10QSB 1 0001.txt FORM 10-QSB SECURITIES AND EXCHANGE COMMISSION Washington, DC 20549 (Mark One) [X ] NINE MONTHS REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 For the Nine months period ended October 31, 2000 OR [ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 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 of (I.R.S.Employer Identification No.) incorporation or organization) 1621 North 3rd Street, Suite 1000, Coeur d'Alene, ID 83814 ---------------------------------------------------------- (Address of principal executive office) (208)-664-6757 -------------- (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 October 31, 2000. Common Stock, par value $.001 44,398,384 ----------------------------- ---------- Title of Class Number of Shares Transitional Small Business Disclosure Format yes [ ] no [X] Index Exchange Rates............................................................1 -------------- Conversion Table..........................................................1 ---------------- Forward Looking Statements................................................1 -------------------------- Part 1 - Financial Statements.............................................1 ----------------------------- 1.1 Consolidated Balance Sheet.........................................2 ------------------------------ 1.4 Basis Of Presentation..............................................4 ------------------------- 1.5 Inventories........................................................5 --------------- 1.6 Stockholders' Equity...............................................5 ------------------------ 1.7 Commitments and Contingencies......................................5 --------------------------------- Part 2 - Management's Discussion and Analysis or Plan of Operations.......5 -------------------------------------------------------------------- 2.1 Organization And Business..........................................5 ----------------------------- 2.2 Liquidity and Capital Resources....................................5 ----------------------------------- 2.2.1 Short Term Liquidity..........................................5 -------------------------- 2.2.2 Long Term Liquidity...........................................6 ------------------------- 2.3 Results of Operations..............................................6 ------------------------- 2.4 Revenues...........................................................6 ------------ 2.5 Costs and Expenses.................................................6 ---------------------- 2.6 Commitments and Contingencies......................................7 --------------------------------- 2.7 Foreign Currency Exchange..........................................7 ----------------------------- 2.8 Going Concern Consideration........................................8 ------------------------------- 2.9 Other Events.......................................................8 ---------------- 2.10 Cautionary Note Regarding Forward-Looking Statements..............8 --------------------------------------------------------- Part 3 - Other Information................................................9 -------------------------- 3.1 Legal Proceedings..................................................9 --------------------- 3.2 Changes in Securities..............................................9 ------------------------- 3.4 Submission of Matters to a Vote of Security Holders................9 ------------------------------------------------------- 3.5 Other information..................................................9 --------------------- 3.6 Exhibits and Reports on Form 8-K...................................9 ------------------------------------ ii Exchange Rates Except as otherwise indicated, all dollar amounts described in this Report are expressed in United States (US) dollars. Conversion Table For ease of reference, the following conversion factors are provided: -------------------------------- --------------------------------- 1 mile = 1.6093 kilometers 1 metric tonne = 2,204.6 pounds -------------------------------- --------------------------------- 1 foot = 0.305 meters 1 ounce (troy) = 31.1035 grams -------------------------------- --------------------------------- 1 acre = 0.4047 hectare 1 imperial gallon = 4.5546 liters -------------------------------- --------------------------------- 1 long ton = 2,240 pounds 1 liter = 1.057 U.S. quarts -------------------------------- --------------------------------- Forward Looking Statements The Company desires to take advantage of the "safe harbor" provisions contained in Section 27A of the Securities Act of 1933, as amended (the "1933 Act"), and Section 21E of the Securities Exchange Act of 1934, as amended (the "1934 Act"), and is including this statement herein in order to do so: From time to time, the Company's management or persons acting on the Company's behalf may wish to make, either orally or in writing, forward-looking statements (which may come within the meaning of Section 27A of the 1933 Act and Section 21E of the 1934 Act), to inform existing and potential security holders regarding various matters including, without limitation, projections regarding financial matters, timing regarding transfer of licenses and receipts of government approvals, effects of regulation and completion of work programs. Such forward-looking statements are generally accompanied by words such as "estimate," "project," "predict," "believes," "expect," "anticipate," "goal" or other words that convey the uncertainty of future events or outcomes. Forward-looking statements by their nature are subject to certain risks, uncertainties and assumptions and will be influenced by various factors. Should one or more of these forecasts or underlying assumptions prove incorrect, actual results could vary materially. FISCHER-WATT GOLD COMPANY, INC. AND SUBSIDIARIES Part 1 - Financial Statements 1 1.1 Consolidated Balance Sheet Fischer-Watt Gold Company, Inc. and Subsidiaries Consolidated Balance Sheet October 31, 2000 (Unaudited) ASSETS ------ Current assets: Cash $ 19,109 Accounts receivable 162,281 Inventory 313,649 Other current assets 41,862 ------------ Total current assets 536,901 ------------ Mineral interests, net 172,541 Property and equipment, net 268,349 ------------ 440,890 $ 977,791 ============ LIABILITIES AND STOCKHOLDERS' (DEFICIT) --------------------------------------- Current liabilities: Accounts payable $ 2,292,901 Accounts payable and accrued expenses - shareholders 603,630 ------------ Total current liabilities 2,896,531 ------------ Note payable - shareholder 111,500 Stockholders' (Deficit): Preferred stock, non-voting, convertible, \ $2 par value, 250,000 shares authorized, None outstanding Common stock, $.001 par value, 50,000,000 Shares authorized, 44,398,384 shares issued and outstanding 44,398 Additional paid-in capital 14,410,172 Accumulated deficit (17,043,902) Accumulated other comprehensive income: Currency translation adjustment 559,092 ------------ (2,030,240) ------------ $ 977,791 ============ See the accompanying notes to the consolidated financial statements. 2 Fischer-Watt Gold Company, Inc. and Subsidiaries Consolidated Statements of Operations Three Months and Nine Months Ended October 31, 1999 and 2000 (Unaudited)
Three Months Nine Months ------------ ----------- 1999 2000 1999 2000 ------------ ------------ ------------ ------------ Sales of precious metals $ 159,605 $ 14,056 $ 984,788 $ 28,915 Costs applicable to sales 147,041 -- 920,221 74,987 ------------ ------------ ------------ ------------ Income (loss) from mining operations 12,564 14,056 64,567 (46,072) Costs and expenses: Exploration 22,407 176,958 -- General and administrative 70,822 242,109 179,938 723,000 ------------ ------------ ------------ ------------ 93,229 242,109 356,896 723,000 (Loss) from operations (80,665) (228,053) (292,329) (769,072) Other income and (expense): Interest (25,000) -- (75,000) -- Currency exchange (loss) (9,076) -- (116,321) -- Other income (expense) (9,316) 68,981 334,264 177,803 ------------ ------------ ------------ ------------ (43,392) 68,981 142,943 177,803 Net (loss) before income taxes (124,057) (159,072) (149,386) (591,269) Income taxes (benefit) (77,783) 4,732 (46,391) 19,400 ------------ ------------ ------------ ------------ Net (loss) (46,274) (163,804) (102,995) (610,669) Other comprehensive income: Foreign currency translation adjustment (429,542) (362,735) (536,904) (189,610) ------------ ------------ ------------ ------------ Comprehensive (loss) $ (475,816) $ (526,539) $ (639,899) $ (800,279) ============ ============ ============ ============ Per share information - basic and fully diluted Net (loss) per share $ (0.00) $ (0.00) $ (0.00) $ (0.01) ============ ============ ============ ============ Weighted average shares outstanding 38,188,384 41,665,050 38,188,384 40,753,940 ============ ============ ============ ============
See the accompanying notes to the consolidated financial statements. 3 Fischer-Watt Gold Company, Inc. and Subsidiaries Consolidated Statements of Cash Flows Nine Months Ended October 31, 1999 and 2000 (Unaudited) 1999 2000 --------- --------- Cash flows from operating activities: Net cash provided by (used in) operating activities $ (66,815) $(146,576) --------- --------- Cash flows from investing activities: Net cash provided by (used in) investing activities 19,623 -- --------- --------- Cash flows from financing activities: Net cash provided by (used in) financing activities 40,000 159,500 --------- --------- Increase (decrease) in cash and cash equivalents (7,192) 12,924 Cash and cash equivalents, beginning of period 18,736 6,185 --------- --------- Cash and cash equivalents, end of period $ 11,544 $ 19,109 ========= ========= See the accompanying notes to the consolidated financial statements. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS OCTOBER 31, 2000 (UNAUDITED) 1.4 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, 2000 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. Inter-company 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 4 NOTES TO CONSOLIDATED FINANCIAL STATEMENTS OCTOBER 31, 2000 (UNAUDITED) (continued) 1.5 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. 1.6 Stockholders' Equity During the period ended October 31, 2000 the Company issued 4.1 million shares of common stock. This resulted in the Company receiving $82,500 as cash, stockholder subscription valued at $68,750 and a stockholder capital contribution of $77,000. 1.7 Commitments and Contingencies 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. The Company as been named as co-defendant in a suit resulting from the termination of an exploration agreement in Nevada. The potential liability is estimated to be $50,000. Part 2 - Management's Discussion and Analysis or Plan of Operations. The following discussion and analysis covers material changes in financial condition since January 31, 2000 and material changes in the results of operations for the nine months and three months ended October 31, 2000, as compared to the same period in 1999. 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, 2000. 2.1 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 and Central Mexico. The Company's current operational focus is its Oronorte properties, a producing gold mine near Zaragosa, Colombia and development properties in Mexico. The Company, together with its consolidated subsidiaries, currently operates in one business segment, mining. 2.2 Liquidity and Capital Resources 2.2.1 Short Term Liquidity As of October 31, 2000, the Company had $19,100 in cash and accounts payable and accrued expenses of $2.9 million. 5 On October 31, 2000, 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 sell or joint venture the Colombian operations and concentrate its efforts in Mexico. The Colombian operations have experienced labor strikes, work slow downs and general unrest for the entire Nine months. Every effort is being made to eliminate these problems but success cannot be assured. After taxes, Fischer-Watt incurred net loss of $103,000 for the first Nine months of 1999 and a net loss of $611,000 for the period ended October 31, 2000. For the three months ending in October 1999 and 2000 the net loss was $46,000 and $164,000 respectively. The loss was due to the lack of production at the Oronorte mine. On October 31, 2000 the accumulated deficit was $17.0 million. Throughout most of last year and the entire first Nine months of this year the Company has been beset by labor problems at its Oronorte Mine. This resulted in strikes and numerous work stoppages and slow work situations during the rest of the year. This situation is the result of political instability in the country and agitation of the work force by outside interests. This is not expected to change in the near future. As a result of the Colombian situation, and the depressed selling price of gold, the Company decreased the value of its Colombian assets by $2.4 million at the end of last fiscal year. This situation has continued during this Nine months and the production has been minimal. The Company has had discussions with several Colombian companies concerning a possible sale and/or joint venture operation of the mine. 2.2.2 Long Term Liquidity It is likely that the Company will need to supplement anticipated cash from operations with future debt or equity financing and dispositions of or joint ventures with respect to mineral properties to fully fund its future business plan that 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 financing or that such capital raising opportunities will be available on terms acceptable to the Company, or at all. 2.3 Results of Operations The Company had net loss, after taxes, of $611,000 ($0.01 per share) compared to net loss of $103,000 ($nil per share) in the Nine month's ended October 31, 2000 and 1999, respectively. For the comparable three months the net loss was $164,000 ($nil per share) and $47,000 ($nil per share). 2.4 Revenues The Company had sales of precious metals of $29,000 and $14,000 for the Nine months and three months ended October 31, 2000. The Company had sales of precious metals of $985,000 and $160,000 for the Nine and three months ended October 31, 1999. The Company does not presently employ forward sales contracts or engage in any hedging activities. Again, the decline in sales was due to labor and related production problems at the El Limon Mine. 2.5 Costs and Expenses Production costs totaled $75,000 and $920,000 for the Nine-month period ended October 31, 2000 and 1999, respectively. For the comparable three-month period the costs were $0 and $147,000. The cost of abandoned mineral interests was $-0- in Nine and three months ending October 31, 2000 and 1999, respectively. 6 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 costs increased from $180,000 for the Nine months ending October 31, 1999 to $723,000 for the Nine months ending October 31, 2000. For the comparable three-month period the costs were $71,000 and $242,000. This increase is due primarily the restatement of unpaid officers salaries that were not accrued in the previous fiscal year. This accrual was brought current. Also, the increase was partially the result certain fixed costs, which would normally be charged to operating expenses, being charged to G & A due to a lack of production. Exploration expense decreased to $0 in the first Nine months of fiscal 2000 from $177,000 in the first Nine months of fiscal 1999. For the comparable three months period the costs decreased to $0 from $22,000. This decrease is due to the elimination of all exploration in the United States and Colombia. Net interest expense decreased from $75,000 during the Nine months ended October 31, 1999 to $0 during the Nine months ended October 31, 2000. For the comparable three months period the costs decreased to $0 from $25,000. This decrease was due to the elimination of note due a third party in fiscal year 1999. Also, certain short-term loans and lines of credit in Colombia were eliminated. 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 $178,000 for the Nine months ending October 31, 2000 and $334,000 for the same period in 1999. For the comparable three months period the costs were $69,000 and ($9,000). The change reflects the sale of a large capital item in 1999. 2.6 Commitments and Contingencies 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. The Company as been named as co-defendant in a suit resulting from the termination of an exploration agreement in Nevada. The potential liability is estimated to be $50,000. 2.7 Foreign Currency Exchange 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. 2.8 Going Concern Consideration As the independent certified public accountants have indicated in their report on the financial statements for the year ended January 31, 2000, and as shown in 7 the financial statements, the Company has experienced significant operating losses which have resulted in an accumulated deficits of $17.0 million. These conditions raise doubt about the Company's ability to continue as a going concern. 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 2001. The Company is presently investigating all of the alternatives identified above to meet its short-term liquidity needs. The Company believes that it can arrange a transaction or transactions to meet its short-term liquidity needs, however there can be no assurance that any such transactions will be concluded or that if concluded they will be on terms favorable to the Company. 2.9 Other Events On June 7, 2000, the Company announced that it had signed a letter on intent to sell the Oronorte operations to Groupo de Bullet, a Colombian Company. This sale included the El Limon mine and its related support facilities as well as all of companies the exploration and development properties in the country. The sale price was US$3.7 million which will be paid as a 3% NSR. If Groupe de Bullet vends the property to a third party within two years the full amount will due upon sale, less a sales commission. The Company expects to complete this agreement during the fourth quarter. In August 2000, the Mexican government issued the Company the rights to a series of contagious mining concessions. The concessions cover approximately 500 hectares and are located 12 km north of Lazaro Cardenas, Michoacan. Work done by previous concession holders include 42 diamond drill holes, 35 percussion drill holes and a very preliminary feasibility study. The concession contains a total mineral resource of 2.8 million tonnes of 1.32% Cu calculated at a cutoff of 0.15% Cu. Metallurgical testing done by Metcon Research of Tucson, Arizona, indicates that the copper can be recovered by heap leaching and a SX-EW processing. Financing for this project has been arranged contingent upon completion of a bankable feasibility study. During October 2000, the Company engaged K D Engineering and Mintec Consulting Inc., and Golder Associates all of Tucson, Arizona, to do a preliminary feasibility study of the property. Nova Consulitores Ambientales, Mexico City, Mexico has been retained to perform the environmental and permitting portion of the study. This study will be completed in December 2000. 2.10 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 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 8 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 3 - Other Information 3.1 Legal Proceedings None 3.2 Changes in Securities A private placement of 3,300,000 shares was completed on 18 October 2000. This increased the stockholder equity by $82,500 and the number of outstanding shares to 44,398,384. 3.4 Submission of Matters to a Vote of Security Holders None 3.5 Other information None 3.6 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. 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 15, 2000 By:/s/ George Beattie ----------------------- --------------------- George Beattie, President, Chief Executive Officer (Principal Executive Officer) 9