IN ACCORDANCE WITH RULE 202 OF REGULATION S-T, THIS FORM 10-SB IS BEING
FILED IN PAPER PURSUANT TO A CONTINUING HARDSHIP EXEMPTION.
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-SB
(Amended)
GENERAL FORM FOR REGISTRATION OF SECURITIES
OF SMALL BUSINESS ISSUERS UNDER SECTION 12(b)
OR 12(g) OF THE SECURITIES EXCHANGE ACT OF 1934
Commission file no. 0-29006
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HEALTH CARE CENTERS OF AMERICA, INC.
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(Name of Small Business Issuer in Its Charter)
Nevada 62-1210877
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(State or Other Jurisdiction of (I.R.S. Employer
Incorporation or Organization) Identification No.)
100 North Arlington (ste. 22F)
Reno, Nevada 89501
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(Address of Principal Executive Officer) (Zip Code)
(702) 786-1461
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(Issuer's Telephone Number)
Securities registered under Section 12(b) of the Exchange Act: None
Securities registered under Section 12(g) of the Exchange Act:
Common Stock, par value $.001 per share
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(Title of Class)
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DOCUMENTS INCORPORATED BY REFERENCE
Documents incorporated by reference: None
TABLE OF CONTENTS
ITEM PAGE
PART I
Item 1 Description of Business 3
Item 2 Management's Plan of Operation 18
Item 3 Description of Property 21
Item 4 Security Ownership of Certain Beneficial
Owners and Management 26
Item 5 Directors, Executive Officers,
Promoters and Control Persons 29
Item 6 Executive Compensation 31
Item 7 Certain Relationships and Related Transactions 32
Item 8 Description of Securities 34
PART II
Item 1 Market Price of and Dividends on the Registrant's
Common Equity and Other Shareholder Matters 35
Item 2 Legal Proceedings 35
Item 3 Changes in and Disagreements with Accountants 40
Item 4 Recent Sales of Unregistered Securities 40
Item 5 Indemnification of Officers and Directors 42
PART F/S
Financial Statements 44
PART III
Item 1 Index to Exhibits
Item 2 Description of Exhibits
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PART I
ITEM 1. DESCRIPTION OF BUSINESS.
Much of the discussion contained in this Item 1 is "forward looking",
as that term is identified in, or contemplated by, Section 27A of the Securities
Act and Section 21E of the Exchange Act. Actual results may materially differ
from projections. Information concerning factors that could cause actual results
to differ materially is set forth in this Item 1 and in Items 2 and 3 below. FOR
A COMPLETE UNDERSTANDING OF SUCH FACTORS, THIS ENTIRE DOCUMENT, INCLUDING THE
FINANCIAL STATEMENTS AND THEIR ACCOMPANYING NOTES, SHOULD BE READ IN ITS
ENTIRETY.
HISTORICAL OVERVIEW OF THE COMPANY
Health Care Centers of America, Inc., a Nevada corporation (the
"Company"), was incorporated in Montana in October 1967. The Company's executive
offices are located at 100 North Arlington (suite 22F), Reno, Nevada.
Originally known as Cadgie Taylor Co., the Company merged with Carleton
Enterprises, Ltd., a Nevada corporation, in 1984. Later that year, it changed
its name to SCN, Ltd., and effected a share exchange with Star-Com Network,
Inc., another Nevada corporation. In 1985, the Company filed for bankruptcy
under Chapter 11 of the United States Bankruptcy Code. In September 1993, the
bankruptcy proceedings were dismissed.
Upon emerging from such bankruptcy proceedings, the Company changed its
name to Health Care Centers of America, Inc., reflecting its intention to
develop a network of multi- disciplinary health care centers. A plan was
formulated whereby the Company would acquire health care practices in exchange
for shares of the Company's stock, the value of such shares to be supported by
other assets acquired for stock. Pursuant to such plan, the Company has acquired
or agreed to acquire assets in mining, real estate, entertainment, education,
and health care.
Many of the stock exchange agreements into which the Company entered
for such acquisitions provided that the other party to the agreement had the
right to annul or void the agreement if a registration statement registering the
Company's stock under Section 12(g) of the Securities Exchange Act of 1934 (the
"Exchange Act") did not become effective within a specified period of time (in
most cases 18 months following the date of the agreement). Many of such
agreements or oral understandings supplementing such agreements also provided
that the assets, liabilities, and income of the target entities would not inure
to the benefit of the Company until the Company's Exchange Act registration
became effective.
In December 1996, the Company filed a registration statement under
Section 12(g) of the Exchange Act which became effective February 4, 1997. With
certain exceptions hereinafter discussed, the time limitations for such
registration have been waived, and such acquisitions are deemed to have become
effective.
While the Company planned and continues to plan to go into health care,
at the present time most of its assets and activities relate to other
industries, primarily mining/processing of precious metals and entertainment. At
its next annual meeting, management intends to ask the Company's stockholders to
approve a change of the Company's name to "HCCA International, Inc." to better
reflect the diversification of the Company's business.
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The Company is in the development stage and has not had any revenues
during the last five years, during which it has expended substantial funds. The
Company's future success is dependent on its ability to obtain funding for
processing its precious metals concentrate. The Company anticipates obtaining
such funding by exploiting the commercial value, by sale or otherwise, directly
or through joint ventures, of some of its ore concentrates, its television time
credits, its medical waste disposal units, and/or its contractual interests in
certain real estate (see Part I, Item 2--"Plan of Operations"). The Company has
no contracts for such commercialization, and its real estate is the subject of
litigation with former owners; accordingly, there can be no assurance that the
Company will be successful in selling or commercializing any such assets (see
Part II, Item 2--"Legal Proceedings").
As of December 31, 1996, the Company did not have any employees, its
business being managed by its officers and directors without salary. (Nashville
Music Consultants, Inc., acquired by the Company subsequent to December 31,
1996, has five employees.)
CURRENT BUSINESS (INCLUDING LINES OF BUSINESS
ACQUIRED SUBSEQUENT TO DECEMBER 31, 1996)
A. PRECIOUS METALS CONCENTRATE, MINING AND PROCESSING
1. Description of the business
The Company owns a substantial deposit of ore concentrate located
approximately 40 miles from Prescott, Arizona, which management believes, on the
basis of assays by an independent consultant, is substantially in excess of
500,000 tons. Tests by an independent firm including a registered assayer and
analytical chemist indicate that such concentrate contains commercial quantities
of precious metals and rare earths. (See Part I, Item 3--"Description of
Property".)
Through its wholly owned subsidiary, Peeples Mining Co. ("Peeples
Mining"), the Company also owns mineral rights in Arizona and Nevada.
Peeples Mining is currently inactive, but it is intended that it will
commence processing the Company's concentrate and development of its other
mining properties as soon as financing permits. It is intended that Peeples
Mining will process such concentrate to the next stage of concentration known as
dore bars. Dore bars are produced by liquefying the concentrate and pouring the
solution into a mold; as the material cools, the metals separate, with the
heaviest falling to the bottom. Dore bars can be sold for a higher price than
concentrate.
Peeples Mining does not presently have the equipment for producing dore
bars. Management is currently studying alternative refining methods to determine
the appropriate machinery and equipment to buy, but the Company may require
financing for such purchase. The Company does not anticipate obtaining the
equipment necessary to refine its concentrate or dore bars into bullion; rather
it intends to produce and sell dore bars to smelters which have such equipment.
Peeples Mining has certain facilities and equipment for leaching and
testing, but new equipment will be required to process ores from the Company's
properties into concentrates in the desired volume. Peeples Mining is capable of
processing approximately 25 tons of head ore per hour from its Arizona property,
bringing it to a first stage of concentration. Free
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milling gold will be removed, and the remaining concentrate will be further
concentrated and/or separated by a chemical process.
The Company (or its subsidiary, Peeples Mining) also has mineral rights
in lands in Arizona and Nevada, and subsequent to December 31, 1996, acquired an
additional mining property in California. (See Part I, Item 3--"Description of
Property".)
Peeples Mining LLC ("Peeples LLC"), which was organized in 1981 as an
Arizona limited liability company, was acquired by the Company in 1994. Peeples
LLC was actively engaged in mining activities from 1988 to 1994. The Company
also acquired F&H Mining, Inc., a Nevada corporation ("F&H Mining") in 1994. F&H
Mining was organized in 1984, and was active working the property at Mesquite,
Nevada, until 1991. In February 1997, the assets of Peeples LLC and F&H Mining
were transferred to Peeples Mining, a newly formed Nevada corporation of which
the Company is the sole stockholder.
Peeples Mining does not presently have any employees.
2. Terms of Acquisition
The Company entered into the agreement to acquire all the issued and
outstanding stock of F&H Mining in March 1994. At that time, F&H Mining was a
corporation organized under the laws of the Island of Nevis. Under the
agreement, the Company agreed to acquire all of F&H Mining's issued and
outstanding stock in exchange for 12,000,000 shares of the Com- pany's stock.
Maurice Furlong, the Company's president, had been a consultant to F&H Mining
since from its inception. (See Part I, Item 7--"Certain Relationships and
Related Transactions", below). Consummation of the acquisition of F&H Mining was
contingent on effectiveness of the Company's Exchange Act registration
statement.
In June 1994, the Company entered into the agreement to acquire all the
interests in Peeples LLC. Under the agreement, the Company issued 20,000,000
shares of the Company's stock to the members of Peeples LLC, and through Peeples
LLC acquired the mineral rights to 340 acres near Prescott, Arizona. In August
1995, the Company issued an additional 100,000,000 shares to Zarzion, Ltd., for
ore concentrate which Zarzion, Ltd. had purchased from Peeples LLC. Consummation
of the acquisition of Peeples LLC was contingent on effectiveness of the
Company's Exchange Act registration statement. The Company's ore concentrate,
however, is owned outright, free and clear of any contingencies.
In August 1996, the Company agreed with the former members of Peeples
LLC and the former shareholders of F&H Mining that any income realized from the
operations of F&H and Peeples was not to inure to the benefit of the Company
until such time as its Exchange Act registration became effective. In fact,
there were no revenues between the time the acquisition agreements were entered
into and the time the Company's Exchange Act registration became effective in
February 1997. Provisions in the acquisition agreements for F&H and Peeples
granting the former stockholders of those companies the right to annul the sale
of such companies under certain circumstances, including the Company's failure
to complete a secondary offering of its securities within a prescribed time
frame, have lapsed.
In February 1997, the Company acquired 17 lode claims on 340 acres of
land in California. (See Part I, Item 3--"Description of Property".) The Company
believes it will be eligible to apply for title to such property following a
period of exploitation. These claims
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were acquired from Zarzion, Ltd. (see Part I, Item 7--"Certain Relationships and
Related Transactions") in exchange for 375,000,000 shares of the Company's
common stock.
3. Risks attendant on mining and processing minerals
The value of the Company's concentrate depends on the amount of metals
contained in such ore, and on the cost and difficulty of refining. While the
Company believes that there are significant quantities of precious metals in
such concentrate, the market price of such metals and the cost of extraction and
refining are yet to be determined. Management is of the opinion that the cost of
extraction and mining should not exceed 50% of the value if indicated quantities
of precious metals are present in its concentrate.
Analyzing samples gathered by itself with direct current plasma ("DCP")
equipment which measures each element present, Metallurgical Research & Assay
Laboratory (Henderson, Nevada), a firm including Donald Jordan, a registered
assayer and analytical chemist, estimated the value of precious metals in the
Company's ore concentrate to be in excess of $3 billion. Such analysis reflects
Mr. Jordan's independent judgment, and is not a representation of management.
His samplings were taken without supervision, and there can be no assurance that
his samplings are representative of the entire inventory, nor can there be any
assurance that his estimates of the cost of processing such ores are or will be
accurate when effected. Mr. Jordan's valuation was based on the price of metals
in March 1997; the price of gold has declined since that time, and there can be
no assurance that such decline or future declines will not have a materially
adverse affect on the value of the metals believed to be contained in such ore.
No assurances can be given that a desirable level of recovery will be
realized from Peeples Mining's ore. Reserve estimates may require revision based
on actual production experience. Market price fluctuations of precious metals,
as well as increased production costs or reduced recovery rates, may drastically
affect the value of the Company's ore reserves, and may render reserves
containing relatively low grades of mineralization uneconomic to exploit.
Exploration and mining activities are highly speculative in nature,
involve many risks, and are frequently nonproductive. There can be no assurance
that the Company's mining activities will be successful. In the event minerals
are recoverable, it may take a number of years from the initial phases until
production is possible, during which time the economic feasibility of production
may change. As pertains to all the Company's mining interests, substantial
expenditures may be required to establish proven and probable ore reserves
through drilling, to determine metallurgical processes to extract the metals
from the ore, and in the case of new properties, to construct mining and
processing facilities. As a result of these uncertainties, no assurance can be
given that the Company will be able successfully to exploit its mineral
properties.
The business of mining and processing precious metals is subject to a
number of significant hazards, including environmental hazards, thefts and other
losses, industrial accidents, and labor disputes. Mining is also subject to the
risks of encountering unusual or unexpected geological formations, cave-ins,
flooding, rock falls, periodic interruptions due to inclement or hazardous
weather conditions, and other acts of God. Such risks could result in damage to
or destruction of mining properties or production facilities, personal injury or
death, environmental damage, delays in mining, monetary losses, and possible
legal liability. The Company will obtain insurance against risks that are
typical in the operation of its business and in amounts which management
believes to be reasonable, but no assurance can be
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given that such insurance will continue to be available, that it will be
available at economically acceptable premiums, or that it will be adequate to
cover any liability.
There can be no assurance that the test results obtained by the Company
for certain of its properties by independent assayers will prove to be accurate
for the entire property.
4. Regulation of mining and mineral processing
The Company's exploration, mining, and refining activities will be
subject to extensive state and federal laws and regulations governing
prospecting, developing, production, export, taxes, labor standards,
occupational health, waste disposal, protection and remediation of the
environment, protection of endangered and protected species, mine safety, toxic
substances, and other matters. Mining is subject to potential risks and
liabilities associated with pollution of the environment and the disposal of
waste products occurring as a result of mineral exploration, production, and
processing. The Company may in the future be subject to clean-up liability under
the Comprehensive Environmental Response, Compensation and Liability Act of 1980
and comparable state laws which establish clean-up liability for the release of
hazardous and toxic substances for property owners and operators. In the context
of environmental permitting, including the approval of reclamation plans, the
Company must comply with applicable standards, laws, and regulations, which may
entail greater or lesser costs and delays depending on the nature of the
activity to be permitted and how stringently the regulations are implemented by
the permitting authority. It is possible that costs and delays associated with
compliance with such laws, regulations and permits could become such that the
Company would not proceed with the operation or development of a mine or other
project, or inauguration of a processing facility.
Amendments to current laws and relations governing operations and
activities of mining companies and companies processing metals or more stringent
implementation thereof are actively considered from time to time and could have
an adverse impact on the Company and its operations.
B. ENTERTAINMENT
1. Description of the Business
In April 1995, the Company entered into an agreement to acquire all the
outstanding stock of Nashville Music Consultants, Inc. ("NMC"), a Tennessee
corporation organized in 1993, and such acquisition became effective in February
1997. NMC engages in screening, advising, developing, publishing, and managing
singers and songwriters. Revenues come from consulting fees, registration fees,
tuition, publishing royalties, and management commissions. Although it currently
focuses on country music, NMC is expanding into Christian music.
In addition to clients generated by NMC's own marketing efforts, new
singers and songwriters are referred by major record labels, publishing
companies, BMC, ASCAP, and other entities in the music industry. All clients pay
a one-time consulting fee of $350. Singers deemed to have outstanding potential
are offered a consulting contract pursuant to which NMC currently receives
approximately 7.5% of the client's gross revenue for a period of seven years;
songwriters with outstanding potential are offered a contract with NMC's
publishing division, pursuant to which NMC receives 50% of each song copyright,
and 50% of all song revenues.
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NMC's president, Larry Butler, is a two-time Grammy winner, and the
only country music producer to win a Grammy for "Producer of the Year". He also
won a Grammy for writing the song of the year, "Somebody Done Somebody Wrong
Song". Mr. Butler has produced 65 gold and platinum albums, and served as
president of United Records from 1973 to 1979.
Each year since 1994, NMC has conducted the International Country Music
Expo. The 1996 expo, which drew over 750 participants, was conducted at the
Opryland Hotel, where the 1997 expo will also take place. Representatives from
many major record labels, publishing companies, and other music industry
companies participate each year. NMC owns all rights and charges a $500
registration fee for each participant.
NMC has five employees, all of whom are full time. NMC's staff are
experienced in producing, songwriting, engineering, and management. NMC has
access to a fully equipped music producing studio on site with a full time staff
engineer.
NMC leases approximately 7,200 square feet of space at 24 Music Square
West, Nashville, Tennessee, for which it agreed to pay $72,000, $73,800, and
$75,645, respectively, for the years ending June 30, 1997, 1998, and 1999. NMC
owns certain music production and analysis equipment valued at approximately
$25,000; NMC uses additional equipment belonging to its chief executive officer,
Alcy Baggott, with whom NMC is negotiating a lease.
2. Terms of Acquisition
The Company entered into the agreement to acquire NMC in April 1995.
Under the agreement, the Company agreed to acquire all the issued and
outstanding shares of NMC's stock in exchange for 4,000,000 shares of the
Company's stock. Consummation of the transaction was contingent on effectiveness
of the Company's Exchange Act registration statement, so that the acquisition
was not consummated until February 1997.
Pursuant to the acquisition agreement, 51% of the outstanding stock of
NMC is to be placed in a voting trust with Ally Cat Music, Inc., a company
wholly owned by Mr. Baggott, for a term of 10 years, renewable for 10 years, and
the Company is enjoined from interference with Ally Cat Music, Inc.'s management
of NMC. The Company also agreed to use its best efforts to provide $500,000 of
financing for NMC. Also under the agreement, the Company is entitled to an
annual "management fee" in an amount equal to 9% of NMC's gross revenues.
The agreement provides that the transaction may be canceled if the
Company's stock ceases to be "listed or traded on the NASDAQ Stock Exchange."
The effect of this condition is not clear, since the Company's shares have never
been listed on NASDAQ, but it is not impossible that such condition could
someday be invoked to disassociate NMC from the Company. The agreement also
indicates that NMC's stockholders can void the agreement if the transaction
turns out not to be a tax free transaction under federal tax laws. While the
Company has not obtained an opinion of counsel with respect to this matter,
management believes that the exchange of shares is indeed a tax free transaction
under the Internal Revenue Code.
3. Competition and Regulation
Management is unaware of any other entity offering a similar
combination of services. Other entities do however provide services similar to
particular services provided by NMC, and there can be no assurance that NMC's
strategy of providing integrated services will with-
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stand competition from entities focused on a single service, or that others may
not bundle services in the future.
Federal and state laws relating to intellectual property have an
extensive impact upon the song writing, music publication, and music recording
segments of the entertainment industry. The industry is such that it is highly
susceptible to the unauthorized reproduction of previously published material.
The Company's ability to protect itself from the unauthorized reproduction of
works generated by its artists and songwriters, along with its ability to
protect its publishing rights, will be influenced by federal and state
copyright, trademark, and service mark laws.
C. MEDICAL WASTE DECONTAMINATION UNITS
1. Description of Business
The Company owns 24 medical waste decontamination units manufactured by
a Japanese manufacturer which owns a patent on the units' fume scrubber. Known
as MedAway- 1, each unit is designed to decontaminate and physically alter up to
five cubic feet of medical waste, such as bags, blood lines, syringes, sharps,
petri dishes, curettes, and similar items of waste generated by hospitals and
doctors' offices. The units use a dry heat process, including a patented
combination of resistance and "far infrared" quartz heating elements, with a
proprietary condenser filtration system that obviates the need for external
venting. The units are mobile and self contained. No special wiring,
ventilating, or plumbing is needed, nor are building permits required. The units
heat the waste load to a temperature at which most viruses are rendered inactive
within five minutes. After treatment, waste is considered noninfectious. As the
waste load is heated in the unit, the plastics melt, encapsulating the sharps
and reducing volume by a factor of as much as ten. The units operate silently
without shredding, grinding, compacting, steaming or chemically treating the
waste, and are approved by Underwriters Laboratory ("UL").
The Company intends to lease its units to hospitals, clinics, doctors'
offices, and nursing homes. Between 1993 and acquisition of such units by the
Company, four similar units were sold by the company from which the Company
purchased its units, MedAway International, and management believes such units
are operating satisfactorily. Management is in the process of formulating a
marketing plan and securing liability insurance, but no units have been leased
to date.
The Company intends to contract with third-parties to maintain and
repair the units. The Company does not yet have any employees in its MedAway
division.
2. Terms of Acquisition
The Company acquired its units together with other assets of MedAway
International, Inc. ("MedAway"), a Delaware corporation, in June 1996, in
exchange for $2,000,000 worth of the Company's common stock, which management
determined to be 2,066,115 shares at the time of the transaction. All of such
shares have been issued to MedAway's stockholders.
Among MedAway's assets was the exclusive right to market and distribute
such units in North America, the Caribbean, and Taiwan. Assignment of such right
to the Company, however, requires the manufacturer's consent, which will be
requested at such time as the Company has the financial resources to put into
effect a full-scale marketing plan. The
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manufacturer's consent is not required for leasing the 24 units the Company
acquired from MedAway.
3. Competition
Competition for MedAway-1 units currently comes principally from
incineration and chemical processing, over which management believes the
MedAway-1 unit has significant advantages. Incineration requires cumbersome
equipment and permitting, while chemical treatment requires additional disposal
arrangements for the residue after treatment. Other systems for treating medical
waste are generally more costly. Many utilize grinders and shredders, some treat
infected materials with toxic chemicals, and other systems require special power
and external venting of emissions. Venting emissions generally involves state
and/or federal environmental compliance and permitting issues. In addition, such
alternative methods generally generate an end product, disposal of which creates
its own environmental compliance issues.
If the Company fails to obtain the manufacturer's consent to acquiring
MedAway's distribution rights, however, the manufacturer may be able to sell its
units in the United States in competition with the Company, directly or through
another distributor. There can be no assurance, moreover, that competitors with
a stronger financial base than that of the Company will not develop alternative
processes for the decontamination of medical waste.
4. Regulation
The treatment and disposal of medical waste is subject to federal,
state and local regulation, as is the disposal of fumes and other residue
created in the treatment of such waste. Approximately 10 states do not have
mandatory legal requirements for such equipment; of the approximately 40 states
which do, the Company believes that its units comply with requirements in at
least 26.
There is a possibility, however, that new regulations may be adopted at
the state or federal level, as by amendments to the Medical Waste Tracking Act,
which would restrict the disposal of materials such as the end product which
remains after treatment in the MedAway-1 units. Such regulations could have a
negative impact on the market for such units.
D. TELEVISION ADVERTISING
1. Description of the Business
The Company owns 20 television time credit certificates issued by
American Independent Network, Inc. ("AIN"). Each certificate represents that AIN
will provide the bearer commercial air time valued at $5,000,000, calculated at
going rates, on AIN's national television network, subject to time availability
or agreement on a time plan.
Such certificates contain no restrictions as to transferability,
assignment or sale. The Company does not intend to engage in the business of
marketing television advertising time as such, but it may from time to time
market and sell time from its television time credit certificates, as well as
utilize such time for its own enterprises. In due course, management plans to
use such commercial air time in its marketing of health care facilities
described below. The Company's ability to use or sell such certificates has yet
to be established,
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however, and until such value is established, the Company has determined not to
ascribe any value to them.
The Company does not have any employees specifically responsible for
this line of business, and does not anticipate employing any in the immediate
future.
2. Terms of Acquisition
The Company's television time credit certificates were originally
assets of ELF Works, Ltd., a Nevada corporation ("ELF") which the Company
acquired in June 1996. Following such acquisition, the television time credit
certificates (which had been acquired by ELF in exchange for stock) were
reissued by AIN in the Company's name. Under the terms of the agreement, the
Company issued ELF's stockholders 40,000,000 shares of the Company's common
stock in exchange for all ELF's outstanding stock. The Company also received a
right of first refusal with respect to any sale of the shares issued by it to
ELF's stockholders; for a period of five years, the Company has the right to
match any offer for the purchase of such shares. Inasmuch as ELF had no
significant assets other than its AIN certificates, it is planned to dissolve
ELF.
3. Competition; Other Factors
To the extent that the Company decides to sell rather than use the
television time credit certificates, management perceives that competition in
the national television market is intense. There can be no assurance that the
Company could successfully market and sell such certificates in the event it
determines to do so. The value of such certificates may also be affected by
AIN's financial ability to perform, which has yet to be established.
PLANNED BUSINESS
E. HEALTH CARE CENTERS
1. Description of Business
One of the Company's objectives is to build a network of
multi-disciplinary health care centers to provide a combination of primary and
alternative health care to the general public. The Company intends to provide
the services of general practice medical doctors, chiropractors, physical
therapists, and other health care providers under one roof, creating a "one
stop" source for a variety of medical services.
Management believes that today's changing environment for health care
delivery will place a premium on consolidation of various types of health care
providers into larger entities, and that consolidation and group practice
constitute the most desirable environment for medi-cal services in the 1990s.
Management further believes that consolidation should benefit health care
providers by providing standard fees for services nationwide, volume buying to
hold down costs, centralized billing and purchasing operations, group insurance
coverage, a national marketing program, and an integrated network of
professionals.
The Company has no employees at present devoted exclusively to its
health care business.
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To commence its program, the Company intends to acquire individual
medical, chiropractic, dental, and other practices, with a view to establishing
a system with common procedures and marketing. While the Company will seek to
acquire the professional corporations which operate such practices, in states
where such ownership is not permitted, the Company will seek to enter into
management contracts. It will then initiate the integration and educational
processes necessary to develop a comprehensive health care delivery system. As
soon as possible, the Company will seek to relocate such practices into
multi-disciplinary health care centers managed by the Company. Management's
current plans contemplate that development of its multi-disciplinary health care
centers will commence within two years. This delay reflects the complexity of
the project and the diversity of the health care areas which the Company seeks
to bring together. Ultimately, it plans to create a national network of such
multi-disciplinary centers. There can be no assurance, however, that the project
can be accomplished in any specific time period, or that, if accomplished, such
centers will be successful.
To ensure and facilitate continuing education for its professional
staff, the Company will seek to affiliate its health care centers with
recognized medical schools, chiropractic schools, and universities. It will also
seek to expand income for its health care staff by providing opportunities to
obtain additional certification in related fields, as for example by
recredentialling chiropractors as licensed physical therapists. The Company's
plans have yet to be implemented, however, and will require substantial funds,
availability of which will depend on the Company's success with concentrating
and marketing its precious metals. There can be no assurance that management
will be successful in inaugurating its health care program, or that, if
inaugurated, such program will be successful.
2. Rescinded Agreements for Health Care Practices
In 1993 and 1994, the Company entered into agreements for the
acquisition of 16 chiropractic practices in exchange for shares of the Company's
common stock. A total of 3,447,683 shares were issued to sixteen doctors for
such practices, but all such exchanges have been rescinded. 1,591,963 of such
shares have been cancelled, and management expects the remaining 1,855,720
shares will be returned. None of such acquisitions having been consummated, the
Company has not realized any revenues with respect to such practices.
Such rescissions were the result of discussions of the legal and
procedural complications of such acquisitions, it being agreed that consummation
of such acquisitions should be deferred until a thorough study is made of legal
and regulatory requirements, and orderly arrangements can be made to comply with
state laws and regulations. The Company is presently analyzing applicable laws
and regulations with a view to developing a strategy and business plan for this
line of business. Many of the individuals party to such agreements have assured
management of their continued interest in affiliation with the Company.
To the extent permitted by state, federal and local laws and
regulations, it is contemplated that the acquisitions will be structured as
exchanges of the Company's stock for stock of the professional corporation
owning each practice, with each practice becoming a wholly owned subsidiary of
the Company. In other states, the Company will seek to enter into agreements to
purchase assets and manage the practices in exchange for an annual fee and, if
permitted, a share of profits.
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3. Competition in Health Care Industry
The market for health care services is highly competitive. In addition
to competition from other national, regional, and local health care centers, the
Company will be obliged to compete with hospitals, private clinics, physician
groups, outpatient clinics, and home health care agencies. Several health care
companies and other physician groups provide services like those to be provided
by the Company, including companies and groups with established operating
histories and significantly greater cash resources than the Company's. To the
extent that reform measures proposed by the federal government make prepaid
medical care an attractive market and provide incentives to form regional
delivery systems, the Company may encounter increased competition.
Management believes the primary competitive factors in health care
services are quality of treatment, reliability of service, the ability to
schedule patients and report examination results on a timely basis, the ability
to comply with the requirements of regulatory authorities and third-party payers
such as Medicare and private insurance companies, and the ability to attract and
retain qualified licensed professionals. The Company's success will depend, in
part, on its ability to compete effectively with respect to each of these
factors through proper planning of staffing services, training of staff members
in their respective disciplines, quality assurance programs, proper supervision
of its staff members, and coordination of treatment plans with patients,
patients' families, and the facilities' staff. Management believes its proposed
program for recredentialling its staff members will assist the Company in
attracting and employing qualified personnel.
Many of the health care providers against which the Company will
compete, however, are substantially larger and better capitalized, and have
substantial records of profitable business operations. In addition, many of
these competitors have substantially greater financial, marketing, human and
other resources than the Company, which may give them competitive advantages in,
among other things, the recruitment of licensed professionals, equipment
acquisitions, and responding quickly to increased demand for rehabilitation and
other services. No assurance can be given that the Company will be able to
compete effectively against these other health care providers.
4. Regulation of Health Care Providers
The health care industry is subject to extensive regulation by federal,
state, and local governments. The various levels of regulatory oversight will
affect the Company's health care business by controlling its growth, requiring
licensure and/or certification of its facilities, regulating the use of its
properties, and controlling reimbursements to the Company for services provided.
These laws include fraud and abuse provisions in the Medicare and Medicaid
statutes, which prohibit solicitation, payment, receipt, or offering of any
direct or indirect remuneration for the referral of Medicare or Medicaid covered
services, and laws that impose significant penalties for false or improper
billings for physician services. These laws also impose restrictions on
physician referrals for designated health services to entities with which they
have financial relationships. Violation of these laws can result in substantial
civil or criminal penalties for individuals or entities, including large civil
money penalties and exclusion from participation in the Medicare and Medicaid
programs.
In some states, ownership of physicians' practices by publicly held
corporations is prohibited. Management believes, however, that the Company's
acquisition of health care practices and operations can be structured in such a
way as to comply with existing laws in
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most states in which it is interested in conducting such business, or that
alternative arrangements can be entered into. Moreover, the laws of most states
prohibit physicians from splitting fees with non-physicians and prohibit
non-physician entities from practicing medicine. These laws and their
interpretation vary from state to state, and are enforced by the courts and
regulatory authorities with broad discretion.
There can be no assurance, however, that review of the Company's
business by courts or regulatory authorities will not result in a determination
that could adversely affect the Company's proposed operations, or that the
health care regulatory environment will not change so as to restrict the
Company's proposed operations or future expansion.
Through the Medicare program, the federal government has implemented a
resource- based relative value scale ("RBRVS") payment methodology for physician
services. RBRVS is a fee schedule that, except for certain geographical and
other adjustments, pays similarly situated physicians the same amount for the
same services. The RBRVS is adjusted each year and is subject to increase or
decrease at the discretion of Congress. RBRVS-types of payment systems have also
been adopted by certain private third-party payers and may become a predominant
payment methodology. Increased dissemination of such programs could reduce
payments by private third-party payers and could indirectly reduce the Company's
operating margins to the extent that costs of providing management services
related to such procedures could not be proportionately reduced.
F. EDUCATION AND LEARNING CENTERS
1. Description of the Business
In March 1994, the Company agreed to acquire three learning centers
from William Jackson in exchange for 1,200,000 shares of the Company's common
stock. Two of such centers, located in Toronto, were owned and operated by two
Ontario corporations operating under the name Academy for Mathematics and
Science; the third center was to be opened in the United States. The centers
offered remedial courses in mathematics, science, and English to children in
grades two through 12.
In February 1997, the Company and Mr. Jackson determined to rescind the
acquisition of the two centers in Toronto, and Mr. Jackson returned the 800,000
shares issued for these two centers. It is contemplated now that Mr. Jackson and
his wife, Jacqueline Jordan, will open a center in Reno, Nevada, which will
offer remedial courses in mathematics, science, and English to children in
grades two through 12, and pre-college and university level courses, with future
expansion into computer and internet courses. A deposit has been made on office
space in Reno, Nevada, and it is contemplated that Mrs. Jordan will move to the
United States to organize and manage such center.
2. Risk Factors
Commercial learning centers are a relatively new industry, for which
reason there is not yet significant competition. It is anticipated that
increased competition will develop in this field; other organizations providing
such services already exist. Operation of private schools is frequently the
subject of state and local regulation in the United States, including Nevada.
There can be no assurance that the Company will be successful in establishing
any learning centers, or that, if it does, such centers will result in
profitable operations.
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G. HEALTH CARE EDUCATION, RESEARCH AND DEVELOPMENT
1. Description of Mexican Joint Venture
In 1994, the Company entered into a joint venture agreement with
Immobiliara y Fraccinoadora del 1 Nueva Viscaya, S.A. de C.V. and Oscar Neninger
G. (INMOB) for the development of approximately 11,625 acres in Sonora, Mexico,
for a research and development, educational, and recreational center. Such
venture is presently dormant for lack of financing, liens recently attached to
such property, and inability to determine the availability or feasibility of
developing sewer, water and similar connections.
2. Terms of Company's Interest.
Consummation of the agreement is contingent on the Company's ability to
raise financing for project development; if successful, the Company would
receive a two-thirds interest. The Company has expended approximately $215,000
in furthering the project, which monies were borrowed from The R.K. Company
("R.K. Company"), a stockholder of the Company. The Company is examining its
options in light of the fact that financing has not materialized, developments
affecting the joint venture's title to the property, and the amount of monies
which would be required to effect the first stage of such development, estimated
to be approximately $80,000,000. The Company has not yet entered into
discussions with any financial institutions or other sources for financing this
project. In June 1997, R.K. Company filed a lawsuit for repayment of its loan.
No assurance can be given that the title will in fact be conveyed as
contemplated by the agreement, or that the Company will be able to obtain
financing for development of the project. Nor can there be any assurance that,
if developed, the project would be completed, and if completed, would be
successful.
H. CONTRACTS TO ACQUIRE REAL ESTATE
1. Description of the Contracts
In 1994, the Company entered into agreements with two real estate
holding companies then beneficially owned by Robert R. Krilich, Sr., The Senior
Group ("Senior Group") and The Rainbow Group ("Rainbow Group"), to acquire a
diversified portfolio of properties including commercial, residential,
industrial, recreational, and other real estate. (See Part I, Item
3--"Description of Property".) Subsequently, Senior Group and Rainbow Group
merged into The R&S Group ("R&S Group"), all of whose beneficial interests are
owned by the Company and controlled by Mr. Furlong as the Company's president.
R&S Group is a common law business organization, as were Senior Group and
Rainbow Group.
Subsequently, disputes have arisen with respect to such contracts and
the merger of Rainbow and Senior Groups into R&S Group, and none of such
properties have yet been delivered into the possession or control of the
Company. Such disputes are presently the subject of litigation between the
Company and Mr. Krilich and his affiliates; the Company has filed an action to
quiet title in the name of its affiliate, R&S Group, to impose a trust on income
from the subject properties, for conversion, and for punitive damages, and Mr.
Krilich has filed an action for breach of contract, fraud, entitlement to
additional consideration, and/or rescission (see Part I, Item 3--"Legal
Proceedings"). There can be no assurance that the
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Company will ever acquire title to such real estate, or avoid potential
liability for additional compensation.
Some of the properties acquired or to be acquired from Rainbow and
Senior Groups are income producing, but because of the disputes relating to such
contracts, such acquisitions have not been consummated, and the Company has not
received any income on account of such properties. Most of the properties to be
acquired from Senior and Rainbow Groups will require the expenditure of
considerable funds for development. At such time as it acquires title to such
properties, the Company will seek to generate funds for developing such
properties by selling some or all of those properties which are not income
producing; it will also consider the sale of income producing properties. (See
Part I, Item 2--"Management's Plan of Operation".)
Notwithstanding the Company has yet to consummate the contract to
acquire such property, in August 1996, R&S Group entered into a partnership
agreement to develop a hotel on 1.5 acres of land near Route I-95 in Dania,
Florida. Under such agreement, the Company would have a 50% interest in the
proposed development; the remaining 50% would be owned by Fairdan Suites, Inc.,
which would also manage the hotel for a fee equal to 5% of gross revenues.
Fairdan was to be responsible for arranging the financing. The Company's
interest is subject to transfer of the property in accordance with the terms of
the stock exchange agreements with Rainbow Group and Senior Group. The property
is one of those subject to the lawsuits filed by the Company and Mr. Krilich,
and there can be no assurance that clear title to the property can be obtained
(see Part II, Item 2--"Legal Proceedings"). Nor can there be any assurance that,
if clear title is obtained, Fairdan Suites, Inc., will be successful in
obtaining financing for the project, or that such development, if effected, will
be successful. Such projects are subject to many variables, including but not
limited to ordinances, regulations, building codes, availability of labor and
materials, availability and terms of financing, and marketability of the
development. One year after a hotel opens on the property, the parties'
interests become subject to a "buy-sell" agreement, pursuant to which either
party must sell its interest at the price offered by the other, or purchase the
other's interest at such price.
The Company may seek to acquire additional real estate for stock, where
management believes such property combines attractive income with desirable
capitalization rates. Such properties may include office and apartment
buildings, malls and industrial parks, hotels, and special purpose buildings, as
well as undeveloped acreage.
The Company does not presently employ anyone in its real estate
division.
2. Terms of Acquisition Contracts
The agreements with Senior Group and Rainbow Group provided for the
Company to acquire 100% ownership of such entities, each of which is a common
law business organization, in exchange for 62,374,363 shares and 68,479,611
shares, respectively, of the Company's common stock. All of such shares were
assigned to R.K. Company, a common law business organization which the Company
believes is beneficially owned and/or controlled by Mr. Krilich. The market
price of the Company's common stock was agreed to be $2.50 per share as of June
27, 1994, and it was agreed that 50% of the shares to be issued should equal the
value of the various properties. As additional consideration, 25,000,000 options
were issued to Rainbow Group and 25,000,000 options were issued to Senior Group,
in each case exercisable through June 2004. Half are exercisable at $1.00 per
share; the remainder are exercisable at the trading price at the close of
business on the day before exercise, but in no
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event less than 110% of the trading price on June 28, 1994. All such options
were assigned to R.K. Company and have not yet been exercised.
It was also agreed that, if the market price of the Company's shares
declined, the sellers would be entitled to such additional shares as necessary
to make up the difference. While the agreement is difficult to interpret and is
subject to the various disputes described elsewhere in this report, Senior Group
and Rainbow Group have received additional shares amounting to 11,439,300 and
28,909,688, respectively, making a total of 171,202,962 shares issued for such
properties. If adjusted to reflect current prices of the Company's stock, the
sellers could be entitled to a significant number of additional shares. It is
the Company's belief that the sellers made material misrepresentations as to the
value of properties to be acquired from or through Senior and Rainbow Groups,
that as a result such properties were significantly overvalued, and that the
agreement is so unclear that it is impossible to determine what, if any,
additional shares would be required. Such contentions are included in the claims
set out in the Company's lawsuit against Mr. Krilich, the former beneficial
owner, and his affiliates, arising out of the contract(s) with Senior and
Rainbow Groups (see Part II, Item 2--"Legal Proceedings"). Should the courts
disagree with the Company's contentions, the Company's stockholders could incur
significant dilution of their investment.
In June 1994, the Company agreed with the former owners of the Senior
and Rainbow Groups that the beneficial interest to the income and expenses of
these properties would not inure to Company's benefit until such time as its
Exchange Act registration became effective. It is the Company's contention that
in the meantime, the former owners were to pay all carrying costs of the
properties, including interest and taxes, and that the stock issued for such
properties is subject to a constructive trust. Notwithstanding that the
Company's Exchange Act registration became effective in February 1997, the
sellers have yet to provide the Company with any income from such properties or
any accounting for such income.
The Company has since determined that with respect to many of such
properties, material misrepresentations were made as to value, lack of
government permits, liens, inability to deliver marketable title, and/or similar
issues. Therefore, the sellers' rights to additional shares of the Company's
stock, and the outcome of related issues cannot be determined at this time, but
it is not impossible that the contracts could be found void, in which case the
Company would not acquire such properties and shares issued in connection with
such agreements would be cancelled and returned to the Company. Alternatively,
the Company could be found liable for a substantial amount of additional shares.
(See Part II, Item 2--"Legal Proceedings".)
3. Competition
In the event such contracts are consummated, the Company will be
competing with numerous other real estate companies and individuals with respect
to the sale of such properties, the acquisition of other real estate, financing
the development of its real estate, and finding suitable tenants or buyers.
Competition among private and institutional purchasers, both domestic and
foreign, for real property investments has increased substantially in recent
years. Increases in demand have resulted in gradual increases in prices paid for
real estate, and consequently higher fixed costs. With lending restrictions
becoming tighter, success in this industry continues to narrow to entities with
greater equity positions and professional management teams. There can be no
assurance that the Company will be successful in obtaining suitable properties
or that if investments are made, the Company's objectives will be realized.
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4. Regulation
The real estate development industry is subject to regulation by
federal, state and local governments in numerous ways, including laws and
regulations addressing zoning, land use, and environmental issues. The various
levels of regulatory oversight could adversely affect the Company's real estate
activities.
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS
OR PLAN OF OPERATION
The discussion contained in this Item 2 is "forward looking" as that
term is identified in, or contemplated by, Section 27A of the Securities Act and
Section 21E of the Exchange Act. Actual results may materially differ from
projections. Factors that could cause results to differ materially are described
throughout this report.
PLAN OF OPERATION
The Company's plan of operation for the immediate future is to focus on
commercializing its MedAway-1 units, and to raise funds necessary to commence
processing its precious metals concentrate, for which from $1,000,000 to
$5,000,000 will be required. The Company will seek to generate such funds by
realizing the commercial value, directly, through joint ventures, or by sale, of
some of its ore concentrate, its television time credits, its medical waste
disposal units, and/or its contractual or other, if any, interests in certain
real estate. With one exception hereinafter described (see Part I, Item
3--"Description of Property"), the Company has no contracts for such sale or
commercialization, and its real estate is the subject of litigation with former
owners; accordingly, there can be no assurance that the Company will be
successful in selling or commercializing any such assets. The Company will also
be required to devote substantial time and resources to prosecution of its
claims against Mr. Krilich and his affiliates, and to defend against the claims
filed by them (see Part II, Item 2--"Legal Proceedings").
At the same time, the Company will seek to raise funds through a
private offering of securities to an institutional buyer or through a registered
broker dealer. Up to $5,000,000 would be used to fund equipment and operations
for minerals processing; if less is required for this purpose, up to $1,000,000
would be used for the planning and organizational stages of the Company's health
care segment, and if its contracts to acquire real estate are consummated, up to
$1,000,000 would be used for development of the Company's real estate. A portion
of such proceeds would be used for working capital for marketing the Company's
MedAway-1 leases, and to provide funding for NMC. At such time as cash flow from
one or more of these activities permits, the Company will seek to develop its
health care line of business.
1. Mineral Processing Operations
The Company will seek to commence processing of its existing inventory
of ore concentrates as a matter of first priority. To initiate such processing,
the Company requires from $1,000,000 to $3,000,000 for equipment and another
$2,000,000 for working capital, for which it is presently seeking an appropriate
source of financing. The Company is exploring new, alternative technologies for
which equipment is significantly less expensive, but which is proprietary, and
may therefore require the negotiation of a joint venture arrangement.
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If less is required for such purposes, the Company will apply the surplus
towards the Company's other lines of business as described below.
It is contemplated that the Company's mining and processing operations
could be operational as soon as 18 months after availability of financing. At
such time as the Com- pany's planned facilities for producing dore bars are
operational, it is expected that revenues from this source will generate
sufficient cash flow for the Company's minerals division as well as for the
needs of its other business segments. Such plans may be impacted by numerous
contingencies, including but not limited to the accuracy of the various assays
obtained by the Company, the actual quality and quantity of precious metals in
such concentrates, the Com- pany's ability to process such concentrates for a
reasonable price and market its product, the Company's ability to generate funds
through the sale of real estate or its television time credit certificates
and/or a private placement offering, the outcome of its negotiations or
litigation with Mr. Krilich and his affiliates, and state and federal regulation
of the minerals operations contemplated by the Company.
2. Entertainment Division
At the same time, the Company plans to continue development of the
activities of Nashville Music Consultants, Inc. ("NMC"). The Company's agreement
for acquisition of NMC became effective February 4, 1997, and from that time,
the Company is entitled to a management fee equal to 9% of NMC's gross revenues.
Heretofore focused on country and western music and performers, and anticipates
expanding into Christian music. The Company is committed to trying to arrange
$500,000 of financing for NMC's development. As of December 31, 1996, NMC had
liabilities of $534,936, and experienced losses in 1996 of $201,393. The Company
believes that NMC's cash flow is improving, but there can be no assurance that
NMC will not require all or a portion of such financing to continue with its
plans.
However, NMC's plans may be impacted by several contingencies,
including but not limited to the continued demand for country western and
Christian music, its ability to locate and identify talented and marketable
country western and Christian music writers and performers, and its ability to
maintain cash flows to support its own business activities.
3. MedAway Units
The Company is currently engaged in marketing leases for its 24
MedAway-1 medical waste decontamination units to a hospital chain. The Company
intends also to market leases of its units to hospitals, nursing homes,
government entities, and related businesses. Working capital for this segment of
the Company's business is hoped to be provided by initial lease arrangements
with a substantial hospital chain. If such leases do not materialize in a
sufficiently short period of time, the Company will seek to contract with one or
more marketing representatives, and may seek a loan to launch a marketing
campaign. When leased, each machine is expected to generate income sufficient to
sustain operations for this segment of the Company's business. The Company plans
to seek approval for assignment of the MedAway distribution agreement, or a new
distribution agreement with the manufacturer as soon as the Company's financial
resources appear sufficient to support expanded marketing.
4. Learning Centers
The Company intends to open a learning center in Reno, Nevada, in the
fall of 1997. Approximately $50,000 is deemed necessary to commence operations,
which funds are being
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provided by William Jackson and his wife Jacqueline Jordan. The Company's plan
to start-up the learning center in Reno is dependent on Mrs. Jordan's moving to
the United States, and on the funding committed by Mr. Jackson. Mr. Jackson's
and Mrs. Jordan's plans to finance such start-up may be impacted by various
contingencies, including, but not limited to, their ability to apply their
business strategy to the United States, and their ability to successfully
compete with similar learning centers established in the United States.
5. Health Care Centers
The Company continues to plan a national chain of health care centers.
Development of this business, however, will require significant investment,
including costs associated with background research, professional fees,
licensing, and organizational activities. It is hoped and anticipated that the
Company's mineral and real estate sectors will provide funds for the
organization of this line of business. The Company anticipates that the planning
and organizational phase may be completed in mid-1999, at which time the Company
will commence marketing of its health care management and affiliation
arrangements.
Such plans may be impacted by several contingencies, including but not
limited to the Company's ability to locate health care providers willing to
participate with the Company; consumer acceptance of and demand for the health
care centers contemplated by the Company; the Company's ability to generate
funds through commercialization of its precious metals concentrate,
commercialization of its television time credit certificates and/or interests in
real estate, and/or lease of its MedAway-1 units; and state and federal
regulation of the industry. When enough affiliates of various disciplines in one
area have entered into contracts with the Company, the Company plans to combine
such practices into multi-disciplinary health care centers. The goal will be to
provide primary and alternative health care at "one stop" health care
facilities. It is expected that funding for the multi-disciplinary health care
centers will be obtained through traditional financing arrangements,
supplemented by funds from the Company's mining and other operations.
The Company intends to defer further commitments to the joint venture
in Mexico in light of unforeseen problems with the joint venture arrangements
and title to the real estate in Mexico. As time and funds permit, the Company
will explore the resolution of such problems and the availability of financing
for the project.
6. Real Estate
It is the Company's intent to pursue acquisition of the real estate
with respect to which it entered into contracts with and issued shares to
Rainbow and Senior Groups through litigation and settlement negotiations. If
successful, the Company will sell at least some of such real estate,
particularly those properties which require long term development effort and/or
significant financing.
The Company's ability to sell or otherwise realize income from the
properties contracted for from Rainbow Group or Senior Group will depend on the
outcome of such litigation, and could also be adversely affected by certain
court orders affecting Mr. Krilich and his properties. The Company has filed a
lawsuit with respect to such properties with a view to perfecting its rights,
and is contesting a lawsuit filed by Mr. Krilich for rescission of the contracts
relating to such properties. (See Part II, Item 2--"Legal Proceedings".)
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At this time, no assurance can be given that the Company will ever
consummate the acquisition of such properties or realize income therefrom.
7. Other Considerations
To effectively manage the properties which it has acquired or agreed to
acquire, the Company will be obliged to perform numerous and extensive
administrative functions. It will be necessary for the Company to significantly
expand its employee base within the next 12 months. In addition, it will be
necessary for the Company to invest in the purchase of computer and other
equipment necessary to monitor the operations of its various lines of business.
During the next 12 months, the Company will require significant
additional funds to effect its plans. As indicated above, the Company is seeking
to generate funds by realizing the commercial value, by sale or otherwise,
directly, through joint ventures, or by sale, of some of its ore concentrate,
its television time credits, its medical waste disposal units, and/or its
contractual interests in certain real estate, and/or a private placement
offering. Absent such financing, the Company may be unable to put its plans into
immediate effect. Inasmuch as it is asset based with minimal operations, delay
in obtaining such financing is not deemed to pose a significant threat to the
Company's viability.
ITEM 3. DESCRIPTION OF PROPERTY
A. PRECIOUS METAL CONCENTRATES AND MINERAL RIGHTS
The Company owns a substantial deposit of ore concentrate located
approximately 40 miles from Prescott, Arizona, which according to an independent
metallurgist/assayer, contains substantially in excess of 500,000 tons. Tests by
Metallurgical Research & Assay Laboratory of Henderson, Nevada, another
independent firm including a registered assayer and analytical chemist,
indicates that such concentrate contains commercial quantities of precious
metals, including gold, platinum, iridium, and osmium. Sample tests (using a
process known as "DCP") indicate as much as one ounce of gold, three ounces of
platinum, and 19 ounces of osmium, among other precious and rare earths, in each
ton of concentrate. The Company owns the concentrate outright; it also has the
mineral rights to 17 claims located on the surrounding 340 acres pursuant to a
mineral lease which expires in 2001. Gold in the form of nuggets was extracted
from the property's surface by high grading (the extraction of free gold from
the surface) from the 1970s to 1994, when the property rights were acquired by
Peeples LLC. The Company's concentrate consists of the tailings from such high
grading operations which were placed in a pit. Lease payments are less than
$10,000 per year.
Through Peeples Mining, its wholly owned subsidiary, the Company also
owns seven 20-acre lode mining claims near Mesquite, in Clark County, Nevada.
This property was acquired by F&H Mining in 1987, and in February 1997, F&H
Mining was combined into Peeples Mining. Three composite samples from the top
three feet tested by Metallurgical Research & Assay Laboratory indicate
commercial quantities of precious metals, including gold, platinum, iridium, and
osmium in approximately 1,050,000 tons of head ore. Maintenance of the mineral
lease rights requires annual assessment work on the claims, for which
approximately $500 per year is currently expended.
In February 1997, the Company acquired 17 lode claims, including all
mineral rights, on 360 acres of land in San Bernardino County, California,
approximately 30 miles from Barstow, California. Such property includes a 600
foot deep shaft which operated from
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approximately 1920 until the late 1930s, when operations were suspended on
account of shortages incident to World War II. Although not presently operating,
the property was mined by high grading over the past 20 years. Only about one
acre has been exploited by such operations.
B. CONTRACTS TO ACQUIRE REAL ESTATE
The Company has contracts with Rainbow Group and Senior Group (now R&S
Group) calling for acquisition of certain properties described below. None of
such acquisitions have been consummated, however, and Mr. Krilich, the former
beneficial owner of Rainbow and Senior Groups, has filed an action against the
Company to rescind such contracts, for breach of certain provisions in the
contracts including entitlement to additional consideration, and for fraud. (See
Part II, Item 2--"Legal Proceedings".)
Deeds to most of the Oakbrook Terrace property have been recorded in
the name of R&S Group, which is owned by the Company, but not all of the
property contracted for has been conveyed. Deeds to the Tennessee properties
have been recorded in the names of Senior Group and Rainbow Group (now R&S
Group), but Mr. Krilich has caused deeds to the same properties to be recorded
purportedly conveying the properties to R.K. Company, which the Company believes
is beneficially owned and/or controlled by him. The Company has filed lawsuits
seeking conveyance of all the properties to it free and clear of any of any
other interests or encumbrances, and seeking to set aside the conveyance to R.K.
Company of the Tennessee properties. (See Part II, Item 2--"Legal Proceedings".)
There can be no assurance, however, that the Company will ever effectively
acquire such real estate. In the meantime, the Company is attempting to sell
whatever interest it may have in certain of such real estate.
The Company could encounter other problems in consummating the
acquisition of some of the properties subject to its contracts with Rainbow and
Senior Groups. In addition to the various lawsuits between the Company and Mr.
Krilich, in September 1995, the U.S. District Court for the Northern District of
Illinois entered an order enjoining Mr. Krilich and others from transferring,
disposing of, or otherwise dealing with any property owned or controlled by Mr.
Krilich in any way which would affect its value, without posting security in the
amount of $20,000,000. (See Part II, Item 2--"Legal Proceedings".) It is the
Company's position that its agreements with Rainbow and Senior Groups were
executed before such order was entered, and that the Company had no information
of any proceedings which could restrict its rights to acquire and deal with such
properties. The effect of the order on conveyance of the properties subject to
the Company's contracts with Rainbow and Senior Groups cannot yet be determined,
but management believes that this issue will be resolved in the near future, by
court proceedings if necessary.
It had been agreed that, pending effectiveness of the Company's
Exchange Act registration statement, the sellers would keep all income from the
properties and pay all taxes and costs relating to maintenance of the
properties; consequently, the Company would not be entitled to any income from
such properties until February 1997, when its Exchange Act registration in fact
became effective. The Company is seeking an accounting and payment from Mr.
Krilich for all rents from such properties subsequent to February 4, 1997.
A number of other disputes have arisen with respect to the obligations
of the sellers, both of whom were controlled by Mr. Krilich at the time, under
these agreements. (See Part II, Item 2--"Legal Proceedings".) It is contemplated
that such disputes will be settled in
22
<PAGE>
connection with the above referenced litigation. Because of such disputes and
litigation, the Company does not have reliable or current information with
respect to acreage, size, rents, occupancy, lease terms, or insurance.
The Company's contracts call for conveyance of the following
properties, all of which are subject of the lawsuits described in this report
(see Part II, Item 2--"Legal Proceedings"):
a. 26 rental town houses, a tennis court, and swimming pool, all
part of a development known as Royce Renaissance, in Oakbrook
Terrace, Illinois. 4,550,000 shares of the Company's common
stock were issued for this property. Such property is now
carried on the Company's books at a value of $3,863,130 based
on a tax assessor's fair market value report.
b. A three story office building, a restaurant/catering/banquet
facility, a single story building formerly used as a model
building for potential apartments, and approximately three
acres of vacant land, all part of the Royce Renaissance
development in Oakbrook Terrace, Illinois. The buildings
require build-out and are presently unoccupied except for one
half of the third floor, which is occupied by Mr. Krilich
and/or certain affiliated companies. 9,915,500 shares were
issued for the buildings, which are now carried at a value of
$4,569,930 based on a tax assessor's fair market value report,
and 221,778 shares were exchanged for the vacant land, which
is carried at a value of $2,100,000 based on a tax appraiser's
fair market value report. 292,750 shares were issued for a
leasehold interest in half the third floor of the office
building, for build-out, and occupancy for the anticipated
time prior to the Company's Exchange Act registration. Such
lease term and buildout was valued at $658,688. It had been
intended that such space would be occupied by the Company, but
build-out was never completed.
c. A leasehold interest, believed to have six years remaining, in
a property located in Northbrook, Illinois, currently leased
to a motel known as The Sybris Inn. The Inn, consisting of 38
specialty cottages, is believed to be leased to an operator
for more than $40,000 per month. 3,750,500 shares were issued
for this interest, which is now carried on the Company's books
at a value of $2,700,000 based on an appraisal performed by an
independent certified appraiser in January 1992. Lease
payments are currently being made to Royce Realty, an entity
believed to be owned or controlled by Mr. Krilich.
d. A 100% interest in the Lakemoor Country Club in the village of
Lakemoor, Illinois, including the surrounding 155 acres,
clubhouse, lakes, restaurant lease, etc. 2,888,889 shares were
issued for this property, which is carried on the Company's
books at a value of $359,758 based on management's belief as
to the price paid by the seller. The Company is not aware of
any operations at the club in 1995 or 1996, nor is it aware of
any revenues from such property.
e. The entire beneficial interest in Deer Park Trust, which owns
a 45% interest in a shopping center located in Palatine,
Illinois. 4,876,000 shares were issued for this interest,
which is carried on the Company's books at a value of
$6,689,596 based on management's belief as to the cost to
seller of the land, buildings, and parking area. Payments are
23
<PAGE>
being made to the trustee, whom the Company believes is an
attorney who represents Mr. Krilich in other matters.
f. A site of approximately 6,200 square feet located in a strip
mall in Schiller Park, Illinois, which includes leases for a
Denny's Restaurant and a MaCleen's car wash. 4,500,000 shares
were issued for this prop- erty, which is carried on the
Company's books at a value of $1,207,207 based on management's
estimate of the present value of future lease payments over
approximately six years, less mortgage expense. The Company
believes that title is currently in a land trust for the
benefit of and/or controlled by Mr. Krilich, with rents being
collected by Royce Realty.
g. 12 acres of undeveloped land zoned commercial, near Stirling
Road and Route I-95, in Dania, Florida. 12,500,000 shares were
issued for this property, which is carried on the Company's
books at $1,618,103 based on management's belief as to the
price paid by seller. A portion of this property is subject to
a joint development agreement between R&S Group and Fairdan
Suites, Inc., for development of a hotel (see Part I, Item
1--"Description of Business"), but the pending litigation will
not permit the project to move forward.
h. A 73% interest in the land containing the golf course and club
building for Country Lakes Country Club in Naperville,
Illinois. 6,222,222 shares were issued for this interest,
which is carried on the Company's books at $2,684,779, based
on a tax assessor's fair market value report. Food and
beverage operations are believed to be leased to a third party
for approximately $10,000 per month. Subsequent to execution
of the Company's contract, the property was found to be
subject to forfeiture in proceedings against Mr. Krilich (see
Part II, Item 2--"Legal Proceedings").
i. A water and sewage disposal facility at Lakemoor, Illinois,
which was to serve the Lakemoor Country Club and a 500 unit
apartment complex. 1,244,444 shares were issued for this
property; no value is placed on this property for financial
statement purposes on account of the Com- pany's inability to
find any information on which to base a value. The facility is
not currently fully operational because the necessary permits
were either not issued or expired, and is the subject of
injunction proceedings filed by the Illinois Environmental
Protection Agency. (See Part II, Item 2--"Legal Proceedings".)
j. A restaurant site approximately 6,200 square feet) located at
Lawrence Avenue and River Road, Schiller Park, Illinois.
355,556 shares were issued for this property, which is carried
on the Company's books at $627,789 based on the price paid by
seller.
k. Approximately 419 acres of vacant land in Galatin, Tennessee.
15,555,556 shares were issued for that portion suitable for
subdivision into single-family building lots. 25,500,000
shares were issued for those portions planned for development
of a golf course, clubhouse, marina, apartments and a hotel.
The property is carried on the Company's books at $16,000,000
based on a pending contract for sale, which is subject to the
Company's ability to deliver clear title.
l. Oakbrook Terrace Utility Service, servicing the Royce
Renaissance Center and a 17 story office building known as
Lincoln Centre.
24
<PAGE>
1,244,444 shares were issued for this property, which is
carried at $408,000 based on management's belief as to the
price paid by seller.
m. Approximately 58 acres of undeveloped land zoned commercial on
Dickerson Road, in Nashville, Tennessee. 25,300,000 shares
were issued for this property, which is carried at $1,659,900
based on a tax appraiser's fair market value report.
n. A 50% interest in a parcel of land just off Route 70 near
Bellevue, Tennessee, and approximately 24 acres of land
adjoining such parcel, for which 3,200,000 shares were issued.
1,500,000 shares were issued for an adjoining 1,500 acres
deemed suitable for development with single family homes, and
500,000 shares were issued for a small commercial site
adjoining such parcel. The Company carries these properties at
$800,400 based on a tax assessor's fair market value report,
at which price the properties are listed for sale.
Notwithstand- ing the Company's contract, this property was
recently recorded by Mr. Krilich in the name of R.K. Company,
and in February 1997, five acres of the 29 acres to a third
party for $174,000.
The Company did not obtain appraisals of such properties; in some cases
letters from real estate professionals as to the value of the properties to be
acquired were supplied by Mr. Krilich; in other cases representations of Mr.
Krilich were relied upon. In some cases, the exchange price was based on
anticipated income from the property following development.
The Company believes that, in most cases, material misrepresentations
were made as to value and/or other facts about such properties, and that in many
cases, clear title cannot be obtained. As part of the pending litigation, the
Company will attempt to adjust the number of shares issued or to be issued to
the fair market value of each property, but there can be no assurance that the
courts will find in favor of the Company. (See Part II, Item 2--"Legal
Proceedings".)
The shopping center in Pallatine, Illinois, is managed by the joint
venture partner; in most other cases where management is required, properties
are currently managed by Royce Realty, whose sole stockholder is believed to be
R.K. Company, a stockholder of the Company, or Mr. Krilich, also a stockholder
of the Company. (See Part I, Item 7--"Certain Relationships and Related
Transactions".) In the event the acquisitions are consummated, the Company plans
to sell some properties and perhaps develop some properties as financing
permits. Other properties may be leased to others with a requirement that the
property be developed. In addition, the Company would terminate any interest or
involvement of Royce Realty in any of the properties and establish a new
management team to manage its properties.
C. OFFICES
The Company's executive offices are located in suite 22F, 100 North
Arlington, Reno, Nevada, where it occupies two offices and a store room provided
by the Company's president, Mr. Furlong, without rent. Mr. Furlong also provides
an office in his house at 1030 Arabian Drive, Loxahatchee, Florida, for which it
pays no rent. (See Part I, Item 7--Certain Relationships and Related
Transactions".)
25
<PAGE>
D. OTHER PROPERTY
Through its subsidiary Peeples Mining, the Company owns certain mining
equipment, including washer and concentrating equipment, loaders, a bulldozer,
and trucks, which the Company values at approximately $410,000. As a result of
its combination with F&H Mining, Peeples also owns certain equipment for
leaching and testing head ores, valued at approximately $86,000.
As part of its agreement with Senior Group in June 1994, the Company
acquired a 50% interest in Rainbow Air Corporation, which the Company believes
owns a 63 foot Sunseeker boat, a 50% interest in a Hawker aircraft, and a 50%
interest in a 110 foot Christenson motor yacht named R Rendezvous, located in
Ft. Lauderdale, Florida. A net of 2,094,889 shares were issued for the interest
in Rainbow Air Corporation, to which no value is ascribed due to lack of
records. The Company also owns directly a 50% interest in the R Rendezvous, for
which it paid 1,333,333 shares. The Company's interest in this yacht,
aggregating 75%, is carried at $688,608 based on management's estimate of the
present value of estimated charter revenues. Management currently plans to use
the R Rendezvous for charter cruises and for promotional purposes. The Company
is in the process of reevaluating these transaction to ensure that the number of
shares issued accurately reflect the intent of the parties. Such properties are
also the subject of the legal proceedings between Mr. Krilich and the Company.
ITEM 4. SECURITY OWNERSHIP OF CERTAIN
BENEFICIAL OWNERS AND MANAGEMENT
SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS
The following table sets forth certain information with respect to the
beneficial ownership of each person who is known to the Company to be the
beneficial owner of more than 5% of the Company's Common Stock as of July 31,
1997.
(1) (2) (3) (4)
Title Name and Address Amount and Nature Percent
of of Beneficial of Beneficial of
Class Owner Ownership(1)(2) Class(2)
----- ---------------- ----------- -----
Common Robert R. Krilich, Sr. 194,875,693(3) 23.6%
Stock 1000 Royce Road
Oakbrook Terrace, IL 60181
Common The R.K. Company 193,202,962(4) 23.3%
Stock 1000 Royce Boulevard
Oakbrook Terrace, IL 60181
Common Zarzion, Ltd. 462,737,143(5) 55.9%
Stock c/o Ms. Carole Aronson, President (U.S.)
8250 Clyde Road
Fenton, MI 48430
Common Maurice W. Furlong Sr. 497,804,020(6)(7) 60.2%
Stock 100 North Arlington (ste. 22F)
Reno, NV 89501
- ------------------
26
<PAGE>
1 Unless otherwise noted, the security ownership disclosed in this table
is of record and beneficial.
2 Under Rule 13-d under the Exchange Act, shares not outstanding but
subject to options, warrants, rights, or conversion privileges pursuant
to which such shares may be acquired in the next 60 days are deemed to
be outstanding for the purpose of computing the percentage of
outstanding shares owned by the persons having such rights, but are not
deemed outstanding for the purpose of computing the percentage for any
other person.
3 Includes 193,202,962 shares assigned to R.K. Company, a common law
business organization believed to be wholly owned and/or controlled by
Mr. Krilich (see note 4). Also includes 3,333 shares registered in the
name of Robin Keel, Mr. Krilich's daughter; 77,233 shares registered in
the name of Robert R. Krilich, Jr., Mr. Krilich's son; 255,332 shares
registered in the name of Barbara L. Krilich, Mr. Krilich's daughter;
3,333 shares registered in the name of Richard Krilich, Mr. Krilich's
son; 3,333 shares registered in the names of Gregory and Roseann
Loesch, Mr. Krilich's daughter and son-in-law; 10,000 shares registered
in the name of Richard Gaydo, Mr. Krilich's uncle; 500 shares
registered in the name of Alexis L. Schnakenburg, Mr. Krilich's
granddaughter; 3,333 shares registered in the name of Karl and Sandy
Schnakenburg, Mr. Krilich's daughter and son-in-law; 500 shares
registered in the name of Kyle Schnakenburg, Mr. Krilich's grandson;
and 50,000 shares registered in the name of Debbie and John Sebek, Mr.
Krilich's daughter and son-in-law.
4 Includes 171,202,962 shares currently registered in the name of Rainbow
Group and Senior Group, to whom they were issued in accordance with the
1994 Stock Exchange Agreements pursuant to which certain real estate
and other properties were acquired from such entities. In November
1995, following the merger of Rainbow and Senior Groups into R&S Group,
which is owned by the Company, such shares were assigned to R.K.
Company, an affiliate of Mr. Krilich. Transfer of the properties for
which such shares were assigned to R.K. Company is currently the
subject of litigation (see Part II, Item 2--"Legal Proceedings"), and
transfer of such shares to R.K. Company has not yet been requested. The
Company contends such shares are subject to a constructive trust
pending consummation and transfer of the properties subject of such
contracts.
5 Includes 375,000,000 shares issued in February 1997 in exchange for
mining properties in California. As to voting rights, see footnote 7.
6 Includes 4,164,685 shares owned by Cynthia Ann Furlong, Mr. Furlong's
spouse; 27,000,000 shares owned by The Furlong Family Trust; 32,358
shares owned by Craig Furlong, Mr. Furlong's son; 50,000 shares owned
by Valarie Furlong, Mr. Furlong's daughter-in-law; 40,000 shares owned
by Shirley Scott, Craig Furlong's mother-in-law; and 3,333 shares owned
by Billy Scott, Craig Furlong's brother-in-law.
7 Includes 462,737,143 shares registered in the name of Zarzion, Ltd., as
to which Mr. Furlong has voting control pursuant to a voting trust
agreement with Zarzion, Ltd., dated April 21, 1997. Such agreement
expires in February 2007.
27
<PAGE>
SECURITY OWNERSHIP OF MANAGEMENT
The following table sets forth certain information with respect to the
beneficial ownership of each officer and director, and of all directors and
executive officers as a group as of July 31, 1997.
(1) (2) (3) (4)
Title Name and Address Amount and Nature Percent
of of Beneficial of Beneficial of
Class Owner Ownership(1)(2) Class(2)
----- ------------------ ------------------ -----
Common Maurice W. Furlong Sr. 497,804,020(3) 59.9%
Stock 100 North Arlington (ste. 22F)
Reno, NV 89501
Common Michael J. Pietrzak 82,334 *
Stock 289 S. President Street
Carol Stream, IL 60188
Common Alexander H. Walker, III 250,000 *
Stock 57 West 200 South (no. 400)
Salt Lake City, UT 84101
All officers and directors 498,636,354(3) 60.0%
as a group (three persons)
- -----------------
* Indicates less than 1%.
1 Unless otherwise noted, the security ownership disclosed in this table
is of record and beneficial.
2 In accordance with Rule 13-d under the Exchange Act, shares not
outstanding but subject to options, warrants, rights, or conversion
privileges pursuant to which such shares may be acquired in the next 60
days are deemed to be outstanding for the purpose of computing the
percentage of outstanding shares owned by the persons having such
rights, but are not deemed outstanding for the purpose of computing the
percentage for any other person.
3 Includes 462,737,143 shares beneficially owned by Zarzion, Ltd, as to
which Mr. Furlong has voting rights, and other shares beneficially
owned by members of his family. See footnotes 7 and 8 in previous
table. Does not include 94,389,299 shares registered in the name of
Rainbow Group and 73,813,663 shares registered in the name of Senior
Group, now combined into R&S Group, which have been assigned to R.K.
Company but not yet transferred on the books of the Company. Mr.
Furlong controls R&S Group on behalf of the Company, which is its
beneficial owner.
In April 1997, Zarzion, Ltd., entered into a voting trust agreement
with Mr. Furlong, pursuant to which Mr. Furlong is entitled to vote the
462,737,143 shares of the Company's stock registered in Zarzion's name until
February 2007. Such agreement was entered into between Zarzion and Mr. Furlong
individually, and had no relationship to the purchase of Zarzion, Ltd.'s
California mining property which took place in February 1997. Zarzion, Ltd. is a
Bahamian corporation organized under the laws of Nevis, and is owned and managed
by individuals unrelated to the Company.
28
<PAGE>
ITEM 5. DIRECTORS, EXECUTIVE OFFICERS, PROMOTERS AND CONTROL PERSONS
DIRECTORS AND EXECUTIVE OFFICERS
As of July 31, 1997, the directors and executive officers of the
Company, their ages, positions in the Company, the dates of their initial
election or appointment as director or executive officer, and the expiration of
the terms as directors are as follows. Directors are elected at its annual
meeting of stockholders and hold office until their successors are elected and
qualified. The Company's officers are appointed annually by the Board of
Directors and serve at the pleasure of the Board.
<TABLE>
<CAPTION>
Term as
Director
Name Age Positions Held Expires
- ---- --- -------------- -------
<S> <C> <C> <C>
Maurice F. Furlong 48 Chairman of the Board of Directors, 1997
Chief Executive Officer and President
Michael J. Pietrzak 48 Director, Secretary 1997
Alexander H. Walker, III 36 Director 1997
</TABLE>
Maurice W. Furlong, 48, has been the Company's President, Chief
Executive Officer, and Chairman since November 1984. Mr. Furlong was also the
founder of and a consultant to F&H Mining. From 1981 to 1984, he was a business
consultant to R.F. Scientific, Inc. Mr. Furlong has been active in business
development and capitalization for a number of public companies, including
companies involved in satellite communications, music recording, motion picture
production and distribution, and chiropractic medicine. He was founder of The
American Music News, a nationally distributed music news publication of which he
served as president from 1979 through 1985. Also from 1979 through 1983, Mr.
Furlong was a sales and marketing consultant for Koala Record Co., a record
company in Hendersonville, Tennessee. From 1976 through 1979, he was president
of Hunter's International Manufacturing Co., a manufacturer and wholesaler of
sporting goods. From 1968 through 1976, he was the owner of Furlong Contract
Construction Co., a general contractor in residential construction in Winan,
Michigan. Mr. Furlong is the subject of several court proceedings and cease and
desist orders relating to the sale of securities. (See "Certain Legal
Proceedings Involving Directors and Officers" below.)
Michael J. Pietrzak, 48, has been a Director and Secretary of the
Company since November 1996. Mr. Pietrzak is an attorney licensed in the State
of Illinois with a background in business law, and has provided legal and
business guidance to corporate and other business entities on a variety of
issues, including real estate, health care, mining, entertainment, environmental
matters, finance, international business organization, and banking. He has also
counseled clients with respect to litigation, mergers and acquisitions, general
issues relating to corporations and other types of business entities, employment
issues, state and federal regulations, copyrights and trademarks, marketing, and
advertising. He currently works full time for the Company.
Alexander H. Walker, III, 36, has been a Director of the Company since
November 1996. From 1987 through 1993, Mr. Walker practiced law with the firm of
Van Wagoner & Stevens, in Salt Lake City, Utah. Since 1993, he has practiced in
his own firm and as a sole practitioner, focusing primarily on business and
securities litigation. Mr. Walker also has performed securities transactional
and general corporate/business work for clients in a variety
29
<PAGE>
of industries, including home health care, demolition blasting, dry cleaning,
golf course construction and operations, auto parts sales, and dental implant
sales and fabricating.
None of the Company's Directors are directors of other reporting
companies.
There are no family relationships between the directors, executive
officers or with any person under consideration for nomination as a director or
appointment as an executive officer of the Company.
SIGNIFICANT EMPLOYEES AND CONSULTANTS
The Company currently has no employees except for certain officers and
directors. Although certain individuals, including Mr. Furlong, have devoted
substantial time and energy to the Company's operations, these individuals have
not been compensated by the Company. In November 1996, Messrs. Pietrzak and
Walker and Mrs. Barbara L. Krilich received stock from the Company as an
incentive to becoming directors (no services being required), and each has
received some compensation, including professional fees, from certain third
parties who will not be reimbursed by the Company. The Company is not a party to
any collective bargaining agreement.
In January 1996, the Company entered into an agreement with Mr.
Krilich, pursuant to which Mr. Krilich was to provide advice and consulting
services with respect to management and organization of the Company, its
financial policies, real estate development and financing arrangements, and
other matters arising out of the Company's business. The Company agreed to pay
Krilich on a per-project basis, each project to be chosen and assigned by the
Company. The agreement is for a 10-year period with automatic renewal periods of
10 years each, which renewals are at the option of the consultant. The fee to be
paid to Mr. Krilich has yet to be determined, but it was agreed that he would
not be entitled to any payment until seven months after the effective date of
the Company's Exchange Act registration. In light of the disputes which have
arisen between Mr. Krilich and the Company and its management, it is unlikely
that the Company will call on Mr. Krilich's services. As a precautionary
measure, the Company has sent written notice to Mr. Krilich stating he has no
authority to act on the Company's behalf for any purpose.
CERTAIN LEGAL PROCEEDINGS INVOLVING DIRECTORS AND OFFICERS
In December 1994, the Securities Commissioner for South Carolina
entered an Order to Cease and Desist from Selling Unregistered Securities and
Notice of Right to Hearing in an administrative proceeding before the South
Carolina Securities Division against the Company, Maurice Furlong, Craig
Furlong, and James Troester. At the time in question, Messrs. Furlong, Furlong,
and Troester were officers of the Company. Such order contained allegations of
sales of unregistered securities, sales of securities by unregistered agents,
and fraud in the sale of securities. The order denied the availability of
exemptions from registration requirements under South Carolina law with respect
to certain transactions involving the sale of the Company's stock in South
Carolina; ordered the respondents to cease and desist from issuing, offering,
and selling securities issued by the Company to persons in South Carolina until
the respondents became licensed broker-dealers or agents; and prohibited
respondents from making any offer or sale of any security to any entity or
person in South Carolina by means of false or fraudulent sales practices.
30
<PAGE>
In March 1994, in an action brought by the Tennessee Securities
Division, the Commissioner of Commerce and Insurance for Tennessee entered an
Order to Cease and Desist whereby the Company, its predecessor, SCN Ltd, and
Maurice Furlong, James Troester, and certain others were ordered to cease and
desist from (i) the further offer or sale of stock subscriptions of the Company
from, to or into the State of Tennessee until such time as such securities are
effectively registered with the Tennessee Securities Division; (ii) conduct as a
broker/dealer in Tennessee until such time as such person are effectively
registered with the Tennessee Securities Division; (iii) advertising stock
subscriptions; (iv) making any untrue statement of a material fact or failing to
state a material fact necessary in order to make the statements made, in the
light of circumstances in which they are made, not misleading; and (v) aiding,
abetting, or helping any of the respondents in any of such violations.
In 1988, the U.S. District Court for the Middle District of Tennessee
entered a Final Judgment of Final Injunction against the Company and its then
officers and directors (including Messrs. Furlong, Furlong, and Troester)
enjoining the them from, among other things, offering or selling common stock of
SCN Ltd. unless and until a registration statement has been filed with the
Securities and Exchange Commission as to such securities and from employing any
device scheme or artifice to defraud in connection with the sale of SCN common
stock.
None of the Company's Directors or executive officers have, in the past
five years, been (i) involved in any bankruptcy proceedings or (ii) subject to
criminal proceedings or convicted of a criminal act, and, except as indicated
above, none of the Company's Directors or executive officers have, in the past
five years, been (iii) subject to any order, judgment, or decree entered by any
Court for violating any laws relating to business securities or banking
activities; or (iv) subject to any order for violation of federal or state
securities laws or commodities laws.
ITEM 6. EXECUTIVE COMPENSATION
The following table sets forth the compensation paid or accrued by the
Company during the years ended December 31, 1996, 1995 and 1994 to the Company's
Chief Executive Officer and other officers and Directors whose compensation
exceeded $100,000 in any one year.
<TABLE>
<CAPTION>
SUMMARY COMPENSATION TABLE
Long Term Compensation
----------------------------
Annual Compensation Awards Payouts
----------------------- ----------------- ---------
(a) (b) (c) (e) (f) (g) (h) (i)
Other Restrict All other
annual ed stock Options/ LTIP compen-
Name and prin- comp. awards SARs payouts sation
cipal position Year Salary ($) ($) (#) ($) ($)
- --------------- ---- ------ ---- ---- ---- ---- ---
<S> <C> <C> <C> <C> <C> <C> <C>
Maurice Furlong, 1996 -0- -0- -0- -0- -0- -0-
CEO and Chair- 1995 -0- -0- -0- -0- -0- -0-
man 1994 -0- -0- -0- -0- -0- -0-
</TABLE>
There were no options granted in the last fiscal year to any of the
Company's officers or Directors.
31
<PAGE>
COMPENSATION OF DIRECTORS
Members of the Board of Directors do not receive cash compensation for
their services as Directors, except that, as an incentive to their becoming
members of the board, 750,000 shares were issued to three new members in
November 1996. In addition, Directors are not presently reimbursed for expenses
incurred in attending Board meetings.
On November 1, 1996, Mr. Pietrzak, Ms. Krilich, and Mr. Walker were
each awarded 250,000 shares of the Company's common stock as compensation for
becoming directors.
ITEM 7. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
Certain individuals interested in the Company's success have
contributed and continue to contribute time, office space, and travel,
telephone, compensation to independent consultants and professionals, and other
expenses, without compensation or reimbursement.
In March 1994, the Company agreed to acquire all the outstanding stock
of F&H Mining in exchange for stock of the Company (see Part I, Item
1--"Description of Business"). At the time of such agreement, members of the
family of Maurice Furlong, the Company's President and Chairman, owned stock in
F&H, and Mr. Furlong's son, Craig Furlong, was F&H's president. In connection
with such transaction, Maurice Furlong received 12,000,000 shares of the
Company's common stock. Such transaction cannot be deemed to have been
negotiated at arms length. In the opinion of the Company's management, the terms
of such agreement were as favorable to the Company as would be available from an
unrelated third party.
Barbara L. Krilich, who served as the Company's Treasurer and a
Director from November 1996 through April 1997, is the daughter of Robert R.
Krilich, Sr. In November 1997, Ms. Krilich received 250,000 shares of the
Company's common stock without any obligation to perform future services, as an
incentive to becoming a member of the Company's board of directors. While Ms.
Krilich was not a director or officer at the time the Company entered into the
agreements for purchase of the Senior Group and Rainbow Group properties, or at
the time the Company entered into the consulting contract with her father, her
relationship to Mr. Krilich created a conflict of interest by virtue of the
Company's pending disputes relating to the acquisition of such real estate and
the disposition to be made of Mr. Krilich's consulting contract. Because of such
conflicts, Ms. Krilich resigned from the Board of Directors and as an officer of
the Company on May 5, 1997.
In November 1995, the Company borrowed $462,809 from Mr. Krilich's
affiliate, R.K. Company. Such loan is represented by two notes which were due in
May 1996, with interest at 10%. Approximately $195,000 of such notes was used as
down payment on a contract to purchase a mining property which was subsequently
cancelled. In March 1997, the Company repaid R.K. Company such $195,000. Payment
of the balance due on these notes is overdue, and is accruing interest at the
rate of 18% per annum.
At the time the Company entered into its initial agreements with Senior
Group and Rainbow Group for the acquisition of real estate in exchange for
shares of the Company's common stock, Robert R. Krilich, Sr., was the beneficial
owner and controlling person of such entities, but he was not at that time an
officer, director, or significant stockholder of the Company.
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At the time the Company entered into the agreement with Mr. Krilich for
consulting services, Mr. Krilich was the owner of a substantial portion of the
Company's outstanding common stock. Such agreement was made in the context of
negotiations on acquisition of the Company's real estate, and should not be
considered independently.
Most of the properties to be acquired by the Company pursuant to the
Stock Exchange Agreements with Senior Group and Rainbow Group are currently
managed by Royce Realty, an Illinois corporation which has been in the business
of managing real estate since the mid-1960's. It is the Company's understanding
that R.K. Company and/or Mr. Krilich, major shareholders of the Company, may be
the controlling shareholder(s) of Royce Realty, and that Mr. Krilich is the
beneficial owner of and/or controls R.K. Company. The arrangements with Royce
Realty were entered into by Senior and Rainbow Groups before the Company
controlled them or either of them. The Company's Illinois lawsuit includes a
demand for termination of Royce Realty's and Mr. Krilich's interest in and
control of the properties assigned to R&S Group. (See Part II, Item 2--"Legal
Proceedings".)
Mr. Pietrzak, a Director of the Company and its Secretary, also
provides legal services to the Company. In November 1997, Mr. Pietrzak received
250,000 shares of the Company's common stock without any obligation to perform
future services, as an incentive to becoming a member of the Company's Board of
Directors. From 1992 to 1996, Mr. Pietrzak also served as counsel to Royce
Realty and to various other business organizations owned or controlled by Mr.
Krilich, including Senior Group and Rainbow Group. In November 1996, Mr.
Pietrzak severed all relationships with Mr. Krilich and his organizations, and
commenced full-time employment with the Company. Such previous relationships
could create a conflict of interest with respect to the disputes between the
Company and Mr. Krilich.
Mr. Walker, a Director of the Company, also provides legal services to
the Company. In November 1997, Mr. Walker received 250,000 shares of the
Company's common stock without any obligation to perform future services, as an
incentive to becoming a member of the Com- pany's Board of Directors.
In March 1994, the Company entered into agreements to acquire all the
issued and outstanding stock of Academy for Mathematics and Science, which owned
two learning centers in Toronto, Ontario. The centers were operated by Ms.
Jacqueline Jordan, the wife of Mr. William Jackson, a consultant to the Company;
a third center was planned to be opened in the United States. 1,200,000 shares
were issued for these properties, 400,000 shares being allocated for each.
Consummation of these transactions was contingent on a number of contingencies
and subject to a number of conditions subsequent. In January 1997, it was
mutually agreed that the Company should not acquire the two learning centers in
Toronto. Mr. Jackson has returned the 800,000 shares received for these centers,
and has agreed to commit $50,000 towards the establishment of a new center in
Reno, Nevada, under the name "Learning Centers of America". (See Part I, Item
1--"Description of Business".)
At the time the Company issued 375,000,000 shares of its stock to
Zarzion, Ltd., in exchange for its 17 lode claims in California, Zarzion, Ltd.,
was the owner of approximately 87,737,143 shares, or approximately 21% of the
Company's issued and outstanding shares. Notwithstanding this interest, the
Company believes the terms of such acquisition were as favorable as would have
been obtainable from a third party in an arms length transaction.
In February 1997, the Company's acquisition of NMC became effective. As
of March 31, 1997, NMC was indebted to Alcy Baggott, its chief executive
officer, for $402,135. Between
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July 1996 and January 1997, Mr. Furlong made one loan of $25,000 and three loans
of $20,000 to NMC, each of which was repaid within approximately 10 days.
ITEM 8. DESCRIPTION OF SECURITIES.
The Company's articles of incorporation currently provide that the
Company is authorized to issue 1,100,000,000 shares of capital stock, consisting
of 900,000,000 shares of common stock, par value $.001 per shares, and
200,000,000 shares of preferred stock. As of July 31, 1997, 827,485,297 shares
of common stock were outstanding; no preferred stock was outstanding at such
date.
COMMON STOCK
Each holder of record of the Company's common stock is entitled to one
vote per share in the election of the Company's directors and all other matters
submitted to the Company's stockholders for a vote. Holders of the Company's
common stock are also entitled to share ratably in all dividends when, as, and
if declared by the Company's Board of Directors from funds legally available
therefor, and to share ratably in all assets available for distribution to the
Company's stockholders upon liquidation or dissolution, subject in both cases to
any preference that may be applicable to any outstanding preferred stock. There
are no preemptive rights to subscribe to any of the Company's securities, and no
conversion rights or sinking fund provisions applicable to the common stock.
Neither the Company's articles of incorporation nor its bylaws provide
for cumulative voting. Accordingly, persons who own or control a majority of the
shares outstanding may elect all of the Company's directors, and persons owning
less than a majority could be foreclosed from electing any.
PREFERRED STOCK
The Company is authorized to issue preferred stock from time to time,
in one or more classes or series, each class or series to have such voting
rights, designations, preferences, and relative rights as may be fixed by the
board of directors. The consent or approval of the Company's stockholders is not
required. The preferred stock may rank senior to the common stock with respect
to dividends, distributions in liquidation or dissolution, or both, and may have
extraordinary or limited voting rights. There is no such stock presently
outstanding.
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PART II
ITEM 1. MARKET PRICE OF AND DIVIDENDS ON THE REGISTRANT'S
COMMON EQUITY AND OTHER STOCKHOLDER MATTERS
MARKET INFORMATION
The Company's stock is currently traded over the counter. Quotations
are carried on the National Association of Securities Dealers, Inc.'s "Bulletin
Board" under the symbol "HCCA".
The following table sets forth the range of high and low bid prices for
the Company's common stock for the indicated periods as reported by NASDAQ's
Bulletin Board research service. Such quotations reflect inter-dealer prices
without retail markup, markdown or commission, and may not necessarily represent
actual transactions:
High Bid Low Bid
-------- -------
1997
Quarter ended June 30 $ .105 $ .021
Quarter ended March 31 .47 .10
1996
Quarter ended December 31 $ .60 $ .17
Quarter ended September 30 1.50 .50
Quarter ended June 30 2.10 .50
Quarter ended March 31 2.00 1.25
1995
Quarter ended December 31 $ 3.10 $ 1.25
Quarter ended September 30 2.05 1.06
Quarter ended June 30 2.00 1.31
Quarter ended March 31 2.25 .50
HOLDERS
The approximate number of record holders of the Company's common stock
as of May 5, 1997, was 1,242.
DIVIDENDS
The Company has never paid cash dividends on its common stock and does
not intend to do so in the foreseeable future. The Company currently intends to
retain any earnings for the operation and expansion of its business.
ITEM 2. LEGAL PROCEEDINGS
A. MAR-PRO TRANSACTION
In September 1996, the Company brought an action against Mar-Pro
Services, Ltd., an Irish corporation ("MarPro"), Asset Resource Management, and
Robin Rood IV, in the Second Judicial District Court, Washoe County, Nevada, to
rescind the purchase of certain ore concentrates by the Company.
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In March and August of 1995, the Registrant entered into two agreements
for the purchase of a total of 150 tons of ore materials represented to be
highly concentrated. 41,749,500 shares were issued for this ore, whose value was
represented to be in excess of $100,000,000. The first agreement, dated March
15, 1995, was with Mr. Rood doing business as Asset Resource Management; under
that agreement, the Company purchased what was represented to be 80 tons of
concentrated ore material with a value of approximately $55,000,000; the second
agreement was with Asset Resource Management and Mar-Pro, pursuant to which the
Company purchased what was represented to be an additional 70 tons, with a value
in excess of $45,000,000. The concentrate was delivered by Mar-Pro and is stored
in sealed and numbered containers at warehouses in Las Vegas, Nevada, and Long
Beach, California.
The Company's suit alleges that the concentrate delivered by Mar-Pro
and Asset Resource Management did not assay at the value represented by Mar-Pro
and Mr. Rood, but on the contrary has no value at all. In October 1996, the
Company obtained a preliminary injunction enjoining the transfer of the
Company's stock issued in connection with such transactions. The Company has
cancelled the 41,749,500 shares issued in connection with such transactions, and
such shares are no longer listed as outstanding in the Company's books and
records.
B. ACTIONS BETWEEN THE COMPANY AND ROBERT R. KRILICH, SR. AND AFFILIATES
As pointed out above (see Part I, Item 3--"Description of Property"),
the Company asserts that its right to the properties and income from the
properties subject of its contract(s) with Senior Group and Rainbow Group (now
R&S Group) has now vested, but the persons controlling such properties have
filed an action to rescind the Company's agreements relating to such real
estate, and continue to retain the revenues from such properties. While deeds
have been delivered made out to Rainbow Group and/or Senior Group (now R&S
Group), such deeds have not, with the exception of deeds to certain properties
in Tennessee and Oakbrook Terrace, Illinois, been recorded because of the
pending litigation and because of court orders against Mr. Krilich. In
connection with the pending litigation, the Company intends to seek an
adjustment of the number of shares due Mr. Krilich and his affiliates where it
appears that the property was grossly overvalued or clear title cannot be
obtained, including shares previously issued as well as shares allegedly due on
account of declines in the market price for the Company's stock.
In April 1997, the Company (through its wholly owned division, R&S
Group) and Maurice Furlong, individually and as a director/trustee of R&S Group,
filed a law suit in the Circuit Court of DuPage County, Illinois, against Royce
Realty, Mr. Krilich, R.K. Company, Senior Group, Rainbow Group, and others. Such
action seeks a declaration that R&S Group is the sole owner of any all real and
personal property owned by Rainbow Group and Senior Group, a constructive trust
on the rents and income obtained from the properties assigned to R&S Group, an
accounting for such rents, delivery of the proper deeds, bills of sale, and
documents of title to the personal and real property assigned to R&S Group, and
punitive damages. The Company also filed actions in Tennessee to quiet title to
those properties located in Tennessee; such action is now pending in the U.S.
District Court for the Middle District of Tennessee.
In June 1997, Mr. Krilich, R.K. Company, and Royce Realty filed a law
suit in the Circuit Court of DuPage County, Illinois, for relief and damages
against the Company, Mr. Furlong, Mr. Pietrzak, James Troester, and R&S Group.
Such action alleges breach of the Com- pany's obligations (i) to issue all the
stock required to be issued under the Company's contracts with Rainbow and
Senior Groups, (ii) failure to issue additional stock to Rainbow and Senior
Groups to make up for the subsequent decline in the market price for the
Company's stock, (iii) failure to finance construction at Renaissance Center at
Oakbrook Terrace, (iv) failure to pay
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Rainbow Air's operating expenses, (v) failure to finance construction and
operations at certain properties (Lakemoor Country Club and Renaissance Center)
transferred by Rainbow Group, (vi) failure to finance property in Aspen
Colorado, and (vii) failure to remove transfer restrictions from plaintiff's
stock. Plaintiffs demand rescission of the contracts with Senior and Rainbow
Groups. Plaintiffs further allege fraud on the basis that the defendants never
intended to perform their obligations under the contracts sued on,
misrepresented who would control R&S Group following merger of the Senior and
Rainbow Groups, and alleges that Mr. Pietrzak received compensation from the
Company at the same time he was being compensated by Mr. Krilich. Plaintiffs
seek findings that defendants are in default of the contracts with Rainbow and
Senior Groups, rescission of such contracts and conveyance of the beneficial
interests in Rainbow and Senior Groups to Mr. Krilich, an injunction against Mr.
Pietrzak from performing services for any other person in matters involving Mr.
Krilich. While admitting that certain payments to which plaintiffs might be
entitled have yet to be made, defendants deny any wrongdoing and aver that the
contracts are binding, subject to set-offs for misrepresentations made by the
sellers and seller's inability to deliver certain titles. Mr. Pietrzak avers
that Mr. Krilich was aware that his services were to document agreements which
had been negotiated by the parties, and that Mr. Krilich was fully aware that
Mr. Pietrzak was working for the Company as well as himself and at various times
had directed Mr. Pietrzak to perform services involving both parties.
R.K. Company's action also alleges indebtedness on the part of the
Company in the amount of $3,100,000 and the value of 58,000,000 shares of its
common stock as of September 29, 1995, plus "vexatious interest". The Company
denies any such indebtedness, for the reason that the third persons party to
such contracts refused to perform, for which reason they were valueless. R.K.
Company's action also alleges indebtedness on the part of the Company in the
amount of $1,000,000 and the value of 40,000,000 shares of its common stock as
of September 29, 1995, plus interest. The Company denies any such indebtedness,
for the reason that the third persons party to such contracts refused to
perform, for which reason they were valueless. R.K. Company's action also
alleges indebtedness on the part of the Company for the value of 17,187,500
shares of the Company's stock as of July 13, 1996, plus $1,000,000 exemplary
damages, for cancellation of 17,187,500 shares issued to Mar-Pro and assigned to
R.K. Company. Such shares were cancelled as a set off of certain indebtedness to
the Company on the part of Mar-Pro. See "Mar-Pro Transaction", Subsection A
above.
R.K. Company also alleges indebtedness on the part of the Company in
the amount of $771,474 on account of various unpaid loans and notes. Mr.
Krilich's action also alleges indebtedness on the part of the Company in the
amount of $8,351 on account of certain advances made by him in connection with
the proposed project in Mexico. It is the Company's position that the parties
were to absorb their own expenses, and that it never agreed to pay those of Mr.
Krilich. Mr. Krilich's action also alleges indebtedness on the part of the
Company and Mr. Furlong in the amount of $153,560 on account of a purported
agreement by them to service the debt on certain real estate pursuant to a
letter of intent for purchase of such property, which agreement the Company and
Mr. Furlong deny. Mr. Krilich and Royce Realty also allege indebtedness on the
part of the Company in the amount of $60,538 for various secretarial, security,
and other services. All of such allegations are denied by the Company.
Mr. Krilich's action also alleges indebtedness on the part of Mr.
Furlong in the amount of $42,350 on account of various unpaid loans and notes,
$10,000 for certain stock paid for but not delivered, and $48,790 for unpaid
rent. Mr. Furlong denies such indebtedness, alleging that all such payments were
for services relating to the real estate for which Mr. Krilich was responsible
pending transfer to the Company, and that no rent was payable inasmuch as Mr.
Furlong had fully paid such rent through such time as Mr. Krilich transferred
the property to the
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Company. Mr. Krilich's action also alleges indebtedness on the part of Mr.
Furlong for the value of 50,000,000 shares of the Company's stock as of June
1996, plus $1,000,000 exemplary damages, for shares delivered to Mr. Furlong for
use as security for a loan unrelated to Company business from a third party; Mr.
Furlong denies that such shares were loaned and rather reflected Mr. Krilich's
contribution to stock to be transferred to others. See "Mar-Pro Transaction",
Subsection A above.
In June 1997, Rainbow Air Corporation ("Rainbow Air"), an affiliate of
Mr. Krilich, filed a law suit in the Circuit Court of DuPage County, Illinois,
against the Company and Mr. Furlong for $3,712,091 on account of a yacht charter
agreement. The Company denies that any payments remain due to Rainbow Air, it
being management's belief that Rainbow Air is 50% owned by the Company, and that
all payments due have been made in the form of shares of the Company's stock as
contemplated by the parties' agreement. (See Part I, Item 3--"Description of
Property".)
Management cannot predict the outcome of these actions, nor what effect
they might have on the Company. Management doubts that an adverse decision with
respect to the real estate would result in a judgment for money damages against
the Company, and believes that in the event the contracts with Rainbow and
Senior Groups were held to be terminated for lack of performance or otherwise,
the Company would lose its rights to such real estate described herein, but by
the same token would likely be entitled to cancel the 167,921,349 shares issued
to Mr. Krilich and/or his affiliates in exchange for such properties. The
Company believes it has valid defenses to the other claims of Mr. Krilich, R.K.
Company, and Rainbow Air, but there can be no assurance that such defenses can
be documented, and the Company might be found liable on one or more of such
notes or claims for monies loaned.
C. THIRD-PARTY PROCEEDINGS INVOLVING ROBERT R. KRILICH, SR.
It is management's understanding that Robert R. Krilich, Sr., a
shareholder of the Company, owns or controls all or a majority interest,
directly or indirectly, in R.K. Company, which is the owner of more than 5% of
the Company's issued and outstanding shares.
Mr. Krilich has been named a defendant in at least the actions listed
below. Several of such actions involve parcels of real property which are the
subject of agreements between the Company and Senior Group and/or Rainbow Group,
and such actions could affect the Company's ability to consummate the
acquisition of such properties and utilize them in its business.
Further, the Company believes that it may be the target of claims that
the Company is no more than a vehicle for the transfer of real estate by Mr.
Krilich. It is possible, therefore, that plaintiffs in these actions may claim
that the Company is the alter ego of Mr. Krilich, or that Mr. Krilich has used
the Company to hide or shelter assets. It is the Company's opinion that such
claims would be groundless. Nevertheless, to the extent that the Company must
defend itself in any action based on such claims, or to the extent such actions
involve real property the Company has agreed to acquire, the following actions
may have a negative effect on the Company's operations.
1. Environmental Proceedings, Oakbrook Terrace Property
In August of 1992, the United States filed a complaint in the U.S.
District Court, Northern District of Illinois, against Mr. Krilich and other
entities which the government claimed were closely held by him. The complaint
alleged that defendants had discharged fill material into woodlands on two
Chicago area construction sites without permits in violation of the Clean Water
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Act. The parties entered into a consent decree which, among other things,
provided for a remediation plan which would bring the property in question into
compliance with federal law. In April 1996, the United States brought an action
alleging violation of such consent decree, seeking sanctions for violation of
the decree and enforcement of its remediation provisions. The action involves
the Company's property in Oakbrook Terrace, Illinois, and Sullivan Lake property
in Lakemoor, Illinois, identified in Part I, Item 3-"Description of Property",
above, and could have a negative effect on the Company's ability to operate,
sell, or otherwise utilize such property. Such litigation is still pending.
2. Environmental Proceedings, Lakemoor Utilities
In September 1996, the Illinois Environmental Protection Agency filed
an action in the Circuit Court, Lake County, Illinois, against Mr. Krilich,
Royce Realty, and Parkway Bank & Trust, to enjoin operation of the waste water
treatment facility operated by defendants, and to impose monetary fines and
penalties. The complaint alleged that the defendants did not have the necessary
operating permits for the facility, such permits having expired. The action
involves the water and utility services located in Lakemoor, Illinois, one of
the properties subject of the Company's contract with Rainbow Group (see Part I,
Item 3--"Description of Property"), and could have a negative effect on the
Company's ability to operate or sell the facility, especially to the extent the
State continues to enjoin operations at the facility.
3. Misstatements, Financing
In February 1995, Mr. Krilich was indicted by a Federal grand jury in
Chicago, Illinois, on multiple counts including, among others, making false
statements to a financial institution in violation of 18 U.S.C.ss. 1014. The
indictment also contains "RICO" allegations, and sought the forfeiture of
currency and real property. Following a jury trial in September 1995, Mr.
Krilich was convicted on all counts, and the Country Lakes Country Club golf
course in Naperville, Illinois, was found to be forfeitable to the United
States. The Country Lakes Country Club golf course is one of the properties
subject to the Company's agreement with Rainbow Group (see Part I, Item
3--"Description of Property"). Forfeiture would have a negative impact upon the
Company's ability to consummate such exchange agreement with Rainbow Group.
D. THREATENED LEGAL PROCEEDINGS
Management understands that since September 1995, there has been a
Federal grand jury investigation in the Northern District of Illinois involving
the Company. The Company has not been put on notice by prosecutors of the exact
nature of the investigation because, as the Company has been informed, such
proceedings are secret. Accordingly, the Company is unaware of the exact date
when the proceedings began, the principal parties named in the proceedings, the
facts underlying the proceedings, or the relief which may be sought as a result
of the proceedings.
The Company and its officers have been subpoenaed and have testified in
connection with the investigation. In August 1997, a subpoena was issued for
Peeples LLC's records. The Company believes that the investigation may involve
the exchange of the Company's securities for the assets of Peeples LLC. It may
possibly relate, however, to the Company's relationship with Mr. Krilich,
perhaps seeking to establish that the Company is participating in a scheme to
hide Mr. Krilich's assets from government seizure, and may try to attach or
encumber the assets acquired from him, Senior Group and Rainbow Group. The
Company has no direct information about such proceedings, however, and its
belief as to the focus thereof is entirely speculative. Any action alleging
violations of law or seeking to attach or encumber the Company's assets could
have a
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negative impact on the Company's operations. The Company and its subsidiaries
are cooperating with such investigations to the best of their abilities.
The Company believes that any claim that it has violated any laws or
that it is liable for any claims against Mr. Krilich would be without basis and
would be unsuccessful.
ITEM 3. CHANGES IN AND DISAGREEMENTS WITH
ACCOUNTANTS AND FINANCIAL DISCLOSURE
In 1995, the Company retained an accountant in Nashville, Tennessee,
Roy Sinkovich, to perform the audit for the year ended December 31, 1995. In
those financial statements, management reported certain acquisitions subject of
agreements containing various conditions prior to consummation of the
transactions. As a result of the contingency status of the contracts, the
circumstances of which are described above (see Part I, Item 1--"Description of
Business"), management adjusted its financial statements to reflect its
understanding as to how such contracts should be treated, and the audit was
withdrawn by the former auditor. There were no unresolved matters of
significance or disagreements between management and such independent
accountant.
During 1996, the Company moved its principal office to Reno, Nevada. As
a result, the Company's Board of Directors determined to retain an accounting
firm nearer the Company's new principal office. The accounting firm of W. Dale
McGhie in Reno, Nevada, was retained to perform the audit of the Company for the
periods ending December 31, 1994, 1995, and 1996.
ITEM 4. RECENT SALES OF UNREGISTERED SECURITIES
During the three years prior to December 31, 1996, the Company issued
and sold the following unregistered shares of its commons stock:
In January 1994, the Company issued 31,960,000 shares of common stock,
of which 27,000,000 were issued to Maurice W. Furlong, and 3,960,000 shares were
issued to James M. Troester for reorganization costs and services. The remaining
1,000,000 shares were issued to Nevada Agency & Trust Co., the Company's
transfer agent, to extinguish indebtedness. All such transactions were exempt
from registration under the Securities Act of 1994 (the "Securities Act") by
virtue of Section 4(2) thereof.
In May 1994, the Company issued 1,200,000 shares to William Jackson in
connection with the acquisition of three learning centers. 800,000 shares have
been returned in connection with recision of the acquisition of two of such
centers. (See Part I, Item 1--"Description of Business".) Such transaction was
exempt from registration under the Securities Act by virtue of Section 4(2)
thereof.
In May 1994, the Company issued 12,000,000 shares to Mr. Furlong in
connection with the acquisition of F&H Mining. (See Part I, Item 1--"Description
of Business".) Such transaction was exempt from registration under the
Securities Act by virtue of Section 4(2) thereof.
In May 1994, the Company issued 3,447,683 shares to six doctors in
connection with the acquisition of certain chiropractic clinics. The issuance of
1,591,963 shares to one of such doctors was subsequently cancelled by mutual
agreement, leaving a total of 1,855,720 shares.
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Such transactions were exempt from registration under the Securities Act by
virtue of Section 4(2) thereof. These transactions are being rescinded, and such
shares have been cancelled.
In July 1994, the Company issued 51,479,611 shares to Rainbow Group and
6,374,363 to Senior Group in connection with the acquisition of such entities
and or their real estate, subject to certain conditions subsequent. 3,281,613
were subsequently returned. Such transactions were exempt from registration
under the Securities Act by virtue of Section 4(2) thereof. These transactions
are the subject of dispute. (See Part II, Item 2--"Legal Proceedings".)
In September 1994, the Company issued 8,000,000 shares to Zarzion, Ltd.
and 12,000,000 shares to its three stockholders in connection with the
acquisition of Peeples LLC. (See Part I, Item 1--"Description of Business".)
Such transactions were exempt from registration under the Securities Act by
virtue of Section 4(2) thereof.
In September 1994, the Company issued 3,000,000 shares to R.K. Company,
11,439,300 shares to Senior Group, and 25,909,688 to Rainbow Group, pursuant to
price adjustment requirements contained in its agreements with Rainbow and
Senior Groups for the acquisition of such entities and/or their real estate.
Such transactions were exempt from registration under the Securities Act by
virtue of Section 4(2) thereof. These transactions are the subject of dispute.
(See Part II, Item 2--"Legal Proceedings".)
In February 1995, the Company issued 5,000,000 shares to an individual
as a finder's fee in connection with the proposed acquisition of real estate in
Tennessee. Such transaction was exempt from registration under the Securities
Act by virtue of Section 4(2) thereof.
In February 1995, the Company issued 22,000,000 shares of Common Stock
to R.K. Company, at the direction of Senior Group and Rainbow Group, in
connection with the proposed acquisition of property in Nashville, Tennessee,
and an interest in the yacht R Rendezvous described above. Such transaction was
exempt from registration under the Securities Act by virtue of Section 4(2)
thereof. This transaction is the subject of dispute. (See Part II, Item
2--"Legal Proceedings".)
In August 1995, the Company issued 4,000,000 shares to the stockholders
of NMC, a closely held company, in connection with the acquisition of NMC. (See
Part I, Item 1--Descrip- tion of Business".) Such transaction was exempt from
registration under the Securities Act by virtue of Section 4(2) thereof.
In August 1995, the Company issued 41,749,500 shares to Mar-Pro in
connection with the acquisition of certain ore concentrates. Subsequently the
Company filed an action against Mar- Pro in connection with such transaction,
and cancelled such shares. (See Part II, Item 2--"Legal Proceedings".) Such
transaction was exempt from registration under the Securities Act by virtue of
Section 4(2) thereof.
In August 1995, the Company issued an additional 100,000,000 shares to
Zarzion, Ltd., in connection with its acquisition of ore concentrates located in
Arizona. (See Part I, Item 1--"Description of Business".) Such transaction was
exempt from registration under the Securities Act by virtue of Section 4(2)
thereof.
In August 1995, the Company issued 17,000,000 shares to Rainbow Group
and 56,000,000 shares to Senior Group in connection with the acquisition of
certain real estate pursuant to their prior agreements. Such transactions were
exempt from registration under the Securities Act by
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virtue of Section 4(2) thereof. These transactions are the subject of dispute.
(See Part II, Item 2--"Legal Proceedings".)
In September 1995, the Company issued 275,000 shares to four
individuals for legal services to R.K. Company in connection with the Company's
proposed acquisition of a property known as Springer Mine, which acquisition was
subsequently cancelled. Such transactions were exempt from registration under
the Securities Act by virtue of Section 4(2) thereof. It is the Company's
position that such transactions will have to be reconciled with R.K. Company.
(See Part II, Item 2--"Legal Proceedings".)
In February 1996, the Company issued 309,551 shares to two individuals
in connection with the Company's efforts to develop its health care segment.
Such transactions were exempt from registration under the Securities Act by
virtue of Section 4(2) thereof. Such transactions have subsequently been
rescinded.
In May and June 1996, the Company issued a total of 98,000,000 shares
to R.K. Company in connection with the Company's agreement to acquire Springer
Mine. Such transaction was exempt from registration under the Securities Act by
virtue of Section 4(2) thereof. The owners of Springer mine would not permit
assignment of such contract from R.K. Company, and the acquisition was
cancelled. The issuance of 58,000,000 shares has been cancelled by the Company,
and the remaining shares will be the subject of reconciliation between the
Company and R.K. Company. (See Part II, Item 2--"Legal Proceedings".)
In June 1996, the Company issued 2,066,115 shares to the stockholders
of MedAway, a closely held company, in connection with the acquisition of all
MedAway's assets. (See Part I, Item 1--"Description of Business".) Such
transaction was exempt from registration under the Securities Act by virtue of
Section 4(2) thereof.
In July 1996, the Company issued 40,000,000 shares to the stockholders
of ELF, a closely held company, in connection with the acquisition of ELF's
television credit certificates. (See Part I, Item 1--"Description of Business".)
Such transaction was exempt from registration under the Securities Act by virtue
of Section 4(2) thereof.
In November 1996, the Company issued 750,000 shares to three
individuals as an inducement to become directors of the Company. (See Part I,
Item 6--"Executive Compensation".) Such transaction was exempt from registration
under the Securities Act by virtue of Section 4(2) thereof.
In February 1997, the Company issued 375,000,000 shares to Zarzion,
Ltd., a closely held company, in connection with the acquisition of 17 lode
claims in northern California (see Part I, Item 1--"Description of Business").
Such transaction was exempt from registration under the Securities Act by virtue
of Section 4(2) thereof.
ITEM 5. INDEMNIFICATION OF DIRECTORS AND OFFICERS
Section 78.751 of the Nevada General Corporation Law allows the Company
to indemnify any person who was or is threatened to be made a party to any
threatened, pending, or completed action, suit, or proceeding, by reason of the
fact that he or she is or was a director, officer, employee or agent of the
Company, or is or was serving at the request of the Company as a director,
officer, employee, or agent of any corporation, partnership, joint venture,
trust, or other
42
<PAGE>
enterprise. The Company may advance expenses in connection with defending any
such proceeding, provided that the indemnitee undertakes to repay any such
advances if it is later determined that such person was not entitled to be
indemnified by the Company.
Insofar as indemnification for liabilities arising under the Securities
Act may be permitted to directors, officers, and controlling persons of the
Company pursuant to the foregoing provisions or otherwise, the Company has been
advised that, in the opinion of the Securities and Exchange Commission, such
indemnification is against public policy as expressed in such act, and is
therefore unenforceable.
43
<PAGE>
PART F/S
FINANCIAL STATEMENTS
<TABLE>
<CAPTION>
The following financial statements are filed with this Form 10-SB:
Page
----
<S> <C>
Accountant's Report 45
Amended Financial Statements of Health Care Centers of America and Subsidiary
Balance Sheet 46
Statement of Operations 48
Statement of Changes in Stockholders' Equity 49
Statement of Cash Flows 52
Notes to Financial Statements 53
Accountant's Report on Supplemental Schedules 62
Supplemental Schedules
Schedule A--Property, Plant and Equipment 63
Schedule B--Accumulated Depreciation of
Property, Plant and Equipment 64
</TABLE>
44
<PAGE>
W. DALE MCGHIE
CERTIFIED PUBLIC ACCOUNTANT
Town & Country Plaza
1539 Vassar St. Reno, Nevada 89502
Tel: 702-323-7744
Fax: 702-323-8288
To the Board of Directors
Health Care Centers of America, Inc.
ACCOUNTANT'S AUDIT REPORT
I have audited the accompanying consolidated balance sheets of Health Care
Centers of America, Inc. and Subsidiary (A development Company) as of December
31, 1996 1995 and 1994, and the related consolidated statements of operations,
changes in stockholders' equity and cash flows for the years then ended, and
from June 29, 1993 (date of reorganization) through December 3 1, 1996. These
consolidated financial statements are the responsibility of the Company's
management. My responsibility is to express an opinion on these financial
consolidated statements based on my audit.
I conducted my audit in accordance with generally accepted auditing standards.
Thosc standards require that I plan and perform the audit to obtain reasonable
assurance about whether the consolidated financial statements are free of
material misstatement. An audit includes examining on a test basis, evidence
supporting the amounts and disclosures in the consolidated 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. I believe that my audit provides a reasonable basis for
my opinion.
In my opinion, the consolidated financial statements referred to above, revised
as described in Note 15, present fairly in all material respects the financial
position of Health Care Centers of America, Inc. and Subsidiary as of December
31, 1996, 1995, and 1994 and the results of their operations, changes in
stockholders' equity and their cash flows for the years then ended in conformity
with generally accepted accounting principals.
The accompanying financial statements have been prepared assuming that the
Company will continue as a going concern, as discussed in Note 4 to the
financial statement. A majority of the Company's assets consist of mineral
inventories and mineral properties with a carrying value of $200 million, and
real estate properties with recorded values of $43 million. Recovery of the
Company's mineral inventories is dependent upon the extraction and recovery of
developed reserves in an economical fashion. Realization of a major portion of
these of the real estate properties is dependent on consummation of the real
estate transactions, The financial statements do not include any adjustments
that might result in a negative outcome as a result of this uncertainty.
/s/ W. Dale McGhie
W. Dale McGhie
Reno, Nevada
March 31, 1997
Except Notes 10, 14 and 15 dated August 22, 1997
45
<PAGE>
HEALTH CARE CENTERS OF AMERICA, INC. AND SUBSIDIARY
(A DEVELOPMENT STAGE COMPANY)
BALANCE SHEETS
AS OF DECEMBER 31,1996,1995 AND 1994
<TABLE>
<CAPTION>
ASSETS
1996 1995 1994
---- ---- ----
CURRENT ASSETS
<S> <C> <C> <C>
Cash (Note 1) $ 196,214 $ 865 $ 6
Prepaid Expenses 1,500 - -
------------- ------------- -------------
Total Current Assets 197,714 865 6
------------- ------------- -------------
PROPERTY, PLANT & EQUIPMENT (NOTE 1)
Equipment Held for Rent 555,185 - -
Equipment 24,935 16,046 16,046
Furniture & Fixtures 6,249 1,679 2,507
------------- ------------- -------------
586,369 17,725 18,553
Less Accumulated Depreciation 11,355 7,055 3,446
------------- ------------- -------------
Net Property, Plant & Equipment 575,014 10,670 15,107
------------- ------------- -------------
OTHER ASSETS
Mineral Inventory (Note 5) 200,000,000 200,000,000
Investment in Future Acquisitions (Note 3,12) 49,016,330 49,016,330 23,488,492
Notes Receivable (Note 6) 260,000 260,000 -
Interest Receivable 6,600 1,650 -
Organizational Costs, Net
of Amortization 47,422 56,782 51,500
Deposit held in Escrow - 191,564 -
------------- ------------- -------------
Total Other Assets 249,330,352 249,526,326 23,539,992
------------- ------------- -------------
$250,103,080 $249,537,861 $ 23,555,105
============= ============= =============
</TABLE>
The accompanying notes are an integral part of these financial statements
46
<PAGE>
HEALTH CARE CENTERS OF AMERICA, INC. AND SUBSIDIARY
(A DEVELOPMENT STAGE COMPANY)
BALANCE SHEETS
AS OF DECEMBER 31,1996,1995 AND 1994
<TABLE>
<CAPTION>
LIABILITIES AND STOCKHOLDERS' EQUITY
1996 1995 1994
-------------- ------------- -------------
<S> <C> <C> <C>
CURRENT LIABILITIES
Accounts Payable $ 28,206 $ 31,460 $ -
Shareholder Advance 4,400 4,400 4,400
Accrued Expenses 74,922 5,474 -
Notes Payable - Shareholder (Note 7) 462,809 462,809 -
-------------- ------------- -------------
Total Current Liabilities $570,337 $504,143 $4,400
-------------- ------------- -------------
STOCKHOLDERS' EQUITY
Common stock $.001 par
value; 900,000,000
shares authorized;
issued and
outstanding;
452,485,297 shares on
December 31, 1996 and
409,669,182 on
December 31, 1995 and
205,394,182 on
December 31, 1994 452,485 409,669 205,394
Paid in Capital 263,388,756 262,558,125 37,183,987
Retained Earnings (13,702,162) (13,702,162) (13,702,162)
Deficit Accumulated
during the Development
Stage (606,336) (231,914) (136,514)
-------------- ------------- -------------
Total Stockholders'
Equity 249,532,743 249,033,718 23,550,705
-------------- ------------- -------------
Total Liabilities and
Stockholders' Equity $ 250,103,080 $249,537,861 $23,555,105
============== ============= =============
</TABLE>
The accompanying notes are an integral part of these financial statements
47
<PAGE>
HEALTH CARE CENTERS OF AMERICA, INC. AND SUBSIDIARY
(A DEVELOPMENT STAGE COMPANY)
STATEMENT OF OPERATIONS
FOR THE YEARS ENDED DECEMBER 31,1996,1995 AND 1994
AND THE PERIOD FROM JUNE 29,1993 THROUGH DECEMBER 31,1996
<TABLE>
<CAPTION>
June 29, 1993
Through
December3l, Decamber3l, December3l, December
1996 1995 1994 31,1996
REVENUE ....................................... $ $ $ $ --
EXPENDITURES
----------- ----------- ------------ -----------
<S> <C> <C> <C> <C>
Depreciation and Amortization ................. 13,660 5,487 4,346 23,493
Dues and Subscriptions ........................ 4,627 -- 3,870 8,497
Professional Fees ............................. 119,545 48,305 8,508 176,358
Postage and Courier Service ................... 16,500 1,668 1,258 19,426
Marketing & Promotion ......................... 1,367 -- 31,116 32,483
Travel and Entertainment ...................... 60,894 18,599 43,810 123,303
Telephone Expenses ............................ 35,761 4,680 2,572 43,013
Other Office Expenses ......................... 26,473 4,592 3,651 34,760
Program Development ........................... 750 5,000 31,960 37,710
Rent .......................................... 4,220 2,207 6,427
Imputed Wages ................................. 30,000 -- 2,397 33,172
----------- ----------- ------------ -----------
Total Expenses from Operations ................ 313,797 88,331 135,695 538,642
----------- ----------- ------------ -----------
OTHER INCOME (EXPENSES) ....................... (313,797) (88,331) (135,695) (538,642)
----------- ----------- ------------ -----------
Interest Income ............................... 8,822 3,214 - 12,036
Interest Expense .............................. (69,447) (10,283) - (79,730)
----------- ----------- ------------ -----------
Total Other Income (Expense) .................. (60,625) (7,069) - (67,694)
----------- ----------- ------------ -----------
Net Income (Loss) before
Federal Income taxes .......................... (374,422) (95,400) (135,695) (606,336)
----------- ----------- ------------ -----------
Federal Income Taxes (Note 1) - - - -
----------- ----------- ------------ -----------
Net Income (Loss) ............................. $ (374,422) $ (95,400) $ (135,695) $ (606,336)
=========== =========== ============ ===========
Net Income (Loss) Per Share (Note 1) .......... $ (0.0021) $ (0.0013) $ (0.0036)
=========== =========== ============
</TABLE>
The accompanying notes are an integral part of these financial statements
48
<PAGE>
HEALTH CARE CENTERS OF AMERICA, INC. AND SUBSIDIARY
(A DEVELOPMENT STAGE COMPANY)
STATEMENT OF CHANGES IN STOCKHOLDERS'EQUITY
FROM JUNE 29,1993 THROUGH DECEMBER 31,1996
<TABLE>
<CAPTION>
DEFICIT
ACCUMULATED
RETAINED DURING THE
COMMON STOCK ADDITIONAL EARNINGS DEVELOPMENT
STOCK AMOUNT PAID ON CAPITOL (DEFICIT) STAGE
---------- ---------- --------------- -------------- ---------------
<S> <C> <C> <C> <C> <C>
Balance at June 29, 1993 12,038,500 $ 240,770 $13,461,391 $ (13,702,162) $ -
On June 29,1993: Issued
Common stock to current
shareholders for loss of prior stock 1,800,000 36,000 (36,000) - -
Issued shares of common stock to
Masterhouse Ltd. (a related party)
for 3500 master recording value
unknown 4,500,000 90,000 (90,000) - -
Reverse stock split
One share of new stock for three
shares of old stock and change
par value from $0.02 to $0.001 (12,225,667) (360,657) 360,657 - -
Net loss through December 31, 1993 (819)
---------- ---------- --------------- -------------- ---------------
Balance December 31, 1993 6,112,833 6,113 13,696,048 (13,702,162) (819)
In January and May 1994, Common
stock issued for services valued
at par 31,960,000 31,960 - -
In May 1994, record retroactive adjustment
in connection with the acquisition of
ElfWorks, Ltd., pooling of interest (Note 2) 40,000,000 40,000 - -
In May 1994, Issued shares held in
trust capacity, valued at estimated
cost of learning center (see Note below) 400,000 400 49,600
In May 1994, Issued shares for a mining company, held in trust capacity, valued
at current replacement cost of equipment, (see
Note below) 12,000,000 12,000 74,130
... continued
The accompanying notes are an integral part of these financial statements
</TABLE>
49
<PAGE>
HEALTH CARE CENTERS OF AMERICA, INC. AND SUBSIDIARY
(A DEVELOPMENT STAGE COMPANY)
STATEMENT OF CHANGES IN STOCKHOLDERS'EQUITY
FROM JUNE 29,1993 THROUGH DECEMBER 31,1996
...continued
<TABLE>
<CAPTION>
ACCUMULATED
RETAINED DURING THE
COMMON STOCK ADDITIONAL EARNINGS DEVELOPMENT
STOCK AMOUNT PAID IN CAPITOL (DEFICIT) STAGE
------------- -------- ----------------- ------------- ---------------
<S> <C> <C> <C> <C> <C>
In July and September 1994, Issued shares held in trust capacity, in exchange
for real estate valued at fair market value
(see Note below) 94,921,349 94,921 22,847,441 - -
In September 1994, Issued shares for a mining co., held in trust capacity,
valued at current replacement cost of equipment,
(see Note below) 20,000,000 20,000 390,000 - -
Capital contributed by shareholders' - - 126,768 - -
Net loss through December 31, 1994 (135,695)
Balance December 31, 1994 205,394,182 205,394 37,183,987 (13,702,162) (136,514)
--- ---- ----------- ------- ---------- ----------- --------
In February 1995, common stock issued for
services, recorded at par value 5,000,000 5,000 - - -
InFebruary and August 1995, Issued shares held in trust capacity, in exchange
for real estate valued at fair market value
(see Note below) 95,000,000 95,000 22,866,371 - -
InAugust 1995, Issued shares held in trust capacity, in exchange for a music Co,
valued at a discounted stock price (see
Note below) 4,000,000 4,000 2,496,000 - -
In August 1995, Common stock issued for
inventory of precious metal ore, valued at
a discounted stock price (Note 5) 100,000,000 100,000 199,900,000 - -
In September 1995, Issued Common stock in exchange for services performed in
conjunction with the real estate
transactions, valued at fair market value 275,000 275 66,192 - -
Capital contributed by shareholders' - - 45,575
Net loss through December 31, 1995 - - - - (95,400)
Balance December 31, 1995 409,669,182 409,669 262,558,125 (13,702,162) (231,914)
</TABLE>
... continued
The accompanying notes are an integral part of these financial statements
50
<PAGE>
HEALTH CARE CENTERS OF AMERICA, INC. AND SUBSIDIARY
(A DEVELOPMENT STAGE COMPANY)
STATEMENT OF CHANGES IN STOCKHOLDERS'EQUITY
FROM JUNE 29,1993 THROUGH DECEMBER 31,1996
...continued
<TABLE>
<CAPTION>
ACCUMULATED
RETAINED DURING THE
COMMON ADDITIONAL EARNINGS DEVELOPMENT
STOCK AMOUNT PAID IN CAPITOL (DEFICIT) STAGE
----------- ---------- --------------- ------------- --------------
<S> <C> <C> <C> <C> <C>
In June 1996, Common stock issued for a
mining interest, transaction not
consummated, stock to be recovered, valued
at zero, (Note 10) 40,000,000 40,000 (40,000) - -
In June 1996, Issued shares of common stock
in exchange for equipment (Note 1) 2,066,115 2,066 553,119 - -
On November 21, 1996, Issued shares of
common stock as an incentive, valued at
par, (Note 13) 750,000 750 (750) - -
Imputed value of services provided by
Officers and/or Directors (Note 13) - - 34,970 - -
Capital contributed by shareholders' - - 283,292 - -
Net loss through December 31, 1996 (374,422)
----------- ---------- --------------- ------------- --------------
Balance December 31, 1996 452,485,297 $ 452,485 $ 263,388,756 $(13,702,162) $(606,336)
=========== ========== =============== ============= ==============
</TABLE>
Note:These shares identified with a "' above are in contemplation of various
contingent agreements and are held in a trust capacity. These shares are
listed as outstanding, however, for purposes of the earnings per share
calculation, weighted weighted shares were adjusted excluding these shares
(see Note 1). With exception to the real estate, it is managements belief
that these transactions are probable. Management is unable to determine the
probability of the outcome of the real estate acquisition(s) at this time
(see Note 10).
The accompanying notes are an integral part of these financial statements
51
<PAGE>
HEALTH CARE CENTERS OF AMERICA, INC. AND SUBSIDIARY
(A DEVELOPMENT STAGE COMPANY)
STATEMENT OF CASH FLOWS
FOR THE YEARS ENDED DECEMBER 31,1996,1995 AND 1994
AND FROM JUNE 29,1993 THROUGH DECEMBER 31,1996
<TABLE>
<CAPTION>
JUNE 29, 1993
THROUGH
DECEMBER 31, DECEMBER 31, DECEMBER 31, DECEMBER
1996 1995 1994 31,1996
------------ ------------- ------------- ---------------
<S> <C> <C> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
Net Loss $(374,422) $ (95,400) $(135,695) $(606,336)
Adjustments to reconcile net income (loss)
to net cash provided by operating activities:
Depreciation and Amortization 13,660 5,487 4,346 23,493
services paid in Stock 5,000 31,960 36,960
Imputed Value of Services Provided by -
Officers and Directors (Note 13) 34,970 34,970
Net (increase) Decrease in:
Prepaid Expenses (1,500) - - (1,500)
Notes Receivable - (260,000) - (260,000)
Interest Receivable (4,950) (1,650) - (6,600)
Deposits 191,564 (191,564) - -
Organizational Costs - (7,160) (9,000) (19,560)
Net Increase (Decrease) in:
Accounts Payable (3,254) 31,459 (205) 28,205
Accrued Liabilities 69,448 5,474 - 74,922
------------ ------------- ------------- ---------------
Net Cash Provided (Used) by Operating Activities (74,484) (508,354) (108,594) (695,446)
------------ ------------- ------------- ---------------
CASH FLOW FROM INVESTING ACTIVITIES:
Purchase of Equipment (13,459) 830 (18,555) (31,184)
------------ ------------- ------------- ---------------
Net Cash Provided by Investing Activities (13,459) 830 (18,555) (31,184)
------------ ------------- ------------- ---------------
CASH FLOWS FROM FINANCING ACTIVITIES:
Capital Contributed by Shareholders 283,292 45,575 126,768 455,634
Borrowings (Note 7) - 462,808 - 467,210
------------ ------------- ------------- ---------------
Net Cash Provided by Financing Activities 283,292 508,383 126,768 922,844
------------ ------------- ------------- ---------------
Net Increase in Cash 195,349 859 (381) 196,214
------------ ------------- ------------- ---------------
Cash at the beginning of period 865 6 387 -
------------ ------------- ------------- ---------------
Cash at the end of period $196,214 $ 865 $ 6 $ 196,214
============ ============= ============= ===============
</TABLE>
The accompanying notes are an integral part of these financial statements
52
<PAGE>
HEALTH CARE CENTERS OF AMERICA, INC. AND SUBSIDIARY
(A DEVELOPMENT STAGE COMPANY)
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
DECEMBER 31,1996,1995 AND 1994
NOTE I - ORGANIZATION AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES:
ORGANIZATION:
Health Care Centers of America, Inc. a Nevada Corporation headquarter in Reno,
Nevada was incorporated under tile name Carleton Enterprises, Ltd. On November
13, 1984 the Company changed it's name to SCN, Ltd. On December 15, 1986, an
involuntary petition for reorganization, under Chapter II of the U.S. Bankruptcy
Code, was filed against SCN, Ltd. In December 1988, the Company became debtor in
possession of its assets under a voluntary proceeding. The Company was dormant
until September 31, 1993 at which time the bankruptcy was ordered dismissed. On
November 19, 1993 the Company again changed its name to Health Care Centers of
America, Inc. (HCCA). The Company is a development stage enterprise as defined
by FASB No. 7. "Accounting and Reporting by Development Stage Enterprises".
NATURE OF BUSINESS:
Currently the Company is focused on the development, management and exploitation
of five primary industry segments. The first is to continue its previous
entertainment activity of recording new master recordings, TV special, and
marketing the recordings, The second is the development of mining interests and
exploitation of existing inventories of ore concentrate. The third is the
management and development of a wide range of real estate interests. The fourth
is the development of various educational facilities and products. The fifth is
to develop and promote a nationally established chain of Health Care Centers
both within and outside the United States.
PRINCIPLES OF CONSOLIDATION:
The consolidated financial statements include the accounts of its wholly owned
subsidiary, ElfWorks, Ltd, (see Note 2). All significant inter-company
transactions have been eliminated.
ORGANIZATIONAL COSTS:
Organizational costs consisting of legal and accounting fees are capitalized and
amortized over a five year period.
FINANCIAL INSTRUMENTS:
At December 31, 1996 and December 31, 1995, the fair value of the Company's
notes payable and note receivable (see Note 6 and 7) are assumed to be equal to
their reported carrying amounts.
PROPERTY, PLANT AND EQUIPMENT:
Equipment and furniture are stated at cost. Depreciation is computed using the
straight-line method over a period of five to ten years.
Equipment also includes 24 Medaway-I infectious waste treatment units, an
on-site machine to process medical waste. The Company plans to lease these
machines to hospitals. The machines were purchased June 1996 through an exchange
of 2,066,015 shares of the Company's common stock. The transaction was valued at
the seller's cost of $555,185 or $23,133 per unit.
CASH AND CASH EQUIVALENTS:
The company considers all short-term deposits with a maturity of three months or
less to be cash equivalent.
FEDERAL INCOME TAX:
Due to an operating loss, since reorganization, there is no provision for
federal income tax.
USE OF ESTIMATES:
The preparation of financial statements in conformity with general accepted
accounting principals requires management to make estimates and assumptions that
affects certain reported amounts and disclosures, Accordingly, actual results
could differ from these estimates.
53
<PAGE>
HEALTH CARE CENTERS OF AMERICA, INC. AND SUBSIDIARY
(A DEVELOPMENT STAGE COMPANY)
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
DECEMBER 31,1996,1995 AND 1994
LOSS PER COMMON SHARE:
Weighted average shares outstanding used in the loss per common share
calculation were 181,110,057 for December 31, 1996, 75,664,500 for December 31,
1995 and 38,072,933 for December 31, 1994. This does not include the outstanding
shares of 226,721,349 held in trust capacity for future acquisitions because it
would be anti-dilutivc. If the shares held in trust were included in the
weighted average calculation, the loss per share would be .0009 for December 31,
1996, .0004 for December 31, 1995 and .0014 for December 31, 1994. Stock options
are not included in the calculation since they are anti-dilutive.
NOTE 2 - ACQUISITION OF SUBSIDIARY
On June 26, 1996 the Company issued 40 million shares of its common stock in
exchange for all of the outstanding common stock of FlfWorks, Ltd. The business
combination has been accounted for as a pooling of interest and, accordingly,
the Company's consolidated financial statements have been given retroactive
effect to include the accounts and operations of ElfWorks, Ltd. for all periods
prior to the acquisition. ElfWorks, Ltd. had not commenced operations and had no
activity since inception, except for organizational costs of $40,000, Therefore,
the combined corporations will show no effect on the profit and loss from
ElfWorks Ltd. operations.
This combination was accounted as a pooling of interest after satisfying the
twelve criteria referenced under APB 16, as follows: 1) each company is
autonomous, 2) each company is independent, 3) the combination was effected in a
single transaction, 4) common stock was issued for all the common stock of
ElfWorks, Ltd., 5) the equity interest of common stock of each company was
unchanged, 6) the combining companies reacquired a normal number of shares, 7)
the ratio interest of individual stockholders was unchanged, 8) voting rights
are exercisable, 9) the combination was resolved at the consummation date of
June 26, 1996, 10) ElfWorks, Ltd. agreed not retire common stock to effect the
combination, II) there is no intent to dispose of a significant part of the
assets of ElfWorks, Ltd., and 12) no financial arrangements have been made for
the benefit of former stockholders,
Advertising credits from American Independent Network (AIN) were acquired
through the acquisition of ElfWorks, Ltd., such credits have a face value of
$100,000,000 and are recorded at the predecessor's cost of zero. With reference
to Staff Accounting Bulletin No. 48 Topic 5-G (9/27/82), when a company acquires
assets from shareholders in exchange for stock prior to registration of the
company, such asset should generally be recorded at the cost to the shareholder.
F-IfWorks Ltd. originally transferred common stock to AIN in exchange for these
trade due bills. The credits are an irrevocable promise (trade due bill) to
provide the holder with network programming time and commercial advertising
time. According to AIN's current rate card, the Company could broadcast a 1/2
hour program 5 days a week at prime time for more than 4 years, throughout the
networks 161 stations. The certificates are transferable and negotiable.
NOTE - 3 CONTRACTS FOR ACQUISITION:
The Company has identified and entered into stock exchange agreements with
entities in the mining, real estate, entertainment and education industries.
These agreements provided that the other party to the agreement would have the
right to annul or void the agreement if a registration statement registering the
Company's common stock under the Securities Exchange Act of 1934, as amended
(the "Exchange Act"), is not declared effective within a specified period of
time. This right has lapsed inasmuch as the Company's recent registration of its
common stock under the Exchange Act was declared effective on February 4", 1997
(see Subse4uent Events at Note 14). All of such contracts became effective as of
that date, with the exception of the Company's contracts for the acquisition of
the real estate, which are the subject of an action for rescission, and have not
been consummated (see Note 10).
As shown below, the criteria used to value the stock exchange transactions vary
by agreement. For the purposes of these financial statements, the value was
calculated using the lower of the following: 1) the current tax assessed value
or market value estimated by cash flow/income, if available, or 2) the value of
the stock on the date of the agreement discounted 50% for restriction, The
calculated value of each
54
<PAGE>
HEALTH CARE CENTERS OF AMERICA, INC. AND SUBSIDIARY
(A DEVELOPMENT STAGE COMPANY)
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
DECEMBER 31,1996,1995 AND 1994
probable exchange agreement was booked to Investment in Future Acquisition
(Asset) resulting in a total value recorded of $49,016,330 at December 31, 1996
(see below), Exchange agreements entered into but now determined to be "not
probable" have been reversed out of the financial statements until further
negotiated and consummated. Such contracts included abandoned contracts for the
acquisition of health care practices and an adjustment of shares for the
learning centers (see Note 15).
Stock exchanged for the specific asset,, have been valued as follows:
<TABLE>
<CAPTION>
Value
Description of Assets to be acquired by the Company Assigned Ref
------------ -----
<S> <C> <C>
o future learning center to be located in Reno, Nevada $50,000 (a)
o A mining interest in 7 claims on 140 acres, located in Nevada 86,130 (b)
o mining interest in 17 claims on 340 acres, located in Arizona 410,000 (b)
o The acquisition of Nashville Music Co., located in Nashville, TN 2,500,000 (c)
o 26 town homes plus surrounding amenities 3,863,130 (d)
o Office Building, restaurant/banquet facility and vacant land 6,669,930 (d)
o A Motel located in Northbrook, Illinois, with 38 luxury suites 2,700,000 (e)
o A country club located the Village of Lakemore, Illinois 359,758 (f)
o An interest in a golf course and country club in Naperville, Illinois 2,684,779 (d)
o A water and utility service located in Oakbrook Terrace, III. 408,000 (f)
o A restaurant site located in Shiller Park, Illinois 620,789 (f)
o An interest in a shopping center in Palatine, Illinois 6,689,596 (f)
o An interest in two leases and land located in Shiller Park, 111. 1,207,207 (g)
o 12 acre commercial parcel located in Dania, Florida 1,618,103 (f)
o An interest in a Yacht located in Ft. Lauderdale, Florida 688,608 (h)
o A large land development in Gallatin, Tenn. referred to as "Foxland" 16,000,000 (i)
o 24 acres of residential vacant land near Bellevue, Tenn. 800,400 (j)
o 56 acres parcel located on Dickerson Rd in Nashville, Tenn. 1,659,900 (d)
------------
Total Value for Stock Exchanged and held in Trust Capacity $49,016,330
</TABLE>
Ref.
(a) - Valued at tile estimated cost to commence operations for the Reno
facility.
(b) - Valued at replacement cost of equipment purchased.
(c) - Value determined by using the stock price on the date of the agreement
discounted 50% for restriction, and compared to a valuation model
projecting earnings for the company.
(d) - Valued based on tax assessors current Fair Cash Value.
(e) - Valued at market value deter-mined by independent appraisers and
consultants.
(f) - Value obtained from financial statement schedules indicating cost basis
of property.
(g) - Value determined by calculated the annual lease income x approx. 6 years,
(h) - Value calculated based on the estimated annual net income discounted at
10%
(1) - Value based on a current contract offer price.
(j) - Valued at the current market value of a lot recently sold adjacent the
property.
As a good faith measure, stock was issued upon signing the agreements. It is the
Company's position that the stock certificates issued in transactions which have
yet to be consummated are being held by the recipient in a trust capacity for
the benefit of both parties, and will be forfeited and canceled if the agreement
is annulled or void. The Company has no control over any of the entities
included in these potential acquisitions and will not have any control until
such time as the acquisition is complete.
55
<PAGE>
HEALTH CARE CENTERS OF AMERICA, INC. AND SUBSIDIARY
(A DEVELOPMENT STAGE COMPANY)
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
DECEMBER 31,1996,1995 AND 1994
NOTE 4 - GOING CONCERN
As discussed in Note 1, the company has been in the development stage since June
29, 1993. A major portion of its assets includes mineral inventories valued at
$200 million, and contracts for the acquisition of real estate properties valued
at $43 million. Realization of a major portion of these assets is dependent upon
the company's ability to successfully liquidate the mineral inventory and
consummation of the real estate transactions. Consummation of the contracts to
acquire real estate properties is dependent on the outcome of current litigation
(see Note 10). The financial statements do not include any adjustments that
might result from the outcome of this uncejuinty. These factors raise concern
about the company's ability to continue as a going concern. It is management's
intention to raise additional capital through 1) leasing of the MedAway machines
(Note 1), and/or 2) sale of some or all of the Ore Inventory (Note 5), and/or 3)
sale of some of the advertising trade credits (Note 2), and/or 4) a private
placement of securities.
NOTE 5 - MINERAL INVENTORIES:
Inventories at the Arizona site consist of ore concentrates, where recent assay
reports commissioned by the Company indicate there is a combination of precious
metals, rare earth, and other common elements. These concentrates were purchased
in exchange for 100,000,000 shares of the Company's common stock. Such stock was
valued at $200,000,000, based on the stock price on the date of the agreement
discounted by 50% on account of restrictions on transferability. A subsequent
independent valuation indicated a fair market value far in excess of the
recorded amount.
NOTE 6 - NOTES RECEIVABLE:
<TABLE>
<CAPTION>
December 31 December 31
1996 1995
----------- -----------
<S> <C> <C>
A note from INMOB (a Mexican corporation)
dated November 6, 1995, payable November 5,
1996, with no interest. This was advanced for
the purpose of evaluating a project in
Mexico, and, if consummated, entities the
Company to a 66-2/3% interest in the project,
as it is management's intent is to converted
their interest into the investment. This
interest is for assisting the joint venture
in obtaining all financing arrangements. $215,000 $215,000
A note ftom M. Philip and T. Carries dated
August 25, 1995, payable August 25, 1996 with
interest at 11% per annum, secured by an
assignment of interest in an unrelated law
suit Management believes this amount plus
accrued interest will be paid 45,000 45,000
------------ ------------
Total Notes Receivable $260 000 $260,000
------------ ------------
Both notes are delinquent as of the date of
August 22, 1997.
NOTE 7 - NOTE PAYABLE:
December 31 December 31
1996 1995
----------- -----------
A note payable to R.K. Company (a related
party) dated November 17, 1995, payable
$43,367 per month with interest at 10% per
annum through May 17, 1996, 18% thereafter,
unsecured (Note 13 and 14) $247,809 $247,809
A note payable to R. K. Company dated
November 17,1995, Payable $37,624 per month
with interest at 1O% per annum through May 17
1996, 18% thereafter, unsecured 215,000 215,000
------------ ------------
Total Notes Payable $462,809 $462,809
============ ============
</TABLE>
56
<PAGE>
HEALTH CARE CENTERS OF AMERICA, INC. AND SUBSIDIARY
(A DEVELOPMENT STAGE COMPANY)
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
DECEMBER 31,1996,1995 AND 1994
In March 1997, a payment of $195,436 was made on the note payable to R.K.
Company, a related party (see Note 13 and 14). Both notes are delinquent and a
demand for payment has been made on both notes.
NOTE 8 - INCOME TAXES:
At December 31, 1993 the Company had a net operating loss carry forward for
federal income tax purposes which will be limited because of change in ownership
since 1993. Post 1993 net operating losses carry forward of approximately
$500,000 is available to provide future tax benefits:
Expiration Date Operating Losses
2008 $800
2009 101,000
2010 90,000
2011 308,200
NOTE 9 - CAPITAL STOCK:
On December 28, 1993 the Company amended its articles of incorporation's to
increase the authorized capitalization from 80,000,000 shares common stock to
900,000,000 shares of common stock and changed the par value of its common stock
from $0.02 per share to $0.001 per share. The Company also declared a one for
three reverse stock split.
NOTE 1O - CONTINGENCIES:
The company is subject to disputes, various claims and legal proceedings
primarily relating to its contracts to acquire real estate and on account of
various transactions affiliated with the owner of the real estate. Consummation
of the agreements have not yet occurred, and such contracts are the subject of
litigation, the outcome of which cannot presently be predicted to be favorable
or unfavorable to the Company. Should the outcome of the real estate litigation
be unfavorable to the Company, the outstanding shares will be recovered and the
remaining unrecoverable shares will be pursued.
In 1996, the company entered into a contract for the acquisition of an interest
in a mining operation but the transaction was not consummated. The company has
recovered 56,000,000 shares of the 96,000,000 shares originally transferred, the
remaining 40,000,000 shares were transferred by the original holder to a third
party. The company is attempting to reacquire those shares, but, at this time,
management is unable to deter-mine if collectability is probable,
Stock options for an aggregate of 50,000,000 shares were issued to The Rainbow
Group and The Senior Group (25,000,000 each). Such options must be exercised
within 10 years from the option grant date of June 28, 1994. The first
25,000,000 shares are reserved at an exercise price of $1 per share. The next
25,000,000 may be exercised at a price per share equal to the last trading price
at the close of business for the day immediately preceding the day on which the
option is exercised. In no event can the price be less than 110% of the trading
price on June 28, 1994. The holder of these options is the same individual who
holds the 40,000,000 shares discussed above.
NOTE 11- FINANCIAL INFORMATION FOR BUSINESSES ACQUIRED OR TO BE ACQUIRED
Effective February 4th, 1997, Nashville Music Consultants, Inc. ("NMC"), F&II
Mining Company, Inc, ("F&H") and Peeples Mining, L.L.C. ("Peeples") were
acquired by the Company (Note 14) through the exchange for common stock of the
company. These acquisitions were accounted for under the purchase method. Pro
forma results of NMC are presented and may not be indicative of the results of
operations as they would have been if the Company and NMC had becn a single
entity during 1996, nor is it necessarily indicative of the results of
operations which may occur in the future.
57
<PAGE>
HEALTH CARE CENTERS OF AMERICA, INC. AND SUBSIDIARY
(A DEVELOPMENT STAGE COMPANY)
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
DECEMBER 31,1996,1995 AND 1994
<TABLE>
<CAPTION>
Pro fon-na for the
Year ended December 31,1996
Adiustments
HCCA NMC Debit Credit Combined
---------- ----------- --------- -------- ----------
(audited) (audited)
<S> <C> <C> <C> <C> <C>
Cash $196,214 $ - $196,214
Other Current Assets 1,500 9,973 11,473
Equipment & Furniture 575,014 15,251 590,265
Investment in future Acquisitions 46,516,330 - 46,516,330
Investment in NMC 2,500,000 - 2,500,000 -
Other Assets 200,314,022 28,012 200,342,034
Goodwill - - 2,780,307 2,780,307
Amortization of Goodwill - - 198,023 (198,023)
Total Current Liabilities 570,337 534,936 $1,105,273
Common Stock 452,485 1,000 1,000 452,485
Additional Paid in Capital 263,388,756 221,016 221,016 263,388,756
Retained Earnings (14,308,498) (502,323) 198,023 502,323 14,506,521
Revenue - 173,744 173,744
Expenses 374,422 375,137 198,023 947,582
Net income (loss) (374,422) (201,393) (198,023) (773,838)
Income per share (see Note 1) (.0021) (.0043)
</TABLE>
Adjustments include capital account and investment account eliminating entries
plus the recording and amortization of goodwill.
The combined assets of F&H and Peeples were $493,130 as of February 4th, 1997.
There have been no operations in either company for several years.
The company has entered into two agreements to acquire certain real estate from
Rainbow Group and Senior Group. Consummation of the agreements has not yet
occurred, and contracts are the subject of litigation, the outcome cannot
presently be predicted. Financial statements and/or pro forma information will
be furnished after the level of probability can be determined or consummation of
the acquisition(s) occurs, whichever comes first,
NOTE 12 - SUPPLEMENTAL CASH FLOW INFORMATION:
Non-cash investing and financing activities:
o Services and future potential acquisitions were exchanged for the Company's
common stock as follows:
Date Exchanged for: No. of Shares Value Assigned
---- -------------- ------------- --------------
1. 1/94 Services 31,960,000 $31,960
2. 5/94 A Future Leaming Center 400,000 50,000
3. 5/94 Mining Interest 12,000,000 86,130
4. 7/94 Real Estate Properties 54,572,361 13,190,066
5. 9/94 Real Estate Properties 40,348,988 9,752,296
6. 9/94 Mining Interest 20,000,000 410,000
----------- -----------
TOTAL 1994 159,281,349 $23,520,452
=========== ===========
7. 2/95 Services 5,000,000 $5,000
8. 2/95 Real Estate Properties 22,000,000 5,317,370
9. 8/95 Music Company 4,000,000 2,500,000
58
<PAGE>
HEALTH CARE CENTERS OF AMERICA, INC. AND SUBSIDIARY
(A DEVELOPMENT STAGE COMPANY)
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
DECEMBER 31,1996,1995 AND 1994
Date Exchaneed for: No. of Shares Value Assigned
--------------------- --------------- ----------------
10.8/95 Real Estate Properties 73,000,000 17,644,001
11.9/95 Services 275,000 66,467
--------------- ----------------
Total 1995 104,275,000 $25,532,838
--------------- ----------------
12. 11/96 Incentive (Note 13) 750,000 $ 750
--------------- ----------------
Subtotal 1994, 1995 & 1996 264,306,349 $49,054,040
--------------- ----------------
Stock Exchanged for Other Purposes:
13. 8/95 Mineral Inventory (Note 5) 100,000,000 $200,000,000
14. 6/96 Mining Interest (Note 10) 40,000,000 -
15, 6/96 Medical Decontamination Machines 2,066,115 555,185
16. 7/96 Acquisition of ElfWorks, Inc. (Note 2) 40,000,000 40,000
--------------- ----------------
Subtotal 182,066,115 $ 200,595,185
--------------- ----------------
TOTAL 1994 - 1996 446,372,464 $ 249,649,225
NOTE 13 - RELATED PARTY TRANSACTIONS:
o Inventories consisting of ore concentrates located in Arizona were
purchased from Zarzion Ltd. in exchange for shares of the Company's common
stock (see Notes 5).
o In November 1995, the Company borrowed $462,809 from R.K. Company, a major
stockholder of tile Company. In March 1997, payment of $195,436 was made on
the note payable to R.K. Company. There has been a demand for payment on
both notes (see Note 7).
o In November 1996, 750,000 shares of common stock were issued a-, an
incentive to new Directors of the Company. Such shares are non-forfeitable,
future services are not required. The transaction was booked at the
Company's par value of Common Stock.
o Services contributed by officers and reimbursements forfeited were expensed
to "Imputed Wages" at an hourly rate proportionate to the services
performed. Contributed office occupancy provided by M. Furlong, the
Company's president and CEO, was expensed to rent at an average of $330 a
month.
NOTE 14 - SUBSEQUENT EVENTS
o Registration of the Company's common stock under the Exchange Act became
effective on February 4th, 1997.
o Effective February 4th, 1997, the Company consummated the purchase of
Nashville Music Consultants, Inc. ("NMC") a Tennessee Corporation
headquarters in Nashville. On April 21, 1995, the Company entered into a
stock exchange agreement with NMC whereby 4,000,000 shares of the Company's
common stock valued by using the stock price on the date of the agreement
discounted for restricted stock issued, was exchanged for all the issued
and outstanding shares of NMC. Consummation of the acquisition was
contingent on the Company's registration becoming effective (February 4th,
1997). The transaction, valued at $2,500,000, appears reasonable based on a
valuation model projecting earnings for NMC.
NMC is focused on the development of selective artists and writers in the
country western music industry where NMC provided country music artists
with professional advice on career development through it's consulting
division, administers publishing rights through its publishing division and
produces recordcd material in its production division. In addition, NMC is
currently planning on adding a song writing school to the country western
division, and expanding the Company to include gospel music.
59
<PAGE>
HEALTH CARE CENTERS OF AMERICA, INC. AND SUBSIDIARY
(A DEVELOPMENT STAGE COMPANY)
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
DECEMBER 31, 1996, 1995 AND 1994
O Effective February 4th, 1997, the Company consummated the purchase of F&H
Mining, Inc. ("F&H"), a foreign corporation, and Peeples Mining L.L.C.
("Peeples LLC"), an Arizona limited liability company. On March 25th 1994,
the Company entered into a stock exchange agreement with F&H, whereby
20,000,000 shares of the Company's common stock was exchanged for all the
issued and outstanding shares of F&H. The shares were valued at
predecessors cost of the equipment on site, and adjusted to the current
replacement with Peeples LLC, whereby 12,000,000 shares of the Company's
common stock was exchanged for all the issued and outstanding shares of
Peeples LLC. The shares were also valued at predecessor's cost of the
equipment on site, adjusted to the current replacement cost of $86,130.
Consummation of the acquisition was contingent on the Company's
registration becoming effective (February 4th, 1997). Both companies are
dormant and have had no operations for several years.
O In February 1997, the Company formed Peeples Mining Company, a Nevada
Corporation, and a wholly owned subsidiary of the Company. The assets of
Peeples LLC and F&H were consolidated into the new corporation. As a
result, Peeples Mining Company now has mining operations in Arizona and
Nevada. The Arizona operation includes 17 claims on 340 acres. The Nevada
property includes 7 claims on 140 acres. The production facility and lab
equipment owned by Peeples Mining Company located in Nevada has moved to
Reno, Nevada. Assay reports obtained by professionals in the industry
indicate the expected value of these reserves to be in excess of the stock
value on the date of these agreements discounted by 50% for restriction.
O On February 6th 1997, the Company acquired 17 lode claims covering a
340-acre site in Northern California from Zarzion Ltd., in exchange for
375,000,000 shares of common stock valued at $69,375,000, the stock price
on the date of the agreement discounted for restricted stock issued. Assay
reports obtained by an independent Chemist, indicate a value far in excess
of this value. An independent appraisal on this property is currently being
conducted. Should it be determined that the value has been impaired, the
recorded amount will be adjusted accordingly. There has been no activity on
this property for several years.
In April 1997, Maurice Furlong, CEO and President of the Company obtained
voting control of all common stock of the Company held by Zarzion.
O In March 1997, payment of $195,436 was made on the note payable to R.K.
Company (Note 7), a related party. There has been a demand for payment on
both notes.
NOTE 15 - REVISED FINANCIAL STATEMENTS
The financial statements and the audited report for the Company for the periods
ending September 30, 1996 and December 31, 1996 have been recalled. The
following items were omitted or adjusted:
O Restated the financial statements to include the value of the common stock
issued at the time of issuance for the future potential acquisitions. The
original financial statements valued these transactions at par value of the
common stock issued (see Note 3).
O Inventory of minerals, originally recorded at a zero basis, has been
revalued at a discounted stock value of $200,000,000 (see Note 5).
O Minor adjustments for valuing contributed services and rent have been
recorded (see Note 13).
O Advertising trade credits originally booked at 50% of the face value of the
credits, was restated to the predecessors cost of zero (see Note 2).
O Eliminated common stock issued and held in trust capacity for probable
future acquisitions from the calculation of earnings per share.
O Eliminated entirely the common stock issued for abandoned acquisitions. The
total of these shares was 2,965,271 originally valued at par value of the
common stock. Such contracts include all contracts for the acquisition of
health care practices plus 800,000 shares returned for cancellation of the
learning centers in Canada.
60
<PAGE>
HEALTH CARE CENTERS OF AMERICA, INC. AND SUBSIDIARY
(A DEVELOPMENT STAGE COMPANY)
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
DECEMBER 31,1996,1995 AND 1994
The Net effect from the above changes is as follows:
1996 1995 1994
---- ---- ----
Net Assets Increased by $199,016,330 $249,056,330 $23,529,321
Net Loss Increased by 58,136 5,001 31,959
61
<PAGE>
DALE MCGHIE Town & Country Plaza
CERTIFIED PUBLIC ACCOUNTANT 1539 Vassar St. Reno, Nevada 89502
Tel: 702-323-7744
Fax: 702-323-8288
INDEPENDENT AUDITOR'S REPORT
To the Board of Directors
and Shareholders of
Health Care Centers of America, Inc.
I have audited the balance sheet of Health Care Centers of America, Inc. (A
Development Stage Company) as of December 31, 1996, 1995 and 1994, and the
related statements of operations, stockholders' equity, and cash flows for the
year then ended, and have issued my opinion thereon dated March 31, 1997. My
examination also comprehended Supplemental Schedules A and B of Health Care
Centers of America, Inc. (A Development Stage Company). In my opinion, Schedules
A and B, when considered in relation to the basic financial statements, present
fairly in all material respects the information shown therein.
W. Dale McGhie, CPA
Reno, Nevada
March 31, 1997
62
<PAGE>
HEALTH CARE CENTERS OF AMERICA, INC. AND SUBSIDIARY
(A DEVELOPMENT STAGE COMPANY)
SCHEDULE A - PROPERTY, PLANT AND EQUIPMENT
FOR THE YEARS ENDED DECEMBER 31,1996,1995 AND 1994
<TABLE>
<CAPTION>
Other Charges
Balance at Additions Reclassifications Balance at
Classification Beginning of Year at Cost Retirements add (deduct) End of Year
-------------- ----------------- ---------------- ----------- ----------------- -------------
<S> <C> <C> <C> <C> <C>
Decermber 31, 1996:
Furniture & Fixtures $ 1,679 $ 4,570 $ - $ - $ 6,249
Equipment 16,046 8,889 - - 24,935
Equipment - Other - 555,185 - - 555,185
----------------- ---------------- ----------- ---------------- -------------
Total $ 17,725 $568,644 $ - $ - $ 586,369
================= ================ =========== ================ =============
December 3l,1995:
Furniture & Fixtures $ 2,507 $ $ 828 $ - $ 1,679
Equipment 16,046 - - 16,046
----------------- ---------------- ----------- ---------------- -------------
Total $ 18,553 $ 828 - $ 17,725
================= ================ =========== ================ =============
December 31, 1994:
Furniture & Fixtures $ - 2,507 $ - $ - $ 2,507
Equipment - 16,046 - - 16,046
----------------- ---------------- ----------- ---------------- -------------
Total $ - $ 18,553 $ - $ - $ 18,553
================= ================ =========== ================ =============
* Equipment is not depreciated at this time because not plaged in service yet.
63
<PAGE>
HEALTH CARE CENTERS OF AMERICA, INC. AND SUBSIDIARY
(A DEVELOPMENT STAGE COMPANY)
SCHEDULE B -ACCUMULATED DEPRECIATION OF PROPERTY, PLANT AND EQUIPMENT
FOR THE YEARS ENDED DECEMBER 31,1996,1995 AND 1994
Additions Other Charges
Balance at Charges to Costs Reclassifications Balance at
Classification Beginning of Year and Expenses Retirements add (deduct) End of Year
-------------- ----------------- ---------------- ----------- ----------------- -------------
December 31, 1996:
Furniture & Fixtures $ 758 $ 764 $ $ - $ 1,522
Equipment 6,297 3,536 - 9,833
Equipment - Other * - - - -
----------------- ---------------- ----------- ---------------- -------------
Total $ 7,055 $ 4,300 $ $ - $ 11,355
================= ================ =========== ================ =============
December 31, 1995:
Furniture & Fixtures $ 358 $ 400 $ - $ - $ 758
Equipment 3,088 3,209 - - 6,297
----------------- ---------------- ----------- ---------------- -------------
Total $ 3,446 $ 3,609 $ - $ - $ 7,055
================= ================ =========== ================ =============
December 31, 1994:
Furniture & Fixtures $ $ 358 $ - $ - $ 358
Equipment 3,088 - - 3,088
----------------- ---------------- ----------- ---------------- -------------
Total $ $ 3,446 $ $ - $ 3,446
================= ================ =========== ================ =============
</TABLE>
* Equipment is not depreciated at this time because not placed in service yet.
64
<PAGE>
PART III
ITEM 1. INDEX TO EXHIBITS
Exhibit
no.
- -------
(2) Charter and By-Laws.
(a) Articles of incorporation of Cadgie Taylor, Inc., filed April
8, 1984 (incorporated by reference to Exhibit A filed with
Form 10-SB December 6, 1996)
(i) Agreement of Merger merging Cadgie Taylor Co. into
Carleton Enterprises, Ltd., filed May 24, 1984
(incorporated by reference to Exhibit A filed with
Form 10-SB December 6, 1996)
(ii) Amendment to Articles of Incorporation filed November
18, 1984, inter alia changing name to SCN, Ltd.
(incorporated by reference to Exhibit A filed with
Form 10-SB December 6, 1996)
(iii) Certificate of Amendment of Articles of Incorporation
filed December 10, 1993, changing name to Health Care
Centers of America, Inc. (incorporated by reference
to Exhibit A filed with Form 10-SB December 6, 1996)
(iv) Amendment to Articles of Incorporation filed January
4, 1994 (incorporated by reference to Exhibit A filed
with Form 10-SB December 6, 1996)
(v) Amendment to Articles of Incorporation filed March
31, 1995 (incorporated by reference to Exhibit A
filed with Form 10-SB December 6, 1996)
(b) Bylaws (incorporated by reference to Exhibit B filed with Form
10-SB December 6, 1996)
(3) Instruments Defining Rights of Security Holders.
(a) Specimen stock certificate for common stock
(5) Voting Trust Agreement.
(a) Voting trust agreement dated June 18, 1994, between the
"stockholders" of Peeples Mining, LLC, and Maurice Furlong
(incorporated by reference to Exhibit H filed with Form 10-SB
December 6, 1996)
(b) Voting trust agreement dated April 22, 1995, between
stockholders of Nash- ville Music Consultants, Inc., and
Maurice Furlong (incorporated by reference to Exhibit J filed
with Form 10-SB December 6, 1996)
(c) Voting trust agreement dated April 21, 1997, between Zarzion
Ltd. and Maurice Furlong (filed with Form 10-KSB, May 2, 1997,
page 65)
(6) Material Contracts
(a) Not Made in the ordinary course of business
(i) Transfer Agent and Registrar Agreement between
Registrant and Nevada Agency & Trust Co., dated June
28, 1993 (incorporated by reference to Exhibit B
filed with Form 10-SB December 6, 1996)
(ii) Stock Exchange Agreement dated March 25, 1994,
between Registrant and F&H Mining Co., Inc.
(incorporated by reference to Exhibit G filed with
Form 10-SB December 6, 1996)
(iii) Stock Exchange Agreement dated June 18, 1994, between
Registrant and Peeples Mining LLC (incorporated by
reference to Exhibit H filed with Form 10-SB December
6, 1996)
65
<PAGE>
(iv) Agreement for acquisition of gold concentrate dated
March 15, 1995, between Registrant and Robert Rood,
IV, and Restated Agreement between Registrant and
Mar-Pro Services, Ltd. (incorporated by reference to
Exhibit S filed with Form 10-SB December 6, 1996)
(v) Stock Exchange Agreement dated April 21, 1995, and
addenda between Registrant and Nashville Music
Consultants, Inc. (incorporated by reference to
Exhibit J filed with Form 10-SB December 6, 1996)
(vi) Joint venture agreement dated May 31, 1995, among
Registrant, Im- mobiliara y Fraccinoadora del 1 Nueva
Viscaya, S.A. de C.V. and Oscar Neninger G., and
Robert R. Krilich, Sr. (incorporated by reference
to Exhibit Q filed with Form 10-SB December 6, 1996)
(vii) Stock Exchange Agreement dated June 5, 1995, between
Registrant and Senior Group (incorporated by
reference to Exhibit E filed with Form 10-SB December
6, 1996)
(viii) Amended and Restated Stock Exchange Agreement dated
June 5, 1995, between Registrant and Rainbow Group
(incorporated by reference to Exhibit D filed with
Form 10-SB December 6, 1996)
(ix) Consulting services agreement dated January 10, 1996,
between Regis- trant and Robert R. Krilich, Sr.
(incorporated by reference to Exhibit R filed with
Form 10-SB December 6, 1996)
(x) Asset purchase agreement dated June 12, 1996, between
Registrant and MedAway International, Inc.
(incorporated by reference to Exhibit U filed with
Form 10-SB December 6, 1996)
(xi) Stock Exchange Agreement dated June 26, 1996, and
amendment dated November 8, 1996, between Registrant
and ELF Works, Ltd. (incorporated by reference to
Exhibit T filed with Form 10-SB December 6, 1996)
(xii) Partnership Agreement between dated August 30, 1996,
between R&S Group and Fairdan Suites, Inc.
(incorporated by reference to Exhibit V filed with
Form 10-SB December 6, 1996)
(xiii) Sales Agreement dated February 6, 1997, between
Zarzion, Ltd. and the Registrant (filed with Form
10-KSB May 2, 1997, page 68)
(7) Material Foreign Patents.
None.
(10) Consent of experts and counsel
(i) CONSENT OF METALLURGICAL RESEARCH & ASSAY LABORATORY (filed
with this report, page 69)
(ii) CONSENT OF DALE MCGHIE, CERTIFIED PUBLIC ACCOUNTANT (filed
with this report, page 70)
(12) Additional Exhibits.
(a) Letter dated November 11, 1996, from Roy Sinkovich on change
in certifying accountant (incorporated by reference to Exhibit
BB filed with Form 10-SB December 6, 1996)
(b) Letter from Registrant dated November 29, 1996, on change in
accounting treatment of certain acquisitions (incorporated by
reference to Exhibit BB filed with Form 10-SB December 6,
1996)
(c) Assay of Peeples Mining Co.'s concentrate by Metallurgical
Research & Assay Laboratory, dated March 21, 1997 (filed with
Form 10-KSB, page 84)
(d) ASSAYS NO. 2220, 2221 AND 2222, DATED FEBRUARY 6, 1996, AND
LETTER RELATING THERETO DATED FEBRUARY 9, 1996, RELATING TO
PROPERTIES BELONGING TO F&H
66
<PAGE>
MINING IN THE VICINITY OF MESQUITE, NEVADA (filed with this
report, pages 71- 74)
(e) ASSAY NO. 2972A DATED JUNE 12, 1997 AND LETTER RELATING
THERETO DATED JUNE 28, 1997, RELATING TO APPROXIMATELY 500,000
TONS OF ORE CONCENTRATE BELONGING TO PEEPLES MINE, LOCATED IN
THE VICINITY OF SKULL VALLEY, ARIZONA (filed with this report,
pages 75-77)
ITEM 2. EXHIBITS
[Attached, pages 69 through 77.]
67
<PAGE>
SIGNATURES
In accordance with Section 12 of the Securities Exchange Act of 1934,
the registrant has caused this registration statement to be signed on its behalf
by the undersigned, thereunto duly authorized.
HEALTH CARE CENTERS OF AMERICA, INC.
(Registrant)
By /s/ MAURICE W. FURLONG
---------------------------------------
Maurice W. Furlong, President
Date: August 26, 1997
68
<PAGE>
Exhibit 10(i)
CONSENT OF INDEPENDENT CHEMIST AND ASSAYER
HEALTH CARE CENTERS OF AMERICA, INC.
I hereby consent to the filing of the following reports with the
registration statement of Health Care Centers of America, Inc., filed on Form
10-SB in accordance with Section 12 of the Securities Exchange Act of 1934:
1. Assay no. 2972A dated June 12, 1997 and letter relating thereto dated
June 28, 1997, relating to approximately 500,000 tons of ore
concentrate belonging to Peeples Mine, and located in the vicinity of
Skull Valley, Arizona
2. Assay nos. 2220, 2221 and 2222, dated February 6, 1996, and letter
relating thereto dated February 9, 1996, relating to properties
belonging to F&H Mining in the vicinity of Mesquite, Nevada
I further consent to the reference to my name is such registration
statement and to future reports and announcements, to the effect that I have
tested samples from such concentrate, that such samples indicate commercial
quantities of precious metals, including gold, platinum, iridium, and osmium,
and subject to the qualifications set forth in my report, 500,000 tons of such
concentrate would in my judgment be worth in excess of $3 billion based on
prices at March 21, 1997.
METALLURGICAL RESEARCH & ASSAY LABORATORY
by /s/ Donald E. Jordan
Donald E. Jordan
Henderson, Nevada
August 26, 1997
69
<PAGE>
Exhibit 10(ii)
CONSENT OF INDEPENDENT CERTIFIED PUBLIC ACCOUNTANT
HEALTH CARE CENTERS OF AMERICA, INC.
I hereby consent to the use of my report dated March 31, 1997, in the
registration statement of Health Care Centers of America, Inc., filed in Form
10-SB in accordance with Section 12 of the Securities Exchange Act of 1934.
I also consent to my report referred to above being considered as
comprehending my opinion that the supplemental schedules of Health Care Centers
of America, Inc. and its subsidiary as of December 31, 1994, 1995 and 1996, and
for each of the years then ended, included in such registration statement, when
considered in relation to the basic consolidated financial statements, present
fairly in all material respects the information shown therein.
/s/ Dale W. McGhie
W. DALE MCGHIE, CPA
Reno, Nevada
August 22, 1997
70
<PAGE>
METALLURGICAL RESEARCH AND ASSAY LABORATORY
745 Sunset Road Suite 8
Henderson, NV 89015
702-565-0074
702-564-0726
ASSAY REPORT
- ------------
ASSAY NUMBER 2220 DATE: 2/9/96
------------- ----------------
CUSTOMER CRAIG FURLONG
--------------------------------------------------------
SAMPLE IDENTIFICATION BY ROAD 4 FOOT BANK SAMPLE
--------------------------------------------------------
- --------------------------------------------------------------------------------
Element ppm or ug/g troy oz/s. ton
---------------------------------------------------------------------
Au-Gold 7.0 0.20
Ag-Silver 5.6 0.16
Pt-Platinum 46.4 1.35
Rh-Rhodium 9.0 0.26
Os-Osimum 50.0 1.48
Ru-Ruthenium 9.1 0.27
Pd-Palladium 3.7 0.11
Ir-Iridium 71.0 2.07
Registered Assayer
Certificate No.
19127
Donald E. Jordan
Date Signed 2/1/96
Arizona, U.S.A.
ULESS PRIOR ARRANGEMENT ARE MADE, ALL SAMPLES WILL BE DISCARDED AFTER 30 DAYS
- --------------------------------------------------------------------------------
THESE RESULTE ARE BASED ON WELL KNOWN ACCEPTED ANALYTICAL PROCEDURES USED SOLELY
ON THE SAMPLE TAKEN BY JORDAN, GRAHAM AND HERRON. THIS REPORT IS PREPARED
EXCLUSIVELY FOR THE CLIENT. NO WARRANTIES AS TO THE REPRODUCTIBILITY OR
EXTRACTABILITY OF MATERIAL OTHER THAN THE SAMPLE IS GIVEN. DONALD E. JORDAN
AND/OR METALLURGICAL RESEARCH AND ASSAY LABORATORY MAKE NO REPRESENTATION
EXPRESS OR IMPLIED ON MATERIAL OTHER THAN THAT REPRESENTED BY THE SAMPLE
ASSAYED.
- --------------------------------------------------------------------------------
NOTE: "#VALUE" MEANS THAT ELEMENT HAS NOT BEEN ANALYZED FOR THIS REPORT.
- --------------------------------------------------------------------------------
<PAGE>
METALLURGICAL RESEARCH AND ASSAY LABORATORY
745 Sunset Road Suite 8
Henderson, NV 89015
702-565-0074
702-564-0726
ASSAY REPORT
- ------------
ASSAY NUMBER 2221 DATE: 2/9/96
------------- ----------------
CUSTOMER CRAIG FURLONG
--------------------------------------------------------
SAMPLE IDENTIFICATION BY ROAD 14 FOOT BANK SAMPLE
--------------------------------------------------------
- --------------------------------------------------------------------------------
Element ppm or ug/g troy oz/s. ton
---------------------------------------------------------------------
Au-Gold 7.8 0.25
Ag-Silver 8.4 0.24
Pt-Platinum 54.0 1.57
Rh-Rhodium 15.5 0.45
Os-Osimum 89.5 2.61
Ru-Ruthenium 8.2 0.24
Pd-Palladium 5.4 0.16
Ir-Iridium 162.0 2.97
Registered Assayer
Certificate No.
19127
Donald E. Jordan
Date Signed 2/1/96
Arizona, U.S.A.
ULESS PRIOR ARRANGEMENT ARE MADE, ALL SAMPLES WILL BE DISCARDED AFTER 30 DAYS
- --------------------------------------------------------------------------------
THESE RESULTE ARE BASED ON WELL KNOWN ACCEPTED ANALYTICAL PROCEDURES USED SOLELY
ON THE SAMPLE TAKEN BY JORDAN, GRAHAM AND HERRON. THIS REPORT IS PREPARED
EXCLUSIVELY FOR THE CLIENT. NO WARRANTIES AS TO THE REPRODUCTIBILITY OR
EXTRACTABILITY OF MATERIAL OTHER THAN THE SAMPLE IS GIVEN. DONALD E. JORDAN
AND/OR METALLURGICAL RESEARCH AND ASSAY LABORATORY MAKE NO REPRESENTATION
EXPRESS OR IMPLIED ON MATERIAL OTHER THAN THAT REPRESENTED BY THE SAMPLE
ASSAYED.
- --------------------------------------------------------------------------------
NOTE: "#VALUE" MEANS THAT ELEMENT HAS NOT BEEN ANALYZED FOR THIS REPORT.
- --------------------------------------------------------------------------------
<PAGE>
METALLURGICAL RESEARCH AND ASSAY LABORATORY
745 Sunset Road Suite 8
Henderson, NV 89015
702-565-0074
702-564-0726
ASSAY REPORT
- ------------
ASSAY NUMBER 2222 DATE: 2/9/96
------------- ----------------
CUSTOMER CRAIG FURLONG
--------------------------------------------------------
SAMPLE IDENTIFICATION PROSPECT HOLE 200 YARDS TO THE NORTHEAST
--------------------------------------------------------
- --------------------------------------------------------------------------------
Element ppm or ug/g troy oz/s. ton
---------------------------------------------------------------------
Au-Gold 9.6 0.29
Ag-Silver 10.5 0.31
Pt-Platinum 77.0 2.25
Rh-Rhodium 20.4 0.59
Os-Osimum 121.0 3.55
Ru-Ruthenium 15.6 0.45
Pd-Palladium 6.6 0.19
Ir-Iridium 131.0 3.52
Registered Assayer
Certificate No.
19127
Donald E. Jordan
Date Signed 2/1/96
Arizona, U.S.A.
ULESS PRIOR ARRANGEMENT ARE MADE, ALL SAMPLES WILL BE DISCARDED AFTER 30 DAYS
- --------------------------------------------------------------------------------
THESE RESULTE ARE BASED ON WELL KNOWN ACCEPTED ANALYTICAL PROCEDURES USED SOLELY
ON THE SAMPLE TAKEN BY JORDAN, GRAHAM AND HERRON. THIS REPORT IS PREPARED
EXCLUSIVELY FOR THE CLIENT. NO WARRANTIES AS TO THE REPRODUCTIBILITY OR
EXTRACTABILITY OF MATERIAL OTHER THAN THE SAMPLE IS GIVEN. DONALD E. JORDAN
AND/OR METALLURGICAL RESEARCH AND ASSAY LABORATORY MAKE NO REPRESENTATION
EXPRESS OR IMPLIED ON MATERIAL OTHER THAN THAT REPRESENTED BY THE SAMPLE
ASSAYED.
- --------------------------------------------------------------------------------
NOTE: "#VALUE" MEANS THAT ELEMENT HAS NOT BEEN ANALYZED FOR THIS REPORT.
- --------------------------------------------------------------------------------
<PAGE>
METALLURGICAL RESEARCH AND ASSAY LABORATORY
745 SUNSET ROAD SUITE 8
HENDERSON, NV 89015
702-565-0074
February 9, 1996
Mr. Harrigan
We retrieved and analyzed three samples for you (results shown on separate
assay reports 3's 2220, 2221, and 2222 dated 2/9/96. These samples were taken
over a 7 claim area and identified as B4 foot bank, M14 foot bank, and T pospect
hole 200 yards to the north east. These samples, if representative of the 7
claims, have values according to our assays above as follows:
7 claims = 700,000 cubic yards and each cubic yard weighs ca 1.5 ton. or
1,050,000 ton/7claims.
The average value/ton for each metal is:
Gold $ 80
Platinum 700
Rhodium 250
Osmium 1000
Ruthenium 18
Palladium 15
Iridium 180
TOTAL $2243/ton
$2243 X 1,050,000 tons = $ 2,355,150,000.00
Of course these values are just an estimate but from the assays and the
area covered we feel that they are a pretty good estimate.
Very truly yours
Donald E. Jordan
/s/ Donald E. Jordan
<PAGE>
METALLURGICAL RESEARCH AND ASSAY LABORATORY
745 Sunset Road Suite 8
Henderson, NV 89015
702-565-0074
702-564-0726
ASSAY REPORT
- ------------
ASSAY NUMBER 2972A DATE: 6/12/97
------------- ----------------
CUSTOMER CRAIG FURLONG
--------------------------------------------------------
SAMPLE IDENTIFICATION #1 PIT - 90+ FEET
--------------------------------------------------------
- --------------------------------------------------------------------------------
Element ppm or ug/g troy oz/s. ton
---------------------------------------------------------------------
Au-Gold 35.2 1.03
Ag-Silver 39.3 1.14
Pt-Platinum 105.5 3.08
Rh-Rhodium 42.5 1.24
Os-Osimum 670.0 19.54
Ru-Ruthenium 92.5 2.70
Pd-Palladium 13.9 0.40
Ir-Iridium 251.5 7.34
Fe-Iron 278,000.0 8,108.15
Cu-Copper 312.0 9.10
Sulfur : 0.012%
Si02 : 50.9%
Registered Assayer
Certificate No.
19127
Donald E. Jordan
Date Signed 6/12/97
Arizona, U.S.A.
ULESS PRIOR ARRANGEMENT ARE MADE, ALL SAMPLES WILL BE DISCARDED AFTER 30 DAYS
- --------------------------------------------------------------------------------
THESE RESULTE ARE BASED ON WELL KNOWN ACCEPTED ANALYTICAL PROCEDURES USED SOLELY
ON THE SAMPLE TAKEN BY DONALD JORDAN & DAVID GRAHAM. THIS REPORT IS PREPARED FOR
THE EXCLUSIVE USE OF THE CUSTOMER. NO WARRANTIES AS TO THE REPRODUCTIBILITY OR
EXTRACTABILITY OF MATERIAL OTHER THAN THE SAMPLE IS GIVEN. DONALD E. JORDAN
AND/OR METALLURGICAL RESEARCH AND ASSAY LABORATORY MAKE NO REPRESENTATION
EXPRESS OR IMPLIED ON MATERIAL OTHER THAN THAT REPRESENTED BY THE SAMPLE
ASSAYED.
- --------------------------------------------------------------------------------
NOTE: "#VALUE" MEANS THAT ELEMENT HAS NOT BEEN ANALYZED FOR THIS REPORT.
- --------------------------------------------------------------------------------
<PAGE>
METALLURGICAL RESEARCH AND ASSAY LABORATORY
746 Sunset Rd. Suite 8
Henderson, NV 09015
702-565-0074
6/28/97
Mr. W. Dale McGhie
Certified Public Accountant
1539 Vassar Street
Reno, NV 89602
Re: Auditors request to summarize Peeples Mining Companies ore value.
Dear Mr. MaGhie:
It is my opinion, assuming Peeples Mining Company reduces its ore
inventory to a dore' bar using a plasma furnace, they can recover approximately
80% of the values,
Assuming Peeples Mining Company has in excess of 500,000 tons of
material as represented by Paul Mason. the market prices, as of March 21,1997,
for the precious metals present in Peoples ore are as follows;
Gold $354.00 per oz.
Silver $5.00 per oz.
Platinum $ 395.00 per oz.
Rhodium $321.00 per oz.
Osmium $425.00 per oz.
Ruthenium $12.00 per oz,
Palladium $145.00 per oz.
Iridium $425.00 per oz.
Assuming Peeples Mining Company installs 2 furnaces to start with, they
will be able to process one half ton of ore, to the dore' bar state, every hour.
Assuming Peeples operates their furnaces 24 hours per day - 7 days per
week they will be able to process 84 tons of ore to the dore' bar state each
week. As stated the plasma furnaces will collect approximately 80% of the ores
values in the dore' bars.
The Assay # 2972A I performed on June 12, 1997, shows the Precious Metal
values per ton of Peeples ore to be $ 13,619.86 present in each ton of ore.
Peeples approximate recovery of 80% of the present values, gives Peeples
a representative value of $10,900.00 per ton of are (not per ton of dore' bars).
The estimated cost per ton of ore to create the dore' bars should not
exceed $ 3,000.00 per ton of ore.
The BEFORE TAX PROFIT Peeples Mining Co. will be approximately $
7,900.00 per ton of concentrate.
<PAGE>
Assuming that Peeples Mining Co. has an excess of 500,000 tons of this
ore as stated above, they can expect their before tax profit would be $
3,950,000,000.00 (three billion nine hundred fifty million dollars).
It's my professional opinion, based on the above, that with just the
precious metal values being considered, Peeples Mining Companies inventory of
ore is worth well in excess of $ 3,000,000,000.00 (three billion dollars).
Sincerely,
/s/ Donald E. Jordan
Donald E. Jordan
