UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-SB
GENERAL FORM FOR REGISTRATION OF SECURITIES OF
SMALL BUSINESS ISSUERS
Under Section 12(b) or (g) of The Securities Exchange Act of 1934
AMERICAN BENEFITS GROUP, INC.
(Name of Small Business Issuer in its charter)
Florida 65-0647122
(State or other jurisdiction of (I.R.S. Employer Identification Number)
incorporation or organization)
10 Fairway Drive, Suite 307, Deerfield Beach, Florida 33441
(Address of principal executive offices) (zip code)
Issuer's toll free telephone number: (888) 533-4555
Issuer's toll free fax number: (877) 305-4171
Securities to be registered under Section 12(g) of the Act:
Title of each class Name of each exchange on which each class
is to be registered
------------------------- ------------------------------------------
Common OTC Bulletin Board
Securities to be registered pursuant to Section 12(g) of the Act.
Common Stock, no par value
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INTRODUCTORY STATEMENT
American Benefits Group, Inc. (the "Company" or "ABFG") has elected to
file this Form 10-SB registration statement on a voluntary basis in order to
become a reporting company under the Securities Act of 1934. The primary purpose
for this is that the Company intends to be listed for trading on the OTC
Electronic Bulletin Board. Under the current NASD rules, in order to become
listed on the OTC Electronic Bulletin Board, a company now must be a reporting
company under the Securities Act of 1934.
This registration statement, including the information that may be
incorporated herein by reference, contains forward-looking statements including
statements regarding, among other items, the Company's business and growth
strategies, and anticipated trends in the Company's business and demographics.
These forward-looking statements are subject to a number of risks and
uncertainties, certain of which are beyond the Company's control. Actual results
could differ materially from these forward-looking statements as a result of
factors described in this section "Risk Factors," including among others,
regulatory or economic influences.
ITEM 1. DESCRIPTION OF BUSINESS
A. General Overview
ABFG was incorporated under the laws of the State of Florida pursuant to
The Florida Business Corporations Act as Living Benefits Group, Inc. on February
26, 1996. The Company underwent name changes to Lifeline Benefits Group, Inc. on
April 21, 1996 and to American Benefits Group, Inc. on December 12, 1996. Unless
otherwise indicated by the context, all references to "ABFG" or "the Company" in
this Report shall be read to refer to American Benefits Group, Inc. and all of
its subsidiaries, and all of its majority owned affiliates.
Upon incorporation, the Company was engaged in the business of Viatical
Settlements. Effective June 30, 1997, the Company ceased its business operations
in Viatical Settlements. On July 1, 1997, subsequent to divesting itself of any
and all interest in the Viatical Settlement business, the Company commenced its
current business of mining and marketing precious and semi-precious stones,
jewelry, art and other goods and services.
The Company operates one segment: Mining precious stones and minerals;
processing and manufacturing products; marketing finished products and services
(Mining of precious stones and related products). The Company's reportable
segment is a strategic business unit that offers different products and
services.
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The Mining of precious stones and related products segment includes
American Benefits Group, Inc. (ABFGINC), the parent company and its subsidiaries
and affiliates; American Benefits Group, Limited (ABFGLTD) - 100%; ABFG Sales
Ltd. (ABFGSL-Cdn) - 100%; ABFG Sales Limited (ABFGSL-US) - 100%; American
Benefits Group (Israel) Ltd. (ABFGISR) - 100%; American Benefits Group
(Israel-Madagascar) Ltd. (ABFGISR-MAD) - 100%; ABFG Resources Madagascar
S.A.R.L. (ABFGMAD); Saowani Development S.A.R.L. (SAO) - 90%; Stones and Wood
Corporation S.A.R.L.` (S&W) - 100%; Club Rodeo Ltd. (CLUB) - 100%; and E-Block
Technology Inc. (E-BLOCK) - 100%.
Regulation
As a result of the Company's change of business on July 1, 1997, the
Company voluntarily ceased the trading of its common stock over the National
Association of Broker Dealers ("NASD') Over the Counter Bulletin Board Quotation
Medium (OTC: BB). The Company filed the required "Issuer Information and
Disclosure Statement pursuant to Rule 15c2-11(a) (5) on April 2, 1998 and the
NASD cleared the Company's common stock for quotation over the OTC: BB medium on
June 18, 1998. The Company's stock ceased being quoted on the OTC:BB Quotation
Medium on July 4, 1999 as a result of the Company's failure to file a Form 10-SB
and clear comments of the SEC pursuant to NASD Regulations 6530 and 6540. This
Report is being filed to enable the Company to become a Reporting Issuer under
those Regulations and thereafter to be quoted over the OTC:BB Quotation Medium.
B. Organization
As of December 31, 1999, the Company was considered to be in the
development stage of operations. According to the Financial Accounting Standards
Board of the Financial Accounting Foundation, a development stage company is
defined as a company that devotes most of its activities to establishing a new
business activity. In addition, planned principle activities have not commenced,
or have commenced and have not yet produced significant revenue. FAS-7 requires
that all development costs be expensed during the development period. The
Company expensed $4,030,099 of development costs for the twenty-seven months
ended December 31, 1999.
The Development Costs were allocated for the following projects:
Mining Development $2,655,310
Internet Development $1,364,789
E-Block Research & Development $ 10,000
----------
$4,030,099
Mining Development Project
The Mining Development Project commenced in August of 1997 with the
acquisition of 90% of the issued and outstanding shares of SAO, SAO had an
interest in 13 mining perimeters in the Democratic Republic of Madagascar. The
Company retained mining specialists to explore and test the mining perimeters,
as well as source other potential mining perimeters. Subsequently, after the
acquisition, Saowani lost its interest in 13 mineral perimeter rights in
Madagascar before the exploration and testing programs were completed.
Subsequent to the loss of the 13 mining perimeters, SAO reacquired interests in
3 of the mining perimeters.
On June 19, 1998, the Company acquired 70% of the issued and outstanding
shares of World Gems Corporation S.A.R.L. (World Gems). World Gems held interest
in 34 mining
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perimeters of which ABFG, through the acquisition, would explore and test the
mining perimeters. Subsequently, World Gems lost its mineral perimeter rights in
Madagascar before the exploration and testing programs were completed.
On May 11, 1999, the Company acquired 100% of the issued and outstanding
shares of S & W which had interests in 37 mining perimeters in the Democratic
Republic of Madagascar. On May 28, 1999, Consulting Geologists and Engineers,
Watts, Griffis and McOuat, was retained to perform a technical review of the
sapphire mining perimeters obtained by the Company. The scope of the technical
review was to perform a site visit to review the local geology, exploration
potential and the possible size and grade of the deposit with on-site technical
personnel; a review of land position and ownership; a review of operational
history; a review of sampling process, methodology, kind of wash plant used to
recover the sapphires and the size and efficiency of the plant; a review of the
mining operation including the amount of stripping of overburden involved,
thickness of gravel; and a review of the marketing contracts. The Company began
testing operations of precious stones, namely sapphires, on these mining
perimeters, on May 31, 1999.
On June 29, 1999 the Company, through its Malagasy subsidiary, SAO became
a partner to a joint venture with Ms. Eliana Georgette Samuel Harinoro whereby
SAO was given exclusive rights to explore and test on three (3) emerald bearing
mining perimeters (these mining perimeters were part of the original 13 mining
perimeters of SAO). SAO will fund the exploration and testing. Profits arising
from the Joint Venture will be distributed on a basis of 80% to SAO and 20% to
Ms. Harinoro. The Mining perimeters are classified as Type I mining perimeters.
Since the commencement of operations in 1997 to present, a total of
$2,655,310 was spent on exploring and testing mining perimeters in Madagascar.
Internet Shopping Mall Development
On January 15, 1999, the Company launched its first Internet store,
TheGemStore.com, and operated the Internet site as a beta test site until March
14, 1999. During this time period, three Internet sites were launched -
VirtualVitamins.com, ArtonRodeo.com, and AdventureandTravel.com - as beta test
sites, along with securing an Internet secure e-commerce license. On March 15,
1999, the Company launched its Internet Shopping Mall, RodeoIsland.com, on a
beta test basis to test and evaluate site traffic, visitations, order placement,
order fulfillment and order delivery. On December 31, 1999, the Internet
Shopping Mall development project was still in a beta test mode. Total cost of
the Internet Development Project was $1,364,789.
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E-Block Research and Development
On September 7, 1997, the Company established a wholly-owned subsidiary of
the parent company, E-Block Technology Inc. (EBTI), based in Canada, to research
and develop the technology of using hyper-compression to form building blocks
from indigenous materials such as clay and sand (E-block).
The objective of E-Block is to allow the Company to use the E-Block as a
building product for the purpose of constructing homes, hospitals, medical
clinics, schools, community centers, etc. The Company plans to establish a test
manufacturing facility in Madagascar and plans to initially donate the
infrastructure to the community. Management believes that the donation of the
infrastructure to the community is the Company's civic duty and responsibility
in order to increase the standard of living of the Malagasy people through
improved living conditions, improved medical facilities and increased
educational facilities. Upon completion of the testing, a pricing structure will
be established and the E-Block will be marketed.
The R&D arm has tested various formulations of clay, sand and other
components and has developed a superior formulation of same. This new
formulation has resulted in the development of e-block. EBTI is very proud of
this new formulation and feels that it has developed an economical substitute
for conventional construction materials such as lumber, cement blocks and
bricks. Preliminary production tests have produced e-blocks with considerable
compressive strength and a very high thermal insulation value, ranging from R45
to R55. In addition to a high thermal insulation value, the e-block also has a
very high audio insulation factor for blocking out sound.
The e-block lends itself to many construction applications. The e-block
can be drystacked to form structural walls of buildings. An economic analysis of
the construction costs of an e-block wall has shown the cost of construction to
be 66% lower than those of conventional cement blocks, concrete or brick walls.
This will result in a considerable saving in construction costs. Tests have also
shown that an e-block wall can be constructed in less time than a conventional
wall of cement block, concrete or brick. On a test basis, a saving of 80% has
been attained. This time factor will be critical for projects where a schedule
is of concern. The use of e-block in construction can be performed by unskilled
labor as compared to the skilled craftsmen that are required for a conventional
cement block, concrete or brick wall. This is a very important consideration in
construction, especially in areas where there is a shortage of skilled craftsmen
and an abundance of unskilled labor. The Company views the development of
e-block as a very economical substitute for conventional construction materials
such as brick, lumber, or concrete and as a building product for the future.
The Research and Development (R&D) arm of EBTI has studied the various
machinery available to manufacturer hyper-compressed blocks and has developed a
short list of suggested equipment manufacturers. Total cost of the E-Block
Research and Development is $10,000.
Marketing
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On May 20, 1999, the Company and the Menavi Group of Companies (Menavi
International Ltd., of Israel; Advance Cutting Center (Israel) Ltd.; and Advance
Cutting Center Ltd. of Bangkok), based in Israel, formed a Joint Venture, known
as Total Gem Management Ltd. (TGM).
The formation of the TGM Joint Venture positioned ABFG as a fully
vertically integrated company involved from the mining of precious stones
through to the marketing of cut and polished gems, and fine pieces of quality
jewelry. It is anticipated that product lines within ABFG's retail outlet, the
Gemstore.com, a retail outlet within the Internet Shopping Mall, RodeoIsland.com
will be increased as a result of the alliance. The GemStore.com will have access
to world renowned jewelry designers, and precious stones such as diamonds thus
being able to increase its product lines of designer jewelry, diamonds, and
other precious stones. It is anticipated that there will be increased sales in
the wholesale division with group lots of raw, processed, and cut and polished
gems.
Menavi International Ltd. is one of the most reputable companies in the
industry. It's subsidiaries, Advance Cutting Center Ltd. and Advance Cutting
Center (Israel) Ltd. utilize one of the most advanced computerized robot systems
(Robogem) in the industry specially designed to increase yields and to deliver
the perfect cut known as the "Carmel Cut" and are thus on the leading edge of
the industry in technical expertise.
C. Industry Background
The information contained in this section is produced from a report
prepared for the Company by Menahem Sevdermish and Avi Meirom of the Geological
Institute For Precious Stones and Diamonds of Israel, principals of the
Company's Joint Venture, TGM.
Current market demand for wholesale polished sapphires is increasing. Upon
an evaluation, the report indicates that the future sapphire market looks
strong. Industry experts believe that retail sales of jewelry will reach $60
billion every year. It is estimated that of that $60 billion, nearly 20% ($12
billion) is in the sale of colored gemstone-set jewelry. Of this $12 billion, it
is safe to assume that Sapphire-set jewelry accounts for 20% ($2.4 billion) of
these sales. Factor in that retail jewelry is generally marked-up 100%, bringing
the value to $1.2 billion. Also factor in that 30% of the actual set jewelry
cost is for the metal (i.e., gold, silver, platinum) setting, which brings the
total estimated market for loose polished sapphires used in the set jewelry
totaling, approximately, $840 million annually. As a conservative estimate, The
Gemological Institute for Precious Stone and Diamonds foresees the market for
loose polished sapphires to range between $750 -- $900 million per year. The
report stated that three main sectors of the sapphire market should be accounted
for in calculating the "total" sapphire market: sales of reported loose polished
sapphires; sales of shipped sapphire-set jewelry; and, sales of under-reported
or non-reported polished sapphires.
Wholesale value of reported loose polished sapphires
The wholesale value of reported polished sapphires in 1998 was estimated
at $324 million and is represented in the following chart:
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United States $ 150 million
Japan $ 27 million
Europe $ 75 million
Southeast Asia $ 18 million
Others $ 54 million
------------------------------------------------
Total $ 324 million
The Gemological Institute for Precious Stone and Diamonds reports that a
strong US market, a relatively weak European market, and a recovering Asian
market most likely puts the market, more realistically, at $300 million.
Sapphire shipped - set jewelry
Today, the majority of sapphires reach the market already set in jewelry.
It is estimated, by The Gemological Institute for Precious Stone and Diamonds,
that the market for Shipped Sapphire-Set Jewelry is at least equivalent to that
for Reported Loose Polished Sapphires, but more likely one-and-a-half times the
size -- $340 -- $450 million.
Under-reported and non-reported sales of polished sapphires
The ability to accurately depict the market for Under-Reported and
Non-Reported Sales of Polished Sapphires, a common practice in the industry, is
obviously impossible. However, conservative estimates by The Gemological
Institute for Precious Stone and Diamonds place the value of this market at $150
million and even then, the value may be safely increased by 25%.
The importance of Internet shopping
Since the advent of the World Wide Web (Internet), sales from this Retail
source have expanded greatly. Sales in 1998 were 4.5 billion dollars, over 10
billion dollars in 1999 with a projection of over $119.3 billion dollars for
Y2005 (Source: ACTIVMEDIA 02/2000). The Company elected to utilize this retail
method for selling its mined precious stones in order to better control prices
and to eliminate the middleman to increase profit.
The importance of the Company's Internet shopping mall
The Company's Internet shopping Mall ("RodeoIsland.com.") was established.
The Company then commenced expansion so that non-related entities could also
avail themselves to "RodeoIsland.com" to sell their products. The Company's
intent is to continue to use "RodeoIsland.com" as a major retail outlet for it's
mined precious stones and to expand the site to other parties so that eventually
the site will compete with the Mining Division of the company as a major source
of income. In 1999, Club Rodeo was established which is a membership program
allowing members to purchase goods and services at a discounted price. Members
enroll with Club Rodeo, paying an annual membership for the right to purchase
goods and services at a discounted price. Members would also qualify for
purchase rebates and other rewards and benefits.
The importance of compressed clay housing in developing nations
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The e-block lends itself to many construction applications of particular
importance to third world nations. The e-block can be dry stacked to form walls
of buildings. An economic analysis shows up to a 66% savings in construction
costs utilizing the e-block as opposed to traditional construction materials
such as concrete or brick is possible. E-block construction is quicker than
traditional methods and the construction can be undertaken by unskilled labor.
D. Products
The primary business of the Mining segment is to explore, develop, and
exploit precious and semi-precious stones, process the precious and
semi-precious stones, manufacture carat jewelry, market processed precious and
semi-precious stones, market carat jewelry and other related products and
services, such as internet development, hosting, marketing and broadcasting.
Since the commencement of operations in 1997, the Company has acquired and
retained interests in forty (40) precious stone mining perimeters in the
Democratic Republic of Madagascar. These mining perimeters allow ABFG and Joint
Venture Partners to explore, test, and mine for sapphires, corundum, emeralds,
and garnet. With the acquisition of S&W, testing operations began on May 31,
1999. For the period ending December 31, 1999, ABFG's share of extracted mine
grade sapphire ore from the mining perimeters was 238,532.2 grams. The cost of
testing was $1,724,247 or $7.27 per gram. A typical grade of sapphire ore will
yield .85 carats of polished stone for each one (1) gram of mine grade sapphire
ore. The expected yield from the 238,532.2 grams of mine grade sapphire ore
should yield 202,752.37 carats of polished sapphire stones.
Since the commencement of operations in Madagascar in 1997, ABFG has
implemented a buying program, purchasing raw sapphire stones. For the period
ending December 31, 1999, ABFG purchased 184,500 grams of selected grade
sapphire at a cost of $2,490,000 or $13.50/gram. Of the 184,500 grams purchased,
105,500 grams of selected grade sapphire ore has yielded 84,299.62 carats of
polished sapphire stones at a cost of $5.83 per carat of finished stones.
Since commencement of operations in 1997, ABFG has sourced several
manufacturers of carat jewelry in the United States, Canada, Thailand and
Israel. ABFG is reviewing and testing various manufacturers of jewelry to ensure
the quality of the carat jewelry conforms to the price point structure
established. ABFG has been able to establish manufacturing costs ranging from
$18.45 per carat of precious stone for a simple design (sapphire stud earring)
to $996.47 per carat of precious stone for an intricate design (women's sapphire
ring with diamonds).
The Marketing of the polished stones and jewelry is achieved by the
establishment of an e-commerce enabled web store, TheGemstore.com (The
Gemstore). The Gemstore was launched on the World Wide Web (Internet) on January
15, 1999. The Gemstore provides the consumer with a variety of carat jewelry
containing sapphires. The consumer is able to purchase the carat jewelry through
a secured e-commerce system. The e-commerce system used by ABFG has been
certified secure by ePubliceye.com, InternetSecure Inc., I-stores.com, VISA
International, and MasterCard International.
On March 15, 1999, ABFG launched its Internet Shopping Mall,
RodeoIsland.com (Rodeo Island) to house The Gemstore and other in-house
developed Internet stores developed which
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include ArtonRodeo.com (Art On Rodeo), AdventureandTravel.com (Adventure and
Travel), and VirtualVitamins.com (Virtual Vitamins). The objective of Rodeo
Island is to provide a common area for consumers to visit and shop for goods and
services. In doing so, consumers will be exposed to The Gemstore and thus
increasing the sales of carat jewelry.
Since the establishment of Rodeo Island, ABFG has been able to attract
sixteen (16) independent storefronts to the Internet Shopping Mall. These
additional storefronts allow ABFG to receive revenue in the form of space
rental, advertising, commissions from affiliate programs and sales of products
purchased at a wholesale level and sold at a retail level. Management of ABFG
believe that the success of an Internet Shopping Mall will be the ability of the
Internet Shopping Mall to attract consumers by making available a variety of
products, the majority of which will be basic "Brick and Mortar" consumables.
In order to maintain Rodeo Island ABFG's in-house stores and facilitate
the addition of additional store fronts, ABFG established an Internet Solutions
Division (ISD) to provide design, development, production, maintenance and
support. In addition to ISD, ABFG established ABFG-TV which is an Internet
Broadcasting Division mandated to provide ABFG with advertising and promotional
design and production for Radio, Television and Internet Broadcasting. Since the
commencement of the ISD and ABFG-TV, these cost centers have been able to
attract additional revenue by contracting their services to third parties.
On November 4, 1999, Club Rodeo was established to provide a marketing
platform for the products and services of Rodeo Island. Club Rodeo will offer
memberships to consumers. As a member, the consumer will have various privileges
such as substantial discounts on products and services. A member can purchase
goods and services with discounts of up to 25% off Rodeo Island's published
prices from ABFG in-house stores. Members would also receive cash rebates of up
to 6% on goods and services based on their own volume purchases and residual
income of up to 6% on purchases made by other members and "Passport" members
referred to Club Rodeo by the member. Club Rodeo membership is renewable on an
annual basis.
The following tables include quarterly and year-to-date revenue and
operating income by segment, as well as units mined through testing, bought,
processed and sold.
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American Benefits Group, Inc.
Revenue and Operating Income (Loss) and Purchase/Mining Production by Segment
(Dollars in thousands)
<TABLE>
<CAPTION>
- ----------------------------------------------------------------------------------------------------------------
June 30, 2000 1st Quarter 2nd Quarter 3rd Quarter 4th Quarter Total Year
- ----------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
Revenue by Segment:
Mining 11 17 N/A N/A 28
- ----------------------------------------------------------------------------------------------------------------
Operating Income by Segment:
Mining 8 2 N/A N/A 10
Corporate 0 0 N/A N/A 0
Development (302) (223) N/A N/A (525)
Other (5) (4) N/A N/A (9)
----------------------------------------------------------------------------
Net Income Before Tax (299) (225) N/A N/A (524)
- ----------------------------------------------------------------------------------------------------------------
Raw Mine Grade 1st Quarter 2nd Quarter 3rd Quarter 4th Quarter Total Year
- ----------------------------------------------------------------------------------------------------------------
Units:
Beginning Inventory(grams) 69,925.3 316,306.21 N/A N/A 69,925.3
1. Production (grams) 172,880.9 1,226.0 N/A N/A 174,106.9
2. Buying (grams) 79,000.0 0 N/A N/A 79,000.0
----------------------------------------------------------------------------
Total Available: (grams) 321,806.2 317,532.2 N/A N/A 323,032.2
3. Processed (grams) 5,500.0 0 N/A N/A 5,500.0
----------------------------------------------------------------------------
Ending Inventory (grams) 316,306.2 317,532.2 N/A N/A 317,532.2
- ----------------------------------------------------------------------------------------------------------------
Cost:
Beginning Inventory (000's) 921 3,196 N/A N/A 921
4. Production (000's) 778 109 N/A N/A 887
5. Buying (000's) 1,580 0 N/A N/A 1,580
----------------------------------------------------------------------------
Total Available: (000's) 3,279 3,305 N/A N/A 3,388
6. Processed (000's) -83 0 N/A N/A --
----------------------------------------------------------------------------
Ending Inventory (000's) 3,196 3,305 N/A N/A 3,305
- ----------------------------------------------------------------------------------------------------------------
Polished Stones 1st Quarter 2nd Quarter 3rd Quarter 4th Quarter Total Year
- ----------------------------------------------------------------------------------------------------------------
Units:
Beginning Inventory (carats) 293.6 23,924.80 N/A N/A 293.6
7. Processed (carats) 0.0 0 N/A N/A 0.0
8. Buying (carats) 23,631.2 0 N/A N/A 23,631.3
----------------------------------------------------------------------------
Total Available: (carats) 23,924.8 23,924.80 N/A N/A 23,924.8
9. Bulk Sales (carats) 0 N/A N/A N/A 0
10. Processed (carats) 0 452.77 N/A N/A 452.77
----------------------------------------------------------------------------
Ending Inventory (carats) 23,924.8 23,472.03 N/A N/A 23,472.03
- ----------------------------------------------------------------------------------------------------------------
Cost:
Beginning Inventory (000's) 19 2,788 N/A N/A 19
11. Production (000's) 0 0
12. Buying (000's) 2,769 N/A N/A N/A 2,769
----------------------------------------------------------------------------
Total Available: (carats) 2,788 2,788 N/A N/A 2,788
13. Bulk Sales (000's) 0 0 N/A N/A 0
14. Processed (000's) 0 20 N/A N/A 20
Ending Inventory (000's) 2,788 2,768 N/A N/A 2,768
- ----------------------------------------------------------------------------------------------------------------
</TABLE>
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American Benefits Group, Inc.
Revenue and Operating Income (Loss) and Purchase/Mining Production by Segment
(Dollars in thousands)
<TABLE>
<CAPTION>
- ----------------------------------------------------------------------------------------------------------------
June 30, 2000 1st Quarter 2nd Quarter 3rd Quarter 4th Quarter Total Year
- ----------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
Revenue by Segment:
Mining 0 0 1,209 3,832 5,041
- ----------------------------------------------------------------------------------------------------------------
Operating Income by Segment
Mining: 0 0 804 2,454 3,258
Corporate 0 0 (121) (383) (504)
Development (79) (115) (105) (2598) (2,897)
Other 0 3 (1) 10 12
----------------------------------------------------------------------------
Net Income Before Tax (79) (112) 577 (517) (131)
- ----------------------------------------------------------------------------------------------------------------
Raw Mine Grade 1st Quarter 2nd Quarter 3rd Quarter 4th Quarter Total Year
- ----------------------------------------------------------------------------------------------------------------
Units:
Beginning Inventory(grams) 0 0 0 5,500.0 0.0
15. Production (grams) 64,425.3 64,425.3
16. Buying (grams) 0 25,500.0 80,000.0 105,500.0
----------------------------------------------------------------------------
Total Available: (grams) 0 0 25,500.0 149,925.3 169,925.3
17. Processed (grams) -20,000.0 -80,000.0 -100,000.0
Ending Inventory (grams) 0 0 5.500.0 69,925.3 69,925.3
- ----------------------------------------------------------------------------------------------------------------
Cost:
Beginning Inventory (000's) 0 0 82 0
18. Production (000's) 838 838
19. Buying (000's) 175 640 815
----------------------------------------------------------------------------
Total Available: (000's) 175 1,561 1,654
20. Processed (000's) -93 -640 -733
----------------------------------------------------------------------------
Ending Inventory (000's) 82 921 921
- ----------------------------------------------------------------------------------------------------------------
Polished Stones 1st Quarter 2nd Quarter 3rd Quarter 4th Quarter Total Year
- ----------------------------------------------------------------------------------------------------------------
Units:
Beginning Inventory (carats) 450.8 450.8 450.8 450.8 450.8
21. Processed (carats) 0
22. Buying (carats) 19,647.19 62,216.1 81,863.3
----------------------------------------------------------------------------
Total Available: (carats) 450.8 450.8 20,098.0 62,669.9 82,314.1
23. Bulk Sales (carats) -19,647.2 -62,216.1 -81,863.3
24. Processed (carats) -157.2 -157.2
----------------------------------------------------------------------------
Ending Inventory (carats) 450.8 450.8 450.8 293.6 293.6
- ----------------------------------------------------------------------------------------------------------------
Cost:
Beginning Inventory (000's) 31 31 31 38 31
25. Production (000's) 0
26. Buying (000's) 289 995 1,284
----------------------------------------------------------------------------
Total Available: (carats) 31 31 320 1,033 1,314
27. Bulk Sales (000's) -282 -995 1,277
28. Processed (000's) -19 -19
----------------------------------------------------------------------------
Ending Inventory (000's) 31 31 38 19 19
- ----------------------------------------------------------------------------------------------------------------
</TABLE>
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American Benefits Group, Inc.
Revenue and Operating Income (Loss) and Purchase/Mining Production by Segment
(Dollars in thousands)
<TABLE>
<CAPTION>
- ----------------------------------------------------------------------------------------------------------------
June 30, 2000 1st Quarter 2nd Quarter 3rd Quarter 4th Quarter Total Year
- ----------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
Revenue by Segment:
Mining 0 0 0 0 0
- ----------------------------------------------------------------------------------------------------------------
Operating Income by Segment 0 0 0 0 0
Mining: 0 0 0 0 0
Corporate 0 0 0 0 0
Development (38) (289) (119) (167) (613)
Other (18) 0 0 (4) (22)
----------------------------------------------------------------------------
Net Income Before Tax (56) (289) (119) (171) (635)
- ----------------------------------------------------------------------------------------------------------------
Raw Mine Grade 1st Quarter 2nd Quarter 3rd Quarter 4th Quarter Total Year
- ----------------------------------------------------------------------------------------------------------------
Units:
Beginning Inventory(grams) 0 0 0 0 0
29. Production (grams) 0 0 0 0 0
30. Buying (grams) 0 0 0 0 0
----------------------------------------------------------------------------
Total Available: (grams) 0 0 0 0 0
31. Processed (grams) 0 0 0 0 0
----------------------------------------------------------------------------
Ending Inventory (grams) 0 0 0 0 0
- ----------------------------------------------------------------------------------------------------------------
Cost:
Beginning Inventory (000's) 0 0 0 0 0
32. Production (000's) 0 0 0 0 0
33. Buying (000's) 0 0 0 0 0
----------------------------------------------------------------------------
Total Available: (000's) 0 0 0 0 0
34. Processed (000's) 0 0 0 0 0
----------------------------------------------------------------------------
Ending Inventory (000's) 0 0 0 0 0
- ----------------------------------------------------------------------------------------------------------------
Polished Stones 1st Quarter 2nd Quarter 3rd Quarter 4th Quarter Total Year
- ----------------------------------------------------------------------------------------------------------------
Units:
Beginning Inventory (carats) 0 0 0 0 0
35. Processed (carats) 0 0 0 0 0
36. Buying (carats) 0 0 0 450.8 450.8
----------------------------------------------------------------------------
Total Available: (carats) 0 0 0 450.8 450.8
37. Bulk Sales (carats) 0 0 0 0 0
38. Processed (carats) 0 0 0 0 0
----------------------------------------------------------------------------
Ending Inventory (carats) 0 0 0 450.8 450.8
- ----------------------------------------------------------------------------------------------------------------
Cost:
Beginning Inventory (000's) 0 0 0 0 0
39. Production (000's) 0 0 0 0 0
40. Buying (000's) 0 0 0 31 31
----------------------------------------------------------------------------
Total Available: (carats) 0 0 0 31 31
41. Bulk Sales (000's) 0 0 0 0 0
42. Processed (000's) 0 0 0 0 0
----------------------------------------------------------------------------
Ending Inventory (000's) 0 0 0 31 31
- ----------------------------------------------------------------------------------------------------------------
</TABLE>
12
<PAGE>
E. Acquisitions and Business Strategies
The process in the Democratic Republic of Madagascar to enable
Corporations such as the Company to acquire sufficient Mining perimeters in
order to make its mining operations financially viable requires the Company,
depending on the type of Mining perimeter being acquired, to either incorporate
a Malagasy Subsidiary to hold the Mining perimeter or to enter into an Agreement
with Malagasy Nationals for these Malagasy Nationals to hold the mining
perimeters in their name on the Company's behalf as a "Nominee". The "Nominee"
is usually paid for their consent to act with a lump sum payment paid at the
time the National and the Company enters into the Agreement. These Nationals
will be the legal owner of the mining perimeters with either the Company, an
acquired Malagasy Corporation or a newly created Malagasy Subsidiary Corporation
to be the beneficial owner of the mining perimeters (similar to the North
American practices of a mine Company having a lease-hold interest in the
property).
The Company, through its Director, Dror Moradov, sourced a number of
mining perimeters in the Democratic Republic of Madagascar, which the Company
believes to have Sapphires and Emeralds. These mining perimeters were acquired
by the Company through the Company's purchase of shares in the Malagasy
Corporations having the legal right to exploit the precious stones or through
the establishment of Joint Ventures where the National holds the interest for
the Company.
The Company's first purchase occurred on the 26th day of August, 1997 when
it acquired Ninety (90%) percent of the issued shares of SAO, a Corporation
incorporated pursuant to the laws of the Democratic Republic of Madagascar. SAO
held interests in mining perimeters, which the Company believed to have reserves
of sapphires and emeralds. The purchase price for the Ninety (90%) per cent
share holding was payment of Three Million (3,000,000) pre-dividend Common
Shares of the Company to Fulcrum Holdings of Australia Inc. ("Fulcrum") a
Corporation incorporated pursuant to the laws of the State of Delaware, being
one of the United States of America. Fulcrum was party to an Agreement with SAO
and certain of the Shareholders of SAO whereby Fulcrum agreed to purchase Ninety
(90%) percent of the issued and outstanding shares of SAO in exchange for shares
of a Publicly Traded Company and a covenant that Fulcrum would spend sufficient
monies to enable production to occur from the mining perimeters owned or
controlled by SAO. The Company was Assigned Fulcrum's position in the said
Agreement with Saowani and the Shareholders with the consent of all parties for
the consideration noted herein before. Director Dror Moradov was a Director of
SAO.
As a result of this transaction, Fulcrum became a registered shareholder
of three million (3,000,000) pre-dividend Restricted Rule 144 Common Shares of
the Company representing 37.6 percent of the Company's issued and outstanding
shares at that time. Two Directors of the Company, Gerald E. Sklar and Dror
Moradov collectively own 100% of the shares of Fulcrum Holdings of Australia,
Inc.. Subsequently, SOA. lost its mining perimeter rights in Madagascar.
However, SOA has been able to negotiate a joint venture with the owners of 3 of
the previously lost mining perimeters.
13
<PAGE>
The Company's second purchase occurred on the 19th day of June, 1998 when
it acquired 70% of the issued shares of World Gems Corporation S.A.R.L., a
corporation incorporated pursuant to the laws of the Democratic Republic of
Madagascar. The purchase price for the Seventy (70%) per cent share holding was
payment of One Million (1,000,000) Restricted Rule 144 Common Shares of the
Company and a Note Payable of $100,000 from the Company to Fulcrum Holdings of
Australia Inc. ("Fulcrum") a Corporation incorporated pursuant to the laws of
the State of Delaware, being one of the United States of America. Fulcrum was
party to an Agreement with World Gems Corporation S.A.R.L. whereby Fulcrum
agreed to purchase Seventy (70%) percent of the issued and outstanding shares of
World Gems Corporation S.A.R.L. in exchange for shares of a Publicly Traded
Company and a covenant that Fulcrum would spend sufficient monies to enable
production to occur from the mining perimeters owned or controlled by World
Gems. The Company was Assigned Fulcrum's position in the said Agreement with
World Gems and the Shareholders with the consent of all parties for the
consideration noted herein before. Two Directors of the Company, Gerald E. Sklar
and Dror Moradov collectively own One Hundred (100%) Per Cent of the shares of
Fulcrum Holdings of Australia. After the purchase, Fulcrum held a position in
the Company representing 40.08 percent of the Company's issued and outstanding
shares at that time Subsequently, World Gems Corporation S.A.R.L. lost its
mining perimeter rights in Madagascar and the Board of Directors elected to
write off the investment in World Gems Corporation S.A.R.L. as worthless. The
Note Payable of $100,000 was canceled with the approval of Fulcrum.
The Company's third purchase occurred on the 11th day of May, 1999 when
the Company acquired One Hundred (100%) Per Cent of the issued and outstanding
shares of S & W, a Malagasy Corporation for and in consideration of Four Million
Five Hundred Thousand (4,500,000) Restricted Rule 144 Shares of the Company from
Carlyle Consulting Group Inc., a Corporation incorporated pursuant to the laws
of the Grand Cayman Islands, the sole shareholder of Stones and Wood Corporation
S.A.R.L.. The Company's purchase of the shares of Stones and Woods Corporation
S.A.R.L. was made by American Benefits Group (Israel) Ltd., a One Hundred (100%)
Percent owned Subsidiary of the Company. S & W owned the interests in 19 Type
III mining perimeters for mining of corundum (sapphire and ruby deposits), as
well as interests in several mining operations, including mining equipment. The
Company also acquired interests in 18 Type I Mining perimeters for 497,000
Restricted Rule 144 Shares in Madagascar, individually owned by Malagasy
Nationals, who were the Shareholders of S & W prior to Carlyle Consulting Group
Inc.'s acquisition of the Shares. These 18 Type I mining perimeters are held by
the Malagasy Nationals as nominees on behalf of S & W. These 18 Type I Mining
perimeters are for Corundum and Garnet. Certain of S & W's mining perimeters are
currently being tested through Stones and Wood's Joint-Venture Agreement with
Adam Mining Company Ltd. (ADAMCO), a Malagasy Corporation, whereby Stones and
Wood receives Twenty Five (25%) Per Cent of all testing obtained from ADAMCO's
testing efforts on the mining perimeters as a Lease Payment.
14
<PAGE>
Mining Development
The Company has acquired testing and mining concessions on 40 mining
perimeters in the Democratic Republic of Madagascar. The mining strategy is to
test, explore and map out reserves for precious stones such as sapphires,
emeralds, rubies, and other precious stones. Upon completing a reserve
calculation the Company will perform an evaluation of the reserve and an
economic analysis for the establishment of a viable mine operation. The testing
and exploring will be completed based on a Work Program developed by the
Company's Geologists and Engineers, Watts, Griffis and McOuat Limited.
Map Of Mine Area
The first requirement is to produce a large-scale plan of the mine area
which will provide a base on which to plot all of the information currently
available, including topography, geology and the outline of the present
workings. Ideally, the scale of this map would be about 1:5000, but not less
than 1:10,000.
This same base plan will also be used to plot the locations of exploration pits,
trenches and drill holes.
Pits And Trenches
One site geologists would have studied the definitions of Proven and
Probable Reserves so that they can develop a feel for the spacing of the pits
and and/or trenches that will be required to meet the requirements. Pits and
trenches would be spaced as follows:
o If the deposit occurs in the form of a wide blanket, whose length and
width are somewhat similar, then the best approach will be to sink pits to
bedrock at regular spacings on a grid, 50 meters for Probable Reserves and
25 meters for Proven Reserves.
o If the deposit is much longer in one dimension than the other, as it will
be if it is confined to a drainage channel, then the best approach would
be to dig trenches to bedrock across the deposit at intervals of about 50
meters for Probable Reserve and 25 meters for Proven Reserves.
Accurate elevations of the collar and depth of each pit will be required,
as well as a topographic profile of each trench.
Logging Of Pits And Trenches
A visual inspection would be made of each pit and trench and a small
sketch made to show the lithology encountered from surface to bottom. Particular
notice would be paid to the distribution of the sapphires, whether they are
randomly distributed throughout the host material, or occur in definite bands.
If they do occur in definite bands, the thickness would be recorded.
Testing for precious stones
15
<PAGE>
The Company's testing procedure involves excavating raw material and
placing this material into a soaking pit initiating the first stage extraction
process. In the first stage, the material is soaked, breaking down the material
into a paste or "rough slurry".
The "rough slurry" is then moved to the second stage in a trommel, where
large rocks, boulders and lumps are removed by a trommel screen with a 6"
(minus) mesh. While the large rocks are rejected, they are continuously and
rigorously inspected for embedded gems. The second stage process produces a
"fine slurry".
The "fine slurry" is then pumped into the third stage extraction plant,
which separates the precious stones and captures them in locked jigger boxes
while the waste water slurry flows into a tailing's settling pond where the
water is held for reuse in the first stage.
The precious stones are emptied from the locked jigger boxes at the end of
each shift under strict security supervision where the shifts' production is
weighed and recorded. The sorted precious stones are then put on a light table
and re-run through a second stage sorting process to enable categorization by
size and grade. The sorted stones are then recorded and placed in special locked
boxes for shipment.
To facilitate it's Malagasy Testing Operations, the Company has entered
into 3 Agreements with Dove Gems & Jewelry Co. Ltd. for the purchase of testing
equipment which will be transported from Thailand to the Company's Madagascar
mine sites. The purchase price for the testing equipment was USD Five Hundred
and Sixty-six Thousand Three Hundred Forty-nine dollars and forty-three cents
(USD$566,349.43).
Processing Of Samples
The volume of all of the material recovered from each individual pit and
trench, or portion of a trench, would be measured, processed through a wash
plant, and manually sorted to recover all of the sapphires in the sample. The
grade of the sample in carats per cubic meter would then be estimated.
Estimation Of Reserves
After all of the pits and/or trenches have been excavated and the samples
have been processed for the particular area or site, the resulting information
will be plotted on sections and used to complete an estimate of reserves.
Upon completion of the mapping of the test holes, pits and trenches and
the calculation of the estimate of the reserve, the Company would have the
Company's independent Geologists and Engineers verify the results of the
exploration work including the calculation of the estimate of reserves.
The personnel required to operate the Company's testing operations in The
Democratic Republic of Madagascar are obtained from four sources.
The first source of workers are trained Security Personnel. These
individuals are all military trained, accustomed to living in "third world"
conditions, have extensive security training and are familiar with the
Democratic Republic of Madagascar.
16
<PAGE>
The second source of workers is from April Mining Ltd. April supplies the
testing operations with supervisory licensed mechanics and heavy equipment
operators. Most of the workers have double licenses with security experience.
The majority of this group of workers has extensive experience in working and
living in third world countries.
The third source of workers is Dove Gems & Jewelry Co. Ltd. which augments
April's heavy equipment operators with Thai operators fully trained in testing
procedures and accustomed to living and working in third world countries.
The final source of workers is local Malagasy laborers who form the
majority of mine workers. These laborers will be trained as heavy equipment
operators and mechanics by the April workers.
Transportation and finishing of precious stones
From the mine sites, the stones are transported to Tel Aviv, Israel;
Bangkok, Thailand and/or Sri-Lanka for cleaning and processing.. The stones will
be transported either by way of an International Security Company, bonded and
insured, or by the Company's own Security Division. The fee charged by the
Sub-Contracted Factories for cleaning, heating, cutting and polishing of the
stones averaged five ($5) dollars/carat.
Marketing of precious stones
The marketing of the Company's mined precious stones is three-fold:
Firstly, the Company will inventory the majority of its stones. Certain of
the inventoried stones will be in a finished state and certain of the inventory
will be in a raw state. The intent of inventorying a large percentage of
production is to firstly not create an excess of product on the world market so
as to devalue the retail price of the product and secondly to create a large
enough inventory of stones so that the company will be in a position to use the
inventory as collateral for any loans required in order for the company to meet
its long term growth plans.
Secondly, the Company will use it's inventoried production to either sell
large quantities to particular buyers in a rough or finished state and to enable
the Company to have sufficient reserves of product to withstand any run of the
retail price.
Thirdly, the Company will finish certain of its product to a jewelry state
for sale over its Internet Shopping Mall, "RodeoIsland.com" and Club Rodeo. By
eliminating the "middleman", the Company's net margins will be higher than could
otherwise be expected and that the success of said sales will attract clients
and consumers to the site thus increasing the profitability of the site in its
own right.
Storage of precious stones
17
<PAGE>
The Company will utilize five storage locations for its mined precious
stones: The first site will be in the Democratic Republic of Madagascar where
the rough stones are extracted from the various mine sites and will be stored
pending shipment to other sites. The Company has a highly trained Security
Group, familiar with Madagascar and the mining industry, to safe guard the
product in Madagascar. The cost of storage at a Company controlled storage
location in Madagascar is far less than moving the product to world markets
immediately upon being extracted and the security at the Company storage site is
more protective than other sites available for raw product. Storage in
Madagascar also affords the Company savings in Transportation Costs as
controlled transportation of gems required for the Company's long-range goals
will only be shipped off the island.
The second storage site will be at the precious stone finishing facilities
in Israel, Thailand or Sri Lanka. Only those stones required by the Company will
be shipped to these facilities for finishing. While at the finishing facilities
the gems are insured by both the Company and the finishing facility for the
finished value of the stones.
The third storage facility will be at the Company's New York Marketing
Office, Total Gem Management, where sufficient finished stones will be
inventoried in order for the Company to create a presence in New York and to
generate sales from which the Company's web site will benefit as awareness of
the Company's product becomes well known.
The fourth storage site will be the Company storage facility in Calgary,
Alberta, Canada where a clearing house will be created to enable the Company to
meet its Internet retail sales and to store sufficient stones to conclude any
financing or large scale sails.
The fifth storage site will be in Israel at the vaults of Menavi
International Ltd. This storage site has been selected for primarily finished
stones in order for the Company to take advantage of the Israeli stone market
and the advance cutting techniques only available in Israel.
F. Mine Economic Analysis and Marketing Strategy
Testing from ABFG's test mine site (which does not include the testing
results from Joint Venture with ADAMCO) for the period May 30, 1999 to December
31, 1999 has resulted in the Company extracting 219,047 grams of sapphire mine
grade ore after completion of Sort I. The Sort I process entails the removal of
rock contaminants from the initial mining process. Upon completion of the Sort
II, the mine grade ore yielded 212,572.5 or 96% of sapphire stones. The Sort II
process entails the further grading of the precious stones and removal of
non-precious stones that were not detected in the Sort I process. The Sort III
process of the sapphire stones generated 108,589.2 grams of facet quality
sapphires and 103,327.1 grams of cabochon quality sapphire stones. The Sort III
process entails sorting the precious stones by grade and by size. Total weight
produced through testing was 211,916.3 grams of sapphire stones. During this
period, 18,483 m3 were processed yielding an average of 11.46 grams of sapphire
stone (Post Sort III) per cubic meter. The yield, based on the testing
performed, yielded 5.88 grams of facet quality sapphire per cubic meter and 5.59
grams of cabochon quality sapphire per cubic meter of ore processed.
The sapphire stones from the testing have not been cut and polished as of
the date of writing to establish the exact quality of the sapphire stones.
18
<PAGE>
The Company's Geologists and Engineers, Watts, Griffis and McOuat visited
the test site, M-4, and in their report issued July 24, 1999, reported, based on
5,003 cubic meters mined, Facet quality sapphire stone yield of 5.82 grams per
cubic meter and cabochon quality sapphire stone yield of 3.96 grams per cubic
meter. The yield for Facet quality sapphire stone of 5.88 grams per cubic meter
tested by the Company is consistent with the yield as reported by the Company's
Geologists and Engineers at 5.82 grams per cubic meter. The average of Facet
yield, as based on the Company's tests, had a range of 2.31 grams/m3 to a high
of 13.44 grams/m3
The Company has developed an Economic Model for production using Economic and
Modeling software, Crystal Ball 4.0(trademark of Decisioneering, Inc.), to
perform a sensitivity analysis to estimate potential production of the current
test mine site, M-4. The production model used the following assumptions:
Hours of Work:
Worst case: 0
Best case: 18 (2 shifts)
Most likely case: 14
Excavation Production:
Worst case: 8.37% of capacity (150m3) or 12.55 cubic meters per hour
Best case: 100% of capacity (150m3) or 150 cubic meters per hour
Most likely case: 27% of capacity (150m3) or 40 cubic meters per hour
Production Yield: (Ore Grade)
Worst case: 0 grams per cubic meter
Best case: 32.17 grams per cubic meter
Most likely case: 11.46 grams per cubic meter
19
<PAGE>
Facet Grade - Sort III
Worst case: 30%
Best case: 60%
Most likely case: 51.3%
Cutting Wastage:
Worst case: 85%
Best case: 80%
Most likely case: 83%
Cut Stone Grade - Extra Fine
Worst case: 0.00%
Best case: 10.00%
Most likely case: 3.00%
Cut Stone Grade - Fine
Worst case: 0.00%
Best case: 20.00%
Most likely case: 6.00%
Cut Stone Grade - Good
Worst case: 0.00%
Best case: 30.00%
Most likely case: 10.00%
Mining Costs
Worst case: $14,000.00 per day
Best case: $8,400.00 per day
Most likely case: $10,500.00 per day
Cut Stone Pricing for 0.5 - 1.0 cts size (Gemstone price Reports,
Gemworld International, Inc. vol. 15) US$/Carat:
Commercial, grade 1 $ 30.00
Commercial, grade 2 $ 50.00
Commercial, grade 3 $ 75.00
Commercial, grade 4 $ 125.00
Good, grade 4 $ 125.00
Good, grade 5 $ 185.00
Good, grade 6 $ 250.00
Fine, grade 6 $ 250.00
Fine, grade 7 $ 450.00
Fine, grade 8 $ 600.00
Extra fine, grade 8 $ 600.00
Extra fine, grade 9 $1,000.00
Overview
20
<PAGE>
The model was run on a 10,000 trial basis. The results of the model
indicate that daily production of sapphire ore can range from 228.72 grams to
94,478.91 grams with a median of 18,142.69 grams per day. The certainty of
producing 18,169.65 grams per day is between .017 and .023.
The yearly production of sapphire ore can range from 60,381.35 grams to
24, 942,432.12 grams with a median of 4,789,670.25 grams per year. The certainty
of producing 4,789,670.25 grams per year is between .017 and .023.
The cost of mining the sapphires ranged from $8,430.85 per day to
$13,910.82 per day, with a median of $10,866.35 per day. The certainty of
incurring the daily mining cost of $10,866.35 is between .016 and .022.
The yearly production of polished facet quality stones ranged from
29,408.8 carats to 12,906,393.3 carats with a median of 1,937,785.4 carats.
The market value of the inventory of facet quality stones ranged from
$53.69 per carat to $182.79 per carat with a median of $108.98 per carat.
The yearly market value of the polished facet quality stones ranged from
$3,185,371.73 to $1,701,249,929.17 with a median of $208,200,546.14.
The cost of the inventory of polished facet quality stones ranged from
$2,627,957.26 to $69,470,251.87 with a median of $12,877,561.74.
Based on the model, the average cost (median) of producing one carat of
facet quality sapphire which includes the mining, cleaning, and processing
ranged from $5.37 a carat to $104.51 per carat with a median of $6.63 per carat.
This results in a gross margin, before selling costs, ranging from $48.32 per
carat to $78.28 with a median of $102.35 per carat.
Based on the median yearly production of polished facet stones to be
1,937,785.4 carats with a probability of .018 to .024, one can extrapolate that
the yearly annual revenue from the sale of polished facet quality stones would
be $211,179,852 with a gross margin of $198,332,336.
The model is based on the assumption of a single mine operation and a zero
value for the Cabochon quality sapphire stones.
Marketing strategy
The Company plans to build up inventory of rough or unpolished sapphire
ore and polished facet quality sapphire stones. The Company proposes to market
20% of polished facet quality sapphire stones, through bulk or wholesale sales
to provide cash flow for the mining operations, overhead, and sales costs. Based
on the economic model of producing 1,937,785.4 carats of polished facet quality
sapphire stones, a 20% sale would result in a sale of 387,557 carats with a
median market value of $108.98 per carat resulting in a gross revenue of
$42,235,961. This would provide
21
<PAGE>
the Company with a pre-tax net profit of $13,235,961 after deducting for mining
operations (estimated $13 million), overhead (estimated $12 million) and sales
costs (estimated $4 million).
The Company plans to market a further 20% of its inventory of polished
facet quality sapphire stones by incorporating the sapphire stones into carat
jewelry and marketing the carat jewelry on the Internet.
The estimated cost of producing carat jewelry made using gold and in some
cases incorporating diamonds to accent the sapphire has been established at
$233.20 per carat of sapphire stone used. The retail value of the jewelry is
valued at $765.00 per carat of sapphire stone used. This would result in jewelry
costs of $90,378,292 with a market value of $296,481,105.
The Company plans to retail the jewelry through their Internet shopping
mall, RodeoIsland.com with a sale price being 80% of appraised retail value of
the carat jewelry.
The Company plans to further offer its carat jewelry at a discounted price
of the RodeoIsland sales price to members of Club Rodeo at 75% of RodeoIsland
sales price. Club Rodeo Members will receive cash rebates of up to 6% of the
Club Rodeo price and residual income up to 6% for purchases made by customers
referred to by the Club Rodeo member.
The Company plans on retailing their carat jewelry products on the basis
that 25% of the sales would be through RodeoIsland with the balance (75%)
through Club Rodeo. The impact of this sales strategy would provide the Company
with a weighted average of 65% of appraised retail value of the carat jewelry.
Based on the Company planning to produce jewelry with 20% (387,557 carats), of
the sapphire production, the revenue to the Company would be 65% of the
appraised value of $296,481,105 or $192,712,718.
Club Rodeo members would be eligible for a cash rebate on their purchases
of up to 6% plus up to a further 6% residual income from purchases made by
referrals. The Company has budgeted 10% of Club Rodeo sales for the
rebate/residual income program. Based on the budgeted revenue through Club Rodeo
of $133,416,497.00, it is estimated that $13,416,000 would be expended on the
rebate/residual income program.
The Company plans to advertise using print, radio and television media to
promote and advertise their Internet Shopping Mall, RodeoIsland.com. The budget
established for the advertising campaign is 10% of sales revenue or $19,271,000.
22
<PAGE>
The projected yearly summary of the retail sales of carat jewelry would be as
follows:
RodeoIsland sales $ 59,296,000
Club Rodeo $ 133,416,000
--------------
TOTAL SALES $ 192,712,000
Cost of Goods $ 90,378,000
--------------
Gross Margin $ 102,334,000
Less: Club Rodeo rebates $ 13,341,000
Advertising $ 19,271,000
Overhead @5% $ 9,600,000
--------------
NET MARGIN $ 60,122,000
==============
The Company is an emerging Company and anticipates that it would be able to
generate such retail sales over a planned growth period of five years. It is
anticipated that the first years retail sales would be $13,000,000 or 7% of the
overall planned sales.
Sales in the following years are projected as follows:
Year 2 $ 23,896,000
Year 3 $ 47,793,000
Year 4 $ 95,585,000
Year 5 $ 192,712,000
Club Rodeo will be marketed. Each membership will be offered at $200.00 and
renewed on an annual basis. The Company is planning to offer, as commission
sales on memberships, 50% of the membership price to referring members. The
administrative costs for establishing the membership and maintaining the
membership is budgeted at $50.00 per member. This would result in membership
sales margin of $50 per member on an annual basis. It is projected that each
growth would be aggressive, and would be as follows at the end of each year:
Year 1 9,360
Year 2 36,000
Year 3 79,920
Year 4 141,120
Year 5 219,600
The Company plans to introduce other products and services to RodeoIsland. The
Company will be seeking to market products produced by other companies either
through assignment, commission or portal basis. The Company will also be
reviewing other products to manufacture and retail through RodeoIsland and Club
Rodeo.
BUSINESS REVENUE STRATEGY
23
<PAGE>
<TABLE>
<CAPTION>
- ----------------------------------------------------------------------------------------------------------
($000,000's) Year 1 Year 2 Year 3 Year 4 Year 5
------------ ------ ------ ------ ------ ------
- ----------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
Bulk Sales 42.2 42.2 42.2 42.2 42.2
- ----------------------------------------------------------------------------------------------------------
Retail 13.0 23.9 47.8 95.6 193.0
- ----------------------------------------------------------------------------------------------------------
Memberships 1.9 7.2 16.0 28.2 43.9
---- ---- ----- ----- -----
- ----------------------------------------------------------------------------------------------------------
TOTAL REVENUE 57.1 73.3 106.0 166.0 279.1
- ----------------------------------------------------------------------------------------------------------
COST OF GOODS
- ----------------------------------------------------------------------------------------------------------
Mining 13.0 13.0 13.0 13.0 13.0
- ----------------------------------------------------------------------------------------------------------
Retail 6.1 11.2 22.4 44.8 90.5
- ----------------------------------------------------------------------------------------------------------
Membership .0 3.6 8.0 14.1 21.9
- ----------------------------------------------------------------------------------------------------------
Sales-Mining 4.0 4.0 4.0 4.0 4.0
- ----------------------------------------------------------------------------------------------------------
Sales-Retail 1.3 2.4 4.8 9.6 19.3
---- ---- ----- ----- -----
- ----------------------------------------------------------------------------------------------------------
Total Cost of Goods 25.3 34.2 52.2 85.5 148.7
---- ---- ----- ----- -----
- ----------------------------------------------------------------------------------------------------------
GROSS MARGIN 31.8 39.1 53.8 80.5 130.4
- ----------------------------------------------------------------------------------------------------------
- ----------------------------------------------------------------------------------------------------------
OVERHEAD
- ----------------------------------------------------------------------------------------------------------
Mining 12.0 12.0 12.0 12.0 12.0
- ----------------------------------------------------------------------------------------------------------
Retail .6 1.2 2.4 4.8 9.6
- ----------------------------------------------------------------------------------------------------------
Membership .5 1.8 4.0 7.1 11.0
---- ---- ----- ----- -----
- ----------------------------------------------------------------------------------------------------------
TOTAL OVERHEAD 13.1 15.0 18.4 23.9 32.6
---- ---- ----- ----- -----
- ----------------------------------------------------------------------------------------------------------
PRE-TAX NET PROFIT 18.7 24.1 35.4 56.6 97.8
---- ---- ----- ----- -----
- ----------------------------------------------------------------------------------------------------------
- ----------------------------------------------------------------------------------------------------------
</TABLE>
G. Competition
Sapphires are mined, most notably, in 18 countries worldwide. Of these
countries the Malagasy sapphire market competes directly with the Australian
sapphire market production from which, due to the lower price of African goods,
has dropped significantly in 1998 according to a report by Paul Mahler (a
Canadian gem dealer). (This report can be found at
http://canjewel.polygon.net/docs/mar99/gemmarket.html).
With very little competition and the strong presence of the Malagasy
sapphire on the world sapphire market, the Company believes that it is in a
prime position to take advantage of a burgeoning demand for finished sapphire
products and to take the lead in E-commerce sales of sapphire jewelry products.
24
<PAGE>
H. Workers
The Company currently employs 266 full time workers and management
believes that employee relations are good.
I. Government
The development, production and sale of stones is subject to federal,
state, provincial and local regulation in a variety of ways, including
environmental regulation and taxation. Federal, state, and local environmental
regulations generally have a significant effect on all companies, including the
Company, engaged in mining or other extractive activities, particularly with
respect to the permit requirements imposed on such companies, the possibilities
of project delays, and the increased expense required to comply with such
regulations. The Company believes it is in compliance with all such regulations
in all the jurisdictions in which it operates. The Company's management does not
believe the Company's ability to proceed with its plans in a timely and
commercially reasonable manner has been affected in a materially adverse way or
in a significantly different manner from other such companies in the industry.
Most operations involving the exploration for stones are subject to
existing laws and regulations relating to exploration procedures, safety
precautions, employee health and safety, air quality standards, pollution of
stream and fresh water sources, odor, noise, dust, and other environmental
protection controls adopted by federal, state, and local governmental
authorities as well as the rights of adjoining property owners. The Company may
be required to prepare and present to federal, state, or local authorities data
pertaining to the effect or impact that any proposed exploration or production
of minerals may have upon the environment. All requirements imposed by any such
authorities may be costly and time-consuming and may delay commencement or
continuation of exploration or production operations.
Future legislation and regulations are expected to continue to emphasize
the protection of the environment and, as a consequence, the activities of the
Company may be more closely regulated to further the cause of environmental
protection. Such legislation and regulations, as well as future interpretation
of existing laws may require substantial increases in capital and operating
costs to the Company and delays, interruptions, or a termination of operations,
the extent of which cannot be predicted. If Bills proposing changes to the
mining laws of Madagascar, which could include royalty fees, are enacted they
could have a significant effect on the ownership and operation of mining claims
in Madagascar including claims owned or held by the Company. Although it is not
possible to predict whether or in what form the government might enact changes
to the mining laws, amendments to current laws and regulations governing
operations and activities of mining companies or more stringent implementation
thereof could have a material adverse impact on the Company.
Applicable laws and regulations require the Company to make certain
capital and operating expenditures to maintain current operations and initiate
new operations. The Company's estimate of expenditures required to comply with
applicable regulations is included in all of its budgets for its projects.
Although these costs are difficult to determine, the Company is not currently
aware of any expenditures that are required in excess of budgeted amounts. The
Company incurs expenditures for land reclamation undertaken in the normal course
of operations in compliance with federal and state land restoration laws and
regulations. Under certain circumstances, it may be required to close an
operation until a particular problem is remedied or to undertake other remedial
actions, however, the Company is not aware of the existence of any such
circumstances at this time.
The Company is subject to income taxes, state and local franchise taxes,
personal property taxes, and state severance taxes levied by various
governmental units in the countries in which the
25
<PAGE>
Company operates. State severance taxes vary between the states and, within a
single state, the amount of tax, based on a percentage of the value of the stone
being extracted, vary from one type of stone to another stone. The Company's
operations are also subject to taxation by each locality in which it owns mining
perimeters or does business.
The Federal Trade Commission (FTC), which exercises jurisdiction over the
advertising of jewelry, has in the past several years instituted enforcement
actions against several jewelry companies for false and misleading advertising
of certain products. These enforcement actions have resulted in consent decrees,
agency cease and desist orders, judicial injunctions and the payment of fines by
the companies involved. In addition, the FTC has increased its scrutiny of
infomercials. There can be no assurance that the FTC will not question the
Company's advertising in the future. The FTC has been very active in enforcing
its requirements that companies possess adequate substantiation in their files
for claims in product advertising.
The Company intends to manufacture certain products pursuant to contracts
with customers who will distribute the products under their own or other
trademarks. Such customers are subject to the governmental regulations discussed
in this section in connection with their purchase, marketing, distribution and
sale of such products, and the Company will be subject to such regulations in
connection with the manufacture of such products and its delivery of services to
such customers. However, although some of the Company's customers are
independent companies, and their labeling, marketing and distribution of such
products is beyond the Company's control, the failure of these customers to
comply with applicable laws or regulations could have a material adverse effect
on the Company. Governmental regulations in foreign countries where the Company
plans to sell products may prevent or delay entry into the market or prevent or
delay the introduction, or require the reformulation, of certain of the
Company's products. Compliance with such foreign governmental regulations
generally will be the responsibility of the Company's customers in those
countries. Those customers are independent companies over which the Company will
have no control.
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND PLAN OF
OPERATION
1999 compared to 1998
Overview
The following should be read in conjunction with the Company's Financial
Statements and the notes related thereto, contained elsewhere in this Form 10-SB
(the "Report"). The Company intends that certain matters discussed in this Form
10-SB are "forward-looking statements" intended to qualify for the safe harbors
from liability established by the Private Securities Litigation Reform Act of
1995. These forward-looking statements can generally be identified as such
because the context of the statement will include words such as the Company
"believes", "anticipates", "expects", or "estimates", or words of similar
meaning. Similarly, statements that describe the Company's future plans,
objectives or goals are also forward-looking statements. Such forward-looking
statements are subject to certain risks and uncertainties that could cause
actual results to differ materially from those anticipated as of the date of
this report. Certain of such risks and uncertainties are described in close
proximity to such statements or elsewhere in this report.
26
<PAGE>
Shareholders, potential investors and other readers are urged to consider these
factors in evaluating the forward-looking statements and are cautioned not to
place undue reliance on such forward-looking statements.
Except for the historical information contained herein, certain of the
matters discussed in this report are "forward-looking statements," as defined in
Section 21E of the Securities Exchange Act of 1934, which involve certain risks
and uncertainties, which could cause actual results to differ materially from
those discussed herein including, but not limited to, risks relating to changing
economic conditions, changes in the prices of minerals, the results of
development and testing of the mining perimeters and actual mining and other
risks disclosed in this report.
The Company cautions readers that any such forward-looking statements are
based on management's current expectations and beliefs, but are not guarantees
of future performance. Actual results could differ materially from those
expressed or implied in the forward-looking statements. Unless the context
otherwise requires, the term "Company" refers to American Benefits Group, Inc.
For 1999, the Company had its first sales since commencement of operations
in 1997 which amounted to $5.041 million. The sales generated a gross margin of
$3.255 million or 65%. There were no sales in 1998.
On June 30, 1999, the Company had expended $2.99 million for Development
during the year as compared to $.743 million in 1998.
The Company had a development cost reduction of $100,000 as a result of a
cancellation of a note payable due to the sellers of World Gem Corporation
S.A.R.L. Management has elected to record the cancellation of debt on the World
Gem transaction as a reduction of development costs as the write-off of the
worthless subsidiary was charged to development costs.
The net operating results for the Company resulted in a loss of $(.004)
per share for 1999 compared to a loss of $(.03) per share in 1998.
Liquidity and capital resources
The Company's main source of liquidity is its inventory of precious
stones, jewelry and art. The precious stones are readily liquid and the amount
in inventory when liquidated would not impact the market to cause a negative
impact to the value of the inventory or the world market. The inventory consists
of the following:
<TABLE>
<CAPTION>
- --------------------------------------------------------------------------------------------------------------------
Dec 31/99 Jun 30/99 Jun 30/98
- --------------------------------------------------------------------------------------------------------------------
COST UNITS COST UNITS COST
UNITS ($000) ($000) ($000)
- --------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
Rough, unprocessed stone (Grams) 317,532.2 $3,305 69,925.13 $ 921 0 $ 0
- --------------------------------------------------------------------------------------------------------------------
Polished Gems (Carats) 23,472.03 $2,768 293.6 $ 19 450.8 $ 31
- --------------------------------------------------------------------------------------------------------------------
Finished Jewelry (cost) N/A $ 3 N/A $ 7 N/A $ 0
- --------------------------------------------------------------------------------------------------------------------
</TABLE>
27
<PAGE>
<TABLE>
- --------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
Art (cost) N/A $ 53 N/A $ 53 N/A $ 0
- --------------------------------------------------------------------------------------------------------------------
TOTAL $6,129 $1,000 $ 31
- --------------------------------------------------------------------------------------------------------------------
</TABLE>
The inventory value of $6.129 million for December 31, 1999 is valued at
cost. The market value of the inventory has a value of $14.2 million on December
31, 1999, $1.2 million on June 30, 1999 and $90 thousand on June 30, 1998. The
dramatic increase in market value is due principally to an inventory of cut and
polished precious stones. The incremental cost of inventory from June 30, 1999
to December 31, 1999 increased by $5.0 million producing an increase in market
value of $13 million or a ratio of 2.6 to 1.
The higher inventory of precious stones, art and jewelry is primarily
related to:
i) Increased testing of mine sites in Madagascar;
ii) Build up of polished gems stock;
iii) Build up of art and jewelry inventory to ensure fulfillment of
testing of the Internet Shopping Mall.
Capital expenditures amounted to approximately $546 thousand for the first
half of the year, $4.94 million in 1999 and $644 thousand in 1998. The capital
expenditures of the Company were incurred in three areas: Development Projects,
$4.1 million (accumulated December 31, 1999); Fixed Assets, $303 thousand
(accumulated December 31, 1999); and Mining Concessions, $4.4 million
(accumulated December 31, 1999).
The majority of expenses for Development Projects are soft costs expended
in development projects which included Mining Development (accumulated total
$2.74 million, December 31, 1999), Internet Development (accumulated total $1.36
million, December 31, 1999), and E-Block Research and Development (accumulated
total $10 thousand, December 31, 1999).
The balance of the Capital Expenditures was for fixed assets which, on
December 31, 1999, included $169 thousand for office furniture, $115 thousand
for mine facilities and equipment, $19 thousand for the initial organization
costs of the Company, and $4.4 million for the acquisition of SOA, S & W and the
mining interests in 37 mining perimeters in Madagascar. Although the Company
does not know the exact amount of Capital Expenditures it will incur, it
estimates the capital required in 2000 will be in the range of $10-15 million.
The Company plans to continue to increase its testing and development of the
mining perimeters in Madagascar and in other countries, continue to develop and
test the Internet Shopping Mall, RodeoIsland.com and continue to research and
develop the e-block technology.
The Company has current liabilities as of December 31, 1999 of $4.02
million which consists of Cost of Goods $2.6 million, Trade Payables $630
thousand and $775 thousand to a major shareholder of the Company. The Company
has no lines of credit established and has contingent liabilities as of December
31, 1999 of $566 thousand for fixed asset purchase. The Company has a positive
working capital of $2.1 million as of December 31, 1999 and a liquidity ration
of 1.66 (current assets/current liabilities).
28
<PAGE>
The Company has financed its operations for the year end June 30, 1999
through sales, several equity issues and credit from a major shareholder. The
equity issues for 1999 were $7.8 million resulting in the Company issuing
25,292,075 shares of common stock at an average price of $.3085 per share. The
Common Stock was issued under Rule 504, $1 million, Rule 504, 10,000,000 shares
at an average price of $.10 per share, and Rule 144, $6.3 million, 15,292,075
Rule 144 shares at an average price of $.4448 per share. Sales in 1999 amounted
to $5.0 million. The Company expects that the future growth of the Company will
be financed from internally generated funds, additional capital injection by the
major shareholder, bank lines of credit, establishment of a subordinated debt
secured with the precious stone inventory, and continuation of its equity
program.
The Board of Directors of the Company have not declared a cash dividend or
dividend in kind as of December 31, 1999.
Additional information
The Company intends to provide an annual report to its security holders,
and to make quarterly reports available for inspection by its security holders.
The annual report will include audited financial statements.
The Company will, as a result of this filing, become subject to the
informational requirements of the Securities Exchange Act of 1934 (the "Act")
and, in accordance with the Commission, such reports, proxy statements and other
information may be inspected at public reference facilities of the Commission at
Judiciary Plaza, 450 Fifth Street N.W., Washington D.C. 20549; Northwest Atrium
Center, 500 West Madison Street, Suite 1400, Chicago, Illinois 60661; 7 World
Trade Center, New York, New York, 10048; and 5670 Wilshire Boulevard, Los
Angeles, California 90036. Copies of such material can be obtained from the
Public Reference Section of the Commission at Judiciary Plaza, 450 Fifth Street
N.W., Washington, D.C. 20549, at prescribed rates. For further information, the
SEC maintains a website that contains reports, proxy and information statements,
and other information regarding reporting companies at http://www.sec.gov.
ITEM 3. DESCRIPTION OF PROPERTY
The principal physical mining perimeters owned or leased by the Company
are as follows:
Corporate office
The registered corporate office is located at 10 Fairway Drive, Suite 307,
Deerfield Beach, Florida, 33441. These premises are 200 sq. ft, and cost the
Registrant $500 per month (inclusive of operating costs) on a month to month
basis.
Marketing and Internet operations office (executive office)
29
<PAGE>
The Company's marketing and Internet office is located at 900, 840 - 7th
Avenue S.W., Calgary, Alberta, Canada, T2P 3G2. These premises are approximately
13,325 sq. ft, lease from a company owned by a principal of the Company on a
month to month basis, and cost the Registrant $4.50 per sq. ft. per year rent.
Operating costs, at cost, are $6.71 per square foot per year.
Madagascar Office
The Malagasy Office is located Lot 152E Bis Amborompotsy, Talatamaty,
Antananarivo 105, Madagascar. These premises are approximately 2500 sq. ft. and
cost the Registrant $600 per month rent and operating costs of $ 300 per month.
The Registrant became the lessee on 1st November 1997 and the lease is on a
month to month basis
Saowani Development S.A.R.L. Mining perimeters
The Company (SAO) is partner to a joint venture with Ms. Eliana Georgette
Samuel Harinoro whereby SAO was given exclusive rights to explore and test on
three (3) emerald bearing mining perimeters (these mining perimeters were part
of the original 13 mining perimeters of SAO). The Joint Venture commenced in
June 1999, SAO will fund the exploration and testing of the mining perimeters.
Profits arising from the Joint Venture will be distributed on a basis of 80% to
SAO and 20% to Ms. Harinoro. The Mining perimeters are classified as Type I
mining perimeters.
The Registrant's subsidiary interest in the permits is as joint venture
partner. There are no encumbrances registered against the title to the lands or
the permits. The terms of the permits is two (2) years renewable exploitation
permits for the emerald and sapphires mining perimeters and four (4) years
research permits, which can be changed to thirty (30) years exploitation
renewable permits for the gold. There are fixed costs regarding the renewal of
the permits. This cost is a government tax which is not exceeding $ 200 per
perimeter per annum. This agreement secures SAO interest in the mining
perimeters for its commitment to arrange the investment needed for the
development of the permits. The Registrant has the sole right to mine each of
the mining perimeters. There is no need for the Registrant to insure its mining
perimeters interests as there is no danger of the `stones' being destroyed or
damaged by an insurable peril.
S & W
The Company has acquired interests in 37 mining perimeters through its
acquisition of S & W by its subsidiary American Benefits Group (Israel) Ltd. The
mining perimeters consist of 18 Type I mining perimeters and 19 Type III mining
perimeters. The Type I mining perimeters allow ABFG to test for Corundum on 17
mining perimeters, Garnet on 11 mining perimeters and Sapphires on 5 mining
perimeters. The Type III mining perimeters allow ABFG to test, explore and
exploit on all 19 mining perimeters for Corundum.
ITEM 4. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT
The following table sets forth certain information as of April 3, 2000,
with respect to the beneficial ownership of common stock by (i) each person who,
to the knowledge of the Company,
30
<PAGE>
beneficially owned or had the right to acquire
more than 5% of the outstanding common stock, (ii) each Director of the Company,
and (iii) all executive Officers and Directors of the Company as a group:
<TABLE>
<CAPTION>
Name and Address Amount and Nature Percent
of Beneficial Owner of Beneficial Ownership Of Class
- ------------------------------------- ----------------------------- --------------
<S> <C> <C>
Fulcrum Holdings of Australia, Inc. 14,500,000 20.95%
Gerald E. Sklar, beneficial owner 85%
Dror Moradov, beneficial owner 15%
1 South Ocean Blvd., Suite 301
Boca Raton, Florida 33432
Carlyle Consulting Company Ltd. 4,500,000 6.50%
P.O. Box 792
Cayman Island, BVI
Jerry G. Mikolajczyk 1,400,000 2.02%
10 Fairway Drive, Suite 307
Deerfield Beach, Florida 33441
Gerald E. Sklar 1,400,000 2.02%
900, 840 7th Avenue, SW
Calgary, Alberta T2P 3G2
Canada
Dror Moradov 1,400,000 2.02%
115A Maibahoaka
Ivato Antananarivo 105, Madagascar
Peter D. Jones 400,000 0.58%
900, 840 7th Avenue SW
Calgary, Alberta T2P 3G2
Canada
</TABLE>
(1) Beneficial ownership is determined in accordance with the rules of the
Securities and Exchange Commission and generally includes voting or
investment power with respect to securities.
ITEM 5. DIRECTORS, EXECUTIVE OFFICERS, PROMOTERS AND CONTROL PERSONS
The President, CEO, CFO and Director of the Registrant is Jerry G.
Mikolajczyk. Jerry is 46 years old and for the past several years was directly
involved in large development companies. Jerry was appointed to his positions
August 26th 1997 and will stand for re-election as director at the next annual
meeting of shareholders for a further one year term.
31
<PAGE>
The Vice President and Director of the Registrant is Gerald Sklar. Gerald
is 61 years old and has been involved in public companies for the past several
years. Gerald was appointed to his positions July 16th, 1997 and will stand for
re-election as director at the next annual meeting of shareholders for a further
one year term.
The Vice President and Director is Dror Moradov. Dror is 36 years and has
been involved in mining and gem operations in Israel Thailand and Madagascar for
the past thirteen years. Dror was appointed to his positions August 26th, 1997
and will stand for re-election as director at the next annual meeting of
shareholders for a further one year term.
DIRECTORS AND EXECUTIVE OFFICERS
Name Age Position
---- --- --------
Jerry George Mikolajczyk 46 President, CEO, CFO, and Director
Gerald E. Sklar 61 Vice-President and Managing Director
Dror Moradov 36 Vice-President and Director
DIRECTOR COMPENSATION
All Directors of the Company or any of it's Subsidiaries, past and
present, have received no compensation from the Company save and except for
payment of their valid Company expenses..
32
<PAGE>
ITEM 6. EXECUTIVE COMPENSATION
Summary compensation table (Annual compensation)
<TABLE>
<CAPTION>
Name and Principal Salary ($) and Other Annual
Position Year Compensation
- ------------------ ---- ---------------------------
<S> <C> <C>
Jerry G. Mikolajczyk - President, CEO & CFO 1997 0
1998 0
1999 0
Gerald E. Sklar - Vice President 1997 0
1998 0
1999 0
Dror Moradov- Vice President 1997 0
1998 0
1999 0
</TABLE>
Underlying Options
The Company, to date, has not granted any options to purchase stock of the
Company to any individuals.
ITEM 7. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
The Company's first acquisition occurred on the 26th day of August, 1997
when it acquired Ninety (90%) percent of the issued shares of SAO ("Saowani") a
Corporation incorporated pursuant to the laws of the Democratic Republic of
Madagascar. The acquisition was made through an Assignment of another parties
interest in an Agreement with Saowani for the third party's purchase of the
Saowani shares. The Company's purchase price for the Ninety (90%) per cent share
holding was payment of Three Million (3,000,000) Rule 144 Common Shares of the
Company to Fulcrum Holdings of Australia Inc. ("Fulcrum") a Corporation formed
pursuant to the laws of the State of Delaware. Fulcrum was the party to the
Agreement with Saowani and certain of the Shareholders of Saowani whereby
Fulcrum agreed to purchase Ninety (90%) percent of the issued and outstanding
shares of Saowani in exchange for shares of a Publicly Traded Company and a
covenant that Fulcrum would spend sufficient monies to enable production to
occur from the mining perimeters owned or controlled by Saowani or its
Shareholders. The Company was Assigned Fulcrum's position in the Agreement with
Saowani and the Shareholders with the consent of all parties concerned for the
previously noted consideration including the covenant to expend sufficient
monies to enable production from the Saowani Mining perimeters to result.
As a result of this transaction, Fulcrum became a Registered Shareholder
of Three Million (3,000,000) Restricted Rule 144 pre-dividend Common Shares of
the Company representing Thirty Seven and Six Tenths ( 37.6%) Per Cent of the
Company's issued and outstanding stock at that time. Two Directors of the
Company, Gerald E. Sklar and Dror Moradov collectively own One Hundred (100%)
Per Cent of the shares of Fulcrum Holdings of Australia, Inc..
33
<PAGE>
The Company's second purchase occurred on the 19th day of June, 1998 when
it acquired 70% of the issued shares of World Gems Corporation S.A.R.L., a
corporation incorporated pursuant to the laws of the Democratic Republic of
Madagascar. The purchase price for the Seventy (70%) per cent share holding was
payment of One Million (1,000,000) Restricted Rule 144 Common Shares of the
Company plus a Note Payable in the amount of One Hundred Thousand ($100,000.00)
Dollars to Fulcrum. Fulcrum was party to an Agreement with World Gems and
certain of the shareholders of World Gems whereby Fulcrum agreed to purchase
Seventy (70%) percent of the issued and outstanding shares of World Gems in
exchange for shares of a Publicly Traded Company and a covenant that Fulcrum
would spend sufficient monies to enable production to occur from the mining
perimeters owned or controlled by World Gems or its shareholders. The Company
was Assigned Fulcrum's position in its Agreement with World Gems and the
Shareholders with the consent of all parties for the consideration previously
noted.
As a result of this transaction Fulcrum became a Registered Shareholder of
a further One Million (1,000,000) Restricted Rule 144 Common Shares of the
Company for consideration of $1,000. Two Directors of the Company, Gerald E.
Sklar and Dror Moradov, collectively own One Hundred (100%) Per Cent of the
shares of Fulcrum Holdings of Australia, Inc. Upon completion of this purchase,
it gave Fulcrum a position in the Company representing Forty and Eight
Hundredths ( 40.08%) Per Cent of the issued and outstanding shares.
Subsequent to this transaction World Gems forfeited the Perimeter Rights
it had acquired in Madagascar and the Company's Board of Directors elected to
write off it's investment in World Gems as worthless. The One Hundred Thousand
($100,000.00) Dollar Note Payable to Fulcrum was written off with the consent of
Fulcrum.
The Company entered into an Agency Agreement on July 1, 1997, with Gerald
Sklar, Managing Director and shareholder of the Company, and with Trikal
International Management Limited to perform services on behalf of the Company.
The Agency Agreement allowed Gerald E. Sklar and Trikal to incur expenses on
behalf of the Company and its subsidiaries and that the Company and its
subsidiaries agree to reimburse Gerald E. Sklar and/or Trikal for all expenses
incurred plus reasonable overhead cost reimbursements. On December 31, 1999, the
Company owed Trikal $775,194 for expenses paid by Trikal in excess of cash
advances from the Company.
ITEM 8. DESCRIPTION OF SECURITIES
The Registrant has two hundred ten million (210,000,000) authorized shares
of which two hundred million (200,000,000) are Common Voting Shares with no par
value and ten million (10,000,000) are Preferred Shares with a par value of ten
($10.00) dollars per share.
34
<PAGE>
Common Stock
Pursuant to the company's Certificate of Incorporation, the Board of
Directors has authority to issue up two hundred million (200,000,000) shares of
Common Stock at no par value. As of April 3, 2000 there were 69,219,075 shares
of Common Stock outstanding and 205 holders of record of Common Stock. Each
holder of common Stock is entitled to one vote for each share hold on all
matters. Cumulative voting in elections of Directors and all other matters
brought before Stockholders Meetings, whether they be annual or special, is not
provided for under the Company's Certificate of Incorporation or By Laws.
However, under certain circumstances, cumulative voting rights in the election
of the Company's Directors may exist under Florida law. See "Description of
Capital Stock Application of Florida General Corporate Law." The holders of
Common Stock will be entitled to receive such Dividends if any as may be
declared by the Board from time to time out of legally available funds, subject
to any Preferential Dividend Rights of any outstanding shares of Preferred
Stock. Upon the liquidation , dissolution, or winding up of the Company, the
holders of the Common Stock will be entitled to share ratably in all assets of
the Company that are legally available for distribution, after payment of all
debt and other liabilities and distribution in full of preferential amounts, if
any, to be distributed to holders of Preferred Stock. The holders of Common
Stock are not entitled to Preemptive, Subscription, Redemption, or Conversion
Rights. The rights, preferences and privileges of holders of Common Sock are
subject to, and may be adversely affected by, the rights of any series of
Preferred Sock which the Company may designate and issue in the future.
Preferred Stock
Pursuant to the Company's Certificate of Incorporation, the Board of
Directors has the authority, without further action by the Stockholders, to
issue up to TEN MILLION (10,000,000) Shares of Preferred Stock, in one or more
series and to fix the designation, powers, preferences, privileges and relative
participating, optional or special rights and qualifications, limitations or
restrictions thereof, including dividend rights, conversion rights, voting
rights, terms of redemption and liquidation preferences any or all of which may
be greater than the rights of the Common Stock. The Board of Directors, without
Stockholder approval, can issue Preferred Stock with voting, conversion or other
rights that could adversely affect the voting power and other rights of the
holders of Common Stock. Preferred Stock could thus be issued quickly with terms
calculated to delay or prevent a change in control of the Company or make
removal of Management more difficult. Additionally, the issuance of Preferred
Stock may have the effect of decreasing the market price of the common stock and
may adversely affect the voting and other rights of the holders of Common Stock.
As of the date of this Form, the are no issued and outstanding shares of
Preferred Stock.
Registration Rights
There are no particular Registration Rights for shares of the Company in
effect.
35
<PAGE>
Transfer Agent and Registrar
Florida Atlantic Stock Transfer Company has been appointed as the Transfer
Agent and Registrar for the Company's Common Stock.
PART II
ITEM 1. MARKET PRICE OF AND DIVIDENDS ON THE REGISTRANT'S COMMON EQUITY AND
OTHER SHAREHOLDER MATTERS
The common stock is currently quoted on the National Daily Quotation
Bureau's "Pink Sheets" under the symbol "ABFG." The following table sets forth
the high and low last sale prices for the common stock for each fiscal quarter,
or interim period, in which the common stock has been publicly traded. These
prices do not reflect retail mark-ups, markdowns or commissions and may not
represent actual transactions.
Quarter Ended Low High
------------------- ------ -------
September 30, 1998 $ .562 $ .843
December 31, 1998 $ .281 $ .468
March 31, 1999 $ .36 $ .40
June 30, 1999 $ .375 $ .50
September 30, 1999 $ .15 $ .25
December 31, 1999 $ .13 $ .16
March 31, 2000 $ .35 $ .42
The closing sales price on April 3, 2000 reported on the Pink Sheets was
$0.37 per share of common stock.
To date, the Company has not paid any cash dividends on its common stock.
On November 18, 1998, the Company forward split its common stock on a three for
one basis.
ITEM 2. LEGAL PROCEEDINGS
Other than litigation in the ordinary course of business, the Company is
not presently a party to any material litigation nor to the knowledge of
management is any litigation threatened against the Company which would
materially affect the Company.
ITEM 3. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS
There have been no disagreements between the Registrant and its
Accountants. The Registrant has retained the services of three different
Accountants during its first three years of operation, all at the direction of
its Directors.
36
<PAGE>
The first financial statements for the period ending June 30, 1996 were
prepared by Messrs. Daskal, Boulton et. al. of Boca Raton, Florida. These
accountants were retained by the prior management of the Registrant.
The second year's financial statements for the period ending June 30, 1997
were prepared by Messrs. Sweeney Gates et. al. of Fort Lauderdale, Florida.
These accountants were known to the prior management of the Registrant and in
order to effect an orderly transition of accounting information were retained by
new management to prepare the second year's financial statements.
Subsequent financials will be prepared by Messrs. Moffitt and Company of
Scottsdale, Arizona, who are the Accountants selected by the current management
of the Registrant.
The five audited financial statements prepared for the years ended June
30th, 1996, June 30th 1997, Dec 31, 1997, June 30, 1998, and June 30, 1999;and
two unaudited (Review) financial statements for the periods ending September 30,
1999 and December 31, 1999 disclosed no adverse opinions, disclaimer of opinion
or was qualified or modified as to uncertainty, audited scope, or accounting
principles. The election of management to change accountants was in no way
related to the opinions expressed by the accountants nor did any of the
accountants refuse to act for the Registrant.
ITEM 4. RECENT SALES OF UNREGISTERED SECURITIES
In February 2000, the Company issued an aggregate of 15,395,000 Shares of
Common stock to an aggregate of 44 officers, workers and consultants of the
Company as additional compensation for services rendered. The value of the
shares on the date of issuance was $1,438,581.00. The shares were issued without
registration under the Securities Act in reliance on the exemption from
registration provided by 4(2) of the Securities Act.
In November 1999, the Company issued 2,358,000 Shares of Common stock to
Falcon Energy of Illinois, Inc. (Falcon). This issue was part of an unfilled
issue. On December 30, 1998, Trikal International Management, Limited ("Trikal")
subscribed for 3,858,000 shares of the Company's common stock for $.069 per
share. This subscription was made pursuant to an agreement with Falcon Energy of
Illinois ("Falcon") whereby Trikal would subscribe and have the Shares
registered in the name of Falcon in consideration and satisfaction of a debt
owed by Trikal to Falcon of $266,100. This debt is reflected in a Promissory
Noted dated November 6, 1998. The Company subsequently issued 1.5 million Shares
leaving a balance of 2,358,000 which should have been issued as part of the
original subscription which was made pursuant to Rule 504 of Regulation D.
In October 1999, the Company issued 1,000,000 Shares of Common stock to
Saul Ben-Heim of Israel in connection with services rendered. The value of the
Shares on the date of issuance was $57,500. The Shares were issued without
registration under the Securities Act in reliance on the exemption from
registration provided by 4(2) of the Securities Act.
37
<PAGE>
In October 1999, the Company issued an aggregate of 225,000 Shares of
Common stock to 9 consultants of the Company as additional compensation for
services rendered. The value of the shares on the date of issuance was $19,935.
The shares were issued without registration under the Securities Act in reliance
on the exemption from registration provided by 4(2) of the Securities Act.
In June 1999, the Company issued an aggregate of 5,220,000 Shares of
Common stock to 36 workers and consultants as additional compensation for
services rendered. The value of the shares issued on the date of issuance was
$1,096,200. The shares were issued without registration under the Securities Act
in reliance on the exemption from registration provided by 4(2) of the
Securities Act.
From February 1999 through June 1999, the Company issued and sold an
aggregate of 7,410,075 Shares of Common stock to an aggregate of 47 accredited
investors. The Common Shares were sold pursuant to an offering of Rule 144
Common Stock at a unit price of $.30 per unit. The aggregate sale resulted in an
aggregate offering of $2,223,025. The units were issued without registration
under the Securities Act in reliance on the exemption from registration provided
by Rule 144 and Section 4(2) promulgated under the Securities Act of 1933, as
amended.
In June 1999, the Company issued and sold 23,000 Common Shares to Dove
Gems & Jewelry Co., Ltd. in exchange for a deposit on equipment. The value of
the shares on the date of issuance was $23,055. The shares were issued without
registration under the Securities Act in reliance on the exemption from
registration provided by 4(2) of the Securities Act.
In May 1999, the Company's subsidiary, American Benefits Group (Israel)
Ltd., purchased certain assets of Carlyle Consulting Corporation in exchange for
the Company's issuance of 4,500,000 Shares of Common stock. The value of the
shares on the date of issuance was $3,151,891.13. The shares were issued without
registration under the Securities Act in reliance on the exemption from
registration provided by 4(2) of the Securities Act.
In May 1999, the Company's subsidiary, American Benefits Group (Israel)
Ltd., purchased certain assets of Marc Suzannah in exchange for the Company's
issuance of 497,000 Shares of Common stock. The value of the shares on the date
of issuance was $348,108.87. The shares were issued without registration under
the Securities Act in reliance on the exemption from registration provided by
4(2) of the Securities Act.
From December 1998 through to May 1999, the Company issued and sold to 14
accredited investors 10,000,000 Units, each Unit consisting of 1 share of Common
stock at an average price $.10 per Unit for an aggregate offering price of
$1,000,000. The Units were issued without registration under the Securities Act
in reliance on the exemption from registration provided by Regulation D
promulgated under the Securities Act.
ITEM 5. INDEMNIFICATION OF DIRECTORS AND OFFICERS
Chapter 607 of the Florida Statutes provides for the indemnification of
officers and directors under certain circumstances against expenses incurred in
successfully defending against a claim and
38
<PAGE>
authorizes Florida corporations to indemnify their officers and directors under
certain circumstances against expenses and liabilities incurred in legal
proceedings involving such persons because of their being or having been an
officer or director.
Section 607.0850 of the Florida Statutes permits a corporation, by so
providing in its certificate of incorporation, to eliminate or to limit a
director's liability to the corporation and its stockholders for monetary
damages arising out of certain alleged breaches of their fiduciary duty. Section
607.0850 provides that no such limitation of liability may affect a director's
liability with respect to any of the following: (i) breaches of the director's
duty of loyalty to the corporation or its stockholders; (ii) acts or omissions
not made in good faith or which involve intentional misconduct of knowing
violations of law; (iii) liability for dividends paid or stock repurchased or
redeemed in violation of the Florida General Corporation Law; or (iv) any
transaction from which the director derived an improper personal benefit.
Section 607 does not authorize any limitation on the ability of the corporation
or its stockholders to obtain injunctive relief, specific performance or other
equitable relief against directors.
The Company's By-laws provide each director or officer of the corporation
shall be indemnified as of right to the fullest extent permitted by current or
future legislation or by current or future judicial or administrative decisions
against any fine, liability, cost, or expense, including attorneys' fees,
asserted against or incurred by the director or officer. The corporation can
agree to grant the same right of indemnification to other agents or workers of
the corporation and to persons serving at the request of the corporation as its
representative in the position of a director, officer, agent, or employee of
another enterprise. The right of indemnification shall extend to the heirs,
personal representatives, and estate of each person granted the right pursuant
to the preceding sentences. The right of indemnification shall not be exclusive
of other rights to which those seeking an indemnification may be entitled. The
corporation may maintain insurance at its expense to protect itself and any such
person against any fine, liability, cost, or expense, whether or not the
corporation would have the legal power to directly indemnify the person against
that liability.
The foregoing right of indemnification is not deemed to be exclusive of
any other rights to which those seeking indemnification may be entitled under
any by-law, agreement, vote of stockholders or disinterested directors, or
otherwise.
39
<PAGE>
PART F/S
FINANCIAL STATEMENTS
The audited financial statements of the Company, prepared by Moffitt &
Company, P.C. Certified Public Accountants, 5040 East Shea Boulevard, Suite 270,
Scottsdale, Arizona 85254 required by Regulation S-X commence on page F/S 1
hereof in response to this Item of this Registration Statement on Form 10-SB and
are incorporated herein by this reference.
40
<PAGE>
PART III
ITEM 1. INDEX TO EXHIBITS
2 Reorganization Agreement (not applicable)
3 (i) Articles of Incorporation and Amendments thereto
3 (ii) Amended and Restated By-Laws
4 Instruments defining the rights of holders (refer to exhibit 3)
9 Voting Trust agreement (not applicable)
10 Material contracts:
1. Agreement to purchase shares of Saowani Development S.A.R.L. from
Fulcrum; Letter of Intent; Assignment Agreements dated 7/97 and 8/97
2. Agreement to purchase shares of American Benefits Group from Fulcrum
Share Purchase Agreement between Fulcrum and World Gems Corporation
S.A.R.L.
3. Agreement to purchase shares of Trump Oil Ltd. from Gerald Sklar
4. Agreement to purchase shares of Stones & Wood from Carlyle
Consulting Corporation, Ltd.
5. Memorandum of Understanding for Joint Venture Agreement with Menavi
Group; Amendment to Agreement .
6. Memorandum of Understanding for Joint Venture Agreement with Dove
Gems & Jewelry Co., Ltd.
7. Joint Venture Agreement between Ms. Eliana Georgette Samuel Harinoro
and Saowani Development S.A.R.L.
8. Mining Agreement between Adam Mining Company Ltd. and S & W
9. Agency Agreement between American Benefits Group, Inc. and Gerald
Sklar and Trikal International Management Ltd.
10. Mining Agreement between American Benefits Group, Ltd. and April
Mining Group, Ltd.
11 Statement re: Computation of per share earnings (see Footnotes in
Financial Statements)
21 Subsidiaries of the Registrant
24 Power of Attorney (not applicable)
27 Financial Data Schedule
99 A Technical Review of Sapphire Mining perimeters in Northern
Madagascar for American Benefits Group, Inc.
41
<PAGE>
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) of the Securities
Exchange Act of 1934, the registrant has duly caused this Form 10-SB to be
signed on its behalf by the undersigned, thereunto duly authorized.
American Benefits Group, Inc.
April 3, 2000 /s/ Jerry G. Mikolajczyk
----------------------------------------
President, Chief Executive Officer and
Chief Financial Officer
/s/ Gerald E. Sklar
----------------------------------------
Vice-President
42
<PAGE>
AMERICAN BENEFITS GROUP, INC.
AND SUBSIDIARIES
(DEVELOPMENT STAGE COMPANIES)
CONSOLIDATED FINANCIAL STATEMENTS
DECEMBER 31, 1999
<PAGE>
TABLE OF CONTENTS
Page No.
--------
INDEPENDENT ACCOUNTANTS' REVIEW REPORT.............................. 1
FINANCIAL STATEMENTS
Consolidated Balance Sheet................................... 2
Consolidated Statements of Comprehensive (Loss).............. 3
Consolidated Statements of Operations........................ 4
Consolidated Statement of Shareholders' Equity............... 5 - 6
Consolidated Statements of Cash Flows........................ 7 - 8
Notes to Consolidated Financial Statements................... 9 - 18
<PAGE>
INDEPENDENT ACCOUNTANTS' REVIEW REPORT
To the Shareholders and Board of Directors
American Benefits Group, Inc. and Subsidiaries
(Development Stage Companies)
Deerfield Beach, Florida
We have reviewed the accompanying balance sheet of American Benefits Group, Inc.
and Subsidiaries (Development Stage companies) as of December 31, 1999, and the
related statements of comprehensive (loss), operations, shareholders' equity and
cash flows for the six months then ended and for the period July 1, 1997 (date
of development stage) to December 31, 1999, in accordance with Statements on
Standards for Accounting and Review Services issued by the American Institute of
Certified Public Accountants. All information included in these financial
statements is the representation of the management of American Benefits Group,
Inc. and Subsidiaries.
A review consists principally of inquiries of company personnel and analytical
procedures applied to financial data. It is substantially less in scope than an
audit in accordance with generally accepted auditing standards, the objective of
which is the expression of an opinion regarding the financial statements taken
as a whole. Accordingly, we do not express such an opinion.
Based on our review, we are not aware of any material modifications that should
be made to the accompanying financial statements in order for them to be in
conformity with generally accepted accounting principles.
/s/ Moffitt & Company, P.C.
- -----------------------------------
Moffitt & Company, P.C.
Scottsdale, Arizona
February 23, 2000
<PAGE>
AMERICAN BENEFITS GROUP, INC. AND SUBSIDIARIES
(DEVELOPMENT STAGE COMPANIES)
CONSOLIDATED BALANCE SHEET
DECEMBER 31, 1999
(UNAUDITED)
ASSETS
<TABLE>
<S> <C> <C>
CURRENT ASSETS
Cash and cash equivalents $ 360
Accounts receivable 6,132
Refundable taxes 30,125
Inventories 6,128,090
---------------
TOTAL CURRENT ASSETS $ 6,164,707
PROPERTY AND EQUIPMENT 204,961
OTHER LONG-TERM ASSETS
Unamortized mining perimeters 4,332,041
OTHER ASSETS
Investment in joint venture - Total Gem Management 17,300
Deposits 76,874
---------------
TOTAL OTHER ASSETS 94,174
-----------
TOTAL ASSETS $10,795,883
===========
</TABLE>
<PAGE>
LIABILITIES AND SHAREHOLDERS' EQUITY
CURRENT LIABILITIES
Accounts payable
Inventory - Menavi Group $ 2,600,000
Trade 630,548
Related entities 797,070
-----------
TOTAL CURRENT LIABILITIES $ 4,027,618
MINORITY INTEREST DEFICIENCY (6,807)
SHAREHOLDERS' EQUITY
Preferred stock
Par value - $10 per share
Authorized - 10,000,000 shares
No shares are issued or outstanding
Common stock
No par value
Authorized 200,000,000 shares
Issued and outstanding - 53,824,075 shares 8,418,563
Cumulative currency translation adjustment 6,634
Retained earnings (deficit) (372,194)
Deficit accumulated during the development
stage (1,277,931)
-----------
TOTAL SHAREHOLDERS' EQUITY 6,775,072
------------
TOTAL LIABILITIES AND SHAREHOLDERS'
EQUITY $ 10,795,883
============
See Accompanying Notes and Independent Accountants' Review Report.
2
<PAGE>
AMERICAN BENEFITS GROUP, INC. AND SUBSIDIARIES
(DEVELOPMENT STAGE COMPANIES)
CONSOLIDATED STATEMENTS OF COMPREHENSIVE (LOSS)
FOR THE SIX MONTHS ENDED DECEMBER 31, 1999 AND
FOR THE PERIOD JULY 1, 1997 (DATE OF DEVELOPMENT STAGE)
TO DECEMBER 31, 1999
(UNAUDITED)
July 1, 1997
(Date of
Six Months Development
Ended Stage) to
December 31, 1999 December 31, 1999
----------------- -----------------
NET (LOSS) $ (514,675) $ (1,277,931)
OTHER COMPREHENSIVE INCOME
Foreign currency translation adjustments (9,390) 6,634
------------ ------------
NET COMPREHENSIVE (LOSS) $ (524,065) $ (1,271,297)
============ ============
NET (LOSS) PER COMMON SHARE
Basic and diluted $ (.01)
============
AVERAGE NUMBER OF COMMON SHARES
OUTSTANDING
Basic and diluted 52,774,075
============
See Accompanying Notes and Independent Accountants' Review Report.
3
<PAGE>
AMERICAN BENEFITS GROUP, INC. AND SUBSIDIARIES
(DEVELOPMENT STAGE COMPANIES)
CONSOLIDATED STATEMENTS OF OPERATIONS
FOR THE SIX MONTHS ENDED DECEMBER 31, 1999 AND
FOR THE PERIOD JULY 1, 1997 (DATE OF DEVELOPMENT STAGE)
TO DECEMBER 31, 1999
(UNAUDITED)
<TABLE>
<CAPTION>
July 1, 1997
(Date of
Six Months (Development)
Ended Stage) to
December 31, 1999 December 31, 1999
----------------- -----------------
<S> <C> <C>
REVENUE - SALE OF GEMS FROM TESTING $ 27,706 $ 5,068,207
----------- -----------
COST AND EXPENSES
Purchases, commissions and fees for test gems 17,917 1,800,549
Development costs 524,464 4,552,400
----------- -----------
TOTAL COST AND EXPENSES 542,381 6,352,949
----------- -----------
NET (LOSS) BEFORE MINORITY INTERESTS (514,675) (1,284,742)
MINORITY INTEREST IN LOSS OF
CONSOLIDATED SUBSIDIARY 0 6,811
----------- -----------
NET (LOSS) $ (514,675) $(1,277,931)
=========== ===========
</TABLE>
See Accompanying Notes and Independent Accountants' Review Report.
4
<PAGE>
AMERICAN BENEFITS GROUP, INC. AND SUBSIDIARIES
(DEVELOPMENT STAGE COMPANIES)
CONSOLIDATED STATEMENT OF SHAREHOLDERS' EQUITY
FOR THE SIX MONTHS ENDED DECEMBER 31, 1999
(UNAUDITED)
<TABLE>
<CAPTION>
Preferred Stock Common Stock Additional
-------------------------- --------------------------- Paid in
Shares Amount Shares Amount Capital
------ ------ ------ ------ ---------------
<S> <C> <C> <C> <C> <C>
BALANCE, JULY 1, 1997 1,683,000 $ 1,683 $ 475,750
CHANGE IN PAR VALUE 475,750 (475,750)
ISSUANCE OF COMMON
STOCK FOR CASH 3,300,000 60,000
ISSUANCE OF
COMMON STOCK FOR
ACQUISITION OF 90%
OF SAOWANI
DEVELOPMENT S.A.R.L.,
AT BOOK VALUE OF
SUBSIDIARY 3,000,000 36
REPAYMENT OF
SHAREHOLDER'S
RECEIVABLE
STOCK DIVIDEND 15,966,000
CUMULATIVE CURRENCY
TRANSLATION
ADJUSTMENT
ISSUANCE OF COMMON
STOCK FOR 70% OF WORLD
GEMS CORPORATION S.A.R.L. 1,000,000 1,000
NET (LOSS) FOR THE SIX
MONTHS ENDED
DECEMBER 31, 1998
------------- ------------ ----------- ------------ ---------------
BALANCE,
DECEMBER 31, 1998 0 0 24,949,000 538,469 0
</TABLE>
See Accompanying Notes and Independent Accountants' Review Report.
<PAGE>
AMERICAN BENEFITS GROUP, INC. AND SUBSIDIARIES
(DEVELOPMENT STAGE COMPANIES)
CONSOLIDATED STATEMENT OF SHAREHOLDERS' EQUITY
FOR THE SIX MONTHS ENDED DECEMBER 31, 1999
(UNAUDITED)
<TABLE>
<CAPTION>
Deficit
Cumulative Accumulated Total
Currency Retained During the Shareholders'
Translation Earnings Development Shareholder Equity
Adjustment (Deficit) Stage Receivable (Deficit)
---------------- ----------------- ---------------- --------------- -------------
<S> <C> <C> <C> <C> <C>
BALANCE, JULY 1, 1997 $ 0 $ (353,788) $ 0 $ (95,000) $ 28,645
CHANGE IN PAR VALUE
ISSUANCE OF COMMON
STOCK FOR CASH
60,000
ISSUANCE OF
COMMON STOCK FOR
ACQUISITION OF 90%
OF SAOWANI
DEVELOPMENT S.A.R.L.,
AT BOOK VALUE OF
SUBSIDIARY 36
REPAYMENT OF
SHAREHOLDER'S
RECEIVABLE 95,000 95,000
STOCK DIVIDEND
CUMULATIVE CURRENCY
TRANSLATION
ADJUSTMENT 3,860 3,860
ISSUANCE OF COMMON
STOCK FOR 70% OF WORLD
GEMS CORPORATION S.A.R.L. 1,000
NET (LOSS) FOR THE SIX
MONTHS ENDED
DECEMBER 31, 1998 (18,406) (620,244) (638,650)
---------------- ----------------- ----------------- --------------- -----------------
BALANCE,
DECEMBER 31, 1998 3,860 (372,194) (620,244) 0 (450,109)
</TABLE>
See Accompanying Notes and Independent Accountants' Review Report.
5
<PAGE>
AMERICAN BENEFITS GROUP, INC. AND SUBSIDIARIES
(DEVELOPMENT STAGE COMPANIES)
CONSOLIDATED STATEMENT OF SHAREHOLDERS' EQUITY(CONTINUED)
FOR THE SIX MONTHS ENDED DECEMBER 31, 1999
(UNAUDITED)
<TABLE>
<CAPTION>
Preferred Stock Common Stock
-------------------------- ---------------------------
Shares Amount Shares Amount
------ ------ ------ ------
<S> <C> <C> <C> <C>
CUMULATIVE CURRENCY
TRANSLATION
ADJUSTMENT $ $
ISSUANCE OF COMMON
STOCK FOR
CASH 6,477,075 1,134,423
SHAREHOLDER'S LOANS 5,358,000 416,100
SERVICES 10,795,000 2,768,702
DEPOSIT ON EQUIPMENT 23,000 23,055
ACQUISITION OF STONES
AND WOOD CORPO-
RATION S.A.R.L. 4,997,000 3,500,000
LESS COSTS TO ACQUIRE
FINANCING (39,621)
NET (LOSS) FOR YEAR
ENDED JUNE 30, 1999
------------- ------------- ---------- -------------
BALANCE, JUNE 30, 1999 0 0 52,599,075 8,341,128
ISSUANCE OF COMMON
STOCK FOR SERVICES 1,225,000 77,435
CUMULATIVE CURRENCY
TRANSLATION
ADJUSTMENT
NET (LOSS) FOR THE
SIX MONTHS ENDED
DECEMBER 31, 1999
------------- ------------- ---------- -------------
BALANCE,
DECEMBER 31, 1999 0 $ 0 53,824,075 $ 8,418,563
============= ============= ========== =============
</TABLE>
See Accompanying Notes and Independent Accountants' Review Report.
<PAGE>
AMERICAN BENEFITS GROUP, INC. AND SUBSIDIARIES
(DEVELOPMENT STAGE COMPANIES)
CONSOLIDATED STATEMENT OF SHAREHOLDERS' EQUITY(CONTINUED)
FOR THE SIX MONTHS ENDED DECEMBER 31, 1999
(UNAUDITED)
<TABLE>
<CAPTION>
Deficit
Cumulative Accumulated
Additional Currency Retained During the
Paid in Translation Earnings Development
Capital Adjustment (Deficit) Stage
--------------- ---------------- ---------------- --------------
<S> <C> <C> <C> <C>
CUMULATIVE CURRENCY $ $ 12,164 $ $
TRANSLATION
ADJUSTMENT
ISSUANCE OF COMMON
STOCK FOR
CASH
SHAREHOLDER'S LOANS
SERVICES
DEPOSIT ON EQUIPMENT
ACQUISITION OF STONES
AND WOOD CORPO-
RATION S.A.R.L.
LESS COSTS TO ACQUIRE
FINANCING
NET (LOSS) FOR YEAR
ENDED JUNE 30, 1999 (143,012)
--------------- ---------------- ---------------- --------------
BALANCE, JUNE 30, 1999 0 16,024 (372,194) (763,256)
ISSUANCE OF COMMON
STOCK FOR SERVICES
CUMULATIVE CURRENCY
TRANSLATION
ADJUSTMENT (9,390)
NET (LOSS) FOR THE
SIX MONTHS ENDED
DECEMBER 31, 1999 (514,675)
--------------- ---------------- ---------------- --------------
BALANCE,
DECEMBER 31, 1999 $ 0 $ 6,634 $ (372,194) $ (1,277,931)
=============== ================ ================ ==============
</TABLE>
See Accompanying Notes and Independent Accountants' Review Report.
<PAGE>
AMERICAN BENEFITS GROUP, INC. AND SUBSIDIARIES
(DEVELOPMENT STAGE COMPANIES)
CONSOLIDATED STATEMENT OF SHAREHOLDERS' EQUITY(CONTINUED)
FOR THE SIX MONTHS ENDED DECEMBER 31, 1999
(UNAUDITED)
<TABLE>
<CAPTION>
Total
Shareholders'
Shareholder Equity
Receivable (Deficit)
--------------- -----------------
<S> <C> <C>
CUMULATIVE CURRENCY $ $ 12,164
TRANSLATION
ADJUSTMENT
ISSUANCE OF COMMON
STOCK FOR
CASH 1,134,423
SHAREHOLDER'S LOANS 416,100
SERVICES 2,768,702
DEPOSIT ON EQUIPMENT 23,055
ACQUISITION OF STONES
AND WOOD CORPO-
RATION S.A.R.L. 3,500,000
LESS COSTS TO ACQUIRE
FINANCING (39,621)
NET (LOSS) FOR YEAR
ENDED JUNE 30, 1999 (143,012)
--------------- -----------------
BALANCE, JUNE 30, 1999 0 7,221,702
ISSUANCE OF COMMON
STOCK FOR SERVICES 77,435
CUMULATIVE CURRENCY
TRANSLATION
ADJUSTMENT (9,390)
NET (LOSS) FOR THE
SIX MONTHS ENDED
DECEMBER 31, 1999 (514,675)
--------------- -----------------
BALANCE,
DECEMBER 31, 1999 $ 0 $ 6,775,072
=============== =================
</TABLE>
See Accompanying Notes and Independent Accountants' Review Report.
6
<PAGE>
AMERICAN BENEFITS GROUP, INC. AND SUBSIDIARIES
(DEVELOPMENT STAGE COMPANIES)
CONSOLIDATED STATEMENTS OF CASH FLOWS
FOR THE SIX MONTHS ENDED DECEMBER 31, 1999 AND
FOR THE PERIOD JULY 1, 1997 (DATE OF DEVELOPMENT STAGE)
TO DECEMBER 31, 1999
(UNAUDITED)
<TABLE>
<CAPTION>
July 1, 1997
(Date of
Six Months Development
Ended Stage) to
December 31, 1999 December 31, 1999
----------------- -----------------
<S> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES
Net (loss) $ (524,065) $(1,271,297)
Adjustments to reconcile net (loss) to
net cash provided (used) by operating activities:
Depreciation and amortization 127,181 182,823
Minority interest in loss of consolidated subsidiary 0 1,537
Issuance of common stock for services 77,435 2,846,137
Loss on investment in subsidiary 0 101,000
Cancellation of debt 0 (100,000)
Changes in operating assets and liabilities:
Accounts receivable 3,814,362 (6,132)
Refundable taxes (2,198) (19,872)
Employee advances and other receivables 2,729 4,374
Inventories (5,127,056) (6,128,090)
Accounts payable 2,066,209 2,774,841
----------- -----------
NET CASH FLOWS PROVIDED (USED) BY
OPERATING ACTIVITIES 434,597 (1,614,679)
----------- -----------
CASH FLOWS FROM INVESTING ACTIVITIES
Purchases of property and equipment (21,042) (283,988)
Purchase of mining perimeters 0 (572,780)
Investment in joint venture - Total Gem Management (1,300) (17,300)
Deposits on equipment (3,819) (53,816)
----------- -----------
NET CASH FLOWS (USED) BY INVESTING
ACTIVITIES (26,161) (927,884)
----------- -----------
CASH FLOWS FROM FINANCING ACTIVITIES
Proceeds from issuance of common stock 0 1,323,167
Proceeds (Repayments) from related entity loan (457,700) 1,213,170
----------- -----------
NET CASH FLOWS (USED) PROVIDED BY
FINANCING ACTIVITIES $ (457,700) $ 2,536,337
----------- -----------
</TABLE>
See Accompanying Notes and Independent Accountants' Review Report.
7
<PAGE>
AMERICAN BENEFITS GROUP, INC. AND SUBSIDIARIES
(DEVELOPMENT STAGE COMPANIES)
CONSOLIDATED STATEMENTS OF CASH FLOWS (CONTINUED)
FOR THE SIX MONTHS ENDED DECEMBER 31, 1999 AND
FOR THE PERIOD JULY 1, 1997 (DATE OF DEVELOPMENT STAGE)
TO DECEMBER 31, 1999
(UNAUDITED)
July 1, 1997
(Date of
Six Months Development
Ended Stage) to
December 31, 1999 December 31, 1999
----------------- -----------------
NET (DECREASE) IN CASH $ (49,264) $ (6,226)
CASH BALANCE, BEGINNING OF PERIOD 49,624 6,586
----------- -----------
CASH BALANCE, END OF PERIOD $ 360 $ 360
=========== ===========
SUPPLEMENTARY DISCLOSURE OF
CASH FLOW DATA:
Interest paid $ 0 $ 2,239
=========== ===========
Taxes paid $ 0 $ 0
=========== ===========
NON CASH INVESTING AND FINANCING
ACTIVITIES
ISSUANCE OF COMPANY STOCK FOR
SAOWANI DEVELOPMENT S.A.R.L $ 0 $ 36
=========== ===========
ISSUANCE OF COMPANY STOCK AND
PROMISSORY NOTES FOR WORLD
GEMS CORPORATION S.A.R.L $ 0 $ 101,000
=========== ===========
ISSUANCE OF COMPANY STOCK FOR
SHAREHOLDER'S LOAN $ 0 $ 416,100
=========== ===========
ISSUANCE OF COMPANY STOCK FOR
SERVICES $ 77,435 $ 2,846,137
=========== ===========
ISSUANCE OF COMPANY STOCK FOR
DEPOSIT ON EQUIPMENT $ 0 $ 23,055
=========== ===========
ISSUANCE OF COMPANY STOCK FOR
STONES AND WOOD CORPORATION S.A.R.L $ 0 $ 3,500,000
=========== ===========
See Accompanying Notes and Independent Accountants' Review Report.
8
<PAGE>
AMERICAN BENEFITS GROUP, INC. AND SUBSIDIARIES
(DEVELOPMENT STAGE COMPANIES)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
DECEMBER 31, 1999
(UNAUDITED)
NOTE 1 SUMMARY OF SIGNIFICANT ACCOUNTING PRINCIPLES
Principles of Consolidation
The consolidated financial statements include the accounts of
American Benefits Group, Inc. and the following subsidiaries:
Subsidiary Ownership Percentage
---------- --------------------
American Benefits Group, Ltd. 100%
Saowani Development S.A.R.L. 90%
E - Block Technology Inc. 100%
ABFG Sales Ltd. (Canada) 100%
ABFG Sales Limited (USA) 100%
American Benefits Group (Israel) Ltd. 100%
American Benefits Group
(Israel-Madagascar) Ltd. 100%
Stones and Wood Corporation S.A.R.L. 100%
ABFG Resources Madagascar S.A.R.L. 100%
All material inter-company accounts and transactions have been
eliminated.
Nature of Business
American Benefits Group, Inc., which was formerly known as Lifeline
Benefits Group, Inc. and Living Benefits Group, Inc., was
incorporated on February 26, 1996, in the state of Florida. The
company was involved in the business of viatical settlements.
Effective September 30, 1997, the company ceased its business
operations in viatical settlements, liquidated all assets and paid
all liabilities. On July 16, 1997, the company was acquired by new
shareholders and the company is now in the business of exploring and
extracting mining perimeters in the Democratic Republic of
Madagascar.
American Benefits Group, Ltd. provides management services to
related entities. The company also owns 1% of American Benefits
Group (Israel) Ltd. and 1% of American Benefits Group
(Israel-Madagascar) Ltd.
Saowani Development S.A.R.L. is a joint venture partner in three
mining perimeters in Madagascar.
E-Block Technology Inc. is presently performing research and testing
of clay, sand and additives for the formulation and manufacture of
clay blocks.
ABFG Sales Ltd. (USA and Canada) are the retail sales entities.
See Accompanying Notes and Independent Accountants' Review Report.
9
<PAGE>
AMERICAN BENEFITS GROUP, INC. AND SUBSIDIARIES
(DEVELOPMENT STAGE COMPANIES)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
DECEMBER 31, 1999
(UNAUDITED)
NOTE 1 SUMMARY OF SIGNIFICANT ACCOUNTING PRINCIPLES (CONTINUED)
Nature of Business (Continued)
American Benefits Group (Israel) Ltd. holds a 100% interest in
Stones and Wood Corporation S.A.R.L. and 1% interest in ABFG
Resources Madagascar S.A.R.L.
American Benefits Group (Israel-Madagascar) Ltd. was formed to own
various assets such as equipment used in international companies.
Stones and Wood Corporation S.A.R.L. owns 37 mining perimeters in
Madagascar.
ABFG Resources Madagascar S.A.R.L. is a mine operator in Madagascar.
Cash and Cash Equivalents
The company considers securities with maturities of three months or
less, when purchased, to be cash equivalents.
Inventories
Inventories are stated at the lower of cost (determined principally
by the average cost method) or market.
For rough stones, the elements of cost include direct labor,
materials, equipment costs, and overhead and the full absorption of
fixed mining costs.
For cut and polished stone, the inventory includes the rough stone
costs plus the cost to process and finish the stones to complete
them for setting into jewelry.
Long-Lived Assets
Statement of Financial Accounting Standards No. 121, "Accounting for
the Impairment of Long-Lived Assets and for Long-Lived Assets to Be
Disposed Of," requires that long-lived assets be reviewed for
impairment whenever events or changes in circumstances indicate that
the carrying amount of the asset in question may not be recoverable.
This standard did not have a material effect on the company's
results of operations, cash flows or financial position.
Property and Equipment
Property and equipment are carried at cost. Repairs and maintenance
costs are charged against income while renewals and betterments are
capitalized as additions to the related assets. The assets are
depreciated using the straight-line method with the following lines:
See Accompanying Notes and Independent Accountants' Review Report.
10
<PAGE>
AMERICAN BENEFITS GROUP, INC. AND SUBSIDIARIES
(DEVELOPMENT STAGE COMPANIES)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
DECEMBER 31, 1999
(UNAUDITED)
NOTE 1 SUMMARY OF SIGNIFICANT ACCOUNTING PRINCIPLES (CONTINUED)
Property and Equipment (Continued)
Office furniture 10 years
Computers 3 years
Film equipment 3 years
Communication equipment 3 years
Office security equipment 5 years
Reprographics equipment 3 years
Computer software 1 year
Mining equipment 3 years
Compensated Absences
Employees of the corporation are entitled to paid vacations, sick
days and other time off depending on job classification, length of
service and other factors. It is impractical to estimate the amount
of compensation for future absences, and accordingly, no liability
has been recorded in the accompanying financial statements. The
corporation's policy is to recognize the costs of compensated
absences when paid to employees.
Income Taxes
The company accounts for income taxes on an asset and liability
approach to financial accounting. Deferred income tax assets and
liabilities are computed annually for the difference between the
financial statements and tax basis of assets and liabilities that
will result in taxable or deductible amounts in the future, based on
enacted tax laws and rates applicable to the periods in which the
differences are expected to affect taxable income. Valuation
allowances are established when necessary to reduce deferred tax
assets to the amount expected to be realized. Income tax expense is
the tax payable or refundable for the period, plus or minus the
change during the period in deferred tax assets and liabilities.
The company intends to reinvest its undistributed international
earnings to expand its international operations; therefore, no tax
has been provided to cover the repatriation of such undistributed
earnings.
Net Earnings Per Share
The company adopted Statement of Financial Accounting Standards No.
128 that requires the reporting of both basic and diluted earnings
per share. Basic earnings per share is computed by dividing net
income available to common shareowners by the weighted average
number of common shares outstanding for the period. Diluted earnings
per share reflects the potential
See Accompanying Notes and Independent Accountants' Review Report.
11
<PAGE>
AMERICAN BENEFITS GROUP, INC. AND SUBSIDIARIES
(DEVELOPMENT STAGE COMPANIES)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
DECEMBER 31, 1999
(UNAUDITED)
NOTE 1 SUMMARY OF SIGNIFICANT ACCOUNTING PRINCIPLES (CONTINUED)
Net Earnings Per Share (Continued)
dilution that could occur if securities or other contracts to issue
common stock were exercised or converted into common stock. There
were no options outstanding that would cause dilution of the common
stock.
Computation of net (loss) per common share
Basic and diluted
Numerator $ (524,065) = $ ( .01)
-------------
Denominator $ 52,774,075
Minority Interest in Consolidated Subsidiary
The parent company theory is used for disclosing the minority
interest in the consolidated balance sheet.
Accounting Estimates
Management uses estimates and assumptions in preparing financial
statements in accordance with generally accepted accounting
principles. These estimates and assumptions affect the reported
amounts of assets and liabilities, the disclosure of contingent
assets and liabilities, and the reported revenues and expenses.
Actual results could vary from the estimates that were used.
International Currency Translation
For translation of its international currencies, the company has
determined that the local currencies of its international
subsidiaries are the functional currencies.
Unaudited Financial Information
The accompanying financial statements as of December 31, 1999 are
unaudited. In management's opinion, such information includes all
normal recurring entries necessary to make the financial information
not misleading.
See Accompanying Notes and Independent Accountants' Review Report.
12
<PAGE>
AMERICAN BENEFITS GROUP, INC. AND SUBSIDIARIES
(DEVELOPMENT STAGE COMPANIES)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
DECEMBER 31, 1999
(UNAUDITED)
NOTE 2 DEVELOPMENT STAGE OPERATIONS
As of December 31, 1999, the company was in the development stage of
operations. According to the Financial Accounting Standards Board of
the Financial Accounting Foundation, a development stage company is
defined as a company that devotes most of its activities to
establishing a new business activity. In addition, planned principle
activities have not commenced, or have commenced and have not yet
produced significant revenue.
FAS-7 requires that all development costs be expensed during the
development period. The company expensed $524,065 of development
costs for the six months ended December 31, 1999 and $1,271,297 for
the period July 1, 1997 (date of development stage) to December 31,
1999.
NOTE 3 COMPREHENSIVE INCOME
Statement of Financial Accounting Standards ("SFAS") No. 130,
Reporting Comprehensive Income, establishes a standard for reporting
and displaying comprehensive income and the components within the
financial statements. Comprehensive income includes charges and
credits to equity that are not the result of transactions with
shareholders. Comprehensive income is composed of two subsets - net
income and other comprehensive income. Included in other
comprehensive income for the company are cumulative translation
adjustments on foreign currency transactions. These adjustments are
accumulated within the statement of shareholders' equity under the
caption Accumulated Other Comprehensive Income. As of December 31,
1999, accumulated other comprehensive income, as reflected in the
consolidated statement of shareholders' equity was comprised of
cumulative translation adjustments totaling $6,634.
Cumulative translation adjustments are not adjusted for income taxes
as they relate to indefinite investments in non-U.S. subsidiaries.
NOTE 4 INVENTORIES
Inventories are summarized as follows:
Rough stones $3,304,247
Cut and polished gems 2,768,241
Art 52,639
Jewelry 2,963
----------
$6,128,090
==========
See Accompanying Notes and Independent Accountants' Review Report.
13
<PAGE>
AMERICAN BENEFITS GROUP, INC. AND SUBSIDIARIES
(DEVELOPMENT STAGE COMPANIES)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
DECEMBER 31, 1999
(UNAUDITED)
NOTE 5 PROPERTY AND EQUIPMENT
Property and equipment consist of the following:
Office furniture $ 45,245
Computers 63,556
Film equipment 1,442
Communication equipment 25,069
Office security equipment 8,843
Reprographics equipment 15,984
Computer software 8,180
Mining equipment 115,669
--------
283,988
Less accumulated depreciation 79,027
--------
Book value $204,961
========
Depreciation expense for the six months ended December 31, 1999
amounted to $41,915.
NOTE 6 UNAMORTIZED MINING PERIMETERS
The company is amortizing the mining perimeters by the straight-line
method over 345 months, which is the estimate life of the
perimeters.
Adjusted cost base of the perimeters $4,432,780
Less accumulated amortization 100,739
----------
Book value $4,332,041
==========
Amortization for the six months ended December 31, 1999 is $77,129.
NOTE 7 INCOME TAXES
(Loss) before income taxes $(514,675)
---------
The provision for income taxes is
estimated as follows:
Currently payable $ 0
---------
Deferred $ 0
---------
A reconciliation of the provision for income taxes
compared with the amounts at the U.S. Federal
Statutory and foreign rates were as follows:
Tax at U.S. Federal Statutory income tax rates $ 0
---------
Taxes at foreign rates $ 0
---------
See Accompanying Notes and Independent Accountants' Review Report.
14
<PAGE>
AMERICAN BENEFITS GROUP, INC. AND SUBSIDIARIES
(DEVELOPMENT STAGE COMPANIES)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
DECEMBER 31, 1999
(UNAUDITED)
NOTE 7 INCOME TAXES (CONTINUED)
Deferred income tax assets and liabilities reflect the
impact of temporary differences between amounts of
assets and liabilities for financial reporting
purposes and the basis of such assets and liabilities
as measured by tax laws. The net deferred tax assets is: $ 0
----------
Temporary differences and carry forwards that gave rise
to deferred tax assets and liabilities included the
following:
Deferred Tax
----------------------
Assets Liabilities
------ -----------
Net operating loss
U.S. federal $122,000 $ 0
Foreign 240,000 .
-------- --------
Subtotal 362,000 0
Valuation allowance 362,000 0
-------- --------
Total deferred taxes $ 0 $ 0
======== ========
A reconciliation of the valuation allowance
is as follows:
Balance, July 1, 1999 $158,000
Addition for the six months ended
December 31, 1999 204,000
--------
Balance, December 31, 1999 $362,000
========
NOTE 8 NON QUALIFIED STOCK OPTION PLAN
The company has a nonqualified stock option plan which gives the
Board of Directors or a committee designated by the Board of
Directors authority to issue additional shares of its common stock
at specified prices as determined by the Board of Directors. The
Board of Directors have not granted any options as of December 31,
1999.
NOTE 9 PREFERRED STOCK
The preferred stock has preferences over the common stock for
dividends and upon company dissolution.
See Accompanying Notes and Independent Accountants' Review Report.
15
<PAGE>
AMERICAN BENEFITS GROUP, INC. AND SUBSIDIARIES
(DEVELOPMENT STAGE COMPANIES)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
DECEMBER 31, 1999
(UNAUDITED)
NOTE 10 INTERNATIONAL SUBSIDIARIES
The following amounts are included in the consolidated financial
statements for international subsidiaries:
Current assets $ 30,330
Current liabilities 278,654
Net property and equipment 116,625
NOTE 11 INTEREST EXPENSE
The company did not have any interest costs for the six months ended
December 31, 1999.
NOTE 12 RENT
The company rents office space on a month to month basis from a
related entity. Rent expense for the six months ended December 31,
1999 is $53,138.
NOTE 13 AGENCY AGREEMENT
The companies have entered into an agency agreement with a
corporation director and a company controlled by the director. Under
the agreement, the director and the authorized company may incur
expenses on behalf of American Benefits Group, Inc. and Subsidiaries
and American Benefits Group, Inc. and Subsidiaries agree to
reimburse the director and company for all expenses incurred plus
reasonable overhead cost reimbursements. The company owes the
related entity $775,194 at December 31, 1999.
NOTE 14 JOINT VENTURE AGREEMENT (TGM)
In April 1999, the company entered into a joint venture agreement,
known as Total Gem Management Ltd, with the Menavi Group, an Israeli
corporation. Total Gem Management Ltd. (TGM) will be responsible to
manage and handle the company's sapphires from the point after
mining and sorting.
American Benefits Group, Inc. is required to provide $1,000,000 cash
to TGM and Menavi Group will provide $1,000,000 of gems (wholesale
value). As of December 31, 1999, the company advanced $17,300
towards the $1,000,000 commitment.
See Accompanying Notes and Independent Accountants' Review Report.
16
<PAGE>
AMERICAN BENEFITS GROUP, INC. AND SUBSIDIARIES
(DEVELOPMENT STAGE COMPANIES)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
DECEMBER 31, 1999
(UNAUDITED)
NOTE 14 JOINT VENTURE AGREEMENT (TGM) (CONTINUED)
American
Benefits Menavi
Division of Profits Group, Inc. Group
------------------- ----------- ------
On goods from American
Benefits Group, Inc. mines
Total net sales on cut
and semicut-stones 66.6% 33.4%
On unprocessed rough 75% 25%
On goods purchase by American
Benefit Group, Inc.
Total net sales minus
total purchase cost
As of December 31, 1999, there were no income or expenses from the
joint venture.
NOTE 15 RELATED PARTY TRANSACTIONS
The company purchased $1,580,000 of raw sapphire stones from a
company controlled by a director of the company.
NOTE 16 SAOWANI - HARINORO
On June 20, 1999, the company entered into a joint venture for
testing and small scale mining of three emerald perimeters in
Madagascar. The joint venture is for one and one half years and
profits are distributed 80% to Saowani and 20% to Harinoro.
As of December 31, 1999, there was no income or expense from the
joint venture.
NOTE 17 COMMITMENT TO PURCHASE MINING EQUIPMENT
To facilitate its Malagasy Testing Operations, the company has
entered into 3 agreements with Dove Gems & Jewelry Co. Ltd. for the
purchase of testing equipment which will be transported from
Thailand to the company's Madagascar mine sites. The purchase price
for the testing equipment is $566,349. The company has made deposits
in the amount of $73,055 towards the purchase contracts.
See Accompanying Notes and Independent Accountants' Review Report.
17
<PAGE>
AMERICAN BENEFITS GROUP, INC. AND SUBSIDIARIES
(DEVELOPMENT STAGE COMPANIES)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
DECEMBER 31, 1999
(UNAUDITED)
NOTE 18 CORPORATION INCOME TAX RETURNS
The company has not filed its United States and Canadian income tax
returns for the years ended June 30, 1998 and 1999. However, the
company has incurred losses and it is anticipated that the company
will not have any tax liabilities for these years.
NOTE 19 NET OPERATING LOSS CARRYFORWARDS
The company has the following net operating loss carryforwards:
Expiration
Country Six months Amount Date
------- ---------- ------ ----------
United States June 30, 1998 $ 586,686 2013
United States June 30, 1999 97,589 2014
Canada June 30, 1998 103,428 2003
Canada June 30, 1999 15,005 2004
NOTE 20 CHANGE IN TRADING STATUS
On July 3, 1999, the National Association of Securities Dealers,
Inc. (NASD) and the Securities and Exchange Commission (SEC)
de-listed the stock of the company from the Over-the-counter
bulletin Board (OTCBB) to the "Pink Sheets".
This action arises for the SEC's approval of amendments to NASD
Rules 6530 and 6540 requiring an issuer to make periodic financial
report filings to the SEC and to remain current with those required
filings, in order for an issuer of stock to continue being quoted on
the OTCBB. Prior to these amendments, there was no requirement for
an issuer of stock on the OTCBB to file any reports with the SEC.
Management is in the process of filing Form 10SB to become a
reporting issuer.
See Accompanying Notes and Independent Accountants' Review Report.
18
<PAGE>
AMERICAN BENEFITS GROUP, INC.
AND SUBSIDIARIES
(DEVELOPMENT STAGE COMPANIES)
CONSOLIDATED FINANCIAL STATEMENTS
SEPTEMBER 30, 1999
<PAGE>
TABLE OF CONTENTS
Page No.
--------
INDEPENDENT ACCOUNTANTS' REVIEW REPORT................................ 1
FINANCIAL STATEMENTS
Consolidated Balance Sheet..................................... 2
Consolidated Statements of Comprehensive (Loss)................ 3
Consolidated Statements of Operations.......................... 4
Consolidated Statement of Shareholders' Equity................. 5 - 6
Consolidated Statements of Cash Flows.......................... 7 - 8
Notes to Consolidated Financial Statements..................... 9 - 18
<PAGE>
INDEPENDENT ACCOUNTANTS' REVIEW REPORT
To the Shareholders and Board of Directors
American Benefits Group, Inc. and Subsidiaries
(Development Stage Companies)
Deerfield Beach, Florida
We have reviewed the accompanying balance sheet of American Benefits Group, Inc.
and Subsidiaries (Development Stage companies) as of September 30, 1999, and the
related statements of comprehensive (loss), operations, shareholders' equity and
cash flows for the three months then ended and for the period July 1, 1997 (date
of development stage) to September 30, 1999, in accordance with Statements on
Standards for Accounting and Review Services issued by the American Institute of
Certified Public Accountants. All information included in these financial
statements is the representation of the management of American Benefits Group,
Inc. and Subsidiaries.
A review consists principally of inquiries of company personnel and analytical
procedures applied to financial data. It is substantially less in scope than an
audit in accordance with generally accepted auditing standards, the objective of
which is the expression of an opinion regarding the financial statements taken
as a whole. Accordingly, we do not express such an opinion.
Based on our review, we are not aware of any material modifications that should
be made to the accompanying financial statements in order for them to be in
conformity with generally accepted accounting principles.
/s/ Moffitt & Company, P.C.
- -----------------------------------
Moffitt & Company, P.C.
Scottsdale, Arizona
February 23, 2000
<PAGE>
AMERICAN BENEFITS GROUP, INC. AND SUBSIDIARIES
(DEVELOPMENT STAGE COMPANIES)
CONSOLIDATED BALANCE SHEET
SEPTEMBER 30, 1999
(UNAUDITED)
ASSETS
<TABLE>
<S> <C> <C>
CURRENT ASSETS
Cash and cash equivalents $ 6,090
Accounts receivable 2,404
Refundable taxes 29,776
Inventories 6,047,241
-----------
TOTAL CURRENT ASSETS $ 6,085,511
PROPERTY AND EQUIPMENT 219,585
OTHER LONG-TERM ASSETS
Unamortized mining perimeters 4,370,605
OTHER ASSETS
Investment in joint venture - Total Gem Management 17,300
Deposits 83,055
-----------
TOTAL OTHER ASSETS 100,355
-----------
TOTAL ASSETS $10,776,056
===========
</TABLE>
<PAGE>
LIABILITIES AND SHAREHOLDERS' EQUITY
CURRENT LIABILITIES
Bank overdraft $ 6,196
Accounts payable
Inventory - Menavi Group 2,600,000
Trade 648,563
Related entities 605,904
-----------
TOTAL CURRENT LIABILITIES $ 3,860,663
MINORITY INTEREST DEFICIENCY (6,807)
SHAREHOLDERS' EQUITY
Preferred stock
Par value - $10 per share
Authorized - 10,000,000 shares
No shares are issued or outstanding
Common stock
No par value
Authorized 200,000,000 shares
Issued and outstanding - 52,599,075 shares $ 8,341,128
Cumulative currency translation adjustment 10,768
Retained earnings (deficit) (372,194)
Deficit accumulated during the development
stage (1,057,502)
-----------
TOTAL SHAREHOLDERS' EQUITY 6,922,200
------------
TOTAL LIABILITIES AND SHAREHOLDERS'
EQUITY $ 10,776,056
============
See Accompanying Notes and Independent Accountants' Review Report.
2
<PAGE>
AMERICAN BENEFITS GROUP, INC. AND SUBSIDIARIES
(DEVELOPMENT STAGE COMPANIES)
CONSOLIDATED STATEMENTS OF COMPREHENSIVE (LOSS)
FOR THE THREE MONTHS ENDED SEPTEMBER 30, 1999 AND
FOR THE PERIOD JULY 1, 1997 (DATE OF DEVELOPMENT STAGE)
TO SEPTEMBER 30, 1999
(UNAUDITED)
<TABLE>
<CAPTION>
July 1, 1997
(Date of
Three Months Development
Ended Stage) to
September 30, 1999 September 30, 1999
------------------ ------------------
<S> <C> <C>
NET (LOSS) $ (294,246) $ (1,057,502)
OTHER COMPREHENSIVE INCOME
Foreign currency translation adjustments (5,256) 10,768
------------ ------------
NET COMPREHENSIVE (LOSS) $ (299,502) $ (1,046,734)
============ ============
NET INCOME (LOSS) PER COMMON SHARE
Basic and diluted $ (.006)
============
AVERAGE NUMBER OF COMMON SHARES
OUTSTANDING
Basic and diluted 52,599,075
============
</TABLE>
See Accompanying Notes and Independent Accountants' Review Report.
3
<PAGE>
AMERICAN BENEFITS GROUP, INC. AND SUBSIDIARIES
(DEVELOPMENT STAGE COMPANIES)
CONSOLIDATED STATEMENTS OF OPERATIONS
FOR THE THREE MONTHS ENDED SEPTEMBER 30, 1999 AND
FOR THE PERIOD JULY 1, 1997 (DATE OF DEVELOPMENT STAGE)
TO SEPTEMBER 30, 1999
(UNAUDITED)
<TABLE>
<CAPTION>
July 1, 1997
(Date of
Three Months (Development)
Ended Stage) to
September 30, 1999 September 30, 1999
------------------ ------------------
<S> <C> <C>
REVENUE - SALE OF GEMS FROM TESTING $ 11,488 $ 5,051,989
----------- -----------
COST AND EXPENSES
Purchases, commissions and fees for test gems 0 1,782,632
Development costs 305,734 4,333,670
----------- -----------
TOTAL COST AND EXPENSES 305,734 6,116,302
----------- -----------
NET (LOSS) BEFORE MINORITY INTERESTS (294,246) (1,064,313)
MINORITY INTEREST IN LOSS OF
CONSOLIDATED SUBSIDIARY 0 6,811
----------- -----------
NET (LOSS) $ (294,246) $(1,057,502)
=========== ===========
</TABLE>
See Accompanying Notes and Independent Accountants' Review Report.
4
<PAGE>
AMERICAN BENEFITS GROUP, INC. AND SUBSIDIARIES
(DEVELOPMENT STAGE COMPANIES)
CONSOLIDATED STATEMENT OF SHAREHOLDERS' EQUITY
FOR THE THREE MONTHS ENDED SEPTEMBER 30, 1999
(UNAUDITED)
<TABLE>
<CAPTION>
Preferred Stock Common Stock Additional
----------------------- --------------------- Paid in
Shares Amount Shares Amount Capital
------ ------ ------ ------ -----------
<S> <C> <C> <C> <C> <C>
BALANCE, JULY 1, 1997 1,683,000 $ 1,683 $ 475,750
CHANGE IN PAR VALUE 475,750 (475,750)
ISSUANCE OF COMMON
STOCK FOR CASH 3,300,000 60,000
ISSUANCE OF
COMMON STOCK FOR
ACQUISITION OF 90%
OF SAOWANI
DEVELOPMENT S.A.R.L.,
AT BOOK VALUE OF
SUBSIDIARY 3,000,000 36
REPAYMENT OF
SHAREHOLDER'S
RECEIVABLE
STOCK DIVIDEND 15,966,000
CUMULATIVE CURRENCY
TRANSLATION
ADJUSTMENT
ISSUANCE OF COMMON
STOCK FOR 70% OF WORLD
GEMS CORPORATION S.A.R.L. 1,000,000 1,000
NET (LOSS) FOR THE YEAR
ENDED JUNE 30, 1998
---------- ---------- -------------- ---------- -----------
BALANCE, JUNE 30, 1998 0 0 24,949,000 538,469 0
</TABLE>
See Accompanying Notes and Independent Accountants' Review Report.
5
<PAGE>
AMERICAN BENEFITS GROUP, INC. AND SUBSIDIARIES
(DEVELOPMENT STAGE COMPANIES)
CONSOLIDATED STATEMENT OF SHAREHOLDERS' EQUITY
FOR THE THREE MONTHS ENDED SEPTEMBER 30, 1999
(UNAUDITED)
<TABLE>
<CAPTION>
Deficit
Cumulative Accumulated Total
Currency Retained During the Shareholders'
Translation Earnings Development Shareholder Equity
Adjustment (Deficit) Stage Receivable (Deficit)
----------- ------------- ----------- ----------- -------------
<S> <C> <C> <C> <C> <C>
BALANCE, JULY 1, 1997 $ 0 $ (353,788) $ 0 $ (95,000) $ 28,645
CHANGE IN PAR VALUE
ISSUANCE OF COMMON
STOCK FOR CASH 60,000
ISSUANCE OF
COMMON STOCK FOR
ACQUISITION OF 90%
OF SAOWANI
DEVELOPMENT S.A.R.L.,
AT BOOK VALUE OF
SUBSIDIARY 36
REPAYMENT OF
SHAREHOLDER'S
RECEIVABLE 95,000 95,000
STOCK DIVIDEND
CUMULATIVE CURRENCY
TRANSLATION
ADJUSTMENT 3,860 3,860
ISSUANCE OF COMMON
STOCK FOR 70% OF WORLD
GEMS CORPORATION S.A.R.L. 1,000
NET (LOSS) FOR THE YEAR
ENDED JUNE 30, 1998 (18,406) (620,244) (638,650
------------- --------------- ------------- ------------- --------------
BALANCE, JUNE 30, 1998 3,860 (372,194) (620,244) 0 (450,109
</TABLE>
See Accompanying Notes and Independent Accountants' Review Report.
6
<PAGE>
AMERICAN BENEFITS GROUP, INC. AND SUBSIDIARIES
(DEVELOPMENT STAGE COMPANIES)
CONSOLIDATED STATEMENT OF SHAREHOLDERS' EQUITY(CONTINUED)
FOR THE THREE MONTHS ENDED SEPTEMBER 30, 1999
(UNAUDITED)
<TABLE>
<CAPTION>
Preferred Stock Common Stock Additional
----------------------- ------------------------ Paid in
Shares Amount Shares Amount Capital
------ ------ ------ ------ ----------
<S> <C> <C> <C> <C>
CUMULATIVE CURRENCY $
TRANSLATION
ADJUSTMENT $
ISSUANCE OF COMMON
STOCK FOR
CASH 6,477,075 1,134,423
SHAREHOLDER'S LOANS 5,358,000 416,100
SERVICES 10,795,000 2,768,702
DEPOSIT ON EQUIPMENT 23,000 23,055
ACQUISITION OF STONES
AND WOOD CORPO-
RATION S.A.R.L. 4,997,000 3,500,000
LESS COSTS TO ACQUIRE
FINANCING (39,621)
NET (LOSS) FOR YEAR
ENDED JUNE 30, 1999
----------- ---------- ---------- ------------ ----------
BALANCE, JUNE 30, 1999 0 0 52,599,075 8,341,128 0
CUMULATIVE CURRENCY
TRANSLATION
ADJUSTMENT
NET (LOSS) FOR THE
THREE MONTHS ENDED
SEPTEMBER 30, 1999
----------- ---------- ---------- ------------ ----------
BALANCE,
SEPTEMBER 30, 1999 $ 52,599,075 $ 8,341,128 $ 0
=========== ========== ========== ============ ==========
</TABLE>
See Accompanying Notes and Independent Accountants' Review Report.
7
<PAGE>
AMERICAN BENEFITS GROUP, INC. AND SUBSIDIARIES
(DEVELOPMENT STAGE COMPANIES)
CONSOLIDATED STATEMENT OF SHAREHOLDERS' EQUITY
FOR THE THREE MONTHS ENDED SEPTEMBER 30, 1999
(UNAUDITED)
<TABLE>
<CAPTION>
Cumulative Accumulated Total
Currency Retained During the Shareholders'
Translation Earnings Development Shareholder Equity
Adjustment (Deficit) Stage Receivable (Deficit)
------------- ------------ --------------- ------------- -------------
<S> <C> <C> <C> <C> <C>
CUMULATIVE CURRENCY $ 12,164 $ $ $ $ 12,164
TRANSLATION
ADJUSTMENT
ISSUANCE OF COMMON
STOCK FOR
CASH 1,134,423
SHAREHOLDER'S LOANS 416,100
SERVICES 2,768,702
DEPOSIT ON EQUIPMENT 23,055)
ACQUISITION OF STONES
AND WOOD CORPO-
RATION S.A.R.L. 3,500,000)
LESS COSTS TO ACQUIRE
FINANCING (39,621
NET (LOSS) FOR YEAR
ENDED JUNE 30, 1999 (143,012) (143,012
------------- ------------ --------------- ------------- -------------)
BALANCE, JUNE 30, 1999 16,024 (372,194) (763,256) 0 7,221,702)
CUMULATIVE CURRENCY (5,256) (5,256
TRANSLATION
ADJUSTMENT
NET (LOSS) FOR THE
THREE MONTHS ENDED
SEPTEMBER 30, 1999 (294,246) (294,246
------------- ------------ --------------- ------------- -------------
BALANCE,
SEPTEMBER 30, 1999 $ 10,768 $ (372,194) $ (1,057,502) $ 0 $ 6,922,200
============= ============ =============== ============= =============
</TABLE>
See Accompanying Notes and Independent Accountants' Review Report.
8
<PAGE>
AMERICAN BENEFITS GROUP, INC. AND SUBSIDIARIES
(DEVELOPMENT STAGE COMPANIES)
CONSOLIDATED STATEMENTS OF CASH FLOWS
FOR THE THREE MONTHS ENDED SEPTEMBER 30, 1999 AND
FOR THE PERIOD JULY 1, 1997 (DATE OF DEVELOPMENT STAGE)
TO SEPTEMBER 30, 1999
(UNAUDITED)
<TABLE>
<CAPTION>
July 1, 1997
(Date of
Three Months Development
Ended Stage) to
September 30, 1999 September 30, 1999
------------------ ------------------
<S> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES
Net (loss) $ (299,502) $(1,046,734)
Adjustments to reconcile net (loss) to
net cash (used) by operating activities:
Depreciation and amortization 67,337 122,979
Minority interest in loss of consolidated subsidiary 0 1,537
Issuance of common stock for services 0 2,768,702
Loss on investment in subsidiary 0 101,000
Cancellation of debt 0 (100,000)
Changes in operating assets and liabilities:
Accounts receivable 3,818,090 (2,404)
Refundable taxes (1,849) (19,523)
Employee advances and other receivables 2,729 4,374
Inventories (5,046,207) (6,047,241)
Accounts payable 2,084,224 2,792,856
----------- -----------
NET CASH FLOWS PROVIDED (USED) BY
OPERATING ACTIVITIES 624,822 (1,424,454)
----------- -----------
CASH FLOWS FROM INVESTING ACTIVITIES
Purchases of property and equipment (14,386) (277,332)
Purchase of mining perimeters 0 (572,780)
Investment in joint venture - Total Gem Management (1,300) (17,300)
Deposits on equipment (10,000) (59,997)
----------- -----------
NET CASH FLOWS (USED) BY INVESTING
ACTIVITIES (25,686) (927,409)
----------- -----------
CASH FLOWS FROM FINANCING ACTIVITIES
Bank overdraft 6,196 6,196
Proceeds from issuance of common stock 0 1,323,167
Proceeds (Repayments) from related entity loan (648,866) 1,022,004
----------- -----------
NET CASH FLOWS (USED) PROVIDED BY
FINANCING ACTIVITIES $ (642,670) $ 2,351,367
----------- -----------
</TABLE>
See Accompanying Notes and Independent Accountants' Review Report.
7
<PAGE>
AMERICAN BENEFITS GROUP, INC. AND SUBSIDIARIES
(DEVELOPMENT STAGE COMPANIES)
CONSOLIDATED STATEMENTS OF CASH FLOWS (CONTINUED)
FOR THE THREE MONTHS ENDED SEPTEMBER 30, 1999 AND
FOR THE PERIOD JULY 1, 1997 (DATE OF DEVELOPMENT STAGE)
TO SEPTEMBER 30, 1999
(UNAUDITED)
<TABLE>
<CAPTION>
July 1, 1997
(Date of
Three Months Development
Ended Stage) to
September 30, 1999 September 30, 1999
------------------ ------------------
<S> <C> <C>
NET (DECREASE) IN CASH $ (43,534) $ (496)
CASH BALANCE, BEGINNING OF PERIOD 49,624 6,586
----------- -----------
CASH BALANCE, END OF PERIOD $ 6,090 $ 6,090
=========== ===========
SUPPLEMENTARY DISCLOSURE OF
CASH FLOW DATA:
Interest paid $ 0 $ 2,239
=========== ===========
Taxes paid $ 0 $ 0
=========== ===========
NON CASH INVESTING AND FINANCING
ACTIVITIES
ISSUANCE OF COMPANY STOCK FOR
SAOWANI DEVELOPMENT S.A.R.L $ 0 $ 36
=========== ===========
ISSUANCE OF COMPANY STOCK AND
PROMISSORY NOTES FOR WORLD
GEMS CORPORATION S.A.R.L $ 0 $ 101,000
=========== ===========
ISSUANCE OF COMPANY STOCK FOR
SHAREHOLDER'S LOAN $ 0 $ 416,100
=========== ===========
ISSUANCE OF COMPANY STOCK FOR
SERVICES $ 0 $ 2,768,702
=========== ===========
ISSUANCE OF COMPANY STOCK FOR
DEPOSIT ON EQUIPMENT $ 0 $ 23,055
=========== ===========
ISSUANCE OF COMPANY STOCK FOR
STONES AND WOOD CORPORATION S.A.R.L $ 0 $ 3,500,000
=========== ===========
</TABLE>
See Accompanying Notes and Independent Accountants' Review Report.
8
<PAGE>
AMERICAN BENEFITS GROUP, INC. AND SUBSIDIARIES
(DEVELOPMENT STAGE COMPANIES)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
SEPTEMBER 30, 1999
(UNAUDITED)
NOTE 1 SUMMARY OF SIGNIFICANT ACCOUNTING PRINCIPLES
Principles of Consolidation
The consolidated financial statements include the accounts of
American Benefits Group, Inc. and the following subsidiaries:
Subsidiary Ownership Percentage
---------- --------------------
American Benefits Group, Ltd. 100%
Saowani Development S.A.R.L. 90%
E - Block Technology Inc. 100%
ABFG Sales Ltd. (Canada) 100%
ABFG Sales Limited (USA) 100%
American Benefits Group (Israel) Ltd. 100%
American Benefits Group
(Israel-Madagascar) Ltd. 100%
Stones and Wood Corporation S.A.R.L. 100%
ABFG Resources Madagascar S.A.R.L. 100%
All material inter-company accounts and transactions have been
eliminated.
Nature of Business
American Benefits Group, Inc., which was formerly known as Lifeline
Benefits Group, Inc. and Living Benefits Group, Inc., was
incorporated on February 26, 1996, in the state of Florida. The
company was involved in the business of viatical settlements.
Effective September 30, 1997, the company ceased its business
operations in viatical settlements, liquidated all assets and paid
all liabilities. On July 16, 1997, the company was acquired by new
shareholders and the company is now in the business of exploring and
extracting mining perimeters in the Democratic Republic of
Madagascar.
American Benefits Group, Ltd. provides management services to
related entities. The company also owns 1% of American Benefits
Group (Israel) Ltd. and 1% of American Benefits Group
(Israel-Madagascar) Ltd.
Saowani Development S.A.R.L. is a joint venture partner in three
mining perimeters in Madagascar.
E-Block Technology Inc. is presently performing research and testing
of clay, sand and additives for the formulation and manufacture of
clay blocks.
ABFG Sales Ltd. (USA and Canada) are the retail sales entities.
See Accompanying Notes and Independent Accountants' Review Report.
9
<PAGE>
AMERICAN BENEFITS GROUP, INC. AND SUBSIDIARIES
(DEVELOPMENT STAGE COMPANIES)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
SEPTEMBER 30, 1999
(UNAUDITED)
NOTE 1 SUMMARY OF SIGNIFICANT ACCOUNTING PRINCIPLES (CONTINUED)
Nature of Business (Continued)
American Benefits Group (Israel) Ltd. holds a 100% interest in
Stones and Wood Corporation S.A.R.L. and 1% interest in ABFG
Resources Madagascar S.A.R.L.
American Benefits Group (Israel-Madagascar) Ltd. was formed to own
various assets such as equipment used in international companies.
Stones and Wood Corporation S.A.R.L. owns 37 mining perimeters in
Madagascar.
ABFG Resources Madagascar S.A.R.L. is a mine operator in Madagascar.
Cash and Cash Equivalents
The company considers securities with maturities of three months or
less, when purchased, to be cash equivalents.
Inventories
Inventories are stated at the lower of cost (determined principally
by the average cost method) or market.
For rough stones, the elements of cost include direct labor,
materials, equipment costs, and overhead and the full absorption of
fixed mining costs.
For cut and polished stone, the inventory includes the rough stone
costs plus the cost to process and finish the stones to complete
them for setting into jewelry.
Long-Lived Assets
Statement of Financial Accounting Standards No. 121, "Accounting for
the Impairment of Long-Lived Assets and for Long-Lived Assets to Be
Disposed Of," requires that long-lived assets be reviewed for
impairment whenever events or changes in circumstances indicate that
the carrying amount of the asset in question may not be recoverable.
This standard did not have a material effect on the company's
results of operations, cash flows or financial position.
Property and Equipment
Property and equipment are carried at cost. Repairs and maintenance
costs are charged against income while renewals and betterments are
capitalized as additions to the related assets. The assets are
depreciated using the straight-line method with the following lines:
See Accompanying Notes and Independent Accountants' Review Report.
10
<PAGE>
AMERICAN BENEFITS GROUP, INC. AND SUBSIDIARIES
(DEVELOPMENT STAGE COMPANIES)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
SEPTEMBER 30, 1999
(UNAUDITED)
NOTE 1 SUMMARY OF SIGNIFICANT ACCOUNTING PRINCIPLES (CONTINUED)
Property and Equipment (Continued)
Office furniture 10 years
Computers 3 years
Film equipment 3 years
Communication equipment 3 years
Office security equipment 5 years
Reprographics equipment 3 years
Computer software 1 year
Mining equipment 3 years
Compensated Absences
Employees of the corporation are entitled to paid vacations, sick
days and other time off depending on job classification, length of
service and other factors. It is impractical to estimate the amount
of compensation for future absences, and accordingly, no liability
has been recorded in the accompanying financial statements. The
corporation's policy is to recognize the costs of compensated
absences when paid to employees.
Income Taxes
The company accounts for income taxes on an asset and liability
approach to financial accounting. Deferred income tax assets and
liabilities are computed annually for the difference between the
financial statements and tax basis of assets and liabilities that
will result in taxable or deductible amounts in the future, based on
enacted tax laws and rates applicable to the periods in which the
differences are expected to affect taxable income. Valuation
allowances are established when necessary to reduce deferred tax
assets to the amount expected to be realized. Income tax expense is
the tax payable or refundable for the period, plus or minus the
change during the period in deferred tax assets and liabilities.
The company intends to reinvest its undistributed international
earnings to expand its international operations; therefore, no tax
has been provided to cover the repatriation of such undistributed
earnings.
Net Earnings Per Share
The company adopted Statement of Financial Accounting Standards No.
128 that requires the reporting of both basic and diluted earnings
per share. Basic earnings per share is computed by dividing net
income available to common shareowners by the weighted average
number of common shares outstanding for the period. Diluted earnings
per share reflects the potential
See Accompanying Notes and Independent Accountants' Review Report.
11
<PAGE>
AMERICAN BENEFITS GROUP, INC. AND SUBSIDIARIES
(DEVELOPMENT STAGE COMPANIES)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
SEPTEMBER 30, 1999
(UNAUDITED)
NOTE 1 SUMMARY OF SIGNIFICANT ACCOUNTING PRINCIPLES (CONTINUED)
Net Earnings Per Share (Continued)
dilution that could occur if securities or other contracts to issue
common stock were exercised or converted into common stock. There
were no options outstanding that would cause dilution of the common
stock.
Minority Interest in Consolidated Subsidiary
The parent company theory is used for disclosing the minority
interest in the consolidated balance sheet.
Accounting Estimates
Management uses estimates and assumptions in preparing financial
statements in accordance with generally accepted accounting
principles. These estimates and assumptions affect the reported
amounts of assets and liabilities, the disclosure of contingent
assets and liabilities, and the reported revenues and expenses.
Actual results could vary from the estimates that were used.
International Currency Translation
For translation of its international currencies, the company has
determined that the local currencies of its international
subsidiaries are the functional currencies.
NOTE 2 DEVELOPMENT STAGE OPERATIONS
As of September 30, 1999, the company was in the development stage
of operations. According to the Financial Accounting Standards Board
of the Financial Accounting Foundation, a development stage company
is defined as a company that devotes most of its activities to
establishing a new business activity. In addition, planned principle
activities have not commenced, or have commenced and have not yet
produced significant revenue.
FAS-7 requires that all development costs be expensed during the
development period. The company expensed $305,734 of development
costs for the three months ended September 30,1999 and $1,064,313
for the period July 1, 1997 (date of development stage) to September
30, 1999.
NOTE 3 COMPREHENSIVE INCOME
Statement of Financial Accounting Standards ("SFAS") No. 130,
Reporting Comprehensive Income, establishes a standard for reporting
and displaying comprehensive income and the
See Accompanying Notes and Independent Accountants' Review Report.
12
<PAGE>
AMERICAN BENEFITS GROUP, INC. AND SUBSIDIARIES
(DEVELOPMENT STAGE COMPANIES)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
SEPTEMBER 30, 1999
(UNAUDITED)
NOTE 3 COMPREHENSIVE INCOME (CONTINUED)
components within the financial statements. Comprehensive income
includes charges and credits to equity that are not the result of
transactions with shareholders. Comprehensive income is composed of
two subsets - net income and other comprehensive income. Included in
other comprehensive income for the company are cumulative
translation adjustments on foreign currency transactions. These
adjustments are accumulated within the statement of shareholders'
equity under the caption Accumulated Other Comprehensive Income. As
of September 30, 1999, accumulated other comprehensive income, as
reflected in the consolidated statement of shareholders' equity was
comprised of cumulative translation adjustments totaling $10,768.
Cumulative translation adjustments are not adjusted for income taxes
as they relate to indefinite investments in non-U.S. subsidiaries.
NOTE 4 INVENTORIES
Inventories are summarized as follows:
Rough stones $3,195,697
Cut and polished gems 2,788,155
Art 52,639
Jewelry 10,750
----------
$6,047,241
==========
NOTE 5 PROPERTY AND EQUIPMENT
Property and equipment consist of the following:
Office furniture $ 45,245
Computers 56,900
Film equipment 1,442
Communication equipment 25,069
Office security equipment 8,843
Reprographics equipment 15,984
Computer software 8,180
Mining equipment 115,669
--------
277,332
Less accumulated depreciation 57,747
--------
Book value $219,585
========
Depreciation expense for the three months ended September 30, 1999
amounted to $20,635.
See Accompanying Notes and Independent Accountants' Review Report.
13
<PAGE>
AMERICAN BENEFITS GROUP, INC. AND SUBSIDIARIES
(DEVELOPMENT STAGE COMPANIES)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
SEPTEMBER 30, 1999
(UNAUDITED)
NOTE 6 UNAMORTIZED MINING PERIMETERS
The company is amortizing the mining perimeters by the straight-line
method over 345 months, which is the estimate life of the
perimeters.
Adjusted cost base of the perimeters $4,432,780
Less accumulated amortization 62,175
----------
Book value $4,370,605
==========
Amortization for the three months ended September 30, 1999 is $
38,565.
NOTE 7 INCOME TAXES
<TABLE>
<S> <C>
(Loss) before income taxes $(294,246)
---------
The provision for income taxes is estimated as follows:
Currently payable $ 0
---------
Deferred $ 0
---------
A reconciliation of the provision for income taxes
compared with the amounts at the U.S. Federal
Statutory and foreign rates were as follows:
Tax at U.S. Federal Statutory income tax rates $ 0
---------
Taxes at foreign rates $ 0
---------
Deferred income tax assets and liabilities reflect the
impact of temporary differences between amounts of
assets and liabilities for financial reporting
purposes and the basis of such assets and liabilities
as measured by tax laws. The net deferred tax assets is: $ 0
---------
</TABLE>
Temporary differences and carry forwards that gave rise
to deferred tax assets and liabilities included the following:
Deferred Tax
--------------------------
Assets Liabilities
------ -----------
Net operating loss
U.S. federal $105,000 $ 0
Foreign 185,000 .
-------- --------
Subtotal 290,000 0
Valuation allowance 290,000 0
-------- --------
Total deferred taxes $ 0 $ 0
======== ========
See Accompanying Notes and Independent Accountants' Review Report.
14
<PAGE>
AMERICAN BENEFITS GROUP, INC. AND SUBSIDIARIES
(DEVELOPMENT STAGE COMPANIES)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
SEPTEMBER 30, 1999
(UNAUDITED)
NOTE 7 INCOME TAXES
A reconciliation of the valuation allowance is as follows:
Balance, July 1, 1999 $158,000
Addition for the three months ended
September 30, 1999 132,000
--------
Balance, September 30, 1999 $290,000
========
NOTE 8 NON QUALIFIED STOCK OPTION PLAN
The company has a nonqualified stock option plan which gives the
Board of Directors or a committee designated by the Board of
Directors authority to issue additional shares of its common stock
at specified prices as determined by the Board of Directors. The
Board of Directors have not granted any options as of September 30,
1999.
NOTE 9 PREFERRED STOCK
The preferred stock has preferences over the common stock for
dividends and upon company dissolution.
NOTE 10 INTERNATIONAL SUBSIDIARIES
The following amounts are included in the consolidated financial
statements for international subsidiaries:
Current assets $ 27,530
Current liabilities 301,790
Net property and equipment 122,413
NOTE 11 INTEREST EXPENSE
The company did not have any interest costs for the three months
ended September 30, 1999.
NOTE 12 RENT
The company rents office space on a month to month basis from a
related entity. Rent expense for the three months ended September
30, 1999 is $27,338.
See Accompanying Notes and Independent Accountants' Review Report.
15
<PAGE>
AMERICAN BENEFITS GROUP, INC. AND SUBSIDIARIES
(DEVELOPMENT STAGE COMPANIES)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
SEPTEMBER 30, 1999
(UNAUDITED)
NOTE 13 AGENCY AGREEMENT
The companies have entered into an agency agreement with a
corporation director and a company controlled by the director. Under
the agreement, the director and the authorized company may incur
expenses on behalf of American Benefits Group, Inc. and Subsidiaries
and American Benefits Group, Inc. and Subsidiaries agree to
reimburse the director and company for all expenses incurred plus
reasonable overhead cost reimbursements. The company owes the
related entity $585,083 at September 30, 1999.
NOTE 14 JOINT VENTURE AGREEMENT (TGM)
In April 1999, the company entered in to a joint venture agreement,
known as Total Gem Management Ltd, with the Menavi Group, an Israeli
corporation. Total Gem Management Ltd. (TGM) will be responsible to
manage and handle the company's sapphires from the point after
mining and sorting.
American Benefits Group, Inc. is required to provide $1,000,000 cash
to TGM and Menavi Group will provide $1,000,000 of gems (wholesale
value). As of September 30, 1999, the company advanced $17,300
towards the $1,000,000 commitment.
American
Benefits Menavi
Division of Profits Group, Inc. Group
------------------- ----------- ------
On goods from American
Benefits Group, Inc. mines
Total net sales on cut
and semicut-stones 66.6% 33.4%
On unprocessed rough 75% 25%
On goods purchase by American
Benefit Group, Inc.
Total net sales minus
total purchase cost
As of September 30, 1999, there were no income or expenses from the
joint venture.
NOTE 15 RELATED PARTY TRANSACTIONS
The company purchased $1,580,000 of raw sapphire stones from a
company controlled by a director of the company.
See Accompanying Notes and Independent Accountants' Review Report.
16
<PAGE>
AMERICAN BENEFITS GROUP, INC. AND SUBSIDIARIES
(DEVELOPMENT STAGE COMPANIES)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
SEPTEMBER 30, 1999
(UNAUDITED)
NOTE 16 SAOWANI - HARINORO
On June 20, 1999, the company entered into a joint venture for
testing and small scale mining of three emerald perimeters in
Madagascar. The joint venture is for one and one half years and
profits are distributed 80% to Saowani and 20% to Harinoro.
As of September 30, 1999, there was no income or expense from the
joint venture.
NOTE 17 COMMITMENT TO PURCHASE MINING EQUIPMENT
To facilitate its Malagasy Testing Operations, the company has
entered into 3 agreements with Dove Gems & Jewelry Co. Ltd. for the
purchase of testing equipment which will be transported from
Thailand to the company's Madagascar mine sites. The purchase price
for the testing equipment is $566,349. The company has made deposits
in the amount of $73,055 towards the purchase contracts.
NOTE 18 CORPORATION INCOME TAX RETURNS
The company has not filed its United States and Canadian income tax
returns for the years ended June 30, 1998 and 1999. However, the
company has incurred losses and it is anticipated that the company
will not have any tax liabilities for these years.
NOTE 19 NET OPERATING LOSS CARRYFORWARDS
The company has the following net operating loss carryforwards:
Expiration
Country Three months Amount Date
------- ------------ ------ ----------
United States June 30, 1998 $586,686 2013
United States June 30, 1999 97,589 2014
Canada June 30, 1998 103,428 2003
Canada June 30, 1999 15,005 2004
NOTE 20 CHANGE IN TRADING STATUS
On July 3, 1999, the National Association of Securities Dealers,
Inc. (NASD) and the Securities and Exchange Commission (SEC)
de-listed the stock of the company from the Over-the-counter
bulletin Board (OTCBB) to the "Pink Sheets".
This action arises for the SEC's approval of amendments to NASD
Rules 6530 and 6540 requiring an issuer to make periodic financial
report filings to the SEC and to remain current with those required
filings, in order for an issuer of stock to continue being quoted on
the
See Accompanying Notes and Independent Accountants' Review Report.
17
<PAGE>
AMERICAN BENEFITS GROUP, INC. AND SUBSIDIARIES
(DEVELOPMENT STAGE COMPANIES)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
SEPTEMBER 30, 1999
(UNAUDITED)
NOTE 20 CHANGE IN TRADING STATUS (CONTINUED)
OTCBB. Prior to these amendments, there was no requirement for an
issuer of stock on the OTCBB to file any reports with the SEC.
Management is in the process of filing Form 10SB to become a
reporting issuer.
NOTE 21 SUBSEQUENT EVENTS
In October 1999, the company issued 1,000,000 shares of common stock
to Saul BEN-HEIM of Israel in connection with services rendered. The
value of the shares on the date of issuance was $57,500.
In October 1999, the company issued an aggregate of 225,000 shares
of common stock to nine consultants of the company as additional
compensation for services rendered. The value of the shares on the
date of issuance was $19,935.
See Accompanying Notes and Independent Accountants' Review Report.
18
<PAGE>
AMERICAN BENEFITS GROUP, INC.
AND SUBSIDIARIES
(DEVELOPMENT STAGE COMPANIES)
CONSOLIDATED FINANCIAL STATEMENTS
JUNE 30, 1999
<PAGE>
TABLE OF CONTENTS
Page No.
--------
INDEPENDENT AUDITORS' REPORT........................................ 1
FINANCIAL STATEMENTS
Consolidated Balance Sheet................................... 2
Consolidated Statements of Comprehensive (Loss).............. 3
Consolidated Statements of Operations........................ 4
Consolidated Statement of Shareholders' Equity............... 5 - 6
Consolidated Statements of Cash Flows........................ 7 - 8
Notes to Consolidated Financial Statements................... 9 - 19
<PAGE>
INDEPENDENT AUDITORS' REPORT
To the Shareholders and Board of Directors
American Benefits Group, Inc. and Subsidiaries
(Development Stage Companies)
Deerfield Beach, Florida
We have audited the accompanying balance sheet of American Benefits Group, Inc.
and Subsidiaries (Development Stage companies) as of June 30, 1999, and the
related statements of comprehensive (loss), operations, shareholders' equity and
cash flows for the year then ended and for the period July 1, 1997 (date of
development stage) to June 30, 1999. These financial statements are the
responsibility of the company's management. Our responsibility is to express an
opinion on the financial statements based on our audit.
We conducted our audit in accordance with generally accepted auditing standards.
Those standards require that we 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
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.
We believe that our audit provides a reasonable basis for our opinion.
In our opinion, the financial statements referred to above present fairly, in
all material respects, the financial position of American Benefits Group, Inc.
and Subsidiaries as of June 30, 1999 and the results of its operations and its
cash flows for the year then ended and for the period July 1, 1997 (date of
development stage) to June 30, 1999, in conformity with generally accepted
accounting principles.
/s/ Moffitt & Company, P.C.
- -----------------------------------
Moffitt & Company, P.C.
Scottsdale, Arizona
February 23, 2000
<PAGE>
AMERICAN BENEFITS GROUP, INC. AND SUBSIDIARIES
(DEVELOPMENT STAGE COMPANIES)
CONSOLIDATED BALANCE SHEET
JUNE 30, 1999
ASSETS
<TABLE>
<S> <C> <C>
CURRENT ASSETS
Cash and cash equivalents $ 49,624
Accounts receivable 3,820,494
Refundable taxes 27,927
Employee advances and other receivables 2,729
Inventories 1,001,034
----------
TOTAL CURRENT ASSETS $4,901,808
PROPERTY AND EQUIPMENT 225,834
OTHER LONG-TERM ASSETS
Unamortized mining perimeters 4,409,170
OTHER ASSETS
Investment in joint venture - Total Gem Management 16,000
Unamortized organization costs 8,137
Deposits 73,055
----------
TOTAL OTHER ASSETS 97,192
----------
TOTAL ASSETS $9,634,004
==========
</TABLE>
<PAGE>
LIABILITIES AND SHAREHOLDERS' EQUITY
CURRENT LIABILITIES
Accounts payable
Inventory $ 736,804
Trade 427,535
Related entity 1,254,770
-----------
TOTAL CURRENT LIABILITIES $ 2,419,109
MINORITY INTEREST DEFICIENCY (6,807)
SHAREHOLDERS' EQUITY
Preferred stock
Par value - $10 per share
Authorized - 10,000,000 shares
No shares are issued or outstanding
Common stock
No par value
Authorized 200,000,000 shares
Issued and outstanding - 52,599,075 shares $ 8,341,128
Cumulative currency translation adjustment 16,024
Retained earnings (deficit) (372,194)
Deficit accumulated during the development
stage (763,256)
-----------
TOTAL SHAREHOLDERS' EQUITY 7,221,702
-----------
TOTAL LIABILITIES AND SHAREHOLDERS'
EQUITY $ 9,634,004
===========
See Accompanying Notes and Independent Auditors' Report.
2
<PAGE>
AMERICAN BENEFITS GROUP, INC. AND SUBSIDIARIES
(DEVELOPMENT STAGE COMPANIES)
CONSOLIDATED STATEMENTS OF COMPREHENSIVE (LOSS)
FOR THE YEAR ENDED JUNE 30, 1999 AND
FOR THE PERIOD JULY 1, 1997 (DATE OF DEVELOPMENT STAGE)
TO JUNE 30, 1999
<TABLE>
<CAPTION>
July 1, 1997
(Date of
Year Development
Ended Stage) to
June 30, 1999 June 30, 1999
------------- -------------
<S> <C> <C>
NET (LOSS) $ (143,012) $ (763,256)
OTHER COMPREHENSIVE INCOME
Foreign currency translation adjustments 12,164 16,024
------------ ------------
NET COMPREHENSIVE (LOSS) $ (130,848) $ (747,232)
============ ============
NET (LOSS) PER COMMON SHARE
Basic and diluted $ (.004)
============
AVERAGE NUMBER OF COMMON SHARES
OUTSTANDING
Basic and diluted 27,911,988
============
</TABLE>
See Accompanying Notes and Independent Auditors' Report.
3
<PAGE>
AMERICAN BENEFITS GROUP, INC. AND SUBSIDIARIES
(DEVELOPMENT STAGE COMPANIES)
CONSOLIDATED STATEMENTS OF OPERATIONS
FOR THE YEAR ENDED JUNE 30, 1999 AND
FOR THE PERIOD JULY 1, 1997 (DATE OF DEVELOPMENT STAGE)
TO JUNE 30, 1999
<TABLE>
<CAPTION>
July 1, 1997
(Date of
Year (Development)
Ended Stage) to
June 30, 1999 June 30, 1999
------------- -------------
<S> <C> <C>
REVENUE - SALE OF GEMS FROM TESTING $ 5,040,501 $ 5,040,501
----------- -----------
COST AND EXPENSES
Purchases, commissions and fees for test gems 1,782,632 1,782,632
Development costs 3,402,418 4,027,936
----------- -----------
TOTAL COST AND EXPENSES 5,185,050 5,810,568
----------- -----------
NET (LOSS) BEFORE MINORITY INTEREST (144,549) (770,067)
MINORITY INTEREST IN LOSS OF
CONSOLIDATED SUBSIDIARY 1,537 6,811
----------- -----------
NET (LOSS) $ (143,012) $ (763,256)
=========== ===========
</TABLE>
See Accompanying Notes and Independent Auditors' Report.
4
<PAGE>
AMERICAN BENEFITS GROUP, INC. AND SUBSIDIARIES
(DEVELOPMENT STAGE COMPANIES)
CONSOLIDATED STATEMENT OF SHAREHOLDERS' EQUITY
FOR THE YEAR ENDED JUNE 30, 1999
<TABLE>
<CAPTION>
Preferred Stock Common Stock Additional
-------------------------- --------------------------- Paid in
Shares Amount Shares Amount Capital
------ ------ ------ ------ ---------------
<S> <C> <C> <C> <C> <C>
BALANCE, JULY 1, 1997 1,683,000 $ 1,683 $ 475,750
CHANGE IN PAR VALUE 475,750 (475,750)
ISSUANCE OF COMMON
STOCK FOR CASH 3,300,000 60,000
ISSUANCE OF
COMMON STOCK FOR
ACQUISITION OF 90%
OF SAOWANI
DEVELOPMENT S.A.R.L.,
AT BOOK VALUE OF
SUBSIDIARY 3,000,000 36
REPAYMENT OF
SHAREHOLDER'S
RECEIVABLE
STOCK DIVIDEND 15,966,000
CUMULATIVE CURRENCY
TRANSLATION
ADJUSTMENT
ISSUANCE OF COMMON
STOCK FOR 70% OF WORLD
GEMS CORPORATION S.A.R.L. 1,000,000 1,000
NET (LOSS) FOR THE SIX
MONTHS ENDED
DECEMBER 31, 1998
------------- ------------ ----------- ------------ ---------------
BALANCE,
DECEMBER 31, 1998 0 0 24,949,000 538,469 0
</TABLE>
See Accompanying Notes and Independent Auditors' Report.
5
<PAGE>
AMERICAN BENEFITS GROUP, INC. AND SUBSIDIARIES
(DEVELOPMENT STAGE COMPANIES)
CONSOLIDATED STATEMENT OF SHAREHOLDERS' EQUITY
FOR THE YEAR ENDED JUNE 30, 1999
(UNAUDITED)
<TABLE>
<CAPTION>
Deficit
Cumulative Accumulated Total
Currency Retained During the Shareholders'
Translation Earnings Development Shareholder Equity
Adjustment (Deficit) Stage Receivable (Deficit)
---------------- ----------------- ---------------- --------------- -------------
<S> <C> <C> <C> <C> <C>
BALANCE, JULY 1, 1997 $ 0 $ (353,788) $ 0 $ (95,000) $ 28,645
CHANGE IN PAR VALUE
ISSUANCE OF COMMON
STOCK FOR CASH
60,000
ISSUANCE OF
COMMON STOCK FOR
ACQUISITION OF 90%
OF SAOWANI
DEVELOPMENT S.A.R.L.,
AT BOOK VALUE OF
SUBSIDIARY 36
REPAYMENT OF
SHAREHOLDER'S
RECEIVABLE 95,000 95,000
STOCK DIVIDEND
CUMULATIVE CURRENCY
TRANSLATION
ADJUSTMENT 3,860 3,860
ISSUANCE OF COMMON
STOCK FOR 70% OF WORLD
GEMS CORPORATION S.A.R.L. 1,000
NET (LOSS) FOR THE SIX
MONTHS ENDED
DECEMBER 31, 1998 (18,406) (620,244) (638,650)
---------------- ----------------- ----------------- --------------- -----------------
BALANCE,
DECEMBER 31, 1998 3,860 (372,194) (620,244) 0 (450,109)
</TABLE>
See Accompanying Notes and Independent Auditors' Report.
6
<PAGE>
AMERICAN BENEFITS GROUP, INC. AND SUBSIDIARIES
(DEVELOPMENT STAGE COMPANIES)
CONSOLIDATED STATEMENT OF SHAREHOLDERS' EQUITY(CONTINUED)
FOR THE YEAR ENDED JUNE 30, 1999
<TABLE>
<CAPTION>
Preferred Stock Common Stock
-------------------------- ---------------------------
Shares Amount Shares Amount
------ ------ ------ ------
<S> <C> <C> <C> <C>
CUMULATIVE CURRENCY
TRANSLATION
ADJUSTMENT $ $
ISSUANCE OF COMMON
STOCK FOR
CASH 6,477,075 1,134,423
SHAREHOLDER'S LOANS 5,358,000 416,100
SERVICES 10,795,000 2,768,702
DEPOSIT ON EQUIPMENT 23,000 23,055
ACQUISITION OF STONES
AND WOOD CORPO-
RATION S.A.R.L. 4,997,000 3,500,000
LESS COSTS TO ACQUIRE
FINANCING (39,621)
NET (LOSS) FOR YEAR
ENDED JUNE 30, 1999
------------- ------------- ---------- -------------
BALANCE, JUNE 30, 1999 0 0 52,599,075 8,341,128
ISSUANCE OF COMMON
STOCK FOR SERVICES 1,225,000 77,435
CUMULATIVE CURRENCY
TRANSLATION
ADJUSTMENT
NET (LOSS) FOR THE
SIX MONTHS ENDED
DECEMBER 31, 1999
------------- ------------- ---------- -------------
BALANCE,
DECEMBER 31, 1999 0 $ 0 53,824,075 $ 8,418,563
============= ============= ========== =============
</TABLE>
See Accompanying Notes and Independent Auditors' Report.
7
<PAGE>
AMERICAN BENEFITS GROUP, INC. AND SUBSIDIARIES
(DEVELOPMENT STAGE COMPANIES)
CONSOLIDATED STATEMENT OF SHAREHOLDERS' EQUITY(CONTINUED)
FOR THE YEAR ENDED JUNE 30, 1999
<TABLE>
<CAPTION>
Deficit
Cumulative Accumulated
Additional Currency Retained During the
Paid in Translation Earnings Development
Capital Adjustment (Deficit) Stage
--------------- ---------------- ---------------- --------------
<S> <C> <C> <C> <C>
CUMULATIVE CURRENCY $ $ 12,164 $ $
TRANSLATION
ADJUSTMENT
ISSUANCE OF COMMON
STOCK FOR
CASH
SHAREHOLDER'S LOANS
SERVICES
DEPOSIT ON EQUIPMENT
ACQUISITION OF STONES
AND WOOD CORPO-
RATION S.A.R.L.
LESS COSTS TO ACQUIRE
FINANCING
NET (LOSS) FOR YEAR
ENDED JUNE 30, 1999 (143,012)
--------------- ---------------- ---------------- --------------
BALANCE, JUNE 30, 1999 0 16,024 (372,194) (763,256)
ISSUANCE OF COMMON
STOCK FOR SERVICES
CUMULATIVE CURRENCY
TRANSLATION
ADJUSTMENT (9,390)
NET (LOSS) FOR THE
SIX MONTHS ENDED
DECEMBER 31, 1999 (514,675)
--------------- ---------------- ---------------- --------------
BALANCE,
DECEMBER 31, 1999 $ 0 $ 6,634 $ (372,194) $ (1,277,931)
=============== ================ ================ ==============
</TABLE>
See Accompanying Notes and Independent Auditors' Report.
8
<PAGE>
AMERICAN BENEFITS GROUP, INC. AND SUBSIDIARIES
(DEVELOPMENT STAGE COMPANIES)
CONSOLIDATED STATEMENT OF SHAREHOLDERS' EQUITY(CONTINUED)
FOR THE YEAR ENDED JUNE 30, 1999
<TABLE>
<CAPTION>
Total
Shareholders'
Shareholder Equity
Receivable (Deficit)
--------------- -----------------
<S> <C> <C>
CUMULATIVE CURRENCY $ $ 12,164
TRANSLATION
ADJUSTMENT
ISSUANCE OF COMMON
STOCK FOR
CASH 1,134,423
SHAREHOLDER'S LOANS 416,100
SERVICES 2,768,702
DEPOSIT ON EQUIPMENT 23,055
ACQUISITION OF STONES
AND WOOD CORPO-
RATION S.A.R.L. 3,500,000
LESS COSTS TO ACQUIRE
FINANCING (39,621)
NET (LOSS) FOR YEAR
ENDED JUNE 30, 1999 (143,012)
--------------- -----------------
BALANCE, JUNE 30, 1999 0 7,221,702
ISSUANCE OF COMMON
STOCK FOR SERVICES 77,435
CUMULATIVE CURRENCY
TRANSLATION
ADJUSTMENT (9,390)
NET (LOSS) FOR THE
SIX MONTHS ENDED
DECEMBER 31, 1999 (514,675)
--------------- -----------------
BALANCE,
DECEMBER 31, 1999 $ 0 $ 6,775,072
=============== =================
</TABLE>
See Accompanying Notes and Independent Auditors' Report.
9
<PAGE>
AMERICAN BENEFITS GROUP, INC. AND SUBSIDIARIES
(DEVELOPMENT STAGE COMPANIES)
CONSOLIDATED STATEMENTS OF CASH FLOWS
FOR THE YEAR ENDED JUNE 30, 1999 AND
FOR THE PERIOD JULY 1, 1997 (DATE OF DEVELOPMENT STAGE)
TO JUNE 30, 1999
<TABLE>
<CAPTION>
July 1, 1997
(Date of
Year Development
Ended Stage) to
June 30, 1999 June 30, 1999
------------- -------------
<S> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES
Net (loss) $ (130,848) $ (747,232)
Adjustments to reconcile net (loss) to
net cash (used) by operating activities:
Depreciation and amortization 54,758 55,642
Minority interest in loss of consolidated subsidiary 1,537 1,537
Issuance of common stock for services 2,768,702 2,768,702
Loss on investment in subsidiary 0 101,000
Cancellation of debt (100,000) (100,000)
Changes in operating assets and liabilities:
Accounts receivable (3,820,494) (3,820,494)
Refundable taxes (17,674) (17,674)
Employee advances and other receivables (2,729) 1,645
Inventories (967,304) (1,001,034)
Accounts payable 650,238 708,632
----------- -----------
NET CASH FLOWS (USED) BY OPERATING
ACTIVITIES (1,563,814) (2,049,276)
----------- -----------
CASH FLOWS FROM INVESTING ACTIVITIES
Purchases of property and equipment (238,792) (262,946)
Purchase of mining perimeters (572,780) (572,780)
Investment in joint venture - Total Gem Management (16,000) (16,000)
Deposits on equipment (50,000) (49,997)
----------- -----------
NET CASH FLOWS (USED) BY INVESTING
ACTIVITIES (877,572) (901,723)
----------- -----------
CASH FLOWS FROM FINANCING ACTIVITIES
Bank overdraft (3,007) 0
Proceeds from issuance of common stock 1,168,167 1,323,167
Proceeds (Repayments) from related entity loan 1,325,850 1,670,870
----------- -----------
NET CASH FLOWS PROVIDED BY
FINANCING ACTIVITIES $ 2,491,010 $ 2,994,037
----------- -----------
</TABLE>
See Accompanying Notes and Independent Auditors' Report.
7
<PAGE>
AMERICAN BENEFITS GROUP, INC. AND SUBSIDIARIES
(DEVELOPMENT STAGE COMPANIES)
CONSOLIDATED STATEMENTS OF CASH FLOWS (CONTINUED)
FOR THE YEAR ENDED JUNE 30, 1999 AND
FOR THE PERIOD JULY 1, 1997 (DATE OF DEVELOPMENT STAGE)
TO JUNE 30, 1999
July 1, 1997
(Date of
Year Development
Ended Stage) to
June 30, 1999 June 30, 1999
------------- -------------
NET INCREASE IN CASH $ 49,624 $ 43,038
CASH BALANCE, BEGINNING OF PERIOD 0 6,586
---------- ----------
CASH BALANCE, END OF PERIOD $ 49,624 $ 49,624
========== ==========
SUPPLEMENTARY DISCLOSURE OF
CASH FLOW DATA:
Interest paid $ 137 $ 2,239
========== ==========
Taxes paid $ 0 $ 0
========== ==========
NON CASH INVESTING AND FINANCING
ACTIVITIES
ISSUANCE OF COMPANY STOCK FOR
SAOWANI DEVELOPMENT S.A.R.L $ 0 $ 36
========== ==========
ISSUANCE OF COMPANY STOCK AND
PROMISSORY NOTE FOR WORLD
GEMS CORPORATION S.A.R.L $ 0 $ 101,000
========== ==========
ISSUANCE OF COMPANY STOCK FOR
SHAREHOLDER'S LOAN $ 416,100 $ 416,100
========== ==========
ISSUANCE OF COMPANY STOCK FOR
SERVICES $2,768,702 $2,768,702
========== ==========
ISSUANCE OF COMPANY STOCK FOR
DEPOSIT ON EQUIPMENT $ 23,055 $ 23,055
========== ==========
ISSUANCE OF COMPANY STOCK FOR
STONES AND WOOD CORPORATION S.A.R.L $3,500,000 $3,500,000
========== ==========
See Accompanying Notes and Independent Auditors' Report.
8
<PAGE>
AMERICAN BENEFITS GROUP, INC. AND SUBSIDIARIES
(DEVELOPMENT STAGE COMPANIES)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
JUNE 30, 1999
NOTE 1 SUMMARY OF SIGNIFICANT ACCOUNTING PRINCIPLES
Principles of Consolidation
The consolidated financial statements include the accounts of
American Benefits Group, Inc. and the following subsidiaries:
Subsidiary Ownership Percentage
---------- --------------------
American Benefits Group, Ltd. 100%
Saowani Development S.A.R.L. 90%
E - Block Technology Inc. 100%
ABFG Sales Ltd. (Canada) 100%
ABFG Sales Limited (USA) 100%
American Benefits Group (Israel) Ltd. 100%
American Benefits Group
(Israel-Madagascar) Ltd. 100%
Stones and Wood Corporation S.A.R.L. 100%
All material inter-company accounts and transactions have been
eliminated.
Nature of Business
American Benefits Group, Inc., which was formerly known as Lifeline
Benefits Group, Inc. and Living Benefits Group, Inc., was
incorporated on February 26, 1996, in the state of Florida. The
company was involved in the business of viatical settlements.
Effective June 30, 1997, the company ceased its business operations
in viatical settlements, liquidated all assets and paid all
liabilities. On July 16, 1997, the company was acquired by new
shareholders and the company is now in the business of exploring and
extracting mining perimeters in the Democratic Republic of
Madagascar.
American Benefits Group, Ltd. provides management services to
related entities. The company also owns 1% of American Benefits
Group (Israel) Ltd. and 1 % of American Benefits Group
(Israel-Madagascar) Ltd.
Saowani Development S.A.R.L. is a joint venture partner in three
mining perimeters in Madagascar.
E-Block Technology Inc. is presently performing research and testing
of clay, sand and additives for the formulation and manufacture of
clay blocks.
ABFG Sales Ltd. (USA and Canada) are the retail sales entities.
See Accompanying Notes and Independent Auditors' Report.
9
<PAGE>
AMERICAN BENEFITS GROUP, INC. AND SUBSIDIARIES
(DEVELOPMENT STAGE COMPANIES)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
JUNE 30, 1999
NOTE 1 SUMMARY OF SIGNIFICANT ACCOUNTING PRINCIPLES (CONTINUED)
Nature of Business (Continued)
American Benefits Group (Israel) Ltd. holds a 100% interest in
Stones and Wood Corporation S.A.R.L.
American Benefits Group (Israel-Madagascar) Ltd. was formed to own
various assets such as equipment used in international companies.
Stones and Wood Corporation S.A.R.L. owns 37 mining perimeters in
Madagascar.
Cash and Cash Equivalents
The company considers securities with maturities of three months or
less, when purchased, to be cash equivalents.
Inventories
Inventories are stated at the lower of cost (determined principally
by the average cost method) or market.
For rough stones, the elements of cost include direct labor,
materials, equipment costs, and overhead and the full absorption of
fixed mining costs.
For cut and polished stone, the inventory includes the rough stone
costs plus the cost to process and finish the stones to complete
them for setting into jewelry.
Long-Lived Assets
Statement of Financial Accounting Standards No. 121, "Accounting for
the Impairment of Long-Lived Assets and for Long-Lived Assets to Be
Disposed Of," requires that long-lived assets be reviewed for
impairment whenever events or changes in circumstances indicate that
the carrying amount of the asset in question may not be recoverable.
This standard did not have a material effect on the company's
results of operations, cash flows or financial position.
Property and Equipment
Property and equipment are carried at cost. Repairs and maintenance
costs are charged against income while renewals and betterments are
capitalized as additions to the related assets. The assets are
depreciated using the straight-line method with the following lives:
See Accompanying Notes and Independent Auditors' Report.
10
<PAGE>
AMERICAN BENEFITS GROUP, INC. AND SUBSIDIARIES
(DEVELOPMENT STAGE COMPANIES)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
JUNE 30, 1999
NOTE 1 SUMMARY OF SIGNIFICANT ACCOUNTING PRINCIPLES (CONTINUED)
Property and Equipment (Continued)
Office furniture 10 years
Computers 3 years
Film equipment 3 years
Communication equipment 3 years
Office security equipment 5 years
Reprographics equipment 3 years
Computer software 1 year
Mining equipment 3 years
Organization Costs
Costs associated with the organization of the company are being
amortized using the straight-line method over five years.
Compensated Absences
Employees of the corporation are entitled to paid vacations, sick
days and other time off depending on job classification, length of
service and other factors. It is impractical to estimate the amount
of compensation for future absences, and accordingly, no liability
has been recorded in the accompanying financial statements. The
corporation's policy is to recognize the costs of compensated
absences when paid to employees.
Income Taxes
The company accounts for income taxes on an asset and liability
approach to financial accounting. Deferred income tax assets and
liabilities are computed annually for the difference between the
financial statements and tax basis of assets and liabilities that
will result in taxable or deductible amounts in the future, based on
enacted tax laws and rates applicable to the periods in which the
differences are expected to affect taxable income. Valuation
allowances are established when necessary to reduce deferred tax
assets to the amount expected to be realized. Income tax expense is
the tax payable or refundable for the period, plus or minus the
change during the period in deferred tax assets and liabilities.
The company intends to reinvest its undistributed international
earnings to expand its international operations; therefore, no tax
has been provided to cover the repatriation of such undistributed
earnings.
See Accompanying Notes and Independent Auditors' Report.
11
<PAGE>
AMERICAN BENEFITS GROUP, INC. AND SUBSIDIARIES
(DEVELOPMENT STAGE COMPANIES)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
JUNE 30, 1999
NOTE 1 SUMMARY OF SIGNIFICANT ACCOUNTING PRINCIPLES (CONTINUED)
Net Earnings Per Share
The company adopted Statement of Financial Accounting Standards No.
128 that requires the reporting of both basic and diluted earnings
per share. Basic earnings per share is computed by dividing net
income available to common shareowners by the weighted average
number of common shares outstanding for the period. Diluted earnings
per share reflects the potential dilution that could occur if
securities or other contracts to issue common stock were exercised
or converted into common stock. There were no options outstanding
that would cause dilution of the common stock.
Computation of net (loss) per common share
Basic and diluted
Numerator $ (130,848) = $(.004)
------------
Denominator $ 27,911,988
Minority Interest in Consolidated Subsidiary
The parent company theory is used for disclosing the minority
interest in the consolidated balance sheet.
Accounting Estimates
Management uses estimates and assumptions in preparing financial
statements in accordance with generally accepted accounting
principles. These estimates and assumptions affect the reported
amounts of assets and liabilities, the disclosure of contingent
assets and liabilities, and the reported revenues and expenses.
Actual results could vary from the estimates that were used.
International Currency Translation
For translation of its international currencies, the company has
determined that the local currencies of its international
subsidiaries are the functional currencies.
NOTE 2 DEVELOPMENT STAGE OPERATIONS
As of June 30, 1999, the company was in the development stage of
operations. According to the Financial Accounting Standards Board of
the Financial Accounting Foundation, a development stage company is
defined as a company that devotes most of its activities to
establishing a new business activity. In addition, planned principle
activities have not commenced, or have commenced and have not yet
produced significant revenue.
FAS-7 requires that all development costs be expensed during the
development period. The company expensed $3,402,418 of development
costs for the year ended June 30, 1999 and $4,027,936 for the period
July 1, 1997 (date of development stage) to June 30, 1999.
See Accompanying Notes and Independent Auditors' Report.
12
<PAGE>
AMERICAN BENEFITS GROUP, INC. AND SUBSIDIARIES
(DEVELOPMENT STAGE COMPANIES)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
JUNE 30, 1999
NOTE 3 ACCOUNTS RECEIVABLE
An account receivable in the amount of $3,819,494 was from one
customer and was paid in August 1999.
NOTE 4 COMPREHENSIVE INCOME
Statement of Financial Accounting Standards ("SFAS") No. 130,
Reporting Comprehensive Income, establishes a standard for reporting
and displaying comprehensive income and the components within the
financial statements. Comprehensive income includes charges and
credits to equity that are not the result of transactions with
shareholders. Comprehensive income is composed of two subsets - net
income and other comprehensive income. Included in other
comprehensive income for the company are cumulative translation
adjustments on foreign currency transactions. These adjustments are
accumulated within the statement of shareholders' equity under the
caption Accumulated Other Comprehensive Income. As of June 30, 1999,
accumulated other comprehensive income, as reflected in the
consolidated statement of shareholders' equity, was comprised of
cumulative translation adjustments totaling $16,024.
Cumulative translation adjustments are not adjusted for income taxes
as they relate to indefinite investments in non-U.S. subsidiaries.
NOTE 5 INVENTORIES
Inventories are summarized as follows:
Rough stones $ 920,530
Cut and polished gems 18,885
Art 53,144
Jewelry 6,910
Work in process - internet contracts 1,565
----------
$1,001,034
==========
NOTE 6 PROPERTY AND EQUIPMENT
Property and equipment consist of the following:
Office furniture $45,245
Computers 56,900
Film equipment 1,442
Communication equipment 10,683
Office security equipment 8,843
See Accompanying Notes and Independent Auditors' Report.
13
<PAGE>
AMERICAN BENEFITS GROUP, INC. AND SUBSIDIARIES
(DEVELOPMENT STAGE COMPANIES)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
JUNE 30, 1999
NOTE 6 PROPERTY AND EQUIPMENT (CONTINUED)
Reprographics equipment $ 15,984
Computer software 8,180
Mining equipment 115,669
--------
262,946
Less accumulated depreciation 37,112
--------
Book value $225,834
========
Depreciation expense for the year ended June 30, 1999 amounted to
$27,392.
NOTE 7 UNAMORTIZED MINING PERIMETERS
The company is amortizing the mining perimeters by the straight-line
method over 345 months, which is the estimate life of the
perimeters.
Adjusted cost base of the perimeters $4,432,780
Less accumulated amortization 23,610
----------
Book value $4,409,170
==========
Amortization for the year ended June 30, 1999 is $23,610.
NOTE 8 INCOME TAXES
<TABLE>
<S> <C>
(Loss) before income taxes $(144,549)
---------
The provision for income taxes is estimated as follows:
Currently payable $ 0
---------
Deferred $ 0
---------
A reconciliation of the provision for income taxes
compared with the amounts at the U.S. Federal
Statutory and foreign rates is as follows:
Tax at U.S. Federal Statutory income tax rates $ 0
---------
Taxes at foreign rates $ 0
---------
Deferred income tax assets and liabilities reflect
the impact of temporary differences between
amounts of assets and liabilities for financial
reporting purposes and the basis of such assets
and liabilities
as measured by tax laws. The net deferred tax assets is: $ 0
---------
</TABLE>
See Accompanying Notes and Independent Auditors' Report.
14
<PAGE>
AMERICAN BENEFITS GROUP, INC. AND SUBSIDIARIES
(DEVELOPMENT STAGE COMPANIES)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
JUNE 30, 1999
NOTE 8 INCOME TAXES (CONTINUED)
Temporary differences and carry forwards that gave rise to deferred
tax assets and liabilities included the following:
Deferred Tax
-----------------------------
Assets Liabilities
------ -----------
Net operating loss
U.S. federal $103,000 $ 0
Foreign 55,000 .
-------- --------
Subtotal 158,000 0
Valuation allowance 158,000 0
-------- --------
Total deferred taxes $ 0 $ 0
======== ========
A reconciliation of the valuation allowance is as follows:
Balance, July 1, 1998 $149,500
Addition for the year ended June 30, 1999 8,500
--------
Balance, June 30, 1999 $158,000
========
NOTE 9 NON QUALIFIED STOCK OPTION PLAN
The company has a nonqualified stock option plan which gives the
Board of Directors or a committee designated by the Board of
Directors authority to issue additional shares of its common stock
at specified prices as determined by the Board of Directors. The
Board of Directors have not granted any options as of June 30, 1999.
NOTE 10 PREFERRED STOCK
The preferred stock has preferences over the common stock for
dividends and upon company dissolution.
NOTE 11 INTERNATIONAL SUBSIDIARIES
The following amounts are included in the consolidated financial
statements for international subsidiaries:
Current assets $ 33,063
Current liabilities 198,022
Net property and equipment 119,826
See Accompanying Notes and Independent Auditors' Report
15
<PAGE>
AMERICAN BENEFITS GROUP, INC. AND SUBSIDIARIES
(DEVELOPMENT STAGE COMPANIES)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
JUNE 30, 1999
NOTE 12 INTEREST EXPENSE
For the year ended June 30, 1999, the company incurred $131 of
interest costs which are included in development costs.
NOTE 13 RENT
The company rents office space on a month to month basis from a
related entity. Rent expense for the year ended June 30, 1999 is
$66,171.
NOTE 14 ADVERTISING
For the year ended June 30, 1999, the company incurred $13,567 of
adverting costs which were included in development costs.
NOTE 15 AGENCY AGREEMENT
The companies have entered into an agency agreement with a
corporation director and a company controlled by the director. Under
the agreement, the director and the authorized company may incur
expenses on behalf of American Benefits Group, Inc. and Subsidiaries
and American Benefits Group, Inc. and Subsidiaries agree to
reimburse the director and company for all expenses incurred plus
reasonable overhead cost reimbursements. The company owes the
related entity $ 1,234,997 at June 30, 1999.
The company incurred expenses under this agreement in the amount of
$1,473,609 for the year ended June 30, 1999.
NOTE 16 ACQUISITION OF STONES AND WOOD CORPORATION S.A.R.L.
In May 1999, the company purchased 100% of Stones and Wood
Corporation S.A.R.L. plus 18 type I mining perimeters for $500,000
cash plus 4,997,000 shares of Rule 144 restricted common stock
valued at .70(cent) per share which was the fair market value of the
perimeters.
The acquisition was accounted for as a purchase. Stones and Wood
Corporation S.A.R.L. was an inactive company and did not have any
revenue prior to the acquisition, so pro forma historical
information is not presented.
The purchase price was allocated to the 37 mining perimeters
acquired. The company is amortizing the perimeter costs on a
straight line basis over the average remaining life of the
perimeters.
See Accompanying Notes and Independent Auditors' Report.
16
<PAGE>
AMERICAN BENEFITS GROUP, INC. AND SUBSIDIARIES
(DEVELOPMENT STAGE COMPANIES)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
JUNE 30, 1999
NOTE 17 JOINT VENTURE AGREEMENT (TGM)
In April 1999, the company entered in to a joint venture agreement,
known as Total Gem Management Ltd., with the Menavi Group, an
Israeli corporation. Total Gem Management Ltd. (TGM) will be
responsible to manage and handle the company's sapphires from the
point after mining and sorting.
American Benefits Group, Inc. is required to provide $1,000,000 cash
to TGM and Menavi Group will provide $1,000,000 of gems (wholesale
value). As of June 30, 1999, the company advanced $16,000 toward the
$1,000,000 commitment.
American
Benefits Menavi
Division of Profits Group, Inc. Group
------------------- ----------- ------
On goods from American
Benefits Group, Inc. mines
Total net sales on cut
and semicut-stones 66.6% 33.4%
On unprocessed rough 75% 25%
On goods purchase by American
Benefit Group, Inc.
Total net sales minus
total purchase cost
As of June 30, 1999, there were no income or expenses from the joint
venture.
NOTE 18 RELATED PARTY TRANSACTIONS
The company had the following transactions with a director of the
company and companies controlled by the director:
1. Purchase of gems - $882,500
2. Reimbursement for expenses through the agency agreement -
$591,109
3. Purchases of office furniture - $21,962
NOTE 19 CANCELLATION OF DEBT INCOME
On June 19, 1998, the company acquired a 70% interest in World Gems
Corporation S.A.R.L. from a corporation controlled by two officers
of the corporation. The consideration for the purchase was:
See Accompanying Notes and Independent Auditors' Report.
17
<PAGE>
AMERICAN BENEFITS GROUP, INC. AND SUBSIDIARIES
(DEVELOPMENT STAGE COMPANIES)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
JUNE 30, 1999
NOTE 19 CANCELLATION OF DEBT INCOME (CONTINUED)
A. One hundred thousand dollars to be paid prior to July 13,
2000. The note was unsecured and does not bear interest.
B. Issuance of American Benefits Group, Inc. Rule 144 restricted
shares in the amount of 1,000,000 shares at a price of $0.001
cents per share.
Subsequently after the acquisition, World Gems Corporation S.A.R.L.
lost its mining perimeter rights in Madagascar and the Board of
Directors elected to write-off the investment in World Gems
Corporation S.A.R.L. as worthless.
In March 1999, the company negotiated the cancellation of the
$100,000 note payable due to the sellers of World Gem Corporation
S.A.R.L.
NOTE 20 SAOWANI - HARINORO
On June 20, 1999, the company entered into a joint venture for
testing and small scale mining of three emerald perimeters in
Madagascar. The joint venture is for one and one half years and
profits are distributed 80% to Saowani and 20% to Harinoro.
As of June 30, 1999, there was no income or expense from the joint
venture.
NOTE 21 DEVELOPMENT OF WEBSITE
The company incurred $1,364,789 of costs for development of its
website. This amount was paid for as follows:
Cash and accounts payable $771,989
Shares of restricted stock issued to consultants
and contractors $592,800
NOTE 22 COMMITMENT TO PURCHASE MINING EQUIPMENT
To facilitate its Malagasy Testing Operations, the company has
entered into 3 agreements with Dove Gems & Jewelry Co. Ltd. for the
purchase of testing equipment which will be transported from
Thailand to the company's Madagascar mine sites. The purchase price
for the testing equipment is $566,349. The company has made deposits
in the amount of $73,055 towards the purchase contracts.
See Accompanying Notes and Independent Auditors' Report.
18
<PAGE>
AMERICAN BENEFITS GROUP, INC. AND SUBSIDIARIES
(DEVELOPMENT STAGE COMPANIES)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
JUNE 30, 1999
NOTE 23 CORPORATION INCOME TAX RETURNS
The company has not filed its United States and Canadian income tax
returns for the years ended June 30, 1998 and 1999. However, the
company has incurred losses and it is anticipated that the company
will not have any tax liabilities for these years.
NOTE 24 NET OPERATING LOSS CARRYFORWARDS
The company has the following net operating loss carryforwards:
Expiration
Country Year Amount Date
------- ---- ------ ----------
United States June 30, 1998 $ 586,686 2013
United States June 30, 1999 97,589 2014
Canada June 30, 1998 103,428 2003
Canada June 30, 1999 15,005 2004
NOTE 25 CHANGE IN TRADING STATUS
On July 3, 1999, the National Association of Securities Dealers,
Inc. (NASD) and the Securities and Exchange Commission (SEC)
de-listed the stock of the company from the Over-the-counter
bulletin Board (OTCBB) to the "Pink Sheets".
This action arises for the SEC's approval of amendments to NASD
Rules 6530 and 6540 requiring an issuer to make periodic financial
report filings to the SEC and to remain current with those required
filings, in order for an issuer of stock to continue being quoted on
the OTCBB. Prior to these amendments, there was no requirement for
an issuer of stock on the OTCBB to file any reports with the SEC.
Management is in the process of filing Form 10SB to become a
reporting issuer.
NOTE 26 SUBSEQUENT EVENTS
In October 1999, the company issued 1,000,000 shares of common stock
to Saul BEN-HEIM of Israel in connection with services rendered. The
value of the shares on the date of issuance was $57,500.
In October 1999, the company issued an aggregate of 225,000 shares
of common stock to nine consultants of the company as additional
compensation for services rendered. The value of the shares on the
date of issuance was $19,935.
See Accompanying Notes and Independent Auditors' Report.
19
<PAGE>
AMERICAN BENEFITS GROUP, INC.
AND SUBSIDIARIES
(DEVELOPMENT STAGE COMPANIES)
CONSOLIDATED FINANCIAL STATEMENTS
JUNE 30, 1998
<PAGE>
TABLE OF CONTENTS
Page No.
--------
INDEPENDENT AUDITORS' REPORT ..................................... 1
FINANCIAL STATEMENTS
Consolidated Balance Sheet................................. 2
Consolidated Statements of Comprehensive (Loss)............ 3
Consolidated Statements of Operations...................... 4
Consolidated Statement of Shareholders' Equity............. 5
Consolidated Statements of Cash Flows...................... 6 - 7
Notes to Consolidated Financial Statements................. 8 - 18
<PAGE>
INDEPENDENT AUDITORS' REPORT
To the Shareholders and Board of Directors
American Benefits Group, Inc. and Subsidiaries
(Development Stage Companies)
Deerfield Beach, Florida
We have audited the accompanying balance sheet of American Benefits Group, Inc.
and Subsidiaries (Development Stage Companies) as of June 30, 1998, and the
related statements of comprehensive (loss), operations, shareholders' equity and
cash flows for the year then ended and for the period July 1, 1997 (date of
development stage) to June 30, 1998. These financial statements are the
responsibility of the company's management. Our responsibility is to express an
opinion on the financial statements based on our audit.
We conducted our audit in accordance with generally accepted auditing standards.
Those standards require that we 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
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.
We believe that our audit provides a reasonable basis for our opinion.
In our opinion, the financial statements referred to above present fairly, in
all material respects, the financial position of American Benefits Group, Inc.
and Subsidiaries as of June 30, 1998 and the results of its operations and its
cash flows for the year then ended and for the period July 1, 1997 (date of
development stage) to June 30, 1998, in conformity with generally accepted
accounting principles.
/s/ Moffitt & Company, P.C.
- ---------------------------
Moffitt & Company, P.C.
Scottsdale, Arizona
July 9, 1999
<PAGE>
AMERICAN BENEFITS GROUP, INC. AND SUBSIDIARIES
(DEVELOPMENT STAGE COMPANIES)
CONSOLIDATED BALANCE SHEET
JUNE 30, 1998
ASSETS
CURRENT ASSETS
Refundable taxes $ 10,253
Gem inventory 33,730
-----------
TOTAL CURRENT ASSETS $ 43,983
PROPERTY AND EQUIPMENT 23,270
OTHER ASSETS
Unamortized organization costs 11,893
Deposits 68
----------
TOTAL OTHER ASSETS 11,961
------------
TOTAL ASSETS $ 79,214
============
<PAGE>
LIABILITIES AND SHAREHOLDERS' EQUITY (DEFICIT)
CURRENT LIABILITIES
Bank overdraft $ 3,007
Accounts payable
Trade 86,566
Related entity 345,020
------------
TOTAL CURRENT LIABILITIES $ 434,593
LONG-TERM DEBT 100,000
MINORITY INTEREST DEFICIENCY ( 5,270)
SHAREHOLDERS' EQUITY (DEFICIT)
Preferred stock
Par value - $10 per share
Authorized - 10,000,000 shares
No shares are issued or outstanding
Common stock
No par value
Authorized 200,000,000 shares
Issued and outstanding - 24,949,000 shares 538,469
Cumulative currency translation adjustment 3,860
Retained earnings (deficit) ( 372,194)
Deficit accumulated during the development
Stage (620,244)
----------
TOTAL SHAREHOLDERS' EQUITY (DEFICIT) (450,109)
-----------
TOTAL LIABILITIES AND SHAREHOLDERS'
EQUITY (DEFICIT) $ 79,214
===========
See Accompanying Notes and Independent Auditors' Report.
2
<PAGE>
AMERICAN BENEFITS GROUP, INC. AND SUBSIDIARIES
(DEVELOPMENT STAGE COMPANIES)
CONSOLIDATED STATEMENTS OF COMPREHENSIVE (LOSS)
FOR THE YEAR ENDED JUNE 30, 1998 AND
FOR THE PERIOD JULY 1, 1997 (DATE OF DEVELOPMENT STAGE)
TO JUNE 30, 1998
July 1, 1997
(Date of
Year Development
Ended Stage) to
June 30, 1998 June 30, 1998
------------- -------------
NET (LOSS) $ ( 638,650) $( 620,244)
OTHER COMPREHENSIVE INCOME
Foreign currency translation adjustments 3,860 3,860
----------- ----------
NET COMPREHENSIVE (LOSS) $ ( 634,790) $( 616,384)
=========== ==========
NET (LOSS) PER COMMON SHARE
Basic and diluted
From continuing development operations $ ( .03)
============
From discontinued operations $ (.001)
============
AVERAGE NUMBER OF COMMON SHARES
OUTSTANDING
Basic and diluted 20,649,000
============
See Accompanying Notes and Independent Auditors' Report.
3
<PAGE>
AMERICAN BENEFITS GROUP, INC. AND SUBSIDIARIES
(DEVELOPMENT STAGE COMPANIES)
CONSOLIDATED STATEMENTS OF OPERATIONS
FOR THE YEAR ENDED JUNE 30, 1998 AND
FOR THE PERIOD JULY 1, 1997 (DATE OF DEVELOPMENT STAGE)
TO JUNE 30, 1998
July 1, 1997
(Date of
Year Development
Ended Stage) to
June 30, 1998 June 30, 1998
------------- -------------
REVENUE $ 0 $ 0
DEVELOPMENT COSTS (625,518) (625,518)
--------- ---------
NET (LOSS) FROM CONTINUING
DEVELOPMENT OPERATIONS (625,518) (625,518)
MINORITY INTEREST IN LOSS OF
CONSOLIDATED SUBSIDIARY 5,274 5,274
--------- ---------
NET (LOSS) FROM CONTINUING
DEVELOPMENT OPERATIONS (620,244) (620,244)
NET (LOSS) FROM DISCONTINUED
OPERATIONS (18,406) 0
--------- ---------
NET (LOSS) $(638,650) $(620,244)
========= =========
See Accompanying Notes and Independent Auditors' Report.
4
<PAGE>
AMERICAN BENEFITS GROUP, INC. AND SUBSIDIARIES
(DEVELOPMENT STAGE COMPANIES)
CONSOLIDATED STATEMENT OF SHAREHOLDERS' EQUITY
FOR THE YEAR ENDED JUNE 30, 1998
Preferred Stock Common Stock
----------------------- -----------------------
Shares Amount Shares Amount
---------- ---------- ---------- ----------
BALANCE, JULY 1, 1997 1,683,000 $ 1,683
CHANGE IN PAR VALUE 475,750
ISSUANCE OF COMMON
STOCK FOR CASH 3,300,000 60,000
ISSUANCE OF
COMMON STOCK FOR
ACQUISITION OF 90%
OF SAOWANI
DEVELOPMENT S.A.R.L.,
AT BOOK VALUE OF
SUBSIDIARY 3,000,000 36
REPAYMENT OF
SHAREHOLDER'S
RECEIVABLE
STOCK DIVIDEND 15,966,000
CUMULATIVE CURRENCY
TRANSLATION
ADJUSTMENT
ISSUANCE OF COMMON STOCK
FOR 70% OF WORLD GEMS
CORPORATION 1,000,000 1,000
NET (LOSS) FOR THE YEAR
ENDED JUNE 30, 1998
---------- ---------- ---------- ----------
BALANCE, JUNE 30, 1998 0 $ 0 24,949,000 $ 538,469
========== ========== ========== ==========
See Accompanying Notes and Independent Auditors' Report.
<PAGE>
AMERICAN BENEFITS GROUP, INC. AND SUBSIDIARIES
(DEVELOPMENT STAGE COMPANIES)
CONSOLIDATED STATEMENT OF SHAREHOLDERS' EQUITY
FOR THE YEAR ENDED JUNE 30, 1998
<TABLE>
<CAPTION>
Deficit
Cumulative Accumulated Total
Additional Currency Retained During the Shareholders'
Paid in Translation Earnings Development Shareholder Equity
Capital Adjustment (Deficit) Stage Receivable (Deficit)
---------- ---------- ---------- ----------- ---------- ----------
<S> <C> <C> <C> <C> <C> <C>
BALANCE, JULY 1, 1997 $ 475,750 $ 0 $ (353,788) $ 0 $ (95,000) $ 28,645
CHANGE IN PAR VALUE (475,750)
ISSUANCE OF COMMON
STOCK FOR CASH 60,000
ISSUANCE OF
COMMON STOCK FOR
ACQUISITION OF 90%
OF SAOWANI
DEVELOPMENT S.A.R.L.,
AT BOOK VALUE OF
SUBSIDIARY 36
REPAYMENT OF
SHAREHOLDER'S
RECEIVABLE
STOCK DIVIDEND 95,000 95,000
CUMULATIVE CURRENCY
TRANSLATION
ADJUSTMENT 3,860 3,860
ISSUANCE OF COMMON STOCK
FOR 70% OF WORLD GEMS
CORPORATION 1,000
NET (LOSS) FOR THE YEAR
ENDED JUNE 30, 1998 (18,406) (620,244) (638,650)
---------- ---------- ---------- ----------- ---------- ----------
BALANCE, JUNE 30, 1998 $ 0 $ 3,860 $ (372,194) $ (620,244) $ 0 $ (450,109)
========== ========== ========== =========== ========== ==========
</TABLE>
See Accompanying Notes and Independent Auditors' Report.
5
<PAGE>
AMERICAN BENEFITS GROUP, INC. AND SUBSIDIARIES
(DEVELOPMENT STAGE COMPANIES)
CONSOLIDATED STATEMENTS OF CASH FLOWS
FOR THE YEAR ENDED JUNE 30, 1998 AND
FOR THE PERIOD JULY 1, 1997 (DATE OF DEVELOPMENT STAGE)
TO JUNE 30, 1998
July 1, 1997
(Date of
Year Development
Ended Stage) to
June 30, 1998 June 30, 1998
------------- -------------
CASH FLOWS FROM OPERATING ACTIVITIES
Net (loss) $(634,790) $(616,384)
Adjustments to reconcile net (loss) to
net cash (used) by operating activities:
Depreciation and amortization 42,368 884
Loss on investment in subsidiary 101,000 101,000
Changes in operating assets and liabilities:
Investment funds receivable 65,189 0
Gem inventory (33,730) (33,730)
Other assets (16,729) 4,374
Deposits 3,592 3
Accounts payable 58,394 58,394
Unearned revenue (70,753) 0
--------- ---------
NET CASH FLOWS (USED) BY OPERATING
ACTIVITIES (485,459) (485,459)
--------- ---------
CASH FLOWS FROM INVESTING ACTIVITIES
Purchases of property and equipment (24,154) (24,154)
--------- ---------
NET CASH FLOWS (USED) BY INVESTING
ACTIVITIES (24,154) (24,154)
--------- ---------
CASH FLOWS FROM FINANCING ACTIVITIES
Bank overdraft 3,007 3,007
Proceeds from issuance of common stock 60,000 60,000
Proceeds from related entity loan 345,020 345,020
Proceeds from shareholder receivable 95,000 95,000
--------- ---------
NET CASH FLOWS PROVIDED BY
FINANCING ACTIVITIES 503,027 503,027
--------- ---------
NET DECREASE IN CASH $ (6,586) $ (6,586)
See Accompanying Notes and Independent Auditors' Report.
6
<PAGE>
AMERICAN BENEFITS GROUP, INC. AND SUBSIDIARIES
(DEVELOPMENT STAGE COMPANIES)
CONSOLIDATED STATEMENTS OF CASH FLOWS (CONTINUED)
FOR THE YEAR ENDED JUNE 30, 1998 AND
FOR THE PERIOD JULY 1, 1997 (DATE OF DEVELOPMENT STAGE)
TO JUNE 30, 1998
July 1, 1997
(Date of
Year Development
Ended Stage) to
June 30, 1998 June 30, 1998
------------- -------------
CASH BALANCE, JULY 1, 1997 $ 6,586 $ 6,586
-------- --------
CASH BALANCE, JUNE 30, 1998 $ 0 $ 0
======== ========
SUPPLEMENTARY DISCLOSURE OF
CASH FLOW DATA:
Interest paid $ 2,033 $ 2,033
======== ========
Taxes paid $ 0 $ 0
======== ========
NON CASH INVESTING AND FINANCING
ACTIVITIES
ISSUANCE OF COMPANY STOCK FOR
SOAWANI DEVELOPMENT S.A.R.L $ 36
========
ISSUANCE OF COMPANY STOCK AND
PROMISSORY NOTE FOR WORLD
GEMS CORPORATION S.A.R.L $101,000
========
See Accompanying Notes and Independent Auditors' Report.
7
<PAGE>
AMERICAN BENEFITS GROUP, INC. AND SUBSIDIARIES
(DEVELOPMENT STAGE COMPANIES)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
JUNE 30, 1998
NOTE 1 SUMMARY OF SIGNIFICANT ACCOUNTING PRINCIPLES
Principles of Consolidation
The consolidated financial statements include the accounts of
American Benefits Group, Inc. and the following subsidiaries:
Subsidiary Ownership Percentage
----------------------------- --------------------
American Benefits Group, Ltd. 100%
Soawani Development S.A.R.L. 90%
E - Block Technology Inc. 100%
All material inter-company accounts and transactions have been
eliminated.
Nature of Business
American Benefits Group, Inc., which was formerly known as Lifeline
Benefits Group, Inc. and Living Benefits Group, Inc., was
incorporated on February 26, 1996, in the state of Florida. The
company was involved in the business of viatical settlements.
Effective June 30, 1997, the company ceased its business operations
in viatical settlements. On July 16, 1997, the company was acquired
by new shareholders and the company is now in the business of
exploring and extracting mining perimeters in the Democratic
Republic of Madagascar.
The company purchased 100% of the outstanding stock of American
Benefits Group, Ltd. from a company controlled by a director of the
company. American Benefits Group, Ltd. provides management services
to related entities.
American Benefits Group, Inc. acquired a 90% interest in Soawani
Development S.A.R.L. from a company controlled by two directors.
Saowani Development S.A.R.L. owns 13 mineral perimeters in
Madagascar.
E-Block Technology, Inc. is presently performing research and
testing of clay, sand and additives for the formulation and
manufacture of clay blocks.
Cash and Cash Equivalents
The company considers securities with maturities of three months or
less, when purchased, to be cash equivalents.
See Accompanying Notes and Independent Auditors' Report.
9
<PAGE>
AMERICAN BENEFITS GROUP, INC. AND SUBSIDIARIES
(DEVELOPMENT STAGE COMPANIES)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
JUNE 30, 1998
NOTE 1 SUMMARY OF SIGNIFICANT ACCOUNTING PRINCIPLES (CONTINUED)
Gem Inventory
The gem inventory is stated at the lower of cost (determined
principally the average cost method) or market.
Long-Lived Assets
Statement of Financial Accounting Standards No. 121, "Accounting for
the Impairment of Long-Lived Assets and for Long-Lived Assets to Be
Disposed Of," requires that long-lived assets be reviewed for
impairment whenever events or changes in circumstances indicate that
the carrying amount of the asset in question may not be recoverable.
This standard did not have a material effect on the company's
results of operations, cash flows or financial position.
Property and Equipment
Property and equipment is carried at cost. Repairs and maintenance
costs are charged against income while renewals and betterments are
capitalized as additions to the related assets. The assets are
depreciated using the straight-line method with estimated useful
lives of 1-10 years.
Organization Costs
Costs associated with the organization of the company are being
amortized using the straight-line method over five years.
Compensated Absences
Employees of the corporation are entitled to paid vacations, sick days and
other time off depending on job classification, length of service and
other factors. It is impractical to estimate the amount of compensation
for future absences, and accordingly, no liability has been recorded in
the accompanying financial statements. The corporation's policy is to
recognize the costs of compensated absences when paid to employees.
See Accompanying Notes and Independent Auditors' Report.
10
<PAGE>
AMERICAN BENEFITS GROUP, INC. AND SUBSIDIARIES
(DEVELOPMENT STAGE COMPANIES)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
JUNE 30, 1998
NOTE 1 SUMMARY OF SIGNIFICANT ACCOUNTING PRINCIPLES (CONTINUED)
Income Taxes
The company accounts for income taxes on an asset and liability
approach to financial accounting. Deferred income tax assets and
liabilities are computed annually for the difference between the
financial statements and tax basis of assets and liabilities that
will result in taxable or deductible amounts in the future, based on
enacted tax laws and rates applicable to the periods in which the
differences are expected to affect taxable income. Valuation
allowances are established when necessary to reduce deferred tax
assets to the amount expected to be realized. Income tax expense is
the tax payable or refundable for the period, plus or minus the
change during the period in deferred tax assets and liabilities.
The company intends to reinvest its undistributed international
earnings to expand its international operations; therefore, no tax
has been provided to cover the repatriation of such undistributed
earnings.
Net Earnings Per Share
The company adopted Statement of Financial Accounting Standards No.
128 that requires the reporting of both basic and diluted earnings
per share. Basic earnings per share is computed by dividing net
income available to common shareowners by the weighted average
number of common shares outstanding for the period. Diluted earnings
per share reflects the potential dilution that could occur if
securities or other contracts to issue common stock were exercised
or converted into common stock. There were no options outstanding
that would cause dilution of the common stock.
Minority Interest in Consolidated Subsidiary
The parent company theory is used for disclosing the minority
interest in the consolidated balance sheet.
Accounting Estimates
Management uses estimates and assumptions in preparing financial
statements in accordance with generally accepted accounting
principles.
See Accompanying Notes and Independent Auditors' Report.
11
<PAGE>
AMERICAN BENEFITS GROUP, INC. AND
SUBSIDIARIES
(DEVELOPMENT STAGE COMPANIES)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
JUNE 30, 1998
NOTE 1 SUMMARY OF SIGNIFICANT ACCOUNTING PRINCIPLES (CONTINUED)
These estimates and assumptions affect the reported amounts of
assets and liabilities, the disclosure of contingent assets and
liabilities, and the reported revenues and expenses. Actual results
could vary from the estimates that were used.
International Currency Translation
For translation of its international currencies, the company has
determined that the local currencies of its international
subsidiaries are the functional currencies.
NOTE 2 DEVELOPMENT STAGE OPERATIONS
The company acquired 90% interest in 13 mining perimeters in the
Democratic Republic of Madagascar. The company has retained
engineers, geologists and other consultants necessary to explore and
test the properties for sapphires and other precious minerals.
As of June 30, 1998, the company was in the development stage of
operations. According to the Financial Accounting Standards Board of
the Financial Accounting Foundation, a development stage company is
defined as a company that devotes most of its activities to
establishing a new business activity. In addition, planned principle
activities have not commenced, or have commenced and have not yet
produced significant revenue.
FAS-7 requires that all development costs be expensed during the
development period. The company expensed $625,518 of development
costs for the year ended June 30, 1998 and for the period July 1,
1997 (date of development stage) to June 30, 1998.
See Accompanying Notes and Independent Auditors' Report.
12
<PAGE>
AMERICAN BENEFITS GROUP, INC. AND SUBSIDIARIES
(DEVELOPMENT STAGE COMPANIES)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
JUNE 30, 1998
NOTE 3 PROPERTY AND EQUIPMENT
Property and equipment consist of the following:
Office furniture and equipment $ 3,297
Computer hardware 12,677
Computer software 8,180
-------
Subtotal 24,154
Less accumulated depreciation 884
-------
Total $23,270
=======
Depreciation expense for year ended June 30, 1998 on assets owned at
June 30, 1998 amounted to $884.
NOTE 4 INCOME TAXES
(Loss) before income taxes $(643,924)
---------
The provision for income taxes
is estimated as follows:
Currently payable $ 0
---------
Deferred $ 0
---------
A reconciliation of the provision for income taxes compared with the
amounts at the U.S. Federal and foreign Statutory rates is as
follows:
Tax at U.S. Federal Statutory income tax rates $ 0
----
Taxes at foreign rates $ 0
----
Deferred income tax assets and liabilities reflect the impact of
temporary differences between amounts of assets and liabilities for
financial reporting purposes and the basis of such assets and
liabilities as measured by tax laws.
The net deferred tax assets is: $ 0
----
Temporary differences and carry forwards that gave rise to deferred
tax assets and liabilities included the following:
Deferred Tax
Assets Liabilities
------ -----------
Net operating loss
U.S. federal $ 96,500 $ 0
Foreign 53,000 .
-------- --------
Subtotal 149,500 0
Valuation allowance 149,500 0
-------- --------
Total deferred taxes $ 0 $ 0
======== ========
13
<PAGE>
AMERICAN BENEFITS GROUP, INC. AND SUBSIDIARIES
(DEVELOPMENT STAGE COMPANIES)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
JUNE 30, 1998
NOTE 4 INCOME TAXES (CONTINUED)
A reconciliation of the valuation allowance is as follows:
Balance, July 1, 1997 $ 43,000
Lost due to change in ownership (43,000)
Addition for the year ended June 30, 1998 149,500
---------
Balance, June 30, 1998 $ 149,500
=========
NOTE 5 STOCK DIVIDEND
On November 18, 1997, the Board of Directors declared a dividend by
subdividing the shares of the common stock of the company on the
basis of one old share for three new shares.
NOTE 6 NON QUALIFIED STOCK OPTION PLAN
The company has a nonqualified stock option plan which gives the
Board of Directors or a committee designated by the Board of
Directors authority to issue additional shares of its common stock
at specified prices as determined by the Board of Directors. The
Board of Directors have not granted any options as of June 30, 1998.
NOTE 7 COMMON AND PREFERRED STOCK
On November 18, 1997, the authorized shares of the company stock
were increased to 200,000,000 common stock voting shares and the par
value was changed from .001(cent) per share to no par value. In
addition, the company authorized 10,000,000 preferred voting shares
at a par value of $10.00 per share.
NOTE 8 PREFERRED STOCK
The preferred stock has preferences over the common stock for
dividends (non cumulative) and upon company dissolution.
NOTE 9 INTERNATIONAL SUBSIDIARIES
The following amounts are included in the consolidated financial
statements for international subsidiaries:
Current assets $ 8,059
Current liabilities 77,696
Net property and equipment 20,303
See Accompanying Notes and Independent Auditors' Report.
14
<PAGE>
AMERICAN BENEFITS GROUP, INC. AND SUBSIDIARIES
(DEVELOPMENT STAGE COMPANIES)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
JUNE 30, 1998
NOTE 10 INTEREST EXPENSE
For the year ended June 30, 1998, the company incurred $2,033 of
interest costs which are included in development costs.
NOTE 11 RENT
The company rents office space on a month to month basis from a
related entity. Rent expense for the year ended June 30, 1998 is
$23,168.
NOTE 12 AGENCY AGREEMENT
The companies have entered an agency agreement with a corporation
director and a company controlled by the director. Under the
agreement, the director and the authorized company may incur
expenses on behalf of American Benefits Group, Inc. and Subsidiaries
and American Benefits Group, Inc. and Subsidiaries agree to
reimburse the director and company for all expenses incurred plus
reasonable overhead cost reimbursements. The company owes the
related entity $345,020 at June 30, 1998.
The company incurred expenses under this agreement in the amount of
$345,020 for the year ended June 30, 1998.
NOTE 13 LONG-TERM DEBT
The note is unsecured, does not bear interest and is due on July 13,
2000. Since the note was canceled in March 1999, the company did not
impute interest for the period of June 19, 1998 to June 30, 1998.
NOTE 14 ACQUISITION OF SAOWANI DEVELOPMENT S.A.R.L.
On August 26, 1997, the company acquired Saowani Development
S.A.R.L. by exchanging 3,000,000 shares of its common stock for 90%
of the common stock of Saowani Development S.A.R.L. The acquisition
has been accounted for as a pooling of interest.
The details of the results of operations (unaudited) for each
separate company, prior to the date of combination, that are
included in the current net income are:
American Benefits Saowani
Group, Inc. and Development
Subsidiaries S.A.R.L.
--------------- -----------
Revenue $ 0 $ 0
Development costs 445,294 0
--------- ---------
Net (loss) $(445,294) $ 0
========= =========
See Accompanying Notes and Independent Auditors' Report.
15
<PAGE>
AMERICAN BENEFITS GROUP, INC. AND SUBSIDIARIES
(DEVELOPMENT STAGE COMPANIES)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
JUNE 30, 1998
NOTE 14 ACQUISITION OF SAOWANI DEVELOPMENT S.A.R.L. (CONTINUED)
There were no adjustments in the net assets of the combining
companies to adopt the same accounting policies.
Each of the companies had a June 30 year end so no accounting
adjustments were necessary.
An (unaudited) reconciliation of revenues and earnings reconciled
with the amounts shown in the consolidated financial statements is
as follows:
Net (loss) on American Benefits Group, Inc.
and subsidiary at August 26, 1997 $ (38,438)
Add Saowani Development S.A.R.L. (loss) (47,104)
Additional net (loss) from August 27, 1997 to
June 30, 1998 (558,382)
---------
Net (loss) for the year ended June 30, 1998 $(643,924)
=========
NOTE 15 ACQUISITION OF AMERICAN BENEFITS GROUP, LTD.
On January 1, 1998, the company purchased 100% of the issued and
outstanding shares of American Benefits Group, Ltd., for $100 which
was the estimated fair market value of the net assets acquired.
The acquisition was accounted for as a purchase and the results of
American Benefits Group, Ltd. are included in the consolidated
financial statements since the date of acquisition.
The allocation of the purchase price was as follows:
Accounts receivable $204,684
Loan payable, stockholder 204,584
--------
Net book value and estimated fair market value $ 100
========
The following table presents unaudited pro forma combined historical
results as if American Benefits Group, Ltd. was acquired at the
beginning of the fiscal year. The pro forma results are not
necessarily indicative of what actually would have occurred if the
acquisition had been completed as of the beginning of the fiscal
year, nor are they necessarily indicative of future consolidated
results.
Pro forma results (unaudited)
Net sales $ 0
Net (loss) $(643,924)
Net (loss) per common share $ (.035)
See Accompanying Notes and Independent Auditors' Report.
16
<PAGE>
AMERICAN BENEFITS GROUP, INC. AND SUBSIDIARIES
(DEVELOPMENT STAGE COMPANIES)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
JUNE 30, 1998
NOTE 16 ACQUISITION OF WORLD GEMS CORPORATION S.A.R.L.
On June 19, 1998, the company acquired a 70% interest in World Gems
Corporation S.A.R.L. from a company controlled by two officers of
the corporation. The consideration for the purchase was:
1. One hundred thousand dollars to be paid prior to July 13,
2000. The note is unsecured and does not bear interest.
2. Issuance of American Benefits Group, Inc. Rule 144 restricted
shares in the amount of 1,000,000 shares at a price of $ 0.001
cents per share.
The acquisition was accounted for as a purchase. World Gems
Corporation S.A.R.L. was an inactive company and did not have any
revenue prior to the acquisition, so pro forma historical
information is not presented.
The allocation of the purchase price is as follows:
34 mining perimeters $101,000
In March 1999, World Gems Corporation S.A.R.L. lost its mining
perimeter rights in Madagascar and the Board of Directors elected to
write-off the investment in World Gems Corporation S.A.R.L. as
worthless. The company negotiated the cancellation of the $100,000
note payable due to the sellers of World Gems Corporation S.A.R.L.
NOTE 17 ACQUISITION OF STONES AND WOOD CORPORATION S.A.R.L.
In May 1999, the company purchased 100% of Stones and Wood
Corporation S.A.R.L. plus 18 type I mining perimeters for $500,000
cash plus 4,997,000 shares of Rule 144 restricted common stock
valued at .70(cent) per share which was the fair market value of the
perimeters.
The acquisition was accounted for as a purchase. Stones and Wood
Corporation S.A.R.L. was an inactive company and did not have any
revenue prior to the acquisition, so pro forma historical
information is not presented.
The purchase price was allocated to the 37 mining perimeters
acquired. The company will amortize the perimeter costs on a
straight line basis over the average remaining life of the
perimeters.
See Accompanying Notes and Independent Auditors' Report.
17
<PAGE>
AMERICAN BENEFITS GROUP, INC. AND SUBSIDIARIES
(DEVELOPMENT STAGE COMPANIES)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
JUNE 30, 1998
NOTE 18 SUBSEQUENT EVENTS
A. Joint Venture Agreement
In April 1999, the company entered into a joint venture agreement,
known as Total Gem Management Ltd, with the Menavi Group, an Israeli
corporation. Total Gem Management Ltd. (TGM) will be responsible to
manage and handle the company's sapphires from the point after
mining and sorting.
American Benefits Group, Inc. is required to provide $1,000,000 cash
to TGM and Menavi Group will provide $1,000,000 of gems (wholesale
value).
American
Benefits Menavi
Division of Profits Group, Inc. Group
------------------- ----------- -----
On goods from American
Benefits Group, Inc. mines
Total net sales on cut
and semicut-stones 66.6% 33.4%
On unprocessed rough 75.0% 25.0%
On goods purchased by American
Benefit Group, Inc.
Total net sales minus
total purchase cost
B. New Subsidiaries
The company formed the following new subsidiaries after June
30, 1998:
1. ABFG Sales Limited (USA)
2. ABFG Sales Ltd. (Canada)
3. American Benefits Group (Israel) Ltd., Israel
4. American Benefits Group (Israel-Madagascar) Ltd., Israel
5. ABFG Resources Madagascar S.A.R.L., Madagascar
C. Issuance of Common Stock
In June 1999, the company issued, pursuant to Rule 144, an aggregate
of 5,220,000 shares of common stock to 36 employees and consultants
as additional compensation for services rendered. The value of the
shares issued on the date of issuance was $1,096,200.
See Accompanying Notes and Independent Auditors' Report.
18
<PAGE>
AMERICAN BENEFITS GROUP, INC. AND SUBSIDIARIES
(DEVELOPMENT STAGE COMPANIES)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
JUNE 30, 1998
NOTE 18 SUBSEQUENT EVENTS (CONTINUED)
C. Issuance of Common Stock (Continued)
From February 1999 through June 1999, the company issued and sold,
pursuant to Rule 144, an aggregate of 7,410,075 shares of common
stock to an aggregate of 47 accredited investors. The common shares
were sold pursuant to an offering of Rule 144 common stock at a unit
price of $.30 per unit. The sale resulted in an aggregate offering
of $1,863,025.
In June 1999, the company issued and sold, pursuant to Rule 144,
23,000 common shares to Dove Gems & Jewelry Co., Ltd. in exchange
for a deposit on equipment. The value of the shares on the date of
issuance was $23,056.
From December 1998 through to May 1999, the company issued and sold
to 14 accredited investors 10,000,000 units, each unit consisting of
1 share of common stock at an average price $.10 per unit for an
aggregate offering price of $1,000,000. The units were issued
without registration under the Securities Act in reliance on the
exemption from registration provided by regulation D promulgated
under the Securities act.
D. Change in Trading Status
On July 3, 1999, the National Association of Securities Dealers,
Inc. (NASD) and the Securities and Exchange Commission (SEC)
de-listed the stock of the company from the Over-the-Counter
Bulletin Board (OTCBB) to the "Pink Sheets".
This action arises from the SEC's approval of amendments to NASD
Rules 6530 and 6540 requiring an issuer to make periodic financial
report filings to the SEC and to remain current with those required
filings, in order for an issuer of stock to continue being quoted on
the OTCBB. Prior to these amendments, there was no requirement for
an issuer of stock on the OTCBB to file any reports with the SEC.
Management is in the process of filing Form 10SB to become a
reporting issuer.
NOTE 19 CORPORATION INCOME TAX RETURNS
The company has not filed its United States and Canadian income tax
returns for the year ended June 30, 1998. However, the company
incurred losses and it is anticipated that the company will not have
a tax liability.
19
<PAGE>
AMERICAN BENEFITS GROUP, INC. AND SUBSIDIARIES
(DEVELOPMENT STAGE COMPANIES)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
JUNE 30, 1998
NOTE 20 NET OPERATING LOSS CARRYFORWARDS
The company has the following net operating loss carryforwards:
Expiration
Country Year Amount Date
------------- ------------- ---------- -----------
United States June 30, 1998 $ 586,686 2013
Canada June 30, 1998 103,428 2003
See Accompanying Notes and Independent Auditors' Report
20
ITEM 3(i)
AMERICAN BENEIFITS GROUP,INC.
ARTICLES OF INCORPORATION
AND
AMENDMENTS TO ARTICLES OF INCORPORATION
21
<PAGE>
- --------------------------------------------------------------------------------
EXHIBIT A
ARTICLES OF INCORPORATION
and
AMENDMENTS TO ARTICLES OF INCORPORATION
- --------------------------------------------------------------------------------
22
<PAGE>
================================================================================
State of Florida
[STATE SEAL]
Department of State
I certify the attached is a true and correct copy of the Articles of
Incorporation of LIVING BENEFITS GROUP, INC., a Florida corporation, filed on
February 26,1996, as shown by the records of this office.
The document number of this corporation is P96000018229.
Given under my hand and the Great Seal
of the State of Florida, at Tallahassee,
the Capital, this the Twenty-eighth day
of February, 1996
[STATE SEAL] /s/ Sandra B. Mortham
CR2E022 (2-95) Sandra B. Mortham
Secretary of State
================================================================================
23
<PAGE>
ARTICLES OF INCORPORATION
OF
LIVING BENEFITS GROUP, INC.
The undersigned for the purpose of forming a corporation under the Florida
General Corporation Act, hereby adopts the following Articles of Incorporation:
1. Name. The name of the Corporation is: Living Benefits Group, Inc.
2. Duration. The period of its duration is perpetual.
3. Purpose. The purpose is to engage in any activities or business permitted
under the laws of the United States and Florida.
4. Capital Stock. The Corporation is authorized to issue one million
(1,000,000) shares of common stock, all of one class, at No Par Value.
5. Principal Office. The address of the principal office of the Corporation
is as follows:
Living Benefits Group, Inc.
900 North Federal Highway
Suite 440
Boca Raton, Fl. 33432
6. Initial Registered Agent. The name and address of the initial registered
agent of the corporation is as follows
American Benefits Group Inc.
900 North Federal Highway
Suite # 440
Boca Raton Florida, 33432
7. Initial Board Of Directors. The corporation shall have 1 director initially.
The number of directors may be either increased or decreased from time to time
by an amendment or the bylaws of the corporation in the manner provided by law,
but shall never be less than one (1) director
The name and address of the initial director of the corporation is::
Donald I. Goldstein 900 North Federal Highway.
Suite 440
Boca Raton, FL 33432
24
<PAGE>
8. Amendment of Articles. The corporation reserves the right to amend or repeal
any provision contained in these articles of incorporation, or any amendment
hereto, and any right conferred upon the shareholders is subject to this
reservation.
9. Indemnification. To the extent permitted by law, the corporation shall
indemnify any officer or director, or any former officer or director in the
manner sot out and provided for the bylaws of the corporation.
10. Incorporator. The name and address of the incorporator is:
American Benefits Group Inc.
900 North Federal Highway
Suite # 440
Boca Raton FL 33432
In WITNESS WHEREOF, the undersigned incorporator has executed these
Articles of Incorporation this 22 day of February ___, 1996.
/s/ [ILLEGIBLE]
-------------------------
INCORPORATOR
STATE OF FLORIDA )
) SS
COUNTY OF PALM BEACH )
BEFORE ME, the undersigned authority, personally appeared Donald Goldstein
to me well known to be the person described in and who executed the foregoing
Articles Of Incorporation, and she acknowledged to and before me, that she
executed the same for the purposes therein expressed.
IN WITNESS HEREOF: I have hereunto set my hand and seal this 22nd day of
February, 1996
/s/ Deena Lynn Gans
[SEAL] OFFICIAL SEAL --------------------------------
DEENA LYNN GANS NOTARY PUBLIC, State of Florida
My commission Expires
June 7, 1996
Comm. No. CC 206492
MY COMMISSION EXPIRES:
25
<PAGE>
ARTICLES OF AMENDMENT
TO
ARTICLES OF INCORPORATION
OF
LIVING BENEFITS GROUP, INC.
(present name)
Pursuant to the provisions of section 607.1006, Florida Statutes, this
corporation adopts the following articles of amendment to its articles of
incorporation:
FIRST: Amendment(s) adopted: (indicate article number(s) being amended, added or
deleted)
#1 - to be changed from Living Benefits Group Inc. to Lifeline Benefits Group
Inc.
SECOND: If an amendment provides for an exchange, reclassification or
cancellation of issued shares, provisions for implementing the amendment if not
contained in the amendment itself, are as follows:
NO
26
<PAGE>
FILED
SECRETARY OF STATE
DIVISION OF CORPORATIONS
96 DEC 20 PM 1:12
Amendment Number Two
To
The Articles of Incorporation
of
Lifeline Benefits Group, Inc.,
The Corporation hereby amends article four(4) of its Articles of Incorporation.
Old article four: Capital Stock, The Corporation is authorized to issue one
million (1,000,000) shares of its common stock, all of one class, at no par
value.
New article four: Capital Stock, The Corporation is authorized to issue ten
million (10,000,000) shares of its common stock, all of one class, at no par
value.
This amendment number two was approved by a majority vote of the directors of
the Corporation on August 9, 1996. Shareholder approval was not required.
/s/ Donald L. Goldstein /s/ Donald L. Goldstein
- ----------------------- -----------------------
Secretary President/Director
Donald L. Goldstein Donald L. Goldstein
27
<PAGE>
FILED
96 DEC 12 PM 1:20
SECRETARY OF STATE
TALLAHASSEE, FLORIDA
ARTICLES OF AMENDMENT
TO
ARTICLES OF INCORPORATION
OF
LIFELINE BENEFITS GROUP, INC.
* * *
Pursuant to the provisions of the Florida Business Corporation Act, the
undersigned corporation adopts the following amendment to the Corporation's
Articles of Incorporation, which amendment was adopted by the shareholders of
the Corporation on December 9, 1996 by the holders of the outstanding common
stock, the only voting group entitled to vote thereon, by written consent
pursuant to Section 607.0704 of the Florida Business Corporation Act. The number
of shares adopting the amendment was sufficient for approval by that group.
1. The name of the Corporation is LIFELINE BENEFITS GROUP, INC.
2. Article III of the Articles of Incorporation of the Corporation is
hereby amended to read as follows:
ARTICLE III
Capital Stock
The total amount of capital stock which this Corporation has the authority
to issue is as follows:
10,000,000 shares of Common Stock, par value $.001 per share.
Stock Exchange
Each state of the Corporation's outstanding common stock, no par value per
share, shall be and they are hereby automatically changed (without any further
act) into one share of common stock, $.001 par value per share.
The foregoing stock change shall be accomplished in the following manner:
28
<PAGE>
(1) All certificates representing issued shares which are in
existence as of the close of business on the date hereof (the "Record Date")
shall thereafter, without any further action being taken, represent the same
number of shares as they theretofore represented.
December 9, 1996 By: /s/ Donald I. Goldstein
-----------------------
Donald I. Goldstein
President
29
<PAGE>
FILED
97 FEB 14 AM 8:42
AMENDMENT NUMBER THREE
TO
ARTICLES OF INCORPORATION
OF
LIFELINE BENEFITS GROUP, INC.
Pursuant to the provisions of Section 607.1006, Florida Statutes this
corporation adopts the following articles of amendment to its articles of
incorporation:
FIRST: Amendment adopted.
#1: Name is to be changed
from
LIFELINE BENEFITS GROUP, INC.
to
AMERICAN BENEFITS GROUP, INC.
SECOND: The date of each amendment's adoption: December 13, 1996.
THIRD: Adoption of Amendment
The amendment was adopted by the board of directors without shareholder
action and shareholder action was not required
Signed this 12 day of December, 1996
Signature /s/ Donald I. Goldstein,
------------------------------
Donald I. Goldstein, President
Director
30
<PAGE>
AFFIDAVIT
STATE OF FLORIDA )
COUNTY OF PALM BEACH )
BEFORE ME, the undersigned, duly authorized to administer oaths and take
acknowledgments, appeared DONALD GOLDSTEIN, as President for American Benefits
Group, Inc. who having been duly sworn, states the following:
1. My name is Donald Goldstein.
2. From the time of its inception until its dissolution I was the
President of American Benefits Group, Inc., a Florida Corporation.
3. American Benefits Group, Inc., was administratively dissolved on August
23, 1996.
4. American Benefits Group, Inc., no longer desires the use of the
corporate name and as President I am hereby releasing the name AMERICAN BENEFITS
GROUP, INC. to Lifeline Benefits Group, Inc.
/s/ Donald Goldstein
- ------------------------------
DONALD GOLDSTEIN, as president
American Benefits Group, Inc.
Before me, a person so duly authorized appeared DONALD GOLDSTEIN, as
President of American Benefits Group, Inc., who is personally known to me or who
produced _______________ as identification and who did/did not take an oath who
stated that the matters set forth herein are true and correct to the best of his
knowledge and belief.
Witness my hand and seal on this 19 day of December , 1996.
/s/ [ILLEGIBLE]
Notary Public
State of Florida
My Commission: [SEAL]
31
<PAGE>
ARTICLES OF AMENDMENT
TO
ARTICLES OF INCORPORATION
OF
AMERICAN BENEFITS GROUP, INC
(present name)
Pursuant to the provisions of section 607.1006, Florida Statutes, this Florida
profit corporation adopts the following articles of amendment to its articles of
incorporation:
FIRST: Amendment(s) adopted: (indicate article number(s) being amended, added or
deleted)
See Attached
SECOND: If an amendment provides for an exchange, reclassification or
cancellation of issued shares, provisions for implementing the amendment if not
contained in the amendment itself, are as follows:
32
<PAGE>
Amendment Number 5
To
The Articles of Incorporation
Of
AMERICAN BENEFITS GROUP, INC.
The Corporation hereby amends Article 4 of its Articles of Incorporation.
Old Article 4: The total amount of capital shares which this Corporation has
authorised to issue is as follows:
Ten Million (10,000,000) Shares of Common Stock, par value $.001 per Share.
New Article 4: The total amount of capital shares which this Corporation has
authorised to issue is as follows:
Two Hundred and Ten Million (210,000,000) Shares divided as follows:
(i) Ten Million (10,000,000) Shares are designated as Preferred Shares
with a par value of $10.00 per Share;
(ii) The remaining Two Hundred Million (200,000,000) Shares being Common
Shares having no par value.
This Amendment number 5 was approved by a majority vote of the Shareholders on
November 18th, 1997.
/s/ Peter Jones /s/ Gerald E. Sklar
- --------------------------- ---------------------------
Peter Jones Gerald E. Sklar
Secretary Vice President and Director
33
<PAGE>
THIRD: The date of each amendment's adoption: November 18th, 1997.
FOURTH: Adoption of Amendment(s) (CHECK ONE)
|X| The amendment(s) was/were approved by the shareholders. The number
of votes cast for the amendment(s) was/were sufficient for approval.
|_| The amendment(s) was/were approved by the shareholders through
voting groups. The following statement must be separately provided
for each voting group entitled to vote separately on the
amendment(s):
"The number of votes cast for the amendment(s) was/were
sufficient for approval by _______________________________
voting group
|_| The amendment(s) was/were adopted by the board of directors without
shareholder action and shareholder action was not required.
|_| The amendment(s) was/were adopted by the incorporators without
shareholder action and shareholder action was not required.
Signed this 18th day of November, l997.
Signature: /s/ Gerald E. Sklar
------------------------------------------------
(By the Chairman or Vice President of the Board of Directors,
President or other officer if adopted by the shareholders)
OR
(By a director if adopted by the directors)
OR
(By an incorporator if adopted by the incorporators)
GERALD E. SKLAR
----------------------------------------------------
Typed or printed name
Director and Vice President
----------------------------------------------------
Title
34
ITEM 3 (ii) (a)
AMERICAN BENEFITS GROUP, INC.
AMENDED BYLAWS
APPROVED BY THE BOARD OF DIECTORS AUGUST 29,1997
APPROVED BY THE SHAREHOLDERS NOVEMBER 18,1997
35
<PAGE>
INDEX
Article 1 Shareholders
1. Annual meeting 1
2. Special meeting 2
3. Action by written consent 2
4. Notice of meetings 2
5. Waiver of notice 3
6. Record date 3
7. Quorum 4
8. Quorum (classes) 4
9. Voting record 5
10. Voting per share 5
11. Voting of shares 5
12. Proxies 6
13. Conduct of proceedings and order of business 7
14. Manner of action 7
15. Voting for directors 8
16. Inspectors of election 8
Article 2 Board of Directors
1. General powers 8
2. Number, tenure, qualifications and election 8
3. Meetings 9
4. Place of meetings 9
5. Quorum and voting 9
6. Deemed quorum 10
7. Vacancies 10
8. Removal 11
9. Compensation 11
10. Indemnification 11
11. Committees 12
Article 3 Officers
1. Enumeration of offices 13
2. Appointment and term of office 13
3. Removal 13
4. Vacancies 13
5. President: powers and duties 13
6. Vice President: power and duties 14
7. Chief Financial Officers: powers and duties 14
8. Secretary: powers and duties 14
9. Subordinate officers 15
36
<PAGE>
10. Absence or Disability of Officers 15
11. Salaries 15
Article 4 Stock Certificates
1. Form 16
2. Subscriptions for stock 17
3. Transfers 17
4. Lost destroyed and stolen certificates 17
Article 5 Corporate Actions
1. Contracts 18
2. Loans 18
3. Checks, drafts or orders 18
4. Deposits 18
5. Voting securities held by the corporation 18
Article 6 Miscellaneous
1. Reports to shareholders 19
2. Inspection of corporate records 19
3. Inspection of articles of incorporation
and bylaws 19
4. Fiscal year 20
5. Corporate seal 20
6. Construction and definition 20
7. Definitions 20
BYLAWS OF
AMERCAN BENIFITS GROUP, INC.
Article One
Shareholders
Section 1. Annual Meeting
(a) An Annual Meeting of the Shareholders shall be held in each calendar year
for the election of Directors and for the transaction of any other
business that may come before the meeting. Annual meetings shall be held
at the principal executive office of the Corporation or at such other
place as may be determined by the Board of Directors and designated in the
notice of the meeting.
(b) If in any year the election of Directors is not held at the Annual Meeting
of the Shareholders or an adjournment of the meeting, the Board of
Directors shall call a Special Meeting of the Shareholders as soon
thereafter as reasonably possible for the purpose of holding the election
and transacting such other business as may properly be brought before the
meeting. In the event the Board of Directors fails to call a special
meeting within three months after the date prescribed for the annual
meeting, any Shareholder may call such a meeting and, at such meeting, the
Shareholders may elect Directors and transact all other business properly
brought before the meeting.
(c) No change in the time or place of a meeting for the election of Directors
may be made within fourteen days of the date for which the meeting is
scheduled, and written notice of any change in the date or place of such a
meeting must be given to each Shareholder of record at least seven days
prior to the date for which any such meeting is rescheduled.
(d) Any Shareholders' Meeting, Annual or Special, may be adjourned by the
affirmative vote of a majority of the shares represented at such meeting
either in person or by proxy. An adjournment may be voted regardless of
whether a quorum is present. When a Shareholders' Meeting is adjourned for
three days or more, notice of the adjourned meeting must be given as in
the case of an original meeting. When a meeting is adjourned for less than
three days, no notice of the time and place of the adjourned meeting need
be given other than by announcement at the meeting at which the
adjournment is voted, unless after the adjournment a new record date is
fixed for the adjourned meeting.
Section 2. Special Meetings.
Special Meetings of the Shareholders may be called for any purpose. Such
meetings may be called at any time by the Chairman of the Board, or President,
or Board of Directors or holders of shares entitled to cast not less than twenty
per cent of the votes at the meeting. On the written request of any person or
persons entitled to call a Special Meeting, the Secretary shall inform the Board
of Directors as to such call, and the Board shall within 14 days thereof fix a
time and place for the meeting said time to be within 45 days after the written
request is received by the Corporation. If the Board fails to fix a time and
place, the meeting shall be held at the principal Executive Office of the
Corporation at a time fixed by the Secretary, but no later than sixty days after
the written request is received by the Corporation.
Section 3. Action by Written Consent.
Any action required by law to be taken at a meeting of the Shareholders and any
other action that may be taken at a meeting of Shareholders may be taken without
a meeting if written consent, setting forth the action so taken, is signed by
the holders of outstanding shares having not less than the minimum number of
votes that would be necessary to authorize or take such action at a meeting at
which all shares entitled to vote thereon were present and voted, if the
consents of all Shareholders entitled to vote were solicited in writing, said
solicitation to be by written, prepaid, regular post mailed to Shareholders at
least thirty (30) days prior to the action being taken. A consent signed as
required has the effect of a meeting vote and may be described as such in any
document whenever action is taken as provided in this section. The written
consent of the Shareholders consenting on the written reports of inspectors
appointed to tabulate such consent shall be filed with the Minutes of
proceedings of Shareholders.
Within ten days after obtaining authorization by written consent, notice must be
given to all Shareholders who were entitled to vote on the action. The notice
must fairly summarize the material features of the authorized action and, if the
action is one for which dissenters rights are provided under the Articles of
Incorporation or Bylaw, then the notice shall contain a clear statement of the
right of Shareholders dissenting therefrom to be paid the fair value of their
shares upon compliance with applicable law.
Section 4. Notice of Meetings.
Written notice specifying the place, day, and hour of the meeting; and the
general nature of the business to be transacted, shall be given to those
shareholders entitled to vote therein not less than ten days nor more than
thirty days before the date of the meeting. Such notice must be given
personally, or by mail, facsimile, Email or other means of written
communication, addressed to the Shareholder at the address appearing on the
books of the Corporation or given by the Shareholder to the Corporation for the
purpose of such notice. If no such address appears or is given by a shareholder
of record entitled to vote at the meeting, notice is given at the place where
the principal Executive Office of the Corporation is located, or by publication
at least once in a newspaper of general circulation in the county or city where
the principal executive office is located. The notice shall be deemed to have
been given at the time when delivered personally or deposited in the mail or
sent by other means of written communications. An affidavit of mailing of any
notice in accordance with the provisions of this section executed by the
Secretary or assistant secretary or transfer agent shall be prima facie evidence
of the giving of notice.
Section 5. Waiver of Notice.
A Shareholder may waive notice of any Annual or Special Meeting by signing a
written waiver of notice either before or after the date of such meeting.
Attendance of a person at a meeting shall constitute a waiver of:
(a) Lack of notice or defective notice of a meeting; or,
(b) Lack of notice or defective notice of a particular matter at a meeting;
unless the person objects at either the beginning of the meeting or when the
matter is presented which ever the case may be.
Section 6. Record Date.
(a) For the purpose of determining those Shareholders entitled to notice of or
to vote at any meeting of shareholders, or to receive payment of any
dividend, or in order to make a determination of shareholders for any
other proper purpose, the Board of Directors may fix, in advance, a date
as the record date for the determination of Shareholders. Such date shall
be not more than ninety days, and for a meeting of Shareholders, not less
than ten days, or in the case of a meeting where a merger or consolidation
will be considered, not less than sixty days immediately preceding such
meeting.
(b) If a record date is not fixed for the determination of Shareholders
entitled to notice of or to vote at a meeting of Shareholders, the record
date shall be at the close of business on the business day next preceding
the day on which notice is given or, if notice is waived, at the close of
business on the business day next preceding the day on which the meeting
is held.
(c) If no record date is fixed, the record date for determining shareholders
entitled to give consent to corporate action in writing without a meeting,
when no prior action by the Board of Directors is necessary, shall be the
day on which the first written consent is given.
(d) If no record date is fixed, the record date for determining shareholders
for any other purpose shall be at the close of business on the day on
which the Board of Directors adopts the resolution relating thereto, or 10
days prior to the date of such other action, whichever is later.
(e) When a determination of shareholders entitled to vote at any meeting of
shareholders has been made as provided in this section, such determination
shall apply to any adjournment of such meeting, unless the Board of
Directors fixes a new record date for the adjourned meeting.
Section 7. Quorum.
The presence, at any Shareholders' meeting, in person or by proxy, of persons
entitled to vote thirty-three and one third (33 1/3%) percent plus one (1) share
of the outstanding shares of the Corporation shall constitute a quorum for the
transaction of business. In determining whether quorum requirements for a
meeting have been met, any share than has been enjoined from voting or that
cannot be lawfully voted for any reason shall not be counted. After a quorum has
been established at any Shareholders' meeting, the subsequent withdrawal of
Shareholders, so as to reduce the number of shares entitled to vote at the
meeting below the number required for a quorum, shall not affect the validity of
any action taken at the meeting or any adjournment thereof. Not to restrict the
generality of the foregone, once a share is represented for any purpose at a
meeting, it is deemed present for quorum purposes for the remainder of the
meeting and for any adjournment of that meeting unless a new record date is or
must be set for that adjourned meeting.
Section 8 Quorum (Classes)
Shares entitled to vote as a separate voting group may take action on a matter
at a meeting only if a quorum as described in section 7 herein of those classed
shares exists. Except as otherwise provided in the Articles of Incorporation or
By Law, attendance upon the meeting, represented in person or by proxy, of
thirty three and one third percent (33 1/3%) plus one (1) share of Shareholders
of a class entitled to vote at said meeting shall constitute a quorum of the
Class at any meeting of the Shareholders. If less than a quorum of a class
entitled to vote is present or represented at a meeting, a majority of the
shares of the class present or represented by proxy may adjourn the meeting from
time to time subject to the provisions of these Bylaws respecting adjournments
Not to restrict the generality of the foregone if a quorum of shareholders is
present or represented by proxy at a meeting but a quorum of a particular class
is not so present or represented by proxy the class of shareholders not so
present or represented may adjourn their vote or votes on a particular matter or
matters Further, once a share is represented for any purpose at a meeting, it is
deemed present for quorum purposes for the remainder of the meeting and for any
adjournment of that meeting unless a new record date is or must be set for that
adjourned meeting.
Section 9 Voting Record.
After fixing a record date for a meeting of Shareholders, the Corporation shall
prepare or arrange to have prepared an alphabetical list of names of all its
Shareholders entitled to notice of the meeting, arranged by voting group with
address of; and the number, class, and series, if any, of shares held by each
Shareholder. The Shareholders' list must be available for inspection by any
Shareholder for a period of ten days before the meeting or such shorter time as
exists between the record date and meeting and continuing through the meeting at
the Corporation's principal executive office, at a place identified in the
Meeting Notice in the city where the meeting will be held, or at the office of
the Corporation's transfer agent or registrar. Any Shareholder of the
Corporation or the Shareholder's agent or attorney is entitled on written demand
to inspect the Shareholders' list (subject to the requirements of F.S.
607.1602[3]) during regular business hours and at the Shareholder's expense,
during the period it is available for inspection.
The Corporation shall make the Shareholder's list available at the meeting of
shareholders and any Shareholder or the Shareholder's agent or attorney is
entitled to inspect the list at any time during the meeting or any adjournment.
Section 10 Voting Per Share.
Except as otherwise provided in the Articles of Incorporation or by FS.
607.0721, each Shareholder is entitled to one vote for each outstanding share
held by him or her on each matter voted at a shareholders meeting.
Section 11 Voting of Shares.
A Shareholder may vote at any meeting of shareholders of the Corporation, either
in person or by proxy.
Shares standing in the name of another corporation, domestic or foreign, may be
voted by the Officer, Agent, or proxy designated by the Bylaws of the Corporate
Shareholder, or in the absence of any applicable Bylaw, by a person or persons
designated by the Board of Directors of the Corporate Shareholder. In the
absence of any such designation or, in case of conflicting designation by the
Corporate Shareholder, the Chairman of the Board, the President, any
Vice-President, the Secretary, and the Treasurer of the Corporate Shareholder,
in that order, shall be presumed to be fully authorized to vote the shares.
Shares held by an administrator, executor, guardian, personal representative, or
conservator may be voted by him or her, either in person or by proxy, without a
transfer of such shares into his or her name. Shares standing in the name of a
trustee may be voted by him or her, either in person or by proxy, but no trustee
shall be entitled to vote shares held by him or her without a transfer of such
shares into his or her name or the name of his or her nominee.
Shares held by or under the control of a receiver, a trustee in bankruptcy
proceedings, or any assignee for the benefit of creditors may be voted by such
person without the transfer into his or her name.
If shares stand of record in the names of two or more persons, whether
fiduciaries, members of a partnership, joint tenants, tenants in common, tenants
by the entirety, or otherwise, or if two or more persons have the same fiduciary
relationship respecting the same shares, unless the Secretary of the Corporation
is given notice to the contrary and furnished with a copy of the instrument or
order appointing them or creating the relationship wherein it is so provided,
then acts with respect to voting shall have the following effect:
(a) if only one votes, in person or by proxy, that act binds all;
(b) if more than one votes, in person or by proxy, the faction out of the
majority so voting binds all;
(c) if more than one votes, in person or by proxy, but the vote is evenly
split on any particular matter, each faction is entitled to vote the share
or shares in question proportionally; or
(d) if the instrument or order so filed shows that any tenancy is held in an
unequal interest, then the foregone applies with each faction entitled to
vote their interest in proportion to the share of their faction. The
principles of this paragraph shall apply, insofar as possible, to
execution of proxies, waivers, consents, or objections and for the purpose
of ascertaining the presence of a quorum.
Section 12 Proxies
Any Shareholder of the Corporation, other person entitled to vote on behalf of a
Shareholder pursuant to F.S. 607.0721, or attorney-in-fact for such persons, may
vote the Shareholder's shares in person or by proxy. Any Shareholder may appoint
a proxy to vote or otherwise act for him or her by signing an appointment form,
either personally or by an attorney infect. An executed facsimile telegram or
cablegram appearing to have been transmitted by such person, or a photographic,
photostatic, or equivalent reproduction of an appointment form, shall be deemed
a sufficient appointment form.
An appointment of a proxy is effective when received by the Secretary of the
Corporation or such other Officer or agent authorized to tabulate votes, and
shall be valid for up to 11 months, unless a longer period is expressly provided
in the appointment form.
The death or incapacity of the Shareholder appointing a proxy does not affect
the right of the Corporation to accept the proxy's authority unless notice of
the death or incapacity is received by the Secretary or other officer or agent
authorized to tabulate votes before the proxy exercises authority under
appointment and if so received by the Corporation said proxy is null and void
for all purposes and forever more.
An Appointment of a proxy is revocable by the Shareholder unless the appointment
form conspicuously states that it is irrevocable and the appointment is coupled
with an interest.
Section 13. Conduct of Proceedings and Order of Business.
Meetings of Shareholders shall be presided over by the Chairman, or the
President, or the Vice-President in that order. The Shareholders may at their
option elect from their number a presiding officer for any special meeting.
On questions of parliamentary procedure not covered by these Bylaws, Robert's
Rules of Order shall govern.
At each Annual Meeting a full report of the business, affairs, and condition of
the Corporation for the fiscal year just ended shall be presented by the
President. The order of business at the Regular Annual Meeting of Shareholders
and, so far as applicable, at all other meetings, shall be as follows:
1 Calling the roll; determining and announcing the percentage of shares
present; determination of quorum;
2. Proof of due notice of the meeting by the secretary or assistant
secretary;
3. Reading and disposition of unproved minutes from prior meetings;
4. Report of Board of Directors;
5. Reports of officers;
6 Election of directors;
7. Disposition of unfinished business;
8. Presentation and disposition of new business;
9. Adjournment
Section 14 Manner of Action
If a quorum is present, action on a matter (other than the election of
directors) by a voting group is approved if the votes cast within the voting
group favoring the action exceed the votes cast opposing the action, unless a
greater or lesser number of affirmative votes is required by the Articles of
Incorporation or By Law.
Section 15 Voting for Directors
Unless otherwise provided in the Articles of Incorporation, Directors will be
elected by a plurality of the votes cast by the shares entitled to vote in the
election at a meeting at which a quorum is present.
Section 16 Inspectors of Election.
Before each Shareholders' Meeting, the Board of Directors or President shall
appoint one or more Inspectors of Election. Upon appointment, each Inspector
shall take and sign an oath to faithfully execute the duties of Inspector at the
meeting with impartiality and to the best of their ability. Inspectors shall
determine the number of shares outstanding, the number of shares present at the
meeting, and whether a quorum is present. The Inspectors shall receive votes and
ballots and determine all challenges and questions as to the right to vote. The
Inspectors shall count and tabulate all votes and ballots and determine the
results. Inspectors shall perform other duties as are proper to conduct
elections of directors and votes on other matters with fairness to all
Shareholders. Inspectors shall make a certificate of the results of elections of
directors and votes on other matters. No Inspector shall be a candidate for
election as a Director of the Corporation.
Article Two
Board of Directors
Section 1. General Powers.
Subject to the limitations of the Articles of Incorporation, these Bylaws, the
Florida Business Corporations Act, and the provisions of General Corporation Law
concerning corporate acts that must be authorized or approved by the
Shareholders of the Corporation, all corporate power shall be exercised by or
under the authority of the Board of Directors, and the business and affairs of
the Corporation shall be controlled by the Board.
Section 2. Number, Tenure, Qualification and Election.
(a) The Board of Directors shall consist of not less than one and not more
than fifteen persons who may or may not be shareholders. The number of
Directors may be increased or decreased by approval of the outstanding
Shareholders. Directors of the Corporation shall be elected at the Annual
Meeting of the Shareholders, or at a meeting held in lieu thereof as
provided in Article One, Section 1(b) above, and shall serve until the
next succeeding Annual Meeting and until their successors have been
elected and qualified.
(c) The Board of Directors may appoint other Directors to serve until the next
Annual Meeting of Shareholders or Special meeting of Shareholders where
the election of Directors is to be considered either to fill a vacancy or
vacancies arising or to increase the number of Directors.
Section 3. Meetings.
(a) The Board of Directors shall hold an annual meeting immediately following
each Annual Meeting of the Shareholders. Additionally, regular meetings of
the Board of Directors shall be held at such times as shall be fixed by
Resolution of the Board.
(b) Special meetings of the Board may be called at any time by the Chairman,
President, or, if the President is absent or unable or refuses to act, any
Vice President, or any two members of the Board.
(c) Notice need not be given of regular meetings of the Board of Directors,
nor need notice be given of adjourned meetings. Notice of special meetings
shall be given in writing by mail at least seven days prior to the date of
the meeting or forty eight hours notice delivered personally or by
telephone, facsimile or Email or equivalent. Neither the business to be
transacted at nor the purpose of any such meeting need be specified in the
notice. Attendance of a Director at a meeting shall constitute a waiver of
notice of that meeting except when the Director attends for the express
purpose of objecting to the transaction of any business in that the
meeting is not lawfully called or convened.
Section 4. Place of Meeting
(a) The meetings shall take place at the time and place as specified in the
notice provided and if no notice is provided then at the principal
executive offices of the Corporation.
(b) The Meetings shall, if a majority of the Directors entitled to vote at
such meeting agree, be by telephone communication provided that all
Directors must be able to hear and speak directly with all other Directors
at all times thereof.
Section 5. Quorum and Voting.
A majority of the authorized and appointed or elected number of Directors shall
constitute a quorum for the transaction of business, and the acts of a majority
of Directors present at a meeting at which a quorum is present shall constitute
the acts of the Board of Directors. If, at any meeting of the Board of
Directors, less than a quorum is present, a majority of those present may
adjourn the meeting until a quorum is present. If the meeting is adjourned for
more than twenty-four hours, notice of any adjournment to another time or place
shall be given prior to the time of the adjourned meeting to the Directors who
were not present at the time of adjournment.
Section 6. Deemed Quorum
(a) If, at any meeting a quorum of Directors is not present those Directors
present may transact business and if the Minutes or Resolutions of the said
Director's Meeting are subsequently executed by a non-present Director, then and
in that event that nonpresent Director shall for the purpose of quorum and
voting procedures be deemed to have attended the Meeting.
(b) If:
(i) a quorum of Directors is not met for two consecutive meetings;
(ii) the same director(s) are absent for each of the two consecutive meetings;
and
(iii) at any one or more of the said two consecutive meetings the directors
present requested to allow the meeting to proceed by telephone
communications pursuant to Article 2, Section 4(b) but the absent
directors refused;
then, and in that event, the next proceeding meeting of the Board of Directors,
regular or special or adjourned shall proceed not withstanding a lack of quorum
provided that those directors present at the next meeting:
(i) make the meeting available to be conducted by telephone
communications; and,
(ii) Pass a resolution deeming a quorum to be present provided that a
majority of Directors, not considering the directors absent from the
immediately preceding two meetings and the subsequent meeting, are
present at the said subsequent meeting.
Section 7. Vacancies.
(a) A vacancy in the Board of Directors of the Corporation shall exist on the
happening of death, disability or other condition affecting the ability of
a Director to fulfill his responsibilities as a Director.
(b) A vacancy in the Board of Directors, except a vacancy occurring by the
removal of a Director, may be filled by the vote of a majority of the
remaining Directors. Each Director so elected shall hold office until the
next meeting of Shareholders where election of directors takes place.
Section 8. Removal.
(a) At any regular meeting of Shareholders, or at any special meeting called
for such purpose, any Director or Directors may be removed from office,
with or without cause, by approval of a majority of outstanding shares
present at said meeting, except that if less than all the Directors are to
be removed no individual Director may be removed if the number of votes
cast against his removal would be sufficient, if voted cumulatively at an
election of the whole Board, to elect such Director.
(b) New Directors may be elected by the Shareholders for the unexpired term of
Directors removed from office at the same meeting at which said removals
are voted. If at the meeting where the Director or Directors are removed
the Shareholders fail to elect persons to fill the unexpired terms of
removed Directors, such positions shall be considered vacancies to be
filled by the remaining Directors as provided in Article 2 Section 7 above
herein.
Section 9. Compensation.
Directors who are or are not employed as Officers of the Corporation or who may
or may not also serve the Corporation in another capacity and receive separate
compensation for such service, shall be entitled to receive from the Corporation
as compensation for their services as Directors such reasonable compensation as
the Board may fairly and unbiasedly determine, and shall also be paid,in
advance, for their reasonable expenses incurred in attending meetings of
Directors.
Section 10. Indemnification.
The Corporation shall indemnify all persons who serve, may have served or may
serve at any time as Officers or Directors of the Corporation, and their heirs,
executors, administrators, successors, and assigns, from and against any and all
loss and expense, including amounts paid in settlement before or after suit is
commenced; and, any reasonable attorneys fees, actually and necessarily incurred
as a result of any claim, demand, action, proceedings or judgment that may be
asserted against any such persons, or in which any such persons are made parties
by reasons of their being or having been Officers or Directors of the
Corporation. However, this right of indemnification shall not exist in relation
to matters to which it is judged in any action, suit, or proceedings by a court
of competent jurisdiction that any such persons are liable for gross negligence
or gross misconduct in the performance of their duty to the company.
Section 11. Committees.
(a) The Board of Directors of the Corporation may, by resolution adopted by a
majority of the whole Board, designate three or more Directors to
constitute an Executive Committee. The Executive Committee, to the extent
provided in the Resolution, shall have and may exercise all of the
authority of the Board of Directors in the management of the Corporation,
except that the committee shall have no authority to amend the Articles of
Incorporation; adopt a plan of merger or consolidation; suggest to
Shareholders the sale, lease, exchange, mortgage or other disposition of
all or substantially all of the property and assets of the Corporation
other than in the usual course of business; recommend to the Shareholders
a voluntary dissolution or a revocation thereof; amend, alter or repeal
any provision of these Bylaws; elect or remove Directors or Officers of
the Corporation, or members of the Executive Committee; fix the
compensation of any member of the Executive Committee; declare dividends;
or amend, alter or repeal any Resolution of the Board of Directors which,
by its terms, provides that it shall not be amended, altered or repealed
by the Executive Committee. The Board of Directors shall have power at any
time to fill vacancies in, to change the size or membership of , and to
discharge members from any such Committee.
(b) Any such Executive Committee shall keep a written record of its
proceedings and shall submit such record to the whole Board at each
regular meeting, and at such other times as may be requested by the Board.
However, failure to submit such record, or failure of the Board to approve
any action indicated therein shall not invalidate such action to the
extent it has been carried out by the Corporation prior to the time the
record thereof was or should have been submitted to the Board as provided
herein.
(c) The board of Directors of the Corporation may, by resolution, adopted by a
majority of the Board designate Directors to constitute other committees
thereby mandated and the terms and conditions noted in Article 2, Sections
11 (a) and 11 (b) herein apply, in so far as applicable, mutatis, mutandis
thereto.
Article Three
Officers
Section 1. Enumeration of Offices.
The Corporation shall have as officers a President, Vice President or Vice
Presidents and a Secretary. The Board of Directors, in its discretion, may
appoint other officers as the business of the Corporation may require or as the
case may be.
Section 2. Appointment and Term of Office.
The principal officers and subordinate officers of the Corporation shall be
appointed by an affirmative vote of the Board of Directors. Each Officer shall
hold office until his successor is elected and qualified, or until his
resignation, death or removal.
Section 3. Removal.
Any Officer may be removed from office at any time, with or without cause, on
the affirmative vote of a majority of the Board of Directors. Removal shall be
without prejudice to any contract rights of the Officer removed.
Section 4. Vacancies.
Vacancies in offices, however caused, may be filled by appointment by an
affirmative vote of the Board of Directors for the unexpired terms of such
offices, and until said vacancy is filled the President shall undertake the
duties and responsibilities of the vacant office until such appointment takes
place and in the event the office of President is vacant the Chairman of the
Board of Directors or his designate shall undertake the duties and
responsibilities of President until the appointment of President takes place.
Section 5. President: Powers and Duties.
Subject to any supervisory duties that may be given by the Board of Directors to
the Chairman of the Board, the President shall be the Chief Executive Officer of
the Corporation. Subject to the control of the Board of Directors, the President
shall supervise and direct generally all the business and affairs of the
Corporation. The President or his designate shall preside at all Meetings of the
Shareholders at which he is eligible to preside. In the absence of the Chairman
of the Board, or if there is no such Chairman, the President or his designate
shall preside at all meetings of the Board of Directors at which he is present.
The President may sign, with the Secretary, certificates for shares of the
Corporation, and any deeds, mortgages, bonds, contracts, or other instruments
that the Board of Directors has authorized for execution, except when the
signing and execution thereof has been expressly delegated by the Board of
Directors or these Bylaws to some other officer or agent of the Corporation or
is required by law to be otherwise signed or executed. The President shall also
make reports to the Board of Directors and the Shareholders and generally
perform all duties incident to the office of President and such other duties as
may be prescribed by the Board of Directors.
Section 6. Vice-President: Powers and Duties.
In the absence of the President of the Corporation , save and except for a
vacancy in the office of president or in the event of his death or inability or
refusal to act, the Vice President shall perform the duties of the President
and, when so acting, shall act with all of the powers of and be subject to all
the restrictions on the President. In the event more than one Vice President is
elected, the Vice Presidents shall serve in the capacity of the President in the
order designated at the time of their appointment. Any Vice President may sign
share certificates with the Secretary. The Vice President or Vice Presidents
shall also perform such other duties as may be assigned by the President or the
Board of Directors.
Section 7. Chief Financial Officer: Powers and Duties.
The Chief Financial Officer of the Corporation, if and when appointed, shall
have the following powers and duties:
(a) To be custodian and take charge of and be responsible for all funds and
securities of the Corporation;
(b) To receive and give receipts for monies due and paid to the Corporation
from any source whatsoever;
(c) To deposit all monies paid to the Corporation in the name of the
Corporation in such banks, trust companies, or other depositories as shall
be selected in accordance with these Bylaws;
(d) To perform all of the duties incidental to the office of Treasurer and
such other duties as may be assigned to the Chief Financial Officer by the
President or the Board of Directors;
(e) To give a bond for faithful discharge of his duties when required to do so
by the Board of Directors.
In the absence of an appointed Chief Financial Officer, the President shall
assume the powers and duties of Chief Financial Officer.
Section 8. Secretary: Powers and Duties.
The Secretary of the Corporation shall have the following powers and duties;
(a) To keep the minutes of the meetings of the Shareholders and the Board of
Directors, in one or more books provided for that purpose;
(b) To see that all notices are duly given, in accordance with these Bylaws or
as required by law;
(c) To be custodian of the corporate records and the seal of the Corporation;
(d) To see that the seal of the Corporation is affixed to all documents duly
authorized for execution under seal on behalf of the Corporation;
(e) To keep a register of the post office address of each Shareholder whose
address shall be furnished to the Secretary by the Shareholder;
(f) To sign with the President, or a Vice President, certificates for
corporate shares the issuance of which have been authorized by resolution
of the Board of Directors;
(g) To have general charge of the stock transfer books of the Corporation; and
(h) To perform all duties incidental to the office of Secretary and such other
duties as may be assigned to the Secretary by the President or the Board
of Directors.
Section 9. Subordinate Officers.
Other subordinate officers, including without limitation, an assistant financial
officer and an assistant secretary or secretaries, may be appointed by the Board
of Directors, and shall exercise such powers and perform such duties as may be
delegated to them by the resolutions appointing them, or by subsequent
resolutions adopted by the Board of Directors.
Section 10. Absence or Disability of Officers.
In the case of the absence or disability of any Officer of the Corporation or of
any person hereby authorized to act in his place during his absence or
disability, the Board of Directors may by Resolution delegate the powers and
duties of such officer, to any other officer, or to any director, or to any
other person whom it may select.
Section 11. Salaries.
The salaries of all Officers of the Corporation shall be fixed by the Board of
Directors. No Officer shall be disqualified from receiving a salary by reason of
his also being a Director of the Corporation and receiving compensation
therefor.
Article Four
Stock Certificates
Section 1. Form.
The shares of the Corporation shall be represented by certificates signed by the
President or a Vice President and by the Secretary. Any or all of such
signatures may be facsimile. Each such certificate also shall indicate:
(a) The name of the record holder of the shares represented by such
certificate;
(b) The number of shares represented thereby;
(c) The designation of any class or series of which such shares are a part;
(d) That the shares are without par value, if applicable;
(e) Any rights of redemption and the redemption price;
(f) Any rights of conversion , and the essential terms and period for
conversion;
(g) Any liens or restrictions on transfer or the voting power of such shares;
(h) That the shares are assessable, if that is the fact;
(i) That assessments to which the shares are subject are collectible by
personal action, if that is the fact;
The rights, preferences, privileges and restrictions on the shares when
the shares of the Corporation are classified or any class has two or more
series, granted to or imposed on the respective classes or series of
shares and the holders thereof, as established by the Articles of
Incorporation , or by any Certificate of Determination of preferences, as
well as the number of shares constituting each series and the designation
thereof, or a summary of such preferences, privileges, and restrictions
with reference to the provisions of the Articles of Incorporation or
Determination of Preferences establishing the same, or the office or
agency of the Corporation from which stockholders may obtain a copy of a
statement of such rights, preferences, privileges and restrictions or of
such summary;
(k) Any right of the Board of Directors to fix dividend rights, dividend rate,
conversion rights, voting rights, rights in terms of redemption,
(including sinking fund provisions), the redemption price or prices, or
the liquidation preferences of any wholly unissued class or of any wholly
unissued series of any class of shares, or the number of shares
constituting any unissued series of any class of shares, or designation of
such series, or all or any of them; and
(1) For any certificates issued for shares prior to the full payment thereof,
the amount remaining unpaid, the term of payments to become due, and any
restrictions on the transfer of such partly paid shares on the books of
the corporation.
Section 2. Subscriptions for Stock.
Unless otherwise provided for in the Subscription Agreement, subscriptions for
shares shall be paid in full at such time, or in such installments and at such
times as shall be determined by the Board of Directors. Any call made by the
Board of Directors for payment on subscriptions shall be uniform as to all
shares of the same class or as to all shares of the same series. In case of
default in the payment of any installment or call when such payment is due, the
Corporation may proceed to collect the amount due in the same manner as any debt
due the Corporation.
Section 3. Transfers.
Transfer of shares of the Corporation shall be made in the manner set forth in
the Uniform Commercial Code. The Corporation shall maintain stock transfer
books. Any share transfer shall be registered thereon only on request and
surrender of the stock certificate representing the transferred shares duly
endorsed. Additionally, the Board of Directors may appoint one or more transfer
agents or transfer clerks, and one or more registrars as custodians of the
transfer books, and may require all transfers to be made with and all share
certificates to bear the signatures of any of them. The Corporation shall have
the absolute right to recognize as the owner of any share of stock issued by it,
for all proper corporate purposes including: the voting of such shares and the
issuance and payment of dividends on such shares,. If a transfer of shares is
made exclusively for the purpose of furnishing collateral security, and if such
fact is made known to the Secretary of the Corporation, the record entry of such
transfer shall state the limited nature thereof.
Section 4. Lost, Destroyed and Stolen Certificates.
No certificate for shares of stock in the Corporation shall be issued in place
of any certificate alleged to have been lost, destroyed, stolen or mutilated
except upon production of such evidence and provision of such indemnity to the
Corporation as the Board of Directors may prescribe.
Article Five
Corporate Actions
Section 1. Contracts
The Board of Directors may authorize any officer or officers, or any agent or
agents of the Corporation, to enter into any contract or to execute and deliver
any instrument in the name of and on behalf of the Corporation and such
authority may be general or confined to specific instances.
Section 2. Loans
The Corporation may borrow and lend money in amounts and to persons authorized
by resolution of the Board of Directors. No loans shall be made by the
Corporation secured by its shares. No loans shall be made or contracted on
behalf of the Corporation and no evidences of indebtedness shall be issued in
its name unless authorized by resolution of the Board of Directors. Such
authority may be general or confined to specific instances.
Section 3. Checks, Drafts or Orders.
All checks, drafts or other orders for the payment of money by or to the
Corporation and all notes and other evidence of indebtedness issued in the name
of the Corporation shall be signed by such Officer or Officers or agent or
agents of the Corporation, and in such manner, as shall be determined by
resolution of the Board of Directors.
Section 4. Deposits.
All funds of the Corporation not otherwise employed shall be deposited to the
credit of the Corporation in such banks, trust companies or other depositories
as the Board of Directors may by resolution select.
Section 5. Voting Securities Held by the Corporation.
Unless otherwise ordered by the Board of Directors, the President or any Vice
President, or the Secretary of the Corporation in that order shall have the
authority to vote, represent, and exercise on behalf of the Corporation all
rights incidental to any and all shares of any other corporation standing in the
name of the corporation. Such authority may be exercised by the designated
officer in person or by proxy.
Article Six
Miscellaneous
Section 1. Reports to Shareholders.
The Board of Directors shall send an annual report to the Shareholders of the
Corporation, not later than 120 days after the close of the fiscal year of the
Corporation. The annual report shall include a Balance Sheet as of the close of
the fiscal year of the Corporation and an Income Statement and statement of
changes in financial position for such fiscal year and all other financial
information required by regulatory authorities having jurisdiction over the
Corporation. The financial statements shall be prepared from and in accordance
with the books of the Corporation, in conformity with generally accepted
accounting principles applied on a consistent basis, and shall be audited by an
independent public accountant or as authorized by regulatory authorities having
jurisdiction over the Corporation.
Section 2. Inspection of Corporate Records.
The Corporation shall keep correct and complete books and records of account and
shall also keep minutes of all meetings of Shareholders and Directors.
Additionally, a record shall be kept at the principal executive offices of the
Corporation, or such other office as the board of directors may resolve, giving
the names and addresses of all Shareholders, and the number and class or classes
of shares held by each. Any person who is the holder of a voting trust
certificate of at least 5 per cent of the outstanding voting shares of the
Corporation shall have the right to examine and copy, in person or by agent or
attorney, at any reasonable time or times, upon providing seven (7) days written
notice of their intention to do so for any proper purpose, the books and records
of account of the Corporation, the Minutes, and the record of Shareholders. On
the written request of any Shareholder, the Corporation shall mail to such
Shareholder within five days after receipt of such request, a Balance Sheet as
of the close of its latest fiscal year and a Profit and Loss Statement of such
fiscal year. If the Corporation receives such request before such financial
statements are available for its latest fiscal year, the Corporation shall mail
such audited financial statements within 90 days after they become available.
Section 3. Inspection of Articles of Incorporation and Bylaws.
The original or a copy of the Articles of Incorporation and Bylaws of the
Corporation, as amended or otherwise altered to date, and certified by the
Secretary of the Corporation, shall at all times be kept at the principal
Executive Office of the Corporation, Such Articles of Incorporation and Bylaws
shall be open to inspection by all Shareholders of record or holders of voting
trust certificates at all reasonable times during the business hours of the
Corporation.
Section 4. Fiscal Year
The fiscal year of the Corporation shall end on June 30th of each year, or such
other times as approved by the shareholders of the company.
Section 5. Corporate Seal.
The Board of Directors shall adopt an official sea[ for the Corporation, which
shall be circular in form, and be inscribed with the name of the Corporation,
the state of incorporation and the words "Corporate Seal."
Section 6. Construction and Definition.
Unless the context requires otherwise, the general provisions, rules of
construction and definitions contained in the Florida Business Corporate Act
c.607, 1995 RSF as amended shall govern the construction of these Bylaws.
Without limiting the foregoing, the masculine gender includes the feminine and
neuter; the singular number includes the plural, and the plural number includes
the singular; "shall" is mandatory and "may" is permissive; and "person"
includes a corporation as well as a natural person.
Section 7. Definitions,
'F.S.' shall mean "Florida Business Corporation Act" as amended from time to
time.
Approved the 26th Day of August 1997
/s/ Jerry G. Mikolajczyk
- ------------------------
Jerry G. Mikolajczyk
President, American Benefits Group,Inc.
23
EXHIBIT .10.1 A
SHARE PURCHASE AGREEMENT
Between:
Saowani Development S.A.R.L., Saowani Chaqiphan and Dror Moradov
- and -
American Benefits Group, Inc.
WHEREAS Saowani Development s.a.r.l., Saowani Chaqiphan, and Dror
Moradov are parties to a July 15, 1997 Letter of Intent and a July 31, 1997
Assignment Agreement copies of which are attached hereto and marked as
Appendices "A" and "B" respectively to this Agreement:
AND whereas American Benefits Group, Inc. become a party to Appendices "A"
and "B" pursuant to a further Assignment Agreement dated August 26, 1997 a copy
of which is attached hereto and marked as Appendix "C" to this Agreement:
AND whereas the parties hereto wish to reduce their Agreements to written
form the parties hereto covenant and agree that:
1. Miss Saowani Chaqiphan and Mr. Dror Moradov, the sole Shareholders of
Saowani Development s.a.r.l., shall sell to American Benefits Group, Inc.
and American Benefits Group, Inc. shall purchase from Saowani Chaqiphan
and Dror Moradov ninety (90%) percent of the issued stock of Saowani
Development s.a.r.l..
2. In consideration for the transfer of Shares noted in clause 1 herein
American Benefits Group, Inc. shall:
(a) Fund all research and development work on Saowani Development
s.a.r.l.'s mining perimeters as noted in Appendix "A" so long as
American Benefits Group, Inc. or an American Benefits Group, Inc.
controlled Company remains a Shareholder of Saowani Development
s.a.r.l. and,
(b) Provide Mr. Dror Moradov and Miss Saowani Chaqiphan, so long as they
are Shareholders of Saowani Development s.a.r.l., with copies of all
engineering reports commissioned by American Benefits Group, Inc.
pertaining to the Saowani Development s.a.r.l. perimeters noted in
Appendix "A".
3. Saowani Development s.a.r.l. agrees that any and all funds expended by
American Benefits Group, Inc. on the gold perimeters noted in paragraph 5
of Appendix "A" hereto shall be repaid to American Benefits Group, Inc. in
accordance with terms and conditions contained in paragraph 9 (d) of
Appendix "A".
4. No party to this Agreement shall transfer, assign, dispose or otherwise
encumber their shares of Saowani Development s.a.r.l. without first
providing the other parties hereto with a ninety (90) day right of first
refusal to purchase the said Shares provided that the "other parties
hereto" are; at the time the Shares are to be transferred, sold, assigned
or otherwise disposed of, Shareholders of Saowani Development s.a.r.l.. 5.
The parties hereto specifically acknowledge that any and all
representations considerations, conditions, warranties, provisions or
other restrictions contained in any of this Agreement's Appendices have
been met in full. 6. "Net defined profits" as stated in paragraph 9 (d) in
Appendix "A" is defined as follows, namely: (a) Total Revenues from a
perimeter less all expenses associated thereto not including tax. 7. The
parties hereto acknowledge that there are no other Agreements between
themselves and that this Agreement is the sole Agreement governing their
relationship and that none of the parties has made any representation,
warranty, Agreement or otherwise with the others.
WHEREOF the parties hereto agree to the contents and agree to be bound
thereto, this 31st day of January 1998.
/s/ Dror Moradov /s/ Gerald E Sklar
----------------------------- --------------------------------------
DROR MORADOV Witness
/s/ Saowani Chaqiphan /s/ Gerald E Sklar
----------------------------- --------------------------------------
SAOWANI CHAQIPHAN Witness
/s/ Gerald E Sklar
----------------------------- --------------------------------------
AMERICAN BENEFITS GROUP, INC. Witness
26
EXHIBIT 10.1 B
LETTER OF INTENT
THIS LETTER OF INTENT made as of the
15th day of July, 1997
BETWEEN
SAOWANI DEVELOPMENT S.A.R.L., a company duly incorporated pursuant to the laws
of Madagascar and having an office located at Lot MA II, 1 Bis, Maibahoaka,
Ivato, Antananarivo, Madagascar.
(hereinafter referred to as "SAO")
- and -
MISS SAOWANI CHAQIPHAN Lot MA II, 1 Bis,
Maibahoaka, Ivato, Antananarivo, Madagascar.
(hereinafter referred to as "MISS S")
- and -
MR. DROR MORADOV
Lot MA II, 1 Bis, Maibahoaka, Ivato, Antananarivo, Madagascar.
(hereinafter referred to as "MR. D")
- and -
FULCRUM HOLDINGS OF AUSTRALIA INC., a body corporate dully incorporated under
the laws of Delaware, having an office at #300, 900 North Federal Highway Boca
Raton, Florida U.S.A (Hereinafter referred to as "FULCRUM")
WHEREAS:
1. DROR MORADOV AND SAOWANI CHAQIPHAN ARE THE ONE HUNDRED (100%) PERCENT
OWNERS OF THE ISSUED, OUTSTANDING AND VOTING STOCK OF A MADAGASCAR
CORPORATION CALLED SAOWANI DEVELOPMENT S.A.R.L.; AND WHEREAS
2. MR. D AND MISS S WISH TO SELL TO FULCRUM AND FULCRUM WISHES TO PURCHASE,
90% OF MR. D AND MISS S'S RIGHT, TITLE AND INTEREST IN AND TO THE STOCK OF
SAO; AND WHEREAS
3. SAO HAS MINING INTERESTS IN EMERALD, SAPPHIRE AND GOLD PROPERTIES MORE
SPECIFICALLY CALLED: PERIMETERS (21/2KM. X 21/2KM); AND WHEREAS
4. Description of Emerald Perimeters are:
Permit No. Q53-761, northeast of the Toby Steven's Mine
XV YV Substance Commune
-- -- --------- -------
546.250 538.750 Emerald Mananjary
543.750 538.750 Emerald Mananjary
541.250 538.750 Emerald Mananjary
A mica vein of immense value can be put into production immediately to
produce emeralds, alluvial gold from the river and rich hard rock gold.
These perimeters are subject to verification by the Ministry of Mines in
Antananarivo, Madagascar. At this time, there are no gold mining permits,
but applications for some have been made. The aforementioned perimeters
were acquired wherein SAO obtains eighty (80%) percent of production while
twenty (20%) percent remains with the current landowners
5. Description of Gold Perimeters are:
South of the BRGM block Madagascar Primary Sector s.a.r.l.
YV Substance Department Commune
-- --------- ---------- -------
706.25 1428.75 OR Ambilobe
708.75 1428.75 OR Betsiaka
716.25 1433.75 OR Ambilobe
718.75 1433.75 OR Betsiaka
708.75 1431.25 OR Ambilobe
711.25 1431.75 OR Betsiaka
713.75 1431.75 OR Ambilobe
713.75 1433.75 OR Betsiaka
A CANADIAN GEOLOGIST HAS EXAMINED SOME OF THESE PERIMETERS AND SAMPLES
HAVE BEEN TAKEN. THE INDICATION IS THAT THESE PERIMETERS HAVE POTENTIAL
GOLD MINERALIZATION AND SHOULD HAVE FURTHER RESEARCH AND EXPLOITATION WORK
CARRIED OUT (IN MALAGASY MINING TERMS RESEARCH IS EXPLORATION AND
EXPLOITATION IS MINING). AFTER THE MALAGASY INTEREST, SAO HAS A 70% NET
INTEREST IN PERIMETERS.
6. Description of Sapphire Interests are:
AFTER THE MALAGASY INTEREST, SAO HAS A 75% NET INTEREST AGREEMENT ON TWO
PERIMETERS IN THE SOUTH.
NOW THEREFORE PURSUANT TO THE TERMS AND CONDITIONS HEREINAFTER STATED.
7. ALL INFORMATION REQUIRED BY EITHER PARTY IS BE VALIDATED BY OCTOBER 31,
1997, OR SUCH LATER DATE AS POSSIBLE, BUT IN ANY EVENT OR BEFORE JANUARY
1, 1998 AFTER WHICH, IF ACCEPTABLE TO FULCRUM, MR. D, MISS. S, IT IS THE
PARTIES' INTENT TO ENTER INTO A DEFINITIVE PURCHASE AND SALE AGREEMENT
WHEREIN FULCRUM WOULD PURCHASE NINETY (90%) PERCENT OF THE ISSUED,
OUTSTANDING AND VOTING SHARES OF SAO.
8. THIS CONTRACT IS ASSIGNABLE BY FULCRUM EITHER PRIOR TO OR SUBSEQUENT TO
THIS LETTER OF INTENT BEING REDUCED TO A SHARE PURCHASE AGREEMENT UPON
SUCH TERMS AND CONDITIONS AS ARE REQUIRED TO GIVE FULL FORCE AND EFFECT TO
THE INTENT OF THE PARTIES THE CONSENT OF SAO, MR. D., AND MISS S. NOT
BEING REQUIRED THERETO.
9. THE TERMS OF THE DEFINITIVE PURCHASE AND SALE AGREEMENT BETWEEN THE
PARTIES WOULD INCLUDE, BUT WOULD NOT LIMITED TO, THE FOLLOWING:
A) FULCRUM WOULD SPEND ONE HUNDRED (100%) PER CENT OF ALL MONIES
NECESSARY TO CARRY OUT THE RESEARCH AND DEVELOPMENT WORK ON THE
PROPERTIES INCLUDED BUT NOT LIMITED TO ALL NECESSARY EQUIPMENT SUCH
AS BULLDOZERS, BACK HOES, WASHING PLANTS ETC.;
B) FULCRUM, SHALL, ON A TIMELY BASIS, SUPPLY MR. D AND MISS S WITH
COPIES OF ALL ENGINEERING REPORTS GENERATED FROM THE PROPERTY;
C) AN APPROPRIATE FINDER'S FEE SHALL BE PAYABLE BY FULCRUM TO A
DESIGNATED 3RD PARTY IN ACCORDANCE WITH THE POLICIES OF THE NATIONAL
ASSOCIATION OF SECURITIES DEALERS;
D) ON THE GOLD PERIMETERS NOTED IN ARTICLE 4, FULCRUM WILL RECEIVE
NINETY (90%) PERCENT OF ALL DEFINED PROFITS EARNED BY THE
EXPLOITATION AND SALE OF ALL MINERALS AND ANY OTHER INCOMES DERIVED
OF THE AFOREMENTIONED PERIMETERS UNTIL FULCRUM HAS EARNED ONE
HUNDRED (100%) PERCENT OF ITS EXPENDITURES PLUS INTEREST AT THE RATE
OF LIBR + FIVE (5%) PERCENT AND THEREAFTER WOULD RECEIVE EACH IT'S
RESPECTIVE PERCENTAGE PURSUANT TO THE SAO UNDERLYING AGREEMENT;
E) FULCRUM SHALL, UPON EXECUTION OF THE DEFINITIVE PURCHASE AND SALE
AGREEMENT, ARRANGE FOR MR. D TO EARN ONE MILLION FIVE HUNDRED
THOUSAND COMMON VOTING SHARES OF A DEEMED PUBLIC COMPANY, WHICH WILL
BE SUBJECT TO THE PRICING OF US$0.10 AND WILL ARRANGE FOR A RELEASE
OF THE COMMON VOTING SHARES IN ACCORDANCE WITH THE RULES PRESCRIBED
BY THE SECURITIES EXCHANGE COMMISSION.
i) The parties hereto are aware of which deemed publicly traded
"Company" is referred to herein and Mr. D's acceptance of the
shares is deemed satisfaction of payment of the consideration
herein.
10. THE DEFINITIVE PURCHASE AND SALE AGREEMENT SHALL CONTAIN SUCH
REPRESENTATIONS AND WARRANTIES ON BEHALF OF MR. D, MISS. S AND SAO AS
SHALL BE USUAL AND CUSTOMARY FOR THE TYPE OF TRANSACTION CONTEMPLATED
HEREIN AND SHALL INCLUDE REPRESENTATIONS AND WARRANTIES AS TO:
A) LEGAL OPINION AS TO TITLE OF THE PERIMETERS;
B) THE ABSENCE OF ANY ADVERSE INTEREST OR LITIGATION PENDING OR
THREATENED RESPECTING MR. D, MISS S. OR SAO.
C) SUBSTANTIAL COMPLIANCE BY ALL PARTIES CONCERNED WITH ALL APPLICABLE
LAWS AND REGULATIONS;
D) THE ABSENCE OF DEFAULT BY MR. D, MISS S. OR SAO UNDER ANY AND ALL
CONTRACTS, LEASES AND AGREEMENTS TO WHICH IT IS A PARTY; AND
e) Such further representations and warranties as may be required
or necessary.
11. UNDER THE DEFINITIVE PURCHASE AND SALE AGREEMENT, FULCRUM WOULD BE SUBJECT
TO THE FOLLOWING CONDITIONS TO BE FULFILLED OR PERFORMED BY THE TIME
INDICATED UNLESS ANY SUCH CONDITION IS WAIVED IN WRITING BY ALL PARTIES
CONCERNED:
A) PREFERABLY ON OR BEFORE OCTOBER 31, 1997 AND IN ANY EVENT NO LATER
THAN JANUARY 31, 1998 OR SUCH OTHER DATE AS MAYBE MUTUALLY AGREED BY
THE PARTIES, FULCRUM SHALL PRODUCE AN INDEPENDENT ENGINEERING REPORT
WITH RESPECT TO THE PERIMETERS IN A FORM SATISFACTORY TO ALL PARTIES
CONCERNED;
12. PRIOR TO CLOSING, ALL PRIVATE, GOVERNMENTAL OR REGULATORY CONSENTS OR
APPROVALS NECESSARY OR DESIRABLE FOR THE COMPLETION OF THE TRANSACTION
HEREIN CONTEMPLATED SHALL HAVE BEEN OBTAINED, INCLUDING BUT WITHOUT
RESTRICTING THE GENERALITY OF THE FOREGONE APPROVALS FROM THE PERIMETERS
MINORITY INTEREST HOLDERS TO THE TRANSACTION, THE INTEREST OF SAO AND A
MUTUALLY AGREEABLE FORM OF PAYMENT FROM SAO TO THE MINORITY INTEREST
HOLDERS OF PRODUCTION OR PRODUCTION VALUE.
13. THE MATTERS SET FORTH IN THE LETTER OF INTENT CONSTITUTE AN EXPRESSION OF
THE PARTIES MUTUAL INTENT ONLY, AND ARE ENTIRELY CONTINGENT UPON THE
NEGOTIATION, EXECUTION AND DELIVERY OF A DEFINITIVE PURCHASE AND SALE
AGREEMENT (THE "DEFINITIVE PURCHASE AND SALE AGREEMENT") BETWEEN MR. D &
MISS S AND FULCRUM CONTAINING TERMS, CONDITIONS AND PROVISIONS IN A FORM
AND SUBSTANCE SATISFACTORY TO ALL PARTIES AND THEIR RESPECTIVE LEGAL
COUNSEL INCLUDING BUT NOT LIMITED TO THE TERMS OF THIS LETTER OF INTENT.
14. SUBJECT TO THE TERMS AND CONDITIONS HEREOF, ALL COMMON SHARES ISSUED
HEREUNDER SHALL BE ISSUED FREE TRADING, SUBJECT TO APPLICABLE HOLD PERIODS
AND ANY ESCROW REQUIREMENTS AS MAY BE IMPOSED BY APPLICABLE SECURITIES
LEGISLATION AND ANY OTHER REGULATORY AUTHORITIES HAVING JURISDICTION THERE
OVER.
15. FULCRUM WILL:
A) Forthwith, retain an independent engineer to conduct an engineering
report of the perimeters; and
b) FULCRUM will pay for all expenses legal and otherwise respecting
this transaction.
16. EACH OF THE PARTIES HERETO WILL USE THEIR BEST COMMERCIAL EFFORTS TO
EXECUTE THE DEFINITIVE PURCHASE AND SALE AGREEMENT BY OCTOBER 31, 1997 AND
IN ANY EVENT NO LATER THAN JANUARY 31, 1998 OR SUCH OTHER DATE AS MUTUALLY
AGREEABLE BY THE PARTIES.
17. EACH PARTY TO THE DEFINITIVE PURCHASE AND SALE AGREEMENT SHALL HAVE
RECEIVED FAVOURABLE OPINIONS AS TO SUCH LEGAL MATTERS IN CONNECTION WITH
THE TRANSACTIONS CONTEMPLATED HEREIN AS MAY BE REASONABLY DEEMED
APPROPRIATE.
18. FROM THE DATE HEREOF TO CLOSING, MR. D, MISS S. AND SAO WILL GRANT TO
FULCRUM AND ITS REPRESENTATIVES AND AGENTS, ACCESS TO THE BOOKS AND
RECORDS OF MR. D, MISS S AND SAO AS MAY BE REASONABLY BE REQUIRED FOR THE
PURPOSE OF EXAMINING SAME IN CONNECTION WITH COMPLETING THE TRANSACTIONS
CONTEMPLATED HEREIN.
19. THIS TRANSACTION MUST BE APPROVED BY FULCRUM'S, OR FULCRUM'S ASSIGNEE, AND
THE DEEMED PUBLIC COMPANY REFERRED TO IN PARAGRAPH 9 HEREIN, DIRECTORS AND
SHAREHOLDERS.
20. TIME IS OF THE ESSENCE.
21. IF THE FOREGOING ACCURATELY SETS FORTH YOUR UNDERSTANDING OF OUR INTENT,
PLEASE INDICATE YOUR GOOD FAITH INTENTION TO ENTER INTO NEGOTIATIONS TO
CARRY OUT THE TRANSACTIONS DESCRIBED HEREIN BY EXECUTING THE ENCLOSED COPY
OF THIS LETTER OF INTENT AND RETURNING IT TO US, WHEREUPON ALL PARTIES
SHALL PROCEED PROMPTLY WITH THE PREPARATION OF A DRAFT THE DEFINITIVE
PURCHASE AND SALE AGREEMENT.
22. THIS LETTER OF INTENT WILL REMAIN CONFIDENTIAL BETWEEN THE PARTIES HERETO
AND NO PARTY SHALL RELEASE ANY INFORMATION RESPECTING SAME TO ANY PARTY
WITHOUT THE EXPRESS WRITTEN CONSENT OF AL PARTIES.
23. ALL COPIES OF THIS LETTER OF INTENT MAY BE EXECUTED AND SENT BY ELECTRONIC
TRANSMISSION, BUT ORIGINALLY EXECUTED DOCUMENTS MUST BE DELIVERED WITHIN A
REASONABLE TIME TO ALL PARTIES CONCERNED
MR. DROR MORADOV
Per:
/s/ Dror Moradov /s/ [ILLEGIBLE]
- ---------------------------------- --------------------------------------
Authorized Signatory Witness
MISS SAOWANI CHAQIPHAN
Per:
/s/ Saowani Chaqiphan /s/ [ILLEGIBLE]
- ---------------------------------- --------------------------------------
Authorized Signatory Witness
FULCRUM HOLDINGS OF AUSTRALIA INC.
Per:
/s/ Gerald E. Sklar /s/ Maureen Gartry
- ---------------------------------- --------------------------------------
Authorized Signatory Witness
SAOWANI DEVELOPMENTS S.A.R.L.
Per:
/s/ Saowani Chaqiphan /s/ [ILLEGIBLE]
- ---------------------------------- --------------------------------------
Authorized Signatory Witness
35
EXHIBIT 10.1 C
THIS ASSIGNMENT AGREEMENT MADE THIS
31st DAY OF JULY 1997
BETWEEN: MISS SAOWANI CHAQIPHAN, having an office at 23 Rue Ramelina,
Immeuble Faubourg St. Honore, Antananarivo 101, Madagascar.
("MISS S")
- and -
MR. DROR MORADOV, having an office at 23 Rue Ramelina, Immeuble
Faubourg St. Honore, Antananarivo 101, Madagascar.
("MR. D")
- and -
SAOWANI DEVELOPMENT S.A.R.L., a body corporate pursuant to the laws
of Madagascar having an office at 23 Rue Ramelina, Immeuble Faubourg St.
Honore, Antananarivo 101, Madagascar.
("SAO")
- and -
FULCRUM HOLDINGS OF AUSTRALIA INC., a body corporate incorporated
under the laws of Florida, having an office at 1 South Ocean Blvd. Suite
301 Boca Raton Florida 33432.
("FULCRUM")
WITNESSES THAT WHEREAS:
A. MISS S and MR. D. own 100% of the issued, outstanding, and voting shares
of a Madagascar corporation called SAO;
B. AND WHEREAS SAO, MISS S and MR. D are parties to a July 15, 1997 Letter of
Intent with FULCRUM wherein MISS S and MR. D desire to sell to FULCRUM and
FULCRUM wishes to purchase 90% of MISS S's and MR. D's right, title, and
interest in and to the common stock of SAO;
C. AND WHEREAS the said Letter of Intent provides that FULCRUM may assign its
interest in the said Letter of Intent to a third party and all parties
hereto are aware that said Assignment has already been negotiated with a
"deemed publicly traded Company".
NOW THEREFORE, in consideration of the promises and covenants hereinafter
contained the parties hereto agree as follows:
1. For and in consideration of the payments noted in paragraph 2 herein MISS
S, MR. D and SAO hereby consent to FULCRUMS assignment of its entire right
and interest in the August 25, 1997 Letter of Intent to a "deemed publicly
traded company".
2. The consideration to be paid by FULCRUM for the parties consent is as
follows; namely:
(a) Transfer of One Million, Five Hundred Thousand of the issued
outstanding and voting shares of a "deemed publicly company" to MR.
DROR MORADOV pursuant to the applicable security regulations in
place which will be subject to the pricing of US$0.10 per share and
will arrange for a release of the common voting shares in accordance
with the rules prescribed by the Securities Exchange Commission;
(being the consideration noted in clause 9 (e) of the said Letter of
Intent).
(i) The said transfer of shares to be effected within a reasonable
time following the issuance of said shares to FULCRUM in
accordance with a further Assignment Agreement between FULCRUM
and the "deemed publicly traded company" the identity of which
is known to all parties hereto as evidenced by their
initialing of the further said Assignment Agreement.
(b) Payment of US One Hundred (US$ 100.00) Dollars to SAO the receipt
and sufficiency of which is hereby acknowledged by SAO; and,
(b) Payment of US One Hundred (US$100.00) to MISS S the receipt and
sufficiency of which is hereby acknowledged by MISS S.
3. Not to restrict the generality of the foregone, FULCRUM hereby assigned to
a "deemed publicly traded company" full responsibility for the
implementation of the Letter of Intent and further all obligations, rights
and responsibilities arising therefrom or accruing thereto.
These present and covenants are hereby agreed on the date herein before
noted.
/s/ Saowani Chaqiphan /s/ [ILLEGIBLE]
------------------------------------ ---------------------------------
MISS SAOWANI CHAQIPHAN Witness
/s/ Dror Moradov /s/ [ILLEGIBLE]
------------------------------------ ---------------------------------
. DROR MORADOV Witness
/s/ Saowani Chaqiphan /s/ [ILLEGIBLE]
------------------------------------ ---------------------------------
SAOWANI DEVELOPMENT S.A.R.L. Witness
/s/ Greral E Sklar /s/ Anthony E Sklar
------------------------------------ ---------------------------------
FULCRUM HOLDINGS OF AUSTRALIA INC. Witness
38
EXHIBIT 10.1. D
THIS ASSIGNMENT AGREEMENT MADE THIS 26TH DAY OF AUGUST 1997
Between:
AMERICAN BENEFITS GROUP, INC., a body corporate duly incorporated under the laws
of Florida, having an office at 501 Fairway Drive, Deerfield Beach, Florida
33441
(ABFG)
And
FULCRUM HOLDINGS OF AUSTRALIA INC., a body corporate incorporated under the laws
of Florida, having an office at 1 South Ocean Blvd., Suite 301, Boca Raton,
Florida, 33432.
("FULCRUM")
WITNESSES THAT WHEREAS:
FULCRUM is a Party to an Agreement and Assignment of Agreement copies of which
are attached hereto.
And whereas FULCRUM wishes to Assign its interest in said Agreements to AMERICAN
BENEFITS GROUP, INC. and AMERICAN BENEFITS GROUP, INC. wishes to acquire said
interest.
And whereas "deemed publicly traded Company" referred to in the attached
Agreements is AMERICAN BENEFITS GROUP, INC.
And whereas FULCRUM was acting as AMERICAN BENEFITS GROUP, INC. agent in
negotiating the attached Agreements and AMERICAN BENEFITS GROUP, INC. requires
no further diligence by FULCRUM or AMERICAN BENEFITS GROUP, INC. to give full
effect to this Agreement.
NOW THEREFORE:
1. FULCRUM assigns its interest in the said contracts to AMERICAN BENEFITS
GROUP, INC. in consideration for AMERICAN BENEFITS GROUP, INC.
transferring Three Million (3,000,000) common voting shares of AMERICAN
BENEFITS GROUP, INC. to FULCRUM subject to pricing of US Ten ($0.10) Cents
per share and will arrange for a release of the common voting shares in
accordance with the rules prescribed by the Securities Exchange
Commission.
2. The One Million Five Hundred Thousand (1,500,000) shares noted in
paragraph 2(a) of the Assignment Agreement attached hereto is payment of
one-half of the said Three Million (3,000,000) shares.
/s/ Jerry G. Mikolajczyk /s/ Peter Jones
- ----------------------------------- -----------------------------
AMERICAN BENEFITS GROUP INC. Witness
/s/ Gerald E Sklar /s/ Peter Jones
- ----------------------------------- -----------------------------
FULCRUM HOLDINGS OF AUSTRALIA Witness
MISS SAOWANI CHAQIPHAN /s/ Saowani Chaqiphan
-----------------------------
Initial
MR. DROR MORADOV /s/ Dror Moradov
-----------------------------
Initial
SAOWANI DEVELOPMENT S.A.R.L. /s/ Saowani Chaqiphan
-----------------------------
Initial
40
EXHIBIT 10.2 A
Fulcrum Holdings of Australia Inc.
#410, 734 7th Avenue S.W.
Calgary, Alberta T2P 3P8
Tel: (403) 777-1800 Fax: (403) 777-1815
- --------------------------------------------------------------------------------
June 19, 1998
AMERICAN BENEFITS GROUP, INC.
10, Fairway Drive, Suite 307
Deerfield Beach, Florida 33441
Dear Sirs:
Further to our recent conversations Fulcrum Holdings of Australia Inc., hereby
grants to AMERICAN BENEFITS GROUP, INC. an option for American Benefits Group,
Inc. to purchase Fulcrums interest in the World Gems Corporation contracts
copies of which are attached hereto.
AMERICAN BENEFITS GROUP, INC. will have six months from the date hereof to
exercise this option.
The consideration paid by AMERICAN BENEFITS GROUP, INC. for the option is US$
One hundred (US$100.00) Dollars the receipt of which is hereby acknowledged.
To exercise the option Fulcrum Holdings of Australia Inc. accepts your offer of:
(a) Issuance of AMERICAN BENEFITS GROUP, INC. common shares, subject to
regulatory approval, in the amount of 1,000,000 shares at a price of US
Ten One Hundredths of a (US$0.001)Cent per share
(b) Payment to Fulcrum Holdings of Australia of US$100,000.00 due to be paid
prior to July 13, 2000 and secured by way of a promise note in our favor.
If the figure is acceptable to you please endorse your acknowledgment and
acceptance where noted below.
Yours truly,
FULCRUM HOLDINGS OF AUSTRALIA INC.
/s/ Gerald E Sklar
- ---------------------------------
GERALD E. SKLAR
Acknowledged and Accepted
This 19 day of June 1998.
/s/ Jerry G. Mikolajczyk
- ---------------------------------
President
42
EXHIBIT 10.2 B
THIS ASSIGNMENT AGREEMENT MADE THIS 26th DAY OF AUGUST 1997
AMONG:
WORLD GEMS CORPORATION, having an office at at 7 bis, Lalana Lt
Randriamarcmanana A. Tsiazotafo 101 Antananarivo, Madagascar. Tel:
(002612) 642-55 Fax: (002612) 644-65
("WGC")
AND:
SYLVIA C. RANAIVOJAONA, having an office at 7 bis, Lalana Lt
Randriamarcmanana A. Tsiazotafo 101 Antananarivo, Madagascar. Tel:
(002612) 642-55 Fax: (002612) 644-65
("RANAIVOJAONA")
AND:
Fulcrum Holdings of Australia Inc., a body
corporate dully incorporated under the laws of
Delaware, having an office at #300, 900 North
Federal Highway Boca Raton, Florida U.S.A
Tel: (954) 480-9100
Fax: (954) 570-8999
("Fulcrum")
WITNESSES THAT WHEREAS:
A. "Ranaivojaona" herein is the rightful owner of eighty percent (80%) of the
common shares of "WGC".
B. "Fulcrum" herein wishes to purchase and acquire the ownership of seventy
percent (70%) of "WGC".
C. "Fulcrum" herein has the financial capability to finance "WGC".
NOW THEREFORE, in consideration of the premises and the mutual covenants and
agreements hereafter contained, the parties hereto agree as follows:
1. In consideration of the sum of $1,400,000 (FMG) and other good and
valuable consideration, the receipt hereby acknowledged by Ranaivojaona.
2. WGC agrees that upon presentation to it of the certificates of the WGC
shares together with all transfer documents require pursuant to the
constitution of WGC shares to affect registration of the WGC shares in the
name of Fulcrum it will cause the WGC shares to be registered, or the
ownership thereof of Fulcrum to be appropriately recorded in the books and
records of WGC.
3. WGC hereby agrees to appoint representatives of Fulcrum to its Board of
Directors, namely Mr. Gerald E. Sklar and Mr. Dror Moradov.
4. WGC shall provide valid legal documentation to Fulcrum proving WGC `s
registered perimeters in the People's Republic of Madagascar.
5. Fulcrum hereby agrees to purchase within sixty days of this agreement
$500,000.00 (US) of mining equipment on behalf of WGC, providing WGC
provides documentation as referred to in paragraphs two(2) and four (4).
6. Fulcrum will assume the responsibility of contracting the services of an
independent geological mining engineer to assess and assign a work program
that will bring WGC properties into production.
7. Fulcrum hereby agrees to forward additional funds as recommended by its
independent geological mining engineer. These funds will be forwarded as a
shareholder's loan to WGC from Fulcrum under the terms and conditions of
Fulcrum's constitution.
8. Fulcrum hereby has the right to assign Fulcrum's rights of this agreement
to a third party which will not be unreasonably withheld by WGC.
MISCELLANEOUS
A. All terms and conditions of this agreement shall run with and be binding
upon the transfer of shares during the term hereof and ensure to the
benefit of and be binding upon the parties hereto and their respective
successors and assigns.
B. Time is of the essence of this agreement.
C. This agreement may be executed in separate counterparts and all executed
counterparts together shall constitute one agreement.
D. This agreement shall be construed in accordance with the laws of the State
of Delaware.
E. Whenever this singular or masculine or neuter is used in this agreement
the same shall be construed as meaning the plural or body politic or
corporate and vice versa where the context so required.
F. This agreement, the benefits and obligations of the parties with respect
to shall ensure to the benefit of and be binding upon the heirs,
executors, administrators, successors, and permitted assigns.
G. Any of the parties hereto may, from time to time, change its address for
service herein by giving written notice to the other parties hereto. Any
notices may be served by mailing the same by registered post, postage
prepaid, in a properly addressed envelope, addressed to the party to whom
the notice is to be given, at such party's address for service hereunder
and shall be deemed to have been received on the fifth business day
following the mailing thereof.
IN WITNESS WHEREOF the parties hereto have executed the Agreement effective as
of the day and year first above written.
WORLD GEMS CORPORATION
By:
/s/ SYLVIA C. RANAIVOJAONA /s/ [ILLEGIBLE]
- ------------------------------------ -----------------------------------
Authorized Signatory Witness
SYLVIA C. RANAIVOJAONA
/s/ SYLVIA C. RANAIVOJAONA /s/ [ILLEGIBLE]
- ------------------------------------ -----------------------------------
SYLVIA C. RANAIVOJAONA Witness
Fulcrum Holdings of Australia Inc.
/s/ Gerald E. Sklar /s/ Dror Moradov
- ------------------------------------ -----------------------------------
Authorized Sigantory Witness
46
EXHIBIT 10.3
AGREEMENT
Between:
Gerald E. Sklar
And
American Benefits Group, Inc.
WHEREAS Gerald E. Sklar (hereinafter called "Sklar") is the sole shareholder,
Director and Officer of Trump Oil, Corp. (hereinafter called "Trump");
AND WHEREAS Sklar is a Director and Vice-President of American Benefits Group,
Inc. (hereinafter called "ABFG");
AND WHEREAS Sklar represents to ABFG that Trump is a validly incorporated
Company pursuant to the laws of the Province of Alberta and that it's only
indebtedness is to Sklar in the amount of US $204,584.00, and that American
Benefits Group, Inc. has an indebtedness to Trump for US$204,584.00;
AND WHEREAS Sklar further represents to ABFG that his shares of Trump are
legally transferable to ABFG and that upon ABFG's payment to Sklar of the
consideration noted hereafter the shares will be transferred to ABFG free and
clear of any and all encumbrances whatsoever;
AND WHEREAS ABFG is desirous of purchasing all of the issued and outstanding
shares of Trump upon the terms and conditions hereinafter recited and that ABFG
will assume the indebtedness of Trump to Sklar in the amount of US$204,584.00 in
lieu of Trump forgiving the indebtedness of ABFG in the amount of US$204,584.00.
AND WHEREAS Sklar is desirous of transferring all of the issued an outstanding
shares of Trump to ABFG upon the terms and conditions hereinafter recited.
WITNESSTH THAT:
1. The Preamble of this Agreement is integral to this Agreement, forms part
of the Agreement and that any and all Representations made by either party
in the Preamble are binding in all respects upon the party making such
Representations.
2. ABFG shall pay to Sklar the amount of US One Hundred ($100.00) Dollars in
consideration for which Sklar shall transfer all of the issued and
outstanding shares of Trump to ABFG free and clear of any and all
encumbrances whatsoever.
3. From the date hereof through to and including the date on which ABFG
advises Sklar that ABFG stands in the Registrar of Trump as the sole
shareholder thereof Sklar agrees that Trump shall carry out no business
activities of any kind or nature whatsoever and shall not incur any
liability of any description.
4. Upon Sklars' receipt of the consideration noted in paragraph 2 herein
Sklar shall immediately and without fail cause the records of Trump to
reflect the transfer of Sklar's shares to Trump.
5. This Agreement shall take effect on January 1, 1998.
WHEREFIRE THE PARTIES HERETO HAVE EXECUTED THESE PRESENTS AND AGREE TO BE BOUND
BY THE TERMS HEREOF THIS 28th DAY OF DECEMBER, 19997,
/s/ Gerald E Sklar /s/ Titus D`Souza
- ------------------------- --------------------------
Gerald E. Sklar Witness
/s/ Jerry G Mikolajczyk
- -----------------------------
American Benefits Group, Inc.
48
EXHIBIT 10.4
AGREEMENT
BETWEEN:
AMERICAN BENEFITS GROUP, INC. and AMERICAN BENEFITS GROUP (ISRAEL) LTD.
(hereinafter referred to collectively as "ABFG")
and
CARLYLE CONSULTING CORPROATION LTD. (hereinafter referred to as "Carlyle")
WHEREAS ABFG and Carlyle are desirous of Carlyle transferring all of it's
interests in the Malagasy Precious Stone Mining Industry to ABFG upon the terms
and conditions hereinafter recited;
AND WHEREAS Carlyle's interest in the Malagasy Stone Mining Industry referred to
in the immediately preceding paragraph shall include, but not be restricted to,
all of the issued and outstanding Shares of Stones and Wood Corporation s.a.r.l
(hereinafter referred to as "Stones") and various Type I Mining Perimeters;
Carlyle's interest in the Perimeters having been obtained by Carlyle from former
shareholders of Stones.
WITNESSTH THAT:
1. The preamble to this Agreement is an integral part hereof and binding on
all parties hereto.
2. The Perimeters referenced in the preamble hereof are as listed in Appendix
A attached hereto and forming part of this Agreement.
3. Carlyle hereby Declares and Warrants to ABFG as follows:
a) Carlyle is now, or is entitled to become without any further action
on the part of Carlyle, the legal owner of all the issued and
outstanding Shares of Stones;
b) Carlyle is now, or is entitled to become without any further action
on the part of Carlyle, the beneficial owner of the Type I
Perimeters noted in Schedule A attached hereto and forming part of
this Agreement;
c) Carlyle further Declares and Warrants that:
i) The parties with whom Carlyle had contractual relations
respecting the purchase of either the said Shares or the
Perimeters are aware of this Agreement and have agreed to ABFG
acquiring the Shares and Perimeters from Carlyle;
ii) The said Shares and Perimeters will be acquired by ABFG from
Carlyle free and clear of any liens, encumbrances, mortgages
or charge whatsoever;
iii) Both Carlyle and the parties from whom Carlyle acquired the
Shares and the Perimeters have and had the legal right to do
so;
iv) In the event that Carlyle is not the legal owner of the Shares
or the Beneficial Owner of the Perimeters then it will
cooperate with ABFG in all respects in a timely fashion in
order for the legal entitlement of ABFG to the Shares or
Perimeters be concluded in a timely fashion.
4. In consideration for Carlyle transferring all of the issued and
outstanding Shares of Stones to ABFG and for Carlyle transferring its
Beneficial Interest in the Type I Perimeters noted in Attachment "A"
attached hereto ABFG shall pay to Carlyle Four Million (4,000,000.00)
Dollars in the following, manner:
i) Five Hundred Thousand ($500,000.00) Dollars by way of retirement of
American Benefits Group, Inc.'s previous loan to Carlyle in said
amount; and
ii) Issuance of Four Million Nine Hundred Ninety Seven Thousand
(4,997,000) American Benefits Group, Inc. Restricted Rule 144 Shares
valued at US Seventy and Four One Hundredths ($.7004) Cents per
share being a total share consideration of Three Million Five
Hundred Thousand ($3,500,000.00) Dollars. Of this issuance Four
Hundred Ninety Seven Thousand (497,000) American Benefits Group,
Inc. Restricted Rule 144 Shares issued to Marc Susannah to maintain
the type one perimeters in the nominee names as described in
attachment "C" and Four Million Five Hundred Thousand American
Benefits Group, Inc, Restricted Rule 144 Shares issued to Carlyle
which forms part of the total purchase price of all the issued and
outstanding shares of Stones and as well as the beneficial type One
perimeters for a total purchase price of Four Million (4,000,000.00)
Dollars.
5. The parties further agree that American Benefits Group, Inc. may designate
the entity to which the shares and or the Perimeters shall be transferred.
6. Subject to the mandatory disclosure duties imposed upon ABFG, as a
publicly traded Company, the parties agree that this Agreement and the
terms hereof shall remain confidential between the parties.
7. The parties finally agree that:
i) This Agreement shall be governed by the substantive law of Israel;
ii) Any and all disagreements or disputes arising between the parties
hereto respecting this Agreement shall be adjudicated by the
District Court of Tel Aviv, Israel;
iii) Service of any documents required respecting this Agreement or any
litigation arising here from shall be served upon ABFG at Yahalom
Tower (25 Floor) 3a Jabotinsky St. Ramat Gan Israel 52520 and upon
Carlyle at an address to be supplied ABFG in writing at the address
noted herein.
iv) All references to Dollars herein shall refer to American Dollars.
IN WITNESS OF THE ABOVE THE PARTIES HEREBY EXECUTE THIS AGREEMENT UNDER THEIR
RESPECTIVE SEALS THIS 11 DAY OF __May__, 1999.
/s/ Jerry G Mikolajczyk
- ----------------------------------------
American Benefits Group, Inc.
/s/ Gerald E Sklar
- ----------------------------------------
American Benefits Group (Israel) Ltd.
/s/Richard Doggett
- ----------------------------------------
Carlyle Consulting Corporation Ltd.
<PAGE>
List of mining permits - Attachment "A"
Type I
X coordinate Y coordinate
- ------------ ------------
698.750 1.458.750
698.750 1.456.250
696.250 1.471.250
698.750 1.471.250
691.250 1.468.750
688.750 1.466.250
696.250 1.453.750
696.250 1.456.250
693.750 1.453.750
693.750 1.451.250
696.250 1.448.750
708.750 1.471.250
716.250 1.466.250
708.750 1.468.750
716.250 1.468.750
708.750 1.466.250
716.250 1.471.250
708.750 1.463.750
<PAGE>
Letter of Consent-Attachment "b"
Drawn up and signed on the 10 day of May, 1999
We the undersigned:
Mr. Marc Suzannah C.I.N., #210011003254
Mr. Christophe Suzannah C.I.N. #213011008929
Mr. Francis Suzannah C.I.N.#209011024630
Mr. Yehael Razafiarison C.I.N. # 710011016920
Ms. Eva Vanessa Zafimahova C.I.N. #
Mr. Jean Claude Bemananjara C.I.N. #
(hereinafter, together, "Marc")
Stones and Wood Corporation S.a.r.l.
(hereinafter the Company)
hereby irrevocably declare our consent to the assignment of our obligations
according to the agreement signed on 10 of May 1999 between ourselves and
Carlyle Consulting Corporation Ltd. for the Sale of all the Company's issued and
outstanding shares and the type I permits set out in Attachment A to the said
agreements (hereinafter: the Agreement), to American Benefits Group (Israel)
Ltd., a company incorporated under the laws of the State of Israel. In addition,
we are hereby to confirm that to the best of Marc's knowledge, Carlyle is, to
date, in full compliance with their obligations and undertakings under the
Agreement. As witness thereof we hereby affix our signatures:
/s/ Marc Suzannah Mr. Marc Suzannah C.I.N. #210011003254
/s/ Marc Suzannah Mr. Marc Suzannah
/s/ Marc Suzannah Mr. Christophe SuzannahC.I.N.#213011008929
/s/ Marc Suzannah Mr. Francis Suzannah C.I.N. #209011024630
/s/ Marc Suzannah Mr. Yehael Razafiarison C.I.N. #710011016920
/s/ Marc Suzannah Ms. Eva Vanessa Zafimahova C.I.N. #
/s/ Marc Suzannah Mr. Jean Claude Bemananjara C.I.N. #
/s/ Marc Suzannah Stones and wood Corporation S.a.r.l.
54
<PAGE>
Irrevocable Undertaking Attachment "C"
Drawn up and signed on the 10 day of the month of May in the year 1999 We
the Undersigned:
Mr. Marc Suzannah C.I.N. #210011003254
Mr. Christophe Suzannah C.I.N. #213011008929
Mr. Francis Suzannah C.I.N. #209011024630
Mr. Yehael Razafiarison C.I.N. #710011016920
Ms. Eva Vanessa Zafimahova C.I.N. #
Mr. Jean Claude Bemananjara C.I.N. #
(hereinafter, together, "Marc")
hereby declare that we are registered holders of valid type I permits for the
mining of corundum in Madagascar as follows:
X coordinate Y coordinate
- ------------ ------------
698.750 1.458.750
698.750 1.456.250
696.250 1.471.250
698.750 1.471.250
691.250 1.468.750
688.750 1.466.250
696.250 1.453.750
696.250 1.456.250
693.750 1.453.750
693.750 1.451.250
696.250 1.448.750
708.750 1.471.250
716.250 1.466.250
708.750 1.468.750
716.250 1.468.750
708.250 1.466.250
716.250 1.471.250
708.750 1.463.750
hereinafter "the Permits", and we hereby give the following irrevocable
undertaking as follows:
1. We will act in all and every matter regarding the permits or any of them
as sole agents for Carlyle Consulting Company Ltd. (hereinafter, together,
"CC" ) or any other party which CC Instructs us to act for.
2. We will not perform any act or transaction, for consideration or without
consideration regarding the permits and/or any benefits, proceeds,
consideration, moneys or any financial or other benefit derived from
and/or associated with the permits and the territories to which the
permits refer except in accordance with specific instructions received by
CC and in the absence of any such instructions shall take no actions of
any kind in regard of the permits. Without detracting from the
aforementioned, we shall at all times act in the best interests of CC.
3. In order to remove any doubt, we shall not be entitled to any personal
benefit, revenues, income and/or consideration from the permits of any
kind and any such incomes and revenues which are received by us will be
disbursed by us in accordance with CC's instructions and in the absence of
such instructions will be held by us in trust until such times as
instructions are received.
4. We shall not transfer the permits and/or any of them or pledge the permits
and/or perform any actions regarding the permits which would in any way
effect their value or feasibility, unless so instructed by CC. Without
detracting from the aforementioned undertaking, we shall not make any
representations or undertake any undertakings to any third parties
regarding the permits.
5. We shall take all actions necessary to ensure the continued validity at
all times of the permits.
6. We shall receive no consideration for our services as agents and shall
continue to offer these services for an unlimited period of time and the
undertakings in this letter of undertaking shall also bind our successors
and heirs.
7. We hereby declare that we have already received full and complete
consideration for all the undertakings made in this letter of
understanding and no more consideration of any kind is due to us for these
undertakings and/or any of them.
8. We hereby give an irrevocable power of attorney to Zakazo Ranaivoson, on
behalf of CC, to act in our names and sign any documents and take any
action necessary in order to effect the transfer of the permits and/or any
of them to the names nominees on behalf of Cc and will have no claims or
demands whatsoever in this regard.
9. In addition we shall sign all required documents and/or appear before any
officials and make all and any necessary declarations in order to ensure
the transfer of the permits to agents or nominees on behalf of CC.
10. This letter of undertaking is binding and completely and totally
irrevocable.
As witness thereof we hereby affix our signature
/s/ Marc Suzannah Mr. Marc Suzannah C.I.N. # 210011003254
/s/ Marc Suzannah Mr. Christophe Suzannah C.I.N. #213011008929
/s/ Marc Suzannah Mr. Francis Suzannah C.I.N. #209011024630
/s/ Marc Suzannah Mr. Yehael Razafiarison C.I.N. # 710011016920
/s/ Marc Suzannah Ms. Eva Vanessa Zafimahova C.I.N. #
/s/ Marc Suzannah Mr. Jean Claude Bemananjara C.I.N. #
EXHIBIT 10.5 .A
MEMORANDUM OF UNDERSTANDING
1.0 The Parties agree to enter in a Joint Venture for:
a) Processing (sorting, cutting and polishing) of gems and marketing of
cut and rough stones.
2.0 The Parties to the Joint Venture consist of:
a) American Benefits Group, Inc. (ABFG),
b) Menavi Group:
(i) Menavi International Ltd.
(ii) Advance Cutting Center (Israel) Ltd.
(iii) Advance Cutting Center Ltd. (Bangkok).
3.0 The Parties will register an off-shore corporation in which the shares
will be equally held by both Parties to the Joint Venture. The company
will be named ABFG Total Gem Management Ltd. (TGM).
4.0 The general goal of this agreement if for TGM to manage and handle ABFG
sapphires from the point after mining and sorting. TGM will sort rough,
cut and polish it in its own lapidaries or supervise other lapidaries,
sort and grade cut stones, and distribute them.
5.0 Terms and Conditions:
a) ABFG will provide Line of Credit to TGM by means of Letter of Credit
open on behalf of TGM to Menavi International Ltd. At a value of
approximately U.S. One Million (US$1,000,000.00) Dollars per month.
b) Processing:
(i) ABFG will continue to mine, in full force sapphires from any
source it wishes to mine,
(ii) ABFG will sort all rough into two (2) main categories:
1. cuttable, and
2. non-cuttable.
(iii) All cuttable rough will be sorted under TGM guidance according
to size and quality ready to be shipped to TGM,
(iv) TGM will sort rough ready to be shipped to the various
lapidaries,
(v) Gems over 4 mm cut size will be cut at ACC Israel and Bangkok,
(vi) Smaller gems will be cut in China and Sri-Lanka after
performing in the TGM lapidary,
(vii) TGM will supervise the cutting and quality of cut in all the
above places,
(viii) All cut stones will be sorted and graded at the sorting
offices in Bangkok and TLV, and (ix) Final pricing and
estimation will be done in the TLV offices.
a) Marketing and Distribution:
(i) The Parties will use TGM's offices in Ramat-Gan and Bangkok
and New York in order to distribute ABFG gemstones in the Far
East, in Israel and the US.,
(ii) TGM will be the sole distributor of ABFG sapphires,
(iii) TGM agree to put up all the existing offices, and provide the
required existing personnel to carry out cutting, sorting and
distribution of ABFG gems, and
(iv) The pricing activity will be done jointly by representatives
of all Parties.
6.0 Dividing the Profits:
a) On goods that are from ABFG mines the TOTAL NET SALES of the Joint
Venture will be divided between the Parties in accordance to the
following:
b)
(i) Cut and semi-cut stones:
1. Party ABFG seventy five (75%) percent, and
2. Party TGM twenty five (25%) percent.
(ii) On unprocessed rough:
1. Party ABFG eighty five (85%) percent, and
2. Party TGM fifteen (15%) percent.
c) On goods that are purchased by ABFG funds:
(i) Profit will be equally divided between ABFG to TGM. (Profit =
Total Sales - Total Purchase Costs)
d) The TOTAL NET SALES will be calculated after the deduction of the
following items from the TOTAL SALES:
(i) All approved expenses related to cutting, processing and
exporting of gemstones,
(ii) Any commissions related to the purchasing, sales and marketing
of rough or cut stones,
(iii) Any taxes or fees required by the Government in accordance to
the law,
(iv) Interest rates will be libor plus one-half (1/2%) percent, and
(v) All applicable commissions.
b) TOTAL PURCHASE COSTS:
(i) All approved expenses related to purchase of rough or cut
gemstones,
(ii) Any commissions related to the purchasing, sales and marketing
of rough or cut stones, and
(iii) Any taxes or fees required by the Government in accordance to
the law.
7.0 Other Agreements
a) The Joint Venture will have the first right of refusal to purchase
the products of ABFG mining activity, beside the portion of the mine
run that will be set as policy to sell to external buyers.
b) The initial capital investment into the project, which consists of
capital investment to set-up new offices and enlarge lapidaries will
be provided by ABFG as a Shareholder Loan to TGM.
c) All accounting will be done on a monthly basis.
d) The processing and marketing will be managed by TGM. The mining
venture will be managed by ABFG.
e) The Joint Venture Agreement will be subject to the laws of the state
of Israel and the United States of America and the language used
will be English.
This Memorandum of Understanding is to set the principals to the Joint Venture
Agreement. Both Parties shall negotiate a final contract within sixty (60) days
of this Memorandum of Understanding.
This Memorandum of Understanding and further contracts will be subject to the
laws of the United States and Israel.
Dated and signed this 26th day of August, 1998 at Calgary, Alberta, Canada.
American Benefits Group, Inc. Menavi International Ltd.
Per: /s/Gerald E Sklar, Per: /s/ Menahem Sevdermish
-------------------------------- ---------------------------------
Per: /s/ Dror Moradov Per: /s/ Avi Meirom
-------------------------------- ---------------------------------
Advance Cutting Center (Israel) Ltd. Advance Cutting Center Ltd.
Per: /s/ Menahem Sevdermish Per: /s/ Menahem Sevdermish
-------------------------------- ---------------------------------
Per: /s/ Avi Meirom Per: /s/ Avi Meirom
-------------------------------- ---------------------------------
63
EXHIBIT 10.5.B
AGREEMENT
Amendment to the memorandum of understanding of 26th August 1998
Tuesday 20 April 1999
1.0 The Parties agree to enter in a Joint Venture for:
a) Processing (sorting, cutting and polishing) of gems and marketing of cut
and rough stones.
2.0 The Parties to the Joint Venture consist of:
a) American Benefits Group, Inc. (ABFG).
b) Menavi Group:
(i) Menavi International Ltd.
(ii) Advance Cutting Center (Israel) Ltd.
(iii) Advance Cutting Center Ltd. (Bangkok)
3.0 The Parties registered an Israeli Corporation in which the shares will be
equally held by both Parties to the Joint Venture. The company will be
named Total Gem Management Ltd. (TGM).
4.0 The general goal of this agreement is for TGM to manage and handle ABFG
sapphires from the point after mining and sorting. TGM will sort rough;
cut and polish it in its own lapidaries of supervises other lapidaries,
sort and grade cut stones, and distribute them.
5.0 Terms and Conditions:
a) ABFG will provide cash to TGM and Menavi International Ltd. At a
value of approximately U.S. One Million (U.S.$1,000,000.00). Menavi
will provide U.S. $1,000,000.00 worth of gems. (Wholesale value).
b) Processing:
(i) ABFG will continue to mine, in full force precious or semi
precious gems from any source it wishes to mine.
(ii) ABFG and TGM will sort rough into two (2) main categories:
1. cutable,
2. non-cutable.
(iii) All cutable rough will be sorted under TGM supervision and
guidance according to size and quality ready to be shipped to
TGM.
(iv) TGM will sort rough ready to be shipped to the various
lapidaries.
(v) All gems will be processed at such places as determined by
TGM.
(vi) TGM will supervise all processing of gems.
(vii) All cut stones will be sorted and graded at the sorting
offices in Bangkok and TLV, and such other places as
determined by TGM.
(viii) Final pricing and estimation will be done by TGM.
c) Marketing and Distribution:
(i) The parties will use TGM's offices in Ramat-Gan and Bangkok
and New York or any other offices see fit by TGM, in order to
distribute ABFG gemstones.
(ii) TGM agree to put up all the existing offices, and provide the
required personnel to carry out cutting, sorting and
distribution of ABFG gems, and
(iii) The pricing activity will be done jointly by representatives
of all Parties.
6.0 Dividing the Profits:
a) On goods that are from ABFG mines the TOTAL NET SALES of the Joint
Venture will be divided between the Parties in accordance of the
following:
(i) Cut and semi cut stones:
1. Party ABFG TWO THIRDS (66.6%) PERCENT, AND
2. Party TGM one third (33.4%) percent.
(ii) On unprocessed rough:
1. Party ABFG seventy-five (75%) percent, and
2. Party TGM twenty-five (25%) percent.
b) On goods that are purchased by ABFG funds:
(i) Profit will be divided between ABFG to Menavi (PROFIT = Total
Net Sales - Total Purchase Costs).
c) The TOTAL NET SALES will be calculated after deduction of the
following items from the TOTAL SALES:
(i) All approved expenses related to cutting, processing and
exporting of gemstones.
(ii) Plus an uplift of 15%.
(iii) Any commissions related to the purchasing, sales and marketing
of rough or cut stones.
(iv) Any taxes or fees required by the Government in accordance to
the law.
(v) All applicable commissions.
d) Total Purchase Costs:
(i) All approved expenses related to purchase of rough or cut
gemstones.
(ii) Any commissions related to the purchasing, sales and marketing
of rough or cut stones, and
(iii) Any taxes or fees required by the Government in accordance to
the law.
7.0 Other Agreements
a) The Joint Venture will have the first right of refusal to purchase
the products of all ABFG mining activity.
b) The initial capital investment into the project, which consists of
capital investment to set-up new offices and enlarge lapidaries will
be provided by ABFG as a Shareholder Loan to TGM.
c) All accounting will be done on a monthly basis.
d) The processing and marketing will be managed by TGM. The mining
venture will be managed by ABFG.
8.0 Arbitration
Disputes under this agreement will be arbitrated by The World Federation
of Diamond Bourse.
Dated and signed this 20th day of April, 1999 at Ramat-Gan, Israel.
American Benefits Group, Inc.
Per: /s/Gerald E Sklar,
-----------------------------
Per: /s/ Dror Moradov
-----------------------------
Menavi International Ltd.
Per: /s/ Menahem Sevdermish
-----------------------------
Per: /s/ Avi Meirom
-----------------------------
Advance Cutting Center (Israel) Ltd.
Per: /s/ Menahem Sevdermish
-----------------------------
Per: /s/ Avi Meirom
-----------------------------
Advance Cutting Center Ltd.
Per: /s/ Menahem Sevdermish
-----------------------------
Per: /s/ Avi Meirom
-----------------------------
67
EXHIBIT 10.6
MEMORANDUM OF UNDERSTANDING
Between:
American Benefits Group Inc. (a "Company" incorporated pursuant to the laws of
the State of Florida being one of the United States of America hereinafter
called "ABFG").
and
"Dove" Gems & Jewelry Co., Ltd. (a "Company" incorporated pursuant to the laws
of the country of Thailand hereinafter called "DOVE").
WHEREAS "ABFG" is a shareholder in a number of companies who are engaged, among
other corporate activities, in mining activities in Madagascar.
AND WHEREAS "Dove" among other corporate activities, is also engaged in mining
activities in Madagascar.
AND WHEREAS "Dove" and "ABFG" are desirous of pooling certain of their resources
to form a "Company" in Madagascar to mine sapphires;
WITHNESSTH THAT:
1.0 Intent
1.01 The intent of this Memorandum of Understanding is for the Parties'
agreement on the scope of their relationship respecting gemstone mining
operations in Madagascar to be reduced to written form and, thereafter,
for an encompassing Contract to be prepared and executed by the Parties
hereto fully delineating their respective rights and obligations to and
from the other.
1.02 The parties will be equal shareholders in a "Company" (the "Company") the
purpose of which will be to carry out the parties' joint gemstone mining
operations in Madagascar upon the terms and conditions hereinafter
recited.
1.03 The "Company" is neither expected nor intended to earn a profit but rather
the parties benefit to be delivered from their participation therein shall
be that their affiliates will perform services for the "Company" at a
profit and further that each party's down stream affiliates will earn
revenues and profit as a result of the sale of sapphires.
2.0 Costs
2.01 "ABFG" shall bear responsibility or all initial costs (incorporation fees,
lawyers fees, accounting fees and the like in connection with creating the
"Company" with one half (1/2) of said costs to be reimbursed to "ABFG" by
Dove pursuant to paragraph 4 herein after.
2.02 "ABFG" shall bear responsibility (until the "Company" is in a financial
position to pay for same itself which for the purpose of this Agreement
will be January 1, 2000 unless otherwise directed by the parties) for all
the "Company" normal costs, as determined by the "Company" budget prepared
by the "Company" Board of Directors and approved by both parties hereto
(subject to Arbitration as hereinafter provided) with one half (1/2) of
said costs to be reimbursed "ABFG" by "Dove" pursuant to paragraph 4
herein.
2.03 All expenses of the "Company" must be approved by both parties hereto,
prior to expenditure, by way of Budget approval, and should the parties
disagree on whether an expenditure should be authorized then an Arbitrator
as provided for herein shall rule utilizing sound business practices in
conjunction with the terms of this Memorandum of Understanding and further
in conjunction with the terms of the Agreement prepared and executed by
the parties pertaining to the matters herein provided.
2.04 For the purposes of preparing a budget the "Company" shall utilize Two
types of costs, namely:
a) "Costs" which shall be defined as being those costs actually paid to
arm's length third parties or non arms-length parties (a portion of
which may include "calculated costs") by the "Company" and;
b) "Calculated costs" which shall be defined as being those costs paid
to arms-length or non arms-length companies for which a formula or
formulas are used in calculation thereof (an example o f a formula
would be calculating depreciation on equipment) all said formulas to
be approved by both parties.
2.05 Not to restrict the generality of the foregone the intent of this
Agreement is for the parties to jointly fund the "Company" operations in
accordance with a Budget either approved by the Board of Directors or by
Arbitration. Each party is to contribute an equal amount towards expenses
taking into account the benefits to be derived by each party through
affiliates and the amount of monies required for the "Company" to meet
it's financial obligations arising from operations. "Company" funding
shall be obtained wither from sale of product and thereafter the rest and
residue of gemstone production shall be divided equally between the
parties; or, each party will on a timely basis to be determined by the
Board of Directors or by Arbitration, inject monies into the "Company" in
order to meet each predetermined cost with all gemstone production
thereafter being divided equally between the parties; or "ABFG" shall
initially fund the "Company" with "Dove" to reimburse "ABFG" subsequent to
the "Mandatory Stock Inventory" period from the sale of "Dove" FIFTEEN
(15%) of gemstone production which can at any time thereafter be removed
by "Dove" and sold and thereafter the "Company" production of gemstone
will be equally divided, inventories and sold in accordance with the
directions of both parties.
2.06 Each party will be responsible for the costs associated to the salaries
and travel and visa expenses of their personnel assigned to the project.
2.07 "ABFG" agrees to advance the salaries, and operating costs associated to
Dove personnel to "Dove" for the duration of the six months "Mandatory
Stock Inventory" period. In the event the parties agree to extend the
"Mandatory Stock Inventory" period behind the original six months to a new
term period, "ABFG" will continue to advance for mentioned costs to
"Dove". In the event parties decide to extend the "Mandatory Stock
Inventory" period behind 1/1/2000, the parties each and individually
reserve the right to remove up to 15% of their production share from the
stock inventory each month.
2.08 "ABFG" shall pay "Dove" each month a "pre advance" amount equivalent to
the total production received times US dollars one hundred fifty per
kilograms for the duration of "Mandatory Stock Inventory" period (total
production kilogram x $150 US) = pre advance) payable to "Dove". The "pre
advance" payments will be deducted from the proceeds of sales of "Dove"
share at the end of the "Mandatory Stock Inventory" period. "ABFG" shall
transfer the full amount due each month within four days from the end of
each month to the designated account of "Dove".
2.09 "ABFG" shall provide "Dove" with rough sapphire for processing on monthly
basis up and above the capacity of Dove factory. "Dove" will process the
sapphires according to the international standard and will invoice "ABFG"
according to the existing market rates for the quality of work performed.
"ABFG" will clear "Dove" invoices within 7 days from the invoice date. In
the event "ABFG" fails to supply sufficient quantity of sapphire to "Dove"
upon 7 days "Dove" shall have the right to receive rough stone from "Dove"
share of the production in stock.
3.0 Corporate Structure of "Company"
a) The "Company" is authorized to issue a maximum of ONE HUNDRED (100)
SHARES;
b) "ABFG" shall be issued FIFTY (50%) PERCENT and "Dove" FIFTY (50%)
PERCENT of the issued and outstanding shares with no other shares
being issued save and except on an affirmative vote of the Board of
Directors;
c) The "Company" Officers shall be appointed by the "Company" Board of
Directors and shall consist of a President, TWO (2) Vice-Presidents
and a Secretary/Treasurer;
d) The "Company" Board of Directors shall consist of FOUR (4)
appointments; TWO (2) being appointed by "ABFG" and TWO (2) being
appointed by "Dove" with the Chairman of the Board being one of the
"ABFG" appointments;
e) In the event of any vote of Directors being deadlocked then, and in
that event the vote of the Chairman of the Board shall be
determinative of the vote subject always to "Dove" right to
Arbitrate any Board decision.
f) The "Company" location of office and other such administrative
issues shall be addressed by the Board of directors at the first
meeting of the Board of Directors.
4.0 Unanimous Shareholder Agreement
4.01 The parties shall enter into an Unanimous Shareholder Agreement,
particulars of which shall include but not be restricted to:
a) Any and all contracts entered into by the "Company" shall be offered
firstly to affiliates of the parties hereto prior to any contracts
being entered into with third parties the intent being that the
parties ought, as nearly equally as possible share in the expenses
of the "Company" by having same be "reimbursed" by way of payments
to affiliates;
b) The expenses of the "Company" for which each shareholder shall be
responsible will be derived from the "Company" Budget, prepared and
approved by the both parties (subject to either party's right to
arbitrate any such decision made), which shall delineate each
party's respective costs which are anticipated to be equal.
c) All sapphire production will be inventories by both parties until
December 31st, 1999 (the "Mandatory Stock Inventory" Period) upon
the following conditions, namely:
i) The cost of storage shall be borne by "ABFG" with "Dove"
reimbursing ABFG for ONE HALF (1/2) of said costs as
hereinafter provided.
ii) "ABFG" shall bear total responsibility for payment of all
"Company" costs, as approved by the Board of Directors during
the "Mandatory Stock Inventory" Period with "Dove" reimbursing
"ABFG" for it's share of the costs as hereinafter provided.
iii) The inventoried production shall be under the joint control of
the parties hereto subject to no production being removed from
inventory safe and except pursuant to the approval by both
parties or in the event of disagreement by Arbitration ruling
as the case may be.
d) The gemstone production from the "Company" mining operations shall
be equally divided between the parties at the mine site and
thereafter sealed by both parties, transported and stored (all the
"Company" expense with each party agreeing to pay the "Company" or
"ABFG" as the case may be their half of the costs) it being agreed
however that once the Mandatory Inventory Period ends that the
proceeds each party receives from the eventual sale of it's share of
production shall be utilized to pay firstly the "Company" for any
monies owed the "Company" by the party and secondly to the other
party any monies owed to other party and that in the event that said
payments are not made then the defaulting party shall be forbidden
to remove any inventory or acquire an production from the mine site
except to be inventoried until such as times as satisfactory
arrangements for payments of monies made, finalized and implemented.
e) Any and all other minerals obtained from the FOUR (4) blocks under
this agreement (excluding gemstone as noted above) shall be the
property of Stone and Wood s.a.r.l. (an "ABFG" affiliate on whose
land the mining operations shall be carried out) or "ABFG" or it's
designate at the mine site as part of "ABFG's" and Stones and Wood
s.a.r.l. consideration of either allowing the operations to be
conducted or from the risk inherent to the capital investment as the
case may be.
f) Until the Board of Directors authorizes otherwise each party agrees
to keep an inventory, at "Company" or "ABFG" expense (to be invoiced
and the paid by each party) an amount of not less the EIGHTY FIVE
(85%) PERCENT of each party's gemstone production received at the
mine site.
g) The storage facilities for gemstone inventory shall be controlled by
both parties.
h) The value of the "Company" production and each party's share thereof
whether inventoried, sold or otherwise shall be calculated on a
monthly basis by the "Company" taking into account the `costs" and
the "calculated costs" incurred by the "Company" with respect to
obtaining the "Company" production.
i) The "Company" will eventually carry out mining operations on at
least FOUR (4) properties acquired by an ABFG affiliate through it's
purchase of the issued and outstanding shares of Stones and Wood
s.a.r.l. the first two properties being designated as "M4" and "C1"
the other two as directed by Dove.
j) Neither party shall cause their shares in the "Company" to be
encumbered or transferred to any third party without the express
written consent of the other save and except that either party may
transfer it's shares to a corporate entity to which it directly or
indirectly has a majority has shareholding interest.
k) Parties will develop a common marketing policies in order to market
their share of the production through the same channel. However, the
parties reserve the right to market their own share of the
production. In the event parties decided to market their share of
the production they may not dump into each others market or in any
way or means to create a financial loss to each other, as the result
of their market practices.
5.0 Contractual Relations
5.01 Not to restrict the generality of anything contained herein the intent of
this Agreement is that whenever the "Company" requires the services of a
third party to further the objectives of the "Company" that the "Company"
shall make every effort to ensure that affiliate of the parties hereto are
used to as great an extent as possible.
5.02 Whenever an affiliate is contracted to perform services for the "Company"
payment for said services may be treated as "calculated cost" in the
Budget.
5.03 Affiliated companies may include, but not restricted to, a "Dove"
affiliate to provide Mine Consulting Services, a "Dove" affiliate to
provide labor services for the mine sites, a "Dove" affiliate to provide
certain machinery, an "ABFG" affiliate to provide machinery, an "ABFG"
affiliate to provide corporate services, an "ABFG" affiliate to provide
transportation, an "ABFG" affiliate to provide security and April Mining
Ltd., even though April is not an affiliate of "ABFG", to provide labor
services to the mine site.
5.04 Any equipment or machinery to be utilized on the "Company" mine site shall
be supplied by an "ABFG" affiliate the formulation for arriving at an
hourly rate to be approved by the "Company" Board of Directors.
5.05 Attached as Schedule A hereto is a list of mining equipment which "Dove"
is causing a one half interest therein to be sold to the "ABFG" affiliate
for US $185,000.00 being agreed that the "ABFG" affiliate has the right to
acquire remaining one half interest prior to April 1st, 2000 for US
$185,000.00 less depreciation, to be agreed by the parties.
5.06 In the event the parties could not agree on the purchase price of
equipment (per section 5.05 of this agreement), prior to 1/1/2000 "Dove"
agrees to replace said equipment with a new set of equipment with higher
capacity (capacity of 150m^3/hr., per Dove catalog) and "ABFG" shall pay
$185,000.00 USD plus 15% total value of the new equipment for upgrade and
the cost of shipping and clearance to Madagascar.
6.0 Assignment
6.01 Either party hereto may assign it's interest hereunder to any other
corporate entity of which the assigning party has, either directly or
indirectly, a majority shareholding interest in but that in all other
respects no assignment is permitted hereunder save and except with the
written approval of the other party first hand obtained.
7.0 Confidentiality
7.01 The parties hereto shall retain all information obtained as a result of
their relationship with the other or obtained as a result of matters
herein recited in strict confidence and that should either party disclose
any said information to any entity not party or affiliated with a party to
this Memorandum then in addition to such damages respecting past, present
or future damages occasioned to the non-disclosing party either direct,
indirect, foreseen, unforeseen or coincidental adjudged by a Court of
competent jurisdiction the disclosing party shall also pay, as penalty,
the sum of ONE HUNDRED THOUSAND ($100,000.00) DOLLARS to non-disclosing
party irrespective of proof of damage being made out ABFG being relieved
of the onus contained herein only in so far as it's duties as a public
"Company" require it to make certain disclosures.
8.0 Further Contracts
8.01 Within SEVEN (7) DAYS of the execution hereof by the parties hereto "ABFG"
shall cause to be prepared and delivered to "Dove" at Doves address for
Service contained herein an Agreement containing the terms contained
herein together with such other terms as would be customary in such an
Agreement and "Dove" shall, within SEVEN (7) DAYS of it's receipt of said
Agreement return to "ABFG" it's comments respecting same after which
"ABFG" has SEVEN (7) FURTHER DAYS in which to respond to "Dove" comments
with "Dove" final comments to be received by "ABFG" within a final SEVEN
(7) DAY period after which any issue not resolved by the parties shall be
referred to Arbitration it being agreed that once the party's have reached
an Agreement that "ABFG" shall prepare the Final Agreement with SEVEN (7)
DAYS of final agreement and that "Dove" shall cause a fully executed copy
of the Agreement to be received by "ABFG" within SEVEN (7) DAYS
thereafter. "ABFG"shall comply within SEVEN (7) DAYS from the date of
executed copy of this memorandum of understanding.
8.02 Failure of either party to abide by the time restraints noted in the
section 2.08, 2.09 and 8.01 of this agreement shall result in a penalty
being imposed on the defaulting party in the agreed amount of ONE THOUSAND
($1,000) U.S. DOLLARS per day or part of day of default.
8.03 In the event that the parties cannot agree on the terms to be included in
the Agreement or any corporate Decision made thereafter, including
expenses and budgets, or cancellation of costs, then and in that event the
parties will jointly submit the issues in dispute to arbitration pursuant
to the laws then in force in the State of Florida being one of the United
States of America the costs of said arbitration to be borne by the
"Company".
9.0 Miscellaneous
9.01 This Agreement shall be interpreted pursuant to the laws in force in the
State of Florida being one of the United States of America.
9.02 Any reference to dollars herein refers to DOLLARS of the United States of
America.
9.03 Should any provision of this Agreement be adjudicated to be illegal,
unenforceable or otherwise of no force or effect than an in that event
that particular provision shall be struck here from but the remainder of
this Agreement shall remain in full force and effect with such reasonable
amendments as required thereto.
9.04 "Dove" address for services shall be 327/66 St. Louis Center; Soi Vatprog
2, Thoong Vatdon, Sathorn Bangkok. 10120 Thailand.
9.05 "ABFG" address for services shall be in care of it's Canadian subsidiary
at 900, 840 7th Avenue S.W., Calgary, Alberta, Canada, T2P 3G2.
WHEREFORE THE PARTIES HERETO AGREE TO BE BOUND BY THE TERMS HEREOF THIS 26th DAY
OF MAY, 1999
"Dove" GEMS & JEWELRY CO., LTD.
- ------------------------------------------
Fillip Sharifi
Managing Director
AMERICAN BENEFITS GROUP, INC.
/s/ Jerry G Mikolajczyk
- -----------------------------------------
Jerry G. Mikolajczyk
President
77
EXHIBIT 10.7
JOINT VENTURE AGREEMENT
BETWEEN THE UNDERSIGNED PARTIES:
- - Ms. Eliana Georgette Samuel HARINORO, born September 16, 1957, residing at
Lot IVL 2B, Ambodivonkely, Ambohimanarina, Antananarivo, of Madagascan
nationality, holder of National Identity Card No. 108-992-038-748, issued
on September 23, 1976 at Antsirabe, daughter of Samuel RALAIBOZAKA and
RAVAONORO;
Referred to hereinafter as "The Permit Holder";
OF THE FIRST PART;
AND
- - SAOWANI DEVELOPMENT LTD., a business corporation with assets of 1,000,000
Fmg, with head offices located at: Lot MA II 1 a), Maibahoaka, Ivato, and
registered with the Commercial Register of Antananarivo under No. 16.157,
represented in these presents by Ms. SAOWANI CHUAIPHAN,
Referred to hereinafter as "The Partner";
OF THE SECOND PART.
THE FOLLOWING HAS BEEN AGREED TO BY THE PARTIES:
Section 1. - This Joint Venture Agreement was prepared in accordance with
the provisions of Law No. 95-016 of August 09, 1995 concerning
the Mining Code and Ministerial Order No. 3216/94 of July 25,
1994 establishing the conditions of validity for joint venture
agreements.
Section 2. - This agreement has been prepared in order to set forth the
rules governing joint ventures between the two parties and to
regulate the joint exploration to be carried out under the
mining permit which belongs to the Permit Holder.
Section 3. - This agreement shall be valid for the term of the mining
permit, which is the subject of this agreement. It shall be
renewed by way of tacit renewal beyond this date for the same
term as the renewal of the said mining permit.
Section 4. - Within the context of the Joint Venture Agreement, the Permit
Holder shall exercise all of its exclusive rights flowing from
the mining permit which it holds and which has the following
characteristics:
================================================================================
PERMIT XV YV FIVOND-RONANA MAP SUBSTANCE
- --------------------------------------------------------------------------------
Q 53-76/1 541 250 538750 Mananjary Q 53 Beryllium
- --------------------------------------------------------------------------------
Q 53-76/1 546 250 538750 Mananjary Q 53 Beryllium
- --------------------------------------------------------------------------------
Q 53-76/1 548 250 538750 Mananjary Q 53 Beryllium
- --------------------------------------------------------------------------------
================================================================================
Section 5. - The parties to this agreement hereby agree that following a
period of one and one half years of operations, the mining
permit, which is the subject of this agreement, shall be
transformed into a Type III Permit. To this effect, a business
corporation shall be constituted under Madagascan law in which
SAOWANI DEVELOPMENT, or any other person or firm acting on its
behalf, shall invest the amount of eighty per cent ( 80%) of
the capital, and Ms. Eliana Georgette Samuel HARINORO shall
invest twenty per cent (20%). This business corporation shall
then be the holder of the said Type III mining permit.
Section 6. - The Permit Holder shall ensure the search for and hiring of
local personnel, investment by persons in securities and the
establishment of perennial operations, as well as all
relationships with administrative authorities, both on a
national and local level.
It shall be the Permit Holder's responsibility to obtain all
the necessary documents for the distribution and marketing of
the product.
Section 7. - The Partner shall take responsibility for the financing of all
investments required for the operations of which it is
proprietor, as well as the financing of cash flow, including
taxes and duties attached to the import of materials and
equipment. Furthermore, the Partner hereby accepts the
principle of financing investments of a social nature in a
manner proportionate to the scope of the company's business
activity.
Section 8. - The Partner hereby agrees to protect the environment and shall
be solely liable for the management of the mining operations
and the management of personnel subject to Section 8,
hereinbelow.
Section 9.- The Permit Holder shall be entitled to have access to any
audit follow-up for the operations and production and shall
have the right to be represented by the person of its choice,
who is to be provided with a special proxy to this effect.
With respect to business activities, this person shall be
entitled to intervene in the management of the mining
operations and may decide to stop all activity where he
believes that the operations do not comply with current
regulations.
The Partner hereby agrees to facilitate the audit follow-up
undertaken by the Permit Holder.
Section 10. - Financial management shall be the sole responsibility of the
Partner.
Section 11. - The distribution of profits between the parties shall be
carried out in the following proportions:
- eighty per cent (80%) of profits for the Partner;
- twenty per cent (20%) of profits for the Permit Holder.
Section 12. - Both parties must have at least one permanent representative
at the operations perimeter. Any product extracted must be
reported by the representatives of both parties and kept
locked in a safe with a double locking system. Any removal of
the product must also be carried out in presence of both
representatives.
Section 13. - The Partner hereby reserves the right to substitute in its
place, a portion of its rights in accordance with this
agreement, to any person or firm of its choice. It shall
remain jointly and severally liable with such persons for the
proper performance of the undertakings in this agreement.
Section 14. - Any stoppage of operations which is deemed to be unjustified
for a period of one year shall be considered to be a clear
waiver of the Partner's rights as provided for in these
presents, without the possibility for filing a claim for
damages by either of the two parties. Any such waiver of
rights shall result in the full termination of this agreement.
Section 15. - Given the frank and truthful cooperation between the parties,
any dispute which might arise between them concerning the
performance or the interpretation of the conditions of this
agreement shall be settled in a friendly manner, before any
recourse is taken to the competent Court in Fianarantsoa.
Prepared at Antananarivo, on June 28, 1999
The Permit Holder The Partner
/s/ Eliana Georgette Samuel Harinoro /s/ Saowani Chuaiphan
- ------------------------------------ ---------------------
SAOWANI CHUAIPHAN
Eliana Georgette Samuel HARINORO for SAOWANI DEVELOPMENT
81
EXHIBIT 10.8
REPUBLIC OF MADAGASCAR
MINISTRY OF ENERGY
AND MINES
General Secretariat
General Administration
Inter-Regional Administration
Antsiranana
JOINT VENTURE PERMIT
NO. 010-98/MEM/SG/DG/DIR.D
THE INTER-REGIONAL DIRECTOR OF ENERGY AND MINES FOR ANTSIRANANA
In view of the Constitution of September 18, 1992;
In view of Constitutional Law No. 95-001 of October 13, 1995 which revised
Sections 56, 61, 74, 75,90,91 and 94 of the Constitution of September 18, 1992;
In view of Law No. 95-016 of August 09, 1995 concerning the Mining Code;
In view of Government Order No. 1326/94/MEM/SG/DG/DMI/SMI of July 25, 1994
setting forth the conditions of validity for Joint Venture Agreements;
In view of the Joint Venture Agreement dated April 01, 1998;
BETWEEN
Ms. Eva Vanessa ZAFIMAHOVA
Holder of Type I Mining Permit No. V 32-005 of August 06, 1996 which is valid
for the mining of CORUNDUM / SAPPHIRES
Signatory:
Ms. Eva Vanessa ZAFIMAHOVA
Holder of Identity Card No. 213-012-004-649 issued on 29/12/98 at Farafangana
Residing at: Villa des Bananiers Lot II M Farango, Analamahitsy;
AND
ADAM MINING COMPANY LTD. - "ADAMCO"
Signatory:
Mr. Jean-Louis RABEHARISOA
Holder of National Identity Card No: 101 221 059 824 issued on May 18, 1995 at
Antananarivo II
Residing at: Lot VX 9 a) Andrefandrova Antananarivo 101
THE FOLLOWING HAS BEEN DECIDED:
ARTICLE ONE:
ADAM MINING COMPANY LTD. - "ADAMCO" is hereby authorized to mine in the mining
perimeters which carry the below cited numbers and references:
XV YV
708.750 1466.250
708.250 1463.750
In association with
Ms. Eva Vanessa ZAFIMAHOVA
within the context of a joint venture pursuant to the provisions of Section 43
of Law No. 95-016 of August 09, 1995 concerning the Mining Code.
ARTICLE TWO: Both parties are subject to the obligations set forth in the
current legislation as well as the procedures set forth in their joint venture
agreement.
ARTICLE THREE: This authorization is hereby granted for the validity period of
the permit(s) and where applicable for the validity period of any renewal(s) by
way of tacit agreement.
ARTICLE FOUR: The Director for Mines and the Inter-Regional Director for the
Ministry of Energy and Mines of ANTANANARIVO are each responsible for the
performance of this permit which will be officially registered and distributed
as required.
Prepared in Antsiranana, April 24,1998
(Signatures and Official stamps)
83
<PAGE>
REPUBLIC OF MADAGASCAR
MINISTRY OF ENERGY
AND MINES
General Secretariat
General Administration
Inter-Regional Administration
Antsiranana
JOINT VENTURE PERMIT
NO. 011-98/MEM/SG/DG/DIR.D
THE INTER-REGIONAL DIRECTOR OF ENERGY AND MINES FOR ANTSIRANANA
In view of the Constitution of September 18, 1992;
In view of Constitutional Law No. 95-001 of October 13, 1995 which revised
Sections 56, 61, 74, 75,90,91 and 94 of the Constitution of September 18, 1992;
In view of Law No. 95-016 of August 09, 1995 concerning the Mining Code;
In view of Government Order No. 1326/94/MEM/SG/DG/DMI/SMI of July 25, 1994
setting forth the conditions of validity for Joint Venture Agreements;
In view of the Joint Venture Agreement dated April 01, 1998;
BETWEEN
Mr. Christophe SUZANNAH
Holder of Type I Mining Permit No. U32/V32-002 of April 01, 1996 which is valid
for the mining of CORUNDUM / GARNET
Signatory:
Mr. Christophe SUZANNAH
Holder of Identity Card No. 213-011-008-929 issued on 05/10/95 at Farafangana
Residing at: Lot 042 D Ambohibao, Antehiroka, Antananarivo 101
AND
ADAM MINING COMPANY LTD. - "ADAMCO"
Signatory:
Mr. Jean-Louis RABEHARISOA
Holder of National Identity Card No: 101 221 059 824 issued on May 18, 1995 at
Antananarivo II
Residing at: Lot VX 9 a) Andrefandrova Antananarivo 101
THE FOLLOWING HAS BEEN DECIDED:
ARTICLE ONE:
ADAM MINING COMPANY LTD. - "ADAMCO" is hereby authorized to mine in the mining
perimeters which carry the below cited numbers and references:
XV YV
706.250 1461.250
In association with
Mr. Christophe SUZANNAH
within the context of a joint venture pursuant to the provisions of Section 43
of Law No. 95-016 of August 09, 1995 concerning the Mining Code.
ARTICLE TWO: Both parties are subject to the obligations set forth in the
current legislation as well as the procedures set forth in their joint venture
agreement.
ARTICLE THREE: This authorization is hereby granted for the validity period of
the permit(s) and where applicable for the validity period of any renewal(s) by
way of tacit agreement.
ARTICLE FOUR: The Director for Mines and the Inter-Regional Director for the
Ministry of Energy and Mines of ANTANANARIVO are each responsible for the
performance of this permit which will be officially registered and distributed
as required.
Prepared in Antsiranana, April 24,1998
(Signatures and Official stamps)
85
EXHIBIT 10.9
AGREEMENT
BETWEEN:
American Benefits Group, Inc. and all its subsidiaries
(hereinafter called "Inc.")
and
Gerald E. Sklar (hereinafter called "Sklar")
and
TRIKAL International Management Limited (hereinafter called "TRIKAL")
WHEREAS the parties hereto are inter-related in that Sklar is a Director
of both corporate entities.
AND WHEREAS it is beneficial to Inc. for Sklar and TRIKAL to incur expenses on
behalf of Inc. rather than have Inc. incur the expenses in it's own right.
AND WHEREAS Sklar and TRIKAL expect to be reimbursed for expenses of Inc.
incurred by Sklar and TRIKAL.
WITNESSTH THAT:
1. Until Sklar and TRIKAL are otherwise informed by Inc. that Sklar and
TRIKAL are hereby appointed agents of Inc. in all matters.
2. All expenses incurred by either Sklar or TRIKAL on Inc.'s behalf shall be
submitted to Inc. for approval.
3. The assigned expenses shall be re-paid to either Sklar or TRIKAL as the
case may be on the following terms, namely:
a) Inc. shall provide security to Sklar or TRIKAL;
b) The expenses paid by Sklar or TRIKAL shall not bear interest to
Inc.;
c) The expenses shall be paid to Sklar or TRIKAL on demand provided
that no demand may be made for at least one year and that payment is
not to be made for at least one year after the Demand is made.
4. This Agreement shall extend to those expenses previously incurred by
either Sklar or TRIKAL and approved by Inc.
5. In the event that Sklar and/or TRIKAL incur a debt or expense expecting
that Inc. will approve the expense then and, in the event that the expense
is not subsequently approved, Sklar and TRIKAL have no recourse against
Inc. and are totally responsible for the debt or expense.
Wherefore the parties have agreed to be bound by the foregone as is evidenced by
their execution hereof this 1st day of July 1997.
/s/Gerald E Sklar /s/Titus T D`Souza
- -------------------------------------- ---------------------------
Gerald E. Sklar Witness
/s/ Gerald E Sklar
- --------------------------------------
TRIKAL International Management Limited
/s/ Jerry G Mikolajczyk
- --------------------------------------
American Benefits Group, Inc.
87
EXHIBIT 10.10
AGREEMENT
THIS AGREEMENT made this 18th day of March, A.D. 1999.
BETWEEN:
AMERICAN BENEFITS GROUP, LTD. a body corporate registered pursuant to the laws
of the Province of Alberta in the country of Canada (hereinafter called "ABFG")
and
APRIL MINING GROUP, LTD. a body corporate registered pursuant to the laws of the
Province of Alberta in the country of Canada (hereinafter called "April").
WHEREAS ABFG has been contracted to supply personnel for AMERICAN BENEFITS
GROUP, INC.'s mining projects initially in the Democratic Republic of Madagascar
but which could, in the future, expand to other countries in Africa and/or Asia,
AND WHEREAS ABFG requires April to supply ABFG with" supervisory personnel" to
fulfill that specific aspect of ABFG's agreement with AMERICAN BENEFITS GROUP,
INC..
AND WHEREAS April is desirous of supplying ABFG with said "supervisory
personnel" pursuant to the terms hereinafter recited.
WITNESSTH THAT:
1.0 TERM
1.1 The term of this Agreement shall be from the date hereof up to and
including the 16 th day of March, A.D. 2000, hereinafter called 'the
term".
2.0 RENEWAL
2.1 Pursuant to the terms of this paragraph 2.0 ABFG has the sole and
unfettered discretion to renew1his Agreement for a renewal term or terms
of THREE (3) years each in duration provided that ABFG may only renew this
Agreement THREE (3) times the terms of each renewal to be from March 17 th
A.D. 2000 to March 16 th , A.D. 2003 inclusive; from March 17th, A.D. 2003
to March 16 th, A.D. 2006 inclusive; and, from March 17th, A-D. 2006 to
March16 th, A.D. 2009 inclusive respectively.
2.2 The Agreement for each renewal term shall be the same as this Agreement
save and except that this Agreement may only be renewed THREE (3) times.
2.3 To renew this Agreement ABFG shall provide April with written notice of
it's intention to so renew the Term or Renewal Term, as the case may be,
at April's Address for Service hereinafter provided.
2.4 The Notice required to be provided in paragraph 2.3 herein shall be
received by April, at it's Address for Service hereinafter provided on or
before the December 1 st immediately preceding the expiration of the Term
or Renewal Term to be renewed.
2.5 In the event that April does not receive ABFG's Notice of Renewal as
stipulated in paragraphs 2.3 and 2.4 herein then, and in that event, the
contractual agreement between the parties is at an end on the next
subsequent March 16.
3.0 TERMINATION
3.1 Neither of the parties hereto shall terminate this Agreement or cause it
to come to an end except through the provisions of this paragraph 3.0 and,
only then in the event that the other party hereto is found, pursuant to
the Mediation Provisions of paragraph 8.0 herein, to be in "substantial
breach" of it's obligations hereunder and remains in "substantial breach"
of it's obligations hereunder for a period of thirty (30) days subsequent
to being advised of the unsubstantial breach" and is still in "substantial
breach" at the time that this Agreement is terminated or comes to an end.
3.2 In the event that either party alleges a "substantial breach" of this
Agreement then and in that event it shall cause written notice of said
alleged unsubstantial breach" to be served upon the other party at it's
Address for -Service herein provided.
3.3 The party on whom a Notice of Substantial Breach is served upon pursuant
to paragraph 3.2 herein shall have FOURTEEN (14) days from the date of the
posting of the Notice of Substantial Breach in which to rectify and cure
the " substantial breach":.
3.4 In the event that the party whom it is alleged has committed a
"substantial breach" of this Agreement does not cure the alleged
"substantial breach" as prescribed in paragraph 3.3 herein then , and in
that even, the party alleging the "substantial breach" shall avail itself
to the Mediation provisions of this Agreement prior to terminating or
causing this Agreement to come to an end.
3.5 It is agreed by and between the parties hereto that neither party hereto
shall terminate, cause this Agreement to come to an end or otherwise cease
it's obligations hereunder until such time as the Mediation Provisions of
this Agreement are concluded.
3.6 For the purpose of this Agreement "substantial breach" shall mean any
action or inaction of a party, explicitly in contravention With the terms
hereof to which the other party cannot reasonably be compensated for by
damages or to which a reasonable and prudent business man would be unable
to carry out business as a result thereof.
4.0 AGREEMENT SUSPENSION
4.1 The parties hereto acknowledge each to the other that this Agreement is
dependent upon AMERICAN BENEFITS GROUP, INC. being able to continue it's
mining operations in the Democratic Republic of Madagascar and elsewhere,
if so commenced in the future, and in the event that AMERICAN BENEFITS
GROUP, INC. is, through causes not within it's reasonable control, unable
to continue it's mining operations or any portion thereof and the contract
between AMERICAN BENEFITS GROUP, INC. and ABFG is suspended then and in
that event ABFG shall forthwith provide written notice of same to April at
April's Address for Service herein provided and this Agreement shall , in
accordance with said Notice, be immediately suspended provided that ABFG
shall be liable to April for all salaries of April employees directly
performing services on behalf of ABFG for a period of THIRTY (30) days
thereafter, the cost for all transportation in returning said employees to
Canada, that all insurance programs in place for April employees shall be
kept in good standing by ABFG for the duration of this Agreement's
suspension and any costs attributable to ABFG incurred as at the date of
Agreement Suspension by April shall be reimbursed April by ABFG.
4.2 This Agreement may not be suspended for any period of time in excess of
six (6) calendar months from the date of Suspension Notice being posted by
.ABFG subject to the provisions of paragraph 4.7 hereof.
4.3 Any periods of Agreement Suspension shall not increase the length of any
Term or renewal term or affect in any manner whatsoever the dates on which
this Agreement shall be renewed.
4.4 A period of Agreement Suspension shall end upon ABFG providing April with
w7itten notice of same to April's Address for Service herein provided said
written notice to specify the date, which shall not be less than FIFTEEN
(15) days from April's receipt of said Notice, on which the Agreement
Suspension shall end and a revised schedule of personnel requirements and
schedules.
4.5 By way of example, and in no way to be construed as inclusive, examples of
reasons which could lead AMERICAN BENEFITS GROUP, INC. to suspend it's
Agreement with ABFG and hence ABFG to suspend the operation of this
Agreement could include insurrection, riot, war, plague, uprising,
climatic conditions or political and/or social unrest.
4.6 During the period of Agreement Suspension ABFG is not responsible to April
for any payments of any kind or nature save and except for those payments
noted in paragraph 4.1 hereof.
4.7 In the event that this Agreement is not reinstated within six (6) months
then, and in that event this Agreement is at an end, of no further cause
or effect as between the parties hereto and neither party shall make or
advance any claim of any nature or kind against the other.
5.0 APRIL'S DUTIES
5.1 April shall provide qualified "supervisory personnel", as required by
ABFG, in order for ABFG to fulfill it's agreements with third parties,
including AMERICAN BENEFITS GROUP, INC., to supply such personnel to the
third parties mine sites in the Democratic Republic of Madagascar and
elsewhere.
5.2 April shall ensure that it's employees follow, abide and comply with all
Rules and Regulations imposed by mine owners or ABFG on the respective
mine sites and shall further ensure that it's employees obey all laws of
the area in which their work duties may require their attendance.
5.3 April shall ensure that it's employees follow, abide and comply with all
Rules and Regulations imposed by ABFG to govern the day- to -day
operations of each respective mine site.
5.4 April shall ensure that it's employees comply with all laws, regulations
and codes concerning safety standards howsoever established or in place
during the progress of the work and agrees to stop any part of the work at
a mine site or elsewhere until all corrective measures to ensure the
safety of all employees of April or otherwise are carried out.
5.5 April agrees that it will maintain in good standing all required accounts
with governmental Boards of Agencies and further, to make all deductions,
contributions and payments of any kind required to be made by April or
it's employees as required by any legislation in place and further agrees
to hold ABFG harmless in the event of any non-payment of such accounts,
deductions, contributions or payments.
5.6 April recognizes the extremely confidential nature of information coming
to either it's or it's employees attention and to this end agrees with
ABFG that ABFG has the right to conduct any and all security checks on any
or all of April's employees working under this Agreement and that ABFG
may, if it is of the reasonable belief that any of April's employees pose
a reasonable security risk to either April, ABFG or a mine site owner that
it may demand that said April employee not be employed at ABFG sites.
5.7 April shall carry, at it's own cost and expense, Comprehensive General
Liability Insurance in an amount equal to at least THREE MILLION
($3,000,000.000) DOLLARS per occurrence which shall name ABFG as the first
loss payable and further covenants and agrees to save and hold ABFG
completely harmless from any cost or expense arising in favor of any third
party whatsoever as a result of April's or any of it's employees, agents
or representatives actions or inactions of any kind or nature whatsoever.
5.8 ABFG has approved the form of EMPLOYMENT AGREEMENT which April proposes to
use for all employees to be working at ABFG sites, as attached hereto as
Appendix A, and April agrees that prior to any substantial amendment to
said agreements being implemented by April that April shall obtain the
approval of ABFG to said amendments failing which the matter of the
amendment shall be referred to Binding Mediation pursuant to paragraph 8.0
hereunder the scope of the mediation to be solely whether it is reasonable
for ABFG to not approve the proposed amendment having consideration to
good business practice and ABFG's obligations to third parties including
American Benefits Group, Inc...
5.9 April shall immediately and without fail notify ABFG, in writing, at
ABFG's address for service hereunder of any circumstances known to April
which may in any respect be detrimental to April, ABFG, ABFG's business,
or any mine site owner on which April employees are working.
6.0 ABFG DUTIES
6.1 ABFG shall, in consideration for April providing the considerations noted
inparagraph 5.0 hereunder:
a) pay to April the monies noted in paragraph 7.0 hereunder;
b) provide April and April's employees with such guidance and
directions as are necessary for April to carry out it's duties
hereunder;
c) supply all materials, equipment, supplies and tools as are
reasonably required by April employees to perform the work required
by ABFG.
7.0 ABFG PAYMENT TO APRIL
7.1 ABFG shall provide April with a deposit of FIVE THOUSAND ($5,000.00)
DOLLARS to be credited to ABFG from future payments to be made to APRIL by
ABFG and, on monthly payments to be made by ABFG to April will ensure that
April has, at all times, FIVE THOUSAND ($5,000.00) DOLLARS in excess of
ABFG's monthly payment on account to be credited to ABFG's next monthly
payment to be made hereunder.
7.2 It is the intent of this Agreement that ABFG will pay to April each month,
in advance and not in arrears, April's estimated costs and expenses (costs
and expenses being defined in paragraph 11.0 herein) incurred as a direct
or indirect result of this Agreement.
7.3 Direct costs and expenses shall be those expenses incurred by April
relating only with respect to this particular Agreement and includes,
without restricting the generality of the foregone all salaries, travel
expenses and insurance obtained with respect to the employees or work
sites pertaining to ABFG.
7.4 Indirect expenses shall be those costs and expenses incurred by April
relating to those necessary expenses April incurs as a result of carrying
on business and will be pro-rated between ABFG and other clients of April
base on revenues invoiced all of April's clients for any respective month
and shall include but not be limited to office rent, office insurance,
basic communication expenses, accounting fees and the like.
7.5 All expenses, be they direct or indirect, shall be reasonable and in the
event that the parties hereto cannot agree on the reasonableness of the
expense, the extent to which the expense should be pro-rated or any other
dispute concerning the expense then and in that event the issue shall be
referred to binding Mediation pursuant to paragraph 8.0 herein.
7.6 In addition to the foregone reimbursement of expenses ABFG agrees to pay
to April a monthly administration fee of TWO THOUSAND ($2,000.00) DOLLARS.
7.7 During the term and any renewal term of this Agreement April agrees that
it shall actively seek out additional contracts with other entities so
that ABFG's pro-rated share of indirect expenses is reduced.
7.8 On or before the 30th day of each and every month of the term or renewal
term of this Agreement as the case may be April shall submit to ABFG an
actual Statement of Expenditures for the immediately preceding month
relating the direct and indirect costs and expenses paid by April to
further ABFG's goals hereunder (inclusive of any pro-rated amounts)
together with an estimate of said expenses to be incurred by April in the
next second subsequent month.
7.9 Unless ABFG objects, within SEVEN (7) DAYS of it's receipt of April's
Statement of Expenditures, to any of the costs or expenses noted in
paragraph 7.8 herein ABFG shall, on or before the 30th day of the next
month pay to April the entirety of April's said estimated expenses for the
second subsequent month plus or minus a reconciliation of the Statement of
Expenditures submitted to ABFG for the immediately preceding month (as at
the date of April's submission of Statement of Expenditures to ABFG) it
being agreed by and between the parties hereto that in the event that
ABFGs reconciliation of April's estimated expenses differs from actual
expenses in ABFG's favor that ABFG will be at liberty to deduct said
overpayment from it's monthly remittance to April hereunder..
7.10 In the event that ABFG objects to any of April's actual expenditures made
or estimated expenses to be made in the future on the basis that the
expenses do not relate to ABFG business, are not accurate, are not
properly pro-rated or for any other reason ABFG shall advise April of said
objection, in writing to April's address for service hereinafter provided,
within SEVEN (7) Days of it's receipt of April's Statement of Expenditures
and that failing resolution of the issue either party may submit the issue
to Mediation pursuant to paragraph 8.0 herein and the decision of the
mediator will be binding on all parties hereto.
7.11 Upon approval of April's estimated expenses and Statement of Expenditures
ABFG shall pay all sums owing to April by Wire Transfer to a Canadian
Chartered Bank of April's choosing, the particulars of which will be
supplied ABFG from time to time by April, all said funds to be received by
April on or before the 5th business day of the month immediately
subsequent to the date on which the expenses and expenditures were to have
been received by ABFG or within THIRTY (30) days of ABFG's actual receipt
of expense documentation from April in the event that April does not
provide ABFG with the expense documentation on the 5th business days of
the preceding month as noted in paragraph 7.8 hereunder..
7.12 April hereby grants ABFG the right to audit the books of April at any time
to verify the expenses paid by-April on ABFG business or for any other
purpose and in the event that the audit shows that the monies paid by ABFG
to April exceed, by greater than ONE (1 %) PER CENT, the amount which
ought to have been paid April by ABFG then and in that event April shall
within FOURTEEN (14) DAYS of April being served with a true copy of the
audit results either repay said sums to ABFG and ABFG's cost of performing
the audit or submit the issue to binding mediation pursuant to paragraph
8.0 hereafter...
8.0 MEDIATION
8.1 The parties hereto hereby agree each with the other that prior to either
commencing an action in any Court against the other that they will submit
the dispute to mediation pursuant to the Statutes of the Province of
Alberta then in force.
8.2 The parties agree that the venue for said mediation will be the City of
Calgary in the Province of Alberta.
8.3 Save and except where the contrary is specifically noted herein the
mediated resolution shall not be binding upon the parties hereto and
neither party shall disclose, refer or mention the mediation process at
any subsequent Court process initiated.
9.0 ASSIGNMENT
9.1 April shall not, without the approval of ABFG first hand obtained assign
it's interest or any portion thereof of this Agreement to any other party
ABFG's approval to said assignment which may be unilaterally or
unreasonably withheld.
9.2 ABFG shall be able to assign it's interest or any portion thereof of this
Agreement to any other party by providing April with written notice of
same at April's address for service hereinafter provided.
10.0 ADDRESS FOR SERVICE
10.1 April's address for service hereunder shall be:
900, 840-7th Avenue S.W., Suite 952
Calgary, Alberta
T2P 3G2
10.2 ABFG's address for service hereunder shall be:
900, 840 -7th Avenue S.W.
Calgary, Alberta
T2P 3G2.
10.3 Either party hereto may change it's address for service hereunder by
causing the other to be served with notice of said change of address by
prepaid registered post to the other's address for service either noted
herein or which is amended pursuant to this paragraph 10.3.
11.0 MISCELANEOUS
11.1 The law of the Province of Alberta shall apply to this Agreement.
11.2 Each party hereto by their execution hereof covenants, warrants and agrees
with the other that the entering of this agreement is a valid, proper and
approved corporate action.
11.3 Each of the parties hereto agrees to abide by all laws whether enacted by
the Province of Alberta or other jurisdiction in which the entity operates
or carries on business.
11.4 It is agreed by the parties hereto that April and ABFG will cooperated
each with the other in obtaining work Visa's and other like documents for
April employees to work on ABFG projects in the Democratic Republic of
Madagascar or elsewhere and to this end agree that it may be necessary for
April employees to be assigned or seconded to other corporate entities in
order for them to work on ABFG projects.
11.5 The venue for any civil action to be commenced by either party hereto
against the other shall be the corporate residency of the Defendant party
in the law suit but the laws of the Province of Alberta shall apply in all
disputes between the parties hereto save and except that this agreement
shall not be construed strictly against ABFG in any respect.
11.6 All references in this Agreement to dollars shall be CANADIAN DOLLARS.
11.7 For the purposes of this Agreement "expense" shall be defined at cost or
calculated cost.
11.8 For the purposes of this Agreement "cost" shall be defined as an actual
amount paid to an arm's length third party.
11.9 For the purposes of this Agreement "calculated cost" shall be defined as a
calculation from assumptions u9ing costs as approved by ABFG.
11.10 For the purposes of determining expenses or costs to be pro-rated between
ABFG and other clients of April it is expressly understood by and between
the parties hereto that ABFG shall only be liable to April for a pro-rated
amount if the expense or cost relates to April's performing duties for
ABFG or in Aprils duties hereunder.
11.11 This Agreement is binding on all parties hereto, including their assigns
thereunder and may only be amended in writing executed by both parties.
WHEREFORE THE PARTIES AGREE TO BE BOUND BY THE TERMS OF THIS AGREEMENT IN ALL
RESPECTS AS EVEIDENCED BY THEIR EXCUTION HERREOF AT THE CITY OF CALGARY, IN THE
PROVINCE OF ALBERTA THIS 17th DAY OF MARCH 1999.
AMERICAN BENEFITS GROUP, LTD.
Per: /s/ Jerry G. Mikolajczyk
-------------------------------------
Jerry G. Mikolajczyk
President and Chief Executive Officer
APRIL MINING GROUP, LTD
Per: /s/ David Schafer
-------------------------------------
David Schafer
President
96
EXHIBIT 21
SUBSIDIARIES OF THE REGISTRANT
The subsidiaries of American Benefits Group, Inc. are as follows:
1. American Benefits Group, Ltd.
2. Saowani Development S.A.R.L.
3. E-Block Technology Inc.
4. ABFG Sales Ltd. (Canada)
5. ABFG Sales Limited (USA)
6. American Benefits Group (Israel) Ltd.
7. American Benefits Group (Israel-Madagascar) Ltd.
8. Stones and Wood Corporation S.A.R.L.
9. ABFG Resources Madagascar S.A.R.L.
10. Club Rodeo Ltd.
97
<TABLE> <S> <C>
<ARTICLE> 5
<S> <C> <C>
<PERIOD-TYPE> 12-MOS 12-MOS
<FISCAL-YEAR-END> JUN-30-1999 JUN-30-1998
<PERIOD-START> JUL-1-1998 JUL-1-1997
<PERIOD-END> JUN-30-1999 JUN-30-1998
<CASH> 49,624 0
<SECURITIES> 0 0
<RECEIVABLES> 3,851,150 10,253
<ALLOWANCES> 0 0
<INVENTORY> 1,001,034 33,730
<CURRENT-ASSETS> 4,901,808 43,983
<PP&E> 262,946 24,154
<DEPRECIATION> (37,112) (884)
<TOTAL-ASSETS> 9,634,004 79,214
<CURRENT-LIABILITIES> 2,419,109 434,593
<BONDS> 0 0
0 0
0 0
<COMMON> 8,341,128 538,469
<OTHER-SE> (1,119,426) (988,578)
<TOTAL-LIABILITY-AND-EQUITY> 9,634,004 79,214
<SALES> 5,040,501 0
<TOTAL-REVENUES> 5,040,501 0
<CGS> 1,782,632 625,518
<TOTAL-COSTS> 5,185,050 625,518
<OTHER-EXPENSES> 1,537 5,274
<LOSS-PROVISION> 0 0
<INTEREST-EXPENSE> 0 0
<INCOME-PRETAX> 0 0
<INCOME-TAX> 0 0
<INCOME-CONTINUING> (143,012) (620,244)
<DISCONTINUED> 0 (18,406)
<EXTRAORDINARY> 0 0
<CHANGES> 0 0
<NET-INCOME> (143,012) (638,650)
<EPS-BASIC> (.004) (.03)
<EPS-DILUTED> (.004) (.03)
</TABLE>
EXHIBIT 99
A TECHNICAL REVIEW
OF SAPPHIRE PROPERTIES
IN NORTHERN MADAGASCAR
FOR
AMERICAN BENEFITS GROUP, INC.
July 24, 1999 Watts, Griffis and McOuat Limited
Toronto, Canada Consulting Geologists and Engineers
<PAGE>
TABLE OF CONTENTS
Page
1. Summary................................................................1
1.1 BACKGROUND........................................................1
1.2 GEOLoGY AND SAPPHIRE OCCURRENCES..................................2
1.3 CURRENT OPERATIONS................................................3
1.4 MARKETING.........................................................5
1.5 EXPLORATION.......................................................5
2. INTRODUCTION...........................................................8
2.1 GENERAL...........................................................8
2.2 TERMS OF REFERENCE................................................8
2.3 SOURCES OF INFORMATION...........................................11
2.4 MADAGASCAR: THE COUNTRY.........................................11
2.5 DEFINITIONS......................................................12
2.6 UNITS, CURRENCY AND LANGUAGE.....................................13
3. PROPERTY, LOCATION AND ACCESS.........................................13
3.1 PROPERTY.........................................................14
3.2 LOCATION AND ACCESS..............................................15
4. PHYSIOGRAPHY AND CLIMATE..............................................17
5. HISTORY...............................................................18
6. GEOLOGY AND SAPPHIRE DEPOSITS.........................................20
6.1 GEOLOGY..........................................................20
6.2 SAPPHIRE OCCURRENCES.............................................23
7. DESCRIPTION OF CURRENT OPERATIONS.....................................24
7.1 GENERAL..........................................................24
7.2 MINING AND PROCESSING............................................24
7.3 SIZE, QUALITY AND VALUE OF THE STONES............................32
8. MARKETING.............................................................37
8.1 FORMATION OF JOINT VENTURE.......................................37
8.2 TERMS AND CONDITIONS OF JOINT VENTURE AGREEMENT..................37
9. EXPLORATION...........................................................39
-ii-
<PAGE>
9.1 STATUS OF THE PROPERTY...........................................39
9.2 PREVIOUS EXPLORATION.............................................39
9.3 CURRENT EXPLORATION..............................................42
9.4 PROPOSED EXPLORATION.............................................44
10. CONCLUSIONS..........................................................47
CERTIFICATE...............................................................49
LIST OF MATERIALS AVAILABLE FOR REVIEW....................................50
LIST OF TABLES
TABLE 1...................................................................15
TABLE 2...................................................................25
TABLE 3...................................................................31
TABLE 4...................................................................36
LIST OF FIGURES
1. Location map........................................................10
2. Property map........................................................14
3. Geology.............................................................21
4. Basaltic volcanic cone to west of M-4 property, Photo No. 1.........22
5. Mining area at M-4 property, Photo No. 2............................26
6. Wash plant, Photo No. 3.............................................27
-iii-
<PAGE>
7. Cleaning the Jigs on the wash plant, Photo No. 4....................29
8. Initial cleaning and sorting of product from Jigs, Photo No. 5......29
9. Phase 1 sorting of sapphires, Photo No. 6...........................30
10. Phase III sorting of sapphires, Photo No. 7.........................34
11. Sapphire prospect 3 km south of M-4, Photo No. 8....................43
-iv-
<PAGE>
1. Summary
1.1 BACKGROUND
American Benefits Group, Inc. ("ABFG") has offices in: the United States
(Deerfield Beach, Florida; New York City, New York); Canada (Calgary, Alberta);
Madagascar (Antananarivo); Israel (Ramat-Gan) and Thailand (Bangkok).
ABFG is a publicly traded company (NQB: ABFG) with diversified business
operations, including an Internet Services Division ("ISD") and sapphire
properties in northern Madagascar. For the sale of sapphires produced from its
properties in Madagascar, ABFG has entered into a Joint Venture with the Menavi
Group, an Israeli Company, for the marketing of rough stones and for the
processing (sorting, cutting and polishing) of gems.
ABFG is currently preparing the necessary application forms and supporting
documentation for registration as a reporting issuer under rules 12(b) or 12(g)
of the Securities Exchange Act of 1934. Among the documentation required to be
filed is a Form 10SB, which requires an accompanying report on the Madagascar
Sapphire Properties, as described in Guide 7 (Securities Exchange Act of 1934).
("Description of Property by Issuers Engaged or About to Become Engaged in
Significant Mining Operations"); Bulletin No. 168, 04-25-96).
Watts, Griffis and McOuat Limited ("WGM") was initially contacted by ABFG on
April 14, 1999 regarding their requirements for a technical review of ABFG's
sapphire properties in Madagascar. WGM was subsequently formally requested by
ABFG to send a geologist to Madagascar to visit its sapphire properties and to
prepare the technical review report.
A WGM Senior Geologist, W.J. (Jack) Mullins, completed the assignment on behalf
of ABFG. Mr. Mullins travelled to Madagascar, leaving Toronto on June 10 and
arriving in Antananarivo, the capital city, on June 11 1999. He visited the
sapphire properties in northern Madagascar and returned to Canada on June 19
1999.
Metric units are used throughout this report, with the exception of references
to the quantity of material being mined at the M-4 property, which is expressed
as bank cubic yards (bcy). All currency amounts are quoted in United States
dollars (US$). Sapphire weights are expressed in both grams and carats, an
international carat being equivalent to 0.2 grams.
ABFG's property holdings in northern Madagascar consist of 37 carres with a
total area of 231.25 km. These carreaux consist of three separate groups, but
are routinely referred to by ABFG as 37 "perimeters". Of the 37 carreaux held by
ABFG, 19 are Type 1 exploration permits which are valid for a period of 2 or 3
years and are renewable; and 18 are Type 3 mining permits which are valid for a
period of 30 years, and are also renewable.
The property is located in the extreme northern part of Madagascar. It is
located about 80 km by road to the south of Antisiranana (or Diego Suarez, as it
is more commonly called; or simply "Diego").
The capital city of Antananarivo (or "Tana", as it is commonly known) has an
international airport and is served by regular flights from Paris by both Air
France and Air Madagascar. Diego is the largest population center in the north,
and is served by daily Air Madagascar flights from Tana.
Access to the property from Diego is by good paved road for about 80 km, then an
additional 10 km by a rough bush track. The total driving time between Diego and
the camp is about 90 minutes.
The perimeters which comprise ABFG's property holdings in northern Madagascar
were acquired through the acquisition of Stones and Wood Corporation S.a.r.l.
("Stones and Wood"); and acquisitions from the Suzannah family (Marc, Christophe
and Francis), Yehiel Razafiarson, and Vanessa Zafinahova.
Prior to the take-over of Stones and Wood by ABFG, Blue Star S.a.r.l ("Blue
Star") was actively engaged in mining sapphires on the block known as M-4.
Subsequent to the purchase of Stones and Wood, ABFG formed an operating mining
company with Dove Gems and Jewellery Co. Ltd. ("Dove"). ABF and Dove formed a
joint venture to operate the mine: the joint venture agreement provides for the
purchase of the plant and other equipment by ABFG.
1.2 GEOLoGY AND SAPPHIRE OCCURRENCES
The concession areas are underlain by a succession of Jurassic to Cretaceous
limestones and dolomites which dip gently to the northwest. The valley floors
are underlain by a series of late (Tertiary-Quaternary) alkali flood basalts and
associated volcanic cones. These basalts exhibit distinct evidence of both syn-
and post-volcanic faulting against the older sedimentary rocks.
Subsequent post-tectonic erosion of the limestones liberated the sapphires from
their original structural traps, and they accumulated in a number of eluvial and
alluvial deposits. The distribution of these deposits is closely associated with
the drainage pattern that formed on the limestone topography.
1.3 CURRENT OPERATIONS
Mining and Processing
The mining being carried out by ABFG within Block M-4 is a small scale earth
moving operation on a sapphire deposit which had previously been exploited by
IMA, Andover, Blue Star and Dove Gems and Jewellery Co. Ltd. as the mine
operator.
Adam Mining Company, Ltd. ("Adamco") is mining a second deposit within Block
M-9, and the sapphire-bearing gravel is being trucked to a wash plant within
Block M-8. Under the terms of a contractual agreement, ABFG receives 25% of the
rough stones produced by Adamco.
ABFG commenced mining at the M-4 property on May 31, 1999 using the same mining
equipment and wash plant as had previously been used by Blue Star.
During the 15 days that the plant operated between May 31 1999 and June 26 1999,
the daily processing rate averaged 361.4 m^3 and production of corundum averaged
3,548.2 g/day. The average recovery of good quality, transparent and translucent
sapphires from the gravel processed during that period was 5.82 g/m^3. These
quality stones will be sent for faceting, while the poor quality, opaque stones
will be converted into cabachon.
Sorting of the Stones: Size, Quality and Value
The Phase I sorting of the rough stones is carried out at two sorting tables
adjacent to the wash plant. The stones are then transferred to the sorting shed
in secure, locked containers and turned over to the custody of the Senior
Gemologist at the M-4 property, Mr. Gilad Deutscher. Mr. Deutscher is
responsible for the final sorting of the stones by size and grade.
In Phase II of the sorting process, the gems are sorted by size over four
screens: No. 42 (12% of production), No. 32 (14 to 15% of production), No. 24
(27% of production), and No. 20 (40% of production). The undersize of the No. 20
screen comprises about 3% of production. The numbers quoted are the average in
each case.
The size of the stones in each screen size are as follows:
M-4 DEPOSIT
SIZE AND WEIGHT
OF STONES RECOVERED
===============================================================================
Mesh Size Avg. Weight
Sieve No. (mm) g carat
- -------------------------------------------------------------------------------
42 9 5.0
32 Minus 9 Plus 6 0.4 2.0
24 Minus 6 Plus 5 0.2 1.0
20 Minus 5 Plus 4 0.1 0.5
Minus 20 Minus 4 <0.1 <0.5
- -------------------------------------------------------------------------------
o No. 42: 5 ct stones (1 g and up);
o No. 32: 2 ct stones (2 1/2 stones in 1 g);
Approximately 30% of the stones are transparent, and are good quality gems.
These will eventually be faceted. An additional 30% are translucent and it is
probable that most of them will also be faceted. The remaining 40% are opaque,
and while they can be used in jewellery in the form of cabochons, their selling
price is very low.
Sorting can also be carried out according to color; however, the color of some
of the stones will change after heat treatment. Therefore, they will be sorted
again after heat treatment and, at that stage, color will become a major factor.
According to the on-site gemologist, the lowest quality of the rough, i.e., the
cabochon stones, sell for a price of about $200/kg. The rough translucent and
transparent stones have an estimated value of $2,000/kg; however, the presence
of high quality individual stones in the transparent and translucent categories
could impact significantly on the final value of any particular package.
Status of the Property
At the time that this report was being prepared, WGM did not have sufficient
data on the M-4 sapphire deposit within the ABFG property to allow an estimate
to be made of Proven (Measured) and/or Probable (Indicated) Reserves according
to the definitions in Guide 7 on pages 495-496 of the Securities Act Rules. The
previous owner operated the deposit for almost two years. Impressive quantities
of valuable rough sapphire are currently being produced by ABFG's open pit
alluvial mining and wash plant-processing operation at M-4. In addition, and
exploration program to obtain the data required to estimate the volume and grade
of sapphire bearing material in the deposit is in progress.
WGM recommends, this exploration program a reserve estimate should be completed;
and that additional exploration should be carried out to define reserves on the
other known sapphire prospects within the ABFG perimeters in northern
Madagascar.
1.4 MARKETING
For the sale of sapphires produced from its properties in Madagascar, ABFG has
entered into a Joint Venture with the Menavi Group ("Menavi") for the processing
(sorting, cutting and polishing) of gems and the marketing of rough stones.
Following the signing of the Joint Venture agreement, ABFG and Menavi registered
an off-shore corporation called Total Gem Management ("TGM") which will manage
and handle ABFG sapphire after they have been mined and sorted.
The total net sales derived from the Joint Venture will be divided in the
following proportions:
Cut and semi-cut stones: ABFG 75%; TGM 25%
Unprocessed rough: ABFG 85%; TGM 15%
1.5 EXPLORATION
Previous Exploration
WGM reviewed reports on exploration of the properties by Santamas and Wannachot
(1997) and Rasamimanana and Rakotoarimalala (1998), as well as a brief report on
a property visit by Rossovsky (1996). In addition, we discussed ABFG's current
exploration with the Company's Geologist, Mr. Gino Rasamison, and also visited a
new discovery that Mr. Rasamison and his team had made approximately 3 km to the
south of the M-4 deposit. It is clear that sapphire occurrences within ABFG's
properties are quite extensive, and that significant exploration expenditures
are not only warranted but also required, to quantify Proven (Measured) and
Probable (Indicated) Reserves.
An exploration program is required in order to obtain the necessary information
to completely outline the M-4 deposit. Its boundaries and the thickness of the
sapphire-bearing material must be determined in order to arrive at an estimate
of the volume and/or tonnage, and an average grade, in terms of carats of
sapphire per m^3 or per tonne.
In WGM's view, ABFG should initiate a three-pronged exploration program whose
objectives would be to:
1. Complete an estimate of Proven and Probable Reserves, as well as an
estimate of "Other Mineralization" within the M-4 deposit.
2. Continue the ongoing reconnaissance exploration program within the licence
areas with the objective of locating new deposits; and,
3. Carry out detailed investigations leading to estimates of Proven and
Probable Reserves, as well as "Other Mineralization", within the deposits
identified in the reconnaissance exploration program.
The first requirement is to produce a large-scale plan of the M-4 mine area
which will provide a base on which to plot all of the information currently
available, including topography, geology, the outline of the present workings,
and exploration pits, trenches and drillholes.
Pits and Trenches
In WGM's opinion, the approach to exploration should be as follows:
o If the deposit occurs in the form of a wide blanket, whose length and
width are somewhat similar, then the best approach will be to sink pits to
bedrock at regular spacings on a grid, say 50 metres for Probable Reserves
and 25 metres for Proven Reserves.
o If the deposit is much longer in one dimension than the other, as it will
be if it is confined to a drainage channel, then the best approach may be
to dig trenches to bedrock across the deposit at intervals of about 50
metres for Probable Reserve.
Accurate elevations of the collar and depth of each pit will be required, as
well as a topographic profile of each trench. A visual inspection should be made
of each pit and trench and a small sketch made to show the lithology encountered
from surface to bottom
Sample Processing
The volume of all of the material recovered from each individual pits and
trench, or portion of a trench, should be measured, processed through a wash
plant, and manually sorted to recover all of the sapphires in the sample. The
grade of the sample in carats per cubic metre can then be estimated.
Estimation of Reserves
After all of the pits and/or trenches have been excavated and the samples have
been processed, the resulting information will be plotted on sections and used
to complete an estimate of reserves.
The capital cost of the drill, bulldozer and wash plant will be in excess of $ 1
million, and an estimate of the exploration budget for the 12-month period from
July 1, 1999 to June 30, 2000 is estimated at $500,000.
2. INTRODUCTION
2.1 general
American Benefits Group, Inc. ("ABFG") has offices in: the United States
(Deerfield Beach, Florida; New York City, New York); Canada (Calgary, Alberta);
Madagascar (Antananarivo); Israel (Ramat-Gan) and Thailand (Bangkok).
ABFG is a publicly traded company (NQB: ABFG) with diversified business
operations, including an Internet Services Division ("ISD") and sapphire
properties in northern Madagascar. For the sale of sapphires produced from its
properties in Madagascar, ABFG has entered into a Joint Venture with the Menavi
Group, an Israeli Company, for the marketing of rough stones and for the
processing (sorting, cutting and polishing) of gems.
For the sale of sapphires produced from its properties in Madagascar, ABFG has
entered into a Joint Venture with the Menavi Group, an Israeli company, for the
marketing of rough stones and for the processing (sorting, cutting and
polishing) and marketing of gems. Rough stones are sent to Israel and Thailand
for processing, which includes heat treatment, cutting and polishing. The
polished gems are either batched for bulk sales, or incorporated into fine
pieces of jewellery which are marketed on the Internet, through ABFG's Internet
Shopping Mall, RodeoIsland.com.
The location of ABFG's properties in northern Madagascar is shown in Figure 1.
2.2 terms of reference
On 4 January 1999, the US Securities and Exchange Commission ("SEC") approved
the OTCBB Eligibility Rule, whereby securities not quoted on the OTCBB as of
that date would be required to report their current financial information to the
SEC, banking, or insurance regulators in order to meet eligibility requirements.
Nos. 6530 and 6540, became effective on July 4, 1999.
In order to comply with the Eligibility Rule, ABFG must register under Form
10SB, which is the general form for registration of securities pursuant to
Sections 12(b) or (g) of the 1934 Act for "small business issuers". One of the
requirements is a report whose contents are consistent with the guidelines of
Guide 7 of the SEC Rules ("Description of Property by Issuers Engaged or to be
Engaged in Significant Mining Operations"; Bulletin 168; 04-25-96).
ABFG is currently preparing the necessary application forms. Among the
documentation required to be filed in a Form 10-SB is an accompanying report on
the Madagascar Sapphire Properties, as described in US Security Rules, Guide 7
("Description of Property by Issuers Engaged or About to Become Engaged in
Significant Mining Operations").
Watts, Griffis and McOuat Limited ("WGM") was requested by ABFG to travel to
Madagascar, visit the sapphire properties and to prepare the technical review
report.
<PAGE>
Figure 1. Location map
<PAGE>
2.3 sources of information
A WGM Senior Geologist, W.J. (Jack) Mullins, completed the assignment on behalf
of ABFG. Mr. Mullins travelled to Madagascar, leaving Toronto on June 10, 1999
and arriving in Antananarivo, the capital city, on June 11, 1999.
While in Antananarivo, Mr. Mullins met with Mr. Dror Maradov, ABFG's
Vice-President, Director and Chief Operating Officer for Madagascar, who briefed
him on all aspects of the Company's sapphire operations.
On June 14, 1999, Mr. Mullins travelled to Diego Suarez, at the extreme northern
tip of Madagascar, where he was met by Mr. David Schaffer, Manager of the
ongoing activities at ABFG's sapphire properties in the northern part of the
country, and Mr. Andrew Bradsell, an ex-Royal Marine and Head of Security for
ABFG in Madagascar.
Mr. Mullins spent several days at the camp on the M-4 property and observed the
mining and processing of the sapphire-bearing gravels, the initial sorting of
the jig concentrate from the wash plant, and the final sorting by the gemologist
on site, Mr. Gilad Deutscher.
Mr. Mullins also met with Mr. Gino Rasamison, ABFG's Exploration Geologist, at
the sapphire property. Together with Mr. Schaffer and Mr. Bradsell, they visited
the Adamco Mining Inc. plant and mine site and several locations within ABFG's
properties where sapphires are known to occur. Mr. Moradov also visited the camp
while Mr. Mullins was there.
Following his return to Antananarivo from Diego Suarez, Mr. Mullins visited:
o the Department of Geology in the company of Mr. Gino Rasamison, in order
to collect certain maps and reports that are necessary to complete this
report; and,
o in the company of Mr. Moradov, the Direction des Mines, to verify ABFG's
title to the properties that are the subject of this report.
2.4 madagascar: the country
Madagascar, also known as the Malagasy Republic, is an independent island
republic with a democratic government which lies in the Indian Ocean off the
southeast coast of Africa. It is the fourth largest island in the world, with a
total area of 587,040 km2. The population is approximately 13 million and the
annual population growth rate ("PGR") is about 3%. The capital city is
Antananarivo ("Tana"). Other major towns are Antsirabe, Fianarantsoa, the port
of Toamasina, and Antisiranana (Diego Suarez).
World Bank data places Madagascar among the poorest countries in the world in
terms of real per capita Gross Domestic Product ("GDP") and for the 15 years
prior to 1997, the average GDP had lagged behind the PGR. The Malagasy economy
has traditionally been agriculturally based, with vanilla, coffee, cloves, rice,
cotton and sisal being the chief exports. The recent coffee boom has temporarily
boosted rural incomes and the fishing sector is expanding with foreign
investment from Europe and Japan. Tourism is also growing especially in the
"eco-tourism" niche market, but Madagascar has trouble competing with other East
African destinations because of its poor infrastructure and transportation
facilities.
Despite its substandard economic performance, Madagascar is attractive to
investors because of its unique natural environment, wide variety of resources,
extremely low cost, mostly literate, and highly trainable work force; and
location at the cross-roads between Asia and Africa.
In 1993, the country made a successful change from a totalitarian to a
democratic government; as a result, economic reforms begun in the late 1980s
were halted and the economic decision making process was impeded. However, a
peaceful transition has been made to an elected parliamentary system, and the
focus is now on introducing economic reforms to pull the country out of the
failed economic experiment of the past.
As in many Third World countries, Madagascar's burgeoning population has
resulted in the destruction of much of the forest cover. While ecologists worry
about the future of the fauna and flora of this unique island, the encroachment
into the wilderness areas has led to the discovery of new gem deposits and has
improved the country's economic outlook. As a result, Madagascar's growing role
as a world power in the gem community seems assured.
2.5 DEFINITIONS
Guide 7 of the SEC Rules contains the following definitions which apply to
issuers engaged or to be engaged in significant mining operations:
Reserve is defined as "that part of a mineral deposit which could be
economically and legally extracted or produced at the time of the reserve
determination".
Proven (Measured) Reserves are reserves for which:
(a) quantity is computed from dimensions revealed in outcrops, trenches,
workings or drillholes, with grade and /or quality being computed from the
results of detailed sampling; and
(b) the sites for inspection, sampling and measurement are spaced so closely
and the geologic character is so well defined that size, shape, depth and
mineral content of reserves are well established.
Probable (Indicated) Reserves are reserves for which quantity and grade and/or
quality are computed from information similar to that for proven (measured)
reserves, but the sites for inspection, sampling, and measurement are farther
apart or are otherwise less adequately spaced. The degree of assurance, although
lower than that for proven (measured) reserves, is high enough to assume
continuity between points of observation.
Issuers engaged in or about to be engaged in significant mining operations are
classified into one of three categories, as follows:
o (i) the Exploration Stage. Includes all issuers engaged in the search for
mineral deposits (reserves) which are not in either the development or
production stage.
o (ii) the Development Stage. Includes all issuers engaged in the
preparation of an established commercially mineable deposit (reserves) for
its extraction which are not in the production stage.
o (iii) the Production Stage: Includes all issuers engaged in exploitation
of a mineral deposit (reserve).
Guide 7 specifies that mining companies in the exploration stage should not
refer to themselves as development or production stage companies in the
financial statements.
2.6 units, currency and language
Metric units are used throughout this report, with the exception of references
to the quantity of material being mined at the M-4 property, which is expressed
as bank cubic yards or bcy. All currency amounts are quoted in United States
dollars (US$). Sapphire weights are expressed in both grams and carats, an
international carat being equivalent to 0.2 grams.
Madagascar has two official languages: Malagasy and French. Malagasy is the
every day spoken language while French is normally the language of business.
3. PROPERTY, LOCATION AND ACCESS
3.1 property
The laws governing ownership of exploration and mining properties in the
Republic of Madagascar are contained in the "Code Minier" (the "Code"), which
came into effect on July 26, 1995. In the Code, the basic unit of land under
which title is awarded to a permit holder is a "carre". A carre is defined as a
square contiguous with its four sides measuring 2.5 km and oriented north-south
and east-west. One or several carreaux in the same area awarded to a single
permit holder is known as a "perimetre", ("perimeter" in English).
This report deals with the sapphire properties in northern Madagascar which ABFG
acquired as a result of the purchase of Stones and Wood S.a.r.l.. These
properties consist of 37 carres, or mining permits, with a total area of 231.25
km, (Figure 2). The 37 carreaux consist of three separate groups, and are
routinely referred to by ABFG as 37 "perimeters". ABFG has additional properties
in northern Madagascar which were acquired from other companies and individuals:
they are primarily prospective for gold, and are not discussed in this report.
Mining permits are classified into three types, i.e., Type 1, Type 2 and Type 3.
Type 1 permits are awarded only to individuals who must be both Malagasy
citizens and are resident in Madagascar, while Type 2 and Type 3 permits are
awarded to:
(a) small and medium companies; and,
(b) large companies;
incorporated in Madagascar.
In all cases, the applicant must provide supporting evidence of its ability and
financial capabilities.
Figure 2. Property map
Of the 37 carreaux held by ABFG, 19 are Type 1 exploration permits which are
valid for a period of 2 or 3 years and are renewable; and 18 are Type 3 mining
permits which are valid for a period of 30 years, and are also renewable.
Mr. Mullins of WGM and Mr. Dror Moradov of ABFG visited the office of Mr. Desire
at the Direction des Mines in Tana on June 18, 1999. Mr. Moradov was in
possession of copies of the various groups of permits that had been assigned to
ABFG by the individual permit holders. Details relating to these permits, which
were checked and verified by Mr. Desire in the presence of Mr. Mullins and Mr.
Moradov, are shown below:
TABLE 1
ABFG MINING PROPERTIES
IN NORTHERN MADAGASCAR
<TABLE>
<CAPTION>
==========================================================================================
Permits Permits Licence No./ Effective Duration
Name of Permit Holder No. Type Decision No. Date (Years)
- ------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
Stones and Wood Corporation
SARL 17 III V32-98-002/EIII 98-02-23 30
Stones and Wood Corporation
SARL 2 III V32-98-001/EIII 98-02-23 2
Christopher Suzannah 5 I(Ext.) 99/003 99-01-20 2
Marc Suzannah 1 I(Ext.) 99/009 99-01-20 2
Francis Suzannah 5 I(Ext.) 99/012 99-01-20 2
Yehiel Razafiarison 3 I(Ext.) 99/013 99-01-20 2
Vanessa Zafmahova 4 I(Ext.) 99/014 99-01-20 2
---
Total 37
- ------------------------------------------------------------------------------------------
</TABLE>
Note: (Ext.) = Extension
3.2 location and access
The property is located in the extreme northern part of Madagascar (Figure 1).
It is located about 80 km by road to the south of Antisiranana (or Diego Suarez,
as it is more commonly called; or simply "Diego").
The capital city of Antananarivo (or "Tana", as it is commonly known) has an
international airport and is served by regular flights from Paris by both Air
France and Air Madagascar. Diego is the largest population center in the north,
and is served by daily Air Madagascar flights from Tana.
Access to the property from Diego is by good paved road for about 80 km, then an
additional 10 km by a rough bush track. The total driving time between Diego and
the camp is about 90 minutes.
4. PHYSIOGRAPHY AND CLIMATE
The topography of the area is characterized by alternating north-south trending
valleys and ridges. Numerous volcanic cones rise above the surrounding
countryside. Elevations range from 250 to 550 m above sea level.
The climate of the area is tropical, with distinct wet and dry seasons. At least
90% of the rainfall occurs between November and March, the town of Ambilobe to
the Southwest of the map area averaging about 1.97 m annually.
Temperatures are high throughout the year; daily maximums are about 35(Degree)C
during the dry season and 35 to 40(Degree)C during the rainy season. However,
the night-time temperatures are relatively cool by comparison.
Vegetation is of the bush-savanna type, consisting primarily of grasslands. The
trees are typical of those found in a dry forest, such as thorn bush, Satrana
palms and baobab.
5. HISTORY
The perimeters comprising ABFG's property holdings in northern Madagascar were
acquired in 1999 through the purchase of the shares of Stones and Wood and by
the purchase of carreaux from:
o the Suzannah family (Marc, Christophe and Francis);
o Yehiel Razafiarson; and
o Vanessa Zafinahova.
Following is a history of Stones and Wood's operations in northern Madagascar
from January 1997 to May 1999.
January 1997 -
November 1997 Stones and Wood entered into an agreement with IMA, a
company formed by a group of individuals from Israel, giving
IMA the right to mine sapphires within its perimeters in
return for a royalty to Stones and Wood on any gemstones
produced. IMA then engaged Dove to provide consulting advice
and to conduct mining operations on its behalf.
Dove commenced mining on behalf of IMA in April, and continued
until November 1997. Mining ceased in November due to internal
management problems at IMA.
During the eight-month period between April and November 1997,
IMA processed 27,589 m^3 of material for an average of 35.23
m^3 per hour, and recovered 703,333 g of rough stones,
including 364,628 g of first and second quality blue and
yellow stones, for an average grade of 13.2 g/m^3. The
remaining 338,905 g consisted of corundum (cabachon).
December 1997 Stones and Wood cancelled IMA's contract.
January 1998 Stones and Woods entered into an agreement with Andover
Management S.a.r.l. ("Andover") to mine sapphires within its
perimeters. Andover retained Dove to carry out mining
operations, at the same locations as IMA had been mining
previously.
January 22, 1998 Stones and Wood entered into an agreement with
Mexican Mining, giving Mexican the right to explore for
sapphires within certain of its perimeters.
March 12, 1998 Stones and Wood cancelled Mexican's contract due to
non-performance and lack of funds.
March 1998 The government of Madagascar halted all mining operations in
northern Madagascar in order to introduce new regulations for
the sapphire mining operations, and particularly to control
illegal mining operations by artisan miners within the World
Wildlife Reserve.
July 1998 Stones and Wood awarded a contract to JAK Mining S.a.r.l.
("JAK") to explore for sapphire deposits within 13 perimeters.
JAK commenced exploration within these perimeters on July 29.
September, 1998 The government of Madagascar lifted the halt
order and allowed mining companies to resume operations.
October, 1998 Andover stopped mining due to internal conflicts. None of
Andover's production reports are available.
November, 1998 Stones and Wood cancelled its contract with Andover, following
which it awarded a contract to Blue Star to mine sapphires
within the perimeters in which Andover had been mining. Blue
Star, in turn, awarded a contract to Dove. (Later, from 12
April to 20 May, 1999, Dove operated a wash plant within block
M-4 on behalf of Blue Star. WGM reviewed Blue Star's operating
records for that period, which show that it produced 73,386 g
of corundum. Following the Phase III sort, Blue Star recovered
50,675 g of sapphire, for an average of 8.38 g/m^3).
Stones and Wood also awarded a contract to Adam Mining Company
S.a.r.l. ("Adamco") which gave it the right to mine sapphires
within blocks M-8 and M-9.
May 1999 ABFG acquired Stones and Wood, following which ABFG cancelled
all existing operating agreements with Blue Star and JAK. As
part of an agreement with Dove, ABFG acquired the mining
equipment and wash plant, refurbished it and commenced it's
own mining operation.
6. GEOLOGY AND SAPPHIRE DEPOSITS
6.1 GEOLOGY
The extreme northern part of Madagascar is made up of Precambrian crystalline
rocks (the "Systeme du Graphite" - migmatite, gneiss and mica schist) in the
middle of which outcrops the "Systeme du Vohibory" (Figure 3).
In the region of Vohemar, this system is represented by the Dairama group which
is characterized by rocks of the amphibole-epidote metamorphic facies (amphibole
gneiss, amphibolites, epidotites, green schists, migmatites). Some of these
rocks are derived from basic volcanic rocks.
The sedimentary rock series begins with highly fossiliferous Permian-Triassic
marine rocks. These are followed by the Karoo, with a slight structural
discordance.
The Jurassic of northern Madagascar consists primarily of rocks of marine
origin. The middle Jurassic calcareous rocks of the north are followed by upper
Jurassic marls and Cretacous sequence marls and sandstones, at times
glauconitic. The end of the Tertiary is marked by the return of the ocean and
the deposition of marine rocks.
A large part of the extreme north of Madagascar is covered by vast outpourings
of basaltic rocks of Quaternary age, and volcanic cones are common in the
region. One such cone, known as "Marotadana" dominates the countryside near the
turn-off to the M-4 property (Figure 4), Photo No. 1).
<PAGE>
Figure 3. Geology
-21-
<PAGE>
Figure 4. Basaltic volcanic cone to west of M-4 property, Photo No. 1
-22-
<PAGE>
The concession areas are underlain by a succession of Jurassic to Cretaceous
limestones and dolomites which dip gently to the northwest. The valley floors
are underlain by a series of late (Tertiary-Quaternary) alkali flood basalts and
associated volcanic cones. These basalts exhibit distinct evidence of both syn-
and post-volcanic faulting against the older sedimentary rocks.
Subsequent post-tectonic erosion of the limestones liberated the sapphires from
their original structural traps, and they accumulated in a number of eluvial and
alluvial deposits. The distribution of these deposits is closely associated with
the drainage pattern that formed on the limestone topography.
6.2 SAPPHIRE OCCURRENCES
6.2.1 GENERAL
Sapphire, or gem corundum (AI2O3+Fe, Ti, Cr) is often found in placer deposits.
According to Santamas and Wannachot (1997), clear evidence exists that the
gemstones found within the ABFG properties are of volcanic origin, as corundum
megacrysts have been found within relatively fine-grained Quaternary-Tertiary
alkali-syenite volcanic flows. There is no petrogenetic relationship between the
sapphires and the limestones.
Within the ABFG properties, sapphires occur in soils filling joints and
fractures within Jurassic limestones. These limestones form the highest points
of the northeast-southwest striking ridges, whereas the volcanic rocks in which
the sapphires originated often form the floors of the valleys, 100 m below the
limestones.
The best explanation that can be provided for the relationship between the
distribution of primary sapphire occurrences and the limestone beds is that the
sapphires were liberated from the Quaternary-Tertiary volcanic rocks by erosion
and deposited onto a peneplain comprised of limestone. Having already been
subjected to extensive weathering, the limestone contained many structural traps
in which the sapphires collected.
Subsequent post-tectonic erosion of the limestones liberated the sapphires from
their original structural traps, and they accumulated in a number of eluvial and
alluvial deposits. The distribution of these deposits is closely associated with
the drainage pattern that formed on the limestone topography.
7. description of current operations
7.1 general
The mining currently being carried out by ABFG within Block M-4 is a small scale
earth moving operation on a sapphire deposit which had previously been exploited
by Dove on behalf of Blue Star, Andover and IMA through an arrangement between
Blue Star and the previous property owner, Stones and Wood. Adam Mining Company,
Ltd. ("Adamco") is currently mining a second deposit in Block M-9 and trucking
the sapphire-bearing gravel to a wash plant located a short distance away, in
Block M-8. Under the terms of the contract between ABFG and Adamco, ABFG
receives 25% of the stones produced by Adamco as a royalty.
7.2 mining and processing
ABFG commenced mining at the M-4 property on May 31, 1999 using the same mining
equipment and wash plant that were previously used by Dove. A list of the
equipment at the M-4 site is shown in Table 3.
-24-
<PAGE>
TABLE 2
LIST OF EQUIPMENT AT THE M-4 SITE
===============================================================================
1 MTS 250 trommel. Capacity is 120-150 m^3/hr, and is complete with an 85
Hp Kanter diesel engine.
1 MCP centrifugal pump, triple stage, 6 x 5 in., complete with 300 Hp
diesel engine.
3 Jig concentrators complete with 8 Hp diesel engine.
1 Jig wheel set.
1 MCP centrifugal pump, triple stage, 6 x 5 in., complete with 190 Hp
diesel engine.
1 Vertical gravel pump, 5 x 6 in., complete with 160 Hp diesel engine.
1 MCT 120 mobile cone trommel complete with 8 Hp diesel engine.
1 lot of hydraulic sluicing guns, manifold, and accessories.
1 Caterpillar 320 L Excavator.
1 30 KVA generator (3 phase)
2 Honda generators (5 Hp).
1 Caterpillar 943 front end loader - (rented).
1 lot various service vehicles.
1 Camp - 40-person.
1 mechanical workshop, complete with tools.
- -------------------------------------------------------------------------------
The mining area with the Caterpillar 320L excavator at work and the primary
trommel is shown on Figure 5 (Photo No. 2), and the wash plant is shown on
Figure 6 (Photo No. 3).
-25-
<PAGE>
Figure 5. Mining area at M-4 property, Photo No. 2
-26-
<PAGE>
Figure 6. Wash plant, Photo No. 3
-27-
<PAGE>
At the end of each shift the jigs are cleaned (Figure 7, Photo No. 4) and an
initial screening operation is carried out, with the screen oversize being
rejected (Figure 8, Photo No. 5). The initial sort of the jig product (Phase I
Sort) is carried out by Malagasy women at sorting tables adjacent to the wash
plant. (Figure 9, Photo No. 6).
During the 15 days of production between May 31 and June 27, the daily
processing rate averaged 361.4 m^3 and sapphire production averaged 3,548.2
g/day. The average sapphire content of the gravel processed during that period,
including cabachon (i.e., poor quality, opaque stones) was 9.78 g/m^3. Following
the Phase III Sort, average recovery of good quality transparent and translucent
stones was calculated at 5.82 g/m^3.
-28-
<PAGE>
Figure 7. Cleaning the Jigs on the wash plant, Photo 4
Figure 8. Initial cleaning and sorting of product from Jigs, Photo 5
-29-
<PAGE>
Figure 9. Phase 1 sorting of sapphires, Photo 6
-30-
<PAGE>
The distribution of the facet stones, cabachon stones and rejects for the
sapphires produced during the operating period between May 31 and June 27, 1999
is shown in Table 3.
TABLE 3
M-4 DEPOSIT
PRODUCTION SUMMARY
===============================================================================
Production Cabcochon
Ore Weight Facet Weight Weight Total Weight
Production Processed After Sort After Sort After Sort After Sort
Date (m^3) I (g) III (g) III (g) III (g)
- -------------------------------------------------------------------------------
May 31 328 3,424 2,301 1,003 3,304
June 2 490 3,804 2,382 1,263 3,645
June 3 450 3,444 2,154 1,145 3,299
June 4 365 5,114 3,081 1,798 4,879
June 5 364 3,880 2,264 1,376 3,640
June 6 369 3,266 2,008 1,112 3,120
June 7 292 3,396 2,053 1,196 3,249
June 9 418 4,484 2,497 1,685 4,182
June 10 280 3,668 2,036 1,412 3,448
June 12 360 3,188 1,768 1,237 3,005
June 13 337 4,532 2,304 2,205 4,509
June 14 252 2,571 1,262 1,303 2,565
June 16 361 4,365 2,160 2,174 4,334
June 17 337 1,794 865 907 1,772
Subtotal 5,003 50,930 29,135 19,816 48,951
June 23 418 2,293 NA NA NA
- -------------------------------------------------------------------------------
Total 5,421 53,223 29,135 19,816 48,951
- -------------------------------------------------------------------------------
Average 9.82 g/m^3 5.82 g/m^3 3.96 g/m^3 9.78 g/m^3
- -------------------------------------------------------------------------------
-31-
<PAGE>
7.3 SIZE, QUALITY AND VALUE OF THE STONES
7.3.1 GENERAL
Following the Phase I sorting of the stones at the two sorting tables adjacent
to the wash plant, they are removed in secure, locked containers to the sorting
shed, and given over to the custody of the Senior Gemologist at the M-4
property, Mr. Gilad Deutscher. Mr. Deutscher is responsible for the sorting of
the stones by size and grade.
7.3.2 SORTING BY SIZE (PHASE II)
The gems are sorted by size over four screens: No. 42 (12% of production), No.
32 (14-15% of production), No. 24 (27% of production), and No. 20 (40% of
production). The undersize of the No. 20 screen comprises about 3% of
production. The numbers quoted are the average in each case.
The size of the stones in each screen size are shown in Table 4:
TABLE 4
M-4 DEPOSIT SIZE AND
WEIGHT OF STONES RECOVERED
===============================================================================
Mesh Size Avg. Weight
Sieve No. (mm) g carat
- -------------------------------------------------------------------------------
42 9 5.0
32 Minus 9 Plus 6 0.4 2.0
24 Minus 6 Plus 5 0.2 1.0
20 Minus 5 Plus 4 0.1 0.5
Minus 20 Minus 4 <0.1 <0.5
- -------------------------------------------------------------------------------
7.3.3 SORTING BY QUALITY (PHASE III)
Phase III sorting of the stones is carried out on a light table (Figure 10,
Photo No. 7). Approximately 30% of the stones are transparent, and are good
quality gems. These will eventually be faceted. An additional 30% are
translucent and it is probable that most of them will also be faceted following
heat treatment. The remaining 40% are opaque, and while they can be used in
jewellery in the form of cabochons, their selling price is very low. However,
the quality of some of these opaque stones may also improve following heat
treatment.
Sorting can also be carried out according to color; however, the color of some
of the stones will change after heat treatment. Therefore, they will be sorted
again after polishing and, at that stage, color will become a major factor.
-33-
<PAGE>
Phase III sorting of sapphires, Photo No. 7
-34-
<PAGE>
7.3.4 VALUE OF THE STONES
According to Mr. Deutscher, the lowest quality of the rough, i.e., the cabochon
stones, sell for a price of about $200 per kg. The rough translucent and
transparent stones have an estimated value of $2,000 per kg (Mr. Dror Moradov,
personal communication); however, the presence of high quality individual stones
in the transparent and translucent categories could impact significantly on the
final value of any particular package.
7.3.5 ADAMCO PRODUCTION
During the production period from May 1 to June 6 1999, the Adamco operation in
Block M-8 produced 9,113.6 g of rough sapphire, and ABFG's 25% share amounted to
2,278.4 g. As this report went to press, we did not have any details on the
quality distribution of these stones.
7.4 MINE OPERATIONS STRATEGIC PLAN
The current mine operation has been processing an average of 32.8 m^3 per hour,
with an average production run of 11.0 hours per day. ABFG has performed a
cursory review of the mine operations which indicates that by adding more
equipment, implementing routine maintenance/preventive maintenance procedures,
it should be possible to increase production to full capacity of 150 m^3 per
hour. Based on ABFG's Production Model, the targeted production rate is 40 m^3
per hour. The additional equipment that will be added to the mining operation on
Block M-4 is listed in Table 5:
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<PAGE>
TABLE 5
ADDITIONAL EQUIPMENT ORDERED FOR BLOCK M-4
==========================================================================
1 Hepco Excavator HE 100 $91,380
5 Jigs concentrators, pump, spare parts 86,495
1 Additional structural steel & pipe 3,015
1 Generator set-4.6 KVA 4,035
1 Hepco loader HL-200 161,478
1 Hepco Bulldozer HD-330 287,727
2 Truck - 25 Ton 130,000
- --------------------------------------------------------------------------
Total $764,130
- --------------------------------------------------------------------------
-36-
<PAGE>
8. marketing
8.1 FORMATION OF JOINT VENTURE
ABFG has entered into a Joint Venture with the Menavi Group ("Menavi") for the
marketing of rough stones and the processing (sorting, cutting and polishing)
and distribution of gems produced from its properties in Madagascar.
Menavi is an Israeli company which consists of:
o Menavi International Ltd.;
o Advance Cutting Center (Israel) Ltd. ("ACC Israel"); and,
o Advance Cutting Center (Bangkok) Ltd. ("ACC Bangkok").
The principles of Menavi are internationally known and respected gemologists.
Following the signing of the Joint Venture agreement (the "Agreement") on August
26, 1998, ABFG and Menavi registered an off-shore corporation called Total Gem
Management Ltd. ("TGM"), in which both companies own an equal number of shares.
The general goal of the Agreement is for TGM to manage and handle ABFG sapphires
after they have been mined and sorted.
TGM will either sort, cut and polish the stones at its own lapidaries, or it
will have the work done at other lapidaries under its supervision. It will also
sort and grade the cut stones and distribute them.
8.2 TERMS AND CONDITIONS OF JOINT VENTURE AGREEMENT
Line of Credit
ABFG will provide a Line of Credit to TGM by means of a Letter of Credit opened
on behalf of TGM to Menavi International Ltd. at a value of approximately US$1
million per month.
Processing
o ABFG will sort all of its rough stones ("rough") into two main categories,
i.e., cuttable and non-cuttable. All cuttable rough will be sorted
according to size and quality, under TGM supervision, for shipment to TGM;
o TGM will then sort the rough for shipment to the various lapidaries. Gems
measuring in excess of 4 mm will be cut at ACC Israel and ACC Bangkok.
Smaller gems will be cut in China and Sri Lanka or Thailand after
pre-forming in the TGM lapidary. The cutting and quality of cut in Israel,
Thailand, China and Sri Lanka will be supervised by TGM; and,
o All cut stones will be sorted and graded at the sorting offices in
Thailand and Israel, and final estimation and pricing will take place in
the offices in Israel.
Marketing and Distribution
o TGM will provide: (a) existing offices; and (b) existing personnel; to
carry out cutting, sorting and distribution of ABFG gems. Representatives
of both ABFG and Menavi will be involved in setting the prices; and,
o The parties will use TGM's offices in Ramat-Gan, Bangkok and New York to
distribute ABFG gemstones in Israel, the Far East and the US, with TGM
being the sole distributor.
Division of profits
o The total net sales derived by the Joint Venture from stones produced by
ABFG from its mines will be divided by the Joint Venture in the following
proportions:
Cut and semi-cut stones: ABFG 75%; TGM 25%; and,
Unprocessed rough: ABFG 85%; TGM 15%
o Profit on goods that are purchased by ABFG funds will be equally divided
between ABFG and TGM, profit being defined as total net sales less
purchase costs.
The methods of calculating total net sales and total purchase costs are defined
in the Agreement.
Other Agreements
The initial capital investment required to set up new offices and enlarge
lapidaries will be provided by ABFG as a shareholder loan to TGM. The mining
venture will be managed by ABFG. The processing and marketing will be managed by
TGM.
9. EXPLORATION
9.1 STATUS OF THE PROPERTY
At the time that this report was being prepared, WGM did not have sufficient
data on the M-4 sapphire deposit within the ABFG property allow an estimate to
be made of Proven (Measured) and/or Probable (Indicated) Reserves according to
the definitions in Guide 7 on pages 495-496 of the Securities Act Rules. While
the previous owner operated the deposit for almost two years and impressive
quantities of valuable rough sapphire are currently being produced by ABFG's
open pit alluvial mining and wash plant-processing operation at M-4, WGM was
unable to locate any exploration/sampling data that would allow it to estimate
the total volume of payable gravel in the deposit.
WGM therefore recommended to ABFG that an exploration program should be carried
out on M-4 to obtain the necessary data to complete a reserve estimate; and that
additional exploration should be carried out to define reserves on the other
known sapphire prospects within the ABFG perimeters in northern Madagascar. The
exploration program on M-4 was in progress at the time of this writing.
9.2 PREVIOUS EXPLORATION
9.2.1 Santamas and Wannachot, 1997
In December 1997, Santamas and Wannachot prepared a report on the exploration
potential of 32 of the 50 Type 1 permits then held under licence by the Suzannah
family in Anivorano-Nord, approximately 80 km south of Diego Suarez in northern
Madagascar.
Santamas and Wannachot were both employed by Dove at the time, Santamas as
Project Manager, and Wannachot as Chief, Exploration and Exploitation Operation.
The exploration study was conducted in conjunction with Dove's joint venture
mining operation with the IMA Group, during the period March 1997 to November
1997.
Information obtained during the exploration program indicated that during that
the sapphire content of the "ore" ranged from 15 g/m^3 to 80 g/m^3, depending on
the area and the depth below surface. The highest concentration recorded was 800
g/m^3.
Santamas and Wannachot concluded that sapphire deposits, within the area studied
were quite extensive, and speculated that:
o the sapphire-bearing material could underlie between 1% and 10% of the 312
km2 area of the Savannah licences;
o the average thickness of the sapphire-bearing material was 1 m; then,
o the total of sapphire-bearing material within the areas under licence
would range from 3.12 million m^3 to 31.2 million m^3.
Santamas and Wannachot indicated that in their opinion, these projections were
on the conversative side. They went on to make an estimate of the total in situ
value of the sapphire-bearing material; however, in WGM's opinion, in situ
values should not be quoted, as the only meaningful values are those that take
all of the costs of production into account.
9.2.2 RASAMIMANANA AND RAKOTOARIMALALA, 1998
Mr. Georges Rasamimanana and Mr. Fred Rakotoarimalala carried out a
reconnaissance investigation and appraisal of the potential of several
perimeters, comprising a total of 13 carreaux, owned by the company "Suzannah
and Sons" and Stones and Wood. Eight (8) of these 13 carreaux are now part of
ABFG's property holdings in northern Madagascar. The field work was completed
during the period from 29 August to 30 September, 1998.
The original report by Mr. Rasamimanana and Mr. Rakotoarimalala consisted of 8
pages. Mr. Rasamimanana is currently employed by the Department of Petroleum and
Mineral Engineering of the Government of Madagascar and recently produced a
two-page summary on the results of the same field program under the official
seal of the Madagascar Department of Energy, Mines and Natural Resources.
Mr. Rasamimanana and Mr. Rakotoarimalala had been instructed to concentrate
their efforts on the search for and delineation of sapphire occurrences rather
than engage in a geologic study in the scientific sense. They did, however,
undertake a brief review of the geology of the region as a prelude to their
prospecting program. They then proceeded to sample the alluvial and eluvial
deposits, particularly in those areas where pits had been dug by local artisan
miners. The samples were panned to determine if sapphire was present.
Mr. Rasamimanana and Mr. Rakotoarimalala commented on several specific
occurrences, as follows:
o In a test of two cubic decimetres of soil, they recovered two grams of
corundum, or 1 kg/m^3, of varying quality at a depth of 20 cm.
o At two other sites, they discovered sapphire deposits in pits previously
dug by local artisans, at depths of 5 m (1 kg/m^3) and 15 m (0.5 kg/m^3)
respectively.
The two geologists also noted that sapphire concentrations, including gem
quality stones, are present near the contact between basalt and dolomitic
limestone. In one location, two sapphire fragments, one weighing 4 g, the other
weighing 1.5 g, were recovered from two cubic decimetres of soil at a depth of
10 cm. This equates to approximately 3 kg/m^3.
In addition, fragments of sapphire were found on the surface in several
locations. One stone that weighed 1.2 g was recovered from a soil sample.
Rasamimanana and Rakotoarimalala concluded that the general area of the
perimeters presented many possibilities for the formation of sapphire. In fact,
of the 13 perimeters investigated, 10 are prospective for the mineral. They
proposed a follow-up program which would involve:
o the preparation of a geologic map of the area at a large scale (1:10,000,
for example) to record the locations of the favourable host rocks; and
o investigations at greater depth than was possible in the reconnaissance
investigations, by means of pits, trenches and hand-held auger drills, in
order to:
- determine the levels of the mineralized bands; and
- delineate small basins that could contain concentrations of sapphire
in alluvial deposits.
9.2.3 ROSSOVSKY, 1996
Professor Lev Rossovsky of Israel visited properties during the period July 18
to July 26, 1996 and recorded his observations in a brief, one-page report.
Professor Rossovsky stated that he had observed two sapphire deposits owned by
the Suzannah bothers: Marc, Christophe and Francis, and that according to his
calculations, the washing of 100 tonnes of alluvial gravel from the first
deposit could yield 100 kg of gem sapphire. (Although Professor Rossovsky did
not identify this deposit by name, WGM believes that it was probably the M-4
deposit). Professor Rossovsky noted that one of the transparent sapphire
crystals from this deposit weighted 45 g and that its color was "royal blue,
green and yellow".
The second deposit, visited by Professor Rossovsky, was an eluvial deposit, i.e.
one that developed in place, or very close to the source rock. At this site, a
lateritic weathering profile, which has developed on a basaltic volcanic flow
rock, is enriched in sapphires from surface to a depth of 2 to 3 m. The
Professor observed that this deposit was well located, near excellent highways
and large rivers.
9.3 CURRENT EXPLORATION
As a result of an exploration program recently initiated within ABFG's
perimeters by Mr. Gino Rasamison, the company's Malagasy geologist, a new
sapphire prospect has been located approximately three km south of the M-4
deposit. This prospect is located at the base of a limestone ridge named
Ampatoa, near its contact with a ridge composed of basalt (Figure 11, Photo No.
8).
At this location, sapphire grains were located at the surface, and are believed
to have originated from weathering of the limestone. Detailed investigations by
pitting and trenching are required to determine the volume and grade of the
deposit.
-42-
<PAGE>
Figure 10. Sapphire prospect 3 km south of M-4, Photo No. 8
-43-
<PAGE>
9.4 PROPOSED EXPLORATION
9.4.1 GENERAL
During his visit to the northern Madagascar properties, Mr. Mullins observed the
mining and wash plant activities at the M-4 deposit, and the various sorting
stages of the rough stones that are being recovered. He also visited the Adamco
wash plant operation in Block C-8, and the deposit in Block C-9 that provides
feed for the wash plant. However, as nearly as WGM could determine, no effort
had been made to estimate the total volume or grade of either of these deposits,
i.e., a reserve estimate, as required under Guide 7 of the SEC Rules.
An exploration program was therefore recommended by WGM and is being carried out
in order to obtain the necessary information to completely outline the M-4
deposit. The boundaries and the thickness of the sapphire-bearing material are
being determined in order to arrive at an estimate of the volume and/or tonnage,
and an average grade, in terms of carats of sapphire per m^3 or per tonne.
In WGM's view, ABFG should initiate a three-pronged exploration program whose
objectives would be to not only complete an estimate of Proven and Probable
Reserves, as well as an estimate of "Other Mineralization" within the M-4
deposit, but also to:
o Continue the ongoing reconnaissance exploration program within the licence
areas with the objective of locating new deposits; and,
o Carry out detailed investigations leading to estimates of Proven and
Probable Reserves, as well as "Other Mineralization", within the deposits
identified in the reconnaissance exploration program.
ABFG is in the process of acquiring the assets of a construction company,
including a Nodwell-mounted AP1000 Becker drill. Eventually, this drill will be
used in conjunction with a Caterpillar D-7 bulldozer and a small wash plant to
explore and evaluate sapphire deposits located by the company's exploration
geologists. The Becker drill will be used to obtain samples, which will be
processed through the portable wash plant to extract the contained sapphires.
Until such time as the drill has arrived on the property, however, samples must
be obtained exclusively by pitting and trenching. WGM and ABFG have discussed
the general approach to, and the estimated cost of this program, as outlined
below.
9.4.2 MAP OF MINE AREA
The first requirement was to produce a large-scale plan of the M-4 mine area to
provide a base on which to plot all of the information currently available,
including topography, geology and the outline of the present workings. The scale
of this map is 1:5000.
The locations of exploration pits, trenches and drill holes will also be plotted
in theis base plan..
9.4.3 PITS AND TRENCHES
Mr. Gino Rasamison and the other geologists on site have been provided with the
definitions of Proven and Probable Reserves as summarized in Section 2 of this
report so that they could develop a plan for the spacing of the pits and and/or
trenches that is required to satisfy the guigelines, WGM recommended that:
o If the deposit occurs in the form of a wide blanket, whose length and
width are somewhat similar, then the best approach would be to sink pits
to bedrock at regular spacings on a grid, say 50 metres for Probable
Reserves and 25 metres for Proven Reserves.
o If the deposit is much longer in one dimension than the other, as it would
be if it is confined to a drainage channel, then the best approach could
be to dig trenches to bedrock across the deposit at intervals of about 50
metres to satisfy the requirement for Probable Reserves.
Accurate elevations of the collar and depth of each pit will be required, as
well as a topographic profile of each trench.
9.4.4 LOGGING OF PITS AND TRENCHES
A visual inspection should be made of each pit and trench and a small sketch
made to show the lithology encountered from surface to bottom. Particular notice
should be paid to the distribution of the sapphires, whether they are randomly
distributed throughout the host material, or occur in definite bands. If they do
occur in definite bands, the thickness should be recorded.
9.4.5 PROCESSING OF SAMPLES
The volume of all of the material recovered from each individual pits and
trench, or portion of a trench, should be measured, processed through a wash
plant, and manually sorted to recover all of the sapphires in the sample. The
grade of the sample in carats per cubic metre can then be estimated.
9.4.6 ESTIMATION OF RESERVES
After all of the pits and/or trenches have been excavated and the samples have
been processed, the resulting information will be plotted on sections and used
to complete an estimate of reserves.
This may require another trip to the property by WGM to verify the results of
the exploration work before proceeding with the estimate.
The capital cost of the drill, bulldozer and wash plant will be in excess of $1
million, and an estimate of the exploration budget for the 12-month period from
July 1, 1999 to June 30, 2000 is estimated at $500,000.
10. CONCLUSIONS
Based on its review and analysis of the ABFG sapphire properties in northern
Madagascar, WGM has concluded that:
o During the eight-month period between April and November 1997, IMA
processed 27,589 m^3 of material for an average of 35.23 m^3 per hour, and
recovered 703,333 g of rough stones, including 364,628 g of first and
second quality blue and yellow stones, for an average grade of 13.2 g/m^3.
The remaining 338,905 g consisted of corundum (cabachon).
o During the period between April 12, 1999 and May 15, 1999, Blue Star
S.a.r.l. processed 5,873 m^3 of sapphire-bearing material from the M-4
deposit and produced 73,386 g of rough stones. The Phase III Sort, 50,675
g of sapphires were recovered, for an average of 8.38 g/m^3.
o During the period between May 31, 1999 and June 27, 1999, ABFG processed
5,421 m^3 of sapphire-bearing material from the M-4 deposit and produced
53,223 g of rough stones. The average sapphire content of the material
processed was 9.82 g/m^3. Following the Phase III Sort, average recovery
of good quality stones for faceting, and 3.96 g/m^3 of cabochon was
calculated at 5.82 g/m^3.
o In addition to ABFG's mining operation at M-4, a second deposit is
currently being mined by Adam Mining Company, Ltd. ("Adamco"), within
Block M-9. The sapphire-bearing gravel is being trucked to a wash plant
within Block M-8. Under the terms of its contract between ABFG and Adamco,
ABFG receives 25% of the rough stones produced by Adamco.
o Approximately 30% of the stones from the M-4 deposit are transparent,
good-quality gems, and will eventually be faceted. An additional 30% are
translucent and it is possible that most of these stones will also be
faceted after heat treatment.
o The rough transparent and translucent stones have an estimated value of
$2,000/kg to $8,000/kg, depending on quality. The low-quality, opaque
stones have a selling price of about $200/kg.
o ABFG has entered into a Joint Venture with an Israeli company, the Menavi
Group, for the marketing of the rough stones and the processing (sorting,
cutting and polishing). The name of the Joint Venture company is Total Gem
Management. The total net sales derived by the Joint Venture from stones
produced by ABFG will be divided between ABFG and TGM in the following
proportions.
Cut and semi-cut stones: ABFG 75%, TGM 25%
Unprocessed rough: ABFG 85%, TGM 15%
o In addition to the deposits currently being mined by ABFG and Adamco, the
northern Madagascar properties extensive occurrences of sapphire have been
reported from other locations.
o A three-pronged exploration program is required on ABFG's properties to:
i) Complete an estimate of Proven and Probable Reserves and "Other
Mineralization" in the M-4 deposit.
ii) Continue the ongoing reconnaissance exploration program with the
objective of locating additional deposits.
iii) Complete estimates of Proven and Probable Reserves and "Other
Mineralization" in the deposits identified in (ii).
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<PAGE>
CERTIFICATE
To accompany the report entitled
"A Technical Review of
the Sapphire Properties of
American Group Benefits, Inc.
in Northern Madagascar"
dated July 24, 1999
I, Jack Mullins, do hereby certify that:
1. I reside at 195 Jenny Wrenway, North York, Ontario, Canada, M2H 2Z3 and I
have been registered as a professional engineer with Professional
Engineers Ontario since 1975.
2. I am a graduate of Mount Allison University, Sackville, New Brunswick,
Canada (B.Sc., Honours Geology, 1958) and Memorial University of
Newfoundland, St. John's, Newfoundland, Canada (M.Sc., Geology, 1961) and
I have practiced my profession for the past 38 years.
3. I am an employee of Watts, Griffis and McOuat Limited, a firm of
consulting geologists and engineer which has been authorized to practice
professional engineering by Professional Engineers Ontario.
4. I visited the sapphire properties of American Benefits Group, Inc in
northern Madagascar in June 1999. This report is also based on information
provided by American Group Benefits, Inc.
5. I do not own, directly or indirectly, nor do I expect to receive any
direct or indirect interest in any of the properties described in this
report, nor do I beneficially own, directly or indirectly, any securities
of American Benefits Group, Inc. or in any associated or affiliated
company.
/s/ W.J. (Jack) Mullins, P. Eng.
--------------------------------
W.J. (Jack) Mullins, P. Eng.
B.Sc, M.Sc.
July 24, 1999
SEAL OF REGISTERED PROFESSIONAL
ENGINEERS, PROVINCE OF ONTARIO
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<PAGE>
LIST OF MATERIALS AVAILABLE FOR REVIEW
Jourde, G.
1998 Etude Geologique et Prospection au 1:10,000 - Des Feuilles
Betsiaka (V32), Antanamba (V32) + 6 other map sheets: Bureau
de Recherches Geologiques et Minieres, Madagascar.
Besairie, H.
1971 Geologue de Madagascar - I Les Terrains Sedimentaires: Annales
Geologiques de Madagascar; Fascicule No. XXXV.
Besairie, H.
1956 Carte Geologique L'echelle du 1:500,000 - Comores, Diego -
Smarez: Service Geologique, Haut Commissariat de Madagascar et
Dependances.
Rasamimanana, G., and Rakotoarimalala
1998 Reconnaissance et Valorisation des Mineralisations en Corindon
(Saphir) des Perimetres de La Societe "Suzannah et Fils" dams
le Nord de Madagascar.
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