UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-Q
(X) QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
For the quarterly period ended June 30, 1995
or
___ TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d)
OF THE SECURITIES EXCHANGE ACT OF 1934
For the Transition Period From __________ To __________
Commission file number 1-7375
COMMERCE GROUP CORP.
(Exact name of registrant as specified in its charter)
DELAWARE 39-6050862
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification Number)
6001 North 91st Street
Milwaukee, Wisconsin 53225-1795
(Address of principal executive offices) (Zip Code)
Registrant's telephone number, including area code: (414) 462-5310
Indicate by check mark whether the registrant (1) has filed all reports
required to be filed by Section 13 or 15(d) of the Securities Exchange Act of
1934 during the preceding 12 months (or for such shorter period that the
registrant was required to file such reports), and (2) has been subject to
such filing requirements for the past 90 days. Yes * No___
Indicate the number of shares outstanding of each of the issuer's classes of
common stock, as of the latest practicable date: 7,294,719 common shares of
the Company's common stock, $0.10 par value, were issued and outstanding as of
July 27, 1995.
<PAGE>
COMMERCE GROUP CORP.
FORM 10-Q
FOR THE FIRST QUARTER ENDED JUNE 30, 1995
INDEX
PART I. FINANCIAL INFORMATION
Item 1. Consolidated Balance Sheets
June 30, 1995 and March 31, 1995
Consolidated Statements of Operations
Three Months Ended June 30, 1995, and 1994
Consolidated Statements of Cash Flows
Three Months Ended June 30, 1995, and 1994
Consolidated Statements of Changes
in Shareholders'Equity
Three Months Ended June 30, 1995,
and Year Ended March 31, 1995
Notes to Consolidated Financial Statements
Item 2. Management's Discussion and Analysis of
Financial Condition and Results of Operations
Liquidity and Capital Resources
PART II. OTHER INFORMATION
Item 1. Legal Proceedings
Item 2. Change in Securities
Item 3. Default Upon Senior Securities
Item 4. Submission of Matters to a Vote of Security Holders
Item 5. Other Information
Item 6. Reports on Form 8-K and Exhibits
Registrant's Signature Page
<PAGE>
COMMERCE GROUP CORP. AND CONSOLIDATED SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
June 30, 1995 March 31, 1995
(Unaudited) (Audited)
ASSETS
Current assets
Cash $ 34,554 $ 545,367
Investments 198,982 198,982
Prepaid items 2,516 620
----------- ------------
Total current assets 236,052 744,969
Real estate (Note 4) 1,179,836 1,179,836
Advances to Joint
Venture (Note 3) 9,841,566 8,676,308
Investment in Joint
Venture (Note 3) 7,016,360 7,016,360
----------- -----------
Total assets $18,273,814 $17,617,473
=========== ===========
LIABILITIES
Current liabilities
Accounts payable $ 558,628 $ 222,423
Notes and accrued
interest payable to
related parties (Note 5) 2,357,389 2,256,834
Notes and accrued interest
payable to others (Note 5) 473,469 468,180
Accrued salaries 1,288,578 1,257,190
Accrued directors' fees 49,850 47,950
Accrued legal fees 169,002 166,355
Other accrued expenses 178,528 173,630
--------- ---------
Total liabilities 5,075,444 4,592,562
Commitments and contingencies
(Notes 3, 5, 6, 7, 10 and 14)
SHAREHOLDERS' EQUITY
Preferred Stock
Preferred stock, $0.10 par value:
Authorized 250,000 shares;
Issued and outstanding
1995-none; 1994-none
(Note 10) $ 0 $ 0
Common stock, $0.10 par value:
Authorized 15,000,000 shares;
Issued and outstanding:
June 30, 1995 - 7,294,719 729,472
March 31, 1995 - 7,294,719 729,472
Additional paid in capital 11,675,961 11,675,961
Retained earnings (deficit) 792,937 619,478
----------- -----------
Total shareholders' equity 13,198,370 13,024,911
----------- -----------
Total liabilities and
shareholders' equity $18,273,814 $17,617,473
=========== ===========
The accompanying notes are an integral part of the consolidated
financial statements.
<PAGE>
COMMERCE GROUP CORP. AND CONSOLIDATED SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATIONS
Three Months Ended June 30 (Unaudited)
1995 1994
Revenues:
Campground income $ 21,157 $ 21,171
Land sales 0 9,000
Leasing income 0 100
Interest income 2,622 882
Interest income Related
Joint Venture (Notes 6 & 11) 275,908 143,555
--------- ---------
Total revenue 299,687 174,708
Expenses:
Cost of land sales 0 1,325
General and administrative
and campground expenses 30,584 19,945
Interest expense 95,644 121,802
--------- ----------
Total expenses 126,228 143,072
--------- ----------
Net income (loss) from operations 173,459 31,636
Credit (charge) for income taxes 0 0
--------- ----------
Net income (loss) $ 173,459 $ 31,636
========= ==========
Net income (loss) per share
(Note 2) $ .02 $ .01
========= ==========
Average number of shares
outstanding (Note 2) 7,294,719 5,218,179
========= =========
Fully diluted income
per common share (Note 2) $ .02 $ .01
========= ==========
Weighted average diluted
number of shares assuming
all rights and options were
exercised on June 30, 1995
and June 30, 1994 7,580,047 6,302,076
========== ==========
The accompanying notes are an integral part of the consolidated
financial statements.
<PAGE>
COMMERCE GROUP CORP. AND CONSOLIDATED SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
Three Months Ended June 30 (Unaudited)
1995 1994
Operating Activities:
Net income (loss) $ 173,459 $ 31,636
Changes in other operating
assets and liabilities (net):
Other assets (1,896) (539)
Accounts payable 336,205 73,297
Accrued salaries 31,388 25,388
Accrued directors' fees 1,900 2,890
Accrued legal fees 2,647 2,238
Accrued liabilities 4,898 3,651
Accrued interest 5,289 30,735
---------- ----------
Cash provided (used) by
operating activities 553,890 169,296
Investing activities:
Advances to Joint Venture (1,165,258) (413,571)
Investment in Joint Venture 0 0
---------- ----------
Cash provided (used) by
investing activities (1,165,258) (413,571)
---------- ----------
Financing activities:
Net borrowings 100,555 94,368
Issuance of common stock 0 525,293
---------- ----------
Cash provided (used) by
financing activities 100,555 619,661
---------- ----------
Increase (decrease) in cash
and cash equivalents (510,813) 375,386
Cash and cash equivalents -
beginning of period 545,367 15,562
---------- ----------
Cash and cash equivalents -
end of period $ 34,554 $ 390,948
=========== ===========
The accompany notes are an integral part of the consolidated
financial statements.
<PAGE>
<TABLE>
COMMERCE GROUP CORP. AND CONSOLIDATED SUBSIDIARIES
CONSOLIDATED STATEMENT OF CHANGES IN SHAREHOLDERS' EQUITY
For the Three Months Ended
June 30, 1995 and for the Year Ended March 31, 1995
<CAPTION>
Common Stock
-----------------------------------------------------
Capital In Retained
Number of Excess of Earnings
Shares Par Value Par Value (Deficit)
--------- --------- ----------- --------
<S> <C> <C> <C> <C>
Balance 03/31/94 5,086,960 $508,696 $ 8,512,443 $344,731
Net Income for FY 03/31/95 274,747
Common Shrs Issued FY 03/31/95 2,207,759 220,776 3,163,518
--------- -------- ----------- --------
Balance 03/31/95 7,294,719 729,472 $11,675,961 619,478
Net Income First Quarter 06/30/95 173,459
Common Shares Issue- this period 0 0 0
--------- -------- ----------- --------
Balances 06/30/95 7,294,719 $729,472 $11,675,961 $792,937
========= ======== =========== ========
</TABLE>
The accompanying notes are an integral part of the consolidated
financial statements.
<PAGE>
(1) The Company and Basis of Presentation of Financial
Statements
(a) Commerce Group Corp. ("Commerce," the "Company," and/or
"Registrant") and its 82 1/2%-owned subsidiary, San Sebastian
Gold Mines, Inc. ("Sanseb") have formed the Commerce/Sanseb
Joint Venture ("Joint Venture") for the purpose of the Joint
Venture being the operator of the San Sebastian Gold Mine
("SSGM") and to explore the other mining properties acquired
in the Republic of El Salvador, Central America.
Presently, the Joint Venture is in the pre-production stage at
the SSGM and it simultaneously is performing four separate
programs: (1) the production of gold on a start up (not full
production) basis at its San Cristobal Mill and Plant ("SCMP")
which is located approximately 15 miles from the SSGM site;
(2) commencing its open-pit, heap-leach process on the SSGM
site; (3) continuing its SSGM site preparation, expanding its
exploration and exploitation targets, increasing and
developing its gold ore reserves; and (4) exploring the
potential of its four gold mine prospects identified as the
San Felipe-El Potosi Mine, the Hormiguero Mine, the Modesto
Mine, and the Montemayor Mine, all located in the Republic of
El Salvador, Central America. Concurrently and in conjunction
with these four programs, it also is in the process of
obtaining necessary funding for the acceleration of these four
undertakings.
(b) The Company, a United States' corporation (incorporated as a
Wisconsin corporation in September, 1962, and consolidated
with a Delaware corporation formed in July, 1971) presents its
consolidated financial statements in U.S. dollars and these
statements are prepared in accordance with accounting
principles generally accepted in the United States.
(2) Significant Accounting Policies
Principles of Consolidation
The consolidated financial statements include the operations of
the Company and all of its majority-owned subsidiaries: Homespan
Realty Co., Inc. ("Homespan"); Piccadilly Advertising Agency,
Inc. ("Piccadilly"); San Luis Estates, Inc. ("SLE"); Universal
Developers, Inc. ("UDI"); San Sebastian Gold Mines, Inc.
("Sanseb"); and Mineral San Sebastian, S.A. de C.V. ("Misanse").
The Company does not include the operations of the Joint Venture.
Other than the Joint Venture, all significant intercompany
accounts and transactions have been eliminated.
For further information regarding consolidated subsidiaries (Note
8).
<PAGE>
Income Taxes
The Company files a consolidated Federal Income Tax return with
its subsidiaries (Note 9).
Income (Loss) Per Common Share
Net income per share is calculated based on the weighted average
number of common shares issued and outstanding during each period
that is being reported. The Company does not include in this
calculation any common stock equivalents, rights or contingent
issuances of common stock.
In computing the shares on a fully diluted basis, the net income
per share is based on the assumption that all common stock
equivalents, rights, options and contingent issuances of common
stock were issued on the last day of the period that is being
reported.
If on June 30, 1995, 154,850 option shares, the 113,900 borrowed
shares, and the 16,578 shares due for accrued interest, which
combined amount to 285,328 shares were added to the 7,294,719
issued and outstanding common shares, then under this assumption,
there would be 7,580,047 common shares issued on a fully diluted
basis. The reported profit per share would be about the same.
These same assumptions were used to arrive at the number of fully
diluted shares for the first quarter ended June 30, 1994.
Foreign Currency
The Company itself is not involved in any foreign currency
transactions as it deposits U.S. funds primarily through bank
wire transfer of funds from its U.S. bank account into the Joint
Venture's El Salvadoran bank accounts. The Joint Venture is
obligated to repay the Company for funds advanced in U.S.
dollars.
Major Customer
When the Joint Venture produces gold and silver it will sell its
precious metals to a refinery selected by the Company. Given the
nature of the precious metals to be sold, and because many
potential purchasers of gold and silver exist, it is not believed
that the loss of any customer would adversely affect either the
Company or the Joint Venture (Note 3).
(3) Customer/Sanseb Joint Venture ("Joint Venture")
The Company is in a joint venture with and owns 82 1/2% of the
total common stock (2,002,037 shares) of Sanseb, a U.S. State of
Nevada chartered (1968) corporation. The balance of Sanseb's
stock is held by approximately 200 non-related shareholders,
including the President of the Company who owns 2,073 common
shares. Sanseb was formed to explore, research, and develop
adequate gold reserves; it produced gold from the SSGM from the
latter part of 1972 through February 1978.
On September 22, 1987, the Company and Sanseb entered into a
joint venture agreement to formalize their relationship with
respect to the mining venture and to account for the Company's
substantial investment in Sanseb. Under the terms of the
agreement, the Company is authorized to supervise and control all
of the business affairs of the Joint Venture and has the
authority to do all that is necessary to resume mining operations
at the SSGM on behalf of the Joint Venture. The net pre-tax
profits of the Joint Venture will be distributed as follows:
Company, 90%; and Sanseb, 10%.
The joint venture agreement further provides that the Company has
the right to be compensated for its general and administrative
expenses in connection with managing the Joint Venture.
Under the joint venture agreement, agreements executed by the
Company for the benefit of the Joint Venture create obligations
binding upon the Joint Venture.
The Joint Venture is registered to do business in the State of
Wisconsin and in the Republic of El Salvador, Central America.
<PAGE>
Accounting Matters
The Joint Venture records all costs and expenses as capital items
and will write off the cumulative costs on a unit of production
method at such time as it begins producing gold. If the prospect
of gold production, due to different conditions and circumstances
becomes unlikely, all of these costs will be written off in the
year that this occurs.
Advances to Joint Venture
As of June 30, 1995, the Company's advances were $9,251,301, and
three of the Company's wholly-owned subsidiaries' advances were
$590,265, for a total of $9,851,566.
Investment in El Salvador Mining Projects
During the fiscal year, the Company has advanced funds, performed
services, and allocated its general and administrative costs to
the Joint Venture.
As of June 30, 1995, the Company, Sanseb ($32,428,324) and three
of the Company's wholly-owned subsidiaries ($590,265) have
invested (including carrying costs) the sum of $33,018,589 in its
El Salvadoran mining projects.
SSGM Activity
The Company had no significant activity at the SSGM site from
February, 1978 through January, 1987. The present status is
that, the Company, since January, 1987, and thereafter, the Joint
Venture, since September, 1987, has completed certain of the
required mining pre-production preliminary stages in the minable
proven gold ore reserve area, and the Company is active in
attempting to obtain financing for the proposed open-pit, heap-
leach operation at the SSGM. The Joint Venture is also engaged
in the exploration and the expansion program to develop
additional gold ore reserves in the area surrounding the minable
gold ore reserves and at four other El Salvadoran mining
prospects.
Mineral San Sebastian S.A. de C.V. ("Misanse")
(a) Misanse Corporate Structure
The SSGM real estate is owned by and leased to the Joint Venture
by Misanse, a Salvadoran chartered corporation. The Company owns
52% of the total of Misanse's issued and outstanding shares. The
balance is owned by approximately one hundred twenty
shareholders. The majority are El Salvadoran citizens. The
Company has the right to select six of Misanse's ten directors.
(Note 6)
(b) SSGM/Mining Lease
On July 28, 1975, an amended lease agreement between Misanse as
lessor and Sanseb as tenant was signed by the parties giving the
tenant all the possessions and mining rights that pertain to the
SSGM as well as other claims to mineral rights that may already
have or could be claimed in the future within the 595 hectares
(1,470 acres) plat of land encompassing the SSGM. The 25-year
lease was further amended to run concurrently with the concession
described herein and may be extended for an additional 25 years
by the tenant as long as the tenant has paid the rent and has
complied with other obligations under the lease and the
concession. The lease further provides that the tenant will pay
rent equivalent to 5% of the production of the gross precious
metals' revenue obtained from the leased SSGM and further
commits itself to maintain production taking into consideration
market and other conditions. In no case will the rent be less
than eighteen hundred "colones" per month (approximately $206 per
month at the current rate of exchange). The lease further
provides that, in the event the lessor wishes to sell the
property, it must first give preference to the tenant; the lease
provides that the tenant must give preference to employ former
mining employees and Misanse shareholders, providing they qualify
for the available position. The lease agreement was assigned on
January 29, 1987 to the Company and Sanseb together with the
mining concession application.
<PAGE>
The lease is freely assignable by the Joint Venture without
notice to Misanse. The lease may also be cancelled by the Joint
Venture on thirty day's notice to Misanse, and thereafter, all
legal responsibilities thereunder shall cease.
In the event that additional gold ore is discovered, Misanse is
required to make proper claim for them under the jurisdiction of
the Ministry of Economy of El Salvador's Director of Energy,
Mines and Hydrocarbons, and include them in the present
concession. Such addition to the lease is required to be made
without any changes to the rental payment, except that the
expenses for expanding the concession shall be borne by the Joint
Venture.
(c) Mineral Concession
On January 27, 1987, the Government of El Salvador granted and
delivered a right to the mining concession ("concession") to
Misanse which was subject to the performance of the El Salvador
Mining law requirements. These rights were simultaneously
assigned to the Company and Sanseb's Joint Venture.
On July 23, 1987, the Government of El Salvador delivered and
granted to the Company's 52%-owned subsidiary, Misanse,
possession of the mining concession. This is the right to
extract and export minerals for a term of 25 years (plus a 25-
year renewal option) beginning on the first day of production
from the real estate which encompasses the SSGM owned by Misanse.
Misanse assigned this concession to the Joint Venture. Under the
concession and applicable El Salvadoran law, the Joint Venture
has the right to export said mineral for five years beginning
with the first day of production without imposition of mineral or
export taxes. It also has the right to import free of duty,
equipment and all other items necessary to operate and produce
gold from the SSGM.
Under the terms of the concession and agreements referred to in
the concession, the Joint Venture has agreed to the following:
(a) The Joint Venture will pay to 270 former El Salvadoran
employees pursuant to a settlement agreement dated June, 1985,
as follows: A sum of approximately 500,000 colones
(approximately U.S. $57,339 at the current rate of exchange)
in three (3) installments contingent upon the production and
sale of gold, to wit: one-third is to be paid from the sale
of the first production of gold; one-third is to be paid one
(1) year thereafter; and one-third is to be paid two (2) years
after the first payment; a sum of 202,014 colones has been
paid which reduces the total amount due as of May 31, 1995, to
297,986 colones or U.S. $34,173;
(b) Preference is to be given to the former Sanseb employees and
Misanse shareholders in filling any job vacancies, providing
that there is a need for their skills or services;
(c) From the profits earned, 5% of the gross wages paid to the
full-time employees shall be paid into a pension fund;
(d) From the profits earned, a sum of 500,000 colones annually
(equivalent to $57,339 at the present rate of exchange) will
be paid by the Joint Venture as a social tax for the benefit
of the community in the SSGM area which said funds are to be
used for social, economic, educational, recreational, health,
welfare, medical or for such other beneficial community
services as determined by the Joint Venture;
(e) At such time as the Government of El Salvador forms a
cooperative for the benefit of the employees, the Joint
Venture has agreed to contribute from its annual pre-tax
earnings, the sum of 5% of its pre-tax profits, but, in any
event, not less than a minimum amount equal to 5% of 8% of the
total assets;
<PAGE>
(f) Pursuant to an agreement with the El Salvador Minister of
Economy, at the request of the Company or the Joint Venture to
the El Salvador Central Reserve Bank and/or office of the El
Salvador Minister of Foreign Commerce, it will be able to
convert the El Salvadoran currency into United States'
currency for the payment of its loans, interest, and other
obligations, including the payment of dividends. Presently,
there are nor restriction into converting the El Salvadoran
colones into United States' currency.
(g) On November 30, 1987, the El Salvadoran Minister of Foreign
Commerce issued a project approval for the gold mining
operation which was ratified on April 15, 1988.
(h) In consideration for the obligations agreed to by the Joint
Venture the Government of El Salvador agreed to exempt the
Joint Venture from the payment of all import duty, fiscal or
municipal taxes whatsoever. The El Salvador Department of
Customs refused to recognize this exemption. On November 15,
1993, the Joint Venture's attorneys filed a declaratory
proceeding with the El Salvadoran Constitutional Supreme Court
("Court") informing the Court that the Joint Venture' rights
were being violated and that the Court should restrain the
Department of Customs from attempting to collect any duty.
On May 18, 1994, the Court declared that the Joint Venture is
entitled to be temporarily exempt from the payment of all
import duty, fiscal and municipal taxes on the import of any
item relating to the needs of the SSGM pending its review of
the petition filed on November 15, 1993, and that the
Company's constitutional rights are to be preserved. The El
Salvador Department of Customs takes a position that the Court
could deny the exemption, therefore, in lieu of paying the
Custom's duty, it is accepting a payment bond in an amount of
the Custom's duty until a final decision is made. The
Custom's Department is charging the Company the 10% added
value tax (13% after July 1, 1995) which is refundable to the
extent of 6% of the value of the Joint Venture's exports. The
Joint Venture plans to export all of its gold in which case it
believes that the 6% value of the gold export should far
exceed the amount of the added value tax payments.
Gold Ore Reserves
The Joint Venture's geologists have determined that the minable
and estimated gold ore reserves are approximately 15,905,000 tons
which should contain 1,677,700 ounces of gold. The value of this
gold ore reserve is not reflected in the balance sheet and since
gold production has commenced on a limited start-up basis these
gold ore reserves will have a significant impact on future
earnings.
SCMP Land and Building Lease
On November 12, 1993, the Joint Venture entered into an agreement
with Corporacion Salvadorena de Inversiones ("Corsain"), an El
Salvadoran governmental agency, to lease for a period of ten
years, approximately 166 acres of land and buildings on which its
gold processing mill, plant and related equipment are located.
The SCMP location is approximately 15 miles east of the SSGM
site. The annual lease payment is U.S. $11,500 (payable in El
Salvadoran colones at the then current rate of exchange), payable
annually in advance, and subject to an annual increase based on
the annual United States' inflation rate. As agreed, a security
deposit of U.S. $11,500 was paid on the same date and this
deposit will be subject to increases based on any United States'
inflationary rate adjustments. The U.S. inflation rate was 2.9%,
therefore, on November 12, 1994, the increase was applied to the
annual lease payment and to the deposit.
Modesto Mine
(a) Real Estate Lease
On August 26, 1994, the Company entered into a fifteen-year lease
agreement to lease approximately 30 acres of key vacant land
located at the Modesto Mine site which is near the City of El
Paisnal, El Salvador, at a cost of one thousand colones per
manzana per year or approximately U.S. $67 per acre. A condition
of the lease was a five-year prepayment provision of 87,500
colones or approximately U.S. $10,011. Also, the Company has a
first right of refusal to purchase this land.
<PAGE>
(b) Real Estate Ownership
On November 27, 1994, the Company entered into an agreement to
purchase approximately 22 acres of land which abuts the land
leased at the Modesto Mine site for a price of U.S. $24,000.
(c) Concession
The Joint Venture has acquired an extendible exploration
concession from the El Salvadoran Director of Energy, Mines and
Hydrocarbons effective April 5, 1994, and thereafter extended.
San Felipe-El Potosi Mine "Potosi"
(a) Real Estate Lease Agreement
The Joint Venture entered into a lease agreement with the San
Felipe-El Potosi Cooperative ("Cooperative") of the City of
Potosi, El Salvador on July 6, 1993, to lease the real estate
encompassing the San Felipe-El Potosi Mine for a period of 30
years and with an option to renew the lease for an additional 25
years , for the purpose of mining and extracting minerals under
the following basic terms and conditions:
1. The lease payment will be 5% of the gross receipts derived
from the production and sale of precious metals from this site
which will be payable monthly.
2. The Joint Venture will advance to the Cooperative the funds
required to obtain the mining concession from the El Salvador
Department of Energy, Mines and Hydrocarbons and all related
costs which will be reimbursed or will become a deduction from
future rental payments.
3. The Joint Venture will, when it is in production, employ all
of the 45 qualified members of the Cooperative providing that
there is a need for their particular skill or service.
4. The Joint Venture will furnish medicine and first aid medical
assistance to all of its employees to the extent that such
benefits are not provided by the Salvadoran Social Security
System.
5. An employee life insurance program is to be seriously
considered by the Joint Venture when production commences,
providing that the cost of such insurance is not excessive.
(b) Exploration Concession
The exploration concession application was filed on September 6,
1993, with the Department of Energy, Mines and Hydrocarbons, a
division of the El Salvador's Minister of Economy's office, by
the owners of the real estate, the Cooperative San Felipe-El
Potosi. The concession consists of approximately 6,100 acres.
(4) Real Estate
The Company and its subsidiaries own a 331-acre campground
located on the Lake of the Ozarks, Camden County, Missouri; 40
lots in the San Luis North Estate Subdivision, Costilla County,
Colorado; and 12 lots in the City of Fort Garland, Costilla
County, Colorado. Misanse owns the 1,470 acre SSGM site located
near the City of Santa Rosa de Lima in the Department of La
Union, El Salvador. Other real estate in El Salvador is as
follows: the Joint Venture leases the SCMP land and buildings
on which its mill, plant and equipment are located. In addition
the Joint Venture has entered into lease arrangements based on
the production of gold payable in the form of royalties with one
of the three other mining prospects in the Republic of El
Salvador. Reference is made to Note 3 for the description of
other real estate ownership or leases.
<PAGE>
(5) Notes Payable and Accrued Interest
June 30, 1995 March 31, 1995
Notes payable consist of the
following:
Mortgage and promissory notes
to related parties, interest
ranging from 1% to 4% over
prime rate, but not less than
16% to the related parties,
payable monthly, due on
demand, using the undeveloped
land, real estate and all
other assets owned by the
Company, its subsidiaries and
the Joint Venture as
collateral (Note 6). $2,357,389 $2,256,834
Five promissory notes
($245,000) were issued on
February 23, 1993, of which
$110,000 is owed to two
related parties and are
included with the above
related party notes; said
notes bear interest payable
monthly at the rate of 15% per
annum. All interest and
principal shall be paid in
equal monthly installments
which shall equal the number
of whole months remaining
between the date of demand and
February 23, 1998. The
promissory notes are secured
by certain specific SCMP
assets (Note 6). 10,000 10,000
Other (consists primarily of
short-term notes and accrued
interest issued to trade
creditors and others, interest
in varying amounts) 463,469 458,180
---------- ----------
$2,830,858 $2,725,014
========== ==========
(6) Related Party Transactions
The Company, in an attempt to preserve cash, had prevailed on its
President to accrue his salary for the past 14 years: 11 years
at $67,740 annually ($745,140); and three and one quarter years
at $114,750 annually ($372,938), for a total of $1,118,078.
In addition, with the consent and approval of the Directors, the
President of the Company, as an individual and not as a Director
or Officer of the Company, entered into the following financial
transactions with the Company, the status of which is reflected
as of June 30, 1995:
The amount of funds which the Company has borrowed from its
President from time to time, together with accrued interest,
amount to $838,615. To evidence this debt, the Company has
issued its President a series of open-ended, secured, on-demand
promissory notes, with interest payable monthly at the prime rate
plus 2%, but not less than 16% per annum. (On February 23, 1993,
the Company borrowed $100,000 (included in this total) from its
President on the same terms and conditions as provided to other
related and non related parties. (Note 5).
<PAGE>
The Company had borrowed an aggregate of $303,405, including
accrued interest, from the Company President's Rollover
Individual Retirement Account (IRA). These loans are evidenced
by the Company's open-ended, secured, on-demand promissory
note(s), with interest payable monthly at the prime rate plus 4%
per annum, but not less than 16% per annum.
In order to satisfy the Company's cash requirements from time to
time, the Company's President has sold or pledged as collateral
for loans, shares of the Company's common stock owned by him. In
order to compensate its President for selling or pledging his
shares on behalf of the Company, the Company has made a practice
of issuing him the number of restricted shares of common stock
equivalent to the number of shares sold or pledged, plus an
additional number of shares equivalent to the amount of accrued
interest calculated monthly at the prime interest rate plus 3%
per annum.
The Company received all of the net proceeds from the sale or
from the pledge of these shares. The Company borrowed a total of
44,100 common shares from the President since April 1, 1995, and
it owes him 8,202 of its common shares for unpaid interest for
the shares loaned or pledged as collateral for the benefit of the
Company. It may owe additional common shares for such shares
loaned or pledged by him for collateral purposes to others for
the benefit of the Company, all in accordance with the terms and
conditions of Director approved open-ended loan agreements dated
June 20, 1988, October 14, 1988, May 17, 1989, and April 1, 1990.
On February 15, 1987, the Company granted its President, by
unanimous consent of the Board of Directors compensation in the
form of a bonus in the amount of 2% of the pre-tax profits
realized by the Company from its gold mining operations in El
Salvador, payable annually over a period of twenty years
commencing on the first day of the month following the month in
which gold production commences.
On or about February 23, 1993, the Company borrowed from its
President, one of the President's sons, and three non-related
persons, the sum of $245,000; $100,000 from the President. Each
of the five lenders had a promissory note issued in the sum
loaned which bears interest at the rate of 15% per annum,
beginning on February 23, 1993, is payable monthly, and is based
on a 360-day year. All principal and interest due shall be paid
in installments beginning 30 days after written demand made at
any time after February 23, 1994. After demand is made, the
Company will pay the lender all principal and interest due
amortized over the number of equal monthly installments which
shall equal the number of whole months remaining between the date
of demand and February 23, 1998. All principal and interest due
shall be paid in full on or before February 23, 1998.
These promissory notes are secured by the lender's interest in
SCMP pursuant to the terms of a Security Agreement dated February
23, 1993.
As explained in prior financial and other reports, the President
has acquired on December 10, 1993, the ownership of 203 of
Misanse common shares. In addition, effective as of June, 1995,
he personally purchased an additional 264 Misanse common shares
from a Misanse shareholder in an arms-length transaction.
Therefore, he presently owns a total of 467 Misanse common
shares. There are a total of 2,600 Misanse shares issued and
outstanding.
Also with the consent and approval of the Directors, a company in
which the President has a 55% ownership entered into the
following agreements, and the status is reflected as of June 30,
1995:
The Company leases approximately 3,100 square feet on a month-to-
month basis for its corporate headquarters office; the monthly
rental charge is $2,145.
<PAGE>
The same related company provides consulting, administrative
services, use of data processing equipment, use of its vehicles,
use of its credit facilities, and other property as required by
the Company.
In lieu of cash payments for the office space rental and for the
consulting, administrative services, etc., these amounts due are
added each month to this related company's open-ended, secured,
on-demand promissory note issued by the Company.
This related company does use its credit facilities to purchase
items needed for the Joint Venture's mining needs and those items
purchased are being paid on the same terms and conditions offered
to other non-related customers.
This related company has been issued an open-ended, secured, on-
demand promissory note which at June 30, 1995, amounts to
$1,010,857; the annual interest rate is 4% plus the prime rate,
but not less than 16% per annum, and is payable monthly.
The Company's Directors have consented and approved the following
transactions which status is reflected as of June 30, 1995:
The President's wife's Rollover Individual Retirement Account
(IRA) has the Company's open-ended, secured, on-demand promissory
note in the sum of $157,012 which bears interest at an annual
rate of prime plus 3%, but no less than 16% per annum and the
interest is payable monthly.
The Law Firm which represents the Company in which a son of the
President is a principal is owed the sum of $169,002 for legal
services rendered from July, 1984, through May, 1995, based on
the present current hourly rate charged to the Company. By
agreement, these fees are to be adjusted to commensurate with the
hourly fees charged by the Law Firm on the date of payment. On
May 11, 1992, the Directors approved a two-year stock option
which allows the Law Firm to purchase up to 100,260 of the
Company's common shares at an option price of fifty shares for
each hour of the 2,005.20 hours of legal services rendered
through March 31, 1992. On February 27, 1995, the Law Firm
exercised its right to purchase 50,000 of the Company's common
shares by payment of 1,000 hours of legal services. On March 13,
1995, in exchange for the Law Firm's agreement not to increase
its hourly rate charges during the 1995 calendar year, the
Company agreed to extend the option to purchase 50,260 shares to
February 11, 1996. (Note 10)
The Directors, by their agreement, have deferred cash payment of
their Director fees beginning on January 1, 1981, until such time
as the Company's operations are profitable. The Director fees
are $750 for each quarterly meeting and $250 for attendance at
any other Directors' meeting. The Executive Director fees are
fixed at $200 for each meeting.
On September 16, 1994, the Directors adopted a resolution
offering the Directors and Officers of the Company a right to
exchange the compensation due to them for the Company's common
shares valued at the lowest bid quote reflected in the NASD
Monthly Statistical Report during a twelve-month period preceding
the exercise of this right.
The Company advances funds, allocates and charges its expenses to
the Joint Venture. The Joint Venture in turn capitalizes all of
these advances, costs and expenses until such time as it resumes
its gold mine operation. When full production commences, these
capitalized costs will be charged as an expense based on a per
ton production basis. The Company also charges interest for its
advance to the Joint Venture which interest rate is established
to be the prime rate quoted on the first day of each month plus
four percent and said interest is payable monthly.
<PAGE>
Company Advances to the Joint Venture
Total Interest
Advances Charges
---------- --------
September, 1987 through March 31, 1990 $1,625,163 $252,060
March 31, 1991 718,843 266,107
March 31, 1992 698,793 312,004
March 31, 1993 1,003,617 347,941
March 31, 1994 1,155,549 451,180
March 31, 1995 2,884,078 751,389
June 30, 1995, first quarter 1,165,258 275,908
---------- ----------
June 30, 1995, balance 9,251,301 2,656,589
Advances by three of the Company's
wholly-owned subsidiaries 590,265 0
---------- ----------
Total $9,841,566 $2,656,589
========== ==========
(7) Commitments
Reference is made to Notes (3), (5), (6) and (10).
(8) Consolidated Subsidiaries
The following subsidiaries, all majority-owned by the Company,
are included in the consolidated financial statements of the
Company. All intercompany balances and transactions have been
eliminated.
Percentage of Ownership
Homespan Realty Co., Inc. 100.0%
Mineral San Sebastian, S.A. de C.V. 52.0%
Piccadilly Advertising Agency, Inc. 100.0%
San Luis Estates, Inc. 100.0%
San Sebastian Gold Mines, Inc. 82.5%
Universal Developers, Inc. 100.0%
(9) Income Taxes
At March 31, 1995, the Company and its subsidiaries have
estimated net operating losses remaining in a sum of
approximately $5,400,000 which may be carried forward to offset
future taxable income; the net operating losses expire at various
times to the year of 2010.
(10) Stock Options, Rights, Preferred Stock and Stock Loans
The following stock options, stock rights, and stock loans are in
existence:
Issue Expiration Term/ Option Price Option
Date Date Extensions Per Share Shares
-------- -------- ---------- ------------ ------
05/11/92 02/11/96 *a $2.00 50,260
07/10/92 07/10/95 *b $2.00 10,000
05/27/94 05/27/97 3 years $2.00 30,000
05/31/94 05/31/96 2 years $3.00 10,880
05/31/94 05/31/97 3 years $2.00 30,000
06/02/94 06/02/96 2 years $3.00 2,000
06/02/94 06/02/96 2 years $3.00 1,000
03/22/95 09/22/97 30 months $4.00 20,710
-------
Total options issued and outstanding 154,850
=======
*a Option to purchase 100,260 common shares granted to the Law
Firm was issued on May 11, 1992, with an expiration date of
May 11, 1994, and then on May 9, 1994, the exercise date of
this option was extended to November 11, 1995. On February
27, 1995, the Law Firm exercised its right to purchase 50,000
shares. On March 13, 1995, in consideration of the Law Firm
agreeing to retain the same hourly rate for the 1995 calendar
year, the Company agreed to extend the option to exercise this
right to February 11, 1996.
*b The initial option was issued on July 10, 1992, and was to
expire on July 10, 1994. On June 13, 1994, the option was
extended to expire on July 10, 1995.
<PAGE>
To the President--Stock Loans and Accrued Interest
Reference is made to Note 6, Related Party Transactions, of the
Company's financial statements which disclose that the Company
owes to the President, the sum of 8,202 of its common shares as
of June 30, 1995, for unpaid interest, which interest is payable
by the Company's issuance of its restricted common shares. Also
due are 44,100 common shares for shares loaned to the Company.
Stock Loans and Interest Due to Others
From time to time the Company borrowed from others, the Company's
common shares under the provision that the owners would sell said
shares as the Company's designee, with the proceeds payable to
the Company. In exchange, the Company agreed to pay these shares
loaned within 31 days or less by issuing its restricted common
shares, together with interest payable in restricted common
shares at a rate of 6% per annum in advance for a minimum period
of two years.
As of June 30, 1995, there are two other stock loans outstanding
which amount to a total of 69,800 of the Company's common shares
which are to be repaid together with 8,376 of the Company's
restricted common shares for the interest earned.
Preferred Stock
The Directors of the Company have the authority to issue an
unlimited number of preferred shares. There are 250,000 shares
$0.10 par value of authorized shares; none were issued and
outstanding during the two periods ended June 30, 1995 and 1994.
The Preferred Stock is issuable in one or more series. The Board
of Directors is authorized to fix or alter the dividend rate,
conversion rights (if any) voting rights, rights and terms of
redemption (including any sinking fund provisions), redemption
price or prices, liquidation preference and number of shares
constituting any wholly unissued series of preferred shares.
S.E.C. Form 8 Registration Statement
On April 4, 1994, the Company filed its Securities and Exchange
Commission Form 8 Registration Statement No. 33-77226 under the
Securities Act of 1993, to register 500,000 of the Company's $.10
par value common stock for the purpose of distributing shares
pursuant to the guidelines of the Company's 1994 Services and
Consulting Compensation Plan. From the 500,000 shares
registered, 151,800 were issued and 348,200 shares are authorized
to be issued.
(11) Interest Income on Advances to the Joint Venture
From time to time the Company advances funds, services, etc. to
the Joint Venture. The interest rate charged is the prime
interest rate fixed on the first day of each month plus 4%. The
interest is payable monthly. (Note 6)
(12) Litigation
There is no litigation.
(13) Contingent Liabilities
In the event the El Salvadoran Constitutional Supreme Court
should decide that the Joint Venture is subject to the payment of
custom duty taxes, then the Company would have a contingent
liability as it has, on behalf of the Joint Venture, agreed to
reimburse an El Salvadoran Insurance Company the funds that may
be disbursed to the El Salvadoran custom's office in connection
with the payment of guarantee bonds it has issued in lieu of cash
payment for the import duties. The total sum of payment
guarantee bonds issued by the Insurance Company through June 30,
1995, is estimated to be less than $20,000.
<PAGE>
(14) Unaudited Financial Statements
The consolidated financial statements have been prepared by the
Company, without audit, pursuant to the rules and regulations of
the Securities and Exchange Commission. The financial
information included herein is unaudited; however, the Company
believes that the information reflects all adjustments
(consisting solely of normal recurring adjustments) that are, in
the opinion of management, necessary to be a fair presentation of
the financial position, results of operations, and cash flows for
the interim periods. Certain information and footnote
disclosures normally included in the financial statements
prepared in accordance with generally accepted accounting
principles have been condensed or omitted pursuant to such rules
and regulations. The Company believes that the disclosures are
adequate to make the information presented not misleading. It is
suggested that these consolidated financial statements be read in
connection with the financial statements and the notes thereto
included in the Company's latest annual report and the filing of
the required Securities and Exchange Commission annual Form 10-K.
Item 2. Management's Discussion and Analysis of Financial
Condition and Results of Operations
Introduction
Presently, the Joint Venture is in the pre-production stage at
the SSGM and it simultaneously is performing four separate
programs: (1) the production of gold on a start up (not full
production) basis at its San Cristobal Mill and Plant ("SCMP")
which is located approximately 15 miles from the SSGM site; (2)
commencing its open-pit, heap-leach process on the SSGM site; (3)
continuing its SSGM site preparation, expanding its exploration
and exploitation targets, increasing and developing its gold ore
reserves; and (4) exploring the potential of its four gold mine
prospects identified as the San Felipe-El Potosi Mine, the
Hormiguero Mine, the Modesto Mine, and the Montemayor Mine, all
located in the Republic of El Salvador, Central America.
Concurrently and in conjunction with these four programs, it also
is in the process of obtaining necessary funding for the
acceleration of these four undertakings.
The more than twelve-year El Salvadoran war and the general
disbelief that peace will prevail had been a material deterrent
in obtaining funding for the resumption of the SSGM open-pit,
heap-leach operations and for the retrofitting and restoration of
the SCMP. On December 16, 1992, through the auspices of the
United Nations, the end of the war was declared and peace
prevails.
Current Status
The Company, on February 23, 1993, through its Joint Venture,
acquired the SCMP, a precious metals' leaching mill and plant
which has the capacity of processing 200 tons of virgin precious
metals' ore per day. Dependent on the grade of gold ore
processed, the SCMP operation, processing SSGM tailings at a rate
of 400 tons per day, should produce annually more than 12,000
ounces of gold. On March 31, 1995, the Joint Venture, during its
testing pre-production stage, made its first pour of gold since
March, 1978. The processing of its daily tonnage of tailings
that are delivered by truck from the SSGM site are gradually
being increased while the SCMP is being adjusted and fine tuned
to achieve its full capacity of processing gold.
This production of gold broadens the Company's objectives and now
enables the Company to commence a complementary operation while
continuing its endeavor to obtain sufficient funds for the SSGM
open-pit, heap-leach operation which is its major and original
goal and presently is in the developmental stage. Dependent on
the grade of ore processed, it then anticipates producing
approximately 12,000 ounces of gold from the SCMP operation and
43,000 ounces of gold from its SSGM open-pit, heap-leach
operation during the first twelve full operating months. The
Joint Venture continues to conduct an exploration program to
develop additional gold ore reserves at the SSGM and four other
mining potentials: the San Felipe-El Potosi, Modesto, Hormiguero
and Montemayor Mines; all located in El Salvador, Central
America.
<PAGE>
Since the Joint Venture commenced producing gold at the SCMP,
albeit a very exiguous operation, the Company's revenues,
profitability and cash flow will be greatly influenced by the
price of gold. Gold prices fluctuate widely and are affected by
numerous factors which will be beyond the Company's control such
as expectations for inflation, the strength of the U.S. dollar,
overproduction of gold, global and regional demand, or political
and economic conditions. The combined effect of these factors is
difficult; perhaps impossible to predict. Should the market
price of gold fall below the Company's production costs and
remain at such level for any sustained period, the Company could
experience losses. Under these circumstances, the Company could
choose to suspend operations in order to minimize losses.
The Company believes that neither it, nor any other competitor,
has a material effect on the precious metal markets and that the
price it will receive for its production is dependent upon world
market conditions over which it has no control.
Results of Operations for the First Quarters Ended June 30, 1995
Compared to June 30, 1994
For the three months ended June 30, 1995, the total revenues
amounted to $299,687 compared to revenues of $174,708 for the
same period in 1994. The increase in revenues resulted primarily
from interest income charged to the Joint Venture.
Interest is being charged to the Joint Venture on advances made
to it. In the first quarter of 1995, the interest charged to the
Joint Venture by the Company was $275,908 compared to $143,555
for the same period in 1994, for an increase of $132,353 (92%)
which results from the advances to the Joint Venture being
increased to $9,251,301 (1995) from $5,615,536 (1994) (65%) and
an increase in the prime interest rate which affects the rate of
interest charged.
The campground operating, general and administrative expenses for
the first quarterly period ended June 30, 1995, were $30,584
compared to $19,945 for the same 1994 period. The increase in
expenses resulted from repairs to the campground facilities and
extraordinary filing fees.
Interest expense for this first quarter (1995) amounted to
$95,644 compared to $121,802 for the same 1994 period for a
decrease of ($26,158) (21%) and was due to a decrease in the
amount due on Notes Payable of $2,830,858 in 1995 compared with
$3,081,683 in 1994 for a decrease of $250,825 (8%).
The net profit for the period ended June 30, 1995, was $173,459
compared to a profit for the period ended June 30, 1994 of
$31,636, an increase of $141,823 (448%).
Liquidity and Capital Resources
The Company continues to be cognizant of its cash liquidity until
it is able to produce a sufficient profit from the SCMP
operation. It has obtained sufficient funds to place the SCMP
into pre-production of gold. In order to continue obtaining funds
to conduct the Joint Venture's exploration, exploitation,
development, expansion programs, and the production of gold from
the SSGM open-pit, heap-leach operation, it may be necessary for
the Company to obtain funds from other sources. The Company may
be required to borrow funds by issuing open-ended, secured, on-
demand or unsecured promissory notes to its directors, officers
and others. It may resort to other creative funding plans to
obtain the funds it will need.
<PAGE>
During the past, the Joint Venture was engaged in an exploration,
exploitation and development program designed to increase its
gold ore reserves. The prospects of expanding the gold reserves
are positive. The funds needed by the Joint Venture for its
first quarter were obtained from the Company via advances:
$1,165,258 in 1995 and $413,576 in 1994. The Company believes
that these advances significantly contributed to the value of the
SSGM, the SCMP, and possibly to the value of its other mining
prospects as the results of the exploratory efforts evidence a
potential increase of gold ore reserves, which add value to the
Joint Venture and to the Company. The Company was able to obtain
sufficient funds to complete the retrofitting of the SCMP,
purchase consumable inventory, to purchase certain hauling and
loading equipment and for working capital use. The Company has
been able to obtain the funds required for its and the Joint
Venture's undertaking via a debt and equity structure of funding.
Since September 1987, the Company and three of its wholly-owned
subsidiaries advanced a sum of $9,841,566 to the Joint Venture.
Advances to the Joint Venture
Advances to the Joint Venture during the Company's first quarter
ended June 30, 1995, were derived from the various sources,
including related parties as follows:
Funding Sources:
From
---------------------------------
Related Parties Other Sources Total
--------------- ------------- -----------
Accounts payable and
accruals $308,657 $ 66,484 $ 375,141
Notes payable/
accrued interest 100,555 5,290 105,845
Net income 173,459 173,459
-------- -------- ----------
Totals $409,212 $245,233 $ 654,445
Decrease in cash and
cash equivalents 510,813 510,813
-------- -------- ----------
Advances to the Joint
Venture $409,212 $756,046 $1,165,258
======== ======== ==========
Therefore, the Company continues to rely on its directors,
officers and related parties for its funding needs. The Company
believes that it will be able to obtain such short-term funds as
are required from the same sources as it has in the past, so that
it can, in turn, advance the funds required by the Joint Venture
to continue the exploration, exploitation, and development of
its SSGM and for other necessary expenditures. Anticipated
profits from the SCMP gold production could provide a sufficient
amount of cash for corporate purposes. It further believes that
the funding needed to proceed with the continued expansion of its
gold ore reserves should be about 20% more than the average
amount advanced in the previous two years.
From September, 1987 through June 30, 1995, the Company has
advanced to the Joint Venture, the sum of $9,251,301 and three of
the Company's wholly-owned subsidiaries have advanced the sum of
$590,265, for a total of $9,841,566. The funds advanced to the
Joint Venture were used primarily for the exploration,
exploitation, and development of the SSGM, for the construction
of the Joint Venture laboratory facilities on real estate owned
by the Company near the SSGM site, for the operation of the
laboratory, for the purchase and rehabilitation of a 200-ton per
day used precious metals' cyanide leaching mill and plant, for
the SCMP, retrofitting, repair and modernization of its
facilities, for consumable inventory, for working capital to
commence the production of gold, for exploration costs for the
San Felipe-El Potosi Mine, Modesto Mine, Hormiguero Mine, and the
Montemayor Mine, for SSGM infrastructure, including rewiring and
repairing about two miles of the Company's electric lines to
provide electrical service, for the purchase of equipment,
laboratory chemicals, and supplies, for parts and supply
inventory, for the maintenance of the Company-owned dam and
reservoir, for extensive road extensions, for road preservation,
for its participation in the construction of a bridge, for
community telephone building and other facilities, for the
purchase and advance lease payment of the real estate on the
Modesto Mine, and many other related needs.
<PAGE>
SCMP Operations, SSGM & Other Mine Exploration
Various sections of this report adequately describe the Company's
current activities and status. The company, through its Joint
Venture, believes that the SCMP operations will be profitable and
it expects to confirm these results as soon as the Joint Venture
reaches its goal of processing 400 tons of tailings per day.
Presently the Company further believes that the technical SCMP
adjustments and corrections will be resolved to permit it to
reach its goal of processing 400 tons of tailings each day of
operation. When the Joint Venture's goals are reached, then the
profits and cash flow should provide funds that could be used to
commence the SSGM open-pit, heap-leach operation. The Company
estimates that it will need at least U.S. $12 million to start a
2,000 ton per day heap-leach operation and over time to increase
the production capacity to 6,000 tons per day at the SSGM. The
profit and cash flow projections reflect that the invested
capital could be recovered during the first year of full
production.
Employees
The Joint Venture employs approximately 210 full-time El
Salvadoran persons (up to 225 persons, including part-time
employees) to perform its exploration, exploitation, and
development programs; to produce gold from its SCMP facilities;
and to handle the administration of its activities. None of
these employees are covered by any collective bargaining
agreements. It has developed a continous, harmonious
relationship with its employees. Also, the Company employs
approximately four persons (plus part-time help) in the United
States.
Insurance
The Joint Venture has in existence insurance through an El
Salvadoran insurance company with the following coverages:
general liability, vehicle liability and extended coverage, fire,
explosion, hurricane, cyclone, tornado, windstorm, hail, flood,
storm, earthquake, tremor or volcanic eruption, politically
motivated violence, terrorism, strikes, work stoppages, riots,
uprisings, malicious acts, vandalism, and related acts. As
additional equipment and assets are acquired or improvements are
made, the insurance coverage will be increased accordingly.
Related Party Loans, Obligations and Transactions
All of the related party transactions are included in detail in
Note 6 to the Consolidated Financial Statements.
Company Advances to the Joint Venture
Since September 1987 through June 30, 1995, the Company and three
of its wholly-owned subsidiaries have advanced to the Joint
Venture, $9,841,566. Included in the total advances is the
interest charged to the Joint Venture by the Company and this
charge amounts to $2,656,589 through June 30, 1995. The Company
presently furnishes all of the funds required by the Joint
Venture.
Efforts to Obtain Capital
Since the concession was granted, and through the present time,
substantial effort is exercised in securing funding through
various sources, all with the purpose of expanding the operations
of the SCMP and SSGM.
The Company, Sanseb, and the Joint Venture consider the past
political situation in the Country of El Salvador to have been
unstable, and believe that the final peace declaration on
December 16, 1992, has put an end to war. Presently, interested
investors continue to be apprehensive and skeptical about the
political stability of the Republic of El Salvador and therefore
continue to be hesitant to invest the funds required. However,
during the first quarter ended June 30, 1995, the Company was
able to advance to the Joint Venture, a sum of $1,165,258, which
includes allocation of the Company's expenditures and interest
charges. The Company believes that it will be able to obtain
adequate financing that will be required during the fiscal year
ended March 31, 1996.
<PAGE>
Item 1. Legal Proceedings
There is no adverse litigation that could materially
affect the Company.
Item 2. Changes in Securities
Reference is made to the financial statements which
explain the common shares to be issued.
Item 3. Default Upon Senior Securities
None.
Item 4. Submission of Matters to a Vote of Security Holders
None, except those routine matters included in the proxy
statement dated July 27, 1995, relating to an
annual meeting of shareholders to be held on
September 22, 1995.
Item 5. Other Information
None.
Item 6. Reports on Form 8-K
None.
Exhibits
None.
SIGNATURE
Pursuant to the requirements of the Securities and Exchange Act
of 1934, the Registrant/Company has duly caused this report to be
signed on its behalf by the undersigned thereunto duly
authorized.
COMMERCE GROUP CORP.
Registrant/Company
Date: August 5, 1995 Edward L. Machulak
President, Chief Executive, Operating
and Financial Officer and Treasurer
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
March 31, 1995 Financial Statement is audited.
June 30, 1995 Financial Statement is unaudited.
</LEGEND>
<S> <C> <C>
<PERIOD-TYPE> 3-MOS YEAR
<FISCAL-YEAR-END> MAR-31-1996 MAR-31-1995
<PERIOD-END> JUN-30-1995 MAR-31-1995
<CASH> 236,052<F1> 744,969<F1>
<SECURITIES> 0 0
<RECEIVABLES> 16,857,926<F2> 15,692,668<F2>
<ALLOWANCES> 0 0
<INVENTORY> 1,179,836<F3> 1,179,836<F3>
<CURRENT-ASSETS> 236,052 744,969
<PP&E> 0 0
<DEPRECIATION> 0 0
<TOTAL-ASSETS> 18,273,814 17,617,473
<CURRENT-LIABILITIES> 5,075,444 4,592,562
<BONDS> 0 0
<COMMON> 729,472 729,472
0 0
0 0
<OTHER-SE> 12,468,898 12,295,439
<TOTAL-LIABILITY-AND-EQUITY> 18,273,814 17,617,473
<SALES> 299,687 174,708<F4>
<TOTAL-REVENUES> 299,687 174,708<F4>
<CGS> 0 1,325<F4>
<TOTAL-COSTS> 0 1,325<F4>
<OTHER-EXPENSES> 30,584 19,945<F4>
<LOSS-PROVISION> 0 0<F4>
<INTEREST-EXPENSE> 95,644 121,802<F4>
<INCOME-PRETAX> 173,459 31,636<F4>
<INCOME-TAX> 0 0<F4>
<INCOME-CONTINUING> 0 0<F4>
<DISCONTINUED> 0 0<F4>
<EXTRAORDINARY> 0 0<F4>
<CHANGES> 0 0<F4>
<NET-INCOME> 173,459 31,636<F4>
<EPS-PRIMARY> .02 .01<F4>
<EPS-DILUTED> .02 .01<F4>
<FN>
<F1>Includes investments and prepaid items.
<F2>Advances and investment in Joint Venture.
<F3>Including real estate held for sale.
<F4>For the 1st quarter ended 1994.
</FN>
</TABLE>
