U. S. SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-KSB
(MarkOne)
[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
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
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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.
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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
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
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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
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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
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:
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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.
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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.
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.
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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
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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.
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
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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
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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
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"Adit"
A nearly horizontal passage from the surface by which a mine is entered and
unwatered.
"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.
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"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.
"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
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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.
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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.
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
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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.
12
<PAGE>
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
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.
13
<PAGE>
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 guerrilla 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
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.
14
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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.
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.
15
<PAGE>
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.
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
16
<PAGE>
* 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.
17
<PAGE>
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.
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) 20
----
Subtotal 301
Medellin Office 9
----
Grand Total 310
====
18
<PAGE>
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.
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.
19
<PAGE>
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.
20
<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%.
21
<PAGE>
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.
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
22
<PAGE>
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.
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
23
<PAGE>
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
24
<PAGE>
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.
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.
25
<PAGE>
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.
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
26
<PAGE>
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.
27
<PAGE>
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.
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
28
<PAGE>
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.
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.
29
<PAGE>
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.
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
30
<PAGE>
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
31
<PAGE>
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, but the notice of default has created an
uncertainly to the final disposition of the property. Reclamation costs are the
responsibility of BMR.
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.
32
<PAGE>
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.
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.
Property Lease Work J.V. Net FWG
Payments Commit. Total Share 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 20,000 -
Oatman 200 - 200 200 -
Red Canyon 74,500 - 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 - ,200 - 6,200
Other 3,000 - 3,000 - 3,000
-------- ------- ------- ------- -------
Total $374,300 $517,000 $891,300 $563,200 $328,100
33
<PAGE>
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.
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
34
<PAGE>
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.
35
<PAGE>
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)
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.
36
<PAGE>
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.
Short-Term Liquidity
--------------------
As of May 1, 1997, the Company had $955,000 in cash and accounts payable of
$1,139,000.
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.
37
<PAGE>
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 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.
For information about the Company's current properties see Item 2
"Description of Property" above and Note 5 to Financial Statements.
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.
38
<PAGE>
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
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:
39
<PAGE>
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.
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.
40
<PAGE>
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.
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.
41
<PAGE>
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.
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:
42
<PAGE>
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 for a term of one year or
until a successor is elected. Directors are subject to election annually by the
shareholders. Directors are elected by a simple majority of the shareholders.
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.
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.
43
<PAGE>
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..
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.
44
<PAGE>
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,
45
<PAGE>
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.
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
Annual Compensation Long Term Compensation
Name ------------------- ----------------------
and
Principal Fiscal Securities, underlying
Position Year Salary $ options/SARs
- --------- ------ -------- --------------------
George Beattie, 1997 100,000
President, CEO 1996 93,500
1995 80,000 500,000 shares
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.
46
<PAGE>
Aggregated Option/SAR Exercises in Last Fiscal Year and Fiscal Year-end
Option/SAR Values:
Number of Securities Value of Unexercised
Underlying Unexercised In-the-Money Options
Options/SARs at /SARs at
January 31, 1997 January 31, 1997
Exercisable/ Exercisable/
Name Unexercisable Unexercisable
- ---- ------------- -------------
George Beattie 500,000/-0- $50,000/$-0-
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.
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 5.94%
161 Bay Street, Sixth Floor owned directly
Toronto, Ontario M5J 258 Note 2
Anthony P. Taylor 1,741,694 shares
1500 Kestrel Court owned directly, 5.36%
Reno, NV 89509 Note 3
James M. Seed 1,184,000 shares
Director owned directly and
Astra Ventures indirectly, Note 4 3.63%
One Citizen Plaza
Providence, RI 02903
47
<PAGE>
<CAPTION>
Name and Address of Amount and nature of % of
beneficial owner beneficial ownership Class
- ------------------- -------------------- -----
<S> <C> <C>
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>
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
48
<PAGE>
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
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.
49
<PAGE>
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. CBIC Wood Gundy paid $1.06 per special warrant, the equivalent price
paid by other purchasers in such offering.
50
<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 l0-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 tiled 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 l0-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 l0-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.
51
<PAGE>
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 l5B of said lease.
11 10 Employment Agreement effective November 1, 1996 between
Fischer-Watt Gold Company, Inc. and Michele 0. 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 13, 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 T2ON, R42E, and
T21N, R42E, M.D.B.& M., Lander Coonty, 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.
52
<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.
May 16, 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 May 16, 1997
Chief Financial Officer
and Assistant Secretary
(Principal Financial and
Accounting Officer)
/s/ Peter Bojtos
----------------------
Peter Bojtos May 16, 1997
Director, Vice President, and
Vice Chairman of the Board
/s/ Gerald D. Helgeson
----------------------
Gerald D. Helgeson May 16, 1997
Director and Secretary
/s/ James M. Seed
----------------------
James M. Seed May 16, 1997
Director
/s/ A. P. Taylor
----------------------
A. P. Taylor May 16, 1997
Director
/s/ Jorge Ordonez
----------------------
Jorge Ordonez May 16, 1997
Director
53
<PAGE>
- --------------------------------------------------------------------------------
Fischer-Watt Gold Company, Inc.
and Subsidiaries
Contents
Report of Independent Certified Public Accountants F-2
Financial Statements:
Consolidated Balance Sheet F-3
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.
Spokane, Washington
May 9, 1997
F-2
<PAGE>
- --------------------------------------------------------------------------------
<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>
- --------------------------------------------------------------------------------
<CAPTION>
Fischer-Watt Gold Company, Inc.
and Subsidiaries
Consolidated Balance Sheet
(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>
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
Fischer-Watt Gold Company, Inc.
and Subsidiaries
Consolidated Statements of Operations
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>
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
Fischer-Watt Gold Company, Inc.
and Subsidiaries
Consolidated Statement of Shareholders' Equity
Foreign Total
Additional Capital Currency Share-
Common Stock Paid-in Stock Accumulated Translation holders'
Shares Amount Capital Subscribed Deficit Adjustments Equity
- ----------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C>
BALANCE,
February 1, 1995 12,344,000 $ 12,000 $5,773,000 $ - $(5,711,000) $ - $ 74,000
Issuance of common stock in
private placement, net of
$94,000 issue costs 6,067,500 6,000 810,000 - - - 816,000
Issuance of common stock to
acquire subsidiary, net of
$21,000 issue costs (Note 2) 4,125,660 5,000 1,208,000 - - - 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 22,537,160 23,000 7,791,000 - (4,680,000) 669,000 3,803,000
Issuance of common stock in
private placement, net of
$368,000 issue costs 8,600,000 8,000 4,182,000 - - - 4,190,000
Issuance of common
stock for exploration
rights 100,000 - 50,000 - - - 50,000
Issuance of common
stock for services 59,600 - 21,000 - - - 21,000
Capital stock
subscribed - - - 721,000 - - 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 31,296,760 $ 31,000 $12,044,000 $721,000 $(8,058,000) $ 256,000 $4,994,000
- ----------------------------------------------------------------------------------------------------------------------
</TABLE>
See the accompanying summary of accounting policies
and notes to consolidated financial statements.
F-6
<PAGE>
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
Fischer-Watt Gold Company, Inc.
and Subsidiaries
Consolidated Statements of Cash Flows
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)
- -------------------------------------------------------------------------------------------------------------------
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)
- -------------------------------------------------------------------------------------------------------------------
See the accompanying summary of accounting policies
and notes to consolidated financial statements.
F-7
<PAGE>
- --------------------------------------------------------------------------------
<CAPTION>
Fischer-Watt Gold Company, Inc.
and Subsidiaries
Consolidated Statements of Cash Flows
Year ended January 31, 1997 1996
- -------------------------------------------------------------------------------------------------------------------
<S> <C> <C>
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 of
Consolidation
The consolidated financial statements include the 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
Equivalents
For purposes of balance sheet classification and the 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>
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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 &
Equipment
Property, plant, and equipment are stated at cost. 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
Compensation
The value of stock based awards is determined using the 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
Recognition
Sales revenue is recognized upon the production of 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>
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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
Translation
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
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
Reclamation Costs
The Company currently has no active reclamation 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>
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Fischer-Watt Gold Company, Inc.
and Subsidiaries
Summary of Accounting Policies
Concentration of
Credit Risk
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
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
Financial
Instruments
The carrying amount reported in the balance sheets for cash and cash
equivalents, certificates of deposit, 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
Pronouncements
Statements of Financial Accounting Standards No. 128, "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
Condition,
Liquidity, and
Going Concern
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 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 private placements
of the Company's common stock and 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 als be
reduced, if necessary, to preserve cash while maintaining non-producing mineral
interests.
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
may 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
Combinations
(a.) Acquisition of Greenstone Resources of Colombia 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
their estimated fair market values as of August 24, 1995. Operating results were
F-14
<PAGE>
- --------------------------------------------------------------------------------
Fischer-Watt Gold Company, Inc.
and Subsidiaries
Notes to Consolidated Financial Statements
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 are restricted as to trading until March
1998.
(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 of precious metals $ 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
Receivable
Accounts receivable consist of:
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
Interests
Capitalized costs for mineral interests consist of:
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%
F-17
<PAGE>
- --------------------------------------------------------------------------------
Fischer-Watt Gold Company, Inc.
and Subsidiaries
Notes to Consolidated Financial Statements
to 39% and are collateralized by a $525,000 certificate of deposit which bears
interest at 3.9%.
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 issuance of
shares is subject to a limitation that Kennecott's ownership of Fischer-Watt
cannot exceed 10% of the outstanding voting common stock.
7. Pension
Benefits
The Company participates in an employee 401(k) plan, 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'
Equity
On March 12, 1996 the Company completed a $5 million foreign offering of common
stock 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
F-18
<PAGE>
- --------------------------------------------------------------------------------
Fischer-Watt Gold Company, Inc.
and Subsidiaries
Notes to Consolidated Financial Statements
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 uncollected 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.
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 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.
9. Common Stock
Options and
Warrants
In May 1987, the board of directors approved a nonqualified stock option plan.
Two officers, four 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
F-19
<PAGE>
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Fischer-Watt Gold Company, Inc.
and Subsidiaries
Notes to Consolidated Financial Statements
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.
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
F-20
<PAGE>
- --------------------------------------------------------------------------------
Fischer-Watt Gold Company, Inc.
and Subsidiaries
Notes to Consolidated Financial Statements
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.
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
100,000 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
F-21
<PAGE>
- --------------------------------------------------------------------------------
Fischer-Watt Gold Company, Inc.
and Subsidiaries
Notes to Consolidated Financial Statements
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.
10. Stock-based
Compensation
Plans
The Company accounts for stock-based compensation plans by applying APB Opinion
#25, "Accounting for Stock 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:
Options Outstanding Options Exercisable
------------------------ --------------------------
Weighted- Weighted- Weighted-
Average Average Average
Range of Number Contractual Exercise Number Exercise
Prices Outstanding Life Price Exercisable Price
- --------------------------------------------------------------------------------
$ 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
================================================================================
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
F-25
<PAGE>
- --------------------------------------------------------------------------------
Fischer-Watt Gold Company, Inc.
and Subsidiaries
Notes to Consolidated Financial Statements
reporting purposes, partially offset by a lack of tax basis in properties sold,
traded or abandoned. Additional temporary differences related to 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
with Related
Parties
Peter Bojtos became a director and officer 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 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
F-26
<PAGE>
- --------------------------------------------------------------------------------
Fischer-Watt Gold Company, Inc.
and Subsidiaries
Notes to Consolidated Financial Statements
$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.
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. In a separate transaction, the Company assigned to
Kennecott previously unassigned leases on the Modoc property in California,
subject to a net smelter return royalty interest retained by the Company. 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
and
Contingencies
Upon the purchase of GRC (see Note 2) the Company assumed GRC's liabilities
related to transactions 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
unable to determine Greenstone's ability or willingness to fund its share of
these excess liabilities in accordance with the terms of the purchase agreement
and accordingly has not recorded a receivable from Greenstone 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.
Work Joint
Company Lease Commit- Venture Net
Property Payments ment Total Share 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 20,000 -
Oatman 200 - 200 200 -
Red Canyon 74,500 - 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
- --------------------------------------------------------------------------------
Totals $ 374,300 $ 517,000 $ 891,300 $ 563,200 $ 328,100
================================================================================
F-29
<PAGE>
- --------------------------------------------------------------------------------
Fischer-Watt Gold Company, Inc.
and Subsidiaries
Notes to Consolidated Financial Statements
14. Supplemental
Disclosure of
Cash Flow
Information
Cash paid for interest during the fiscal years ended January 31, 1997 and 1996
was $106,000 and $54,000. Cash paid for income taxes during the years ended
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:
Great Basin
Management
Company,
Donna Ltd. Inc. Total
- --------------------------------------------------------------------------------
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
- --------------------------------------------------------------------------------
F-30
<PAGE>
- --------------------------------------------------------------------------------
Fischer-Watt Gold Company, Inc.
and Subsidiaries
Notes to Consolidated Financial Statements
Great Basin
Management
Company,
Donna Ltd. Inc. Total
- --------------------------------------------------------------------------------
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)
================================================================================
15. Segment
information
The following table summarizes certain selected 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
- --------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Year ended January 31, 1997
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
<PAGE>
EXHIBIT INDEX
<TABLE>
<CAPTION>
Exhibit Item 601
No. Category Exhibit Page No.
- -------- -------- ------- --------
<C> <C> <C> <C>
1 2 Mining Property Purchase Agreement dated September 30, 1996, N/A
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 N/A
Ert and Fischer-Watt Gold Company, Inc. known as the
Sacramento Mountains Property and filed as Exhibit 7.2 to
Form l0-QSB filed November 15, 1996 and incorporated herein
by reference.
3 3 By-Laws of the corporation. Amended and restated. Filed as N/A
Exhibit 3.3 to Form 10-QSB tiled December 16,1996 and
incorporated herein by reference.
4 10 Option effective June 1, 1996, whereby Fischer-watt Gold N/A
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 l0-KSB filed September
26, 1996 and incorporated herein by reference.
5 10 Option effective June 1, 1996 whereby Fischer-Watt Gold N/A
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 N/A
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 N/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 N/A
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 l0-QSB filed
October 18, 1996 and incorporated herein by reference.
9 10 Promissory note date September 30, 1996, whereby N/A
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.
<PAGE>
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 l5B of said lease.
11 10 Employment Agreement effective November 1, 1996 between
Fischer-Watt Gold Company, Inc. and Michele 0. 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 13, 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 T2ON, R42E, and
T21N, R42E, M.D.B.& M., Lander Coonty, 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.
</TABLE>
December 27, 1996
Express Mail
Certified/Return Receipt Requested
Lyle F. Campbell
The Lyle F. Campbell Trust
P.O. Box 7377
Reno, Nevada 89510
Re: Afgan Mineral Lease; Afgan Mineral Prospect
Eureka County, Nevada
Dear Lyle,
This letter is to serve formal notice of termination by Great Basin Exploration
& Mining Co., Inc. of the Afgan Mineral Lease, dated effective November 8, 1993,
as per Article15. B., of said Lease.
Cominco American Incorporated, (CAI), has withdrawn it's interest in the Joint
Venture Agreement as per their letter of November 25, 1996 (copy attached).
Subsequently, Great Basin has decided to, likewise, withdraw it's interest in
the property.
Per Article 15. Section B. Complete Termination by Lessee., a quitclaim deed, in
recordable form, accompanies this notice of termination.
We have enjoyed working on the Afgan property and believe it has potential,
however, the level of required involvement does not fit Great Basin's plans at
this time. We wish you every success in future ventures.
Sincerely,
/s/
George Beattie
President
George Beattie/dkb
cc: P. Barber
C. Pearl
<PAGE>
QUITCLAIM DEED
GREAT BASIN EXPLORATION & MINING CO., INC., a Nevada corporation whose
address is 3400 Kauai Court, Suite 208, Reno, Nevada 89509 the United States of
America, ("Grantor") hereby QUITCLAIMS to THE LYLE F. CAMPBELL TRUST, under an
Agreement of Trust dated August 5, 1986 and amended on May 21, 1987, August 19,
1987 and April 29, 1991, whose address is P.O. Box 7377, Reno, Nevada 89510
("Grantee"), for the sum of TEN DOLLARS ($10.00) and other good and valuable
consideration, the receipt whereof is hereby acknowledged, has remised, released
and forever quitclaimed, and by these presents does remise, release and forever
quitclaim unto the Grantee and to its successors and assigns forever, all of its
right, title and interest in and to those certain unpatented mining claims
located in Eureka County, Nevada, (the "Premises"), more particularly described
in Exhibit "A" attached hereto.
TO HAVE AND TO HOLD, all and singular, the said Premises, together with the
appurtenances and privileges thereto incident unto the said Grantees, their
successors and assigns forever.
IN WITNESS WHEREOF, the Grantor has executed this Quitclaim Deed this 27th
day of December, 1996.
GREAT BASIN EXPLORATION & MINING CO., INC.
By:/s/ George Beattie
--------------------------------------
George Beattie, President
STATE OF NEVADA )
) ss.
COUNTY OF WASHOE )
On this 27 day of December, 1996, personally appeared before me, a Notary
Public, in and for the state and county aforesaid, George Beattie, the President
of GREAT BASIN EXPLORATION & MINING CO., INC., a Nevada corporation, who
acknowledged that he executed the within instrument on behalf of said
corporation for purposes expressed therein.
/s/ Diane Bryan
------------------------------------
NOTARY PUBLIC
<PAGE>
Exhibit "A"
Attached to and made a part of that certain Quitclaim Deed dated the 27th day of
December, 1996, by and between GREAT BASIN EXPLORATION & MINING CO., INC. (
"Grantor") and THE LYLE F.
CAMPBELL TRUST, ("Grantee").
The Premises subject to said Quitclaim Deed, more particularly described as
follows:
Located in:
76 unpatented lode mining claims located approximately within
Sections 17, 18, 19, 20, 29, and 30, Township 22 North, Range
51 East, Mount Diablo Meridian, Eureka County, Nevada.
<TABLE>
<CAPTION>
Name of Claim(s) Location Date BLM Serial Number(s)
<S> <C> <C>
Afgan 3-12 07/22/80 NMC-169151 through NMC-169160, inclusive
Afgan 13-26 09/01/83 NMC-289576 through NMC-289589, inclusive
Afgan 69-71 09/01/83 NMC-289590 through NMC-289592, inclusive
Afgan-Ext #1-#2 01/31/90 NMC-592424 through NMC-592425, inclusive
Afgan-Ext #2a 11/20/92 NMC-674809
Afgan-Ext #30-#39 11/20/92 NMC-674810 through NMC-674819, inclusive
Afgan-Ext #68-#69 05/16/90 NMC-602418 through NMC-602419, inclusive
Afgan-Ext #72-#73 02/01/90 NMC-592428 through NMC-592429, inclusive
Afgan-Ext #101-#104 02/01/90 NMC-592430 through NMC-592433, inclusive
Afgan-Ext #105 02/02/90 NMC-592434
Afgan-Ext #120-#122 02/02/90 NMC-592435 through NMC-592436, inclusive
Afgan-Ext #122-#126 02/22/91 NMC-622127 through NMC-622131, inclusive
Afgan-Ext #127-#133 11/30/91 NMC-638155 through NMC-638161, inclusive
Afgan-Ext #134 12/01/91 NMC-638162
Nickel 8-13 11/20/92 NMC-674820 through NMC-674825, inclusive
Predator 1-6 03/06/94 NMC-698064 through NMC-698069, inclusive
</TABLE>
<PAGE>
November 25, 1996
Dr. A.P. Taylor
Great Basin Exploration and Mining Co., Inc.
Fischer-Watt Mining Company, Inc.
3400 Kauai Court, Suite 208
Reno, NV 89509
Re: Notice of Withdrawal from the Afgan Kobeh Joint Venture
Dear Tony:
In accordance with Section 4.3 of the Afgan Kobeh Joint Venture Agreement,
Cominco American Incorporated (CAI) hereby gives notice of withdrawal from the
Afgan-Kobeh Joint Venture. This Withdrawal is effective thirty days from the
date of this notification.
The results of the drilling completed this year were disappointing, and, while
there remain untested drill targets, CAI has decided against continuing the
testing of these targets. CAI is in the process of fulfilling the expenditure
obligations required by Section 9 of the Afgan Mineral Lease. This expenditure
requirement should be met in the near future. As accounting statement will be
sent to you upon completion of this expenditure obligation.
If you have any questions in this regard, please do not hesitate to contact me.
Sincerely,
/s/
Robert U. Suda
Project Geologist
RUS:jn
cc:HCS/JPF
EMPLOYMENT AGREEMENT
THIS EMPLOYMENT AGREEMENT is made this 1st day of November, 1996, by and
between Fischer-Watt Gold Company, Inc., a Nevada corporation (the
"Corporation"), and Michele D. Wood (the "Employee").
1. Employment
The Corporation hereby employs the Employee as Chief Financial Officer and
the Employee hereby accepts such employment in accordance with the terms and
conditions of this Agreement.
2. Duties of Employee
The duties of the Employee are generally to exercise detailed supervision
over all of the Corporation's accounting and financial affairs, subject to the
direction and control of the President and the Board of Directors of the
Corporation. The powers and duties of the Employee may include other duties as
may be more specifically determined and set, and may be changed, by the
President or Board of Directors of the Corporation from time to time. The
Employee shall strictly adhere to all of the rules and regulations of the
Corporation which are presently in force or which may be established hereafter
with respect to the conduct of Employees.
3. Power of Employee to Bind Corporation
The Employee's authority to obligate the Corporation on any contract or
agreement of any kind, character or nature is limited to those contracts or
obligations in which the Corporation's financial obligation does not exceed the
sum of $500,000 and the Employee shall have no authority to borrow funds for the
Corporation or to pledge any of its assets for any purpose whatsoever.
4. Other Employment
The Employee is required to refrain from acting in any other work capacity
or employments without having first obtained the written consent of the
Corporation. It is the Corporation's intention that the Employee devote all of
the Employee's work effort towards the fulfillment of the Employee's obligations
under this Agreement.
5. Place of Employment
The Employee's initial place of work is the principal office of the
Corporation located at 1621 North Third Street, Suite 1000, Coeur d'Alene,
Idaho. However, the Corporation may require that the Employee work at such other
place or places as the Corporation may direct. However, if the Employee is
1
<PAGE>
requested to relocate, the Corporation shall pay the Employee's reasonable
expenses in that regard.
6. Compensation of Employee
As compensation for all services rendered by the Employee under this
Agreement, the Corporation shall pay the Employee a salary of $85,000 annually,
payable not less frequently than in monthly installments. After the first year
of employment and on each annual anniversary date thereafter that this Agreement
is in effect, the Corporation shall increase the Employee's salary to reflect
any increases in the cost of living and, at the discretion of the Corporation,
for merit. Each such increase in salary shall not be less than 3.5%.
In addition, upon execution of this Agreement, the Employee shall receive a
stock option representing the option to purchase 100,000 shares of the
Corporation's common stock at an exercise price of $.56, exercisable at any time
after November 1, 1997 and prior to the close of business on November 1, 2002,
as evidenced by and pursuant to the terms of the option certificate attached to
this Agreement as Exhibit A.
7. Employee Benefits
During the first five years of employment the Employee shall be entitled to
three weeks paid vacation per year, after which time the Employee shall be
entitled to four weeks paid vacation per year, to be taken as shall be
reasonably consistent with the Employee's duties and obligations to the
Corporation. The Corporation shall reimburse the Employee on an annual basis for
the cost of the annual premium of a $500,000 term life insurance policy insuring
the life of the Employee, up to a maximum of $1,000 per year. The Corporation
shall also provide the Employee with such other benefits, including life and
health insurance, as the Corporation generally provides to its employees, which
may be changed from time to time at the discretion of the Corporation. Vacation
and other benefits are subject to the policies of the Corporation, as in effect
from time to time.
8. Employee Expenses
The Corporation shall reimburse the Employee for all reasonable and
necessary expenses incurred by the Employee in the furtherance of or in
connection with the business of the Corporation which have been authorized in
advance by the Corporation. In order to obtain reimbursement, the Employee shall
submit to the Corporation an itemized statement of such expenses along with
copies of bills and receipts. Further explanations may be required of the
Employee. Payments shall be made within 30 days after receipt of all necessary
documentation.
2
<PAGE>
9. Term of Employment
The term of employment shall begin November 1, 1996 and extend to October
31, 2001.
10. Termination of Employment
a. The Corporation may terminate the Employee's employment at will,
with or without cause and at any time, without prior notice. "Cause"
shall mean breach by the Employee of any term or provision of this
Agreement, or any other conduct or behavior by the Employee which the
Corporation reasonably believes constitutes criminal or unethical
conduct or behavior or which has a material adverse effect on the
Corporation. The Employee may terminate her employment at any time upon
30 day's notice.
b. If the Employee shall become unable to attend to the duties of
employment as required by this Agreement and it becomes necessary for
the Corporation to replace the Employee either temporarily or
permanently, the Corporation may do so and at the same time may suspend
all further payments to the Employee for salary or bonuses and all
other related compensation. The Corporation will recommence the payment
of salaries, bonuses and other compensation at such date as the
Employee shall resume and perform the Employee's duties under this
Agreement. The right of the Corporation as set forth above is in
addition to the right of the Corporation to terminate the Employee's
employment at any time as set forth above.
c. If the Employee's employment is terminated, all salaries, bonuses,
other compensation and benefits shall accrue and be paid to the
Employee to the date of the termination. Payments will be made with
respect to each item of compensation or benefit as soon as the amount
due is determined. In addition, if the Employee's employment is
terminated by the Corporation for any reason other than for cause: (i)
the Corporation shall pay to the Employee from the date of termination,
as severance compensation, the monthly salary of the Employee at the
date of termination for a period of (a) six months, if the date of
termination is during the first year of employment, or (b) six months
plus an additional two months for each full year of employment pursuant
to this Agreement, if the date of termination is after the first year
of employment; and (ii) the Corporation shall pay on behalf of the
Employee from the date of termination the Employee's monthly health
insurance premium for a period of (a) six months, if the date of
termination is during the first year of employment, or (b) six months
plus an additional two months for each full year of employment pursuant
to this Agreement, if the date of termination is after the first year
of employment, up to a maximum of twelve months. In the event the
3
<PAGE>
Employee's employment is terminated for cause, the Corporation shall
have the right to withhold any and all monies due to the Employee and
shall apply the same as an offset against any monies due to the
Corporation from the Employee as a result of any damages suffered by
the Corporation arising from the conduct or behavior which resulted in
termination for cause.
d. If the Employee dies while employed by the Corporation, this
Agreement shall automatically terminate.
11. Arbitration of Disputes
Any controversy or claim arising out of or relating to this Agreement,
the interpretation or breach of this Agreement, the Employee's employment by the
Corporation, or the termination of the Employee's employment shall be submitted
to and settled by arbitration in accordance with the Idaho Uniform Arbitration
Act. Judgment upon the award rendered in connection with such arbitration may be
entered in any court having jurisdiction thereof.
12. Severability; Governing Law
If any clause or provision of this Agreement shall be adjudged invalid
or unenforceable, it shall not affect the validity of any other clause or
provision, which shall remain in full force and effect. In the event any
provision of this Agreement is found to be unenforceable for any reason the
parties shall attempt to modify that portion in a manner to preserve the intent
of the parties in entering into the Agreement. The laws of Idaho shall apply to
this Agreement, except where Federal law applies. The parties consent to
jurisdiction and venue in any court of competent jurisdiction in the County of
Kootenai, Idaho, for any court proceedings which may be necessary following
arbitration or which may otherwise arise from this Agreement.
13. Complete Agreement
This Agreement supersedes all prior Agreements and understandings
between the Employee and the Corporation and may not be modified, changed or
altered by any unwritten promise or statement by whomsoever made; nor shall any
modification of it be binding upon the Corporation until such written
modification shall have been approved in writing by the President of the
Corporation.
14. Waiver of Breach
The waiver by the Corporation of a breach of any provision of this
Agreement by the Employee shall not operate or be construed as a waiver of any
other breach by the Employee.
4
<PAGE>
15. Employment by Subsidiary
If the Corporation owns, acquires or forms subsidiary companies or
becomes connected with other affiliate corporations, the Employee agrees to be
employed by any of the same and in such event all of the terms and conditions
set forth herein shall bind the parties.
16. General
This Agreement shall be binding upon and benefit any heirs,
subsidiaries, affiliates, successors, or assigns of the parties. All captions
used in this Agreement are for convenience only and shall have no meaning in the
interpretation or effect of this Agreement. The provisions of Section 11 of this
Agreement will survive the termination of this Agreement and remain in full
force and effect.
IN WITNESS WHEREOF, the parties have executed and delivered this
Agreement on and as of the date set forth above.
THE CORPORATION:
FISCHER-WATT GOLD COMPANY, INC.,
a Nevada corporation
By: /s/ George Beattie
--------------------------------
Name: George Beattie
--------------------------------
Title: Chairman
--------------------------------
THE EMPLOYEE:
MICHELE D. WOOD
/s/ Michele D. Wood
-----------------------------------
Michele D. Wood
5
OPTION
THIS OPTION AND THE SHARES OF COMMON STOCK ISSUABLE UPON THE
EXERCISE HEREOF HAVE NOT BEEN REGISTERED UNDER EITHER THE SECURI
TIES ACT OF 1933 (THE "ACT") OR APPLICABLE STATE SECURITIES LAWS
(THE "STATE ACTS") AND SHALL NOT BE SOLD, PLEDGED, HYPOTHECATED,
DONATED, OR OTHERWISE TRANSFERRED (WHETHER OR NOT FOR CONSIDER
ATION) BY THE HOLDER EXCEPT UPON THE ISSUANCE TO THE COMPANY OF
FAVORABLE OPINION OF COUNSEL OR SUBMISSION TO THE COMPANY OF SUCH
EVIDENCE AS MAY BE SATISFACTORY TO COUNSEL TO THE COMPANY, IN
EACH SUCH CASE, TO THE EFFECT THAT ANY SUCH TRANSFER SHALL NOT BE
IN VIOLATION OF THE ACT AND THE STATE ACTS.
OPTION TO PURCHASE 100,000 SHARES OF COMMON STOCK
FISCHER-WATT GOLD COMPANY, INC.
(A Nevada Corporation)
Not Transferable or Exercisable Except
upon Conditions Herein Specified
Void after 5:00 O'Clock P.M.,
Pacific Time, on November 01, 2002
Fischer-Watt Gold Company, Inc., a Nevada corporation (the "Company")
hereby certifies that Michele D. Wood or her registered successors and permitted
assigns, registered on the books of the Company maintained for such purposes as
the registered holder hereof (the "Holder"), for value received, is entitled to
purchase from the Company the number of fully paid and non-assessable shares of
Common Stock of the Company, of the par value of $.001 per share (the "Shares"),
stated above at the purchase price of $.56 per Share (the "Exercise Price") (the
number of Shares and Exercise Price being subject to adjustment as hereinafter
provided) upon the terms and conditions herein provided.
1. Exercise of Option.
(a) Subject to subsection (b) of this Section 1, upon
presentation and surrender of this Option Certificate, with the attached
Purchase Form duly executed, at the principal office of the Company at 1621
North Third Street, Suite 1000, Coeur d'Alene, Idaho 83814, or at such other
place as the Company may designate by notice to the Holder hereof, together with
a certified or bank cashier's check payable to the order of the Company in the
amount of the Exercise Price times the number of Shares being purchased, the
Company shall deliver to the Holder hereof, as promptly as practicable,
certificates representing the Shares being purchased. This Option may be
exercised in whole or in part; and, in case of exercise hereof in part only, the
Company, upon surrender hereof, will deliver to the Holder a new Option
Certificate or Option Certificates of like tenor entitling the Holder to
purchase the number of Shares as to which this Option has not been exercised.
-1-
<PAGE>
(b) This Option may be exercised in whole or in part at any
time after November 1, 1997 and prior to 5:00 o'clock P.M. Pacific Time, on
November 1, 2002.
2. Exchange and Transfer of Option. This Option at any time prior to
the exercise hereof, upon presentation and surrender to the Company, may be
exchanged, alone or with other Options of like tenor registered in the name of
the Holder, for another Option or other Options of like tenor in the name of
such Holder exercisable for the same aggregate number of Shares as the Option or
Options surrendered.
3. Rights and Obligations of Option Holder.
(a) The Holder of this Option Certificate shall not, by virtue
hereof, be entitled to any rights of a stockholder in the Company, either at law
or in equity; provided, however, in the event that any certificate representing
the Shares is issued to the Holder hereof upon exercise of this Option, such
Holder shall, for all purposes, be deemed to have become the holder of record of
such Shares on the date on which this Option Certificate, together with a duly
executed Purchase Form, was surrendered and payment of the Exercise Price was
made, irrespective of the date of delivery of such Share certificate. The rights
of the Holder of this Option are limited to those expressed herein and the
Holder of this Option, by its acceptance hereof, consents to and agrees to be
bound by and to comply with all the provisions of this Option Certificate,
including, without limitation, all the obligations imposed upon the Holder
hereof by Section 5 hereof. In addition, the Holder of this Option Certificate,
by accepting the same, agrees that the Company may deem and treat the person in
whose name this Option Certificate is registered on the books of the Company
maintained for such purpose as the absolute, true and lawful owner for all
purposes whatsoever, notwithstanding any notation of ownership or other writing
thereon, and the Company shall not be affected by any notice to the contrary.
(b) No Holder of this Option Certificate, as such, shall be
entitled to vote or receive dividends or to be deemed the holder of Shares for
any purpose, nor shall anything contained in this Option Certificate be
construed to confer upon any Holder of this Option Certificate, as such, any of
the rights of a stockholder of the Company or any right to vote, give or
withhold consent to any action by the Company, whether upon any
recapitalization, issue of stock, reclassification of stock, consolidation,
merger, conveyance or otherwise, receive notice of meetings or other action
affecting stockholders (except for notices provided for herein), receive
dividends, subscription rights, or otherwise, until this Option shall have been
exercised and the Shares purchasable upon the exercise thereof shall have become
deliverable as provided herein; provided, however, that any such exercise on any
date when the stock transfer books of the Company shall be closed shall
constitute the person or persons in whose name or names the certificate or
certificates for those Shares are to be issued as the record holder or holders
thereof for all purposes at the opening of business on the next succeeding day
on which such stock transfer books are open, and the Option surrendered shall
-2-
<PAGE>
not be deemed to have been exercised, in whole or in part as the case may be,
until the next succeeding day on which stock transfer books are open for the
purpose of determining entitlement to dividends on the Company's common stock.
4. Shares Underlying Option. The Company covenants and agrees that all
Shares delivered upon exercise of this Option shall, upon delivery and payment
therefor, be duly and validly authorized and issued, fully paid and
non-assessable, and free from all stamp-taxes, liens, and charges with respect
to the purchase thereof. In addition, the Company agrees at all time to reserve
and keep available an authorized number of Shares sufficient to permit the
exercise in full of this Option.
5. Disposition of Option or Shares.
(a) The holder of this Option Certificate and any transferee
hereof or of the Shares issuable upon the exercise of the Option Certificate, by
their acceptance hereof, hereby understand and agree that the Option, and the
Shares issuable upon the exercise hereof, have not been registered under either
the Securities Act of 1933 (the "Act") or applicable state securities laws (the
"State Acts") and shall not be sold, pledged, hypothecated, donated, or
otherwise transferred (whether or not for consideration) except upon the
issuance to the Company of a favorable opinion of counsel or submission to the
Company of such evidence as may be satisfactory to counsel to the Company, in
each such case, to the effect that any such transfer shall not be in violation
of the Act and the State Acts. It shall be a condition to the transfer of this
Option that any transferee hereof deliver to the Company its written agreement
to accept and be bound by all of the terms and conditions of this Option
Certificate.
(b) The stock certificates of the Company that will evidence
the shares of Common Stock with respect to which this Option may be exercisable
will be imprinted with a conspicuous legend in substantially the following form:
The shares represented by this Certificate have not been registered
under the Securities Act of 1933 (the "Act") or applicable state
securities laws (the "State Acts") and shall not be sold, pledged,
hypothecated, donated or otherwise transferred (whether or not for
consideration) by the holder except upon the issuance to the Company of
a favorable opinion of its counsel or submission to the Company of such
other evidence as may be satisfactory to counsel to the Company, in
each such case, to the effect that any such transfer shall not be in
violation of the Act and the State Acts.
The Company has not agreed to register any of the holder's shares of
Common Stock of the Company with respect to which this Option may be exercisable
for distribution in accordance with the provisions of the Act or the State Acts
and, the Company has not agreed to comply with any exemption from registration
under the Act or the State Acts for the resale of the holder's shares of Common
Stock of the Company with respect to which this Option may be exercised. Hence,
it is the understanding of the holders of this Option that by virtue of the
provisions of certain rules respecting "restricted securities" promulgated by
-3-
<PAGE>
the SEC, the shares of Common Stock of the Company with respect to which this
Option may be exercisable may be required to be held indefinitely, unless and
until registered under the Act and the State Acts, unless an exemption from such
registra tion is available, in which case the holder may still be limited as to
the number of shares of Common Stock of the Company with respect to which this
Option may be exercised that may be sold.
6. Adjustments. The number of Shares purchasable upon the exercise of
this Option is subject to adjustment from time to time upon the occurrence of
any of the events enumerated below.
(a) In case the Company shall: (i) pay a dividend in Shares,
(ii) subdivide its outstanding Shares into a greater number of Shares, (iii)
combine its outstanding Shares into a smaller number of Shares, or (iv) issue,
by reclassification of its Shares, any shares of its capital stock, the amount
of Shares purchasable upon the exercise of this Option immediately prior thereto
shall be adjusted so that the Holder shall be entitled to receive upon exercise
of the Option that number of Shares which such Holder would have owned or would
have been entitled to receive after the happening of such event had such Holder
exercised the Option immediately prior to the record date, in the case of such
dividend, or the effective date, in the case of any such subdivision,
combination or reclassification. An adjustment made pursuant to this subsection
(a) shall be made whenever any of such events shall occur, but shall become
effective retroactively after such record date or such effective date, as the
case may be, as to any exercise between such record date or effective date and
the date of happening of any such event.
(b) Notice to Option Holders of Adjustment. Whenever the
number of Shares purchasable hereunder is adjusted as herein provided, the
Company shall cause to be mailed to the Holder in accordance with the provisions
of this Section 6 a notice (i) stating that the number of Shares purchasable
upon exercise of this Option have been adjusted, (ii) setting forth the adjusted
number of Shares purchasable upon the exercise of this Option, and (iii) showing
in reasonable detail the computations and the facts, including the amount of
consideration received or deemed to have been received by the Company, upon
which such adjustments are based.
7. Fractional Shares. The Company shall not be required to issue any
fraction of a Share upon the exercise of this Option. If more than one Option
shall be surrendered for exercise at one time by the same Holder, the number of
full Shares which shall be issuable upon exercise thereof shall be computed on
the basis of the aggregate number of Shares with respect to which this Option is
exercised. If any fractional interest in a Share shall be deliverable upon the
exercise of this Option, the Company shall make an adjustment therefor in cash
equal to such fraction multiplied by the Exercise Price.
8. Loss or Destruction. Upon receipt of evidence satisfactory to the
Company of the loss, theft, destruction or mutilation of this Option Certificate
and, in the case of any such loss, theft or destruction, upon delivery of an
-4-
<PAGE>
indemnity agreement or bond satisfactory in form, substance and amount to the
Company or, in the case of any such mutilation, upon surrender and cancellation
of this Option Certificate, the Company at its expense will execute and deliver,
in lieu thereof, a new Option Certificate of like tenor.
9. Survival. The various rights and obligations of the Holder hereof
as set forth herein shall survive the exercise of the Option represented hereby
and the surrender of this Option Certificate.
10. Notices. Whenever any notice, payment of any purchase price, or
other communication is required to be given or delivered under the terms of this
Option, it shall be in writing and delivered by hand delivery or United States
registered or certified mail, return receipt requested, postage prepaid, and
will be deemed to have been given or delivered on the date such notice, purchase
price or other communication is so delivered or posted, as the case may be; and,
if to the Company, it will be addressed to the address specified in Section 1
hereof, and if to the Holder, it will be addressed to the registered Holder at
its, his or her address as it appears on the books of the Company.
FISCHER-WATT GOLD COMPANY, INC.
By /s/ George Beattie
---------------------------------------
George Beattie, Chief Executive Officer
Date November 4, 1996
------------------------------------
-5-
<PAGE>
PURCHASE FORM
----------------, ----
TO: FISCHER-WATT GOLD COMPANY, INC
The undersigned hereby irrevocably elects to exercise the attached
Option Certificate to the extent of ---------- shares of the Common Stock, par
value $.001 per share, of Fischer-Watt Gold Company, Inc. and hereby makes
payment of $----- in accordance with the provisions of Section 1 of the Option
Certificate in payment of the purchase price thereof.
INSTRUCTIONS FOR REGISTRATION OF STOCK
Name:
--------------------------------------------------------------
(Please typewrite or print in block letters)
Address:
-----------------------------------------------------------
-------------------------------
By
-----------------------------
-6-
<PAGE>
ASSIGNMENT FORM
For value received, the undersigned hereby sells, assigns, and
transfers to
Name
-----------------------------------------------------------------------
Address
--------------------------------------------------------------------
this Option and irrevocably appoints ------------------------------ attorney
(with full power of substitution) to transfer this Option on the books of the
Company.
Date:
------------------------- -----------------------------------
(Please sign exactly as name
appears on Option)
Taxpayer ID No.
-------------------
-7-
OPTION
THIS OPTION AND THE SHARES OF COMMON STOCK ISSUABLE UPON THE
EXERCISE HEREOF HAVE NOT BEEN REGISTERED UNDER EITHER THE SECURI
TIES ACT OF 1933 (THE "ACT") OR APPLICABLE STATE SECURITIES LAWS
(THE "STATE ACTS") AND SHALL NOT BE SOLD, PLEDGED, HYPOTHECATED,
DONATED, OR OTHERWISE TRANSFERRED (WHETHER OR NOT FOR CONSIDER
ATION) BY THE HOLDER EXCEPT UPON THE ISSUANCE TO THE COMPANY OF
FAVORABLE OPINION OF COUNSEL OR SUBMISSION TO THE COMPANY OF SUCH
EVIDENCE AS MAY BE SATISFACTORY TO COUNSEL TO THE COMPANY, IN
EACH SUCH CASE, TO THE EFFECT THAT ANY SUCH TRANSFER SHALL NOT BE
IN VIOLATION OF THE ACT AND THE STATE ACTS.
OPTION TO PURCHASE 100,000 SHARES OF COMMON STOCK
FISCHER-WATT GOLD COMPANY, INC.
(A Nevada Corporation)
Not Transferable or Exercisable Except
upon Conditions Herein Specified
Void after 5:00 O'Clock P.M.,
Pacific Time, on January 31, 2003
Fischer-Watt Gold Company, Inc., a Nevada corporation (the "Company")
hereby certifies that R. Michael Robb or his registered successors and permitted
assigns, registered on the books of the Company maintained for such purposes as
the registered holder hereof (the "Holder"), for value received, is entitled to
purchase from the Company the number of fully paid and non-assessable shares of
Common Stock of the Company, of the par value of $.001 per share (the "Shares"),
stated above at the purchase price of $.53 per Share (the "Exercise Price") (the
number of Shares and Exercise Price being subject to adjustment as hereinafter
provided) upon the terms and conditions herein provided.
1. Exercise of Option.
(a) Subject to subsection (b) of this Section 1, upon
presentation and surrender of this Option Certificate, with the attached
Purchase Form duly executed, at the principal office of the Company at 1621
North Third Street, Suite 1000, Coeur d'Alene, Idaho 83814, or at such other
place as the Company may designate by notice to the Holder hereof, together with
a certified or bank cashier's check payable to the order of the Company in the
amount of the Exercise Price times the number of Shares being purchased, the
Company shall deliver to the Holder hereof, as promptly as practicable,
certificates representing the Shares being purchased. This Option may be
exercised in whole or in part; and, in case of exercise hereof in part only, the
Company, upon surrender hereof, will deliver to the Holder a new Option
Certificate or Option Certificates of like tenor entitling the Holder to
purchase the number of Shares as to which this Option has not been exercised.
-1-
<PAGE>
(b) This Option may be exercised in whole or in part at any
time after February 1, 1998 and prior to 5:00 o'clock P.M. Pacific Time, on
January 31, 2003.
2. Exchange and Transfer of Option. This Option at any time prior to
the exercise hereof, upon presentation and surrender to the Company, may be
exchanged, alone or with other Options of like tenor registered in the name of
the Holder, for another Option or other Options of like tenor in the name of
such Holder exercisable for the same aggregate number of Shares as the Option or
Options surrendered.
3. Rights and Obligations of Option Holder.
(a) The Holder of this Option Certificate shall not, by virtue
hereof, be entitled to any rights of a stockholder in the Company, either at law
or in equity; provided, however, in the event that any certificate representing
the Shares is issued to the Holder hereof upon exercise of this Option, such
Holder shall, for all purposes, be deemed to have become the holder of record of
such Shares on the date on which this Option Certificate, together with a duly
executed Purchase Form, was surrendered and payment of the Exercise Price was
made, irrespective of the date of delivery of such Share certificate. The rights
of the Holder of this Option are limited to those expressed herein and the
Holder of this Option, by its acceptance hereof, consents to and agrees to be
bound by and to comply with all the provisions of this Option Certificate,
including, without limitation, all the obligations imposed upon the Holder
hereof by Section 5 hereof. In addition, the Holder of this Option Certificate,
by accepting the same, agrees that the Company may deem and treat the person in
whose name this Option Certificate is registered on the books of the Company
maintained for such purpose as the absolute, true and lawful owner for all
purposes whatsoever, notwithstanding any notation of ownership or other writing
thereon, and the Company shall not be affected by any notice to the contrary.
(b) No Holder of this Option Certificate, as such, shall be
entitled to vote or receive dividends or to be deemed the holder of Shares for
any purpose, nor shall anything contained in this Option Certificate be
construed to confer upon any Holder of this Option Certificate, as such, any of
the rights of a stockholder of the Company or any right to vote, give or
withhold consent to any action by the Company, whether upon any
recapitalization, issue of stock, reclassification of stock, consolidation,
merger, conveyance or otherwise, receive notice of meetings or other action
affecting stockholders (except for notices provided for herein), receive
dividends, subscription rights, or otherwise, until this Option shall have been
exercised and the Shares purchasable upon the exercise thereof shall have become
deliverable as provided herein; provided, however, that any such exercise on any
date when the stock transfer books of the Company shall be closed shall
constitute the person or persons in whose name or names the certificate or
certificates for those Shares are to be issued as the record holder or holders
thereof for all purposes at the opening of business on the next succeeding day
on which such stock transfer books are open, and the Option surrendered shall
not be deemed to have been exercised, in whole or in part as the case may be,
until the next succeeding day on which stock transfer books are open for the
purpose of determining entitlement to dividends on the Company's common stock.
-2-
<PAGE>
4. Shares Underlying Option. The Company covenants and agrees that all
Shares delivered upon exercise of this Option shall, upon delivery and payment
therefor, be duly and validly authorized and issued, fully paid and
non-assessable, and free from all stamp-taxes, liens, and charges with respect
to the purchase thereof. In addition, the Company agrees at all time to reserve
and keep available an authorized number of Shares sufficient to permit the
exercise in full of this Option.
5. Disposition of Option or Shares.
(a) The holder of this Option Certificate and any transferee
hereof or of the Shares issuable upon the exercise of the Option Certificate, by
their acceptance hereof, hereby understand and agree that the Option, and the
Shares issuable upon the exercise hereof, have not been registered under either
the Securities Act of 1933 (the "Act") or applicable state securities laws (the
"State Acts") and shall not be sold, pledged, hypothecated, donated, or
otherwise transferred (whether or not for consideration) except upon the
issuance to the Company of a favorable opinion of counsel or submission to the
Company of such evidence as may be satisfactory to counsel to the Company, in
each such case, to the effect that any such transfer shall not be in violation
of the Act and the State Acts. It shall be a condition to the transfer of this
Option that any transferee hereof deliver to the Company its written agreement
to accept and be bound by all of the terms and conditions of this Option
Certificate.
(b) The stock certificates of the Company that will evidence
the shares of Common Stock with respect to which this Option may be exercisable
will be imprinted with a conspicuous legend in substantially the following form:
The shares represented by this Certificate have not been registered
under the Securities Act of 1933 (the "Act") or applicable state
securities laws (the "State Acts") and shall not be sold, pledged,
hypothecated, donated or otherwise transferred (whether or not for
consideration) by the holder except upon the issuance to the Company of
a favorable opinion of its counsel or submission to the Company of such
other evidence as may be satisfactory to counsel to the Company, in
each such case, to the effect that any such transfer shall not be in
violation of the Act and the State Acts.
The Company has not agreed to register any of the holder's shares of
Common Stock of the Company with respect to which this Option may be exercisable
for distribution in accordance with the provisions of the Act or the State Acts
and, the Company has not agreed to comply with any exemption from registration
under the Act or the State Acts for the resale of the holder's shares of Common
Stock of the Company with respect to which this Option may be exercised. Hence,
it is the understanding of the holders of this Option that by virtue of the
provisions of certain rules respecting "restricted securities" promulgated by
the SEC, the shares of Common Stock of the Company with respect to which this
-3-
<PAGE>
Option may be exercisable may be required to be held indefinitely, unless and
until registered under the Act and the State Acts, unless an exemption from such
registration is available, in which case the holder may still be limited as to
the number of shares of Common Stock of the Company with respect to which this
Option may be exercised that may be sold.
6. Adjustments. The number of Shares purchasable upon the exercise of
this Option is subject to adjustment from time to time upon the occurrence of
any of the events enumerated below.
(a) In case the Company shall: (i) pay a dividend in Shares,
(ii) subdivide its outstanding Shares into a greater number of Shares, (iii)
combine its outstanding Shares into a smaller number of Shares, or (iv) issue,
by reclassification of its Shares, any shares of its capital stock, the amount
of Shares purchasable upon the exercise of this Option immediately prior thereto
shall be adjusted so that the Holder shall be entitled to receive upon exercise
of the Option that number of Shares which such Holder would have owned or would
have been entitled to receive after the happening of such event had such Holder
exercised the Option immediately prior to the record date, in the case of such
dividend, or the effective date, in the case of any such subdivision,
combination or reclassification. An adjustment made pursuant to this subsection
(a) shall be made whenever any of such events shall occur, but shall become
effective retroactively after such record date or such effective date, as the
case may be, as to any exercise between such record date or effective date and
the date of happening of any such event.
(b) Notice to Option Holders of Adjustment. Whenever the
number of Shares purchasable hereunder is adjusted as herein provided, the
Company shall cause to be mailed to the Holder in accordance with the provisions
of this Section 6 a notice (i) stating that the number of Shares purchasable
upon exercise of this Option have been adjusted, (ii) setting forth the adjusted
number of Shares purchasable upon the exercise of this Option, and (iii) showing
in reasonable detail the computations and the facts, including the amount of
consideration received or deemed to have been received by the Company, upon
which such adjustments are based.
7. Fractional Shares. The Company shall not be required to issue any
fraction of a Share upon the exercise of this Option. If more than one Option
shall be surrendered for exercise at one time by the same Holder, the number of
full Shares which shall be issuable upon exercise thereof shall be computed on
the basis of the aggregate number of Shares with respect to which this Option is
exercised. If any fractional interest in a Share shall be deliverable upon the
exercise of this Option, the Company shall make an adjustment therefor in cash
equal to such fraction multiplied by the Exercise Price.
8. Loss or Destruction. Upon receipt of evidence satisfactory to the
Company of the loss, theft, destruction or mutilation of this Option Certificate
and, in the case of any such loss, theft or destruction, upon delivery of an
-4-
<PAGE>
indemnity agreement or bond satisfactory in form, substance and amount to the
Company or, in the case of any such mutilation, upon surrender and cancellation
of this Option Certificate, the Company at its expense will execute and deliver,
in lieu thereof, a new Option Certificate of like tenor.
9. Survival. The various rights and obligations of the Holder hereof
as set forth herein shall survive the exercise of the Option represented hereby
and the surrender of this Option Certificate.
10. Notices. Whenever any notice, payment of any purchase price, or
other communication is required to be given or delivered under the terms of this
Option, it shall be in writing and delivered by hand delivery or United States
registered or certified mail, return receipt requested, postage prepaid, and
will be deemed to have been given or delivered on the date such notice, purchase
price or other communication is so delivered or posted, as the case may be; and,
if to the Company, it will be addressed to the address specified in Section 1
hereof, and if to the Holder, it will be addressed to the registered Holder at
its, his or her address as it appears on the books of the Company.
FISCHER-WATT GOLD COMPANY, INC.
By /s/ George Beattie
---------------------------------
George Beattie, Chief Executive Officer
Date February 1, 1997
----------------
-5-
<PAGE>
PURCHASE FORM
---------, ----
TO: FISCHER-WATT GOLD COMPANY, INC
The undersigned hereby irrevocably elects to exercise the attached
Option Certificate to the extent of __________ shares of the Common Stock, par
value $.001 per share, of Fischer-Watt Gold Company, Inc. and hereby makes
payment of $_____ in accordance with the provisions of Section 1 of the Option
Certificate in payment of the purchase price thereof.
INSTRUCTIONS FOR REGISTRATION OF STOCK
Name:
------------------------------------------------------------
(Please typewrite or print in block letters)
Address:
---------------------------------------------------------
-------------------------------
By
----------------------------
-6-
<PAGE>
ASSIGNMENT FORM
For value received, the undersigned hereby sells, assigns, and
transfers to
Name
-------------------------------------------------------------
Address
-----------------------------------------------------------
this Option and irrevocably appoints ------------------------------ attorney
(with full power of substitution) to transfer this Option on the books of the
Company.
Date:
---------------------- ----------------------------------
(Please sign exactly as name
appears on Option)
Taxpayer ID No.
---------------
-7-
December 27, 1996
Certified/Return Receipt Requested
Lyle F. Campbell
The Lyle F. Campbell Trust
P.O. Box 7377
Reno, Nevada 89510
RE: Amendment and Assignment of New Claims to Tempo Mineral Lease
Dear Lyle,
Pursuant to Section 8. New Mining Claims, paragraph A., Great Basin Exploration
& Mining Co., Inc. herein submits an Amendment to Exhibit A of the Tempo Mineral
Lease and an accompanying Quit Claim Deed assigning such claims to The Lyle F.
Campbell Trust.
If these documents are satisfactory to you, please execute and notarize the
Amendment and return the originals to me for execution by George Beattie,
President of Great Basin. I will then have both the Amendment and the Quitclaim
filed with the Lander County and return the recorded copies to you.
I believe we have already submitted copies of the Certificates of Location to
the Trust, as well as copies of the annual rental fee recordings.
Should you have any questions, changes or concerns, please contact us.
Kind regards,
/s/ Diane Bryan
- -----------------------------
Diane Bryan
cc: G. Beattie
<PAGE>
AMENDMENT TO MINERAL LEASE
Tempo Mineral Prospect
THIS AMENDMENT to the Mineral Lease is executed this 27th day of December, 1996,
between Lyle F. Campbell, Sole Trustee of the Lyle F. Campbell Trust under an
Agreement dated August 5, 1986 and amended on May 21, 1987, August 19, 1987 and
April 29, 1991, hereinafter referred to as "Campbell" and Great Basin
Exploration & Mining Co., Inc., a Nevada corporation, hereinafter referred to as
"GBEM".
RECITALS
A. Campbell and GBEM are parties to a certain Mineral Lease Agreement
dated effective October 14, 1994.
B. Campbell and GBEM, for purposes of inluding the Tempo claims, as
listed in the attached list of Unpatented mining claims located in
T20N, R42E, and T21N, R42E, M.D.B. & M., Lander County, Nevada,
located between March 16 and 22, 1996 by GBEM and transferred to
Campbell by Quitclaim Deed on Dec. 27, 1996, desire to amend Exhibit
"A" to the Mineral Lease to include said claims.
AGREEMENT
NOW, THEREFORE, in consideration of the foregoing and of the mutual benefits to
be derived, Campbell and GBEM agree as follows:
1. The Mineral Lease is hereby amended to include those certain Tempo
claims, as listed in the Quitclaim Deed, attached hereto.
2. Exhibit "A" to the Mineral Lease dated October 14, 1994 is hereby
deleted in its entirety and Exhibit "A" attached supersedes and is
substituted therefore, in its entirety.
3. Except as stated in the preceding two paragraphs, all of the terms and
conditions of the Mineral Lease remain in full force and effect.
GREAT BASIN EXPLORATION THE LYLE F. CAMPBELL TRUST
& MINING CO., INC.
By /s/ George Beattie By /s/ Lyle F. Campbell
----------------------------------- ------------------------------
George Beattie, President Lyle F. Campbell, Sole Trustee
<PAGE>
STATE OF NEVADA )
) ss.
COUNTY OF WASHOE )
On this 27th day of January, 1997, personally appeared before me, a
Notary Public, in and for the state and county aforesaid, Lyle F. Campbell, the
Sole Trustee of THE LYLE F. CAMPBELL TRUST., under an Agreement dated August 5,
1986 and amended on May 21, 1987, August 19, 1987 and April 29, 1991, who
acknowledged that he executed the within instrument on behalf of said
corporation for purposes expressed therein.
/s/
------------------------------------
NOTARY PUBLIC
STATE OF NEVADA )
) ss.
COUNTY OF WASHOE )
On this 27th day of December, 1996, personally appeared before me, a
Notary Public, in and for the state and county aforesaid, George Beattie, the
President of GREAT BASIN EXPLORATION & MINING CO., INC., a Nevada corporation,
who acknowledged that he executed the within instrument on behalf of said
corporation for purposes expressed therein.
/s/ Diane K. Bryan
------------------------------------
Diane K. Bryan
NOTARY PUBLIC
<PAGE>
QUITCLAIM DEED
GREAT BASIN EXPLORATION & MINING CO., INC., a Nevada corporation whose
address is 3400 Kauai Court, Suite 208, Reno, Nevada 89509 the United States of
America, ("Grantor") hereby QUITCLAIMS to THE LYLE F. CAMPBELL TRUST, under an
Agreement of Trust dated August 5, 1986 and amended on May 21, 1987, August 19,
1987 and April 29, 1991, whose address is P.O. Box 7377, Reno, Nevada 89510
("Grantee"), for the sum of TEN DOLLARS ($10.00) and other good and valuable
consideration, the receipt whereof is hereby acknowledged, has remised, released
and forever quitclaimed, and by these presents does remise, release and forever
quitclaim unto the Grantee and to its successors and assigns forever, all of its
right, title and interest in and to those certain unpatented mining claims
located in Lander County, Nevada, (the "Premises"), more particularly described
in the listing attached hereto.
TOGETHER WITH all dips, spurs and angles, in and to all the ores,
mineral-bearing quartz, rock and earth or other deposits therein or thereon, and
in and to all of the rights, privileges and franchises hereditaments and
appurtances thereunto belonging or in anywise appertaining, and the rents,
issues and profits thereon; and also in and to all the estate, right, title,
interest, property, possession, claim and demand whatsoever, as well in law as
in equity, of the said Grantor, of, in or to the Premises and every part and
parcel thereof, with the appurtenances, including all after-acquired title.
TO HAVE AND TO HOLD, all and singular, the said Premises, together with
the appurtenances and privileges thereto incident unto the said Grantees, their
successors and assigns forever.
IN WITNESS WHEREOF, the Grantor has executed this Quitclaim Deed this
27th day of December, 1996.
GREAT BASIN EXPLORATION & MINING CO., INC.
By: /s/ George Beattie
--------------------------------------
George Beattie, President
<PAGE>
STATE OF NEVADA )
) ss.
COUNTY OF WASHOE )
On this 27th day of December, 1996, personally appeared before me, a
Notary Public, in and for the state and county aforesaid, George Beattie, the
President of GREAT BASIN EXPLORATION & MINING CO., INC., a Nevada corporation,
who acknowledged that he executed the within instrument on behalf of said
corporation for purposes expressed therein.
/s/ Diane K. Bryan
--------------------------------------
Diane K. Bryan
NOTARY PUBLIC
<PAGE>
Exhibit to Quitclaim Deed
Attached to an made a part of that certain Quitclaim Deed dated the 27th day of
December, 1996, by and between GREAT BASIN EXPLORATION & MINING CO., INC.
("Grantor") and the LYLE F.CAMPBELL TRUST, ("Grantee").
Unpatented mining claims located in T20N, R42E, and
T21N, R42E, M.D.B. & M., Lander County, Nevada.
<TABLE>
<CAPTION>
Claim Location County BLM
Name/No Date Book/Page Serial Nos.
- ------- -------- ----------- -----------
<S> <C> <C> <C> <C>
Nova 83 3/19/96 428 665 739127
Nova 84 3/19/96 428 666 739126
Nova 85 3/19/96 428 667 739125
Nova 86 3/19/96 428 668 739124
Nova 87 3/19/96 428 669 739122
Nova 88 3/19/96 428 670 739121
Nova 89 3/19/96 428 671 739120
Nova 90 3/18/96 428 672 739119
Nova 91 3/18/96 428 673 739151
Nova 92 3/18/96 428 674 739150
Nova 93 3/18/96 428 675 739149
Nova 94 3/18/96 428 676 739148
Nova 95 3/18/96 428 677 739147
Nova 96 3/18/96 428 678 739146
Nova 97 3/18/96 428 679 739145
Nova 98 3/18/96 428 680 739144
Nova 131 3/18/96 428 681 739143
Nova 132 3/18/96 428 682 739142
Nova 133 3/18/96 428 683 739141
Nova 134 3/18/96 428 684 739140
Nova 135 3/18/96 428 685 739139
Nova 136 3/18/96 428 686 739136
Nova 137 3/18/96 428 687 739137
Nova 138 3/18/96 428 688 739176
Nova 139 3/18/96 428 689 739175
Nova 140 3/18/96 428 690 739174
Nova 141 3/18/96 428 691 739173
Nova 142 3/18/96 428 692 739172
Nova 143 3/18/96 428 693 739171
Nova 144 3/18/96 428 694 739170
Nova 145 3/18/96 428 695 739169
Nova 146 3/18/96 428 696 739168
Nova 147 3/18/96 428 697 739167
Nova 148 3/18/96 428 698 739166
Nova 149 3/18/96 428 699 739165
Nova 150 3/18/96 428 700 739164
<PAGE>
<CAPTION>
Claim Location County BLM
Name/No Date Book/Page Serial Nos.
- ------- -------- ----------- -----------
<S> <C> <C> <C> <C>
Nova 151 3/18/96 428 701 739163
Nova 152 3/18/96 428 702 739162
Nova 153 3/18/96 428 703 739161
Nova 154 3/18/96 428 704 739160
Nova 155 3/18/96 428 705 739159
Nova 156 3/18/96 428 706 739158
Nova 198 3/19/96 428 707 739157
Nova 199 3/19/96 428 708 739156
Nova 200 3/17/96 428 709 739155
Nova 201 3/17/96 428 710 739154
Nova 202 3/17/96 428 711 739153
Nova 203 3/17/96 428 712 739152
Nova 204 3/17/96 428 713 739193
Nova 205 3/17/96 428 714 739192
Nova 206 3/17/96 428 715 739191
Nova 207 3/17/96 428 716 739190
Nova 208 3/17/96 428 717 739189
Nova 209 3/17/96 428 718 739188
Nova 210 3/17/96 428 719 739187
Nova 211 3/17/96 428 720 739186
Nova 212 3/17/96 428 721 739185
Nova 213 3/17/96 428 722 739184
Nova 214 3/17/96 428 723 739183
Nova 215 3/17/96 428 724 739182
Nova 216 3/18/96 428 725 739046
Nova 217 3/18/96 428 726 739047
Nova 218 3/18/96 428 727 739048
Nova 219 3/18/96 428 728 739049
Nova 220 3/18/96 428 729 739050
Nova 221 3/18/96 428 730 739051
Nova 222 3/18/96 428 731 739052
Nova 223 3/18/96 428 732 739053
Nova 224 3/18/96 428 733 739054
Nova 225 3/18/96 428 734 739055
Nova 226 3/18/96 428 735 739056
Nova 227 3/18/96 428 736 739057
Nova 228 3/18/96 428 737 739058
Nova 229 3/18/96 428 738 739059
Nova 230 3/18/96 428 739 739060
Nova 231 3/18/96 428 740 739061
<PAGE>
<CAPTION>
Claim Location County BLM
Name/No Date Book/Page Serial Nos.
- ------- -------- ----------- -----------
<S> <C> <C> <C> <C>
Nova 232 3/18/96 428 741 739062
Nova 233 3/18/96 428 742 739063
Nova 234 3/18/96 428 743 739064
Nova 235 3/18/96 428 744 739065
Nova 236 3/18/96 428 745 739066
Nova 237 3/18/96 428 746 739067
Nova 238 3/18/96 428 747 739068
Nova 239 3/18/96 428 748 739069
Nova 240 3/19/96 428 749 739028
Nova 241 3/19/96 428 750 739029
Nova 242 3/19/96 428 751 739030
Nova 243 3/19/96 428 752 739031
Nova 244 3/19/96 428 753 739032
Nova 245 3/19/96 428 754 739033
Nova 246 3/19/96 428 755 739034
Nova 247 3/19/96 428 756 739035
Nova 248 3/19/96 428 757 739036
Nova 249 3/19/96 428 758 739037
Nova 250 3/19/96 428 759 739038
Nova 251 3/19/96 428 760 739039
Nova 252 3/19/96 428 761 739040
Nova 253 3/19/96 428 762 739041
Nova 254 3/19/96 428 763 739042
Nova 255 3/19/96 428 764 739012
Nova 256 3/19/96 428 765 739013
Nova 257 3/19/96 428 766 739014
Nova 258 3/19/96 428 767 739015
Nova 259 3/19/96 428 768 739016
Nova 260 3/19/96 428 769 739017
Nova 261 3/19/96 428 770 739018
Nova 262 3/19/96 428 771 739019
Nova 263 3/19/96 428 772 739020
Nova 264 3/19/96 428 773 739021
Nova 265 3/19/96 428 774 739022
Nova 86A 3/19/96 428 775 739123
T 2 3/19/96 428 776 739026
T 3 3/19/96 428 777 739209
T 4 3/19/96 428 778 739210
T 5 3/19/96 428 779 739211
<PAGE>
<CAPTION>
Claim Location County BLM
Name/No Date Book/Page Serial Nos.
- ------- -------- ----------- -----------
<S> <C> <C> <C> <C>
T 6 3/19/96 428 780 739025
T 89 3/18/96 428 781 739095
T 90 3/18/96 428 782 739043
T 91 3/18/96 428 783 739044
T 92 3/22/96 428 784 739200
T 93 3/22/96 428 785 739201
T 94 3/22/96 428 786 739202
T 95 3/22/96 428 787 739203
T 96 2/22/96 428 788 739204
T 97 3/22/96 428 789 739205
T 98 3/22/96 428 790 739206
T 99 3/22/96 428 791 739207
T 100 3/22/96 428 792 739208
TA 6 3/20/96 428 793 739197
TA 7 3/20/96 428 794 739198
TA 8 3/20/96 428 795 739199
TA 9 3/19/96 428 796 739027
TA 89 3/18/96 428 797 739092
TA 90 3/18/96 428 798 739093
TA 91 3/18/96 428 799 739094
TA 92 3/22/96 428 800 739227
TA 93 3/22/96 428 801 739228
TA 94 3/22/96 428 802 739229
TA 95 3/22/96 428 803 739230
TA 96 3/22/96 428 804 739231
TA 97 3/22/96 428 805 739194
TA 98 3/22/96 428 806 739195
TA 99 3/22/96 428 807 739196
TB 8 3/20/96 428 808 739224
TB 9 3/20/96 428 809 739225
TB 10 3/20/96 428 810 739226
TB 11 3/19/96 428 811 739011
TB 96 3/22/96 428 819 739222
TB 97 3/22/96 428 820 739223
TC 4 3/19/96 428 821 739253
TC 5 3/19/96 428 822 739214
<PAGE>
<CAPTION>
Claim Location County BLM
Name/No Date Book/Page Serial Nos.
- ------- -------- ----------- -----------
<S> <C> <C> <C> <C>
TC 6 3/19/96 428 823 739215
TC 7 3/19/96 428 824 739216
TC 8 3/19/96 428 825 739217
TC 9 3/19/96 428 826 739218
TC 10 3/19/96 428 827 739219
TC 11 3/19/96 428 828 739220
TC 96 3/22/96 428 836 739249
TC 97 3/22/96 428 837 739250
TC 98 3/22/96 428 838 739251
TC 99 3/22/96 428 839 739252
TD 5 3/19/96 428 840 739242
TD 6 3/19/96 428 841 739243
TD 7 3/19/96 428 842 739244
TD 8 3/19/96 428 843 739245
TD 9 3/19/96 428 844 739246
TD 10 3/19/96 428 845 739247
TD 96 3/21/96 428 853 739238
TD 97 3/21/96 428 854 739239
TD 98 3/21/96 428 855 739240
TD 99 3/21/96 428 856 739241
TE 98 3/21/96 428 866 739235
TE 99 3/21/96 428 867 739236
TF 6 3/20/96 428 868 739272
TF 7 3/20/96 428 869 739273
TF 8 3/20/96 428 870 739274
TF 9 3/20/96 428 871 739275
TF 10 3/20/96 428 872 739276
TF 98 3/21/96 428 882 739270
TF 99 3/21/96 428 883 739271
TF 11A 3/20/96 428 884 739277
TG 6 3/20/96 428 885 739283
TG 7 3/20/96 428 886 739284
TG 8 3/20/96 428 887 739285
TG 9 3/20/96 428 888 739286
TG 10 3/20/96 428 889 739287
TG 11 3/20/96 428 890 739288
<PAGE>
<CAPTION>
Claim Location County BLM
Name/No Date Book/Page Serial Nos.
- ------- -------- ----------- -----------
<S> <C> <C> <C> <C>
TG 98 3/21/96 428 900 739281
TG 99 3/21/96 428 901 739282
TH 1 3/21/96 428 902 739260
TH 2 3/21/96 428 903 739261
TH 6 3/21/96 428 904 739262
TH 7 3/21/96 428 905 739263
TH 8 3/21/96 428 906 739264
TH 9 3/21/96 428 907 739265
TH 10 3/21/96 428 908 739266
TH 98 3/21/96 428 918 739258
TH 99 3/21/96 428 919 739259
TI 1 3/21/96 428 920 739291
TI 2 3/21/96 428 921 739292
TI 3 3/21/96 428 922 739293
TI 4 3/21/96 428 923 739294
TI 5 3/21/96 428 924 739295
TI 6 3/21/96 428 925 739296
TI 7 3/21/96 428 926 739254
TI 8 3/21/96 428 927 739255
TI 9 3/21/96 428 928 739256
TI 10 3/21/96 428 929 739257
TI 98 3/21/96 428 939 739289
TI 99 3/21/96 428 940 739290
TQ 4 3/22/96 428 944 739181
TQ 6 3/19/96 428 945 739024
TQ 7 3/19/96 428 946 739212
TQ 8 3/19/96 428 947 739213
TQ 9 3/19/96 428 948 739177
TQ 10 3/19/96 428 949 739023
TQ 11 (A) 3/22/96 428 941 739178
TQ 12 (A) 3/22/96 428 942 739179
TQ 13 (A) 3/22/96 428 943 739180
TQ 100 3/18/96 428 950 739045
</TABLE>
<PAGE>
EXHIBIT A
PART 1. PROPERTIES AND TITLE EXCEPTIONS
Unpatented mining claims located in T20N, R42E, and T21N, R42E, M.D.B. & M.,
Lander County, Nevada, all of which are subject to the terms and conditions of
that certain Tempo Mineral Lease dated October 14, 1994 between Lyle F.
Campbell, Trustee, and Great Basin Exploration & Mining Co., Inc., and all of
which are subject to the terms and conditions of that certain Participation
Agreement dated as of May 31, 1995 among Serem Gatro Canada Inc., Great Basin
Exploration & Mining Co., Inc. and Great Basin Management Co., Inc., which
claims are hereafter to referred to as the "Campbell Lease Claims" and are more
particularly described as follows:
<TABLE>
<CAPTION>
Claim Location County BLM
Name/No Date Book/Page Serial Nos.
- ------- -------- ----------- -----------
<S> <C> <C> <C> <C>
Tempo 38 (R) 11/1/84 248 392 330317
Tempo 39 (R) 11/1/84 248 393 330318
Tempo 40 (R) 10/31/84 248 394 330319
Tempo 41 (R) 10/31/84 248 395 330320
Tempo 42 (R) 11/3/84 248 396 330321
Tempo 43 (R) 11/3/84 248 397 330322
Tempo 78 (R) 11/1/84 248 412 330337
Tempo 80 (R) 11/1/84 248 414 330339
Tempo 82 (R) 11/1/84 248 416 330341
BAH 128 12/12/84 250 569 334577
BAH 130 12/12/84 250 571 334579
BAH 132 12/14/84 250 573 334581
BAH 134 12/14/84 250 575 334583
BAH 136 12/14/84 250 577 334585
BAH 138 12/14/84 250 579 334587
BAH 140 12/14/84 250 581 334589
BAH 142 12/14/84 250 583 334591
Great Western 1/26/94 405 368 694230
Great Western 2 1/26/94 405 369 694231
Great Western 3 1/26/94 405 370 694232
Great Western 4 1/26/96 405 371 694233
Great Western 5 1/26/94 405 372 694234
Great Western 6 1/26/94 405 373 694235
Ex. A - 13
<PAGE>
<CAPTION>
Claim Location County BLM
Name/No Date Book/Page Serial Nos.
- ------- -------- ----------- -----------
<S> <C> <C> <C> <C>
T 2 3/19/96 428 776 739026
T 3 3/19/96 428 777 739209
T 4 3/19/96 428 778 739210
T 5 3/19/96 428 779 739211
T 6 3/19/96 428 780 739025
T 89 3/18/96 428 781 739095
T 90 3/18/96 428 782 739043
T 91 3/18/96 428 783 739044
T 92 3/22/96 428 784 739200
T 93 3/22/96 428 785 739201
T 94 3/22/96 428 786 739202
T 95 3/22/96 428 787 739203
T 96 2/22/96 428 788 739204
T 97 3/22/96 428 789 739205
T 98 3/22/96 428 790 739206
T 99 3/22/96 428 791 739207
T 100 3/22/96 428 792 739208
T 105 (R) 11/3/84 248 492 330417
T 106 (R) 11/4/84 248 493 330418
T 107 (R) 11/4/84 248 494 330419
T 108 (R) 11/4/84 248 495 330420
T 109 (R) 11/4/84 248 496 330421
TA 3 (R) 11/1/84 248 481 330406
TA 4 (R) 11/1/84 248 482 330407
TA 5 (R) 11/1/84 248 483 330408
TA 6 3/20/96 428 793 739197
TA 7 3/20/96 428 794 739198
TA 8 3/20/96 428 795 739199
TA 9 3/19/96 428 796 739027
TA 89 3/18/96 428 797 739092
TA 90 3/18/96 428 798 739093
TA 91 3/18/96 428 799 739094
TA 92 3/22/96 428 800 739227
TA 93 3/22/96 428 801 739228
TA 94 3/22/96 428 802 739229
Ex. A - 14
<PAGE>
<CAPTION>
Claim Location County BLM
Name/No Date Book/Page Serial Nos.
- ------- -------- ----------- -----------
<S> <C> <C> <C> <C>
TA 95 3/22/96 428 803 739230
TA 96 3/22/96 428 804 739231
TA 97 3/22/96 428 805 739194
TA 98 3/22/96 428 806 739195
TA 99 3/22/96 428 807 739196
TB 1 (R) 11/2/84 248 467 330392
TB 2 (R) 11/2/84 248 468 330393
TB 3 (R) 11/2/84 248 469 330394
TB 4 (R) 11/1/84 248 470 330395
TB 5 (R) 11/1/84 248 471 330396
TB 6 (R) 11/1/84 248 472 330397
TB 7 (R) 11/1/84 248 473 330398
TB 8 3/20/96 428 808 739224
TB 9 3/20/96 428 809 739225
TB 10 3/20/96 428 810 739226
TB 11 3/19/96 428 811 739011
TB 11 (R) 11/2/84 248 477 330402
TB 12 (R) 11/2/84 248 478 330403
TB 95 3/22/96 428 818 739221
TB 96 3/22/96 428 819 739222
TB 97 3/22/96 428 820 739223
TC 1 (R) 11/2/84 248 453 330378
TC 2 (R) 11/2/84 248 454 330379
TC 3 (R) 11/2/84 248 455 330380
TC 4 3/19/96 428 821 739253
TC 5 3/19/96 428 822 739214
TC 6 3/19/96 428 823 739215
TC 7 3/19/96 428 824 739216
TC 8 3/19/96 428 825 739217
TC 9 3/19/96 428 826 739218
TC 10 3/19/96 428 827 739219
TC 11 3/19/96 428 828 739220
TC 96 3/22/96 428 836 739249
TC 97 3/22/96 428 837 739250
TC 98 3/22/96 428 838 739251
Ex. A - 15
TC 99 3/22/96 428 839 739252
<PAGE>
<CAPTION>
Claim Location County BLM
Name/No Date Book/Page Serial Nos.
- ------- -------- ----------- -----------
<S> <C> <C> <C> <C>
TD 1 (R) 11/3/84 248 442 330367
TD 2 (R) 11/2/84 248 443 330368
TD 3 (R) 11/2/84 248 444 330369
TD 4 (R) 11/2/84 248 445 330370
TD 5 3/19/96 428 840 739242
TD 6 3/19/96 428 841 739243
TD 7 3/19/96 428 842 739244
TD 8 3/19/96 428 843 739245
TD 9 3/19/96 428 844 739246
TD 10 3/19/96 428 845 739247
TD 12 (R) 11/3/84 248 452 330377
TD 96 3/21/96 428 853 739238
TD 97 3/21/96 428 854 739239
TD 98 3/21/96 428 855 739240
TD 99 3/21/96 428 856 739241
TE 1 3/28/91 359 291 626379
TE 2 3/28/91 359 292 626380
TE 3 3/28/91 359 293 626381
TE 4 3/28/91 359 294 626382
TE 5 5/4/91 359 295 626383
TE 6 5/4/91 359 296 626384
TE 7 5/5/91 359 297 626385
TE 8 5/5/91 359 298 626386
TE 9 5/5/91 359 299 626387
TE 10 5/5/91 359 300 626388
TE 11 5/5/91 359 301 626389
TE 11A 5/4/91 359 302 626390
TE 98 3/21/96 428 866 739235
TE 99 3/21/96 428 867 739236
TF 1 3/28/91 359 303 626391
TF 2 3/28/91 359 304 626392
Ex. A - 16
<PAGE>
<CAPTION>
Claim Location County BLM
Name/No Date Book/Page Serial Nos.
- ------- -------- ----------- -----------
<S> <C> <C> <C> <C>
TF 3 3/29/91 359 305 626393
TF 4 3/29/91 359 306 626394
TF 5 5/4/91 359 307 626395
TF 6 3/20/96 428 868 739272
TF 7 3/20/96 428 869 739273
TF 8 3/20/96 428 870 739274
TF 9 3/20/96 428 871 739275
TF 10 3/20/96 428 872 739276
TF 11 5/4/91 359 308 626396
TF 11A 3/20/96 428 884 739277
TF 98 3/21/96 428 882 739270
TF 99 3/21/96 428 883 739271
TG 1 3/28/91 359 309 626397
TG 2 3/28/91 359 310 626398
TG 3 3/29/91 359 311 626399
TG 4 3/29/91 359 312 626400
TG 5 5/4/91 359 313 626401
TG 6 3/20/96 428 885 739283
TG 7 3/20/96 428 886 739284
TG 8 3/20/96 428 887 739285
TG 9 3/20/96 428 888 739286
TG 10 3/20/96 428 889 739287
TG 11 3/20/96 428 890 739288
TG 98 3/21/96 428 900 739281
TG 99 3/21/96 428 901 739282
TH 1 3/21/96 428 902 739260
TH 2 3/21/96 428 903 739261
TH 3 6/2/91 361 222 629257
TH 4 6/2/91 361 223 629258
Ex. A - 17
<PAGE>
<CAPTION>
Claim Location County BLM
Name/No Date Book/Page Serial Nos.
- ------- -------- ----------- -----------
<S> <C> <C> <C> <C>
TH 5 6/2/91 361 224 629259
TH 6 3/21/96 428 904 739262
TH 7 3/21/96 428 905 739263
TH 8 3/21/96 428 906 739264
TH 9 3/21/96 428 907 739265
TH 10 3/21/96 428 908 739266
TH 98 3/21/96 428 918 739258
TH 99 3/21/96 428 919 739259
TI 1 3/21/96 428 920 739291
TI 2 3/21/96 428 921 739292
TI 3 3/21/96 428 922 739293
TI 4 3/21/96 428 923 739294
TI 5 3/21/96 428 924 739295
TI 6 3/21/96 428 925 739296
TI 7 3/21/96 428 926 739254
TI 8 3/21/96 428 927 739255
TI 9 3/21/96 428 928 739256
TI 10 3/21/96 428 929 739257
TI 98 3/21/96 428 939 739289
TI 99 3/21/96 428 940 739290
TQ 1 3/10/94 408 57 699493
TQ 2 3/10/94 408 58 699494
TQ 3 3/10/94 408 59 699495
TQ 4 3/22/96 428 944 739181
TQ Fraction 3/10/94 408 60 699496
TQ 6 3/19/96 428 945 739024
TQ 7 3/19/96 428 946 739212
TQ 8 3/19/96 428 947 739213
TQ 9 3/19/96 428 948 739177
TQ 10 3/19/96 428 949 739023
TQ 11 (A) 3/22/96 428 941 739178
TQ 12 (A) 3/22/96 428 942 739179
TQ 13 (A) 3/22/96 428 943 739180
TQ 100 3/18/96 428 950 739045
Ex. A - 18
<PAGE>
<CAPTION>
Claim Location County BLM
Name/No Date Book/Page Serial Nos.
- ------- -------- ----------- -----------
<S> <C> <C> <C> <C>
Nova 40 11/16/95 425 221 732973
Nova 41 9/1/94 412 540 708267
Nova 42 9/1/94 412 541 708268
Nova 43 9/1/94 412 542 708269
Nova 44 9/1/94 412 543 708270
Nova 45 9/1/94 412 544 708271
Nova 46 9/1/94 412 545 708272
Nova 47 9/1/94 412 545 708273
Nova 48 9/1/94 412 547 708274
Nova 49 9/1/94 412 548 708275
Nova 50 9/1/94 412 549 708276
Nova 51 9/1/94 412 550 708277
Nova 52 9/1/94 412 551 708278
Nova 53 9/1/94 412 552 708279
Nova 54 9/1/94 412 553 708280
Nova 55 9/1/94 412 554 708281
Nova 56 9/1/94 412 555 708282
Nova 57 9/1/94 412 556 708283
Nova 58 9/1/94 412 557 708284
Nova 59 9/1/94 412 558 708285
Nova 60 9/1/94 412 559 708286
Nova 61 9/1/94 412 560 708287
Nova 62 9/1/94 412 561 708288
Nova 63 9/1/94 412 562 708289
Nova 64 9/1/94 412 563 708290
Nova 65 9/1/94 412 564 708291
Nova 66 9/1/94 412 565 708292
Nova 67 9/1/94 412 566 708293
Nova 68 9/1/94 412 567 708294
Nova 69 9/1/94 412 568 708295
Nova 70 9/1/94 412 569 708296
Nova 71 9/1/94 412 570 708297
Nova 72 9/1/94 412 571 708298
Nova 73 11/16/95 425 222 732974
Nova 74 11/16/95 425 223 732975
Nova 75 11/16/95 425 224 732976
Nova 76 11/16/95 425 225 732977
Nova 77 11/16/95 425 226 732978
Nova 78 11/16/95 425 227 732979
Nova 79 12/20/95 425 228 732980
Nova 80 12/20/95 425 229 732981
Ex. A - 19
<PAGE>
<CAPTION>
Claim Location County BLM
Name/No Date Book/Page Serial Nos.
- ------- -------- ----------- -----------
<S> <C> <C> <C> <C>
Nova 81 12/20/95 425 230 732982
Nova 82 12/20/95 425 231 732983
Nova 83 3/19/96 428 665 739127
Nova 84 3/19/96 428 666 739126
Nova 85 3/19/96 428 667 739125
Nova 86 3/19/96 428 668 739124
Nova 86A 3/19/96 428 775 739123
Nova 87 3/19/96 428 669 739122
Nova 88 3/19/96 428 670 739121
Nova 89 3/19/96 428 671 739120
Nova 90 3/18/96 428 672 739119
Nova 91 3/18/96 428 673 739151
Nova 92 3/18/96 428 674 739150
Nova 93 3/18/96 428 675 739149
Nova 94 3/18/96 428 676 739148
Nova 95 3/18/96 428 677 739147
Nova 96 3/18/96 428 678 739146
Nova 97 3/18/96 428 679 739145
Nova 98 3/18/96 428 680 739144
Nova 100 11/16/95 425 232 732984
Nova 101 11/16/95 425 233 732985
Nova 102 11/16/95 425 234 732986
Nova 103 11/16/95 425 235 732987
Nova 104 11/16/95 425 236 732988
Nova 105 11/16/95 425 237 732989
Nova 106 11/16/95 425 238 732990
Nova 107 11/16/95 425 239 732991
Nova 108 11/16/95 425 232 732992
Nova 109 11/16/95 425 233 732993
Nova 110 11/16/95 425 234 732994
Nova 111 11/16/95 425 235 732995
Nova 112 11/16/95 425 236 732996
Nova 113 12/28/95 425 237 732997
Nova 114 12/28/95 425 238 732998
Nova 115 12/28/95 425 239 732999
Nova 116 12-28-95 425 240 733000
Nova 117 12/28/95 425 241 733001
Nova 118 12/28/95 425 242 733002
Nova 119 12/28/95 425 243 733003
Nova 120 12/28/95 425 244 733004
Ex. A - 20
<PAGE>
<CAPTION>
Claim Location County BLM
Name/No Date Book/Page Serial Nos.
- ------- -------- ----------- -----------
<S> <C> <C> <C> <C>
Nova 121 12/28/95 425 245 733005
Nova 122 12/28/95 425 246 733006
Nova 123 12/28/95 425 247 733007
Nova 124 12/28/95 425 248 733008
Nova 125 12/28/95 425 249 733009
Nova 126 12/28/95 425 250 733010
Nova 127 12/28/95 425 251 733011
Nova 128 12/28/95 425 252 733012
Nova 129 12/28/95 425 253 733013
Nova 130 12/28/95 425 254 733014
Nova 131 3/18/96 428 681 739143
Nova 132 3/18/96 428 682 739142
Nova 133 3/18/96 428 683 739141
Nova 134 3/18/96 428 684 739140
Nova 135 3/18/96 428 685 739139
Nova 136 3/18/96 428 686 739136
Nova 137 3/18/96 428 687 739137
Nova 138 3/18/96 428 688 739176
Nova 139 3/18/96 428 689 739175
Nova 140 3/18/96 428 690 739174
Nova 141 3/18/96 428 691 739173
Nova 142 3/18/96 428 692 739172
Nova 143 3/18/96 428 693 739171
Nova 144 3/18/96 428 694 739170
Nova 145 3/18/96 428 695 739169
Nova 146 3/18/96 428 696 739168
Nova 147 3/18/96 428 697 739167
Nova 148 3/18/96 428 698 739166
Nova 149 3/18/96 428 699 739165
Nova 150 3/18/96 428 700 739164
Nova 151 3/18/96 428 701 739163
Nova 152 3/18/96 428 702 739162
Nova 153 3/18/96 428 703 739161
Nova 154 3/18/96 428 704 739160
Nova 155 3/18/96 428 705 739159
Nova 156 3/18/96 428 706 739158
Nova 198 3/19/96 428 707 739157
Nova 199 3/19/96 428 708 739156
Nova 200 3/17/96 428 709 739155
Nova 201 3/17/96 428 710 739154
Ex. A - 21
<PAGE>
<CAPTION>
Claim Location County BLM
Name/No Date Book/Page Serial Nos.
- ------- -------- ----------- -----------
<S> <C> <C> <C> <C>
Nova 202 3/17/96 428 711 739153
Nova 203 3/17/96 428 712 739152
Nova 204 3/17/96 428 713 739193
Nova 205 3/17/96 428 714 739192
Nova 206 3/17/96 428 715 739191
Nova 207 3/17/96 428 716 739190
Nova 208 3/17/96 428 717 739189
Nova 209 3/17/96 428 718 739188
Nova 210 3/17/96 428 719 739187
Nova 211 3/17/96 428 720 739186
Nova 212 3/17/96 428 721 739185
Nova 213 3/17/96 428 722 739184
Nova 214 3/17/96 428 723 739183
Nova 215 3/17/96 428 724 739182
Nova 216 3/18/96 428 725 739046
Nova 217 3/18/96 428 726 739047
Nova 218 3/18/96 428 727 739048
Nova 219 3/18/96 428 728 739049
Nova 220 3/18/96 428 729 739050
Nova 221 3/18/96 428 730 739051
Nova 222 3/18/96 428 731 739052
Nova 223 3/18/96 428 732 739053
Nova 224 3/18/96 428 733 739054
Nova 225 3/18/96 428 734 739055
Nova 226 3/18/96 428 735 739056
Nova 227 3/18/96 428 736 739057
Nova 228 3/18/96 428 737 739058
Nova 229 3/18/96 428 738 739059
Nova 230 3/18/96 428 739 739060
Nova 231 3/18/96 428 740 739061
Nova 232 3/18/96 428 741 739062
Nova 233 3/18/96 428 742 739063
Nova 234 3/18/96 428 743 739064
Nova 235 3/18/96 428 744 739065
Nova 236 3/18/96 428 745 739066
Nova 237 3/18/96 428 746 739067
Nova 238 3/18/96 428 747 739068
Nova 239 3/18/96 428 748 739069
Nova 240 3/19/96 428 749 739028
Nova 241 3/19/96 428 750 739029
Nova 242 3/19/96 428 751 739030
Ex. A - 22
<PAGE>
<CAPTION>
Claim Location County BLM
Name/No Date Book/Page Serial Nos.
- ------- -------- ----------- -----------
<S> <C> <C> <C> <C>
Nova 243 3/19/96 428 752 739031
Nova 244 3/19/96 428 753 739032
Nova 245 3/19/96 428 754 739033
Nova 246 3/19/96 428 755 739034
Nova 247 3/19/96 428 756 739035
Nova 248 3/19/96 428 757 739036
Nova 249 3/19/96 428 758 739037
Nova 250 3/19/96 428 759 739038
Nova 251 3/19/96 428 760 739039
Nova 252 3/19/96 428 761 739040
Nova 253 3/19/96 428 762 739041
Nova 254 3/19/96 428 763 739042
Nova 255 3/19/96 428 764 739012
Nova 256 3/19/96 428 765 739013
Nova 257 3/19/96 428 766 739014
Nova 258 3/19/96 428 767 739015
Nova 259 3/19/96 428 768 739016
Nova 260 3/19/96 428 769 739017
Nova 261 3/19/96 428 770 739018
Nova 262 3/19/96 428 771 739019
Nova 263 3/19/96 428 772 739020
Nova 264 3/19/96 428 773 739021
Nova 265 3/19/96 428 774 739022
</TABLE>
(R) denotes Relocation
(A) denotes Amended
Ex. A - 23
LABOR SUPPLY AGREEMENT ENTERED INTO BY COMPANIA MINERA ORONORTE S.A. (ORONORTE
MINING COMPANY) AND "PRECOMIZAR" PRECOPERATIVA DE TRABAJO ASOCIADO MINEROS
DEZARAGOZA (ZARAGOZA MINERS' ASSOCIATED WORK PRECOOPERATIVE)
The undersigned COMPANIA MINERA ORONORTE S.A.(ORONORTE MINING COMPANY) or
"ORONORTE S.A." who for all legal effects of this agreement shall be called "THE
COMPANY," represented by MR. GEORGE BEATTLE, bearer of USA passport # 150622961
issued by the National Ministry of Foreign Affairs, Santafe de Bogota, acting as
the company's legal representative according to the original Chamber of Commerce
Affidavit which will be enclosed with the present document, the first party, and
PRECOPERATIVA DE TRABAJO ASOCIADO MINEROS DE ZARAGOZA (ZARAGOZA MINERS'
ASSOCIATED WORK PRECOOPERATIVE) or "PRECOMIZAR" who for all legal effects of
this agreement shall be called "THE PRECOOPERATIVE," represented by MR. VICTOR
HUGO THOMAS GARCIA, bearer of Colombian National ID card # 71,594,358 issued in
Medellin, Antioquia, acting as the precooperative's Executive Director in
accordance with the original Chamber of Commerce Affidavit which will be
enclosed with the present document, enter into this LABOR SUPPLY AGREEMENT which
is ruled by the following terms and conditions, and by that which is not
contemplated in them, by imperative or suppletory regulations of the Civil Code
and by complementary resolutions that regulate these types of agreements, the
contract is between THE COMPANY and THE PRECOOPERATIVE.
DEFINITIONS
ASSOCIATES: They are all the persons duly registered as valid members of
PRECOOMIZAR.
CONTRACTING PARTY: ORONORTE S.A.
Carrera 78 No 32A-53
CONTRACTOR: PRECOOMIZAR
Diagonal 19 # 22-65, Tel.: 862 8092 - 862 8158
Zaragoza, Antioquia Colombia.
STERILE: This is Material which contains precious metals such as gold and silver
or with a content of both below the minimum amount established by THE COMPANY,
and does not enable the obtention of the minimum profit margin. Normally, it is
necessary to move STERILE material produce Mineral.
MINERAL: This is mineral enriched with precious metals, gold and silver within
the minimum amount established by THE COMPANY with the purpose of operating
within a minimum profit margin.
MINA EL LIMON (EL LIMON MINE): THE COMPANY'S private property with Ministry of
Mines exploration and exploitation permit in the El Limon Village in the
township of Zaragoza, Departamento (Province) of Antioquia, Colombia.
FORCE MAJEURE: It is considered force majeure or an unforeseen case when any of
the parties of this agreement is impeded, restricted or delinquent in the
fulfillment of any of the obligations described herein by reasons of: any act of
nature, fire, war, commotion, lockouts, labor strikes, government requirements
or any other cause beyond the control of any of the parties of this agreement
that prevents, intervenes or restricts production, shipping, processing and sale
of the MINERAL. Any of the affected parties of this agreement must promptly
<PAGE>
notify the other so that all of the obligations described herein regarding labor
supply may be suspended while the restriction, prevention or interference. In
that the event of Force Majeure or the unforeseen case extend beyond a period of
10 days, any of the parties will have the right to cancel the agreement and to
enter an agreement or contract with other companies or other workers directly to
continue the corresponding company business once the operations are reopened but
allowing the other party an option.
FIRST: DURATION: From January 16, 1995 and January 15, 1996. Any of the parties
who may have the intention of renegotiating the annual renewal of the agreement,
must notify his intention to do so to the other party, at least 60 days before
the expiration date of the present agreement, so that there may be enough time
to revise and renegotiate the conditions of a new agreement but only if the
parties wish to do so. Terms agreed on herein form a contractual law between the
parties without ant detriment to what the laws and regulations of the country
state.
SECOND: OBJECT OF THE AGREEMENT: THE PRECOOPERATIVE is obligated to supply labor
(workers) in the amounts and qualifications required by THE COMPANY, directed by
THE COMPANY and supervised by THE PRECOOPERATIVE with the purpose of producing
MINERAL at El Limon Mine owned by THE COMPANY who may decide to explore or
exploit, including but not limited to the following types of work: Mining,
Maintenance, Production, Warehousing and General Support and others according to
the classifications detailed on the Basic Compensation Table, in addendum two of
this agreement, which is an integral part of it.
THIRD: DEFINITION OF THE ACTIVITIES TO BE CARRIED OUT The Mining, Maintenance,
Production, Warehousing and General Support work referred to in the second
paragraph includes but is not limited to the following activities:
1 - Drilling and burning for the advance
2 - Drilling and development of guides and overguides
3 - Drilling of drums, chambers and windows
4 - Handling, Shipping and Storage of Mineral and Sterile
5 - Grinding of Mineral
6 - Milling and concentration of the Mineral
7 - Maintenance and repair of machinery and equipment
8 - Placing of wooden stacks with a header
9 - Construction of baskets
10- Building and/or installation of stairs
11- Laying out of rails
12- Laying out of water and air piping
13- Setting up of hoppers
14- Drilling of (clavadas) nail-studded fixtures
15- Cleaning services and also electrical and mechanical maintenance of THE
COMPANY's Installations
16- General services
17- Dependent and/or complementary work that comes up during exploration and/or
exploitation of the mineral.
FOURTH: PERSONNEL: THE PRECOOPERATIVE commits itself to supplying THE COMPANY
with the (workers) labor it may require through its Legal Representative, its
<PAGE>
Operations Director at the mine or its representative duly authorized by either
of the above, according to a specific work chronogram that establishes the:
goals, equipment available, qualifications and personnel required. This work
chronogram will enable THE PRECOOPERATIVE to select and supply the suitable
personnel required by THE COMPANY. In the event that THE COMPANY through its
Legal Representative, its Operations Director or its representative duly
authorized considers that one or several members of the personnel, presented to
them by THE PRECOOPERATIVE to carry out the desired work plan, does/do not
fulfill THE COMPANY's requirements, THE COMPANY may reserve the right to Except
the selection of that personnel. If THE COMPANY considers that one or several
members of the personnel, presented to them by THE PRECOOPERATIVE is/are not
qualified, does/do not perform well or meet the productivity, THE COMPANY may
ask for the substitution of the aforesaid person or persons and THE
PRECOOPERATIVE commits itself to go on according to the request. It is
understood that if THE PRECOOPERATIVE does not supply the labor (personnel)
promptly or is in no conditions to supply the required personnel, THE COMPANY
will be free to hire third parties. The prompt supply of personnel by THE
PRECOOPERATIVE to THE COMPANY will be subjected to the carrying out of an
entrance medical examination and the enrollment to an EPS (Health Promotion
Entity) and to an ARP (Professional Risk Administration Firm).
FIFTH: SUPPLY AND USE OF EQUIPMENT AND INSTALLATIONS: With the purpose of
carrying out work plans and to achieve goals, THE COMPANY will make available
for the personnel supplied by THE PRECOOPERATIVE the suitable tools, equipment
and/or machinery, installations and devices for the service, including those for
personal safety and protection required for the exclusive, efficient and sure
achievement of THE COMPANY's goals.
All these items will be turned over along with an inventory certificate, for
which THE COMPANY appoints each one of the Superintendents or Heads of Sections
of the Mine as responsible for this turnover and THE PRECOOPERATIVE appoints the
persons who will be responsible in each section of the work for the receiving.
This will be carried out according to addendum #4. Work tools such as:
screwdrivers, pliers, tape measures, etc. will be handed out duly inventoried
and assigned to each work station specifically under the responsibility of THE
PRECOOPERATIVE who also will hand them out to the personnel responsible for each
section. THE PRECOOPERATIVE will be liable to THE COMPANY for the price of all
the tools turned over by means of the Certificate. The company will have the
option to conduct routine inspections to verify the inventories of the tools
turned over to THE PRECOOPERATIVE. During the execution of the work plans under
THE COMPANY's direction, THE PRECOOPERATIVE associates who receive any work
item, equipment, machinery, tools, movable estates or real estate and generally
speaking, any company asset; do so as a deposit with full liability (art. 2247
of C.C.)
If THE COMPANY proves deceit or bad faith by THE PRECOOPERATIVE associates, in
damages caused to any of the assets, items or goods turned over as a deposit to
the Precooperative and to its associates, THE COMPANY has the right to charge
for and/or discount THE PRECOOPERATIVE for indemnities, the changing or repair
of the assigned asset or good.
For security reasons and protection and with the purpose to implant suitable
control systems in the procedures of entering and exiting the mine, THE COMPANY
established that all personnel or any person entering the mine do so use the
<PAGE>
installations, locker rooms and/or bathrooms according to the procedures
established in the Company's Protection and Security Plan.
SIXTH: POSTS AND SHIFTS: The following identifies some posts and functions
routinely required to carry out THE COMPANY's work plans: Shift Supervisor,
Lamp-lighter, Miner, Mining Assistant, Blacksmith, Shovel Operators, Equipment
Operators and personnel for odd jobs (see the table of Posts).
The work fronts for exploitation and the development of the mine will be decided
by the Operations Director of the Mine or his representative. The established
daily work-shifts are (8) eight hours for each shift as follows:
First Shift: from 12:00 p.m. to 8:00 a.m.
Second Shift: from 8:00 a.m. to 4:00 p.m.
Third Shift: from 4:00 p.m. to 12:00 p.m.
THE PRECOOPERATIVE associates that work in the mine will go out only one half
hour before the end of each shift.
In the event that it is impossible to carry out any work programmed in THE
COMPANY's work plans, Then THE COMPANY will do its best, only if it deems it
efficient and beneficial for the company, to use the personnel of a respective
shift, partially or totally, in other tasks related to exploration, development,
exploitation, shipping, handling and processing of MATERIAL OR STERILE, or in
activities connected to or complementary of the aforesaid.
SEVENTH: LIQUIDATION AND PAYMENT OF THE AGREEMENT: This agreement will be
partially liquidated every fifteen days according to the rates per hour
stipulated in the Compensation Table and on the time worked by all of the
associates. The liquidation will be carried out within 2 days after the
fifteen-day period is up.
THE PRECOOPERATIVE must have its own supervision and control of its associates
when they enter and exit. On the day after the fifteen-day period is up, THE
COMPANY and THE PRECOOPERATIVE's representatives will meet to draw up the
corresponding certificate that decides the number of hours-man worked in each
section or the work carried out when it has a previously stipulated unit of
measure as a liquidation base. In this certificate the state of fulfillment of
the agreement with the work plans will also be recorded, the number of THE
PRECOOPERATIVE associates who worked and furthermore compare it with THE
COMPANY's personnel quality and quantity requirements and the results and any
other parameter that may allow the permanent assessment of the contract. THE
PRECOOPERATIVE will draw up an invoice sustained on the certificates of each
Superintendence of the mine duly approved by the superintendents or their
representatives duly authorized and will submit it to THE COMPANY within 3 days
following the signing of the certificate stipulating the number of hours worked
by function and/or post and enclosing a copy of the approved certificates, and
in the event that the amount of labor supplied be increased, THE PRECOOPERATIVE
must enclose a copy of the Operations Director of the mine's request for such an
increase.
If for any reason a superintendence of THE COMPANY does not come to an agreement
with THE PRECOOPERATIVE on the number of hours/man worked, THE PRECOOPERATIVE
<PAGE>
must only invoice the amount approved without waiting until the discrepancy is
resolved to avoid accounting and payroll delays.
In the event that THE COMPANY has problems with the invoice submitted by THE
PRECOOPERATIVE, it must return the invoice within (2)two days after having
received it, along with the corresponding notes for its correction.
THE PRECOOPERATIVE, considering THE COMPANY's observations and the settlement
reached, will draw up and send a new final invoice to THE COMPANY for its
revision and approval. This invoice is to be made during the first (8) eight
days after the billing date, upon delay on the payment of the invoice, THE
PRECOOPERATIVE will pay 1.5% a month or fraction of month on the final balance.
THE COMPANY will recognize THE PRECOOPERATIVE 4% of the total amount of the
monthly payroll so that it may transfer this money to COMFENALCO for
contributions according to the law.
THE COMPANY will recognize THE PRECOOPERATIVE a food subsidy of SIXTY THOUSAND
PESOS ($60,000) per total hours worked/ 240 hours to decide how many associates
worked a month.
THE COMPANY will recognize THE PRECOOPERATIVE, for a change of responsibilities,
an amount based on the following formula: $51,000 per total hours worked/240
hours to decide how many associates worked a month.
EIGHTH: VALUE OF THE AGREEMENT: The values, on which the two-week liquidations
or partial liquidations or liquidations for work or activities carried out
will be estimated, will be those found on the Compensation and Position Table
as follows:
NORMAL WORKED HOUR COS HO-------HO NORMAL WORKED HOUR PLUS EXTRA FOR NIGHT-HOURS
COS HN-------HN SUNDAY AND/OR HOLIDAY DAYTIME WORKED HOUR COS HD--DorF-HDF
SUNDAY AND/OR HOLIDAY WORKED NIGHT-HOUR COS HN--DorF-HNF SUN. AND/OR
HOLI.OVERTIME DAYTIME WORKED HOUR COS HED-DorF-HEDF SUNDAY AND/OR HOLIDAY
OVERTIME WORKED NIGHTHOUR COS HEN-DorF-HENF OVERTIME FOR NORMAL DAYTIME WORKED
HOUR COS HED-----HE OVERTIME FOR NORMAL WORKED NIGHTHOUR COS HEN-----HEN
NINTH: MANAGING AND FUNCTIONING PAYMENT: THE COMPANY will pay THE PRECOOPERATIVE
12% but only the total value of the work carried out at each superintendence.
TENTH: OTHER CONTRACTUAL OBLIGATIONS: THE COMPANY as the contracting party of
THE PRECOOPERATIVE and in acceptance of the normal laws in effect, commits
itself assume the following obligations:
1- ARP (A.T.E.P.) AFFILIATION
THE COMPANY will pay THE PRECOOPERATIVE 12.96% of the total amount of the
monthly payroll so that, according to law 100 of 1993, it affiliate all of its
associates and pay, monthly dues to the ARP (PROFESSIONAL RISK ADMINISTRATION
FIRM), to have them protected against work accidents and professional illnesses.
The disabilities generated by work accidents and professional illnesses will be
charged to the ARP with basic compensation. The excess of social services will
be charged to THE COMPANY in the second monthly liquidation of the agreement of
each month.
<PAGE>
2- EPS(HEALTH SERVICE ENTITY) AFFILIATION
THE COMPANY upon accepting law 100 of 1993 regarding P.O.S. (THE MANDATORY
HEALTH PLAN), will affiliate all of its associates to an EPS (HEALTH SERVICE
ENTITY) so that they and their family nuclei benefit from the health programs
established in the new Social Security System. For this purpose, THE COMPANY
will recognize THE PRECOOPERATIVE, 8% of the total amount of the monthly payroll
and will also recognize the excess of social services of the disabilities for
common illnesses generated. This excess of social services will be charged to
THE COMPANY in the second monthly liquidation of the agreement of each month.
ELEVENTH: NATURE, OBJECTIVES AND PHILOSOPHY OF ASSOCIATED WORK: The parties
taking part in this agreement, THE COMPANY AND THE PRECOOPERATIVE, leave
expressed evidence that they understand that there is no labor relation of any
sort between the associates/cooperates and THE COMPANY. Therefore, conflicts
arising due to the associates' personal activity will be settled in accordance
with the legal regulations which rule cooperative activity, both between
cooperative and coorporates and also between cooperatives and third parties and
between companies and coorporates and to the extent and reach that the law
determines.
TWELFTH: MUTUAL PROTECTION: In the event that any of the parties in this
agreement does not fulfill his obligations, the affected party will notify the
defaulting party of the unfulfilled obligations and the defaulting party will
have up to 30 days, counting from the date on which the written notice was
received, to correct and/or improve the nonfulfillment of its obligations. In
case this does not happen, the parties may end this agreement for breach of
contract with a 60-day notice.
During the 60 days, the parties may analyze the causes of the default and study
amendments to the agreement and monitor improvements and actions to correct the
default and based on this, decide, mutually agreeing, whether to modify it or
not, and if to go on with the agreement or not.
THIRTEENTH: GUARANTEES: To guarantee the fulfillment of this agreement's
inherent obligations, THE COMPANY can at any moment they deem necessary demand
that THE PRECOOPERATIVE get a Fulfillment policy and another for Contractual
Civil Responsibility in the name of THE COMPANY, for an amount that must be at
least equal to or greater than the Civil Responsibility Policies that THE
COMPANY has.
FOURTEENTH: PENAL CLAUSE: Whoever defaults the obligations established in this
agreement will pay the other party as compensation or as punishment clause
THIRTY PER CENT (30%) of the value of the work not carried out or the value of
the unfulfilled work. All this without loss of its liabilities due the problems
derived from the default.
FIFTEENTH: ARBITRATION: Interpretation differences that may arise or take place
upon putting this agreement into effect will be settled by three arbiters
appointed as follows: One by THE COMPANY, another by THE PRECOOPERATIVE and the
third by MEDELLIN CHAMBER OF COMMERCE, which must be licensed attorneys at law.
The costs of this arbitration will be covered in equal parts. The arbiter's
decision will be accepted by both parties.
<PAGE>
SIXTEENTH: WORK REGULATIONS: Workers associated to THE PRECOOPERATIVE carrying
out work in the contract with THE COMPANY are bound to strictly abide by all
Health Regulations, Industrial Safety Regulations and the Internal Work
Regulations established by THE COMPANY and by THE PRECOOPERATIVE including
regulations established by the law for Cooperatives, but not limited with the
objective of enhancing Accident Prevention, minimizing Illnesses and Risks
inherent to the work, and in general, everything that leads to guaranteeing the
safety of all the persons related with work in the mine and of THE COMPANY. The
responsibility for this goes as far as slight guilt. The default of these rules
and regulations is sufficient reason for THE COMPANY to request from THE
PRECOOPERATIVE that the associate be no longer assigned to THE COMPANY's
agreement.
SEVENTEENTH: COLLABORATION: The parties expressly agree that this agreement is
commutative, bilateral and onerous; thus, besides their obligation to fulfill
all legal commitments and responsibilities expressed herein, they must in good
faith give each other mutual collaboration to continue with the contract so that
it will lead to THE COMPANY and THE PRECOOPERATIVE's mutual benefit, and
consequently for its associates, employees and/or workers.
EIGHTEENTH: CLAIMS AND SUGGESTIONS: THE PRECOOPERATIVE associates supplied
herein may submit suggestions or bring forth claims in their own organization.
THE PRECOOPERATIVE through its directive management may contact THE COMPANY's
management to present this suggestion or claims. THE COMPANY will study tho se
suggestions or claims promptly and will act depending on the merits of the
problem. THE PRECOOPERATIVE and THE COMPANY 's Management will hold informal
bimonthly meetings to discuss matters related to the interpretation and the
development of this agreement and other matters that any of the parties consider
relevant for the good operation of the agreement.
NINETEENTH: The contents of this document in all of its clauses and along with
all of its addendum totally make up the agreement between THE COMPANY and THE
PRECOOPERATIVE. It is understood that no other past or current agreement that is
not expressly included as addendum to this agreement and is not duly signed by
the legal representatives of both companies, exists and is not valid; and
furthermore, does not constitute any obligation by any of the parties with the
other.
TWENTIETH: CONFLICTS OF INTEREST: It is THE COMPANY's policy that all employees
avoid conflicts between their own interests and those of THE COMPANY, specially
in matters regarding suppliers, clients, and all other organizations or
individuals that may have or are looking for business with THE COMPANY;
Similarly, all the employees must avoid any type of conflict between their own
interests and those of THE COMPANY in the handling of personal matters,
including transactions of THE COMPANY's valuables or any other nonaffiliated
entity having business dealings with interests in THE COMPANY. Due to the above,
it is necessary that THE PRECOOPERATIVE's associates and/or employees, before
being assigned to THE COMPANY, and that all THE PRECOOPERATIVE's associates
and/or employees already assigned to THE COMPANY by means of this agreement are
obligated to manifest in writing to THE PRECOOPERATIVE and to THE COMPANY all of
their relations whether they be personal or commercial, existing directly or
indirectly, including family relationships or by third parties, with THE COMPANY
to avoid a possible Conflict of Interests.
<PAGE>
TWENTY-FIRST: ENVIRONMENT CONSERVATION POLICY: It is THE COMPANY's policy and
all of its employees' responsibility to ensure that all of their operations and
products do not create significant danger for public health and must be
compatible with the environment and the community's needs. Also, they must abide
by all environment rules and regulations applicable to THE COMPANY. THE
PRECOOPERATIVE associates must work upholding individual responsibility and a
similar attitude of respect for the environment under THE COMPANY's supervision
during the development of work plans assigned by THE COMPANY.
TWENTY-SECOND: REVISION RIGHTS: THE COMPANY reserves itself the right to revise
all the information in THE PRECOOPERATIVE's books in all matters regarding THE
COMPANY's revelation. For this THE COMPANY will present its request to THE
PRECOOPERATIVE in writing through its legal representative.
TWENTY-THIRD: STAMP TAX: THE COMPANY and THE PRECOOPERATIVE will cover in equal
parts the value of the stamp tax generated by this agreement according to the
law.
TWENTY-FOURTH: In the following addendum the proceeding documents are included
as an integral part of this agreement:
ADDENDUM 1: THE PRECOOPERATIVE's certificate of existence and of legal
representation issued by DANCOOP on its Legal procuration and THE COMPANY'S
certificate of existence and of legal representation.
ADDENDUM 2: Basic Compensation Table
ADDENDUM 3: THE PRECOOPERATIVE and THE COMPANY'S Internal Work and Social
Security Regulations.
ADDENDUM 4: THE COMPANY's protection and safety plan.
As evidence both parties' legal representatives, duly authorized, as proven by
their power of attorney, signed this agreement on the (16) sixteenth day of
January 1996, in the City of Medellin.
/s/ /s/
THE COMPANY THE PRECOOPERATIVE
GEORGE BEATTLE VICTOR THOMAS
<TABLE>
<CAPTION>
Fischer-Watt Gold Company, Inc.
Computation of Earnings (Loss) Per Share
For the Year Ended January 31, 1997
Twelve Months
Ended
January 31, 1997
<S> <C>
Primary earnings(loss) per share
Net loss for the period ............................................................................ $ (3,378,000)
Common shares outstanding ........................................................................... 31,296,760
Total options and warrants granted and unexercised (Note 3) ......................................... 11,662,750
Weighted average shares outstanding (Note 1) ......................................................... 30,506,060
Average market price per share ....................................................................... $ 0.54
Primary earnings (loss) per share ..................................................................... $ (0.11)
Fully diluted earnings (loss) per share
Net loss for the period ............................................................................. $ (3,378,000)
Common shares outstanding ........................................................................... 31,296,760
Total options and warrants granted and unexercised (Note 3) .......................................... 11,662,750
Weighted average shares outstanding (Note 2) ......................................................... 30,506,060
Year-end market price per share ...................................................................... $ 0.56
Fully diluted earnings (loss) per share ............................................................... $ (0.11)
Note 1
Shares outstanding at beginning of period ........................................................... 22,537,160
Weighted average shares issued during the period ..................................................... 7,968,900
Dilutive effect of options and warrants based on average
market price per share ............................................................................ -0-
------------
Weighted average shares outstanding .................................................................. 30,506,060
============
Note 2
Shares outstanding at beginning of period ........................................................... 22,537,160
Weighted average shares issued during the period ..................................................... 7,968,900
Dilutive effect of options and warrants based on average
market price per share ............................................................................ -0-
Additional dilute effect of options and warrants based
on year-end market price .......................................................................... -0-
-----------
Weighted average shares outstanding .................................................................. 30,506,060
===========
Note 3
Options and warrants outstanding at beginning of year ............................................... 6,146,750
Options and warrants issued .......................................................................... 5,530,000
Options and warrants expired ......................................................................... (14,000)
-----------
Options and warrants outstanding at end of year ...................................................... 30,506,060
===========
</TABLE>
LIST OF SUBSIDIARIES OF FISCHER-WATT GOLD COMPANY, INC.
Name of Subsidiary Incorporated In
- ----------------------- ---------------
Compania Minera Oronorte S. A. Colombia
Donna Ltd. (Formerly Greenstone Resources of Colombia Ltd.) Bermuda
Great Basin Exploration and Mining Company, Inc. Nevada
Great Basin Management Company, Inc. Nevada
Minera Montoro S. A. de C. V. Mexico
<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>
