<PAGE>
SECURITIES AND EXCHANGE COMMISSION
Washington D. C. 20549
FORM 10-K
ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
FOR THE FISCAL YEAR ENDED DECEMBER 31, 1996
OR
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
FOR THE TRANSITION PERIOD FROM TO
COMMISSION FILE NUMBER : 1-9904
VANDERBILT GOLD CORPORATION
(Exact name of registrant as specified in its charter)
DELAWARE 88-0224117
(state or other jurisdiction of (IRS Employer
Incorporation or organization) Identification No.)
4625 WYNN ROAD, SUITE 103, LAS VEGAS NV 89103
(Address of principal executive offices) (Zip Code)
702-362-3152
(Registrant's telephone, including area code)
Securities registered pursuant to Section 12(g) of the Act:
Common Stock, Par Value $.01 per share
(Title of Class)
Indicate by check mark whether the registrant (1) has filed all reports required
to be filed all reports required to be filed by Section 13 or 15(d) of the
Securities Exchange Act of 1934 during the preceding 12 months (or for such
shorter period that the registrant was required to file such reports), and (2)
has been subject to such filing requirements for the past 90 days.
[x] Yes [ ] No
Indicate by check mark if disclosure of delinquent filers pursuant to Item 405
of Regulation S-K (Section 229.405 of this chapter) is not contained herein, and
will not be contained herein, and will not be contained, to the best of
registrant's knowledge, in definitive proxy or information statements
incorporated by reference in Part III of this Form 10-K or any amendment to this
Form 10-K. _____
The aggregate market value of the common stock held by non-affiliates of the
Registrant as of March 15, 1997, based upon a price of $0.16 per share, the
average of the bid and ask quotations as of such date was $5,817,000. As of
March 16, 1997 there were 36,355,625 issued and outstanding shares of common
stock of the registrant.
<PAGE>
ITEM 1. DESCRIPTION OF BUSINESS
GENERAL
The Company, Vanderbilt Gold Corporation, a Delaware corporation ("Company" or
"Vanderbilt"), is in the business of acquiring, developing, and producing
precious metals properties. The Company has one wholly-owned subsidiary, Star
Mining Corporation, a Nevada Corporation. Vanderbilt and its subsidiary are
hereinafter referred to as "Vanderbilt".
Vanderbilt is engaged in the mining business, primarily in the Western United
States and Mexico, with its principal operation at the Morning Star Mine
("Morning Star") which is located in San Bernardino County, California. Morning
Star is a gold and silver property which has produced significant quantities of
these precious metals. Vanderbilt has operated this mine since 1973. (See Item
2 Properties) In January, 1995, the Company signed an Agreement with Compania
Minera Rosarence S. A. de C.V. ("Rosarence"), a Mexican Corporation with
headquarters in Culiacan, Sinaloa, Mexico wherein the Company will fund certain
development and exploration activities to be performed by Rosarence at a 67,000
acre concession ("La Sierra") in the State of Durango, Mexico. La Sierra has
been converted from an "exploration concession" to an "exploitation concession"
in order to begin development of one or more of the seven targets that have been
identified on the concession. La Sierra when converted to an "Exploitation
Concession" will be reduced in size to about 32,000 acres which contains all
known mineral prospects. Preliminary sampling has identified gold, silver, and
copper potentials. In September, 1995, the Company also exercised its option to
acquire the concession and all of the outstanding shares of Rosarence, the
payments which consisted of 1.8 million common shares of Vanderbilt plus
$200,000 have been made with the exception of one quarterly payment of $30,000,
which is due and payable. The agreement also has the provision that the shares
will have a stock price equal to $1.00 (median of Bid and Ask quotes) for a 15
day period by March 31, 1997 or the difference between the actual traded price
and $1.00 will be paid by the Company in either cash or stock with a value equal
to the difference. The manner of payment is at the discretion of the former
owners of Rosarence by March 31, 1997. (See Item 2 Properties)
Vanderbilt also holds a 17.15 % interest in Cosalteca SA de CV's ("Cosalteca")
12,000 acre Las Coloradas concession group in the Sierra Madre mining district.
Vanderbilt issued to Cosalteca 700,000 common shares as its initial contribution
to earn a 17.15% interest in the joint venture. The shares of Vanderbilt must be
traded at a price equal to $1.00 (median of Bid and Ask quotes) for a 15 day
period by March 31, 1997 or the difference between the actual traded price and
$1.00 will be paid by the Company in either cash of stock with a value equal to
the difference. The manner of payment is at the discretion of the owners of
Cosalteca. The company holds an option to increase its interest to at least
42.65 %. Formerly, the mines and prospects were divided among numerous holdings
too small to attract sufficient developmental capital to efficiently develop the
district. These have been combined into approximately 12,000 acre concession
covering all of the known mines and prospects as well as the structures in which
the precious metal mineralization occurs. A mill and ancillary infrastructure
is already in place. A new shaft, which will provide the means to mine more
efficiently, has already been started. (See Item 2 Properties)
NARRATIVE DESCRIPTION OF BUSINESS
Vanderbilt is an exploration and precious metals mining company. Its business
activities include property evaluation, exploration, and if warranted,
acquisition, development, construction of facilities, mining, processing, and
sale of metal, principally gold and silver in the form of dore. All dore is
sold to outside companies for final processing. Vanderbilt may enter into joint
ventures or partnerships with other business entities to accomplish these same
purposes.
<PAGE>
MORNING STAR MINE
Vanderbilt acquired mining rights to the Morning Star Mine in the early 1970's.
In 1979 the Company began production of gold and silver through expanded
underground workings. The ore was processed at a mill owned by Vanderbilt
located about 17 miles from the mine site. During late 1984, the Mornings Star
was converted to an open pit operation and the ore was processed by heap
leaching commencing in 1985. In June, 1987, Management decided to add a fine
crushing plant to the facility in order to increase gold recovery rates.
In March, 1990 production problems began which resulted in a sharp drop off in
the amount of gold and silver being recovered from the ores on the heap leach
pads. Management suspended mining operations, except for the crushing of
previously mined ore, and concentrated its attention on the gold recovery. The
resulting drop in cash flows and liquidity caused the Company to curtail its
other activities, lay off personnel, defer payments to vendors, and continue the
moratorium on mining activity at Morning Star. Working capital was negative and
for two years the Company survived on loans and extensions of credit from the
Company's President and others. During the three years ended December 31, 1993,
efforts at the Morning Star were directed to reclamation and remediation. During
that time, heap leach pad No. 1 was detoxified and final reclamation commenced.
In late 1994 as funds became available, the Morning Star was made ready for
increasing levels of operations, equipment was tested and brought on-line, the
assay lab was equipped, stocked with supplies and staffed, and the solution in
the remaining heap leach pad (No. 2) started through the gold recovery and
detoxification system. During 1995, the Company removed about 77 ounces of gold
from the carbon recovery tanks and delivered it to market. Reclamation and
efforts to secure new funding continued throughout 1996.
SOURCES AND AVAILABILITY OF MINERAL RESOURCES
The ultimate realization of value from Vanderbilt's properties is dependent upon
the existence of economical quantities of ore containing significant amounts of
precious metals, gold and silver. The Company's continuing search for suitable
mining properties is subject to numerous uncertainties such as locating
commercially viable deposits, competition from other companies and the ability
to negotiate leases and other contracts with property owners on terms favorable
to the Company. Increased governmental regulation(s) as to the location,
exploration, and development of mineral prospects coupled with the trend toward
increased withdrawal of lands from mineral entry could possibly limit
Vanderbilt's access to suitable mineral prospects.
SEASONAL NATURE OF BUSINESS
Vanderbilt's business is generally not seasonal in nature except for certain
times when weather conditions may adversely affect access to and operations of
its properties.
MAJOR CUSTOMERS
Vanderbilt has sold gold and silver dore produced at the Morning Star Mine to
Englehard Industries West, Inc., Gerald Metals, Inc. and G. D. Resources, Inc.
Vanderbilt does not believe that the loss of these customers would adversely
affect its business since there are several other potential customers for its
products. Vanderbilt also may enter into forward sales contracts with gold
merchants, users and others.
<PAGE>
COMPETITIVE CONDITIONS
Vanderbilt considers the exploration for, development, and acquisition of
precious metals and other mineable properties to be intensely competitive.
Companies with greater financial resources, existing staff and labor forces,
equipment for exploration and specialized experience, under certain
circumstances, may be in a better position than Vanderbilt to compete for
mineral properties, Also, the market price for gold and silver depends upon
factors beyond Vanderbilt's control, including the production of gold and silver
by other nations and by the monetary and fiscal policies of the United Stated
and other leading economic powers.
ENVIRONMENTAL/ENERGY/GOVERNMENTAL REGULATIONS
The California Desert Protection Act of 1994 ("Act") was passed by Congress and
signed into law by the President. The Morning Star Mine ("Morning Star") is
located in the newly designated "Mojave National Preserve". In general, the
Morning Star's mining and processing operations, under the new Act, may be
conducted as provided in the existing Plan of Operations ("Plans"). One change
is that public land, including that occupied by the Morning Star, is now
administered by the National Park Service ("NPS") instead of the Bureau of Land
Management ("BLM").
The land around the Morning Star will no longer be open to new mining claims,
but the new Act expressly provides that this withdrawal of land from mineral
entry is "subject to valid existing rights", which would obligate the United
States Government to honor the Morning Star's valid mining claims, permits and
the approved Plan.
Since the Morning Star has an approved Plan and state water permits, it appears
that the mining and processing operations can proceed in accordance with the
Company's plans. However, it is not possible at this time to assess the
ultimate impact, if any, that the Act will have upon the Company's operations at
the Morning Star and the timing of such impact
Compliance with federal, state, and local provisions regarding the discharge of
materials and pollutants into the environment, has not materially affected, nor
is it expected to materially affect capital expenditures, earnings, or the
competitive position of Vanderbilt; although in certain cases Vanderbilt has
experienced substantial delays in implementing its mining plans with respect to
its mining properties because of the delays inherent in the environmental
permitting process.
Wastes generated in connection with the cyanide leach facility currently are not
considered to be hazardous wastes under either the Federal Resource Conservation
and Recovery Act or the State of California Hazardous Waste Control Act. As a
result, Vanderbilt's heap leach operation is not subject to the regulations
promulgated by the Environmental Protection Agency or the California Department
of Health Services with respect to hazardous wastes and materials. However, the
equipment used at the site generates small quantities of waste oil, classified
as a hazardous waste by the State of California, which is stored at the site for
later removal by a commercial disposal service. Vanderbilt has obtained permits
as a Hazardous Waste Generator and a Hazardous Material Handler from the County
of San Bernardino Environmental Health Services Department in regard to the
waste oil generated by the equipment on site.
The cyanide leach facility is subject to review and regulation by the California
Regional Water Quality Control Board. Vanderbilt's facilities at the mine site
are being modified and leach pad No. 2 is in the process of detoxification. On
August 11, 1994, the California Regional Water Quality Control Board, Lahontan
Region, approved and adopted the amended waste discharge requirements for
Vanderbilt's Morning Star Mine. The effect of this approval is that the Company
may continue operations at the mine and that heap leach pad No. 1 is
reclassified as detoxified. No cyanide is presently being used by the Company
at the Morning Star Mine. Under the terms of its amended permit, Vanderbilt has
been approved to begin the use of cyanide processing using a vat leach system
inside an enclosed structure.
<PAGE>
In addition, the following environmental requirements apply to various aspects
of the facility: (1) An air quality permit for the facility is required by the
San Bernardino Air Pollution Control District. An application for this permit
was filed in March, 1988, and continues to be under review by the District.
Vanderbilt is operating at the Morning Star under a temporary permit. (2) The
two underground storage tanks at the Morning Star Mine which were used to store
gasoline and diesel fuel for the trucks and other equipment used at the mine
site were removed. The tanks are now operated as surface tanks. (3) As required
by state law, Vanderbilt filed a Business plan with the County of San Bernardino
Environmental Health Services Department; this was approved in August of 1988.
(4) A reclamation plan for the mine was approved by the Federal Bureau of Land
Management ("BLM") in June, 1984. (5) Vanderbilt's mining permit issued by San
Bernardino County, California, expired in August, 1994 and the application
process is underway for a new permit. A Revised Plan of Operation was filed with
the BLM in 1988 and as amended, and updated plan was submitted in December 1990.
A Revised Plan of Operations was filed with the BLM pursuant to a request made
in April, 1993. The effect of the transfer of responsibility from the BLM to
the NPS as a result of the California Desert Protection Act of 1994 being
enacted cannot be evaluated at this time. See the "Environmental" section of
"Management's Discussion and Analysis" for additional information.
Permits were obtained from the County of San Bernardino Environmental Health
Services Department and the BLM to drill two water wells to the south of the
Morning Star mine site. These wells were drilled in August and October of 1988
and a Water Well Drillers Report was filed with the San Bernardino County and
the State of California Department of Water Resources. In December, 1988, a
right of way permit was obtained from the BLM and a five mile pipeline from the
wells to the Morning Star mine site was completed in 1989.
See Item 3. Legal Proceedings for information concerning misdemeanor convictions
in 1992 of Vanderbilt and its President for violations of environmental laws.
Any proceeding against Vanderbilt's former president were dropped by the county
following his death in July, 1995. This conviction against Vanderbilt is under
appeal.
Governmental agencies having jurisdiction over the Morning Star Mine in San
Bernardino County have publicly announced a policy of aggressively enforcing
laws and regulations designed to protect the environment especially as they
relate to mining operations. Accordingly, it can be expected that the Morning
Star Mine will be under the scrutiny of such authorities. While the Company
will make every effort to comply with these regulations there can be no
assurance as to the results such regulatory scrutiny may have upon the
operations of the Morning Star Mine.
During 1991, monitor wells on heap leach pad No. 2 disclosed the existence of a
small leak of the leach solution from the top pad liner. The local regulatory
authorities prohibited the Company from adding any further cyanide to the
leaching solution. Heap leach pad No. 2 has three separate pad liners. The leak
is apparently confined to the top liner. Tests conducted indicate that the
other two pad liners have maintained their integrity and there has been no
contamination of any of the soil underneath the heap leach pad.
It is the Company's policy to comply with environmental and health laws and
regulations.
EMPLOYEES
Vanderbilt currently has one (3) employee.
<PAGE>
ITEM 2. PROPERTIES
GLOSSARY OF CERTAIN MINING TERMS
The following is a glossary of some of the terms used in the mining industry and
referenced herein:
ADR - An acronym for adsorption, desorption, and reactivation (see definitions
lot adsorption. desorption, reactivation singularly).
ADSORPTION - A process in which soluble complexes of gold and silver physically
adhere without chemical
reaction to activated carbon particles.
AGGLOMERATION - A process whereby mineralized material is mixed with a binder
and water and cured for 10 to 70 hours. Agglomeration allows heap leaching of
material that otherwise does not permit the leaching solution to percolate
through, by increasing porosity and permeability.
BANK CUBIC YARD - ("bcy") Refers to a cubic yard of in situ resource.
BOTTLE ROLL TEST - A small scale metallurgical laboratory test used to determine
the amenability of mineralization to the cyanidation extraction process.
CIL - An acronym for Carbon-In-Leach - the process of a solution leach plant in
which the dissolved gold in the pregnant cyanide solution is extracted through
adsorption onto activated carbon concurrent with leaching.
COLUMN TEST - A large scale metallurgical laboratory test used to determine the
amenability of rnineralized material to the cyanidation extraction process.
CONTAINED GOLD - Total measurable gold or gold equivalent in grams or ounces
estimated to be contained within a mineral deposit. A calculation or estimate
of contained gold makes no allowance for mining dilution or recovery losses.
CUTOFF GRADE - Grade of mineralization, established by reference to economic
factors, above which material is included in mineral deposit reserve resource
calculations and below which the material is considered waste.
WASTE. - May be either an external cutoff grade which refers to the grade of
mineralization used to control the external or design limits of an open pit
based upon the expected economic parameters of the operation, or an internal
cutoff grade which refers to the minimum grade required for blocks of
mineralization present within the confines of in open pit to be included in
mineral deposit estimates.
DEVELOPMENT STAGE - The period when a mineral deposit that has been estimated to
be economically viable is prepared for commercial production; including pre-
production stripping in the mine and the construction of the necessary process
plant and supporting facilities.
DESORPTION - A process in which gold and silver physically adhered to carbon
particles in the adsorption process are stripped from the carbon particles using
a weak acid solution.
DORE - Unrefined gold and silver in bullion form.
GOLD DEPOSIT - Means a mineral deposit mineralized with gold but without
reference to its potential economics.
<PAGE>
GOLD EQUIVALENT - A method of presenting combined gold and silver concentrations
or weights for comparison purposes. Commonly involves expressing silver as its
proportionate value in gold based on the relative values of the two metals.
When gold equivalent is used to express metal sold, the calculation is based on
actual prices received. When grades are expressed in gold equivalent, the
relative recoveries of the two metals are also taken into account.
GRADE - The amount of valuable mineral in each ton of mineralized material
expressed as troy ounces (or grams) per ton or tonne for gold and silver or as
a percentage of copper and other minerals.
HEAP LEACHING - A method of gold and silver extraction in which mineralized
material is heaped on an impermeable pad and sodium cyanide solution is applied
to the material. The gold and silver are dissolved out of the materials as the
solution percolates down through the heap, the pregnant solution is collected
from below the heap and the gold and silver are precipitated from the pregnant
solution in vessels or columns containing activated carbon or zinc powder.
LEACH PAD - A large, impermeable foundation or pad used as a base for ore during
heap leaching. The pad prevents the leach solution from escaping out of the
circuit.
LODE MINING CLAIM - A mining claim located on a vein or lode of quartz or other
rock in place, bearing gold, silver, tin, lead, copper, or other valuable
deposits.
MINERAL DEPOSIT, DEPOSIT, OR MINERALIZED MATERIAL - A mineralized body which his
been physically delimited by sufficient drilling, trenching and/or underground
work and found to contain a sufficient average grade of metal or metals to
warrant further exploration and/or development expenditures. Such a deposit
does not qualify under SEC standards as a commercially mineable ore body or as
containing ore reserves, until final legal, technical and economic factors have
been resolved.
MIXED ORE - A mixture of oxidized and unoxidized ore.
NET SMELTER RETURN ROYALTY - A phrase used to describe a royalty payment made by
a producer of metals, usually to a previous property owner or Governmental
authority, based an the value of gross metal production from the property, less
deduction of certain limited costs including smelting, refining, transportation
and insurance costs.
NET PROFITS INTEREST ROYALTY - A phrase used to describe a royalty payment made
by the producer of metals, usually to a property owner or Governmental
authority, based on the value of gross metal production from the property, less
deduction of certain costs including smelting, refining, transportation and
insurance costs (often referred to as realization costs) plus direct operating
costs associated with the mining and treatment of ore and the mining of
associated waste.
OPEN PIT MINING - The process of mining an ore body from the surface in
progressively deeper steps. Sufficient waste rock adjacent to the ore body is
removed to maintain mining access and to maintain the stability of the
resulting pit.
ORE - A natural aggregate of one or more minerals which, at a specified time and
place, may be mined and sold at a profit, or from which some part may be
profitably separated.
OUNCE (OZ) - Troy ounce.
OXIDIZED ORE (ALSO REFERRED TO "OXIDE ORE") - Mineralized rock which can be
profitably mined and in which some of the original minerals have been oxidized
by natural processes. Oxidation tends to make the ore more porous and permits a
more complete permeation of cyanide solution so that minute particles of gold in
the interior of the rock will be more readily dissolved
<PAGE>
OZ/TON (OPT) - Troy ounces per short ton.
REACTIVATION - A process in which carbon particles which have been stripped of
gold and silver during the desorption process are heated in a kiln to relieve
them of all contaminants and prepare them for reuse in the adsorption process.
RESERVE - Means that part of a mineral deposit which can be economically and
legally extracted or produced at the time of the reserve determination.
Reserves are customarily stated in terms of "ore" when dealing with
metalliferous minerals.
STRIKE LENGTH - The longest horizontal dimensions of a body or zone of
mineralization.
STRIPPING RATIO - The ratio of waste material to ore that is experienced in
mining an ore body.
UNPATENTED MINING CLAIM - A mining claim located on the public lands of the
United States, for which a patent has not been issued. An unpatented mining
claim is a possessory interest only, subject to the paramount title of the
United States. The validity of an unpatented mining claim depends upon the
existence of a valuable mineral deposit within the boundaries of the claim and
compliance with mining codes.
MORNING STAR MINE
The Morning Star Mine property is located in San Bernardino County, California,
approximately 70 miles south of Las Vegas, Nevada. As of the date of this
report, Vanderbilt controls a total of 59 unpatented lode claims in the Morning
Star area (approximately 1,200 acres). Nearly 124 acres comprise the mine, leach
pad, recovery plant, waste dumps and office, assay and maintenance facilities.
Access to the property is by paved highway and four miles of gravel road which
is maintained by the Company.
Gold mineralization at the Morning Star ore body is hosted entirely within late
Jurassic Ivanpah Granite, and is associated with quartz plus calcite veins and
stringers localized in the upper plate of the Morning Star thrust fault. Ore
grade values typically persist 65 feet to 100 feet perpendicular from the
Morning Star thrust fault plane into the upper plate. The gold is associated
with pyrite, chalcopyrite, galena, sphalerite, and covelite (in the zone of
secondary enrichment).
The ore reserve report prepared by independent geotechnical consultants based
upon drill hole data obtained from 1974 through 1987, estimated the proven and
probable reserves at the Morning Star Mine, is 6,455,617 tons averaging
approximately .048 ounces of gold per ton of ore. The planned production
capacity of the leach and recovery facilities is sufficient to produce between
one and two thousand ounces of gold per month.
LA SIERRA CONCESSION, STATE OF DURANGO, MEXICO
In January, 1995, the Company entered into an agreement with Rosarence wherein
the Company will fund certain development and exploration activities to be
performed by Rosarence on a 67,000 acre concession, known as La Sierra, located
near Palmar, State of Durango, Mexico. The Company also acquired a one year
option to acquire a specified portion of the La Sierra Concession and the option
to acquire all of the outstanding shares of Rosarence at no further cost. The
exploration concession granted by the Mexican government in September 23, 1992,
specifically mentions that the minerals for which the concession was granted are
gold, silver, lead, copper, zinc, tungsten and antimony. Preliminary sampling
has definitely identified gold, silver and copper potentials. Later, in 1995, an
application was filed to convert the concession to an "Exploration Concession"
and reduce the size to about 32,000 acres retaining all known mineral prospects.
In September, 1995, the Company exercised its option to acquire the concession,
and
<PAGE>
all of the outstanding shares of Rosarence. All payments, which consisted of
1.8 million common shares of Vanderbilt plus $200,000, have been made with the
exception of one quarterly payment of $30,000, which is due. The shares of
Vanderbilt must be traded at a price equal to $1.00 (median of Bid and Ask
quotes) for a 15 day period by March 31, 1997 or the difference between the
actual traded price and $1.00 will be paid by the Company in either cash or
stock with a value equal to the difference. The manner of payment is at the
discretion of the former owners of Rosarence.
LAS COLORADAS CONCESSIONS, STATE OF DURANGO, MEXICO
On December 22, 1995 Vanderbilt entered into a joint venture with Cosalteca,
Guardian and Viscount relating to Cosalteca's 12,000 acre Las Coloradas
concession group in the Sierra Madre mining district. The agreement requires
Vanderbilt to issue to Cosalteca 700,000 common shares as its initial
contribution to earn a 17.15% interest in the joint venture. The company holds
an option to increase its interest to at least 42.65% by December 22, 1997. The
shares of Vanderbilt must be traded at a price equal to $1.00 (median of Bid and
Ask quotes) for a 15 day period by cash or stock with a value equal to the
difference. The manner of payment is at the discretion Cosalteca March 31, 1997
or the difference between the actual traded price and $1.00 will be paid by the
Company in either cash of stock with a value equal to the difference. The manner
of payment is at the discretion of the former owners of Cosalteca.
Formerly, the mines and prospects were divided among numerous holdings too small
to attract sufficient developmental capital to efficiently develop the district.
These holdings have been combined into a 12,000 acre concession group covering
all of the known mines and prospects as well as the structures in which the
precious metal mineralization occurs. A mill and ancillary infrastructure is
already in place. A new shaft, which will provide the means to mine more
efficiently, has already been started.
At present, no data is available as to reserves for the La Sierra concession,
whether proven or probable.
OFFICE FACILITIES
The Company currently leases its office space at 4625 Wynn Road, Suite 103, Las
Vegas, Nevada, on a month-to-month basis at a rental of $770.00 per month.
RISK INHERENT IN THE MINING BUSINESS
Mineral exploration and development is highly speculative and involves
significant risks. The majority of exploratory projects fail to discover
mineralization sufficient to be commercially exploited. All mineral properties
are subject to hazards and risks normally incident to the subsurface geological
structures which can abruptly terminate mineralization, difficult metallurgical
problems which can inhibit the economic recovery of minerals, changes in the
world prices for the mineral being mined and produced, and environmental
restraints and conditions imposed by Federal, State, and County agencies which
may make it economically impractical to operate.
FLUCTUATION IN METAL PRICES
The profitability of Vanderbilt's operations is often directly related to the
world market prices of gold and silver. The market price of both gold and
silver can fluctuate widely and are influenced by numerous factors beyond the
control of Vanderbilt, such as the rate of inflation (domestic and foreign),
interest rates, economic or political crisis, as well as a number of other
factors. If the market price of gold and silver should drop dramatically, the
value of Vanderbilt's properties could also drop and the Company may not be able
to recover its investment in these properties.
<PAGE>
ITEM 3. LEGAL PROCEEDINGS
In October and November 1992 a misdemeanor jury trial was held in San Bernardino
County (California) Municipal Court, which resulted in ten guilty verdicts
against Vanderbilt and ten guilty verdicts against its President, John F.
Jordan, Jr., for environmental violations. These verdicts resulted in fines
totaling $90,000 for each of Vanderbilt and Mr. Jordan. Vanderbilt and Mr.
Jordan both filed an appeal to an Appellate Panel of the Superior Court of San
Bernardino County to each of these convictions. That appeal was denied. The
Company has filed a petition for a writ of habeas corpus with the Federal
District Court, Central District of California. That Petition is pending with
the court. The final determination of this matter is uncertain. Following his
death in July, 1995 the fine against Mr. Jordan's estate was terminated.
A lawsuit was filed in the Superior Court of the State of California in and for
the County of Santa Barbara against the company entitled Patricia R. Eubank v.
Vanderbilt Gold Corp., Case No. SM93578 for moneys alleged to be owing pursuant
to a lease under which Vanderbilt was a tenant relating to certain mining
claims. Management disputed the contention that moneys were owing due to
termination of the lease by the company. However, in order to compromise a
disputed claim and to avoid additional attorney's fees and costs, Management
reached a settlement with Plaintiffs. The terms of the settlement include
payment by Vanderbilt of $2,500, issuance of 50,000 shares of common stock,
termination of the lease and a full general release of all claims by Plaintiffs
and Vanderbilt. All the terms of the settlement have been met except the payment
of $2,500, which is due.
In 1992 eight individual creditors instituted litigation to enforce collection
of amounts due to them. The aggregate principal amount of debt owed by the
Company was $236,184, not including interest and attorney's fees. During 1992
all of the creditors obtained judgments against Vanderbilt for the amounts due,
including interest and attorney's fees. In 1993 and 1994, a corporation owned
by two of the Company's directors, purchased $112,542 of the original amount of
the debt. This was then converted into the Company's common stock at $.16 per
share (703,382 shares).
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
The Company did not submit any matters to a vote of security holders during the
last quarter of the year ended December 31, 1996.
<PAGE>
PART II
ITEM 5. MARKET FOR COMPANY'S COMMON EQUITY AND RELATED STOCKHOLDER MATTERS
The Company's common shares are traded upon the NASDAQ Electronic Bulletin Board
System. The following table sets forth the range of high and low quarterly
closing sales prices for Vanderbilt's common stock for years ended December 31,
1996 and 1995.
Years Ended December 31,
1996 High Low
First Quarter 1/4 9/64
Second Quarter 3/8 9/64
Third Quarter 1/4 3/16
Fourth Quarter 15/64 3/32
1995 High Low
First Quarter 9/32 3/16
Second Quarter 9/32 3/16
Third Quarter 7/32 9/64
Fourth Quarter 9/64 7/64
As of March 16, 1997 there were approximately 3700 identified holders of record
of the Company's common stock.
The Company has never declared a dividend and does not anticipate doing so in
the foreseeable future.
<PAGE>
ITEM 6. SELECTED FINANCIAL DATA
The following selected financial data set forth for the years ended December 31,
1996, 1995, 1994, 1993, and 1992 have been derived from the financial statements
of the Company but is not covered by the accountant's reports on the financial
statements.
<TABLE>
<CAPTION>
SELECTED FINANCIAL DATA
(IN THOUSANDS EXCEPT PER SHARE AMOUNTS)
YEARS ENDED DECEMBER 31,
1996 1995 1994 1993 1992
<S> <C> <C> <C> <C> <C>
Net sales on operating revenues - 29 14 61 101
Loss from continuing operations 407 680 708 420 1,031
Loss from continuing operations
per common share .01 .02 .03 .03 .08
Net loss 352 637 709 527 1,206
Net loss per common share .01 .02 .03 .03 .09
Extraordinary item:
gain on sale of investments - - - - -
Gain on sale of investments
per common share - - - - -
Cash dividends declared
per common share - - - - -
At year end:
Total assets 3,571 3,476 3,292 3,028 3,280
Long term obligations 45 45 45 47 91
Working capital (deficit) (1383) (1,332) (698) (2,330) (1,624)
Accumulated depreciation and
amortization 7040 6974 6,910 6,860 7,572
Shareholders' equity (deficit) 1249 1,230 1,416 1,356 (11)
</TABLE>
ITEM 7. MANAGEMENTS DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS
GENERAL COMMENTARY
In 1996 Vanderbilt Gold Corporation focused its attention on production at the
Las Coloradas mine and acquiring a joint venture partner for development on the
La Sierra Concession as well as continuing maintenance of the Morning Star
facilities.
The following discussion and analysis should be read in conjunction with the
audited financial statements starting at Item 8.
The Morning Star is located in the Ivanpah Valley of San Bernardino County,
California. Mining was discontinued in 1990. Vanderbilt plans to reopen the
mine as an underground mine using a more efficient and environmentally friendly
processing system, to produce about 1,450 ounces per month. The underground
phase of mining should be completed in about 28 months after startup, using less
than 15% of the reserves. Open pit operations can resume after new permitting
is in place.
<PAGE>
Vanderbilt Gold Corporation purchased a 100% interest in the 32,000 acre La
Sierra exploitation concession in Durango, Mexico. The concession includes at
least five high grade but fairly thin gold vein systems which resemble deposits
in Grass Valley, California, a large multi - vein quartz tourmaline prospect
known as El Rincon, which appears similar to Hemlo in Canada, and a very old
bonanza type silver mine known as Chirimoya that was originally mined
underground on three levels. Redevelopment began in 1995. Old working faces
contained some silver grades exceeding 180 ounces per ton. More work is required
to assess the grade and reserve potential of this mine. Vanderbilt ceased
development to focus efforts on production on the Las Coloradas concession
group.
Vanderbilt also purchased a 17.15% interest in Cosalteca's 12,000 acre Las
Coloradas concession group in the Sierra Madre mining district. The company
holds an option to increase its interest to at least 42.65%. Formerly, the mines
and prospects were divided among numerous holdings too small to attract
sufficient developmental capital to efficiently develop the district, These
holdings have been combined into a concession group covering all of the known
mines and prospects as well as the structures in which the precious metal
mineralization occurs. A mill and ancillary infrastructure are already in
place. A new shaft is completed to access additional ore pockets. High grade
gold ore pockets have been found to contain grades exceeding 3 ounces per ton.
Sale of concentrates from this concession is expected to begin in the near
future.
<PAGE>
RESULTS OF OPERATIONS
The following financial and operational data highlight and summarize the
Company's results of operations and financial position, for the periods
indicated (in thousands except percentages, per share and per ounce amounts):
YEAR ENDED DECEMBER 31,
1996 1995 1994
---- ---- ----
Overburden and waste removed (tons) 0 0 0
Ore Mined (tons) 0 0 0
Payable Gold (troy ounces):
Produced 0 0 0
Sold 0 77 36*
Payable Silver (troy ounces):
Produced 0 0 0
Sold 0 0 33*
Average Realization:
Gold (per payable ounce) 0 380 $373
Silver (per payable ounce) 0 0 5.16
Estimated troy ounces of recoverable gold
remaining on the heap leach pads 2,372 2,372 2,449
Operating Loss 407 680 708
Net Loss 352 637 709
Net Cash Used in Operations 165 182 329
Net Cash (used in) Provided by Investing Activities (4) 421 (93)
Net Cash Provided by Financing Activities 176 114 539
Loss per Common Share .01 .02 .03
Total Assets 3,571 3,476 3,292
Total Liabilities 2,322 2,246 1,876
Accumulated Deficit 24,407 24,055 23,418
Shareholders' Equity 1249 1,230 1,416
Working Capital Deficit (1383) 1,331 698
*Metals recovered from the spent carbon removed from the recovery tanks.
During 1996, the Company continued general reclamation activities at the Morning
Star Mine and raised limited funds through private placements.
The low level of gold production for 1991 through 1995 did not provide the
necessary revenues with which the Company could mine any new ore, remove any
waste or overburden, or fund day to day operations. Beginning in 1990 and
continuing in 1991 and 1992, numerous production difficulties were encountered
at the Morning Star Mine, which has been Vanderbilt's principal operating
facility. These difficulties resulted in an obvious decline in the amount of
gold and silver recovered from the ore on the heap leach pads but continued to
consume costs at a high rate. In August, 1990, management suspended mining
operations (other than leaching), reduced the workforce and implemented other
cost reduction measures. These measures remained in effect through 1994. In
1995, the work to revamp the recovery system to increase overall precious metal
recovery and make the entire system more environmentally friendly began.
Vanderbilt ceased this work in 1996 to focus attention on the Mexican
operations.
<PAGE>
LIQUIDITY AND CAPITAL RESOURCES
The Company ended the year of 1996 with a working capital deficit of $1,383,000
as opposed to a year end deficit for 1995 of $1,331,000 and 1994 of $698,000.
1996 saw an increase in overall cash flow of $7,000 as compared to a cash flow
decrease of $152,000 for 1995 and a cash flow increase of $117,000 for 1994.
The cash and cash equivalent balances at year end 1996 of $8,000 as opposed to
$1,000 at year end 1995 is a result of the Company's lack of funding through
operations or capital raising efforts.. During 1996 Vanderbilt was able to
raise $176,000 as compared to $114,000 in 1995. Current liabilities increased
by $76,000 during 1996 due to increases in accounts payable, accrued expenses
and short-term borrowings.
The Company's continued existence and resumption of operations at the Mine and
the continuation of evaluation, exploration and development of other mineral
properties, including the La Sierra concessions, are dependent upon its ability
to raise additional capital for these purposes through private placements,
restructuring of debt, joint venture and other financing arrangements. The
company has already obtained the financing necessary to bring the mines at Las
Coloradas into full production.
The Company will, as part of the reclamation program for the Morning Star Mine,
commence a program designed to neutralize the leach pad and at the same time
extract some of the gold contained on the pad. The Company estimates the first
phase of the program will recover approximately 1328 ounces of gold at a cost of
$72 per ounce. This first phase should start around June 1, 1997 and be
completed in twenty weeks.
INFLATION AND OTHER FACTORS INFLUENCING FUTURE PERFORMANCE
The impact of inflation on Vanderbilt's operations can vary. The future price
of gold and the level of interest rates could directly affect the Company's
future operating revenues and/or net profits. Low interest rates and higher
gold prices may enhance the value of Vanderbilt's investment in its mining
operations. Renewed interest in gold and silver as commodities or for
investment could also increase profitability and add to shareholder equity.
Falling prices, on the other hand could have the opposite effect.
Vanderbilt's future operating results depend upon its success in locating,
acquiring and producing commercial quantities of gold and other minerals from
properties it already has and in acquiring new properties with short term cash
flow potential.
Since Vanderbilt does not yet have any regular and dependable source of
revenues, increases in inflation could cause costs and expenses to exceed
anticipated or budgeted amounts.
Vanderbilt's management does not believe that inflation has or will, in the
foreseeable future, adversely affect its income or loss from continuing
operations. However, economic conditions, certain hazards and risks inherent to
the mining industry in general, as well as environmental factors, could
adversely affect income and cash flow from operations.
<PAGE>
ENVIRONMENTAL
In 1996, all operating permits were maintained. A county permit, which largely
consists of reclamation plans, must be filed with San Bernardino County as the
previously held permit has expired. The Company plans to do so as soon as
funding for the fees and preparation costs are obtained. Management does not
believe that, if properly applied for, the permit will be withheld.
Reclamation of leach pad No. 1 is partly completed. The company expects to fill
in the pregnant pond, establish the monitoring system, contour the pad and plant
native vegetation on it in accordance with the plan already approved by the
California Water Quality Control Board as soon as practicable.
In April, 1993, the BLM served Vanderbilt with a request that the Morning Star
Mine "Plan of Operation be amended. A "Plan of Operation" filed with the BLM
is, in effect, a permit to operate the mine which is located on public land.
Vanderbilt has filed the "Revised Plan of Operation" to the BLM pursuant to that
request. Administration of the public lands on which Morning Star Mine is
located has now passed to the NPS. The plan, as submitted to BLM is now part of
the files held by the NPS.
During 1991 and continuing through early 1994, Vanderbilt had been actively
detoxifying heap leach pad No. 1 and has now obtained reclassification and
closure from the regulatory authorities that it has been so detoxified. The same
procedure that was used to detoxify pad No. 1 is being used to detoxify pad No.
2.
CONCLUSION
Vanderbilt Gold Corporation ceased developmental operations on the Morning Star
Mine and the La Sierra Concession to focus attention on developmental operations
at the Las Coloradas mine. The mine developmental program was scheduled to be
completed in 1996, but due to heavy rains during the rainy season and lower than
expected ore values from one the developmental working areas prompted a change
in the developmental strategy. The current developmental plan is near completion
to achieve adequate ore to operate the mill on a continual basis. The Las
Coloradas mine is scheduled to have its first sales from processing through the
mill in the second quarter of 1997.
NEW ACCOUNTING PRONOUNCEMENTS
"Accounting for the Impairment of Long - Lived Assets and for Long - Lived
Assets to Be Disposed Of" ("SFAS No. 121") was issued by the Financial
Accounting Standards Board (FASB) in March 1995. SFAS No. 121 requires, for
fiscal years beginning after December 15, 1995, that an entity review long-lived
assets for impairment whenever events or changes in circumstances indicate that
the carrying amount of an asset may not be recoverable and that an impairment
loss be recognized as the amount by which the carrying amount of the asset
exceeds the fair value of the asset. The Company adopted SFAS No. 121 effective
January 1, 1996. The adoption did not have a material effect on the Company's
financial position or results of operations.
"Accounting for Stock-Based Compensation," ("SFAS No. 123") was issued by the
Financial Accounting Standards Board in October 1995. SFAS No. 123 establishes
financial and reporting standards for stock-based employee compensation plans,
which will be effective for the Company's 1996 consolidated financial
statements. SFAS No. 123 encourages, but does not require, the adoption of a
fair-value-based method of accounting for such plans in place of current
accounting standards. Companies electing to continue their existing accounting
method must make pro forma disclosures of net income as if the fair-value-based
method had been applied. The Company has decided it will adopt the new
accounting method.
<PAGE>
MANAGEMENT'S RESPONSIBILITY FOR FINANCIAL REPORTING
VANDERBILT GOLD CORPORATION
The accompanying consolidated financial statements of Vanderbilt Gold
Corporation and Subsidiaries are prepared by the Company's management in
conformity with generally accepted accounting principles. Management is
responsible for the fairness of the financial statements, which include
estimates based on judgments.
The Company maintains accounting systems, which management believes provide
reasonable assurance that financial records are reliable for the purposes of
preparing financial statements and the assets are properly safeguarded and
accounted for. Underlying the concept of reasonable assurance is the premise
that the cost of controls should not be disproportionate as to the benefits
expected to be derived from such controls. The Company's internal control
structure is reviewed by its audit committee and by the independent auditors in
connection with their audit of the Company's consolidated financial statements.
The external auditors conduct an independent audit of the consolidated financial
statements in accordance with generally accepted auditing standards in order to
express their opinion on these financial statements. These standards require
that the external auditors plan and perform the audit to obtain reasonable
assurance that the financial statements are free of material misstatement.
The Audit Committee of the Board of Directors, composed entirely of outside
directors, corresponds periodically with management and the external auditors to
discuss the annual audit, internal control, and financial reporting matters.
The external auditors have direct access to the Audit Committee.
/S Keith Fegert
Keith Fegert
Chief Executive Officer
/S Howard Urband
Howard Urband
Vice President
<PAGE>
ITEM 8. FINANCIAL STATEMENTS
INDEX TO FINANCIAL STATEMENTS
Independent Auditor's Report F-1
Consolidated Balance Sheets at December 31, 1996 and 1995 F-2
Consolidated Statements of Operations. F-3
Consolidate Statements of Changes in Shareholders' Equity (Deficit). F-4
Consolidated Statement of Cash Flows. F-5
Notes to Consolidated Financial Statements. F-6 - F-13
<PAGE>
INDEPENDENT AUDITOR'S REPORT
The Board of Directors
Vanderbilt Gold Corporation
I have audited the accompanying consolidated balance sheets of Vanderbilt Gold
Corporation and subsidiaries as of December 31, 1996 and 1995, and the related
consolidated statements of operations, changes in shareholders' equity (deficit)
and cash flows for each of the three years in the period ended December 31,
1996. These consolidated financial statements are the responsibility of the
Company's management. My responsibility is to express an opinion on these
consolidated financial 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 financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
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 Vanderbilt Gold
Corporation and subsidiaries at December 31, 1996 and 1995, and the results of
their operations and their cash flows for each of the three years in the period
ended December 31, 1996 in conformity with generally accepted accounting
principles.
The accompanying consolidated financial statements have been prepared assuming
the Company will continue as a going concern. As discussed in Note 1 to the
financial statements, the Company's recurring losses from operations and
accumulated deficit raise substantial doubt about the entity's ability to
continue as a going concern. Management's plans in regard to these matters are
also described in Note 1. The consolidated financial statements do not include
any adjustments relating to the recoverability and classification of reported
asset amounts or the amounts and classification of liabilities that might result
from the outcome of this uncertainty.
/S Keith J. Rosen
Keith J. Rosen
Certified Public Accountant
Sherman Oaks, California
April 14, 1997
F-1
<PAGE>
VANDERBILT GOLD CORPORATION
CONSOLIDATED BALANCE SHEETS
DECEMBER 31, 1996 AND 1995
IN THOUSANDS DECEMBER 31,
1996 1995
----- -----
ASSETS
------
Current Assets
Cash and cash equivalents $ 8 $ 1
Accounts receivable - Trade 2 2
Employee advances receivable 35 23
Due from related parties 1 -
Inventories 837 837
Prepaid and other assets 11 6
-------- --------
Total Current Assets 894 869
-------- --------
Property, Plant and Equipment 2,677 2,607
-------- --------
Total Assets $ 3,571 $ 3,476
-------- --------
-------- --------
LIABILITIES AND EQUITY
Current Liabilities
Accounts payable $ 1,300 $ 1,202
Accrued expenses 136 171
Accounts payable - Related parties 158 67
Accrued payroll 547 505
Notes payable - Other 3 123
Deferred revenue - Gold sales 95 95
Gold loan payable 38 38
-------- --------
Total Current Liabilities 2,277 2,201
-------- --------
Long Term Liabilities 45 45
-------- --------
Stockholder's Equity 1249 1,230
-------- --------
Total Liabilities and Equity $ 3,571 $ 3,476
-------- --------
-------- --------
The accompanying notes are an integral part of the consolidated financial
statements.
F-2
<PAGE>
VANDERBILT GOLD CORPORATION
Consolidated Statements of Operations
For the years ended December 31, 1996, 1995 and 1994
IN THOUSANDS (EXCEPT SHARE AMOUNTS)
1996 1995 1994
--------- ------ -----
Revenue from Sales:
Bullion sales $ - $ 29 $ 14
Other revenue 36 - -
------ ------ ------
Total Revenue from Sales 36 29 14
------ ------ ------
Mining Expenses:
Mine maintenance costs 31 153 215
Depreciation, depletion
and amortization 67 59 59
Exploration costs 16 177 51
------ ------ ------
Total Mining Expenses 114 389 325
General & Administrative 329 320 397
------ ------ ------
Total Expenses 443 709 722
------ ------ ------
(Loss) From Operation (407) (680) (708)
------ ------ ------
Other Income and Expense:
Dividend income - 1 1
Interest expense (1) (10) (37)
Debt Cancellation income 56 52 11
Gain (loss) fixed assets - - (1)
Gain on joint venture sale - - 25
------ ------ ------
Total Other Income and Expense 55 43 (1)
------ ------ ------
Net (loss) $ (352) $ (637) $ (709)
------ ------ ------
------ ------ ------
Net (loss) per share $(0.01) $(0.03) $(0.03)
------ ------ ------
------ ------ ------
Weighted average shares
outstanding 34,072 29,253 25,128
------ ------ ------
------ ------ ------
The accompanying notes are an integral part of the consolidated financial
statements.
F-3
<PAGE>
VANDERBILT GOLD CORPORATION
CONSOLIDATED STATEMENTS OF SHAREHOLDERS' EQUITY
FOR THE YEARS ENDED DECEMBER 31, 1996, 1995, AND 1994
<TABLE>
<CAPTION>
IN THOUSANDS (EXCEPT SHARE AMOUNTS)
COMMON STOCK PREFERRED OTHER ACCUMULATED
------------
SHARES AMOUNT STOCK CAPITAL DEFICIT TOTAL
------ ------ ----- ------- ------- -----
<S> <C> <C> <C> <C> <C> <C>
Balances, December 31, 1993 23,558 $ 235 $ 148 $ 23,682 $ (22,709) $ 1,356
Net loss - - - - (709) (709)
Sale of shares 3,072 31 - 384 - 415
Conversion of preferred shares 967 10 (148) 138 - -
Common stock subscriptions - - - 133 - 133
Common stock for services 1,159 11 - 175 - 186
Settlement of debt 220 3 - 32 - 35
-------- --------- --------- --------- ---------- ---------
Balances, December 31, 1994 28,976 290 - 24,544 (23,418) 1,416
Net loss (637) (637)
Sale of shares 1,317 13 - 183 196
Subscribed shares issued (128) (128)
Common stock subscriptions 45 45
Common stock for property 1,800 18 - 320 - 338
-------- --------- --------- --------- ---------- ---------
Balances, December 31, 1995 32,093 321 - 24,964 (24,055) 1,230
Net loss - - - - (527) (527)
Sale of shares 1,057 11 - 106 - 117
Subscribed shares issued - - - (45) - (45)
Common stock subscriptions - - - 105 - 105
Common stock for services 431 4 - 59 - 63
Common stock for property 700 7 - 124 - 131
-------- --------- --------- --------- ---------- ---------
Balances, December 31, 1996 34,281 $ 343 $ - $ 25,313 $ (24,407) $1249
-------- --------- --------- --------- ---------- ---------
-------- --------- --------- --------- ---------- ---------
</TABLE>
The accompanying notes are an integral part of the consolidated financial
statements.
F-4
<PAGE>
VANDERBILT GOLD CORPORATION
CONSOLIDATED STATEMENTS OF CASH FLOWS
FOR THE YEARS ENDED DECEMBER 31, 1996, 1995, AND 1994
IN THOUSANDS 1996 1995 1994
------ ------ -----
OPERATING ACTIVITIES:
Net (Loss) $ (352) $ (637) $ (709)
Reconciliation to net cash
provided (used) for operating
activities:
Depreciation, depletion and
amortization 66 63 63
Cancellation of debt - - (11)
Accrued reclamation costs - - (2)
Loss on disposal of
fixed assets - - 1
Deferred sales - - 13
Common shares issued for
expenses 63 - 60
Effect of changes in working
capital items:
Receivable - trade - 84 (86)
Receivable - related parties (13) - (17)
Inventories - 30 (16)
Prepaid and other assets (5) (1) 2
Accounts payable and
accrued liabilities 76 279 373
------- ------ ------
Net cash used by operations (165) (182) (329)
------- ------ ------
INVESTING ACTIVITIES;
Additions to property,
plant and equipment (4) (421) (93)
Proceeds from asset sales - - -
------- ------ ------
Net cash used for investing
activities (4) (421) (93)
------- ------ ------
FINANCING ACTIVITIES
Proceeds from sale of stock 176 114 548
Borrowings - - 10
Debt repayment - - (14)
Related parties payable
- decrease - - (5)
------- ------ ------
Net cash provided by
financing activities 176 114 539
------- ------ ------
NET INCREASE (DECREASE) IN
CASH AND EQUIVALENTS 7 (152) 117
CASH AND EQUIVALENTS,
BEGINNING OF PERIOD 1 153 36
------- ------ ------
CASH AND EQUIVALENTS,
END OF PERIOD $ 8 $ 1 $ 153
------- ------ ------
------- ------ ------
Interest paid 1 - 1
Payment of payable with stock - - 163
Purchase mineral property
with stock 131,250 1,800 -
Payment of note payable
with stock - - 10
The accompanying notes are an integral part of the consolidated financial
statements.
F-5
<PAGE>
VANDERBILT GOLD CORPORATION
NOTES TO FINANCIAL STATEMENTS
1. GENERAL
Vanderbilt Gold Corporation ("VGC" or the "Company") is a gold exploration and
development company based in Las Vegas, Nevada, with properties in California
and Mexico. The property in California has been placed on stand by and the
properties in Mexico are awaiting development and/or exploration. The emphasis
of the Company has been on developing its properties in Mexico and reopening its
Morning Star Mine in California.
The Company's consolidated financial statements have been prepared on the going
concern basis which contemplates the realization of assets and the satisfaction
of liabilities in the normal course of business. The Company's continued
existence is dependent upon its ability to achieve profitable operations,
reduce its accounts payable and accrued expenses, realize its investment in
inventories and to obtain additional financing. Accordingly, the consolidated
financial statements do not include any adjustments relating to the overall
recoverability and classification of recorded asset amounts or the amount and
classification of liabilities or any other adjustments that might be necessary
should the Company be unable to continue as a going concern in its present form.
2. SIGNIFICANT ACCOUNTING POLICIES
The Company's consolidated financial statements have been prepared in conformity
with generally accepted accounting principles, which require management to make
estimates and assumptions that affect the reported amounts of assets and
liabilities and disclosures at the date of the consolidated financial statements
and the reported amounts of revenues and expenses during the reporting period.
Actual results could differ from those estimates. A summary of the Company's
significant accounting policies follows:
Consolidation
The consolidated financial statements include the Company, its subsidiaries and
their undivided interests in joint ventures after elimination of inter-company
accounts. Undivided interests in joint ventures are reported using pro-rata
consolidation which includes the Company's proportionate share of assets,
liabilities, income and expenses. Investments in less than fifty percent owned
entities over which the Company exercises significant influence are reported
using the equity method of accounting.
Inventories
Inventories of ores (on the heap leach pad) and precious metals in process are
valued at the lower of average cost or market. Ore inventories include direct
production costs, allocable operating overhead and allocable depreciation and
amortization. Materials and supplies are stated at the lower of cost, using the
first-in, first-out method, or market.
Mineral Properties and Mine Development Costs
Mineral property acquisition costs are capitalized. Mine development costs,
including those incurred in advance of commercial production and those incurred
to expand capacity of existing mines, are capitalized. Mine development costs
incurred to maintain production at existing mines are expensed as incurred.
Depletion and amortization related to capitalized mineral properties and mine
development costs is computed using the units-of-production method based on
proven and probable reserves.
F-6
<PAGE>
VANDERBILT GOLD CORPORATION
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
Plant, Equipment, and Capitalized Interest
Plant, equipment, and capitalized interest are recorded at cost. Depreciation
of plant and equipment is computed using straight-line over the estimated lives
of the assets (three to ten year.) Costs of normal maintenance and repairs are
expensed as incurred.
Exploration Costs
Exploration costs and costs of carrying and retaining undeveloped properties are
charged against income as incurred.
Reclamation Costs
Costs expected to be incurred for reclamation are estimated using current
environmental and regulatory requirements and are expensed over the estimated
life of the property, principally using the units-of-production.
Accounting for Income Taxes
The Company uses an asset and liability approach for financial accounting and
reporting for income taxes. If the required accounting results in a net
deferred asset, some or all of which may not be realized, the Company
establishes a valuation allowance to reduce the net asset.
Property Evaluation
Recoverability of investments in mineral properties and related plant and
equipment is periodically evaluated. The Company evaluates operating properties
utilizing estimated future cash flows from proven and probable reserves based on
current and projected estimates of production and reclamation costs and metals
prices, and capital requirements. Evaluation of non-operating properties
incorporates the use of estimates of expected development costs, costs to hold
the property, future capital cost estimates to bring the property into
production and expected production costs and metals prices. Future costs and
metals prices are estimated using historical and current information as a basis
for the projections. Investments in mineral properties in excess of expected
future net cash flows that are deemed to be other than temporary are written off
when that determination is made. Properties which have not been explored or
evaluated sufficiently to determine whether development of the property, a
write-down is recorded to reflect management's best estimate of the net
realizable value of the assets and an accrual for estimated reclamation and
closure costs is recorded.
Cash Equivalents
Cash equivalents include all highly liquid investments with a maturity of three
months or less at the date of purchase.
Deferred Financing Costs
Costs incurred in obtaining financing through the issuance of promissory notes
are amortized and expensed over the life of the note. The unamortized portion
of deferred financing costs for convertible promissory notes that are converted
into common stock are charged to contributed capital. Costs incurred to issue
common stock through private placements are charged to other capital.
F-7
<PAGE>
VANDERBILT GOLD CORPORATION
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
Foreign Currency
The US dollar is the Company's functional and reporting currency. All
significant transactions of foreign subsidiaries are recorded in US dollars and
accordingly, the resulting foreign exchange gains and losses, if any, are
immaterial.
Net Income (Loss) Per Share
The number of shares used to calculate per share information for the periods
presented are based on the weighted average number of common shares and common
share equivalents outstanding during each period.
Reclassifications
Certain amounts in the consolidated financial statements for prior periods have
been reclassified to conform to the current period financial statement
presentation. Such reclassifications have had no impact on the amount of net
loss(es) reported.
3. RELATED PARTY TRANSACTIONS:
The Company entered into a Gold Loan in November, 1990 with Brenda, Inc. It
borrowed 653 ounces of gold which were simultaneously sold at $383.10 per ounce
and the Company received the proceeds of $250,164.30. Under the terms of the
Loan Agreement and the related Security Agreement, the loan bears interest,
payable monthly, of 3.53% per annum on the outstanding dollar value of the
unpaid gold ounces computed daily using the London afternoon fixing price. The
Loan Agreement provides for repayment by the Company delivering 100 ounces of
gold to Brenda Inc. each month from January to April, 1991, 125 ounces in May,
1991, and 128 ounces in June, 1991. Virtually all of the Company's assets are
pledged as collateral for this loan under the Security Agreement until the loan
is paid in full. At December 31, 1994, 1993 and 1992, 100 ounces remained
undelivered. The President engaged in financial transactions with the Company
during 1995, 1994 and 1993. Following is a summary of the financial
transactions between the Company and this related party:
1995 1994 1993
----------- ---------- ----------
Loan balance, beginning of year $ (17,000) $ 5,000 $ 74,000
Additional loans during the year - 21,000 6,000
Transfer of accounts payable balance 17,000 - 2,000
Expense reports submitted - 3,000 9,000
Cash repayments - (46,000) (26,000)
Exercise of employee stock options - - (12,000)
Repayment of loan with Series A
Preferred Stock - - (48,000)
Repayment of loan with Common Stock - - -
---------- --------- ---------
Loan (Receivable) balance, end of year $ 0 $ (17,000) $ 5,000
---------- --------- ---------
---------- --------- ---------
F-8
<PAGE>
VANDERBILT GOLD CORPORATION
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
4. PROPERTY, PLANT, EQUIPMENT AND MINING PROPERTIES - NET:
Property, plant, equipment and mining properties, accumulated depreciation and
amortization and range of estimated lives as of December 31, 1996 and 1995 are
as follows (in thousands):
Lives 1996 1995
----- -------- --------
Units of
Mining properties production $ 8,631 $ 8,501
Plant and equipment 5-10 1,086 1,080
-------- --------
9,717 9,581
Less: Accumulated depreciation and amortization 7,040 6,974
-------- --------
Net property, plant and equipment $ 2,677 $ 2,607
-------- --------
-------- --------
5.INVENTORIES:
Inventories at December 31, consist of the following (in thousands):
1996 $ 1995
------ -------
Ore (on Heap Leach Pad and in process) 835 835
Materials and supplies 2 2
------ -------
Total $ 837 $ 837
------ -------
------ -------
Management believes that 2,372 ounces of gold remains in the heap leach pad at
December 31, 1996 and that they are recoverable over a several year period,
depending upon the level of mine and refinery operations.
5. INCOME TAXES:
The Company adopted the provisions of Statement of Financial Accounting
Standards ("SFAS") No. 109 effective January 1, 1993. Adoption of SFAS No. 109
had no material impact upon the financial statements of the Company. The
Company has no computable material timing differences for any items of income or
deductions for 1995, 1994 or 1993 which could give rise to any material deferred
income taxes. The Company has available at December 31, 1995, estimated federal
net operating loss carry forwards of approximately $13,000,000 which expire in
varying amounts between 1997 and 2010. It also has net investment tax credits
of $23,000 which expire in varying amounts between the years 1995 and 2004. A
write off of the Mine Lease Intangible in the amount of $6,154,000 which the
Company recorded in 1990 is not a deduction for income tax purposes until the
Company has ceased operations at, disposed of the Morning Star Mine or recorded
amortization for tax purposes which fully expenses the remaining balance.
F-9
<PAGE>
VANDERBILT GOLD CORPORATION
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
6. RENTAL EXPENSE AND LEASE COMMITMENTS:
Morning Star Mine
The Company leases six unpatented lode mining claims from unrelated parties.
The lease commenced on October 24, 1973, and was scheduled to expire in October
of 1993; however, the lease provides that it will continue so long as the lessee
is conducting exploration, development or mining operations on the property.
The Company is obligated to pay a monthly royalty equal to the greater of $1,000
or 5% of the net smelter receipts. The Company was obligated for the payment of
royalties of $12,000 for each of 1996,1995, 1994 and 1993. Vanderbilt may
cancel this lease at its option.
Office Lease
The Company rents its principal offices on Wynn Road in Las Vegas, Nevada, on a
month to month basis at $770 per month, with the last month's rent prepaid.
7. STOCK OPTIONS:
Incentive Stock Option Plans:
At the Annual Meeting of Stockholders held on June 6, 1989, the Stockholders
approved the Company's 1989 Stock Option Plan. This plan provides for the
discretionary grant of up to 500,000 shares of the Company's common stock as
incentive stock options to officers and other key employees and for the
automatic grant of certain non-qualified stock options to non-employee
directors. At the Annual Meeting of Shareholders held on June 16, 1994, the
Stockholders approved amending the 1989 Stock Option Plan to authorize the
eligibility of certain consultants to be granted options and to increase the
number of shares available for grant under the Plan from 500,000 to 1,000,000
shares of Common Stock. The 1989 Stock Option Plan transactions during 1996,
1995 and 1994 are shown below:
Number of Shares 1996 1995 1994
---- ---- ----
Balance at January 1: 495,000 725,000 102,000
Authorized increase in shares - 500,000
Options granted 20,000 100,000 645,000
Options exercised - -
Average price - -
Options lapsed or terminated - 330,000 22,000
At December 31:
Options outstanding 515,000 495,000 725,000
Average price $ 0.16 $ 0.23 $ 0.25
Options available for grant 485,000 505,000 275,000
Outstanding options in the amount of 395,000 expire in 1999, 100,000 expire in
2000 and 20,000 in 2001..
F-10
<PAGE>
VANDERBILT GOLD CORPORATION
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
8. FINANCIAL INSTRUMENTS
The carrying and fair value of the Company's financial instruments at December
31, 1995 were as follows:
Carrying Value Fair Value
-------------- ----------
Cash equivalents $ 8 $ 8
Receivable $38 $38
Long-term debt $45 $45
9. DEFERRED REVENUE - GOLD SALES:
The Company entered into forward gold sale arrangements with four parties
between June and August, 1990. Under the arrangements, the company agreed to
deliver a total of 900 ounces of gold on varying delivery dates commencing in
December, 1990 through March, 1991. The Company received a total of $266,500
(average price per ounce $296.11) in cash proceeds at the time the contracts
were entered into. Between October, 1991 and April, 1994, three of the parties
agreed to accept common shares as payment in lieu of gold delivery. As part of
the debt restructuring in 1994, $25,000 (85 ounces) of these contracts was
settled with 156,875 common shares (at $0.16 per share). As a part of the debt
restructuring in 1993, the Company was able to settle $118,000 of these
contracts (400 ounces) for 933,000 shares of common stock at $0.16 per share.
During 1994, the Company entered into a gold contract with an unrelated party
wherein the Company sold 166.66 ounces of gold at $300.00 per ounce under a
delivery schedule projected to commence in November 1994 and conclude by
November 1995. The Company guaranteed the buyer a minimum 10% return should the
price of gold at the dates of delivery be below $330.00 per ounce. The Company
received $50,000 in proceeds at the effective date of the contract. This
contract has been extended until November 1997.
10. PREFERRED STOCK:
On December 30, 1993, the Board of Directors by written consent authorized the
Company to issue 9,670 shares of Series A Preferred Stock. 100,000 shares of
the authorized 5,000,000 shares of preferred stock was designated that date by
the Board of Directors as Series A Preferred Stock. This Series A Preferred
Stock is not entitled to receive dividends, has a $1.00 per share preference
upon liquidation, has the right to share ratably with others entitled to
liquidation preferences, and has voting rights equal to the number of common
shares into which the preferred could be converted. Each share of the Series A
Preferred Stock is convertible into 100 shares of common stock; except that in
the event of a change of control each Series A preferred share shall be
convertible into 1,000 shares of common stock. For this purpose, a change of
control of the Company not approved by at least 75% of the directors prior to
such change of control, includes the acquisition by a single holder or a group
acting in concert, of such number of shares of common stock or other securities
of the Company so as to permit the holder or affiliated holders to cause the
election of at least one-third of the directors of the Company. The Company had
the option to convert the Series A Preferred Stock into common shares at any
time up to and including December 31, 1994; thereafter the holder(s) of such
preferred shares have the right to require conversion. 6,670 shares at $14.99
per share of the Series A Preferred Stock were issued December 30, 1993 in
payment of $100,000 of accounts payable to an unrelated party and 3,000 shares
at $16.00 per share were issued to the Chairman of the Board and President in
payment of $48,000 which he had loaned to the Company. On October 10, 1994, the
Board of Directors exercised the conversion right and all of the Series A
Preferred Stock was converted into common stock.
F-11
<PAGE>
VANDERBILT GOLD CORPORATION
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
11. CONTINGENCIES:
In September and October, 1992, a misdemeanor jury trial was held in San
Bernardino County (California) Municipal Court, which resulted in ten guilty
verdicts against Vanderbilt and ten guilty verdicts against its President, Mr.
John F. Jordan, Jr., for environmental violations. These verdicts resulted in
fines totaling $90,000 for each (grand total $180,000). The Company and Mr.
Jordan have filed an appeal to an Appellate Panel in the Superior Court of San
Bernardino County against each of the ten misdemeanor convictions. It would be
premature to attempt to predict the eventual outcome of the Company's appeal.
A provision for the Company's fine was recorded in the 1992 financial
statements. In April, 1993, the Bureau of Land Management (BLM) served
Vanderbilt with a request that the Morning Star Mine "Plan of Operation" be
amended. A "Plan of Operation" filed with the BLM is, in effect, a permit to
operate the mine which is located on public land. Vanderbilt has filed a
"Revised Plan of Operation" to the BLM pursuant to their request. Like other
companies, Vanderbilt is subject to the existing and evolving standards relating
to the protection of the environment. It has established a reserve for
reclamation for those costs it can estimate that it will probably incur when the
operations at the Mine finally cease. However, Vanderbilt is subject to
contingencies as a result of changing environmental laws and regulations. The
related future cost is indeterminable due to such factors as the unknown timing
and extent of corrective actions which may be required and due to the
application of joint and several liability. Vanderbilt believes that those
costs will not have a material adverse effect on its operations or financial
position.
In January, 1995, the Company entered into an agreement with Rosarence wherein
the Company will fund certain development and exploration activities to be
performed by Rosarence on a 67,000 acre concession, known as La Sierra, located
near Palmar, State of Durango, Mexico. In September, 1995, the Company
exercised its option to acquire the concession, and all of the outstanding
shares of Rosarence. All payments, which consisted of 1.8 million common shares
of Vanderbilt plus $200,000, have been made with the exception of one quarterly
payment of $30,000, which is due. The shares of Vanderbilt must be traded at a
price equal to $1.00 (median of Bid and Ask quotes) for a 15 day period by March
31, 1997 or the difference between the actual traded price and $1.00 will be
paid by the Company in either cash or stock with a value equal to the
difference. The manner of payment is at the discretion of the former owners of
Rosarence. The amount of any future payments, if any, are not determinable at
this time.
On December 22, 1995 Vanderbilt entered into a joint venture with Cosalteca,
Guardian and Viscount relating to Cosalteca's 12,000 acre Las Coloradas
concession group in the Sierra Madre mining district. The agreement requires
Vanderbilt to issue to Cosalteca 700,000 common shares as its initial
contribution to earn a 17.15% interest in the joint venture. The company holds
an option to increase its interest to at least 42.65%. The shares of Vanderbilt
must be traded at a price equal to $1.00 (median of Bid and Ask quotes) for a 15
day period by February 22, 1997 or the difference between the actual traded
price and $1.00 will be paid by the Company in either cash or stock with a value
equal to the difference. The manner of payment is at the discretion Cosalteca.
The amount of any future payments, if any, are not determinable at this time.
F-12
<PAGE>
VANDERBILT GOLD CORPORATION
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
12. SUPPLEMENTARY MINERAL RESERVE INFORMATION (UNAUDITED):
An ore reserve report was prepared by independent geotechnical consultants,
Exploration & Development Associates, Inc. and Geomath, Inc. based upon data
developed from drilling performed between 1984 and 1987. As of December 1995,
the proven reserves consisted of 3,517,617 tons of ore averaging .058 ounces of
gold per ton; proven and probable reserves consisted of 6,455,617 tons of .048
ounces of gold per ton or ore. A proposed modification to the recovery
facilities will be sufficient to produce between 1,000 and 2,000 ounces of gold
per month when the equipment and modifications are completed and placed in
service.
F-13
<PAGE>
ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND
FINANCIAL DISCLOSURE
None.
PART III
ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE COMPANY
The following table sets forth certain information about the executive officers
and directors of Vanderbilt as of December 31, 1994:
Name Age Position with Vanderbilt
- ---- --- ------------------------
Tom D. Scott 67 Chairman of the Board of Directors since June
1994; President and Chairman of the Board of
Directors form 1980-1987; Director 1971-1987,
1994- Present
Keith Fegert 34 President and Treasurer since July
1995;Director since 1994
Howard T. Urband 64 Vice President, Secretary, and Director; Vice
President since 1989; Secretary since 1990;
Director since 1989
Ted E. Slanker 77 Director since 1974
Barry L. Adams 34 Director since 1994
Tom D. Scott is a regional director of Document, Inc., a manufacturer of
electronic financial document delivery systems.
Howard T. Urband was President and director of Heavy Metals Development
Corporation, a former wholly-owned subsidiary of Vanderbilt Gold Corporation;
Vice President then President of Exploration & Development Associates, Inc.,
(mining consultants) from 1980-1988; Exploration Manager and Mine Geologist
since 1957.
Ted E. Slanker was a director of Heavy Metals Development Corporation, a former
wholly-owned subsidiary of Vanderbilt Gold Corporation until it became inactive
in 1991; manages his own investments.
Barry L. Adams is an attorney at law in private practice in California
specializing in environmental and solid waste issues, general business and real
estate law. He was formerly associated with the Environmental Department of the
Pacific Legal Foundation.
Keith W. Fegert former general manager of Target Construction Company and
SanRoc, Inc. (mining and construction contractors). Over thirteen years
experience in the mining industry as Operations Manager and Controller;
including experience in project financing, financial controls, and contract
negotiations.
<PAGE>
ITEM 11. EXECUTIVE COMPENSATION
The following table sets forth the cash compensation paid to the Company's
Executive Officers for the fiscal year ended December 31, 1995:
SUMMARY COMPENSATION TABLE
Name of Individual Compensated Year Capacities Served Cash Compensation
- ------------------------------ ---- ----------------- -----------------
Keith Fegert 1996 President and Chief $18,750
1995 Financial Officer $2,700
Howard T. Urband 1996 Vice President and $15,000
1995 Secretary $17,956
1994 $2,563
John F. Jordan, Jr. 1996 Former President and $0
1995 Chief Financial Officer $0
1994 $5,287
Mr. Fegert had no accrued salary for 1995.
Mr. Urband accrued $ 36,044.41 in salary for 1995.
Mr. Urband accrued $ 51,437 in salary for 1994.
Mr. Urband accrued $ 54,000 in salary for 1993.
Mr. Jordan accrued $ 44,100 in salary for 1994.
Mr. Jordan accrued $ 58,800 in salary for 1993.
The following table sets forth Company stock options that were granted during
1996 for each named executive.
<TABLE>
<CAPTION>
OPTION/SAR GRANTS IN LAST FISCAL YEAR
INDIVIDUAL GRANTS
-------------------------------------
POTENTIAL REALIZABLE
NUMBER OF % OF TOTAL VALUE AT ASSUMED
SECURITIES OPTIONS/ ANNUAL RATES OF
UNDERLYING SARS STOCK PRICE
OPTION/ GRANTED TO EXERCISE APPRECIATION FOR
SARS EMPLOYEES OR BASE OPTION TERM *
GRANTED IN FISCAL PRICE EXPIRATION
NAME (#) YEAR ($/SH) DATE 5% 10%
- ---- ---------- ---------- -------- ---------- -----------------------
<S> <C> <C> <C> <C> <C> <C>
Barry L. Adams 5,000 5 0.16 6/30/01 $ 1,022 $ 1,288
Ted Slanker 5,000 5 0.16 6/30/01 $ 1,022 $ 1,288
Tom D. Scott 5,000 5 0.16 6/30/01 $ 1,022 $ 1,288
Bernard Brynelsen 5,000 5 0.16 6/30/01 $ 1,022 $ 1,288
</TABLE>
* The dollar amounts under these columns are the result of calculations at 5%
and 10% compounded annual rates as set by the Securities and Exchange
Commission, and therefore are not intended to forecast future appreciation, if
any, in the price of the Company's common stock. The potential realizable
values illustrated at 5% and 10% compound annual appreciation assume that the
price of the Company's common
<PAGE>
The following table sets forth Company Stock Options data including options
exercised during 1996 for each named executive:
<TABLE>
<CAPTION>
AGGREGATED OPTION/SAR EXERCISES IN LAST YEAR AND YEAR- END OPTION SAR/VALUES
(c) (d) (e)
NUMBER OF
SECURITIES VALUE OF
UNDERLYING UNEXERCISED IN-
UNEXERCISED THE-MONEY
OPTION/SARS AT OPTIONS/SARS AT
FY-END (#) FY-END ($)
SHARES ACQUIRED VALUE REALIZED EXERCISABLE/ EXERCISABLE/
NAME ON EXERCISE (#) ($) UNEXERCISABLE UNEXERCISABLE
- ---- --------------- -------------- -------------- ---------------
<S> <C> <C> <C> <C>
none none none none none
</TABLE>
Notes to table:
Exercise price of $.16; market price at December 31, 1996 $.13 (last trade of
1996).
Does not include any options not covered by the 1989 Stock Option Plan.
None of the Company's options were in-the-money as of December 31, 1996.
<PAGE>
ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT
The following table sets forth as of December 31, 1996 certain information
concerning the ownership of shares of common stock of the Company by (I) each
person who is known by the Company to own of record or beneficially 5% or more
of the common stock of the Company, (ii) each director of the Company and (iii)
all officers and directors of the Company as a group. As of such date,
32,093,135 shares were issued and outstanding.
All shareholders listed below have sole voting and investment power with respect
to their shares except as otherwise noted.
NAME AND ADDRESS OF AMOUNT AND NATURE OF
BENEFICIAL OWNER BENEFICIAL OWNERSHIP PERCENT OF CLASS
- ---------------- -------------------- ----------------
Target Construction Inc. 3,852,500 11.2
Holcomb Avenue, #100
Reno, NV 89509
Mother Lode Mining Co., LLC. 1,600,000 5.0
Gamble Oak Circle
Sandy, UT 84092
Compania Minera Rosarence S A De C V 1,800,000 5.3
Carratera Culiacan-Eldorado KM 0.600
Interior 3
Culiacan, Sinaloa, Mexico
Keith W. Fegert 4,463,382(1) 13.0
Barry L. Adams 817,851(2) 2.4
John F. Jordan, Jr. 149,500(3) *
Howard T. Urband 233,000(4) *
Tom D. Scott 306,613(5) *
Ted E. Slanker 112,466(6) *
Bernard O. Brynelsen 62,036(6) *
All officers and Directors (7 Persons) 6,144,848(1)(2)(3)(4)(5)(6) 17.9
(1) Mr. Fegert disclaims beneficial ownership of 3,526,691 shares. The total
shown above includes 10,000 shares to be issued upon the exercise of stock
options.
(2) Mr. Adams disclaims beneficial ownership of 576,691shares. The total shown
above includes 15,000 shares to be issued upon the exercise of stock options.
(3) Mr. Jordan shares are held by the Jordan Family Trust.
(4) Includes 225,000 shares issuable upon the exercise of stock options.
(5) Mr. Scott disclaims beneficial ownership of 70,569 shares. The total shown
above includes 15,000 shares to be issued upon the exercise of stock options.
(6) Includes 15,000 shares to be issued upon the exercise of stock options.
* Less than 1%.
The certificate of incorporation of the Company provides for a classified board
of directors. The board is divided into three classes, designated Class I,
Class II, and Class III. The directors in Classes I, II, and III were elected
to hold office until the annual meetings of shareholders in 1995, 1996 and 1997,
respectively.
<PAGE>
NONQUALIFIED STOCK OPTION PLAN
On March 27, 1987, the shareholders approved the 1986 Nonqualified Stock Option
Plan (the "Non-Qualified Plan") under which directors and full-time key
employees of the Company and its subsidiaries were eligible to receive non-
qualified options to purchase shares of Common Stock at an exercise price not
less than 100% of the fair market value of the Common Stock on the date of the
option grant and with a term not exceeding ten years. In 1989, the Board of
Directors resolved that notwithstanding the terms of the Nonqualified Plan, no
non-employee directors of the Company or its subsidiaries will be eligible to
participate under the Nonqualified Plan. The administrators of the Nonqualified
Plan determined in their sole discretion which officers and other key employees
of the Company and its subsidiaries should be granted options under the
Nonqualified Plan. A registration statement on Form S-8 was filed with the
Securities and Exchange Commission covering the 500,000 shares of Common Stock
reserved for issuance under the Nonqualified Plan, and the registration
statement became effective September 11, 1987. As of December 31, 1993, there
were no outstanding unexercised options under the Nonqualified Plan. The
Nonqualified Plan was terminated by the Board Of Directors on April 20, 1994.
STOCK OPTION PLAN
On June 6, 1989, the stockholders of the Company approved the 1989 Stock Option
Plan (the "1989 Plan") under which full-time officers and key employees of the
Company and its subsidiaries are eligible to receive either incentive stock
options or nonqualified stock options to purchase shares of Common Stock with
terms not exceeding ten years. In addition, the 1989 Plan provides for the
automatic grant of non-qualified options to non-employee directors ("Director
Option"). All options are granted at exercise prices of not less that 100% of
the fair market value of the Common Stock on the date of the grant. A director
Option to purchase 5,000 shares (subject to adjustment as provided in the 1989
Plan) shall be granted to each non-employee director automatically as of the
last trading day in June immediately following the date of his or her election
or reelection through 1998, as the case may be, to the Board of Directors.
A Director Option to purchase 2,500 shares (subject to adjustment as provided in
the 1989 Plan) shall be granted automatically to each non-employee director on
the last trading day in each June through 1998, except that a non-employee
director will not be entitled to receive such annual grant to purchase 2,500
shares in any year during which he or she was elected or reelected, as the case
my be, to the Board of Directors and received a Director Option to purchase
5,000 shares as described above. The administrators of the 1989 Plan determine
in their sole discretion which officers and other key employees of the Company
and its subsidiaries should be granted option under the 1989 Plan.
A registration statement on Form S-8 was filed with the Securities and Exchange
Commission covering the 500,000 shares of Common Stock reserved for issuance
under the 1989 Plan, and the registration statement became effective on June 29,
1989.
At the annual stockholders' meeting held June 16, 1994, the stockholders
approved amendments to the 1989 Stock Option Plan which authorized the
eligibility of certain consultants to be granted options under the Plan as may
be approved by the Board of Directors and authorized and increase in the number
of shares available for grant under the Plan from 500,000 to 1,000,000 shares of
Common Stock.
As of December 31, 1995, options to purchase 495,000 shares of Common Stock were
outstanding. During 1995 options to purchase 100,000 shares were granted and
options to purchase 330,000 shares lapsed.
<PAGE>
PREFERRED STOCK
On December 30, 1993, the Board of Directors designated 100,000 shares of the
Company's 5,000,000 authorized shares of Preferred Stock as Series A Preferred
Stock (the "Preferred Stock"). This Preferred Stock is not entitled to receive
dividends, has a liquidation preference of $1.00 per share, has the right to
share ratable with other shares entitled to liquidation preferences, and has
voting rights equal to the number of shares of common stock into which it is
convertible. Each share of preferred stock is convertible into 100 shares of
common stock, provided that in the event of a change of control each share of
Preferred Stock shall be convertible into 1,000 shares of common stock. Change
of control means a change of control of the Company not approved by at least 75%
of the directors prior to such change of control and includes the acquisition by
a single holder or a group acting in concert of such number of share of common
stock or other securities of the Company as to permit the holder or affiliated
holders to cause the election of a least one third of the directors of the
Company.
The Preferred Stock is convertible at the option of the Company until December
21, 1994 and thereafter is convertible at the option of the holders thereof. On
December 31, 1993, the directors authorized the issuance of 9,679 shares of
Preferred Stock including 3,000 shares of Preferred Stock issued to John F.
Jordan, Jr., as trustee of the Jordan Family Trust, in consideration for the
cancellation of debt in the amount of $48,000 which Mr. Jordan had loaned to the
Company. During 1994, the Board of Directors exercised its option to convert all
9,670 shares of the Preferred Stock into 967,000 shares of the Company's Common
Stock.
DIRECTOR COMPENSATION
The Company has agreed to pay its outside directors $500, plus expenses, for
each Board meeting attended. In addition, the outside (non-employee) directors
have been granted stock options as discussed above.
ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
The Company entered into a Gold Loan in November, 1990 with Brenda, Inc. It
borrowed 653 ounces of gold which were simultaneously sold at $383.10 per ounce
and the Company received the proceeds of $250,164,30. Under the terms of the
Loan Agreement and the related Security Agreement, the loan bears interest,
payable monthly, of 3.53% per annum on the outstanding dollar value of the
unpaid gold ounces computed daily using the London afternoon fixing price. The
Loan Agreement provides for repayment by the Company delivering 100 ounces of
gold to Brenda Inc. each month from January to April, 1991, 125 ounces in May,
1991, and 128 ounces in June, 1991. Virtually all of the Company's assets are
pledged as collateral for this loan under the Security Agreement until the loan
is paid in full. At December 31, 1995, 1994, and 1993, 100 ounces remained
undelivered. Bernard O. Brynelsen, a director of the Company, was the Chairman
of the Board of Directors of Brenda Mines Ltd., which is controlled by Brenda,
Inc.
<PAGE>
John F. Jordan, Jr.(Deceased), the former President and Chief Financial Office
of the Company, engaged in financial transactions with the Company during 1995,
1994, and 1993. Following is a summary of the financial transactions between
the Company and this related party:
1995 1994 1993
-------- -------- --------
Loan Balance, Beginning of Year (17,000) 5,000 74,000
Additional Loans During the Year 21,000 6,000
Transfer of Accounts Payable Balance 17,000 - 2,000
Expense Reports Submitted - 3,000 9,000
Cash Repayment - (46,000) (26,000)
Exercise of Employee Stock Options - - (12,000)
Repayment of Loan with Series A Preferred Stock - - (48,000)
Loan (Receivable) Balance, End of Year 0 (17,000) 5,00
Mr. Jordan loaned an aggregate of $134,000 (plus $11,000 of expenses and
transfer of payable) to the Company and its subsidiaries from January 1, 1990
through December 31, 1991; $19,000 was repaid through December 31, 1991, and
$24,875 was applied to the exercise of an employee stock option for 99,500
shares on December 9, 1991. This loan was at 12% interest per annum; $6,000 was
repaid by December 31, 1992 and the director received an option to acquire
48,000 shares of common stock (which expired unexercised on August 14, 1993) for
waiving interest on the loan. In exchange for waiving interest on his loans to
the Company, Mr. Jordan was granted a three year option in July, 1991, to
purchase 380,000 shares of common stock at $.25 each; this option expired
unexercised in July, 1994. On December 31, 1993, Mr. Jordan, as trustee of the
Jordan Family Trust, was issued 3,00 shares of Series A Preferred Stock in
consideration of his cancellation of $28,000 of debt owed by the Company to him
which was subsequently converted into 30,000 shares of Common Stock.
<PAGE>
PART IV
ITEM 14. EXHIBITS, FINANCIAL STATEMENTS SCHEDULES AND REPORTS ON FORM 8-K
(a) (1) Financial Statements
Refer to Part II, item 8
(2) Exhibits
Exhibit
No. Description of exhibit
None
21.1 Subsidiary of registrant
24.1 Consent of Keith J. Rosen, CPA
(b) Reports filed on Form 8-K
None
<PAGE>
SIGNATURES
Pursuant to the requirements of Section 13 or 15 (d) of the Securities Exchange
Act of 1934, the Company has duly caused this report to be signed on its behalf
by the undersigned, thereunto duly authorized on March 26, 1996.
VANDERBILT GOLD CORPORATION
(Company)
By: /S Keith Fegert.
Pursuant to the requirements of the Securities Exchange Act of 1934, this report
has been signed below by the following persons on behalf of the Company and in
the capacities and on the dates indicated.
DATED: 4/14/97 By: /S Keith Fegert.
Director, President and Chief Financial Officer
DATED: 4/14/97 By: /S Howard T. Urband
Vice President and Director
DATED: 4/14/97 By: /S Ted E. Slanker
Director
DATED: 4/14/97 By: /S Barry L. Adams
Director
DATED: 4/14/97 By: /S Tom D. Scott
Chairman of the Board and Director
<PAGE>
EXHIBIT 21.1
SUBSIDIARY OF REGISTRANT
STAR MINING CORPORATION, A NEVADA CORPORATION
<PAGE>
CONSENT OF INDEPENDENT CERTIFIED PUBLIC ACCOUNTANT
As an independent certified public accountant, I hereby consent to the inclusion
in Vanderbilt Gold Corporation's Annual Report on Form 10-K for the fiscal year
ended December 31, 1996, of my report dated April 14, 1997 on the consolidated
statement of operations, changes in shareholders' equity, and cash flows for the
three years then ended of Vanderbilt Gold Corporation and Subsidiaries.
/S Keith Rosen
4/14/97
<TABLE> <S> <C>
<PAGE>
<ARTICLE> 5
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> YEAR
<FISCAL-YEAR-END> DEC-31-1996
<PERIOD-END> DEC-31-1996
<CASH> 8
<SECURITIES> 0
<RECEIVABLES> 38
<ALLOWANCES> 0
<INVENTORY> 837
<CURRENT-ASSETS> 894
<PP&E> 9717
<DEPRECIATION> 7040
<TOTAL-ASSETS> 3571
<CURRENT-LIABILITIES> 2277
<BONDS> 0
343
0
<COMMON> 0
<OTHER-SE> 906
<TOTAL-LIABILITY-AND-EQUITY> 3571
<SALES> 36
<TOTAL-REVENUES> 36
<CGS> 114
<TOTAL-COSTS> 114
<OTHER-EXPENSES> 329
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 1
<INCOME-PRETAX> (352)
<INCOME-TAX> 0
<INCOME-CONTINUING> (352)
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (352)
<EPS-PRIMARY> (.01)
<EPS-DILUTED> (.01)
</TABLE>
