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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 April 14, 1998, based upon a price of $0.08 per share, the
average of the bid and ask quotations as of such date was $3,202,308. As of
April 14, 1998, there were 40,029,754 issued and outstanding shares of common
stock of the registrant.
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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 been the operator 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 agreed to 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 was converted to an "Exploitation
Concession" and reduced in size to about 32,000 acres. 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
provides 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. In March of
1997, the Company negotiated an agreement extending the March 31, 1997 deadline
date to March 31, 1998. The Company is currently negotiating with the owner
of Rosarence, Cosalteca SA de CV ("Cosalteca"), to eliminate the $1.00
provision in the agreement and to increase the Company's interest in
Cosalteca's properties. (See Item 2 Properties)
Vanderbilt also holds a 17.15% interest in a joint venture regarding
Cosalteca's 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 obtain 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 is currently negotiating
with Cosalteca to eliminate the $1.00 provision in the agreement and increase
its interest in the venture. 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 a 12,000-acre concession. A mill and ancillary infrastructure
exists on the property. A new shaft has been completed and is to be used as a
drilling station to locate additional ore shoots along the principle vein.
(See Item 2 Properties)
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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.
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 1997. The Company
entered into negotiations with Nevada Manhattan Mining, Inc. in the forth
quarter of 1997 to sell an interest in the Morning Star. The company is
currently negotiating with Nevada Manhattan Mining, Inc. and Nutek, Inc. to
sell an interest in the Mine.
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
acquisition of mineral rights on public lands, 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.
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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. During the rainy season in Mexico operations may be curtailed
due to the roads being flooded.
MAJOR CUSTOMERS
Vanderbilt has in the past 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.
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 nations.
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.
It appears that the mining and processing operations can proceed in accordance
with the Company's plans, as long as the Company maintains the permits it has
and acquires any additional necessary permits. 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. Consequently, there has been considerable legal and
consulting costs incurred.
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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 currently has a
cease and desist order issued on behalf of Water Board requiring Vanderbilt to
prepare and submit certain technical reports. Vanderbilt obtained an
independent consultant to prepare and submit these reports to the Water Board.
Vanderbilt's facilities at the mine site are being modified and leach pad No. 2
is being detoxified. 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.
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. Vanderbilt needs to renew this temporary permit prior
to operating at the mine. (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, an 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. The permit has
expired and a renewal may be required before operations are resumed.
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 resulted
in penalties of $90,000. This penalty has resulted in a judgment against the
Company. The Company is currently negotiating a payment schedule with San
Bernardino County.
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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 three (3) employees.
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
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 mineralized 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.
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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.
EXPLORATION CONCESSION - A grant from a governmental agency to explore a
specified area.
GOLD DEPOSIT - Means a mineral deposit mineralized with gold but without
reference to its potential economics.
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.
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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
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).
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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 according to design and dependent
on sufficient working capital to operate the mine
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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
on 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 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
shareholders of Rosarence. In 1997, the Company negotiated an agreement
extending the March 31, 1997 deadline date to March 31, 1998. The Company
is currently negotiating with the owners of Rosarence, Cosalteca SA de CV
("Cosalteca"), to eliminate the $1.00 provision in the agreement and increase
the Company's interest in Cosalteca's properties. (See Item 2 Properties)
LAS COLORADAS CONCESSIONS, STATE OF DURANGO, MEXICO
On December 22, 1995 Vanderbilt entered into a joint venture with Cosalteca,
Guardian Enterprises, Inc. and Consolidated Viscount Inc. 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 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. The Company is currently
negotiating with Cosalteca to eliminate the $1.00 provision in the agreement
and increase its interest in the mine.
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 has been completed and is to
be used as a drilling station to locate additional ore shoots along the
principle vein. (See Item 2 Properties)
At present, no data is available as to reserves for the La Sierra concession
or the Las Coloradas group of concessions, 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 $800.00 per month.
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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.
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 filed a petition for a writ of habeas corpus with the
Federal District Court, Central District of California. That Petition was
denied. The fines have been converted to a judgment. The Company is
currently negotiating a payment schedule with the County. 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).
<PAGE>
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, 1997.
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, 1997 and 1996.
<TABLE>
<CAPTION>
Years Ended December 31,
1997 High Low
<S> <C> <C>
First Quarter .1875 .1563
Second Quarter .1719 .0781
Third Quarter .1719 .0625
Fourth Quarter .1563 .0469
</TABLE>
<TABLE>
<CAPTION>
1996 High Low
<S> <C> <C>
First Quarter .2500 .1406
Second Quarter .3750 .1406
Third Quarter .2500 .1875
Fourth Quarter .2344 .0938
</TABLE>
As of December 31,1997 there were approximately 3300 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, 1997, 1996, 1995, 1994, and 1993 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,
1997 1996 1995 1994 1993
<S> <C> <C> <C> <C> <C>
Net sales on operating revenues - 29 14 61
Loss from continuing operations 842 407 680 708 420
Loss from continuing operations
per common share .02 .01 .02 .03 .03
Net loss 731 352 637 709 527
Net loss per common share .02 .01 .02 .03 .03
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 3385 3,571 3,476 3,292 3,028
Long term obligations 45 45 45 45 47
Working capital (deficit) (1565) (1383) (1,332) (698) (2,330)
Accumulated depreciation and
amortization 7106 7040 6974 6,910 6,860
Shareholders' equity (deficit) 1037 1249 1,230 1,416 1,356
</TABLE>
ITEM 7. MANAGEMENTS DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS
GENERAL COMMENTARY
In 1997 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, selling an interest in the Morning Star mine, 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 has 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 currently has an interest in a 32,000 acre La Sierra exploitation
concession in Durango, Mexico. The concession includes at least five high
grade but fairly thin gold vein systems, a large multi - vein quartz
tourmaline prospect known as El Rincon, and a very old 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 starting production on the Las Coloradas concession group. The
Company is currently negotiating with the owners of the concession to make
modifications to the agreement and extend the terms. If the Company is not
successful in these negotiations the Company may elect or be forced to
relinquish its interest in this property.
Vanderbilt also holds a 17.15% interest in Cosalteca's 12,000 acre Las
Coloradas concession group in the Sierra Madre mining district. These
holdings have been combined into a concession group covering 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. The Las Coloradas joint venture was formed in December of 1996 to
develop the mine and produce precious metals. One of the partners
contributed funds to implement a plan approved by the management committee of
the mine for operations. The plan was not successful in locating enough ore
to operate the mill on a continuous basis. The management committee is
currently in the process of developing a new plan to operate the mine. The
Company is currently negotiating with Cosalteca to increase its interest in
the mine and modify its agreement. If the Company is not successful in these
negotiations the Company may elect or be forced to relinquish its interest in
this property.
<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):
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
1997 1996 1995
<S> <C> <C> <C>
Overburden and waste removed (tons) 0 0 0
Ore Mined (tons) 0 0 0
Payable Gold (troy ounces):
Produced 0 0 0
Sold 0 0 77
Payable Silver (troy ounces):
Produced 0 0 0
Sold 0 0 0
Average Realization:
Gold (per payable ounce) 0 0 380
Silver ( per payable ounce) 0 0 0
Estimated troy ounces of recoverable gold
remaining on the heap leach pads 2372 2,372 2,372
Operating Loss 842 407 680
Net Loss 731 352 637
Net Cash Used in Operations 130 165 182
Net Cash (used in) Provided by Investing Activities (39) (4) 421
Net Cash Provided by Financing Activities 162 176 114
Loss per Common Share .02 .01 .02
Total Assets 3385 3,571 3,476
Total Liabilities 2303 2,322 2,246
Accumulated Deficit 25138 24,407 24,055
Shareholders' Equity 1037 1249 1,230
Working Capital Deficit 1565 (1383) 1,331
</TABLE>
*Metals recovered from the spent carbon removed from the recovery tanks.
During 1997, 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 1997 with a working capital deficit of
$1,565,000 as opposed to a year end deficit for 1996 of $1,383,000 and 1995
of $1,331,000. 1997 saw a decrease in overall cash flow of $7,000 as compared
to a cash flow increase of $7,000 for 1996 and a cash flow decrease of
$152,000 for 1995. The cash and cash equivalent balances at year end 1997 of
$8,000 as opposed to $8,000 at year end 1996 is a result of the Company's
lack of funding through operations or capital raising efforts.. During 1997
Vanderbilt was able to raise $162,000 as compared to $176,000 in 1996.
Current liabilities increased by $26,000 during 1997 due to increases in
accounts payable, accrued expenses and short-term borrowings.
The Company's continued existence and resumption of operations at the Morning
Star Mine and the continuation of evaluation, exploration and development of
other mineral properties, including the Las Coloradas joint venture and 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.
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
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.
The California Water Quality Control Board has issued a cease and desist
order regarding the Morning Star Mine requiring the Company to complete and
file reports relative to reclamation at the site. The Company has hired an
independent environmental consultant to prepare these reports.
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. 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.
A dispute exists as to whether additional operating plans are required to be
filed with 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 developmental plan did not locate
sufficient ore reserves to operate the mill on a consistent basis. The
management committee of the joint venture is in the process of developing a
plan to locate sufficient reserves.
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
<TABLE>
<CAPTION>
<S> <C>
Independent Auditor's Report F-1
Consolidated Balance Sheets at December 31, 1997 and 1996 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
</TABLE>
<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, 1997 and 1996, 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, 1997. 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, 1997 and 1996, and the results of
their operations and their cash flows for each of the three years in the period
ended December 31, 1997 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, 1998
F-1
<PAGE>
VANDERBILT GOLD CORPORATION
CONSOLIDATED BALANCE SHEETS
DECEMBER 31, 1997 AND 1996
<TABLE>
<CAPTION>
IN THOUSANDS DECEMBER 31,
1997 1996
-------- --------
ASSETS
------
<S> <C> <C>
Current Assets
Cash and cash equivalents $ 1 $ 8
Accounts receivable - Trade 2 2
Employee advances receivable 104 35
Due from related parties 1 1
Inventories 619 837
Prepaid and other assets 11 11
-------- --------
Total Current Assets 738 894
-------- --------
Property, Plant and Equipment 2,647 2,677
-------- --------
Total Assets $ 3,385 $ 3,571
======== ========
LIABILITIES AND EQUITY
----------------------
Current Liabilities
Accounts payable $ 1,319 $ 1,300
Accrued expenses 136 136
Accounts payable - Related parties 50 158
Accrued payroll 703 547
Notes payable - Other 12 3
Deferred revenue - Gold sales 45 95
Gold loan payable 38 38
-------- --------
Total Current Liabilities 2,303 2,277
-------- --------
Long Term Liabilities 45 45
-------- --------
Stockholder's Equity 1,037 1,249
-------- --------
Total Liabilities and Equity $ 3,385 $ 3,571
======== ========
</TABLE>
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, 1997, 1996 AND 1995
<TABLE>
<CAPTION>
IN THOUSANDS (EXCEPT SHARE AMOUNTS)
1997 1996 1995
------- ------- -------
<S> <C> <C> <C>
Revenue from Sales:
Bullion sales $ - $ - $ 29
Other revenue - 36 -
------- ------- -------
Total Revenue from Sales - 36 29
------- ------- -------
Mining Expenses:
Mine maintenance costs 257 31 153
Depreciation, depletion and amortization 66 67 59
Exploration costs 12 16 177
------- ------- -------
Total Mining Expenses 335 114 389
General & Administrative 507 329 320
------- ------- -------
Total Expenses 842 443 709
------- ------- -------
(Loss) From Operation (842) (407) (680)
------- ------- -------
Other Income and Expense:
Dividend income - - 1
Interest expense - (1) (10)
Debt Cancellation income 113 56 52
Gain (loss) fixed assets (2) - -
------- ------- -------
Total Other Income and Expense 111 55 43
Net (loss) $ (731) $ (352) $ (637)
======= ======= =======
Net (loss) per share $(0.02) $(0.01) $(0.03)
======= ======= =======
Weighted average shares outstanding 37,851 34,072 29,253
======= ======= =======
</TABLE>
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, 1997, 1996, AND 1995
<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, 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) 1,249
------- ------ ---- --------- ----------- ------
Net loss - - - - (731) (731)
Sale of shares 3,799 37 - 162 - 199
Subscribed shares issued - - - (316) - (316)
Common stock subscriptions - - - 279 - 279
Common stock for services 2,762 28 - 329 - 357
------- ------ ---- --------- ----------- ------
Balances, December 31, 1997 40,842 $ 408 $ - $ 25,767 $ (25,138) $1,037
======= ====== ==== ========= =========== ======
</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, 1997, 1996, AND 1995
<TABLE>
<CAPTION>
IN THOUSANDS 1997 1996 1995
-------- -------- --------
<S> <C> <C> <C>
OPERATING ACTIVITIES:
Net (Loss) $ (731) $ (352) $ (637)
Reconciliation to net cash provided (used) for operating activities:
Depreciation, depletion and amortization 66 66 63
Cancellation of debt - - -
Loss on disposal of fixed assets 2 - -
Common shares issued for expenses 357 63 -
Effect of changes in working capital items:
Receivable - trade - - 84
Receivable - related parties (68) (13) -
Inventories 218 - 30
Prepaid and other assets - (5) (1)
Accounts payable and accrued liabilities 26 76 279
---------- ----- ------
Net cash used by operations (130) (165) (182)
---------- ----- ------
INVESTING ACTIVITIES;
Additions to property, plant and equipment (39) (4) (421)
Proceeds from asset sales - - -
---------- ----- ------
Net cash used for investing activities (39) (4) (421)
---------- ----- ------
FINANCING ACTIVITIES
Proceeds from sale of stock 162 176 114
Borrowings - - -
Debt repayment - - -
Related parties payable - decrease - - -
---------- ----- ------
Net cash provided by financing activities 162 176 114
---------- ----- ------
NET INCREASE (DECREASE) IN CASH AND EQUIVALENTS (7) 7 (152)
CASH AND EQUIVALENTS, BEGINNING OF PERIOD 8 1 153
---------- ----- ------
CASH AND EQUIVALENTS, END OF PERIOD $ 1 $ 8 $ 1
========== ===== ======
Interest paid 1 1 -
Payment of payable with stock - - -
Purchase mineral property with stock - 131,250 1,800
Payment of note payable with stock 163,000 - -
</TABLE>
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 Company is negotiations for the sale of an interest in the mine.
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 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:
<TABLE>
<CAPTION>
1995 1994
------------ ----------
<S> <C> <C>
Loan balance, beginning of year $ (17,000) $ 5,000
Additional loans during the year - 21,000
Transfer of accounts payable balance 17,000 -
Expense reports submitted - 3,000
Cash repayments - (46,000)
Exercise of employee stock options - -
Repayment of loan with Series A
Preferred Stock - -
Repayment of loan with Common Stock - -
------------ -----------
Loan (Receivable) balance, end of year $ 0 $ (17,000)
=========== ============
</TABLE>
The company has entered into certain transactions with the following officers
and directors:
<TABLE>
<CAPTION>
Advances Accrued payroll
<S> <C> <C>
Keith Fegert, President $46,036 $ 94,500
Howard Urband, Vice President $58,676 $281,715
</TABLE>
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, 1997 and 1996 are
as follows (in thousands):
<TABLE>
<CAPTION>
Lives 1997 1996
----- -------- ---------
<S> <C> <C> <C>
Units of
Mining properties production $ 8,668 $ 8,631
Plant and equipment 5-10 1,085 1,086
-------- ---------
9,753 9,717
Less: Accumulated depreciation and amortization 7,106 7,040
-------- ---------
Net property, plant and equipment $ 2,647 $ 2,677
======== =========
</TABLE>
5.INVENTORIES:
Inventories at December 31, consist of the following (in thousands):
<TABLE>
<CAPTION>
1997 1996
-------- ---------
<S> <C> <C>
Ore (on Heap Leach Pad and in process) 617 835
Materials and supplies 2 2
-------- ---------
Total $ 619 $ 837
-------- ---------
</TABLE>
Management believes that 2,372 ounces of gold remains in the heap leach pad
at December 31, 1997 and that they are recoverable over a several year
period, depending upon the level of mine and refinery operations as well as
sufficient working capital. Due to the decrease in gold prices management
has written down the inventory to reflect current recovery values.
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 1997, 1996 or 1995 which could give rise to any material
deferred income taxes. The Company has available at December 31, 1997,
estimated federal net operating loss carry forwards of approximately
$13,000,000 which expire in varying amounts between 1998 and 2010. It also
has net investment tax credits of $23,000 which expire in varying amounts
between the years 1998 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 1997, 1996,1995
and 1994. 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 $800 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 1997,
1996 and 1995 are shown below:
<TABLE>
<CAPTION>
Number of Shares 1997 1996 1995
------- -------- --------
<S> <C> <C> <C>
Balance at January 1: 515,000 495,000 725,000
Authorized increase in shares -
Options granted 250,000 20,000 100,000
Options exercised -
Average price .07 -
Options lapsed or terminated - 330,000
At December 31:
Options outstanding 665,000 515,000 495,000
Average price 0.13 $ 0.16 $ 0.23
Options available for grant 235,000 485,000 505,000
</TABLE>
Outstanding options in the amount of 545,000 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, 1997 were as follows:
<TABLE>
<CAPTION>
Carrying Value Fair Value
-------------- -----------
<S> <C> <C>
Cash equivalents $ 1 $ 1
Receivable $107 $107
Long-term debt $ 45 $ 45
</TABLE>
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 settled by the issuance of
stock.
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 fine
to Mr. Jordon was dropped and the fine to The Company was converted to a
judgement which the Company is currently negotiating a payment schedule. 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 shareholders of Rosarence. In March of 1997, the Company
negotiated an agreement extending the March 31, 1997 deadline date to March
31, 1998. The Company is currently negotiating with the owners of Rosarence,
Cosalteca SA de CV ("Cosalteca"), to eliminate the $1.00 provision in the
agreement and increase the Company's interest in Cosalteca's properties. (See
Item 2 Properties). If the Company is not successful in these negotiations
the Company may elect or be forced to relinquish its interest in this
property. 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 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 Company is currently negotiating with Cosalteca
to eliminate the $1.00 provision in the agreement and increase its interest
in the mine. The Company has ceased all payments to the Las Coloradas Joint
Venture until negotiations are completed. If the Company is not successful in
these negotiations the Company may elect or be forced to relinquish its
interest in this property. 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 regarding the Morning Star Mine 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. Management states that 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:
<TABLE>
<CAPTION>
Name Age Position with Vanderbilt
- ---- --- ------------------------
<S> <C> <C>
Tom D. Scott 69 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 36 President and Treasurer since July
1995;Director since 1994
Howard T. Urband 66 Vice President, Secretary, and Director; Vice
President since 1989; Secretary since 1990;
Director since 1989
Ted E. Slanker 79 Director since 1974
Barry L. Adams 37 Director since 1994
</TABLE>
Tom D. Scott was 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 was a general manager of Target Construction Company and
SanRoc, Inc. (mining and construction contractors). Over thirteen year's
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
--------------------------
<TABLE>
<CAPTION>
Name of Individual Compensated Year Capacities Served Cash Compensation
- ------------------------------ ---- ----------------- -----------------
<S> <C> <C> <C>
Keith Fegert 1997 President and Chief $0
1996 Financial Officer $18,750
1995 $2,700
Howard T. Urband 1997 Vice President and Secretary $0
1996 $15,000
1995 $17,956
1994 $2,563
</TABLE>
Mr. Fegert accrued $84,000 in salary for 1997.
Mr. Fegert accrued $10,500 in salary for 1996.
Mr. Fegert had no accrued salary for 1995.
Mr. Urband accrued $ 72,000 in salary for 1997.
Mr. Urband accrued $ 57,000 in salary for 1996.
Mr. Urband accrued $ 36,044 in salary for 1995.
Mr. Urband accrued $ 51,437 in salary for 1994.
The following table sets forth Company stock options that were granted during
1997 for each named executive.
OPTION/SAR GRANTS IN LAST FISCAL YEAR
<TABLE>
<CAPTION>
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 ($/SH) DATE 5% 10%
- ---- --------- ---------- -------- ---------- ------ -----
<S> <C> <C> <C> <C> <C> <C>
Barry L. Adams None None None None
Ted Slanker None None None None
Tom D. Scott None None None None
</TABLE>
* The dollar amounts under these columns are the result of calculations at 5%
and 10% compounded annual rates as set by the Securities and Exchange
Commission, and therefore are not intended to forecast future appreciation, if
any, in the price of the Company's common stock. The potential realizable
values illustrated at 5% and 10% compound annual appreciation assume that the
price of the Company's common
<PAGE>
The following table sets forth Company Stock Options data including options
exercised during 1996 for each named person:
<TABLE>
<CAPTION>
AGGREGATED OPTION/SAR EXERCISES IN LAST YEAR AND YEAR- END OPTION SAR/VALUES
- -------------------------------------------------------------------------------
(C ) (D) (E)
NUMBER OF
SECURITIES VALUE OF
UNDERLYING UNEXERCISED IN-
UNEXERCISED THE-MONEY
OPTION/SARS AT OPTIONS/SARS AT
FY-END (#) FY-END ($)
SHARES ACQUIRED VALUE REALIZED EXERCISABLE/ EXERCISABLE/
NAME ON EXERCISE (#) ($) UNEXERCISABLE UNEXERCISABLE
- ---- --------------- -------------- -------------- ----------------
<S> <C> <C> <C> <C>
Greg Leone 100,000 7,000 150,000 10,500
</TABLE>
ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT
The following table sets forth as of December 31, 1997 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,
40,842,370 shares were issued and outstanding.
All shareholders listed below have sole voting and investment power with
respect to their shares except as otherwise noted.
<TABLE>
<CAPTION>
NAME AND ADDRESS OF AMOUNT AND NATURE OF
BENEFICIAL OWNER BENEFICIAL OWNERSHIP PERCENT OF CLASS
- ------------------ -------------------- ----------------
<S> <C> <C>
Target Construction Inc. and Sanroc, Inc. 3,891,980 9.5
990 Glendale Ave.
Sparks, NV 89431
Keith W. Fegert 4,907,980(1) 12.2
Barry L. Adams 691,160(2) 1.7
Howard T. Urband 233,000(3) *
Tom D. Scott 256,113(4) *
Ted E. Slanker 112,466(5) *
All officers and Directors (5 Persons) 6,200,719(1)(2)(3)(4)(5) 15.2
</TABLE>
(1) Mr. Fegert disclaims beneficial ownership of 3,891,980 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) Includes 225,000 shares issuable upon the exercise of stock options.
(4) 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.
(5) Includes 15,000 shares to be issued upon the exercise of stock options.
* Less than 1%.
<PAGE>
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.
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, 1997, 1996, and
1995, 100 ounces remained undelivered. Bernard O. Brynelsen, a former
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:
<TABLE>
<CAPTION>
1995 1994 1993
-------- --------- ---------
<S> <C> <C> <C>
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
</TABLE>
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
<TABLE>
<CAPTION>
<S> <C>
(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
</TABLE>
<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.
<TABLE>
<CAPTION>
<S> <C>
DATED: 4/14/98 By: /S/ Keith Fegert.
Director, President and Chief Financial Officer
DATED: 4/14/98 By: /S/ Howard T. Urband
Vice President and Director
DATED: 4/14/98 By: /S/ Ted E. Slanker
Director
DATED: 4/14/98 By: /S/ Barry L. Adams
Director
DATED: 4/14/98 By: /S/ Tom D. Scott
Chairman of the Board and Director
</TABLE>
<PAGE>
EXHIBIT 21.1
SUBSIDIARY OF REGISTRANT
Star Mining Corporation, A Nevada Corporation
<PAGE>
EXHIBIT 24.1
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, 1997, of my report dated April 14, 1998 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-31-1997
<PERIOD-END> DEC-31-1997
<CASH> 1
<SECURITIES> 0
<RECEIVABLES> 107
<ALLOWANCES> 0
<INVENTORY> 619
<CURRENT-ASSETS> 738
<PP&E> 9753
<DEPRECIATION> 7106
<TOTAL-ASSETS> 3385
<CURRENT-LIABILITIES> 2303
<BONDS> 0
0
0
<COMMON> 408
<OTHER-SE> 629
<TOTAL-LIABILITY-AND-EQUITY> 3385
<SALES> 0
<TOTAL-REVENUES> 0
<CGS> 0
<TOTAL-COSTS> 335
<OTHER-EXPENSES> 507
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 0
<INCOME-PRETAX> (731)
<INCOME-TAX> 0
<INCOME-CONTINUING> (731)
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (731)
<EPS-PRIMARY> (.02)
<EPS-DILUTED> (.02)
</TABLE>
