10KSB 1 form10ksbfisherwatt.txt 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 [FEE REQUIRED] For the fiscal year ended January 31, 2001 [ ] TRANSITION REPORT UNDER SECTION 13 OR 15(d) of THE SECURITIES EXCHANGE ACT OF 1934 [NO FEE REQUIRED] For the Transition period from to ---- ---- Commission file number 0-17386 FISCHER-WATT GOLD COMPANY, INC. ------------------------------- (Name of small business issuer in its Charter) Nevada 88-0227654 ----------------------------------- ------------------- (State or other jurisdiction (IRS Employer of incorporation or organization Identification No.) 1410 Cherrywood Drive Coeur d'Alene, Idaho 83814 --------------------- ---------- (Address of principal executive offices) (Zip Code) (Issuer's telephone number, including area code) 208-664-6757 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 0 The aggregate market value of the voting stock held by non-affiliates as of April 1, 2001 (using the average of the Bid and Asked prices) was $1,776,000 The number of Shares of Common Stock, $.001 par value, outstanding on January 31, 2001 was 44,398,384. Documents Incorporated by Reference into this Report: Yes Transitional Small Business Disclosure Format (check one) Yes [ ] No [ X ] 1 EXCHANGE RATES Except as otherwise indicated, all dollar amounts described in this Form 10(k) Annual 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 imperial gallon = 1.2010 U.S. gallons -------------------------------------------------------------------------- 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. PART 1 Item 1. DESCRIPTION OF BUSINESS Introduction ------------ Fischer-Watt Gold 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. 2 During the fiscal year ending January 31, 2001, the Company completed no material acquisitions. During fiscal year 1999, the Company's only producing metals property was the El Limon Mine in the Oronorte district in Colombia, South America. On November 21, 2000, The Company entered into an agreement to sell its Compania Minera Minera Oronorte, S. A., subsidiary, which included the assets of its El Limon mine and certain other properties to "Grupo de Bullet" (Bullet). Bullet is a privately held Colombian Company that is principally engaged in the development and operation of mineral properties in the country. In consideration of this agreement the Company will receive $US3.7 million which will be paid as a production royalty. Fischer Watt's decision to withdraw from Colombia resulted from the continued political instability in that country. The Company had no revenue for the year. General and administrative expenses were $369,000 and exploration expenses were $88,000. The exploration expenses were all related to acquisition of the La Balsa copper property in Mexico. Operations ---------- With the sale of Oronorte the Company had no cash generating operations. In August 2000, the Company acquired the La Balsa copper property in Mexico. This property has the potential of developing into a profitable copper mine producing SX/EW copper. See Item 2 - Description of Properties for a detailed discussion of this project. 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 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. Cautionary Statements The factors below are believed to be important factors (but not necessarily all the important factors) that could cause actual results to differ materially from those expressed in any forward-looking statement made by or on behalf of the Company. Unpredictable or unknown factors not discussed herein could also have material adverse effects on actual results of matters that are the subject of forward-looking statements. The Company does not intend to update these cautionary statements. Exploration Programs and Financing The Company intends to continue its exploration program in Mexico and other countries. It is not known if the expenditures to be made by the Company on its mineral properties will result in discoveries of commercial quantities of ore. If the Company's efforts are not successful at individual properties, the expenditures at those properties will be written off. Regulation Mining operations and exploration activities are subject to various governmental laws and regulations governing prospecting, development, mining, production, importing and exporting of minerals; taxes; labour standards; occupational health; waste disposal; protection of the environment; mine safety; toxic substances; and other matters. Licences and permits are required to conduct exploration and mining operations. There is no assurance that such permits will 3 be granted. Amendment to current laws and regulations governing operations and activities of mining companies or more stringent implementation thereof could have a material adverse impact on the Company. Under certain circumstances, the Company may be required to close an operation until a particular problem is remedied or to undertake other remedial actions. Environmental Laws The exploration programs conducted by the Company are subject to governmental regulations regarding environmental considerations. Most operations involving the exploration for or the production of minerals are subject to existing laws and regulations relating to exploration procedures, safety precautions, employee health and safety, air quality standards, pollution of stream and fresh water sources, odour, noise, dust, and other environmental protection controls adopted by governmental authorities as well as the rights of adjoining property owners. The Company may be required to prepare and present to governmental authorities data pertaining to the effect or impact that any proposed exploration or production of minerals may have upon the environment. The Company will be responsible for reclamation costs. Reclamation requirements vary depending on the location and the managing agency, but they are similar in that they aim to minimise long-term effects of exploration and mining disturbance by requiring the operating company to control possible deleterious effluents and to re-establish to some degree pre-disturbance landforms and vegetation. All requirements imposed by any such authorities may be costly, time consuming, and may delay commencement or continuation of exploration or production operations. Future legislation may significantly emphasise the protection of the environment, and that, as a consequence, the activities of the Company may be more closely regulated to further the cause of environmental protection. Such legislation, as well as future interpretation of existing laws, may require substantial increases in equipment and operating costs to the Company and delays, interruptions, or a termination of operations, the extent of which cannot be predicted. Market Factors and Volatility The marketability of natural resources, which may be acquired or discovered by the Company, will be affected by numerous factors beyond the control of the Company. These factors include market fluctuations in the prices of minerals, the capacity of processing equipment, government regulations, including regulations relating to prices, taxes, royalties, land tenure, land use, importing and exporting of minerals and environmental protection. Future prices of metals cannot be accurately predicted. Competition Numerous companies are engaged in the exploration and development of mineral properties and have substantially greater technical and financial resources than the Company. Title of Properties Properties are held under mining concessions granted by the appropriate authorities. In most cases the concession does not include surface rights. The surface access is subject to successful negotiations with the owners, subject to the appropriate laws and regulations. 4 Foreign Operations The Company's present activities are in Mexico. As with all types of international business operations, currency fluctuations, exchange controls, restrictions on foreign investment, changes to tax regimes, political action and political instability could impair the value of the Company's investments. Conflicts of Interest Some of the directors of the Company are also directors of other mining companies that are also engaged in mineral exploration and the acquisition of mineral properties. Situations may arise in connection with potential acquisitions and investments where the interests of these individuals as directors of other companies may conflict with their interest as directors of the Company. These individuals will deal with such matters according to prudent business judgement and the relative financial abilities and needs of the various companies with which they are associated. They have been advised of their fiduciary duties to the Company. Notwithstanding, conflicts of interest among these companies could arise in which the individuals' obligations to or interest in other companies could detract from their efforts on behalf of the Company. Exploration and Development Risks Exploration and mining operations are subject to all the hazards and risks typically inherent to the mining industry, any of which could result in damage to life or property, environmental damage and possible legal liability for any or all damage. Personnel are exposed to numerous risks associated with mining, such as unstable geological conditions, and processing of large volumes of materials using mechanised equipment. In addition, there is no certainty that the expenditures to be made by the Company will result in discoveries of commercial quantities of metals. Risk of loss by theft by employees is relatively high and a high degree of security is required to mitigate such loss. The Company may become subject to liability for pollution, cave-ins or other hazards against which it cannot insure or against which it may elect not to insure. As the Company does not carry liability insurance, the payment of such liabilities, were they to be incurred, could have a material adverse effect on the Company's financial position. Calculation of Reserves and Mineral Recovery There is a degree of uncertainty attributable to the calculation of reserves, resources and corresponding grades being mined or dedicated to future production. Until reserves or resources are actually mined and processed, the quantity of reserves or resources and grades must be considered as estimates only. Whether a mineral deposit will be commercially viable depends on a number of factors, some of which are the particular attributes of the deposit, such as the deposit's size, quality, proximity to infrastructure, financing cost and government regulations. Any material change in the quantity of reserves, resource grade, stripping ratio or selling prices may render reserves uneconomic, require a restatement of ore reserves and affect the economic viability of the Company's properties. Canadian National Policy NP 45-101 guides the company in the determination of reserves. Short term factors relating to the ore reserves, such as the need for orderly development of ore bodies or the processing of variable ore grades, or other operational problems, may impair the profitability of a mine. 5 Currency Fluctuations and Foreign Exchange The Company uses the United States (US) dollar as its currency of display and measurement. The majority of its transactions are denominated in US dollars. The value of the Mexican Paso, as reflected in the exchange rate against the US dollar, has continued to fluctuate significantly but is showing signs of stability as a result of the election of a new President. Taxation Risks The tax risks of investing in Mexico and other Latin American countries are substantial. Tax legislation is evolving and is subject to varying interpretations, frequent changes and inconsistent enforcement at the federal, regional and local levels. Taxes payable by Mexican companies to federal, regional and local budgets are high and include corporate profits tax, VAT, payments for subsoil use, assets tax, excise tax, road fund taxes, transport taxes and payroll taxes. Changes to taxation rates may have a material adverse impact on the Company. Item 2. DESCRIPTION OF PROPERTY SUMMARY ------- The following is a description of the Company's mineral properties. The Company holds interests in mineral properties located in the United States and 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 -------------------- On November 21, 2000, The Company entered into an agreement to sell its Compania Minera Oronorte, S. A., subsidiary, which included the assets of its El Limon mine and certain other properties to "Grupo de Bullet" (Bullet). Bullet is a privately held Colombian Company that is principally engaged in the development and operation of mineral properties in the country. In consideration of this agreement the Company will receive $US3.7 million which will be paid as a production royalty. Bullet assumed the existing liabilities. The continued political instability in Colombia resulted in the decision to withdraw from the country. Fischer Watt's decision to withdraw from Colombia resulted from the continued political instability in that country. MEXICAN PROPERTY ---------------- Minera Montoro Properties ------------------------- 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%. In August 2000, Minera Montoro obtained five contiguous mining concessions approximately 15 km east of Lazaro Cardenas, Michoacan. The concessions are referred to as "La Balsa" or "Balsa". The concessions consist of approximately 600 hectares. The concessions were obtained as the result of a public auction conducted by Secretaria de Comercio y Fomento Industrial (SECOFI). The concessions primarily contain copper mineralization. 6 History, Location, Accessibility -------------------------------- The Balsa copper deposit is located in the state of Michoacan, Mexico, near the port city of Lazaro Cardenas. It is logistically well located and accessibility is excellent. Copper mineralization was discovered on the property by ASARCO in the 1950's. Since then, several companies, including the Mexican subsidiary of Cyprus AMAX Mineral Company (Minera Cuicuilco), have controlled the mineral rights. The property did not meet Cyrus's criteria because of size and property was idle for several years. Infrastructure -------------- The property is located near the port city of Lazaro Cardenas, Michoacan. The area infrastructure is excellent. The city has approximately 300,000 residents and is the home of two steel manufacturing facilities, some steel fabricating plants, and a deep-water port. The port has both container and bulk commodities capabilities. A large fertilizer manufacturing plant (Fertinal) is also located in the port area. The area is served by the TFM railroad, which passes through the property, and Federal Highways 37. Electricity is available from a nearby coal fired generating facility and a hydroelectric plant located at Lake Morelos. Lake Morelos is a man made lake created by the damming of Rio Balsa. Water is available from Lake Morelos. The property is accessed by a state maintained dirt road that serves the communities of San Rafael and El Reno. Approximate distances are shown below. Item Distance Item Distance ---- -------- ---- -------- Electrical Line 500 m Phone Line 200 m Airport 12 km Port 20 km Main Road 150 m Lazaro Cardenas 15 km Lake 1 km Geology The La Balsa property is in a region of predominantly metasedimentary and metavolcanic rocks of Precambrian and Paleozoic ages. This metamorphic complex is overlain by rocks of Cretaceous age, which include limestones, sandstones and shales. Locally, volcanic rocks are interbedded with the sedimentary rocks. This sequence of rocks are intruded by an extensive batholith of granitic to granodioritic composition. This igneous unit is estimated to be of Laramide age. The geology of the claim area appears to have undergone moderate to strong hydrothermal alteration and weathering. Argillization, sericitization and silicification, which are the resultants of hydrothermal activity, are common. No petrographic descriptions have been completed. On the basis of the abundance of clays and oxidation, the deposit was divided into three major alteration and mineralization zones: 1) An oxidized zone characterized by the abundance of clay; 2) A rock oxide zone, and 3) A sulfide zone. The three rock types have significant metallurgical differences with the copper recovery in the oxide zone being higher from the sulfide. The oxide zones maybe more extensive than original interpreted projections. The original copper mineralization in the deposit occurs as chalcopyrite and bornite. Most, if not all, of this type of mineralization is in the quartz monzonite and andesites. In the oxide sectors of the deposit, the oxide copper mineralization occurs principally as malachite with minor amounts of chrysocolla and azurite. These oxide copper minerals are most likely the resultant of the oxidation of chalcocite. Chalcocite is a secondary copper mineral of supergene origin. 7 Drilling Several mining companies have drilled the property since its discovery in the 1950's. The drilling history is summarized below.
-------------------------------------------------------------------------------------------------------------- Company Year No of Holes Type Status -------------------------------------------------------------------------------------------------------------- ASARCO 1950 Several shallow test holes Percussion Unavailable St. Lucie Exploration 1969 Shallow Holes Percussion Unavailable Minera Cuicuilco 1979 13 Core In Data Base Minera Cuicuilco 1987 35 Reverse Circulation In Data Base Minera Cuicuilco 1989 28 Core In Data Base Total 76 --------------------------------------------------------------------------------------------------------------
Note: 1. Minera Cuicuilco is the Mexican subsidiary of Cyprus Minerals. Subsequent to the drilling Cyprus merged with the Phelps Dodge Corporation. 2. Reportedly, work was done on the property by the Nevada Star Corporation in 1995-96. Efforts to obtain this information have been unsuccessful. The 76 drill holes that are in the database represent 2,799 meters of drilling. The La Balsa project is rather unusual because, although it was drilled by several companies since its discovery, no drill core, drill cuttings, sample rejects, pulps, etc. are know to survive. The company plans to drill seven additional core holes on the property. This drilling is to confirm the previous work and to provide material for additional metallurgical testing. Metallurgy ---------- The previous owners had metallurgical testing done by Mountain States Research of Tucson, AZ, Metcon Research of Tucson AZ and the internal laboratories of Cyprus. Metcon completed the most extensive study and concluded that the material is amenable to heap leaching using sulfuric acid. The results are summarized below. -------------------------------------------------------------- Metallurgical Specific Rock Type Recovery Gravity -------------------------------------------------------------- Clay Oxide 79.3% 2.44 Rock Oxide 86.1% 2.60 Sulfide 51.8% 2.86 -------------------------------------------------------------- Feasibility Study ----------------- In October 2000 the Company retained K D Engineering, Tucson, Arizona, to perform a feasibility study on the Balsa Project. Simultaneously, Mintec, Inc., Tucson, Arizona, was retained to determine the ore reserves and complete a mine 8 design. K D Engineering subcontracted the geotechnical portion of the study to the Tucson office of Golder Associates. A pre-feasibility study was completed on January 4, 2001 and is summarized below. ---------------------------------------------------------------- Class Type Tonne %Cu ---------------------------------------------------------------- Measured Clay Oxide 556,447 0.998 Rock Oxide 2,081,640 0.878 Sulphide 6,481,094 2.677 ---------- ---------- Sub Total 9,119,181 2.164 Indicated Clay Oxide 103,041 0.939 Rock Oxide 1,246,182 0.548 Sulphide 2,147,934 0.206 ---------- ---------- Sub Total 3,497,157 0.349 Inferred Clay Oxide 3,221 0.728 Rock Oxide 186,425 0.442 Sulphide 11,684,788 0.154 Sub Total 11,874,434 0.159 ---------- ---------- Total Clay Oxide 662,709 0.99 Rock Oxide 3,514,247 0.74 Sulphide 20,313,816 0.96 ---------- ---------- Total 24,490,772 0.93 ---------------------------------------------------------------- ---------------------------------------------------------------- Class Type Tonne Cu% ---------------------------------------------------------------- Measured Clay Oxide 659,488 0.989 and Rock Oxide 3,327,822 0.754 Indicated Sulphide 8,629,028 2.062 ---------- ---------- Sub Total 12,616,338 1.661 ---------------------------------------------------------------- Total Tonne mined 3.5 million Average Grade of Ore Mined 1.42% Cu Striping Ratio (Waste to Ore) 0.68:1 Ton per day of refined copper 14 Type of Copper Produced Electrolytic Total Capital Requirement $10 million (Approximately) Project Life 7.5 years Cash Cost per Lb of Cu $0.54 Revenue @ $0.85 per Lb of Cu $66 million 9 Plans for Balsa --------------- The Company plans to complete a study suitable for financing (i.e. Bankable) by the third quarter of 2001. Montoro is currently undertaking a continuous review of meritorious Mexican mineral properties and hopes to acquire additional worthy properties; however, there can be no assurance that any properties will be acquired. DOMESTIC PROPERTIES ------------------- Annual filing fees of $100 per claim are required to continue the ownership of any federal 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 has no filing fee obligations. Management Evaluation --------------------- Fischer-Watt has eliminated 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 properties, with the exception of the Castle, were dropped, assigned to others or returned to their underlying owners. 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. On September 27, 1999, FWG entered into an agreement with Platoro West Incorporated (PWI), a private Corporation headquartered in Durango, Colorado. Under the terms of this agreement PWI assumes all financial and reporting responsibilities relative to The Castle Property. FWG retains a 1.0% NSR on all claims contained in the Castle property and 0.7% NSR on specific adjacent claims held by PWI. FINANCIAL COMMITMENTS --------------------- The Company's has no lease payments or work commitments related to property it controls. Item 3. LEGAL PROCEEDINGS The Colombian operations are the defendant in several claims relating to labor Contracts and employee terminations. The Company was also the defendant in legal actions related to various vendors. With the sale of Oronorte, Grupo de Bullet assumed all related liabilities. On October 18, 1996, Fischer-Watt Gold Company, Inc. commenced a legal proceeding against Greenstone Resources Canada Ltd. During 2000 Greenstone filed for bankruptcy and its primary creditors have taken control of the assets. The likelihood of success in this legal action is so remote that no further action will be taken. 10 On December 5, 2000, The Company was named as co-defendant in a suite alleging breach of contract for non-payment of minimum annual advance royalties. This is related to the Red Canyon property in Nevada. The Company feels this suite is without grounds and plans to vigorously defend its position. None of the known legal proceedings will have a material affect on the company. 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 STOCK 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, 2001 First Quarter $ .14 $ .07 Second Quarter .06 .02 Third Quarter .15 .03 Fourth Quarter .07 .02 Holders: As of April 1, 2001, the Company had 626 shareholders of record of its common stock Cash Dividends: Since inception, the Company has not declared nor paid any cash dividends. It retains all earning from operations for use in expanding and developing it business. Payment of dividends in the future will be at the discretion of the Company's Board of Directors. Changes in Securities --------------------- During the year common shares were issued for various reasons. The issuances are discussed in the attached auditors report. At the close of the fiscal year there were 644 beneficial holders of common shares. Approximately 30% of the outstanding stock is controlled, through various trusts, by Jim Seed, Chairman of the Board. 11 Item 6. SELECTED FINANCIAL DATA See the attached financial statements. Item 7. MANAGEMENT'S DISCUSSION AND ANALYSIS. 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. Summary The Company no revenue for the year. This lack of revenue was the result of the sale of Oronorte. On November 21, 2000, The Company interred into an Agreement to Sell the assets of its El Limon mine and certain other properties to "Grupo de Bullet". In consideration of this agreement the Company will receive $US3.7 million which will be paid as a production royalty. The Company reported net income of $1,080,000 for the year ended January 31, 2001. All of this income was related to the sale of Oronorte. For the same time period the General and Administrative expenses were $369,000 and Exploration costs were $88,800. The exploration costs are total applicable to the La Balsa property. General and Administrative costs increased from $181,000 in the prior year. This increase was the result of costs incurred in selling Oronorte and acquiring La Balsa. The Company has an accumulated deficit of $15.4 million and continues to experience negative cash flow. The management plans to place the La Balsa property into production as soon as possible. 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 metals. 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. 12 Short-term Liquidity As of January 31, 2001 the Company had $20,000 in cash. On January 31, 2001, 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. To correct this situation it will be necessary for the Company to acquire additional capital. Pursuant to agreements between 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 that 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. During calendar year 2000 Greenstone filed bankruptcy and the major creditors are currently liquidating the assets. There has been no contact with the bankruptcy officials and all indications are that they consider this debit to be non-collectable. Management believes that the Company has adequately reserved its reclamation commitments. Long-term Liquidity: Cash flows from operations during fiscal 2001 are not expected to be sufficient to fund operating and administrative expenses and exploration expenses. The Company anticipates needing additional funding from equity or borrowings. FISCAL 2000 COMPARED TO FISCAL 1999 Revenues The Company had no revenues in either year. The enclosed consolidated financial statements have been restated to reflect the sale of Oronorte. Forward Sales of Precious Metals The Company does not presently employ forward sales contracts or engage in any hedging activities. All of the production is sold on the spot market that is generally the afternoon closing price for metals on the London Metal Exchange (LME) on the day of delivery. Sales of Mineral Properties No material income was received from the sale of mineral properties during the year. Discontinued Operations On November 21, 2000, The Company entered into an agreement to sell its Compania Minera Minera Oronorte, S. A., subsidiary, which included the assets of its El Limon mine and certain other properties to "Grupo de Bullet" (Bullet). Bullet is a privately held Colombian Company that is principally engaged in the development and operation of mineral properties in the country. In consideration of this agreement the Company will receive $US3.7 million which will be paid as a production royalty. Fischer Watt's decision to withdraw from Colombia resulted from the continued political instability in that country. This transaction resulted in a nonrecurring gain of $1.1 million (net of income taxes). 13 COSTS AND EXPENSES Selling, General and Administrative: Selling, general and administrative costs decreased from $181,000 in fiscal 1999 to $369,000in fiscal 2000. The increase was the result of expenses incurred in the sale of Oronorte and the acquisition of La Balsa. 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. Other Income and Expenses Net interest expense increased from $7,000 in fiscal 1999 to $10,000 in fiscal 2000. Item 8. FINANCIAL STATEMENTS. See Index to Financial Statements attached hereto. Item 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND FINANCIAL DISCLOSURE The Company retains Stark Tinter and Associated, LLC, Englewood, Colorado, as its principle independent auditor. There has been no material disagreement between the parties during the fiscal year. PART III Item 10. 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:
Positions Held Position Name Age With the Company Held Since ---- --- ---------------- ---------- George Beattie 72 Chief Executive Officer August 27, 1993 President Gerald D. Helgeson 66 Director March 14, 1994 Secretary Peter Bojtos 52 Director April 24, 1996 Vice Chairman Vice President James M. Seed 59 Chairman of the Board June 1, 1996 Jorge E. Ordonez 60 Director June 12, 1996 R.M. (Mike) Robb 60 Vice President of Operations February 1, 1997
14 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. The position of Chief Financial Officer has been vacant since the resignation of Ms Michele Wood on April 13, 1998. The duties of the CFO are fulfilled by other Company executives and outside accountants. 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 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. 15 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 (HL-NYSE). 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 Honours 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 Brown University from 1984 to 1990. Mr. Seed became a Director of Fischer-Watt Gold Company, on June 1, 1996, and was appointed Chairman of the Board on October 20, 1999. 16 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 in Business Administration 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. Item 11. 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. SUMMARY COMPENSATION TABLE Annual Compensation Long Term Compensation Name and Principal Fiscal Position Year Salary $ -------- ---- -------- George Beattie, 2000 100,000 1999 100,000 President, CEO 1998 100,000 1997 100,000 1996 93,500 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. Continuance of this program is currently being evaluated. Do to a severe cash shortage; none of the executives or employees of the Company were paid during the year. The moneys due are included in accounts payable. Item 12. 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 April 1, 2001. 17
Name and Address of Amount and nature of % of beneficial owner beneficial ownership Class ------------------ -------------------- ----- Cede & Co. 26,324,893 Shares 59.3 PO Box 222 Owned indirectly. Note 1 New York, NY 10274 Peter Bojtos 1,050,000 shares Officer and Director owned directly and 2582 Taft Court indirectly. Note 2 2.4% Lakewood, CO 80215 James M. Seed 12,691,600 shares Director and Chairman of the Board owned indirectly, 1 Citizens Plaza, Suite 910 Note 2, 3, 28.6% Providence, RI George Beattie 1,000 shares Officer and Director owned directly, 1410 Cherrywood Drive Note 2 <1.0% Coeur d' Alene, ID Gerald D. Helgeson No shares Officer and Director owned directly, 3770 Poppy Lane Note 2, 4 0.0% Fallbrook, CA Jorge E. Ordonez No shares Director owned directly 0.0% Ave. Paseo de las Palmas 735-205 Note 2 Mexico City, Mexico R.M.(Mike)Robb No shares Vice President of Operations owned directly 6004 Buffalo Grass CT, NE Note 2 0.0% Albuquerque, NM Directors and 13,742,600 shares Officers as a Group owned directly, (Six persons) and indirectly 33.0%
Note 1 - Cede & Company is a brokerage clearing company. Note 2 - The options to purchase shares is shown below. Note 3 - James M. Seed owns no shares, options or warrants directly, but through various related trusts. Mr. Seed was appointed Chairman of the Board on Oct 20, 1999. Note 4- Mr. Helgeson has assigned all of his options to his wife, Gerald D. Helgeson. 18
Options and Warrants to Purchase Common Stock -------------------------------------------------------------------------------------------------------- Date Weighted ------------------------------------------ Issued To Amount Exercise Price Granted Exercisable Expires -------------------------------------------------------------------------------------------------------- George Beattie 500,000 0.22 Various Current Various 500,000 0.05 10/27/99 10/31/99 10/31/04 250,000 0.16 11/28/98 11/28/99 10/31/03 Peter Bojtos 500,000 0.05 10/27/99 10/31/99 10/31/04 100,000 0.37 3/1/97 3/1/97 2/28/02 100,000 0.11 12/17/98 12/17/98 12/16/03 Jim Seed 500,000 0.05 10/27/99 10/31/99 10/31/04 300,000 0.10 12/30/97 12/31/97 12/31/02 500,000 0.05 2/28/00 2/28/01 2/28/02 Jorge Ordonez 500,000 0.05 10/27/99 10/31/99 10/31/04 Jerry Helgeson 500,000 0.05 10/27/99 10/31/99 10/31/04 400,000 0.24 Various Current R. M. Robb 500,000 0.05 10/27/99 10/31/99 10/31/04 100,000 0.53 2/1/97 2/1/98 1/31/03 James Christl 50,000 0.05 11/5/99 11/6/99 11/6/04 Jeffery Abbas 500,000 0.05 2/28/00 2/28/01 2/28/02 Centex Securities 375,000 0.05 1/14/00 1/14/00 9/23/03 -------------------------------------------------------------------------------------------------------- Total 6,175,000 --------------------------------------------------------------------------------------------------------
On December 21, 2000, the Company issue a Public Relations and Banking consultant 1,000,000 shares of stock in return for $40,000 of services.. Indebtedness of Directors and Officers No Company directors or officers are indebted to the Company. Item 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS. 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 mining business. Mr. Ordonez is a principal 19 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. The Company owed Kennecott Exploration Company (Kennecott) $500,000 plus accrued interest for various business transactions occurring in 1995 and 1996. On March 1999, Kennecott forgave this obligation in return for a one-time payment of $100,000. The Company borrowed the payment from James Seed, a Director and Chairman of the Board, under normal commercial conditions with payment due in two years. Item 14. EXHIBITS AND REPORTS ON FORM 8-K. (a) Exhibit 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 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. 3 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. 4 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. 5 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. 6 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. 7 10 Option effective February 1, 1997, whereby Fischer-Watt Gold Company, Inc., Grant R. M. Robb an option to purchase 100,000 shares of restricted common stock.. Incorporated herein by reference. 8 10 Option effective October 31, 2000, whereby Fischer-Watt Gold Company, Inc., Grant George Beattie, Peter Bojtos, Jim Seed, Jorge Ordonez, Jerry Helgeson and R. M. Robb each an option to purchase 100,000 shares common stock. Incorporated herein by reference. 20 (b) Reports on Form 8-K On December 13, 2000, the Company filed a report on Form 8-K. This report was related to the sale of the Colombian assets Exhibit Number 21 - Subsidiaries of Company Name of Subsidiary Ownership Incorporated In ------------------ --------- --------------- Minera Montoro, S. A. de C. V. 65% Mexico During the year the Company made the following changes in its subsidiaries. Name of Subsidiary Ownership Action Taken ------------------ --------- ------------ Compania Minera Oronorte, S. A. 100% Sold to Bullet Minera Esperanza, S. A. 100% Sold to Bullet Donna, S. A. 100% Liquidated Great Basin Mining and Exploration 100% Liquidated 21 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. /s/George Beattie -------------------------------------- President, Chief Executive Officer, (Principal Executive Officer), 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/George Beattie April 25, 2001 ---------------------------------------------- Acting Chief Financial Officer Principal Financial and Accounting Officer) Gerald D. Helgeson April 25, 2001 Director, Secretary and Vice President James M. Seed April 25, 2001 Director Chairman of the Board and Director George Beattie April 25, 2001 President, Chief Executive Officer (Principal Executive Officer) Peter Bojtos April 25, 2001 Director and Vice President Vice Chairman of the Board Jorge Ordonez April 25, 2001 Director 22 Fischer-Watt Gold Company, Inc. and Subsidiaries Auditors Report and Financial Statements Page ---- Report of Independent Auditors F-1 Financial Statements: Consolidated Balance Sheet F-2 Consolidated Statements of Operations F-3 Consolidated Statement of Shareholders' (Deficit) F-4 Consolidated Statements of Cash Flows F-5 Notes to Consolidated Financial Statements F-6 - F-16 23 Report of Independent Auditors ------------------------------------ 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, 2001 and the related consolidated statements of operations, stockholders' (deficit), and cash flows for each of the two years 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 audits. We conducted our audits in accordance with auditing standards generally accepted in the United States of America. Those standards require that we plan and perform the audits 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 audits provide 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, 2001, and the consolidated results of their operations and their cash flows for each of the two years then ended in conformity with accounting principles generally accepted in the United States of America. 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 net losses from operations during the periods presented, has no revenue producing operations, has a working capital deficiency and its total liabilities exceed its total assets as of January 31, 2001. 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. /s/ Stark Tinter & Associates, LLC --------------------------------- Stark Tinter & Associates, LLC Denver, Colorado April 9, 2001 F-1 Fischer-Watt Gold Company, Inc. and Subsidiaries Consolidated Balance Sheet January 31, 2001 ASSETS ------ Current assets: Cash $ 20,387 Other current assets 33,889 ------------- Total current assets 54,276 ------------- Property and equipment, net 7,062 ------------- $ 61,338 ============= LIABILITIES AND STOCKHOLDERS' (DEFICIT) --------------------------------------- Current liabilities: Accounts payable $ 83,021 Accounts payable and accrued expenses - shareholders 668,863 ------------ Total current liabilities 751,884 ------------ Note payable - shareholder 100,000 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 14,518,171 Accumulated deficit (15,353,115) ------------ (790,546) $ 61,338 ============ See the accompanying notes to the consolidated financial statements. F-2
Fischer-Watt Gold Company, Inc. and Subsidiaries Consolidated Statements of Operations Years Ended January 31, 2001 and 2000 2001 2000 ------------ ------------ Revenue $ -- $ -- ------------ ------------ Costs and expenses: Exploration 88,843 -- General and administrative 369,133 181,196 ------------ ------------ 457,976 181,196 ------------ ------------ (Loss) from operations (457,976) (181,196) ------------ ------------ Other income and (expense): Interest expense (10,000) (7,320) Other income (expense), net 20,778 (18,139) ------------ ------------ 10,778 (25,459) ------------ ------------ (Loss) from continuing operations (447,198) (206,655) Discontinued operations: (Loss) from the operations of Oronorte (net of income tax benefit of $92,000 and $1,270,000) (207,419) (1,904,512) Gain from the disposition of Oronorte (net of income taxes of $731,000) 1,095,735 -- ------------ ------------ Net income (loss) before extraordinary item and income taxes 441,118 (2,111,167) Extraordinary item: Gain on the settlement of debt net of applicable income taxes of $326,000 -- 490,035 ------------ ------------ Net income (loss) before income taxes 441,118 (1,621,132) Income taxes (benefit) (639,000) 944,000 ------------ ------------ Net income (loss) $ 1,080,118 $ (2,565,132) ============ ============ Per share information - basic and fully diluted Continuing operations $ (0.01) $ 0.00 Discontinued operations 0.04 (0.08) Extraordinary item -- 0.02 ------------ ------------ Net (loss) per share $ 0.03 $ (0.06) ============ ============ Weighted average shares outstanding 41,323,384 39,895,884 ============ ============
See the accompanying notes to the consolidated financial statements. F-3
Fischer-Watt Gold Company, Inc. and Subsidiaries Consolidated Statement of Stockholders' (Deficit) Years Ended January 31, 2001 and 2000 Additional Common Stock Paid in Capital Stock Accumulated Shares Amount Capital Subscribed Deficit Total ------------ ------------ ------------ ------------ ------------ ------------ Balance, January 31, 1999 38,188,384 $ 38,188 $ 13,429,831 $ 720,800 ($13,868,101) $ 320,718 ------------ ------------ ------------ ------------ ------------ ------------ Issuance of shares for services 750,000 750 36,750 -- -- 37,500 Conversion of units to capital 1,360,000 1,360 719,440 (720,800) -- -- Common shares subscribed for -- -- -- 68,750 -- 68,750 Net (loss) for the year -- -- -- -- (2,565,132) (2,565,132) ------------ ------------ ------------ ------------ ------------ ------------ Balance, January 31, 2000 40,298,384 40,298 14,186,021 68,750 (16,433,233) (2,138,164) Common shares subscribed for -- -- -- 10,000 -- 10,000 Issuance of stock subscriptions 800,000 800 77,950 (78,750) -- -- Issuance of shares for cash 3,300,000 3,300 79,200 -- -- 82,500 Contribution to capital -- -- 175,000 -- -- 175,000 Net income for the year -- -- -- -- 1,080,118 1,080,118 ------------ ------------ ------------ ------------ ------------ ------------ Balance, January 31, 2001 44,398,384 $ 44,398 $ 14,518,171 $ 0 ($15,353,115) ($ 790,546) ============ ============ ============ ============ ============ ============
See the accompanying notes to the consolidated financial statements. F-4
Fischer-Watt Gold Company, Inc. and Subsidiaries Consolidated Statements of Cash Flows Years Ended January 31, 2001 and 2000 2001 2000 ----------- ----------- Cash flows from operating activities: Net income (loss) $ 1,080,118 $(2,565,132) Adjustments to reconcile net income (loss) to net cash (used in) operating activities: Depreciation 6,444 6,444 Common stock issued for services -- 37,500 Gain on the settlement of debt -- (816,035) Net assets (liabilities) of discontinued operations (1,591,088) 3,100,853 Changes in assets and liabilities: Other current assets 3,267 (977) Accounts payable 7,528 (221,280) Accounts payable and accrued expenses - shareholders 245,233 382,630 ----------- ----------- Total adjustments (1,328,616) 2,489,135 ----------- ----------- Net cash (used in) operating activities (248,498) (75,997) ----------- ----------- Cash flows from investing activities: Net cash provided by (used in) investing activities -- -- ----------- ----------- Cash flows from financing activities: Proceeds from sale of common shares 92,500 68,750 Capital contribution by shareholder 175,000 -- Proceeds from note payable -- 100,000 Repayment of note payable - shareholder -- (100,000) ----------- ----------- Net cash provided by financing activities 267,500 68,750 ----------- ----------- Increase (decrease) in cash and cash equivalents 19,002 (7,247) Cash and cash equivalents, beginning of period 1,385 8,632 ----------- ----------- Cash and cash equivalents, end of period $ 20,387 $ 1,385 =========== =========== Supplemental cash flow information: Cash paid for interest $ -- $ -- Cash paid for income taxes $ -- $ -- Non-cash investing and financing activities: Certificate of deposit surrendered to repay debt of discontinued subsidiary $ -- $ 500,000
See the accompanying notes to the consolidated financial statements. F-5 Note 1. Accounting policies Business Activities Fischer-Watt Gold Company, Inc. ("Fischer-Watt" or the "Company"), and its subsidiaries 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 metals. 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. 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 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. F-6 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 7 years. Stock-based Compensation The Company accounts for stock based compensation in accordance with SFAS No. 123, "Accounting for Stock-Based Compensation." The provisions of SFAS No. 123 allow companies to either expense the estimated fair value of stock options or to continue to follow the intrinsic value method set forth in APB Opinion 25, "Accounting for Stock Issued to Employees" ("APB 25") but disclose the pro forma effects on net income (loss) had the fair value of the options been expensed. The Company has elected to continue to apply APB 25 in accounting for its stock option incentive plans. Revenue Recognition Sales revenue is recognized upon the production of metals having a fixed monetary value. 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 include 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. F-7 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. 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. F-8 Concentration of Credit Risk The Company will sell most of its metal production to a limited number of customers. However, due to the nature of the metals market, the Company is not dependent upon a significant customer to provide a market for its products. Although the Company could be directly affected by weakness in the metals processing business, the Company monitors the financial condition of its customers and considers the risk of loss to be remote. 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 and 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 interest rates of the debt reflect current 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. Management has not identified any material impairment losses as of the date of these financial statements. Loss per share The Company calculates net income (loss) per share as required by SFAS No. 128, "Earnings per Share." Basic earnings (loss) per share is calculated by dividing net income (loss) by the weighted average number of common shares outstanding for the period. Diluted earnings (loss) per share are calculated by dividing net income (loss) by the weighted average number of common shares and dilutive common stock equivalents outstanding. During the periods when they are anti dilutive common stock equivalents are not considered in the computation. Reclassifications Certain prior year amounts have been reclassified to conform to the current year's presentation. F-9 Segment Information The Company follows SFAS No. 131, Disclosures about Segments of an Enterprise and Related Information. Certain information is disclosed, per SFAS No. 131, based on the way management organizes financial information for making operating decisions and assessing performance. The Company currently operates in a single business segment and will evaluate additional segment disclosure requirements as it expands its operations. Recent Pronouncements The FASB recently issued Statement No 137, "Accounting for Derivative Instruments and Hedging Activities-Deferral of Effective Date of FASB Statement No. 133". The Statement defers for one year the effective date of FASB Statement No. 133, "Accounting for Derivative Instruments and Hedging Activities". The rule now will apply to all fiscal quarters of all fiscal years beginning after June 15, 2000. In June 1998, the FASB issued SFAS No. 133, "Accounting for Derivative Instruments and Hedging Activities." The Statement will require the Company to recognize all derivatives on the balance sheet at fair value. Derivatives that are not hedges must be adjusted to fair value through income. If the derivative is a hedge, depending on the nature of the hedge, changes in the fair value of derivatives will either be offset against the change in fair value of the hedged assets, liabilities, or firm commitments through earnings or recognized in other comprehensive income until the hedged item is recognized in earnings. The ineffective portion of a derivative's change in fair value will be immediately recognized in earnings. The Company does not expect SFAS No. 133 to have a material effect on its earnings and financial position. In December 1999, the Securities and Exchange Commission released Staff Accounting Bulletin No. 101, Revenue Recognition in Financial Statements (SAB No. 101), which provides guidance on the recognition, presentation and disclosure of revenue in financial statements. SAB No. 101 did not impact the Company's revenue recognition policies. Note 2. Financial Condition, Liquidity, and Going Concern Fischer-Watt incurred operating losses of $447,198 and $206,655 for the years ended January 31, 2001 and 2000, has an accumulated deficit of $15,353,115 and has a net working capital deficiency of $697,608 at January 31, 2001. In addition, the Company has no revenue producing operations. These conditions raise substantial doubt about the Company's ability to continue as a going concern. During October 2000 the Company disposed of its operations in Columbia, which had incurred operating losses over the past several years (see Note 3). In addition, the Company is attempting to develop mineral properties in Mexico as Mexico is supportive of the mining industry and NAFTA has made doing business there attractive. F-10 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 metals, 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 financial statements do not include any adjustments to reflect the possible future effects on the recoverability and classification of assets or the amounts and classification of liabilities that may result from the possible inability of the Company to continue as a going concern. Note 3. Discontinued Operations The Company disposed of its subsidiary, Compania Minera Oronorte S.A. ("Oronorte"), which operated a mining property in North Central Colombia during October 2000. Oronorte accounted for all of the Company's operating revenue during the years ended January 31, 2001 and 2000. In exchange for the Oronorte operations the Company received $3.7 million in the form of a 3% royalty on production sales less any payments or settlements with creditors. The Company will record revenue from the proceeds of this royalty, if any, as received. The assets and liabilities disposed of consisted principally of accounts receivable, inventory, property and equipment and mineral interests. The Company recorded a gain of $1,095,735 on the disposal (net of income taxes of $731,000). Operating results for Oronorte for the years ended January 31, 2001 and 2000 are shown separately in the accompanying statements of operations. The statement of operations for the year ended January 31, 2000 has been restated to show operating results for Oronorte separately. Net sales of Oronorte for the years ended January 31, 2001 and 2000 were $28,915 and $1,025,092. These amounts are not included in revenue in the accompanying statements of operations. Assets and liabilities disposed of consisted of the following on the disposition date: F-11 Cash $ 1,625 Accounts receivable 162,281 Inventory 311,649 Property and equipment And mineral interests 388,438 ----------- Total assets 863,993 Liabilities (2,690,728) ----------- Net liabilities $(1,826,735) =========== Assets are shown at their net realizable values and liabilities are shown at their face amounts. Note 4. Property and equipment Property and equipment consist of the following: Furniture and fixtures $ 60,284 Less: accumulated depreciation 53,222 --------- $ 7,062 ========== Depreciation expense charged to operations was $6,444 during the years ended January 31, 2001 and 2000. Note 5. Notes Payable Banks and other Oronorte had a $500,000 line of credit with a bank. Advances under this line accrued interest at a rate of Libor plus 3.75%. The line was collateralized by a $500,000 certificate of deposit. During fiscal 2000 the Company redeemed the certificate of deposit to repay the outstanding balance on the line of credit. The Company had delivered to Kennecott Exploration Company (Kennecott), a shareholder of the Company, a promissory note in the amount of $700,000, with 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 were due on demand or, at the option of the Company, by issuance of 1,000,000 shares of the Company's common stock. The balance of the note plus accrued interest aggregated $916,035 at December 1, 1999. During December 1999 the Company settled this obligation for a cash payment of $100,000 (see below). The resulting gain of $816,035 has been recorded as an extraordinary item in the accompanying financial statements. Shareholders During December 1999 a shareholder of the Company advanced $100,000 to the Company to be used to settle the Company's obligation to Kennecott. The note evidencing the loan bears interest at prime plus 2% and is payable on December 31, 2002. F-12 Note 6. Stockholders'(Deficit) 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 common stock and one share purchase warrant. Each of these warrants entitled the holder to purchase one additional share of common stock at an exercise price of $.75 through February 28, 1998. Pursuant to this offering, 680,000 units were sold under a subscription agreement and the collected proceeds of $720,800 had been classified as capital stock subscribed. During May 1999 the 1,360,000 shares of common stock were issued. During February 1999 the Company issued 750,000 shares of common stock for services valued at $37,500. The value ascribed to the services corresponds to the fair market value of the common stock on the date the services were performed. During the year ended January 31, 2000 the Company accepted subscriptions for 750,000 shares of common stock for cash aggregating $68,750. During the year ended January 31, 2001 the Company accepted subscriptions for an additional 50,000 shares of common stock for cash aggregating $10,000. These common shares and the 750,000 common shares described above were issued during the year ended January 31, 2001. During the year ended January 31, 2001 the Company issued 3,300,000 shares of common stock to a significant shareholder for cash aggregating $82,500. In addition, this shareholder contributed $175,000 to the capital of the Company to be used for the identification and assessment of new mining properties. Note 7. Common Stock Options and Warrants On October 20, 1999, five directors and an employee were granted options to purchase 3,000,000 shares of common stock at $.05 per share (fair value at the time of grant). These options vested immediately and became exercisable one year after vesting. The options expire on October 19, 2004 During February 2001 the Company issued options to purchase 1,000,000 shares of common stock at $.05 per share (fair value at the time of the grant). These options expire two years from the date of the grant. During July 2001 the Company issued options to purchase 1,000,000 shares of common stock at $.025 per share (fair value at the time of the grant). These options expire three years from the date of the grant. F-13 Note 8. 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 during the years ended January 31, 2001 and 2000: expected life of options of 2.5 and 5 years, expected volatility of 143% and 138%, risk-free interest rates of 5.0% and 5.4% and no dividend yield. The weighted average fair value at the date of grant for options granted during the years ended January 31, 2001 and 2000 approximated $.01 and $0.04 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, 2001 2000 ---- ---- Net income (loss) As reported $ 1,080,118 $(2,565,132) Pro forma $ 1,060,118 $(2,725,132) Earnings (loss) per share - basic and fully diluted As reported $ 0.03 $(0.06) Pro forma $ 0.03 $(0.07) The following table summarizes the stock option activity: Stock Weighted-average Options Price per Share ------- --------------- Outstanding at January 31, 1999 4,310,500 $ 0.43 Granted 3,000,000 0.05 Expired (301,500) 1.03 --------- Outstanding at January 31, 2000 7,009,000 0.24 Granted 2,000,000 0.04 Expired (416,000) 1.50 --------- Outstanding at January 31, 2001 8,593,000 0.16 ========= F-14 The following table summarizes information about fixed-price stock options: Outstanding at January 31, 2001: Options Outstanding Options Exercisable --------------------------------------- Weighted-Split-Weighted- Average Average Average Range of Number Contractual Exercise Number Exercise Prices Outstanding Life Price ExercisablePrice ------ ----------- ---- ----- ---------------- $ 0.03 1,000,000 2.5 years $ 0.03 1,000,000 $0.03 $ 0.05-$0.08 4,625,000 3.0 0.05 4,625,000 0.05 $ 0.11-$0.17 1,100,000 2.2 0.15 1,100,000 0.15 $ 0.20-$0.22 700,000 3.5 0.21 700,000 0.21 $ 0.37 200,000 .8 0.37 200,000 0.37 $ 0.50-$0.56 386,000 2.1 0.53 386,000 0.53 $ 0.72 200,000 1.3 0.72 200,000 0.72 $ 1.15 382,000 2.3 1.15 382,000 1.15 --------- --- -------- --------- ----- $ 0.05-$1.15 8,593,000 2.8 years $ 0.16 8,593,000 $0.16 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 9. Income Taxes The components of net income (loss) before taxes for the Company's domestic and foreign operations were as follows: January 31, 2001 2000 -------- --------- Domestic $1,379,537 $ 609,380 Foreign (299,419) (3,174,512) -------- --------- Net income (loss) before taxes $1,080,118 $(2,565,132) ========= ========= The consolidated tax provision is comprised of the following: January 31, 2001 2000 ---- ---- Current: Federal $ - $ - State - - Foreign - - ------------- --------- Tax Provision $ - $ - ============= ========= F-15 The difference between the federal statutory tax rate and the effective tax rate on net income before taxes is as follows: January 31, 2001 2000 ---- ---- 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 - - Other - - ---- ---- 0.0% 0.0% ==== ==== The Company has federal tax loss carry forwards of approximately $7.0 million and Colombian tax loss carry forwards of approximately $8.0 million at January 31, 2001 which expire from 2003 to 2020. The net operating loss carry forwards 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 10. Transactions with Related Parties During the years ended January 31, 2001, 2000 and 1999 certain employees deferred salaries and expenses aggregating $224,732, $255,715 and $41,000 respectively. These advances and deferrals are included in accounts payable and accrued expenses - shareholders in the accompanying financial statements. F-16