U.S. SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-KSB
(Mark One)
[X] ANNUAL REPORT UNDER SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF
1934
For the fiscal year ended January 31, 1998
----------------
[ ] TRANSITION REPORT UNDER SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE
ACT OF 1934 [NO FEE REQUIRED]
For the Transition period from to
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Commission file number 0-17386
FISCHER-WATT GOLD COMPANY, INC.
(Name of small business issuer in its Charter)
Nevada 88-0227654
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(State or other jurisdiction (IRS Employer
of 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
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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
(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 $ 5,502,625.
The aggregate market value of the voting stock held by non-affiliates as of May
1, 1998 (using the average of the Bid and Asked prices) was $ 3,164,381.
The number of Shares of Common Stock, $ .001 par value, outstanding on May 1,
19998 was 667.
Documents Incorporated by Reference into this Report: NONE
Transitional Small Business Disclosure Format ( check one) YES [ ] NO [ ]
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PART 1
Item 1. DESCRIPTION OF BUSINESS
Introduction
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Fischer-Watt Gold Mining Company, Inc. (collectively with its subsidiaries,
"Fischer-Watt", "FWG" 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, 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 ending January 31, 1998, no material acquisitions were
completed by the Company.
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.,
("GREM"), 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 FWG common stock were issued to the shareholders of GBM.
During fiscal year 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 after purchasing it from
Greenstone Resources of Canada. During calendar year 1997 the mine produced
16,665 ounces of gold and a like amount of silver. This was a 30% increase from
the previous year. During the third quarter of the fiscal year ended January 31,
1997, production reached a record high of 3,786. This increase in production
reflects the implementation of a grade control program that was instituted under
the Company's management. Further improvement in grade is anticipated when the
equipment for a new slurry pumping system became fully operational during April
1997.
The Company revenue for the year was $5,502,625, the cost of sales were
$4,076,361 and General and administrative expense's were $1,304,853. The average
selling price of gold during the year was $330.98 per ounce.
In fiscal year 1997 the company revised its cash cost calculation methodology
was made in an effort to more closely conform to the Gold Institute Production
Cost Standard.
Operations
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The cash cost per ounce of gold was $381.58 for fiscal 1996 and fell to $302.70
in fiscal 1997.
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 effected 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 0.5 meters. The average grade of this vein
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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 11.2 grams per tonne or 30 % of the available value of the
vein. It was apparent from this data that a study program which would identify
methods to improve the grade of the ore being sent to the processing plant was
necessary. Several steps have been taken already as a result of this grade
control program and more will follow. The actions which are already underway are
as follows:
The previous mining method required a minimum stoping width of 1.2 meters 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 vs. an available grade of 37 grams 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 1 meter 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 17.7 grams 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 17.7 grams per tonne to 20.2 grams 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 averaging 2,133 maintained at around 2,000 tonnes per month.
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, the size of the support
staff reduced and improved purchasing procedures put in place at both the mine
site and Medellin office.
Mine Development
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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. It is accessed by a 310 meter long decline ramp
which was constructed with rubber tired mining equipment. The ramp intersects a
vein structure similar to El Limon. The mine will utilize low cost, trackless,
mining methods. The mine is fully developed but was placed on standby in October
awaiting improvement in the price of gold. When operational, the ore from the La
Aurora will be transported to the mill at El Limon.
Development of the second property, the Juan Vara, has been temporarily
suspended in order to concentrate efforts on the La Aurora, El Limon, and better
price for gold. The Juan Vara is approximately two kilometers from the El Limon
Mine processing plant. Earlier in fiscal 1997, two diamond drill holes were
completed from surface. One hole intersected the vein at a depth of 80 meters
below surface. At this point, the vein is 0.4 meters with an assay grade of 43
grams of gold per tonne. The second hole intersected a narrow vein but was
stopped short of the main vein due to mechanical problems with the drill rig.
The geometry of both the La Aurora and the Juan Vara vein in relation to the
surface topography suggest that they may be developed (if warranted) with rubber
tired mining equipment. A rehabilitated one cubic yard LHD vehicle has been
purchased in the United States and is now operating at the El Limon Mine.
Exploration
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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.
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Surface drilling at the 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. A contractor is sinking a winze on the
known El Carmen Vein to provide additional geological information.
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 greatly curtailed its exploration efforts in Nevada. In addition to
closing the Reno, Nevada, exploration office, all of the company properties were
critically evaluated as to; potential, holding costs, and likelihood of
attracting joint venture partners. Based on this evaluation the Coal Canyon,
Water Canyon, Sacramento Mountain, Modoc, and Oatman properties were either
dropped or assigned to others.
During the year the company optioned the purchase option on the Los Verdes
Copper project in the State of Sonora, Mexico. The agreement was with the
Mexican subsidiary of COMINCO, the publicly held Canadian based mining company.
The property has over 80 drill holes and a mineable reserve of 77 million pounds
of copper. Discussions are on going to change the purchase option to a Net
Smelter Return (NSR) based royalty agreement. This would give Fisher-Watt full
control of the property. Completion of this agreement is anticipated during the
second quarter of calendar year 1998.
Private Placement
During 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 $441,541 are to finance the Company's working
capital requirements and needs related to further development, expansion ad
exploration of mining properties. 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.
Definitions
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"Adit" A nearly horizontal passage from the surface by which a mine is
entered and dewatered.
"Feasibility Study" 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.
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"Footwall" The mass of rock beneath a fault plane, vein, lode or bed of ore.
"Force Majeure" An event which is outside the control of the parties and cannot
be avoided by exercise of due care.
"Generative Exploration" Exploration for mineral deposits in areas not
previously recognized as containing mineralization.
"Net Proceeds Interest" Gross revenues from the sale of products, less
operating, exploration and development costs of the project, usually calculated
on a cash basis.
"Net Smelter Return Royalty," or "NSR" Royalty based on the net amount shown due
by the smelter or other place of sale as indicated by its return or settlement
sheets, after payment of all freight charges from the shipping point to the
smelter, and after all smelter charges have been deducted, but without deduction
of any other charges.
"Participating Interest" The percentage interest representing the operating
ownership (cost and revenues) of a participant in a joint venture agreement.
"Stope" An excavation from which ore has been excavated in a series of steps.
Usually applied to highly inclined or vertical veins.
"Strike" The course or bearing of the outcrop of an inclined bed or structure;
the direction of a horizontal line in the plane of an inclined stratum.
"Target" The indicated location of a potential ore body. The location is
indicated by geologic data and concepts and includes a drilling plan (with
specific drill hole locations) that will test the accuracy of the geologic data
and concepts by penetrating the potential ore body. One property may contain
several targets.
"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. The company has begun construction of a
cyanidation treatment plant at El Limon. This plant will element the need to
ship concentrates to an off shore smelter and thus have a significant favorable
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impact on operating costs. When completed, this plant will allow the company
sell 100% of its product in Colombia as DORE. The majority of the cyanidation
plant is located at the mine and the cost of completion is approximately
$70,000. Completion is scheduled for the second quarter of calendar year 1998.
The Company intends to fund these expenditures through a combination of
internally generated cash flow and additional debt or equity financing. There
can be no assurance, however, that the Company will have available sufficient
funds to conduct such activities.
Fischer-Watt incurred a net loss from operation of $2,980,346 in fiscal 1997.
This loss included none-reoccurring write down of $2,031,084 related to the
abandonment of various mineral properties. The loss also includes $1,070,673 in
exploration expenses. The Company has an accumulated deficit of $11,995,174 and
a tax loss carry forward of approximately $5.8 million. The Company did report
net income in fiscal 1997, 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.
The company was adversely effected by the marked decline in the price of gold,
its primarily product. The selling price of gold declined from $359 per ounce in
January, 1997, to $289.20 per ounce in December, 1997. This $70 decline reduce
company revenue by $1.2 million. The El Limon mine varied between break-even,
negative and positive cash flow depending on the price of gold and various
operating costs. To conserve cash, management has; closed the Reno, Nevada,
office, reduced the staff at Coeur d Alene, Idaho, and Medellin, Colombia,
offices. In addition exploration activities have been greatly reduced and
payment schedules negotiated with various vendors. The company has arranged the
conversion of a Colombian Bank line of credit to a much lower cost IMF backed
loan. Discussions have been undertaken with a Colombian Bank concerning a
sale/lease-back of the El Limon mill. This is expected to be completed by June,
1998.
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 19998, and
until then will fund operations with cash raised from future equity or debt
financing, the anticipated exercise of common stock warrants expiring 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 mid part of calendar year 1998. 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.
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Information About Industry Segment
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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.
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 re-negotiation 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
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production commitments by the lessee and (vi) staking claims. Companies with
greater financial resources, larger staffs and labor forces, and more equipment
for exploration and development may be in a more advantageous position than the
Company to compete for such mineral properties. Management believes that
competition for acquiring mineral prospects will continue to be intense.
The mining industry, including Fischer-Watt, must follow certain local,
state and federal regulations imposed in each country where it operates to
maintain environmental quality. To the best knowledge of management, all the
Company's projects comply with present regulations and their compliance has not
resulted in any additional material capital and/or operating costs. The
Company's principal executive officer has been involved in the permitting of
mines throughout his career. He keeps abreast of applicable legislation
affecting the permitting process. Outside consultants are also available that
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, 1998, Fischer-Watt and subsidiaries have employees as shown below
:
Full-time Part-Time Total
Employees Employees Employees
United States 4 1 5
Foreign 38 0 38
-- - --
Total 42 1 43
In addition, the Company contracts with a labor cooperative at the El Limon
Mine that provides an hourly labor force of over 200 people. The labor
cooperative has been contracting with the El Limon Mine since April 1992. It is
currently operating under a one year contract that expires January 15, 1998.
Annual pay ranges from $210 to $550 per month. Benefits which include health
insurance, retirement, social security and vacation and holidays run
approximately 56% of annual pay.
Foreign Operations
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All of the Company's current production and mining operations are derived from
its Colombian subsidiary. In past years, the Company has had significant losses
due to property abandonment's in Central America and in Mexico. All gains on the
sales of mineral interests have been the results of sales of mineral interests
in the Republic of Honduras. The Company plans to continue exploration efforts
in South America and Mexico as well as in the western United States, principally
in Nevada.
The Company also owns interests in non-producing mineral concessions in
Mexico through its 65%-owned Mexican corporation, Minera Montoro S.A. de C.V.
("Montoro"). Montoro was incorporated in Mexico City, Mexico in October 1989.
The remaining 35% is owned by Jorge Ordonez, a director of the Company, and his
family and business associates.
At this time, management is unaware of any extraordinary risks associated
with the Company's present, or proposed, operations in these countries. Colombia
has a strong tradition of private property rights and is one of the few Latin
American countries that did not nationalize much of its basic industry. The
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guerrilla situation is an ongoing problem but the Company has recently increased
its security measures at the El Limon Mine and is constantly evaluating the
risks. Hedging mechanisms are available to mitigate the effects of inflation and
the Company is investigating possible solutions. The Company does not presently
employ forward sales contracts or engage in any hedging activities. 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 is discussed in the attached consolidated financial report.
Item 2. DESCRIPTION OF PROPERTY
SUMMARY
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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
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Oronorte, Department of Antioquia, Colombia
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Oronorte is a mining company licensed to operate in Colombia. It is 99.95% owned
by Fischer-Watt and Fischer-Watt's wholly-owned subsidiaries. All of Oronorte's
mining licenses and permits were transferred to it from Greenstone in 1995. At
this time, Oronorte holds a total of 29 mining concessions in the Oronorte
district comprising an area of 5,735 hectares. The following properties are
included in the Oronorte district.
1. El Limon Mine.
2. Juan Vara prospect.
3. La Aurora Mine.
4. El Carmen property.
5. El Veinte property.
All of the properties are located in north central Colombia in the Department
(State) of Antioquia. The 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.
At the present time, the El Limon Mine is in production and the La Aurora Mine
is fully developed but is on standby due to gold prices. The El Carmen property
is in an ongoing second stage surface drilling program which is scheduled for
completion by the end of fiscal 1998.
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 mine is about 5 kilometers south of the village
of Zaragoza. Zaragoza is located on the Nechi river and is about 24 river
kilometers south of El Bagre. Travel between Zaragoza and El Bagre can be by
either road or river. The closest airport is at El Bagre which has four
scheduled flights per day to Medellin.
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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 kWh. 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. A third generator will be
purchased which will make the mine self-sufficient for electrical power.
The mine is connected to the national telephone network through the town of
Zaragoza. During the current year, a new telephone was installed on the
property. The mine also has a satellite and phone which is used for emergencies.
calls .
History
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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 LTD. of Medellin and Oronorte 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.
<TABLE>
<CAPTION>
El Limon Mine Historical Production
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- ---------------- --------------- ------------------ ----------------- ------------------------ ----------------
Calendar Tonnes Recovered Average Recovered Ounces Head Grade
- ---------------- --------------- ------------------ ----------------- ------------------------ ----------------
<S> <C> <C> <C> <C> <C>
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
- ---------------- --------------- ------------------ ----------------- ------------------------ ----------------
1997 25,541 16,665 92 0.624 21.10
- ---------------- --------------- ------------------ ----------------- ------------------------ ----------------
* Two months operation
</TABLE>
11
<PAGE>
As shown in the table above, the head grade increased by 64% from 1995 to 1997.
This increase was the result of improved grade control, improvements in the
mining methods, and the purchase of additional mining equipment.
The mineable reserves at the Oronorte properties are shown below. The reserves
were calculated by Ing. Alejandro Pineda M, an independent geological
consultant.
The tonnes shown are fully diluted, mineable tonnes. They 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 7.49 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. The value of
recovered gold is assumed to be $310 per ounce. 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.
Oronorte Reserves - January, 1998 (FY 1997)
<TABLE>
<CAPTION>
- ------------------------------------------------------------------------------------------------------------
El Limon La Juan Vara Total
- ------------------------------------------------------------------------------------------------------------
Tonne g/T Tonne g/T Tonne g/T Tonne g/T Oz/AU
- ------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C>
Proven 34,860 16 4,435 12 39,295 16 19,643
Probable 65,763 14 35,552 9 20,072 6 121,387 11 43,760
------------------------------------------------------------------------------------
Possible 11 39,987 9 233,398 11 79,972
Total 12 79,974 9 20,072 6 394,080 11
Oz of Au 23,569 3,872 143,375
- ------------------------------------------------------------------------------------------------------------
</TABLE>
The calendar year 1998 mining plan calls for the mining and processing of
approximately 34,0100 tonnes of ore and the recovery of approximately 16,000
ounces of gold (500,000 grams). It is anticipated that the development and
exploration work to be carried out at El Limon Mine during 19987 will more than
replace the reserves to be mined during 1998.
12
<PAGE>
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 from year to year, by mutual agreement.
El Limon Mine
- -------------
A description of the mining and processing operations at El Limon Mine is
presented below.
Access to the mine is from an adit on Level 0 (Elev. 135 meters). Three inclined
winzes provide access to the lower levels. One of the winzes is being enlarged
and deepened to provide more rapid access to all levels.
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 0.4
meters. 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. 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.
A cyanidation treatment plant, utilizing the Merrill-Crowe recovery technique,
is being constructed at the mine site. This treatment plant is being assembled
in an existing building adjacent to the mill. The great majority of the plant
(approximately 90%) was located the mine and required only final assembly. The
balance of the plant was purchased in Colombia. The majority of the construction
is being done by existing employees. Completion of this plant will result in all
of the precious metal being produced and sold as DORE. The DORE will be sold to
a well established Colombian refinery located in Medellin. This will reduce
direct operating cost by approximately $50 per ounce of gold.
The mill recoveries average 92 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 "A Precooperativa
de Trabajo Asociado de Zaragoza - Precoomizar Ltd." This particular cooperative
is one of the first being used in the Colombian mining industry.
13
<PAGE>
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 250
Contractors (average) 20
-----
Subtotal 305
Medellin Office 3
----
Grand Total 308
===
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. 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.
14
<PAGE>
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.
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 El Limon and 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%.
Primary access to the Aurora vein is through a 300 meter long, inclined ramp.
This inclined ramp was completed October by July 1997. Production is expected to
begin in the second quarter of 1998, 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 for ventilation by the end of 1997. Development ore from this vein was
is being shipped to the El Limon Mine mill. This operation was placed on standby
15
<PAGE>
in December due to the low price of gold. 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 Jacob's 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.
El Veinte
- ---------
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. This property was acquired
during the year and has had little exploration done at this time.
MEXICAN PROPERTY
- ----------------
Minera Montoro Properties, Baja California, Mexico
- --------------------------------------------------
During 1989, Fischer-Watt acquired a 49% interest in Minera Montoro S.A. de C.
V. ("Montoro"), a corporation duly incorporated in and authorized to conduct
business in Mexico. During the fiscal year ended January 31, 1996, that was
increased to 50%. Effective July 1996, the Company's interest was increased to
65%. Montoro holds a claim on two mineral interests in Mexico. In March 1994,
the Company, through Minera Montoro, formalized an agreement with Gatro South
America Holdings Limited ("Gatro")that was initiated in April 1993 to conduct a
generative exploration program in Baja California. Four properties were acquired
under the generative exploration program (El Arenoso, Alborada, Julio Cesar and
Sierra de Cobre). Under the terms of the agreement, Montoro would have received
a 2.5% net smelter return plus a $5,000,000 payment, per property, upon
commencement of commercial production. Except for El Arenoso, the other
properties have been dropped by Gatro.
The Company, through Montoro, conducted a geophysical exploration program on its
Cerrito property in December 1993. The results were encouraging and Montoro
executed an exploration and purchase option agreement with Minera Cuicuilco S.
A. de C. V., in October 1994. Minera Cuicuilco, a subsidiary of Cyprus Amax
Minerals Company, was the operator of the property. Under the terms of the
agreement, Montoro would receive a 3.0% net smelter return subject to a
16
<PAGE>
$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.
Los Verdes Property, Sonora, Mexico
- -----------------------------------
In June, 1997, Montoro obtained the purchase option on the Los Verdes Copper
project in the State of Sonora, Mexico. The agreement was with the Mexican
subsidiary of COMINCO, a publicly held Canadian based mining company. The
property has over 80 drill holes and a mineable reserve of 77 million pounds of
copper. Discussions are on going to change the purchase option to a Net Smelter
Return (NSR) based royalty agreement. This would give Montoro full control of
the property. Completion of this agreement is anticipated during the second
quarter of calendar year 1998.
Los Verdes is located on the west side of the Sierra Madre Mountains in the
State of Sonora, near the village of San Nicholas. It approximated 220 km East
of Hermosillo, and 190 Km northeast of Ciudad Obregon. A 6 km dirt road links
the property with Federal Highway 16, a paved highway between Hermosillo and
Chihuahua. Yecora, a town with a population of approximately 5,000 people is 20
km east of the property and has an air strip in good condition.
The property will be developed using conventional open pit mining methods. The
material will be crushed to less than 1 inch in diameter and accumulated in the
pads to be leached with an acid solution. The solution will then be recovered
from leach pads and processed at a plant using Solvent Extraction and
Electrowinning (SX-EW) technology. The plant will be built on site using modular
construction methods to reduce costs. The 99.999% copper product will be
marketed on the world market
The mining and processing wall have the capacity to handle 600,000 tons of ore
per year, during 9.5 years. The stripping ratio is approximately 1.1 tonnes of
waste to 1 tonne of ore (1 :1).
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 mining companies to
develop mineral resources on federal lands. The results, if any, of this pending
legislation is unknown. 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. If the validity of an
17
<PAGE>
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 Great Basic Exploration and Mining
(GBEM) to Great Basin Mining (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 39E 15' N and
41E 15' N and Longitudes 115E 45' W and 118E 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 GBMEs interest in the property and would effectively require both Serem
Gatro and GBM to fund their proportionate share (based on their respective
participation interests) of all development costs, whether incurred prior or
subsequent to exercise of the back in right. Based upon the amount spent by each
party on a specific property up to the time of exercise of the back in right,
this could result in one of the parties having to fund all of the future
development costs until the amount of spending by both parties is in proportion
to their respective participation interests. The Serem Gatro Agreement has been
modified with respect to certain properties.
Management Evaluation
- ---------------------
Fischer-Watt greatly curtailed its exploration efforts in Nevada. In addition to
closing the Reno, Nevada, exploration office, all of the company properties were
critically evaluated as to; potential, holding costs, and likelihood of
attracting joint venture partners. Based on this evaluation the Coal Canyon,
Water Canyon, Sacramento Mountain, Modoc, and Oatman properties were either
dropped or assigned to others.
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 Robert's Mountains.
Access to the property is via paved US Highway 50 from 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.
Federal claim rental payments of $17,700 are due on or before August 31, of each
year8.
In 1997 eight holes were drilled on the Kobeh block as a result of geophysical
survey by a then joint venture partner, Cominco. The northern most drill holes
encountered traces of gold mineralization up to 300 to 400 feet thick. The gold
mineralization tapered off to the south where drilling did not reach the desired
formations.
18
<PAGE>
Cominco drilled to the west of a series of resistivity anomalies discovered by
the Company, then Great Basin, in 1992. The Company thinks that this series of
resistivity anomalies represent the altered rock formations that Cominco did not
encounter during their drilling campaign. Therefore the Company believes that
these geophysical anomalies, and the rock formations interpreted to be in the
subsurface, remain viable targets to be explored.
Red Canyon, Eureka County, Nevada
- ---------------------------------
Red Canyon is located approximately 35 miles northwest of Eureka in the
northwest corner of the Robert's 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 (BMG)(80%) . 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
and advance royalty payments are paid by BMG. 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.
BMG has informed the company that it has curtailed its plans in relationship to
the property due to the current price of gold. They do intend to retain their
option but have no plans to drill.
Tempo, Lander County, Nevada
- ----------------------------
The Tempo Prospect is located approximately 17 miles northwest of the town of
Austin, Nevada, and 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
19
<PAGE>
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.
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.
Digger has recently completed an 11 drill hole exploration program and is
evaluating the results in anticipation of a second phase drilling program of 19
holes
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. Superficial 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.
20
<PAGE>
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.
No work is planned on this property for the upcoming fiscal year.
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 Castle property was optioned to
Zephyr Mining in the fall of 1997. Zephyr is the exploration and mining
subsidiary of J. D. Welsh, a privately held, Reno, Nevada, based construction
company.
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.
BMR has notified the company that it does not intend to proceed with development
of this property. The company has evaluated the potential of the America Mine
and decided not to add it to the profile of exploration properties.
21
<PAGE>
Modoc, Imperial County, California
- ----------------------------------
This property has been dropped
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 venture, Horizon Resources
Corp. ("Horizon"), is the operator. The Company is not committed to, and does
not intend to, provide any further financial support for the TGM Venture.
The TGM venture is now inactive. The Company's interest in the TGM Venture has
been reserved due to the inactivity of the venture and unlikely prospect of
recovering its investment. Most of the reclamation is complete: the plant has
been dismantled and removed and the heap has been reclaimed. The pad and ponds
are scheduled to be reclaimed. While reclamation responsibilities were incurred
by and are the responsibility of the TGM Venture, the financial burden for these
costs is with Horizon since the Company has not guaranteed any obligations of
the TGM Venture nor is it otherwise committed to provide any further financial
support for the TGM Venture.
Oatman, Mojave County, Arizona
- ------------------------------
This property has been dropped.
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 (Colombia) 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.
<TABLE>
<CAPTION>
End of FY 1997
- ----------------------------------------------------------------------------------------------------------
Lease Work J. V. Net
Property Payments Commitments Total Share FWG Cost
- ----------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
Amador 5,000 5,000 5,000
America 48,000 100,000 148,000 (148,000) 0
Castle 5,400 5,400 5,400
Kobeh 17,700 17,700 17,700
Red Canyon 74,500 74,500 74,500
Tempo 120,000 200,000 320,000 (318,500) 1,500
Tuscarora 2,000 2,000 2,000
- ---------------------------------------------------------------------------------------------------------
Total 270,600 302,000 572,600 (466,500) 106,100
=========================================================================================================
</TABLE>
22
<PAGE>
Item 3. LEGAL PROCEEDINGS
Oronorte is currently the defendant in several claims relating to labor
Contracts and employee termination's which occurred during a labor strike. This
strike and the resulting termination's 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, there is a likelihood that 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.
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.).
Item 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
During the fiscal year no matters were submitted to a vote of security holders,
through the solicitation of proxies or otherwise.
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, 1998
First Quarter $ .66 $ .28
Second Quarter .88 .41
Third Quarter .70 .38
Fourth Quarter .66 .38
23
<PAGE>
Holders:
As of May 1, 1998, the Company had 667 shareholders of record of its common
stock
Cash Dividends:
Since inception, the Company has not declared nor paid any cash dividends.
Changes in Securities
During the year common shares were issued for various reasons. This is
summarized below and detailed in the attached auditors report.
Date Shares Reason
- ---- ------ ------
March, 1997 100,000 For services of $53,000
July, 1997 185,624 Extinguish debt of $109,036
July - Sept, 1997 2,659,400 Exercise of warrants at exercise
price of $.22 t0 $.30 per share
In addition to the above, 459,000 units were issued under Regulation D of the
Securities act of 1933 at $1.06 per unit. See the attached auditors report for
details.
Item 6. 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
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, 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.
24
<PAGE>
Summary
The Company reported net loss of $3,840,683 for the year ended January 31, 1998.
This loss included a non-reoccurring write down of $2,031,084 for abandonment of
mineral properties, primarily in Nevada and California. This loss also included
$1,070,673 in exploration expenses. Exploration expenses will be significantly
reduced in subsequent years. The Company has an accumulated deficit of $12
million and continues to experience negative cash flow from operations and incur
losses from its mining operations. Management believes further developed and
production levels increase, sufficient cash flows will exist to fund the
Company's continuing mining operation, 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. 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 and the ability to
achieve future operating efficiencies anticipated with increased production
levels. Management's plans may require additional financing or disposition of
some of the Company's non-producing assets. While the Company has been
successful in raising cash in the past, there can be no assurance that its
future cash raising efforts and anticipated operating improvements will be
successful.
Short-Term Liquidity
As of January 31, 1998 the Company had $166,862 in cash.
On January 31, 1998, the Company's current ratio of current assets to current
liabilities was less than 1:1 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. The management intends to correct this
situation by planned improvements in the Colombian operations. Management
anticipates achieving levels of production sufficient to fund the Company's
operating needs by the end of fiscal 1998 and, in the interim, anticipates that
it will fund operations with the cash raised in the March offering. In addition
the exploration activities have been reduced to contractual obligations, less
than $120,000 per year, and significant staff reductions have taken place in
both the U. S. and Colombia. A new labor contract is being negotiated and a mine
employee reduction of at least 100 people is anticipated.
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 are to finance capital equipment and working capital needs for
further development and expansion of the Company's gold mining operation in
Colombia and its Nevada exploration activities.
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.
For information about the Company's current properties see Item 2 "Description
of Property" above and Note 3 to Financial Statements.
25
<PAGE>
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.
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 moneys
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%. Repayment of this note payable and related interest is currently being
negotiated with SGC.
Management believes that the Company has adequately reserved its reclamation
commitments.
Long-Term Liquidity:
Cash flows from operations during fiscal 1998 are expected to be sufficient to
fund operating and administrative expenses and exploration expenses. The Company
does not anticipate needing additional funding from equity or borrowings unless
a major expansion at its Oronorte property is necessary and cost justified or an
acquisition opportunity arises.
FISCAL 1997 COMPARED TO FISCAL 1996
The Company had revenues of $5,502,625 for fiscal 1997 compared to revenues
of $4,390,000 in fiscal 1996. The most significant reason for this change is the
30% increase in production at the El Limon Mine. In fiscal 1997 the Company
wrote down a significant portion of it United States exploration properties and
thus incurred a non-reoccurring charge of $2,031,084 (comparable fiscal 1996
charges were $588,000).
REVENUES
Forward Sales of Precious Metals
The Company does not presently employ forward sales contracts or engage in any
hedging activities.
Sales of Mineral Properties
No material income was received from the sale of mineral properties during the
year.
COSTS AND EXPENSES
Abandoned Mineral Interests:
26
<PAGE>
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 $588,000 in fiscal
1996 to $2,031,084 in fiscal 1997. This adjustment was the result of a critical
evaluation of the potential of the properties in light of projected gold prices
and the likelihood of success in developing these properties. The majority of
the properties were obtained in the Great Basin merger.
Abandonment's 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 decreased from $1,722,000 in fiscal
1996 to $1,304,900 in fiscal 1997. The decrease was the result of closer fiscal
control. Further reductions are planned in fiscal 1998.
Foreign Exchange Gain
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 gain of $385,465in the year
ended January 31, 1997. In the year ended January 31, 1996, the comparable
figure was $(413,000). The increase was due primarily to the declining value of
the Colombian peso and the advantage that the Company product, gold, is sold in
U. S. Dollars.
Other Income and Expenses
Net interest expense increased from $179,000 in fiscal 1996 to $320,000 in
fiscal 1997. This increase is due primarily to a revolving lines of credit used
to finance the working capital requirements of the Colombian operations. The
most significant line is for $500,000 with a Colombian bank which is secured by
a like amount CD held by a Bank in Miami.
Commitments and Contingencies
27
<PAGE>
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 (now called "Donna"), 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.
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.
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
On March 29, 1996 Fischer-Watt Gold Company, Inc., engaged BDO Seidman, LLP. as
it's principal independent accountant. This engagement was necessitated by the
resignation of the previous auditor, Arthur Andersen LLP , on January 5, 1996
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:
<TABLE>
<CAPTION>
Positions Held Directorship
Name Age With the Company Held Since
<S> <C> <C>
George Beattie 69 Chairman of Board August 27, 1993
Chief Executive Officer
President
Gerald D. Helgeson 63 Director March 14, 1994
Secretary
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 November 1, 1996
Assistant Secretary
R.M. (Mike) Robb 56 Vice President of Operations February 1, 1997
</TABLE>
28
<PAGE>
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 does
not generally function in an executive officer capacity for the Company.
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.
29
<PAGE>
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 Honors degree in Geology from Leicester University, England. He has
an extensive background in the mining industry, with over 23 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. Prior to that 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.
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.
30
<PAGE>
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. Mrs. 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, Mrs.
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. P. E.
- -----------------------
Mike Robb is an Idaho native born in Nampa on May 16, 1940. He has a
Bachelor of Science degree from the University of Idaho in 1963 and did graduate
work at the University's of Arizona and New Mexico. He was appointed Vice
President of Operations in February, 1997. In the two years prior to that he was
Director of Operations for Eldorado Gold Corporation and resided in Hermosillo,
Sonora, Mexico. The year prior to his assignment in Mexico he held the position
of General Manager with Atlas Mining, Eureka, Nevada. The five years prior to
that he held the position of Mine Manager with Boliden International Mining. He
has over thirty years of experience in the mining industry and in addition to
precious metals has worked in the copper, uranium, and coal. He is a Registered
Professional Engineer in five states. Throughout his years in the industry Mr.
Robb has also served in the Marine Corps Reserve, recently retiring as a
Colonel.
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 the Company its offices, and directors
are in compliance. :
Item 10. EXECUTIVE COMPENSATION.
The following table present the compensation awarded to, earned by, or paid
to Mr. George Beattie, the Chief Executive Officer, the only executive officer
whose total annual salary and bonus exceeds $100,000.
<TABLE>
<CAPTION>
SUMMARY COMPENSATION TABLE
Annual Compensation Long Term Compensation
Name and
Principal Fiscal Securities, underlying options/SARs
Position Year Salary $
<S> <C> <C>
George Beattie, 1997 100,000
President, CEO 1996 93,500
1995 80,000 500,000 shares
</TABLE>
31
<PAGE>
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 and 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 and Larry J. Buchanan, who resigned as a
director on June 1996 has been granted options to purchase 200,000 shares of
stock. Continuance of this program is currently being evaluated.
Aggregated Option/SAR Exercises in Last Fiscal Year and Fiscal Year-end
Option/SAR Values:
Number of Securities Underlying Unexercised Value of Unexercised In-the-Money
Options/SARs at January 31, 1998 Options/SARs at January 31, 1998
Exercisable/Unexercisable Exercisable/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 and later
extended for an additional two years. 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.
Item 11. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT.
Security ownership of certain beneficial owners, management and all owners of
more than 5% of the outstanding common stock as of May 1, 1998.
<TABLE>
<CAPTION>
Name and Address of Amount and nature of % of
beneficial owner beneficial ownership Class
<S> <C> <C>
Cede & Co. 17,515,717 Shares 49.82
Owned indirectly. Note 1
Kennecott Exploration Company 2,048,000 shares
P O Box 11248 owned directly 5.82%
Salt Lake City, UT 84147
Peter Bojtos 1,150,000 shares
Officer and Director owned directly and
2582 Taft Court indirectly. Note 2 3.27%
Lakewood, CO 80215
James M. Seed 1,184,000 shares
Director owned indirectly,
1 Citizens Plaza, Suite 910 Note 3 3.37%
Providence, RI
</TABLE>
32
<PAGE>
<TABLE>
<CAPTION>
<S> <C> <C>
George Beattie 501,000 shares
Officer and Director owned directly,
1410 Cherrywood Drive Note 4 1.42%
Coeur d' Alene, ID
Gerald D. Helgeson 400,000 shares
Officer and Director owned indirectly,
3770 Poppy Lane Note 5 1.14%
Fallbrook, CA
Jorge E. Ordonez No shares
Director owned directly 0.0%
Ave. Paseo de las Palmas 735-205
Mexico City, Mexico
Michele D. Wood No shares
Chief Financial Officer owned directly 0.0%
R.M.(Mike)Robb No shares
Vice President of Operations owned directly
6004 Buffalo Grass CT, NE Note 6 0.0%
Albuquerque, NM
Directors and 3.235,000 shares
Officers as a Group owned directly,
(six persons) and indirectly 9.20%
</TABLE>
Note 1 - Cede & Company is a brokerage clearing company .
Note 2 - Peter Bojtos owns 360,000 shares and presently exercisable warrants to
purchase 180,000 shares. His wife owns 340,000 shares and presently exercisable
warrants to purchase 170,000 shares.
Note 3 - James M. Seed owns no shares, options or warrants directly, but various
related trusts own 517,200 shares and own warrants to purchase 333,400 shares.
Note 4 - George Beattie owns 1,000 shares and has presently exercisable options
to purchase 500,000 shares.
Note 5 - Gerald D. Helgeson's wife owns presently exercisable options to
purchase 300,000 shares.
Note 6. Mike Robb owns option to purchase 100,000 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
33
<PAGE>
are related to the Company's business. Dr. Buchanan received compensation
as a consulting geologist of $11,000 plus interest on overdue bills of $1,631 in
fiscal 1996 and compensation of $32,000 in fiscal 1995. 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 and $11,000 for
property acquisition costs and consulting geological services in fiscal 1995.
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, 1997 and $7,000 in the year ended January 31,
1995. 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 the 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 a 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, former director of the Company and a 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 to the financial statements). 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. Effective September
16, 1996. Dr. Taylor resigned his position as Vice-President, Exploration and
entered into a consulting arrangement with the Company wherein the Company will
pay him $400 per day for consulting services, not to exceed 106 days per year.
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
34
<PAGE>
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.
On June 6, 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 to Financial Statements).
Item 13. EXHIBITS AND REPORTS ON FORM 8-K.
(a) Exhibits
Exhibit Item 601
No. Category Exhibit
1 2 Mining Property Purchase Agreement dated September 30, 1996,
between Fischer-Watt Gold Company, Inc. and Kennecott
Exploration Company ("KEC") whereby FWG purchased mining
claims owned by KEC in Esmeralda County, Nevada, and, upon
closing, delivered to KEC a Promissory Note in the amount of
$700,000 and filed as Exhibit 6.2 to Form 10-QSB filed
October 18, 1996 and incorporated herein by reference.
2 2 Letter agreement dated October 14, 1996, between Steve Van
Ert and Fischer-Watt Gold Company, Inc. known as the
Sacramento Mountains Property and filed as Exhibit 7.2 to
Form 10-QSB filed November 15, 1996 and incorporated herein
by reference.
3 3 By-Laws of the Corporation. Amended and restated. Filed as
Exhibit 3.3 to Form 10-QSB filed December 16,1996 and
incorporated herein by reference.
4 10 Option effective June 1, 1996, whereby Fischer-Watt Gold
Company, Inc., grants Gerald D. Helgeson an option to
purchase 100,000 shares of Fischer-Watt restricted common
stock. Filed as Exhibit 31.10 to Form 10-KSB filed September
26, 1996 and incorporated herein by reference.
5 10 Option effective June 1, 1996 whereby Fischer-Watt Gold
Company, Inc., grants Anthony P. Taylor an option to
purchase 100,000 shares of Fischer-Watt restricted common
stock. Filed as Exhibit 32.10 to Form 10-KSB filed September
26, 1996 and incorporated herein by reference.
6 10 Option effective June 1, 1996 whereby Fischer-Watt Gold
Company, Inc., grants Peter Bojtos an option to purchase
100,000 shares of Fischer-Watt restricted common stock.
Filed as Exhibit 33.10 to Form 10-KSB filed September 26,
1996 and incorporated herein by reference.
7 10 Joint venture agreement dated July 25, 1996, between Great
Basion Exploration and Mining 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.
35
<PAGE>
8 10 Mineral Lease Agreement and amendment thereto between Great
Basin Exploration and Mining Company, Inc., and H. Walter
Schull dated July 31, 1996 regarding the Coal Canyon
property in Eureka County, Nevada. Filed as Exhibit 47.10 to
Form 10- QSB filed October 18, 1996 and incorporated herein
by reference.
9 10 Fischer-Watt Gold Company, Inc., non-qualified stock option
plan of May 1987 and filed as Exhibit 36.10 to Form 10-K
filed April 23, 1991 and incorporated herein by reference.
10 10 Promissory note dated 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.
11 10 Option effective February 1, 1997, whereby Fischer-Watt Gold
Company, Inc., Grant R. M. Robb an option pt purchase
100,000 shares of restricted common stock.. Incorporated
herein by reference.
12 10 labor Supply Agreement entered between Compania Minera
Oronorte, S.A. (a subsidiary of the Company) and
Precoperativa de Trabajo Asociado de Zaragos in which the
work cooperative agrees to supply personnel for mining labor
and the Company accepts the cooperative as the sole supplier
of such labor. Incorporated herein by reference.
13 27 Financial Data Schedule for the year ending January 31,
1998.
(b) Reports on Form 8-K
During the quarter ended January 31, 1998, no reports on Form 8-K were filed by
the registrant.
36
<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-4
Consolidated Statement of Shareholders' Equity F-5
Consolidated Statements of Cash Flows F-6
Summary of Accounting Policies F-7 - F-11
Notes to Consolidated Financial Statements F-11 - F-20
<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, 1998 and the related
consolidated statements of operations, shareholders' equity, and cash flows for
the year then ended. 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 audit.
We conducted our audit 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 audit provides 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, 1998, and the
consolidated results of their operations and their cash flows for the year then
ended 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 2 to the
financial statements, the Company incurred a $3,937,667 net loss in fiscal 1998,
has an accumulated deficit of $11,995,174 and a net working capital deficiency
of $1,104,438, 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 2. The financial statements do not include any adjustments
that might result from the outcome of this uncertainty.
Stark Tinter & Associates, LLC
Englewood, Colorado
September 15, 1999
F-2
<PAGE>
Fischer-Watt Gold Company, Inc. and Subsidiaries
Consolidated Balance Sheet
January 31, 1998
ASSETS
------
Current assets:
Cash $ 166,882
Certificate of deposit - restricted 500,000
Accounts receivable 884,377
Inventory 591,350
Other current assets 35,996
------------
Total current assets 2,178,605
------------
Mineral interests, net 1,764,916
------------
Property and equipment, at cost, net of
accumulated depreciation of $866,493 1,936,155
------------
Other assets 78,387
------------
$ 5,958,063
============
LIABILITIES AND STOCKHOLDERS' EQUITY
------------------------------------
Current liabilities:
Accounts payable and accrued expenses $ 1,670,056
Notes payable - bank 831,886
Notes payable 781,101
------------
Total current liabilities 3,283,043
------------
Minority interest 21,446
Commitments and contingencies --
Stockholders' equity:
Preferred stock, non-voting, convertible,
$2 par value, 250,000 shares authorized,
none outstanding --
Common stock, $.001 par value, 50,000,000
shares authorized, 35,159,784 shares
issued and outstanding 35,161
Additional paid-in capital 13,252,857
Capital stock subscribed 720,800
Accumulated deficit (11,995,174)
Accumulated other comprehensive income:
Currency translation adjustment 639,930
------------
2,653,574
------------
$ 5,958,063
=============
See the accompanying notes to the consolidated financial statements.
F-3
<PAGE>
Fischer-Watt Gold Company, Inc. and Subsidiaries
Consolidated Statements of Operations
Years Ended January 31, 1998 and 1997
1998 1997
------------ ------------
Sales of precious metals $ 5,502,625 $ 4,390,000
Costs applicable to sales 4,076,361 4,018,000
------------ ------------
Gain from mining operations 1,426,264 372,000
Costs and expenses:
Abandoned and impared mineral interests 2,031,084 588,000
Exploration 1,070,673 611,000
General and administrative 1,304,853 1,722,000
------------ ------------
4,406,610 2,921,000
Operating (loss) (2,980,346) (2,549,000)
Other income and (expense):
Interest income -- 179,000
Interest expense (319,461) (177,000)
Currency exchange (loss) (182,909) (202,000)
Reserve for foreign tax refunds (16,419) (219,000)
Other (341,548) (208,000)
------------ ------------
(860,337) (627,000)
Operating (loss) before taxes (3,840,683) (3,176,000)
Income taxes 96,984 202,000
------------ ------------
Net (loss) (3,937,667) (3,378,000)
Other comprehensive income:
Foreign currency translation adjustment 385,465 (413,000)
------------ ------------
Comprehensive (loss) $ (3,552,202) $ (3,791,000)
============ ============
Per share information:
Basic (loss) per share $ (0.12) $ (0.11)
============ ============
Weighted average shares outstanding 33,623,991 30,506,080
============ ============
See the accompanying notes to the consolidated financial statements.
F-4
<PAGE>
<TABLE>
<CAPTION>
Fischer-Watt Gold Company, Inc. and Subsidiaries
Consolidated Statement of Changes in Stockholders' Equity
Years Ended January 31, 1998 and 1997
Common Stock
---------------------------- Additional
Shares Amount Paid in Capital
------------ ------------ ------------
<S> <C> <C> <C>
Balance January 31, 1996 22,537,160 $ 23,298 $ 7,791,075
Issuance of shares for cash, net of issue
costs of $368,000 8,600,000 8,000 4,182,000
Issuance of shares for exploration rights 100,000 50,000 50,000
Issuance of shares for services 59,600 21,000 21,000
Comon shares subscribed 720,800 720,800
Effect of currency fluctuations on net assets
of foreign subsidiary (413,000) (413,000)
Net loss for the year -- -- --
------------ ------------ ------------
Balance, January 31, 1997 31,296,760 31,298 12,044,075
Issuance of shares for services 100,000 100 52,900
Issuance of shares for cash, net of issue
costs of $44,999 918,000 918 440,623
Issuance of shares to extinguish debt 185,624 186 108,850
Issuance of shares pursuant of warrant exercise 2,659,400 2,659 606,409
Effect of currency fluctuations on net assets
of foreign subsidiary 384,565 384,565
Net loss for the year -- -- --
------------ ------------ ------------
Balance January 31, 1998 35,159,784 $ 35,161 $ 13,252,857
============ ============ ============
Balance January 31, 1996
Currency
Issuance of shares for cash, net of issue Capital Stock Accumulated Translation
costs of $368,000 Subscribed Deficit Adjustment Total
Issuance of shares for exploration rights ------------ ------------ ------------ ------------
Issuance of shares for services
Comon shares subscribed $ -- $ (4,679,507) $ 668,365 $ 3,803,231
Effect of currency fluctuations on net assets
of foreign subsidiary
Net loss for the year 4,190,000
Balance, January 31, 1997
Issuance of shares for services
Issuance of shares for cash, net of issue -- (3,378,000) -- (3,378,000)
costs of $44,999 ------------ ------------ ------------ ------------
Issuance of shares to extinguish debt
Issuance of shares pursuant of warrant exercise 720,800 (8,057,507) 255,365 4,994,031
Effect of currency fluctuations on net assets
of foreign subsidiary 53,000
Net loss for the year
441,541
109,036
Balance January 31, 1998 609,068
-- (3,937,667) -- (3,937,667)
------------ ------------ ------------ ------------
$ 720,800 $(11,995,174) $ 639,930 $ 2,653,574
============ ============ ============ ============
</TABLE>
See the accompanying notes to the consolidated financial statements.
F-5
<PAGE>
<TABLE>
<CAPTION>
Fischer-Watt Gold Company, Inc. and Subsidiaries
Consolidated Statements of Cash Flows
Years Ended January 31, 1998 and 1997
1998 1997
----------- -----------
<S> <C> <C>
Net income (loss) $(3,937,667) $(3,378,000)
Adjustments to reconcile net income (loss) to net
cash provided by (used in) operating activities:
Depreciation, amortization and depletion 564,573 462,000
Stock issued for services 53,000 21,000
Exchange rate fluctuations 384,565 --
Abandoned or impaired mineral interests 2,031,084 588,000
Minority interest in subsidiaries 21,446 --
Changes in assets and liabilities:
Accounts receivable (624,377) 83,000
Inventory 385,650 (372,000)
Foreign tax refund 435,000 --
Other assets 16,617 21,000
Accounts payable and accrued expenses (713,912) (255,000)
----------- -----------
Total adjustments 2,553,646 548,000
----------- -----------
Net cash (used in) operating activities (1,384,021) (2,830,000)
----------- -----------
Cash flows from investing activities:
Investment in mineral interests -- (949,000)
Investment in (redemption of) certificate of deposit 25,000 (509,000)
Acquisition of property and equipment (32,728) (914,000)
----------- -----------
Net cash (used in) investing activities (7,728) (2,372,000)
----------- -----------
Cash flows from financing activities:
Proceeds from sale of common shares 1,050,608 4,190,000
Proceeds from special warrant -- 721,000
Borrowings on note payable 24,023 509,000
----------- -----------
Net cash provided by financing activities 1,074,631 5,420,000
----------- -----------
Increase (decrease) in cash (317,118) 218,000
Cash and cash equivalents,
beginning of period 484,000 266,000
----------- -----------
Cash and cash equivalents,
end of period $ 166,882 $ 484,000
=========== ===========
Supplemental cash flow information:
Cash paid for interest $ 319,460 $ 106,000
Cash paid for income taxes $ 156,961 $ 42,000
Non-cash investing and financing activities:
Common stock issued for the repayment of debt $ 109,036 $ --
Note payable issued for mineral property $ -- $ 700,000
Common stock issued for mineral property $ -- $ 50,000
</TABLE>
See the accompanying notes to the consolidated financial statements.
F-6
<PAGE>
Fischer Watt Gold Company, Inc.
and Subsidiaries
Notes to Consolidated Financial Statements
Note 1. 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 North Central Colombia. 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 ore concentrate inventories are stated
at their selling prices reduced by the estimated cost of disposal. Gold and
silver broken ore inventory are valued at the lower of average production cost
or net realizable value. Materials and operating supplies used in the production
process are stated at the lower of average 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.
Costs associated with pre-exploration, exploration, and acquisition generally
are deferred until a determination is made as to the existence of economically
F-7
<PAGE>
Fischer Watt Gold Company, Inc.
and Subsidiaries
Notes to Consolidated Financial Statements
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.
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 1998 the Company adopted, for footnote disclosure
F-8
<PAGE>
Fischer Watt Gold Company, Inc.
and Subsidiaries
Notes to Consolidated Financial Statements
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.
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.
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.
F-9
<PAGE>
Fischer Watt Gold Company, Inc.
and Subsidiaries
Notes to Consolidated Financial Statements
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.
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. The Company
also maintains a certificate of deposit in the amount of $500,000 at a financial
institution which exceeds the federal insurance limit.
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.
Impairment of long lived assets
Long lived assets and certain identifiable intangibles held and used by the
Company are reviewed for possible impairment whenever events or circumstances
indicate the carrying amount of an asset may not be recoverable or is impaired.
Loss per share
Basic loss per common share was computed using the weighted average number of
common shares outstanding for the periods presented. Diluted information is not
presented as the effect of common stock equivalents would be anti-dilutive.
F-10
<PAGE>
Fischer Watt Gold Company, Inc.
and Subsidiaries
Notes to Consolidated Financial Statements
Reclassifications
Certain prior year amounts have been reclassified to conform to the current
year's presentation.
Recent pronouncements
In June, 1997, the Financial Accounting Standards Board issued SFAS No. 130,
"Reporting Comprehensive Income," SFAS 130 establishes standards for reporting
and displaying comprehensive income, its components and accumulated balances.
SFAS 130 is effective for periods beginning after December 15, 1997. The Company
adopted SFAS 130 in 1998.
In June, 1998 the Financial Accounting Standards Board issued SFAS 133,
"Accounting for Derivatives and Hedging Activities", which establishes
accounting and reporting standards for derivative instruments and hedging
activities. SFAS 133 is effective for all fiscal quarters of fiscal years
beginning after June 15, 1999. During September, 1999 the Financial Accounting
Standards Board issued SFAS 137, "Accounting for Derivative Instruments and
Hedging Activities Deferral of the Effective Date of FASB Statement No. 133",
which delays the effective date of SFAS 133 to years beginning after June 15,
2000. The Company does not expect that SFAS 133 will have a material impact on
its financial statements or disclosures.
Note 2. Financial Condition, Liquidity, and Going Concern
Fischer-Watt incurred a net losses of $3,937,667 and $3,378,000 in fiscal 1998
and 1997, has an accumulated deficit of $11,995,174, has a net working capital
deficiency of $1,104,438, 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 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 2000, and
until then will fund operations with cash raised from future equity or debt
financings. 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.
F-11
<PAGE>
Fischer Watt Gold Company, Inc.
and Subsidiaries
Notes to Consolidated Financial Statements
Note 3. Accounts Receivable
Accounts receivable consist of:
Trade $ 576,885
Tax refunds 415,014
Other 82,047
---------
1,073,946
Less: reserve (189,569)
$ 884,377
Note 4. Inventories
Inventories consist of:
Finished products and products in process $ 265,769
In transit inventory 73,317
Supplies, materials and spare parts 398,195
----------
737,281
Less allowance (145,931)
----------
$ 591,350
==========
Note 5. Mineral Interests
Capitalized costs for mineral interests consist of:
Operating mining property:
El Limon Mine, Oronorte District $ 1,434,916
Less accumulated depletion 545,000
-----------
889,916
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
-----------
$ 1,764,916
===========
During fiscal 1998 and 1997 the Company charged $2,031,084 and $588,000 to
operations for abandoned property and mineral rights.
Note 6. Property and equipment Property and equipment consist of the following:
Land and buildings $ 505,836
Machinery and equipment 1,866,421
Furniture and fixtures 151,471
-----------
2,523,728
Less: accumulated depreciation (587,573)
-----------
$ 1,936,155
===========
Depreciation expense charged to operations was $264,573 and $323,000 in fiscal
1998 and 1997.
F-12
<PAGE>
Fischer Watt Gold Company, Inc.
and Subsidiaries
Notes to Consolidated Financial Statements
Note 7. 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, 1998 at which time the
Company withheld payment while negotiating the settlement of amounts owed to the
Company by Greenstone (see Note 14).
During fiscal, 1998 the Company issued 185,624 shares of common stock to settle
a note payable and accrued interest aggregating $109,036.
The Company has a $500,000 line of credit with a bank. Advances under this line,
which totaled $407,396 at January 31, 1998, accrue interest at a rate of Libor
plus 3.75% and are due during March, 1999. The line is collateralized by a
$500,000 certificate of deposit.
The Company has $424,490 in amounts payable to a bank at January 31, 1998. The
amounts bear interest at the legal Colombian rate (DTF) plus 10 points (38% at
January 31, 1998), are due on demand and are 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 on demand 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, 1998 was $81,101. 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.
Note 8. 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 1998 or 1997.
Note 9. Shareholders' Equity
During March, 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
F-13
<PAGE>
Fischer Watt Gold Company, Inc.
and Subsidiaries
Notes to Consolidated Financial Statements
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
$720,800 are classified as capital stock subscribed within the Company
shareholders' equity accounts. As of January 31, 1998, none of the 680,000
shares had been issued.
During October, 1996 the Company issued 100,000 shares of common stock in
exchange for exploration rights valued at $50,000.
During March and June, 1996 the Company issued 59,600 shares of common stock for
services valued at $21,000.
During March, 1997 the Company issued 100,000 shares of common stock for
services valued at $53,000.
During 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 $441,541 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.
During July, 1997 the Company issued 185,624 shares of common stock to
extinguish debt of $109,036 (see Note 7).
During the period from June, 1997 through September, 1997 the Company issued
2,659,400 shares of common stock pursuant to the exercise of warrants at
exercise prices ranging from $.22 to $.30 per share for cash aggregating
$609,068
Note 10. 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, 1998, options on 666,000 shares had vested and were exercisable, and options
on 40,000 shares had expired.
F-14
<PAGE>
Fischer Watt Gold Company, Inc.
and Subsidiaries
Notes to Consolidated Financial Statements
In October 1991, three officers and three employees were granted options to
purchase a total of 504,000 shares of common stock at $1.15 per share (fair
market value at the date of grant). Options on 74,000 shares vested immediately
and the remainder vest at rates ranging from 2,000 to 4,000 shares per month,
and become exercisable six months after vesting. These options expire 10 years
after they become exercisable. At January 31, 1998, 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, 1998, options on 136,000 shares had vested and 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,
1998, 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, 1998, 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, 1998, options on
all 200,000 shares had vested and were exercisable.
On June 1, 1995, two directors and two consultants were each granted options to
purchase a total of 525,000 shares of common stock at $.0625 per share (fair
market value at time of grant) in an agreement separate from the Company's
nonqualified stock option plan. These options became exercisable on June 1, 1996
and expire five years after they become exercisable. At January 31, 1998,
options on all 525,000 shares had been vested and 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. Pursuant to a resolution of the Board of Directors, the expiration date
was extended to February 28, 1999, and the exercise price ranges from $.22-$.75
F-15
<PAGE>
Fischer Watt Gold Company, Inc.
and Subsidiaries
Notes to Consolidated Financial Statements
and is to be determined based upon the date of exercise which can fall into four
ranges from August 8, 1997 to February 28, 1999.
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 became exercisable on February 20, 1997 and
expire five years after they become exercisable.
At January 31, 1998, options on 200,000 shares had vested and were exercisable.
On June 1, 1996, two directors were granted options to purchase a total of
200,000 shares of common stock at $.72 per share (fair market value at the time
of grant) in an agreement separate from the Company's nonqualified stock option
plan. These options become exercisable on June 1, 1997 and expire five years
after they become exercisable. At January 31, 1998, options on 200,000 shares
had vested and 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, 1998, options on
150,000 shares had vested and 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.
On September 1, 1997, two consultants were granted options to purchase 200,000
shares of common stock at $.22 per share (fair market value at the time of
grant). These options vested immediately and become exercisable one year after
vesting.
On October 27, 1997, a director was granted options to purchase 250,000 shares
of common stock at $.165 per share (fair value at the time of grant). These
options vested immediately and become exercisable one year after vesting.
On December 16, 1997, four directors were granted options to purchase 400,000
shares of common stock at $.1125 per share (fair value at the time of grant).
These options vested immediately and become exercisable one year after vesting.
The Company has reserved 550,000 common shares for issuance upon exercise of
twelve Warrants issued in January 1996, 1997 and 1998 in consideration for
investment banking and promotional services as follows: 100,000 common shares
are reserved for issuance upon exercise of warrant's issued on January 10, 1996
exercisable at $.28 per share (fair market value at time of grant) prior to
January 10, 2000. 100,000 shares are reserved for issuance upon exercise of
warrants issued on January 10, 1996, exercisable at $.31 per share at any time
F-16
<PAGE>
Fischer Watt Gold Company, Inc.
and Subsidiaries
Notes to Consolidated Financial Statements
prior to January 10, 2001. 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. The remaining 250,000 shares are reserved
for issuance upon exercise of warrants issued on February 28, 1998, exercisable
at $.22-$.75 per share, depending upon when exercised any time prior to February
28, 1999.
Note 11. 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 1998 and
1997, respectively: expected life of options of 5 years and 6 years, expected
volatility of 43% and 30%, risk-free interest rates of 5% and 5.73% and no
dividend yield. The weighted average fair value at the date of grant for options
granted during 1998 and 1997 approximated $0.07 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:
January 31, 1998 1997
Net income (loss)
As reported $ (3,937,667) $ (3,378,000)
Pro forma $ (4,020,609) $ (3,439,000)
Primary earnings (loss) per share
As reported $ (0.12) $ (0.11)
Pro forma $ (0.12) $ (0.11)
F-17
<PAGE>
Fischer Watt Gold Company, Inc.
and Subsidiaries
Notes to Consolidated Financial Statements
The following table summarizes the stock option activity:
Stock Weighted-average
Options Price per Share
------- ---------------
Outstanding at February 1, 1996 2,899,000 $ 0.62
Granted 550,000 0.55
Outstanding at January 31, 1997 3,449,000 0.61
Granted 910,000 0.19
Outstanding at January 31, 1998 4,359,000 $ 0.52
The following table summarizes information about fixed-price stock options:
Outstanding at January 31, 1998:
Options Outstanding Options Exercisable
------------------- -------------------
Weighted- Weighted- Weighted-
Average Average Average
Rangeof Number Contractual Exercise Number Exercise
Prices Outstanding Life Price Exercisable Price
- ------ ----------- ---- ----- ----------- -----
$ 0.05-$0.08 725,000 2.9 years $ 0.06 725,000 $0.06
$ 0.11-$0.17 1,100,000 5.2 0.15 450,000 0.17
$ 0.20-$0.22 700,000 6.5 0.21 500,000 0.20
$ 0.37 200,000 3.8 0.37 200,000 0.37
$ 0.50-$0.56 386,000 5.1 0.53 286,000 0.53
$ 0.72 200,000 4.3 0.72 200,000 0.72
$ 1.15 382,000 5.3 1.15 382,000 1.15
$ 1.50 666,000 1.8 1.50 666,000 1.50
$ 0.05-$1.50 4,359,000 4.4 years $ 0.51 3,409,000 $ 0.60
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.
Note 12. Income Taxes
The components of net income (loss) before taxes for the Company's domestic and
foreign operations were as follows:
January 31, 1998 1997
Domestic $ (650,394) $ (1,815,000)
Foreign (3,190,289) (1,361,000)
Net income (loss) before taxes $ (3,840,683) $ (3,176,000)
The consolidated tax provision is comprised of the following:
F-18
<PAGE>
Fischer Watt Gold Company, Inc.
and Subsidiaries
Notes to Consolidated Financial Statements
January 31, 1998 1997
Current:
Federal $ -- $ --
State -- 1,000
Foreign 96,984 201,000
Tax Provision $ 96,984 $ 202,000
The difference between the federal statutory tax rate and the effective tax rate
on net income before taxes is as follows:
January 31, 1998 1997
Federal statutory rate (34.0)% (34.0)%
Utilization of tax loss carry forwards -- --
Increase in net deferred tax asset
valuation allowance 34.0 34.0
Alternative minimum tax -- --
State income taxes -- 0.1
Other -- --
0.0% 0.1%
The Company has regular federal tax loss carryforwards of approximately $9.7
million and federal alternative minimum tax loss carryforwards of approximately
$9.8 million at January 31, 1998 which expire from 2003 to 2013.
Temporary differences between taxable income reported on the Company's federal
tax return and net income reflected in the accompanying statements of operations
result primarily from the capitalization of mine exploration and development
costs for financial reporting purposes and deducting those costs for tax
reporting purposes, partially offset by a lack of tax basis in properties sold,
traded or abandoned. Additional temporary differences related to depreciation,
mineral interest write-downs and non-deductible accruals exist. The tax effect
of each of these temporary differences and net operating loss carryforwards for
the years ended January 31, 1998 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.
Note 13. Transactions with Related Parties
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, 1998. 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, 1998. Dr. Taylor received compensation as a consulting geologist
of $13,200 in fiscal 1997. In addition, for his services as a Director, Dr.
F-19
<PAGE>
Fischer Watt Gold Company, Inc.
and Subsidiaries
Notes to Consolidated Financial Statements
Taylor received options to purchase 200,000 shares of common stock of the
Company at an exercise prices of $.0625 and $.72 per share.
On June 5, 1996, James M. Seed was appointed a director of the Company. Prior to
becoming a director, Mr. Seed and several entities affiliated with Mr. Seed
purchased 333,400 shares of an offering of restricted common stock and warrants
under the same terms and conditions as the other subscribers (see Note 10).
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.
Note 14. Commitments and Contingencies
Upon the purchase of GRC (see Note 6) 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
demanding Greenstone to fund its share of these excess liabilities in accordance
with the terms of the purchase agreement and, however no receivable from
Greenstone has been accrued as of January 31, 1998.
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.
Note 15. Year 2000
The Company has assessed its exposure to date sensitive computer software
programs that may not be operative subsequent to 1999 and has implemented a
requisite course of action to minimize Year 2000 risk and ensure that neither
significant costs nor disruption of normal business operations are encountered.
However, because there is no guarantee that all systems of outside vendors or
other entities on which the Company's operations rely will be 2000 compliant,
the Company remains susceptible to consequences of the Year 2000 issue.
F-20
<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.
October 12,1999 /s/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/ October 12, 1999
Acting Chief Financial Officer
Principal Financial and
Accounting Officer)
Gerald D. Helgeson October 12, 1999
Director, Secretary
and Vice President
James M. Seed October 12, 1999
Director
George Beattie October 12, 1999
President, Chief Executive Officer
(Principal Executive Officer)
Chairman of the Board and Director
Peter Bojtos October 12, 1999
Director and Vice President
Vice Chairman of the Board
Jorge Ordonez October 12, 1999
Director
37
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
This schedule contains summary financial information extracted from the
financial statements for the twelve months ended January 31, 1998 contained in
form 10-KSB for the fiscal period ended January 31, 1998 and is qualified in its
entirety by reference to such financial statements.
</LEGEND>
<MULTIPLIER> 1
<CURRENCY> US
<S> <C>
<PERIOD-TYPE> 12-MOS
<FISCAL-YEAR-END> JAN-31-1998
<PERIOD-START> FEB-01-1997
<PERIOD-END> JAN-31-1998
<EXCHANGE-RATE> 1
<CASH> 166882
<SECURITIES> 0
<RECEIVABLES> 884377
<ALLOWANCES> 0
<INVENTORY> 591350
<CURRENT-ASSETS> 2178605
<PP&E> 2802648
<DEPRECIATION> 866493
<TOTAL-ASSETS> 5958063
<CURRENT-LIABILITIES> 3283043
<BONDS> 0
0
0
<COMMON> 35161
<OTHER-SE> 2618413
<TOTAL-LIABILITY-AND-EQUITY> 5958063
<SALES> 5502625
<TOTAL-REVENUES> 5502625
<CGS> 4076361
<TOTAL-COSTS> 8482971
<OTHER-EXPENSES> 357967
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> (319461)
<INCOME-PRETAX> (3840683)
<INCOME-TAX> 96984
<INCOME-CONTINUING> (3937667)
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (3937667)
<EPS-BASIC> (0.12)
<EPS-DILUTED> (0.12)
</TABLE>
