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 September 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 November 14, 2000
------ -------------------------------
Common Stock, $.00001 par value 26,446,000
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)
September 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 6-12
Management's Discussion and Analysis or Plan of Operations 13-18
Other Information 18-20
Signatures 21
Exhibit
2
<PAGE>
<TABLE>
<CAPTION>
VEGA-ATLANTIC CORPORATION
(An Exploration Stage Company)
FINANCIAL STATEMENTS
(Unaudited)
September 30, 2000
<PAGE>
VEGA-ATLANTIC CORPORATION
(An Exploration Stage Company)
Consolidated Balance Sheet
(Unaudited)
September 30,
2000
----------------------------------------------------------------------------------------------------------------
<S> <C>
ASSETS
CURRENT ASSETS
Cash and cash equivalents $ 56,018
Deposits 5,000
--------------
Total Current Assets 61,018
INTEREST IN MINERAL PROPERTIES (Note 3) 1
--------------
$ 61,019
==============
LIABILITIES AND STOCKHOLDERS' EQUITY
CURRENT LIABILITIES
Accounts payable $ 129,903
Advances from related parties 54,651
Notes payable - Technology sublicense (Note 4) 600,000
Directors fees payable 53,767
Accrued interest payable 51,309
--------------
Total Current Liabilities 889,630
--------------
STOCKHOLDERS' EQUITY (Note 2)
Preferred stock, no par value;
20,000,000 shares authorized at September 30, 2000
Nil shares issued and outstanding at September 30, 2000 -
Common stock $.00001 par value;
500,000,000 shares authorized at September 30, 2000;
26,446,000 shares issued and outstanding at September 30, 2000 264
Additional paid - in capital 7,223,438
Accumulated deficit through exploration stage (8,052,313)
--------------
Total Stockholders' Equity (Capital Deficiency) (828,611)
--------------
$ 61,019
==============
See accompanying notes to financial statements.
</TABLE>
3
<PAGE>
<TABLE>
<CAPTION>
VEGA-ATLANTIC CORPORATION
(An Exploration Stage Company)
(Unaudited)
Consolidated Statements of Operations
Inception
(January 28,
For the 3 Months For the 6 Months 1987) to
Ended Sep. 30 Ended Sep. 30 September 30,
2000 1999 2000 1999 2000
------------------------- ------------------------ -------------
<S> <C> <C> <C> <C> <C>
EXPLORATION EXPENSES
Research and development $ - $ - $ - $ - $ 783,182
Claims staking, exploration and maintenance - 24,595 - 24,595 112,384
Acquisition due diligence 33,652 - 92,922 - 146,068
Joint Venture Acquisition Costs - Tun Resources 130,450 - 999,815 - 1,139,815
----------- ----------- ----------- ----------- ----------
Total Exploration Expenses 164,102 24,595 1,092,737 24,595 2,181,449
----------- ----------- ----------- ----------- ----------
ADMINISTRATIVE EXPENSES
General and administration 343,987 169,762 600,794 414,220 2,872,524
Professional fees 27,121 2 88,221 3,567 175,977
Director's fees 3,000 1,500 6,000 3,000 42,000
Interest expense 5,836 29,175 22,801 52,729 178,648
Stock-based compensation - - 262,247 - 262,247
Consulting fees 8,803 - 36,763 - 132,839
----------- ----------- ----------- ----------- ----------
Total Administrative Expenses 388,747 200,439 1,016,826 473,516 3,664,235
----------- ----------- ----------- ----------- ----------
Loss from Continuing Operations 552,849 225,034 2,109,563 498,111 5,845,684
----------- ----------- ----------- ----------- ----------
Discontinued Operations
Loss from discontinued operations of
Century Manufacturing, Inc. - - - - 2,206,629
----------- ----------- ----------- ----------- ----------
NET LOSS $ 552,849 225,034 2,109,563 $ 498,111 8,052,313
=========== =========== =========== =========== ==========
Loss Per Share - Basic and fully diluted $ 0.021 0.013 0.091 $ 0.028 1.157
=========== =========== =========== =========== ==========
Weighted Average Number of
Common Shares Outstanding 25,716,652 17,585,000 23,256,383 17,585,000 6,960,891
=========== =========== =========== =========== ==========
See the accompanying notes to financial statements.
</TABLE>
4
<PAGE>
<TABLE>
<CAPTION>
VEGA-ATLANTIC CORPORATION
(An Exploration Stage Company)
Consolidated Statements of Cash Flows
(Unaudited)
Inception
(January 28,
1987) to
For the 6 Months Ended Sep. 30, September 30,
2000 1999 2000
----------------------------------- -------------
<S> <C> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES
Net loss $ (2,109,563) $ (498,111) $ (8,052,313)
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 - 17,500 31,818
Non-cash stock issued in settlement of debt 15,000 - 99,992
Non-cash loss due to impairment of joint venture interest 672,000 - 672,000
Stock-based compensation 262,247 - 262,247
Changes in Assets and Liabilities
Deposit (5,000) - (5,000)
Accounts payable (86,844) (7,368) 129,902
Directors fees payable 6,000 3,000 53,767
Accrued interest payable 22,801 35,230 146,830
-------------- ------------- --------------
Net Cash Flows Used for Operating Activities (1,223,359) (449,749) (4,190,575)
-------------- ------------- --------------
CASH FLOWS FROM FINANCING ACTIVITIES
Advances from affiliates - net (70,951) 450,135 1,129,593
Sale of common stock 1,250,000 - 3,217,000
-------------- ------------- --------------
Net Cash Flows Provided by
Financing Activites 1,179,049 450,135 4,346,593
-------------- ------------- --------------
CASH FLOWS FROM INVESTING ACTIVITIES
Purchase of subsidiary - - (100,000)
-------------- ------------- --------------
Net increase in cash (44,310) 386 56,018
Cash and cash equivalents - Beginning of period 100,328 279 -
-------------- ------------- --------------
Cash and cash equivalents - End of period $ 56,018 $ 665 $ 56,018
============== ============= ==============
SIGNIFICANT NON-CASH TRANSACTIONS
During the 2001 fiscal year, the Company issued 200,000 shares of common stock in settlement of $15,000 of debt.
During the 2001 fiscal year, the Company issued 1,600,000 common shares valued at $672,000 in exchange for an 80%
interest in Tun Resources, Inc.
See the accompanying notes to financial statements.
</TABLE>
5
<PAGE>
VEGA-ATLANTIC CORPORATION
(An Exploration Stage Company)
Notes to the September 30, 2000Financial Statements
(Unaudited)
--------------------------------------------------------------------------------
NOTE 1: SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
Interim Financial Statements
----------------------------
The accompanying unaudited interim financial statements have
been prepared in accordance with generally accepted accounting
principles for interim financial information and with the
instructions to Form 10-Q and Rule 10-01 of Regulation S-X.
Accordingly, they do not include all the information and
footnotes required by generally accepted accounting principles
for complete financial statements. In the opinion of
management, adjustments (consisting of normal recurring
accruals) considered necessary for a fair representation have
been included. Operating results for the six-month period
ending September 30, 2000, are not necessarily indicative of
the results that may be expected for the year ended March 31,
2001. For further information, refer to the financial
statements and footnotes included in the Company's annual
report on Form 10-K for the year ended March 31, 2000.
Principles of Consolidation
---------------------------
The consolidated financial statements for the six months ended
September 30, 2000 include the accounts of the Company and its
80% owned subsidiary, Tun Resources, Inc. (Note 3). The 80%
interest in Tun Resources, Inc. ("Tun") was acquired by
purchase on May 1, 2000. The acquisition of Tun has been
accounted for by the purchase method of accounting. All
significant intercompany transactions and account balances
have been eliminated.
Going Concern and Continued Operations
--------------------------------------
As of September 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, and
has a working capital deficiency of ($828,611). The Company's
future operations and movement into an operating basis are
contingent on the development of the lode mining claims, or
other joint ventures detailed in Note 3, and the continuing
ability to raise capital financing. The Company intends to
finance operations for the next twelve months through
additional common stock offerings, advances from directors and
shareholders, and convertible debt instruments.
Mineral property joint ventures
-------------------------------
The Company has contractual rights to co-operative joint
venture agreements with Chinese partners. All capital
investments are recorded at cost until such time as the
required joint venture contributions have been paid in full.
Direct
6
<PAGE>
VEGA-ATLANTIC CORPORATION
(An Exploration Stage Company)
Notes to the September 30, 2000Financial Statements
(Unaudited)
--------------------------------------------------------------------------------
NOTE 1: SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (Continued)
exploration costs incurred by the Company are expensed as
incurred. When uncertainty of realization of the investment in
the joint ventures exists, the Company records an impairment
provision for all contributions to date and the investment is
carried at a nominal value.
Stock-based Compensation
------------------------
The Company accounts for stock-based compensation in respect
to stock options granted to employees and officers using the
intrinsic value based method in accordance with Accounting
Principles Board Opinion No. 25, Accounting for Stock Issued
to Employees ("APB No.25"). APB No. 25 requires that
compensation cost be recorded for the excess, if any, of the
quoted market price of the common stock over the exercise
price at the date the options are granted. Stock options to
non-employees are accounted for using the fair value method in
accordance with SFAS No. 123. In addition, as required by SFAS
No. 123 in respect to options granted to non-employees, the
company provides pro-forma disclosure of the impact of
applying the fair value method of SFAS No. 123.
NOTE 2: STOCKHOLDERS' EQUITY
Common Stock
------------
On May 1, 2000, the Company issued 1,600,000 shares at $0.42
per share, totaling $672,000, for the purchase of an 80%
interest in Tun Resources, Inc. (Note 3).
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 offered 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 September 30,
2000, 100% of the offering has been completed and the
5,000,000 shares have been issued.
At September 30, 2000, there were 26,446,000 shares of common
stock outstanding. Refer to Note 5 - Employee Stock Option
Plan.
7
<PAGE>
VEGA-ATLANTIC CORPORATION
(An Exploration Stage Company)
Notes to the September 30, 2000Financial Statements
(Unaudited)
--------------------------------------------------------------------------------
NOTE 3: MINERAL PROPERTIES
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 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 20% of
the issued and outstanding shares of Tun Resources at fair
market value. 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 Tun Resources Inc.
The Company 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 was 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 valued at $672,000. As of September 30, 2000, the
Company has advanced $598,268 of the $1,180,000 funding
commitment. At the date of acquisition, Tun had a
stockholders' deficit of $149,044. The Company allocated the
stockholder's deficit as well as the $672,000 in stock as the
value of the underlying joint venture interests. As the
Company has not determined whether the underlying properties
contain proven economically recoverable reserves, the Company
recognized a $821,044 impairment loss on the value of the Tun
joint venture interest. Of the $821,044, $681,044 was written
off during the first quarter of fiscal 2001, while the
remaining $140,000 was written off during the year ended March
31, 2000. The $140,000 represented advances to Tun through
March 31, 2000.
8
<PAGE>
VEGA-ATLANTIC CORPORATION
(An Exploration Stage Company)
Notes to the September 30, 2000Financial Statements
(Unaudited)
--------------------------------------------------------------------------------
NOTE 3: MINERAL PROPERTIES (Continued)
POTENTIAL ACQUISITIONS
----------------------
"Baotong" Zinc Joint Venture Proposal: The Company announced
-------------------------------------
on June 8, 2000, that the Company had executed an agreement in
principle 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. 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.
Further due diligence will be conducted during the next few
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. Until the completion of all due diligence the
Company will not consider the acquisition probable.
Lemachang Silver Mine Joint Venture Proposal: On March 27,
-----------------------------------------------
2000, the Company entered into an agreement in principle 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,
subject to completion of due diligence.
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 which will invest up to US $8 million to
increase production, expand reserves, and improve overall
silver recovery in return for an 85% interest in the silver
mine and deposit areas. Until the completion of all due
diligence, the Company will not consider the acquisition
probable.
Ailaoshang Joint Venture Proposal: On May 4, 2000 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 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
9
<PAGE>
VEGA-ATLANTIC CORPORATION
(An Exploration Stage Company)
Notes to the September 30, 2000Financial Statements
(Unaudited)
--------------------------------------------------------------------------------
NOTE 3: MINERAL PROPERTIES (Continued)
POTENTIAL ACQUISITIONS (Continued)
----------------------
located in the Chuxion Prefecture, Yunnan Province, PRC,
subject to completion of 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. Until the
completion of all due diligence, the Company will not consider
the acquisition probable.
NOTE 4: NOTES PAYABLE
Pursuant to the Technology Sub-license agreement with Geneva
Resources, Inc., the Company issued promissory notes to both
Geneva and AuRIC in the amount of $250,000 to each company.
These are 3% interest bearing notes and are payable upon the
transfer of the technology. These notes have been discounted
to bear an imputed interest rate of 10%. Pursuant to the
agreement, the company has issued a convertible promissory
note to Geneva in the amount of $100,000 that is convertible
to 500,000 restricted common shares upon demand, and bears
interest at the rate of 8% per annum and issued 1,000,000
restricted common shares to AuRIC. These promissory notes
become due and payable upon the transfer of the technology.
Transfer of the technology or any settlement thereto will be
contingent on the outcome of the lawsuit described in Note 6.
NOTE 5: 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.
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 September
30, 2000, 1,950,000 share options with an
10
<PAGE>
VEGA-ATLANTIC CORPORATION
(An Exploration Stage Company)
Notes to the September 30, 2000Financial Statements
(Unaudited)
--------------------------------------------------------------------------------
NOTE 5: EMPLOYEE STOCK OPTION PLAN (Continued)
exercise price of $.25 per share of common stock had been
granted, no options had been exercised or forfeited, and no
options had expired. Selected information regarding the
options as of September 30, 2000 and 1999 are as follows:
<TABLE>
<CAPTION>
September 30, 2000 September 30, 1999
Number Number
of Exercise of Exercise
Options Price Options Price
---------------------------------------------------------------
<S> <C> <C> <C> <C>
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-
</TABLE>
As of September 30,2000, there are 1,950,000 options that are
exercisable at an exercise price of $.25 per share of common
stock for a period of 10 years.
Stock-based compensation
The following pro-forma information is provided as required by
SFAS No. 123 showing the results of applying the fair value
method using the Black-Scholes option pricing model assuming a
dividend yield of 0%, a risk-free interest rate of 5%, an
expected life of ten years and an expected volatility range of
204%.
<TABLE>
<CAPTION>
January 28, 1987
Three months ended Six months ended (inception) to
September 30, September 30, September 30,
2000 1999 2000 1999 2000
-------------- --------------- ------------------ --------------- ---------------------
<S> <C> <C> <C> <C> <C>
$ $ $ $ $
Net loss (552,849) (225,034) (2,109,563) (498,111) (8,052,313)
Pro-forma stock-based compensation - - (224,783) - (224,783)
-------- -------- ----------- --------- ------------
Pro-forma net loss (552,849) (225,034) (2,334,346) (498,111) (8,277,096)
======== ======== =========== ========= ============
Pro-forma net loss per share (0.021) (0.013) (0.100) (0.028)
======== ======== =========== =========
</TABLE>
11
<PAGE>
VEGA-ATLANTIC CORPORATION
(An Exploration Stage Company)
Notes to the September 30, 2000Financial Statements
(Unaudited)
--------------------------------------------------------------------------------
NOTE 6: CONTINGENCIES
On May 8, 2000, the Company executed an assignment agreement
that transferred and conveyed the potential claims and causes
of action that the Company may have in connections with the
Sub-license Agreement with Geneva. If amounts are recovered by
the lawsuit initiated by International Gold Corporation and
Geneva, the Company will receive the equivalent pro rata share
of the Claims in relation to all other claims and causes of
action for which any damages of settlement amounts are
recovered. The Company has made this assignment to Geneva.
On September 27, 1999, Intergold Corporation ("IGCO"), its
wholly owned subsidiary, International Gold Corporation
("IGC"), and Geneva initiated a legal complaint against AuRIC
Metallurgical Laboratories, LLC ("AuRIC"), Dames & Moore,
Ahmet Altinay, General Manager of AuRIC, and Richard Daniele,
Chief Metallurgist for Dames & Moore. The damages sought by
IGCO/IGC/Geneva are to be determined in court.
The damages incurred stem from reliance on assays and
representations made by AuRIC and upon actions and engineering
reports produced by Dames & Moore related to the Blackhawk
claims. IGCO/IGC/Geneva also alleges there were breaches of
contract by AuRIC and Dames and Moore, as well as other causes
of action. This legal proceeding affected the timing of
technology to be transferred from Geneva to the Company that
was scheduled initially before the end of 2000.
12
<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 previously owned 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 was to conduct any work programs involving
exploration of the mining claims on the Vega Property. The Company has
subsequently ceased exploration of the Vega Property and no longer maintains the
Vega Property claims due to the ongoing result of litigation by other companies
described below.
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, and due to its
belief that the Vega Property contains no commercial quantities of gold or
silver. See "Part II. Item 1. Legal Proceedings" for additional disclosure.
13
<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 November 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 September 30, 2000, the Company
issued 1,600,000 shares of its restricted common stock to Golden Thunder and has
provided approximately $598,268 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 (the "Yuntong Gold
Concession"); 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 (the "Lutong Gold Concession").
As of the date of this Quarterly Report, Tun Resources, through the
Yuntong Sino Foreign Joint Venture, is currently engaged in the mine
construction phases of the Yuntong Gold Concession, which management anticipates
will be completed by the beginning of fiscal quarter ending December 31, 2000.
The Yuntong Gold Concession is fully permitted by the Chinese government and
management of the Company anticipates that the Yuntong Gold Concession will be
in mining production operations approximately during the fiscal quarter ending
December 31, 2000.
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.
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As of the date of this Quarterly Report, the No 1. Geological Brigade
is conducting heap leach mine testing, therefore, mining production operations
are limited. Management of the Company believes that exploration work conducted
by the No. 1 Geological Brigade indicates peripheral gold occurrences located,
which could increase future gold resources. Management further anticipates that
mining production operations will increase during the dry season (October
through May). Until the completion of all due diligence, the Company will not
consider the acquisition of the Ailaoshang gold concession probable.
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) partner the formation of a
new joint venture company and provide funding in the amount of $4,000,000 to
accelerate the drilling on the Lemachang silver mine to increase production,
expand resources and improve overall silver recovery, (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. Pursuant to the terms of the
Lemachang Agreement, the Company will further provide an additional $4,000,000
over a five-year period from its portion of operating profits to repay existing
silver project capital loans currently outstanding to the Chinese banks.
As of the date of this Quarterly Report, the Company (i) is conducting
metallurgical test work to produce a feasibility study of metallurgical process
upgrades, and (ii) has hired engineers to provide detailed studies of the
current mining operations to develop new mining methods for the upgrade of
mining expansion. Management of the Company expects engineering feasibility
reports, metallurgical testing results and financial audit information to
provide the basis for consummation of the acquisition. Until the completion of
all due diligence, the Company will not consider the acquisition probable. In
the event that due diligence is successfully completed, the Company will receive
an 85% interest in the cash flow from operating profits, which management
anticipates may commence at the date that the Chinese business license is
granted during fiscal quarter ended December 31, 2000.
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.
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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) form a
limited liability joint venture company (the "Baotong Mineral Exploration and
Development Co."), (ii) have the right to acquire an approximate 70% interest in
the Baotong Mineral Exploration and Development Co., (iii) conduct risk
exploration and development of the two possible zinc and lead deposits, (iv)
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 (v) have rights to acquire up to an 85% joint venture interest in the
Baotong Mineral Exploration and Development Co. with further funding.
As of the date of this Quarterly Report, the Baotong Mineral
Exploration and Development Co. has been formed. The Company is currently
conducting 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 in the Baotong Mineral Exploration and
Development Co.
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 until the completion of all due
diligence, the Company will not consider the acquisition of the Baotong Mineral
Exploration and Development Company exploration concession probable.
COMPANY UNAUDITED FINANCIAL STATEMENTS
RESULTS OF OPERATION
Six-Month Period Ended September 30, 2000 Compared to Six-Month Period Ended
September 30, 1999
For the six-month period ended September 30, 2000, the Company recorded a
net loss of $2,109,563 compared to a net loss of $498,111 in the corresponding
period of 1999. During the six-month period ended September 30, 2000 and
September 30, 1999, the Company recorded no income.
During the six-month period ended September 30, 2000, the Company recorded
exploration expenses of $1,092,737 as compared to $24,595 of exploration
expenses recorded in the same period for 1999. Property exploration expenses
were incurred during the six-month period ended September 30, 2000 primarily due
to payment of advances pursuant to contractual arrangements and/or costs
associated with the due diligence (preliminary exploration, metallurgical
testing and preparation of geological reports) as follows: (i) $999,815 for Tun
Resources (the Yuntong Gold Concession and the Lutong Gold Concession) and (ii)
$92,922 for general acquisition due diligence costs. The costs associated with
Tun Resources have been impaired in the financial statements since any future
cash flows to be received by the Company from the joint venture interest cannot
be quantified.
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Administrative expenses also increased in the approximate amount of
$543,310 during the six-month period ended September 30, 2000 from the $473,516
incurred during the six-month period ended September 30, 1999 as compared to the
$1,106,826 incurred during the six-month period ended September 30, 2000. This
increase is due primarily to the increased scale and scope of overall business
activity. Of the $1,106,826 incurred as administrative expenses during the
six-month period ended September 30, 2000, $379,000 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.
The Company's net earnings (losses) during the six-month period ended
September 30, 2000 were approximately ($2,109,563) or ($0.091) per common share
compared to a net loss of approximately ($498,111) or ($0.028) per common share
during the six-month period ended September 30, 1999. The weighted average
number of shares outstanding was 23,256,383 for the six-month period ended
September 30, 2000 compared to 17,585,000 for the six-month period ended
September 30, 1999.
Three-Month Period Ended September 30, 2000 Compared to Three-Month Period Ended
September 30, 1999
For the three-month period ended September 30, 2000, the Company
recorded a net loss of $552,849 compared to a net loss of $225,034 in the
corresponding period of 1999. During the three-month period ended September 30,
2000 and September 30, 1999, the Company recorded no income.
During the three-month period ended September 30, 2000, the Company
recorded exploration expenses of $164,102 as compared to $24,595 of exploration
expenses recorded in the same period in 1999. Property exploration expenses were
incurred during the three-month period ended September 30, 2000 primarily due to
payment of advances pursuant to contractual arrangements and/or costs associated
with the due diligence (preliminary exploration, metallurgical testing and
preparation of geological reports) as follows: (i) $130,450 for Tun Resources
(the Yuntong Gold Concession) and (ii) 33,652 for general acquisition due
diligence costs. The costs associated with Tun Resources have been impaired in
the financial statements since any future cash flows to be received by the
Company from the joint venture interest cannot be quantified.
Administrative expenses also increased in the approximate amount of
$188,308 during the three-month period ended September 30, 2000 from the
$200,439 incurred during the three-month period ended September 30, 1999 as
compared to the $388,747 incurred during the three-month period ended September
30, 2000. This increase is due primarily to the increased scale and scope of
overall business activity. Of the $388,747 incurred as administrative expenses
during the three-month period ended September 30, 2000, $200,000 was paid to ICI
for amounts due and owing for services rendered including, but not limited to,
financial, administrative and metals exploration management.
The Company's net earnings (losses) during the three-month period ended
September 30, 2000 were approximately ($552,849) or ($0.021) per common share
compared to a net loss of approximately ($225,034) or ($0.013) per common share
during the three-month period ended September 30, 1999. The weighted average
number of shares outstanding was 25,716,652 for the three-month period ended
September 30, 2000 compared to 17,585,000 for the three-month period ended
September 30, 1999.
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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 six-month period ended September 30, 2000, the Company's total
assets were $61,019. This decrease in assets from fiscal quarter ended June 30,
2000 is due to decrease in cash and cash equivalents and subscriptions
receivable.
As of the six-month period ended September 30, 2000, the Company's total
liabilities were $889,630. The total liabilities decreased during the
three-month period ended September 30, 2000 from the three-month period ended
June 30, 2000 due primarily to a decrease in accounts payable. As of September
30, 2000, the total liabilities exceeded total assets by $828,611.
Stockholders' Equity (Deficit) increased from ($375,762) for the
three-month period ended June 30, 2000 to ($828,611) for the six-month period
ended September 30, 2000. Stockholders' Equity (Deficit) increased from
($778,296) for fiscal year ended March 31, 2000 to ($828,611) for the six-month
period ended September 30, 2000.
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.
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.
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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.
On or about November 10, 2000, Geneva and INGC filed a motion for
summary judgment against Dames & Moore and AuRIC.
As of the date of this Quarterly Report, various depositions have been
taken by various parties to the lawsuit. Discovery and document production have
been conducted by both sides to the dispute. 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 and maintenance of the Vega
Property claims indefinitely until resolution of the legal proceedings.
Management believes that the legal proceedings will prove that the alleged
Proprietary Technology is invalid. Management does not believe that the Vega
Property contains commercial quantities of gold or silver.
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.
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.
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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 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
six-month period ended September 30, 2000, the Company has issued
5,000,000 shares of common stock and has closed the offering. 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.
ITEM 3. DEFAULTS UPON SENIOR SECURITIES
No report required.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
No report required.
ITEM 5. OTHER INFORMATION
No report required.
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K
(a) Report on Form 8-K filed October 22, 2000.
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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: November 14, 2000 By: /s/ Grant Atkins
------------------------------
Grant Atkins, President
Dated: November 14, 2000 By: /s/ Herb Ackerman
------------------------------
Herb Ackerman, Secretary
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