SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-QSB/A
[X] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15 (d)
OF THE SECURITIES EXCHANGE ACT OF 1934
For the quarterly period ended June 30, 1999
OR
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15 (d)
OF THE SECURITIES EXCHANGE ACT OF 1934
For the transition period from __________ to _________
Commission File Number: 0-9416
WCM CAPITAL, INC.
(Exact name of small business issuer as specified in its charter)
DELAWARE 13-2879202
(State or other jurisdiction of (I.R.S. Employer
Incorporation or organization) Identification No.)
76 Beaver Street, Suite 500, New York, New York 10005
(Address of principal executive offices)
Issuer's telephone number, including area code: (212) 344-2828
Check whether the issuer (1) filed all reports required to be filed by Section
13 or 15(d) of the Exchange Act during the past 12 months (or for such shorter
period that the registrant was required to file such reports), and (2) has been
subject to such filing requirements for the past 90 days.
Yes _X_ No ___
State the number of shares outstanding of each of the issuer's classes of common
equity, as of the latest practicable date.
Class Outstanding at June 30, 1999
- ----------------------- ----------------------------
Common Stock, par value 3,955,169 Shares
$.01 per share
Transitional Small Business Format (check one); Yes ___ No _X_
<PAGE>
PART I. FINANCIAL INFORMATION
Item 1. Financial Statements
WCM CAPITAL, INC.
(A DEVELOPMENT STAGE COMPANY)
CONDENSED BALANCE SHEETS
(Unaudited)
ASSETS
<TABLE>
<CAPTION>
June 30, December 31,
1999 1998
------------ ------------
<S> <C> <C>
CURRENT ASSETS:
Cash and cash equivalents $ -- $ --
------------ ------------
TOTAL CURRENT ASSETS -- --
Mining, milling and other property and equipment,
net of accumulated depreciation and depletion of
$2,118,869 and $2,105,515 4,795,226 4,808,580
Mining reclamation bonds 135,673 134,602
------------ ------------
$ 4,930,899 $ 4,943,182
============ ============
LIABILITIES AND STOCKHOLDERS' EQUITY
CURRENT LIABILITIES:
Accounts payable and accrued expenses $ 670,691 $ 654,164
Payroll and other taxes payable 29,960 29,960
Convertible debentures 145,000 145,000
Notes payable - related party and others 218,965 218,965
Note payable - related party 1,340,756 1,191,586
------------ ------------
TOTAL CURRENT LIABILITIES 2,405,372 2,239,675
------------ ------------
COMMITMENTS AND CONTINGENCIES
STOCKHOLDERS' EQUITY:
Common stock, par value $.01 per share;
100,000,000 shares authorized; 3,955,169 shares
issued and outstanding 988,793 988,793
Additional paid-in capital 17,414,755 17,414,755
Deficit accumulated during the development stage (15,878,021) (15,700,041)
------------ ------------
2,525,527 2,703,507
------------ ------------
$ 4,930,899 $ 4,943,182
============ ============
</TABLE>
See notes to condensed financial statements.
2
<PAGE>
WCM CAPITAL, INC.
(A DEVELOPMENT STAGE COMPANY)
STATEMENTS OF OPERATIONS
SIX AND THREE MONTHS ENDED JUNE 30, 1999 AND 1998
AND PERIOD FROM DECEMBER 1, 1976 (INCEPTION)
TO JUNE 30, 1999
(Unaudited)
<TABLE>
<CAPTION>
Six Months Three Months Cumulative
Ended June 30, Ended June 30, From
1999 1998 1999 1998 Inception
---------------------------- ---------------------------- ------------
<S> <C> <C> <C> <C> <C>
REVENUES:
Sales $ -- $ -- $ -- $ -- $ 876,082
Interest income 1,071 5,363 672 4,383 549,766
Other income -- -- -- -- 79,397
------------ ------------ ------------ ------------ ------------
1,071 5,363 672 4,383 1,505,245
------------ ------------ ------------ ------------ ------------
EXPENSES:
Mine expenses and environmental remediation costs 25,593 38,491 10,916 26,145 3,611,890
Write-down of mining and milling and other
property and equipment -- 265,000 -- 265,000 1,665,000
Depreciation and depletion 13,354 63,507 6,677 33,012 2,314,218
General and administrative expenses 69,424 215,220 43,782 113,726 6,317,801
Interest expense 70,681 57,397 36,082 30,302 1,212,160
Amortization of debt issuance expense -- -- -- -- 683,047
Equity in net loss and settlement of claims
of Joint Venture -- -- -- -- 1,059,971
Other -- -- -- -- 519,179
------------ ------------ ------------ ------------ ------------
179,052 639,615 97,457 468,185 17,383,266
------------ ------------ ------------ ------------ ------------
NET LOSS $ (177,981) $ (634,252) $ (96,785) $ (463,802) $(15,878,021)
============ ============ ============ ============ ============
BASIC LOSS PER COMMON SHARE $ (.04) $ (.16) $ (.02) $ (.12)
============ ============ ============ ============
WEIGHTED AVERAGE SHARES OUTSTANDING 3,955,173 3,955,173 3,955,173 3,955,173
============ ============ ============ ============
</TABLE>
See notes to condensed financial statements
3
<PAGE>
WCM CAPITAL, INC.
(A DEVELOPMENT STAGE COMPANY)
STATEMENTS OF CASH FLOWS
SIX MONTHS ENDED JUNE 30, 1999 AND 1998 AND
PERIOD FROM DECEMBER 1, 1976 (INCEPTION) TO JUNE 30, 1999
(Unaudited)
<TABLE>
<CAPTION>
Cumulative
from
1999 1998 Inception
------------ ------------ ------------
<S> <C> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
Net loss $ (177,980) $ (634,252) $(15,878,020)
Adjustments to reconcile net loss to net cash used in
operating activities:
Depreciation and depletion 13,354 63,507 2,314,218
Provision for bad debt -- -- 350,000
Write-down of mining and milling and other
property and equipment -- 265,000 1,400,000
Amortization of debt issuance expense -- -- 683,047
Loss on Sale of Equipment -- -- 265,000
Value of common stock issued for:
Services and interest -- -- 1,934,894
Settlement of litigation -- -- 100,000
Settlement of claims by joint venture partner -- -- 936,000
Compensation resulting from stock options granted -- -- 311,900
Value of stock options granted for services -- -- 112,500
Equity in net loss of joint venture -- -- 123,971
Other -- -- (7,123)
Changes in operating assets and liabilities:
Interest accrued on mining reclamation bonds (1,071) (5,363) (10,673)
Accounts payable and accrued expenses 16,527 128,165 932,906
------------ ------------ ------------
NET CASH USED IN OPERATING ACTIVITIES (149,170) (182,943) (6,431,380)
------------ ------------ ------------
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 -- -- (181,017)
Payments of debt issuance expenses -- -- (164,233)
Proceeds of other notes and loans payable 149,170 181,865 1,752,239
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 149,170 181,865 11,932,053
------------ ------------ ------------
</TABLE>
(Continued)
4
<PAGE>
WCM CAPITAL, INC.
(A DEVELOPMENT STAGE COMPANY)
STATEMENTS OF CASH FLOWS
SIX MONTHS ENDED JUNE 30, 1999 AND 1998
AND PERIOD FROM DECEMBER 1, 1976 (INCEPTION)
TO JUNE 30, 1999
(Unaudited)
<TABLE>
<CAPTION>
Cumulative
from
1999 1998 Inception
------------ ------------ ------------
<S> <C> <C> <C>
DECREASE IN CASH $ -- $ (1,078) $ --
CASH - beginning of period -- 1,078 --
------------ ------------ ------------
CASH - end of period $ -- $ -- $ --
============ ============ ============
SUPPLEMENTAL DISCLOSURE OF CASH FLOW DATA:
Interest paid $ -- $ 3,889 $ 299,868
============ ============ ============
</TABLE>
See notes to condensed financial statements.
5
<PAGE>
WCM CAPITAL, INC.
(A DEVELOPMENT STAGE ENTERPRISE)
NOTES TO CONDENSED FINANCIAL STATEMENTS
JUNE 30, 1999
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 WCM CAPITAL, INC. (the "Company") as of June 30, 1999, and its
results of operations and cash flows for the six and three months
ended June 30, 1999 and 1998. Information included in the condensed
balance sheet as of December 31, 1998 has been derived from the
audited balance sheet in the Company's Annual Report on Form 10-KSB
for the year ended December 31, 1998 (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 six and three months ended June 30,
1999 are not necessarily indicative of the results of operations for
the full year ending December 31, 1999.
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
June 30, 1999, the Company has an accumulated deficit of approximately
$15,878,000, current liabilities of $2,405,372, and a working capital
deficiency of $2,405,372. Also, the Company was in default on the
payment of the principal balance and accrued interest on certain notes
and debentures and certain accounts payable are 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 $20,000
per month plus interest during 1999. 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,
2000. 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 USM note. Such foreclosure
actions by USM would have a material adverse effect on the Company's
ability to continue operations.
Substantially all of the approximately $4,800,000 of mineral
properties and equipment included in the accompanying balance sheet as
of June 30, 1999, 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.
6
<PAGE>
WCM CAPITAL, INC.
(A DEVELOPMENT STAGE ENTERPRISE)
NOTES TO CONDENSED FINANCIAL STATEMENTS
JUNE 30, 1999
NOTE 3 - NOTES PAYABLE RELATED PARTY AND OTHERS
Notes payable related party and others consist of the following at
March 31, 1999:
12% unsecured demand note due to an affiliate of
the former president of the Company $ 71,965
Secured promissory note (a) 60,000
Unsecured promissory notes (b) 87,000
--------
$218,965
========
(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.
The Company assumed these obligations 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 June 30, 1999. Interest is
being accrued at rates between 8% and 17% per annum.
Accrued interest on the above notes at June 30, 1999 aggregated
approximately $56,000.
NOTE 4 - CONVERTIBLE DEBENTURES
The Company's convertible debt at June 30, 1999 consist of:
12.25% convertible debenture originally due 12/31/94 $145,000
As of June 30, 1999, the Company was in default with respect to the
payment of the $145,000 principal balance of the debenture and accrued
interest of approximately $75,000. As a result of its default, the
Company is subject to and may be subject to further litigation 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. See "Note 6
- Commitments and Contingencies; Litigation" below.
NOTE 5 - NOTE PAYABLE - RELATED PARTY
The Company had outstanding a 8% promissory note balance of
$1,340,756, at June 30, 1999, which represents monies advanced to the
Company by U.S. Mining, Inc. ("USM"), a company owned by a Company
Director, and its affiliates, and obligations assumed in connection
with the contributions of Joint Venture interests in 1997. The note
was 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 was 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
Financial, Inc., an affiliate of USM, assigned this note to USM.
Accrued interest at June 30, 1999 was approximately $144,000.
7
<PAGE>
WCM CAPITAL, INC.
(A DEVELOPMENT STAGE ENTERPRISE)
NOTES TO CONDENSED FINANCIAL STATEMENTS
JUNE 30, 1999
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.
To further secure the ability of the Company and the Joint Venture to
utilize the leasehold covered by the Hayden/Kennec Leases, Gems and
Minerals Corp. ("Gems") entered into an agreement with Mrs. Hayden to
purchase her interest in the Hayden/Kennec Leases (the "Hayden
Interest".) Gems had advised the Company that under Colorado Law, if
an owner of 50% of mineral rights desires 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, by acquiring
the Hayden Interest, the Company would be free to exploit the
leasehold interests comprising the Franklin mining properties
irrespective of whether Mrs. Kennec elected not to renew her portion
of the Hayden/Kennec Leases or sell her interest to the Company as per
the terms of the Agreement. However, on or about November 11, 1997,
Gems defaulted on its obligations under the terms of the purchase
agreement and the agreement terminated.
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
note, due on February 2, 1998. 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. As of the date hereof, USM has not consummated the transaction
contemplated by the Hayden-USM Purchase Agreement. Although the
Hayden-USM Purchase Agreement has expired, USM has continued to make
royalty payments to Mrs. Hayden pursuant to the terms of the
Hayden-USM Purchase Agreement. No assurance can be given as to whether
the Hayden-USM Purchase Agreement will be consummated. In the event
that the Hayden-USM Purchase Agreement is not consummated, no
assurance can be given that the Company will not loose its rights to
the leasehold properties.
On or about November 19, 1996, the Company entered into an agreement
with Mrs. Dorothy Kennec to extend her portion of the Hayden/Kennec
Leases through November 12, 1997. This agreement was further extended
through March 12, 1998; however, as of the date hereof, Mrs. Kennec
has granted no further extensions. There can be no assurance that the
Company and Mrs. Kennec will come to any agreement with respect to the
use of her leasehold interest or to purchase her interest in the
future.
8
<PAGE>
WCM CAPITAL, INC.
(A DEVELOPMENT STAGE ENTERPRISE)
NOTES TO CONDENSED FINANCIAL STATEMENTS
JUNE 30, 1999
NOTE 6 - COMMITMENTS AND CONTINGENCIES (Continued)
Environmental Matters
On January 31, 1997, the Company received approval from the Colorado
Department of Minerals and Geology ("DMG") of its March 6, 1996
amended application and, as of the date hereof, to management's
knowledge, the Company has no violations against it with respect to
the Franklin Mines and Mill. In addition, the Company posted a
$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 former Joint Venture partner (the Franklin Mines
and related assets previously were owned by a joint venture between
the Company and another corporate 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 which was subsequently
completed. As a result, management believes that substantially all of
the necessary environmental and regulatory approvals have been
obtained from DMG.
As of June 30, 1999, there are no formal violations against the
Company 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 case is currently in negotiation for
settlement. An accrued liability of $135,000 which the Company
estimates to be its portion of the total claim has been recorded
in the accompanying December 31, 1998 and June 30, 1999 financial
statements
(b) In September 1997, certain of the Company's 12.25% Convertible
Debenture holders (see Note 6) 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. Default was entered against the Company in the amount
of $42,500 plus interest, costs and disbursements. The Company
and USM have been negotiating with the debenture holders but to
this point no settlement agreement has been reached. The
continued default of the Company could result in the Company
being subject to additional legal proceedings. In addition, there
is no assurance that funds will be available to cure the default
or reach an acceptable settlement.
9
<PAGE>
WCM CAPITAL, INC.
(A DEVELOPMENT STAGE ENTERPRISE)
NOTES TO CONDENSED FINANCIAL STATEMENTS
JUNE 30, 1999
Note 6 - COMMITMENTS AND CONTINGENCIES (Continued)
(c) The Company is in litigation with Redstone Securities, Inc.
("Redstone") a company, which in the past had provided investment
banking and consulting services to the Company. Redstone was
issued stock as compensation for these services. Redstone alleged
that it has been restricted by the Company in its efforts to sell
and/or trade this stock. Redstone is now asserting claims for
damages in an amount in excess of the market value of the 120,000
shares, as adjusted, of Company stock along with punitive damages
(not less than $600,000) allegedly premised upon the Company's
intentional conduct in restricting the sale of the aforementioned
stock On or about July 31, 1998, the Company answered the
complaint and filed a cross complaint against Redstone alleging,
among other things, abuse of process, fraud, breach of fiduciary
duty, breach of contract and interference with prospective
financial advantage. The Company believes that it sustained
damages of approximately $6,000,000 plus costs and expenses. In
June 1999, the parties, through their respective counsel, agreed
to settle the matter. Pursuant to the proposed settlement, the
Company agreed to pay Redstone $150,000 on or before September 7,
1999. As of the date hereof, the Company has not paid Redstone.
In the event that such payment is not made by September 7, 1999,
the litigation will proceed. 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 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 Company was given until May 28, 1998 to come into compliance or it
would face delisting proceedings. On or about May 21, 1998, the
Company effectuated a 25 for 1 reverse stock split which, when
consummated, caused it stock price to rise above the $1.00 threshold.
Therefore, the Company was not subject to delisting proceedings and
remained in compliance until November 1998.
On or about November 10, 1998, the Company received notification from
NASDAQ that it was not in compliance with the minimum bid price
requirement and had until February 10, 1999 to come into compliance.
During the month of January, the Company's stock price maintained a
bid price above $1.00 for ten consecutive days, thereby bringing it
into compliance with NASDAQ rules.
On or about June 9, 1999, the Company received notification from
NASDAQ that it was not in compliance with the minimum bid price
requirement and had until September 9, 1999 to come into compliance.
During the middle and latter part of June, the Company's stock price
maintained a bid price above $1.00 for ten consecutive days, thereby
bringing it into compliance with NASDAQ rules. However, the price has
since dropped below $1.00. No assurance can be given that the Company
will continue to be in compliance with the minimum maintenance
requirements for continued listing on NASDAQ.
10
<PAGE>
Item 2. Management's Discussion And Analysis Of Financial Condition And Results
Of Operations
Cautionary Statement on Forward-Looking Statements
Except for the historical information contained herein, certain of the matters
discussed in this quarterly report are "forward-looking statements," as defined
in Section 21E of the Securities Exchange Act of 1934, which involve certain
risks and uncertainties, which could cause actual results to differ materially
from those discussed herein including, but not limited to, risks relating to
changing economic conditions, changes in the prices of minerals, the results of
development and testing of the properties and actual mining and other risks
disclosed in this quarterly report.
The Company cautions readers that any such forward-looking statements are based
on management's current expectations and beliefs but are not guarantees of
future performance. Actual results could differ materially from those expressed
or implied in the forward-looking statements.
Liquidity and Capital Resources
The Company had no active mining or milling operations during the first and
second quarters of 1999, however, remediation work was substantially completed
at the Franklin Mine and Mill in preparation for the anticipated commencement of
mining operations.
The Company has had recurring losses and cash flow deficiencies since inception.
As at June 30, 1999, the Company had an accumulated deficit of approximately
$15,878,000, current liabilities of $2,405,372, and a working capital deficiency
of $2,405,372. Also, the Company was in default on the payment of the principal
balance and accrued interest on certain notes and debentures and certain
accounts payable are 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 $20,000 per month plus interest during 1999. Moreover, the report
of the Company's independent auditors on the audited financial statements as of
and for the fiscal years ended December 31, 1998 and 1997 contained an
explanatory paragraph concerning the Company's ability to continue as a going
concern. Such matters raise substantial doubt about the Company's ability to
continue as a going concern.
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 1999.
USM and its affiliates have verbally pledged to provide financing to the Company
on an as needed basis until on or about January 1, 2000. The Company cannot
assure, however, that USM will fulfill its commitment to fund the Company's
operations through January 2000. 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 2000. In the event that the
Company defaults on its obligations, USM may foreclose on the assets secured by
the USM note. Such foreclosure actions by USM would have a material adverse
effect on the Company's ability to continue operating.
During the six months ended June 30, 1999 and 1998, USM, and its affiliates
provided financing in the amount of $149,170 and 181,865, respectively, to
finance cash flows from operating activities.
11
<PAGE>
Results of Operations:
Six and Three Months Ended June 30, 1999 Compared to Six and Three Months Ended
June 30, 1998
The Company had a net loss of $177,981 and $96,785 for the six and three months
ended June 30, 1999 respectively, as compared to a net loss of $634,252 and
$463,802 during the same periods in 1998. The loss in 1998 was higher due to a
$265,000 loss on sale of the Gold Hill Mill Properties in 1998.
Mine expenses and environmental remediation costs were $25,593 and $10,916 for
the six and three months ended June 30, 1999, respectively, compared to $38,491
and $26,145 during the same periods in 1998. this decrease was due to lower
levels of activities in the 1999 periods.
General and administrative expenses were $69,424 and $43,782 for the six and
three months ended June 30, 1999 respectively, compared with $215,220 and
$113,726 during the same periods in 1998. This decrease was due to a substantial
decrease in legal and professional fees, as well as settlements with venders
resulting in a reduction of accounts payable of approximately $38,000.
Interest expense was $70,681 and $36,082 during the six and three months ended
June 30, 1999 respectively, as compared to $57,397 and $30,302 during the same
periods in 1998. This increase was due to interest incurred on the USM note.
12
<PAGE>
PART II
Item 1. Legal Proceedings
Convertible Debentures
On June 1, 1994, the Company advised its 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 default under the terms of the Indenture.
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.
Thereafter, the Plaintiff Debenture holders moved for summary judgment against
the Company. The Company did not to oppose the motion and default was entered
against the Company in the amount of $42,500 plus interest, costs and
disbursements (the "Default"). Moreover, the issue of attorney's fees were
severed from the case and all to be set down for an inquest.
In February, 1998, USM entered into an agreement with the Plaintiff Debenture
holders agreeing to pay the Default plus certain additional costs in the event
that the Company fails to pay the Default and USM consummates its then
contemplated transaction with the Company. In the event that USM did not
consummate that 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 agreed not to
enter the Judgment against the Company until July 12, 1998 or until USM notified
them that it would not pursue the transaction.
On or about April 6, 1998, USM determined terminated its letter of intent to
consummate the then contemplated transaction with the Company. Despite such
termination, Plaintiff Debenture holders agreed to extend the terms of their
agreement with USM through December 1998. As of date hereof, the Company is not
aware of any further extension nor, to its knowledge has the Judgment been
entered.
If the proposed settlement is not consummated, there can be no assurance that
the Judgment will not be entered and the Company will be required to pay the
amount of the Judgment, including any costs, interest, and penalties related
thereto.
The continued default under the Debentures by the Company 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.
Golder Litigation
On or about February 5, 1996, Bradley, Campbell, Carney & Madsen, P.C. ("BCCM"),
Colorado counsel to the Company, Gems and Minerals Corp. ("Gems"), Zeus No. 1
Investments ("Zeus") - a California general partnership between the Company and
Island Investment Corp., a Nevada corporation ("Island"), and Newmineco, entered
into a contract with Golder Associates, Inc. ("Golder"), pursuant to which
Golder agreed to perform certain services at the Mogul Mine (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.
13
<PAGE>
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 various environmental issues (the
"Franklin Mines 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 was
secured by a pledge of approximately 144,000 as adjusted shares of Common Stock
of the Company owned by Gems. Gems failed to make the required payments on the
note by December 23, 1996.
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.
The Company, Golder, and BCCM have arrived at a tentative settlement and
settlement papers have been circulated; however, there can be no assurance that
a final settlement will be effected.
Redstone Litigation
On or about May 14, 1998, Redstone Securities Inc. ("Redstone") commenced
an action against the Company in the Supreme Court of the State of New York,
County of Nassau, Index No. 98-013668, claiming, among other things, breach of
contract, fraudulent inducement, and unjust enrichment in connection with an
Investment Banking Agreement dated August 28, 1996, between Redstone and the
Company. The complaint requests relief in the amounts of not less than $600,000
plus punitive damages, costs, interest and other expenses. On or about July 31,
1998, the Company answered the complaint and filed a cross complaint against
Redstone alleging, among other things, abuse of process, fraud, breach of
fiduciary duty, breach of contract and interference with prospective financial
advantage. The Company believes that it sustained damages of approximately
$6,000,000 plus costs and expenses. In June 1999, the parties, through their
respective counsel, agreed to settle the matter. Pursuant to the proposed
settlement, the Company agreed to pay Redstone $150,000 on or before September
7, 1999. As of the date hereof, the Company has not paid Redstone. In the event
that such payment is not made by September 7, 1999, the litigation will proceed.
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 Company was given until May 28, 1998 to come into compliance or it would
face delisting proceedings. On or about May 21, 1998, the Company effectuated a
25 for 1 reverse stock split which, when consummated, caused it stock price to
rise above the $1.00 threshold. Therefore, the Company was not subject to
delisting proceedings and remained in compliance until November 1998.
14
<PAGE>
On or about November 10, 1998, the Company received notification from NASDAQ
that it was not in compliance with the minimum bid price requirement and had
until February 10, 1999 to come into compliance. During the month of January,
the Company's stock price maintained a bid price above $1.00 for 10 consecutive
days, thereby bringing it into compliance with NASDAQ rules.
On or about June 9, 1999, the Company received notification from NASDAQ that it
was not in compliance with the minimum bid price requirement and had until
September 9, 1999 to come into compliance. During the middle and latter part of
June, the Company's stock price maintained a bid price above $1.00 for ten
consecutive days, thereby bringing it into compliance with NASDAQ rules.
However, the price has since dropped below $1.00. No assurance can be given that
the Company will continue to be in compliance with the minimum maintenance
requirements for continued listing on NASDAQ
In the event that the Company cannot maintain its listing on the NASDAQ Small
Cap Market, 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
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 it's 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
15
<PAGE>
which transactions in securities are effected, the bid and asked quotations of
the Common Stock may not be reliable.
Item 5. Other Information
On or about January 11, 1999, USM executed into a letter of intent with
agents for the Alamosa Mining and Leasing Company, Inc. and the Renegade, LLC to
enter into a joint venture arrangement for the exploitation of the Shafter
Mining Property in Clean Creek County, Colorado. This letter of intent was
thereafter assigned to the Company on January 11, 1999.
After consultation with USM and completion of preliminary due diligence with
respect to the feasibility of commencing mining operations at the Shafter Mining
properties, the Company decided not to pursue this venture at this time and
notified the other parties of its decision on or about April 1999.
Item 6. Exhibits and Reports on Form 8-K
Form 8-K filed with the Securities and Exchange Commission on June 25,
1999.
16
<PAGE>
SIGNATURE
Pursuant to the requirements of the Securities and Exchange Act of 1934, the
registration has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.
WCM CAPITAL, INC.
/s/ Robert Waligunda
Date: August 13, 1999 ----------------------
Robert Waligunda
President
17
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