<PAGE> 1
==============================================================================
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-Q
[ X ] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d)
OF THE SECURITIES EXCHANGE ACT OF 1934
For the quarterly period ended September 30, 1998
[ ] 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: 000-25132
ICHOR CORPORATION
(Exact name of Registrant as specified in its charter)
Delaware 25-1741849
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
Suite 1250, 400 Burrard Street, Vancouver,
British Columbia, Canada V6C 3A6
(Address of principal executive offices) (Postal Code)
(604) 683-5767
(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
----- -----
Indicate the number of shares outstanding of each of the Registrant's classes
of common stock, as of the latest practicable date:
Class Outstanding at November 11, 1998
----- --------------------------------
Common Stock, $0.01 4,907,520
par value
==============================================================================
<PAGE> 2
FORWARD-LOOKING STATEMENTS
Statements in this report, to the extent that they are not based on historical
events, constitute forward-looking statements. Forward-looking statements
include, without limitation, statements regarding the outlook for future
operations, forecasts of future costs and expenditures, the evaluation of
market conditions, the outcome of legal proceedings, the adequacy of reserves
or other business plans. Investors are cautioned that forward-looking
statements are subject to an inherent risk that actual results may vary
materially from those described herein. Factors that may result in such
variance, in addition to those accompanying the forward-looking statements,
include changes in interest rates, prices and other economic conditions;
actions by competitors; natural phenomena; actions by government authorities;
uncertainties associated with legal proceedings; technological development;
future decisions by management in response to changing conditions; and
misjudgments in the course of preparing forward-looking statements.
PART I. FINANCIAL INFORMATION
---------------------
ITEM 1. FINANCIAL STATEMENTS
ICHOR CORPORATION
CONSOLIDATED FINANCIAL STATEMENTS
FOR THE NINE MONTHS ENDED SEPTEMBER 30, 1998
(Unaudited)
-2-
<PAGE> 3
ICHOR CORPORATION
Consolidated Balance Sheets
(Unaudited)
(dollars in thousands)
<TABLE>
<CAPTION>
September 30, 1998 December 31, 1997
------------------ -----------------
<S> <C> <C>
ASSETS
Current Assets
Cash and cash equivalents $ 50 $ 127
Cash held in escrow - 617
Accounts receivable, net 555 332
Notes receivable 2,080 680
Advance to an affiliate 548 270
-------------- --------------
Total current assets 3,233 2,026
Other Assets 76 2
-------------- --------------
$ 3,309 $ 2,028
============== ==============
LIABILITIES AND SHAREHOLDERS' EQUITY
Current Liabilities
Accounts payable $ - $ 39
Accrued interest and other
liabilities 420 363
Advance from an affiliate 780 780
Debt - 757
-------------- --------------
Total current liabilities 1,200 1,939
Shareholders' Equity
Common stock 50 50
Preferred stock 27 2
Additional paid-in capital 10,121 7,916
Retained deficit (8,018) (7,808)
-------------- --------------
2,180 160
Less cost of shares of common stock
held in treasury (71) (71)
-------------- --------------
Total equity 2,109 89
-------------- --------------
$ 3,309 $ 2,028
============== ==============
</TABLE>
The accompanying notes are an integral part of these financial statements.
-3-
<PAGE> 4
ICHOR CORPORATION
Consolidated Statements of Operations
(Unaudited)
(dollars in thousands except per share amounts)
<TABLE>
<CAPTION>
For the Nine For the Nine
Months Ended Months Ended
September 30, 1998 September 30, 1997
------------------ ------------------
(Restated)
<S> <C> <C>
Revenues
Fee income $ 132 $ -
Interest income 60 7
Gain on disposal of a subsidiary 437 -
--------------- ---------------
629 7
--------------- ---------------
Costs and expenses
General and administrative expenses 418 289
Interest expense 101 581
Litigation settlement 260 -
Bad debt recovery (100) -
--------------- ---------------
679 870
--------------- ---------------
Loss from continuing operations
before income tax (50) (863)
Income Tax (12) -
--------------- ---------------
Loss from continuing operations
after income tax (62) (863)
Discontinued operations
Loss from discontinued operations - (717)
Gain on disposal - 59
--------------- ---------------
Loss from discontinued operations - (658)
--------------- ---------------
Net loss $ (62) $ (1,521)
=============== ===============
Loss per share
Loss from continuing operations $ (0.04) $ (0.18)
Loss from discontinued operations - (0.13)
--------------- ---------------
$ (0.04) $ (0.31)
=============== ===============
</TABLE>
The accompanying notes are an integral part of these financial statements.
-4-
<PAGE> 5
ICHOR CORPORATION
Consolidated Statements of Operations
(Unaudited)
(dollars in thousands except per share amounts)
<TABLE>
<CAPTION>
For the Three For the Three
Months Ended Months Ended
September 30, 1998 September 30, 1997
------------------ ------------------
(Restated)
<S> <C> <C>
Revenues
Fee income $ 48 $ -
Interest income 32 5
--------------- ---------------
80 5
--------------- ---------------
Costs and expenses
General and administrative expenses 124 107
Interest expense 1 201
Litigation settlement 260 -
--------------- ---------------
385 308
--------------- ---------------
Loss from continuing operations before
income tax (305) (303)
Income tax (12) -
--------------- ---------------
Loss from continuing operations after
income tax (317) (303)
Discontinued operations
Loss from discontinued operations - (254)
--------------- ---------------
Loss from discontinued operations - (254)
--------------- ---------------
Net loss $ (317) $ (557)
=============== ===============
Loss per share
Loss from continuing operations $ (0.08) $ (0.07)
Loss from discontinued operations - (0.05)
--------------- ---------------
$ (0.08) $ (0.12)
=============== ===============
</TABLE>
The accompanying notes are an integral part of these financial statements.
-5-
<PAGE> 6
ICHOR CORPORATION
Consolidated Statements of Cash Flows
(Unaudited)
(dollars in thousands)
<TABLE>
<CAPTION>
For the Nine For the Nine
Months Ended Months Ended
September 30, 1998 September 30, 1997
------------------ ------------------
(Restated)
<S> <C> <C>
Cash Flows from Operating Activities:
Net loss from continuing operations $ (62) $ (863)
Adjustments to reconcile net
loss to net cash used by
operating activities
Gain on disposal of a subsidiary (437) -
Bad debt recovery (100) -
Depreciation 1 -
Changes in current assets and
liabilities, net of effect of
a subsidiary disposed
Cash held in escrow 145 495
Accounts receivable (248) (24)
Accounts payable (30) (139)
Due from (to) affiliate (278) 90
Other accrued liabilities 177 16
--------------- ---------------
Net cash used in operating
activities of continuing
operations (832) (425)
Cash Flows from Investing Activities:
Note receivable (1,400) -
Other (75) -
--------------- ---------------
Net cash used in investing
activities of continuing
operations (1,475) -
Cash Flows from Financing Activities:
Proceeds from issuance of
preferred shares, net 2,230 -
Purchase of stock held in treasury - (19)
--------------- ---------------
Net cash provided by (used in)
financing activities of
continuing operations 2,230 (19)
--------------- ---------------
Net cash used in continuing operations (77) (444)
Net cash used in discontinued operations - (17)
--------------- ---------------
Decrease in cash and cash equivalents (77) (461)
Cash and cash equivalents, beginning
of period 127 524
--------------- ---------------
Cash and cash equivalents, end of
period $ 50 $ 63
=============== ===============
</TABLE>
The accompanying notes are an integral part of these financial statements.
-6-
<PAGE> 7
ICHOR CORPORATION
Notes to Consolidated Financial Statements
September 30, 1998
(Unaudited)
Note 1. Basis of Presentation
- ------------------------------
The accompanying financial statements of ICHOR Corporation (the "Corporation")
are unaudited. However, in the opinion of management, they include all
adjustments necessary for a fair presentation of the financial position,
results of operations and cash flows of the Corporation for the specified
periods.
The Corporation sold its environmental remediation services operations in
April 1997 and its waste oil recycling facility in December 1997. These
operations have been accounted for as discontinued operations for the nine
months and three months ended September 30, 1998, respectively. The
Corporation's comparative financial statements for the nine months and three
months ended September 30, 1998, respectively, have been restated to conform
to this method of presentation. In addition, the Corporation sold its wholly-
owned subsidiary, ICHOR Services, Inc., effective March 31, 1998.
All adjustments made during the nine months and three months ended September
30, 1998, respectively, were of a normal, recurring nature. The amounts
presented for the nine months and three months ended September 30, 1998,
respectively, are not necessarily indicative of the results of operations for
a full year. Additional information is contained in the audited consolidated
financial statements and accompanying notes included in the Corporation's
annual report on Form 10-K for the fiscal year ended December 31, 1997, and
should be read in conjunction with such annual report.
Certain reclassifications have been made to the prior year financial
statements to conform with the current year presentation.
Note 2. Earnings (Loss) Per Share
- ----------------------------------
Basic earnings (loss) per share is calculated by dividing the net income or
loss by the weighted average number of common shares outstanding during the
nine months and three months ended September 30, 1998 and 1997, respectively.
The weighted average number of shares outstanding was 4,907,520 and 4,914,369
for the nine months ended September 30, 1998 and 1997, respectively, and
4,907,520 and 4,907,783 for the three months ended September 30, 1998 and
1997, respectively.
Diluted earnings per share takes into account common shares outstanding,
potentially dilutive common shares and preferred shares convertible into
common shares. Stock options and warrants have not been reflected as
exercised for purposes of computing the diluted loss per share for the nine
months and three months ended September 30 1998 and 1997, respectively, since
the exercise of such options and warrants would be anti-dilutive.
-7-
<PAGE> 8
Note 3. Commitments and Contingencies
- --------------------------------------
The Corporation has accrued $259,500 in settlement of a class action law suit
which alleged that the Corporation, its former parent, certain of its officers
and directors, and the underwriters of its initial public offering violated
certain federal securities laws. The action was initiated by the persons and
entities purchasing the Corporation's common stock from February 9, 1995
through May 23, 1995. The settlement documents have been executed, preliminary
court approval for the settlement has been obtained and the settlement amount
was paid on October 14, 1998. However, the settlement is subject to final
court approval. See "Item 3. Legal Proceedings" contained in the
Corporation's annual report on Form 10-K for the year ended December 31, 1997
for further details with respect to the action.
-8-
<PAGE> 9
PART I. FINANCIAL INFORMATION
---------------------
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS
The following discussion and analysis of the results of operations and
financial condition of ICHOR Corporation (the "Corporation") for the nine
months and three months ended September 30, 1998, respectively, should be read
in conjunction with the Corporation's consolidated financial statements and
related notes included elsewhere herein.
Results of Operations - Nine Months Ended September 30, 1998
- ------------------------------------------------------------
Revenues for the nine months ended September 30, 1998 increased to $0.6
million, including $0.1 million from providing environmental consulting
services, from $7,000 for the comparative period of 1997. Effective March 31,
1998, the Corporation sold Ichor Services, Inc. ("Services") and recognized a
gain of $0.4 million on the sale as a result of the disposal of net
liabilities of Services.
Costs and expenses decreased to $0.7 million in the nine months ended
September 30, 1998 from $0.9 million in the nine months ended September 30,
1997. Interest expense decreased to $0.1 million in the nine months ended
September 30, 1998 from $0.6 million in the nine months ended September 30,
1997, primarily as a result of the sale of the Corporation's subsidiary,
Services, in the first quarter of 1998, which had financed certain receivables
for work performed under certain Florida State rehabilitation programs.
General and administrative expenses for the nine months ended September 30,
1998 increased to $0.4 million from $0.3 million in the comparative period of
1997, primarily as a result of an increase in professional fees. The
Corporation recovered bad debts of $0.1 million in the nine months ended
September 30, 1998.
In the nine months ended September 30, 1998, the Corporation accrued $0.3
million in settlement of a class action lawsuit. See "Part II. Other
Information - Item 1. Legal Proceedings" herein for further details with
respect to the action.
In the nine months ended September 30, 1998, the Corporation reported a loss
from continuing operations of $62,000 or $0.04 per share, compared to $0.9
million or $0.18 per share in the nine months ended September 30, 1997. The
Corporation reported a loss from discontinued operations of $0.7 million or
$0.13 per share in the nine months ended September 30, 1997.
Results of Operations - Three Months Ended September 30, 1998
- -------------------------------------------------------------
Revenues for the three months ended September 30, 1998 increased to $0.1
million from $5,000 for the comparative period of 1997. In the three months
ended September 30, 1998, the Corporation had revenues of $48,000 from
providing environmental consulting services. The Corporation reported
interest income of $32,000 in the three months ended September 30, 1998,
compared to $5,000 in the comparative period of 1997.
-9-
<PAGE> 10
Costs and expenses increased to $0.4 million in the three months ended
September 30, 1998 from $0.3 million in the three months ended September 30,
1997. Interest expense decreased to $1,000 in the three months ended
September 30, 1998 from $0.2 million in the three months ended September 30,
1997, primarily as a result of the sale of Services in the first quarter of
1998. General and administrative expenses were $0.1 million for the three
months ended September 30, 1998 and 1997, respectively.
In the three months ended September 30, 1998, the Corporation accrued $0.3
million in settlement of a class action lawsuit. See "Part II. Other
Information - Item 1. Legal Proceedings" herein for further details with
respect to the action.
In the three months ended September 30, 1998, the Corporation reported a loss
from continuing operations of $0.3 million or $0.08 per share, compared to
$0.3 million or $0.07 per share in the three months ended September 30, 1997.
The Corporation reported a loss from discontinued operations of $0.3 million
or $0.05 per share in the three months ended September 30, 1997.
Liquidity and Capital Resources
- -------------------------------
The Corporation had cash and cash equivalents of $50,000 at September 30,
1998, compared to $0.1 million at December 31, 1997. The Corporation
maintains a line of credit with an affiliate in the amount of $0.8 million to
fund working capital requirements. The line of credit was fully utilized as
at September 30, 1998.
Net cash used in continuing operating activities was $0.8 million in the nine
months ended September 30, 1998, compared to $0.4 million in the nine months
ended September 30, 1997. Operating activities in the nine months ended
September 30, 1998 used cash primarily as a result of an increase in amounts
due from an affiliate and an increase in accounts receivable. A decrease in
cash held in escrow provided cash of $0.1 million in the nine months ended
September 30, 1998, compared to $0.5 million in the period ended September 30,
1997. The Corporation recognized a gain of $0.4 million on the sale of
Services in the nine months ended September 30, 1998.
Net cash used in investing activities was $1.5 million in the nine months
ended September 30, 1998, primarily as a result of an increase in a note
receivable. On October 20, 1998, the Corporation acquired all of the issued
and outstanding shares of Nazca Holdings Ltd. ("Nazca") which, through its
subsidiary, is in the business of the exploration for and development of
ground water resources in Chile. Nazca holds two exploration concessions in
Chile and has applied for an additional six concessions, and is in the process
of conducting exploration and development work on the granted concessions.
The consideration payable by the Corporation for the Nazca shares consists of:
(i) $200,000 per concession, upon receipt of certain regulatory approvals, by
the delivery of shares of common stock of the Corporation having an attributed
value of between $1.00 and $1.75 per share at the time such approvals are
granted, and (ii) one share of common stock of the Corporation for each $1.00
of net after tax income earned by the Corporation from the concessions, up to
a maximum of 1,500,000 shares. The obligation to issue shares is subject to
the receipt of any required shareholder approvals. For further details
regarding the transaction, see the Corporation's Form 8-K dated October 20,
1998.
-10-
<PAGE> 11
Financing activities provided cash of $2.2 million in the nine months ended
September 30, 1998. In the first quarter of 1998, the Corporation completed
the issuance of an aggregate of 467,500 shares of 5% Cumulative Redeemable
Convertible Preferred Stock, Series 1 of the Corporation in consideration of
debt forgiveness of $2.2 million and cash of $2.5 million.
The Corporation believes that its assets and line of credit should enable the
Corporation to meet its current ongoing requirements. The Corporation
anticipates that it may require substantial capital to pursue current and
future acquisitions of businesses and/or operating assets and will seek such
capital through debt and/or equity financing.
Year 2000
- ---------
Many of the world's computer systems currently record years in a two-digit
format. These computer systems will be unable to properly interpret dates
beyond the year 1999, which could lead to business disruptions and is commonly
referred to as the "Year 2000" issue. Based on its current information,
management of the Corporation has determined that the Year 2000 issue will not
pose significant operational problems for its computer systems as it only
utilizes commercially available software and personal computers, which are
Year 2000 compliant. The total cost to the Corporation of Year 2000
compliance activities has not been and is not currently anticipated to be
material to its financial position or results of operations in any given year.
In addition, management of the Corporation has initiated communications with
clients to ascertain their Year 2000 readiness and develop contingency plans
as required, and management intends to address this issue with any prospective
client. The determination by management and costs relating to the Year 2000
issue are based on management's best estimates, which were derived utilizing
numerous assumptions of future events. However, there can be no assurance
that these estimates will be achieved and actual results could vary materially
from those anticipated.
-11-
<PAGE> 12
PART II. OTHER INFORMATION
-----------------
ITEM 1. LEGAL PROCEEDINGS
The Corporation has accrued $259,500 in settlement of a class action law suit
which alleged that the Corporation, its former parent, certain of its officers
and directors, and the underwriters of its initial public offering violated
certain federal securities laws. The action was initiated by the persons and
entities purchasing the Corporation's common stock from February 9, 1995
through May 23, 1995. The settlement documents have been executed, preliminary
court approval for the settlement has been obtained and the settlement amount
was paid on October 14, 1998. However, the settlement is subject to final
court approval. See "Item 3. Legal Proceedings" contained in the
Corporation's annual report on Form 10-K for the year ended December 31, 1997
for further details with respect to the action.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
The Corporation held its annual meeting of shareholders on July 9, 1998. At
the meeting, Michael Smith and Roy Zanatta were re-elected Class I directors
of the Corporation for three year terms, as follows:
Broker Non-Votes
VOTES For VOTES Withheld and Abstentions
--------- -------------- ----------------
Michael Smith 3,393,455 6,800 -
Roy Zanatta 3,393,455 6,800 -
Leonard Petersen, Young-Soo Ko, John Musacchio and Jae-Sun Lee continued their
terms as directors of the Corporation.
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K
(a) Exhibits
Exhibit
Number Description
------- -----------
27 Article 5 - Financial Data Schedule for the 3rd
Quarter 1998 Form 10-Q.
(b) Reports on Form 8-K
The Corporation filed the following reports with respect to the
indicated items in October 1998:
Form 8-K dated October 20, 1998:
Item 2. Acquisition or Disposition of Assets
Item 7. Financial Statements and Exhibits
-12-
<PAGE> 13
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the
Registrant has duly caused this report to be signed on its behalf by the
undersigned, thereunto duly authorized.
Dated: November 12, 1998
ICHOR CORPORATION
By: /s/ Michael J. Smith
----------------------------------
Michael J. Smith, President, Chief
Financial Officer and Treasurer
-13-
<PAGE> 14
EXHIBIT INDEX
Exhibit
Number Description
------- -----------
27 Article 5 - Financial Data Schedule for the 3rd Quarter
1998 Form 10-Q.
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM THE
CONSOLIDATED FINANCIAL STATEMENTS AND NOTES INCLUDED IN THIS FORM 10-Q AND IS
QUALIFIED IN ITS ENTIRETY BY REFERENCE TO SUCH FINANCIAL STATEMENTS.
</LEGEND>
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> 9-MOS
<FISCAL-YEAR-END> DEC-31-1998
<PERIOD-START> JAN-01-1998
<PERIOD-END> SEP-30-1998
<CASH> 50
<SECURITIES> 0
<RECEIVABLES> 2,635
<ALLOWANCES> 0
<INVENTORY> 0
<CURRENT-ASSETS> 3,233
<PP&E> 0
<DEPRECIATION> 0
<TOTAL-ASSETS> 3,309
<CURRENT-LIABILITIES> 1,200
<BONDS> 0
0
27
<COMMON> 50
<OTHER-SE> 2,032
<TOTAL-LIABILITY-AND-EQUITY> 3,309
<SALES> 0
<TOTAL-REVENUES> 629
<CGS> 0
<TOTAL-COSTS> 679
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 101
<INCOME-PRETAX> (50)
<INCOME-TAX> 12
<INCOME-CONTINUING> (62)
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (62)
<EPS-PRIMARY> (0.04)
<EPS-DILUTED> (0.04)
</TABLE>
