1 SECURITIES AND EXCHANGE COMMISSION Washington, D.C. 20549 FORM 10-Q (Mark One) [X] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15 (d) OF THE SECURITIES EXCHANGE ACT OF 1934 For the Quarter ended MARCH 31, 2001 OR [ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15 (d) OF THE SECURITIES EXCHANGE ACT OF 1934 For the transition period from to Commission File Number 1-8488 CAMPBELL RESOURCES INC. (Exact Name of registrant as specified in its charter) Under the Canada Business Corporations Act (Jurisdiction of Incorporation) I.R.S. Employer Identification No - Not Applicable 1155 UNIVERSITY, SUITE 1405 MONTREAL, QUEBEC H3B 3A7 CANADA TELEPHONE - (514) 875-9033 (Address, including zip code, and telephone number including area code of registrants principal executive offices) 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, and (2) has been subject to such filing requirements for the past 90 days. YES X NO ---- ---- Indicate the number of shares outstanding of each of issuer's classes of common stock, as of the latest practicable date. Shares Outstanding as of May 14, 2001, 15,788,628 Common Shares, without par value 2 CAMPBELL RESOURCES INC. Table of Contents Page ---- PART I. FINANCIAL INFORMATION ITEM 1. FINANCIAL STATEMENTS Consolidated Balance Sheets (Unaudited) as at March 31, 2001 and December 31, 2000 ..................................................................... 3 Consolidated Statements of Operations (Unaudited) for the Three Months Ended March 31, 2001 and 2000 ......................................................... 4 Consolidated Statements of Deficit (Unaudited) for the Three Months Ended March 31, 2001 and 2000 ..................................................................... 4 Consolidated Statements of Cash Flows (Unaudited) for the Three Months Ended March 31, 2001 and 2000 ..................................................................... 5 Notes to the Consolidated Financial Statements (Unaudited) ............................ 6 ITEM 2. Management's Discussion and Analysis of Financial Condition and Results of Operations ............................................................. 11 PART II. OTHER INFORMATION: ITEM 1. Legal Proceedings ..................................................................... 13 ITEM 2. Changes in Securities ................................................................. 13 ITEM 3. Defaults Upon Senior Securities ....................................................... 13 ITEM 4. Submission of Matters to a Vote of Security Holders ................................................................... 13 ITEM 5. Other Information ..................................................................... 13 ITEM 6. Exhibits and Reports on Form 8-K ...................................................... 13 SIGNATURES ............................................................................ 14 2 3 CAMPBELL RESOURCES INC. CONSOLIDATED BALANCE SHEETS (UNAUDITED) (Expressed in thousands of Canadian dollars) MARCH 31 December 31 2001 2000 ---- ---- ASSETS $ $ CURRENT ASSETS Cash and short-term deposits 3,091 4,548 Receivables 1,269 1,684 Restricted cash 883 840 Inventories (note 3) 4,383 4,420 Prepaids 390 539 -------- -------- Total current assets 10,016 12,031 -------- -------- OTHER ASSETS 620 628 FUTURE INCOME TAX ASSET 1,742 1,742 MINING INTERESTS 188,492 186,937 less accumulated depreciation and amortization (173,279) (171,738) -------- -------- 15,213 15,199 -------- -------- Total assets 27,591 29,600 ======== ======== LIABILITIES AND SHAREHOLDERS' EQUITY CURRENT LIABILITIES Accounts payable 2,015 2,195 Accrued liabilities 1,372 1,590 Future income tax liability 886 886 -------- -------- Total current liabilities 4,273 4,671 -------- -------- ACCRUED RECLAMATION 6,571 6,513 CONVERTIBLE DEBENTURES (NOTE 4) 4,021 3,864 FUTURE INCOME AND MINING TAX LIABILITY 856 856 OTHER LIABILITIES 312 228 SHAREHOLDERS' EQUITY Capital stock (note 5) 125,392 125,355 Foreign currency translation adjustment 1,342 1,258 Deficit (115,176) (113,145) -------- -------- Total shareholders' equity 11,558 13,468 -------- -------- Total liabilities and shareholders' equity 27,591 29,600 ======== ======== Commitments and contingencies (note 7) 3 4 CAMPBELL RESOURCES INC. CONSOLIDATED STATEMENTS OF OPERATIONS (UNAUDITED) FOR THE THREE MONTHS ENDED MARCH 31, (Expressed in thousands of Canadian dollars except per share amounts) 2001 2000 ---- ---- $ $ METAL SALES -- 1,256 ------- ------- EXPENSES Mining -- 1,472 General administration 488 709 Depreciation and amortization 6 289 Exploration -- 694 Care and maintenance 1,331 137 ------- ------- 1,825 3,301 ------- ------- Loss from operations (1,825) (2,045) ------- ------- Other income (expense) Other income 16 358 Other Income-sales adjustment (118) -- Convertible debenture interest expense (73) (77) ------- ------- (175) 281 ------- ------- Loss before taxes (2,000) (1,764) Income and mining tax recovery (expense) (31) (32) ------- ------- NET LOSS (2,031) (1,796) ======= ======= LOSS PER SHARE 0.13 0.11 ======= ======= CAMPBELL RESOURCES INC. CONSOLIDATED STATEMENTS OF DEFICIT (UNAUDITED) FOR THE THREE MONTHS ENDED MARCH 31, (Expressed in thousands of Canadian dollars) 2001 2000 -------- -------- $ $ Balance at beginning of period (113,145) (50,259) Change in accounting policy (note 2) -- 684 Net loss (2,031) (1,796) -------- -------- Balance at end of period (115,176) (51,371) ======== ======== 4 5 CAMPBELL RESOURCES INC. CONSOLIDATED STATEMENTS OF CASH FLOWS (UNAUDITED) FOR THE THREE MONTHS ENDED MARCH 31, (Expressed in thousands of Canadian dollars) CASH PROVIDED BY (USED IN): 2001 2000 ------- ------- $ $ OPERATING ACTIVITIES Net loss (2,031) (1,796) Items not involving cash Depreciation and amortization 6 289 Future mining taxes recovery -- -- Other 257 (107) ------- ------- (1,768) (1,614) Net change in non-cash operating working capital 201 500 ------- ------- (1,567) (1,114) ------- ------- FINANCING ACTIVITIES Issues of capital stock -- 19 ------- ------- INVESTING ACTIVITIES Expenditures on mining interests -- (5,003) Money market instruments -- 8,000 ------- ------- -- 2,997 ------- ------- Effect of exchange rate change on cash and short-term deposits 110 55 ------- ------- Increase (decrease) in cash and short-term deposits (1,457) 1,957 Cash and short-term deposits at beginning of period 4,548 18,219 ------- ------- Cash and short-term deposits at end of period 3,091 20,176 ======= ======= CHANGES IN NON-CASH OPERATING WORKING CAPITAL Receivables 414 (752) Inventories and prepaids 186 (370) Accounts payable and accrued liabilities (399) 1,622 ------- ------- 201 500 ======= ======= 5 6 CAMPBELL RESOURCES INC. NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED) THREE MONTHS ENDED MARCH 31, 2001 (Tabular amounts are expressed in thousands of Canadian dollars) 1 -- GENERAL The Company is incorporated under the Canada Business Corporations Act and is engaged in the exploration, development, mining and processing of precious metals in Canada, Mexico and Panama. These unaudited consolidated financial statements reflect all adjustments that are, in the opinion of management, necessary for a fair statement of results for the interim period presented. The unaudited financial statements presented herein have been prepared in accordance with the instructions to Form 10-Q and do not include all the information and note disclosures required by generally accepted accounting principles for complete financial statements. For further information, refer to the financial statements and related footnotes included in the Company's Annual Report on Form 10-K for the year ended December 31, 2000. The financial statements are prepared in accordance with accounting principles generally accepted in Canada and, except as described in note 8, conform in all material respects with accounting principles generally accepted in the United States. The results of operations for the first three months of the year are not necessarily indicative of the results to be expected for the full year. 2 -- INVENTORIES 2001 2000 ------ ------ Materials and supplies $4,383 $4,333 Work-in-process -- 890 ------ ------ $4,383 $5,223 ====== ====== 4 -- CONVERTIBLE DEBENTURES In July 1994, the Company issued US$11,005,000 of 7.5% Convertible Subordinated Debentures. The debentures are unsecured, bear interest at 7.5% payable in arrears on June 1 and December 1 each year and mature on July 21, 2004. The debentures are convertible at the option of the holder into common shares of 6 7 the Company at any time prior to maturity at a conversion of US$5.00 per common share. The debentures are redeemable for cash at any time after the fifth anniversary of the date of issue or, at the Company's option, may be redeemed in common shares on the basis of one common share for each US$5.00 of debenture principal being redeemed. The right of the Company to redeem the debentures for cash or common shares is conditional on the average price of the common shares exceeding US$5.00 during a period of 20 consecutive days prior to notice of redemption. The Company may, at its option, repay the debenture at maturity by issuing common shares of the Company at the conversion price of US$5.00 per common share. During the three months ended March 31, 2001, debenture holders converted US$25,000 (2000 - US$nil) of debenture principal into 5,000 (2000 - nil) common shares of the Company resulting in a balance outstanding at March 31, 2001 of US$2,551,000 (December 31, 2000 - US$2,576,000). 5 -- CAPITAL STOCK Changes in the issued and outstanding common shares for the three months are as follows (in thousands): 2001 2000 ------------------ ---------------- Shares Amount Shares Amount ------ ------ ------ ------ Common shares: Balance at beginning of period 15,784 $125,355 15,715 $125,339 Issued: Conversion of convertible debentures 5 37 -- -- Employee Incentive Plan and Directors' Stock Option Plan -- -- 7 19 -------- -------- -------- -------- Balance at March 31 15,789 $125,392 15,722 $125,358 ======== ======== ======== ======== Loss per share has been calculated using the weighted average number of shares outstanding during the three months which was 15,788,000 (2000 - 15,716,000). 6 -- STATEMENTS OF CASH FLOWS Additional disclosures with respect to the Statements of Cash Flows are as follows: Three months ended March 31 2001 2000 ---- ---- Cash taxes paid $ 12 $ 38 Cash interest paid $ -- $ -- 7 -- COMMITMENTS AND CONTINGENCIES a) At March 31, 2001 the Company has outstanding calls for 24,900 ounces of gold in 2001 at US $350 7 8 per ounce subject to floating gold lease rates. b) The Company's Joe Mann mine is subject to a graduated net smelter return royalty increasing from 1.8% up to a gold price of Canadian $512 per ounce to 3.6% at a gold price of Canadian $625 per ounce. c) During 1996, the Company's Mexican subsidiary received import duty assessments following an audit claiming the subsidiary's interest in certain pieces of machinery and equipment with an approximate value of US$2,200,000 and levying taxes, penalties, interest and inflationary adjustments for a further Mexican pesos 9,200,000. On May 26, 1997, the Company received notice that it was successful in its appeal against the assessments and that the Mexican pesos 9,200,000 was not payable. The charge against the assets will be released when the final tax assessment covering this matter is issued in favour of the Company by the tax authorities. On May 6, 1998, the tax authorities issued a tax assessment identical to that issued in 1996 except that the amounts claimed have increased to Mexican pesos 18,000,000 as a result of inflation and additional interest. The Company has been advised that this assessment is improper as it completely ignores the earlier ruling. Accordingly the Company has filed a new appeal before the Federal Tax Court to nullify the assessment. No provision has been made in the financial statements for the amounts assessed on the basis of the earlier ruling and the legal advice received. d) During 1991, a subsidiary of the Company entered into a corporate restructuring and financing arrangement ("Arrangement") in which it issued to a group of Canadian financial institutions $38,000,000 of Guaranteed Subordinate Debentures and Notes ("Debentures") and $12,000,000 of Guaranteed Non-Cumulative Redeemable Retractable Preferred Shares ("Preferred Shares"). The Debentures are unsecured, subordinate to all existing non-trade debt and future senior debt, bear interest at varying rates, are repayable upon maturity in 2007, and cannot be prepaid. The Preferred Shares are redeemable at any time at an amount of $240,000 per Preferred Share, rank equally and pari passu with the common shares for dividends when declared, and are retractable in 2007. In order to secure the performance of the Debentures and Preferred Shares the Company's subsidiary entered into an Interest Rate and Currency Exchange Swap Agreement ("Swap Agreement") with a major international bank. The Swap Agreement provides for the conversion of one floating rate interest basis to another and for differences in the timing of payments so as to match the interest payment requirements under the Debentures, repay the Debentures upon maturity and retract the Preferred Shares. All payments are denominated in Canadian dollars. The Company's subsidiary placed Canadian dollar deposits with the counter party to the Swap agreement which deposits have been charged to secure the performance under the Swap agreement. These deposits earn interest at Canadian Bankers Acceptance rates. The Swap Agreement was irrevocably assigned directly to the investors. Accordingly the bank is the primary obligor under the Arrangement. e) The Company is from time to time involved in various claims, legal proceedings and reassessments for income, mining and other taxes, arising in the ordinary course of business. The Company's current and proposed mining and exploration activities are subject to various laws and regulations governing the protection of the environment. These laws and regulations are continually changing and are generally becoming more restrictive. The Company conducts its operations so as to protect its employees, the general public and the environment and, to the best of its knowledge, believes its operations are in compliance with all applicable laws and regulations, in all material respects. 8 9 The Company has made, and expects to make in the future, submissions and expenditures to comply with such laws and regulations. Where estimated reclamation and closure costs are reasonably determinable, the Company has recorded a provision for environmental liabilities based on management's estimate of these costs. Such estimates are subject to adjustment based on changes in laws and regulations and as new information becomes available. 8 -- DIFFERENCES BETWEEN CANADIAN AND UNITED STATES GENERALLY ACCEPTED ACCOUNTING PRINCIPLES The reconciliation of net loss determined in accordance with generally accepted accounting principles in Canada to net loss determined under accounting principles which are generally accepted in the United States is as follows: Three months ended March 31 2001 2000 ------- ------- Net loss for period as reported $(2,031) $(1,796) Depreciation and amortization (a) -- (208) Deferred income taxes (b) -- -- ------- ------- Net loss for the year in accordance with United States accounting principles $(2,031) $(2,004) ------- ------- Other comprehensive income (loss): Foreign currency translation adjustments -- 108 ------- ------- Comprehensive loss for the year in accordance with United States accounting principles $(2,031) $(1,896) ------- ------- Loss per share for the year in accordance with United States accounting principles Basic and fully diluted $ (0.13) $ (0.12) ------- ------- Differences between Canadian and United States accounting principles as they affect the Company's financial statements are as follows: a) Depreciation and Amortization - Under Canadian accounting principles, depreciation and amortization may be calculated on the unit-of-production method based upon the estimated mine life, whereas under United States accounting principles the calculations are made based upon proven and probable mineable reserves. b) Deferred Income Taxes - Effective January 1, 2000 the Company adopted the liability method of accounting for income taxes in accordance with Canadian accounting principles (see note 2) which is now substantially consistent with accounting for income taxes in accordance with United States accounting principles. For Canadian accounting principles the Company did not restate prior period financial statements. c) Contingent Liability - Under United States accounting principles the contingent liability disclosed in note 6(d) would be reflected in the balance sheet. Accordingly, for United States accounting principles total assets and liabilities would increase by $50 million. The increase in assets represents 9 10 investments (non-current) comprising Canadian dollar payments under the Swap agreement and Canadian dollar deposits with the counter party to the Swap agreement. The liabilities (non-current) represent the Guaranteed Subordinate Debentures and Notes of $38 million and the Guaranteed Non-Cumulative Redeemable Retractable Preferred Shares of $12 million which would be included outside of shareholders' equity. d) Foreign Exchange Contracts - In accordance with Canadian accounting principles, certain long-term foreign exchange contracts are considered to be hedges of sales revenue denominated in foreign currencies. Gains and losses related to changes in market values of such contracts are deferred and recognized when the contract is settled as part of sales revenue. Under United States accounting principles, changes in the market value of the contracts would be included in current earnings. e) Balance Sheets - The cumulative effect of the application of United States accounting principles, noted in (a) to (d) above, on the consolidated balance sheets of the Company as at March 31, 2001 and December 31, 2000 would be to decrease mining interests by $ 1,957,000 (2000 - $1,957,000), increase long-term investments by $50,000,000 (2000 - $50,000,000), increase long-term liabilities by $38,000,000 (2000 - $38,000,000), increase future tax assets, non-current by $nil (2000 - $nil), increase future taxes, current liabilities by $nil (2000 - $nil), decrease future income and mining taxes, non-current liabilities by $ nil (2000 - $nil), increase preferred shares by $12,000,000 (2000 - $12,000,000) and reduce shareholders equity by $ nil (2000 - $1,957,000). f) Other Recent Accounting Pronouncements - In June 1998, the FASB issued SFAS No. 133 "Accounting for Derivative Instruments and Hedging Activities." SFAS No. 133 establishes methods of accounting for derivative financial instruments and hedging activities related to those instruments as well as other hedging activities. The Company will be required to implement SFAS No. 133 for its fiscal year ending December 31, 2001. The Company has not yet determined the impact, if any, of the adoption of SFAS No. 133 on its reported financial position, results of operations or cash flows. During 1999, the Securities Exchange Commission ("SEC") issued Staff Accounting Bulletin 101, "Revenue Recognition in Financial Statements" ("SAB 101"). SAB 101 reflects the SEC staff's interpretation of basic principles of revenue recognition in existing United States generally accepted accounting principles. There was no impact of adopting SAB 101 during the first quarter 2001. 10 11 CAMPBELL RESOURCES INC. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS MARCH 31, 2001 (all dollars are Canadian unless noted otherwise) FORWARD-LOOKING STATEMENTS This report contains certain Forward-Looking Statements within the meaning of the Private Securities Litigation Reform Act of 1995 and is subject to certain risks and uncertainties, including those Risk Factors set forth in the Company's current Annual Report on Form 10-K for the year ended December 31, 2000. Such factors include, but are not limited to: differences between estimated and actual ore reserves; changes to exploration, development and mining plans due to prudent reaction of management to ongoing exploration results, engineering and financial concerns; and fluctuations in the gold price which affect the profitability and ore reserves of the Company. Readers are cautioned not to place undue reliance on these forward-looking statements which speak only as of the date hereof. The Company undertakes no obligation to release publicly any revisions to these forward-looking statements to reflect events or circumstances after the date hereof or to reflect unanticipated events or developments. OVERVIEW During the first quarter of 2001 Campbell focused its efforts in four areas: completing the analysis and the documentation and approval in principle of theismerger with MSV Resources inc. and GeoNova Explorations inc.; the different studies on the Joe Mann Mine to enable resumption of operations; identifying an investor for the Santa Gertrudis Property and pursuing the sale of its investment in Cerro Quema. On March 28, 2001, Campbell jointly announced, with MSV Resources Inc. and GeoNova Explorations Inc. approval in principle of the merger of the three companies. On April 25, 2001 the Boards of Directors of the three companies gave final approval to the merger. The merger is subject to approval by the shareholders of the companies as well as final regulatory and court approval. Also pursuant to the merger, Campbell will issue 800,000 common shares to Repadre Capital Corporation in exchange for a reduction in the Repadre royalty described in note 7 b) of this report . The reduced royalty will provide for the payment of a royalty of 1.5% at a gold price of US$325 ($494) per ounce increasing to 1.75% at a gold price of US$350 ($535) and 2% at a gold price of US$375 ($570) or higher. This amended royalty will be payable up to a maximum of $500,000, after payment of which, the royalty will reduce to 1% payable so long as gold is at least US$350 ($535) per ounce. The Joint Management Proxy Circular is expected to be mailed on May 16, 2001 to shareholders of the three companies and the meetings of shareholders are scheduled to be held on June 13, 2001. During the first quarter of 2001, all the properties were on a care and maintenance basis and the Company recorded a loss of $2.0 million or $0.13 per share compared to a loss of $1.8 million or $0.11 per share in the comparable period of 2000. There was negative cash flow from operations before the change in operating working capital of $ 1.8 million in the quarter compared to negative cash flow of $1.6 in the first quarter of 2000. OTHER Due to the care and maintenance status of all properties, no depreciation and amortization have been accounted except for the head office assets. The depreciation and amortization of the first quarter of 2000 is related to the Santa Gertrudis Mine. In the first quarter of 2001, no exploration work was performed compared to $0.7 million for the same period 11 12 of 1999. LIQUIDITY AND CAPITAL RESOURCES At March 31, 2001, the Company's cash and short-term deposits decreased to $3.1 million compared to $4,5 million at December 31, 2000. Working capital also decreased to $5.7 million compared to $7.4 million at December 31, 2000. The decrease is attributable to the general administration expenses and the care and maintenance expenses of the sites. The Company's principal sources of liquidity are the future cash flows from the Joe Mann Mine and the Company's working capital that amounted to $5.7 million at March 31, 2001. The Company is subject to the normal risks and uncertainties associated with mining, including fluctuations in gold prices, the relative U.S./ Mexican/ Canadian exchange rates, the ability of the Company to raise necessary financing to complete the exploration and development program that would permit resumption of mining operations at the Joe Mann Mine on certain assumptions and any unforeseen environmental problems. 12 13 PART II. ITEM 1. Legal Proceedings Not applicable ITEM 2. Changes in Securities Not Applicable ITEM 3. Defaults Upon Senior Securities None ITEM 4. Submission of Matters to a Vote of Security Holders None ITEM 5. Other Information None ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K None 13 14 SIGNATURES Pursuant to the requirements of the Securities Exchange Act of 1934, the Registrant has duly caused this report to be signed on its behalf by the undersigned thereunto duly authorized. CAMPBELL RESOURCES INC. /s/ Lucie Brun ------------------------------------------- Lucie Brun Vice President, Finance (Principal Financial and Accounting Officer and authorized signatory) Montreal, Quebec May 14, 2001 14