FORM 10-QSB
SECURITIES AND EXCHANGE COMMISSION
Washington, DC 20549
(Mark One)
[X] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
For the quarterly period ended April 30, 1999
OR
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
For the transition period from to
------------------- -----------------------
Commission File Number 0-17386
FISCHER-WATT GOLD COMPANY, INC.
(Exact name of registrant as specified in its charter)
------------------------------------------------------
Nevada 88-0227654
------------------------------- -----------------------------------
(State or other jurisdiction (I.R.S. Employer Identification No.)
of incorporation or organization)
1621 North 3rd Street, Suite 1000, Coeur d'Alene, ID 83814
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(Address of principal executive office)
(208)-664-6757
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(Registrant's telephone number, including area code)
Indicate by check mark whether the registrant (1) has filed all reports required
to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during
the preceding 12 months (or for such shorter period that the registrant was
required to file such reports), and (2) has been subject to such filing
requirements for the past 90 days.
Yes X No
--- ---
The number of shares outstanding of each of Issuer's classes of common equity as
of January 31, 1999.
Common Stock, par value $.001 38,188,384
----------------------------- ------------
Title of Class Number of Shares
Transitional Small Business Disclosure Format yes no X
---- ---
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Index
<TABLE>
<CAPTION>
Part I
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Item 1. Financial Statements
<S> <C>
Consolidated Balance Sheet as of 3
Consolidated Statements of Operations for the Three Months Ended April 30, 4
Consolidated Statements of Cash Flows for the Three Months Ended April 30, 5
Notes to Consolidated Financial Statements 6
Item 2. Management's Discussion and Analysis or Plan of Operation 8
-
Part II
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Item 6. Exhibits and Reports on Form 8-K 13
Signatures 14
</TABLE>
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Fischer-Watt Gold Company, Inc. and Subsidiaries
Consolidated Balance Sheet
April 30, 1999
(Unaudited)
ASSETS
------
Current assets:
Cash $ 31,702
Certificate of deposit 500,000
Accounts receivable 362,772
Inventory 48,938
Other current assets 42,996
------------
Total current assets 986,408
------------
Mineral interests, net 1,553,236
------------
Property and equipment, at cost, net 1,512,748
------------
Other assets --
------------
$ 4,052,392
=============
LIABILITIES AND STOCKHOLDERS' EQUITY
------------------------------------
Current liabilities:
Accounts payable and accrued expenses $ 2,506,649
Due to affiliates 379,072
Notes payable 848,035
------------
Total current liabilities 3,733,756
------------
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, 38,188,384 shares
issued and outstanding 38,189
Additional paid-in capital 13,429,830
Capital stock subscribed 720,800
Accumulated deficit (13,782,993)
Accumulated other comprehensive income:
Currency translation adjustment (87,190)
------------
318,636
------------
$ 4,052,392
=============
See the accompanying notes to the consolidated financial statements.
3
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Fischer-Watt Gold Company, Inc. and Subsidiaries
Consolidated Statements of Operations
Three Months Ended April 30,
(Unaudited)
1999 1998
------------ ------------
Sales of precious metals $ 488,174 $ 789,176
Costs applicable to sales 500,905 1,119,534
------------ ------------
(Loss) from mining operations (12,731) (330,358)
Costs and expenses:
Exploration 95,876 225,727
General and administrative 87,712 359,326
------------ ------------
183,588 585,053
(Loss) from operations (196,319) (915,411)
Other income and (expense):
Interest expense (25,000) (20,000)
Currency exchange gain (loss) (60,283) (63,343)
Other income (expense) 383,245 571,416
------------ ------------
297,962 488,073
Income (loss) before taxes 101,643 (427,338)
Income taxes 16,535 --
------------ ------------
Net income (loss) 85,108 (427,338)
Other comprehensive income:
Foreign currency translation adjustment 232,726 (557,608)
------------ ------------
Comprehensive income (loss) $ 317,834 $ (984,946)
============ ============
Per share information:
Basic income (loss) per share $ 0.00 $ (0.01)
============ ============
Weighted average shares outstanding 38,188,384 35,159,784
============ ============
See the accompanying notes to the consolidated financial statements.
4
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Fischer-Watt Gold Company, Inc. and Subsidiaries
Consolidated Statements of Cash Flows
Three Months Ended April 30,
(Unaudited)
1999 1998
--------- ---------
Cash flows from operating activities $ (7,397) $(167,165)
--------- ---------
Cash flows from investing activities 20,363 (22,503)
--------- ---------
Cash flows from financing activities -- 54,918
--------- ---------
Increase (decrease) in cash 12,966 (134,750)
Cash and cash equivalents,
beginning of period 18,736 166,882
--------- ---------
Cash and cash equivalents,
end of period $ 31,702 $ 32,132
========= =========
See the accompanying notes to the consolidated financial statements.
5
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FISCHER-WATT GOLD COMPANY, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
APRIL 30, 1999
(UNAUDITED)
(1) Basis Of Presentation
The accompanying unaudited financial statements have been prepared in accordance
with generally accepted accounting principles ("GAAP") for interim financial
information and Item 310(b) of Regulation SB. They do not include all of the
information and footnotes required by GAAP for complete financial statements. In
the opinion of management, all adjustments (consisting only of normal recurring
adjustments) considered necessary for a fair presentation have been included.
The results of operations for the periods presented are not necessarily
indicative of the results to be expected for the full year. For further
information, refer to the financial statements of the Company as of January 31,
1999 and for the two years then ended, including notes thereto included in the
Company's Form 10-KSB.
The accompanying consolidated financial statements include the accounts of the
Company and its subsidiaries. Intercompany transactions and balances have been
eliminated in consolidation.
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
(2) Inventories
Inventories consist of gold and silver produced by the Company's Colombian
mining operations, work in process, raw materials used in the production process
and operating supplies. Gold and silver inventories are stated at their selling
prices reduced by the estimated cost of disposal. Raw materials and operating
supplies used in the production process are stated at the lower of cost or
replacement value. Production expenses are included in work in process
inventories using an average cost of production method and work in process
inventories are stated at their lower of cost or net realizable value.
(3) Stockholders' Equity
No changes from the Company's Form 10-KSB for the year ended January 31, 1999.
(4) Commitments and contingencies
Upon the purchase of GRC 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.
6
<PAGE>
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.
Item 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OR PLAN OF OPERATIONS.
The following discussion and analysis covers material changes in financial
condition since January 31, 1999 and material changes in the results of
operations for the three months ended April 30, 1999, as compared to the same
period in 1998. This discussion and analysis should be read in conjunction with
"Management's Discussion and Analysis and Results of Operations" included in the
Company's Form 10-KSB for the year ended January 31, 1999.
General
Organization And Business
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.
The Company, together with its consolidated subsidiaries, currently operates in
one business segment, mining.
Liquidity and Capital Resources
- -------------------------------
Short-Term Liquidity
As of April 30, 1999, the Company had $32,000 in cash, a certificate of deposit
for $500,000, and accounts payable of $2,507,000.
On April 30, 1999, 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 2000 and, in the interim, anticipates that
it will fund operations with the cash raised from debt and equity financing. In
addition the exploration activities have been reduced to contractual obligations
and significant staff reductions have taken place in both the U. S. and
Colombia. A new labor contract has been negotiated and the number of mine
employee reduced. The labor organization has not fulfilled its contractual
obligations initiated a strike beginning in later April. The mater is now in
arbitration by the Minister of Labor. The Colombian operations have experienced
labor strikes, work slow downs and general unrest for the entire quarter. Every
effort is being made to eliminate these problems but success can not be assured.
Fischer-Watt incurred net losses of $3,938,000 in fiscal 1998 and a net income
of $85,000 for the period ended April 30, 1999. On April 30, 1999 the
accumulated deficit was $13,783,000. The income for the period was the result of
expensive cost reduction efforts and improved grade control.
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 2000, and
7
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until then will fund operations with cash raised from future equity or debt
financings, the anticipated exercise of common stock warrants, and disposition
of or joint ventures with respect to mineral properties. Expenditures for
exploration projects may also be reduced, if necessary.
The ability of the Company to achieve its operating goals and thus positive cash
flows from operations is dependent upon the future market price of gold, future
capital raising efforts, and the ability to achieve future operating
efficiencies anticipated with increased production levels. Management's plans
will require additional financing, reduced exploration activity, or disposition
of or joint ventures with respect to mineral properties. While the Company has
been successful in these capital raising endeavors in the past, there can be no
assurance that its future efforts, and anticipated operating improvements will
be successful. The Company does not currently have adequate capital to continue
its contemplated business plan beyond the early part of the third quarter of
fiscal 2000. 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.
Pursuant to agreements among Greenstone Resources Ltd. ("Greenstone"), Dual
Resources Ltd.("Dual"), and the Company, Greenstone made a payment of $300,000
to Dual to acquire 2,800,000 shares of Oronorte common stock for the benefit of
the Company. The Company's obligation to repay Greenstone this $300,000 is
evidenced by a note payable which bears interest at the rate of 10% per annum.
This note became payable, in full, on June 20, 1996 at which time the Company
withheld payment while negotiating the settlement of amounts owed to the Company
by Greenstone.
Long-Term Liquidity
It is likely that the Company will need to supplement anticipated cash from
operations with future debt or equity financings and dispositions of or joint
ventures with respect to mineral properties to fully fund its future business
plan which includes exploration projects and property development. While the
Company has been successful in capital raising endeavors in the past, there can
be no assurance that its future efforts will be successful. There can be no
assurance that the Company will be able to conclude transactions with respect to
its mineral properties or additional debt or equity financings or that such
capital raising opportunities will be available on terms acceptable to the
Company, or at all.
At April 30, 1999 the Company's current portion of long term debt was $848,000.
During fiscal 1996, the Company delivered to Kennecott Exploration Company a
promissory note in the amount of $700,000, which bears interest at an annual
interest rate equal to the prime or base rate, or legal rate, if less. Principal
and interest are due on Demand or at the option of the Company, by issuance of
1,000,000 (one million) shares of the Company's stock. The Company's option to
issue shares in satisfaction of this debt is subject to a limitation that
Kennecott's ownership of Fischer-Watt cannot exceed 10% of the outstanding
voting common stock. Discussions are taking place between the Company and
Kennecott concerning adjustment of this debit.
Results of Operations
- ---------------------
The Company had net income of $85,000 ($nil per share) compared to net loss of
$427,000 ($.01 per share) in the quarter's ended April 30, 1999 and 1998,
respectively.
Revenues
- --------
The Company had sales of precious metals of $488,000 representing 1,800 ounces
of gold shipped in the quarter ended April 30, 1999. The Company had sales of
precious metals of $789,000 representing 2,471 ounces of gold shipped during the
quarter ended April 30, 1998. The Company does not presently employ forward
sales contracts or engage in any hedging activities.
8
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Costs and Expenses
- ------------------
Production costs totaled $501,000 and $1,120,000 for the three month period
ended April 30, 1999, and April 30, 1998, respectively. The improvement of
approximately $619,000 from the prior year relates to operational efficiencies
gained and the implementation of cost cutting measures.
The cost of abandoned mineral interests was $-0- in quarters ended April 30,
1999 and 1998, respectively.
Abandonments are a natural result of the Company's ongoing program of
acquisition, exploration and evaluation of mineral properties. When the Company
determines that a property lacks continuing economic value, it is abandoned. It
cannot be determined at this time when or if any of the Company's current
property interests will be abandoned.
Selling, general and administrative costs decreased $271,000 from $359,000 in
quarter ended April 30, 1998 to $88,000 in the quarter ending April 30, 1999.
This decrease was the result of staff reductions in both the U. S. and Colombia,
stringent cost control measures and cost savings realized by construction of the
cyanidation plant.
Exploration expense decreased to $96,000 in the first quarter of fiscal 1999
from $226,000 in the first quarter of fiscal 1998. This decrease is due to the
elimination of exploration in the United States and reduction in efforts at the
El Carman mine in Colombia.
Net interest expense increased slightly from $20,000 during the quarter ended
April 30, 1998 to $25,000 during the quarter ended April 30, 1999.
The Company is subject to inflationary pressures of the Colombian economy.
During the past year the rate of inflation in Colombia was approximately 20%,
wherein the currency exchange rate of the U.S. dollar to the Colombian peso
increased by only 8%. The Company is striving to implement cost-cutting measures
in an effort to reduce per unit production costs and increase production
efficiencies. These cost-cutting measures include overhead reduction at both the
mine and Medellin office, and improved grade control. However, there can be no
assurance that the Company will be able to achieve such cost cutting measures
and production efficiencies. In addition, the Company cannot anticipate what the
future inflation and exchange rates will be and therefore cannot accurately
predict the aggregate effect of these factors.
Other income (expenses) was $383,00 for the quarter ending April 30, 1999 and
$571,000 for the same period in 1998. The change reflects that a large capital
item was sold in 1998.
Commitments and Contingencies
- -----------------------------
Foreign companies operating in Colombia, South America, may be subject to
discretionary audit by the Colombian Government in respect of their monetary
exchange declarations. Any such audit by the Colombian Government must be
initiated within two years of filing an exchange declaration. While the Company
has not received any notice of intention from the Colombian Government to
conduct such an audit and the Company has no reason to believe that the
Colombian Government will conduct such an audit in respect of Donna Ltd., the
Company has the right to claim indemnity from Greenstone Resources Canada
Limited pursuant to the terms of agreements made regarding the acquisition of
Greenstone of Colombia, Ltd. and the Oronorte properties.
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.
Foreign Currency Exchange
- -------------------------
The Company accounts for foreign currency translation in accordance with the
provisions of Statement of Financial Accounting Standards No. 52, "Foreign
9
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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.
Going Concern Consideration
- ---------------------------
As the independent certified public accountants have indicated in their report
on the financial statements for the year ended January 31, 1999, and as shown in
the financial statements, the Company has experienced significant operating
losses which have resulted in an accumulated deficits of $13,869,000 and
$13,783,000 at January 31, 1999 and April 30, 1999 respectively. In addition,
for the year ended January 31, 1999 the Company reported losses of $1,873,000.
For the quarter ended April 30, 1999 the Company had a net income of $85,000.
These conditions raise doubt about the Company's ability to continue as a going
concern.
Management believes that as the El Limon Mine gold property held by Oronorte is
further developed and production levels increase, sufficient cash flows will
exist to fund the Company's mining operations and exploration and development
efforts in other areas. Management anticipates achieving levels of production
sufficient to fund the Company's operating needs by the end of fiscal 2000, and
until then it will fund operations with cash raised from future equity or debt
financings, the anticipated exercise of common stock warrants, and disposition
of or joint ventures with respect to mineral properties. Expenditures for
exploration projects may also be reduced, if necessary.
The ability of the Company to achieve its operating goals and thus positive cash
flows from operations is dependent upon the future market price of gold, future
capital raising efforts, and the ability to achieve future operating
efficiencies anticipated with increased production levels. Management's plans
will require additional financing, reduced exploration activity, or disposition
of or joint ventures with respect to mineral properties. While the Company has
been successful in these capital raising endeavors in the past, there can be no
assurance that its future efforts, and anticipated operating improvements will
be successful. The Company does not currently have adequate capital to continue
its contemplated business plan beyond the early part of fiscal 2000. 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.
Year 2000 Compliance:
- ---------------------
The Year 2000 issue is the result of computer programs being written using two
(2) digits rather than the four (4) digits to define the year. Any of the
Company's computer programs that have date-sensitive software may recognize a
date using "00" as the year 1900 rather than 2000. This problem could force
computers to either shut down or provide incorrect data or information. The
Company utilizes generic software programs developed, maintained and upgraded by
independent computer software providers. In response to the Year 2000 issue,
management is of the opinion that the providers of these software programs will
resolve the date sensitive issue so that all critical systems will be in
compliance prior to the Year 2000. In addition, the Company has taken measures
to resolve Year 2000 issues by upgrading its computer network systems. The
Company does not anticipate any material adverse impact on its business.
CAUTIONARY NOTE REGARDING FORWARD-LOOKING STATEMENTS
- ----------------------------------------------------
In connection with the safe harbor provisions of the Private Securities
Litigation Reform Act of 1995 (the "Reform Act"), the Company is hereby
providing cautionary statements identifying important factors that could cause
the Company's actual results to differ materially from those projected in
forward-looking statements (as such term is defined in the Reform Act) made by
or on behalf of the Company herein or orally, whether in presentations, in
response to questions or otherwise. Any statements that express, or involve
discussions as to expectations, beliefs, plans, objectives, assumptions or
future events or performance (often, but not always, through the use of words or
phrases such as "will result", "are expected to", "will continue", "is
anticipated", "estimated", "projection" and "outlook") are not historical facts
10
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and may be forward-looking and, accordingly, such statements involve estimates,
assumptions, and uncertainties which could cause actual results to differ
materially from those expressed in the forward-looking statements. Such
uncertainties include, among other, the following: (i) the Company's ability to
obtain additional financing to implement its business strategy; (ii) adverse
weather conditions and other conditions beyond the control of the Company; (iii)
imposition of new regulatory requirements affecting the Company; (iv) a downturn
in general or local economic conditions where the Company operates; (v) effect
of uninsured loss and (vi) other factors which are described in further detail
in the Company's filings with the Securities and Exchange Commission.
The Company cautions that actual results or outcomes could differ materially
from those expressed in any forward-looking statements made by or on behalf of
the Company. Any forward-looking statement speaks only as of the date on which
such statement is made, and the Company undertakes no obligation to update any
forward-looking statement or statements to reflect events or circumstances after
the date on which such statement is made or to reflect the occurrence of
unanticipated events. New factors emerge from time to time, and it is not
possible for management to predict all of such factors. Further, management
cannot assess the impact of each such factor on the business or the extent to
which any factor, or combination of factors, may cause actual results to differ
materially from those contained in any forward-looking statements.
Part II: Other Information
Item 1: Legal Proceedings
None
Item 2: Changes in Securities
None.
Item 4: Submission of Matters to a Vote of Security Holders
None
Item 5: Other information
None
Item 6: Exhibits and Reports on Form 8-K
A. Exhibits
27.1 Financial Data Schedule (For SEC purposes only)
B. Reports on Form 8-K
None.
11
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SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the Company
has duly caused this report to be signed on its behalf by the undersigned
thereunto duly authorized.
FISCHER-WATT GOLD COMPANY, INC.
-------------------------------
Date: November 12, 1999 By:/s/George Beattie
---------------------
George Beattie, President,
Chief Executive Officer
(Principal Executive Officer)
12
<TABLE> <S> <C>
<ARTICLE> 5
<S> <C>
<PERIOD-TYPE> 3-MOS
<FISCAL-YEAR-END> JAN-31-2000
<PERIOD-END> APR-30-1999
<CASH> 32000
<SECURITIES> 500000
<RECEIVABLES> 363000
<ALLOWANCES> 0
<INVENTORY> 91000
<CURRENT-ASSETS> 986000
<PP&E> 3065000 <F1>
<DEPRECIATION> 0
<TOTAL-ASSETS> 4052000
<CURRENT-LIABILITIES> 3734000
<BONDS> 0
0
0
<COMMON> 39000
<OTHER-SE> 279000
<TOTAL-LIABILITY-AND-EQUITY> 4052000
<SALES> 488000
<TOTAL-REVENUES> 488000
<CGS> 0
<TOTAL-COSTS> 501000
<OTHER-EXPENSES> 140000
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> (25000)
<INCOME-PRETAX> 102000
<INCOME-TAX> (17000)
<INCOME-CONTINUING> 85000
<DISCONTINUED> 0
<EXTRAORDINARY> 233000
<CHANGES> 0
<NET-INCOME> 318000
<EPS-BASIC> 0
<EPS-DILUTED> 0
<FN>
<F1> 18: PP&E is net of depreciation and includes mineral interests.
</FN>
</TABLE>
