U.S. SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-QSB
Quarterly Report Under Section 13 or 15 (d) of
the Securities Exchange Act of 1934
For the Quarter Ended March 31, 1997 Commission File No. 0-9416
FRANKLIN CONSOLIDATED MINING CO., INC.
(Exact name of registrant as specified in its charter)
Delaware #13-2879202
(State or other jurisdiction (I.R.S. Employer
incorporation or organization) Identification No.)
76 Beaver Street, Suite 500, New York, New York 10005
(Address of Principal Executive Offices) (Zip Code)
Registrant's Telephone Number, Including Area code (212) 344-2828
The Number of Shares Outstanding of Common Stock
$.01 Par Value, at March 31, 1997 91,583,020
Indicate by check mark whether the registrant (1) has filed all reports required
to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during
the preceding 12 months (or for such shorter period that the registrant was
required to file such reports,) and (2) has been subject to such filing
requirements for the past 90 days.
Yes _____X_____ No ___________
1. Includes 1,000,000 shares held in escrow returned to Company in May, 1997
<PAGE>
FRANKLIN CONSOLIDATED MINING CO., INC.
(A Development Stage Enterprise)
CONDENSED BALANCE SHEETS
(Unaudited)
<TABLE>
<CAPTION>
March 31, December 31,
ASSETS 1997 1996
------ ---- ----
<S> <C> <C>
Current Assets:
Cash $ 4,543 $ 127
Prepaid expenses 80,984 107,979
Advances to joint venture partner 165,417 266,438
------------ ------------
Total current assets 250,944 374,544
Mining, milling and other property and
equipment, net of accumulated depreciation
and depletion of $1,867,180 and $1,837,180 6,281,128 6,311,128
Investment in equity investee 150,000 150,000
Mining reclamation bonds 127,827 126,875
------------ ------------
Totals $ 6,809,899 $ 6,962,547
============ ============
LIABILITIES AND STOCKHOLDERS' EQUITY
------------------------------------
Current Liabilities:
12.25% convertible debentures $ 145,000 $ 145,000
9.5% convertible note payable to joint venture partner 600,000 600,000
Other notes payable 80,000 80,000
Accounts payable and accrued expenses 554,254 553,883
------------ ------------
Total current liabilities $ 1,379,254 $ 1,378,883
8% mortgage note payable to joint venture partner 586,419 586,419
Excess of equity in net losses of joint venture over investment 136,108 133,220
------------ ------------
Total liabilities $ 2,101,781 $ 2,098,522
------------ ------------
Comments and contingencies
Stockholders' equity:
Common stock, par value $.01 per share;
100,000,000 shares authorized;
90,583,020 and 69,135,920 shares issued and outstanding 905,830 905,830
Additional paid-in capital 15,154,264 15,154,264
Deficit accumulated in the development stage (11,351,976) (11,196,069)
------------ ------------
Total Stockholders' equity 4,708,118 4,864,025
------------ ------------
Totals $ 6,809,899 $ 6,962,547
============ ============
</TABLE>
See Notes to Condensed Financial Statements.
<PAGE>
FRANKLIN CONSOLIDATED MINING CO., INC.
(A Development Stage Enterprise)
CONDENSED STATEMENTS OF OPERATIONS
(Unaudited)
<TABLE>
<CAPTION>
Three Months Cumulative
Ended March 31, from
1997 1996 Inception
----- ---- ----------
Revenues:
<S> <C> <C> <C>
Sales $ 876,082
Interest income $ 952 $ 590 541,839
Other income 75,000
------- ------- ----------
Totals 952 590 1,492,921
------- ------- ----------
Expenses:
Mine expenses 3,360,793
Write-down of inventories 223,049
Depreciation, depletion and amortization 30,000 30,535 2,062,529
General and administrative expense 86,018 233,985 5,116,450
Interest expense 37,953 19,441 633,791
Amortization of debt issuance expense 683,047
Equity in net loss of joint venture 2,888 1,050 136,108
Loss on settlement of claims by joint venture partner 468,000
Loss on settlement of litigation 100,000
Loss on investment in oil and gas wells 61,130
------- ------- ----------
Totals 156,859 285,011 12,844,897
------- ------- ----------
Net loss ($ 155,907) $ (284,421) $(11,351,976)
=========== =========== ============
Weighted average shares outstanding 90,583,020 69,249,729
========== ==========
Net loss per common share $( - ) $( - )
========== ==========
</TABLE>
See Notes to Condensed Financial Statements
<PAGE>
FRANKLIN CONSOLIDATED MINING CO., INC.
(A Development Stage Enterprise)
CONDENSED STATEMENTS OF CASH FLOWS
(Unaudited)
<TABLE>
<CAPTION>
Three Months
Ended March 31, Cumulative
--------------- from
1997 1996 Inception
---------------------- -----------
<S> <C> <C> <C>
Operating activities:
Net loss $(155,907) $(284,421) $(11,351,976)
Adjustments to reconcile net loss to net
cash used in operating activities:
Depreciation and depletion 30,000 30,535 2,062,529
Amortization of debt issuance expense 683,047
Value of common stock issued for:
Services and Interest 1,325,714
Settlement of litigation 100,000
Settlement of claims by joint venture partner 468,000
Compensation resulting from stock options granted 311,900
Value of stock options granted for services 112,500
Equity in net loss of joint venture 2,888 1,050 136,108
Other (7,123)
Changes in operating assets and liabilities:
Interest accrued on Mining Reclamation Bonds (952) (2,827)
Other current assets 26,995 (80,984)
Accounts payable and accrued expenses 371 92,202 736,727
-------- --------- -----------
Net cash used in operating activities (96,605) (160,634) (5,506,385)
-------- --------- -----------
Investing activities:
Purchases and additions to mining, milling and
other property and equipment (5,120,354)
Purchases of mining reclamation bonds (48,194) (125,000)
Deferred mine development costs and other expenses (255,319)
-------- --------- -----------
Net cash used in investing activities - 0 - (48,194) (5,500,673)
-------- --------- -----------
</TABLE>
<PAGE>
FRANKLIN CONSOLIDATED MINING CO., INC.
(A Development Stage Enterprise)
CONDENSED STATEMENTS OF CASH FLOWS
(Unaudited)
<TABLE>
<CAPTION>
Three Months
Ended March 31, Cumulative
--------------- from
1997 1996 Inception
------------------------ ----------
<S> <C> <C>
Financing activities:
Issuances of common stock $ 202,600 $ 8,758,257
Issuance of Underwriter's stock warrants 100
Commissions on sales of common stock (381,860)
Purchases of treasury stock (12,500)
Payments of deferred underwriting costs (63,814)
Proceeds from exercise of stock options 306,300
Issuance of convertible debentures and notes 200,000 1,505,000
Proceeds of loans to joint venture partner 526,288
Repayments of loans from (to) joint venture partner $101,021 (311,824) (117,230)
Payments of debt issuance expenses (164,233)
Proceeds of other notes and loans payable 768,000
Repayments of other notes and loans payable (120,000)
Proceeds of loans from affiliate 55,954
Repayments of loans from affiliate (48,661)
-------- ------ ----------
Net cash provided by financing activities $101,021 90,776 11,011,601
-------- ------ ----------
Increase (decrease) in cash 4,416 (118,052) 4,543
Cash, beginning of period 127 118,176 -0-
-------- ------ ----------
Cash, end of period $ 4,543 $ 124 $ 4,543
======== ========== ============
Supplemental disclosure of cash flow data:
Interest paid $ -- $ -- $ 298,868
======== ========== ============
</TABLE>
See notes to Condensed Financial Statements
<PAGE>
FRANKLIN CONSOLIDATED MINING CO., INC.
(A Development Stage Enterprise)
NOTES TO CONDENSED FINANCIAL STATEMENTS
Note 1 - Unaudited interim financial statements:
In the opinion of management, the accompanying unaudited condensed
financial statements reflect all adjustments, consisting of normal
recurring accruals, necessary to present fairly the financial position of
Franklin Consolidated Mining Co., Inc. (the "Company") as of March 31,
1997, and its results of operations and cash flows for the three months
ended March 31, 1997 and 1996. Information included in the condensed
balance sheet as of December 31, 1996 has been derived from the audited
balance sheet in the Company's Annual Report on Form 10-KSB for the year
ended December 31, 1996 (the"10-KSB") filed with the Securities and
Exchange Commission. Certain terms used herein are defined in the 10-KSB.
Accordingly, these unaudited condensed financial statements should be read
in conjunction with the financial statements, notes to financial statements
and the other information in the 10-KSB.
The results of operations for the three months ended March 31, 1997 are not
necessarily indicative of the results of operations for the full year
ending December 31, 1997.
Note 2 - Basis of presentation:
The accompanying financial statements have been prepared assuming that the
Company will continue as a going concern. However, the Company is a
development stage enterprise whose operations have generated recurring
losses and cash flow deficiencies from its inception. As of March 31, 1997,
the Company had a cash balance of $4,543, an accumulated deficit of
approximately $11,352,000, current liabilities of $1,379,000 and a working
capital deficiency of $1,128,000, and, as explained in Notes 3 and 4, the
Company was in default with respect to the payment of the principal balance
and accrued interest on its outstanding secured promissory note and 12.25%
<PAGE>
FRANKLIN CONSOLIDATED MINING CO., INC.
(A Development Stage Enterprise)
NOTES TO CONDENSED FINANCIAL STATEMENTS
Note 2 - Basis of presentation (continued):
convertible debentures. Certain accounts payable were also past due. In
addition to the payment of its current liabilities, management estimates
that the Company will incur general, administrative and other costs and
expenditures, exclusive of any costs and expenditures related to any mining
and milling operations, at the rate of approximately $25,000 per month
during 1997. Although the Company is entitled to distributions of 17.5% of
any net profits generated from the operations of the Franklin Mines by the
Zeus Joint Venture, any net profits generated by the Gold Hill Mill and the
first $500,000 of any profits generated through the operations of the Mogul
Mines by Newmineco plus 20% of any profits thereafter, all such operations
are in the development stage and have been generating losses and negative
cash flows and management cannot assure that those operations will generate
any positive cash flows during the remainder of 1997. Such matters raise
substantial doubt about the Company's ability to continue as a going
concern.
Gems, the Company's Joint Venture partner, will be responsible for
providing the remaining capital resources that will be needed for the
commencement of operations at the Franklin Mine and the Mogul Mines, and
the Company will be responsible for obtaining the remaining capital
resources that will be needed for the commencement of operations at the
Gold Hill Mill. In the absence of liquid resources, cash flows from
operations and any other commitments for debt or equity financing,
management believes that the ability of the Company to continue its
operations as a going concern will be dependent upon the provision of
financing by Gems, which Gems is required to provide pursuant to the Joint
Venture Agreement, the continued forbearance of the holders of its secured
promissory note and convertible debentures and, ultimately, the ability of
the Joint Venture, the Gold Hill Mill
<PAGE>
FRANKLIN CONSOLIDATED MINING CO., INC.
(A Development Stage Enterprise)
NOTES TO CONDENSED FINANCIAL STATEMENTS
Note 2 - Basis of Presentation (concluded):
and Newmineco to conduct profitable mining and milling operations on a
sustained basis.
Management believes, but cannot assure, that such financing and the
financing needed to commence operations at the Franklin Mine and the Mogul
Mines will be provided by Gems during the remainder of 1997, and that the
Company will remain dependent on its Joint Venture partner as its primary
source of financing for its operations until such time, if any, as the
Company begins to receive cash flows from its investments. During the first
four months of 1997, Gems repaid advances from the Company and made
advances to the Company totaling approximately $300,000. The management of
the Company believes that Gems will continue to fulfill its commitment and
make such advances until such time, if any, as the Company begins to
receive cash flows from its investments.
In addition to funds committed by Gems, management is considering raising
capital by mortgaging the Gold Hill property. The management of the Company
believes that, based on the fair value of the Gold Hill property, it can
raise a minimum of $1,000,000 using conventional mortgage financing, with
guarantees from Gems and its principals. Such funds would be used to supply
the working capital initially needed to commence operations at the Gold
Hill Mill and as an alternative means of financing operations at the
Franklin Mine and Mill and the Mogul Mines.
Management also believes that, at a minimum, the Company will be able to
obtain sufficient financing from Gems and/or mortgage loans on the Gold
Hill property to enable the Company to meet its working capital
requirements through at least March 31, 1998.
<PAGE>
FRANKLIN CONSOLIDATED MINING CO, INC.
(A Development Stage Enterprise)
NOTES TO CONDENSED FINANCIAL STATEMENTS
Note 3 - Other notes payable:
Other notes payable was comprised as follows at March 31, 1997:
12% unsecured demand note $20,000
Secured promissory note (a) 60,000
------
Total $80,000
=======
(a) The outstanding principal balance of the note became payable on
July 18, 1996 and is overdue. The note is guaranteed by the Company's
Joint Venture partner and certain individuals and is collateralized
through a security interest in the Company's mining reclamation bond.
Interest on the note is payable based on the rate of interest
applicable to the mining reclamation bond.
Note 4 - Convertible debt:
The Company's convertible debt at March 31, 1997 consisted of the
following:
12.25% convertible debentures (a) $145,000
9.5% convertible secured promissory
note payable to Joint Venture partner 600,000
-------
Total $745,000
========
(a) As of December 31, 1995, the Company was in default with respect
to the payment of the $145,000 principal balance of the debentures and
accrued interest payable for the quarters subsequent to March 31,
1995. The Company sent notices to its debentureholders in December
1995 asking for their consent by February 15, 1996 to the further
<PAGE>
FRANKLIN CONSOLIDATED MINING CO., INC.
(A Development Stage Enterprise)
NOTES TO CONDENSED FINANCIAL STATEMENTS
Note 4 - Convertible debt (concluded):
extension of the maturity date to December 31, 1996. It was also
contemplated that conversion rights would also be extended at the previous
rate of $.50 per share. The Company also agreed that it would make all
interest payments due to such holders through December 31, 1995, prepay
interest which will become a fund with the Trustee to secure the timely
payment of the principal balance of the debentures on December 31, 1996.
Only one holder of a $1,000 debenture rejected the Company's request.
While it was the intention of management and the Company to comply with the
terms of the agreements with the debentureholders, the Company has been
unable to comply as a result of the liquidity and cash flow problems
described in Note 2. As a result of its default and its continued failure
to comply with the December 1995 agreements, the Company may be subject to
legal proceedings by the Transfer Agent/Trustee under the Indenture
Agreement or from debentureholders seeking immediate repayment of principal
plus interest and penalties. Management cannot assure that there will be
funds available for the required payments or what the effects of any
actions brought by or on behalf of the debentureholders will be.
Note 5 - Commitments and contingencies:
Environmental matters:
During November 1993, the Company was notified by the State of
Colorado Division of Minerals and Geology (the "DMG") that the
Joint Venture had failed to file a plan in the form of a
Technical Revision to address erosion, sedimentation and run-off
matters at the Franklin Mine in
<PAGE>
FRANKLIN CONSOLIDATED MINING CO., INC.
(A Development Stage Enterprise)
NOTES TO CONDENSED FINANCIAL STATEMENTS
Note 5 - Commitments and contingencies (continued):
Environmental matters (continued)
connection with continuation of the Company's state mining permit. As
a result, the Company had to take certain remedial actions, increase
its reclamation bond from $29,000 to $45,000 and pay a $5,000 fine
during 1994.
In August 1994, the Company received an informal notice from the DMG
of an additional violation at the Franklin Mine related to water
run-off matters. The Company attempted to rectify the violations cited
by the DMG but was unable to do so in a timely manner because such
corrections required performance of work outside the boundaries of its
then current permit. The Company agreed that it would refrain from any
mining or milling operations at the Franklin Mine until the DMG (i)
amended the Company's permit to enable it to perform the required
technical and remediation work and (ii) determined that all required
work was completed.
In February 1996, the DMG permitted the Company to commence crushing
activity at the Franklin Mine pursuant to another prospecting permit.
In March 1996, the Company was notified that it would be required to
increase its land reclamation bond by an amount that would be
determined subsequently. In an effort to comply, the Company increased
its reclamation bond from $45,000 to $93,000. On or about March 28,
1996, the Company received a temporary cease and desist order
prohibiting it from conducting mining operations at the Franklin Mine
until such time as all of the violations cited by the DMG were
corrected. In addition, the Mined Land Reclamation Bureau of Colorado
(the "MLRB") determined that the Company's reclamation bond should be
further increased to approximately $252 ,000.
<PAGE>
FRANKLIN CONSOLIDATED MINING CO., INC.
(A Development Stage Enterprise)
NOTES TO CONDENSED FINANCIAL STATEMENTS
Note 5 - Commitments and contingencies (continued):
Environmental matters (concluded):
On April 24, 1996, the Company was able to obtain the $252,000 bond
required by the MLRB from an independent bonding company in exchange
for the deposit by the Company's Joint Venture partner of $125,000 in
a trust account maintained for the benefit of the bonding company,
guarantees from the Joint Venture partner and certain of its
principals and the posting of a performance bond from an independent
bonding company by one of the Joint Venture's contractors with respect
to the completion of the technical and remediation work required by
the regulatory authorities. As a result, the cease and desist order
was vacated on June 7, 1996 and the Company received refunds of
approximately $93,000 during the second quarter of 1996 from the
mining reclamation bonds it had posted.
On January 31, 1997, the Company received approval from the DMG of its
March 6, 1996 amended application to its permit. As a result,
management believes that substantially all of the necessary
environmental and regulatory approvals have been obtained that are
needed to enable the Company to commence mining and milling operations
at the Franklin Mine and/or the Mogul Mines during 1997.
The amended permit, among other things, increases the permitted area
of the Franklin Mine to 42.5 acres and allows for the processing of
ore on an unlimited basis. The amended permit further contemplates the
submission of a final design for tailings disposal facilities, the
installation of a Surface Water Control Plan previously approved by
the DMG, the filing of an Environmental Protection Plan, and the
completion of certain closure plans.
<PAGE>
FRANKLIN CONSOLIDATED MINING CO., INC.
(A Development Stage Enterprise)
NOTES TO CONDENSED FINANCIAL STATEMENTS
Note 5 - Commitments and contingencies (continued):
Environmental matters (continued):
Litigation:
The Company is involved in various litigation as explained below:
a) The Company, the Joint Venture, Gems, Island and others are
defendants in the action related to a dispute over fees for
engineering consulting services supplied in the amount of
approximately $268,000. The Court has remanded the case to
arbitration. The defendants plan to vigorously defend their
position asserting that the work was never completed.
b) The Company, Island, Newmineco and others are defendants in
litigation involving title to the mining claims at the Mogul
Mines. This action was instituted by the former owners of such
claims. The Company intends to vigorously contest the action. In
the opinion of legal counsel, the defendants have valid defenses
to all claims.
c) In April 1997, the Company was notified by the Superior Court of
New Jersey that it had received a copy of a complaint by the
holder of the $60,000 secured note, which was due and payable in
July 1996 (see Note 3). The complaint demanded, among other
things, payment of all principal and interest due. As of April
14, 1997, the Company had not received service of such complaint.
<PAGE>
FRANKLIN CONSOLIDATED MINING CO., INC.
(A Development Stage Enterprise)
NOTES TO CONDENSED FINANCIAL STATEMENTS
Note 5 - Commitments and contingencies (continued):
Environmental matters (concluded)
Management believes that, to the extent that any of the claims
are finally determined to have merit, the Company has made
adequate provision for any amounts that may be due. However,
management also believes that it is too early in the process to
evaluate the possible outcome of these claims or estimate the
amount or range of any additional loss or the likelihood of such
loss occurring. An unfavorable resolution of these matters could
result in material liabilities and/or charges which have not been
reflected in the accompanying financial statements.
Note 6 - Stockholders' equity:
Common stock reserved for issuance:
At March 31, 1997, there were 290,000 shares of common stock
reserved for issuance upon the exercise of the 12.25% convertible
debentures and 7,692,308 shares reserved for issuance upon the
exercise of the 9.5% note payable that was exercised on February
10, 1997. The shares have not yet been issued as of March 31,
1997.
Note 7 - Subsequent events:
Real estate taxes:
At March 31, 1997, the Company was delinquent in paying
approximately $50,700 of the required taxes due (including
interest) on the Franklin Mine. Clear Creek County had filed
liens on those taxes in arrears. Certain of the liens were sold
under auction in October 1994.
Subsequent to March 31, 1997, the Company paid all of the
delinquent taxes which will cause the liens to be removed.
<PAGE>
FRANKLIN CONSOLIDATED MINING CO., INC.
(A Development Stage Enterprise)
NOTES TO CONDENSED FINANCIAL STATEMENTS
Note 7 - Subsequent events (continued):
Litigation:
In April 1997, the Company paid $45,000 in full settlement of a
case involving a fee dispute with a former legal counsel to the
Company. As part of the settlement, the plaintiff, among other
things, returned warrants to purchase 500,000 shares of the
Company's common stock which had been issued to him in prior
years.
* * *
<PAGE>
MANAGEMENT'S DISCUSSION AND ANALYSIS
Liquidity and Capital Resources
The Company had no active mining or milling operations during the first
quarter of 1997, however, remediation work was substantially completed at the
Franklin Mine and Mill in preparation for the anticipated commencement of mining
operations sometime during the third quarter of this year.
During the quarter ended, March 31, 1997, Gems & Minerals Corp., the
Company's joint venture partner, repaid approximately $101,000 of the advances
made by the Company in 1996. These monies, along with additional repayments by
Gems in the month of April, were used, among other things, to pay legal and
accounting fees in connection with the Company's public filings, to satisfy
obligations arising under a settlement of certain litigation and to pay
delinquent real estate taxes.
In addition to funds committed by Gems in accordance with the joint venture
agreement, management is considering raising capital by mortgaging the Gold Hill
Mill property. The management of the Company believes that, based on the fair
value of the property, it can raise a minimum of $1,000,000 using conventional
mortgage financing, with guarantees from Gems and its principals. Such funds
would be used to supply the working capital initially needed to commence
operations at the Gold Hill Mill and as an alternative means of financing
operations at the Franklin and Mogul mines.
On February 10, 1997, management of the Company exercised its option to
convert its 9.5%, $600,000 convertible secured promissory note to assignees of
Gems, into 7,692,308 shares of common stock. This relieved the Company of its
obligation to pay the note on June 30, 1997 and increased total stockholders'
equity of the Company by $600,000.
Management estimates that the Company will incur general, administrative
and other costs and expenditures, exclusive of any costs and expenditures
related to any mining and milling operations, at the rate of approximately
$25,000 per month for the remainder of 1997.
<PAGE>
MANAGEMENT'S DISCUSSION AND ANALYSIS
RESULTS OF OPERATIONS
The Company and the Zeus joint venture had no active mining or milling
operations during the quarter ended March 31, 1997.
The Company had a net loss of $155,907 for the three months ended March 31,
1997 as compared to a net loss of $284,421 during the same period in 1996. The
loss in 1996 was higher due to legal and engineering fees incurred in connection
with permit violations and bond reclamation requirements imposed by Colorado
regulatory authorities.
General and administrative expenses were $86,018 for the first quarter 1997
compared with $233,985 during the same period in 1996. This decrease, as
mentioned above, was due to a substantial decrease in legal and engineering
fees.
Interest income was $952 for the three months ended March 31, 1997 compared
with $590 during the same period in 1996. Interest expense was $37,953 during
the 1997 quarter as compared to $19,441 in the 1996 quarter. This increase was
due to interest incurred on notes in connection with the Gold Hill Mill and
Newmineco acquisitions.
<PAGE>
Part II
Item 1. Legal Proceedings
On or about June 28, 1995, the Company issued a promissory note for $90,000
(the "Friedman Note") and a share warrant exercisable for up to 500,000 shares
of the Company (the "Friedman Warrant") to Charles J. Friedman, P.C.
("Friedman"), a former corporate counsel of the Company, as payment of legal
fees. On or about February 14, 1996, Friedman commenced an action against the
Company in the District Court for Clear Creek County, Colorado claiming an
alleged default by the Company of its obligations pursuant to the Friedman Note.
On March 5, 1997, the Court entered a judgment against the Company for
$90,000 in favor of Friedman after the dismissal with prejudice on January 10,
1997 of all the Company's counterclaims (the "Friedman Judgment"). Pursuant to
the Friedman Judgment, the parties stipulated to a stay of execution of such
judgment for forty-five (45) days to provide the Company with time to pay
Friedman $45,000 in full and complete satisfaction of the Friedman Judgment.
On April 21, 1997, the Company paid to Friedman $45,000 in full
satisfaction of the Friedman Judgment and is awaiting receipt of, among other
things, a satisfaction of Judgment entered by the Court.
Item 2. Changes in Securities
On September 26, 1996, the Company acquired a 20% interest in Newmineco,
LLC, a Colorado limited liability company ("Newmineco"), from its joint venture
partner, Gems & Minerals Corp. ("Gems") for the purchase price of $600,000
payable by an interest only note bearing interest at 9.5% per annum (the
"Newmineco Note"). Gems subsequently assigned all of its right, title and
interest in and to the Newmineco Note to certain third parties, including a
consultant to the Zeus Joint Venture. On February 10, 1997, the Company made its
election pursuant to the terms of the Newmineco Note to convert all of the
principal thereon into common stock of the Company at a conversion price of
$.078 per share (the "Conversion Shares"). As of March 31, 1997, the Conversion
Shares have not been issued to the holders of the Newmineco Note; however, the
Company is obligated to issue to such holders an aggregate of 7,692,308 shares
of the Company in full satisfaction of the Newmineco Note.
<PAGE>
Item 3. Defaults Upon Senior Securities
As of March 31,1997, the Company continues to be in default with respect to
the payment of $145,000 principal amount of its 12 1/4 Convertible Debentures
(the "Debentures"), which have accrued and unpaid interest thereon as of March
31, 1997 in the amount of $35,525.
While it remains the intention of the Company to pay its outstanding
obligations with respect to the Debentures, the Company has been unable to meet
its obligations to such holders as a result of unforeseen liquidity and cash
flow shortages. As a result of its continued default, the Company may be subject
to legal proceedings by or on behalf of debenture holders seeking payment of
principal and all interest as well as any penalties and other legal remedies the
holders may claim they are entitled to receive under the law. There can be no
assurance that the Company will have adequate funds available to make the
payments required under the December 1995 Agreements or that the commencement of
legal proceedings will not have a material adverse effect on the Company.
Item 4. Submission of Matters to a Vote of Security Holder
None during the quarter.
Item 5. Other Information
On January 31, 1997, the Company received approval from the DMG of its
March 6, 1996 amendment application to the Franklin Permit. This approval brings
the Company in compliance with current environmental and regulatory standards
and will allow the Company to pursue its estimated annual production levels. The
notification of approval, received by the Company on February 28, 1997,
increased the total permitted area, revised the mining plan to include the
processing of ore from the Mogul Mines, alters the milling process, propose
tailings paste disposal, and modifies the surface water control plan.
Additionally, the reclamation plan of the Company was further revised to include
the closure plan for tailings ponds, 1, 2, and 5. All of the terms of the
amendment approved by the DMG were incorporated into the Franklin
<PAGE>
Permit and made a part thereof. However, the DMG set forth certain conditions to
it approval which required (i) the submission of a final design for tailings
disposal facilities in the form of a technical revision to the DMG for approval
prior to operation of the Franklin Mill. (ii) the components of the Surface
Water Control Plan approved during the amendment process must be installed no
later than April 15, 1997 and (iii) the closure plans for Ponds 1 and 2 must be
completed to the satisfaction of the DMG by Spring runoff and no later than
April 15. Finally, the schedule for the completion of the closure plan for Pond
5 will be determined by the DMG during fiscal year 1997 and will be dependent on
the Company's tailings disposal plan which is to be submitted to the DMG in
1997.
Item 6. Exhibits and Reports on Form 8-K
A. Exhibits
(a) Press Release of the Company, dated March 24, 1997
B. Reports on Form 8-K
(a) Report on Form 8-K dated March 5, 1997 under file #0-9416
<PAGE>
SIGNATURE
In accordance with the requirements of the Securities and Exchange Act, the
registrant caused this report to be signed on its behalf by the undersigned,
thereunto duly authorized.
FRANKLIN CONSOLIDATED MINING CO, INC.
Date: May 14, 1997 /s/ Robert J. Levin
---------------------------------
Robert J. Levin
Vice President-Finance
Principal Financial Officer
<TABLE> <S> <C>
<ARTICLE> 5
<S> <C>
<PERIOD-TYPE> 3-MOS
<FISCAL-YEAR-END> DEC-31-1997
<PERIOD-START> JAN-01-1997
<PERIOD-END> MAR-31-1997
<CASH> 4,543
<SECURITIES> 0
<RECEIVABLES> 165,417
<ALLOWANCES> 0
<INVENTORY> 0
<CURRENT-ASSETS> 250,944
<PP&E> 8,148,308
<DEPRECIATION> 1,867,180
<TOTAL-ASSETS> 6,809,899
<CURRENT-LIABILITIES> 1,379,254
<BONDS> 145,000
0
0
<COMMON> 905,830
<OTHER-SE> 3,802,288
<TOTAL-LIABILITY-AND-EQUITY> 6,809,899
<SALES> 0
<TOTAL-REVENUES> 952
<CGS> 0
<TOTAL-COSTS> 0
<OTHER-EXPENSES> 118,906
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 37,953
<INCOME-PRETAX> (155,907)
<INCOME-TAX> 0
<INCOME-CONTINUING> 0
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (155,907)
<EPS-PRIMARY> 0
<EPS-DILUTED> 0
</TABLE>
212-344-2828
FRANKLIN CONSOLIDATED MINING
COMPANY, INC.
ROOM 500
76 BEAVER STREET
NEW YORK, NEW YORK 10005-3402
For Immediate Release
New York, New York; Idaho Springs, Colorado - March 24, 1997 - On January
31, 1997, Franklin Consolidated Mining Co., Inc. (NASDAQ-"FKCM") received
approval from the Colorado Division of Minerals and Geology (the "DMG") of its
March 6, 1996 amendment application to its M83083 permit, a 112 permit. This
amendment brings Franklin in compliance with current environmental and
regulatory standards and allows Franklin to meet its current estimated annual
production levels.
The amended permit, among other things, increases the permitted area of the
Franlclin Mines to 42.5 acres and allows for the processing of ore from the
Mogul Mine on an unlimited basis. The amended permit further contemplates the
submission of a final design for tailings disposal facilities, the installation
of a Surface Water Control Plan previously approved by the DMG, the completion
of certain closure plans for certain of its tailings ponds set forth in reports
previously submitted to the DMG and implementation of provisions for tailings
paste disposal. Upon completion of paste backfill work, it is anticipated that
Franklin will possess substantial tailings disposal capacity consistent with its
long term production plans. Moreover, Franklin has completed substantial
reclamation work during the application period and plans to make application to
the DMG to reduce its current reclamation bond.
