U.S. SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-QSB/AMENDED
Quarterly Report Under Section 13 or 15 (d) of
the Securities Exchange Act of 1934
For the Quarter Ended March 31, 1998 Commission File No. 0-9416
WCM CAPITAL, INC.
(FORMALLY 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, 1998 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 COMPANY)
CONDENSED BALANCE SHEETS
(Unaudited)
<TABLE>
<CAPTION>
ASSETS
March 31, December 31,
1998 1997
------------ ------------
<S> <C> <C>
CURRENT ASSETS:
Cash and cash equivalents $ -- $ 1,078
------------ ------------
TOTAL CURRENT ASSETS -- 1,078
Mining, milling and other property and equipment,
net of accumulated depreciation and depletion of
$1,989,655 and $1,959,160 5,394,440 5,424,935
Land - held for resale 345,000 345,000
Mining reclamation bonds 131,661 130,681
------------ ------------
$ 5,871,101 $ 5,901,694
============ ============
LIABILITIES AND STOCKHOLDERS' EQUITY
CURRENT LIABILITIES:
Accounts payable and accrued expenses $ 467,773 $ 367,933
Payroll and other taxes payable 31,181 31,181
Convertible debentures 145,000 145,000
Notes payable - related party and others 167,000 167,000
Note payable - related party 995,773 955,756
------------ ------------
TOTAL CURRENT LIABILITIES 1,806,727 1,666,870
------------ ------------
COMMITMENTS AND CONTINGENCIES
STOCKHOLDERS' EQUITY:
Common stock, par value $.01 per share;
100,000,000 shares authorized; 98,879,328 shares
issued and outstanding 988,793 988,793
Additional paid-in capital 16,350,575 16,350,575
Deficit accumulated during the development stage (13,274,994) (13,104,544)
------------ ------------
4,064,374 4,234,824
------------ ------------
5,871,101 $ 5,901,694
============ ============
</TABLE>
See notes to condensed financial statements.
Franklin Consolidated Mining Co., Inc.
Form 10-QSB/Amended
For Quarter Ended March 31, 1998
(1)
<PAGE>
FRANKLIN CONSOLIDATED MINING CO., INC.
(A DEVELOPMENT STAGE COMPANY)
STATEMENTS OF OPERATIONS
THREE MONTHS ENDED MARCH 31, 1998 AND 1997
AND PERIOD FROM DECEMBER 1, 1976 (INCEPTION)
TO MARCH 31, 1998
(Unaudited)
<TABLE>
<CAPTION>
Cumulative
from
1998 1997 Inception
------------ ------------ ------------
<S> <C> <C> <C>
REVENUES:
Sales $ -- $ -- $ 876,082
Interest income 980 952 545,755
Other income -- -- 75,000
------------ ------------ ------------
980 952 1,496,837
------------ ------------ ------------
EXPENSES:
Mine expenses and environmental remediation costs 12,346 -- 3,536,084
Write-down of mining and milling and other property
and equipment -- -- 1,200,000
Depreciation and depletion 30,495 30,000 2,185,004
General and administrative expenses 101,494 86,018 5,500,279
Interest expense 27,095 37,953 656,268
Amortization of debt issuance expense -- -- 683,047
Equity in net loss and settlement of claims of Joint Venture -- 2,888 591,971
Other -- -- 419,179
------------ ------------ ------------
171,430 156,859 14,771,832
------------ ------------ ------------
NET LOSS $ (170,450) $ (155,907) $(13,274,995)
============ ============ ============
BASIC LOSS PER COMMON SHARE $ -- $ --
============ ============
WEIGHTED AVERAGE SHARES OUTSTANDING 98,879,328 90,583,020
============ ============
</TABLE>
See notes to condensed financial statements.
Franklin Consolidated Mining Co., Inc.
Form 10-QSB/Amended
For Quarter Ended March 31, 1998
(2)
<PAGE>
FRANKLIN CONSOLIDATED MINING CO., INC.
(A DEVELOPMENT STAGE COMPANY)
STATEMENTS OF CASH FLOWS
THREE MONTHS ENDED MARCH 31, 1998 AND 1997
AND PERIOD FROM DECEMBER 1, 1976 (INCEPTION)
TO MARCH 31, 1998
(Unaudited)
<TABLE>
<CAPTION>
Cumulative
from
1998 1997 Inception
------------ ------------ ------------
<S> <C> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
Net loss $ (170,450) $ (155,907) $(13,274,994)
Adjustments to reconcile net loss to net cash used in
operating activities:
Depreciation and depletion 30,495 30,000 2,185,004
Write-down of mining and milling and other
property and equipment -- -- 1,200,000
Amortization of debt issuance expense -- -- 683,047
Value of common stock issued for:
Services and interest -- -- 1,338,714
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 -- 2,888 123,971
Other -- -- (7,123)
Changes in operating assets and liabilities:
Prepaid expenses -- 26,995 --
Interest accrued on mining reclamation bonds (980) (952) (6,661)
Accounts payable and accrued expenses 99,840 371 731,210
------------ ------------ ------------
NET CASH USED IN OPERATING ACTIVITIES (41,095) (96,605) (6,034,432)
------------ ------------ ------------
CASH FLOWS FROM INVESTING ACTIVITIES:
Purchases and additions to mining, milling and other
property and equipment -- -- (5,120,354)
Purchases of mining reclamation bonds, net -- -- (125,000)
Deferred mine development costs and other expenses -- -- (255,319)
------------ ------------ ------------
NET CASH USED IN INVESTING ACTIVITIES -- -- (5,500,673)
------------ ------------ ------------
CASH FLOWS FROM FINANCING ACTIVITIES:
Issuances of common stock -- -- 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 -- -- 1,505,000
Proceeds of advances from joint venture partner -- -- 526,288
Advances to joint venture partner -- 101,021 (181,017)
Payments of debt issuance expenses -- -- (164,233)
Proceeds of other notes and loans payable 40,017 -- 1,355,291
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 40,017 101,021 11,535,105
------------ ------------ ------------
</TABLE>
(Continued)
See notes to condensed financial statements.
Franklin Consolidated Mining Co., Inc.
Form 10-QSB/Amended
For Quarter Ended March 31, 1998
(3)
<PAGE>
FRANKLIN CONSOLIDATED MINING CO., INC.
(A DEVELOPMENT STAGE COMPANY)
STATEMENTS OF CASH FLOWS
THREE MONTHS ENDED MARCH 31, 1998 AND 1997
AND PERIOD FROM DECEMBER 1, 1976 (INCEPTION)
TO MARCH 31, 1998
(Unaudited)
Cumulative
from
1998 1997 Inception
-------- ------- ---------
INCREASE (DECREASE) IN CASH $ (1,078) $ 4,416 $ --
CASH - beginning of period 1,078 127 --
-------- ------- ---------
CASH - end of period $ -- $ 4,543 $ --
======== ======= =========
SUPPLEMENTAL DISCLOSURE OF CASH FLOW DATA:
Interest paid $ 3,889 $ -- $ 303,758
======== ======= =========
See notes to condensed financial statements.
Franklin Consolidated Mining Co., Inc.
Form 10-QSB/Amended
For Quarter Ended March 31, 1998
(4)
<PAGE>
FRANKLIN CONSOLIDATED MINING CO., INC.
(A DEVELOPMENT STAGE ENTERPRISE)
NOTES TO CONDENSED FINANCIAL STATEMENTS
MARCH 31, 1998
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,
1998, and its results of operations and cash flows for the three months
ended March 31, 1998 and 1997. Information included in the condensed
balance sheet as of December 31, 1997 has been derived from the audited
balance sheet in the Company's Annual Report on Form 10-KSB for the year
ended December 31, 1997 (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, 1998 are not
necessarily indicative of the results of operations for the full year
ending December 31, 1998.
Prior years financial statements have been reclassified to conform with the
current year presentation.
NOTE 2 - BASIS OF PRESENTATION
The accompanying financial statements have been prepared assuming the
Company will continue as a going concern. However, the Company has had
recurring losses and cash flow deficiencies since inception. As at March
31, 1998, the Company has an accumulated deficit of $13,274,994, current
liabilities of $1,806,727, and a working capital deficiency of $1,806,727.
Also, the Company was in default on the payment of the principal balance
and accrued interest on certain notes and debentures. Certain accounts
payable also were past due, and the Company has possible permit and other
violations. 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
$20,000 per month plus interest during 1998. Such matters raise substantial
doubt about the Company's ability to continue as a going concern. The
financial statements do not include any adjustments that may result from
the outcome of the above uncertainty.
U.S. Mining Co. and its affiliates have pledged to provide financing to the
Company on an as needed basis until on or about January 1, 1999. The funds
received from USM and its affiliates will cover the general, administrative
and other costs approximated at $20,000 per month plus interest. Additional
monies raised from USM will help finance $750,000 of funds the Company
estimates will be needed to ready the Franklin Mine and Milling properties
for the commencement of extraction and milling. Additional funds will be
needed to support the extraction and milling processes once underway as
well as to upgrade the processing facilities to allow for an increase in
ore processing capacity.
There can be no assurance that the Company will have adequate funds
available to repay the funds advanced by USM and its affiliates. In the
event that the Company defaults on its obligations, USM may foreclose on
the assets secured by the POS note. Such foreclosure actions by USM would
have a material adverse effect on the future operations of the Company and
the Company's ability to explore the Franklin Mines.
Substantially all of the $5,424,935 of mineral properties and equipment
included in the accompanying balance sheet as of March 31, 1998, is related
to exploration properties. The ultimate realization of the Company's
investment in exploration properties and equipment is dependent upon the
success of future property sales, the existence of economically recoverable
reserves, the ability of the Company to obtain financing or make other
arrangements for development, and upon future profitable production.
Franklin Consolidated Mining Co., Inc.
Form 10-QSB/Amended
For Quarter Ended March 31, 1998
(5)
<PAGE>
FRANKLIN CONSOLIDATED MINING CO., INC.
(A DEVELOPMENT STAGE ENTERPRISE)
NOTES TO CONDENSED FINANCIAL STATEMENTS
MARCH 31, 1998
NOTE 3 - NOTES PAYABLE RELATED PARTY AND OTHERS
Notes payable related party and others consist of the following at March
31, 1998:
12% unsecured demand note due to an affiliate of the
Company's President $ 20,000
Secured promissory note (a) 60,000
Unsecured promissory notes (b) 87,000
--------
$167,000
========
(a) The outstanding principal balance of the note became payable on July
18, 1996 and the Company is in default. The note is guaranteed by
certain officers of Gems and is collateralized through a subordinated
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.
(b) This principal amount represents four unsecured promissory notes
comprised of one $36,000 note and three $17,000 notes payable. These
obligations were assumed by the Company on November 25, 1997, as part
of the acquisition from USM of the remaining interest in the Joint
Venture. These notes were in default when assumed by the Company, and
remain in default as of March 31, 1998. Interest is being accrued at
rates between 8% and 17% per annum.
Accrued interest on the above notes at March 31, 1998 aggregated
approximately $28,000, including $4,344 payable to the Company's
President.
NOTE 4 - CONVERTIBLE DEBENTURES
The Company's convertible debt at March 31, 1998 consist of:
12.25% convertible debenture originally due 12/31/94 $145,000
As of March 31, 1998, the Company was in default with respect to the
payment of the $145,000 principal balance of the debenture and accrued
interest of approximately $53,000. As a result of its default, the Company
may be subject to legal proceedings by the Transfer Agent/Trustee under the
Indenture Agreement or from debenture holders seeking immediate repayment
of principal plus interest and other costs. Management cannot assure that
there will be funds available for the required payments or what the effects
will be of any actions brought by or on behalf of the debenture holders.
NOTE 5 - NOTE PAYABLE - RELATED PARTY
The Company had outstanding a 8% promissory note balance of $995,773, at
March 31, 1998, which represents monies advanced to the Company by POS
Financial, Inc. ("POS"), and U.S. Mining, Inc. ("USM") and obligations
assumed in connection with the contributions of Joint Venture interests in
1997. The note is payable on May 4, 1998, and is secured by all the
Company's mining claims and mining properties, as well as its interests in
the Hayden/Kennec Leases. The note is subject to successive 30 day
extensions throughout 1998 upon the mutual agreement of the maker and
lender for no additional consideration. On March 5, 1998, POS assigned this
note to USM. Both POS and USM are considered related parties because they
can exert significant influence over the Company. Accrued interest at March
31, 1998 was approximately $27,000.
Franklin Consolidated Mining Co., Inc.
Form 10-QSB/Amended
For Quarter Ended March 31, 1998
(6)
<PAGE>
FRANKLIN CONSOLIDATED MINING CO., INC.
(A DEVELOPMENT STAGE ENTERPRISE)
NOTES TO CONDENSED FINANCIAL STATEMENTS
MARCH 31, 1998
NOTE 6 - COMMITMENTS AND CONTINGENCIES
Lease Agreements
The original Hayden/Kennec Leases provided for payment by the Company of
certain liabilities relating to the leased property and a minimum royalty
payment of $2,000 per month or 5% of the Company's net smelter royalties
realized from production, whichever is greater to Mrs. Hayden and Mrs.
Kennec. The original Hayden/Kennec Leases expired in November 1996, at
which time the Company had the option to purchase the leasehold rights for
a purchase price of $1,250,000 less any royalties previously paid as of the
expiration date. As of November 1996, the Company had paid approximately
$480,000 in royalties.
On November 19, 1996, the Company entered into an amendment to the
Hayden/Kennec Leases with Dorothy Kennec (the "Kennec Amendment"). Pursuant
to the terms of the Kennec Amendment, Kennec agreed to extend the term as
it relates to her portion of the leasehold rights through November 12,
1997. In consideration for such extension, the Company agreed to increase
the royalty payment due to Kennec under the original Hayden/Kennec Leases
from $1,000 to $2,000 per month and to issue to Kennec 104,000 shares of
the common stock of the Company valued at $.125 per share, having an
aggregate value of $13,000. All of the payments made under the Kennec
Amendment plus the value of the shares issued thereunder are to be further
applied against the buy-out price of the property under the original
Hayden/Kennec Leases. The 104,000 shares of common stock were issued on
April 9, 1997.
To further secure the Company and the Joint Venture, Gems entered into an
agreement on December 21, 1995 to purchase Hayden's interest thereto (the
"Hayden Interests") for a purchase price of $75,000. 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 advised the Company that under Colorado law, if an owner of 50% of
mineral rights desired to exploit those rights, then the remaining 50%
owner could not object to the exploitation of the rights, provided the
non-participating owner received 50% of the net profits generated from such
exploitation. Therefore, 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 Joint Venture
would have adequate access to the minerals during the remainder of the term
of the Hayden/Kennec Leases on a continuing basis.
On November 12, 1997, Gems had failed to comply with the terms of the
Hayden/Kennec-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"). The purchase price is
evidenced by a note, due on February 2, 1998. Payment on the note has been
extended until USM receives a report of clear title. 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 Expiration Date"). The Company is currently in
negotiations to extend these interests.
While the Company has extended the term of the Hayden/Kennec Leases, as
amended through March 13, 1998, in the event that it shall expire or
otherwise terminate, any improvements made on the property become the
property of the lessor without any further compensation to the Company and
the lessor would have to reclaim the property in accordance with the State
of Colorado Division of Minerals and Geology (the "DMG") requirements in
effect at the time of such expiration or termination. Thus, the likelihood
that the Company would recover fixtures and other equipment on the property
may be minimal.
Franklin Consolidated Mining Co., Inc.
Form 10-QSB/Amended
For Quarter Ended March 31, 1998
(7)
<PAGE>
FRANKLIN CONSOLIDATED MINING CO., INC.
(A DEVELOPMENT STAGE ENTERPRISE)
NOTES TO CONDENSED FINANCIAL STATEMENTS
MARCH 31, 1998
NOTE 6 - COMMITMENTS AND CONTINGENCIES (Continued)
Environmental Matters
On January 31, 1997, the Company received approval from the DMG of its
March 6, 1996 amended application to its permit by obtaining the $252,000
bond required by the DMG from an independent bonding company in exchange
for (i) the deposit by the Company of $125,000 in a trust account
maintained for the benefit of the bonding company, (ii) guarantees from the
Joint Venture partner and certain of its principals and (iii) 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,
management believes that substantially all of the necessary environmental
and regulatory approvals have been obtained from DMG.
The amended permit required among other things 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.
As of March 31, 1998, the Company has no formal violations against it with
respect to the Franklin Mines and Franklin Mill. However, there can be no
assurance that the Company will be able to adequately comply with the
conditions set forth in its permit approval or that future violations will
not arise and that such violations will not lead to interruptions in
operations at the Franklin Mines or Franklin Mill.
Litigation
The Company is involved in various litigation as explained below:
(a) The Company 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. An accrued liability of
$35,000 which the Company estimates to be its portion of the total
claim has been recorded in the accompanying financial statements.
(b) In September 1997, certain of the Company's 12.25% Convertible
Debenture holders instituted an action against the Company for payment
of approximately $42,500 principal amount of its 12.25% 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.
An unfavorable resolution of these matters could result in material
liabilities or charges that have not been reflected in the
accompanying financial statements.
NASDAQ Notification
In 1996, the Securities and Exchange Commission approved certain amendments
to the listing requirements for continued listing on the NASDAQ Small-Cap
Market. On February 27, 1998, subsequent to the balance sheet date, the
Company received a notification letter from NASDAQ informing the Company
that as of that date, the Company's common stock is not in compliance with
the new minimum bid price requirement of $1.00 which became effective on
February 23, 1998. The review of the Company's common stock price was based
upon the price data covering the previous 30 consecutive trade dates. The
Company has been given 90 calendar days, expiring May 28, 1998, in order to
regain compliance. The Company would be able to regain compliance if its
common stock trades at or above the minimum requirement of $1.00 for at
least 10 consecutive trade days. In the event that the Company's common
stock does not regain compliance within the 90 day period, NASDAQ has
advised the Company that it will issue a delisting letter which will
identify the review procedures available to the Company.
Franklin Consolidated Mining Co., Inc.
Form 10-QSB/Amended
For Quarter Ended March 31, 1998
(8)
<PAGE>
FRANKLIN CONSOLIDATED MINING CO., INC.
(A DEVELOPMENT STAGE ENTERPRISE)
NOTES TO CONDENSED FINANCIAL STATEMENTS
MARCH 31, 1998
NOTE 6 - COMMITMENTS AND CONTINGENCIES (Continued)
Management believes that it is unlikely, given past trends, that the
Company's common stock will sustain a minimum bid price of $1.00 or more
for 10 consecutive trade days between now and May 28, 1998. Thus, it is
likely that the Company will receive formal delisting notification and that
the Company's common stock will no longer be listed for trading on the
NASDAQ Small Cap Market. However, management believes that the Company's
common stock will qualify for trading on the Over-The-Counter/Bulletin
Board ("OTC") market and the Company will make every effort to include its
common stock on the OTC in the likely event of a delisting by NASDAQ.
The Company is unable to determine the effect, if any, a delisting by
NASDAQ would have on the Company's ability to obtain additional equity or
debt financing.
Franklin Consolidated Mining Co., Inc.
Form 10-QSB/Amended
For Quarter Ended March 31, 1998
(9)
<PAGE>
MANAGEMENT'S DISCUSSION AND ANALYSIS
Liquidity and Capital Resources
The Company had no active mining or milling operations during the first quarter
of 1998, 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.
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 and interest, at the rate of approximately
$20,000 per month for the remainder of 1998.
U.S. Mining Co. and its affiliates have verbally pledged to provide financing to
the Company on an as needed basis until on or about January 1, 1999. The Company
cannot assure, however, that USM will fulfill its commitment to fund the
Company's operations through January 1999. The funds received from USM and its
affiliates will cover the general, administrative and other costs approximated
at $20,000 per month plus interest. Additional monies raised from USM will help
finance $750,000 of funds the Company estimates will be needed to ready the
Franklin Mine and Milling properties for the commencement of extraction and
milling. Additional funds will be needed to support the extraction and milling
processes once underway as well as to upgrade the processing facilities to allow
for an increase in ore processing capacity.
There can be no assurance that the Company will have adequate funds available to
repay the funds advanced by USM and its affiliates or that USM will fulfill its
obligations to fund the Company through January 1999. In the event that the
Company defaults on its obligations, USM may foreclose on the assets secured by
the POS note. Such foreclosure actions by USM would have a material adverse
effect on the future operations of the Company and the Company's ability to
explore the Franklin Mines.
Results of Operations:
Three months ended March 31, 1998 and 1997
The Company had no active mining or milling operations during the quarters ended
March 31, 1998 and 1997.
The Company had a net loss of $171,431 for the three months ended March 31, 1998
as compared to a net loss of $155,907 during the same period in 1997. The loss
in 1998 was higher due to higher general and administrative costs $15,476 and
the assumption of $12,346 of mine expenses and environmental remediation costs
which, during the three months ended March 31, 1997, had been paid by the Zeus
joint venture.
General and administrative expenses were $101,494 for the first quarter 1998
compared with $86,018 during the same period in 1997. This increase was due to
an increase in professional fees associated with ongoing litigation, and SEC
reporting and compliance.
Interest income was $980 for the three months ended March 31, 1998 compared with
$952 during the same period in 1997. Interest expense was $27,096 during the
1998 quarter as compared to $37,953 in the 1997 quarter. This decrease was due
to interest incurred on notes in connection with the Gold Hill Mill and
Newmineco acquisitions in 1997 but not during 1998.
Three months ended March 31, 1997 and 1996
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 $84,018 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.
Franklin Consolidated Mining Co., Inc.
Form 10-QSB/Amended
For Quarter Ended March 31, 1998
(10)
<PAGE>
PART II
Item 1. Legal Proceedings
Convertible Debentures
On June 1, 1994, the Company advised the Transfer Agent/Trustee that the
Company was not in compliance with certain of the terms of the indenture
(the "Indenture") relating to the Company's 12-1/4% Convertible Debentures
(the "Debentures") in that it had not maintained current filings with the
Securities and Exchange Commission (the "Commission") as required.
Accordingly, the Transfer Agent/Trustee was instructed not to convert any
of the Debentures into Common Stock of the Company until such time as the
Company notified the Transfer Agent. The Company failed to make required
sinking fund payments in 1994 and was unable to pay the principal balance
of the Debentures due on December 31, 1994 resulting in a default under the
terms of the Indenture.
Although the Company was in default, it agreed to continue to make
quarterly interest payments to the Debenture Holders during fiscal year
1995 until such time as the principal amount of the Debentures could be
paid in full. It was anticipated that the Company would have the funds
available to make such payments by December 31, 1995. The Company made the
first quarterly interest payment due on the Debentures in 1995 but has
failed to make any additional payments with respect to such interest as of
the date hereof.
In December 1995, the Company sent notices to the debenture holders
requesting their consent to extend the maturity date of the Debentures to
December 31, 1996. It was also contemplated that the conversion rights of
such holders would also be extended at its current rate of $.50 per share.
The Company also agreed that it would bring current all interest payments
due and owing to such holders through December 31, 1995, prepay interest
which will become due and owing at the end of the first quarter of 1996 and
set up a fund with the Transfer Agent/Trustee to secure the timely payment
of the principal amount of the Debentures on December 31, 1996. The Company
set February 15, 1996 as the date upon which all Debenture Holders had to
submit their consent forms to the Company indicating whether they agreed to
extend the maturity date as to their bonds or reject such proposal. Any
holder which failed to return a consent form within the prescribed time was
to be treated as having consented to the extension. As of the February 15,
1996, the Company received a negative response from one holder owning
$1,000 principal amount of Debentures.
While the Company intended to comply with the terms of its agreements with
the holders of the Debentures, a series of unforeseen circumstances
relating to the Company's permits and reclamation bond caused a cash flow
shortage. As a result the Company has been unable to make the payments
described above. Management is hopeful that the Company's limited cash flow
will improve in the near future and at such time intends to comply with the
terms of its December 1995 agreements. As of March 31, 1998, the accrued
and unpaid interest on the Debentures is approximately $53,000.
On January 17, 1997, the Company received a letter from counsel to James E.
Hopis, Revocable Trust, a holder of $5000 of Debentures of the Company
demanding payment of such bond immediately or legal action will be taken
against the Company to collect on such Debenture. In September, 1997,
certain of the Company's 12-1/4% Convertible Debenture holders, including
the Hopis Trust (the "Plaintiff Debenture holders") instituted an action in
the Supreme Court of the State of New York against the Company for payment
on approximately $42,500 principal amount of Debentures plus accrued and
unpaid interest totaling approximately $13,000 and other costs and expenses
related thereto. The Company has answered the aforesaid complaint.
Thereafter, the Plaintiff Debenture holders moved for summary judgment
against the Company. The Company chose not to oppose the motion and a
default judgment was entered against the Company in the amount of $42,500
plus interest, costs and disbursements (the "Judgment"). Moreover, the
issue of attorney's fees were severed from the case and all to be set down
for an inquest.
Franklin Consolidated Mining Co., Inc.
Form 10-QSB/Amended
For Quarter Ended March 31, 1998
(11)
<PAGE>
Item 1. Legal Proceedings (Continued)
In February, 1998, USM entered into an agreement with the Plaintiff
Debenture holders agreeing to pay the Judgement plus certain additional
costs in the event that the Company fails to pay the Judgment and USM
consummates the Transaction with the Company. In the event that USM does
not consummate the Transaction by July 12, 1998, USM agreed to pay the
Plaintiff Debenture holders $5,100 for their agreement not to enter the
Judgment against the Company or pursue the inquest. Plaintiff Debenture
holders have agreed not to enter the Judgment against the Company until
July 12, 1998 or until USM notifies them that it will not pursue the
Transaction.
As of the date hereof, the Company is not aware of any termination or
modification of the Agreement and believes it is in full force and effect.
However, there can be no assurance that USM will not terminate this
Agreement or that the Agreement will expire; the result of which will be
the entering of the Judgement against the Company and a possible inquest as
to the Company's liability regarding attorney's fees.
The continued default and failure to comply with the 1994 and December 1995
agreements may result in Company being subject to additional legal
proceedings by the Transfer Agent/Trustee under the Indenture or from other
holders seeking immediate payment of the $102,500 plus related interest and
penalties. While the Company hopes to cure the default or, in the
alternative, reach an acceptable settlement arrangement with the holders,
there can be no assurance that the funds will be available in the future to
meet all of the Company's obligations. Management remains hopeful that
payment or, in the alternative, commencement of settlement negotiations,
will delay the commencement of any legal action until the Company can make
the appropriate arrangements to repay the Debenture holders.
Golder Litigation
On or about February 5, 1996, Bradley, Campbell, Carney & Madsen, P.C.,
Colorado counsel to the Company, Gems, Zeus and Newmineco ("BCCM") entered
into a contract with Golder Associates, Inc. ("Golder"), pursuant to which
Golder agreed to perform certain services at the Mogul Mine pertaining to
environmental issues, including, but not limited to, (a) reviewing surface
and groundwater quality and compliance standards, (b) reviewing 110
permitting requirements, applications and responses, (c) reviewing certain
environmental plans relating to the Mogul Mine and (d) assessing water
discharge requirements and dispensing advice with respect to water
discharge and surface spring outflow management and mitigation of poor
drainage quality (the "Mogul Tunnel Contract"). At the time of the Mogul
Tunnel Contract, BCCM allegedly entered into said contract as an agent of
Durango, the lessee of the Mogul Mine at that time.
On or about February 5, 1996, BCCM entered into a second contract with
Golder, pursuant to which Golder agreed to perform certain services at the
Franklin Mines and Franklin Mill pertaining to environmental issues,
including, but not limited to, (a) phase 1 site assessment, (b) preliminary
regulatory and permit review, (c) engineering site inspections, (d) designs
for surface water management at the ore handling facility, (e) technical
memorandum on alternatives for the extension of #5 tailings pond, (f)
assistance in negotiation with the DMG and (g) recommendations for bulk ore
sampling and mineralogical testing at the Franklin Mines (the "Franklin
Mine Contract"). At the time of the Franklin Mines Contract, BCCM allegedly
entered into said contract as an agent of the Zeus Joint Venture.
On or about August 23, 1996, Gems executed a note to Golder in the
aggregate principal amount of $268,683.75 and a note to BCCM in the
aggregate principal amount of $109,785.35 to secure legal and engineering
fees outstanding as of such date. Each note was due and payable on or
before December 23, 1996 and bears interest at a rate of 6% per annum. In
the event that the payments of principal and interest under the notes were
not paid when due, all principal and interest will accrue additional
interest at a rate of 10% per annum. The notes were secured by a pledge of
approximately 3,600,000 shares of Common Stock of the Company owned by
Gems, pursuant to a Security Agreement, dated August 23, 1996. Any default
under the notes constituted an event of default under the Security
Agreement. Gems failed to make the required payments as of December 23,
1996.
Franklin Consolidated Mining Co., Inc.
Form 10-QSB/Amended
For Quarter Ended March 31, 1998
(12)
<PAGE>
Item 1. Legal Proceedings (Continued)
On or about January 28, 1997, Golder commenced an action against BCCM,
Zeus, the Company, Gems, Island, and Durango in the United States District
Court of the District of Colorado to recover sums due and owing from the
Defendants for breach of contract, breach of implied warranty,
misrepresentation, negligent misrepresentation, default under the Golder
note and quantum merit arising out of each of the Mogul Tunnel Contract and
the Franklin Mine Contract. The Company is a named defendant to this
litigation by virtue of its general partnership interest in Zeus, it being
joint and severally liable with Gems and Nuco as general partners in the
Joint Venture.
The aggregate amount of the Golder claims are approximately $281,670.99
plus prejudgment and post judgment interest, costs and expenses (including
attorney's fees) and any additional relief granted by the court,
$124,159.87, exclusive of interest and other costs and expenses, of which
is attributable to the Mogul Tunnel Contract and $157,511.12, exclusive of
interest and other costs and expenses, of which is attributable to the
Franklin Mines Contract.
On or about March 12, 1997, BCCM filed a motion to dismiss counts III, IV,
and V of the Complaint relating to the breach of warranty,
misrepresentation and negligent misrepresentation arguing that these claims
were pled in the alternative and only become viable in the event other
defendants in the case deny BCCM authority to enter into the subject
contracts. Also on March 12, 1996, Zeus, the Company, Island and Gems moved
to dismiss or stay proceedings pending arbitration arguing that arbitration
clauses in the subject contract require the captioned action to be
submitted to arbitration. However, Durango filed a separate answer to the
Complaint denying that BCCM had any authority to enter into any contract on
behalf of Durango and denying that Durango ratified any exercise of such
authority. Therefore, on or about March 27, 1997, Golder moved to file an
amended complaint to clarify its position that the claims against Durango
are also asserted against the Franklin Defendants. The Company has not
received a copy of such complaint to date. Notwithstanding, the parties, on
April 4, 1997, executed a stipulation agreeing to arbitration on all issues
concerning the subject contracts but excluding issues relating to the note
and security agreement.
The Company is currently engaged in settlement negotiations with the
parties in hopes of resolving this dispute and has an agreement in
principal with all of the parties. However, there can be no assurance that
final settlement agreements will be executed or that the Company will be
successful should this matter proceed to arbitration. The Company estimates
that its portion of the liability in this matter is approximately $35,000
in the event that the settlement should be consummated.
Environmental Matters
As of the date hereof, the Company has no violations against it with
respect to the Franklin Mines and Franklin Mill. While there are no
outstanding violations against the Company at this time, there can be no
assurance that the Company will be able to adequately comply with the
conditions set forth in its permit approval or that future violations will
not arise and that such violations will not lead to interruptions in
operations at the Franklin Mines or Franklin Mill. For further information
regarding the Permits, see Item I, Business of the Company - Operations at
the Company's Mining Properties.
Durango Litigation
On or about February 1, 1996, Newmineco, Island, Gems and Zeus entered into
a series of Transactions with Durango, Thames Hartley, the president of
Durango ("Hartley") and J. Wayne Tatman ("Tatman"), an agent of Durango and
Hartley and president of Consolidated Milling, Inc. ("Consolidated
Milling") to develop certain mining properties, including the Mogul Mines.
For further information, see Item 1, Business of the Company-Newmineco. On
or about March 1996, Island acquired the Rugg/Mogul Lease through a
Novation Agreement. The Rugg/Mogul Lease was then renegotiated and assigned
to Newmineco. Thereafter, Island and Gems notified the Company that Tatman,
Hartley and Durango and certain other parties to the Newmineco venture
breached their agreements and as a result, Island terminated certain
venture agreements involving these persons. Island thereafter assigned its
interest in Newmineco to Gems. For more information on the status of the
Rugg/Mogul Leases, see Item 2. Properties Rugg/Mogul Leases; For more
information on the relationship of the parties, see Item 1.
Business-Operations at the Company's Mining Properties.
Franklin Consolidated Mining Co., Inc.
Form 10-QSB/Amended
For Quarter Ended March 31, 1998
(13)
<PAGE>
Item 1. Legal Proceedings (Continued)
In June, 1996, Durango and/or Hartley served a series of Notices of Intent
to Lien properties owned or leased by each of Gems, Island and the Company,
including the Gold Hill Mill. Thereafter, on or about October 15, 1996,
James A. Wood and David C. Sutton, each the owner of claims located on the
properties comprising the Mogul Mines (the "Delaware Claims" and the
"Bonanza Claims", respectively) and Durango, as the proported lessee of
such claims, commenced an action in District Court, Boulder County,
Colorado, against the Ruggs, Island, Newmineco, the Company and any other
unknown parties of interest to quiet title to each of the Delaware Claim
and Bonanza Claims (hereinafter the "Disputed Claims"). The complaint
further alleges that the defendants have removed ore mined from the
Disputed Claims and that, as a result of trespass and conversion of certain
equipment of Plaintiff Durango, plaintiffs have been further damaged in the
amount of approximately $800,000. In addition to the actions for quiet
title and for the adjudication of the ownership of the disputed Claims,
Plaintiffs requisite damages for conversion of Plaintiff Durango's
equipment, seeks a full accounting of the ore removed from the premises and
request all other damages, costs and expenses, including attorney's fees
incurred with respect to this dispute.
The Company, as well as its co-defendants, retained local Colorado counsel
and intend to rigorously defend this action while there are motions pending
regarding the sufficiency of the defendant's pleadings, no decision has
been made regarding such motions and no trial has yet been scheduled. In
addition, on or about October 30, 1996, each of Com, Inc., the previous
owner of the Gold Hill Mill, Gems, Island, the Company, Hayden and Kennec
commenced an action against each of Durango, Hartley, Consolidated Milling
and Tatman in District Court, Boulder Country, Colorado relating to the
Company's properties in Boulder County claiming, among other things, that
(i) all liens be removed from the public record, (ii) damages were incurred
for the filing of excessive liens, together with costs and expenses,
including reasonable attorney's fees incurred in connection therewith,
(iii) breach of contract with respect to the Newmineco venture agreement,
(iv) damages incurred for loss of business opportunities and interference
with plaintiff's contractual relationships and (v) defendants slandered
plaintiffs title to property causing them damages. A similar complaint was
also filed in Clear Creek County with respect to liens filed against the
Company's properties in Clear Creek County. No counterclaims have been
asserted against any of the Plaintiffs. As a result of recent motions filed
on behalf of the Company in the Boulder County action, an order was entered
by the Court in 1997, to discharge all liens filed against the Company's
properties. The Company has been advised that the Court is expected to
enter this order shortly and such order will thereafter be recorded to
remove the subject liens. The Clear Creek County Court has executed an
order removing the liens against the Company's Clear Creek County
properties and the Company has been advised by local counsel that such
order is being filed with the Clear Creek County to remove the liens from
the record. Issues concerning damages suffered and defendants liability
with respect thereto in each of the actions are to litigated. No trial
dates have been set at this time.
NASDAQ Delisting
In 1996, the Commission approved certain amendments to the requirements for
continued listing on the NASDAQ Small-Cap Market. On February 27, 1998, the
Company received a notification letter from NASDAQ informing the Company
that the Company's Common Stock was not in compliance with the new minimum
bid price requirement of $1.00 which became effective on February 23, 1998.
The review of the Company's Common Stock price was based upon the price
data covering the previous 30 consecutive trade dates prior to
notification. The Company has been given 90 calendar days, expiring May 28,
1998, in order to regain compliance. The Company would come into compliance
in the event that its Common Stock trades at or above the minimum
requirement of $1.00 for at least 10 consecutive trade days prior to May
28, 1998. In the event that the Company's Common Stock does not regain
compliance within the 90 day period, NASDAQ will issue to the Company a
formal delisting letter which will identify the review procedures available
to it should the Company wish to contest the delisting of its Common Stock.
Franklin Consolidated Mining Co., Inc.
Form 10-QSB/Amended
For Quarter Ended March 31, 1998
(14)
<PAGE>
Item 1. Legal Proceedings (Continued)
Management believes that it is unlikely, given past trends, that the
Company's Common Stock will sustain trading at minimum bid price of $1.00
or more for 10 consecutive trade days between now and May 28, 1998. Thus,
it is likely that the Company will receive formal delisting notification
and that the Company's Common Stock will no longer be listed for trading on
the NASDAQ Small Cap Market. However, Management is hopeful that the
Company's Common Stock will qualify for trading on the
Over-The-Counter/Bulletin Board ("OTC") market and the Company will make
every effort to include its Common Stock on the OTC in the likely event of
a delisting by NASDAQ.
In the event that the Company's Common Stock is traded on the OTC, it may
become subject to the "penny stock" trading rules. The penny stock trading
rules impose additional duties and responsibilities upon broker-dealers
recommends the purchase of a penny stock (by a purchaser that is not an
accredited investor as defined by Rule 501(a) promulgated by the Commission
under the Securities Act) or the sale of a penny stock. Among such duties
and responsibilities, with respect to a purchaser who has not previously
had an established account with the broker-dealer, the broker-dealer is
required to (i) obtain information concerning the purchaser's financial
situation, investment experience, and investment objectives, (ii) make a
reasonable determination that transactions in the penny stock are suitable
for the purchaser and the purchaser (or his independent adviser in such
transactions) has sufficient knowledge and experience in financial matters
and may be reasonably capable of evaluating the risks of such transactions,
followed by receipt of a manually signed written statement which sets forth
the basis for such determination and which informs the purchaser that its
unlawful to effectuate a transaction in the penny stock without first
obtaining a written agreement to the transaction. Furthermore, until the
purchaser becomes an established customer (i.e., having had an account with
the dealer for at least one year or, the dealer had effected three sales or
more of penny stocks on three or more different days involving three or
more different issuers), the broker-dealer must obtain from the purchaser a
written agreement to purchase the penny stock which sets forth the identity
and number of shares of units of the security to be purchased prior to
confirmation of the purchase. A dealer is obligated to provide certain
information disclosures to the purchaser of penny stock, including (i) a
generic risk disclosure document which is required to be delivered to the
purchaser before the initial transaction in a penny stock, (ii) a
transaction-related disclosure prior to effecting a transaction in the
penny stock (i.e., confirmation of the transaction) containing bid and
asked information related to the penny stock and the dealer's and
salesperson's compensation (i.e., commissions, commission equivalents,
markups and markdowns) connection with the transaction, and (iii) the
purchaser-customer must be furnished account statements, generally on a
monthly basis, which include prescribed information relating to market and
price information concerning the penny stocks held in the customer's
account. The penny stock trading rules do not apply to those transactions
in which the broker-dealer or salesperson does not make any purchase or
sale recommendation to the purchaser or seller of the penny stock.
Required compliance with the penny stock trading rules affect or will
affect the ability to resell the Common Stock by a holder principally
because of the additional duties and responsibilities imposed upon the
broker-dealers and salespersons recommending and effecting sale and
purchase transactions in such securities. In addition, many broker-dealers
will not effect transactions in penny stocks, except on an unsolicited
basis, in order to avoid compliance with the penny stock trading rules. The
penny stock trading rules consequently may materially limit or restrict the
liquidity typically associated with other publicly traded equity
securities. In this connection, the holder of Common Stock may be unable to
obtain on resale the quoted bid price because a dealer or group of dealers
may control the market in such securities and may set prices that are not
based on competitive forces. Furthermore, at times there may be a lack of
bid quotes which may mean that the market among dealers is not active, in
which case a holder of Common Stock may be unable to sell such securities.
Because market quotations in the over-the-counter market are often
subjected to negotiation among dealers and often differ from the price at
which transactions in securities are effected, the bid and asked quotations
of the Common Stock may not be reliable.
Franklin Consolidated Mining Co., Inc.
Form 10-QSB/Amended
For Quarter Ended March 31, 1998
(15)
<PAGE>
Item 2. Changes in Securities
On May 5, 1998, the Company withdrew Registration Statement on From SB-2, File
No.333-29101, which was originally filed June 10, 1997. The Company took this
action as all selling shareholders became eligible to sell their shares pursuant
to Rule 144.
Item 3. Defaults Upon Senior Securities
As of March 31,1998, 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,
1998 in the amount of approximately $53,000.
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
None during the quarter.
Item 6. Exhibits and Reports on Form 8-K (all filed in original filing)
A. Exhibits
(a) Press Release of the Company, dated February 20, 1998.
B. Reports on Form 8-K
(a) Reports on Form 8-K dated March 17, 1998 and April 8, 1998 under
file 0-9416.
Franklin Consolidated Mining Co., Inc.
Form 10-QSB/Amended
For Quarter Ended March 31, 1998
(16)
<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.
WCM CAPITAL, INC.
(formally FRANKLIN CONSOLIDATED MINING CO, INC.)
Date: November 13, 1998 /s/ Richard Brannon
------------------------
Richard Brannon
Vice President/Secretary
Franklin Consolidated Mining Co., Inc.
Form 10-QSB/Amended
For Quarter Ended March 31, 1998
(17)
