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, 1996
or
___ TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d)
OF THE SECURITIES EXCHANGE ACT OF 1934
For the Transition Period From __________ To __________
Commission file number 1-7375
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 X No___
Indicate the number of shares outstanding of each of the
issuer's classes of common stock, as of the latest practicable
date: 8,096,765 common shares of the Company's common stock,
$0.10 par value, were issued and outstanding as of August 1,
1996.
<PAGE>
COMMERCE GROUP CORP.
FORM 10-Q
FOR THE FIRST QUARTER ENDED JUNE 30, 1996
INDEX
PART I. FINANCIAL INFORMATION
Item 1. Consolidated Balance Sheets June 30, 1996 and March
31, 1996
Consolidated Statements of Operations Three Months
Ended June 30, 1996, and 1995
Consolidated Statements of Cash Flows
Three Months Ended June 30, 1996, and 1995
Consolidated Statements of Changes in Shareholders'
Equity Three Months Ended June 30, 1996, 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 30,1996 March 31, 1996
(Unaudited) (Audited)
------------ --------------
ASSETS
------
Current assets
Cash $ 236,586 $ 55,653
Investments 198,982 198,982
Accounts receivable 63,064 143,476
Inventories 91,149 118,748
Prepaid items 3,199 986
----------- -----------
Total current assets 592,980 517,845
Real estate (Note 4) 1,179,836 1,179,836
Advances to Joint Venture
Net of Gold Sale Proceeds
(Note 3) 12,618,493 11,799,074
Investment in Joint Venture
(Note 3) 7,016,360 7,016,360
----------- -----------
Total assets $21,407,669 $20,513,115
=========== ===========
LIABILITIES
-----------
Current liabilities
Accounts payable $ 201,538 $ 148,051
Notes and accrued
interest payable to
related parties (Note 5) 3,010,660 3,084,370
Notes and accrued interest
payable to others (Note 5) 489,765 499,110
Accrued salaries 1,235,528 1,204,140
Accrued directors' fees 2,000 0
Accrued legal fees 99,050 76,883
Other accrued expenses 345,964 341,054
----------- -----------
Total liabilities 5,384,505 5,353,608
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
1996-none; 1995-none
(Note 10) $ 0 $ 0
Common stock, $0.10 par value:
Authorized 15,000,000 shares;
Issued and outstanding:
June 30, 1996 - 8,078,265 807,827
March 31, 1996 - 7,792,209 779,221
Additional paid in capital 13,588,025 12,973,006
Retained earnings (deficit) 1,627,312 1,407,280
----------- -----------
Total shareholders' equity 16,023,164 15,159,507
----------- -----------
Total liabilities and
shareholders' equity $21,407,669 $20,513,115
=========== ===========
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)
1996 1995
Revenues: ----------- ------------
Campground income $ 22,025 $ 21,157
Interest income 19 2,622
Interest income Related Joint
Venture (Notes 6 & 11) 351,169 275,908
----------- -----------
Total revenue 373,213 299,687
Expenses:
General, administrative and
campground expenses 19,074 30,584
Interest expense 134,107 95,644
----------- -----------
Total expenses 153,181 126,228
----------- -----------
Net income (loss) from operations 220,032 173,459
Credit (charge) for income taxes 0 0
----------- -----------
Net income (loss) $ 220,032 $ 173,459
=========== ===========
Net income (loss) per share
(Note 2) $ .03 $ .02
=========== ===========
Average number of shares
outstanding (Note 2) 7,877,123 7,294,719
=========== ===========
Fully diluted income per common
share (Note 2) $ .03 $ .02
=========== ===========
Weighted average diluted number of
shares assuming all rights and
options were exercised on
June 30, 1996 and June 30, 1995 7,981,383 7,580,047
=========== ===========
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)
1996 1995
----------- -----------
Operating Activities:
Net income (loss) $ 220,032 $ 173,459
Changes in other operating assets
and liabilities (net):
Accounts receivable 80,412
Inventory 27,599
Other assets (2,213) (1,896)
Accounts payable 53,487 336,205
Accrued salaries 31,388 31,388
Accrued directors' fees 2,000 1,900
Accrued legal fees 22,167 2,647
Accrued liabilities 4,910 4,898
Accrued interest (4,361) 5,289
------------ ------------
Cash provided (used) by
operating activities 435,421 553,890
Investing activities:
Advances to Joint Venture (819,419) (1,165,258)
Investment in Joint Venture 0 0
------------ ------------
Cash provided (used) by
investing activities (819,419) (1,165,258)
------------ ------------
Financing activities:
Net borrowings (78,694) 100,555
Issuance of common stock 643,625 0
------------ ------------
Cash provided (used) by
financing activities 564,931 100,555
------------ ------------
Increase (decrease) in cash and
cash equivalents 180,933 (510,813)
Cash and cash equivalents -
beginning of period 55,653 545,367
------------ ------------
Cash and cash equivalents -
end of period $ 236,586 $ 34,554
============ =============
The accompany 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 Three Months Ended
June 30, 1996 and for the Year Ended March 31, 1996
Common Stock
------------
Capital in Retained
Number Excess of Earnings
of Shares Par Value Par Value (Deficit)
--------- --------- ----------- ---------
Balance 03/31/95 7,294,719 729,472 $11,675,961 619,478
Net Income for FY
03/31/96 787,802
Common Shares Issue- FY
03/31/96 497,490 49,749 1,297,045
--------- -------- ----------- ----------
Balances 03/31/96 7,792,209 779,221 12,973,006 1,407,280
Net Income First Quarter
03/31/96 220,032
Common Shares Issued
this period 286,056 28,606 615,019
--------- -------- ----------- ----------
Balances 06/30/96 8,078,265 $807,827 $13,588,025 $1,627,312
========= ======== =========== ==========
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 performing gold mining and related activities,
including, but not limited to, exploration, extraction and
processing of gold in the Republic of El Salvador, Central
America. Gold bullion, the Joint Venture's principal
product, is produced in El Salvador and sold in the United
States. Exploration is taking place at the San Sebastian
Gold Mine ("SSGM") which is located near the City of Santa
Rosa de Lima. Exploration is also taking place at four
other mining properties, all located 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: it has started to produce 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; the second program is to begin
its open-pit, heap-leaching process on the SSGM site; the
third program is to continue its SSGM site preparation,
the expansion of its exploration and exploitation targets,
and the enlargement and development of its gold ore
reserves; and the fourth program is to explore the
potential of four gold mine exploration prospects
identified as the San Felipe-El Potosi Mine, and its
extension, the El Capulin Mine, the Hormiguero Mine, the
Modesto Mine, and the Montemayor Mine, all located in El
Salvador, Central America. Concurrently, it also is in
the process of obtaining the necessary funding for each of
these separate programs while its Joint Venture continues
its gold production, exploration, exploitation and
development operations.
(b) The Company, a United States' corporation (incorporated as
a Wisconsin corporation in 1962 and consolidated with a
Delaware corporation in 1971), presents its consolidated
financial statements in U.S. dollars.
(c) The preparation of the financial statements, in accordance
with accounting principles generally accepted in the
United States requires management to make estimates and
assumptions that affect the reported amounts of assets and
liabilities and disclosure of contingent assets and
liabilities at the date of the financial statements and
the reported amounts of revenues and expenses during the
reporting period. Actual results could differ from those
estimates.
(d) Accounts receivable consist of gold bullion shipped to the
refinery pending the settlement date.
(e) Inventories consist of gold on hand at the El Salvador
mill site.
<PAGE>
(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 in its financial
statements 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 see Note 8.
Income Taxes
The Company files a consolidated Federal Income Tax return with
its subsidiaries (See 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
this fiscal year. The Company does not include in this
calculation any common stock equivalent, 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 rights and
options were exercised on the last day of the period that is
being reported.
If on June 30, 1996, the 83,960 option shares, the 15,200
borrowed shares, and the 5,100 shares due for accrued interest
were combined, they would total 104,260 shares. These shares
added to the weighted average calculated number of shares of
7,877,123 would amount to 7,981,383, and the profit per share
for the period ended June 30, 1996, would be approximately the
same. The same assumptions were used for the same period in
1995.
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 Salvador bank accounts. The Joint Venture
is obligated to repay the Company for funds advanced in U.S.
dollars.
Major Customer
The Joint Venture produces gold and silver. It sells its gold
to a refinery located in the United States. Given the nature of
the precious metals that are 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).
<PAGE>
(3) Commerce/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 180 non-related
shareholders, including the President of the Company who owns
2,073 common shares. Sanseb was formed to explore, exploit,
research, and develop adequate gold reserves and then it
produced gold from SSGM from 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 signed 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 which is reduced by the gold sale proceeds and it will
write off these cumulative costs on a unit of production method
at such time as it begins producing gold derived from the
virgin gold ore. If the prospect of gold production, due to
different conditions and circumstances becomes unlikely, all of
these costs may be written off in the year that this occurs.
Advances to Joint Venture
As of June 30, 1996, the Company's advances, net of gold sale
proceeds, were $12,028,228, and three of the Company's
wholly-owned subsidiaries' advances were $590,265 for a total
of $12,618,493.
Investment in El Salvador Mining Projects
During the fiscal year, the Company has advanced funds,
performed services, and allocated its general and
administration costs to the Joint Venture.
<PAGE>
As of June 30, 1996, 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 $12,028,228
The Company's investment in the Joint Venture 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 17,954,532
------------
Total: 36,999,120
Advances by the Company's three subsidiaries 590,265
-----------
Combined total investment $37,589,385
===========
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 adequate financing for the proposed
open-pit, heap-leaching operations on this site. 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
Salvador 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 El Salvador, Central American, and United States'
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, which begins on the date gold production begins,
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 gross gold production 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 further
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 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 it under the jurisdiction of
the Ministry of Economy of El Salvador's Director of Energy,
Mines, and Hydrocarbons, and include it 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 granted 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 Salvador
law, the Joint Venture has the right to export said minerals
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 the SSGM. (Reference is made to the last
two paragraphs in this category.)
Effective February 1, 1996, the Government of El Salvador
passed a law which will require mining companies to pay to it
three percent of its gold sale receipts and an additional one
percent is to be paid to the El Salvador municipality which
has jurisdiction of the mine site.
Under the terms of the concession and agreements referred to in
the concession, the Joint Venture has agreed to the following:
(1) The Joint Venture will pay to 270 former El Salvador
employees pursuant to a settlement agreement dated June
1985, as follows: A sum of approximately 500,000 colones
(approximately U.S. $57,208 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. The sum of 241,467 colones has been paid which
reduces the total amount due as of June 30, 1996, to
258,533 colones or U.S. $29,580.
<PAGE>
(2) 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;
(3) From the profits earned, 5% of the gross wages paid to the
full-time employees shall be paid into a pension fund;
(4) From the profits earned, a sum of 500,000 colones annually
(equivalent to $57,208 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;
(5) 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; and
(6) 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 Salvador currency into
United States' currency for the payment of its loans,
interest, and any other obligations, including the payment
of dividends. Presently, there are no restrictions into
converting the El Salvador colones into United States'
currency.
On November 30, 1987, the El Salvador Minister of Foreign
Commerce issued a project approval for the gold mining
operation which was ratified on April 15, 1988.
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 Salvador Constitutional Supreme Court of
Justice ("Supreme Court") informing the Supreme Court that the
Joint Venture's rights were being violated and that the Supreme
Court should restrain the Department of Customs from attempting
to collect any duty.
On May 18, 1994, the Supreme 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
Supreme Court could deny the exemption, therefore, in lieu of
paying the Custom's duty, it is accepting a payment guarantee
bond in an amount of the Custom's duty until a final decision
is made. It is charging the Company a 13% added value tax
which is refundable to the extent of 6% of the value of the
Joint Venture's exports. The Joint Venture is exporting all of
its gold.
Gold Reserves
The Joint Venture's geologists have determined that the minable
and estimated gold reserves are approximately 15,875,000 tons
which should contain 1,680,500 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.
<PAGE>
SCMP Land and Building Lease
On November 12, 1993, the Joint Venture entered into an
agreement with Corporacion Salvadorena de Inversiones
("Corsain"), a governmental agency of El Salvador, 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 (the SCMP) are located, and which is approximately 15
miles east of the SSGM site. The annual lease payment is U.S.
$11,500 (payable in El Salvador 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.
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, 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.
(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.
(c) Concession
The Joint Venture has acquired an extendible exploration
concession from the El Salvador 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 and
under the following basic terms and conditions:
<PAGE>
1. The lease payment will be 5% of the gross receipts derived
from the production 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 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 Ownership
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 Estates 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
other real estate ownership or leases.
<PAGE>
(5) Notes Payable and Accrued Interest
Notes payable consist of the following June 30, 1996 March 31, 1996
------------- --------------
Mortgage and promissory notes to
related parties, interest ranging from
1% to 4% over prime rate, but not less
than 16%, 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) $3,010,660 $3,084,370
Other (consists primarily of
short-term notes and accrued interest
of $263,691 as of June 30, 1996 (March
31, 1996, $262,955) issued to trade
creditors and others, interest of
varying amounts, in lieu of actual
cash payments) 489,765 499,110
---------- ----------
Total: $3,500,425 $3,583,480
========== ==========
(6) Related Party Transactions
The Company, in an attempt to preserve cash, had prevailed on
its President to accrue his salary for the past 15 years and
three months: 11 years at $67,740 annually ($745,140); and
four years and three months at $114,750 annually ($487,688) for
a total of $1,232,828.
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, 1996:
The amount of funds which the Company has borrowed from its
President from time to time, together with accrued interest,
amounts to $1,481,732. 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.
The Company had borrowed, as of June 30, 1996, an aggregate of
$355,827, including accrued interest, from the Company's
President's Rollover Individual Retirement Account (RIRA).
These loans are evidenced by the Company's open-ended, secured,
on-demand promissory note, 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 at the prime rate
plus 3% per annum. The Company received all of the net cash
proceeds from the sale or from the pledge of these shares. The
Company borrowed a total of 15,200 common shares from him since
April 1, 1996, and it owes him 5,100 of its restricted 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.
<PAGE>
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.
Prior financial statements have detailed that the President has
acquired on December 10, 1993, the ownership of 203 Misanse
common shares. In addition, effective as of June, 1995, he
personally, for his own account, 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, 1996.
The Company leases approximately 4,032 square feet on a
month-to-month basis for its corporate headquarters office at a
monthly rental charge of $2,789.
The same related company provides consulting, administrative
services, use of data processing equipment, use of its vehicles
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.
In addition, this related company does use its credit
facilities to purchase items needed for the Joint Venture's
mining needs.
This related company has been issued an open-ended, secured,
on-demand promissory note which at June 30, 1996, amounts to
$944,126 the annual interest rate is 4% plus the prime rate,
but not less than 16%, and it is payable monthly.
The Company's Directors have consented and approved the
following transactions which status are reflected as of June
30, 1996:
The President's wife's Individual Retirement Account ("IRA")
has the Company's open-ended, secured, on-demand promissory
note in the sum $184,139 which bears interest at an annual
rate of prime plus 3%, but not less than 16% and the interest
is payable monthly.
<PAGE>
The Law Firm which represents the Company in which a son of the
President is a principal is owed the sum of $99,050 for legal
services rendered. Also, the son of the President and his
son's wife have the Company's open-ended, on-demand promissory
note in the sum of $44,836 which bears interest at an annual
rate of 16% payable monthly.
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 $250 for each meeting. The
Directors and Officers have a right to exchange the amount due
to them for the Company's common shares.
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 NASDAQ
Monthly Statistical Summaries 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 advances 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.
Company Advances to the Joint Venture Total Advances Interest
Balance April 1, 1990 $ 1,625,163 $ 252,060
Year Ended March 31, 1991 718,843 266,107
Year Ended March 31, 1992 698,793 312,004
Year Ended March 31, 1993 1,003,617 347,941
Year Ended March 31, 1994 1,155,549 451,180
Year Ended March 31, 1995 2,884,078 751,389
Year Ended March 31, 1996 3,122,766 1,286,739
First Quarter Ended June 30, 1996 819,419 351,169
----------- ----------
Balance June 30, 1996 $12,028,228 $4,018,589
Advances by three of the Company's
wholly-owned subsidiaries 590,265 0
----------- ----------
Total Advances June 30, 1996 $12,618,493 $4,018,589
=========== ==========
(7) Commitments
Reference is made to Notes (3), (5), (6) and (13).
<PAGE>
(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 June 30, 1996, the Company and its subsidiaries have
estimated net operating losses remaining in a sum of
approximately $4,347,244 which may be carried forward to offset
future taxable income; the net operating losses expire at
various times to the year of 2012.
(10) Stock Options, Rights, Preferred Stock, and Stock Loans
The following stock options are in existence:
Expiration Term with Option Price Option
Issue Date Date Extensions Per Share Shares
- ---------- -------- ---------- --------- ------
05/27/94 05/27/97 3 years $2.00 30,000
05/31/94 05/31/97 3 years $2.00 30,000
03/22/95 09/22/97 30 months $4.00 20,710
03/30/96 03/29/98 2 years $5.00 1,375
03/30/96 03/29/98 2 years $5.00 1,875
------
Total Options issued and outstanding 83,960
======
Stock Rights
Reference is made to Note 6, Related Party Transactions, of the
Company's financial statements which disclose the terms and
conditions of the share loans to the Company by the President
and the interest which is payable to him by the Company's
issuance of its common shares.
Said interest payable is for shares loaned to the Company
and/or for such shares loaned or pledged for collateral
purposes, or for unpaid interest, 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.
Reference is made to Note 6, whereas the Directors and Officers
have a right to exchange their fees and/or salaries in payment
for the Company's common shares.
<PAGE>
Share Loans - Others
A series of borrowings of the Company's common shares were made
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.
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 are issued or
outstanding.
The preferred shares are 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 preferences and number
of shares constituting any wholly unissued series of preferred
shares.
S.E.C. Form 8 Registration
On April 4, 1994, the Company filed its Securities and Exchange
Commission Form 8 Registration Statement No. 33-77226 under the
Securities Act of 1933, 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, 192,184 were issued and 307,816 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 Salvador Constitutional Supreme Court of
Justice should decide that the Joint Venture is subject to the
payment of custom duty taxes, then the Company would have
contingent liability as it has, on behalf of the Joint Venture,
agreed to reimburse an El Salvador Insurance Company the funds
that may be disbursed to the El Salvador Customs' 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, 1996, amounts to approximately $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.
<PAGE>
Item 2. Management's Discussion and Analysis of Financial
Condition and Results of Operations
The following discussion provides information on the results of
operations for the two periods ended June 30, 1995 and 1996 and
the financial condition, liquidity and capital resources for
the same quarterly periods. The financial statements of the
Company and the notes thereto contain detailed information that
should be referred to in conjunction with this discussion.
Introduction
The Joint Venture is in the pre-production stage at the SSGM
and it simultaneously is performing four separate programs.
First, it has commenced a limited production of gold by
processing the SSGM tailings at its SCMP facility which is
located approximately 15 miles from the SSGM site. Second, it
is installing a pilot open-pit, heap-leaching gold process on
the SSGM site. Third, it is continuing its SSGM site
preparation, the expansion of its exploration and exploitation
targets, and the enlargement and development of its gold ore
reserves. Fourth, it is exploring the potential of the four
gold mine prospects identified as the San Felipe-El Potosi
Mine, and its extension, the El Capulin Mine, the Hormiguero
Mine, the Montemayor Mine, and the Modesto Mine, all located in
El Salvador, Central America. Concurrently, it also is in the
process of obtaining the necessary funding for each of these
separate programs while it continues its limited production of
gold and the exploration, exploitation and development of its
mining prospects. The more than twelve-year El Salvador war
and the general disbelief that peace will prevail had been a
material deterrent in obtaining funding for the resumption of
the SSGM operations and for the restoration of the SCMP. On
December 15, 1992, through the auspices of the United Nations,
the end of the war was declared contingent upon a three-year
term to comply with all of the conditions of this pact. 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 gold
ore and precious metals' ore per day. While the Joint Venture
did achieve at times to operate the mill to its full capacity,
it encountered inconsistencies which compelled it to operate
the mill at a lower production rate. Considerable time and
capital was consumed to bring the SCMP to a favorable operating
condition. A new labor force had to be trained to operate the
SCMP; metallurgical differences had to be resolved; the rainy
season was unusually severe (Hurricane Cesar/Douglas); the head
grade variances; and problems were encountered with the
handling of the separation of the coarse material in the
tailings.
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 which is its major and original goal and presently is
in the developmental stage. The Company's main objective and
plan, through the Joint Venture, is to operate at the SSGM
site, a moderate tonnage, low-grade open-pit, heap-leaching,
gold-producing mine and it intends to commence this major
gold-mining operation as soon as adequate funding is in place.
Dependent on the grade of ore processed, it then anticipates
producing approximately 12,000 ounces of gold from the SCMP
operation and 40,000 ounces of gold from its SSGM open-pit,
heap-leaching 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
at the following four other mines: the San Felipe-El Potosi,
and its extension, the El Capulin Mine, the Modesto Mine, the
Hormiguero Mine, and the Montemayor Mine; all located in El
Salvador.
<PAGE>
Since the Joint Venture commenced producing gold at the SCMP,
albeit a very exiguous operation, and a forerunner of its
greater goals, 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,
1996 Compared to June 30, 1995
For the three months ended June 30, 1996, the total revenues
amounted to $373,213 compared to revenues of $299,687 for the
same period in 1995. The increase in revenues resulted
primarily from interest charged to the Joint Venture.
Interest is being charged to the Joint Venture on advances made
to it. In the first quarter of 1996, the interest charged to
the Joint Venture by the Company was $351,169 compared to
$275,908 for the same period in 1995, for an increase of
$75,261 (27%) which results from the advances to the Joint
Venture being increased to $12,028,228 (1996) from $9,251,301
(1995) (30%) 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 quarter period ended June 30, 1996, were $19,074
compared to $30,584 for the same 1995 period. The decrease in
expenses resulted from there being no extraordinary filing
fees.
Interest expense for this first quarter (1996) amounted to
$134,107 compared to $95,644 for the same 1995 period for an
increase of ($38,463) (40%) and was due to an increase in the
interest rates and debt.
The net profit for the period ended June 30, 1996, was $220,032
compared to a profit for the period ended June 30, 1995 of
$173,459 an increase of $46,573 (27%).
Liquidity and Capital Resources
The Company continues to be cognizant of its cash liquidity
until it is able to produce adequate profits from its gold
production.
<PAGE>
On June 11, 1996, the Company accepted a letter of intent from
National Securities Corporation, an investment banking and
brokerage firm of Seattle, Washington, to act as the exclusive
private placement agent on a best efforts basis in connection
with the proposed placement of debentures of the Company in the
aggregate principal amount of $20,000,000 and 1,500,000
warrants secured by gold ore reserves of equal value. The
Debentures and the Warrants shall hereinafter be referred to
collectively as the "Securities." The Securities will only be
offered to "accredited investors" pursuant to Regulation D of
the General Rules and Regulations under the Securities Act of
1933, as amended. The Debentures will mature 5 years after
issuance and shall have an interest rate of 12% per annum
payable annually in arrears. The Company has filed a S.E.C.
Form 8-K providing the details of this funding arrangement.
Assuming the entire amount will be funded, the funds will be
used for the construction of an open-pit, heap-leaching
operation processing facility at its SSGM site at an estimated
cost of $13 million, for the expansion of its SCMP facilities
at an estimated cost of $2 million, and the balance of the
funds will be used for drilling, working capital, and
transaction expenses. However, it will continue to attempt to
obtain sufficient funds to assist the Joint Venture in placing
the SSGM into production as the anticipated SCMP profits
(unless accumulated over a period of time) will not be
sufficient to meet the SSGM capital and the other mining
exploration needs. 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-leaching 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 or
by selling its shares to its directors, officers and other
interested investors.
During the past, the Joint Venture was engaged in
exploration, exploitation and development programs designed to
increase its gold ore reserves. The prospects of expanding the
gold ore reserves are positive. The funds needed by the Joint
Venture were obtained from the Company via net advances:
$819,419 in this first quarter. 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 substantial 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 continue to retrofit the
SCMP, to 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 $12,618,493 to
the Joint Venture, exclusive of gold sale proceeds.
Advances to the Joint Venture
Advances to the Joint Venture during the Company's first
quarter ended June 30, 1996 were derived from the various
sources including related parties as follows:
<PAGE>
Funding Sources From
---------------------
Related Other
Parties Sources Total
--------- --------- -----------
Accounts payable & accruals etc. $111,090 $104,299 $ 215,389
Notes payable (73,710) (4,984) (78,694)
Equity 225,000 418,625 643,625
Net income 220,032 220,032
--------- --------- -----------
Totals $262,380 $737,972 $1,000,352
Increase in cash & cash
equivalents (180,933) (180,933)
--------- --------- -----------
Advances to the Joint Venture $262,380 $557,039 $ 819,419
========= ========== ===========
Therefore, the Company continues to rely on its directors,
officers, related parties and others 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. In turn, then it can advance the funds
required by the Joint Venture to continue the exploration,
exploitation and development of the SSGM, and the other
exploration prospects, for the operation of the SCMP and for
other necessary Company expenditures. Anticipated profits from
the SCMP gold production provide a limited amount of cash for
corporate purposes. It further believes that the funding
needed to proceed with the continued exploration of the five
exploration targets for the purpose of increasing its gold ore
reserves should be $10 million. These exploration programs will
involve airborne geophysics, stream chemistry, geological
mapping, trenching and drilling. The Joint Venture believes
that it may be able to joint venture these exploration costs
with other mining companies.
From September, 1987 through June 30, 1996, the Company has
advanced to the Joint Venture, the sum of $12,028,228 and
three of the Company's wholly-owned subsidiaries have advanced
the sum of $590,265, for a total of $12,618,493. 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 of a 200-ton per
day used SCMP precious metals' cyanide leaching mill and plant,
for the retrofitting, repair and modernization of its SCMP
facilities, for consumable inventory, for working capital to
commence the production of gold, for exploration costs for the
San Felipe-El Potosi Mine, and its extension, the El Capulin
Mine, the Modesto Mine, the 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 extension and preservation, for its
participation in the construction of a bridge, for community
telephone building and facilities, for the purchase and advance
lease payment of the real estate on the Modesto Mine, and many
other related needs.
SCMP Operations, SSGM & Other Mine Exploration
This report describes the Company's current activities and
status. The Company, through its Joint Venture, has reduced
its advances to the Company from its sale of gold, therefore,
the advances reported are after deducting these gold sale
proceeds. Presently the Company believes that the technical
SCMP problems will be resolved to permit it to reach its goal
of processing 400 tons of tailings each day of operation. In
the event 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-leaching operation. The
Company estimates that it will need at least U.S. $13 million
to start a 2,000 ton per day heap-leaching 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 18
months of full production. It further believes that it should
be able to raise adequate funds to proceed with its goals which
include the SCMP expansion and the acquirement of a crushing
system.
<PAGE>
Employees
The Joint Venture employs approximately 304 full-time persons
from El Salvador (up to 325 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 continuous harmonious
relationship with its employees. It believes that the Joint
Venture is the largest single non-agricultural employer in El
Salvador's Eastern Zone. 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
Salvador insurance company with the following general 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
The related party transactions are included in detail in the
Notes to the Consolidated Financial Statements.
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 to resume operations of
the SCMP and SSGM and to continue the exploration of its other
mining prospects. Reference is made to the disclosure of the
Company's entering into an agreement with an investment banking
and brokerage firm which has demonstrated its abilities to
obtain funds for other businesses. The filing of Securities
and Exchange Commission Form 8-K on or about June 11, 1996,
describes in detail the agreement to acquire the contemplated
capital.
<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 issued and 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 business matters included
in the proxy statement dated August 2, 1996, relating
to an annual meeting of shareholders to be held on
September 27, 1996.
Item 5. Other Information
None.
Item 6. Reports on Form 8-K
A filing was made on or about June 11, 1996.
Exhibits
Exhibit No. Description of Exhibit Page
----------- ---------------------- ----
1 Securities and Exchange
Commission Form 8-K
filed on or about June 11,
1996.
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
/s/ Edward L. Machulak
__________________________________
Date: August 10, 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>
March 31, 1996 Financial Statement is from an audited financial statement.
June 30, 1996 Financial Statement is unaudited.
</LEGEND>
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0 0 0 0
0 0 0 0
<OTHER-SE> 15,215,337 14,380,286 0 0
<TOTAL-LIABILITY-AND-EQUITY> 21,407,669 20,513,115 0 0
<SALES> 0 0 0 0
<TOTAL-REVENUES> 0 0 373,213 299,687
<CGS> 0 0 0 0
<TOTAL-COSTS> 0 0 0 0
<OTHER-EXPENSES> 0 0 19,074 30,584
<LOSS-PROVISION> 0 0 0 0
<INTEREST-EXPENSE> 0 0 134,107 95,644
<INCOME-PRETAX> 0 0 220,032 173,459
<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 0 220,032 173,459
<EPS-PRIMARY> 0 0 .03 .02
<EPS-DILUTED> 0 0 .03 .02
<FN>
<F1>Includes investments and prepaid items.
<F2>Accounts receivable, advances and investment in Joint Venture.
<F3>Including real estate held for sale.
</FN>
</TABLE>
