SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-KSB AMENDED
[X] ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE
ACT OF 1934 [FEE REQUIRED]
OR
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934 [NO FEE REQUIRED]
For the fiscal year ended 12/31/96 Commission File No. 0-9416
FRANKLIN CONSOLIDATED MINING CO., INC.
(name of small business issuer in its charter)
Delaware 13-2878202
(State or other jurisdiction of (I.R.S. Employer
Incorporation or organization) Identification No.)
76 Beaver Street, New York, New York 10005
(Address of principal executive offices)
Issuers telephone number: 212-344-2828
Securities Registered under Section 12(b) of the Exchange Act: None
Securities Registered under Section 12(g) of the Exchange Act: Common
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 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 [_]
Check if there is no disclosure of delinquent filers in response to Item 405 of
Regulation S-B is not contained in this form, and no disclosure will be
contained, to the best of registrant's knowledge, in definitive proxy or
information statements incorporated by reference in Part III of this Form 10
- -KSB or any amendment to this Form 10-KSB. [_]
State issuer's revenues for its most recent fiscal year. $2,351.00
State the aggregate market value of the voting stock held by non- affiliates
computed by reference to the price at which the stock was sold, or the average
bid and asked prices of such stock as of a specified date within the past 60
days
$10,997,878
State the number of shares outstanding of each of issuers' class of common
equity, as of the latest practical date.
91,583,020 as of March 29, 1997
DOCUMENTS INCORPORATED BY REFERENCE IN PART III - SIX
Prospectus, dated December 16, 1996, contained in the Registration Statement of
the Company on Form SB-2 declared effective by the Securities and Exchange
Commission on December 18, 1996. Transitional Small Business Disclosure Format
(check one) Yes [ ] No [X]
<PAGE>
FRANKLIN CONSOLIDATED MINING CO., INC.
(A Development Stage Enterprise)
INDEX TO FINANCIAL STATEMENTS
(Item 7)
PAGE
----
REPORT OF INDEPENDENT PUBLIC ACCOUNTANTS F-2
BALANCE SHEETS
DECEMBER 31, 1996 AND 1995 F-3
STATEMENTS OF OPERATIONS
YEARS ENDED DECEMBER 31, 1996 AND 1995 AND
PERIOD FROM DECEMBER 1, 1976 (INCEPTION) TO
DECEMBER 31, 1996 F-4
STATEMENTS OF STOCKHOLDERS' EQUITY
YEARS ENDED DECEMBER 31, 1996 AND 1995 AND
PERIOD FROM DECEMBER 1, 1976 (INCEPTION) TO
DECEMBER 31, 1996 F-5/11
STATEMENTS OF CASH FLOWS
YEARS ENDED DECEMBER 31, 1996 AND 1995 AND
PERIOD FROM DECEMBER 1, 1976 (INCEPTION) TO
DECEMBER 31, 1996 F-12/13
NOTES TO FINANCIAL STATEMENTS F-14/34
* * *
F-1
<PAGE>
REPORT OF INDEPENDENT PUBLIC ACCOUNTANTS
To the Board of Directors and Shareholders
Franklin Consolidated Mining, Co., Inc.
We have audited the accompanying balance sheets of FRANKLIN CONSOLIDATED MINING
CO., INC. (A Development Stage Enterprise) as of December 31, 1996 and 1995, and
the related statements of operations, stockholders' equity and cash flows for
the years then ended and for the period from December 1, 1976 (inception) to
December 31, 1996. These financial statements are the responsibility of the
Company's management. Our responsibility is to express an opinion on these
financial statements based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audits provide a reasonable basis for our opinion.
In our opinion, the financial statements referred to above present fairly, in
all material respects, the financial position of Franklin Consolidated Mining
Co., Inc. as of December 31, 1996 and 1995, and its results of operations and
cash flows for the years then ended and for the period from December 1, 1976
(inception) to December 31, 1996, in conformity with generally accepted
accounting principles.
The accompanying financial statements have been prepared assuming that the
Company will continue as a going concern. As further discussed in Note 1 to the
financial statements, the Company is a development stage enterprise whose
operations have generated recurring losses and cash flow deficiencies from
inception and, as of December 31, 1996, has a substantial working capital
deficiency. As a result, it was in default with respect to payments on a secured
promissory note and on convertible debentures and substantially dependent on its
joint venture partner for financing. Such matters raise substantial doubt about
the Company's ability to continue as a going concern. Management's plans
concerning these matters are also described in Note 1. The financial statements
do not include any adjustments that might result from the outcome of these
uncertainties.
As explained in Note 5, the accompanying financial statements reflect
restatements of amounts reflected in the financial statements originally filed
by the Company with the Securities and Exchange Commission attributable to
changes in the prices used by the Company to value shares of common stock it
issued to settle obligations and pay for services.
J.H. COHN LLP
Roseland, New Jersey
April 3, 1997, except for
Note 11 as to which the
date is April 30, 1997
F-2
<PAGE>
FRANKLIN CONSOLIDATED MINING CO., INC.
(A Development Stage Enterprise)
BALANCE SHEETS
DECEMBER 31, 1996 AND 1995
ASSETS 1996 1995
------------ ------------
Current assets:
Cash $ 127 $ 118,176
Prepaid expenses 107,979
Advances to joint venture partner 266,438
------------ ------------
Total current assets 374,544 118,176
Mining, milling and other property and
equipment, net of accumulated depreciation
and depletion of $1,837,180
and $1,715,194 6,311,128 3,848,114
Investment in equity investee 150,000
Mining reclamation bonds 126,875 45,000
------------ ------------
Totals $ 6,962,547 $ 4,011,290
============ ============
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
12.25% convertible debentures $ 145,000 $ 145,000
9.5% convertible note payable to joint
venture partner 600,000
Other notes payable 80,000
Accounts payable and accrued expenses 553,883 298,016
Advances from joint venture partner 313,688
------------ ------------
Total current liabilities 1,378,883 756,704
8% mortgage note payable to joint venture
partner 586,419
15% convertible notes 200,000
Excess of equity in net losses of joint
venture over investment 133,220 120,270
------------ ------------
Total liabilities 2,098,522 1,076,974
------------ ------------
Commitments and contingencies
Stockholders' equity:
Common stock, par value $.01 per share;
100,000,000 shares authorized;
90,583,020 and 69,135,920 shares issued
and outstanding 905,830 691,359
Additional paid-in capital 16,218,444 13,189,102
Deficit accumulated in the development
stage (12,260,249) (10,946,145)
------------ ------------
Total stockholders' equity 4,864,025 2,934,316
------------ ------------
Totals $ 6,962,547 $ 4,011,290
============ ============
See Notes to Financial Statements.
F-3
<PAGE>
FRANKLIN CONSOLIDATED MINING CO., INC.
(A Development Stage Enterprise)
STATEMENTS OF OPERATIONS
YEARS ENDED DECEMBER 31, 1996 AND 1995
AND PERIOD FROM DECEMBER 1, 1976 (INCEPTION)
TO DECEMBER 31, 1996
<TABLE>
<CAPTION>
Cumulative
from
1996 1995 Inception
------------ ------------ ------------
<S> <C> <C> <C>
Revenues:
Sales $ 876,082
Interest income $ 2,351 $ 1,060 540,887
Other income 75,000
------------ ------------ ------------
Totals 2,351 1,060 1,491,969
------------ ------------ ------------
Expenses:
Mine expenses 3,360,793
Write-down of inventories 223,049
Depreciation and depletion 121,986 122,143 2,032,529
General and administrative
expenses 939,701 227,287 5,237,432
Interest expense 241,818 342,034 985,018
Amortization of debt issuance
expense 683,047
Equity in net loss of joint
venture 12,950 15,540 133,220
Loss on settlement of claims
by joint venture partner 936,000 936,000
Loss on settlement of litigation 100,000
Loss on investment in oil and
gas wells 61,130
------------ ------------ ------------
Totals 1,316,455 1,643,004 13,752,218
------------ ------------ ------------
Net loss $ (1,314,104) $ (1,641,944) $(12,260,249)
============ ============ ============
Weighted average shares outstanding 74,284,324 49,035,351
============ ============
Net loss per common share $ (.02) $ (.03)
============ ============
</TABLE>
See Notes to Financial Statements.
F-4
<PAGE>
FRANKLIN CONSOLIDATED MINING CO., INC.
(A Development Stage Enterprise)
STATEMENTS OF STOCKHOLDERS' EQUITY
YEARS ENDED DECEMBER 31, 1996 AND 1995
AND PERIOD FROM DECEMBER 1, 1976 (INCEPTION)
TO DECEMBER 31, 1996
<TABLE>
<CAPTION>
Deficit
Accumulated
Additional in the
Common Paid-in Development Treasury
Shares Stock Capital Stage Stock Total
----------- ----------- ----------- ----------- --------- -----------
<S> <C> <C> <C> <C> <C> <C>
Issuance of common
stock:
Cash 155,000 $ 1,550 $ 41,550 $ 43,100
Noncash:
Related parties 925,000 9,250 9,250
In exchange
for shares
of Gold
Developers
and Producers,
Inc. 1,095,000 10,950 6,484 17,434
Net loss $ (45,584) (45,584)
----------- ----------- ----------- ----------- -----------
Balance, December
31, 1977 2,175,000 21,750 48,034 (45,584) 24,200
Issuance of com-
mon stock:
Pursuant to
public offering,
net of
underwriting
expenses of
$11,026 588,200 5,882 278,113 283,995
Cash 225,000 2,250 240,627 242,877
Noncash 5,000 50 4,950 5,000
Net loss (66,495) (66,495)
----------- ----------- ----------- ----------- -----------
Balance, December
31, 1978 2,993,200 29,932 571,724 (112,079) 489,577
Issuance of common
stock:
Cash 231,850 2,318 438,932 441,250
Noncash - related parties 40,000 400 59,600 60,000
Noncash - other 6,675 67 13,283 13,350
Net loss (128,242) (128,242)
----------- ----------- ----------- ----------- -----------
Balance,
December 31, 1979 3,271,725 32,717 1,083,539 (240,321) 875,935
Issuance of common stock:
Cash 289,750 2,898 837,102 840,000
Noncash 59,500 595 118,405 119,000
Net loss (219,021) (219,021)
----------- ----------- ----------- ----------- -----------
Balance,
December 31, 1980 3,620,975 36,210 2,039,046 (459,342) 1,615,914
</TABLE>
F-5
<PAGE>
FRANKLIN CONSOLIDATED MINING CO., INC.
(A Development Stage Enterprise)
STATEMENTS OF STOCKHOLDERS' EQUITY
YEARS ENDED DECEMBER 31, 1996 AND 1995
AND PERIOD FROM DECEMBER 1, 1976 (INCEPTION)
TO DECEMBER 31, 1996
<TABLE>
<CAPTION>
Deficit
Accumulated
Additional in the
Common Paid-in Development Treasury
Shares Stock Capital Stage Stock Total
----------- ----------- ----------- ----------- --------- -----------
<S> <C> <C> <C> <C> <C> <C>
Issuance of com-
stock:
Cash 65,625 $ 656 $ 261,844 $ 262,500
----------- ----------- ----------- ----------- -----------
Balance, pre-
stock split 3,686,600 36,866 2,300,890 $ (459,342) 1,878,414
Issuance of common
stock:
Pursuant to a
four-for-one
stock split 11,059,800 110,598 (110,598)
Cash 578,000 5,780 552,220 558,000
Noncash 104,000 1,040 102,960 104,000
Commission on sale
of common stock (57,300) (57,300)
Net loss (288,105) (288,105)
----------- ----------- ----------- ----------- -----------
Balance, December
31, 1981 15,428,400 154,284 2,788,172 (747,447) 2,195,009
Issuance of common
stock:
Cash 861,006 8,610 755,516 764,126
Noncash 162,000 1,620 160,380 162,000
Commission on
sale of common
stock (56,075) (56,075)
Net loss (287,291) (287,291)
----------- ----------- ----------- ----------- -----------
Balance, December
31, 1982 16,451,406 164,514 3,647,993 (1,034,738) 2,777,769
Issuance of com-
mon stock:
Cash 1,273,134 12,732 1,176,818 1,189,550
Noncash 70,834 708 70,126 70,834
Exercise of
stock op-
tions by:
Related par-
ties 267,500 2,675 264,825 267,500
Others 4,000 40 3,960 4,000
Commission on sale
of common stock (124,830) (124,830)
Net loss (749,166) (749,166)
----------- ----------- ----------- ----------- -----------
Balance, December
31, 1983 18,066,874 180,669 5,038,892 (1,783,904) 3,435,657
</TABLE>
F-6
<PAGE>
FRANKLIN CONSOLIDATED MINING CO., INC.
(A Development Stage Enterprise)
STATEMENTS OF STOCKHOLDERS' EQUITY
YEARS ENDED DECEMBER 31, 1996 AND 1995
AND PERIOD FROM DECEMBER 1, 1976 (INCEPTION)
TO DECEMBER 31, 1996
<TABLE>
<CAPTION>
Deficit
Accumulated
Additional in the
Common Paid-in Development Treasury
Shares Stock Capital Stage Stock Total
----------- ----------- ----------- ----------- --------- -----------
<S> <C> <C> <C> <C> <C> <C>
Issuance of common
stock:
Cash 1,201,700 $ 12,017 $ 1,139,683 $ 1,151,700
Noncash 27,500 275 27,225 27,500
Exercise of
stock options
by related
parties 200,000 2,000 198,000 200,000
Commission on sale
of common stock (90,950) (90,950)
Net loss $ (301,894) (301,894)
------------ ------------ ------------ ------------ ------------
Balance, December
31, 1984 19,496,074 194,961 6,312,850 (2,085,798) 4,422,013
Issuance of com-
mon stock:
Cash 421,308 4,213 295,866 300,079
Noncash 10,000 100 7,400 7,500
Exercise of
stock op-
tions by:
Related par-
ties 200,000 2,000 148,000 150,000
Others 1,000 10 740 750
Commission on sale
of common stock (3,462) (3,462)
Net loss (133,929) (133,929)
------------ ------------ ------------ ------------ ------------
Balance, December
31, 1985 20,128,382 201,284 6,761,394 (2,219,727) 4,742,951
Issuance of common
stock:
Cash 569,000 5,690 294,810 300,500
Noncash - re-
lated parties 160,000 1,600 78,400 80,000
Noncash - others 135,000 1,350 52,650 54,000
Net loss (227,788) (227,788)
------------ ------------ ------------ ------------ ------------
Balance, December
31, 1986 20,992,382 209,924 7,187,254 (2,447,515) 4,949,663
</TABLE>
F-7
<PAGE>
FRANKLIN CONSOLIDATED MINING CO., INC.
(A Development Stage Enterprise)
STATEMENTS OF STOCKHOLDERS' EQUITY
YEARS ENDED DECEMBER 31, 1996 AND 1995
AND PERIOD FROM DECEMBER 1, 1976 (INCEPTION)
TO DECEMBER 31, 1996
<TABLE>
<CAPTION>
Deficit
Accumulated
Additional in the
Common Paid-in Development Treasury
Shares Stock Capital Stage Stock Total
----------- ----------- ----------- ----------- --------- -----------
<S> <C> <C> <C> <C> <C> <C>
Issuance of common
stock:
Cash 2,604,368 $ 26,044 $ 1,261,257 $ 1,287,301
Noncash - re-
lated parties 202,000 2,020 68,880 70,900
Noncash - other 37,500 375 36,875 37,250
Commission on sale
of common stock (110,243) (110,243)
Net loss $ (730,116) (730,116)
------------ ------------ ------------ ------------ ------------
Balance, December
31, 1987 23,836,250 238,363 8,444,023 (3,177,631) 5,504,755
Issuance of common
stock - noncash
- related par-
ties 200,000 2,000 48,000 50,000
Net loss (386,704) (386,704)
Purchase of
50,000 shares of
treasury stock -
at cost $ (12,500) (12,500)
------------ ------------ ------------ ------------ ------------ ------------
Balance, December
31, 1988 24,036,250 240,363 8,492,023 (3,564,335) (12,500) 5,155,551
Issuance of common
stock:
Cash 678,000 6,780 103,720 110,500
Noncash - others 283,666 2,836 31,030 33,866
Noncash - re-
lated parties 210,000 2,100 29,400 31,500
Private place-
ment:
Cash 2,275,000 22,750 22,750
Debt issuance
expense 455,000 455,000
Conversion of
debentures 1,050,000 10,500 94,500 105,000
Exercise of
stock options 300,000 3,000 42,000 45,000
Commission on sale
of common stock (1,500) (1,500)
</TABLE>
F-8
<PAGE>
FRANKLIN CONSOLIDATED MINING CO., INC.
(A Development Stage Enterprise)
STATEMENTS OF STOCKHOLDERS' EQUITY
YEARS ENDED DECEMBER 31, 1996 AND 1995
AND PERIOD FROM DECEMBER 1, 1976 (INCEPTION)
TO DECEMBER 31, 1996
<TABLE>
<CAPTION>
Deficit
Accumulated
Additional in the
Common Paid-in Development Treasury
Shares Stock Capital Stage Stock Total
------------ ------------ ------------ ------------ ------------ ------------
<S> <C> <C> <C> <C> <C> <C>
Compensation re-
sulting from
stock options
granted $ 39,000 $ 39,000
Net loss $ (1,279,804) (1,279,804)
------------ ------------ ------------ ------------ ------------ ------------
Balance, December
31, 1989 28,832,916 288,329 9,285,173 (4,844,139) $ (12,500) 4,716,863
Sale of Under-
writer's stock
warrants 100 100
Issuance of common
stock:
Cash 335,000 3,350 41,875 45,225
Noncash - others 39,855 399 5,579 5,978
Conversion of
debentures 160,000 1,600 30,400 32,000
Net loss (1,171,962) (1,171,962)
------------ ------------ ------------ ------------ ------------ ------------
Balance, December
31, 1990 29,367,771 293,678 9,363,127 (6,016,101) (12,500) 3,628,204
Issuance of common
stock:
Cash - others 1,799,576 17,996 78,935 96,931
Cash - related
parties 1,800,000 18,000 72,000 90,000
Noncash -
others 1,183,724 11,837 47,350 59,187
Conversion of
debentures 3,731,000 37,310 588,690 626,000
Exercise of
stock options 250,000 2,500 10,000 12,500
Conversion of
notes payable 250,000 2,500 12,500 15,000
Net loss (764,926) (764,926)
------------ ------------ ------------ ------------ ------------ ------------
Balance, December
31, 1991 38,382,071 383,821 10,172,602 (6,781,027) (12,500) 3,762,896
Issuance of common
stock:
Cash - others 2,021,923 20,219 149,389 169,608
Cash - related
parties 630,000 6,300 42,700 49,000
Noncash -
others 1,729,609 17,296 348,762 366,058
Noncash - re-
lated parties 12,120 121 485 606
</TABLE>
F-9
<PAGE>
FRANKLIN CONSOLIDATED MINING CO., INC.
(A Development Stage Enterprise)
STATEMENTS OF STOCKHOLDERS' EQUITY
YEARS ENDED DECEMBER 31, 1996 AND 1995
AND PERIOD FROM DECEMBER 1, 1976 (INCEPTION)
TO DECEMBER 31, 1996
<TABLE>
<CAPTION>
Deficit
Accumulated
Additional in the
Common Paid-in Development Treasury
Shares Stock Capital Stage Stock Total
------------ ------------ ------------ ------------ ------------ ------------
<S> <C> <C> <C> <C> <C> <C>
Noncash - exer-
cise of op-
tions by re-
lated parties 2,050,000 $ 20,500 $ 82,000 $ 102,500
Conversion of
debentures 540,000 5,400 156,600 162,000
Commission on
sale of com-
mon stock -
related par-
ties (7,123) (7,123)
Net loss $ (1,343,959) (1,343,959)
------------ ------------ ------------ ------------ ------------ ------------
Balance, December
31, 1992 45,365,723 453,657 10,945,415 (8,124,986) $ (12,500) 3,261,586
Issuance of common
stock:
Cash - others 873,400 8,734 125,230 133,964
Cash - related
parties 777,000 7,770 69,930 77,700
Noncash - others 150,000 1,500 13,500 15,000
Noncash - set-
tlement of
litigation 1,000,000 10,000 90,000 100,000
Noncash - exer-
cise of op-
tions by re-
lated parties 200,000 2,000 8,000 10,000
Conversion of
debentures 140,000 1,400 33,600 35,000
Conversion of
loan 100,000 1,000 9,000 10,000
Net loss (797,619) (797,619)
------------ ------------ ------------ ------------ ------------ ------------
Balance, December
31, 1993 48,606,123 486,061 11,294,675 (8,922,605) (12,500) 2,845,631
Retirement of
treasury stock (50,000) (500) (12,000) 12,500
Net loss (381,596) (381,596)
------------ ------------ ------------ ------------ ------------ ------------
Balance, December
31, 1994 48,556,123 485,561 11,282,675 (9,304,201) -- 2,464,035
</TABLE>
F-10
<PAGE>
FRANKLIN CONSOLIDATED MINING CO., INC.
(A Development Stage Enterprise)
STATEMENTS OF STOCKHOLDERS' EQUITY
YEARS ENDED DECEMBER 31, 1996 AND 1995
AND PERIOD FROM DECEMBER 1, 1976 (INCEPTION)
TO DECEMBER 31, 1996
<TABLE>
<CAPTION>
Deficit
Accumulated
Additional in the
Common Paid-in Development Treasury
Shares Stock Capital Stage Stock Total
----------- ----------- ----------- ----------- --------- -----------
<S> <C> <C> <C> <C> <C> <C>
Issuance of common
stock:
Settlement of
claims by
joint venture
partner 6,000,000 $ 60,000 $ 876,000 $ 936,000
Repayments of
loan from
joint venture
partner 3,200,000 32,000 467,200 499,200
Repayments of
long-term
loans from
related par-
ties and
accrued in-
terest 8,679,797 86,798 590,227 677,025
Exchange of
shares for
profit parti-
cipation in-
terests 2,700,000 27,000 (27,000)
Net loss $ (1,641,944) (1,641,944)
------------ ------------ ------------ ------------ ------------
Balance, Decem-
ber 31, 1995 69,135,920 691,359 13,189,102 (10,946,145) 2,934,316
Issuance of common stock for:
Cash 1,753,411 17,534 280,066 297,600
Services and
interest 3,716,000 37,160 525,277 562,437
Conversion of con-
vertible notes 4,294,770 42,948 515,372 558,320
Repayments of loan
from joint ven-
ture partner 2,316,000 23,160 338,715 361,875
Repayments of long-
term loans from
related party 9,366,919 93,669 1,369,912 1,463,581
Net loss (1,314,104) (1,314,104)
------------ ------------ ------------ ------------ --------- ------------
Balance, Decem-
ber 31, 1996 90,583,020 $ 905,830 $ 16,218,444 $(12,260,249) $ -- $ 4,864,025
============ ============ ============ ============ ========= ============
</TABLE>
See Notes to Financial Statements.
F-11
<PAGE>
FRANKLIN CONSOLIDATED MINING CO., INC.
(A Development Stage Enterprise)
STATEMENTS OF CASH FLOWS
YEARS ENDED DECEMBER 31, 1996 AND 1995
AND PERIOD FROM DECEMBER 1, 1976 (INCEPTION)
TO DECEMBER 31, 1996
<TABLE>
<CAPTION>
Cumulative
from
1996 1995 Inception
------------ ------------ ------------
<S> <C> <C> <C>
Operating activities:
Net loss $ (1,314,104) $ (1,641,944) $(12,260,249)
Adjustments to reconcile net
loss to net cash used in
operating activities:
Depreciation and depletion 121,986 122,143 2,032,529
Amortization of debt
issuance expense 683,047
Value of common stock
issued for:
Services and interest 702,017 249,600 1,921,894
Settlement of litigation 100,000
Settlement of claims by
joint venture partner 936,000 936,000
Compensation resulting from
stock options granted 311,900
Value of stock options
granted for services 112,500
Equity in net loss of joint
venture 12,950 15,540 133,220
Other (7,123)
Changes in operating assets
and liabilities:
Prepaid expenses (107,979) (107,979)
Other current assets 71
Interest accrued on mining
reclamation bonds (1,875) (1,875)
Accounts payable and
accrued expenses 274,607 138,305 736,356
------------ ------------ ------------
Net cash used in op-
erating activities (312,398) (180,285) (5,409,780)
------------ ------------ ------------
Investing activities:
Purchases and additions to
mining, milling and other
property and equipment (85,000) (5,120,354)
Purchases of mining recla-
mation bonds, net (80,000) (125,000)
Deferred mine development
costs and other expenses (234,435) (255,319)
------------ ------------ ------------
Net cash used in in-
vesting activities (165,000) (234,435) (5,500,673)
------------ ------------ ------------
</TABLE>
F-12
<PAGE>
FRANKLIN CONSOLIDATED MINING CO., INC.
(A Development Stage Enterprise)
STATEMENTS OF CASH FLOWS
YEARS ENDED DECEMBER 31, 1996 AND 1995
AND PERIOD FROM DECEMBER 1, 1976 (INCEPTION)
TO DECEMBER 31, 1996
<TABLE>
<CAPTION>
Cumulative
from
1996 1995 Inception
----------- ----------- -----------
<S> <C> <C> <C>
Financing activities:
Issuances of common stock $ 297,600 $ 8,758,257
Issuance of Underwriter's stock
warrants 100
Commissions on sales of common
stock (381,860)
Purchases of treasury stock (12,500)
Payments of deferred under-
writing costs (63,814)
Proceeds from exercise of
stock options 306,300
Issuance of convertible de-
bentures and notes 200,000 $ 200,000 1,505,000
Proceeds of advances from joint
venture partner 331,980 526,288
Advances to joint venture
partner (218,251) (218,251)
Payments of debt issuance
expenses (164,233)
Proceeds of other notes and
loans payable 80,000 768,000
Repayments of other notes and
loans payable (120,000)
Proceeds of loans from affiliate 55,954
Repayments of loans from affili-
ate (48,661)
----------- ----------- -----------
Net cash provided by financ-
ing activities 359,349 531,980 10,910,580
----------- ----------- -----------
Increase (decrease) in cash (118,049) 117,260 127
Cash, beginning of period 118,176 916 --
----------- ----------- -----------
Cash, end of period $ 127 $ 118,176 $ 127
=========== =========== ===========
Supplemental disclosure of cash flow data:
Interest paid $ -- $ 4,441 $ 298,868
=========== =========== ===========
</TABLE>
See Notes to Financial Statements.
F-13
<PAGE>
FRANKLIN CONSOLIDATED MINING CO., INC.
(A Development Stage Enterprise)
NOTES TO FINANCIAL STATEMENTS
Note 1 - Organization and basis of presentation:
Organization:
Franklin Consolidated Mining Co., Inc. (the "Company"), which was
originally incorporated on December 1, 1976 under the laws of the
State of Delaware, is principally engaged in the exploration,
development and mining of precious and nonferrous metals, including
gold, silver, lead, copper and zinc. The Company owns directly or has
an indirect interest in a number of precious and nonferrous metals
properties.
The Company holds the exclusive right to explore, develop, mine and
extract all minerals located in 28 patented mining claims comprising
approximately 322 acres, in which the Company holds 100% lease
interests (the "Hayden/Kennec Leases") and 23 additional owned or
leased mining properties (collectively, the "Franklin Mine"), all of
which are located near Idaho Springs in Clear Creek County, Colorado.
It also constructed a crushing and flotation mill which is located on
the site of the Franklin Mine (the "Franklin Mill").
During 1996, as further explained in Note 3, the Company acquired (i)
the Gold Hill Mill, a fully permitted milling facility located in
Boulder County, Colorado and (ii) a 20% interest in Newmineco, LLC
("Newmineco"), a Colorado limited liability company, which holds the
exclusive mining rights related to the Mogul Tunnel and the
surrounding claims located in the Spencer Mountains of Colorado known
as the "Mogul Mines."
During February 1993, the Company entered into a Joint Venture
Agreement with Island Investment Corp. ("Island"), which at the time
was an unaffiliated company, and formed Zeus No. 1 Investments (the
"Joint Venture"), a California general partnership, for the purpose of
developing the Franklin Mine and Mill. Among other things, the Zeus
Joint Venture Agreement (i) required Island to provide both technical
and financial support to the Joint Venture, (ii) required the Company
to contribute to the Joint Venture the rights to the exclusive use of
its assets (including its lease interests) related to the Franklin
Mine and Mill and (iii) originally provided that after the return of
any initial capital contributions and certain priority payments,
Island and the Company would receive 50% of any partnership income
until each party had received $15,000,000; thereafter Island and the
Company would receive 73% and 27%, respectively, of any partnership
income. In May 1993, Island assigned its interest in the Joint Venture
to its 91%-owned subsidiary, Gems & Minerals Corp. ("Gems").
F-14
<PAGE>
FRANKLIN CONSOLIDATED MINING CO., INC.
(A Development Stage Enterprise)
NOTES TO FINANCIAL STATEMENTS
Note 1 - Organization and basis of presentation (continued):
Organization (concluded):
Effective in August 1994, the Company and Island agreed to amend the
Zeus Joint Venture Agreement to provide for, among other things, the
waiver of priority payments and an adjustment to the distribution
arrangement whereby 70% and 30% of the Joint Venture's income or loss
(as defined) would be allocated to Gems and the Company, respectively.
Effective in September 1995, the Company, Island and Gems agreed to
further amend the Zeus Joint Venture Agreement to provide for, among
other things, the allocation of 82.5% and 17.5% of the Joint Venture's
income or loss (as defined) to Gems and the Company, respectively (see
Note 5).
During 1993, operations at the mining properties consisted primarily
of the efforts by the Joint Venture to develop and improve mineral
recovery methodology, which were financed primarily by Island's cash
capital contributions of approximately $430,000. During 1994, such
operations consisted primarily of repair and remediation work to
comply with environmental regulatory requirements, further site
preparation, metallurgical analysis and the planning of an exploratory
drilling program to further prove the Company's reserves. During 1995,
such operations consisted primarily of a comprehensive core drilling
and analysis program (the "Analysis Program"). During 1996, such
operations consisted primarily of additional repair and remediation
work needed to comply with environmental regulatory requirements.
Although there are extensive shafts, tunnels and a mill in place on
the Franklin Mine site, which management believes would support a 150
ton per day operation, the Joint Venture and the Company had not
conducted any significant commercial mining or milling operations at
that site through December 31, 1996. In addition, the Company had not
conducted any milling operations at the Gold Hill Mill, and Newmineco
had not conducted any significant commercial mining operations at the
Mogul Mine site, through December 31, 1996. Therefore, the Company,
the Joint Venture and Newmineco had not generated any significant
revenues through, and were still in the development stage, at December
31, 1996.
F-15
<PAGE>
FRANKLIN CONSOLIDATED MINING CO., INC.
(A Development Stage Enterprise)
NOTES TO FINANCIAL STATEMENTS
Note 1 - Organization and basis of presentation (continued):
Basis of presentation:
The accompanying financial statements have been prepared assuming that
the Company will continue as a going concern. However, as explained
above, the Company is a development stage enterprise whose operations
have generated recurring losses and cash flow deficiencies from its
inception. As of December 31, 1996, the Company had a cash balance of
$127, an accumulated deficit of approximately $12,260,000, current
liabilities of $1,379,000 and a working capital deficiency of
$1,004,000, and, as explained in Notes 6 and 7, the Company was in
default with respect to the payment of the principal balance and the
accrued interest on its outstanding secured promissory note and 12.25%
convertible debentures. Certain accounts payable were also past due.
In addition to the payment of its current liabilities, management
estimates that the Company will incur general, administrative and
other costs and expenditures, exclusive of any costs and expenditures
related to any mining and milling operations, at the rate of
approximately $25,000 per month during 1997. Although the Company is
entitled to distributions of 17.5% of any net profits generated from
the operations of the Franklin Mines by the Zeus Joint Venture, any
net profits generated by the Gold Hill Mill and the first $500,000 of
any profits generated through the operations of the Mogul Mines by
Newmineco plus 20% of any profits thereafter, all such operations are
in the development stage and have been generating losses and negative
cash flows and management cannot assure that those operations will
generate any positive cash flows during 1997. Such matters raise
substantial doubt about the Company's ability to continue as a going
concern.
Gems, the Company's Joint Venture partner, will be responsible for
providing the remaining capital resources that will be needed for the
commencement of operations at the Franklin Mine and the Mogul Mines,
and the Company will be responsible for obtaining the remaining
capital resources that will be needed for the commencement of
operations at the Gold Hill Mill. In the absence of liquid resources,
cash flows from operations and any other commitments for debt or
equity financing, management believes that the ability of the Company
to continue its operations as a going concern will be dependent upon
the provision of financing by Gems, which Gems is required to provide
pursuant to the Joint Venture Agreement, the continued forbearance of
the holders of its secured promissory note and convertible debentures
and, ultimately, the ability of the Joint Venture, the Gold Hill Mill
and Newmineco to conduct profitable mining and milling operations on a
sustained basis.
F-16
<PAGE>
FRANKLIN CONSOLIDATED MINING CO., INC.
(A Development Stage Enterprise)
NOTES TO FINANCIAL STATEMENTS
Note 1 - Organization and basis of presentation (continued):
Basis of presentation (concluded):
Management believes, but cannot assure, that such financing and the
financing needed to commence operations at the Franklin Mine and the
Mogul Mines will be provided by Gems during 1997, and that the Company
will remain dependent on its Joint Venture partner as its primary
source of financing for its operations until such time, if any, as the
Company begins to receive cash flows from its investments. During the
first four months of 1997, Gems repaid advances from the Company and
made advances to the Company totaling approximately $300,000. The
management of the Company believes that Gems will continue to fulfill
its commitment and make such advances until such time, if any, as the
Company begins to receive cash flows from its investments.
In addition to funds committed by Gems, management is considering
raising capital by mortgaging the Gold Hill property. The management
of the Company believes that, based on the fair value of the Gold Hill
property, it can raise a minimum of $1,000,000 using conventional
mortgage financing, with guarantees from Gems and its principals. Such
funds would be used to supply the working capital initially needed to
commence operations at the Gold Hill Mill and as an alternative means
of financing operations at the Franklin Mine and Mill and the Mogul
Mines.
Management also believes that, at a minimum, the Company will be able
to obtain sufficient financing from Gems and/or mortgage loans on the
Gold Hill property to enable the Company to meet its working capital
requirements through at least December 31, 1997.
Restatement:
At the time the Company initially issued its financial statements for
the years ended December 31, 1996 and 1995, management believed that
the market values of certain shares of common stock issued to pay for
services and settle outstanding claims by and repay obligations to its
joint venture partner were substantially in excess of the fair values
at the respective dates of issuance because the shares issued were
restricted and the trading volume for the Company's shares was
limited. However, the Company did not have the resources to engage an
investment banker to appraise the per share value at the date of each
issuance; instead, management estimated the fair value by discounting
the quoted market value by 50%. After discussions with the staff of
the Securities and Exchange Commission (the "SEC") as to the basis of
the valuation of certain shares issued, management has determined that
it would still not be cost effective to obtain appraisals of the fair
value of the shares and that, instead, the quoted market price at the
F-17
<PAGE>
FRANKLIN CONSOLIDATED MINING CO., INC.
(A Development Stage Enterprise)
NOTES TO FINANCIAL STATEMENTS
Note 1 - Organization and basis of presentation (continued):
Restatement (continued):
time of issuance would be the most reliable measure of fair value for
these transactions. As a result, the accompanying financial statements
reflect increases in, among other accounts, the Company's net loss
(and the related net loss per share), additional paid-in capital and
accumulated deficit from the corresponding amounts in the financial
statements the Company initially issued and filed with the SEC for
1996 and 1995.
The following table summarizes the increase in the Company's net loss
and net loss per share for the years ended December 31, 1996 and 1995
arising from the changes in the prices used to value the issuance of
common shares:
<TABLE>
<CAPTION>
Number Estimate Market
of Value Value
Shares Per Share Per Share Increase
------ --------- --------- --------
<S> <C> <C> <C> <C>
1996:
General and ad-
ministrative
expenses:
Consulting fees 1,000,000 $ .05 $.25 $200,000
Professional fees 56,000 .125 .25 7,000
--------
Total (Note 10) 207,000
Interest expense -
shares issued
upon conversion
of debt at con-
version price
based on 75% of
market value
(Note 7) 4,294,770 .0975 .13 139,580
---------
Net loss $346,580
---------
Net loss per com-
mon share $.01
=========
</TABLE>
F-18
<PAGE>
FRANKLIN CONSOLIDATED MINING CO., INC.
(A Development Stage Enterprise)
NOTES TO FINANCIAL STATEMENTS
Note 1 - Organization and basis of presentation (concluded):
Restatement (concluded):
<TABLE>
<CAPTION>
Number Estimate Market
of Value Value
Shares Per Share Per Share Increase
------ --------- --------- --------
<S> <C> <C> <C> <C>
1995:
Interest expense -
excess of market
value over prin-
cipal of shares
issued upon con-
version of loans
from joint ven-
ture partner 3,200,000 .078125 .15625 $249,600
Loss on settlement
of claims by
joint venture
partner 6,000,000 .078125 .15625 468,000
--------
Net loss (Note 5) $717,600
========
Net loss per com-
mon share $.01
========
</TABLE>
These adjustments also increased the Company's additional paid-in
capital and accumulated deficit by $1,064,180 at December 31, 1996 and
$717,600 at December 31, 1995.
Note 2 - Summary of significant accounting policies:
Use of estimates:
The preparation of financial statements in conformity with generally
accepted accounting principles requires management to make estimates
and assumptions that affect certain reported amounts and disclosures.
Accordingly, actual results could differ from those estimates.
Mining, milling and other property and equipment:
Mining, milling and other property and equipment is recorded at cost.
Costs incurred to improve and develop mining and milling properties
are capitalized. Mine development expenditures incurred substantially
in advance of production are capitalized.
F-19
<PAGE>
FRANKLIN CONSOLIDATED MINING CO., INC.
(A Development Stage Enterprise)
NOTES TO FINANCIAL STATEMENTS
Note 2 - Summary of significant accounting policies (continued):
Mining, milling and other property and equipment (concluded):
Depletion of mining and milling improvements and mine development
expenditures is computed using the units of production method based on
probable reserves (there were no charges for depletion in 1996 and
1995 since the Company's mining and milling facilities were not in
operation). Depreciation of equipment is computed using the
straight-line method over the estimated useful lives of the related
assets.
Impairment of long-lived assets:
Effective as of January 1, 1996, the Company adopted the provisions of
Statement of Financial Accounting Standards No. 121, "Accounting for
the Impairment of Long-Lived Assets and for Long-Lived Assets to be
Disposed of" ("SFAS 121"). Under SFAS 121, impairment losses on
long-lived assets are recognized when events or changes in
circumstances indicate that the undiscounted cash flows estimated to
be generated by such assets are less than their carrying value and,
accordingly, all or a portion of such carrying value may not be
recoverable. Impairment losses are then measured by comparing the fair
value of assets to their carrying amounts. The adoption of SFAS 121
had no material effect on the Company's 1996 financial statements.
Joint Venture:
The Company accounts for its investment in the Joint Venture pursuant
to the equity method. As a general partner in the Joint Venture, the
Company would be liable to creditors and certain other parties for any
obligations the Joint Venture might ultimately be unable to satisfy.
Accordingly, the Company records its equity in the net losses of the
Joint Venture even though they exceed the Company's total investment.
Revenue recognition:
Revenues from sales of mineral concentrates will be recognized by the
Company and the Joint Venture only upon receipt of final settlement
funds from the smelter.
Environmental remediation:
Environmental remediation costs are accrued based on estimates of
known environmental remediation exposures and, generally, charged to
expense as incurred.
F-20
<PAGE>
FRANKLIN CONSOLIDATED MINING CO., INC.
(A Development Stage Enterprise)
NOTES TO FINANCIAL STATEMENTS
Note 2 - Summary of significant accounting policies (concluded):
Income taxes:
The Company accounts for income taxes pursuant to Statement of
Financial Accounting Standards No. 109, "Accounting for Income Taxes,"
which utilizes an asset and liability approach to financial accounting
and reporting for income taxes. Under this approach, deferred income
tax assets and liabilities are computed annually for temporary
differences between the financial statement and tax bases of assets
and liabilities that will result in taxable or deductible amounts in
the future based on enacted tax laws and rates applicable to the
periods in which the differences are expected to affect taxable
income. Valuation allowances are established when necessary to reduce
deferred tax assets to the amount expected to be realized. The income
tax provision or credit is the tax payable or refundable for the
period plus or minus the change during the period in deferred tax
assets and liabilities.
Note 3 - Acquisitions of mining and milling properties:
On July 3, 1996, the Company acquired the Gold Hill Mill from a
wholly-owned subsidiary of Gems, the Company's Joint Venture partner,
in exchange for an 8% mortgage note with an initial principal balance
of $2,500,000 (see Notes 7 and 10). The Gold Hill Mill is a fully
permitted milling facility located in Boulder County, Colorado. The
Company will be responsible for the development and operation of the
Gold Hill Mill.
On September 26, 1996, the Company acquired its 20% interest in
Newmineco by issuing a 9.5% note payable to Gems with a principal
balance of $600,000. Newmineco was a newly-formed, inactive company at
the time the Company acquired its 20% interest. Newmineco holds the
exclusive mining rights related to the Mogul Mines located in the
Spencer Mountains of Colorado. Gems will be responsible for the
development and operation of the Mogul Mines. As a result of problems
concerning permitting and various other issues related to the Mogul
Mines, the purchase price for the Company's 20% interest was reduced
to $150,000 on, effectively, December 31, 1996 (see Notes 7 and 10).
Pursuant to the agreement with the other investors in Newmineco, the
Company will be entitled to the first $500,000 of any profits (as
defined) to be distributed by Newmineco and 20% of any of its profits
thereafter.
F-21
<PAGE>
FRANKLIN CONSOLIDATED MINING CO., INC.
(A Development Stage Enterprise)
NOTES TO FINANCIAL STATEMENTS
Note 4 - Mining, milling and other property and equipment:
Mining, milling and other property and equipment, at the Franklin
Mines and the Franklin Mill and the Gold Hill Mill consisted of the
following at December 31, 1996 and 1995:
1996 1995
---------- ----------
Land $ 345,000
Machinery and equipment 2,217,220 $1,219,220
Mine and mill improvements 5,490,278 4,248,278
Furniture and fixtures 11,714 11,714
Automotive equipment 84,096 84,096
---------- ----------
8,148,308 5,563,308
Less accumulated depreciation
and depletion 1,837,180 1,715,194
---------- ----------
Total $6,311,128 $3,848,114
========== ==========
Note 5 - Status of the Zeus Joint Venture Agreement:
The Zeus Joint Venture Agreement, as amended effective August 31,
1994, required (i) Gems to provide both technical and financial
support to the Joint Venture; (ii) the Company to contribute to the
Joint Venture the rights to the exclusive use of its lease interests
and other assets related to the mining properties in Clear Creek
County, Colorado; (iii) the potential transfer of the Company's assets
to the Joint Venture; (iv) the issuance to Gems of 6,000,000 common
shares of the Company, subject to the authorization by the
stockholders of the Company of a sufficient number of shares for such
issuance and certain other conditions; and (v) the allocation of 70%
and 30% of the Joint Venture's income or loss (as defined) to Gems and
the Company, respectively.
During the latter part of 1994, the management of Gems informed the
Board of Directors of the Company that prior to allocating substantial
additional resources to the mining facilities owned by the Company
(which the Joint Venture is responsible for developing) and the
commencement of commercial mining operations, it wished to (i) more
clearly define the relationships between the parties to the Zeus Joint
Venture Agreement, as amended effective August 31, 1994, and (ii)
conduct the Analysis Program to ascertain the scope and extent of
proven and probable reserves of mine ore containing economically
recoverable minerals not previously identified or reported.
F-22
<PAGE>
FRANKLIN CONSOLIDATED MINING CO., INC.
(A Development Stage Enterprise)
NOTES TO FINANCIAL STATEMENTS
Note 5 - Status of the Zeus Joint Venture Agreement (continued):
Effective in December 1994, the Company, Island and Gems entered into
a Binding Exchange Letter Agreement. Pursuant to such Binding Exchange
Letter Agreement, Gems agreed that, upon consummation of a final
agreement, it would transfer, in a tax free exchange, certain of its
assets for approximately 270,000,000 newly issued common shares of the
Company, together with certain demand and piggyback registration
rights and anti-dilution rights. The assets that were to be exchanged
by Gems included (i) Gems' 70% interest in the Joint Venture; (ii) the
exclusive rights to the use of Gems' proprietary processes,
technologies and techniques; and (iii) property rights acquired by
Gems pursuant to a November 1994 agreement in principle related to the
Hayden lease (see Note 8).
The Binding Exchange Letter Agreement further provided that if a
definitive Exchange Agreement was not consummated and approval of the
Company's stockholders was not obtained in a timely fashion, then the
Company would be obligated to issue 6,000,000 shares to Gems or, if
that were not possible, pay Gems at least $1,500,000 as a priority
payment.
The Company was unable to obtain the approval of its stockholders in a
timely fashion and Gems made certain claims for compensation under the
Exchange Agreement. As a result, in September 1995, the Company,
Island and Gems entered into an agreement (the "Settlement Agreement")
whereby the parties acknowledged that the Exchange Agreement was not
timely consummated due to the failure of the Company to obtain the
approval of its stockholders for an increase in its authorized capital
stock in a timely manner. In settlement of the parties' claims against
the Company for such failure to perform, the Company agreed to issue
6,000,000 shares of its common stock to Gems or, in the alternative,
to pay $1,500,000 as upset compensation to Gems (the "Upset Fee"). The
Company further agreed to use its best efforts to cause its
stockholders to approve an increase in its authorized capital stock
from 50,000,000 to 100,000,000 shares of common stock at an annual
meeting of stockholders in November 1995 to enable the Company to
issue the shares to Gems. In the event that the Company, after using
its best efforts, was unable to obtain the requisite approval of its
stockholders, Gems agreed to reduce the Upset Fee to $600,000. The
parties further agreed to convert $249,600 of the total amount
previously advanced to the Company by Gems to cover operating expenses
into 3,200,000 additional shares of its common stock, subject to the
approval of the Company's stockholders of the increase in its
authorized capital stock referred to above. Finally, as further
consideration for the settlement of their claims, Gems' interest in
the Joint Venture was increased to 82.5% and the Company's interest
was reduced to 17.5%. Gems was also given certain demand and piggyback
registration rights with respect to shares to be issued under the
Settlement Agreement.
F-23
<PAGE>
FRANKLIN CONSOLIDATED MINING CO., INC.
(A Development Stage Enterprise)
NOTES TO FINANCIAL STATEMENTS
Note 5 - Status of the Zeus Joint Venture Agreement (concluded):
On November 30, 1995, the stockholders of the Company approved the
proposed increase in the authorized capital stock of the Company and,
as required by the Settlement Agreement, in December 1995, the Company
issued to Gems 3,200,000 shares of its common stock to reduce
outstanding advances by $249,600 and 6,000,000 shares of its common
stock as additional consideration for the settlement of claims by
Gems.
Based on the quoted market value of $.15625 per share at the time of
issuance, the 3,200,000 shares issued to Gems in connection with the
conversion of the outstanding advances and the 6,000,000 shares issued
to Gems in connection with the settlement of claims had an aggregate
fair value of $499,200 and $936,000, respectively. Accordingly, the
accompanying financial statements, as restated (see Note 1), reflect
charges to (i) interest expense of $249,000, which represents the
excess of market value of the shares over the principal amount
converted, and (ii) loss on settlement of claims by joint venture
partner of $936,000.
Based on information developed through the Analysis Program and
previously available geological data and reports, the management of
the Joint Venture believes that the application of the Company's
proprietary technologies and processes should result in economically
viable commercial mining operations at the Franklin Mine.
The Company's investment in the Joint Venture as of December 31, 1996
and 1995, and the Joint Venture's results of operations for the years
then ended, in relation to those of the Company, were not material.
From time to time, the Company receives advances from and makes
advances to Gems. Pursuant to the Joint Venture agreement, these
advances are noninterest bearing and without a specific due date. As a
result of such advances, the Company had a receivable of $266,438 from
Gems at December 31, 1996 and a payable of $313,688 to Gems at
December 31, 1995.
During 1996, the Company issued 2,316,000 shares of common stock to
Gems and reduced the balance of its advances payable by $361,875 based
on the estimated fair value of the shares issued.
Note 6 - Other notes payable:
Other notes payable was comprised as follows at December 31, 1996:
12% unsecured demand note $20,000
Secured promissory note (a) 60,000
-------
Total $80,000
=======
F-24
<PAGE>
FRANKLIN CONSOLIDATED MINING CO., INC.
(A Development Stage Enterprise)
NOTES TO FINANCIAL STATEMENTS
Note 6 - Other notes payable (concluded):
(a) The outstanding principal balance of the note became payable on
July 18, 1996 and is overdue (see Note 8). The note is guaranteed
by the Company's Joint Venture partner and certain individuals
and is collateralized through a security interest in the
Company's mining reclamation bond. Interest on the note is
payable based on the rate of interest applicable to the mining
reclamation bond.
Note 7 - Convertible and mortgage debt:
The Company's convertible debt at December 31, 1996 and 1995 consisted
of the following:
1996 1995
-------- --------
12.25% convertible debentures (a) $145,000 $145,000
9.5% convertible secured promissory
note payable to Joint Venture
partner (b) 600,000
15% convertible notes (c) 200,000
-------- --------
Totals $745,000 $345,000
======== ========
(a) As of December 31, 1995, the Company was in default with respect
to the payment of the $145,000 principal balance of the
debentures and accrued interest payable for the quarters
subsequent to March 31, 1995. The Company sent notices to its
debentureholders in December 1995 asking for their consent by
February 15, 1996 to the further extension of the maturity date
to December 31, 1996. It was also contemplated that conversion
rights would also be extended at the previous rate of $.50 per
share. The Company also agreed that it would make all interest
payments due to such holders through December 31, 1995, prepay
interest which will become due at the end of the first quarter of
1996 and set up a fund with the Trustee to secure the timely
payment of the principal balance of the debentures on December
31, 1996. Only one holder of a $1,000 debenture rejected the
Company's request.
While it was the intention of management and the Company to
comply with the terms of the agreements with the
debentureholders, the Company has been unable to comply as a
result of the liquidity and cash flow problems described in Note
1. As a result of its default and its continued failure to comply
with the December 1995 agreements, the Company may be subject to
legal proceedings by the Transfer Agent/Trustee under the
Indenture Agreement or from debentureholders seeking immediate
repayment of principal plus interest and penalties. Management
cannot assure that there will be funds available for the required
payments or what the effects of any actions brought by or on
behalf of the debentureholders will be.
F-25
<PAGE>
FRANKLIN CONSOLIDATED MINING CO., INC.
(A Development Stage Enterprise)
NOTES TO FINANCIAL STATEMENTS
Note 7 - Convertible and mortgage debt (continued):
(b) In September 1996, the Company acquired its 20% interest in
Newmineco by issuing a 9.5% note payable to Gems with a principal
balance of $600,000. As a result of problems concerning
permitting and various other issues related to the Mogul Mines,
the purchase price was reduced to $150,000 on, effectively,
December 31, 1996. The $450,000 reduction in the purchase price
was effectuated through an equivalent reduction in the principal
balance of the 8% mortgage note that is also payable to Gems by
the Company. The 9.5% note was originally due on June 30, 1997.
However, on February 7, 1997, Gems notified the Company that it
had assigned its interest in the 9.5% note to certain third
parties. On February 10, 1997, the Company notified the assignees
that it had elected to convert the principal balance of the 9.5%
note into 7,692,308 shares of common stock based on the
conversion rate of $.078 per share.
(c) In December 1995, the Company commenced an offering exempt from
registration pursuant to Rule 505 of Regulation D of the 15%
secured convertible promissory notes in the aggregate principal
amount of $1,500,000. The Company terminated the offering on
February 5, 1996 after selling convertible notes in the aggregate
principal amount of $400,000, of which $200,000 was outstanding
at December 31, 1995 as shown above. Each convertible note was
scheduled to mature 18 months from the date of its issuance. The
notes were convertible into shares of the Company's common stock
after April 1, 1996 at a conversion price based on 75% of the
average market price of the Company's common stock (as defined)
for a specified period prior to conversion. During the second
quarter of 1996, the Company issued 4,294,770 shares of common
stock upon the conversion of all of the notes based on the total
balance of the principal and accrued interest outstanding of
$418,740 and the conversion price of $.0975 per share. The
accompanying financial statements, as restated (see Note 1),
reflect a charge to interest expense of $139,580, which
represents the excess of the market value of the shares over the
principal and accrued interest converted.
F-26
<PAGE>
FRANKLIN CONSOLIDATED MINING CO., INC.
(A Development Stage Enterprise)
NOTES TO FINANCIAL STATEMENTS
Note 7 - Convertible and mortgage debt (concluded):
The $586,419 principal balance of the 8% mortgage note payable to the
Joint Venture partner at December 31, 1996 represents the remainder of
the $2,500,000 principal balance of the note issued by the Company to
a subsidiary of Gems on July 3, 1996 as the consideration for the
acquisition of the Gold Hill Mill facility. In July 1996, the Company
commenced an offering for the issuance of shares of common stock at
the equivalent of $.15625 per share in exchange for certain notes,
mortgages and other obligations of Gems and its affiliates (see Note
10). Upon completion of the offering, the Company issued 9,366,919
shares of common stock to purchase obligations of Gems and its
affiliates with an aggregate principal balance of $1,463,581, and
canceled the obligations in exchange for an equivalent reduction in
the principal balance of the 8% mortgage note. Effective December 31,
1996, the principal balance was reduced by $450,000 as a result of the
adjustment to the purchase price of its 20% interest in Newmineco as
explained above.
Accounts payable and accrued expenses at December 31, 1996 includes
accrued interest on the 8% mortgage, a portion of which was due as of
September 30, 1996. The entire remaining principal balance of the 8%
mortgage note, which is due no later than July 3, 1999, is secured by
the property and equipment related to the Gold Hill Mill.
Note 8 - Commitments and contingencies:
Lease commitments:
The Joint Venture was primarily formed to develop the mining
properties pursuant to the Company's rights under the Hayden/Kennec
Leases, and the future success of its operations is dependent on its
ability to utilize and extend those lease rights and/or to otherwise
acquire the rights to the use of such properties and the extraction of
the related resources.
The Company entered into the Hayden/Kennec Leases with the fee owners
of 28 patented mining claims in Clear Creek County on November 12,
1976. Under the provisions of these leases, Franklin has the exclusive
right to explore for, develop and mine and to extract any minerals
found in the mines, lodes, veins and dumps located thereon. In
addition, Franklin has certain water and mill operating rights.
F-27
<PAGE>
FRANKLIN CONSOLIDATED MINING CO., INC.
(A Development Stage Enterprise)
NOTES TO FINANCIAL STATEMENTS
Note 8 - Commitments and contingencies (continued):
Lease commitments (continued):
The initial terms of the Hayden/Kennec Leases were for 20 years at
aggregate monthly rentals equal to the greater of $2,000 or 5% of
realized proceeds from the sale of minerals derived from the leased
property. In addition, the Company is required to pay all related
property taxes and insurance costs. Rentals amounted to $24,000 in
1996 and 1995 and were paid by the Joint Venture.
On November 19, 1996, the Company entered into an amendment to the
Hayden/Kennec Leases with respect to the portion of the leasehold
attributable to Dorothy Kennec (the "Kennec Amendment"). Pursuant to
the terms of the Kennec Amendment, Kennec agreed to extend the terms
of the Hayden/Kennec Leases as they related to her portion of the
leasehold rights for one year. The extension will expire on November
12, 1997. In consideration for such extension, the Company agreed to
increase the rental payment to Kennec under the original Hayden/Kennec
Leases from $1,000 to $2,000 per month. Kennec will also receive
104,000 shares of the common stock of the Company. All of the payments
made under the Kennec Amendment, plus the value of the shares issued
thereunder, will be further applied against the buy-out price of the
property under the original Hayden/Kennec Leases.
The Hayden/Kennec Leases grant the Company the right to purchase the
mineral rights to the leased property upon the payment of $1,250,000
less any previous rental payments.
In the event that the Hayden/Kennec Leases are terminated, any
leasehold or other improvements on the mining properties made by Gems,
the Joint Venture or the Company become the property of the lessors
without compensation to Gems, the Joint Venture or the Company. The
Company has the right to assignment under the lease.
To further secure the ability of the Joint Venture partners to exploit
the Clear Creek County mining properties, Gems entered into an
agreement on December 21, 1995 (which was amended and restated in
September 1996) to purchase all of the right title and interest of
Audry Hayden in and to all mining claims and properties located on the
property which is subject to the Hayden/Kennec Lease as well as
Hayden's interest under the Hayden Lease with the Company (the "Hayden
Interests") for a purchase price of $75,000. In addition, Gems agreed
to pay Hayden $5,000 representing payment in full of back payments due
and owing to Hayden by the Company on the Hayden Lease and further
agreed to pay to Hayden $1,000 per month for a period of 12 months
F-28
<PAGE>
FRANKLIN CONSOLIDATED MINING CO., INC.
(A Development Stage Enterprise)
NOTES TO FINANCIAL STATEMENTS
Note 8 - Commitments and contingencies (continued):
Lease commitments (concluded):
commencing on the date of the Purchase Agreement. On the date upon
which the final $1,000 installment is due to Hayden, Gems will pay the
remaining principal balance of the purchase price which will consist
of $75,000 less the initial payment of $5,000 advanced for back
payments on the Hayden Lease. The management of Gems has informed the
Company that it believes that as a result of the acquisition of the
Hayden Interests, the interest in the surface rights held by the
Hayden Lease and the provisions of the Kennec Lease that permit the
exploration and development of such properties by any method of
mining, the Joint Venture will have adequate access to the minerals
during the term of the Kennec Lease and on a continuing basis even if
the Kennec Lease should expire and not be renewed by the Company.
Environmental matters:
During November 1993, the Company was notified by the State of
Colorado Division of Minerals and Geology (the "DMG") that the Joint
Venture had failed to file a plan in the form of a Technical Revision
to address erosion, sedimentation and run-off matters at the Franklin
Mine in connection with continuation of the Company's state mining
permit. As a result, the Company had to take certain remedial actions,
increase its reclamation bond from $29,000 to $45,000 and pay a $5,000
fine during 1994.
In August 1994, the Company received an informal notice from the DMG
of an additional violation at the Franklin Mine related to water
run-off matters. The Company attempted to rectify the violations cited
by the DMG but was unable to do so in a timely manner because such
corrections required performance of work outside the boundaries of its
then current permit. The Company agreed that it would refrain from any
mining or milling operations at the Franklin Mine until the DMG (i)
amended the Company's permit to enable it to perform the required
technical and remediation work and (ii) determined that all required
work was completed.
In February 1996, the DMG permitted the Company to commence crushing
activity at the Franklin Mine pursuant to another prospecting permit.
In March 1996, the Company was notified that it would be required to
increase its land reclamation bond by an amount that would be
determined subsequently. In an effort to comply, the Company increased
its reclamation bond from $45,000 to $93,000. On or about March 28,
1996, the Company received a temporary cease and desist order
prohibiting it from conducting mining and milling
F-29
<PAGE>
FRANKLIN CONSOLIDATED MINING CO., INC.
(A Development Stage Enterprise)
NOTES TO FINANCIAL STATEMENTS
Note 8 - Commitments and contingencies (continued):
Environmental matters (concluded):
operations at the Franklin Mine until such time as all of the
violations cited by the DMG were corrected. In addition, the Mined
Land Reclamation Bureau of Colorado (the "MLRB") determined that the
Company's reclamation bond should be further increased to
approximately $252,000.
On April 24, 1996, the Company was able to obtain the $252,000 bond
required by the MLRB from an independent bonding company in exchange
for the deposit by the Company's Joint Venture partner of $125,000 in
a trust account maintained for the benefit of the bonding company,
guarantees from the Joint Venture partner and certain of its
principals and the posting of a performance bond from an independent
bonding company by one of the Joint Venture's contractors with respect
to the completion of the technical and remediation work required by
the regulatory authorities. As a result, the cease and desist order
was vacated on June 7, 1996 and the Company received refunds of
approximately $93,000 during the second quarter of 1996 from the
mining reclamation bonds it had posted.
On January 31, 1997, the Company received approval from the DMG of its
March 6, 1996 amended application to its permit. As a result,
management believes that substantially all of the necessary
environmental and regulatory approvals have been obtained that are
needed to enable the Company to commence mining and milling operations
at the Franklin Mine and/or the Mogul Mines during 1997.
The amended permit, among other things, increases the permitted area
of the Franklin Mine to 42.5 acres and allows for the processing of
ore on an unlimited basis. The amended permit further contemplates the
submission of a final design for tailings disposal facilities, the
installation of a Surface Water Control Plan previously approved by
the DMG, the filing of an Environmental Protection Plan, and the
completion of certain closure plans.
Litigation:
The Company is involved in various litigation as explained below:
a) The Company, the Joint Venture, Gems, Island and others are
defendants in an 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.
F-30
<PAGE>
FRANKLIN CONSOLIDATED MINING CO., INC.
(A Development Stage Enterprise)
NOTES TO FINANCIAL STATEMENTS
Note 8 - Commitments and contingencies (concluded):
Litigation (concluded):
b) The Company, Island, Newmineco and others are defendants in
litigation involving title to the mining claims at the Mogul
Mines. This action was instituted by the former owners of such
claims. The Company intends to vigorously contest the action. In
the opinion of legal counsel, the defendants have valid defenses
to all claims.
c) In April 1997, the Company was notified by the Superior Court of
New Jersey that it had received a copy of a complaint by the
holder of the $60,000 secured note, which was due and payable in
July 1996 (see Note 6). The complaint demanded, among other
things, payment of all principal and interest due. As of April
14, 1997, the Company had not received service of such complaint.
Management believes that, to the extent that any of the claims are
finally determined to have merit, the Company has made adequate
provision for any amounts that may be due. However, management also
believes that it is too early in the process to evaluate the possible
outcome of these claims or estimate the amount or range of any
additional loss or the likelihood of such loss occurring. An
unfavorable resolution of these matters could result in material
liabilities and/or charges which have not been reflected in the
accompanying financial statements.
Note 9 - Income taxes:
As of December 31, 1996, the Company had net operating loss
carryforwards of approximately $9,844,000 available to reduce future
Federal taxable income which, if not used, will expire at various
dates through December 31, 2011. Due to changes in the ownership of
the Company, the utilization of these loss carryforwards may be
subject to substantial annual limitations.
The Company has offset the deferred tax asset of $3,347,000
attributable to the potential benefits from such net operating loss
carryforwards as of December 31, 1996 by an equivalent valuation
allowance due to the uncertainties related to the extent and timing of
its future taxable income. There were no other material temporary
differences as of that date.
F-31
<PAGE>
FRANKLIN CONSOLIDATED MINING CO., INC.
(A Development Stage Enterprise)
NOTES TO FINANCIAL STATEMENTS
Note 9 - Income taxes (concluded):
The expected Federal income tax benefit, computed based on the
Company's pre-tax losses in 1996 and 1995 and the statutory Federal
income tax rate, is reconciled to the actual tax benefit reflected in
the accompanying financial statements as follows:
1996 1995
-------- --------
Expected tax benefit at statutory
rates $447,000 $558,000
Decrease resulting from valuation
allowance for benefits from net
operating loss carryforwards (447,000) (558,000)
-------- --------
Totals $ - $ -
======== ========
Note 10- Stockholders' equity:
Issuances of common stock:
In May 1992, the Company issued a series of promissory notes to
related parties and others in the aggregate principal amount of
$504,000 that bore interest at 3% above a specified prime rate. In
addition, the holders of notes in the principal amount of $450,000
were entitled, under certain conditions, to a 1% interest in the
profits (as defined) of the Company for each $50,000 of principal
amount held and, accordingly, held total profit participation
interests of 9%. In July 1993, Gems was assigned notes in the
principal amount of $200,000 and the related 4% profit participation
interests.
During 1995, the Company entered into agreements for the conversion of
all of the notes, the accrued interest thereon and the profit
participation interests whereby (i) the entire principal balance and
the accrued interest payable at the respective dates of conversion
which totaled $677,025 was converted at $.078 per share (the estimated
fair market value of the unregistered shares) into a total of
8,679,797 shares of common stock and (ii) all of the profit
participation interests were converted at the rate of 300,000 shares
for each 1% profit participation interest held into a total of
2,700,000 shares of common stock. These conversions were noncash
transactions and, accordingly, they are not reflected in the
accompanying 1995 statement of cash flows.
F-32
<PAGE>
FRANKLIN CONSOLIDATED MINING CO., INC.
(A Development Stage Enterprise)
NOTES TO FINANCIAL STATEMENTS
Note 10- Stockholders' equity (continued):
Issuances of common stock (concluded):
In February 1996, the Company commenced an offering pursuant to Rule
505 of Regulation D of its common stock to accredited and unaccredited
investors to raise funds for operations. Subscribers of the offering
purchased the common stock at 15% below the market price as quoted on
NASDAQ at the close of business on a specified date prior to the
termination of the offering. The Company raised approximately $202,600
from the sale of 953,411 shares at $.2125 per share.
During the second quarter of 1996, the Company issued 4,294,770 shares
of common stock upon the conversion of all of the 15% secured
convertible promissory notes then outstanding based on the total
balance of the principal and accrued interest outstanding of $418,740
and the conversion price of $.0975 per share (see Notes 1 and 7).
In July 1996, the Company commenced an offering to unaffiliated
parties pursuant to Regulation D for the issuance of shares of common
stock at the equivalent of $.15625 per share in exchange for certain
notes, mortgages and other obligations of Gems and its affiliates.
Upon completion of the offering, the Company issued 9,366,919 shares
of common stock to purchase obligations of Gems and its affiliates
with an aggregate principal balance of $1,463,581, and canceled the
obligations in exchange for an equivalent reduction in the principal
balance of the 8% mortgage note payable to Gems (see Note 7).
In July 1996, the Company commenced another offering to unaffiliated
parties pursuant to Regulation D of up to 10,000,000 shares of its
common stock at $.125 per share. The offering was on a best efforts
basis. The Company sold 800,000 shares of common stock and raised
$95,000 before the offering was terminated on September 15, 1996.
During 1996, the Company issued 2,316,000 shares of common stock to
Gems, with an estimated fair value of $361,875, to reduce the balance
of advances payable. The accompanying financial statements, as
restated (see Note 1), reflect charges to general and administrative
expenses of $562,437, which represents the market value of the
3,716,000 shares of common stock issued in exchange for financial
consulting and other services.
F-33
<PAGE>
FRANKLIN CONSOLIDATED MINING CO., INC.
(A Development Stage Enterprise)
NOTES TO FINANCIAL STATEMENTS
Note 10- Stockholders' equity (concluded):
Warrants issued for services:
During 1995, the Company issued warrants for the purchase of 500,000
shares of common stock at an exercise price of $.01 per share as part
of the consideration for services provided to the Company. In the
opinion of management, the fair value of the warrants was not material
and the Company did not recognize any expense related to such
issuance. These warrants were returned to the Company in April 1997.
Common stock reserved for issuance:
At December 31, 1996, there were 290,000 shares of common stock
reserved for issuance upon the exercise of the 12.25% convertible
debentures and 7,692,608 shares reserved for issuance upon the
exercise of the 9.5% note payable that was exercised on February 10,
1997 (see Note 7).
Note 11- Subsequent events:
Real estate taxes:
As of December 31, 1996, the Company was delinquent in paying
approximately $50,700 of the required taxes due (including interest)
on the Franklin Mine. Clear Creek County had filed liens on those
taxes in arrears. Certain of the liens were sold under auction in
October 1994.
On April 30, 1997, the Company paid all of the delinquent taxes which
will cause the liens to be removed.
Litigation:
In April 1997, the Company paid $45,000 in full settlement of a case
involving a fee dispute with a former legal counsel to the Company. As
part of the settlement, the plaintiff, among other things, returned
warrants to purchase 500,000 shares of the Company's common stock
which had been issued to him in prior years.
* * *
F-34
<PAGE>
Item 6. Management's Discussion and Analysis or Plan of Operation
The Company is engaged in the business of investing and participating in
the development of commercial mining and milling operations primarily at leased
properties in or near Idaho Springs, Colorado. The Company holds a 17.5%
interest in the Zeus Joint Venture, which has been developing the Franklin Mines
and the Franklin Mill. The Company acquired a 20% interest in Newmineco, LLC
from its Joint Venture partner in September 1996, which is a newly formed entity
that has commenced the development of the Mogul Mines. In addition, the Company
purchased the Gold Hill Mill in July 1996, which is an inactive, permitted
milling facility that the Company will attempt to develop and operate in the
future.
During 1996, remediation work was performed and substantially completed at
the Franklin Mines and the Franklin Mill in preparation for the commencement of
mining operations at both the Franklin Mines and the Mogul Mines. Approximately
200 tons of ore were mined at the Mogul Mines and shipped to the Franklin site
where the ore was crushed and milled. The management of the Company is very
satisfied with the mineral content of the assays taken.
The Company and its investees are in the development stage and have not
generated significant revenues on a sustained basis since the inception of their
respective relationships. The Company will not recognize any revenues based on
sales made by the Zeus Joint Venture and Newmineco; instead, the Company will
recognize income or losses based primarily on its proportionate equity interest
in the net income or loss of each of the investees. Accordingly, the Company
will not recognize any income from such investments until such time, if any as
the Zeus Joint Venture or Newmineco begins production and generates sales
revenues and net profits.
Liquidity and Capital Resources
Since its inception, the Company has financed its operations principally
through equity and debt financing, including such financing provided through its
relationships with its Joint Venture partner. The Company has derived no income
from its mining and milling investments which are comprised of the following:
(1) the investments in the assets and rights related to the Franklin Mines and
Franklin Mill, which are being developed and will be operated by Gems, the
Company's principal Joint Venture partner in the Zeus Joint Venture in which the
Company holds at 17.5% interest; (2) the investment in the assets of the Gold
Hill Mill, the development and operation of which are currently the
responsibility of the Company; and (3) the 20% interest in Newmineco, LLC, which
holds the assets and rights related to the Mogul Mine whose development and
operations will also be the responsibility of Gems. At December 31, 1996, the
Company's only liquid asset was cash, the balance of which decreased from
$118,176 at December 31, 1995 to $127 at December 31, 1996.
During 1996, the Company used common stock as its principal capital
resource. It issued a total of 21,447,100 shares of common stock and certain
notes for cash, the acquisition of services and mining and milling properties
and the liquidation of debt, as further described below.
In December 1995, the Company commenced an offering pursuant to Rule 505 of
Regulation D of 15% Secured Notes (the "15% Notes") in the aggregate principal
amount of $1,500,000 that were convertible into shares of Common Stock at a
conversion price of $.0975 per
WCM CAPITAL, INC. 2
(Formally Franklin Consolidated Mining Co. Inc.)
Amended 10K 1996
<PAGE>
share to raise funds for operations. The Company terminated this offering on
February 5, 1996 after selling 15% Notes in the aggregate principal amount of
$400,000. During the second quarter of 1996, the Company issued 4,294,770 of
Common Stock upon the conversion of all of the 15% Notes based on the total
balance of the principal and accrued interest outstanding of $418,740 and the
conversion price of $.0975 per share.
In February 1996, the Company commenced an offering pursuant to Rule 505 of
Regulation D of its Common Stock to accredited and unaccredited investors to
raise funds for operations. Subscribers of the offering purchased the Common
Stock at 15% below the market price as quoted on NASDAQ at the close of business
on a specified date prior to the termination of the offering. The Company raised
approximately $202,600 from the sale of 953,411 shares at $.2125 per share.
On July 3, 1996, the Company acquired the Gold Hill Mill facility for
$2,500,000 through a noncash transaction whereby it issued an 8% mortgage note
(the "8% Mortgage Note") to a subsidiary of Gems which requires the payment of
the entire principal balance no later than July 3, 1999. The 8% Mortgage Note is
secured by the Gold Hill Mill.
Additionally, in July 1996, the Company commenced an offering to
unaffiliated parties pursuant to Regulation D for the issuance of shares of
Common Stock at the equivalent of $.15625 per share in exchange for certain
notes, mortgages and other obligations of Gems and its affiliates. Upon
completion of the offering, the Company issued 9,366,919 shares of Common Stock
to purchase obligations of Gems and its affiliates with an aggregate principal
balance of $1,463,581, and canceled the obligations in exchange for an
equivalent reduction in the principal balance of the 8% Mortgage Note.
In July 1996, the Company commenced an offering of its Common Stock to
accredited investors only pursuant to Rule 505 of Regulation D to raise
additional funds for operating purposes. The offering was on a best effort
basis. Due to market conditions at the time of the offering, the Selling Agent
was only able to sell 800,000 shares of Common Stock and raised $95,000 before
the offering was terminated on September 15, 1996.
In September 1996, the Company acquired its 20% interest in Newmineco by
issuing a 9.5% note (the "9.5 Note) payable to Gems with a principal balance of
$600,000. As a result of problems concerning permitting and various other issues
related to the Mogul Mines, the purchase price was reduced, effectively, to
$150,000 on December 31, 1996. The $450,000 reduction in the purchase price was
effectuated through an equivalent reduction in the principal balance of the 8%
Mortgage Note. The 9.5% Note was originally due on June 30, 1997. However, on
February 7, 1997, Gems notified the Company that it had assigned its interest in
the 9.5% Note to certain third parties. On February 10, 1997, the Company
notified the assignees that it had elected to convert the principal balance of
the 9.5% Note into 7,692,308 shares of Common Stock based on the conversion rate
of $.078 per share. Pursuant to the agreement with the other investors in
Newmineco, the Company will be entitled to the first $500,000 of any profits to
be distributed by Newmineco and 20% of any of its profits thereafter.
WCM CAPITAL, INC. 3
(Formally Franklin Consolidated Mining Co. Inc.)
Amended 10K 1996
<PAGE>
During 1996, the Company also issued 3,716,000 shares of Common Stock in
exchange for financial consulting and other services and for the payment of
accrued interest.
The Company had 100,000,000 shares of Common Stock authorized for issuance
as of December 31, 1996 of which 90,583,020 were outstanding. As a result of the
conversion of the 9.5% Note during February 1997, the Company's ability to use
its Common Stock as a capital resource will be limited unless its stockholders
authorize an increase in capital or approve a reverse stock split.
The Company had total current liabilities as of December 31, 1996 of
$1,378,883, including convertible debentures with a principal balance of
$145,000 and other notes payable with a principal balance of $80,000. Although
Gems will be responsible for providing the remaining capital resources that will
be needed for the commencement of operations at the Franklin Mines and the Mogul
Mine, the Company will be responsible for obtaining the remaining capital
resources that will be needed for the commencement of operations at the Gold
Hill Mill. In addition to the payment of its current liabilities, management
estimates that the Company will incur general, administrative and other costs
and expenditures, exclusive of any costs and expenditures related to any mining
and milling operations, at the rate of approximately $25,000 per month during
1997.
As explained above, the Company's only liquid resource was a cash balance
of $127 at December 31, 1996. Although the Company is entitled to distributions
of 17.5% of any net profits generated from the operations of the Franklin Mines
by the Zeus Joint Venture, any net profits generated by the Gold Hill Mill and
the first $500,000 of any profits generated through the operations of the Mogul
Mine by Newmineco plus 20% of any profits thereafter, all such operations are in
the development stage and have been generating losses and negative cash flows
and management cannot assure that those operations will generate any positive
cash flows during 1997.
In the absence of liquid resources, cash flows from operations and any
other commitments for debt or equity financing, management believes that the
ability of the Company to continue its operations will be dependent upon the
provision of financing by Gems, which Gems is required to provide pursuant to
the Joint Venture Agreement. Management believes, but cannot assure, that such
financing and the financing needed to commence operations at the Franklin Mines
and the Mogul Mine will be provided by Gems during 1997, and that the Company
will remain dependent on its Joint Venture partner as its primary source of
financing for its operations until such time, if any, as the Company begins to
receive cash flows from its investments.
During the first four months of 1997, Gems repaid advances from the Company
and made advances to the Company totaling approximately $300,000. These advances
were used, among other things, to pay legal and accounting fees in connection
with the Company's public filings to satisfy obligations arising under a
settlement of certain litigation to pay delinquent real estate taxes and to
satisfy obligations for remedial work at the Franklin Mines and Franklin Mill.
The management of the Company believes that Gems will continue to fulfill its
commitment and make such advances until such time, if any, as the Company begins
to receive cash flows from its investments.
WCM CAPITAL, INC. 4
(Formally Franklin Consolidated Mining Co. Inc.)
Amended 10K 1996
<PAGE>
Management believes that all necessary environmental and regulatory
approvals have been obtained and it anticipates that mining and milling
operations will begin at the Franklin Mines and/or the Mogul Mines during the
third quarter of 1997. The management of the Company has been informed by the
management of Gems that Gems has or will provide the funds needed to complete
the rehabilitation and upgrading of the existing plant, equipment and mine
workings to facilitate the commencement of such operations.
Although the ultimate goal is to have both the Franklin Mines and the Mogul
Mine in operation simultaneously, no definitive plans have been made as to which
mine will be operated first. Based on limited operations at the Mogul Mines and
initial assay reports, management believes that the Mogul Mines may produce a
higher grade of ore than that produced by the Franklin Mines and, accordingly,
management anticipates that operations will commence initially at the Mogul
Mine. Any cash flow generated would then be used to assist in the commencement
of operations at the Franklin Mines.
With the addition of the Gold Hill Mill, the Company will own the only two
permitted mills in its mining district once the Franklin Mill and the Gold Hill
Mill become operational. To be able to commence milling operations, the Company
will have to obtain sufficient working capital and hire managerial and other
mill personnel. Other nearby mines are not operating currently due, in the
opinion of management, to the lack of available milling facilities. The Company
intends to solicit owners of those mines to use the Company's mills to process
their ore in order to augment expected revenues from mining operations. However,
there can be no assurance that any significant cash flows will be generated
through these operations.
In addition to funds committed by Gems, management is considering raising
capital by mortgaging the Gold Hill Mill property. The management of the Company
believes that, based on the fair value of the Gold Hill Mill property, it can
raise a minimum of $1,000,000 using conventional mortgage financing, with
guarantees from Gems and its principals. Such funds would be used to supply the
working capital initially needed to commence operations at the Gold Hill Mill
and as an alternative means of financing operations at the Franklin Mines,
Franklin Mill, and the Mogul Mine.
Management also believes that, at a minimum, the Company will be able to
obtain sufficient financing from Gems and/or mortgage loans on the Gold Hill
Mill property to enable it to meet its working capital requirements through at
least December 31, 1997.
Results of Operations
The Company and the Zeus Joint Venture had no active mining or milling
operations during 1996 and 1995.
The Company had a net loss of $967,524 for 1996 as compared to a net loss
of $924,344 during 1995. This increase of $43,180 was primarily attributable to
an increase in general and administrative expenses in 1996 of $505,414 offset by
the effects of a nonrecurring, noncash charge in 1995 of $468,000 for the
issuance of stock to Gems to settle claims arising from the failure of the
Company to meet its obligations under the Joint Venture Agreement. General and
administrative expenses were $732,710 for 1996 as compared with $227,287 during
1995 due primarily to increases in professional fees and costs of investment
banking services. Interest expense was
WCM CAPITAL, INC. 5
(Formally Franklin Consolidated Mining Co. Inc.)
Amended 10K 1996
<PAGE>
$102,238 during 1996 as compared to $92,434 during 1995 due to increased
interest incurred in connection with the issuance of notes in the Gold Hill Mill
and Newmineco acquisitions.
Operations of the Joint Venture at the Franklin Mines and the Franklin Mill
during 1996 were restricted by the cease and desist order issued in March 1996
by the DMG for permit violations that were not vacated until June 7, 1996. As a
result, the Company's equity in the net loss of the Zeus Joint Venture was
$12,950 in 1996 compared to $15,540 in 1995.
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) of the Securities and
Exchange Act of 1934, the registrant has duly caused this report to be signed on
its behalf by the undersigned, thereunto duly authorized
WCM CAPITAL, INC.
(FORMALLY FRANKLIN CONSOLIDATED MINING CO., INC.
March 29, 1999 By: /s/ Robert Waligunda
----------------------------
President
Pursuant to the requirements of the Securities and Exchange Act of 1934,
this report has been signed below by the following persons on behalf of the
registrant and in the capacities and on the dates indicated.
/s/ Robert Waligunda Director/Secretary March 29, 1999
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Robert Waligunda
/s/ Richard Brannon Vice President-West Coast March 29, 1999
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Richard Brannon
/s/ George Otten Vice President March 29, 1999
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George Otten
/s/ William C. Martucci Director March 29, 1999
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William C. Martucci
/s/ Ronald Ginsberg Director March 29, 1999
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Ronald Ginsberg
/s/ Robert W. Singer Director March 29, 1999
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Robert W. Singer
WCM CAPITAL, INC. 6
(Formally Franklin Consolidated Mining Co. Inc.)
Amended 10K 1996
