U. S. SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
--------
FORM 10-QSB
(Mark One)
[X] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
For the quarterly period ended: APRIL 30, 1997
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OR
[ ] TRANSITION REPORT PURSUANT TO 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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(Exact name of small business issuer as specified in its charter)
NEVADA 88-0227654
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(State or other jurisdiction (I.R.S. Employer Identification No.)
of incorporation)
1621 North 3rd Street, Suite 1000,
Coeur d'Alene, ID 83814
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(Address of principal executive offices)
(208) 664-6757
-------------------------
(Issuer's telephone number)
Check whether the issuer (1) filed all reports required to be filed by Section
13 or 15(d) of the Exchange Act during the past 12 months (or for such shorter
period that the registrant was required to file such reports), and (2) has been
subject to such filing requirements for the past 90 days. Yes [ X ] No [ ]
The number of shares of Common Stock, $0.001 par value, outstanding as of June
1, 1997 was 32,314,760.
Transitional Small Business Disclosure Format (check one):
Yes [ ] No [X]
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PART 1 - FINANCIAL INFORMATION
Item 1. FINANCIAL STATEMENTS
<TABLE>
<CAPTION>
FISCHER-WATT GOLD COMPANY, INC.
CONSOLIDATED BALANCE SHEETS
(UNAUDITED)
ASSETS April 30,1997
------ (Unaudited)
<S> <C>
CURRENT ASSETS:
Cash ..................................................... $ 481,000
Certificate of Deposit ................................... 502,000
Accounts receivable ...................................... 555,000
Due from related parties ................................. 22,000
Inventories .............................................. 668,000
Prepaid Expenses ......................................... 69,000
------------
Total current assets ............................ 2,297,000
MINERAL INTERESTS, net ............................................ 4,155,000
PLANT, PROPERTY, AND EQUIPMENT .................................... 2,512,000
LESS ACCUMULATED DEPRECIATION ..................................... (398,000)
------------
2,114,000
FOREIGN TAX REFUNDS, net of $214,000 reserve ...................... 578,000
OTHER ASSETS ...................................................... 53,000
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Total assets .................................... $ 9,197,000
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LIABILITIES AND SHAREHOLDERS' EQUITY
------------------------------------
CURRENT LIABILITIES:
Accounts payable and accrued expenses .................... $ 2,408,000
Notes payable ............................................ 975,000
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Total current liabilities ....................... 3,383,000
LONG-TERM LIABILITIES:
Convertible note payable to shareholder .................. 719,000
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Total liabilities ............................... 4,102,000
SHAREHOLDERS' EQUITY:
Preferred stock, non-voting, convertible, $2.00 par value,
250,000 shares authorized; 0 shares outstanding ............... -0-
Common stock, $0.001 par value, 50,000,000 shares
authorized; 32,314,760 shares outstanding at April 30, 1997 ... 32,000
Additional paid-in capital ...................................... 12,572,000
Capital stock subscribed ........................................ 721,000
Foreign currency translation adjustments ........................ 253,000
Deficit ......................................................... (8,483,000)
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Total shareholders' equity ..................... 5,095,000
Total liabilities and shareholders' equity ............... $ 9,197,000
============
</TABLE>
The accompanying notes are an integral part of these balance sheets.
2
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<TABLE>
<CAPTION>
FISCHER-WATT GOLD COMPANY, INC.
CONSOLIDATED STATEMENTS OF OPERATIONS
(UNAUDITED)
Three Months Ended
April 30,
1997 1996
---- ----
<S> <C> <C>
SALES OF PRECIOUS METALS ................................ $ 1,476,000 $ 1,057,000
COSTS APPLICABLE TO SALES ............................... (1,238,000) (1,375,000)
------------ ------------
GAIN/(LOSS) FROM MINING ................................. 238,000 (318,000)
COSTS AND EXPENSES:
Abandoned and impaired mineral interests ....... -0- 3,000
Selling, general and administrative ............ 382,000 269,000
Exploration .................................... 84,000 66,000
------------ ------------
466,000 338,000
OTHER INCOME (EXPENSE):
Interest income (expense) ...................... (22,000) 26,000
Unrealized gain on trading securities .......... -0- -0-
Other (expense) income ......................... (3,000) (5,000)
Currency exchange losses, net .................. (173,000) (110,000)
------------ ------------
(198,000) (89,000)
Net loss before income taxes ................... (426,000) (745,000)
TAX PROVISION ........................................... -0- -0-
NET LOSS ................................................ $ (426,000) $ (745,000)
============ ============
LOSS PER SHARE AND COMMON EQUIVALENT .................... $ (.01) $ (.03)
WEIGHTED AVERAGE COMMON AND COMMON
EQUIVALENT SHARES OUTSTANDING ....................... 31,669,000 25,420,000
</TABLE>
The accompanying notes are an integral part of these statements.
3
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<TABLE>
<CAPTION>
FISCHER-WATT GOLD COMPANY, INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS
(UNAUDITED)
Three Months Ended
April 30,
1997 1996
---- ----
<S> <C> <C>
Net cash used in operating activities ..................... $ (354,000) $ (944,000)
Net cash used in investing activities ..................... (122,000) (89,000)
Net cash provided by financing activities ................. 472,000 4,388,000
NET (DECREASE) INCREASE IN CASH ........................... (3,000) 3,355,000
CASH, at beginning of period .............................. 484,000 266,000
CASH, at end of period .................................... $ 481,000 $ 3,621,000
SUPPLEMENTAL DISCLOSURE OF CASH FLOW INFORMATION:
Cash paid during the period for interest ......... $ 29,000 $ -0-
Cash paid during the period for taxes ............ 25,000 18,000
SUPPLEMENTAL DISCLOSURE OF SIGNIFICANT NON-CASH ACTIVITIES:
Securities issued in exchange for professional
services rendered ............................. $ 53,000 $ 18,000
</TABLE>
The accompanying notes are an integral part of these statements.
4
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FISCHER-WATT GOLD COMPANY, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(UNAUDITED)
1. FINANCIAL CONDITION AND LIQUIDITY
The accompanying financial statements are unaudited; however, in the opinion of
management, all adjustments (consisting only of normal recurring accruals)
necessary for a fair presentation have been made. These financial statements and
notes thereto should be read in conjunction with financial statements and
related notes included in Fischer-Watt Gold Company, Inc.'s ("Fischer-Watt" or
the "Company") Annual Report on Form 10-KSB/A for the year ended January 31,
1997 ("Form 10-KSB/A").
Future Financing and Realization
--------------------------------
Fischer-Watt incurred a net loss of $3,378,000 in fiscal 1997, has an
accumulated deficit of $8,483,000, has a net working capital deficiency of
$1,086,000 and continues to experience negative cash flow and losses 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 it 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 of Form 10-KSB/A for the fiscal year
ended January 31, 1997), 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.
2. ACCOUNTS RECEIVABLE
Accounts receivable at April 30, 1997 consist of:
Trade $ 446,000
Other 109,000
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Total accounts receivable $ 555,000
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3. INVENTORIES
Inventories at April 30, 1997 consist of:
Finished products and products in process $ 182,000
Supplies, materials and spare parts 486,000
---------
Total inventories $ 668,000
4. MINERAL INTERESTS
Capitalized costs for mineral interests at April 30, 1997 consist of:
Operating mining property:
El Limon Mine, Oronorte District $1,444,000
Less accumulated depletion (286,000)
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1,158,000
Non-operating properties, net of reserves:
El Carmen, Colombia 467,000
La Aurora, Colombia 349,000
Juan Vara, Colombia 150,000
El Viente, Colombia 1,000
Kobeh, Nevada 67,000
Castle, Nevada 728,000
Coal Canyon, Nevada 597,000
Red Canyon, Nevada 334,000
Tempo, Nevada 50,000
Sacramento Mountains, California 147,000
Nevada Regional 1,000
Water Canyon, Nevada 13,000
Amador, Nevada 10,000
Oatman, Arizona 10,000
Modoc, California 73,000
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Total mineral interests $4,155,000
5. 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 to Financial Statements of Form 10-KSB/A for
the fiscal year ended January 31, 1997).
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 April 30, 1997 was $10,000. Subsequent to the first quarter ended April
30, 1997 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.
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The Company has a $500,000 line of credit with a bank. Advances under this line,
which totaled $443,000 at March 31, 1997, accrue interest at rates from 26% to
39% and are collateralized by a $502,000 certificate of deposit which bears
interest at 3.9%.
The Company has a $123,000 note payable to a bank at March 31, 1997. The note
bears interest at the legal Colombian rate (DTF) plus 10 points (32.04% at March
31, 1997), requires interest to be paid quarterly, and is collateralized by a
building.
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 April 30, 1997 was $19,000. The Company's
option to issue shares in satisfaction of this debt is subject to a limitation
that Kennecott's ownership of Fischer-Watt cannot exceed 10% of the outstanding
voting common stock.
6. EQUITY AND COMMON STOCK
On March 12, 1996 the Company completed a $5 million foreign offering of equity
pursuant to Regulation "S". This offering consisted of the sale of 4,980,000
units at $1.06 per unit. Each unit was composed of two shares of Fischer-Watt
common stock and one share purchase warrant. Each of these warrants entitles the
holder to purchase one additional share of Fischer-Watt common stock at an
exercise price of $.75 through February 28, 1998. These securities were not
registered under the Securities Act of 1933 and may not be offered or sold in
the United States absent registration or an applicable exemption from
registration requirements. The funds raised were used to finance capital
equipment and working capital needs for further development and expansion of
Fischer-Watt's gold mining operation in Colombia and its exploration and
development activities in Colombia and Nevada. As part of this offering, 680,000
units were sold under a subscription agreement and the collected proceeds of
$721,000 are classified as capital stock subscribed within the Company
shareholders' equity accounts. As of April 30, 1997, none of the 680,000 shares
had been issued.
In March 1997, the Company issued 100,000 common shares in exchange for
professional services rendered. The shares had an estimated fair market value of
$53,000.
In April 1997, the Company completed a private placement to accredited investors
located in the United States pursuant to Rule 506 of Regulation D under the
Securities Act of 1933, as amended (the "1933 Act"). The estimated net proceeds
from this offering of $442,000 are to finance the Company's working capital
requirements and needs related to further development, expansion, and
exploration of mining properties. This Regulation D offering consisted of the
sale of 459,000 units at $1.06 per unit. Each unit was composed of two shares of
Fischer-Watt common stock and one share purchase warrant. Each of these warrants
entitles the holder to purchase one additional share of Fischer-Watt common
stock at an exercise price of $.75 through February 28, 1999. These securities
were not registered under the Securities Act of 1933 and may not be offered or
sold in the United States absent registration or an applicable exemption from
registration requirements.
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.
Item 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OR PLAN OF OPERATION
Statements which are not historical facts contained herein 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, 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
7
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and political risks associated with foreign operations, the selling price of
metals, 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, and other factors described
herein and in FWG's annual report on Form 10-KSB/A. 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.
The following is a discussion of Fischer-Watt Gold Company, Inc.'s (the
"Company") current financial condition as well as its operations for the three
months ended April 30, 1997 (fiscal 1998) and April 30, 1996 (fiscal 1997). This
discussion should be read in conjunction with the Financial Statements in Item 1
of this report as well as the Financial Statements in Form 10-KSB/A for the
fiscal year ended January 31, 1997 on file with the Securities and Exchange
Commission, as the discussion set forth below is qualified in its entirety by
reference thereto.
LIQUIDITY AND CAPITAL RESOURCES
Short-Term Liquidity
As of June 1, 1997 the Company had $817,000 in cash and accounts payable of
$2,236,000.
On April 30, 1997, the Company's current ratio was .68:1 based on current assets
of $ 2,297,000 and current liabilities of $3,383,000 . On April 30, 1996,
Fischer-Watt's current ratio was 2.0:1 based on current assets of $4,627,000 and
current liabilities of $2,341,000. The decrease in the current ratio at April
30, 1997 is primarily related to a decrease in the cash balance of approximately
$3,140,000 which was utilized to finance the Company's capital equipment and
working capital needs related to further development and expansion of the
Colombian gold mining operation and the Company's exploration and development
activities in Colombia and Nevada, an increase in accounts payable and accrued
expenses of approximately $612,000 and an increase in notes payable of
approximately $521,000, both of which are related to the increased activity and
working needs of the mining operation in Colombia. The above items are partially
offset by an increase in inventories of approximately $472,000 and an increase
in accounts receivable of approximately $298,000, both of which are related to
the increased activity associated with the mining operation in Colombia.
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 $8,483,000, has a net working capital deficiency of
$1,086,000 and continues to experience negative cash flow and losses 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 of Form 10-KSB/A for the fiscal year
ended January 31, 1997), 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
8
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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.
From March 11, 1997 through April 16, 1997, the Company conducted a private
placement in the United States. The estimated net proceeds from this offering of
$442,000 are to finance the Company's working capital requirements and needs
related to further development, expansion, and exploration of mining properties.
This offering consisted of the sale of 459,000 units at $1.06 per unit. Each
unit was composed of two shares of Fischer-Watt common stock and one share
purchase warrant. Each of these warrants entitles the holder to purchase one
additional share of Fischer-Watt common stock at an exercise price of $.75
through February 28, 1999. These securities were not registered under the
Securities Act of 1933 and may not be offered or sold in the United States
absent registration or an applicable exemption from registration requirements.
Pursuant to agreements among Greenstone Resources Ltd. ("Greenstone"), Dual
Resources Ltd.("Dual"), 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 of Form 10-KSB/A for the
fiscal year ended January 31, 1997)
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 the first quarter ended April
30, 1997, the Company negotiated a settlement agreement with Serem Gatro.
Pending the closing of the agreement, the principal and accrued interest will be
canceled in exchanged for 185,624 shares of common stock.
Long-Term Liquidity
It is likely that the Company will need to supplement anticipated cash from
operations with future debt or equity financings and dispositions of or joint
ventures with respect to mineral properties to fully fund its future business
plan which includes exploration projects and property development. While the
Company has been successful in capital raising endeavors in the past, there can
be no assurance that its future efforts will be successful. There can be no
assurance that the Company will be able to conclude transactions with respect to
its mineral properties or additional debt or equity financings or that such
capital raising opportunities will be available on terms acceptable to the
Company, or at all.
At April 30, 1997 the Company had long term debt of $719,000 compared to $-0- at
April 30, 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.
RESULTS OF OPERATIONS
The Company had net loss of $426,000 ($.01 per share) compared to net loss of
$745,000 ($.03 per share) in the quarter ended April 30, 1997 and 1996,
respectively. This 57% improvement over the prior year results relates to an
increase in the sales of precious metals of approximately $419,000, coupled with
the a decrease in costs applicable to sales of approximately $137,000; both of
which were partially offset by an increase in selling, general and
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administrative expense of approximately $113,000, an increase in currency
exchange losses of approximately $63,000, an increase in interest income
(expense) of approximately $48,000, and an increase in exploration expense of
$18,000 (see discussions below).
REVENUES
The Company had sales of precious metals of $1,476,000 representing 4,198 ounces
of gold shipped in the quarter ended April 30, 1997. The Company had sales of
precious metals of $1,057,000 representing 2,700 ounces of gold shipped during
the quarter ended April 30, 1996. The increase in sales of approximately
$419,000 from prior year relates to an increase in gold ounces shipped of 1,498
ounces, which resulted from an increase in ore grade, coupled with an increase
in tonnes produced, which resulted from further development of the mine and
augmented production from the La Aurora. The Company does not presently employ
forward sales contracts or engage in any hedging activities.
COSTS AND EXPENSES
Production costs totaled $1,238,000 and $1,375,000 for the three month period
ended April 30, 1997, and April 30, 1996, respectively. The improvement of
approximately $137,000 from the prior year relates to operational efficiencies
gained with increased production levels and the implementation of cost cutting
measures.
The cost of abandoned mineral interests decreased from $3,000 to $-0- in
quarters ended April 30, 1996 and 1997, respectively. During the prior fiscal
year, La Victoria with a cost basis of $3,000 was abandoned.
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 costs increased from $ 269,000 to $382,000
in quarters ended April 30, 1996 and 1997, respectively. The increase of
$113,000 relates to an increase in corporate expenses of approximately $99,000,
primarily resulting from an increase in salaries and benefits related to the
addition of two Vice Presidents, and the Chief Financial Officer, coupled with
an increase in costs associated with merger and acquisition activity, coupled
with an increase in expenses associated with the operating mine in Colombia of
approximately $14,000, which resulted from increased activity levels.
Exploration expense increased to $84,000 in the first quarter of fiscal 1998
from $66,000 in the first quarter of fiscal 1997. This increase is due to
increased exploration activity in the United States.
Net interest income (expense) increased from income of $ 26,000 in fiscal 1997
to expense of $(22,000) in fiscal 1998. This increase relates to interest
earnings on a lower cash balance, which resulted from the financing of capital
equipment and working capital needs related to further development and expansion
of the Colombian gold mining operation, and the Company's exploration and
development activities in Colombia and Nevada, coupled with an increase in
interest expense associated with increased debt related to the operating mine in
Colombia.
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 $173,000 in the
quarter ended April 30, 1997. The loss in the quarter ended April 30, 1996 was
$110,000.
The Company is subject to inflationary pressures of the Colombian economy.
During the past year the rate of inflation in Colombia was approximately 20%,
wherein the currency exchange rate of the U.S. dollar to the Colombian peso
increased by only 8%. The Company is striving to implement cost-cutting measures
in an effort to reduce per unit production costs and increase production
efficiencies. These cost-cutting measures include overhead reduction at both the
mine and Medellin office, and improved grade control. However, there can be no
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assurance that the Company will be able to achieve such cost cutting measures
and production efficiencies. In addition, the Company cannot anticipate what the
future inflation and exchange rates will be and therefore cannot accurately
predict the aggregate effect of these factors.
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 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 of Form 10-KSB/A for the fiscal year ended January 31, 1997)
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 of Form 10-KSB/A for the fiscal year ended January 31,
1997)
PART II - OTHER INFORMATION
Item 1. LEGAL PROCEEDINGS
On April 23, 1997, the Company was notified that the Superior Tribunal Labor
Court, Medellin, Colombia, upheld the January 30, 1996 jury verdict in favor of
the Company's Colombian subsidiary (Oronorte) relating to several claims related
to labor contracts and employee terminations which occurred during a labor
strike that took place during the former ownership of Oronorte. (See Part 1-Item
3. Legal Proceedings of Form 10-KSB/A for the fiscal year ended January 31,
1997)
Item 2. CHANGES IN SECURITIES
In March 1997, the Company issued 100,000 shares of common stock and five
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 $53,000. The warrants are exercisable at $.41 per share at any
time prior to January 14, 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 April 1997, the Company completed a private placement to accredited investors
located in the United States pursuant to Rule 506 of Regulation D under the
Securities Act of 1933, as amended (the "1933 Act"). The estimated net proceeds
from this offering of $442,000 are to finance the Company's working capital
requirements and needs related to further development, expansion, and
exploration of mining properties. This Regulation D offering consisted of the
sale of 459,000 units at $1.06 per unit. Each unit was composed of two shares of
Fischer-Watt common stock and one share purchase warrant. Each of these warrants
entitles the holder to purchase one additional share of Fischer-Watt common
stock at an exercise price of $.75 through February 28, 1999. These securities
were not registered under the Securities Act of 1933 and may not be offered or
sold in the United States absent registration or an applicable exemption from
registration requirements.
Item 5. OTHER INFORMATION
In a press release dated June 10, 1997 the Company announced that it had signed
a letter of intent with Compania Minera Constelacion, S.A. de C.V., a wholly
owned Mexican subsidiary of Cominco, Ltd. to acquire the Los Verdes property, a
copper property located approximately 200 kilometers southeast of Hermosillo,
11
<PAGE>
Sonora, Mexico. The letter of intent provides for an exclusive four month option
period for due diligence, at the end of which Fischer-Watt may purchase the
property for US$5,000,000, payable over a five year period from production start
up.
Constelacion, and its former Joint Venture partner on this project, Industrias
Penoles, have drilled 85 diamond drill holes and 28 percussion holes in the
property and delineated a high grade chalcocite zone. Following the drilling, a
275 meter adit was driven to collect bulk samples and confirm the presence of
ore.
During the due diligence period, Fischer-Watt geologists will work to confirm
their initial estimate, that the Los Verdes deposit contains 2.36 million tonnes
averaging 1.44% copper. The ore body appears to be very coherent and contains
little internal waste. This reserve estimate was made with calculations of plans
and sections supplied by Constelacion.
Item 6. EXHIBITS AND REPORTS ON FORM 8-K
(a) Exhibits -
Exhibit Item 601
No. Category Exhibit
- -------- ------------ ---------
1 2 Letter of intent dated June 3, 1997, between Minera
Constelacion, S.A. de C.V. and Minera Montoro S.A. de C.V.
regarding the Los Verdes property.
2 27 Financial Data Schedule for the three month period ended
April 30, 1997.
(b) Reports on Form 8-K
During the quarter ended April 30, 1997, no reports on Form 8-K were filed by
the Registrant.
12
<PAGE>
SIGNATURES
In accordance to the requirements 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.
June 16, 1997 By: /s/ George Beattie
------------------------------
George Beattie, President,
Chief Executive Officer
(Principal Executive Officer),
Chairman of the Board and
Director
June 16, 1997 By: /s/ Michele D. Wood
------------------------------
Michele D. Wood,
Chief Financial Officer
(Principal Financial and
Accounting Officer)
13
<PAGE>
<TABLE>
<CAPTION>
EXHIBIT INDEX
Exhibit Item 601
No. Category Exhibit Page
- ------- -------- ------- ----
<C> <C> <C>
1 2 Letter of intent dated June 3, 1997, between Minera
Constelacion, S.A. de C.V. and Minera Montoro S.A. de C.V.
regarding the Los Verdes property.
2 27 Financial Data Schedule for the three month period ended
April 30, 1997.
</TABLE>
LETTER OF INTENT
----------------
PARTIES: MINERA CONSTELACION (CONSTELACION)
AND MINERA MONTORO (MONTORO)
OBJECT: "LOS VERDES" PROPERTY IN SONORA, MEXICO, COMPRISING 12 (TWELVE)
MINING CONCESSIONS (EXPLOITATION AND EXPLORATION), AS PER LIST IN ATTACHED
SCHEDULE "A". ALL CONCESSIONS SHALL BE DULY UP-TO-DATE ON ALL OBLIGATIONS
THROUGH CONTRACT DATE.
TERMS:
1. AN EXCLUSIVE 120 DAY OPTION PERIOD FOR THE DUE DILIGENCE
FOR A CONSIDERATION OF US$25,000; DURING THIS PERIOD MONTORO SHALL ALSO
APPROACH THE FINANCING REQUIREMENTS OF THE PROJECT. IF THE FINANCIAL
INSTITUTIONS REQUEST ADDITIONAL OR CONFIRMATION DRILLING ON THE
PROPERTY, THEN MONTORO SHALL REQUEST AND (CONSTELACION) SHALL GRANT AN
EXTENSION OF AN ADDITIONAL 60 DAYS FOR THIS OPTION PERIOD.
2. AT THE END OF THE DUE DILIGENCE-EXCLUSIVE OPTION PERIOD,
MONTORO MAY EXERCISE THE OPTION FOR A TOTAL PRICE OF US$5 MILLION
DOLLARS TO BE PAID AS FOLLOWS: MONTORO WILL MADE A PAYMENT OF US$50,000
AS PART OF THE PURCHASE PRICE ON THE DATE OF FORMALIZATION OF THE
PURCHASE BY A PUBLIC NOTARY.
3. THEREAFTER, A PAYMENT OF US$100,000 WILL BE MADE AS PART OF
THE PURCHASE EVERY TWELVE MONTH PERIOD UNTIL THE PROPERTY IS PLACED
INTO COMMERCIAL PRODUCTION.
4. ONCE IN PRODUCTION, MONTORO WILL PAY TO CONSTELACION
US$1,000,000 EVERY ANNIVERSARY FROM THE DATE OF PRODUCTION AS PART OF
THE PURCHASE PRICE. HOWEVER THE FIRST MILLION DOLLAR PAYMENT AT THE
FIRST YEAR AFTER PRODUCTION WILL BE REDUCED BY THE AMOUNTS ALREADY PAID
AS PER THE PURCHASE PRICE. BUT IT CAN NOT BE LESS THAN US$750,000. IF
DUE TO FORCE MAJEURE RELATED TO REASONABLE CAUSE SUCH AS THE
SIGNIFICANT DROP IN THE METAL PRICE, MONTORO SHALL REQUEST AND
CONSTELACION SHALL GRANT A NINETY DAY EXTENSION OF ANY OF THE ONE
MILLION DOLLAR PAYMENTS WITH AN INTEREST RATE AT PRIME RATE INTEREST.
5. MONTORO SHALL KEEP CONSTELACION INFORMED BY QUARTERLY
PROGRESS REPORTS TO BE DELIVERED NO LATER THAN 45 DAYS AFTER THE END OF
THE QUARTER. MONTORO SHALL WELCOME THE PRESENCE OF CONSTELACION-COMINCO
REPRESENTATIVES ON THE PROPERTY AT ANY TIME AS MUTUALLY AGREED UPON 10
DAYS IN ADVANCE.
6. MONTORO SHALL KEEP ALL CONCESSIONS DULY CURRENT ON ALL OF
THE LEGAL OBLIGATIONS FROM THE DATE OF THE SIGNATURE OF THE CONTRACT.
<PAGE>
7. TRANSFER OF TITLE OF THE CONCESSIONS SHALL BE EFFECTIVE AT
THE MOMENT OF THE PAYMENT MENTIONED IN THE SECTION LABELED "TERMS 2"
FOR THE PURPOSE OF FACILITATING THE FINANCING OF THE PROJECT. HOWEVER,
MONTORO SHALL MAINTAIN ALL 12 CONCESSIONS UNENCUMBERED AND FREE OF ANY
LIEN AS A GUARANTEE TO CONSTELACION FOR EACH AND EVERY ONE OF THE
PAYMENTS.
8. CONSTELACION AGREES TO AN AREA OF INTEREST OF 2,500 METERS
IN RADIUS FROM THE PORTAL OF THE "LOS VERDES" ADIT. WITHIN THIS AREA OF
INTEREST, CONSTELACION GIVES MONTORO THE EXCLUSIVE RIGHT TO OBTAIN
MINING CONCESSIONS. IF MONTORO DOES NOT EXERCISE THE OPTION, THESE
CONCESSIONS SHALL ALSO BE RETURNED TO CONSTELACION.
9. IF MONTORO DOES NOT EXERCISE THE OPTION OR DOES NOT PAY ANY
OF THE PAYMENTS OF THE FULL PURCHASE PRICE, IT SHALL DELIVER ALL THE
TECHNICAL DATA TO CONSTELACION. IN THIS CASE CONSTELACION WILL
AUTOMATICALLY ACQUIRE A 90 DAY OPTION TO BUY BACK THE CONCESSIONS FOR
AN AMOUNT OF US $100.
SIGNED ON THIS GUADALAJARA, JAL. DAY OF JUN 3 OF 1997.
MINERA CONSTELACION, S.A. DE C.V. MINERA MONTORO S.A. DE C.V.
/S/ /S/
ING. OSCAR SANSORES BOLIVAR ING. JORGE E. ORDONEZ CORTES
<PAGE>
<TABLE>
<CAPTION>
ANEXO "A"
PROYECTO LOS VERDES, SONORA
LOTES MINEROS
CONCESION NUMERO HECTAREAS
- --------- ------ ---------
<S> <C> <C>
BACANORA T-168625 238.9685
BACANORA TRES T-194437 12
LOS VERDES T-168566 14
BUENA VISTA T-168569 21
PIEDRAS AZULES T-178925 132.7287
CONTINUACION BUENA VISTA T-168574 30
LA NUEVA CRUZ DE SAN NICOLAS T-168573 81
LA FRONTERA T-168575 15
DOS PICACHOS T-168621 31
LA BUFITA T-193491 10
LA VERDE T-168576 9
AMPLIACION LOS VERDES E-18087 ---
TOTAL 12 LOTES MINEROS 594.6972
</TABLE>
PENDIENTE POR REDENUNCIAR-TERRENO ANTERIORMENTE AMPARADO POR:
BACANORA DOS E-16175
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM THE
FINANCIAL STATEMENTS FOR THE THREE MONTHS ENDED APRIL 30, 1997 CONTAINED IN FORM
10-QSB FOR THE QUARTERLY PERIOD ENDED APRIL 30, 1997 AND IS QUALIFIED IN ITS
ENTIRETY BY REFERENCE TO SUCH FINANCIAL STATEMENTS.
</LEGEND>
<MULTIPLIER> 1,000
<CURRENCY> U.S. DOLLARS
<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> 578
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> (2)
<INCOME-PRETAX> (3,126)
<INCOME-TAX> 202
<INCOME-CONTINUING> (3,328)
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (3,328)
<EPS-PRIMARY> (0.11)
<EPS-DILUTED> (0.11)
</TABLE>
