U.S. SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-QSB
(Mark One)
[X] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE
ACT OF 1934
For the quarterly period ended June 30, 2000
[ ] 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 0-27845
VEGA-ATLANTIC CORPORATION
-------------------------
(Exact name of small business issuer as specified in its charter)
COLORADO 84-1304106
-------- ----------
(State or other jurisdiction of (I.R.S. Employer
incorporation of organization) Identification No.)
4600 South Ulster St.
Suite 240
Denver, Colorado 80237
-------------------------------
(Address of Principal Executive Offices)
(800) 721-0016
--------------
(Issuer's telephone number)
N/A
---
(Former name, former address and former fiscal year,
if changed since last report)
Check whether the issuer (1) filed all reports required to be filed by Section
13 or 15(d) of the Exchange Act during the past 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
State the number of shares outstanding of each of the issuer's classes of common
equity, as of the latest practicable date:
Class Outstanding as of July 30, 2000
----- -------------------------------
Common Stock, $.00001 par value 24,346,000
Transitional Small Business Disclosure Format (check one)
Yes No X
<PAGE>
PART 1. FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS
----------------------------
VEGA-ATLANTIC CORPORATION
(An Exploration Stage Company)
FINANCIAL STATEMENTS
(Unaudited)
June 30, 2000
TABLE OF CONTENTS
Page
----
Table of Contents 2
Balance Sheet 3
Statements of Operations 4
Statements of Cash Flows 5
Notes to Financial Statements 6 - 13
2
<PAGE>
<TABLE>
<CAPTION>
VEGA-ATLANTIC CORPORATION
(An Exploration Stage Company)
Consolidated Balance Sheet
June 30,
2000
-----------
ASSETS
<S> <C>
CURRENT ASSETS
Cash and cash equivalents $ 141,761
Stock subscriptions receivable 425,000
-----------
Total Current Assets 566,761
OTHER ASSETS
Investment in Mineral Property 1
-----------
Total Assets $ 566,762
===========
LIABILITIES AND STOCKHOLDERS' EQUITY
LIABILITIES
CURRENT LIABILITIES
Accounts payable - trade $ 254,970
Advances from related parties 21,123
Notes payable - Technology sublicense 600,000
Directors fees payable 50,767
Accrued interest payable 45,473
-----------
Total Current Liabilities 972,333
-----------
MINORITY INTEREST IN SUBSIDIARY (29,809)
STOCKHOLDERS' EQUITY
Preferred stock, no par value;
20,000,000 shares authorized at June 30, 2000
0 shares issued and outstanding at June 30, 2000 --
Common stock $.00001 par value;
500,000,000 shares authorized at June 30, 2000; 1,700,000 shares subscribed and
24,346,000 shares issued and outstanding at June 30, 2000 261
Paid - in capital 6,861,195
Accumulated deficit through exploration stage (7,237,218)
-----------
Total Stockholders' Equity (375,762)
-----------
Total Liabilities, Minority Interest and Stockholders' Equity $ 566,762
===========
See accompanying summary of accounting policies and notes to financial statements.
3
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
VEGA-ATLANTIC CORPORATION
(An Exploration Stage Company)
Consolidated Statements of Operations
Inception
(January 28,
1987) to
For the 3 Months Ended Jun. 30, June 30,
2000 1999 2000
------------ ------------ ------------
<S> <C> <C> <C>
REVENUES
Sales $ -- $ -- $ --
------------ ------------ ------------
Total Revenues -- -- --
COST OF SALES -- -- --
------------ ------------ ------------
Gross Profit -- -- --
------------ ------------ ------------
EXPLORATION EXPENSES
Research and development -- -- 783,182
Claims maintenance fees -- -- 72,004
Claims exploration services -- -- 1,937
Claims staking and mangement -- -- 38,443
Acquisition due dilligence (Impairment loss) 50,000 -- 72,146
Joint Venture Advances/Purchase (Impairment loss)
Xiaoshuijing 1,500 -- 1,500
Luomachang 7,770 -- 38,770
Tun Resources 869,365 -- 1,009,365
------------ ------------ ------------
Total Exploration Expenses 928,635 -- 2,017,347
ADMINISTRATIVE EXPENSES
Overhead and administration 201,322 242,550 2,355,903
Legal and accounting 61,100 3,565 148,856
Transfer agent fees 290 220 14,410
Director's fees 3,000 1,500 39,000
Other administrative costs 55,196 1,688 158,227
Consultants 27,960 -- 124,036
------------ ------------ ------------
Total Administrative Expenses 348,868 249,523 2,840,432
------------ ------------ ------------
Loss from Continued Operations (1,277,503) (249,523) (4,857,779)
------------ ------------ ------------
Discontinued Operations:
Loss from discontinued operations of subsidiary
Century Manufacturing, Inc. -- -- (1,787,000)
Loss from Loan Advances to subsidiary, Century
Manufacturing, Inc. written off -- -- (590,773)
Gain on Disposal of subsidiary Century
Manufacturing, Inc. -- -- 171,144
------------ ------------ ------------
Net Loss from Discontinued Operations -- -- (2,206,629)
------------ ------------ ------------
Net Loss from Operations (1,277,503) (249,523) (7,064,408)
------------ ------------ ------------
Table continues on following page.
4
<PAGE>
VEGA-ATLANTIC CORPORATION
(An Exploration Stage Company)
Consolidated Statements of Operations
(Continued)
Inception
(January 28,
1987) to
For the 3 Months Ended Jun. 30, June 30,
2000 1999 2000
------------ ------------ ------------
OTHER INCOME (EXPENSE)
Interest Income -- -- 2
Interest Expense (16,965) (23,554) (172,812)
------------ ------------ ------------
Total Other Income (Expense) (16,965) (23,554) (172,810)
------------ ------------ ------------
NET (LOSS) $ (1,294,468) $ (273,077) $ (7,237,218)
============ ============ ============
Earnings (Loss) Per Share - Basic $ (0.062) $ (0.016) $ (1.095)
============ ============ ============
Weighted Average Number of
Common Shares Outstanding 20,792,978 17,585,000 6,606,863
============ ============ ============
See the accompanying summary of accounting policies and notes to financial statements.
4(a)
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
VEGA-ATLANTIC CORPORATION
(An Exploration Stage Company)
Consolidated Statements of Cash Flows
Increase (Decrease) in Cash and Cash Equivalents
Inception
(January 28,
1987) to
For the 3 Months Ended Jun. 30, June 30,
2000 1999 2000
----------- ----------- -----------
<S> <C> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES
Net (loss) $(1,294,468) $ (273,077) $(7,237,218)
Adjustments to reconcile net (loss) to cash
Non-cash loss on sale of subsidiary -- -- 1,687,000
Non-cash research and development expenses -- 783,182
Non-cash interest recognized through
discount adjustment -- 8,750 31,818
Non-cash stock issued in settlement of payables and for services 15,000 5,841 99,992
Non-cash loss due to impairment of joint venture interest 672,000 -- 672,000
Changes in Assets and Liabilities
Accounts payable 38,224 (3,107) 254,970
Directors fees payable 3,000 1,500 50,767
Accrued interest payable 16,965 14,804 140,994
Minority Interest (29,809) (29,809)
----------- ----------- -----------
Net Cash Flows Used for Operating Activities (579,088) (245,289) (3,546,304)
----------- ----------- -----------
CASH FLOWS FROM FINANCING ACTIVITIES
Advances from affiliates - net (104,479) 246,050 1,096,065
Purchase of subsidiary, Tun Resources, Inc. -- -- (100,000)
Sale of stock, net of offering costs 725,000 -- 2,692,000
----------- ----------- -----------
Net Cash Flows Provided by
Financing Activites 620,521 246,050 3,688,065
----------- ----------- -----------
Net increase in cash 41,433 761 141,761
Cash and cash equivalents - Beginning of period 100,328 279 --
----------- ----------- -----------
Cash and cash equivalents - End of period $ 141,761 $ 1,040 $ 141,761
=========== =========== ===========
NON-CASH ACTIVITIES
During 1987, 750,000 shares of common stock worth $850 were issued for services performed.
During 1989, 8,500,000 shares of common stock with a value of $1,000 were issued for services performed.
During 1996, Century Manufacturing, Inc. was purchased for $100,000 through an advance to Century and the
issuance of 1,000,000 shares of common stock valued at $1,687,000.
During 1997, a $50,000 advance from an affiliate was repaid through issuance of stock.
During 1997, Century Manufacturing, Inc. was sold to related parties in exchange for reductions in advances
from those parties.
During the 1999 fiscal year, the Company issued 500,000 common shares in exchange for $75,000 in mining claims.
During the 1999 fiscal year, the Company entered into $600,000 of loan agreements in exchange for a technology
sub-license.
During the 1999 fiscal year, the Company issued 1,000,000 shares of common stock worth $140,000 pursuant to a technology
sub-license agreement
During the 2000 fiscal year, the Company issued 2,061,000 shares of common stock worth $1,030,463 in settlement of
advances.
The Company has accrued interest expense of $124,029 on advances and notes, has recognized an additional $33,818 of
interest through discount adjustments and has paid interest of $95,521 through the issuance of stock in settlement of
advances.
During the 2001 fiscal year, the Company issued 200,000 shares of common stock worth $15,000 for services performed.
During the 2001 fiscal year, the Company issued 1,600,000 common shares worth $672,000 in exchange for an 80% inerest
in Tun Resources, Inc.
See the accompanying summary of accounting policies and notes to financial statements.
5
</TABLE>
<PAGE>
VEGA-ATLANTIC CORPORATION
(An Exploration Stage Company)
Notes to the Unaudited Financial Statements
June 30, 2000
--------------------------------------------------------------------------------
NOTE 1: SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
Presentation
------------
Vega Atlantic Corporation (the "Company") has included the consolidated
balance sheet of the Company as of June 30, 2000, and consolidated
statements of operations and cash flows for the three-month periods ended
June 30, 2000 and 1999 and for the period from inception (January 28, 1987)
to June 30, 2000, together with condensed notes thereto. These financial
statements are prepared utilizing the interim reporting requirements of the
Securities and Exchange Commission ("SEC") as outlined in Article 10 of
Regulation S-X, which is a basis of accounting differing from generally
accepted accounting principles ("GAAP"). In the opinion of management of
the Company, the financial statements reflect all adjustments necessary to
fairly present the consolidated financial condition, results of operations,
and cash flows of the Company for the interim periods presented. The
interim period financial statements presented should be read in conjunction
with the GAAP basis audited financial statements of the Company and notes
thereto included with the annual report of the Company on Form 10-K for the
year ended March 31, 2000.
Principles of Consolidation
---------------------------
The consolidated financial statements for the three months ended June 30,
2000 include the accounts of the Company and its 80% owned subsidiary, Tun
Resources, Inc. (Note 5). The 80% interest in Tun Resources, Inc. ("Tun")
was acquired by purchase on May 1, 2000. The acquisition of Tun has been
accounted for on the purchase method of accounting. All significant
intercompany transactions and account balances have been eliminated.
Going Concern and Continued Operations
--------------------------------------
As of June 30, 2000, there is substantial doubt regarding the Company's
ability to continue as a going concern as the Company has not generated any
revenues from operations, has a working capital deficit of ($405,572). The
Company's successful financial operations and movement into an operating
basis are contingent on the development of the lode mining claims, or other
joint ventures detailed in Note 5, and the continuing ability of generating
capital financing. The Company intends to finance operations for the next
twelve months through additional common stock offerings and advances.
Earnings Per Share
------------------
As of June 30, 2000, there were no warrants or stock options granted that
would affect the earnings per share calculation. The Company had notes
payable that could be converted into 500,000 shares of common stock. The
conversion of the notes would have an anti-dilutive effect, therefore, the
Company has presented only the basic earnings per share calculation. The
basic earnings per share calculation has been adjusted for the one for two
reverse stock split occurring in 1995.
6
<PAGE>
VEGA-ATLANTIC CORPORATION
(An Exploration Stage Company)
Notes to the Unaudited Financial Statements
June 30, 2000
--------------------------------------------------------------------------------
NOTE 2: STOCKHOLDERS' EQUITY
Common Stock
------------
On May 1, 2000, the Company issued 1,600,000 shares, at a deemed value of
$0.42 per share, totaling $672,000, for the purchase of an 80% interest in
Tun Resources, Inc. (Note 5).
On May 29, 2000, the Company issued 200,000 shares for the settlement of
accounts payable of the Corporation in the amount of $15,000.
Pursuant to a Reg. S private placement offering memorandum dated March 1,
2000, the Company is offering 5,000,000 shares of common stock at $.25 per
share. This offering is intended to be used for continued financing of the
exploration, development and expansion programs currently being conducted
on the Company's joint venture projects in China, consulting fees, and to
provide working capital. As of June 30, 2000, 92% of the offering has been
subscribed; the Company has received payment for 2,900,000 shares of the
offering, and received subscriptions for a further 1,700,000 shares.
At June 30, 2000, there were 24,346,000 shares of common stock outstanding.
NOTE 3: IMPAIRMENT LOSSES
During the period from April 1, 2000 to June 30, 2000 the Company incurred
due diligence expenses related to the proposed acquisitions described in
Note 5 and also advanced funds to the various parties. These advances will
be deducted from the total purchase price of the joint venture interests
should the Company proceed with the acquisitions. These costs would
normally be capitalized as an investment in the joint venture interest,
however, as any future cash flows from the joint venture interests cannot
be quantified, the Company expensed costs totaling $59,270 as an impairment
loss.
The Company acquired Tun Resources, Inc. on May 1, 2000 via a $672,000
stock issuance (Note 2). The primary asset of Tun is an interest in a
Chinese gold exploration joint venture (Note 5). At the date of
acquisition, Tun had a stockholders' deficit of $149,046. The Company
allocated 20% of the stockholder's deficit to the minority interest in the
subsidiary and recorded the remaining $119,237, as well as the $672,000 in
stock, as the value of the underlying joint venture interest. As any future
cash flows from the joint venture interest cannot be quantified, the
Company recognized a $791,237 impairment loss on the value of the Tun joint
venture interest. Of the $791,237 impairment loss, $651,237 was recognized
during the current period, while the remaining $140,000 was recognized as
an impairment loss during the quarter ended March 31, 2000. The $140,000
represented advances to Tun through March 31, 2000.
7
<PAGE>
NOTE 4: ADVANCES AND NOTES PAYABLE
Advances and Notes Payable are comprised of the following:
Advances
--------
June 30, 2000
-------------
Alexander Cox $ 2,021
Newport Capital Corp. 2,102
Tristar Financial Services, Inc. 16,000
Brent Pierce 1,000
-------
Total Advances $21,123
=======
All advances are payable on demand and bear 10% simple interest. There is
$11, 407 of accrued interest on the advances as of June 30, 2000.
NOTE 5: ACQUISITIONS AND POTENTIAL ACQUISITIONS
ACQUISITIONS
------------
80% interest in Tun Resources Inc.: On January 12, 2000, the Company
entered into a letter of intent with Golden Thunder Resources Ltd. ("Golden
Thunder") to purchase from Golden Thunder approximately eighty percent
(80%) of the issued and outstanding shares of common stock of Tun Resources
Inc., a Canadian corporation ("Tun Resources"), with an option to purchase
the remaining twenty percent (20%) of the issued and outstanding shares of
Tun Resources. Under the terms of the proposed agreement, the Company would
pay $1,180,000 and issue 1,600,000 shares of its restricted common stock to
Golden Thunder. Tun Resources is the major stakeholder in two gold
exploration and development joint ventures in the Yunnan Province of China.
Tun Resources owns an approximate eighty-two percent (82%) joint venture
interest in the Yuntong Sino-Foreign Joint Venture, which has the rights to
four separate gold exploration and mining development properties in China.
Tun Resources also owns an approximate eighty percent (80%) joint venture
interest in the Lutong Sino-Foreign Joint Venture, which consists of a gold
exploration concession comprising approximately 100 square kilometers in
the same province.
On May 2, 2000, the Company executed a definitive closing agreement to
purchase the 80% interest in issued and outstanding shares of Tun Resources
Inc. The Company has completed its due diligence efforts and is proceeding
with funding initiatives pursuant to Tun Resources' two majority owned gold
exploration and development joint ventures in the Yunnan Province of China.
The 80% interest in Tun Resources is purchased in exchange for the funding
commitment of $1,180,000 by August 15, 2000 and the 1,600,000 restricted
shares in the capital of the Company. As of June 30, 2000, the Company has
8
<PAGE>
VEGA-ATLANTIC CORPORATION
(An Exploration Stage Company)
Notes to the Unaudited Financial Statements
June 30, 2000
--------------------------------------------------------------------------------
NOTE 5: ACQUISITIONS AND POTENTIAL ACQUISITIONS (continued)
advanced $498,128 of the $1,180,000 funding commitment. Vega-Atlantic
Corporation also received the option to purchase the remaining 20% of Tun
Resources at fair market value.
POTENTIAL ACQUISITIONS
----------------------
70% interest in "Baotong" Zinc Joint Venture: The Company announced on June
8, 2000, that the Company had executed an agreement to joint venture with
the No. 4 Geological Brigade, Yunnan Bureau of Geological Exploration and
Development to cooperatively explore two separate Zinc and Lead deposits in
the south western Yunnan Province. Further to the June 8, 2000 Agreement,
on July 19, 2000, the Company announced that it has completed joint venture
negotiations, has executed a Sino-Foreign Cooperative Joint Venture
Contract, and is in the process of forming its limited liability joint
venture company.
The Joint Venture Contract details, structures, and formalizes terms of
investment, contributions by each partner, and formal agreement on roles
and responsibilities of both parties to the joint venture. The Contract
provides the legal basis the Company requires to conduct further
exploration, metallurgical testing, and assessment of mining potential
related due diligence. The name of the newly formed cooperative joint
venture entity is "Yunnan Baotong Mineral Exploration and Development Co.
Ltd."
The Company has incorporated a wholly owned subsidiary named Epicon
Resources Group, Ltd., a Belize private corporation to become the actual
Baotong Joint Venture foreign partner on behalf of the Company. The Baotong
JV's Chinese partner is the No. 4 Geological Brigade's "Baosghan Shanjiang
Corporation of Exploration and Development For Geology and Minerals".
Further due diligence will be conducted during the next two months to
undertake independent geological reports, metallurgical testing, and
preliminary exploration and development scoping. Subject to the outcome of
due diligence efforts under way, the Company has committed to spend
$1,000,000 on exploration (drilling and tunneling) over a two-year period
in return for a 70% interest in the Baotong JV Company. According to the JV
Contract signed, the Company can acquire up to an 85% interest by providing
further capital if its Sino JV partner elects a no investment 15% carried
interest. Provisions in the Joint Venture Contract allow for 90% of future
profits to repay all Foreign invested capital by the Company and its
subsidiary, Epicon Resources Group, Ltd., before reversion to final
ownership interests. The Joint Venture anticipates risk exploration around
zinc and lead areas already defined, and the development of a mining
feasibility study and evaluation.
Two areas of main zinc-lead deposits have been identified. The first
deposit, "Luziyuan" prospect is located in Zhenkang County, Yunnan
Province. The Luziyuan prospect has been explored by the No. 4 Geological
9
<PAGE>
VEGA-ATLANTIC CORPORATION
(An Exploration Stage Company)
Notes to the Unaudited Financial Statements
June 30, 2000
--------------------------------------------------------------------------------
NOTE 5: ACQUISITIONS AND POTENTIAL ACQUISITIONS (continued)
Brigade since 1958, and based on geochemical, geophysical, and surface
trenching and tunneling, the most prospective 40 square kilometer areas
have been delineated and obtained. The main mineralized body has a large
surface oxidized showing that is currently mined by local farmers who sell
the raw, hand picked ore to a lead-zinc smelter for the last six years.
The second deposit, "Jinchanghe" prospect is located close to Baoshan City.
The Jinchanghe prospect has been explored by the No. 4 Geological Brigade
since 1986, and based on geochemical, geophysical, and magnetic and IP
(induced polarization survey), and surface trenching and tunneling, another
prospective 40 square kilometer area has been delineated and obtained
around a central vein operated, and permitted for limited mining, by a
local businessman. The Company plans to continue geophysical IP testing on
the Jinchanghe prospect, and based on the IP results, will formalize a
drilling or tunneling exploration plan for this area.
Lemachang Silver Mine Joint Venture Proposal: On March 27, 2000, the
Company entered into an agreement with the No. 1 Geological Brigade of
Yunnan Bureau of Geology and Mineral Resources of Qujing City, Yunnan
Province, Peoples Republic of China ("PRC") to acquire via joint venture,
majority control in the producing Lemachang silver mine, located in the
Ludian County Seat, Yunnan Province of the PRC.
The Lemachang silver mine is only three years old, has processing capacity
of 300 tonnes of ore per day to produce approximately 600,000 ounces per
year of silver, and includes a drill proven resource of 13 million ounces,
with an additional 27 million ounce inferred resource. Other areas drilled
support a further approximate 23 million ounce inferred resource over a 4.6
km section. The exploration area's mineralization potential has not been
fully ascertained, and the Company plans to conduct drilling, and test work
to verify these resources.
Under terms of the further joint venture agreement executed on July 26,
2000, the Company will partner the formation of a new joint venture company
and invest up to US $8 million (subject to audit and due diligence) to
increase production, expand reserves, and improve overall silver recovery
in return for an 85% interest in the silver mine and deposit areas. The
joint venture plans to accelerate drilling to expand the existing reserve
and undertake production engineering feasibility studies to increase
production and output to a target of 1,000,000 oz of metallic silver per
year. The Company has incorporated the wholly owned subsidiary, Alaskan
Explorations Corp., a Turks & Caicos private corporation, to be the
Company's joint venture partner designate for the Lemachang silver mine
joint venture. Until the completion of all due diligence, the Company will
not consider the acquisition probable.
10
<PAGE>
VEGA-ATLANTIC CORPORATION
(An Exploration Stage Company)
Notes to the Unaudited Financial Statements
June 30, 2000
--------------------------------------------------------------------------------
NOTE 5: ACQUISITIONS AND POTENTIAL ACQUISITIONS (continued)
Ailaoshang Joint Venture Proposal: On May 4, the Company entered into an
agreement with the No. 1 Geological Brigade of the Yunnan Bureau of Geology
and Mineral Resources of Qujing City, Yunnan Province, Peoples Republic of
China ("No. 1 Geological Brigade") whereby the Company has the right to
acquire via joint venture a 70% interest in the Ailaoshang gold concession
and prospect with claims that include the "Xiaoshuijing" 350,000 ounce gold
resource located in the Chuxion Prefecture, Yunnan Province, PRC.
The Company will conduct due diligence on the property by confirmation and
test drilling, and expect geological reports to provide the basis for
negotiation of final terms of a definitive Sino-Foreign Cooperative joint
venture agreement. Upon confirmations of further due diligence, the Company
will invest up to US $2.5 million to expand the reserves and increase mine
production. The No. 1 Geological Brigade will contribute the Ailaoshang
property, exploration and mining rights, permits, land use rights, and
other work to date completed on the Ailaoshang property. The Company has
incorporated the wholly owned subsidiary, Polar Explorations Ltd., a Belize
private corporation, to be the Company's joint venture partner designate
for the Ailaoshang gold project joint venture. Until the completion of all
due diligence, the Company will not consider the acquisition probable.
The Xiaoshuijing property is located approximately 150 km northwest of the
Company's Tun Resources Inc.'s Yuntong JV 100,000 ounce gold property. The
45 km highway from Chuxiong City via Xineun Town provides access to the
Xiaoshuijing area. The geological resource is located in mid-high
mountainous area approximately 1,500 to 2,000 m in elevation. Work
conducted recently by the No. 1 Geological Brigade indicates peripheral
gold occurrences located could increase future gold resources. Mining
operations are limited at present as further heap leach mine testing is in
process. Current mining activities operate during the dry season from
approximately October to May each year. The Xiaoshuijing property has been
mined on a small scale since 1993.
NOTE 6: EMPLOYEE STOCK OPTION PLAN
On May 1, 2000, the shareholders of the Company as represented by 51% of
the issued and outstanding common shares of the Corporation voted to
approve the creation of an employee stock option plan. The plan extends for
a 10-year term and consists of 2,000,000 share options at $0.25 per share.
All options granted expire April 30, 2010. Shares which may be acquired
through the plan may be authorized but unissued shares of common stock or
issued shares of common stock held in the Company's treasury. Options
granted under the plan will not be in lieu of salary of other compensation
for services.
11
<PAGE>
VEGA-ATLANTIC CORPORATION
(An Exploration Stage Company)
Notes to the Unaudited Financial Statements
June 30, 2000
--------------------------------------------------------------------------------
NOTE 6: EMPLOYEE STOCK OPTION PLAN (continued)
During the quarter ended June 30, 2000, the Board of Directors of the
Company authorized the grant of stock options to certain officers,
directors and consultants. As of June 30, 2000, 1,950,000 share options
with an exercise price of $.25 per share of common stock had been issued,
no options had been exercised or forfeited, and no options had expired.
Selected information regarding the options as of June 30, 2000 and 1999 are
as follows:
June 30, 2000 June 30, 1999
-------------------- -----------------
Number Number
of Exercise of Exercise
Options Price Options Price
-------------------- -----------------
Outstanding at Beg. of Period -0- -0- -0- -0-
Outstanding at End of Period 1,950,000 $.25/share -0- -0-
Exercisable at End of Period 1,950,000 $.25/share -0- -0-
Options Granted 1,950,000 $.25/share -0- -0-
Options Exercised -0- -0- -0- -0-
Options Forfeited -0- -0- -0- -0-
Options Expired -0- -0- -0- -0-
As of June 30,2000, there are 1,950,000 options that are exercisable at an
exercise price of $.25 per share of common stock.
12
<PAGE>
VEGA-ATLANTIC CORPORATION
(An Exploration Stage Company)
Notes to the Unaudited Financial Statements
June 30, 2000
--------------------------------------------------------------------------------
NOTE 7: SUBSEQUENT EVENTS
POTENTIAL ACQUISITIONS
----------------------
70% interest in "Baotong" Zinc Joint Venture: The Company announced on June
8, 2000, that the Company had executed an agreement to joint venture with
the No. 4 Geological Brigade, Yunnan Bureau of Geological Exploration and
Development to cooperatively explore two separate Zinc and Lead deposits in
the south western Yunnan Province. Further to the June 8, 2000 Agreement,
on July 19, 2000, the Company announced that it has completed joint venture
negotiations, has executed a Sino-Foreign Cooperative Joint Venture
Contract, and is in the process of forming its limited liability joint
venture company (Note 5).
Lemachang Silver Mine Joint Venture Proposal: On March 27, 2000, the
Company entered into an agreement with the No. 1 Geological Brigade of
Yunnan Bureau of Geology and Mineral Resources of Qujing City, Yunnan
Province, Peoples Republic of China ("PRC") to acquire via joint venture,
majority control in the producing Lemachang silver mine, located in the
Ludian County Seat, Yunnan Province of the PRC. Under terms of the further
joint venture agreement executed on July 26, 2000, the Company will partner
the formation of a new joint venture company and invest up to US $8 million
(subject to audit and due diligence) to increase production, expand
reserves, and improve overall silver recovery in return for an 85% interest
in the silver mine and deposit areas (Note 5).
13
<PAGE>
VEGA-ATLANTIC CORPORATION
(An Exploration Stage Company)
UNAUDITED CONDENSED
PROFORMA FINANCIAL STATEMENTS
TABLE OF CONTENTS
Page
----
Unaudited Condensed Proforma Balance Sheet - June 30, 2000 15
Unaudited Condensed Proforma Statements of Operations:
For the Three Months Ended June 30, 2000 16
For the Year Ended March 31, 2000 17
Schedule of Assumptions and Explanatory Notes 18 - 19
14
<PAGE>
<TABLE>
<CAPTION>
VEGA ATLANTIC CORPORATION
(An Exploration Stage Company)
UNAUDITED PROFORMA CONDENSED BALANCE SHEETS
June 30,2000
Vega Tun Consolidated
Atlantic Resources Proforma Balance
Corporation Inc. Adjustments Sheet
----------- ----------- ----------- -----------
<S> <C> <C> <C> <C>
Assets
Current Assets
Cash and Cash Equivalents $ 39,089 $ 102,672 $ $ 141,761
Other Assets
Subscriptions Receivable 425,000 -- 425,000
Advances Receivable 350,000 -- (350,000) --
Other Assets 672,000 1 (672,000) 1
Goodwill -- -- --
Impairment Loss on Goodwill -- -- --
----------- ----------- ----------- -----------
Total Assets $ 1,486,089 $ 102,673 $(1,022,000) $ 566,762
=========== =========== =========== ===========
Liabilities and Stockholders' Equity
Liabilities
Current Liabilities $ 972,333 $ 490,000 $ (490,000) $ 972,333
Minority Interest (77,465) (77,465)
Stockholders' Equity
Common Stock 260 1 (1) 260
Paid in Capital 6,861,195 4,428,861 (4,316,861) 6,973,195
Accumulated Deficit through
Exploration Stage (6,347,699) (4,816,189) 3,862,327 (7,301,561)
----------- ----------- ----------- -----------
Total Liabilities and Stockholders' Equity $ 1,486,089 $ 102,673 $(1,022,000) $ 566,762
=========== =========== =========== ===========
See Schedule of Assumptions and Explanatory Notes.
15
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
VEGA ATLANTIC CORPORATION
(An Exploration Stage Company)
UNAUDITED PROFORMA CONDENSED STATEMENTS OF OPERATIONS
For the Year Ended March 31, 2000
Vega Tun Consolidated
Atlantic Resources Proforma Operating
Corporation Inc. Adjustments Statement
------------ ------------ ------------ ------------
<S> <C> <C> <C> <C>
Operating Expenses $ (968,968) $ (203,325) $ (231,999) $ (1,404,292)
------------ ------------ ------------ ------------
Operating Loss (968,968) (203,325) (231,999) (1,404,292)
Other Expenses
Interest Expense (122,743) -- -- (122,743)
------------ ------------ ------------ ------------
Net Loss $ (1,091,711) $ (203,325) $ (231,999) $ (1,527,035)
============ ============ ============ ============
Distribution of Net Loss:
To Controlling Interest $ (1,091,711) $ (203,325) $ (231,999) $ (1,527,035)
To Minority Interest - * -- -- -- --
------------ ------------ ------------ ------------
Net Loss $ (1,091,711) $ (203,325) $ (231,999) $ (1,527,035)
============ ============ ============ ============
Earnings (Loss) Per Share - Basic $ (0.062) $ (101,663) $ (0.080)
============ ============ ============
Weighted Average Number of
Common Shares Outstanding 17,596,262 2 1,599,998 19,196,262
============ ============ ============ ============
* - As the Minority Shareholder has negative equity, the entire loss has been allocated to
the controlling interest.
See Schedule of Assumptions and Explanatory Notes.
16
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
VEGA ATLANTIC CORPORATION
(An Exploration Stage Company)
UNAUDITED PROFORMA CONDENSED STATEMENT OF OPERATIONS
For the Three Month Operating Period Ended June 30, 2000
Vega Tun Consolidated
Atlantic Resources Proforma Operating
Corporation Inc. Adjustments Statement
------------ ------------ ------------ ------------
<S> <C> <C> <C> <C>
Operating Expenses $ (387,984) $ (238,282) $ (908,259) $ (1,534,525)
------------ ------------ ------------ ------------
Operating Loss (387,984) (238,282) (908,259) (1,534,525)
Other Expenses
Interest Expense (16,965) -- -- (16,965)
------------ ------------ ------------ ------------
Net Loss $ (404,949) $ (238,282) $ (908,259) $ (1,551,490)
============ ============ ============ ============
Distribution of Net Loss:
To Controlling Interest $ (404,949) $ (238,282) $ (908,259) $ (1,551,490)
To Minority Interest - * -- -- -- --
------------ ------------ ------------ ------------
Net Loss $ (404,949) $ (238,282) $ (908,259) $ (1,551,490)
============ ============ ============ ============
Earnings (Loss) Per Share - Basic $ (0.019) $ (238,282) $ (0.073)
============ ============ ============
Weighted Average Number of
Common Shares Outstanding 20,792,978 1 527,472 21,320,451
============ ============ ============ ============
* - As the Minority Shareholder has negative equity, the entire loss has been allocated to
the controlling interest.
See Schedule of Assumptions and Explanatory Notes.
17
</TABLE>
<PAGE>
VEGA ATLANTIC CORPORATION
(An Exploration Stage Company)
UNAUDITED PROFORMA FINANCIAL STATEMENTS
--------------------------------------------------------------------------------
NOTE 1: ACQUISITION
On May 1, 2000, Vega Atlantic Corporation ("the Company") acquired from
Golden Thunder Resources, Ltd. ("Golden Thunder") of an 80% interest in Tun
Resources, Inc. ("Tun Resources"). The Company also received a two-year
option to purchase the remaining 20% of Tun Resources at fair market value.
In exchange for the acquisition, the Company issued to Golden Thunder
1,600,000 Rule 144 common shares of the Company. The Company is required to
make a total of $1,180,000 in capital contributions to Tun Resources by
August 15, 2000. The proposed acquisition will be shown using the purchase
method.
NOTE 2: SIGNIFICANT ASSUMPTIONS
For the Company and Tun Resources, the June 30, 2000 balance sheets and
statements of operations for the three-month period ended June 30, 2000 are
management prepared. For the Company and Tun Resources, the statement of
operations for the year ended March 31, 2000 has been audited. All
management prepared financial statements contain all normal and recurring
adjustments required to present the financial information on a basis
consistent with the presentation of the Company's annual audited financial
statements.
Proforma Balance Sheets
-----------------------
The proforma balance sheets reflect the balance sheets of the Company and
Tun Resources, Inc. as of June 30, 2000. The consolidated balance sheet is
presented as if the acquisition had occurred on June 30, 2000.
Proforma Statements of Operations
---------------------------------
The proforma statements of operations for the three-month operating period
ended June 30, 2000 and the year ended March 31, 2000 reflect the
statements of operations of the Company and of Tun Resources, Inc. Proforma
adjustments have been made to give effect to these transactions as if they
had occurred as of April 1, 2000 and April 1, 1999, respectively.
NOTE 3: PROFORMA ADJUSTMENTS
Proforma Balance Sheets
-----------------------
The Company has adjusted the balance sheet for the issuance of 1,600,000
common shares to Golden Thunder for the acquisition of the 80% interest in
Tun Resources. The proforma balance sheet assumes the closing occurred
effective June 30, 2000. The Company's $.00001 par common stock was valued
at $784,000 based on the market price of $.49 per share on June 30,2000.
The Company initially recorded this purchase at $672,000 based on the May
1, 2000 share price and has recognized an additional $112,000 investment
and paid in capital as of June 30, 2000.
18
<PAGE>
VEGA ATLANTIC CORPORATION
(An Exploration Stage Company)
UNAUDITED PROFORMA FINANCIAL STATEMENTS
--------------------------------------------------------------------------------
NOTE 3: PROFORMA ADJUSTMENTS (continued)
At June 30,2000, Tun Resources had assets of $102,673., current liabilities
of $490,000 and a stockholders' deficit of $387,327. Twenty percent of the
stockholders' deficit ($77,465) is attributable to the minority interest.
The Company has recorded a joint venture investment of $1,093,862. The
$490,000 current liability is an intercompany loan. $350,000 of this loan
has been eliminated through the consolidation process. The remaining
$140,000 was recorded as a receivable at March 31, 2000 by the Company and
its value fully impaired.
As any future profits related to Tun Resources's joint venture interests
can not be estimated until additional exploration is performed, the Company
has fully impaired the value of its joint venture investment. The Company
recognized $140,000 of the asset impairment in the period ended March 31,
2000 due to the impairment of advances to Tun Resources. The remaining
impairment loss of $953,862, has been recognized in the current period.
Proforma Statement of Operations
--------------------------------
The Company has adjusted the June 30, 2000 statement of operations for the
impairment of its joint venture interests. The Company initially recorded
its joint venture interests at $3,339,088 on the acquisition of Tun
Resources, Inc. As any future profits related to Tun Resource's joint
venture interests cannot be estimated until additional exploration is
performed, the value of the joint venture interests has been impaired. An
adjustment for the $3,339,099 impairment loss has been recorded as an
operating expense.
Assuming the acquisition took place April 1, 2000 for the June 30, 2000
statement of operations, the Company would have an additional 1,600,000
shares outstanding for the period from April 1, 2000 to May 1, 2000. The
only Tun Resources share outstanding would be eliminated due to the
consolidation.
The Company has adjusted the March 31, 2000 statement of operations for the
impairment of its joint venture interests. The Company initially recorded
its joint venture interests at $231,999 on the acquisition of Tun
Resources, Inc. As any future profits related to Tun Resource's joint
venture interests cannot be estimated until additional exploration is
performed, the value of the joint venture interests has been impaired. An
adjustment for the $231,999 impairment loss has been recorded as an
operating expense.
Assuming the acquisition took place April 1, 1999 for the March 31, 2000
statement of operations, the Company would have an additional 1,600,000
shares outstanding for the entire period. The two Tun Resources shares
outstanding would be eliminated due to the consolidation.
19
<PAGE>
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OR PLAN OF OPERATION
GENERAL
The Vega Property
The Company is engaged in the exploration of gold, silver and zinc within
the United States and internationally. Pursuant to a joint venture agreement
with Geneva Resources, Inc. ("Geneva") dated March 28, 1998 (the "Joint Venture
Agreement"), the Company owns a fifty-one percent (51%) of a future profit
sharing interest in profits to be realized from the exploration of 213
unpatented lode mining claims located in Camus County, in south-central Idaho
(the "Vega Property"). In accordance with the terms and provisions of the Joint
Venture Agreement, the Company is to conduct any work programs involving
exploration of the mining claims on the Vega Property.
On March 18, 1999, Intergold Corporation, a Nevada corporation ("IGCO") and
its wholly-owned subsidiary, International Gold Corporation, a Nevada
corporation ("INGC") entered into an agreement for services ("Agreement for
Services") with AuRIC Metallurgical Laboratories, LLC., of Salt Lake City, Utah
("AuRIC"). Pursuant to the terms of the Agreement for Services, AuRIC agreed to
perform certain services, including the development of proprietary technology
and know-how relating to fire and chemical assay analysis techniques and
metallurgical ore extraction procedures developed specifically for the
exploration of properties of IGCO. Dames & Moore subsequently verified the fire
and chemical assay techniques and procedures developed by AuRIC, their
repeatability, and confirmed preliminary metallurgical recovery testing. AuRIC
and Geneva Resources, Inc., a Nevada corporation ("Geneva") entered into a
technology license agreement dated March 17, 1999 (the "Technology License
Agreement"), whereby AuRIC agreed to supply the proprietary technology to Geneva
and grant to Geneva the right to sub-license the proprietary technology to the
Company for use on the Vega Property. The Company and Geneva entered into a
technology sub-license agreement dated March 18, 1999 (the "Sub-License
Agreement") whereby the Company acquired from Geneva a sub-license to utilize
AuRIC's proprietary testing and chemical leach analysis of core samples derived
from any subsequent drilling on the Vega Property.
On September 27, 1999, INGC, on behalf of IGCO, and Geneva initialized
legal proceedings against AuRIC by filing a complaint in the District Court of
the Third Judicial District for Salt Lake City, State of Utah, alleging (i)
multiple breaches of contract relating to the Agreement for Services and the
License Agreement, respectively, including, but not limited to, establishment
and facilitation of the proprietary technology and fire assay procedures
developed by AuRIC at an independent assay lab and failure to deliver the
proprietary technology and procedures to the Company, Geneva and Dames & Moore;
(ii) breach of the implied covenant of good faith and fair dealing; (iii)
negligent misrepresentation; (iv) specific performance; (v) non-disclosure
injunction; (vi) failure by AuRIC to repay advances; and (vii) quantum
meruit/unjust enrichment. INGC, on behalf of IGCO, also named Dames & Moore in
the legal proceeding in a declaratory relief cause of action.
The proprietary technology forms the basis of claims made by Geneva and
INGC, on behalf of IGCO, in the complaints as filed with the District Court.
Geneva and INGC allege that the proprietary technology does not exist and that
Geneva and INGC were fraudulently, recklessly and/or negligently deceived by
AuRIC, Dames & Moore, and other parties to the lawsuit. Management deems the
proprietary technology crucial with respect to successful exploration of the
Vega Property. Management, therefore, has suspended exploration of the Vega
Property indefinitely until resolution of the legal proceedings. See "Part II.
Item 1. Legal Proceedings" for additional disclosure.
20
<PAGE>
Tun Resources, Ltd.
On May 1, 2000, the Company entered into a share purchase and sale
agreement with Golden Thunder Resources Ltd. ("Golden Thunder") to purchase from
Golden Thunder eighty percent (80%) of the issued and outstanding shares of
common stock of Tun Resources Ltd., a Canadian corporation ("Tun Resources"),
with an option to purchase the remaining twenty percent (20%) of the issued and
outstanding shares of Tun Resources (the "Acquisition Agreement"). Pursuant to
the terms of the Acquisition Agreement, the Company will (i) provide a total of
$1,180,000 by August 15, 2000 to fund current Tun Resources joint venture
projects, (ii) issue 1,600,000 shares of its restricted common stock to Golden
Thunder in exchange for the eighty percent (80%) of the issued and outstanding
shares of common stock of Tun Resources and an option to purchase the remaining
twenty percent (20%), and (iii) be solely responsible for the future funding of
Tun Resources and its joint ventures. As of June 30, 2000, the Company has
issued 1,600,000 shares of its restricted common stock to Golden Thunder and has
provided approximately $498,000 of funds to Tun Resources.
Tun Resources is the major stakeholder in two gold exploration and
development Sino Foreign joint ventures in the Yunnan Province of China. Tun
Resources owns (i) an approximate eighty-two percent (82%) joint venture
interest in the Yuntong Sino Foreign Joint Venture, which consists of a gold
concession comprising approximately 30 square kilometers; and (ii) an
approximate eighty percent (80%) joint venture interest in the Lutong Project,
which consists of a gold exploration concession comprising approximately 100
square kilometers.
Ailaoshan/Xiaoshuijing Gold Project
On May 4, 2000, the Company entered into a letter agreement with the No. 1
Geological Brigade of the Yunnan Bureau of Geology and Mineral Resources of
Qujing City, Yunnan Province, China (the "Letter Agreement"), whereby the
Company has the right to acquire an approximate 70% interest in the Ailaoshang
gold concession and prospect with claims that include the Xiaoshuijing gold
resource located in the Chuxion Prefecture, Yunnan Province, China. Management
plans to conduct due diligence on the gold resource by confirmation and test
drilling, and expects geological reports to provide the basis for negotiation of
the final terms of the joint venture agreement, should the due diligence warrant
continuing such negotiations. According to the terms of the Letter Agreement,
management anticipates that the Company will invest up to $2,500,000 to expand
the gold resource and increase mine production, and that the No. 1 Geological
Brigade will contribute the property, exploration and mining rights, permits,
land use rights and other work to date completed on the gold resource.
The Company has formed Polar Explorations Ltd., a Belize corporation and
the wholly-owned subsidiary of the Company ("Polar Explorations"), to act as the
joint venture partner on behalf of the Company.
Lemachang Silver Project
On March 27, 2000, the Company entered into an agreement with the No. 1
Geological Brigade of Yunnan Bureau of Geology and Mineral Resources of Qujing
City, Yunnan Province, China, whereby the Company would have the right to
acquire a majority interest in the Lemachang silver mine located in the Ludian
County Seat, Yunnan Province. On July 26, 2000, the Company completed
negotiations and executed a joint venture agreement with the No. 1 Geological
Brigade of Yunnan Bureau of Geology and Mineral Resources of Qujing City (the
"Lemachang Agreement"), whereby the Company will (i) provide funding in the
amount of $8,000,000 over a five-year period to accelerate the drilling on the
Lemachang silver mine to increase production and expand resources (dependent
upon the due diligence results), (ii) undertake feasibility studies to
ultimately increase production and output to an annual target of 1,000,000
ounces of metallic silver, and (iii) receive an approximate 85% interest in the
silver mine and deposit areas. Management expects engineering feasibility
reports, metallurgical testing results and financial audit information to
provide the basis for consummation of the acquisition.
21
<PAGE>
The Company has formed Alaskan Explorations Corp., a Turks & Caicos
corporation and wholly-owned subsidiary of the Company ("Alakskan"), to act as
the joint venture partner on behalf of the Company.
Baotong Zinc and Lead Project
On June 8, 2000, the Company entered into an agreement with the No. 4
Geological Brigade of Yunnan Bureau of Geological Exploration and Development to
cooperatively explore two separate zinc and lead deposits located in the
southwestern Yunnan Province. On July 19, 2000, the Company completed its
negotiations and has executed a joint venture agreement (the "Baotong
Agreement"). Pursuant to the Baotong Agreement, the Company will (i) have the
right to acquire an approximate 70% interest in the Baotong Joint Venture
company, currently in formation stages, to conduct risk exploration and
development of the two possible zinc and lead deposits, (ii) provide up to
$1,000,000 over a two year period for exploration, drilling and tunneling of the
possible zinc and lead deposits and conduct risk exploration, and (iii) have
provisions to acquire up to an 85% joint venture interest with further funding.
The Baotong Agreement and necessary Chinese licenses under application provide
the basis upon which the Company may proceed to conduct further due diligence on
the zinc and lead deposits, which includes exploration and development scoping,
independent geological reports, metallurgical testing, and assessment of mining
potential. Should the due diligence warrant continuation, the Company will
proceed with payment of its contractual obligations under the Baotong Agreement
and consummate the acquisition of its joint venture interest.
The Company has formed Epicon Resources Group Ltd., a Belize corporation
and wholly-owned subsidiary of the Company ("Epicon"), to act as the joint
venture partner on behalf of the Company. As of the date of this Quarterly
Report, the Company has not provided any funding.
COMPANY UNAUDITED FINANCIAL STATEMENTS
RESULTS OF OPERATION
Three-Month Period Ended June 30, 2000 Compared to Three-Month Period Ended June
30, 1999
For the three-month period ended June 30, 2000, the Company recorded a net
loss of $1,294,468 compared to a net loss of $273,077 in the corresponding
period of 1999. During the three-month period ended June 30, 2000 and June 30,
1999, the Company recorded no income.
During the three-month period ended June 30, 2000, the Company recorded
exploration expenses of $928,635 as compared to $-0- of exploration expenses
recorded in the same period for 1999. Property exploration expenses were
incurred during the three-month period ended June 30, 2000 primarily due to
payment of advances and costs associated with the due diligence (preliminary
exploration, metallurgical testing and preparation of geological reports) for
the Tun Resource gold concessions and the Lemachang silver deposits pursuant to
the terms of the Acquisition Agreement and the Lemachang Agreement,
respectively. These costs have been impaired in the financial statements since
any future cash flows to be received by the Company from the respective joint
venture interests cannot be quantified.
22
<PAGE>
Administrative expenses also increased in the approximate amount of $99,345
during the three-month period ended June 30, 2000 from the $249,523 incurred
during the three-month period ended June 30, 1999 as compared to the $348,868
incurred during the three-month period ended June 30, 2000. This increase is due
primarily to the increased scale and scope of overall business activity. Of the
$348,868 incurred as administrative expenses during the three-month period ended
June 30, 2000, $185,000 was paid to Investor Communications International, Inc.
("ICI") for amounts due and owing for services rendered including, but not
limited to, financial, administrative, and metals exploration management.
Tristar Financial Services, Inc. provided loans to the Company in the amount of
$26,000, and received $10,000 in payments from the Company, during the
three-month period ended June 30, 2000.
The Company's net earnings (losses) during the three-month period ended
June 30, 2000 were approximately ($1,294,468) or ($0.062) per common share
compared to a net loss of approximately ($273,077) or ($0.016) per common share
during the three-month period ended June 30, 1999. The weighted average number
of shares outstanding was 20,792,978 for the three-month period ended June 30,
2000 compared to 17,585,000 for the three-month period ended June 30, 1999.
LIQUIDITY AND CAPITAL RESOURCES
The Company's financial statements have been prepared assuming that it will
continue as a going concern and, accordingly, do not include adjustments
relating to the recoverability and realization of assets and classifications of
liabilities that might be necessary should the Company be unable to continue in
operation.
As of the three-month period ended June 30, 2000, the Company's total
assets were $566,762. This increase in assets from fiscal year ended March 31,
2000 is due to receipt of approximately $425,000 in stock subscriptions relating
to the Company's current private placement offering pursuant to Regulation S of
the Securities Act of 1933, as amended.
As of the three-month period ended June 30, 2000, the Company's total
liabilities were $972,333. The total liabilities decreased during the
three-month period ended June 30, 2000 from fiscal year ended March 31, 2000 due
primarily to a decrease in advances payable to related parties. As of June 30,
2000, the total liabilities exceeded total assets by $405,571.
Stockholders' Equity (Deficit) decreased from $(778,296) for fiscal year
ended March 31, 2000 to ($375,762) for the three-month period ended June 30,
2000.
UNAUDITED PROFORMA CONDENSED FINANCIAL STATEMENTS
RESULTS OF OPERATION
Three-Month Operating Period Ended June 30, 2000 Compared to Year Ended March
31, 2000
The proforma statements of operations for the three-month operating period
ended June 30, 2000 and for fiscal year ended March 31, 2000 reflect the
statements of operation of the Company and of Tun Resources. Proforma
adjustments have been made to give effect to these transactions as if they had
occurred as of July 1, 1999 and April 1, 1999, respectively.
23
<PAGE>
For the three-month period ended June 30, 2000 and fiscal year ended March
31, 2000, the Company's net losses were approximately $404,949 and $1,091,711,
respectively. Since future profits related to Tun Resources' joint venture
interests could not be estimated until additional exploration is performed, the
value of the Company's joint venture investment has been impaired. Therefore,
for the three-month period ended June 30, 2000 and fiscal year ended March 31,
2000, the Company would have recorded the impairment loss as an operating
expense in the amount of $908,259 and $231,999, respectively, resulting in a
proforma consolidated operating loss of $1,551,490 and $1,527,035, respectively.
Proforma consolidated net losses during the three-month period ended June
30, 2000 would have been ($1,551,490) or ($0.080) per share compared to proforma
consolidated net losses during fiscal year ended March 31, 2000 of ($1,527,035)
or ($0.075) per share. The proforma weighted average number of consolidated
shares outstanding would have been 21,320,451 for the three-month period ended
June 30, 2000 compared to 19,196,262 for fiscal year ended March 31, 2000.
LIQUIDITY AND CAPITAL RESOURCES
As of June 30, 2000, the Company's and Tun Resources' assets were
$1,486,089 and $102,673, respectively, resulting in proforma consolidated assets
in the amount of $1,588,762. The joint venture investment would have been valued
at $908,259, however, since any future profits relating to Tun Resources' joint
venture interests could not be estimated until additional exploration is
performed, the Company would have fully impaired the value of its joint venture
investment at $908,259. As of June 30, 2000, the Company's and Tun Resources'
liabilities were $972,333 and $490,000, respectively, resulting in proforma
consolidated liabilities in the amount of $1,322,333. The intercompany liability
of $140,000 has been eliminated.
PART II. OTHER INFORMATION
ITEM 1. LEGAL PROCEEDINGS
On September 27, 1999, International Gold Corporation (INGC"), the
subsidiary of Intergold Corporation ("IGCO") and Geneva Resources, Inc.
("Geneva") initiated legal proceedings against AuRIC Metallurgical Laboratories,
LLC, a Utah limited liability company ("AuRIC") and Dames & Moore, a Delaware
corporation ("Dames & Moore"), by filing its complaint in the District Court of
the Third Judicial District for Salt Lake City, State of Utah.
INGC, on behalf of IGCO, and Geneva initiated legal proceedings against
AuRIC alleging (i) multiple breaches of contract relating to the Service
Agreement and the License Agreement, respectively, including, but not limited
to, establishment and facilitation of the proprietary technology and fire assay
procedures developed by AuRIC at an independent assay lab (the "Proprietary
Technology") and failure to deliver the Proprietary Technology and procedures to
International Gold Corporation, Geneva and Dames & Moore; (ii) breach of the
implied covenant of good faith and fair dealing; (iii) negligent
misrepresentation; (iv) specific performance; (v) non-disclosure injunction;
(vi) failure by AuRIC to repay advances; and (vii) quantum meruit/unjust
enrichment. INGC, on behalf of IGCO, also named Dames & Moore in the legal
proceeding in a declaratory relief cause of action.
24
<PAGE>
On October 8, 1999, INGC, on behalf of IGCO, and Geneva amended its
complaint by naming as defendants AuRIC, Dames & Moore, Ahmet Altinay General
Manager of AuRIC, and Richard Daniele, Chief Metallurgist for Dames & Moore and
specifying damages in excess of $10,000,000. The damages sought by Geneva and
INGC, on behalf of IGCO, are based on the general claims and causes of action
set forth in the amended complaint relating to reliance on the assays and
representations made by AuRIC, the actions and engineering reports produced by
Dames & Moore and, specifically, the negligent misrepresentations and
inaccuracies contained within some or all of those Dames & Moore reports and
breaches of contract by AuRIC and Dames & Moore.
On June 21, 2000, INGC, on behalf of IGCO, and Geneva filed a second
amended complaint in the District Court of the Third Judicial District for Salt
Lake City, State of Utah. The second amended complaint increased detail
regarding the alleged breaches of contract and increased causes of action
against other parties involved by adding two new defendants, MBM Consulting, and
Dr. Michael B. Merhtens, who provided consulting services to INGC. The amendment
also added certain claims of other entities involved through Geneva against the
defendants. The Proprietary Technology forms the basis of claims made by Geneva
and INGC, on behalf of IGCO, in the complaints as filed with the District Court.
Geneva and INGC, on behalf of IGCO, allege that the Proprietary Technology does
not exist and that Geneva and INGC were fraudulently, recklessly and/or
negligently deceived by AuRIC, Dames & Moore, and other parties to the lawsuit.
Geneva and INGC subsequently obtained an order from the District Court
grant its Motion to Compel. The Order requires that AuRIC and Dames & Moore
produce the Proprietary Technology for Geneva's and INGC's restricted use by its
legal counsel and industry experts. Geneva and INGC, on behalf of IGCO, intend
to obtain an expert opinion as to the validity or ineffectiveness of the
Proprietary Technology.
As of the date of this Quarterly Report, various depositions have been
taken by various parties to the lawsuit, with more expected in the scheduling
process. Discovery and document production have been conducted by both sides to
the dispute, but not completed. Geneva and INGC, on behalf of IGCO, continue to
pursue all such legal actions and review further legal remedies against AuRIC
and Dames & Moore. Management deems the Proprietary Technology crucial with
respect to successful exploration of the Vega Property. Management has suspended
exploration of the Vega Property indefinitely until resolution of the legal
proceedings. Management believes that the legal proceedings will prove that the
alleged Proprietary Technology is invalid.
If the Proprietary Technology is proven to be invalid and not transferable,
and INGC/Geneva are not successful in the outcome of the litigation and damages
are not awarded, the Company may not be able to recover its potential losses and
expenses incurred due to the breach of the Sub-License Agreement by Geneva.
However, if the Proprietary Technology is proven to be invalid and not
transferable, and INGC/Geneva are successful in the outcome of the litigation,
INGC/Geneva may then receive damages from AuRIC and Dames & Moore. Geneva's
damages result primarily from its inability to transfer the Proprietary
Technology to the Company in accordance with the provisions of the Sub-License
Agreement. Management believes that the Company will, under these circumstances,
be entitled to receive a pro-rata portion of the awarded damages for potential
losses incurred due to the breach of the Sub-License Agreement by Geneva.
25
<PAGE>
The Company and Geneva have entered into an assignment agreement dated May
9, 2000 (the "Assignment Agreement") that transferred and conveyed to Geneva the
potential claims and causes of action that the Company may have under the
Sub-License Agreement with Geneva. If damages are recovered in the lawsuit
initiated by Geneva and INGC, on behalf of the Company, the Company will receive
a pro rata share of such damages relating to its claims and causes of action in
relation to all other claims and causes of action for which damages are
recovered. Thus, Geneva will receive any such pro rata share of the damages
recovered pursuant to the terms and provisions of the Assignment Agreement. The
Company is not involved in the INGC/Geneva litigation or any other litigation,
except to the extent that it has sought to protect its claims for damages
incurred in connection with execution of the Assignment Agreement.
Management has suspended exploration of the Vega Property indefinitely
until resolution of the INGC/Geneva legal proceedings. INGC and Geneva are
reviewing further legal remedies against AuRIC and Dames & Moore and intend to
aggressively pursue any all such actions.
ITEM 2. CHANGES IN SECURITIES AND USE OF PROCEEDS
o On March 30, 2000, the Company entered into separate settlement
agreements with certain creditors whereby the Company agreed to issue
an aggregate 2,061,000 shares of its restricted Common Stock at the
rate of $0.50 per share to settle an aggregate debt of $1,030,462.78.
Under the terms of the respective settlement agreements, the creditors
each agreed to accept their proportionate issuance of shares of Common
Stock as payment for the respective debt owed to such creditor. The
Company issued the shares in reliance upon the exemption from
registration provided by Section 4(2) of the Securities Act of 1933,
as amended (the "Securities Act"). The creditors each represented to
the Company that they acquired the shares for their own respective
account, and not with a view to distribution, and that the Company
made available all material information concerning the Company.
o On March 1, 2000, the Company commenced an offering in which it
planned to raise $1,250,000 under Regulation S of the Securities Act
of 1933, as amended (the "1933 Securities Act"), pursuant to which it
will offer and sell 5,000,000 shares of its restricted common stock at
$0.25 per share to non-residents of the United States. As of the
three-month period ended June 30, 2000, the Company has issued
approximately 2,900,000 shares of common stock and has received
subscriptions for a further approximate 1,700,000 shares. All of the
investors are "non-residents" of the United States as that term is
defined in Regulation S. The investors executed subscription
agreements and acknowledged that the securities to be issued have not
been registered under the 1933 Securities Act, that the investors
understood the economic risk of an investment in the securities, and
that the investors had the opportunity to ask questions of and receive
answers from the Company's management concerning any and all matters
related to the acquisition of securities. No underwriter is involved
in the transactions, and no commissions or other remuneration will be
paid in connection with the offer and sale of the securities.
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<PAGE>
o On May 1, 2000, the Company issued 1,600,000 shares of its common
stock for the purchase of an approximate 80% equity interest in Tun
Resources. The issuance of the stock described herein was made in
connection with an agreement not involving a public offering to a
single corporate investor, and is exempt from registration provisions
pursuant to Regulation S under the 1933 Securities Act. The
certificate representing issuance of such shares of Common Stock has a
legend indicating that the shares of Common Stock cannot be resold
without registration under the 1933 Securities Act or in compliance
with an available exemption from registration. No underwriter was
involved in the transaction, and no commission or other remuneration
was paid in connection with the offer and sale of the securities.
o On May 29, 2000, the Company entered into an agreement with two
creditors whereby the Company agreed to issue an aggregate of 200,000
shares of its Common Stock at $0.075 per share pursuant to Section
4(2) of the 1933 Securities Act. Under the terms of the respective
agreements, the creditors each agreed to accept the 100,000 shares of
Common Stock as payment for their respective debt owed to such
creditor. The Company issued the shares in reliance upon the exemption
from registration provided by Section 4(2) of the 1933 Securities Act.
The creditors each represented to the Company that they acquired the
shares for their own respective account, and not with a view to
distribution, and that the Company made available all material
information concerning the Company.
ITEM 3. DEFAULTS UPON SENIOR SECURITIES
No report required.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
On May 1, 2000, less than ten shareholders of the Company, representing 51%
of the issued and outstanding shares of Common Stock of the Company, pursuant to
the consent process, approved the adoption of a non-qualified stock option plan
(the "SOP"), which provides for the grant of options to purchase an aggregate of
2,000,000 shares of Common Stock at $0.25 per share. The purpose of the SOP is
to make options available to directors, management and significant contractors
of the Company in order to encourage them to secure an interest on reasonable
terms of stock ownership in the Company and to remain in the employ of the
Company, and to provide them compensation for past services provided.
The SOP is administered by the Board of Directors which determines the
persons to be granted options under the SOP, the number of shares subject to
each option, the exercise price of each option and the option period, and the
expiration date, if any, of such options. The exercise of an option may be less
than fair market value of the underlying shares of Common Stock. No options
granted under the SOP will be transferable by the optionee other than by that
provided by the Option Grant Agreements or will or the laws of descent and
distribution, and each option will be exercisable during the lifetime of the
optionee, only by such optionee.
The exercise price of an option granted pursuant to the SOP may be paid in
cash, by the exercise of options, in Common Stock, in other property, including
the optionee's promissory note, or by a combination of the above.
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<PAGE>
As of the date of this Quarterly Report, options have been granted in the
aggregate of 1,950,000 shares to the following individuals. All options granted
are exercisable by the respective individual from the date of grant through the
date of expiration.
--------------------------------------------------------------------------------
Number of Exercise Date of
Options Granted Date of Grant Price Expiration
--------------------------------------------------------------------------------
Harold Gooding 100,000 30-May-00 $0.25 30-Apr-10
Tun Aye Sai 500,000 30-May-00 0.25 30-Apr-10
John Bowles 100,000 30-May-00 0.25 30-Apr-10
Herb Ackerman 100,000 30-May-00 0.25 30-Apr-10
Brent Pierce 500,000 30-May-00 0.25 30-Apr-10
Grant Atkins 100,000 30-May-00 0.25 30-Apr-10
Gary Powers 100,000 30-May-00 0.25 30-Apr-10
Marcus Johnson 100,000 30-May-00 0.25 30-Apr-10
Gino Cicci 100,000 30-May-00 0.25 30-Apr-10
Rudolf Heinz 250,000 21-Jun-00 0.25 30-Apr-10
---------
TOTAL 1,950,000
=========
--------------------------------------------------------------------------------
No share options have been exercised as of the date of this Quarterly
Report.
ITEM 5. OTHER INFORMATION
No report required.
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K
(a) Exhibit No. 10.4
Non-Qualified Stock Option Plan
(b) Report on Form 8-K filed April 6, 2000.
Report on Form 8-K filed May 22, 2000.
Report on Form 8-K filed June 26, 2000.
SIGNATURES
In accordance with the requirements of the Exchange Act, the registrant
caused this report to be signed on its behalf by the undersigned, thereunto duly
authorized.
VEGA-ATLANTIC CORPORATION
Dated: August 14, 2000 By: /s/ Grant Atkins
------------------------------
Grant Atkins, President
Dated: August 14, 2000 By: /s/ Herb Ackerman
------------------------------
Herb Ackerman, Secretary
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