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 September 30, 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)
Registrants Telephone Number, Including Area code (212) 344-2828
The Number of Shares Outstanding of Common Stock
$.01 Par Value, at September 30, 1997 98,879,328
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 _________
<PAGE>
FRANKLIN CONSOLIDATED MINING CO., INC.
(A Development Stage Enterprise)
CONDENSED BALANCE SHEETS
(Unaudited)
-----------
Sept.30, December 31,
Assets 1997 1996
------ ------------ ------------
Current Assets:
Cash $ 52 127
Prepaid expenses 26,994 107,979
Advances to joint venture partner 266,438
------------ ------------
Total current assets 27,046 374,544
Mining, milling and other property and
equipment, net of accumulated depreciation
and depletion of $1,927,180 and $1,837,180 6,221,128 6,311,128
Investment in equity investee 150,000
Mining reclamation bonds 129,730 126,875
------------ ------------
Totals $ 6,377,904 $ 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
Other notes payable 80,000 80,000
Accounts payable and accrued expenses 427,928 553,883
Advances from joint venture partner 197,766 -0-
------------ ------------
Total current liabilities 850,694 1,378,883
8% mortgage note payable to joint venture partner 436,419 586,419
Excess of equity in net losses of joint
venture over investment 144,761 133,220
------------ ------------
Total liabilities $ 1,431,874 $ 2,098,522
------------ ------------
Comments and contingencies
Stockholders' equity:
Common stock, par value $.01 per share;
100,000,000 shares authorized;
98,879,328 and 90,583,020 shares issued and
outstanding 988,793 905,830
Additional paid-in capital 15,734,801 15,154,264
Deficit accumulated in the development stage (11,777,564) (11,196,069)
------------ ------------
Total Stockholders" equity 4,946,030 4,864,025
------------ ------------
Totals 6,377,904 $ 6,962,547
============ ============
See Notes to Condensed Financial Statements.
2
<PAGE>
FRANKLIN CONSOLIDATED MINING CO., INC.
(A Development Stage Enterprise)
CONDENSED STATEMENTS OF OPERATIONS
(Unaudited)
<TABLE>
<CAPTION>
Nine Months Three Months
Ended Sept 30, Ended Sept 30, Cumulative
---------------------------- ---------------------------- from
1997 1996 1997 1996 Inception
------------ ------------ ------------ ------------ -----------
<S> <C> <C> <C> <C> <C>
Revenues:
Sales
$ 876,082
Interest income $ 2,855 476 $ 903 $ -0- 543,742
Other income 75,000
------------ ------------ ------------ ------------ -----------
Totals 2,855 476 903 -0- 1,494,824
------------ ------------ ------------ ------------ -----------
Expenses:
Mine expenses 3,360,793
Write-down of inventories 223,049
Depreciation, depletion and amortization 90,000 91,605 30,000 30,535 2,122,529
General and administrative expenses 419,033 434,570 174,005 157,030 5,449,465
Interest expense 63,776 80,199 5,491 49,441 659,614
Amortization of debt issuance expense 683,047
Equity in net loss of joint venture 11,541 3,150 5,000 1,050 144,761
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 584,350 609,524 214,496 238,056 13,272,388
------------ ------------ ------------ ------------ -----------
Net loss $ (581,495) $ (609,048) $ (213,593) $ (238,056) (11,777,564)
============ ============ ============ ============ ===========
Weighted average shares outstanding 97,989,960 74,993,609 98,879,328 85,463,020
============ ============ ============ ============
Net loss per common share $ (.01) $ (.01) $ ( - ) $ ( - )
============ ============ ============ ============
See Notes to Condensed Financial Statements
</TABLE>
3
<PAGE>
FRANKLIN CONSOLIDATED MINING CO., INC.
(A Development Stage Enterprise)
CONDENSED STATEMENTS OF CASH FLOWS
(Unaudited)
-----------
<TABLE>
<CAPTION>
Nine Months
Ended Sept.30, Cumulative
------------------------------ from
1997 1996 Inception
------------------------------ ------------
<S> <C> <C> <C>
Operating activities:
Net loss $ (581,495) $ (609,048) $(11,777,564)
Adjustments to reconcile net loss to net
cash used in operating activities:
Depreciation and depletion 90,000 91,605 2,122,529
Amortization of debt issuance expense 683,047
Value of common stock issued for:
Services and Interest 75,000 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 g0anted for
services 112,500
Equity in net loss of joint venture 11,541 3,150 144,761
Other
(7,123)
Changes in operating assets and liabilities:
Interest accrued on Mining Reclamation
Bonds (2,855) (4,730)
Other current assets 80,985 (26,994)
Accounts payable and accrued expenses (125,955) 194,970 610,401
------------ ------------ ------------
Net cash used in operating
activities (527,779) (244,323) (5,937,559)
------------ ------------ ------------
Investing activities:
Purchases and additions to mining, milling
and other property and equipment (175,593) (5,120,354)
Purchases of mining reclamation bonds (80,000) (125,000)
Deferred mine development costs and other
expenses (255,319)
------------ ------------ ------------
Net cash used in investing activities - 0 - (255,593) (5,500,673)
------------ ------------ ------------
</TABLE>
4
<PAGE>
FRANKLIN CONSOLIDATED MINING CO., INC.
(A Development Stage Enterprise)
CONDENSED STATEMENTS OF CASH FLOWS
(Unaudited)
-----------
<TABLE>
<CAPTION>
Nine Months
Ended Sept.30, Cumulative
------------------------------ from
1997 1996 Inception
------------------------------ ------------
<S> <C> <C> <C>
Financing activities:
Issuances of common stock $ 63,500 $ 302,600 $ 8,821,757
Issuance of Underwriter's
stock warrants 100
Commissions onsales 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 from joint venture
partner 197,766 258,100 724,054
Repayments of loans from (to)
joint venture partner 266,438 (397,006) 48,187
Payments of debt issuance expenses (164,233)
Proceeds of other notes and loans payable 20,000 768,000
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 $ 527,704 383,694 11,438,284
--------- --------- ------------
Increase (decrease) in cash (75) (116,222) 52
Cash, beginning of period 127 118,176 -0-
--------- --------- ------------
Cash, end of period $ 52 $ 1,954 $ 52
========= ========= ============
Supplemental disclosure of cash flow data:
Interest paid $ -- $ -- $ 298,868
========= ========= ============
</TABLE>
See notes to Condensed Financial Statements
5
<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 September 30,
1997, its results of operations for the nine months and three months ended
September 30, 1997 and 1996 and cash flows for the nine months ended
September 30, 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") previously 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 nine months ended September 30, 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 September 30,
1997, the Company had a cash balance of $52, an accumulated deficit of
approximately $11,778,000, current liabilities of $851,000 and a working
capital deficiency of $824,000, and, as explained in Notes 6 and 7 of the
notes to financial statements in the 10-KSB, 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% convertible
debentures (see Note 3). Certain accounts payable were also past due. In
addition to the payment
6
<PAGE>
FRANKLIN CONSOLIDATED MINING CO., INC.
(A Development Stage Enterprise)
NOTES TO CONDENSED FINANCIAL STATEMENTS
Note 2 - Basis of presentation (continued):
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 the remainder of
1997.
Gems, the Company's Joint Venture partner, has been responsible for
providing the capital resources needed for the commencement of operations
at the Franklin Mine, and the Company has been responsible for obtaining
the remaining capital resources needed for the commencement of operations
at the Gold Hill Mill. During the nine months ended September 30, 1997,
Gems provided the Company with approximately $464,000 of working capital
through the repayment of advances previously made by the Company of
$266,000 and new loans of $198,000. Gems received a substantial portion of
its financing from loans from POS Financial, Inc., which is wholly owned by
William C. Martucci.
On September 25, 1997, the Company entered into a letter of intent with Mr.
Martucci which included provisions for, among other things, the purchase by
the Company of certain non-mining businesses owned or controlled by Mr.
Martucci in exchange for new shares to be issued by the Company that would
give Mr. Martucci ownership of 85% of the issued and outstanding shares of
common stock of the Company immediately after the exchange. The
consummation of the exchange is predicated upon the completion of customary
due diligence, the execution of definitive agreements and the approval of
the stockholders of the Company.
Based on the negotiations related to the final exchange agreements to date,
management of the Company believes that Mr. Martucci will also loan to or
obtain loans for the Company that will enable the Company to pay for all of
its professional fees to be incurred in connection with its public filings
and such other necessary general and administrative expenses to be incurred
during the fourth
7
<PAGE>
FRANKLIN CONSOLIDATED MINING CO., INC.
(A Development Stage Enterprise)
NOTES TO CONDENSED FINANCIAL STATEMENTS
Note 2 - Basis of presentation (continued):
quarter of 1997 and the first quarter of 1998. Management of the Company
also believes that if the exchange is consummated the businesses acquired
will generate sufficient cash flow to enable the Company to continue its
operations through at least October 1, 1998.
Management of the Company, in conjunction with Mr. Martucci, is attempting
to initiate negotiations for the termination of the Zeus Joint Venture with
Gems, its joint venture partner. Pursuant to the proposed terms of the
agreement, the Company's interest in the future profits generated from the
Franklin mines would increase from its current 17.5% to its original 100%
in consideration for the Company's assumption of certain liabilities of the
Zeus Joint Venture and certain liabilities of Gems attributable to mining
operations. In addition, the Company would return its 20% interest in
Newmineco in exchange for its release from its obligation to pay
outstanding notes with a balance of $150,000 or the return of shares of
common stock of the Company with an equal value. As a result of certain
title issues affecting the rights of Newmineco with respect to the
operation of the Mogul Mines, the Company wrote off its $150,000 investment
in Newmineco and the related obligations during the three months ended
September 30, 1997.
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 consummation of the agreements with Mr.
Martucci, the provision of financing by Mr. Martucci and/or the generation
of cash flows by the businesses to be acquired from him, the continued
forbearance of the holders of its secured promissory note and convertible
debentures and, ultimately, the ability of the Franklin Mine and the Gold
Hill Mill to conduct profitable mining and milling operations on a
sustained basis. Management does not believe that the Company will need or
be able to obtain additional financing from Gems pursuant to the Joint
Venture Agreement prior to its termination.
8
<PAGE>
FRANKLIN CONSOLIDATED MINING CO., INC.
(A Development Stage Enterprises)
NOTES TO CONDENSED FINANCIAL STATEMENTS
Note 2 - Basis of presentation (continued):
However, management cannot assure that the Company will be able to
consummate the exchange or loan agreements with Mr. Martucci; terminate the
Joint Venture Agreement; reacquire a 100% interest in the Franklin Mine;
commence operations at and generate positive cash flows from the Franklin
Mine and the Gold Hill Mill; or generate positive cash flows from any
businesses acquired from Mr. Martucci.
Note 3 - Commitments and Contingencies:
Environmental Matters:
As further explained in Note 8 of the notes to financial statements in the
10-KSB, 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 Mines.
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
9
<PAGE>
FRANKLIN CONSOLIDATED MINING CO., INC.
(A Development Stage Enterprise)
NOTES TO CONDENSED FINANCIAL STATEMENTS
Litigation (continued):
c) have valid defenses to all claims. 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. The complaint demanded,
among other things, payment of all principal and interest due.
d) In September, 1997, certain of the Company's 12 1/4% Convertible
Debenture holders instituted an action against the Company for
payment on approximately $42,500 principal amount of its 12 1/4%
Convertible Debentures plus accrued and unpaid interest totaling
approximately $13,000 and other costs and expenses related
thereto. The Company has answered the aforesaid complaint.
Management believes that, to the extent that any of the claims are finally
determined to have merit, the Company will have 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 4 - Stockholders' equity:
Common stock reserved for issuance:
At September 30, 1997, there were 290,000 shares of common stock reserved
for issuance upon the exercise of the principal portion of the 12.25%
convertible debentures.
***
10
<PAGE>
MANAGEMENT'S DISCUSSION AND ANALYSIS
Liquidity and Capital Resources
The Company had no active mining or milling operations during the third
quarter of 1997. Management anticipates that the commencement of such operations
will take place no earlier than the second quarter of 1998.
During the quarter ended, September 30, 1997, Gems & Minerals Corp., the
Company's joint venture partner, loaned the Company approximately $122,000.
These funds were used, among other things, to pay legal and accounting fees in
connection with the Company's public filings and general and administrative
expenses.
As further explained in Note 2 herein, on September 25, 1997, the Company
entered into a letter of intent with William C. Martucci for the purchase of
certain of his owned or controlled businesses in exchange for 85% of the issued
and outstanding shares of common stock of the Company. The consummation of the
exchange is predicated upon the completion of customary due diligence, the
execution of definitive agreements and the approval of the stockholders of the
Company. Management of the Company believes that Mr. Martucci will also loan to
or obtain loans for the Company that will enable the Company to pay for all of
its professional fees to be incurred in connection with it public filings and
such other necessary general and administrative expenses to be incurred during
the fourth quarter of 1997 and the first quarter of 1998. Management also
believes that if the exchange is consummated the businesses acquired will
generate sufficient cash flow to enable the company to continue its operations
through at least October 1, 1998.
Management believes that the ability of the Company to continue its
operations as a going concern will be dependent upon the consummation of the
agreements with Mr. Martucci, the provision of financing by Mr. Martucci and/or
the generation of cash flows by the businesses to be acquired from him, the
continued forbearance of the holders of its secured promissory note and
convertible debentures and, ultimately, the ability of the Franklin Mine and the
Gold Hill Mill to conduct profitable mining and milling operations on a
sustained basis.
11
<PAGE>
Management's Discussion and Analysis
Results of Operations
The Company had a net loss of $213,593 for the three months ended September
30, 1997 as compared to a net loss of $238,056 during the same period in 1996.
This decrease was primarily attributable to an increase in general and
administrative expenses approximating $17,000 and a decrease in interest of
$44,000.
General and administrative expenses were $174,005 for the quarter ended
September 30, 1997 compared with $157,030 during the same period in 1996.
Interest expense was $5,491 during the 1997 third quarter as compared to $49,441
in the same 1996 quarter. The increase in general and administrative expenses
was due to an increase in professional fees and investment banking fees. The
decrease in interest was due to conversion of certain debts to equity.
The Company had a net loss of $581,495 for the nine months ended September
30, 1997 as compared to a net loss of $609,048 during the same period in 1996.
This net decrease was primarily attributable to a decrease in interest expense
of approximately $16,000 and a decrease in general and administrative expenses
approximating $16,000.
General and administrative expenses were $419,033 for the nine months ended
September 30, 1997 compared with $434,570 during the same period in 1996.
Interest expense was $63,776 during the nine months ended September 30, 1997 as
compared to $80,199 during the same period in 1996. Interest expense decreased
due to conversion of certain debts to equity.
12
<PAGE>
Part II
Item 1. Legal Proceedings
In September, 1997, certain of the Company's 12 1/4% Convertible Debenture
holders instituted an action against the Company for payment on approximately
$42,500 principal amount of its 12 1/4% Convertible Debentures (the
"Debentures") plus accrued and unpaid interest totaling approximately $13,000
and other costs and expenses related thereto. The Company has answered the
aforesaid complaint. See Item 3 for further information regarding the
Debentures.
Item 3. Defaults Upon Senior Securities
As of September 30, 1997, the Company continues to be in default with
respect to the payment of $145,000 principal amount of its Debentures and
accrued and unpaid interest as of September 30, 1997 in the amount of
approximately $44,000. The Company has recently been served with a complaint
with respect to its continued default on the payment of approximately $42,500
principal amount of the Debentures (the "Debenture Litigation"). For further
information on this litigation, see Item 1. Legal Proceedings.
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 additional legal proceedings instituted by or on behalf of the debenture
holders not participating in the Debenture Litigation 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 its prior agreements or that the commencement of legal
proceedings will not have a material adverse effect on the Company.
13
<PAGE>
Item 5. Other Information
Martucci Acquisition
On September 25, 1997, the Company entered into a letter of intent with Mr.
William C. Martucci ("Martucci") to acquire (the "Transaction") certain assets
owned or controlled by him which may include all of the outstanding shares of
POS Financial, Inc., a New Jersey corporation ("POS") and certain other entities
owned by him (including, without limitation, U.S. Mining, Inc., a New Jersey
corporation organized primarily for the purpose of advancing monies to the
Company prior to the closing of the Transaction as contemplated by the letter of
intent ("USM")) in exchange for newly issued shares of common stock of the
Company which will equal approximately 85% of the outstanding shares of the
Company at the date of the closing of the Transaction. The consummation of the
Transaction is predicated upon the completion of customary due diligence, the
execution of definitive agreements and the approval of Franklin stockholders.
Additionally, POS agreed to advance or cause to be advanced to the Company
monies sufficient to cover expenses to be incurred with respect the Transaction
in the form of loans to the Company. The Company expects to execute a definitive
agreement outlining the specific terms of its agreements with Mr. Martucci at
which time it will make such information public.
Zeus Joint Venture
Under the terms of the Zeus Joint Venture Agreement entered into between
the Company and Gems & Minerals Corp. ("Gems") in 1993 (as the same has been
amended from time to time, the "Joint Venture Agreement"), Gems agreed to
provide technical and financial support to the Zeus Joint Venture in exchange
for the exclusive use of the assets of the Company related to the Franklin Mine
and Mill. Additionally, Gems has provided additional financial support to assist
the Company in covering its administrative expenses and, therefore, the Company
has remained dependent upon Gems for substantially all of its capital.
In light of recent events, the Company believes that it may not, in the
future, require additional financial support from Gems as it had in the past.
Moreover, upon the consummation of the Transaction, it is likely that the
Company will be able to provide the technical and financial support necessary to
bring the Franklin Mining properties into operation without additional support
of its joint venture partner. Although there can be no assurance that the
Company will successfully consummate the Transaction, the Company, in
conjunction with Mr. Martucci, is attempting to initiate negotiations with Gems
to terminate the Zeus Joint Venture in anticipation thereof. Notwithstanding
such negotiations, as of the date hereof, the Zeus Joint Venture
14
<PAGE>
Agreement remains in effect.
Newmineco
On September 26, 1996, The Company purchased a 20% interest in Newmineco,
LLC ("Newmineco") for $600,000 (the "Purchase Price") payable pursuant to a
convertible promissory note of the Company (the "Mogul Note"). Newmineco
acquired the right to mine (the "Mogul Mine Rights") the property known as the
Mogul Mine. The Company was informed that Newmineco had begun the process of
acquiring a 110 permit for the Mogul Mine (the "Mogul Permit"). The Mogul Mine
is currently operating under a Prospecting Permit pursuant to which the mine may
produce up to 1800 tons on a prospecting/testing basis. As of the date hereof,
approximately 1,000 tons of ore may be removed under this permit.
Effective December, 1996, the Purchase Price was reduced to $150,000 as
certain title issues arose with respect to the Mogul Mine Rights and litigation
had been commenced against certain parties, including the Company, with respect
to such rights. The primary issue regarding the Mogul Mine Rights concerned the
leasehold agreement between Newmineco and Cindy Rugg, et. al. (the "Rugg/Mogul
Lease").
In January, 1997, the Company was informed by Newmineco that certain
breaches had occurred with respect to the Rugg/Mogul Lease and that litigation
had commenced to quiet title to the Mogul Mine which puts at issue the supposed
marketable title that the Ruggs represented they had in the Rugg/Mogul Lease.
Additionally, recent legislation known as "Use by Special Review" passed in
Boulder County, Colorado regulating, among other things, traffic impact issues,
noise abatement and aesthetics of the exterior of mining properties operated in
Boulder County, will create additional time and expense in bringing the Mogul
Mine into operation. Therefore, given the current controversies regarding the
Rugg/Mogul Lease and the rights conferred thereby and the Use by Special Review
legislation, Newmineco has determined that it is not going to perfect the Mogul
Permit or attempt to operate the Mogul Mine in the near future. As a result of
this decision, the Company has reached a verbal agreement with Gems and Colina
Oro Molina, Inc., an affiliate of Gems and holder of the note payable by the
Company in connection with its purchase of the Gold Hill Mill (the "Gold Hill
Note"), to further reduce the principal amount of the Gold Hill Note by $150,000
since the Company had elected, in February, 1997 to convert the Mogul Note (as
hereinafter described).
15
<PAGE>
Mogul Note Conversion
On February 10, 1997, the Company made an election pursuant to the terms of
the Mogul Note to convert all of the principal thereon into common stock of the
Company at a conversion price of $.078 per share. In July, 1997, the Company
caused 7,692,308 shares to be issued in full satisfaction of the Mogul Note.
Hayden/Kennec Leases
The majority of the properties which constitute the Franklin Mines consists
of a 100% leasehold interest in the mineral rights to 28 claims comprising
approximately 322 acres evidenced by a Mining Lease and Option to Purchase,
dated November 12, 1976 (as the same has been amended from time to time, the
"Hayden/Kennec Leases"), between the Company, as lessees and Audrey I. Hayden
("Hayden") and Dorothy Kennec ("Kennec"), as lessors. The Hayden/Kennec Leases
were to expire on or about November 12, 1997. Thus, the future success of the
Company is dependent on its ability to preserve and utilize the mineral rights
leased under the Hayden/Kennec Leases or to otherwise acquire the rights to the
use of such properties and the extraction of the related resources.
To further secure the ability of the Company and the Zeus Joint Venture to
exploit the mineral rights conferred by the Hayden/Kennec Leases, Gems entered
into an agreement on December 21, 1995 to purchase Hayden's interest in the
Hayden/Kennec Leases and her ownership interest in the mining claims subject
thereto (the "Hayden Interests") for a purchase price of $75,000 (as the same
has been subsequently amended from time to time, the "Hayden-Gems Purchase
Agreement"). Gems made an initial payment of $5,000 to Hayden and the remainder
of the purchase price was to be paid on or prior to the expiration date of the
Hayden/Kennec Leases. Gems informed the Company that it believed that with the
acquisition of the Hayden Interest, together with the portion of the
Hayden/Kennec Leases owned by Kennec, the Company and the Zeus Joint Venture
would have adequate access to the minerals during the remainder of the term of
the Hayden/Kennec Leases on a continuing basis even if Kennec should elect not
to renew the lease or sell her interests in the mining rights to the Company as
per the terms of the Hayden/Kennec Leases.
On November 12, 1997, Gems had failed to comply with the terms of the
Hayden-Gems Purchase Agreement. On November 13, 1997, Hayden entered into an
agreement to sell the Hayden Interests to USM for a purchase price of $75,000
(the "Hayden-USM Purchase Agreement"). Upon the execution of the Hayden-USM
Purchase Agreement, USM agreed to extend the Hayden/Kennec Leases upon the same
terms and conditions currently in effect through March 13, 1998 (the "Extended
16
<PAGE>
Expiration Date"). Additionally, the Company has an agreement in principal with
Kennec pursuant to which she will agree to further extend the terms of the
Hayden/Kennec Leases through the Extended Expiration Date. Although there can be
no assurance that the Company will be able to enjoy continued use of the
property covered by the Hayden/Kennec Leases, the Company believes that the
acquisition by USM of the Hayden Interests combined with the eventual
consummation of the Transaction will give the Company adequate access to the
properties to conduct its business as presently contemplated.
Item 6. Exhibits and Reports on Form 8-K
a. Form 8-K - dated 10/20/97
17
<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: November 19, 1997 /s/ Robert J. Levin
-------------------------------------------------
Robert J. Levin
Vice President-Finance
Principal Financial Officer
18
<TABLE> <S> <C>
<ARTICLE> 5
<S> <C>
<PERIOD-TYPE> 9-MOS
<FISCAL-YEAR-END> DEC-31-1997
<PERIOD-START> JAN-01-1997
<PERIOD-END> SEP-30-1997
<CASH> 52
<SECURITIES> 0
<RECEIVABLES> 0
<ALLOWANCES> 0
<INVENTORY> 0
<CURRENT-ASSETS> 27,046
<PP&E> 8,148,308
<DEPRECIATION> 1,927,180
<TOTAL-ASSETS> 6,377,904
<CURRENT-LIABILITIES> 850,694
<BONDS> 0
0
0
<COMMON> 988,793
<OTHER-SE> 3,957,237
<TOTAL-LIABILITY-AND-EQUITY> 6,377,904
<SALES> 0
<TOTAL-REVENUES> 2,855
<CGS> 0
<TOTAL-COSTS> 0
<OTHER-EXPENSES> 520,574
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 63,776
<INCOME-PRETAX> (581,495)
<INCOME-TAX> 0
<INCOME-CONTINUING> 0
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (581,495)
<EPS-PRIMARY> (.01)
<EPS-DILUTED> (.01)
</TABLE>
