FASB") is
effective for financial statements with fiscal years
beginning after December 15, 1997. The new standard
simplifies guidelines regarding the calculation and
presentation of earnings per share. The Company does
not expect adoption to have a material effect on the
presentation of its results of operations.
Reclassifications Certain amounts in the 1996 financial statements have
been reclassified to conform to the 1997 presentation.
F-13
<PAGE>
- --------------------------------------------------------------------------------
Fischer-Watt Gold Company, Inc.
and Subsidiaries
Notes to Consolidated Financial Statements
1. Financial Fischer-Watt incurred a net loss of $3,378,000 in
Condition, fiscal 1997, has an accumulated deficit of $8,058,000,
Liquidity, and has a net working capital deficiency of $1,038,000, and
Going Concern continues to experience negative cash flows from
operations. The Company did report net income in fiscal
1996, however this was principally the result of
realized gains on the sale or exchange of non-producing
mineral properties. These conditions raise substantial
doubt about the Company's ability to continue as a
going concern.
Management believes that as the El Limon gold property
held by Oronorte is further developed and production
levels increase, sufficient cash flows will exist to
fund the Company's mining operations and exploration
and development efforts in other areas. Management
anticipates achieving levels of production sufficient
to fund the Company's operating needs by the end of
fiscal 1998, and until then will fund operations with
cash raised from future equity or debt financings, the
anticipated exercise of common stock warrants expiring
in August 1997 (see Note 9), and dispositions of or
joint ventures with respect to mineral properties.
Expenditures for exploration projects may also be
reduced if necessary.
The ability of the Company to achieve its operating
goals and thus positive cash flows from operations is
dependent upon the future market price of gold, future
capital raising efforts, and the ability to achieve
future operating efficiencies anticipated with
increased production levels. Management's plans will
require additional financing, reduced exploration
activity or disposition of or joint ventures with
respect to mineral properties. While the Company has
been successful in these capital raising endeavors in
the past, there can be no assurance that its future
efforts and anticipated operating improvements will be
successful.
2. Business (a.) Acquisition of Greenstone Resources of Colombia
Combination Ltd.("GRC")
Effective August 24, 1995, the Company acquired all of
the outstanding shares of GRC, a company incorporated
under the laws of Bermuda, by exchanging the Company's
net interest in Minerales de Copan, S.A. de C.V.,
valued at $885,000, assuming a note payable to the
seller for $300,000 (see Note 6), and incurring
acquisition and organization costs of $72,000. This
acquisition was accounted for as a purchase and the
assets and liabilities of GRC were adjusted based on
F-14
<PAGE>
- --------------------------------------------------------------------------------
Fischer-Watt Gold Company, Inc.
and Subsidiaries
Notes to Consolidated Financial Statements
their estimated fair market values as of August 24,
1995. Operating results were recorded beginning on
August 24, 1995. Subsequent to the acquisition, GRC
changed its name to Donna Ltd. ("Donna"). Donna owns
94.9% of the issued and outstanding common shares of
Compania Minera Oronorte S.A. ("Oronorte"), a company
incorporated under the laws of Colombia, and the
Company owns 5.1% of the Oronorte shares.
(b). Acquisition of Great Basin Management Co., Inc.
("GBM")
On January 29, 1996, the Company acquired 100% of the
issued and outstanding common shares of GBM and its
wholly owned subsidiary, Great Basin Exploration and
Mining Company, Inc. ("GBEM"), a mineral exploration
Company. The GBM shares were purchased in exchange for
4,125,660 shares of the Company's common stock having
an estimated fair market value at the date of exchange
of $1,234,000. These shares issued by the Company were
restricted as to trading until January 1997.
(c). Unaudited Pro Forma Information
The following unaudited pro forma information has been
prepared on the basis that the acquisitions of GRC and
GBM had both occurred at the beginning of fiscal 1996.
The unaudited pro forma information includes
adjustments to depreciation and depletion expense based
on the allocation of the purchase price to the
property, plant, equipment and mineral interests
acquired.
Year ended January 31, 1996
- --------------------------------------------------------------------------------
Sales $ 3,342,000
Net income $ (321,000)
Net earnings
per common share $ (.01)
- --------------------------------------------------------------------------------
F-15
<PAGE>
- --------------------------------------------------------------------------------
Fischer-Watt Gold Company, Inc.
and Subsidiaries
Notes to Consolidated Financial Statements
3. Accounts Accounts receivable consist of:
Receivable
January 31, 1997
-------------------------------------------------------
Trade $ 179,000
Other 81,000
----------
Total accounts receivable $ 260,000
=========
4. Inventories Inventories consist of:
1997
-------------------------------------------------------
Finished products and
products in process $ 412,000
Supplies, materials
and spare parts 565,000
---------
Total inventories $ 977,000
=========
5. Mineral Capitalized costs for mineral interests consist of:
Interests
January 31, 1997
-------------------------------------------------------
Operating mining property:
El Limon Mine, Oronorte District $ 1,436,000
Less accumulated depletion 245,000
---------
1,191,000
-------------------------------------------------------
Non-operating properties,
net of reserves:
El Carmen, Colombia 451,000
La Aurora, Colombia 278,000
Juan Vara, Colombia 145,000
El Veinte, Colombia 1,000
F-16
<PAGE>
- --------------------------------------------------------------------------------
Fischer-Watt Gold Company, Inc.
and Subsidiaries
Notes to Consolidated Financial Statements
January 31, 1997
- --------------------------------------------------------------------------------
Kobeh, Nevada 67,000
Coal Canyon, Nevada 597,000
Red Canyon, Nevada 334,000
Tempo, Nevada 50,000
Oatman, Arizona 10,000
Modoc, California 73,000
Sacramento Mountains, California 147,000
Nevada Regional 1,000
Castle, Nevada 728,000
Water Canyon, Nevada 13,000
Amador, Nevada 10,000
-----------
Total mineral interests $ 4,096,000
============
6. Notes Payable Pursuant to agreements among Greenstone Resources Ltd.
("Greenstone"), Dual Resources Ltd. ("Dual"), and the
Company, Greenstone made a payment of $300,000 to Dual
in August 1995 to acquire 2,800,000 shares of Oronorte
common stock for the benefit of the Company. The
Company's obligation to repay Greenstone this $300,000
is evidenced by a note payable which bears interest at
the rate of 10% per annum. This note became payable, in
full, on June 20, 1996 at which time the Company
withheld payment while negotiating the settlement of
amounts owed to the Company by Greenstone (see Note
13).
The Company has a note payable of $100,000 to Serem
Gatro, the previous owner of GBEM. The note bears
interest at 8% and is currently past due. Accrued
interest as of January 31, 1997 was $10,000. Subsequent
to year end the Company negotiated a settlement
agreement with Serem Gatro. Pending the closing of the
agreement, the principal and accrued interest will be
canceled in exchange for 185,624 shares of the
Company's common stock.
The Company has a $500,000 line of credit with a bank.
Advances under this line, which totaled $428,000 at
December 31, 1996, accrue interest at rates from 26% to
39% and are collateralized by a $525,000 certificate of
deposit which bears interest at 3.9%.
F-17
<PAGE>
- --------------------------------------------------------------------------------
Fischer-Watt Gold Company, Inc.
and Subsidiaries
Notes to Consolidated Financial Statements
The Company has a $129,000 note payable to a bank at
December 31, 1996. The note bears interest at the legal
Colombian rate (DTF) plus 10 points (38.32% at January
31, 1997), requires interest to be paid quarterly, and
is collateralized by a building. The Company also has
other notes payable of $12,000.
The Company delivered to Kennecott Exploration Company,
a shareholder of the Company, a promissory note in the
amount of $700,000, which bears interest at an annual
interest rate equal to the prime or base rate, or legal
rate, if less. The note was issued in connection with
the acquisition of mineral interests. Principal and
interest are due in cash on September 30, 1998 or, at
the option of the Company, by issuance of 1,000,000
(one million) shares of the Company's common stock.
Accrued interest at January 31, 1997 was $19,000. The
Company's option to issue shares in satisfaction of
this debt is subject to a limitation that Kennecott's
ownership of Fischer-Watt cannot exceed 10% of the
outstanding voting common stock.
7. Pension The Company participates in an employee 401(k) plan,
Benefits which was set up for the benefit of substantially all
domestic employees. To be eligible, an employee must be
at least 21 years old. Participants may elect to defer
1% to 15% of eligible compensation of a pre-tax basis.
The Company can also elect to make contributions to the
plan, the amount being completely at the discretion of
the Company. No contributions were made in 1996 or
1997.
8. Shareholders' On March 12, 1996 the Company completed a $5 million
Equity foreign offering of equity pursuant to Regulation "S".
This offering consisted of the sale of 4,980,000 units
at $1.06 per unit. Each unit was composed of two shares
of Fischer-Watt common stock and one share purchase
warrant. Each of these warrants entitles the holder to
purchase one additional share of Fischer-Watt common
stock at an exercise price of $.75 through February 28,
1998. These securities were not registered under the
Securities Act of 1933 and may not be offered or sold
in the United States absent registration or an
applicable exemption from registration requirements.
The funds raised were used to finance capital equipment
and working capital needs for further development and
expansion of Fischer-Watt's gold mining operation in
Colombia and its exploration and development activities
in Colombia and Nevada. As part of this offering,
680,000 units were sold under a subscription agreement
and the collected proceeds of $721,000 are classified
as capital stock subscribed within the Company
shareholders' equity accounts. As of January 31, 1997,
none of the 680,000 shares had been issued.
F-18
<PAGE>
- --------------------------------------------------------------------------------
Fischer-Watt Gold Company, Inc.
and Subsidiaries
Notes to Consolidated Financial Statements
Subsequent to January 31, 1997, the Company issued
100,000 common shares in exchange for professional
services rendered. The shares had an estimated fair
market value of $53,000.
In April 1997, the Company completed a private
placement to accredited investors located in the United
States pursuant to Rule 506 of Regulation D under the
Securities Act of 1933, as amended (the "1933 Act").
The estimated net proceeds from this offering of
$442,000 are to finance the Company's working capital
requirements and needs related to further development,
expansion, and exploration of mining properties. This
Regulation D offering consisted of the sale of 459,000
units at $1.06 per unit. Each unit was composed of two
shares of Fischer-Watt common stock and one share
purchase warrant. Each of these warrants entitles the
holder to purchase one additional share of Fischer-Watt
common stock at an exercise price of $.75 through
February 28, 1999. These securities were not registered
under the Securities Act of 1933 and may not be offered
or sold in the United States absent registration or an
applicable exemption from registration requirements.
9. Common Stock In May 1987, the board of directors approved a
Options and nonqualified stock option plan. Two officers, four
Warrants employees and one independent contractor were granted
options to purchase a total of 710,000 shares of common
stock at $1.50 per share (fair market value at date of
grant). These options vest at rates ranging from 2,000
to 5,000 shares per month per individual and become
exercisable six months after vesting. These options
expire 10 years after they become exercisable. At
January 31, 1997, options on 706,000 shares had vested
and were exercisable.
In October 1991, three officers and three employees
were granted options to purchase a total of 504,000
shares of common stock at $1.15 per share (fair market
value at the date of grant). Options on 74,000 shares
vested immediately and the remainder vest at rates
ranging from 2,000 to 4,000 shares per month, and
become exercisable six months after vesting. These
options expire 10 years after they become exercisable.
At January 31, 1997, options on 382,000 shares had
vested and were exercisable.
F-19
<PAGE>
- --------------------------------------------------------------------------------
Fischer-Watt Gold Company, Inc.
and Subsidiaries
Notes to Consolidated Financial Statements
In July 1993, two officers and four employees were
granted options to purchase a total of 600,000 shares
of common stock at $.50 per share (fair market value at
the date of grant). These options vest at the rate of
2,000 shares per month per employee and become
exercisable six months after vesting. These options
expire 10 years after they become exercisable. Options
granted on 450,000 of the 600,000 shares were later
canceled pursuant to employee settlement agreements. At
January 31, 1997, options on 136,000 shares had vested
and options on 124,000 shares were exercisable.
In conjunction with an employment contract effective
September 1, 1993, with an officer and director,
options were granted on 500,000 shares of common stock
at $.20 per share (fair market value at date of grant).
These options vest at the rate of 20,000 shares per
month and become exercisable six months after vesting.
These options expire 10 years after they become
exercisable. At January 31, 1997, options on 500,000
shares had vested and were exercisable.
In October 1993, two officers and four employees were
granted options to purchase a total of 450,000 shares
of common stock at $.17 per share (fair market value at
date of grant). These options vested immediately and
became exercisable six months after vesting. The
options expire in April 2004. At January 31, 1997,
options on 450,000 shares had vested and were
exercisable.
In April and July 1994, two directors were each granted
options to purchase 100,000 shares of common stock at
$.08 and $.05 per share (fair market value at time of
grant), respectively in an agreement separate from the
Company's nonqualified stock option plan. These options
vest after approximately one year of service as a
director and become exercisable upon vesting. These
options expire five years after they become
exercisable. At January 31, 1997, options on all
200,000 shares had vested or were exercisable.
On June 1, 1995, two directors and two consultants were
each granted options to purchase a total of 525,000
shares of common stock at $.0625 per share (fair market
value at time of grant) in an agreement separate from
the Company's nonqualified stock option plan. These
options became exercisable on June 1, 1996 and expire
five years after they become exercisable. At January
31, 1997, options on all 525,000 shares had been vested
or were exercisable.
F-20
<PAGE>
- --------------------------------------------------------------------------------
Fischer-Watt Gold Company, Inc.
and Subsidiaries
Notes to Consolidated Financial Statements
Pursuant to the November 1995 private placement, the
Company issued warrants to purchase 3,033,750 shares of
common stock at $.30 per share on or before August
1997.
On February 20, 1996, two consultants were each granted
options to purchase a total of 200,000 shares of common
stock at $.37 per share (fair market value at the time
of grant) in an agreement separate from the Company's
nonqualified stock option plan. These options become
exercisable on February 20, 1997 and expire five years
after they become exercisable. At January 31, 1997,
options on 200,000 shares had vested and none were
exercisable.
On June 1, 1996, two directors were granted options to
purchase a total of 200,000 shares of common stock at
$.72 per share (fair market value at the time of grant)
in an agreement separate from the Company's
nonqualified stock option plan. These options become
exercisable on June 1, 1997 and expire five years after
they become exercisable. At January 31, 1997, options
on 200,000 shares had vested and none were exercisable.
On November 1, 1996, a former employee and an officer
were granted options to purchase 50,000 and 100,000
shares, respectively, of common stock at $.56 per share
(fair market value at the time of grant) in an
agreement separate from the Company's nonqualified
stock option plan. These options become exercisable on
November 1, 1997 and expire on November 1, 2002. At
January 31, 1997, options on 150,000 shares had vested
and none were exercisable.
On February 1, 1997, an officer was granted options to
purchase 100,000 shares of common stock at $.53 per
share (fair market value at the time of grant). These
options become exercisable on March 1, 1998 and expire
five years after they become exercisable.
The Company has reserved 300,000 common shares for
issuance upon exercise of ten Warrants issued in
January 1996 and 1997 in consideration for investment
banking and promotional services as follows: 100,000
common shares are reserved for issuance upon exercise
of warrant's issued on January 10, 1996 exercisable at
$.28 per share (fair market value at time of grant)
prior to January 10, 2000. 100,000 shares are reserved
for issuance upon exercise of warrants issued on
January 10, 1996, exercisable at $.31 per share at any
time prior to January 10, 2001. The remaining 100,000
shares are reserved for issuance upon exercise of
warrants issued on January 14, 1997, exercisable at
$.41 per share at any time prior to January 14, 2001.
F-21
<PAGE>
- --------------------------------------------------------------------------------
Fischer-Watt Gold Company, Inc.
and Subsidiaries
Notes to Consolidated Financial Statements
10. Stock-based The Company accounts for stock-based compensation plans
Compensation by applying APB Opinion #25, "Accounting for Stock
Plan Issued to Employees," and related Interpretations ("APB
25"). Under APB 25, because the exercise price of the
Company's employee stock options approximates the
market price of the underlying stock at the date of
grant, no compensation cost is recognized.
The Company's plan states that the exercise price of
each option will be granted at an amount that equals
the market value at the date of grant. All options vest
at a time determined at the discretion of the Company's
Board of Directors. All options, expire if not
exercised within 10 years from the date of grant,
unless stated otherwise by the Board of Directors upon
issuance.
Statement of Financial Accounting Standards No. 123
("SFAS 123"), Accounting for Stock-Based Compensation,
requires the Company to provide pro forma information
regarding net income and earnings per share as if
compensation cost for the Company's stock option plans
had been determined in accordance with the fair value
based method prescribed in SFAS 123. The fair value of
the option grants is estimated on the date of grant
utilizing the Black-Scholes option pricing model with
the following weighted average assumptions for grants
in 1996 and 1997, respectively: expected life of
options of 6 years and 6 years, expected volatility of
30% and 30%, risk-free interest rates of 5.98% and
5.73% and no dividend yield. The weighted average fair
value at the date of grant for options granted during
1996 and 1997 approximated $0.01 and $0.09 per option.
Under the provisions of SFAS 123, the Company's net
income (loss) and earnings (loss) per share would have
been reduced (increased) to the pro forma amounts
indicated below:
F-22
<PAGE>
- --------------------------------------------------------------------------------
Fischer-Watt Gold Company, Inc.
and Subsidiaries
Notes to Consolidated Financial Statements
January 31, 1997 1996
- --------------------------------------------------------------------------------
Net income (loss)
As reported $ (3,378,000) $ 1,031,000
Pro forma $ (3,439,000) $ 1,026,000
Primary earnings
(loss) per share
As reported $ (0.11) $ 0.07
Pro forma $ (0.11) $ 0.07
=========== ===========
The following table summarizes the stock option
activity:
Stock Weighted-average
Options Price per Share
-------------------------------------------------------
Outstanding at February 1, 1995 2,374,000 $ 0.74
Granted 525,000 0.06
---------- -------
Outstanding at January 31, 1996 2,899,000 0.62
Granted 550,000 0.55
---------- -------
Outstanding at January 31, 1997 3,449,000 $ 0.61
========== =======
F-23
<PAGE>
- --------------------------------------------------------------------------------
Fischer-Watt Gold Company, Inc.
and Subsidiaries
Notes to Consolidated Financial Statements
The following table summarizes information about
fixed-price stock options : Outstanding at January 31,
1997:
<TABLE>
<CAPTION>
Options Outstanding Options Exercisable
------------------------- ------------------------
Weighted- Weighted- Weighted-
Average Average Average
Range of Number Contractual Exercise Number Exercise
Prices Outstanding Life Price Exercisable Price
- ----------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
$ 0.05-$0.08 725,000 3.9 years $ 0.06 725,000 $ 0.06
$ 0.17 450,000 6.8 0.17 450,000 0.17
$ 0.20 500,000 7.6 0.20 500,000 0.20
$ 0.37 200,000 4.8 0.37 -- --
$ 0.50-$0.56 286,000 6.5 0.53 124,000 0.50
$ 0.72 200,000 5.2 0.72 -- --
$ 1.15 382,000 6.3 1.15 382,000 1.15
$ 1.50 706,000 2.6 1.50 706,000 1.50
- --------------------------------------------------------------------------------
$ 0.50-$1.50 3,449,000 5.7 years $ 0.61 2,887,000 $ 0.62
- --------------------------------------------------------------------------------
</TABLE>
The Company accounts for transactions with individuals
other than employees in which goods or services are the
consideration received for the issuance of equity
instruments in accordance with the provisions of SFAS
123, based on the fair value of the consideration
received or the fair value of the equity instrument
issued, whichever is more reliably measurable.
11. Income Taxes The components of net income (loss) before taxes for
the Company's domestic and foreign operations were as
follows:
January 31, 1997 1996
- --------------------------------------------------------------------------------
Domestic $ (1,815,000) $ 1,123,000
Foreign (1,361,000) 1,000
----------- ----------
Net income (loss)
before taxes $ (3,176,000) $ 1,124,000
- --------------------------------------------------------------------------------
F-24
<PAGE>
- --------------------------------------------------------------------------------
Fischer-Watt Gold Company, Inc.
and Subsidiaries
Notes to Consolidated Financial Statements
The consolidated tax provision is comprised of the
following:
January 31, 1997 1996
- --------------------------------------------------------------------------------
Current:
Federal $ -- $ 16,000
State 1,000 77,000
Foreign 201,000 --
-------- --------
Tax Provision $ 202,000 $ 93,000
======== ========
The difference between the federal statutory tax rate
and the effective tax rate on net income before taxes
is as follows:
January 31, 1997 1996
- --------------------------------------------------------------------------------
Federal statutory rate (34.0)% 34.0%
Utilization of tax loss carry forwards -- (34.0)
Increase in net deferred tax asset
valuation allowance 34.0 --
Alternative minimum tax -- 1.4
State income taxes 0.1 6.9
Other -- 2.1
- --------------------------------------------------------------------------------
0.1% 10.4%
- --------------------------------------------------------------------------------
The Company has regular federal tax loss carryforwards
of approximately $5.8 million and federal alternative
minimum tax loss carryforwards of approximately $5.9
million at January 31, 1997 which expire from 2003 to
2011.
Temporary differences between taxable income reported
on the Company's federal tax return and net income
reflected in the accompanying statements of operations
result primarily from the capitalization of mine
exploration and development costs for financial
reporting purposes and deducting those costs for tax
reporting purposes, partially offset by a lack of tax
basis in properties sold, traded or abandoned.
Additional temporary differences related to
F-25
<PAGE>
- --------------------------------------------------------------------------------
Fischer-Watt Gold Company, Inc.
and Subsidiaries
Notes to Consolidated Financial Statements
depreciation, mineral interest write-downs and
non-deductible accruals exist. The tax effect of each
of these temporary differences and net operating loss
carryforwards, totaling $1.8 million and $2.6 million
for the years ended January 31, 1996 and 1997, are
entirely offset by a valuation allowance as management
does not believe the Company has met the "more likely
than not" standard imposed by FAS 109 to allow
recognition of a net deferred tax asset.
12. Transactions Peter Bojtos became a director and officer of the
with Related Company on April 24, 1996. Mr. Bojtos had been engaged
Parties on August 25, 1995 by the Company, on a non-exclusive
basis, as an independent contractor to raise funds for
the Company in the form of issuance of restricted
common stock and warrants to purchase additional
shares. He was compensated in cash at the rate of 10%
of the net amount raised and was paid $81,000 for those
services. Mr. Bojtos purchased 180,000 units of that
offering under the same terms and conditions as the
other subscribers which consisted of 360,000 shares of
restricted common stock and warrants to purchase an
additional 180,000 shares at any date prior to August
31, 1997 for $.30 per share. Lynn Bojtos, wife of Peter
Bojtos, purchased an additional 170,000 shares, under
these same terms and conditions. In March of 1996, he
was again engaged to raise funds for the Company. The
Company completed a $5 million foreign offering outside
the United States pursuant to Regulation "S". Mr.
Bojtos was paid $132,000 for his services in connection
with this offering. On May 21, 1996, Mr. Bojtos was
granted for services to the Company an option to
purchase 100,000 shares of common stock of the
Corporation after February 20, 1997 at an exercise
price of $.37 per share.
Anthony P. Taylor, an officer and director of the
Company since June 1994, and an officer, director and
major shareholder of GBM when the Company acquired GBM
through a merger that was completed on January 29, 1996
(see Note 2). As a result of the merger, Dr. Taylor
received 1,541,694 shares of restricted Fischer- Watt
common stock in exchange for his shares of GBM.
Following the merger of GBM with the Company, Dr.
Taylor served as the Company's Vice President,
Exploration until September 16, 1996. Dr. Taylor
received a Company vehicle with an estimated fair
market value of $23,375, less debt assumed of $15,638
during fiscal 1997. Dr. Taylor received compensation as
a consulting geologist of $13,200 in fiscal 1997. In
addition, for his services as a Director, Dr. Taylor
received options to purchase 200,000 shares of common
stock of the Company at an exercise prices of $.0625
and $.72 per share.
F-26
<PAGE>
- --------------------------------------------------------------------------------
Fischer-Watt Gold Company, Inc.
and Subsidiaries
Notes to Consolidated Financial Statements
Michele Wood, an officer of the Company since November
1, 1996 received compensation of $51,125 for financial
consulting services in fiscal 1997. In addition, Ms.
Wood received an option to purchase 100,000 shares of
common stock at an exercise price of $.56 per share.
Kennecott Exploration Company, who owns 3,048,000
shares of the Company's common stock, loaned the
Company $500,000 in March 1992. Kennecott had a joint
venture with the Company on the Minas de Oro property
in Honduras. In May 1995, both Kennecott and the
Company sold their interests in the Minas de Oro
property to a third party. In connection with that
sale, Fischer-Watt received $150,000 and the $500,000
debt and accrued interest owed to Kennecott was
canceled. A $641,000 gain on the sale of this property
was recorded on the fiscal 1996 statement of
operations. The Company delivered to Kennecott
Exploration Company a convertible promissory note in
the amount of $700,000 (see Note 6).
On June 5, 1996, James M. Seed was appointed a director
of the Company. Prior to becoming a director, Mr. Seed
and several entities affiliated with Mr. Seed purchased
333,400 shares of an offering of restricted common
stock and warrants under the same terms and conditions
as the other subscribers (see Note 8).
Jorge E. Ordonez became a Director of the Company on
June 5, 1996 replacing Mr. Buchanan. Mr. Ordonez has
numerous interests and is a director of Hecla Mining
Company, which is also in the business of mining
precious metals. Mr. Ordonez is a principal shareholder
in Minera Montoro S.A. de C.V. ("Montoro"), a Mexican
corporation. The Company holds a 65% interest in
Montoro. During the past two fiscal years no
significant or material transactions have occurred
between the Company and Montoro.
F-27
<PAGE>
- --------------------------------------------------------------------------------
Fischer-Watt Gold Company, Inc.
and Subsidiaries
Notes to Consolidated Financial Statements
13. Commitments Upon the purchase of GRC (see Note 2) the Company
and assumed GRC's liabilities related to transactions
Contingencies governed by Colombian law concerning the movement of
foreign currency into and out of Colombia. The
Colombian government has the right to request an audit
of foreign currency movement within a two year time
frame. No request or notice of an audit has been
received from the Colombian government to date.
Therefore, the likelihood of a loss resulting from the
actions of GRC prior to the Company's purchase cannot
presently be determined.
In connection with the purchase of GRC, Greenstone
Resources Canada Ltd. ("Greenstone") agreed to
reimburse the Company for certain liabilities existing
at the date of purchase in excess of $1,000,000.
Subject to final assessment of liabilities and GRC's
right to offset certain assets against liabilities, the
Company estimates this excess of liabilities to be
$309,000. Management is demanding Greenstone to fund
its share of these excess liabilities in accordance
with the terms of the purchase agreement and, however
no receivable from Greenstone has been accrued as of
January 31, 1997.
Oronorte is currently the defendant in several claims
relating to labor contracts and employee terminations
which occurred during a labor strike. This strike and
the resulting terminations took place during the former
ownership of Oronorte. The estimated amount of the
claims against Oronorte totals approximately $200,000.
The Company is currently seeking to recover this
estimated amount of the claims from Greenstone in
connection with the excess liabilities discussed above.
The Company's property interests require minimum
payments to be made, or work commitments to be
satisfied, to maintain ownership of the property not in
production. However, all of these payments may be
avoided by timely forfeiture of the related property
interest. If the joint venture partner, or the Company,
fails to meet these commitments, the Company could lose
its rights to explore, develop or mine the property.
F-28
<PAGE>
- --------------------------------------------------------------------------------
Fischer-Watt Gold Company, Inc.
and Subsidiaries
Notes to Consolidated Financial Statements
The table below lists the various properties and the
required financial commitments for the year ending
January 31, 1998.
<TABLE>
<CAPTION>
Work Joint
Company Lease Commit- Venture Net
Property Payments ment Total Share Cost
- ------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
Amador $ 5,000 $ -- $ 5,000 $ -- $ 5,000
America 48,000 100,000 148,000 148,000 --
Castle 5,400 -- 5,400 -- 5,400
Coal Canyon 29,400 200,000 229,400 -- 229,400
Kobeh 17,700 -- 17,700 -- 17,700
Modoc 20,000 -- 20,000 20,000 --
Oatman 200 -- 200 200 --
Red Canyon 74,500 -- 74,500 74,500 --
Sacramento 46,400 15,000 1,400 -- 61,400
Tempo 118,500 200,000 318,500 318,500 --
Tuscarora -- 2,000 2,000 2,000 --
Water Canyon 6,200 -- 6,200 -- 6,200
Other 3,000 -- 3,000 -- 3,000
- ------------------------------------------------------------------------------------
Totals $ 374,300 $ 517,000 $ 891,300 $ 563,200 $ 328,100
- ------------------------------------------------------------------------------------
</TABLE>
F-29
<PAGE>
- --------------------------------------------------------------------------------
Fischer-Watt Gold Company, Inc.
and Subsidiaries
Notes to Consolidated Financial Statements
14. Supplemental Cash paid for interest during the fiscal years ended
Disclosure of January 31, 1997 and 1996 was $106,000 and $54,000.
Cash Flow Cash paid for income taxes during the years ended
Information January 31, 1997 and 1996 was $42,000 and $4,000.
Non-cash investing and financing activities were as
follows:
January 31, 1997 1996
- --------------------------------------------------------------------------------
Note payable issued for
mineral property $ 700,000 $ --
Stock issued for
mineral property $ 50,000 $ 50,000
Debt assumed by buyer in
connection with disposal
of mineral interest $ -- $ 541,817
========= ========
The net change in assets and liabilities due to the
acquisition of subsidiaries during the fiscal year
ended January 31, 1996 was comprised of the following:
<TABLE>
<CAPTION>
Great Basin
Management
Company,
Donna Ltd. Inc. Total
- ---------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Value of consideration $ 1,000,000 $ -- $ 1,000,000
Value of stock issued -- 1,234,000 1,234,000
Net debt assumed 185,000 -- 185,000
Capitalized acquisition costs 72,000 -- 72,000
Assets acquired
Working capital, other
than cash (1,065,000) (39,000) (1,104,000)
Property, plant and equipment (2,931,000) (1,579,000) (4,510,000)
Liabilities assumed
Current liabilities 2,443,000 239,000 2,682,000
Long-term debt 300,000 148,000 448,000
</TABLE>
F-30
<PAGE>
- --------------------------------------------------------------------------------
Fischer-Watt Gold Company, Inc.
and Subsidiaries
Notes to Consolidated Financial Statements
<TABLE>
<CAPTION>
Great Basin
Management
Company,
Donna Ltd. Inc. Total
- ---------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Cash acquired 4,000 3,000 7,000
Less elimination of
intercompany debt (300,000) (124,000) (424,000)
Less cash paid for acquisition (72,000) -- (72,000)
-------- -------- --------
Net change in assets
and liabilities due to
acquisition of subsidiaries $ (368,000) $ (121,000) $ (489,000)
======== ======== ========
</TABLE>
15. Segment The following table summarizes certain selected
information financial information of the Company's balance sheet
and operating results, on a geographical segment basis:
<TABLE>
<CAPTION>
Great Basin
Management
Donna Ltd. Company, Inc.
(Colombia) (Nevada) Other Consolidated
- ------------------------------------------------------------------------------------------------
Year ended January 31, 1997
<S> <C> <C> <C> <C>
Sales $ 4,390,000 $ - $ - $4,390,000
Operating income (loss) $ 372,000 $ - $ - $ 372,000
Total Assets $ 5,931,000 $1,781,000 $1,364,000 $9,076,000
Depreciation and depletion expense $ 458,000 $ - $ 4,000 $ 462,000
Capital expenditures $ 1,634,000 $ 179,000 $ 792,000 $2,605,000
- ------------------------------------------------------------------------------------------------
Year ended January 31, 1996
Sales $ 1,378,000 $ - $ - $1,378,000
Operating income (loss) $ (100,000) $ - $ - $ (100,000)
Total Assets $ 2,534,000 $1,645,000 $2,338,000 $6,517,000
Depreciation and depletion expense $ 257,000 $ - $ 2,000 $ 259,000
Capital expenditures $ 349,000 $ - $ 91,000 $ 440,000
- ------------------------------------------------------------------------------------------------
</TABLE>
F-31
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM THE
FINANCIAL STATEMENTS FOR THE TWELVE MONTHS ENDED JANUARY 31, 1997 CONTAINED IN
FORM 10-KSB FOR THE FISCAL PERIOD ENDED JANUARY 31, 1997 AND IS QUALIFIED IN ITS
ENTIRETY BY REFERENCE TO SUCH FINANCIAL STATEMENTS
</LEGEND>
<MULTIPLIER> 1,000
<CURRENCY> US
<S> <C>
<PERIOD-TYPE> 12-MOS
<FISCAL-YEAR-END> JAN-31-1997
<PERIOD-END> JAN-31-1997
<EXCHANGE-RATE> 1
<CASH> 484
<SECURITIES> 0
<RECEIVABLES> 260
<ALLOWANCES> 0
<INVENTORY> 977
<CURRENT-ASSETS> 2,325
<PP&E> 2,491
<DEPRECIATION> 323
<TOTAL-ASSETS> 9,076
<CURRENT-LIABILITIES> 3,363
<BONDS> 0
0
0
<COMMON> 31
<OTHER-SE> 4,963
<TOTAL-LIABILITY-AND-EQUITY> 9,076
<SALES> 4,390
<TOTAL-REVENUES> 4,390
<CGS> 4,018
<TOTAL-COSTS> 6,939
<OTHER-EXPENSES> 629
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> (2)
<INCOME-PRETAX> (3,176)
<INCOME-TAX> 202
<INCOME-CONTINUING> (3,378)
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (3,378)
<EPS-PRIMARY> (0.11)
<EPS-DILUTED> (0.11)
</TABLE>
