1
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-Q
Quarterly Report Pursuant to Section 13 or 15(d) of
Securities Exchange Act of 1934
For the quarterly period ended March 31, 1998
Commission File Number 0-16019
INTERNATIONAL PRECIOUS METALS CORPORATION
------------------------
(Exact name of Registrant as specified in its Charter)
Province of Ontario, Canada
-----------------------
(Jurisdiction of formation)
86-0766060
Employer Identification Number
4633 South 36th Place, Phoenix, Arizona 85040
-----------------------
(Address of principal executive offices)
(602) 414-1830
(Registrant's telephone number)
The Registrant had 22,613,562 shares of outstanding common shares as of May 4,
1998.
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___.
2
INTERNATIONAL PRECIOUS METALS CORPORATION
(A Development Stage Company)
CONTENTS
Page
PART 1. FINANCIAL INFORMATION
Item 1. Condensed Consolidated Financial Statements
Consolidated balance sheets 2
Consolidated statements of loss and deficit 3
Consolidated statements of cash flows 4
Consolidated statements of deferred mineral
exploration expenditures 5
Notes to consolidated financial statements 6-15
Item 2. Management's Discussion and Analysis of Financial
Condition and Results of Operations 16
PART II. OTHER INFORMATION
Item 1. Legal proceedings 20
Item 2. Changes in securities 20
Item 3. Defaults upon senior securities 20
Item 4. Submission of matters to a vote of security holders 20
Item 6. Exhibits and reports on Form 8-K 20
Page 1
3
INTERNATIONAL PRECIOUS METALS CORPORATION
(A Development Stage Company)
CONSOLIDATED BALANCE SHEETS
March 31, December 31,
1998 1997
------------- -------------
(Note 2(a))
ASSETS
Current assets
Cash $ 522,000 $ 668,000
Other (Note 4) 588,000 668,000
------------- -------------
Total current assets 1,110,000 1,336,000
Deferred mineral exploration
expenditures (Note 5) 38,178,000 37,891,000
Capital assets (Note 6) 874,000 1,144,000
------------- -------------
Total assets $ 40,162,000 $ 40,371,000
------------- -------------
------------- -------------
LIABILITIES
Current liabilities
Bank loan (Note 7) $ 500,000 $ 500,000
Accounts payable 1,921,000 2,324,000
Debentures (Note 8) 175,000 175,000
Deposits -- 500,000
Vehicle and equipment loans,
current portion (Note 9) 39,000 39,000
------------- -------------
Total current liabilities 2,635,000 3,538,000
Vehicle and equipment loans,
long term portion (Note 9) 101,000 111,000
------------- -------------
Total liabilities 2,736,000 3,649,000
------------- -------------
SHAREHOLDERS' EQUITY
Share capital (Notes 10 and 11) 64,285,000 62,894,000
Deficit (26,859,000) (26,172,000)
------------- -------------
37,426,000 36,722,000
------------- -------------
Total liabilities and shareholders' equity $ 40,162,000 $ 40,371,000
------------- -------------
------------- -------------
Contingencies, commitments and other
information (Notes 2, 13 and 15)
See accompanying notes.
Page 2
4
INTERNATIONAL PRECIOUS METALS CORPORATION
(A Development Stage Company)
CONSOLIDATED STATEMENTS OF LOSS AND DEFICIT
Cummulative
Three months ended from inception
March 31, March 31, July 22, 1980 to
1998 1997 March 31, 1998
------------- ------------ ----------------
Expenses
Administrative $ 621,000 $ 535,000 $13,302,000
Mineral exploration expenditures
written-off (Note 5) -- -- 12,161,000
Debenture and demand note interest 3,000 -- 358,000
Write-down on investments (Note 4) -- -- 436,000
Bad debt -- -- 180,000
Amortization 63,000 52,000 422,000
----------- ----------- -----------
Loss for the period 687,000 587,000 26,859,000
Deficit, beginning of period 26,172,000 22,705,000
----------- ----------- -----------
Deficit, end of period $26,859,000 $23,292,000 26,859,000
----------- -----------
----------- -----------
Loss per share $ 0.03 $ 0.04
----------- ----------- -----------
----------- ----------- -----------
See accompanying notes
Page 3
5
INTERNATIONAL PRECIOUS METALS CORPORATION
(A Development Stage Company)
CONSOLIDATED STATEMENTS OF CASH FLOWS
Cummulative
Three months ended inception
March 31, March 31, July 22, 1980 to
1998 1997 March 31, 1998
------------- ------------ ----------------
(Note 2 (a))
Cash from (required by):
Operating activities
Net loss for the period ($ 687,000) ($ 587,000) ($26,859,000)
Items not involving cash 63,000 50,000 14,313,000
----------- ----------- ------------
Working capital required by
operations ( 624,000) ( 537,000) (12,546,000)
----------- ----------- ------------
Changes in non-cash working capital
balances related to operations
Prepaids, deposits and sundry
receivables (19,000) (249,000) (114,000)
Accounts payable (403,000) ( 37,000) 1,801,000
----------- ----------- ------------
(422,000) (286,000) 1,687,000
----------- ----------- ------------
Cash used for mineral
exploration expenditures (287,000) (554,000) (23,592,000)
----------- ----------- ------------
Cash required by operations (1,333,000) (1,377,000) (34,451,000)
----------- ----------- ------------
Investing activities
Related parties - advances 212,000 ( 37,000) ( 185,000)
- shares (212,000) -- ( 739,000)
- proceeds from sale of shares 100,000 -- 100,000
Sale of capital assets, net 206,000 (274,000) (1,579,000)
----------- ----------- ------------
306,000 (311,000) (2,403,000)
----------- ----------- ------------
Financing activities
Shares issued for cash 1,188,000 4,753,000 36,368,000
Debentures 203,000 ( 399,000) 368,000
Deposits on share issuance (500,000) -- --
Vehicle and equipment loans (10,000) 8,000 140,000
----------- ----------- ------------
881,000 4,362,000 36,876,000
----------- ----------- ------------
Change in cash during the period (146,000) 2,674,000 22,000
Cash, beginning of period 168,000 1,930,000
----------- ----------- ------------
Cash, end of period 22,000 $4,604,000 22,000
----------- ----------- ------------
----------- ----------- ------------
Cash (indebtedness) consists of:
Cash $522,000 4,604,000
Bank loan (500,000) --
----------- -----------
$ 22,000 4,604,000
----------- -----------
----------- -----------
Supplemental Disclosures of Cash Flow Information
Cash paid during the year for interest $ 3,000
----------- -----------
See accompanying notes.
Page 4
6
INTERNATIONAL PRECIOUS METALS CORPORATION
(A Development Stage Company)
CONSOLIDATED STATEMENTS OF DEFERRED MINERAL EXPLORATION EXPENDITURES
Cummulative
From inception,
Three months ended July 22, 1980 to
1998 1997 March 31, 1998
------ ------ ----------------
(Note 2 (a))
Balance, beginning of period $37,891,000 $ 9,526,000 --
Property acquisition costs
and option payments -- -- 32,531,000
Exploration expenditures 287,000 475,000 17,808,000
----------- ----------- --------------
38,178,000 10,001,000 50,339,000
Expenditures written off -- -- 12,161,000
----------- ----------- --------------
Balance, end of period $38,178,000 $10,001,000 38,178,000
----------- ----------- --------------
----------- ----------- --------------
See accompanying notes.
Page 5
7
INTERNATIONAL PRECIOUS METALS CORPORATION
(A DEVELOPMENT STAGE COMPANY)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
The company is amalgamated under the laws of the Province of Ontario Canada.
1. PRESENTATION OF INTERIM INFORMATION
In the opinion of the management of International Precious Metals Corporation
(the "Company"), the accompanying unaudited condensed consolidated financial
statements include all normal adjustments considered necessary to present fairly
the financial position as of March 31, 1998, and cash flows and the results of
operations for the three months ended March 31, 1997 and 1998. Interim results
are not necessarily indicative of results for a full year.
The condensed consolidated financial statements and notes are presented as
permitted by Form 10-Q and do not contain certain information included in the
Company's audited financial statements and notes for the year ended December 31,
1997.
2. CONTINUATION OF BUSINESS
These consolidated financial statements have been prepared on a going concern
basis which assumes the realization of assets and the satisfaction of
liabilities and commitments in the normal course of business.
The company is a development stage corporation and as all of the company's
properties are presently in the exploration stage, the continuation of the
company as a going concern is dependent upon its ability to obtain equity
financing to permit the further exploration and development of its properties.
As well, it is the intention of the company's management to seek joint venture
partners for several of the company's properties. To achieve this end,
management engaged independent consultants to prepare detailed reports on some
of the properties and engaged them to market such properties.
The consolidated financial statements do not give effect to adjustments, if any,
that may be necessary should the company be unable to continue as a going
concern and be required to realize its assets and liquidate its liabilities in
other than the normal course of business. In this event, the amounts realized on
disposal of its assets may be substantially less than their recorded amounts.
3. FOREIGN CURRENCY TRANSLATION
Monetary assets and liabilities in foreign currencies have been translated into
U.S. dollars at the exchange rates prevailing at the balance sheet date. Other
assets and liabilities, revenue and expenses arising from foreign currency
transactions have been translated at the exchange rate prevailing at the date of
the transaction. Gains and losses arising from these translation policies are
included in income.
Page 6
8
4. OTHER ASSETS
March 31,
1998 1997
---- ----
Related parties (Note 12)
- Advances $ 55,000 $ 799,000
- Investment in common shares 343,000 299,000
Prepaids, deposits and sundry receivables 190,000 91,000
---------- ----------
$ 588,000 $1,189,000
---------- ----------
---------- ----------
The advances to related parties are unsecured and non-interest bearing. A
majority of these advances result from an allocation of overhead expenses and
the use of company personnel. It is management's intention to sell the
investments in common shares in related parties in the future. Accordingly,
advances and investment in common shares have been written-down to their
respective market values.
5. DEFERRED MINERAL EXPLORATION EXPENDITURES
BAL. EXPEND. EXPEND. BALANCE
BEG OF FOR THE WRITE OFF AS OF MARCH
PROPERTIES YEAR YEAR IN THE YEAR 31, 1998
---------- ------------ ----------- ------------
North America
-Big Trout Lake $ 276,000 $ 0 $ 0 $ 276,000
-Eagle Lake 164,000 0 0 164,000
-Black Rock 37,451,000 287,000 0 37,738,000
---------- ------------ ----------- ------------
March 31, 1998 37,891,000 287,000 0 38,178,000
---------- ------------ ----------- ------------
---------- ------------ ----------- ------------
March 31, 1997 $8,298,000 $ 30,385,000 $ 792,000 $ 37,891,000
---------- ------------ ----------- ------------
---------- ------------ ----------- ------------
From the company's inception on July 22, 1980, approximately $12,000,000 of
mineral exploration expenditures have been written-off.
(a) BIG TROUT LAKE
The property is located in northwestern Ontario, Canada. The company is party to
a platinum joint venture agreement with respect to certain of its own claims
whereunder the company's joint venture partners, Degussa A.G. ("Degussa") and
Jenkim Holdings (Canada) Ltd. ("Jenkim"), earned a 60% interest in the claims by
making contributions to the joint venture to December 31, 1989. In 1991, Degussa
withdrew from the joint venture, thereby forfeiting its 27% interest in the
joint venture properties. As at December 31, 1997, the company exercises joint
control of the property. No joint venture company is in place owning the
property and as such all joint venture partners own their respective shares in
the properties directly. In 1997, management has written-off a portion of the
deferred mineral exploration
Page 7
9
expenditures in response to current survey reports and budgets for the property.
(b) EAGLE LAKE
The property is located in northwestern Ontario, Canada and the claims are held
directly by the company. In 1997, management have written-off a portion of the
deferred mineral exploration expenditures in response to current survey reports
and budgets for the property.
(d) BLACK ROCK AND BLACK ROCK EXTENDED (THE "BLACK ROCK PROPERTY")
The Black Rock property is located 92 miles west of Phoenix, Arizona.
During the year, the company renegotiated its agreement with Phoenix
International Mining Corporation ("Phoenix") pertaining to the acquisition of
the rights to the Black Rock property.
On May 9, 1997, the company entered into an agreement (the "Property Purchase
Agreement") with Omega Investment Corporation ("Omega"), the assignee of
Phoenix's rights to the Black Rock Property, pursuant to which the company
agreed to pay an aggregate of $27,000,000 to Omega to acquire the balance of the
interest in the Black Rock Property. The $27,000,000 purchase price was to have
been satisfied by the issuance of 1,000,000 common shares valued at $10.00 per
share and cash payment of $17,000,000. As security for the payment of the
balance of the purchase price to Omega, the company issued 3,000,000 common
shares to Omega, which shares were held in escrow pending payment by the company
of the balance of the purchase price (the "Escrow Shares"). The company has paid
an aggregate of $800,000 in cash to Omega on account of the purchase price and
pursuant to the Property Purchase Agreement. The company's wholly owned
subsidiary, International Precious Metals Corporation of Arizona ("IPMA") was
also a party to the Property Purchase Agreement solely for the purpose of
holding title to the Black Rock Property.
The company and Omega amended the Property Purchase Agreement by agreement dated
July 29, 1997 (the "Amended Agreement"), pursuant to which the payment date for
the balance of the Black Rock property was extended from July 15, 1997 to
October 15, 1997. As consideration for the amendment, the company agreed to pay
to Omega the sum of $5,000 per day for the period subsequent to July 15, 1997
and the issuance of 500 common shares per day for the period from July 15, 1997
to August 15, 1997, the issuance of 1,000 common shares per day for the period
from August 16, 1997 to September 15, 1997, and 1,500 common shares per day for
the period from September 16, 1997 to October 15, 1997 (an aggregate of 91,500
common shares and $845,000 cash for the period ended December 31, 1997).
The company was unable to meet its payment obligations to pay the balance of the
cash purchase price owing to Omega. On December 3, 1997, the company issued to
Omega 91,500 common shares being the number of shares owing to Omega to October
15, 1997, under the Amended Agreement. These shares were recorded to share
capital for the year and are part of the satisfaction of the purchase price.
Finally, on March 11, 1998, the company and Omega entered in a new letter
agreement (the "Letter Agreement") pursuant to which the company completed the
acquisition of a 100% interest in the Black Rock Property.
Page 8
10
Pursuant to the Letter Agreement the company will:
a) Pay to Omega $1,000,000 upon the exercise of the 1,000,000 warrants which
are presently outstanding providing the warrant holders with the right to
purchase 1,000,000 common shares of the company at any time prior to
December 3, 1998 at $1.25 per common share. If the company does not pay
Omega the $1,000,000 on or prior to December 15, 1998, then such amount
will bear interest at the prime rate charged by the company's bankers in
Phoenix, Arizona plus 2%. The company will issue a promissory note to
Omega to reflect such terms. As at December 31, 1997 the $1,000,000 has
been recorded in accounts payable and is included as part of the purchase
price.
b) Release to Omega of all rights of the company to the "Escrow Shares". The
"Escrow shares" are subject to restrictions on their resale until June,
1999. These shares are recorded in share capital for the year and are part
of the satisfaction of the purchase price.
c) Grant to Omega a 1 1/2% net smelter royalty interest in the Black Rock
Property.
d) Diligently pursue the development of the Black Rock Property, provided that
there exists the economic merits of pursuing same. Further, in the event
that Omega has reasonable grounds to believe that the company is not
diligently pursuing development of the properties and can successfully
establish this to an arbitrator, then the company will be deemed to have
abandoned the Black Rock Property and ownership will revert back to Omega.
e) Provide evidence to Omega on or prior to August 1 of each year that the
company has paid or will be paying the maintenance fees owing to the U.S.
Department of Interior, Bureau of Land Management in order to maintain the
claims which comprise the Black Rock Property in good standing.
6. CAPITAL ASSETS
Net
Accumulated ------------------------
Cost amortization March 31,
1998 1997
----------- ----------- ----------- -----------
Machinery and equipment $ 522,000 $ 168,000 $ 354,000 $ 363,000
Field Vehicles 172,000 58,000 114,000 290,000
Office equipment and fixtures 566,000 159,000 407,000 305,000
----------- ----------- ----------- -----------
$ 1,260,000 $ 385,000 $ 875,000 $ 958,000
----------- ----------- ----------- -----------
----------- ----------- ----------- -----------
7. BANK LOAN
The bank loan bears interest at 7.5% per annum and is secured by certain cash
balances.
Page 9
11
8. DEBENTURES
The debentures are repayable for CDN $250,000 on demand and bear interest at
Canadian prime rate less 2%.
On dates between January 1, 1998 and February 16, 1998, the company issued
$200,000 of 9% senior convertible debentures due on January 31, 2001 with a
conversion price equal to the lower of : 110% of the company's share price at
the date of debenture issuance; and 80% of the company's share price for the 5
trading days prior to date of conversion. On March 25, 1998, the company
received a conversion request for the debenture. It was converted at $200,000
plus interest of $3,000 for a total of 563,799 shares.
9. VEHICLE AND EQUIPMENT LOANS
March 31,
1998 1997
--------- ---------
Surveying and field equipment loans, repayable
monthly at $975 principal and interest at 21.5%
per annum, due January 2001 $ 25,000 $ 26,000
Field vehicle and equipment loans, repayable
monthly at $2,706 principal plus interest at 7%
per annum, due October 2001 115,000 124,000
Field vehicle loans, other 0 0
--------- ---------
$ 140,000 $ 150,000
Current portion 39,000 39,000
--------- ---------
$ 101,000 $ 111,000
--------- ---------
--------- ---------
The loans are secured by the related vehicles and equipment.
10. SHARE CAPITAL
On January 13, 1998 the company completed a private placement of 1,000,000
units, with each unit consisting of one common share and one warrant to purchase
a common share at $1.25 prior to the close of business on December 3, 1998, for
aggregate proceeds of $1,250,000. Subsequently, 50,000 of these shares are being
returned to the company for cancellation.
11. SHARE OPTIONS AND WARRANTS
(a) STOCK OPTIONS
Under the terms of the Employee Stock Option Plan (the "Plan"), the Company may
issue options to eligible employees to purchase an aggregate of 2,400,000 common
shares of the Company at prices not lower than the market price of the shares at
the date prior to the grant.
Page 10
12
Options outstanding at March 31, 1998 expire at various dates from March 3, 1999
to October 22, 2002
(c) Warrants
Warrants issued in 1996 providing the right to purchase 930,000 common shares at
a price of $6.00 per common share remain outstanding with an expiry date of May
1, 1998. During the year an additional 25,000 warrants were exercised at $4.40
per share however, these exercised shares were returned to the company
subsequent to the year end.
12. RELATED PARTY TRANSACTIONS
Other assets from related parties relate to amounts from corporations which have
senior management in common with the company (see Note 4).
In addition to items disclosed separately in the financial statements, the
following transactions took place in the normal course of business with related
parties. These transactions are measured at the exchange amount, which is the
amount of consideration established and agreed to by the related parties.
(a) During the three months ended March 31, 1998, the company incurred legal and
secretarial fees provided by directors and senior officers of the company
amounting to $21,000 (1997 - $18,000). These fees have been charged to
administrative expenses.
(b) During the three months ended March 31, 1998, consulting fees were charged
by directors and senior officers of the company amounting to $180,000 (1997 -
$72,000). Of the total fees, $65,000 (1997 - $51,000) has been charged to
administrative expenses and $115,000 (1997 - $20,000) pertaining to time spent
overseeing the Black Rock exploration has been included in the company's
deferred mineral exploration expenditures.
13. CONTINGENCIES AND COMMITMENTS
(a) RECOVERY OF DEFERRED MINERAL EXPLORATION EXPENDITURES
The recoverability of deferred expenditures is dependent upon various factors,
including the existence of economically recoverable reserves, the ability to
obtain the necessary financing to complete development of future profitable
operations or profitable disposal of the properties. Pending the profitable
operation or disposal of a property, cash requirements must be provided by
future debt or equity financings.
(b) MINIMUM PROPERTY COMMITMENTS
Page 11
13
In order to keep its property leases in good order, the company is committed to
the following amounts:
2001 and
1998 1999 2000 subsequent years
-------- -------- -------- ----------------
Black Rock $150,000 $150,000 $150,000 $150,000
Eagle Lake 75,000 75,000 75,000 75,000
Big Trout Lake 65,000 65,000 65,000 65,000
-------- -------- -------- --------
$290,000 $290,000 $290,000 $290,000
-------- -------- -------- --------
-------- -------- -------- --------
Additionally, the company leases office and warehouse premises under leases
expiring up to the year 2005 at an annual base rental of approximately $150,000.
14. SEGMENTED INFORMATION
The company's major activity relates to the exploration for precious metal
(gold, silver and platinum) in the United States of America and Canada. Below
are details of the company's mineral expenditures and identifiable assets
segregated according to the country where the expenditure was incurred or the
asset is situate, as the case may be:
United States Canada
------------- ------
Three months ended March 31, 1998:
Mineral expenditures $ 287,000 $ 0
Identifiable assets $39,702,000 $ 440,000
Year ended 1997:
Mineral expenditures $30,236,000 $ 149,000
Identifiable assets $39,931,000 $ 440,000
Year ended 1996:
Mineral expenditures $ 2,412,000 $ 64,000
Identifiable assets $10,918,000 $1,040,000
15. LEGAL PROCEEDINGS
The company is in receipt of a demand letter seeking payment of the sum of
$2,500,000 pursuant to a performance agreement the company signed to purchase a
certain assay methodology and a claim for unauthorized appropriation of
proprietary technology. The company believes the methodology has not been proven
by third party verification and that it has developed its own methodology which
is independent and is based on a different technology. At this time it is
unknown if additional amounts, if any, are payable pursuant to this demand
letter.
Page 12
14
MG Gold Corporation is claiming the sum of $50,000 plus interest with respect to
monies provided to the company. The company disputes this debt. It is the
company's position that MG Gold Corporation owes IPM the sum of $242,000.
16. OTHER INFORMATION
(a) Nasdaq Delisting
During 1997, the company was the subject of several inquiries by The Nasdaq
Stock Market, Inc. ("Nasdaq"), the United States Securities and Exchange
Commission and the Arizona Corporation Commission. The company was asked to
voluntarily provide certain information and documentation to questions raised by
each regulatory authority. The company voluntarily provided each regulatory
authority with the information and documentation requested, and to date, no
further inquiry has been made except as noted below.
On February 11, 1998, the company received a Notice stating that Nasdaq staff
had determined that the company no longer qualified for continued listing on the
Nasdaq SmallCap Market. The company requested and was granted a hearing before
an independent panel to review the determination of the
Nasdaq staff. The hearing was held on March 19, 1998, and on April 16, 1998, the
company was delisted from the Nasdaq SmallCap Market. The company has submitted
the notice to appeal the decision.
(b) Fair Value
The fair value of the company's financial instruments such as sundry
receivables, bank loan, accounts payable, vehicle and equipment loans, deposits
payable and debentures is approximated by its carrying value.
17. DIFFERENCES BETWEEN ACCOUNTING PRINCIPLES GENERALLY ACCEPTED IN THE UNITED
STATES AND THOSE IN CANADA
The financial statements are prepared in accordance with accounting principles
generally accepted in the United States. In these financial statements, the
major differences between accounting principles generally accepted in the United
States ("U.S. GAAP") and those in Canada ("Canadian GAAP") are as follows:
a) The company follows the practice of charging share issue costs to the share
capital account. Under Canadian GAAP, such costs can be charged to the deficit
account. Although this difference does not affect net shareholders' equity,
under Canadian GAAP the company's share capital and deficit account would be
increased as indicated below.
b) The Company follows the practice of accounting for the premium on
flow-through shares as a reduction of deferred mineral exploration expenditures.
Canadian GAAP would allow the premium to be recorded as a deferred credit which
is written-off or amortized as the related project expenditures, on which the
flow through funds were expended, are written-off or amortized. Although this
difference does not affect net loss, the deferred premium on flow-through shares
would be recorded and deferred mineral exploration expenditures would be
increased as indicated below.
c) A business combination in 1986 was accounted for using the pooling of
interests method of accounting. Under Canadian GAAP, this business combination
would have been accounted for using the purchase method. This difference does
Page 13
15
not affect net loss for the years ended 1997, 1996 and 1995. The deferred
exploration expenditures would have been increased by $442,000 as at December
31, 1997 and 1996, the Company's share capital account would have been increased
by $493,000 as at December 31, 1997 and 1996.
d) Canadian GAAP allows the practice of deferral of period costs such as certain
administrative expenses. This difference would have decreased the net loss by
$212,000 for the year ended December 31, 1995 and decreased deficit and
increased deferred exploration expenditures by $447,000 as at December 31, 1996
and 1997. This difference does not affect net loss for the years ended December
31, 1997 and 1996.
The effect of these differences on the financial statements is as follows:
(a) Balance sheet: March 31, December 31,
1998 1997
------------ ------------
Deferred mineral exploration expenditures
Under U.S. GAAP $ 38,178,000 $ 37,891,000
Premium on flow-through shares - b) above 339,000 339,000
Pooling - c) above 442,000 442,000
Period costs - d) above 447,000 447,000
------------ ------------
Under Canadian GAAP $ 39,406,000 $ 39,119,000
------------ ------------
------------ ------------
Deferred premium on flow-through shares
Under U.S. GAAP $ 0 $ 0
Applied to deferred mineral
exploration expenditures - b) above 339,000 339,000
------------ ------------
Under Canadian GAAP $ 339,000 $ 339,000
------------ ------------
------------ ------------
Share capital
Under U.S. GAAP $ 64,285,000 $ 62,894,000
Share issue costs - a) above 2,159,000 2,159,000
Pooling - c) above 493,000 493,000
------------ ------------
Under Canadian GAAP $ 66,937,000 $ 65,546,000
------------ ------------
------------ ------------
Deficit
Under U.S. GAAP $ 26,859,000 $ 26,172,000
Share issue costs - a) above 2,159,000 2,159,000
Pooling - c) above 51,000 51,000
Period costs - d) above (447,000) (447,000)
------------ ------------
Under Canadian GAAP $ 28,622,000 $ 27,935,000
------------ ------------
------------ ------------
Page 14
16
18. DIFFERENCES BETWEEN ACCOUNTING PRINCIPLES GENERALLY ACCEPTED IN THE UNITED
STATES AND THOSE IN CANADA (CONTINUED)
(b) Statement of loss and deficit
Cummulative
March 31, Year ended December 31, from inception
1998 1997 1996 July 22, 1980 to
March 31, 1998
------------ ------------ ------------- --------------
Net loss for the period
under U.S. GAAP $ 687,000 $ 4,840,000 $ 1,399,000 $ 26,859,000
Pooling adjustment
c) above 0 0 0 51,000
Period cost adjustment
(d) above 0 0 0 (447,000)
------------ ------------ ------------ -------------
Net loss for the period
under Canadian GAAP $ 687,000 $ 4,840,000 $ 1,399,000 $ 26,463,000
------------ ------------ ------------ ------------
------------ ------------ ------------ ------------
Loss per share
under Canadian GAAP $ 0.03 $ 0.27 $ 0.11
------- ------- -------
------- ------- -------
Page 15
17
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS
The following discussion should be read in conjunction with the Company's
Consolidated Financial Statements and Notes thereto, included elsewhere herein.
LIQUIDITY, CAPITAL RESOURCES AND LIMITED OPERATIONS
From inception, July 22, 1980, to the end of 1986, the sole activity of
International Precious Metals Corporation ("the company" or "IPM") has been
related to the exploration for and investigation of precious metal deposits in
Canada and the United States. In early 1987, the Company entered into an
agreement to participate in an oil exploration program in the State of Illinois;
in June 1987, the resulting oil wells commenced production and the Company
realized its first operating revenues. The Company has financed virtually all of
its exploration activities through various equity financings, which continue to
be the Company's major source of capital. Interest income realized from excess
cash balances has been applied to the Company's administrative costs.
Exploration for precious metals continues to be the Company's major activity.
The Company acquires its interests in various properties either by its own
grass-roots exploration efforts, or by participation in the exploration of
properties owned by others, in which case the Company may earn an interest in
the properties by the expenditure of its funds on the properties or by making
payments or issuing its shares to the property owner. Conversely, the Company
may allow others to earn an interest in its properties by the expenditure of
their funds on the exploration of the Company's properties.
Pursuant to a letter agreement dated March 11, 1998 between Omega and
the Company, the Company is required to make a payment to Omega of $1,000,000.00
upon the exercise of the 1,000,000 warrants, providing the warrant holders with
the right to purchase 1,000,000 common shares of IPM at any time prior to
December 3, 1998, at $1.25 per common share. If IPM does not pay Omega the
$1,000,000.00 on or prior to December 15, 1998, then such amount will bear
interest at the prime rate charged by IPM's bankers in Phoenix, Arizona, plus
2%. IPM will issue a promissory note to reflect this debt obligation.
From inception, July 22, 1980, to December 31, 1997, the Company raised
gross proceeds of $35,180,000 through the issue of its common shares. In
addition, $950,000 was raised by the sale of convertible debentures in 1990 and
1998. Of these amounts, approximately $23,305,000 has been expended on
exploration and development activities.
On dates between January 1, 1998 and February 16, 1998, the Company
issued $200,000 of 9% convertible debentures due on January 31, 2001 with a
conversion price equal to the lower of: 110% of the Company's shares price at
the date of debenture issuance; and 80% of the Company's share price for the 5
trading days prior to date of conversion. On March 25, 1998, the Company
received a conversion request for the debenture. It was converted at $200,000
plus interest of $3,000 for a total of 563,799 shares.
In the three months ended March 31, 1998, proceeds from shares issued
totaled $1,250,000 (of which 50,000 shares with a value of $62,500 are being
returned to the company) and exploration activities resulted in expenditures of
$287,000. At March 31, 1998 the company had cash resources of approximately
$522,000, of which $500,000 is collateral for a bank loan.
Since all of the Company properties are presently in the exploration
stage, the continuation of the Company is dependent on its ability to obtain
equity financing to permit the further exploration and development of its
properties.
On February 11, 1998, the company received a Notice stating that Nasdaq
staff had determined that the company no longer qualified for continued listing
on the Nasdaq SmallCap Market. The company requested and was granted a hearing
before an independent panel to review the determination of the
Page 16
18
Nasdaq staff. The hearing was held on March 19, 1998, and on April 16, 1998, the
company was delisted from the Nasdaq SmallCap Market. The company has submitted
the notice to appeal the decision.
In 1997, proceeds from shares issued totaled $5,609,000 and exploration
activities resulted in expenditures of $5,185,000. At December 31, 1997, the
Company had cash resources of approximately $668,000, of which $500,000 is
collateral for a bank loan.
Of the 22,613,562 common shares of the Company outstanding on May 4,
1998, 459,473 were "flow-through" shares. "Flow-through" shares are common
shares of the Company issued to investors under the terms of agreements which
provide that the funds received will be expended on Canadian Explorations
Expenditures ("CEE"), as defined in the Income Tax Act Canada, and that
unexpended funds will be held in trust. The CEE so incurred are deductible for
income tax purposes only by the shareholder and, accordingly, are not available
to the Company. (See Note 8 of Notes to Financial Statements of the Company
contained herein.)
During 1996, the company purchased 85,000 common shares of Namibian
Copper Mines, Inc. ("Namibian") at $3.50 per common share. The company invested
in Namibian with a view to expanding its exploration interest. Both Alan Doyle,
a director and chairman of the board of the company, and Bill Allred, formerly
the Chief Financial Officer of the company, are directors, officers and
shareholders of Namibian. Additionally, during 1997, the company made
non-interest bearing loans to Namibian to cover the operating office expenses of
Namibian, including the partial salaries of employees of the company. Namibian
utilized employees of the company to carry out normal technical and financial
duties, with the allocation of expenses associated with such functions accrued
over time. All monies accrued under this arrangement, being the sum of $372,000,
were converted into 1,072,990 common shares of Namibian. During the first
quarter of 1998, all of the company's interest in Namibian was sold for an
aggregate consideration of $100,000.
During 1996 and 1997, the company advanced monies to MG Gold
Corporation ("MG Gold") totalling $292,000 (the "Loan"). Additionally, during
1997, the company made non-interest bearing loans to MG Gold to cover the
operating office expenses of MG, including the partial salaries of employees of
the company to carry out normal technical and financial duties, with the
allocation of expenses associated with such functions accrued over time. Both Le
Furlong, formerly a director, president and chief executive officer of the
company, and Paul Mentzer, formerly the vice president, operations of the
company, are directors, officers and shareholders of MG Gold. The monies accrued
under this arrangement, being the sum of $344,000, were converted into an
aggregate of 1,160,000 common shares of MG Gold (840,000 common shares at $0.25
per common share and 320,000 common shares at $0.32 per common share). MG Gold
repaid the sum of $50,000 owing to IPM during 1997, on account of the Loan and
to date MG Gold still owes the sum of $242,000. MG Gold disputes the balance
owing and is claiming that the $50,000 paid to IPM by MG gold was a loan by MG
Gold to Ipm and not a repayment of amounts owing by MG Gold to IPM. MG Gold
maintains that IPM converted the entirety of the Loan into 300,000 common shares
of MG Gold at $1.00 per common share. The company rejects this position and
maintains that the company never accepted any shares in lieu of such payment.
The Company has an outstanding debenture in the amount of $175,000.
RESULTS OF OPERATIONS
Page 17
19
1997 Compared to 1996
The loss for 1997 of $4,840,000 was larger than the loss for 1996 of
$1,399,000 due primarily to an increase in administrative expenses, the writing
off of mineral exploration expenditures on the Company properties amounting to
$792,000, and the write down on investments of $436,000. The administrative
expenses were larger due in part to an expansion of the assay recovery process,
moving to a new location, and increased legal costs.
During 1997, the Company: (i) issued 1,865,000 common shares for cash
on exercise of warrants at prices ranging from $1.20 to $4.40 per share,
resulting in proceeds of $4,978,000; (ii) issued 233,950 common shares pursuant
to the exercise of options at prices ranging from $1.05 to $4.50 per share for
cash consideration of $631,000; (iii) issued 1,000,000 common shares under
private placements with respect to the purchase price of the "Black Rock
Properties" at $10.00 per share; (iv) issued 3,000,000 common shares under
private placement, originally as security with respect to the purchase of "Black
Rock Properties" and amended to be released as satisfaction of the payment of
the balance of the property price at $5.40 per share; (v) and issued 91,500
under private placement with respect to the purchase of the "Black Rock
Properties" at prices ranging from $4.80 to $6.40 per share.
Working capital decreased to a deficit of $2,202,000 in 1997 from a
surplus of $1,872,000 in 1996 principally because of an increase in accounts
payable at December 31, 1997.
During 1997, the Company repaid the balance of $400,000 of debentures
issued to Phoenix in 1995.
1996 Compared to 1995
The loss for 1996 of $1,916,000 was smaller than the loss for 1995 of
$3,059,000 due primarily to the write off in 1995 of exploration costs of
$1,788,000, offset in part by an increase in administrative expenses in 1996.
During 1996, the Company: (i) issued 2,484,000 common shares under
private placements ranging from $3.00 to $3.45 per share, resulting in proceeds
of $8,244,000; (ii) issued 2,103,000 common shares pursuant to the exercise of
warrants at prices ranging from $1.00 to $3.80 per share for cash consideration
of $3,004,000; (iii) issued 336,000 common shares under private placements and
pursuant to the exercise of warrants at prices ranging from $1.20 to $3.00 per
share for consideration of $792,000 to retire debentures and interest; (iv)
issued 424,475 common shares pursuant to the exercise of options at prices
ranging from $1.45 to $3.28 per share for cash consideration of $773,000, and
15,834 common shares at prices ranging from $1.45 to $2.50 per share pursuant to
the exercise of options for services valued at $27,000; and issued warrants
providing the right to purchase 2,700,000 common shares at prices ranging from
$2.82 to $4.40 per share in connection with the private placements.
Working capital increased to $2,564,000 in 1996 from a deficit of
$3,818,000 in 1995 principally because of the issuance of securities.
Page 18
20
During 1996, the Company repaid $2,000,000 of debentures of a total of
$2,400,000 of debentures issued to Phoenix in 1995.
1995 Compared to 1994
The loss of $3,059,000 for 1995 was larger than the loss of $1,855,000
for 1994 due to the write off in 1995 of exploration costs of $1,788,000, offset
in part by a decrease in administrative expenses in 1995.
On April 13, 1995, the Company renegotiated an option agreement with
Phoenix extending to 15 square miles the claims optioned to the Company at the
Black Rock Property, and issued to Phoenix debentures totaling US$2,400,000.
(See Items 1 and 2 -- Business and Properties.)
In addition, during 1995, the Company: (i) issued 1,700,000 common
shares under private placements at prices ranging from $1.35 to $2.00 per share
for cash consideration of $2,869,000; (ii) issued 5,000 common shares upon the
exercise of options at a price of $2.12 per share for cash consideration of
$10,600 and 495,098 common shares upon the exercise of options at prices ranging
from $0.84 to $3.28 per share for services valued at $1,083,000; and (iii)
issued 77,000 common shares on exercise of warrants at prices ranging from $1.20
to $1.35 per share for cash consideration of $98,000.
During January 1995 the Board decided to centralize the Company's
accounting and administration in North America. This decision resulted in the
closure of the Australian accounting and administrative office and caused the
Company to incur certain costs associated with the relocation of the Company's
accounting administration office to Phoenix, Arizona and Toronto, Canada.
Major items included in administrative expenses were consulting fees of
approximately $450,000, professional fees of approximately $200,000 and travel
and promotion costs of approximately $200,000. The decrease in administrative
costs to $1,198,000 in 1995, as compared to $1,566,000 in 1994, was due
primarily to the closing of the Australian office.
IMPACT OF INFLATION ON THE COMPANY
The Company has no control over the prices of the products in which it
deals, i.e. precious metals. The prices of these commodities are determined by
world markets and are subject to volatile fluctuation over short periods of
time.
To date, the major impact of inflation on the Company has been with
respect to costs which have increased moderately in recent years in North
America, where most of the Company's activities take place.
PART II. OTHER INFORMATION
Item 1. LEGAL PROCEEDINGS
The company is in receipt of a demand letter seeking payment of the sum of
$2,500,000 pursuant to a performance agreement the company signed to purchase a
certain assay methodology and a claim for unauthorized appropriation of
proprietary technology. The company believes the methodology has not been proven
by third party verification and that it has developed its own
Page 19
21
methodology which is independent and is based on a different technology. At this
time it is unknown if additional amounts, if any, are payable pursuant to this
demand letter.
Item 2. CHANGES IN SECURITIES
There have been no changes in securities for the three months ended March 31,
1998.
Item 3. DEFAULTS UPON SENIOR SECURITIES
There have been no defaults upon senior securities for the three months ended
March 31, 1998.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
There have been no submissions of matters to a vote of security holders for the
three months ended March 31, 1998.
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K
There have been no exhibits to attach to this report nor have there been any
filings on Form 8-K for the three months ended March 31, 1998.
Page 20