ITEM 1. BUSINESS
The Corporation
ICHOR Corporation was incorporated in July 1994 pursuant to the laws of the Commonwealth of Pennsylvania under the name "PDG Remediation, Inc.". In November 1996, the Corporation reincorporated under the laws of the State of Delaware and changed its name to "ICHOR Corporation". In this document, unless the context otherwise requires, the "Corporation" refers to ICHOR Corporation and its subsidiaries.
Development of the Corporation
From its inception to December 1997, the Corporation operated in the environmental services business. The Corporation's initial operations included a thermal treatment facility in Florida and remediation services offices in Florida and Pennsylvania. In December 1996, the Corporation acquired a waste oil recycling facility in Illinois.
The Corporation completed its initial public offering in February 1995. In July 1996, Drummond Financial Corporation ("Drummond") acquired a 59.5% interest in the Corporation from PDG Environmental, Inc. In December 1996, the Corporation issued approximately 50.3% of the Corporation's common stock to TriMaine Holdings, Inc. ("TriMaine") (previously Logan International Corp.) as partial consideration for a loan receivable through which the Corporation acquired its waste oil recycling facility. TriMaine and Drummond are controlled by MFC Bancorp Ltd. ("MFC").
In response to changes in the Florida market, the Corporation closed certain remediation services offices and sold certain remediation facilities in 1995 and 1996. The Corporation sold the balance of its remediation services operations in April 1997 and its waste oil recycling facility in December 1997. In March 1998, the Corporation sold its wholly-owned subsidiary, ICHOR Services, Inc. ("Services"). In 1998, following the sale of Services, ICHOR provided consulting services to an industrial customer in Europe.
In the first quarter of 1998, the Corporation completed the issuance of an aggregate of 467,500 shares of 5% Cumulative Redeemable Convertible Preferred Stock, Series 1 of the Corporation to affiliates of MFC. In December 1998, Drummond and Logan transferred all of their shares of common stock of the Corporation to a wholly-owned subsidiary of MFC. In the last quarter of 1999 the Corporation completed the issuance of an aggregate of 97,206 shares of 5% Cumulative Redeemable Convertible Preferred Stock, Series 2 of the Corporation to Drummond in consideration of a debt forgiveness of $972,060. For further information with respect to this transaction, including the Debt Settlement Agreement between Drummond and the Corporation dated November 30, 1999, see the Corporation's Form 8-K dated December 7, 1999.
On February 8, 2000, the Corporation's securities were delisted from the Nasdaq SmallCap Market for failure to meet listing qualifications. For further information with respect to such matter see the Corporation's Form 8-K dated February 9, 2000.
Current Business
In October, 1998, the Company entered into an agreement (the "Original Purchase Agreement") with the shareholders of Nazca Holdings Ltd. ("Nazca") to acquire all of the issued and outstanding shares of Nazca. Effective June 30, 1999, the Corporation and the former majority shareholders of Nazca entered into a revised agreement (the "Revised Agreement"), pursuant to which, the Original Purchase Agreement was replaced and the Corporation acquired approximately 87% of the issued and outstanding shares of common stock of Nazca.
Nazca, through a subsidiary, is in the business of the exploration for and development of ground water resources in Chile. Chile is divided into seven regions (referred to herein as "Regions I - VII") having separate regimes dealing with the grant and administration of Water Rights ("Water Rights"). Nazca completed a hydrogeological reconnaissance of Regions I and II in 1995 and 1996. Nazca's hydrogeological reconnaissance of Regions III - VII is currently ongoing. Nazca, through a subsidiary company, has applied for a number of exploration concessions (each a "Concession") and has been granted three Concessions to date and expects to be granted one additional Concession in the near future.
Exploration and development work is continuing with respect to Concessions having a potential production capacity of 1,300 litres/ second, with the objective of establishing perpetual Water Rights and supplying ground water to customers under long term supply agreements. A Water Right provides the holder a perpetual right to sell the amount of water flow (calculated in litres/second) from the Well which the Water Right pertains to. Following application, it can take up to two years for a Water Right to be granted. Following the grant of Water Rights, water may be legally sold by the holder thereof. To complete delivery of a water resource to an end-user, construction of a pumping station and piping to transmit the water must be completed, following which production and sales of water may commence. An alternative available to Nazca is to sell Water Rights after they are obtained rather than proceeding with the development of an operating utility. To date, applications for Water Rights for 57 litres/second of flow have been applied for by Nazca and are outstanding with the Direccion General de Aquas of Chile.
In connection with the Revised Agreement, the Corporation granted options in favour of certain former shareholders of Nazca, allowing them to repurchase shares of Nazca common stock sold to the Corporation in certain circumstances. In December of 1999, two former shareholders of Nazca purported to exercise their options to repurchase approximately 38% of Nazca's common stock. The Corporation believes the attempted exercise of the former shareholders' options to be invalid as certain conditions required to be met prior to exercise were not satisfied. However, as a result of the dispute the Corporation has accounted for its interest in Nazca on an equity accounting basis after having given effect to the purported option exercise.
At December 31, 1999, the Corporation had no employees.
ITEM 2.
ITEM 2. PROPERTIES
The Corporation's administrative facilities are located on leased premises located in Vancouver, British Columbia, Canada.
ITEM 3.
ITEM 3. LEGAL PROCEEDINGS
The Corporation is subject to routine litigation incidental to its business. The Corporation does not believe that the outcome of such litigation will have a material adverse effect on its business or financial condition.
ITEM 4.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
Not applicable.
PART II -------
ITEM 5.
ITEM 5. MARKET FOR REGISTRANT'S COMMON EQUITY AND RELATED STOCKHOLDER MATTERS
(a) Market Information. The Corporation's common stock were quoted on the NASDAQ SmallCap Market under the trading symbol "ICHR" until February 8, 2000 when the Corporation's securities were delisted from The Nasdaq Stock Market. The following table sets forth the quarterly high and low sale price per share of the Corporation's common stock for the periods indicated:
Fiscal Quarter Ended High Low - - -------------------- ---- ----
March 31 $ 1.75 $ 1.25 June 30 2.00 1.25 September 30 2.25 1.25 December 31 3.25 1.25
March 31 $ 2.88 $ 1.25 June 30 3.25 1.50 September 30 4.63 1.00 December 31 5.00 2.00
(b) Shareholders. At March 27, 2000, the Corporation had approximately 15 holders of record of its common stock, some of which are securities clearing agencies and intermediaries.
(c) Dividends. The Corporation has not paid any dividends on its common stock and does not anticipate that it will pay any dividends in the foreseeable future.
ITEM 6.
ITEM 6. SELECTED FINANCIAL DATA
The following table reflects selected consolidated financial data for the Corporation for the fiscal years ended December 31, 1999, 1998 and 1997, respectively, the 11 months ended December 31, 1996 and the fiscal year ended January 31, 1996. In September 1996, the Corporation changed its fiscal year end from January 31 to December 31.
ITEM 7.
ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
The following discussion and analysis of the results of operations and financial condition of the Corporation for the years ended December 31, 1999, 1998 and 1997, respectively, should be read in conjunction with the Corporation's audited consolidated financial statements and related notes included elsewhere herein. .
The Corporation sold its environmental remediation services operations in April 1997 and a waste oil recycling facility in December 1997. These operations have been accounted for as discontinued operations for the year ended December 31, 1997. Certain reclassifications have been made to the prior periods' financial statements to conform to the current period's method of presentation.
Results of Operations for the Year Ended December 31, 1999 Compared to the Year Ended December 31, 1998
Revenues for the year ended December 31, 1999 decreased to $0.2 million, from $0.7 million for the comparative period of 1998 primarily as a result of the sale by the Corporation of Ichor Services, Inc. ("Services"), a wholly-owned subsidiary of the Corporation, in the first quarter of 1998 which was reported as a gain on disposal of a subsidiary in 1998.
Costs and expenses decreased to $0.7 million in the year ended December 31, 1999 from $0.9 million in the year ended December 31, 1998 primarily as a result of a decrease in general and administrative expenses resulting from the sale of Services and lower head office expenses, partially offset by an equity loss related to Nazca. In the year ended December 31, 1998, the Corporation had accrued $0.3 million in settlement of a class action lawsuit. Interest expense increased to $0.2 million in the year ended December 31, 1999 from $0.1 million in the year ended December 31, 1998 primarily as a result of interest paid on an amount owing under a line of credit with an affiliate. General and administrative expenses for the year ended December 31, 1999 decreased to $0.4 million from $0.5 million in the comparative period of 1998, primarily as a result of a decrease in employees of the Corporation.
The Corporation reported a net loss of $0.5 million, or $0.14 per share, in the year ended December 31, 1999. In the year ended December 31, 1998, the Corporation reported a net loss of $0.2 million, or $0.08 per share.
Results of Operations for the Year Ended December 31, 1998 Compared to the Year Ended December 31, 1997
Revenues for the year ended December 31, 1998 increased to $0.7 million, from $6,000 for the comparative period of 1997. In the year ended December 31, 1998, the Corporation reported income of $0.1 million from consulting fees. Effective March 31, 1998, the Corporation sold Services and recognized a non-cash accounting gain of $0.4 million on the sale as a result of the disposal of net liabilities of Services.
Costs and expenses decreased to $0.9 million in the year ended December 31, 1998 from $1.0 million in the year ended December 31, 1997. Interest expense decreased to $0.1 million in the year ended December 31, 1998 from $0.6 million in the year ended December 31, 1997, primarily as a result of the sale of Services in the first quarter of 1998, which had financed certain receivables for work performed under certain Florida State rehabilitation programs. General and administrative expenses for the year ended December 31, 1998 increased to $0.5 million from $0.4 million in the comparative period of 1997, primarily as a result of an increase in professional fees.
In the year ended December 31, 1998, the Corporation paid $0.3 million in settlement of a class action lawsuit.
The Corporation reported a net loss of $0.2 million, or $0.08 per share, in the year ended December 31, 1998. In the year ended December 31, 1997, the Corporation reported a net loss of $4.1 million, or $0.83 per share, which included a loss of $3.0 million, or $0.62 per share, from discontinued operations.
Liquidity and Capital Resources
The Corporation had cash of $2.3 million at December 31, 1999, compared to $50,000 at December 31, 1998. The Corporation maintains a line of credit with an affiliate in the amount of $0.8 million to fund working capital requirements. The line of credit was fully utilized and repaid by the issuance of preferred stock as at December 31, 1999.
Net cash provided by operating activities was $0.6 million in the year ended December 31, 1999, compared to cash used by operating activities of $0.9 million in the year ended December 31, 1998. A decrease in accounts receivable provided cash of $0.5 million in the year ended December 31, 1999, compared to an increase in same using cash of $0.3 million in the comparable period of 1998. An increase in accounts payable and other liabilities provided cash of $21,000 in the year ended December 31, 1999 and used cash of $0.1 million in the year ended December 31,1998.
Investing activities provided cash of $1.6 million in the year ended December 31, 1999 primarily as a result of payment received on a promissory notes held by the Corporation. Investing activities in the year ended December 31, 1998 used cash of $1.5 million, primarily as a result of the acquisition of a note receivable. On October 20, 1998, the Corporation entered into an agreement to acquire all of the issued and outstanding shares of common stock of Nazca, which is in the business of the exploration for and development of ground water resources in Chile. See "Item 1. Business - Current Business" herein for further details with respect to the agreement. Under a revised agreement entered into with the majority shareholders of Nazca in July 1999, the original purchase agreement was replaced and the Corporation acquired approximately 87% of the issued and outstanding shares of common stock of Nazca effective June 30, 1999. For further information with respect to the transaction, including the revised agreement, see the Corporation's Form 8-K/A dated August 12, 1999, which is incorporated herein by reference.
In November of 1999, the Corporation collected all outstanding principal and interest due on a note receivable in the principal amount of $1.4 million, and collected the full amount of approximately $0.6 million due from an affiliate. In addition, in November of 1999 the Corporation repaid approximately $0.3 million in advances from affiliates.
Financing activities provided cash of $9,000 in the year ended December 31, 1999, compared to $2.2 million in the year ended December 31, 1998.
The Corporation believes that its assets and line of credit should enable the Corporation to meet its current ongoing requirements. The Corporation anticipates that it may require substantial capital to pursue current and future acquisitions of businesses and/or operating assets and will seek such capital through debt and/or equity financing.
Year 2000
Many of the world's computer systems currently record years in a two-digit format. These computer systems may be unable to properly interpret dates beyond the year 1999, which could lead to business disruptions and is commonly referred to as the "Year 2000" issue. To date, the Corporation has not experienced any significant problems as a result of the Year 2000 issue and based on its current information, management of the Corporation has determined that the Year 2000 issue will not pose significant operational problems for its computer systems as it only utilizes commercially available software and personal computers, which are Year 2000 compliant. The total cost to the Corporation of Year 2000 compliance activities has not been and is not currently anticipated to be material to its financial position or results of operations in any given year. In addition, management of the Corporation has had communications with clients to ascertain their Year 2000 readiness and developed contingency plans as required. The determination by management and costs relating to the Year 2000 issue are based on management's best estimates, which were derived utilizing numerous assumptions of future events. However, there can be no assurance that these estimates will be achieved and actual results could vary materially from those anticipated.
ITEM 7A.
ITEM 7A. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
Not applicable.
ITEM 8.
ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
The consolidated financial statements and supplementary data required with respect to this Item 8, and as identified in Item 14 of this annual report, are included in this annual report commencing on page 14.
ITEM 9.
ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND FINANCIAL DISCLOSURE
Not applicable.
PART III
ITEM 10.
ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT
Incorporated by reference from the Corporation's definitive proxy statement to be filed within 120 days of the end of the Corporation's fiscal year.
ITEM 11.
ITEM 11. EXECUTIVE COMPENSATION
Incorporated by reference from the Corporation's definitive proxy statement to be filed within 120 days of the end of the Corporation's fiscal year.
ITEM 12.
ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT
Incorporated by reference from the Corporation's definitive proxy statement to be filed within 120 days of the end of the Corporation's fiscal year.
ITEM 13.
ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
Incorporated by reference from the Corporation's definitive proxy statement to be filed within 120 days of the end of the Corporation's fiscal year.
PART IV -------
ITEM 14.
ITEM 14. EXHIBITS, FINANCIAL STATEMENT SCHEDULES, AND REPORTS ON FORM 8-K
(a) (1) Index to Financial Statements
Independent Auditors' Report Consolidated Balance Sheets Consolidated Statements of Operations Consolidated Statements of Changes in Shareholders' Equity Consolidated Statements of Cash Flows Notes to Consolidated Financial Statements
(2) Financial Statement Schedules
Independent Auditors' Report Schedule II - Valuation and Qualifying Accounts Schedule III - Unaudited Financial Statements of Nazca Holdings Ltd.
All other schedules have been omitted because they are not applicable or the required information is shown in the financial statements or notes thereto.
(b) Reports on Form 8-K
The Corporation filed the following reports with respect to the indicated items:
Form 8-K dated October 26, 1999: Item 5. Other Events
Form 8-K/A dated November 15, 1999: Item 5. Other Events Item 7. Financial Statements and Exhibits
Form 8-K dated December 7, 1999: Item 5. Other Events Item 7. Financial Statements and Exhibits
Form 8-K/A dated December 8, 1999: Item 5. Other Events
Form 8-K dated February 9, 2000: Item 5. Other Events
- - -------------------------------------------------------------------------- PETERSON SULLIVAN P.L.L.C. 601 UNION STREET SUITE 2300 SEATTLE WA 98101 (206) 382-7777 FAX 382-7700 CERTIFIED PUBLIC ACCOUNTANTS
INDEPENDENT AUDITORS' REPORT ----------------------------
To the Board of Directors and Shareholders Ichor Corporation and Subsidiary
We have audited the consolidated balance sheets of Ichor Corporation and Subsidiary as of December 31, 1999 and 1998, and the related consolidated statements of operations, changes in shareholders' equity, and cash flows for the years ended December 31, 1999, 1998 and 1997. These financial statements are the responsibility of the Company's management. Our responsibility is to express an opinion on these financial statements based on our audits.
We conducted our audits in accordance with generally accepted auditing standards. Those standards require that we plan and perform the audit 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 financial position of Ichor Corporation and Subsidiary as of December 31, 1999 and 1998, and the results of their operations and their cash flows for the years ended December 31, 1999, 1998 and 1997, in conformity with generally accepted accounting principles.
/s/ Peterson Sullivan P.L.L.C. March 24, 2000 Seattle, Washington
ICHOR CORPORATION AND SUBSIDIARY
CONSOLIDATED BALANCE SHEETS December 31, 1999 and 1998 (In Thousands of Dollars)
The accompanying notes are an integral part of these financial statements.
The accompanying notes are an integral part of these financial statements.
ICHOR CORPORATION AND SUBSIDIARY
CONSOLIDATED STATEMENTS OF OPERATIONS Years Ended December 31, 1999, 1998 and 1997 (In Thousands of Dollars, Except for Per Share Amounts)
The accompanying notes are an integral part of these financial statements.
ICHOR CORPORATION AND SUBSIDIARY
CONSOLIDATED STATEMENTS OF CHANGES IN SHAREHOLDERS' EQUITY Years Ended December 31, 1999, 1998 and 1997 (In Thousands of Dollars)
The accompanying notes are an integral part of these financial statements.
ICHOR CORPORATION AND SUBSIDIARY
CONSOLIDATED STATEMENTS OF CASH FLOWS Years Ended December 31, 1999, 1998 and 1997 (In Thousands of Dollars)
The accompanying notes are an integral part of these financial statements.
ICHOR CORPORATION AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (In Thousands of Dollars, Except for Per Share Amounts)
Note 1. The Company and Summary of Significant Accounting Policies
The Company - - -----------
Under an agreement, effective June 30, 1999, Ichor Corporation ("the Company") completed the acquisition of its present interest in Nazca Holdings Ltd. ("NHL"). A wholly-owned subsidiary of NHL is in the business of locating and developing ground water resources in Chile to be sold to mining, agricultural and public utility customers. NHL is included in these consolidated financial statements under the equity method beginning July 1, 1999. The Company was a subsidiary of MFC Bancorp Ltd. ("MFC") until December 1999. Prior to December 1997, the Company was in the environmental industry, providing environmental remediation services and operating a recycling waste oil facility. The Company sold the remediation services segment of its business in April 1997 for $147 in cash and retained the segment's current assets and liabilities. The waste oil recycling facility was sold in December 1997 for $1,000 including $320 in cash and a $680 note which was paid in 1999. Both segments were accounted for as discontinued operations and unless otherwise stated, all notes to financial statements relate to continuing operations. Further, in March 1998, the Company sold a subsidiary at a non-cash accounting gain of $437 which resulted from the assumption of the subsidiary's liabilities by the purchaser.
Principles of Consolidation - - ---------------------------
The consolidated financial statements include the accounts of the Company and its subsidiary. Significant intercompany accounts and transactions have been eliminated.
Cash and Cash Equivalents - - -------------------------
Cash equivalents consist of highly liquid debt instruments with maturities of three months or less. Cash balances are occasionally in excess of federally insured amounts.
Taxes on Income - - ---------------
The Company accounts for income taxes under an asset and liability approach that requires the recognition of deferred tax assets and liabilities for expected future tax consequences of events that have been recognized in the Company's financial statements or tax returns. In estimating future tax consequences, the Company generally considers all expected future events other than enactments of changes in the tax laws or rates.
Note 1. (Continued)
Earnings Per Share - - ------------------
Basic earnings per share is computed by dividing income available to common shareholders by the weighted average number of common shares outstanding in the period. Diluted earnings per share takes into consideration common shares outstanding (computed under basic earnings per share) and potentially dilutive common shares. The conversion of convertible preferred stock and stock options have not been reflected as exercised for the purposes of computing earnings or loss per share since the conversion of such stock or exercise of such options would be antidilutive. The weighted average number of shares was 4,910,386, 4,907,520 and 4,912,643 for the years ended December 31, 1999, 1998 and 1997. The loss from operations to compute the amount attributable to common shareholders includes the recognition of preferred stock dividends in arrears of $237, $214 and none for 1999, 1998 and 1997, respectively.
Preferred Stock - - ---------------
The entire redemption value of Preferred Shares, Series 1, can be exchanged for common stock at 90% of the common stock average market price (as defined). Redemption value is $10 per share and shares are redeemable only by the Company with a 30 day notice. The Preferred Shares, Series 1, have a liquidation preference over other stock to the extent of the redemption value plus unpaid dividends. This stock has an annual cumulative dividend rate of 5%, payable quarterly and no dividends may be paid on common stock if preferred share dividends are in arrears.
Stock-Based Compensation - - ------------------------
Compensation expense for stock options is measured as the excess, if any, of the quoted market price of the Company's stock at the date of the grant over the amount an employee is required to pay for the stock. There is no stock-based compensation included in these consolidated financial statements.
Use of Estimates - - ----------------
The preparation of financial statements in conformity with generally accepted accounting principles requires management to make estimates and assumptions that affect the amounts reported in the financial statements and accompanying notes. Actual results could differ from those estimates.
Fair Value of Financial Instruments - - -----------------------------------
The fair value of the notes receivable and advances to/from an affiliate at December 31, 1998, were estimated to approximate their recorded values based on the terms of the instruments. Notes receivable at December 31, 1998, included $1,400 from one company which was secured and had interest at 8.75%. Interest paid amounted to none, $102 and $613 for 1999, 1998 and 1997, respectively.
Note 1. (Continued)
New Accounting Standard - - -----------------------
Statement of Financial Accounting Standards No. 133, "Accounting for Derivative Instruments and Hedging Activities" is effective for periods beginning after June 15, 2000, and establishes accounting and reporting standards for derivative instruments and for hedging activities. This statement requires that an entity recognize all derivatives as either assets or liabilities in the statement of financial position and measure those instruments at fair value. Because the Company does not engage in any derivative or hedging activities, there should be no impact on its financial statements.
Note 2. Investment In and Advances To Unconsolidated Subsidiary
The Company advanced $451 to NHL and has agreed to pay 20% of future operating cash flows, as defined, of the Chilean operations discussed in Note 1 for the NHL shares. The following is a summary of NHL's financial position at December 31, 1999, and the results of its operations for the six-month period ended December 31, 1999.
Assets $ 1,313 Liabilities 1,231 Shareholders' equity 82
Revenues $ 49 Net loss 180
Note 3. Income Taxes
The reconciliation of income tax on income from continuing operations computed at the federal statutory rates to income tax expense is as follows:
Note 3. (Continued)
The significant components of the Company's deferred tax asset as of December 31, 1999 and 1998, is as follows:
The Company has a net operating loss carryforward of approximately $3,407 at December 31, 1999, which expires at: $756 in 2010; $35 in 2011; $1,449 in 2012; $785 in 2018; $382 in 2019. The Company's utilization of the losses is subject to limitation due to ownership and operational changes, except those that expire in 2012 and 2013.
Note 4. Stock Option Plans
1994 Amended Stock Option Plan - - ------------------------------
The Company's 1994 stock option plan provides for the issuance of up to 350,000 shares of the Company's common stock to employees and non-employee directors. The following table summarizes information with respect to this plan:
Almost all options have an expiration date ten years after issuance.
Note 4. (Continued)
1995 Qualified Incentive Stock Option Plan - - ------------------------------------------
The Company's board of directors approved a second stock option plan on August 15, 1996 which provides for the issuance of up to 150,000 shares of the Company's common stock to key employees. The following table summarizes information with respect to this plan:
Compensation - - ------------
For both the 1994 Amended Stock Option Plan and the 1995 Qualified Incentive Stock Option Plan, when options are granted, or the exercise price is adjusted, the exercise price cannot be less than the fair market value of the Company's common stock (as defined). However, had compensation expense been recognized on the basis of fair value pursuant to Statement of Financial Accounting Standards No. 123, "Accounting for Stock-Based Compensation," instead of the method used by the Company, there would have been no proforma effect with respect to net loss at either December 31, 1999 or 1998, and the effect at December 31, 1997, was not material.
- - -------------------------------------------------------------------------- PETERSON SULLIVAN P.L.L.C. 601 UNION STREET SUITE 2300 SEATTLE WA 98101 (206) 382-7777 FAX 382-7700 CERTIFIED PUBLIC ACCOUNTANTS
INDEPENDENT AUDITORS' REPORT
To the Board of Directors and Shareholders Ichor Corporation and Subsidiary
Our report on the consolidated financial statements of Ichor Corporation and Subsidiary is included on page 14 of this Form 10-K. In connection with our audits of such financial statements, we have also audited the related financial statement schedule listed in Item 14 of this Form 10-K.
In our opinion, the financial statement schedule referred to above, when considered in relation to the basic consolidated financial statements taken as a whole, presents fairly in all material respects the information set forth therein.
/s/ Peterson Sullivan P.L.L.C. March 24, 2000 Seattle, Washington
ICHOR CORPORATION AND SUBSIDIARY SCHEDULE II - VALUATION AND QUALIFYING ACCOUNTS Year Ended December 31, 1999, 1998 and 1997 (In Thousands of Dollars)
(1) Allowance for uncollectibility sold in conjunction with sale of waste oil recycling facility. (2) Allowance for uncollectibility sold in conjunction with sale of ICHOR Services, Inc.
ICHOR CORPORATION AND SUBSIDIARY SCHEDULE III - UNAUDITED FINANCIAL STATEMENTS OF NAZCA HOLDINGS LTD.
NAZCA HOLDINGS LTD. CONSOLIDATED BALANCE SHEET December 31, 1999 and 1998 Expressed in U.S. dollars (Unaudited)
NAZCA HOLDINGS LTD. CONSOLIDATED PROFIT & LOSS ACCOUNT For the years ended December 31, 1999 and 1998 Expressed in U.S. dollars (Unaudited)
NAZCA HOLDINGS LTD. Notes to the Consolidated Accounts For the years ended December 31, 1999 and 1998 (Unaudited)
1. PRINCIPAL ACCOUNTING POLICIES
i) Basis of accounting
The accounts have been prepared under the historical cost convention, and in accordance with United States generally accepted accounting principles.
ii) Basis of consolidation
The consolidated accounts include the accounts of the company and its wholly-owned subsidiary company Nazca S.A.
iii) Fixed Assets
Office equipment is stated at cost less accumulated depreciation. Depreciation is computed to write down the cost over the estimated useful lives of the assets.
The investment in the database is stated at cost.
Concession development direct expenditure is stated at cost. Amortisation will be computed to write down the cost over the estimated economic lives of the concessions, as soon as supply is commenced.
2. SUBSIDIARY COMPANY
Nazca S.A. is a development stage enterprise incorporated in Chile in November 1995 with the objective of exploring, developing and exploiting natural resources. It started water exploration activities in early 1996 in the northern regions of Chile where it owns several exploration concessions. The subsidiary company keeps its accounting records in Chilean currency, and its accounts have first been converted to United States generally accepted accounting principles and then translated into U.S. dollars.
3. FUTURE OPERATIONS AND FINANCING
Further financing arrangements through the sale of equity and offtake agreements for the sale of water are being negotiated. This financing will be used for development work including exploration and production well drilling and securing water rights on a number of concessions that the subsidiary company controls in northern Chile over the next 2 years.
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) of the Securities Exchange Act of 1934, the Registrant has duly caused this report to be signed on its behalf by the undersigned, thereunto duly authorized.
Date: March 29, 2000 ICHOR CORPORATION
By: /s/ J. Choi ---------------------------- J. Choi, President, and Director
Pursuant to the requirements of the Securities Exchange Act of 1934, this report has been signed below by the following persons on behalf of the Registrant and in the capacities and on the dates indicated.
/s/ J. Choi March 29, 2000 - - ------------------------- J. Choi President and Director
/s/ Young-Soo Ko March 29, 2000 - - ------------------------- Young-Soo Ko Director
/s/ Jae-Sun Lee March 29, 2000 - - ------------------------- Jae-Sun Lee Director
/s/ Michael J. Smith March 29, 2000 - - ------------------------- Michael J. Smith, Chief Financial Officer, Treasurer and Secretary
EXHIBIT INDEX
Exhibit Number Description ------- -----------
2.1 Agreement and Plan of Merger dated October 1, 1996 between ICHOR Corporation and PDG Remediation, Inc. Incorporated by reference to the Corporation's Schedule 14C dated September 17, 1996.
3.1 Articles of Incorporation.(1)
3.2 Certificate of Designations. Incorporated by reference to the Corporation's Form 8-K dated March 12, 1998.
3.3 Certificate of Designations. Incorporated by reference to the Corporation's Form 8-K dated December 7, 1999.
3.4 Bylaws.(1)
10.1 Amended 1994 Stock Option Plan.(2)
10.2 1995 Qualified Incentive Stock Option Plan.(2)
10.3 Loan Agreement dated January 15, 1997 among Drummond Financial Corporation, the Corporation and ICHOR Services, Inc.(5)
10.4 Debt Settlement Agreement between Logan International Corp. and the Corporation dated February 20, 1998.(4)
10.5 Debt Settlement Agreement between Sutton Park International Ltd. and the Corporation dated February 20, 1998.(4)
10.6 Subscription Agreement between Constable Investments Ltd. and the Corporation dated February 26, 1998.(4)
10.7 Subscription Agreement between Conqueror Holdings Ltd. and the Corporation dated February 26, 1998.(3)
10.8 Subscription Agreement between Sutton Park International Ltd. and the Corporation dated February 26, 1998.(4)
10.9 Subscription Agreement between Zellstoff-und Papierfabrik Rosenthal GmbH and the Corporation dated February 26, 1998. (3)
10.10 Purchase Agreement between the Corporation and the majority shareholders of Nazca Holdings Ltd. dated October 17, 1998. Incorporated by reference to the Corporation's Form 8-K dated October 20, 1998.
10.11 Amendment to the Agreement between the Corporation and the majority shareholders of Nazca Holdings Ltd. dated October 17, 1998. Incorporated by reference to the Corporation's Form 8-K/A dated April 9, 1999.
10.12 Revised Purchase Agreement between the Corporation and the majority shareholders of Nazca Holdings Ltd. dated July 28, 1999. Incorporated by reference to the Corporation's Form 8-K/A dated August 12, 1999.
10.13 Debt Settlement Agreement between Drummond Financial Corporation and the Corporation dated November 30, 1999. Incorporated by reference to the Corporation's Form 8-K dated December 7, 1999.
23 Consent of Independent Auditors.
27 Article 5 - Financial Data Schedule for the year ended December 31, 1999.
- - ----------------- (1) Incorporated by reference to the Corporation's Form 10-K dated January 31, 1996. (2) Incorporated by reference to the Corporation's Definitive Schedule 14A dated July 8, 1996. (3) Incorporated by reference to the Corporation's Form 10-K dated December 31, 1997. (4) Incorporated by reference to a Schedule 13D\A dated March 13, 1998. (5) Incorporated by reference to the Corporation's Form 10-K dated December 31, 1996.