UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-SB
(Second 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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HEXAGON CONSOLIDATED COMPANIES OF AMERICA, INC.
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(FORMERLY 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
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TABLE OF CONTENTS
Item Page
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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
Hexagon Consolidated Companies 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 cor poration. In 1985, the Company filed for bankruptcy
under Chap ter 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., re flecting 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
"Ex change Act") did not become effective within a specified period of time (in
most cases 18 months following the date of the agree ment). Many of such
agreements or oral understandings supple menting such agreements also provided
that the assets, liabili ties, and income of the target entities would not inure
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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 activi ties relate to other
industries, primarily mining/processing of precious metals and entertainment.
On July 7, 1999 the Board of Directors of the Company unanimosly adopted a
resolution to change the name the Company from Health Care Centers of America,
Inc. to Hexagon Consolidated Companies of America, Inc. to better reflect the
diversification of the Company's business.On August 31,1999 the approprpriate
anedmendment to the Articles of Incorporation were filed with the office of the
Nevada Secretary of State.
The Company is in the development stage and has not had any revenues
during the last five years, during which there has been a subtantial expenditure
of 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 September 30,1999, the Company did not have any em ployees, its
business being managed by its officers and direc tors.
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
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500,000 tons. Tests by an independent firm including a registered assayer and
analytical chemist indicate that such concentrate contains commercial quan
tities 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, California and
Nevada.
Peeples Mining has recently commenced processing the Com pany's
concentrate. The development of its other mining proper ties will begin 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
pro duced 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 alterna tive 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 equip ment necessary to refine its concentrate or dore bars into bul lion;
rather it intends to produce and sell dore bars to smelters which have such
equipment.
Peeples Mining has certain facilities and equipment for
leaching,testing,extracting free milling gold and melting the free milling gold
into "common gold bars", but new equipment will be required to process the
concentrated ores from the Company's properties into dore' bars. After the
concentrated ore is processed into dore' bars, Peeples will begin concentrating
head ore. 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. As is being done with the concemtrated ore inventory,free milling
gold will be removed, and the remaining concentrate will be further concentrated
and/or separated by a mechanical process. This concentrated ore will then be
refined into dore' bars.
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
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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.
On April 30, 1998, Peeples Mining entered into a joint venture
agreement with Hidden Splendor Smelting Co., a Nevada corporation (herinafter
"HSS"),for the purpose of processing approximately 500,000 tons of the Peeples
Mining concentrated ore inventory located near Skull Valley, Arizona.The
agreement pro vides that HSS has the right to acquire a twenty percent (20%)
interest in the net revenues realized as a result of the sale of the processed
inventory.In return, HSS shall provide, among other things, the proper permits
for processing (including smelting operations, etc.) of the ore inventory,
assistance with the processing operations and the necessary machinery,
equipment, laboratory facilities and structures for the initial period of the
processing operations. The term of the agreement is eight (8) years from the
effective date (ie. form April 30, 1998) and for so long as it takes to process
and sell the inventory.
On behalf of the Company and as a showing of good faith, Mr. Maurice
W. Furlong, Chairman and President, personally transferred 1,000,000 shares of
common stock on June 28, 1999 to HSS. As of this date,HSS has procucured the
appropriate permits, however, no processing activity has taken place.
Peeples Mining does not presently have any employees.
For a futher discussion, see Item 2, "Management's Discus sion and
Analysis or Plan of Operation", below.
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 (12,000 after given effect of
reverse split) shares of the Company's stock. Maurice Furlong, the Company's
president, had been a consultant to F&H. Mr Furlong's son, Craig Furlong was
president of F&H. Consummation of the acquisition of F&H Mining was contingent
on effectiveness of the Company's Exchange Act registration statement, which was
origi nally filed in December of 1996.
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
(20,000 after given effect of reverse split) shares of the Company's stock to
the members of Peeples LLC, and through Peeples LLC acquired the mineral rights
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to 377.11 acres near Prescott, Arizona pursuant to a mineral lease with the
State of Arizona.The lease expires on May 1,2003. The In August 1995, the
Company issued an additional 100,000,000 (100,000 after given effect of reverse
split) 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 regis tration
statement.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 Ex change 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 agree ments 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 pre scribed 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 were acquired from Zarzion, Ltd. (see Part
I, Item 7 "Certain Relationships and Related Transactions") in exchange for
375,000,000 (375,000 after given effect of reverse split)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 signifi cant quantities of precious metals in
such concentrate, the market price of such metals and the cost of extraction and
refin ing 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 repre sentation of management.
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His samplings were taken without super vision, 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 ad verse affect on the value of the metals believed to be contained
in such ore.
No assurances can be given that a desirable level of recov ery will be
realized from Peeples Mining's ore. 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 pro
duction 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 environmen tal hazards, thefts and
other losses, industrial accidents, and labor disputes. Mining is also subject
to the risks of encoun tering 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 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.
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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 regula tions governing
prospecting, developing, production, export, taxes, labor standards,
occupational health, waste disposal, pro tection and remediation of the
environment, protection of endan gered and protected species, mine safety, toxic
substances, and other matters. Mining is subject to potential risks and liabili
ties associated with pollution of the environment and the dis posal of waste
products occurring as a result of mineral explora tion, production, and
processing. The Company may in the future be subject to clean-up liability under
the Comprehensive Environ mental 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 opera tions 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.
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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.In June 1996 NMC changed its name to Nashville Music Group,Inc.("NMG"). NMG
en gages in screening, advising, developing, publishing, and manag ing singers
and songwriters. Revenues come from consulting fees, registration fees, tuition,
publishing royalties, and management commissions.The original agreement to
acquire NMG concerned only publishing activities. Since the date of the
agreement and since the effective date of the Company's registration statement,
NMG has expanded its operations not intended to be part of the origi nal
agreement with NMG. to include other areas. On September 1, 1998 the Company and
NMG agreed to amend the agreement so that it conformed to the intent of the
parties. As a result of this agreement, a new Nevada corporation will be formed
and named "Music Alley, Inc" ("MAI"). The effective date of the amendment to the
stock exchange agreement with NMG was July 1, 1997. This entity will be a wholly
owned subsidiary of the Company, the assets of which are the publishing rights
to approximately 400 songs, of which approximately 200 have recorded as
demonstration tapes. MAI and NMG have no further connection. The Company
believes that NMG may continue to operate in areas other than country music
publishing, however, repeated commnication attempts with the president of NMG,
Mr. Alcy Baggott,have been unsucessfull. MAI is to receive referrals from NMG of
songwriters who are considered to have outstanding potential. These individu als
are to be offered a contract with MAI. However, due to the lack of communication
with NMG, the probability of such referrals actually happening is highly
uncertain.
The management of MAI shall be conducted by the offi cers of HCCA. Mr.
Baggott, the president of NMG, was to have continued in the same capacity with
MAI. However,it is the Compa nies' position that he has constructively abandoned
that posi tion in that he has failed to communicate with the Company after
repeated requests by management.Therefore, the Company shall assume this
responsibility.
On August 2nd, 1984 and November 1, 1984, the Company,under its
predecessor name of SCN, Ltd. entered into an agreement with Jey Productions,
Inc.("JEY"), a Nevada corporation and Bullett Productions, Inc. ("BULLETT"), a
Tennessee corporation, respec tively, to purchase certain "master recordings"
("Masters").These Masters contained approximately 10 songs per album.
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The Masters contain recodings of songs by various artists and encompass
music genre from country and western,jazz, popular, gospel, dixie,rock and roll
and classical. The songs involved were recorded in the 1950's through the
1980's. The original artist contract for the songs of the various artists and
the original Masters are in the possession of the Company.
In 1985, the Masters were the subject of a license agreement with the
record specialty division of Columbia Broadcast Systems, Inc. ("CBS"). The
Company is to receive a royalty payment from the marketing of these songs.
Other entities have copies of these Masters and have either licensed or
sold them for use by others. This has been done without the Companies authority.
As a result, CBS has not paid any royalties and is holding them in an escrow
account until it has been determined to whom they shall be paid.
On May 20, 1996 the Company entered into an agreement with Artists
Limited, L.L.C. ("Artists") for the purpose of seeking the collection of any and
all past due royalties. The term of the agreement is 5 years from the date it
was signed (ie.,5 years from May 20, 1996). The agreement provides that Artists
shall receive an amount equal to 40% of all monies collected on behalf on the
Company and Artists would not be liable for any costs incurred in the collection
of monies for the Company. A subse quent oral amendment to the agreement
provided that Artists would receive 55% of the amount collected and would be
responsible for all costs incurred in the collection process.
Artists is currently gathering data from the Company to support the
claim for the unpaid royalties. They have also en tered into preliminary
negotiations for collection of the royalties. However, the complexities involved
in the process, including, but not limited to, the dispute as to ownership of
the Masters, the time that has passed and establishing ownership of the Masters
through the appropriate chain of title. Therefore, there can be no assurances
that the Company will ever be successfull in obtaining any royalties, whether
they be past or present.
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 NMG's stock in exchange for 4,000,000 (4,000 after given
effect of reverse split) shares of the Company's stock. Consummation of the
transaction was contingent on effectiveness of the Company's Exchange Act regis
tration statement, so that the acquisition was not consummated until February
1997.
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Pursuant to the acquisition agreement, 51% of the outstanding stock of
NMG 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.This obligation was fulfilled on behalf of the Company by its
president and chairman, Maurice W. Furlong. Also under the agreement, the
Company is entitled to an annual "management fee" in an amount equal to 9% of
NMC's gross revenues. Since the effective date of the the stock exchange
agreement and the above referenced amedment to the stock exchange agreement the
Company has received no management fee.
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 some
day be invoked to disassociate NMC from the Company. The agree ment also
indicates that NMC's stockholders can void the agree ment if the transaction
turns out not to be a tax free transac tion 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 trans
action under the Internal Revenue Code.
The amendment to the agreement provides that MAI shall be incorporated
as a wholly owned subsidiary of the Company. MAI currently has approximately 400
songs NMG represented and warrented that its publishing division owns, free and
clear, approximately 400 songs, 200 of which have been recorded as demonstration
tapes.
The Company has yet to receive confimation that the above has been
accomplished. Therefore, the Company shall form a wholly owned subsidiary under
the laws of the State of Nevada to be named Music Alley, Inc. This subsidiary
shall hold title to the above referenced songs.
Neither Mr. Baggott nor NMG has yet to transfer or assign the
songwriter or artist contracts to the Company. In light of Mr.Baggott's previous
lack of cooperation, there can be no guarantee that he will comply with the
agreement, as amended. Should he continue to fail to comply with the amended
agreement, the Company may be required to seek legal action to assure NMG's
compliance.
On August 2, 1984, the Company (under its predessor name of SCN, LTD.)
entered into an agreement with JEY to purchase certain Masters in consideration
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of 400 shares of the capital stock of the Company (then SCN, Ltd.). In addition,
the Company agreed to pay JEY a royalty of 1 cent per song for each song sold,
whether in an album, single, tape, video or other form of production.
As discussed above, the Company has received no royalties from the sale
or licensing of any song in the Maters. Further more, JEY no longer exists as a
corporate entity and the Company has received no notification of any successor
entity. In the event that the Company is successfull in collecting royalties or
selling any songs,it may be obligated to pay a royalty per the agreement.
On November 1, 1984, the Company (under its predessor name of SCN,
Ltd.) entered into an agreement with BULLETT to purchase certain Masters in
consideration of 700 shares of capital satock of the Company (then SCN, Ltd.).
In addition, the Company agreed to pay BULLETT a royalty of 1 cent per song for
sold, whether in an album, single, tape, video, or other form of production.
As discussed above, the Company has received no royalties from the sale
or licensing of any songs which were the subject of this agreement.Furthermore,
BULLETT no longer exists as a corporate entity and the Company has received no
notification of any successor entity. In the event that the Company is
successful in collecting royalties or selling any songs, it may be obligated to
pay a royalty per the agreement.
3. Competition and Regulation
Management is keenly aware of other entities offering similar services
and the competition in the music publishing industry is quite intense. There can
be no assurance that MAI's strategy of providing songs to various record
producers and artisits will withstand competition from more established enti
ties. Also, there can be no assurance that Company will ever be able to collect
royalties relating to the Masters. Or that the Company will ever be able to
license or sell the Masters 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 unautho rized reproduction of previously published material. The Com
pany's ability to protect itself from the unauthorized reproduc tion of works
generated by its songwriters, along with its abil ity to protect its publishing
rights, will be influenced by federal and state copyright, trademark, and
service mark laws.
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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 gener ated 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 non-infectious. As the
waste load is heated in the unit, the plastics melt, encapsulat ing the sharps
and reducing volume by a factor of as much as ten. The units operate silently
without shredding, grinding, compact ing, steaming or chemically treating the
waste, and are approved by Underwriters Laboratory ("UL").
The Company intends to lease its units, through MedAway International,
Inc.,a newly created Nevada corporation, which is a wholly owned susidiary of
the Company,("MedAway Nevada") 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 Inc.,a Delaware corporation,("MedAway Delaware")
and management believes such units are operating satisfactorily. MedAway
Delaware has no affiliation with the Company nor its wholly owned subsidiary,
MedAway Nevada. 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 main tain and
repair the units. The Company does not yet have any employees in MedAway Nevada.
2. Terms of Acquisition
The Company acquired its units together with other assets of MedAway
Delaware, in June 1996, in exchange for $2,000,000 worth of the Company's common
stock, which management determined to be 2,066,115 (2,067 after given effect of
reverse split) shares at the time of the transaction. All of such shares have
been issued to MedAway Delaware stockholders.
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Among MedAway Delaware'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 manufacturer's consent is not
required for leasing the 24 units the Company acquired from MedAway Delaware.
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. Inciner ation requires cumbersome
equipment and permitting, while chemi cal 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 compli ance issues.
If the Company fails to obtain the manufacturer's consent to acquiring
MedAway Delaware'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 competi
tors 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. Ap proximately 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.
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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 commer cial 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. At the time the bearer chooses to use the air time,
a cash fee of 4% of the value of the air time to be used must be paid to AIN.
Such certificates contain no restrictions as to transfer ability,
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 a portion of the advertising time from these television time
credit certif icates, 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, 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 respon sible for
this line of business, and does not anticipate employ ing 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 directly from AIN in exchange for
stock in ELF) were reissued by AIN in the Company's name. Under the terms of the
agreement, the Company issued ELF's stockholders 40,000,000 (40,000 after given
effect of reverse split) 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,which are currently in the name of the Company, the Company may
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
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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 successfully continue its operations.
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 desir able environment for medical services in the 1990's
and into the next century. Management further believes that consolidation should
benefit health care providers by providing standard fees for services
nationwide, volume buying to hold down costs, cen tralized billing and
purchasing operations, group insurance coverage, a national marketing program,
and an integrated network of professionals.
The Company has no employees at present.
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 profes sional 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.
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To ensure and facilitate continuing education for its pro fessional
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 pre cious 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 (3,448 after given effect of reverse split) shares
were issued to sixteen doctors for such practices, but all such exchanges have
been rescinded. 1,901,963 (1,902 after given effect of reverse split) of such
shares have been cancelled, and management expects the remaining 1,545,720
(1,546 after given effect of reverse split) 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 require ments, and orderly arrangements can be made to comply
with state laws and regulations. The Company is presently analyzing appli cable
laws and regulations with a view to developing a strategy and business plan for
this line of business. Many of the indi viduals 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
pur chase assets and manage the practices in exchange for an annual fee and, if
permitted, a share of profits.
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
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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 competi tion.
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 re quirements 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 Com pany'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
super vision 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 capi talized, 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 busi ness by controlling its growth, requiring
licensure and/or cer tification of its facilities, regulating the use of its
proper ties, 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 remunera tion for the referral of Medicare or Medicaid
covered services, and laws that impose significant penalties for false or
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improper billings for physician services. These laws also impose restric tions
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 penal ties 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 pub licly 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 most states in which it is interested in
con ducting such business, or that alternative arrangements can be entered into.
Moreover, the laws of most states prohibit physi cians 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 Com pany'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 adjust ments, 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 methodol ogy. 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(1,200 after given effect of
reverse split) 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
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was to be opened in the United States. The centers offered remedial courses in
mathematics, science, and English to children in grades two through twelve.
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
(8,000 after given effect of reverse split) shares issued for these two centers.
It was contemplated that Mr. Jackson and his wife, Jacqueline Jordan, would open
a center in Reno, Nevada, which would 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 had been made on office space in Reno, Nevada, and it was
contem plated that Mrs. Jordan would move to the United States to orga nize and
manage such center.
However, Mr. Jackson and Mrs. Jordan altered their plans and have not moved
to the United States. In exchange for 400,000 (4,000 after given effect of
reverse split) of the original 1,200,000 (1,200 after given effect of reverse
split) issued to Mr. Jackson (as stated above, 800,000 (8,000 after given effect
of reverse split) shares have been returned by Mr. Jackson) the Company has the
proprietary rights and intersts in and to all of the teaching materials,
business plan, operational plan and related materials used by Mr. Jackson and
Mrs. Jordan in the successful operation of their two Toronto learning centers.
When revenues from other operations are avaiable, the Company plans on
conducting a search for an experienced and successful individual from the
private or public education sec tor. This individual shall open and operate the
first learning center in Reno, Nevada.
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 approx imately 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 at tached to
such property, and inability to determine the avail ability 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 success ful, the Company would
receive a two-thirds interest. The Com pany has expended approximately $215,000
in furthering the pro ject, which monies were borrowed from The R.K. Company
("R.K. Company"), a stockholder of the Company. The Company is examin ing 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, recre ational, 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.
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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 consider ation, and/or rescission (see Part I, Item 3 "Legal Proceed
ings"). There can be no assurance that the 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 expendi ture 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 con tract 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 develop ment; 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 fi nancing. 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 Proceed ings"). 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.
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The Company may seek to acquire additional real estate for stock, where
management believes such property combines attrac tive income with desirable
capitalization rates or can be useful in establishing its planned health care
centers.
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 (62,375 after given effect
of reverse split) shares and 68,479,611 (68,480 after given effect of reverse
split) 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 Com pany'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 (25,000 after given effect of reverse split)shares in options were
issued to Rainbow Group and 25,000,000 (25,000 after given effect of reverse
split) shares in 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 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 Com pany'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 misrepresen tations as to
the value of properties to be acquired from or through Senior and Rainbow
Groups, that as a result such proper ties were significantly overvalued, and
that the agreement is so unclear that it is impossible to determine what, if
any, addi tional 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.
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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 Com pany'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 pro vide 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 cancel led 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.
Compe tition among private and institutional purchasers, both domestic and
foreign, for real property investments has increased substan tially in recent
years. Increases in demand have resulted in gradual increases in prices paid for
real estate, and consequent ly 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.
4. Regulation
The real estate development industry is subject to regula tion 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.
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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
processing its precious metals concentrated ore inventory, for which from
$1,000,000 to $5,000,000 will be re quired. The Company will seek to generate
such funds by realiz ing the commercial value, directly, through joint ventures,
or by sale, 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 here inafter 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").
If needed, the Company may 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 and mining; 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 other
business segments of the Company. 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.
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1. Mineral Processing Operations
The Company has commenced processing its existing inventory of ore
concentrates as a matter of first priority.The Company is extracting the "free
gold" contained in the ore concentrate. The extracted "free gold" is to be
melted into a "common gold bar" in a furnace and sold to a precious metals
refinery. The revenues otained as a result of these sales will be used to meet
the overhead expenses of the mining operations as well as general corporate
expenses. As a result of exracting the "free gold", the Company is also able to
further concentrate the remaining pre cious metals ore. It is believed that by
further concentrating the ore, the value per ton will increase and the overhead
costs of futher processing the ore will be reduced. Independent assays
commissioned by the Company have indicated the the concentrated ore inventory
contains gold, precious metals of the "platinum group" and various rare earths.
This stage of processing is being operated at the mill site, which is at the
same Arizona location as the concentrated ore inventory.
The next stage of operations is to deliver the futher concentrated ore
to a smelter for processing into dore' bars. These bars contain a mixture of
precious metals. The dore' bars will be then sold to a refiner until such time
the Company begins its own smelting operations. The Company is exploring new,
alter native technologies for which equipment is more expensive, but which is
proprietary, and may therefore require the negotiation of a joint venture
arrangement. However, the Company will first attempt to negotiate the purchase
of the equipment. To initiate its own smelting of the ore inventory into dore'
bars the Company will require significant funding. Over the next three years the
Company requires from $1,000,000 to $3,000,000 for equipment and an other
$2,000,000 for working capital. It is completed that the source of these funds
will come from the sale of the dore' bars, whether they be smelted by a third
party or by the Company.
At such time as the Company's planned facilities for smelting dore
bars are operational, it is expected that revenues from this source will
generate sufficient cash flow for the continued operation and expansion of the
Company's minerals div ision 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
Company'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 pri vate placement
offering, the outcome of its negotiations or litigation with Mr. Krilich and his
affiliates, and state and federal regulation of the various operations
contemplated by the Company.
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2. Entertainment Division
At the same time, the Company plans to continue development of any
music publishing activities of Nashville Music consultant's, Inc (NMC) [now
Nashville Music Group, Inc.(NMG)].The Company's agreement for acquisition of NMC
became effective February 4, 1997, and from that time until the amended stock
exchange agreement, the Company is entitled to a management fee equal to 9% of
NMC's gross revenues.
The original stock exchange agreement was amended on September 1,1998,
effective as of July 1,1997. The terms of the amended stock exchange agreement
provide that the Company shall shall receive all of the songs in the publishing
division of NMG.
The publishing division was represented as owning 400 songs, 200 of which
had been recored as demonstration tapes. The Company does not have physical
possesion of these songs and recordings,nor does it have assignments of the
artists contracts or copyrights. If Mr. Baggott or NMG fail to comply with the
agreement, legal action may be required to assure compliance with the agreement,
as amended.
Pursuant to the original agreement with NMG, the Company was committed to
arrange $500,000 of financing for NMG's development. As acknowledeged and agreed
to in the amendement to the exchange agreement, that obligation was fulfilled by
the President and Chairman of the Company,Maurice W. Furlong.
The Company also plans to market it interests in the music publishing
catalog acquired from Jey and Bullett. However,as discussed above, the final
determination of the ownership of the master recordings may come as a result of
the descion of a court of competent jurisdiction. The Company, through its
agreement with Artists shall comtinue to pursue a final determination of such
ownership and shall pursue the colection of any royalties that may be due.
However, the Company's plans may be impacted by several contingencies,
including but not limited to the ability to ac quire the rights to the above
referenced publishing catalogs,the ability to collect any past due royalties,
continued demand for the type of music contained in the catalog, its ability to
locate and identify talented and marketable country music writers, artists and
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record producers,its ability to market the song catalogs and its ability to
maintain cash flows to support these business activities.
3. MedAway Units
The Company was previously engaged in marketing leases for its 24
MedAway-1 medical waste decontamination units to a hospi tal chain. However, the
marketing efforts were not successful. The Company intends to continue its
efforts to market leases to hospitals, nursing homes, government entities and
related busi nesses as working capital becomes available. If such leases do not
materialize, the Company will seek to contract with one or more marketing
representatives, and may seek to launch a market ing campaign. When leased, each
machine is expected to generate income sufficient to sustain operations for this
segment of the Company's business.In the alternative, the Company will seek to
sell these units. The Company also plans to seek approval for assignment of the
MedAway distribution agreement, or a new dis tribution agreement with the
manufacturer as soon as the Com pany's financial resources appear sufficient to
support expanded marketing.
4. Learning Centers
The Company had intended to open a learning center in Reno, Nevada, in
the fall of 1997. Approximately $50,000 is deemed necessary to commence
operations, which funds were to be provided by William Jackson and his wife
Jacqueline Jordan. The Company's plan to start-up the learning center in Reno
was 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 provide the
funding and move to the United States have not materialized. Therefore, the
Company shall move forward with plans to begin the learning center operation in
Reno, Nevada. The Company's ability to successfully operate such a laerning
center is impacted by, but not limited to, its ability to apply Mr. Jackson's
and Mrs. Jordan' business strategy to the United States, and the ability to
successfully compete with similar learning centers established in the United
States.
The Company owns the proprietary rights to the materials used by Mr.
Jackson and Mrs. Jordan in the successfull operation of their previous learning
centers in Canada. the Company will recruit an established educator and
administrator. The Company will also be required to do extensive legal research
regarding the statutory and regulatory requirements to operate this type of
business in the various states.
5. Health Care Centers
The Company continues to plan a national chain of health care centers.
Development of this business, however, will re quire significant investment,
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including costs associated with background research, professional fees,
licensing, and organiza tional activities. It is hoped and anticipated that the
Com pany'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, includ ing 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, commercial
ization of its television time credit certificates and/or inter ests in real
estate, and/or lease of its MedAway-1 units; and state and federal regulation of
the industry. When enough affil iates of various disciplines in one area have
entered into con tracts with the Company, the Company plans to combine such prac
tices 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 Mex ico. 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 The
Rainbow ("Rainbow") and The Senior ("Se nior") 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 or Senior 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 real ize 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. Upon completion of the litigation with Mr. Krilich, it
will be necessary for the Company to significantly expand its employee base. 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 signifi cant
additional funds to effect its plans. As indicated above, the Company is seeking
to generate funds by realizing the commer cial value, by sale or otherwise,
directly, through joint ven tures, or by sale, of some of its ore concentrate,
its television time credits, its medical waste disposal units, and/or its con
tractual interests in certain real estate, and/or a private placement offering.
The ability of the Company to impliment its plans is largely dependent of its
ability to obtain sufficient financing. 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 sub stantially in excess of 500,000 tons. Tests
by Metallurgical Research & Assay Laboratory of Henderson, Nevada, another inde
pendent firm including a registered assayer and analytical chem ist, indicates
that such concentrate contains commercial quanti ties 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 sur rounding 340 acres pursuant to a mineral
lease which expires in 2001. Gold in the form of nuggets was extracted from the
prop erty's surface by high grading (the extraction of free gold from the
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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, plati num, 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 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 The Rainbow Group ("Rainbow") and The
Senior Group (Senior),now The R&S Group ("R&S") calling for acquisition of
certain properties described below. None of such acquisitions have been
consummated, however, and Mr. Krilich, the former owner the certificates of
beneficial interest in Rainbow and Senior, 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. However, in July of 1997 (after the
recording of deeds to R&S), Mr. Krilich caused deeds to the Oakbrook Terrace
property to be recorded in the name of an entity or entities which the believes
are controlled by him and which purport to convey title to this entity or
entities. To accomplish this, Mr. Krilich had signed a deed(s) as an agent of
Senior. However, in Novemeber 1995 Senior had ceased to exist, in that Senior
and Rainbow were combined into R&S. The Company owns all of the certificates of
beneficial interest of R&S and Mr. Furlong, as president of the Company, is the
trustee and sole director. It is the Company's position that the July 1997 deed
signed by Mr. Krilich has no legal effect (See part II, Item 2 "Legal
Proceedings").
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Deeds to the Tennessee properties have been recorded in the names of Senior
and Rainbow (now R&S), 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 Ten nessee 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 con tracts with Rainbow and
Senior. In addition to the various law suits 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 were exe cuted
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 con tracts with Rainbow and Senior 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 Com pany'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 connection with the above referenced
litiga tion. 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.
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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 swim ming pool, all
part of a development known as Royce Renaissance, in Oakbrook
Terrace, Illinois.
b. A three story office building, a restaurant/cater
ing/banquet facility, a single story building for merly used
as a model building for potential apartments, and
approximately three acres of va cant land, all part of the
Royce Renaissance de velopment 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. It was
intended that this 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 ("Inn"). The Inn,
consisting of 38 specialty cottages, is believed to be leased
to an operator for more than $40,000 per month. 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, restau rant lease, etc. The Company is not
aware of operations, if any, at the golf course.
e. The Company owns 100% of the beneficial interest in Deer Park
Trust, which in turn owns a 45% in terest in a shopping center
located in Palatine, Illinois.The trustee of Deer Park Trust
is an attorney whom the Company believes is and has been an
attorney for Robert R. Krilich, Sr. The shop ping center has
been generating revenues and the Company has made several
demands on the trustee for an accounting and for his
resignation based on a conflict of interest. Neither demands
have been met.
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.Rents are being
collected by Royce Realty, a company controlled by Mr.
Krilich.
g. 12 acres of undeveloped land zoned commercial, near Stirling
Road and Route I-95, in Dania, Florida. A portion of this
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property is subject to a joint development agreement between
The R&S Group and Fairdan Suites, Inc., for development of a
hotel (see Part I, Item 1 "Description of Busi ness"), but the
pending litigation may 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. Food and beverage operations are believed to be
leased to a third party. Subsequent to execution of the
Company's contract, the property was found to be possibly
subject to forfeiture in proceedings against Mr. Krilich.
However, to date there has been no at tempt to seize the
property. The Company's posi tion is that the closing on this
property took place prior to the entry of any proceed ings
insituted 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. The Company has learned that contrary to
Mr. Krilich's representaions, 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.
k. Approximately 419 acres of vacant land in Galatin,
Tennessee.Certain parcels are suitable for subdi vision into
single-family building lots.Additional parcels are suitable
development of a golf course, clubhouse, marina, apartments
and a hotel.
l. Oakbrook Terrace Utility Service, servicing the Royce
Renaissance Center and a 17 story office building known as
Lincoln Centre.
m. Approximately 58 acres of undeveloped land zoned commercial on
Dickerson Road, in Nashville, Ten nessee.
n. A 50% interest in a parcel of land just off Route 70 near
Bellevue, Tennessee, and approximately 24 acres of land
adjoining the above parcel. In addi tion and adjacent to the
above is approximately 1500 acres suitable for development
with single family homes and a small commercial site adjoining
such parcel. Notwithstanding the Company's con tract, this
property was recently recorded by Mr. Krilich in the name of
The R.K. Company,an entity which the Company believes is
controlled by Mr. Krilich. In February 1997, five acres of the
29 acres was sold by Mr. Krilich to a third party for
$174,000.
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The Company did not obtain appraisals of such properties; in some cases
letters from third party 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 misrep resentations
were made as to value and/or other facts about such properties, and that in many
cases, clear title cannot be ob tained. 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 and Management Corp. whose sole
stockholder is believed to be The 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"). Pursuant to a court order, Royce
Realty and Management Corp. monthly reports the income and expenses relating to
the proerties which are subject to the exchange agreements (See Part II, Item 2
"Legal Proceed ings"). In the event the acquisitions are consummated, the Com
pany 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 and Management Corp. 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. Fur long. Mr. Furlong also provides an office in
his house at 1030 Arabian Drive, Loxahatchee, Florida. Mr. Pietrzak provides an
office for the Company at 289 S. President Street, Carol Stream, Illinois.
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D. Other Property
The Company combined F&H Mining Corp., Ltd., a Canadian corporation,
and Peeples Mining Co., LLC, an Arizona limited liability company into Peeples
Mining Company, a Nevada corporation and a wholly owned subsidiary of the
Company. Through this subsidiary, the Company owns certain mining equipment,
including washer and concentrating equipment, loaders, a bull dozer, and trucks,
which the Company values at approximately $410,000 and 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% inter est in a Hawker aircraft, and a 50%
interest in a 110 foot Christenson motor yacht named R Rendezvous, located in
Ft. Laud erdale, Florida. The Company also owns directly a 50% interest in the R
Rendezvous. The Company's interest in this yacht is an aggregated 75%.
Management currently plans to use the R Rendez vous for charter cruises and for
promotional purposes. The Company is in the process of reevaluating the exchange
agreement transactions to ensure that the number of shares issued accu rately
reflect the intent of the parties. Such properties are also the subject of the
legal proceedings between Mr. Krilich and the Company, in which the Company is
seeking, among other relief, a court mandated reevaluation of the transactions
with Mr. Krilich (See Part II, Item 2, "Legal Proceedings").
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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 October 11,
1999.
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(1) (2) (3) (4)
Title Name and Address Amount and Nature
of of Beneficial of Beneficial Percent
Class Owner Ownership (1),(2) of Class(2)
----- ----- ----------------- --------
Common Maurice W. Furlong Sr. 14,333,320 21.78%
Stock 100 North Arlington
(ste. 22F)
Reno, NV 89501
Common Robin Ogden 3,500,000 5.32%
9595 E. Thunderbird
#2006
Scotsdale, AZ 89260
Common The Depository Trust 47,468,837 72.15%
Company (Cede & Co.)
P.O. Box 20
Bowling Green Station
New York, NY 10004
Convertible Mind & Body Associates 99,000,000 73.33%
Preferred 100 North Arlington
(ste. 22F)
Reno, NV 89501
Convertible
Preferred CCMT Family Trust 30,000,000 22.22%
3106 Trueno
Henderson, NV 89104
- -------------------------------------
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 33,320 shares 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. The convertible preferred shares owned by Mind & Body Associates
are beneficially owned by Maurice W. Furlong. Mr. Furlong is the presi-
dent and sole shareholder of Mind & Body Associates.
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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
of of Beneficial of Beneficial Percent
Class Owner Ownership (1),(2) of Class(2)
----- ----- ----------------- --------
Common Maurice W. Furlong 14,333,320(3) 21.78%
Stock 100 North Arlington
(ste. 22F)
Reno, NV 89501
Common Michael J. Pietrzak 2,001,500 .03%
Stock 100 North Arlington
(ste. 22F)
Reno, NV 89501
Common Alexander H. Walker III 2,001,500 .03%
Stock 57 West 200 South (no. 400)
Salt Lake City, UT 84101
All officers and directors 18,487,820(3) 28.1%
as a group (three persons)
Convertible Mind & Body Assoc. 99,000,000 73.33%
Preferred 100 North Arlington
(ste.22F)
Reno, NV 89501
Convertible Michael J. Pietrzak 5,000,000 2.50%
Preferred 100 North Arlington
(ste.22F)
Reno, NV 89501
Convertible Alexander H. Walker III 250,000 .002%
Preferred 57 West 200 South (#400)
Salt Lake City, UT 84101
All officers and directors 104,250,000 77.13%
as a group (three persons)
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
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rights, but are not deemed outstanding for the purpose of computing the
percent age for any other person.
3 Includes 33,320 shares owned by Zarzion, Ltd, as to which Mr. Furlong
has voting rights. Does not include 42,910 shares registered in the
name of Rainbow Group and 73,814 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.
Fur long controls R&S Group on behalf of the Company, which is its
beneficial owner. the 99,000,000 shares of convertible preferred shares
owned by Mind & Body Associates are beneficially owned by Maurice W.
Furlong. Mr. Furlong is the president and sole shareholder of Mind &
Body Associates.
In April 1997, Zarzion, Ltd., entered into a voting trust agreement with
Mr. Furlong, pursuant to which Mr. Furlong is entitled to vote the 33,320 shares
of the Company's stock regis tered 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.
Item 5. Directors, Executive Officers, Promoters and Control
Persons
Directors and Executive officers
As of September 30, 1999, 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 stockhold ers and hold office until their successors are elected and
quali fied. The Company's officers are appointed annually by the Board of
Directors and serve at the pleasure of the Board.
Term as
Director
Name Age Positions Held Expires
- ---- --- -------------- -------
Maurice W.Furlong, 51 Chairman,Chief Executive
Officer andPresident 2003
Michael J. Pietrzak, 50 Director, Secretary 2003
Alexander H. Walker,III, 38 Director 2003
Maurice W. Furlong, 51, 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
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development and capitalization for a number of public companies, including compa
nies 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 presi dent
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 contrac tor 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, 50, 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, 38, 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 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.
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Significant Employees and Consultants
The Company currently has no employees except for certain officers and
directors. Although certain individuals, including Mr. Furlong and Mr. Pietrzak,
have devoted substantial time and energy to the Company's operations, these
individuals have not been compensated by the Company.However,in recognition of
the substan tial time and energy put forth by Messrs. Furlong and Pietrzak on
behalf of the Company, the Board of Directors has agreed to enter into
employment contracts with these individuals.
The effective date of the agreements is that date on which
substantially all of Messrs. Furlong and Pietrzak time and efforts were devoted
to the business of the Company. The amount of compensattion shall be in
accordance with industry standards for as aplied to Companies similar in assest
size, diversity of operations and complexity of issues. Niether Mr. Furlong nor
Mr. Pietrzak shall receive any compensation until such time that the Company
generates revenues.
In November 1996, Messrs. Pietrzak and Walker and a former Director,
Ms. 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. By Board of Director resolution on December
22, 1997,the award of stock was voided and held for naught. Mr. Pietrzak,Mr.
Walker and Ms. Krilich returned the stock to 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 Com pany'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 ser vices. 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.
43
<PAGE>
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 Unregis tered Securities and
Notice of Right to Hearing in an administra tive 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 securi ties 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.
In March 1994, in an action brought by the Tennessee Securi ties
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 securi ties 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
Securi ties and Exchange Commission as to such securities and from employ ing
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 pro ceedings or (ii) subject to
criminal proceedings or convicted of a criminal act, and, except as indicated
44
<PAGE>
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
Annual Compensation Long-Term Compensation
----------------------------------------------------------------
(a) (b) (c) (e) (f) (g) (h) (i)
Other Restricted Options/ All
Annual Stock SARs LTIP other
Name/Principal Position Year Salary Comp. Awards (#) payouts comp.
- -------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C>
Maurice Furlong/
CEO, and Chairman 1999 -0- -0- -0- -0- -0- -0-
1998 -0- -0- -*- -0- -0- -0-
1997 -0- -0- -0- -0- -0- -0-
1996
1995
1994
Michael J. Pietrzak/ 1999
Secretary 1998
1997
1996
</TABLE>
* See discussion below.
There were no options granted in the last fiscal year to any of the Company's
officers or Directors.
<PAGE>
45
Compensation of Directors
Members of the Board of Directors do not receive cash compen sation 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.On December 22, 1997 this award was voided and held for
naught. Mr. Piertzak, Ms. Krilich and Mr. Walker have since then returned these
shares to the Company.
In recognition of the fact that the Company's continued operations
were due largely to the efforts of Maurice Furlong, and the fact that Mr.
Furlong basically had not been compensated for his services, in October of 1998,
the Company issued 200,000,000 shares of its preferred stock to Mr. Furlong.
In 1999, Mr. Furlong compensated Michael Pietrzak for his services to
the Company by transferring 5,000,000 shares of Company's preferred stock to Mr.
Pietrzak. Such shares came from Mr. Furlong's personal holdings and this
transaction did not involve the issuance of shares by the Company. Item 7.
Certain Relationships and Related Transactions
In 1999, Mr. Furlong compensated Alexander Walker III for his services
to the Company by transferring 250,000 shares of Company's preferred stock to
Mr. Walker. Such shares came from Mr. Furlong's personal holdings and this
transaction did not involve the issuance of shares by the Company. Further, in
1999, Mr. Furlong compensated Alexander H. Walker III for his services to the
Company by transferring 2,000,000 shares of Company's common stock to Mr.
Walker. Such shares came from Mr. Furlong's personal holdings and this
transaction did not involve the issuance of shares by the Company.
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.
The following information is presented to provide continuity of the
information disclosed in this registration statement, even though it may not be
required by Regulation S-K (Item 404) "Certain Relationships and Related
Parties".
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 (1,200 after given effect
of reverse split) shares of the Company's common stock for the sole purpose of
distributing same to the shareholders of F&H pursuant to the stock exchange
agreement. Such transaction cannot be deemed to have been negotiated at arms
length. In the opinion of the Company's manage ment, the terms of such agreement
were as favorable to the Company as would be available from any 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 (25,000 after given
effect of reverse split) 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, she has since that time returned those 250,000
(25,000 after given effect of reverse split) shares to the Company. While Ms.
46
<PAGE>
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%. Approxi mately $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.
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 indepen dently.
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
benefi cial 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 (25,000 after given effect of reverse split) 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, he has since that time
returned that stock to the Company. From 1992 to 1996, Mr. Pietrzak also served
47
<PAGE>
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 fully devoted his attention, efforts and time to 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 (25,000 after given
effect of reverse split) 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, he has since that time returned that stock to
the Company.
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 (1,200
after given effect of reverse split) shares were issued for these transactions,
400,000 (400 after given effect of reverse split) shares being allocated for
each. Consummation of these transactions was contingent on a number of events
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 (800 after given effect of reverse
split) 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 (375,000 after given effect
of reverse split) 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 (87,738 after given effect of reverse split) shares orapproximately
21% of the Company's then issued and outstanding shares. Notwithstanding this
interest, the Company believes the terms of such acquisition were as favorable
as would have been obtainable from any third party. As of October 11, 1999
Zarzion only owns 33,320 shares of the Company's issued and outstanding stock.
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
48
<PAGE>
shares of convertible preferred stock, par value $.001 per share. As of December
8, 1999, 67,787,788 shares of common stock were outstand ing and 135,050,000
shares of preferred stock were outstanding.
On August 28, 1997, the Board of Directors unanimously adopted a
resolution authorizing the officers of the Company to effectuate a reverse stock
split of the Company's common stock. The officers were given authority to use
their discretion as to the timing of and the number of current shares to be
exchanged in the reverse stock split. The officers exercised the authority given
by the Board of Directors and effective June 30, 1998 a 1 for 1,000 shares,
reverse stock split took place. There were no fractional shares issued and any
stock holder with less than 1 share after the reverse split, was given 1 full
share. On the date of the reverse stock split there were 871,068,000 shares
outstanding which were reduced to 871,098 after the reverse split.
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.
<PAGE>
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, distribu tions in liquidation or dissolution, or both, and may
have extraordi nary or limited voting rights. In October 1998, 200,000,000
shares of convertible preferred stock were issued to Maurice W. Furlong. As of
December 8, 1999, 135,050,000 shares were outstanding.
On December 7, 1999, the Board of Directors unanimously passed a
resolution granting voting rights to the holders of convertible preferred stock.
Each share of convertible preferred stock has four votes as compared to one vote
for each share of common stock. Therefore, the holders of shares of preferred
stock have four votes as compared to the holders of common stock who have one
vote.
<PAGE>
PART II
Item 1. Market Price of and Dividends on the Registrant's
Common Equity and Other Stockholder Matters
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 quota tions reflect inter-dealer prices
without retail markup, markdown or commission, and may not necessarily represent
actual transactions:
High Bid Low Bid
-------- -------
1999 Quarter ended September 30 $ 0.108 $ 0.02
Quarter ended June 30 0.35 0.0313
Quarter ended March 31 0.15 0.0625
1998 Quarter ended December 31 $ 0.05 0.0625
Quarter ended September 30 1.25 0.125
Quarter ended June 30 0.055 0.007
Quarter ended March 31 0.025 0.0015
1997 Quarter ended December 31 $ 0.0275 $ 0.001
Quarter ended September 30 0.07 0.015
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
Holders
The approximate number of record holders of the Company's common stock
as of October 11,199 was 1,396. The record holders on the Company's convertible
preferred stock of December 8, 1999 were 4.
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.
50
<PAGE>
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 concen trates by the Company.
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 (41,750 after given effect of reverse split)
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 pur
chased 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 (41,750 after given effect of reverse split) 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
51
<PAGE>
+
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 Company'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 Rainbow Air's opera ting 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
52
<PAGE>
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 deliv ered, and $48,790 for unpaid
rent. Mr. Furlong denies such indebted ness, 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 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.
53
<PAGE>
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".)
In August 1997, Robert R. Krilich, Roseann Loesch and Gregory Loesch
(Mr. Krilich's daughter and son-in-law), on behalf of themselves and all other
similarly situated stockholders of the Company, filed an action in the Circuit
Court of DuPage County, Illinois, against the Company and certain of its
officers and directors. The action alleges that the Company's acquisition of
Peeples Mining, F&H Mining and the mining claims near San Bernardino,
California, were void due to alleged interests of Mr. Furlong in such properties
at the time of acquisition. Mr. Furlong denies the allegations of such
complaint, pointing out that the Company's board was at all times aware of any
interests he may have had in the properties being acquired. Mr. Furlong further
denies any interest in the San Bernardino property at any time. The action also
alleges that the value of the 375,000,000 shares issued for the San Bernardino
mining interests exceed the value of those interests. The Company has
independent third party data which supports the Company's position that the
value of the San Bernardino mining interests exceed the value of the shares
issued. The Company further maintains that this transaction was fair to the
Company and that voiding the transaction would not be in the best interest of
the Company's stockholders. Mr. Furlong and the Company are vigourously
defending this action.
Management cannot predict the outcome of these actions, nor what effect
they might have on the Company, its operating results or financial condition.
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 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.
54
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These lawsuits have been consolidated into one case, before one judge
and have set for trial begining on October 6,2000.
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. However, the management
cannot predict or determine the expected impact to the Company's operating
results and financial condition.
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
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 remedi ation 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 believed to be
still pending. Management cannot predict nor determine the expected impact on
the Company's operating results and financial condition.
55
<PAGE>
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 defen dants, 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. However,management cannot
predict or determine the expected impact on the Company's operating results and
financial condition.
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.
There has been no attempt to enforce any forfeiture. Management cannot predict
or determine the expected impact to the Company's operating results and
financial condition.
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 proceed ings, the
facts underlying the proceedings, or the relief which may be sought as a result
of the proceedings.
56
<PAGE>
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 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. However, management cannot predict nor determine the
expected impact to the Company's operating results and financial condition.
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.
57
<PAGE>
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 (31,960 after given
effect of of reverse split) shares of common stock, of which 27,000,000 (27,000
after given effect of reverse split) were issued to Maurice W. Furlong, and
3,960,000 (3,960 after given effect of reverse split) shares were issued to
James M. Troester for reorgani zation costs and services. The remaining
1,000,000 (1,000 after given effect of reverse split) 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 (1,200 after given effect of
reverse split) shares to William Jackson in connection with the acquisition of
three learning centers. 800,000 (800 after given effect of reverse split) 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 (12,000 after given effect
of reverse split) shares to Mr. Furlong in connection with the acquisition of
F&H Mining. These shares were distributed by Mr. Furlong to the shareholders of
F&H Mining in accordance with the stock exchange agreement. (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 (3,448 after given effect of
reverse split) shares to six doctors in connection with the acquisition of
certain chiropractic clinics. The issuance of 1,591,963 (1,592 after given
effect of reverse split) shares to one of such doctors was subsequently
cancelled by mutual agreement, leaving a total of 1,855,720 (1,856 after given
effect of reverse split) shares. 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 cancel led.
In July 1994, the Company issued 51,479,611 (51,480 after given effect
of reverse split) shares to Rainbow Group and 6,374,363 (6,375 after given
effect of reverse split) to Senior Group in connection with the acquisition of
such entities and or their real estate, subject to certain conditions
subsequent. 3,281,613 (3,282 after given effect of reverse split) were
58
<PAGE>
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 (8,000 after given
effect of reverse split) shares to Zarzion, Ltd. and 12,000,000 (12,000 after
given effect of reverse split) shares to the three "stockholders" of Peeples LLC
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 (3,000 after given
effect of reverse split) shares to R.K. Company, 11,439,300 (11,440 after given
effect of reverse split) shares to Senior Group, and 25,909,688 (25,910 after
given effect of reverse split) 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 (5,000 after given
effect of reverse split) 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 (22,000 after given
effect of reverse split) 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 (4,000 after given effect
of reverse split) shares to the stockholders of NMC, a closely held company, in
connection with the acquisition of NMC. (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 41,749,500 (41,750 after given
effect of reverse split) 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.
59
<PAGE>
In August 1995, the Company issued an additional 100,000,000 (100,000
after given effect of reverse split)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 (17,000 after given
effect of reverse split) shares to Rainbow Group and 56,000,000 (56,000 after
given effect of reverse split)shares to Senior Group in connection with the
acquisition of certain real estate pursuant to their prior agreements. Such
transactions were exempt from registra tion 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 1995, the Company issued 275,000 (275 after given effect
of reverse split) 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 (310 after given effect of
reverse split) 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 subse quently been rescinded.
In May and June 1996, the Company issued a total of 98,000,000 (98,000
after given effect of reverse split)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
(58,000 after given effect of reverse split) shares had been cancelled by the
Company. Subsequent to this cancellation, it was brought to the Company's
attention that R.K. Company had assigned these shares to a third party, without
the Company's knowledge. The 58,000 shares were reinstated on July 23, 1998. All
of the shares issued to R.K. Company in May and June 1996 are 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 (2,067 after given effect of
reverse split) 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.
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In July 1996, the Company issued 40,000,000 (40,000 after given effect
of reverse split) 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 (750 after given effect of
reverse split) shares to three individuals as an inducement to become directors
of the Company. These individuals returned all of the shares to the Company on
June 9, 1998. (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 (375,000 after given
effect of reverse split) 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.
On October 2, 1997, the Board of Directors authorized the immediate
issuance of all of the Company's 200,000,000 shares of conertible preferred
stock to the Chairman and President, Maurice W. Furlong.The use of the stock is
for reimbursement of officer, director and Company expenses and for operations.
Mr. Furlong was given complete descretion regarding the conversion of these
shares to common shares. From October 15, 1998 to September 30, 1999 47,125,000
shares have been converted and 152,875,000 of convertible preferred stock is
outstanding.
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 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. On August 28, 1977, the Board of Directors
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unanimously adopted a resolution providing for the legal defense and
indemnification of current and former directors and officers of the Company.
In so far as indemnification for liabilities arising under the
Securities Act may be permitted to directors, officers, and control ling 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 unenforce able.
62
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PART F/S
Financial Statements
The following financial statements are filed with this Form 10- SB:
Page
----
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
63
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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
(i) Agreement of Merger merging Cadgie Taylor Co. into
Carleton Enterprises, Ltd., filed May 24, 1984
(ii) Amendment to Articles of Incorporation filed Novem-
ber 18, 1984, inter alia changing name to SCN, Ltd.
(iii) Certificate of Amendment of Articles of Incorporation
filed December 10, 1993, changing name to Health Care
Centers of America, Inc.
(iv) Amendment to Articles of Incorporation filed January
4, 1994
(v) Amendment to Articles of Incorporation filed March
31, 1995
(vi) Amendment to Articles of Incorporation filed June
23,1998 authorizing 1 for 1,000 reverse stock split
(vii) Amendment to Articles of Incorporation filed August
31, 1999 changing name to Hexagon Consolidated
Companies of America, Inc.
(viii) Certificate of Existence With Good Status In Good
Standing issued by the Nevada Secretary of State on
October 26,1999
(b) Bylaws
(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 Fur long
(b) Voting trust agreement dated April 22, 1995, between
stockholders of Nashville Music Consultants, Inc., and Maurice
Furlong
(c) Voting trust agreement dated April 21, 1997, between Zarzion
Ltd. and Maurice Furlong (filed with Registrant First Amended
Form 10-SB filed August 26,1997 and incorporated by reference)
(6) Material Contracts
(i) Transfer Agent and Registrar Agreement between Reg istrant and
Nevada Agency & Trust Co., dated June 28, 1993 (incorporated
by reference to Exhibit (2)(a)above)
(ii) Stock Exchange Agreement dated March 25, 1994, be tween
Registrant and F&H Mining Co., Inc.
(iii) Stock Exchange Agreement dated June 18, 1994, between
Registrant and Peeples Mining LLC
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(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.
(v) Stock Exchange Agreement dated April 21, 1995, and addenda
between Registrant and Nashville Music Con sultants, Inc. and
Reincorporation Agreement and Amendnebt to Stock Exchange
Agreement dated Septem ber 1, 1998
(vi) Joint venture agreement dated May 31, 1995, among Registrant,
Immobiliara y Fraccinoadora del 1 Nueva Viscaya, S.A. de C.V.
and Oscar Neninger G., and Robert R. Krilich, Sr.)
vii) Amended and restated Stock Exchange Agreement dated June 5,
1995, between Registrant and Senior Group
(viii) Amended and Restated Stock Exchange Agreement dated June 5,
1995, between Registrant and Rainbow Group
(ix) Consulting services agreement dated January 10, 1996, between
Registrant and Robert R. Krilich, Sr.
(x) Asset purchase agreement dated June 12, 1996, be tween
Registrant and MedAway International, Inc.
(xi) Stock Exchange Agreement dated June 26, 1996, and amendment
dated November 8, 1996, between Registrant and ELF Works, Ltd.
(xii) Partnership Agreement between dated August 30, 1996, between
R&S Group and Fairdan Suites, Inc.
(xiii) Sales agreement dated February 6, 1997, between Zarzion, Ltd.
and the Registrant and copy of corporate resolution
authoriizing purchase
(xiv) Purchase agreement dated November 1,1984 between Bullett
Productions, Inc. and the Registrant
(xv) Purchase agreement dated August 2,1984 between Jey
Productions, Inc. and the Registrant
(xvi) Rentention agreement dated May 20th,1996 between Artists
Limited, L.L.C. and the Registrant
(xvii) Joint venture agreement dated April 30,1998 between Hidden
Splendor Smelting Co. and the Registrant
(xviii) Organizational documents of The R&S Group dated November
5,1995
(7) Material Foreign Patents.
None.
(10) Consent of experts and counsel
(i) Consent of Metallurgical Research & Assay Laboratory
(ii) Consent of Dale McGhie, certified public accountant
(12) Additional Exhibits.
(a) Letter dated November 11, 1996, from Roy Sinkovich on change
in certifying accountant
(b) Letter from Registrant dated November 29, 1996, on change
in accounting treatment of certain acquisitions
(c) Assay of Peeples Mining Co.'s concentrate by Metallur gical
Research & Assay Laboratory, dated March 21, 1997
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(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 Mining in the vicinity of
Mesquite, Nevada
(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
(f) Articles of incorporation of Peeples Mining Company, a wholly
owned subsidiary of the Registrant, filed February 4, 1997 and
Certificate Of Existence With Status In Good Standing issed by
the Nevada Secretary of State on October 14,1999 (g) Articles
of incorporation of MedAway International, Inc., a wholly
owned subsidiary of the Registrant, filed on September 11,
1996 and Certificate Of Existence Of Existence With Status In
Good Standing issued by the Nevada Secretary of State on
October 14,1999
Item 2. Exhibits
[Attached, pages through]
66
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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: November ,1999
----------------
67
FILED
IN THE OFFICE OF THE
SECRETARY OF STATE OF THE
STATE OF NEVADA
APR 13, 1984
ARTICLES OF INCORPORATION
OF
CARLETON ENTERPRISES, LTD.
W.M. SWACKHAMER-SECRETARY OF STATE
/s/W.M. Swackhamer
- ------------------
No. 2341-84
-------
We, the undersigned, have voluntarily associated ourselves
together for the purpose of forming a corporation under the laws of the
State of Nevada relating to private corporations, and to that end do hereby
adopt articles of incorporation as follows:
ARTICLE ONE. [NAME]. The name of the corporation is.
CARLETON ENTERPRISES, LTD.
ARTICLE TWO. [LOCATION]. The address of the corporation's
principal office is Suite 1400, One East First Street, in the City of Reno,
County of Washoe, State of Nevada. The initial agent for service of process at
that address is NATCO.
ARTICLE THREE. [PURPOSES]. The purposes for which the corporation
is organized are to engage in any activity or business not in conflict with the
laws of the State of Nevada or of the United States of America, and without
limiting the generality of the foregoing, specifically:
I. [OMNIBUS]. To have and to exercise all the powers now or
hereafter conferred by the laces of the State of Nevada upon
corporations organized pursuant to the laws under which the
corporation is organized and any and all acts amendatory thereof
and supplemental thereto.
II. [CARRYING ON BUSINESS OUTSIDE STATE]. To conduct and carry
on its business or any branch thereof in any state or territory of
the United States or in any foreign country in conformity with the
laws of such state, territory, or foreign country, and to have and
maintain in any state, territory, or foreign country a business
office, plant, store or other facility.
III.[PURPOSES TO BE CONSTRUED AS POWERS]. The purposes
specified herein shall be construed both as purposes and powers
and shall be in no wise limited or restricted by reference to, or
<PAGE>
inference from, the terms of any other clause in this or any other
article, but the purposes and powers specified in each of the
clauses herein shall be regarded as independent purposes and
powers, and the enumeration of specific purposes and powers shall
not be construed to limit or restrict in .any manner the meaning
of general terms or of the general powers of the corporation; nor
shall the expression of one thing be deemed to exclude another,
although it be of like nature not expressed.
ARTICLE FOUR. [CAPITAL STOCK]. The corporation shall have
authority to issue an aggregate of TWENTY MILLION (20,000,000) shares, par value
TWO CENTS ($.02) per share, for a total capitalization of $400,000.
The holders of shares of capital stock of the corporation shall
not be entitled to pre-emptive or preferential rights to subscribe to any
unissued stock or any other securities which the corporation may now or
hereafter be authorized to issue.
The corporation's capital stock may be issued and sold from time
to time for such consideration as may be fixed by the Board of Directors,
provided that the consideration so fixed is not less than par value.
The stockholders shall not possess cumulative voting rights at all
shareholders meetings called for the purpose of electing a Board of Directors.
ARTICLE FIVE. [DIRECTORS]. The affairs of the corporation shall be
governed by a Board of Directors of not less than three (3) persons. The names.
and addresses of the first Board of Directors are:
NAME AND ADDRESS ADDRESS
---------------- -------
Alexander H. Walker III 600 Kennecott Building
Salt Lake City, Utah 84133
Timotha Ann Kent 600 Kennecott Building
Salt Lake City, Utah 84133
Amanda E. Walker 600 Kennecott Building
Salt Lake City, Utah 84133
ARTICLE SIX. [ASSESSMENT OF STOCK]. The capital stock of the
corporation, after the amount of the subscription price or par value has been
paid in, shall not be subject to pay debts of the corporation, and no paid up
stock and no stock issued as fully paid up shall ever be assessable or assessed.
<PAGE>
ARTICLE SEVEN. [INCORPORATOR]. The name and address of the
incorporator of the corporation is as follows:
NAME ADDRESS
- ---- -------
Alexander H. Walker, Jr. 600 Kennecott Building
Salt Lake City, Utah 84133
ARTICLE EIGHT. [PERIOD OF EXISTENCE]. The period of existence o
tie corporation shall be perpetual.
ARTICLE NINE. [BY-LAWS). The initial By-Laws of the corporation
shall adopted by its Board of Directors. The power to alter, amend, or repeal
the By-Laws, or to adopt new By-Laws, shall be vested in the Board of Directors,
except as otherwise may be specifically provided in the By-Laws.
ARTICLE TEN. [STOCKHOLDERS' MEETINGS]. Meetings of stockholders
shall a held at such place within or without the State of Nevada as may be
provided by the By-Laws of the corporation. Special meetings of the stockholders
may be called by the President or any other executive officer of the
corporation, the Board of Directors, or any member thereof, or by the record
holder or holders of at least ten percent (l0%) of all shares entitled to vote
at the meeting. Any action otherwise required to be taken at a meeting of the
stockholders, except election of directors, may be taken without a meeting if a
consent in writing, setting forth the action so taken, shall be signed by
stockholders having at least a majority of the voting power.
ARTICLE ELEVEN. [CONTRACTS. OF CORPORATION]. No contract or other
transaction between .the corporation and any other corporation, whether or not a
majority of the shares of the capital stock of such other corporation is owned
by this corporation, and no act of this corporation shall in any way be affected
or invalidated by the fact that any of the directors of this corporation are
pecuniarily or otherwise interested in, or are directors or officers of such
other corporation. Any director of this corporation, individually, or any firm
of which such director may be a member, may be a part to, or may be pecuniarily
or otherwise interested in any contract or transaction of the corporation;
provided, however, that the fact that he or such firm is so interested shall be
disclosed or shall have been known to the Board of Directors of this
corporation, or a majority thereof; and any director of this corporation who is
also a director or officer of such other corporation, or who is so interested,
may be counted in determining the existence of a quorum at any meeting of the
Board of Directors of this corporation that shall authorize such contract or
transaction, and may vote thereat to authorize such contract or transaction,
<PAGE>
with like force and effect as if he were not such director or officer of such
other corporation or not so interested.
IN WITNESS WHEREOF, the undersigned incorporator has hereunto
fixed his signature at Salt Lake City, Utah, this 28th day of March, 1984.
/s/Alexander H. Walker, Jr.
---------------------------
STATE OF UTAH )
: ss.
COUNTY OF SALT LAKE )
On the 28th day of March, 1984 before me, the undersigned, a
Notary Public, personally appeared ALEXANDER H. WALKER, JR., known to me to be
the person described in and who executed the foregoing instrument, and who
acknowledged to me that he executed the same freely and voluntarily and for the
uses and purposes therein mentioned.
IN WITNESS WHEREOF, I have hereunto set my hand and affixed my
official seal the day and year, in this certificate first above written. ,
/s/Rhonda Marquardt
-------------------
Notary Public
Residing Salt Lake City, Utah
My Commission Expires:
April 4, 1987
-------------------
<PAGE>
STATE OF NEVADA
DEPARTMENT OF
STATE
I hereby certify that this is a true and complete copy of
the document as filed In this office.
DATED: APR 3, 1984
/s/W.M. D. SWACKHAMER
----------------------
Secretary of State
M E R G E R A G R E E M E N T
between
CARLETON ENTERPRISES, LTD.
and
CADGIE TAYLOR C0.
WITNESS the terms of the Merger Agreement by and between:
CARLETON ENTERPRISES. LTD. a Nevada Corporation,
hereinafter referred to as "Carleton". and
CADGIE TAYLOR CO.,
a Montana Corporation, hereinafter
referred to as "Cadgie".
RECITALS
--------
1. Identity of Parties. Carleton was incorporated in accordance with
the laws of the State of Nevada on April 3, 1984, with a capitalization of
20,000,000 shares of Capital Stock, par value $0.02 per share. which Capital
Stock is non-assessable. There are outstanding as of this date 50,000 shares of
Capital Stock. Cadgie was organized in accordance with the laws of the State of
Montana and has an authorized capitalization of 2,500,000 shares of Common Stock
with a par value of $0.02 per share. of which there are issued and outstanding
722,500 shares.
2. Assumption of Assets Subject to Liabilities. Carletrrn. a
Nevada Corporation. when this Merger Agreement shall become effective, as is
<PAGE>
hereinafter provided, shall assume all of the assets and all of the liabilities
standing on the books and records of Cadgie, a Montana corporation. As a result
thereof, Cadgie shall no longer be engaged in business, having then merged into
Carleton.
3. Requirements to Nevada Law. Carleton is a Nevada corporation.
Pursuant to the laws of the State of Nevada, a majority of the directors of
Carleton may enter into a Merger Agreement setting forth the terms and
conditions of the proposed merger, including a statement of the capitalization,
the number of shares of Capital Stock of the surviving corporation. Carleton, a
statement of the manner of conversion of the shares and assets of the retiring
corporation, Cadgie, a statement as to whether a new corporation is to be
formed, a statement of the method of carrying the terms of the agreement into
effect, and such other details as may be deemed necessary to disclose all
matters effective in a merger. The laws of the State of Nevada further provide
that notice of a proposed merger shall be given by mail to the last known
address of each stockholder, not less than ten days prior to such tweeting. Such
notice shall contain the time and place of tweeting, the laws of the State of
Nevada provide further that notice of a proposed merger may be waived by the
stockholders. By the further terms of the laws of the State of Nevada it it
specified that if a majority of the outstanding stock of the Nevada corporation,
Carleton, shall be vested in favor of the merger, the agreement shall be
declared adopted. The vote thereon shall be certified on the agreement
2
<PAGE>
by the President or Vice President and by the Secretary or Assistant Secretary
of the Nevada corporation. Carleton. The agreement shall be signed and
acknowledged by the President or Vice President and by the Secretary or
Assistant Secretary of the Nevada corporation. Carleton, and the seal of such
corporation shall be affixed thereto whereupon the same shall be filed in the
Office of the Secretary of State of Nevada. "pon the recordation in the Office
of the Secretary of State of Nevada the merger shall, insofar as Nevada law is
concerned, be deemed to be consummated with the same result as respects assets
and liabilities as is specified under Montana law.
4. Requirements of Montana Law. Upon completion of the various
steps necessary to place this Merger Agreement into effect, the same shall
become effective. The action contemplated hereby is deemed under Montana law to
be a merger. In connection with a merger, Montana law requires that the Board of
Directory of the Montana Cadgie, shall by resolution approve and adopt the Plan
of Merger. The Plan of Merger shall specify the of the corporations proposing to
merge. The name of the surviving corporation, the terms and conditions of the
merger, manner and basis of converting the shares of the corporation, Cadgie,
into shares of the corporation, Carleton, a statement of any changes in the
Articles of Incorporation of the surviving corporation, Carleton. to the extent
that they are the result of such merger, end such other provisions with respect
3
<PAGE>
to the merger as are deemed necessary or desirable shall also be specified in
the Plan of Merger. The statutes of the State of Montana further require that
the Board of Directors of Cadgie by resolution direct that the Plan of Merger be
submitted to a vote of a meeting of the shareholders of Cadgie, that written or
printed notice shall be given to each stockholder of record no less than thirty
days prior to such meeting, and that such notice shall state the purpose of the
meeting, as well as the place. day and hour thereof, and shall be delivered
either personally or by deposit in the United States mail, properly addressed,
postage prepaid. Montana law further requires that a copy of or a summary of a
Plan of Merger shall be included or enclosed with such notice. The laws of the
State of Montana further specify that the Plan of Merger shall be deemed to have
been approved upon receiving the affirmative vote of the holders of at least
two-thirds of the outstanding shares of Cadgie, end such laws specify that upon
such approval. Articles of Merger shall be executed in duplicate by the
President or Vice President and by the Secretary or Assistant Secretary of
Cadgie, and shall be verified by one of such officers. Such Articles of Merger
shall record or set forth the Plan of Merger, the number of shares outstanding
with respect to each corporation, and the number of stares voted for and against
the Plan of Merger. It is further required that such duplicate originals be
delivered to the Sscretary of State of Montana, and upon the subsequent issuance
4
<PAGE>
of a Certificate of Merger by the Secretary of State, the corporations party to
the merger shall become a single corporation, the separate existence of the
merged corporation, Cadgie, shall cease, and the surviving corporation.
Carleton. shall have all the rights, privileges, immunities, powers, properties
and assets and shall be subject to the duties, liabilities, debts and
obligations of both corporations. It is the intention of the parties to this
agreement that upon the issuance of a Certificate of Merger by the Secretaries
of State of Montana and Nevada and the final compliance of the laws of the
States of Montana and Nevada, this Merger Agreement shall become effective.
NOW, THEREFORE, AND IN THE CONSIDERATION OF THE FOREGOING RECITALS, AND THE
MUTUAL COVENANTS HEREINAFTER SET FORTH. CARLETON AND CADGIE DESIRE TO MERGE, AS
THAT TERM IS USED IN THE LAWS OF THE STATES OF MONTANA AND NEVADA. DO HEREBY,
ACTING THROUGH A MAJORITY OF THE BOARD OF DIRECTORS OF EACH SUCH CORPORATION,
AGREE TO MERGE AS FOLLOWS:
5. Statement Under Nevada Law. The terms and conditions of the
proposed merger of Cadgie into Carleton shall be as follows:
(a) The Articles of Incorporation of Carleton, which
set on file with the Secretary of State of Nevada,shall be the Articles of
Incorporation of the surviving corporation.
5
<PAGE>
(b) The manner of converting shares of Coamon Stock
of Cadgie will be on a basis of one share of Cadgie being converted into one
share of Carleton.
6. Statement Under Montana Law. The Flan of Merger of Cadgie into Carleton shall
be as follows:
(a) The names of the corporations proposing to merge
are Carleton, a Nevada corporation, and Cadgie, a Montana corporation, Cadgie
proposes to merge into Carleton and Carleton is hereby designated as the
surviving corporation.
(b) The shares of Common Stock of Cadgie shall be
converted into Common Stock of Carleton on a basis of one share of Cadgie for
one share of Carleton, the surviving corporation, on the effective date of this
Merger Agreement.
(c) The assets of Cadgie. upon this Merger Agreement
becoming finally effective. will become the assets of Carleton.
(d) The surviving corporation, Carleton, hereby
agrees that it tray be served with process in the State of Montana in any
proceeding for the enforcement of any obligation of Cadgie and in any proceeding
for the enforcement of the rights of a dissenting shareholder of Cadgie against
the surviving corporation. Carleton. The surviving corporation. Carleton, hereby
appoints the Secretary of State of Montana as its agent to accept service of
6
<PAGE>
process in any such proceeding. and agrees to promptly pay to the dissenting
shareholders of Cadgie the amount, if any, to which they are entitled under the
provisions of the Montana Business Corporation Act with respect to the rights of
dissenting shareholders.
7. Agreement to Merge. The parties hereby agree that Cadgie shall
be merged into Carleton and they do hereby further specifically agree in order
to accomplish such results as follows:
(a) Each of the parties hereto shall prepare and
cause to be mailed such notices as may be required or be desirable
pursuant to the laws of the States of Nevada and Montana. And in
addition. they shall see to the mailing to the stockholders of the
parties of all information which may be reasonably necessary or
desirable in order to permit such stockholders to reach an intelligent
and informed decision with respect to the proposed merger. The expense
of all such notices. reports and information and of the mailing of the
same shall be borne by the party with respect to which the material is
prepared or to whose stockholders the material is submitted. as the
case may be, save only that neither party shall be charged by the other
for the costs of preparing any reports or documents heretofore
published and available and deemed desirable for such distribution.
7
<PAGE>
(b) Each of the parties hereto shall proceed with
all due diligence. but strictly in cooperation with the other. to
secure the approval of, the merger Agreement by the requisite vote of
the stockholders of the parties and shall thereafter nee to they
filing of all required notices and undertakings of every kind and
character. pursuant to the laws of the States of Nevada and Montana.
(c) Upon the issuance of a Certificate of Merger
from the State of Montana, this Merger Agreement shall become effective
wherein Carleton shall take over the assets and assume the liabilities
of Cwdgie, and the stockholders of Cadgie shall surrender their stock
certificates in exchange for Cosanon Stock of Carleton with one share
of Cadgie being exchanged for one share of Carleton.
8. Expenses and Fees. Carleton shall discharge all expenses in
connection with calling and convening a special stockholders' meeting to ratify
the Merger Agreement. Cadgie shall discharge all expenses in connection with
calling and convening a special stockholders' meeting to ratify the Merger
Agreement. This agreement contemplates an audit, inventory and veriftnation of
the assets and liabilities of each of the corporations at the discretion of each
corporation. The expense of the audit, inventory or verification shall be
discharged by the corporation electing to conduct the audit, inventory or
verification.
8
<PAGE>
9. Conditions Precedent to Effectiveness. Notwithstanding any other
terms and conditions hereof, this Merger Agreement shall become effective only
if the requirements of the laws of the States of Montana and Nevada, precedent
to effectiveness, have been formally complied with.
10. Directors and Officers.
(a) On the effective date of the merger, the Board
of Directors of Carleton, the surviving corporation, shall consist of
three directors. The terms of office of such members of the Board of
Directors shall be until the first annual meeting of the stockholders
of Carleton, the surviving corporation, after the effective date of the
merger and until their successors shall be elected and shall have
qualified. The respective names and addresses of such directors are
as follows:
Alexander H. Walker III
600 Kennecott Building
Salt Lake City, Utah 84133
Timotha Ann Kent
600 Kennecott Building
Salt Lake City, Utah 84133
Amanda Evelyn Walker
600 Kennecott Building
Salt Lake City. Utah 84133
(b) Upon the effective date of the merger, there
shall be three officers of Carleton who are presently holding these
positions. These officers, each of whom shall hold office until a
successor shall have been duly elected or appointed and shall have
qualified,
9
<PAGE>
or until his earlier death, resignation or removal, and their
respective offices and addresses ere As follows:
Alexander H, Walker III President
600 Kennecott Building
Salt Lake City, Utah 84133
Timotha Ann Kent Vice President
600 Kennecott Building
Salt Lake City, Utah 84133
Amanda Evelyn Walker Secretary and Treasurer
600 Rennecott Building
Salt Lake City, Utah 84133
11. Dissenting Shareholders. Carleton, as the surviving
corporation, will comply with the provisions of the Nevada Revised Statutes and
the Montana Business Corporation Act, with the appraisal of and payment for
stock of stockholders objecting to the merger. The surviving corporation,
Carleton, agrees that the payments for such stock and the cost of all
proceedings in connection with all matters necessary to be performed in
connection therewith will be at the expense of Carleton.
12. Abandonment of Merger. Anything herein to the contrary
notwithstanding, this merger may be terminated and the merger provided herein
abandoned at any time prior to the effective date of the merger, whether before
or after such action of the stockholders, pursuant to resolution adopted by the
Board of Directors of either Carleton or Cadgie. In the event of the termination
or abandonment of this Agreement of Merger, the same shall become wholly void
10
<PAGE>
and of no effect and there shall be no liability on the pert of either Carleton
or Cadgie or their respective boards of Directors or the stockholders.
13. Execution. This Agreement of Merger may be executed in any
number of counterparts, all of which together shall constitute one original
Agreement of Merger.
IN WITNESS WHEREOF. Carleton and Cadgie caused this instrument
to be executed by their duly authorised officers in each case by authority of
the majority of the Board of Directors of each corporation, and have caused
their seals to be hereto affixed and a majority of the Board of Directors of
each corporation have executed this agreement as of the day and year set forth
below.
DATED this 4th day of April, 1984.
CARLETON ENTERPRISES, LTD.
ATTEST:.
/s/Alexander H. Walker 111
---------------------------
Alexander H. Walker 111
President
/s/Amanda Evelyn Walker
- -----------------------
Amanda Evelyn Walker
Secretary
A Majority fo the Board of
Directors:
/s/Alexander H. Walker 111
--------------------------
/s/Timotha Ann Kent
-------------------
/s/Amanda Evelyn Walker
-----------------------
11
<PAGE>
STATE OF UTAH )
: ss.
COUNT! OF SALT LAKE )
The undersigned, a Notary Public,does hereby certify that on
this 6th day of April, 1984, personally appeared before me Alexander N. Walker
III, who being by me first duly sworn, declared that he is the President of
CARLETON ENTERPRISES, LTD., a Nevada corporations: and Amanda Evelyn Walker, who
being by me first duly sworn, declared that she is the Secretary of CARLETON
ENTERPRISES. LTD., a Nevada corporations that they signed the foregoing document
as President and Secretary of the corporation, and that the statements therein
contained are true.
IN WITNESS WHEREOF I have set my hand and seal this 4th day of
April, 1984.
/s/Rhonda Marquardt
Notary Public
Residing in Salt Lake County
My Commission Expires
April 4, 1987
---------------------
CADGIE TAYLOR C0.
ATTEST
/s/ Alexander H. Walker /s/ C. A. Walker
- ----------------------- ----------------
Alexander H. Walker, Jr. C. A. Walker
Secretary President
A Majority fo the Board of
Directors:
/s/Alexander H. Walker 111
--------------------------
/s/Timotha Ann Kent
-------------------
/s/Amanda Evelyn Walker
12
<PAGE>
STATE OF UTAH )
: ss.
COUNTY OF SALT LAKE )
The undersigned, a Notary Public, does hereby certify that on
this 4th day of April, 1984, personally appeared before roe C. A. Walker, who
being by me first duly sworn, declared that she is the President of CADDIE
TAYLOR CO., a Montana corporations and Alexander H. Walker. Jr., who being by me
first duly sworn, declared that he is the Secretary of CADDIE TAYLOR CO., a
Montana corporation; that they signed the foregoing document as President and
Secretary of the corporation, and that the statements therein contained are
true.
IN WITNESS WHEREOF I have set my hand and seal this 4th day of
April, 1984.
My Commission Expires: /s/Rhonda Marquardt
April 4, 1987 -------------------
- ---------------------- Notary Public
Residing in Salt Lake County
<PAGE>
AGREEMENT OR MERGER
MERGING
CADGIE TAYLOR CO.
(A MONTANA CORPORATION)
INTO
CARLETON ENTERPRISES. LTD.
(A NEVADA CORPORATION)
FILED AT THE REQUEST OF:
NATCO
SUITE 01400
ONE EAST FIRST STREET
RENO, NEVADA 89501
FILING DATE: MAY 24, 1984
FILING FEE: $ 50.00
FILE NUMBER: 2341-84
M E R G E R A G R E E M E N T
between
CARLETON ENTERPRISES, LTD.
and
CADGIE TAYLOR C0.
WITNESS the terms of the Merger Agreement by and between:
CARLETON ENTERPRISES. LTD. a Nevada Corporation,
hereinafter referred to as "Carleton". and
CADGIE TAYLOR CO.,
a Montana Corporation, hereinafter
referred to as "Cadgie".
RECITALS
--------
1. Identity of Parties. Carleton was incorporated in accordance with
the laws of the State of Nevada on April 3, 1984, with a capitalization of
20,000,000 shares of Capital Stock, par value $0.02 per share. which Capital
Stock is non-assessable. There are outstanding as of this date 50,000 shares of
Capital Stock. Cadgie was organized in accordance with the laws of the State of
Montana and has an authorized capitalization of 2,500,000 shares of Common Stock
with a par value of $0.02 per share. of which there are issued and outstanding
722,500 shares.
2. Assumption of Assets Subject to Liabilities. Carletrrn. a
Nevada Corporation. when this Merger Agreement shall become effective, as is
<PAGE>
hereinafter provided, shall assume all of the assets and all of the liabilities
standing on the books and records of Cadgie, a Montana corporation. As a result
thereof, Cadgie shall no longer be engaged in business, having then merged into
Carleton.
3. Requirements to Nevada Law. Carleton is a Nevada corporation.
Pursuant to the laws of the State of Nevada, a majority of the directors of
Carleton may enter into a Merger Agreement setting forth the terms and
conditions of the proposed merger, including a statement of the capitalization,
the number of shares of Capital Stock of the surviving corporation. Carleton, a
statement of the manner of conversion of the shares and assets of the retiring
corporation, Cadgie, a statement as to whether a new corporation is to be
formed, a statement of the method of carrying the terms of the agreement into
effect, and such other details as may be deemed necessary to disclose all
matters effective in a merger. The laws of the State of Nevada further provide
that notice of a proposed merger shall be given by mail to the last known
address of each stockholder, not less than ten days prior to such tweeting. Such
notice shall contain the time and place of tweeting, the laws of the State of
Nevada provide further that notice of a proposed merger may be waived by the
stockholders. By the further terms of the laws of the State of Nevada it it
specified that if a majority of the outstanding stock of the Nevada corporation,
Carleton, shall be vested in favor of the merger, the agreement shall be
declared adopted. The vote thereon shall be certified on the agreement
2
<PAGE>
by the President or Vice President and by the Secretary or Assistant Secretary
of the Nevada corporation. Carleton. The agreement shall be signed and
acknowledged by the President or Vice President and by the Secretary or
Assistant Secretary of the Nevada corporation. Carleton, and the seal of such
corporation shall be affixed thereto whereupon the same shall be filed in the
Office of the Secretary of State of Nevada. "pon the recordation in the Office
of the Secretary of State of Nevada the merger shall, insofar as Nevada law is
concerned, be deemed to be consummated with the same result as respects assets
and liabilities as is specified under Montana law.
4. Requirements of Montana Law. Upon completion of the various
steps necessary to place this Merger Agreement into effect, the same shall
become effective. The action contemplated hereby is deemed under Montana law to
be a merger. In connection with a merger, Montana law requires that the Board of
Directory of the Montana Cadgie, shall by resolution approve and adopt the Plan
of Merger. The Plan of Merger shall specify the of the corporations proposing to
merge. The name of the surviving corporation, the terms and conditions of the
merger, manner and basis of converting the shares of the corporation, Cadgie,
into shares of the corporation, Carleton, a statement of any changes in the
Articles of Incorporation of the surviving corporation, Carleton. to the extent
that they are the result of such merger, end such other provisions with respect
3
<PAGE>
to the merger as are deemed necessary or desirable shall also be specified in
the Plan of Merger. The statutes of the State of Montana further require that
the Board of Directors of Cadgie by resolution direct that the Plan of Merger be
submitted to a vote of a meeting of the shareholders of Cadgie, that written or
printed notice shall be given to each stockholder of record no less than thirty
days prior to such meeting, and that such notice shall state the purpose of the
meeting, as well as the place. day and hour thereof, and shall be delivered
either personally or by deposit in the United States mail, properly addressed,
postage prepaid. Montana law further requires that a copy of or a summary of a
Plan of Merger shall be included or enclosed with such notice. The laws of the
State of Montana further specify that the Plan of Merger shall be deemed to have
been approved upon receiving the affirmative vote of the holders of at least
two-thirds of the outstanding shares of Cadgie, end such laws specify that upon
such approval. Articles of Merger shall be executed in duplicate by the
President or Vice President and by the Secretary or Assistant Secretary of
Cadgie, and shall be verified by one of such officers. Such Articles of Merger
shall record or set forth the Plan of Merger, the number of shares outstanding
with respect to each corporation, and the number of stares voted for and against
the Plan of Merger. It is further required that such duplicate originals be
delivered to the Sscretary of State of Montana, and upon the subsequent issuance
4
<PAGE>
of a Certificate of Merger by the Secretary of State, the corporations party to
the merger shall become a single corporation, the separate existence of the
merged corporation, Cadgie, shall cease, and the surviving corporation.
Carleton. shall have all the rights, privileges, immunities, powers, properties
and assets and shall be subject to the duties, liabilities, debts and
obligations of both corporations. It is the intention of the parties to this
agreement that upon the issuance of a Certificate of Merger by the Secretaries
of State of Montana and Nevada and the final compliance of the laws of the
States of Montana and Nevada, this Merger Agreement shall become effective.
NOW, THEREFORE, AND IN THE CONSIDERATION OF THE FOREGOING RECITALS, AND THE
MUTUAL COVENANTS HEREINAFTER SET FORTH. CARLETON AND CADGIE DESIRE TO MERGE, AS
THAT TERM IS USED IN THE LAWS OF THE STATES OF MONTANA AND NEVADA. DO HEREBY,
ACTING THROUGH A MAJORITY OF THE BOARD OF DIRECTORS OF EACH SUCH CORPORATION,
AGREE TO MERGE AS FOLLOWS:
5. Statement Under Nevada Law. The terms and conditions of the
proposed merger of Cadgie into Carleton shall be as follows:
(a) The Articles of Incorporation of Carleton, which
set on file with the Secretary of State of Nevada,shall be the Articles of
Incorporation of the surviving corporation.
5
<PAGE>
(b) The manner of converting shares of Coamon Stock
of Cadgie will be on a basis of one share of Cadgie being converted into one
share of Carleton.
6. Statement Under Montana Law. The Flan of Merger of Cadgie into Carleton shall
be as follows:
(a) The names of the corporations proposing to merge
are Carleton, a Nevada corporation, and Cadgie, a Montana corporation, Cadgie
proposes to merge into Carleton and Carleton is hereby designated as the
surviving corporation.
(b) The shares of Common Stock of Cadgie shall be
converted into Common Stock of Carleton on a basis of one share of Cadgie for
one share of Carleton, the surviving corporation, on the effective date of this
Merger Agreement.
(c) The assets of Cadgie. upon this Merger Agreement
becoming finally effective. will become the assets of Carleton.
(d) The surviving corporation, Carleton, hereby
agrees that it tray be served with process in the State of Montana in any
proceeding for the enforcement of any obligation of Cadgie and in any proceeding
for the enforcement of the rights of a dissenting shareholder of Cadgie against
the surviving corporation. Carleton. The surviving corporation. Carleton, hereby
appoints the Secretary of State of Montana as its agent to accept service of
6
<PAGE>
process in any such proceeding. and agrees to promptly pay to the dissenting
shareholders of Cadgie the amount, if any, to which they are entitled under the
provisions of the Montana Business Corporation Act with respect to the rights of
dissenting shareholders.
7. Agreement to Merge. The parties hereby agree that Cadgie shall
be merged into Carleton and they do hereby further specifically agree in order
to accomplish such results as follows:
(a) Each of the parties hereto shall prepare and
cause to be mailed such notices as may be required or be desirable
pursuant to the laws of the States of Nevada and Montana. And in
addition. they shall see to the mailing to the stockholders of the
parties of all information which may be reasonably necessary or
desirable in order to permit such stockholders to reach an intelligent
and informed decision with respect to the proposed merger. The expense
of all such notices. reports and information and of the mailing of the
same shall be borne by the party with respect to which the material is
prepared or to whose stockholders the material is submitted. as the
case may be, save only that neither party shall be charged by the other
for the costs of preparing any reports or documents heretofore
published and available and deemed desirable for such distribution.
7
<PAGE>
(b) Each of the parties hereto shall proceed with
all due diligence. but strictly in cooperation with the other. to
secure the approval of, the merger Agreement by the requisite vote of
the stockholders of the parties and shall thereafter nee to they
filing of all required notices and undertakings of every kind and
character. pursuant to the laws of the States of Nevada and Montana.
(c) Upon the issuance of a Certificate of Merger
from the State of Montana, this Merger Agreement shall become effective
wherein Carleton shall take over the assets and assume the liabilities
of Cwdgie, and the stockholders of Cadgie shall surrender their stock
certificates in exchange for Cosanon Stock of Carleton with one share
of Cadgie being exchanged for one share of Carleton.
8. Expenses and Fees. Carleton shall discharge all expenses in
connection with calling and convening a special stockholders' meeting to ratify
the Merger Agreement. Cadgie shall discharge all expenses in connection with
calling and convening a special stockholders' meeting to ratify the Merger
Agreement. This agreement contemplates an audit, inventory and veriftnation of
the assets and liabilities of each of the corporations at the discretion of each
corporation. The expense of the audit, inventory or verification shall be
discharged by the corporation electing to conduct the audit, inventory or
verification.
8
<PAGE>
9. Conditions Precedent to Effectiveness. Notwithstanding any other
terms and conditions hereof, this Merger Agreement shall become effective only
if the requirements of the laws of the States of Montana and Nevada, precedent
to effectiveness, have been formally complied with.
10. Directors and Officers.
(a) On the effective date of the merger, the Board
of Directors of Carleton, the surviving corporation, shall consist of
three directors. The terms of office of such members of the Board of
Directors shall be until the first annual meeting of the stockholders
of Carleton, the surviving corporation, after the effective date of the
merger and until their successors shall be elected and shall have
qualified. The respective names and addresses of such directors are
as follows:
Alexander H. Walker III
600 Kennecott Building
Salt Lake City, Utah 84133
Timotha Ann Kent
600 Kennecott Building
Salt Lake City, Utah 84133
Amanda Evelyn Walker
600 Kennecott Building
Salt Lake City. Utah 84133
(b) Upon the effective date of the merger, there
shall be three officers of Carleton who are presently holding these
positions. These officers, each of whom shall hold office until a
successor shall have been duly elected or appointed and shall have
qualified,
9
<PAGE>
or until his earlier death, resignation or removal, and their
respective offices and addresses ere As follows:
Alexander H, Walker III President
600 Kennecott Building
Salt Lake City, Utah 84133
Timotha Ann Kent Vice President
600 Kennecott Building
Salt Lake City, Utah 84133
Amanda Evelyn Walker Secretary and Treasurer
600 Rennecott Building
Salt Lake City, Utah 84133
11. Dissenting Shareholders. Carleton, as the surviving
corporation, will comply with the provisions of the Nevada Revised Statutes and
the Montana Business Corporation Act, with the appraisal of and payment for
stock of stockholders objecting to the merger. The surviving corporation,
Carleton, agrees that the payments for such stock and the cost of all
proceedings in connection with all matters necessary to be performed in
connection therewith will be at the expense of Carleton.
12. Abandonment of Merger. Anything herein to the contrary
notwithstanding, this merger may be terminated and the merger provided herein
abandoned at any time prior to the effective date of the merger, whether before
or after such action of the stockholders, pursuant to resolution adopted by the
Board of Directors of either Carleton or Cadgie. In the event of the termination
or abandonment of this Agreement of Merger, the same shall become wholly void
10
<PAGE>
and of no effect and there shall be no liability on the pert of either Carleton
or Cadgie or their respective boards of Directors or the stockholders.
13. Execution. This Agreement of Merger may be executed in any
number of counterparts, all of which together shall constitute one original
Agreement of Merger.
IN WITNESS WHEREOF. Carleton and Cadgie caused this instrument
to be executed by their duly authorised officers in each case by authority of
the majority of the Board of Directors of each corporation, and have caused
their seals to be hereto affixed and a majority of the Board of Directors of
each corporation have executed this agreement as of the day and year set forth
below.
DATED this 4th day of April, 1984.
CARLETON ENTERPRISES, LTD.
ATTEST:.
/s/Alexander H. Walker 111
---------------------------
Alexander H. Walker 111
President
/s/Amanda Evelyn Walker
- -----------------------
Amanda Evelyn Walker
Secretary
A Majority fo the Board of
Directors:
/s/Alexander H. Walker 111
--------------------------
/s/Timotha Ann Kent
-------------------
/s/Amanda Evelyn Walker
-----------------------
11
<PAGE>
STATE OF UTAH )
: ss.
COUNT! OF SALT LAKE )
The undersigned, a Notary Public,does hereby certify that on
this 6th day of April, 1984, personally appeared before me Alexander N. Walker
III, who being by me first duly sworn, declared that he is the President of
CARLETON ENTERPRISES, LTD., a Nevada corporations: and Amanda Evelyn Walker, who
being by me first duly sworn, declared that she is the Secretary of CARLETON
ENTERPRISES. LTD., a Nevada corporations that they signed the foregoing document
as President and Secretary of the corporation, and that the statements therein
contained are true.
IN WITNESS WHEREOF I have set my hand and seal this 4th day of
April, 1984.
/s/Rhonda Marquardt
Notary Public
Residing in Salt Lake County
My Commission Expires
April 4, 1987
---------------------
CADGIE TAYLOR C0.
ATTEST
/s/ Alexander H. Walker /s/ C. A. Walker
- ----------------------- ----------------
Alexander H. Walker, Jr. C. A. Walker
Secretary President
A Majority fo the Board of
Directors:
/s/Alexander H. Walker 111
--------------------------
/s/Timotha Ann Kent
-------------------
/s/Amanda Evelyn Walker
12
<PAGE>
STATE OF UTAH )
: ss.
COUNTY OF SALT LAKE )
The undersigned, a Notary Public, does hereby certify that on
this 4th day of April, 1984, personally appeared before roe C. A. Walker, who
being by me first duly sworn, declared that she is the President of CADDIE
TAYLOR CO., a Montana corporations and Alexander H. Walker. Jr., who being by me
first duly sworn, declared that he is the Secretary of CADDIE TAYLOR CO., a
Montana corporation; that they signed the foregoing document as President and
Secretary of the corporation, and that the statements therein contained are
true.
IN WITNESS WHEREOF I have set my hand and seal this 4th day of
April, 1984.
My Commission Expires: /s/Rhonda Marquardt
April 4, 1987 -------------------
- ---------------------- Notary Public
Residing in Salt Lake County
<PAGE>
AGREEMENT OR MERGER
MERGING
CADGIE TAYLOR CO.
(A MONTANA CORPORATION)
INTO
CARLETON ENTERPRISES. LTD.
(A NEVADA CORPORATION)
FILED AT THE REQUEST OF:
NATCO
SUITE 01400
ONE EAST FIRST STREET
RENO, NEVADA 89501
FILING DATE: MAY 24, 1984
FILING FEE: $ 50.00
FILE NUMBER: 2341-84
AMENDMENT
TO THE ARTICLES OF INCORPORATION OF
CARLETON ENTERPRISES, LTD.
*****
Pursuant to the provisions of Section 78.385 of Live
Nevada Revised Statutes, Carleton Enterprises, Ltd. adopts
the following amendments to its Articles of Incorporation:
1. The undersigned hereby certify that. on the day of
November, 1984, a Special Meeting of the Board of Directors
was duly held and convened at which there was present: a
quorum of the Board of Directors acting throughout: all
proceedings, and at which time the following resolution was
duly adopted by the Board of Directors
BE IT RESOLVED: That the Secretary of the
corporation, Amanda E. Walker is hereby ordered and
directed to obtain the written consent of
stockholders owning at least a majority of the voting
power of the outstanding stock or tile corporation
for the following puxposes:
a. To amend Article One to provide that the name of
the corporation shall be changed from Carleton
Enterprises, Ltd. to SCN, Ltd.
b. To amend Article Four to restate the
capitalization to increase the authorized number
of common shares from 20,000,000. shares to
80,000,000 shares with the par value of each
share remaining at $0.02 per share,
<PAGE>
with all. other rights of the stockholders to
remain such as to provide that each share of
stock shall remain nonassessable and the
stockholders shall not have pre-emptive rights to
acquire additional stock.
2. Pursuant: to the provisions of Section 78.320 of the Nevada
Revised Statutes, a majority of the stockholders holding 598,750 shares of the
973,500 shares outstanding of Carleton Enterprises, Ltd. gave their written
consent to the adoption of the amendment to Articles One and Four of the
Articles of Incorporation as follows:
ARTICLE ONE. [NAME]. The name of the corporation
shall be: SCN, LTD.
ARTICLE FOUR. [CAPITAL STOCK]. The corporation shall
have the authority to issue an aggregate of EIGHTY MILLION SHARES (80,000,000)
of capital stock with each share having a par value of TWO CENTS ($0.02) per
share. All stock when issued shall be fully paid and non assessable. No holder
of shares of capital stock of the corporation shall be entitled, as such, to
any pre-emptive or preferential rights to subscribe to any unissued stock or
any other securities which the corporation may now or hereafter be authorized
to issue. Each share of capital stock shall be entitled to one vote at
stockholders' meetings, either in person or try proxy. Cumulative voting for
the election of directors and all other matters brought before stockholders'
meetings, whether they be annual or special, shall not be permitted.
2
<PAGE>
IN WITNESS WHEREOF, the undersigned hereunto affix their signatures this
13th day of November, 1984.
CARLETON ENTERPRISES, LTD.
By: /s/Alexander H. Walker 111
--------------------------
President
By: /s/Amanda Evelyn Walker
-----------------------
Amanda E. Walker
STATE OF NEVADA )
: ss.
COUNTY OF WASHOE )
On this 13th day of November, 1984, before me, the
undersigned, a Notary Public in and for the State of Nevada, personally appeared
Alexander H. Walker III, the duly elected President, and Amanda E. Walker, the
duly elected Secretary of Carleton Enterprises, Ltd., known to me to be the
persons described in and who executed the foregoing Amendment to the Articles of
Incorporation and who acknowledged to me that they executed the same freely and
voluntarily on behalf of and in their capacities as the President-and Secretary,
respectively, of Carleton Enterprises, Ltd. I have hereun to set my hand and
affixed my official seal the day and year first above written.
/s/Rose Marie Powles
--------------------
Notary Public
Residing in Reno Nevada
My Commission Expires:
Aug. 22, 1988
- -------------
[State of Nevada not included]
CERTIFICATE OF AMENDMENT OF ARTICLES OF INCORPORATION
(after Issuance of Stock) Filed by:
CAROL KEMPER
112 LONG HOLLOW PL., #200
GOODLETTSVILLE, TN 37077
SCN, Ltd.
- --------------------------------------------------------------------------------
Name of Corporation
We the undersigned Maurice Furlong and
- --------------------------------------------------------------------------------
President or Vice President
Carol Garrett Kemper of SCN, Ltd.
- --------------------------------------------------------------------------------
Secretary a Assistant Secretary Name of Corporation
do hereby certify:
That the Board of Directors of said corporation at a meeting duly convened,
held on the 19th day of November , 1993 adopted a resolution to amend the
original Articles as follows:
Corporation name is hereby amended to read as follows:
-----------------
FILED
Health Care Centers of America, Inc.
THE OFFICE Office Of The
SECRETARY OF STATE OF THE
STATE OF NEVADA
DEC 10 1993
No. 2341-84
-------
The number of shares of the corporation
outstanding and entitled to vote on an amendment to the Articles of
Incorporation is 18 M; that the said change(s) and amendment have
been consented to and approved by a majority vote of the
stockholders holding at least a majority of each class of stock
outstanding and entitled to vote thereon.
* 18,338,500 shares /s/Maurice Fulong
-----------------
Maurice Furlong
President or Vice President
/s/Carol Garrett Kemper
-----------------------
Carol Garret Kemper
Asssistant Secretary
State of Tenn.
--------------
}ss.
County of Davidson
------------------
On 12-3-93 personally appeared before me, a Notary Public Carol
Garrett Kemper/Maurice Furlong who acknowledged that they executed
the above Instrument.
/s/ illegible
---------------------
5-22-94
RECEIVED
2:20
DEC 07 1993
[NOTARY STAMP OR SEAL NOT INCLUDED]
6
FILED
IN THE OFFICE OF THE
SECRETARY OF STATE OF THE
STATE OF NEVADA
AMENDMENT
TO THE ARTICLES OF INCORPORATION OF
HEALTHCARE CENTERS OF AMERICA, INC.
Pursuant to the provisions of the Nevada Revised
Statutes, HEALTH CARE CENTERS Or AMERICA, INC.a Nevada corporation,
adopts the following amendments to its. Articles of Incorporation:
1. The undersigned hereby certifies that on the
28th day of December, 1993, a Special Meeting of the Board of
Directors of Health Care Centers of America, Inc. was duly held and
convened at which there was present a quorum of the Board of
Directors acting throughout all proceedings, and at which time the
following resolutions were unanimously adopted by the Board of
Directors:
BE IT RESOLVED: That James M. Troester, Secretary
of the corporation, is hereby ordered and directed
to obtain the written consent of stockholders
owning at least a majority of the voting power of
the outstanding stock of the corporation for the
following purposes:
(a) To amend Article Four of the Articles of
Incorporation to increase the authorized
capitalization from 80,000,000 common shares
to NINE HUNDREED MILLION (900,000,000)
Common Shares, and to change the par value
from $0.02 per share to ONE MILL ($0.001)
per share, and to provide for a reverse
split of the corporation's stock of three
(3) of the present outstanding shares being
surrendered in exchange for one (1) share of
the newly authorized $0.001 par value common
stock.
2
<PAGE>
(b) To amend Article Twelve to provice that
Directors shall not have personal
responsibility for corpoate obligations,
except for intentional misconduct.
2. Pursuant to the provisions of the Nevada
Revised Statutes, a majority of the stoclkholdors holding 12,836,950
of the 18,338,500 shares outstanding of Health Care Centers of
America, Inc.. gave their written consent to the adoption of the
AAmmendment to Article Four of the Articles of Incorporation as
follows:
ARTICLE FOUR: (CAPITAL STOCK) The corporation shall
have authority to NINE HUNDRED MILLION (900,000,000)
shares of Common stock, par value ONE MIL ($0.001) per
share. All stock when issued shall be fully paid and
non-assessable. No holder of shares of Capital Stock of
the corporation shall be entitled as such to any
pre-emptive or preferential rights to subscribe to any
unissued stock, or any other securities which the
corporation may now or hereafter be authorized to issue.
Each share of Capital Stock shall be entitled to one (1)
vote at stockholders meetings, either in person or by
Proxy. Cumulative voting for the election of directors
and all other matters brought before stockholders'
meetings, whether they be annual or special, shall not
be permitted.
ARTICLE TWELVE. (LIABILITY OF DIRECTORS AND OFFICERS). No
director or officer shall have any personal liability to the corportaiton or its
stockholders for damages for breach of fiduciary duty as a director or officer,
except that this Article Twelve shall not eliminate or limit the liability of a
<PAGE>
director of officer for (i) acts or omissions which involve intentional
misconduct, fraud or a knowing violation fo law, or (ii) the payment of
dividends in violation of the Nevada Revised Statutes.
IN WITNESS WHEREOF, the undersigned being the President and Secretary of health
Care Centers of America, Inc., a Nevada corporation, hereunto affix thier
signatures this 28th day of December, 1993.
HEALTH CARE CENTERS OF AMERICA
INC.
BY: /s/ Maurice Furlong
-------------------
Maurice Furlong
President
BY: /s/ James M. Troester
---------------------
Secretary
3
<PAGE>
STATE OF UTAH }
: ss.
COUNTY OF SALT LAKE }
On the 28th of December, 1993, before me, the undersigned, a Notary Public
in and for the State of Utah, personally apppeared MAURICE FURLONG, President
and JAMES M. TROESTER, Secretary, of HEALTH CARE CENTERS OF AMERICA, INC.M, a
Nevada corproation, known to me to be the persons described in and who executed
the foregoing instrument, and who acknowledged to me that they executed the same
freely and voluntarily, in behalf of Health Care Centers of America, Inc. for
the uses and purposes therein mentioned.
IN WITNESS WHEREOF, I have hereunto set my hand and affixed my official
seal the day and year first above written.
/s/
----------------------
[NOTARY PUBLIC SEAL NOT INCLUDED]
FILED
IN THE OFFICE OF THE
SECRETARY OF STATE OF
THE
STATE OF NEVADA
MAR 3 1, 1995
No. 2341-84
/s/Dean Heller
--------------
DEAN HELLER SECRETARY OF STATE
AMENDMENT
TO THE ARTICLES OF INCORPORATION OF
HEALTH CARE CENTERS OF AMERICA, INC
******
Pursuant to the provision of the Nevada Revised Statutes. HEALTH CARE
CENTERS OF AMERICA. INC, a Nevada corporation, adopts the following amendments
to its Articles of Incorporation
1. The undersigned hereby certifies that on the 31 it day of March, 1995, a
Special Meeting of the Board of Directors Care Centers of America, 1nc. was
duly. held and.. convened at which there was present a quorum of the Board of
Directors acting throughout all proceedings, and at which time the following
resolutions were unanimously adopted by the Board of Directors.
BE IT RESOLVED: That James M. Troester. Secretary of the corporation, is
hereby ordered and directed to obtain the written consent of stockholders owning
at least a majority of the voting power of the outstanding stock of the
corporation for the following purposes:
(a) To amend Article Four of the Articles of incorporation to increase the
authorized capitalization from NINE HUNDRED MILLION (900,000,000) Common
Shares, to ONE BILLION ONE HUNDRED MILLION (1,100,000,000) shares of Capital
Stock, with the, par value remaining at ONE MILL ($0.001) per share. The
Capita! Stock shall be divided into two classes: NINE HUNDRED MILLION
(900,000,000) shares of Common and TWO HUNDRED MILLION (200,000,000)
sharesof Convertible Preferred Stock.
2. Pursuant to the provisions of the Nevada Revised Statutes, a majority of
the stockholders holding 108,492,624 of the 199,923,478 shares outstanding of
Health Care Centers of America, Inc. gave their written consent to the adoption
of the Amendment to the Articles incorporation as follows.
<PAGE>
ARTICLE FOUR CAPITAL STOCK] The corporation shall have authority to
issue an aggregate of ONE BILLION ONE HUNDRED MILLION (1,100,000,000) shares of
Capita! Stock. Par Valve $0.001 per share, divided into two (2) classes of stock
as follows:
1. [COMMON STOCK] NINE HUNDRED MILLION (900,000,000)
shares of oommon stock; pr vakm ONE MILL (S0.001) per share. This class shall
have the exclusive right to elect Directors.
2. [CONVERTIBLE PREFERRED STOCK) TWO HUNDRED
MILLION(200,OO0,000) shares of Convertible Preferred Stock, par value ONE MILL
(S0.001) per share-This class will not possess voting rights to elect directors,
but will have preferential rights to be granted by tba Board of Directors.
All capital stock when issued shad be fully paid and
nonassessable. No holder of shares of capital stock of the corporation shall be
entitled as such to any pre-emptive or preferential rights to subcribe to any
unissued stock, or any other securities which the corporation nay now or
hereafter be authorized to issue.
The corporation's capital stock may be issued and
sold from time to time for such consideration as may be fixed by the Board of
Directors, provided that the consideration so fixed is not less than par value.
Holders or the corporation's Common Stock shall not
possess cumulative voting rights at any shareholders meetings called for the
purpose of electing a Board of Directors or on other matters brought before the
stockholders meetings, whether such stockholders meetings be special or annual
2
<PAGE>
IN WITNESS WHEREOF, the undersigned being the
President and Secretary of Health Care Centers of America, Inc., a Nevada
corporation hereunto affix their signatures this 31st day of March,1995.
HEALTH CARL CENTERS OF AMERICA, INC.
By: /s/Maurice Furloug
------------------
Maurice Furlong
President
By: /s/James M. Troester
--------------------
James M. Trester
Secretary
STATE OF ILLINOIS )
. ss.
COUNTY OF DUPAGE )
On the 31st day of March,.1995, before me, the
undersigned. a Notary Public in and for the State of Illinois, personally
appeared MAURICE FURLONG, President and JAMES M. TROESTER. Secretary, of HEALTH
CARE CENTERS OF AMERICA, INC., a Nevada corporation known to me to be the
persons described in and who executed the foregoing instrument, and who
acknowledged to me that they executed the same freely and voluntarily, in behalf
of and in their capacities as President and Secretary; respectively of HEALTH
CARE CENTERS OF AMERICA, INC. For the uses and purposes therein mentioned.
IN WITNESS WHEREOF, I have hereunto set my hand and
affixed my official seal the day and year first above written.
/s/Kim M. Plencner
------------------
Kim M. Plencner
Notary Public
Residing in State of Illinois
My Commission Expires 06/28/98
3
<PAGE>
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
68
<PAGE>
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 consoli dated financial statements, present
fairly in all material respects the information shown therein.
/s/ W. Dale McGhie
-------------------
W. Dale McGhie, CPA
Reno, Nevada
August 22, 1997
69
<PAGE>
10-SB
File No. 0-29006
HEXAGON CONSOLIDATED COMPANIES OF AMERICA, INC.
(Formerly HEALTH CARE CENTERS OF AMERICA, INC.)
(A DEVELOPMENT STAGE COMPANY)
CONSOLIDATED FINANCIAL STATEMENTS
SEPTEMBER 30, 1999 AND
DECEMBER 31, 1998, 1997 AND 1996
68
<PAGE>
HEXAGON CONSOLIDATED COMPANIES OF AMERICA, INC.
TABLE OF CONTENTS
ACCOUNTANT'S REPORTS
on Financial Statements
on Supplemental Schedules
FINANCIAL STATEMENTS
Consolidated Balance Sheets
Consolidated Statements of Operations
Consolidated Statements of Changes in Stockholders' Equity
Consolidated Statements of Cash Flows
Notes to the Consolidated Financial Statements
Supplemental Schedules
70
<PAGE>
W. DALE Mcghie Town & Country Plaza
CERTIFIED PUBLIC ACCOUNTANT 1539 Vassar St. Reno, Nevada 89502
Tel: 702-323-7744
Fax: 702-323-8288
To the Board of Directors
Hexagon Consolidated Companies of America, Inc.
ACCOUNTANT'S AUDIT REPORT
I have audited the accompanying consolidated balance sheets of Hexagon
Consolidated Companies of America, Inc. (formerly Health Care Centers of
America, Inc.) (a development stage company) as of September 30, 1999, December
31, 1998 1997 and 1996, and the related consolidated statements of operations,
changes in stockholders' equity and cash flows for the nine months and years
then ended, and from June 29, 1993 (date of reorganization) through September
30, 1999. 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.
Those 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 present
fairly in all material respects the financial position of Hexagon Consolidated
Companies of America, Inc. as of September 30, 1999, December 31, 1998, 1997,
and 1996 and the results of their operations, changes in stockholders' equity
and their cash flows for the nine months and 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 $269,424,722.
Recovery of the Company's mineral inventories is dependent upon the extraction
and recovery of mineral ore in an economical fashion. 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
November 14, 1999
71
<PAGE>
<TABLE>
HEXAGON CONSOLIDATED COMPANIES OF AMERICA, INC.
(Formerly HEALTH CARE CENTERS OF AMERICA, INC.)
( A DEVELOPMENT STAGE COMPANY)
CONSOLIDATED BALANCE SHEETS
AS OF SEPTEMBER 30, 1999 AND DECEMBER 31, 1998,
1997 AND 1996
<CAPTION>
ASSETS
September 30,
1999 1998 1997 1996
----------------- ---------------- ---------------- ----------------
<S> <C> <C> <C> <C>
CURRENT ASSETS
Cash (Note 1) $ - $ 374 $ 470 $ 196,214
Prepaid expenses - - - 1,500
----------------- ---------------- ---------------- ----------------
Total current assets - 374 470 197,714
----------------- ---------------- ---------------- ----------------
PROPERTY, PLANT and EQUIPMENT (Note 1)
Equipment held for rent 555,185 555,185 555,185 555,185
Equipment 527,867 527,867 525,418 24,935
Furniture and fixtures 13,951 13,951 12,307 6,249
----------------- ---------------- ---------------- ----------------
1,097,003 1,097,003 1,092,910 586,369
Less accumulated depreciation 50,009 27,974 19,433 11,355
----------------- ---------------- ---------------- ----------------
Net property, plant and equipment 1,046,994 1,069,029 1,073,477 575,014
----------------- ---------------- ---------------- ----------------
MINERAL INVENTORIES (Note 5)
Purchased mineral inventory 200,000,000 200,000,000 200,000,000 200,000,000
Acquisition costs 69,375,000 69,375,000 69,375,000 -
Development costs 49,722 - - -
----------------- ---------------- ---------------- ----------------
269,424,722 269,375,000 269,375,000 200,000,000
----------------- ---------------- ---------------- ----------------
OTHER ASSETS
Investment in future acquisitions (Note 3,12) - - - 49,016,330
Notes receivable (Note 6) - - - 260,000
Interest receivable - - - 6,600
Organizational costs, net
of amortization (Note 1) - - - 47,422
----------------- ---------------- ---------------- ----------------
Total other assets - - - 49,330,352
----------------- ---------------- ---------------- ----------------
Total assets $ 270,471,716 $ 270,444,403 $ 270,448,947 $250,103,080
================= ================ ================ ================
</TABLE>
The accompanying notes are an integral part of these financial statements
72
<PAGE>
<TABLE>
HEXAGON CONSOLIDATED COMPANIES OF AMERICA, INC.
(Formerly HEALTH CARE CENTERS OF AMERICA, INC.)
( A DEVELOPMENT STAGE COMPANY)
CONSOLIDATED BALANCE SHEETS
AS OF SEPTEMBER 30, 1999 AND DECEMBER 31, 1998, 1997 AND 1996
<CAPTION>
LIABILITIES AND STOCKHOLDERS' EQUITY
September 30,
1999 1998 1997 1996
----------------- ---------------- ---------------- ----------------
<S> <C> <C> <C> <C>
CURRENT LIABILITIES
Accounts payable $ 112,551 $ 58,525 $ 82,281 $ 28,206
Shareholder advance - - - 4,400
Accrued expenses 215,815 179,318 130,523 74,922
Notes payable - shareholder (Note 7) 267,373 267,373 267,373 462,809
----------------- ---------------- ---------------- ----------------
Total current liabilities 595,739 505,216 480,177 570,337
----------------- ---------------- ---------------- ----------------
STOCKHOLDERS' EQUITY
Common stock, $0.001 par value; 900,000,000 shares authorized; issued
and outstanding; 48,010,182 shares on September 30, 1999, 1,385,182
shares, 885,182 shares and 510,182 shares on December 31, 1998,
1997 and 1996, respectively 48,010 1,385 885 510
Convertible preferred stock, $0.001 par value; 200,000,000 shares
authorized; issued and outstanding; 152,875,000 shares on September
30, 1999; 199,500,000 shares and 200,000,000 shares on December 31,
1998 and 1997, respectively 152,875 199,500 200,000 -
Paid in capital 320,594,674 320,377,131 319,884,007 263,840,731
Retained deficit (Note 1) - - - (13,702,162)
Deficit accumulated during the
development stage (50,919,582) (50,638,829) (50,116,122) (606,336)
----------------- ---------------- ---------------- ----------------
Total stockholders' equity 269,875,977 269,939,187 269,968,770 249,532,743
----------------- ---------------- ---------------- ----------------
Total liabilities and stockholders' equity $ 270,471,716 $ 270,444,403 $ 270,448,947 $250,103,080
================= ================ ================ ================
</TABLE>
The accompanying notes are an integral part of these financial statements
73
<PAGE>
<TABLE>
HEXAGON CONSOLIDATED COMPANIES OF AMERICA, INC.
(Formerly HEALTH CARE CENTERS OF AMERICA, INC.)
(A DEVELOPMENT STAGE COMPANY)
CONSOLIDATED STATEMENTS OF OPERATIONS
FOR THE NINE MONTHS ENDED SEPTEMBER 30, 1999,
THE YEARS ENDED DECEMBER 31, 1998, 1997 AND 1996
AND THE PERIOD FROM JUNE 29, 1993 THROUGH SEPTEMBER 30, 1999
<CAPTION>
Nine months June 29, 1993
ended Through
September 30, December 31, December 31, December 31, September
1999 1998 1997 1996 30, 1999
------------ ------------ ------------ ------------ ------------
<S> <C> <C> <C> <C> <C>
REVENUE $ -- $ -- $ -- $ -- $ --
------------ ------------ ------------ ------------ ------------
EXPENDITURES
Depreciation and amortization 4,317 8,541 8,078 13,660 44,429
Dues and subscriptions 84 -- 1,010 4,627 9,591
Organizational costs -- -- 47,422 -- 47,422
Professional fees 134,765 281,183 206,689 119,545 798,995
Postage and courier service 354 1,114 5,975 16,500 26,869
Management fee -- -- 200,000 -- 200,000
Marketing and promotion 1,000 -- 970 1,367 34,453
Travel and entertainment 22,708 27,200 55,391 60,894 228,602
Telephone 26,372 37,819 50,698 35,761 157,902
Other office expenses 11,631 58,195 31,072 26,473 135,658
Program development -- -- 4,000 750 41,710
Rent 7,026 11,859 8,080 4,220 33,392
Imputed wages 36,000 48,000 48,000 30,000 165,172
------------ ------------ ------------ ------------ ------------
Total expenses from operations 244,257 473,911 667,385 313,797 1,924,195
------------ ------------ ------------ ------------ ------------
OTHER INCOME (EXPENSES)
Interest income -- -- -- 8,822 12,036
Bad debt expense -- -- (266,600) (266,600)
Interest expense (36,496) (48,796) (55,601) (69,447) (220,623)
------------ ------------ ------------ ------------ ----------
Total other income (expense) (36,496) (48,796) (322,201) (60,625) (475,187)
------------ ------------ ------------ ------------ ----------
Net loss before
Federal income taxes (280,753) (522,707) (989,586) (374,422) (2,399,382)
------------ ------------ ------------
Federal income taxes (Note 1) -- -- -- -- --
------------ ------------ ------------ ------------ ----------
Net loss before
extraordinary item (280,753) (522,707) (989,586) (374,422) (2,399,382)
------------
EXTRAORDINARY ITEM
Impairment of investments (Note 3) -- -- 48,520,200 -- 48,520,200
------------ ------------ ------------ ------------ ----------
Total extraordinary item -- -- 48,520,200 -- 48,520,200
------------ ------------ ------------ ------------ ----------
Net loss $ (280,753) $ (522,707) $(49,509,786) $ (374,422) $ (50,919,582)
============ ============ ============ ============ =============
Net loss per share before
extraordinary item (Note 1) $ (0.0125) $ (0.5174) $ (1.1589) $ (0.8137)
============ ============ ============ ============
</TABLE>
The accompanying notes are an integral part of these financial statements
74
<PAGE>
<TABLE>
HEXAGON CONSOLIDATED COMPANIES OF AMERICA, INC.
(Formerly HEALTH CARE CENTERS OF AMERICA, INC.)
(A DEVELOPMENT STAGE COMPANY)
CONSOLIDATED STATEMENT OF CHANGES IN STOCKHOLDERS' EQUITY
FROM JUNE 29, 1993 THROUGH DECEMBER 31, 1998
<CAPTION>
Deficit
Accumulated
during the
Common Stock Preferred Stock Additional Retained Development
Stock Amount Stock Amount paid in capital Deficit Stage
----- ------ ----- ------ --------------- ------- -----
<S> <C> <C> <C> <C> <C> <C> <C>
Balance at June 29, 1993 12,038,500 $ 240,770 - $- $ 13,461,391 $ (13,702,162) $ -
January 4, 1994, reverse stock split one share of new stock for three shares
of old stock and change par value from
$.02 to $.001 (8,025,667) (236,757) 236,757
June 30, 1998, reverse
stock split - one
share of new stock
for 1,000 shares of
old stock (4,008,820) (4,009) 4,009
Issuance of fractional shares 446
On June 29, 1993, Issued
Common stock to current
shareholders for loss
of prior stock 600 -
Issued shares of common stock to
Masterhouse Ltd. (a related party)
for 3500 master recording value
unknown 1,500 2 (2)
Net loss through December 31, 1993 (819)
-------------------------------------------------------------------------------------
Balance December 31, 1993 6,559 6 - - 13,702,155 (13,702,162) (819)
In January and May 1994, Issued
common stock for services valued
at par 31,960 32 31,928
In May 1994, record retroactive adjustment
in connection with the acquisition of
ElfWorks, Ltd., pooling of interest 40,000 40 39,960
(Note 2)
In May 1994, Issued common stock, held in
trust capacity, valued at estimatd
cost of learning center (Note 2) 400 - 50,000
In May 1994, Issued common stock for
a mining company, valued at current
replacement cost of equipment 12,000 12 86,118
(see Note 2)
</TABLE>
...continued
The accompanying notes are an integral part of these financial statements
13
<PAGE>
<TABLE>
HEXAGON CONSOLIDATED COMPANIES OF AMERICA, INC.
(Formerly HEALTH CARE CENTERS OF AMERICA, INC.)
(A DEVELOPMENT STAGE COMPANY)
CONSOLIDATED STATEMENT OF CHANGES IN STOCKHOLDERS' EQUITY
FROM JUNE 29, 1993 THROUGH DECEMBER 31, 1998
<CAPTION>
Deficit
Accumulated
during the
Common Stock Preferred Stock Additional Retained Development
Stock Amount Stock Amount paid in capital Deficit Stage
----- ------ ----- ------ --------------- ------- -----
<S> <C> <C> <C> <C> <C> <C> <C>
In July and September 1994, Issued common
stock, held in trust capacity, in
exchange for real estate valued
atfair market value 94,921 $ 95 - $ - $ 22,942,267 $ - $ -
In September 1994, Issued shares for a
mining co., valued replacement cost
of equipment, (Note 2) 20,000 20 409,980
Capital contributed by shareholders - - 126,768
Net loss through December 31, 1994 (135,695)
---------------------------------------------------------------------------------------
Balance December 31, 1994 205,840 205 - - 37,389,176 (13,702,162) (136,514)
In February 1995, Issued common stock
for services, recorded at par value 5,000 5 4,995
In February and August 1995, Issued common stock, held in trust capacity, in
exchange for real estate valued at
fair market value 95,000 95 22,961,276
In August 1995, Issued common stock in
for a music Co. valued at a discounted
stock price 4,000 4 2,499,996
In August 1995, Issued common stock for inventory of precious metal ore,
valued at a discounted stock price
(Note 5) 100,000 100 199,999,900
In September 1995, Issued common stock in exchange for services performed in
conjunction with the real estate
transactions, valued at fair market value 275 1 66,466
Capital contributed by shareholders - - 45,575
Net loss through December 31, 1995 (95,400)
---------------------------------------------------------------------------
Balance December 31, 1995 410,115 410 - - 262,967,384 (13,702,162) (231,914)
</TABLE>
...continued
The accompanying notes are an integral part of these financial statements
14
<PAGE>
<TABLE>
HEXAGON CONSOLIDATED COMPANIES OF AMERICA, INC.
(Formerly HEALTH CARE CENTERS OF AMERICA, INC.)
(A DEVELOPMENT STAGE COMPANY)
CONSOLIDATED STATEMENT OF CHANGES IN STOCKHOLDERS' EQUITY
FROM JUNE 29, 1993 THROUGH DECEMBER 31, 1998
<CAPTION>
Deficit
Accumulated
during the
Common Stock Preferred Stock Additional Retained Development
Stock Amount Stock Amount paid in capital Deficit Stage
----- ------ ----- ------ --------------- ------- -----
<S> <C> <C> <C> <C> <C> <C> <C>
In June 1996, Issued common stock for
a mining interest, transaction not
consummated, stock to be recovered,
valued at zero (Note 9) 98,000 $ 98 - $ - (98) $ - $ -
In June 1996, Issued common stock
in exchange for equipment (Note 1) 2,067 2 555,183
Imputed value of services provided by
Officers and/or Directors (Note 10) - - 34,970
Capital contributed by shareholders - - 283,292
Net loss through December 31, 1996 (374,422)
---------------------------------------------------------------------------------------
Balance December 31, 1996 510,182 510 - - 263,840,731 (13,702,162) (606,336)
InFebruary 1997, Issued shares of
common stock in
exchange for a Mining
Interest valued at a discounted
stock price (Note 2) 375,000 375 - - 69,374,625
Quasi-reorganization, 1997 (Note 1) (13,702,162) 13,702,162
In October 1997, authorized and
issued convertible preferred stock
for services and expenses, valued
at par (Note 1) 200,000,000 200,000
Imputed value of services provided by
Officers and/or Directors (Note 13) - - 51,960
Capital contributed by shareholders - - 318,853
Net loss through December 31, 1997 (49,509,786)
--------------------------------------------------------------------------------------
Balance December 31,1997 885,182 $ 885 200,000,000 $ 200,000 $319,884,007 $ - $(50,116,122)
In October 1998, converted preferred
stock to common stock 500,000 500 (500,000) (500)
Imputed value of services provided by
Officers and/or Directors (Note 13) - - 52,080
Capital contributed by shareholders - - 441,044
Net loss through December 31, 1998 (522,707)
--------------------------------------------------------------------------------------
Balance at December 31, 1998 1,385,182 $ 1,385 199,500,000 $ 199,500 $320,377,131 $ - $ (50,638,829)
The accompanying notes are an integral part of these financial statements
</TABLE>
<PAGE>
<TABLE>
HEXAGON CONSOLIDATED COMPANIES OF AMERICA, INC.
(Formerly HEALTH CARE CENTERS OF AMERICA, INC.)
(A DEVELOPMENT STAGE COMPANY)
CONSOLIDATED STATEMENTS OF CHANGES IN STOCKHOLDERS' EQUITY
FROM JUNE 29, 1993 THROUGH SEPTEMBER 30, 1999
<CAPTION>
Deficit
Accumulated
during the
Common Stock Preferred Stock Additional Retained Development
Stock Amount Stock Amount paid in Capital Deficit Stage
----- ------ ----- ------ --------------- ------- -----
<S> <C> <C> <C> <C> <C> <C> <C>
In January through September 1999,
converted preferred stock to
common stock 46,625,000 $ 46,625 (46,625,000) $ (46,625) $ - $ - $ -
Imputed value of services provided by
Officers and/or Directors (Note 13) - - 39,060
Capital contributed by shareholders - - 178,483
Net loss through September 30, 1999 (280,753)
----------------------------------------------------------------------------------------------
Balance at September 30, 1999 48,010,182 $ 48,010 152,875,000 $ 152,875 $320,594,674 $ - $ (50,919,582)
========== ======== =========== =========== ============ ==== =============
</TABLE>
The accompanying notes are an integral part of these financial statements
<PAGE>
<TABLE>
HEXAGON CONSOLIDATED COMPANIES OF AMERICA, INC.
(Formerly HEALTH CARE CENTERS OF AMERICA, INC.)
(A DEVELOPMENT STAGE COMPANY)
CONSOLIDATED STATEMENTS OF CASH FLOWS
FOR THE NINE MONTHS ENDED SEPTEMBER 30, 1999,
THE YEARS ENDED DECEMBER 31, 1998, 1997 AND 1996
AND FROM JUNE 29, 1993 THROUGH SEPTEMBER 30, 1999
<CAPTION>
Nine months June 29, 1993
ended Through
September 30, December 31, December 31, December 31, September
1999 1998 1997 1996 30, 1999
------------ ------------ ------------ ------------ ------------
<S> <C> <C> <C> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
Net loss $ (280,753) $ (522,707) $ (49,509,786) $ (374,422) $ (50,919,582)
Adjustments to reconcile net loss
to net cash used by operating activities:
Depreciation and amortization 4,317 8,541 8,078 13,660 44,429
Services paid in stock -- -- -- -- 36,960
Imputed value of services provided by --
Officers and Directors (Note 13) 39,060 52,080 51,960 34,970 178,070
Impairment of assets (Note 3) -- -- 48,520,200 -- 48,520,200
Preferred stock issued for services -- -- 200,000 -- 200,000
Organizational costs -- -- 47,422 -- 27,862
Net (Increase) Decrease in:
Prepaid expenses -- -- 1,500 (1,500) --
Notes receivable -- -- 260,000 -- --
Interest receivable -- -- 6,600 (4,950) --
Deposits -- -- -- 191,564 --
Net Increase (Decrease) in:
Accounts payable 54,026 (23,756) 54,075 (3,254) 112,550
Accrued expenses 36,497 48,795 55,601 69,448 215,815
------------ ------------ ------------ ------------ ------------
Net Cash Used by Operating Activities (146,853) (437,047) (304,350) (74,484) (1,583,696)
------------ ------------ ------------ ------------ ------------
CASH FLOW FROM INVESTING ACTIVITIES:
Purchase of furniture and fixtures -- (1,644) (6,058) (4,570) (13,951)
Purchase of equipment -- (2,449) (4,353) (8,889) (31,737)
Cost of developing mineral properties (32,004) -- -- -- (32,004)
------------ ------------ ------------ ------------ ------------
Net Cash Used by Investing Activities (32,004) (4,093) (10,411) (13,459) (77,692)
------------ ------------ ------------ ------------ ------------
CASH FLOWS FROM FINANCING ACTIVITIES:
Capital contributed by shareholders 178,483 441,044 318,853 283,292 1,394,014
Payment on shareholder loan -- -- (195,436) -- (195,436)
Borrowings (Note 7) -- -- (4,400) -- 462,810
------------ ------------ ------------ ------------ ------------
Net Cash Provided by Financing Activities 178,483 441,044 119,017 283,292 1,661,388
------------ ------------ ------------ ------------ ------------
Net Increase (Decrease) in Cash (374) (96) (195,744) 195,349 --
------------
Cash at the beginning of period 374 470 196,214 865 --
------------ ------------ ------------ ------------ ------------
Cash at the end of period $ -- $ 374 $ 470 $ 196,214 $ --
============ ============ ============ ============ ============
</TABLE>
The accompanying notes are an integral part of these financial statements
<PAGE>
HEXAGON CONSOLIDATED COMPANIES OF AMERICA, INC.
(Formerly HEALTH CARE CENTERS OF AMERICA, INC.)
(A DEVELOPMENT STAGE COMPANY)
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
SEPTEMBER 30, 1999 AND DECEMBER 31, 1998, 1997 AND 1996
NOTE 1 - ORGANIZATION AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
ORGANIZATION:
Hexagon Consolidated Companies of America, Inc. a Nevada Corporation
headquartered in Reno, Nevada was incorporated under the 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 11 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. On July 7, 1999, the Company
changed its name to Hexagon Consolidated Companies of America, Inc. (HCCA). The
Company is a development stage enterprise as defined by FASB No. 7. "Accounting
and Reporting by Development Stage Enterprises".
On June 30, 1998, the Company authorized a reverse stock split. One new share
was issued for 1,000 old shares. The par value remained the same at $.001 per
share. These financial statements have been retroactively restated for this
change in capital stock.
In January 1997, the Company voted to eliminate the previous retained deficit
through a quasi-reorganization. This resulted in the elimination of the deficit
in retained earnings of $13,702,162. It had no effect on assets or liabilities.
On October 2, 1997, the Company authorized and issued 200,000,000 shares of the
Company's preferred stock for services and expenditures valued at $200,000.
NATURE OF BUSINESS:
Currently the Company is focused on the development, management and exploitation
of three primary industry segments. The first is the development of mining
interests and exploitation of existing inventories of ore concentrate. The
second is the management and development of a wide range of real estate
interests. The third is to continue its previous entertainment activity of
marketing master recordings and recording new master recordings.
PRINCIPLES OF CONSOLIDATION:
The consolidated financial statements include the accounts of its wholly owned
subsidiaries, MedAway, International, Inc., Music Alley, Inc. and Peeples Mining
Company. All significant inter-company transactions have been eliminated.
MINERAL PROPERTIES:
Acquisition costs of mineral properties, rights and options together with direct
exploration and development expenditures thereon are deferred in the accounts to
be written off when production is attained or disposition occurs.
Such expenditures are accumulated and amortized using the units of production
method based upon the estimated proven mineral reserves in each cost center as
determined by independent assayers, or charged to income if any cost center is
determined to be unsuccessful.
<PAGE>
HEXAGON CONSOLIDATED COMPANIES OF AMERICA, INC.
(Formerly HEALTH CARE CENTERS OF AMERICA, INC.)
(A DEVELOPMENT STAGE COMPANY)
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
SEPTEMBER 30, 1999 AND DECEMBER 31, 1998, 1997 AND 1996
If results from exploration warrant the abandonment of certain mineral
properties included in a group and retention of the remainder, all acquisition ,
exploration and development expenditures relating to the entire group are deemed
to represent those expenditures relating to the mineral properties and
consequently no adjustment is made in the accounts in respect of mineral
properties abandoned.
Administrative expenditures are charged to income in the year they are incurred.
ORGANIZATIONAL COSTS:
The Company has adopted Statement of Position (SOP) 98-5, "Reporting on the
Costs of Start-Up Activities" issued in April 1998 by the Accounting Standards
Executive Committee of the American Institute of Certified Public Accountants.
Pursuant to SOP 98-5, organizational costs are expensed as incurred instead of
being capitalized and amortized.
FINANCIAL INSTRUMENTS:
At September 30, 1999, December 31, 1998,1997 and 1996, the fair value of the
Company's notes payable and notes receivable are evaluated each year to
determine if their value has been impaired (Note 6 and 7).
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-1 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 in 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. This equipment is
not being depreciated because it has not yet been placed in service.
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.
LOSS PER COMMON SHARE:
Weighted average shares outstanding used in the loss per common share
calculation were 22,471,295 for September 30, 1999; 1,010,183 for December 31,
1998; 853,932 for December 31, 1997; and 460,149 for December 31, 1996.
<PAGE>
HEXAGON CONSOLIDATED COMPANIES OF AMERICA, INC.
(Formerly HEALTH CARE CENTERS OF AMERICA, INC.)
(A DEVELOPMENT STAGE COMPANY)
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
SEPTEMBER 30, 1999 AND DECEMBER 31, 1998, 1997 AND 1996
NOTE 2 - ACQUISITION OF SUBSIDIARIES
1. On June 26, 1996, the Company issued 40,000 shares (after given effect to
reverse split (see Note 1)).of its common stock in exchange for all the
outstanding common stock of ElfWorks, 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 inpendent, 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, 11) 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 (trade due bills) were acquired through the acquisition
of ElfWorks, Ltd. Such credits 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. 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.
2. The Company's recent registration of their common stock under the Exchange
Act has been declared effective on February 4, 1997. Consummation of the
following stock exchange agreements have been declared effective:
o Effective February 4, 1997, the Company consummated the purchase of
Nashville Music Consultants, Inc, (NMC) a Tennessee Corporation
headquartered in Nashville, Tennessee. On April 21, 1995, the Company
entered into a stock exchange agreement with NMC whereby 4,000 shares
(after given effect to reverse split (see Note 1)) of the Company's common
stock valued by using the stock price on the date of the agreement
discounted 50% for restricted stock issued, was exchanged for all the
issued and outstanding shares of NMC. The subject matter of the stock
exchange agreement with NMC concerned only the music publishing operation
of NMC. On September 1, 1998, NMC (now Nashville Music Group (NMG)) and the
Company entered into an amendment to the stock exchange agreement, which
was effective as of April 21, 1995. The reason for the amendment was to
conform operations to the intent of the initial stock exchange. NMC had
expanded its operations into areas beyond music publishing. As a result of
the amendment, the publishing division of NMC, Music Alley, Inc., was
transferred to the Company. Since the amendment to the agreement, HCCA
received various rights to the publishing operation. Since receiving these
rights, there has been no activity and Music Alley, Inc. has been dormant.
The remaining value has been reserved as impairment of assets. The
uncertainty of obtaining this information is so great, it is felt that the
value may have been impaired to an unknown extent. Therefore, it has been
fully reserved against until such time that the appropriate information is
obtained.
<PAGE>
HEXAGON CONSOLIDATED COMPANIES OF AMERICA, INC.
(Formerly HEALTH CARE CENTERS OF AMERICA, INC.)
(A DEVELOPMENT STAGE COMPANY)
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
SEPTEMBER 30, 1999 AND DECEMBER 31, 1998, 1997 AND 1996
o Effective February 4, 1997, the Company acquired F & H Mining, Inc. (F&H),
an international business corporation, and Peeples Mining LLC (Peeples
LLC), an Arizona limited liability company, accounted for as a purchase.
Both F&H and Peeples LLC are primarily engaged in the mining of precious
metals. On March 25, 1994, the Company entered into a stock exchange
agreement with F&H, whereby 12,000 shares (after given effect to reverse
split (see Note 1)) of the Company's common stock was exchanged for all the
issued and outstanding shares of F&H valued current replacement cost of
equipment purchased of $86,130. On June 18, 1994, the Company entered into
a stock exchange agreement with Peeples LLC, whereby 20,000 shares (after
given effect to reverse split (see Note 1)) of the Company's common stock
was exchanged for all the issued and outstanding shares of Peeples LLC also
valued at current replacement cost of the equipment purchased of $410,000.
Both companies were dormant and had no operations for several years.
o On February 4, 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 well as
the inventory of concentrated precious metals ore acquired from Zarzion,
Ltd. As a result, Peeples Mining Company now has mining interests in
Arizona, Nevada and California. The Arizona operation includes a mineral
lease of state land on 377.11 acres. The Nevada property includes 7 claims
on 140 acres. The production facility and lab equipment owned by Peeples
Mining Company is located at the Arizona mill site operation. Assay reports
obtained by professionals in the industry indicate the expected value of
the above to be in excess of the stock value on the date of these
agreements discounted by 50% for restriction.
o On February 6, 1997, 375,000 shares (after given effect to reverse split
(see Note 1)) of common stock was issued to Zarzion, Ltd., for the purchase
of 17 mining claims covering a 340-acre site in San Bernardino County,
California. The shares were valued at $69,375,000, the stock price on the
date of the agreement discounted by 50% for restriction. Assay reports
obtained by an independent assayer indicate a value in excess of this
value. There has been no activity on this property for several years.
3. The following stock exchange agreements have not yet been consummated:
o In March, 1994, the Company entered into a stock exchange agreement with
Mr. William Jackson, thereafter amended, whereby 400 shares (given effect
of reverse split (see Note 1)) of the Company's stock was exchanged for the
future operations of a learning center in Reno, Nevada. The stock was
valued at $50,000, the estimated cost to commence operations for the Reno
facility. Consummation of the transaction is dependent on completion of the
learning center, which is unknown at this time. The Company has directed
its stock transfer agent to issue a "stop transfer" order regarding the
stock previously transferred with respect to this transaction. Therefore,
this acquisition has been deemed to be impaired (see Note 3).
o The Company has entered into two stock exchange agreements to acquire real
estate from The Rainbow Group and The Senior Group. The subject matter of
these agreements is currently in litigation in the Circuit Courts of Cook
and DuPage Counties, Illinois and the Federal District Court for Middle
Tennessee, Nashville, Tennessee. The Company has directed its transfer
agent to issue a "stop transfer" order concerning all stock that had been
issued in exchange for the real estate. Also, it is the Company's position
that all such stock is being held by the recipient in a trust capacity for
the benefit of both parties. Due to this litigation, the Company is unable
to obtain necessary and required financial information. The uncertainty of
obtaining this information is so great, it felt that the value may have
been impaired to an unknown extent. Therefore, it has been fully reserved
against until such time that the appropriate information is obtained.
Furthermore, the final determination of the consummation of these
transactions shall be determined by the above referenced courts.
<PAGE>
HEXAGON CONSOLIDATED COMPANIES OF AMERICA, INC.
(Formerly HEALTH CARE CENTERS OF AMERICA, INC.)
(A DEVELOPMENT STAGE COMPANY)
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
SEPTEMBER 30, 1999 AND DECEMBER 31, 1998, 1997 AND 1996
As a good faith measure, the Company issued stock upon the signing of the
various stock exchange agreements. In the event that any of the agreements
are not ultimately consummated, the Company shall pursue the return of the
stock issued or the fair market value of such stock.
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.
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 litigation and have not been consummated. The uncertainty of
obtaining the required financial information and of the consummation of the
transactions, it is felt that the value may have been impaired to an unknown
extent. Therefore, it has been fully reserved against until such time that the
transactions are consummated.
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 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 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 and
assets deemed to have been impaired (see Note 2).
Stock exchanged for the specific assets have been valued as follows:
<TABLE>
<CAPTION>
Value
Description of Assets to be acquired by the Company Assigned Ref.
- --------------------------------------------------- -------- ----
<S> <C> <C>
o A 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 A mineral lease on 377.11 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 in 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, IL 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 Shiller Park, IL 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, TN referred to as "Foxland" 16,000,000 (i)
o 24 acres of residential vacant land near Bellevue, Tennessee 800,400 (j)
o 56-acre parcel located on Dickerson Road in Nashville, TN 1,659,900 (d)
------------
Total value for Stock Exchanged and held in Trust Capacity
December 31, 1996 49,016,330
Less: Impairment of investments (Note 2) (48,520,200)
Capitalization of mining equipment (Note 2) (496,130)
------------
Value at September 30, 1997 $ 0
============
</TABLE>
<PAGE>
HEXAGON CONSOLIDATED COMPANIES OF AMERICA, INC.
(Formerly HEALTH CARE CENTERS OF AMERICA, INC.)
(A DEVELOPMENT STAGE COMPANY)
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
SEPTEMBER 30, 1999 AND DECEMBER 31, 1998, 1997 AND 1996
The above investments, excluding the mining interests, are under litigation to
determine legal ownership.
Ref:
(a)- Valued at the 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)- Value based on tax assessors current Fair Cash Value.
(e)- Valued at market value determined by independent appraisers and
consultants.
(f)- Value obtained from financial statement schedules indicating cost basis of
property.
(g)- Value determined by calculating the annual lease income times approximately
6 years.
(h)- Value calculated based on the estimated annual net income discounted at
10%.
(i)- 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.
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
$200,049,727, and mining claims located in San Bernardino County, California
valued at $69,375,000. Realization of a major portion of these assets is
dependent upon the company's ability to successfully liquidate the mineral
inventory. The financial statements do not include any adjustments that might
result from the outcome of this uncertainty. 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 a) leasing of the MedAway machines
(Note 1), b) sale of some or all of the ore inventory (Note 5), c) sale of some
of the advertising trade credits (Note 2), and d) a private placement of
securities.
NOTE 5 - MINERAL INVENTORIES Mineral properties include:
a) an inventory of concentrated precious metals ore located on land leased
from the State of Arizona through the year 2003. Recent assay reports
commissioned by the Company indicate there is a combination of precious
metals, rare earth and common elements. These concentrates were purchased
in exchange for 100,000 shares (after given effect of reverse split (see
Note 1)) 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% due to restrictions on transferability, applicable to
such stock. A subsequent independent valuation indicated a fair-market
value in excess of the recorded amount.
b) the San Bernardino, California site consists of the purchase of 17 mining
claims covering a 340-acre site. These claims were purchased in exchange
for 375,000 shares (after given effect of reverse split (see Note 1)) of
the Company's common stock. The shares were valued at $69,375,000, the
stock price on the date of the agreement discounted by 50% for restriction.
Assay reports obtained by an independent assayer indicate a value in excess
of this value. There has been no activity on this property for several
years.
<PAGE>
HEXAGON CONSOLIDATED COMPANIES OF AMERICA, INC.
(Formerly HEALTH CARE CENTERS OF AMERICA, INC.)
(A DEVELOPMENT STAGE COMPANY)
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
SEPTEMBER 30, 1999 AND DECEMBER 31, 1998, 1997 AND 1996
c) On April 30, 1998, the Company entered into a joint venture agreement with
Hidden Splendor Smelting Company (HSS) to share in the profits for
processing mineral inventories. HSS will be granted the exclusive right to
earn an undivided 20% interest in the net revenues received as a result of
the sale of processed inventory. HSS shall provide proper permits for the
processing, equipment , laboratory facilities and structures for the
initial period of the processing operations. The term of the agreement is
eight years from the effective date of the agreement.
<TABLE>
<CAPTION>
NOTE 6 - NOTES RECEIVABLE:
September 30, December 31,
1997 1996
-------------- ------------
<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, entitles 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. $ 0 $215,000
A note from M. Philip and T. Carnes 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. 0 45,000
-------------- -------------
Total Notes Receivable $ 0 $260,000
============== =============
Both notes are delinquent as of the date of this report. Management is unsure of
whether these notes are collectable. Therefore, they have been reversed out of
the financial statements until such time that the sums owed are collected.
NOTE 7 - NOTES PAYABLE:
September 30, December 31,
1997 1996
------------- ------------
A note payable to R.K. Company, dated November 17, 1995, payable $43,367 per
month with interest at 10% per annum through May 17,1996,
18% thereafter, unsecured . $ 52,373 $247,809
A note payable to R. K. Company, dated November 17,1995,
payable $37,624 per month with interest at 10% per annum
through May 17 1996, 18% thereafter, unsecured. 215,000 215,000
-------------- ------------
Total Notes Payable $267,373 $462,809
============= ============
</TABLE>
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. A final determination of the
enforceability of these notes is subject to the outcome of the litigation
reported above (see Note 2). Should the courts determine that these notes are
not enforceable, the Company will pursue recovery of the $195,436 payment made
in March, 1997.
<PAGE>
HEXAGON CONSOLIDATED COMPANIES OF AMERICA, INC.
(Formerly HEALTH CARE CENTERS OF AMERICA, INC.)
(A DEVELOPMENT STAGE COMPANY)
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
SEPTEMBER 30, 1999 AND DECEMBER 31, 1998, 1997 AND 1996
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. In January 1994, the Company declared
a one for three reverse stock split. In June 1998, the Company declared a one
for one thousand reverse stock split.
NOTE 10 - 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
issued 98,000 shares (after given effect of reverse split (see Note 1)) for the
interest in the mining operation. The company is attempting to reacquire those
shares, but, at this time, management is unable to determine if collectability
is probable.
Stock options for an aggregate of 50,000 shares (after given effect of reverse
split (see Note 1)) were issued to The Rainbow Group and The Senior Group
(25,000 each). Such options must be exercised within 10 years from the option
grant date of June 28, 1994. The first 25,000 shares are reserved at an exercise
price of $1,000 per share. The next 25,000 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 98,000 shares discussed above.
NOTE 11- FINANCIAL INFORMATION FOR BUSINESSES ACQUIRED OR TO BE ACQUIRED o
Effective February 4, 1997, F&H Mining Company, Inc. (F&H) and Peeples
Mining, L.L.C. (Peeples LLC) were acquired by the Company through the
exchange for common stock of the company. These acquisitions were accounted
for under the purchase method.
o Effective February 4, 1997, Nashville Music Consultants, Inc. (NMC) was
acquired by the Company through the exchange for common stock of the
Company. On August 20, 1998, the Company entered into an Amendment To Stock
Exchange Agreement, which related back to the same date as the original
stock exchange agreement. The original stock exchange agreement provided
for the acquisition of only the music publishing operations of NMC. NMC
(now known as Nashville Music Group, Inc. (NMG) has failed to provide the
Company with current financial information relating to the music
publishing. The uncertainty of obtaining this information is so great, it
<PAGE>
HEXAGON CONSOLIDATED COMPANIES OF AMERICA, INC.
(Formerly HEALTH CARE CENTERS OF AMERICA, INC.)
(A DEVELOPMENT STAGE COMPANY)
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
SEPTEMBER 30, 1999 AND DECEMBER 31, 1998, 1997 AND 1996
is felt that the value may have been impaired to an unknown extent.
Therefore, it has been fully reserved against until such time the
appropriate information is obtained.
o The combined assets of F&H and Peeples LLC were $496,130 as of February 4,
1997. There have been no operations in either company for several years.
o 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 services and acquisitions are listed below, including common stock
where applicable. Stated at value prior to reverse stock split.
Date Exchanged for: No. of Shares Value Assigned
------ -------------- ------------- -------------
1 1/94 Services 31,960,000 $ 31,960
2 5/94 A Future Learning 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
10. 8/95 Real Estate Properties 73,000,000 17,644,001
11. 8/95 Mineral Inventory (Note 5) 100,000,000 200,000,000
12. 9/95 Services 275,000 66,467
------------ ---------------
Total 1995 204,275,000 225,532,838
------------ ---------------
13. 6/96 Mining Interest 40,000,000 --
14. 6/96 Medical Decontamination
Machines 2,066,115 555,185
15. 7/96 Acquisition of
ElfWorks, Inc. 40,000,000 40,000
16. 1996 Services (Note 12) -- 34,970
------------ ---------------
Total 1996 82,066,115 630,155
------------ ---------------
17 2/97 Mining Interest (Note 2) 375,000,000 69,375,000
18 1997 Services (Note 12) -- 39,060
------------ ---------------
Total 1997 375,000,000 69,414,060
------------ ---------------
TOTAL 1994 - 1997 820,622,464 $319,097,495
============ ===============
To reflect reverse stock split: 820,622
19. 1998 Services (Note 13) -- 52,090
TOTAL 1994 - 1998 820,622 $319,162,495
============ ===============
<PAGE>
HEXAGON CONSOLIDATED COMPANIES OF AMERICA, INC.
(Formerly HEALTH CARE CENTERS OF AMERICA, INC.)
(A DEVELOPMENT STAGE COMPANY)
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
SEPTEMBER 30, 1999 AND DECEMBER 31, 1998, 1997 AND 1996
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 Note 5).
o October 2, 1997, 200,000,000 shares of preferred stock were issued for
services and expenditures. The transaction was booked at the Company's par
value of preferred 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 $340 a
month.
o Mining claims located in San Bernardino County, California were purchased
from Zarzion Ltd. In exchange for shares of the Company's stock (see Note
2).
o In April 1997, Maurice Furlong, CEO, President and major shareholder,
obtained voting control of all common stock of the company held by Zarzion
Ltd.
<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
Hexagon Consolidated Companies of America, Inc.
I have audited the consolidated balance sheets of Hexagon Consolidated Companies
of America, Inc. (formerly Health Care Centers of America, Inc.) (a development
stage company) as of September 30, 1999, December 31, 1998, 1997 and 1996, and
the related statements of operations, stockholders' equity, and cash flows for
the nine months and years then ended, and have issued my opinion thereon dated
November 14, 1999. My examination also comprehended Supplemental Schedules A and
B of Hexagon Consolidated Companies of America, Inc. (formerly 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.
/s/ W. Dale McGhie
- ------------------
W. Dale McGhie, CPA
Reno, Nevada
November 14, 1999
<PAGE>
<TABLE>
HEXAGON CONSOLIDATED COMPANIES OF AMERICA, INC.
(formerly HEALTH CARE CENTERS OF AMERICA, INC.)
(A DEVELOPMENT STAGE COMPANY)
SCHEDULE A - PROPERTY, PLANT AND EQUIPMENT
FOR THE NINE MONTHS ENDED SEPTEMBER 30, 1999
THE YEARS ENDED DECEMBER 31, 1998, 1997 AND 1996
<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>
September 30, 1999
Furniture and fixtures $ 13,951 $ - $ - $ - $ 13,951
Equipment 31,737 - - - 31,737
Equipment - mining 496,130 - - - 496,130
Equipent - other* 555,185 - - - 555,185
------------------- -------------- ------------- ----------------- ------------
Total $ 1,097,003 $ - $ - $ - $1,097,003
=================== ============== ============= ================= ============
December 31, 1998:
Furniture and fixtures $ 12,307 $ 1,644 $ - $ - $ 13,951
Equipment 29,288 2,449 - - 31,737
Equipment - mining 496,130 - - - 496,130
Equipment - other * 555,185 - - - 555,185
------------------- -------------- ------------- ----------------- ------------
Total $ 1,092,910 $ 4,093 $ - $ - $1,097,003
=================== ============== ============= ================= ============
December 31, 1997:
Furniture and fixtures $ 6,249 $ 6,058 $ - $ - $ 12,307
Equipment 24,935 4,353 - - 29,288
Equipment - mining - - - 496,130 496,130
Equipment - other * 555,185 - - - 555,185
------------------- -------------- ------------- ----------------- ------------
Total $ 586,369 $ 10,411 $ - $ 496,130 $1,092,910
=================== ============== ============= ================= ============
December 31, 1996:
Furniture and 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
=================== ============== ============= ================= ============
</TABLE>
* Equipment is not depreciated at this time because not placed in service yet.
<PAGE>
<TABLE>
HEXAGON CONCOLIDATED COMPANIES OF AMERICA, INC.
(formerly HEALTH CARE CENTERSOF AMERICA, INC.)
(A DEVELOPMENT STAGE COMPANY)
SCHEDULE B - ACCUMULATED DEPRECIATION OF PROPERTY, PLANT AND EQUIPMENT
FOR THE NINE MONTHS ENDED SEPTEMBER 30, 1999
THE YEARS ENDED DECEMBER 31, 1998, 1997 AND 1996
<CAPTION>
Additions Other Charges
Balance at Charges to Costs Reclassifications Balance at
Classification Beginning of Year and Expenses Retirements add (deduct) End of Year
---------------------- ------------------- ----------------- ------------------------------ ------------
<S> <C> <C> <C> <C> <C>
September 30, 1999:
Furniture and fixtures $ 6,392 $ 1,873 $ - $ - $ 8,265
Equipment 21,582 2,444 - - 24,026
Equipment - mining - 17,718 - - 17,718
Equipment - other * - - - - -
------------------- ----------------- ------------ ----------------- ------------
Total $ 27,974 $ 22,035 $ - $ - $ 50,009
=================== ================= ============ ================= ============
December 31, 1998:
Furniture and fixtures $ 3,931 $ 2,461 $ - $ - $ 6,392
Equipment 15,502 6,080 - - 21,582
Equipment - mining - - - - -
Equipment - other * - - - - -
------------------- ----------------- ------------ ----------------- ------------
Total $ 19,433 $ 8,541 $ - $ - $ 27,974
=================== ================= ============ ================= ============
December 31, 1997:
Furniture and fixtures $ 1,522 $ 2,409 $ - $ - $ 3,931
Equipment 9,833 5,669 - - 15,502
Equipment - mining - - - - -
Equipment - other * - - - - -
------------------- ----------------- ------------ ----------------- ------------
Total $ 11,355 $ 8,078 $ - $ - $ 19,433
=================== ================= ============ ================= ============
December 31, 1996:
Furniture and fixtures $ 758 $ 764 $ - $ - $ 1,522
Equipment 6,297 3,536 - - 9,833
Equipment - other * - - - - -
------------------- ----------------- ------------ ----------------- ------------
Total $ 7,055 $ 4,300 $ - $ - $ 11,355
=================== ================= ============ ================= ============
</TABLE>
* Equipment is not depreciated at this time because not placed in service yet.
<TABLE> <S> <C>
<ARTICLE> 5
<S> <C>
<PERIOD-TYPE> 9-MOS
<FISCAL-YEAR-END> DEC-31-1999
<PERIOD-START> JAN-01-1999
<PERIOD-END> SEP-30-1999
<CASH> 0
<SECURITIES> 0
<RECEIVABLES> 0
<ALLOWANCES> 0
<INVENTORY> 0
<CURRENT-ASSETS> 0
<PP&E> 270521725
<DEPRECIATION> 50009
<TOTAL-ASSETS> 270471716
<CURRENT-LIABILITIES> 595739
<BONDS> 0
0
152875
<COMMON> 48010
<OTHER-SE> 269675092
<TOTAL-LIABILITY-AND-EQUITY> 270471716
<SALES> 0
<TOTAL-REVENUES> 0
<CGS> 0
<TOTAL-COSTS> 244257
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 36496
<INCOME-PRETAX> (280753)
<INCOME-TAX> 0
<INCOME-CONTINUING> (280753)
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (280753)
<EPS-BASIC> (0.013)
<EPS-DILUTED> (0.013)
</TABLE>
