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 December 31, 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 (I.R.S. Employer
of 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: 7,423,635 common shares of the Company's common stock,
$0.10 par value, were issued and outstanding as of January 31,
1996.
<PAGE>
COMMERCE GROUP CORP.
FORM 10-Q
FOR THE THIRD QUARTER ENDED DECEMBER 31, 1995
INDEX
PART I. FINANCIAL INFORMATION
Item 1. Consolidated Balance Sheets
December 31, 1995 and March 31, 1995
Consolidated Statements of Operations
Nine Months Ended December 31, 1995, and 1994
Consolidated Statements of Cash Flows
Nine Months Ended December 31, 1995, and 1994
Consolidated Statements of Changes in Shareholders'
Equity Nine Months Ended December 31, 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
ASSETS
Dec. 31, 1995 March 31, 1995
(Unaudited) (Audited)
Current assets
Cash
$ 117,256 $ 545,367
Investments 198,982 198,982
Prepaid items 1,496 620
----------- -----------
Total current assets 317,734 744,969
Real estate (Note 4) 1,179,836 1,179,836
Advances to Joint Venture
(Note 3) 11,236,292 8,676,308
Investment in Joint Venture
(Note 3) 7,016,360 7,016,360
----------- -----------
Total assets $19,750,222 $17,617,473
=========== ===========
LIABILITIES
Current liabilities
Accounts payable $ 538,944 $ 222,423
Notes and accrued
interest payable to
related parties (Note 5) 3,009,374 2,256,834
Notes and accrued interest
payable to others (Note 5) 483,897 468,180
Accrued salaries 1,351,353 1,257,190
Accrued directors' fees 54,300 47,950
Accrued legal fees 186,131 166,355
Other accrued expenses 168,044 173,630
----------- -----------
Total liabilities 5,792,043 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:
December 31, 1995-7,423,635 742,364
March 31, 1995-7,294,719 729,472
Additional paid in capital 12,009,252 11,675,961
Retained earnings (deficit) 1,206,563 619,478
----------- -----------
Total shareholders' equity 13,958,179 13,024,911
----------- -----------
Total liabilities and
shareholders' equity $19,750,222 $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
Third Quarter and Nine Months Ended
December 31, 1995 and 1994 (Unaudited)
Three Month Comparison Nine Months Ended
December 31, December 31,
Revenues: 1995 1994 1995 1994
--------- --------- --------- ---------
Campground income $ 13,011 $ 11,639 $ 52,917 $ 50,930
Land sales 0 0 0 9,000
Leasing income 0 0 0 220
Interest income 46 5,289 2,669 6,172
Interest income
Related Joint Venture
(Note 6, 11) 342,672 206,547 929,070 515,756
--------- -------- -------- --------
Total revenue $ 355,729 223,475 984,656 582,078
Expenses:
Cost of land sales 0 0 0 1,325
General and adminis-
trative and campground
expenses 13,988 24,077 65,776 62,334
Interest expense 135,254 124,561 331,795 369,732
-------- -------- -------- --------
Total expenses 149,242 148,638 397,571 433,391
-------- -------- -------- --------
Net income (loss) from
operations 206,487 74,837 587,085 148,687
Credit (charge) for
income taxes 0 0 0 0
-------- --------- -------- ---------
Net income (loss) 206,487 $ 74,837 587,085 $ 148,687
======== ========= ======== =========
Net income (loss) per
share (Note 2) $ .03 $ .01 $ .08 $ .03
--------- --------- --------- ---------
Average number of
shares outstanding
(Note 2) 7,319,069 5,600,200 7,319,609 5,600,200
========= ========= ========= =========
Fully diluted income
per common share
(Note 2) $ .03 $ .01 $ .08 $ .03
========= ========= ========= =========
Weighted average
diluted number of
shares (Note 2) 7,597,065 5,854,440 7,597,065 5,854,440
========= ========= ========= =========
The accompanying notes are an integral part of the consolidated
financial statements.
<PAGE>
COMMERCE GROUP CORP. AND CONSOLIDATED SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
Nine Months Ended December 31, 1995 and 1994 (Unaudited)
1995 1994
Operating Activities:
Net income (loss) $ 587,085 $ 148,687
Changes in other operating
assets and liabilities (net):
Other assets (876) 463
Accounts payable 316,521 (35,368)
Accrued salaries 94,163 74,663
Accrued directors' fees 6,350 610
Accrued legal fees 19,776 2,238
Accrued liabilities (5,586) 163,222
Accrued interest 15,717 21,231
Cash provided (used) by ---------- ----------
operating activities 1,033,150 375,746
Investing activities:
Advances to Joint Venture (2,559,984) (1,996,905)
----------- -----------
Cash provided (used)
by investing activities (2,559,984) (1,996,905)
----------- -----------
Financing activities:
Net borrowings 752,540 (476,349)
Issuance of common stock 346,183 2,386,746
Cash provided (used) by ---------- ----------
financing activities 1,098,723 1,910,397
---------- ----------
Increase (decrease) in
cash and cash equivalents (428,111) 289,238
Cash and cash equivalents -
beginning of period 545,367 15,562
---------- ----------
Cash and cash equivalents -
end of period $ 117,256 $ 304,800
========== ==========
Supplemental disclosure of
cash flow information:
Income taxes paid or accrued $ None $ None
The accompanying notes are an integral part of the consolidated
financial statements.
<PAGE>
COMMERCE GROUP CORP. AND CONSOLIDATED SUBSIDIARIES
CONSOLIDATED STATEMENT OF CHANGES IN SHAREHOLDERS' EQUITY
For the Nine Months Ended
December 31, 1995 and from the Year Ended March 31, 1994
Common Stock
Capital in Retained
Number of Excess of Earnings
Shares Par Value Par Value (Deficit)
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
Nine Months Ended 12/31/95 587,085
Common Shares Issue
- -this period:
Cancellation of Debt 41,216 4,122 142,499
Stock Options
Exercised 10,000 1,000 19,000
Bonuses and Fees 5,700 570 16,992
Cash 72,000 7,200 154,800
--------- -------- ----------- ----------
Balances 12/31/95 7,423,635 $742,364 $12,009,252 $1,206,563
The accompanying notes are an integral part of the consolidated
financial statements.
<PAGE>
COMMERCE GROUP CORP. AND CONSOLIDATED SUBSIDIARIES
Notes to Consolidated Financial Statements
December 31, 1995
(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 initially
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) upon receipt of adequate funding,
the Joint Venture plans to commence 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 (and its extension, the Capulin 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 separate
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).
Income Taxes
The Company files a consolidated Federal Income Tax return with
its subsidiaries (Note 9).
<PAGE>
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. Therefore, on December 31, 1995, 144,850
option shares, the 107,600 borrowed shares, and the 25,006
shares due for accrued interest, which combined amount to
277,456 shares were added to the 7,319,609 weighted average
number of shares issued and outstanding common shares, then
under this assumption, there would be 7,597,065 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 nine-month
period ended December 31, 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. El Salvador has a freely convertible currency and
there are no delays in exchanging dollars for El Salvador
colones or vice-versa. The Government of El Salvador recently
announced that it plans to dollarize their colon.
Major Customer
The Joint Venture is producing gold and silver. It sells 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.
<PAGE>
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.
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 from
its virgin ore. 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 December 31, 1995, the Company's advances were
$11,274,527, and three of the Company's wholly-owned
subsidiaries' advances were $590,265, for a total of
$11,864,792. These advances were reduced from the gold sale
proceeds which amounted to $628,500 which then reflected a net
advance of $11,236,292.
<PAGE>
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 December 31, 1995, the Company, Sanseb, and three of the
Company's wholly-owned subsidiaries, have invested (including
carrying costs) the following in its Joint Venture:
The Company's advances since 09/22/87;
net of gold sale proceeds $10,646,027
The Company's initial investment 3,508,180
Sanseb's investment in the Joint Venture 3,508,180
Sanseb's investment in the mining projects
and amount due to the Company 17,060,042
-----------
Total 34,722,429
Advances by the Company's three subsidiaries 590,265
-----------
Combined total investment $35,312,694
===========
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. The Joint Venture is producing gold at its
San Cristobal Mill and Plant on a pilot test basis.
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 of the shareholders
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
<PAGE>
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; during September, 1987 the
lease agreement was assigned to the Joint Venture.
The lease is freely assignable by the Joint Venture without
notice to Misanse. The lease may also be canceled 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.
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, however, this right is disputed by the El Salvador custom
authorities.
Under the terms of the concession and agreements referred to in
the concession, the Joint Venture has agreed to the following:
<PAGE>
(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. $57,143 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
reduced the total amount due as of November 30, 1995, to
296,786 colones or U.S. $33,918;
(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 $57,143 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;
(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 no restrictions 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.
<PAGE>
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 Government of El
Salvador 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 should 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. This 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. 1995 inflation rate was approximately 3%, therefore, on
November 12, 1995, 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
<PAGE>
of 87,500 colones or approximately U.S. $10,011. Also, the
Company has a first right of refusal to purchase this land.
(b) Real Estate Ownership
On November 27, 1994, the Company purchased 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,
<PAGE>
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
and it owns and leases land at the Modesto Mine site. 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.
(5) Notes Payable and Accrued Interest
Dec. 31, 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). $3,009,374 $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) 473,897 458,180
---------- ----------
$3,493,271 $2,725,014
<PAGE>
(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
three-quarter years at $114,750 annually ($430,313), for a
total of $1,175,453.
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 December 31, 1995:
The amount of funds which the Company has borrowed from its
President from time to time, together with accrued interest,
amount to $1,195,650. 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 the above
total) from its President on the same terms and conditions as
provided to other related and non related parties. (Note 5).
The Company had borrowed an aggregate of $328,715 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 70,100 common shares from the President since April 1, 1995,
and it owes him 20,506 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
<PAGE>
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
December 31, 1995:
The Company leases approximately 3,100 square feet on a
month-to-month basis for its corporate headquarters office; the
monthly rental charge was $2,145. As of December 1, 1995, the
Company increased the space it rents to 4,032 square feet, and
the monthly rental charge beginning on this date is $2,789.
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.
<PAGE>
This related company has been issued an open-ended, secured,
on-demand promissory note which at December 31, 1995, amounts
to $1,117,730.74; 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 December
31, 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 $170,109 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 $186,131 for legal
services rendered from July, 1984, through August, 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 remaining in the option agreement 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 since October 1, 1994, are fixed at $250 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
December 31, 1995,
first nine months, net
after deduction of gold
sale proceeds 2,559,984 929,070
---------- ----------
December 31, 1995, balance 10,646,027 3,309,751
Advances by three of the
Company's wholly-owned
subsidiaries 590,265 0
----------- ----------
Net advances after deducting
gold sale proceeds $11,236,292 $3,309,751
=========== ==========
(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. The Joint Venture files a
separate income tax return.
<PAGE>
(10) Stock Options, Rights, Preferred Stock and Stock Loans
The following stock options, stock rights, and stock loans are
in existence:
Expiration Option Price Option
Issue Date Date Term/Extensions Per Share Shares
- ---------- ---------- --------------- ------------- ------
05/11/92 02/11/96 *a $2.00 50,260
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 144,850
=======
*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 a
partial 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 the
balance of this stock option right to February 11, 1996.
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 20,506 of its common shares
as of December 31, 1995, for unpaid interest, which interest is
payable by the Company's issuance of its restricted common
shares. Also due are 70,100 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 a period of 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.
<PAGE>
As of December 31, 1995, there is one stock loan outstanding
which amounts to a total of 37,500 of the Company's common
shares which are to be repaid together with 4,500 of the
Company's restricted common shares for the interest earned.
Rights
Reference is made to Note 6, whereas the Directors and
Officers have a right to exchange the Directors' fees due to
them for the Company's common shares.
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 December 31, 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, 157,500 were issued and 342,500 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
<PAGE>
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
December 31, 1995, is estimated to be less than $25,000.
(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.
<PAGE>
COMMERCE GROUP CORP. AND CONSOLIDATED SUBSIDIARIES
S.E.C. FORM 10-Q - DECEMBER 31, 1995
PART I - FINANCIAL INFORMATION
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)
pending adequate funding it wants to commence 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, (and its
extension, the Capulin 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 an
agreement was reached to complete the terms and conditions of
this within a certain specified time frame. 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.
The unusual rain and floods, equipment mechanical defects, etc.
affected the achievement to be into full production as of
December 31, 1995. Also, additional equipment to increase the
efficiency was delivered but was not completely installed
during this period.
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
<PAGE>
producing approximately 12,000 ounces of gold from the SCMP
operation and 56,376 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 (and
its extension, the Capulin Mine), Modesto, Hormiguero and
Montemayor Mines; all located in El Salvador, Central America.
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 Third Quarter and Nine Month
Period Ended December 31, 1995 Compared to the Same December
31, 1994 Period
For the nine months ended December 31, 1995, the total
revenues, excluding the proceeds from the sale of gold which
were applied to reduce the advances to the Joint Venture,
amounted to $984,656 compared to revenues of $582,078 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. Through the third quarter of 1995, the interest charged
to the Joint Venture by the Company was $929,070 compared to
$515,756 for the same period in 1994, for an increase of
$413,314 (80%) which results from the advances to the Joint
Venture being increased to $11,236,292 (1995) from $7,789,135
(12/31/94) or $3,447,157 (44%).
The campground operating, general and administrative expenses
for the fiscal nine-month period ended December 31, 1995, were
$65,776 compared to $62,334 for the same 1994 period or an
increase of $3,442 (6%).
Interest expense through this third quarter (1995) amounted to
$331,795 compared to $369,732 for the same 1994 period for a
decrease of $37,937 (10%) which decrease was due to a reduction
in the Notes Payable and lower interest rates.
<PAGE>
The net profit for the nine-month period ended December 31,
1995, was $587,085 compared to a profit for the same period
ended December 31, 1994, of $148,687 resulting primarily from
the increase of interest income to the Joint Venture.
The Directors of the Company believe that the company's main
thrust of activity should be to commence its SSGM open-pit,
heap-leaching gold mining operation as its feasibility studies
indicated that the potential earnings from the mining operation
would not only warrant the proposed investment, but it should
produce adequate profits. It presently is performing whatever
is necessary to increase the production of at its SCMP
facilities. Otherwise, the Company presently is dependent on
its sporadic sale of its real estate or campground activity to
generate income.
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 to cover all of its cash outlays. 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.
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 this nine-month period were obtained from the
Company via advances: $2,559,984 in 1995 and $1,996,905 in
1994. The Company believes that these advances significantly
contributed to the value of the SSGM, the SCMP, and 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 o f funding. Since
September 1987, the Company and three of its wholly-owned
subsidiaries advanced a sum of $11,236,292 (net of the cash
proceeds it received from the sale of gold) to the Joint
Venture.
<PAGE>
Advances to the Joint Venture
Advances to the Joint Venture during the Company's third
quarter ended December 31, 1995, were derived from the various
sources, including related parties as follows:
Funding Sources:
Related Other
Parties Sources Internal Total
---------- -------- --------- ----------
Accounts Payable
and Accruals $ 341,620 $104,445 $ 446,065
Notes Payable/
Accrued Interest $ 752,540 $ 752,540
Common Stock Issued 147,246 $198,937 $ 346,183
Net Income $ 587,085 $ 587,085
---------- -------- ---------- ----------
Balance $1,241,406 $303,382 $ 587,085 $2,131,873
Decrease in Cash
and Cash
Equivalents $ 428,111 $ 428,111
---------- -------- ---------- ----------
Advances to Joint
Venture $1,241,406 $303,382 $1,015,196 $2,559,984
========== ======== ========== ==========
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 operations when
it is in full production could provide a sufficient amount of
cash for corporate purposes.
From September, 1987 through December 31, 1995, the Company has
advanced to the Joint Venture, the net sum of $10,646,027
(which is after deducting the proceeds from the sale of gold)
and three of the Company's wholly-owned subsidiaries have
advanced the sum of $590,265, for a total of $11,236,292. 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, of the SCMP, retrofitting,
repair and modernization of its facilities, for consumable
inventory, for working capital to commence the pilot gold
production program, for exploration costs for the San Felipe-El
Potosi Mine (and its extension, the Capulin Mine) Modesto Mine,
Hormiguero Mine, and the Montema yor 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, 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, given
time, 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. Unusual rain and
floods and the necessity of additional processing equipment
during the this report period precluded the Joint Venture from
reaching its full production goal. 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 or to expand and
expedite exploration of the other mining projects. The Company
estimates that it will need at least U.S. $ 13 million to start
a 2,000/3,000 ton per day heap-leach operation and over a
period of 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 a
very short time.
Employees
The Joint Venture employs approximately 225 full-time El
Salvadoran persons 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 continuous,
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 coverage:
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
Notes 6, 7 and 10 to the Consolidated Financial Statements.
<PAGE>
Company Advances to the Joint Venture
Since September 1987 through December 31, 1995, the Company and
three of its wholly-owned subsidiaries have advanced to the
Joint Venture, $11,236,292 after the deduction of the gold sale
proceeds. Included in the total advances is the interest
charged to the Joint Venture by the Company and this charge
amounts to $3,009,374 through December 31, 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 reluctant to invest the funds
required. However, through the third quarter ended December
31, 1995, the Company was able to advance to the Joint Venture,
a net sum of $2,559,984, after deducting the cash proceeds
received from the sale of gold and which includes allocation of
the Company's expenditures and interest charges.
<PAGE>
COMMERCE GROUP CORP. AND CONSOLIDATED SUBSIDIARIES
S.E.C. FORM 10-Q - DECEMBER 31, 1995
PART II - OTHER INFORMATION
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 changes in securities
issued and to be issued.
Item 3. Default Upon Senior Securities
None.
Item 4. Submission of Matters to a Vote of Security
Holders
None.
Item 5. Other Information
None.
Item 6. Exhibits and Report on Form 8-K
(a) No exhibits are filed with this Form 10-Q
(b) Reports on Form 8-K
There were no reports on Form 8-K filed during the nine-month
period ended December 31, 1995.
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: February 5, 1996 Edward L. Machulak
President,
Chief Executive, Operating and
Financial Officer and Treasurer
WARNING: THE EDGAR SYSTEM ENCOUNTERED ERROR(S) WHILE PROCESSING THIS SCHEDULE.
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
December 31, 1995 and 1994 Financial Statements are unaudited.
</LEGEND>
<S> <C> <C> <C> <C>
<PERIOD-TYPE> 9-MOS YEAR 9-MOS 9-MOS
<FISCAL-YEAR-END> MAR-31-1996 MAR-31-1995 MAR-31-1996 MAR-31-1995
<PERIOD-END> DEC-31-1995 MAR-31-1995 DEC-31-1995 DEC-31-1994
<CASH> 317,734<F1> 744,969<F1> 0
0
<SECURITIES> 0 0 0 0
<RECEIVABLES> 18,252,652<F2> 15,692,668<F2> 0
0
<ALLOWANCES> 0 0 0 0
<INVENTORY> 1,179,836<F3> 1,179,836<F3> 0
0
<CURRENT-ASSETS> 0 0 0 0
<PP&E> 0 0 0 0
<DEPRECIATION> 0 0 0 0
<TOTAL-ASSETS> 19,750,222 17,617,473 0 0
<CURRENT-LIABILITIES> 5,792,043 4,592,562 0 0
<BONDS> 0 0 0 0
<COMMON> 742,364 729,472 0 0
0 0 0 0
0 0 0 0
<OTHER-SE> 13,215,815 12,295,439 0 0
<TOTAL-LIABILITY-AND-EQUITY> 19,750,222 17,617,473 0 0
<SALES> 0 0 0 0
<TOTAL-REVENUES> 0 0 984,656 582,078
<CGS> 0 0 0 0
<TOTAL-COSTS> 0 0 0 0
<OTHER-EXPENSES> 0 0 65,776 63,659
<LOSS-PROVISION> 0 0 0 0
<INTEREST-EXPENSE> 0 0 331,795 369,732
<INCOME-PRETAX> 0 0 587,085 148,687
<INCOME-TAX> 0 0 0 0
<INCOME-CONTINUING> 0 0 0 0
<DISCONTINUED> 0 0 0 0
<EXTRAORDINARY> 0 0 0 0
<CHANGES> 0 0 0 0
<NET-INCOME> 0 0 587,085 148,687
<EPS-PRIMARY> 0 0 .08 .03
<EPS-DILUTED> 0 0 .08 .03
<FN>
<F1>Includes investments and prepaid items.
<F2>Advances and investment in Joint Venture.
<F3>Including real estate held for sale.
</FN>
</TABLE>
